[Federal Register Volume 60, Number 106 (Friday, June 2, 1995)]
[Rules and Regulations]
[Pages 28737-28741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13432]



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DEPARTMENT OF ENERGY

48 CFR Parts 933 and 970

RIN 1991-AB20


Acquisition Regulation; Department of Energy Management and 
Operating Contracts

AGENCY: Department of Energy.

ACTION: Final rule.

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SUMMARY: The Department of Energy (DOE) today amends the Department of 
Energy Acquisition Regulation (DEAR) to modify certain requirements for 
management and operating contractor purchasing systems. These 
requirements are revised to identify certain purchasing system 
objectives and standards; eliminate the application of the ``Federal 
norm''; and place greater reliance on commercial practices.

EFFECTIVE DATE: June 2, 1995.

FOR FURTHER INFORMATION CONTACT: James J. Cavanagh, Office of 
Contractor Management and Administration (HR-55), U.S. Department of 
Energy, 1000 Independence Avenue, SW., Washington, D.C. 20585; 
telephone 202-586-8257.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background.
II. Disposition of Comments.
III. Procedural Requirements.
    A. Review Under Executive Order 12866.
    B. Review Under the National Environmental Policy Act.
    C. Review Under the Paperwork Reduction Act.
    D. Review Under the Regulatory Flexibility Act.
    E. Review Under Executive Order 12612. [[Page 28738]] 
    F. Review Under Executive Order 12778.

I. Background

    A proposed rule was published in the March 2, 1995, Federal 
Register at 60 FR 11646. It proposed to amend the Department of Energy 
Acquisition Regulation (DEAR) to revise the requirements for management 
and operating (M&O) contractor purchasing systems by eliminating the 
concept of the ``Federal norm.'' In lieu of the detailed tenets 
contained in DEAR subpart 970.71, which have resulted in the 
inefficient layering of non-commercial systems and practices, the 
Department has identified certain purchasing system objectives and 
standards which it believes are common to superior purchasing 
activities, whether they be commercial or public. In this regard, the 
proposed rule proposed to amend, revise or remove Secs. 933.170, 
970.5204-22, 970.7101, 970.7102, and 970.7103 of the DEAR.
    The March 2 publication also proposed the removal of DEAR 970.7106, 
which prescribed procedures for the handling of mistake in bid 
situations in purchasing by M&O contractors. Further, the Department 
proposed the removal of DEAR 970.7107 which, until today, provided 
guidelines for the consideration of subcontractor level protests. The 
removal of this section is consistent with the General Accounting 
Office proposed rule published in the Federal Register on January 31, 
1995 at 60 FR 5871.
    Subsequent to the March 2 notice of proposed rulemaking, the 
Department published an amendment to the proposed rule in the April 27, 
1995, Federal Register at 60 FR 20663. The amendment dealt with 
administrative matters, mostly technical, that DOE reserved for further 
analysis during the comment period for the March 2 notice of proposed 
rulemaking. The comment period on the April 27 amendment to the 
proposed rulemaking ended on May 30, 1995. The Department wishes to 
effect the changes set forth in the March 2 proposed rulemaking and the 
April 27 amendment thereto as quickly as possible to enable the DOE 
contractor community to implement the changes to Subpart 970.71 of the 
DEAR without delay. Accordingly, the Department is finalizing the 
changes in the March 2 proposed rulemaking and the April 27 amendment 
in two stages. With two exceptions, today's rule finalizes the changes 
proposed in March 2 notice of proposed rulemaking. The two exceptions 
are the changes proposed to be made to the Contractor Purchasing System 
clause at Sec. 970.5204-22 and Sec. 970.7104. These proposed changes 
were affected by the April 27 amendment and, therefore, are being held 
in abeyance pending consideration of comments on the April 27 
amendment. It is the intention of the Department to incorporate the 
revised and new clauses provided for in the April 27 amendment into 
existing M&O contracts as soon as practicable after the effective date 
of the second final rule.

