[Federal Register: November 14, 2007 (Volume 72, Number 219)]
[Proposed Rules]
[Page 64019-64023]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no07-25]
[[Page 64019]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 3, 9, 42, and 52
[FAR Case 2007-006; Docket 2007-0001; Sequence 11]
RIN: 9000-AK80
Federal Acquisition Regulation; FAR Case 2007-006, Contractor
Compliance Program and Integrity Reporting
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are proposing to amend the
Federal Acquisition Regulation (FAR), at the request of the Department
of Justice (DoJ), in order to require contractors to have a code of
ethics and business conduct, establish and maintain specific internal
controls to detect and prevent improper conduct in connection with the
award or performance of Government contracts or subcontracts, and to
notify contracting officers without delay whenever they become aware of
violations of Federal criminal law with regard to such contracts or
subcontracts.
DATES: Interested parties should submit written comments to the FAR
Secretariat on or before January 14, 2008 to be considered in the
formulation of a final rule.
ADDRESSES: Submit comments identified by FAR case 2007-006 by any of
the following methods:
Federal eRulemaking Portal: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov.To
search for any document, first select under ``Step 1,'' ``Documents
with an Open Comment Period'' and select under ``Optional Step 2,''
``Federal Acquisition Regulation'' as the agency of choice. Under
``Optional Step 3,'' select ``Proposed Rules''. Under ``Optional Step
4,'' from the drop down list, select ``Document Title'' and type the
FAR case number ``2007-006''. Click the ``Submit'' button. Please
include your name and company name (if any) inside the document. You
may also search for any document by clicking on the ``Search for
Documents'' tab at the top of the screen. Select from the agency field
``Federal Acquisition Regulation'', and type ``2007-006'' in the
``Document Title'' field. Select the ``Submit'' button.
Fax: 202-501-4067.
Mail: General Services Administration, Regulatory
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann
Duarte, Washington, DC 20405.
Instructions: Please submit comments only and cite FAR case 2007-
006 in all correspondence related to this case. All comments received
will be posted without change to http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov, including
any personal and/or business confidential information provided.
FOR FURTHER INFORMATION CONTACT: Mr. Ernest Woodson, Procurement
Analyst, at (202) 501-3775 for clarification of content. For
information pertaining to status or publication schedules, contact the
FAR Secretariat at (202) 501-4755. Please cite FAR case 2007-006.
SUPPLEMENTARY INFORMATION:
A. Background
On May 23, 2007, the Office of Federal Procurement Policy received
a request from the Department of Justice to open a FAR case to require
contractors to have a code of ethics and business conduct, establish
and maintain specific internal controls to detect and prevent improper
conduct in connection with the award or performance of Government
contracts or subcontracts, and to notify contracting officers without
delay whenever they become aware of violations of Federal criminal law
with regard to Government contracts or subcontracts.
The Councils published a proposed rule under FAR Case 2006-007,
Contractor Code of Ethics and Business Conduct, 72 FR 7588, February
16, 2007. That rule proposed creation of a new Subpart 3.10 to address
the requirements for a contractor code of ethics and business conduct,
and an associated clause at FAR 52.203-XX. The comment period on that
proposed rule closed on April 17, 2007, and 27 responses were received.
It is still the intent of the Councils to issue a final rule under that
case, based on analysis of the public comments received, except that
the final rule will not address mandatory disclosure to the Government.
That proposed rule covers some of the same areas requested by DoJ.
However, several aspects of the DoJ request go beyond that proposed
rule. The Councils therefore have decided to issue a new proposed rule
under this FAR case 2007-006 to cover these new proposals.
Public comments are requested on the new changes not included in
prior FAR Case 2006-007. Comments are also requested on mandatory
disclosure, and full cooperation, which were in FAR case 2006-007 as
examples in the clause of an internal control system. Also note that
some paragraphs in that rule, which were not necessary for this rule,
were not repeated and will be part of that case's final rule (hotline
posters).
