[Federal Register Volume 64, Number 47 (Thursday, March 11, 1999)]
[Rules and Regulations]
[Pages 12220-12237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6064]



[[Page 12219]]

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Part III





Department of Energy





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48 CFR Parts 915 and 970



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

  Federal Register / Vol. 64, No. 47 / Thursday, March 11, 1999 / Rules 
and Regulations  

[[Page 12220]]



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: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department today amends 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 final rule implements a fee policy that ensures that 
fees: 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: This final rule is effective for new awards and extensions after 
April 12, 1999.

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

SUPPLEMENTARY INFORMATION:

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

I. Background

    On April 10, 1998, the Department of Energy (DOE or Department) 
published in the Federal Register (63 FR 17800) a Notice of Proposed 
Rulemaking to amend the DEAR Subsection 970.15404-4 to revise fee 
policies and related procedures for management and operating contracts 
and other designated contracts. The Notice of Proposed Rulemaking 
continued the effort introduced in the Department's June 27, 1997 (62 
FR 34842) rule to improve its management and operating contracts. 
Today's final rule amends DOE's fee policy to conform that policy to 
performance-based contracting concepts introduced in the earlier rule.
    The Notice of Proposed Rulemaking solicited comments on all aspects 
of the proposed rulemaking, including the following five specific 
elements:
     The use of multiple contract types within the structure of 
a cost-plus-award-fee contract;
     The approach which places all fee at performance risk;
     The fee policy as it applies to contracts with nonprofit 
organizations including educational institutions, with an alternate 
proposal;
     The amount of fee necessary to attract the most capable 
contractors; and
     The application of the Conditional Payment of Fee, Profit 
or Incentives clause.
    Because there were issues involved in the rulemaking that were 
significant and complex, a public workshop was conducted on May 19, 
1998. This format allowed for the interactive exchange of ideas in an 
informal conference style setting. The workshop agenda included 
Department presentations on performance-based contract management, an 
executive summary of the proposed rule, and draft answers to questions 
that had been submitted by members of the public prior to the workshop. 
Four attendees made presentations. Written comments on the Notice of 
Proposed Rulemaking were due June 9, 1998. The Department received 
comments from 26 entities. The administrative record, including the 
transcript of the workshop is located in the Department's Freedom of 
Information Public Reading Room and on the Department's home page at 
http://www.pr.doe.gov.
    Today's final rule adopts the Notice of Proposed Rulemaking with 
certain changes discussed in the Disposition of Comments section. The 
final rule reflects changes to existing regulations announced in the 
Notice of Proposed Rulemaking which include:
     Updated fee schedules based on the effects of inflation 
since 1991 (Subsections 915.404-4-71-5 and 970.15404-4-5);
     A new fee schedule for environmental management to support 
the environmental remediation work effort (Subsection 970.15404-4-5);
     Guidance on the availability of various contract types and 
a preference, when incentive contracting is utilized, for contract 
types under which all fee will be based on performance (Subsection 
970.15404-4-3);
     A preference for those contract types that appropriately 
maximize the incentives for superior performance (Subsection 970.15404-
4-3);
     Criteria for the use of multiple fee approaches 
(Subsection 970.15404-4-3);
     A correlation of incentive-fee type arrangements to 
Federal Acquisition Regulation (FAR) guidance (Subsection 970.15404-4-
3);
     A requirement to make the maximum appropriate use of 
outcome oriented performance expectations consistent with performance-
based management contract concepts (Subsection 970.15404-4-3);
     Restructuring of considerations and techniques for 
determining fixed fees and total available fee (Subsections 970.15404-
4-4 and 970.15404-4-8);
     A redefinition of Facility/Task Categories consistent with 
changes in work at major facilities (Subsection 970.15404-4-8);
     An elimination of the references to fees for management 
and operating contracts for support services;
     A rewritten and retitled total available fee clause 
(Section 970.5204-54);
     A new clause that seeks to ensure, among other things, 
that performance affecting the critical areas of environment, safety 
and health, catastrophic events, specified level of performance, and 
cost performance is not compromised by any other performance objective 
(Subsection 970.5204-86);
     A new clause to address cost reduction proposal programs 
based on guidance in DEAR 970.15404-4-3(f) and 970.15404-4-11 
(Subsection 970.5204-87); and,
     A new provision for identifying maximum available fee 
(Subsection 970.5204-88).
    The final rule also reflects modifications to the Notice of 
Proposed Rulemaking in response to comments in the following areas:
     Added criteria for using negative fee incentives 
(Subsection 970.15404-4-1);
     A fee policy for laboratory management and operation, 
including Federally Funded Research and Development Centers (FFRDCs), 
(Subsection 970.15404-4-2);
     Limitation on using a fee schedule more than once in the 
determination of the fee amount for an annual period (Subsection 
970.15404-4-6);
     The exclusion of at least 20% of the estimated cost or 
price of subcontracts

[[Page 12221]]

from the fee base (Subsection 970.15404-4-6);
     Description of fee schedule work efforts in the area of 
construction directly supporting effort in the various Facility/Task 
Categories (Subsection 970.1504-4-8);
     The right of the Contracting Officer and DOE Operation/
Field Office Manager to make unilateral determinations (Subsections 
970.5204-54, 970.5204-86, and 970.5204-87); and
     Revision of the proposed Conditional Payment of Fee, 
Profit, or Incentives clause which establishes the portion of total 
available fee, profit or incentives that is subject to recovery due to 
failure to meet minimum requirements for specified level of performance 
or cost performance while ensuring proper emphasis on environment, 
safety and health, and catastrophic events, including contracts with 
fixed fees (Subsection 970.5204-86).

II. Disposition of Comments

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

Item 1--Special Considerations: Nonprofit Organizations

    Comment: The majority of the commenters opposed the Notice of 
Proposed Rulemaking at DEAR 970.15404-4-2, which would have placed 
limitations on the availability of fee for nonprofit organizations and 
educational institutions. Specifically, commenters expressed concerns 
that the proposed rulemaking did not reflect the diversity of interests 
of the contractors involved in managing laboratory operations. 
Commenters stated there were fundamental differences in structure and 
objectives between the diverse set of FFRDC contractors currently in 
operation in the DOE complex. The operators of FFRDCs represent a 
diverse set of organizations--educational institutions, educational 
consortiums, private institutions, technology companies, and 
combinations thereof.
    Commenters suggested the total circumstances particular to the 
FFRDC and the selected operating organization should be considered when 
establishing compensation. Commenters stated that the Notice of 
Proposed Rulemaking was predicated on invalid assumptions regarding 
contractor performance incentives to satisfy the needs of the 
laboratories. Rather than extend the Department's commercial fee policy 
with its focus on incentives tied to financial and performance 
considerations, commenters suggested that some form of the alternate 
proposal be adopted, but with an emphasis on non-financial incentives. 
Commenters suggested that the Department adopt a policy more in line 
with the alternative policy proposed in the Notice of Proposed 
Rulemaking that focused on FFRDCs.
    Further, many of the educational institutions that submitted 
comments sought to lessen the impact of Contract Reform liability 
provisions (62 FR 34842).
    Expressing concern that the alternative policy might not be 
prepared on time for the publication of the final rule, several 
commenters suggested that the publication of DEAR 970.15404-4-2 be 
delayed.
    While the majority of the commenters opposed the Notice of Proposed 
Rulemaking for the reasons described above, several commenters offered 
more general criticism that applied to both the proposed regulatory 
text and the alternate policy. Some commenters pointed out that the 
proposed regulatory text of DEAR 970.15404-4-2 did not provide adequate 
total available fee to attract the best business partners. Finally, a 
number of commenters questioned the Department's use of a definition of 
``nonprofit'' that was inconsistent with the definition contained in 
the Internal Revenue Code.
    Response: In preparing the Notice of Proposed Rulemaking, DOE 
recognized that there was no clear choice of a single policy which 
would allow the Department the flexibility to appropriately incentivize 
the performance of all of its laboratory contractors. Accordingly, 
while the Notice of Proposed Rulemaking proposed a fee policy at DEAR 
970.15404-4-2 for contracts with nonprofit organizations including 
educational institutions, it also requested interested parties to 
comment on an alternative to the proposed rulemaking that 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. The final rule at DEAR 970.15404-4-2 has retained those 
provisions of the Notice of Proposed Rulemaking at DEAR 970.15404-4-2 
that have not generally been in dispute. The final rule retains the 
Contracting Officer's authority to consider whether fee is an 
appropriate incentive in each FFRDC circumstance at DEAR 970.15404-4-
2(a). The Department recognizes that eliminating this commonly 
understood and accepted procedure would complicate rather than simplify 
the procurement process applied to FFRDCs. DOE agrees with the comments 
that the Notice of Proposed Rulemaking did not recognize the diversity 
of interests of the contractor operators of DOE laboratories.
    Again, the alternative proposed a policy that more adequately 
considered the diversity of contractor interests. Accordingly, the 
Department has adopted in the final rule the guiding principles 
contained in the alternate policy--a policy which applies to the 
contractors operating the Department's laboratories without 
specifically distinguishing between types of business organizations. To 
that end, the final rule, among other things, does not specifically 
define ``nonprofit organizations.'' The final rule DEAR 970.15404-4-2 
language provides a substantial degree of flexibility to Contracting 
Officers--including discretionary authority for the creation of 
performance incentives suited for local FFRDC operations. Nevertheless, 
because the purpose of the rulemaking is to implement the policy of 
linking the payment of fee to risk and performance, the final rule 
retains this requirement in DEAR 970.15404-4-2. As a result, the 
Contracting Officer under DEAR 970.15404-4-2 now has authority to 
consider whether fee is needed, and if so, how much is required, and 
the fee structure to incentivize optimal contractor performance.
    One of the primary rationales expressed in the alternate DEAR 
970.15404-4-2 in the Notice of Proposed Rulemaking for the change in 
fee policy was to establish uniformity and consistency in the payment 
of fees to FFRDC operators. Prior to this rulemaking, the Department's 
practices differed significantly from other agencies' contracting with 
similar organizations. The adoption of DEAR 970.15404-4-2 as contained 
in this final rule will bring the Department closer into conformance 
with other similarly situated Government agencies. In writing the final 
rule to apply to the management of the Department's laboratories, the 
considerations and requirements were revised at DEAR 970.15404-4-2 to 
reflect FAR Part 35 policy regarding FFRDCs and be more in line with 
other agency policies as requested by several commenters.