II. Disposition of Comments

    Comments on the March 2, 1995 notice of proposed rulemaking were 
received from a total of eleven commenters, nine of which are 
organizations and two of which are individuals. All of the 
organizations are contractors which have been awarded DOE M&O 
contracts. Nine of the commenters expressed support for the proposed 
rule and its intended effects upon the subcontracting processes of the 
Department of Energy's M&O contractors. Six commenters offered comments 
recommending revisions. Some of the recommendations were considered not 
significant, non-substantive, or editorial and are not discussed in the 
disposition of comments. Other recommendations were determined to be 
outside the scope of this rulemaking and, therefore, were not 
considered in formulating this final rule.
    Comments related to DEAR Clause 970.5204-22 and DEAR Sec. 970.7104 
are reserved for resolution until the April 27, 1995 amendment to the 
March 2, 1995 notice of proposed rulemaking is finalized and are, 
therefore, not addressed in this final rule.

1. Policies and Procedures

    One commenter suggests that DOE should clarify whether the proposed 
rule would apply to performance-based management contractors, DOE's so-
called environmental remediation management contractors, and fixed 
price and cost contracts. This rule amends DEAR Part 970 and 
accordingly affects only M&O contracts which are the subject matter of 
the part. Performance-based contracts are a new form of M&O contract 
and are therefore affected. The rule also would affect M&O subcontracts 
which may be cost-type or fixed-price. This final rule does not apply 
to environmental restoration management contracts, or any other non-M&O 
contract.
    The same commenter also recommends that we retitle Part 970 as 
``Prime Contractors.'' DEAR Part 970 is appropriately titled ``DOE 
Management and Operating Contracts'' as its scope is limited to this 
subject; therefore, no change has been made.
    In addition, the same commenter requests that we define the 
``Federal norm.'' A definition will not be provided since the purpose 
of this rulemaking is, among other things, to delete the concept from 
Subpart 970.71.
    Another commenter recommends that DOE remove Subpart 970.71 
entirely and use the appropriate subcontracts clause from 52.244 of the 
Federal Acquisition Regulation (which would be the clause at 52.244-2). 
This commenter believes that this clause provides a sufficient 
framework for effective oversight of M&O subcontracting activities by 
DOE. The recommended change has not been adopted. The experience of 
this Department and its predecessors is that many unusual situations 
arise in subcontracting activities by DOE's M&O contractors that 
require treatment specific to the provisions of M&O contracts and DOE 
programs. Further, the amended DEAR Subpart 970.71 focuses more on 
outcome than processes and more clearly defines what the Department 
expects of its contractors by establishing performance objectives.
    One commenter states that the phrase ``and further * * * for review 
and acceptance'' be removed from Sec. 970.7102(b)(1), doing away with 
the requirement for submission of the M&O contractor's written 
purchasing system and methods to DOE upon award or extension of the 
contract. The suggested change has not been adopted because the 
opportunity to review the system at that point in time is critical to 
effective oversight by DOE.
    Three commenters suggest additional language or changes to the 
revision to Sec. 970.7102(b)(3) incorporating FAR 44.2 as the standard 
for review by DOE of proposed subcontract transactions. One commenter 
points out that the FAR provision requires review by the Government of 
substantially all proposed subcontracts even where the contractor has 
an approved system. The second suggests adding the phrase ``for 
conformance with the procedural requirements of the contractor's 
written systems and methods'' after the phrase ``pursuant to FAR 
44.2.'' The third would substitute ``pursuant to the contractor's 
approved written description of its purchasing system and methods'' for 
