[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Rules and Regulations]
[Pages 34842-34872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16635]



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Part III





Department of Energy





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48 CFR Parts 901, 917, 926, 950, 952, and 970



Acquisition Regulations; Department of Energy Management and Operating 
Contracts; Final Rules

  Federal Register / Vol. 62, No. 124 / Friday, June 27, 1997 / Rules 
and Regulations  

[[Page 34842]]


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DEPARTMENT OF ENERGY

48 CFR Parts 901, 917, 926, 950, 952 and 970

[1991-AB-28]


Acquisition Regulations; 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 implement certain key 
recommendations of its Department-wide contract reform initiative. This 
initiative furthers the Department's policy objectives of protecting 
the environment, safety and health, cost control, and enhancing 
diversity. Changes are in the following areas: implementation of 
performance-based management contracting; the reimbursement of costs 
for fines, penalties, third-party liability, and property loss or 
damage; requirements for contractor make-or-buy plans; diversity; 
implementation of Section 3161 of the National Defense Authorization 
Act for Fiscal Year 1993, including displaced worker hiring 
preferences; payment of fee; procedures for determining the application 
of laws, regulations, and Department directives to contractors; a 
requirement for a contractor safety management system covering the 
environment, safety, and health; ownership of records; and contractor 
overtime management policy.

DATES: This final rule is effective August 26, 1997.

FOR FURTHER INFORMATION CONTACT: Connie P. Fournier, Office of Policy 
(HR-51), Department of Energy, 1000 Independence Avenue, SW, 
Washington, D.C. 20585, (202) 586-8245; (202) 586-0545 (facsimile); 
[email protected] (Internet).

SUPPLEMENTARY INFORMATION:

I. Background
II. Disposition of Comments
III. Procedural Requirements
    A. Review Under Executive Order 12866
    B. Review Under Executive Order 12988
    C. Review Under the Regulatory Flexibility Act
    D. Review Under the Paperwork Reduction Act
    E. Review Under Executive Order 12612
    F. Review Under the National Environmental Policy Act
    G. Review Under Small Business Regulatory Enforcement Fairness 
Act of 1996
    H. Review Under the Unfunded Mandates Reform Act of 1995

I. Background

    On June 24, 1996, the Department of Energy published in the Federal 
Register (61 FR 32588) a notice of proposed rulemaking to amend the 
Department's acquisition regulations to implement certain 
recommendations of its contract reform report, Making Contracting Work 
Better and Cost Less (February 1994). Those proposed changes were to 
improve the Department's acquisition system, principally in areas 
affecting management and operating contracts.
    On July 25, 1996, the Department published a supplemental notice 
(61 FR 38701) to the proposed rule providing additional discussion 
regarding the treatment of qui tam costs incurred by management and 
operating contractors. A public hearing originally scheduled in the 
proposed rule for August 1, 1996, was canceled on July 31, 1996 (61 FR 
39940) because of a lack of requests to speak. Written comments on the 
proposed rule were due by August 23, 1996. The Department received 
comments from 24 entities. After reviewing comments, the Department 
published a notice of limited reopening of the comment period for the 
proposed Environment, Safety and Health clause (61 FR 53185, October 
10, 1996; corrected at 61 FR 53699, October 15, 1996). The purpose of 
the reopening was to clarify the requirements in the proposed clause. 
The Department received comments on the reopening from 6 entities.
    Today's final rule adopts the amendments in the notice of proposed 
rulemaking and the limited reopening notice, with certain changes 
discussed in this section. The Department today also publishes a 
separate rule that effects as a final rule a previously published 
interim final rule. That rule (61 FR 32584), published on June 24, 
1996, and effective on August 23, 1996, made changes to the 
Department's policies regarding competition and extension of its 
management and operating contracts. These two final rules constitute 
the acquisition regulatory changes to date for the Secretary of 
Energy's contract reform initiatives.

II. Disposition of Comments

    The Department has considered and evaluated the comments received 
during the public comment period. The following discussion provides a 
summary of the comments received, the Department's responses to the 
comments, and any resulting changes from the proposed rule and the 
limited reopening notice. For convenience, this discussion is grouped 
by the major items covered. Text changes finalized by this rule are 
listed at the end of each major item discussed.

Item I--Performance-Based Management Contracting

    A. Comment: One commenter recommended that the Department defer its 
rulemaking in this area until after Federal Acquisition Regulation 
(FAR) coverage for performance-based contracting (services) is adopted 
as a final rule, citing potential for inconsistencies with the FAR and 
a concern that the Department's policies could be altered depending on 
the outcome of the FAR case (FAR CASE 95-311, 61 FR 40284, August 1, 
1996). Regarding the latter issue, the commenter expressed concern that 
meaningful public comments cannot be made. The commenter also believed 
that the Department's proposed approach mandates the use of 
performance-based contracting methods as opposed to the FAR coverage 
which appears to provide greater flexibility.
    Response: As indicated in the notice of proposed rulemaking, the 
Department considered the policies set forth in the Office of Federal 
Procurement Policy Letter 91-2, Service Contracting, in developing its 
policies for the application of performance-based contracting to 
management and operating contracts. At that time, the Department also 
was aware of the effort by the FAR Council to develop regulatory 
coverage in FAR Part 37, Service Contracting, that would implement the 
requirements of the OFPP Policy Letter for service contracts. The 
Department notes that OFPP Policy Letter 91-2 was effective on May 9, 
1991, and was not dependent on the issuance of the FAR coverage. The 
Department of Energy, along with other Federal agencies, has been 
complying with the requirements of the Policy Letter in its service 
contracts since that date. From a practical standpoint, the Department 
already has incorporated performance-based contracting concepts and 
methodologies in many of its management and operating contracts and 
will continue to do so in the future.
    In the proposed rule, the Department committed to reviewing the 
proposed regulatory coverage for FAR Part 37 on performance-based 
services contracting. The Department has conducted that review and 
finds no substantive inconsistencies between its coverage as it applies 
to management and operating contracts and the FAR coverage for service 
contracts. The proposed FAR coverage, to a large extent, restates 
policies and concepts from the OFPP

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Policy Letter. Accordingly, it does not provide new or additional 
substantive concepts, approaches, or practices that may cause 
inconsistencies with the Department's regulatory implementation.
    The Department disagrees with the commenter's belief that the FAR 
coverage appears to provide greater flexibility in applying 
performance-based contracting approaches. The coverage at FAR Section 
37.000, Scope of Part, requires the use of performance-based 
contracting to the maximum extent practicable (emphasis added). Section 
37.102(d), Policy, establishes performance-based contracting methods as 
the preferred approach to acquiring services. In this final rule, the 
Department is adopting the same requirements in its policy governing 
the application of performance-based contracting methodologies for 
management and operating contacts found at DEAR Section 970.1001, 
Performance-based contracting.
    Accordingly, the Department does not believe it is necessary to 
defer its final rule concerning the application of performance-based 
contracting concepts to its management and operating contracts. In 
order to strengthen the Department's application of performance-based 
contracting concepts and methodologies to its management and operating 
contracts, the Department has added the definition of ``performance 
based contracting'' from the OFPP Policy Letter to section 917.601, 
Definitions. In addition, section 970.1001, Performance-based 
contracting, has been amended to include a reference to OFPP Policy 
Letter 91-2 and recognize the general application of the concepts and 
methodologies set out in the policy letter to management and operating 
contracts. This Section also creates a linkage between contract 
performance objectives and the Department's strategic planning goals 
and objectives, and requires the development of quality assurance 
surveillance plans.
    B. Comment: Three commenters noted that the use of performance-
based management contracting concepts may be administratively 
burdensome. It was recommended that the final rule spell out the 
objectives of performance-based contracting and provide additional 
guidance to contracting officers concerning the development of measures 
and incentives and that the Department carefully monitor implementation 
to ensure cost effectiveness of the new approach.
    Response: The move to performance-based contracting methodologies 
represents a significant shift in both policies and practices by the 
Department and its contract community. Accordingly, the period of 
transition to this new approach requires considerable commitment from 
both the Department and its contractors. Although the learning curve 
has been steep, experience to date has indicated that over the long 
term, benefits of applying performance-based management concepts will 
exceed the administrative difficulties. Because guidance on the use of 
performance-based contracting must be continually updated and developed 
as experience is gained, the Department believes that it is impractical 
to provide such guidance in a regulation and, further, to do so would 
be contrary to the Administration's initiatives to streamline 
regulations. The Department has already established several cross-
cutting and independent initiatives to monitor implementation.
    C. Comment: One commenter recommended that the Department identify 
those contracts which are, or will become, subject to the revised 
requirements pertaining to performance-based management contracting 
concepts, as expressed in Sections 917.600, 917.601, and 917.1001.
    Response: The Department believes that the scope of its policies 
pertaining to the use and application of performance-based management 
contracting concepts and methodologies is sufficiently clear to 
indicate that it is the Department's intent to employ such concepts and 
methodologies, to the maximum extent practicable, in all of its 
contracts for the management and operation of DOE sites and facilities. 
The Department believes that this approach is consistent with, and in 
support of, Governmentwide efforts to move to results-oriented 
performance under contracts. As such it is unnecessary to specifically 
identify each contract and solicitation subject to the policies.
    D. Comment: Regarding the scope of the Department's policy on the 
use of performance-based management contracting, as set forth in 
Section 917.600, one commenter questioned whether the subpart applies 
to ``management and integration'' contracts for environmental 
restoration work.
    Response: As a preface to the response to this comment, it should 
be noted that the Department is required by regulation to periodically 
review the continued need for the use of a management and operating 
type contract (referred to as a performance-based management contract). 
This review normally is conducted concurrent with the process of 
deciding whether to compete a management and operating contract upon 
expiration of the current contract. In conducting this review, the 
Department assesses, among other things, whether alternative 
contracting approaches to the traditional management and operating 
contract may be viable and could present more effective contracting 
solutions. Considerations in this assessment include potential changes 
to the current and future missions at the site or facility and whether 
the nature and scope of the contemplated work effort meets the purpose 
of the management and operating contract format. As a result of such 
assessments, the Department has, in recent years, converted numerous 
management and operating contracts into FAR-based support services and 
management and integration contracts. These contracts are not subject 
to DEAR Part 970. Nonetheless, certain aspects of the management and 
operating contract concept may be applied to management and integration 
contracts, if deemed appropriate.
    The policies set forth in section 917.600 and Part 970 govern those 
contracts that are traditionally considered ``management and operating 
contracts.'' Other contracts recently awarded by the Department, such 
as those contracts labeled as ``management and integration contracts,'' 
have a purpose that is different from the traditional management and 
operating contract. Accordingly, such contracts are not, per se, 
subject to Section 917.600 and other applicable regulations set forth 
in Part 970 of the DEAR. As a practical matter, however, these 
management and integration contracts may include some terms, 
conditions, and features similar to those found in management and 
operating contracts. In any case, because these contracts are governed 
by other provisions and requirements of the FAR and DEAR, it is the 
Department's intent that these contracts also use performance-based 
contracting approaches.
    The final rule makes the following changes:
    1. 917.600, Scope of subpart. This Section is revised to recognize 
the applicability of the requirements of the Subpart to performance-
based management contracts.
    2. 917.601, Definitions. This Section is added to define the term 
``performance-based management contract'' as a form of management and 
operating contract to be used by the Department of Energy for the 
management and operation of its weapons production and laboratory 
facilities, where the contract includes objective performance standards 
and

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incentives. This Section also defines ``performance based contracting'' 
in a manner consistent with Office of Federal Procurement Policy Letter 
91-2.
    3. 970.10, Specifications, Standards and Other Statement of Work 
Descriptions. Section 970.1001 is revised as a new Section entitled, 
Performance-based contracting, and Section 970.1002 is retitled, 
Additional considerations.

Item II--Fines, Penalties, Third-Party Liability, and Property 
Liability

A. Shifting Burden of Proof
    Comment: Sixteen of the commenters recommended against creating a 
rebuttable presumption of unallowability of costs resulting from third-
party claims or damage to or loss of government property. About half of 
these commenters emphasized the increased costs of reporting and record 
keeping that would result and some compared this increased 
administrative burden with the problems created by the Accountability 
Rule, which the Department is eliminating. Nine of the commenters 
recommended the Department use the burden of proof standard under FAR 
31.201-3, rather than create a new standard inconsistent with 
government-wide policy. They believed the FAR standard created a better 
balance between the Government's right to question costs and the 
administrative burden on the contractor to justify and document, in 
advance, the contractor's costs under the contract.
    Several commenters believed the Department's proposed rule was 
unclear concerning the degree of proof that would be necessary to 
overcome the presumption of unallowability since the Department seemed 
to be requiring proof of a negative (i.e., that a cost is not 
unallowable). Finally, one commenter pointed out that presumptions are 
only appropriate where courts and legislatures have extensive 
experience with a recurrent set of facts and there is a strong 
likelihood of the existence of presumed conclusions.
    Response: The Department has considered the comments on this issue 
and has decided to adopt the burden of proof requirements articulated 
in FAR 31.201-3, Determining reasonableness. The Department has decided 
that FAR 31.201-3, combined with a recent amendment to FAR 31.201-2, 
Determining allowability, adequately protects the Government's interest 
in avoiding the reimbursement of unallowable costs by placing 
responsibility for documenting costs on the contractor.
    Paragraph (a) of FAR 31.201-3 states in part:
    No presumption of reasonableness shall be attached to the 
incurrence of costs by a contractor. If an initial review of the facts 
results in a challenge of a specific cost by the contracting officer or 
the contracting officer's representative, the burden of proof shall be 
upon the contractor to establish that such cost is reasonable.
    Additionally, FAR 31.201-2, Determining allowability, now clarifies 
and expands the contractor's responsibility for documenting costs. More 
particularly, paragraph (d) provides:
    A contractor is responsible for accounting for costs appropriately 
and for maintaining records, including supporting documentation, 
adequate to demonstrate that costs claimed have been incurred, are 
allocable to the contract, and comply with applicable cost principles 
in this subpart and agency supplements. The contracting officer may 
disallow all or part of a claimed cost which is inadequately supported.
    The Department believes that, taken together, these provisions 
appropriately balance the Department's right to question contractor 
costs and the administrative burden placed on the contractor to justify 
its costs. For these reasons, the language ``demonstrates to the 
contracting officer,'' has been deleted from DEAR 970.5204-21(f)(1), 
970.5204-31(h), and 970.5204-31(j)(2).
B. Prudent Business Judgment
    Comment: Fifteen commenters recommended against the use of the term 
``prudent business judgment,'' as used in the proposed rule, since the 
Department appeared to be introducing an ambiguous term or standard. 
Almost all of the commenters expressed concern about how this term 
would be interpreted, particularly since the Department seemed to be 
going beyond the standard articulated in FAR 31.201-3. Commenters 
questioned how a demonstration of ``prudent business judgment'' would 
be made and what would be the basis for a finding that prudent business 
judgment had not been exercised. A number of commenters also pointed 
out that the Department appeared to be creating a standard which would 
allow the Contracting Officer to second guess the judgments of 
contractor management. Five of the commenters recommended against 
creating a ``cost reasonableness'' definition that differed from that 
established by FAR 31.201-3.
    Response: There appears to be some confusion on the part of the 
commenters. Except for costs related to third-party liabilities under 
the Insurance--Litigation and Claims clause, the Department is not 
creating a new standard for determining cost reasonableness, beyond 
that provided in FAR 31.201-3.
    With respect to the allowability of costs arising from third-party 
claims, the Department is establishing, in this final rule, a new 
requirement that the contractor's managerial personnel exercise prudent 
business judgment in order to be reimbursed for costs resulting from 
third-party liabilities. This is in addition to the standard (i.e., 
``willful misconduct or lack of good faith'' on the part of contractor 
managerial personnel) found in the Federal Acquisition Regulation at 48 
CFR 52.228-7, which addresses the unallowability of third-party claims, 
and in the current Department of Energy Acquisition Regulation at 48 
CFR (DEAR) 970.5204-13(e)(17) and 970.5204-14(e)(15), which address the 
unallowability of ``losses.''
    The prudent business judgment standard is specifically defined in 
the final rule as (1) failure to act in the same manner as a prudent 
person in the conduct of a competitive business, or (2) in the case of 
a nonprofit educational institution, failure to act in the manner that 
a prudent person would have under the circumstances prevailing at the 
time the events which resulted in third-party liability occurred or the 
decision to incur the cost was made. These are well-established 
standards in the Federal Acquisition Regulation and OMB Circular A-21, 
Cost Principles for Educational Institutions, for determining the 
reasonableness of a cost for purposes of allowability.
    The following situation illustrates how this standard will operate 
in a typical third-party action. A sexual harassment suit is brought by 
an employee against the contractor. The contractor eventually seeks 
reimbursement from the Department for costs incurred in defending 
against the suit and for any settlement or judgment of the employee's 
action. After an initial review of the facts, the contracting officer 
may decide that there is reason to believe that the costs resulted from 
management's failure to exercise prudent business judgment and so 
informs the contractor. In this case, the contracting officer would 
then proceed to consider, among other things: whether management has an 
effective process for addressing employee discrimination complaints; 
whether this process was followed by management in this case; and 
whether management had effective notice of previous sexual

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harassment activities by the same individual or in the same work place. 
The Department acknowledges that third-party actions, including 
employee discrimination complaints, are normal business risks, and is 
not seeking to shift all such risk to the contractor. However, the 
Department does intend that the contractor assume the risk for 
management's unreasonable actions or unreasonable failure to act in 
those situations which carry the potential for third-party liability.
    The Department is adopting this standard to foster contractor 
responsibility and accountability. Unlike the former ``Accountability 
Rule,'' this standard is to be applied to the decisions and actions of 
the contractor's management, not to the individual actions of 
contractor employees who are not managers. In this way the Department 
intends to focus the contractor's attention on the quality of its 
management and the effectiveness of its management systems and 
controls, and to shift the risk of loss arising out of contractor 
management deficiencies to the party that can prevent the loss--the 
contractor.
    Some commenters expressed concern that this approach would permit 
contracting officers to second guess decisions made by contractor 
management. As a point of fact, contracting officers are often required 
to exercise their judgment in determining the allowability or 
reasonableness of contractor costs. If the contractor disagrees with 
the contracting officer's judgment, and no reasonable settlement can be 
reached on the issue, the contractor has recourse to the rights and 
procedures established under the Contract Disputes Act, 41 U.S.C. 
Sec. 609, et seq. (Federal Acquisition Regulation Subpart 33.2).
C. Fines and Penalties
    Comment: Three of the commenters argued that the Department should 
exercise its special contracting authority under the Atomic Energy Act 
to deviate from government-wide policies on fines and penalties. A 
fourth commenter argued that the Department can legitimately defend 
reimbursement of criminal fines and penalties resulting from compliance 
with specific terms of a contract or written instruction from a 
contracting officer.
    Response: Congress has repeatedly expressed its position on the 
reimbursement of contractor fines and penalties. Most recently, this 
cost category was addressed in the Federal Acquisition Streamlining Act 
of 1994 (FASA), 41 U.S.C. 256(e)(1)(D). With regard to the Department 
of Energy, statutes on this issue can be found at 42 U.S.C. Sec. 7256a, 
which contains language similar to that found in FASA, and Sec. 7273a, 
which prohibits the use of appropriated funds to pay penalties under 
environmental laws.
    It should be noted that the Department has retained the rebuttable 
presumption of unallowability with respect to fines and penalties. In 
order for a civil fine or penalty to be an allowable cost, the 
contractor must demonstrate to the contracting officer one of the two 
conditions set forth in DEAR 970.5204-13(e)(12).
D. Litigation and Losses From Third-Party Liabilities
    Comment: Two commenters thought the Department should expand the 
language in 970.5204-31(f), concerning the availability of funds, to 
provide that the Department would make its best effort to obtain any 
necessary additional funding.
    Response: The Department has decided not to include the requested 
language in this final rule. The Antideficiency Act (31 U.S.C. 1301) 
and Comptroller General decisions restrict expansion of the language on 
availability of funds to include the requested phrasing.
    Comment: Three commenters stated that the Department should define 
``third party'' to include other government agencies. One of the 
commenters was concerned about cost recovery or contributory actions by 
Federal or state agencies under the Comprehensive Environmental 
Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. 9601, et 
seq.
    Response: Expansion of the term ``third party'' to include 
governmental entities would create a conflict with the Major Fraud Act, 
41 U.S.C. 256(k). An action for contribution under CERCLA Sec. 107 
would not normally result in one of the dispositions listed in the 
Major Fraud Act and would be reimbursable unless otherwise made 
unallowable under terms of an individual contract. Additionally, legal 
actions brought by a state, local or foreign government, such as 
ordinary commercial disputes, and not covered by the Major Fraud Act or 
the provisions of DEAR 970.5204-61, would be considered a ``third-
party'' action subject to the terms of the Insurance--Litigation and 
Claims clause.
    Comment: Six of the commenters believed that clarification was 
needed on the inclusion of ``employees'' in paragraph (h) of the 
Insurance-Litigation and Claims clause. Four of these commenters 
recommended, in particular, that worker's compensation claims be 
excluded from the cost prohibition.
    Response: As pointed out by these commenters, workers' compensation 
insurance is a cost area normally covered as an allowable cost under 
the Department of Energy and other federal contracts. It was not the 
Department's intent to make workers' compensation insurance an 
unallowable cost. Clarifying language has been added to 970.5204-31 (h) 
in the final rule.
    Comment: One commenter noted that there is an inconsistency in the 
definition of expenses incidental to litigation liabilities found in 
paragraphs (e) and (g) of 970.5204-31 since paragraph (g) also has the 
phrase ``* * * counsel fees, judgment and settlements. * * *''
    Response: No difference in treatment was intended and correction 
has been made in 970.5204-31(g) of this final rule.
    Comment: One commenter argued that the requirement for adequate 
security for conditional payment of litigation costs is unnecessary 
with management and operating contractors, which are large companies.
    Response: The Department has revised subparagraph (i)(1) of 
970.5204-31 to simplify any necessary exchanges between the contractor 
and contracting officer on this issue.
E. Insurance
    Comment: One commenter argued that the Department was being 
inconsistent by making the costs of insurance for correcting defects in 
materials or workmanship unallowable but permitting the reimbursement 
of the costs of correction.
    Response: The Department included the second sentence in DEAR 
970.5204-13(e)(36) and 970.5204-14(e)(34) in order to conform this 
final rule with the Federal Acquisition Streamlining Act. The 
prohibition against reimbursing these insurance costs was codified at 
41 U.S.C. Sec. 256(e)(1)(L) and implemented at FAR 31.205-19(a)(4).
    The Department is deleting, in Part 970, language from the 
Accountability Rule that specifically addressed the costs of correcting 
defects in materials and workmanship, and this area of cost will now 
fall under other less-specific terms and conditions in the Department's 
contracts. While the cost of insurance for correction will now be 
unallowable in all federal contracts, the treatment for the actual 
costs of correction will depend on the terms of individual contracts. 
Costs of correction will be allowable under most of the Department's 
cost reimbursement contracts, as long as the costs are

