Tuesday, May 31, 2011

Government Oversight of Contractor Ethics

We've written quite a bit about the FAR requirement for contractors to maintain codes of business ethics and conduct. At a minimum, Government contractors must have their codes in writing, make them available to every employee and exercise due diligence to prevent and detect criminal conduct and promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. There are more requirements applicable to non-small businesses.

While the requirement was published a number of months ago, there was no assignment of a Government oversight role. We speculated once that DCAA would review for compliance in conjunction with audits of contractor accounting systems because there is a large component of the standard audit program dealing with contract ethics. These reviews however are few and far between because they are only performed at contractors with $100 million or more in annual costs under cost-reimbursable contracts.

The lack of Government oversight has now been fixed. The FAR Councils have added to the list of contract administration functions in FAR 42.302, a requirement to ensure that contractors have implemented the mandatory contractor business ethics program requirements of FAR 52-203-13. This change, published and effective today, was made in response to recommendations from a recent GAO report on strategies to improve the effectiveness of the Government's oversight of contractor business ethics and conduct programs.

Contractors should expect some form of communication from contract administration (e.g. DCMA) regarding this added function and possibly some implementing procedures they will follow to ensure contractor compliance.

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