U.S. Federal Government Contracts Anti-Corruption 101

The following is an excerpt from the chapter I wrote for the Routledge Handbook of Public Procurement Corruption. The complete chapter will be available for free on SSRN soon. The information contained on this page is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

INTRODUCTION

The U.S. federal procurement system is mature, complex, and governed by myriad statutory and regulatory requirements. To ensure that U.S. taxpayer dollars are appropriately safeguarded, the Federal Acquisition Regulation (FAR) – the primary regulation applicable to federal executive branch agencies in their acquisition of goods and services – makes clear that the government procurement process demands the highest commitment to ethical and unbiased conduct (FAR 3.101–1).

To maintain integrity in this regime, entities that do business with the government are subject to a patchwork of requirements, restrictions, and compliance obligations. This framework, which I term the “U.S. Government Procurement Anti-Corruption Ecosystem,” is designed to prevent, detect, and mitigate corruption risks to the fullest extent possible.

The policies and requirements derive from a diverse composite of criminal and civil laws found in various titles of the United States Code and the Code of Federal Regulations. Moreover, many of the policies that form the foundation of these statutory and regulatory requirements are buttressed by provisions in the FAR, which either reiterate the policies or impose additional compliance obligations.

TRANSPARENCY

In the United States, most aspects of the procurement process are transparent and readily accessible by the public. For example, the government procurement rules, located in the FAR, are available online at Acquisition.gov to anyone with internet access. Similarly, contract opportunities, requirements, evaluation criteria, and awards can be found in a single online portal – SAM.gov.

Procurement spending data may be tracked online via a user-friendly website: USASpending.gov. This data can also be found in the Federal Procurement Data System (FPDS). The U.S. government also shares information about contractor misconduct by publishing information related to certain criminal and civil proceedings, administrative agreements, and contractor exclusions (debarment or suspension) at SAM.gov.

OVERSIGHT

Transparency also bolsters another key component of the U.S. Government Procurement Anti-Corruption Ecosystem: oversight. In addition to traditional sources of accountability, such as the free press and civil society, the United States has developed a variety of sophisticated government oversight tools designed to identify and expose corruption, fraud, waste, and noncompliance.

Two of those tools are audits and investigations, conducted primarily through agency inspectors general (IGs). IGs are “independent and objective units within each agency whose duty it is to combat waste, fraud, and abuse in the programs and operations of that agency.” IGs fulfill this duty by “conducting audits and investigations relating to the programs and operations of its agency” and by actively referring matters, when warranted, to the U.S. Department of Justice for potential prosecution and agency Suspension and Debarment Officials for possible exclusion from the federal procurement system.

In addition to the agency IGs who oversee procurements by their respective agencies, in certain circumstances, additional oversight is warranted. For example, given the hundreds of billions of dollars spent by the U.S. Department of Defense (DoD) on an annual basis, the Defense Contract Audit Agency (DCAA) provides audit and financial advisory services to the DoD and other federal entities responsible for acquisition and contract administration. This is in addition to the general oversight provided by the DoD’s Office of Inspector General, and the various criminal investigative services located throughout DoD (i.e., Naval Criminal Investigative Service (NCIS), Air Force Office of Special Investigations (AFOSI), U.S. Army Criminal Investigation Division (CID), etc.).

Moreover, the U.S. Congress will periodically establish “special” IGs to oversee programs that involve significant government spending. For example, in an effort to oversee billions of dollars spent on reconstruction in Iraq and Afghanistan, Congress established Special Inspectors General for Iraq Reconstruction (SIGIR) and Afghanistan Reconstruction (SIGAR). Similarly, in response to the COVID-19 pandemic, Congress created the Pandemic Response Accountability Committee (PRAC) to oversee and combat fraud, waste, abuse, and mismanagement of pandemic-related programs and funding.

To improve public access to the reports generated by the U.S. government’s IGs, the Council of the Inspectors General on Integrity and Efficiency (CIGIE) created Oversight.gov – a publicly accessible, text-searchable repository of reports published by federal IGs.

