[Federal Register Volume 69, Number 240 (Wednesday, December 15, 2004)]
[Proposed Rules]
[Pages 75017-75020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27417]


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DEPARTMENT OF ENERGY

48 CFR Parts 901 and 970

RIN 1991-AB64


Acquisition Regulation: Make-or-Buy Plans

AGENCY: Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Energy (DOE) is proposing to amend the 
Department of Energy Acquisition Regulation (DEAR) to revise its 
requirements for contractor make-or-buy plans. The make-or-buy program, 
as it is currently structured, is not delivering the value to the 
Department commensurate with the costs of its implementation. The 
proposed rule would eliminate the burden of make-or-buy analysis.

DATES: Written comments on the proposed rulemaking must be received on 
or before close of business January 14, 2005.

ADDRESSES: This proposed rule is available and comments may be 
submitted on line at http://www.regulations.gov. Comments may be 
submitted electronically to [email protected]. Comments may be 
mailed to U.S. Department of Energy, Attn: Irma Brown, Mail Code ME-62, 
1000 Independence Avenue, SW., Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Irma Brown at (202) 586-8455 or 
[email protected].

SUPPLEMENTARY INFORMATION:
I. Background.
II. Section-by-Section Analysis.
III. Procedural Requirements.
    A. Review Under Executive Order 12866.
    B. Review Under Executive Order 12988.
    C. Review Under the Regulatory Flexibility Act.
    D. Review Under the Paperwork Reduction Act.
    E. Review Under the National Environmental Policy Act.

[[Page 75018]]

    F. Review Under Executive Order 13132.
    G. Review Under the Unfunded Mandates Reform Act of 1995.
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999.
    I. Review Under Executive Order 13211.
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001.
    K. Approval by the Office of the Secretary of Energy.

I. Background

    In response to a report entitled Making Contracting Work Better and 
Cost Less, Report of the Contract Reform Team, DOE/S-0107, February 
1994, DOE promulgated a rule that established a make-or-buy policy on 
June 27, 1997 (62 FR 34842). The make-or-buy policy established 
criteria to assist management and operating (M&O) contractors in 
categorizing all internal work activities under their contracts as 
``make'' or ``buy'' activities. ``Make'' activities are core 
competencies critical to the mission success that are not available for 
outsourcing. ``Buy'' activities are non-core work activities that 
provide strategic support to core competencies that are available for 
outsourcing. Contractors use their make-or-buy plan to evaluate 
subcontracting opportunities and improve in-house performance. The 
objective of the make-or-buy policy is to require M&O contractors to 
operate the Department's laboratories, weapons production plants, and 
other facilities in a most cost effective and efficient manner.
    DOE now has more than six years of experience with the make-or-buy 
policy. All M&O contractors have approved make-or-buy plans in place. 
The Department has evaluated the operation of the make-or-buy policy 
and the effect that policy has had in achieving the Department's 
objectives. As discussed in the following paragraphs, the make-or-buy 
program is not delivering the value to the Department commensurate with 
the costs of its implementation.
    DOE conducted several assessments and implemented a number of 
actions to improve the manner in which DOE and its contractors 
implemented the make-or-buy plan requirements. Beginning in April 1998, 
DOE conducted its initial assessment to determine whether the 
requirements of make-or-buy were being implemented. The assessment 
examined whether: (1) The make-or-buy clause had been incorporated into 
the contract; (2) the contractor had prepared and submitted a make-or-
buy plan; and (3) the plans were approved by the contracting officer. 
The results indicated that the implementation of the contractor make-
or-buy plan requirements was on schedule. However, there were several 
issues noted in the early implementation of the make-or-buy plans: (1) 
The plans did not always meet the documentation requirements of the 
make-or-buy clause; (2) the make-or-buy plans did not always 
demonstrate the basic intent (i.e., least cost alternative) of the 
make-or-buy requirements; and (3) roles and responsibilities of key 
individuals, including the contracting officer, were not clearly 
understood.
    In August 1999, follow-up action was initiated to determine 
progress on the adequacy of the contractor make-or-buy plans and 
whether contracting officer approvals were obtained. The results 
indicated a number of contractors had well-thought-out and elaborate 
processes for arriving at make-or-buy decisions and several contractors 
were implementing productivity improvements for work areas retained 
under ``make'' decisions. There were a number of examples where the 
contractors had approved make-or-buy plans in place; however, 
contractor analysis of all work activities under the contract were not 
always accomplished. Overall, implementation across the DOE complex had 
been inconsistent largely because of a general misunderstanding of the 
make-or-buy policy and its attendant administration requirements. 
Additionally, the assessment questioned whether the DOE requirements 
for contractor's make-or-buy plans are overly stringent, unrealistic 
and inappropriate, thereby creating an impossible standard of 
performance.
    DOE implemented a number of corrective actions to promote a better 
understanding of the make-or-buy requirements: (1) In December 1999, 
the M&O contractors conducted benchmarking studies of contractor make-
or-buy plans and procedures to develop a decision model and a sample 
make-or-buy plan to be used by the M&O contractors; (2) in February 
2000, program specific make-or-buy criteria were issued to the M&O 
contractors to assist in identifying core and non-core activities; (3) 
in July 2001, a workshop was conducted with federal and contractor 
staff to discuss and promote an understanding of the make-or-buy 
requirements and to identify potential problem areas where policy and 
procedural improvements could be made, and (4) in August 2001 
assessment compliance criteria were developed and implemented by the 
Department to assist in the oversight of contractor make-or-buy plans.
    The July 2001 workshop had a large attendance of both contractors 
and federal staff from the offices responsible for implementing the 
make-or-buy program. Discussions were held on what was working and what 
was not. The following problem areas were quickly identified: (1) An 
inconsistent approach by the M&O contractors in categorizing work 
activities; (2) the DOE complex was relatively inexperienced in 
conducting actual make-or-buy analyses; and (3) the costs to conduct 
make-or-buy analyses were a major consideration in determining how many 
would be done annually (in most cases the time estimated to complete 
the make-or-buy analyses on the available ``buy'' inventory extended 
beyond the expiration date of the contract). There were minor comments 
made for improving the existing policies and procedures, however, it 
was determined that these changes would have made minimal impact in 
increasing the value of the make-or-buy program.
    By June 2002, the Department began considering whether to 
discontinue the make-or-buy program. But before moving in that 
direction, the Department conducted a random sampling of four 
contractors' make-or-buy plans. The results indicated that, based on 
contractor inventories ranging from approximately 46 to 119 eligible 
``buy'' functions, M&O contractors were conducting 4% or 2-5 make-or-
buy decisions per year for eligible ``buy'' functions, which is far 
less than the anticipated 20% or approximately 9-24 make-or-buy 
decisions per year. In most cases, the rationale for the low number of 
actions per year was the significant costs and time required to conduct 
comprehensive analyses on each make-or-buy decision. In one case, the 
costs associated with the process were determined to be extremely high 
relative to the potential benefits (2,149 hours of mostly senior level 
management and professionals) only to make the decision to keep the 
function in-house based on a variety of appropriate factors.
    The conclusion drawn from these assessments is that there is little 
evidence that these plans are producing the efficiencies and cost 
savings anticipated by the Department. The Department has determined 
that the lack of measurable progress, costs of complying, and 
additional workload to monitor compliance with the make-or-buy policy 
outweigh any potential benefits to the Department.
    Although the results of the Department's evaluation of the make-or-
buy policy are a rationale for revising the Department's policy, 
another consideration for revising the policy is the progress made in 
the Department's contractual environment since the Department's 
contract reform initiative in February 1994. Recognizing that there are 
multiple approaches to achieving

