An employee of a company that is a Federal Contractor files a complaint with the Government about the site manager (Site manager was truly in the wrong) and his practices. doesn't the employee have some obligation to inform Corporate office that there has been issues before going straight to the Government ( the customer). What it all boils down to is if our company had known about the issues we would have stopped this problem at the source. Now here is what has happened. We have fired Site Manager and are trying to make ammends with the government regarding our performance as a contractor. Can we fire the whistleblower for their actions as well? and do you think there are grounds for a lawsuit if we do?

I would contact legal counsel before doing any further termination.

 You didn't really state what the complaint/issue was.  It will be VERY dependent upon that.  From http://jobsearchtech.about.com/cs/labor_laws/a/whistle_blower.htm,

"Under U.S. law, a whistle blower (or whistleblower) is an employee who "tells" on an employer, because he or she reasonably believed that the employer committed an illegal act.

What is Whistle Blower Protection?

Whistle blower protection is provided by Federal acts and related statutes that shield employees from retaliation for reporting illegal acts of employers. An employer can't rightfully retaliate in any way, such as discharging, demoting, suspending or harassing the whistle blower. If an employer retaliates anyway, whistle blower protection might entitle the employee to file a charge with a government agency, sue the employer, or both....

Even if it turns out that an employer didn't actually break a law, an employee is still entitled to whistle blower protection from retaliation, if he or she reasonably believed that the employer committed an illegal act. However, whistle blower protection typically does not include employer retaliation for employee complaints about personal dislikes. To be protected from employer retaliation, an employee typically must report an alleged violation of a Federal law that has provisions to shield whistle blowers. (Though at the state level, some protect whistle blowers who report alleged violations of any laws, regulations or ordinances.) Collectively, such provisions are called whistle blower protections or whistle blower laws...."

 

And before you spend any money on the attorney, write at least half a page explanation of what policies the person has violated with some reference to how other people violating those same policies have been disciplined.  Then sleep on it.  In the morning, if it still looks reasonable, call the attorney.  Retaliation is serious business and it's where employers typically lose their fights.  Keep in mind that even if your attorney says it's OK, that doesn't mean you won't have to defend that decision down the road.