Selling To The Government: Strict Rules To Follow On Gratuities, Gifts

Whether it's understanding established conduct with government employees, hiring former federal employees or ensuring that your own organization meets federal employment standards, a misstep here can be expensive, and can cost you a contract or seriously damage your reputation.

Over the next several columns, we'll look at personnel and related hurdles a company has to clear in the process of running a business that sells to the government. Let's look first at the notion of gifts and gratuities to current federal employees.

It's a criminal offense to give or offer anything of value to public officials in connection with their official capacity. That includes direct exchanges or indirect exchanges via a spouse or other connected persons. There is a fine difference between a bribe and a gratuity. When there's an up-front quid pro quo between the giver and the public official, the exchange is considered a bribe. A gratuity is an exchange made to thank a public official for an act. It's still illegal because the giver nonetheless is rewarding a public official for an official act.

It is possible to offer a civil servant a small token or a meal without it being construed as a bribe or gratuity, provided you're very careful.

Prohibited Sources

The government's ethics regulations define prohibited sources of consideration as people that (1) seek official action from a federal agency; (2) do business or seek to do business with an agency; (3) conduct activities regulated by an agency; (4) have interests that may be substantially affected by performance or nonperformance of the employee's official duties; or (5) are an organization, a majority of whose members are prohibited sources.

A civil servant can accept a gift from a prohibited source without violating the gratuity statute under a basic rule known as the $20/$50 exception or de minimis exception. Civil servants may accept unsolicited gifts, but not cash, worth up to $20 at any one occasion, provided that they don't accept more than $50 worth of gifts during a calendar year from any one source. A company counts as one source.

"Modest refreshments" offered independently by a prohibited source don't count toward the $20 or $50 limit. Items with almost no intrinsic value, such as a cheap plaque or a certificate, also do not count toward the limit.

The moment the appearance of a quid pro quo enters under any circumstance, however, the $20/$50 exception is off. All bribes, even cheap ones, are illegal.

The rules about accepting gifts place the burden mainly on feds to refuse. But a company caught systematically handing out too many gifts, even if the gifts aren't illegal, could draw attention from debarment officials.

NEXT: Determining The Value Of A Gift

Gift Value, Free Training And Events

To determine the value of a gift, go by the market value, which means the retail value. How much you paid for an item is irrelevant; it's how much the fed would have had to pay for that item.

One easy way to get in trouble with the gift limit is to offer free training. If training is bundled with whatever product or service you've sold to the government, no problem. However, if you simply want to train feds so they'll become more familiar with your offerings, that training could be considered a gift.

Things get hazy when inviting feds to events. Civil servants may attend for free many widely attended gatherings open to diverse interests. The purpose of a widely attended gathering must be the interchange of ideas with a variety of individuals. An event attended mostly by your company's employees does not qualify, not even if there are a few token representatives from diverse interests. If food and entertainment is furnished to all attendees as an integral part of a widely attended gathering, feds are allowed to partake. The meal need not be restricted to $20 in value, and the value of the meal and the widely attended gathering itself doesn't count toward the $50 annual gift limit.

If you invite a fed to somebody else's widely attended gathering, the fed can't accept if more than 100 people will likely attend it and a ticket has a market value of more than $350. The Obama administration gift ban proposal also prevents political appointees from attending lobbyist-sponsored events, even if they are widely attended gatherings, except for the day on which they're a speaker or a presenter.

A company caught systematically handing out too many gifts, even if the gifts aren't illegal, could have its responsibility called into question and draw attention from debarment officials.

Next time, we'll look at restrictions related to your company hiring a recent federal employee.

The preceding information was adapted and digested from the book "The Inside Guide To The Federal IT Market," published by Management Concepts Press. For more information, visit www.insideguidetofederalit.com/.

Steve Charles is co-founder and executive vice president of immixGroup, which helps technology companies do business with the government. He is a frequent speaker and lecturer on technology and the federal procurement process. He can be reached at [email protected].

PUBLISHED SEPT. 24, 2013