[Federal Register Volume 66, Number 12 (Thursday, January 18, 2001)]
[Rules and Regulations]
[Pages 4616-4627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-584]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

10 CFR Part 719

48 CFR Parts 931 and 970

RIN 1990-AA27


Contractor Legal Management Requirements; Department of Energy 
Acquisition Regulation

AGENCY: Department of Energy.

ACTION: Notice of final rulemaking.

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

SUMMARY: The Department of Energy (Department) is establishing new 
regulations covering contractor legal management requirements. 
Conforming amendments are also made to the Department of Energy 
Acquisition Regulation (DEAR). The new regulation covers legal costs to 
be reimbursed by the Department to its contractors at government owned 
or leased facilities with contracts exceeding $100,000,000. An Appendix 
to the regulation provides additional guidance to contractors.

EFFECTIVE DATE: This final rule is effective February 20, 2001.

FOR FURTHER INFORMATION CONTACT: Laura Fullerton at (202) 586-3420 
([email protected]) or Anne Broker at (202) 586-5060 
([email protected]).

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 the National Environmental Policy Act.
    F. Review Under Executive Order 13132.
    G. Review Under the Unfunded Mandates Reform Act of 1995.
    H. Review Under the Treasury and General Government 
Appropriations Act of 1999.
    I. Congressional Notification.

I. Background

    This final rulemaking creates a new part 719, in Chapter 10 of the 
Code of Federal Regulations, establishing regulations to monitor and 
control legal costs and to provide guidance to aid contractors and 
Department personnel in making determinations regarding the

[[Page 4617]]

reasonableness of all outside legal costs, including the costs of 
litigation. This action finalizes the Notice of Proposed Rulemaking 
(NOPR) published October 25, 2000 (65 FR 63809). Today's rules cover 
all outside legal costs incurred by contractors with contracts 
exceeding $100,000,000 at facilities owned or leased by the Department. 
The policies also apply to legal counsel retained by the Department 
itself for litigation or other legal services where the legal costs 
over the life of the matter for which counsel has been retained are 
expected to exceed $100,000.
    The regulation requires submission of a legal management plan by 
contractors where costs for legal services are to be reimbursed by the 
Department. Once approved by the Department, the legal management plan, 
as well as applicable regulations and contract provisions, forms the 
basis for approvals by the Department to reimburse litigation and other 
legal expenses. The cost principles and contract clauses in the 
Department's contracts generally make legal costs, including the cost 
of litigation, allowable if reasonable and incurred in accordance with 
the applicable cost principles and contract clauses.
    The Department received some comments expressing concern about the 
potential waiver of attorney-client confidentiality privileges if 
contractors provide the type of information required under this 
rulemaking. The Department needs to receive information regarding 
contractor litigation in order to participate in strategy and to 
justify the reimbursement of the costs of litigation. Although it is 
true that attorney-client privilege can be waived by a disclosure of an 
otherwise confidential disclosure to a third party, there is an 
exception to this principle. The privilege is not waived when the 
nominal ``third party'' has a common interest with the client as to the 
subject matter of the communication. In the cases involving our 
contractors, the Department is contractually obligated, with few 
exceptions, to pay the contractors' litigation costs, as well as any 
judgment or settlements. In order to determine whether the costs are 
allowable and reasonable the Department needs to review the invoices, 
as well as budgets and staffing and resource plans. In addition, the 
Insurance--Litigation and claims clause provides that the Department 
can direct the defense of such litigation and provides for the 
collaboration between Department representatives and in-house or 
Department approved outside counsel. In order to provide guidance, the 
Department needs to be provided pleadings and other documents that deal 
with the strategy of the case.
    In July 2000, the common interest privilege was upheld by the 
Supreme Court of Washington \1\ in a case involving information 
provided to the Department by one of its contractors. The privilege was 
also recognized in a decision by the U.S. District Court for the 
District of New Mexico \2\ which determined that a Litigation Plan is a 
privileged document and not subject to production.
---------------------------------------------------------------------------

    \1\ Brundridge, et al. v. Fluor Daniel, Inc., Fluor Daniel 
Hanford, Inc., Daniel Northwest, Inc., No. 69732-9, Ruling Denying 
Review, (Sup. Ct. Wash., 7/27/00).
    \2\ Morrison Knudsen Corp. v. Ground Improvement Techniques, 
Inc., and Fireman's Fund Insurance Co., Order Denying Motion to 
Compel Discovery From the Department of Energy, Misc. No. 96-37 MV/
LFG (D.N.M., 10/8/96).
---------------------------------------------------------------------------

    An Appendix to the regulation provides additional ``safe harbor'' 
guidance for legal management practices. The guidance provided in the 
Appendix may be updated from time to time by the Department and those 
updates distributed to contractors, contracting officers and Department 
counsel.
    Conforming technical amendments to the Department of Energy's 
Acquisition Regulation (DEAR), at 48 CFR Chapter 9, appear at the end 
of this notice of final rulemaking. Some changes have been made in the 
approach for these amendments.\3\
---------------------------------------------------------------------------

    \3\ Note: The Department republished 48 CFR (DEAR) subpart 970 
in a final rulemaking in the Federal Register on December 22, 2000 
(65 FR 80994). This rulemaking action streamlined and reorganized 
DEAR subpart 970 and both the new and old citations for DEAR subpart 
970 are provided for the convenience of the reader.
---------------------------------------------------------------------------

    The proposal to add a clause to DEAR Part 952 and prescriptive 
language in Part 928 has been eliminated. Instead, prescriptive 
language has been added as Department coverage for the cost principle 
at 48 CFR 931.205-19, requiring the use of Insurance--Litigation and 
claims, 970.5228-1 (new citation) [970.5204-31 old citation], for 
contracts exceeding an amount of $100,000,000 involving work performed 
at a Department owned or leased site. Additionally, the language in the 
48 CFR Part 970 clause, Insurance--Litigation and claims, 970.5228-1 
(new citation) [970.5204-31 old citation], has been modified to permit 
use of that clause in non-M&O contracts now covered by 48 CFR 931.205-
19. These changes involve only the elimination of references to DEAR 
Part 970 specific clauses and a substitution of generalized clause 
titles instead.
    Department coverage for the Federal Acquisition Regulation (FAR) 
cost principle at FAR 31.205-33, Professional and consultant service 
costs, is added at DEAR 931.205-33(g) and DEAR 970.3102-05-33(g), to 
describe the applicability of 10 CFR Part 719 to M&O contracts, and to 
non-M&O contracts for an amount exceeding $100,000,000 involving work 
performed at facilities owned or leased by the Department, and for 
legal counsel retained directly by the Department for litigation or 
other legal matters.
    Additionally, the language originally proposed to be inserted at 
subpart 970.71 has been revised and added to the contractor purchasing 
guidance contained at 970.5244-1 (new citation) [970.5204-22 old 
citation].
    Contracting officers must apply these DEAR changes to solicitations 
issued on or after the effective date of this rule. Contracting 
officers may, at their discretion, include these DEAR changes in 
solicitations issued before the effective date of this rule, provided 
award of the resulting contract(s) occurs on or after the effective 
date.
    Contracting officers must apply these DEAR changes: to contracts 
extended in accordance with the Department's extend/compete policies 
and procedures (48 CFR 917.6, 48 CFR 970.1702-1(a), and internal 
guidance); and to options exercised under competitively awarded 
management and operating contracts (48 CFR 970.1702-1(b)).
    For management and operating contracts or other contracts already 
containing subparagraph (d)(4) of the Allowable costs clause, 970.5204-
13, or 970.5204-14, or other reference to the Department's litigation 
management procedures and cost guidelines, these changes and the new 10 
CFR part 719 are automatically applicable. These provisions address the 
allowability of reasonable legal costs incurred by contractors and 
include references to the Department's ``approval of the contractors 
litigation management procedures (including cost guidelines)'' and also 
include the caveat that ``such procedures may be revised from time to 
time.''

