Ch. 3- Ethics

Chapter 3

Ethics

• Review of Standards
• Working with Contractor Employees
  • Transportation and Travel
  • Awards and Certificates
• Procurement Integrity
  • Compensation after Leaving Federal Employment
  • Penalties
• Personal Conflicts of Interest
• Organizational and Consultant Conflicts of Interest
  • Organizational Conflicts of Interest
  • Bribery
  • Gratuities
  • Gifts
    • Anti-Kickback Act
    • Exceptions to Gift Prohibition
    • Reporting Gifts
• Protecting the Integrity of the Acquisition Process

Review of Standards

All US government personnel engaged in contracting and related activities must be above reproach in their business dealings with industry. At the same time, they must protect the government's interests and maintain its reputation for dealing fairly with contractors. Department of Defense (DoD) Directive 5500.7-R, Joint Ethics Regulation, specifies standards for contracting and related activities.¹ All contracting officer's representative (COR) letters of appointment or designation require CORs to certify that they have read and understand the Joint Ethics Regulation (JER). CORs also should be familiar with the Procurement Integrity Act, which is covered at FAR 3.104, Procurement Integrity.

To maintain public confidence in the US government's conduct of business with the private sector, CORs must avoid even the appearance of a conflict of interest (COI).² CORs who may have direct or indirect financial interest in an organization that they are monitoring must advise their supervisor and the contracting officer of the conflict so that appropriate action may be taken. A COI is one in which the COR, because of other activities or relationships with other people:³

• Is unable or potentially unable to render impartial assistance, advice, or decisions to the government
• May have impaired objectivity in performing his or her duties
• May give a contractor an unfair competitive advantage due to action or relationships with the COR

Every COR must supply evidence to the contracting officer that he or she has officially filed an Office of Government Ethics Form 450, Confidential Financial Disclosure Report. The purpose of this report is to assist personnel and their agencies in avoiding conflicts between official duties and private financial interests or affiliations.

The JER sets forth the following "Code of Ethics for Government Service," which all CORs should follow.

• Put loyalty to the highest moral principles and to country above loyalty to persons, party, or government department
• Uphold the Constitution, laws, and regulations of the United States and of all governments therein, and never be a party to their evasion
• Give a full day's labor for a full day's pay—giving earnest effort and best thought to the performance of duties

• Seek to find and employ more efficient and economical ways of getting tasks accomplished
• Never discriminate unfairly by dispensing special favors or privileges to anyone, whether for remuneration or not, and never accept, for himself or herself or for family members, favors or benefits under circumstances that might be construed by reasonable people as influencing the performance of governmental duties
• Make no private promises of any kind binding upon the duties of office, since a government employee has no private word that can be binding on public duty
• Engage in no business with the government, either directly or indirectly, that is inconsistent with the conscientious performance of governmental duties
• Never use any information gained confidentially in the performance of governmental duties as a means of making private profit
• Expose corruption wherever discovered
• Uphold these principles, ever conscious that public office is a public trust

Working with Contractor Employees

Contractors are an important component of the total DoD force, but they are not government employees. COI rules do not apply to contractor employees, even when they are performing the same or similar work as, or working side-by-side with, government employees. In contrast, government employees—public servants—are accountable for the public trust. The COR's duties are to the government. Although professional relationships with contractor employees are not prohibited, favoritism and preferential treatment are prohibited. It is the COR's duty to always avoid conflicts of interest and even the appearance of conflicts of interest.

Personal services contracts (contracts under which contractor employees appear to be working as government employees) are prohibited by the FAR unless specifically authorized by statute.⁴ Contractor personnel cannot perform inherently governmental functions.

In monitoring contractor compliance, the COR should avoid interfering with contractor-employee relations. Further, the COR must not tell contractors to do any of the following actions.

• Hire or fire a particular employee
• Reassign or discipline an employee
• Grant or deny leave
• Charge employee duty hours

Transportation and Travel

As a general rule, official travel of a government employee must be funded by the government. Therefore, sharing a vehicle with a contractor can pose a problem. Transportation is acceptable if it is included in a contract between the government and a contractor. Contracts for on-site inspections may contain a provision requiring the contractor to make available to the government employee reasonable assistance in carrying out those official duties.

