Acquisition Regulation; Department of Energy Management and Operating Contracts

DEPARTMENT OF ENERGY

48 CFR Parts 933 and 970

RIN 1991-AB20

Acquisition Regulation; Department of Energy Management and

Operating Contracts

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 modify certain requirements for

management and operating contractor purchasing systems. These

requirements are revised to identify certain purchasing system

objectives and standards; eliminate the application of the ``Federal

norm''; and place greater reliance on commercial practices.

EFFECTIVE DATE: June 2, 1995.

FOR FURTHER INFORMATION CONTACT: James J. Cavanagh, Office of

Contractor Management and Administration (HR-55), U.S. Department of

Energy, 1000 Independence Avenue, SW., Washington, D.C. 20585;

telephone 202-586-8257.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background.

II. Disposition of Comments.

III. Procedural Requirements.

A. Review Under Executive Order 12866.

B. Review Under the National Environmental Policy Act.

C. Review Under the Paperwork Reduction Act.

D. Review Under the Regulatory Flexibility Act.

E. Review Under Executive Order 12612. [[Page 28738]]

F. Review Under Executive Order 12778.

I. Background

A proposed rule was published in the March 2, 1995, Federal

Register at 60 FR 11646. It proposed to amend the Department of Energy

Acquisition Regulation (DEAR) to revise the requirements for management

and operating (M&O) contractor purchasing systems by eliminating the

concept of the ``Federal norm.'' In lieu of the detailed tenets

contained in DEAR subpart 970.71, which have resulted in the

inefficient layering of non-commercial systems and practices, the

Department has identified certain purchasing system objectives and

standards which it believes are common to superior purchasing

activities, whether they be commercial or public. In this regard, the

proposed rule proposed to amend, revise or remove Secs. 933.170,

970.5204-22, 970.7101, 970.7102, and 970.7103 of the DEAR.

The March 2 publication also proposed the removal of DEAR 970.7106,

which prescribed procedures for the handling of mistake in bid

situations in purchasing by M&O contractors. Further, the Department

proposed the removal of DEAR 970.7107 which, until today, provided

guidelines for the consideration of subcontractor level protests. The

removal of this section is consistent with the General Accounting

Office proposed rule published in the Federal Register on January 31,

1995 at 60 FR 5871.

Subsequent to the March 2 notice of proposed rulemaking, the

Department published an amendment to the proposed rule in the April 27,

1995, Federal Register at 60 FR 20663. The amendment dealt with

administrative matters, mostly technical, that DOE reserved for further

analysis during the comment period for the March 2 notice of proposed

rulemaking. The comment period on the April 27 amendment to the

proposed rulemaking ended on May 30, 1995. The Department wishes to

effect the changes set forth in the March 2 proposed rulemaking and the

April 27 amendment thereto as quickly as possible to enable the DOE

contractor community to implement the changes to Subpart 970.71 of the

DEAR without delay. Accordingly, the Department is finalizing the

changes in the March 2 proposed rulemaking and the April 27 amendment

in two stages. With two exceptions, today's rule finalizes the changes

proposed in March 2 notice of proposed rulemaking. The two exceptions

are the changes proposed to be made to the Contractor Purchasing System

clause at Sec. 970.5204-22 and Sec. 970.7104. These proposed changes

were affected by the April 27 amendment and, therefore, are being held

in abeyance pending consideration of comments on the April 27

amendment. It is the intention of the Department to incorporate the

revised and new clauses provided for in the April 27 amendment into

existing M&O contracts as soon as practicable after the effective date

of the second final rule.

II. Disposition of Comments

Comments on the March 2, 1995 notice of proposed rulemaking were

received from a total of eleven commenters, nine of which are

organizations and two of which are individuals. All of the

organizations are contractors which have been awarded DOE M&O

contracts. Nine of the commenters expressed support for the proposed

rule and its intended effects upon the subcontracting processes of the

Department of Energy's M&O contractors. Six commenters offered comments

recommending revisions. Some of the recommendations were considered not

significant, non-substantive, or editorial and are not discussed in the

disposition of comments. Other recommendations were determined to be

outside the scope of this rulemaking and, therefore, were not

considered in formulating this final rule.