II. Disposition of Comments

General Comments

    Comment: One commenter stated that the proposed rule duplicates 
existing litigation management and legal cost reporting requirements 
established by the Final Policy Statement, which addressed contractor 
litigation cost policies, terms of law firm engagement, and 
allowability of costs (``Policy Statement''), 65 FR 14763, (April 3, 
1996) and therefore is unnecessary.
    Response: One of the purposes of this rulemaking is to codify the 
legal

[[Page 4618]]

management and cost policies described in the Policy Statement and 
related requirements from diverse sources and locations and to 
standardize those requirements. This regulation consolidates 
requirements from earlier contract reform initiatives and the Policy 
Statement and replaces those requirements. The commenter argues that 
the information collection in the proposed rule corresponds to the 
information collections in the Policy Statement and the Department 
agrees.
    Comment: One commenter took issue with the Notice of Proposed 
Rulemaking's estimate of 15-30 hours to prepare a litigation management 
plan and stated that it expended estimated 150 hours reviewing, 
revising, and altering a litigation management plan and its office 
practices.
    Response: The commenter did not explain how many of the 150 hours 
were used in the preparation of the legal management plan and how many 
were used reviewing its office practices. Also, the commenter did not 
state whether this time was expended for an initial legal management 
plan or for a plan and a series of revisions over a period of time. The 
NOPR's estimate of 15-30 hours for the initial preparation of a legal 
management plan was based on information provided by a contractor who 
had a litigation management plan in place. The Department expects that 
the time necessary to prepare and implement a legal management plan 
will vary from contractor to contractor, but does not expect that 150 
hours for preparation of an initial plan will be the norm. 
Nevertheless, the Department notes that the time spent preparing the 
legal management plan is ordinarily an allowable cost that is paid for 
by the government.
    Comment: The commenter noted that under its current practices with 
the Department that the retention agreement for, and then the billings 
and invoices for, any litigation must be submitted to the Department 
for prior approval. The commenter asked whether the $25,000 threshold 
pertaining to engagement letters would now replace their current 
practice.
    Response: When the requirements contained in this regulation are 
incorporated into a contract, already existing guidance and 
requirements is canceled for that individual contract, unless 
specifically retained and made a part of the revised plan.
    Comment: Two commenters stated that the goal of controlling legal 
costs should be addressed by agency guidance documents rather than in a 
mandatory regulation. The commenters argue that codifying the 
requirements in a regulation reduces the flexibility necessary for 
effective legal representation.
    Response: The Department recognizes the concerns behind this view 
and has revised the regulation to provide more flexibility in the final 
rulemaking than provided in the NOPR. For example, in instances where 
the contractor does not know enough about the case at the time of 
filing an answer, the filing deadline for the staffing and resource 
plan is extended to 30 days after a determination that the costs of the 
matter are expected to exceed $100,000. Also, since there was concern 
that a contractor might be penalized for failing to determine whether a 
matter was significant for purposes of the staffing and resource plan, 
language has been added requiring the contractor to consult with 
Department counsel and an explanation that the primary purpose of the 
plan is informational. Finally, the requirement for advance approval of 
certain costs, in Sec. 719.35, has been changed to permit submission of 
a justification after the incurrence of the cost.
    Comment: Two commenters requested further explanation of the 
Department's reasons for including non-litigation matters in the 
rulemaking.
    Response: It came to the Department's attention that there were 
instances where contractors incurred significant legal fees for matters 
not involving litigation. Given the Department's interest in assuring 
that appropriate cost controls are in place for all major legal 
representation and the interest Congress has in the expenditure of 
appropriated funds for legal fees, we decided it was prudent to include 
legal services for all matters expected to exceed $100,000.

Section 719.2  Definitions

    Comment: One commenter suggested that the phrase ``administrative 
expenses associated with the provision of legal services by retained 
counsel'' could be ambiguous and proposed a revised definition for the 
term ``legal costs'' that excludes that phrase.
    Response: The definition of ``costs'' contained at 48 CFR (FAR) 
31.205-47, Costs related to legal and other proceedings, includes 
``administrative and clerical expenses'' and the Department sees no 
reason to deviate from the FAR standard.

Section 719.3  What Contracts Are Covered by This Part?

    Comment: One commenter observed that the Final Policy Statement 
applied to only management and operating contracts and requested an 
explanation for the Department's extension of the application of the 
regulation beyond the scope of the existing Policy Statement.
    Response: The Final Policy Statement applied only to legal costs 
incurred by management and operating (M&O) contractors. Today's rule 
applies to all cost-reimbursement contracts in excess of $100,000,000 
involving work performed at DOE facilities, including contracts that 
are not M&O contracts. The Department has experienced resistance 
against application of the Policy Statement in a number of non-M&O 
contracts that involve facility and site management responsibilities 
where the litigation management and cost policies need to be applied. 
The legal management plan has been expanded beyond DEAR part 970, which 
contains the M&O contract provisions, to make it clear that this 
requirement applies to some non-M&O type contracts.

Section 719.6(a)  Are There Any Types of Legal Matters Not Included in 
the Coverage of This Part?

    Comment: Seven commenters recommended against extending the 
coverage of the legal management requirements to matters handled by 
insurance carriers providing third party administrator (TPA) services 
or retrospective policies, as provided in Sec. 719.6(a) of the NOPR. 
Some of the commenters noted that the purpose of using TPA services is 
to purchase the expertise and administrative capabilities of insurance 
companies and that part of the expertise package provided by the 
insurance carrier is the retention, oversight and direction of an 
outside law firm with specialized experience and contacts. They also 
noted that one of the benefits is reduced legal fees because of 
business volume and the ongoing relationship between the insurance 
carrier and law firm.
    Response: The comments provided insight and experience and are 
persuasive. Proposed Sec. 719.6 has been revised by deleting the 
references to matters handled by insurance carriers providing third 
party administrator and retrospective policy services and by inserting 
a new subparagraph (c) that excludes routine workers compensation 
matters.

Section 719.10  What Information Must Be Included in the Legal 
Management Plan?

    Comment: One commenter stated an opinion that the information 
requirements in this section are too intrusive in the contractor's 
counsel selection process by dictating that the contractors abide by 
these criteria as a prerequisite for allowability of its legal counsel 
costs.

[[Page 4619]]

    Response: The provisions of this section do not make any costs 
unallowable. The purpose of this section is to require the contractor 
to submit a legal management plan with its own individualized list of 
criteria. The regulation provides a list of criteria or factors that 
the contractor must consider prior to making its selection of retained 
legal counsel and that the Department must consider in determining if 
the costs are reasonable and allowable. No costs are made unallowable 
merely for failure to address all of the recommended criteria.

Section 719.14  Will the Department Notify the Contractor Concerning 
the Adequacy or Inadequacy of the Submitted Plan?

    Comment: One commenter stated that it was unclear whether the term 
``deficiencies'' as used in Sec. 719.14(a) referred to failure to 
comply with a requirement in Sec. 719.10 or an objection from the 
Department concerning the substance of the plan. The commenter noted 
also that the proposed regulation fails to specify a route for appeal 
or a remedy for a dispute concerning a deficiency.
    Response: The term ``deficiencies'' in this section refers to the 
failure of the legal management plan to meet the mandatory requirements 
of Sec. 719.10 and this clarification has been added to Sec. 719.14(a). 
Section 719.14(b) has been revised to provide for a letter of appeal to 
the General Counsel disputing a deficiency determination.

Section 719.17  Are There Any Budgetary Requirements?

