FAR 52.203-13 (3) - Mandatory Disclosure

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Introduction

On Wednesday, November 12, 2008, the FAR Council issued in the Federal Register the final rule that will among other requirements (additional requirements are not covered here), impose a mandatory requirement on government contractors to disclose [in writing] to the relevant agency’s Office of Inspector General (OIG) whenever they have “credible evidence” of:

  • (A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or
  • (B) Civil False Claims Act violations.

This new rule goes into effect December 12, 2008, and also provides that failure to disclose these violations--as well as failure to disclose “significant overpayments” by the Government--will constitute grounds for suspension and/or debarment. Finally, the new rule imposes new business ethics awareness, compliance program, and internal control system requirements for other than small businesses and commercial-item-only contractors.

Requirement For FAR 52.203-13 to be Included in a Contract

FAR 3.1004, prescribes when this clause must be included in a contracts and those requirements are:

  • 1. When the contract award is expected to exceed $5 million and,
  • 2. Have a performance period of 120 days or more.

Contract Requirement (For Mandatory Disclosure)

As stated above in the Introduction, a contractor shall timely disclose, in writing, to the agency [OIG], with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed--

  • (A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or
  • (B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733).

The rule also mandates flowdown to subcontracts which meet the same size and duration thresholds, but specifies that subcontractor disclosures must be made directly to the government.

When to Disclose

When the contractor has “credible evidence” that it commited a violation described above. Credible evidence indicates a “higher standard” than “reasonable grounds to believe” standard.

A contractor is not required to make a disclosure until it has credible evidence of an overcharge. Credible evidence “implies" that the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government.” This obligation to disclose, again according to the Supplementary Information accompanying the new rule, applies to contracts that include the new clause and extends until three years after contract completion, “using final payment as the event to mark contract completion.”

Suspension and/or Debarment - A Contractor can still be debarred or suspended for not disclosing even in the clause is not in the contract

Even when a contractor is not subject to the new mandatory disclosure requirement set forth in FAR 52.203-13, the contractor nevertheless can be suspended and/or debarred for a:

Knowing failure by a principal, until 3 years after final payment on any Government contract awarded to the contractor, to timely disclose to the Government, in connection with the award, performance, or closeout of the contract or a subcontract thereunder, credible evidence of--

  • (A) Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code;
  • (B) Violation of the civil False Claims Act (31 U.S.C. 3729-3733); or
  • (C) Significant overpayment(s) on the contract, other than overpayments resulting from contract financing payments as defined in 32.001.

For more on this subject, See -- Causes for Debarment

Other Requirements

The clause at FAR 52.203-13 also requires contractors (other than small businesses and contractors who only have commercial-item contracts) to establish:

  • (1) Business Ethics Awareness and Compliance Programs; and
  • (2) Internal Control Programs.

FAR 3.1003

IMPLICATIONS

FAR 52.203-13 places significant compliance obligations on contractors and makes it even more important for contractors to be ever-vigilant in ensuring that they promptly, and carefully review all reports or indications of potentially applicable misconduct. Decisions will need to be carefully documented, even if it is only to document that the reported conduct was of no potential significance and non-reportable.

Contractors will need to decide first if disclosure is necessary, and second if it is, their position with respect to possible suspension and debarment issues, and have a correction action or remediation plan available to correct the situation and prevent further occurences of the situation in the future.

Policy

[[http://www.govcwiki.org/index.php?title=File:Mandatory_Disclosure_Policy_-_Generic.docx |Mandatory Disclosure Policy]]

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