[Federal Register Volume 63, Number 69 (Friday, April 10, 1998)]
[Proposed Rules]
[Pages 17800-17811]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9501]



[[Page 17800]]

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DEPARTMENT OF ENERGY

48 CFR Parts 915 and 970

RIN 1991-AB32


Acquisition Regulation; Department of Energy Management and 
Operating Contracts and Other Designated Contracts

AGENCY: Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department proposes to amend the Department of Energy 
Acquisition Regulation (DEAR) to revise its fee policies and related 
procedures for management and operating contracts and other designated 
contracts. The proposed rule focuses on the use of fees to ensure that 
they: are reasonable and commensurate with performance, business and 
cost risks; create and implement tailored incentives for performance 
based management contracts; are structured to attract best business 
partners; and afford flexibility to provide incentives to contractors 
to perform better at less cost.

DATES: Comments must be received by 4:30 p.m. local time on or before 
June 9, 1998. A workshop will be held on May 19, 1998, beginning at 
9:30 a.m. local time at the address listed below. Requests to speak at 
the workshop or comments you would like specifically addressed should 
be received by 4:30 p.m. local time on May 11, 1998. Later requests 
will be accommodated to the extent practicable.

ADDRESSES: All comments (three copies), as well as requests to speak at 
the workshop or issues you would like addressed, should be submitted 
to: Stephen Michelsen, Office of Contract and Resource Management (HR-
53), Department of Energy, 1000 Independence Avenue, SW, Washington, 
D.C. 20585, (202) 586-1368, (202) 586-9356 (facsimile), 
[email protected] (Internet).
    The workshop will be held at Department of Energy, 1000 
Independence Avenue, SW, Room 8E089, Washington, DC.
    The administrative record regarding this rulemaking that is on file 
for public inspection, including a copy of the transcript of the 
workshop and any additional public comments received, is located in the 
Department's Freedom of Information Public Reading Room, Room 1E-190, 
1000 Independence Avenue, SW, Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Stephen Michelsen, Office of Contract 
and Resource Management (HR-53), Department of Energy, 1000 
Independence Avenue, SW, Washington, D.C. 20585, (202) 586-1368; (202) 
586-9356 (facsimile); [email protected] (Internet).

SUPPLEMENTARY INFORMATION:

I. Background and Analysis
II. Public 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
IV. Opportunities for Public Workshop

I. Background and Analysis

    The proposed rule would amend DEAR Subpart 970.1509 to revise fee 
policies and related procedures for management and operating contracts 
and other designated contracts. Among other things, the proposed rule 
complements the Department's June 27, 1997 (62 FR 34842) rulemaking 
which implemented a number of recommendations to improve its management 
and operating contracts. One of these recommendations involved the 
adoption of performance-based contracting concepts. Since the 
initiation of its contract reform initiatives, the Department has 
tested a number of approaches to conform its use of fee to such 
concepts. An additional element of contract reform was the adoption of 
cost allowability and liability provisions which placed greater 
financial risk on both for profit and nonprofit contractors. This 
proposed rule also reflects these changes. The amendments to DEAR 
proposed by this action are intended to ensure that fees are: 
reasonable and commensurate with contract type and associated 
performance and financial risks; structured to attract the best 
organizations; and effectively used in conjunction with performance-
based management contract concepts as implemented by final rule dated 
June 27, 1997 (62 FR 34842).
    Proposed revisions to Subpart 970.1509 would: update fee schedules 
based on the Bureau of Labor Statistics Producer Price Index for 
Industrial Commodities to reflect the effects of inflation since 1991 
(Sections 915.971-5 and 970.1509-5); add a new fee schedule for 
environmental management work effort (Section 970.1509-5); redefine and 
increase facility categories consistent with changes in work at major 
facilities (Section 970.1509-8); eliminate management allowance for 
educational institutions and place limitations on both fixed fee and 
total available fee, including special limits on fee available to 
nonprofit organizations (Section 970.1509-2); recognize and provide 
guidance on the availability of various contract types (Section 
970.1509-3); provide a preference for those contract types that 
appropriately maximize the incentives for superior performance (Section 
970.1509-3); define criteria for the use of multiple fee approaches 
(Section 970.1509-3); correlate incentive-fee type arrangements to 
Federal Acquisition Regulation guidance (Section 970.1509-3); require 
that fee amounts tied to specific accomplishments or work activities 
reflect the value of that work to the Department (Section 970.1509-4); 
provide a preference for contract types under which all fee will be 
based on performance (Section 970.1509-3); require the maximum 
practical use of outcome oriented performance expectations consistent 
with performance based management contract concepts (Section 970.1509-
3); eliminate references to fees for management and operating contracts 
for support services; provide specialized policies for nonprofit 
federally funded research and development centers, including those run 
by educational institutions (Section 970.1509-2); restructure 
considerations and techniques for determining fixed fees and total 
available fee (Sections 970.1509-4 and 970.1509-8); delete a specified 
contractor performance grading scale, Fee Conversion Table, and replace 
it with a requirement for a site specific method of rating the 
contractor's performance of the contract requirements and determining 
fee earned (Section 970.1509-8); provide a new clause to establish a 
threshold for the payment of any fee to ensure, among other things, 
that performance in the critical area of environment, safety and health 
is not compromised by any other performance objective (Section 
970.5204-XX); and prescribe a new contract clause to address cost 
reduction proposal programs based on guidance in DEAR 970.1509 (Section 
970.5204-YY).

II. Public Comments

    Interested persons are invited to participate by submitting data, 
views, or arguments with respect to the DEAR amendments set forth in 
this notice. Three copies of written comments should be submitted to 
the address indicated in the ADDRESSES section of this notice. Comments 
on the major items identified in the ``PUBLIC

[[Page 17801]]

WORKSHOP'' section should be identified on separate pages, with the 
name of the item at the top of each page, e.g., comments regarding the 
Department's fee policy as it applies to the use of multiple contract 
types. In addition, it is requested that you provide a copy of your 
comments on a WordPerfect 6.1 or ASCII diskette. Comments may be sent 
to the Internet address in the ADDRESSES section of this notice instead 
of the written copies and diskette, provided they are transmitted in a 
WordPerfect 6.1 compatible format and include the name, title, 
organization, postal address, and Internet address with the text of the 
comments. All comments received will be available for public inspection 
in the Department's Freedom of Information Public Reading Room, 1E-190, 
Forrestal Building, 1000 Independence Avenue, SW., Washington, D.C. 
20585, between the hours of 9 a.m. and 4 p.m., Monday through Friday, 
except Federal holidays. All written comments received on or before the 
date specified in the beginning of this notice and all other relevant 
information will be considered by the Department before taking final 
action. Comments received after that date will be considered to the 
extent that time allows. Any person submitting information which that 
person believes to be confidential and which may be exempt from public 
disclosure should submit one complete copy, as well as an additional 
copy from which the information claimed to be confidential has been 
deleted. The Department reserves the right to determine the 
confidential status of the information or data and to treat it 
according to its determination. The Department's generally applicable 
procedures for handling information which has been submitted in a 
document and may be exempt from public disclosure are set forth in 10 
CFR 1004.11.

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) and 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. DOE has completed the 
required review and determined that, to the extent permitted by law, 
the proposed regulations meet the relevant standards of Executive Order 
12988.

C. Review Under the Regulatory Flexibility Act

    This proposed rule was reviewed under the Regulatory Flexibility 
Act of 1980, Pub. L. 96-354, which requires preparation of a regulatory 
flexibility analysis for any rule that is likely to have a significant 
economic impact on a substantial number of small entities. Based on the 
history of the Department and the requirements contained in its 
management and operating contracts, the impact of the proposed rule 
will be limited to large businesses not subject to the Regulatory 
Flexibility Act, as small businesses generally do not have the 
resources required to manage and operate the complex activities at the 
Department's largest sites. Based on this review the Department 
certifies that this proposed rule 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

    No new information collection or record keeping requirements are 
imposed by this proposed rule. Accordingly, no Office of Management and 
Budget clearance is required under the Paperwork Reduction Act of 1980 
(44 U.S.C. 3501, et seq.).

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 proposed rule 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 proposed rule is categorically excluded from the 
need to prepare an environmental impact statement or environmental 
assessment.

