Acquisition Regulation; Department of Energy Management and Operating Contracts

SUMMARY: The Department of Energy (DOE) today publishes an interim

rulemaking to set forth its policy regarding the competition and

extension of the Department's management and operating contracts. Under

its policy, the Department affirms its commitment to provide for full

and open competition in the award of its management and operating

contracts, except where the Department determines that competitive

procedures should not be used pursuant to one of the circumstances

authorized by the Competition in Contracting Act of 1984 (41 U.S.C.

254), as implemented in Part 6 of the Federal Acquisition Regulation.

This rulemaking implements one of the key recommendations of the

Department's contract reform initiative to improve its acquisition

system.

DATES: This interim rule is effective August 23, 1996. Written comments

should be forwarded no later than August 23, 1996.

ADDRESSES: Comments should be submitted to Connie P. Fournier, Office

of Policy (HR-51), Department of Energy, 1000 Independence Avenue, SW,

Washington, D.C. 20585; (202) 586-0545 (facsimile);

[email protected] (Internet).

The administrative record regarding this rulemaking that is on file

for public inspection is located in the Department's Freedom of

Information Reading Room, Room 1E-190, 1000 Independence Avenue, SW,

Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Connie P. Fournier at (202) 586-8245.

SUPPLEMENTARY INFORMATION:

I. Background

II. Section-by-Section Analysis

III. Procedural Requirements

A. Review Under Executive Order 12866

B. Review Under Executive Order 12778

C. Review Under the Regulatory Flexibility Act

D. Review Under the Paperwork Reduction Act

E. Review Under Executive Order 12612

F. Review Under the National Environmental Policy Act

IV. Public Comments

I. Background

The Department's contracts for the management and operation of its

facilities have historically been subject to specialized rules

pertaining to their periodic extension. Under these rules, contained at

Department of Energy Acquisition Regulation (DEAR) 970.0001 and 917.6,

existing policy favored non-competitive extensions of incumbent

contractors. Competition was permitted only when it appeared likely

that the Government's position might be meaningfully improved in terms

of cost or performance and only then when it was determined that to

change a contractor would not be contrary to the best interest of the

Government. This resulted in noncompetition as the preferential norm.

The Department's Contract Reform Report, Making Contracting Work

Better and Cost Less (February 1994), in recommending a number of

changes, called for a reversal of this policy. Accordingly, the

Department published Acquisition Letter 94-14 in the Federal Register

(59 FR 50733), October 5, 1994, as an interim policy setting forth

guidelines for the competition or extension of the Department's

management and operating contracts. The interim policy established

competition as the preferential norm. Exceptions to competition were to

be made on a case-by-case basis, only in exceptional circumstances, and

only when authorized by the Head of the Agency. The intent was to

balance the positive effects of a competitive environment with the

recognition that long-term contractual relationships can facilitate

superior contractor performance, especially given the highly complex

and multi-faceted work performed under management and operating

contracts. The Department has competed, or is competing, a number of

management and operating contracts in accordance with this interim

policy.

After considering the comments received in response to the interim

policy, as set forth in Acquisition Letter 94-14, and its experience

under that policy, the Department has concluded that certain aspects of

the Acquisition Letter are appropriate for regulation, as modified for

consistency with applicable law. Other aspects of the Acquisition

Letter will be incorporated into nonregulatory internal Department

guidance. Under the rulemaking published today, the Department affirms

its commitment to full and open competition as the norm for its

management and operating contracts. Exceptions to the use of full and

open competition will be made on a case-by-case basis: (1) only in

accordance with the circumstances authorized by the Competition in

Contracting Act of 1984 (CICA) and Part 6 of the Federal Acquisition

Regulation (FAR), and (2) only when authorized by the Head of the

Agency. Adherence to the existing statutory requirements of CICA, as

implemented in FAR Part 6, preserves a preference for competition;

conforms the Department's decisionmaking process to noncompetitively

award contracts with Federal-wide standards found in statute and

regulation; and eliminates unnecessary, agency-specific regulations.

Today's interim rule supersedes both the Department's regulation that

created a noncompetitive norm and Acquisition Letter 94-14.

A notice of proposed rulemaking published elsewhere in this issue

of the Federal Register discusses changes proposed to the Department of

Energy Acquisition Regulation to implement other contract reform

recommendations. A third rulemaking that discusses the Department's fee

policies for profit making and nonprofit management and operating

contractors will be promulgated as a separate proposal. Together, these

three rulemakings constitute the Department's regulatory implementation

of certain key contract reform initiatives in its acquisition

regulation.

