What the clause asks of the company
When a contract includes FAR 52.203-13, the contractor must have a written code of business ethics and conduct 1, exercise due diligence to prevent and detect criminal conduct 2, and otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law 3.
Where paragraph (c) applies, the contractor also needs an ongoing business ethics awareness and compliance program 4 and an internal control system. At a minimum that system provides for assignment of responsibility at a sufficiently high level, with adequate resources 5; reasonable efforts not to include as a principal anyone whom due diligence would have exposed as having engaged in conduct that conflicts with the code 6; and periodic assessment of the risk of criminal conduct 7.
It also provides for an internal reporting mechanism, such as a hotline, which allows for anonymity or confidentiality 8; disciplinary action for improper conduct or for failing to take reasonable steps to prevent or detect improper conduct 9; and full cooperation with any Government agencies responsible for audits, investigations, or corrective actions 10.
Mandatory disclosure
The clause requires the contractor to timely disclose, in writing, to the agency Office of the Inspector General, with a copy to the contracting officer, whenever, in connection with the award, performance or closeout of the contract or any subcontract, it has credible evidence that a principal, employee, agent or subcontractor has committed certain violations 11.
Those violations are a violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code 12, or a violation of the civil False Claims Act 13. The disclosure requirement for an individual contract continues until at least 3 years after final payment on the contract 14.
Staying silent carries its own risk. FAR 9.406-2 lists as a cause for debarment the 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 credible evidence of such violations 15, and the list includes significant overpayments on the contract 16. FAR 9.407-2 lists the same knowing failure as a cause for suspension 17.
Why the program protects the company
The existence of a cause for debarment does not necessarily require that the contractor be debarred 18. Among the factors the suspending and debarring official should consider are whether the contractor had effective standards of conduct and internal control systems in place at the time of the activity 19, and whether it brought the activity to the attention of the appropriate Government agency in a timely manner 20.
A responsible prospective contractor must have a satisfactory record of integrity and business ethics 21, and agencies shall not solicit offers from, award contracts to, or consent to subcontracts with excluded contractors 22. Bids2Bank's qualification check fails when your company has an active SAM.gov exclusion 23, and each pursuit's audit evidence can be exported as one signed document 24.
Worked example. A program manager at Contractor D tells the compliance officer that a site lead has been signing timesheets for hours that were not worked. The compliance officer opens an internal review that day, informs the chief executive and outside counsel, and preserves the records. Two weeks later counsel advises that the evidence is credible; the company discloses in writing, credits the overbilled amount, disciplines the site lead and adds a timesheet check to its controls. The board is briefed at each step.
Indented paragraphs are invented worked examples. Tool links open Bids2Bank and need a free account.