[Federal Register Volume 76, Number 249 (Wednesday, December 28, 2011)]
[Proposed Rules]
[Pages 81408-81421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-33170]


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DEPARTMENT OF ENERGY

10 CFR Part 719

48 CFR Parts 931, 952 and 970

RIN 1990-AA37


Contractor Legal Management Requirements; Acquisition Regulations

AGENCY: Office of General Counsel, Department of Energy.

ACTION: Notice of proposed rulemaking and opportunity for public 
comment.

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SUMMARY: The Department of Energy (DOE or Department) is proposing to 
revise existing regulations covering contractor legal management 
requirements. Conforming amendments are also proposed to the Department 
of Energy Acquisition Regulation (DEAR). The proposed regulations will 
provide rules for handling of legal matters and associated costs by 
certain contractors whose contracts exceed $100,000,000 as well as 
legal counsel retained directly by the Department for matters in which 
costs exceed $100,000.

DATES: DOE will accept comments, data, and information regarding this 
notice of

[[Page 81409]]

proposed rulemaking (NOPR) no later than February 27, 2012.

ADDRESSES: Any comments submitted must identify this NOPR on Contractor 
Legal Management Requirements, and provide regulatory information 
number (RIN) 1990-AA37. Comments may be submitted using any of the 
following methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    2. Email: [email protected]. Include RIN 1990-AA37 in the 
subject line of the message.
    3. Mail: Lisa Pinder, Administrative Assistant, U.S. Department of 
Energy, Office of General Counsel, GC-60, 1000 Independence Ave. SW., 
Washington, DC 20585. If possible, please submit all items on a compact 
disc (CD), in which case it is not necessary to include printed copies.
    4. Hand Delivery/Courier: Ms. Lisa Pinder, Administrative 
Assistant, U.S. Department of Energy, GC-60, 1000 Independence Ave. 
SW., Washington, DC, 20585. Telephone: (202) 586-5426. If possible, 
please submit all items on a CD, in which case it is not necessary to 
include printed copies.

No faxes will be accepted.
    For further information on how to submit a public comment, review 
other public comments and the docket, contact Ms. Lisa Pinder (202) 
586-5426 or by Email: [email protected].

FOR FURTHER INFORMATION CONTACT: Mr. Eric Mulch, Attorney-Adviser, U.S. 
Department of Energy, Office of General Counsel, 1000 Independence 
Avenue SW., Washington, DC, 20585-0121. Telephone: (202) 287-5746. 
Email: [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background.
II. Summary of the Proposed Rule.
III. Procedural Requirements.
    A. Review Under Executive Order 12866.
    B. Review Under Executive Order 12988.
    C. Review Under the Regulatory Flexibility Act.
    D. Review Under the Paperwork Reduction Act.
    E. Review Under the National Environmental Policy Act.
    F. Review Under Executive Order 13132.
    G. Review Under the Unfunded Mandates Reform Act of 1995.
    H. Review Under the Treasury and General Government 
Appropriations Act, 1999.
    I. Review Under Executive Order 13211.
    J. Review Under the Treasury and General Government 
Appropriations Act, 2001.

I. Background

    The Department's high dollar contracts that include cost 
reimbursable elements generally make legal costs, including the cost of 
litigation, allowable if reasonable and incurred in accordance with the 
applicable cost principles and contract clauses. Consequently, the 
Department has an ongoing obligation to monitor, supervise, and control 
the legal costs that it reimburses.
    The Department has a long history of overseeing aspects of its 
contractors' management of legal matters and costs. This practice was 
formalized in 1994 when the Department published an interim Acquisition 
Letter as an interim policy in the Federal Register (59 FR 44981). The 
interim Acquisition Letter was finalized as a Policy Statement on April 
3, 1996 (61 FR 14763). This Policy Statement was followed by a formal 
rulemaking which added part 719, Contractor Legal Management 
Requirements, to Title 10 of the Code of Federal Regulations with an 
effective date of April 23, 2001 (66 FR 4616, 66 FR 19717).
    Today's proposed rule revises the current contractor legal 
management requirements found in part 719, in Chapter 10 of the Code of 
Federal Regulations. The revisions reflect lessons learned by the 
Department during the years since implementing part 719. The part 
establishes regulations to monitor and control legal costs and to 
provide guidance to aid contractors and the Department in making 
determinations regarding the reasonableness of outside legal costs, 
including the costs associated with litigation. Today's amendments to 
part 719 and the associated portions of the Department of Energy 
Acquisition Regulation (DEAR) are designed to clarify and streamline 
existing requirements, improve efficiency of contractor legal 
management, and facilitate oversight over the expenditure of taxpayer 
dollars.
    Today's proposed rules and guidance slightly expands the coverage 
of the existing regulations. The proposed rules cover all outside legal 
costs incurred under the Department's Management and Operating (M&O) 
contracts, non-management and operating cost reimbursement contracts 
exceeding $100,000,000, and non-management and operating contracts 
exceeding $100,000,000 that include cost reimbursable elements 
exceeding $10,000,000. The proposed rules delete current requirements 
limiting applicability of the part to contracts involving work 
performed at facilities owned or leased by the Department. Part 719 
would continue to apply to legal counsel retained directly by the 
Department where the legal costs over the life of the matter for which 
counsel has been retained are expected to exceed $100,000. The proposed 
rules also delete the current coverage exception for legal matters 
handled through retrospective insurance arrangements and make certain 
portions of the rules applicable to such arrangements.
    The proposed regulations continue to require contractor submission 
of legal management plans, staffing and resource plans, and engagement 
letters under specific circumstances and set forth the requirements for 
these submissions. Today's proposed rules require contractors to submit 
proposed legal settlements requiring Contractor payment of $25,000 or 
more for Department review and approval. Currently, common practice 
requires contractors to obtain permission from Department counsel to 
enter a settlement agreement requiring Contractor payment of $50,000 or 
more. The Department is seeking public comment regarding the proposed 
reduction of the threshold to $25,000 and the proposed inclusion of the 
requirement in the regulations. In order to streamline and simplify the 
regulations related to contractor litigation, requirements related to 
initiation, defense, and settlement of litigation have been removed 
from the DEAR and consolidated in part 719. The proposed rule moves 
much of the material currently located in the Appendix to part 719 to 
the part, itself.
    The proposed part 719 continues to identify certain costs that 
generally would be considered unallowable. Certain categories of costs 
that require Departmental pre-approval in order to be considered for 
reimbursement are also identified. The proposed rules provide that 
compliance with part 719 is a prerequisite for allowability of legal 
costs, but notes that compliance with the part does not guarantee that 
costs will be determined to be allowable. All costs, whether or not 
identified as specifically allowable or unallowable, are still subject 
to the rules of allowability in the Federal Acquisition Regulation 
(FAR) and the DEAR.
    The Department also proposes changes to the DEAR. The changes 
correspond to the proposed substantive changes to part 719 as well as 
clarify and streamline the DEAR provisions related to contractor legal 
management. The proposed rules require inclusion of 48 CFR 952.231-71, 
Insurance--Litigation and Claims, or 48 CFR 970.5228-1, Insurance--
Litigation and Claims, in the majority, but not all contracts, to which 
part 719 applies. Both Insurance--Litigation and Claims

[[Page 81410]]

clauses have been revised to delete requirements related to contractor 
initiation or defense of litigation that are proposed for consolidation 
in part 719.