the phrase incorporating FAR 44.2. The change to Sec. 970.7102(b)(3) 
was not intended to place more stringent requirements on contractors, 
but rather to establish review procedures which are consistent with FAR 
44.2. The Department agrees that other review procedures may be 
approved consistent with the contractor's approved purchasing 
[[Page 28739]] system procedures, and accordingly has revised 
Sec. 970.7102(b)(3) to clarify this intent in the final rule.
    Another commenter stated that the proposed rule was unclear 
regarding what contracting purchasing system objectives, expectations 
and standards will replace the ``Federal norm'' and whether they will 
be negotiated items or mandated by the DOE. Section 970.7103(a) clearly 
states the objectives of M&O purchasing systems. Section 970.7103 (b) 
and (c) set forth the requirements and expectations of the Department 
as to acceptable purchasing systems. Those provisions state the 
purchasing system requirements in terms of principles and results which 
the contractor must attain, and are necessarily negotiable as to 
specific approaches and methods which may then be tailored to the 
specific circumstances of the contractor mission, operations and site. 
Therefore, no change has been made to proposed Sec. 970.7103.
    Two commenters recommended the deletion of the word ``directly'' 
from the first sentence of proposed Sec. 970.7103(c). The 
recommendation has not been adopted. Certainly, the FAR does not 
directly apply to purchasing activities of an M&O contractor or any 
other type of Federal contractor. However, certain conditions found in 
the FAR do apply to subcontracting transactions through flowdown 
requirements, e.g., Truth in Negotiations submissions, Cost Accounting 
Standards, various labor provisions, or otherwise.
    One commenter questioned the implicit assumption in the proposed 
Sec. 970.7103(d) that there is a ``best'' in commercial purchasing 
practices and procedures. The comment further noted that it is unclear 
who is to decide what is ``best,'' the contractor or the DOE. The 
purpose of the change in the Department's policy regarding contractor 
purchasing systems and methods is to allow M&O contractors to make 
maximum use of efficient and effective commercial business practices in 
their subcontracting. Although there is no established list of best 
commercial practices that generally fits all situations, there is a 
growing body of research into and knowledge of effective purchasing 
techniques. As stated in the proposed Sec. 970.7103(a), contractors are 
expected to use their experience, expertise, and initiative consistent 
with Subpart 970.71. This approach provides these contractors with 
great discretion in designing their purchasing systems and methods. It 
is the intention of the Department, however, to work collegially with 
its contractor community to establish mechanisms by which commercial 
purchasing trends and best practices may be periodically identified and 
assessed for inclusion in contractor purchasing systems. It is further 
the intention of the Department to perform its fiduciary responsibility 
by evaluating contractors' practices to ensure the appropriate 
expenditure of funds.
    Another commenter recommended that all of Sec. 970.7103(d) after 
the first sentence be deleted. The suggested deletion has not been 
accepted because such a statement of principles is necessary to assure 
agreement between the Department and its M&O contractors as to the 
foundation of the purchasing system that is to be developed and 
described.
    Two commenters recommended the alteration of Sec. 970.7103(d)(1) to 
substitute ``best value'' for ``fair and reasonable prices.'' One 
commenter stated that this change would be consistent with the proposed 
changes in Sec. 970.7103 (c) and (d). The Department does not believe 
that these terms are inconsistent. The discretion provided by the 
provisions of this revision to DEAR 970.71 allow for purchasing using a 
best value approach. The use of ``fair and reasonable'' in the context 
of 970.7103(d)(1) makes clear the standard against which the results of 
the purchase will be assessed.

