Costs Related to Defending Against Employee Whistleblower Complaints

The Department of Defense made permanent an interim rule from 2013 regarding the allowability of legal costs incurred by contractors defending against employee whistleblowers.

Specifically, costs related to legal and other proceedings incurred by contractors in proceedings submitted by a contractor employee submitting a complaint under 10 USC 2409 (Whistleblowing) are unallowable if the result is an order to take corrective action, even if the proceeding does not involve an allegation of fraud or similar misconduct.

This rule represents a potentially significant liability for contractors. Sometimes contractors settle complaints without admitting guilt to minimize their financial exposure. It seems to us that contractors might resist settlements that require corrective action if they cannot recover their legal and other related costs.

On the other hand, this new regulation is good for whistleblowers. It encourages contractors to settle early as a means of minimizing legal costs that cannot be recovered.

You can read more about this new regulation and its genesis in the NDAA (National Defense Authorization Act) for 2013 by clicking here.