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Procurement Ethics in Federal Contracting

Procurement Ethics in Federal Contracting. Introduction. Overview of the statutory and regulatory framework regarding ethics and procurement integrity Individual responsibility for ethical conduct in government contracting

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Procurement Ethics in Federal Contracting

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  1. Procurement Ethics in Federal Contracting

  2. Introduction • Overview of the statutory and regulatory framework regarding ethics and procurement integrity • Individual responsibility for ethical conduct in government contracting • Source Selection Information and other sensitive material requiring protection • Gifts and gratuities • Contractor misconduct and Government remedies • Responsibilities regarding acts of fraud

  3. Statutory and Regulatory Framework • Federal Acquisition Regulation (FAR), Part 3.104 • Public Law 95‑521, “Ethics in Government Act of 1978” • Code of Federal Regulations (Title 5) • United States Code (Titles 5, 18, and 41) • Executive Order 12674, "Principles of Ethical Conduct for Government Officers and Employees," April 12, 1989, as amended • Joint Ethics Regulation DoD 5500.7-R

  4. Responsibility for Ethical Conduct Public service is a public trust, therefore employees shall: • Put forth honest effort in the performance of their duties • Act impartially and not give preferential treatment to any private individual or organization • Protect and conserve federal property, using it only as authorized • Disclose waste, fraud, abuse and corruption to appropriate authorities • Satisfy all legal obligations, especially payment of taxes • Adhere to all equal opportunity laws • Avoid actions creating the appearance of illegal or unethical behavior Executive Order 12674 of April 12, 1989 (as modified by E.O. 12731)

  5. Responsibility for Ethical Conduct Employees shall NOT: • Hold financial interests conflicting with conscientious duty performance • Engage in financial transactions using nonpublic Government information • Solicit or accept any unauthorized gift or other item of monetary value • Use public office for private gain • Engage in outside employment that conflicts with Government responsibilities • Make unauthorized commitments or promises purporting to bind the Government Executive Order 12674 of April 12, 1989 (as modified by E.O. 12731)

  6. Gifts – General Rules • Government employees may not accept gifts: • Offered because of their official position, or • From a “prohibited source” (such as a government contractor). • A gift to a government employee’s spouse, parent, child or sibling -- because of the person’s relationship to the government employee -- is considered to be a gift to the government employee. • Practical Approach – Three Part Test: • Is the item actually a gift? • Does an exception apply? • Would using the exception undermine Government integrity? Source: 5 C.F.R. § 2635.201, 203

  7. Exclusions From Definition of “Gift” • Modest items of food and drink that are not part of a meal (such as coffee, soft drinks, donuts, and hors d’oeuvres). • Items with little intrinsic value that are intended solely for presentation (e.g. plaques, certificates and trophies). • Opportunities and benefits offered to the public, to all government employees, or to all military personnel (e.g. “military discount” for airlines and hotels). Source: 5 C.F.R. § 2635.204

  8. Gifts - $20 / $50 Rule • You may accept gifts up to $20 in value at one time (but never cash or investments). • Gifts from one source (e.g., one company) can’t exceed $50 in value in a calendar year. • You may not “buy down” to $20, i.e., pay $5 and then accept a gift worth $25. • The $20 limit is per occasion and per source. For example, at a trade show you may accept gifts worth $20 or less from several different contractors on the same day. Source: 5 C.F.R. § 2635.204

  9. Retirement Gifts • $20 / $50 rule applies, i.e., a retirement gift from a contractor is limited to a market value of $20 or less • If a contractor wants to give a retirement gift to the government employee’s spouse as well, and the gift to the spouse will be because of the spouse’s relationship to the government employee (i.e., the contractor does not have any independent relationship with the spouse), then the gift to the spouse is considered to be a gift to the employee, and the total market value of both gifts is limited to $20 or less Source: 5 C.F.R. § 2635.204

  10. Widely Attended Gathering Rule • A government employee may accept free attendance at an event (conference, seminar, dinner, reception) if: • A large number of persons (20 or more) are expected to attend the event, • The agency determines the government employee’s attendance would further agency programs or operations, • The attendees will represent a diversity of views or interests, and • The cost of attendance by the government employee (and his or her spouse/guest) will be paid for by: • The sponsor of the event, or • A non-sponsor, and more than 100 people are expected to attend the event, and the market value of the free attendance is $305 or less, or • A non-sponsor, and the non-sponsor does not pick which government employee(s) it will pay for (e.g., if a contractor gives five tickets to the sponsor and the sponsor chooses the government employees) Source: 5 C.F.R. § 2635.204

  11. Solicitation of Gifts • Executive Branch employees may not solicit gifts from “prohibited sources.” • “Prohibited sources” include companies doing business with an employee’s agency. • Executive Branch employees may not solicit gifts that would be given because of their official position. Source: 5 C.F.R. § 2635.202

  12. Gifts - Exercising Discretion • Government employees are not required to accept the gifts that are offered to them • The Ethics Regulation states: “Even though acceptance of a gift may be permitted by one of the exceptions …, it is never inappropriate and frequently prudent for an employee to decline a gift offered by a prohibited source or because of his official position.” Source: 5 C.F.R. § 2635.204

