Government employees involved in the process of awarding contracts in the public sectors play a crucial role in preserving the integrity of government contracting. They also play an important role in assuring fair treatment of bidders and contractors. For this reason, it is important that federal employees recognize some of the most common ethics and procurement integrity issues that can result in the process of awarding contracts. This is because a violation of ethics rules can result in a bid protest. It can also undermine the public’s confidence in government as well as result in administrative, civil, or even criminal penalty.
Ethical Practices in Public Procurement
Ethics play a crucial role in the process of awarding of contracts in the public sector and are considered more important as technology and consumer behavior change. The public sector is required to conduct its business practices most ethically. According to Wins (2018), being ethical means “being in accordance with the rules or standards for right conduct or practice, especially the standards of a profession.” Government employees and contractors must abide by ethical practices, failure to do so can lead to immoral and illegal practices such as bribery, favoritism, illegal sourcing, and other practices. The presence of business ethics is a critical part of any organization and government employees and contractors ought to acknowledge how their actions would appear to the general public.
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Lindaskog, Staffan, and Brehmer (2010) define unethical behavior or practices as an act committed by government professionals or employees that distort policies, enabling the senior officers or federal employees to benefit at the expense of public good. In order to conduct the process of tendering properly, government entities should ensure avoidance of collusion, avoidance of conflict of interest, equal opportunity, confidentiality in a contract and other non-procurement information, and avoidance of fraudulent practices. Government entities that adopt a robust ethical bent usually achieve value for money and also ensure that they contribute to efficient service delivery. Government entities should also adopt strong ethical bent in the tendering process in order to be void of leakages and loss, corruption, and vendor favoritism. The only way that government entities can address these concerns is by adopting a strong sense of ethics.
In every nation, there are authorities or ethical guidelines mandated to ensure that all public entities and government employees adhere to ethical practices. In the United States, there are numerous acts which have been enacted to provide ethical direction for public entities. Examples of such acts or regulations include the Federal Acquisition Act (FAR) and the False Claim Act (FCA). These two fundamental sources of ethical direction in the United States are discussed in details in the section that follows.
Fundamental Sources of Ethical Direction
There are many ethics and compliance rules that have no counterpart in the awarding of contracts in the public sector. Four fundamental sources for of ethical direction that is progressively vital for government workers and contractors –include laws and regulations, arrangements, proficient sets of accepted rules, and individual ethics. These regulations and codes of conducts ensure the public sector awards contracts with probity, transparency, and accountability in order to secure the best value for public money. Federal, state, and local government may have a unique blend of public acquisition and procurement laws, policies, and regulations. Majority of contracts in the United States are governed by the Federal Acquisition Regulations (FAR). FAR dictates how government contractors should conduct themselves, as far as ethics.
The Federal Acquisition Regulation (FAR)
As prescribed in clause 52.203-13, as indicated by the Contractor Code of Business Ethics and Conduct (National Archives and Records Administration, 2015),
“Within 30 days after contract award, unless the Contracting Officer established a longer time period, the Contractor shall- (I) have a written code of business ethics and conduct; and (II) make a copy of the code available to each employee engaged in performance of the contract.”
According to the clause, there is a Federal Regulation expressing that the Contractor is required to have a written code of conduct and ethics. As prescribed in the provision, the Contractor is also expected to make the codes accessible to the parties identified in the contract. These written codes of conduct and ethics do not outline precisely what must be in the policy. A solid ethics policy will state what is expected from contracting agencies and government employees with moral conduct, the effect of unethical behavior on both the public sector awarding the contract and its employees and the cases of what is thought to be ethical and unethical. Also, a solid ethical policy should contain definite strategies for reporting as well as amending any unethical behavior noted by the government agency awarding the contract or unfortunate behavior noted by other workers.
Public sectors or federal government executive agencies are required to comply with the Federal Acquisition Regulation (FAR). The FAR set rules in the federal acquisitions system regarding the awarding of a contract in the public sector in the United States. As per the FAR, the contractor’s inner control framework should “(1) establish standards and procedures to facilitate timely discovery of improper conduct in connection with Government contracts and (2) ensure corrective measures are promptly instituted and carried out” (Cornell Law School, 2015). As prescribed in this regulation, the contractor is required to establish strategies in their internal control framework that support the importance of business ethics. To achieve this, the contractor is required to have a corrective and restorative action arrangement for any disclosure of unethical conduct. To add to this, the contractor is also required to guarantee that they have techniques that would forestall or distinguish any examples of unethical conduct insider the organization.
