business ethics and informing the government of problemsWhen it comes to the Federal Acquisition Regulation (“FAR”) Mandatory Disclosure Rule (MDR) under FAR 52.203-13 many DOD contractors wonder what they must disclose to the government after contract award have been awarded the contract, if anything.  The bottom line is that if you are aware that there is evidence that you are not in compliance, there is overpayment or something else, then you have to self-disclose to the government.


The FAR mandatory disclosure rule mandates that government contractors disclose in writing all situations for which they have credible evidence of a potential violation of the civil False Claims Act or Federal criminal law involving fraud, conflict of interest, bribery, or gratuity. Note that this is not just a requirement for actual violations but also potential violations. The FAR requires that you make disclosures to the respective Office of Inspect”) for the contracting agency or Department that was party to the contract or order. You are also required to disclose credible evidence of “significant overpayments.”

  • If you fail to disclose, your company can be suspended or debarred

Contracts in the amount of $5.5 million or more or run for more than 120 days. However, companies on GSA schedule must pay special attention and not simply apply the general rule. Failure to meet the requirements can land a company into the suspension and debarment realm.

Even if companies think that an overpayment may be too small, they should take chances. Contractors selling commercial items or small businesses are not statutorily required to have these processes in place. However, these companies are always open to False Claims and other types of liability. Therefore, having proactive policies and corrective action controls in place.

Who Can Disclose?

According to procurement laws, any individual, including a director, an officer, your employee, or an independent contractor, authorized to act on behalf of the contractor, can make contractor self-disclosures. Agents may include partners, consultants, or attorneys. If someone other than a senior company official signs the contractor self-disclosure, OIG will verify the authorization of the individual making the self-disclosure. If for some reason you are not authorized to submit a disclosure on behalf of the contractor, your disclosure will be treated as a tip.

Questions that apply can include:

What is credible evidence that drives the duty to disclose?

What is the standard for overpayment?

What should you pass down to subcontractors?

Certificate of Compliance with Mandatory Disclosure – When do you have to disclose?

FAR Contracting - Buying From a Single Source Government Contracting DecisionThe Federal Acquisition Regulation (“FAR”) requirements were amplified in 2008 as related to a contractor code of business ethics and conduct, an internal controls system, and disclosure requirements of certain criminal violations, the False Claims Act (FCA), and significant overpayments. 

The FAR Mandatory Disclosure Rule, published by the FAR Councils on November 12, 2008, requires that provide a Certificate of Compliance with Mandatory Disclosure at the bidding stage and to the contracting agency potential violations of criminal and civil law and instances of significant overpayment). 73 Fed. Reg. 67064; see 50 GC ¶ 439 (Dec. 17, 2008). 

The MDR also includes included a new section under the Federal Acquisition Regulations that address contractor business ethics and conduct, applicable to certain covered contracts and requiring disclosure of potential wrongful conduct.

The Rule also addressed the new definition of “present responsibility.” Also, federal contractors and subcontractors, regardless of whether they are subject to the new FAR clause, can be subject to suspension and debarment for failure to timely disclose potential wrongful conduct or significant overpayments.

  • The MDR now allows for contractor suspension or debarment of a contractor who knowingly fails to timely disclose violations to the agency in a prompt manner.
  • Many small businesses are still not compliant with this important rule.
  • Evidence can be found in many of the FCA cases and suspension and debarment cases.

Certificate of Compliance with FAR Mandatory Disclosure Rule

When it comes to your obligation under contractor ethics and FAR mandatory disclosure rule, contractors and employees must timely disclose via certificate of compliance with mandatory disclosure, in writing to the agency Office of the Inspector General, with a copy to the Contracting Officer, when, in connection with the award, performance, or closeout of the contract or any subcontract, the contractor has reasonable grounds to believe that a principal, employee, agent, or subcontractor has committed a violation of federal criminal law, involving fraud, conflict of interest, bribery, or gratuity violations, or the False Claims Act.  

  • Companies have to show that they are making an internal culture for preventing problems.
  • This is something that Suspension and Debarment Officials look for.
  • Companies must have a viable process in place for employees.
  • Commercial templates may not go to the depth required in government contracting.

Requirements Contractor Code of Business Ethics and Conduct

Within 30 days after the contract is awarded, unless extended by the Contracting Officer, the contractor must have a written code of business ethics and conduct.  The Disclosure Rule applies to all federal contractors with contracts valued at or expected to exceed $5,000,000 and where the performance period is 120 days or longer. 

Unlike the compliance and internal control requirements, under the Mandatory Disclosure Regulations, there are no exemptions for small businesses or for the acquisition of a commercial item.

FAR Compliance Program and Internal Control System

Under FAR 52.203-13, within 90 days, the contractor must also set up an ongoing business ethics awareness and compliance program as well as an internal control system; this requirement does not apply if the contractor has represented itself as a small business concern or if the contract is for the acquisition of a commercial item.  Pursuant to the internal control system, the system must, at least, provide for:

  • Assignment at a ‘sufficiently high level’ to make sure effectiveness of a compliance program and internal control system
  • Reasonable efforts not to include a principal who was engaged in conduct in conflict with the code of business ethics and conduct
  • Periodic reviews of company practices and ethics and FAR compliance policies.
  • Internal reporting mechanism for improper conduct
  • Disciplinary action for improper conduct or failure to prevent
  • Timely disclosure of federal criminal law or False Claims Act violations
  • Full cooperation with any government agency responsible for audits, investigations, or corrective actions

FAR MDR Compliance or Face Suspension and/or Debarment? Regardless of contract duration or value, all federal contractors may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a federal criminal law or False Claims Act violation; this applies for 3 years after final payment.  

Under the  FAR Mandatory Disclosure Rule, contractors must also disclose credible evidence of significant overpayments. When the government suspects contractor violations, the contracting officer may refer the case to the respective agency.

This could be the Inspector General’s Office, Department of Justice or other relevant offices. Contractors must be aware that when there is credible evidence to support the agency’s position, recommendation for suspension or debarment is highly likely.

Speak to an Attorney & Get a Free Initial Consultation

If you are unsure about what you need to show under FAR Mandatory Disclosure Rule requirements, need help with internal investigations, please call a government contract FAR compliance lawyer at 1-866-601-5518 for a free consultation.

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