[Federal Register Volume 59, Number 168 (Wednesday, August 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21536]


[[Page Unknown]]

[Federal Register: August 31, 1994]


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DEPARTMENT OF ENERGY
Office of Procurement and Assistance Management

 

Contractor Litigation Costs Policies; Policies, Terms of Law Firm 
Engagement, and Allowability of Costs

AGENCY: Department of Energy.

ACTION: Notice of interim policy statement.

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SUMMARY: The Department of Energy today publishes an interim 
Acquisition Letter for public comment that has been issued to 
contracting officers who are responsible for the administration of 
management and operating contracts. The letter sets forth interim 
policies regarding two contract clauses that are prescribed by the 
Department of Energy Acquisition Regulation. The letter sets forth a 
statement of policy with regard to the terms of engagement that should 
be a condition of any authorization to a current or former management 
and operating contractor to engage a law firm to defend a lawsuit. The 
letter also sets forth policies for a contracting officer's 
consideration in determining whether particular litigation costs are 
reasonable and therefore allowable.

DATES: The effective dates are set forth in the interim Acquisition 
Letter. Comments are due on or before September 30, 1994.

ADDRESSES: Comments may be submitted to Marc Johnston, Deputy General 
Counsel for Judicial Litigation, U.S. Department of Energy, Washington, 
DC 20585.

FOR FURTHER INFORMATION CONTACT: Marc Johnston, Deputy General Counsel 
for Judicial Litigation, U.S. Department of Energy, Washington, DC 
20585 (202) 586-2909.

SUPPLEMENTARY INFORMATION: The Department of Energy (Department) owns 
facilities in various locations in the United States which have been 
operated by former and current management and operating contractors. In 
connection with these facilities, there is a substantial amount of 
litigation against which the Department may elect to defend itself or 
authorize the contractor to defend. The standard provisions of 
management and operating contracts allow contracting officers to 
authorize contractors to engage lawyers to defend lawsuits, subject to 
such conditions as the contracting officers deem appropriate. See 48 
CFR 970.5204-31. The standard provisions of management and operating 
contracts also authorize contracting officers to determine whether the 
costs charged are reasonable and therefore allowable when allocable to 
contract work. See 48 CFR 970.5204-13.
    Recently, the Department has experienced unacceptably high 
litigation costs from management and operating contractors in 
connection with the defense of lawsuits where the Department has 
elected to have the contractor engage lawyers to conduct the 
litigation. Moreover, contracting officers dealing with these costs 
have differed in their approaches to determining whether a litigation 
cost is reasonable. The Department has an urgent need to provide for a 
more uniform approach by contracting officers to such costs and to stem 
payment of unreasonable expenses. This need is particularly compelling 
in light of the substantial dollar amounts at stake and the 
Department's budgetary situation. In view of the foregoing, the 
Department has issued the Acquisition Letter set forth below as an 
interim policy, the effective dates of which are set forth below. The 
Department will receive and consider public comment prior to issuing a 
final version of this Acquisition Letter.
    The provisions of the policy are largely self-explanatory. They are 
based on past experience of the contractors, the Department of Energy, 
and other federal agencies (including the Federal Deposit Insurance 
Corporation and Resolution Trust Corporation) in managing and 
controlling litigation costs throughout the Nation, and should provide 
a reasonable decisionmaking framework for contracting officers without 
being unnecessarily constraining. If any of the provisions of the 
policy would be unreasonable as applied, contracting officers have 
discretion to depart from the policy based upon particular facts and 
circumstances.
    The Department is seeking public comment on the interim Acquisition 
Letter in order to give the public, including those persons who are 
affected by the policies, an opportunity to comment on the interim 
Letter before it is finalized.

    Issued in Washington, DC, on August 26, 1994.
Richard H. Hopf,
Deputy Assistant Secretary, Office of Procurement and Assistance 
Management.

    Acquisition Letter 94-13, August 25, 1994.
    Authority: This Acquisition Letter (AL) is issued by the 
Procurement Executive pursuant to a delegation from the Secretary 
and under authority of the Department of Energy Acquisition 
Regulation (DEAR) Subpart 901.301-70.

Contents

                                                                        
    Citation                              Title                         
                                                                        
970.5204-13.....  Allowable costs and fixed-fee (Management and         
                   Operating Contracts)                                 
970.5204-31.....  Litigation and claims                                 
                                                                        

I. Purpose

    The purpose of this AL is to establish interim policies on the 
reasonableness of Management and Operating (``M&O'') contractor 
litigation costs.

II. Background

    Under the allowable costs clause of the Department's M&O contracts, 
attorneys' fees and other litigation costs are allowable only if 
reasonable and incurred in accordance with the Litigation and claims 
clause. The policies set forth below are a prospective reference to aid 
in Contracting Officers' determinations as to whether contractor 
litigation costs under M&O contracts are reasonable.
    The Department recognizes that these policies can be most 
effectively achieved for pending cases through the cooperation of the 
contractors and the law firms involved. The Department intends to work 
closely with the contractors to ensure a smooth implementation that 
will not compromise the defense of pending matters.