II. Summary of the Proposed Rule

    Subpart A, sections 719.1-719.8, includes general provisions. The 
subpart provides definitions and addresses applicability of the part. 
Section 719.3 states that the part covers all Management and Operating 
(M&O) contracts, non-management and operating cost reimbursement 
contracts exceeding $100,000,000, and non-management and operating 
contracts exceeding $100,000,000 that include cost reimbursable 
elements exceeding $10,000,000. Sections 719.3 and 719.4 make it clear 
that any contract exceeding $100,000 that the Department awards 
directly to retained legal counsel are subject to compliance with the 
rules. Sections 719.5 and 719.6 describe types of contracts and legal 
matters not covered by the part. The proposed rules include coverage of 
certain retrospective insurance arrangements that are excluded from 
coverage under the current rules. Procedures for exceptions or 
deviations from the part are set out in section 719.7. In the case of a 
Department contract, the determination would be made by the 
Department's General Counsel; in the case of a National Nuclear 
Security Administration (NNSA) contract, it would be made by the NNSA 
General Counsel. Section 719.8 states that the sharing of certain 
information between contractors and the Department does not waive any 
applicable privilege.
    Subpart B, sections 719.10-719.17, describes the requirements for 
submission of a legal management plan, staffing and resource plan, and 
annual legal budget. The subpart describes what is to be included in 
the plans and in the budget. The proposed rules modify the current 
requirements for legal management plans, in response to lessons learned 
by the Department and to ensure adequate oversight of contractor legal 
management. Section 719.11 provides that contractors must submit a 
legal management plan within 60 days following execution of a contract 
with the Department or upon request of the contracting officer. Section 
719.15 sets out a requirement for submission of a staffing and resource 
plan for significant matters (those with legal costs estimated to 
exceed $100,000 over the life of the matter or as determined by 
Department Counsel). Section 719.16 requires submission of the staffing 
and resource plan no later than 30 days after the filing of an answer 
or a dispositive motion in lieu of an answer in a significant matter 
involving litigation, 30 days after a determination that the cost is 
expected to exceed $100,000, or 30 days after notification by 
Department Counsel that a matter is considered significant, whichever 
is sooner. Section 719.17 requires submission of an annual legal budget 
for existing or anticipated significant matters.
    Subpart C, sections 719.20-719.21, describes the requirements for 
engagement letters. Engagement letters must be prepared and submitted 
to Department Counsel for matters where costs are expected to exceed 
$25,000. Section 719.21 states the requirements for engagement letters. 
Section 719.21(b)(3) requires the contractor to include the right of 
the government to inspect, copy and audit documentation of billable 
fees and other records where the Department is reimbursing the legal 
costs. Section 719.21(b)(8) requires that the engagement letter set 
forth an agreement that retained counsel will prepare a staffing and 
resource plan in accordance with the part. Section 719.21(b)(11) 
requires that the engagement letter include a requirement that a 
specific certification be included in invoices. This certification 
requirement is currently set forth in the Attachment to the part.
    Subpart D, sections 719.30-719.35, describes the requirements 
related to contractor initiation of offensive or defensive litigation, 
including appeals, and for contractor settlement of legal matters. 
Current part 719 addresses initiation and defense of litigation in the 
Appendix to the part. Today's proposed rules delete these portions of 
the Appendix and move all requirements regarding initiation and 
notification of litigation to subpart D. The proposed regulations move 
requirements related to initiation and notification of litigation from 
the DEAR Insurance--Litigation and claims clauses, 48 CFR 952.231-71 
and 48 CFR 970.5228-1, to part 719, subpart D, in order to clarify the 
requirements and streamline the regulations. Requirements regarding 
Departmental approval of contractor settlements are currently included 
in contractor legal management plans. The proposed rules regulate 
requirements related to contractor settlement of legal matters for the 
first time. Section 719.33 requires that a contractor obtain permission 
from Department Counsel to enter a settlement agreement requiring 
Contractor payment of $25,000 or more. Section 719.34 lists 
documentation that must be submitted with a contractor's request to 
settle a matter.
    Subpart E, sections 719.40-719.47, describes the policies and 
limitations for reimbursement of legal costs associated with retained 
legal counsel. Section 719.40 makes clear that compliance with part 719 
is a prerequisite for allowability of legal costs. Sections 719.42-
719.44 describe categories of costs that are unallowable or which 
require special treatment or advance approval. Section 719.43 describes 
the treatment of outside counsel travel costs. Section 719.45 of the 
proposed rules makes certain aspects of part 719 applicable to 
subcontractors and retrospective insurance carriers. Retrospective 
insurance arrangements are currently excluded from coverage of the 
current part 719 and the Department is seeking public comment regarding 
the proposed coverage of retrospective insurance carriers. Coverage of 
such carriers is proposed in order to ensure consistent management of 
all contractor legal management costs that may be reimbursed by the 
Department. Among the proposed requirements is Departmental approval of 
retrospective insurance carrier settlements of matters involving 
payment of $25,000 or more. Section 719.46 clearly states that costs 
covered by the part are subject to audit. Section 719.47 describes what 
happens when more than one Departmental contractor is party to a legal 
matter.
    Subpart F, sections 719.50-719.52, discusses the roles and 
responsibilities of Department Counsel. Section 719.50 discusses the 
limitations of Department Counsel authority. Sections 719.51 and 719.52 
set forth parameters for Department Counsel coordination with DOE and 
NNSA Offices of General Counsel.
    The Appendix to part 719 discusses expectations related to 
alternative dispute resolution. The Appendix also makes clear that 
there is no presumption of reasonableness attached to incurrence of 
costs by a contractor and notes that the reasons underlying incurrence 
of a legal cost may affect its allowability. The Attachment to part 719 
includes a model bill format for contractor use.
    The Department is also proposing corresponding changes to the DEAR. 
The clause prescription at 48 CFR 931.205-19 is revised to prescribe 
insertion of the clause at 48 CFR 952.231-71 in (1) non-management and 
operating cost reimbursement contracts exceeding $100,000,000, and (2) 
non-management and operating contracts exceeding $100,000,000 that 
include cost reimbursable elements exceeding $100,000,000. The clause 
prescription at 48 CFR 970.2803-2 is revised to prescribe insertion of 
the clause at 48 CFR 970.5228-1 in all management and

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operating contracts. Both prescriptions are revised to clarify that the 
prescribed clauses are to be inserted instead of the clause at 48 CFR 
52.228-7. The Insurance--Litigation and claims clauses at 48 CFR 
952.231-71 and 48 CFR 970.5228-1 are revised to reflect the above 
described consolidation of requirements related to initiation and 
notification of litigation in subpart D of part 719. Other changes to 
the clauses are included to simplify and clarify their requirements. 
The cost principle at 48 CFR 931.205-33 is revised to reflect the 
amended applicability of the DEAR Insurance--Litigation and claims 
clauses and to clarify the requirement for contractor compliance with 
part 719 when the part is applicable to a particular contract.

III. Procedural Requirements

A. Review Under Executive Orders 12866 and 13563

    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 proposed rule 
is not subject to review under the Executive Order by the Office of 
Information and Regulatory Affairs (OIRA) within the Office of 
Management and Budget.
    DOE has also reviewed this regulation pursuant to Executive Order 
13563, issued on January 18, 2011 (76 FR 3281 (Jan. 21, 2011)). 
Executive Order 13563 is supplemental to and explicitly reaffirms the 
principles, structures, and definitions governing regulatory review 
established in Executive Order 12866. To the extent permitted by law, 
agencies are required by Executive Order 13563 to: (1) Propose or adopt 
a regulation only upon a reasoned determination that its benefits 
justify its costs (recognizing that some benefits and costs are 
difficult to quantify); (2) tailor regulations to impose the least 
burden on society, consistent with obtaining regulatory objectives, 
taking into account, among other things, and to the extent practicable, 
the costs of cumulative regulations; (3) select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety, and other advantages; distributive impacts; and equity); 
(4) to the extent feasible, specify performance objectives, rather than 
specifying the behavior or manner of compliance that regulated entities 
must adopt; and (5) identify and assess available alternatives to 
direct regulation, including providing economic incentives to encourage 
the desired behavior, such as user fees or marketable permits, or 
providing information upon which choices can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. DOE believes that today's NOPR is 
consistent with these principles, including the requirement that, to 
the extent permitted by law, agencies adopt a regulation only upon a 
reasoned determination that its benefits justify its costs and, in 
choosing among alternative regulatory approaches, those approaches 
maximize net benefits.

B. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, Section 3(a) of Executive Order 12988, 
Civil Justice Reform, 61 FR 4729, February 7, 1996, imposes on 
executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; (3) provide a clear legal standard 
for affected conduct rather than a general standard; and (4) promote 
simplification and burden reduction. With regard to the review required 
by Section 3(a), Section 3(b) of Executive Order 12988 specifically 
requires that executive agencies make every reasonable effort to ensure 
that the regulation: (1) Clearly specifies the preemptive effect, if 
any; (2) clearly specifies any effect on existing Federal law or 
regulation; (3) provides a clear legal standard for affected conduct 
while promoting simplification and burden reduction; (4) specifies the 
retroactive effect, if any; (5) adequately defines key terms; and (6) 
addresses other important issues affecting clarity and general 
draftsmanship under any guidelines issued by the Attorney General. 
Section 3(c) of Executive Order 12988 requires executive agencies to 
review regulations in light of applicable standards in section 3(a) and 
section 3(b) to determine whether they are met or that 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 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 it imposes no significant burdens.
    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

    The proposed rule would require each covered contractor to submit a 
legal management plan that describes the contractor's practices for 
managing legal matters for which it procures the services of retained 
legal counsel. Under certain circumstances staffing and resource plans, 
annual legal budgets, and engagement letters are required to be 
submitted to the Department. Documentation related to initiation of 
litigation and settlement of legal matters may also be required. This 
collection of information is required for the Department to determine 
whether to approve reimbursement of contractors' litigation and other 
legal expenses.
    Under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection has been 
reviewed and assigned a control number by Office of Management and 
Budget (OMB). The existing regulations at 10 CFR part 719 have been 
assigned OMB control number 1910-5115, 75 FR 38514-02.
    The Department is submitting to the Office of Management and Budget 
(OMB), simultaneously with the publication of this proposed rule, 
information explaining the proposed amendments to the current 
collection of information for review and approval under the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq.

E. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this proposed rule falls 
into a class of actions which would not individually or cumulatively 
have significant impact on

[[Page 81412]]

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 proposed rule and 
has determined that it would not preempt state law and would not have a 
substantial direct effect on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government. No further 
action is required by Executive Order 13132.

G. Review Under the Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995, Public Law 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, Public Law 105-277, requires federal agencies to issue a 
Family Policymaking Assessment for any rule or policy that may affect 
family well-being. This proposed rule would 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, OMB, 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.
    This proposed 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 proposed rulemaking under the OMB and DOE guidelines 
and has concluded that it is consistent with applicable policies in 
those guidelines.

List of Subjects

10 CFR Part 719

    Government contracts, Legal services, Reporting and recordkeeping 
requirements.

48 CFR Parts 931, 952 and 970

    Government contracts, Government procurement.

    Issued in Washington, DC, on December 16, 2011.
Steven Chu,
Secretary of Energy.
    For the reasons set out in the preamble, the Department of Energy 
(DOE) proposes to amend Chapter III of Title 10 and Chapter 9 of Title 
48 of the Code of Federal Regulations as set forth below:

Title 10--Energy

Chapter III--Department of Energy

    1. Part 719 is revised to read as follows:

PART 719--CONTRACTOR LEGAL MANAGEMENT REQUIREMENTS

Sec.
Subpart A--General Provisions
719.1 What is the purpose of this part?
719.2 What are the definitions of terms used in this part?
719.3 What contracts are covered by this part?
719.4 Are law firms that are retained by contract by the department 
covered by this part?
719.5 What contracts are not covered by this part?
719.6 Are there any types of legal matters not included in the 
coverage of this part?
719.7 Is there a procedure for exceptions or deviations from this 
part?
719.8 Does the provision of protected documents from the contractor 
to the department constitute a waiver of privilege?
Subpart B--Legal Management Plan, Staffing and Resource Plan and Annual 
Legal Budget
719.10 Who must submit a Legal Management Plan?
719.11 When must a Legal Management Plan be submitted or revised?
719.12 What information must be included in the Legal Management 
Plan?
719.13 Who at the department receives and reviews the Legal 
Management Plan?
719.14 Will the department notify the contractor concerning the 
adequacy or inadequacy of the submitted Legal Management Plan?
719.15 What are the requirements for a staffing and resource plan?
719.16 When must the staffing and resource plan be submitted?
719.17 Are there any budgetary requirements?
Subpart C--Engagement Letter
719.20 When must an engagement letter be used?
719.21 What are the required elements of an engagement letter?
Subpart D--Requests From Contractor To Initiate, Defend and Settle 
Legal Matters
719.30 In what circumstances may the contractor initiate litigation, 
including appeals from adverse decisions?
719.31 When must the contractor initiate litigation against third 
parties?
719.32 What must the contractor do when it receives notice that it 
is a party to litigation?
719.33 In what circumstances must the contractor seek permission 
from the department to enter a settlement agreement?
719.34 What documentation must the contractor provide to department 
counsel when it seeks permission to enter a settlement agreement?

[[Page 81413]]

719.35 When must the contractor provide a copy of an executed 
settlement agreement?
Subpart E--Reimbursement of Costs Subject to This Part
719.40 What effect do the regulations of this part have on cost 
allowability?
719.41 How does the department determine whether fees are 
reasonable?
719.42 What categories of costs are unallowable?
719.43 What is the treatment for travel costs?
719.44 What categories of costs require advance approval?
719.45 Are there any special procedures or requirements regarding 
subcontractor and retrospective insurance carrier legal costs?
719.46 Are costs covered by this part subject to audit?
719.47 What happens when more than one contractor is party to a 
matter?
Subpart F--Department Counsel
719.50 What authority does department counsel have?
719.51 What information must be forwarded to the general counsel's 
office concerning contractor submissions to department counsel under 
this part?
719.52 What types of field actions must be coordinated with the 
general counsel?
Appendix A to Part 719--Guidance for Legal Resource Management

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

Subpart A--General Provisions


Sec.  719.1  What is the purpose of this part?

    This part facilitates management of retained legal counsel and 
Contractor legal costs, including litigation and legal matter costs. It 
requires the Contractor to develop a Legal Management Plan, to document 
the analysis used to decide when to utilize outside counsel, and to 
document what law firm or individual attorney will be engaged as 
outside counsel. This part also requires the Contractor to document the 
terms of the engagement with retained legal counsel. Payment of law 
firm invoices and reimbursement of Contractor legal costs under Covered 
Contracts is subject to compliance with this part.


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

    For purposes of this part:
    Alternative dispute resolution includes, but is not limited to, 
processes such as mediation, neutral evaluation, mini-trials and 
arbitration.
    Contractor means any person or entity with whom the Department 
contracts for the acquisition of goods or services.
    Covered contracts means those contracts described in Sec.  719.3 of 
this part.
    Days means calendar days.
    Department means the Department of Energy (DOE), including the 
National Nuclear Security Administration (NNSA).
    Department Counsel means the attorney in the DOE or NNSA field 
office, or Headquarters office, designated as the contracting officer's 
representative and point of contact for a Contractor or for Department 
retained legal counsel, for purposes of this part.
    General Counsel means the DOE General Counsel for DOE legal matters 
and the NNSA General Counsel for NNSA legal matters.
    Legal costs means, but is not limited to, administrative expenses 
associated with the provision of legal services by retained legal 
counsel; the costs of legal services provided by retained legal 
counsel; the costs of the services, if the services are procured in 
connection with a legal matter, of accountants, consultants, experts or 
others retained by the Contractor or by retained legal counsel; and any 
similar costs incurred by retained legal counsel or in connection with 
the services of retained legal counsel.
    Legal Management Plan means a document required by subpart B of 
this part describing the Contractor's practices for managing legal 
costs and legal matters for which it procures the services of retained 
legal counsel.
    Legal matter means any particular legal issue, or aggregate of 
legal issues associated with a particular subject area, e.g., employee 
benefits, immigration, taxation, for which the Contractor retains legal 
counsel, including but not limited to litigation.
    Litigation means a proceeding to which the Contractor is a party in 
state or federal court or before a state or federal administrative body 
or an arbitrator.
    Retained legal counsel means a licensed attorney working in the 
private sector who is retained by a Contractor or the Department to 
provide legal services.
    Retrospective insurance means any insurance policy under which the 
premium is not fixed, but is subject to adjustments based on actual 
losses incurred or paid (e.g. claims, settlements, damages, and legal 
costs).
    Settlement agreement means a written agreement between a Contractor 
and one or more parties pursuant to which one or more parties waives 
the right to pursue a legal claim in exchange for something of value.
    Significant matters means legal matters, including litigation, 
involving significant issues as determined by Department Counsel, and 
any legal matter where the amount of any legal costs, over the life of 
the matter, is expected to exceed $100,000.).
    Staffing and Resource Plan means a statement prepared in accordance 
with subpart B of this part by retained legal counsel that describes 
the method for managing a significant matter.


