Business Issues: Complying with New Ethics Rules By Devon Hewitt On November 12, 2008, the government published and incorporated in the Federal Acquisition Regulation the “mandatory disclosure rule.” This rule has two parts. The first part promulgated a new FAR clause, FAR 52.203-13, Contractor Code of Business Ethics and Conduct which is required to be included in all contracts and subcontracts expected to exceed $5 million and to last more than 120 days. The second part amended the Debarment and Suspension provisions of the FAR. While the most stringent requirements of the new rule do not apply to small businesses, small businesses are subject to certain aspects of the rule. Both the FAR clause and the new Debarment and Suspension FAR provisions require a contractor to “timely” disclose in writing whenever, “in connection with the award, performance or closeout” of any contract or subcontract, the contractor has “credible evidence” that a “principal, employee, agent, or subcontractor” of the contractor has committed (1) a violation of Federal Criminal law involving fraud, conflict of interest, bribery or gratuity violations found in United States criminal code or (2) a violation of the Civil False Claims Act. Contractors are also required to disclose “credible evidence” of a “significant overpayment.” Failure to timely disclose such evidence can subject a contractor to either suspension or debarment. This “mandatory disclosure” rule applies to all contractors, big and small. Moreover, knowing failure to timely disclose of credible evidence of a violation remains a cause for suspension or debarment until three years after final payment on a contract. In addition to the mandatory disclosure obligations just discussed, the “mandatory disclosure” FAR clause now being incorporated into government contracts also requires contractors to have a written code of business ethics or conduct and to implement a business ethics awareness and compliance program, complete with a system of “internal controls.” Under the clause, small businesses are only required to have a written code of business ethics or conduct. A copy of the code must be made available to each employee engaged in the performance of the contract. In addition, the contractor must “exercise due diligence to prevent and detect criminal conduct” and “otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with law.” At a minimum, therefore, all small business contractors should have a government contracts compliance manual or handbook that is given to employees. The manual or handbook should include a summary of the statutes and regulations addressing criminal conduct in the government contracts context as well as the criminal, administrative and civil penalties that could be imposed for such criminal conduct. The contractor should also include in the manual a summary of the values of the company and incorporate a statement from the company’s most senior executive officer indicating his personal commitment to the highest ethical standards and his intention to discipline all employees who violate the company’s code of business ethics and conduct. Although small businesses are not required to implement a formal compliance program or establish a system of internal controls, the FAR clause does impose on the contractor a duty to prevent and detect criminal conduct. This duty requires the contractor to put into place some type of program of periodic audit, survey and/or review to monitor its employee’s compliance with the company’s code of business ethics. Devon Hewitt, a partner with PilieroMazza PLLC, practices in the areas of government contracts law. She has over 15 years experience advising clients on a wide variety of government contracting issues and representing them in protests and dispute matters before the federal courts and agencies.