Defense firms looking for clarity on new ethics rules

Federal laws have been changed in wake of contracting scandals

Friday, Nov. 6, 2009

Now contractors are scrambling to determine what these new rules mean, and so are their government customers.

Meanwhile, the Naval Air Systems Command has released a new public database of planned projects that could take some of the chumminess out of finding new military contracts on which to bid.

"Clearly, it's been on everyone's mind," said Jim Carr, legal counsel for the Naval Air Warfare Center Aircraft Division, located at the Patuxent River Naval Air Station.

Carr gave a presentation on the new ethics rules last week at the NAVAIR Small Business Aviation Technology Conference at the Southern Maryland Higher Education Center in California.

Carr said that the White House's Office of Budget and Management had issued two memos interpreting the vague language of the new laws, the second of which was released only last month.

The full impact of the laws is not yet known, he said.

Carr advised contractors to err on the side of caution and, "when in doubt, CYA — consult your attorney."

Under the new rules, Carr said, contractors are obligated to immediately report any criminal wrongdoing by their employees or face being barred from federal contracting. However, even if companies voluntarily report criminal activity, Carr said, "There's no guarantee that you won't be prosecuted."

The rules specify that firms with military contracts must compose a code of ethics conduct, develop a training program for that code and install internal checks to ensure the code is followed.

"The fact that you can meet the minimum easily does not mean you should shoot for that," Carr said.

Many of the new rules deal with organizational conflicts of interest, which Carr defined as "anything that makes the playing field unlevel." This includes unequal access to information, biased ground rules and impaired objectivity.

Many larger firms have divisions that produce products for the military and others that advise the military on which products to buy or which specifications to set for those products.

"The story used to be that big firms were OK," Carr said, noting that they could get away with claiming that their production and advisory divisions did not communicate of collude to gain more business. Not so anymore. Carr said that these duel-function relationships are being reviewed on a case-by-case basis and some are being terminated.

It is this part of the new rules which cause the biggest concern for the Southern Maryland Navy Alliance, an organization representing local military contractors. Alliance president Todd Morgan said that most of the new rules are "a whole lot of common sense," but he said that the conflict of interest rules are being interpreted differently by the legal counsels for each branch of the military, and even by different commands within the Navy.

"It is going to lead to some confusion until they sort it out," Morgan said, noting that NAVAIR, Naval Sea Systems Command, and Space and Naval Warfare Systems Command could end up adopting different conflict policies.

According to Dennis Chappell, president of the Indian Head Defense Alliance, fallout from changes to ethics rules have not yet trickled down from NAVSEA to his members.

He said that customers at Indian Head "are very concerned about conflicts of interest anyhow."

The new ethics rules may be complicating contracting, but NAVAIR is also trying to eliminate some of the difficulty for small businesses attempting to break into military contracting.

The command has finally complied with a 1988 federal law and published its first Long Range Acquisition Forecast last month, which is a database of all the contracting opportunities that could be available from fiscal year 2010 to 2013.

"It's a plan," cautioned Emily Harman, associate director of NAVAIR's Office of Small Business Programs in a presentation at last week's conference. "It doesn't necessarily mean we're going to issue a contract for supplier service. … Please use this as a way to find out what NAVAIR intends to buy over the next three years."

The database will be updated yearly and soon extended out to fiscal 2016. It is intended to help smaller companies plan and prepare to bid on contracts without having to rely on personal connections to find out about upcoming acquisitions. Harman stressed that the database does not include construction projects.

"You guys like it?" Harman asked the conference audience. "Something you needed? I thought so."

jfriess@somdnews.com