The new changes in this rule include:
Compliance program as part of contractor's obligationto have ``a
satisfactory record of integrity and business ethics''
As requested by DoJ, the Councils propose to amend the general
standards of responsibility at FAR 9.104-1 to add a cross reference to
Subpart 42.15, and to add at FAR 42.1501 ``the contractor's record of
integrity and business ethics'' as relevant information to be included
in past performance information. FAR 42.1501 already includes the
requirement to report the contractor's record of conforming to contract
requirements, which will include any information that the contractor
has not complied with the clause at FAR 52.203-XX. For contractors that
have had prior contracts subject to these new requirements, compliance
as reflected in past performance rating will be an element for
consideration in assessing whether a contractor meets the standard of
having a satisfactory record of integrity and business ethics.
Applicability to small business concerns
The Councils propose that clause at FAR 52.203-XX be included in
any contract that exceeds $5 million, but that the formal ethics
awareness program and internal control system are not required if the
contractor is a small business concern. This directly reduces the
burden on small business concerns.
U.S. Sentencing Guidelines
The Councils propose to modify the clause at FAR 52.203-XX,
Contractor Code of Ethics and Business Conduct, which was proposed
under FAR Case 2006-007, to more closely match the U.S. Sentencing
Commission Guidelines Manual, Section 8B2.1 (available at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.ussc.gov/
). Not only DoJ requests this, but also a number of
respondents to the proposed FAR rule 2006-007. The U.S. Sentencing
Guidelines provide guidance on what the U.S. Sentencing Commission
expects in the way of an effective compliance and ethics program from
organizations convicted of a felony or Class A misdemeanor. DoJ and
other respondents to the FAR Case 2006-007 proposed rule considered
that that proposed rule left out important elements that are covered in
the U.S. Sentencing Guidelines and that this can
[[Page 64020]]
create confusion. Businesses (especially small businesses) may believe
they have met all the compliance requirements of the U.S. Government by
following the FAR; this will create a false sense of security.
Therefore, this rule proposes the following changes to the clause at
FAR 52.203-XX:
Add definitions of ``agent,'' and ``principals.'' The
definition of ``principals,'' is the same as the definition used at FAR
52.209-5. This definition has the advantage that it is already included
in the FAR, and includes all the personnel covered in the U.S.
Sentencing Guidelines definitions of ``governing authority'' ``high-
level personnel,'' and ``substantial authority personnel.''
Amplify the paragraph FAR 52.203-XX(b)(2) requirement to
promote compliance with the code of business ethics.
Provide more detail in paragraph FAR 52.203-XX(c)(1) with
regard to the ongoing ethics and business conduct awareness and
compliance program.
In paragraph FAR 52.203-XX(c)(2), make all the stated
elements of the internal control system mandatory, rather than
guidance.
Add a new paragraph FAR 52.203-XX(c)(2)(ii)(A) requiring
assignment of responsibility at a sufficiently high level of the
organization and adequate resources to ensure effectiveness of the
business ethics awareness and compliance program and internal control
system.
Provide additional detail in paragraph FAR 52.203-
XX(c)(2)(ii)(C) with regard to the requirement for periodic reviews.
Provide that disciplinary action shall be taken not only
for improper conduct, but also for failing to take reasonable steps to
prevent or detect improper conduct by others.
Contractor Integrity Reporting
The Councils propose to address the reporting of violations of
Federal criminal law in connection with the award or performance of a
Government contract or subcontract conduct as follows:
Add at FAR 3.1002 a cross-reference to FAR 9.406-
2(b)(1)(v) and 9.407-2(a)(7), that contractors may be suspended and
debarred for knowing failure to timely disclose a violation of Federal
criminal law in connection with the award or performance of any
Government contract performed by the contractor or a subcontract
awarded thereunder.
Modify the clause at FAR 52.203-XX(b)(3), which applies to
both large and small business concerns, to require notification to the
agency Office of the Inspector General, with a copy to the contracting
officer, whenever the contractor has reasonable grounds to believe that
a violation of criminal law has been committed in connection with the
award or performance of the contract or any subcontract thereunder.
