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Analysis

New Contractor Ethics Rule Set for December Rollout

Christmas will come two weeks early for proponents of federal contractor oversight.

Last November, the civilian and defense acquisition councils proposed changing the Federal Acquisition Regulation (FAR) to impose greater ethical responsibilities on federal contractors. The proposed rule would require contractors to implement a code of business ethics and an internal misconduct detection and prevention system, and to report contract-related violations or else face suspension or debarment. POGO submitted a public comment supporting the rule but also urging the councils to expand the mandatory reporting requirement.

The good news: Almost exactly one year later, it has been announced that the new rule will go into effect on December 12. The bad news: It contains several changes that make it weaker.

As noted above, POGO's main problem with the rule was the narrow range of misconduct it required contractors to disclose. The original language limited disclosures to “violation[s] of Federal criminal law in connection with contract award or performance.” Those familiar with POGO's Federal Contractor Misconduct Database understand that contract-related misconduct is only one of many different kinds of misconduct that bear on contractors' integrity and responsibility.

The revised rule clarifies the original language, but in doing so, it slightly waters down the reporting requirement. Now, the misconduct must be “in connection with the award, performance, or closeout” of a contract or subcontract that involves “violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or a violation of the civil False Claims Act” or “significant overpayment(s) on the contract.” The mandatory disclosure requirement lasts until three years after the final payment on the contract.

The revised rule eliminates the “reasonable grounds to believe” standard for reporting misconduct, which contractors complained was too burdensome and vague, and instead requires disclosure only when the contractor has “credible evidence” of a violation. (Interestingly, the rule keeps the language requiring disclosure to be “timely,” despite the concern of many commenters--including POGO--that “timely” is an overly-vague term.)

The rule implements the “Close the Contractor Fraud Loophole Act” (Pub. Law 110-252, Title VI, Chapter 1 – it's on page 64 of this PDF), which was enacted in June to eliminate two controversial exceptions to the mandatory reporting requirement--contracts performed outside the United States and commercial item contracts. Given all the fraud, waste and abuse occurring in Iraq over the last five years, the outside-the-U.S. contracts exception generated a particularly harsh public outcry.

Despite our disappointments, we welcome the new ethics rule as a step in the right direction. It complements FAR 52.209-5, which requires bidding contractors to disclose whether they have ever been suspended, debarred, civilly or criminally charged or found guilty, or have delinquent federal taxes. And with its new contractor integrity and performance database, the government finally has an effective way to collect, store, analyze and share all of this useful contractor responsibility data.