    Comment: Four commenters expressed concern that prospective budgets 
would be entirely speculative and that requiring contractors to 
speculate on budget needs would set them up for criticism in the event 
the budgeted amount is exceeded. One of these commenters recommended 
clarifying that only ``known or existing matters'' are intended to be 
included in the prospective budget.
    Response: The prospective budget requirement is intended to serve 
only as an information device for the Department and the contractor, so 
that both have a better understanding of the contractor's awareness of 
its legal staffing needs and the contractor's ability to estimate based 
on its experience. Clarifying language has been added in paragraph 
Sec. 719.17(a) that the annual budget requirement covers only pending 
matters, and in Sec. 719.17(c) to state that the purpose of the budget 
requirement is primarily informational and that the Department 
recognizes that there will be departures from the budget beyond the 
control of the contractor.
    Comment: One commenter stated that the budget requirements of 
Sec. 719.17(b) duplicate the staffing and resource plan requirements of 
Sec. 719.16.
    Response: No budgetary information is required in Sec. 719.16. As 
defined in Sec. 719.2, staffing and resource plan means a statement 
prepared by retained legal counsel describing plans for managing a 
significant matter. The budget described in Sec. 719.17 is prepared by 
the contractor.

Section 719.20  When Must an Engagement Letter Be Used?

    Comment: One commenter sought clarification whether the term 
``matters'' meant particular, individual matters or all matters handled 
by an individual law firm.
    Response: Section 719.20 has been modified by adding the phrase 
``for a particular matter'' to make clear that as used in this section, 
the term ``matter'' refers to particular, individual matters handled by 
a law firm and not to a cumulative amount of matters handled by a 
particular firm.

Section 719.21  What Are the Required Elements of an Engagement Letter?

    Comment: One commenter recommended a modification to allow both 
retained legal counsel and contractor counsel the flexibility to 
communicate material concerning the case in a manner that serves the 
Department's needs without creating risk of waiving any attorney-client 
confidentiality privilege.
    Response: Section 719.21(b)(2) has been modified by adding language 
that an exemption for specific records may be obtained where 
contractors can demonstrate that a particular situation may provide 
grounds for a waiver. This change is intended to make clear that in 
instances when the contractor has demonstrated that production of 
specific documents may provide grounds for waiver of the attorney-
client privilege, that material may be withheld.

Section 719.31  How Does the Department Determine Whether Fees Are 
Reasonable?

    Comment: One commenter inquired whether the phrase ``lowest 
reasonably achievable fees or rates'' as used in 719.31(a) is intended 
to include consideration of the terms of engagement, Sec. 719.21, and 
reimbursement guidance, subpart D, in the proposed rule.
    Response: The phrase ``lowest reasonably achievable fees or rates'' 
is to be applied with due consideration for the individual 
circumstances of each situation, including the overall terms of 
engagement between the contractor and retained legal counsel, and the 
guidance found throughout part 719.
    Comment: Another commenter asked how the Department will treat 
legal services obtained by a contractor which do not meet all the 
criteria in Sec. 719.31 and whether the Department will pay at the rate 
it deems reasonable and allow the contractor to pay the difference if 
the contractor elects to use an attorney whose rates are determined to 
not be the lowest price available.
    Response: The Department anticipates that there will be 
circumstances which do not meet all the criteria in this section. The 
Department will reimburse the amount that it determines to be allowable 
and reasonable. It is not the intent of this regulation to select legal 
representation for contractors, to limit the choice of legal 
representation available to the contractor, or prevent the contractor 
from engaging any particular attorney or firm. The purpose of this 
regulation is to outline the Department's approach to evaluating the 
reasonableness of costs associated with legal representation for 
purposes of determining legal cost reimbursement. Contractors may elect 
to deviate from the regulation but they run the substantial risk that 
the Department will determine costs that do not conform to the 
regulation to be unreasonable. Contractors are responsible alone for 
costs that are deemed unreasonable under part 719. This approach allows 
the contractor, for example, to pay the difference if the contractor 
wishes to retain the services of an attorney whose fees are higher than 
that deemed reasonable under part 719.

Section 719.35  What Categories of Costs Require Advance Approval?

    Comment: Five commenters objected to requiring advance approval 
from Department counsel for attendance by more than one person at a 
deposition, court hearing, interview or meeting. One of these 
commenters also enquired whether this requirement is meant to include 
impromptu meetings or routine meetings between partners and associates. 
Two of these commenters also noted that quick turn around times often 
occur with litigation and recommended more flexibility in the system, 
such as a presumption of approval after a certain waiting time, 
exception process or pre-approval mechanism.
    Response: These concerns have been addressed by adding language to 
Sec. 719.35 to permit the contractor to

[[Page 4620]]

submit a justification following the incurrence of the cost. The 
Department has not changed the language in Sec. 719.35(d) covering 
attendance by more than one person at a deposition, court hearing, 
interview or meeting. If the contractor decides to have more than one 
person attend a meeting, justification for attendance of more than one 
person may be provided following the incurrence of that cost. This is 
the procedure the contractor should follow for impromptu and routine 
meetings.
    Comment: Two commenters stated that the proposed requirement for 
advance approval for costs for items listed in this section creates 
cost allowability rules which are not consistent with current FAR cost 
allowability rules since the Federal Acquisition Regulation (FAR) does 
not contain specific advance approval requirements.
    Response: This section of the final rule effectively puts 
contractors on advance notice that the contractors must demonstrate the 
reasonableness of certain listed costs. Contracting officers can 
require the contractor to demonstrate the reasonableness of a cost by 
questioning the cost. The Federal Acquisition Regulation already 
states, at 48 CFR (FAR) 31.201-3, that no presumption of reasonableness 
is attached to the incurrence of costs by a contractor. In accordance 
with 48 CFR (FAR) 31.201-3, the contracting officer shifts the burden 
of proof to the contractor when the reasonableness of the cost is 
questioned. Section 719.35 automatically invokes this process for the 
listed costs.

Section 719.37  Are There Any Special Procedures or Requirements 
Regarding Subcontractor Legal Costs?

    Comment: One commenter viewed Sec. 719.37(b) as subjecting 
subcontractors to the same set of requirements imposed on prime 
contractors while two commenters stated that this proposal is 
unworkable and unmanageable.
    Response: The Department agrees that, as proposed, this section 
could be read in a manner that would make it somewhat unworkable and 
this section has been revised to require the contractor submit to 
Department counsel information copies of subcontractor invoices for 
legal services.

Section 719.39  What Happens When More Than One Contractor Is a Party 
to a Matter?

    Comment: Two commenters stated that it is unreasonable to expect 
contractors and their retained legal counsel to waive ethical conflict 
issues which are created by the lead lawyer requirement.
    Response: The Department has already provided for exceptions for 
situations where an ethical conflict arises, including an exception for 
situations where there are conflicts with the standards of professional 
conduct (Sec. 719.39(a)), and an opportunity for the contractor to 
demonstrate the reasonableness of its decision (Sec. 719.39(b)).
    Comment: Another commenter recommended the section be modified to 
give Department counsel the authority to approve joint or lead counsel 
recommended by the parties and to designate directly only in those 
situations where recommended counsel is unacceptable or the contractors 
cannot agree on a choice.
    Response: It is not the intent of the regulation to circumscribe 
the contractors' choice of counsel but to eliminate duplicative 
billings for identical legal services, particularly where the issues 
involved are similar for the contractors involved. The language in this 
section has been modified to permit contractors to propose their 
preference for the attorney or law firm to serve as lead counsel.
    Comment: Two of the commenters interpreted this provision as making 
expressly unallowable legal costs incurred by a contractor who hires 
different counsel than the designated lead counsel.
    Response: As stated earlier in this rulemaking, every situation 
will be reviewed on an individual basis. Reasonable costs will be 
reimbursed where the contractor can demonstrate the reasonableness of 
its decision to engage additional counsel based on contractor interests 
that diverge from those represented by lead counsel.