The U.S. legislative branch provides additional oversight of the U.S. procurement process,
generally through relevant committee investigations and hearings, as well as its independent audit agency – the Government Accountability Office (GAO). The GAO is an independent, nonpartisan agency that works for Congress by conducting audits and producing reports on government operations – including government procurement programs and policies. The agency also houses one of the three fora designated to hear bid challenges – a critical government procurement oversight mechanism. The “bid protest” system residing in the GAO is a sophisticated and mature forum that enables contractors to challenge the terms of a solicitation or award of a federal contract. U.S. contractors are also empowered to file challenges at the U.S. Court of Federal Claims (COFC) and at the individual executive branch agency level.

ETHICS RESTRICTIONS

U.S. government service demands that federal employees, including Special Government Employees, place loyalty to the Constitution, the law, and ethical principles above private gain. This “principle” is applicable to federal executive branch employees, including government acquisition professionals, who are also held to additional ethical standards due to their unique positions of trust.

U.S. government officials are subject to a lengthy list of ethics and integrity restrictions governing their federal work, including including, but not limited to, prohibitions against financial conflicts of interest, prohibitions on the use of nonpublic information in financial transactions, requirements to act impartially in the discharge of duties, and affirmative obligations to disclose waste, fraud, abuse, and corruption to appropriate authorities (5 C.F.R. § 2365.101(b)).

The ethics rules also prohibit federal employees from misusing their position and government resources (5 C.F.R. § 2365.701 to -.705). This category of restrictions is designed to ensure employees do not use their official positions, including information learned by virtue of the government position, for personal benefit or the benefit of others.

These ethics rules are designed to ensure that employees do not, for example, exploit the access they have due to their government position to obtain special treatment for themselves, friends, or family. Similarly, they require government employees to conserve and protect government property and prohibit its use for anything other than its authorized purpose. In addition, they require “official time” at work to be used for the performance of official duties –not for personal activities. There are also strict limitations on federal employees’ outside activities – particularly when those activities may conflict with the employees’ government duties (5 C.F.R. § 2365.801 to -.809, 2023). There are numerous other ethics “restrictions” applicable to federal public service, which help to promote integrity in the procurement process (5 C.F.R. §2365).

In addition to some of the more common ethics restrictions detailed here, there are also some limits on the political activities of federal employees “to ensure that federal programs are administered in a nonpartisan fashion, to protect federal employees from political coercion in the workplace, and to ensure that federal employees are advanced based on merit and not based on political affiliation.” The Hatch Act generally prohibits federal employees from engaging in partisan political activity while on duty, in a federal facility, or using federal property. The extent of the restrictions depends on the type of position the employee holds (i.e., employees in “law enforcement” positions are subject to greater limitations on their political activities).

To ensure federal employees understand their ethical obligations, agencies have designated ethics officials who are tasked with, among other things, implementing the agency ethics program, collecting and reviewing financial disclosure reports, and providing ongoing training and advice to agency employees. Although the United States has a fairly sophisticated ethics regime, the system is not without its flaws. The system famously excludes the president and vice president of the United States from much of its coverage. It also suffers from weak enforcement mechanisms, rendering the system vulnerable to abuse and neglect. Although there have been attempts to address relatively modest “technical” issues in the system, very little has been done to repair some of the system’s more significant weaknesses

CONFLICTS OF INTEREST

Competition is a primary goal of the U.S. procurement system. To help preserve and promote competition, the United States has enacted laws designed to mitigate conflicts of interest. The laws relating to conflicts of interest are both criminal and administrative and are designed to ensure government officials and contractors do not taint procurements with unfair competitive advantages and favoritism toward particular vendors. Federal conflict of interest laws can be separated into two distinct categories: personal conflicts of interest (PCIs) and organizational conflicts of interest (OCIs).

PERSONAL CONFLICTS OF INTEREST

U.S. law attempts to prevent, mitigate, and punish PCIs criminally and administratively. The
centerpiece PCI law is found at 18 U.S.C.§ 208 (acts affecting a personal financial interest) – a criminal law. The law prohibits government employees from having personal financial conflicts of interest with their official work. Specifically, the law prohibits federal officials from participating personally and substantially in a particular matter that would have a direct and predictable effect on the financial interests of the official or the official’s (1) spouse or minor child; (2) general partner; (3) organization in which the official serves as an officer, director, trustee, general partner or employee; or (4) persons with whom the official is seeking or has an arrangement for future employment.

