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In a previous article we explained the dangers of utilizing an overbroad confidentiality agreement between your business and your employees or subcontractors.  To briefly recap, in some states, like Virginia, an overbroad confidentiality agreement can be just as bad as having no confidentiality agreement at all.  Virginia courts will invalidate an overly broad confidentiality agreement, leaving the company with little protection against disclosure of sensitive information that it might have provided to its employees and subcontractors.  Therefore, it is essential that businesses think carefully about what information truly needs to be protected from disclosure and that the confidentiality agreement be tailored to fit those particular requirements.  While just tailoring the confidentiality agreement to the business’s needs – and making sure not to be overbroad – might be enough to make the agreement enforceable under state law, it might not be enough for contractors to the Department of Defense (“DOD”).  Government contractors may need to go one step further.

The DOD recently issued a class deviation prohibiting DOD organizations from contracting with companies that require certain internal confidentiality agreements.  Class deviations are instructions from the DOD Director of Defense Procurement and Acquisition Policy that instruct governmental organizations to deviate from the FAR and DFARS.  Under a class deviation issued by DOD on November 14, 2016, no funds may be used to contract with a business that prohibits or restricts its employees or sub-contractors from reporting waste, fraud, or abuse to a designated investigative or law enforcement representative of a federal department or agency.  It requires that clauses be included in all applicable solicitations requiring the offeror to represent to the government that the contractor does not require employees or subcontractors to sign or comply with internal confidentiality agreements prohibiting or otherwise restricting the employees or subcontractors from lawfully reporting waste, fraud, or abuse.  While similar class deviations concerning non-disclosure agreements have occurred in the past (e.g., the Department of Veteran Affairs), because this class deviation applies to the entire Department of Defense, it will impact a far greater number of contractors than other similar class deviations.

Here is the fundamental problem that contractors face:  The typical confidentiality agreement flatly prohibits the disclosure of sensitive business information, such as financial information.  Naturally, most confidentiality agreements are focused on restricting disclosure; they tend not to expressly allow disclosure of confidential business information.  What is needed is a safety valve that prohibits disclosure of sensitive company information except in the circumstances delineated by DOD’s recent class deviation.

Luckily, this is easily fixed by modifying the restrictive language contained in the confidentiality agreement, but it is a fix that needs to occur before an offer is submitted to the government in response to a solicitation.  And while the fix may, itself, be easy, it is nevertheless important to keep in mind that the confidentiality agreement will need to be re-signed by the affected employees or subcontractors, which may cause additional delay.  If you anticipate that your business may be bidding on DOD contracts in the future, it is wise to re-work your confidentiality agreements now.