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; (3) provide a clear legal standard 
for affected conduct rather than a general standard; and (4) 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. The Department has completed the required 
review and determined that, to the extent permitted by law, the 
regulations meet the relevant standards of Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires 
that a federal agency prepare a regulatory flexibility analysis for any 
rule for which the agency is required to publish a general notice of 
proposed rulemaking. Such an analysis is not required, however, if the 
agency certifies that the rule would not, if promulgated, have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C. 605(b)).
    The Department certifies that today's final rule creating a new 
part 10 CFR part 719 does not have a significant economic impact on a 
substantial number of small entities. This rule only restates and 
clarifies the Department's restrictions on the reimbursement of 
contractor legal costs. The rule affects only potential claims for 
reimbursement of costs. The rule does not directly regulate small 
entities.

D. Review Under the Paperwork Reduction Act

    The final rule requires each covered contractor to submit a legal 
management

[[Page 4621]]

plan that describes the contractor's practices for managing legal costs 
and matters for which it procures the services of retained legal 
counsel. This collection of information is required for the Department 
to determine whether to approve reimbursement of contractors' 
litigation and other legal expenses.
    The Department submitted to the Office of Management and Budget 
(OMB) this collection of information for review and approval under the 
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Office of 
Management and Budget has not yet approved the collection of 
information in this rule. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless the collection has been reviewed and assigned a control number 
by OMB.

E. Review Under the National Environmental Policy Act

    The Department 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 Department of Energy 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 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 13132

    Executive Order 13132 (64 FR 43255, August 10, 1999) requires 
agencies to develop an accountable process to ensure meaningful and 
timely input by State and local officials in the development of 
regulatory policies that have ``federalism implications.'' As defined 
in the Executive Order, policies that have federalism implications 
include regulations that have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. The Department has examined this final rule and 
has determined that it would not have a substantial direct effect on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. No further action is required by 
Executive Order 13132.

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

H. Review Under the Treasury and General Government Appropriations Act, 
1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub.L 105-277) requires federal agencies to issue a Family 
Policymaking Assessment for any proposed rule or policy that may affect 
family well-being. Today's rule does not impact on the autonomy or 
integrity of the family institution. Accordingly, the Department has 
concluded that it is not necessary to prepare a Family Policymaking 
Statement.

I. Congressional Notification

    As required by 5 U.S.C. 801, the Department will report to Congress 
promulgation of this final 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(2).

List of Subjects

10 CFR Part 719

    Government contracts, Legal services, Reportintg and recordkeeping 
requirements.

48 CFR Parts 931 and 970

    Government procurement.

    Issued in Washington, DC on January 3, 2001.
T.J. Glauthier,
Deputy Secretary, Department of Energy.

    For the reasons set out in the preamble, Chapter III of title10 and 
Chapter 9 of title 48 of the Code of Federal Regulations is amended as 
set forth below:
    1. 10 CFR Part 719 is added to read as follows:

PART 719--CONTRACTOR LEGAL MANAGEMENT REQUIREMENTS

Subpart A--General Provisions
719.1   What is the purpose of this part?
719.2   What are the definitions of terms used in this part?
719.3   What contracts are covered by this part?
719.4   Are law firms that are retained by the Department covered by 
this part?
719.5   What contracts are not covered by this part?
719.6   Are there any types of legal matters not included in the 
coverage of this part?
719.7   Is there a procedure for exceptions or deviations from this 
part?
Subpart B--Legal Management Plan
719.10   What information must be included in the legal management 
plan?
719.11   Who must submit a legal management plan?
719.12   When must the plan be submitted?
719.13   Who at the Department must receive and review the plan?
719.14   Will the Department notify the contractor concerning the 
adequacy or inadequacy of the submitted plan?
719.15   What are the requirements for a staffing and resource plan?
719.16   When must the staffing and resource plan be submitted?
719.17   Are there any budgetary requirements?
Subpart C--Engagement Letter
719.20   When must an engagement letter be used?
719.21   What are the required elements of an engagement letter?
Subpart D--Reimbursement of Costs Subject to This Part
719.30   Is there a standard for determining cost reasonableness?
719.31   How does the Department determine whether fees are 
reasonable?
719.32   For what costs is the contractor, or Department retained 
counsel, limited to reimbursement of actual costs only?
719.33   What categories of costs are unallowable?
719.34   What is the treatment for travel costs?
719.35   What categories of costs require advance approval?
719.36   Who at the Department must give advance approval?
719.37   Are there any special procedures or requirements regarding 
subcontractor legal costs?
719.38   Are costs covered by this part subject to audit?
719.39   What happens when more than one contractor is a party to 
the matter?
Subpart E--Department Counsel Requirements
719.40   What is the role of Department counsel as a contracting 
officer's representative?
719.41   What information must be forwarded to the General Counsel's 
Office concerning contractor submissions to Department counsel under 
this part?
719.42   What types of field actions must be coordinated with 
Headquarters?
Appendix to Part 719--Guidance for Legal Resource Management

    Authority: 42 U.S.C. 2201, 5814, 5815 and 7101, et seq.; 50 
U.S.C. 2401, et seq.

[[Page 4622]]

Subpart A--General Provisions


Sec. 719.1  What is the purpose of this part?

    This part is intended to facilitate control of Department and 
contractor legal costs, including litigation costs. The contractor is 
required to develop a procedure for retaining legal counsel, and to 
document the analysis used to decide when, where and who will be 
engaged as outside counsel and the terms of the engagement. Payment of 
law firm invoices and reimbursement of contractor legal costs under 
covered contracts is subject to compliance with this part.


Sec. 719.2  What are the definitions of terms used in this part?

    For purposes of this part:
    Alternative dispute resolution includes processes such as 
mediation, neutral evaluation, mini-trials and arbitration.
    Contractor means any person or entity with whom the Department 
contracts for the acquisition of goods or services.
    Covered contracts means those contracts described in Sec. 719.3.
    Department means the Department of Energy, including the National 
Nuclear Security Administration.
    Department counsel means the individual in the field office, or 
Headquarter's office, designated as the contracting officer's 
representative and point of contact for a contractor or Department 
retained legal counsel, for purposes of this part only, for submission 
and approval of the legal management plan, advance approval of certain 
costs, and submission of a staffing and resource plan, as addressed in 
this part.
    Legal costs include, but are not limited to, administrative 
expenses associated with the provision of legal services by retained 
legal counsel; the costs of legal services provided by retained legal 
counsel; the costs of the services of accountants, consultants, or 
others retained by the contractor or by retained legal counsel to 
assist retained legal counsel; and any similar costs incurred by or in 
connection with the services of retained legal counsel.
    Legal management plan means a statement describing the contractor's 
practices for managing legal costs and matters for which it procures 
the services of retained legal counsel.
    Retained legal counsel means members of the bar working in the 
private sector, either individually or in law firms, who are retained 
by a contractor or the Department to provide legal services.
    Significant matters means legal matters, including litigation, 
involving significant issues as determined by Department counsel, and 
any legal matter where the amount of any legal costs, over the life of 
the matter, is expected to exceed $100,000.
    Staffing and resource plan means a statement prepared by retained 
legal counsel describing plans for managing a significant matter.


Sec. 719.3  What contracts are covered by this part?

    (a) This part covers cost reimbursement contracts:
    (1) For an amount exceeding $100,000,000, and
    (2) Involving work performed at the facilities owned or leased by 
the Department.
    (b) This part covers contracts otherwise not covered by paragraph 
3(a) of this section containing a specialized clause requiring 
compliance with this part.
    (c) This part also covers Department contracts with retained legal 
counsel where the legal costs are expected to exceed $100,000.


Sec. 719.4  Are law firms that are retained by the Department covered 
by this part?

    Retained legal counsel under fixed rate or other type of contract 
with the Department itself to provide legal services must comply with 
the following where the legal costs over the life of the matter for 
which counsel has been retained are expected to exceed $100,000:
    (a) Requirements related to staffing and resource plans in subpart 
B of this part,
    (b) Engagement letter requirements if legal work is contracted out, 
and
    (c) Cost guidelines in subpart D of this part.


Sec. 719.5  What contracts are not covered by this part?

