A new FAR (Federal Acquisition Regulation) rule aims to protect whistleblowers working on government contracts.

The rule (FAR 52.203-19) bans federal contractors from using standard language in their confidentiality agreements signed by employees or subcontractors. They must stop requiring workers to comply with “internal confidentiality agreements or statements” that prohibit them from reporting “waste, fraud, or abuse” involving a government contract.


Who exactly does this new rule affect?

The rule applies to all federal contractors. Although it took effect on Jan. 19, it also includes existing contracts funded with government monies dating back to fiscal year 2015.


Be Sure to Update Existing Agreements

If you recruit workers for federal contractors, realize that they can no longer use agreements that contain the old language. Secondly, they need to notify their current employees and subcontractors – yes, all of them, whether or not they’re employed on the government contract – that “preexisting internal confidentiality agreements are no longer in effect.” Lastly, FAR clauses must also be incorporated into all subcontracts.

When submitting a proposal, federal contractors need to certify that they’re in compliance with the new rule. If they fail to comply at any time, they may be liable under the False Claims Act, which could lead to any number of problems like adverse performance reviews, reduction in award fees or even contract termination.


Exceptions to the Rule

So far, there are only two exceptions to this rule – confidentiality agreements stemming from settlements in civil litigation and confidentiality agreements signed by employees or subcontractors at the request of a federal agency.

Meanwhile, the definition of a confidentiality agreement can be blurry. FAR’s final rule casts a wide net. It defines it as any written statement regarding nondisclosure of contractor information that the contractor requires employees or subcontractors to sign.


What happens if you fail to comply?

Keep in mind that this new rule has an extensive reach and applies to all federal contractors ranging from small businesses and contractors for commercial items to those whose contracts are below the simplified acquisition threshold. As with any contract requirement, violating the rule offers serious consequences for contractors like being blacklisted from receiving federal funds.

Federal contractors are also tasked with determining which of their vendors or suppliers qualify as subcontractors. Not surprisingly, the rule’s definition of subcontractors is broad: “. . . to furnish supplies or services for performance of a prime contract or a subcontract.” (FAR 52.203-19(a).)


Key Takeaways

If you’re stuck figuring out what language is appropriate to use and what’s not in your confidentiality agreements, the FAR Council approved a public comment period where you can propose safe harbor language. Covington & Burling, a global law firm based in Washington, DC, also offers a template or sample language for your consideration here.

Although the rule may limit a contractor’s ability to sue employees who breach confidentiality, contractors don’t have to sit on the sidelines and watch events unfold. They still have the right to protect themselves against employees who steal proprietary information. They need to strike a balance between meeting the requirements and controlling sensitive company information.

This rule may be part of a government trend to encourage whistleblowers to step forward with critical information. Consider that the Department of Labor and Securities and Exchange Commission recently issued similar rules.

So don’t take this rule lightly, especially if you actively recruit employees for federal contractors. Help your clients catch up to speed by being compliant and staying compliant to potentially avoid legal or financial trouble.