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The Importance of Compliance for Government Contractors

If you’re running a small business in the United States, you might want to consider becoming a government contractor. The government is constantly looking for businesses they can work with to do a variety of projects; in fact, there were 4.1 million active government contracts as recently as 2017!

A government contract can be a great way to earn extra revenue for your business — but if you’re taking on these contracts, you’ll need to pay extra attention to compliance. There are different compliance standards when working with the government, and standards vary from federal to state government and even between departments. Additionally, failure to meet compliance can lead to tremendous financial harm (or even criminal sanctions)!

Here’s what you need to know about compliance for government contractors.

Government Contractor Compliance Requirements

The first compliance requirements you’ll encounter as a government contractor are the Federal Acquisition Regulations (FAR). Both government contractors and the federal agencies that hire them are bound by these regulations — and at 2,100 pages long, these regulations are certainly comprehensive!

But don’t worry: you don’t need to read the equivalent of one and a half copies of War and Peace to understand how to comply with federal contractor standards. The most important thing you need to know is that the government requires any business they contract to operate honestly, which means you need to have a written ethics system. 

Your ethics system must:

  •     Be appropriate for the size of your organization and the level of your involvement in government contracting
  •     Allow timely disclosure for reporting any misconduct to your government contacts
  •     Make sure that workers always follow corrective measures when misconduct occurs

If you can prove that your organization has measures in place that meet these requirements, you will be eligible to apply for government contracts. Of course, if you land a contract you will likely have more department-specific standards to follow, but the FAR is a good place to start.

Code of Ethics Requirements

In addition to the FAR basics, government contractors do need to adhere to other federal standards during the time of their contract. These include the following:

Bribery

According to the Federal Anti-Bribery Statute, 18 U.S.C. §201, no government contractors can offer or give public officials anything of value in order to influence their behavior. This includes gifts that sway public behavior (bribes) or gifts that reward particular behavior (gratuities).  

Kickbacks

While the Anti-Bribery Statute prevents contractors from giving anything of value to public officials, the Anti-Kickback Act prevents contractors from giving anything of value to each other, their subcontractors, or even their own employees if the gift is “for the purpose of improperly obtaining or rewarding favorable treatment.”

Contingent Fees

Government contractors have to certify that they have not entered into any third-party arrangements where the third party’s fee is contingent on winning the contract. The reason for this is simple: past experience shows that contractors whose third-party associates only get paid if the contract is approved tend to cut corners to minimize their potential losses.

Procurement Integrity

The government wants to hire the best companies for their contracts, and that means the procurement process needs to be as pure as possible. Therefore, contract applicants are not allowed to receive any information that could give them an unfair advantage, including bids from other contractors or “source selection” information from the agency.

Conflict of interest

Any conflict of interest can disqualify an organization from the contract selection process. However, it is possible to work around a conflict of interest or remove it altogether — if the organization discloses the conflict as soon as possible. This is why a contractor’s ethics system needs to allow time for communication with the contracting agency.

Special Audits and Accounting Rules

If you’re working on a government contract, get used to audits — and LOTS of them. Everything from your organization’s accounting systems to your company’s property will need to be reviewed.

Certifications

Finally, government contractors are required to have several specific certifications. These can include the Certificate of Independent Pricing, (FAR §52.203-2), Certification of Final Indirect Costs, FAR §52.242-4, and many others. This can be the area where many organizations become non-compliant, so make sure your certifications are up to date and ready for review!

 Mandated requirements for contractors

All these requirements may seem overwhelming. We must admit, the FAR is thorough, and meeting all the standards does take a lot of work.

For example, any company working on a government contract that is expected to exceed $5 million and will last longer than 120 days must have the following:

  •     A written code of business ethics and conduct
  •     A formal training program for the code of ethics
  •     A corporate culture that encourages ethics and compliance
  •     A system in place that reports misconduct to the contracting body in a timely manner
  •     An ethics hotline for reporting misconduct, and proper displays encouraging the use of the hotline
  •     Willingness to fully cooperate with any audit or investigation

Compliance Violations

No company wants to face the consequences of non-compliance — and this goes double for any government contractors. Compliance violations on government contracts not only result in financial penalties, but can also lead to criminal sanctions. Your company could face fines up to hundreds of thousands of dollars, and you could end up facing several years in federal prison!

Steps Contractors Can Take to Ensure Compliance

Clearly, no government contractor wants to find themselves dealing with the penalties of non-compliance. So, what can you do to ensure that you meet compliance standards? Here are a few key tips:

    Create a code of business ethics and conduct

    Conduct a risk assessment/gap analysis to spot potential weaknesses before the contract begins

    Appoint a dedicated compliance officer to make sure compliance remains a top priority

    Implement a formal confidential hotline reporting mechanism and advertise it in your workplace

    Establish training programs so all employees are aware of your code of business ethics and conduct

    Keep thorough records of all misconduct reports and the actions taken against the offending parties

    Bring in a third party for assistance

Third-party associates can help you make sure that your ethics code is thorough, your training is engaging, and that your system functions like it’s meant to. This can make all the difference between compliance and a successful government contract and non-compliance and serious penalties!

To learn more about business ethics and compliance, contact ComplianceLine today. We can help you transform your corporate culture through training, hotlines, and more!

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