Ethics in Government Contracting

As an introduction, a government is different from private sector in such a way that everything it does is the public’s business. Government is also different in a way that no private entity can match in terms of size and diversity of activities. Unlike private entities, the scope of government operations affects the entire political, economic, social and even cultural structures of the country. However, public and private partnership is continually expanding to deal more creatively with major issues such as unemployment, infrastructure development, environmental degradation, drug abuse, social security and deterioration of public services.

Traditionally, the government uses tax revenues to pay for these kinds of public services. The government makes use of private contractors because of considerable needs, like specialized services which are not available elsewhere, the independent judgment, and the innovation, flexibility and fresh solutions and ideas to society’s growing and complex problems. Moreover, the partnership between the private sector and the government also serves as an important system for financing social services without the need to increase taxation or devise new revenue generation measures or operate on a budget deficit which are very unpopular.

The initial comparison between public and private administration is that each is opposed to the other and operates on a separate field. Nowadays, public sector programs and activities are accomplished in collaboration with numerous private enterprises or groups and individuals. Hence, there is a thin line of separation between public sector activities than that of the private. The policies governing contracting with the government prescribe value choices and list standards of conduct and regulations which are the main concern of ethics.

The setting out ethical rules in an organization holds its members accountable if those rules were violated. Ethical rules in public service should include prohibitions against bribery, theft, fraud and conflict of interest. This paper aims to discuss and examine the good and bad ethics in US government contracting, relating the review of literatures and data as the method used in the overall findings. Throughout this section of literature review, it is generally described that the system of government ethics assures the public that bureaucrats would work for the common good.

The US government has established its own Office of Government Ethics (OGE). The US OGE is headed by a presidential appointee whose term of office is five years. The US OGE has jurisdiction only on the executive branch of the government. The legislative and judicial branches of the government have their own ethics program (US OGE, 2009). The presence of US OGE is an indication of the government’s desire to promote good governance and accountability in the bureaucracy. The institutionalization of ethical standards in the bureaucracy also manifests the efforts of the government to effective and efficient use of public resources.

The US Department of Defense (DoD) devised Joint Ethics Regulation (JER) that would serve as the statement of the rules for the DoD employees relating to the closer working relationship with the private sector. Based on the US DoD (1999) article entitled ‘Ethics Issues in Government Contractor Teambuilding’ discusses the key sections of the DoD Joint Ethics Regulation (JER), wherein the following “Eight Ethical Parameters” have been described: 1. Conflicts of Interest which prescribes the employees’ conscious effort to avoid conflicts with their jobs in their dealings with the contractor employees; 2.

Gifts, which generally prohibits a DoD employee to solicit or accept gifts directly or indirectly; 3. Job Hunting and Post Government Employment, which prevents the employees from seeking employment with a DoD contractor if they perform substantial work on the said contractor; 4. Use of Government Resources, which mandates the employees to be knowledgeable of contract on Government facilities and equipment before handling out the said facilities to the contractor; 5. Misuse of position and endorsement, which ensures that the office will note be used for private gain and promotes fair treatment to contractors, bidders and offerers;

6. Support for Non Federal States, which allows employees to attend non federal entity events so long as it not bias, not profit-oriented and does not interfere with the agency’s mission; 7. Travel and Transportation, which prescribes that work-related travels of employees must be funded by the government directly or through a contract; and 8. Training, which allows the employee to accept free training in relation to the products or services under government contract? In the case of DoD, it is difficult to demand for transparency.

The DoD would insist on the confidentiality of the project (i. e. intelligence-related projects) which would affect national security. It is quite difficult to monitor and evaluate the DoD transactions because of the issue on national security. The JER exists to formalize the ethical conduct rules and regulations in the DoD. It gives the employees the idea which is more likely the right thing to do. It also gives the employees the basis and justification of their actions (US DoD, 1999).

For an agency like DoD which operates sensitive missions or programs which are hard to monitor because the nature and structure of work permits it, there is no doubt that the practice of ethics in the DoD workplace must be an initiative of the DoD employees themselves. There is heightened awareness on the international level regarding ethics in government contracting. The Organization for Economic Cooperation and Development (OECD) Policy Brief entitled ‘Keeping Government Contracts Clean’ discusses fraud and corruption in government contracts.

