Last month marked the 16-year anniversary of the FAR Mandatory Disclosure Rule (MDR) going into effect, which created requirements for federal contractors to disclose violations of specific categories of federal criminal law and violations of the civil False Claims Act (FCA). But the passage of time has not simplified the analysis that government contractors must undertake when they learn of allegations about conduct that could be disclosable to the government. Rather, legal developments and new Department of Justice (DOJ) policies have created additional considerations for federal contractors as they navigate a complex disclosure landscape.
Mandatory Disclosure Rule
When the MDR went into effect in December 2008, it created a new contract clause at FAR 52.203-13, which requires that contractors timely disclose to the cognizant Office of Inspector General (OIG) all credible evidence related to a government contract of: (1) violations of criminal law involving fraud, conflict of interest, or bribery or (2) violations of the FCA. As part of the roll out of the MDR, FAR Part 9’s suspension and debarment regulations were also revised to make the failure to disclose these violations of federal criminal law and the FCA a basis for suspension and debarment. Moreover, the failure to disclose a significant overpayment to the contracting officer was also added as a new cause for suspension or debarment.
Sixteen years after the MDR went into effect, the risk of suspension or debarment for failing to meet the disclosure requirements remains the key consideration for government contractors when assessing allegations, performing internal investigations, and analyzing disclosure obligations. But in 2025, the MDR is far from the only consideration. Rather, contractors need to weigh several various risks and rewards when deciding what to disclose, when to disclose, and where to direct the disclosure.
For example, if a contractor determines that there is credible evidence of a violation of federal criminal law involving fraud, conflict of interest, or bribery, such evidence would trigger the contractor’s obligations under the MDR to disclose to the relevant OIG. If the contractor fails to disclose, the company risks facing the stick of suspension or debarment. And further complicating the analysis, that risk has also led to increased contractor disclosures that are styled as “voluntary,” which seek to affirmatively demonstrate the contractor’s transparency and present responsibility where the facts may not quite rise to the level of a mandatory disclosure. Moreover, as DOJ’s policies on disclosure, cooperation, and remediation have matured in their implementation, contractors are increasingly also considering the steps they might take, consistent with DOJ’s policies, to earn the potential carrots associated with these policies.
Incentives for Voluntary Disclosure
In recent years, the DOJ has actively publicized its policies that are intended to incentive companies to disclose criminal violations. Foremost among the policies is the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure (VSD) policy incorporated in the Justice Manual at § 9-47.120. Under the VSD policy, if a company timely discloses criminal offenses, cooperates with any government investigation, and takes steps to remediate the underlying issues, the company is eligible for a range of substantial benefits, including a potential declination of prosecution by the DOJ. Other components of the DOJ with criminal-enforcement jurisdiction that also have VSD policies include the U.S. attorney’s offices, the Tax Division, the Environmental Crimes Section and the National Security Division. Although each office has its own parameters, the core focus remains on disclosure, cooperation and remediation. On the civil side, DOJ’s policy to incentive the disclosure of FCA violations bears similarities to its criminal analog. In 2019, the DOJ announced the guidelines for awarding credit for the disclosure, cooperation, and remediation in FCA matters and these guidelines have been incorporated in the Justice Manual at § 4-4.112. Beginning in 2023, the DOJ started including specific references to the guidelines in FCA settlement agreements to denote when a settling party had earned cooperation credit. When a reference to the § 4-4.112 guidelines is included in a settlement agreement it is frequently accompanied by a description of the steps the company took to earn the credit such as submitting a self-disclosure, identifying individuals responsible for the underlying issues, and implementing a compliance program to avoid a reoccurrence of similar conduct.
The exact dollar amount of the cooperation credit earned is not spelled out in FCA settlement agreements, but it is apparent from the face of the agreements that the cooperation resulted in a reduced settlement amount because the FCA multiplier applied to the single damages amount in these settlements is often below the 2x (or higher) multiplier that DOJ typically applies when settling FCA cases. For example, after disclosing timecard fraud at a nuclear facility, contractor Consolidated Nuclear Security was able to negotiate an FCA release based on a 1.1x multiplier.
As DOJ’s voluntary disclosure policies continue to take root, contractors will need to closely consider what type of disclosure is warranted based on the specific factual circumstances after conducting an internal investigation. When a disclosure is warranted, there are several considerations that can determine what to disclose and where to direct the disclosure. For example, a thorough and independent internal investigation may determine that the relevant conduct at issue rises to the level of potential criminal exposure such that a contractor may decide to make a disclosure to a criminal component pursuant to the VSD policy. In other circumstances, a disclosure under the VSD policy would not be appropriate because there was no evidence of criminal intent. Yet for that exact same conduct, there could be sufficient evidence to satisfy the lower bar needed to meet the FCA’s knowledge element which could trigger the MDR disclosure requirement.
Other Considerations
Under certain fact patterns (e.g., credible evidence of bribery on a government contract) the MDR analysis is straight forward. But many potentially disclosable events are not black or white and these situations often require contractors to make close calls.
When weighing whether to come forward with a disclosure, contractors also need to consider the possibility that the government will learn of the underlying issue on its own or through a whistleblower. The risk of the government learning of corporate conduct from a current or former employee (or a competitor) has never been higher due to the proliferation of government-sponsored whistleblower programs and record levels of activity under the FCA’s whistleblower provisions. In 2024 DOJ launched the Corporate Whistleblower Awards Pilot Program, a program designed to use financial rewards to incentivize whistleblowers to report corporate criminal misconduct. On the civil side, the number of FCA whistleblower complaints continue rise. As recently announced in DOJ’s annual press release on FCA recoveries, the 979 qui tam suits filed in FY 2024 set a new high-water mark.
Unless and until the Supreme Court determines that the qui tam provisions are unconstitutional, the level of whistleblower-initiated activity shows no sign of abating, and this raises an additional reason why a contractor might err on the side of disclosure in “close call” situations —i.e., building a factual record for potential FCA litigation down the road.
It has been more than 8 years since the last landmark FCA ruling by the Supreme Court in Escobar, which shone a spotlight on the FCA’s materiality element. In the wake of Escobar, it is now common practice for defendants in FCA litigation to seek discovery from the relevant agency to see if the government was aware of the alleged regulatory noncompliance at issue in the FCA action. In cases where the government was put on notice of an issue and yet continued to make payment to the contractor, the defendant is often in a strong position to argue that the alleged noncompliance was not material to the government’s payment decision. Therefore, as contractors weigh whether to make a disclosure in close-call situations, they will want to consider the possibility that their disclosure could potentially help create a helpful evidentiary record in future litigation.