In this podcast I am joined by AMI Managing Director Rod Grandon. We consider the responsibility of federal contractors to maintain their status as “Responsible Contractors” and explore the benefits of having an effective compliance and business ethics program to not only increase business efficiencies and profitability but prepare you in good stead if the regulators come knocking. In this episode, I get to ask Rod a question I have wanted to pose to him for some time, which is “why are we still talking about this?”
Grandon began by noting that this is a fair question given that many of the policies and procedures required in the Federal Acquisition Register (FAR) 3.1000 and 52.203-13 relating to contractor integrity and honesty have been in place since December 2007. Also, Sarbanes-Oxley (SOX) was passed in 2002 so those requirements have been around for nearly 17 years as well. Many contractors, particularly major prime contractors, have invested heavily over the years establishing and maintaining robust corporate ethics and compliance programs and internal controls. Additionally, major primes have taken steps to encourage and assist their subcontractors and suppliers to develop appropriate codes of conduct and related policies, procedures, and infrastructure. The limited research in this area to date has shown that such programs, when effectively implemented, produce positive results in reducing misconduct. Still, significant gaps remain within the federal marketplace, especially at the mid and lower tiers of the supply chain and services industries.
Grandon believes that while these responses to the FAR and legal requirements are “trickling down” to smaller organizations, unfortunately there are a large group of small and middle tier contractors that believe these programs are only for large government contractors, or they believe they lack expertise and resources to build and maintain appropriate programs. Many more do not focus on the requirements at all (until it is too late); instead focusing on building the business and thinking that their customer relationships will help them business survive any future challenges. Grandon also related, “frankly, a lot of small businesses and medium sized businesses either ignored this all together in their pursuit of business and revenues or they put in place a written policy set of policies and procedures, including a written code of conduct.” Perhaps they provided some training, but in most cases, “it was all a paper exercise. It never transcended into a way of doing business”. This has led to continued compliance and ethics lapses.
Regardless of size, for-profit businesses are hesitant to expend time, effort, and money on efforts that do not directly advance company market objectives or revenue growth. Government contractors are no exception. As such, while many contractors grasp the need for integrity programs, company leaders elect to forego necessary investments of time and resources into such programs. Instead, they operate under the assumption that they operate ethical companies; they believe their employees understand and embrace what we all should know from childhood: it is wrong to lie, cheat, and steal.
Grandon concluded by intoning, “even the best programs are threatened by complacency. Contractors must continuously strive to creatively spark their ethics and compliance programs to keep the objectives and expectations fresh and central to business operations.”
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