Ethics for Federal Contractors

Congratulations, You have decided to enter the world of government contracting.

 Business Strategy

Congratulations, You have decided to enter the world of government contracting. Because you are going to be a federal contractor you need to look at the rules regarding Government and business relationships.  Do you know how Government Ethics can impact your business?  Do you have an Ethics program in place as part of your business strategy?  If not, then please consider adding business ethics to your business strategy immediately.  Some contractors will be required to have a business ethics program in place to perform federal work.  Besides that, every business should have a ethics policy in place before completing any commercial or federal contracts.

Appearance is Everything.

It is essential to avoid any conflict of interest or the appearance of a conflict of interest when interacting with government representatives.  Therefore, it is critical to follow the Government rules.  Government business shall be above reproach.  Any transactions of public funds require the highest degree of public trust and an impeccable standard of conduct.  No one wants to hear about a public servant who excepted bribes and gave a contract to a contractor in return.

Government employees can not ask for, accept either directly or indirectly any gratuity, gift, favor, entertainment, or anything of monetary value from anyone performing government contracting or wanting to receive a contract.  That is the rule.  

Therefore it is best to ask yourself it what you are going to do could be viewed as a potential conflict of Interest.  For example,  one of your employees has extra tickets to a local NFL game.  He gives the extra tickets to a government employee for free.  How would this look?  Can you see that something so innocent could turn into something so significant?  Do you know how this impacts your business strategy?

For more information on Government Ethics, please see FAR Part 3. 

Common Sense

One would think that these rules would be easy to follow if you use common sense.   Most importantly,  ask yourself is how does this look to others? Does this action raise any red flags?   If so, then stop and reevaluate what you are doing.  The downside to potential conflicts of interest is a protest and otherwise adverse impact on federal government contracts.  

Remember employees may not participate as a Government official in a matter that will have a direct impact on their financial interests. Not only does this include the employee but also their spouse, minor children,  general partners, outside employers or prospective employers.  How would you handle the situation where a federal employee is seeking employment from you?  What if the federal employee were a contracting officer who oversees your contract?  That federal employee would have to remove themselves from the contract before the contractor could negotiate an employment deal.  

Rules and Regulations

As a federal contractor, you must comply with a variety of rules and regulations.  It is up to you to know these rules and regulations and incorporate the requirements into your business.  You will have to train on your ethics procedures.  Please consider developing as part of your business strategy an effective ethics program.  The program is required anyway, so why not start now?

Potential Damages

Contractors that experience ethic violations can face significant consequences such as a debarment, suspension, and civil and criminal penalties, including prison and fines.  Most importantly, this does not take into consideration the potential loss of revenue, profitability, business, and reputation. Protecting your business from an ethics disaster is just as essential as protecting your business from a natural disaster.

It is best to devise a robust ethics program for your business before you venture into government contracting.  Contractor interactions with government officials are the one area that can cause the most significant problems.  Don’t wait, plan and add this to your business strategy now!

As the Federal government continues to use contractor employees in the Federal workplace, this increases the frequency and the likelihood that ethics issues will arise.  It is in your best interest to have the policies and procedures in place to handle these potential issues. When this happens, it is best to use a combination of procurement and ethics guidance.  What does your business ethics plan tell you to do?  Have all new employees been trained?  

Government Ethics for Federal Contractors
Government Ethics for Federal Contractors

Contractor Employees

Most importantly, contractor employees are not government personnel and are not subject to the same laws and regulations.  Contractor employees fall under the Federal criminal laws (like bribery), their employer rules and procedures in addition to any restrictions imposed by the contract.  Federal employees are subject to Federal laws/regulations and Agency regulations. Understanding these differences and educating your workforce will go a long way to ensuring that your business complies with the FAR.  That is why it is necessary to develop your business strategy now and add a business ethics program or enhance your current plan.

Government Employees

Remember that the Government establishes a relationship with the contractor, which is defined by the contract. Usually, government personnel will not exercise any of the following functions over contractor employees:

  1. Supervise or direct.
  2. Approve leave or other absences.
  3. Train or approve training
  4. Conduct performance appraisals or other evaluations
  5. Provide or approve awards and recognition.
  6. Tell or suggest to a contractor whom to hire or fire.
  7. Discipline contractor employees.

Contractor employees have the following restrictions:

  1. Contract employees cannot supervise government personnel
  2. Supervise employees of other contractors.
  3. Administer or supervise government procurement activities
  4. Perform inherently government functions.
  5. Evaluate, discipline or reward government personnel.

Government Functions

The government function is one that is so intimately related to the public interest as to mandate performance by government employees.  The services include activities that require the exercise of discretion in applying government authority, using judgment when making decisions on behalf of the government and decisions regarding monetary transactions and entitlements.

The government policy states that contractor employees cannot be used to perform these vital governmental functions.

Contractor employees should only perform work within the scope of the contract. These employees cannot perform personal or governmental functions authorized by the federal law. The government must have visibility over the tasks and deliverables performed by the contractor.  It is essential to educate your employees to ensure they stay within the bounds of the contract.  Therefore reminding employees to refer to a supervisor or the statement of work before performing work outside the contract, will go a long way to stop potential problems in the future.

Contractor Business Ethics Programs

Remember earlier we discussed the requirement for contractors to have ethics and business gratuity policies in place?  Well, it is a requirement of FAR 3.10.  The FAR requires that a contractor have a code of business ethics and conduct.  It also states that the contractor will have a training program and internal ethics control system in place that is suitable to the size of the company and the extent that the company is involved in government contracting.  A system needs to be in place so those contractor employees can timely report and disclose improper conduct in connection with government contracts.  You need to carry out corrective measures promptly. Also, mandatory disclosure to the government of specific criminal law violations, False Claims Act Violations, or evidence of significant overpayments needs to be reported.

Ethic requirements apply to contracts and subcontracts greater than $5.5 Million and performance period greater than 120 days.  Small business and commercial items contracts are exempt from ethics training and internal control systems.


The most difficult rules are gifts. Gifts are especially true in a teamwork workplace between government employees and contractor employees.  Although each group works side by side, each has a different set of rules that guide their behavior, but also official interaction.  Government gift rules have two Gifts categories: 1.  from outside sources and 2. between employees.

Government personnel cannot directly or indirectly, solicit or accept a gift from a prohibited source.  Prohibited sources are all contractors and their employees.  Employees cannot receive gifts because of the position they hold.

The typical exception is the $20/$50 rule.  Government personnel may accept unsolicited gifts if they are not cash and valued at or under $20 per source per occasion. The aggregate limit is from a single source is $50 per the calendar year.   Many government employees will not accept gifts to avoid a conflict of interest even under the common exception.  Therefore, please respect their wishes.

Contractors cannot spend more than $50 total for gifts from all his employees to a federal employee.  If you have any questions, please refer to FAR Part 3.


It is always best to err on the side of caution when dealing with government ethics.  The last thing to remember is to consider the appearance of action.   It is easy to develop relationships with a government representative and no think of the consequences of an action when you work side by side each day.

Most importantly, consult with an attorney or consultant when planning your business ethics program for your business strategy.  The program will take a while to develop, implement and train employees. 

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