Effective today, federal contractors are required by the Federal Acquisition Regulations ("FAR") to take certain proactive steps regarding the Federal False Claims Act. 

The Federal Register's publication, which includes the comments made by the industry, and the responses to such comments, can be seen here.  Notice how many times the word "ethics" appears—more on that in a moment. 

The protests of the industry are largely without merit, as the government was quick to point out.  The new regulations merely create the same or similar requirements for defense contracts that we see in the healthcare context and in other contexts.

I am not surprised that the defense industry is surprised, however.  In general, it is fair to say that the new regulations are a drastic change.  Among other requirements, contractors covered by the changes are now required to have a training program and to display a poster explaining the False Claims Act, as well as the anti-retaliation provisions of the FCA, and providing the phone number for the Office of the Inspector General. 

The poster requirement should be quite effective in preventing fraud and waste.  As any qui tam lawyer knows, many people encounter fraud during their employment and are afraid to say anything about it—many others are not sure of the requirements of the law. 

In the context of other remedial statutes, the display of posters in an area where it will be seen by employees is an old and effective technique.  For example, the minimum wage and overtime requirements of the Fair Labor Standards Act must be displayed in workplaces in the United States—largely as a result of this, the overtime pay requirements of the statute are among the best-known federal laws in the country.

There is a mandatory disclosure requirement in the new regs—which has caused a great deal of ink to be spilled—requiring any contractor with "credible evidence" of a False Claims Act violation to disclose such information when it comes to their attention. 

Perhaps most interesting is the focus on contractor ethics—the word appears again and again throughout the rule—and the requirement that contractors establish certain minimum standards of conduct for themselves.  Many of the comments made question the emphasis on "ethics" and "ethical practices."   

Most of the negative comments on the new FAR provisions assert that the word ethics is vague, and too open to interpretation to be of any use in controlling fraud by government contractors.  In my humble opinion, it is high time that government contractors were required to develop a little judgment and rely  less on rules. 

The reasons are simple.  First, business activity—like any human activity—can never be completely defined and governed by a set of rules.  Second, the creation of a set of rules gives rise to methods to get around the rules.  Ethics, however, are not quite so easy to get around.