Causes of unethical practices by U.S. federal contractors and prevention strategies

¶ … Enforcing Ethical Business Practices by U.S. Federal Contractors

Summer 2013

There have been a number of high-profile cases of corporate wrongdoing in recent years that have involved federal contractors, and these cases have created calls for improved ethical practices in the public and private sectors alike. Because there is an enormous amount of taxpayer resources involved in the federal contracting process, it is vitally important that is conducted in a transparent and ethical fashion, but opportunities for unethical practices are commonplace and tend to increase as firms gain experience and become friendly with federal contractors. In addition, other opportunities for unethical practices can present themselves simply because practitioners are unaware of the long-term implications that are involved, or because they lack formal guidance for unique ethical dilemmas. To gain some fresh insights into these issues, this paper provides a review of the relevant peer-reviewed and scholarly literature to identify the causes of unethical practices by U.S. federal contractors and what steps CEOs can take to prevent unethical practices in federal contracting. Finally, a description of robust business ethics and compliance programs and ways that CEOs can enhance their programs is followed by a summary of the research and important findings concerning these issues in the conclusion.

Review and Discussion

Causes of Unethical Practices by U.S. Federal Contractors

In some cases, unethical practices are intentional from the outset and are intended to defraud the U.S. government for unjust personal gain (Wentick, 2001). In other cases, though, unethical practices may develop, even inadvertently, over time. In these cases, federal contractors develop good working relationships with the contractors they do business with on a regular basis. According to Wentick (2001), good working relationships between federal contractors and their vendors can facilitate mission achievement, but there are some issues that federal contractors must be alert for, including the following:

If the relationship is with a federal employee who has nothing to do with the contract or the contractor employee, the only concern might be for the protection of "inside information";

If the relationship is with a federal employee who has responsibilities involving the contract or the work being performed by the contractor employee, there will be appearances of conflicts of interest that must be resolved; these appearances often disqualify the federal employee from participating in the official matters affecting the contractor;

If the relationship between the federal and contractor employee results in marriage, the financial interests of the spouse are imputed to the federal employee and any actual or apparent conflicts of interest that are created must be resolved (Wentick, 2001, p. 37).

In addition, a wide range of observers, including practitioners in the construction industry, maintain that the practice of so-called "bid shopping" used by some federal contractors is unethical, and there is growing support in Congress to outlaw this practice by federal contractors (Bid shopping ban on federal construction gains support, 2005). In this context, bid shopping is defined as "the practice of divulging, or causing to be divulged, a contractor's or subcontractor's bid or proposal or requiring a contractor or subcontractor to divulge its bid or proposal to another prospective contractor or subcontractor before the award of a contract or subcontract in order to secure a lower bid or proposal" (Bid shopping ban, 2005, p. 28).

There is evidence that even major corporations have engaged in unethical, if not immoral, business practices (Verschoor, 2002). Indeed, Green and Berry (1999) ask, "Exactly how extensive and expensive is unlawful business behavior?" And report, "The answer is that it occurs with disturbing frequency" (p. 689). A survey by U.S. News & World Report found that 115 of America's 500 largest corporations had been convicted of at least one major crime or have paid civil penalties for serious misbehavior during the preceding 10-year period; moreover, the rate of documented unethical behavior was even higher among the 25 biggest corporations (Green & Berry, 1999). Indeed, during one 4-year period, federal prosecutors in 20 different states discovered a bid-rigging conspiracy among highway contractors that resulted in 400 convictions, 141 prison sentences and more than $50 million in fines (Green & Berry, 1999). Following this series of federal indictments, the average number of companies bidding for federal highway construction projects increased from three to five (Green & Berry, 1999).

Taken together, the opportunities for unethical practices abound in the federal contracting system, but there are some steps that corporate leaders can take to help prevent their occurrence, including those discussed further below.

Conclusion

The research showed that the causes of unethical practices in U.S. federal contracting are both intentional and unintentional, but the latter tends to become intentional over time. The research also showed that CEOs can take some proactive steps to prevent unethical practices with federal contractors by establishing an ethical corporate culture, ensuring that the Standards for Ethical Conduct and The Federal Code of Ethics are followed, and taking reactive steps to prevent recurrences of any unethical breaches. Finally, the research was consistent in showing that even the best compliance program requires ongoing evaluation to ensure it is timely and reflects current best industry practices.