FAR 3.1002—Policy.
Plain-English Summary
FAR 3.1002 states the Government’s basic policy on contractor ethics and integrity. It covers the expectation that government contractors act with the highest degree of integrity and honesty, the recommendation that contractors maintain a written code of business ethics and conduct, and the related expectation that contractors establish an employee ethics and compliance training program and an internal control system. It also explains what those internal controls should accomplish: they must be appropriate to the company’s size and level of federal contracting, help detect and disclose improper conduct quickly, and ensure corrective action is taken promptly. In practice, this section is the policy foundation for contractor ethics programs and compliance systems, especially for companies doing significant federal business. It signals that ethics is not just a paper requirement; contractors are expected to build real processes that prevent, identify, report, and correct misconduct.
Key Rules
Highest Integrity Required
Government contractors are expected to conduct themselves with the highest degree of integrity and honesty. This is a broad policy statement that sets the ethical standard for all contractor conduct in connection with federal work.
Written Code of Ethics
Contractors should have a written code of business ethics and conduct. The code serves as the company’s formal statement of expected behavior and should guide employees and management in dealing with government contracts.
Ethics Training Program
Contractors should have an employee business ethics and compliance training program to support the code. Training is intended to make the code meaningful in day-to-day operations and help employees recognize and avoid improper conduct.
Internal Controls Required
Contractors should maintain an internal control system that supports compliance with the code and ethics program. The controls should be designed to detect issues, enable reporting, and support corrective action.
Sized to the Company
The ethics program and internal controls must be suitable to the size of the company and the extent of its involvement in Government contracting. A small contractor is not expected to use the same structure as a large, highly federalized enterprise, but the system still must be effective.
Timely Detection and Disclosure
The internal control system should facilitate timely discovery and disclosure of improper conduct in connection with Government contracts. This means the contractor should have mechanisms that allow problems to surface quickly and be reported appropriately.
Prompt Corrective Action
The system should ensure corrective measures are promptly instituted and carried out. Identifying misconduct is not enough; the contractor must also fix the problem and follow through on remediation.
Responsibilities
Contractor
Conduct business with integrity and honesty; maintain a written code of business ethics and conduct; establish employee ethics and compliance training; implement internal controls appropriate to the company’s size and federal workload; detect, disclose, and correct improper conduct promptly.
Employees
Follow the company’s code of ethics and conduct, participate in required training, and report suspected improper conduct through the contractor’s compliance channels.
Management
Set the ethical tone, ensure the code and training program are implemented, maintain effective internal controls, and make sure corrective actions are taken when issues are identified.
Contracting Officer / Government
Rely on this policy as the baseline expectation for contractor integrity and ethics when assessing contractor responsibility, compliance posture, and overall performance in federal contracting.
Practical Implications
This section is a policy foundation, but it has real operational consequences: contractors should not treat ethics as a formality or a generic handbook statement. A written code, training, and internal controls should actually exist and be used.
The biggest pitfall is having a code on paper without a functioning compliance system. If employees do not know how to report concerns or management does not act on reports, the contractor is not meeting the spirit of the policy.
Contractors should tailor their ethics program to their business size and federal exposure. Overly complex controls may be impractical for small firms, but underdeveloped controls can leave serious gaps in detection and remediation.
Timely disclosure matters. Delays in identifying or reporting improper conduct can worsen the problem, increase legal exposure, and undermine the contractor’s credibility with the Government.
Prompt corrective action is essential. Contractors should document investigations, remedial steps, discipline where appropriate, and process changes so they can show the issue was addressed and recurrence risk reduced.
Official Regulatory Text
(a) Government contractors must conduct themselves with the highest degree of integrity and honesty. (b) Contractors should have a written code of business ethics and conduct. To promote compliance with such code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system that- (1) Are suitable to the size of the company and extent of its involvement in Government contracting; (2) Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and (3) Ensure corrective measures are promptly instituted and carried out.