III. Guidance

    These policies apply to reimbursement of present and former M&O 
contractors for amounts paid to outside law firms and consultants 
(``outside firms'') in connection with litigation to which the 
contractor is a party, except to the extent the contractor's own 
litigation procedures or current retainer agreements contain more cost-
restrictive provisions. The Contracting Officer, or his or her 
designated representative (hereinafter ``Contracting Officer''), may, 
after consultation with Department counsel, authorize an exception to 
the policies described below based upon economy, the interests of the 
Government, or other good cause. These policies may be modified, from 
time to time, as the Department determines appropriate. The Contracting 
Officer has authority to exclude from these policies cases whose 
expected costs of defense are less than $25,000 and/or routine matters 
handled by outside counsel retained and supervised by an insurance 
carrier.

A. Interim Policies

    Contracting Officers shall refer to and consider the following 
policies in determining the reasonableness of contractor litigation 
costs. The failure to specify or describe a particular category of cost 
in paragraphs III.A.1. through III.A.10. does not imply that such 
category of cost is either allowable or unallowable.
1. Terms Of Engagement
    In order for costs incurred by an M&O contractor for an outside 
firm to be considered reasonable, they shall be incurred in accordance 
with the terms of engagement between the contractor and the outside 
firm which have been approved by the Contracting Officer. The terms of 
engagement between the contractor and the outside firm shall 
incorporate and include the policies included in paragraphs III.A.1. 
through III.A.10. of this AL. The terms of engagement shall also 
provide that the outside firm will comply with the Department's 
Litigation Management Procedures, which, among other things, require a 
Staffing and Resource Plan (for significant cases), periodic case 
assessments and budgets, adequate audit provisions, and notification to 
the Department and the contractor of any significant change in the 
Staffing and Resource Plan.
    a. Bills and invoices. All bills and invoices shall reflect the 
information and contents set forth in the model format of Attachment A. 
Any bill or invoice shall also contain a certification signed by a 
representative of the outside law firm to the effect that:
    ``Under penalty of law, [the representative] acknowledges the 
expectation that the bill will be paid by the contractor and that the 
contractor will be reimbursed by the Federal Government through the 
U.S. Department of Energy, and, based on personal knowledge and a good 
faith belief, certifies that the bill is truthful and accurate, and 
that the services and charges set forth herein comply with the terms of 
engagement and the policies set forth in [this Acquisition Letter], and 
that the costs and charges set forth herein are necessary for the 
litigation.''
    b. Audit. All terms of engagement must contain a provision for 
auditing expenditures under the terms of engagement to determine and 
ensure compliance with the terms of engagement and the provisions of 
the prime contract, and to determine the accuracy of any bill or 
invoice for the services of the outside firm. The provision shall 
include a statement that:
     [The outside firm] expects that the costs of the services 
rendered under the terms of engagement will be paid by the contractor 
and that the contractor will be reimbursed by the Federal Government 
through the U.S. Department of Energy.
     [The contractor] and the Department of Energy, its 
designated representative, and the General Accounting Office, have the 
right upon request, at reasonable times and at reasonable locations, to 
inspect, copy, and audit all records documenting billable fees and 
costs under the terms of engagement, the systems employed by [the 
outside firm] to capture, record, and bill the fees and costs, and any 
other records relevant to the representation by the outside firm under 
the terms of engagement.
     [The outside firm] will retain all such records for a 
period of three (3) years after the final payment under the terms of 
engagement.
     The provision does not constitute a waiver of any 
applicable legal privilege, protection, or immunity with respect to 
disclosure of these records to third parties.
 2. Fees
    In determining whether fees or rates charged by an outside firm are 
reasonable for purposes of approving a contractor's terms of engagement 
with an outside firm, the Contracting Officer shall consider whether 
the contractor sought the lowest reasonably achievable fees or rates 
(including any currently available or possibly negotiable discounts) 
from the outside firm, whether the contractor considered rates 
available from other firms providing comparable services, and whether 
the contractor considered alternative rate structures such as flat, 
contingent, and other innovative proposals.
3. Profit And Overhead
    The rate or fee structure shall include all outside firm 
``overhead'' and ``profit,'' and, therefore, any additional overhead or 
profit charged by the outside firm shall be considered unreasonable. 
Similarly, any markups by the outside firm for supplies or services 
procured from third parties would be unreasonable. For instance, only 
the actual costs of messenger services shall be allowed, whether the 
service was performed by the outside firm or a third party. 
Additionally, any interest the contractor incurred on any outstanding 
(unpaid) bills from outside firms is not reimbursable under the DEAR.
4. Travel and Related Expenses
    Charges for air travel shall be the actual cost, not to exceed the 
coach class fare. Charges for local ground travel shall be the actual 
cost of the taxi service, or the existing Internal Revenue Service's 
mileage deduction allowance if the person drives his or her own 
automobile. Charges billed for meals, lodging and rental cars must be 
moderate. The rates set forth in the Federal Travel Regulations will be 
deemed presumptively reasonable. See 41 CFR ch. 301. Charges for luxury 
hotels, cars, or services such as movies and fitness facilities are 
neither necessary nor reasonable.
    Travel by more than one person from an outside law or consulting 
firm to attend a deposition, court hearing, interview, or meeting 
outside the person's home office shall not be considered reasonable 
except when authorized by contractor counsel in accordance with 
procedures agreed upon with Department counsel.
    Any travel time may be reimbursed at a full rate for the portion of 
time during which the outside firm performs work for the contractor. 
For air travel, any remaining travel time during normal working hours 
shall be reimbursed at 50 percent. In no event is travel time for time 
during which work was performed for other clients reimbursable.
5. Copying
    Copying charges shall not exceed ten cents a page, unless supported 
by a cost study and approved in advance by the Contracting Officer. 
Copying projects where volume would generate substantial savings should 
be sent to outside vendors when practicable and cheaper. As with costs 
for all supplies and services, the Contracting Officer should look to 
local commercial rates as a benchmark.
6. Telephone Charges and Faxes
    Charges billed for toll or long distance calls, including 
facsimile/telecopier transmissions, shall not exceed the actual charge 
for each call, with no overhead or surcharge adjustment.
7. Computer Time
    Charges for computer-assisted research shall not exceed the actual 
cost, with no overhead or surcharge adjustments.
8. Overtime and Certain Temporary Employees
    Secretarial and clerical overtime or costs of temporary support 
personnel billed by the outside firm shall not be charged, unless the 
Contracting Officer approves such overtime or temporary support 
personnel or the cost is caused or required by an emergency situation 
not of the contractor or the outside attorney's making. Time charged by 
summer associates should be scrutinized for its efficiency and 
consistency with the Staffing and Resource Plan.
9. Experts Employed by DOE Contractors
    If the contractor or outside counsel wishes to retain as a 
consultant in a matter an employee of another contractor of the 
Department of Energy, the requesting contractor must receive prior 
approval from the Department of Energy, which will attempt to furnish 
the expert directly through the contractor that currently employs the 
potential consultant. This policy does not alter any applicable 
provisions of the prime contract with either the requesting or the 
employing contractor.
10. Specific Non-reimbursable Costs
    The contracting officer shall not consider for reimbursement any 
proposed costs by the contractor for any direct costs incurred by 
outside firms for the following items: entertainment; alcoholic 
beverages; secretarial or clerical support time (except as provided 
under paragraph 8, above); word processing; computers or general 
application software; client development and related activities; trade 
publications, books, treatises, background materials, and other similar 
documents; professional/educational seminars and conferences; 
preparation of bills; parking fines or any other fines or penalties for 
illegal conduct; and food, beverages and the like when the attorney or 
consultant is not on travel status and away from the home office. An 
exception may be made, however, for reasonable expenses for working 
meals during an in-house meeting not in excess of $10 per person. No 
outside firm's bills are to contain any items representing 
disbursements made for the benefit of the contractor's employees, such 
as meals or lodging for contractor's current personnel (other than 
conference meals at which contractor personnel are present under this 
paragraph).