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reasonable and are not a result of the willful misconduct or lack of 
good faith of managerial personnel.
    Comment: Three commenters requested that the Department provide 
clarification to its Field Offices and contractors on pro-rating 
insurance costs. One of these commenters recommended the Department 
also permit pro-rating self-insurance costs, and another recommended 
pro-rating be specifically provided for in the clause at 970.5204-31.
    Response: It is the Department's intent that equitable arrangements 
be reached on a case-by-case basis with its contractors to address pro-
rating of insurance costs. The policy of pro-rating the cost of 
insurance to reimburse the portion of the premium or cost attributable 
to insurance coverage for allowable costs is intended to extend to 
self-insurance agreements. Language has been added to this final rule 
to provide additional guidance on pro-rating of insurance costs.
F. Environmentally-Related Third-Party Liabilities
    Comment: Two commenters pointed out that shifting risks to the 
Department's contractors would inhibit innovative and alternative 
technologies.
    Response: It is the intent of the Department to make exceptions on 
a case-by-case basis and agree to reduced risk terms if a situation 
warrants such an approach.
    Comment: One commenter believed that the Department should require 
flowdown of DEAR 970.5204-31, Insurance-Litigation and Claims, to all 
environmental subcontractors, in addition to all major subcontractors. 
This was done in a recent solicitation at the Department's Hanford 
site.
    Response: The requirement for flowdown of coverage to special 
groups of subcontractors will be addressed on a case by case basis, as 
the circumstances warrant such a requirement.
G. Damage to or Loss of Government Property
    Comment: Six commenters recommended the Department revise the 
language in paragraph (f)(1) of the Property clause so that the 
reference in all the subparagraphs was consistent and referred to the 
conduct of contractor managerial personnel.
    Response: As noted above, this language has been clarified and now 
includes the words ``managerial personnel.'' It is the Department's 
intent to hold the contractor's corporate entity responsible in those 
areas and the Department is seeking to incentivize contractor 
management to put in place adequate systems for ensuring compliance 
with contracting officer directions and for establishing, 
administering, and maintaining an approved property system.
    Comment: Two commenters questioned whether the inventory 
requirement applied to only government furnished property or to all 
government property.
    Response: It is the Department's intent to cover all government 
property in the inventory requirement. Inventory baselines provide for 
reconciliation of records between old and new contractors and are the 
basis on which the new or follow-on contractor accepts accountability 
and responsibility for the government property to be used under the 
contract.
    Comment: Three commenters urged the Department to eliminate the 
security, classification, and environment, safety and health concerns 
from the property clause and limit that provision to traditional 
issues.
    Response: The Department disagrees with this comment because, in 
the Department's view, it is necessary to ensure that contractors 
account for, control, and protect the kinds of high-risk property 
unique to the Department's contracts.
    Comment: Two commenters questioned how the Department would address 
any contributory role by federal employees if an unallowable cost was 
due in whole or in part to an act or omission by the government or its 
agent.
    Response: It is not the Department's intent to make a contractor 
pay for costs, or the portion of costs, resulting from mistakes it is 
not responsible for under the terms of its contract. Where appropriate, 
negotiation for apportionment of cost responsibility should occur under 
the provisions contained in this rule.
    Comment: Two commenters indicated that the term ``fair market 
value'' needed additional guidance or definition.
    Response: As stated in the Federal Property Management Regulations, 
at 41 CFR 101-43.001-8, ``fair market value means the best estimate of 
the gross proceeds that would be recovered if the property were sold by 
competitive bid.'' The Department intends to rely on that meaning for 
purposes of this clause.
H. Preexisting Conditions
    Comment: One commenter believed the inspection obligation was 
overly broad, while another argued that contractors must be allowed 
time to inspect and inspection costs must be allowable under the ``duty 
to inspect'' provision.
    Response: The Department intends to place a reasonable duty to 
inspect upon the contractor. Under most circumstances, this inspection 
would occur during the transition period stated under the contract. The 
proposed Preexisting Conditions contract clause has been modified to 
make the inspection requirement an alternate paragraph for use in 
contracts with contractors not previously under contract at the 
particular site or facility.
    A contractor will not be precluded from recovering costs resulting 
from or related to preexisting conditions merely because the inspection 
failed to discover the condition. Whether a condition will be 
determined to be preexisting and covered under the clause will depend 
upon the circumstances in each individual case.
    Comment: One commenter advocated that paragraph (a) of the proposed 
Preexisting Conditions clause also include medical conditions of 
current or past personnel.
    Response: While not specifically listed, any liabilities or costs 
resulting from medical conditions which arose from pre-existing 
conditions would be covered by the clause.
I. Increased Risk and Fee for Nonprofit Contractors
    Comment: Five commenters stated that the Department should perform 
a cost benefit analysis for provisions covering nonprofit entities. 
These commenters pointed out that increased fees would be a direct 
charge to program funds and result in less research for the money 
available. Two of the commenters pointed out that requiring nonprofit 
entities to dedicate funds to protect against liability was contrary to 
the usual operating procedures of a nonprofit entity and that payment 
of fees could threaten the nonprofit status of these contractors. Three 
of the commenters believed it was premature for the Department to 
propose new liabilities for contractors when the nature of the fees to 
mitigate those liabilities is unknown.
    Response: Certain of the liabilities in question (such as those for 
fines and penalties and under the Major Fraud Act) are statutorily 
imposed. Others are not imposed by statute, but reflect Departmental 
policy that its contractors, regardless of business status, should 
employ good business practices and mitigate risks associated with 
potential liabilities. Nevertheless, the commenters have raised 
concerns that the Department believes are best resolved in the context 
of individual contract circumstances, given the variability among 
nonprofit contractor institutions

[[Page 34847]]

and differences in the nature of the work that they perform for the 
Department.
    Accordingly, the Department's contracting officers will determine, 
on a case-by-case basis in individual contract negotiations, the extent 
to which a particular nonprofit institution will be subject to: (1) the 
``prudent business judgment'' standard for third-party liabilities; (2) 
liability for punitive damages; and (3) liability for loss of or damage 
to government property because of a failure to administer or properly 
maintain an approved property management system. The Department will 
consider ``co-insurance'' provisions (under which the Department of 
Energy and the contractor share losses) as well as overall limitations 
on an institution's exposure to non-statutory liabilities arising out 
of these contracts. The Department will, in addition, consider whether 
to accept contractor self-insurance or commercial insurance 
arrangements as a substitute for non-statutory liability provisions.
    The Department plans to compensate nonprofit educational 
institutions consistent with the level of financial and management risk 
they assume in connection with their work for the Department. The 
Department is amending 48 CFR (DEAR) 970.1509-2(a) in this final rule 
to reflect this decision.
    Finally, with regard to the commenters' request for a cost benefit 
analysis, the Department has responded elsewhere in this final rule to 
those comments that argue that Executive Order 12866 is applicable and 
requires a regulatory impact analysis. With respect to the more general 
requests for a cost benefit analysis, the Department believes that such 
an analysis will provide little useful information until it has had 
more experience with third-party claims under the new form of contract 
and with the level of fees that is likely to be negotiated under these 
contracts.
J. Qui Tam
    Comment: Five of the commenters stated opposition to the proposed 
disallowance of proceeding costs when the United States does not elect 
to participate in the action. Some of these commenters stated that 
there was no statutory authority for this requirement, since the 
statutory provision at 41 U.S.C. Sec. 256(k) is silent on qui tam 
costs.
    Response: The Department disagrees with these commenters. Qui tam 
proceeding costs are subject to the provisions at 41 U.S.C. Sec. 256(k) 
because the relator ``stands in the shoes'' of the United States in a 
qui tam action. This is true, whether or not the United States elects 
to intervene in the action.
    Comment: Three commenters opposed adoption of the proposed Federal 
Acquisition Regulation amendment (61 FR 31790, June 20, 1996) which 
would limit reimbursement of settlement costs in all cases to 80% of 
otherwise allowable and allocable proceeding costs. The commenters 
argued that contracting officers should have the discretion to approve 
full recovery of settlement costs, particularly in those cases in which 
the United States has decided that the case does not merit government 
intervention.
    Response: In this final rule, the Department is adopting the same 
provisions as the proposed Federal Acquisition Regulation amendment. In 
addition to addressing the allowability of costs incurred for qui tam 
suits in which the Government does not intervene, these provisions also 
clarify that the maximum reimbursement contractors can receive for 
costs incurred in connection with proceedings which are resolved by 
consent or compromise is 80% of allowable costs. Based on the analysis 
which follows, the Department has concluded that these provisions are 
required by 41 U.S.C. Sec. 256(k).
    Subsection (k)(1) of section 256 states that, unless otherwise 
provided in the section, all costs incurred in connection with any 
criminal, civil, or administrative proceeding brought by the United 
States or a State are not allowable if the proceeding: (1) relates to a 
failure to comply with, or a violation of, Federal or state law; and 
(2) results in one of five specified dispositions. Subsection (k)(3) 
provides for the allowability of proceeding costs if a matter is 
resolved by settlement, provided the settlement agreement specifically 
addresses the extent to which such costs are allowable. Subsection 
(k)(5) provides that costs not specifically disallowed under subsection 
(k)(1) may be allowed, but only up to 80% of the amount of costs 
incurred. One category of costs not disallowed by subsection (k)(1) are 
those costs made allowable under subsection (k)(3). Therefore, 
proceedings costs incurred when a matter is resolved by settlement are 
subject to the 80% limitation.
    Comment: Four commenters stated that authority to provisionally 
allow costs should reside with the contracting officer rather than the 
General Counsel.
    Response: The Department is adopting the Federal Acquisition 
Regulation approach on this issue, which is to allow the contracting 
officer to provide conditional payment in appropriate circumstances.
    Comment: Six commenters stated that they preferred the Federal 
Acquisition Regulation standard for provisionally allowing costs, i.e., 
``very little likelihood that the qui tam plaintiff would have been 
successful on the merits'', as opposed to the ``frivolous or devoid of 
merit'' standard in the proposed rule.
    Response: The Department is adopting the Federal Acquisition 
Regulation approach on the standard to be used for provisionally 
allowing costs.
    The final rule makes the following changes:
    1. 950.7101. General contract authority indemnity. Paragraph (c)(2) 
is removed.
    2. 970.1509-2(a). Is amended to provide for the payment of fees to 
nonprofit educational institutions in appropriate circumstances.
    3. 970.28. Is amended to add a new section 970.2830, Contract 
clause, which prescribes the use of the clause at 970.5204-31, 
Insurance--Litigation and Claims.
    4. 970.3101-3. General basis for reimbursement of costs. 
Subparagraph (a)(1) is amended to add a reference to FAR 31.201-2(d) 
and FAR 31.201-3.
    5. 970.3102-21. Fines and penalties. This subsection is revised to 
reflect the Department's policy on the unallowability of fines and 
penalties.
    6. 970.3102-22. Avoidable costs for profit making contractors. This 
subsection is removed.
    7. 970.3103. Contract Clauses. Paragraph (d) is added to address 
preexisting conditions.
    8. 970.45. Government property, and 970.4501, Contract clause. This 
subpart and subsection are added.
    9. 970.5204-13. Subparagraph (c)(1) is amended to refer to FAR 
31.201-2(d) and FAR 31.201-3; subparagraph (d)(1) is amended to update 
the clause reference.
    10. 970.5204-13(d)(4). This subparagraph is amended to add 
references to Department of Energy approved contractor litigation 
management procedures and cost guidelines to be included in an Appendix 
to the contract.
    11. 970.5204-13(d)(9). This subparagraph is amended to add ``and as 
allowable under subparagraph (f) of the clause of this contract 
entitled, Property.''
    12. 970.5204-13(e)(12). This subparagraph, concerning fines and 
penalties, is revised.
    13. 970.5204-13(e)(17). This subparagraph is reorganized and 
revised.

[[Page 34848]]

    14. 970.5204-13(e)(36). This subparagraph is revised to remove most 
of the discussion; the statement that the cost of insurance for an 
unallowable cost is an unallowable cost is retained.
    15. 970.5204-14. Subparagraph (c)(1) is amended to refer to FAR 
31.201-2(d) and FAR 31.201-3; subparagraph (d)(1) is amended to update 
the clause reference.
    16. 970.5204-14(d)(4). This subparagraph is amended to add 
references to Department of Energy approved contractor litigation 
management procedures and cost guidelines to be included in an Appendix 
to the contract.
    17. 970.5204-14(d)(10). This subparagraph is amended to add ``and 
as allowable under subparagraph (f) of the clause of this contract 
entitled Property.''
    18. 970.5204-14(e)(10). This subparagraph concerning fines and 
penalties for profit making and nonprofit contractors is revised.
    19. 970.5204-14(e)(15). This subparagraph is reorganized and 
revised.
    20. 970.5204-14(e)(34). This subparagraph is revised to remove most 
of the discussion; the statement that the cost of insurance for an 
unallowable cost is an unallowable cost is retained.
    21. 970.5204-18. Definition of nonprofit and profit making 
management and operating contractors and subcontractors. This 
subsection is removed and reserved.
    22. 970.5204-21. Property. Paragraphs (e), (f), (g), (i) and (j) 
are revised; the definition of contractor's managerial personnel which 
previously appeared at the end of paragraph (f) now appears as 
paragraph (j).
    23. 970.5204-31. Litigation and claims. This subsection is removed 
and a new subsection, Insurance--litigation and claims, is added in its 
place.
    24. 970.5204-32. Required bond and insurance-exclusive of 
Government property. This subsection is removed and reserved.
    25. 970.5204-55. Ceiling on certain liabilities for profit making 
contractors. This subsection is removed and reserved.
    26. 970.5204-56. Determining avoidable costs. This subsection is 
removed and reserved.
    27. 970.5204-61. Cost prohibitions related to legal and other 
proceedings. Paragraphs (b), (c), and (e) are amended.
    28. 970.5204-XX. Preexisting Conditions. This subsection is added.

Item III--Make-or-Buy Decisions

    A. Comment: Several commenters opined that the Department should be 
more prescriptive in describing the nature and extent of the make-or-
buy plan and the attendant analytical approach that will be used by 
contractors to accomplish make-or-buy decisions. One commenter 
suggested that the rule specify a methodology for comparing the cost-
effectiveness of in-house performance versus outsourcing.
    Response: The purpose of the regulatory coverage is to provide a 
contractual mechanism to require contractors to establish a make-or-buy 
plan, consistent with the Department's needs. Because the 
considerations that must be taken into account by a contractor in 
making prudent make-or-buy decisions can be complex and may be 
different depending on such variables as the mission at the Department 
of Energy facility or site, the nature and type of supplies or services 
required, local market conditions, and the contractor's buying 
practices, the Department does not believe that it should adopt an 
overly prescriptive approach in defining a precise methodology to be 
followed by contractors through its acquisition regulations.
    B. Comment: Regarding Subsection 970.1507-1 and clause 970.5204-XX, 
Make-or-Buy plan, addressing the requirements that the contractor 
conduct its make-or buy decisions in an environment that promotes 
participation with affected stakeholders, three commenters indicated 
that the Department should be more prescriptive in requiring that 
certain stakeholder groups be included in the process. One commenter 
suggested that the clause specifically require that the prime 
contractor include environmental contractors as stakeholders. One 
commenter suggested that the requirement in subparagraph (b)(1) of the 
proposed contract clause at 970.5204-XX, Make-or-Buy plan, be modified 
to require the contractor, when implementing in-house productivity 
improvement plans, to include participation by the workforce to 
optimize in-house productivity efforts prior to outsourcing decision. 
Another commenter expressed a similar concern that the rule should be 
more prescriptive in its requirements and directions to contracting 
officers and contractors regarding public information concerning make-
or-buy decisions.
    In addition, a commenter, in addressing the requirements of 
970.1507-1(b)(2), expressed concern that the requirement to include 
stakeholders in development of make-or-buy plans adds no value, and is, 
in any event, vague, because: (1) the term ``stakeholders'' is not 
defined; (2) the requirement to include stakeholders is derived from 
Section 3161 requirements and therefore can only be applied to defense 
nuclear facilities; (3) it is impractical to subject every make-or-buy 
decision to public scrutiny; and (4) providing cost analysis 
information is unwise and probably illegal since it would convey 
proprietary information.
    Response: As indicated in the previous response, the Department 
believes that the precise requirements of a contractor's make-or-buy 
plan, including elements such as appropriate stakeholder identification 
and involvement, are subject to great variance and both Department 
officials administering the contract and contractors must be given 
sufficient latitude in constructing programs to reflect the unique 
considerations of the specific site or facility and contract. 
Accordingly, the Department believes that it is inappropriate to 
provide further regulatory prescription in this matter.
    Regarding the specific comment that the Department can require 
stakeholder involvement in the make-or-buy process only with regard to 
those sites and facilities subject to Section 3161, the Department 
disagrees. The Department believes that parties involved in, or 
affected by, a make-or-buy decision of a contractor benefit through an 
open process of communication and that such a process is in the best 
interests of the Department. Accordingly, the Department has elected to 
adopt such a requirement as a matter of policy.
    Regarding the Department's expectations for openness by the prime 
contractor in its make-or-buy program, the Department believes that the 
standard of ``maximum practicable regard for open communication'', as 
set forth in subparagraph 970.5204-xx(b)(2), Make-or-Buy plan, provides 
sufficient flexibility to the contractor to determine the appropriate 
nature and extent of stakeholder participation. The inclusion or 
exclusion of specific groups is necessarily broad and undefined because 
of the need to determine both the identity of the stakeholders and the 
most appropriate approach in obtaining their participation based on the 
facts and circumstances surrounding an individual make-or-buy decision. 
The Department believes that the current language provides contractors 
the needed latitude and flexibility to effectively implement the intent 
of the provision.
    Lastly, it is not the Department's intent that the contractor 
release proprietary information protected by law to the public under 
its make-or-buy plan or otherwise provide information

[[Page 34849]]

concerning its acquisition approach or costs that might provide one 
party with an unfair competitive advantage over another party. 
Information falling into this category would not be releasable.
    C. Comment: Two commenters recommended that the Department adopt 
the Federal Acquisition Regulation (FAR) 15.7 coverage on this subject. 
One commenter, while supporting a move to the FAR make-or-buy coverage, 
believed that even the FAR is too prescriptive and detailed and that 
the Department should move to best commercial practices in this area.
    Response: In developing its requirements for contractor make-or-buy 
plans, the Department considered whether the FAR make-or-buy (see FAR 
15.7) approach could be used. After careful analysis, it was determined 
that the make-or-buy requirements of the FAR were only generally 
suitable for subcontracting decisions under the Department's management 
and operating contracts, and that, in any case, additional 
considerations would have to be applied to reflect the special 
contractual relationship between the Department and its management and 
operating contractors. The basis for this assessment is that the 
requirements of the FAR generally apply to the manufacture, 
development, and assembly of hardware items (systems, subsystems, 
assemblies, etc.) under a typical commercial operation. Although the 
FAR guidance concerning make-or-buy plans may be helpful in providing 
general instruction in this matter, the decisions regarding make-or-buy 
plans by the Department's management contractors are not directly 
analogous. In the typical commercial operation, make-or-buy decisions 
are generally driven by purely economic considerations in meeting a 
one-time contract requirement (or a series of contracts) to fulfill a 
Government production or manufacturing need. In these contracts, the 
traditional ``arms-length'' buyer-seller relationship between the 
contracting parties is preserved. In contrast, the management and 
operation of a Department of Energy owned or controlled facility by a 
contractor is in direct fulfillment of the Department's mission and is 
characterized by a close relationship not usually associated with 
Federal contracts. As such, make-or-buy decisions by the contractor 
must reflect not only the typical economic considerations, but also 
programmatic and policy considerations. Accordingly, it was determined 
that a tailored approach to contractor make-or-buy plans was needed to 
reflect these considerations.
    Regarding the comment that the Department's make-or-buy program 
requirements appear to conflict with recent actions by the Department 
to move its contractors' buying practices away from the Federal model 
to a more commercial-like approach, the Department does not agree. In 
crafting the make-or-buy plan requirements, the Department has provided 
sufficient leeway to contractors, within the broad parameters set forth 
in the contract clause, to acquire appropriate supplies or services 
under commercial buying practices.
    D. Comment: One commenter noted that subparagraph 970.1507-2(d)(2), 
Requirements, directs the contracting officer, when evaluating a 
contractor's make-or-buy plan, to consider ``whether small, small 
disadvantaged, or other minority-owned businesses will be afforded 
maximum practicable opportunity to compete for work that is 
subcontracted'' may be in conflict with recent actions stemming from 
Adarand Constructors, Inc. v. Pena 115 S.Ct. 2097 (1995).
    Response: Public Law 95-507, as implemented at Subpart 19.7 of the 
FAR requires that certain contractors, as a condition for receiving a 
Federal contract, agree to provide the maximum practicable opportunity 
to small business concerns, small disadvantaged business concerns, and 
women-owned small business concerns to participate in contract 
performance. This subpart requires the apparent successful offeror to 
submit and negotiate a subcontracting plan to be eligible for award. 
The requirements established by Pub. L. 95-507 remain public policy.
    The Department's contracts for the management and operation of its 
laboratories and facilities are subject to both the statutory and 
regulatory requirements pertaining to the submission of small business 
subcontracting plans. Because decisions made by a prime contractor 
under the make-or-buy program have a direct impact on the nature and 
number of subcontracting opportunities available under the contract, 
the Department believes that a natural nexus exists between the 
contractor's obligations under the requirements of Pub. L. 95-507 and 
its make-or-buy program. Accordingly, it is both appropriate and 
necessary that the contracting officer, in evaluating the contractor's 
make-or-buy plan, consider the impact of make-or-buy decisions in the 
context of the approved subcontracting plan.
    In addition, the Department takes this opportunity to reaffirm its 
commitment to diversity and the implementation of its diversity-related 
authorities, including section 3021 of the Energy Policy Act of 1992 
(42 U.S.C. 13556), section 241 and 641 of the Department of Energy 
Organization Act (42 U.S.C. 7141, 7256) and Executive Orders 12876, 
12900, and 13021. As part of its strategic plan for diversity, the 
Department has established performance criteria and measures for 
enhanced partnerships with small, small disadvantaged, and small women-
owned businesses; minority educational institutions; employees; and 
communities. The Department has expressed publicly on numerous 
occasions its intention to evaluate contractor performance consistent 
with its policies and authorities as they may be interpreted and 
implemented in light of Adarand.
    The language at 970.1507-2(d)(5) has been modified to more closely 
align the language to Pub. L. 95-507 requirements through the inclusion 
of a cross-reference to the clause at FAR 52.219-9, Small, Small 
Disadvantaged, and Women-Owned Small Business Subcontracting Plan, a 
mandatory clause in the Department's management and operating 
contracts. In addition, a new paragraph, 970.2601(b), has been added to 
articulate fully the Department's diversity policy.
    E. Comment: One commenter believes that the requirement of 
paragraph 970.1507-2(a) that Department of Energy programmatic sponsors 
develop criteria to override a ``least cost decision'' is in conflict 
with the requirement in paragraph 1(a) of the same section that the 
objective of the make-or-buy plan is to operate the site at least cost. 
Two commenters expressed a similar belief, disagreeing with the 
Department's proposed requirement that programmatic sponsors develop 
make-or-buy criteria for work under their programs. These commenters 
believed that (1) the Department's acquisition regulation is not the 
appropriate vehicle to prescribe internal operating procedures, and (2) 
conflicts will arise at multi-program sites regarding ultimate 
responsibility for make-or-buy criteria.
    Response: The Department does not agree with the commenters. The 
purpose of the program specific make-or-buy criteria, as stated in 
paragraph 970.1507-2(a), Development of program-specific make-or-buy 
criteria, is to permit consideration of those factors that would make a 
decision based on purely economic analysis inappropriate. To assess 
make-or-buy opportunities solely on the basis of an economic analysis 
artificially limits flexibility in business judgment and ignores the 
reality of important programmatic and