To mitigate potential PCIs, government officials may recuse themselves from the conflicting matter, seek a waiver, or divest the financial interest. The failure to do so could result in a criminal prosecution, civil penalties, and up to five years imprisonment (18 U.S.C. § 216).

In addition to criminal prohibitions against PCIs, the FAR also contains a specific prohibition designed to prevent PCIs involving contractor employees performing “acquisition functions” (FAR 3.11). This particular provision was created in response to the increased outsourcing of work traditionally performed by government officials. It addresses concerns that when the U.S. government retains contractors to perform acquisition functions (e.g., planning acquisitions, developing statements of work, evaluating contract proposals, developing evaluation criteria, awarding or administering contracts), there is a greater risk that a conflict between a contractor employee’s personal financial interests and the government work it is performing could result in favoritism or bias, ultimately undermining competition.

The PCIs addressed by 18 U.S.C. § 208 and FAR 3.11 cover a fairly narrow category of conflicts. To address additional scenarios, not covered by these laws, that may still result in favoritism and bias, 5 C.F.R. § 2635.502 requires executive branch officials to maintain impartiality and integrity in the performance of their duties. It mandates that officials recuse themselves from matters that may cause a reasonable person, with knowledge of the relevant facts, to question the government employee’s impartiality. This “impartiality rule” is designed to avoid the appearance of favoritism in government decision-making. “It requires employees to consider these appearance concerns before participating in a particular matter if someone close to that employee is involved as a party to that matter.”

ORGANIZATIONAL CONFLICTS OF INTEREST

In recent decades, there has been an increase in organizational conflicts of interest caused by contractors’ competing business interests. This development is the result of consolidation in the information technology and defense industries, as well as the government’s increased reliance on contractors to provide services traditionally performed by public servants.

The FAR defines an OCI as occurring when, “because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the government, or the person’s objectivity in performing the contract work is or might otherwise be impaired, or a person has an unfair competitive advantage” (FAR 2.101). The term “person” includes companies and other contracting entities. The current framework for analyzing whether an OCI exists derives primarily from FAR Subpart 9.5 and decisional precedent from the GAO and the U.S. COFC.

OCIs are generally separated into three categories:

1. Impaired objectivity – may arise where a contractor’s outside business relationships create an economic incentive to provide biased advice under a government contract;
2. Biased ground rules – may occur when, as part of its work under one procurement, the contractor has helped set the procurement’s ground rules, such as writing the statement of work or developing specifications, for another procurement; and
3. Unequal access to information – may occur when a contractor obtains access to nonpublic information as part of its contract performance which gives it an advantage in a later competition for a government contract.

FAR 9.504 requires a contracting officer (CO) to “identify and evaluate potential organizational conflicts of interest as early in the acquisition process as possible; and avoid, neutralize, or mitigate significant potential conflicts before contract award.” To fulfill this obligation, COs depend on contractors to disclose, among other things, “any facts that may cause a reasonably prudent perso to question the Contractor’s impartiality because of the appearance or existence of bias” (FAR 9.504). Agencies generally demand this information through solicitation provisions or contract clauses that clearly articulate the government’s expectations with regard to the disclosure of facts and circumstances that would give rise to an actual or potential OCI.

The law relating to OCIs is currently in flux, as the FAR Council published a new proposed OCI rule in January that will completely overhaul how the federal government handles these potential conflicts.

PROCUREMENT INTEGRITY ACT AND POST-GOVERNMENT EMPLOYMENT RESTRICTIONS

One of the biggest scandals in U.S. government procurement history occurred in 1988, when an investigation revealed that DoD employees had accepted bribes from contractors in exchange for confidential procurement information that helped the contractors secure new contract awards. Known as “Operation Ill Wind,” the scandal ultimately resulted in the prosecution of more than 60 contractors, consultants, and government officials and a recovery of more than $622 million in fines, restitution, and forfeitures (Federal Bureau of Investigation, no date). In response to the scandal, Congress moved quickly by enacting the Procurement Integrity Act (PIA) (41 U.S.C. §§ 2101–07; FAR 3.104).