[[Page 75019]]

cost efficiencies and operational effectiveness under a contract, the 
Department has made great strides in its contract reform initiatives. 
For its major site and facility contracts, the Department significantly 
increased the use of Performance-Based Management Contracts, competing 
more than 31 contracts while extending only 15 (four contracts only for 
an interim period), increased subcontracting goals to as high as 60% in 
some contracts, reduced DOE sponsored Federally Funded Research and 
Development Center (FFRDC) contracts by 27%, and increased the use of 
alternative contract types, such as cost plus incentive fee, to drive 
both cost efficiencies and operational effectiveness in contractor 
performance.
    In consideration of the foregoing, the Department proposes to amend 
its Acquisition Regulation to eliminate the requirement that M&O 
contractors prepare and maintain formal make-or-buy plans.
    The Department proposes to amend the clause at 970.5203-1 entitled 
``Management Controls'' and the clause at 970.5203-2 entitled 
``Performance Improvement and Collaboration'' by adding a requirement 
in both clauses for contractors to consider outsourcing as a mechanism 
to introduce improvements in the management of the contract. 
Outsourcing would be one of many options available for improving the 
contractor's cost effectiveness and performance.
    In addition, the Department is proposing to amend the clause 
entitled Contractor Purchasing System by removing and reserving 
paragraph (n) entitled ``Make-or-Buy Plans.''

II. Section-by-Section Analysis

    The Department proposes to amend the DEAR as follows.
    1. Sections 901.105 would be amended to delete the reference to the 
Office of Management and Budget, OMB, number for make-or-buy plans.
    2. Section 970.1504-4-1 through 970.1504-4-3 would be eliminated.
    3. Section 970.1504-5(b) would be eliminated.
    4. Section 970.5203-1 would be amended to provide outsourcing of 
functions for considerations of efficient and effective operations.
    5. Section 970.5203-2 would be amended to provide a requirement for 
contractors to consider outsourcing as a mechanism to increase 
improvement in the management of the contract.
    6. Section 970.5215-2 would be eliminated.
    7. Section 970.5244-1 would be amended to remove and reserve 
paragraph (n).