[[Page 34850]]

policy factors that must be considered by both the Department and the 
prime contractor.
    Regarding the commenters' assertion that the Department's 
acquisition regulation is not the appropriate vehicle to prescribe 
internal operating procedures, Federal Acquisition Regulation (FAR) 
1.301 provides for agency-specific acquisition regulations necessary to 
implement and supplement the FAR. The purpose of agency acquisition 
regulations, in conjunction with the FAR, is to set out agency 
policies, procedures, contract clauses, solicitation provisions, and 
forms that govern the agency's contractual relationships. The 
Department recently completed an aggressive initiative to reduce its 
acquisition regulations that resulted in a regulatory reduction of 
approximately 50%. In promulgating new regulations, the Department 
carefully considers whether the subject matter is best implemented by 
regulation or by another mechanism. This approach was taken with 
respect to all of the regulatory proposals set forth in the proposed 
rule. The Department has determined that the coverage at Section 
970.1507 is appropriately included in its acquisition regulation.
    With respect to the concern that potential conflicts will arise 
among the various programmatic interests at a particular site or 
facility, the Department believes that appropriate mechanisms exist 
within the Department's management infrastructure to ensure that the 
program specific make-or-buy criteria applicable to a particular 
contract will reflect the balanced needs of the facility or site and 
its programmatic sponsors.
    F. Comment: One commenter identified a potential inconsistency 
between language in the preamble citing ``cost efficient and effective 
manner'' as the underlying premise of DOE's make-or-buy policy and 
language at paragraph 970.1507-1(a), citing ``least cost basis.'' The 
commenter notes that ``best value'' approaches as opposed to ``least 
cost'' approaches may be better suited under certain make or buy 
scenarios. A second commenter expressed confusion over DOE's desire to 
operate on a least cost basis as a contradiction to obtaining what the 
commenter characterized as the ``best and highest value''.
    Response: Paragraph 970.1507-1(a) sets forth the Department's 
expectations for a contractor's make-or-buy plan that establishes ``a 
preference for providing property or services * * * on a least-cost 
basis''. That same paragraph elaborates on the Department's 
expectations, as follows: ``[t]he emphasis of this make-or-buy 
structure is to eliminate bias for in-house performance where an 
activity may be performed at less cost or otherwise more efficiently 
through subcontracting.'' (emphasis added).
    The Department does not intend to equate the term ``least cost'' 
with ``low bid.'' Neither ``least cost'' nor ``efficiency'' are 
synonymous with ``low bid'' contracting approaches. A work activity, 
supply, or service is provided at ``least cost'' when, after 
consideration of a variety of appropriate programmatic, business, and 
financial factors, it is concluded that performance by either ``in-
house'' resources or by contracting out is likely to provide the 
property or service at the lowest overall cost. Programmatic factors 
include, but are not limited to, program specific make-or-buy criteria 
established by the Department of Energy, the impact of a ``make'' or a 
``buy'' decision on mission accomplishment, and anticipated changes to 
the mission of the facility or site. Business factors pertain to such 
elements as market conditions, past experience in obtaining similar 
supplies or services, and overall operational efficiencies that might 
be available through either in-house performance or contracting out. 
Among the financial factors that may be considered to determine a 
least-cost alternative in a make-or-buy analysis are both recurring and 
one-time costs attributable to either retaining or contracting out a 
particular item, financial risk, and the anticipated contract price. A 
new paragraph (b) has been added to subsection 970.1507-1 to 
incorporate this explanation of ``least cost'' basis to the regulatory 
coverage.
    Regarding the use of ``best value'' approaches, the prime 
contractor is responsible for determining whether a particular supply 
or service can be acquired on the basis of price only, or should be 
acquired on a ``best value'' basis with appropriate trade-offs between 
price and non-price factors. The Department believes that the policies 
and requirements of 970.1507, and the corresponding contract clause at 
970.5204-76, Make-or-Buy Plan, do not impinge on a contractor's 
responsibility and discretion in this area.
    G. Comment: With regard to paragraph 970.1507-2(c), one commenter 
believes that the wording of the submission requirement may 
contractually require the contractor to submit a make-or-buy plan prior 
to the Department having developed its make-or-buy factors.
    Response: Paragraph (a) of subsection 970.1507-2, Development of 
program specific make-or-buy criteria, directs that the criteria 
developed by the Department be provided to a contractor for use in 
developing its make-or-buy plan for the facility or site. Paragraph (d) 
of the same subsection instructs contracting officers to consider these 
criteria in evaluating a contractor's make-or-buy plan. Further, 
paragraph (c) of the contract clause provides that the contractor must 
consider the program specific make-or-buy criteria in categorizing each 
work item subject to inclusion in the plan. Accordingly, the Department 
believes that the language of 970.1507, when read in conjunction with 
paragraph 970.5204-76(c), clearly conveys the Department's intent that 
a critical part of a contractor's make-or-buy plan is consideration of 
the program specific make-or-buy criteria developed by the Department. 
Indeed, the contractor cannot prepare an acceptable make-or-buy plan 
absent consideration of such criteria.
    H. Comment: A number of commenters were concerned with the clause 
proposed at 970.5204-XX, Displaced Employee Hiring Preference, and its 
relationship to the coverage concerning contractor Make-or-Buy Plans at 
970.1507. In particular, one commenter recommended that the proposed 
clause be modified to parallel the language in proposed clause 
970.5204-XX(b)(3), Make-or-Buy Plan, regarding actions that contractors 
are to employ to mitigate the social and economic impact of 
subcontracting decisions, specifically with regard to retraining. Two 
commenters believed that the clause regarding hiring preferences for 
displaced workers is unclear, in regard to such matters as the general 
scope of the coverage; subcontract flow down requirements; and defining 
employees eligible for Section 3161 hiring preferences.
    Response: Based on the comments received in response to the 
coverage on make-or-buy plans and displaced employee hiring preference, 
and after a careful review of the statutes, regulations, and the 
Department's internal policies governing Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993, the Department has 
concluded that a number of changes are needed in the coverage to more 
accurately conform the regulatory coverage with the intent of the 
statute. Significant considerations in the Department's decision to 
modify its regulatory coverage in this final rule were:
    (1) A recognition, from both a policy and practical standpoint, 
that a determination by the Secretary of Energy under Section 3161 that 
a change in workforce at a defense nuclear facility is necessary is 
separate

[[Page 34851]]

and apart from a contractor's make-or-buy decision;
    (2) The requirements of Section 3161 apply to Department of Energy 
defense nuclear facilities. Such facilities are identified in Appendix 
C of the Department's Interim Planning Guidance for Contractor 
Workforce restructuring (February 1996);
    (3) In cases where the Secretary has determined that a change in 
workforce is necessary, pursuant to Section 3161, and a workforce 
restructuring plan is to apply to the facility or site, the management 
and operating contractor must comply with the plan and use its best 
efforts to mitigate the social and economic impacts of workforce 
restructuring;
    (4) The requirement under Section 3161(c) that a hiring preference 
be provided, to the extent practicable, to contractor employees whose 
employment in positions at defense nuclear facilities has been 
terminated, is not limited to management and operating contracts and 
subcontracts awarded thereunder. It applies to all Department of Energy 
contracts; and
    (5) Workforce restructuring and worker displacement resulting from 
a Section 3161 determination are appropriate program specific make-or-
buy criteria that may be applied in certain cases to obviate make-or-
buy decisions based on a purely economic basis.
    Accordingly, the Department has determined that the regulatory 
coverage concerning Section 3161 should be separated from the 
regulatory coverage of contractor make-or-buy plans. The regulatory 
coverage regarding Section 3161 in this final rule is substantially the 
same as that set out in the proposed rule.
    The final rule makes the following changes:
    (1) 970.1507, Make-or-buy plans. A section, consisting of 970.1507-
1, 970.1507-2, and 970.1507-3, is added to require management and 
operating contractors to develop and implement make-or-buy plans.
    (2) 970.5204-76, Make-or-buy plan. A clause is added to address the 
make-or-buy plan requirement.
    (3) 926.71, Displaced employee hiring preference. A subpart has 
been added to 48 CFR Part 926 that implements the requirements of 
Section 3161(c)(2) regarding hiring preferences under Department of 
Energy contracts for employees whose employment was terminated as a 
result of a determination by the Secretary that a change in workforce 
was necessary at a Department of Energy defense nuclear facility. 
Substantively, the language in Section 926.7101, Policy, of this new 
subpart is the same as language in the proposed rule at 970.1705-
1(b)(3).
    The definition of ``eligible employee'' found at Section 926.7102 
is substantially the same as the definition that was in the proposed 
rule at 970.5204-XX, Displaced Employee Hiring Preference. 
Modifications were made to the definition to more closely conform the 
definition to existing Department of Energy guidance. New Section 
926.7103, Requirements, explains the application of the requirements of 
Section 3161(c)(2) and identifies the Department of Energy Office of 
Worker and Community Transition as the office responsible for matters 
relating to implementation of Section 3161. New Section 926.7104 
provides contract clause prescriptions.
    (4) 952.226-74, Displaced employee hiring preference. This new 
subsection contains a contract clause that implements the hiring 
preference requirements of Section 3161. The text of the clause is 
substantially the same as the clause in the proposed rule at 970.5204-
XX, Displaced Employee Hiring Preference. Modifications were made to 
the definition of ``eligible employee'' in paragraph (a) to more 
closely conform the definition to existing Department of Energy 
guidance.
    (5) 970.2601, Implementation of Section 3021 of the Energy Policy 
Act of 1992. The existing paragraph is designated (a) and a new 
paragraph (b) is added to state the goals of the Department's diversity 
policy.
    (6) 970.2602-1, Implementation of Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993. Subsection 970.2602-1 
has been added to 970.26, Other Socioeconomic Programs. This new 
subsection recognizes that Department of Energy contractors and 
subcontractors at Department of Energy defense nuclear facilities have 
a responsibility to mitigate the social and economic impacts of 
workforce restructuring and displacement resulting from a determination 
by the Secretary that a change in workforce is necessary pursuant to 
Section 3161. The new subsection requires a hiring preference for 
employees whose employment has been terminated under a Section 3161 
restructuring action and applies the hiring preference requirements of 
48 CFR (DEAR) 926.71 to management and operating contracts. The new 
subsection captures the intent of the language in the proposed rule 
under 970.1507-1(b)(3), which stated in pertinent part: ``[p]otential 
displacement may require the Department of Energy to prepare a work 
force restructuring plan. The contractor shall implement the plan, 
which may require the following initiatives for eligible workers 
consistent with the objectives of Section 3161: retraining, early 
retirement, or other options to avoid lay-offs; retraining for new 
missions; out-placement assistance, including tuition reimbursement; 
relocation assistance; and 60 days individual layoff notice.''
    (7) 970.5204-77, Workforce Restructuring Under Section 3161 of the 
National Defense Authorization Act for Fiscal Year 1993. A new contract 
clause has been added that requires the contractor to comply with the 
applicable Department of Energy Restructuring Plan for the Defense 
Nuclear Facility and use its best efforts to mitigate the social and 
economic impacts of workforce restructuring or displacement. This new 
clause captures the intent of language in the proposed rule under 
970.5204-XX(b)(3), Make-or-Buy Plan.

Item IV--Payment of Fee

    Comment: One commenter requested that the Department limit the 
contracting officer's authority to offset fee payments against 
``amounts owed to the government by the contractor.'' This commenter 
suggested offsets only be allowed against amounts owed to the 
government on or under the specific management and operating contract. 
The commenter stated that adopting this approach would conform the 
Department's rule to the ``recently reauthorized Alternate I at FAR 
Clause 52.232-23, Assignment of Claims,'' cited at 61 FR 29539 (June 
11, 1996).
    Response: The Department does not agree. The Federal Register 
citation provided by the commenter addresses the need to facilitate the 
private financing of defense contracts, particularly contracts to be 
performed by small businesses. Management and operating contracts are 
generally not performed by small businesses and typically provide for 
advance payments. Department sees no reason to restrict its ability to 
offset fee payments against any amounts owed to the government.
    The final rule adopts the changes in the proposed rule, as follows:
    970.5204-16, Payments and advances. This subsection is revised to 
permit the contracting officer to either pay fee through draw downs 
against special financial institution accounts or by direct payments. 
In addition, contracting officer approval is required for fee payment 
to be withdrawn against a letter of credit.

[[Page 34852]]

Item V--Laws, Regulations, and DOE Directives

A. Summary of 48 CFR (DEAR) 970.5204-78--Laws, Regulations, and DOE 
Directives in This Final Rule
    Paragraph (a) provides that the contractor is obligated to comply 
with applicable Federal, state, and local laws and regulations, unless 
relief has been granted in writing by the appropriate regulatory 
agency. In addition, this paragraph provides that a List of Applicable 
Laws and Regulations (to be labeled List A) identifying all applicable 
Federal, state, and local laws and regulations, including Department of 
Energy regulations, may be appended to the contract, but the contractor 
is not excused from compliance with applicable laws and regulations in 
the event a law or regulation is omitted from the List.
    Paragraph (b) provides for the inclusion of a List of Applicable 
Directives (to be labeled List B) containing a listing of Department of 
Energy directives, or parts thereof, applicable to a particular 
contract on the effective date of the contract, and explains the 
mechanism to be used by the Department to revise List B. (Compliance 
with applicable Department of Energy regulations is required under 
paragraph (a), and these regulations should be included in List A when 
such a list is prepared by the contracting officer.) When the 
contracting officer decides to revise List B, the contractor is given 
an opportunity to assess and advise the contracting officer of the 
potential impact of such a revision. When revisions to List B are 
necessary, they are made in accordance with the Changes clause of the 
contract.
    With regard to paragraph (c), revisions in the language now provide 
that a contractor may develop tailored environment, safety, and health 
requirements as appropriate for the work and associated hazards at a 
facility or site using any Department-approved process. This may 
include Work Smart Standards (WSS) (formerly the Necessary and 
Sufficient Process), the Standards/Requirements Identification Document 
(S/RID) Process, or any other approved tailoring process as described 
in a contractor's Safety Management System. The Integration of 
Environment, Safety, and Health into Work Planning and Execution clause 
published in this final rule describes the Safety Management System and 
tailoring of requirements at subparagraphs (b)(5) and (c). Finally, the 
clause makes clear that when the appropriate set of ES&H requirements 
identified by using any Department-approved process does not include a 
requirement of an applicable law or regulation, a contractor must 
request and obtain an exemption from the law or regulation and must 
abide by the requirement until relief is granted by the appropriate 
regulatory agency.
    The Department expects that when the clause describing the Safety 
Management System and the Directives clause are included in the 
contract, the contractor will develop a Safety Management System. One 
essential element of the Safety Management System is the evaluation of 
the work and associated hazards by use of a Department-approved 
tailoring process such as WSS or S/RIDs. As discussed above, the 
Department also recognizes that other tailoring processes may be 
developed and, when approved for use by the Department, may be used. 
Moreover, the Department plans to actively participate in the tailoring 
process. Among other responsibilities, the Department must approve the 
use of any tailoring process and the final set of ES&H requirements 
produced by use of the process. The Department anticipates working 
cooperatively with the contractor in the evaluation of the work and 
hazards and identification and selection of the ES&H requirements.
    This clause provides a uniform contractual mechanism by which sets 
of tailored ES&H requirements produced by any Department-approved 
process could be incorporated into contracts. If any Department-
approved tailoring process concludes before a contract is executed, the 
resulting set of standards should be used as the basis for developing 
the initial list of environment, safety, and health requirements. If 
the set of standards is developed and approved after execution of the 
contract, it would be incorporated into the contract pursuant to 
paragraph (c), and would substitute for environment, safety, and health 
requirements identified in List B.
    Information and background on the S/RID development process may be 
found in the Department of Energy Implementation Plan in response to 
the Defense Nuclear Facilities Safety Board Recommendation 90-2 
(Revision 5; November 1994), and in Standards/Requirements 
Identification Document Development and Approval Instruction (September 
1994). The Work Smart Standards Process (formerly the Necessary and 
Sufficient Closure Process) is described in Department of Energy 
Closure Process for Necessary and Sufficient Set of Standards (DOE M 
450.3-1, January 25, 1996). The Safety Management System is described 
in ``Safety Management System Policy,'' (DOE P 450.4, October 15, 
1996).
B. Compliance With List of Applicable Laws and Regulations (Para. a of 
Directives Clause)
    Comment: Two commenters opposed the inclusion of the list of 
applicable laws and regulations because they believed the clause was 
overly burdensome and unnecessary. One commenter stated that a 
requirement to obtain written confirmation of what laws and regulations 
were applicable was too burdensome. Another commenter contended that 
the list was unnecessary because contractors were expected to comply 
with applicable laws and regulations regardless of whether or not they 
were included in the list.
    Response: The Department does not believe that providing the list 
places a burden on the contractor. The clause does not require a 
contractor to seek confirmation from Federal, state, or local 
authorities as to whether a law or regulation is applicable or not. In 
contrast, exemption relief from a law or regulation that is applicable 
must be granted in writing by the appropriate authority.
C. Compliance With List of DOE Directives (Para. b of Directives 
Clause)
    Comment: One commenter objected to the list of directives because 
it believed that the clause requires the contractor to determine which 
directives are applicable to the contract and that the list would 
become a ``moving target'' because the Department expected compliance 
with both existing and future versions of a directive. Two commenters 
stated that changes within DOE directives amount to changes in the 
contract and must be subject to mutual agreement between the parties. 
Unilateral modification of the list of directives would increase the 
cost of performance. Another commenter believed that a list of 
directives was counterproductive and inconsistent with the National 
Performance Review objectives. The commenter also opined that the 
process was micro-management and argued that the list of directives 
could contain not only the order requirements but also guidance 
documents as well. Two commenters stated that the Department should be 
limited in its ability to impose contractual requirements if it failed 
to provide adequate funding to perform the work. They argued that some 
type of dispute resolution process should be added to resolve questions 
regarding the applicability of a directive or on adequate funding. 
Finally, one commenter believed that the suggested 30-day assessment 
period given when

[[Page 34853]]

the contracting officer proposed to add or revise the list of 
directives was too short.
    Response: The clause published today does not require a contractor 
to determine the applicability of a directive. Applicability will be 
determined based on the List of Applicable Directives. Substantive 
revisions or updates to a listed directive do not automatically become 
contract requirements. The clause provides for the contractor to assess 
the impact of a directive's revision and to discuss the impact with the 
Department. However, it remains the Department's prerogative to impose 
requirements by listing a directive. The Department anticipates that it 
will make every effort to consider contractor concerns regarding a 
change but fundamentally disagrees that mutual agreement on changes to 
what is contained in the list of directives is necessary before such 
changes may be imposed as contract requirements. The Department 
reiterates its commitment to streamline its directives and believes 
that its efforts to date are consistent with National Performance 
Review objectives. Moreover, efforts to include guidance documents as 
mandatory requirements will be actively discouraged. Finally, based on 
past experience, the Department believes that a 30-day assessment 
period is sufficient time to perform a review of a revised directive 
and points out that nothing in the clause prevents a contractor from 
asking the contracting officer for more time, if needed.
D. Use of Department-Approved Processes for Tailoring Environment, 
Safety, and Health Requirements (Para. c of the Directives Clause)
    Comment: One commenter objected to being forced to use the S/RID 
Process because it was not a defense nuclear facility. Another 
commenter advised that use of the S/RID and the Necessary and 
Sufficient Processes should be clarified to include a review of the set 
of standards by the contractor prior to the incorporation into the 
contract. A third commenter advised that, based on a Department 
Standards Committee decision, the S/RID process was not available for 
use after April 1, 1996. Finally, a commenter objected to the 
incorporation of the set of standards derived from the use of the S/RID 
and Necessary and Sufficient Processes unless the Department approved 
the sets.
    Response: The clause does not compel the use of either the S/RID or 
the Work Smart Standards Process (formerly the Necessary and Sufficient 
Process). Other Department-approved processes for tailoring 
environment, safety, and health requirements to the particular work and 
associated hazards may be used as part of, and in concert with, the 
development of a Safety Management System. There also appears to be a 
basic misunderstanding of how the Work Smart Standards process is 
conducted. The process contemplates contractor and Department 
cooperation in every aspect of selecting standards. Accordingly, prior 
to incorporation of the results of such a process into the contract, 
both the contractor and the Department will have reviewed the selected 
standards. Finally, with regard to Department approval of the set prior 
to incorporation into the contract, the Work Smart Standards Process 
and the S/RID Process provide that Department approval of the final set 
is mandatory.
    The final rule makes the following changes:
    1. 970.04, Administrative Matters. Section 970.0470, Department of 
Energy directives, is added, describing the Department of Energy 
directives system.
    2. 970.5204-78, Laws, Regulations, and DOE Directives. A clause is 
added to identify directives and related requirements applicable to a 
specific contract.

