When dealing with the US federal government and government funding, the world of regulatory compliance includes not only the familiar anti-bribery and corruption and anti-money laundering measures, but also the US Federal Acquisition Regulations (“FAR”) and Defense Federal Acquisition Regulation Supplement (“DFARS”).
FAR and DFARS are compliance requirements that apply to the US federal contractors and that have to be met in order for the federal government contract could be awarded and fulfilled. The FAR is the primary regulation for use by all Federal Government executive agencies in their acquisition of supplies and services utilizing appropriated funds. FAR requirements apply to how the government procures goods and services, contractor responsibilities and obligations and accounting and pricing considerations. Other Federal Government agencies develop their own supplement to the FAR, such as DFARS, which is intended to supplement FAR and provide additional guidance and restrictions to contracts with the Department of Defense.
Both FAR and DFARS contain clauses that are incorporated by reference into government contracts and contractors signing those clauses are representing and warranting their full compliance with the outlined requirements. Importantly, FAR and DFARS clauses and requirements are also “flowing down” and apply to subcontractors. Typically, prime contractors include applicable clauses in subcontracts, but even such clauses are not included, prime contractors remain liable to the government for a subcontractor’s noncompliance. For an Israeli company willing to be a subcontractor to a US federal contractor, it is critical to be familiar with FAR and DFARS requirements. Having had implemented at least some initial compliance infrastructure turns into a substantial advantage when bidding for government contracts or when being considered as a subcontractor.
Each government contract would have a specific set of clauses and compliance requirements, but, in most instances, subcontractors would have to warrant their continued compliance with the following:
- implementation of policies with respect to gratuities and anti-kickback procedures;
- effective implementation of anti-bribery and corruption policy;
- adoption of a written code of business ethics and conduct that has to be available to every employee engaged in the performance of the contract;
- ongoing implementation and periodic evaluation of business ethics awareness and compliance program, including allocation of adequate resources to ensure compliance and implementation;
- establishment on an internal control system that sets standards and procedures for timely discovery of improper conduct and ensures that corrective measures are promptly implemented;
- existence of an internal reporting system (such as hotline), allowing anonymously or confidentially to report instances of suspected misconduct.
Any company that has an effectively functioning and correctly implemented compliance program would be able to comply with FAR and DFARS requirements without spending substantial additional time or financial resources.
In addition, given increased sensitivity in the US to investments from China, Israeli companies with substantial Chinese investments should also consider how such investments may impact their ability to contract with the federal government. For example, the US Department of Defense has recently finalized regulations prohibiting the use of telecommunications equipment or services from Chinese entities or from entities that are owned or controlled by either the People’s Republic of China or the Russian Federation.
FAR and DFARS are compliance requirements that apply to the US federal contractors and that have to be met in order for the federal government contract could be awarded and fulfilled. The FAR is the primary regulation for use by all Federal Government executive agencies in their acquisition of supplies and services utilizing appropriated funds. FAR requirements apply to how the government procures goods and services, contractor responsibilities and obligations and accounting and pricing considerations. Other Federal Government agencies develop their own supplement to the FAR, such as DFARS, which is intended to supplement FAR and provide additional guidance and restrictions to contracts with the Department of Defense.
Both FAR and DFARS contain clauses that are incorporated by reference into government contracts and contractors signing those clauses are representing and warranting their full compliance with the outlined requirements. Importantly, FAR and DFARS clauses and requirements are also “flowing down” and apply to subcontractors. Typically, prime contractors include applicable clauses in subcontracts, but even such clauses are not included, prime contractors remain liable to the government for a subcontractor’s noncompliance. For an Israeli company willing to be a subcontractor to a US federal contractor, it is critical to be familiar with FAR and DFARS requirements. Having had implemented at least some initial compliance infrastructure turns into a substantial advantage when bidding for government contracts or when being considered as a subcontractor.
Each government contract would have a specific set of clauses and compliance requirements, but, in most instances, subcontractors would have to warrant their continued compliance with the following:
- implementation of policies with respect to gratuities and anti-kickback procedures;
- effective implementation of anti-bribery and corruption policy;
- adoption of a written code of business ethics and conduct that has to be available to every employee engaged in the performance of the contract;
- ongoing implementation and periodic evaluation of business ethics awareness and compliance program, including allocation of adequate resources to ensure compliance and implementation;
- establishment on an internal control system that sets standards and procedures for timely discovery of improper conduct and ensures that corrective measures are promptly implemented;
- existence of an internal reporting system (such as hotline), allowing anonymously or confidentially to report instances of suspected misconduct.
Any company that has an effectively functioning and correctly implemented compliance program would be able to comply with FAR and DFARS requirements without spending substantial additional time or financial resources.
In addition, given increased sensitivity in the US to investments from China, Israeli companies with substantial Chinese investments should also consider how such investments may impact their ability to contract with the federal government. For example, the US Department of Defense has recently finalized regulations prohibiting the use of telecommunications equipment or services from Chinese entities or from entities that are owned or controlled by either the People’s Republic of China or the Russian Federation.
