Contractors and subcontractors with federal contracts over $5 million must now have a written code of business ethics as a result of new federal requirements that went into effect Dec. 24, 2007.

Under the new rule, employers must provide a copy of their code of ethics and conduct to employees involved with the contract within 30 days of receiving the award. Additionally, federal contractors with awards over $5 million who do not qualify as small businesses must establish an employee business ethics and compliance-awareness program and develop internal controls to ensure compliance. The rule does not apply to commercial contracts or work performed outside the U.S.

The regulation was developed to help ensure that contractors who do business with the federal government have a history of ethical behavior. But some say the new rule lacks specificity, and the lack of detail could make it harder for some well-meaning contractors to comply.

"The devil is in the lack of details," says Joe Dyer, a partner in the Washington, D.C., office of Seyfarth Shaw, a Chicago-based law firm. Because the requirements do not spell out details about what is required, contractors could find themselves "at the mercy of the government official who is reviewing their particular programs," Dyer says.

If, for example, a government contracting officer deems that a company has not adequately complied with the requirement, "that could impact [the contractor's] ability" to win federal contracts in the future, he says.

Mike Kennedy, general counsel for Associated General Contractors, Arlington, Va., says that the new regulation represents a "fundamental shift" in the government's focus in terms of ethics programs.

"The devil is in the lack of details."

– Joe Dyer, Seyfarth Shaw, Washington, D.C.

Although federal agencies have long encouraged federal contractors and subcontractors to develop ethics programs, government officials had not gone so far as to impose mandatory requirements. "They're abandoning well-established principles of self-governance and voluntary disclosure," Kennedy says.

Dyer notes that the rule is more likely to impact small- and medium-sized businesses, as many large employers already have ethics programs in place.

Even before finalizing the current rule, the Federal Acquisition Regulation Council issued a new proposal that expands the existing rule. That proposal, which is out for comment until Jan. 14, 2008, includes a provision that could debar contractors that fail to "timely disclose" either an overpayment or a violation of federal criminal law.