Item VI--Environment

    A. As indicated in the ``Background'' section to this rulemaking, 
the notice of proposed rulemaking was re-opened on October 15, 1996, 
(61 FR 32588). That notice proposed further changes to 48 CFR (DEAR) 
970.5204-2, Safety and Health reflecting the Defense Nuclear Facilities 
Safety Board's (DNFSB) Recommendation 95-2, Integrated Safety 
Management and the Department of Energy's Implementation Plan, dated 
April 18, 1996, responding to that recommendation. The revisions to the 
clause proposed at that time included: (1) a change in the title of the 
clause; (2) the addition of guiding principles for contractors to 
follow in the performance of work as outlined in the Department's 
Implementation Plan dated April 18, 1996, for DNFSB Recommendation 95-2 
and the Department's Safety Management System (SMS) Policy, DOE P 
450.4; and (3) a requirement for submission of a documented SMS. Safety 
was defined to include environment, safety, and health (ES&H).
    The requirement for an SMS is intended to be the cornerstone of the 
95-2 implementation effort of integrating environment, safety and 
health into business systems and work management processes throughout 
the Department's complex. The clause describes the Department's 
expectations for contractors and subcontractors to perform work safely. 
While these expectations for performing work safely are contract 
requirements, the Department anticipates that each facility or site 
will tailor the efforts commensurate with the work and associated 
hazards.
    The submission of an SMS description does not conflict with, or 
create a greater burden than, the submission of the ES&H Management 
Plan described in the ES&H clause published in the original proposed 
rule of June 24, 1996. Submission of an SMS description expands the 
submission of an ES&H Management Plan, and the SMS encompasses the same 
integrated safety management functions (e.g. work planning, budgeting, 
priority-setting, and work execution). The clause expands and modifies 
the original language to assure that contractors understand Department 
expectations regarding integrated safety management. Specifically, the 
clause requires documentation of the contractor's SMS for approval by 
the Department. This establishes an agreement between the contractor 
and the Department on how the contractor will ensure the protection of 
employees, the public, and the environment.
    The submission and approval of an SMS description would likely be 
done on a one-time basis at the start of a contract. The clause also 
requires that the contractor provide annual documented updates and that 
the Department and the contractor mutually agree on ES&H performance 
objectives, performance measures tied to contract incentives, and 
performance commitments. Such commitments are intended to highlight the 
contractor's most significant ES&H priorities specific to work to be 
accomplished, as well as assure that major obligations to external 
oversight and regulatory bodies are met within budget constraints. 
Accordingly, the contractor, in its annual updates, must identify the 
resources needed to conduct work safely in terms of ES&H support and 
assure appropriate skill mix and numbers of personnel in the ES&H area.
    The clause requires documentation of the SMS, including development 
and implementation of hazard controls and the establishment of an 
agreed-upon set of ES&H standards and requirements. The contractor, 
with Department approval and active participation, may use Department-
approved tailoring processes that evaluate the work and the hazards at 
individual facilities or sites, such as Work Smart Standards (WSS) or 
Standards/Requirements Identification Document (S/RID). Paragraphs (b) 
and (c) of this clause and the contract clause

[[Page 34854]]

entitled Laws, Regulations and DOE Directives describe the use of 
processes for tailoring requirements for a facility or site and provide 
the contract mechanism by which the tailored set of environment, 
safety, and health requirements is to be incorporated into the 
contract.
    The contractor may also require subcontractors to submit an SMS 
description, depending on the complexity and nature of the hazards 
associated with their work. The contracting officer will provide 
guidance for the flowdown of ES&H requirements in subcontracts.
B. Integrated Safety Management, DNFSB Recommendation 95-2
    Comment: Three commenters to the original proposed rule stated that 
the proposed environment, safety, and health clause needed to address 
the Defense Nuclear Facilities Safety Board (DNFSB) Recommendation 95-
2. One commenter stated that including a reference in the clause to the 
guidance document for DNFSB Recommendation 95-2 would make that 
document mandatory when, in fact, it is not and should be guidance. One 
commenter noted that the guidance is yet to be developed and 
recommended it be removed as a reference. One commenter stated that by 
adding the seven guiding principles to the clause, they become 
mandatory requirements. The commenter explained that the original seven 
principles were meant as guidance and recommended language providing 
that contractors should conduct business consistent with the principles 
instead of requiring their implementation. The same commenter 
recommended that dates for submittal of the Safety Management System 
(SMS) be mutually agreed upon by the contracting officer and the 
contractor.
    Response: The Department agrees with the commenters on addressing 
DNFSB Recommendation 95-2 and the clause has been revised to 
incorporate those concepts. The clause includes the principles outlined 
in the Department's Implementation Plan for DNFSB 95-2 and adopted in 
the Department's SMS Policy 450.4; it requires the development and 
maintenance of an SMS that fulfills the conditions of those principles. 
The Department also agrees that referring to the guidance document, DOE 
Guide G 450.4, may be confusing and has deleted it from the clause. The 
Department expects that contractors will adhere to the seven principles 
during the performance of work and, therefore, has laid out the 
essential elements of a Safety Management System. In addition, 
paragraph (c) of the clause provides that an SMS shall fulfill all the 
conditions stated in the guiding principles. Finally, the Department 
expects that contracting officers will set reasonable dates for 
document submittal based upon discussions between the contracting 
officer and the contractor. Therefore, mutual agreement between the 
contractor and the Department regarding submittal dates is not needed.
C. Clarification of Requirements and Terms
    Comment: Three commenters stated that the requirement in the clause 
to comply with all applicable Federal and non-Federal environment, 
safety, and health laws, regulations, and applicable directives needed 
to be clarified. The commenters explained that the Department should 
identify the specific laws, regulations, and directives are applicable 
to contractors. One commenter stated that one way to be clearer about 
how directives are identified is to identify or reference, 
specifically, the Laws, Regulations, and DOE Directives clause in this 
clause.
    Another commenter recommended that the Department make clear that 
the Necessary and Sufficient and Standards/Requirements Identification 
Document (S/RID) processes were not the only methods by which 
environment, safety, and health (ES&H) requirements could be 
identified. The commenter proposed additional language that permits the 
Department and the contractor to mutually agree upon alternate 
processes for identification of ES&H requirements.
    One commenter stated that the use of the terms ``workers'' and 
``employees'' in the clause could cause confusion by implying two 
different sets of personnel. Another commenter stated that using the 
phrase ``ensuring ES&H'' was too vague and the phrase ``hazard 
controls'' was too narrow in context. The commenter recommended using 
language such as ``managing ES&H'' and ``work controls'' respectively.
    One commenter found the inclusion of subcontractor employees in the 
definition of the terms ``employees'' and ``line management'' 
troublesome. The commenter believed that the language could be used to 
assert that contractors have a legal duty of care to protect 
subcontractor employees from harm thus exposing contractors, as well as 
the Department, to liability for subcontractor employee injuries where 
ordinarily none would exist. One commenter stated that paragraph (h) of 
the proposed clause required a language modification because 
contractors cannot be responsible for the ES&H performance of a third 
party.
    Another commenter recommended deletion of the requirement in the 
clause that the contractor cooperate with Federal and non-Federal 
agencies having jurisdiction over ES&H matters or changing the clause 
so that a contractor would retain the right to contest agency 
allegations that it has failed to comply with laws, regulations, or 
directives.
    Response: The Department generally agrees with these comments and 
has referenced 970.5204-78, Laws, Regulations, and DOE Directives, in 
this clause. In response to the comment about the use of alternative 
tailoring processes other than Work Smart Standards (WSS) or S/RIDs, 
the Department has changed the language in the clause to allow a 
contractor to use any Department-approved tailoring process. See II--
Disposition of Comments, Item V, of this rulemaking for further 
discussion.
    The Department agrees with the comment regarding the use of the 
terms ``workers'' and ``employees'' and has revised the clause to use 
only the term ``employees''; however, no changes were made to 
``ensuring ES&H'' and ``hazard controls'' because these phrases appear 
in the Department's Implementation Plan for DNFSB Recommendation 95-2 
and have gained general acceptance by the Department of Energy complex.
    In response to the comment that the Department has created a new 
duty of protection for subcontractor employees, the Department believes 
that the language does not create a legal duty of care.
    The Department does not agree that paragraph (h) of the clause 
needs to be modified. This paragraph establishes the requirement for 
contractors to be responsible for compliance with ES&H requirements 
regardless of the performer of the work. The Department's intent in 
this paragraph is that contractors be responsible for ensuring 
compliance with ES&H requirements for all parties who are doing work at 
the Department's facilities, including visiting scientists and students 
for whose activities the contractor is responsible.
    The Department retained the requirement for cooperating with 
Federal and non-Federal agencies. ``Cooperation'' with an agency does 
not mean that a contractor loses its right to contest non-compliance 
allegations.
D. Stop Work Order
    Comment: Two commenters concluded that contractors should be 
entitled to an extension of time or additional fee if a contracting 
officer mistakenly issues a stop work order. One commenter believed 
that the clause

[[Page 34855]]

should state that a stop work order should be issued only after the 
contracting officer has notified the contractor in writing and after 
the contractor has had a reasonable opportunity to take corrective 
action. This same commenter also stated that a stop work order should 
only be issued for a substantial noncompliance, imminent danger, or 
substantial harm to the environment. In any event, the commenter 
explained, the contracting officer should only stop the specific work 
that has experienced the noncompliance and should allow restart of this 
work after that noncompliance has been abated. One commenter stated 
that the clause permits only the Department to restart work even if it 
is stopped by the contractor. The commenter suggested that authority 
should be given to contractors to restart work that they have stopped. 
Another commenter requested that the Department establish time frames 
in the contract clause during which the contractor will have the 
ability to evaluate non-compliances and initiate remedies without the 
threat of a stop work order.
    Response: The Department places its highest priority on performing 
work safely and has determined that contractors who act or fail to act 
causing a danger to employees or to the public should not be entitled 
to an additional fee or extension of time in the event the contracting 
officer issues a stop work order. When a contracting officer issues a 
stop work order under this clause, it is intended that sufficient 
Department review of cause occurs. The Department must retain the 
authority to stop work in whole or in part based on the unsafe conduct 
of work on the part of the contractor. The Department agrees with the 
suggestion that when contractors have issued a stop work order, they 
should be able to restart work; the clause has been revised 
accordingly.
E. Exercising Care Commensurate With Hazards
    Comment: One commenter stated that paragraph (b) of the SMS clause, 
requiring a contractor to exercise a degree of care commensurate with 
the harm involved, goes beyond the protection afforded by applicable 
law. The commenter suggested that the clause specify that the care 
exercised by contractors is limited to requirements of applicable law.
    Response: The Department does not agree with the commenter's 
suggestion. The variety of missions assigned to the Department and the 
number of hazardous materials controlled and managed by the Department 
warrant the exercising of care associated with the particular hazard of 
any operation or material. The SMS helps to ensure that contractors 
will focus on work planning and make all reasonable attempts to perform 
work safely.
F. Use of Authorization Agreement
    Comment: A commenter expressed concern about the use and timing of 
authorization agreements.
    Response: The Department understands the concern expressed by the 
commenter and is deleting the term, ``authorization agreement,'' from 
the clause. In accordance with subparagraph (b)(7), depending upon the 
hazards existing at a facility or site, certain contractors and the 
Department may also execute additional agreements for highly hazardous 
operations. Guidance on these agreements will be furnished by the 
contracting officer.
    The final rule makes the following changes:
    1. 952.223-71, Safety and health. The title of this subsection for 
non-management and operating contracts is changed to be consistent with 
970.5204-2, Integration of environment, safety, and health into work 
planning and execution.
    2. 952.223-74, Nuclear facility safety applicability. This 
subsection is removed.
    3. 952.223-75, Preservation of individual occupational radiation 
exposure records. The clause prescription is revised.
    4. 970.2303-2, Clauses. Paragraphs (c), (d), and (e), prescribing 
clauses at 970.5204-26, 970.5204-41, and 970.5204-62, respectively, are 
removed, since these clauses are also being removed.
    5. 970.5204-2, Integration of environment, safety, and health into 
work planning and execution. Environmental requirements are added to 
those for safety and health in this clause. A requirement for a Safety 
Management System is also added.
    6. 970.5204-26, Nuclear facility safety. This clause is removed.
    7. 970.5204-41. Preservation of individual occupational radiation 
exposure records. This clause is removed.
    8. 970.5204-62, Environmental protection. This clause is removed.

Item VII--Ownership of Records

    Nine commenters provided views on this issue.
A. Title of the Clause
    Comment: One commenter believed that the title of this portion of 
the regulation should be revised to read ``Access to and Ownership of 
Records.'' This suggestion reflects the view that the real issue being 
addressed is who has a right of access to records maintained by the 
Department's contractors. The commenter believed that the Department 
should avoid any implication that contractor records in the possession 
of a contractor are subject to the Freedom of Information Act (FOIA) 
merely because they are available to the Department. Another commenter 
requested that the Department clarify the right of access that the 
public would have to records covered by paragraph (b) of the clause.
    Response: The title of the clause has been changed to read, 
``Access to and Ownership of Records,'' to reflect the fact that this 
clause delineates the government's rights of access to, and ownership 
of, records acquired or generated in the performance of the contract. 
The public's right of access to government-owned records in the 
possession of the contractor is described in section 1004.3(e) of the 
Department of Energy Freedom of Information Regulation, 10 CFR Part 
1004. Under section 1004.3(e), government-owned records in the 
possession of the contractor may be subject to disclosure under FOIA, 
if they meet the requirements enumerated in the regulation. However, 
contractor-owned records in the possession of the contractor are not 
subject to FOIA, even though they are accessible to the Department. 
Although records that come within the Department's possession generally 
are subject to FOIA, such records also are subject to withholding under 
the FOIA's nine exemptions, as appropriate. The Department will protect 
sensitive records from disclosure in accordance with the FOIA and other 
applicable laws. Also, in the interest of clarity, the title of 
paragraph (a) has been revised to read ``Government-owned Records,'' 
and the title of paragraph (b) has been revised to read ``Contractor-
owned Records.''
B. Paragraph (a) of the Clause
    Comment: Three commenters disagreed with the Department's view that 
records created or acquired by the contractor in connection with work 
performed under management and operating contracts, and thus paid for 
by the government, are the property of the government. In addition, one 
of these commenters believed that it was inappropriate to view as 
government property, documents that were paid for through overhead 
charges under the contract, while another believed that the entire 
concept of ownership of records

[[Page 34856]]

is unworkable and needs to be reconsidered. Another commenter believed 
that the language in paragraph (a) of the clause which provides that 
``all records acquired or generated by the contractor in the 
performance of the contract shall be the property of the Government'' 
could be interpreted to include records created at the contractor's 
expense and, therefore, recommended that the matter be clarified.
    Response: Through this clause, the Department seeks to standardize 
the manner in which records acquired or generated under its management 
and operating, and similar, contracts are treated. Generally, all 
records generated or acquired by the contractor in connection with work 
performed under management and operating contracts or similar contracts 
for the management of the Department's owned or leased facilities have 
been considered the property of the government. This view stems from 
the unique nature of these contracts. Under management and operating 
contracts and similar contracts, the work is performed at government 
facilities and is closely related to the Department's mission. Separate 
companies or subsidiaries that are wholly or substantially separate 
from the company's other business generally are established to conduct 
the work at these facilities. The contractors at these facilities are 
performing work identified and approved by the government. The work is 
of a long-term and continuing nature, often far exceeding the term of 
any one contractor. Therefore, the Department needs to be able to 
preserve all records in order to ensure a continuity of functions and 
the orderly transition of the personnel and the work in the event of a 
change of contractors. Documents generated or acquired in the 
performance of these contracts provide a record of the activities 
undertaken by the Department in furtherance of its mission. Under these 
circumstances, it is not surprising that the government has asserted an 
ownership interest in all records that the Department pays for under 
these contracts. To the extent that the Department has granted 
contractors the option to own certain types of these records, it does 
so only under the explicit condition of an absolute right of access to 
the records during the course of the contract and of complete reversion 
of the records to the Department upon termination of the contract. In 
this context, the term ``contractor-owned records'' must be understood 
to include the right of access by, and reversion to, the government. 
Conversely, records for which the contractor is not reimbursed, 
directly or indirectly, under the contract are not considered to be 
records ``acquired or generated in the performance of the contract'' 
and would not be covered by this clause.
C. Paragraph (b) of the Clause
    Comment: Six commenters believed that the list of records owned by 
contractors should be expanded to include legal documents, including 
those that are covered by the attorney-client and attorney work product 
privileges. Another commenter believed that all records related to 
claims and complaints should be included in the list of contractor-
owned documents. One commenter believed that the list of contractor-
owned records should be expanded to include documents related to 
ethics, employee concerns, and other investigations conducted under an 
expectation of confidentiality.
    Response: As a preliminary matter, the Department notes that the 
categories of records listed in paragraph (b) are the maximum types of 
records that during the term of the contract may be considered the 
property of the contractor. When negotiating the contract with the 
government, the contractor may choose not to include any or all of the 
categories listed from coverage under paragraph (b). The parenthetical 
language in the introduction to paragraph (b) has been revised to 
clarify this matter. With respect to legal records, the Department 
believes that privileges are best protected in the event of a change in 
contractors by maintaining them as government-owned. Nonetheless, so 
long as the government retains an absolute right of access and 
reversion, the Department agrees to allow contractors the option to 
assert ownership. Accordingly, paragraph (b) is amended to include 
legal records among those that the contractor may choose to own. In 
response to the other comments, subparagraph (b)(1) has been revised to 
include ``records on ethics, employee concerns, and other employee 
related investigations conducted under an expectation of 
confidentiality'' and ``employee assistance program records.''
    Comment: Another commenter noted that, under some management and 
operating contracts, certain employment related records are required to 
be maintained under a Privacy Act system of records. The commenter 
further stated that the Privacy Act only covers records maintained by, 
or on behalf of, a federal agency, and, therefore, concluded that, when 
records maintained by the contractor must be kept in a Privacy Act 
system of records, they must be considered government property. The 
commenter recommended that subparagraph (b)(1) of the clause be revised 
to clarify this matter.
    Response: The Department agrees that Privacy Act records that are 
maintained by contractors on behalf of the Department are government-
owned. Therefore, subparagraph (b)(1) has been revised to make clear 
that records that, under the contract, are being maintained in a 
Privacy Act system of records are not covered by subparagraph (b)(1).
    Comment: Another commenter suggested that subparagraph (b)(3) be 
revised to cover all records related to any procurement action by the 
contractor. The commenter believed that the term ``non-accounting 
records'' is ambiguous and could create confusion in the event of 
Freedom of Information Act requests.
    Response: The term ``nonaccounting'' records was used to ensure 
consistency between the provisions of the proposed Ownership of Records 
clause and paragraph (d) of DEAR clause 970.5204-9, Accounts, records, 
and inspection. DEAR 970.5204-9(d) provides that, unless the parties 
agree otherwise, ``all financial and cost reports, books of account and 
supporting documents, and other data evidencing costs allowable, 
revenues, and other applicable credits under this contract, shall be 
the property of the Government * * *'' The reference to 
``nonaccounting'' records was included in the proposed rule to clarify 
that subparagraph (b)(3) is not intended to change the designation of 
records described in DEAR 970.5204-9(d) from government-owned to 
contractor-owned. To further clarify this matter, the language in 
paragraph (b)(3) has been revised by deleting the word 
``nonaccounting'' and including a specific reference to the exception 
contained in DEAR clause 970.5204-9.
D. Paragraphs (c) and (d) of the Clause
    Comment: Four commenters had varying, but related, suggestions for 
revising paragraphs (c) and (d) of the proposed clause. In general, 
they recommended that paragraphs (c) and (d) be revised to provide that 
copies of certain contractor-owned records (e.g., legal opinions, 
litigation files, and other documents covered by the attorney work 
product and attorney-client privileges, investigations of employee 
related concerns conducted under an expectation of confidentiality, and 
confidential contractor financial information and correspondence 
between the contractor and its parent, affiliates, and divisions 
located away from the Department facility) be