The PIA attempts to promote competition in two ways: by prohibiting the disclosure and receipt of confidential procurement information and by placing restrictions on post-government employment. With respect to the protection of confidential procurement information, the PIA prohibits the disclosure and receipt of nonpublic contractor bid or proposal information or source selection information before the award of a related federal agency procurement contract. This provision recognizes that the disclosure or receipt of such information could provide a prospective bidder or offeror with an unfair competitive advantage.

The PIA’s post-employment restrictions impose reporting and disqualification requirements on government acquisition officials engaging in employment discussions and negotiations. Its “compensation ban” prohibits government officials who are involved in certain procurement functions from accepting compensation from covered contractors for one year after performing those functions. The PIA’s provisions are construed quite broadly, imposing restrictions that may not be obvious to covered individuals. For example, a requirement to recuse from participation in a procurement can be triggered even if the employee is not engaged in formal employment discussions. Mere contact with a bidder or offeror about possible employment may necessitate that the employee affirmatively reject the possibility of employment or be disqualified from further personal and substantial participation in the relevant procurement.

The post-employment restrictions found in the PIA are buttressed by criminal “revolving door” restrictions found at 18 U.S.C. § 207, which imposes limits on the type of work former federal employees may perform for their new employers for specific periods of time. The restrictions range from a single year to lifetime bans and may include limitations on the employee’s ability to appear before or communicate with their former agency. The statutory requirements are often bolstered by Executive Orders, which provide additional “revolving door” restrictions.

Post-employment issues often arise in the context of bid protests, where disappointed bidders or offerors allege that their competitor has an “unfair competitive advantage” stemming from their hiring of a former Government employee.

ENCOURAGING DISCLOSURES OF FRAUD, WASTE & CORRUPTION

Corruption is notoriously difficult to detect given that most corrupt transactions or agreements are executed covertly with the proverbial wink and a nod. To help root out and mitigate these illegal activities, the U.S. government has aggressively embraced a disclosure model. Whether by incentivizing voluntary disclosures, threatening debarment for failure to comply with mandatory disclosure obligations, or mandating government employee disclosures, disclosures have become a centerpiece of the U.S. government’s efforts to combat corruption.

MANDATORY DISCLOSURES

FAR 52.203–13 imposes a mandatory disclosure obligation on government contractors if they hold a contract expected to exceed $6 million with a performance period of 120 days or more (FAR 3.1004). FAR 52.203–13 requires contractors to make their disclosure in writing to the relevant agency Office of the Inspector General (OIG) and send a copy to the CO. The disclosure must contain information about certain violations of the law that a contractor’s principal, employee, agent, or subcontractor has committed in connection with the award, performance, or closeout of its government contract or any subcontract thereunder. The conduct that triggers disclosure includes:

• A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code
• A violation of the civil False Claims Act
• A significant overpayment.

VOLUNTARY DISCLOSURES

Even where the mandatory disclosure obligation is not applicable, the U.S. government has spent the last several decades encouraging companies to voluntarily disclose misconduct to the government. In an effort to incentivize disclosure, the government has detailed the type of “credit” companies will receive for their disclosures and cooperation.

The DOJ Criminal Division’s “Corporate Enforcement and Voluntary Self-Disclosure Policy” outlines the incentives available to corporations that discover and disclose potential criminal violations to the Justice Department (DOJ Justice Manual, 9–47.12). In short, the policy states that if a company voluntarily self-discloses, fully cooperates, and timely and appropriately remediates the violation, there is a presumption that the DOJ will decline to take enforcement action against the company absent certain “aggravating circumstances involving the seriousness of the offense or the nature of the offender” (DOJ Justice Manual, 9–47.12). Even if a company does not meet the strict criteria necessary for a declination, the policy offers a sliding scale of benefits (e.g., discounts from the U.S. Sentencing Guidelines fine range) to companies depending on the extent of their cooperation, seriousness of the misconduct, and the timing of their disclosure.

