[Federal Register Volume 63, Number 222 (Wednesday, November 18, 1998)]
[Proposed Rules]
[Pages 64024-64031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30386]


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DEPARTMENT OF ENERGY

48 CFR Part 970

RIN 1991-AB02


Acquisition Regulation: Financial Management Clauses for 
Management and Operating (M&O) Contracts

AGENCY: Department of Energy.

ACTION: Proposed rule.

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SUMMARY: The Department of Energy (DOE) proposes to amend its 
Acquisition Regulation to designate certain Department of Energy 
Acquisition Regulation (DEAR) M&O contract clauses and Federal 
Acquisition Regulation (FAR) clauses as Standard Financial Management 
Clauses to be included in M&O contracts unless the Chief Financial 
Officer (CFO) concurs in a deviation. Additionally, this proposed rule 
will revise selected existing financial management clauses and add 
financial management related clauses.

DATES: Written comments must be submitted no later than January 19, 
1999.

ADDRESSES: Comments should be addressed to: Michael L. Righi, Office of 
Policy (HR-51), Department of Energy, 1000 Independence Avenue, SW., 
Washington, D.C. 20585.

FOR FURTHER INFORMATION CONTACT: Michael L. Righi (202-586-8175) at the 
address above.

SUPPLEMENTARY INFORMATION:

I. Background
II. Detailed List of Changes
III. Public Comments
IV. Procedural Requirements
    A. Review Under Executive Order 12866
    B. Review Under Executive Order 12988
    C. Review Under the Regulatory Flexibility Act
    D. Review Under the Paperwork Reduction Act
    E. Review Under Executive Order 12612
    F. Review Under the National Environmental Policy Act
    G. Review Under Small Business Regulation Enforcement Fairness 
Act of 1996

[[Page 64025]]

I. Background

    On November 15, 1990, Congress enacted the Chief Financial Officers 
Act of 1990 (the Act), Pub. L. 101-576. The Act requires that each 
Federal agency implement improvements in its systems of accounting, 
financial management, and internal controls. DOE has since developed 
and tested various policies, practices, and procedures in its efforts 
to implement the mandates contained in the Act. These efforts have 
included a review of the Department's financial relationship with, and 
data received from, its M&O contractors. Today's proposed rule would 
include new policies and changes to existing policy in the Department's 
acquisition regulations.