Sec.  719.3  What contracts are covered by this part?

    (a) This part covers three categories of contracts:
    (1) All management and operating contracts;
    (2) Non-management and operating cost reimbursement contracts 
exceeding $100,000,000; and
    (3) Non-management and operating contracts exceeding $100,000,000 
that include cost reimbursable elements exceeding $10,000,000 (e.g., 
contracts with both fixed-price and cost-reimbursable line items where 
the cost-reimbursable line items exceed $10,000,000 or time and 
materials contracts where the materials portions exceed $10,000,000).
    (b) This part also covers contracts otherwise not covered by 
paragraph (a) of this section but which contain a clause requiring 
compliance with this part.
    (c) This part also covers any contract the Department awards 
directly to retained legal counsel exceeding $100,000.


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

    Legal counsel retained under fixed rate or other type of contract 
by the Department to provide legal services must comply with the 
following if the legal costs over the life of the matter for which 
counsel has been retained are expected to exceed $100,000:
    (a) Requirements related to Staffing and Resource Plans in subpart 
B of this part;
    (b) Cost guidelines in subpart E of this part; and
    (c) Engagement letter requirements in subpart C of this part if the 
retained legal counsel subcontracts legal work valued at $25,000 or 
more (e.g., a law firm retained by the Department subcontracts with 
another law firm to provide $26,000 in discovery-related legal work).


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

    This part does not cover any contract under which the Department is 
not responsible for directly reimbursing the Contractor for legal 
costs, such as fixed price contracts.

[[Page 81414]]

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

    Matters not covered by this part include:
    (a) Matters handled by counsel retained by an insurance carrier, 
except under Retrospective Insurance in accordance with Sec.  719.45;
    (b) Routine intellectual property law support services; and
    (c) Routine workers and unemployment compensation matters.


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

    (a) Requests for exceptions or deviations from this part must be 
made in writing to Department Counsel and approved by the General 
Counsel. If an alternate procedure is proposed for compliance with an 
individual requirement in this part, that procedure must be included in 
the written request by the Contractor.
    (b) The General Counsel may authorize exceptions. The General 
Counsel may also establish exceptions to this part based on current 
field office and Contractor practices that satisfy the purpose of these 
requirements.
    (c) Exceptions to this part that are also a deviation from the 
Department of Energy Acquisition Regulation (DEAR) cost principles (see 
subpart D of this part) must be approved by the Senior Procurement 
Executive of DOE or NNSA as applicable. Written requests from 
Contractors for a deviation from a cost principle must be submitted to 
the contracting officer, with a copy provided to Department Counsel.


Sec.  719.8  Does the provision of protected documents from the 
contractor to the department constitute a waiver of privilege?

    Contractors are required to provide detailed information about 
third-party claims and litigation to the Department. The Department and 
its Contractors typically share common legal and strategic interests 
relating to pending or threatened litigation. The common interest 
between the parties is rooted in the fact that the Department 
reimburses Contractors for allowable costs incurred when litigation is 
threatened or initiated against Contractors. To the extent documents 
associated with compliance with this part (e.g. Staffing and Resource 
Plans, invoices, engagement letters, settlement authority requests, and 
draft pleadings) are protected from disclosure to third parties because 
the items constitute attorney work product and/or involve attorney 
client communications, the Contractor's provision of these items to the 
Department does not constitute a waiver of privilege. As long as the 
Department and the Contractor share a common interest in the outcome of 
legal matters, this mutual legal interest permits the parties to share 
privileged material without waiving any applicable privilege.

Subpart B--Legal Management Plan, Staffing and Resource Plan and 
Annual Legal Budget


Sec.  719.10.  Who must submit a Legal Management Plan?

    Contractors who are parties to contracts identified under Sec.  
719.3(a) and (b) must submit a Legal Management Plan.


Sec.  719.11  When must a Legal Management Plan be submitted or 
revised?

    (a) Contractors must submit a Legal Management Plan to Department 
Counsel within 60 days following award of the contract. The deadline 
for submitting the Legal Management Plan may be extended by the 
contracting officer.
    (b) Contractors must submit a revised Legal Management Plan upon 
request of the contracting officer within 60 days of receipt of the 
contracting officer's request.


Sec.  719.12  What information must be included in the Legal Management 
Plan?

    The Legal Management Plan must include the following items:
    (a) A description of the Contractor's in-house counsel resources at 
the time the Legal Management Plan is submitted, including areas of 
expertise and levels of experience of each legal staff member and an 
explanation of the types of matters expected to be handled in-house.
    (b) A description of the legal matters that may necessitate 
engagement of retained legal counsel.
    (c) A description of the factors the Contractor will consider in 
determining whether to handle a particular matter utilizing retained 
legal counsel.
    (d) An outline of the factors the Contractor must consider in 
selecting retained legal counsel, including:
    (1) Cost;
    (2) Past performance of previously retained counsel;
    (3) Particular expertise in a specific area of the law;
    (4) Familiarity with the Department's activity at the particular 
site and the prevalent issues associated with facility history and 
current operations;
    (5) Location of retained legal counsel relative to:
    (i) The site involved in the matter,
    (ii) Any forum in which the matter will be processed, and
    (iii) The location where a significant portion of the work will be 
performed;
    (6) Experience as an advocate in alternative dispute resolution 
procedures such as mediation;
    (7) Actual or potential conflicts of interest; and
    (8) The means and rate of compensation (e.g., hourly billing, fixed 
fee, blended fees).
    (e) A description of the system that the Contractor will use to 
review each matter in litigation to determine whether and when 
alternative dispute resolution is appropriate.
    (f) A description of the role of in-house counsel in cost 
management.
    (g) A description of the Contractor's process for review and 
approval of invoices for legal costs.
    (h) A description of the Contractor's strategy for interaction 
with, and supervision of retained legal counsel.
    (i) A description of the procedures the Contractor will employ in 
order to seek timely approval from Department Counsel to settle any 
legal matters as required by Sec.  719.34 of this part;
    (j) A description of the Contractor's strategy for keeping 
Department Counsel apprised of all legal matters covered by this part 
(e.g., regularly scheduled meetings and written communications).
    (k) A description of procedures providing for earliest possible 
notification to the Department of the likely initiation of any legal 
matter involving class actions, radiation or toxic substance exposure, 
the safeguarding of classified information, and any other matters 
involving issues which the Contractor has reason to believe are of 
general importance to the Department or the government as a whole.
    (l) A description of the procedures the Contractor will employ to 
ensure that unallowable costs are not submitted for Department 
reimbursement.


Sec.  719.13  Who at the department receives and reviews the Legal 
Management Plan?

    Contractors must submit a Legal Management Plan to Department 
Counsel. If the Contractor has not been notified of the assignment of 
Department Counsel, the Contractor must submit the Legal Management 
Plan to the contracting officer and the DOE Deputy General Counsel for 
Litigation and Enforcement or the NNSA Deputy General Counsel as 
appropriate.


Sec.  719.14  Will the department notify the contractor concerning the 
adequacy or inadequacy of the submitted Legal Management Plan?

    The contracting officer or Department Counsel will notify the 
Contractor within 30 days of the Contractor's submission of the plan of 
any non-

[[Page 81415]]

compliances or inadequate information relating to requirements in Sec.  
719.12. The Contractor must correct matters identified within 30 days 
of notification.


