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FAR R l i f F d l CFAR Regulations for Federal ContractorsMeeting Mandatory Disclosure, Code of Conduct and Other Complex Requirements; Implementing Internal Controls

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, JULY 10, 2013

Today’s faculty features:

J. Catherine Kunz, Partner, Crowell & Moring, Washington, D.C.

Kevin J. Maynard, Partner, Wiley Rein, Washington, D.C.

Holly A. Roth, Partner, Manatt Phelps & Phillips, Washington, D.C.Holly A. Roth, Partner, Manatt Phelps & Phillips, Washington, D.C.

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The FAR Contractor CodeThe FAR Contractor Code of Business Ethics and Conduct (“MandatoryConduct (“Mandatory Disclosure”) Rule

Presented byKevin J. Maynard

Wiley Rein LLP202.719.3143

[email protected]

O i f K P i i Independent grounds for suspension/debarment for knowing failure to

Overview of Key ProvisionsIndependent grounds for suspension/debarment for knowing failure to timely disclose wrongdoing

• Applies to all contracts/subcontracts (current contracts, and contracts closed out within past three years)

Mandatory contract clause required in all contracts over $5M, 120 days

• Code of Business Ethics and Conduct• Mandatory disclosure obligation• Mandatory disclosure obligation

• Business ethics and compliance program and internal controlsystem requirements

P t P f t d d dd “ d f i t it d b i Past Performance standards address “record of integrity and business ethics”

6

B k d

DOD V l t Di l P

Background

DOD Voluntary Disclosure Program• Instituted July 1986, use dwindled over time

NOR Mandatory Disclosure Program NOR Mandatory Disclosure Program• Required disclosure of “possible violations of federal law

or illegal intelligence activities related to [the] contract”

FAR Mandatory Disclosure Rule• Final Rule effective December 2008

N S i /D b t R l (FAR 9 4)New Suspension/Debarment Rule (FAR 9.4)New Contract Clause (FAR 52.203-13)New Past Performance provision (FAR 42.1501)p ( )

7

M d t Di l Obli ti

FAR 9 406 2 d 9 407 2 i l d i d d t

Mandatory Disclosure Obligation

FAR 9.406-2 and 9.407-2 include independent grounds for suspension and debarment, based on:• Knowing failure by a principal until 3 years after final• Knowing failure by a principal, until 3 years after final

payment on any Gov't contract, to timely disclose to Gov't in connection with award, performance or closeout of contract or a subcontract, credible evidence ofor a subcontract, credible evidence of

Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations in Title 18 of the U.S. Code;Code;

Violation of civil False Claims Act (31 U.S.C. 3729-3733); or

Significant overpayments on the contract, other than t lti f t t fi i toverpayments resulting from contract financing payments as

defined in FAR 32.0018

M d t Di l Obli ti

FAR 52 203 13(b) lik i i ti l di l

Mandatory Disclosure Obligation

FAR 52.203-13(b) likewise requires timely disclosure, in writing, to the agency IG whenever the contractor has “credible evidence” of:• Violation of Federal criminal law involving fraud, conflict of

interest, bribery or gratuity violations in Title 18 of U.S. Code;

• Violation of civil False Claims Act, 31 U.S.C. 3729-3733

• In connection with the award, performance, or closeout of “this contract” (not other Government contracts) or athis contract (not other Government contracts) or a subcontract to a covered contract;

• Committed by a principal, employee, agent, or subcontractor of the Contractorof the Contractor

9

C d C t t

FAR 52 203 13 t b i l d d i ll t t

Covered Contracts

FAR 52.203-13 must be included in all contracts over $5M, 120 days (FAR 3.1004)• Previous exemption for commercial item contracts and p

contracts performed outside the U.S. eliminated

Suspension/Debarment provisions apply to allgovernment contracts and subcontracts:government contracts and subcontracts:• Current contracts, contracts closed out in past 3 years• Commercial item, non-commercial item contracts• Contracts performed entirely overseas• Regardless of whether the clause at 52.203-13 has been

incorporated

10

Reportable Violations

Mandatory disclosure rules require disclosure of any:


y q y

• Violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations in Title 18 of U.S. Code;

• Violation of civil False Claims Act 31 U S C 3729 3733; or• Violation of civil False Claims Act, 31 U.S.C. 3729-3733; or

• Significant overpayments, other than overpayments resulting from contract financing payments as defined in FAR 32.001

Must have nexus to gov’t contract or subcontract• Rule covers violations “in connection with the award, performance,

or closeout of the contract or a subcontract thereunder” (9.406-2, 9 407 2)9.407-2)

• “If there is no connection to a Government contract performed by the contractor, or a subcontract thereunder, then it need not be disclosed.” (73 Fed. Reg. 67075)disclosed. (73 Fed. Reg. 67075)

