[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2044]


[[Page Unknown]]

[Federal Register: February 1, 1994]


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DEPARTMENT OF AGRICULTURE

Rural Electrification Administration

7 CFR Part 1726

 

Permitted Contract Modifications--Indemnification

AGENCY: Rural Electrification Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Electrification Administration (REA) proposes to 
amend its regulations by adding a new subpart. This subpart will allow 
borrowers to alter REA's standard forms of electric construction 
contracts by inserting an alternative provision relating to 
indemnification of the owner (borrower) by the contractor. Some 
borrowers have requested approval to incorporate an alternative 
indemnification clause in certain contracts that they feel provides 
them protection in addition to that afforded by the existing clause. 
When this proposed rule is finalized, borrowers may use the alternative 
indemnification provision contained in this provision.
DATES: Written comments must be received by REA, or bear a postmark or 
equivalent, no later than April 4, 1994.
ADDRESSES: Submit written comments to Archie W. Cain, Director, 
Electric Staff Division, Rural Electrification Administration, Room 
1246-S, U.S. Department of Agriculture, Washington, DC 20250-1500. REA 
requires a signed original and 3 copies of all comments (7 CFR 
1700.30(e)). Comments will be made available for public inspection at 
room 2234 South Building between 8:30 a.m. and 5 p.m. on official work 
days (7 CFR 1.27 (b)).

FOR FURTHER INFORMATION CONTACT: Mr. Fred J. Gatchell, Deputy Director, 
Electric Staff Division, Rural Electrification Administration, U.S. 
Department of Agriculture, Washington, DC 20250-1500. Telephone (202) 
720-1398.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule is issued in conformance with Executive Order 
12866.

Regulatory Flexibility Act Certification

    This action does not fall within the scope of the Regulatory 
Flexibility Act.

Information Collection and Recordkeeping Requirements

    This proposed rule contains no information collection or 
recordkeeping requirements under the Paperwork Reduction Act of 1980 
(Pub. L. 96-511).

National Environmental Policy Act Certification

    The Administrator of REA has determined that this proposed rule 
will not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    This program described by this proposed rule is listed in the 
Catalog of Federal Domestic Assistance under Number 10.850, Rural 
Electrification Loans and Loan Guarantees. This catalog is available on 
a subscription basis from the Superintendent of Documents, the United 
States Government Printing Office, Washington, DC 20402. Telephone 
(202) 720-3238.

Executive Order 12372

    This proposed rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation, which may require consultation 
with State and local officials. A Notice of Final Rule entitled 
Department Programs and Activities Excluded from Executive Order 12372 
(50 FR 47034) exempts REA loans and loan guarantees from coverage under 
this order.

Executive Order 12778

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. If adopted, this proposed rule will not:
    (1) Preempt any State or local laws, regulations, or policies 
unless they present an irreconcilable conflict with this rule;
    (2) Have any retroactive effect; or
    (3) Require administrative proceedings before parties may file suit 
challenging the provisions of this rule.

Background

    REA requires as a tenet of its loan agreement with borrowers that 
borrowers use standard contract forms for certain construction, 
material supply, equipment supply, architectural services, and 
engineering services contracts. The construction contract forms contain 
a standard indemnification (also called ``hold harmless'') clause 
pursuant to which the contractor agrees to indemnify the owner against 
certain risks. Some borrowers have requested approval to incorporate an 
alternative indemnification clause in certain contracts that they feel 
provides them protection in addition to that afforded by the existing 
clause. Some contractors have expressed concern about the extent of 
their potential liability under such a modified indemnification 
provision, particularly for certain actions of the owner. REA has 
determined that it is in the Government's and the borrowers' best 
interest to have a reasonable and balanced indemnification provision: 
one that provides adequate protection for the borrower while not 
placing an unreasonable business risk on the contractor. An 
indemnification provision that does not adequately protect the borrower 
could expose the borrower to liability for damages which could endanger 
the Government's loan security. An indemnification provision which 
places an unreasonable business risk on the contractor could result in 
qualified, capable contractors declining to bid under such conditions, 
which could result in reduced competition and higher costs. It could 
even result in the borrower being exposed to increased liability if 
only financially weak contractors bid, since the contractor may be 
financially unable to meet its indemnification obligations. REA has 
also determined that reasonable uniformity in the borrowers' contract 
language is necessary for the orderly administration of the program and 
gives REA, the borrowers, and the contractors comfort that past 
experience with the contract language will continue in the future. 
Therefore, it is appropriate to publish an alternative indemnification 
clause which borrowers may use in lieu of the standard indemnification 
clause currently required in REA contract forms.
    REA recognizes that indemnification and insurance are related 
issues. REA considered certain additional contractor insurance 
requirements, such as requiring the borrower and/or the engineer to be 
named as additional insured and requiring ``contractual liability'' 
insurance, but has decided to make no changes in the contractor 
insurance requirements at this time. However, comments are invited on 
this related issue.
    Several engineering firms have expressed a desire to include the 
engineer within the scope of the borrower's indemnification clause 
because of the nature of the relationship between the borrower and the 
engineer. Since the engineer is an entity independent of the borrower 
and has no direct contractual relationship with the contractor, REA has 
determined that a clear separation should be maintained between the 
engineer and the contractor. Therefore, the proposed indemnification 
clause does not extend to the engineer. However, comments are invited 
on this issue.

