[Federal Register Volume 68, Number 237 (Wednesday, December 10, 2003)]
[Rules and Regulations]
[Pages 68771-68784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30364]


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DEPARTMENT OF ENERGY

48 CFR Parts 904, 923, 952, and 970

RIN 1991-AB54


Acquisition Regulations; Conditional Payment of Fee, Profit, and 
Other Incentives

AGENCY: Department of Energy.

ACTION: Interim final rule.

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SUMMARY: The Department of Energy publishes interim final amendments to 
its Acquisition Regulation setting forth policies for reductions of fee 
or other amounts payable to DOE prime contractors because of contractor 
performance failures related to safeguarding of classified information 
and to adequate protection of environment, health and safety, including 
the health and safety of workers, at contractor operated sites.

DATES: This rule is effective January 9, 2004. Written comments on 
specified portions of this interim final rule

[[Page 68772]]

implementing section 234C of the Atomic Energy Act must be received by 
January 26, 2004.

ADDRESSES: Comments (3 copies) on the specified portions of this 
interim final rule should be addressed to: Michael L. Righi, U.S. 
Department of Energy, Office of Procurement and Assistance Policy, ME-
61, 1000 Independence Avenue, SW., Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Michael L. Righi, Office of 
Procurement and Assistance Policy (ME-61), 202-586-8175 or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Background
III. Scope of Further Opportunity for Public Comment
IV. Discussion of Public Comments
V. Procedural Requirements
    A. Review of Executive Order 12866
    B. Review Under the Regulatory Flexibility Act
    C. Review Under the Paperwork Reduction Act
    D. Review Under the National Environmental Policy Act
    E. Review Under Executive Order 13132
    F. Review Under Executive Order 12988
    G. Review Under Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999
    I. Review Under the Treasury and Government Appropriations Act, 
2001
    J. Review Under Executive Order 13211
    K. Review Under the Small Business Regulatory Enforcement 
Fairness Act

I. Introduction

    Pursuant to the Atomic Energy Act of 1954 (Atomic Energy Act) and 
other laws, the Department of Energy (DOE or Department) carries out a 
variety of national defense and energy research, development, and 
demonstration activities at facilities around the nation that are owned 
by the United States, under the custody and control of DOE, and 
operated by prime contractors under the supervision of DOE. On February 
1, 2001, DOE published a Notice of Proposed Rulemaking (NOPR) (66 FR 
8560) to amend portions of the DOE Acquisition Regulation (DEAR) (48 
CFR chapter 9) that apply to these prime contractors. The NOPR 
contained proposed regulatory amendments dealing with reductions in fee 
and other payments to these contractors as a result of performance 
failures in carrying out contract obligations related to: (1) 
Safeguarding classified information; and (2) protection of environment, 
health and safety, including the health and safety of workers at 
contract sites. Although this rulemaking is generally authorized by the 
Atomic Energy Act (42 U.S.C. 2201), the portion of the proposed rule 
dealing with safeguarding classified information responded to specific 
statutory directions in section 234B of the Atomic Energy Act (42 
U.S.C. 2282b). Subsequent to publication of the proposed rule, the 
President signed into law a new section 234C, which contains reduction 
in fee provisions similar to those in section 234B and provides 
specific directions with regard to protection of worker health and 
safety.
    Today, DOE publishes a notice of interim final rulemaking that 
responds to the comments on the proposed rule and contains interim 
final regulatory amendments to the DEAR pursuant to general Atomic 
Energy Act authorities, as well as pursuant to the specific terms of 
sections 234B and 234C of the Atomic Energy Act. Since the provisions 
of section 234C are substantially similar to those of section 234B, DOE 
does not believe that there are policy issues with regard to section 
234C that differ from those concerning section 234B. However, in 
addition to its review of comments submitted during the comment period 
on the NOPR, DOE is inviting public comment limited to the portions of 
the interim final amendments to the DEAR that implement section 234C to 
ensure that DOE has not overlooked any subtle, relevant issues that are 
unique to section 234C. Those portions of the interim final rule are 
specifically identified in part III of this SUPPLEMENTARY INFORMATION.

II. Background

    Section 3147 of the National Defense Authorization Act for Fiscal 
Year 2000 added section 234B to the Atomic Energy Act (42 U.S.C. 
2282b). Section 234B requires, in part, that DOE contracts provide for 
an appropriate reduction in the fees or amounts paid to the contractor 
under the contract in the event of a violation by the contractor or 
contractor employee of any rule, regulation, or order relating to the 
safeguarding or security of restricted data or other classified or 
sensitive information. Section 234B also prescribes that the 
implementing regulations must specify various degrees of violations and 
the amount of the reduction attributable to each degree of violation. 
Section 234B applies to prime contractors, including management and 
operating (M&O) contractors and certain non-M&O contractors.
    Recent legislation, section 3173 of the National Defense 
Authorization Act for Fiscal Year 2003, which adds section 234C to the 
Atomic Energy Act (42 U.S.C. 2282c), requires the Department to include 
in each contract with a contractor of the Department who has entered 
into an agreement of Price Anderson indemnification (48 CFR 952.250-70) 
clauses that provide an appropriate reduction in the fees or amounts 
paid to the contractor under the contract in the event of a violation 
by the contractor or contractor employee of any regulation promulgated 
to protect worker safety and health (WS&H). Section 234C also requires 
that contract provisions specify various degrees of violations and the 
amount of reduction attributable to each degree of violation. The 
Department is planning a rulemaking action to establish a new 
regulation at 10 CFR part 851 to set forth WS&H requirements and to 
address the civil penalty and enforcement aspects of section 234C. 
Section 234C specifies that in the event of a violation under the 
regulations, the Department may pursue either civil or contract 
penalties, but not both. In the case of non-profit entities described 
at 42 U.S.C. 2282a(d), the total amount of civil and contract penalties 
in a fiscal year may not exceed the total amount of fees paid by the 
Department to that entity in that fiscal year.
    As opposed to the NOPR, which would have added two clauses, this 
interim final rule adds four clauses, three for other than management 
and operating contracts and one for management and operating contracts. 
The additional clauses reflect the requirements of section 234C.
    Consistent with section 234B of the Atomic Energy Act, for other 
than management and operating contracts, this interim final rule adds a 
clause entitled, ``Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information'' to DEAR part 952. 
Except for DOE management and operating contracts and other contracts 
designated by the Procurement Executive, or designee, this clause is 
prescribed for use in all DOE contracts that involve or are likely to 
involve classified information but that do not include the clause at 48 
CFR 952.250-70, Nuclear hazards indemnification agreement. The clause 
would provide for reductions of earned fee or profit that is otherwise 
payable under applicable contracts for contractor violations of laws, 
regulations, or directives relating to the safeguarding of restricted 
data and other classified information. Among other things, this clause 
would provide for fee reductions for violations related to the 
safeguarding of high risk nuclear weapons-related data. At present, 
this category consists of data covered by SIGMA 14 or SIGMA 15, but it 
may include other categories of high risk

[[Page 68773]]

nuclear weapons-related data should the Department designate additional 
categories in the future. The clause sets forth the conditions that may 
precipitate a reduction of fee or profit and percentage reduction 
ranges that correlate to three degrees of violations.
    Consistent with section 234B and C of the Atomic Energy Act, for 
other than management and operating contracts, this interim final rule 
adds a clause entitled, ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information and 
Protection of Worker Safety and Health'' to DEAR part 952. Except for 
DOE management and operating contracts and other contracts designated 
by the Procurement Executive, or designee, this clause is prescribed 
for use in all DOE contracts that involve or are likely to involve 
classified information and that also include the clause at 48 CFR 
952.250-70, Nuclear hazards indemnification agreement. The clause would 
provide for reductions of earned fee or profit that is otherwise 
payable under applicable contracts for contractor violations of laws, 
regulations, or directives relating to the safeguarding of restricted 
data and other classified information or relating to worker safety and 
health. The clause sets forth the conditions that may precipitate a 
reduction of fee or profit and percentage reduction ranges that 
correlate to three degrees of violations.
    Consistent with section 234C of the Atomic Energy Act, for other 
than management and operating contracts, this interim final rule adds a 
clause entitled, ``Conditional Payment of Fee or Profit-Protection of 
Worker Safety and Health'' to DEAR part 952. Except for DOE management 
and operating contracts and other contracts designated by the 
Procurement Executive, or designee, this clause is prescribed for use 
in all DOE contracts that do not involve and are not likely to involve 
classified information and that do include the clause at 48 CFR 
952.250-70, Nuclear hazards indemnification agreement. The clause would 
provide for reductions of earned fee or profit that is otherwise 
payable under applicable contracts for contractor violations of laws, 
regulations, or directives relating to worker safety and health. The 
clause sets forth both the conditions that may precipitate a reduction 
of fee or profit and the percentage reduction ranges that correlate to 
three degrees of violations.
    Consistent with section 234B and C of the Atomic Energy Act, for 
DOE management and operating contracts and other contracts designated 
by the Procurement Executive, the clause at 48 CFR 970.5215-3, 
``Conditional Payment of Fee, Profit, or Other Incentives--Facility 
Management Contracts,'' provides for reductions of earned fee, fixed 
fee, profit, or share of cost savings that may otherwise be payable 
under the contract if: Performance failures relating to environment, 
safety and health (ES&H) or the safeguarding of restricted data and 
other classified information occur (the basic clause); or performance 
failures relating to ES&H occur (Alternate I of the clause). The clause 
sets forth the conditions that may precipitate a reduction of earned or 
fixed fee, profit, or share of cost savings under the contract. The 
clause also sets forth the percentage fee, profit, or share of cost 
savings reduction ranges that correlate to the three degrees of 
performance failures relating to ES&H and to the three degrees of 
performance failures relating to safeguarding of restricted data and 
other classified information.
    A large number of comments DOE received related to the mitigating 
factors to be considered before a fee reduction by the contracting 
officer. The provisions in the NOPR permitted consideration of 
mitigating factors, but did not make consideration of mitigating 
factors mandatory. In today's interim final rule, the Department has 
changed the proposed language so that it is now mandatory for a 
contracting officer to consider mitigating factors when contemplating a 
fee reduction. DOE also added a non-exhaustive list of mitigating 
factors that must be considered by the contracting officer.
    Another significant number of comments DOE received related to the 
percentage fee reductions possible for second and third degree 
performance failures and the descriptions of what might constitute 
performance failures, especially ES&H failures. In this interim final 
rule, the Department has changed the proposed rule language to lower 
the percentage fee reduction for second and third degree performance 
failures (from maximums of 50 percent and 25 percent to maximums of 25 
percent and 10 percent, respectively) and shortened and simplified the 
description of performance failures for ES&H issues. Additionally, the 
interim final rule includes language making it clear that performance 
failures only occur if the contractor does not comply with the related 
terms and conditions of the contract. The mere occurrence of an event 
does not necessarily create the potential for a fee reduction.
    The numbering system in this interim final rule differs from the 
one in the NOPR because it conforms to the new DEAR numbering system 
established by the final rule published in the Federal Register on 
December 22, 2000 (65 FR 80993), titled ``Rewrite of Regulations 
Governing Management and Operating Contracts.''
    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) if the extend/compete decision is made on or after the 
effective date of this rule, and to options exercised under 
competitively awarded management and operating contracts (48 CFR 
970.1702-1(b)).
    In preparing this notice of interim final rulemaking the Department 
has made a variety of technical changes, which do not warrant extended 
discussion.