11

R t bl Vi l ti

I l d i l ti b b t t


Includes violations by subcontractors

• “The prime contractor is subject to debarment only if it fails to disclose known violations by the subcontractor ” (73 Feddisclose known violations by the subcontractor. (73 Fed. Reg. 67084)

Does not include violations by unrelated contractorsy

• “It was not the intent of the proposed rule to require contractors to report on violations of other contractors under

t t l t d t th i t t ” 73 F d R tcontracts unrelated to their own contracts.” 73 Fed. Reg. at 67073

12

R t bl Vi l ti ( t’d) Violation may pre-date effective date of Final Rule:

Reportable Violations (cont’d)Violation may pre date effective date of Final Rule:• "The Councils do not agree with respondents who think that

disclosure . . . should only apply to conduct occurring after th d t th l i ff ti f th l i i l d d i ththe date the rule is effective of the clause is included in the contract, or the internal control system is established. The laws against these violations were already in place before the rule became effective or any of these other occurrences Ifrule became effective or any of these other occurrences . . . If violations relating to an ongoing contract occurred prior to the effective date of the rule, then the contractor must disclose such violations whether or not the clause is indisclose such violations, whether or not the clause is in the contract and whether or not an internal control system is in place, because of the cause for suspension and debarment in Subpart 9.4." (73 Fed. Reg. at 67073-74)p ( g )

13

“Ti l ” Di l Subjective standard allows some time to investigate

“Timely” Disclosure Subjective standard, allows some time to investigate

• “The Councils considered, and rejected, adding a set period of time, e.g., 30 days, to the disclosure requirement.”

• “[U]sing the standard of ‘credible evidence’ . . . will help clarify ‘timely’ because it implies that the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose toevidence to determine its credibility before deciding to disclose to the Government. Until the contractor has determined the evidence to be credible, there can be no ‘knowing failure to timely disclose.’”

• “This does not impose upon the contractor an obligation to carry outThis does not impose upon the contractor an obligation to carry out a complex investigation, but only to take reasonable steps that the contractor considers sufficient to determine that the evidence is credible.”

14

K l d Of “P i i l ” Suspension/Debarment based on knowing failure by a

Knowledge Of “Principals”Suspension/Debarment based on knowing failure by a "principal" to disclose violations• Clarifies proposed rule, which required disclosure any time

the “organization” had knowledge

• “Principal” defined in the rule as “an officer, director, owner, partner, or a person having primary management orpartner, or a person having primary management or supervisory responsibilities within a business entity (e.g., general manager; plant manager; head of a subsidiary, division, or business segment; and similar positions).” FAR g p )2.101(b)(2)

• Background states that “principal” should be construed “broadly ” may include compliance officers directors ofbroadly, may include compliance officers, directors of internal audit (73 Fed. Reg. at 67079)

15

“C dibl E id ” Mandatory disclosure obligation applies whenever a

“Credible Evidence”Mandatory disclosure obligation applies whenever a principal has “credible evidence” of a violation• Change from “reasonable grounds to believe” • Credible evidence “indicates a higher standard, implying that

the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government.” y g(73 Fed. Reg. at 67073)

• “Until the contractor has determined the evidence to be credible, there can be no ‘knowing failure to timely disclose.’” (Id. at 67074)

• “This does not impose upon the contractor an obligation to carry out a complex investigation, but only to take reasonable t th t th t t id ffi i t t d t i th tsteps that the contractor considers sufficient to determine that

the evidence is credible.” Id.16

“C dibl E id ” ( t’d) What constitutes “credible evidence”?

“Credible Evidence” (cont’d)What constitutes credible evidence ?• “[T]he disclosure requirement applies only where the

contractor has ‘credible evidence’ that a violation of the civil FCA h d Th t t i bj t t iFCA has occurred. The contractor is subject to suspension and debarment for failure to timely disclose the violation only where the contractor does so knowingly. Genuine disputes over the proper application of the civil FCA may beover the proper application of the civil FCA may be considered in evaluating whether the contractor knowingly failed to disclose a violation of the civil FCA.” (73 Fed. Reg. 67081)67081)

17

“C dibl E id ” ( t’d) What constitutes “credible evidence”?