GOVERNMENT EMPLOYEE DISCLOSURES

The U.S. government emphasizes the important role government employees play in detecting and reporting misconduct – particularly in the procurement system. For example, the Standards of Ethical Conduct applicable to executive branch government employees require the disclosure of “waste, fraud, abuse, and corruption to appropriate authorities.” The FAR also imposes more targeted obligations on acquisition professionals. For example, FAR 3.104 requires government employees to report possible violations of the Procurement Integrity Act. FAR 3.302 requires employees to report suspected gratuities given to an officer, official, or employee of the government in an effort to obtain a contract or favorable treatment under a contract to the Contracting Offier or other designated official. Similarly, FAR 3.303 requires agencies to report suspected collusion to the DOJ Antitrust Division. There are numerous other examples of reporting obligations scattered throughout the FAR, emphasizing the importance the government places on these disclosures

WHISTLEBLOWING PROTECTIONS & REWARDS

The U.S. government recognizes that individuals who disclose wrongdoing often face backlash from their employers and colleagues. In an effort to incentivize whistleblowing and protect individuals who bring wrongdoing to light, the United States has enacted an extensive system of whistleblower rewards and protections.

GOVERNMENT WHISTLEBLOWER PROTECTIONS

The Whistleblower Protection Act protects “any disclosure of information” by federal government employees that they “reasonably believe . . . evidences an activity constituting a violation of law, rules, or regulations, or mismanagement, gross waste of funds, abuse of authority or a substantial and specific danger to public health and safety” (National Whistleblower Center). It prohibits retaliation in response to such disclosures, such as terminations, disciplinary or corrective action, transfers, details or reassignments, poor evaluations, or pay cuts.

Notably, the Whistleblower Protection Act does not protect disclosures that reflect only a disagreement with policy, information required to be kept secret by Executive Orders in the interest of the national defense or conduct of foreign affairs, or if disclosure is prohibited by law (5 U.S.C. § 2302(b)). Most federal employees are covered by this law, though it specifically exempts whistleblowers from the intelligence community and the FBI from its coverage.

Employees who work in a classified environment are covered by separate whistleblower protection statutes (e.g., intelligence community employees are covered by the Intelligence Community Whistleblower Protection Act of 1998, the Intelligence Authorization Act for Fiscal Year 2014, and Presidential Directive 19). Depending on the employee’s position, there may be limits relating to whom they may disclose the information. In general, civilian employees may disclose information to anyone, including nongovernmental audiences, unless the information is classified or specifically prohibited by law from release. If the information is classified or specifically prohibited by law from release, it may only be shared with the relevant agency OIG, the Office of Special Counsel, or a designated agency official.

CONTRACTOR WHISTLEBLOWER PROTECTIONS

Recognizing that government contractor employees play an important role in ensuring that federal funds are utilized honestly, efficiently, and with accountability, Congress enacted additional statutory protections for employees of contractors from retaliation (41 U.S.C. § 4712; 10 U.S.C. § 4701). Employees of a contractor, subcontractor, grantee, or subgrantee or personal services contractor are protected against retaliation (including discharge, demotion, or discrimination) for disclosing information about:

• Violations of law, rule, or regulation related to a federal contract (including the competition for or negotiation of a contract) or grant
• Gross mismanagement of a federal contract or grant
• Gross waste of federal funds
• Abuse of authority relating to a federal contract or grant
• Substantial and specific danger to public health or safety.

The disclosure must be made to an authorized individual or entity:

• A Member of Congress or a representative of a committee of Congress
• An Inspector General
• The Government Accountability Office
• A federal employee responsible for contract or grant oversight or management at the relevant agency
• An authorized official of the Department of Justice or other law enforcement agency
• A court or grand jury
• A management official or other employee of the contractor, subcontractor, or grantee who has the responsibility to investigate, discover, or address misconduct (41 U.S.C. § 4712).

Disclosures to an individual or entity not included in this list are not protected.

