[Title 32 CFR H]
[Code of Federal Regulations (annual edition) - July 1, 2002 Edition]
[Title 32 - NATIONAL DEFENSE]
[Chapter V - DEPARTMENT OF THE ARMY]
[Subchapter A - AID OF CIVIL AUTHORITIES AND PUBLIC RELATIONS]
[Part 516 - LITIGATION]
[Subpart H - Remedies in Procurement Fraud and Corruption]
[From the U.S. Government Printing Office]


32NATIONAL DEFENSE32002-07-012002-07-01falseHSubpart HNATIONAL DEFENSEDEPARTMENT OF THE ARMYAID OF CIVIL AUTHORITIES AND PUBLIC RELATIONSLITIGATION
         Subpart H--Remedies in Procurement Fraud and Corruption



Sec. 516.57  Purpose.

    This subpart delineates the policies, procedures, and 
responsibilities for reporting and resolving allegations of procurement 
fraud or irregularities (PFI) within DA. It implements DOD Directive 
7050.5. (See appendix D to this part.)



Sec. 516.58  Policies.

    (a) Procurement fraud and irregularities will be promptly and 
thoroughly addressed whenever encountered. Reports will be initiated in 
a timely manner and will be supplemented as appropriate.
    (b) Investigations will be monitored to see that interim corrective 
action is taken and that final action is taken as expeditiously as 
possible.
    (c) This regulation establishes the Procurement Fraud Division 
(PFD), U.S. Army Legal Services Agency, as the single centralized 
organization within the Army to coordinate and monitor criminal, civil, 
contractual, and administrative remedies in significant cases of fraud 
or corruption relating to Army procurement.
    (d) The key elements of the Army's procurement fraud program follow:

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centralized policy making and program direction; fraud remedies 
coordination; decentralized responsibility for operational matters, such 
as reporting and remedial action; continuous case monitorship by PFD 
from the initial report until final disposition; and, command-wide fraud 
awareness training.
    (e) Remedies for PFI will be pursued in a timely manner and properly 
coordinated with other agencies. Every effort will be made to support 
criminal investigation and prosecution of fraudulent activity.
    (f) A specific remedies plan will be formulated for each significant 
case of fraud or corruption involving procurement.
    (g) Coordination on the status and disposition of cases will be 
maintained between PFD, OTJAG, PFI Coordinators at MACOMs, and 
Procurement Fraud Advisers at subordinate commands. Coordination of 
procurement and personnel actions will be accomplished with 
investigative agencies as required by those agencies.
    (h) Training which relates to fraud and corruption in the 
procurement process is a significant element of this program.



Sec. 516.59  Duties and procedures.

    (a) TJAG has overall responsibility for the coordination of remedies 
in procurement fraud and corruption within the Army. This responsibility 
has been delegated to PFD. Functions of PFD will include the following:
    (1) Serving as the single centralized organization in the Army to 
monitor the status of, and ensure the coordination of, criminal, civil, 
contractual, and administrative remedies for each significant case of 
fraud or corruption.
    (2) Receiving reports of procurement fraud and corruption from any 
source including, but not limited to the following: DOD criminal 
investigative organizations; audit agencies; contracting officers; 
inspectors general of the executive branch; correspondence from the 
public; and, commanders. This provision does not repeal any other 
reporting requirement but establishes PFD as a recipient of PFI 
information at the earliest possible time.
    (3) Establishing a monitoring system within OTJAG for all cases of 
fraud and corruption that relate to Army procurement.
    (4) Discussing regularly with the U.S. Army Criminal Investigation 
Command (USACIDC) or the assigned DOD criminal investigative 
organization the current status of significant fraud or corruption cases 
and their coordination with prosecutive authorities.
    (5) Ensuring that all criminal, civil, contractual, and 
administrative remedies are considered in each significant fraud or 
corruption case and that timely and applicable remedies are undertaken 
by commanders, contracting officers, and suspension and debarment 
authorities. For example, consideration of suspension or debarment of a 
contractor or individual should normally be initiated within 30 days of 
indictment or conviction.
    (6) Coordinating, as appropriate, with other DOD components affected 
by a significant fraud or corruption case being monitored by the Army.
    (7) Developing, with the responsible DOD investigative organization, 
Procurement Fraud Coordinators and Advisers, and other involved 
agencies, a specific comprehensive remedies plan for each significant 
fraud or corruption case.
    (8) Coordinating remedies with DOJ. In the case of ongoing criminal 
investigations, coordinate remedies through, or with the prior knowledge 
of, the DOD criminal investigative organization responsible for the 
case.
    (9) In significant fraud or corruption cases, identifying and 
documenting any known adverse impact on a DOD mission, and including the 
information in any remedies plan.
    (10) Providing the appropriate DOD criminal investigative 
organization with information concerning final remedies as a result of 
an investigation by that organization.
    (11) Receiving notifications from criminal investigative agencies 
concerning substituted, defective, and counterfeit hardware in which a 
serious hazard to health, safety or operational readiness is indicated; 
ensuring that appropriate safety, procurement and program officials are 
informed in

