GOVERNMENT CONTRACTS
September 18, 2001
Giving Gifts May Not Be Worth The Gamble
The recent slump in commercial IT sales and the fast-approaching end of the Federal government’s
fiscal year have produced a highly competitive marketplace for government contracts. In an effort to
gain the competitive edge, sales personnel may want to curry favor with government program or
contract personnel by providing promotional gifts and gratuities as is common with commercial
customers. However, contractors must be cognizant of the ethical guidelines surrounding gift-giving,
and the potential consequences of violating ethical laws with respect to public sector sales.
Understanding the Boundaries
As established in the Standards of Ethical Conduct for Employees of the Executive Branch, government
employees are generally prohibited from receiving gifts and gratuities from prohibited sources,
including contractors. It is critical that government employees avoid, not only actual improprieties by
directly accepting prohibited gifts or bribes, but also the “appearance” of an ethical violation. Sales
personnel should be aware of the danger they are potentially imposing on their agency customers and
their employers without understanding applicable ethical rules. According to the Standards, there are
four questions essential to determining whether a government employee can accept a gift within
ethical confines.
1. Is the Item a Gift? Gifts are broadly defined to include the following: any gratuity, favor,
discount, loan, forbearance, or other item having monetary value, including services such as
training, transportation, local travel lodging and meals. Items with little intrinsic value are treated
as non-gifts, as long as they have a market value of $10 or less.
2. Who is Doing the Giving? A prohibited source is someone who is seeking official action by the
government employee’s agency; does business or seeks to do business with the government
employee’s agency; conducts activities regulated by the agency; has interests that may be
substantially affected by the performance or non-performance of the government employee’s
official duties; or is an organization, a majority of whose members are prohibited sources. If a
contractor, for example, were to offer a government employee a gift because of the employee’s
official position, for potential leverage in securing a contract, or to direct the employee’s official
action – that gift would be prohibited. The test to determine whether a gift was given because of
an individual’s official position is whether the gift would have been offered to the employee absent
their role in the government.
continued...
Giving Gifts May Not Be Worth The Gamble
3. Does an Exception Apply? A government employee may accept gifts under certain specific
conditions. First, an employee may accept unsolicited gifts from a prohibited source with a market
value of $20 or less per source, per occasion. However, the value of all gifts received from a single
source during a year must not exceed $50.
Other permitted gifts include gifts based on personal relationships, general discounts, awards and
attendance at widely attended gatherings.
4. Does the Gift Compromise Government Integrity? If a gift falls within an exception, acceptance of
the gift must not violate any of the basic obligations of public service, including the principle that
employees shall avoid creating the appearance of an ethical violation.
Other Prohibitions Also Apply
In addition to the Standards and agency-specific supplemental standards, there are several Federal statutes
that apply to gift giving, including a specific criminal provision prohibiting the giving of gratuities to
“public officials.” The gratuity law prohibits giving or offering to a “public official” anything of value “for
or because of any official act performed or to be performed.” The gratuity law defines “public official” to
include any employee of the United States when performing an official function.
Contractor violations of these provisions may result in the termination of an existing contract, debarment
from contract considerations, assessment of exemplary damages and statutorily prescribed civil and
criminal penalties.
Finally, contractors should also be aware that state and local government entities often have their own
similarly based codes of conduct restricting the giving of gifts and gratuities to government personnel.
The Bottom Line
Contractors need to be aware of the gift and gratuity restrictions in the public sector because a violation of
such restrictions would undoubtedly cause more harm to the contractor and its customer than potential
legitimate benefits might bring.
If you have any questions, please contact any one of Preston’s Government Contracts Group attorneys.
Bill Shook ............................................................................................ billsh@prestongates.com
Dori Gilbert ........................................................................................... dorig@prestongates.com
Elizabeth Fleming .................................................................................. elizabethf@prestongates.com
Kelley Doran ......................................................................................... kelleyd@prestongates.com
Disclaimer
This newsletter provides general information about government contract laws. It is not a legal opinion or legal advice. Readers should confer
with appropriate legal counsel on the application of law to their own situations. Entire contents copyright 2001 by Preston Gates Ellis &
Rouvelas Meeds LLP. Reproduction of this newsletter in whole or in part without written permission is prohibited.
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