Final rules on mandatory disclosure.

Author:McGrath, Dorn C.
Position:Ethics Corner

The April 2008 Ethics Corner, "New Rules For Federal Contracts," explained the Federal Acquisition Regulations (FAR) mandate for contractor codes of ethics effective Dec. 24, 2007. Although the ethics program provisions required attention and implementation, they were largely unobjectionable.

By contrast, additional changes to the same ethics program rules were proposed in November 2007, as requested by the Department of Justice and later mandated by Congress. This included highly controversial "self-reporting" requirements. This proposal to impose a system of "mandatory voluntary disclosure" on government contractors triggered much discussion in 2008. There was some hope that the final rules would represent a balanced and well thought-out approach to ethics and compliance, rather than a blanket self-reporting of any possible occurrence of a criminal law or civil False Claims Act (FCA) violation. That hope was dispelled with the publication of the final self-report rules on Nov. 12, 2008. (FAR Case 2007-006, Contractor Business Ethics Compliance Program and Disclosure Requirements, found at 73 Fed. Reg. 67,064.)

Effective Dec. 12, 2008, government contractors will face what rule authors characterize as a "sea change" in how government enforcement authorities expect to govern in the future. The final rules require new standard contract clause language for contracts projected to exceed $5 million and 120 days of performance and extend to small businesses, commercial item contracts, and contracts performed entirely overseas. Subcontracts also are covered, requiring prime contractors to "flow down" the self-disclosure and related requirements.

Casting inspector generals as the focal point for contract administration issues represents the most dramatic change. Contractors must now self-report to the IGs where there is "credible evidence" of FCA and federal criminal law violations (involving fraud, conflict of interest, bribery, or gratuities). This will have a huge effect on contract administration, for both contractors and the government's contracting officers. The new rules will drive contractors to seek legal analysis of issues historically resolved informally with the contracting officer. Going forward, informal resolution with contracting officers may not be a viable option, at least until the cognizant IG has reviewed the language and performance of contract work, and formed legal opinions on myriad procurement issues.

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