Compliance Program Guide for Government Contractors: Building an Effective Program | BidFinds
Build an effective compliance program for government contracting. Learn about FAR requirements, ethics programs, internal controls, monitoring, and avoiding common violations.
Quick Answer: What Is a Compliance Program?
A compliance program is a comprehensive system of policies, procedures, and controls that ensures your company follows all laws, regulations, and ethical standards in government contracting. Under FAR 52.203-13, contractors with contracts over $6 millionand 120+ day performance periods must have a written code of business ethics, an employee awareness program, an internal control system, and timely disclosure procedures. Even smaller contractors benefit from compliance programs to avoid costly violations.
Why Compliance Matters
Government contracting is heavily regulated. Non-compliance can result in severe consequences that threaten your business and personal liability.
Consequences of Non-Compliance
Civil Penalties
- • False Claims Act: Triple damages plus $11,000+ per false claim
- • Program fraud civil penalties up to $50,000 per violation
- • Interest and attorney fees
Criminal Penalties
- • Prison time for responsible individuals
- • Criminal fines up to $500,000 per offense
- • Conspiracy, wire fraud, and other charges
Administrative Actions
- • Suspension: Temporary exclusion from contracting
- • Debarment: Exclusion for up to 3 years
- • Contract termination for default
Benefits of Strong Compliance
- • Risk Reduction: Prevents violations before they occur
- • Competitive Advantage: Demonstrates responsibility to customers
- • Mitigation Credit: Reduces penalties if issues do arise
- • Employee Confidence: Staff know expectations and protections
- • Operational Efficiency: Clear processes reduce errors and rework
Required Program Elements
FAR 52.203-13 mandates specific compliance program elements for covered contractors. Even if you're below the threshold, implementing these elements is best practice.
Mandatory Elements (FAR 52.203-13)
Code of Business Ethics and Conduct
Written standards communicated to all employees performing on government contracts
Employee Business Ethics Awareness Program
Ongoing training and communication about compliance obligations and company standards
Internal Control System
Policies and procedures to detect and prevent improper conduct
Hotline or Reporting Mechanism
Way for employees to report suspected misconduct, including anonymous reporting
Timely Disclosure Procedures
Process for mandatory disclosure of violations to the OIG
30-Day Implementation Requirement
When FAR 52.203-13 applies, contractors must implement a compliance program within 30 days of contract award if they don't already have one. Plan ahead to avoid scrambling after award.
Code of Business Ethics
Your code of ethics establishes the foundation for your compliance culture. It should be clear, comprehensive, and accessible to all employees.
Essential Code Components
Core Values
- • Integrity and honesty
- • Compliance with laws
- • Fair dealing
- • Respect for others
Specific Prohibitions
- • Kickbacks and bribes
- • Conflicts of interest
- • False claims and statements
- • Procurement integrity violations
Workplace Standards
- • Anti-discrimination
- • Harassment prevention
- • Safety requirements
- • Proper use of resources
Reporting and Enforcement
- • How to report concerns
- • Non-retaliation policy
- • Consequences for violations
- • Investigation process
Code Distribution
- • Provide to all employees upon hire and annually
- • Require written acknowledgment of receipt
- • Make accessible online and in print
- • Include in employee handbook
- • Translate for non-English speakers as needed
Internal Control Systems
Internal controls are the policies, procedures, and practices that prevent, detect, and correct compliance issues. They turn your code of ethics into operational reality.
Key Control Areas
Timekeeping Controls
- • Daily time recording by employees
- • Supervisor review and approval
- • Separation of duties (recording vs. approval)
- • Prohibition on pre-filling timesheets
- • Correction and adjustment procedures
Cost Charging Controls
- • Proper cost account structure
- • Authorization before charging
- • Review of cost allocations
- • Unallowable cost identification
- • Consistent cost treatment
Procurement Controls
- • Competitive sourcing procedures
- • Conflict of interest checks
- • Price reasonableness analysis
- • Proper approval authorities
- • Documentation requirements
Quality and Delivery Controls
- • Inspection procedures
- • Testing requirements
- • Nonconformance handling
- • Substitution restrictions
- • Certificate accuracy
Control Documentation
Document your internal controls in written policies and procedures:
- • Policy: States the requirement (what)
- • Procedure: Explains implementation (how)
- • Work Instructions: Provide step-by-step detail (exactly how)
- • Forms: Standardize data capture and approvals
Training Program
Training ensures employees understand their compliance obligations and know how to meet them. Effective training is ongoing, role-specific, and well-documented.
