[Federal Register Volume 64, Number 65 (Tuesday, April 6, 1999)]
[Rules and Regulations]
[Pages 16649-16651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8454]


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DEPARTMENT OF ENERGY

48 CFR Parts 909 and 970

RIN 1991-AB44


Acquisition Regulations; Performance Guarantees

AGENCY: Department of Energy.

ACTION: Final rule.

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

EFFECTIVE DATE: This rule will take effect May 6, 1999.

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

SUPPLEMENTARY INFORMATION:
I. Background.
II. Resolution of Comment.
III. Procedural Requirements.
    A. Review Under Executive Order 12866.
    B. Review Under Executive Order 12988.
    C. Review Under the Regulatory Flexibility Act.
    D. Review Under the Paperwork Reduction Act.
    E. Review Under the National Environmental Policy Act.
    F. Review Under Executive Order 12612.
    G. Review Under Small Business Regulatory Enforcement Fairness 
Act of 1996.

[[Page 16650]]

    H. Review Under the Unfunded Mandates Reform Act of 1995.

I. Background

    The Department of Energy in certain cases requires that the 
contractor be a corporate entity organized specifically for the 
performance of the contract at a specific DOE site. This requirement 
occurs regularly in the award of management and operating contracts and 
is intended (1) to assure the dedication of the contractor to the 
performance of the contract; (2) to limit involvement of the Department 
with the corporate parent; (3) to isolate the contractor from the 
parent for purposes of security and classification matters; (4) to 
limit the flow of information between the contractor and its parent, 
limiting a potential source of organizational conflict of interest; (5) 
to isolate the accounting system of the contractor, since often the 
budget and accounting systems of such contractors are integrated into 
DOE's budget and accounting systems; and (6) to limit the necessity of 
corporate support thereby reducing or negating a basis for charging 
general and administrative expense to the contract.
    Such dedicated contractors, however, generally have limited assets. 
In most cases, without consideration of the corporate assets of the 
parent entity(ies), the DOE Contracting Officer would not be able to 
make a determination that the contractor was financially responsible 
and had sufficient resources available to assure successful performance 
of the contract.
    It has been a common practice of the Department in such instances 
for the parent entity(ies) to provide some form of guarantee of 
performance. While there are other means for the parent to guarantee 
the subsidiary's fulfillment of all its contractual obligations, such 
as an unconditional letter of credit, the most appropriate means under 
these circumstances is a contractually binding performance guarantee. 
This rulemaking incorporates the requirement for a performance 
guarantee (or, where appropriate, equivalent enforceable commitment) 
into the Department of Energy Acquisition Regulation.
    The proposed rule was published in the Federal Register on November 
9, 1998 (63 FR 60268).

II. Resolution of Comment

    One comment was received in response to the proposed rule. It 
suggests that the solicitation provision be modified to state 
affirmatively that the performance guarantee is not intended to create 
third party beneficiary status in any third party. The comment further 
states that DOE recognizes this issue in the model performance 
guarantee provided in other DOE guidance. The commenter seems to 
believe that the solicitation provision is intended to be included in 
the contract. That is not the case. DOE has chosen not to make the 
suggested change since statements made in solicitation are generally 
not binding after contract award, and the solicitation provision is 
intended only to put prospective offerors on notice of the requirement 
for a performance guarantee acceptable as a condition of award and will 
not, itself, become part of the contract.
    The solicitation notice as published in the proposed rule contained 
a second paragraph putting prospective offerors on notice that if a 
proposal is submitted by multiple entities, a performance guarantee 
must be executed by each, making each jointly and severally liable. We 
have deleted this paragraph from the notice. It is unnecessary because 
the same requirement is discussed at both 909.104-3(e) and 970.0902(b) 
of this rule, and the notice states that the performance guarantee(s) 
must be to DOE's satisfaction.

III. Procedural Requirements

A. Review Under Executive Order 12866

    Today's regulatory action has been determined not to be a 
``significant regulatory action'' under Executive Order 12866, 
``Regulatory Planning and Review,'' (58 FR 51735, October 4, 1993). 
Accordingly, this final rule was not subject to review under that 
Executive Order by the Office of Information and Regulatory Affairs of 
the Office of Management and Budget (OMB).

