Acquisition Regulation; Alteration of Organizational Conflicts of Interest Regulations

DEPARTMENT OF ENERGY

48 CFR Parts 909, 952, and 970

RIN 1990-AA95

Acquisition Regulation; Alteration of Organizational Conflicts of

Interest Regulations

AGENCY: Department of Energy.

ACTION: Final rule.

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SUMMARY: The Department of Energy (DOE) today amends the Department of

Energy Acquisition Regulation (DEAR) to clarify certain aspects of

DOE's organizational conflicts of interest (OCI) regulations. The

amended regulations are intended to make the OCI regulations more

easily understood and more easily followed by DOE procurement, program,

and legal personnel, DOE contractors, and entities proposing to do work

for DOE or its contractors.

EFFECTIVE DATE: January 23, 1995.

FOR FURTHER INFORMATION CONTACT:

Robert M. Webb, U.S. Department of Energy, Procurement Policy Division

(HR-521.1), 1000 Independence Avenue, SW., Washington, DC 20585, (202)

586-8264

Edgar Merson, U.S. Department of Energy, Office of the Assistant

General Counsel for Procurement and Finance (GC-61), 1000 Independence

Avenue, SW., Washington, DC 20585, (202) 586-6902

SUPPLEMENTARY INFORMATION:

I. Background

A. Discussion

B. Section-by-Section Analysis

II. Procedural Requirements

A. Review under Executive Order 12291

B. Review under the Regulatory Flexibility Act

C. Review under the Paperwork Reduction Act

D. Review under the National Environmental Policy Act

E. Review under Executive Order 12612

F. Review under Executive Order 12778

I. Background

A. Discussion

DOE is one of only two Federal agencies, the other being the

Nuclear Regulatory Commission, that have a statutorily based OCI

system. DOE's system is founded on section 401 of Pub. L. 95-39, as

that statute applied to the Energy Research and Development

Administration (codified at 42 U.S.C. Sec. 5918) and section 10 of Pub.

L. 95-70, as that statute applied to the Federal Energy Administration

(codified at 15 U.S.C. 789). On October 1, 1977, those two agencies and

others were joined to form the Department of Energy.

The proposed rule soliciting comments on proposed changes leading

to this final rule was published on July 16, 1993, at 58 FR 38340. As

stated there, the proposed changes were intended to clarify the

preexisting DOE OCI rule.

B. Section-by-Section Analysis

Comments were received from nine commenters: four corporations, two

professional societies, one individual, and two DOE procurement

organizations.

1. Definitions.

At 909.570-3, we proposed to delete the phrase ``the principal

purpose of which'' from the definition of ``evaluation services'' and

``technical consulting and management support services.'' We explained

that DOE's organizational conflicts of interest system should apply to

contracts even where these types of services are involved in contract

performance but are not the principal purpose of the contract.

Four of the commenters took exception to this change with respect

to ``evaluation services,'' and two objected with respect to

``technical consulting and management support services.'' One concern

expressed was that there would be confusion on the part of the

contractors as to whether ``a particular contract is for evaluation

services or activities.'' The solicitation and contract will contain

the appropriate organizational conflicts of interest provisions when

DOE has determined that a specific requirement involves either or both

of these types of covered services.

The remaining commenters based their objections on a concern that

the result would be that organizational conflicts of interest

provisions would be applied when they were not appropriate. We

disagree. It is clear that the ``principal purpose'' language was

present to limit application of organizational conflicts of interest;

however, it is apparent that contracts may have minor portions of the

statement of work that deserve OCI attention. For example, a contract

for guard services that would not be covered per se may contain

provision for incidental services to develop a plan to enhance security

at the facility. Clearly, the development of such a plan, were it

procured under a separate contract, would on its own be considered

either evaluation services or activities or technical consulting and

management support services or both. The dangers of bias, depending

upon a contractor's interests, and unfair competitive advantage are

both present. In fact, the plan may serve as the basis for the

procurement of security enhancements under a separate contract. Yet,

because it is a comparatively small part of a larger contract under the

definitions that were at 909.570-3, there would be no OCI coverage

under the preexisting regulations. This result is untenable.

The concern for misapplication is best answered by looking at

whether the scope of the contract includes services that are properly

described as ``evaluation services or activities'' or ``technical

consulting and management support services.'' A contract would not be

covered if there is no provision for assignment of such evaluative

tasks within the scope of the contract. For example, if a security

guard notices a security deficiency at the facility, he or she would be

expected to bring it to the supervisor's attention in the normal course

of business, and this would involve no OCI implication. The mere

expression of an opinion or recommendation in the performance of a

contract would not give rise to OCI coverage.

In the definition of ``organizational conflicts of interest,'' the

rule proposed to delete the phrase ``either directly or indirectly,

through a client relationship'' and insert ``reasonably'' to guide any

test of the existence of an organizational conflict of interest with

regard to a specific offeror. Three commenters objected. One commenter

was concerned that the remaining phrase describing the interests to be

considered in determining the presence of an organizational conflict of

interest may affect or be affected by ``approved technology transfer

initiatives.'' The remaining phrase describing the interests to be

taken into account is ``past, present, or currently planned interests

that relate to work to be performed under a Department contract.'' All

interests, including ``technology transfer initiatives'' meeting that

test should be evaluated by the Contracting Officer in making the OCI

determination. However, one must remember that the mere existence of an

interest relating to the work to be performed under the specific

contract does not mean that an organizational conflict of interest is

present.

A second commenter disagreed with the ``relate to'' language. The

commenter was concerned that an offeror would be put in the position of

``providing unlimited data which, as a threshold matter, may not be

relevant to its capacity to give impartial advice or result in an

unfair competitive advantage.'' We believe that the obligation to

disclose interests that relate to the work to be performed under the

proposed contract is clearer than the previous requirement which

arguably was dependent upon whether the offeror considered the

otherwise relevant interest to result in bias or an unfair competitive

advantage. The analysis of the effect of the interest or interests is

the responsibility of the contracting officer, and the proposer is not

in the position of drawing an objective conclusion of the effect of an

interest. More importantly, the contracting officer may determine the

potential for bias or unfair competitive advantage, not from one

interest, but from two or more interests, any of which alone would not

be considered significant.

