Implementing evolving disclosure rules.

• Author: Moorhouse, Richard L.
• Position: Ethics Corner

Federal government oversight, scrutiny of contractors and enforcement actions are on the rise.

Contractors are expected to have in place codes of conduct and robust ethics and compliance policies and procedures to meet the FAR 52.203-13 mandate to "timely" disclose violations 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 (31 U.S.C. 3729-3733)."

Credible evidence of such violations triggers this disclosure requirement, which runs for at least three years after final contract payment. Knowingly failing to disclose violations in a timely manner is grounds for suspension or debarment, which, aside from prison for officers or employees, is the worst consequence that can befall a government contractor.

The terms timely and "credible evidence" are not defined in either the FAR clause or in its implementing provision at FAR Subpart 3.10, leaving contractors, inspector generals, suspension and debarment officials and contracting officers to interpret these terms.

Even in the absence of a concrete definition, "timely" disclosure surely encompasses a reasonable period in which to conduct a preliminary examination of credible facts. Absent a reasonable examination of facts, any disclosure should be deemed premature. Every case is different, and will call for different inquiry and urgency, but the clock is ticking, and the lack of concrete definitions renders it incumbent upon contractors alerted to possible violations to move quickly in determining whether the evidence mandates disclosure.

An effective ethics and compliance program must include dedicated organizational resources, internal and external, that can be quickly tasked to examine any allegation or evidence of misconduct. Procedures and personnel integral to any ethics and compliance program must also be proactive in reviewing internal reports or audits that might reveal possible irregularities that warrant quick scrutiny that is sufficient to confirm or dispel the existence of "credible evidence" of a violation.

Any red flag that warrants further scrutiny should be reviewed by professionals brought in from the outside. Depending upon the facts, inside and outside counsel can often achieve this, which ensures complete objectivity and also legitimately allows the company to protect the process with applicable attorney-client and work product privileges...