The law requires that nonfederal entities receiving federal funds maintain a procurement code of conduct. While my experience is specifically with schools receiving USDA funds, this is true for all programs subject to the procurement regulations in 2 CFR 200.
While I’m a big fan of using templates as a starting point, school districts are often guilty of slapping their name at the top and failing to actually know what’s in the template.
The procurement code of conduct template is one of the most common pitfalls for this.
When I conducted procurement reviews as a state consultant, I read a lot of procurement code of conducts. I remember one that had their district name in the title but still had the template holder “ABC School District” throughout the body, and the contact information at the bottom had the phone number: 123-456-7890.
Ha!
Clearly, they just changed their name at the top and forgot to read the rest. And if you haven’t read a policy, how do you know if you’re abiding by it?
And even if you do update every reference, you need to customize it to your own district’s needs.
In this article, I’ll explain what a procurement code of conduct is, what it should include, and how to ensure you and your staff maintain compliance with the policy.
What is a procurement code of conduct?
A procurement code of conduct, sometimes called a “standards of conduct”, is a written document designed to safeguard the spending of federal dollars.
It can be a standalone document or incorporated into your procurement plan.
It aims to do two things:
- Prevent conflicts of interest in procurement and
- Govern the actions of employees.
Conflicts of Interest
The federal regs define a conflict of interest as “when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract.”
Essentially, it’s when you or any of your loved ones benefit personally from your program’s purchases.
It also says this applies to anyone who selects, awards, or administers those contracts. Administering a contract could include ordering.
Here are a few examples of conflict of interest:
Conflict of Interest #1
You put out a bid for a new piece of equipment. Your spouse works for an equipment broker and would make a commission off the sale.
Since your spouse has a financial interest in the school district purchasing from him, this is a conflict of interest.
You would want to disclose this, according to whatever your organization’s protocols are. This might be letting your boss or the Board know what’s going on.
Your best option moving forward is to recuse yourself from the procurement of this piece of equipment. Essentially, you would have to find someone else without a conflict of interest to handle this procurement.
Conflict of Interest #2
A board member owns stock in one of the major chicken companies. You do a commodity processing bid, and you are recommending the award go to that major chicken company.
If your board votes on accepting contracts, they are “awarding” the contract. Therefore, the board member who owns stock in that chicken company has a conflict of interest in voting on this contract.
In this case, the board member should recuse themselves from that vote.
Conflict of Interest #3
You award a bid to a company to supply your kitchens with fresh bread. The company subcontracts their delivery drivers and pays them a flat rate for every rack of bread delivered. One of your cafeteria manager’s sons is one of these contracted drivers. Your cafeteria manager is excited to see her son each week when he delivers her bread.
Assuming your manager is responsible for ordering her own bread, this is a conflict of interest.
Her son is part of her immediate family, and he is being paid for every rack of bread he delivers to your cafeteria manager. It would be too tempting for your cafeteria manager to over-order bread so that her son makes better money.
Your options include:
- Re-assigning the task of ordering bread for that school to another employee, like her supervisor.
- Requesting a different driver for that school from the bread company.
Conflict of Interest #4
Though you currently work in a district, you got a great job offer as a sales rep for a K-12 manufacturer and put in your two weeks’ notice with your district. You have a bid out right now that your new company is bidding on.
The federal law regarding conflict of interest includes when you or your loved ones are employed or about to be employed by a company that benefits from the contract.
You would need to disclose your conflict of interest and recuse yourself from the rest of the bid process.
Governing Employee Actions
What is governing employee actions? Basically, the federal government doesn’t want you to accept anything of value from contractors that could influence your decisions.
Specifically, employees (not just ones involved in procurement) can’t ask for or accept “gratuities, favors, or anything of monetary value” from contractors or subcontractors.
However, your organization can establish standards for when financial interest is not substantial or the gift is an unsolicited item of nominal value. For example, you could write into your code of conduct:
Employees may accept unsolicited gifts valued under $25 each, as long as the total value for the school year does not exceed $50.
Another example might be:
Employees may accept unsolicited items of nominal value valued under $10 each, such as refreshments, samples, trinkets, etc. in connection with a conference.
Let’s look at some examples. You might want to put on some closed-toed shoes, cuz I’m about to step on some toes.
Governing Employee Actions #1
A vendor brings your office a tray of cookies when they visit. Is this allowable?
It depends on how your code of conduct is written. It’s possible this would fall under a nominal valued gift, but you would have had to specifically include a clause that allows you to accept this. Otherwise, it is not allowed.
This can be an awkward situation because your vendor won’t know you can’t accept it unless you tell them. If you are not permitted to accept anything of value, you can let your vendors know this when you confirm appointments. For example:
“Looking forward to chatting with you tomorrow! Our office is still at 123 Main St. Just a friendly reminder that our policy doesn’t permit us to accept anything of monetary value, so no gifts or goodies please. See you at 10am!”