2. Protest Procedures

    Two commenters question what process for protests against award of 
subcontracts by DOE M&O contractors will replace that which is being 
deleted by this final rule at Sec. 970.7107. One commenter stated that 
DOE should identify any circumstances where it will request GAO 
jurisdiction. Consistent with the preamble of the proposed rule on 
March 2, 1995, this final rule deletes the guidelines in DEAR 970.7107 
for consideration of subcontractor protests. This result is consistent 
with the GAO proposed rule of January 31, 1995 (60 FR 5871). The 
Department has advised the GAO of our decision. At the present time, we 
do not foresee any particular circumstances where DOE will request GAO 
subcontractor protest resolution assistance.
    The second commenter questions ``whether DOE will continue to 
accept and rule on [subcontractor] protests.'' The Department will not 
continue to accept or rule on subcontractor protests on a subcontract 
awarded after the effective date of this rule. As noted in the preamble 
to the proposed rule and this final rule, DEAR Sec. 933.170 and 
Sec. 970.7107 have been deleted in recognition of the elimination of 
the ``Federal norm.'' The Department believes that disagreements over 
the award of individual subcontracts should be resolved in the same 
manner used by non-Federal entities and their suppliers. The Department 
has endorsed the contractors' use of alternative disputes resolution 
where appropriate.
3. DOE Oversight

    The remaining comments received deal with the question of controls 
on M&O contractor purchasing systems and the process by which the 
controls will be enforced. This rule does not obviate the need for 
effective contract administration. In fact, initially the Department's 
participation in the development of an M&O purchasing system based upon 
``best commercial practices'' may actually increase. We expect that the 
nature of DOE's oversight activity will change coincident with the 
identification, adoption, and systemic reflections of effective 
commercial practices consistent with the overriding expectations for 
contractor purchasing systems. The Department intends to focus its 
oversight on results, as opposed to process, and is working with its 
contractor base to establish meaningful outcome oriented performance 
indicators.
    Another commenter recommended that DOE clarify whether M&O 
contractors are required to seek competition in subcontracting. The 
final rule at 970.7103(d)(4) establishes the use of effective 
competition as a system standard. This term, however, is not intended 
to equate to the Federal concept of full and open competition.
    Other comments requested clarification of the application of 
certain statutory and regulatory requirements on the award of 
subcontracts (e.g., socio-economic and Buy American requirements). The 
current rulemaking does not effect the requirements of public law, 
applicable regulations, or the terms and conditions of the M&O 
contracts. For example, the requirement is for M&O contractors to put 
forth their best efforts to achieve agreed upon goals negotiated in 
their small business subcontracting plan. This rule neither defines, 
nor limits, the approaches that the contractor may utilize to achieve 
the results sought. Issues relating to specific statutory and 
regulatory requirements previously identified in Sec. 970.7104 will be 
addressed in the final rule based upon the April 27, 1995 amendment.
    One commenter stated that it is unclear whether the contractor can 
unilaterally implement the changes that it believes are necessary as a 
result of the proposed rule or whether DOE will require that such 
changes be submitted [[Page 28740]] to it for review and approval. As 
stated in Sec. 970.7103(b)(1), the contractor's purchasing systems and 
methods shall be submitted to the contracting officer for review and 
acceptance. Changes to existing systems, such as those required to 
implement this rule, are substantive and will require review and 
approval by the contracting officer. The Department is currently 
working with its contractor community to identify effective commercial 
purchasing practices and intends to be a constructive participant in 
the re-engineering of contractor purchasing systems.
    Another commenter asks whether costs resulting from the 
implementation of this rule will be allowable costs. Costs associated 
with implementation of this rule are reimbursable expenses, so long as 
they are reasonable, allowable and allocable as set forth in the 
contract's cost principles.
    The same commenter also recommends that a periodic review of the 
effectiveness of the changes resulting from this final rule be made, 
including the potential effects on small, small disadvantaged, and 
small women-owned businesses. The comment goes on to recommend that DOE 
engage an outside consultant. The Department, as part of ongoing 
contract administration as well as when periodically assessing the 
continued approval of a contractor's purchasing system, will perform an 
evaluation of the impact of the changes effected by this rule. The 
Department does not believe that outside consultative services are 
required for such assessments.
    Finally, that commenter questions whether existing contracts will 
be modified to reflect the effects of this rule. The last paragraph of 
the Background section of the notice of proposed rule stated, ``It is 
the intention of the Department to incorporate the changes made by this 
proposed rule into existing management and operating contracts as soon 
as practicable after the effective date of a final rule.''

