Government Regulates Contractor NDAs

GovConAdvisors® Blog

Today, the Federal Acquisition Regulation (FAR) Council issued a Final Rule in the Federal Register aimed at changing the FAR to ensure the U.S. Government does not enter into any agreement or contract with a contractor who requires its employees or subcontractors to sign confidentiality or non-disclosure agreements (NDAs) that might impair reporting of fraud, waste or abuse relating to the performance of a Government contract to investigative or law enforcement representatives.

The Final Rule implements portions of the Consolidated and Further Continuing Appropriations Act of 2015 (Public Law 113-235). The Final Rule changes the FAR to require (1) a new representation in FAR 52.203-18 requiring offerors to indicate they will not restrict employees or subcontractors from disclosing fraud, waste or abuse relating to performance of a Government contract, and (2) a new contract clause in FAR 52.203-19 that prohibits contractors and subcontractors from imposing such restrictions and requiring they notify their employees and subcontractors that any preexisting restrictions shall not prohibit disclosures of fraud, waste or abuse related to the performance of a Government contract to investigative or enforcement personnel of the Government.

The Final Rule does not exempt commercial item or simplified acquisitions, and must be flowed down by prime contractors and subcontractors to virtually all subcontractors. Subcontractors are defined broadly to mean any "supplier, distributor, vendor, or firm (including a consultant) that furnishes supplies or services to or for a prime contractor or another subcontractor." Excluded, are confidentiality agreements arising out of civil litigation or that are required by Government agencies.

While it seems unlikely that any reasonably prudent contractor would have implemented restrictions specifically aimed at precluding employees or subcontractors from reporting fraud, waste or abuse to the U.S. Government, contractors and subcontractors must carefully consider the potentially broad implications of the Final Rule in light of their employment and procurement policies and practices.  For example, companies that are commercially oriented may have to broadly implement these requirements if there is any potential that their employees or supply chain may support a government contract or subcontract in the future.

The Proposed Rule uses vague language that will undoubtedly give rise to confusion.  For example, while "waste" and "abuse" are commonly used terms, it is not entirely clear what might reasonably be deemed "waste, fraud or abuse related to the performance of a Government contract."  It seems likely that Government enforcement personnel will view the language as broadly as possible and frown on any circumstance that might reasonably be construed to impair any employee or subcontractor from reporting perceived bad behavior to the U.S. Government if it relates to the performance of a Government contract or subcontract.

Subcontracts, supplier agreements, teaming arrangements and consulting and employment agreements, as well as codes of conduct and compliance policies, may all be impacted by this Final Rule.  All of these types documents, and potentially many others, deserve careful consideration to ensure compliance.

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