[Federal Register Volume 76, Number 180 (Friday, September 16, 2011)]
[Rules and Regulations]
[Pages 57671-57674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23782]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 203 and 252
[DFARS Case 2010-D026]
RIN 0750-AG98
Defense Federal Acquisition Regulation Supplement; Display of DoD
Inspector General Fraud Hotline Posters
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Final rule.
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SUMMARY: DoD is issuing a final rule amending the Defense Federal
Acquisition Regulation Supplement (DFARS) to require contractors to
display the DoD fraud hotline poster in common work areas.
DATES: Effective Date: September 16, 2011.
FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, 703-602-1302.
SUPPLEMENTARY INFORMATION:
I. Background
This final rule implements the recommendations of the DoD Inspector
General (IG) by providing a DFARS clause to use in lieu of the FAR
clause at 52.203-14, Display of Hotline Poster(s).
Government Accountability Office (GAO) Report GAO-09-591, entitled
``Defense Contracting Integrity: Opportunities Exist to Improve DoD's
Oversight of Contractor Ethics Programs,'' recommended that the DoD IG
determine the need for defense contractors to display the DoD IG's
fraud hotline poster.
The DoD IG determined that DoD contractors, including contractors
that have an ethics and compliance program that includes a reporting
mechanism such as a hotline poster, need to display DoD fraud hotline
posters in a common work area within business segments performing work
under the contract and at contract work sites.
FAR 52.203-14(c) states that ``(i)f the Contractor has implemented
a business ethics and conduct awareness program, including a reporting
mechanism, such as a hotline poster, then the Contractor need not
display any agency fraud hotline posters, other than any required DHS
posters.'' The DoD IG determined that this exemption has the potential
to make the DoD hotline program less effective by ultimately reducing
contractor exposure to DoD IG fraud hotline posters and diminishing the
means by which fraud, waste, and abuse can be reported under the
protection of Federal whistleblower protection laws. According to the
DoD IG, some contractors' posters may not be as effective as the DoD
poster in advertising the hotline number, which is integral to the
fraud program. The DoD IG is also revising the DoD IG fraud hotline
poster to inform contractor employees of their Federal whistleblower
protections.
Therefore, the prescription for use of the new DFARS clause
provides no exception to the use of the DoD hotline poster for
contractors that have implemented a business ethics and conduct
awareness program, even those that include a reporting mechanism such
as a hotline poster.
II. Discussion and Analysis
DoD published a proposed rule at 76 FR 13327 on March 11, 2011, to
implement the DoD IG's policy. Nine respondents submitted 25 public
comments on the proposed rule. The comments are summarized and
discussed in the following paragraphs.
A. Supportive Comments
Comments: Four respondents supported the DFARS rule, stating that
it would assist employees in reporting fraud, waste, and abuse and
might promote qui tam suits. Two respondents recommended expanding the
rule's applicability by (1) Lowering the
[[Page 57672]]
threshold or (2) making it applicable to U.S.-owned and -operated firms
that perform overseas.
Response: DoD acknowledges the respondents' support. DoD declines
to expand the rule's applicability because the prescription and
conditions for the use of the hotline poster in DoD contracts are
exactly those prescribed at FAR 3.1004(b) for the inclusion of the FAR
clause at 52.203-14, Display of Hotline Poster(s). The respondents did
not provide rationale supporting the proposed further expansion of
requirements to use the DoD IG hotline poster clause.
B. Requirement To Post the DHS Hotline Poster
Comments: One respondent asked that the DFARS Procedures, Guidance
and Information (PGI), include guidance on obtaining relevant
information to be inserted in the clause regarding the title of the
applicable Department of Homeland Security (DHS) fraud hotline poster
and Web site(s) or other contact information. Another respondent,
however, stated that the requirement, at 252.203-700X(b)(ii) of the
proposed rule, to display the DHS fraud hotline posters, is unnecessary
for several reasons. It is unlikely, according to the respondent, that
DoD would be awarding DHS contracts for disaster recovery, and the
coverage at FAR 52.203-14 relating to the display of DHS fraud hotline
posters does not need to be duplicated in the DFARS.