“Credible Evidence” (cont’d)What constitutes credible evidence ?• “[T]he mere filing of a qui tam action under the civil FCA

is not sufficient to establish a violation under the statute, nor does it represent, standing alone, credible evidence of a violation. Similarly, the decision by the Government to decline intervention in a qui tam action is not dispositive of whether the civil FCA has been violated, nor conclusive of whether the contractor has credible evidence of a violation of the civil FCA.” (73 Fed. Reg. 67081)

18

Di l T “Th G t” Provisions of FAR 9 406-2 and 9 407-2 which include

Disclosure To “The Government”Provisions of FAR 9.406 2 and 9.407 2, which include overpayments, require disclosure to “the Government”

FAR clause at 52.203-13 requires disclosure to the qagency IG, with a copy to the CO

For GSA Schedules and other multi-agency contracts, “the contractor shall notify the OIG of the ordering agency and the IG of the agency responsible for the basic contract ” (73 Fed Reg 67076)basic contract. (73 Fed. Reg. 67076)

Subcontractors may disclose directly to the Govt, “[t]he clause does not require disclosure through the prime q g pcontractor.” (73 Fed. Reg. 67084)

19

Di l T “Th G t” DoD IG GSA IG and other Agency IGs have established websites to

Disclosure To “The Government” DoD IG, GSA IG and other Agency IGs have established websites to

allow on-line reporting

20

C li P R i tCompliance Program Requirements

FAR 52.203-13 must be included in all contracts over $5M, 120 days (FAR 3.1004)• Previous exemption for commercial item contracts and contracts

performed outside the U S eliminatedperformed outside the U.S. eliminated Per FAR 52.203-13(b), the contractor must:

• Have “a written code of business ethics and conduct” that is made available to each employee engaged in performance of the contractavailable to each employee engaged in performance of the contract

• Exercise due diligence to prevent and detect criminal conduct• Encourage ethical conduct and a commitment to compliance with

the lawthe law• Timely disclose violations to agency IGs

21

C li P R i t FAR 52 203-13(c)(1) requires contractors to

Compliance Program RequirementsFAR 52.203 13(c)(1) requires contractors to implement “ongoing business ethics awareness and compliance program”

Requires contractor take “reasonable steps” to communicate program, by conducting training “appropriate to employees' roles and responsibilities”appropriate to employees roles and responsibilities• "Training conducted under this program shall be provided to

the Contractor's principals and employees, and as appropriate, the Contractor's agents and subcontractors." FAR 52.203-13(c)(1)(ii)

• Does not apply to commercial item contracts, smallDoes not apply to commercial item contracts, small businesses

22

Internal Control Requirements

FAR 52 203-13(c)(2) requires “internal control system” (except for commercial

Internal Control Requirements

FAR 52.203 13(c)(2) requires internal control system (except for commercial item, small businesses)

• Standards/procedures to timely discover improper conduct• Ensure corrective measures carried out• Assignment of responsibility at a “sufficiently high level” • Reasonable efforts to screen principals • Periodic review of policies and practices

Monitoring to detect unlawful conduct Monitoring to detect unlawful conduct Evaluation of effectiveness of internal control system Assessment of risk of criminal conduct

• Internal reporting mechanism (e.g., ethics hot line) p g ( g , )• Disciplinary action for violations• Ensure timely disclosure to agency IGs • Provide for "full cooperation" with Gov't audits, investigations

23

“F ll C ti ” Requires “disclosure to Government of the information

“Full Cooperation”Requires disclosure to Government of the information sufficient for law enforcement to identify the nature and extent of the offense and the individuals

ibl f th d t ”responsible for the conduct.”

Includes “timely and complete response to Government auditors’ and investigators’ request forGovernment auditors and investigators request for documents and access to employees.”

Does notDoes not• Require waiver of attorney-client or work product protections,

or Fifth Amendment rights

• Restrict Contractor from conducting an internal investigation or defending a proceeding or dispute 24

Subcontractor Obligations

C t t i d t i l d 52 203 13 i b t t i f

Subcontractor Obligations

Contractors required to include 52.203-13 in subcontracts in excess of $5M and more than 120 days. FAR 52.203-13(d)

Contractors may be required to train subcontractor personnel, “as appropriate ” as part of compliance program FAR 52 203-13(c)appropriate, as part of compliance program. FAR 52.203 13(c)

Background to new Rule suggests contractors should take additional steps in selecting, managing subcontractors, verifying existence of code/controls• “The same reasonable efforts that the contractor may take to

exclude . . principals whom due diligence would have exposed as engaging in illegal acts are the same reasonable efforts the contractor should take in selecting its subcontractors ” (73 Fedcontractor should take in selecting its subcontractors. (73 Fed. Reg. at 67084)

25

P t P f R i t FAR Rule amends FAR 42 1501 to include a

Past Performance RequirementsFAR Rule amends FAR 42.1501 to include a contractor’s “record of integrity and business ethics” as one of the examples of past performance information th t i h ld t k d t t b d ithat agencies should track and report to be used in future source selection past performance evaluations

26

Mandatory Disclosures: Organizational and Personal Conflicts of Interest and Impact of Personal Conflicts of Interest and Impact of Noncompliance