III. Scope of Further Opportunities for Public Comment

    The NOPR of February 1, 2001, contained proposed amendments to the 
DEAR that are consistent with the subsequently enacted requirements of 
section 234C. A few minor amendments have been necessary to the 
originally proposed language to specifically address the new section 
234C. The amendments are the interim rule portion of this interim final 
rule. The amendments are: (1) Revised language at DEAR 970.1504-1-
2(i)(1) and at 970.5215-3(a)(1)(i) making it clear that the term 
``environment, safety and health (ES&H)'' also includes ``worker safety 
and health (WS&H)''; (2) a new paragraph (c) is added to DEAR 970.2303-
1; (3) a new paragraph (b) is added to DEAR 923.7001; (4) new 
paragraphs (f) and (g) are added to DEAR 923.7002; and (5) new clauses 
are added at DEAR 952.223-76 and at DEAR 952.223-77. DOE today provides 
an opportunity for public comment limited to these five regulatory 
amendments and relevant issues unique to implementing section 234C.

IV. Discussion of Public Comments

    This section of the Supplementary Information addresses the major 
issues that emerged from the public comments. Many of the comments 
received in response to the NOPR raised issues related to the civil 
penalty requirements of section 234B, which were outside the

[[Page 68774]]

scope of this fee reduction rule, since this rulemaking only addresses 
the contractual provisions and fee reduction aspects of the statute. 
The Department always intended to conduct two separate rulemakings, one 
establishing civil penalty procedural rules similar to the procedural 
rules to achieve compliance with DOE nuclear safety requirements found 
at 10 CFR part 820 and the other establishing procurement clauses like 
those in this rulemaking action. To establish procedural rules, on 
April 1, 2002, the Department published a second NOPR (67 FR 15339) to 
implement subsections a, c and d of section 234B. In the second NOPR, 
the Department proposed to establish a new part 824 to chapter III of 
title 10 of the Code of Federal Regulations (CFR) to implement all 
subsections of section 234B of the Atomic Energy Act, except subsection 
b. A number of the comments received in response to the first NOPR, 
intended to implement section b of section 234B, were addressed by the 
publication of the second NOPR, intended to implement subsections a, c 
and d of section 234B, and need not be addressed at length in this 
notice.
    Other major issues emerging from the public comments on the 
proposed rule are discussed below. Sixteen respondents submitted 
comments to the Department.

Mitigating Factors

    Comment: Respondents stated that the proposal lacked a sense of 
proportion between the seriousness of the violation and the 
contractor's culpability and that fee reductions should decrease as 
contractor culpability decreases. Others advocated the use of fault 
based standards for determining amount of fee reductions and that the 
Department should exclude matters beyond the contractor's control.
    Response: These comments regarding the issue of taking into account 
mitigating circumstances are addressed in the interim final rule 
through the addition in each of the contract provisions of a statement 
that the contractor's overall performance on an issue be considered and 
a mandatory requirement that a list of mitigating factors be 
considered.
    Comment: Respondents were concerned about the risk of violations 
and resultant fee reductions that could result from changing contract 
requirements under the directives system.
    Response: The DEAR Laws, regulations, and DOE directives clause 
allows for contract changes when contract requirements change due to a 
new or modified directive. The contract changes include changes to any 
contract term or condition, including cost or schedule, that are 
appropriate. Therefore, any change to the risk of fee reduction that 
could result from changing contract requirements under the directives 
system, whether it be increased risk or decreased risk of fee 
reduction, can be fairly handled under the clause. In those instances 
where DOE lays new safety or security requirements on the contractor, 
the contractor must be given adequate time to comply with the new 
requirements.
    Comment: Respondents stated that contractors should not be 
penalized with a fee reduction for self reporting a problem.
    Response: The Department agrees and self reporting has been 
included in the list of mitigation factors.

E,S&H

    Comment: Respondents recommended DOE eliminate the proposed rule's 
ES&H coverage because it goes beyond the focus in section 234B of the 
Atomic Energy Act on security issues and is covered adequately by the 
current clause.
    Response: The NOPR covered issues not addressed in the current DEAR 
clause because the Department determined it was appropriate to address 
ES&H-related fee reductions in the same manner as security-related fee 
reductions. The Department's decision to include degrees of violation 
for ES&H-related fee reductions was fortuitous since, as discussed in 
an earlier section of this notice, the Department must now address a 
statutory requirement for fee reductions for violations related to 
worker safety and health concerns. The new provisions are required to 
specify various degrees of violations and amount of reduction 
attributable to each degree of violation. The new requirement is 
similar to that contained in section 234B of the Atomic Energy Act, 
which was focused on security concerns.
    The Department's proposed rule also included other potential 
improvements. The current DEAR clause addressing conditional payment of 
fee, for example, does not require DOE to consider mitigating 
circumstances for ES&H performance failures that are not catastrophic 
in determining fee reductions. Nor does it require, for a catastrophic 
event, both a failure to comply with the ES&H terms and conditions and 
a negative result before a fee reduction can be imposed. Rather it 
merely requires that an event occur. Further, the current clause does 
not limit performance failures for ES&H or catastrophic events to 25 
percent (second degree) or 10 percent (third degree) for lesser 
failures, since it does not address degrees of failure.
    Comment: Respondents stated that the proposed language regarding 
performance failures for ES&H issues was too subjective or vague.
    Response: To satisfy respondents' comments, in this interim final 
rule, a number of changes have been made to the ES&H-related 
provisions. The language describing the degrees of performance failure 
has been streamlined, the criteria for failure determinations have been 
more clearly oriented to the terms of an individual contract, and the 
consideration of mitigating factors has become more focused on systemic 
rather than individual failures.

Appeal Process

    Comment: Respondents stated that the fee reduction provisions 
should be subject to the disputes clause and not left to the unilateral 
discretion of the contracting officer.
    Response: Fee reductions are subject to the disputes clause. The 
contractor will continue to have appeal rights under the Contract 
Disputes Act notwithstanding the fact that the contract gives the 
contracting officer unilateral discretion to make determinations for 
fee reductions. However, the inclusion of this contract term raises the 
standard of review to arbitrary or capricious conduct by the fee 
determination official. See Burnside-Ott Aviation Training Center v. 
Dalton, 107 F.3rd 854 (Fed. Cir. 1997).

Security Issues

    Comment: Respondents stated that the Department should not make fee 
reductions for security violations in instances where the violations 
related to problems inherited by the current contractor, such as 
documents already misclassified sometime in the past.
    Response: While the mitigating factors now listed in the clauses do 
not specifically use the term pre-existing condition, this is the type 
of situation contemplated by the mitigating factors. The first 
mitigating factor, for example, is ``Degree of control the contractor 
had over the event or incident.''
    Comment: Respondents stated that the proposed language was too 
subjective or vague for the associated penalties. Phrases such as 
``reasonably expected to result in'' and ``threaten the successful 
completion of'' were considered too vague for descriptions that could 
result in fee reductions. Some suggestions were to:


[[Page 68775]]


--Define ``exceptionally grave damage, serious damage, etc.'';
--Define ``safeguards and security management system'' breakdown;
--Define or eliminate ``that can reasonably be expected to result in'' 
damage to national security;
--Eliminate conduct ``creating a risk'' of harm (basing fee reductions 
on incidents that merely create risk is too subjective);
--Eliminate ``or performance failures of similar import'';

    Respondents also stated that since risk is always present, fee 
reductions should not be imposed for risk. They stated that the rule 
would undo current standards of acceptable risk in safeguarding 
classified information, which set appropriate levels of protection 
against risk based on vulnerability/risk analyses.
    Response: The terms used in the proposed rule and this interim 
final rule are found in DOE Directives, Executive Orders, and the 
National Industrial Security Program. As for risk, the Department 
understands risk is present. The interim final rule makes it clear that 
fee reductions related to a security violation are only possible if 
there is a performance failure related to a security violation and that 
failure is the cause of an undesirable outcome, such as events that 
cause or could reasonably be expected to cause damage to the national 
security.
    Comment: A number of respondents stated that the fee reductions 
should be tied to a site specific plan that is part of the security 
agreement between DOE and contractor. That plan would cite controlling 
directives, the contractor's security plan, and define degrees of 
performance failure.
    Response: The interim final rule specifically allows for site 
specific performance criteria/requirements that provide additional 
definition, guidance for the amount of the reduction, or guidance for 
the applicability of mitigating factors.