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

    (a) For significant matters, the Contractor must require retained 
legal counsel to prepare a Staffing and Resource Plan. The Contractor 
must then forward the Staffing and Resource Plan to Department Counsel.
    (b) Retained legal counsel retained directly by the Department 
subject to this part must prepare a Staffing and Resource Plan and 
forward it to Department Counsel.
    (c) A Staffing and Resource Plan must describe the following:
    (1) Major phases likely to be involved in the handling of the 
matter;
    (2) Timing and sequence of such phases;
    (3) Projected cost for each phase of the representation; and
    (4) Detailed description of resources that the retained legal 
counsel intends to devote to the representation.
    (d) For significant matters in litigation, in addition to the 
generalized annual budget required by Sec.  719.17, a Staffing and 
Resource Plan must include a budget, broken down by phases, including 
at a minimum the following phases:
    (1) Matter assessment, development and administration;
    (2) Pretrial pleadings and motions;
    (3) Discovery;
    (4) Trial preparation and trial; and
    (5) Appeal.
    (e) The Contractor must obtain Department Counsel approval before 
incurring retained legal counsel costs in excess of costs listed in the 
budget developed pursuant to paragraph (c) of this section.


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

    (a) The Contractor or retained legal counsel must submit the 
Staffing and Resource Plan to Department Counsel within 30 days after 
the filing of an answer or a dispositive motion in lieu of an answer, 
30 days after a determination that the cost is expected to exceed 
$100,000, or 30 days after notification from Department Counsel that a 
matter is considered significant, whichever is sooner.
    (b) Department Counsel may state objections to the Staffing and 
Resource Plan within 30 days of receipt of a Staffing and Resource 
Plan. When an objection is stated, retained legal counsel has 30 days 
to revise the Staffing and Resource Plan to satisfy the objection.
    (c) Contractors must require retained legal counsel to update 
Staffing and Resource Plans annually or more frequently if there are 
significant changes in the matter. The Contractor must submit the 
Staffing and Resource Plan updates to Department Counsel. Similarly, 
Department retained legal counsel must submit to Department Counsel 
annual Staffing and Resource Plan updates or more frequent updates if 
there are significant changes in the matter.
    (d) When it is unclear whether a matter is significant, the 
Contractor must consult with Department Counsel on the question.


Sec.  719.17  Are there any budgetary requirements?

    (a) Contractors required to submit a Legal Management Plan must 
also submit an annual legal budget to Department Counsel.
    (b) The annual legal budget must include cost projections for 
existing or anticipated significant matters, at a level of detail 
reflective of the types of billable activities and the stage of each 
such matter.
    (c) For informational purposes for both the Contractor and 
Department Counsel, the Contractor must submit a report to Department 
Counsel comparing its budgeted and actual legal costs within 30 days of 
the conclusion of the period covered by each annual legal budget. The 
Department recognizes, however, that there may be departures from the 
annual budget beyond the control of the Contractor.

Subpart C--Engagement Letters


Sec.  719.20  When must an engagement letter be used?

    Contractors must submit the terms of a proposed engagement letter 
between it and proposed retained legal counsel, to Department Counsel 
when the proposed retained counsel is expected to provide $25,000 or 
more in legal services for a particular matter. A copy of the executed 
engagement letter must be submitted to Department Counsel upon 
execution.


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

    (a) The engagement letter must require retained legal counsel to 
assist the Contractor in complying with this part and any supplemental 
guidance distributed under this part.
    (b) At a minimum, the engagement letter must include the following:
    (1) A process for review and documented approval of all billing by 
a Contractor representative including the timing and scope of billing 
reviews.
    (2) A statement that provision of records to the Government is not 
intended to constitute a waiver of any applicable legal privilege, 
protection, or immunity with respect to disclosure of these records to 
third parties. An exemption for specific records may be obtained where 
Contractors can demonstrate that a particular situation may provide 
grounds for a waiver.
    (3) A requirement that the Contractor, the Department, and the 
Government Accountability Office have the right, upon request, at 
reasonable times and locations to inspect, copy, and audit all records 
documenting billable fees and costs.
    (4) A statement that all records must be retained for a period of 
six (6) years and three (3) months after the final payment or after 
final case disposition, whichever is later.
    (5) Identification of all attorneys and staff who are assigned to 
the matter and the rate and basis of their compensation (i.e., hourly 
rates, fixed fees, contingency arrangement) and a process for obtaining 
approval of temporary adjustments in staffing levels or identified 
attorneys.
    (6) An initial assessment of the matter, along with a commitment to 
provide updates as necessary.
    (7) A description of billing procedures, including frequency of 
billing and billing statement format.
    (8) A statement setting forth agreement that the retained legal 
counsel will prepare a Staffing and Resource Plan in accordance with 
the requirements of Sec.  719.15.
    (9) A statement setting forth agreement to consider alternative 
dispute resolution at as early a stage as possible and thereafter as 
appropriate where litigation is involved.
    (10) A statement setting forth agreement that retained legal 
counsel must comply with the cost guidelines in subpart E of this part.
    (11) A statement setting forth agreement that retained legal 
counsel will provide a certification concerning the costs submitted for 
reimbursement. The certification that must be included in bills or 
invoices submitted by retained legal counsel must appear as follows: 
``Under penalty of law, [the representative] acknowledges the 
expectation that the bill will be paid by the Contractor and that the 
Contractor will be reimbursed by the Federal Government through the 
U.S. Department of Energy, and, based on personal knowledge and a good 
faith belief, certifies that the bill is truthful and accurate, and 
that the services and charges set forth herein comply with the terms of 
engagement and the policies set

[[Page 81416]]

forth in the Department of Energy's regulation and guidance on 
Contractor legal management requirements, and that the costs and 
charges set forth herein are necessary.'' The certification must be 
signed and dated by a representative of the retained legal counsel. 
Invoices must be submitted in conformance with the model bill format 
which is set forth in the Attachment to the Appendix to this part.
    (12) A statement setting forth agreement to identify and address 
promptly any professional conflicts of interest.
    (c) There may be additional requirements for an engagement letter 
based on the needs of the Contractor or the Departmental element 
requiring the services of the Department retained legal counsel.

Subpart D--Requests From Contractor Counsel To Initiate, Defend and 
Settle Legal Matters


Sec.  719.30  In what circumstances may the contractor initiate 
litigation, including appeals from adverse decisions?

    The Contractor may not initiate litigation (including 
counterclaims) or appeals from adverse decisions, without the prior 
written authorization of Department Counsel.
    (a) The following information must be provided to Department 
Counsel in connection with a Contractor request to initiate litigation:
    (1) Identification of the proposed parties;
    (2) The nature of the proposed action;
    (3) Relief sought;
    (4) Venue;
    (5) Proposed representation and reason for selection;
    (6) An analysis of the issues and the likelihood of success, and 
any time limitation associated with the requested approval;
    (7) The estimated costs associated with the proposed action, 
including whether outside counsel has agreed to a contingent fee 
arrangement;
    (8) Whether, for any reason, the Contractor will assume any part of 
the costs of the action;
    (9) A description of any attempts to resolve the issues that would 
be the subject of the Litigation, such as through mediation or other 
means of alternative dispute resolution; and
    (10) A discussion regarding why initiating Litigation would prove 
beneficial to the Contractor and to the Department.
    (b) Department Counsel should advise the contracting officer 
concerning each request and should provide assistance to the 
contracting officer in communicating the Department's decision to the 
Contractor.


Sec.  719.31  When must the contractor initiate litigation against 
third parties?

    The Contractor must, upon the request of the contracting officer, 
initiate litigation against third parties including proceedings before 
administrative agencies, in connection with the contract. The 
Contractor shall proceed with such litigation in good faith and as 
directed from time to time by Department Counsel.


Sec.  719.32  What must the contractor do when it receives notice that 
it is a party to litigation?

