Proposed Changes to Clarify Federal Gift Rules May Muddy Waters on Gift-Giving

Federal contractors of all types are subject to specific rules on gifts
to government officials.  When
considering whether to host a holiday party, give a gift or event
commemorative, or provide a service or intangible to a public official or
employee (the “official”), Federal contractors need to consider the special
ethics rules that apply to the official with whom they interact.

Federal statutes prohibit the offer or acceptance of bribes,
kickbacks and gratuities.  In addition,
Federal ethics rules restrict the giving of gifts, including invitations to
events, to an official because of the official’s position, or because the
contractor has an interest that may be substantially affected by the
performance or non-performance of the official’s public duties.  Under existing gift rules, an official is not
permitted to solicit or accept gifts from outside sources unless an exception
or exclusion applies. 

The Office of Government Ethics (OGE) has proposed changes
to clarify its rules on solicitation and acceptance of gifts that may make
gift-giving more uncertain.
Examples of these changes include the following:

  • Currently,
    the giving of a gift to a public official because of his/her position is
    prohibited unless it falls under an applicable exception or exclusion.  Gifts may cover any “thing of value”, such as
    discounts, loans, food, events, artwork, transportation, in-kind services.  The proposed rules would change the
    definition of “gifts” and applicable exclusions and exemptions.  
  • OGE
    proposes to encourage government officials to consider declining otherwise
    permissible gifts based on a new “flexible non-binding” standard -i.e., if a
    reasonable person would question the official’s integrity if he or she were to
    accept a gift from an outside source such as a federal contractor.  OGE proposes eight potential factors to be
    considered by the official in making the assessment:  (i) market value of the gift, (ii) whether
    the donor may be substantially affected by performance or nonperformance of the
    official’s duties, (iii) whether the official would feel a sense of obligation,
    (iv) whether the gift would create an appearance of preferential treatment, (v)
    for an event gift, whether the government provided persons with views or
    interests that differ from the donor, (vi) whether the event is open to the
    public or news media, (vii) whether the gift would cause a reasonable person to
    question the official’s ability to act impartially, (viii) whether the gift
    would interfere with the official’s conscientious performance of duties.  In applying these factors, OGE would focus
    employees and ethics officials on “whether acceptance of the gift could affect
    the perceived integrity of the employee or the credibility and legitimacy of
    the agency’s programs.” 80 Fed. Reg. 7004.
  • Current
    OGE rules provide that written authorization to accept an invitation to a
    widely attended gathering (WAG) is only required where the individual entity,
    or members of the organization inviting the official, have interests that may
    be substantially affected by the performance or nonperformance of the official.
     The proposed OGE rule would exempt a WAG
    expected to provide an opportunity to exchange ideas and views among invited
    persons, but only if the invited official obtains advance written
    authorization
    .  Depending on the
    circumstances, an event that is not expected to be attended by more than 100
    people may not qualify as a WAG.  

Conclusion:

Gift-giving rules are numerous, complex and changing.  Before offering any “thing of value” to an
official, it’s important to carefully analyze whether the “gift” would fall
under an exception or exclusion to current or proposed Federal gift-giving
restrictions.

Contact us for assistance analyzing your requirements under
these rules and/or seeking formal agency ethics officer approval of applicable
exemptions or exclusions.

DOD Meeting Makes Clear DOD Cybersecurity Rule Will Trigger New Requirements

We previously notified you of a meeting on the new updated Department of Defense (DOD) rule on cybersecurity, DFARS 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting (August 2015), and its October 2015 Class Deviation.  The meeting, hosted by DOD, made clear that these new updated rules pose significant new obligations for DOD contractors and subcontractors.  Your company?s procurement and legal compliance representatives need to be on top of these matters.

Key Developments:  

DOD considers the new obligations to be triggered under the clause when performance of the DOD contract or subcontract involves ?Covered Defense Information? (CDI) or operationally critical support (OCS).  These significant obligations require contractor information systems to comply with new NIST 800-171 standards and, where the contractor uses cloud services, require notification and use of Government-approved cloud services providers for cloud storage or transmission under DOD contracts.  Contractors are required to report a cyber incident that affects a covered system or the CDI, or that affects the contractor?s ability to perform the OCS requirements.  Contractors have the right to seek additional compensation to meet these obligations, but to do so they must initiate specific steps before agreeing to the new terms. 

Triggers: 

Application of the clause is triggered if a DOD contract would provide the contractor, or the contractor otherwise would collect, develop, receive, transmit, use or store, of any of the following four types of CDI in support of performance of your DOD contract or subcontract:

  • Controlled technical information [CTI].
  • Critical information (operations security).
  • Export controlled information.
  • Any other information, marked or otherwise identified in the contract, that requires safeguarding or dissemination controls pursuant to and consistent with law, regulations, and Government-wide policies (e.g., privacy, proprietary business information).

The clause also is triggered if the contractor would provide OCS, meaning supplies or services the Government designates as ?for airlift, sealift, intermodal transportation services, or logistical support that is essential to the mobilization, deployment, or sustainment of the Armed Forces in a contingency operation.? 

Requirements:

Compliance with the clause requires that a contractor?s covered systems and protection of CDI meet the new NIST SP 800-171 standards.  Use of cloud services (CS) to store or transit CDI in performance of the contract requires DOD notice and use of DOD-approved cloud services.  Contractors must rapidly report directly to DOD on a cyber incident that affects, or risks affecting, a covered contractor information system or CDI, or that affects the contractor?s ability to perform the operationally critical support requirements.  Only pre-approved personnel can do the reporting.  The requirements apply to contractors and subcontractors.

Take Aways and Next Steps:

  • Ensure your company?s procurement and legal compliance representatives are up to speed on these new, significant changes for DOD contracts. 
  • If asked to include the new clause in your existing contract, you have the right to seek compensation for the increased costs and time needed to address the additional requirements.  You must notify the Contracting Officer (or your prime) of the impact of this change and your right to an equitable adjustment, and negotiate the terms before you accept the clause, or risk losing your right to seek compensation. 
  • New DOD procurements and contracts will include the clause.  Proactively check whether they trigger clause requirements and factor your compliance costs, and any required waiver or approvals, into proposal preparations and the ultimate contract.  It?s likely that most companies will need to do something.

You have options.  If you would like to understand your requirements or would like assistance in this area, please contact a FortneyScott attorney.