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

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.

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 noncontroversial 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.
Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules 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
25796 Federal Register / Vol. 60, No. 92 / Friday, May 12, 1995 / Proposed Rules

(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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