Business ethics the latest addition to FAR

In the last week of 2007, a new subpart to the FederalAcquisition Regulation took effect that requires contractors toestablish a code of business ethics and conduct. It also requiresthem to take other steps to promote business ethics and earlydiscovery of improper conduct in the performance of governmentcontracts. Additional measures to promote contractors' ethical conductproposed in November will be issued later this year.Under the rule, contractors must have awritten code of business conduct and ethics,provide a copy to all employees working onthe government contract, and promote compliancewith the code among the contractor'semployees. This requirement applies to allcontracts valued at more than $5 million orfor which the period of performance is 120days or more.In addition, unless the contractor is asmall business, the contractor must instituteongoing business ethics trainingfor its employees. The contractoralso must establish aninternal control system tofacilitate timely discovery ofimproper conduct in connectionwith the performance ofgovernment contracts and ensure that correctiveactions are promptly taken. Thisinternal control system should provide for: If a contractor does not have a businessethics policy or an internal control systemin place at the time of contract award, thecontractor must establish the policy within30 days and the internal control systemwithin 90 days.Contractors with contracts valued atmore than $5 million also must display ahotline poster approved by the contractingagency that informs employees how toreport suspected unethical conduct.These requirements also apply to subcontractorsof other than noncommercialitems if the subcontract is valued at morethan $5 million or will require more than120 days to perform. The prime contractoris not required to judge or monitor the subcontractor'sethics program but is requiredto see that it exists.These new requirements, already ineffect for contracts awarded after Dec. 24,2007, may be enhanced by additionalrequirements later this year if anotherproposed rule becomes final. The proposedrule also would apply to noncommercialitem contracts performed in theUnited States and valued at more than$5 million or requiring more than 120days to perform.It would add minimum standards forthe contractor's ethics awareness programand require regular training forthe contractor's owners, employees andsubcontractors. It also would set standardsfor the contractor'sinternal control system,including monitoring andauditing for criminal conduct,assessments of therisk of criminal conductand steps to reduce thoserisks, and discipline for those failing to takereasonable steps to prevent criminal conductby workers under their supervision.The most significant addition is that theproposed rule would require a writtenreport to the procuring agency's inspectorgeneral whenever the contractor has reasonablegrounds to suspect that a principal,employee, agent or subcontractor has violatedprocurement law. The contractor wouldthen be required to cooperate with governmentin any subsequent investigation.