IV. Opportunities for Public Workshop

    For significant proposals to revise procurement regulations, DOE 
has a practice of providing an opportunity for affected contractors, 
potential offerors, and other interested persons to be heard. In this 
rulemaking, a public workshop will be conducted on the proposed 
regulatory amendments rather than a standard public hearing. There are 
issues involved in this rulemaking that are both significant and 
complex. DOE believes that the resolution of these issues, as well as 
the overall quality of the final rule, will be enhanced by an 
interactive exchange of ideas conducted in a more informal conference 
style setting. The agenda for the workshop will include, at a minimum, 
the following topics:
    1. The use of multiple contract types within the structure of a 
cost-plus-

[[Page 17802]]

award-fee contract. The Department believes that management and 
operating contracts may be more efficiently and effectively performed 
if there is latitude to utilize multiple contract types within the 
structure of a cost-plus-award-fee contract. Therefore, the revised 
policy allows for management and operating contracts, or portions of 
these contracts to be awarded on a cost-plus-incentive-fee (CPIF), 
fixed-price incentive (FPI), or firm-fixed-price (FFP) basis or 
combination thereof. Comments are specifically solicited regarding:
    a. the appropriateness of requiring that the preconditions set 
forth in FAR 16.1 be met, as appropriate, for the contract type 
employed;
    b. the appropriateness of employing several contract types, 
(assuming the contractor has the ability to segregate and track costs 
by task); and
    c. the impact on fee of using several contract types.
    2. The approach which places all fee at performance risk. The 
Department believes that with the introduction of performance based 
incentives into its award fee management and operating contracts, that 
all fee should be tied to performance risk. Comments are specifically 
solicited regarding: the risk posed to contractors by not having any 
base (fixed) fee amount; and the type and magnitude of potential costs 
which would be incurred by the contractor if no fee were earned.
    3. The policy, as it applies to contracts with nonprofit 
organizations including educational institutions. The Department, while 
generally preferring to minimize the amount of fee available for the 
operation of its laboratories, believes that fee considerations should 
include the nature and extent of financial or other liability or risk 
assumed under the contract and the utility of fee as a performance 
incentive. Any fee exceeding that associated with liability risk should 
be tied to the organizations's performance. Comments are specifically 
solicited regarding:
    a. the appropriateness of fee in contracts with nonprofit 
organizations or educational institutions;
    b. limiting the fixed fee or base fee to an amount that reflects 
the cost risk associated with the liability assumed by the 
organization;
    c. the ability of an organization to identify and support the 
potential cost risk associated with its assumption of liability; and
    d. the appropriateness of tying fee to performance.
    4. An alternative to the proposed policy as described in item 3 
above. The alternative under consideration would establish a fee policy 
for the operators of the Department's FFRDCs which would not 
distinguish between the types of business organizations operating them. 
Consideration is being given to limiting the fee to a minimum amount 
which recognizes that organizations may incur costs and risks in doing 
business with the government which are not reimbursed. Comments are 
specifically solicited regarding:
    a. establishing a section of the policy which applies solely to the 
Department's FFRDCs in contrast to all of its other operations;
    b. the principle of setting a maximum allowable fee that is the 
same for any entity which would operate a FFRDC;
    c. minimizing the fee to an amount which recognizes that 
organizations may incur costs and risks in doing business with the 
government which are not reimbursed; and
    d. the implications of an organization's tax status on the 
foregoing.
    5. The amount of fee necessary to attract the most capable 
contractors. The Department, with this revised fee policy, is 
attempting to provide meaningful incentives for contractors to perform 
better at less cost. In addition, the Department is hoping to enlarge 
the pool of contractors who are available to help DOE accomplish its 
important and challenging missions. For these reasons, the Department 
has created a fee policy which is intended to offer contractors 
reasonable levels of total available fee relative to the work to be 
performed and the contractor resources brought to the work. Comments 
are specifically solicited on the Department's approach to the 
determination of fee objectives and amounts specifically with regard to 
the following elements:
    a. the use of fee schedules;
    b. the use of significant factors and facility/task category 
factors; and
    c. the calculation of total available fee.
    6. The application of the Conditional Payment of Fee or Incentives 
clause. As a general rule, performance requirements that do not lend 
themselves to a specific incentive fee, should be included in the award 
fee. However, there are certain performance requirements that are so 
fundamental to the accomplishment of the overall mission objectives 
that meeting expected levels of performance should be a prerequisite to 
earning fee. In such cases, it may be appropriate to condition the 
payment of any earned fee on the contractor's satisfactory performance 
of these requirements. The proposed clause allows any otherwise earned 
fee to be adjusted downward based on a lack of or failure to comply 
with an environmental, safety, and health plan, or the occurrence of a 
catastrophic event, or poor technical performance or poor cost 
performance. Comments are specifically solicited including those 
specifically regarding:
    a. the need for such a clause in a performance based contract;
    b. the relationship between primarily objective performance 
incentives and a clause which allows the subjective adjustment to fee 
earned based on the occurrence of specified events; and
    c. alternatives by which the Department can ensure acceptable 
performance of work effort under its management and operating contracts 
not specifically tied to an incentive.
    DOE is interested in receiving at the workshop comments and views 
of interested persons concerning: (1) The above-listed topics; (2) the 
proposed approach contained in this proposed rulemaking; and (3) 
possible alternatives to the approach contained in this proposed 
rulemaking. DOE is also interested in receiving views concerning other 
topics relevant to the proposed regulatory amendments that workshop 
participants believe should be discussed.
    Members of the public interested in participating actively in the 
workshop are invited to submit requests to speak to the FOR FURTHER 
INFORMATION CONTACT identified at the beginning of this notice. Those 
who make such a request are invited to suggest topics for inclusion in 
the workshop agenda. DOE requests that participants who wish to make 
brief oral presentations provide a written version or summary of their 
views for inclusion in the rulemaking record. As time permits, there 
will be an opportunity to engage in a general discussion of the topics 
raised during the workshop.
    The meeting will be conducted conference-style by a DOE official. A 
record will be made of the proceedings of the workshop. A copy of the 
minutes will be placed in the record available for public inspection in 
the DOE Freedom of Information Public Reading Room at the address 
indicated in the ADDRESSES section. Since this proceeding is not a 
formal negotiated rulemaking, DOE officials will not seek a consensus 
of workshop participants on how to resolve issues in principle or on 
the specific wording of changes to the proposed regulatory text. 
Otherwise, DOE welcomes public participation in its policy making 
process and hopes that the workshop will be well attended.

List of Subjects in 48 CFR Parts 915 and 970

    Government procurement.


[[Page 17803]]


    Issued in Washington, D.C., on April 3, 1998.
Richard H. Hopf,
Deputy Assistant Secretary for Procurement and Assistance Management.

    For the reasons set out in the preamble, Chapter 9 of Title 48 of 
the Code of Federal Regulations is proposed to be amended as set forth 
below.

PART 915--CONTRACTING BY NEGOTIATION

    1. The authority citation for Part 915 continues to read as 
follows:

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

    2. Section 915.971-5 is amended by revising paragraphs (d), (f), 
and (h) to read as follows:


915.971-5  Fee schedules.