Comments related to DEAR Clause 970.5204-22 and DEAR Sec. 970.7104

are reserved for resolution until the April 27, 1995 amendment to the

March 2, 1995 notice of proposed rulemaking is finalized and are,

therefore, not addressed in this final rule.

1. Policies and Procedures

One commenter suggests that DOE should clarify whether the proposed

rule would apply to performance-based management contractors, DOE's so-

called environmental remediation management contractors, and fixed

price and cost contracts. This rule amends DEAR Part 970 and

accordingly affects only M&O contracts which are the subject matter of

the part. Performance-based contracts are a new form of M&O contract

and are therefore affected. The rule also would affect M&O subcontracts

which may be cost-type or fixed-price. This final rule does not apply

to environmental restoration management contracts, or any other non-M&O

contract.

The same commenter also recommends that we retitle Part 970 as

``Prime Contractors.'' DEAR Part 970 is appropriately titled ``DOE

Management and Operating Contracts'' as its scope is limited to this

subject; therefore, no change has been made.

In addition, the same commenter requests that we define the

``Federal norm.'' A definition will not be provided since the purpose

of this rulemaking is, among other things, to delete the concept from

Subpart 970.71.

Another commenter recommends that DOE remove Subpart 970.71

entirely and use the appropriate subcontracts clause from 52.244 of the

Federal Acquisition Regulation (which would be the clause at 52.244-2).

This commenter believes that this clause provides a sufficient

framework for effective oversight of M&O subcontracting activities by

DOE. The recommended change has not been adopted. The experience of

this Department and its predecessors is that many unusual situations

arise in subcontracting activities by DOE's M&O contractors that

require treatment specific to the provisions of M&O contracts and DOE

programs. Further, the amended DEAR Subpart 970.71 focuses more on

outcome than processes and more clearly defines what the Department

expects of its contractors by establishing performance objectives.

One commenter states that the phrase ``and further * * * for review

and acceptance'' be removed from Sec. 970.7102(b)(1), doing away with

the requirement for submission of the M&O contractor's written

purchasing system and methods to DOE upon award or extension of the

contract. The suggested change has not been adopted because the

opportunity to review the system at that point in time is critical to

effective oversight by DOE.

Three commenters suggest additional language or changes to the

revision to Sec. 970.7102(b)(3) incorporating FAR 44.2 as the standard

for review by DOE of proposed subcontract transactions. One commenter

points out that the FAR provision requires review by the Government of

substantially all proposed subcontracts even where the contractor has

an approved system. The second suggests adding the phrase ``for

conformance with the procedural requirements of the contractor's

written systems and methods'' after the phrase ``pursuant to FAR

44.2.'' The third would substitute ``pursuant to the contractor's

approved written description of its purchasing system and methods'' for

the phrase incorporating FAR 44.2. The change to Sec. 970.7102(b)(3)

was not intended to place more stringent requirements on contractors,

but rather to establish review procedures which are consistent with FAR

44.2. The Department agrees that other review procedures may be

approved consistent with the contractor's approved purchasing

[[Page 28739]] system procedures, and accordingly has revised

Sec. 970.7102(b)(3) to clarify this intent in the final rule.

Another commenter stated that the proposed rule was unclear

regarding what contracting purchasing system objectives, expectations

and standards will replace the ``Federal norm'' and whether they will

be negotiated items or mandated by the DOE. Section 970.7103(a) clearly

states the objectives of M&O purchasing systems. Section 970.7103 (b)

and (c) set forth the requirements and expectations of the Department

as to acceptable purchasing systems. Those provisions state the

purchasing system requirements in terms of principles and results which

the contractor must attain, and are necessarily negotiable as to

specific approaches and methods which may then be tailored to the

specific circumstances of the contractor mission, operations and site.

Therefore, no change has been made to proposed Sec. 970.7103.

