Changes to Federal Acquisition Regulations

By Meredith Blake Martin, Esq.

Astrachan Gunst & Thomas, P.C.

Recent changes to the Federal Acquisition Regulations (“FAR”), codified at Title 48 of the Code of Federal Regulations, impose new requirements on certain government contractors with respect to codes of business ethics and conduct. Specifically, on November 23, 2007, a Final Rule was published in the Federal Register, 72 Fed. Reg. 65873, and on December 24, 2007 two new FAR clauses became effective: 48 C.F.R. § 52.203-13 and 48 C.F.R. § 52.203- 14. These provisions apply to government contractors who receive an award in excess of $5 million with a period of performance of at least 120 days. The regulations require contractors who meet these criteria to prepare a Code of Business Ethics and Conduct (“Code”), and also to display certain information, including the OIG fraud hotline poster, at work locations and online.

There are also requirements for a training program, awareness and compliance programs, and internal controls in connection with the Code, although these additional requirements do not apply to small businesses. Nonetheless, it may be advisable for small businesses to implement ethics training and other internal controls to demonstrate good faith efforts towards compliance.

Under the new regulations, contractors have just 30 days from the award of any government contract in excess of $5 million to implement a code of ethics and business conduct (this time period may be extended by the contracting officer and the requirement does not apply to contracts awarded prior to December 24, 2007). 48 C.F.R. § 52.203-13. A copy of the Code must be furnished to each employee involved in the performance of the contract, and the contractor is required to promote compliance with its Code. Id.

Training and compliance programs should be suitable to the size of the company and the extent of its involvement in government contracting; should facilitate timely discovery and disclosure of improper conduct in connection with government contracts; and should ensure corrective measures are promptly instituted and carried out. 48 C.F.R. § 3.1002. Code provisions may include the following:

• General commitments to ethical conduct (i.e., obeying laws and regulations, including those related to antitrust, insider trading, and procurement).
• Explanation of business practices (including with respect to bid, negotiation, and performance of government contracts, as well as conflicts of interest, gifts/courtesies, and the like).
• Appropriate use of company resources (including time, property, intellectual property and information, government classified information, software and computers).
• Administration of the Code (including distribution, amendment, compliance, and identification of a Code Administrator).

In order to prepare a Code which is tailored to each client’s business model and policies, also consider interviewing the client with respect to the following:

• Current company policies and practices relevant to any Code.
• Identification of key individuals to provide input and review drafts of Code.
• Identification of a compliance officer who will have ultimate responsibility for managing the Code, reporting regarding the Code, and maintaining employee awareness.

In addition to satisfying new requirements for certain government contractors, a code of ethics and business conduct is an excellent opportunity to consider and highlight a company’s commitment to ethical business practices, as well as audit compliance with applicable laws and regulations which may impact the contractor’s business.