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accordance with enclosure 3 of DOD Directive 7050.5. PFD will 
specifically ensure that contract reviews (DD 350 reports) and adverse 
impact statements (See Sec. 516.64(c)(2) are prepared, and that such 
information is used to determine if further inquiry is warranted to 
prevent reoccurrence and to detect other possible fraud. Impact 
statements will not be released to prosecutive agencies until reviewed 
by PFD. When appropriate, PFD will coordinate with other DOD agencies to 
establish a lead agency for victim impact statements in multi-DOD agency 
cases.
    (b) The Commanding General, USACIDC, will take the following 
actions:
    (1) Notify PFD of any investigations involving fraud or corruption 
related to procurement activities.
    (2) Notify other DOD component criminal investigative organizations 
when investigations involving fraud or corruption affect that component. 
This includes evidence of fraud by a contractor, subcontractor, or 
employee of either, on current or past contracts with, or affecting, 
that component.
    (3) Notify the Defense Investigative Service of any investigations 
that develop evidence which affects DOD cleared industrial facilities or 
personnel.
    (4) Determine the effect on any ongoing investigations or 
prosecutions of any criminal, civil, contractual, or administrative 
actions being considered by a centralized organization and advise of any 
adverse impact.
    (5) Promptly provide commanders, contracting officers, Procurement 
Fraud Advisers, and suspension and debarment authorities, when needed to 
allow consideration of applicable remedies, any court records, 
documents, or other evidence of fraud or corruption from ongoing or 
completed criminal investigations. In cases of indictment or conviction 
of a contractor or individual, the information will be provided in time 
for initiation, if appropriate, of suspension or debarment action within 
30 days of the indictment or conviction.
    (6) Provide prosecutive authorities and centralized organizations 
with timely information on the adverse impact on a DOD mission of fraud 
or corruption that relates to DOD procurement activities. This 
information will be obtained from individuals such as the head of the 
contracting agency, appropriate commanders, and staff agencies. Some 
examples of adverse impact on a DOD mission are endangerment of 
personnel or property, monetary loss, compromise of the procurement 
process, or reduction or loss of mission readiness.
    (7) Discuss regularly with Procurement Fraud Advisers the status of 
significant investigations of fraud or corruption and their coordination 
with prosecutive authorities and provide documents and reports resulting 
from the investigations.
    (c) Commanders of service schools conducting procurement or 
procurement-related training (such as The Judge Advocate General's 
School, the U.S. Military Police School, and the U.S. Army Logistics 
Management Center) will ensure the following:
    (1) All procurement and procurement-related training includes a 
period of instruction on fraud and corruption in the procurement 
process. The length of the period of instruction will be appropriate to 
the duration and nature of the training.
    (2) Training materials are developed to support that training.
    (3) Training materials developed will be sent to MACOM PFI 
Coordinators.
    (d) MACOM commanders and heads of contracting activities will ensure 
the following:
    (1) Substantial indications of fraud or corruption relating to Army 
contracts or Army administered contracts are reported promptly to the 
supporting USACIDC element and the Procurement Fraud Division.
    (2) Information provided includes reports by contracting officers 
under DFARS 209.406-3.