Modify the clause at FAR 52.203-XX(c), which does not
apply to small business concerns, to mandate that the internal control
system of the contractor shall also include this requirement to report
violations of Federal criminal law in connection with the award or
performance of any Government contract performed by the contractor or a
subcontract awarded thereunder.
According to DoJ, the requirement for mandatory disclosure is
necessary because few companies have actually responded to the
invitation of DoD that they report or voluntarily disclose suspected
instance of violations of Federal criminal law relating to the contract
or subcontract.
The Councils invite comment as to whether there should be any
appropriate limitation on the reporting requirement that accomplishes
the objectives of this rule, such as the time period during which the
violations to be reported occurred (look back).
Use of clause in contracts for the acquisition of commercial items
awarded under FAR Part 12
The Councils do not recommend application of the clause to
contracts for the acquisition of commercial items. Requiring commercial
contractors to comply with the rule would not be consistent with Public
Law 103-355 that requires the acquisition of commercial items to
resemble customarily commercial marketplace practices to the maximum
extent practicable. Commercial practice encourages, but does not
require, contractor codes of business ethics conduct. In particular,
the intent of FAR Part 12 is to minimize the number of Government-
unique provisions and clauses. The policy at FAR 3.1002 of the proposed
rule does apply to commercial contracts. All Government contractors
must conduct themselves with the highest degree of integrity and
honesty. However, consistent with the intent of Pub. L. 103-355 and FAR
Part 12, the clause mandating specific requirements contractor
compliance program and integrity reporting is not required in
commercial contracts.
Causes for debarment or suspension
As requested by DoJ, the Councils propose modification of FAR
9.406-2 and 9.407-2 to include new cause for debarment or suspension: a
knowing failure to timely disclose an overpayment on a Government
contract or violation of Federal criminal law in connection with the
award or performance of any Government contract performed by the
contractor or any subcontract thereunder.
Clause at FAR 52.203
Consistent with the proposed rule under FAR case 2006-007, the
Councils propose use of the clause FAR 52.203-XX in solicitations and
contracts expected to exceed $5 million if the performance period is
120 days or more, except for acquisitions under FAR Part 12 or
contracts to be performed outside the United States.
Flowdown
The Councils propose flowdown of the clause FAR 52.203-XX to
subcontracts valued at over $5 million, consistent with the proposed
rule under FAR case 2006-007. The Councils decided that the same
rationale that supports a threshold of $5 million for prime contracts,
is applicable to subcontracts as well. The other conditions of the
proposed rule under FAR case 2006-007 are also still applicable, i.e.,
performance period of 120 days or more, and the subcontract is not for
acquisition of commercial items or to be performed outside the United
States.
Full cooperation
In addition, the Councils have included in the proposed rule the
requirements that an internal control system must require full
cooperation with any Government agencies responsible for audit,
investigation, or corrective actions. This requirement was originally
derived from the Defense Federal Acquisition Regulation Supplement
(DFARS) guidance at DFARS 203.7001(a)(7), with the addition of the word
``audit'' in response to a public comment under FAR case 2006-007.
The Councils are not including this requirement in the final rule
to be issued under FAR case 2006-007, in order to allow further public
comment and analysis of the relationship to waiver of the attorney-
client privilege.
This is a significant regulatory action and, therefore, was not
subject to review under Section 6(b) of Executive Order 12866,
Regulatory Planning and Review, dated September 30, 1993. This rule is
not a major rule under 5 U.S.C. 804.
B. Regulatory Flexibility Act
The changes may have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., because it requires the
contractor (including small business concerns) to notify the agency
inspector general and the contracting
[[Page 64021]]
officer in writing whenever the contractor has reasonable grounds to
believe that a principal, employee, agent, or subcontractor of the
contractor has committed a violation of Federal criminal law in
connection with the award of performance of any Government contract or
subcontract. Although the Councils do not expect this to be a
significant burden on small businesses, because it only impacts those
small businesses that need to report violations of Federal criminal law
in connection with the award or performance of a Government contract,
the Councils have prepared an Initial Regulatory Flexibility Analysis
(IRFA) for public comment, that is summarized as follows:
This Initial Regulatory Flexibility Analysis (IRFA) has been
prepared consistent with 5 U.S.C. 603.
