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New FAR Ethics Requirements
Richard W. Oehler
Perkins Coie LLP
1201 Third Avenue
Suite 4800
Seattle, WA 98101
(206) 359-8419
[email protected]
New FAR Ethics Requirements
 FAR Subpart 3.10 - requires a written code
of business ethics and conduct
 Effective December 24, 2007
 Recommended for all federal contractors
 Mandatory for all contracts and
subcontracts exceeding $5 million and
having an expected performance period of
at least 120 days
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Mandatory Ethics Code – Exceptions
 Exceptions
 Commercial item contracts and subcontracts
 Contracts performed outside of the United
States
 Does not apply to existing contracts – only
future contracts
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Ethics Code – Requirements
 Within 30 days of award of a covered
contract, a contractor must:
 Have a written code of business ethics and
conduct
 Provide a copy of the code to each employee
engaged in performance of the contract
 Promote compliance with the code
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Ethics Code - Requirements
 Throughout contract performance, a contractor
must:
 Display fraud hotline posters except if the contractor
has established a mechanism by which employees
can report suspected instances of misconduct and
provided instructions that encourage employees to
make such reports
 If the company maintains a website as a method of
providing information to employees, the posters must
be displayed on the website
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Ethics Code – Requirements
 Within 90 days of contract award, a
contractor must (unless a small business):
 Establish a formal training program
 Not defined in the regulations
 Establish an internal control system
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Internal Control System
 Internal Control System
 Must facilitate timely discovery of improper
conduct in connection with government
contracts
 Ensures corrective measures are promptly
implemented
 Appropriate to the size of the company
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Internal Control System
 Components of an Internal Control System
 Periodic reviews of company business practices,
policies and procedures to ensure compliance with
the contractor's code of business ethics
 Internal reporting mechanisms, such as a hotline,
allowing employees to report suspected misconduct
 Internal and/or external audits
 Disciplinary action for misconduct
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Flow down Obligations
 Prime contractor must flow down these
requirements to subcontracts valued over $5
million and having a performance period greater
than 120 days
 Prime contractors are not required to evaluate or
monitor the ethics awareness program of
subcontractors, but should verify that the
subcontractor has a program
 Contracting officers are not required to verify
compliance, but may inquire at their discretion
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Proposed Mandatory Disclosure
 Contractors have an opportunity to voluntarily
disclose wrongdoing, but have never been
required to disclose
 Proposed rule would require mandatory
disclosure of wrongdoing by contractors and full
cooperation with Government inquiries
 Disclose to CO and OIG any violations of
criminal law in connection with contracts or
subcontracts valued at $5 million or more
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Proposed Mandatory Disclosure
 Required to cooperate fully with any government
agencies responsible for audit, investigative or
corrective actions
 The Government believes there is a need for
mandatory disclosures
 Only 5 voluntary disclosures to DOD in 2007
 High profile procurement-related misconduct
 Contractor misconduct under Iraq and Gulf Coast
reconstruction contracts
 Increasing number of False Claims Act cases
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Proposed Mandatory Disclosure
 Industry concerns
 Counter to the corporate self-governance policy in
government contracting
 Attorney-client privilege could be waived as a result of
compelled disclosure
 May infringe upon constitutional rights and legal
protections of employees
 May chill employee willingness to report suspected
misconduct and have a negative impact on morale
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