Therefore, it is essential that federal contractors or the public sector get familiar with the FAR and FAR supplements for the firms which they contract. This will ensure that the public sector awarding the contract as well as the company contracted to conduct the process of awarding contract ethically. Part 3 of FAR, entitled “Improper Business and Personal Conflicts of Interest,” examines the contractual worker code of business ethics and behavior. The clause alludes the public sector awarding contract and firm contracted to the agreement conditions incorporated into FAR Part 52.
False Claims Act
Another American Federal Law that imposes liability on federal contractors and government employees is the False Claims Act (FCA). The FCA is widely regarded as the most essential weapon for battling fraud against the government. The FCA is also called the “Lincoln Law” and is used by the federal government to imposes liability on federal contractors who defraud government programs. The FCA was enacted during the Civil War, and it was enacted to battle fraud against the federal government. However, the FCA was sparingly used after its enactment as it was ineffective at battling fraud at the time. However, it became effective after the statue was dramatically revamped in 1986.
The 1986 amendments significantly reduced the number of critical barriers to bring actions against federal employees as well as entities alleged to have submitted a false claim to the federal government. Now, the FCA is one of the most critical tools used by the federal government to recoup the money stolen through misrepresentations by government contractors in the United States. Under the FCA, the government employees who purposely submit, or cause other government employees to provide, false claims for payment of government are generally subject to civil money penalty of three-time the government’s damages in addition to common punishments of $5,500 to $11,000 per false claim (Ethics Point, N.d).
The success of the FCA has led to many lawsuits to be brought by whistle-blowers, under the qui tam provisions of the FCA (False Claim Act, 2016). Generally, the qui tam provision permits a person or any government entity to submit an FCA case on behalf of the federal government. According to the Federal False Claim Act (2016), “ Over one-half of the $59 billion recovered since 1986 has come from False Claims Act lawsuits brought by whistleblowers. Whistleblowers have been paid upwards of $7 billion in statutory rewards for filing False Claims Act cases on behalf of the federal government.”
Procurement Ethics and Organizational Performance
According to Henri (2010), the code of conduct and ethics upheld by organizational leaders and employees of an organization determines the performance of the organization. Therefore, it is very essential for an organization to uphold an ethical standard. This is because the adoption of strong ethical bent improves organization performance as it raises a company’s or sector’s net income as well as operating cost (Carter et al., 2000). Implementation of ethical practices in an organization ensures all employees behave ethically in the organization and also aligns them to the organizational goals.
Theoretical Review
This part explores presented concepts as well as theories relevance to ethical procurement practices. Two theories will be explored in this theoretical review section –Agency theory and virtue ethical theory.
Agency Theory
According to Health and Norman (2014 as cited by Kilonzo, 2017), the agency theory was first developed as an agency model, and it was designed to address the situation whereby procurement officers were acquainted with perform a specific task in the interests of the principal. According to this theory, procurement officers working in the public sector are required to act as an agent for selected representatives. The agency theory is applied in cases where there are challenges faced in contracting. More specifically, the agency theory is used in issues to do with variations in goals set between principals and agents.
Virtue Ethical Theory
Virtue ethics is a methodology which deemphasizes regulations and particular acts in the process of awarding contracts and place attention on the individual or entities in charge of the process of awarding contract. The virtual ethical theory is significant to ethical studies (Aristotle & Ross, 2009, as cited by Kilonzo, 2017). This is because the theory help assess if procurement officers or federal employees are acting on right intensions, correct rules, as well as practices outlined in the ethical code of conduct. Instead of judging them by their actions, this theory judges procurement officers by traits as well as by their behavior (Aristotle & Ross, 2009 as cited by Kilonzo, 2017). Use of virtue ethics during the process of awarding a contract in the public sector needs gratitude of human appeal and thus considerable expertise with personnel psychology.
