[Federal Register Volume 60, Number 186 (Tuesday, September 26, 1995)]
[Rules and Regulations]
[Pages 49728-49729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23863]



-----------------------------------------------------------------------


DEPARTMENT OF DEFENSE
48 CFR Part 32

[FAC 90-33; FAR Case 94-765; Item IV]
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: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final 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.

EFFECTIVE DATE: October 1, 1995.

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 FAC 90-33, 
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. -
    This notice announces amendments 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 
civilian agencies. -
    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.

B. Regulatory Flexibility Act -

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
rule will not 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 this rule will impact 
only upon the small percentage of small businesses whose request for an 
advance, partial, or progress payment is based upon fraud.

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.

D. Public Comments -

    The proposed rule was published in the Federal Register on May 12, 
1995, at 60 FR 25794. Six comments were received. The most important 
point noted was the inapplicability of the coverage to the National 
Aeronautics and Space Administration and the United States Coast Guard. 
These agencies are normally subject to Title 10 of the United States 
Code; however, this statutory language specifically applied these 
statutory provisions to just the Department of Defense. The changes 
made to the Federal Property and Administrative Services Act (41 U.S.C. 
225) apply to all agencies subject to that Act. This coverage has been 
appropriately modified. -
    One commentor proposed the addition of the following language to 
the coverage: ``If payments are suspended and it ultimately is 
determined that no fraud existed, the contractor shall be entitled to 
any damages that resulted from such suspension of payment.'' This 
recommendation was not accepted. Under these statutes, the Government 
is acting in its role as sovereign, not under its contractual 
authority. The statutes do not provide the accused with a remedy for 
incorrect or unproved accusations. Any remedy would be determined by 
the Constitution and other law and statutes.

List of Subjects in 48 CFR Part 32 -

    Government procurement.

    Dated: September 20, 1995.
Edward C. Loeb,
Deputy Project Manager for the Implementation of the Federal 
Acquisition Streamlining Act of 1994.

    -Therefore, 48 CFR Part 32 is 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. Sections 32.006 through 32.006-5 are added to read as follows:


Sec.
32.006  Reduction or suspension of contract payments upon finding of 
fraud.
32.006-1  General.
32.006-2  Definitions.
32.006-3  Responsibilities.
32.006-4  Procedures.
32.006-5  Reporting.


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


32.006-1  General.

    (a) Under Title 10 of the United States Code, the statutory 
authority implemented by this section is available only to the 
Department of Defense; this statutory authority is not available to the 
National Aeronautics and Space Administration or the United States 
Coast Guard. Under the Federal Property and Administrative Services Act 
(41 U.S.C. 255), this statutory 

[[Page 49729]]
authority is available to all agencies subject to that Act.
    (b) 10 U.S.C. 2307(h)(2) and 41 U.S.C. 255, as amended by the 
Federal Acquisition Streamlining Act of 1994, Public Law 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. This authority does not apply to 
commercial interim payments under subpart 32.2, or performance-based 
payments under subpart 32.10.
    (c) The agency head may not delegate his or her responsibilities 
under these statutes below Level IV of the Executive Schedule.
    (d) Authority to reduce or suspend payments under these statutes is 
in addition to other Government rights, remedies, and procedures.
    (e) 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--
    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).)
    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; and
    (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
    (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. 95-23863 Filed 9-25-95; 8:45 am]
BILLING CODE 6820-EP-P