Two commenters recommended the deletion of the word ``directly''

from the first sentence of proposed Sec. 970.7103(c). The

recommendation has not been adopted. Certainly, the FAR does not

directly apply to purchasing activities of an M&O contractor or any

other type of Federal contractor. However, certain conditions found in

the FAR do apply to subcontracting transactions through flowdown

requirements, e.g., Truth in Negotiations submissions, Cost Accounting

Standards, various labor provisions, or otherwise.

One commenter questioned the implicit assumption in the proposed

Sec. 970.7103(d) that there is a ``best'' in commercial purchasing

practices and procedures. The comment further noted that it is unclear

who is to decide what is ``best,'' the contractor or the DOE. The

purpose of the change in the Department's policy regarding contractor

purchasing systems and methods is to allow M&O contractors to make

maximum use of efficient and effective commercial business practices in

their subcontracting. Although there is no established list of best

commercial practices that generally fits all situations, there is a

growing body of research into and knowledge of effective purchasing

techniques. As stated in the proposed Sec. 970.7103(a), contractors are

expected to use their experience, expertise, and initiative consistent

with Subpart 970.71. This approach provides these contractors with

great discretion in designing their purchasing systems and methods. It

is the intention of the Department, however, to work collegially with

its contractor community to establish mechanisms by which commercial

purchasing trends and best practices may be periodically identified and

assessed for inclusion in contractor purchasing systems. It is further

the intention of the Department to perform its fiduciary responsibility

by evaluating contractors' practices to ensure the appropriate

expenditure of funds.

Another commenter recommended that all of Sec. 970.7103(d) after

the first sentence be deleted. The suggested deletion has not been

accepted because such a statement of principles is necessary to assure

agreement between the Department and its M&O contractors as to the

foundation of the purchasing system that is to be developed and

described.

Two commenters recommended the alteration of Sec. 970.7103(d)(1) to

substitute ``best value'' for ``fair and reasonable prices.'' One

commenter stated that this change would be consistent with the proposed

changes in Sec. 970.7103 (c) and (d). The Department does not believe

that these terms are inconsistent. The discretion provided by the

provisions of this revision to DEAR 970.71 allow for purchasing using a

best value approach. The use of ``fair and reasonable'' in the context

of 970.7103(d)(1) makes clear the standard against which the results of

the purchase will be assessed.

2. Protest Procedures

Two commenters question what process for protests against award of

subcontracts by DOE M&O contractors will replace that which is being

deleted by this final rule at Sec. 970.7107. One commenter stated that

DOE should identify any circumstances where it will request GAO

jurisdiction. Consistent with the preamble of the proposed rule on

March 2, 1995, this final rule deletes the guidelines in DEAR 970.7107

for consideration of subcontractor protests. This result is consistent

with the GAO proposed rule of January 31, 1995 (60 FR 5871). The

Department has advised the GAO of our decision. At the present time, we

do not foresee any particular circumstances where DOE will request GAO

subcontractor protest resolution assistance.

The second commenter questions ``whether DOE will continue to

accept and rule on [subcontractor] protests.'' The Department will not

continue to accept or rule on subcontractor protests on a subcontract

awarded after the effective date of this rule. As noted in the preamble

to the proposed rule and this final rule, DEAR Sec. 933.170 and

Sec. 970.7107 have been deleted in recognition of the elimination of

the ``Federal norm.'' The Department believes that disagreements over

the award of individual subcontracts should be resolved in the same

manner used by non-Federal entities and their suppliers. The Department

has endorsed the contractors' use of alternative disputes resolution

where appropriate.

3. DOE Oversight

The remaining comments received deal with the question of controls

on M&O contractor purchasing systems and the process by which the

controls will be enforced. This rule does not obviate the need for

effective contract administration. In fact, initially the Department's

participation in the development of an M&O purchasing system based upon

``best commercial practices'' may actually increase. We expect that the

nature of DOE's oversight activity will change coincident with the

identification, adoption, and systemic reflections of effective

commercial practices consistent with the overriding expectations for

contractor purchasing systems. The Department intends to focus its

oversight on results, as opposed to process, and is working with its

contractor base to establish meaningful outcome oriented performance

indicators.