WHISTLEBLOWER REWARDS

To further incentivize individuals to disclose wrongdoing and compensate them for the potential loss of income, many whistleblower programs in the United States also offer financial rewards. Studies have shown that whistleblower reward programs increase the likelihood that individuals will come forward and expose wrongdoing.

The most prominent whistleblower rewards statute in the United States is the False Claims Act, which is used to combat procurement fraud. If a case is successful, whistleblowers receive a 15–30 percent share of the recoveries. The United States has numerous other successful whistleblower rewards programs, including several new programs that have been created in the past few years:

• Dodd-Frank Whistleblower Program
• Internal Revenue Service Whistleblower Program
• Department of Justice Whistleblower Program
• Anti-Money Laundering and Sanctions Whistleblower Program

FRAUD

In response to allegations of fraud against the Union Army during the U.S. Civil War, in 1863, the United States enacted what has since become one of the most robust anti-fraud statutes in the world. The False Claims Act (FCA) creates liability for any person who knowingly submits a false claim to the government, causes another to submit a false claim to the government, knowingly makes a false record or statement material to getting a false claim paid by the government, conspires to commit a violation of the FCA, or knowingly seeks to avoid or reduce an obligation owed to the government (31 U.S.C. §§ 3729–3733). Civil violations of the statute often result in steep penalties and treble damages. The FCA also carries the potential of criminal penalties as well.

Widely considered a highly effective weapon in combating fraud against the government, the FCA is bolstered by a unique whistleblower scheme, which empowers private citizens to file suit on behalf of the U.S. government in exchange for a cut of the recoveries stemming from a successful case. By empowering private citizens to help enforce the FCA, the statute has become an extremely powerful tool, with annual recoveries often exceeding a billion dollars.

False Claims Act is primarily used as a tool to recover fraudulent payments, but may also be used criminally. There are a multitude of other statutes the government may use to pursue procurement fraud (i.e., Major Program Fraud, 18 U.S.C. § 1031).

The United States has buttressed its robust anti-fraud efforts with a tool designed to pursue “smaller” fraud claims of $150,000 or less through the Program Fraud Civil Remedies Act (PFCRA), or “Baby False Claims Act” (31 U.S.C. § 3801, et seq.). PFCRA empowers agencies to initiate administrative proceedings on these smaller claims when the DOJ elects not to pursue FCA remedies. The National Defense Authorization Act for FY25 included enhancements for PFCRA designed to encourage federal agencies to utilize this tool more frequently.

CORRUPTION

The U.S. federal government has several laws designed to deter and punish illegal bribes and gratuities. These laws are designed to ensure that government officials do not accept anything of value in exchange for influencing a government official’s judgment or an official act, including the award of a government contract. Notably, the laws are defined broadly to encompass both large (i.e., wire transfers of large sums of money, bags full of cash) and small (i.e., gifts and hospitality) schemes. “Anything viewed as valuable by the public official, whether tangible or intangible, could potentially trigger liability if viewed as an attempt to improperly influence a government official to obtain a contract or favorable treatment” (Tillipman, 2014).

DOMESTIC CORRUPTION

The “centerpiece” of federal public corruption law, 18 U.S.C. § 201, prohibits two offenses: bribery and gratuities. Applicable to the demand and supply side of the illegal transaction, the statute punishes “both sides of a corrupt transaction.”

FAR 3.101–2 reinforces the prohibition against gratuities in the procurement context by prohibiting government employees from soliciting or accepting, directly or indirectly, any gratuity, gift, favor, entertainment, loan, or anything of monetary value from anyone who (a) has or is seeking to obtain government business with the employee’s agency, (b) conducts activities that are regulated by the employee’s agency, or (c) has interests that may be substantially affected by the performance or nonperformance of the employee’s official duties.

In addition to the bribery and illegal gratuities statute located at 18 U.S.C.§ 201, the federal government has many other statutes that it can use to prosecute public corruption (or what Professor Randall Eliason refers to as “bribery by another name”). Statutes such as Honest Services Fraud (18 U.S.C. § 1346.), the Hobbs Act (18 U.S.C. § 1951), and federal pro- grams bribery (18 U.S.C. § 666) similarly punish corrupt activities, though their application differs depending on the facts of a particular matter. For example, because 18 U.S.C. § 201 is limited to federal public officials, Honest Services Fraud and the Hobbs Act are often used in the prosecution of state corruption cases.

