[Federal Register Volume 60, Number 92 (Friday, May 12, 1995)]
[Proposed Rules]
[Pages 25794-25796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11797]




[[Page 25793]]

_______________________________________________________________________

Part III

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 32



Federal Acquisition Regulation; Fraud Remedies; Proposed Rule

  Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed 
Rules    
[[Page 25794]] 

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 32

[FAR Case 94-765]
RIN 9000-AG54


Federal Acquisition Regulation; Fraud Remedies

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: This proposed rule is issued pursuant to the Federal 
Acquisition Streamlining Act of 1994, Public Law 103-355 (the Act) to 
implement requirements for fraud remedies. This regulatory action was 
subject to Office of Management and Budget review under Executive Order 
12866, dated September 30, 1993.

DATES: Comments should be submitted on or before July 11, 1995 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (VRS), 18th and F 
Streets, NW, Room 4037, Washington, DC 20405.
    Please cite FAR case 94-765 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Mr. John Galbraith, Finance/Payment 
Team Leader, at (703) 697-6710 in reference to this FAR case. For 
general information, contact the FAR Secretariat, Room 4037, GS 
Building, Washington, DC 20405 (202) 501-4755. Please cite FAR case 94-
765.

SUPPLEMENTARY INFORMATION:

A. Background

    The Federal Acquisition Streamlining Act of 1994 (Pub. L. 103-355) 
(the Act) provides authorities that streamline the acquisition process 
and minimize burdensome government-unique requirements. Major changes 
that can be expected in the acquisition process as a result of the 
Act's implementation include changes in the areas of Commercial Item 
Acquisition, Simplified Acquisition Procedures, the Truth in 
Negotiations Act, and introduction of the Federal Acquisition Computer 
Network (FACNET). In order to promptly achieve the benefits of the 
provisions of the Act, the government is issuing implementing 
regulations on an expedited basis. We believe prompt publication of 
proposed rules provides the public the opportunity to participate more 
fully in the process of developing regulations.
    This notice announces FAR revisions developed under FAR case 94-
765. 10 U.S.C. 2307 has contained a statutory requirement titled 
``Action in Case of Fraud'' applicable to only the Department of 
Defense. Section 2051(e) of the Act added this statutory requirement to 
the Federal Property and Administrative Services Act (41 U.S.C. 255) 
applicable to the civilian agencies. This case proposes for FAR 32.006 
substantially the same policy and language used by DOD in its 
implementation at Defense Federal Acquisition Regulations Supplement 
(DFARS) 232.173.
    The statutes at 10 U.S.C. 2307 and 41 U.S.C. 255 provide that if 
the Government official concerned with coordinating the Government's 
remedies for a particular case of fraud finds that an advance, partial, 
or progress payment is based on fraud, that official must recommend the 
head of the agency reduce or suspend further payments to that 
contractor. The statutes further provide due process requirements, 
standards for the amount of suspension or reduction, and other policy 
and procedural requirements. It should be noted that the authority of 
the head of the agency to act and the rights of the accused are 
statutory and are not based on contractual agreement. However, in any 
situation in which the contractor bases a request for payment in fraud, 
the Government has contractual and legal rights which the contracting 
officer may exercise to stop or recover payments. The authority 
provided by these statutes is in addition to those contractual and 
legal rights and remedies.
    The Department of Defense implemented the statute in part by 
placing acquisition policy and procedures in the DFARS. However, 
primary responsibility for implementation of the statute will fall on 
the agency's fraud remedy coordination official who, in the DOD, is 
outside the procurement function. Thus, the content of DFARS 232.173 is 
primarily informational, for the convenience of interested contracting 
officers and contractors. The DOD also provided a clause at 252.232-
7006, ``Reduction or Suspension of Contract Payments Upon Finding of 
Fraud.'' This clause was also informational in that it notified 
potential offerors and contractors of the existence of the statutory 
remedy and that the Government's exercise of the sovereign remedy for 
fraud was not an excusable delay contractually.
    The proposed FAR coverage follows the existing DFARS with minor 
differences. The statutory reporting requirements for civilian agencies 
are slightly different from those for DOD. Also, the FAR coverage does 
not include a contract clause. The statutory remedy originates in the 
sovereignty of the United States, not from agreement with the 
contractor; therefore, no clause is necessary to implement the remedy. 
Also, if a contractor's request for advance, partial or progress 
payment is based in fraud, the contractor has no contractual right to 
the payment; therefore, the agency head's suspension or reduction of 
payment is not an excusable delay.
    A number of points should be noted concerning the details of the 
coverage:

