Ethical lapses provide valuable training tool.

A recently proposed amendment to the Federal Acquisition Regulations (FAR) would call upon all government contractors to have a written code of ethics and business conduct.

Defense contractors know this requirement, because the Defense Federal Acquisition Regulation Supplement (DFARS) has mandated an ethics and compliance program for years. The new proposal would apply to contractors receiving awards larger than $5 million with a performance period greater than 120 days, and mandate a written code of ethics and business conduct, to include an internal control system promoting code compliance and an employee ethics and compliance training program.

The newly proposed FAR clause also specifies that the internal control system should facilitate early discovery, disclosure of improper conduct, and full cooperation with the government; specify corrective measures; require periodic reviews of company business practices, procedures, policies, and internal controls; contain internal reporting procedures--for example, a hotline, and internal and/or external audit systems--and spell out disciplinary action for improper conduct.

For those tasked with executing an ethics and compliance program, the Standards of Conduct Office of the Defense Department General Counsel ("SOCO") publishes an annual reminder of the importance of ethics and compliance issues--the annual "Encyclopedia of Ethical Failure" highlighting concrete examples of the prior year's ethically-challenged who continue to break the rules.

Last year, this column highlighted the more noteworthy and ironic examples of ethical failure from the 2006 encyclopedia. This year, the encyclopedia has added an additional 30 pages of new ethical lapses. The 2007 entries involved abuses of official positions, misuse of government resources and personnel, bribery, criminal conflicts of interest, misuse of government credit cards, financial disclosure violations, fraud, political activity violations, post-employment violations, salary for government work from non-government sources, time and attendance violations, and travel violations. Some highlights from the 2007 publication include:

* A former Defense Department employee, several former soldiers and numerous public officials, including two high-ranking U.S. Army officers, who rigged bids on Iraq reconstruction projects awarded to the same contractor. The contractor provided the officials with a variety of gifts, including over $1 million in cash, sports cars, jewelry, computers, liquor, and offers of future employment.

* The Department of Veterans Affairs employee found to be demanding and receiving kickbacks from a contractor doing business with her agency. The VA employee and the contractor agreed that the employee would recommend the contractor's services to her agency, and in return the contractor would provide the employee kickbacks from the inflated prices it charged the government.

* The Postal Service employee who accepted free tee time golf games and meals from a vendor involved in a $100 million procurement with USPS.

* An ex-GSA programs director who awarded projects to two contractors who in turn hired the employee's personal business enterprise and the employee's daughter as subcontractors. Neither the employee's personal business nor his daughter ever actually performed any services.

* The Tennessee Valley Authority contract power plant manager who was moonlighting for the same contractor whose performance he was overseeing.

* The NASA communications specialist who recommended his friend's company to a prime contractor to install new "telecommunications closets" in Langley Research Center. On a subsequent project, the subcontractor covertly hired another company to complete the work--that company was wholly owned and operated by the NASA employee himself.

* The Department of the Treasury employee and her husband who funneled contracts to companies they personally controlled. The employee awarded 105 training contracts valued at more than $139,600 to companies owned by her husband.

* The GSA contracting officer who for 15 months funneled over $11.5 million contracts to her husband's employer, all in the form of GSA purchases of food preparation and serving equipment. The employer's payoff- to the husband: raises and a Jaguar.

* Contractors on the Ohio River's Olmsted Dam who were charged with fraudulent reimbursement claims to the government. After buying many vehicles for use on the job, the contractor's incentive program allowed eight senior-level employees to drive those vehicles home daily. To aggravate matters, the costs of three accidents with these vehicles were then submitted for government reimbursement.

These cases serve as real life reminders for the need to communicate with and train employees--two critical components of an ethics program. A company can protect itself by demonstrating that it promoted ethical standards through its training program. The encyclopedia is but one of many effective, concrete ways to demonstrate to employees what might otherwise be viewed as abstract provisions of the FAR or DFARS. It is also a valuable annual reminder to companies to periodically cast a critical eye toward each component of their ethics and compliance program, including its training component.

David T. Hickey ([e-mail]) and Sean M. Connolly ([e-mail]) are attorneys at Greenberg Traurig LPP, and members of the government contracts practice group. The views expressed are solely those of the authors.

NDIA ETHICS COMMITTEE 

Joe Reeder, Chairman

Attorney, Greenberg Traurig LLP 

Thomas Culligan

Tofie M. Owen, Jr.

Senior Vice President for Corporate Development, SAIC 

John D. Illgen

Vice President, Northrop Grumman Simulation Technologies Corporation

Lawrence Skantze

Gem, USAF (Pet.)

W. John Stoddart

Executive Vice President and President Defense, Oshkosh Truck Corporation

James McAleese

Principal, McAleese & Associates

Dr. Vincent J. Ciccone

President & CEO, RASco Inc.

Steven Talkovsky

Crowell & Moring LLP

Richard D. McConn

President, M International Inc.