* * * * *
    (d) The following schedule sets forth the base for construction 
contracts:

                                         Construction Contracts Schedule                                        
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            5.47
1,000,000.......................................................          54,700            5.47            3.88
3,000,000.......................................................         132,374            4.41            3.28
5,000,000.......................................................         198,014            3.96            2.87
10,000,000......................................................         341,328            3.41            2.60
15,000,000......................................................         471,514            3.14            2.20
25,000,000......................................................         691,408            2.77            1.95
40,000,000......................................................         984,600            2.46            1.73
60,000,000......................................................       1,330,304            2.22            1.56
80,000,000......................................................       1,643,188            2.05            1.41
100,000,000.....................................................       1,924,346            1.92            1.26
150,000,000.....................................................       2,552,302            1.70            1.09
200,000,000.....................................................       3,094,926            1.55            0.80
300,000,000.....................................................       3,897,922            1.30            0.68
400,000,000.....................................................       4,581,672            1.15            0.57
500,000,000.....................................................       5,148,364            1.03  ..............
Over $500 Million                                                      5,148,364  ..............            0.57
----------------------------------------------------------------------------------------------------------------

* * * * *
    (f) The following schedule sets forth the base for construction 
management contracts:

                                   Construction Management Contracts Schedule                                   
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            5.47
1,000,000.......................................................          54,700            5.47            3.88
3,000,000.......................................................         132,374            4.41            3.28
5,000,000.......................................................         198,014            3.96            2.87
10,000,000......................................................         341,328            3.41            2.60
15,000,000......................................................         471,514            3.14            2.20
25,000,000......................................................         691,408            2.77            1.95
40,000,000......................................................         984,600            2.46            1.73
60,000,000......................................................       1,330,304            2.22            1.56
80,000,000......................................................       1,643,188            2.05            1.41
100,000,000.....................................................       1,924,346            1.92            1.26
150,000,000.....................................................       2,552,302            1.70            1.09
200,000,000.....................................................       3,094,926            1.55            0.80
300,000,000.....................................................       3,897,922            1.30            0.68
400,000,000.....................................................       4,581,672            1.15            0.57
500,000,000.....................................................       5,148,364            1.03  ..............
Over $500 Million...............................................       5,148,364  ..............            0.57
----------------------------------------------------------------------------------------------------------------

* * * * *
    (h) The schedule of fees for consideration of special equipment 
purchases and for consideration of the subcontract program under a 
construction management contract is as follows:

                              Special Equipment Purchases/Subcontract Work Schedule                             
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            1.64
1,000,000.......................................................          16,410            1.64            1.09

[[Page 17804]]

                                                                                                                
2,000,000.......................................................          27,350            1.37            0.93
4,000,000.......................................................          45,948            1.15            0.77
6,000,000.......................................................          61,264            1.02            0.71
8,000,000.......................................................          75,486            0.94            0.66
10,000,000......................................................          88,614            0.89            0.61
15,000,000......................................................         119,246            0.79            0.53
25,000,000......................................................         171,758            0.69            0.47
40,000,000......................................................         242,868            0.61            0.43
60,000,000......................................................         329,294            0.55            0.39
80,000,000......................................................         406,968            0.51            0.37
100,000,000.....................................................         480,266            0.48            0.28
150,000,000.....................................................         619,204            0.41            0.23
200,000,000.....................................................         732,980            0.37            0.13
300,000,000.....................................................         867,542            0.29  ..............
Over $300 Million...............................................         867,542  ..............            0.13
----------------------------------------------------------------------------------------------------------------

    Section 915.972 is amended by revising the introductory text of 
paragraph (a) to read as follows:


915.972  Special considerations for cost-plus-award-fee contracts.

    (a) When a contract is to be awarded on a cost-plus-award-fee basis 
in accordance with 48 CFR 916.404-2, several special considerations are 
appropriate. Fee objectives for management and operating contracts or 
other site management contracts as determined by the Procurement 
Executive, including those using the Construction, Construction 
Management, or Special Equipment Purchases/Subcontract Work schedules 
from 48 CFR 915.971-5, shall be developed pursuant to the procedures 
set forth in 48 CFR 970.1509-8. Fee objectives for other cost-plus-
award-fee contracts shall be developed as follows:
* * * * *

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

    4. 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).

    5. Section 970.1509, including subsections 970.1509-1 through 
970.1509-8, is revised to read as follows:

970.1509  Fees for management and operating contracts.
970.1509-1  Fee policy.
970.1509-2  Special considerations: nonprofit organizations.
970.1509-3  Types of Contracts.
970.1509-4  General considerations and techniques for determining 
fixed fees.
970.1509-5  Calculating fixed fee.
970.1509-6  Fee base.
970.1509-7  Special equipment purchases.
970.1509-8  Specific considerations: cost-plus-award-fee.
970.1509-9  Special considerations: fee limitations.
970.1509-10  Documentation.
970.1509-11  Solicitation provision and contract clauses.


970.1509  Fees for management and operating contracts.

    This section sets forth the Department's policies on fees for 
management and operating contracts and may be applied to other site 
management contracts as determined by the Procurement Executive or 
designee.


970.1509-1  Fee policy.

    (a) DOE management and operating contractors may be paid a fee in 
accordance with the requirements of this part.
    (b) Fee objectives and amounts are to be determined for each 
contract. Standard fees or across the board agreements will not be used 
or made. Due to the nature of funding management and operating 
contracts, it is anticipated that fee shall be established in 
accordance with the funding cycle; however, with the prior approval of 
the Procurement Executive or designee, a longer period may be used 
where necessary to incentivize performance objectives that span funding 
cycles or to optimize cost reduction efforts.
    (c) Fee amounts payable shall be established in accordance with 
this part. Amounts payable shall not exceed maximum amounts derived 
from the appropriate fee schedule (and classification factor, if 
applicable) unless approved in advance by the Procurement Executive or 
designee. In no event shall any fee exceed statutory limits imposed by 
41 U.S.C. 254(b).
    (d) Prior to the issuance of a competitive solicitation or the 
initiation of negotiations for an extension of an existing contract, 
the HCA shall coordinate the maximum available fee as allowed by 48 CFR 
part 970 and the fee amount targeted for negotiation, if less, with the 
procurement executive. Solicitations shall identify maximum available 
fee under the contract. Offerors are invited to propose fee less than 
the maximum available.
    (e) When a contract subject to this part requires a contractor to 
use its own facilities or equipment, or other resources to make its own 
cost investment for contract performance, (e.g., when there is no 
letter-of-credit financing) consideration may be given subject to 
approval by the Procurement Executive or designee, to increasing the 
fee amount above that otherwise provided by this part.
    (f) Multiple fee arrangements may be used in accordance with 48 CFR 
970.1509-3.


970.1509-2  Special considerations: nonprofit organizations.

    (a) A nonprofit organization is a business entity:
    (1) Which operates exclusively for charitable, scientific, or 
educational purposes;
    (2) Whose earnings do not benefit any private shareholder or 
individual;
    (3) Whose activities do not involve influencing legislation or 
political campaigning for any candidate for public office; and
    (4) Which is exempted from Federal income taxation under section 
501 of the Internal Revenue Code (title 26, United States Code).
    (b) For nonprofit organizations, the contracting officer:
    (1) Should consider whether any fee is appropriate. Considerations 
should include:

[[Page 17805]]

    (i) The nature and extent of financial or other liability or risk 
assumed or to be assumed under the contract;
    (ii) The proportion of retained earnings (as established under 
generally accepted accounting methods) that relates to DOE contracted 
effort;
    (iii) Facilities capital or capital equipment acquisition plans;
    (iv) Other funding needs, to include contingency funding, working 
capital funding, and provision for funding unreimbursed costs deemed 
ordinary and necessary; and
    (v) The utility of fee as a performance incentive.
    (2) In the event fee is considered appropriate, shall determine the 
amount of fee in accordance with this part.
    (i) Fee shall be limited to that amount necessary to reflect the 
need for fee based on the applicable considerations in 48 CFR 1509-
2(b)(1).
    (ii) If only a cost-plus-fixed-fee type contract is appropriate, 
the fee shall not exceed the lesser of: the cost risk associated with 
liabilities that the contractor assumes; or 75% of the fixed fee that 
would be calculated per 48 CFR 970.1509-4. If a cost-plus-award-fee 
type contract is appropriate, the total available fee shall not exceed 
75% of the fee calculated per 48 CFR 970.1509-8, with any base fee not 
exceeding the cost risk associated with liabilities that the contractor 
assumes and all remaining fee associated with performance.
    (iii) If the nonprofit organization is a federally funded research 
and development center operated by an educational institution, the 
contractor's use of fee may be restricted.


970.1509-3  Types of contracts.