The third commenter did not agree with the proposed insertion of

``reasonably'' on the grounds that the ``safe course for a contracting

officer to take when faced with this standard is to conclude that

virtually all situations may reasonably give rise to an OCI.'' We have

deleted ``reasonably,'' though its inclusion in the proposed rule was

intended to help assure that consideration of interests would not be

affected by remote relationships.

As will be discussed in more detail later, the standard that the

contracting officer is to apply in making the determination as to the

presence of an organizational conflict of interest is whether there is

``little or no likelihood'' of an organizational conflict. That test is

taken from the underlying statutes and has formed the basis of the OCI

determination since the promulgation of the implementing regulations.

2. Relationship of Interests

Three commenters took exception to the proposed substitution of the

standard for contractual requirements that merit particular attention

at 909.570-4(a). Previously, this standard was those contractual

requirements that ``call for the rendering of advice, or consultation

or evaluation services, or similar activities that lay the direct

groundwork for the Department's decisions * * *.'' The proposed rule

substituted ``are expected to play a part in * * *.'' (emphasis added)

All three comments were founded upon the same grounds, which are

best represented by the comment of one of the three: ``As proposed,

this revision will cause activities that are only very tangentially

related to be considered to create an OCI and will remove any rule of

reason in determining when an OCI exists.''

We disagree and have included the change. This language is not

intended to describe when the contracting officer should determine that

an organizational conflict of interest exists. We believe that the

commenters have been misled by the change in the heading of 909.570-4,

``Criteria for recognizing organizational conflicts of interest.'' In

that particular part of the regulation, the material is intended to aid

the contracting officer in determining whether a particular statement

of work is subject to organizational conflicts of interest concerns. In

other words, this guidance goes to whether the contracting officer

would require that the solicitation include the organizational

conflicts of interest solicitation provision at 952.209-70 and whether

the model and final contracts would contain the clause at 952.209-72.

No comments were received about the other minor changes proposed to

be made to 909.570-4(a) and 909.570-4(b)(4) and (b)(7).

No comments were made about the proposed changes to 909.570-5(a).

These changes are mirrored in proposed changes to the solicitation

provision and will be discussed there.

The rule proposed to create a new paragraph 909.570-5(b) from the

content of the second half of paragraph (a). This new paragraph would

modify the requirement for the submission of a new or updated

disclosure for ``all modifications * * * except those issued under the

Changes clause'' to those ``that exercise an option or otherwise

meaningfully extend the period of performance or add work of the type

noted above to the contract.'' One commenter objected, apparently not

recognizing that the required frequency of new or updated disclosure

would be reduced.

In addition, the OCI clause contains a requirement for postaward

disclosure. If the contractor has fulfilled that responsibility, this

requirement would be little more than a formality.

3. Avoidance and Mitigation

Five commenters disagreed with the proposed changes to 909.570-

5(c). We believe they have misinterpreted the proposed changes. The

changes consisted of the proposed deletion of the words ``or

mitigated'' from the last portion of the sentence that had previously

been 909.570-5(b) and the insertion at 909.570-5(c) of the sentence

that states, ``[a]n organizational conflict of interest has been

avoided when the actions taken to remedy it result in there being

little or no likelihood of an organizational conflict of interest.''

The comments were based upon the belief that these changes deny the

contracting officer the flexibility to mitigate a situation that has

been determined to be an organizational conflict of interest. In fact,

the applicable statute requires that an organizational conflict of

interest, once identified, be avoided or award may not be made in the

absence of a determination that award otherwise is in the best

interests of the United States. The statute and implementing

regulations have provided that ``little or no likelihood of an

organizational conflict of interest'' is the standard or threshold for

the decision as to whether a particular fact or facts amount to an

organizational conflict of interest. Any greater likelihood amounts to

an organizational conflict.

Mitigation, on the other hand, describes the situation in which the

actions taken to remedy an organizational conflict of interest taken

have not reduced the conflict of interest to the required level of

``little or no likelihood.'' That result is not enough to allow an

award, absent the public interest determination described above.

It was the intent of the added sentence to make it clear that the

test for avoiding an organizational conflict was the same as the test

for determining the existence of the organizational conflict initially,

``little or no likelihood.'' In other words, there may be some remote

possibility of an organizational conflict of interest, and the

contracting officer may determine that an organizational conflict does

not exist. If, on the other hand, having determined that an

organizational conflict does exist, the contracting officer may

determine that the steps taken to remedy the conflict reduce the

concern to the level of ``little or no likelihood,'' which actions have

thereby avoided the organizational conflict of interest.

This change then does not interfere with the exercise of discretion

by the contracting officer in avoiding an identified organizational

conflict of interest. Rather, it makes clear that the test for

determining whether an organizational conflict of interest exists is

the same, i.e, ``little or no likelihood,'' whether it is applied in

the original analysis or after having taken steps to remedy an

organizational conflict of interest that was initially determined to

exist.

4. Subsequent Bars

With regard to any bar of the successful firm from subsequent

competitions, five commenters requested that the sentence of 909.570-6

requiring that ``[t]his is a variable; and in no event shall an

exclusion be stated which is not related to a specific expiration date

or an event certain'' be retained. We believe that this sentence is

redundant in light of the two preceding sentences, i.e., ``[s]uch

notice shall specify the proposed extent and duration of any special

restrictions to be imposed with respect to participation in subsequent

acquisitions. A fixed term of reasonable duration is measured by the

time required to eliminate what would otherwise constitute an unfair

competitive advantage.''