Sec. 516.60  Procurement fraud and irregularities programs at MACOMs.

    (a) Command counsel and SJAs at MACOMs will develop a program and 
appoint an attorney as PFI Coordinator for their command. Chief counsel 
and SJAs at commands with procurement advisory responsibility will 
appoint an attorney as a Procurement Fraud Adviser (PFA) to manage the

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PFI program at their installations as well.
    (b) Provision may be made for activities not having sufficient 
attorney assets to obtain assistance from nearby installations that have 
a PFA.
    (c) Reports and recommendations will be transmitted through command 
channels to the PFI coordinator for the affected MACOM.
    (d) Command counsel, chief counsel, and SJAs will exercise 
supervisory authority to ensure effective operation of the fraud program 
and coordination of remedies within their organizations.
    (e) The MACOM PFI Coordinator will have overall responsibility for 
the design and implementation of the MACOM's procurement fraud program.
    (f) PFAs and PFI Coordinators will coordinate with the appropriate 
local CID or Defense Criminal Investigative Service (DCIS) activity to 
assure the prompt notification and coordination of all Procurement Fraud 
cases.



Sec. 516.61  Reporting requirements.

    (a) Typical fraud indicators during the procurement cycle are listed 
in figure D-1, appendix G, to this part. The mere presence of one or 
more of these indicators does not, by itself, require reporting under 
paragraph b of this section. Reports should be submitted if there is a 
reasonable suspicion of procurement fraud or irregularity or the 
procuring agency refers the matter for investigation.
    (b) ``Procurement Flash Reports'' will be transmitted by FAX 
directly to PFD whenever a PFI Coordinator or PFA receives notice of a 
PFI involving the Army. To facilitate filing, a separate sheet should be 
used for each case reported. These reports will provide a succinct 
summary of the following available information:
    (1) Name and address of contractor.
    (2) Known subsidiaries of parent firms.
    (3) Contracts involved in potential fraud.
    (4) Nature of potential fraud.
    (5) Summary of pertinent facts.
    (6) Possible damages.
    (7) Investigative agencies involved.
    (8) Local PFAs (name and phone numbers).

Any of the above categories that cannot be completed will be annotated 
as ``unknown at present.''
    (c) When a report is required by DFARS or is requested by PFD, the 
provisions of DFARS 209.406-3 (48 CFR 209.406-3) will be followed. That 
paragraph provides the basic content and format for PFI reports.
    (d) All personnel will cooperate to ensure that investigations and 
prosecutions of procurement fraud are completed in a timely and thorough 
manner. Requests for assistance from federal prosecutors should be 
processed through the local PFA whenever possible. Requests for federal 
investigators will be processed through the supporting USACIDC and the 
PFA will be notified. When the conduct of criminal investigations and 
prosecutions conflict with the progress of procurements, reasonable 
deference will be given to criminal investigators and prosecutors 
whenever possible. Any serious conflict that cannot be resolved at a 
local level will be immediately reported to the PFI Coordinator or PFD 
for action.
    (e) PFI Coordinators and PFAs may request access to information 
obtained during criminal investigations that is not protected by Fed. R. 
Crim. P. 6(e) and use this information to assist them in taking 
appropriate administrative, contractual, and civil remedies. Requests 
for this information should be made directly to the appropriate federal 
investigative agency. The investigative organization may withhold 
requested information if release would compromise an investigation. 
Difficulties in obtaining information which cannot be resolved locally 
will be referred to PFD for appropriate action.
    (f) USACIDC will notify, in writing, local PFAs as well as PFD 
within 30 days, of initiation of a significant investigation of fraud or 
corruption related to Army procurement activities. Such notification 
will include the following:
    (1) Case title.
    (2) USACIDC Report of Investigation number.
    (3) Responsible investigative agency or agencies.
    (4) Office of primary responsibility.
    (5) Date opened.

