The FAR Compliance Program Requirement

Does your contract contain FAR 52.203-13?  It’s one of those pesky FAR “boilerplate” clauses that contractors too often overlook.  But you shouldn’t.  This clause – we sometimes call it the “-13” clause – requires that contractors have a code of conduct and a compliance program. The components of the code and plan depend are not prescribed in detail – they will depend on the nature of the contract and contractor. 

When does the -13 clause apply?  The -13 clause applies if your contract amount is above the threshold of $6 Million or more, and will take at least 120 days to perform.  (This threshold often excludes quick turnaround product deliveries.)  But even if your contract doesn’t reach that threshold, it’s still wise for you to have a code and program.  Why?  Because the Government’s compliance regulations still apply, and sanctions for violations can be serious to your business.  Whether or not the -13 clause applies, violations of these rules can lead to suspension or debarment, or even criminal sanctions under the False Claims Act and other statutes in the federal criminal code.

Once your contract meets or exceeds the threshold, the regulation considers your size and contract type.  If you are a small business, or if you provide only “Commercial Products and Services,” the -13 clause requires you to have a written code of business ethics and conduct that is made available to employees; exercise due diligence to prevent and detect criminal conduct, have a “culture of compliance,” and follow disclosure and cooperation requirements.  If you are a large business providing non-commercial products and services, however, you are also required to have a much more extensive “internal control system.” 

The components for that system, which are derived from the Department of Justice Sentencing Guidelines, include, among other things, an active training program, high level responsibility for compliance, vetting of principals, and a hot-line for internal reporting.

Of course, these words don’t define themselves, and this is not an area where “one size fits all.”  What are the components of a code of conduct?  How does a company create and maintain a “culture of compliance”?  What is the best way to institute an internal control system?  What documentation will you provide to the auditors when they knock on your door and ask to see your compliance program?  The answers to these questions depend on your company, your industry, your people, and your customers, and require serious thought and planning.

Fred Geldon is Senior Counsel at the Law Firm Steptoe and Johnson.

FAR Code of Conduct Training
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The Public Contracting Institute offers FAR Code of Conduct Training, covering an array of valuable topics in government contracts ethics and compliance. Take a look at our ethics and compliance trainings here. We also offer custom in-house training on these topics – contact tracy@publiccontractinginstitute.com if you would like to learn more having a FAR Code of Conduct Training run for your organization.

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