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In January 2016, the FAR Council published a proposed rule (the “Rule”) that would impact government contractors’ compliance obligations relating to their nondisclosure / confidentiality agreements (“NDAs”). The Rule would add a new requirement under FAR Subpart 3.9 – Whistleblower Protections for Contractor Employees. In particular, the Rule would prohibit all contractors from requiring their employees or subcontractors to enter into NDAs that prohibit those employees or subcontractors from reporting waste, fraud, or abuse. The Rule would implement this prohibition in three ways.

First, the Rule prohibits the Government from contracting with companies that require their employees or subcontractors to enter into NDAs that prohibit the reporting of waste, fraud, or abuse. Second, the Rule requires all contractors to represent / warrant that they do not impose such requirements on their employees and subcontractors. And third, the Rule requires the Government to insert two separate contract clauses into nearly all contracts.

In turn, the contract clauses contain the representation / warranty mentioned above as well as several contract covenants. Specifically, the contractor will agree not to require its employees or subcontractors to enter into NDAs that prohibit them from reporting waste, fraud, or abuse. The contractor will agree to notify its employees that any NDAs that would prohibit such reports are no longer effective. And the contractor will agree to flow these requirements down to all of its subcontractors.

The vast majority of government contractors use NDAs for various relationships, including with their employees and subcontractors. These agreements serve the important purpose of protecting a contractor’s confidential and proprietary information, including trade secrets and know-how. Very few, if any, contractors understand their NDAs to prohibit their employees or subcontractors from reporting waste, fraud, or abuse. And even fewer would attempt to enforce their NDAs for such purposes. However, we have never seen an NDA that specifically addresses this scenario. Accordingly, to ensure compliance, we are recommending that all our government-contractor clients amend their NDAs with their employees and subcontractors to specifically address this Rule.

Virtually all NDAs contain a section that defines “Confidential Information” or some similar term like “Proprietary Information.” Thus, this section of the NDA effectively defines the universe of information that is subject to the NDA’s nondisclosure obligations. To ensure compliance under the Rule, we recommend that contractors add the following language to this section of all their NDAs with employees and subcontractors:

“Confidential Information [or, if applicable, Proprietary Information] shall not include any reports of waste, fraud, or abuse, whether such waste, fraud, or abuse is committed by the Company or any other person or entity.”

Comments on the Rule were due by March 22, 2016 in order to be considered in the drafting of the final rule. Thus, it is possible that the requirements discussed above may be implemented at any time. Accordingly, we recommend getting ahead of the final rule and proceeding with this low-cost compliance measure for all impacted NDAs.

Maynard Nexsen’s Government Solutions Group welcomes your questions about these Executive Orders or any other aspect of government contracts law. For more information, please contact Matthew Moore (mmoore@maynardnexsen.com). For more information on the Government Solutions Group, please follow this link.