A Sea Change in Government Contracts Comes With Policy Alterations

Given the current economic downturn and the transfer of power that occurred in Washington on Jan. 20, it is crucial for contractors and taxpayers alike to analyze certain regulations that became effective in the waning days of the Bush administration and review how they may be applied by the Obama administration. The Contractor Code of Business Ethics and Conduct, a comprehensive and onerous regulation of the Department of Defense, the General Services Administration and the National Aeronautics and Space Administration, became law on Dec. 12, 2008, and is codified at 48 C.F.R. § 52.203-13 (2008). This amendment to the Federal Acquisition Regulation requires government contractors to create corporate infrastructure to detect unethical behavior and, more importantly, the mandatory disclosure of any such behavior detected by the company to the federal government. This presents a significant sea change for the contracting industry.

The New Ground Rules

Under this new code, government contractors that are awarded projects with a value in excess of $5 million and an anticipated duration in excess of 120 days shall institute a written code of business ethics and conduct. This written code must be in place within 30 days of the award of the contract. Within 90 days of award of the contract, the contractor must institute an ongoing business ethics awareness and compliance program, including training for principals and employees of the business and a full internal control system. Perhaps the most daunting requirement placed on government contractors under this new provision, and the most drastic departure from past practices, is the following mandatory disclosure requirement: “The Contractor shall timely disclose, in writing, to the agency Office of the Inspector General … whenever, in connection with the award, performance, or closeout of [the] contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed … a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity … or … a violation of the civil False Claims Act.”