Why you need an ethics awareness system

Dec. 1, 2011
Times are tough and good jobs are harder to come by. Could a little show of gratitude or friendship somehow be misinterpreted as unlawful or unethical and land you in the newspaper? You bet.

Times are tough and good jobs are harder to come by. Could a little show of gratitude or friendship somehow be misinterpreted as unlawful or unethical and land you in the newspaper? You bet. Remember Senator Ted Stevens of Alaska and his contractor friend? The contractor made some improvements to the Senator's home in exchange for favorable business opportunities and the story ended badly for them both.

While this kind of murky conduct has been going on for a long time, the trend toward "transparency," which led to the Freedom of Information Act and Open Records and Sunshine laws, creates fodder for our Internet-wired world. What you might have considered innocent, innocuous behavior has been flashed across the web, and broadcasted into media where the possibility of retraction is a fantasy. Now, however, the stakes are higher than ever.

The federal government's Federal Acquisition Regulations impose significant obligations on most federal contractors with contracts (or subcontracts) of more than $5,000,000. These new FARs require the contractors to have a "Code of Ethical Business Conduct" and to train all employees working on federal projects as to what they can and can’t do, including education on: the False Claims Act, with civil penalties of treble damages and $5,500 to $11,000 (adjusted for inflation since 1990) for each claim (which could mean each invoice), and criminal penalties of up to five years imprisonment; the False Statements Act, a criminal statute that imposes up to five years imprisonment; the Anti-Kickback Act, penalties of double the amount of the kickback at $11,000 per kickback, and criminal penalties of up to 10 years imprisonment; Bribery and Gratuities statutes, which impose criminal penalties of treble the amount of the bribe and up to 15 years imprisonment for bribes and two years for illegal gratuities; and many others.

If an employee of a contractor is found to have violated one of these laws, even innocently, the company's failure to educate the employee is grounds for finding the company liable for the violation. And, of course, any claims it might have against the government get forfeited too.

Contractors are not only required to have this ethics training program, they have to establish a toll-free hot-line number where people can call to report suspected violations anonymously; turn the company in if a violation is uncovered; and protect whistle-blowers from any retaliation. If a company doesn’t want to set up such a hot-line, that's fine. It can just direct its employees to call the Department of Homeland Security’s toll-free number to report their observations. Most decide to set up their own internal hot line.

What if you don't do federal work? Well, the federal government is not the only one to have such a program. Many states have their own regulations that can land you in hot water if you don't pay attention. And in an era of finding ways to balance budgets, the push continues for "Ethics in State Procurement" laws to assure citizens that greedy, unscrupulous contractors will be caught and hung from the nearest bridge. The additional cost, after all, falls on the contractors to set up compliance programs, and not on the state government, which only has to get involved when it gets a hot-line call or wants to challenge a claim.

What if you don't do public work? Well, check out the websites of large corporations who may hire you. Large consumers of construction services, such as Wal-Mart, have strict policies in place prohibiting any type of gratuity to their employees. General contractors who do a lot of work for the federal government and these large commercial consumers pass these strict requirements on to their subcontractors as a matter of course. They proudly post their policies on their websites, so that the world will know how ethical they are.

The cost of complying with these programs is not cheap:

  • A lawyer or consulting firm that specializes in developing "good governance" programs will need to be hired to train employees (and make sure that it is a firm that specializes in training to meet the requirements of your customer, not all of them include federal law training). New employees have to be trained as they come on board.
  • A senior-level employee will have to be trained to monitor and oversee the program. The hot-line will need to be monitored regularly and logs maintained (confidentially) of reported violations.
  • A protocol will need to be developed for dealing with the hot-line calls: which ones have to be reported to your customer? Which ones are really just crank messages or mean-spirited gossip?
  • If a violation is really reported, not only will it have to be dealt with, but the part of your system that was vulnerable enough to allow it to happen will have to be examined and corrected.
  • And the whistle-blower will have to be protected.

Of course, none of this will protect your company if it was the company president herself who was bribing the senator, but absent that, having an Ethics awareness system in place will certainly help most companies from finding themselves on the hot-seat before a congressional committee or grand jury (at worst), or from being cut out from further work by a promising customer.

Michael Callahan is a partner at Stinson Morrison Hecker LLP (the same firm as long-time columnist Susan McGreevy) where he assists clients with all aspects of their construction law needs, including litigation.

Voice your opinion!

To join the conversation, and become an exclusive member of Contractor, create an account today!

Sponsored Recommendations