Overview
FAR Subpart 3.2 establishes the policies and procedures regarding the prohibition of contractors offering gifts or entertainment to government officials to influence contract awards or favorable treatment. It outlines the mandatory contract clauses, reporting mechanisms for suspected violations, and the formal administrative process for penalizing contractors who violate these ethical standards.
Key Rules
- Mandatory Clause: The contracting officer must include FAR clause 52.203-3 (Gratuities) in all solicitations and contracts exceeding the simplified acquisition threshold (SAT), with minor exceptions for personal services and certain foreign government agreements.
- Prohibited Conduct: Contractors, their agents, or representatives are prohibited from offering or giving gratuities (gifts, entertainment, etc.) to any government officer or employee.
- The "Intent" Standard: For a violation to be actionable under this subpart, the gratuity must have been intended to obtain a contract or secure favorable treatment. The FAR notes that this intent is generally inferred from the circumstances.
- Due Process: Before any punitive action is taken, the agency head (or designee) must provide the contractor with formal notice and a hearing.
- Penalties for Violations: If a violation is confirmed, the government may:
- Terminate the contract for default (right to proceed).
- Initiate debarment or suspension proceedings.
- Assess exemplary damages (specifically for DoD contracts) in an amount not less than three nor more than ten times the cost of the gratuity.
Responsibilities
- Contracting Officers: Responsible for ensuring the Gratuities clause is included in applicable contracts and receiving reports of suspected violations.
- Agency Personnel: Obligated to report any suspected violations through the specific channels established by their agency’s procedures.
- Agency Head (or Designee): Responsible for conducting hearings, determining if a violation occurred, and deciding on the appropriate administrative remedies or penalties.
- Executive Agencies: Required to publish clear internal procedures specifying how to report violations and the authority of officials designated to review those reports.
Practical Implications
- Strict Compliance for Contractors: Companies must implement robust "Gift and Gratuity" policies. Even a seemingly small gesture (like a lunch or a sporting event ticket) can trigger an investigation if it can be inferred that the intent was to influence a contracting decision.
- DoD Financial Risk: For Department of Defense contractors, the financial stakes are significantly higher due to the provision for exemplary damages. A $500 gift could theoretically result in a $5,000 penalty on top of contract termination and debarment.
- Documentation is Key: Since "intent" is inferred, both government personnel and contractors must meticulously document interactions. For contractors, having a clear internal code of ethics and training logs can serve as a defense to show that an employee's unauthorized gift did not represent corporate intent.
- Reporting Culture: The FAR mandates a "whistleblower" style environment for agency personnel. Contractors should assume that any offer made to a government official will be documented and reported to the Contracting Officer.