[Federal Register Volume 60, Number 186 (Tuesday, September 26, 1995)]
[Rules and Regulations]
[Pages 49512-49518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23739]



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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) amends the Department of Energy 
Acquisition Regulation (DEAR) to modify certain requirements for 
management and operating contractor subcontracting. This rule 
incorporates a revised clause and a new clause which minimizes 
obligations placed upon contractor purchasing systems and streamlines 
flowdown requirements for subcontracts awarded by management and 
operating contractors.

EFFECTIVE DATE: October 26, 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.
    F. Review Under Executive Order 12778.

I. Background

    On March 2, 1995, DOE published in the Federal Register (60 FR 
11646) a notice of proposed rulemaking (NOPR). That notice proposed to 
amend the DEAR to identify certain purchasing system objectives and 
standards, eliminate the application of the ``Federal norm,'' place 
greater reliance on commercial practices, and remove the provisions 
concerning General Accounting Office protest jurisdiction over 
management and operating contractor subcontract awards. The March 2, 
1995 notice also reserved for further analysis the removal of DEAR 
Section 970.7104 and advised that an amendment to the rulemaking would 
be issued in the event portions of DEAR Section 970.7104 were to be 
retained and redesignated. Except for the 

[[Page 49513]]
resolution of the analysis of DEAR Section 970.7104, the March 2, 1995 
NOPR was finalized on June 2, 1995 (60 FR 28737).
    On April 27, 1995, DOE published in the Federal Register (60 FR 
20663) a notice amending the March 2, 1995 NOPR. Based on the 
Department's analysis, it was proposed to delete some items contained 
in DEAR Section 970.7104 and reorganize the remaining items, which were 
proposed to be retained in two subsections: a revised clause at 
970.5204-22 and a new clause 970.5204-44. This final rule completes the 
process for revising DEAR Part 970.71 which had been initiated with the 
March 2, 1995 NOPR.
    It is the intention of the Department to incorporate the revised 
and new clauses provided in today's final rule into existing management 
and operating contracts as soon as practicable after the effective date 
for today's rule.

