Federal Acquisition Regulation; Allowability of Legal Costs for Whistleblower Proceedings, 43589-43590 [2014-17500]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 79, Number 143 (Friday, July 25, 2014)]
[Rules and Regulations]
[Pages 43589-43590]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17500]



[[Page 43589]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 31

[FAC 2005-76; FAR Case 2013-017; Item III; Docket 2013-0017, Sequence 
1]
RIN 9000-AM64


Federal Acquisition Regulation; Allowability of Legal Costs for 
Whistleblower Proceedings

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA have adopted as final, with changes, an 
interim rule amending the Federal Acquisition Regulation (FAR) to 
implement a section of the National Defense Authorization Act (NDAA) 
for Fiscal Year (FY) 2013 that addresses the allowability of legal 
costs incurred by a contractor or subcontractor related to a 
whistleblower proceeding commenced by the submission of a complaint of 
reprisal by the contractor or subcontractor employee.

DATES: Effective: July 25, 2014.

FOR FURTHER INFORMATION CONTACT: Mr. Edward N. Chambers, Procurement 
Analyst, at 202-501-3221 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-76, FAR Case 2013-
017.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 78 FR 60173 on September 30, 2013, to implement sections 
827(g) and 828(d) of the National Defense Authorization Act (NDAA) FY 
2013 (Pub. L. 112-239). Section 827(g) amends 10 U.S.C. 2324(k), 
Allowable costs under defense contracts, and section 828(d) similarly 
amends 41 U.S.C. 4310, Proceeding costs not allowable, to address the 
allowability of legal costs incurred by a contractor or subcontractor 
in connection with a whistleblower proceeding commenced by a contractor 
or subcontractor employee submitting a complaint of reprisal under the 
applicable whistleblower section (10 U.S.C. 2409, Contractor employees: 
Protection from reprisal for disclosure of certain information, or 41 
U.S.C. 4712, Pilot program for enhancement of contractor [employee] 
protection from reprisal for disclosure of certain information, 
respectively).

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the comments in the 
development of the final rule. A discussion of the comments and the 
changes made to the rule as a result of those comments are provided as 
follows:

A. Summary of Significant Changes

    In response to a public comment, the final rule has been modified 
to expressly include whistleblower complaints in the provisions at FAR 
31.205-47(c).

B. Analysis of Public Comments

    One respondent submitted comments on the interim rule.
1. Allowability of Costs Prior to Completion of Litigation
    Comment: The respondent commented that the revised regulation can 
be read and understood to allow an agency to declare all costs 
associated with responding to a whistleblower complaint of reprisal as 
presumptively unallowable until the matter is completely litigated and 
the contractor prevails, at which point the contractor's recovery of 
the reasonable net costs are limited by the not-to-exceed-80 percent 
rule. According to the respondent, this effectively forces the 
contractor to finance the defense of such claims, even if the cost of 
settlement could be less than the cost of defense.
    Response: This interim rule has directly implemented the statutory 
requirement. The costs incurred in connection with any proceeding 
brought by a contractor or subcontractor employee submitting a 
whistleblower complaint of reprisal in accordance with 41 U.S.C. 4712 
or 10 U.S.C. 2409 are treated exactly the same as the pre-existing cost 
principle treats costs incurred in connection with any proceeding 
brought by a Federal, State, local, or foreign government for violation 
of, or a failure to comply with, law or regulation by the contractor 
(including its agents or employees), or costs incurred in connection 
with any proceeding brought by a third party in the name of the United 
States under the False Claims Act, 31 U.S.C. 3730.
    Any proceedings costs which are incurred in connection with any 
proceeding under FAR 31.205-47(b), and which are not made unallowable 
by that paragraph, are subject to the allowability rules of FAR 31.205-
47(c), (d), and (e). The not-to-exceed-80 percent rule in the 
provisions of FAR 31.205-47(e)(3), which addresses the allowability of 
reasonable net costs incurred in connection with proceedings described 
in paragraph (b), applies equally to all proceedings addressed in 
paragraph (b), including those proceedings for whistleblower complaints 
of reprisal added by 41 U.S.C. 4712 or 10 U.S.C. 2409.
    Comment: The respondent considered that the interim rule 
effectively prohibits settlement of whistleblower claims by making 
related legal costs entirely unallowable if the proceeding ``could have 
led'' to an agency order for corrective action, with no apparent 
exceptions.
    The respondent noted the statement in the Initial Regulatory 
Flexibility Analysis that this rule ``would only affect a contractor if 
a contractor employee commenced a proceeding by submitting a complaint 
under 10 U.S.C. 2409, and if that proceeding resulted in imposition of 
a monetary penalty or an order to take corrective action.'' The 
respondent did not reach a similar conclusion, because the rule also 
affects a contractor who settles a whistleblower case that ``could have 
led'' to imposition of a monetary penalty or an order to take 
corrective action. The respondent requested that language be added at 
FAR 31.205-47(c), to provide the same treatment for whistleblower 
complaints as is currently provided for settlement of any proceeding 
brought by a third party under the False Claims Act in which the United 
States did not intervene.
    Response: The Councils have incorporated the requested change in 
the final rule. The FAR includes paragraph (c) to provide 
interpretation of the cost principle when the matter is resolved 
through consent or compromise. Now that whistleblower proceedings have 
been included in paragraph (b), it is reasonable that they should be 
covered in paragraph (c) as well.
    The Final Regulatory Flexibility Analysis has also been reworded to 
address potential impact if the proceedings result in the consequences 
covered by paragraphs 31.105-47(b)(3) through (b)(5).