[[Page 12222]]

    The Contract Reform rule (62 FR 34842) imposed increased liability 
on contractors in several areas including statutorily based unallowable 
costs and costs due to failure to exercise prudent business judgment on 
the part of the contractor's managerial personnel. In this final rule, 
DOE is conforming its fee policy to the principles established by 
Contract Reform. The Department's decision is based on consideration of 
a number of internal and external factors, including parity with 
liabilities imposed on ``commercial'' contractors, accountability for 
taxpayer dollars, congressional interest and oversight, and the broad 
objectives of Contract Reform. Nevertheless, the Department recognized 
that the Notice of Proposed Rulemaking, in both the policy and the 
alternate, may not provide sufficient fee to compensate for the 
operator's assumption of both liability and performance risks that 
Contract Reform had shifted to the FFRDC operators. As a result, the 
final rule adds DEAR 970.15404-4-2(c)(4) to allow for the establishment 
of fee for the life of the contract for operation of laboratories. To 
provide educational or nonprofit organizations adequate compensation 
for the liability they assume under their contracts and the risk posed 
by having all or the majority of fee tied to performance, the final 
rule also: allows the provision of fee to educational institutions; 
allows for a performance fee which is higher than the fixed fee amount; 
and minimizes risk by making fee subject to downward adjustment only if 
performance is less than the target performance level stated in the 
contract. Further, the policy allows the establishment of a fixed fee 
or base fee in an amount reflective of the cost associated with the 
risk of the liabilities assumed.
    To the extent that a delay in implementation was requested, it is 
not believed that any such delay would result in any further 
improvements to DEAR 970.15404-4-2.
    In summary, the final rule at DEAR 970.15404-4-2 addresses special 
considerations for laboratory management and operation without 
distinguishing between the types of organizations operating the 
facilities; provides a substantial degree of flexibility to Contracting 
Officers; brings the Department closer into conformance with other 
similarly situated Government agencies; and allows for the 
establishment of fee for the life of the contract for the operation of 
laboratories.

Item 2--Calculating Fixed Fee

    A. Comment: Three commenters recommended that the Department 
conduct its negotiations and structure types of contracts more in 
accordance with FAR. These comments included a proposal to negotiate 
fees, to use FAR type cost-plus-incentive-fee or cost-plus-award-fee 
contracts, and to use a weighted guideline approach. One commenter 
recommended that fee not be artificially limited by fee schedules and 
that fee schedules be utilized only as a guide for estimating fee 
targets for negotiation. Six commenters recommended various alternative 
indexes which would factor in more labor costs or a broader index for 
inflation to represent the actual types of costs incurred by the 
Department's contractors. The commenters also asserted that the 
modifications to the fee schedules in the Notice of Proposed Rulemaking 
were inadequate to account for inflation, the additional risks from the 
added liabilities from Contract Reform, and the performance risk 
environment.
    Response: The nature of the management and operating contract does 
not lend itself to the application of the weighted guidelines approach. 
Therefore, the Department continues to use fee schedules associated 
with various categories of work as the foundation for determining fees. 
The schedules are regressive in nature, reflecting the general 
principle applied to government contracting which provides lower fee 
ranges for categories of cost which indicate less risk, complexity and 
technical value; and higher fee ranges for categories of cost which 
indicate greater risk, complexity and technical value (e.g., low fee 
range for manufacturing labor, high fee range for engineering labor). 
To better reflect the changing focus of the work being performed by the 
Department, an additional schedule was added in the Notice of Proposed 
Rulemaking to address environmental management work.
    As proposed in the Notice of Proposed Rulemaking and adopted in the 
final rule, the revised fee policy provides for the use of alternatives 
to the traditional management and operating cost and fee arrangements. 
However, the use of such alternatives is conditioned at DEAR 970.15404-
4-3 on obtaining and negotiating the costs for the alternative used and 
complying with the conditions of DEAR Part 915 and FAR Parts 15 and 16. 
In establishing fees under these alternative arrangements, a structured 
approach as set forth in FAR Part 15 and DEAR Part 915 will be used.
    As proposed, all of the fee schedules were adjusted based on 
inflation which occurred from 1991 through 1997. This resulted in an 
adjustment of 9.4% for the schedules in the Notice of Proposed 
Rulemaking. Some commenters criticized this adjustment as not truly 
representative of the actual inflation of costs incurred at the 
Department's sites. In response to these comments, DOE conducted a 
review of various indexes. After consideration of that review, the 
complexities of index selection, and the applicability of the indexes 
to the Department's specialized work, DOE determined to make no further 
adjustments to the schedules proposed in the Notice of Proposed 
Rulemaking. Nevertheless, in developing periodic inflation adjustments 
in the future, DOE will consider other indexes as alternatives for use 
if deemed better indicators of the DOE inflation experience.
    B. Comment: Four commenters requested a definition for each of the 
fee schedule work efforts at DEAR 970.15404-4-5 in order to reduce the 
subjectivity of categorizing work scope as production, research and 
development, or environmental management. They requested clarification 
of classifying primary mission work versus performing contract efforts 
(particularly environmental management) for the various fee schedules. 
Commenters also requested a clarification of the application of 
multiple fee schedules for multi-program facilities.
    Response: The Notice of Proposed Rulemaking and final rule at DEAR 
970.15404-4-5 allow for the work at a site to be broken into various 
categories and the cost of such work allocated to an appropriate fee 
schedule for the purposes of determining fee. There is latitude 
provided to Contracting Officers in determining the appropriate 
schedule against which to allocate the cost of various work categories. 
For example, the Environmental Management schedule is designed to 
include the grouping of various types of work related to environmental 
management, including waste management, environmental remediation, 
incidental construction, and incidental technology development/
demonstration. However, the Environmental Management schedule does not 
contemplate inclusion of significant work which would more properly be 
allocated to another schedule. For example, major construction 
performed by the prime contractor (e.g., construction of a 
vitrification facility) related to

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environmental management should be grouped with other construction 
projects using the construction schedule, while minor construction 
(e.g., construction of temporary facility in which to collect low level 
waste) incidental to environmental management should remain grouped 
with other environmental management projects using the Environmental 
Management schedule. No definitions of fee schedules were added to DEAR 
970.15404-4-5.
    The Notice of Proposed Rulemaking stated at DEAR 970.15404-4-6(c): 
``the fee base is to be allocated to the category reflecting the work 
to be performed,'' but did not state that each schedule should be used 
no more than once to calculate fee for an annual period. Dividing work 
and applying a fee schedule multiple times in a year would artificially 
raise the fee for the total work. This is because the fee rate declines 
as the total fee base increases. Each fee schedule is intended to apply 
annually to the total work of a particular type. DEAR 970.15404-4-6(e) 
was added to the final rule to clearly state this.
    Nevertheless, in unusual circumstances, e.g., where fee is to be 
determined for work which (1) is distinct, but related and of such 
magnitude that combining it for application against one schedule will 
result in an unreasonably low fee, or (2) covers more than an annual 
period such that combining the total work for application against one 
schedule will result in an unreasonably low fee, a schedule may be used 
more than once during a fee cycle with the approval of the Procurement 
Executive, or designee.

