Improper Business Practices - Gratuities to Government Personnel

This is the third installment in our periodic series on improper business practices as laid out in FAR (Federal Acquisition Regulations) Part 3. FAR Part 3 includes sections on the prohibitions of gratuities to Government personnel, contingent fees, subcontractor kickbacks, buying-in and anti-trust matters. It also offers whistleblower protections to contractor employees, requires contractors to establish and implement codes of business ethics and conduct, and more. In Part 1, we discussed the requirement for contractors and subcontractors to implement reasonable procedures to prevent and detect violations of the Anti-Kickback Act. In Part 2, we discussed the practice of "buying in" and tools for contracting officers to use to prevent subsequent cost growth when contractors do buy in. Today, in Part 3, we will be discussing the prohibition against offering gratuities to Government personnel.

One of the standard contract clauses included in Government contracts is found in FAR 52.203-3, Gratuities. It holds that the rights of contractors to proceed may be terminated by written notice if the Government determines that the contractor (or its agency, or another representative) offered or gave a gratuity (e.g. entertainment or gift) to a Government employee and intended, by the gratuity, to obtain a contract or favorable treatment under a contract. If the contract is terminated under this clause, the Government is entitled to pursue the same remedies as in a breach of contract and to seek exemplary damages (if the contract involves Defense Department funds).

In addition to terminating the contract (or contracts), the Government may also initiate debarment or suspension measures (FAR 9.4). Government employees, under the same FAR provision, are obligated to report such gratuities as well as attempts by contractors to offer gratuities.

Termination, debarment, and suspension is bad enough but the consequences could get much worse for both contractors and Government employees caught exchanging gratuities for favored treatment. As readers of this blog are aware, the Government prosecutes these activities under several different criminal statutes resulting in significant monetary penalties and, in some case, prison time for the practitioners.

Many contractors have established a zero-tolerance policy for gratuities of any amount, including, in some cases, even a complimentary cup of coffee. Many Government employees (particularly audits and contracting officers) have also developed a zero-acceptance of any thing that could even be remotely construed as a gratuity, including refusing an "offered" cup of coffee.