Other Issues

    Comment: Respondents stated that there should be a distinction in 
the rule between contracts that have evaluation periods of different 
lengths.
    Response: DOE disagrees because the parties are free to negotiate 
appropriate evaluation period lengths, taking into account all the 
elements of the contract to include, among other things, desired 
outcomes, equitable allocation of risks, suitable rewards, and 
potential fee reductions for ES&H or security performance failures.

V. 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 action 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 the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis for any rule 
that by law must be proposed for public comment, unless the agency 
certifies that the rule, if promulgated, will not have a significant 
economic impact on a substantial number of small entities. As required 
by Executive Order 13272, ``Proper Consideration of Small Entities in 
Agency Rulemaking'' (67 FR 53461, August 16, 2002), DOE published 
procedures and policies to ensure that the potential impacts of its 
draft rules on small entities are properly considered during the 
rulemaking process (68 FR 7990, February 19, 2003), and has made them 
available on the Office of General Counsel's Web site: http://www.gc.doe.gov. DOE has reviewed today's rule under the provisions of 
the Regulatory Flexibility Act and the procedures and policies 
published on February 19, 2003. Because DOE is contractually obligated 
to reimburse contractors for the cost of complying with regulatory 
requirements, the rule will not have a significant economic impact on 
small entities. Since it is clear that the rule will not have an 
adverse economic impact, there is no need to determine the exact number 
of small contractors that might be affected by the new requirements. On 
the basis of the foregoing, DOE certifies that the rule, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities. Accordingly, DOE did not prepare 
a regulatory flexibility analysis for this rule.

C. Review Under the Paperwork Reduction Act

    No new information collection requirements subject to the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq., are imposed by today's 
regulatory action.

D. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this rule falls into a class 
of actions that would not individually or cumulatively have a 
significant impact on the human environment, as determined by DOE's 
regulations implementing the National Environmental Policy Act of 1969 
(42 U.S.C. 4321 et seq.). Specifically, this rule deals only with 
agency procedures, and, therefore, is covered under the Categorical 
Exclusion in paragraph A6 to subpart D, 10 CFR part 1021. Accordingly, 
neither an environmental assessment nor an environmental impact 
statement is required.

E. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism'' (64 FR 43255, August 4, 1999) 
imposes certain requirements on agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. Agencies are required to examine the constitutional and 
statutory authority supporting any action that would limit the 
policymaking discretion of the States and carefully assess the 
necessity for such actions. The Executive Order also requires agencies 
to have an accountable process to ensure meaningful and timely input by 
State and local officials in the development of regulatory policies 
that have federalism implications. On March 14, 2000, DOE published a 
statement of policy describing the intergovernmental consultation 
process it will follow in the development of such regulations (65 FR 
13735). DOE has examined today's rule and has determined that it does 
not preempt State law and does 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.

F. 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 
Federal 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. Section 3(b) of

[[Page 68776]]

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, this rule meets the relevant standards of Executive 
Order 12988.

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

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to assess the effects of a Federal 
regulatory action on State, local, and tribal governments, and the 
private sector. The Department has determined that today's regulatory 
action does not impose a Federal mandate on State, local or tribal 
governments or on the private sector.

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 rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under the Treasury and General Government Appropriations Act, 
2001

    The Treasury and General Government Appropriations Act, 2001 (44 
U.S.C. 3516, note) provides for agencies to review most disseminations 
of information to the public under guidelines established by each 
agency pursuant to general guidelines issued by OMB. OMB's guidelines 
were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines 
were published at 67 FR 62446 (October 7, 2002). DOE has reviewed 
today's notice under the OMB and DOE guidelines and has concluded that 
it is consistent with applicable policies in those guidelines.

J. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 
28355, May 22, 2001) requires Federal agencies to prepare and submit to 
the Office of Information and Regulatory Affairs (OIRA), Office of 
Management and Budget, a Statement of Energy Effects for any proposed 
significant energy action. A ``significant energy action'' is defined 
as any action by an agency that promulgated or is expected to lead to 
promulgation of a final rule, and that: (1) Is a significant regulatory 
action under Executive Order 12866, or any successor order; and (2) is 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (3) is designated by the 
Administrator of OIRA as a significant energy action. For any proposed 
significant energy action, the agency must give a detailed statement of 
any adverse effects on energy supply, distribution, or use should the 
proposal be implemented, and of reasonable alternatives to the action 
and their expected benefits on energy supply, distribution, and use. 
Today's regulatory action is not a significant energy action. 
Accordingly, DOE has not prepared a Statement of Energy Effects.

K. Review Under the Small Business Regulatory Enforcement Fairness Act.

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of today's interim 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. 801(2).
    Issuance of this interim final rule has been approved by the Office 
of the Secretary of Energy.

List of Subjects in 48 CFR Parts 904, 923, 952, and 970

    Government procurement.

    Issued in Washington, DC on December 2, 2003.
Richard H. Hopf,
Director, Office of Procurement and Assistance Management, Office of 
Management, Budget and Evaluation, Department of Energy.
Robert C. Braden, Jr.,
Director, Office of Procurement and Assistance Management, National 
Nuclear Security Administration.

0
For the reasons set out in the preamble, DOE amends chapter 9 of title 
48 of the Code of Federal Regulations as set forth below.
0
1. The authority citation for parts 904 and 952 is revised to read as 
follows:

    Authority: 42 U.S.C. 2201, 2282a, 2282b, 2282c, 7101 et seq.; 41 
U.S.C. 418b; 50 U.S.C. 2401 et seq.

PART 904--ADMINISTRATIVE MATTERS

0
2. Section 904.402 is amended by adding a new paragraph (c) to read as 
follows:


904.402  General.

* * * * *
    (c)(1) Section 234B of the Atomic Energy Act (42 U.S.C. 2282b) 
requires that DOE contracts include a clause that provides for an 
appropriate reduction in the fees or amounts paid to the contractor 
under the contract in the event of a violation by the contractor or any 
contractor employee of any rule, regulation, or order relating to the 
safeguarding or security of Restricted Data or other classified 
information. The clause is required for all DOE prime contracts that 
involve any possibility of contractor access to Restricted Data or 
other classified information. The clause is required to specify various 
degrees of violations and the amount of the reduction attributable to 
each degree of violation. The clause prescribed at 48 CFR 904.404(d)(6) 
(Conditional Payment of Fee or Profit--Safeguarding Restricted Data and 
Other Classified Information) or the clause prescribed at 48 CFR 
923.7002(f) (Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information and Protection of 
Worker Safety and Health) shall be used for this purpose unless the 
clause prescribed at 48 CFR 970.1504-5(c) (Conditional Payment of Fee, 
Profit, and Other Incentives--Facility Management Contracts) is used.
    (2) The clause entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information'' and the 
clause entitled ``Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other

[[Page 68777]]

Classified Information and Protection of Worker Safety and Health'' 
provide for reductions of fee or profit that is earned by the 
contractor depending upon the severity of the contractor's failure to 
comply with contract terms or conditions relating to the safeguarding 
of Restricted Data or other classified information. When reviewing 
performance failures that would otherwise warrant a reduction of earned 
fee, the contracting officer must consider mitigating factors that may 
warrant a reduction below the applicable range specified in the clause. 
Some of the mitigating factors that must be considered are specified in 
the clause.
    (3) The contracting officer must obtain the concurrence of the Head 
of the Contracting Activity:
    (i) Prior to effecting any reduction of fee or amounts otherwise 
payable to the contractor in accordance with the terms and conditions 
of the clause entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information'' or of 
the clause entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information and 
Protection of Worker Safety and Health;'' and
    (ii) For determinations that no reduction of fee is warranted for a 
particular performance failure(s) that would otherwise warrant a 
reduction.

0
3. Section 904.404 is amended by adding a new paragraph (d)(6) to read 
as follows:


904.404  Solicitation provision and contract clause. [DOE Coverage--
Paragraph (d)]

    (d) * * *
    (6) Except as prescribed in 48 CFR 970.1504-5(c), the contracting 
officer shall insert the clause at 48 CFR 952.204-76, Conditional 
Payment of Fee or Profit--Safeguarding Restricted Data and Other 
Classified Information, in all contracts that contain the clause at 48 
CFR 952.204-2, Security, but that do not contain the clause at 48 CFR 
952.250-70, Nuclear hazards indemnity agreement.

PART 923--ENVIRONMENT, CONSERVATION, OCCUPATIONAL SAFETY, AND DRUG-
FREE WORKPLACE

0
4. Section 923.7002 is redesignated as Sec.  923.7003 and a new Sec.  
923.7002 is added to read as follows:


923.7002  Worker Safety and Health.

    (a)(1) Except when the clause prescribed at 48 CFR 970.1504-5(c) is 
used, the clauses entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information and 
Protection of Worker Safety and Health'' and ``Conditional Payment of 
Fee or Profit--Protection of Worker Safety and Health'' implement the 
requirements of section 234C of the Atomic Energy Act for the use of a 
contract clause that provides for an appropriate reduction in the fee 
or amount paid to the contractor under the contract in the event of a 
violation by the contractor or any contractor employee of any 
Departmental regulation relating to the enforcement of worker safety 
and health concerns. The clauses, in part, provide for reductions in 
the amount of fee, profit, or share of cost savings that is otherwise 
earned by the contractor for performance failures relating to worker 
safety and health violations under the Department's regulations.
    (2) The clauses provide for reductions of fee or profit that is 
earned by the contractor depending upon the severity of the 
contractor's failure to comply with contract terms or conditions 
relating to worker safety and health concerns. When reviewing 
performance failures that would otherwise warrant a reduction of earned 
fee, the contracting officer must consider mitigating factors that may 
warrant a reduction below the applicable range specified in the 
clauses. Some of the mitigating factors that must be considered are 
specified in the clauses.
    (3) The contracting officer must obtain the concurrence of the Head 
of the Contracting Activity--
    (i) Prior to effecting any reduction of fee or amounts otherwise 
payable to the contractor in accordance with the terms and conditions 
of the clause entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information and 
Protection of Worker Safety and Health'' or of the clause entitled 
``Conditional Payment of Fee or Profit--Protection of Worker Safety and 
Health''; and
    (ii) For determinations that no reduction of fee is warranted for a 
particular performance failure(s) that would otherwise warrant a 
reduction.
    (4) Section 234C of the Atomic Energy Act provides that DOE shall 
either pursue civil penalties (implemented at 10 CFR part 851) for a 
violation under section 234C of the Atomic Energy Act (42 U.S.C. 2282c) 
or a contract fee reduction, but not both.
    (5) The contracting officer must coordinate with the Office of 
Price Anderson Enforcement within the Office of the Assistant Secretary 
for Environment, Safety and Health (or with any designated successor 
office) before pursuing a contract fee reduction in the event of a 
violation by the contractor or any contractor employee of any 
Departmental regulation relating to the enforcement of worker health 
and safety concerns.
0
5. Redesignated Sec.  923.7003 is further amended by adding a new 
paragraphs (f) and (g) to read as follows:


923.7003  Contract clauses.

* * * * *
    (f) Except as prescribed in 48 CFR 970.1504-5(c), the contracting 
officer shall insert the clause at 48 CFR 952.223-76, Conditional 
Payment of Fee or Profit--Safeguarding Restricted Data and Other 
Classified Information and Protection of Worker Safety and Health, in 
all contracts that contain both the clause at 48 CFR 952.204-2, 
Security, and the clause at 48 CFR 952.250-70, Nuclear hazards 
indemnity agreement.
    (g) Except as prescribed in 48 CFR 970.1504-5(c), the contracting 
officer shall insert the clause at 48 CFR 952.223-77, Conditional 
Payment of Fee or Profit--Protection of Worker Safety and Health, in 
all contracts that do not contain the clause at 48 CFR 952.204-2, 
Security, but that do contain the clause at 48 CFR 952.250-70, Nuclear 
hazards indemnity agreement.

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
6. Section 952.204-76 is added in Subchapter H to read as follows:


952.204-76  Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information.

    As prescribed at 48 CFR (DEAR) 904.404(d)(6), insert the following 
clause.

Conditional Payment of Fee or Profit--Safeguarding Restricted Data and 
Other Classified Information (JAN 2004)

    (a) General. (1) The payment of fee or profit (i.e., award fee, 
fixed fee, and incentive fee or profit) under this contract is 
dependent upon the contractor's compliance with the terms and 
conditions of this contract relating to the safeguarding of 
Restricted Data and other classified information (i.e., Formerly 
Restricted Data and National Security Information) including 
compliance with applicable law, regulation, and DOE directives. The 
term ``contractor'' as used in this clause to address failure to 
comply shall mean ``contractor or contractor employee.''
    (2) In addition to other remedies available to the Government, 
if the contractor fails to comply with the terms and conditions of 
this contract relating to the safeguarding of Restricted Data and 
other classified information, the contracting officer may 
unilaterally reduce the amount of fee or

[[Page 68778]]

profit that is otherwise payable to the contractor in accordance 
with the terms and conditions of this clause.
    (3) Any reduction in the amount of fee or profit earned by the 
contractor will be determined by the severity of the contractor's 
failure to comply with contract terms and conditions relating to the 
safeguarding of Restricted data or other classified information 
pursuant to the degrees specified in paragraph (c) of this clause.
    (b) Reduction Amount. (1) If in any period (see 48 CFR 952.204-
76 (b)(2)) it is found that the contractor has failed to comply with 
contract terms and conditions relating to the safeguarding of 
Restricted Data or other classified information, the contractor's 
fee or profit of the period may be reduced. Such reduction shall not 
be less than 26 percent nor greater than 100 percent of the total 
fee or profit earned for a first degree performance failure, not 
less than 11 percent nor greater than 25 percent for a second degree 
performance failure, and up to 10 percent for a third degree 
performance failure. The contracting officer must consider 
mitigating factors that may warrant a reduction below the specified 
range (see 48 CFR 904.402(c)). The mitigating factors include, but 
are not limited to, the following:
    (i) Degree of control the contractor had over the event or 
incident.
    (ii) Efforts the contractor had made to anticipate and mitigate 
the possibility of the event in advance.
    (iii) Contractor self-identification and response to the event 
to mitigate impacts and recurrence.
    (iv) General status (trend and absolute performance) of 
safeguarding Restricted Data and other classified information and 
compliance in related security areas.
    (2)(i) Except in the case of performance-based firm-fixed-price 
contracts (see paragraph (b)(3) of this clause), the contracting 
officer, for purposes of this clause, will at the time of contract 
award, or as soon as practicable thereafter, allocate the total 
amount of fee or profit that is available under this contract to 
equal periods of [insert 6 or 12] months to run sequentially for the 
entire term of the contract (i.e., from the effective date of the 
contract to the expiration date of the contract, including all 
options). The amount of fee or profit to be allocated to each period 
shall be equal to the average monthly fee or profit that is 
available or otherwise payable during the entire term of the 
contract, multiplied by the number of months established above for 
each period.
    (ii) Under this clause, the total amount of fee or profit that 
is subject to reduction in a period in which a performance failure 
occurs, in combination with any reduction made under any other 
clause in the contract that provides for a reduction to the fee or 
profit, shall not exceed the amount of fee or profit that is earned 
by the contractor in the period established pursuant to paragraph 
(b)(2)(i) of this clause.
    (3) For performance-based firm-fixed-price contracts, the 
contracting officer will at the time of contract award include 
negative monetary incentives in the contract for contractor 
violations relating to the safeguarding of Restricted Data and other 
classified information.
    (c) Safeguarding Restricted Data and Other Classified 
Information. Performance failures occur if the contractor does not 
comply with the terms and conditions of this contract relating to 
the safeguarding of Restricted Data and other classified 
information. The degrees of performance failures relating to the 
contractor's obligations under this contract for safeguarding of 
Restricted Data and other classified information are as follows:
    (1) First Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have resulted in, or that can reasonably be expected 
to result in, exceptionally grave damage to the national security. 
The following are examples of performance failures or performance 
failures of similar import that will be considered first degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating a risk of, loss, 
compromise, or unauthorized disclosure of Top Secret Restricted Data 
or other information classified as Top Secret, any classification 
level of information in a Special Access Program (SAP), information 
identified as sensitive compartmented information (SCI), or high 
risk nuclear weapons-related data.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Top Secret Restricted Data, or other information 
classified as Top Secret, any classification level of information in 
a SAP, information identified as SCI, or high risk nuclear weapons-
related data.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Top Secret Restricted Data or other 
information classified as Top Secret, any classification level of 
information in a SAP, information identified as SCI, or high risk 
nuclear weapons-related data.
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Top Secret 
Restricted Data or other information classified as Top Secret, any 
classification level of information in a SAP, information identified 
as SCI, or high risk nuclear weapons-related data.
    (2) Second Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, serious damage to the national security. The 
following are examples of performance failures or performance 
failures of similar import that will be considered second degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Secret Restricted Data or 
other information classified as Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Sceret Restricted Data, or other information 
classified as Secret.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Restricted Data or other information 
regardless of classification (except for information covered by 
paragraph (c)(1)(iii) of this clause).
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Secret 
Restricted Data or other information classified as Secret.
    (3) Third Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, undue risk to the common defense and 
security. In addition, this category includes performance failures 
that result from a lack of contractor management and/or employee 
attention to the proper safeguarding of Restricted Data and other 
classified information. These performance failures may be indicators 
of future, more severe performance failures and/or conditions, and 
if identified and corrected early would prevent serious incidents. 
The following are examples of performance failures or performance 
failures of similar import that will be considered third degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
information classified as Confidential.
    (ii) Failure to promptly report alleged or suspected violations 
of laws, regulations, or directives pertaining to the safeguarding 
of Restricted Data or other classified information.
    (iii) Failure to identify or timely execute corrective actions 
to mitigate or eliminate identified vulnerabilities and reduce 
residual risk relating to the protection of Restricted Data or other 
classified information in accordance with the contractor's 
Safeguards and Security Plan or other security plan, as applicable.
    (iv) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the contractor's 
safeguards and security management system relating to the protection 
of Restricted Data and other classified information.

(End of Clause)


0
7. Section 952.223-76 is added to read as follows:


952.223-76  Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information and Protection of 
Worker Safety and Health.

    As prescribed at 48 CFR (DEAR) 923.7002(f), insert the following 
clause.

