The Government Contractor Code of Business Ethics and Conduct: Standards and Practices

Quick Hits

• A government contractor code of business ethics and conduct addresses risks and compliance obligations specific to government work such as procurement integrity, accurate billing, conflicts of interest, mandatory inspector general (IG) disclosure.
• Although the code is mandatory for contracts and subcontracts over $7.5 million with performance periods exceeding 120 days, the FAR recommends one for all contractors.
• A general corporate ethics policy may not cover these government-specific topics. The two documents serve different purposes, potentially leaving the company exposed to significant compliance risks.
• If an instance of noncompliance occurs in performance of a government contract or subcontract, having a code in place can help mitigate significant penalties; DOJ and the U.S. Sentencing Guidelines treat a functioning compliance program as a factor in their assessment.

Most companies already have a general ethics or compliance policy covering topics like workplace harassment, data privacy, and insider trading. But those policies may not address government-specific risk areas. Companies may assume their existing ethics program covers government contracting conduct, when in practice it does not. This article explains what a government contractor code of business ethics and conduct is, where it comes from in the Federal Acquisition Regulation (FAR), and why companies increasingly maintain one as a matter of good governance.

What the Code Is and Where It Comes From

The code is a written set of standards governing ethical conduct in connection with government contract performance. It is paired with an awareness and compliance program (training, reporting mechanisms, monitoring) and an internal control system. Together, these form the compliance infrastructure the government expects from its contractors. The substantive policy on contractor ethics lives in FAR Subpart 3, titled “Improper Business Practices and Personal Conflicts of Interest,” specifically in Subpart 3.10. This is where the government articulates what it expects from contractors and subcontractors in terms of ethics programs. Separately, FAR Part 52 contains the actual contract clauses that get incorporated into government contracts. The clause in FAR 52.203-13, “Contractor Code of Business Ethics and Conduct,” is the mechanism that implements the Part 3 policy as a binding contract term. When a contractor sees this clause in its contract or subcontract, it is the regulatory expectation from Subpart 3.10 taking effect as a contractual obligation.

The code becomes a mandatory contract or subcontract requirement when a contract or subcontract is expected to exceed $7.5 million and has a performance period of more than 120 days. There are limited exceptions for certain commercial product or service contracts and contracts performed entirely outside the United States. When the clause applies, the company must have a written code in place within thirty days of award. Below that threshold, the FAR still recommends a code as a best practice for all companies performing government work. Specifically, FAR 3.1002 mandates that “[g]overnment contractors must conduct themselves with the highest degree of integrity and honesty,” and they “should have a written code of business ethics and conduct.” The regulation further advises that, “[t]o promote compliance with such code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system” that is “suitable to the size of the company and extent of its” federal contract portfolio. The recommendations reflect the reality that the underlying compliance risks unique to the federal marketplace exist on government contracts or subcontracts of any size.

How This Differs From a General Corporate Ethics Policy

Many companies already maintain a general code of ethics or corporate compliance policy. While valuable, these policies serve a different purpose. A general ethics policy typically addresses broad workplace topics: anti-harassment, workplace safety, data privacy, insider trading, and general anti-corruption. These are designed for companywide application across all business lines.

The FAR-driven code has a narrower focus. It addresses risk areas specific to government contracting: accurate representations in proposals and invoices, procurement integrity (protecting nonpublic bid and source selection information), anti-bribery and anti-kickback requirements, personal and organizational conflicts of interest, post-government employment restrictions, antitrust and fair competition rules, government cost accounting and timekeeping accuracy, protection of government property and data, and the mandatory IG disclosure obligation.

A general ethics policy may not address procurement integrity, organizational conflicts of interest, government cost accounting rules, or a disclosure obligation to a federal inspector general. These are distinct, specific regulatory areas that require their own treatment.

Why Companies Adopt a Code Voluntarily

Many companies maintain a FAR-compliant code even when their contracts or subcontracts fall below the mandatory threshold. A written code provides employees with clear guidance on the compliance risk areas unique to government contracting and establishes internal reporting channels and creates a framework of documented controls to mitigate that risk. The False Claims Act imposes treble damages plus per-claim penalties and those penalties are assessed per claim rather than as a percentage of contract value. A single inaccurate certification, overbilled invoice, or falsified timesheet on a relatively small contract invokes the same statutory framework as a billing error on a multibillion dollar program. This means that any company submitting claims to the federal government operates within the False Claims Act’s reach, regardless of whether its contracts cross the FAR’s dollar threshold for mandatory adoption of a code.

In the event a compliance risk is realized during the performance of a government contract or subcontract the prior adoption of a code can mitigate the consequences to the company. Both the U.S. Sentencing Guidelines for organizations and the U.S. Department of Justice’s (DOJ) Evaluation of Corporate Compliance Programs identify specific hallmarks of an effective compliance program. These include leadership commitment, written standards, a designated compliance officer, training, confidential reporting channels, nonretaliation, monitoring and auditing, and consistent discipline. These are the same programmatic components that FAR 52.203-13 requires. The overlap is by design. Companies that maintain these processes, whether voluntarily or by contractual mandate, are better aligned with the frameworks DOJ uses during charging decisions, sentencing, and suspension or debarment proceedings. Both the Sentencing Guidelines and DOJ’s published guidance apply these expectations without regard to company size or government contract volume.

FAR 52.203-13 defines when a written code becomes a contractual obligation. It does not define when the underlying risks appear or when other regulatory frameworks begin to look for compliance infrastructure. For companies that participate in the government marketplace at any level, a code addressing these specific risk areas represents a straightforward alignment of internal processes with existing regulatory expectations.

Ogletree Deakins’ Government Contracting and Compliance Practice Group will continue to monitor developments and will post updates on the Government Contracting and Compliance blog as additional information becomes available.

Ogletree Deakins has developed a template code of ethics and implementation guidance for federal contractors. To find out more, please contact Joseph E. Ashman or the Ogletree attorney with whom you work.

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