Holly RothHolly RothPartnerGovernment & Regulatory PolicyManatt, Phelps & Phillips, LLP700 12th Street, N.W.Suite 1100Washington, D.C. 20005Phone: (202) 585-6558Fax: (202) 637-1528HRoth@manatt [email protected]

Collateral Responsibility Requirements: Organizational and Personal Conflicts of Interest

29Contractor Responsibility

Criteria:– Adequate financial resources

Collateral requirements:– Equal Employment Opportunityq

– Ability to comply with delivery and performance schedule

– Satisfactory performance record

q p y pp y

– Small Business Subcontracting

– No government employee-owned business

– No contracts with organizations (or their – Satisfactory record of integrity and business

ethics

– Necessary organization and experience

– Otherwise qualified and eligible

employees) that offer quasi-military armed forces for hire – regardless of the organization’s character

– No contracts with organizations where Otherwise qualified and eligible Organizational Conflicts of Interest cannot be avoided or mitigated

– Organizations required to identify and prevent Personal Conflicts of Interest of ““covered” employees

Manatt, Phelps & Phillips, LLP

30Organizational Conflicts of Interest (OCI): FAR Subpart 9.5

Underlying principles:– Prevent existence of conflicting roles that might bias a contractor's judgment; andg g j g

– Prevent unfair competitive advantage where a contractor competing for award of any federal contract possesses:

Proprietary information (that was obtained from a government official without proper authorization); orauthorization); or

Source selection information (as defined in FAR 2.101) that is relevant to the contract but is not available to all competitors, and such information would assist that contractor in obtaining the contract.

– The rules are continuing to evolve as a result of policy concerns with contractors’ involvement in the workings of the government.


31Organizational Conflicts of Interest (OCI)

Most likely to occur in the following types of contracts:– Management support servicesg pp

– Consultant or other professional services

– Contractor performance of, or assistance in, technical evaluations

– Systems engineering and technical direction work performed by a contractor that does not have overall contractual responsibility for development or production

OCI may result when:– Factors create an actual or potential conflict of interest; or

– The nature of the work performed on a current contract creates an actual or perceived OCI on a future acquisition.


32Three Types of OCIs

Impaired Objectivity– Contractor required to exercise judgmentq j g

– Economic interest biases exercise of judgment

Biased Ground Rules– Company performing government contract sets rules for future competition and– Company performing government contract sets rules for future competition, and

– Rules are biased toward company

– Generally – impossible to mitigate!

Unequal access to nonpublic informationUnequal access to nonpublic information– Proprietary information was obtained from government official without proper authorization; or

– Source selection information that is relevant to the contract but is not available to all competitors, and such information would assist that contractor in obtaining the contract.g

– Exception:

Incumbent status, without more, typically does not constitute “unequal access to information” for purposes of showing an OCI.



Disqualification– When the contracting officer identifies a potential OCI, the offeror must be disqualified unless a g p q

restraint can be included in the contract to neutralize or mitigate the conflict.

– Two methods for disqualification:

Not allowing a contractor with an OCI to compete on a current requirement; or

Inclusion of a clause in a contract precluding the contractor from competing for future work.

GAO Decisions:– Responsibility for determining whether award to a particular firm would result in an OCI lies with

the procuring agency. Such determinations are subject to objection only if they are directly contrary to statute or regulation or are shown to be clearly unreasonable.



Avoiding Disqualification – Is Mitigation Feasible?– When it is possible to formulate an effective plan to mitigate an OCI, adoption of such a plan is p p g p p

generally more desirable than disqualifying a contractor.

– It can be argued that the contracting officer is required to attempt to negotiate restraints, when appropriate, before disqualifying an offeror because of an OCI.



Must be disclosed!– Can result in disqualification from competition and even terminationq p

– Restrict opportunities to expand into new lines of business

– Hinder mergers, acquisitions and force divestitures

– Undermine teaming relationships

RISKS:– Competitors may use OCIs offensively in bid protests

– Affect employer/employee relationshipsAffect employer/employee relationships

– Increase risk of FCA liability

– Suspension and/or debarment from procurement


36Minimizing OCI Risks: Best Practices

Develop corporate plan to identify and address OCIs

Assign individual with responsibility for OCIsAssign individual with responsibility for OCIs

Assess OCIs prospectively for each contract

Diligence in preparing OCI disclosures



Be aware of unique agency organizational conflict of interest statutes and regulations.

