Integrating Ethics and Procurement – International Lessons Professor Christopher Yukins The George Washington University Law School Presentation to Interagency Ethics Council August 3, 2006

2 Topics for Today Goals in a Procurement System Goals in a Procurement System Procurement Integrity Has New Importance Procurement Integrity Has New Importance Druyun Case Druyun Case Safavian Case Safavian Case Rise in task-order contracting Rise in task-order contracting Decline in Acquisition Workforce Decline in Acquisition Workforce International Models International Models UN Convention Against Corruption UN Convention Against Corruption UNCITRAL Model Procurement Law UNCITRAL Model Procurement Law Basic Training – “Common Bloopers” Basic Training – “Common Bloopers”

3 Reasons for Reform: Desiderata, Goals, Constraints? Transparency Transparency Integrity Integrity Competition Competition Uniformity Uniformity Risk Avoidance Risk Avoidance Wealth Distribution(*) Wealth Distribution(*) Best value Best value Efficiency (administrative) Efficiency (administrative) Customer Satisfaction Customer Satisfaction Traditional? Transitional? Current?

Problems in Procurement Integrity Some Obvious Problems

5 October 2004 Shocker Ex-Air Force Official Gets Prison Time Boeing Received Special Treatment in Procurement By Renae Merle and Jerry Markon Washington Post Staff Writers Saturday, October 2, 2004; Page A01

6 From Darleen Druyun’s Supplemental Plea Agreement 1. The defendant agrees and stipulates that she breached the plea agreement by not providing full, complete and truthful cooperation as required by paragraph 11 of the plea agreement. The Supplemental Statement of Facts filed with this Supplemental Plea Agreement outlines the nature of that breach and constitutes a stipulation of facts for purposes of Section 1B1.2(a) of the Sentencing Guidelines.

7 Supplemental Facts from Darleen Druyun On July 28, 2004 the defendant was reinterviewed by government agents and acknowledged, as a result of the government’s investigation, that she had not been truthful in her prior cooperation. The defendant had previously maintained that she had always acted in the best interest of the United States during her negotiations with the Boeing Company while she was employed by the Air Force. She acknowledged a conflict of interest in negotiating employment with Boeing while at the same time negotiating with Boeing on behalf of the Air Force. However, the defendant had maintained that her relationship with Boeing did not influence her official actions or harm the government.

8 Supplemental Facts The defendant, since July 28, 2004, now acknowledges that she did favor the Boeing Company in certain negotiations as a result of her employment negotiations and other favors provided by Boeing to the defendant. Defendant acknowledges that Boeing’s employment of her future son-in-law and her daughter in 2000, at the defendant’s request, along with the defendant’s desire to be employed by Boeing, influenced her government decisions in matters affecting Boeing. That as a result of the loss of her objectivity, she took actions which harmed the United States to include the following:

9 More Obvious Problems Duke Cunningham David Safavian Ex-Aide To Bush Found Guilty Safavian Lied in Abramoff Scandal By Jeffrey H. BirnbaumJeffrey H. Birnbaum Washington Post Staff Writer Wednesday, June 21, 2006; Page A01 Congressman resigns after bribery plea California Republican admits selling influence for $2.4 million Monday, November 28, 2005 (CNN) -- Rep. Randy "Duke" Cunningham said Monday he is resigning from Congress after pleading guilty to taking more than $2 million in bribes in a criminal conspiracy involving at least three defense contractors.

Less Obvious Problems

11 Historical Progression Sealed Bids Negotiated Procurements Task Order Contracting

Benefits of Task Order Contracting Faster Successful

13 Impact of Shift to Task Order Contracting Competition Procurement Integrity Transparency

14 Other Causes of Concern: Declining Acquisition Workforce

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16 Other Causes for Concern: Outsourcing of Procurement Positions Which code of ethics – government or contractor’s?

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18 California Already Applies Personal Ethics Rules to “Consultants”

19 California: The Basic Rule

20... Applied to “Consultants”

Has the Government Shifted to Meet Problems?