B. Review Under Executive Order 12988

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

C. Review Under the Regulatory Flexibility Act

    This final rule has been reviewed under the Regulatory Flexibility 
Act 5 U.S.C. 601, et seq., which requires preparation of an initial 
regulatory flexibility analysis for any rule that must be proposed for 
public comment and that is likely to have significant economic impact 
on a substantial number of small entities. The contracts to which this 
rulemaking apply involve award to newly formed subsidiaries organized 
by a parent corporations to perform specific DOE contracts. In such 
instances, the parent will be required to guarantee the performance of 
the subsidiary. There would not be an adverse economic impact on 
contractors or subcontractors. In addition, DOE management and 
operating contractors historically have not been small entities. 
Accordingly, DOE certifies that this final rule would not have a 
significant economic impact on a substantial number of small entities, 
and, therefore, no regulatory flexibility analysis has been prepared.

D. Review Under the Paperwork Reduction Act

    No additional information or record keeping requirements are 
imposed by this rulemaking. Accordingly, no OMB clearance is required 
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

E. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this final rule falls into a 
class of actions which would not individually or cumulatively have 
significant impact on the human environment, as determined by DOE's 
regulations (10 CFR part 1021, subpart D) implementing the National

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Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.). 
Specifically, this final rule is categorically excluded from NEPA 
review because the amendments to the DEAR would be strictly procedural 
(categorical exclusion A6). Therefore, this final rule does not require 
an environmental impact statement or environmental assessment pursuant 
to NEPA.

F. Review Under Executive Order 12612

    Executive Order 12612, (52 FR 41685, October 30, 1987), requires 
that regulations, rules, legislation, and any other policy actions be 
reviewed for any substantial direct effects on States, on the 
relationship between the Federal Government and the States, or in the 
distribution of power and responsibilities among the various levels of 
Government. If there are sufficient substantial direct effects, then 
the Executive Order requires the preparation of a federalism assessment 
to be used in all decisions involved in promulgating and implementing a 
policy action. This final rule merely reflects current practice 
relating to determinations of responsibility. States which contract 
with DOE will be subject to this rule. However, DOE has determined that 
this rule would not have a substantial direct effect on the 
institutional interests or traditional functions of the States.

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

    As required by 5 U.S.C. 801, DOE will report to Congress 
promulgation of the rule prior to its effective date. The report will 
state that it has been determined that this final 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 final rulemaking would only affect private sector 
entities, and the impact is less than $100 million.

List of Subjects in 48 CFR Parts 909 and 970

    Government procurement.

    Issued in Washington, D.C. on March 30, 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 909--CONTRACTOR QUALIFICATIONS

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

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

    2. Subsection 909.104-3 is added as follows:


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

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

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

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

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

    4. Section 970.0902 is added as follows:


970.0902  Determination of responsibility.

    (a) In the award of a management and operating contract, the 
contracting officer shall determine that the prospective contractor is 
a responsible contractor and is capable of providing all necessary 
financial, personnel, and other resources in performance of the 
contract.
    (b) DOE contracts with entities that have been created solely for 
the purpose of performing a specific management and operating contract. 
Such a newly created entity generally will have very limited financial 
and other resources. In such instances, when making the determination 
of responsibility required under this section, the contracting officer 
may evaluate the financial resources of other entities only to the 
extent that those entities are legally bound, jointly and severally if 
more than one, by means of a performance guarantee or other equivalent 
enforceable commitment to supply the necessary resources to the 
prospective contractor and to assume all contractual obligations of the 
prospective contractor. A performance guarantee should be the means 
used unless an equivalent degree of commitment can be obtained by an 
alternative means.
    (c) The guaranteeing corporate entity(ies) must be found to have 
sufficient resources in order to satisfy its guarantee.
    (d) Contracting officers shall insert the provision at 970.5204-89 
in solicitations where the awardee is required to be organized solely 
for performance of the requirement.
    5. Section 970.5204-89 is added as follows:


970.5204-89  Requirement for guarantee of performance.

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

Requirement for Guarantee of Performance (APR 1999)

    The successful proposer is required by other provisions of this 
solicitation to organize a dedicated corporate entity to carry out 
the work under the contract to be awarded as a result of this 
solicitation. The successful proposer will be required, as part of 
the determination of responsibility of the newly organized, 
dedicated corporate entity and as a condition of the award of the 
contract to that entity, to furnish a guarantee of that entity's 
performance. That guarantee of performance must be satisfactory in 
all respects to the Department of Energy.

[FR Doc. 99-8454 Filed 4-5-99; 8:45 am]
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