Government Contractors Need a Compliance Program

June 2006

 

Recent reforms to government procurement regulations have made doing business with the government easier and more rewarding. However, one aspect of contracting that remains both unique and demanding is captured under the term “compliance." Contracting with the government is different because only the government can enforce its requirements using the nation’s criminal code and, with its limitless resources, can pursue its other contractual remedies without concern for cost or resources.

Anyone doing business with the government needs to think compliance, and have a compliance program. For most, it does not have to be elaborate or expensive – just tailored to your particular needs and implemented in a meaningful way. Here are some ideas on how to avoid trouble and get the most from your compliance program.

Comply with what?

Good question. It starts with reading your contract to see what you have agreed to do. There are numerous compliance related clauses in government contracts concerning such things as procurement integrity, kickbacks, independent pricing, drug free workplace and contingent fees. Many of these clauses require a written policy or plan. If you don’t read the clause to see what is required, your chances of complying are slim. Recently, the government has been paying special attention to compliance with the nation’s Export Control regime, and requirements falling under what is called the Berry Amendment.

You need to know if your products or technology falls under either the International Traffic in Arms Regulations (ITARs) or the Export Administration Regulations (EARs). Don’t be mislead into thinking if you never ship a product out of the country these rules don’t apply to you – they often do.

The Berry Amendment requires that certain products sold to DOD -- and all supplies incorporated into such final end product -- be mined, melted or produced in the U.S. The application of this rule to “specialty metals” is currently causing headaches to many large DOD contractors. You need to know if the Berry Amendment clause is in your DOD contract or subcontract, whether you are complying with it, and remember to flow it down to your suppliers.

In addition to requirements in clauses, there are some other basic features that should not go without mention. First, be honest and truthful with the government – even when it hurts. Contractors are frequently in trouble because over zealous employees tell the government what it wants to hear. Likewise, the employees may say what they have to say to get an item accepted, even when they know they are saying or signing is not true. It is just as bad when they really do not know, and don’t make an effort to find out, whether it is true or not.

An effective compliance program trains and educates employees on the company’s expectations, i.e. truthfulness, creating a “culture of compliance”, and gives them a resource to get their questions answered. It should include the designation of a Compliance Officer and function in conjunction with your Code of Ethics.

An effective compliance program works to avoid violations, but just as importantly, acts to mitigate the action taken against a contractor when the inevitable mistake is made. If you can demonstrate that you have taken your compliance obligations seriously and made the effort to properly train your personnel, you will be given the benefit of the doubt in what action the government takes.

Courts are fond of saying government contractors are expected to “turn square corners” when performing government contracts. A compliance program is an effective tool in meeting that requirement.

George W. Ash is a member of the law firm of Foley & Lardner LLP in Detroit, where he specializes in government procurement issues. He may be reached at 313-234-7147.

Note: This update provides information of general interest presented in summary form, and does not constitute individual legal advice.