    (a) Contract types suitable for management and operating contracts 
may include cost, cost-plus-fixed-fee, cost-plus-award-fee, and under a 
multiple fee arrangement, cost-plus-incentive-fee, fixed-price 
incentive, or firm-fixed-price. See FAR 16.1.
    (b) Consistent with the concept of a performance based management 
contract, those contract types which incentivize performance and cost 
control are preferred over a cost-plus-fixed-fee arrangement. 
Accordingly, a cost-plus-fixed-fee contract may only be used when 
approved in advance by the Procurement Executive or designee.
    (c) A cost-plus-award-fee contract is generally the appropriate 
contract type for a management and operating contract.
    (1) The attainment of acquisition objectives generally will be 
enhanced by using a cost-plus-award-fee contract to effectively 
motivate the contractor to exceptional performance and to provide the 
Department with flexibility to evaluate actual performance and the 
conditions under which it was achieved. Also, it may not be feasible to 
devise effective predetermined objective incentive targets applicable 
to cost, technical performance, or schedule for work activities under 
other types of contracts.
    (2) The construct of fee for a cost-plus-award-fee management and 
operating contract is that total available fee will equal a base fee 
amount and a performance fee amount. The base fee amount will typically 
equal zero unless otherwise approved by the Procurement Executive or 
designee. The performance fee amount will consist of an incentive fee 
component for objective performance requirements, an award fee 
component for subjective performance requirements, or both.
    (3) In a cost-plus-award-fee type contract any base fee amount is 
fixed at inception of the contract and the performance fee amount the 
contractor may earn, in whole or in part during performance, is 
established sufficient to motivate performance excellence. However, 
consistent with concepts of performance based contracting, it is 
Departmental policy to place all fee at risk based on performance. 
Accordingly, a base fee amount will be available only where approved in 
advance by the Procurement Executive or designee, except in the case of 
a nonprofit organization, where a base amount reflecting financial risk 
assumed under the contract may be used.
    (d) Consistent with performance based contracting concepts, 
performance objectives and criteria related to performance fee should 
be as clearly defined as possible, and where feasible expressed in 
terms of desired performance results or outcomes. Specific measures for 
determining performance achievement may be used.
    (e) Because the nature of the work performed under a management and 
operating contract may be complex and varied, opportunities may exist 
to utilize multiple contract types. The contracting officer should 
apply that contract type most appropriate to the work component, 
consistent with FAR 16.1. However, such multiple fee arrangements must 
conform to the requirements of FAR part 16, and where appropriate to 
the type, must be supported by negotiated costs subject to the 
requirements of the Truth in Negotiations Act, and require a pre-
negotiation memorandum and a plan describing how each contract type 
will be administered.
    (f) A clause providing for cost reduction incentives which result 
in quantifiable cost reductions for contractor proposed changes to a 
design, process, or method that has an established baseline, is 
defined, and is subject to a formal control procedure may be included 
in management and operating contracts. Proposed changes must be 
initiated by the contractor, must be innovative, applied to a specific 
project or program, and not otherwise be included in an incentive under 
the contract. Such cost reduction incentives do not constitute fee and 
are not subject to statutory or regulatory fee limitations, however, 
they shall be subject to all appropriate requirements set forth in this 
section.
    (g) Operations and field offices shall take the lead in developing 
and implementing the most appropriate pricing arrangement or cost 
reduction incentive for the requirements. Pricing arrangements which 
provide incentives for performance and cost control are preferred over 
those that do not. The operations and field offices are to ensure the 
necessary resources and infrastructure exist within both the 
contractor's and government's organizations to prepare, evaluate, and 
administer the pricing arrangement or cost reduction incentive prior to 
their implementation.


970.1509-4   General considerations and techniques for determining 
fixed fees.

    (a) The Department's fee policy recognizes that fee is remuneration 
to contractors for the entrepreneurial function of organizing and 
managing resources, the use of their resources (including capital 
resources), and their assumption of the risk that all incurred costs 
(operating and capital) may not be reimbursed.
    (b) Use of a purely cost-based structured approach for determining 
fee objectives and amounts for typical DOE management and operating 
contracts is inappropriate considering the limited level of contractor 
cost, capital goods, and operating capital outlays for performance of 
such contracts. Instead of being solely cost-based, the desirable 
approach calls for a structure that allows judgmental evaluation of 
eight significant factors, as outlined in this paragraph (b) in order 
of importance, and the assignment of appropriate fee values (subject to 
the limitations on fixed fee in 48 CFR 970.1509-5):
    (1) Management risk relating to performance, including:
    (i) The composite risk and complexity of principal work tasks 
required to do the job;
    (ii) The labor intensity of the job;

[[Page 17806]]

    (iii) The special control problems; and
    (iv) The advance planning, forecasting and other such requirements;
    (2) The presence or absence of financial risk, including the type 
and terms of the contract;
    (3) The relative difficulty of work, including specific performance 
objectives, environmental, safety and health concerns, and the 
technical and administrative knowledge, and skill necessary for work 
accomplishment and experience;
    (4) Degree and amount of contract work required to be performed by 
and with the contractor's own resources, as compared to the nature and 
degree of subcontracting and the relative complexity of subcontracted 
efforts, subcontractor management and integration;
    (5) Size and operation (number of locations, plants, differing 
operations, etc.);
    (6) Influence of alternative investment opportunities available to 
the contractor (i.e., the extent to which undertaking a task for the 
Government displaces a contractor's opportunity to make a profit with 
the same staff and equipment in some other field of activity);
    (7) Benefits which may accrue to the contractor from gaining 
experience and knowledge of how to do something, from establishing or 
enhancing a reputation, or from being enabled to hold or expand a staff 
whose loyalties are primarily to the contractor; and
    (8) Other special considerations, including support of Government 
programs such as those relating to small and minority business 
subcontracting, energy conservation, etc.
    (c) The total fee objective for a particular fixed fee negotiation 
is established by evaluating the factors in paragraph (b) of this 
section, assigning fee values to them, and totaling the resulting 
amounts (subject to limitations on total fixed fee in 48 CFR 970.1509-
5).


970.1509-5  Calculating fixed fee.

    (a) In recognition of the complexities of the fee determination 
process, and to assist in promoting a reasonable degree of consistency 
and uniformity in its application, the following fee schedules set 
forth the maximum amounts of fee that contracting activities are 
allowed to award for a particular fixed fee transaction.
    (b) Fee schedules representing the maximum allowable fixed fee 
available under management and operating contracts have been 
established for the following management and operating contract 
efforts:
    (1) Production;
    (2) Research and Development; and
    (3) Environmental Management.
    (c) The schedules are:

                                               Production Efforts                                               
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            7.66
1,000,000.......................................................          76,580            7.66            6.78
3,000,000.......................................................         212,236            7.07            6.07
5,000,000.......................................................         333,670            6.67            4.90
10,000,000......................................................         578,726            5.79            4.24
15,000,000......................................................         790,962            5.27            3.71
25,000,000......................................................       1,161,828            4.65            3.35
40,000,000......................................................       1,663,974            4.16            2.92
60,000,000......................................................       2,247,076            3.75            2.57
80,000,000......................................................       2,761,256            3.45            2.34
100,000,000.....................................................       3,229,488            3.23            1.45
150,000,000.....................................................       3,952,622            2.64            1.12
200,000,000.....................................................       4,510,562            2.26            0.61
300,000,000.....................................................       5,117,732            1.71            0.53
400,000,000.....................................................       5,647,228            1.41            0.45
500,000,000.....................................................       6,097,956            1.22  ..............
Over $500 Million...............................................       6,097,956  ..............            0.45
----------------------------------------------------------------------------------------------------------------


                                        Research and Development Efforts                                        
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            8.42
1,000,000.......................................................          84,238            8.42            7.00
3,000,000.......................................................         224,270            7.48            6.84
5,000,000.......................................................         361,020            7.22            6.21
10,000,000......................................................         671,716            6.72            5.71
15,000,000......................................................         957,250            6.38            4.85
25,000,000......................................................       1,441,892            5.77            4.22
40,000,000......................................................       2,075,318            5.19            3.69
60,000,000......................................................       2,813,768            4.69            3.27
80,000,000......................................................       3,467,980            4.33            2.69
100,000,000.....................................................       4,006,228            4.01            1.69
150,000,000.....................................................       4,850,796            3.23            1.14
200,000,000.....................................................       5,420,770            2.71            0.66
300,000,000.....................................................       6,083,734            2.03            0.58
400,000,000.....................................................       6,667,930            1.67            0.50
500,000,000.....................................................       7,172,264            1.43  ..............
Over $500 Million...............................................       7,172,264  ..............            0.50
----------------------------------------------------------------------------------------------------------------


[[Page 17807]]