II. Detailed List of Changes

    1. The authority citation for Part 970 would be restated.
    2. Section 970.3201 would be revised by replacing the word ``bank'' 
in the first sentence with the words ``financial institution.'' This 
would permit DOE to utilize a financial institution, other than a bank, 
to provide services with regard to a special account. The second 
sentence would be deleted and its requirements incorporated into 
Section 970.3202.
    3. Section 970.3202 would be amended by revising paragraphs (b) and 
(c). Paragraph (b) would be revised by replacing the word ``bank'' with 
the words ``financial institution'' and adding the words ``or, at the 
option of the Government, by direct payment or other payment mechanism 
to the contractor'' at the end of the sentence. Also, the term 
``letter-of-credit'' would be changed to ``payments cleared financing 
arrangement'' in order to implement the Automatic Standard Application 
for Payment (ASAP) that has replaced letter-of-credit. These changes 
would be consistent with similar changes to Section 970.5204-16 with 
regard to a special financial institution account, payments cleared 
financing arrangement, and the use of other payment mechanisms.
    Paragraph (c) would be revised by replacing the word ``bank'' with 
the words ``financial institution'' throughout the paragraph to be 
consistent with similar revisions as previously stated. In the second 
sentence the word ``revenues'' would be replaced with the word 
``collections'' to include any type of collection. Also, a provision 
would be added to require that the agreement among DOE, the contractor, 
and the financial institution incorporate all applicable requirements, 
as determined by the Office of CFO.
    4. Section 970.3270 would be revised by establishing a section 
entitled Standard Financial Management Clauses, which requires that 
certain clauses be included in all M&O contracts, and requires that 
deviations have the approval of the Head of the Contracting Activity 
and the written concurrence of the Department's CFO.
    5. Section 970.3271 would be removed and these requirements would 
be incorporated into Section 970.3202.
    6. Section 970.5204-9 would be revised. Specifically, paragraph (a) 
would be revised by replacing the word ``revenues'' in the first 
sentence with the words ``collections accruing to the contractor in 
connection with the work under this contract'' to require accounting 
for any type of collection accruing to the contractor under the 
contract, and by deleting the word ``fixed.''
    Paragraph (b) would be revised by adding language to allow for 
inspection and audit of accounts and records by DOE's designees, in 
accordance with provisions of the clause, Access to and ownership of 
records.
    Paragraph (d) would be revised by identifying other types of 
information as property of the Government. In addition, the word 
``revenues'' would be replaced with the words ``collections accruing to 
the contractor in connection with the work under this contract'' and 
the words ``and fee accruals'' would be added. Also, a reference to the 
Access to and ownership of records clause would be added for clarity.
    Paragraph (f) would be revised by making a minor editorial change, 
adding the word ``and'' between the words ``time'' and ``in.''
    7. Section 970.5204-13 would be amended by revising paragraph 
(d)(15) by replacing the word ``bank'' in the first sentence with the 
words ``financial institution'' to be consistent with similar changes 
to other sections regarding a financial institution account and by 
adding in the second sentence the words ``to employees'' to clarify 
that payments as described in this sentence are to employees.
    8. Section 970.5204-15 would be revised. Specifically, paragraph 
(a) would be revised by replacing the words ``revenues and receipts'' 
with the word ``collections'' to include any type of collection. The 
fourth sentence would be revised to require that collections are 
processed and accounted for in accordance with applicable requirements 
imposed by the contracting officer pursuant to the Laws, regulations, 
and DOE directives clause of the contract.
    Paragraph (b) would be revised by deleting the word ``fixed'' in 
the first sentence to include any type of fee. In the second sentence 
the words ``revenues and receipts'' would be replaced with the words 
``collections accruing to the contractor in connection with the work 
under this contract * * *'' to include any type of collection. The 
second sentence would also be revised to require the processing of and 
accounting for such collections in accordance with applicable 
requirements imposed by the contracting officer pursuant to the Laws, 
regulations, and DOE directives clause of the contract.
    Paragraph (c) would be revised by replacing the words ``revenues 
and receipts'' with the word ``collections'' to include any type of 
collection and by deleting the word ``fixed'' to include any type of 
fee. The word ``commitments'' would be replaced with the word 
``encumbrances'' throughout the paragraph because appropriations are 
encumbered rather than committed at the contractor level. Also, the 
word ``available'' would be added throughout the paragraph where 
reference is made to ``funds'' and ``collections'' for clarity and 
consistency with the first sentence of the paragraph. In the second 
sentence the words ``either'' and ``or is equal to zero'' would be 
deleted to clarify when notice should be given to DOE in regard to the 
requirements of this paragraph. Additionally, for consistency with 
other references to the clause entitled ``Termination,'' the word 
``article'' in the last sentence would be replaced with the word 
``clause.''
    Paragraph (d) would be revised by replacing the word 
``commitment(s)'' with the word ``encumbrance(s)'' throughout the 
paragraph. The words ``such as Approved Funding Programs'' would be 
added in the first sentence between the words ``plans'' and ``or'' to 
reflect the current terminology used for financial plans. In the second 
sentence the word ``instruction'' would be replaced with the word 
``directives'' for consistency with the first sentence. In the third 
sentence the words ``to use its best efforts'' would be deleted to 
require contractor compliance with other requirements of such plans and 
directives. Also, the words ``the authorized financial levels of'' 
would be replaced with the words ``that any limitation on'' to state 
more clearly that such financial plans contain cost and encumbrance 
limitations. A typographical error would be corrected and a minor 
editorial change would be made in the third sentence. The word 
``directives'' would replace the word ``directive'' and the word 
``promptly''

[[Page 64026]]