Principles of Ethical Conduct in Procurement
Procurement ethics comprise of values, beliefs, and moral principles guiding federal employees’ behavior. Individuals who abide by codes of conducts or ethical principles are viewed as free, transparent, and fair professional. Federal employees are required to respect and adhere to the fundamental principles of ethical service as implemented in regulations promulgated under sections 201 and 301 of Executive Order 12674 of April 12, 1989 (as modified by E.O. 12731) (U.S. Office of Government Ethics, as cited by Gregg, 2016). These ethical principles are as follows;
“Public service is a public trust; employees must place loyalty to the Constitution, the laws, and ethical principles above private gain” ( (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall not hold financial interests that conflict with the conscientious performance of duty” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall not engage in financial transactions using nonpublic Government information or allow the improper use of such information to further any private interest” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employee shall not, except as permitted by the Standards of Ethical Conduct, solicit or accept any gift or other item of monetary value from any person or entity seeking official action from, doing business with, or conducting activities regulated by the employee's agency, or whose interests may be substantially affected by the performance or nonperformance of the employee's duties” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall put forth honest effort in the performance of their duties” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall not knowingly make unauthorized commitments or promises of any kind purporting to bind the Government” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall not use public office for private gain” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall act impartially and not give preferential treatment to any private organization or individual” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall protect and conserve Federal property and shall not use it for other than authorized activities” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall not engage in outside employment or activities - including seeking or negotiating for employment - that conflict with official Government duties and responsibilities” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall disclose waste, fraud, abuse, and corruption to appropriate authorities” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall satisfy in good faith their obligations as citizens, including all financial obligations, especially those imposed by law, such as Federal, state, or local taxes” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall adhere to all laws and regulations that provide equal opportunity for all Americans regardless of race, color, religion, sex, national origin, age, or handicap” (U.S. Office of Government Ethics, as cited by Gregg, 2016) .
“Employees shall endeavor to avoid any actions creating the appearance that they are violating the law or the ethical standards set forth in the Standards of Ethical Conduct. Whether particular circumstances create an appearance that the law or these standards have been violated shall be determined from the perspective of a reasonable person with knowledge of the relevant facts” ( (U.S. Office of Government Ethics, as cited by Gregg, 2016) ).
Challenges Faced in Adoption of Procurement Ethical Practices
Poor leadership and professionalism in government entities paves the way for ethical sabotage, thereby negatively affecting the implementation of ethical practices in tendering processes. According to Bolton (2006, as cited by Kilonzo, 2017), a composite legal and policy framework can hinder the adoption of ethical practices in public procurement entities. Non-friendly policies between a public body and other agencies can create a situation of less trust between the two entities, and this may affect negatively the adoption of procurement ethical practices. Among all the challenges, lack of professional code of ethics is one of the significant challenges faced by procurement officers. Government entities ought to adopt a procurement code of conduct and ethics to ensure individuals behave ethically during the tendering process.
Common Ethics and Procurement Integrity Issues
Conflict of Interest
Conflict of interest is on the most common ethics and procurement integrity issues that can arise when awarding contracts in the public sector. Conflict of interest in the awarding of a contract in the public sector falls into three basic areas; impaired objectivity, unfair access to non-public information, and biased ground rules. It also includes civil and criminal laws. Ethically, companies should have equal access to non-public information. Unequal access to non-public information can make one firm have a competitive advantage in government procurement. Companies also ought not to have biased ground rules such as assisting in writing the statement of work.
Ethical laws prohibit government employees and contractors from having a financial conflict of interest. Public sectors are required to ensure that contracts are awarded as well as administered free from improper influence. Criminal laws prohibit individuals from working with government contracts or any other matter that would affect the individual’s financial interests. Financial interests occur in situations where an individual owns stock in a company that is bidding on the contract; an individual has a pension with his/her former employer, a contractor that is bidding on the contract; or a relative is working for the contractor bidding on the contract, and the relative’s salary will be affected if the relative’s company is awarded (or loses) the contract with your agency. Individuals who have a financial conflict ought to contact their agency ethics in order to determine if they have to stop working on the contract.
Gifts and Gratuities
Employees working in the public sector ought not to solicit or accept gifts from contractors, a prospective contractor, as well as their contractor employees. Anything that has monetary value is considered a gift, and this may include discounts, loans, and food.
The ground rules for good ethics in the awarding of contracts are simple. However, one can accept the gifts if the gift is clearly permitted in the ethics rules or the individual has received advice from his/her agency ethics official. In addition, there are items that an individual can generally accept, and some of these items include modest food and refreshments, gifts based on personal relationships, gifts or discounts available on the general public and anything paid for or secure by the government under the contract.
The rationale for not, directly or indirectly, soliciting or accepting a gift from a contractor is to maintain public trust and prevent federal employees from using public office for private gain. If the government determines the contractor or its representatives offered a gratuity, the contract may be terminated. In layman’s terms, federal employees should not entertain or give gifts and gratuities to contracting officers or other government representatives.