Response: There is a reason to include in the DFARS clause a
requirement to use the DHS fraud hotline poster when DHS disaster
relief funding is added to a DoD contract. The DoD clause prescription
has been expanded (at 203.1004(b)(2)(ii)) to explain that information
regarding the DHS hotline poster is needed only when DHS disaster
relief funding is added to the DoD contract. In most cases, there is no
need to display the DHS hotline poster and, therefore, no need to
include in the clause information about where to obtain the DHS poster.
Adding this clarification to the DFARS clause prescription removes any
need to add PGI guidance on relevant information regarding the
applicable DHS fraud hotline poster and Web sites or other contact
information.
C. Rule Does Not Pass a Cost/Benefit Analysis
Comments: Five comments were received on this issue. One respondent
remarked that the new requirement will be unnecessarily burdensome with
little, if any, commensurate benefit. The respondent called the rule
``an example of the stacking of regulations within and across agencies
that increases the burden without any apparent benefit to achieving the
mission.'' Three other respondents made essentially the same point, one
suggesting that the rule could be viewed as an unintentional but
unfortunate effort by DoD to discourage contractors from implementing
rigorous internal mechanisms for dealing with compliance concerns. A
respondent suggested that the proposed rule ignored the significant
change already made to the FAR that requires mandatory reporting to the
agency IG if the contractor has credible evidence of a violation of
Federal criminal law involving fraud, conflict of interest, bribery, or
gratuity, or a violation of the civil False Claims Act in connection
with Government contracts (see FAR 3.1003(b)).
According to one respondent, many company employee hotline reports
simply disclose a concern about an activity or behavior without the
employee knowing whether it violates only company policy or some
Government contract provision or law. Posting the DoD IG hotline poster
will confuse employees, asserted the respondent, and will result in
company employees not reporting potentially valuable information to
anyone.
Response: A requirement to hang a free poster in work areas does
not appear to be measurably burdensome. Further, the DoD poster
contains a prominent location for inclusion of the contractor's own
fraud hotline number and does not preclude or preempt posting of a
contractor's separate fraud hotline poster. As to any additional burden
on the DoD IG, that office has weighed the potential cost and elected
this approach.
D. Replaces the Contractor as the First Line of Defense Against Waste
and Fraud
Comments: One respondent stated that this change would seriously
undermine the role company hotline posters have in internal contractor
compliance and ethics programs. The respondent noted that these company
programs have a proven track record of inhibiting improper and/or
illegal behavior. This respondent and one other respondent expressed
concern that, from a purely practical perspective, removing the
exemption and requiring the use of the DoD hotline posters will usurp
the company's position as the first line of defense against waste and
fraud and, instead, place the DoD/IG in that role.
Response: There is no intent to replace the company hotline poster.
This rule supplements the Government defense against fraud, waste, and
abuse.
E. Will Result in Inefficiencies for Both Contractors and the DoD IG
Comments: Five comments were received from two respondents. A
respondent concluded that posting the DoD IG fraud hotline poster will
result in the DoD IG becoming involved in matters of an urgent nature,
as well as a significant number of day-to-day issues. Both respondents
pointed out that the majority of the matters reported to company
hotlines are human resource-related issues that have little or nothing
to do with the direct performance and final deliverables under DoD-
funded contracts and subcontracts. The respondents were concerned that,
if such matters are reported through the DoD IG fraud hotline rather
than directly to the contractor, the latter will be left to learn about
them from the DoD IG and will be unable to respond quickly, which
ultimately will have a negative impact on employee morale. Further,
display of the DoD IG fraud hotline posters, according to a respondent,
will assuredly result in the DoD IG being quickly drawn into a myriad
of personnel and related issues, thus bogging down the system. The
respondents considered that result to be against the best interests of
both DoD and its contractors.
The respondents also noted that, if employees choose to contact the
DoD IG hotline regarding more serious potential workplace-safety or
product-quality matters, the contractor may not learn about these
matters in a timely manner, thereby increasing the possibility of
injury or deficient product quality. The respondents suggested that
directly inserting the DoD IG into these matters could potentially
result in DoD ``taking on some measure of responsibility for failing to
respond in a timely manner.'' One of the respondents quoted the GAO
report as recognizing these potential issues:
``* * * there might be practical reasons for continuing to
exempt some defense contractors with their own hotlines from
displaying DOD's hotline poster, such as avoiding the confusion or
duplication that could occur with too many hotline posters on
display in one place * * *''
Response: This rule provides contractor employees with more than
one option for reporting matters of concern. Further, the Office of the
DoD IG advises that its fraud hotline is adequately staffed with
personnel trained to recognize and react appropriately to reports with
the potential to affect safety or quality. They
[[Page 57673]]
further advise that the staff is trained to distinguish between routine
personnel issues and those that impact Government contracts.