                                        Environmental Management Efforts                                        
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increase   
                       Fee base (dollars)                         Fee  (dollars)  Fee  (percent)     (percent)  
----------------------------------------------------------------------------------------------------------------
Up to $1 Million................................................  ..............  ..............            7.33
1,000,000.......................................................          73,298            7.33            6.49
3,000,000.......................................................         203,120            6.77            5.95
5,000,000.......................................................         322,118            6.44            5.40
10,000,000......................................................         592,348            5.92            4.83
15,000,000......................................................         833,654            5.56            4.03
25,000,000......................................................       1,236,340            4.95            3.44
40,000,000......................................................       1,752,960            4.38            3.29
60,000,000......................................................       2,411,890            4.02            3.10
80,000,000......................................................       3,032,844            3.79            2.49
100,000,000.....................................................       3,530,679            3.53            1.90
150,000,000.....................................................       4,479,366            2.99            1.48
200,000,000.....................................................       5,219,924            2.61            1.12
300,000,000.....................................................       6,337,250            2.11            0.88
400,000,000.....................................................       7,219,046            1.80            0.75
500,000,000.....................................................       7,972,396            1.59            0.58
750,000,000.....................................................       9,423,463            1.26            0.55
1,000,000,000...................................................      10,786,788            1.08  ..............
Over $1.0 Billion...............................................      10,786,788  ..............            0.55
----------------------------------------------------------------------------------------------------------------

970.1509-6  Fee base.

    (a) The fee base is an estimate of necessary allowable costs, with 
some exclusions. It is used in the fee schedules to determine the 
maximum fee for a fixed fee contract. That portion of the fee base that 
represents the cost of the Production, Research and Development, or 
Environmental Management work to be performed, shall be exclusive of: 
the cost of source and special nuclear materials; estimated costs of 
land, buildings and facilities whether to be leased, purchased or 
constructed; depreciation of Government facilities; and any estimate of 
effort for which a separate fee is to be negotiated.
    (b) Such portion of the fee base, in addition to the adjustments in 
paragraph (a) of this section, shall exclude:
    (1) Any part of the following types of costs which are of such 
magnitude or nature as to distort the technical and management effort 
actually required of the contractor:
    (i) Estimated cost of capital equipment (other than special 
equipment) which the contractor procures by subcontract;
    (ii) Estimated cost or price of subcontracts and other major 
contractor procurements, however, up to 80 percent of such costs may be 
included if the contracting officer determines that there are unique 
circumstances involving extraordinary management effort required to 
manage subcontract activities; and
    (iii) Other similar costs.
    (2) Special equipment as defined in 48 CFR 970.1509-7;
    (3) Estimated cost of Government-furnished property, services and 
equipment;
    (4) All estimates of costs not directly incurred by or reimbursed 
to the operating contractor;
    (5) Estimates of home office or corporate general and 
administrative expenses that shall be reimbursed through the contract;
    (6) Estimates of any independent research and development cost or 
bid and proposal expenses that may be approved under the contract;
    (7) Any cost of work funded with uncosted balances previously 
included in a fee base of this or any other contract; and
    (8) Cost of rework attributable to the contractor.
    (c) In calculating the fee amounts associated with the Production, 
Research and Development, or Environmental Management work to be 
performed, the fee base is to be allocated to the category reflecting 
the work to be performed and the appropriate fee schedule utilized.
    (d) The portion of the fee base associated with the Production, 
Research and Development, or Environmental Management work to be 
performed and the associated schedules in this part are not intended to 
reflect the portion of the fee base or related compensation for unusual 
architect-engineer, construction services, or special equipment 
provided by the management and operating contractor. Architect-engineer 
and construction services are normally covered by special agreements 
based on the policies applying to architect-engineer or construction 
contracts. Fees paid for such services shall be calculated using the 
provisions of 48 CFR 915.9 relating to architect-engineer or 
construction fees. Fees paid for such purchases shall be in addition to 
the operating fees calculated for the Production, Research and 
Development, or Environmental Management work to be performed. Special 
equipment purchases shall be addressed in accordance with the 
provisions of 48 CFR 970.1509-7 relating to Special equipment.


970.1509-7  Special equipment purchases.

    (a) Special equipment is sometimes procured in conjunction with 
management and operating contracts. When a contractor procures special 
equipment, the DOE negotiating official shall determine separate fees 
for the equipment and use the schedule in 48 CFR 915.971-5(h).
    (b) In determining appropriate fees, factors such as complexity of 
equipment, ratio of procurement transactions to volume of equipment to 
be purchased and completeness of services should be considered. Where 
possible, the reasonableness of the fees should be checked by their 
relationship to actual costs of comparable procurement services.
    (c) The maximum allowable fee for such services shall not exceed 
the fee schedule set forth in 48 CFR 915.971-5(h) for such services as 
performed by construction contractors. The fee is based on the 
estimated price of the equipment being purchased.
    (d) For purposes of this part, special equipment is equipment for 
which the purchase price is of such a magnitude compared to the cost of 
installation as to distort the amount of technical direction and 
management effort required of the contractor. Special

[[Page 17808]]

equipment is of a nature that requires less management attention. When 
a contractor procures special equipment, the DOE negotiating official 
shall determine separate fees for the equipment using the schedule in 
48 CFR 915.971-5(h). The determination of specific items of equipment 
in this category requires application of judgment and careful study of 
the circumstances involved in each project. This category of equipment 
would generally include:
    (1) Major items of prefabricated process or research equipment; and
    (2) Major items of preassembled equipment such as packaged boilers, 
generators, machine tools, and large electrical equipment. In some 
cases, it would also include special apparatus or devices such as 
reactor vessels and reactor charging machines.


970.1509-8  Special considerations: cost-plus-award-fee.

    (a) When a management and operating contract is to be awarded on a 
cost-plus-award-fee basis, several special considerations are 
appropriate.
    (b) All performance incentives identified under these contracts are 
funded from total available fee, which consists of a base fee amount 
(which may be zero) and a performance fee amount (which may consist of 
an incentive fee component for objective performance requirements, an 
award fee component for subjective performance requirements, or both).
    (c) The total available fee for the contract shall equal the 
product of the fee(s) that would have been calculated for a fixed fee 
contract and the classification factor(s) most appropriate for the 
work. (The fixed fee(s) for nonprofit organizations is calculated per 
48 CFR 970.1509-2. The fixed fee(s) for profit making organizations is 
calculated per 48 CFR 970.1509-4) If more than one fee schedule is 
applicable to the contract, the total available fee shall be the sum of 
the available fees derived from: each fee schedule; consideration of 
significant factors applicable to each fee schedule; and application of 
a Classification Factor(s) most appropriate for the work.
    (d) Classification factors applied to each Facility/Task Category 
are:

------------------------------------------------------------------------
                                                         Classification 
                Facility/task category                       factor     
------------------------------------------------------------------------
A....................................................               3.00
B....................................................               2.50
C....................................................               2.00
D....................................................               1.25
------------------------------------------------------------------------