[[Page 34857]]

excluded from the audit, inspection, copying, and delivery authorities 
provided in these paragraphs. The concern is that once copies of these 
documents are provided to the Department, they will be available to the 
public under the Freedom the Information Act, and any privileges 
against disclosure will be lost. Some commenters also believed that the 
breadth of disclosure required by paragraphs (c) and (d) would have a 
chilling effect on a contractor's operations, because it would 
discourage the free exchange of ideas among contractor employees and 
between the contractor and its counsel. Also, two commenters suggested 
that these paragraphs should be revised to clarify that records 
generated without reimbursement from the Department would not be 
subject to copying and delivery under paragraph (c) or audit, 
inspection, and copying under paragraph (d). Another commenter 
requested that paragraph (c) be revised to provide expressly for the 
contractor's right of access to records after termination of the 
contract. Another commenter requested that the paragraphs be revised to 
clarify that the government's use of personnel records or other 
personal information would be consistent with applicable federal laws, 
including the Privacy Act. This commenter and one other also suggested 
that the regulation provide that the government's right of access to 
contractor records may be negotiated on a case-by-case basis to enable 
the parties to address a contractor's obligations under state law. 
Finally, in contrast to the comments provided above on paragraphs (c) 
and (d) by private companies and nonprofit organizations, the National 
Institute for Occupational Safety and Health (NIOSH) believed that the 
government's right to inspect, audit, and copy contractor-owned records 
must be maintained. NIOSH emphasized the importance of the Department 
maintaining access to records needed to conduct exposure assessment and 
epidemiologic research, including contractor-owned records that have 
personal identifiers.
    Response: As indicated above, this clause is being promulgated to 
facilitate uniform treatment of records acquired or generated in the 
performance of the Department's management and operating and similar 
contracts. Records for which the contractor is not reimbursed, directly 
or indirectly, under the contract are not considered records ``acquired 
or generated in the performance of the contract'' and would not be 
covered by this clause. Records that the Department pays for, directly 
or indirectly, under the contract are considered the property of the 
government. Also, as previously noted, the government can and will 
protect records that come into its possession from disclosure under the 
Freedom of Information Act, as appropriate. With respect to the 
suggestion to exclude certain categories of records from the coverage 
of paragraphs (c) and (d), the Department disagrees. The Department 
believes that the right to audit, inspect, and obtain copies or records 
is essential to ensure continuity and to enable the government to carry 
out responsibilities imposed by statute and regulation. For example, 
access to, and copies of, contractor-owned medical records may be 
necessary to enable the Department to carry out its public health and 
safety responsibilities under existing law. The right to obtain copies 
of records is not intended to discourage the free exchange of ideas 
among contractor employees, but rather to ensure that the Department 
can perform its functions. As noted above, the government will withhold 
records from disclosure under the Freedom of Information Act, as 
appropriate. Moreover, most records that are transferred to successor 
contractors under paragraph (c) do not come into the possession of the 
government, and therefore access to such records under the Freedom of 
Information Act is not increased. With respect to personnel records, 
the government's use and disclosure of such information will be 
consistent with applicable laws. To the extent the government under 
paragraphs (c) or (d) obtains copies of contractor-owned records that 
are covered by subparagraph (b)(1), such as personnel, medical, or 
other employment-related records, such records will be maintained in 
Privacy Act systems of records, and the use and disclosure of these 
records would be covered by that Act. Paragraphs (c) and (d) have been 
revised to make clear that the government's use of records obtained 
pursuant to paragraphs (c) or (d) shall be in accordance with 
applicable federal laws, including the Privacy Act. If, in an unusual 
situation, additions or changes to these paragraphs are necessary or 
appropriate, section 901.403 of the Department of Energy Acquisition 
Regulation, entitled ``Individual Deviations,'' provides authority for 
approval of deviations that are clearly in the best interests of the 
government. Finally, paragraph (c) does not preclude the contractor 
from keeping copies of any or all of the records generated or acquired 
under the contract upon termination or completion of the contract. The 
Department, therefore, believes that this paragraph provides ample 
opportunity for the contractor to maintain access to contract records.
    Comment: One commenter requested that the term ``designee'' be 
limited to other federal agencies, to address its concern that 
contractor-owned records could be turned over to a private party 
without compensation to the contractor and with no restrictions on the 
use of the information by the private party.
    Response: As noted above, the government has asserted an ownership 
interest in all records that the Department pays for, directly or 
indirectly, under the contract. The contractor is not entitled to 
additional compensation for providing copies of these records to the 
Department or its designee, nor is it entitled to impose restrictions 
on the use of this information. The term ``designee'' must remain 
sufficiently broad to encompass private parties, because the Department 
sometimes requires the services of private parties to help carry out 
its functions. For example, the Department must be able to provide to 
successor contractors the documents necessary to carry out their 
responsibilities under the contract. Also, federal agencies frequently 
rely on the services of academic researchers to carry out 
epidemiological studies.
E. Paragraph (e) of the Clause
    Comment: Two commenters believed that the Department is attempting 
to assert ownership of records that it has no legal right to claim 
(e.g., records that the contractor may have brought with it at the 
start of performance of the contract or records provided to the 
contractor by its corporate headquarters or affiliates during 
performance of the contract). One of the commenters requested that the 
clause be revised to make it clear that requirements of this paragraph 
do not apply to records that were created with funds that are not 
related to the current contract.
    Response: Paragraph (e) is intended to ensure that management and 
operating contract records provided to the contractor during the 
transition from one management and operating contractor to another 
remain available to the government for audit, inspection, and copying. 
As indicated above, this clause does not apply to records that the 
contractor pays for with its own funds.
F. Paragraph (f) of the Clause
    Comment: One commenter recommended that contractor-owned records be 
exempt from the record retention schedules referenced in this

[[Page 34858]]

paragraph. The commenter believed that this requirement is inconsistent 
with the concept of ownership and could conflict with corporate 
retention schedules that in some cases may exceed the government's 
requirements. Another commenter observed that the imposition of 
Department of Energy record retention schedules on contractor records 
will involve substantial storage costs and further noted that DEAR 
970.5204-13(e)(23) provides that, after completion of the contract, 
costs associated with the storage of records pertaining to the contract 
are unallowable. The commenter recommended that DEAR 970.5204-13(e)(23) 
be revised to allow the contractor to recoup any increase in storage 
costs that would result from this requirement.
    Response: The Department believes that application of the records 
retention schedules are necessary to ensure that the Department's 
contractors employ uniform approaches to the collection, maintenance, 
and disposition of records that the government pays for under its 
management and operating and similar contracts. When a contract is 
terminated or completed, the government may exercise its right to 
obtain copies and delivery of certain contract records. Once acquired, 
the Department does not anticipate that the government would continue 
to require that the contractor maintain its copy of those records. 
Accordingly, paragraph (f) is revised to provide that the government 
may waive the application of the records retention schedules when, 
under paragraph (c), the government requests copies and takes delivery 
of the records described in paragraphs (a) and (b).
G. Paragraph (g) of the Clause
    Comment: One commenter believed that the requirement to flow down 
the terms of this clause to certain subcontracts will reduce the pool 
of eligible subcontractors because they will not want to risk the 
Department's claim of an ownership interest in company records. Another 
commenter believed that the flow down requirement will increase 
significantly the operating costs of management and operating 
contractors and their subcontractors. In the view of this commenter, 
the increased costs are related to additional requirements to create, 
maintain, and ship records as well as additional storage space that may 
be required to house the documents delivered to the Department. This 
commenter believed that this requirement was inconsistent with the 
Paperwork Reduction Act. A third commenter believed that this paragraph 
would be difficult, if not impossible, to implement, but offered no 
reasons for this view.
    Response: The Department received no comments from potential 
subcontractors objecting to the flow down of this clause. In light of 
this fact, the Department has no reason to believe that the pool of 
eligible subcontractors will be significantly affected by this 
requirement. With respect to the view that this requirement will 
substantially increase the cost of these contracts and the paperwork 
burden imposed on the contractor, the Department has revised paragraph 
(c) to provide that, upon termination or completion of the contract, 
contractors will be required to deliver only those records that the 
Department requests. In addition, paragraph (f) has been revised to 
provide that, if the government exercises its right under paragraph (c) 
to obtain copies and delivery of the records, the government also may 
waive record retention schedules that apply to records in the 
possession of the contractor. With respect to the Paperwork Reduction 
Act issue raised, the Department notes that this clause does not 
require the contractor or its subcontractors to create any records or 
collect any information. It merely addresses the ownership and 
disposition of records that are acquired or generated in performance of 
the contract.
    The final rule makes the following changes:
    1. 970.0407, Alternate retention schedules. This section is 
redesignated 970.0407-1.
    2. 970.0407-2, Access to and ownership of records. This subsection 
is added to explain the circumstances under which contractor ownership 
of certain records may be appropriate.
    3. 970.5204-79, Access to and ownership of records. A clause is 
added to identify government-owned records; contractor-owned records; 
the government's rights to inspection, copying, use, and audit of 
records; and records retention requirements under the contract.

Item VIII--Management and Operating Contract Overtime Practices

A. Overtime Control Plan Requirement
    Comment: Six commenters provided information related to the 
requirement for an overtime control plan. Five commenters opposed the 
requirement for an overtime control plan. Four of these five believed 
that this requirement was micro-management, unnecessarily prescriptive, 
and/or antithetical to the Department's philosophy of contract reform. 
One commenter believed that achieving control of overtime costs would 
be better achieved through the use of contract incentives or the award 
fee process because the preparation of an overtime control plan would 
be costly, the plan would not guarantee control of overtime costs, and 
adherence to a plan would reduce contractor flexibility to cope with 
changing workloads.
    Response: Based on comments received and further review of this 
subject, the Department has significantly simplified its policy on 
overtime management in this final rule.
B. Use of the Median Overtime Usage Rate
    Comment: Two commenters addressed the Department's use of the 
median overtime usage rate as a percentage of payroll. One commenter 
stated, `` the DOE should revise and expand the clause because its 
reliance on a median overtime usage figure is unclear * * * the median 
figure is a calculation only the DOE can perform, meaning that DOE 
would have to provide this figure to the contractor. The [rule] should 
be revised to require DOE to make this information available, so 
contractors on an ongoing basis can monitor their overtime usage.'' 
Both commenters believed that the Department should elaborate on the 
definition of median overtime usage and how it is computed.
    Response: The Department has removed the median overtime usage rate 
as a standard and has provided that the contracting officer may require 
an overtime control plan when contractor overtime usage as a percentage 
of payroll has exceeded, or is likely to exceed, 4%, or the contracting 
officer otherwise deems overtime expenditures excessive.
C. Consistency With Draft DOE Order 350.1, Contractor Human Resource 
Management Programs
    Comment: One commenter stated that the Department should make this 
rule consistent with the draft DOE Order 350.1.
    Response: The Department agrees that the final rule and the order 
must be consistent. Revisions have been made accordingly.
    The final rule adopts the changes in the proposed rule, as follows:
    1. 970.2275. A new section, Overtime management, is added.
    2. 970.2275-1. A new subsection, General, is added to state the 
Department's overtime management policy.
    3. 970.2275-2. A new subsection, Contract clause, is added to 
prescribe

[[Page 34859]]

the use of the overtime management clause.
    4. 970.5204-80. The clause, Overtime Management, is added.

Item IX--Procedural Matters

A. Review Under Executive Order 12866
    Comment: One commenter opined that the notice of proposed 
rulemaking was a ``significant regulatory action'' that should have 
been reviewed by the Office of Management and Budget in accordance with 
Executive Order 12866, Regulatory Planning and Review. The commenter 
noted a recent Department of Energy Inspector General Report indicating 
certain approaches to determining fees on management and operating 
contracts could increase available fees by as much as $218 million per 
year.
    Response: Since the subject of the Inspector General's report 
referred to by the commenter, determination of fees, was not a part of 
the proposed rule, the Inspector General's estimate is irrelevant as to 
whether this rulemaking is a ``significant regulatory action'' under 
Executive Order 12866. The Department estimates that the incremental 
effect on the economy of the changes to the existing regulations made 
by this final rule will be well under $100 million.
    Based on this estimate, the Department determined that the proposed 
rulemaking was not a ``significant regulatory action,'' and, 
consequently, was not required to be reviewed by the Office of 
Information and Regulatory Affairs in the Office of Management and 
Budget. Nevertheless, the Department sought review by and accommodated 
comments from the Office of Management and Budget and its Office of 
Federal Procurement Policy at both the proposal and final rule stage.
B. Review Under Executive Order 12988
    Comment: One commenter questioned the legal clarity, as described 
in Executive Order 12988, ``Civil Justice Reform,'' of three clauses 
(Insurance--Litigation and Claims; Property; and Laws, Regulations, and 
DOE Directives).
    Response: Most of the issues raised are dealt with in the 
discussion of specific topics above and the responses should satisfy 
the commenter. The Office of Federal Procurement Policy in the Office 
of Management and Budget agrees with the Department that the clarity in 
the clauses published today is sufficient for negotiation purposes. If 
ambiguities are identified that warrant further clarification, they can 
be resolved during negotiations.

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 that 
Executive Order, by the Office of Information and Regulatory Affairs of 
the Office of Management and Budget (OMB).

B. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by section 3(a), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. The Department of Energy 
has completed the required review and determined that, to the extent 
permitted by law, the regulations meet the relevant standards of 
Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    This rule was reviewed under the Regulatory Flexibility Act of 
1980, 5 U.S.C. 601, et seq., which requires preparation of a regulatory 
flexibility analysis for any rule that is likely to have a significant 
economic impact on a substantial number of small entities. This rule is 
intended to provide policies for the Department of Energy's management 
and operating contractors, who have traditionally been large 
businesses. There are three clauses which identify flowdown 
requirements to subcontractors, some of whom may be small businesses. 
(1) The clause at 970.5204-2, Integration of Environment, Safety, and 
Health into Work Planning and Execution, provides for the flowdown of 
``appropriate requirements'' to subcontractors performing work on-site 
at a Department-owned or -leased facility. (2) The clause at 970.5204-
78, Laws, Regulations, and DOE Directives, provides for subcontract 
compliance with ``necessary provisions'' as determined by the prime 
contractor. (3) The clause at 970.5204-79, Ownership of Records, 
specifies requirements for certain subcontractors meeting specific 
thresholds. The first two clauses do not impose a significant economic 
impact since nearly all of the prime and subcontracts in which these 
clauses are used have been cost reimbursement contracts. The third 
clause has considered the needs of small business in establishing 
thresholds above which requirements must be met. The Department 
anticipates that most small businesses will not meet these threshold 
requirements for compliance. Based on this review, the Department 
certifies that this rulemaking will not have a significant economic 
impact on a substantial number of small entities and, therefore, no 
regulatory flexibility analysis has been prepared.

D. Review Under the Paperwork Reduction Act

    The Office of Management and Budget has determined that the Safety 
Management System description submissions required by the clause at 
revised section 970.5204-2, Integration of Environment, Safety, and 
Health Into Work Planning and Execution, and the Make-or-Buy Plan 
required by section 970.1507 and clause 970.5204-76, Make-or-Buy Plan, 
are new collections of information. Accordingly, the Department 
submitted these requirements to OMB for review under the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq., and OMB's regulations at 5 CFR 
Part 1320.
1. Safety Management System Description
    In the June 24, 1996 notice of proposed rulemaking, the Department 
proposed revising the Safety and Health clause at DEAR 970.5204-2 to 
require contractor compliance with applicable laws, regulations, and 
directives pertaining to the environment as well as to safety and 
health. The Department

[[Page 34860]]

also proposed revising the current safety and health implementation 
plan requirement to: (1) change from 30 days to 60 days the period for 
submitting a plan; (2) provide for periodic updating of the plan; and 
(3) make plan changes subject to the change control process applicable 
to the contract. On October 15, 1996, the Department published a notice 
reopening the comment period on revised proposals for contractor 
compliance with environment, safety, and health (ES&H) requirements 
which reflected DNFSB Recommendation 95-2, Integrated Safety 
Management, and the Department's Implementation Plan. As the notice of 
reopening proposed, this final rule will require management and 
operating contractors to submit a Safety Management System (SMS) 
description that addresses principles of integrated safety management.
    The process of preparing and submitting a SMS description is 
similar to that currently required for submission of a safety and 
health implementation plan. It does not conflict with or create a 
greater burden than the originally proposed submission of an ES&H 
Management Plan. The SMS encompasses the same integrated safety 
management functions (e.g., work planning, budgeting, priority-setting, 
and work execution). As discussed earlier in this preamble, the 
Department received a number of comments on the original proposal for 
submission of an ES&H Management Plan and on the reopening proposal for 
submission of an SMS description. While commenting on the specifics of 
the proposals, none of the commenters questioned the need for such a 
requirement.
    Preparation of the initial SMS description will usually be a one-
time action completed at the start of a five-year management and 
operating contract. The clause also requires contractors to review the 
description and provide annual updates to the Department. The updates 
are not a new requirement and have been a part of the Department's 
planning and budgeting process. Approximately 36 contractors will be 
subject to the SMS description submission requirement. The Department 
estimates that in any one year approximately 20% or 7 SMS descriptions 
will be submitted to the Department for approval. The Department's best 
estimate is that the burden will average 350 hours per contractor. This 
estimate is based on discussions with contractors about the burden of 
meeting the current safety and health implementation plan requirement. 
The burden of compliance for any contractor will depend upon the 
particular considerations and circumstances applicable to the site or 
facility. The total annual paperwork burden that will result from this 
requirement is estimated to be approximately 2450 hours.
    The Office of Management and Budget approved the SMS description 
information collection on May 28, 1997, and assigned to it OMB Number 
1910-5103.
2. Make-or-Buy Plans
    In the proposed rule, the Department proposed that contracts for 
the management and operation of Department facilities require the 
preparation and administration of a make-or-buy plan. The Department 
considers this to be necessary for identifying the most efficient and 
cost effective manner for performing the functions at its facility. As 
discussed earlier in this preamble, the Department received a number of 
comments on the proposed make-or-buy plan requirement, but no commenter 
questioned the need for such a plan.
    Preparation of the initial make-or-buy plan will usually be a one-
time action. The plan will be effective for the term of the contract. 
Contractors are required to review the plan annually to ensure that it 
reflects current conditions and must propose changes when appropriate. 
Approximately 36 management and operating contractors will be subject 
to the make-or-buy plan requirement. Based on experience, the 
Department estimates that in any one year, 20% or approximately 7 
initial make-or-buy plans will be submitted to the Department for 
approval. The Department expects great variance in make-or-buy plans 
because of the different considerations and circumstances present at 
Department facilities. The Department also expects these differences 
among Department facilities to affect the burden hours required to 
complete make-or-buy plans. The Department's best estimate is that the 
burden will range from 25 hours to 350 hours per contractor. The 
Department expects less variance in the burden of conducting the annual 
make-or-buy plan review; the Department estimates the burden of annual 
review will be approximately 100 hours per contractor. The total annual 
paperwork burden that will result from this requirement is estimated to 
be 5350 hours.
    The Office of Management and Budget approved the Make-or-Buy Plan 
information collection on June 5, 1997, and assigned to it OMB Number 
1910-5102.
    An agency may not conduct or sponsor a collection of information 
unless the collection of information displays a currently valid OMB 
control number. 5 CFR Sec. 1320.5(b).

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 has 
determined that this rulemaking will not have a substantial direct 
effect on the institutional interests or traditional functions of 
States.

F. Review Under the National Environmental Policy Act

    Pursuant to the Council on Environmental Quality Regulations (40 
CFR 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 1021, National Environmental Policy Act 
Implementing Procedures (Categorical Exclusion A6), the Department has 
determined that this rulemaking is categorically excluded from the need 
to prepare an environmental impact statement or environmental 
assessment.

G. Review Under Small Business Regulatory Enforcement Fairness Act of 
1996

    As required by 5 U.S.C. 801, the Department of Energy will report 
to Congress promulgation of the rule prior to its effective date. The 
report will state that it has been determined that the rule is not a 
``major rule'' as defined by 5 U.S.C. 804(3).

H. Review Under the Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally 
requires a Federal agency to perform a detailed assessment of costs and 
benefits of any rule imposing a Federal Mandate with costs to State, 
local or tribal governments, or to the private sector, of $100 million 
or more. This rulemaking only affects private sector entities, and the 
impact is less than $100 million.

[[Page 34861]]

List of Subjects in 48 CFR Parts 901, 917, 926, 950, 952 and 970

    Government procurement.

    Issued in Washington, D.C., on June 13, 1997.
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 901--FEDERAL ACQUISITION REGULATIONS SYSTEM

    1. The authority citation for Part 901 continues to read as 
follows:

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

    2. Section 901.105, OMB control numbers, is amended by deleting the 
last sentence and adding the following sentence at the end of the 
paragraph:


901.105   OMB control numbers.

    * * * The OMB control number for the collection of information 
under 48 CFR chapter 9 is 1910-4100, except for the following: 
Reporting and Recordkeeping Requirements for Make-or-Buy Plans (see 48 
CFR (DEAR) 970.5204-76)--OMB number 1910-5102; Reporting and 
Recordkeeping Requirements for Safety Management (see 48 CFR (DEAR) 
970.5204-2)--OMB number 1910-5103.

PART 917--SPECIAL CONTRACTING METHODS

    3. The authority citation for Part 917 continues to read as 
follows:

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

    4. Section 917.600 is amended by adding the following sentences at 
the end of the paragraph:


917.600   Scope of subpart.

    * * * The requirements of this subpart apply to any Department of 
Energy management and operating contract, including performance-based 
management contracts as defined in 48 CFR (DEAR) 917.601. References in 
this subpart to ``management and operating contracts'' shall be 
understood to include ``performance-based management contracts.''
    5. Subpart 917.6, Management and Operating Contracts, is amended to 
add new section 917.601, Definitions, to read as follows:


917.601   Definitions.

    Performance-based contracting means structuring all aspects of an 
acquisition around the purpose of the work to be performed as opposed 
to the manner by which the work is to be performed or broad or 
imprecise statements of work.
    Performance-based management contract means a management and 
operating contract that employs, to the maximum extent practicable, 
performance-based contracting concepts and methodologies through the 
application of results-oriented statements of work; clear, objective 
performance standards and measurement tools; and incentives to 
encourage superior contractor performance.

PART 926--OTHER SOCIOECONOMIC PROGRAMS

    6. The authority citation for Part 926 continues to read as 
follows:

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

    7. Part 926, Other Socioeconomic Programs, is amended by adding a 
new Subpart 926.71, Implementation of Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993, to read as follows:

 Subpart 926.71--Implementation of Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993

926.7101  Policy.
926.7102  Definition.
926.7103  Requirements.
926.7104  Contract Clause.


926.7101  Policy.

    Consistent with the requirements of Section 3161(c)(2), 42 U.S.C. 
7474h(c)(2), in instances where DOE has determined that a change in 
workforce at a DOE Defense Nuclear Facility is necessary, the 
Department, to the extent practicable, is required to provide employees 
under Department of Energy contracts whose employment in positions at 
such a facility is terminated with a preference in any hiring of the 
Department. Consistent with published DOE guidance regarding Section 
3161, such preference in hiring extends to hiring by DOE contractors 
and subcontractors.


926.7102  Definition.

    Eligible employee means a current or former employee of a 
contractor or subcontractor employed at a DOE Defense Nuclear 
Facility--
    (1) Whose position of employment has been, or will be, 
involuntarily terminated (except if terminated for cause),
    (2) Who has met the eligibility criteria contained in Department of 
Energy guidance for contractor work force restructuring, as may be 
amended or supplemented from time to time, and
    (3) Who is qualified for a job vacancy with the Department or one 
of its contractors with respect to work under its contract with the 
Department at the time a position is available.