would be deleted between the words ``to'' and ``notify'' and inserted 
between the words ``DOE'' and ``in.'' A typographical error would also 
be corrected in the note to paragraph (d) by replacing the word 
``provided'' with the word ``provide.'' Also, in the note the word 
``article'' would be replaced with the word ``clause'' for consistency 
with other revised paragraphs of this section.
    Paragraph (e) would be revised by replacing the word ``article'' 
with the word ``clause'' for consistency with other references to the 
clause entitled ``Termination.''
    9. Section 970.5204-16 would be revised. Specifically, paragraph 
(a) would be revised by changing the language to require payment of the 
fixed-fee in accordance with a schedule determined by the contracting 
officer. The term ``letter-of-credit'' would be changed to ``payments 
cleared financing arrangement'' in order to implement the ASAP that has 
replaced letter-of-credit. In paragraph (a) of Note 2 the term 
``letter-of-credit'' also would be changed to ``payments cleared 
financing arrangement.''
    Paragraph (c) would be revised by replacing the words ``special 
bank account'' with the words ``special financial institution account'' 
throughout the paragraph. This change would permit DOE to utilize a 
financial institution, other than a bank, to provide services with 
regard to a special account. In the first sentence, the term ``letter-
of-credit'' would be replaced with ``payments cleared financing 
arrangement prescribed by DOE'' as described in paragraph (a) above and 
the language would be revised to allow payment of funds, at the option 
of the Government, by direct payment or other payment mechanism to the 
contractor. Since collections are processed and accounted for in 
accordance with applicable requirements imposed by the contracting 
officer pursuant to the Laws, regulations, and DOE directives clause of 
the contract, the second sentence of this paragraph would be deleted. 
In the third sentence the words ``and, if applicable, fees earned'' 
would be inserted between the words ``allowable'' and ``under'' since 
payment of fees earned may or may not be made from the special 
financial institution account. Also, an editorial correction would be 
made in the third sentence by replacing the word ``mingled'' with the 
word ``commingled.'' Additionally, a typographical error would be 
corrected in the fourth sentence by replacing the word ``on'' with the 
word ``of.''
    Paragraph (d) would be revised by replacing the words ``special 
bank account'' with the words ``special financial institution account'' 
throughout the paragraph to be consistent with similar revisions as 
previously stated.
    Paragraph (e) would be revised to include penalty provisions for 
unallowable costs as stated in sections 306 (b) and (i) of the Federal 
Property and Administrative Services Act of 1949 (41 U.S.C. 256), as 
amended. Also, the word ``voucher'' would be replaced with ``Statement 
of Costs Incurred and Claimed.'' Note 4 would be revised to require the 
inclusion of an alternative paragraph (e) in contracts with 
nonintegrated contractors which also includes such penalty provisions.
    Paragraph (f) would be revised by deleting the word ``fixed'' in 
the first sentence. The requirement for an assignment of the 
contractor's rights to any ``collections accruing to the contractor in 
connection with the work under this contract'' would be added with 
regard to the payment by the Government to the contractor of the unpaid 
balance of allowable costs and fee. Under exception (B), minor changes 
would be made to the last sentence--``should'' would change to 
``shall,'' the clause title referenced would be updated, and the last 
word, ``and,'' would be deleted. Exception (D), ``Claims recognizable 
under the clause entitled, Nuclear Hazards Indemnity Agreement,'' would 
be added to the exceptions to the requirement that contractors provide 
a release discharging the Government, its officers, agents, and 
employees from all liabilities, obligations, and claims arising out of 
or under the contract. In addition, in the last sentence of paragraph 
(f) the words ``financial institution'' would replace the word ``bank'' 
to be consistent with similar revisions as previously stated.
    Paragraph (i) would be revised by replacing the word ``revenues'' 
with the word ``collections'' in the title as well as the text of the 
paragraph. Also, the language would be changed to require collections, 
exclusive of the contractor's fee and other specified collections, not 
the property of the Government, to be processed and accounted for in 
accordance with applicable requirements imposed by the contracting 
officer pursuant to the Laws, regulations, and DOE directives clause of 
the contract and, to the extent consistent with those requirements, to 
be deposited in the special financial institution account or otherwise 
made available for payment of allowable costs under the contract, 
unless otherwise directed by the contracting officer. In addition, the 
words ``financial institution'' would replace the word ``bank'' to be 
consistent with similar revisions as previously stated.
    10. Section 970.5204-20 would be amended by revising the 
introductory statement and paragraph (a). In the second sentence the 
words ``theft'' and ``fraud'' would be deleted and the words ``loss,'' 
``mismanagement,'' and ``misappropriation'' would be added. Also, in 
the fourth and fifth sentences of paragraph (a) the word ``internal'' 
would be deleted before the word ``controls.'' These changes would be 
incorporated for consistency. Also, in the second sentence the word 
``obligations'' would be replaced with the word ``encumbrances'' and 
the words ``and fees that are earned'' would be added. The contractor 
cannot obligate Federal funds. It can only encumber such funds. 
Therefore, contractor management controls should be adopted that 
reasonably ensure that all encumbrances and costs incurred and fees 
earned under the contract are in compliance with applicable clauses, 
and other current terms, conditions, and intended purposes. In the 
second sentence the word ``revenues'' would be replaced with the words 
``collections accruing to the contractor in connection with the work 
under this contract'' to ensure all collections are properly recorded, 
managed, and reported. Additionally, an editorial correction would be 
made by replacing the word ``system'' with the word ``systems'' in the 
last sentence of the paragraph.
    11. Section 970.5204-XX, ``Financial Management System,'' would be 
added: to require compliance with DOE policies for maintaining and 
administering a financial management system; to require the contractor 
to submit to DOE for written approval an annual plan for new financial 
management systems and/or subsystems and major enhancements and/or 
upgrades to the currently existing financial systems and/or subsystems; 
to require the contractor to notify DOE thirty (30) days in advance of 
any planned implementation of any substantial deviation from the 
approved plan; and, as requested by the contracting officer, to require 
the contractor to submit any such deviation to DOE for written 
approval.
    12. Section 970.5204-XX, ``Integrated Accounting,'' would be added 
to require compliance with DOE procedures if an integrated accounting 
system is used.
    13. Section 970.5402-XX, ``Liability with respect to Cost 
Accounting Standards,'' would be added to address M&O contractor 
liability for increased costs resulting from noncompliance with 
provisions set forth in FAR 52.230-2, ``Cost Accounting Standards,''

[[Page 64027]]

and FAR 52.230-6, ``Administration of Cost Accounting Standards.''
    14. Section 970.5204-XX, ``Work for others funding authorization,'' 
would be added to ensure that the Government is not liable for costs 
incurred by a contractor performing work for others utilizing its own 
funding.

