Mandatory Disclosure Rule

The Mandatory Disclosure Rule is a FAR requirement embedded in FAR 52.203-13 that obliges contractors to proactively report certain legal violations and overpayments to the government, with failure to disclose being an independent ground for suspension and debarment.

What is the Mandatory Disclosure Rule?

The Mandatory Disclosure Rule, codified at FAR 52.203-13(b)(3), requires contractors and subcontractors (with contracts over $6 million lasting 120 days) to timely disclose to the agency Inspector General (and the contracting officer) whenever they have credible evidence that a principal, employee, agent, or subcontractor has committed:

1. A violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations in connection with a federal contract.
2. A violation of the civil False Claims Act.
3. Significant overpayments on the contract (other than overpayments resulting from contract financing).

"Credible evidence" means evidence that a reasonable person with knowledge of the relevant facts would consider sufficient to establish probable cause that the specified conduct has occurred. Internal allegations that have not been investigated are not necessarily credible evidence; once an internal investigation confirms a concern, the disclosure clock starts.

The disclosure must be made to the contracting officer and the agency IG. FAR 52.203-13(c)(2)(ii) provides that failure to timely disclose is, by itself, a basis for suspension and debarment under FAR 9.4 - separate from and in addition to penalties for the underlying violation.

Closely related to the contractor code of ethics requirement, the disclosure obligation also applies to significant overpayments discovered during contract performance, requiring prompt refund or credit even absent any fraud.

Why the Mandatory Disclosure Rule matters for government contractors

Contractors that discover problems and self-report them before a government investigation or qui tam filing typically receive more favorable treatment than those who are caught. Debarment officials and prosecutors weigh voluntary disclosure, cooperation, and remediation heavily in deciding whether to pursue the most severe sanctions. The practical consequence is that every large contractor needs an internal investigation protocol that moves quickly from allegation to credible-evidence assessment to disclosure decision.

Example

During a routine internal audit, a defense services contractor discovers that a program manager inflated subcontractor invoices on a cost-plus contract for approximately 14 months, causing approximately $890,000 in overbilling to the government. Counsel determines this constitutes credible evidence of both criminal fraud and FCA violations. Within ten days, the contractor discloses to the agency IG and contracting officer, terminates the program manager, voluntarily repays $890,000, and provides the IG with all relevant documents. The contractor avoids suspension and ultimately pays a reduced civil settlement of $1.1 million (single damages plus a modest penalty) rather than treble damages.

Frequently Asked Questions

How quickly must a disclosure be made?

The FAR does not specify a precise number of days, but the consistent interpretation from debarment cases and agency guidance is that disclosure should occur promptly once credible evidence exists - generally within 14 days. Delays require compelling justification; a lengthy delay while conducting an internal investigation without disclosure can itself be treated as a failure to timely disclose.

Does the rule require disclosure of every employee misconduct?

No. The rule covers criminal violations involving fraud, conflict of interest, bribery, gratuity, or FCA violations connected to the contract, and significant overpayments. Routine HR violations, minor timecard errors corrected immediately, or isolated low-value issues that do not reach the "credible evidence" threshold do not trigger mandatory disclosure.

What is the definition of "significant overpayment"?

The FAR does not define a dollar threshold for "significant." Contractors generally assess significance based on the amount relative to the contract value, the duration of the overpayment, and whether it resulted from any improper act. Overpayments arising from contract financing (advance payments, progress payments) are specifically excluded.

Do subcontractors have independent disclosure obligations?

Yes. FAR 52.203-13 is flowed down to subcontractors with qualifying contracts. A qualifying subcontractor must make its own disclosures directly to the agency IG and the prime contractor's contracting officer. The prime contractor is not the intermediary for subcontractor disclosures, though it may learn of the disclosure and have its own reporting obligations if the facts also constitute credible evidence at the prime level.