Item 3--Authority

    Comment: Four commenters recommended decreasing the approval level 
of decision authority from the Procurement Executive, or designee, to 
the Contracting Officer in areas of: base fee, total available fees 
exceeding fee schedules, and establishing fees for longer than the 
funding cycle. One commenter recommended increasing the level of 
decision authority from the Field Office Manager to DOE Headquarters 
for withholding earned fee under the ``Conditional Payment of Fee, 
Profit, or Incentives'' clause because of its subjective and unilateral 
basis, while another commenter recommended that determinations to 
withhold fee be made by the Contracting Officer with concurrence of the 
Procurement Executive and the Department's General Counsel.
    Response: The levels of decision authority specified in the fee 
policy reflect a balance between DOE Operations/Field Office Mangers 
and the Procurement Executive, or designee, for flexibility and 
authority to support mission objectives and establish consistency in 
the Department's application of fee. At this time, generally, authority 
regarding operational decisions is with DOE Operations/Field Office 
Managers, and Department-wide application of fee consistency decisions, 
including annual total available fee amounts not established in 
accordance with DEAR 970.15404-4 is with the Procurement Executive, or 
designee. As such, it has been determined that the Department will 
retain in the final rule Procurement Executive, or designee, approvals 
listed in the Notice of Proposed Rulemaking to reflect these 
considerations.

Item 4--Special Considerations: Cost-Plus-Award-Fee

    Comment: Six commenters recommended changes to the Facility/Task 
Categories and associated Classification Factors at DEAR 970.15404-4-8 
in several areas. The first area was that the fee policy give special 
consideration for facilities on Environmental Protection Agency's 
National Priority List (NPL) since higher risks are involved. 
Commenters recommended that those NPL-designated facilities continue, 
as stated in the current DEAR, to be classified at the site and/or 
contract level in recognition of the contractor's overall integration 
responsibilities and asked DOE to consider work at NPL sites to be 
among the ``riskiest'' work for DOE. The second comment area was that 
research and development (R&D) conducted at a laboratory was assigned 
too low a classification factor (lower than current DEAR) which three 
commenters believed downgraded the importance of R&D when laboratory 
R&D contractors are subject to the same risks as non-laboratory 
contractors. Two additional commenters recommended broadening the 
considerations to also consider financial risk, degree of managerial 
skill, and value of the task to DOE. They stated the considerations 
fall short in that they focus exclusively on the technical scope of 
work, and strongly urged DOE to consider other non-technical contractor 
challenges in its selection of Facility/Task Categories. Also, 
clarification was requested regarding the assignment of Facility/Task 
Categories and Classification Factors to the construction effort 
associated with the Facility/Task Categories.
    Response: The effort performed at NPL sites is included in the 
Facility/Task Categories based on the primary focus of the effort to be 
performed. NPL sites are all different. NPL work is at different stages 
of the environmental cleanup process, which impacts the amount of 
technical uncertainty and information available to determine risk to 
the Government. The work at the various sites has different waste 
types, components, special handling requirements, and regulatory 
requirements and should be classified accordingly. The Facility/Task 
Categories and associated Classification Factors accommodate the 
variety of categories of work and associated risks. Each category is 
assigned a factor by which the calculated fixed fee associated with 
that work should be increased if fee is no longer to be fixed, but tied 
entirely to performance. This factor reflects the potential risk of not 
earning the fee. It is not the Department's intent to create an equal 
progression between the factors associated with the different 
categories. With the creation of a Facility/Task Category for the 
performance of R&D work in a laboratory, performance risk is less on a 
relative scale, and, therefore, the factor of 1.25 remains unchanged 
from the Notice of Proposed Rulemaking at DEAR 970.15404-4-8(d).
    The Notice of Proposed Rulemaking at DEAR 970.15404-4-8(c) moves 
away from past approaches where a factor was applied on a site wide 
basis to one where the factor is applied at the work element level, 
which supports performance-based contracting concepts. Assignment of 
Facility/Task Categories and associated Classification Factors should 
be based on the technology used or the inherent risk of the work.
    DEAR 970.15404-4-4(b) in the Notice of Proposed Rulemaking allows 
judgmental evaluation of eight significant factors and the assignment 
of appropriate fee values according to financial and management risk. 
The value of tasks to DOE is reflected in the requirements subject to 
incentives, the amount of fee, and the allocation of fee.
    The final rule was revised at DEAR 970.15404-4-8(e) to clarify that 
construction directly supporting work in the various Facility/Task 
Categories is to be included in each Facility/Task Category.

Item 5--Fee Amount

    A. Comment: Four commenters stated that the Notice of Proposed 
Rulemaking appears to reduce available fees by eliminating base fee, 
requiring fee discounts in competitive solicitations, and expanding the 
scope of DEAR 970.5204-86, ``Conditional Payment of

[[Page 12224]]