The objective of the rule is to emphasize the critical
importance of integrity in contracting and reduce the occurrence of
improper or criminal conduct in connection with the award and
performance of Federal contracts and subcontracts.
The rule imposes a clause that is applicable to contracts and
subcontracts that exceed $5 million and with a performance period
that exceeds 120 days. The clause does not apply to--
Acquisition of commercial items, either at the prime or
subcontract levels.
Contracts or subcontracts performed outside the United
States.
Although the clause requires all contractors to implement a code
of business ethics, the clause requirements for a formal awareness/
training program and internal control system will not apply to small
business concerns.
The clause imposes a mandatory requirement to notify the agency
Office of the Inspector General, with a copy to the contracting
officer, whenever the contractor has reasonable grounds to believe
that a principal, employee, agent, or subcontractor of the
contractor has committed a violation of Federal criminal law in
connection with the award or performance of the contract or any
subcontract thereunder. All contractors and subcontractors subject
to the clause are required to report such violations. In addition,
regardless of inclusion of the clause, a new cause for debarment and
suspension has been added, for failure to timely report any such
known violation of Federal criminal law.
Based on Fiscal Year 2006 data collected from the Federal
Procurement Data System, the Councils estimate that this clause will
apply to 1800 prime contractors per year, of which 700 companies are
small business concerns. The clause also flows down to subcontracts
that exceed $5 million, and we estimate that approximately 700
additional small business concerns will meet these conditions. We
calculate the number of small business concerns that will be
required to submit the report of violation of Federal criminal law
with regard to a Government contract or subcontracts as follows:
700 contractors + 700 subcontractors = 1,400x2% = 28.
In addition, although there is no clause required, all
contractors will be on notice that they may be suspended or debarred
for failure to report known violations of Federal criminal law with
regard to a Government contract or subcontract. In Fiscal Year 2006
there were 144,854 small business concern listed in FPDS-NG with
unique DUNS numbers. We estimate that of the listed small business
concerns, approximately 116,000 (80 percent) will receive contracts
in a given fiscal year. Government small business experts guess that
at least twice that number of small businesses (232,000) will
receive subcontracts. However, the only small business concerns
impacted by this cause for suspension or debarment are those small
business concerns that are aware of violation of Federal criminal
law with regard to their Government contracts or subcontracts.
Subtracting out those contracts and subcontracts covered by the
clause (700), we estimate this number as follows: (115,300 + 231,300
= 346,600 x .5% = 1,733). We estimate a lower percentage
than used for contracts and subcontracts that contain the clause,
because these are lower dollar contracts and subcontracts, including
commercial contracts, and there may be less visibility into
violations of Federal criminal law. Because there is no contract
clause, we estimate that only 1 percent of those contractors/
subcontractors that are aware of a violation of Federal criminal law
in regard to the contractor or subcontract will voluntarily report
such violation to the contracting officer.
The rule requires contractors to report to the agency inspector
general and the contracting officer of violations of Federal
criminal law in connection with the award or performance of any
Government contract or subcontract for contracts and subcontracts
that exceed $5 million, excluding contracts/subcontracts to be
performed outside the United States or awarded under FAR Part 12.
Such a report would probably be prepared by company management, and
would probably involve legal assistance to prepare.
The rule does not duplicate, overlap, or conflict with any other
Federal rules.
The Councils adopted the following alternatives in order to
minimize the impact on small business concerns:
The requirement for formal training programs and
internal control systems are inapplicable to small business
concerns, rather than tying the requirement to a dollar threshold
based on contract value, which might make the requirements
applicable to some small business concerns.