    (e) The contracting officer shall select the Facility/Task Category 
after considering the following:
    (1) Facility/Task Category A. The main focus of effort performed is 
related to:
    (i) The manufacture, assembly, retrieval, disassembly, or disposal 
of nuclear weapons with explosive potential;
    (ii) The physical cleanup, processing, or storage of nuclear 
radioactive or toxic chemicals if the nature of the work is 
significantly advancing state of the art technologies in cleanup, 
processing or storage operations and/or the inherent difficulty or risk 
of the work is significantly more demanding than that found in similar 
industrial/DOE settings (i.e., nuclear energy, chemical processing, 
industrial environmental cleanup); or
    (iii) Research and development directly supporting paragraphs 
(e)(1)(i) or (ii) of this section and not conducted in a laboratory, or 
as designated by the Procurement Executive. (Classification factor 3.0)
    (2) Facility/Task Category B. The main focus of effort performed is 
related to:
    (i) The safeguarding and maintenance of nuclear weapons or nuclear 
material;
    (ii) The manufacture or assembly of nuclear components;
    (iii) The physical cleanup, processing, handling, or storage of 
nuclear radioactive or toxic chemicals, or other substances which pose 
a significant threat to the environment or the health and safety of 
workers or the public, if the nature of the work is using state of the 
art technologies or applications in such operations and/or the inherent 
difficulty or risk of the work is more demanding than that found in 
similar industrial/DOE settings (i.e., nuclear energy, chemical or 
petroleum processing, industrial environmental cleanup);
    (iv) The detailed planning necessary for the assembly/disassembly 
of nuclear weapons/components; or
    (v) Research and development directly supporting paragraphs 
(e)(2)(i), (ii), (iii), or (iv) of this section and not conducted in a 
laboratory, or as designated by the Procurement Executive. 
(Classification factor 2.5)
    (3) Facility/Task Category C. The main focus of effort performed is 
related to:
    (i) The physical cleanup, processing, or storage of nuclear 
radioactive or toxic chemicals if the nature of the work is using 
routine technologies in cleanup, processing or storage operations and/
or the inherent difficulty or risk of the work is similar to that found 
in similar industrial/DOE settings (i.e., nuclear energy, chemical 
processing, industrial environmental cleanup);
    (ii) Plant and facility maintenance;
    (iii) Plant and facility security (other than the safeguarding of 
nuclear weapons and material); or
    (iv) Research and development directly supporting paragraphs 
(e)(3)(i), (ii) or (iii) of this section and not conducted in a 
laboratory, or as designated by the Procurement Executive. 
(Classification factor 2.0)
    (4) Facility/Task Category D. The main focus of the effort 
performed is research and development conducted at a laboratory. 
(Classification factor 1.25)
    (f) Where the Procurement Executive or designee has approved a base 
fee, the Classification Factors shall be reduced, as approved by the 
Procurement Executive or designee.
    (g) Any risks which are indemnified by the Government (for example, 
by the Price-Anderson Act) will not be considered as risk to the 
contractor.
    (h) All management and operating contracts awarded on a cost-plus-
award-fee basis shall set forth in the contract, or the Performance 
Evaluation and Measurement Plan(s) required by the contract clause at 
48 CFR 970.5204-54, a site specific method of rating the contractor's 
performance of the contract requirements in relation to the required/
desired performance of the contract requirements, and a method of fee 
determination tied to the method of rating.
    (i) Prior approval of the Procurement Executive or designee, is 
required for total available fee amount exceeding the guidelines in 
paragraph (c) of this section.
    (j) Fee Determination Officials must ensure that all important 
areas of contract performance are specified in the contract or 
Performance Evaluation and Measurement Plan(s), even if such areas are 
not assigned specific weights or percentages of available fee.


970.1509-9  Special considerations: fee limitations.

    In situations where the objective performance incentives are of 
unusual difficulty or where the successful completion of the 
performance incentives would provide extraordinary value to the 
Government, fees in excess of those allowed under other provisions of 
this fee policy may be allowed with the approval of the Procurement 
Executive or designee. Requests to allow fees in excess of those 
allowed under other provisions of the fee policy in this section must 
be accompanied by a written justification with detailed supporting 
rationale as to how the

[[Page 17809]]

specific circumstances satisfy the two criteria listed in this 
subsection.


970.1509-10  Documentation.

    The contracting officer shall tailor the documentation of the 
determination of fee prenegotiation objective based on FAR 15.406-1, 
Prenegotiation objectives, and the determination of the negotiated fee 
in accordance with FAR 15.406-3, Documenting the negotiation. The 
contracting officer shall include as part of the documentation: the 
rationale for the allocation of cost and the assignment of facility/
task categories; a discussion of the calculations described in 48 CFR 
970.1509-4; and discussion of any other relevant provision of this 
section.


970.1509-11  Solicitation provision and contract clauses.

    (a) The contracting officer shall insert the clause at 48 CFR 
970.5204-54, Total Available Fee: Base Fee Amount and Performance Fee 
Amount, in management and operating contracts, and other contracts 
designated by the Procurement Executive or designee, that include cost-
plus-award-fee structures.
    (b) Due to the various types of fee and incentive arrangements 
which may be included in a contract and the need to ensure the overall 
balanced performance of the contract, the contracting officer shall 
insert the clause at 48 CFR 970.5204-XX, Conditional Payment of Fee or 
Incentives, in management and operating contracts, and other contracts 
designated by the Procurement Executive or designee, awarded on a cost-
plus-award-fee, multiple fee, or incentive basis.
    (c) The contracting officer shall insert the clause at 48 CFR 
970.5204-YY, Cost Reduction, in management and operating contracts, and 
other contracts designated by the Procurement Executive or designee, if 
cost savings programs are contemplated.
    (d) The Contracting Officer shall insert the provision at 48 CFR 
970.5204-ZZ, Limitation on Fee, in solicitations for management and 
operating contracts, and other contracts designated by the Procurement 
Executive or designee.
    6. Section 970.5204-54 is revised to read as follows:


970.5204-54  Total available fee: base fee amount and performance fee 
amount.

    As prescribed in 48 CFR 970.1509-11(a), insert the following 
clause. The clause should be tailored to reflect the contract's actual 
inclusion of base fee amount and performance fee amount.

Total Available Fee: Base Fee Amount and Performance Fee Amount (Month 
and Year TBE)

    (a) Total available fee. Total available fee, consisting of a 
base fee amount (if any) and a performance fee amount (consisting of 
an incentive fee component for objective performance requirements, 
an award fee component for subjective performance requirements, or 
both) determined in accordance with the provisions of this clause, 
is available for payment in accordance with the clause of this 
contract entitled ``Payments and advances.''
    (b) Fee Negotiations. Prior to the beginning of each fiscal year 
under this contract, or other appropriate period as mutually agreed 
upon, the Contracting Officer and Contractor shall enter into 
negotiation of the evaluation areas and individual requirements 
subject to incentives, the amount of fee, and the allocation of fee. 
The Contracting Officer shall modify this contract at the conclusion 
of each negotiation to reflect the negotiated evaluation areas and 
individual requirements subject to incentives, the amount of fee, 
and the allocation of fee. In the event the parties fail to agree on 
the amount of fee, the Contracting Officer may make a unilateral 
decision, subject to appeal under the clause of the contract 
entitled Disputes. In the event the parties fail to agree on the 
evaluation areas and individual requirements subject to incentives 
or on the allocation of fee, a unilateral determination will be made 
by the Contracting Officer. It is herein agreed the total available 
fee amount shall be allocated to a twelve month cycle composed of 
one or more evaluation periods, or such longer period as may be 
approved by the Procurement Executive or designee.
    (c) Determination of Total Available Fee Amount Earned.
    (1) The Government shall, at the conclusion of each specified 
evaluation period, evaluate the contractor's performance of all 
requirements, including performance based incentives completed 
during the period and determine the total available fee amount 
earned. At the Contracting Officer's discretion, evaluation of 
incentivized performance may occur at the scheduled completion of 
the incentivized requirement.
    (2) The Government Fee Determination Official (FDO) will be 
(insert title of FDO). The contractor agrees that the determination 
as to the total available fee earned is a unilateral determination 
made by the Government FDO.
    (3) The evaluation of contractor performance shall be in 
accordance with the Performance Evaluation and Measurement Plan(s) 
described in subparagraph (d), below, unless otherwise set forth in 
the contract. The Contractor shall be promptly advised in writing of 
the fee determination, and the reasons why the total available fee 
amount was or was not earned. In the event that the contractor's 
performance is considered to be less than the level of performance 
set forth in the Statement of Work, as amended to include the 
current Work Authorization Directive or similar document, for any 
contract requirement, the FDO may at his/her discretion adjust the 
fee determination to reflect such performance. Any such adjustment 
shall be in accordance with the clause entitled ``Conditional 
Payment of Fee or Incentives'' if contained in the contract.
    (d) Performance Evaluation and Measurement Plan(s). To the 
extent not set forth elsewhere in the contract:
    (1) The Government shall establish a Performance Evaluation and 
Measurement Plan(s) upon which the determination of the total 
available fee amount earned shall be based. The Performance 
Evaluation and Measurement Plan(s) will contain all important areas 
of contract performance specified in the contract, even if such 
areas are not assigned specific weights or percentages of available 
fee; and evaluation areas and individual requirements that are 
subject to incentives and the amount and allocation of fee to such 
areas and requirements. A copy of the Plan(s) shall be provided to 
the Contractor:
    (i) prior to the start of an evaluation period if the evaluation 
areas, individual requirements, amount of fee, and allocation of fee 
to such evaluation areas and individual requirements have been 
mutually agreed to by the parties; or
    (ii) not later than thirty days prior to the scheduled start 
date of the evaluation period, if the evaluation areas, individual 
requirements, amount of fee, and allocation of fee to such 
evaluation areas and requirements have been unilaterally established 
by the Contracting Officer.
    (2) The Performance Evaluation and Measurement Plan(s) will set 
forth the criteria upon which the Contractor will be evaluated 
relating to any technical, schedule, management, and/or cost 
objectives selected for evaluation. Such criteria may be objective, 
subjective, or both. The Plan(s) shall also set forth the method by 
which the total available fee amount will be allocated and the 
amount earned determined.
    (3) The Performance Evaluation and Measurement Plan(s) may, 
consistent with the contract statement of work, be revised during 
the period of performance. The Contracting Officer shall notify the 
contractor:
    (i) of such unilateral changes at least ninety calendar days 
prior to the end of the affected evaluation period and at least 
thirty calendar days prior to the effective date of the change;
    (ii) of such bilateral changes at least sixty calendar days 
prior to the end of the affected evaluation period; or
    (iii) if such change, whether unilateral or bilateral, is urgent 
and high priority, at least thirty calendar days prior to the end of 
the evaluation period.
    (e) Schedule for total available fee amount earned 
determinations. The FDO shall issue the final total available fee 
amount earned determination in accordance with the schedule set 
forth in the Performance Evaluation and Measurement Plan(s). 
However, a determination must be made within sixty calendar days 
after the receipt by the Contracting Officer of the Contractor's 
self-assessment, if one is required or permitted per paragraph (f) 
of this clause, or seventy calendar days after the end of the 
evaluation period, whichever is later. If the Contracting Officer 
evaluates the Contractor's performance of specific requirements on 
their

