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Posted on Monday, May 20, 2013

Is a Code of Business Ethics and Conduct Required?

Must a federal government contractor have a Code of Business Ethics and Conduct?   Yes!   All federal government contractors must have a Code of Business Ethics and Conduct.  In addition, unless the contractor is a small business or the contract is for the acquisition of commercial items (as defined by FAR 2.101), the contractor must also have a “business ethics awareness and compliance program” and an “internal control system” aimed at preventing fraud in government contracting.

Although small businesses are exempt from these latter two requirements, small businesses are well-advised to implement an ethics awareness program and internal controls. Debarment from government contracting is a huge risk for small businesses, and an ethics training program and internal controls will help prevent the type of misconduct that could result in debarment.

A company’s ethics and compliance program should focus especially on the company’s operations that pose the greatest risk of potential fraud.  This will not be the same for all contractors.  Assessment of the risk of fraud is essential to an effective compliance program.  A company must study its own operations and look for vulnerability to fraud.  How might an errant employee commit fraud?  How might a careless employee negligently do something that triggers a government audit or I.G. investigation, resulting in a costly debarment proceeding?  The type and scope of ethics awareness training and internal controls will vary from company-to-company, depending on the type of products, services and business operations.  One size does not fit all, which is why contractors must study their own operations and develop effective ethics and compliance programs that work best for them.  Finally, an ethics and compliance program will not be effective unless it is fully supported by top management and embedded in the contractor’s business culture.

John Polk is Special Counsel to Berenzweig Leonard, LLP, a DC region business law firm. John can be reached at jpolk@berenzweiglaw.com.

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