--The very high level of approval stated in section 32.006-1(b) 
reflects a specific requirement of the statutes.
--The term ``remedy coordination official'' is defined by the statutes; 
however, the agency determines who this official is, what other duties 
are assigned, where the official is located, and what non-FAR 
regulations or agency policies are also applicable to the official.
--The proceedings under this subsection are in addition to any 
contractual or legal rights and remedies the Government may have and 
are separate from any civil or criminal proceedings.
--The statute provides a limited due process right for the contractor 
to be notified and submit information prior to the proposed action 
which is reflected in section 32.006-4(e).

    The FAR Council is interested in an exchange of ideas and opinions 
with respect to the regulatory implementation of the Act. For that 
reason, the FAR Council is conducting a series of public meetings. 
However, the FAR Council has not scheduled a public meeting on this 
rule (FAR case 94-765) because of the clarity and non-controversial 
nature of the rule. If the public believes such a meeting is needed 
with respect to this rule, a letter requesting a public meeting and 
outlining the nature of the requested meeting shall be submitted to and 
received by the FAR Secretariat (see ADDRESSES caption, above) on or 
before June 12, 1995. The FAR Council will consider such requests in 
determining whether a public meeting on this rule should be scheduled.
[[Page 25795]]

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule 
is not expected to impact 20 percent or more of those small businesses 
who contract with the Federal Government. The rule will have a 
significant economic impact only on those small businesses whose 
request for advance, partial, or progress payment is based upon fraud. 
While no precise numbers are available, we expect that the number of 
small businesses who attempt to defraud the Federal Government is 
extremely small. Moreover, for those affected entities, the economic 
impact of this rule flows directly from 10 U.S.C. 2307(e)(5) and 41 
U.S.C. 255, which state that the contractor must be afforded an 
opportunity to submit matters to the head of the agency in response to 
the proposed reduction or suspension of payment. An Initial Regulatory 
Flexibility Analysis has, therefore, not been performed. Comments from 
small entities concerning the affected FAR subpart will be considered 
in accordance with 5 U.S.C. 610 of the Act. Such comments must be 
submitted separately and should cite 5 U.S.C. 601, et seq. (FAR case 
94-765), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the rule falls 
within the exception provided under 5 CFR 1320.3(c), i.e., matters 
pertaining to the conduct of a Federal criminal investigation or 
prosecution, or during the disposition of a particular criminal matter.

List of Subjects in 48 CFR Part 32

    Government procurement.

    Dated: May 9, 1995.
Edward C. Loeb,
Deputy Project Manager for the Implementation of the Federal 
Acquisition Streamlining Act of 1994.

    Therefore, it is proposed that 48 CFR Part 32 be amended as set 
forth below:

PART 32--CONTRACT FINANCING

    1. The authority citation for 48 CFR Part 32 continues to read as 
follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

    2. Section 32.006 through 32.006-5 is added to read as follows:


32.006  Reduction or suspension of contract payments upon finding of 
fraud.


32.006-1  General.

    (a) 10 U.S.C. 2307(h)(2) and 41 U.S.C. 255, as amended by the 
Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355, provide 
for a reduction or suspension of further payments to a contractor when 
the agency head determines there is substantial evidence that the 
contractor's request for advance, partial, or progress payments is 
based on fraud.
    (b) The agency head may not delegate his or her responsibilities 
under these statutes below Level IV of the Executive Schedule.
    (c) Authority to reduce or suspend payments under these statutes is 
in addition to other Government rights, remedies, and procedures.
    (d) In accordance with these statutes, agency head determinations 
and decisions under this section may be made for an individual contract 
or any group of contracts affected by the fraud.