[[Page 17810]]

completion, the payment of any earned fee amount must be made within 
seventy calendar days (or such other time period as mutually agreed 
to between the Contracting Officer and the Contractor) after such 
completion. If the determination is delayed beyond that date, the 
Contractor shall be entitled to interest on the determined total 
available fee amount earned at the rate established by the Secretary 
of the Treasury under section 12 of the Contract Disputes Act of 
1978 (41 U.S.C. 611) that is in effect on the payment date. This 
rate is referred to as the ``Renegotiation Board Interest Rate,'' 
and is published in the Federal Register semiannually on or about 
January 1 and July 1. The interest on any late total available fee 
amount earned determination will accrue daily and be compounded in 
30-day increments inclusive from the first day after the schedule 
determination date through the actual date the determination is 
issued. That is, interest accrued at the end of any 30-day period 
will be added to the determined amount of fee earned and be subject 
to interest if not paid in the succeeding 30-day period.
    Alternate I: When the award fee cycle consists of two or more 
evaluation periods, add the following as paragraph (c)(4): At the 
sole discretion of the Government, unearned total available fee 
amounts may be carried over from one evaluation period to the next, 
so long as the periods are within the same award fee cycle.
    Alternate II: When the award fee cycle consists of one 
evaluation period, add the following as paragraph (c)(4): Award fee 
not earned during the evaluation period shall not be allocated to 
future evaluation periods.
    Alternate III: When the FDO requires the contractor to submit a 
self-assessment, add the following text as paragraph (f): Contractor 
self-assessment. Following each evaluation period, the Contractor 
shall submit a self-assessment within (Insert Number) calendar days 
after the end of the period. This self-assessment shall address both 
the strengths and weaknesses of the Contractor's performance during 
the evaluation period. Where deficiencies in performance are noted, 
the Contractor shall describe the actions planned or taken to 
correct such deficiencies and avoid their recurrence. The FDO will 
review the Contractor's self-assessment, if submitted, as part of 
the evaluation of the contractor's management during the period. The 
self-assessment, if any, itself will not be the basis for the award 
fee determination.
    Alternate IV: When the FDO permits the contractor to submit a 
self-assessment at the contractor's option, add the following text 
as paragraph (f): Contractor self-assessment. Following each 
evaluation period, the Contractor may submit a self-assessment, 
provided such assessment is submitted within (Insert Number) 
calendar days after the end of the period. This self-assessment 
shall address both the strengths and weaknesses of the Contractor's 
performance during the evaluation period. Where deficiencies in 
performance are noted, the Contractor shall describe the actions 
planned or taken to correct such deficiencies and avoid their 
recurrence. The FDO will review the Contractor's self-assessment, if 
submitted, as part of the evaluation of the Contractor's management 
during the period. The self-assessment, if any, itself will not be 
the basis for the award fee determination.

    7. Section 970.5204-XX, Conditional Payment of Fee or Incentives; 
970.5204-YY, Cost Reduction; and 970.5204-ZZ, Limitation on Fee, are 
added to read as follows:


970.5204-XX   Conditional payment of fee or incentives.

    As prescribed in 48 CFR 970.1509-11(b), insert the following 
clause:

Conditional Payment of Fee or Incentives (Month and Year TBE)

    In order for the Contractor to receive all otherwise earned fee, 
profit, or share of cost savings under the contract in an evaluation 
period, the Contractor must meet the minimum requirements in 
paragraphs (a) through (d) of this clause. If the Contractor does 
not meet the minimum requirements, the DOE Operations Office Manager 
or his/her designee may make a unilateral determination to reduce 
the evaluation period's otherwise earned fee, profit or share of 
cost savings as described in paragraphs (a) through (d) of this 
clause. This clause does not apply to any Base Fee included in the 
contract.
    (a) Minimum requirements for Environment, Safety & Health (ES&H) 
Program. The Contractor shall develop, obtain DOE approval of, and 
implement a Safety Management System in accordance with the 
provisions of the clause entitled, ``Integration of Environment, 
Safety and Health into Work Planning and Execution,'' if included in 
the contract, or as otherwise agreed to with the Contracting 
Officer. The minimal performance requirements of the system will be 
set forth in the approved Safety Management System, or similar 
document. If the Contractor fails to obtain approval of the Safety 
Management System or fails to achieve the minimum performance 
requirements of the system during the evaluation period, the DOE 
Operations Office Manager or his/her designee, at his/her sole 
discretion, may reduce, any otherwise earned fees, profit or share 
of cost savings, for the evaluation period by an amount up to the 
amount earned.
    (b) Minimum requirements for catastrophic event. If, in the 
performance of this contract, there is a catastrophic event (such as 
a fatality, or a serious workplace related injury or illness to one 
or more employees, loss of control over classified or special 
nuclear material, or significant damage to the environment), the DOE 
Operations Office Manager or his/her designee, may reduce any 
otherwise earned fee for the evaluation period by an amount up to 
the fees earned. In determining any diminution of fee resulting from 
a catastrophic event, the DOE Operations Office Manager or his/her 
designee will consider whether willful misconduct and/or negligence 
contributed to the occurrence and will take into consideration any 
mitigating circumstances presented by the contractor or other 
sources. This clause is in addition to any other remedies available 
to the Government that may be contained in this contract.
    (c) Minimum requirements for specified level of performance.
    (1) At a minimum the Contractor must perform the following:
    (i) the requirements with specific incentives at the level of 
performance set forth in the Statement of Work, Work Authorization 
Directive, or similar document;
    (ii) all of the performance requirements directly related to the 
incentive requirements at a level of performance such that the 
overall performance of these requirements is at an acceptable level; 
and
    (iii) all other requirements at a level of performance such that 
the total performance of the contract is not jeopardized.
    (2) The evaluation of the Contractor's achievement of the level 
of performance shall be unilaterally determined by the Contracting 
Officer. To the extent that the Contractor fails to achieve the 
minimum performance levels specified in the Statement of Work, Work 
Authorization Directive, or similar document, during the evaluation 
period, the DOE Operations Office Manager or his/her designee, may 
reduce any otherwise earned fee, profit, or shared net savings for 
the evaluation period, by an amount up to the amount earned.
    (d) Minimum requirements for cost performance.
    (1) Requirements incentivized by other than cost incentives must 
be performed within their specified cost and must not adversely 
impact the costs of performing unrelated activities.
    (2) The performance of requirements with a specific cost 
incentive must not adversely impact the costs of performing 
unrelated requirements.
    (3) The Contractor's performance within the stipulated cost 
performance levels for the evaluation period shall be determined by 
the Contracting Officer. To the extent the Contractor fails to 
achieve the stipulated cost performance levels, the DOE Operations 
Office Manager or his/her designee, at his/her sole discretion, may 
reduce in whole or in part any otherwise earned fee, profit, or 
shared net savings for the evaluation period by an amount up to the 
amount earned.