List of Subjects in 7 CFR Part 1726

    Electric power, Loan programs--energy, Rural areas.

    For reasons set forth in the preamble, REA proposes to amend 7 CFR 
part 1726 as follows:

PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES

    1. The authority citation for part 1726 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.

    2. Subpart H of part 1726 is added to read as follows:

Subpart H--Modifications to REA Standard Contract Forms

Sec.
1726.250--1726.255  [Reserved]
1726.256 Permitted contract modifications--indemnification.

Subpart H--Modifications to REA Standard Contract Forms


Secs. 1726.250--1726.255  [Reserved]


Sec. 1726.256  Permitted contract modifications--indemnification.

    (a) As an alternative to the indemnification provision required in 
REA standard construction contract forms, the borrower may insert the 
following:

    ``i. To the maximum extent permitted by law, Bidder shall 
defend, indemnify, and hold harmless Owner and Owner's directors, 
officers, and employees from all claims, causes of action, losses, 
liabilities, and expenses (including reasonable attorney's fees) for 
personal loss, injury, or death to persons (including but not 
limited to Bidder's employees) and loss, damage to or destruction of 
Owner's property or the property of any other person or entity 
(including but not limited to Bidder's property) in any manner 
arising out of or connected with the Contract, or the materials or 
equipment supplied or services performed by Bidder, its 
subcontractors and suppliers of any tier. But nothing herein shall 
be construed as making Bidder liable for any injury, death, loss, 
damage, or destruction caused by the sole negligence of Owner.
    ii. To the maximum extent permitted by law, Bidder shall defend, 
indemnify, and hold harmless Owner and Owner's directors, officers, 
and employees from all liens and claims filed or asserted against 
Owner, its directors, officers, and employees, or Owner's property 
or facilities, for services performed or materials or equipment 
furnished by Bidder, its subcontractors and suppliers of any tier, 
and from all losses, demands, and causes of action arising out of 
any such lien or claim. Bidder shall promptly discharge or remove 
any such lien or claim by bonding, payment, or otherwise and shall 
notify Owner promptly when it has done so. If Bidder does not cause 
such lien or claim to be discharged or released by payment, bonding, 
or otherwise, Owner shall have the right (but shall not be 
obligated) to pay all sums necessary to obtain any such discharge or 
release and to deduct all amounts so paid from the amount due 
Bidder.
    iii. Bidder shall provide to Owner's satisfaction evidence of 
Bidder's ability to comply with the indemnification provisions of 
subparagraphs i and ii above, which evidence may include but may not 
be limited to a bond or liability insurance policy obtained for this 
purpose through a licensed surety or insurance company.''

    (b) If the alternative in paragraph (a) of this section is chosen 
by the borrower, the language of paragraph (a) of this section would be 
inserted in lieu of the last sentence of the section indicated in the 
following REA standard construction contract forms:

                                                                        
------------------------------------------------------------------------
        Form No.                  Title             Designated Section  
------------------------------------------------------------------------
200....................  Construction Contract--  Article IV, Section 1 
                          Generating.              (c)                  
201....................  Right-of-Way Clearing    Article IV, Section 1 
                          Contract.                (e)                  
203....................  Transmission System      Article IV, Section 1 
                          Right-of-Way Clearing    (f)                  
                          Contract.                                     
257....................  Contract to Construct    Article IV, Section 1 
                          Buildings.               (b)                  
764....................  Substation and           Article IV, Section 1 
                          Switching Station        (f)                  
                          Erection Contract.                            
786....................  Electric System          Article IV, Section 1 
                          Communications and       (c)                  
                          Control Equipment                             
                          Contract.                                     
790....................  Distribution Line        Article IV, Section 1 
                          Extension Construction   (f)                  
                          Contract (labor &                             
                          materials).                                   
792....................  Distribution Line        Article IV, Section 1 
                          Extension Construction   (f)                  
                          Contract (labor only).                        
830....................  Electric System          Article IV, Section 1 
                          Construction Contract    (f)                  
                          (labor & material).                           
831....................  Electric Transmission    Article IV, Section 1 
                          Construction Contract    (f)                  
                          (labor & material).                           
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    (c) In Forms 201, 790, and 792, the word ``Contractor'' would 
replace the word ``Bidder'' in the alternative indemnification clause 
in paragraph (a) of this section.
    (d) In Form 786, the word ``Seller'' would replace the word 
``Bidder'' and the word ``Purchaser'' would replace the word ``Owner'' 
in the alternative indemnification clause in paragraph (a) of this 
section.
    (e) Nothing in this section modifies existing requirements relating 
to REA approval of contracts.
Dated: January 25, 1994.

Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc 94-2044 Filed 1-31-94; 8:45 am]
BILLING CODE 3410-15-F