III. Procedural Requirements

A. Review Under Executive Order 12866

    This regulatory action has been determined not to be a significant 
regulatory action under Executive Order 12866, Regulatory Planning and 
Review, (58 FR 51735, October 4, 1993). Accordingly, this rule is not 
subject to review under the Executive Order by the Office of 
Information and Regulatory Affairs (OIRA) within the OMB.

B. Review Under Executive Order 12988

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

C. Review Under the Regulatory Flexibility Act

    This proposed rule has been reviewed under the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., which requires preparation of an 
initial regulatory flexibility analysis for any rule that must be 
proposed for public comment and that is likely to have a significant 
economic impact on a substantial number of small entities. The proposed 
rule would not have a significant economic impact on small entities 
because no small entities are DOE M&O contractors and because the rule 
would eliminate the existing burden of preparing make-or-buy analyses.
    Accordingly, DOE certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities, 
and, therefore, no regulatory flexibility analysis has been prepared.

D. Review Under Paperwork Reduction Act

    Information collection or recordkeeping requirements contained in 
this rulemaking have been previously cleared under OMB paperwork 
clearance package number 1910-5102. The existing burden will be removed 
by this rulemaking.

E. Review Under the National Environmental Policy Act

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

F. Review Under Executive Order 13132

    Executive Order 13132 (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. 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.

[[Page 75020]]

G. Review Under the Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires a 
Federal agency to perform a detailed assessment of costs and benefits 
of any rule imposing a Federal Mandate with costs to State, local or 
tribal governments, or to the private sector, of $100 million or more 
in any single year. This rulemaking 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 or policy that may affect 
family well-being. This rule will have no impact on family well being.

I. 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 
OIRA, Office of Management and Budget, a Statement of Energy Effects 
for any significant energy action. A ``significant energy action'' is 
defined as any action by an agency that promulgates 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 
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 rule is not a significant energy action. Accordingly, DOE 
has not prepared a Statement of Energy Effects.

J. 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 implementing 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.

K. Approval by the Office of the Secretary of Energy

    The Office of the Secretary of Energy has approved issuance of this 
proposed rule.

List of Subjects in 48 CFR Parts 901 and 970

    Government procurement.

    Issued in Washington, DC, on December 8, 2004.
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 Acquisition and Supply Management, National Nuclear 
Security Administration.
    For the reasons set out in the preamble, DOE proposes to amend 
Chapter 9 of Title 48 of the Code of Federal Regulations as set forth 
below:
    1. The authority citation for part 901 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.

PART 901--FEDERAL ACQUISITION REGULATIONS SYSTEM

    2. Section 901.105 is amended by revising the second sentence to 
read as follows:


901.105  OMB control numbers.

    * * * The OMB control number for the collection of information 
under 48 CFR chapter 9 is 1910-4100 except for Reporting and 
Recordkeeping Requirements for Safety Management (see 48 CFR 970.5223-
1) which is 1910-5103.
    3. The authority citation for part 970 continues 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.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS


970.1504-4-1-970.1504-4-3  [Removed and Reserved]

    4. Sections 970.1504-4-1 through 970.1504-4-3 are removed and 
reserved.


970.1504-5  [Amended]

    5. Section 970.1504-5 is amended by removing paragraph (b), and 
redesignating paragraphs (c), (d) and (e) as paragraphs (b), (c) and 
(d) respectively.


970.5203-1  [Amended]

    6. Section 970.5203-1 is amended by revising the clause date to 
read [Date (Month and Year) 30 days following the date of publication 
of the final rule in the Federal Register] and by adding in paragraph 
(a)(1), second sentence, the words ``including consideration of 
outsourcing of functions'' after the word ``promoted''.


970.5203-2  [Amended]

    7. Section 970.5203-2, is amended by revising the clause date to 
read [Date (Month and Year) 30 days following the date of publication 
of the final rule in the Federal Register] and by adding in paragraph 
(a), last sentence, the words ``outsourcing decisions,'' after the 
words ``changes in organization.''


970.5215-2  [Removed and Reserved]

    8. Section 970.5215-2, Make-or-Buy plan, is removed and reserved.
    9. Section 970.5244-1 is amended by revising the clause date and by 
removing and reserving paragraph (n) to read as follows:


970.5244-1  Contractor purchasing system.

    * * *

Contractor Purchasing System

    [Date (Month and Year) 30 days following date of publication of the 
final rule in the Federal Register]
* * * * *
    (n) [Removed and Reserved].
* * * * *
[FR Doc. 04-27417 Filed 12-14-04; 8:45 am]
BILLING CODE 6450-01-P