Government Contracts Monitor

Interim Rule Allows Recovery of Legal Fees Related to Whistleblower Suits (If You Win)

October 17, 2013

A new interim rule amends the FAR cost principles to implement a section of the National Defense Authorization Act for Fiscal Year 2013 (“NDAA FY13”) addressing the allowability of legal costs incurred in connection with legal proceedings based on whistleblower complaints. More particularly, the rule revises the cost principle at FAR 31.205-47 (Costs related to legal and other proceedings) to reflect statutory changes made by NDAA.

These changes are in addition to the enhanced whistleblower protections effected by the NDAA FY13 (including the establishment of a new pilot program under 41 U.S.C. § 4712, reported here) and essentially expand the situations in which legal fees that may be considered allowable (for a prevailing contractor) to include expenses incurred as a result of a proceeding initiated by a whistleblower.

Under the revised cost principle, the potentially allowable costs now include those incurred in connection with “any proceeding brought by a Federal, State, local or foreign government, or by a contractor or subcontractor employee submitting a whistleblower complaint of reprisal in accordance with 41 U.S.C. § 4712 or 10 U.S.C. § 2409, for violation of, or a failure to comply with, law or regulation by the contractor (including its agents and employees)” in addition to those incurred in connection with proceedings brought by a third party under the False Claims Act, 31 U.S.C. § 3730.

Those costs are considered unallowable if, in addition to the conditions already set forth in the cost principle (i.e., conviction in a criminal matter) the result “[i]n a civil or administrative proceeding, either a finding of contractor liability where the proceeding involves an allegation of fraud or similar misconduct; or imposition of a monetary penalty, or an order issued by the agency head to the contractor or subcontractor to take corrective action under 41 U.S.C. § 4712 or 10 U.S.C. § 2409, where the proceeding does not involve an allegation of fraud or similar misconduct.”

Note that, because the NDAA FY13 enhancements to whistleblower protections include the establishment of a pilot program under 41 U.S.C. § 4712 that is currently only effective through January 1, 2017, the new portion of the statute addressing costs related to that program will also cease to be effective after that date.

This interim rule’s effective date is September 30, 2013. In order to be considered in the formulation of the final rule, written comments must be submitted to the FAR Secretariat on or before November 29, 2013.

Eric Whytsell is the attorney responsible for the content of this article.