Fee, Profit, or Incentives'' clause. These commenters recommended that 
no maximum available fee be set in competitive solicitations, that the 
policy should be a guideline not a means of ``fee fixing'' beyond 
statutory limits (FAR 15.404-4(c)(4)(i)), and that greater reliance be 
placed on competition and negotiation.
    Response: As part of the process of developing a final rule fee 
policy, DOE performed analysis using historical cost and fee data from 
actual contracts and applied different approaches to fee calculation as 
well as different variations of the fee policy. Additionally, DOE 
analyzed all data for FY 98 comparing total available fees as 
calculated by the current DEAR, the Notice of Proposed Rulemaking, and 
actual total available fee awarded. The FY 98 data reinforced previous 
analyses. After adjusting for the effects of inflation in the proposed 
fee schedules, total available fees calculated as set forth in the 
Notice of Proposed Rulemaking tended to be somewhat higher than those 
calculated under the current DEAR. This reflects, among other things, 
the greater risk associated with earning those fees. It was the 
Department's specific intent to provide a greater risk-reward ratio. 
The notable exception to somewhat higher fees was the total available 
fees tied to performance calculated for nonprofit organizations 
operating the Department's laboratories. In those cases where fee was 
paid to nonprofits in the past, the fees calculated under the final 
rule were lower than those previously awarded, due to the introduction 
of the new Facility/Task Category ``D'' and ``1.25'' factor for the 
performance of R&D in a laboratory in proposed DEAR 970.15404-4-8(d). 
However, under the final rule, not only nonprofit organizations but 
also educational institutions may be paid fee.
    Another facet of the fee policy which was observed by commenters to 
potentially reduce fee is its application to competitive solicitations. 
In most cases where the actual total available fee amount had been 
established as part of a competitive award process, the fees tended to 
be higher than the total available fees calculated using either the 
current DEAR or the Notice of Proposed Rulemaking. The Department has 
observed that competition forces on fee were not adequate given the 
weight generally attached to fee in the source selection process. 
Accordingly, DEAR 970.15404-4-1(f) is intended to establish the maximum 
available fee and fee amount targeted for negotiation for competitive 
solicitations or the initiation of negotiations for an extension of an 
existing contract. In view of this, the final fee rule remains 
unchanged for contracts at DEAR 970.15404-4-1(f), which was renumbered 
from DEAR 970.15404-4-1(d) and DEAR 970.5204-88 Limitation on Fee 
clause, stating the requirement that fixed fee and total available fee 
proposed not exceed the limits set forth in the policy. Fees that are 
proposed below the limits set in the Notice of Proposed Rulemaking and 
set by the final rule may be considered and evaluated as part of the 
award process.
    B. Comment: Use of Fixed Price contracts.
    One commenter recommended that three basic principles should 
underlie the Department's fee policy. It agreed that the more risk a 
contractor is willing to take, the more fee should be available. As 
envisioned by the commenter, however, this would include not only 
putting fee at risk, as proposed in the Notice of Proposed Rulemaking, 
but also putting the reimbursement of otherwise allowable, allocable, 
and reasonable costs at risk. The commenter also recommended that when 
work elements cannot be fixed price, award fees tied to objective 
measures should be used to the maximum extent practicable. The 
commenter further recommended that when work elements cannot be fixed 
price and award fees are tied to either objective or subjective 
measures, each measure should be directly tied to a sum certain portion 
of the fee pool.
    In addition, the commenter recommended that DOE include negative 
fee incentives in contracts when appropriate.
    Response: DOE added DEAR 970.15404-4-1(b) to the final rule to list 
the basic principles underlying the Department's fee policy. These 
principles are: the amount of fee should reflect the financial risk 
assumed by the contractor; when work elements cannot be fixed price, 
incentive fees (including award fees) should be tied to objective 
measures to the maximum extent appropriate; and when work elements 
cannot be fixed price and award fees are employed, they should be tied 
to either objective or subjective measures with each measure to the 
maximum extent appropriate tied to a specific portion of the fee pool. 
These three basic principles were discussed at DEAR 970.15404-4-3 in 
the Notice of Proposed Rulemaking and expanded in the final rule. DEAR 
970.15404-4-3 (c)(4) of the final rule clearly states that objective 
performance measures provide greater incentives for superior 
performance than do subjective performance measures and should be used 
to the maximum extent appropriate.
    The Department did not accept the recommendation to go beyond 
putting fee at risk by putting the reimbursement of otherwise 
allowable, allocable, and reasonable costs at risk. DOE did, however, 
add criteria for using negative fee incentives at DEAR 970.15404-4-
1(e). When performance is considered to be less than the level of 
performance set forth in the contract, the Department may adjust the 
fee determination to reflect such performance. DEAR 970.15404-4-3(c)(3) 
remains unchanged from the Notice of Proposed Rulemaking placing only 
fee at risk.
    After consideration of the types of management and operating 
contracts utilized at the Department, the Department intends to 
structure contracts in such a manner that the risk is manageable, and 
therefore, assumable by the contractor. To the extent the requirements 
of DEAR Part 915 and FAR Parts 15 and 16 can be met, the most 
appropriate contract type and fee arrangement listed at DEAR 970.15404-
4-3(a) should be used. If it is appropriate to use fixed price 
arrangements, the policy as proposed supports their use.
    DEAR 970.15404-4-3(b) remains unchanged from the Notice of Proposed 
Rulemaking continuing to require Procurement Executive, or designee, 
approval for use of a cost-plus-fixed-fee contract.
    C. Comment: Nine commenters recommended that DEAR 970.15404-4-6(b) 
either include all subcontracts and major contractor procurements, or 
not arbitrarily limit the amount of subcontract costs used to calculate 
the fee base. Their concerns focused on creating a bias for doing work 
in-house when subcontracting allows a contractor flexibility to adjust 
workforce, meet Contract Reform subcontracting initiatives, and comply 
with make or buy plans.
    Response: The exclusion of at least 20% of subcontractor costs from 
the fee base at DEAR 970.15404-4-6(b)(2) of the final rule reflects the 
general principle that the contributions of the prime contractor to the 
accomplishment of the work may be less as the amount of subcontracting 
increases. We note however, that in some cases, there are types of 
subcontracts that are as managerially demanding and complex to 
administer as the supervision of the workforce directly performing work 
for the prime contractor.
    The final rule is our attempt to balance these disparate aspects of 
subcontracting fee policy. It is not intended that the application of 
the

[[Page 12225]]

policy should discourage subcontracting, especially since the trend is 
toward outsourcing and privatization, but it is anticipated that in 
most cases, a portion of the subcontracting effort will require less 
oversight and involvement by the prime contractor. In that regard the 
rule allows the inclusion of up to 80% of subcontracting costs in the 
calculation of the fee base. It is noted that FAR Part 15 permits 100% 
of subcontract costs to be used in the base to calculate fee. However 
the FAR also provides that the amount of fee associated with 
subcontractor costs may be less than fee amounts associated with fee 
categories directly contributed to by the prime. As written, the final 
rule has been brought closer into conformance with the Federal 
contracting practices broadly applied under the FAR.
    With respect to the concern that this adjustment may also 
negatively impact the Department's ability to incentivize prime 
contractors to contract work out as in the case of the management and 
integrating contracts, there are many factors which will influence 
proper implementation of ``make or buy'' decisions, with fee only one 
of them. However, if, in the opinion of the Contracting Officer, it is 
evident that the exclusion of the 20% of subcontract costs is adversely 
impacting the implementation of the Department's goals, the Contracting 
Officer shall seek a waiver from the Procurement Executive, or 
designee, to include additional subcontractor costs above the 80%.
    In the final rule, DEAR 970.15404-4-6(b)(2) was clarified to state 
that the prime contractor's fee base shall exclude (1) at least 20% of 
the estimated cost or price of subcontracts and other major contractor 
procurements; and (2) up to 100% of such costs if they are of a 
magnitude or nature as to distort the technical and management effort 
actually required of the contractor.
    D. Comment: One commenter stated the fee policy did not go far 
enough in providing an acceptable mix of incentives necessary to 
encourage accelerated closure of the Department's facilities. They 
stated that projects must have flexibility to link greater fee 
opportunity to real value to the Government from significant 
acceleration of schedule. They believed there is a negative incentive 
for contractors to significantly expedite schedule/reduce cost because 
such action frequently will result in reduction of earned fee during 
the life of the contract.
    Response: It is beyond the scope of the fee policy to address the 
numerous ways incentives may be used, including their use in 
encouraging accelerated closure. However, with respect to accelerated 
closure, the Department is piloting the use of fees calculated using 
uncosted balances which result from achieved cost efficiency. The use 
of uncosted balances is being considered as a viable approach even 
though the Notice of Proposed Rulemaking precluded the use of any 
portion of an uncosted balance which has been previously included in a 
fee base used to calculate fee without the DEAR 970.15404-4-6(b)(9) 
waiver approval of the Procurement Executive, or designee. The concern 
the Department has in using an uncosted balance in calculating 
additional fee pertains to the accuracy of the estimates of the work 
which can be done within a given budget or the cost of the work 
scheduled to be performed. The approaches presently being explored 
attempt to ensure adequate fee is available to incentivize the 
acceleration of the work, while ensuring that the funds for its 
acceleration are available due to achieved efficiencies rather than to 
poor estimating. As an alternative approach, where cost, performance 
and schedule are negotiated and improved performance can be 
incentivized the requirements of DEAR Part 915 and FAR Parts 15 and 16 
would apply rather than the DEAR Part 970 provisions.
    DEAR 970.15404-4-6(b) remains unchanged from the Notice of Proposed 
Rulemaking in this area.

Item 6--Clauses

    A. Comment: Several comments were received questioning the need for 
the Contracting Officer to retain the unilateral right to determine or 
modify requirements, specific incentives, and the amount and allocation 
of fee under DEAR 970.5204-54 Total Available Fee: Base Fee Amount and 
Performance Fee Amount. Also, commenters suggested that all unilateral 
decisions should be subject to appeal under the Disputes clause. A 
number of commenters suggested that the Performance Evaluation and 
Measurement Plan (PEMP) should be bilaterally established.
    Response: DEAR 970.5204-54 Total Available Fee: Base Fee Amount and 
Performance Fee Amount clause continues to provide for the Contracting 
Officer to make unilateral determinations when the parties fail to 
reach agreement on work scope, cost, incentives, fee amounts and 
allocation, and fee determination. This right is retained due to the 
unique structure of the Department's major site management contracts. 
These contracts are awarded for a period of five years and usually 
contain an option for an additional five years; however, the scope of 
work is only defined for annual periods. The unilateral provision of 
the clause ensures that the Department can continue to require 
performance within defined bounds in the event of a disagreement with 
the contractor. The clause, DEAR 970.5204-54, has been changed from the 
Notice of Proposed Rulemaking to delete all reference to the Disputes 
clause of the contract. This change was made to reflect the fact that 
the policy will remain silent regarding the applicability of the 
Disputes clause to Contracting Officer decisions. It is the 
Department's position that applicability of the Contracts Dispute Act 
is provided by statute and needs no further amplification in the DOE 
acquisition policy.
    The PEMP is intended as a management tool for the government's use. 
This administrative plan has never been intended to be a comprehensive, 
legally binding contractual document. To have an administrative plan, 
which is subject to many changes, bilaterally agreed to would place an 
undue administrative burden on the parties involved; therefore, DEAR 
970.5204-54(d) was not changed in this area.
    B. Comment: Several comments questioned the equity of DEAR 
970.5204-86 Conditional Payment of Fee, Profit or Incentives clause 
which allows the government to unilaterally and subjectively reduce any 
otherwise earned fee, profit, or share of cost savings based on the 
occurrence of any one of several events. Several commenters sought 
clarification of the circumstances which would trigger the first two 
conditions identified in paragraphs (a) and (b) of the clause. A number 
of commenters requested that if the clause is to be used that it be 
restricted regarding the amount of fee, profit or contractor's share of 
cost savings which is subject to adjustment.
    Response: The Department is moving toward better defined 
performance-based contracts for the majority of its management and 
operating and similar contracts. However, these contracts retain broad 
requirements, characteristics and concerns which cannot be ignored when 
determining fee. The Department, in its implementation of performance-
based contracting, is attempting to narrow the focus to critical 
performance while maintaining acceptable performance overall. However, 
because of the breadth of the Department's requirements at its various 
sites, there is the potential that while focus is given to the 
performance of critical requirements, the