F. Unnecessary Because of Contractors' Existing Duty
Comments: Four respondents raised issues on this subject. One
respondent pointed out that contractors already have existing
contractual and regulatory duties to notify the Government of certain
significant events that occur in connection with contract performance.
Another respondent stated that the requirement is likely to lead to
confusion as to appropriate reporting channels and mechanisms. The
respondents asserted that defense industry and research institutions,
as well as other segments of DoD's contracting community, take most
seriously the responsibility to self-report or voluntarily disclose
violations to the Government. Contractors also take very seriously the
need to have open and accessible reporting mechanisms and respond
expeditiously and thoroughly to matters raised through those reporting
mechanisms. Creating an alternate reporting mechanism without the same
level of accountability as the contractor's in-house or external
reporting mechanism, according to respondents, adds no value to the
process and undermines existing systems, processes, and programs
already in place. A respondent took issue with the DoD IG implication,
made in the background section of the proposed rule (76 FR 13328, March
11, 2011), that reports made to a contractor hotline diminished the
protections available under Federal whistleblower-protection laws. This
respondent expressed the strong belief that adequate provisions ensure
that employees who in good faith report information to a company
hotline, but who are not themselves culpable, have full whistleblower
protection for their disclosures.
Response: For those contractors that have existing internal
compliance programs with a fraud hotline number, the posting of the DoD
IG fraud hotline poster supplements the existing reporting mechanisms.
A contractor's existing duty to self-report or voluntarily disclose
violations to the Government is not preempted by posting the DoD IG
fraud hotline poster.
G. Exclusions and Flowdown Requirement
Comments: One respondent expressed strong support for the $5
million threshold and the exclusions provided for prime contracts that
are for commercial items or that will be performed entirely outside the
U.S. This respondent also strongly supported the $5 million threshold
for flowdown of the requirement to subcontracts, as well as the
exclusion from the flowdown requirement for subcontracts that are for
commercial items or that will be performed entirely outside the U.S.
However, the respondent recommended that the flowdown requirement be
further limited to first-tier subcontracts.
Response: DoD has adopted the same criteria for flowdown of the new
clause at DFARS 252.203-7004, Display of Fraud Hotline Posters, as is
used for the comparable clause at FAR 52.203-14, Display of Hotline
Posters. Because DoD is using DFARS 252.203-7004 in lieu of the clause
at FAR 52.203-14, DoD has retained the same criteria for flowdown to
subcontractors.
H. Allow Electronic, as an Alternate to Physical, Display of Poster
Comment: A respondent noted that the nature of the workplace has
changed significantly, making the requirement to display the DoD IG
hotline poster in traditional office locations less effective than it
might have been in the past. The respondent, noting that the clause at
FAR 52.203-14 already requires each company to display the hotline
poster on the company's Web site, if a Web site is maintained,
recommended that the DFARS final rule allow electronic posting to
satisfy the regulatory requirement to ``display the hotline poster in
common work areas.''
Response: The DFARS coverage specifically requires electronic
display, if the contractor maintains a Web site, in addition to
physical display. These are the same posting rules as are used in the
comparable FAR clause, 52.203-14, Display of Fraud Hotline Posters.
III. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is not a significant regulatory action and, therefore, was not
subject to review under section 6(b) of E.O. 12866, Regulatory Planning
and Review, dated September 30, 1993. This rule is not a major rule
under 5 U.S.C. 804.
IV. Regulatory Flexibility Act
DoD does not expect this final rule to have a significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the
requirement to display posters has minimal economic impact and the rule
only applies to contracts and subcontracts that exceed $5 million in
value, so few small business concerns are impacted. However, a final
regulatory flexibility analysis has been performed and is summarized as
follows:
This rule was initiated in response to a Government Accountability
Office (GAO-09-591) recommendation that the DoD IG should determine the
need for defense contractors to display the DoD IG's fraud hotline
poster. The DoD IG subsequently determined that DoD contractors,
including contractors with an ethics and compliance program that
includes a reporting mechanism such as a hotline poster (currently
exempt), need to display DoD fraud hotline posters in a common work
area within business segments performing work under the contract and at
contract work sites.