926.7103  Requirements.

    (a) Section 3161, 42 U.S.C. 7474h, confers a continuing right to a 
preference in hiring to an eligible employee of Department of Energy 
Defense Nuclear Facilities. This right to a preference in hiring 
includes employment opportunities of any Department of Energy 
contractor, regardless of the place of performance of the contract. 
Accordingly, eligible former employees of contractors and 
subcontractors employed at Department of Energy Defense Nuclear 
Facilities, to the extent practicable, shall be provided a hiring 
preference in employment opportunities of other Department of Energy 
contractors for work under their contracts.
    (b) The Office of Worker and Community Transition (WT) is 
responsible for establishing policies and procedures relating to the 
Department of Energy implementation of Section 3161. Contracting 
Officers, in concert with representatives of the field office 
responsible for implementation of Section 3161 at the Department of 
Energy Defense Nuclear Facility and local counsel, should consult with 
the Office of Worker and Community Transition to determine 
applicability of Section 3161 requirements, including hiring preference 
requirements, for displaced workers.


926.7104  Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
952.226-74, Displaced Employee Hiring Preference, in contracts (except 
for contracts for commercial items, pursuant to 41 U.S.C. 403) which 
exceed $500,000 in value.

PART 950--EXTRAORDINARY CONTRACTUAL ACTIONS

    8. The authority citation for Part 950 continues to read as 
follows:

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


950.7101  [Amended]

    9. Section 950.7101 is amended by removing paragraph (c)(2) and 
redesignating paragraph (c)(1) as paragraph (c).

[[Page 34862]]

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    10. The authority citation for Part 952 is revised to read as 
follows:

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

    11. Section 952.223-71 is amended by revising the section heading 
to read as follows:


952.223-71  Integration of environment, safety, and health into work 
planning and execution.


952.223-74  [Removed and Reserved]

    12. Subsection 952.223-74, Nuclear facility safety applicability, 
is removed and reserved.
    13. Subsection 952.223-75, Preservation of individual occupational 
radiation exposure records, is amended by revising the introductory 
paragraph to read as follows:


952.223-75  Preservation of individual occupational radiation exposure 
records.

    The contracting officer shall insert this clause in contracts 
containing 952.223-71, Integration of environment, safety, and health 
into work planning and execution, or 952.223-72, Radiation protection 
and nuclear criticality.
* * * * *
    14. Subpart 952.2, Text of Provisions and Clauses, is amended to 
add a new section 952.226-74, Displaced Employee Hiring Preference, to 
read as follows:


952.226-74  Displaced employee hiring preference.

    As prescribed in 48 CFR (DEAR) 926.7104, insert the following 
clause.

Displaced Employee Hiring Preference (June 1997)

    (a) Definition.
    Eligible employee means a current or former employee of a 
contractor or subcontractor employed at a Department of Energy 
Defense Nuclear Facility (1) whose position of employment has been, 
or will be, involuntarily terminated (except if terminated for 
cause), (2) who has also met the eligibility criteria contained in 
the Department of Energy guidance for contractor work force 
restructuring, as may be amended or supplemented from time to time, 
and (3) who is qualified for a particular job vacancy with the 
Department or one of its contractors with respect to work under its 
contract with the Department at the time the particular position is 
available.
    (b) Consistent with Department of Energy guidance for contractor 
work force restructuring, as may be amended or supplemented from 
time to time, the contractor agrees that it will provide a 
preference in hiring to an eligible employee to the extent 
practicable for work performed under this contract.
    (c) The requirements of this clause shall be included in 
subcontracts at any tier (except for subcontracts for commercial 
items pursuant to 41 U.S.C. 403) expected to exceed $500,000.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

    15. 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, Public 
Law 95-91 (42 U.S.C. 7254).


970.0407  [Removed]

    16. The text of section 970.0407, Record retention requirements, is 
removed.
    17. New subsection 970.0407-1, Alternate retention schedules, is 
added to read as follows:


970.0407-1   Alternate retention schedules.

    Records produced under the Department's contracts involving 
management and operation responsibilities relative to DOE-owned or -
leased facilities are to be retained and disposed of in accordance with 
the requirements of DOE Order 1324.5B, Records Management Program and 
DOE Records Schedules, (see current version) rather than those set 
forth at FAR subpart 4.7, Contractor Records Retention.
    18. New section 970.0407-2, Access to and ownership of records, is 
added to read as follows:


970.0407-2   Access to and ownership of records.

    Contracting officers may agree to contractor ownership of the 
categories of records designated in the instruction in paragraph (b) of 
48 CFR (DEAR) 970.5204-79, Access to and Ownership of Records, provided 
the Government's rights to inspect, copy, and audit these records are 
not limited. These rights must be retained by the Government in order 
to carry out the Department's legal responsibilities under the Atomic 
Energy Act and other statutes in overseeing its contractors, including 
compliance with the Department's health and safety and reporting 
requirements, and to protect the public interest.
    19. New section 970.0407-3, Contract clause, is added to read as 
follows:


970.0407-3   Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
970.5204-79, Access to and Ownership of Records, in management and 
operating contracts.
    20. New section 970.0470, Department of Energy directives, 
consisting of subsections 970.0470-1 and 970.0470-2, is added to read 
as follows:


970.0470  Department of Energy directives.


970.0470-1  General.

    (a) The Department of Energy Directives System is a system of 
instructions, including orders, notices, manuals, guides, and 
standards, for Departmental elements. In certain circumstances, 
requirements contained in these directives may apply to a contractor 
through operation of a contract clause. Program and requirements 
personnel are responsible for identifying requirements in the 
Directives System applicable to a contract, and developing a list of 
applicable requirements and providing it to the contracting officer for 
inclusion in the contract.
    (b) Where directives requirements are established using either the 
Standards/Requirements Identification Process or the Work Smart 
Standards Process, the applicable process should also be used to 
establish the environment, safety, and health portion of the list 
identified in paragraph (a) of this section.


970.0470-2   Contract clause.

    The contracting officer shall insert the clause at DEAR 970.5204-
78, Laws, Regulations, and DOE Directives, in management and operating 
contracts.
    21. Section 970.1001 is revised to read as follows:


970.1001   Performance-based contracting.

    (a) It is the policy of the Department of Energy to use, to the 
maximum extent practicable, performance-based contracting methods in 
its management and operating contracts. Office of Federal Procurement 
Policy Letter 91-2 provides guidance concerning the development and use 
of performance-based contracting concepts and methodologies that may be 
generally applied to management and operating contracts. Performance-
based contracts: describe performance requirements in terms of results 
rather than methods of accomplishing the work; use measurable (i.e., 
terms of quality, timeliness, quantity) performance standards and 
objectives and quality assurance surveillance plans; provide 
performance incentives (positive or negative) where appropriate; and 
specify procedures for award or incentive fee reduction when work 
activities are not performed or do not meet contract requirements.
    (b) The use of performance-based statements of work, where 
feasible, is the preferred method for establishing

[[Page 34863]]

work requirements. Such statements of work and other documents used to 
establish work requirements (such as work authorization directives) 
should describe performance requirements and expectations in terms of 
outcome, results, or final work products, as opposed to methods, 
processes, or design.
    (c) Contract performance requirements and expectations should be 
consistent with the Department's strategic planning goals and 
objectives, as made applicable to the site or facility through 
Departmental programmatic and financial planning processes. Measurable 
performance criteria, objective measures, and where appropriate, 
performance incentives, shall be structured to correspond to the 
performance requirements established in the statement of work and other 
documents used to establish work requirements.
    (d) Quality assurance surveillance plans shall be developed to 
facilitate the assessment of contractor performance and ensure the 
appropriateness of any award or incentive fee payment. Such plans shall 
be tailored to the contract performance objectives, criteria, and 
measures, and shall, to the maximum extent practicable, focus on the 
level of performance required by the performance objectives rather than 
the methodology used by the contractor to achieve that level of 
performance.


970.1002  [Amended]

    22. The Section heading for Section 970.1002 is revised to read, 
``Additional considerations.''
    23. Subpart 970.15 is amended by adding new Section 970.1507, Make-
or-buy plans, consisting of 970.1507-1, 970.1507-2, and 970.1507-3, to 
read as follows:

970.1507  Make-or-buy plans
970.1507-1  Policy.
970.1507-2  Requirements.
970.1507-3  Contract clause.


970.1507  Make-or-buy plans.


970.1507-1  Policy.

    (a) Contracting officers shall require management and operating 
contractors to develop and implement make-or-buy plans that establish a 
preference for providing supplies or services (including construction 
and construction management) on a least-cost basis, subject to program 
specific make-or-buy criteria. The emphasis of this make-or-buy 
structure is to eliminate bias for in-house performance where an 
activity may be performed at less cost or otherwise more efficiently 
through subcontracting.
    (b) A work activity, supply or service is provided at ``least 
cost'' when, after consideration of a variety of appropriate 
programmatic, business, and financial factors, it is concluded that 
performance by either ``in-house'' resources or by contracting out is 
likely to provide the property or service at the lowest overall cost. 
Programmatic factors include, but are not limited to, program specific 
make-or-buy criteria established by the Department of Energy, the 
impact of a ``make'' or a ``buy'' decision on mission accomplishment, 
and anticipated changes to the mission of the facility or site. 
Business factors pertain to such elements as market conditions, past 
experience in obtaining similar supplies or services, and overall 
operational efficiencies that might be available through either in-
house performance or contracting out. Among the financial factors that 
may be considered to determine a least-cost alternative in a make-or-
buy analysis are both recurring and one-time costs attributable to 
either retaining or contracting out a particular item, financial risk, 
and the anticipated contract price.
    (c) In developing and implementing its make-or-buy plan, a 
contractor shall be required to assess subcontracting opportunities and 
implement subcontracting decisions in accordance with the following:
    (1) The contractor shall conduct internal productivity improvement 
and cost-reduction programs so that in-house performance options can be 
made more efficient and cost-effective.
    (2) The contractor shall consider subcontracting opportunities with 
the maximum practicable regard for open communications with potentially 
affected employees and their representatives. Similarly, a contractor 
will communicate its plans, activities, cost-benefit analyses, and 
decisions with those stakeholders likely to be affected by such 
decisions, including representatives of the community and local 
businesses.


970.1507-2  Requirements.

    (a) Development of program-specific make-or-buy criteria. DOE 
program offices responsible for the work conducted at the facility or 
site shall develop program specific make-or-buy criteria. Program 
specific make-or-buy criteria are those factors that reflect specific 
mission or program objectives (including operational efficiency, 
contractor diversity, environment, safety and health, work force 
displacement and restructuring, and collective bargaining agreements) 
and that, upon their application to a specific work effort, would 
override a decision based on a purely economic rationale. These 
criteria are to be used to assess each work effort identified in a 
facility's or site's make-or-buy plan to determine the appropriateness 
of a contractor's make-or-buy decisions. Program specific make-or-buy 
criteria shall be provided to the contractor for use in developing a 
make-or-buy plan for the facility, site, or specific program, as 
appropriate.
    (b) Make-or-buy plan property and services. Supplies or services 
estimated to cost less than one (1) percent of the estimated total 
operating cost for a year or $1 million for the same year, whichever is 
less, need not be included in the contractor's make-or-buy plan. 
However, adjustments may be made to these thresholds where programmatic 
or cost considerations would indicate that a particular supply or 
service should be included in the make-or-buy plan.
    (c) Competitive solicitation requirements. (1) To the extent 
practicable, a competitive solicitation for the management and 
operation of a Department of Energy facility or site should:
    (i) Identify those programs, projects, work areas, functions or 
services that the Department intends for the successful offeror to 
include in any make-or-buy plan; and
    (ii) Require the submission of a preliminary make-or-buy plan for 
the period of performance of the contract from each offeror as part of 
its proposal submitted in response to the competitive solicitation.
    (2) If the requirement for each offeror to submit a preliminary 
make-or-buy plan as part of its proposal is impractical or otherwise 
incompatible with the acquisition strategy, consideration should be 
given to structuring the evaluation criteria for the competitive 
solicitation in such a manner as to permit the evaluation of an 
offeror's approach to conducting its make-or-buy program within the 
context of the contractual requirements.
    (3) The successful offeror's preliminary make-or-buy plan shall be 
submitted for final approval within 180 days after contract award, 
consistent with the requirements of 48 CFR (DEAR) 970.5204-76(c), Make-
or-buy Plan.
    (d) Evaluation of the contractor's make-or-buy plan. In evaluating 
the contractor's make-or-buy plan, the contracting officer shall 
consider the following factors:
    (1) The program specific make-or-buy criteria (such as operational 
efficiency, contractor diversity, environment, safety and health, work 
force displacement and restructuring, and collective bargaining 
agreements) with particular attention to the effect of a ``buy'' 
decision on the contractor's ability to maintain core competencies 
needed to

[[Page 34864]]

accomplish mission-related program and projects;
    (2) The impact of a ``make'' or ``buy'' decision on contract cost, 
schedule, and performance and financial risk;
    (3) The potential impact of a ``make'' or ``buy'' decision on known 
future mission or program activities at the facility or site;
    (4) Past experience at the facility or site regarding ``make-or-
buy'' decisions for the same, or similar, supplies or services;
    (5) Consistency with the contractor's approved subcontracting plan, 
as required by the clause entitled ``Small, Small Disadvantaged and 
Women-Owned Small Business Subcontracting Plan (FAR 52.219-9), of the 
contract and implementation of Section 3021 of the Energy Policy Act of 
1992.
    (6) Local market conditions, including contractor work force 
displacement and the availability of firms that can meet the work 
requirements with regard to quality, quantity, cost, and timeliness;
    (7) Where the construction of new or additional facilities is 
required, that the cost of such facilities is in the Government's best 
interest when compared to subcontracting or privatization alternatives; 
and
    (8) Whether all relevant requirements and costs of performing the 
work by the contractor and through subcontracting are considered and 
any different requirements for the same work are reconciled.
    (e) Approval. The contracting officer shall approve all plans and 
revisions thereto. Once approved, a make-or-buy plan shall remain 
effective for the term of the contract (up to a period of five years), 
unless circumstances warrant a change.
    (f) Administration. The contractor's performance against the 
approved make-or-buy plan shall be monitored to ensure that:
    (1) The contractor is complying with the plan;
    (2) Items identified for deferral decisions are addressed in a 
timely manner; and
    (3) The contractor periodically updates the make-or-buy plan based 
on changed circumstances or significant new work.


970.1507-3  Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
970.5204-76, Make-or-Buy Plan, in management and operating contracts.
    24. Section 970.1509-2, paragraph (a), is revised to read as 
follows:


970.1509-2  Special considerations--educational institutions.

    (a) It is DOE policy to compensate educational institutions 
consistent with the level of financial and management risk they assume 
in connection with their work for the Department.
* * * * *
    25. New section 970.2275, consisting of subsections 970.2275-1 and 
970.2275-2, is added to read as follows:

970.2275  Overtime management.


970.2275-1  General.

    Contracting officers shall ensure that management and operating 
contractors manage overtime cost effectively and use overtime only when 
necessary to ensure performance of work under the contract.


970.2275-2  Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
970.5204-80, Overtime Management, in management and operating 
contracts.


970.2302-2  [Amended]

    26. Subsection 970.2303-2 is amended by removing paragraphs (c), 
(d), and (e).
    27. Subpart 970.26, Other Socioeconomic Programs, is amended by 
designating the existing paragraph in 970.2601, Implementation of 
Section 3021 of the Energy Policy Act of 1992, as paragraph (a), and 
adding a 970.2601(b), to read as follows:


970.2601  Implementation of Section 3021 of the Energy Policy Act of 
1992.

    (a) * * *
    (b) Department of Energy policy recognizes that full utilization of 
the talents and capabilities of a diverse work force is critical to the 
achievement of its mission. The principal goals of this policy are to 
foster and enhance partnerships with small, small disadvantaged, women-
owned small businesses, and educational institutions; to match 
capabilities with existing opportunities; to track small, small 
disadvantaged, women-owned small business, and educational activity; 
and to develop innovative strategies to increase opportunities.
    28. Subpart 970.26, Other Socioeconomic Programs, is amended by 
adding 970.2602-1, Implementation of Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993, and adding 970.2602-2, 
Contract Clause, to read as follows:


970.2602-1  Implementation of Section 3161 of the National Defense 
Authorization Act for Fiscal Year 1993.

    (a) Consistent with the objectives of Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993, 42 U.S.C. 7474h, in 
instances where the Department of Energy has determined that a change 
in work force at a DOE Defense Nuclear Facility is necessary, DOE 
contractors and subcontractors at DOE Defense Nuclear Facilities shall 
accomplish work force restructuring or displacement so as to mitigate 
social and economic impacts and in a manner consistent with any DOE 
work force restructuring plan in effect for the facility or site. In 
all cases, mitigation shall include the requirement for hiring 
preferences for employees whose positions have been terminated (except 
for termination for cause) as a result of changes to the work force at 
the facility due to restructuring accomplished under the requirements 
of Section 3161. Where applicable, contractors may take additional 
actions to mitigate consistent with the Department's Workforce 
Restructuring Plan for the facility or site.
    (b) The requirements set forth in 48 CFR (DEAR) 926.71, 
Implementation of Section 3161 of the National Defense Authorization 
Act for Fiscal Year 1993, for contractors and subcontractors to provide 
a hiring preference for employees under Department of Energy contracts 
whose employment in positions at a Department of Energy Defense Nuclear 
Facility is terminated (except for a termination for cause) applies to 
management and operating contracts.


970.2602-2  Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
970.5204-77, Workforce Restructuring Under Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993, in contracts for the 
management and operation of Department of Energy Defense Nuclear 
Facilities and, as appropriate, in other contracts that include site 
management responsibilities at a Department of Energy Defense Nuclear 
Facility.
    29. New section 970.2830 is added to read as follows:


970.2830  Contract clause.

    The contracting officer shall insert the clause at 48 CFR (DEAR) 
970.5204-31, Insurance--Litigation and Claims, in management and 
operating contracts. Paragraphs (h)(3) and (j)(2) apply to a nonprofit 
contractor only to the extent specifically provided in the individual 
contract.
    30. Section 970.3101-3 is amended by revising paragraph (a)(1) to 
read as follows:

[[Page 34865]]

970.3101-3  General basis for reimbursement of costs.

    (a) * * *
    (1) Allowability and reasonableness in accordance with FAR 31.201-
2(d) and 31.201-3;
* * * * *
    31. Section 970.3102-21, Fines and penalties, is revised to read as 
follows:


970.3102-21  Fines and penalties.

    It is Department of Energy policy not to reimburse management and 
operating contractors for fines and penalties except as provided in 48 
CFR (DEAR) 970.5204-13(e)(12), Allowable Costs and Fixed Fee 
(Management and Operating Contracts), 48 CFR (DEAR) 970.5204-14(e)(10), 
Allowable Costs and Fixed Fee (Support Contracts), and 48 CFR (DEAR) 
970.5204-75, Preexisting Conditions.


970.3102-22  [Removed]

    32. Subsection 970.3102-22 is removed.
    33. Section 970.3103, Contract clauses, is amended to add new 
paragraph (d) to read as follows:


970.3103  Contract clauses.

* * * * *
    (d) The clause at 970.5204-75, Preexisting Conditions, shall be 
included in management and operating contracts. Alternate I of the 
clause shall be inserted in management and operating contracts with 
incumbent contractors. Alternate II shall be inserted in contracts with 
contractors not previously working at that particular site or facility.
    34. Subpart 970.45, Government Property, and section 970.4501, 
Contract clause, are added as follows:

Subpart 970.45--Government--Property


970.4501  Contract clause.

    The contracting officer shall insert the clause at 970.5204-21, 
Property, in management and operating contracts. Paragraph (f)(1)(iii) 
applies to a non-profit contractor only to the extent specifically 
provided in the individual contract.
    35. Subsection 970.5204-2, Safety and health (Government-owned or 
leased) is revised to read as follows:


970.5204-2  Integration of environment, safety, and health into work 
planning and execution.

    As prescribed in 48 CFR (DEAR) 970.2303-2(a), insert the following 
clause.

Integration of Environment, Safety, and Health Into Work Planning and 
Execution (June 1997)

    (a) For the purposes of this clause,
    (1) Safety encompasses environment, safety and health, including 
pollution prevention and waste minimization; and
    (2) Employees include subcontractor employees.
    (b) In performing work under this contract, the contractor shall 
perform work safely, in a manner that ensures adequate protection 
for employees, the public, and the environment, and shall be 
accountable for the safe performance of work. The contractor shall 
exercise a degree of care commensurate with the work and the 
associated hazards. The contractor shall ensure that management of 
environment, safety and health (ES&H) functions and activities 
becomes an integral but visible part of the contractor's work 
planning and execution processes. The contractor shall, in the 
performance of work, ensure that:
    (1) Line management is responsible for the protection of 
employees, the public, and the environment. Line management includes 
those contractor and subcontractor employees managing or supervising 
employees performing work.
    (2) Clear and unambiguous lines of authority and responsibility 
for ensuring ES&H are established and maintained at all 
organizational levels.
    (3) Personnel possess the experience, knowledge, skills, and 
abilities that are necessary to discharge their responsibilities.
    (4) Resources are effectively allocated to address ES&H, 
programmatic, and operational considerations. Protecting employees, 
the public, and the environment is a priority whenever activities 
are planned and performed.
    (5) Before work is performed, the associated hazards are 
evaluated and an agreed-upon set of ES&H standards and requirements 
are established which, if properly implemented, provide adequate 
assurance that employees, the public, and the environment are 
protected from adverse consequences.
    (6) Administrative and engineering controls to prevent and 
mitigate hazards are tailored to the work being performed and 
associated hazards. Emphasis should be on designing the work and/or 
controls to reduce or eliminate the hazards and to prevent accidents 
and unplanned releases and exposures.
    (7) The conditions and requirements to be satisfied for 
operations to be initiated and conducted are established and agreed-
upon by DOE and the contractor. These agreed-upon conditions and 
requirements are requirements of the contract and binding upon the 
contractor. The extent of documentation and level of authority for 
agreement shall be tailored to the complexity and hazards associated 
with the work and shall be established in a Safety Management 
System.
    (c) The contractor shall manage and perform work in accordance 
with a documented Safety Management System (System) that fulfills 
all conditions in paragraph (b) of this clause at a minimum. 
Documentation of the System shall describe how the contractor will:
    (1) Define the scope of work;
    (2) Identify and analyze hazards associated with the work;
    (3) Develop and implement hazard controls;
    (4) Perform work within controls; and
    (5) Provide feedback on adequacy of controls and continue to 
improve safety management.
    (d) The System shall describe how the contractor will establish, 
document, and implement safety performance objectives, performance 
measures, and commitments in response to DOE program and budget 
execution guidance while maintaining the integrity of the System. 
The System shall also describe how the contractor will measure 
system effectiveness.
    (e) The contractor shall submit to the contracting officer 
documentation of its System for review and approval. Dates for 
submittal, discussions, and revisions to the System will be 
established by the contracting officer. Guidance on the preparation, 
content, review, and approval of the System will be provided by the 
contracting officer. On an annual basis, the contractor shall review 
and update, for DOE approval, its safety performance objectives, 
performance measures, and commitments consistent with and in 
response to DOE's program and budget execution guidance and 
direction. Resources shall be identified and allocated to meet the 
safety objectives and performance commitments as well as maintain 
the integrity of the entire System. Accordingly, the System shall be 
integrated with the contractor's business processes for work 
planning, budgeting, authorization, execution, and change control.
    (f) The contractor shall comply with, and assist the Department 
of Energy in complying with, ES&H requirements of all applicable 
laws and regulations, and applicable directives identified in the 
clause of this contract on Laws, Regulations, and DOE Directives. 
The contractor shall cooperate with Federal and non-Federal agencies 
having jurisdiction over ES&H matters under this contract.
    (g) The contractor shall promptly evaluate and resolve any 
noncompliance with applicable ES&H requirements and the System. If 
the contractor fails to provide resolution or if, at any time, the 
contractor's acts or failure to act causes substantial harm or an 
imminent danger to the environment or health and safety of employees 
or the public, the contracting officer may issue an order stopping 
work in whole or in part. Any stop work order issued by a 
contracting officer under this clause (or issued by the contractor 
to a subcontractor in accordance with paragraph
    (i) of this clause) shall be without prejudice to any other 
legal or contractual rights of the Government. In the event that the 
contracting officer issues a stop work order, an order authorizing 
the resumption of the work may be issued at the discretion of the 
contracting officer. The contractor shall not be entitled to an 
extension of time or additional fee or damages by reason of, or in 
connection with, any work stoppage ordered in accordance with this 
clause.

