[Federal Register Volume 64, Number 197 (Wednesday, October 13, 1999)]
[Proposed Rules]
[Pages 55453-55455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26549]


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DEPARTMENT OF ENERGY

48 CFR Parts 909 and 970

RIN 1991-AB52


Acquisition Regulations; Purchasing by DOE Management and 
Operating Contractors From Contractor Affiliated Sources

AGENCY: Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Energy (DOE) is proposing to amend its 
acquisition regulations by altering its coverage on organizational 
conflicts of interest and purchases by DOE's management and operating 
contractors from affiliated entities to protect the Department when 
DOE's management and operating contractors are involved in teaming 
arrangements or mergers or acquisitions and with respect to the award 
and administration of affiliated transactions.

DATES: Written comments on the proposed rulemaking must be received on 
or before close of business November 12, 1999.

ADDRESSES: Comments (3 copies) should be addressed to: Robert M. Webb, 
U.S. Department of Energy, Office of Procurement and Assistance 
Management, 1000 Independence Avenue, SW., Washington, D.C. 20585.

FOR FURTHER INFORMATION CONTACT: Robert M. Webb at (202) 586-8264.

SUPPLEMENTARY INFORMATION:
I. Background.
II. Section by Section Analysis.
III. Procedural Requirements.
    A. Review Under Executive Order 12866.
    B. Review Under Executive Order 12988.
    C. Review Under the Regulatory Flexibility Act.
    D. Review Under the Paperwork Reduction Act.
    E. Review Under the National Environmental Policy Act.
    F. Review Under Executive Order 12612.
    G. Review Under the Unfunded Mandates Reform Act of 1995.

I. Background

    The purpose of this proposed rulemaking is to provide additional 
guidance to DOE contracting officers with respect to organizational 
conflicts of interest considerations in the award and administration of 
DOE's management and operating contracts. Specifically, this proposed 
rule would: (1) require contracting officers to acquire an 
organizational conflicts of interest disclosure from all members of a 
proposing ``team;'' (2) require the identification and treatment of 
organizational conflicts of interest issues prior to the contracting 
officer's consent to merger, sale or novation involving a management 
and operating contractor or its parent; and (3) clarify existing rules 
with respect to transactions between management and operating 
contractors and affiliated entities.
    DOE regulations already recognize the risks associated with 
management and operating contractors doing business with affiliates. It 
is specifically discussed at 970.7105. The necessity of providing 
notice of a proposed transaction with an affiliate is covered at 
970.7109. The clause at 970.5204-22 requires that the M&O contractor 
comply with 970.7105.
    However, in recent years the matter has become complex as a result 
of increased incidence of corporate mergers and acquisitions and the 
teaming of organizations as offerors under a DOE contract. For example, 
as a result of a management and operating contractor's merger with the 
corporate parent of an existing subcontractor, the new prime contractor 
could be put in the position of administering a preexisting subcontract 
with its affiliate. Similarly, if award of a management and operating 
contractor were to go to a ``team,'' one participant, not the 
contractor of record, could be an affiliate of a pre-existing 
subcontractor. In both of these situations, the subcontract would exist 
before the merger or contract award that would give rise to the 
potential conflict of interest in the administration of the 
subcontract.
    Without the changes proposed in this rulemaking, the cognizant 
operations office involved would not have the necessary information to 
assure that these two situations are recognized and treated. As a 
result, DOE's interests may not be protected by the management and 
operating contractor's administration of such subcontracts. This rule 
is intended to provide the contracting officer with complete 
information on potential organizational conflicts with respect to 
mergers and acquisitions and teaming arrangements to allow their 
identification and mitigation.
    Further, the proposed rule would modify existing coverage which 
governs the transacting of business by management and operating 
contractors with affiliated entities. The Department recognizes that 
M&O contractors may appropriately acquire specialized services or 
purchase goods from affiliated organizations. This rulemaking proposes 
to revise the Department's acquisition regulation to identify and 
clarify these situations.
    The first situation involves an affiliate with special or unique 
scientific expertise or facilities (e.g., test facilities) of use to 
the M&O in the performance of some portion of the contract. In this 
case, the affiliate transaction would be accomplished through an 
intercompany transaction at cost with no fee. The second situation 
arises when the affiliate sells goods in the commercial market for 
which the M&O contractor has a need. In this second case, the affiliate 
may receive the award only after competition and under terms and 
conditions that are consistent with arms length negotiations.
    The organizational conflict of interest clause at 952.209-72 
prevents entities affiliated with the prime from proposing on 
subcontracts. This prohibition was established to address the potential 
for

