Contractors Report Using a Range of Ethics Program Practices Now Required by the FAR

In September 2008 and before the FAR rules were finalized, to identify  contractor ethics program practices, we surveyed all 57 contractors to  obtain information on the extent to which their programs included  practices required or proposed in the FAR or otherwise addressed in  congressional requirements for this report. The ethics program practices information we obtained was not  designed to test contractor compliance with the rules that came later. New FAR Rules May Improve DOD Oversight of Contractor Ethics Programs in Some Areas but Not Others

In response to the new FAR rules, DOD has made changes in two key  areas that could improve oversight of contractor ethics programs. Specifically, DCAA revised its contract audit guidance to cover the new  FAR ethics requirements. In addition, DOD IG established the new  Contractor Disclosure Program to implement the new mandatory  disclosure requirement. However, additional opportunities exist to  improve DOD’s oversight in two other key areas. The impact of  the FAR rules on oversight at this point is negligible because the authority  for oversight is not explicit nor is organizational responsibility clear. Under the rules, contractors have been exempted from the  requirement to display DOD hotline posters if they have their own internal  hotlines. In  addition, if employees use contractor hotlines instead of DOD hotlines, the  employees do not receive the same protections from whistleblower laws. New FAR Rules Do Not Call for Verifying Implementation of Contractor Ethics Programs during Contract Administration

The FAR does not specifically require contracting officials to conduct  oversight of contractors’ ethics programs during contract administration,  for example, verifying that the contractor has implemented the new  mandatory contractor business ethics requirement. With the DOD hotline, DOD has immediate  awareness of potential violations from contractor employee calls. Our survey completed in 2009 shows that nearly all of the 57 major  defense contractors reviewed included many of the ethics program  practices before the FAR rules were finalized consistent with the  standards later required for compliance. Given the similarity between some of the ethics program elements in our  congressional mandate and the current FAR requirements, our audit and  reporting objectives were to (1) describe the extent to which contractors  had ethics programs before the finalization of the FAR rules that included  practices consistent with standards now required by the FAR and   (2) assess the impact the new FAR rules have on DOD oversight of  contractor ethics programs.
Why GAO Did This Study

Until recently, ethics programs and practices of defense contractors were self-policed. Given the significant sums spent to acquire goods and services, the Federal Acquisition Regulation (FAR) was amended twice starting in December 2007 to first mandate and later amplify contractor ethics program rules. Before FAR changes were finalized in December 2008, Congress required GAO to report in 2009 on the ethics programs of major defense contractors. This report (1) describes the extent that contractors had ethics programs before the finalization of the FAR rules that included practices consistent with standards now required by the FAR and (2) assesses the impact the new FAR rules have on Department of Defense (DOD) oversight of contractor ethics programs. To do this work, in September 2008 GAO surveyed all 57 contractors--those receiving more than $500 million in 2006 DOD contract awards--and interviewed DOD contractor oversight agency officials on the impact of the new FAR rules on oversight.

What GAO Found

All 57 contractors responded to GAO's survey, and 55 reported having ethics programs that include many of the practices consistent with standards now required for compliance with the FAR. The ethics practices information GAO obtained was from before the FAR rules were finalized and thus was not designed to test contractor compliance with the rules that came later. In response to the new FAR rules, DOD has made two key oversight improvements by revising its contract audit guidance to cover the new ethics requirements and establishing the Contractor Disclosure Program to implement the mandatory disclosure requirement. However, opportunities exist to improve DOD's oversight in two other key areas. For example, in verifying implementation of contractor ethics programs during contract administration, the impact of the FAR rules on oversight at this point is negligible. GAO found that DOD had no plans to change contract administration offices' oversight because authority for oversight is not explicit nor is organizational responsibility clear. Also, with regard to contractors' hotline poster displays, the new FAR rules could reduce DOD's awareness of potential violations. The rules exempt contractors with ethics programs that include their own hotlines from the requirement to display DOD hotline posters. If contractor employees report violations to company hotlines instead of DOD hotlines, the employees do not receive the same protections from whistleblower laws. Whistleblower protections for employees unaware of the DOD hotline could be jeopardized.