970.5204-YY  Cost Reduction.

    As prescribed in 48 CFR 970.1509-11(c), insert the following 
clause:

Cost Reduction (Month and Year TBE)

    (a) General. It is the Department of Energy's (DOE's) intent to 
have its facilities and laboratories operated in an efficient and 
effective manner. To this end the Contractor shall assess its 
operations and identify areas where cost reductions would bring cost 
efficiency to operations without adversely affecting the level of 
performance required by the contract. The Contractor, to the maximum 
extent practical, shall identify areas where cost reductions may be 
effected and develop and submit Cost Reduction Proposals (CRPs) to 
the Contracting Officer. If accepted, the Contractor may share in 
any shared net savings from accepted CRPs in accordance with 
paragraph (g).

[[Page 17811]]

    (b) Definitions.
    Administrative cost is the contractor cost of developing and 
administering the CRP.
    DOE cost is the Government cost incurred in implementing and 
validating the CRP.
    Design, process, or method change is a change to a design, 
process, or method which has an established baseline, is defined, 
and is subject to a formal control procedure. Such a change must be 
innovative, initiated by the contractor, and applied to a specific 
project or program.
    Development cost is the contractor cost of up front planning, 
engineering, prototyping, and testing of a design, process, or 
method.
    Implementation cost is the contractor cost of tooling, 
facilities, documentation, etc., required to effect a design, 
process, or method change once it has been tested and approved.
    Net Savings means a reduction in the total amount (to include 
all related costs and fee) of performing the effort where the 
savings revert to the DOE control and may be available for 
deobligation. Such savings may result from a specific cost reduction 
effort which is negotiated on a cost-plus-incentive-fee, fixed-price 
incentive, or firm-fixed-price basis, or may result directly from a 
design, process, or method change. They may also be savings 
resulting from formal or informal direction given by DOE or from 
changes in the mission, work scope, or routine reorganization of the 
Contractor due to changes in the budget.
    Shared Net Savings are those net savings which result from:
    (1) a specific cost reduction effort which is negotiated on a 
cost-plus-incentive-fee or fixed-price incentive basis and are the 
difference between the negotiated target cost of performing an 
effort as negotiated and the actual allowable cost of performing 
that effort or
    (2) which result directly from a design, process, or method 
change, occur in the fiscal year in which the change is accepted and 
the subsequent fiscal year and are the difference between the 
estimated cost of performing an effort as originally planned and the 
actual allowable cost of performing that same effort utilizing a 
revised plan intended to reduce costs along with any Contractor 
development costs, implementation costs, administrative costs, and 
DOE costs associated with the revised plan. Administrative costs and 
DOE costs are only included at the discretion of the Contracting 
Officer. Savings resulting from formal or informal direction given 
by the DOE or changes in the mission, work scope, or routine 
reorganization of the Contractor due to changes in the budget are 
not to be considered as shared net savings for purposes of this 
clause and do not qualify for incentive sharing.
    (c) Procedure for submission of CRPs.
    (1) CRPs for the establishment of cost-plus-incentive-fee, 
fixed-price incentive, or firm-fixed-price efforts or for design, 
process, or methods changes submitted by the Contractor shall 
contain, at a minimum, the following:
    (i) Current Method (Baseline)--A verifiable description of the 
current scope of work, cost, and schedule to be impacted by the 
initiative; and supporting documentation.
    (ii) New Method (Baseline)--A verifiable description of the new 
scope of work, cost, and schedule, how the initiative will be 
accomplished; and supporting documentation.
    (iii) Feasibility Assessment--A description and evaluation of 
the proposed initiative and benefits, risks, and impacts of 
implementation. This evaluation shall include an assessment of the 
difference between the current method (baseline) and proposed new 
method including all related costs.
    (2) In addition, CRPs for the establishment of cost-plus-
incentive-fee, fixed-price incentive, or firm-fixed-price efforts 
shall contain, at a minimum, the following:
    (i) the proposed contractual arrangement and the justification 
for its use; and
    (ii) a detailed cost/price estimate and supporting rationale. If 
the approach is proposed on an incentive basis, minimum and maximum 
cost estimates should be included along with any proposed sharing 
arrangements.
    (d) Evaluation and Decision. All CRPs must be submitted to and 
approved by the Contracting Officer. Included in the information 
provided by the CRP must be the following regarding the extent the 
proposed cost reduction effort may:
    (1) pose a risk to the health and safety of workers, the 
community, or to the environment;
    (2) result in a waiver or deviation from DOE requirements, such 
as DOE Orders and joint oversight agreements;
    (3) require a change in other contractual agreements;
    (4) result in significant organizational and personnel impacts;
    (5) create a negative impact on the cost, schedule, or scope of 
work in another area;
    (6) pose a potential negative impact on the credibility of the 
Contractor or the DOE; and
    (7) impact successful and timely completion of any of the work 
in the baseline.
    (e) Acceptance or Rejection of CRPs. Acceptance or rejection of 
a CRP is a unilateral determination made by the Contracting Officer. 
The Contracting Officer will notify the Contractor that a CRP has 
been accepted, rejected, or deferred within (Insert Number) days of 
receipt. The only CRPs that will be considered for acceptance are 
those which the Contractor can demonstrate, at a minimum, will:
    (1) result in net savings (in the sharing period if a design, 
process, or method change);
    (2) not reappear as costs in subsequent periods; and
    (3) not result in any impairment of essential functions. The 
failure of the Contracting Officer to notify the Contractor of the 
acceptance, rejection, or deferral of a CRP within the specified 
time shall not be construed as approval.
    (f) Adjustment to Original Estimated Cost and Fee. If a CRP is 
established on a cost-plus-incentive-fee, fixed-price incentive or 
firm-fixed-price basis, the originally estimated cost and fee for 
the total effort from which the CRP effort was removed shall be 
adjusted to remove the estimated cost and fee amount associated with 
the CRP effort.
    (g) Sharing Arrangement. If a CRP is accepted, the Contractor 
may share in the shared net savings. For a CRP negotiated on a cost-
plus-incentive-fee or fixed-price incentive basis, with the specific 
incentive arrangement (negotiated target costs, target fees, share 
lines, ceilings, profit, etc.) set forth in the contractual document 
authorizing the effort, the Contractor's share shall be the actual 
fee or profit resulting from such an arrangement. For a CRP 
negotiated as a cost savings incentive resulting from a design, 
process, or method change, the Contractor's share shall be a 
percentage no greater than 25 percent of the shared net savings. The 
specific percentage and sharing period shall be set forth in the 
contractual document.
    (h) Validation of Shared Net Savings. The Contracting Officer 
shall validate actual shared net savings. If actual shared net 
savings can not be validated, the contractor will not be entitled to 
a share of the net shared savings.
    (i) Relationship to Other Incentives. Only those benefits of an 
accepted CRP not rewardable under other clauses of this contract 
shall be rewarded under this clause.
    (j) Subcontracts. The Contractor may include a clause similar to 
this clause in any subcontract. In calculating any estimated shared 
net savings in a CRP under this contract, the Contractor's 
administration, development, and implementation costs shall include 
any Subcontractor's allowable costs, and any CRP incentive payments 
to a Subcontractor resulting from the acceptance of such CRP. The 
Contractor may choose any arrangement for Subcontractor CRP 
incentive payments, provided that the payments not reduce the DOE's 
share of shared net savings.


970.5204-ZZ  Limitation on Fee.

    As prescribed in 48 CFR 970.1509-11(d), insert the following 
provision:

Limitation of Fee (Month and Year TBE)

    For the purpose of this solicitation fee amounts shall not 
exceed the total available fee allowed by the fee policy. The 
Government reserves the unilateral right, in the event an offeror's 
proposal is selected for award, to limit: fixed fee to not exceed an 
amount established pursuant to 48 CFR 970.1509-4; and total 
available fee to not exceed an amount established pursuant to 48 CFR 
970.1509-8.

[FR Doc. 98-9501 Filed 4-9-98; 8:45 am]
BILLING CODE 6450-01-P