[[Page 34866]]

    (h) The contractor is responsible for compliance with the ES&H 
requirements applicable to this contract regardless of the performer 
of the work.
    (i) The contractor shall include a clause substantially the same 
as this clause in subcontracts involving complex or hazardous work 
on site at a DOE-owned or -leased facility. Such subcontracts shall 
provide for the right to stop work under the conditions described in 
paragraph (g) of this clause. Depending on the complexity and 
hazards associated with the work, the contractor may require that 
the subcontractor submit a Safety Management System for the 
contractor's review and approval.

    36. Section 970.5204-13, Allowable costs and fixed-fee (management 
and operating contracts), is amended by revising the introductory text 
and clause heading, clause paragraph (c), clause paragraphs (d)(1), 
(d)(4), (d)(9), (e)(12), (e)(17), removing the note preceding (e)(36), 
and revising (e)(36) to read as follows:


970.5204-13  Allowable costs and fixed-fee (management and operating 
contracts).

    As prescribed in 48 CFR (DEAR) 970.3103(a), insert the following 
clause.

Allowable Costs and Fixed-Fee (Management and Operating Contracts) 
(June 1997)

* * * * *
    (c) Allowable costs. The allowable cost of performing the work 
under this contract shall be the costs and expenses that are 
actually incurred by the contractor in the performance of the 
contract work in accordance with its terms, that are necessary or 
incident thereto, and that are determined to be allowable as set 
forth in this paragraph. The determination of allowability of cost 
shall be based on:
    (1) Allowability and reasonableness in accordance with FAR 
31.201-2(d) and 31.201-3;
    (2) Standards promulgated by the Cost Accounting Standards 
Board, if applicable; otherwise, generally accepted accounting 
principles and practices appropriate to the particular 
circumstances; and
    (3) Recognition of all exclusions and limitations set forth in 
this clause or elsewhere in this contract as to types or amounts of 
items of cost. Allowable costs shall not include the cost of any 
item described as unallowable in paragraph (e) of this clause except 
as indicated therein. Failure to mention an item of cost 
specifically in paragraphs (d) or (e) of this clause shall not imply 
either that it is allowable or that it is unallowable.
    (d) * * *
    (1) Bonds and insurance, including self-insurance, as provided 
in the clause entitled, Insurance--Litigation and Claims.
* * * * *
    (4) Reasonable litigation and other legal expenses, including 
counsel fees, if incurred in accordance with the clause of the 
contract entitled, Insurance--Litigation and Claims, and the DOE 
approved contractor litigation management procedures (including cost 
guidelines) as such procedures may be revised from time to time, and 
if not otherwise made unallowable in this contract.
* * * * *
    (9) Repairs, maintenance, inspection, replacement, and disposal 
of Government-owned property and the restoration or clean-up of site 
and facilities to the extent approved by the contracting officer and 
as allowable under paragraph (f) of the clause of this contract 
entitled, Property.
* * * * *
    (e) * * *
    (12) Fines and penalties, except, with respect to civil fines 
and penalties only, if the contractor demonstrates to the 
contracting officer that--
    (i) Such a civil fine or penalty was incurred as a result of 
compliance with specific terms and conditions of the contract or 
written instructions from the contracting officer; or
    (ii) Such a civil fine or penalty was imposed without regard to 
fault and could not have been avoided by the exercise of due care.
* * * * *
    (17) Losses or expenses:
    (i) On, or arising from the sale, exchange, or abandonment of 
capital assets, including investments;
    (ii) On other contracts, including the contractor's contributed 
portion under cost-sharing contracts;
    (iii) In connection with price reductions to and discount 
purchases by employees and others from any source;
    (iv) That are compensated for by insurance or otherwise or which 
would have been compensated for by insurance required by law or by 
written direction of the contracting officer but which the 
contractor failed to procure or maintain through its own fault or 
negligence;
    (v) That result from willful misconduct or lack of good faith on 
the part of any of the contractor's managerial personnel (as that 
term is defined in the clause of this contract entitled, Property);
    (vi) That represent liabilities to third persons that are not 
allowable under the clause of this contract entitled, Insurance-- 
Litigation and Claims; or
    (vii) That represent liabilities to third persons for which the 
contractor has expressly accepted responsibility under other terms 
of this contract.
* * * * *
    (36) Notwithstanding any other provision of this contract, the 
costs of bonds and insurance are unallowable to the extent they are 
incurred to protect and indemnify the contractor and/or 
subcontractor against otherwise unallowable costs, unless such 
insurance or bond is required by law, the express terms of this 
contract, or is authorized in writing by the contracting officer. 
The cost of commercial insurance to protect the contractor against 
the costs of correcting its own defects in materials or workmanship 
is an unallowable cost.

    37. Section 970.5204-14, Allowable costs and fixed-fee (support 
contracts), is amended by revising the introductory text and clause 
heading, clause paragraph (c), clause paragraphs (d)(1), (d)(4), 
(d)(10), (e)(10), (e)(15), removing the note preceding (e)(34), and 
revising (e)(34) to read as follows:


970.5204-14  Allowable costs and fixed-fee (support contracts). As 
prescribed in 48 CFR (DEAR) 970.3103(a), insert the following clause.

Allowable Costs and Fixed-Fee (Support Contracts) (June 1997)

* * * * *
    (c) Allowable costs. The allowable cost of performing the work 
under this contract shall be the costs and expenses that are 
actually incurred by the contractor in the performance of the 
contract work in accordance with its terms, that are necessary or 
incident thereto, and are determined to be allowable as set forth in 
this paragraph. The determination of allowability of cost hereunder 
shall be based on:
    (1) Allowability and reasonableness in accordance with FAR 
31.201-2(d) and 31.201-3;
    (2) Standards promulgated by the Cost Accounting Standards 
Board, if applicable; otherwise, generally accepted accounting 
principles and practices appropriate to the particular 
circumstances; and
    (3) Recognition of all exclusions and limitations set forth in 
this clause or elsewhere in this contract as to types or amounts of 
items of cost. Allowable costs shall not include the cost of any 
item described as unallowable in paragraph (e) of this clause except 
as indicated therein. Failure to mention an item of cost 
specifically in paragraphs (d) or (e) of this clause shall not imply 
either that it is allowable or that it is unallowable.
    (d) * * *
    (1) Bonds and insurance, including self-insurance, as provided 
in the clause entitled Insurance--Litigation and Claims.
* * * * *
    (4) Reasonable litigation and other legal expenses, including 
counsel fees, if incurred in accordance with the clause of the 
contract entitled, Insurance--Litigation and Claims, in accordance 
with DOE approved contractor litigation management procedures 
(including cost guidelines) as such procedures may be revised from 
time to time, and if not otherwise made unallowable in this 
contract.
* * * * *
    (10) Repairs, maintenance, inspection, replacement, and disposal 
of government-owned property to the extent directed or approved by 
the contracting officer and as allowable under paragraph (f) of the 
clause of this contract entitled, Property.
* * * * *
    (e) * * *
    (10) Fines and penalties, except, with respect to civil fines 
and penalties only, if the contractor demonstrates to the 
contracting officer that--
    (i) Such a civil fine or penalty was incurred as a result of 
compliance with specific terms and conditions of the contract or 
written instructions from the contracting officer; or

[[Page 34867]]

    (ii) Such a civil fine or penalty was imposed without regard to 
fault and could not have been avoided by the exercise of due care.
* * * * *
    (15) Losses or expenses:
    (i) On, or arising from the sale, exchange, or abandonment of 
capital assets, including investments;
    (ii) On other contracts, including the contractor's contributed 
portion under cost-sharing contracts;
    (iii) In connection with price reductions to and discount 
purchases by employees and others from any source;
    (iv) That are compensated for by insurance or otherwise or which 
would have been compensated for by insurance required by law or by 
written direction of the contracting officer but which the 
contractor failed to procure or maintain through its own fault or 
negligence;
    (v) That result from willful misconduct or lack of good faith on 
the part of any of the contractor's managerial personnel (as that 
term is defined in the clause of this contract entitled, Property);
    (vi) That represent liabilities to third persons that are not 
allowable under the clause of this contract entitled, Insurance--
Litigation and Claims; or
    (vii) That represent liabilities to third persons for which the 
contractor has expressly accepted responsibility under other terms 
of this contract.
* * * * *
    (34) Notwithstanding any other provision of this contract, the 
costs of bonds and insurance are unallowable to the extent they are 
incurred to protect and indemnify the contractor and/or 
subcontractor against otherwise unallowable costs, unless such 
insurance or bond is required by law, the express terms of this 
contract, or is authorized in writing by the contracting officer. 
The cost of commercial insurance to protect the contractor against 
the costs of correcting its own defects in materials or workmanship 
is an unallowable cost.

    38. Subsection 970.5204-16 is amended by revising the introductory 
text and the clause heading and by adding three sentences to the end of 
clause paragraph (a) and revising alternate clause paragraph (a) 
following NOTE 2 to read as follows:


970.5204-16  Payments and advances.

    As prescribed in 48 CFR (DEAR) 970.3270, insert the following 
clause.

Payments and Advances (June 1997)

    (a) * * * Fixed-fee payments shall be made by direct payment or 
withdrawn from funds advanced or available under this contract, as 
determined by the contracting officer. The contracting officer may 
offset against any such fee payment, the amounts owed to the 
Government by the contractor, including any amounts owed for 
disallowed costs under this contract. No fixed-fee payment may be 
withdrawn against the letter-of-credit without prior written 
approval of the contracting officer.
* * * * *
    (a) Payment of Base Fee and Award Fee. The base fee, if any, is 
payable in equal monthly installments. Award fee pool amounts earned 
are payable following the issuance by the FDO of a Determination of 
Award Fee Pool Amount Earned, in accordance with the clause of this 
contract entitled, Award Fee: Base Fee and Award Fee. Base fee and 
award fee pool amount earned payments shall be made by direct 
payment or withdrawn from funds advanced or available under this 
contract, as determined by the contracting officer. The contracting 
officer may offset against any such fee payment, the amounts owed to 
the Government by the contractor, including any amounts owed for 
disallowed costs under this contract. No base fee or award fee pool 
amount earned payment may be withdrawn against the letter-of-credit 
without prior written approval of the contracting officer.
* * * * *


970.5204-18  [Removed and Reserved]

    39. Section 970.5204-18 is removed and reserved.
    40. Section 970.5204-21, Property, is amended by revising the 
introductory text, clause heading, and clause paragraphs (e), (f), (g), 
(i) and (j), and adding a new (k) to read as follows:


970.5204-21  Property.

    As prescribed in 970.4501, insert the following clause.

Property (June 1997)

* * * * *
    (e) Protection of government property--management of high-risk 
property and classified materials.
    (1) The contractor shall take all reasonable precautions, and 
such other actions as may be directed by the contracting officer, or 
in the absence of such direction, in accordance with sound business 
practice, to safeguard and protect government property in the 
contractor's possession or custody.
    (2) In addition, the contractor shall ensure that adequate 
safeguards are in place, and adhered to, for the handling, control 
and disposition of high-risk property and classified materials 
throughout the life cycle of the property and materials consistent 
with the policies, practices and procedures for property management 
contained in the Federal Property Management Regulations (41 CFR 
chapter 101), the Department of Energy Property Management 
Regulations (41 CFR chapter 109), and other applicable regulations.
    (3) High-risk property is property, the loss, destruction, 
damage to, or the unintended or premature transfer of which could 
pose risks to the public, the environment, or the national security 
interests of the United States. High-risk property includes 
proliferation sensitive, nuclear related dual use, export 
controlled, chemically or radioactively contaminated, hazardous, and 
specially designed and prepared property, including property on the 
militarily critical technologies list.
    (f) Risk of loss of Government property.
    (1)(i) The contractor shall not be liable for the loss or 
destruction of, or damage to, Government property unless such loss, 
destruction, or damage was caused by any of the following:
    (A) Willful misconduct or lack of good faith on the part of the 
contractor's managerial personnel;
    (B) Failure of the contractor's managerial personnel to take all 
reasonable steps to comply with any appropriate written direction of 
the contracting officer to safeguard such property under paragraph 
(e) of this clause; or
    (C) Failure of contractor managerial personnel to establish, 
administer, or properly maintain an approved property management 
system in accordance with paragraph (i)(1) of this clause.
    (ii) If, after an initial review of the facts, the contracting 
officer informs the contractor that there is reason to believe that 
the loss, destruction of, or damage to the government property 
results from conduct falling within one of the categories set forth 
above, the burden of proof shall be upon the contractor to show that 
the contractor should not be required to compensate the government 
for the loss, destruction, or damage.
    (2) In the event that the contractor is determined liable for 
the loss, destruction or damage to Government property in accordance 
with (f)(1) of this clause, the contractor's compensation to the 
Government shall be determined as follows:
    (i) For damaged property, the compensation shall be the cost of 
repairing such damaged property, plus any costs incurred for 
temporary replacement of the damaged property. However, the value of 
repair costs shall not exceed the fair market value of the damaged 
property. If a fair market value of the property does not exist, the 
contracting officer shall determine the value of such property, 
consistent with all relevant facts and circumstances.
    (ii) For destroyed or lost property, the compensation shall be 
the fair market value of such property at the time of such loss or 
destruction, plus any costs incurred for temporary replacement and 
costs associated with the disposition of destroyed property. If a 
fair market value of the property does not exist, the contracting 
officer shall determine the value of such property, consistent with 
all relevant facts and circumstances.
    (3) The portion of the cost of insurance obtained by the 
contractor that is allocable to coverage of risks of loss referred 
to in paragraph (f)(1) of this clause is not allowable.
    (g) Steps to be taken in event of loss. In the event of any 
damage, destruction, or loss to Government property in the 
possession or custody of the contractor with a value above the 
threshold set out in the contractor's approved property management 
system, the contractor:
    (1) Shall immediately inform the contracting officer of the 
occasion and extent thereof,
    (2) Shall take all reasonable steps to protect the property 
remaining, and
    (3) Shall repair or replace the damaged, destroyed, or lost 
property in accordance with the written direction of the contracting 
officer. The contractor shall take no action prejudicial to the 
right of the Government to

[[Page 34868]]

recover therefore, and shall furnish to the Government, on request, 
all reasonable assistance in obtaining recovery.
* * * * *
    (i) Property Management.
    (1) Property Management System.
    (i) The contractor shall establish, administer, and properly 
maintain an approved property management system of accounting for 
and control, utilization, maintenance, repair, protection, 
preservation, and disposition of Government property in its 
possession under the contract. The contractor's property management 
system shall be submitted to the contracting officer for approval 
and shall be maintained and administered in accordance with sound 
business practice, applicable Federal Property Management 
Regulations and Department of Energy Property Management 
Regulations, and such directives or instructions which the 
contracting officer may from time to time prescribe.
    (ii) In order for a property management system to be approved, 
it must provide for:
    (A) Comprehensive coverage of property from the requirement 
identification, through its life cycle, to final disposition;
    (B) Employee personal responsibility and accountability for 
Government-owned property;
    (C) Full integration with the contractor's other administrative 
and financial systems; and
    (D) A method for continuously improving property management 
practices through the identification of best practices established 
by ``best in class'' performers.
    (iii) Approval of the contractor's property management system 
shall be contingent upon the completion of the baseline inventory as 
provided in subparagraph (i)(2) of this clause.
    (2) Property Inventory.
    (i) Unless otherwise directed by the contracting officer, the 
contractor shall within six months after execution of the contract 
provide a baseline inventory covering all items of Government 
property.
    (ii) If the contractor is succeeding another contractor in the 
performance of this contract, the contractor shall conduct a joint 
reconciliation of the property inventory with the predecessor 
contractor. The contractor agrees to participate in a joint 
reconciliation of the property inventory at the completion of this 
contract. This information will be used to provide a baseline for 
the succeeding contract as well as information for closeout of the 
predecessor contract.
    (j) The term ``contractor's managerial personnel'' as used in 
this clause means the contractor's directors, officers and any of 
its managers, superintendents, or other equivalent representatives 
who have supervision or direction of:
    (1) All or substantially all of the contractor's business; or
    (2) All or substantially all of the contractor's operations at 
any one facility or separate location to which this contract is 
being performed; or
    (3) A separate and complete major industrial operation in 
connection with the performance of this contract; or
    (4) A separate and complete major construction, alteration, or 
repair operation in connection with performance of this contract; or
    (5) A separate and discrete major task or operation in 
connection with the performance of this contract.

    Note: Substitute the following paragraph (j) for nonprofit 
contractors:

    (j) The term ``contractor's managerial personnel'' as used in 
this clause means the contractor's directors, officers and any of 
its managers, superintendents, or other equivalent representatives 
who have supervision or direction of all or substantially all of:
    (1) The contractor's business; or
    (2) The contractor's operations at any one facility or separate 
location at which this contract is being performed; or
    (3) The contractor's Government property system and/or a Major 
System Acquisition or Major Project as defined in DOE Order 4700.1 
(Version in effect on effective date of contract).
    (k) The contractor shall include this clause in cost 
reimbursable contracts.


970.5204-26  [Removed and Reserved]

    41. Subsection 970.5204-26, Nuclear facility safety, is removed and 
reserved.
    42. Subsection 970.5204-31 is revised to read as follows:


970.5204-31  Insurance--litigation and claims.

    As prescribed in 48 CFR (DEAR) 970.2830(a), insert the following 
clause.

Insurance--Litigation and Claims (June 1997)

    (a) The contractor may, with the prior written authorization of 
the contracting officer, and shall, upon the request of the 
Government, initiate litigation against third parties, including 
proceedings before administrative agencies, in connection with this 
contract. The contractor shall proceed with such litigation in good 
faith and as directed from time to time by the contracting officer.
    (b) The contractor shall give the contracting officer immediate 
notice in writing of any legal proceeding, including any proceeding 
before an administrative agency, filed against the contractor 
arising out of the performance of this contract. Except as otherwise 
directed by the contracting officer, in writing, the contractor 
shall furnish immediately to the contracting officer copies of all 
pertinent papers received by the contractor with respect to such 
action. The contractor, with the prior written authorization of the 
contracting officer, shall proceed with such litigation in good 
faith and as directed from time to time by the contracting officer.
    (c)(1) Except as provided in paragraph (c)(2) of this clause, 
the contractor shall procure and maintain such bonds and insurance 
as required by law or approved in writing by the contracting 
officer.
    (2) The contractor may, with the approval of the contracting 
officer, maintain a self-insurance program; provided that, with 
respect to workers' compensation, the contractor is qualified 
pursuant to statutory authority.
    (3) All bonds and insurance required by this clause shall be in 
a form and amount and for those periods as the contracting officer 
may require or approve and with sureties and insurers approved by 
the contracting officer.
    (d) The contractor agrees to submit for the contracting 
officer's approval, to the extent and in the manner required by the 
contracting officer, any other bonds and insurance that are 
maintained by the contractor in connection with the performance of 
this contract and for which the contractor seeks reimbursement. If 
an insurance cost (whether a premium for commercial insurance or 
related to self-insurance) includes a portion covering costs made 
unallowable elsewhere in the contract, and the share of the cost for 
coverage for the unallowable cost is determinable, the portion of 
the cost that is otherwise an allowable cost under this contract is 
reimbursable to the extent determined by the contracting officer.
    (e) Except as provided in subparagraphs (g) and (h) of this 
clause, or specifically disallowed elsewhere in this contract, the 
contractor shall be reimbursed--
    (1) For that portion of the reasonable cost of bonds and 
insurance allocable to this contract required in accordance with 
contract terms or approved under this clause, and
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance or otherwise without regard to and as an 
exception to the clause of this contract entitled, Obligation of 
Funds (48 CFR (DEAR) 970.5204-15).
    (f) The Government's liability under paragraph (e) of this 
clause is subject to the availability of appropriated funds. Nothing 
in this contract shall be construed as implying that the Congress 
will, at a later date, appropriate funds sufficient to meet 
deficiencies.
    (g) Notwithstanding any other provision of this contract, the 
contractor shall not be reimbursed for liabilities (and expenses 
incidental to such liabilities, including litigation costs, counsel 
fees, judgment and settlements)--
    (1) Which are otherwise unallowable by law or the provisions of 
this contract; or
    (2) For which the contractor has failed to insure or to maintain 
insurance as required by law, this contract, or by the written 
direction of the contracting officer.
    (h) In addition to the cost reimbursement limitations contained 
in DEAR 970.3101-3, and notwithstanding any other provision of this 
contract, the contractor's liabilities to third persons, including 
employees but excluding costs incidental to workers' compensation 
actions, (and any expenses incidental to such liabilities, including 
litigation costs, counsel fees, judgments and settlements) shall not 
be reimbursed if such liabilities were caused by contractor 
managerial personnel's
    (1) Willful misconduct,
    (2) Lack of good faith, or
    (3) Failure to exercise prudent business judgment, which means 
failure to act in the same manner as a prudent person in the conduct 
of competitive business; or, in the case of a non-profit educational 
institution, failure to act in the manner that a prudent

[[Page 34869]]

person would under the circumstances prevailing at the time the 
decision to incur the cost is made.
    (i) The burden of proof shall be upon the contractor to 
establish that costs covered by paragraph (h) of this clause are 
allowable and reasonable if, after an initial review of the facts, 
the contracting officer challenges a specific cost or informs the 
contractor that there is reason to believe that the cost results 
from willful misconduct, lack of good faith, or failure to exercise 
prudent business judgment by contractor managerial personnel.
    (j)(1) All litigation costs, including counsel fees, judgments 
and settlements shall be differentiated and accounted for by the 
contractor so as to be separately identifiable. If the contracting 
officer provisionally disallows such costs, then the contractor may 
not use funds advanced by DOE under the contract to finance the 
litigation.
    (2) Punitive damages are not allowable unless the act or failure 
to act which gave rise to the liability resulted from compliance 
with specific terms and conditions of the contract or written 
instructions from the contracting officer.
    (3) The portion of the cost of insurance obtained by the 
contractor that is allocable to coverage of liabilities referred to 
in paragraph (g)(1) of this clause is not allowable.
    (4) The term ``contractor's managerial personnel'' is defined in 
clause paragraph (j) of 48 CFR (DEAR) 970.5204-21.
    (k) The contractor may at its own expense and not as an 
allowable cost procure for its own protection insurance to 
compensate the contractor for any unallowable or unreimbursable 
costs incurred in connection with contract performance.
    (l) If any suit or action is filed or any claim is made against 
the contractor, the cost and expense of which may be reimbursable to 
the contractor under this contract, and the risk of which is then 
uninsured or is insured for less than the amount claimed, the 
contractor shall--
    (1) Immediately notify the contracting officer and promptly 
furnish copies of all pertinent papers received;
    (2) Authorize Department representatives to collaborate with: 
in-house or DOE-approved outside counsel in settling or defending 
the claim; or counsel for the insurance carrier in settling or 
defending the claim if the amount of the liability claimed exceeds 
the amount of coverage, unless precluded by the terms of the 
insurance contract; and
    (3) Authorize Department representatives to settle the claim or 
to defend or represent the contractor in and/or to take charge of 
any litigation, if required by the Department, if the liability is 
not insured or covered by bond. In any action against more than one 
Department contractor, the Department may require the contractor to 
be represented by common counsel. Counsel for the contractor may, at 
the contractor's own expense, be associated with the Department 
representatives in any such claim or litigation.


