Report Finds Shaky Whistleblower Support by Big Contractors

There’s a chill in the air at the State Department. The culprits are some very large contractors who are suppressing potential whistleblowers, according to a new report by the agency’s Inspector General (IG).

The IG found that all 30 of State’s largest contractors (collectively awarded roughly $4 billion in contracts in 2012; several are also top vendors at other agencies) use a confidentiality agreement or policy that restricts the disclosure of information owned by or pertaining to the company. All 30 contractors claim they have never enforced these provisions against an employee or former employee who tried to disclose company wrongdoing to the government in attempts to hold the companies accountable, although the IG did not independently confirm this.

The IG identified 13 contractors that require employees to notify the company if they are contacted by a government auditor or investigator. Five contractors have non-disparagement agreements or policies, which prohibit employees or former employees from making derogatory or disparaging comments about the company or any of its current or former officers and employees.

“While some of these provisions may have a legitimate justification,” the report states, “they still may have a chilling effect on employees who wish to report fraud, waste, or abuse to a Federal official.”

All 30 contractors claim to have policies that encourage whistleblowing. A chart in the report shows which of five “best practices” have been adopted by each contractor. The findings are discouraging:

• 25 contractors have an internal hotline through which employees can confidentially report fraud or violations of law or company policy; however,
• only 14 display posters containing fraud hotline contact information
• 10 remind employees of their responsibility to cooperate with government auditors and investigators
• 6 inform employees that they can directly contact federal authorities to report violations or safety concerns
• 4 inform employees of federal protections against retaliation for blowing the whistle

Two contractors—Contracting, Consulting, Engineering, Inc. and Desbuild Inc.—have adopted none of the best practices. None of the 30 contractors have adopted all five best practices.

“Of course, retaliation against whistleblowers can still occur even in a company that has adopted all of these best practices,” the report states. “But whistleblower studies demonstrate that an ethical tone at the top and a strong corporate code of ethics encourages employees to uphold integrity and to report wrongdoing if it does occur.”

The IG launched its investigation last year after KBR and International Relief and Development (IRD) received a flurry of media attention over their confidentiality agreements. KBR and IRD, recipients of billions of taxpayer dollars over the years, are no strangers to controversy. KBR has a long and well-documented history of fraud, bribery, and other violations, while IRD was recently suspended from receiving federal funds amid allegations of serious misconduct.

On Wednesday, the Securities and Exchange Commission (SEC) found that KBR’s confidentiality agreement—which required employees to get the approval of the company’s lawyers before they could discuss misconduct allegations with outside parties—violated the SEC’s whistleblower protection rule. The SEC fined the company $130,000. KBR did not admit to or deny the SEC’s charges. Although the SEC found no actual instances of whistleblower intimidation, KBR agreed to change its policy.

The Project On Government Oversight had blogged about the KBR and IRD confidentiality agreements and written to the Department of Justice last year to express our concern that many other federal contractors and grantees are silencing whistleblowers through similar means. Three months later, Assistant Attorney General Stuart Delery sent a reply. He assured us that he shares our concern and that the Department of Justice will work with the agencies “to ensure that fraud and false claims are exposed and that whistleblowers are aware of their rights to report fraud free of retaliation.”

“[T]he abuse of confidentiality agreements is a concern and we will continue to evaluate whether there are additional measures we can take to address it,” Delery wrote.

Whistleblowers are the first and best line of defense against corporate and governmental wrongdoing, and they must be protected from intimidation and harassment. Contractor employees need to feel safe in reporting potential illegalities. While it is reassuring to see the government crack down on abusive corporate confidentiality practices like the SEC recently did with KBR, we know from the State Department IG’s report that much more needs to be done.