[[Page 55454]]

unfair competitive advantage. This risk is avoided by prohibiting 
affiliate transactions, except for the purchase of commercial items in 
accordance with 970.7105 and gaining access to special or unique 
scientific expertise or test equipment on a cost, no fee basis.

II. Section-by-Section Analysis

    The Department of Energy proposes to change the organizational 
conflicts of interest (OCI) regulations at subsection 909.507-1 and 
section 970.0905 to require an OCI disclosure from the proposer and all 
other members of the team when a proposer ``teams,'' either formally or 
informally, with other entities in responding to a solicitation and to 
require a special OCI review of existing subcontracts if an M&O 
contractor or its parent proposes to merge with another corporation.
    This proposed rule would also amend section 970.7105 to make clear 
that there are only two situations in which a management and operating 
contractor may do business with an affiliated entity. The first 
involves an affiliate's selling commercial items, not commercial 
services, following a competitive selection and under enforceable, arms 
length terms and conditions. The second situation involves an affiliate 
with special or unique scientific facilities to be made available on a 
cost, no fee basis.

III. Procedural Requirements

A. Review Under Executive Order 12866

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

B. Review Under Executive Order 12988

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

C. Review Under the Regulatory Flexibility Act

    This proposed rule has been reviewed under the Regulatory 
Flexibility Act, 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 proposed 
rule establishes restrictions that would avoid organizational conflicts 
of interest in the performance of management and operating contracts. 
DOE management and operating contracts have not been awarded to small 
entities. The proposed constraints on the subcontracting of an M&O 
contractor with its affiliates may lead to more subcontracting 
opportunities for small businesses. There would not be an adverse 
economic impact on small entities.
    Accordingly, DOE certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities, 
and, therefore, no regulatory flexibility analysis has been prepared.

D. Review Under the Paperwork Reduction Act

    This proposed rule would amend 48 CFR Secs. 909.507-1 and 970.0905 
to require an organizational conflicts of interest disclosure from team 
members of the apparent successful offeror. This disclosure is 
necessary to provide the contracting officer with complete information 
on potential organizational conflicts involved in teaming arrangements. 
This proposed collection of information has been submitted to the 
Office of Management and Budget for review and approval under the 
Paperwork Reduction Act, 44 U.S.C. 3501, et seq.
    DOE estimates the maximum number of respondents subject to the 
disclosure requirement, in any one year, to be 20 and the number of 
hours required for record-keeping and preparation of the disclosure 
reports to be approximately 5 hours per respondent. The total annual 
burden hours from compliance is expected to be 100 hours (20  x  5 
hours per year). The collection of information contained in this 
proposed rule is considered the least burdensome for obtaining the 
needed organizational conflict of interest information.
    DOE invites public comments concerning: (1) The need for the 
reporting requirement; (2) the accuracy of DOE's estimate of the 
reporting burden; (3) ways to enhance the quality, utility, and clarity 
of the information to be collected; and (4) ways to minimize the burden 
of the collection of information on respondents. Send comments 
regarding this proposed collection of information to the contact person 
named in this notice.