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    (6) Summary of facts.
    (7) Suspected offense.
    (g) The transmission of the information in f above may be delayed if 
the Commanding General, USACIDC, or the head of another DOD criminal 
investigation organization determines the transmission would compromise 
the success of any case or its prosecution. The prosecutive authorities 
dealing with the case will be consulted, when appropriate, in making 
such determinations.
    (h) USACIDC will obtain the following information at the earliest 
possible point in an investigation of fraud or corruption that relates 
to DOD procurement activities, whenever possible without reliance on 
grand jury subpoenas:
    (1) The individuals suspected to be responsible.
    (2) The suspected firm's organizational structure.
    (3) The firm's financial and contract history.
    (4) The firm's organizational documents and records.
    (5) Statements of witnesses.
    (6) Monetary loss to the government.
    (7) Other relevant information.
    This information will be provided to PFD or other cognizant DOD 
centralized organization.
    (i) PFD will provide written notification to the Defense 
Investigative Service of all suspension or debarment actions taken by 
the Army.



Sec. 516.62  PFD and HQ USACIDC coordination.

    PFD and HQ USACIDC will coordinate as follows:
    (a) Discuss the status of significant procurement fraud or 
corruption investigations being conducted by USACIDC and possible 
remedies. These discussions should take place on a regular basis.
    (b) Discuss the coordination of possible criminal, civil, 
contractual, or administrative remedies with prosecutive authorities.
    (c) PFD will maintain liaison with other DOD centralized 
organizations and will coordinate remedies with those centralized 
organizations affected by a significant investigation of fraud or 
corruption that relates to DOD procurement activities.
    (d) Ascertain the effect on any ongoing investigation of the 
initiation of civil, contractual, or administrative remedies as follows:
    (1) PFD will maintain liaison with USACIDC and other DOD criminal 
investigative organizations in order to determine the advisability of 
initiating any civil, contractual, or administrative actions.
    (2) USACIDC will advise PFD of any adverse effect on an 
investigation or prosecution by the initiation of civil, contractual, or 
administrative actions.



Sec. 516.63  Coordination with DOJ.

    (a) PFD will establish and maintain liaison with DOJ and the Defense 
Procurement Fraud Unit on significant fraud and corruption cases to 
accomplish the following:
    (1) Monitor criminal prosecutions.
    (2) Initiate litigation for civil recovery.
    (3) Coordinate administrative or contractual actions while criminal 
or civil proceedings are pending.
    (4) Coordinate settlement agreements or proposed settlements of 
criminal, civil, and administrative actions.
    (5) Respond to DOJ requests for information and assistance.
    (b) In cases where there is an ongoing criminal investigation, 
coordination with DOJ by any member of the Army normally will be 
accomplished by or through USACIDC or the cognizant DOD criminal 
investigative organization, or with the investigative organization's 
advance knowledge. This does not apply to the routine exchange of 
information between government attorneys in the course of civil 
litigation or the routine referral of cases to DOJ for civil recovery.
    (c) Initial contact by any attorney associated with the U.S. Army 
with a U.S. Attorney's office or DOJ, whether initiated by the Army 
attorney or not, will be reported to PFD. Activity after the initial 
contact will only be reported to PFD when the Army attorney feels there 
has been a significant event in the case. If the Army attorney is not a 
PFI Coordinator or a PFA, the matter should be referred to one of these

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two attorneys as soon as possible. Routine exchanges between Army 
attorneys and U.S. Attorney's offices or DOJ do not need to be brought 
to the attention of PFD.



Sec. 516.64  Comprehensive remedies plan.

    (a) A specific, comprehensive remedies plan will be developed in 
each significant investigation involving fraud or corruption that 
relates to Army procurement activities. When possible, these plans 
should be forwarded with the DFARS 209.406-3 reports. In no case, 
however, should the report be delayed an appreciable time pending 
completion of the plan. The format for a remedies plan is at figure H-2, 
appendix G, to this part.
    (b) The plan will be developed initially by the PFA with the 
participation of the appropriate criminal investigators and other 
relevant personnel such as the contracting officer. In significant cases 
the PFA should also coordinate a remedies plan early with PFD. Defective 
product/product substitution remedies plans must comply with the 
requirements of appendix D to this part.
    (c) A comprehensive remedies plan will include at a minimum the 
following information and considerations:
    (1) Summary of allegations and investigative results.
    (2) Statement of any adverse impact on a DOD mission. DOD 
investigative organizations, commanders, or procurement officials will 
also provide this information to prosecutive authorities to enhance 
prosecution of offenses or to prepare a victim impact statement pursuant 
to Fed. R. Crim. P. 32(c)(2).
    (3) The impact upon combat readiness and safety.
    (4) Consideration of each criminal, civil, contractual, and 
administrative remedy available, and documentation of those remedies, 
either planned, in progress, or completed.
    (5) Restrictions on the pursuit of any remedies such as grand jury 
information or possible compromise of the investigation.
    (d) When remedies plans are received by PFD they will be coordinated 
with the headquarters of the appropriate DOD criminal investigative 
organization involved.
    (e) Testing necessary to support the investigation and remedies plan 
should comply with figure H-3, appendix G, to this part.