III. Public Comments

    Interested persons are invited to participate by submitting data, 
views, or arguments with respect to the DEAR amendments set forth in 
this proposed rule. Three copies of written comments should be 
submitted to the address indicated in the ADDRESSES section of this 
notice. All comments received will be available for public inspection 
in the DOE Reading Room, 1E-190, Forrestal Building, 1000 Independence 
Avenue, SW., Washington, DC 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 
DOE 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. DOE 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.

IV. 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, today's action was not subject to review under the 
Executive Order by the Office of Information and Regulatory Affairs.

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 draftmenship 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 rule was reviewed under the Regulatory Flexibility Act of 
1980, Pub. L. 96-354, which requires preparation of a regulatory 
flexibility analysis for any rule which is likely to have a significant 
economic impact on a substantial number of small entities. This 
proposed rule would only apply to M&O contractors, which are all large 
entities. DOE 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 requirements subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq., are imposed by today's 
regulatory action.

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. This proposed rule will 
not affect States.

F. Review Under the National Environmental Policy Act

    Pursuant to the Council on Environmental Quality Regulations (40 
CFR Parts 1500-1508), the Department of Energy has established 
guidelines for its compliance with the provisions of the National 
Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.). 
Pursuant to appendix A of subpart D of 10 CFR part 1021, National 
Environmental Policy Act Implementing Procedures (57 FR 15122, 15152, 
April 24, 1992) (Categorical Exclusion A6), the Department of Energy 
has determined that this rule is categorically excluded from the need 
to prepare an environmental impact statement or environmental 
assessment.

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

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

List of Subjects in 48 CFR Part 970

    Government procurement.

    Issued in Washington, DC on November 9, 1998.
Richard H. Hopf,
Director of 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 970--DOE MANAGEMENT AND OPERATING CONTRACTS

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

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

    2. Section 970.3201 is revised to read as follows:

[[Page 64028]]

970.3201  General.

    It is the policy of the DOE to finance management and operating 
contracts through advance payments and the use of special financial 
institution accounts.
    3. Section 970.3202 is amended by revising paragraphs (b) and (c) 
to read as follows:


970.3202  Advance payments.

* * * * *
    (b) Advance payments shall be made under a payments cleared 
financing arrangement for deposit in a special financial institution 
account or, at the option of the Government, by direct payment or other 
payment mechanism to the contractor.
    (c) Prior to providing any advance payments, the contracting 
officer shall enter into an agreement with the contractor and a 
financial institution regarding a special financial institution account 
where the advanced funds will be deposited by the Government. Such 
agreement shall:
    (1) Provide that DOE shall retain title to the unexpended balance 
of funds in the special financial institution account including 
collections, if any, deposited by the contractor;
    (2) Provide that the title in paragraph (c)(1) of this section 
shall be superior to any claim or lien of the financial institution of 
deposit or others; and
    (3) Incorporate all applicable requirements, as determined by the 
Office of Chief Financial Officer.
* * * * *
    4. Section 970.3270 is revised to read as follows:


970.3270  Standard financial management clauses.

    (a) The following DEAR and FAR clauses are standard financial 
management clauses that shall be included in both integrated and 
nonintegrated management and operating contracts: DEAR 970.5204-9, 
Accounts, records, and inspection; DEAR 970.5204-15, Obligation of 
funds; DEAR 970.5204-16, Payments and advances; DEAR 970.5204-20, 
Management controls; DEAR 970.5204-XX, Liability with respect to Cost 
Accounting Standards; DEAR 970.5204-XX, Work for others funding 
authorization; FAR 52.230-2, Cost Accounting Standards; and FAR 52.230-
6, Administration of Cost Accounting Standards.
    (b) The following clauses are standard financial management clauses 
that shall be included in integrated management and operating 
contracts: DEAR 970.5204-XX, Financial management system; and DEAR 
970.5204-XX, Integrated accounting.
    (c) Any deviations from the standard financial management clauses 
specified in paragraphs (a) and (b) of this section require the 
approval of the Head of the Contracting Activity and the written 
concurrence of the Department's Chief Financial Officer.
    5. Section 970.3271 is removed.
    6. In section 970.5204-9 revise the introductory paragraph; clause 
title; and paragraphs (a) (including the note), (b), (d), and (f) to 
read as follows:


970.5204-9  Accounts, records, and inspection.

    As prescribed in 970.0407 and 970.3270, insert the following 
clause.

Accounts, Records, and Inspection (Month and Year TBE)

    (a) Accounts. The contractor shall maintain a separate and 
distinct set of accounts, records, documents, and other evidence 
showing and supporting: all allowable costs incurred; collections 
accruing to the contractor in connection with the work under this 
contract, other applicable credits, and fee accruals under this 
contract; and the receipt, use, and disposition of all Government 
property coming into the possession of the contractor under this 
contract. The system of accounts employed by the contractor shall be 
satisfactory to DOE and in accordance with generally accepted 
accounting principles consistently applied.