Training Requirements by Role
All Employees
- • Code of conduct overview
- • Reporting procedures
- • Anti-retaliation protections
- • Basic compliance concepts
Government Contract Employees
- • Timekeeping requirements
- • Labor charging rules
- • Security requirements
- • Organizational conflicts of interest
Managers and Supervisors
- • Detecting and reporting violations
- • Handling employee concerns
- • Approval responsibilities
- • Creating ethical culture
Specialized Roles
- • Procurement: Competition requirements
- • Finance: Cost allowability and billing
- • Contracts: FAR/DFARS compliance
- • Security: Clearance and ITAR/EAR
Training Best Practices
- • New Hire Training: Within first 30 days of employment
- • Annual Refresher: All employees receive compliance update
- • Document Attendance: Keep records of who completed what training
- • Test Comprehension: Include quizzes or acknowledgments
- • Update Content: Reflect regulation changes and lessons learned
Reporting Mechanisms
Employees must have accessible, confidential ways to report suspected misconduct. Multiple reporting channels encourage use and demonstrate commitment.
Reporting Channel Options
Internal Channels
- • Direct supervisor
- • Compliance officer
- • Human resources
- • Senior management
Anonymous Channels
- • Ethics hotline (phone)
- • Web-based reporting
- • Third-party hotline service
- • Anonymous email/mailbox
Anti-Retaliation Policy
Employees must feel safe reporting concerns. Your policy should include:
- • Clear statement prohibiting retaliation
- • Definition of protected activities
- • Examples of prohibited retaliation
- • Process for reporting suspected retaliation
- • Consequences for retaliating against reporters
Whistleblower Protections
Multiple federal laws protect government contractor employees who report misconduct, including the False Claims Act qui tam provisions, which can entitle whistleblowers to 15-30% of recovered funds.
Mandatory Disclosure
FAR requires contractors to disclose certain violations to the agency Office of Inspector General (OIG). Failure to disclose is itself a violation.
What Must Be Disclosed
Disclosure Process
Investigate Internally
Gather facts to determine if disclosure is required
Consult Legal Counsel
Determine disclosure requirements and strategy
File Disclosure
Submit to agency OIG and contracting officer in writing
Cooperate with Investigation
Respond to OIG inquiries and implement corrective actions
Timing Is Critical
Disclosures must be made "timely"—as soon as you have credible evidence of a violation. Delayed disclosure can be treated as failure to disclose and result in additional penalties.
Monitoring and Auditing
Your compliance program must include ongoing monitoring to verify controls are working and identify issues early.
Monitoring Activities
Ongoing Monitoring
- • Supervisor review of timesheets
- • Invoice review before submission
- • Budget vs. actual tracking
- • Quality inspection results
Periodic Audits
- • Timekeeping audits
- • Cost charging reviews
- • Subcontract compliance
- • Security compliance
Internal Audit Program
- • Risk-Based: Focus audits on highest-risk areas
- • Documented: Keep audit plans, work papers, and reports
- • Independent: Auditors shouldn't audit their own work
- • Actionable: Track findings to closure
- • Reported: Communicate results to management
Corrective Action
When monitoring or audits identify issues, take prompt corrective action:
- • Identify root cause (not just symptoms)
- • Implement corrective measures
- • Verify effectiveness of corrections
- • Document the entire process
- • Consider whether disclosure is required
Common Compliance Violations
Understanding common violations helps you focus your compliance efforts on the highest-risk areas.
Timecard Fraud
Mischarging labor hours—charging one contract for work on another, inflating hours, or charging when not working. One of the most common and prosecuted violations.
False Claims
Submitting invoices for work not performed, inflated costs, or non-conforming products. Civil False Claims Act penalties include treble damages plus per-claim fines.
Product Substitution
Delivering products that don't meet specifications or substituting inferior materials while certifying compliance. Particularly serious in defense and safety contexts.
Kickbacks
Receiving or providing anything of value to influence subcontract awards. Violations of Anti-Kickback Act carry criminal penalties including imprisonment.
Small Business Misrepresentation
Falsely claiming small business status or using pass-through schemes. Subject to False Claims Act and potential debarment.
Organizational Conflicts of Interest
Failing to identify or mitigate situations where you have an unfair competitive advantage or impaired objectivity.
Frequently Asked Questions
Do I need a compliance program if I'm below the $6M threshold?
While not required by FAR 52.203-13, having a compliance program is strongly recommended for any government contractor. It protects your company, demonstrates responsibility to customers, and positions you for growth into larger contracts.
Who should be the compliance officer?
In small companies, this might be the owner or a senior manager. In larger companies, a dedicated compliance professional is recommended. The key is independence—the compliance officer should have direct access to senior management and not be pressured to overlook issues.
How much should I invest in compliance?
Investment should be proportional to your contract volume and risk. Industry benchmarks suggest 1-3% of revenue for compliance activities. Consider that the cost of non-compliance (investigations, penalties, lost contracts) far exceeds prevention costs.
What if I discover a past violation?
Consult legal counsel immediately. Depending on the nature and timing, you may need to make a mandatory disclosure. Voluntary disclosure before detection typically results in more favorable treatment. Document your investigation and remediation.
How does compliance affect my proposal evaluations?
Contracting officers review SAM.gov for integrity and compliance issues. A clean record and demonstrated compliance program support your "responsibility" determination. Past violations, especially recent ones, can disqualify you from award.
Next Steps
A strong compliance program protects your company and positions you for success in government contracting. Start building yours today.
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