32.006-2  Definitions.

    As used in this section--
    (a) Remedy coordination official means the person or entity in the 
agency who coordinates within that agency the administration of 
criminal, civil, administrative, and contractual remedies resulting 
from investigations of fraud or corruption related to procurement 
activities. (See 10 U.S.C. 2307(h)(10) and 41 U.S.C. 255(g)(9)).
    (b) Substantial evidence means information sufficient to support 
the reasonable belief that a particular act or omission has occurred.


32.006-3  Responsibilities.

    (a) Agencies shall establish appropriate procedures to implement 
the policies and procedures of this section.
    (b) Government personnel shall report suspected fraud related to 
advance, partial, or progress payments in accordance with agency 
regulations.


32.006-4  Procedures.

    (a) In any case in which an agency's remedy coordination official 
finds substantial evidence that a contractor's request for advance, 
partial, or progress payments under a contract awarded by that agency 
is based on fraud, the remedy coordination official shall recommend 
that the agency head reduce or suspend further payments to the 
contractor. The remedy coordination official shall submit to the agency 
head a written report setting forth the remedy coordination official's 
findings that support each recommendation.
    (b) Upon receiving a recommendation from the remedy coordination 
official under paragraph (a) of this subsection, the agency head shall 
determine whether substantial evidence exists that the request for 
payment under a contract is based on fraud.
    (c) If the agency head determines that substantial evidence exists, 
the agency head may reduce or suspend further payments to the 
contractor under the affected contract(s). Such reduction or suspension 
shall be reasonably commensurate with the anticipated loss to the 
Government resulting from the fraud.
    (d) In determining whether to reduce or suspend further payment(s), 
as a minimum, the agency head shall consider--
    (1) A recommendation from investigating officers that disclosure of 
the allegations of fraud to the contractor may compromise an ongoing 
investigation;
    (2) The anticipated loss to the Government as a result of the 
fraud;
    (3) The contractor's overall financial condition and ability to 
continue performance if payments are reduced or suspended;
    (4) The contractor's essentiality to the national defense, or to 
the execution of the agency's official business;
    (5) Assessment of all documentation concerning the alleged fraud, 
including documentation submitted by the contractor in its response to 
the notice required by paragraph (e) of this subsection.
    (e) Before making a decision to reduce or suspend further payments, 
the agency head shall, in accordance with agency procedures--
    (1) Notify the contractor in writing of the action proposed by the 
remedy coordination official and the reasons therefor (such notice must 
be sufficiently specific to permit the contractor to collect and 
present evidence addressing the aforesaid reasons); and
    (2) Provide the contractor an opportunity to submit information 
within a reasonable time, in response to the action proposed by the 
remedy coordination official.
    (f) When more than one agency has contracts affected by the fraud, 
the agencies shall consider designating one agency as the lead agency 
for making the determination and decision.
    (g) The agency shall retain in its files the written justification 
for each--
    (1) Decision of the agency head whether to reduce or suspend 
further payments; and [[Page 25796]] 
    (2) Recommendation received by an agency head in connection with 
such decision.
    (h) Not later than 180 calendar days after the date of the 
reduction or suspension action, the remedy coordination official 
shall--
    (1) Review the agency head's determination on which the reduction 
or suspension decision is based; and
    (2) Transmit a recommendation to the agency head as to whether the 
reduction or suspension should continue.


32.006-5  Reporting.

    (a) In accordance with 41 U.S.C. 255, the head of an agency other 
than the Department of Defense, shall prepare a report for each fiscal 
year in which a recommendation has been received pursuant to 32.006-
4(a). Reports within the Department of Defense shall be prepared in 
accordance with 10 U.S.C. 2307.
    (b) In accordance with 41 U.S.C. 255 and 10 U.S.C. 2307, each 
report shall contain--
    (1) Each recommendation made by the remedy coordination official;
    (2) The actions taken on the recommendation(s), with reasons for 
such actions; and
    (3) An assessment of the effects of each action on the Government.

[FR Doc. 95-11797 Filed 5-11-95; 8:45 am]
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