In addition to bribes, the U.S. federal government also prohibits “kickbacks” via the Anti- Kickback Act of 1986 (41 U.S.C. Chapter 87). The statute prohibits “subcontractors from making payments and contractors from accepting payments for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or a subcontract relating to a prime contract” (FAR 3.502–2). “Kickbacks” are defined broadly to include “any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind” (FAR 3.502–1). Contractors are also prohibited from directly or indirectly including “the amount of any kickback in the contract price charged by a subcontractor to a prime contractor or a higher tier subcontractor or in the contract price charged by a prime contractor to the United States” (FAR 3.50–2).

FOREIGN CORRUPTION

U.S. law also prohibits the bribery of foreign public officials through the Foreign Corrupt Practices Act (FCPA). The FCPA makes it illegal to corruptly offer or provide money or anything else of value to officials of foreign governments, foreign political parties, or public international organizations with the intent to obtain or retain business (15 U.S.C. §§ 78dd-1, et seq.). The law also requires issuers – companies whose securities are listed in the United States – to maintain accurate books and records and strong internal controls. Known globally for its broad application and robust enforcement, the FCPA has transformed the global anti-corruption compliance landscape and helped bolster anti-corruption enforcement efforts around the world. Although violations of this law do not directly impact the U.S. procurement system, companies that do business with the U.S. government should be aware of the FCPA’s prohibitions and government compliance expectations given the potential consequences for violations of the law, such as debarment.

COLLUSION

Enacted in 1890, the Sherman Act prohibits any agreement among competitors to fix prices, rig bids, or engage in other anti-competitive activity (5 U.S.C.§1). The Sherman Act covers a variety of anti-competitive schemes, which are prosecuted by the DOJ Antitrust Division, including (but not limited to):

• Price Fixing: An agreement among competitors to restrict price competition, such as raising, fixing, or maintaining the price at which their goods or services are sold.
• Bid Rigging: An agreement among some or all the bidders which predetermines the winning bidder and limits or eliminates competition among co-conspirators.
• Market Allocation: Competitors agree to divide markets among themselves, including cus- tomer segments, geographic segments or product categories

https://www.justice.gov/atr/procurement-collusion-strike-forceGiven that procurement systems are uniquely vulnerable to collusive misconduct, the DOJ launched the Procurement Collusion Strike Force (PCSF) in 2019 to combat antitrust crimes and related government procurement schemes at federal, state, and local levels. The PCSF aims to deter and detect collusive behavior, enhance coordination and capacity among law enforcement partners, and educate key stakeholders to raise awareness of anti-competitive conspiracies and their consequences

PRE-QUALIFICATION & EXCLUSION

PRE-QUALIFICATION

In the United States, COs are required to determine whether a contractor is “responsible” prior to the award of the contract (FAR 9.103). Determination of contractor qualification requires consideration of whether the firm: (1) can be expected to complete the contract work on time and in a satisfactory manner; (2) is organized in such a way that doing business with it will promote various social and economic goals; and (3) satisfies other special standards of eligibility imposed by statutes and regulations.

Contracting Officers make this determination by reviewing information available in various federal government procurement systems, including the Federal Awardee Performance and Integrity Information System (FAPIIS) (available at SAM.gov) and the Contractor Performance Assessment Reporting System (CPARS) (CPARS.gov), as well as other sources, such as contractor-supplied information and pre-award survey reports (FAR 9.105–1(c)).

Prospective contractors must be able to demonstrate the following to be determined respon- sible: (1) adequate financial resources to perform the contract; (2) the ability to comply with the delivery or performance schedule; (3) a satisfactory performance record; (4) a satisfactory record of integrity and business ethics; (5) the necessary organization, controls, skills, and experience; (6) the necessary equipment and facilities; and (7) be otherwise qualified and eligible to receive an award (FAR 9.104–1).

