New Business Ethics and Compliance Rules for Contractors:
These changes to the FAR, effective December 24th of last year, were enacted to promote the requirement in the wake of recent procurement scandals that contractors conduct themselves with the highest degree of integrity and honesty. The new rules require establishing (1) a written Code of Business Ethics and Conduct, and (2) an Employee Business Ethics and Compliance Training Program and internal control system, for companies having a contract with a value exceeding $5 million and performance period of 120 days or more. This applies to primes as well as subcontractors. Although these rules do not presently cover contracts solely for commercial items, that limited exclusion is probably going to be eliminated later this year under proposed additional changes to the FAR which are likely to come into effect in a few months. Creating a code and training program is not as difficult or expensive as one might think. It can be effectively implemented with the help of a law firm that can also perform a risk assessment in a manner which can have the results of that review protected by attorney-client privilege.
There are several compelling reasons why embracing these changes is good for business. It of course helps your company comply with the new requirements, which in turn can help avoid sanctions down the road and demonstrate to the government that the company should be provided some leniency on an infraction, due to a culture of compliance. Improved internal controls on reporting infractions will also help the company drive notice of problems to management to enable effective responses rather than driving complaints outside to the Office of the Inspector General or other officials. Given such examples, it should become apparent that compliance is ultimately more cost-effective than non-compliance.
Additionally, implementing these changes can bolster your competitive advantage by staying ahead of the competition and demonstrating to the government as well as your teaming partners that you are fully compliant with the new changes in the law. Demonstrating compliance and a polished approach to your internal controls can also help augment your marketability to your teaming partners to obtain more work and grow revenues, and increases your credibility in the market. The resultant improvement in risk management procedures will also help to decrease violations and reduce operational costs. Polishing your internal controls and adopting a strong code and compliance program will also help to enhance the valuation of your company, and hence better position the company to provide better returns for investors.
If your company does not have these important pieces in place to comply with the new rules and use this opportunity to decrease costs and increase revenues, you should seriously consider inquiring about these changes and implementing them as soon as possible. A simple two step plan with the assistance of counsel, which involves an initial risk assessment and compliance review, and an implementation and training program, will get you well on your way to achieving legal compliance and continued improvement of your business.
This article was contributed by Seth C. Berenzweig, Managing Partner, Civil Division of Albo & Oblon, LLP; Ph:(703) 312-0414;Email: scb@albo-oblon.com
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There has been a great deal of discussion lately about recent changes in the Federal Acquisition Regulation (FAR), which require contractors to implement a code of conduct and compliance training. As discussed below, companies should view this change as a unique opportunity to ultimately decrease costs and increase revenues.| Issue 6 | June 2008 |
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