970.5204-32  [Removed and Reserved]

    43. Subsection 970.5204-32, Required bond and insurance-exclusive 
of Government property, is removed and reserved.


970.5204-41  [Removed and Reserved]

    44. Subsection 970.5204-41, Preservation of individual occupational 
radiation exposure records, is removed and reserved.


970.5204-55 and 970.5204-6   [Removed and Reserved]

    45. Subsections 970.5204-55, Ceiling on certain liabilities for 
profit making contractors, and 970.5204-56, Determining avoidable 
costs, are removed and reserved.
    46. Subsection 970-5204-61, Cost prohibitions related to legal and 
other proceedings, is amended by revising the introductory text, the 
clause heading, and the introductory text to paragraph (b), designating 
the existing paragraph (c) as paragraph (c)(1), adding paragraph 
(c)(2), and revising paragraph (e)(4) to read as follows:


970.5204-61  Cost prohibitions related to legal and other proceedings.

    As prescribed in 48 CFR (DEAR) 970.3103(c), insert the following 
clause.

Cost Prohibitions Related to Legal and Other Proceedings (June 1997)

* * * * *
    (b) Except as otherwise described in this section, costs 
incurred in connection with any proceeding brought by a third party 
in the name of the United States under the False Claims Act, 31 
U.S.C. 3730, or costs incurred in connection with any criminal, 
civil or administrative proceeding by the Federal Government, or a 
State, local or foreign government, are not allowable if the 
proceeding relates to a violation of, or failure to comply with a 
Federal, State, local or foreign statute or regulation by the 
contractor, and results in any of the following dispositions:
* * * * *
    (c)(1) * * *
    (2) In the event of a settlement of any proceeding brought by a 
third party under the False Claims Act in which the United States 
did not intervene, reasonable costs incurred by the contractor in 
connection with such a proceeding that are not otherwise unallowable 
by regulation or by separate agreement with the United States, may 
be allowed if the contracting officer, in consultation with his or 
her legal advisor, determines that there was very little likelihood 
that the third party would have been successful on the merits.
* * * * *
    (e) * * *
    (4) The amount of costs allowed does not exceed 80 percent of 
the total costs incurred and otherwise allowable under the contract. 
Such amount that may be allowed (up to the 80 percent limit) shall 
not exceed the percentage determined by the contracting officer to 
be appropriate, considering the complexity of procurement 
litigation, generally accepted principles governing the award of 
legal fees in civil actions involving the United States as a party, 
and such other factors as may be appropriate. The amount of 
reimbursement allowed for legal costs in connection with any 
proceeding described in subparagraph (c)(2) shall be the amount 
determined to be reasonable by the contracting officer but shall not 
exceed 80 percent of otherwise allowable costs incurred. Agreements 
reached under paragraph (c) of this subsection shall be subject to 
this limitation. If, however, an agreement explicitly states the 
amount of otherwise allowable incurred legal fees and limits the 
allowable recovery to 80 percent or less of the stated legal fees, 
no additional limitation need be applied.
* * * * *


970.5204-62  [Removed and Reserved]

    47. Subsection 970.5204-62, Environmental protection, is removed 
and reserved.
    48. Subpart 970.52, Contract Clauses for Management and Operating 
Contracts, is amended to add 970.5204-75, Preexisting Conditions; 
970.5204-76, Make-or-Buy Plan; 970.5204-77, Workforce Restructuring 
Under Section 3161 of the National Defense Authorization Act for Fiscal 
Year 1993; 970.5204-78, Laws, Regulations, and DOE Directives; 
970.5204-79, Access to and Ownership of Records; and 970.5204-80, 
Overtime Management, to read as follows:

970.5204-75  Preexisting conditions.
970.5204-76  Make-or-buy plan.
970.5204-77  Workforce restructuring under Section 3161 of the 
National Defense Authorization Act for Fiscal Year 1993.
970.5204-78  Laws, regulations, and DOE directives.
970.5204-79  Access to and ownership of records.
970.5204-80  Overtime management.


970.5204-75  Preexisting conditions.

    As prescribed in 48 CFR (DEAR) 970.3103(d), insert the following 
clause.

Preexisting Conditions (June 1997)

    (a) The Department of Energy agrees to reimburse the contractor, 
and the contractor shall not be held responsible, for any liability 
(including without limitation, a claim involving strict or absolute 
liability and any civil fine or penalty), expense, or remediation 
cost, but limited to those of a civil nature, which may be incurred 
by, imposed on, or asserted against the contractor arising out of 
any condition, act, or failure to act which occurred before the 
contractor assumed responsibility on [Insert date contract began]. 
To the extent the acts or omissions of the contractor cause or add 
to any liability, expense or remediation cost resulting from 
conditions in existence prior to [Insert date contract began], the 
contractor shall be responsible in accordance with the terms and 
conditions of this contract.
    (b) The obligations of the Department of Energy under this 
clause are subject to the

[[Page 34870]]

availability of appropriated funds. Alternate I. As prescribed in 48 
CFR (DEAR) 970.3103(d), substitute the following paragraph (a):
    (a) Any liability, obligation, loss, damage, claim (including 
without limitation, a claim involving strict or absolute liability), 
action, suit, civil fine or penalty, cost, expense or disbursement, 
which may be incurred or imposed, or asserted by any party and 
arising out of any condition, act or failure to act which occurred 
before [Insert date this clause was included in contract], in 
conjunction with the management and operation of [Insert name of 
facility], shall be deemed incurred under Contract No. [Insert 
number of prior contract].
    Alternate II. As prescribed in 48 CFR (DEAR) 970.3103(d), 
include the following paragraph (c):
    (c) The contractor has the duty to inspect the facilities and 
sites and timely identify to the contracting officer those 
conditions which it believes could give rise to a liability, 
obligation, loss, damage, penalty, fine, claim, action, suit, cost, 
expense, or disbursement or areas of actual or potential 
noncompliance with the terms and conditions of this contract or 
applicable law or regulation. The contractor has the responsibility 
to take corrective action, as directed by the contracting officer 
and as required elsewhere in this contract.


970.5204-76  Make-or-buy plan.

    As prescribed in 48 CFR (DEAR) 970.1507-3, insert the following 
clause:

Make-or-Buy Plan (June 1997)

    (a) Definitions.
    Buy item means a work activity, supply, or service to be 
produced or performed by an outside source, including a 
subcontractor or an affiliate, subsidiary, or division of the 
contractor.
    Make item means a work activity, supply, or service to be 
produced or performed by the contractor using its personnel and 
other resources at the Department of Energy facility or site.
    Make-or-buy plan means a contractor's written program for the 
contract that identifies work efforts or requirements that either 
are ``make items'' or ``buy items.''
    (b) Make-or-buy plan. The contractor shall develop and implement 
a make-or-buy plan that establishes a preference for providing 
supplies and services on a least-cost basis, subject to any specific 
make or buy criteria identified in the contract or otherwise 
provided by the contracting officer. In developing and implementing 
its make-or-buy plan, the contractor agrees to assess subcontracting 
opportunities and implement subcontracting decisions in accordance 
with the following:
    (1) The contractor shall conduct internal productivity 
improvement and cost-reduction programs so that in-house performance 
options can be made more efficient and cost-effective.
    (2) The contractor shall consider subcontracting opportunities 
with the maximum practicable regard for open communications with 
potentially affected employees and their representatives. Similarly, 
a contractor shall communicate its plans, activities, cost-benefit 
analyses, and decisions to those stakeholders, including 
representatives of the community and local businesses, likely to be 
affected by such actions.
    (c) Submission and approval. For new contract awards, the 
contractor shall submit an initial make-or-buy plan, for approval, 
within 180 days after contract award. If the existing contract is to 
be extended, the contractor shall submit a make-or-buy plan for 
review and approval at least 90 days prior to the commencement of 
the negotiations for the extension. The following documentation 
shall be prepared and submitted:
    (1) A description of the each work item, and if appropriate, the 
identification of the associated Work Authorization or Work 
Breakdown Structure element;
    (2) The categorization of each work item as ``must make,'' 
``must buy,'' or ``can make or buy,'' with the reasons for such 
categorization in consideration of the program specific make or buy 
criteria (including least cost considerations). For non-core 
capabilities categorized as ``must make,'' a cost/benefit analysis 
must be performed for each item if:
    (i) The contractor is not the least-cost performer, and
    (ii) A program specific make-or-buy criterion does not otherwise 
justify a ``must make'' categorization;
    (3) A decision to either ``make'' or ``buy'' in consideration of 
the program specific make or buy criteria (including least cost 
considerations) for work effort categorized as ``can make or buy'';
    (4) Identification of potential suppliers and subcontractors, if 
known, and their location and size status;
    (5) A recommendation to defer a make or buy decision where 
categorization of an identifiable work effort is impracticable at 
the time of initial development of the plan and a schedule for 
future re-evaluation;
    (6) A description of the impact of a change in current practice 
of making or buying on the existing work force; and
    (7) Any additional information appropriate to support and 
explain the plan.
    (d) Conduct of operations. Once a make-or-buy plan is approved, 
the contractor shall perform in accordance with the plan.
    (e) Changes to the make-or-buy plan. The make-or-buy plan 
established in accordance with paragraph (b) of this clause shall 
remain in effect for the term of the contract, unless:
    (1) A lesser period is provided either for the total plan or for 
individual items or work effort;
    (2) The circumstances supporting the make-or-buy decisions 
change, or
    (3) New work is identified.
    At least annually, the contractor shall review its approved 
make-or-buy plan to ensure that it reflects current conditions. 
Changes to the approved make-or-buy plan shall be submitted in 
advance of the effective date of the proposed change in sufficient 
time to permit evaluation and review. Changes shall be submitted in 
accordance with the instructions provided by the contracting 
officer. Modification of the make-or-buy plan to incorporate 
proposed changes or additions shall be effective upon the 
contractor's receipt of the contracting officer's written approval.


970.5204-77  Workforce Restructuring Under Section 3161 of the National 
Defense Authorization Act for Fiscal Year 1993.

    As prescribed in 48 CFR (DEAR) 970.2602-2, insert the following 
clause.

Workforce Restructuring Under Section 3161 of the National Defense 
Authorization Act for Fiscal Year 1993 (June 1997)

    (a) Consistent with the objectives of Section 3161 of the 
National Defense Authorization Act for Fiscal Year 1993, 42 U.S.C. 
7274h, in instances where the Department of Energy has determined 
that a change in workforce at a Department of Energy Defense Nuclear 
Facility is necessary, the contractor agrees to (1) comply with the 
Department of Energy Workforce Restructuring Plan for the facility, 
if applicable, and (2) use its best efforts to accomplish workforce 
restructuring or displacement so as to mitigate social and economic 
impacts.
    (b) The requirements of this clause shall be included in 
subcontracts at any tier (except subcontracts for commercial items 
pursuant to 41 U.S.C. 403) expected to exceed $500,000.


970.5204-78  Laws, regulations, and DOE directives.

    As prescribed in 48 CFR (DEAR) 970.0470-2, insert the following 
clause.

Laws, Regulations, and DOE Directives (June 1997)

    (a) In performing work under this contract, the contractor shall 
comply with the requirements of applicable Federal, State, and local 
laws and regulations (including DOE regulations), unless relief has 
been granted in writing by the appropriate regulatory agency. A List 
of Applicable Laws and Regulations (List A) may be appended to this 
contract for information purposes. Omission of any applicable law or 
regulation from List A does not affect the obligation of the 
contractor to comply with such law or regulation pursuant to this 
paragraph.
    (b) In performing work under this contract, the contractor shall 
comply with the requirements of those Department of Energy 
directives, or parts thereof, identified in the List of Applicable 
Directives (List B) appended to this contract. Except as otherwise 
provided for in paragraph (c) of this clause, the contracting 
officer may, from time to time and at any time, revise List B by 
unilateral modification to the contract to add, modify, or delete 
specific requirements. Prior to revising List B, the contracting 
officer shall notify the contractor in writing of the Department's 
intent to revise List B and provide the contractor with the 
opportunity to assess the effect of the contractor's compliance with 
the revised list on contract cost and funding, technical 
performance, and schedule; and identify any potential 
inconsistencies between the revised list and the other terms and 
conditions of the contract. Within 30 days after receipt of the 
contracting officer's notice, the contractor

[[Page 34871]]

shall advise the contracting officer in writing of the potential 
impact of the contractor's compliance with the revised list. Based 
on the information provided by the contractor and any other 
information available, the contracting officer shall decide whether 
to revise List B and so advise the contractor not later than 30 days 
prior to the effective date of the revision of List B. The 
contractor and the contracting officer shall identify and, if 
appropriate, agree to any changes to other contract terms and 
conditions, including cost and schedule, associated with the 
revision of List B pursuant to the clause entitled, Changes, of this 
contract.
    (c) Environmental, safety, and health (ES&H) requirements 
appropriate for work conducted under this contract may be determined 
by a DOE approved process to evaluate the work and the associated 
hazards and identify an appropriately tailored set of standards, 
practices, and controls, such as a tailoring process included in a 
DOE approved Safety Management System implemented under 48 CFR 
(DEAR) 970.5204-2. When such a process is used, the set of tailored 
ES&H requirements, as approved by DOE pursuant to the process, shall 
be incorporated into List B as contract requirements with full force 
and effect. These requirements shall supersede, in whole or in part, 
the contractual environmental, safety, and health requirements 
previously made applicable to the contract by List B. If the 
tailored set of requirements identifies an alternative requirement 
varying from an ES&H requirement of an applicable law or regulation, 
the contractor shall request an exemption or other appropriate 
regulatory relief specified in the regulation.
    (d) The contractor is responsible for compliance with the 
requirements made applicable to this contract, regardless of the 
performer of the work. The contractor is responsible for flowing 
down the necessary provisions to subcontracts at any tier to which 
the contractor determines such requirements apply.


970.5204-79  Access to and ownership of records.

    As prescribed in 48 CFR (DEAR) 970.0407-3, insert the following 
clause.

Access to and Ownership of Records (June 1997)

    (a) Government-owned records. Except as provided in paragraph 
(b) of this clause, all records acquired or generated by the 
contractor in its performance of this contract shall be the property 
of the Government and shall be delivered to the Government or 
otherwise disposed of by the contractor either as the contracting 
officer may from time to time direct during the process of the work 
or, in any event, as the contracting officer shall direct upon 
completion or termination of the contract.
    (b) Contractor-owned records. The following records are 
considered the property of the contractor and are not within the 
scope of paragraph (a) of this clause. [The contracting officer 
shall identify which of the following categories of records will be 
included in the clause.]
    (1) Employment-related records (such as workers' compensation 
files; employee relations records, records on salary and employee 
benefits; drug testing records, labor negotiation records; records 
on ethics, employee concerns, and other employee related 
investigations conducted under an expectation of confidentiality; 
employee assistance program records; and personnel and medical/
health-related records and similar files), except for those records 
described by the contract as being maintained in Privacy Act systems 
of records.
    (2) Confidential contractor financial information, and 
correspondence between the contractor and other segments of the 
contractor located away from the DOE facility (i.e., the 
contractor's corporate headquarters);
    (3) Records relating to any procurement action by the 
contractor, except for records that under 48 CFR (DEAR) 970.5204-9, 
Accounts, Records, and Inspection, are described as the property of 
the Government; and
    (4) Legal records, including legal opinions, litigation files, 
and documents covered by the attorney-client and attorney work 
product privileges; and
    (5) The following categories of records maintained pursuant to 
the technology transfer clause of this contract:
    (i) Executed license agreements, including exhibits or 
appendices containing information on royalties, royalty rates, other 
financial information, or commercialization plans, and all related 
documents, notes and correspondence.
    (ii) The contractor's protected Cooperative Research and 
Development Agreement (CRADA) information and appendices to a CRADA 
that contain licensing terms and conditions, or royalty or royalty 
rate information.
    (iii) Patent, copyright, mask work, and trademark application 
files and related contractor invention disclosures, documents and 
correspondence, where the contractor has elected rights or has 
permission to assert rights and has not relinquished such rights or 
turned such rights over to the Government.
    (c) Contract completion or termination. In the event of 
completion or termination of this contract, copies of any of the 
contractor-owned records identified in paragraph (b) of this clause, 
upon the request of the Government, shall be delivered to DOE or its 
designees, including successor contractors. Upon delivery, title to 
such records shall vest in DOE or its designees, and such records 
shall be protected in accordance with applicable federal laws 
(including the Privacy Act), as appropriate.
    (d) Inspection, copying, and audit of records. All records 
acquired or generated by the contractor under this contract in the 
possession of the contractor, including those described at paragraph 
(b) of this clause, shall be subject to inspection, copying, and 
audit by the Government or its designees at all reasonable times, 
and the contractor shall afford the Government or its designees 
reasonable facilities for such inspection, copying, and audit; 
provided, however, that upon request by the contracting officer, the 
contractor shall deliver such records to a location specified by the 
contracting officer for inspection, copying, and audit. The 
Government or its designees shall use such records in accordance 
with applicable federal laws (including the Privacy Act), as 
appropriate.
    (e) Applicability. Paragraphs (b), (c), and (d) of this clause 
apply to all records without regard to the date or origination of 
such records.
    (f) Records retention standards. Special records retention 
standards, described at DOE Order 1324.5B, Records Management 
Program and DOE Records Schedules (version in effect on effective 
date of contract), are applicable for the classes of records 
described therein, whether or not the records are owned by the 
Government or the contractor. In addition, the contractor shall 
retain individual radiation exposure records generated in the 
performance of work under this contract until DOE authorizes 
disposal. The Government may waive application of these record 
retention schedules, if, upon termination or completion of the 
contract, the Government exercises its right under paragraph (c) of 
this clause to obtain copies and delivery of records described in 
paragraphs (a) and (b) of this clause.
    (g) Flow down. The contractor shall include the requirements of 
this clause in all subcontracts that are of a cost-reimbursement 
type if any of the following factors is present:
    (1) The value of the subcontract is greater than $2 million 
(unless specifically waived by the contracting officer);
    (2) The contracting officer determines that the subcontract is, 
or involves, a critical task related to the contract; or
    (3) The subcontract includes 48 CFR (DEAR) 970.5204-2, 
Integration of Environment, Safety, and Health into Work Planning 
and Execution, or similar clause.


970.5204-80  Overtime management.

    As prescribed in 48 CFR (DEAR) 970.2275-2, insert the following 
clause:

Overtime Management (June 1997)

    (a) The contractor shall maintain adequate internal controls to 
ensure that employee overtime is authorized only if cost effective 
and necessary to ensure performance of work under this contract.
    (b) The contractor shall notify the contracting officer when in 
any given year it is likely that overtime usage as a percentage of 
payroll may exceed 4%.
    (c) The contracting officer may require the submission, for 
approval, of a formal annual overtime control plan whenever 
contractor overtime usage as a percentage of payroll has exceeded, 
or is likely to exceed, 4%, or if the contracting officer otherwise 
deems overtime expenditures excessive. The plan shall include, at a 
minimum:
    (1) An overtime premium fund (maximum dollar amount);
    (2) Specific controls for casual overtime for non-exempt 
employees;
    (3) Specific parameters for allowability of exempt overtime;
    (4) An evaluation of alternatives to the use of overtime; and
    (5) Submission of a semi-annual report that includes for exempt 
and non-exempt employees:
    (i) Total cost of overtime;

[[Page 34872]]

    (ii) Total cost of straight time;
    (iii) Overtime cost as a percentage of straight-time cost;
    (iv) Total overtime hours;
    (v) Total straight-time hours; and
    (vi) Overtime hours as a percentage of straight-time hours.

[FR Doc. 97-16635 Filed 6-26-97; 8:45 am]
BILLING CODE 6450-01-P