E. Review Under the National Environmental Policy Act

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

F. Review Under Executive Order 12612

    Executive Order 12612, (52 FR 41685, October 30, 1987), requires 
that regulations, rules, legislation, and any other policy actions be 
reviewed for any substantial direct effects on States, on the 
relationship between the Federal Government and the States, or in the 
distribution of power and responsibilities among the various levels of 
Government. If there are sufficient substantial direct effects, then 
the Executive Order requires the preparation of a federalism assessment 
to be used in all decisions involved in promulgating and implementing a

[[Page 55455]]

policy action. This proposed rule would merely govern organizational 
conflicts of interest in merger and joint venture or teaming 
arrangements and the awarding of subcontracts by DOE management and 
operating contractors. States which contract with DOE will be subject 
to this rule. However, DOE has determined that this proposed rule would 
not have a substantial direct effect on the institutional interests or 
traditional functions of the States.

G. Review Under the Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally 
requires a Federal agency to perform a detailed assessment of costs and 
benefits of any rule imposing a Federal Mandate with costs to State, 
local or tribal governments, or to the private sector, of $100 million 
or more. This proposed rulemaking would only affect 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 September 22, 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 proposed to be amended as set forth 
below.

PART 909--[AMENDED]

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

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

    2. Subsection 909.507-1 is amended by revising paragraph (e) as 
follows:


909.507-1  Solicitation provisions. (DOE coverage-paragraph (e)).

    (e) The contracting officer shall insert the provision at 48 CFR 
952.209-8, Organizational Conflicts of Interest-Disclosure, in 
solicitations for advisory and assistance services expected to exceed 
the simplified acquisition threshold. The disclosure requirement 
applies to all entities that join, either formally (e.g., through a 
joint venture or similar legal arrangement) or informally, with the 
offeror in responding to a solicitation. In individual procurements, 
the Head of the Contracting Activity may increase the period subject to 
disclosure in 952.209-8(c)(1) up to 36 months.

PART 970--[AMENDED]

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

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

    4. At 970.0905 the existing paragraph is designated as paragraph 
(a) and paragraphs (b) and (c) are added as follows:


970.0905  Organizational conflicts of interest.

    (a) * * *
    (b) The contracting officer shall insert the provision at 48 CFR 
952.209-8, Organizational Conflicts of Interest-Disclosure, in 
solicitations for management and operating contracts. The disclosure 
requirements applies to all entities that join, either formally (e.g., 
through a joint venture or similar legal arrangement) or informally, 
with the offeror in responding to the solicitation. In individual 
procurements, the Head of the Contracting Activity may increase the 
period subject to disclosure in 952.209-8(c)(1) up to 36 months.
    (c) Before approving a proposed sale of assets, merger, or other 
action that would result in the assignment to another entity of 
contractual obligations of the management and operating contractor, the 
contracting officer shall review existing subcontracts to ascertain 
whether any improper relationships would result and, if so, to ensure 
that those situations are appropriately resolved.
    5. Section 970.7105 is revised to read as follows:


970.7105  Purchasing from contractor-affiliated sources.

    (a) A management and operating contractor may purchase commercial 
items, but not commercial services, from sources affiliated with the 
contractor (any division, subsidiary, or affiliate of the contractor or 
its parent company) in the same manner as from other sources, provided:
    (1) The management and operating contractor's purchasing function 
is independent of the proposed contractor-affiliated source;
    (2) The same terms and conditions would apply if the purchase were 
from an unaffiliated third party;
    (3) Award is made in accordance with policies and procedures 
designed to permit effective competition which have been approved by 
the contracting officer; and
    (4) The award is legally enforceable if the entities are separately 
incorporated.
    (b) A management and operating contractor may acquire technical 
services from an affiliated source only if that source has special or 
unique scientific facilities, the need for their use is documented, and 
the services are provided on a cost, no fee basis.

[FR Doc. 99-26549 Filed 10-12-99; 8:45 am]
BILLING CODE 6450-01-P