On November 18, 2016, the Office of Government Ethics (OGE) issued a final rule revising the Standards of Ethical Conduct for Employees of the Executive Branch (“Standards”)  applicable to the solicitation and acceptance of gifts from outside sources. See 5 CFR § 2635. The final rule imposes a duty to decline otherwise permissible gifts when the appearance of impropriety is present, adds new examples of how to apply the rules, codifies previous interpretations of the gift rule, and retains the $20 de minimis exception (despite pushback in comments to the proposed rule to raise the standard commensurate with inflation. ) Although Government employees are the primary subject of the final rule, the changes will have a direct impact on how contractors, referred to as “prohibited sources” can interact with Government officials.   It is important for government contractors to understand that being implicated by a Government official’s violation of these Standards can lead to various consequences, such as facing public embarrassment, a tarnished reputation in the marketplace, suspension and debarment, or penalties for violating the bribery or illegal gratuities statutes.

The rule becomes effective on January 1, 2017.

Summary of Notable Changes

§ 2635.201 – Overview and Considerations For Declining Otherwise Permissible Gifts

Recognizing the subtleties in the laws and regulations the final rule adds a new provision which sets out a flexible, non-binding standard for employees to consider.  Employee must now consider whether their acceptance of an otherwise permissible gift would create the appearance that their integrity or ability to act impartially may be compromised. To assist employees in making this determination, the final rule sets out factors for employees to consider when evaluating whether they should decline an otherwise permissible gift,  such as the market value of the gift, whether the timing of the gift creates the appearance that the donor is seeking to influence official action,  the donor’s interests in the employee’s performance or non-performance of official duties, and whether the gift would provide the donor with significantly disproportionate access. The new provision includes examples to illustrate how an employee may use the standard and factors found in § 2635.201(b).

§ 2635.203 Definitions – “Gift” and “Market Value”

Gift: The final rule makes a number of changes to § 2635.203(b), which defines the term ‘‘gift’’ and provides exclusions from that definition. Ten new examples are also incorporated into this section to clarify the regulatory exclusions, which include:

• Modest items of food and refreshment: Under the final rule, an example clarifies that the § 2635.203(b)(1) “modest item of refreshment” exclusion does not cover alcoholic beverages.
• Presentation items with little intrinsic value: The final rule amends § 2635.203(b)(2) to permit employees to accept presentation items with little intrinsic value that are ‘‘primarily’’ for presentation as opposed to only those that are ‘‘solely’’ for presentation.
• Participation in a welfare program: Pursuant to the final rule, 2635.203(b)(6) now clarifies that continued participation in  an employee welfare or benefit plan with a current or former employer would not constitute a gift.
• Items purchases by the Government or secured under Government contract: The final rule includes an example at § 2635.203(b)(7), which illustrates that employees may retain certain “travel promotional items, such as frequent flyer miles, received as a result of . . .  official travel, if done in accordance with 5 U.S.C. 5702, note, and 41 CFR part 301-53.”
• Free attendance provided to employees speaking in their official capacity: The new rule permits employees who are presenters at an event to accept meals outside of a group context, so long as the meal is open to all presenters and is hosted by the sponsor of the event.

Market Value: The definition of “market value” has been amended to  mean “the cost that a member of the general public would reasonably expect to incur to purchase the gift.” An example demonstrates how to calculate the market value of certain gifts not available for retail purchase (e.g. tickets to a private skybox for a baseball game where the skybox is leased annually by the company.)

§ 2635.204 Exceptions to the prohibition for the acceptance of certain gifts

• Gifts of $20 or less: The OGE decided against raising the regulatory dollar thresholds found in the gift exception at § 2635.204(a) in light of existing exclusions and exemptions that permit employees to accept targeted items that are over $20 in carefully restricted circumstances and because the OGE believes the $20 threshold continues to be workable, permitting employees to accept on an infrequent basis most of the types of items that can be characterized as inexpensive and innocuous.
• Gifts based on a personal relationship:  The final rule includes a new example at § 2635.204(b), which provides guidance on assessing whether a gift provided by a social media contact falls within the bounds of the gift exceptio
• Gifts of free attendance to widely attended gatherings (WAG): The final rule makes several amendments to the exception at § 2635.204(g). The provision first states that an event does not qualify as a WAG if it does not present “an opportunity to exchange ideas and views among invited persons.” Second, government employees are now required to obtain written authorizations before accepting any gift of free attendance at WAGs. Third, the final rule explicitly requires agency designees to weigh the agency’s interest in employees’ attendance at WAGs against the possibility that acceptance of gifts of free attendance will influence their decision-making or create the appearance that they will be influenced in their decision-making, before authorizing the attendance.
• Gifts of informational materials: The final rule incorporates a new definition for “informal materials,” and permits employees to accept qualifying gifts if (i) the aggregate market value of all informational materials received from any one person does not exceed $100 in a calendar year; or (ii) If the aggregate market value of all informational materials from the same person exceeds $100 in a calendar year, an agency designee has made a written determination after finding that acceptance by the employee would not be inconsistent with the standard set forth in § 2635.201(b).

§ 2635.206 Proper disposition of prohibited gifts

Currently, § 2635.205(a)(1) provides that an employee who receives a tangible gift that is prohibited by the subpart must either return the gift to the donor, pay the donor the market value  or not accept the gift in the first instance. Pursuant to the final rule, employees will now also have the option of destroying gifts with a market value not in excess of $100. The final rule also adds a new provision at § 2635.206(d), which encourages employees to record any actions that they take to dispose of gifts that cannot be accepted.

As exhibited by some of the recent procurement integrity scandals, the federal government is taking these and other ethical violations very seriously. Contractors and those seeking to do business with the government must understand the nuances associated with interacting with Government officials. Standard practices in commercial contracting can lead to stiff fines and other penalties when offered in the government contracting arena.  Compliance programs should be updated and employees should be trained on the risks associated with giving gifts to Government officials.