If the contractor offers transportation within a single site, it may be acceptable as transportation integral to the site visit. Such transportation is not a gift, because it does not have an independent market value, is not otherwise available, entails unique capabilities, and is of nominal value.

Awards and Certificates

Awards programs are based on statute. Sections 1124 to 1125 of Title 10, Armed Forces, Government Organization, and Employees of the United States Code (USC) address military programs, and sections 4511 to 4513 of 5 USC, Government Organization and Employees, address civilian programs.

There is no statutory authority for giving commander's coins or similar nonmonetary incentive tokens to contractors; therefore, appropriated funds cannot be used to purchase coins that will be given to individuals other than government employees. Further, the government cannot use certificates to recognize a contractor or individual contractor employees beyond those specifically for contractors by formal contractor programs (such as small business recognition), because this could complicate the source selection process on future contracts. Contractors may be recognized through a letter of commendation from the government to the contractor organization, which may choose to in turn recognize an individual contractor employee.

Procurement Integrity

The Procurement Integrity Act prohibits the government from disclosing contractor bid or proposal information (see FAR 3.104-3, Statutory and Related Prohibitions, Restrictions, and Requirements). This includes the following types of information.

• Cost or pricing data
• Indirect costs, direct labor rates, and overhead rates
• Proprietary information about manufacturing processes, operations, or techniques marked as such by the contractor

Contractor bid or proposal information not restricted or prohibited from disclosure includes the following information.

• Information already disclosed or made available to the public
• Information disclosed by contractors⁵
• Information disclosed pursuant to a proper request from Congress, Comptroller General, or Inspector General (if certain conditions are met) (see FAR 3.104-4(f), Disclosure, Protection, and Marking of Contractor Bid or Proposed Information and Source Selection Information and 5.403, Requests from Members of Congress)

Compensation after Leaving Federal Employment

The Procurement Integrity Act places a one-year ban on accepting compensation from certain contractors after leaving federal employment (see FAR 3.104-3(b), Prohibition on Obtaining Procurement Information [subsection 27(b) for the act]). Procurement officials are required to report any employment contacts with contractors.

If a member of the acquisition team is participating personally and substantially in a competitive procurement valued in excess of the simplified acquisition threshold, and he or she contacts or is contacted by a bidder or offeror in the procurement, it is imperative that the federal employee promptly report the contact in writing to his or her supervisor and ethics counselor, and either

• reject the offer, or
• disqualify himself or herself from further involvement in the procurement.

Penalties

Individuals who violate the Procurement Integrity Act⁶ may be subject to criminal and civil penalties: imprisonment of up to five years and/or up to a $50K fine per violation, plus twice the amount of compensation an individual or organization received or was offered for the prohibited conduct.

Contractor penalties include the following.

• Cancellation of the procurement
• Disqualification of an offeror
• Rescission of the contract
• Suspension or debarment of the contractor
• Adverse personnel action
• Other actions in the best interest of the government

Personal Conflicts of Interest

The government's increased reliance on contracted technical, business, and procurement expertise has increased the potential for personal conflicts of interest (PCIs). Unlike government employees, contractor employees are not required to disclose financial or other personal interests to the government that may conflict with the responsibilities they are performing on behalf of the government. The risk associated with PCIs is directly related to the supply or service being acquired and the type of contract used to secure the supply or service. The risk increases when contractor employees are involved with subjective judgmental work.

Section 841 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 directed the Office of Federal Procurement Policy (OFPP) to issue policy to prevent PCIs by contractor employees performing acquisition functions closely associated with inherently governmental functions. Pending issuance of the OFPP guidance on contractor employees' conflicts of interest, DoD is following the policies and procedures of FAR 9.5, Organizational and Consultant Conflicts of Interest.

Organizational and Consultant Conflicts of Interest ⁷

Government decisions in the procurement process must be objective in fact and appearance. Favoritism or other improper motives have no place in the award or administration of public contracts. Thus, the government has, by statute and regulation, prohibited activity that would improperly influence decisionmaking or would appear to do so. Some key areas of concern are organizational conflicts of interest (OCI), bribery, gratuities, and gifts.

