Since the FAR Council’s November 2008 publication of new regulations mandating the disclosure by federal contractors of certain categories of wrongdoing and Government overpayments, there has been much ink spilled by lawyers, consultants, and the Government itself regarding what it all means.  The lack of clear definitions in the rule – notwithstanding the accompanying pages and pages of purported helpfully commentary – has provided ample opportunity for discussion, analysis, and conjecture regarding what the rule requires and what contractors should do to stay compliant.

While the flow of ink concerning the new rule increased following the rule’s December 12, 2008 effective date, lately that flow has slowed to a trickle.  Presumably, commentators either have become bored with the subject, or have realized that, until industry has some actual experience with the new rule, they probably have said all that can be said at this point.  After all, conjecture can take you only so far.

The newfound quiet, however, belies the fact that the risks of failing to comply with the new rule have grown greater, not lesser, since the rule’s initial publication.  In December and January, a contractor could claim with credible justification that it had not yet taken steps to meet its new obligations.  After all, the rule had just come out.  Such is no longer the case, and excuses that may have carried the day earlier this year, probably won’t carry much weight today.  Accordingly, now is an excellent time for contractors to ask themselves, “Have I made adequate progress with respect to implementing the policies, procedures, and practices necessary to meet my obligations under the new rule?”  Here’s a simple checklist to facilitate this critical inquiry.

a. Have I fully explained the new rule and its requirements to my management?  Compliance starts at the top.  A contractor will have an uphill battle trying to enforce compliance among the rank and file if management is not fully committed to the effort.  Securing that commitment starts with making sure management fully understands (i) the new rule, (ii) how the rule differs from the old rule, and (iii) the risks of non-compliance.

b. Have I designated an internal Implementation Team to facilitate compliance?  If your company is like most companies, the new rule impacts multiple departments.  Accordingly, to develop an effective compliance program, multiple stakeholders must be involved in the process.  Following the publication of the new rule, many companies took prompt steps to constitute Implementation Teams to develop, vet, finalize, and implement the necessary new policies and procedures.  Whether you give yours the title “Implementation Team” or something else, your company should have a group of knowledgeable individuals identified and tasked with taking the steps necessary to ensure full compliance with the new rule.

c. Have I developed an internal mandatory disclosure procedure?  The new rule brought with it many changes in the way federal contractors must conduct themselves.  Even the most experienced contractors have found that their existing policies and procedures, while perhaps well suited for the pre-December 12 environment, are inadequate to meet their new obligations.  All contractors – large and small – should be well on their way by now to drafting and implementing effective procedures to ensure compliance.  The internal procedures of the past that focused on the voluntary disclosure of information to the Government simply won’t cut it anymore.

d. Have I established a process for reviewing and responding to prime contractor flow-downs of the new rule?  If your Company holds any federal subcontracts, then it already may have received notice from its primes regarding the flow-down of the new FAR 52.203-13 clause.  If you have not received such notice already, you will soon.  While the flow-down of the clause itself is not problematic, the manner in which some companies are flowing it down is.  For example, some prime contractors are requiring that their subcontractors complete lengthy questionnaires, certify compliance with the new rules, and/or submit to prime contractor audits.  Subcontractors should take the time to consider and develop a consistent response to such requests.

e. Have I established a process for flowing-down the new requirements to my subcontractors?  The flip side of figuring out how to respond to prime contractor flow-downs, is figuring out how and when to flow-down the new clause to your own subcontractors.  The new rule requires that prime contractors flow the new FAR 52.203-13 clause into subcontracts of more than $5 million and a period of performance of greater than 120 days.  Since FAR 52.203-13 is being included in prime contracts as of December 12, prime contractors need to ensure that a process is in place to meet this obligation.

f. Do I have an effective internal training program?  Training always has been a hallmark of an effective compliance program.  The new rule not only embraces this concept, but makes it a requirement.  While it is unlikely that a Government auditor would expect companies to have fully trained their personnel on all aspects of the new rule at this point, it is likely that an auditor would expect to see material movement in that regard.

g. Have I developed and begun to implement a comprehensive “Look Back” effort?  New FAR Part 9 adds as a new cause for suspension or debarment a company’s failure to disclose a principal’s knowledge of credible evidence of certain crimes, a civil False Claims Act violation, or a significant Government overpayment.  By now, it likely has been driven into most every federal contractor’s head that this new provision has retroactive application, and is a big deal.  Accordingly, contractors should be well on their way to having "looked back" at prior events in order to determine whether the new rule imposes a disclosure obligation that did not exist previously.  For many companies this has involved, among other things, surveying principles in person or in writing, reviewing prior hot line reports, and re-assessing past privileged investigations.  The steps you take will be based upon the nature of your business, the size of your company, and the resources available.  Regardless of business, size, and resources, however, every contractor should want to be in a position as soon as possible to say to a Government auditor with a straight face, “No principal in my company has knowledge of any unreported conduct covered by the new rule.”

We have worked with a multitude of companies over the past quarter year to implement their responses to the new rule, and have spoken to countless more at conferences, presentations, and seminars; and we have noticed that companies generally fall within one of three buckets when it comes to the foregoing compliance activities.

  • Group 1, or the “Ahead of the Curve” bucket.  These companies have taken their obligations under the new rule very seriously, having already drafted new policies and procedures, initiated training, and begun conducting the “Look Back” review required by FAR Part 9.
  • Group 2, or the “No More/No Less” bucket.  These companies have begun talking, thinking, and writing about the new rule, but, for whatever reason, have little to show for their efforts at this point.
  • Group 3, or the “What new rule?” group.  Suffice it to say that this group has been slow out of the starting box.

As you consider the status of your company’s compliance efforts, strive for Group 1, but in no event let yourself fall into Group 3.  The risks simply are too great.

Authored by:

Jonathan S. Aronie

(202) 218-0039