The Department of Defense (DoD) Office of Inspector General (IG) recently released a July 6, 2015 Memorandum announcing that it will “immediately” begin the field work for its assessment of DoD compliance with Section 847 of the 2008 National Defense Authorization Act (NDAA), “Requirements for Senior Defense Officials Seeking Employment with Defense Contractors.” Section 847 mandated that, before a defense contractor may hire a “covered” current or former government official (generally, an official who has participated “personally and substantially” in the procurement or management of a DoD contract or program valued in excess of $10 million), the official must seek, and the contractor must review, “a written opinion from the appropriate ethics counselor regarding the applicability of post-employment restrictions to the activities that the former official is expected to undertake on behalf of the contractor.” See 2008 NDAA § 847(a); see also DFARS § 203.171 (implementing § 847). Section 847 also tasked the DoD IG with conducting periodic reviews to ensure that these written opinions (commonly known as “Designated Agency Ethics Official (DAEO) Letters” or simply “Ethics Letters”) are being provided and retained by DoD in a “central database or repository.” See, e.g., Report No. DODIG-2014-050 (Mar. 31, 2014). Although the recent Memorandum addresses only the Government’s responsibilities under Section 847 (specifically the DoD IG’s objectives for its upcoming assessment), it is a good reminder that contractors, as well, should make the collection and retention of Ethics Letters a priority. Hiring a former government official is often an effective way for a contractor to gain insight into a particular government program, or to simply bring a fresh perspective to the contractor’s operations. However, such hiring decisions implicate a wide variety of statutory and regulatory provisions, and can expose contractors to substantial risk. For example:
- DFARS § 252.203-7000, which is included in DoD solicitations and contracts, prohibits a contractor from providing compensation to a covered current or former DoD official without first determining that the official has sought and received the appropriate Ethics Letter. Subsection (c) of that regulation provides that a contractor’s failure to abide by this prohibition may subject the contractor to rescission of its contract, suspension, or debarment in accordance with the Procurement Integrity Act (which also contains its own prohibitions on the compensation of specified current or former government officials, as well as civil, administrative, and even criminal penalties for “knowing” violations—see 41 U.S.C. §§ 2104, 2105).
- Similarly, DFARS § 252.203-7005, which is included in DoD solicitations, requires a contractor to certify that: “all covered DoD officials employed by or otherwise receiving compensation from the [contractor], and who are expected to undertake activities on behalf of the [contractor] for any resulting contract, are presently in compliance with [a variety of post-employment restrictions].” This certification should not be taken lightly, as qui tam relators and some courts increasingly have taken an expansive approach to assessing False Claims Act liability based on theories of fraudulent inducement and false implied certifications.
- Also, the Government Accountability Office has held that when a former government official participates in a contractor’s effort to obtain a contract, he/she is presumed to use any competitively useful non-public information to which he/she had access as a government employee. See, e.g., Health Net Fed. Servs., LLC, B-401652.3, Nov. 4, 2009, 2009 CPD ¶ 220 (sustaining protest based on awardee’s unfair competitive advantage stemming from employment of former government official).
These are just a few of the many potential risks when a contractor hires a former government official. However, in each case, the contractor may be able to avoid potential problems up front, or to defend against particular challenges on the back end, where it obtains and keeps handy a well-reasoned and supported Ethics Letter. While the Ethics Letter will not always be dispositive (and does not cover non-statutory issues, such as unfair competitive advantage and organizational conflicts of interest), and should be but one element among many in a contractor’s due diligence review in any hiring process, it is an element that should not be overlooked.