II. Disposition of Comments

    Comments on the April 27, 1995, amendment to the notice of proposed 
rulemaking were received from a total of seven entities: one is a DOE 
contracting activity, four are organizations awarded management and 
operating contracts, and two are entities which did not identify any 
affiliation with the Department. Some comments received are not 
discussed in the disposition of comments because they were 
nonsubstantive or editorial, offered no recommendations for 
consideration, or made recommendations outside the scope of this 
rulemaking. In addition, certain comments offered on the March 2, 1995 
proposed rulemaking are discussed here because they address the 
disposition of comments which were related to Section 970.7104. It 
should be noted that the citations referenced in the disposition of 
comments are those reflected in the Federal Register publication dated 
April 27, 1995 (60 FR 20663). As a result of revisions incorporated in 
the final rule, some of the citations have changed.
    Five commenters expressed opinions about the deletion of Section 
970.7104 and the relocation of requirements on many of its subjects to 
the two clauses, the existing clause at 970.5204-22 and a new clause 
970.5204-44. Two of the commenters stated that they support the goal of 
this rulemaking in making it easier for DOE's management and operating 
contractors to subcontract. However, because most of the requirements 
in Section 970.7104 have been redesignated and not eliminated, these 
two commenters believe that Section 970.7104 should be left intact. Two 
commenters believe that the added portions of the clause at 970.5204-22 
should be retained but the new clause at 970.5204-44 should be deleted. 
A fourth commenter believes that DOE should require that subcontracts 
include the FAR subcontracts clause at 52.244-2 only, and the final 
commenter believes that, ``Those mandatory clauses laden the `new 
commercial contracts' with far too many bureaucratic hurdles and far 
too many miles of red tape'' and should therefore be deleted.
    Regarding the comments cited above, the purposes of the rulemakings 
should be revisited. The first objective was to eliminate the 
overarching ``Federal norm'' process requirements from the preaward 
stages of the management and operating contractor's purchasing system, 
which were located in DEAR subparagraph 970.7103(c)(3). The portion of 
Subpart 970.71 containing the ``Federal norm'' requirement was deleted 
by the final rule published on June 2, 1995 (60 FR 28737) and replaced 
with purchasing system objectives which, inter alia, place greater 
reliance on commercial practices. The second purpose of the rulemaking 
dealt with reassessing the need for and organization of certain 
specific requirements placed upon the purchasing systems of the 
Department's management and operating contractors.
    The Department has performed a detailed review of each of the 
requirements of Section 970.7104 as it stood before this rulemaking. 
Unnecessary provisions were deleted, both in the context of entire 
subparagraphs and portions of subparagraphs. However, those provisions 
that have been retained in the clauses represent either statutory or 
regulatory flowdown requirements or a policy decision that the 
provision should be applied to the Department's M&O contracts or 
subcontracts. For example, the Department has retained the controls on 
the contractors' purchase and lease of real property as a matter of 
policy, respecting 41 USC 14 which requires agencies to have specific 
statutory authority for the purchase of real property. The Department 
believes that most of the provisions previously cited at Section 
970.7104 are contractual obligations which are, therefore, more 
appropriately suited for a contract clause. To implement the changes 
made in this rulemaking, the process-oriented requirements applicable 
to contractors' purchasing systems are retained in a revised clause at 
970.5204-22, and the flowdown requirements for subcontracts awarded by 
management and operating contractors are listed in the new clause at 
970.5204-44.
    Another commenter suggested the substitution of ``may'' for 
``will'' and ``if any'' after ``clauses'' in the third sentence of 
paragraph (a) of the clause at 970.5204-22. The commenter believed that 
the proposed changes would allow inclusion of the clause in management 
and operating contracts with nonprofit organizations as well as profit-
making firms, with the assumption that only profit-making contracts 
will have performance criteria and measures. That assumption is not 
correct. We expect all management and operating contracts to have 
performance criteria and measures and have not made the change.
    One commenter asserts that paragraph (c), Acquisition of Real 
Property, of the clause at 970.5204-22 is unnecessary except as it may 
modify the clause at 952.217-70, Acquisition of Real Property. The 
clause at 952.217-70 does not provide sufficient guidance for DOE's 
management and operating contractors to properly treat the process of 
determining whether to purchase or lease real property. We have not 
made any changes.
    Two commenters questioned the necessity of retaining any provision 
for notice of subcontract awards as is reflected in paragraph (d) of 
the revised clause at 970.5204-22. The requirement for notice arises in 
Section 304(b) of the Federal Property and Administrative Services Act 
of 1949 (``Act''), 41 U.S.C. 254(b). DOE has used certain statutory 
authorities available to it (Section 602(d)(13) of the Act (40 U.S.C. 
474(d)(13)) to limit the application of the advance notice requirement 
to the specific instances listed at DEAR Section 970.7109. Those 
instances are important and are being retained. We have made no change.
    A commenter recommends that paragraph (e), Audits of 
Subcontractors, of the proposed clause at 970.5204-22 be deleted as 
unnecessary if the contractor includes FAR 15.215-2 in ``appropriate 
subcontracts.'' We believe the commenter intended to refer to FAR 
52.215-2, the Audit Negotiation clause. We find little similarity 
between the two provisions. Paragraph (e) provides for pre-award 
audits; authorization of management and operating contractors to use 
DCAA for audits; and directs the applicable cost principles. The FAR 
provides the contracting officer the right to examine and audit the 
contractors books and records. We have made no change.
    Another commenter recommends the deletion of the second sentence of 
paragraph (e)(4) of the clause 970.5204-22 relating to allowable costs 
regarding the purchase or transfer from contractor-