In fact, OECD countries have committed to efficient use of public resources, keeping the public procurement transparent and improving the resistance to fraud and corruption through the formulation of ‘Principles for Enhancing Integrity in Public Procurement’ in October 2008. The ethical principles serve as a guide for the preservation of public and private sectors’ integrity needs assessment to government contract awarding and payment, in which the OECD (2008) has described the following ‘Ten Ethical Principles’: 1. The First Principle calls for a transparent, fair and equal treatment of suppliers;

2. The Second Principle stresses competitive processes; 3. The Third Principle calls for responsive budget allocation; 4. The Fourth Principle calls for professional procurement officials; 5. The Fifth Principle calls for institutionalization of mechanisms to avoid risks; 6. The Sixth Principle calls for the joint effort of public and private sector towards ethical management dealings; 7. The Seventh Principle calls for sanctions; 8. The Eight Principle calls for defined segregation of duties and responsibilities; 9. The Ninth Principle calls for impartial review and decisions; and,

10. The Tenth principle calls for people involvement on public procurement. The Principles created by the OECD promote the collaboration of the government, private sectors and more importantly the civil society to avoid fraud and abuse of government contract awarding and payment. According to the US Integrated Acquisition Environment (US IAE), private corporations or contractors are also required to have an ethical code of conduct and regulations due to common public and private partnerships. Failure to do so could mean a corporation’s loss of federal contract award.

As cited by US IAE (2008), the Federal Acquisition Regulation (FAR) mandates that more than $5 million worth of federal contracts should only be awarded to private and individual contractors with ethical code of conduct and regulations. Federal contracts on commercial items and those that will be executed outside the United States are excluded to this policy. FAR also mandates the participating private corporations and individual contractors to promote awareness on their code of ethics by posting it to open public spaces and providing their employee with a written code of ethics.

The policy seeks to have extra control over ethics in government service (US IAE, 2008). The FAR gives the private corporations and individual contractors an added obligation to the general public that products and service delivery are made or done with high integrity and standards. It also shapes the contractor’s image of high integrity. Thus, the contractor’s non compliance with the existing government contracting laws and regulations will tarnish or ruin the contractor’s image.

Consequently, they would lose shareholder trust and more importantly public trust. It would also have a bad effect on their business in general because of their questionable integrity. An example of an ethical corporate policy governing contracting with the government is the delivery of quality products and/or services at fair and reasonable prices. There are different factors affecting the pricing of products and services of a corporation. Some of which are: revenue-based commission, market share expansion, competitors’ price and the customers’ budget.

Accordingly, pricing of a product or service should be value-based, in which value-based pricing is a derived estimation of the value or worth of the products or services and not the cost of producing it plus profit (Nagle & Reed, 2000; in Blotnicky, 2001). Based on this assumption, if the corporation starts giving discounts to the clients, the clients would be confident to think that the prices are flexible and they would keep on negotiating the price of the product and/or service (Blotnicky, 2001).

Regardless of the corporation’s pricing motivation, the important thing is that they have not undermined the process or cheated in getting the government contract. The government has its own regulations, standards and technical team who would determine which the best product is and/or service given a certain ceiling price. A year 2009 report by the US Government Accountability Office (US GAO) entitled ‘The Excluded Party List System (EPLS): Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds’ presents that businesses and individuals who have committed offenses (i.

e. tax fraud) continue to receive federal contracts, benefits, assistance and other funds. GAO puts the blame on the failure of the agency officials to search EPLS and the inaccuracy of the EPLS. The Excluded Party List System (EPLS) lists the businesses and individuals barred from receiving federal funds or contracts due to offenses. The EPLS is a database maintained by the General Services Administration (GSA). The exclusion of a business extends to all organizational divisions and units and its affiliates.

The Federal agencies are mandated to refer to the EPLS database before awarding any federal contracts to any private corporations and individual contractors (US GAO, 2009). Thus, the awarding of government contracts are limited to honest and dependable private firms to protect the interest of the nation as a whole. The study reveals that some debarred, suspended, disqualified and excluded private firms have changed identities to continue to bid and receive federal contracts. To resolve this issue, GAO recommends that GSA should guide agency officials on EPLS requirements and strengthen EPLS (i.

e. search functions). To discuss the findings and data analysis, it is found that the government ethics refers to rules and guidelines of what is right or wrong for those who work in the government bureaucracy; the elected leaders and the public servants. Ethics play a major role in a success of an organization. The practice of good ethics in public administration would ensure effective and efficient delivery of services to the general public. Having ethical rules of conduct prohibit illegal activities that cause wastage of public funds and assets.