Sec. 516.65  Litigation reports in civil recovery cases.

    (a) All substantiated PFI cases will be evaluated by PFAs to 
determine whether it is appropriate to recommend civil recovery 
proceedings.
    (b) Recovery should be considered under both statutory and common 
law theories, including but not limited to the following:
    (1) False Claims Act, 31 USC 3729.
    (2) Anti-Kickback Act, 41 USC 51.
    (3) Sherman Act, 15 USC 1-7.
    (4) Racketeer Influenced and Corrupt Organizations Act, 18 USC 1961-
1968.
    (5) Common law fraud.
    (6) Unjust enrichment.
    (7) Constructive trust.
    (8) Cases where contracts have been procured in violation of the 
conflict of interest statute, 18 USC 218. See K&R Engineering Co. v. 
United States, 616 F.2d 469 (Ct. Cl., 1980).
    (c) When civil recovery appears possible, PFD should be consulted to 
determine if a litigation report is necessary. If requested by PFD, the 
report should summarize the available evidence and applicable theories 
of recovery and be prepared under Sec. 516.23 of this part. To avoid 
unnecessary duplication of effort, recovery reports may include and make 
liberal references to other reports previously prepared on a given case 
such as the DFARS 209.406-3 (48 CFR 209.406-3) report.
    (d) The MACOM PFI coordinator and PFA will monitor all civil fraud 
recovery efforts throughout the command and will provide training and 
technical assistance as required. Status reports of all civil fraud 
recovery efforts will be provided through channels as required by PFD.



Sec. 516.66  Administrative and contractual actions.

    (a) The following remedial options should be considered in response 
to confirmed fraudulent activity:
    (1) Contractual.

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    (i) Termination of contract for default.
    (ii) Nonaward of contract based upon a finding of contractor 
nonresponsibility. (If this appears to be a valid option, a DFARS 
209.406-3 (48 CFR 209.406-3) report must be prepared where contractor 
nonresponsibility is based on lack of integrity).
    (iii) Rescission of contract.
    (iv) Revocation of acceptance.
    (v) Use of contract warranties.
    (vi) Withholding of payments to contractor. In the case of 
withholding pursuant to DFARS 2032.173, the Chief, PFD, is the Army 
Remedy Coordinating Official.
    (vii) Offset of payments due to contractor from other contracts.
    (viii) Revocation of facility security clearances.
    (ix) Increased level of quality assurance.
    (x) Refusal to accept nonconforming goods.
    (xi) Denial of claims submitted by contractors.
    (xii) Removal of contract from automated solicitation or payment 
system.
    (2) Administrative.
    (i) Change in contracting forms and procedures.
    (ii) Removal or reassignment of government personnel.
    (iii) Review of contract administration and payment controls.
    (iv) Revocation of warrant of contracting officer.
    (v) Suspension of contractor.
    (vi) Debarment of contractor.
    (b) In cases which are pending review or action by DOJ, PFAs should 
coordinate with the DOJ attorney handling the case prior to initiating 
any contractual or administrative remedy. In the case of ongoing 
criminal investigations, this coordination will be accomplished through 
the appropriate DOD criminal investigation organization.



Sec. 516.67  Overseas cases of fraud or corruption.