Conditional Payment of Fee or Profit--Safeguarding Restricted Data and 
Other Classified Information and Protection of Worker Safety and Health 
(JAN 2004)

    (a) General. (1) The payment of fee or profit (i.e., award fee, 
fixed fee, and incentive fee or profit) under this contract is 
dependent upon the contractor's compliance with the

[[Page 68779]]

terms and conditions of this contract relating to the safeguarding 
of Restricted Data and other classified information (i.e., Formerly 
Restricted Data and National Security Information) and relating to 
the protection of worker safety and health, including compliance 
with applicable law, regulation, and DOE directives. The term 
``contractor'' as used in this clause to address failure to comply 
shall mean ``contractor or contractor employee.''
    (2) In addition to other remedies available to the Federal 
Government, if the contractor fails to comply with the terms and 
conditions of this contract relating to the safeguarding of 
Restricted Data and other classified information or relating to the 
protection of worker safety and health, the contracting officer may 
unilaterally reduce the amount of fee or profit that is otherwise 
payable to the contractor in accordance with the terms and 
conditions of this clause.
    (3) Any reduction in the amount of fee or profit earned by the 
contractor will be determined by the severity of the contractor's 
failure to comply with contract terms and conditions relating to the 
safeguarding of Restricted data or other classified information or 
relating to worker safety and health pursuant to the degrees 
specified in paragraphs (c) and (d) of this clause.
    (b) Reduction Amount. (1) If in any period (see 48 CFR 952.223-
76 (b)(2)) it is found that the contractor has failed to comply with 
contract terms and conditions relating to the safeguarding of 
Restricted Data or other classified information or relating to the 
protection of worker safety and health, the contractor's fee or 
profit of the period may be reduced. Such reduction shall not be 
less than 26 percent nor greater than 100 percent of the total fee 
or profit earned for a first degree performance failure, not less 
than 11 percent nor greater than 25 percent for a second degree 
performance failure, and up to 10 percent for a third degree 
performance failure. The contracting officer must consider 
mitigating factors that may warrant a reduction below the specified 
range (see 48 CFR 904.402(c) and 48 CFR 923.7001(b)). The mitigating 
factors include, but are not limited to, the following ((v), (vi), 
(vii), and (viii) apply to WS&H only):
    (i) Degree of control the contractor had over the event or 
incident.
    (ii) Efforts the contractor had made to anticipate and mitigate 
the possibility of the event in advance.
    (iii) Contractor self-identification and response to the event 
to mitigate impacts and recurrence.
    (iv) General status (trend and absolute performance) of: 
Safeguarding Restricted Data and other classified information and 
compliance in related security areas; or of protecting WS&H and 
compliance in related areas.
    (v) Contractor demonstration to the Contracting Officer's 
satisfaction that the principles of industrial WS&H standards are 
routinely practiced (e.g., Voluntary Protection Program Star 
Status).
    (vi) Event caused by ``Good Samaritan'' act by the contractor 
(e.g., offsite emergency response).
    (vii) Contractor demonstration that a performance measurement 
system is routinely used to improve and maintain WS&H performance 
(including effective resource allocation) and to support DOE 
corporate decision-making (e.g., policy, WS&H programs).
    (viii) Contractor demonstration that an Operating Experience and 
Feedback Program is functioning that demonstrably affects continuous 
improvement in WS&H by use of lessons-learned and best practices 
inter- and intra-DOE sites.
    (2)(i) Except in the case of performance-based, firm-fixed-price 
contracts (see paragraph (b)(3) of this clause), the contracting 
officer, for purposes of this clause, will at the time of contract 
award, or as soon as practicable thereafter, allocate the total 
amount of fee or profit that is available under this contract to 
equal periods of [insert 6 or 12] months to run sequentially for the 
entire term of the contract (i.e., from the effective date of the 
contract to the expiration date of the contract, including all 
options). The amount of fee or profit to be allocated to each period 
shall be equal to the average monthly fee or profit that is 
available or otherwise payable during the entire term of the 
contract, multiplied by the number of months established above for 
each period.
    (ii) Under this clause, the total amount of fee or profit that 
is subject to reduction in a period in which a performance failure 
occurs, in combination with any reduction made under any other 
clause in the contract that provides for a reduction to the fee or 
profit, shall not exceed the amount of fee or profit that is earned 
by the contractor in the period established pursuant to paragraph 
(b)(2)(i) of this clause.
    (3) For performance-based firm-fixed-price contracts, the 
contracting officer will at the time of contract award include 
negative monetary incentives in the contract for contractor 
violations relating to the safeguarding of Restricted Data and other 
classified information and relating to protection of worker safety 
and health.
    (c) Safeguarding Restricted Data and Other Classified 
Information. Performance failures occur if the contractor does not 
comply with the terms and conditions of this contract relating to 
the safeguarding of Restricted Data and other classified 
information. The degrees of performance failures relating to the 
contractor's obligations under this contract for safeguarding of 
Restricted Data and other classified information are as follows:
    (1) First Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have resulted in, or that can reasonably be expected 
to result in, exceptionally grave damage to the national security. 
The following are examples of performance failures or performance 
failures of similar import that will be considered first degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating a risk of, loss, 
compromise, or unauthorized disclosure of Top Secret Restricted Data 
or other information classified as Top Secret, any classification 
level of information in a Special Access Program (SAP), information 
identified as sensitive compartmented information (SCI), or high 
risk nuclear weapons-related data.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Top Secret Restricted Data, or other information 
classified as Top Secret, any classification level of information in 
a SAP, information identified as SCI, or high risk nuclear weapons-
related data.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Top Secret Restricted Data or other 
information classified as Top Secret, any classification level of 
information in a SAP, information identified as SCI, or high risk 
nuclear weapons-related data.
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Top Secret 
Restricted Data or other classified information classified as Top 
Secret, any classification level of information in a SAP, 
information identified as SCI, or high risk nuclear weapons-related 
data.
    (2) Second Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, serious damage to the national security. The 
following are examples of performance failures or performance 
failures of similar import that will be considered second degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Secret Restricted Data or 
other information classified as Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Secret Restricted Data, or other information 
classified as Secret.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Restricted Data or other classified 
information regardless of classification (except for information 
covered by paragraph (c)(1)(iii) of this clause).
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Secret 
Restricted Data or other information classified as Secret.
    (3) Third Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, undue risk to the common defense and 
security. In addition, this category includes performance failures 
that result from a lack of contractor management and/or employee 
attention to the proper safeguarding of Restricted Data and other 
classified information. These performance failures may be indicators 
of future, more severe performance failures and/or conditions, and 
if identified and corrected early would prevent serious incidents. 
The following are examples of performance failures or performance 
failures of similar import will be considered third degree:

[[Page 68780]]

    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
information classified as Confidential.
    (ii) Failure to promptly report alleged or suspected violations 
of laws, regulations, or directives pertaining to the safeguarding 
of Restricted Data or other classified information.
    (iii) Failure to identify or timely execute corrective actions 
to mitigate or eliminate identified vulnerabilities and reduce 
residual risk relating to the protection of Restricted Data or other 
classified information in accordance with the contractor's 
Safeguards and Security Plan or other security plan, as applicable.
    (iv) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the contractor's 
safeguards and security management system relating to the protection 
of Restricted Data and other classified information.
    (d) Protection of Worker Safety and Health. Performance failures 
occur if the contractor does not comply with the contract's WS&H 
terms and conditions, which may be included in the DOE approved 
contractor Integrated Safety Management System (ISMS). The degrees 
of performance failure under which reductions of fee or profit will 
be determined are:
    (1) First Degree: Performance failures that are most adverse to 
WS&H or could threaten the successful completion of a program or 
project. For contracts including ISMS requirements, failure to 
develop and obtain required DOE approval of WS&H aspects of an ISMS 
is considered first degree. The Government will perform necessary 
review of the ISMS in a timely manner and will not unreasonably 
withhold approval of the WS&H aspects of the contractor's ISMS. The 
following performance failures or performance failures of similar 
import will be deemed first degree:
    (i) Type A accident (defined in DOE Order 225.1A).
    (ii) Two Second Degree performance failures during an evaluation 
period.
    (2) Second Degree: Performance failures that are significantly 
adverse to WS&H. They include failures to comply with approved WS&H 
aspects of an ISMS that result in an actual injury, exposure, or 
exceedence that occurred or nearly occurred but had minor practical 
long-term health consequences. The following performance failures or 
performance failures of similar import will be considered second 
degree:
    (i) Type B accident (defined in DOE Order 225.1A).
    (ii) Non-compliance with approved WS&H aspects of an ISMS that 
results in a near miss of a Type A or B accident. A near miss is a 
situation in which an inappropriate action occurs, or a necessary 
action is omitted, but does not result in an adverse effect.
    (iii) Failure to mitigate or notify DOE of an imminent danger 
situation after discovery, where such notification is a requirement 
of the contract.
    (3) Third Degree: Performance failures that reflect a lack of 
focus on improving WS&H. They include failures to comply with 
approved WS&H aspects of an ISMS that result in potential breakdown 
of the contractor's WS&H system. The following performance failures 
or performance failures of similar import will be considered third 
degree:
    (i) Failure to implement effective corrective actions to address 
deficiencies/non-compliance documented through external (e.g., 
Federal) oversight and/or reported per DOE Order 232.1A 
requirements, or internal oversight of DOE O 440.1A requirements.
    (ii) Multiple similar non-compliances identified by external 
(e.g., Federal) oversight that in aggregate indicate a significant 
WS&H system breakdown.
    (iii) Non-compliances that either have, or may have, significant 
negative impacts to workers that indicate a significant WS&H system 
breakdown.
    (iv) Failure to notify DOE upon discovery of events or 
conditions where notification is required by the terms and 
conditions of the contract.

(End of Clause)


0
8. Section 952.223-77 is added to read as follows:


952.223-77  Conditional Payment of Fee or Profit--Protection of Worker 
Safety and Health.

    As prescribed at 48 CFR (DEAR) 923.7002(g), insert the following 
clause.