The requirement for mandatory reporting is limited to
violations of Federal criminal law in connection with performance or
award of a Government contract or subcontract, rather than requiring
report of any improper conduct, even that which is not a violation
of Federal criminal law.
The FAR Secretariat has submitted a copy of the IRFA to the Chief
Counsel for Advocacy of the Small Business Administration. A copy of
the IRFA may be obtained from the FAR Secretariat. The Councils will
consider comments from small entities concerning the affected FAR Parts
3, 9, 42, and 52 in accordance with 5 U.S.C. 610. Comments must be
submitted separately and should cite 5 U.S.C 601, et seq. (FAR case
2007-006), in correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act (Pub. L. 104-13) applies because the
proposed rule contains information collection requirements.
Accordingly, the FAR Secretariat will submit a request for approval of
a new information collection requirement concerning OMB Number 9000-
00XX, Contractor Compliance Program and Integrity Reporting, to the
Office of Management and Budget under 44 U.S.C. 3501, et seq.
There will be an estimated 20 burden hours for the required
reporting to the contracting officer of violations of Federal criminal
law in connection with the award or performance of any Government
contract or subcontract.
Annual Reporting Burden:
Public reporting burden for this collection of information is
estimated based on review of Fiscal Year 2006 contract awards as
entered in the Federal Procurement Data System, the Councils estimate
that 1400 contractors per year will be subject to the new clause FAR
52.203-XX (contracts greater than $5 million, not including contracts
awarded under FAR Part 12). The Councils further estimate that of those
1400 contractors, 28 (2 percent) will report violations of Federal
criminal law with regard to performance or award of a Government
contract or subcontract. In addition, the Councils estimate that 17
contractors that do not have the clause at FAR 52.203-XX in the
contract will also report such violations.
The annual reporting burden is estimated as follows:
Respondents: 45
Responses per respondent: 1
Total annual responses: 45
Preparation hours per response: 3
Total response burden hours: 135
D. Request for Comments Regarding Paperwork Burden
Submit comments, including suggestions for reducing this burden,
not later than January 14, 2008 to: FAR Desk Officer, OMB, Room 10102,
NEOB, Washington, DC 20503, and a copy to the General Services
Administration, FAR Secretariat (VIR), 1800 F Street, NW, Room 4035,
Washington, DC 20405. Please cite OMB Control Number 9000-00XX,
Contractor Compliance
[[Page 64022]]
Program and Integrity Reporting, in all correspondence.
Public comments are particularly invited on: whether this
collection of information is necessary for the proper performance of
functions of the FAR, and will have practical utility; whether our
estimate of the public burden of this collection of information is
accurate, and based on valid assumptions and methodology; ways to
enhance the quality, utility, and clarity of the information to be
collected; and ways in which we can minimize the burden of the
collection of information on those who are to respond, through the use
of appropriate technological collection techniques or other forms of
information technology.
Requester may obtain a copy of the justification from the General
Services Administration, FAR Secretariat (VIR), Room 4035, Washington,
DC 20405, telephone (202) 501-4755. Please cite OMB Control Number
9000-00XX, Contractor Compliance Program and Integrity Reporting, in
all correspondence.
List of Subjects in 48 CFR Parts 3, 9, 42, and 52
Government procurement.
Dated: November 7, 2007
Al Matera,
Director, Office of Acquisition Policy.
Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 3, 9,
42, and 52 as set forth below:
1. The authority citation for 48 CFR parts 3, 9, 42, and 52
continues to read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 3--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF
INTEREST
2. Add Subpart 3.10 to read as follows:
Subpart 3.10--Contractor Code of Business Ethics and Conduct
Sec.
3.1000 Scope of subpart.
3.1001 [Reserved]
3.1002 Policy.
3.1003 Mandatory requirements.
3.1004 Contract clauses.
3.1000 Scope of subpart.
This subpart prescribes policies and procedures for
theestablishment of contractor codes of business ethics and conduct.
3.1001 [Reserved]
3.1002 Policy.
(a) Government contractors must conduct themselves with the highest
degree of integrity and honesty.