22 Guidelines: Elements of an Effective Compliance Program 1. Standards and procedures 2. Knowledgeable governing authority; high-level personnel responsible, with adequate resources, authority and access 3. Exclude inappropriate personnel 4. Training 5. Ensuring compliance: monitoring and evaluating program; reporting and guidance 6. Incentives and disciplinary measures 7. Reasonable steps in response to criminal conduct, including modifications to compliance program

23 Contractor Compliance: Background on Sentencing Guidelines U.S. Sentencing Commission publishes Guidelines ( U.S. Sentencing Commission publishes Guidelines ( Federal courts must strictly follow Sentencing Guidelines when applying criminal sentences Federal courts must strictly follow Sentencing Guidelines when applying criminal sentences Specific guidelines (Chapter 8) govern sentencing of organizations Specific guidelines (Chapter 8) govern sentencing of organizations Describe effective compliance programs Describe effective compliance programs Effective November 1, 2004, guidelines for compliance programs substantially strengthened Effective November 1, 2004, guidelines for compliance programs substantially strengthened

24 Benefits of Compliance Program Sentencing Guidelines state: Sentencing Guidelines state: An effective program can reduce corporation’s sentence in the event of conviction (8C2.5) An effective program can reduce corporation’s sentence in the event of conviction (8C2.5) Lack of compliance program may force probation Lack of compliance program may force probation Effective program may ease conditions of probation for corporation (8D1.4) Effective program may ease conditions of probation for corporation (8D1.4) Practical benefits for corporation: Practical benefits for corporation: Demonstrates commitment to good citizenship Demonstrates commitment to good citizenship Shows commitment to compliance Shows commitment to compliance Addresses employee and stakeholder concerns Addresses employee and stakeholder concerns

25 Compliance Program Called for by DFARS A contractor's system of management controls should provide for-- (1) A code of ethics and training; (2) Periodic reviews to ensure compliance; (3) A mechanism for reporting improper conduct; instructions that encourage employees to report; (4) Internal and/or external audits, as appropriate; A contractor's system of management controls should provide for-- (1) A code of ethics and training; (2) Periodic reviews to ensure compliance; (3) A mechanism for reporting improper conduct; instructions that encourage employees to report; (4) Internal and/or external audits, as appropriate; (5) Disciplinary action for improper conduct; (6) Timely reporting to the Government; and (7) Full cooperation with any Government agencies responsible for either investigation or corrective actions. (5) Disciplinary action for improper conduct; (6) Timely reporting to the Government; and (7) Full cooperation with any Government agencies responsible for either investigation or corrective actions.

26 How Guidelines and DFARS Compare Sentencing Guidelines DFARS Standards and procedures Code of Ethics 2. Knowledgeable leadership 3. Exclude risky personnel 4. Training Training 5. Monitor, evaluate, reporting hotline Periodic review; audits; hotline 6. Incentives and discipline Discipline Adjust program to risk Self-reporting = sentencing factor Timely reporting to government Cooperation = sentencing factor Full cooperation with government

International Perspective United Nations Initiatives

28 United Nations Commission on International Trade Law (UNCITRAL) Model Procurement Law United Nations Convention Against Corruption

UN Convention Against Corruption Goal: Fight Corruption Extradition Bribery Foreign Bribery Central Body Civil Society Judiciary Procurement Code of Conduct Civil Service Asset Forfeiture Money Laundering Mutual Assistance = Self-Executing

30 Procurement UN Convention Against Corruption (Art. 9) UNCITRAL Model Procurement Law Public Information Yes Advance award criteria and publication Yes Objective and predetermined criteria for award Yes Bid protest and appeal Maybe Measures to control procurement personnel – e.g., rules and codes No Transparency, including in budgeting and accounting Yes

31 Challenges Under “Integrity First” Approach Leadership Shifts to Integrity Community Leadership Shifts to Integrity Community Politicians, Press Politicians, Press Officials Officials Ethics Ethics Prosecutors Prosecutors But:...procurement officials, programs, industry... But:...procurement officials, programs, industry... Over-inclusive: E.g., Commercial Bribery; Damages Over-inclusive: E.g., Commercial Bribery; Damages Under-inclusive: E.g., Procurement Integrity Act Under-inclusive: E.g., Procurement Integrity Act

Top 10 Compliance Bloopers

33 Compliance Is About Making Sure Perceptions Match Reality The ethics and procurement integrity rules are extremely complex The ethics and procurement integrity rules are extremely complex Too often, the problem is that employees have misperceptions regarding the rules Too often, the problem is that employees have misperceptions regarding the rules Compliance training’s goal is to align your understanding with the rules Compliance training’s goal is to align your understanding with the rules

Misperception: It’s Okay To Feed a Government Official

35 Reality It’s against the law – both the criminal law and the government’s ethics rules – for a contractor to give government employees “anything of value,” or for government officials to accept It’s against the law – both the criminal law and the government’s ethics rules – for a contractor to give government employees “anything of value,” or for government officials to accept That includes meals. Contractors should not pay for meals to government employees That includes meals. Contractors should not pay for meals to government employees Exception: snacks can be provided Exception: snacks can be provided Question: What’s a snack? What’s meal? Question: What’s a snack? What’s meal?