    This part does not cover:
    (a) Fixed price contracts;
    (b) Cost reimbursement contracts for an amount less than 
$100,000,000; or
    (c) Contracts for an amount exceeding $100,000,000 involving work 
not performed at a government owned or leased site.


Sec. 719.6  Are there any types of legal matters not included in the 
coverage of this part?

    Matters not covered by this part include:
    (a) Matters handled by counsel retained by an insurance carrier;
    (b) Routine intellectual property law support services;
    (c) Routine workers and unemployment compensation matters and labor 
arbitrations; and
    (d) Routine matters handled by counsel retained through a GSA 
supply schedule.


Sec. 719.7  Is there a procedure for exceptions or deviations from this 
part?

    (a) Requests for exceptions or deviations from this part by 
contractors must be made in writing to Department counsel and approved 
by the General Counsel. If an alternate procedure is proposed for 
compliance with an individual requirement in this part, that procedure 
must be included in the written request by the contractor.
    (b) The General Counsel may authorize exceptions based on a 
recommendation of Department counsel. The General Counsel may also 
establish exceptions to this part based on current field office and 
contractor practices which satisfy the purpose of these requirements.
    (c) Exceptions to this part which are also a deviation from the 
cost principles (see subpart D of this part) must be approved by the 
Procurement Executive. See 48 CFR (FAR) 31.101. Written requests from 
contractors for a deviation to a cost principle must be submitted to 
the contracting officer, with a copy provided to Department counsel.

Subpart B--Legal Management Plan


Sec. 719.10  What information must be included in the legal management 
plan?

    The legal management plan must include the following items:
    (a) A description of the legal matters that may necessitate 
handling by retained legal counsel.
    (b) A discussion of the factors the contractor must consider in 
determining whether to handle a particular matter utilizing retained 
legal counsel.
    (c) An outline of the factors the contractor must consider in 
selecting retained legal counsel, including:
    (1) Competition;
    (2) Past performance and proficiency shown by previously retained 
counsel;
    (3) Particular expertise in a specific area of the law;
    (4) Familiarity with the Department's activity at the particular 
site and the prevalent issues associated with facility history and 
current operations;
    (5) Location of retained legal counsel relative to:
    (i) The site involved in the matter,
    (ii) Any forum in which the matter will be processed, and
    (iii) Where a significant portion of the work will be performed;
    (6) Experience as an advocate in alternative dispute resolution 
procedures such as mediation;
    (7) Actual or potential conflicts of interest; and

[[Page 4623]]

    (8) The means and rate of compensation (e.g., hourly billing, fixed 
fee, blended fees, etc.).
    (d) A description of:
    (1) The system that the contractor will use to review each case to 
determine whether and when alternative dispute resolution is 
appropriate;
    (2) The role of in house counsel in cost management;
    (3) The contractor's process for review and approval of invoices 
from outside law firms or consultants;
    (4) The contractor's strategy for interaction with, and supervision 
of, retained legal counsel;
    (5) How appropriate interaction with the contracting officer and 
Department counsel will be ensured; and,
    (6) The contractor's corporate approach to legal decision making.


Sec. 719.11  Who must submit a legal management plan?

    Contractors identified under paragraphs (a) and (b) in Sec. 719.3 
must submit a legal management plan.


Sec. 719.12  When must the plan be submitted?

    Contractors identified under paragraphs (a) and (b) in Sec. 719.3 
must submit a legal management plan within 60 days following the 
execution of a contract with the Department.


Sec. 719.13  Who at the Department must receive and review the plan?

    The contractors identified under paragraphs (a) and (b) in 
Sec. 719.3 must file a legal management plan with Department counsel.


Sec. 719.14  Will the Department notify the contractor concerning the 
adequacy or inadequacy of the submitted plan?

    (a) The Department will notify the contractor within 30 days of the 
contractor's submission of the plan of any deficiencies relating to 
requirements in Sec. 719.10.
    (b) The contractor must either correct identified deficiencies 
within 30 days of notice of the deficiency or file a letter with the 
General Counsel disputing the determination of a deficiency.


Sec. 719.15  What are the requirements for a staffing and resource 
plan?

    (a) For significant matters, the contractor must require retained 
legal counsel providing legal services to prepare a staffing and 
resource plan as provided in this section. The contractor must then 
forward the staffing and resource plan to Department counsel. 
Department retained counsel subject to this part must prepare a 
staffing and resource plan and forward it to Department counsel.
    (b) A staffing and resource plan is a plan describing:
    (1) Major phases likely to be involved in the handling of the 
matter;
    (2) Timing and sequence of such phases;
    (3) Projected cost for each phase of the representation; and
    (4) Numbers and mix of resources, when applicable, that the 
retained legal counsel intends to devote to the representation.
    (c) For significant matters in litigation, in addition to the 
generalized annual budget required by Sec. 719.17 a staffing and 
resource plan must include a budget, broken down by phases, including 
at a minimum:
    (1) Matter assessment, development and administration;
    (2) Pretrial pleadings and motions;
    (3) Discovery;
    (4) Trial preparation and trial; and
    (5) Appeal.


Sec. 719.16  When must the staffing and resource plan be submitted?

    (a) For significant matters in litigation, the contractor or 
Department retained counsel must submit the staffing and resource 
within 30 days after the filing of an answer or a dispositive motion in 
lieu of an answer, or 30 days after a determination that the cost is 
expected to exceed $100,000.
    (b) For significant legal services matters, the contractor or 
Department retained counsel must submit the staffing and resource plan 
within 30 days following execution of an engagement letter.
    (c) Contractors and Department retained counsel must submit updates 
to staffing and resource plans annually or sooner if significant 
changes occur in the matter.
    (d) When it is unclear whether a matter is significant, the 
contractor must consult with Department counsel on the question.
    (e) The purpose of the staffing and resource plan is primarily 
informational, but Department counsel may state objections within 30 
days of the submission of a staffing and resource plan. When an 
objection is stated, the contractor has 30 days to satisfy the 
objection or dispute the objection in a letter to the General Counsel.


Sec. 719.17  Are there any budgetary requirements?

    (a) Contractors required to submit a legal management plan must 
also submit an annual legal budget covering then pending matters to 
Department counsel.
    (b) The annual legal budget must include cost projections for known 
or existing matters for which reimbursable legal costs are expected to 
exceed $100,000, at a level of detail reflective of the types of 
billable activities and the stage of each such matter.
    (c) For informational purposes for both the contractor and 
Department counsel, the contractor must report on its success on 
staying within budget at the conclusion of the period covered by each 
annual legal budget. The Department recognizes, however, that there 
will be departures from the annual budget beyond the control of the 
contractor.

Subpart C--Engagement Letters


Sec. 719.20  When must an engagement letter be used?

    Contractors must submit an engagement letter to retained legal 
counsel expected to provide $25,000 or more in legal services for a 
particular matter and submit a copy of correspondence relating to 
Sec. 719.21, including correspondence from retained legal counsel 
addressing any of the issues under Sec. 719.21, to Department counsel.


Sec. 719.21  What are the required elements of an engagement letter?