Another commenter recommended that DOE clarify whether M&O

contractors are required to seek competition in subcontracting. The

final rule at 970.7103(d)(4) establishes the use of effective

competition as a system standard. This term, however, is not intended

to equate to the Federal concept of full and open competition.

Other comments requested clarification of the application of

certain statutory and regulatory requirements on the award of

subcontracts (e.g., socio-economic and Buy American requirements). The

current rulemaking does not effect the requirements of public law,

applicable regulations, or the terms and conditions of the M&O

contracts. For example, the requirement is for M&O contractors to put

forth their best efforts to achieve agreed upon goals negotiated in

their small business subcontracting plan. This rule neither defines,

nor limits, the approaches that the contractor may utilize to achieve

the results sought. Issues relating to specific statutory and

regulatory requirements previously identified in Sec. 970.7104 will be

addressed in the final rule based upon the April 27, 1995 amendment.

One commenter stated that it is unclear whether the contractor can

unilaterally implement the changes that it believes are necessary as a

result of the proposed rule or whether DOE will require that such

changes be submitted [[Page 28740]] to it for review and approval. As

stated in Sec. 970.7103(b)(1), the contractor's purchasing systems and

methods shall be submitted to the contracting officer for review and

acceptance. Changes to existing systems, such as those required to

implement this rule, are substantive and will require review and

approval by the contracting officer. The Department is currently

working with its contractor community to identify effective commercial

purchasing practices and intends to be a constructive participant in

the re-engineering of contractor purchasing systems.

Another commenter asks whether costs resulting from the

implementation of this rule will be allowable costs. Costs associated

with implementation of this rule are reimbursable expenses, so long as

they are reasonable, allowable and allocable as set forth in the

contract's cost principles.

The same commenter also recommends that a periodic review of the

effectiveness of the changes resulting from this final rule be made,

including the potential effects on small, small disadvantaged, and

small women-owned businesses. The comment goes on to recommend that DOE

engage an outside consultant. The Department, as part of ongoing

contract administration as well as when periodically assessing the

continued approval of a contractor's purchasing system, will perform an

evaluation of the impact of the changes effected by this rule. The

Department does not believe that outside consultative services are

required for such assessments.

Finally, that commenter questions whether existing contracts will

be modified to reflect the effects of this rule. The last paragraph of

the Background section of the notice of proposed rule stated, ``It is

the intention of the Department to incorporate the changes made by this

proposed rule into existing management and operating contracts as soon

as practicable after the effective date of a final rule.''

III. Procedural Requirements

A. Review Under Executive Order 12866

This regulatory action has been determined not to be a

``significant regulatory action'' under Executive Order 12866,

``Regulatory Planning and Review,'' (58 FR 51735, October 4, 1993).

Accordingly, this action was not subject to review under the Executive

Order by the Office of Information and Regulatory Affairs.

B. Review Under the National Environmental Policy Act

Pursuant to the Council on Environmental Quality Regulations (40

CFR parts 1500-1508), the Department has established guidelines for its

compliance with the provisions of the National Environmental Policy Act

(NEPA) of 1969 (42 U.S.C. 4321 et seq.). Pursuant to appendix A of

subpart D of 10 CFR part 1021, National Environmental Policy Act

Implementing Procedures (Categorical Exclusion A6), the Department of

Energy has determined that this final rule is categorically excluded

from the need to prepare an environmental impact statement or

environmental assessment.

C. Review Under the Paperwork Reduction Act

To the extent that new information collection or record keeping

requirements are imposed by this rulemaking, they are provided for

under Office of Management and Budget paperwork clearance package No.

1910-0300. No new information collection is proposed by this rule.

D. Review Under the Regulatory Flexibility Act

The proposed rule was reviewed under the Regulatory Flexibility Act

of 1980, Public Law 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

concluded that the rule will have no impact on interest rates, tax

policies or liabilities, the cost of goods or services, or other direct

economic factors. It will also not have any indirect economic

consequences, such as changed construction rates. Accordingly, DOE

certified 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. DOE did not receive any

comments on this certification.