    (a) The Contractor shall give the contracting officer and 
Department Counsel immediate notice in writing of any legal proceeding, 
including any proceeding before an administrative agency, filed against 
the Contractor arising out of the performance of the contract and 
provide a copy of all relevant filings and any other documents that may 
be requested by the contracting officer and/or Department Counsel. The 
Department Counsel will direct the Contractor as to:
    (1) Whether or not the Contractor may proceed with the defense of 
the litigation, and any applicable conditions;
    (2) Whether the Contractor must authorize the Government to defend 
the action;
    (3) Whether the Government will take charge of the action; or
    (4) Whether the Government must receive an assignment of the 
Contractor's rights.
    (b) The Contractor shall proceed with such litigation in good faith 
and as directed from time to time by the Department Counsel.
    (c) If the costs and expenses associated with the claim against the 
Contractor are potentially allowable under the contract, the Contractor 
shall:
    (1) Authorize Department representatives to collaborate with 
Contractor in-house counsel or DOE/NNSA-approved outside counsel in 
settling or defending the claim; or counsel for any associated 
insurance carrier in settling or defending the claim if retrospective 
insurance applies or the amount of liability claimed exceeds the amount 
of insurance coverage; and
    (2) Authorize Department representatives to settle the claim or to 
defend or represent the Contractor in and/or to take charge of any 
litigation, if required by the Department, except where the liability 
is covered by bond or is insured by an insurance policy other than 
retrospective insurance.


Sec.  719.33  In what circumstances must the contractor seek permission 
from the department to enter a settlement agreement?

    The Contractor must obtain permission from Department Counsel to 
enter a settlement agreement if the settlement agreement requires 
Contractor payment of $25,000 or more. Obtaining this approval does not 
represent a determination that the settlement amount and/or the Legal 
Costs incurred in connection with the underlying legal matter will be 
determined to be allowable.


Sec.  719.34  What documentation must the contractor provide to 
department counsel when it seeks permission to enter a settlement 
agreement?

    The Contractor must provide a written statement to the Department 
Counsel that includes the following information, as applicable:
    (a) The amount of any proposed monetary settlement payment.
    (b) Titles and docket numbers associated with the case(s) for which 
the Contractor is seeking approval to settle;
    (c) The procedural history of the case(s) or issue(s);
    (d) A narrative description of the legal claims or allegations at 
issue in the matter and any background information that explains events 
that precipitated the initiation of the matter;
    (e) A description of the history of the settlement discussions;
    (f) A description of the terms of the proposed settlement agreement 
or requested settlement authority and the rationale for the Contractor 
entering into the proposed agreement;
    (g) If the proposed total monetary settlement amount would be 
allocated among multiple plaintiffs, a list of the plaintiffs and the 
amount of money each would receive pursuant to the proposed settlement 
agreement as well as an explanation as to why the settlement amount is 
different for any particular plaintiff, if appropriate;
    (h) A description as to why settlement of the matter is in the best 
interest of the Department; and
    (i) Any additional supporting documents requested by Department 
Counsel.


Sec.  719.35  When must the contractor provide a copy of an executed 
settlement agreement?

    A Contractor must provide a copy of an executed settlement 
agreement within seven (7) days of execution.

[[Page 81417]]

Subpart E--Reimbursement of Costs Subject to This Part


Sec.  719.40  What effect do the regulations of this part have on cost 
allowability?

    Contractor and retained legal counsel compliance with this part is 
a prerequisite for allowability of legal costs. However, compliance 
with this part does not guarantee that legal costs will be determined 
to be allowable. Only the contracting officer has the authority to 
determine allowability of costs.


Sec.  719.41  How does the department determine whether fees are 
reasonable?

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


Sec.  719.42  What categories of costs are unallowable?

    (a) Specific categories of unallowable costs are contained in the 
cost principles at 48 CFR (FAR) part 31, 48 CFR (DEAR) part 931 and 48 
CFR 970.31. See also 41 U.S.C. 4304;
    (b) Costs that are customarily or already included in billed hourly 
rates are not separately reimbursable.
    (c) Interest charges that a Contractor incurs on any outstanding 
(unpaid) bills from retained legal counsel are not reimbursable.


Sec.  719.43  What is the treatment for travel costs?

    (a) Travel and related expenses must at a minimum comply with the 
restrictions set forth in 48 CFR 31.205-46, or 48 CFR (DEAR) 970.3102-
05-46, as appropriate, to be reimbursable.
    (b) Travel time may be allowed at a full hourly rate for the 
portion of time during which retained legal counsel performs legal work 
for which it was retained; any remaining travel time shall be 
reimbursed at 50 percent of the full hourly rate, except that in no 
event will travel time spent working for other clients be allowable. 
Also, for long distance travel that could be completed by various 
methods of transportation, e.g., car, train, or plane, costs charged by 
retained legal counsel or any agent of retained legal counsel will be 
considered reasonable only if the individuals charge no more travel 
time than it would take to utilize the fastest mode of transportation 
that is cost-effective. For example, if retained legal counsel travels 
for 10 hours by train when a cost-effective flight that would take two 
hours to get to the same destination is available, the attorney may 
charge a maximum of two hours for the time spent traveling.


Sec.  719.44  What categories of costs require advance approval?

    (a) To be considered for reimbursement, costs for the following 
require advance written approval from Department Counsel or the 
submission of subsequent specific justification to Department Counsel 
when circumstances out of the Contractor's control make advance 
approval unobtainable:
    (1) Computers or general application software, or non-routine 
computerized databases specifically created for a particular matter. 
For costs associated with the creation and use of computerized 
databases, Contractors and retained legal counsel must ensure that the 
creation and use of computerized databases is necessary and cost-
effective. Use of databases originally created by the Department or its 
Contractors for other purposes, but that can be used to assist a 
Contractor or retained legal counsel in connection with a particular 
matter, should be considered. Contractors and retained legal counsel 
must ensure that DOE is provided the discretion to obtain unlimited 
access to and dominion over any computers or general application 
software, or non-routine computerized databases specifically created 
for a particular matter;
    (2) Charges for materials or nonattorney services exceeding $5,000;
    (3) Secretarial and support services, word processing, or temporary 
support personnel;
    (4) Attendance by more than one attorney at a deposition, court 
hearing or interview;
    (5) Expert witnesses and consultants;
    (6) Trade publications, books, treatises, background materials, and 
other similar documents;
    (7) Professional or educational seminars and conferences;
    (8) Preparation of bills or time spent responding to questions 
about bills from either the Department or the Contractor;
    (9) Food and beverages when the attorney or consultant is not on 
travel status and away from the home office;
    (10) Pro hac vice admissions; and
    (11) Time charged for law students' or interns' services.
    (b) Requests for fee increases by retained legal counsel other than 
those under contract directly with the Department must be sent in 
writing to the Contractor, who will review the request for 
reasonableness. If the Contractor determines the request is reasonable, 
the Contractor must seek approval for the increase from Department 
Counsel and the contracting officer before it authorizes any increase. 
Contractors should attempt to lock in rates for partners, associates 
and paralegals for at least a two year period.


Sec.  719.45  Are there any special procedures or requirements 
regarding subcontractor and retrospective insurance carrier legal 
costs?

    (a) The Contractor must have a monitoring system for subcontractor 
legal matters likely to reach $100,000 over the life of the matter when 
the Contractor's contract with the subcontractor provides that the 
Contractor will reimburse the subcontractor's legal costs resulting 
from the subcontractor's performance under its contract. The purpose of 
this system is to enable the Contractor to perform the same type and 
level of analysis and review of subcontractor legal management 
practices that the Department can perform of the Contractor's legal 
management practices. The monitoring system is intended to enable the 
Contractor to keep the Department informed about significant 
subcontractor legal matters, including significant matters in 
litigation. The Contractor is responsible for answering questions 
raised by the Department concerning significant subcontractor legal 
matters.
    (b) Contractors must submit informational copies of subcontractor 
invoices for legal services to Department Counsel.
    (c) Insurance carriers that provide insurance coverage to 
Contractors pursuant to retrospective insurance are ``subcontractors'' 
for purposes of this part.
    (d) In addition to the requirements set forth in paragraphs (a) and 
(b) of this section, the Contractor shall require any insurance carrier 
with whom the Contractor enters into a retrospective insurance 
arrangement after the effective date of this part, including any policy 
renewals, to provide to the Contractor for prior approval a staffing 
and resource plan for all legal matters that are expected to exceed 
$100,000 in cost. The staffing and resource plan submitted by the 
insurance carrier must