The final rule does not include an exemption for DoD contractors to
post their own company posters instead of the DoD IG hotline poster and
requires all DoD contractors with contracts that exceed $5 million to
post the DoD IG fraud hotline poster. The DoD IG determined that this
FAR exemption to the posting of an agency's fraud hotline poster had
the potential to make the DoD IG hotline program less effective by
ultimately reducing contractor exposure to DoD IG fraud hotline posters
and diminishing the means by which fraud, waste, and abuse can be
reported under the protection of Federal whistleblower protection laws.
The DOD IG further determined that some contractors' posters may not be
as effective as the DoD poster in advertising the hotline number, which
is integral to the DoD fraud program. The legal basis for the rule is
41 U.S.C. 1303 and 48 CFR chapter 1.
The rule applies to all contractors with DoD contracts with a value
that exceeds $5 million. Many small businesses, therefore, are not
impacted.
Paragraph (c) of the clause at FAR 52.203-14 provides that a
contractor need not display any agency fraud hotline posters (other
than required DHS posters) if the contractor has implemented a business
ethics and conduct awareness program that includes a reporting
mechanism such as a hotline poster. The DFARS rule differs
[[Page 57674]]
only in that it removes this FAR exemption.
There is no reporting or recordkeeping requirement established by
this rule. The rule does not duplicate, overlap, or conflict with any
other Federal rules. There are no alternatives that would achieve the
objectives of the final rule. No comments were received on the small
business impact in response to the initial regulatory flexibility
analysis.
Interested parties may obtain a copy of the final regulatory
flexibility analysis (FRFA) from the point of contact named herein. A
copy of the FRFA has been submitted to the Chief Counsel for Advocacy
of the Small Business Administration.
V. Paperwork Reduction Act
The rule does not contain any information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. chapter 35).
List of Subjects in 48 CFR Parts 203 and 252
Government procurement.
Ynette R. Shelkin,
Editor, Defense Acquisition Regulations System.
Therefore, 48 CFR parts 203 and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 203 and 252 continues to
read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
PART 203--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF
INTEREST
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2. Amend section 203.1004 by revising paragraph (b)(2)(ii) to read as
follows:
203.1004 Contract clauses.
(a) * * *
(b)(2)(ii) Unless the contract is for the acquisition of a
commercial item or will be performed entirely outside the United
States, if the contract exceeds $5 million, use the clause at 252.203-
7004, Display of Fraud Hotline Poster(s), in lieu of the clause at FAR
52.203-14, Display of Hotline Poster(s). If the Department of Homeland
Security (DHS) provides disaster relief funds for the contract, DHS
will provide information on how to obtain and display the DHS fraud
hotline poster.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
3. Add section 252.203-7004 to read as follows:
252.203-7004 Display of fraud hotline poster(s).
As prescribed in 203.1004(b)(2)(ii), use the following clause:
Display of Fraud Hotline Poster(s) (Sep 2011)
(a) Definition. United States, as used in this clause, means the
50 States, the District of Columbia, and outlying areas.
(b) Display of fraud hotline poster(s).
(1) The Contractor shall display prominently in common work
areas within business segments performing work in the United States
under Department of Defense (DoD) contracts DoD fraud hotline
posters prepared by the DoD Office of the Inspector General. DoD
fraud hotline posters may be obtained from the DoD Inspector
General, Attn: Defense Hotline, 400 Army Navy Drive, Washington, DC
22202-2884.
(2) If the contract is funded, in whole or in part, by
Department of Homeland Security (DHS) disaster relief funds, the DHS
fraud hotline poster shall be displayed in addition to the DoD fraud
hotline poster. If a display of a DHS fraud hotline poster is
required, the Contractor may obtain such poster from:
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[Contracting Officer shall insert the appropriate DHS contact
information or website.]
(3) Additionally, if the Contractor maintains a company website
as a method of providing information to employees, the Contractor
shall display an electronic version of the poster(s) at the website.
(c) Subcontracts. The Contractor shall include the substance of
this clause, including this paragraph (c), in all subcontracts that
exceed $5 million except when the subcontract--
(1) Is for the acquisition of a commercial item; or
(2) Is performed entirely outside the United States.
(End of clause)
[FR Doc. 2011-23782 Filed 9-15-11; 8:45 am]
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