    (a) The engagement letter must require retained legal counsel to 
assist the contractor in complying with this part and any supplemental 
guidance distributed under this part.
    (b) At a minimum, the engagement letter must include the following:
    (1) A process for review and documented approval of all billing by 
a contractor representative, including the timing and scope of billing 
reviews.
    (2) A statement that provision of records to the Government is not 
intended to constitute a waiver of any applicable legal privilege, 
protection, or immunity with respect to disclosure of these records to 
third parties. (An exemption for specific records may be obtained where 
contractors can demonstrate that a particular situation may provide 
grounds for a waiver.)
    (3) A requirement that the contractor, the Department, and the 
General Accounting Office, have the right upon request, at reasonable 
times and locations, to inspect, copy, and audit all records 
documenting billable fees and costs.
    (4) A statement that all records must be retained for a period of 
three (3) years after the final payment.
    (c) The contractor must obtain the following information from 
retained counsel:
    (1) Identification of all attorneys and staff who are assigned to 
the matter and

[[Page 4624]]

the rate and basis of their compensation (i.e., hourly rates, fixed 
fees, contingency arrangement) and a process for obtaining approval of 
temporary adjustments in staffing levels or identified attorneys.
    (2) An initial assessment of the matter, along with a commitment to 
provide updates as necessary.
    (3) A description of billing procedures, including frequency of 
billing and billing statement format.
    (d) The contractor must obtain retained counsel's agreement to the 
following:
    (1) That in significant matters a staffing and resource plan for 
the conduct of the matter must be submitted by the retained legal 
counsel to the contractor in accordance with the requirements of 
Secs. 719.15 and 719.16.
    (2) That alternative dispute resolution must be considered at as 
early a stage as possible where litigation is involved.
    (3) That retained counsel must comply with the cost guidelines in 
subpart D of this part.
    (4) That retained counsel must provide a certification concerning 
the costs submitted for reimbursement that is consistent with the 
certification in the Attachment to Appendix A to this part.
    (5) That professional conflicts of interest issues must be 
identified and addressed promptly.
    (e) Additional requirements may be included in an engagement letter 
based on the needs of the contractor or the office requiring the 
Department retained counsel.

Subpart D--Reimbursement of Costs Subject to This Part


Sec. 719.30  Is there a standard for determining cost reasonableness?

    The standard for cost reasonableness determinations, one of the 
criteria for an allowability determination, is contained in the Federal 
Acquisition Regulation (FAR), at 48 CFR 31.201-3.


Sec. 719.31  How does the Department determine whether fees are 
reasonable?

    In determining whether fees or rates charged by retained legal 
counsel are reasonable, the Department may consider:
    (a) Whether the lowest reasonably achievable fees or rates 
(including any currently available or negotiable discounts) were 
obtained from retained legal counsel;
    (b) Whether lower rates from other firms providing comparable 
services were available;
    (c) Whether alternative rate structures such as flat, contingent, 
and other innovative proposals, were considered;
    (d) The complexity of the legal matter and the expertise of the law 
firm in this area; and
    (e) The factors listed in Sec. 719.10(c).


Sec. 719.32  For what costs is the contractor, or Department retained 
counsel, limited to reimbursement of actual costs only?

    All costs determined to be allowable are reimbursable for actual 
costs only, with no overhead or surcharge adjustments.


Sec. 719.33  What categories of costs are unallowable?

    (a) Specific categories of unallowable costs are contained in the 
cost principles at 48 CFR (FAR) part 31 and 48 CFR (DEAR) part 931 and 
970.31. See also 41 U.S.C. 256(e).
    (b) The Department does not consider for reimbursement any costs 
incurred for entertainment or alcoholic beverages. See 48 CFR (FAR) 
31.205-14 and 31.205-51 and 41 U.S.C. 256(e).
    (c) Costs that are customarily or already included in billed hourly 
rates are not separately reimbursable.
    (d) Interest charges that a contractor incurs on any outstanding 
(unpaid) bills from retained legal counsel are not reimbursable.


Sec. 719.34  What is the treatment for travel costs?

    Travel and related expenses must at a minimum comply with the 
restrictions set forth in 48 CFR (FAR) 31.205-46, or 48 CFR (DEAR) 
970.3102-05-46, as appropriate, to be reimbursable.


Sec. 719.35  What categories of costs require advance approval?

    Costs for the following require specific justification or advance 
written approval from Department counsel to be considered for 
reimbursement:
    (a) Computers or general application software, or non-routine 
computerized databases specifically created for a particular matter;
    (b) Charges for materials or non-attorney services exceeding 
$5,000;
    (c) Secretarial and support services, word processing, or temporary 
support personnel;
    (d) Attendance by more than one person at a deposition, court 
hearing, interview or meeting;
    (e) Expert witnesses and consultants;
    (f) Trade publications, books, treatises, background materials, and 
other similar documents;
    (g) Professional or educational seminars and conferences;
    (h) Preparation of bills or time spent responding to questions 
about bills from either the Department or the contractor;
    (i) Food and beverages when the attorney or consultant is not on 
travel status and away from the home office; and
    (j) Pro hac vice admissions.


Sec. 719.36  Who at the Department must give advance approval?

    If advance approval is required under this part, the advance 
approval must be obtained from the Department counsel unless the 
Department counsel indicates that approval of a request may only be 
given by the contracting officer.


Sec. 719.37  Are there any special procedures or requirements regarding 
subcontractor legal costs?

    (a) The contractor must have a monitoring system for subcontractor 
legal matters likely to reach $100,000 over the life of the matter. The 
purpose of this system is to enable the contractor to perform the same 
type of analysis and review of subcontractor legal management practices 
that the Department can perform of the contractor's legal management 
practices. The monitoring is intended to enable the contractor to keep 
the Department informed about significant subcontractor legal matters, 
including significant matters in litigation. The burden is on the prime 
contractor to be responsive to questions raised by the Department 
concerning significant subcontractor legal matters.
    (b) Contractors must submit information copies of subcontractor 
invoices for legal services to Department counsel.


Sec. 719.38  Are costs covered by this part subject to audit?

    All costs covered by this part are subject to audit by the 
Department, its designated representative or the General Accounting 
Office. See Sec. 719.21.


Sec. 719.39  What happens when more than one contractor is a party to a 
matter?

    (a) If more than one contractor is a party in a particular matter 
and the issues involved are similar for all the contractors, a single 
legal counsel designated by the General Counsel must either represent 
all of the contractors or serve as lead counsel, when the rights of the 
contractors and the government can be effectively represented by a 
single legal counsel, consistent with the standards for professional 
conduct applicable in the particular matter. Contractors may propose to 
the General Counsel their preference for the individual or law firm to 
perform as the lead counsel for a particular matter.
    (b) If a contractor, having been afforded an opportunity to present 
its views concerning joint or lead representation, does not acquiesce 
in the designation of one retained legal

[[Page 4625]]

counsel to represent a number of contractors, or serve as lead counsel, 
then the legal costs of such contractor are not reimbursable by the 
Department, unless the contractor persuasively shows that it was 
reasonable for the contractor to incur such expenses.

Subpart E--Department Counsel Requirements


Sec. 719.40  What is the role of Department counsel as a contracting 
officer's representative?

    (a) The individual selected as Department counsel for a contract 
subject to the requirements of this part must be approved by the 
contracting officer and the appropriate Chief Counsel, or General 
Counsel if at Headquarters. The Department counsel must receive written 
delegated authority from the contracting officer to serve as the 
contracting officer's representative for legal matters. The contractor 
must receive a copy of this delegation of authority.
    (b) Actions by Department counsel may not exceed the 
responsibilities and limitations as delegated by the contracting 
officer. Delegated contracting officer representative authority may not 
be construed to include the authority to execute or to agree to any 
modification of the contract nor to attempt to resolve any contract 
dispute concerning a question of fact arising under the contract.


Sec. 719.41  What information must be forwarded to the General 
Counsel's Office concerning contractor submissions to Department 
counsel under this part?

    Department counsel must submit through the General Counsel 
reporting system, the approved costs and status updates for all matters 
involving retained counsel, including but not limited to contractor 
litigation. The reports are to be received by the 15th day of the month 
following the end of each quarter of the fiscal year.


Sec. 719.42  What types of field actions must be coordinated with 
Headquarters?

    (a) Requests from contractors for exception from this entire part 
must be coordinated with Headquarters.
    (b) Requests from contractors for approval to initiate or defend 
litigation, or to appeal from adverse decisions, where legal issues of 
first impression, sensitive issues, issues of significance to the 
Department nationwide or issues of broad applicability to the 
Government that might adversely impact its operations are involved must 
be coordinated by Department counsel with the Deputy General Counsel 
for Litigation or his/her designee.
    (c) Department field counsel must inform the General Counsel of any 
significant matter, as defined in this part, and must coordinate any 
action involving a significant matter with the General Counsel, or his/
her designee, as directed by the General Counsel or his/her designee.