Conditional Payment of Fee or Profit--Protection of Worker Safety and 
Health (JAN 2004)

    (a) General. (1) The payment of fee or profit (i.e., award fee, 
fixed fee, and incentive fee or profit) under this contract is 
dependent upon the contractor's compliance with the terms and 
conditions of this contract relating to the protection of worker 
safety and health (WS&H), including compliance with applicable law, 
regulation, and DOE directives. The term ``contractor'' as used in 
this clause to address failure to comply shall mean ``contractor or 
contractor employee.''
    (2) In addition to other remedies available to the Federal 
Government, if the contractor fails to comply with the terms and 
conditions of this contract relating to the protection of worker 
safety and health, the contracting officer may unilaterally reduce 
the amount of fee or profit that is otherwise payable to the 
contractor in accordance with the terms and conditions of this 
clause.
    (3) Any reduction in the amount of fee or profit earned by the 
contractor will be determined by the severity of the contractor's 
failure to comply with contract terms and conditions relating to 
worker safety and health pursuant to the degrees specified in 
paragraph (c) of this clause.
    (b) Reduction Amount. (1) If in any period (see 48 CFR 952.223-
77 (b)(2)) it is found that the contractor has failed to comply with 
contract terms and conditions relating to the protection of worker 
safety and health, the contractor's fee or profit of the period may 
be reduced. Such reduction shall not be less than 26% nor greater 
than 100% of the total fee or profit earned for a first degree 
performance failure, not less than 11% nor greater than 25% for a 
second degree performance failure, and up to 10% for a third degree 
performance failure. The contracting officer must consider 
mitigating factors that may warrant a reduction below the specified 
range (see 48 CFR 923.7001(b)). The mitigating factors include, but 
are not limited to, the following:
    (i) Degree of control the contractor had over the event or 
incident.
    (ii) Efforts the contractor had made to anticipate and mitigate 
the possibility of the event in advance.
    (iii) Contractor self-identification and response to the event 
to mitigate impacts and recurrence.
    (iv) General status (trend and absolute performance) of 
protecting WS&H and compliance in related areas.
    (v) Contractor demonstration to the Contracting Officer's 
satisfaction that the principles of industrial WS&H standards are 
routinely practiced (e.g., Voluntary Protection Program Star 
Status).
    (vi) Event caused by ``Good Samaritan'' act by the contractor 
(e.g., offsite emergency response).
    (vii) Contractor demonstration that a performance measurement 
system is routinely used to improve and maintain WS&H performance 
(including effective resource allocation) and to support DOE 
corporate decision-making (e.g., policy, WS&H programs).
    (viii) Contractor demonstration that an Operating Experience and 
Feedback Program is functioning that demonstrably affects continuous 
improvement in WS&H by use of lessons-learned and best practices 
inter- and intra-DOE sites.
    (2)(i) Except in the case of performance based firm-fixed-price 
contracts (see paragraph (b)(3) below), the contracting officer, for 
purposes of this clause, will at the time of contract award, or as 
soon as practicable thereafter, allocate the total amount of fee or 
profit that is available under this contract to equal periods of 
[insert 6 or 12] months to run sequentially for the entire term of 
the contract (i.e., from the effective date of the contract to the 
expiration date of the contract, including all options). The amount 
of fee or profit to be allocated to each period shall be equal to 
the average monthly fee or profit that is available or otherwise 
payable during the entire term of the contract, multiplied by the 
number of months established above for each period.
    (ii) Under this clause, the total amount of fee or profit that 
is subject to reduction in a period in which a performance failure 
occurs, in combination with any reduction made under any other 
clause in the contract that provides for a reduction to the fee or 
profit, shall not exceed the amount of fee or profit that is earned 
by the contractor in the period established pursuant to paragraph 
(b)(2)(i) of this clause.
    (3) For performance-based firm-fixed-price contracts, the 
contracting officer will at the time of contract award include 
negative monetary incentives in the contract for contractor 
violations relating to the protection of worker safety and health.

[[Page 68781]]

    (c) Protection of Worker Safety and Health. Performance failures 
occur if the contractor does not comply with the contract's WS&H 
terms and conditions, which may be included in the DOE approved 
contractor Integrated Safety Management System (ISMS). The degrees 
of performance failure under which reductions of fee or profit will 
be determined are:
    (1) First Degree: Performance failures that are most adverse to 
WS&H or could threaten the successful completion of a program or 
project. For contracts including ISMS requirements, failure to 
develop and obtain required DOE approval of WS&H aspects of an ISMS 
is considered first degree. The Government will perform necessary 
review of the ISMS in a timely manner and will not unreasonably 
withhold approval of the WS&H aspects of the contractor's ISMS. The 
following performance failures or performance failures of similar 
import will be deemed first degree:
    (i) Type A accident (defined in DOE Order 225.1A).
    (ii) Two Second Degree performance failures during an evaluation 
period.
    (2) Second Degree: Performance failures that are significantly 
adverse to WS&H. They include failures to comply with approved WS&H 
aspects of an ISMS that result in an actual injury, exposure, or 
exceedence that occurred or nearly occurred but had minor practical 
long-term health consequences. The following performance failures or 
performance failures of similar import will be considered second 
degree:
    (i) Type B accident (defined in DOE Order 225.1A).
    (ii) Non-compliance with approved WS&H aspects of an ISMS that 
results in a near miss of a Type A or B accident. A near miss is a 
situation in which an inappropriate action occurs, or a necessary 
action is omitted, but does not result in an adverse effect.
    (iii) Failure to mitigate or notify DOE of an imminent danger 
situation after discovery, where such notification is a requirement 
of the contract.
    (3) Third Degree: Performance failures that reflect a lack of 
focus on improving WS&H. They include failures to comply with 
approved WS&H aspects of an ISMS that result in potential breakdown 
of the contractor's WS&H system. The following performance failures 
or performance failures of similar import will be considered third 
degree:
    (i) Failure to implement effective corrective actions to address 
deficiencies/non-compliance documented through external (e.g., 
Federal) oversight and/or reported per DOE Order 232.1A 
requirements, or internal oversight of DOE O 440.1A requirements.
    (ii) Multiple similar non-compliances identified by external 
(e.g., Federal) oversight that in aggregate indicate a significant 
WS&H system breakdown.
    (iii) Non-compliances that either have, or may have, significant 
negative impacts to workers that indicate a significant WS&H system 
breakdown.
    (iv) Failure to notify DOE upon discovery of events or 
conditions where notification is required by the terms and 
conditions of the contract.

(End of Clause)

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

0
9. The authority citation for Part 970 is revised to read as follows:

    Authority: 42 U.S.C. 2201, 2282a, 2282b, 2282c; 42 U.S.C. 7101 
et seq.; 41 U.S.C. 418b; 50 U.S.C. 2401 et seq.


0
10. Section 970.0404-2 is amended by adding paragraph (c) to read as 
follows:


970.0404-2  General.

* * * * *
    (c) For DOE management and operating contracts and other contracts 
designated by the Procurement Executive, or designee, the clause 
entitled, ``Conditional Payment of Fee, Profit, and Other Incentives--
Facility Management Contracts,'' implements the requirements of section 
234B of the Atomic Energy Act (see 48 CFR 904.402(c)(1)) for the use of 
a contract clause that provides for an appropriate reduction in the fee 
or amount paid to the contractor under the contract in the event of a 
violation by the contractor or any contractor employee of any rule, 
regulation, or order relating to the safeguarding or security of 
Restricted Data or other classified information. The clause, in part, 
provides for reductions in the amount of fee, profit, or share of cost 
savings that is otherwise earned by the contractor for performance 
failures relating to the safeguarding of Restricted Data and other 
classified information.

0
11. Section 970.1504-1-2 is amended by adding new paragraph (i) to read 
as follows:


970.1504-1-2  Fee policy.

* * * * *
    (i)(1) In addition to other performance requirements specified in 
the contract, DOE management and operating contractors and other 
contractors designated by the Procurement Executive, or designee, are 
subject to performance requirements relating to: environment, safety, 
and health (ES&H), including worker safety and health (WS&H); and 
safeguarding of Restricted Data and other classified information. 
Performance requirements relating to ES&H will be set forth in the 
contract's ES&H terms and conditions, including a DOE approved 
Integrated Safety Management System (ISMS), or similar document. As 
applicable, performance requirements relating to the safeguarding of 
Restricted Data and other classified information will be set forth in 
the clauses of the contract entitled ``Security'' and ``Laws, 
Regulations, and DOE Directives,'' as well as in other terms and 
conditions that prescribe requirements for the safeguarding of 
Restricted Data and other classified information.
    (2) If the contractor does not meet the performance requirements of 
the contract relating to ES&H or to the safeguarding of Restricted Data 
and other classified information, otherwise earned fee, fixed fee, 
profit, or share of cost savings may be unilaterally reduced by the 
contracting officer in accordance with the clause entitled 
``Conditional Payment of Fee, Profit, and Other Incentives--Facility 
Management Contracts.''
    (3) The clause entitled ``Conditional Payment of Fee, Profit, and 
Other Incentives--Facility Management Contracts,'' provides for 
reductions of earned fee, fixed fee, profit, or share of cost savings 
under the contract depending upon the severity of the contractor's 
performance failure relating to ES&H requirements and, if applicable, 
relating to the safeguarding of Restricted Data and other classified 
information. When reviewing performance failures that would otherwise 
warrant a potential reduction of earned fee, fixed fee, profit, or 
share of cost savings, the contracting officer must consider mitigating 
factors that may warrant a reduction below the applicable range 
specified in the clause. Some of the mitigating factors that must be 
considered are included in the clause.
    (4) The contracting officer must obtain the concurrence of the 
cognizant Program Secretarial Officer
    (i) Prior to effecting any reduction of fee or profit in accordance 
with the terms and conditions of the clause entitled, ``Conditional 
Payment of Fee, Profit, and Other Incentives--Facility Management 
Contracts;'' and
    (ii) For determinations that no reduction of fee or profit is 
warranted for a particular performance failure(s) that would otherwise 
be subject to a reduction.


970.1504-1-3  [Amended]

0
12. Section 970.1504-1-3 is amended in paragraph (c)(1) in the last 
sentence by removing ``Conditional Payment of Fee, Profit, or 
Incentives'' and adding in its place ``Conditional Payment of Fee, 
Profit, and Other Incentives--Facility Management Contracts.''

0
13. Section 970.1504-5 is amended by revising the heading and revising 
paragraph (c) to read as follows:


970.1504-5  Solicitation provision and contract clauses.

* * * * *
    (c)(1) The contracting officer shall insert the clause at 48 CFR 
970.5215-3,

[[Page 68782]]

Conditional Payment of Fee, Profit, and Other Incentives--Facility 
Management Contracts, in all DOE management and operating contracts and 
other contracts determined by the Procurement Executive, or designee.
    (2) The contracting officer shall include the clause with its 
Alternate I in contracts that do not contain the clause at 48 CFR 
952.204-2, Security.
    (3) The contracting officer shall include the clause with its 
Alternate II in contracts that are awarded on a cost-plus-award-fee 
basis. The contracting officer should consider including the clause 
with its Alternate II in contracts that are awarded on a multiple fee 
basis if the cost-plus-award-fee portion of the contract is 
significant.
* * * * *

0
14. Section 970.2303-1 is amended by adding paragraph (c) to read as 
follows:


970.2303-1  General.

