New Requirements for Contractor Code of Business Ethics and

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					   New Requirements for
Business Ethics and Conduct
for Government Contractors



         Tom Abbott

 McKenna Long & Aldridge LLP
                 OVERVIEW

•   Code of Business Ethics and Conduct
•   Proposals for Mandatory Disclosure
•   Contractor Accountability Bills in Congress
•   Conflicts of Interest Rule Changes
           Contractor Code of Business
               Ethics and Conduct

• FAR Rule Effective: December 24, 2007
• Required if contract exceeds $5 million and
  performance exceeds 120 days
• Inapplicable to Commercial Items under FAR
  Part 12
• Inapplicable if contract is performed entirely
  outside the United States
• Inapplicable if Contractor is a small business
            Contractor Code of Business
                Ethics and Conduct

• Requires Display of Fraud Hotline Posters
• Written Code of Business Ethics and
  Conduct within 30 days of contract award
• Ongoing Awareness Program established
  within 90 days of contract award
• Mandatory Flowdown to subcontractors
    Mandatory Reporting of Violations
      of Law: A Disturbing Trend


• Mandatory Disclosure Provisions added to:
  – FAR Case 2007-006 Contractor Compliance
    Program and Integrity Reporting
  – Proposed DFARS Rule on DoD Law of War
    Program
  – Mandatory Clause in all Joint Contracting
    Command-Iraq/Afghanistan Contracts
            Contractor Compliance
            Program and Integrity
                  Reporting

• FAR Proposed Rule: November 14, 2007
• Required if contract exceeds $5 million and
  performance exceeds 120 days
• Inapplicable to Commercial Items under FAR
  Part 12
• Inapplicable if contract is performed entirely
  outside the United States
             Contractor Compliance
             Program and Integrity
                   Reporting

• Contractors record of integrity and business
  ethics to be included in past performance
  information
• Modification of FAR to more closely match
  U.S. Sentencing Commission Guidelines
          Contractor Compliance
          Program and Integrity
                Reporting

• Requires IG notification whenever contractor
  “has reasonable grounds to believe” a
  violation of criminal law has been committed
  in connection with a Government contract
• New cause for debarment or suspension for
  a “knowing failure to timely disclose” an
  overpayment or a violation of criminal law
              Contractor Compliance
              Program and Integrity
                    Reporting
• Criticized by Congress
   – House Oversight and Government Reform Committee Chairman
     Henry Waxman (D-CA) investigating why exemption for overseas
     contracting was included
   – Senate Concurrent Resolution calling for removal of overseas
     exemption
• Industry
   – Rule would require waiver of rights and is fundamentally unfair
• ABA
   – No statutory authority for rule for mandatory disclosure
   – Rule is too vague
                      DoD
               Law of War Program
• DFARS Proposed Rule: January 10, 2008
• Requires deploying contractor personnel
  receive law of war training
• Requires contractor report “any suspected or
  alleged conduct for which there is credible
  information that” constitutes a violation of the
  law of war
                 Law of War Defined
• Defined by DoD Directive 2311.01E
• Law of war means that part of international law that
  regulates the conduct of armed hostilities. The law
  of war encompasses all international law for the
  conduct of hostilities binding on the United States
  or its individual citizens, including treaties and
  international agreements to which the United States
  is a party, and applicable customary international
  law.
          Joint Contracting Command
                -Iraq/Afghanistan
         Compliance with Laws and Regulations
                   Contract Clause

• Mandatory inclusion in all JCC-I/A contracts
  after Nov. 5, 2007
• Requires contractors comply with all U.S. and
  Host Nation laws, Federal and DoD regulations
• Contractors in CENTCOM are subject to the
  UCMJ
• Contractors required to report if they “suspect
  an employee has committed an offense”
                Contractor
              Accountability
               Bills Pending
• House Oversight and Government Reform
  Committee approves following bills on March
  13, 2008:
  – Contractors and Federal Spending Accountability
    Act (H.R. 3033)
  – Contracting and Tax Accountability Act (H.R.
    4881)
  – Government Contractor Accountability Act (H.R.
    3928)
            Contractors and Federal
          Spending Accountability Act
                  (H.R. 3033)
• Requires GSA create a database of all civil,
  criminal, and administrative proceedings
  initiated or concluded against recipients of
  federal contracts for last five years
• Person would be deemed nonresponsible if 2
  judgments or convictions within 3-year period
               Contracting and Tax
           Accountability Act (H.R. 4881)

• Would preclude the award to contractors that are
  “seriously delinquent” on their taxes
• Prospective contractors would have to certify that
  they are not delinquent and authorize verification
  with the Treasury Department
• “Seriously delinquent” is defined as an outstanding
  debt under the IRS Code for which a notice of lien
  has been filed in public records
            Government Contractor
          Accountability Act (H.R. 3928)

• Contractors that are not publicly traded and
  receive more than 80% of revenues from
  federal contracts (worth more than $5 million
  per year) would be required to disclose the
  salaries of:
  – the principal executive officer, the principal
    financial officer, the three most highly
    compensated other officers, and the company
    directors
                New GAO Report on PCI
                    Requirements

• GAO Report Released March 7, 2008
  “Additional Personal Conflict of Interest
  Safeguards Needed for Certain DOD
  Contractor Employees”
  – Recommends contractor employees have similar
    safeguards to those required of federal
    employees
                      GAO’s Findings
• In contrast to federal employees, few government
  ethics laws and DOD-wide policies are in place to
  prevent personal conflicts of interest for defense
  contractor employees.
• Current requirements are inadequate to prevent
  certain conflicts from arising
  – Especially financial conflicts of interest, impaired
    impartiality, and misuse of information and authority
• GAO believes DoD needs PCI safeguards for
  contractors who provide services affecting
  government decisions
                      PCI Rules
                 Proposed for the FAR

• In response to GAO’s Report a FAR
  Advanced Notice of Proposed Rule Making
  published on March 26, 2008
• Seeks comments on what PCI rules need to
  be addressed to promote ethical behavior by
  contractors
• Comments are due May 27, 2008
                          OCI Rules
                     Proposed for the FAR
• Information sought on whether standardized
  Organizational Conflicts of Interest (“OCI”) clauses
  are needed for inclusion in the FAR
  – With contractor employees performing functions
    previously performed by Govt employees previously clear
    distinctions may now be distorted
  – With approaches to OCI varying by Agency, comment is
    being sought on whether a Governmentwide approach is
    now needed
• Comments are due May 27, 2008
                 UCMJ Applies to
                Contractors in Iraq

• Sec Def issues guidance on March 10, 2008
• Applying Uniform Code of Military Justice
  (“UCMJ”) to contractors in Iraq
• Military justice is to be imposed upon
  contractor personnel only based upon
  “military necessity” and/or after the DoJ has
  been given the opportunity to prosecute
Questions ?
The End