By: Michael H. Payne

There has been a noticeable increase in the number of contractors proposed for debarment and in the tenacity with which alleged ethical violations are being investigated. Government contractors who receive contract awards in excess of $5 million are required to have a written Code of Business Ethics and Conduct pursuant to the requirements of FAR 3.1002 and FAR 3.1004. (Also See FAR 52.203-13 and 52.203-14). This requirement is very important in light of FAR 9.104-1, which states that to be determined responsible, a contractor must have a satisfactory record of integrity and business ethics. It is incumbent upon federal contractors to take these requirements seriously and to not only have a written code, but to conduct themselves in such a way that ethical conduct is built into the culture of the company.

In our experience, when companies face the possibility of suspension or debarment it is typically because a rogue employee does something foolish, or because someone simply does not follow the rules. Most frequently, the act that comes to the attention of a suspension and debarring official is not something that was done with the knowledge, or approval, of company management. In determining whether the company, and its management, should be held responsible for the misconduct of an employee, however, the suspension and debarring official will be very interested in whether the company has a Code of Business Ethics and Conduct in place, whether there is a compliance program, whether there is on-going ethics training, and whether the ethical culture of the company is effectively communicated to every employee.

Simply having a Code of Business Ethics and Conduct in place is not enough. Too many companies have drafted a code, conducted one round of training, and have had virtually no follow-up for a number of years. That sort of a superficial ethics program will not convince the government that your company has done everything possible to avoid unethical conduct and will increase the risk that the company will be implicated in the misconduct of an offending employee. Our recommendation is that contractors periodically, at least once a year, review and update the company’s Code of Business Ethics and Conduct, that an on-going ethics compliance program be put into place, and that both management and other employees have frequent training. The consequences of not taking the government’s ethics requirements seriously can be devastating.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters, including ethics compliance, and presents ethics training and compliance seminars.