E. Review Under Executive Order 12612

Executive Order 12612 entitled ``Federalism,'' 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 Federal Government and the

States, or 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. The Department of Energy

has determined that this final rule will not have a substantial direct

effect on the institutional interests or traditional functions of

States.

F. 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 for affected legal conduct, 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. DOE certifies that this rule meets the requirements of sections

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

List of Subjects in 48 CFR Parts 933 and 970

Government procurement.

Issued in Washington, DC, on May 26, 1995.

Richard H. Hopf,

Deputy Assistant Secretary for Procurement and Assistance Management.

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

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

PART 933--PROTESTS, DISPUTES, AND APPEALS

1. The authority citation for Part 933 continues to read as

follows:

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

Sec. 933.170 [Removed]

2. Section 933.170, Subcontract level protests, is removed.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

3. 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). [[Page 28741]]

Sec. 970.7101 [Amended]

4. Section 970.7101, General, is amended by removing paragraphs (c)

and (d).

Sec. 970.7102 [Amended]

5. Section 970.7102, DOE responsibility, is amended at: Paragraph

(a) to remove the parenthetical last two sentences at the end of the

paragraph; paragraph (b)(3) by removing the words ``to assure that

management and operating contractors implement DOE policies and

requirements as defined in this subpart, in accordance with the

contractor's accepted system and methods'' and adding in its place the

words ``pursuant to 48 CFR (FAR) 44.2 or as set forth in the

contractor's approved system and methods''; and paragraph (b)(4) by

revising the last parenthetical ``(See Subpart 944.3 and 970.7108)'' to

read ``(See 970.7103)''.

6. Section 970.7103, Policies, is revised to read as follows:

Sec. 970.7103 Contractor purchasing system.

The following shall apply to the purchasing systems of management

and operating contractors:

(a) The objective of a management and operating contractor's

purchasing system is to deliver to its customers on a timely basis

those best value products and services necessary to accomplish the

purposes of the Government's contract. To achieve this objective,

contractors are expected to use their experience, expertise and

initiative consistent with this subpart.

(b) The purchasing systems and methods used by management and

operating contractors shall be well-defined, consistently applied, and

shall follow purchasing practices appropriate for the requirement and

dollar value of the purchase. It is anticipated that purchasing

practices and procedures will vary among contractors and according to

the type and kinds of purchases to be made.

(c) Contractor purchases are not Federal procurements, and are not

directly subject to the Federal Acquisition Regulations in 48 CFR.

Nonetheless, certain Federal laws, Executive Orders, and regulations

may affect contractor purchasing, as required by statute, regulation,

or contract terms and conditions.

(d) Contractor purchasing systems shall identify and apply the best

in commercial purchasing practices and procedures (although nothing

precludes the adoption of Federal procurement practices and procedures)

to achieve system objectives. Where specific requirements do not

otherwise apply, the contractor purchasing system shall provide for

appropriate measures to ensure the:

(1) Acquisition of quality products and services at fair and

reasonable prices;

(2) Use of capable and reliable subcontractors who either

(i) Have track records of successful past performance, or

(ii) Can demonstrate a current superior ability to perform;

(3) Minimization of acquisition lead-time and administrative costs

of purchasing;

(4) Use of effective competitive techniques;

(5) Reduction of performance risks associated with subcontractors,

and facilitation of quality relationships which can include techniques

such as partnering agreements, ombudsmen, and alternative disputes

procedures;

(6) Use of self-assessment and benchmarking techniques to support

continuous improvement in purchasing;

(7) Maintenance of the highest professional and ethical standards;

and

(8) Maintenance of file documentation appropriate to the value of

the purchase and which is adequate to establish the propriety of the

transaction and the price paid.

Sec. 970.7106, 970.7107 [Removed]

7. Sections 970.7106, Procedures for handling mistakes relating to

management and operating contractor purchases, and 970.7107, Protest of

management and operating contractor procurements, are removed.

[FR Doc. 95-13432 Filed 6-1-95; 8:45 am]

BILLING CODE 6450-01-P