NEW FAR REGULATION – Suppler Code of Business Ethics

FAR 52.203-13, Contractor Code of Business Ethics and Conduct (DEC 2007), requires flowdown in orders over $5,000,000 with a performance period of 120 days of more. 

The new FAR rule came into effect on December 24,2007, establishing ethics-related requirements for contractors and subcontractors serving the Department of Defense, General Services Administration, and NASA.  The rule will apply to all new contracts and subcontracts (except for commercial item contracts and contracts to be performed entirely outside of the United States) that are expected to:

·         Exceed $5 million and

·         Have a performance period of 120 days or more

Thus it is not applicable to:

·         Existing orders

·         Orders for commercial items

·         Orders under $5,000,000

·         Orders where performance is less than 120 days

·         Orders where performance is outside the U.S.

When the clause is applicable:

·         A large business with a contract over $5,000,000 with a period of performance of 120 days or more must have a code of business ethics, an ethics training program, and an internal control system.

·         A small business with a contract over $5,000,000 with a period of performance of 120 days or more must comply only with the requirement for a code of business ethics.  It does not have to have an ethics training program or an internal control system.

Contractors and suppliers who do not already have an ethics program can refer to the Defense Industry Initiative website (www.dii.org).  It developed a toolkit (www.dii.org/toolkit/toolkit.html ) to assist companies that don‘t already have an ethics program:  Other online resources to assist companies, are the Ethics Resource Center (www.ethics.org), the Ethics and Compliance Officers Association (www.theecoa.org ) and the Institute of Business Ethics (www.ibe.org.uk/home.html).

Review of Contractor internal control policies by the Government will be part of normal contract administration and will not be “routinely reviewed” in the absence of a problem. While prime contractors are not required to review or monitor supplier internal control systems, we do want to ensure that our suppliers are aware of this requirement and comply when it is applicable to contracts between our companies.  Prime Contractors are not required to judge or monitor the ethics awareness or internal control systems of suppliers - just to check for their existence. The regulation was designed to allow businesses flexibility to design ethics programs, according to comments published in the Federal Register.

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Supplier Registration

As you should be aware, GCSD General Provisions require compliance with the International Traffic in Arms (ITAR) (22. C.F.R. Parts 120-130).  Part 122 requires all manufacturers or exporters of defense articles, defense services, or related technical data to be registered with the Directorate of Defense Trade Controls.  Such registration is not required by manufacturers who only produce commercial items (items that have not been designed or modified for a defense purpose or requirement).  Therefore, most custom requirements such as cables, boards, FAB items and assemblies or subassemblies that are built to a specification or drawing are generally defense articles and such manufacturers are required to be registered.

As you may know, any non-compliance with ITAR requirements is a serious matter.  Lack of registration would preclude award of any purchase orders or subcontracts for any defense articles.

As a Supply Chain Partner, it is expected that you are registered so that you are eligible for award of GCSD requirements, including modified commercial items.

If you wish to obtain further details, they can be found at the following two websites:

Directorate of Defense Trade Controls http://pmddtc.state.gov/registration_rwa_policy.htm

or through the following link for the Code of Federal Regulations (CFR) part 122 located online at www.gpoaccess.gov/cfr/retrieve.html  (select browse or search, then CFR title 22, then Chapter 1, then Part 122).