[[Page 49514]]
affiliated sources. These regulatory controls prevent the conflict of 
interest inherent in a management and operating contractor's purchasing 
goods and services in support of the DOE facility from affiliated 
organizations. The Department has reviewed this matter and has chosen 
to make no change.
    A commenter suggests deleting paragraph (f), Bonds and Insurance, 
of clause 970.5204-22 and adding it instead to the clause 970.5204-32, 
Required bond and insurance--exclusive of Government property. The 
commenter explains the logic of the suggestion is ``to help bring the 
M&O Contractor's acquisition function into the mainstream of activity, 
rather than being considered a stepchild.'' It is unclear how this 
proposed change will accomplish the intended purpose. The clause at 
970.5204-32 is designed to be included into the prime contract, and it 
controls the acquisition of bonds and insurance by the prime 
contractor. The provision listed in paragraph (f) establishes 
responsibilities and authorities in requiring bonds and insurance from 
subcontractors. We have made no change.
    The same commenter recommends the deletion of paragraph (g), Buy 
American, of clause 970.5204-22 in the belief that the clause in the 
prime contract is sufficient. We disagree. The additional guidance on 
the treatment of the responsibilities of the Buy American Act is 
necessary. The FAR clause is drafted to deal with situations in which a 
Government contractor supplies goods to a Federal agency. DOE M&O 
contractors do not perform that function; instead, they purchase goods 
in the management and operation of the specific DOE facility. The 
Department, however, has made two changes to paragraph (g) of the 
clause 970.5204-22: (1) To include a statement on determinations of 
nonavailability which had previously been cited at Subsection 970.7104-
22 and (2) to include reference to the DEAR clause at 970.5204-3 for 
construction materials.
    The same commenter makes a series of comments that share the same 
theme. The commenter suggests that paragraphs (b), Acquisition of 
Utility Services; (h), Construction and Architect Engineer Contracts; 
(m), Leasing of Motor Vehicles; (n), Management, Acquisition, and Use 
of Information Resources; (p), Purchase of Special Items; (q), Purchase 
vs. Lease Determinations; (s), Set-Off and Assigned Subcontractor 
Proceeds; and (w), Unclassified Controlled Nuclear Information, be 
deleted from the clause 970.5204-22 and remain in Section 970.7104. We 
have made no change since the Department has chosen to eliminate 
Section 970.7104.
    The same commenter objects to the treatment of Contractor-
Affiliated Sources in paragraph (i) of the clause 970.5204-22 as 
continuing ``the apparent bias against large multi-segmented 
contractors.'' There is no bias in these provisions, apparent or 
otherwise. This area is of significance in maintaining credible 
oversight of $8 billion of subcontractor purchases by DOE's M&O 
contractors. This provision is a reference to the authority for, and 
limits of, such purchases stated at Section 970.7105. We have made no 
change.
    The same commenter recommends the deletion of paragraph (j), 
Contractor-Subcontractor Relationship, of the clause 970.5204-22, as 
unnecessary. The Department believes that this paragraph provides 
clarity regarding the obligations of, and commitments made by, the 
prime contractor. We have made no change.
    The same commenter suggests the deletion of paragraphs (k), 
Government Property; (o), Priorities, Allocations, and Allotments; (r), 
Quality Assurance; (u), Suspended, Debarred, or Ineligible Contractors; 
and (v), Termination, of the clause 970.5204-22. This commenter 
believes that each of these is unnecessary or redundant or both. We 
disagree, believing the guidance on most subjects to be necessary in 
the context of the award of individual subcontracts by a DOE M&O 
contractor. We have not made the changes recommended, except that 
paragraph (u) relating to Suspended, Debarred, or Ineligible 
Contractors has been deleted. To accomplish the intended purpose, a 
reference to the FAR counterpart (FAR 52.209-6) has been inserted at 
Section 970.5204-7.
    The same commenter recommends the deletion of paragraph (t), 
Strategic and Critical Materials, of the clause 970.5204-22 because its 
application ``is not limited to subcontracting procedures.'' The 
Department disagrees. This provision sets forth authority for access to 
strategic and critical materials in the fulfillment of needs in the 
performance of the prime contract. We have made no change.
    The same commenter questions the language of paragraph (l), 
Indemnification, of the clause 970.5204-22. We agree that, as proposed, 
the meaning of the provision was not clear. We have made editorial 
changes to assure it conveys its intended meaning that, other than the 
statutory Price-Anderson indemnity, M&O contractors may not offer 
subcontractors any indemnification without the required authorization.
    Two commenters recommend that Section 970.7110, Nuclear Material 
Transfers, be incorporated into the clause at 970.5204-22. We agree 
that this choice is reasonable, but believe the subject to be 
sufficiently critical and special to warrant the coverage as it exists. 
We have made no change.
    Three commenters oppose the creation of the new clause 970.5204-44, 
believing the identification of the flowdown provisions should be left 
to the contractors. The Department disagrees. A list of the flowdown 
provisions and reference to the regulations controlling their 
application simplifies the subcontracting process, clarifies the 
contractors' obligations in the award of subcontracts, and provides a 
meeting of the minds between DOE and the M&O contractor about the 
treatment of the subjects covered in the clause 970.5204-44 in the 
award of subcontracts.
    Another commenter recommends the deletion of the following seven 
paragraphs in the new clause 970.5204-44 in order to better establish 
commercial acquisition systems: (4), Contract Work Hours and Safety 
Standards Act; (5), Cost or Pricing Data; (8), Davis Bacon Labor 
Standards for Construction; (11) Equal Employment Opportunity; (16), 
Organizational Conflicts of Interest; (22) Service Contract Act; and 
(23), Small Business and Small Disadvantaged Business Concerns. Each of 
these provisions either require treatment of the subject in recognition 
that the clauses themselves may not apply to the DOE M&O contractor, 
but do apply to subcontracts awarded by the M&O contractor, e.g., Davis 
Bacon provisions; or are statutory flowdown requirements applicable to 
subcontractors. We have made no change.
    One commenter asks where the material originally at paragraph 
970.7104-28(f) is to be relocated. That material is incorporated at 
paragraph (h) of the clause at 970.5204-22. The same commenter has 
recommended that the subject of differing site conditions be covered. 
The Department disagrees, believing it is more appropriate to leave 
such a matter to the discretion of the M&O contractor.
    In reviewing the April 27, 1995 amendment to the NOPR, it was noted 
that certain references had not been revised, information had 
inadvertently been omitted, or technical changes were required. 
Therefore, the following additional revisions are being made in this 
final rule: 

