Government Contracts Blog : Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest.

For years, in-house counsel have struggled with how best to persuade their clients to establish codes of business conduct, implement training programs, and adopt systems for assessing contract compliance. While the wisdom of all three activities was obvious to lawyers, who have the benefit (or misfortune) of witnessing firsthand the pervasive impact of not doing these things, the message often was lost on revenue-driven sales organizations that could not quite grasp -- or preferred not to grasp -- the ROI of a robust internal compliance program.

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On June 20, 2007, the U.S. Department of Justice announced the appointment of Steven W. Pelak as the first-ever National Export Control Coordinator. Mr. Pelak's job is "to improve the investigation and prosecution of illegal exports of U.S. arms and sensitive technology." The creation of this position follows on a number of recent high profile enforcement actions in which companies and individuals have sold high-end military technology to foreign companies. Most notable among these recent enforcement actions is the guilty plea entered by ITT Corp. earlier this year, in connection with which ITT may be fined up to $100 million for the illegal export of night vision technology to China.  While most enforcement actions for export violations involve administrative fines, with a maximum of $50,000 per violation, criminal convictions can add a $1 million penalty and up to 20 years in prison. Increasingly, the Government is pursuing actions against both the offending company and its management.
 

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If discretion is the better part of valor, then administrative contracting officers must be feeling less valiant these days. When it comes to penalties for unallowable costs, ACOs and government auditors are beginning privately to admit what many contractors already know from experience – enforcement of FAR 42.709 is on the rise.  This article is designed to clarify some key underlying concepts, to identify major risks – as well as opportunities for their mitigation – and to discuss a few emerging issues.

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Do assure that the Government person with whom you are dealing has actual authority to bind the Government.

Do remember to “get it in writing.”

Do recognize that the Government wants your intellectual property -- address that issue before you sign a contract.

Do treat certifications in your contracts with a seriousness of purpose – unless you have a thing for orange jump suits and iron bars.

Do seek “commercial item” status whenever possible – it mitigates significant cost, accounting, and IP risks.

Don’t for a moment think that subcontractors are not “Government contractors” – just read the flow downs if you ever think otherwise.

Don’t treat your Multiple Award Schedule Contract as just another commercial contract -- the items may be “commercial” but the contract most assuredly is not.

Don’t have your “Compliance” and “Contract Administration” functions report through “Sales” – you will be “uncomfortable” explaining that hierarchy in an enforcement proceeding.

Don’t take the client to lunch.

Don’t ever underestimate the multi-layered power of the Government – or its willingness to use it against you.

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