We may not often think of them this way, but government contractors are perhaps the most heavily regulated sector of our economy. Any company that wishes to work steadily in the federal contracting field needs to be aware of dozens of statutes that govern its behavior. In fact, it will take more than one blog post for us simply to explain what statutes are out there that government contractors must follow.
Companies in this sphere are well advised to undertake formal compliance training to make sure that they stay on the right side of the law. They are also required to maintain and update various logs, reports and codes, and in many instances, they must not only publish Codes of Conduct and Business Ethics and Disclosure Policies, but must also educate their employees in all matters relating to compliance, affirmatively engage their employees in compliance, and provide means for their employees to report suspected misconduct or potential problems.
In order to comply, it is critical to understand the context of the rules that must be complied with. A good starting place is the Federal Acquisition Regulation (FAR), which applies to the government itself, as well as the contracting community, and sets forth the rules for the acquisition process by which executive agencies of the federal government acquire goods and services with appropriated funds. The process consists of three phases — need recognition and acquisition planning, contract formation, and contract administration.
The purpose of the FAR is to provide uniform policies and procedures for the acquisition process. The idea is to ensure that the government uses an acquisition system that satisfies its customers’ needs in terms of cost, quality, and timeliness; minimizes administrative operating costs; and permits the government to conduct business with integrity, fairness, and openness. Any government contractor needs to understand that the government agency is using the FAR and needs to respond to the agency in ways recognized by the FAR.
The second basic type of knowledge for all government contractors relates to criminal laws and regulations that go to the essence of the duties of a contractor. These relate to such issues as fraud, corruption and espionage. Many of these are found in the DFARS (Defense Federal Acquisition Regulation Supplement), which, in DOD-specific matters, adds to the requirements that federal agencies and contractors must adhere to. Similarly, NASA has its own supplement to the FAR for its contracts.
Investigations of alleged violations can be conducted by an agency inspector general’s office, the Defense Contract Audit Agency (DCAA), the U.S. Department of Justice, or other entities.
Compliance audits can also be launched by the federal government if it suspects that its funds have not been used properly. These audits often are designed to look into the contractor’s compliance with “Limitation of Cost,” “Limitation of Funds,” and “Limitation on Payments” clauses that may be in the contract.
A third important area of compliance concern involves cooperation and collusion with competitors. While the government often encourages teaming arrangements between two companies for the purpose of obtaining and carrying out a contract, price-fixing and bid-rigging between competitors are illegal and may be criminal. In fact, coordination and the exchange of information between competitors, even if there is no actual price-fixing, can run afoul of antitrust laws and federal contract regulations.
Next, federal contractors are often called upon to make certain representations to the federal government. These must be accurate and complete. Among them are statements under the Buy American Act, which requires the government to prefer U.S.-made products in its purchases; statements regarding the size of the contractor’s business, which are required if the contractor is to receive small business certification and preference; the HUBZone program, which focuses on the contractor’s size and location and gives preference to small companies that operate and employ people in Historically Underutilized Business Zones; Equal Employment Opportunity certifications regarding fair employment practices; and the Independent Price Determination statement, which ensures that the proposed prices were arrived at independently of the input of other companies.
These are only some of the important aspects of federal contracting and all will find their way into an appropriate compliance program. Our next post will focus on additional contracting requirements.