The Department of Defense (DoD) will publish in tomorrow’s edition of the Federal Register an interim rule (pdf) implementing section 8116 of the DoD Appropriations Act for Fiscal Year 2010, which restricts a contractor’s use of mandatory arbitration agreements in certain instances. Specifically, section 8116 bans contractors or subcontractors at any tier that receive funds in excess of $1 million from the appropriations bill from enforcing mandatory, pre-dispute agreements to arbitrate “any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.” The Secretary of Defense is permitted to waive the applicability of this prohibition to a particular contract or subcontract in the interest of national security. Additionally, the arbitration limitations do not apply to a contractor’s or subcontractor’s agreement with employees or independent contractors that cannot be enforced in the U.S.

The interim rule provides a number of examples to help contractors determine when and if the arbitration restrictions apply to them:

• A new order that exceeds $1 million using funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act, placed against an indefinite delivery/indefinite-quantity contract for an applicable item or service, is covered by this restriction, regardless of whether the basic indefinite-delivery/indefinite-quantity contract was covered.
• A funding modification adding more than $1 million of funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act to a contract that does not contain the clause at 252.222-7006 or 252.222-7999 (Deviation), is not covered.
• A bilateral modification adding new work that uses funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act in excess of $1 million is covered.
• The award of a new order using funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act with a value of $700,000 is not covered, since the value is under $1 million.
• A contract valued at $1.5 million awarded today, and only $10,000 in funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act will be obligated, with the remaining balance being FY 11 funding, is not covered because the total value of funds appropriated or otherwise made available by the FY 10 DoD Appropriations Act is less than $1 million.
• An entity or firm that does not have a contract in excess of $1 million appropriated or otherwise made available by the FY 10 DoD Appropriations Act is not affected by the clause. The term “contractor” is narrowly applied only to the entity that has the contract. Unless a parent or subsidiary corporation is a party to the contract, it is not affected.

The interim rule also explains that a contracting officer will need to modify existing contracts, on a bilateral basis, if using funds appropriated or otherwise made available by the appropriations act, when such funds will be used for bilateral modifications adding new work or orders that exceed $1 million and are issued after the effective date of the interim rule.

Comments on this interim rule must be made on or before July 19, 2010, and be identified by the DFARS Case 2010–D004. Written comments may be sent to: Defense Acquisition Regulations System, Attn: Mr. Julian E. Thrash, OUSD(AT&L)DPAP(DARS), Room 3B855, 3060 Defense Pentagon, Washington, DC 20301–3060. Alternatively, comments may be submitted electronically through the federal eRulemaking portal: http://www.regulations.gov, or via email to: dfars@osd.mil. Include DFARS Case 2010–D004 in the subject line of the message. Comments may also be sent via facsimile to: 703–602–0350.

Photo credit:  YanC