A Brief History of Key Regulations

Transcription

1 A Brief Histry f Key Regulatins 1986 Packard Cmmissin by President Reagan recmmended that defense cntractrs prmulgate and vigilantly enfrce cdes f ethics and internal cntrls t mnitr cmpliance 32 majr cntractrs frmed the Defense Industry Initiative n Business Ethics and Cnduct 1991 US Sentencing Guidelines came up with 7 (minimum) guidelines fr use in sentencing crpratins and crprate emplyees fund guilty f ethics related vilatins. The riginal FAR prvisins (FAR (a)) was Gvernment cntractrs must cnduct themselves with the highest degree f integrity and hnesty. It wasn t enugh. Big Cases Leading Up t the Recent FAR Change 2004 One f the largest wner/peratrs f inpatient rehabilitatin facilities in the US agreed t pay $325 millin fr false claims An investr wned health care delivery cmpany perating 49 hspitals and 90 utpatient centers and a private teaching hspital were accused f fraudulently inflating patient care cst cmbined fine f $1.18 billin 2006 A majr aerspace and defense crpratin agreed t pay $615 millin t reslve allegatins f prcurement fraud 2007 Tw manufacturing crpratins agreed t pay a cmbined $17 millin fine fr sale f faulty bdy armr t DOD 2008 A majr drug cmpany agreed t pay $362 millin t settle a qui tam claim that it failed t prvide the gvernment its best price and paid kickbacks t prescribing physicians Recent Regulatry Changes Key FAR Revisins Effective Dec, 2008 FAR 3.10, Cntractr Cde f Business Ethics and Cnduct FAR , Requirements FAR , Cntract Clauses Tgether, these new prvisins make the new ethics prgram clause mandatry fr cntracts >$5M and mre than 120 days duratin and make cntractrs subject t suspensin r debarment fr knwing failure by a principal t disclse a vilatin f law r regulatin whether r nt the cntractr is perfrming cntracts cntaining the clause. They als make cntractrs respnsible fr prmpt ntificatin if the Gvernment has been verpaid (again, whether r nt any cntract cntains the clause). Hwever, mere disclsure f a vilatin is nt prtectin frm suspensin r debarment

2 The New FAR Ethics Clauses FAR , Cntractr Cde f Business Ethics and Cnduct (DEC 2008) The clause requires cntractrs t have a written cde and t make the cde available t all emplyees. It requires cntractrs t maintain an adequate Internal Cntrl System t prevent, detect and reprt ethical vilatins and t require disclsure t the Gvernment f certain vilatins. Small businesses are exempt frm the clause. FAR , Display f Htline Pster(s) (DEC 2007) This clause requires display f a Gvernment agency Htline Pster unless the cmpany has its wn. It further requires the flw dwn f the Htline clause t subcntractrs. N ne is exempt frm this clause. Nt Required but Gd Practice It is highly recmmended that cntractrs implement a cde f ethics and cmpliance prgrams even if nt required by the FAR. Such a prgram is a gd defensive psitin against imprper practices. Agencies can (and sme have) set lwer cmpliance threshlds and it is the cntractr s respnsibility t find ut if its custmer has set a lwer level fr cmpliance. Cntractrs shuld lk fr clauses frm an Agency specific supplement (DFARS, DEAR, NFS, etc.) r fr a special prvisin in cntracts r slicitatins. What IS Required fr a Small Business? If cntractr is a Small Business as defined by the NAICS cde f a particular cntract, r if the cntract is fr a cmmercial item within the meaning f FAR Part 12, the firm des nt have t implement an ethics awareness training prgram r internal cntrl systems. Firms n the cusp in ne r mre NAICS cdes shuld cnsider preparing fr cmpliance prir t requirement. Remember that a firm can be large in ne NAICS cde and small in anther. The Effect f the Regulatins The effect f the changes t the FAR is t shift the burden t the cntractr t institute anti crruptin practices. The Gvernment n lnger intends t make any effrt t (r even wants t) catch the mistakes. It nw expects cmpanies t plice themselves and self reprt their vilatins. Timely reprting is key t cmpliance. The emphasis has shifted and mre is nw placed n the actins f individuals. Respnsibility f Individuals Cmmn Individual Ethics Issues Pssessin f prcurement sensitive infrmatin