    Note: If the contract includes the clause for ``Price Reduction 
for Defective Cost or Pricing Data'' set forth at FAR 52.215-22, 
paragraph (a) above should be modified by adding the words ``or 
anticipated to be incurred'' after the words ``allowable costs 
incurred.''

    (b) Inspection and audit of accounts and records. All books of 
account and records relating to this contract shall be subject to 
inspection and audit by DOE or its designees in accordance with the 
provisions of Clause ____, Access to and ownership of records, at 
all reasonable times, before and during the period of retention 
provided for in paragraph (d) of this clause, and the contractor 
shall afford DOE proper facilities for such inspection and audit.
* * * * *
    (d) Disposition of records. Except as agreed upon by the 
Government and the contractor, all financial and cost reports, books 
of account and supporting documents, system files, data bases, and 
other data evidencing costs allowable, collections accruing to the 
contractor in connection with the work under this contract, other 
applicable credits, and fee accruals under this contract, shall be 
the property of the Government, and shall be delivered to the 
Government or otherwise disposed of by the contractor either as the 
contracting officer may from time to time direct during the progress 
of the work or, in any event, as the contracting officer shall 
direct upon completion or termination of this contract and final 
audit of accounts hereunder. Except as otherwise provided in this 
contract, including provisions of Clause ____, Access to and 
ownership of records, all other records in the possession of the 
contractor relating to this contract shall be preserved by the 
contractor for a period of three years after final payment under 
this contract or otherwise disposed of in such manner as may be 
agreed upon by the Government and the contractor.
* * * * *
    (f) Inspections. The DOE shall have the right to inspect the 
work and activities of the contractor under this contract at such 
time and in such manner as it shall deem appropriate.
* * * * *
    7. Section 970.5204-13 is amended by revising paragraph (d)(15) to 
read as follows (note following paragraph (d)(15) remains unchanged):


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

* * * * *

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

* * * * *
    (d) * * *
    (15) Establishment and maintenance of financial institution 
accounts in connection with the work hereunder, including, but not 
limited to, service charges, the cost of disbursing cash, necessary 
guards, cashiers, and paymasters. If payments to employees are made 
by check, facilities and arrangements for cashing checks may be 
provided without expense to the employees, subject to the approval 
of the contracting officer.
* * * * *
    8. Section 970.5204-15 is revised to read as follows:


970.5204-15  Obligation of funds.

    As prescribed in 970.1508(c), insert the following clause.

Obligation of Funds (Month and Year TBE)

    (a) Obligation of funds. The amount presently obligated by the 
Government with respect to this contract is ______ dollars 
($______). Such amount may be increased unilaterally by DOE by 
written notice to the contractor and may be increased or decreased 
by written agreement of the parties (whether or not by formal 
modification of this contract). Estimated collections from others 
for work and services to be performed under this contract are not 
included in the amount presently obligated. Such collections, to the 
extent actually received by the contractor, shall be processed and 
accounted for in accordance with applicable requirements imposed by 
the contracting officer pursuant to the Laws, regulations, and DOE 
directives clause of this contract. Nothing in this paragraph (a) is 
to be construed as authorizing the contractor to exceed limitations 
stated in financial plans established by DOE and furnished to the 
contractor from time to time under this contract.
    (b) Limitation on payment by the Government. Except as otherwise 
provided in this contract and except for costs which may be incurred 
by the contractor pursuant to the clause entitled ``Termination,'' 
or costs of

[[Page 64029]]