[[Page 49515]]

    (1) Part 933 is amended to conform section 933.104 with changes 
finalized in the June 2, 1995, final rule.
    (2) The material proposed to be relocated to 970.1901 has been 
deleted. The two paragraphs were intended as communication to DOE 
contracting officers and we have decided to communicate this 
information internally by other means.
    (3) The prescription for Subsection 970.5203-1, Covenant against 
contingent fees, is amended to delete a flowdown requirement.
    (4) The introductory text for the clauses at 970.5204-21, 970.5204-
24, 970.5204-45 and 970.5204-50 which referenced Section 970.7104 is 
removed.
    (5) The clause 970.5204-22 is amended at paragraphs (a) and (d); 
requirements previously cited at paragraph (d), Advance notice of 
proposed subcontract awards, relating to file documentation is 
relocated to paragraph (a).
    (6) The clause 970.5204-22 is amended at paragraphs (e)(3) and 
(e)(4). The last sentence of paragraph (e)(4), beginning with ``In no 
case, however, * * *'' is moved to the end of paragraph (e)(3). The 
change corrected an error in the Amendment to the NOPR published on 
April 27, 1995.
    (7) Clause 970.5204-22 is amended at paragraph (f), Bonds and 
Insurance, to include a discussion on performance bonds which had 
inadvertently been deleted. The paragraph on corporate sureties has 
been rewritten to simplify the language.
    (8) Paragraph (g) of the clause at 970.5204-22 has been changed to 
allow the Head of Contracting Activity rather than the Procurement 
Executive to approve management and operating contractor determinations 
of nonavailability. The threshold for referral to the HCA has been 
increased from $25,000 to $100,000.
    (9) Clause 970.5204-22 is amended at paragraph (n) to retain the 
discussion of make-or-buy plans that had been set forth at now deleted 
paragraph 970.7104-8(b).
    (10) Paragraph (v), Suspended, Debarred or Ineligible Contractors, 
is deleted from clause 970.5204-22 and a new clause is inserted at 
970.5204-7 to provide instructions for the inclusion of FAR clause 
52.209-6, Protecting the Government's Interest when Subcontracting with 
Contractors Debarred, Suspended, or Proposed for Debarment, in the 
management and operating contractor prime contract. This change is made 
to provide for consistency with FAR requirements.
    (11) Subparagraph (b)(15), Officials Not to Benefit, of clause 
970.5204-44 is removed as proposed in the Amendment to the NOPR 
published on April 27, 1995.
    (12) Subparagraph (b)(24), Taxes, is amended to provide 
requirements for both cost-reimbursement and fixed-price subcontracts.
    In addition, the Department streamlined the wording of the 
requirements listed in paragraphs (b) through (w) of the clause 
970.5204-22. These revisions have not resulted in substantive changes 
to the requirements as stated in the April 27, 1995 Amendment to the 
NOPR.