– Section 821 of the National Defense Authorization Act for FY 2010 (Final Rule Effective May 22, 2013)

Authorized certain types of support contractors (“Covered Contractors”) to proprietary technical data belonging to prime contractors and third parties;data belonging to prime contractors and third parties;

Allowed technical data owner to enter into NDAs with Covered Contractors;

Allowed limited release of proprietary data to Covered Contractors that directly support the government’s management and oversight of programs;

Added layers of restriction, and additional safeguards, to current DoD OCI regulations to ensure that a Covered Contractor’s access to third-party data does not result in any competitive harm to the third-party data owner.


38

Personal Conflicts of Interest: Section 841(a) of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-417) (41 U.S.C. 2303)

Contractors must:– Identify and prevent personal conflicts of interest of their Covered Employees; andy p p p y

– Prohibit Covered Employees who have access to nonpublic information by reason of performance on a government contract from using such information for personal gain.

Rule covers individual contractor employee whose individual interests could conflict with performance of work under government contract. Such individual interests include:

– Financial interests of the Covered Employee, of close family members, or of other members of the Covered Employee's household;Covered Employee s household;

– Other employment or financial relationships (including seeking or negotiating for prospective employment or business); and

– Gifts, including travel.


39Personal Conflicts of Interest

“Acquisition Functions” are comprised of the following activities:– Planning acquisitions.g q

– Determining what supplies or services are to be acquired by the government, including developing statements of work.

– Developing or approving any contractual documents, to include documents defining requirements, incentive plans and evaluation criteriaincentive plans, and evaluation criteria.

– Evaluating contract proposals.

– Awarding government contracts.

– Administering contracts (including ordering changes or giving technical direction in contractAdministering contracts (including ordering changes or giving technical direction in contract performance or contract quantities, evaluating contractor performance, and accepting or rejecting contractor products or services).

– Terminating contracts.

– Determining whether contract costs are reasonable, allocable, and allowable.



“Covered Employees”– Contractor employees that support or provide advice or recommendations with regard to p y pp p g

Acquisition Functions.

Includes– A subcontractor that is a self-employed individual where there is no employer to whom such an

individual could submit the required disclosures.



Covered Employees to be advised of duty:– To disclose and prevent personal conflicts of interest;p p

– Not to use nonpublic information accessed through performance of a government contract for personal gain; and

– To avoid even the appearance of personal conflicts of interest.


42Personal Conflicts of Interest – Contractor’s Duty

Prevent personal conflicts of interest by:– Not assigning or allowing a Covered Employee to perform any task under the contract for which g g g p y p y

the contractor has identified a personal conflict of interest for the employee that the contractor; or employee cannot satisfactorily prevent or mitigate in consultation with the contracting agency;

– Prohibiting use of nonpublic information accessed through performance of a government contract for personal gain;

– Obtaining a signed non disclosure agreement to prohibit disclosure of nonpublic information accessed through performance of a government contract; and

– Requiring Covered Employee to update disclosure.



Report: – any personal conflict of interest violation by a Covered Employee as soon as identified, including:y p y p y g

a description of the violation,

the proposed actions to be taken by the contractor in response to the violation, and

with follow-up reports of corrective actions taken, as necessary.



FY 2013 National Defense Authorization Act Section 829 requires DoD to assess by mid-2013 whether personal conflicts of interest rule should be

d d i t f f t t lexpanded in terms of scope of contractor employee coverage.– Personal service contracts?

– Staff augmentation contracts?

DoD permitted to implement expanded DFARS without further legislation or reporting requirement – stay tuned.


45Impact of Noncompliance: FAR 3.1003(a)(2)

Whether or not the clause at 52.203-13 is applicable to any given contract, a contractor may be:

– suspended and/or

– debarred

– for knowing failure by a principal to timely disclose to the government, in connection with the d f l t f t t t f d b th t taward, performance, or closeout of a government contract performed by the contractor or a

subcontractor awarded thereunder, credible evidence of a violation of federal criminal law involving:

fraud

conflict of interest

bribery

gratuity violations found in Title 18 of the United States Code or

a violation of the civil False Claims Act.

– Knowing failure to timely disclose credible evidence of any of the above violations remains a cause for suspension and/or debarment until three years after final payment on a contract (see9.406-2(b)(1)(vi) and 9.407-2(a)(8)).


46Impact of Noncompliance: FAR 3.1003(a)(3)

The payment clauses at FAR 52.212-4(i)(5), 52.232-25(d), 52.232-26(c), and 52.232-27(l) require that,

– if the contractor becomes aware that the government has overpaid on a contract financing or invoice payment,

the contractor shall remit the overpayment amount to the government.

A t t b d d d/ d b d f k i f il b i i l t ti l– A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment, other than overpayments resulting from contract financing payments as defined in 32.001 (see 9.406-2(b)(1)(vi) and 9.407-2(a)(8)).