III. Procedural Requirements

A. Review Under Executive Order 12866

    This regulatory action has been determined not to be a 
``significant regulatory action'' under Executive Order 12866, 
``Regulatory Planning and Review,'' (58 FR 51735, October 4, 1993). 
Accordingly, this action was not subject to review under the Executive 
Order by the Office of Information and Regulatory Affairs.

B. Review Under the National Environmental Policy Act

    Pursuant to the Council on Environmental Quality Regulations (40 
CFR parts 1500-1508), the Department has established guidelines for its 
compliance with the provisions of the National Environmental Policy Act 
(NEPA) of 1969 (42 U.S.C. 4321 et seq.). Pursuant to appendix A of 
subpart D of 10 CFR part 1021, National Environmental Policy Act 
Implementing Procedures (Categorical Exclusion A6), the Department of 
Energy has determined that this final rule is categorically excluded 
from the need to prepare an environmental impact statement or 
environmental assessment.
C. Review Under the Paperwork Reduction Act

    To the extent that new information collection or record keeping 
requirements are imposed by this rulemaking, they are provided for 
under Office of Management and Budget paperwork clearance package No. 
1910-0300. No new information collection is proposed by this rule.

D. Review Under the Regulatory Flexibility Act

    The proposed rule was reviewed under the Regulatory Flexibility Act 
of 1980, Public Law 96-354, which requires preparation of a regulatory 
flexibility analysis for any rule which is likely to have significant 
economic impact on a substantial number of small entities. DOE 
concluded that the rule will have no impact on interest rates, tax 
policies or liabilities, the cost of goods or services, or other direct 
economic factors. It will also not have any indirect economic 
consequences, such as changed construction rates. Accordingly, DOE 
certified that this rule will not have a significant economic impact on 
a substantial number of small entities and, therefore, no regulatory 
flexibility analysis has been prepared. DOE did not receive any 
comments on this certification.

E. Review Under Executive Order 12612

    Executive Order 12612 entitled ``Federalism,'' 52 FR 41685 (October 
30, 1987), requires that regulations, rules, legislation, and any other 
policy actions be reviewed for any substantial direct effects on 
States, on the relationship between the Federal Government and the 
States, or in the distribution of power and responsibilities among 
various levels of Government. If there are sufficient substantial 
direct effects, then the Executive Order requires preparation of a 
federalism assessment to be used in all decisions involved in 
promulgating and implementing a policy action. The Department of Energy 
has determined that this final rule will not have a substantial direct 
effect on the institutional interests or traditional functions of 
States.

F. Review Under Executive Order 12778

    Section 2 of Executive Order 12778 instructs each agency to adhere 
to certain requirements in promulgating new regulations and reviewing 
existing regulations. These requirements, set forth in sections 2(a) 
and (b)(2), include eliminating drafting errors and needless ambiguity, 
drafting the regulations to minimize litigation, providing clear and 
certain legal standards for affected legal conduct, and promoting 
simplification and burden reduction. Agencies are also instructed to 
make every reasonable effort to ensure that the regulation: specifies 
clearly any preemptive effect, effect on existing Federal law or 
regulation, and retroactive effect; describes any administrative 
proceedings to be available prior to judicial review and any provisions 
for the exhaustion of such administrative proceedings; and defines key 
terms. DOE certifies that this rule meets the requirements of sections 
2(a) and 2(b) of Executive Order 12778.

List of Subjects in 48 CFR Parts 933 and 970

    Government procurement.

    Issued in Washington, DC, on May 26, 1995.
Richard H. Hopf,
Deputy Assistant Secretary for Procurement and Assistance Management.
    For the reasons set forth in the preamble, Chapter 9 of Title 48 of 
the Code of Federal Regulations is amended as set forth below.

