[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Proposed Rules]
[Pages 60268-60270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29941]


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DEPARTMENT OF ENERGY

48 CFR Parts 909 and 970

RIN: 1991-AB44


Acquisition Regulations; Performance Guarantees

AGENCY: Department of Energy.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Department of Energy (DOE) is proposing to amend its 
acquisition regulations to formally require a performance guarantee 
under circumstances where a prospective awardee has been created solely 
for the performance of the instant contract and lacks sufficient 
financial or other resources to fulfill its obligations under the 
prospective contract. In circumstances where the newly created entity 
likely will be dependent upon the resources of the parent organization, 
this proposal would allow Contracting Officers to consider the 
resources of the parent in a determination of the newly created 
entity's responsibility only when the parent provides a performance 
guarantee or other undertaking satisfactory to the Contracting Officer. 
While this situation occurs most often in the award of contracts for 
the management and operation of DOE facilities, this proposal would 
make a form of performance guarantee necessary whenever these 
circumstances are encountered.

DATES: Written comments on the proposed rulemaking must be received on 
or before close of business December 9, 1998.

ADDRESSES: Comments (3 copies) should be addressed to: Robert M. Webb 
at the address indicated below.

FOR FURTHER INFORMATION CONTACT: Robert M. Webb, U.S. Department of 
Energy, Office of Procurement and Assistance Management, 1000 
Independence Avenue, SW., Washington, D.C. 20585, (202) 586-8264.

SUPPLEMENTARY INFORMATION:

I. Background.
II. Section by Section Analysis.
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 the National Environmental Policy Act.
    F. Review Under Executive Order 12612.
    G. Review Under Small Business Regulatory Enforcement Fairness 
Act of 1996.
    H. Review Under the Unfunded Mandates Reform Act of 1995.

I. Background

    The Department of Energy in certain cases requires that the 
contractor be a corporate entity organized specifically for the 
performance of the contract at a specific DOE site. This requirement 
occurs regularly in the award of management and operating contracts and 
is intended (1) to assure the dedication of the contractor to the 
performance of the contract; (2) to limit involvement of the Department 
with the corporate parent; (3) to isolate the contractor from the 
parent for purposes of security and classification matters; (4) to 
limit the flow of information between the contractor and its parent, 
limiting a potential source of organizational conflict of interest; (5) 
to isolate the accounting system of the contractor, since often the 
budget and accounting systems of such contractors are integrated into 
DOE's budget and accounting systems; and (6) to limit the necessity of 
corporate support thereby reducing or negating a basis for charging 
general and administrative expense to the contract.
    Such dedicated contractors, however, generally have limited assets. 
In most cases, without consideration of the corporate assets of the 
parent entity(ies), the DOE Contracting Officer would not be able to 
make a determination that the contractor was financially responsible 
and had sufficient resources available to assure successful performance 
of the contract.
    It has been a common practice of the Department in such instances 
for the parent entity(ies) to provide some form

[[Page 60269]]

of guarantee of performance. While there are other means for the parent 
to guarantee the subsidiary's fulfillment of all its contractual 
obligations, such as an unconditional letter of credit, the most 
appropriate means under these circumstances is a contractually binding 
performance guarantee. Recently, the Department issued Acquisition 
Letter 98-05R to assure a uniform process for dealing with this 
circumstance. This rulemaking proposes to incorporate the requirement 
for a performance guarantee into the Department of Energy Acquisition 
Regulation.

II. Section-by-Section Analysis

    This rulemaking proposes to add a subsection 909.104-3(e) to the 
DEAR to supplement the coverage in the Federal Acquisition Regulation 
at 48 CFR 9.104-3. The proposed subsection would require some binding 
form of performance guarantee in contracts other than management and 
operating contracts where the contractor has been formed specifically 
for performance of the contract and lacks sufficient resources to carry 
out performance of the prospective contract.
    It further proposes to add a section 970.0902 to treat this matter 
in the context of the award of DOE management and operating contracts. 
Since this situation will occur predominately in the award of 
management and operating contracts, the proposed 970 coverage includes 
a solicitation provision for use when DOE's solicitation requires a 
dedicated performing entity.

III. Procedural Requirements

A. Review Under Executive Order 12866

    Today's 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 proposed rule was not subject to review under that 
Executive Order by the Office of Information and Regulatory Affairs of 
the Office of Management and Budget (OMB).

B. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by section 3(a), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. DOE has completed the 
required review and determined that, to the extent permitted by law, 
these proposed regulations meet the relevant standards of Executive 
Order 12988.
C. Review Under the Regulatory Flexibility Act
    This proposed rule has been reviewed under the Regulatory 
Flexibility Act of 1980, Public Law 96-354, that requires preparation 
of an initial regulatory flexibility analysis for any rule that must be 
proposed for public comment and that is likely to have significant 
economic impact on a substantial number of small entities. The 
contracts to which this rulemaking would apply involve awards to newly 
formed subsidiaries organized by a parent corporations to perform 
specific DOE contracts. In such instances, the parent would be required 
to guarantee the performance of the subsidiary. There would not be an 
adverse economic impact on contractors or subcontractors. Accordingly, 
DOE certifies that this proposed rule would 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 additional information or record keeping requirements are 
imposed by this rulemaking. Accordingly, no OMB clearance is required 
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.).

E. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this proposed rule falls 
into a class of actions which would not individually or cumulatively 
have significant impact on the human environment, as determined by 
DOE's regulations (10 CFR part 1021, subpart D) implementing the 
National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et 
seq.). Specifically, this proposed rule is categorically excluded from 
NEPA review because the amendments to the DEAR would be strictly 
procedural (categorical exclusion A6). Therefore, this proposed rule 
does not require an environmental impact statement or environmental 
assessment pursuant to NEPA.

F. Review Under Executive Order 12612

    Executive Order 12612, (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 the various levels of 
Government. If there are sufficient substantial direct effects, then 
the Executive Order requires the preparation of a federalism assessment 
to be used in all decisions involved in promulgating and implementing a 
policy action. This proposed rule merely reflects current practice 
relating to determinations of responsibility. States which contract 
with DOE will be subject to this rule. However, DOE has determined that 
this proposed rule would not have a substantial direct effect on the 
institutional interests or traditional functions of the States.

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

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

H. Review Under the Unfunded Mandates Reform Act of 1995

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

[[Page 60270]]

private sector entities, and the impact is less than $100 million.

List of Subjects in 48 CFR Parts 909 and 970

    Government procurement.

    Issued in Washington, D.C. on November 2, 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 909--[AMENDED]

    1. The authority citation for Part 909 continues to read as 
follows:

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

    2. Subsection 909.104-3 is added as follows:


909.104-3  Application of standards. (DOE coverage-paragraph (e))

    (e) DOE may select an entity which was newly created to perform the 
prospective contract, including, but not limited to, a joint venture or 
other similarly binding corporate partnership. In such instances when 
making the determination of responsibility pursuant to 48 CFR 9.103, 
the contracting officer may evaluate the financial resources of other 
entities only to the extent that those entities are legally bound, 
jointly and severally if more than one, by means of a performance 
guarantee or other equivalent enforceable commitment to supply the 
necessary resources to the prospective contractor and to assume all 
contractual obligations of the prospective contractor. The guaranteeing 
corporate entity(ies) must be found to have sufficient resources in 
order to satisfy its guarantee.

PART 970--[AMENDED]

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

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

    4. Section 970.0902 is added as follows:


970.0902  Determination of responsibility.

    (a) In the award of a management and operating contract, the 
contracting officer shall determine that the prospective contractor is 
a responsible contractor and is capable of providing all necessary 
financial, personnel, and other resources in performance of the 
contract.
    (b) DOE contracts with entities that have been created solely for 
the purpose of performing a specific management and operating contract. 
Such a newly created entity generally will have very limited financial 
and other resources. In such instances, when making the determination 
of responsibility required under this section, the contracting officer 
may evaluate the financial resources of other entities only to the 
extent that those entities are legally bound, jointly and severally if 
more than one, by means of a performance guarantee or other equivalent 
enforceable commitment to supply the necessary resources to the 
prospective contractor and to assume all contractual obligations of the 
prospective contractor. A performance guarantee should be the means 
used unless an equivalent degree of commitment can be obtained by an 
alternative means.
    (c) The guaranteeing corporate entity(ies) must be found to have 
sufficient resources in order to satisfy its guarantee.
    (d) Contracting officers shall insert the provision at 970.5204-XX 
in solicitations where the awardee is required to be organized solely 
for performance of the requirement.
    5. Section 970.5204-XX is added as follows:


Sec. 970.5204-XX  Requirement for guarantee of performance.

    In accordance with 970.0902(d), insert the following provision in 
appropriate solicitations.

Requirement for Guarantee of Performance (XXX 1998)

    The successful proposer is required by other provisions of this 
solicitation to organize a dedicated corporate entity to carry out 
the work under the contract to be awarded as a result of this 
solicitation. The successful proposer will be required, as part of 
the determination of responsibility of the newly organized, 
dedicated corporate entity and as a condition of the award of the 
contract to that entity, to furnish a guarantee of that entity's 
performance. That guarantee of performance must be satisfactory in 
all respects to the Department of Energy.
    In order to consider the financial or other resources of the 
parent corporate entity(ies) or other guarantors, each of those 
entities must be legally bound, jointly and severally if more than 
one, to provide the necessary resources to the prospective 
contractor and to assume all contractual obligations of the 
prospective contractor.

[FR Doc. 98-29941 Filed 11-6-98; 8:45 am]
BILLING CODE 6450-01-P