New ethics rules end voluntary reports

New ethics rules that require contractors to report violations of the law mark a significant turnaround from long-standing policies of voluntarily disclosure, government and industry officials say.

The rule specifies that government contractors must notify the contracting agency's inspector general's office and contracting officer when a company's executive or any manager comes across credible evidence of a crime related to a government contract.

Until now, contractors were encouraged but not required to make such disclosures. But Justice Department officials and IGs say contractors generally have ignored the policy for the past decade, according to the notice published in the Federal Register last week by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council.

The new rules, which the councils called a sea change, take effect in December.

Lesley Field, acting administrator of the Office of Federal Procurement Policy, last week said mandatory reporting is a reasonable requirement.

"While mandatory reporting might be described as a sea change, I think this actually just puts on paper what hopefully is a good business practice," she said.

By including the IG, the government has more recourse against a crime than it would if contractors had to notify only contracting officers, who have no authority to evaluate crimes, regulators say.

However, bringing the IG into the picture will likely change the relationship between the contracting agency and the contractor, said Michael Mason, partner at law firm Hogan and Hartson. IGs look for waste, fraud and abuse by contractors, while contracting officers look at contractors more as business partners.

"They view that with a different lens," he said.

In the rules, regulators granted contractors some flexibilities as officials tried to strike a balance.

"We want disclosure," an Bush administration official said. "On the other hand, we want to show some semblance of fairness where there's uncertainty."

When learning of an alleged crime, the rules give contractors an opportunity to examine the credibility of the allegation's evidence before telling the government. Until the contractor has determined the credibility, federal officials can't charge the contractor with knowingly failing to notify government officials, regulators wrote.

"Rumors are not enough to trigger the disclosure requirement," the official said.

Regulators also intentionally omitted rigid requirements on how a contractor should set up an internal system for discovering wrong-doing.

"The contractor can use its own judgment in the details," they wrote. "Competing firms are free to establish the highest ethical standards they consider to be appropriate to the business at hand."

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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