Organizational Conflicts of Interest

OCI is a circumstance in which a contractor may have unequal access to government information, or the existence of conflicting roles that might bias a contractor's judgment—either of which could lead to an unfair competitive advantage. OCI can occur when a contractor is providing engineering and technical direction or advisory, analysis, assistance, and evaluation services; preparing specifications and work statement; or acting in a capacity that gives them access to proprietary data. It is the government professional's duty and legal obligation to ensure that this is not permitted to occur. The potential for OCI is a growing concern as the government outsources more technical work to private companies and the defense industry continues to consolidate. As the government partners more with industry, the opportunities for OCI increase.

Bribery

The term bribery means offering or giving something of value to a government official or for a government official to solicit or receive something of value in return for preferential treatment. Bribery is a criminal offense.

Gratuities

Gratuities constitute a crime when offered or given to a government official or when a government official solicits or receives a gratuity (see FAR Subpart 3.2, Contractor Gratuities to Government Personnel). To be categorized as a gratuity, the item being offered must be a thing of value and be presented with the intent of corruption. As a participant in the acquisition process, the COR must constantly keep him- or herself on guard to improper actions or those that can be construed as such.

Gifts

The term gift includes any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value. It includes services as well as gifts of training, transportation, local travel, lodgings and meals, whether provided in-kind by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred.

Contractor personnel may offer CORs welcome gifts upon arrival or souvenirs to take home in a possible attempt to gain favor. In these cases, CORs must clearly understand what they can and cannot accept.

The FAR provides the overarching rule about accepting gifts from contractor personnel: do not accept any gratuity, gift, favor, entertainment, loan, or anything of value from a prospective or current contractor. In government-contractor relationships, the COR must strictly avoid any conflict of interest or even the appearance of a conflict of interest.

Anti-Kickback Act

The Anti-Kickback Act of 1986 modernized and closed the loopholes of previous statutes applying to government contracts. The act does the following.

• Prohibits attempted as well as contemplated kickbacks, which include any money, fees, commission, credit, gift, gratuity, thing of value, or compensation of any kind. The inclusion of kickback amounts in contract prices is prohibited conduct in itself
• Makes illegal the acceptance of a kickback "for improperly obtaining or rewarding favorable treatment"
• Prohibits kickbacks to prime contractors, prime contractor employees, subcontractors, and subcontractor employees

Congress intended the act to embrace the full range of government contracting.

Never solicit gifts of any type, regardless of their nature or dollar value. A small number of contractors and potential contractors are willing to offer favors in exchange for business. CORs must understand that a bribe occurs when someone "directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official." (Note that the value need not be monetary.) Giving or accepting a bribe is a crime punishable by a fine, imprisonment, or both.⁹

Exceptions to Gift Prohibition

The following are not gifts.

• Modest items of food or refreshments (coffee and donuts), but not a meal
• Greeting cards and items with little intrinsic value (plaques, certificates) intended only for presentation
• Commercial discounts available to the public or to all government personnel
• Anything for which you pay market value (face value)
• Loans from banks and other financial institutions on terms generally available to the public
• Opportunities and benefits including favorable rates and commercial discounts available to the public or to a class consisting of all government employees or all uniformed personnel, whether or not restricted on the basis of geographic considerations
• Rewards and prizes given to competitors in contests or events, including random drawings, open to the public unless the employee's entry into the contest is required as part of his or her official duties
• Pension and other benefits resulting from continued participation in an employee welfare and benefits plan maintained by a former employer

• Anything that is paid for by the government or secured by the government under government contract
• Any gift accepted by the government under specific statutory authority

Gifts valued at $20.00 or less are acceptable, with a maximum of $50.00 per calendar year from a single source. The COR must decline gifts to keep the aggregate value at $50.00 or less. He or she cannot pay the differential in order to retain a gift valued over $20.00.

