Procurement Integrity
Agency Personnel
“Procurement integrity” is a phrase that boils down
to common sense rules of fair play in contracting. As an ethical
standard of conduct, procurement integrity applies equally to
federal employees and contractors. The phrase gains notoriety
whenever a federal employee or contractor are caught with their
hands in the federal cookie jar. For most contractors supplying
commercial, off-the-shelf products, however, procurement integrity
should not pose a major compliance problem.
Contracting agencies are charged with a public trust. Funded
with taxpayer dollars, agencies are supposed to give all bidders
an equal chance at winning federal business by awarding to the
lowest-priced vendor meeting the government’s minimum needs.
Unlike the commercial sector, where almost anything short of a
bribe is allowed when trying to lure new accounts, agencies are
required to follow strict guidelines in soliciting and awarding
contracts. Indeed, the government’s ethical standards of
conduct differentiate it from the commercial marketplace.
Contracting Officers are federal officials. In the same way
that a Congressman is not allowed to accept a bribe to influence
legislation, Contracting Officers and other agency personnel are
not allowed to accept gratuities from bidders angling for award.
Nor are contractors supposed to offer gifts, solicit insider information,
or offer employment to federal procurement officials. These actions
could influence the award of an order, which wouldn’t be
fair to the other contractors playing it straight.
To help advise procurement officials about what’s permissible
and what’s illegal behavior, almost every agency has published
a standard of conduct applicable to its employees. These standards
differ slightly from agency to agency, so that the standards applying
to Department of Defense employees are slightly different than
the standards for General Service Administration workers. For
a contractor to know precisely what’s allowable, the vendor
must know the rules of the particular agency involved.
Luckily, all of the differing standards of conduct have a common,
overlapping ethical core of proper behavior. Based on guidelines
published by the Office of Government Ethics (OGE), these standards
prohibit federal employees from soliciting or accepting any “gratuity.”
In turn, “gratuity” is generally defined as “any
gift, favor, entertainment, hospitality, transportation, loan,
any other tangible item, and any intangible benefits, including
discounts, passes, and promotional vendor training, given or extended”
to federal employees.
There are exceptions. Federal workers may accept social courtesies,
such as coffee, doughnuts, and refreshments of nominal value.
Government employees may participate in widely attended gatherings
of mutual interest to the government and industry sponsored by
universities or technical associations. Where a free lunch is
not the main event, procurement officials may accept food and
drink from a contractor when it will facilitate work. When travelling,
federal workers may accept a vendor’s transportation, meals,
or lodging when alternatives are impracticable. Inexpensive promotional
items that are less than $20 in retail value may also be accepted,
although the value of such gifts should not exceed $50 over the
course of a year.
Common sense is your best guide. Offer a procurement official
a simple lunch while he is visiting your facility, but don’t
take him out to the best restaurant in town for a three martini
feast. Give a contracting officer a pen or mug with your company’s
logo, but don’t give her a minicam for Christmas. If a federal
employee is concerned about the propriety of a vendor’s conduct,
then he or she should either refuse the gift or insist on paying
for it.
Excerpted below are the OGE’s standards of ethical conduct.
While the standards of ethical conduct govern agency personnel,
they serve as a guideline to contractors to show what is, and
is not, permissible. The point is not to place agency personnel
in difficult situations. Next month: ethical standards for contractors.
The word “transgression” derives from the prefix “trans”
and the root “gress.” The prefix “trans” means
“to cross” or “across,” as in “transfer”
or “transportation” (literally, to carry across). The
root “gress” means “to move or step,” as in
“progress” or “aggression” (literally, to
move against).
I’ve often thought that the word “transgression”
well describes the crux of contractor integrity in government
contracts. Contractor integrity is a series of legal lines, some
bright and well-defined, others fuzzy and vague. If a contractor
were to “transgress,” or step across, one or more of
the lines comprising contractor integrity, the contractor is at
risk of losing the contract, and more importantly, losing its
ability to contract with the government.
Contractor integrity can be divided into three broad categories.
First are those rules governing a contractor’s conduct with
federal agencies. Second are those rules covering a contractor’s
behavior with its suppliers and fellow contractors. Last are the
regulations governing a contractor’s internal practices.
Conduct with Agencies
•Bribes. It is clearly, unequivocally illegal to
offer a bribe to a federal employee. A bribe is defined as a payment
made to influence someone to do something that should not be done
or to omit to do something that should be done under the rules
governing the procurement.
While it is also equally illegal for the federal employee to accept
the bribe, a contractor’s illegal conduct will not be diminished
by the federal employee’s complicity in crime. Both the contractor,
as a corporate entity, and the corporate employee offering the
bribe, are subject to prosecution and fines. The employee may
also face imprisonment.
•Gratuities. It is likewise illegal to offer a gift
to a federal employee. The term gift includes any gratuity, favor,
discount, entertainment, hospitality, loan, or other item having
monetary value. This does not apply to minor items commonly exchanged
in business relationships, such as inexpensive pens, mugs, mouse
pads, or to the modest provision of food and refreshments, such
as soft drinks, coffee, and donuts, offered other than as part
of a meal. The provision of meals to government personnel is permitted
under certain circumstances, particularly when government personnel
are visiting a contractor’s facility and recourse to a restaurant
or cafeteria for meals is otherwise unavailable. Discretion and
common sense must be used to avoid the appearance of impropriety.
•Offering Employment. A contractor cannot offer
employment, now or in the future, to federal employees involved
in a procurement the contractor is bidding on.
Conduct with Suppliers and Other Contractors
•Kickbacks. A kickback is any money, fee, commission,
gift, or the like which is given by a subcontractor or supplier
to a contractor for the purpose of improperly obtaining favorable
treatment or obtaining an award in connection with the contract.
Crossing this line can mean jail time.
Kickbacks in any form are strictly prohibited and are not to be
given or accepted under any circumstance. To raise the consciousness
of employees and suppliers about kickbacks, many contractors provide
their suppliers with an anti-kickback letter advising them of
the contractor’s policy not to accept gifts or compensation
for favorable treatment. A sample anti-kickback letter is included
on the following page.
•Independent Pricing. A contractor must arrive at
its bid price independently and not through consultation or collusion
with other contractors.
•Contingent Fees. Except under certain circumstances,
contractor may not pay a consultant or representative a commission
contingent on the obtaining a government contract. The theory
here is that the lure of a fat commission will induce the agent
to act improperly if necessary to get the contract.
•Restricting Subs. A contractor cannot unreasonably
restrict its subcontractors from bidding directly on contracts
with the government.
Internal Policies and Practices
•Records Maintenance. Contractors must maintain
records relating to government contracts for at least three years
after final payment.
•Falsification of Records. Related to records maintenance,
contractors must not falsify or destroy records in an effort to
hide non-compliance or demonstrate compliance with the requirements
of a contract. This could include, for example, records relating
to source of origin of goods or employment matters.
•Product Integrity. The government must get what
it pays for. Accordingly, a contractor cannot deliver inferior
goods to the government by substituting shoddy parts or reducing
performance.
In large part, most of the rules government contractor integrity
codify well-established common law and state statutory requirements
governing fair dealing among businesses and consumers. Nevertheless,
contractors entering the federal market should acquaint themselves
with the federal regulations governing contractor integrity before
falling into a trap for the unwary. Established contractors should
re-acquaint themselves with these rules both to remind old hands
and teach new hires about the lines of conduct that may not be
crossed.
