DoD Implements Change to Internal Confidentiality Agreements at Government Contractors

Last week, the Department of Defense announced that federal funds would not be provided to entities requiring employees or subcontractors to sign internal confidentiality agreements prohibiting or restricting the reporting of waste, fraud, or abuse to the Government.

Solicitations for DoD contracts will require the entity to represent on submission of its offer that it does not require its employees or subcontractors to sign or comply with such an agreement. When obligating FY 2015 funds on existing contracts, the DoD will now require contractors to comply with the provision and specifically notify its employees that any internal confidentiality agreements prohibited by this policy are no longer in effect.

The policy implements section 743 of Division E, Title VIII, of the FY 2015 budget legislation, known as the Consolidated and Further Continuing Resolution Appropriations Act, 2015. It declared:

“None of the funds appropriated or otherwise made available by this or any other Act may be available for a contract, grant, or cooperative agreement with an entity that requires employees or contractors of such entity seeking to report fraud, waste, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or contractors 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.”

Other government agencies and offices are also expected to implement similar policy changes in order to comply with the terms of the budget legislation. The complete DoD announcement of the new policy is located at http://www.acq.osd.mil/dpap/policy/policyvault/USA001218-15-DPAP.pdf.

The change in policy will have an important impact on whistleblowers and potential whistleblowers in two ways. First, a company in violation of the terms of the policy opens themselves up to a False Claims Act lawsuit when they receive federal funds. Second, the change in policy may ultimately free whistleblowers from concerns that they will be subject to a counterclaim for taking documents in violation of a confidentiality agreement to provide to the government.

Momentum for this policy began to build early last year when a deposition conducted in the whistleblower lawsuit against Kellogg, Brown and Root revealed the company’s use of confidentiality agreements to threaten employees.

The SEC announced an investigation into the practice in March. SEC Rule 21F-17(a), adopted as part of the whistleblower program, specifically prohibits any person from taking an action to impede communication with SEC staff about a possible securities law violation. This includes enforcing, or threatening to enforce, a confidentiality agreement.

Members of Congress also investigated the KBR agreements, with top Senate and House Democrats sending a letter to KBR in November expressing concerns that an employee with information about possible wrongdoing might decide not to provide it to the government because of the non-disclosure agreement.