[[Page 12226]]

performance of other requirements, either due to their number or the 
cross cutting impact of many of them, if performed poorly, could 
seriously jeopardize overall contract performance. The use of this 
clause affords the Department flexibility to emphasize critical 
requirements (through the direct association to fee) while not ignoring 
the significant number of other requirements which still must be 
performed. This also allows the contractor to reasonably allocate its 
resources. The clause is intended to be more specific than similar 
clauses in the previous management and operating award fee contracts, 
but not so specific as to unduly limit the Department's recourse in the 
event of poor performance.
    Regarding paragraph (a) of the clause, the failure to have 
developed and obtained an approved Safety Management System by an 
agreed-to date would be a trigger. Failure to meet agreed upon 
performance commitments would also be a trigger, but any action taken 
is at the discretion of the DOE Operations/Field Office Manager. 
Regarding paragraph (b) of the clause, any of the examples in the 
clause, or incidences of a similar magnitude, would act as a trigger, 
but again any action taken is at the discretion of the DOE Operations/
Field Office Manager. In both instances, the triggering events should 
be well defined (e.g., the system and performance commitments) and 
agreed to between the DOE and the contractor. With regard to 
catastrophic events, DOE believes the language and examples provide 
sufficient clarity and definition.
    The DOE Operations/Field Office Manager also has been given broad 
latitude to exercise judgement in the application of any adjustment to 
fee in recognition of possible mitigating circumstances associated with 
any occurrence.
    The comments regarding restrictions on the amount of fee, profit or 
contractor's share of cost savings which is subject to adjustment were 
considered; and DOE revised the clause limiting the adjustment which 
could be made due to poor technical and cost performance.
    C. Comment: Five commenters stated that DEAR 970.5204-87 Cost 
Reduction clause was too limiting, overly prescriptive, and 
administratively burdensome. They stated that the complex 
administrative requirements in the clause may turn out to be a 
disincentive. One commenter asserted that the clause should only be 
used where there are adequate baseline definitions and the likelihood 
of savings sufficient to warrant the administrative and infrastructure 
expense.
    Response: This clause provides the opportunity for the Department 
to benefit from valid cost reductions, while providing contractors 
additional fee or a share of cost savings. Because the cost of most 
management and operating and similar contracts is not negotiated, the 
clause is more limiting and prescriptive than the standard value 
engineering clause found in the FAR. Accordingly, no changes were made 
in this area at DEAR 970.5204-87. The alternative, which is allowed by 
the fee policy, is to negotiate the cost of the work, rather than 
basing the cost of the work on budgets, and incorporate the FAR 
clauses. The clause defines a design, process, or method change as one 
which has established cost, technical and schedule baselines.
    D. Comment: Two commenters stated that DEAR 970.5204-88 Limitation 
on Fee creates artificial maximum fees beyond statutory limitation and 
will not attract quality contractors.
    Response: The fee amounts established by the revision to the fee 
policy are believed reasonable given the fact that fee is not heavily 
weighted in the Department's source selection evaluation criteria and 
that the competitive market place has not kept proposed fees within the 
policy limitations. For further discussion see Item 5A comment and 
response regarding fee discounts in competitive solicitations. DEAR 
970.5204-88 remains unchanged in this area.

Item 7--Clarifications

    Comment: Several commenters included minor clarifications, 
editorial comments or consistent terminology recommendations in the 
areas of ``annual'' funding cycle, fee amounts, and performance 
incentives; references to sections and subsections within the final 
rule; logical order; use of subjective measures; and determinations by 
the Government, Fee Determination Official, and Manager.
    Response: In almost every case, the nonsubstantive revisions for 
clarity were made and are contained in the final rule. The 
clarification of ``annual'' funding cycles, ``annual'' fee amounts, and 
``annual'' performance incentives was added to distinguish between fees 
now allowed to be negotiated for the life of the contract for 
laboratory operation; however, fee schedules both currently and 
historically are based on annual fee bases. For clarification, state 
taxes were added to DEAR 970.15404-4-6(b) as a specific exclusion to 
fee base. They previously were intended to fall within the exclusion 
category of costs which are of such magnitude or nature as to distort 
the technical and management effort actually required of the 
contractor. For consistency, references to Government determinations 
were changed to DOE Operations/Field Office Manager determinations. 
Subsections were renumbered to conform with the October 23, 1998 (63 FR 
56849) DEAR numbering changes to conform with September 30, 1997 (62 FR 
51224) FAR Part 15 rewrite.
    The following crosswalk reflects the DEAR numbering changes from 
the Notice of Proposed Rulemaking to the final rule:

------------------------------------------------------------------------
     Notice of proposed  rulemaking                 Final rule
------------------------------------------------------------------------
915.971-5..............................  915.404-4-71-5
915.972................................  915.404-4-72
970.1509...............................  970.15404-4
970.1509-1.............................  970.15404-4-1
970.1509-2.............................  970.15404-4-2
970.1509-3.............................  970.15404-4-3
970.1509-4.............................  970.15404-4-4
970.1509-5.............................  970.15404-4-5
970.1509-6.............................  970.15404-4-6
970.1509-7.............................  970.15404-4-7
970.1509-8.............................  970.15404-4-8
970.1509-9.............................  970.15404-4-9
970.1509-10............................  970.15404-4-10
970.1509-11............................  970.15404-4-11
970.5204-54............................  970.5204-54
970.5204-XX............................  970.5204-86
970.5204-YY............................  970.5204-87
970.5204-ZZ............................  970.5204-88
------------------------------------------------------------------------

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

[[Page 12227]]

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 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. Currently 
all 42 of the Department's management and operating and other site 
management operators are large businesses. Based on the history of the 
Department and the requirements contained in its management and 
operating contracts, the rule will not affect small entities as small 
businesses generally do not have the resources required to manage and 
operate the complex activities at the Department's largest sites. The 
rule establishes the policy for the payment of fee to prime 
contractors. There are no mandatory flowdown requirements to 
subcontractors and no significant economic impact on subcontractors. 
One commenter suggested that the fee base adjustment for subcontract 
costs may have an impact on small entities by altering the prime 
contractor's ``Make or Buy'' decisions. The fee base adjustment is a 
clarification of rather than a major change to the current DEAR which 
excludes subcontract costs if they distort the prime's contribution. 
The extent a prime subcontracts work is in accordance with its ``Make 
or Buy Plan,'' and while fee may be a factor, the decision to not 
subcontract is not driven by fee considerations. Based on the foregoing 
reasons, the Department certifies that this rule will not have a 
significant economic impact on a substantial number of small entities 
and, therefore, no regulatory flexibility analysis has been prepared.

D. Review Under the Paperwork Reduction Act

    No new information collection or record keeping requirements are 
imposed by this 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 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 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).

H. Review Under the Unfunded Mandates Reform Act of 1995

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

List of Subjects in 48 CFR Parts 915 and 970

    Government procurement.

    Issued in Washington, DC, on March 2, 1999.
Richard H. Hopf,
Director, Office 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 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. Subsection 915.404-4-71-5 is amended by revising paragraphs (d), 
(f), and (h) to read as follows:


Sec. 915.404-4-71-5   Fee schedules.

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

                     Construction Contracts Schedule
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
Up to $1 Million.........................  ...........  .......     5.47
1,000,000................................       54,700     5.47     3.88
3,000,000................................      132,374     4.41     3.28

[[Page 12228]]

 
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
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
Up to $1 Million.........................  ...........  .......     1.64
1,000,000................................       16,410     1.64     1.09
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

[[Page 12229]]

 
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  .......      013
------------------------------------------------------------------------

    3. Subsection 915.404-4-72 is amended by revising the introductory 
text of paragraph (a) to read as follows:


915.404-4-72   Special considerations for cost-plus-award-fee 
contracts.

