New rule affecting a contractors compliance and internal control systems is codified by FAR 52.203-13. Actually the clause has been around for a while. It was established in 2008. The rule has been heavily debated with back and forth but is now implemented. In addition DCAA has started an initiative to audit against it. The new rule is applicable to contracts exceeding $5 Million and 120 days of contract performance. Certain parts of the rule apply to small business. The rule requires:
1. Contractors maintain written standards of conduct, be diligent in the prevention and detection of criminal conduct and maintain a culture of ethical conduct/compliance. It also requires contractors to disclose in writing to the Office of the Inspector General incidents where there is credible evidence that a violation has occured of criminal law or the civil False Claims Act.
2. Contractors must implement an ongoing employee awareness program regarding standards of conduct and reporting incidents, an internal controls system that is designed to detect incidents of noncompliance and corrective measures are implemented and carried out. The rule goes on to describe minimum requirements including periodic audits, testing and monitoring. This item only applies to large businesses, small businesses are exempt from the internal control system requirement.
This is an alert and is intended to notify contractors of the new rule and is a summary. It is not an analysis of the new rule as it is a substantial rule with detailed requirements. I encourage contractors to get a copy of FAR 52.203-13 and review the clause in its entirety.
This new rule imposes substantial compliance responsibility upon large and small businesses. Small businesses are only subject to the standards of conduct policies, training and the reporting provisions of this new rule. I encourage all contractors to review its compliance policies, procedures and monitoring in light of this rule. I encourage contractors to enhance its policies, procedures and internal control programs to comply with this complex but important rule. In regards to the reporting to the Office of Inspector General I strongly encourage contractors to seek legal counsel regarding its rights in light of disclosure. Contractors should engage qualified professionals and possibly legal counsel as needed.