Overview
FAR Subpart 3.10 establishes the requirements for government contractors to maintain written codes of business ethics, implement internal control systems, and display agency fraud hotline posters. It emphasizes the mandatory disclosure of credible evidence regarding criminal violations, civil False Claims Act violations, and significant overpayments to the Office of Inspector General (OIG).
Key Rules
- Mandatory Disclosure Rule: Contractors must timely disclose credible evidence of Federal criminal law violations (fraud, conflict of interest, bribery, or gratuity) or civil False Claims Act violations.
- Thresholds for Clauses:
- FAR 52.203-13 (Code of Ethics): Required in contracts expected to exceed $7.5 million with a performance period of 120 days or more.
- FAR 52.203-14 (Hotline Posters): Required if the contract exceeds $7.5 million (unless for commercial products/services or performed entirely outside the U.S.).
- Internal Controls: Contractors are expected to have a training program and internal control systems suitable to their size to facilitate the timely discovery and disclosure of improper conduct.
- Overpayments: Contractors must remit any overpayments discovered and may face debarment for "knowing failure" to disclose significant overpayments (excluding contract financing).
- Debarment Risks: The "knowing failure" to disclose violations remains a cause for suspension or debarment for up to three years after final payment on a contract.
Responsibilities
- Contractors:
- Maintain high standards of integrity and honesty.
- Establish written codes of conduct and internal compliance programs.
- Report violations and overpayments to the government and OIG.
- Display fraud hotline posters as required.
- Contracting Officers (CO):
- Insert required ethics and poster clauses into solicitations and contracts.
- Coordinate any notifications of possible contractor violations with the agency OIG.
- Provide specific poster content and web links within the contract documents.
- Agency Office of Inspector General (OIG):
- Determine the necessity and content of agency-specific fraud hotline posters.
- Receive and investigate mandatory disclosures from contractors.
- Contractor Principals: Responsible for the "timely disclosure" of violations; their failure to act can trigger corporate-wide debarment.
Practical Implications
This subpart shifts a significant portion of the "policing" burden from the government to the contractor. In practice, large contractors must invest heavily in internal audit and compliance departments to ensure they meet the "timely disclosure" requirement. For firms, the risk of "knowing failure to disclose" is often higher than the risk of the original violation, as it can lead to government-wide exclusion (debarment). Additionally, while the specific $7.5M clauses apply to larger contracts, the general policy of integrity applies to all contractors regardless of size, meaning even small businesses must have a mechanism for identifying and correcting ethical lapses to avoid being deemed "non-responsible."