Two of the commenters took exception to the proposed addition to

the last sentence. That addition was intended to make clear that the

absence of a bar in a previous contract will not prohibit the

contracting officer from considering the relationship of the two

requirements as a basis for finding an organizational conflict of

interest in the award of the second requirement, based upon bias or

unfair competitive advantage. We believe this conclusion is statutorily

directed. However, until now, the statement has not been made, and DOE

contracting personnel may have been misled. We have retained all the

changes to 909.570-6.

No comments were received to the proposed changes to 909.570-7.

5. Deletion of ``the General Clause''

Two comments were received with regard to 909.570-8. One commenter

objected to the proposed deletion of the provision for the general

organizational conflicts of interest clause at 952.209-71. The

commenter illustrated its position by referring to ``standard

architect-engineer/construction services, where disclosures are

routinely required (both for prime contracts and subcontracts) where

there are no relevant facts which could give rise to an organizational

conflict of interest and the contractor warrants that this is the

case.'' We believe that generally a standard A-E contract, that is, a

contract for design services, would not be subject to organizational

conflicts of interest processing. Certainly, a requirement for

technical consulting or management support services or evaluation

services or activities involving an A-E firm would be covered, as it

would for any entity. Were the requirement subject to OCI processing,

the fact that the offeror represented that it had no relevant facts to

disclose would have no bearing on which clause to use.

We are deleting the clause formerly at 952.209-71. The clause was

an abbreviated version of the special clause. It (1) did not extend to

affiliated entities of the contractor, (2) did not contain the bars in

paragraphs (b)(1) and (b)(2) of the special clause, and (3) did not

contain the prohibition against award of OCI covered subcontracts

without the determination by the DOE contracting officer as to the

proposed subcontractor's organizational conflicts of interest. We

believe these omissions to be meaningful in the administration of the

clause, and, the omission was not appropriate for contracts that are

subject to organizational conflicts of interest processing.

The second commenter suggests the substitution of the word

``duration'' for ``time period'' as it appears in the last sentence of

909.570-8(b)(5) because ``duration'' may ``tie to a completion of an

activity rather than a date.'' We agree and have made the change.

6. ``Little or no Likelihood''

Five commenters have proposed changes to 909.570-9. The first

suggests that the phrase ``or other means'' which was proposed to be

added to subparagraph (a)(3) also be added to subparagraph (a)(2) for

consistency's sake. We have made this change but differently than

suggested. The phrase has been added to subparagraph (a)(2), and the

phrase ``by an appropriate contract clause or other means'' has been

deleted from subparagraph (a)(3).

The other four commenters object to the proposed statement ``[i]f

the contracting officer determines that there is more than little or no

likelihood of an organizational conflict of interest, then an

organizational conflict of interest exists with regard to that

particular offeror.'' The commenters express the view that the term

``more than little or no likelihood'' should be defined.

First, the previous proposed sentence states that a basic concept

of the Department's organizational conflicts of interest system is that

an organizational conflict of interest does not exist if there is

``little or no likelihood'' of an organizational conflict of interest

in the performance of the contract by the particular offeror being

evaluated. That test is taken from sec. 401 of Pub. L. 95-39 (42 U.S.C.

5918(b)). The sentence preceding the sentence in question makes that

point clear.

The sentence that has been objected to then states the obverse,

i.e., that, therefore, facts that indicate a larger likelihood of an

organizational conflict than ``little or no likelihood'' then indicates

the existence of an organizational conflict of interest with respect to

the performance of the contract by the particular offeror being

evaluated. These concepts are, like so many other legal and regulatory

concepts, imprecise. The statute does not define the phrase ``little or

no likelihood,'' nor do we believe that any attempt by ourselves or

others would make it more precise. We believe that facts may exist with

respect to the offeror that could indicate a possibility, i.e.,

``little likelihood,'' of an organizational conflict and yet the

contracting officer not be bound to find one. In other words, the test

does not require the absolute absence of possibility.

With this background, the sentence objected to is merely stating

the other side of the proposition, which has always been the case. If

the contracting officer determines that there is more than a ``little

likelihood'' of an organizational conflict of interest, then one exists

for the purpose of the DOE system, with the result that award may not

be made unless the risk is reduced to the level of ``little

likelihood'' or ``no likelihood'' by some manner of mitigation or that

the statutorily required determination is made that award is in the

public interest and that determination is published in the Federal

Register in accordance with 909.570-9(a)(3). We believe that no

definition of the phrase ``more than little or no likelihood'' is

necessary. It merely describes the situation in which the contracting

officer cannot reasonably say that there is ``little or no likelihood''

of an organizational conflict of interest with respect to the statement

of work by a particular offeror.

One commenter did not agree with the proposed changes made at

909.570-10, wanting to retain the current language. We believe the

proposed changes are more accurate than the current language and will

be of greater assistance to contracting officers in the consideration

of OCI situations occurring after contract award. We have, therefore,

adopted the proposed changes in the final rule.

7. Subcontracts

Two commenters objected to the proposed change at 909.570-12 which

deleted the phrase ``except that subcontractors shall not normally be

required to submit the disclosure or representation if such subcontract

is for supplies.'' The commenters believe that this deletion creates an

uncertainty as to the intended meaning and that the deletion might

suggest that the organizational conflicts of interest system might, in

fact, apply to subcontracts for supplies.

We disagree. The system applies per se to those prime contracts and

subcontracts that involve the providing of evaluation services or

activities or technical consulting and management support services.

This point is made clear in the proposed rule at 909.570-12 following

the deletion of the phrase noted above by the addition of the phrase

``i.e., evaluation services or activities or technical consulting and

management support services.'' A similar clarifying change has been

made to paragraph (d)(1) of the clause at 952.909-72.

We believe that the DOE OCI system would apply to prime contracts

or subcontracts for supplies only in the rarest instance. We made this

change because we believe that the former language of DEAR 909.570-11

presented a greater danger of misapplication of the DOE OCI system to

subcontracts for supplies than the revision resulting from this final

rule.

