Mandatory Reporting: An Antidote to Government Contractor Silence

10 Apr 2009 in Ethics and Compliance Offices, Legal Perspective

This week at the National Contract Managers Association's (NCMA) Annual Congress in Long Beach, California, I heard a number of concerns from those nervous about the FAR/DFAR's new ethics and mandatory disclosure requirements for government contractors. But, I also heard many strong indications from government contracting officers that they view this new basis for suspension and debarment as being both welcome and long overdue.

Let there be no doubt that the Federal government's focus has shifted dramatically, and much closer attention is going to be paid to government contractors of all sizes. Previously, the only ethical requirements imbedded in mandatory FAR/DFAR contract clauses was a single DFAR provision related to having ethics hotline posters on the walls of covered contractors in their US offices. I can think of no other major industry that was subject to so little federal oversight for so long. Today, with the FAR/DFAR changes effective December 8, 2008, and with multiple other cases and Congressional actions pending, government contractor accountability and transparency will be receiving major attention.

And for good reason. Despite extensive reforms in the 1980s and major investments in ethics programs by large defense contractors, voluntary programs have not been working. Data on voluntary disclosures show a steady decline in reporting, from the peak following reforms in the 1980s to only two reports in 2007. Problems -- including significant issues involving potentially widespread criminal conduct -- were being routinely addressed by contracting officers and never brought to the attention of either law enforcement officials or corporate leadership.

Today, we are facing the results of an absence of common sense and good judgment in the financial services industry. Many brilliant individuals and businesses -- already subject to much stiffer federal oversight than government contractors -- repeatedly failed to do the right thing voluntarily. Many companies have fallen victim, not only to greed, but to the double whammy of having both inadequate internal control systems and no one willing to report misconduct. Increasing the accountability of those who win and profit from taxpayer funded contracts only makes sense.

So as a first major step, the failure to "timely" disclose "credible evidence" of misconduct risks the hammer of suspension or debarment from eligibility for federal contracts. This was news to many at the NCMA Congress who were shocked to learn about the new FAR/DFAR Mandatory Disclosure requirements that:

--They do not require a specific clause be inserted in the contract.
--They were effective and prospectively applied to conduct occurring before December 2008.
--They thus have an almost retroactive element, with exposure extending from the pre-award period to up to three years from the last payment on a contract.
--They flow down to sub-contractors who must report directly to the government, not just to the prime contractor.

The FAR Council correctly called the ethics and mandatory disclosure provisions a "sea change". Things are going to be different in the Federal Contractors' Ethics and Compliance world. The good news is that companies with a strong ethical culture and effective programs will be rewarded by being more competitive in the growing government market. Those failing to disclose significant problems will regret the inaction.
GM

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