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory

[[Page 43590]]

approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). E.O. 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. This is not a significant regulatory action and, 
therefore, was not subject to review under Section 6(b) of E.O. 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 
U.S.C. 601, et seq. The FRFA is summarized as follows:

    This action implements sections 827(g) and 828(d) of the 
National Defense Authorization Act for FY 2013. The objective of 
this rule is to address the allowability of legal costs incurred by 
a contractor in connection with a proceeding commenced by an 
employee submitting a complaint under 10 U.S.C. 2409 or 41 U.S.C. 
4712. The statutory authority is 10 U.S.C. 2324(k) and 41 U.S.C. 
4310.
    There were no significant issues raised by the public comments 
in response to the initial regulatory flexibility analysis.
    Most contracts awarded on a fixed-price competitive basis do not 
require application of the cost principles. Most contracts valued at 
or below the simplified acquisition threshold are awarded on a fixed 
price competitive basis. Requiring submission of certified cost or 
pricing data for acquisitions that do not exceed the simplified 
acquisition threshold is prohibited (FAR 15.403-4(a)(2)). According 
to Federal Procurement Data System (FPDS) data for FY 2012, there 
were 73,014 Federal new contract awards over the simplified 
acquisition threshold in FY 2012. Of those contracts, only 11,279 
awards were to small businesses on other than a competitive fixed-
price basis. Within that number of awards, this rule would only 
affect a contractor if a contractor employee commenced a proceeding 
by submitting a complaint under 10 U.S.C. 2409 or 41 U.S.C. 4712, 
and if that proceeding resulted in any of the consequences listed at 
FAR 31.205-47(b). DoD, GSA, and NASA do not have data on the 
percentage of contracts that involve submission of a whistleblower 
complaint and result in monetary penalty or an order to take 
corrective action. There are no reporting, recordkeeping, or other 
compliance requirements in this rule.
    DoD, GSA, and NASA were unable to identify any alternatives to 
the rule which would reduce the impact on small entities and still 
meet the requirements of the statute.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy 
of the FRFA to the Chief Counsel for Advocacy of the Small Business 
Administration.

V. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 31

    Government procurement.

    Dated: July 18, 2014.
William Clark,
Acting Director, Office of Government-Wide Acquisition Policy, Office 
of Acquisition Policy, Office of Government-Wide Policy.

Interim Rule Adopted as Final With Changes

    Accordingly, the interim rule amending 48 CFR part 31, which was 
published in the Federal Register at 78 FR 60173, September 30, 2013, 
is adopted as final with the following changes:

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
1. The authority citation for 48 CFR part 31 continues to read as 
follows:


    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

0
2. Amend section 31.205-47 by--
0
a. Redesignating paragraph (c)(2) as paragraph (c)(2)(i);
0
b. Removing from the newly redesignated paragraph (c)(2)(i) 
``proceeding,'' and ``States,'' and adding ``proceeding'' and 
``States'' in their places, respectively; and
0
c. Adding paragraph (c)(2)(ii) to read as follows:


31.205-47  Costs related to legal and other proceedings.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * *
    (ii) In the event of disposition by consent or compromise of a 
proceeding brought by a whistleblower for alleged reprisal in 
accordance with 41 U.S.C. 4712 or 10 U.S.C. 2409, reasonable costs 
incurred by a contractor or subcontractor in connection with such a 
proceeding that are not otherwise unallowable by regulation or by 
agreement with the United States may be allowed if the contracting 
officer, in consultation with his or her legal advisor, determined that 
there was very little likelihood that the claimant would have been 
successful on the merits.
* * * * *
[FR Doc. 2014-17500 Filed 7-24-14; 8:45 am]
BILLING CODE 6820-EP-P