8. Solicitation Provision

Five commenters disagreed with the proposed altering of the

disclosure requirement in paragraph (a)(1) of the solicitation

provision at 952.209-70. The change that appears there would require

the disclosure of ``all relevant facts * * * relating to the work

described in the statement of work of this solicitation.'' In the

proposed rule we deleted the phrase ``bearing on whether the offeror

has a possible conflict of interest.'' The commenters were concerned

that without the qualifying phrase, the disclosure obligation is less

clear and more open-ended.

We disagree. As explained in the preamble to the proposed rule, we

believe the test of whether a relevant fact bears ``on whether the

offeror has a possible conflict of interest'' adds a complicating and

subjective test on top of a relatively simple identification of whether

the offeror has an interest(s) that relates to the work to be performed

under the statement of work. We do not agree that this change results

in an open-ended obligation to provide data. In order to identify

relevant facts that bear upon a possible conflict of interest, the

offeror must first identify relevant facts and then determine whether

any of those facts, in its mind, bear upon a possible conflict of

interest. This change merely does away with the second step. Relevant

facts intuitively are those that relate to the statement of work, e.g.,

investments involving the technology, licensing agreements involving

the technology, client relationships involving work like the work to be

performed.

One commenter questioned the requirement for the offeror to provide

a copy of the Securities and Exchange Commission's Form 10k, if it is

required to file one. DOE's internal OCI procedures have called for

contracting officers to acquire a copy of the Form 10k for over ten

years. This comes under the statutory language ``information otherwise

available.'' It, along with the annual report, or comparable

information from privately held corporations, is used to confirm the

disclosure or representation of the offeror.

This change assures that the Form 10k will be forthcoming with the

proposal, thereby saving time in acquiring the report. It is a report

that is publicly available, for its intended purpose is to allow those

who choose to avail themselves of it to make informed investment

decisions. This is not a report that must be created in any way for

submission to DOE. That commenter suggested that the contracting

officer acquire the Form 10k from the Securities and Exchange

Commission. We disagree. The offeror is in the best position to know

whether it has the obligation to file it with the SEC and to provide

it, if they have filed it with the SEC.

We are, however, simplifying the requirement such that the offeror

need supply only the form and a list of attachments, rather than filing

the attachments themselves.

One commenter noted that the exclusion of the clause at 952.209-71

will result in the use in all cases of the clause at 952.209-72, with

the latter subjecting ``all work to the bar.'' We agree, but each of

the bars is conditional. If the qualifying condition does not occur

then no bar is effective, even if the OCI clause is used.

Two commenters questioned the substitution of ``meaningfully'' for

``substantially'' in paragraph (g) of the clause at 952.209-72 with

regard to the submission of a new or updated disclosure or

representation if the period of performance is extended. We have used

the current term and have deleted ``meaningfully'' from the rule. We

have, however, added the phrase ``an option is to be exercised or the

period of performance is otherwise significantly increased.'' This

makes the provision consistent with the regulation at 909.570-5(b).

9. OCI Clause

Five commenters disagreed with the proposed changes to paragraph

(c)(1) of the clause at 952.209-72. In that paragraph the post award

obligation to disclose was clarified and made consistent with the

change that calls for the offeror to disclose relevant facts. The

previous language in paragraph (c)(1) required the contractor to

disclose conflicts of interest that it discovers after award. Under the

current language, in order to discover a conflict of interest, the

offeror will have had to identify the interest initially and then judge

whether that change presents a conflict of interest.

We believe that the proposed change simplifies this obligation.

Only the change in facts, i.e., additional interests, changes in

disclosed interests, will need to be identified by the contractor. The

contracting officer will then be in a situation to evaluate the

implications of the change in relevant facts on continued performance

under the contract. To the extent that the contractor fulfills its

obligations under this paragraph, the conditions for required

disclosure under paragraph (g) will be dramatically reduced.

The essence of the concerns expressed here parallel those discussed

earlier with regard to the change to the disclosure requirement, i.e.,

that the requirement has been made vaguer. We disagree. The obligation

to describe relevant interests alone is simpler and requires less

judgment by the offeror or contractor than the additional judgment as

to which, if any, of those relevant facts, bear upon a possible

organizational conflict of interest.

Three commenters then did not agree with the related changes

proposed to be made to paragraph (c)(2), which states that a failure to

report relevant interests known at the time of disclosure or

representation may result in the termination of the contract for

default. The current paragraph (c)(2) states that the termination for

default may result where an organizational conflict of interest was

known but not reported. We believe that the changed language presents

the contractor with less risk than the current language. The

determination of organizational conflict of interest is inherently more

subjective than the mere identification of relevant interests.

The final comment noted that the new title for the clause at

970.5204-36 contained a typographical error with the inclusion of

``of'' after ``University.'' We have made this correction.

II. Procedural Requirements

A. Review Under Executive Order 12866

The Department of Energy has determined that today's regulatory

action is not a ``significant regulatory action'' under Executive Order

12866, ``Regulatory Planning and Review,'' (58 FR 51735, October 4,

1993). Accordingly, this action was not subject to review under that

executive order by the Office of Information and Regulatory Affairs of

the Office of Management and Budget (OMB).

B. Review Under Executive Order 12778

Section 2 of Executive Order 12778 instructs each agency to adhere

to certain requirements in promulgating new regulations and reviewing

existing regulations. These requirements, set forth in sections 2(a)

and (b)(2), include eliminating drafting errors and needless ambiguity,

drafting the regulations to minimize litigation, providing clear and

certain legal standards (whether they be engineering or performance

standards), and promoting simplification and burden reduction. Agencies

are also instructed to make every reasonable effort to ensure that the

regulation: specifies clearly any preemptive effect, effect on existing

Federal law or regulation, and retroactive effect; describes any

administrative proceedings to be available prior to judicial review and

any provisions for the exhaustion of such administrative proceedings;

and defines key terms. This final rule will have no preemptive effect;

will not have any effect on existing Federal laws; and will only

clarify the existing regulations on this subject. The revised clauses

will apply only to contracts which are awarded after the effective date

of the final rule, and, thus, will have no retroactive effect.

