Subpart 3.7 - Voiding and Rescinding

Contracts

Parent topic: Part 3 - Improper Business Practices and Personal Conflicts of Interest

3.700 Scope of subpart.

(a) This subpart prescribes Governmentwide policies and procedures for exercising discretionary

authority to declare void and rescind contracts in relation to which-

(1) There has been a final conviction for bribery, conflict of interest, disclosure or receipt of

contractor bid or proposal information or source selection information in exchange for a thing of

value or to give anyone a competitive advantage in the award of a Federal agency procurement

contract, or similar misconduct; or

(2) There has been an agency head determination that contractor bid or proposal information or

source selection information has been disclosed or received in exchange for a thing of value, or for

the purpose of obtaining or giving anyone a competitive advantage in the award of a Federal agency

procurement contract.

(b) This subpart does not prescribe policies or procedures for, or govern the exercise of, any other

remedy available to the Government with respect to such contracts, including but not limited to, the

common law right of avoidance, rescission, or cancellation.

3.701 Purpose.

This subpart provides-

(a) An administrative remedy with respect to contracts in relation to which there has been-

(1) A final conviction for bribery, conflict of interest, disclosure or receipt of contractor bid or

proposal information or source selection information in exchange for a thing of value or to give

anyone a competitive advantage in the award of a Federal agency procurement contract, or similar

misconduct; or

(2) An agency head determination that contractor bid or proposal information or source selection

information has been disclosed or received in exchange for a thing of value, or for the purpose of

obtaining or giving anyone a competitive advantage in the award of a Federal agency procurement

contract; and

(b) A means to deter similar misconduct in the future by those who are involved in the award,

performance, and administration of Government contracts.
3.702 Definition.

Final conviction means a conviction, whether entered on a verdict or plea, including a plea of nolo

contendere, for which a sentence has been imposed.

3.703 Authority.

(a) Section 1(e) of Public Law 87-849, 18 U.S.C.218 ("the Act"), empowers the President or the heads

of executive agencies acting under regulations prescribed by the President, to declare void and

rescind contracts and other transactions enumerated in the Act, in relation to which there has been

a final conviction for bribery, conflict of interest, or any other violation of Chapter 11 of Title 18 of

the United States Code (18 U.S.C.201-224). Executive Order 12448, November 4,1983, delegates the

President’s authority under the Act to the heads of the executive agencies and military departments.

(b) 41 U.S.C. 2105(c) requires a Federal agency, upon receiving information that a contractor or a

person has violated 41 U.S.C. 2102, to consider rescission of a contract with respect to which-

(1) The contractor or someone acting for the contractor has been convicted for an offense

punishable under 41 U.S.C. 2105(a); or

(2) The head of the agency, or designee, has determined, based upon a preponderance of the

evidence, that the contractor or someone acting for the contractor has engaged in conduct

constituting such an offense.

3.704 Policy.

(a) In cases in which there is a final conviction for any violation of 18 U.S.C.201-224 involving or

relating to contracts awarded by an agency, the agency head or designee, shall consider the facts

available and, if appropriate, may declare void and rescind contracts, and recover the amounts

expended and property transferred by the agency in accordance with the policies and procedures of

this subpart.

(b) Since a final conviction under 18 U.S.C.201-224 relating to a contract also may justify the

conclusion that the party involved is not presently responsible, the agency should consider initiating

debarment proceedings in accordance with subpart 9.4, Debarment, Suspension, and Ineligibility, if

debarment has not been initiated, or is not in effect at the time the final conviction is entered.

(c) If there is a final conviction for an offense punishable under 41 U.S.C. 2105, or if the head of the

agency, or designee, has determined, based upon a preponderance of the evidence, that the

contractor or someone acting for the contractor has engaged in conduct constituting such an

offense, then the head of the contracting activity shall consider, in addition to any other penalty

prescribed by law or regulation-

(1) Declaring void and rescinding contracts, as appropriate, and recovering the amounts expended

under the contracts by using the procedures at 3.705 (see 3.104-7); and

(2) Recommending the initiation of suspension or debarment proceedings in accordance with
subpart 9.4.

3.705 Procedures.

(a) Reporting. The facts concerning any final conviction for any violation of 18 U.S.C.201-224

involving or relating to agency contracts shall be reported promptly to the agency head or designee

for that official’s consideration. The agency head or designee shall promptly notify the Civil Division,

Department of Justice, that the action is being considered under this subpart.

(b) Decision. Following an assessment of the facts, the agency head or designee may declare void

and rescind contracts with respect to which a final conviction has been entered, and recover the

amounts expended and the property transferred by the agency under the terms of the contracts

involved.

(c) Decision-making process. Agency procedures governing the voiding and rescinding decisionmaking process shall be as informal as practicable, consistent with the principles of fundamental

fairness. As a minimum, however, agencies shall provide the following:

(1) A notice of proposed action to declare void and rescind the contract shall be made in writing and

sent by certified mail, return receipt requested.

(2) A thirty calendar day period after receipt of the notice, for the contractor to submit pertinent

information before any final decision is made.

(3) Upon request made within the period for submission of pertinent information, an opportunity

shall be afforded for a hearing at which witnesses may be presented, and any witness the agency

presents may be confronted. However, no inquiry shall be made regarding the validity of a

conviction.

(4) If the agency head or designee decides to declare void and rescind the contracts involved, that

official shall issue a written decision which-

(i) States that determination;

(ii) Reflects consideration of the fair value of any tangible benefits received and retained by the

agency; and

(iii) States the amount due and the property to be returned to the agency.

(d) Notice of proposed action. The notice of proposed action, as a minimum shall-

(1) Advise that consideration is being given to declaring void and rescinding contracts awarded by

the agency, and recovering the amounts expended and property transferred therefor, under the

provisions of 18 U.S.C.218;

(2) Specifically identify the contracts affected by the action;

(3) Specifically identify the offense or final conviction on which the action is based;

(4) State the amounts expended and property transferred under each of the contracts involved, and

the money and the property demanded to be returned;
(5) Identify any tangible benefits received and retained by the agency under the contract, and the

value of those benefits, as calculated by the agency;

(6) Advise that pertinent information may be submitted within 30 calendar days after receipt of the

notice, and that, if requested within that time, a hearing shall be held at which witnesses may be

presented and any witness the agency presents may be confronted; and

(7) Advise that action shall be taken only after the agency head or designee issues a final written

decision on the proposed action.

(e) Final agency decision. The final agency decision shall be based on the information available to

the agency head or designee, including any pertinent information submitted or, if a hearing was

held, presented at the hearing. If the agency decision declares void and rescinds the contract, the

final decision shall specify the amounts due and property to be returned to the agency, and reflect

consideration of the fair value of any tangible benefits received and retained by the agency. Notice

of the decision shall be sent promptly by certified mail, return receipt requested. Rescission of

contracts under the authority of the Act and demand for recovery of the amounts expended and

property transferred therefor, is not a claim within the meaning of 41 U.S.C. chapter 71, Contract

Disputes, or part 32. Therefore, the procedures required by the statute and the FAR for the

issuance of a final contracting officer decision are not applicable to final agency decisions under this

subpart, and shall not be followed.