    (a) When a contract is to be awarded on a cost-plus-award-fee basis 
several special considerations are appropriate. Fee objectives for 
management and operating contracts or other contracts as determined by 
the Procurement Executive, including those using the Construction, 
Construction Management, or Special Equipment Purchases/Subcontract 
Work schedules from 48 CFR 915.404-4-71-5, shall be developed pursuant 
to the procedures set forth in 48 CFR 970.15404-4-8. Fee objectives for 
other cost-plus-award-fee contracts shall be in accordance with 48 CFR 
916.404-2 and 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. Subsection 970.15404-4, including subsections 970.15404-4-1 
through 970.15404-4-11, is revised to read as follows:


970.15404-4  Fees for management and operating contracts.

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


970.15404-4-1  Fee policy.

    (a) DOE management and operating contractors may be paid a fee in 
accordance with the requirements of this subsection.
    (b) There are three basic principles underlying the Department's 
fee policy:
    (1) The amount of available fee should reflect the financial risk 
assumed by the contractor.
    (2) It is the policy of the Department, when work elements cannot 
be fixed price, incentive fees (including award fees) tied to objective 
measures should be used to the maximum extent appropriate.
    (3) When work elements cannot be fixed price and award fees are 
employed, they should be tied to either objective or subjective 
measures. Each measure should, to the maximum extent appropriate, be 
directly tied to a specific portion of the fee pool.
    (c) Fee objectives and amounts are to be determined for each 
contract. Standard fees or across-the-board fee 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 annual 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.
    (d) Annual fee amounts shall be established in accordance with this 
subsection. Annual amounts 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).
    (e)(1) Contracting Officers shall include negative fee incentives 
in contracts when appropriate. A negative fee incentive is one in which 
the contractor will not be paid the full target fee amount when the 
actual performance level falls below the target level established in 
the contract.
    (2) Negative fee incentives may only be used when:
    (i) A target level of performance can be established, which the 
contractor can reasonably be expected to reach;
    (ii) The value of the negative incentive is commensurate with the 
lower level of performance and any additional administrative costs;
    (iii) Factors likely to prevent attainment of the target level of 
performance are clearly within the control of the contractor; and
    (iv) The contract indicates clearly a level below which performance 
is not acceptable.
    (f) 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 970.15404-4, and the fee amount targeted for negotiation, if less, 
with the Procurement Executive, or designee. Solicitations shall 
identify maximum available fee under the contract and may invite 
offerors to propose fee less than the maximum available.
    (g) When a contract subject to this subsection 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 total available fee amount above that otherwise provided 
by this subsection. (h) Multiple fee arrangements should be used in 
accordance with 48 CFR 970.15404-4-3.


970.15404-4-2  Special considerations: laboratory management and 
operation.

    (a) For the management and operation of a laboratory, the 
contracting officer shall consider whether any fee is appropriate. 
Considerations should include:
    (1) The nature and extent of financial or other liability or risk 
assumed or to be assumed under the contract;
    (2) The proportion of retained earnings (as established under 
generally accepted accounting methods) that are utilized to fund the 
performance of work related to the DOE contracted effort;
    (3) Facilities capital or capital equipment acquisition plans;
    (4) Other funding needs, to include contingency funding, working 
capital funding, and provision for funding unreimbursed costs deemed 
ordinary and necessary;

[[Page 12230]]

    (5) The utility of fee as a performance incentive; and
    (6) The need for fee to attract qualified contractors, 
organizations, and institutions.
    (b) In the event fee is considered appropriate, the contracting 
officer shall determine the amount of fee in accordance with this 
subsection.
    (1) Costs incurred in the operation of a laboratory that are 
allowable and allocable under the cost principles (i.e., commercial 
using FAR 31.2, nonprofit using OMB Circular A-122, or university-
affiliated using OMB Circular A-21), regulations, or statutes 
applicable to the operating contractor should be classified as direct 
or indirect (overhead or G&A) charges to the contract and not included 
as proposed fee. Exceptions must be approved by the Procurement 
Executive, or designee.
    (2) Except as specified in 48 CFR 970.15404-4-2(c)(3), the maximum 
total amount of fee shall be calculated in accordance with 48 CFR 
970.15404-4-4 or 48 CFR 970.15404-4-8, as appropriate. The total amount 
of fee under any laboratory management and operating contract or other 
designated contract shall not exceed, and may be significantly less 
than, the result of that calculation. In determining the total amount 
of fee, the contracting officer shall consider the evaluation of the 
factors in paragraph (a) of this subsection as well as any benefits the 
laboratory operator will receive due to its tax status.
    (c) In the event fee is considered appropriate, the contracting 
officer shall establish the type of fee arrangement in accordance with 
this subsection.
    (1) The amount of fee may be established as total available fee 
with a base fee portion and a performance fee portion. Base fee, if 
any, shall be an amount in recognition of the risk of financial 
liability assumed by the contractor and shall not exceed the cost risk 
associated with those liabilities or the amount calculated in 
accordance with 48 CFR 970.15404-4-4, whichever is less. The total 
available fee, excepting any base fee, shall normally be associated 
with performance at or above the target level of performance as defined 
by the contract. If performance in either of the two general work 
categories appropriate for laboratories (science/technology and 
support) is rated at less than the target level of performance, the 
total amount of the available fee shall be subject to downward 
adjustment. Such downward adjustment shall be subject to the terms of 
48 CFR 970.5204-86, ``Conditional Payment of Fee, Profit, or 
Incentives,'' clause, if contained in the contract.
    (2) The amount of fee may be established as a fixed fee in 
recognition of the risk of financial liability to be assumed by the 
contractor, with such fixed fee amount not exceeding the cost risk 
associated with the liabilities assumed or the amount of fee calculated 
in accordance with 48 CFR 970.15404-4-4, whichever is less.
    (3) If the fixed fee or total available fee exceeds 75% of the fee 
that would be calculated per 48 CFR 970.15404-4-4 or 48 CFR 970.15404-
4-8; or if a fee arrangement other than one of those set forth in 
paragraphs (c) (1) or (2) of this subsection is considered appropriate, 
the approval of the Procurement Executive, or designee, shall be 
obtained prior to its use.
    (4) Fee, if any, as well as the type of fee arrangement, will 
normally be established for the life of the contract. It will be 
established at time of award, as part of the extend/compete decision, 
at the time of option exercise, or at such other time as the parties 
can mutually reach agreement, e.g., negotiations. Such agreement shall 
require the approval of the Procurement Executive, or designee.
    (5) Fee established for longer than one year shall be subject to 
adjustment in the event of a significant change (greater than +/-10% or 
a lessor amount if appropriate) to the budget or work scope.
    (6) Retained earnings (reserves) shall be identified and a plan for 
their use and disposition developed.
    (7) The use of retained earnings as a result of performance of 
laboratory management and operation may be restricted if the operator 
is an educational institution.


970.15404-4-3  Types of contracts and fee arrangements.

    (a) Contract types and fee arrangements suitable for management and 
operating contracts may include cost, cost-plus-fixed-fee, cost-plus-
award-fee, cost-plus-incentive-fee, fixed-price incentive, firm-fixed-
price or any combination thereof. See FAR 16.1. In accordance with 48 
CFR 970.15404-4-1(b)(1), the fee arrangement chosen for each work 
element should reflect the financial risk for project failure that 
contractors are willing to accept. Contracting officials shall 
structure each contract and the elements of the work in such a manner 
that the risk is manageable and, therefore, assumable by the 
contractor.
    (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 in instances other than 
those set forth in 48 CFR 970.15404-4-2(c)(2) 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) Where work cannot be adequately defined to the point that a 
fixed price contract is acceptable, the attainment of acquisition 
objectives generally will be enhanced by using a cost-plus-award-fee 
contract or other incentive fee arrangement to effectively motivate the 
contractor to superior performance and to provide the Department with 
flexibility to evaluate actual performance and the conditions under 
which it was achieved.
    (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 total available fee amount including the performance fee amount 
the contractor may earn, in whole or in part during performance, shall 
be established annually (or as otherwise agreed to by the parties and 
approved by the Procurement Executive, or designee), in an amount 
sufficient to motivate performance excellence.
    (3) However, consistent with concepts of performance-based 
contracting, it is Departmental policy to place fee at risk based on 
performance. Accordingly, a base fee amount will be available only when 
approved in advance by the Procurement Executive, or designee, except 
as permitted in 48 CFR 970.15404-4-2(c)(1). Any base fee amount shall 
be fixed, expressed as a percent of the total available fee at 
inception of the contract, and shall not exceed that percent during the 
life of the contract.
    (4) The performance fee amount may consist of an objective fee 
component and a subjective fee component. Objective performance 
measures, when appropriately applied, provide greater incentives for 
superior performance than do subjective performance measures and should 
be used to the maximum extent appropriate. Subjective measures should 
be used when it is not feasible to devise effective predetermined 
objective measures applicable to cost, technical performance, or 
schedule for particular work elements.
    (d) Consistent with performance-based contracting concepts,