[[Page 81418]]

contain all of the items described in Sec.  719.15, including, but not 
limited to, a description of the major phases and timing and sequence 
of events anticipated in handling the matter, and a corresponding 
budget breakdown.
    (e) When the insurance carrier retains outside counsel and outside 
counsel is expected to provide $25,000 or more in legal services for a 
particular matter, the Contractor shall require the insurance company 
to provide it with a copy of any engagement letter that outlines the 
terms of the arrangement between the insurance company and the law firm 
it retains to defend lawsuits that are covered by retrospective 
insurance. The engagement letter must contain all of the items 
described in Sec.  719.21.
    (e) The Contractor shall require the insurance company to request 
prior permission from the Contractor to enter into settlement 
agreements with third parties involving payment of $25,000 or more. The 
Contractor shall require the insurance carrier to submit all 
documentation described in Sec.  719.34, and to provide the contractor 
with a copy of the executed settlement agreement within seven days of 
execution, which the Contractor will promptly forward to Department 
Counsel. The Contractor shall not authorize the insurance carrier to 
enter into any settlement agreement involving payment of $25,000 or 
more without obtaining the approval of the Department Counsel.
    (f) Staffing and resource plans and engagement letters required 
under this section must be reviewed and approved by the Contractor and 
approved by Department Counsel.
    (g) All legal costs incurred by insurance carriers under 
retrospective insurance are subject to audit pursuant to Sec.  719.46. 
The Contractor shall provide reviewed costs and status updates for all 
matters handled by retrospective insurance carriers in accordance with 
Sec.  719.51.


Sec.  719.46  Are costs covered by this part subject to audit?

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


Sec.  719.47  What happens when more than one contractor is a party to 
a matter?

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

Subpart F--Department Counsel


Sec.  719.50  What authority does department counsel have?

    (a) Department Counsel will receive written delegated authority 
from the contracting officer to serve as the contracting officer's 
representative for legal matters.
    (b) Actions by Department Counsel may not exceed the 
responsibilities and limitations as delegated by the contracting 
officer. Delegated contracting officer representative authority shall 
not be construed to include the authority to execute or modify the 
contract or resolve any contract dispute arising under the contract. 
Additional discussion of the authority and limitation of contracting 
officers can be found at 48 CFR 1.602-1, and contracting officer's 
representatives at 48 CFR (DEAR) 942.270-1. The clause, Technical 
Direction, 48 CFR (DEAR) 952.242-70, also discusses the 
responsibilities and authority of a contracting officer's 
representative.


Sec.  719.51  What information must be forwarded to the general 
counsel's office concerning contractor submissions to department 
counsel under this part?

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


Sec.  719.52  What types of field actions must be coordinated with the 
general counsel?

    (a) Requests from Contractors for exceptions or deviations from 
this part must be submitted to the contracting officer and Department 
Counsel, and approved by the General Counsel or his or her designee.
    (b) Requests from Contractors for approval to initiate or defend 
litigation, or to appeal from adverse decisions, where legal issues of 
first impression, sensitive issues, issues of national significance to 
the Department or of broad applicability to the Government that might 
adversely impact its operations are involved must be coordinated by 
Department Counsel with the General Counsel or his/her designee.
    (c) Department Counsel must inform the General Counsel of any 
significant matter, as defined in this part, and must coordinate any 
action involving a significant matter with the General Counsel, or his/
her designee, as directed by the General Counsel or his/her designee.

Appendix A to Part 719--Guidance for Legal Resource Management

Management and Administration of Outside Legal Services
1.0 Alternative Dispute Resolution
2.0 Cost Allowability Issues
2.1 Underlying Cause for Incurrence of Costs
Attachment--Contractor Litigation and Legal Costs, Model Bill Format

Management and Administration of Outside Legal Services

    This guidance is intended to assist Contractors, contracting 
officers and retained legal counsel in managing the costs of outside 
legal services.

1.0 Alternative Dispute Resolution

    Contractors are expected to evaluate all matters for appropriate 
alternative dispute resolution (ADR) at various stages of an issue 
in dispute, e.g., before a case is filed, during prediscovery, after 
initial discovery and during pretrial. This evaluation should be 
done in coordination with the Department's ADR liaison if one has 
been established or appointed or Department Counsel if an ADR 
liaison has not been appointed. Contractors, Contractor counsel, and 
Department Counsel are also encouraged to consult with the 
Department's Director of the Office of Conflict Prevention and 
Resolution. The Department anticipates that mediation will be the 
principal and most common method of Alternative Dispute Resolution. 
Agreement to arbitrate should generally be consistent with the 
Administrative Dispute Resolution Act (incorporated in part at 5 
U.S.C. 571, et seq.) and Department guidance issued under that Act. 
When a decision to arbitrate is made, a statement fixing the maximum 
award amount should be agreed to in advance by the participants.

2.0 Cost Allowability Issues

    A determination of cost reasonableness depends on a variety of 
considerations and circumstances. 48 CFR 31.201-3 establishes that 
no presumption of reasonableness is

[[Page 81419]]

attached to the incurrence of costs by a Contractor.

2.1 Underlying Cause for Incurrence of Costs

    While 10 CFR part 719 provides procedures associated with 
incurring and monitoring legal costs, the evaluation of the reason 
for the incurrence of the legal costs, e.g., liability, fault or 
avoidability, is a separate issue. The reason for the Contractor 
incurring costs may impact the allowability of the Contractor's 
legal costs. In some cases, the final determination of allowability 
of legal costs cannot be made until a matter is fully resolved. In 
certain circumstances, contract and cost principle language may 
permit conditional reimbursement of costs pending the outcome of the 
legal matter. Whether the Department makes conditional 
reimbursements or withholds any payment pending the outcome, legal 
costs ultimately reimbursed by the Department must comply with the 
applicable cost principles, the terms of the contract, and part 719.

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

1. Model Bill Format

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


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


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


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


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

Title 48--Federal Acquisition Regulations System

Chapter 9--Department of Energy

PART 931--CONTRACT COST PRINCIPLES AND PROCEDURES

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

     Authority:  42 U.S.C. 7101, et seq.; 50 U.S.C. 2401, et seq;

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


931.205-19  Insurance and indemnification.

    (f) The contracting officer shall insert the clause at 952.231-71, 
Insurance-litigation and claims, instead of the clause at 48 CFR 
52.228-7, in
    (1) Non-management and operating cost reimbursement contracts 
exceeding $100,000,000, and
    (2) Non-management and operating contracts that include cost 
reimbursable elements exceeding $100,000,000, for example, contracts 
with both fixed-price and cost-reimbursable line items where the cost-
reimbursable line items exceed $100,000,000 or time and materials 
contracts where the materials portions exceed $100,000,000.
    4. Section 931.205-33 is revised to read as follows:


931.205-33   Professional and consultant service costs.

    (g) If the clause at 48 CFR 952.231-71 or the clause at 48 CFR 
970.5228-1 is included in the contract, or the contract is a non-
management and operating contract exceeding $100,000,000 that includes 
cost reimbursable elements exceeding $10,000,000 (for example, 
contracts with both fixed-price and cost-reimbursable line items where 
the cost-reimbursable line items exceed $10,000,000 or time and 
materials contracts where the materials portions exceed $10,000,000), 
litigation and other legal costs are only allowable if both: incurred 
in accordance with 10 CFR part 719, Contractor Legal Management 
Requirements; and not otherwise made unallowable by law, regulation, or 
the terms of the contract.

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    5. The authority citation for part 952 continues to read as 
follows:

    Authority: 42 U.S.C. 7101 et seq. and 50 U.S.C. 2401 et seq.

    6. Section 952.231-71 is revised to read as follows:


952.231-71  Insurance-litigation and claims.