Therefore, DOE certifies that this final rule meets the requirements of

sections 2(a) and (b) of Executive Order 12778.

C. Review Under the Regulatory Flexibility Act

This final rule was reviewed under the Regulatory Flexibility Act

of 1980, Pub. L. 96-354, which requires preparation of a regulatory

flexibility analysis for any rule which is likely to have significant

economic impact on a substantial number of small entities. DOE

certifies that this rule will not have a significant economic impact on

a substantial number of small entities and, therefore, no regulatory

flexibility analysis has been prepared.

D. Review Under the Paperwork Reduction Act

No new information collection or recordkeeping requirements are

imposed by this rulemaking. Accordingly, no OMB clearance is required

by the Paperwork Reduction Act of 1980 (44 U.S.C. 3501, et seq.).

E. Review Under Executive Order 12612

Executive Order 12612, 52 FR 41685 (October 30, 1987), requires

that regulations, rules, legislation, and any other policy actions be

reviewed for any substantial direct effects on States, on the

relationship between the national government and the States, and in the

distribution of power and responsibilities among various levels of

government. If there are sufficient substantial direct effects, then

the Executive Order requires preparation of a federalism assessment to

be used in all decisions involved in promulgating and implementing a

policy action.

Today's final rule revises certain policy and procedural

requirements. However, DOE has determined that none of the revisions

will have a substantial direct effect on the institutional interests or

traditional functions of States.

F. Review Under the National Environmental Policy Act (NEPA)

DOE has concluded that this rule falls into a class of actions

(categorical exclusion A5) that are categorically excluded from NEPA

review because they would not individually or cumulatively have

significant impact on the human environment, as determined by the

Department's regulations (10 CFR Part 1021, Subpart D) implementing the

National Environmental Policy Act of 1969 (42 U.S.C. 4321, 4331-4335,

4341-4347 (1976)). Therefore, this rule does not require an

environmental impact statement or an environmental assessment pursuant

to NEPA.

List of Subjects in 48 CFR Parts 909, 952, 970

Government procurement.

For the reasons set out in the preamble, Chapter 9 of Title 48 of

the Code of Federal Regulations is amended as set forth below.

Issued in Washington, D.C., on December 12, 1994.

Richard H. Hopf,

Deputy Assistant Secretary for Procurement and Assistance Management.

PART 909--CONTRACTOR QUALIFICATIONS

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

follows:

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

Subpart 909.5--Organizational Conflicts of Interest

2. Section 909.500 is amended by adding the following as the second

sentence:

Sec. 909.500 Scope of subpart.

* * * However, the coverage at FAR subpart 9.5 regarding marketing

consultants does apply to DOE acquisitions.

3. Section 909.570-3 is amended by revising the definitions for

``Evaluation services or activities,'' ``Organizational conflicts of

interest,'' and ``Technical consulting and management support

services'' to read as follows:

Sec. 909.570-3 Definitions.

* * * * *

Evaluation services or activities means any work or effort

involving the independent study of technology, process, product, or

policy.

* * * * *

Organizational conflicts of interest means that a relationship or

situation exists whereby an offeror or a contractor (including chief

executives and directors, to the extent that they will or do become

involved in the performance of the contract, and proposed consultants

or subcontractors where they may be performing services similar to the

services provided by the prime) has past, present, or currently planned

interests that relate to the work to be performed under a Department

contract and such interest or interests may reasonably (1) diminish an

offeror's or contractor's capacity to give impartial, technically

sound, objective assistance and advice, or (2) result in an offeror's

or contractor's being given an unfair competitive advantage. It does

not include the normal flow of benefits from the performance of the

contract.

* * * * *

Technical consulting and management support services means any work

or effort to provide internal assistance to any program element or

other organizational component of the Department in the formulation or

administration of its programs, projects, or policies. Such services

typically include assistance in the preparation of program plans;

evaluation, monitoring, or review of other contractors' activities or

proposals submitted by prospective contractors; preparation of

preliminary designs, specifications, or statements of work; and may

involve the contractor's being given access to data confidential to the

Department or proprietary to others.

4. Section 909.570-4 is amended by revising the last sentence of

paragraph (a) and by revising paragraphs (b)(4) and (b)(7) to read as

follows:

909.570-4 Criteria for recognizing organizational conflicts of

interest.

(a) * * * While it is difficult to identify, and to prescribe in

advance, a specific method for avoiding all the various situations or

relationships which might involve potential organizational conflicts of

interest, Department personnel must pay particular attention to

proposed contractual requirements which call for the rendering of

advice, or consultation or evaluation services, or similar activities

that are expected to play a part in the Department's decisions on

future acquisitions; research, development, and demonstration programs;

production activities; the formulation of departmental policy; and

regulatory activities.

(b) * * *

(4) Contract performance involving access to information

proprietary to third parties which cannot lawfully be used for purposes

other than those authorized by those third parties.

* * * * *

(7) Contract performance involving the preparation and furnishing

of advice to the Department on a regulatory matter where the contractor

would be regulated or is providing, or is currently planning to

provide, assistance on the same or similar matter to any organization

regulated by the Department.

* * * * *

5. Section 909.570-5 is revised to read as follows:

909.570-5 Disclosure of organizational conflicts of interest.

(a) When submitting solicited and unsolicited proposals for (1)

evaluation services or activities; (2) technical consulting and

management support services; (3) research and development conducted

pursuant to the authority of the Federal Energy Administration Act of

1974 (Pub. L. 93-275), as amended; and (4) other contractual situations

where special organizational conflicts of interest provisions are noted

in the solicitation and included in the resulting contract, offerors

shall be required to identify and disclose information about contracts,

investments, and all other interests relating to the work to be

performed under the proposed contract or complete the representation in

accordance with 909.570-7.