Appendix to Part 719--Guidance for Legal Resource Management

Management and Administration of Outside Legal Services
1.0  Initiation of Litigation
2.0  Defense of Litigation
2.1  Disapproval of Defensive Litigation
3.0  Notice to the Department of Significant Matters and Litigation
4.0  Alternative Dispute Resolution
5.0  Cost Allowability Issues
5.1  Underlying Cause for Incurrence of Costs
5.2  Fees and Other Charges
6.0  Role of Department Counsel as the Contracting Officer's 
Representative
7.0  Future Amendments to Guidance
Attachment--Contractor Litigation and Legal Costs, Model Bill 
Certification and Format

Management and Administration of Outside Legal Services

    This guidance is intended to assist contractors and the 
Department's contracting officers and counsel in managing the costs 
of outside legal services. This guidance is also intended to assist 
retained legal counsel who provide services to the Department or to 
the Department's contractors.

1.0  Initiation of Litigation

    (A) The Insurance--Litigation and Claims clause (48 CFR (DEAR) 
970.5228-1) in the Department's facility management contracts 
provides that the contractor may not initiate litigation, including 
appeals from adverse decisions, without the prior authorization or 
approval of Department counsel acting in his/her capacity as the 
Department's contracting officer representative. The following are 
the minimum informational requirements for requests for 
authorization or approval under that clause:
    (1) Identification of the proposed parties;
    (2) The nature of the proposed action;
    (3) Relief sought;
    (4) Venue;
    (5) Proposed representation and reason for selection;
    (6) An analysis of the issues and the likelihood of success, and 
any time limitation associated with the requested approval;
    (7) The estimated costs associated with the proposed action, 
including whether outside counsel has agreed to a contingent fee 
arrangement;
    (8) Whether, for any reason, the contractor will assume any part 
of the costs of the action;
    (9) A description of any attempts to resolve the issues that 
would be the subject of the litigation, such as through mediation or 
other means of alternative dispute resolution; and
    (10) A discussion of why initiating litigation would prove 
beneficial to the contractor and to the Government.
    (B) Department counsel should advise the contracting officer 
concerning each request and must provide assistance to the 
contracting officer in communicating the Department's decision to 
the contractor.

2.0  Defense of Litigation

    (A) In accordance with the Insurance-Litigation and Claims 
clause, the contractor must immediately notify Department counsel, 
acting in his/her capacity as contracting officer representative, of 
the initiation of litigation against the contractor. Department 
counsel will advise the contractor as to:
    (1) Whether the defense of the litigation will be either 
approved or disapproved or approval deferred and any conditions to 
which approval is subject;
    (2) Whether the contractor must authorize the Government to 
defend the action;
    (3) Whether the Government will take charge of the action; or
    (4) Whether the Government must receive an assignment of the 
contractor's rights.
    (B) When defensive litigation is approved at a later stage or at 
the conclusion of the matter, reimbursement can be made for only 
those expenses which would have been reimbursable as allowable costs 
if the Department had originally approved the defense of the 
litigation.

2.1  Disapproval of Defensive Litigation

    If the Department disapproves in advance the costs of defense of 
the litigation, the contractor will be notified of the disapproval 
and that contract funds may not be used to fund the defense of the 
litigation. The contractor will also be informed if the Department 
changes its position. Contractor compliance with these policies and 
procedures does not itself obligate the Department to reimburse 
litigation costs or judgment costs when Departmental approval of the 
litigation cost has been denied or deferred.

3.0  Notice to the Department of Significant Matters and Litigation

    The contractor's procedures under its Legal Management Plan 
should include provisions for earliest possible notification to the 
Department of the likely initiation of any ``significant matters'' 
involving class actions, radiation or toxic substance exposure, 
problems concerning the safeguarding of classified information, and 
any other matters involving issues which the contractor has reason 
to believe are of general importance to the Department or the 
government as a whole.

4.0  Alternative Dispute Resolution

    Contractors are expected to evaluate all matters for appropriate 
alternative dispute resolution (ADR) at various stages of an issue 
in dispute, e.g., before a case is filed, pre-discovery, after 
initial discovery and pre-trial. This evaluation should be done in 
coordination with the Department's ADR liaison if one has been 
established or appointed or the Department counsel if an ADR liaison 
has not been appointed. Contractors, contractor counsel, and 
Department counsel are also encouraged to consult with the 
Department's Director of the

[[Page 4626]]

Office of Dispute Resolution. The Department anticipates that 
mediation will be the principal and most common method of 
alternative dispute resolution. In exceptional circumstances, 
arbitration may be appropriate. However, agreement to arbitrate 
should generally be consistent with the Administrative Dispute 
Resolution Act (incorporated in part at 5 U.S.C. 571, et seq.) and 
Department guidance issued under that Act. When a decision to 
arbitrate is made, a statement fixing the maximum award amount 
should be agreed to in advance by the participants.

5.0  Cost Allowability Issues

    A determination of cost reasonableness may depend on a variety 
of considerations and circumstances. In accordance with 48 CFR (FAR) 
31.201-3, no presumption of reasonableness is attached to the 
incurrence of costs by a contractor. 10 CFR part 719 and this 
Appendix provide contractors guidelines for incurring legal costs to 
which adherence should result in a determination of allowability if 
the cost is otherwise allowable under the contract.

5.1  Underlying Cause for Incurrence of Costs

    (A) While 10 CFR part 719 provides procedures for incurring 
legal costs, the determination of the reason for the incurrence of 
the legal costs, e.g., liability, fault or avoidability, is a 
separate determination. This latter determination may involve, for 
example, a possible finding of willful misconduct or lack of good 
faith by contractor management in the case of third party liability, 
or a finding of violation of a statute or regulation by the 
contractor in a governmental proceeding. The reason for the 
contractor incurring costs may be determinative of the allowability 
of the contractor's legal costs. For example, legal costs incurred 
by a contractor in defending actions brought by governmental agency 
may be covered by the Major Fraud Act, 41 U.S.C. 256(k), implemented 
as a cost principle at 48 CFR (FAR) 31.205-47. In such cases, the 
statute may restrict the Department's authority to reimburse legal 
costs incurred by the contractor regardless of the outcome of the 
action.
    (B) In some cases, the final determination of allowability of 
legal costs cannot be made until a matter is fully resolved. This is 
particularly true in the case of legal defense costs covered by the 
restrictions in the Major Fraud Act and is also a common problem in 
cases covered by various whistleblower statutes and regulations. In 
certain circumstances, contract and cost principle language may 
permit conditional reimbursement of costs pending the outcome of the 
legal matter. Whether the Department makes conditional 
reimbursements or withholds any payment pending the outcome, legal 
costs ultimately reimbursed by the Department must satisfy the 
standards of cost reasonableness.

5.2  Fees and Other Charges

    (A) Requests by retained legal counsel that are not in a direct 
contract with the Department for fee increases should be sent in 
writing to the contractor, who should review the request for 
reasonableness. If the contractor determines the request is 
reasonable, the contractor should seek approval for the request from 
Department counsel and the contracting officer before it authorizes 
any increase. Contractors should attempt to lock in rates for 
partners, associates and paralegals for at least a two-year period.
    (B) Costs listed in 10 CFR 719.33(c) are usually incorporated 
into the rate or fee structure. Consultants or experts hired by 
retained legal counsel who do not include any overhead or similar 
charges, such as computer time, in their base rate, must have those 
charges approved in advance by Department counsel and the 
contracting officer. Time charged by law students should be 
scrutinized for its efficiency and have prior authorization.
    (C) Travel time may be reimbursed at a full rate for the portion 
of time during which retained legal counsel actually performs work 
for which it was retained; any remaining travel time during normal 
working hours shall be reimbursed at 50 percent, except that in no 
event is travel time for time during which work was performed for 
other clients reimbursable. Also, for long distance travel that 
could be completed by various methods of transportation, i.e., car, 
train, or plane, only the charge for the overall fastest travel time 
will be considered reasonable.
    (D) For costs associated with the creation and use of 
computerized databases, contractors and retained legal counsel must 
ensure that the creation and use of computerized databases is 
necessary and cost-effective. Potential use of databases originally 
created by the Department or its contractors for other purposes, but 
that can be used to assist a contractor or retained legal counsel in 
connection with a particular matter, should be considered and be 
coordinated with Department counsel.

