December 5, 2019

Holiday Ethics Guidance for Federal Contractors

Holland & Knight Government Contracts Blog
David S. Black | Eric S. Crusius
Government Contracts Blog

'Tis the season to be jolly, but federal contractors should exercise caution when interacting with employees of the agencies they serve to keep the season bright – and ethical. Here are some key points to remember before including federal employees on invitation lists for company holiday parties or sending them courtesy stocking stuffers.

Contractors should remember that, even during the holidays, the gift rules in the Standards of Ethical Conduct for Employees of the Executive Branch continue to apply to the employees of the agencies they work for or seek to work for. A federal employee may not accept "gifts" from "prohibited sources," which includes contractors doing business or seeking to do business with the agency for whom the employee works, conducting activities regulated by the employee's agency, or who are substantially affected by the employee's duties. As a general rule, a "gift" includes anything having monetary value, subject to certain limited exceptions. Thus, a contractor could unwittingly cause a valued federal employee to end up on his or her agency's naughty list by offering an invitation of free attendance to a company holiday party, free tickets to a holiday concert or other event, or a complementary holiday fruitcake or other seasonal knickknacks. In many instances, the prudent course both optically and ethically is simply to exclude federal employees for customer appreciation activities undertaken during the holidays. As a general matter, federal employees may not mind, or even notice, not being included.

The usual limited exceptions apply, but they may not be worth the hassle or risk of applying, even when done carefully, given that federal employees are already conditioned by the applicable ethical regulatory landscape not to expect gifts and gratuities from contractors they do business with as part of the business development practice. Here are some of the key exceptions for consideration.

  • Federal employees may accept holiday greeting cards and items with little inherent value or utility that are intended primarily for presentation (plaques, certificates, or modest trophies).
  • Federal employees may accept modest items of food and non-alcoholic refreshment (e.g., soft drinks, coffee, donuts) when offered separately and not as part of a meal. This exception can be deceptive in a holiday party context. Significantly, federal employees may not accept free attendance to a company event where such items are available if more expensive or hearty items of food and beverage are simultaneously offered to non-federal guests. The "market value" of attendance to an event where no fee is charged to any attendee is the market value of any food, beverages, entertainment, or other tangible benefit offered to attendees in connection with the event. (The cost incurred by a contractor to rent the venue where the event is held need not be included in the determination of the "market value" of attendance.) Alternatively, federal employees may rely on a per-person cost estimate provided by the contractor hosting the event, unless the estimate is implausible or would be inconsistent with a fair value estimate.  
  • Federal employees may accept unsolicited gifts valued under $20 provided the total value of gifts for the year do not exceed $50. From a compliance standpoint, it can be challenging to accurately value gifts provided during the holiday season and to track the cumulative value of all gifts given by individuals throughout the year. Also, federal employees may never accept cash from a prohibited source, even if the value is below the $20/$50 rule. Generally, gift cards (like a gift card for a particular store or coffee shop) are not considered "cash" if they can only be used to purchase goods or services and are not redeemable for cash.
  • Federal employees may accept gifts given because of a family relationship or longstanding personal friendship. This exception applies where it is clear that the gift is motivated by the qualifying relationship rather than the position of the employee. Several factors should be considered in determining whether the exception applies, including who paid for the gift, the origin of the friendship, and the history of gift-giving. But longstanding relationships may not be well understood by unfamiliar bystanders in the workplace (and such optics should be considered), and it is prudent practice for the federal employee to obtain prior approval and recognition of the relationship from his or her agency's designated ethics official.
  • Federal employees may accept free attendance at an event that qualifies as a "widely attended gathering" under 5 C.F.R. 2635.204(g), but it can be very difficult for company holiday parties to qualify for this exception, and this exception requires written authorization by a designated ethics official for the agency before the federal employee attends the event.
  • Of course, a federal employee may accept anything for which he or she pays market value. While this Grinch-like approach may seem to defeat the purpose of spreading holiday cheer, it provides a safe harbor for participation by federal employees.     

In sum, the applicable ethical rules can be an unseen tripwire for contractors and federal employees during the holiday season when a less vigilant, more celebratory atmosphere is combined with a commercial business custom of showing appreciation to customers through socializing and gift-giving. We are available to help clients apply these rules correctly to ensure federal contractors provide something their federal counterparts will truly value – the gift of compliance.

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