IV. Effective Dates

    These policies are effective with respect to determinations of 
reasonableness and allowability of costs for services rendered and 
expenses incurred:
    1. on or after October 1, 1994, for all class actions;
    2. on or after November 1, 1994, for all non-class actions 
commenced on or after October 1, 1994; and
    3. on or after February 1, 1995, for all non-class-action 
litigation commenced before October 1, 1994.

V. Expiration Date

    The Department is seeking public comment on these policies. This AL 
will remain in effect on an interim basis until the Department takes 
further action after reviewing any public comments on these policies.

            Attachment A.--U.S. Department of Energy, Office of General Counsel, Contractor Litigation Costs, Model Bill Format and contents            
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                                                                       I. FOR FEES                                                                      
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                                                                Name or initials of                                                    Amount (rate  x  
   Date of service             Description of service                 attorney            Approved rate           Time charged              time)       
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                       (See Note 1 below).                                                                                                              
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                                              II. FOR DISBURSEMENTS                                             
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           Date                            Description of disbursement                           Amount         
                           (See Note 2 below).                                                                  
Note 1.--Description of Service: All fees must be itemized and described in sufficient detail and specificity to
  reflect the purpose and nature of the work performed (e.g. subject matter researched or discussed; names of   
  participants of calls/meetings; type of documents reviewed).                                                  
Note 2.--Description of Disbursement: Description should be in sufficient detail to determine that the          
  disbursement expense was in accordance with all applicable DOE policies on contractor litigation costs and the
  terms of engagement between the contractor and the law firm (e.g. if copying charges, include number of pages 
  copied and cost per page).                                                                                    

[FR Doc. 94-21536 Filed 8-30-94; 8:45 am]
BILLING CODE 6450-01-P