The FAR Council has added a new provision to the FAR to restrict the permissible terms of employee confidentiality agreements.
Effective January 19, 2017, contractors wishing to do business with the federal government will need to certify that they do not limit the ability of their employees to report waste, fraud, or abuse to appropriate government officials.
The final rule creates a new FAR 3.909 and two new FAR clauses, FAR 52.203-18 (Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements or Statements – Representation) and FAR 52.203-19 (Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements). FAR 52.203-18 must be included in almost all solicitations, except those for personal services. There is no exception for commercially available off-the-shelf items or acquisitions below the micro-purchase threshold.
The new rule will apply to any acquisitions with funds appropriated in FY 2015 or later. Additionally, unlike many FAR provisions, a portion of the new rule is retroactive. Contracting Officers are directed to “[m]odify existing contracts, other than personal services contracts with individuals, to include [FAR 52.203-19] before obligating FY 2015 or subsequent FY funds that are subject to the same prohibition on internal confidentiality agreements or statements.”
Under the new rule, federal agencies will be prohibited from contracting with concerns that require their employees to sign confidentiality agreements waiving the employees’ rights to report waste, fraud, or abuse related to government contracts. Employees must be able to report violations to appropriate government officials—typically the agency Office of the Inspector General. The rule will also apply to agreements between prime contractors and subcontractors and must be flowed down in all subcontracts.
FAR 52.203-18 provides that by submission of its offer, “the Offeror represents that it will not require its employees or subcontractors to sign or comply with internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting waste, fraud, or abuse related to the performance of a Government contract” to a government representative.
FAR 52.203-19 prohibits a contractor from requiring its employees or subcontractors to sign or comply with such provisions in an internal confidentiality document or statement. Additionally, the contractor must notify current employees and subcontractors that prohibitions and restrictions of any preexisting internal confidentiality agreements or statements covered by the clause, to the extent disallowed by the clause, are no longer in effect. Alternatively (and perhaps the better practice), contractors can revise their internal confidentiality agreements to exempt the matters prohibited by the new FAR provisions.
Despite the broad applicability of the new rule, there is an exception carved out for classified and sensitive information, which may remain subject to communication limitations. Contractors dealing with classified or sensitive information should review FAR 52.203-19(d) before revising their internal confidentiality agreements or statements.
In sum, the new rule seeks to protect whistle blowers and remove potential impediments to the reporting of fraud, waste, and abuse. While some contractors may complain that the new rule is another example of unnecessary red tape, it’s ultimately intended to protect the taxpayers; even with the recent change of Administrations, this new rule is probably here to stay.