6.0  Role of Department Counsel as the Contracting Officer's 
Representative

    (A) An attorney from the field office or from Headquarters will 
be appointed a contracting officer's representative by the cognizant 
contracting officer. A contracting officer may designate other 
Government personnel to act as authorized representatives for 
functions not involving a change in the scope, price, terms or 
conditions of the contract. This designation is made in writing and 
contains specific instructions regarding the extent to which the 
representatives may take action for the contracting officer, and 
prohibits the representative from signing contractual documents. The 
contracting officer is the only person authorized to approve changes 
in any of the requirements under the contract.
    (B) Additional discussion of the authority and limitation of 
contracting officers can be found at 48 CFR (FAR) 1.602-1, and for 
contracting officer's representatives at 48 CFR (DEAR) 942.270-1. 
The clause, Technical Direction, 48 CFR (DEAR) 952.242-70, also 
discusses the responsibilities and limitations of a contracting 
officer's representative.

7.0  Future Amendments to Guidance

    The Office of the General Counsel may by memorandum provide 
additional guidance to contractors. These memoranda will serve as 
guidance for ``safe harbor'' practices for contractors procuring 
outside legal services.

Attachment--Contractor Litigation and Legal Costs, Model Bill 
Certification and Format

1. Certification

    Bills or invoices should contain a certification signed by a 
representative of the retained legal counsel to the effect that:
    ``Under penalty of law, [the representative] acknowledges the 
expectation that the bill will be paid by the contractor and that 
the contractor will be reimbursed by the Federal Government through 
the U.S. Department of Energy, and, based on personal knowledge and 
a good faith belief, certifies that the bill is truthful and 
accurate, and that the services and charges set forth herein comply 
with the terms of engagement and the policies set forth in the 
Department of Energy's regulation and guidance on contractor legal 
management requirements, and that the costs and charges set forth 
herein are necessary.''

2. Model Bill Format

                                                  I.--For Fees
----------------------------------------------------------------------------------------------------------------
                                                      Name or
         Date of service          Description of    initials of    Approved rate   Time charged    Amount  (rate
                                      service        attorney                                        x  time)
----------------------------------------------------------------------------------------------------------------
                                           (See Note 1 to this table).
----------------------------------------------------------------------------------------------------------------


                         II.--For Disbursements
------------------------------------------------------------------------
                                    Description of
             Date                    disbursement            Amount
------------------------------------------------------------------------
                       (See Note 2 to this table).
------------------------------------------------------------------------



[[Page 4627]]

    Note 1--Description of Service: All fees must be itemized and 
described in sufficient detail and specificity to reflect the 
purpose and nature of the work performed (e.g., subject matter 
researched or discussed; names of participants of calls/meetings; 
type of documents reviewed).


    Note 2--Description of Disbursement: Description should be in 
sufficient detail to determine that the disbursement expense was in 
accordance with all applicable Department policies on reimbursement 
of contractor legal costs and the terms of engagement between the 
contractor and the retained legal counsel. The date the expense was 
incurred or disbursed should be listed rather than the date the 
expense was processed. The following should be itemized: copy charge 
(i.e., number of pages times a maximum of 10 cents per page); fax 
charges (date, phone number and actual amount); overnight delivery 
(date and amount); electronic research (date and amount); 
extraordinary postage (i.e., bulk or certified mail); court 
reporters; expert witness fees; filing fees; outside copying or 
binding charges; temporary help (assuming prior approval).


    Note 3--Receipts: Receipts for all expenses equal to or above 
$75 must be attached.


    2. The authority citation for Part 931 continues to read as 
follows:

    Authority: 42 U.S.C. 7101, et seq.; 40 U.S.C. 486(c); 50 U.S.C. 
2401, et seq.; 42 U.S.C. 2201.

PART 931--COST PRINCIPLES

    3. Section 931.205-19 is added to read as follows:


931.205-19  Insurance and Indemnification. (Department coverage-
paragraph (h)).

    (h) Cost reimbursement contracts involving work performed at 
facilities owned or leased by the Department for an amount exceeding 
$100,000,000 must insert the clause at 48 CFR 970.5228-1, Insurance-
Litigation and claims.

    4. Section 931.205-33 is added to read as follows:


931.205-33  Professional and consultant service costs. (Department 
coverage-paragraph (g)).

    (g)(1) Reasonable litigation and other legal expenses are allowable 
when incurred in accordance with 10 CFR part 719, Contractor Legal 
Management Requirements, if not otherwise made unallowable by law or 
provisions of the contract.
    (2)(A) Cost reimbursement contracts involving work performed at 
facilities owned or leased by the Department for an amount exceeding 
$100,000,000 are covered by this cost principle and 10 CFR part 719.
    (B) This cost principle and 10 CFR part 719 are applicable to legal 
counsel retained by the Department itself for litigation and other 
legal services where the legal costs over the life of the matter for 
which counsel has been retained are expected to exceed $100,000.
    (3) Contractors described in paragraph (g)(2)(A) of this section 
are required to submit a Legal Management Plan within 60 days of 
execution of a contract.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

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

    Authority: Atomic Energy Act of 1954 (42 U.S.C. 2201); 
Department of Energy Organization Act (42 U.S.C. 7101, et seq.); and 
National Nuclear Security Administration Act (50 U.S.C. 2401, et 
seq.)

    6. Section 970.3102-05-33 is added to read as follows:


970.3102-05-33  Professional and consultant service costs. (Department 
coverage-paragraph (g)).

    (g) Section 931.205-33 is applicable to management and operating 
contracts under this part.

    7. Section 970.5228-1 is amended by:
    a. revising clause paragraph (e)(2),
    b. revising the introcutory text of clause paragraph (h),
    c. revising clause paragraph (j)(4), and
    d. removing clause paragraph (m).
    The revisions read as follows:


970.5228-1  Insurance--litigation and claims.

* * * * *
    (e) * * *
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance or otherwise without regard to and as an 
exception to the limitation of cost or limitation of funds clause of 
this contract.
* * * * *
    (h) In addition to the cost reimbursement limitations contained in 
the cost principles at FAR part 31, as supplemented in the DEAR, and 
notwithstanding any other provision of this contract, the contractor's 
liabilities to third persons, including employees but excluding costs 
incidental to workers' compensation actions (and any expenses 
incidental to such liabilities, including litigation costs, counsel 
fees, judgments and settlements), shall not be reimbursed if such 
liabilities were caused by contractor managerial personnel's * * *.
* * * * *
    (j) * * *
    (4) The term ``contractor's managerial personnel'' is defined in 
the Property clause in this contract.
* * * * *

    8. Section 970.5244-1 is amended by revising the reference to 
``paragraphs (b) through (x)'' in the last sentence of clause paragraph 
(a) to read ``paragraphs (b) through (y)'' and by adding clause 
paragraph (y) to read as follows:


970.5244-1  Contractor purchasing system.

* * * * *
    (y) Legal Services. Contractor purchases of litigation and other 
legal services are subject to the requirements in 10 CFR part 719 
and the requirements of this clause.

[FR Doc. 01-584 Filed 1-17-01; 8:45 am]
BILLING CODE 6450-01-P