Ethics: The Good, the Bad and the Ugly

1. NCMA Columbia Basin Chapter Ethics: The Good, the Bad and the Ugly Alan Rither, Esq. CPCM, NCMA Fellow

2. Don’t we already know this stuff?

3. We’ve all got ethics – some folks just have more than others • Ethics are only for the weak not real leaders (like us) • Ethics is nothing more than expected behavior – descriptive • What’s right for you is wrong for me – situational ethics • “Corporation – noun. An ingenious device for obtaining profit without individual responsibility.” Ambrose Bierce, 1842-1914 American Columnist and writer; The Devil’s Dictionary Common opinions about ethics

4. I’ve heard people say: “That’s how you see it, but I see it differently” But we’re not talking about 50 shades of gray (or is that “Grey”?) …but rather, is it legal or illegal? But aren’t ethical issues complex?

5. Why do we need to study ethics?

6. Does it matter, anyway?

7. It’s not about beliefs, it’s about behavior Everyone is entitled to their own morality, but society decides what is acceptable behavior Not everything that is legal is ethical nor is everything that is ethical, legal Business Ethics

8. Policy at FAR 3.1002 applies to all contractors and subcontractors at every level Clause at FAR 52.203-13 is mandatory if the value of the contract is expected to exceed $5,000,000 and the performance period is 120 days or more. Subcontractor violations that result in a false claim, and, if paid by you because of reckless disregard, etc., become yourfalse claim too. It looks simple, but there are a number of unresolved issues like what is “credible evidence,” how long can you investigate, and who is a “principal” of the company. Confusion does not necessarily work to your advantage. FAR Part 3.10 – Ethics program

9. Hoping to blend in with the crowd?

10. Contract Clause flowdown • FAR 52.203-13 Contractor Code of Business Ethics and Conduct in relevant subcontracts • Within 30 days of contract award contractors must have: • Written code of business ethics & conduct • Make a copy available to each employee engaged in performance of the contract • Exercise due diligence to prevent and detect criminal conduct • Timely disclosure to the Inspector General with copy to the C.O. whenever you have “credible evidence” that a “principal,” employee, agent or subcontractor has violated: • Federal criminal laws – fraud, COI, bribery or gratuity • False Claims Act Requirements of the Code

11. It’s the right thing to do Lack of public support / adverse publicity Impact on customers / clients “A penny saved is a penny earned” B. Franklin Government investigations lead to indictments Potential penalties far outweigh any benefit from a second-rate system Good policies require good practices Reasons for business ethics

12. Violators want others to join them

13. “Management is doing things right; leadership is doing the right things.” Peter Drucker Management or Leadership?

14. “The only thing necessary for the triumph of evil is that good men do nothing.”Edmund Burke You must get involved!

15. “I am more afraid of an army of 100 sheep led by a lion than an army of 100 lions led by a sheep.” — Talleyrand, French diplomat (1754-1838) Leadership is the key to success

16. “Like a muddied spring or a polluted well are the righteous who give way to the wicked.” Proverbs 25:26

17. “Personal leadership is the process of keeping your vision and values before you and aligning your life to be congruent with them.” Stephen Covey, author Living an ethical life in business

18. TINA – the Truth in Negotiation Act • FCA – the False Claims Act • FERA – the Fraud Enforcement and Recovery Act • FCPA – the Foreign Corrupt Practices Act • AKA – the Anti-Kickback Act • LDA – the Lobbying Disclosure Act • CDA – the Contract Disputes Act and • SOX – the Sarbanes-Oxley Act A few Business Ethics Laws

19. What motivates such behavior? The risk/reward calculation “Can I get away with it?”

20. Leadership down the wrong path

21. …and it goes downhill from there

22. Requires government contractors to submit cost or pricing data and to certify that such data is accurate, current and completeas of the date of final agreement on price, commonly referred to as the “handshake.” Cost or pricing information or data includes all facts that prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental, and are verifiable. Truth in negotiations act

23. Applies to contracts over $700,000 except if: Adequate price competition exists The price is set by law or regulation The acquisition is for a commercial item The head of the contracting activity for the government agency grants a waiver. TINA – threshold and exemptions