claims allowable under the contract occurring after completion or 
termination and not released by the contractor at the time of 
financial settlement of the contract in accordance with the clause 
entitled ``Payments and Advances,'' payment by the Government under 
this contract on account of allowable costs shall not, in the 
aggregate, exceed the amount obligated with respect to this 
contract, less the contractor's fee. Unless expressly negated in 
this contract, payment on account of those costs excepted in the 
preceding sentence which are in excess of the amount obligated with 
respect to this contract shall be subject to the availability of
    (1) Collections accruing to the contractor in connection with 
the work under this contract and processed and accounted for in 
accordance with applicable requirements imposed by the contracting 
officer pursuant to the Laws, regulations, and DOE directives clause 
of this contract, and
    (2) Other funds which DOE may legally use for such purpose, 
provided DOE will use its best efforts to obtain the appropriation 
of funds for this purpose if not otherwise available.
    (c) Notices--Contractor excused from further performance. The 
contractor shall notify DOE in writing whenever the unexpended 
balance of available funds (including collections available under 
paragraph (a) of this clause, plus the contractor's best estimate of 
collections to be received and available during the ____ day period 
hereinafter specified, is in the contractor's best judgment 
sufficient to continue contract operations at the programmed rate 
for only ______ days and to cover the contractor's unpaid fee, and 
outstanding encumbrances and liabilities on account of costs 
allowable under the contract at the end of such period. Whenever the 
unexpended balance of available funds (including collections 
available under paragraph (a) of this clause, less the amount of the 
contractor's fee then earned but not paid, is in the contractor's 
best judgment sufficient only to liquidate outstanding encumbrances 
and liabilities on account of costs allowable under this contract, 
the contractor shall immediately notify DOE and shall make no 
further encumbrances or expenditures (except to liquidate existing 
encumbrances and liabilities), and, unless the parties otherwise 
agree, the contractor shall be excused from further performance 
(except such performance as may become necessary in connection with 
termination by the Government) and the performance of all work 
hereunder will be deemed to have been terminated for the convenience 
of the Government in accordance with the provisions of the clause 
entitled ``Termination.''
    (d) Financial plans; cost and encumbrance limitations. In 
addition to the limitations provided for elsewhere in this contract, 
DOE may, through financial plans, such as Approved Funding Programs, 
or other directives issued to the contractor, establish controls on 
the costs to be incurred and encumbrances to be made in the 
performance of the contract work. Such plans and directives may be 
amended or supplemented from time to time by DOE. The contractor 
hereby agrees
    (1) To comply with the specific limitations (ceilings) on costs 
and encumbrances set forth in such plans and directives,
    (2) To comply with other requirements of such plans and 
directives, and
    (3) To notify DOE promptly, in writing, whenever it has reason 
to believe that any limitation on costs and encumbrances will be 
exceeded or substantially underrun.

    Note: This paragraph (d) may be omitted in contracts which 
expressly or otherwise provide a contractual basis for equivalent 
controls in a separate clause.

    (e) Government's right to terminate not affected. The giving of 
any notice under this clause shall not be construed to waive or 
impair any right of the Government to terminate the contract under 
the provisions of the clause entitled ``Termination.''

    9. Section 970.5204-16 is amended by: revising the introductory 
paragraph; clause title; clause paragraphs (a) (notes remain 
unchanged); last sentence of alternate paragraph (a); (c); (d) 
(including note 3); (e) (including note 4); adding alternate paragraph 
(e); revising paragraphs (f), and (i) to read as follows:


970.5204-16  Payments and advances.

    As prescribed in 970.3270, insert the following clause.

Payments and Advances (Month and Year TBE)

    (a) Installments of fixed-fee. The fixed-fee payable under this 
contract shall become due and payable in periodic installments in 
accordance with a schedule determined by the contracting officer. 
Fixed-fee payments shall be made by direct payment or withdrawn from 
funds advanced or available under this contract, as determined by 
the contracting officer. The contracting officer may offset against 
any such fee payment the amounts owed to the Government by the 
contractor, including any amounts owed for disallowed costs under 
this contract. No fixed-fee payment may be withdrawn against the 
payments cleared financing arrangement without prior written 
approval of the contracting officer.
* * * * *
    (a) * * * No base fee or award fee pool amount earned payment 
may be withdrawn against the payments cleared financing arrangement 
without prior written approval of the contracting officer.
* * * * *
    (c) Special financial institution account--use. All advances of 
Government funds shall be withdrawn pursuant to a payments cleared 
financing arrangement prescribed by DOE in favor of the financial 
institution or, at the option of the Government, shall be made by 
direct payment or other payment mechanism to the contractor, and 
shall be deposited only in the special financial institution account 
referred to in the Special Financial Institution Account Agreement, 
which is incorporated into this contract as Appendix ____. No part 
of the funds in the special financial institution account shall be 
commingled with any funds of the contractor or used for a purpose 
other than that of making payments for costs allowable and, if 
applicable, fees earned under this contract or payments for other 
items specifically approved in writing by the contracting officer. 
If the contracting officer determines that the balance of such 
special financial institution account exceeds the contractor's 
current needs, the contractor shall promptly make such disposition 
of the excess as the contracting officer may direct.
    (d) Title to funds advanced. Title to the unexpended balance of 
any funds advanced and of any special financial institution account 
established pursuant to this clause shall remain in the Government 
and be superior to any claim or lien of the financial institution of 
deposit or others. It is understood that an advance to the 
contractor hereunder is not a loan to the contractor, and will not 
require the payment of interest by the contractor, and that the 
contractor acquires no right, title or interest in or to such 
advance other than the right to make expenditures therefrom, as 
provided in this clause.

    Note 3: The following paragraph (e) shall be included in 
management and operating contracts with integrated contractors.

    (e) Review and approval of costs incurred. The contractor shall 
prepare and submit annually as of September 30, a ``Statement of 
Costs Incurred and Claimed'' (Cost Statement) for the total of net 
expenditures accrued (i.e., net costs incurred) for the period 
covered by the Cost Statement. The contractor shall certify the Cost 
Statement subject to the penalty provisions for unallowable costs as 
stated in sections 306(b) and (i) of the Federal Property and 
Administrative Services Act of 1949 (41 U.S.C. 256), as amended. 
DOE, after audit and appropriate adjustment, will approve such Cost 
Statement. This approval by DOE will constitute an acknowledgment by 
DOE that the net costs incurred are allowable under the contract and 
that they have been recorded in the accounts maintained by the 
contractor in accordance with DOE accounting policies, but will not 
relieve the contractor of responsibility for DOE's assets in its 
care, for appropriate subsequent adjustments, or for errors later 
becoming known to DOE.