PART 933--PROTESTS, DISPUTES, AND APPEALS

    1. The authority citation for Part 933 continues to read as 
follows:

    Authority: 42 U.S.C. 7254; 40 U.S.C. 486(c).


Sec. 933.170  [Removed]

    2. Section 933.170, Subcontract level protests, is removed.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

    3. The authority citation for Part 970 continues to read as 
follows:

    Authority: Sec. 161 of the Atomic Energy Act of 1954 (42 U.S.C. 
2201), sec. 644 of the Department of Energy Organization Act, Pub. 
L. 95-91 (42 U.S.C. 7254). [[Page 28741]] 


Sec. 970.7101  [Amended]

    4. Section 970.7101, General, is amended by removing paragraphs (c) 
and (d).


Sec. 970.7102  [Amended]

    5. Section 970.7102, DOE responsibility, is amended at: Paragraph 
(a) to remove the parenthetical last two sentences at the end of the 
paragraph; paragraph (b)(3) by removing the words ``to assure that 
management and operating contractors implement DOE policies and 
requirements as defined in this subpart, in accordance with the 
contractor's accepted system and methods'' and adding in its place the 
words ``pursuant to 48 CFR (FAR) 44.2 or as set forth in the 
contractor's approved system and methods''; and paragraph (b)(4) by 
revising the last parenthetical ``(See Subpart 944.3 and 970.7108)'' to 
read ``(See 970.7103)''.
    6. Section 970.7103, Policies, is revised to read as follows:


Sec. 970.7103  Contractor purchasing system.

    The following shall apply to the purchasing systems of management 
and operating contractors:
    (a) The objective of a management and operating contractor's 
purchasing system is to deliver to its customers on a timely basis 
those best value products and services necessary to accomplish the 
purposes of the Government's contract. To achieve this objective, 
contractors are expected to use their experience, expertise and 
initiative consistent with this subpart.
    (b) The purchasing systems and methods used by management and 
operating contractors shall be well-defined, consistently applied, and 
shall follow purchasing practices appropriate for the requirement and 
dollar value of the purchase. It is anticipated that purchasing 
practices and procedures will vary among contractors and according to 
the type and kinds of purchases to be made.
    (c) Contractor purchases are not Federal procurements, and are not 
directly subject to the Federal Acquisition Regulations in 48 CFR. 
Nonetheless, certain Federal laws, Executive Orders, and regulations 
may affect contractor purchasing, as required by statute, regulation, 
or contract terms and conditions.
    (d) Contractor purchasing systems shall identify and apply the best 
in commercial purchasing practices and procedures (although nothing 
precludes the adoption of Federal procurement practices and procedures) 
to achieve system objectives. Where specific requirements do not 
otherwise apply, the contractor purchasing system shall provide for 
appropriate measures to ensure the:
    (1) Acquisition of quality products and services at fair and 
reasonable prices;
    (2) Use of capable and reliable subcontractors who either
    (i) Have track records of successful past performance, or
    (ii) Can demonstrate a current superior ability to perform;
    (3) Minimization of acquisition lead-time and administrative costs 
of purchasing;
    (4) Use of effective competitive techniques;
    (5) Reduction of performance risks associated with subcontractors, 
and facilitation of quality relationships which can include techniques 
such as partnering agreements, ombudsmen, and alternative disputes 
procedures;
    (6) Use of self-assessment and benchmarking techniques to support 
continuous improvement in purchasing;
    (7) Maintenance of the highest professional and ethical standards; 
and
    (8) Maintenance of file documentation appropriate to the value of 
the purchase and which is adequate to establish the propriety of the 
transaction and the price paid.


Sec. 970.7106, 970.7107  [Removed]

    7. Sections 970.7106, Procedures for handling mistakes relating to 
management and operating contractor purchases, and 970.7107, Protest of 
management and operating contractor procurements, are removed.

[FR Doc. 95-13432 Filed 6-1-95; 8:45 am]
BILLING CODE 6450-01-P