A new interim
rule amends the FAR cost principles to implement a section of the National
Defense Authorization Act for Fiscal Year 2013 (“NDAA FY13”) addressing the
allowability of legal costs incurred in connection with legal proceedings based
on whistleblower complaints. More particularly, the rule revises the cost
principle at FAR 31.205-47 (Costs related to legal and other proceedings) to
reflect statutory changes made by NDAA.
These changes are in addition to the enhanced
whistleblower protections effected by the NDAA FY13 (including the establishment
of a new pilot program under 41 U.S.C. § 4712, reported here)
and essentially expand the situations in which legal fees that
may be considered allowable (for a prevailing
contractor) to include expenses incurred as a result of a proceeding initiated
by a whistleblower.
Under the revised cost principle, the potentially
allowable costs now include those incurred in connection with “any proceeding
brought by a Federal, State, local or foreign government, or 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, for violation of, or a
failure to comply with, law or regulation by the contractor (including its
agents and employees)” in addition to those incurred in connection with
proceedings brought by a third party under the False Claims Act, 31 U.S.C. §
3730.
Those costs are considered unallowable if, in
addition to the conditions already set forth in the cost principle (i.e.,
conviction in a criminal matter) the result “[i]n 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 under 41 U.S.C. § 4712 or 10 U.S.C. §
2409, where the proceeding does not involve an allegation of fraud or similar
misconduct.”
Note that, because the NDAA FY13 enhancements to
whistleblower protections include the establishment of a pilot program under 41
U.S.C. § 4712 that is currently only effective through January 1, 2017, the new
portion of the statute addressing costs related to that program will also cease
to be effective after that date.
This interim rule’s effective date is September
30, 2013. In order to be considered in the formulation of the final rule,
written comments must be submitted to the FAR Secretariat on or before November
29, 2013.
Eric Whytsell is the attorney responsible for the content of this article.
© Jackson Kelly PLLC 2013