3 Surce selectin plans Data f cmpetitrs Gifts and gratuities t Gvernment fficials Meals & entertainment Hliday gifts Speaking fees Campaign cntributins By cntractrs By individuals emplyed by cntractrs Timekeeping irregularities By individuals By Supervisrs r managers Prcurement Sensitive Inf Prcurement sensitive infrmatin is any nn public infrmatin cncerning a Federal prcurement that might give a cntractr a cmpetitive advantage. Examples include a surce selectin plan, an unpublished r advance cpy f a slicitatin, and prprietary data f anther cntractr btained frm Gvernment surces, whether directly r indirectly. Such dcuments will ften be marked Fr Official Use Only, Prcurement Sensitive, Prprietary Data, Prprietary Infrmatin, r Cmpany Prprietary. Any kind f Gvernment applied classificatin (Cnfidential, Secret, Tp Secret) creates ther, much greater, prblems. Individuals are cautined nt t accept prcurement sensitive data r infrmatin frm ANY surce. If prcurement sensitive infrmatin is fund in yur cmpany, reprt it immediately t the apprpriate cmpany fficial and turn the infrmatin r data ver t the fficial prmptly. Case Study #1 In 2008, a majr public crpratin was suspended and recmmended fr debarment when a whistleblwer alleged that emplyees f the cmpany had btained prtected surce selectin infrmatin frm an Agency emplyee and then used it t their advantage in cntract negtiatins with the agency. The suspensin lasted ne week, five emplyees were fired and the cmpany agreed t reimburse the Gvernment fr the cst f the investigatin. The entire incident resulted frm the wellmeaning, but misguided actins f a few individuals, but media estimates f the cmpanies lst revenues during that week ranged frm $5.7M t as much as $10M per day Case Study #2 In February, 2012, ne ffice f a majr Defense cntractr suspended and prpsed fr debarment when the cmpany disclsed t the Gvernment that its emplyees pssessed, but did nt use, prprietary data f a cmpetitr which might have given the cmpany a cmpetitive advantage in a cmpetitive prcurement. The suspensin was lifted apprximately ne mnth later. They entered int a three year agreement with DOD requiring surveillance f their internal cntrls and extensive emplyee training, ne emplyee was fired and the cmpany vluntarily withdrew frm the cmpetitin in questin. The entire incident resulted frm the misguided actins f a single individual, but it cst the cmpany three years f intense scrutiny and lss f a majr cntract they were favred t win.

4 Gifts and Gratuities The Standards f Ethical Cnduct fr Emplyees f the Executive Branch sets the maximum permissible value f a Gift at $20 (see 5 CFR (b)). Many classes f individuals are prhibited frm giving gifts r gratuities t emplyees f the Executive Branch including all Gvernment cntractrs and their emplyees (see 5 CFR (d)). Federal emplyees can generally accept unslicited gifts with a market value f up t $20 per giver, per ccasin. There are exemptins fr gifts between emplyees wh als have family relatinship r persnal friendship. Family is pretty straightfrward, but as t friendship, just dn t g there. Even thugh individual gifts f $20 r less are permitted, the Standards f Cnduct prhibit gifts frm a single surce with an aggregate value in a year that exceeds $50. Federal emplyees are required t keep track f hw much smene (either individual r cmpany) gives them n separate ccasins ver the year, because the aggregate market value f gift they are permitted t accept cannt exceed $50 annually. Meals are cnsidered gifts if the value exceeds $20 (cst is used as the measure). While eating fr less than $20 can be difficult in areas like DC, the rule has n exceptins and an hnr basket at meetings r receptins is nt cnsidered sufficient. There is an exceptin t the meals rule fr Widely Attended Gatherings (WAGs), but the definitin f a WAG is ambiguus. Sme ethics fficers pin it at 25 r mre attendees. Others set the number at 100. Still thers cnsider hw many different agencies and titles will be represented. If yu plan t hst a WAG, cnsider wrding in the invitatin that interested attendees shuld check with their ethics fficers. Campaign Cntributins General Limitatin (11 CFR 115.2) A Federal cntractr may nt make, either directly r indirectly, any cntributin f mney r ther thing f value t any plitical party, cmmittee, r candidate fr Federal Office. Hwever, emplyees f Federal cntractrs can make cntributins frm their persnal funds. Crpratins, labr rganizatins, membership rganizatins, cperatives and crpratins withut capital stck may establish, administer, and slicit cntributins t a separate segregated fund, referred t as a plitical actin cmmittee (see 11 CFR 115.3). Limitatins n partnerships (11 CFR 115.4) A Federal cntractr that is a partnership cannt use the assets f the Partnership t make cntributins r expenditures in cnnectin with a Federal electin. Hwever, individual partners can make cntributins in their wn names frm their persnal assets. Limitatins n individuals and sle prprietrs (11 CFR ) Federal cntractrs wh are individuals r sle prprietrs are prhibited frm making cntributins r expenditures frm their business, persnal r ther funds under their dminin r cntrl in cnnectin with a Federal electin. Their spuses, hwever, may make dnatins in their wn names. Timekeeping Emplyees must charge t the prject r activity they wrk n regardless f the status f the jb and they must cmply with the cmpany s timekeeping plicies and prcedures. Supervisrs must prvide