(b) Contractors should have a written code of business ethics and
conduct. To promote compliance with such a code of business ethics and
conduct, contractors should have an employee business ethics and
compliance training program and an internal control system that--
(1) Are suitable to the size of the company and extent of its
involvement in Government contracting;
(2) Facilitate timely discovery of improper conduct in connection
with Government contracts; and
(3) Ensure corrective measures are promptly instituted and carried
out.
(c) A contractor may be suspended and/or debarred for knowing
failure to timely disclose a violation of Federal criminal law in
connection with the award or performance of any Government contract
performed by the contractor or a subcontract awarded thereunder (see
9.406-2(b)(1)(v) and 9.407-2(a)(7)).
3.1003 Mandatory requirements.
Although the policy in section 3.1002 applies as guidance to all
Government contractors, the contractual requirements set forth in the
clauses at 52.203-XX, Contractor Code of Business Ethics and Conduct
are mandatory if the contracts meet the conditions specified in the
clause prescriptions at 3.1004.
3.1004 Contract clauses.
Insert the clause at FAR 52.203-XX, Contractor Code of Business
Ethics and Conduct, in solicitations and contracts if the value of the
contract is expected to exceed $5,000,000 and the performance period is
120 days or more, except when the contract--
(a) Will be for the acquisition of a commercial item awarded under
FAR Part 12; or
(b) Will be performed entirely outside the United States.
PART 9--CONTRACTOR QUALIFICATIONS
3. Amend section 9.104-1 by revising paragraph (d) to read as
follows:
9.104-1 General standards.
* * * * *
(d) Have a satisfactory record of integrity and business ethics
(for example, see Subpart 42.15);
* * * * *
4. Amend section 9.406-2 by revising paragraph (b)(1) introductory
text and adding paragraph (b)(1)(v) to read as follows:
9.406-2 Causes for debarment.
* * * * *
(b)(1) A contractor, based upon a preponderance of the evidence,
for any of the following--
* * * * *
(v) Knowing failure to timely disclose--
(A) An overpayment on a Government contract; or
(B) Violation of Federal criminal law in connection with the award
or performance of any Government contract or subcontract.
* * * * *
5. Amend section 9.407-2 by redesignating paragraph (a)(7) as
(a)(8) and adding a new paragraph (a)(7) to read as follows:
9.407-2 Causes for suspension.
(a) * * *
(7) Knowing failure to timely disclose--
(i) An overpayment on a Government contract; or
(ii) Violation of Federal criminal law in connection with the award
or performance of any Government contract or subcontract; or
* * * * *
PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES
6. Amend section 42.1501 by revising the last sentence to read as
follows:
42.1501 General.
* * * It includes, for example, the contractor's record of
conforming to contract requirements and to standards of good
workmanship; the contractor's record of forecasting and controlling
costs; the contractor's adherence to contract schedules, including the
administrative aspects of performance; the contractor's history of
reasonable and cooperative behavior and commitment to customer
satisfaction; the contractor's record of integrity and business ethics,
and generally, the contractor's business-like concern for the interest
of the customer.
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
7. Add section 52.203-XX to read as follows:
52.203-XX Contractor Code of Business Ethics and Conduct.
As prescribed in 3.1004, insert the following clause:
CONTRACTOR CODE OF BUSINESS ETHICS AND CONDUCT (DATE)
(a) Definitions. As used in this clause--
Agent means any individual, including a director, an officer, an
employee, or an
[[Page 64023]]
independent contractor, authorized to act on behalf of the
organization.
Principals means officers, directors, owners, partners, and,
persons having primary management or supervisory responsibilities
within a business entity (e.g., general manager; plant manager; head
of a subsidiary, division, or business segment, and similar
positions).
United States means the 50 States, the District of Columbia, and
outlying areas.
(b) Code of business ethics and conduct. (1) Within 30 days
after contract award, unless the contracting officer establishes a
longer time period, the Contractor shall--
(i) Have a written code of business ethics and conduct; and
(ii) Provide a copy of the code to each employee engaged in
performance of the contract.