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

    This rule was reviewed under the Regulatory Flexibility Act of 
1980, Pub. L. 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.


[[Page 49516]]

    Issued in Washington, D.C. on September 20, 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. 933.104  [Amended]

    2. Section 933.104, Protests to GAO, is amended in paragraph 
(b)(1), by removing from the first sentence the phrase ``Except in the 
case of a subcontract level protest,'' and by removing the last 
sentence of the paragraph, and paragraph (c), Protests after award, 
remove paragraph (c)(1) and remove the paragraph designation (c)(2).

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).


Sec. 970.5203-1  [Amended]

    4. In Section 970.5203-1, Covenant against contingent fees, the 
phrase ``with the addition of the following paragraph,'' is removed and 
clause paragraph (c) is removed.
    5. Section 970.5204-7, is added to read as follows:


Sec. 970.5204-7  Protecting the Government's interest when 
subcontracting with contractors debarred, suspended, or proposed for 
debarment.

    Include the clause at FAR 52.209-6 as prescribed in FAR 9.409(b).


Sec. 970.5204-21  [Amended]

    6. Section 970.5204-21, Property, the phrase ``As prescribed in 
970.7104-43,'' is removed from the introductory text.
    7. Section 970.5204-22, is revised to read as follows:


Sec. 970.5204-22  Contractor purchasing system.

    Insert the following clause.

Contractor Purchasing System (Oct 1995)