[[Page 12231]]

performance objectives and measures 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 should be used. The contract should 
identify the amount and allocation of fee to each performance result or 
outcome.
    (e) Because the nature and complexity of the work performed under a 
management and operating contract may be varied, opportunities may 
exist to utilize multiple contract types and fee arrangements. 
Consistent with paragraph (a) of this subsection and FAR 16.1, the 
contracting officer should apply that contract type or fee arrangement 
most appropriate to the work component. However, multiple contract 
types or fee arrangements:
    (1) Must conform to the requirements of DEAR Part 915 and FAR Parts 
15 and 16, and
    (2) Where appropriate to the type, must be supported by
    (i) Negotiated costs subject to the requirements of the Truth in 
Negotiations Act,
    (ii) A pre-negotiation memorandum, and
    (iii) A plan describing how each contract type or fee arrangement 
will be administered.
    (f) Cost reduction incentives are addressed in 48 CFR 970.5204-87, 
``Cost Reduction.'' This clause provides for incentives for 
quantifiable cost reductions associated with contractor proposed 
changes to a design, process, or method that has an established cost, 
technical, and schedule baseline, is defined, and is subject to a 
formal control procedure. The clause is to be included in management 
and operating contracts as appropriate. Proposed changes must be: 
initiated by the contractor, innovative, applied to a specific project 
or program, and not otherwise 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 
are subject to all appropriate requirements set forth in this 
regulation.
    (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 that 
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 
its implementation.


970.15404-4-4  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, as appropriate, their assumption of the risk that some 
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 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 evaluation of the following eight 
significant factors, as outlined in order of importance, and the 
assignment of appropriate fee values (subject to the limitations on 
fixed fee in 48 CFR 970.15404-4-5):
    (1) The presence or absence of financial risk, including the type 
and terms of the contract;
    (2) The relative difficulty of work, including specific performance 
objectives, environment, safety and health concerns, and the technical 
and administrative knowledge, and skill necessary for work 
accomplishment and experience;
    (3) Management risk relating to performance, including:
    (i) Composite risk and complexity of principal work tasks required 
to do the job;
    (ii) Labor intensity of the job;
    (iii) Special control problems; and
    (iv) Advance planning, forecasting and other such requirements;
    (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 having the opportunity 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 annual fixed fee 
negotiation is established by evaluating the above factors, assigning 
fee values to them, and totaling the resulting amounts (subject to 
limitations on total fixed fee in 48 CFR 970.15404-4-5).


970.15404-4-5  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 calculated 
annually.
    (b) Fee schedules representing the maximum allowable annual 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
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
Up to $1 Million.........................  ...........  .......     7.66
1,000,000................................       76,580     7.66     6.78

[[Page 12232]]

 
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
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------


                    Environmental Management Efforts
------------------------------------------------------------------------
                                                          Fee     Incr.
            Fee base (dollars)                 Fee        (per     (per
                                            (dollars)    cent)    cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------


[[Page 12233]]

970.15404-4-6  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 annual 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 subsection, shall exclude:
    (1) Any part of the estimated cost of capital equipment (other than 
special equipment) which the contractor procures by subcontract or 
other similar costs which is of such magnitude or nature as to distort 
the technical and management effort actually required of the 
contractor;
    (2) At least 20% of the estimated cost or price of subcontracts and 
other major contractor procurements;
    (3) Up to 100% of the estimated cost or price of subcontracts and 
other major contractor procurements if they are of a magnitude or 
nature as to distort the technical and management effort actually 
required of the contractor;
    (4) Special equipment as defined in 48 CFR 970.15404-4-7;
    (5) Estimated cost of Government-furnished property, services and 
equipment;
    (6) All estimates of costs not directly incurred by or reimbursed 
to the operating contractor;
    (7) Estimates of home office or corporate general and 
administrative expenses that shall be reimbursed through the contract;
    (8) Estimates of any independent research and development cost or 
bid and proposal expenses that may be approved under the contract;
    (9) Any cost of work funded with uncosted balances previously 
included in a fee base of this or any other contract performed by the 
contractor;
    (10) Cost of rework attributable to the contractor; and
    (11) State taxes.
    (c) In calculating the annual 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 915.404-4 relating to architect-engineer or 
construction fees and 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 970.15404-4-7 relating to special equipment.
    (e) No schedule set forth in 48 CFR 915.404-4-71-5 or 48 CFR 
970.15404-4-5 shall be used more than once in the determination of the 
fee amount for an annual period, unless prior approval of the 
Procurement Executive, or designee, is obtained.


970.15404-4-7  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 which shall not exceed the maximum fee allowable as 
established using the schedule in 48 CFR 915.404-4-71-5(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) For purposes of this subsection, 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 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 
915.404-4-71-5(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.


970.15404-4-8  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 annual performance incentives identified under these 
contracts are funded from the annual total available fee, which 
consists of a base fee amount (which may be zero) and a performance fee 
amount (which typically will consist of an incentive fee component for 
objective performance requirements, an award fee component for 
subjective performance requirements, or both).
    (c) The annual total available fee for the contract shall equal the 
product of the fee(s) that would have been calculated for an annual 
fixed fee contract and the classification factor(s) most appropriate 
for the facility/task. If more than one fee schedule is applicable to 
the contract, the annual total available fee shall be the sum of the 
available fees derived proportionately 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.......................................................           3.0
B.......................................................           2.5
C.......................................................           2.0
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:

[[Page 12234]]

    (i) The manufacture, assembly, retrieval, disassembly, or disposal 
of nuclear weapons with explosive potential;
    (ii) The physical cleanup, processing, handling, or storage of 
nuclear radioactive or toxic chemicals with consideration given to the 
degree the nature of the work advances state of the art technologies in 
cleanup, processing or storage operations and/or the inherent 
difficulty or risk of the work is significantly demanding when compared 
to similar industrial/DOE settings (i.e., nuclear energy processing, 
industrial environmental cleanup);
    (iii) Construction of facilities such as nuclear reactors, atomic 
particle accelerators, or complex laboratories or industrial units 
especially designed for handling radioactive materials;
    (iv) Research and development directly supporting paragraphs 
(e)(1)(i), (ii), or (iii) of this subsection and not conducted in a 
laboratory, or
    (v) As designated by the Procurement Executive, or designee. 
(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 uses 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;
    (v) Construction of facilities involving operations requiring a 
high degree of design layout or process control;
    (vi) Research and development directly supporting paragraphs 
(e)(2)(i), (ii), (iii), (iv) or (v) of this subsection and not 
conducted in a laboratory; or
    (vii) As designated by the Procurement Executive, or designee. 
(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 uses 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);
    (iv) Construction of facilities involving operations requiring 
normal processes and operations; general or administrative service 
buildings; or routine infrastructure requirements;
    (v) Research and development directly supporting paragraphs 
(e)(3)(i), (ii), (iii) or (iv) of this subsection and not conducted in 
a laboratory; or
    (vi) As designated by the Procurement Executive, or designee. 
(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 and a method of fee 
determination tied to the method of rating.
    (i) Prior approval of the Procurement Executive, or designee, is 
required for an annual total available fee amount exceeding the 
guidelines in paragraph (c) of this subsection.
    (j) DOE Operations/Field Office Managers 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.


970.15404-4-9  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 48 CFR 970.15404-4-4 
and 48 CFR 970.15404-4-8 may be allowed with the approval of the 
Procurement Executive, or designee. Requests to allow fees in excess of 
those provided under other provisions of this fee policy must be 
accompanied by a written justification with detailed supporting 
rationale as to how the specific circumstances satisfy the two criteria 
listed in this Subsection.


