Action Item: Defense contractors should promptly examine their personnel policies and employee confidentiality agreements to avoid a serious risk created by a new DoD Contract Clause and Certification. If a contractor's policies and agreements do not carve out whistleblower reporting, the contractor could find itself facing a default termination, a bid protest, or even a False Claims Act suit.
On October 29, 2015, the Pentagon issued a new DFARS Clause and new Certification prohibiting DoD from contracting with firms that bind employees to confidentiality agreements restricting the employees' ability to report fraud, waste or abuse to appropriate investigative authorities. Both the Clause and the Certification are effective immediately. While most confidentiality provisions in personnel manuals or free standing employment agreements will not contain language prohibiting whistleblower reporting, to be safe, the new Contract Clause and the Certification effectively requires the contractor to "carve-out" these type of whistleblower reports from all applicable confidentiality provisions.
Unless a contractor's existing handbook and agreements are crystal clear that the confidentiality provisions do not apply to whistleblower reporting, defense contractors are also now required to notify employees that any existing restrictions on whistleblower reporting are no longer in effect.
The potential remedies for noncompliance with the Clause and Certification range from (1) loss of a new contract award by a bid protest or non-responsibility finding; (2) receipt of a show cause notice and/or default termination; and (3) potential liability under the False Claims Act if the company submits an invoice for payment in breach of the new Certification.
The new DFARS Certification is DFARS 252.203-7996, titled Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements. The new DFARS Contract Clause is DFARS 252.203-7997, with the same name. The new provisions will impose an HR burden on defense contractors, and some unresolved questions exist on the reach of the requirements. The Clause and Certification do not currently extend to non-defense contractors, but we anticipate similar rules will be implemented in the civilian sector through a FAR change in the future.
We recommend that defense contractors promptly examine their agreements, handbooks and personnel manuals, make amendments as needed, and issue appropriate notifications. Non-defense contractors would be well served by doing the same. We are available to answer any questions on this and to assist with necessary amendments, notices, etc., upon request.
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