* * * * *
    (c)(1) For DOE management and operating contracts and other 
contracts designated by the Procurement Executive, or designee, the 
clause entitled ``Conditional Payment of Fee, Profit, and Other 
Incentives--Facility Management Contracts'' implements the requirements 
of section 234C of the Atomic Energy Act for the use of a contract 
clause that provides for an appropriate reduction in the fee or amount 
paid to the contractor under the contract in the event of a violation 
by the contractor or any contractor employee of any Departmental 
regulation relating to the enforcement of worker safety and health 
concerns. The clause, in part, provides for reductions in the amount of 
fee, profit, or share of cost savings that is otherwise earned by the 
contractor for performance failures relating to worker safety and 
health violations under the Department's regulations.
    (2)(i) Section 234C of the Atomic Energy Act states that DOE shall 
either pursue civil penalties (implemented at 10 CFR part 851) for a 
violation under section 234C of the Atomic Energy Act (42 U.S.C. 2282c) 
or a contract fee reduction, but not both.
    (ii) The contracting officer must coordinate with the Office of 
Price Anderson Enforcement within the Office of the Assistant Secretary 
for Environment, Safety and Health (or with any designated successor 
office) before pursuing contract fee reduction in the event of a 
violation by the contractor or any contractor employee of any 
Departmental regulation relating to the enforcement of worker safety 
and health concerns.


970.5215-1  [Amended]

0
15. Section 970.5215-1 is amended in paragraph (c)(3) in the last 
sentence by removing ``Conditional Payment of Fee, Profit, or 
Incentives'' and adding in its place ``Conditional Payment of Fee, 
Profit, and Other Incentives--Facility Management Contracts.''
0
16. Section 970.5215-3 is revised to read as follows:
    As prescribed in 48 CFR 970.1504-5(c)(1), insert the following 
clause:


970.5215-3  Conditional Payment of Fee, Profit, and Other Incentives--
Facility Management Contracts (JAN 2004)

    (a) General. (1) The payment of earned fee, fixed fee, profit, 
or share of cost savings under this contract is dependent upon:
    (i) The contractor's or contractor employees' compliance with 
the terms and conditions of this contract relating to environment, 
safety and health (ES&H), which includes worker safety and health 
(WS&H), including performance under an approved Integrated Safety 
Management System (ISMS); and
    (ii) The contractor's or contractor employees' compliance with 
the terms and conditions of this contract relating to the 
safeguarding of Restricted Data and other classified information.
    (2) The ES&H performance requirements of this contract are set 
forth in its ES&H terms and conditions, including the DOE approved 
contractor ISMS or similar document. Financial incentives for timely 
mission accomplishment or cost effectiveness shall never compromise 
or impede full and effective implementation of the ISMS and full 
ES&H compliance.
    (3) The performance requirements of this contract relating to 
the safeguarding of Restricted Data and other classified information 
are set forth in the clauses of this contract entitled, ``Security'' 
and ``Laws, Regulations, and DOE Directives,'' as well as in other 
terms and conditions.
    (4) If the contractor does not meet the performance requirements 
of this contract relating to ES&H or to the safeguarding of 
Restricted Data and other classified information during any 
performance evaluation period established under the contract 
pursuant to the clause of this contract entitled, ``Total Available 
Fee: Base Fee Amount and Performance Fee Amount,'' otherwise earned 
fee, fixed fee, profit or share of cost savings may be unilaterally 
reduced by the contracting officer.
    (b) Reduction Amount. (1) The amount of earned fee, fixed fee, 
profit, or share of cost savings that may be unilaterally reduced 
will be determined by the severity of the performance failure 
pursuant to the degrees specified in paragraphs (c) and (d) of this 
clause.
    (2) If a reduction of earned fee, fixed fee, profit, or share of 
cost savings is warranted, unless mitigating factors apply, such 
reduction shall not be less than 26 percent nor greater than 100 
percent of the amount of earned fee, fixed fee, profit, or the 
contractor's share of cost savings for a first degree performance 
failure, not less than 11 percent nor greater than 25 percent for a 
second degree performance failure, and up to 10 percent for a third 
degree performance failure.
    (3) In determining the amount of the reduction and the 
applicability of mitigating factors, the contracting officer must 
consider the contractor's overall performance in meeting the ES&H or 
security requirements of the contract. Such consideration must 
include performance against any site specific performance criteria/
requirements that provide additional definition, guidance for the 
amount of reduction, or guidance for the applicability of mitigating 
factors. In all cases, the contracting officer must consider 
mitigating factors that may warrant a reduction below the applicable 
range (see 48 CFR 970.1504-1-2). The mitigating factors include, but 
are not limited to, the following ((v), (vi), (vii) and (viii) apply 
to ES&H only).
    (i) Degree of control the contractor had over the event or 
incident.
    (ii) Efforts the contractor had made to anticipate and mitigate 
the possibility of the event in advance.
    (iii) Contractor self-identification and response to the event 
to mitigate impacts and recurrence.
    (iv) General status (trend and absolute performance) of: ES&H 
and compliance in related areas; or of safeguarding Restricted Data 
and other classified information and compliance in related areas.
    (v) Contractor demonstration to the contracting officer's 
satisfaction that the principles of industrial ES&H standards are 
routinely practiced (e.g., Voluntary Protection Program, ISO 14000).
    (vi) Event caused by ``Good Samaritan'' act by the contractor 
(e.g., offsite emergency response).
    (vii) Contractor demonstration that a performance measurement 
system is routinely used to improve and maintain ES&H performance 
(including effective resource allocation) and to support DOE 
corporate decision-making (e.g., policy, ES&H programs). * * *
    (viii) Contractor demonstration that an Operating Experience and 
Feedback Program is functioning that demonstrably affects continuous 
improvement in ES&H by use of lessons-learned and best practices 
inter- and intra-DOE sites.
    (4)(i) The amount of fee, fixed fee, profit, or share of cost 
savings that is otherwise earned by a contractor during an 
evaluation period may be reduced in accordance with this clause if 
it is determined that a performance failure warranting a reduction 
under this clause occurs within the evaluation period.
    (ii) The amount of reduction under this clause, in combination 
with any reduction made under any other clause in the contract, 
shall not exceed the amount of fee, fixed fee, profit, or the 
contractor's share of cost savings that is otherwise earned during 
the evaluation period.
    (iii) For the purposes of this clause, earned fee, fixed fee, 
profit, or share of cost savings for the evaluation period shall 
mean the amount determined by the contracting officer or fee 
determination official as otherwise

[[Page 68783]]

payable based on the contractor's performance during the evaluation 
period. Where the contract provides for financial incentives that 
extend beyond a single evaluation period, this amount shall also 
include: any provisional amounts determined otherwise payable in the 
evaluation period; and, if provisional payments are not provided 
for, the allocable amount of any incentive determined otherwise 
payable at the conclusion of a subsequent evaluation period. The 
allocable amount shall be the total amount of the earned incentive 
divided by the number of evaluation periods over which it was 
earned.
    (iv) The Government will effect the reduction as soon as 
practicable after the end of the evaluation period in which the 
performance failure occurs. If the Government is not aware of the 
failure, it will effect the reduction as soon as practical after 
becoming aware. For any portion of the reduction requiring an 
allocation the Government will effect the reduction at the end of 
the evaluation period in which it determines the total amount earned 
under the incentive. If at any time a reduction causes the sum of 
the payments the contractor has received for fee, fixed fee, profit, 
or share of cost savings to exceed the sum of fee, fixed fee, 
profit, or share of cost savings the contractor has earned 
(provisionally or otherwise), the contractor shall immediately 
return the excess to the Government. (What the contractor ``has 
earned'' reflects any reduction made under this or any other clause 
of the contract.)
    (v) At the end of the contract:
    (A) The Government will pay the contractor the amount by which 
the sum of fee, fixed fee, profit, or share of cost savings the 
contractor has earned exceeds the sum of the payments the contractor 
has received; or
    (B) The contractor shall return to the Government the amount by 
which the sum of the payments the contractor has received exceeds 
the sum of fee, fixed fee, profit, or share of cost savings the 
contractor has earned. (What the contractor ``has earned'' reflects 
any reduction made under this or any other clause of the contract.)
    (c) Environment, Safety and Health (ES&H). Performance failures 
occur if the contractor does not comply with the contract's ES&H 
terms and conditions, including the DOE approved contractor ISMS. 
The degrees of performance failure under which reductions of earned 
or fixed fee, profit, or share of cost savings will be determined 
are:
    (1) First Degree: Performance failures that are most adverse to 
ES&H. Failure to develop and obtain required DOE approval of an ISMS 
is considered first degree. The Government will perform necessary 
review of the ISMS in a timely manner and will not unreasonably 
withhold approval of the contractor's ISMS. The following 
performance failures or performance failures of similar import will 
be considered first degree.
    (i) Type A accident (defined in DOE Order 225.1A).
    (ii) Two Second Degree performance failures during an evaluation 
period.
    (2) Second Degree: Performance failures that are significantly 
adverse to ES&H. They include failures to comply with an approved 
ISMS that result in an actual injury, exposure, or exceedence that 
occurred or nearly occurred but had minor practical long-term health 
consequences. They also include breakdowns of the Safety Management 
System. The following performance failures or performance failures 
of similar import will be considered second degree:
    (i) Type B accident (defined in DOE Order 225.1A).
    (ii) Non-compliance with an approved ISMS that results in a near 
miss of a Type A or B accident. A near miss is a situation in which 
an inappropriate action occurs, or a necessary action is omitted, 
but does not result in an adverse effect.
    (iii) Failure to mitigate or notify DOE of an imminent danger 
situation after discovery, where such notification is a requirement 
of the contract.
    (3) Third Degree: Performance failures that reflect a lack of 
focus on improving ES&H. They include failures to comply with an 
approved ISMS that result in potential breakdown of the System. The 
following performance failures or performance failures of similar 
import will be considered third degree:
    (i) Failure to implement effective corrective actions to address 
deficiencies/non-compliances documented through: external (e.g., 
Federal) oversight and/or reported per DOE Order 232.1A 
requirements; or internal oversight of DOE Order 440.1A 
requirements.
    (ii) Multiple similar non-compliances identified by external 
(e.g., Federal) oversight that in aggregate indicate a significant 
programmatic breakdown.
    (iii) Non-compliances that either have, or may have, significant 
negative impacts to the worker, the public, or the environment or 
that indicate a significant programmatic breakdown.
    (iv) Failure to notify DOE upon discovery of events or 
conditions where notification is required by the terms and 
conditions of the contract.
    (d) Safeguarding Restricted Data and Other Classified 
Information. Performance failures occur if the contractor does not 
comply with the terms and conditions of this contract relating to 
the safeguarding of Restricted Data and other classified 
information. The degrees of performance failure under which 
reductions of fee, profit, or share of cost savings will be 
determined are as follows:
    (1) First Degree: Performance failures that have been 
determined, in accordance with applicable law, DOE regulation, or 
directive, to have resulted in, or that can reasonably be expected 
to result in, exceptionally grave damage to the national security. 
The following are examples of performance failures or performance 
failures of similar import that will be considered first degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating a risk of, loss, 
compromise, or unauthorized disclosure of Top Secret Restricted Data 
or other information classified as Top Secret, any classification 
level of information in a Special Access Program (SAP), information 
identified as sensitive compartmented information (SCI), or high 
risk nuclear weapons-related data.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Top Secret Restricted Data, or other information 
classified as Top Secret, any classification level of information in 
a SAP, information identified as SCI, or high risk nuclear weapons-
related data.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Top Secret Restricted Data, or other 
information classified as Top Secret, any classification level of 
information in a SAP, information identified as SCI, or high risk 
nuclear weapons-related data.
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Top Secret 
Restricted Data or other information classified as Top Secret, any 
classification level of information in a SAP, information identified 
as SCI, or high risk nuclear weapons-related data.
    (2) Second Degree: Performance failures that have been 
determined, in accordance with applicable law, DOE regulation, or 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, serious damage to the national security. The 
following are examples of performance failures or performance 
failures of similar import that will be considered second degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Secret Restricted Data or 
other information classified as Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Secret Restricted Data, or other information 
classified as Secret.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Restricted Data or other classified 
information regardless of classification (except for information 
covered by paragraph (d)(1)(iii) of this clause).
    (iv) Failure to timely implement corrective actions stemming 
from the loss, compromise, or unauthorized disclosure of Secret 
Restricted Data or other classified information classified as 
Secret.
    (3) Third Degree: Performance failures that have been 
determined, in accordance with applicable law, regulation, or DOE 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, undue risk to the common defense and 
security. In addition, this category includes performance failures 
that result from a lack of contractor management and/or employee 
attention to the proper safeguarding of Restricted Data and other 
classified information. These performance failures may be indicators 
of future, more severe performance failures and/or conditions, and 
if identified and corrected early would prevent serious incidents. 
The following are examples of performance failures or performance 
failures of similar import that will be considered third degree:

