Federal Government Mandates Contractor Business Ethics Program

The Federal Government has enacted a new regulation, effective December 24, 2007, that requires contractors who receive awards of more than $5 million in value to:

• Have a written code of business ethics and conduct within 30 days of contract award and provide a copy to each employee engaged in performance of the contract.
• Establish an employee business ethics and compliance awareness program within 90 days of contract award.
• Implement internal control systems to insure business ethics and conduct compliance within 90 days of contract award. The internal controls should insure timely discovery and disclosure of improper conduct and appropriate corrective action if needed.
• Display an agency fraud hotline poster in common work areas/work sites and on the company website if the contractor does not have its own compliance reporting system.
• Display the Department of Homeland Security fraud hotline poster if the contract is funded with disaster assistance funds and DHS requests display of the poster.

Agencies may grant contractors additional time to implement their business ethics and conduct programs if needed. The Government can withhold contract payments or award fees from contractors who fail to comply with this new regulation.

The mandatory requirements do not apply to: (a) contracts or subcontracts for commercial items (supplies and services) conducted under Part 12 of the Federal Acquisition Regulation; (b) contracts performed outside the United States; or (c) contracts and subcontracts with performance periods of less than 120 days. The new regulation requires small business prime and subcontractors to have a code of business ethics and conduct, but they are not required to have a formal business ethics and conduct training program or internal controls.

Most contractors have written codes of business ethics and conduct, but they may not have the compliance training programs or the internal controls that the new regulation requires. For information on Seyfarth Shaw’s Government Contract Compliance Handbook, please click here.