Sec. 1001. Enhancement of Department of Defense capabilities to deter and respond to contractor fraud

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Subsection

(a)of section 2207 of title 10, United States Code, is amended— by striking unless that contract provides that— and inserting unless that contract provides each of the following: ; in paragraph (1)— by inserting That after

(1); and by striking ; and and inserting a period; in paragraph (2), by inserting That, after

(2); and by inserting after paragraph

(2)the following new paragraphs: That with respect to a contract that could have been terminated under paragraph

(1)but for the prior completion of the contract’s performance, the United States is entitled to exemplary damages as set forth in paragraph (2), in accordance with the notice and hearing process set forth in paragraph (1). That, with respect to a contract that is terminated under paragraph

(1)or, as specified in paragraph (3), could have been terminated under paragraph

(1)but for the prior completion of the contract’s performance, the United States may, after notifying the contractor but pending the determination concerning exemplary damages referred to in paragraph (2), withhold from payments otherwise due to the contractor under any contract between the contractor and the military department or Defense Agency that entered into the terminated (or completed) contract an amount that is up to 10 times the cost incurred by the contractor in giving gratuities to the officer, official, or employee concerned, as such cost is estimated by the Secretary. . Subsection

(b)of such section is amended— by inserting

(1)after

(b); and by adding at the end the following new paragraph: Paragraph

(4)of subsection

(a)does not apply to a contract awarded on behalf of a military department or Defense Agency by a department or agency of the United States outside of the Department of Defense. . Such section is further amended— by redesignating subsection (b), as amended by subsection

(b)of this section, as subsection (c); and by inserting after subsection

(a)the following new subsection (b): Exemplary damages recovered under subsection (a)(2) may be retained by the Secretary of Defense, if recovered by a Defense Agency, or by the Secretary concerned, if recovered by a military department, without regard to section 3302 of title 31. The Secretary of Defense and the Secretaries of the military departments shall each establish a Fraud-Fighting Fund for use by the Defense Agencies, in the case of the fund established by the Secretary of Defense, or military department, in the case of a fund established by the Secretary concerned, which shall be available to provide funds, in addition to funds which may be otherwise available for activities including training, investigations, administrative proceedings, enforcement actions, and other related activities associated with deterring and preventing fraud. Exemplary damages recovered under subsection (a)(2), shall be paid into the appropriate fund and shall be available until expended. . Subsection (a)(1) of such section, as amended by subsection (a), is further amended by inserting and by a preponderance of the evidence after after notice and hearing . Subsection

(a)of such section is further amended by striking clause

(1)in paragraph

(2)and in the flush sentence at the end and inserting paragraph

(1). The amendments made by this section shall apply to contracts that are awarded on or after the date that is 180 days after the date of the enactment of this Act. Section 2410m(a) of title 10, United States Code, is amended— by inserting or arising from a recovery of exemplary damages under section 2207 of this title, after of title 41 ; by striking or at the end of paragraph (2); by striking the period at the end of paragraph

(3)and inserting ; or ; and by adding at the end the following new paragraph: any determination under section 2207 of this title. . Regulations governing actions under section 2207 of title 10, United States Code, shall be revised to implement the amendments to that section made by this section not later than 180 days after the date of the enactment of this Act.