Proposed Regulations Attempt To Bar Contractor Employee Internal Confidentiality Agreements

On January 22, 2016, the FAR Council promulgated proposed regulations that prohibit contractors and subcontractors from contractually barring their employees and subcontractors from reporting fraud, waste, or abuse to federal authorities concerning nonclassified information or programs.

Section 743 of Division E, Title VII of the Consolidated and Further Continuing Appropriations Act of 2015 (Pub. L. 113-235) prohibits the use of federal appropriated funds with any entity that, by confidentiality agreements, prohibit employees or subcontractors from lawfully reporting fraud, waste, or abuse to Federal agencies or Federal investigators. The proposed regulations (81 Fed. Reg. 3763) implement Section 743 by requiring a contractor to certify:

that it does not require employees or subcontractors of such entity seeking to report waste, fraud, or abuse to sign internal confidentiality agreements or statement prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting such waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information.

A failure or refusal to so certify will render a contractor ineligible for award of a federal contract.

In addition, the proposed regulations require contractors to affirmatively inform their employees and subcontractors that the prohibitions of any previously signed internal confidentiality agreements covered by the proposed regulations are no longer in effect.

The proposed regulations, however, do not apply to SF 312 or SF 4414 nondisclosure of classified information agreements or any other form issued by a Federal department or agency governing the nondisclosure of classified information.

It is important to note that the proposed regulations expressly only prohibit internal confidentiality agreements to the extent they prohibit employee or subcontractor disclosures of fraud, waste, or abuse to Federal investigative or law enforcement agencies authorized to receive such information such as agency Inspectors General or the U.S. Department of Justice. The proposed regulations make no mention of, and do not cover, confidentiality agreements that may restrict disclosures to state or local agencies or investigators, or non-governmental actors.

Comments on the proposed rule must be submitted on or before March 22, 2016.