New Whistleblower Law: What It Means for DoD Contractors

Of the hundreds of complaints handled by the Defense Department’s inspector general office in 2006, only 18 came from defense industry whistleblowers. By 2012, the number grew to 85.

Thanks to a new contractor whistleblower protection law, the IG hotline might begin to ring more often in the years ahead, government officials and watchdog groups predict.

An amendment to Title 10, United States Code, Section 2409, called, “Contractor Employees: Protection From Reprisal for Disclosure of Certain Information,” expands whistleblower protections to employees of subcontractor firms that receive federal funds either from Pentagon contracts or grants. Previously, only employees of prime contractors were covered.

Another significant provision is that contractor employees who report suspected waste, fraud and abuse to their company’s chain of command, rather than directly to the government, also are being protected by the new statute.

The legislation, signed by President Obama in January as part of the 2013 National Defense Authorization Act, took effect July 1.

Defense Department IG officials hail the amendment as a long-overdue step toward protecting industry whistleblowers.

“There is a lot of whistleblower protection out there, but [this amendment] moves the Defense Department into modern standards of whistleblower protection that already exist for federal employees,” said Marguerite C. Garrison, Defense Department deputy inspector general for administrative investigations.

The provisions in the law make it “easier to prove whether there was reprisal,” Garrison told National Defense. An employee of a defense subcontractor may not be discharged, demoted or discriminated against as a reprisal for disclosing information about a suspected violation of law related to a Defense Department contract.

“Frequently, subcontractor employees are in a position to report wrongdoing and they should have the same protection against reprisals that prime contractors do,” said Michael Shanker, deputy director for whistleblower reprisal at the IG office.

The new rule caps a decades-long progression in whistleblower laws. Since the late 1980s, Congress has authorized the Defense Department IG office to investigate or oversee investigations of allegations of whistleblower reprisal.

The previous absence of protection for subcontractor employees was a “gaping loophole” in the law, considering that a large share of the money the government spends ends up with a subcontractor, said Angela Canterbury, director of public policy at the Project On Government Oversight.

POGO, a watchdog organization, worked with the Senate Homeland Security and Governmental Affairs contracting oversight subcommittee in drafting the NDAA language.

“We very strongly supported the reforms,” Canterbury said. The new whistleblower protection rules mirror those included in the American Recovery and Reinvestment Act of 2009, which sought to stimulate the economy via hundreds of millions of dollars of government spending.

The Recovery Act is a “model of excellent whistleblower protections for contractors,” she said. “It just needed to be extended beyond its original scope.”

Defense Department prime contractor employees have had protections since 2008.  “Over time we learned that subcontractors weren’t covered, and we needed to upgrade those protections,” Canterbury said.

“We think it’s going to make a huge difference,” she said. Many contractor employees may be reluctant to “stick their neck out if they have no guarantee of keeping their job.”

While the False Claims Act provides a financial incentive for those who disclose wrongdoing in government contracts, the NDAA has no such provision. It gives employees “some assurance that if they disclose something they see that is against the law or a violation, that they may be able to keep their jobs or even be appreciated for doing so,” said Canterbury.

Shanker noted the new statute expands the scope of the violations that whistleblowers can report without fearing reprisal. Before July 1, the rule was narrower in what it protected, he said. “Sometimes we would get a complaint short of [a full violation of the law]. … Although the complaint was reasonable, it didn’t qualify as a protected disclosure.” Disclosures of any violation of law, rule or regulation related to a Defense Department contract are protected, said Shanker. His office supports the broader reach of the law. “We are the IG. We can’t exist without tips from sources. We want to make sure that whoever is in a position to report fraud, waste and abuse can do so without fearing reprisal.”

Defense contractors and subcontractors should take steps to understand the implications of the amendment, said Garrison. “It will be an education process for industry and the workforce.”

Bigger firms have access to legal counsel and are better prepared, she said. That may not be the case with smaller firms that work as subcontractors to large primes. “We want to make sure people know what’s going on and that protections were expanded,” said Garrison.

Justin M. Ganderson, government contracting attorney at McKenna Long & Aldridge LLP, said he worries that many firms remain unaware of the new law and lack proper compliance procedures.

“They have to ensure they have policies in place to deal with this issue and that employees are trained,” he said. “This is being thrown at them, and problems could result because they are not aware,” Ganderson said. “Subcontractors — especially those who may not have counsel — need to make sure they take this seriously.”

The new provisions that encourage employees to report wrongdoing internally within their corporate chain of command is good news for government contractors, said Ganderson. “It is a way to ensure employees raise issues in a timely manner so companies don’t get in trouble down the road when it’s too late.”

Any rule that encourages internal disclosures benefits contractors and subcontractors, he said. “If employees can report internally, management can investigate and determine if there’s a problem, how to remediate it and whether it should be disclosed to the government.”

This provision did not exist before for contractors or subcontractors, and it should be welcomed by any company that does business with the government, said Ganderson. “People should feel comfortable reporting.”

There is a potential downside that senior managers should anticipate, however, he said. In today’s economy where people fear losing their jobs, there is a chance that employees might abuse the statute in a bid to protect themselves from layoffs, Ganderson cautioned.

“Employees might allege they’re being fired for blowing the whistle, rather than for bad performance,” he said. “That’s an issue. It’s a problem for companies.”

The new NDAA amendment takes effect beginning with all contracts awarded on or after July 1, all task orders entered on or after July 1, regardless of when the contract was awarded, and all contracts that were awarded before July 1 and were subsequently modified.

Topics: Defense Contracting, Defense Contracting, Defense Department, DOD Policy