    (a) General. The contractor shall develop, implement, and 
maintain formal policies, practices, and procedures to be used in 
the award of subcontracts consistent with this clause, 48 CFR (DEAR) 
970.5204-44, and 48 CFR (DEAR) 970.71. The contractor's purchasing 
system and methods shall be fully documented, consistently applied, 
and acceptable to DOE in accordance with 48 CFR (DEAR) 970.7102. The 
contractor shall maintain file documentation which is appropriate to 
the value of the purchase and is adequate to establish the propriety 
of the transaction and the price paid. The contractor's purchasing 
performance will be evaluated against such performance criteria and 
measures as may be set forth elsewhere in this contract. DOE 
reserves the right at any time to require that the contractor submit 
for approval any or all purchases under this contract. The 
contractor shall not purchase any item or service the purchase of 
which is expressly prohibited by the written direction of DOE and 
shall use such special and directed sources as may be expressly 
required by the DOE contracting officer. The contractor's approved 
purchasing system and methods shall include the requirements set 
forth in paragraphs (b) through (w) of this clause.
    (b) Acquisition of Utility Services. Utility services shall be 
acquired in accordance with the requirements of 48 CFR (DEAR) 
970.0803.
    (c) Acquisition of Real Property. Real property shall be 
acquired in accordance with 48 CFR (DEAR) Subpart 917.74.
    (d) Advance Notice of Proposed Subcontract Awards. Advance 
notice shall be provided in accordance with 48 CFR (DEAR) 970.7109.
    (e) Audit of Subcontractors.
    (1) The contractor shall provide for:
    (i) periodic post-award audit of cost-reimbursement 
subcontractors at all tiers, and
    (ii) audits, where necessary, to provide a valid basis for pre-
award or cost or price analysis.
    (2) Responsibility for determining the costs allowable under 
each cost-reimbursement subcontract remains with the contractor or 
next higher-tier subcontractor. The contractor shall provide, in 
appropriate cases, for the timely involvement of the contractor and 
the DOE contracting officer in resolution of subcontract cost 
allowability.
    (3) Where audits of subcontractors at any tier are required, 
arrangements may be made to have the cognizant Federal agency 
perform the audit of the subcontract. These arrangements shall be 
made administratively between DOE and the other agency involved and 
shall provide for the cognizant agency to audit in an appropriate 
manner in light of the magnitude and nature of the subcontract. In 
no case, however, shall these arrangements preclude determination by 
the DOE contracting officer of the allowability or unallowability of 
subcontractor costs claimed for reimbursement by the contractor.
    (4) Allowable costs for cost reimbursable subcontracts are to be 
determined in accordance with the cost principles of FAR Part 31, 
appropriate for the type of organization to which the subcontract is 
to be awarded, as supplemented by 48 CFR (DEAR) Part 931. Allowable 
costs in the purchase or transfer from contractor-affiliated sources 
shall be determined in accordance with 48 CFR (DEAR) 970.7105 and 48 
CFR (DEAR) 970.3102-15(b).
    (f) Bonds and Insurance.
    (1) The contractor shall require performance bonds in penal 
amounts as set forth in FAR 28.102-2(a) for all fixed priced and 
unit-priced construction subcontracts in excess of $25,000. The 
contractor shall consider the use of performance bonds in fixed 
price nonconstruction subcontracts, where appropriate.
    (2) A payment bond shall be obtained on Standard Form 25A, 
modified to name the contractor as well as the United States of 
America as obligees, for all fixed price, unit-price and cost-
reimbursement construction subcontractors in excess of $25,000. The 
penal amounts shall be determined as set forth in FAR 28.102-2(b).
    (3) A subcontractor may have more than one acceptable surety in 
both construction and other subcontracts, provided that in no case 
will the liability of any one surety exceed the maximum penal sum 
for which it is qualified for any one obligation. For subcontracts 
other than construction, a co-surety (two or more sureties together) 
may reinsure amounts in excess of their individual capacity, with 
each surety having the required underwriting capacity that appears 
on the list of acceptable corporate sureties.
    (g) Buy American. The contractor shall comply with the 
provisions of the Buy American Act as reflected in 48 CFR (DEAR) 
970.5203-3 and 48 CFR (DEAR) 970.5204-3. The contractor shall 
forward determinations of nonavailability of individual items to the 
DOE contracting officer for approval. Items in excess of $100,000 
require the prior concurrence of the Head of Contracting Activity. 
If, however, the contractor has an approved purchasing system, the 
Head of the Contracting Activity may authorize the contractor to 
make determinations of nonavailability for individual items valued 
at $100,000 or less.
    (h) Construction and Architect-Engineer Subcontracts.
    (1) Independent Estimates. A detailed, independent estimate of 
costs shall be prepared for all construction work to be 
subcontracted.
    (2) Specifications. Specifications for construction shall be 
prepared in accordance with the DOE publication entitled ``General 
Design Criteria Manual.''
    (3) Prevention of Conflict of Interest.
    (i) The contractor shall not award a subcontract for 
construction to the architect-engineer firm or an affiliate that 
prepared the design. This prohibition does not preclude the award of 
a ``turnkey'' subcontract so long as the subcontractor assumes all 
liability for defects in design and construction and consequential 
damages.
    (ii) The contractor shall not award both a cost-reimbursement 
subcontract and a fixed-price subcontract for construction or 
architect-engineer services or any combination thereof to the same 
firm where those subcontracts will be performed at the same site.
    (iii) The contractor shall not employ the construction 
subcontractor or an affiliate to inspect the firm's work. The 
contractor shall assure that the working relationships of the 
construction subcontractor and the 

[[Page 49517]]
subcontractor inspecting its work and the authority of the inspector 
are clearly defined.
    (i) Contractor-Affiliated Sources. Equipment, materials, 
supplies, or services from a contractor-affiliated source shall be 
purchased or transferred in accordance with 48 CFR (DEAR) 970.7105.
    (j) Contractor-Subcontractor Relationship. The obligations of 
the contractor under paragraph (a) of this clause, including the 
development of the purchasing system and methods, and purchases made 
pursuant thereto, shall not relieve the contractor of any obligation 
under this contract (including, among other things, the obligation 
to properly supervise, administer, and coordinate the work of 
subcontractors). Subcontracts shall be in the name of the 
contractor, and shall not bind or purport to bind the Government.
    (k) Government Property. Identification, inspection, 
maintenance, protection, and disposition of Government property 
shall conform with the policies and principles of FAR Part 45, 48 
CFR (DEAR) 945, the Federal Property Management Regulations 41 CFR 
101, the DOE Property Management Regulations 41 CFR 109, and their 
contracts.
    (l) Indemnification. Except for Price-Anderson Nuclear Hazards 
Indemnity, no subcontractor may be indemnified except with the prior 
approval of the Procurement Executive.
    (m) Leasing of Motor Vehicles. Contractors shall comply with FAR 
8.11 and 48 CFR (DEAR) 908.11.
    (n) Make-or-Buy Plans. Acquisition of property and services 
shall be obtained on a least-cost basis, consistent with the 
requirements of the Make-or-Buy Plan clause of this contract and the 
contractor's approved make-or-buy plan.
    (o) Management, Acquisition and Use of Information Resources. 
Requirements for automatic data processing resources and 
telecommunications facilities, services, and equipment, shall be 
reviewed and approved in accordance with applicable DOE Orders and 
regulations regarding information resources.
    (p) Priorities, Allocations and Allotments. Priorities, 
allocations and allotments shall be extended to appropriate 
subcontracts in accordance with the clause or clauses of this 
contract dealing with priorities and allocations.
    (q) Purchase of Special Items. Purchase of the following items 
shall be in accordance with the following provisions of 48 CFR 
(DEAR) 908.71 and the Federal Property Management Regulations, 41 
CFR 101:

(1) Motor vehicles--48 CFR 908.7101
(2) Aircraft--48 CFR 908.7102
(3) Security Cabinets--48 CFR 908.7106
(4) Alcohol--48 CFR 908.7107
(5) Helium--48 CFR 908.7108
(6) Fuels and packaged petroleum products--48 CFR 908.7109
(7) Coal--48 CFR 908.7110
(8) Arms and Ammunition--48 CFR 908.7111
(9) Heavy Water--48 CFR 908.7121(a)
(10) Precious Metals--48 CFR 908.7121(b)
(11) Lithium--48 CFR 908.7121(c)
(12) Products and services of the blind and severely handicapped--41 
CFR 101-26.701
(13) Products made in Federal penal and correctional institutions--
41 CFR 101-26.702

    (r) Purchase vs. Lease Determinations. Contractors shall 
determine whether required equipment and property should be 
purchased or leased, and establish appropriate thresholds for 
application of lease vs. purchase determinations. Such 
determinations shall be made:

(1) at time of original acquisition;
(2) when lease renewals are being considered; and
(3) at other times as circumstances warrant.

    (s) Quality Assurance. Contractors shall provide no less 
protection for the Government in its subcontracts than is provided 
in the prime contract.
    (t) Setoff of Assigned Subcontractor Proceeds. Where a 
subcontractor has been permitted to assign payments to a financial 
institution, the assignment shall treat any right of setoff in 
accordance with 48 CFR (DEAR) 932.803.
    (u) Strategic and Critical Materials. The contractor may use 
strategic and critical materials in the National Defense Stockpile.
    (v) Termination. When subcontracts are terminated as a result of 
the termination of all or a portion of this contract, the contractor 
shall settle with subcontractors in conformity with the policies and 
principles relating to settlement of prime contracts in FAR subparts 
49.1, 49.2 and 49.3. When subcontracts are terminated for reasons 
other than termination of this contract, the contractor shall settle 
such subcontracts in general conformity with the policies and 
principles in FAR subparts 49.1, 49.2, 49.3 and 49.4. Each such 
termination shall be documented and consistent with the terms of 
this contract. Terminations which require approval by the Government 
shall be supported by accounting data and other information as may 
be directed by the contracting officer.
    (w) Unclassified Controlled Nuclear Information. Subcontracts 
involving unclassified uncontrolled nuclear information shall be 
treated in accordance with 10 CFR Part 1017.


Sec. 970.5204-24  [Amended]

    9. Section 970.5204-24, Subcontractor cost or pricing data, the 
phrase ``As prescribed in 970.7104-11,'' is removed from the 
introductory text.
    10. Add new Section 970.5204-44, Flowdown of contract requirements 
to subcontracts, to read as set forth below:


Sec. 970.5204-44  Flowdown of contract requirements to subcontracts.

    Insert the following clause.

Flowdown of Contract Requirements to Subcontracts (Oct 1995)