24. Why So many lawyers teach ethics

25. Worldwide corruption

26. A federal law that prohibits U.S. organizations, directly or through others (such as foreign representatives, consultants or business partners) from… • Giving or offering any payment, gift, bribe, or “anything else of value” to a foreign official • For the purpose of influencing an official act or failure to act, or inducing the foreign government official or party to use influence to affect the decision of a foreign government or agency. the Foreign Corrupt Practices Act

27. As business, including government contracting, becomes more global, the interactions with foreign officials increase FCPA jurisdiction is very broad – applies to acts taken wholly outside the US if a US concern commits the act The term “foreign official” has been interpreted very broadly, to include low-level employees of state-owned foreign entities Therefore, all interactions with foreign governments must be closely scrutinized FCPA issues

28. Legislation aimed at bringing a level of accountability to federal lobbying practices. It was amended substantially by the Honest Leadership and Open Government Act of 2007. The Byrd Amendment prohibits the use of appropriated funds by recipients of a Federal contract for purposes of influencing or attempting to influence federal officials in connection with a Federal action, such as the awarding of a Federal contract. The Act prohibits contractors from using appropriated funds for lobbying in connection with a contract, grant, loan or cooperative agreement with a Federal agency. Lobbying disclosure act

29. Claims by the contractor against the Government must be submitted in writing to the CO for a decision.All claims by the Government against the contractor must be the subject of a decision by the CO. Except for alleged fraud in connection with a claim by the contractor, all claims by either party must be submitted within six years after the claim accrues. (like a statute of limitations) • Claims by the contractor that exceed $100,000 must be accompanied by a certification that • (i) the claim is made in good faith, • (ii) the supporting data are accurate and complete to the best of the contractor's knowledge and belief, • (iii) the amount requested represents the contract adjustment for which the contractor believes the Government is liable, and • (iv) the certifier is authorized to submit the certification on behalf of the contractor Contract Disputes Act

30. Trying to do it all

31. Recent trend shows increasing importance • COI: A situation in which an individual who has authority to make or influence a procurement decision may have past, present, or currently planned personal, business or other interests with a vendor or competitor in the subject procurement other than those of the employer • Both individual and corporate responsibility Conflicts of interest

32. Do not solicit, directly or indirectly, any offer or promise of future employment or business opportunity, or engage in any discussion of future employment or business opportunity with any contractor or prospective seller while participating in the evaluation of proposals. Do not accept outside employment which will interfere with contract work, or create or appear to create a conflict of interest. Avoid even the appearance of COI

33. Prohibits those involved in government contracting from offering, accepting, or attempting to accept inducements for favorable treatment in awarding contracts for materials, equipment, or services of any kind. What is a kickback? Any money, gift, gratuity, thing of value, or any other form of compensation which is provided for the intended purposeof obtaining a contract or favorable treatment under a contract. Anti-Kickback act of 1986

34. Time to stop digging

35. Introduced major changes to the regulation of corporate governance and financial practice • Requires certification by corporate officers that the report: • Does not contain any material untrue statements/omission or be misleading • Financial statements and related information fairly present condition and results in all material respects • Signing officers are responsible for internal controls and have evaluated these internal controls within the previous 90 days and reported on findings • All deficiencies reported in internal controls and information on any fraud that involves employees involved with internal activities • Any significant changes to internal controls or related factors that could have a negative impact on the internal controls • Penalties up to $1 million and 10 years imprisonment Sarbanes-Oxley Act

36. “Management’s Responsibility for Internal Controls” Federal equivalent of SOX Management has a fundamental responsibility to develop and maintain effective internal control. The proper stewardship of Federal resources is an essential responsibility of agency managers and staff. Federal employees must ensure that Federal programs operate and Federal resources are used efficiently and effectively to achieve desired objectives. Programs must operate and resources must be used consistent with agency missions, in compliance with laws and regulations, and with minimal potential for waste, fraud, and mismanagement. OMB Circular A-123 (rev. 12/2004)

37. Balance is required Federal managers must carefully consider the appropriate balance between controls and risk in their programs and operations. Too many controls can result in inefficient and ineffective government; agency managers must ensure an appropriate balance between the strength of controls and the relative risk associated with particular programs and operations. The benefits of controls should outweigh the cost. Agencies should consider both qualitative and quantitative factors when analyzing costs against benefits.

38. Any questions? Alan Rither, 375-2218