Contractor Code of Business Ethics - A Reminder

We've written concerning this matter a couple of times but it bears repeating because some contractors have forgotten the requirement. What requirement? The requirement found in FAR (Federal Acquisition Regulations) 3.10, Contractor Code of Business Ethics and Conduct.

This particular section begins with an overall policy: Government contractors must conduct themselves with the highest degree of integrity and honesty and should (not must) have a written code of business ethics and conduct. To promote compliance with such a code, contractors should (not must) have an employee business ethics and compliance training program and an internal control system that (i) is suitable to the size of the company and extent of its involvement in Government contract, (ii) facilitates timely discovery and disclosure of improper conduct in connection with Government contracts and (iii) ensures corrective measures are promptly instituted and carried out.

The foregoing was general policy guidelines. There's more however. There is a "must" provision. All Government contractors, regardless of size, must display a Hotline Poster (see FAR 52.203-14). Your contracting officer will tell you which one to post and where to obtain it. The Hotline poster must be prominently displayed in a common work area. It can also be displayed on an employee website. There is another "must" provision that applies to contracts greater than $5.5 million with period of performances greater than 120 days - a written code of conduct.

This written code of business ethics and conduct must be made available to every employee. Contractors must exercise due diligence to prevent and detect criminal conduct and otherwise promote an organization culture that encourages ethical conduct and a commitment to compliance with the law. Further details can be found in FAR 52.203-13, Contractor Code of Business Ethics and Conduct.

Contracting officers are responsible for enforcing these provisions (see FAR 42.302(a)(71).

DoD Hotline Posters (revisited)

Department of Defense (DoD) contractors are reminded that DFARS (DoD FAR Supplement) 203.1004 requires that the DoD-IG (Inspector General) Hotline Poster be posted in a prominent location if awarded a contract in excess of $5.5 million. Non-DoD contractors have a similar requirement found in FAR 3.1004. Whether contractors have a threshold contract or not, we believe its a good idea for all contractors to display hotline posters. It is integral to good internal controls.

DoD Contractors can download the DoD-IG Hotline Poster here.

The specific wording of the requirement reads as follows:

The Contractor shall display prominently the DoD fraud, waste, and abuse hotline poster prepared by the DoD Office of the Inspector General, in effect at the time of contract award, in common work areas within business segments performing work under Department of Defense (DoD contracts.

A recent change to the clause applies to contracts performed outside of the United States. This provision states:

For contracts performed outside the United States, when security concerns can be appropriately demonstrated, the contracting officer may provide the contractor the option to publicize the program to contractor personnel in a manner other than public display of the poster, such as private employee written instructions and briefings.

There is some confusion over whether displaying an electronic version of the poster on a company website used as a method of providing information to employees is an acceptable alternative to displaying the poster in a prominent location. Electronic postings are not acceptable alternatives to displaying posters in prominent locations. That notion that it was acceptable may have come from the FAR version of the Hotline Poster clause (FAR 52.203-14) which states:

Additionally, if the Contractor maintains a company website as a method of providing information to employees, the Contractor shall display an electronic version of the poster(s) at the website (underscore added).

The company website is an additive requirement, not an alternative requirement.

The FAR clause does not apply to DoD contractors however. It is replaced by DFARS 252.203-7004 which contains no corresponding language pertaining to a company website.

You may have had contracting officers tell you the company website is an acceptable alternative. That's probably incorrect guidance.

So, get those hotline posters posted.

Ready to Implement an Internal Company Hotline?

As some point during a company's growth, leadership will need to develop a hotline - a mechanism for employees to report violations of laws and regulations, harassment, fraud, waste, and abuse. For Government contractors, that point comes, at the latest, when they receive a $5.5 million dollar contract that exceeds 120 days (see FAR 3.1004 and FAR 52.203-13). The pertinent regulations requires contractors to implement an internal control system that includes ...

An internal reporting mechanism, such as a hotline, which allows for anonymity or confidentiality, by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports.

There are many ways to set up an internal reporting mechanism. Most larger contractors have dual mechanisms that include a traditional 1-800 telephone number and a web-based complaint form. Some even offer face-to-face reporting.

In setting up a hotline, there are some considerations that need to be adhered to and basic questions that need to be answered if a contractor is going to be able to effectively pursue the alleged impropriety. First, contractors need to be serious about pursuing hot line allegations. Employees will know real soon whether a hotline is real or for show. Second, contractors need to ensure anonymity for anyone using the hotline. Third, bedside manner is critically important. Don't put Hannibal Lecter in charge of taking information over your hotline. Find someone that can show a little empathy for the relator. Fourth, make certain that the 1-800 number is answered. Asking someone to leave a message is not going to ensure anonymity. Fifth, provide feedback to the relator where you can. If a caller chooses to remain anonymous, there is no feedback expectation. Otherwise, provide feedback to the caller at the conclusion of your investigation. Finally, assign the responsibility for the investigation to someone in your organization savvy enough to understand the issues and is not a party to the issue or in the relater's chain of command.

As far as questions are concerned, the more information you can obtain or glean from a caller, the better, quicker, more effective your investigation will proceed. One of the Government's Inspector General's hotline questionnaires contains the following questions:

• When did the issue occur?
• Where did the issue occur?
• Who took the action(s) at issue?
• What did the person (or people) do?
• To whom did the action(s) happen?
• What law, regulation or policy was violated?
• What remedy is being sought?
• Names and positions of witnesses.

Employees who report to internal hotlines have other avenues to report their concerns - most notably the Hotlines operated by the Inspector General's of the various executive agencies. If they're not satisfied with or afraid to use your internal hotline and choose to use an outside hotline, there's no telling where an investigation will lead or how much extra time and effort you will expend in coordinating with outside parties.

DoD Wants to Help Contractors Remove Clutter

The Federal Acquisition Regulations (FAR) and individual agency FAR supplements, contain several provisions requiring Government contractors to display posters advising employees of their rights and duties in certain areas. One well-known poster requirement is the Hotline poster where anyone (contractor or Government employee) can call to report suspicions of fraud, waste and abuse (see DFARS 252.203-7004 for example).  We've discussed this requirement numerous times on these pages.

A more recent requirement for contractors is the need to inform employees in writing of their whistleblower rights. The most common way to inform employees in writing of their whistleblower rights has become the "poster".

An even more recent poster requirement has been the Combating Trafficking in Persons poster (see DFARS 252.203-7004(c)).

Regulations require that these posters be prominently displayed. However, when there are so many poster requirements, its easy to run out of prominent places. When you add these three posters to the myriad state and local "poster" requirements for workers compensation, unemployment and some additional Department of Labor poster requirements, you have a jumbled mess where posters become just part of the landscape. Recently, we were conducting floorchecks for a Government contractor and one of the questions was whether employees were aware of the Hotline poster. Less than 50 percent replied in the affirmative, even though, in many cases, we could see the poster from where we were interviewing the employee.

The Department of Defense is proposing to help de-clutter those "prominent places". The DoD Office of Inspector General has consolidated the three posters (i.e. fraud, waste, and abuse, whistleblower protections, and combating trafficking) into one. The DoD is revising its FAR Supplement to update the contract clauses that require displays, accordingly.

The new combined poster is not yet available but keep watching the DoD-IG Hotline Poster Site for the new poster. Incidentally, there is no requirement that contractors use the DoD-IG poster. Contractors are free to develop their own. But why go to the expense of doing so when the IG posters are free.