Whistleblower Protection for Contractor Employees - Legal Costs

As we discussed yesterday, contractors and subcontractors are prohibited from discharging, demoting, or otherwise discriminating against an employee as a reprisal for disclosing evidence of gross mismanagement of a federal contract, a gross waste of federal funds, an abuse of authority relating to a federal contract, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a federal contract.

Most of the time, we suspect, when employees are discharged or demoted, its for reasons other than whistleblower activities. Sometimes however, when discharged or demoted, contractor employees will claim whistleblower status. When that happens, contractors must assume a defensive posture which will undoubtedly involve legal fees. Are those legal fees incurred to defend against claims of reprisal by an employee claiming whistleblower status allowable?  It depends. It depends on the outcome of the case and whether the contractor or subcontractor engaged in reprisal against a whistleblower.

FAR (Federal Acquisition Regulations) 31.205-47 is the 'go to' cost principle for determining allowability of legal fees in connection with employees submitting whistleblower complaints of reprisal.

Costs incurred in connection with any proceeding brought by a Federal, State, local or foreign government for a violation of or failure to comply with law or regulation by the contractor (including its agents or employees), a contractor or subcontractor employee submitting a whistleblower complaint of reprisal, or a third party in the name of the United States under the False Claims Act, are unallowable if the result is

• in a criminal proceeding, a conviction
• In a civil or administrative proceeding, either a finding of contractor liability where the proceeding involves an allegation of fraud or similar misconduct, or imposition of a monetary penalty, or an order issued by the agency head to the contractor or subcontractor to take corrective action where the proceeding does not involve an allegation of fraud or similar misconduct.
• A final decision by an appropriate official of an executive agency to debar or suspend the contractor, rescind or void a contract or terminate a contract for default.
• Disposition of the matter by consent or compromise if the proceeding could have led to any of the previously described results.
• Not covered by the previous results but where the underlying alleged contractor misconduct was the same as that which led to a different proceeding whose costs are unallowable by reason of the forgoing.

So, it depends upon the outcome of the case and also illustrates why innocent contractors will fight rather than settle out of court. An out of court settlement will probably render the settlement costs and legal fees unallowable.