September 19, 2021

Volume XI, Number 262

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September 17, 2021

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Contractors Beware: An Overly Broad Confidentiality Agreement Could Cost You!

On October 29, 2015, DOD renewed the DFARS deviation implemented in February, which prohibits contracting with entities that require employees or subcontractors to sign internal confidentiality agreements or statements that prohibit, or otherwise restrict, such employee or subcontractor from lawfully reporting waste, fraud, or abuse.  Defense contractors should review their policies to ensure they meet the requirements of these new clauses.

Defense contractors and government contracts attorneys already may have noticed the deviation in solicitations issued since February.  The DOD memorandum instructs defense agencies to continue including two DFARS clauses in all future solicitations, including solicitations for the acquisition of commercial items under FAR part 12.

DFARS 252.203-7997 prohibits contractors from requiring employees or subcontractors to sign internal confidentiality agreements or statements that prohibit or otherwise restrict the lawful reporting of waste, fraud, or abuse.  If contractors find any provisions in their confidentiality agreements that might be construed as violating this prohibition, these provisions should be removed immediately.  Additionally, this clause requires contractors to notify employees that any restrictions covered by this clause are no longer in effect.  To ensure compliance, contractors explicitly should state that lawfully reporting waste, fraud, or abuse is not prohibited by any internal agreements.

DFARS 252.203-7996 explains that by submitting an offer, the Offeror represents it does not require employees or subcontractors to sign such prohibited agreements.

Noncompliance with these clauses could result in the loss of a contract award in a bid protest, a finding of non-responsibility, receipt of a show cause notice, default termination, and/or potential liability under the False Claims Act for submitting an invoice in violation of the representation.

The deviation currently applies only to defense contractors, but we may see a similar FAR deviation for non-defense contractors soon.  All contractors should review their agreements, employee handbooks, and personnel manuals to ensure there are no problematic provisions.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume V, Number 328
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About this Author

Katie A. Calogero Government Contracts Attorney Sheppard Mullin Washington, DC
Associate

Katie Calogero is an associate in the Government Contracts, Investigations and International Trade Practice Group in the firm's Washington D.C. office.

Ms. Calogero represents clients of all sizes in a broad range of Government contracts and International Trade matters.  Her practice includes:

  • Prosecuting and defending pre- and post-award bid protests before the Government Accountability Office (GAO), the United States Court of Appeals for the Federal Circuit, the United States Court of Federal...
202-747-2317
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