EXCLUSION

The United States has a mature debarment regime, designed to protect the U.S. government from contractors that are corrupt, incompetent, or otherwise non-responsible. FAR 9.4 provides the framework for discretionary suspension and debarment in the U.S. procurement system and is grounded in the concept of “protection” rather than “punishment.”

As noted in FAR 9.402: “The serious nature of debarment and suspension requires that these sanctions be imposed only in the public interest for the Government’s protection and not for the purposes of punishment.” The punishment/protection distinction is one of the most frequently misunderstood aspects of the U.S. debarment regime – often leading to confusion and misunderstanding about how or why certain exclusion decisions are made when a contractor’s misconduct is discovered. The confusion likely stems from the mistaken belief that debarment is an extension of the government’s criminal justice system, designed to punish bad actors. Although this is certainly the case in some countries, in the United States, debarment is a “business decision,” intended to protect taxpayer dollars, not punish misconduct.

Suspension & Debarment Officials (SDOs) may be found in most federal executive branch agencies, with some agencies having more than one (e.g., Department of Defense and the Department of Homeland Security). Although they are required to comply with the policies and procedures detailed in FAR 9.4, agencies are responsible for establishing their own methods and procedures for coordinating suspension and debarment actions, which has led to some severe inconsistencies in agencies’ approaches to debarment. Because two or more agencies may have an interest in a particular contractor’s exclusion, the Interagency Suspension and Debarment Committee (ISDC) can coordinate suspension or debarment proceedings among interested agencies (known as the “lead agency” process).

SDOs are tasked with determining whether a contractor that has engaged in misconduct is presently responsible and, therefore, still eligible to receive government contracts. To determine a contractor’s present responsibility, SDOs must employ a two-step analysis. First, SDOs must determine whether, pursuant to FAR 9.4, there is cause for suspension or debarment, which generally includes fraud, crimes, very poor performance, violation of certain contract terms or laws, a knowing failure to disclose evidence of fraud or corruption, or “any other cause so serious or compelling a nature that it affects the present responsibility of the contrac- tor or subcontractor.”

If an SDO establishes there is cause, they must then determine whether exclusion is still necessary to protect the government’s interest. In making this assessment, an SDO will consider a multitude of “mitigating factors” to determine whether the contractor poses a threat to the government’s interests, including cooperation, disciplinary action against responsible employees, compliance enhancements, and other remedial measures.

MORE RESOURCES ABOUT DEBARMENT

CONTRACTOR COMPLIANCE

Over the last several decades, there has been an emerging global consensus on the importance of corporate ethics and compliance programs to help companies prevent, detect, and mitigate mis- conduct. The consensus has derived from increased global efforts to combat corruption. Since the late 1990s, dozens of countries have made multilateral commitments to combat corruption and enacted anti-corruption legislation to fight bribery and foster a new era of corporate compliance. Driven primarily by U.S. anti-corruption enforcement efforts, many large multinational companies have responded by investing heavily in sophisticated compliance programs and robust internal controls. As anti-corruption enforcement efforts and compliance expectations have grown, government anti-bribery enforcement agencies, nongovernmental organizations, and civil society organizations have begun publishing compliance guidance to assist companies with the design and implementation of internal ethics and compliance programs.

Notably, the development of rigorous internal compliance programs has been particularly pronounced in the defense industry, especially among large U.S. government contractors. This is because, similar to other heavily regulated industries, government contractors face increased enforcement risks. Since 2008, all U.S. government contractors have been legally required to have a written code of business ethics and conduct and to make a copy of the code available to each employee engaged in the performance of the contracts (FAR 52.203–13). The rule also requires contractors to exercise due diligence to prevent and detect criminal conduct and promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.

Companies seeking guidance regarding compliance best practices can access a wealth of information on the internet. The Defense Industry Initiative and International Forum on Business Ethical Conduct have developed compliance “toolkits” and regularly host ethics and compliance events for contractors. In addition, governments, NGOs, and public organizations have also published guidance to assist companies seeking information about compliance best practices. The DOJ’s “Evaluation of Corporate Compliance Programs” document is also a critical resource for contractors and compliance professionals.