    (a) The contractor shall include the clauses in paragraph (b) of 
this clause in appropriate subcontracts.
    (1) To the extent that the clause is included in this prime 
contract, the contractor shall comply with that portion of the 
clause that directs application to subcontracts.
    (2) To the extent that the clause is not included in this prime 
contract, or where it is included but there is no instruction for 
treatment in subcontracts, the contractor shall include the clause 
in accordance with applicable regulatory guidance which would apply 
if the subcontract were a prime contract with the Federal 
government.
    (3) In all cases, where a regulation is cited, the contractor 
shall comply with the regulation in administration of the related 
clause.
    (b) Clauses and related regulations.
    (1) Air Transportation by U.S.-Flag Carriers. Clause at FAR 
52.247-63.
    (2) Anti-Kickback Act of 1986. Clause at FAR 52.203-7.
    (3) Clean Air and Water. Clause at FAR 52.223-2, and follow the 
requirements of FAR 23.1.
    (4) Contract Work Hours and Safety Standards Act. Clause at FAR 
52.222-4, and follow the requirements of FAR 22.3.
    (5) Cost or Pricing Data. Clause at 48 CFR (DEAR) 970.5204-24.
    (6) Cost and Schedule Control Systems. Clause at 48 CFR (DEAR) 
970.5204-50.
    (7) Cost Accounting Standards. Clause at FAR 52.230-2, as 
prescribed in 48 CFR (DEAR) 970.30.
    (8) Davis-Bacon Act. Clauses as directed at FAR 22.407, and 
follow the requirements of FAR 22.4 to the same extent that they 
would apply if the subcontract had been directly awarded by DOE. 48 
CFR (DEAR) Subpart 922.4 and 48 CFR (DEAR) 970.2273 provide guidance 
to assist in determining the applicability of these regulations.
    (9) Employment of the Handicapped. Clause at FAR 52.222-36, and 
follow the requirements of FAR 22.14.
    (10) Environmental and Occupational Safety and Health. Clauses 
as prescribed in 48 CFR (DEAR) 970.2303-2.
    (11) Equal Employment Opportunity. Clauses as prescribed in FAR 
22.810, as applicable, and follow the requirements of FAR 22.8, 48 
CFR (DEAR) 922.8, E.O. 11246 and 40 CFR Part 60.
    (12) Examination of Records by Comptroller General. Clause at 
FAR 52.215-1.
    (13) Foreign Travel. Clause at 48 CFR (DEAR) 970.5204-52.
    (14) Nuclear Hazards Indemnity. Clause at 48 CFR (DEAR) 
970.2870.
    (15) Organizational Conflicts of Interest. Clause at 48 CFR 
(DEAR) 952.209-72.
    (16) Patent, Data and Copyrights. Appropriate clauses as 
required by 48 CFR (DEAR) Parts 927 and 970.
    (17) Printing. Clause at 48 CFR (DEAR) 970.5204-19.
    (18) Privacy Act. Clauses at FAR 52.224-1 and FAR 52.224-2, and 
follow the requirements of FAR 24.1.
    (19) Record Retention. Clause at 48 CFR (DEAR) 970.5204-9.
    (20) Safeguarding Classified Information. Appropriate clauses as 
prescribed at 48 CFR (DEAR) 970.0404.
    (21) Service Contract Act. Clauses at FAR 52.222-40 and FAR 
52.222-41.
    (22) Small Business and Small Disadvantaged Business Concerns. 
Clause at FAR 52.219-9.
    (23) Special Disabled and Vietnam Era Veterans. Clause at FAR 
52.222-35, and 

[[Page 49518]]
follow the requirements of FAR Subpart 22.13.
    (24) Taxes. Clause similar to 48 CFR (DEAR) 970.5204-23 cost-
reimbursement. An appropriate tax clause covering tax matters should 
also be included in fixed-price subcontracts.
    (25) Termination. Appropriate clause or clauses as set forth at 
FAR 52.249-1 through 52.249-14.
    (c) Other. Omission from the foregoing list of contract flowdown 
provisions shall not be construed as waiving a requirement for the 
contractor to comply with a flowdown requirement for subcontracts 
appearing elsewhere in this contract.


Sec. 970.5204-45  [Amended]

    11. Section 970.5204-45, Termination, the phrase ``As prescribed in 
970.7104-30,'' is removed from the introductory text.


Sec. 970.5204-50  [Amended]

    12. At 970.5204-50, Cost and schedule control systems, remove the 
phrase ``As prescribed in 970.7104-40,'' from the introductory text.


Sec. 970.7104  [Removed and Reserved]

    13. Section 970.7104, Conditions of purchasing by management and 
operating contractors, including 970.7104-1 through 970.7104-47, is 
removed and reserved.

[FR Doc. 95-23739 Filed 9-25-95; 8:45 am]
BILLING CODE 6450-01-P