  13. Procurement Integrity Act Four Basic Provisions: • Ban on disclosing procurement information • Ban on obtaining procurement information • Requirement to report employment contacts • The one-year ban on accepting compensation from a contractor that was awarded a contract over $10,000,000

  14. Ban on Disclosing Procurement Information • Before competitive contract award, the Procurement Integrity Act prohibits: • The disclosure of sensitive Source Selection Information (SSI), or • The disclosure of Contractor Bid or Proposal Information (CBPI) • The ban applies to: • Current and former Federal employees, and • Anyone who is advising or has advised the Government regarding the procurement (i.e., contractor employees, consultants, etc.). Source: 41 U.S.C. § 423(a))

  15. Ban on Obtaining Procurement Information • The Procurement Integrity ACT states that a person may not knowingly obtain “source selection information” or “contractor bid or proposal information” before contract award, other than as provided by law. • The ban applies to everyone, including federal employees and contractor employees. Source: 41 U.S.C. § 423(b)

  16. Source Selection Information (SSI) • “SSI” means any of ten types of information: (1) Bid prices submitted by bidders (2) Costs or prices submitted by offerors (3) Source selection plans (including officials names and positions (4) Technical evaluation plans (5) Technical evaluations of proposals (6) Cost or price evaluations of proposals (7) Competitive range determinations • Rankings of bids or proposals Source: 41 U.S.C. § 423(f)

  17. Source Selection Information (SSI) • SSI (continued): (9)Reports & evaluations of source selection panels, boards or advisory councils, (10)Other information, if: (A) Contracting officer has determined that its disclosure would jeopardize the integrity of the procurement, and (B) It is marked “Source Selection Information -- See FAR 3.104” Source: 41 U.S.C. § 423(f)

  18. Source Selection Information (SSI) • Although items 1-9 in definition of SSI are SSI whether or not they are marked as SSI, they should nevertheless be marked with “Source Selection Information--See FAR 3.104” • Multi-page documents. If document contains SSI, then cover page and each page that contains SSI must be marked with “Source Selection Information -- See FAR 3.104” • Information that has been disclosed publicly or made available to public is not considered as SSI Source: 41 U.S.C. § 423(f) and FAR Subpart 3.104-4

  19. Contractor Bid or Proposal Information (CBPI) • CBPI includes any of five types of information: • Cost or pricing data • Indirect costs & direct labor rates • Proprietary information about technical approach, processes, operations or techniques marked by the contractor IAW applicable law or regulation • Information marked by the contractor as “contractor bid or proposal information” • Information marked by the contractor IAW FAR clause 52.215-1, entitled “Restriction on Disclosure and Use of Data” Source: 41 U.S.C. § 423(f) and FAR Subpart 52.215-1(e)

  20. Contractor Bid or Proposal Information (CBPI) • Data that have been disclosed publicly or made available to public are not considered as CBPI • Contractors are not prohibited from disclosing their own CBPI (corporate decision – not an unauthorized disclosure) • The ban on disclosing SSI and CBPI does not authorize the withholding of information from Congress, the Comptroller General, or the IG Source: 41 U.S.C. § 423(h)

  21. Disclosing or Obtaining SSI or CBPIPenalty for Individuals • If an individual improperly discloses or obtains SSI or CBPI -- • In exchange for anything of value, or • In order to obtain for himself, or give to anyone else, a competitive advantage in the award of a Federal contract, the maximum penalty is: • Five years in prison, • Civil penalty of $50,000 for each violation plus twice the amount of compensation which the individual received or offered for the prohibited conduct, and • Adverse personnel action (i.e. termination) Source: 41 U.S.C. § 423(e)

  22. Disclosing or Obtaining SSI or CBPIPenalty for Individuals • If an individual knowingly discloses or obtains SSI or CBPI in violation of Procurement Integrity Act (but not in exchange for anything of value, or to give anyone a competitive advantage), maximum penalty is: • Civil penalty of $50,000 for each violation, and • Adverse personnel action (i.e. termination) Source: 41 U.S.C. § 423(e)

  23. Disclosing or Obtaining SSI or CBPIPenalty for Organizations • If a company or organization improperly discloses or obtains SSI or CBPI -- • In exchange for anything of value, or • To obtain for itself, or anyone else, a competitive advantage in award of contract, the maximum penalty is: • Civil penalty of $500,000 for each violation plus twice the amount of compensation which the organization received or offered for the prohibited conduct, • Rescission of contract, if contract awarded, • Disqualification of offeror or cancellation of procurement, if contract not yet awarded, & • Suspension & debarment proceedings Source: 41 U.S.C. § 423(e)

  24. Disclosing or Obtaining SSI or CBPIPenalty for Organizations • If a company or organization knowingly discloses or obtains SSI or CBPI in violation of Procurement Integrity Act (but not in exchange for anything of value, or to give anyone a competitive advantage), the penalty may include: • Civil penalty of $500,000 for each violation, • Contractual remedies (such as recapture of profits), if contract has been awarded, • Disqualification of offeror or cancellation of procurement, if contract not yet awarded, & • Suspension and debarment proceedings Source: 41 U.S.C. § 423(e)

  25. Discussion • E. Gar specialist is part of a team writing a SOW for a sole source contract. • Thinking he could shorten the process, specialist sends an advance copy to the sole source contractor for off-line comments. • Violation?

