New FAR Rule Requires Contractors, Both Large And Small, To Establish Code of Business Ethics

A new FAR rule, and implementing contract clauses, has just been issued in final form in FAR Case 2006-007. The new rule mandates certain contractor business ethics and conduct requirements that may be of significant importance to companies that are typically prime or sub contractors to the government on contracts that are likely to be covered by the new rule's requirements.

Specifically, on November 23, 2007, the FAR Council issued a final rule requiring contractors awarded contracts expected to exceed $5 million (total value, including options) that are to be performed in 120 days or more to establish and maintain a code of conduct and compliance program (including dissemination of codes to employees working on such contracts, training and auditing) and to display appropriate hotline posters within 30 days of the contract award.

The rule exempts contractors that are small businesses from certain formal training and control system requirements. It also exempts contracts that will be performed entirely outside the United States and contracts that constitute commercial acquisitions under FAR Part 12 from the code of conduct, display, training and control system requirements per new rule FAR 3.1004. However, OFPP's Paul Dennett has made clear that GSA Schedule acquisitions are not exempt from these requirements. (See R. Brodsky, "Rule requires contractors to set, follow codes of ethics," Government Executive (Nov. 29, 2007)).

Businesses whose contracts and subcontracts contain these provisions will be required to flow these clauses down to any business with which they subcontract where the subcontract meets the requirements for compliance.

In addition to this new rule, at the request of the Department of Justice, a new FAR case was published for comment on November 14, 2007. FAR Case 2007-006, Contractor Compliance Program and Integrity Reporting, proposes additional ethics program/standard of conduct requirements on contracts and compulsory disclosure of suspected violations. Comments on this proposed rule are due on January 14, 2008.

Previously, a number of the provisions in FAR Case 2007-006 had been included in FAR Case 2006-007, the FAR Case that resulted in the new FAR Contractor Code of Ethics and Business Conduct rule mentioned above, but they were moved out of that FAR Case and into FAR Case 2007-006 so that the FAR Council could further consider a number of comments received from the public.

With the new final FAR rule on Contractor Code of Ethics and Business Conduct, and the implementing clauses, to be effective December 24, 2007, it is important that covered contractors have a working compliance program. Companies that obtain covered contracts will need to ensure their compliance with the rules within a very tight timeframe, within 30 days of contract award for new contracts meeting the threshold requirements, unless an extension is granted. If you want to learn more about these new final and proposed rules or need assistance with the implementation of the new final rule, please contact us.