When Uncle Sam Comes Knocking…

Compliance with government regulations crucial to limiting risk
Matt Johnson
April 1, 2014

Recent industry news has provided examples of legal risk stretching beyond how glazing systems are put together and into government controls over what companies say about them. The $1.1 million penalty against Basco Manufacturing Co. by the Department of Justice earlier this year for falsifying customs declarations had nothing to do with the function of a specific project or installation. Instead, the fine arose from government regulations that set limits on how companies represent themselves and their products.

While not every company imports products, there are a host of government regulations that businesses face, many of which can often be addressed through some common-sense controls.

Small Business Certification

Benefits for certain business types are an area where regulations control how a company represents itself. Consider a recent final rule issued by the Small Business Administration addressing annual reporting of small business qualifications and other self-certification business types for companies involved in federal contracting. The Final Rule stated that misrepresenting size or self-certification can subject the company and principals to criminal and civil penalties, even when the representation is in a bid. The rule also established a presumption of damages in favor of the government equal to the contract value. While the rule is too new to know how it will be used, penalties for misrepresenting business types can prove perilous.

Product assertions

Beyond what businesses says about themselves are regulations touching on what companies say about the products and services they sell. Two types of representations falling under the Federal Trade Commission have recently gained clarity: “Green” and “Made in the USA.” The FTC’s Green Guides are regulations for those that make, offer or sell products with environmental impact representations. The guides are designed to help marketers ensure that the claims they make about the environmental attributes of their products are truthful and non-deceptive. This has become increasingly important in the glass and glazing industry, as building owners and architects focus on the impact of assembled systems and their components on the environment. Manufacturers must support their environmental representations or risk running afoul of these governmentalregulations.

The “Made in the USA” label is similar. Although generally a consumer issue, these patriotic and sometimes contractually compelled requirements are controlled by regulations about what can be represented as truly American-made. The FTC spells out that virtually all components must be sourced from and made in the United States in order to qualify for the label. That can prove a difficult task when aluminum, glazing seals and sealants incorporate parts, pieces and component materials sourced overseas, even if assembled here.

Common-sense controls

It is important to keep in mind that some simple controls and processes can help if/when Uncle Sam comes knocking. First and foremost, you must comply, honestly, with necessary disclosures and update requirements. Every company has different representation and disclosure regulations depending on its operations, sales and employees. Do the legwork to identify the requirements and reporting criteria. Then introduce them as clear risk management items that are revisited as necessary, but at least annually.

Next, confirm and document. Your ability to support the representations you make is only as good as what you have to support them. Get written confirmation or testing to support your representations so you can stand behind what you have said. Then, include these support materials in your document management plan in a way that allows you to find and use them, if needed.

Finally, do not be shy about asking others to support their representations. Do not be afraid to drop those who cannot confirm what they are telling you. Define the representations that matter to you in your contract and identify the harm that could befall your business if someone is lying. That way, the expectations of performance and knowledge of damage are set at the time of contracting.

One final point needs to be addressed. The recent import penalties came about because of a whistleblower. Those inside a company are often watching those at the top to ensure they are following the rules. The Department of Justice does not need to be knocking on your door before compliance is assured. Honesty is a full-time requirement.

The author is a member of The Gary Law Group, a Portland-based firm specializing in legal and risk issues facing manufacturers of glazing products. Write him at matt@prgarylaw.com.