(b) This requirement shall also apply to modifications of contracts

of the types noted in paragraph (a) of this section that exercise an

option or otherwise meaningfully extend the period of performance or

add work, of the type noted in paragraph (a), to the contract. Where,

however, a disclosure statement of the type required by the

Organizational Conflicts of Interest Disclosure or Representation

provision has previously been submitted with regard to the contract

being modified, only an updating of such statement need be submitted.

Information submitted by offerors pursuant to the disclosure

requirement shall be treated by the Department, to the extent permitted

by law, as confidential information to be used solely for OCI purposes.

(c) When the Government finds that an organizational conflict of

interest exists or may exist with respect to an offeror or contractor,

no award of a contract or contract modification covered by 909.570-7

shall be made until the organizational conflict of interest has been

avoided, except as provided in 909.570-9. An organizational conflict of

interest has been avoided when corrective actions taken to remedy it

result in there being little or no likelihood of an organizational

conflict of interest.

6. Section 909.570-6 is revised to read as follows:

909.570-6 Notices and representations: Action required of contracting

officers.

The disclosure or representation required by 909.570-7 is designed

to alert the contracting officer to situations or relationships which

may constitute either present or anticipated organizational conflicts

of interest with respect to a particular offeror or contractor. Another

type of organizational conflict of interest may exist in that work to

be performed will lead to a subsequent requirement with the result that

the successful proposer on the current solicitation will be barred by

operation of paragraph (b)(1)(i) of the clause at 952.209-72 from

proposing on the later solicitation. Accordingly, whenever such

potential conflicts are foreseeable by the Government, a special notice

also shall be included in the solicitation informing the offerors (a)

that such a potential conflict is foreseen and (b) of any special

contract clause or provision designed to avoid or mitigate such

conflict that will be included in any resultant contract as required by

909.570-8(a). Such notice shall specify the proposed extent and

duration of any special restrictions to be imposed with respect to

participation in subsequent acquisitions. A fixed term of reasonable

duration is measured by the time required to eliminate what would

otherwise constitute an unfair competitive advantage. In the event a

contractor, having performed on one contract, later seeks work that

stems or may be deemed to stem directly (i.e., arising out of or

relating to) from prior performance, such contractor shall not be

precluded from proposing on follow-on work unless the prior contract

contained an appropriate follow-on restriction. Nevertheless, this

absence of restriction shall not preclude the contracting officer from

finding that, in light of performance of the prior contract, an

organizational conflict of interest would or may exist.

7. Section 909.570-7 is revised to read as follows:

909.570-7 Disclosure or representation.

The contracting officer shall include the provision at 952.209-70,

Organizational Conflicts of Interest-Disclosure or Representation, in

all solicitations, including those for scope modifications, and

offerors shall accordingly disclose or represent in their proposals,

including unsolicited proposals for (a) evaluation services or

activities; (b) technical consulting and management support services;

(c) research and development conducted pursuant to the authority of the

Federal Energy Administration Act of 1974 (Pub. L. 93-275), as amended;

and (d) other contractual situations where special organizational

conflicts of interest issues are identified. Section 909.570-15 of this

part contains a suggested outline for the disclosure submission.

8. Section 909.570-8 is revised to read as follows:

909.570-8 Contract clauses.

(a) Special contract clause. The contracting officer shall include

the clause at 952.209-72, Organizational Conflicts of Interest, in all

contracts for evaluation services or activities or technical consulting

and management support services.

(b) Specially drafted contract clauses and provisions. If it is

determined from the nature of the proposed contract that a specifically

identified, potential organizational conflict of interest may exist,

the contracting officer may determine that such conflict can be avoided

through the use of an appropriate specially drafted additional contract

clause. Examples of the types of clauses which may be employed include,

but are not limited to, the following:

(1) Hardware exclusion clauses which prohibit the contractor's

acceptance of production contracts following a related design contract

previously performed by the contractor;

(2) Software exclusion clauses;

(3) Clauses which require the contractor (and/or certain of its key

personnel) to avoid conduct deemed to cause an organizational conflict

of interest;

(4) Clauses which provide for the protection of the confidentiality

of data and guard against its unauthorized use; and

(5) Clauses that prohibit other segments or divisions of the

contractor from becoming involved in the performance of the contract

work or being in a position to influence such work. If deemed

appropriate, the prospective contractor may be given the opportunity to

negotiate the terms and conditions of the clause and its application

including the extent and duration of any restrictions.

9. Section 909.570-9 is amended by revising the introductory text

of paragraph (a) to read as follows and adding the phrase ``or other

means'' after ``by an appropriate contract clause'' in the first

sentence of paragraph (a)(3):

909.570-9 Evaluations, findings, and contract award.

(a) The contracting officer shall evaluate all relevant facts

submitted by an offeror pursuant to the requirement of 909.570-6 and

such other relevant information as may be available concerning possible

organizational conflicts of interest. After evaluation of all such

information in accordance with the criteria of 909.570-4, and prior to

any award, the contracting officer shall make a finding as to whether a

possible organizational conflict of interest may exist with respect to

a particular offeror. If the contracting officer determines, in light

of all relevant facts, that, with respect to a particular offeror,

there is little or no likelihood of an organizational conflict of

interest, then no organizational conflict of interest exists for

purposes of making the contract award. Conversely, if the contracting

officer determines, however, that there is more than little or no

likelihood of an organizational conflict of interest, then an

organizational conflict of interest exists with regard to that

particular offeror. When formal Source Evaluation Board procedures are

applicable, the finding shall be made by the Source Selection Official.

If the finding indicates that such conflicts exist, then the

contracting officer shall:

* * * * *

10. Section 909.570-10 is revised to read as follows:

909.570-10 Action in lieu of termination.