    (a) Commanders of overseas major commands will establish procedures, 
similar to this regulation and consistent with the DFARS, and 
regulations and directives of their respective unified commands, for 
reporting and coordination of available remedies in overseas procurement 
fraud and corruption cases involving foreign firms and individuals. 
Overseas major commands will also maintain liaison with PFD and provide 
periodic reports of remedies coordination results.
    (b) Overseas suspension and debarment actions are governed by DFARS 
209.403 (48 CFR 209.403). The names of all firms and individuals 
suspended or debarred will be expeditiously forwarded to PFD for 
inclusion on the List of Parties Excluded From Federal Procurement or 
NonProcurement Programs.
    (c) Overseas cases of fraud or corruption related to the procurement 
process that involve U.S. firms or U.S. citizens may be referred to PFD 
for coordination of remedies under this regulation.



Sec. 516.68  Program Fraud Civil Remedies Act (PFCRA).

    (a) PFCRA was enacted on 21 October 1986 (Public Law 99-509) and 
implemented by DOD on 30 August 1988 (DOD Directive 5505.5). (See 
appendix E to this part.)
    (b) PFCRA expands the capability of the government to deter and 
recover losses from false, fictitious or fraudulent claims and 
statements. It is also applicable to program fraud and provides an 
administrative remedy in addition to those otherwise available to the 
Army in procurement fraud or pay and entitlements fraud cases.
    (c) As part of the Army implementation, the Secretary of the Army's 
duties and responsibilities under PFCRA as Authority Head are delegated 
to the Army General Counsel. The Chief, Intellectual Property Law 
Division, is the Army's Reviewing Official within the meaning of PFCRA. 
Army implementation also requires DA to follow the policies and 
procedures prescribed in enclosure 2 of DOD Directive 5505.5. (See 
appendix E to this part.)
    (d) The DOD Inspector General (IG) is the Investigating Official 
within DOD. The duties of this position will be performed by the 
Assistant IG For Investigations. This individual is vested with the 
authority to investigate all allegations of liability under PFCRA. That 
authority includes the power to

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task subordinate investigative agencies to review and report on 
allegations that are subject to PFCRA. If the Investigative Official 
concludes that an action under PFCRA is warranted in an Army case, the 
official will submit a report containing the findings and conclusions of 
such investigation through PFD to the Army Reviewing Official.
    (e) Pursuant to DOD IG guidance, USACIDC will forward appropriate 
cases that appear to qualify for resolution under PFCRA to the 
Investigating Official in a timely manner. Additionally, USACIDC will 
forward current information regarding the status of remedies pending or 
concluded. USACIDC may obtain remedies information by coordinating with 
PFD and the cognizant command.
    (f) In pay and entitlement or transportation operation fraud cases, 
USACIDC will coordinate with the Office of the Secretary of the Army, 
Financial Management, Review and Oversight Directorate (SAFM-RO), to 
determine the status of any pending or proposed action under the Debt 
Collection Act. This information, in addition to information obtained 
under Sec. 517.68(e), will be forwarded with appropriate cases to the 
Investigating Official.
    (g) In those cases where the Investigating Official has submitted a 
report to the Army Reviewing Official for action under PFCRA, PFD will, 
at the direction of the Reviewing Official, prepare all legal memoranda 
as necessary to transmit the Reviewing Official's intention to issue a 
complaint. As part of this responsibility PFD will do the following: 
coordinate with the affected command or agency to ensure that all 
appropriate remedies have been considered; evaluate the overall 
potential benefits to the Army; and, ensure that action under PFCRA is 
not duplicative of other remedies already taken. In order to fully 
supplement the Reviewing Official's file, PFD may request a litigation 
report.
    (h) PFD will coordinate all cases involving transportation 
operations emanating from Military Traffic Management Command (MTMC) 
activity, under the military transportation exception to the FAR, and 
all cases involving pay and entitlements fraud with SAFM-RO, for 
comments and recommendations. These matters will be forwarded with the 
case file to the Reviewing Official.
    (i) If the Attorney General approves the issuance of a complaint, 
PFD, at the direction of the Army Reviewing Official, shall prepare the 
complaint and all necessary memoranda as required. PFD shall also 
designate attorneys to represent the Authority in hearings under PFCRA.