36 Perception: It’s Okay for a Contractor To Loan Money To Government Officials, So Long As They Promise To Pay It Back

37 Reality: A Loan Can = A Criminal Gratuity Federal law makes it a criminal offense to give “anything of value” to a government official “for or because of” an official act Federal law makes it a criminal offense to give “anything of value” to a government official “for or because of” an official act A loan is a “thing of value,” and may constitute an illegal gratuity A loan is a “thing of value,” and may constitute an illegal gratuity Federal law calls for a sentence of up to two years for a gratuity Federal law calls for a sentence of up to two years for a gratuity The possible sentence for a bribe (a quid- pro-quo) is up to fifteen years in prison The possible sentence for a bribe (a quid- pro-quo) is up to fifteen years in prison

38 Perception: It’s Improper for a Contractor To Talk To A Contracting Official About an Upcoming Procurement

39 Reality Federal procurement regulations encourage interactions with industry before a solicitation is issued Federal procurement regulations encourage interactions with industry before a solicitation is issued After the solicitation is issued, the contracting officer should control any further exchanges After the solicitation is issued, the contracting officer should control any further exchanges

40 Perception: Once a company has helped design a government system, it is forever barred from selling components for that system to the government

41 Reality Principles of organizational conflicts of interest (“OCI”) prohibit contractors from gaining an unfair advantage, such as by designing systems that they will deliver Principles of organizational conflicts of interest (“OCI”) prohibit contractors from gaining an unfair advantage, such as by designing systems that they will deliver But if a contractor and a contracting officer set up safeguards, to ensure that the contractor doesn’t gain an unfair advantage or provide biased advice, the OCI can be “mitigated” – and, with the contracting officer’s consent, the contractor may proceed with follow-on work But if a contractor and a contracting officer set up safeguards, to ensure that the contractor doesn’t gain an unfair advantage or provide biased advice, the OCI can be “mitigated” – and, with the contracting officer’s consent, the contractor may proceed with follow-on work

42 Perception: Government Employees Can Accept Anything at a Trade Show

43 Reality: “Small Item” Exception Is Limited Under the gift rules, government officials may accept up to $20 per donor, up to a total of $50 per year per donor Under the gift rules, government officials may accept up to $20 per donor, up to a total of $50 per year per donor This includes low-value items given out at trade shows This includes low-value items given out at trade shows But the exception extends to all items from a single corporation -- they may not exceed $50/year per official But the exception extends to all items from a single corporation -- they may not exceed $50/year per official

44 Misperception: In Handling Ethics, A Government Employee Is On His Own

45 Reality: Government Ethics Officials Are Available A government official may always ask an ethics official for advice A government official may always ask an ethics official for advice If the ethics officer gives a “comfort letter” – an ethics opinion approving of the employee’s proposed conduct – that comfort letter may help protect the employee and the contractor from criminal prosecution. If the ethics officer gives a “comfort letter” – an ethics opinion approving of the employee’s proposed conduct – that comfort letter may help protect the employee and the contractor from criminal prosecution.

46 Misperception “All’s fair in love and government contracting” – it’s okay to use a competition to “sneak a peek” at competitors’ information

47 Reality: It’s Illegal To Steal Inside Information Procurement Integrity Act bans improper access to: Procurement Integrity Act bans improper access to: Bid-and-proposal information from other bidders Bid-and-proposal information from other bidders Source selection information (information used by the government evaluators and procurement planners) Source selection information (information used by the government evaluators and procurement planners)

48 Perception: It’s Okay for a Contractor To Recruit a Government Employee

49 Reality: Recruiting Triggers Ethical Requirements The “revolving door” ethical requirements are very complex: The “revolving door” ethical requirements are very complex: A procurement official may have to recuse herself from all procurements A procurement official may have to recuse herself from all procurements Other government employees have similar requirements, under other laws Other government employees have similar requirements, under other laws Bottom line: contact your HR department and/or ethics officer before even beginning the process Bottom line: contact your HR department and/or ethics officer before even beginning the process Darleen Druyun

50 Perception: It’s illegal for a contractor to be friends with a government employee

51 Reality: Friendship’s Okay – But Be Careful Items given to a government employee, if there is a true friendship, are not “gratuities” because they are given out of friendship – not “for or because of an official act” Items given to a government employee, if there is a true friendship, are not “gratuities” because they are given out of friendship – not “for or because of an official act” But be prepared to explain that friendship to third parties... including an investigator But be prepared to explain that friendship to third parties... including an investigator Do your friend a favor: don’t give or accept gifts that will raise concerns Do your friend a favor: don’t give or accept gifts that will raise concerns

52 Misperception: Only the Folks in the Contracting Department Need To Worry About Federal Compliance

53 Reality: Compliance Is Everyone’s Responsibility

Conclusion Professor Christopher Yukins Tel