47Mandatory Disclosure: Increased Scrutiny on Contractor Compliance

Congressional Hearings – e.g., the Commission on Wartime Contracting in Iraq and Afghanistan

Private Watchdog Groups

WhistleblowersEmployees– Employees

– Competitors

– Prime contractors

Subcontractors– Subcontractors


48Government Investigations

Agency Office of Inspector General

Department of JusticeDepartment of Justice


49Exclusion (aka Suspension and Debarment)

Or how the government avoids dealing with “nonresponsible” contractors.– Suspension/debarment decision made by agency heads or designees (above CO level) based on p y g y g ( )

evidence that contractors have committed certain integrity offenses, including “offenses indicating a lack of business integrity or honesty that seriously affect the present responsibility of a contractor.”

– Exclusion is government wide and not contract-specific.

– Debarment lasts for a period of three years.

– Suspension lasts as long as any agency investigation of the underlying conduct or ensuing proceeding.


50System for Award Management (SAM)

www.sam.gov– Consolidates the capabilities of:p

Central Contractor Registration (CCR) database

Federal Register

Online Representations and Certifications Application (ORCA) and

Excluded Parties List System (EPLS)


51Exclusion Information on SAM.Gov

Names and addresses of all contractors debarred, suspended, proposed for debarment, declared ineligible, or excluded or disqualified under the

t l ith f h thnonprocurement common rule, with cross-references when more than one name is involved in a single action;

Name of the agency or other authority taking the action;

Cause for the action (see 9.406-2 and 9.407-2 for causes authorized under this subpart) or other statutory or regulatory authority;

Effect of the action;;

Termination date for each listing;

DUNS No.;

Social Security Number (SSN), Employer Identification Number (EIN), or other Taxpayer Identification Number (TIN), if available; and

Name and telephone number of the agency point of contact for the action.


52Effect of Exclusion Listing

Suspended or debarred contractors are excluded from:– Receivingg

Contracts

Subcontracts (exception for commercial items)

– Conducting business with the government as agents or representatives of other contractors

– Acting as individual sureties


53Exposure: Suspension & Debarment and FCA

Principal binds company – result:– Personal exposurep

– Corporate exposure


54Holly Roth

Holly RothPartner

Ms. Roth is a partner in the Government & Regulatory Policy practice group in the Washington, D.C., office of Manatt Phelps & Phillips LLP Ms Roth has moreManatt, Phelps & Phillips, LLP. Ms. Roth has more than 20 years of government contracts experience, including 10 years with a Fortune 50 systems integrator as subcontracts manager. Ms. Roth advises clients on all aspects of government contracts and compliance, including, but not limited to, GAO and FAA bid protests, SBA size status protests, contract performance, disputes and claims Ms Roth represents clients on adisputes and claims. Ms. Roth represents clients on a broad range of federal, state, and local government procurement matters.


55Manatt, Phelps & Phillips, LLP

The Firm Manatt, Phelps & Phillips, LLP, is known for quality, for extraordinary commitment to clients, for integrated, relationship-based services, and for a range of specialized capabilities typically found only in boutique firms. We are progressive and entrepreneurial compared to other major firms; and we are deeply committed to diversity, to public service, to involvement in the communities we serve and to excellence in all we do.

We represent a sophisticated client base in a range of industries, including healthcare, financial services, entertainment, media and advertising, real estate, technology, energy and natural resources, consumer goods, government contracts and services and transportation. The government contracts lawyers at Manatt are a strategic legal and business resource for individuals and companies that market and provide products and services to international, federal, state and local government units. We provide “cradle to

” id d t ti t t t dgrave” guidance and representation on government contracts and subcontracts. We provide guidance to our clients whether they sell commercial off the shelf (COTS) products and services or custom-designed and -built products and solutions to the government and every variation in between


and every variation in between.

Complying with FAR 52.203-13:Complying with FAR 52.203 13: Best Practices

J Catherine KunzJ. Catherine Kunz

July 10, 2013

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© 2012 Crowell & Moring LLP – All Rights Reserved

Foundational Concepts

Responsible companies have internal controls p pto prevent and detect unlawful activity and will initiate appropriate corrective and remedial

factivity when unlawful conduct occurs

Wrongdoing will occur in every company

Responsible companies that promptly and appropriately respond to wrongdoing will beappropriately respond to wrongdoing will be treated with greater leniency.