(2) The Contractor shall--
(i) Exercise due diligence to prevent and detect criminal
conduct; and
(ii) Otherwise promote an organizational culture that encourages
ethical conduct and a commitment to compliance with the law.
(3) The Contractor shall notify, in writing, the agency Office
of the Inspector General, with a copy to the Contracting Officer,
whenever the Contractor has reasonable grounds to believe that a
principal, employee, agent, or subcontractor of the Contractor has
committed a violation of Federal criminal law in connection with the
award or performance of this contract or any subcontract thereunder.
(c) Business ethics awareness and compliance program and
internal control system for other than small businesses. This
paragraph (c) does not apply if the Contractor has represented
itself as a small business concern pursuant to the award of this
contract. The Contractor shall establish the following within 90
days after contract award, unless the contracting officer
establishes a longer time period--
(1) An ongoing business ethics and conduct awareness and
compliance program. (i) This program shall include reasonable steps
to communicate periodically and in a practical manner the
Contractor's standards and procedures and other aspects of the
Contractor's business ethics awareness and compliance program and
internal control system, by conducting effective training programs
and otherwise disseminating information appropriate to an
individual's respective roles and responsibilities.
(ii) The training conducted under this program shall be provided
to the Contractor's principals and employees, and as appropriate,
the Contractor's agents and subcontractors.
(2) An internal control system.
(i) The Contractor's internal control system shall--
(A) Establish standards and procedures to facilitate timely
discovery of improper conduct in connection with Government
contracts; and
(B) Ensure corrective measures are promptly instituted and
carried out.
(ii) At a minimum, the Contractor's internal control system
shall provide for the following:
(A) Assignment of responsibility at a sufficiently high level of
the organization and adequate resources to ensure effectiveness of
the business ethics awareness and compliance program and internal
control system.
(B) Reasonable efforts not to include within the organization
principals whom due diligence would have exposed as having engaged
in conduct that is illegal or otherwise in conflict with the
Contractor's code of business ethics and conduct.
(C) Periodic reviews of company business practices, procedures,
policies, and internal controls for compliance with the Contractor's
code of business ethics and conduct and the special requirements of
Government contracting, including--
(1) Monitoring and auditing to detect criminal conduct;
(2) Periodic evaluation of the effectiveness of the
organization's business ethics awareness and compliance program and
internal control system, especially if criminal conduct has been
detected; and
(3) Periodic assessment of the risk of criminal conduct, with
appropriate steps to design, implement, or modify the business
ethics awareness and compliance program and the internal control
system as necessary to reduce the risk of criminal conduct
identified through this process.
(D) An internal reporting mechanism, such as a hotline, which
allows for anonymity or confidentiality, by which employees may
report suspected instances of improper conduct, and instructions
that encourage employees to make such reports.
(E) Disciplinary action for improper conduct or for failing to
take reasonable steps to prevent or detect improper conduct.
(F) Timely reporting, in writing, to the agency Office of the
Inspector General, with a copy to the Contracting Officer, whenever
the Contractor has reasonable grounds to believe that a principal,
employee, agent, or subcontractor of the Contractor has committed a
violation of Federal criminal law in connection with the award or
performance of any Government contract performed by the Contractor
or a subcontract thereunder; and
(G) Full cooperation with any Government agencies responsible
for audit, investigation, or corrective actions.
(d) Subcontracts. (1) The Contractor shall include the substance
of this clause, including this paragraph (d), in subcontracts that
have a value in excess of $5,000,000 and a performance period of
more than 120 days, except when the subcontract--
(i) Is for the acquisition of a commercial item; or
(ii) Is performed outside the United States.
(2) In altering this clause to identify the appropriate parties,
all reports of violation of Federal criminal law shall be directed
to the agency Office of the Inspector General, with a copy to the
Contracting Officer.
(End of clause)
[FR Doc. 07-5670 Filed 11-9-07; 11:21 am]
BILLING CODE 6820-EP-S