  26. Responsibilities Regarding Acts of Fraud Federal government fraud is defined as “an intentional deception designed to deprive the United States unlawfully of something of value, or to secure from the United States for an individual, a benefit, privilege, allowance or consideration to which he or she is not entitled.” Source: Department of Defense Inspector General Hotline Website – Glossary of Terms

  27. Responsibilities Regarding Acts of Fraud Fraud includes: • Bribery • Violations of antitrust laws • Gratuities • False statements • Conflicts of interest • False claims Source: Department of Defense Inspector General Hotline Website – Glossary of Terms

  28. Responsibilities Regarding Acts of Fraud • Suspected violations of Procurement Integrity Act (41 U.S.C. 423) • Reported to the Contracting Officer

  29. Responsibilities Regarding Acts of Fraud • For other instances of suspected fraud, the DoD employee shall report the matter to any of the following:  • The DoD employee's Agency Designee (first line supervisor in the grade of GS11 or above);  • The suspected violator's Agency Designee;   • The head of the DoD Component command or organization;  • Any Ethics Counselor;  • The DoD Component's IG;  • The DoD Component's criminal investigative office; or  • The DoD hotline at (800) 424-9098 or hotline@dodig.osd.mil

  30. Contractor Misconduct and Gov’t Remedies • DoD policy requires the coordinated use of criminal, civil, administrative, and contractual remedies in cases involving procurement fraud. • Available Remedies include: • Civil Remedies • Statutory • Non-Statutory • Contractual Remedies • Administrative Remedies Source: DoD Directive 7050.5, Coordination of Remedies for Fraud and Corruption Related to Procurement Activities

  31. Civil Remedies - Statutory • "False Claims Act" (31 U. S.C. 3729 et seq.). • "Anti-Kickback Act" (41 U.S.C. 51 et seq.). • "Voiding Contracts" (18 U.S.C. 218). • "Truth in Negotiations Act" (19 U.S.C. 2306(f)). • "Fraudulent Claims -- Contract Disputes Act" (41 U.S.C. 604).

  32. Civil Remedies – Non-Statutory • Breach of contract • Breach of warranty • Rescission and/or Cancellation • Reformation • Enforcement of performance bond and/or guarantee agreement Source: DoD Directive 7050.5, Coordination of Remedies for Fraud and Corruption Related to Procurement Activities

  33. Contractual Remedies • Termination of contract for default • Termination of contract for convenience of Government • Termination for default and exemplary damages under the gratuities clause • Rescission of contract • Contract warranties • Withholding of payments to contractor • Offset of payments due to contractor from other contracts • Price reduction Source: DoD Directive 7050.5, Coordination of Remedies for Fraud and Corruption Related to Procurement Activities

  34. Contractual Remedies (continued) • Correction of defects (or cost of correction) • Refusal to accept nonconforming goods. • Revocation of acceptance • Denial of claims submitted by contractors • Disallowance of contract costs • Removal of the contractor from automated solicitation or payment system Source: DoD Directive 7050.5, Coordination of Remedies for Fraud and Corruption Related to Procurement Activities

  35. Administrative Remedies • Suspension of contractor and contractor employees • Debarment of contractor and contractor employees • Non-award of contract based upon a finding of contractor non-responsibility • Removal or reassignment of Government personnel • Review of contract administration and payment controls • Revocation of warrant of contracting officer • Revocation of facility security clearances • Change in contracting forms and procedures • Voluntary refunds Source: DoD Directive 7050.5, Coordination of Remedies for Fraud and Corruption Related to Procurement Activities

  36. Debarment and Suspension • “Debarment" means action taken by a debarring official under FAR 9.406 to exclude a contractor from Government contracting and Government-approved subcontracting for a specified period. • “Suspension" means action taken by a suspending official under FAR 9.407 to disqualify a contractor temporarily from Government contracting and Government-approved subcontracting.

  37. Debarment and Suspension (cont) • Contractors debarred, suspended, or proposed for debarment are excluded from receiving contracts, and agencies shall not solicit offers from, award contracts to, or consent to subcontracts with these contractors, unless the agency head or a designee determines that there is a compelling reason for such action. • Contractors debarred, suspended or proposed for debarment are also excluded from conducting business with the Government as agents or representatives of other contractors.

  38. Conclusion • Ethical behavior is everyone’s responsibility • Rules are often complicated with many exceptions • If you are not sure, seek guidance • Government employees – TMA OGC (703) 681-6012 • Contractor employees – Supervisor or firm ethics advisor • Approvals should be sought at least one week prior to the “event” • Document your efforts to obtain clarification/ approval

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