If, after award, changes in relevant facts with respect to the

awardee, whether based upon information supplied by the awardee or

gathered from other sources, cause the contracting officer to conclude

that a organizational conflict of interest exists and that it would not

be in the best interest of the Government to terminate the contract as

provided in the clause at 952.209-72(e), the contracting officer shall

take every reasonable action to avoid or mitigate the effects of the

conflict.

11. Section 909.570-12 is revised to read as follows:

909.570-12 Subcontractors and consultants.

The contracting officer shall require offerors and contractors to

obtain for the Department a disclosure or representation in accordance

with 909.570-7 from subcontractors and consultants whose subcontract

calls for the performance of services similar to those provided by the

prime contractor, i.e., evaluation services or activities or technical

consulting and management support services. Such disclosure or

representation may be submitted by the subcontractors and consultants

directly to the contracting officer, and their disclosure or

representation shall be treated by the Department, to the extent

permitted by law, as confidential information to be used solely for OCI

purposes. The contract clause at 952.209-72, entitled Organizational

Conflicts of Interest, requires that the contractor (and each

succeeding lower tier subcontractor) include that clause in

subcontracts or consultant agreements involving work covered by this

subpart.

12. Section 909.570-14 is amended by revising paragraphs (b)(4),

(b)(5), (b)(7), (b)(8), and (b)(12); by adding the word ``not'' after

``these companies may'' in the last sentence of paragraph (b)(6); by

replacing ``suggests'' with ``produces'' and by replacing ``in

requests'' with ``in a request'' in the second sentence of paragraph

(b)(9); and by adding a comma after ``OCI'' and removing the word

``plants'' in the fourth sentence of paragraph (b)(11). These

amendments are set forth to read as follows:

909.570-14 Examples.

* * * * *

(b) * * *

(4) Company A prepares updated Government specifications for a

standard refrigerator to be procured competitively. Guidance. Normally

this would constitute an OCI. The contract should have contained the

OCI clause barring Company A from competing for supply of a

refrigerator based upon the specification it prepared.

(5) Company A designs or develops new electronics equipment under a

DOE contract and delivers descriptive specifications as part of the

final report. DOE then issues a solicitation for procurement of that

electronics equipment including a statement of work that reflects the

descriptive specifications. Guidance. Normally this would not

constitute an OCI. The contract should have contained the OCI clause

barring the company from competing to supply the electronics equipment.

* * * * *

(7) Prior to acquisition of Automatic Data Processing (ADP)

Equipment, Company A is awarded a contract to develop software to

automate a DOE function. Guidance. This situation will turn on whether

the software that was developed might have limited the potential source

for the equipment. If the answer were yes, the contract should have

contained the OCI clause barring competition for the equipment.

However, if the software were not so limited, this would not constitute

an OCI, and Company A would not be barred from at least the initial ADP

hardware acquisition necessary to accommodate the software developed

under its development contract.

(8) Company A receives a contract to define the detailed

performance characteristics a Government agency will use in the

purchase of rocket fuels. The company has not developed the particular

fuels. At the time the contract is awarded, it is clear to both parties

that the performance characteristics arrived at will be used by the

Government agency to choose competitively a contractor to develop the

fuels. Guidance. Normally this would constitute an OCI, and Company A

shall not be permitted to bid on the acquisition to develop the fuels.

* * * * *

(12) Firm A, because of its unique technical expertise, has been

requested to assist the Department in the evaluation of proposals which

will result from a competitive solicitation. Firm A also plans to

submit a proposal in response to this same solicitation. Guidance.

Normally this would constitute a conflict, and Firm A should be

precluded from participating in the solicitation. In a particular case,

it may be desirable (e.g., when the competitive field is limited) to

allow a separate division or affiliate of Firm A to submit a proposal.

In such a case, of course, Firm A must obtain a waiver from the

Department of Energy contracting officer and would not be permitted to

participate in the evaluation of this proposal. Such evaluation would

be performed by DOE or another DOE contractor.

909.570-15 [Amended]

13. Section 909.570-15 is amended by adding the phrase ``interests

and'' after ``currently planned'' the second time that phrase appears

in paragraph (a).

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

14. The authority citation for part 952 continues to read as

follows:

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

15. Section 952.209-70 is revised to read as follows:

952.209-70 Organizational conflicts of interest--disclosure or

representation.

Contracting officers shall insert the following provision in

solicitations in accordance with 909.570-7.

Organizational Conflicts of Interest--Disclosure or Representation

(Dec. 1994)

(a) It is Department of Energy policy to avoid situations which

place an offeror in a position where its judgment may be biased due

to any past, present, or currently planned interest, financial or

otherwise, that the offeror may have which relates to the work to be

performed pursuant to this solicitation, or where the offeror's

performance of such work may provide it with an unfair competitive

advantage. (As used herein, ``offeror'' means the proposer or any of

its affiliates or proposed consultants or subcontractors of any

tier.) Therefore:

(1) As required by section 401 of Pub. L. 95-39 (42 U.S.C.

5918(a)) and section 10 of Pub. L. 95-70 (15 U.S.C. 789(a)), the

offeror shall provide a statement which describes, in a concise

manner, all relevant facts concerning any past, present, or

currently planned interest (financial, contractual, organizational,

or otherwise) relating to the work described in the statement of

work of this solicitation. The offeror may also provide relevant

facts that show how its organizational structure and/or management

systems limit its knowledge of affiliates or other divisions or

sections of the proposing entity and how that structure or system

would avoid or mitigate an organizational conflict of interest.

(2) The proposing entity shall assure that any consultants and

subcontractors, identified in its proposal, which will perform

services similar to those to be performed by the proposer, i.e.,

evaluation services or activities or technical consulting and

management support services submit the same information as required

by paragraph (a)(1) of this clause, either as part of the proposing

entity's proposal, or directly to DOE prior to the time and date set

for receipt of proposals, with identification of the solicitation

and the offeror's proposal to which it relates.

