Allowability of Legal Costs for Whistleblower Proceedings

Yesterday we discussed the new protections afforded to contractor and subcontractor employees who are brave enough to come forward and blow the whistle on what they perceive to be gross mismanagement of a DoD contract, waste of funds, abuse of authority, violation of law, rule, regulation or public safety issue (if you missed it, you can read it here).

There is a related regulation, still in the making, that affects the allowably of legal costs that contractors and subcontractors incur in responding to or defending these whistleblower actions. Curiously, its not where you would look to determine cost allowability, that is FAR and DFARS Part 31 cost principles. Its located in a section of the regulations where you would not expect to find it; Part 6, Types of Contracts and a specific contract clause. There's a reason for this as we'll explain later.

Here's how it works. Stay with us, this gets a bit technical. When DoD issues a cost-reimbursement contract, a task order under a contract awarded before September 30, 2013, or modifies a contract that was awarded prior to the same date, and the contract/task order includes the Allowable Cost and Payment Clause (FAR 52.216-7), than DoD must also include a new contract clause found at DFARS 252.216-7000.

That new clause, Allowability of Legal Costs Incurred in Connection with a Whistleblower Proceeding, states:

(1) The restrictions of FAR 31.205-47(b) on allowability of costs related to legal and other proceedings also apply to any proceeding brought by a contractor employee submitting a complaint under 1- U.S.C. 2409, entitled "Contractor employees: protection from reprisal for disclosure of certain information;" and

(2) Costs incurred in connection with a proceeding that is brought by a contractor employee submitting a complaint under 10 U.S.C. 2409 are also unallowable if the result is an order to take corrective action under 10 U.S.C. 2409.

This new clause effectively modifies the FAR cost principle regarding legal costs by adding a new category of proceedings (contractor employee whistleblowers). So, why not just modify the FAR cost principle? The answer to that question lies in the effective date of the proscribing statute, September 30, 2013. The allowable cost and payment clause (FAR 52.216-7) states that contractors are held to the cost principles in effect at the time the contract is awarded. Without a new clause, task orders and contract modification would not be affected by the new restrictions because the contracts were awarded prior to the effective date.