Contract and Other Non-public Information
Employees working in the public sector can have access to contract information as well as other non-public information that could affect a contract bid or the award process. Such protected information has to be kept in privacy because if disclosed improperly, it could violate numerous laws and ethical rules. Improper disclosure of such information can subject an individual to administrative actions and civil or criminal penalties. Contract bid or proposal information must be secured to prevent disclosure. In addition to the disclosure rules in the awarding of contracts in the public sector, ethics rules prohibit individuals from disclosing any non-public information to further their interest or the interest of the contractor or contractor employee.
Restrictions on Employee Discussions
An employee working in the public sector may decide to seek employment in the private sector during the course of his/her government service. If this happens, there are numerous restrictions that apply. All employees working in the public sector are subject to the rules of seeking employment. One of the general rules that applies is that all government employees are not allowed to work on government matters that would affect the financial interests of a contractor they are seeking employment.
Working for a Contractor after Government
Government employees playing a role in the awarding of contracts are subject to certain restrictions when they leave their government service. Employees working for a contractor after the government is banned from accepting compensation from the agency they are working for one year. As per the Procurement Integrity Act, government employees are forbidden from accepting compensation when working for the contractor. Fundamentally, the Procurement Integrity Act addresses improper contact with the government during the process of awarding contract. The one year ban applies if the individual has worked as a procuring contracting officer, administrative contracting officer, program manager, the source selection authority or technical or chief financial team on a contract over $10 million (USAF Academy Legal Office, 2015). Other penalties for violating the Procurement Integrity Act include bid protests and exclusion from acquisition opportunities, civil penalties, criminal penalties, debarment and forfeiture of all profits obtained under the contract.
How to ensure Ethics are upheld in the Awarding of Contracts in the Public Sector
There are numerous ways the public sector can ensure it upholds ethics in the awarding of contracts. Some ways include having a written ethical policy, ethics training, carrying out checks and balances to verify the process of awarding contracts was conducted ethically, performing audits.
An Ethics Policy
An ethics dispute ought not to be because of a difference in opinion between the public sector procuring the contract and the contracting company or agency. All agencies must have a written policy outlining what the organization considers ethical as well as what it considers unethical. This helps prevent disputes between the procuring agency and the contracting company.
Ethics Training
Ethics training is one of the most essential ways of ensuring ethics are upheld in the public sector. Ethics training ensures that employees are aware of the importance of ethical practices. It provides employees with all important information about ethics to ensure that they deal with their day-to-day jobs in an ethical way.
A Process with Checks and Balances
The sector giving out the contract should review the process of awarding the contract to confirm all guidelines were followed as well as ensure no ethical violations have occurred or will occur during the process of awarding contract. This would prevent foul play or reviews if there were foul play in the process.
Audits
The contracting agency or sector should perform audits periodically to verify that all contract activities were conducted ethically as well as in accordance with procedures. This process also checks if there was foul play in the process of awarding contract. It also serves a deterrent to future unethical behavior.
Cases Related to Ethics, Integrity, and Compliance in Procurement
Highlighted below are some cases that are related to ethics, integrity, and compliance in the process of awarding contracts in the public sector.
New Brunswick v. Wheeler (1979-03-30)
Some of the prevailing public policy principles regarding ethical government procurement were illustrated in March 1979 decision, New Brunswick v. Wheeler, the Canada Supreme Court determined, after a court hearing, that the Mayor of Moncton should be removed from office on account of a conflict of interest. The Mayor of Moncton signed some contracts both as a mayor and as an officer of a contracting company in which he is an officer. The Canada Supreme Court found that this conflict of interest in the case of New Brunswick v. Wheeler could not be addressed simply through disclosure:
“As I have indicated, qualification for the elections to and the holding of high office in all levels of government are a matter of considerable importance in the functioning of the democratic community. The sanctity of these office and the strict adherence to the conditions of occupying those office must be safeguarded if democratic government is to perform up to design” (Emanuelli, 2010).
Coughlin & Mayo v. Victoria (City) (1893-08-26)
Another prevailing public policy principles regarding ethical government procurement were illustrated in August 1893 decision in Coughlin & Mayo v. Victoria (City). The case involved a conflict of interest. The British Columbia Supreme Court determined that an alderman was in a conflict of interest. This is because he owned some shares in the company that was bidding on a contract. The alderman cast his vote to award the contract to the company he had shares so that he could benefit. Noting his personal interests. The British Columbia Supreme Court found that the alderman was in an ongoing conflict of interest. This is because his personal interest undermined his ability to properly discharge his public duties and resulted in a contract dispute between the successful bidder and the City. After determining that there was a conflict of interest, the Supreme Court of British Columbia concluded that the process of awarding the contract had been tainted with illegality:
“Upon every principle of justice, the Council should be prohibited from any way furthering what was thus illegally done. Not only the plaintiffs, but the ratepayers at large, are deeply interested in seeing that all contracts, and especially for those for public works should be entered into on the fairest principles” (Emanuelli, 2010).