Gifts based on a personal relationship (from a family member or a good friend) are acceptable as long as they are not based on the position of the employee. In determining whether to accept such a gift, consider the history of the relationship and whether the family member or friend personally pays for the gift. Also, gifts between government employees are acceptable, for example, in cases of departing soldiers or traditional gift-giving occasions.

Gifts from prospective employers are another exception, as long as such gifts are customarily offered (meals, transportation, and lodging). This type of gift must be reported.

Remember—a COR should never accept a gift in return for being influenced to perform an official act. Also he or she should not accept gifts so frequently that a reasonable person would think the COR is using the position for private gain.

Reporting Gifts

If a gratuity (see FAR 3.203, Reporting Suspected Violations of the Gratuities Clause) is delivered to a COR (left on the COR's desk or car), the COR must return it. If a contractor insists on giving the COR a gratuity, the COR must take one of the following steps.

• Attempt to persuade the contractor to take back the gratuity. Explain to the contractor your inability to accept gratuities as a US procurement official and the repercussions you could face if you accept the gratuity
• Pay the fair market value of the item, call contracting, or consult the legal office
• As a last resort, if the contractor appears to be offended, take the following action.
  • Accept the gratuity.
  • Contact legal counsel immediately.
  • Safeguard the gratuity. If necessary, have the finance officer put the gratuity in a safe and obtain a receipt from the finance officer.
  • Turn the gratuity over to counsel.
  • Write a memorandum for the record (MFR) that describes the circumstances and indicates the approximate value of the gratuity. Mention in the MFR that legal advice was obtained.
  • If the gratuity is perishable (such as food or flowers), share the gratuity within the office or dispose of it. Be cautious when consuming food from unknown sources.

If in any doubt about whether a gift should or should not be accepted, the COR should consult the contracting officer or the legal office.

Protecting the Integrity of the Acquisition Process

Private firms must be able to compete for the government's business on a scrupulously fair basis. Not only is fairness a prerequisite in government acquisition due to the government's unique position as representatives of the citizens of the United States, but fairness also helps ensure that the government will obtain its supplies and services at the best price available. Government personnel who are associated with the acquisition process have a responsibility to protect its integrity by maintaining fairness in the government's treatment of all vendors.

There are numerous points within the acquisition process where the potential to lose this fairness is high. For example.

• Presolicitation. Allowing a vendor or vendors access to information on a particular acquisition (especially the specification or work statement), before such information is available to the business community at large, may give the vendor receiving the information an unfair advantage over others.
• Specifications. Intentionally writing an unnecessarily restrictive specification or work statement that would effectively exclude the products or services of a vendor or increase the prospects for award to another vendor is an obviously unfair practice. Not only does this give advantage to one or more vendors over others, it also restricts competition and makes it more likely that the government will ultimately pay a higher price.

Notes

0. The JER is available at http://www.dod.mil/dodgc/defense_ethics/ ethics_regulation. Top
0. A conflict of interest is a conflict between an individual's personal and professional responsibilities. Top
0. See the full definition at FAR 2.101, Definitions. Top
0. FAR 37.104, Personal Services Contracts. Top
0. FAR 3.104, Procurement Integrity, does not restrict or prohibit a contractor from disclosing its own bid or proposal information, nor does it restrict or prohibit the recipient from receiving that information. Top
0. The Procurement Integrity Act is implemented at FAR 3.104. Top
0. USD(AT&L), Memorandum, "Personal Conflicts of Interest (PCIs) of Contractors' Employees," 24 November 2009. Top
0. See 41 USC 54, Criminal Penalties and Articles 92, Failure to Obey Order or Regulation and 134, General of the Uniform Code of Military Justice. Top
0. See 18 USC 201, Bribery of Public Officials and Witnesses and Articles 92, Failure to Obey Order or Regulation and 134, General of the Uniform Code of Military Justice. Top

Chapter Acronyms

COI – Conflict of Interest

COR – Contracting Officer's Representative

DoD – Department of Defense

FAR – Federal Acquisition Regulation

JER – Joint Ethics Regulation

MFR – Memorandum for the Record

OCI – Organizational Conflicts of Interest

OFPP – Office of Federal Procurement Policy

PCI – Personal Conflicts of Interest

USC – United States Code