Just get in the habit of including that disclaimer with every appointment setup or confirmation, and you should be able to avoid that situation.
Governing Employee Actions #2
A vendor is holding an out-of-town food show and offers to pay for your travel and hotel. Is this allowable?
No. That would be classified as receiving something of value from a vendor, and the value would not be considered nominal.
Governing Employee Actions #3
Your church is holding a fundraiser, and they are looking for beverage donations. Since you know the people at a major soda company, you call them and ask if they’d be willing to donate to the cause. Is this allowable?
No. You can’t solicit donations from a vendor. Even if the value fell under your district’s “nominal gift” policy, federal law only allows districts to set nominal gift amounts for unsolicited gifts.
What’s Needed in a Procurement Code of Conduct
If you already have one, pull it out and follow along. My bet is you created it based off of your state’s template (which was probably created off of USDA’s template).
Let me tell ya, they’re mostly all poorly written.
I mean, if you use it, your state agency will probably not fault you on a procurement review because they’re endorsing it, but most templates out there are usually missing two important elements.
Let’s dive into the pieces you need to include.
Requirement #1 Prohibiting conflict of interest
This one is usually included in the templates, and looks something like:
“No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a Federal, State, or local award if he or she has a real or apparent conflict of interest. Such a conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract.”
No issues here.
Requirement #2 Prohibiting gifts OR defining when it’s okay
Specifically, you have to either prohibit the acceptance of all gratuities, favors, or anything of monetary value OR define the situations where you can accept these, as long as the financial interest is not substantial or the gift is an unsolicited item of nominal value.
The sample language in the template says:
The officers, employees, and agents of the non-Federal entity may neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts.
So far, so good.
However, the next part of the USDA procurement code of conduct template states:
However, non-Federal entities may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value.
Guys, you can’t keep that language in there as is. This is why I’m not a fan of the USDA template because it jumps between sample language and general statements. And that phrase is just a statement.
All it’s saying is that you can set those standards. But if you’re going to exercise that option, you have to actually define those standards. This is where you’d add something like:
ABC District defines “nominal value” as…
Then fill in the blank.
If you don’t update this language to define “nominal value”, you can’t accept anything from a vendor ever, even a free pen at a conference. Some districts are that strict, so if your district doesn’t permit you to accept anything from vendors, even a pen, then delete that sentence from the USDA template, since it doesn’t apply to you!
Otherwise, add language defining what your limits are, being sure to run it by your supervisor, Board, and/or legal counsel.
Requirement #3 Disciplinary actions
Your code of conduct must define disciplinary actions for violations of your procurement code of conduct.
This is another one that makes me laugh (and simultaneously groan) in the USDA template. Here’s what the template says:
The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the non-Federal entity.
Another statement, not real sample language. If you don’t update your version, your code of conduct just says that your code of conduct must have disciplinary actions. Uh, duh. But it doesn’t actually have any disciplinary actions defined, which might come back to bite you on a procurement review.
I’ve seen some newer state versions that now say something like:
Penalties for violation of the code of conduct will be:
-
- reprimand by Board of Education,
- dismissal by Board of Education, and
- any legal action necessary.
Just remember that you can (and should) update this language to suit your district’s own practices. This is only placeholder language, so check what the protocol is in your own district and update it.
For example, in Tennessee, our school boards don’t do the reprimanding and dismissal of staff – that responsibility lies with the Superintendent/Director of Schools. So, TN districts would want to replace Board of Education with the Superintendent (or the Director of Schools).
This just emphasizes how important it is to always, always read the template carefully and make it match your own district’s practices.
Maintaining Compliance with Your Procurement Code of Conduct
You’ve updated your procurement code of conduct, and now it’s relevant. Congrats!
Instead of just hitting “save” and forgetting about it, you need to make sure everyone involved in selecting, awarding, and administering the contract are trained on the policy and are clear on the expectations.
This includes your staff that deal with vendors.
Go over the policy with the staff at a training or meeting. Afterward, have them sign off that they received it and will abide by it.
Throughout the year, you should also provide reminders to employees about receiving gifts from vendors, especially when it might be more common – around the holidays or summer break.
Vendors also need to know what your standards are.
As previously mentioned, you can include a sentence about gifts when confirming appointments with them.
For new vendors, you can send them a copy of your policy, so they are aware at the beginning of your relationship what the expectations are. Better yet, you could send all your vendors a copy of your policy annually – like at the beginning of the year or the times of year vendors commonly bring goodies.
Obviously, this would be more relevant if your district is more restrictive in allowing gifts. This would prevent them from bringing any goodies you can’t accept.
If you have a more generous policy that permits more gifts, sending the policy out to all vendors may not be necessary. You might actually look like you’re asking for gifts!
Summary
I hope this article has helped you update your procurement code of conduct to better reflect your practices, as well as has helped you think through ways you can ensure your district remains compliant.