[[Page 68784]]

    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
information classified as Confidential.
    (ii) Failure to promptly report alleged or suspected violations 
of laws, regulations, or directives pertaining to the safeguarding 
of Restricted Data or other classified information.
    (iii) Failure to identify or timely execute corrective actions 
to mitigate or eliminate identified vulnerabilities and reduce 
residual risk relating to the protection of Restricted Data or other 
classified information in accordance with the contractor's 
Safeguards and Security Plan or other security plan, as applicable.
    (iv) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the contractor's 
safeguards and security management system relating to the protection 
of Restricted Data and other classified information.

(End of Clause)

    Alternate I (JAN 2004). As prescribed in 48 CFR 970.1504-
5(c)(2), replace paragraphs (a), (b)(1), (b)(2), and (b)(3) of the 
basic clause with the following paragraphs (a), (b)(1), (b)(2), and 
(b)(3) and delete paragraph (d).
    (a) General. (1) The payment of earned fee, fixed fee, profit, 
or share of cost savings under this contract is dependent upon the 
contractor's or contractor employees' compliance with the terms and 
conditions of this contract relating to environment, safety and 
health (ES&H), which includes worker safety and health (WS&H), 
including performance under an approved Integrated Safety Management 
System (ISMS).
    (2) The ES&H performance requirements of this contract are set 
forth in its ES&H terms and conditions, including the DOE approved 
contractor ISMS or similar document. Financial incentives for timely 
mission accomplishment or cost effectiveness shall never compromise 
or impede full and effective implementation of the ISMS and full 
ES&H compliance.
    (3) If the contractor does not meet the performance requirements 
of this contract relating to ES&H during any performance evaluation 
period established under the contract pursuant to the clause of this 
contract entitled, ``Total Available Fee: Base Fee Amount and 
Performance Fee Amount,'' otherwise earned fee, fixed fee, profit or 
share of cost savings may be unilaterally reduced by the contracting 
officer.
    (b) Reduction Amount. (1) The amount of earned fee, fixed fee, 
profit, or share of cost savings that may be unilaterally reduced 
will be determined by the severity of the performance failure 
pursuant to the degrees specified in paragraph (c) of this clause.
    (2) If a reduction of earned fee, fixed fee, profit, or share of 
cost savings is warranted, unless mitigating factors apply, such 
reduction shall not be less than 26 percent nor greater than 100 
percent of the amount of earned fee, fixed fee, profit, or the 
contractor's share of cost savings for a first degree performance 
failure, not less than 11 percent nor greater than 25 percent for a 
second degree performance failure, and up to 10 percent for a third 
degree performance failure.
    (3) In determining the amount of the reduction and the 
applicability of mitigating factors, the contracting officer must 
consider the contractor's overall performance in meeting the ES&H 
requirements of the contract. Such consideration must include 
performance against any site specific performance criteria/
requirements that provide additional definition, guidance for the 
amount of reduction, or guidance for the applicability of mitigating 
factors. In all cases, the contracting officer must consider 
mitigating factors that may warrant a reduction below the applicable 
range (see 48 CFR 970.1504-1-2). The mitigating factors include the 
following.
    (i) Degree of control the contractor had over the event or 
incident.
    (ii) Efforts the contractor had made to anticipate and mitigate 
the possibility of the event in advance.
    (iii) Contractor self-identification and response to the event 
to mitigate impacts and recurrence.
    (iv) General status (trend and absolute performance) of ES&H and 
compliance in related areas.
    (v) Contractor demonstration to the Contracting Officer's 
satisfaction that the principles of industrial ES&H standards are 
routinely practiced (e.g., Voluntary Protection Program Star Status, 
or ISO 14000 Certification).
    (vi) Event caused by ``Good Samaritan'' act by the contractor 
(e.g., offsite emergency response).
    (vii) Contractor demonstration that a performance measurement 
system is routinely used to improve and maintain ES&H performance 
(including effective resource allocation) and to support DOE 
corporate decision-making (e.g., policy, ES&H programs).
    (viii) Contractor demonstration that an Operating Experience and 
Feedback Program is functioning that demonstrably affects continuous 
improvement in ES&H by use of lessons-learned and best practices 
inter- and intra-DOE sites.
    Alternate II (JAN 2004). As prescribed in 48 CFR 970.1504-
5(c)(3), insert the following as paragraphs (e) and (f) in contracts 
awarded on a cost-plus-award fee, incentive fee or multiple fee 
basis (if Alternate I is also used, redesignate the following as 
paragraphs (d) and (e)).
    (e) Minimum requirements for specified level of performance. (1) 
At a minimum the contractor must perform the following:
    (i) The requirements with specific incentives which do not 
require the achievement of cost efficiencies in order to be 
performed at the level of performance set forth in the Statement of 
Work, Work Authorization Directive, or similar document unless an 
otherwise minimum level of performance has been established in the 
specific incentive;
    (ii) All of the performance requirements directly related to 
requirements specifically incentivized which do not require the 
achievement of cost efficiencies in order to be performed at a level 
of performance such that the overall performance of these related 
requirements is at an acceptable level; and
    (iii) All other requirements at a level of performance such that 
the total performance of the contract is not jeopardized.
    (2) The evaluation of the Contractor's achievement of the level 
of performance shall be unilaterally determined by the Government. 
To the extent that the Contractor fails to achieve the minimum 
performance levels specified in the Statement of Work, Work 
Authorization Directive, or similar document, during the performance 
evaluation period, the DOE Operations/Field Office Manager, or 
designee, may reduce any otherwise earned fee, fixed fee, profit, or 
shared net savings for the performance evaluation period. Such 
reduction shall not result in the total of earned fee, fixed fee, 
profit, or shared net savings being less than 25 percent of the 
total available fee amount. Such 25 percent shall include base fee, 
if any.
    (f) Minimum requirements for cost performance. (1) Requirements 
incentivized by other than cost incentives must be performed within 
their specified cost constraint and must not adversely impact the 
costs of performing unrelated activities.
    (2) The performance of requirements with a specific cost 
incentive must not adversely impact the costs of performing 
unrelated requirements.
    (3) The contractor's performance within the stipulated cost 
performance levels for the performance evaluation period shall be 
determined by the Government. To the extent the contractor fails to 
achieve the stipulated cost performance levels, the DOE Operations/
Field Office Manager, or designee, may reduce in whole or in part 
any otherwise earned fee, fixed fee, profit, or shared net savings 
for the performance evaluation period. Such reduction shall not 
result in the total of earned fee, fixed fee, profit or shared net 
savings being less than 25 percent of the total available fee 
amount. Such 25 percent shall include base fee, if any.
[FR Doc. 03-30364 Filed 12-9-03; 8:45 am]
BILLING CODE 6450-01-P