Government Contractors Follow a Written Code of Business Ethics and Conduct
A company’s code of ethics are policies based on law and intrinsic values important to the business. While this code varies from company to company, is it vital to have a code in writing to help all employees understand expectations and the rules they have to follow. This is no different for government contractors.
According to Federal Acquisition Regulation (FAR) 3.1002 – Policy, contractors should have a written code of business ethics and conduct, an employee business ethics and compliance training program, and an internal control system adhering to the following best practices:
- Suitable for the size of the company and the extent of its involvement in government contracting;
- Facilitates timely discovery and disclosure of improper conduct in connection with government contracts; and
- Ensures corrective measures are promptly instituted and carried out.
If the contract is expected to exceed $5.5 million and the performance period is 120 days or more, the above requirements are mandatory, according to FAR 52.203-13 – Contractor Code of Business Ethics and Conduct.
Realistically speaking, while a contract exceeding $5.5 million to a small government contractor would be a significant contract win, it is not unobtainable and a contract with a performance period of 120 days is only four short months. This means, government contractors of all sizes will likely need to meet the requirements.
To a small government contractor, a contract exceeding $5.5 million would be a significant contract win. Incorporating the requirements into reality is not unobtainable and a performance period of 120 days is only four short months.
Most contractors, large or small, have adopted some type of written code of ethics and business conduct. The key word here is “adopted” since many of them were extracted from a “one-size-fits-all” code found on the internet or copied from one in use by another company. Little effort is expended in tailoring them to their size, compliance resources or level of potential ethical risk.
While most have a desire to be ethical, few contractors have addressed the need to facilitate the timely discovery of non-compliances and the necessity to disclose improper conduct in connection with their government contracts.
In April 2019 the U.S. Department of Justice, Criminal Division issued guiding principles for the evaluation of corporate compliance programs. The document was issued to help prosecutors make informed decisions as to whether, and to what extent, a contractor’s compliance program was:
effective at the time of the non-compliance, and at the time of a charging decision or resolution, for purposes of determining the appropriate (1) form of any resolution or prosecution; monetary penalties, if any, and compliance obligations contained in any criminal resolution, such as, monitorship or reporting obligations.
Three fundamental questions must be asked of the corporate compliance program:
- Is the compliance program well designed?
- Has a risk assessment been performed to identify the particular types of non-compliance likely to occur?
- Do policies and procedures exist that identify a commitment to full compliance with relevant Federal laws available to all employees?
- Is appropriately tailored communication and training provided to all relevant employees with certification of receipt and understanding?
- Is the compliance program being applied earnestly and in good faith – is it being implemented effectively?
- Is there complete commitment by top management to the success of the program?
- Are internal audit functions sufficiently qualified and provided the appropriate resources to conducted investigations of suspected non-compliances?
- Does the contractor’s compliance program work in practice?
- Is there a commitment to continual improvement, periodic testing and review?
- Is there the existence of a well-functioning and funded mechanism for timely and thorough investigation of any allegation or suspicion of misconduct and non-compliance?
- Is the contractor able to conduct a root cause analysis of misconduct and timely implementation of appropriate remediation?
The answers to the above questions are what the Justice Department uses when determining charging decisions, resolution format, monetary penalties and whether to impose compliance obligations such as monitoring or continued reporting when addressing non-compliances.
It is important to recognize your ethics and business conduct program must be tailored to your company’s specific risk profile. This is a dynamic compliance process and has to be monitored and revised accordingly to keep it relevant and effective. Does your company’s business conduct and ethics program meet the necessary requirements? Contact PBMares or your financial advisor to determine if you meet the necessary requirements. Your company’s future depends on it.
Questions? Talk to a government contract accounting and tax specialist to discuss your specific situation.