Government Contracts Monitor

FAR Proposed Rule Would Bar Contractor Confidentiality Agreements Restricting Employees and Subcontractors from Reporting Fraud, Waste & Abuse

January 25, 2016

The FAR Council has published a new Proposed Rule implementing Section 743 of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235), and anticipated successor provisions in future appropriations acts and continuing resolutions, prohibiting the use of appropriated or otherwise available funds for any contract, grant or cooperative agreement with an entity that requires its employees or subcontractors to sign internal confidentiality agreements or statements that would prohibit or otherwise restrict the lawful reporting of fraud, waste or abuse to a designated investigative or law enforcement representative of a federal department or agency authorized to receive such information.

The Proposed Rule would add new FAR Section 3.909, “Prohibition on contracting with entities that require certain internal confidentiality agreements,” and two new clauses that Contracting Officers would be required to include in all solicitations and resultant contracts, and all modifications to any existing contract, obligating FY15 or subsequent year funds, other than personal services contracts performed entirely by the contracting individual. The FAR Council has initially determined, given the subject matter, that these provisions would extend to commercial items and simplified acquisition purchases.

The proposed language provides that submission of an offer would constitute a representation that the offeror is in compliance with the new requirement. An offeror not able to make the representation would be ineligible for award. Contractors also would be required to affirmatively notify their employees, through normal business communication channels, such as e-mail, that any such limitations in pre-existing confidentiality agreements are no longer in effect. Importantly, the proposed new contract clause, if adopted, would require contractors to flow down the clause to all first and lower tier subcontracts.

Comments on the Proposed Rule are due no later than March 22, 2016, and should reference FAR Case 2015-012. While this is only a proposed rule at this point, given the statutory “funds use” bar driving this, as well as general ethical policy considerations, contractors would be well-advised to review their current policies and the wording of any existing internal company confidentiality agreements, and ensure that such and any new agreements are consistent with the proposed new provisions.