5 emplyees with a valid charge cde fr all wrk and ensure that emplyees under their supervisin cmply with all f the cmpany s timekeeping plicies and prcedures. Timekeeping and assciated labr law vilatins are the mst cmmn f all ethics issues. In the past year, mre than 2,200 firms r individuals were added t the excluded parties list (debarred frm Federal cntracting) fr vilatins f timekeeping rules n Federal cntracts r ther labr laws. Mst, but nt all, were assciated with wage and hur laws, but sme sme were assciated with failures f timekeeping systems. The primary agency charged with surveillance f cntractr timekeeping systems is the Defense Cntract Audit Agency. This agency was created t perfrm cntract audits n all DD prcurement and cntract administratin activities and t prvide unifrmity between DD cmpnents. They als perfrm these functins fr many civilian agencies. DCAA cnducts audits in accrdance with the Defense Cntract Audit Manual (DCAM) and Generally Accepted Gvernment Auditing Standards (GAGAS). Amng the audits they perfrm are: Audit f Timekeeping and Labr Systems Audit f Internal Cntrls ver thse systems Flr Checks (timekeeping cmpliance) Cmpensatin Systems Reviews Billing Systems Reviews (including tracing labr transactins frm TS t vucher) The mst serius timekeeping ethical lapses are thse invlving diversin f charges r unauthrized changes t cntracts. Such actins culd result in False Claims Act vilatin with penalties including fines f up t $10k per ccurrence and even criminal penalty fr willful vilatin by an individual. In additin, such a vilatin culd (and prbably wuld) result in finding f a significant deficiency in the cntractr s timekeeping and/r accunting systems. Cnsequences f an Ethical Lapse The fllwing is just a partial list f the Federal statutes that may be used t pursue remedies fr an ethical vilatin. False Claims Act 31 U.S.C False Statements Act 18 U.S.C Cntract Disputes Act 41 U.S.C Frfeiture Statute 28 U.S.C Anti kickback Act 41 U.S.C. 54 Truth in Negtiatins Act 10 U.S.C Bribery and Gratuities Statutes 18 U.S.C Mail and Wire Fraud Statutes 18 U.S.C and 1343 Prcurement Integrity Act 41 U.S.C. 423 Bid Rigging and Cllusive Bidding 15 U.S.C. 1 Suspensin and Debarment FAR &

6 Parties at Risk and Ptential Cnsequences Crprate fficers may be at risk if they... Certify percentage f cmpletin Certify cst and pricing data Certify claims Oversee cmpliance prgrams Crprate fficers and emplyees may be at risk if they... Sign cntracts Sign payment applicatins Sign change rders Cnsequences f an ethical vilatin may include... Suspensin frm eligibility fr awards Debarment frm all Federal cntracting (including prime, sub and vendr) In the event f a vilatin f law, a cntractr s failure t have a prgram in place will be evidence used t determine punishment the same standard currently in place fr judges t use in sentencing cmpanies fund guilty f vilating federal law. The Federal Sentencing Guidelines cme int play as well as the culpability scre. The less evidence that a cmpany has a frmal ethics prgram, the mre the curts are instructed t be tugh n sentencing. If a cmpany self reprts, whistle blwers must be prtected (see FAR ) and under the Fraud Enfrcement and Recvery Act f 2009 (FERA) (see Relief frm Retaliatry Actins, 31 U.S.C. 3730(h)), whistleblwers suffering retaliatin are entitled t... reinstatement with the same senirity status; duble back pay; any special damages ; and attrneys fees. In additin t fines, suspensin, r debarment, the Gvernment culd require a Mnitr t versee yur cmpany s ethics prgram. Mnitrs, when required, are paid fr by the Cmpany but apprved by the Agency. Mnitrs perate independently frm bth the cntractr and the gvernment and reprts back t the gvernment peridically n the cmpany s cmpliance status fr a perid f 1 t 3 years.