    Note 4: The following paragraph (e) shall be included in 
management and operating contracts with nonintegrated contractors.

    (e) Certification and penalties. The contractor shall prepare 
and submit a ``Statement of Costs Incurred and Claimed'' (Cost 
Statement) for the total of net expenditures incurred for the period 
covered by the Cost Statement. It is anticipated that this will be 
an annual submission unless otherwise agreed to by the contracting 
officer. The contractor shall certify the Cost Statement subject to 
the penalty provisions for unallowable costs as stated in sections 
306(b) and (i) of the Federal Property and Administrative Services 
Act of 1949 (41 U.S.C. 256), as amended.
    (f) Financial settlement. The Government shall promptly pay to 
the contractor the unpaid balance of allowable costs and fee upon 
termination of the work, expiration of

[[Page 64030]]

the term of the contract, or completion of the work and its 
acceptance by the Government after:
    (1) Compliance by the contractor with DOE's patent clearance 
requirements, and
    (2) The furnishing by the contractor of:
    (i) An assignment of the contractor's rights to any refunds, 
rebates, allowances, accounts receivable, collections accruing to 
the contractor in connection with the work under this contract, or 
other credits applicable to allowable costs under the contract;
    (ii) A closing financial statement;
    (iii) The accounting for Government-owned property required by 
the clause entitled ``Property''; and
    (iv) A release discharging the Government, its officers, agents, 
and employees from all liabilities, obligations, and claims arising 
out of or under this contract subject only to the following 
exceptions:
    (A) Specified claims in stated amounts or in estimated amounts 
where the amounts are not susceptible to exact statement by the 
contractor;
    (B) Claims, together with reasonable expenses incidental 
thereto, based upon liabilities of the contractor to third parties 
arising out of the performance of this contract; provided that such 
claims are not known to the contractor on the date of the execution 
of the release; and provided further that the contractor gives 
notice of such claims in writing to the contracting officer 
promptly, but not more than one (1) year after the contractor's 
right of action first accrues. In addition, the contractor shall 
provide prompt notice to the contracting officer of all potential 
claims under this clause, whether in litigation or not (see also 
Contract Clause ____, DEAR 970.5204-31, ``Insurance--Litigation and 
Claims'');
    (C) Claims for reimbursement of costs (other than expenses of 
the contractor by reason of any indemnification of the Government 
against patent liability), including reasonable expenses incidental 
thereto, incurred by the contractor under the provisions of this 
contract relating to patents; and
    (D) Claims recognizable under the clause entitled, Nuclear 
Hazards Indemnity Agreement.
    (3) In arriving at the amount due the contractor under this 
clause, there shall be deducted, (i) any claim which the Government 
may have against the contractor in connection with this contract, 
and (ii) deductions due under the terms of this contract, and not 
otherwise recovered by or credited to the Government. The 
unliquidated balance of the special financial institution account 
may be applied to the amount due and any balance shall be returned 
to the Government forthwith.
* * * * *
    (i) Collections. All collections accruing to the contractor in 
connection with the work under this contract, except for the 
contractor's fee and royalties or other income accruing to the 
contractor from technology transfer activities in accordance with 
this contract, shall be Government property and shall be processed 
and accounted for in accordance with applicable requirements imposed 
by the contracting officer pursuant to the Laws, regulations, and 
DOE directives clause of this contract and, to the extent consistent 
with those requirements, shall be deposited in the special financial 
institution account or otherwise made available for payment of 
allowable costs under this contract, unless otherwise directed by 
the contracting officer.
* * * * *
    10. Section 970.5204-20 is amended by revising the introductory 
statement and paragraph (a) to read as follows:


970.5204-20  Management controls.

    In accordance with 970.0901 and as prescribed in 970.3270, the 
following clause shall be used in management and operating contracts:

Management Controls (Month and Year TBE)