    As prescribed in 931.205-19(f), insert the following clause in 
applicable non-management and operating contracts:

Insurance--Litigation and Claims (XX 20XX)

    (a) The Contractor must comply with 10 CFR part 719, Contractor 
Legal Management Requirements.
    (b)(1) Except as provided in paragraph (b)(2) of this clause, 
the Contractor shall procure and maintain such bonds and insurance 
as required by law or approved in writing by the Contracting 
Officer.
    (2) The Contractor may, with the approval of the Contracting 
Officer, maintain a self-insurance program in accordance with FAR 
28.308; provided that, with respect to workers' compensation, the 
Contractor is qualified pursuant to statutory authority.
    (3) All bonds and insurance required by this clause shall be in 
a form and amount and for those periods as the Contracting Officer 
may require or approve and with sureties and insurers approved by 
the Contracting Officer.
    (c) The Contractor agrees to submit for the Contracting 
Officer's approval, to the extent and in the manner required by the 
Contracting Officer, any other bonds and insurance that are 
maintained by the Contractor in connection with the performance of 
this contract and for which the Contractor seeks reimbursement. If 
an insurance cost (whether a premium for

[[Page 81420]]

commercial insurance or related to self-insurance) includes a 
portion covering costs made unallowable elsewhere in the contract, 
and the share of the cost for coverage for the unallowable cost is 
determinable, the portion of the cost that is otherwise an allowable 
cost under this contract is reimbursable to the extent determined by 
the Contracting Officer.
    (d) Except as provided in paragraph (f) of this clause, or 
specifically disallowed elsewhere in this contract, the Contractor 
shall be reimbursed--
    (1) For that portion of the reasonable cost of bonds and 
insurance allocable to this contract required in accordance with 
contract terms or approved under this clause, and
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance without regard to the limitation of cost or 
limitation of funds clause of this contract.
    (e) The Government's liability under paragraph (d) of this 
clause is subject to the availability of appropriated funds. Nothing 
in this contract shall be construed as implying that the Congress 
will, at a later date, appropriate funds sufficient to meet 
deficiencies.
    (f)(1) Notwithstanding any other provision of this contract, the 
Contractor shall not be reimbursed for liabilities to third parties, 
including contractor employees, and directly associated costs which 
may include but are not limited to litigation costs, counsel fees, 
judgment and settlements--
    (i) Which are otherwise unallowable by law or the provisions of 
this contract, including the cost reimbursement limitations 
contained in 48 CFR part 31, as supplemented by 48 CFR 970.31;
    (ii) For which the Contractor has failed to insure or to 
maintain insurance as required by law, this contract, or by the 
written direction of the Contracting Officer; or
    (iii) Which were caused by Contractor managerial personnel's--
    (A) Willful misconduct;
    (B) Lack of good faith; or
    (C) Failure to exercise prudent business judgment, which means 
failure to act in the same manner as a prudent person in the conduct 
of competitive business; or, in the case of a non-profit educational 
institution, failure to act in the manner that a prudent person 
would under the circumstances prevailing at the time the decision to 
incur the cost is made.
    (2) The term ``contractor's managerial personnel'' is defined in 
the Property clause in this contract.
    (g)(1) All litigation costs, including counsel fees, judgments 
and settlements shall be properly allocated, segregated and excluded 
by the Contractor. If the Contracting Officer provisionally 
disallows such costs, then the Contractor may not use funds advanced 
by DOE under the contract to finance the litigation.
    (2) Punitive damages are not allowable unless the act or failure 
to act which gave rise to the liability resulted from compliance 
with specific terms and conditions of the contract or written 
instructions from the Contracting Officer.
    (3) The portion of the cost of insurance obtained by the 
Contractor that is allocable to coverage of liabilities referred to 
in paragraph (f) of this clause is not allowable.
    (h) The Contractor may at its own expense and not as an 
allowable cost procure for its own protection insurance to 
compensate the Contractor for any unallowable or non-reimbursable 
costs incurred in connection with contract performance.


(End of clause)

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

    7. 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.: 50 U.S.C. 2401, et seq.

    8. Section 970.2803-2 is revised to read as follows:


970.2803-2  Contract clause.

    The contracting officer shall insert the clause at 970.5228-1, 
Insurance--Litigation and Claims, instead of the clause at 48 CFR 
52.228-7, in all management and operating contracts. Paragraphs 
(f)(3)(C) and (g)(2) of that clause apply to a nonprofit contractor 
only to the extent specifically provided in the individual contract.
    9. Section 970.5228-1 is revised to read as follows:


970.5228-1  Insurance--litigation and claims.

    As prescribed in 970.2803-2, insert the following clause:

Insurance--Litigation and Claims (XX 20XX)

    (a) The Contractor must comply with 10 CFR part 719, Contractor 
Legal Management Requirements.
    (b)(1) Except as provided in paragraph (b)(2) of this clause, 
the Contractor shall procure and maintain such bonds and insurance 
as required by law or approved in writing by the Contracting 
Officer.
    (2) The Contractor may, with the approval of the Contracting 
Officer, maintain a self-insurance program in accordance with FAR 
28.308; provided that, with respect to workers' compensation, the 
Contractor is qualified pursuant to statutory authority.
    (3) All bonds and insurance required by this clause shall be in 
a form and amount and for those periods as the Contracting Officer 
may require or approve and with sureties and insurers approved by 
the Contracting Officer.
    (c) The Contractor agrees to submit for the Contracting 
Officer's approval, to the extent and in the manner required by the 
Contracting Officer, any other bonds and insurance that are 
maintained by the Contractor in connection with the performance of 
this contract and for which the Contractor seeks reimbursement. If 
an insurance cost (whether a premium for commercial insurance or 
related to self-insurance) includes a portion covering costs made 
unallowable elsewhere in the contract, and the share of the cost for 
coverage for the unallowable cost is determinable, the portion of 
the cost that is otherwise an allowable cost under this contract is 
reimbursable to the extent determined by the Contracting Officer.
    (d) Except as provided in paragraph (f) of this clause, or 
specifically disallowed elsewhere in this contract, the Contractor 
shall be reimbursed--
    (1) For that portion of the reasonable cost of bonds and 
insurance allocable to this contract required in accordance with 
contract terms or approved under this clause, and
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance without regard to the clause of this 
contract entitled ``Obligation of Funds.''
    (e) The Government's liability under paragraph (d) of this 
clause is subject to the availability of appropriated funds. Nothing 
in this contract shall be construed as implying that the Congress 
will, at a later date, appropriate funds sufficient to meet 
deficiencies.
    (f)(1) Notwithstanding any other provision of this contract, the 
Contractor shall not be reimbursed for liabilities to third parties, 
including contractor employees, and directly associated costs which 
may include but are not limited to litigation costs, counsel fees, 
judgments and settlements--
    (i) Which are otherwise unallowable by law or the provisions of 
this contract, including the cost reimbursement limitations 
contained in 48 CFR part 31, as supplemented by 48 CFR 970.31;
    (ii) For which the Contractor has failed to insure or to 
maintain insurance as required by law, this contract, or by the 
written direction of the Contracting Officer; or
    (iii) Which were caused by Contractor managerial personnel's--
    (A) Willful misconduct;
    (B) Lack of good faith; or
    (C) Failure to exercise prudent business judgment, which means 
failure to act in the same manner as a prudent person in the conduct 
of competitive business; or, in the case of a non-profit educational 
institution, failure to act in the manner that a prudent person 
would under the circumstances prevailing at the time the decision to 
incur the cost is made.
    (2) The term ``contractor's managerial personnel'' is defined in 
the Property clause in this contract.
    (g)(1) All litigation costs, including counsel fees, judgments 
and settlements shall be properly allocated, segregated and excluded 
by the Contractor. If the Contracting Officer provisionally 
disallows such costs, then the Contractor may not use funds advanced 
by DOE under the contract to finance the litigation.
    (2) Punitive damages are not allowable unless the act or failure 
to act which gave rise to the liability resulted from compliance 
with specific terms and conditions of the contract or written 
instructions from the Contracting Officer.
    (3) The portion of the cost of insurance obtained by the 
Contractor that is allocable to coverage of liabilities referred to 
in paragraph (f) of this clause is not allowable.
    (h) The Contractor may at its own expense and not as an 
allowable cost procure for its

[[Page 81421]]

own protection insurance to compensate the Contractor for any 
unallowable or non-reimbursable costs incurred in connection with 
contract performance.


(End of clause)

[FR Doc. 2011-33170 Filed 12-27-11; 8:45 am]
BILLING CODE 6450-01-P