Ethical rules can also help mitigate or minimize issues such as bribery, graft and corruption that lead bureaucrats to sacrifice the public good for individual gains and benefits. In the State of Georgia through the leadership of Governor Perdue has been practicing ethics in governance. The Governor also created the Office of Inspector General which is tasked to investigate dishonesty, graft and corruption and inefficient used of government resources. Governor Perdue also issued an executive order allowing for greater transparency of activities of his administration to his constituents.

In this case, the initiative of working for good governance came from the top leadership of the organization. The exclusion of businesses and individuals who have committed offenses to receive federal contracts is a good example of the government’s promotion of conducting business with responsibility. Granting of federal contracts to these violators mean tolerating their unethical actions in doing business transactions. Moreover, the publication, through EPLS, of the debarred, suspended, disqualified and excluded businesses and individuals warns the general public in the future of a possible dubious transaction.

Public awareness on these issues is critical because it empowers them to make the right choice of whom they can do business with. Contracting out of government projects may stimulate competition in terms of pricing and delivery. It may be a good or bad competition. It can be classified as good competition if the aspiring contractors would work and provide for the best product and/or service option to the government: it could either be at minimal cost at an average quality or high cost at high quality or any combination.

In this case, the government could weigh the best option available at the best possible deal. It should be noted that the best may not necessarily be the cheapest. On the other hand, competition is bad if aspiring contractors would work outside the regular and legal channels of the government just to get the federal contract (i. e. give bribes). The cost of getting out of these channels would reflect on the cost of the products and/or services being offered. Thus, the cost does not reflect the true quality of the product and/or services.

While public and private partnership may result to efficient delivery of public services, it may also allow the government, its officials and all the members of the bureaucracy to be negligent of their roles or worst escape on their responsibility to the general public. Public and private partnership can actually sometimes be more expensive than government financing a certain program or project services. The major concern or interest of the public is whether public money and property are managed and used effectively and efficiently.

The people are left with no choice but to pay tax to the government and the government in return should maximize the utilization of the public resources. However, sometimes, the government officials and the bureaucrats have the tendency to find comfort at the expense of the general public. In conclusion, good ethics mean good business. If public and private entities would practice good ethics, they would gain the trust and confidence of the general public. On the one hand, the public would patronize the products and/or services of these reputable corporations; on the other hand, they would be supportive of government policies (i.

e. new taxation policy) because they feel and see that the government is working effectively and efficiently to provide the social services that they need. Indeed, the highest duty of the government is to protect and promote the common good. However, the complex operations and the variety of players involved make it hard for the government to do so. Concrete punishment for violators of ethical rules is very important. Ethical code of conduct is useless if the violators can get away with it. There should also be mechanisms that would enable the general public to know that an ethical rule is violated.

Transparency is a very important factor to the effectiveness of ethical rules. Successful public and private partnerships also rely on a competitive selection process, development and enforcement of the contract and transparency and accountability of both parties. Every organization (whether public or private) should have moral code or set of principles to which it is dedicated. It should reflect the organization’s responsibility to its members, its clients and to the community where it operates.

The main goal of a public organization is to provide welfare and services while a private organization is to make profit. Regardless of what kind of goals or objectives they have, it is right and appropriate to conduct business in a professional and ethical way.


Blotnicky, K. A. (2001). ‘Presentations: Fundamentals of Marketing’. Mount Saint Vincent University, Halifax, NS, McGraw-Hill Ryerson Limited. Retrieved 25 July 2009 from http://www. busi. mun. ca/tclift/1201/9fms_pp14. ppt. Organization for Economic Cooperation and Development (2008). ‘Keeping Government

Contracts Clean’. Retrieved 25 July 2009 from http://www. oecd. org/dataoecd/63/21/41550528. pdf. US Department of Defense (1999). ‘Ethics Issues in Government Contractor Team Building’. Retrieved 25 July 2009 from http://www. dod. mil/dodgc/defense_ethics/dod_oge/partwd. doc. US Integrated Acquisition Environment (2008). ‘Federal Acquisition Regulations: Subpart 3. 10—Contractor Code of Business Ethics and Conduct’. US. Gov. Retrieved 25 July 2009 from http://www. arnet. gov/far/current/html/Subpart%203_10. html#wp1079445. US Government Accountability Office (2009). ‘Excluded Parties List