(3) The proposing entity shall also assure that each of its

chief officers or directors, if any, who will be directly involved

in the actual performance of the contract, submit such information.

(4) The proposing entity shall promptly provide to the DOE

contracting officer information concerning any changes, including

additions, in its relevant facts reported under paragraph (a)(1) of

this clause, that occur between the submission of its proposal and

the award of the contract or the time that the proposer is notified

that it is no longer under consideration for award.

(b) In the absence of any relevant interests referred to above,

the offeror or others specified above, shall submit a statement

certifying that to its best knowledge and belief no such facts exist

relevant to the work to be performed.

(c) If the proposing entity has submitted a Securities and

Exchange Commission Form 10k to that agency, it shall include a copy

of the form and a list of all attachments as part of its business

management proposal (or cost proposal if no business management

proposal is required).

(d) The contracting officer will review the statement submitted

and may require the submission of additional relevant information.

All such information, and any other relevant information known to

the Department, will be used to determine whether an award to the

offeror may create an organizational conflict of interest with

respect to the offeror's (1) being able to render impartial,

technically sound, and objective assistance or advice, or (2) being

given an unfair competitive advantage. If such a conflict is found

to exist, the Department, at its sole discretion, may (1) impose

appropriate conditions which avoid such conflict, (2) disqualify the

offeror, or (3) determine that it is otherwise in the best interest

of the United States to contract with the offeror in face of an

organizational conflict after including appropriate conditions

mitigating such conflict.

(e) The refusal to provide the disclosure or representation and

any additional information as required shall result in

disqualification of the offeror for award. The nondisclosure or

misrepresentation of any relevant interest may also result in the

disqualification of the offeror for award, or if such nondisclosure

or misrepresentation is discovered after award, the resulting

contract may be terminated for default. The offeror may also be

disqualified from subsequent related Department contracts, and be

subject to such other remedial action as may be permitted or

provided by law or in the resulting contract. The attention of the

offeror in complying with this provision is directed to 18 U.S.C.

1001.

(f) Depending on the nature of the contract activities, the

offeror may, because of possible organizational conflicts of

interest, propose to exclude specific kinds of work from the

statement of work, unless the solicitation specifically prohibits

such exclusion. Any such proposed exclusion by an offeror shall be

considered by the Department in the evaluation of proposals, and if

the Department considers the proposed excluded work to be an

essential or integral part of the required work, the proposal may be

rejected as unacceptable.

(g) No award shall be made until the disclosure or

representation has been evaluated by the Government. Failure to

provide the disclosure or representation will be deemed to be a

minor informality, and the offeror shall be required to promptly

correct the omission.

952.209-71 [Removed and reserved]

16. Section 952.209-71 is removed and reserved.

17. Section 952.209-72 is amended by revising the section heading

to read as set forth below; by revising the prescription for use of the

clause as set forth below; by revising the title of the clause as set

forth below; by amending the subparagraph designators of paragraph

(b)(2)(i) of the clause to read ``(A),'' ``(B),'' ``(C),'' and ``(D),''

respectively; by revising paragraphs (b)(2)(iii), (c), and (d)(1) of

the clause to read as follows; and paragraph (g) is amended by

replacing the word ``significantly'' with ``meaningfully'' and by

adding the phrase ``in accordance with the instructions of the

contracting officer'' at the end of the paragraph:

952.209-72 Organizational conflicts of interest.

The contracting officer shall include the following clause in all

contracts for evaluation services or activities, technical consulting

and management support services, research and development under the

authority of the Federal Energy Administration Act, and other

appropriate situations in accordance with 909.570-8.

Organizational Conflicts of Interest (Dec. 1994)

* * * * *

(b) * * *

(2) * * *

(iii) The contractor may use technical data it first produces

under this contract for its private purposes consistent with

subparagraphs (b)(2)(i) (A) and (D) of this clause and the patent,

rights in data, and security provisions of this contract.

(c) Disclosure after award. (1) The contractor agrees that, if

changes, including additions, to the relevant facts disclosed by it

prior to award of this contract, occur during the performance of

this contract, it shall make an immediate and full disclosure of

such changes in writing to the contracting officer. Such disclosure

may include a description of any action which the contractor has

taken or proposes to take to avoid or mitigate any resulting

conflict of interest. The Department may, however, terminate the

contract for convenience if it deems such termination to be in the

best interest of the Government.

(2) In the event that the contractor was aware of facts relevant

to the performance of this contract and did not disclose such facts

to the contracting officer, DOE may terminate this contract for

default.

(d) Subcontracts. (1) The contractor shall include this clause,

including this paragraph, in contracts of any tier which involve

performance of evaluation services or activities, or technical

consulting and management support services as those terms are

defined at 48 CFR (DEAR) 909.570-3. The terms `contract,'

`contractor,' and `contracting officer' shall be appropriately

modified to preserve the Government's rights.

* * * * *

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

18. The authority citation for part 970 continues to read as

follows:

Authority: Sec. 161 of the Atomic Energy Act of 1954 (42 U.S.C.

2201), sec. 644 of the Department of Energy Organization Act, Pub.

L. 95-91 (42 U.S.C. 7254), sec. 201 of the Federal Civilian Employee

and Contractor Travel Expenses Act of 1985 (41 U.S.C. 420) and sec.

1534 of the Department of Defense Authorization Act, 1986, Pub. L.

99-145 (42 U.S.C. 7256a), as amended.

970.5204-36 [Amended]

19. Section 970.5204-36, Organizational conflicts of interest, is

amended by revising the section heading to read ``Preventing conflicts

of interest in university research'' and by revising the title of the

clause contained therein to read ``Preventing Conflicts of Interest in

University Research (DEC 1994).''

[FR Doc. 94-31496 Filed 12-22-94; 8:45 am]

BILLING CODE 6450-01-P