The Boeing Tanker Case: Druyun and Boeing (2003)
There are numerous cases of officials in the United States performing favors in exchange for post-retirement jobs, and one such case which has been successfully prosecuted is the Boeing Tanker case. In 2004, a senior United States procurement official, Darleen Druyun, was arrested together with other senior executives from contractor Boeing (World Peace Foundation, 2017). Dayun was arrested in a textbook example of revolving door corruption. The case stemmed from a $23 billion contract from Boeing in return for a lucrative job at the company on retirement. At the time Dayun was working at the Department of Defense (DOD) and was to exercise her influence to award the contract of leasing 100 tanker aircraft from Boeing (World Peace Foundation, 2017). The Air Force’s uninformed officials opposed the deal and Drayun worked around. In emails made public by investigators, Drayun, being the most senior-most civil employee in charge of air force procurement, was shown to have exercised her influence to convince the Air Force to accept a higher price. After investigations, the project was frozen, and Drayun was accused of being involved in corruption. She pleaded guilty to inflating the price of the contract to favor Boeing. She was sentenced to nine months in jail as well as fined $5,000 (World Peace Foundation, 2017).
Business ethics is a crucial part of any company or public sector, and therefore, it is vital to implement documented approaches as well as strategies that ensure business ethics are upheld by government employees. Business ethics also helps advance the significance of supporting the government employees’ capacity to examine any exploitative conduct they note in the department they are serving. Great business ethics begins at the top. Managers and ethical leaders ought to advance a sector that empowers moral and ethical conduct as well as the importance of observing to organization policies. There are numerous ethical regulations and requirement that have been established for quite a long time, and these ethical regulations and requirement should come as a meager shock to the accomplished government and contractors. Overall, government employees, as well as contractual workers, are required to stay familiar and vigilant on business ethics. They are also required to recognize that there is stern ramification for engaging in unethical activities or behaviors.
References
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Emmnuelli, P. (2010). Ethics in government procurement. [Online]. Retrieved from: https://www.slideshare.net/Mike97/ethics-in-government-procurement . Accessed 10th August 2019.
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Gregg, S. (2016). Government procurement ethics. [Online]. Retrieved from: https://higherlogicdownload.s3.amazonaws.com/NIGP/cf3520e2-ef2b-4a4d-8e2a-468776c8d8de/UploadedImages/2016/Presentations/Governement%20&%20Procurement%20Ethics%20Handout%20-%20Stacy%20Gregg.pdf . Accessed 10th August 2019.
Kilonzo, M. (2017). Procurement ethics and organizational performance of animal feeds manufacturing firms in Kenya. [Online]. Retrieved from: http://erepository.uonbi.ac.ke/bitstream/handle/11295/102709/Musyoka_Procurement%20Ethics%20and%20Organizational%20Performance%20of%20Animal%20Feeds%20Manufacturing%20Firms%20in%20Kenya.pdf?sequence=1&isAllowed=y . Accessed 10th August 2019.
Lindskog, H., Staffan, B., & Brehmer, P. (2010). Corruption in public procurement and private sector purchasing. Journal of Organizational Transformation and Social Change , 7(2), 167-188.
National Archives and Records Administration. (2016). Code of Federal Regulation, Title 48, Federal Acquisition Regulations System. Office of the Federal Register.
USAF Academy Legal Office. (2015). Ethics & Procurement Integrity: What you need to know as a federal employee. [Online]. Retrieved from: https://www.usafa.af.mil/Portals/21/documents/Leadership/JudgeAdvocate/Ethics%20and%20Procurement.pdf?ver=2015-10-30-115147-750 . Accessed 10th August 2010.
Wins, M. (2018). Ethics in procurement: What are you doing to keep procurement ethical? [Online]. Retrieved from: https://www.procurement-academy.com/ethics-procurement/ . Accessed 10th August 2019.
World Peace Foundation. (2017). The Boeing tanker case. [Online]. Retrieved from: https://sites.tufts.edu/corruptarmsdeals/the-boeing-tanker-case/ . Accessed 10th August 2019.