    (a) The contractor shall be responsible for maintaining, as an 
integral part of its organization, effective systems of management 
controls for both administrative and programmatic functions. 
Management controls comprise the plan of organization, methods, and 
procedures adopted by management to reasonably ensure that: the 
mission and functions assigned to the contractor are properly 
executed; efficient and effective operations are promoted; resources 
are safeguarded against waste, loss, mismanagement, unauthorized 
use, or misappropriation; all encumbrances and costs that are 
incurred under the contract and fees that are earned are in 
compliance with applicable clauses and other current terms, 
conditions, and intended purposes; all collections accruing to the 
contractor in connection with the work under this contract, 
expenditures, and all other transactions and assets are properly 
recorded, managed, and reported; and financial, statistical, and 
other reports necessary to maintain accountability and managerial 
control are accurate, reliable, and timely. The systems of controls 
employed by the contractor shall be documented and satisfactory to 
DOE. Such systems shall be an integral part of the contractor's 
management functions, including defining specific roles and 
responsibilities for each level of management, and holding employees 
accountable for the adequacy of the management systems and controls 
in their areas of assigned responsibility. The contractor shall, as 
part of the internal audit program required elsewhere in this 
contract, periodically review the management systems and controls 
employed in programs and administrative areas to ensure that they 
are adequate to provide reasonable assurance that the objectives of 
the systems are being accomplished and that these systems and 
controls are working effectively.
* * * * *
    11. Section 970.5204-XX is added to read as follows:


970.5204-XX  Financial management system.

    As prescribed in 970.3270, insert the following clause.

Financial Management System (Month and Year TBE)

    The contractor shall maintain and administer a financial 
management system that includes the currently existing integrated 
accounting system and is suitable to provide proper accounting in 
accordance with DOE requirements for assets, liabilities, 
collections accruing to the contractor in connection with the work 
under this contract, expenditures, costs, and encumbrances; permits 
the preparation of accounts and accurate, reliable financial and 
statistical reports; and assures that accountability for the assets 
can be maintained. The contractor shall submit to DOE for written 
approval an annual plan for new financial management systems and/or 
subsystems and major enhancements and/or upgrades to the currently 
existing financial systems and/or subsystems. The contractor shall 
notify DOE thirty (30) days in advance of any planned implementation 
of any substantial deviation from this plan and, as requested by the 
contracting officer, shall submit any such deviation to DOE for 
written approval before implementation.

    12. Section 970.5204-XX is added to read as follows:


970.5204-XX  Integrated accounting.

    As prescribed in 970.3270, insert the following clause.

Integrated Accounting (Month and Year TBE)

    Integrated accounting procedures are required for use under this 
contract. The contractor's financial management system shall include 
an integrated accounting system that is linked to DOE's accounts 
through the use of reciprocal accounts and that has electronic 
capability to transmit monthly and year-end self-balancing trial 
balances to the Department's Primary Accounting System for reporting 
financial activity under this contract in accordance with 
requirements imposed by the contracting officer pursuant to the 
Laws, regulations, and DOE directives clause of this contract.

    13. Section 970.5204-XX is added to read as follows:


970.5204-XX  Liability with respect to Cost Accounting Standards.

    As prescribed in 970.3270, insert the following clause.

Liability With Respect to Cost Accounting Standards (Month and Year 
TBE)

    (a) The contractor is not liable to the Government for increased 
costs or interest resulting from its failure to comply with the 
clauses of this contract entitled, ``Cost Accounting Standards,'' 
and ``Administration of Cost Accounting Standards,'' if its failure 
to comply with the clauses is caused by the contractor's compliance 
with published DOE financial management policies and procedures or 
other requirements established by the Department's Chief Financial 
Officer or Procurement Executive.
    (b) The contractor is not liable to the Government for increased 
costs or interest resulting from its subcontractors' failure to 
comply with the clauses at FAR 52.230-2,

[[Page 64031]]

``Cost Accounting Standards,'' and FAR 52.230-6, ``Administration of 
Cost Accounting Standards,'' if the contractor includes in each 
covered subcontract a clause making the subcontractor liable to the 
Government for increased costs or interest resulting from the 
subcontractor's failure to comply with the clauses; and the 
contractor seeks the subcontract price adjustment and cooperates 
with the Government in the Government's attempts to recover from the 
subcontractor.

    14. Section 970.5204-XX is added to read as follows:


970.5204-XX  Work for others funding authorization.

    As prescribed in 970.3270, insert the following clause.

Work for Others Funding Authorization (Month and Year TBE)

    Any uncollectible receivables resulting from the contractor 
utilizing contractor corporate funding for reimbursable work shall 
be the responsibility of the contractor, and the United States 
Government shall have no liability to the contractor therefor. The 
contractor is permitted to provide advance payment utilizing 
contractor corporate funds for reimbursable work to be performed by 
the contractor for a non-Federal entity in instances where advance 
payment from that entity is required under the Laws, regulations, 
and DOE directives clause of this contract and such advance cannot 
be obtained. The contractor is also permitted to provide advance 
payment utilizing contractor corporate funds to continue 
reimbursable work to be performed by the contractor for a Federal 
entity when the term or the funds on a Federal interagency agreement 
required under the Laws, regulations, and DOE directives clause of 
this contract have elapsed. The contractor's utilization of 
contractor corporate funds does not relieve the contractor of its 
responsibility to comply with all requirements for Work for Others 
applicable to this contract.

[FR Doc. 98-30386 Filed 11-17-98; 8:45 am]
BILLING CODE 6450-01-P