(Editor’s Note.  Its probably a good idea to make sure all company personnel having dealings with government representatives get a copy of this article. Our discussion is based on an article by Glenn Sweatt, general counsel for Environmental Chemical Corporation written in the August 2004 issue of Contract Management.)  

Contractor and government personnel have a great deal of interaction with each other – marketing personnel meeting with government representatives, technical personnel, government guest speakers and numerous conferences, seminars, etc.  Though a gift, meal, etc. is quite common and accepted in the commercial world, failure to know which rules apply to government employee-contractor relationships can lead to civil and criminal liability that can certainly affect opportunities in the future.    There can be steep penalties and actions under a variety of related regulations such as anti-kickback rules and anti-bribery statutes.  Even small dollar violations can be referred to government investigation.  For example, in 1998, a company paid $150,000 in fines and other penalties for making $374 of improper gratuities, not to mention legal fees and career implications for the individuals involved.

To maintain public trust and eliminate any conflict or appearance of conflict the Congress and the executive agencies have produced numerous rules and ethical guidance on limiting acceptance of gifts and gratuities from outside sources.  The Code of Federal Regulations, 5 CFR 2635, addresses the basic rules and the Office of Government Ethics (OGE) establishes and maintains the standards that apply to executive agencies.

A gift is defined as anything of value (e.g. material good such as tickets, golfing fees, key chains) or a service (e.g. professional financial advice, painting, carwash).  It can also be a discount on a good or service or a forbearance of debt or obligation such as forgiving a loan.  It can be given directly or indirectly (giving a government employee’s child a scholarship, donation to a charity at the direction or suggestion of the employee).  Prohibited sources are those people seeking business or other favorable action from an agency.  Favorable actions include contract awards and modifications as well as policy decisions, regulatory actions, legal rulings, employment or hiring, tax or zoning rulings, etc.  It includes any individual in the entire company, not just the project manager.

Exceptions

There are nine stated categories of things that are explicitly “not a gift.”  The significant exceptions are: (1) modest refreshments defined as food or drink (e.g. coffee, donuts, snacks) “incidental to a meal” (2) items of little intrinsic value (e.g. holiday cards, certificates of appreciation and even plaques or trophies but not gift certificates or monetary items that may accompany such awards) (3) loans from banks with generally available terms (4) travel, sustenance or related expenses accepted in connection with attendance at a meeting related to the employee’s official duties while away from their normal duty station and (5) gifts for which market value is paid (e.g. pays the contractor the market value of say a meal or movie ticket).   Market value is generally defined as retail price, readily available on the market.  Some items have face value, other have a readily determined price (i.e. what the contractor paid for it) while for promotional items (key chains, pens with contractor logo) the price paid should be the equivalent item on the open market.  Because the value of items can vary over time and location, the important aspect is to make a good faith determination of the value.

In addition to the nine cases of exchanges not considered gifts there are 21 other stated exceptions listed by the OGE in which it is acceptable to accept a gift.  Some of the most commonly encountered items are below.  

1.  The “20/50” rule causes the most confusion.  An executive branch employee may accept unsolicited gifts as long as the value of the gift is less than $20 and is limited to $50 per year.  The rule is tightly interpreted and has many limitations: (1) it applies to an entire organization, not an individual (e.g. a government employee could not accept $11 pens from five different employees or could not accept a $15 shirt from employee A, $19 lunch from employee B and an $18 gift basket from “the company”) (2) even gifts less than $20 cannot be given if they are recurring (e.g. $10 lunch at each of a contractor’s quarterly status meetings are unacceptable (3) gifts cannot be solicited no matter what the amount and (4) employees may not “pay the balance” (e.g. accept a gift over $20 and pay the amount over $20).

2.  Under the widely attended gathering rule, a government employee may accept free attendance at an event if five criteria are met: (1) it is expected that a large number of persons will attend the event (e.g. usually over 20 persons where spouses and guests may be included) (2) it is expected that a diversity of views or interests will be present where the event is open to a given industry or profession and the attendees represent a “range of persons interested in a given matter” or there is otherwise a diversity of views represented (3) the employee’s attendance will further the agency programs or operations which can include community relations (4) the cost of the event for employees who attend (and their spouses or guests) will be paid for by the event sponsor or if not the event sponsor then the organization paying does not pick which employee can come or more than 100 people are expected to attend and the “gift” (attendance) has a market value of $285 or less (5) if the government employee’s duties can substantially affect the interests of the paying source then the employee may not accept free attendance unless there is a written determination by the employee’s agency that the government’s interest outweighs the appearance the gift may improperly influence the employee.

3.  Gifts based on personal relationships (e.g. a government employee who exits or retires from government service and leaves friends and colleagues with whom they used to exchange gifts) are usually still allowable but should be reviewed on the basis of the context and history.  Important factors to be weighed are the nature of the friendship, value of the gift, who paid for it (employee or company), whether or not there is reciprocity, etc.  For example two college friends who have exchanged modest gifts for 10 years and which are paid out of their own personal funds can continue.  But two friends who start a gift-giving “tradition” after entering a contractor’s employment or a tradition that is unilateral or disproportionate would not likely meet the exception rule.  Though there usually is no problem for family members, the factors of history, reciprocity, amount and nature of the relationship should be reviewed.

4.  Reduced fees from professional organizations and discounts to government employees are applicable exceptions.  Some professional organizations as well as hotel chains, travel agents, airlines, etc offer discounts to government employees and as long as these discounts are applied across the board evenly they are acceptable.

There are numerous other exceptions but these can be complex and highly fact driven  (e.g. social invitations, speaking engagements, awards or honorary degrees, gifts related to employment discussions, gifts from a political organization, outside business activities of employee or their spouse, etc.).  The author suggests looking at the “Frequently Asked Questions” scenarios provided at "http://www.usoge.gov/pages/misc_files/faq.html" for a discussion of these and other exceptions.

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