970.15404-4-10  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 
970.15404-4-4; and discussion of any other relevant provision of this 
Subsection.


970.15404-4-11 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 
determined by the Procurement Executive, or designee, that include 
cost-plus-award-fee arrangements.
    (b) The contracting officer shall insert the clause at 48 CFR 
970.5204-86, ``Conditional Payment of Fee, Profit, or Incentives,'' in 
management and operating contracts, and other contracts determined by 
the Procurement Executive, or designee. Further, 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, Alternate I shall be included in such contracts awarded on a 
cost-plus-award-fee, multiple fee, or incentive fee basis.
    (c) The contracting officer shall insert the clause at 48 CFR 
970.5204-87, ``Cost Reduction,'' in management and operating contracts, 
and other contracts determined by the Procurement Executive, or 
designee, if cost savings programs are contemplated.
    (d) The Contracting Officer shall insert the provision at 48 CFR 
970.5204-88, ``Limitation on Fee,'' in solicitations for management and 
operating contracts, and other contracts determined by the Procurement 
Executive, or designee.

[[Page 12235]]

    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 970.15404-4-11(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 (April 
1999)

    (a) Total available fee. Total available fee, consisting of a 
base fee amount (which may be zero) 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 and, if exceeding one year, approved by the Procurement 
Executive, or designee, the Contracting Officer and Contractor shall 
enter into negotiation of the requirements for the year or 
appropriate period, including the evaluation areas and individual 
requirements subject to incentives, the total available fee, and the 
allocation of fee. The Contracting Officer shall modify this 
contract at the conclusion of each negotiation to reflect the 
negotiated requirements, evaluation areas and individual 
requirements subject to incentives, the total available fee, and the 
allocation of fee. In the event the parties fail to agree on the 
requirements, the evaluation areas and individual requirements 
subject to incentives, the total available fee, or the allocation of 
fee, a unilateral determination will be made by the Contracting 
Officer. 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 mutually agreed to between the parties 
and 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 
specific incentivized requirements.
    (2) The DOE Operations/Field Office Manager, or designee, will 
be (insert title of DOE Operations/Field Office Manager, or 
designee). The contractor agrees that the determination as to the 
total available fee earned is a unilateral determination made by the 
DOE Operations/Field Office Manager, or designee .
    (3) The evaluation of contractor performance shall be in 
accordance with the Performance Evaluation and Measurement Plan(s) 
described in subparagraph (d) of this clause unless otherwise set 
forth in the contract. The Contractor shall be promptly advised in 
writing of the fee determination, and the basis of the fee 
determination. 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, it will be considered by the DOE Operations/Field 
Office Manager, or designee, who 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, Profit, 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 address all of the 
requirements of contract performance specified in the contract 
directly or by reference. A copy of the Performance Evaluation and 
Measurement Plan(s) shall be provided to the Contractor:
    (i) Prior to the start of an evaluation period if the 
requirements, evaluation areas, specific incentives, amount of fee, 
and allocation of fee to such evaluation areas and specific 
incentives 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 requirements, evaluation 
areas, specific incentives, amount of fee, and allocation of fee to 
such evaluation areas and specific incentives 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 should be 
objective, but may also include subjective criteria. 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 DOE Operations/Field Office Manager, or 
designee, 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 by 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 
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 DOE Operations/Field Office Manager, or 
designee, 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 DOE Operations/Field Office Manager, or 
designee, will review the Contractor's self-assessment, if 
submitted, as part of its independent evaluation of the contractor's 
management during the period.

[[Page 12236]]

A self-assessment, in and of itself may not be the only basis for 
the award fee determination.
    Alternate IV: When the DOE Operations/Field Office Manager, or 
designee, 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 DOE Operations/Field 
Office Manager, or designee, will review the Contractor's self-
assessment, if submitted, as part of its independent evaluation of 
the Contractor's management during the period. A self-assessment, in 
and of itself may not be the only basis for the award fee 
determination.

    7. Subsection 970.5204-86, Conditional Payment of Fee, Profit, or 
Incentives; 970.5204-87, Cost Reduction; and 970.5204-88, Limitation on 
Fee, are added to read as follows:


970.5204-86  Conditional payment of fee, profit, or incentives.

    As prescribed in 48 CFR 970.15404-4-11(b), insert the following 
clause:

Conditional Payment of Fee, Profit, Or Incentives (April 1999)

    In order for the Contractor to receive all otherwise earned fee, 
fixed fee, profit, or share of cost savings under the contract in an 
evaluation period, the Contractor must meet the minimum requirements 
in paragraphs (a) and (b) of this clause and if Alternate I is 
applicable (a) through (d) of this clause. If the Contractor does 
not meet the minimum requirements, the DOE Operations/Field Office 
Manager or designee may make a unilateral determination to reduce 
the evaluation period's otherwise earned fee, fixed fee, profit or 
share of cost savings as described in the following paragraphs of 
this clause.
    (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/Field Office Manager or designee, at his/her sole 
discretion, may reduce any otherwise earned fees, fixed fee, 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 Federal, contractor, or subcontractor employees or the 
general public, loss of control over classified or special nuclear 
material, or significant damage to the environment), the DOE 
Operations/Field Office Manager or designee may reduce any otherwise 
earned fee for the evaluation period by an amount up to the amount 
earned. In determining any diminution of fee, fixed fee, profit, or 
share of cost savings resulting from a catastrophic event, the DOE 
Operations/Field Office Manager or 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.
    Alternate I: Add the following paragraphs (c) and (d) in 
contracts awarded on a cost-plus-award-fee, incentive fee or 
multiple fee basis:
    (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 unless an otherwise minimal level of 
performance has been established in the specific incentive;
    (ii) All of the performance requirements directly related to 
requirements specifically incentivized at a level of performance 
such that the overall performance of these related 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/Field Office Manager, or designee, may 
reduce any otherwise earned fee, fixed fee, profit, or shared net 
savings for the evaluation period. Such reduction shall not result 
in the total of earned fee, fixed fee, profit, or shared net savings 
being less than 25% of the total available fee amount. Such 25% 
shall include base fee, if any.
    (d) Minimum requirements for cost performance.
    (1) Requirements incentivized by other than cost incentives must 
be performed within their specified cost constraint 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/
Field Office Manager, or designee, at his/her sole discretion, may 
reduce in whole or in part any otherwise earned fee, fixed fee, 
profit, or shared net savings for the evaluation period. Such 
reduction shall not result in the total of earned fee, fixed fee, 
profit or shared net savings being less than 25% of the total 
available fee amount. Such 25% shall include base fee, if any.


970.5204-87  Cost reduction.

    As prescribed in 48 CFR 970.15404-4-11(c), insert the following 
clause:
    Cost Reduction (April 1999)
    (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) of this clause.
    (b) Definitions.
    Administrative cost is the contractor cost of developing and 
administering the CRP.
    Design, process, or method change is a change to a design, 
process, or method which has established cost, technical and 
schedule 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.
    DOE cost is the Government cost incurred implementing and 
validating the CRP.
    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 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 is the 
difference between the negotiated target cost of performing an 
effort as negotiated and the actual allowable cost of performing 
that effort or

[[Page 12237]]

    (2) A design, process, or method change, which occurs in the 
fiscal year in which the change is accepted and the subsequent 
fiscal year, and is 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 (New Proposed 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 a discussion of 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 cost, technical, and schedule 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.
    (f) 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.
    (g) 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 shall be adjusted to remove the estimated cost and 
fee amount associated with the CRP effort.
    (h) 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, not to exceed 25% of the shared net savings. The 
specific percentage and sharing period shall be set forth in the 
contractual document.
    (i) Validation of Shared Net Savings. The Contracting Officer 
shall validate actual shared net savings. If actual shared net 
savings cannot be validated, the contractor will not be entitled to 
a share of the net shared savings.
    (j) 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.
    (k) 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.


970.5204-88  Limitation on Fee.

    As prescribed in 48 CFR 970.15404-4-11(d), insert the following 
provision:

Limitation on Fee (April 1999)

    For the purpose of this solicitation, fee amounts shall not 
exceed the total available fee allowed by the fee policy at 48 CFR 
970.15404-4 or as specifically stated elsewhere in the solicitation. 
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 970.15404-4-4; and 
total available fee to not exceed an amount established pursuant to 
48 CFR 970.15404-4-8; or fixed fee or total available fee to an 
amount as specifically stated elsewhere in the solicitation.

[FR Doc. 99-6064 Filed 3-10-99; 8:45 am]
BILLING CODE 6450-01-P