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Government Guidance on Best PracticesPractices

U S Federal Sentencing GuidelinesU.S. Federal Sentencing Guidelines Effective compliance and ethics program can remedy harm from

criminal conduct

– Establish standards and procedures to detect and prevent criminal conduct

– Assign responsibility for both oversight and day-to-day operation of compliance and ethics program

– Periodic evaluation of programp g

– Establish anonymous/confidential reporting mechanisms

– Incentivize compliance and provide for appropriate disciplinary

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measures

Government Guidance on Best PracticesPracticesDepartment of Defense Contract Audit Agency p g y

Audit Guidance – July 23, 2009– Establishes specific audit protocol for contractor p p

Code of Business Ethics and Conduct

– Tracks requirements set forth in 52.203-13

– Articulates DCAA’s expectations for contractor compliance E.g., content of Code, frequency of reviews of business

practices and internal controls, background checks for principalsp p

– Instructs DCAA to request copies of disclosures59

Contractors’ Insight on Best PracticesPractices Oversight and Responsibility for Program

Periodic Risk Assessments

Communication and Training

Exclusion from Principal Position of Individuals Engaged in Misconduct

Auditing and Evaluating Program EffectivenessAuditing and Evaluating Program Effectiveness

Internal Reporting of Suspected Misconduct

Corrective Action and Disciplinary Action for Improper Conductp y p p

Complying with the Mandatory Disclosure Obligation

Special Considerations when Subcontracting

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Oversight and Responsibility for ProgramProgram Elevate Compliance function

– Chief Compliance Officer with independent and direct access to Board (recommend quarterly reports)

D di t d thi & li t ff– Dedicated ethics & compliance staff

Recommend annual meeting with senior company official to brief on functioning of internal controlsofficial to brief on functioning of internal controls, assess risk, discuss necessary changes/improvements– Not necessary to have senior management involved in y g

managing internal controls on day-to-day basis – sufficient that responsible manager reports directly to senior management

– Beware of assigning to overburdened or junior personnel – riskBeware of assigning to overburdened or junior personnel risk of inadequate implementation or overly-narrow internal reviews

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Oversight and Responsibility for Program cont’dProgram, cont d Board of Directors – should have knowledge of g

Program and provide broad oversight– Clarify Board responsibilities in mission statementsy p

– Responsibilities can include: Approve changes to Code of ConductApprove changes to Code of Conduct

Responsible for Compliance Program

Leadership compensation decisions related to compliancep p p

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Oversight and Responsibility for Program cont’dProgram, cont d Executive Leadership Teamp

– Assists Chief Compliance Officer to assess risk areas, review policies and procedures, develop compliance training, develop compliance audit plans, communications

– Required to set tone, drive culture and provide assurance that Compliance program is well-designed and functioning effectivelyg g y

– Individual members accountable for driving ethics/compliance in their organizations

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Periodic Risk Assessments

Purpose: Identify and track key risk areas to p y yenable implementation of proper controls and continual process improvements

What are your key risk areas?– Where have you been the subject of government audits, investigations y j g , g

or enforcement actions? Private suits?

– What are the high risk areas based on current government enforcement initiatives?

– In what areas are your competitors subject to suits?

– What are the emerging areas of concern? (recently filed law suits; press reports; comments by enforcement officials; congressionalpress reports; comments by enforcement officials; congressional hearings; etc.)

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Periodic Risk Assessments, cont’d

Risk-based reviews help concentrate limited presources where most needed

Assessment toolsAssessment tools– Document reviews (contract files, proposals, policies and

procedures)

– Interview key personnel

– Audits

– Benchmarking/best practices

– Surveys

– Post-training test of content knowledge

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Factors to consider when evaluating risks:g– Substantive (e.g., submission of certified cost or pricing data,

reps and certs, procurement integrity, lobbying restrictions, i i i )invoicing)

– Management (e.g., tenure/turnover, ability to override controls delegation of authority)controls, delegation of authority)

– Organizational (e.g., restructuring, acquisitions, organizational structure)

– Operational (e.g., changing market conditions, new products)

– Financial (e.g., history of operating losses, significant ( g , y p g , gfluctuations in balance sheet accounts)

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As result of risk assessment, need to ,implement internal controls as necessary– Obtain buy-in from relevant actors who will be subject to new

controls to ensure long-term compliance

– Empower employees by explaining why internal controls are necessary and discussing alternativesnecessary and discussing alternatives

– Designate division coordinators or other channels of organizational responsibility to serve as in-place advocates for internal controls and to report on effectiveness of measuresinternal controls and to report on effectiveness of measures

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Communication and Trainingg

Ethics and Compliance trainingp g– Mandatory training of all levels of management and

employees

– Certification of completion of training

– Refresher training coursesRefresher training courses

– Testing of concepts learned from training

Scenario based training– Scenario-based training

– In-person training where/when possible

– Support and buy-in from management

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Communication and Training, cont’dg

