Advice to contractors: Be compliant

It always surprises me how reluctant companies are to take a critical look at their own levels of compliance with their federal contracts.

You'd think that the frequency of news reports highlighting yet another settlement with a federal contractor for millions of dollars would counsel in favor of taking a peak under the hood, or at least giving the tires a good kick from time to time.

But many contractors prefer to remain blissfully ignorant, adopting a "what I don't know can't hurt me" mentality. This is a big mistake.

First, what you don't know can hurt you. Federal contractors are responsible for ensuring their own compliance, whether they understand the rules or not.

Second, some of the most severe penalties for procurement-related noncompliance can arise precisely because the contractor was not aware of its noncompliance. For example, the federal law through which the government pursues companies that defraud the United States, called the False Claims Act, covers intentional wrongdoing and wrongdoing caused by reckless behavior or deliberate ignorance. Indeed, when Justice Department investigators go after a federal contractor under the False Claims Act, they rarely waste time trying to show intentional wrongdoing.

Likewise, all federal contractors are at risk of being suspended or debarred, meaning they are precluded from doing business with the government, if they show themselves to be "nonresponsible." A company's failure to take steps to identify and correct compliance problems could be viewed by a suspension/ debarment official as indicative of nonresponsibility.

Third, the failure to identify potential noncompliance issues before the government does will preclude the company from voluntarily bringing the issue to the government's attention. In appropriate circumstances, this could save a significant amount of money.

So what is a prudent federal contractor to do? Here are a few suggestions.

First, be honest with yourself. Don't avoid the question because you are afraid of the answer.

Second, take time for self-examination. Talk to your staff, review documents, sit in on a sales meeting and conduct compliance reviews. If you don't have the expertise in-house to conduct them, bring in an expert. Keep in mind, however, that if your review reveals areas of noncompliance, it is incumbent upon you to then cure those areas.

Third, train your staff. Offer your employees regular training so that they will be in a position to recognize potential issues on their own.

Fourth, create a culture of compliance. Encourage employees to report potential areas of noncompliance to company managers and assure them that they will not face retaliation for making such reports. Although you may not always like the result of these activities, at least you will be in a position to correct problems on your own terms.

Aronie recently joined Sheppard Mullin Richter & Hampton as a partner in the government contracts group. He can be reached at jaronie@sheppardmullin.com.