FAR Council Regulates Contractor-Employee NDAs

GovConAdvisors® Blog

On January 22, 2016, the Federal Acquisition Regulation (FAR) Council issued a Proposed 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 restrict their ability to report fraud, waste or abuse to the U.S. Government.

The Proposed Rule implements Section 743, Division E, Title VII, of the Consolidated and Further Continuing Appropriations Act of 2015 (Public Law 113-235). The Proposed Rule will change the FAR to require (1) a new representation from offerors responding to government solicitations that they not restrict employees or subcontractors from disclosing fraud, waste or abuse, and (2) a new contract clause that prohibits contractors from entering into such restrictions and requiring notification be sent to their employees that any existing restrictions do not prohibit disclosure of fraud, waste or abuse directly to the U.S. Government.

As written, the Proposed Rule only exempts contracts for personal services, and makes note that it is not intended to contravene any restrictions applicable to classified information. The Proposed Rule does not exempt commercial item or simplified acquisitions, but indicates applicability for these types of acquisitions remains subject to further consideration.

While it seems unlikely that a reasonably prudent government contractor would have implemented a restriction in its employee or subcontractor NDAs intentionally aimed at precluding the reporting of fraud, waste or abuse to the U.S. Government, contractors should carefully consider the implications and ambiguities of the Proposed Rule in light of their employment and procurement policies and practices.

The Proposed Rule uses vague language that will undoubtedly give rise to significant confusion if implemented. For example, the Proposed Rule refers to "internal confidentiality agreements or statements prohibiting or otherwise restricting" disclosure. However, it is not clear how narrowly or broadly the words "internal" or "statements" or "restricting" might be construed. Similarly, the language goes on to indicate that restrictions on disclosure must not preclude employees and subcontractors from "lawfully reporting such waste, fraud or abuse to a designated investigative or law enforcement representative ..." However, it is not clear what is intended by the qualifiers "lawfully" or "designated." Notably, it is not even clear what constitutes fraud, waste or abuse, a phrase that describes highly subjective concepts.

It seems likely that government investigative and enforcement personnel will view the language as broadly as possible and frown on any instance or set of circumstances that might reasonably be construed to impair employee or subcontractor reporting of fraud, waste or abuse. Contractor employment agreements, policies, and practices, including but not limited to codes of conduct, NDAs, employment agreements, severance and settlement agreements, etc., could all be impacted by the Proposed Rule. Similarly, subcontracts and purchase order forms, teaming agreements and supplier NDAs, as well as outstanding master agreements for existing vendors, deserve review and consideration to ensure compliance when a final rule is implemented.

Interested parties are encouraged to provide comments at www.regulations.gov before March 22, 2016 on the Proposed Rule.

No Comments Yet.

Leave a comment

You must be Logged in to post a comment.