Regular communication about ethics and gcompliance is critical– Ethics and compliance website or link on company p p y

intranet

– Company newsletter

– Integrated into routine company communications with management and employees

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Exclusion from Principal Position of Individuals Engaged in MisconductIndividuals Engaged in Misconduct Screening procedures to identify broad range of g p y g

categories of potential wrongdoing– Background checks prior to hiringg p g

– Background checks prior to promoting

Maintain robust personnel files that include Maintain robust personnel files that include documentation of violations of company’s code of business ethics and conductof business ethics and conduct– Require promotions committees to review files prior

to promotion decisionsto promotion decisions

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Auditing and Evaluating Program EffectivenessEffectiveness Regular reviews of Ethics and Compliance g p

Program– Internal reviews by compliance personnely p p

Incorporate into existing accounting/business practice reviews

Report findings to upper management/Board

– Reviews/audits by outside third parties with e pertise in area(s) being re ie ed/a ditedexpertise in area(s) being reviewed/audited

– Annual employee surveys, “brown-bag” focus groups or company wide forumsgroups, or company-wide forums

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Internal Reporting of Suspected MisconductMisconduct Reporting of observed misconduct should be required

of all employees – Alternative disclosure channels with procedures for anonymous

and confidential reporting (e g hotline company ombudsman)and confidential reporting (e.g., hotline, company ombudsman)

Encourage employees to spot red flags and report to management for resolution rather than investigate, g g ,analyze, or resolve concerns themselves

Process for internal investigation and prompt resolution of reported matters– Management needs to be held accountable to address reported

issues or refer to proper individuals within company to addressissues or refer to proper individuals within company to address

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Internal Reporting of Suspected Misconduct cont’dMisconduct, cont d Centralization can be key to successy

– Channeling internal reporting of possible violations to a central person or office with responsibility for coordinating investigations and disclosures may reduce the risk that known violations go unreported and ensure consistency in approachand ensure consistency in approach

Regardless of approach, DCAA auditors regularly ask to see all matters reported in pastregularly ask to see all matters reported in past 12 months and require defined procedure to document intake and prompt resolution of p preports

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Disciplinary Action for Improper ConductConduct Policy statement that company will discipline y p y p

misconduct

HR tracking of disciplinary actions to establishHR tracking of disciplinary actions to establish consistency

Reporting disciplinary actions to senior Reporting disciplinary actions to senior management and Board of Directors

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Complying with Mandatory Disclosure RuleDisclosure Rule Conduct sufficient internal investigation g

– Gather all relevant facts and verify

Involve legal counsel in decision to disclose Involve legal counsel in decision to disclose– Assess each potential disclosure separately rather

than applying standard disclosure procedurethan applying standard disclosure procedure

Ensure timely disclosure– While rule allows time to investigate prior to

disclosure, understand that contractor can continue its internal investigation after disclosureits internal investigation after disclosure

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Complying with Mandatory Disclosure Rule cont’dDisclosure Rule, cont d Draft disclosure letter to address specifics of

it ti th th i lisituation, rather than using agency on-line disclosure form– Provide sufficient facts to allow agency to understand

issue and determine how to proceed

Include attachments and supporting data as necessary– Include attachments and supporting data as necessary

– Address corrective and disciplinary actions

Ensure accuracy of information disclosed– Ensure accuracy of information disclosed

– Certification of disclosure not required

Add restrictive legend to prevent disclosure of information– Add restrictive legend to prevent disclosure of information outside the government

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Special Considerations When SubcontractingSubcontracting Insert language in subcontract requiring subcontractor

to comply with mandatory disclosure rule

Consider whether to include standard terms in b t t th t it th i t t t d tsubcontracts that permit the prime contractor to conduct

investigations involving subcontractor personnel and/or records

Consider requiring subcontractor to provide training to employees and/or require subcontractor to participate in prime contractor’s training program

May be prudent for contractors to have procedures for i t ti l b t t t l d thassessing potential subcontractors to exclude those

with record of misconduct77

Cathy Kunzy

Cathy Kunz is a partner in the Washington office of Crowell & Moring LLP. She is a member of the firm's Government Contracts group Her practiceShe is a member of the firm's Government Contracts group. Her practice involves both counseling and litigating on behalf of clients in a range of government contract law areas, including GSA Schedule contracting, contract claims and disputes, fraud and abuse, cost accounting issues, purchasing g gand subcontracting, and federal health care contracting. Cathy also represents clients in qui tam actions under the False Claims Act and in bid protests, and counsels clients on government audits, procurement ethics, compliance programs and contract administrationcompliance programs, and contract administration.

Cathy can be reached at (202) 624-2957 or [email protected]. Information on Crowell &Moring can be found at www.crowell.com.

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Documents

FAR RliRegulations for Fd lFederal Contractorsmedia.straffordpub.com/products/far-regulations...Jul 10, 2013 · FAR RliRegulations for Fd lFederal Contractors ... To maximize your