1. New FAR Ethics Requirements Richard W. Oehler Perkins Coie LLP 1201 Third Avenue Suite 4800 Seattle, WA 98101 (206) 359-8419 roehler@perkinscoie.com

2. 2 14011819 New FAR Ethics Requirements  FAR Subpart 3.10 - requires a written code of business ethics and conduct  Effective December 24, 2007  Recommended for all federal contractors  Mandatory for all contracts and subcontracts exceeding $5 million and having an expected performance period of at least 120 days

3. 3 14011819 Mandatory Ethics Code – Exceptions  Exceptions  Commercial item contracts and subcontracts  Contracts performed outside of the United States  Does not apply to existing contracts – only future contracts

4. 4 14011819 Ethics Code – Requirements  Within 30 days of award of a covered contract, a contractor must:  Have a written code of business ethics and conduct  Provide a copy of the code to each employee engaged in performance of the contract  Promote compliance with the code

5. 5 14011819 Ethics Code - Requirements  Throughout contract performance, a contractor must:  Display fraud hotline posters except if the contractor has established a mechanism by which employees can report suspected instances of misconduct and provided instructions that encourage employees to make such reports  If the company maintains a website as a method of providing information to employees, the posters must be displayed on the website

6. 6 14011819 Ethics Code – Requirements  Within 90 days of contract award, a contractor must (unless a small business):  Establish a formal training program  Not defined in the regulations  Establish an internal control system

7. 7 14011819 Internal Control System  Internal Control System  Must facilitate timely discovery of improper conduct in connection with government contracts  Ensures corrective measures are promptly implemented  Appropriate to the size of the company

8. 8 14011819 Internal Control System  Components of an Internal Control System  Periodic reviews of company business practices, policies and procedures to ensure compliance with the contractor's code of business ethics  Internal reporting mechanisms, such as a hotline, allowing employees to report suspected misconduct  Internal and/or external audits  Disciplinary action for misconduct

9. 9 14011819 Flow down Obligations  Prime contractor must flow down these requirements to subcontracts valued over $5 million and having a performance period greater than 120 days  Prime contractors are not required to evaluate or monitor the ethics awareness program of subcontractors, but should verify that the subcontractor has a program  Contracting officers are not required to verify compliance, but may inquire at their discretion

10. 10 14011819 Proposed Mandatory Disclosure  Contractors have an opportunity to voluntarily disclose wrongdoing, but have never been required to disclose  Proposed rule would require mandatory disclosure of wrongdoing by contractors and full cooperation with Government inquiries  Disclose to CO and OIG any violations of criminal law in connection with contracts or subcontracts valued at $5 million or more

11. 11 14011819 Proposed Mandatory Disclosure  Required to cooperate fully with any government agencies responsible for audit, investigative or corrective actions  The Government believes there is a need for mandatory disclosures  Only 5 voluntary disclosures to DOD in 2007  High profile procurement-related misconduct  Contractor misconduct under Iraq and Gulf Coast reconstruction contracts  Increasing number of False Claims Act cases

12. 12 14011819 Proposed Mandatory Disclosure  Industry concerns  Counter to the corporate self-governance policy in government contracting  Attorney-client privilege could be waived as a result of compelled disclosure  May infringe upon constitutional rights and legal protections of employees  May chill employee willingness to report suspected misconduct and have a negative impact on morale