Beyond Compliance as a Standard: A Market Failures Approach to Business Ethics for Small Business Government Contractors
The federal acquisition process has undergone significant scrutiny and has found itself in the center of a sea change of reform demanding higher standards of ethics and integrity from government contractors in an effort to promote fair competition. The recent changes to the Federal Acquisition Regulation (FAR) have incorporated stringent ethics requirements that reflect the government’s resolve to rein in contractors and reinforce the long-established policy requiring the government to conduct business only with contractors having a “satisfactory record of business ethics and integrity.” One such change is the amendment to incorporate FAR Clause 52.203-13, which mandates the establishment of rigorous ethics requirements such as ethics programs, internal control systems, ethics training for contractor employees, and a code of business conduct.The government elected to exempt small-business contractors from the more stringent ethics requirements due to the financial burden associated with compliance. The intent may have been honorable; however, the imposition of only minimal ethics requirements in an environment where the government is aggressively demanding higher ethics and integrity standards for contractors will likely place small-business government contractors at risk of non-compliance and possible debarment or suspension. Small business contractors can mitigate risks by implementing a beyond-compliance approach to align their business objectives with those of the government’s ethics agenda.This paper specifically focuses on the requirement for small-business, government contractors to establish a code of conduct and promote compliance with the code throughout the organization. The text argues that the ethics requirements are only in effect during the performance period of a specific contract; therefore, the code to be created must address the procurement-related transactions between government and contractor, in other words, market transactions. Rather than designing a code irrelevant to the government’s objectives, the contractor should devise a code that complies with both the spirit and letter of the regulation.The paper analyzes both shareholder and stakeholder theories as the basis of a normative ethics to determine their suitability to underpin a compliant code. It then explores the Market Failures Approach to business ethics as espoused by Joseph Heath. This method quickly rises to a position of primacy.
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