II. Section-by-Section Analysis

A detailed list of changes in the interim rule follows.

1. 917.602, Policy. This section is added to prescribe the

Department's policy to provide for full and open competition and the

use of competitive procedures in the award of management and operating

contracts, except as authorized by law and the Head of the Agency.

2. 917.605, Award, renewal, and extension. This section is amended

to remove the existing coverage at 917.605(b) that prescribes the

Department's internal processing and documentation requirements for

extend/compete decisions. This nonregulatory subject matter will be

reflected in internal Department guidance. A new section 917.605(d) is

added to provide for the conditional approval of any noncompetitive

extension (other than an extension accomplished by the exercise of an

option) subject to the successful achievement of the Government's

negotiation objectives. This section also permits adequate time to

compete the contract in the event that the negotiations cannot be

successfully concluded.

3. 970.0001, Renewal of management and operating contracts. This

section is

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amended to delete the Department's previous policy that competition

generally would be used only when it appeared likely that the

Government's position might be meaningfully improved in terms of cost

or performance, unless it was determined that to change a contractor

would be contrary to the best interest of the Government. This section

is removed and reserved for future use.

4. 970.17, Special Contracting Methods. This subpart is added to

provide for coverage concerning contract term and options to extend

management and operating contracts.

5. 970.1702-1, Contract term and option to extend. This section is

added to provide policy guidance on (1) the total period of performance

permitted under a management and operating contract and (2) the

requirements governing the exercise of an option to extend the term of

an existing contract. Paragraph (a) of the section states that

management and operating contracts may provide for a base period of up

to 5 years and may include an option to extend the period of

performance for up to an additional total of 5 years. The purpose of

permitting the inclusion of an option to extend the term of the

contract is to facilitate long-term contractual relationships where the

mission of the Department is best served by such an extension and to

reward contractors for superior performance under the contract.

Regarding the exercise of options under paragraph (b), the

contracting officer may exercise an option to extend a competitively

awarded contract only after assessing certain factors, including the

contractor's past performance. The decision of the contracting officer

must be approved by the Head of the Contracting Activity and the

cognizant Assistant Secretary(s).

6. 970.1701-2, Solicitation provision and contract clause. This

section is added to provide instruction to the contracting officer on

the application of the solicitation provision and contract clause

pertaining to the use of options in management and operating contracts.

7. 970.5204-73, Notice regarding option. This section is added to

subpart 970.52, Contract clauses for management and operating

contracts, to provide a solicitation provision for options to extend

the term of the contract.

8. 970.5204-74, Option to extend the term of the contract. This

section is added to subpart 970.52, Contract clauses for management and

operating contracts, to provide a contract clause for options to extend

the term of the contract.

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 that

Executive Order, by the Office of Information and Regulatory Affairs of

the Office of Management and Budget (OMB).

B. Review Under Executive Order 12988

With respect to the review of existing regulations and the

promulgation of new regulations, section 3(a) of Executive Order 12988,

``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on

Executive agencies the general duty to adhere to the following

requirements: (1) eliminate drafting errors and ambiguity; (2) write

regulations to minimize litigation; and (3) provide a clear legal

standard for affected conduct rather than a general standard and

promote simplification and burden reduction. With regard to the review

required by section 3(a), section 3(b) of Executive Order 12988

specifically requires that Executive agencies make every reasonable

effort to ensure that the regulation: (1) clearly specifies the

preemptive effect , if any; (2) clearly specifies any effect on

existing Federal law or regulation; (3) provides a clear legal standard

for affected conduct while promoting simplification and burden

reduction; (4) specifies the retroactive effect, if any; (5) adequately

defines key terms; and (6) addresses other important issues affecting

clarity and general draftsmanship under any guidelines issued by the

Attorney General. Section 3(c) of Executive Order 12988 requires

Executive agencies to review regulations in light of applicable

standards in section 3(a) and section 3(b) to determine whether they

are met or it is unreasonable to meet one or more of them. DOE has

completed the required review and determined that, to the extent

permitted by law, the interim final regulations meet the relevant

standards of Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

This rule is not subject to review under the Regulatory Flexibility

Act of 1980, 5 U.S.C. 601, et seq., because it is not subject to a

legal requirement to publish a general notice of proposed rulemaking.

D. Review Under the Paperwork Reduction Act

No new information collection or recordkeeping requirements are

imposed by this rule. Accordingly, no Office of Management and Budget

clearance is required under the Paperwork Reduction Act of 1980 (44

U.S.C. 3501, et seq.).

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 has

determined that this rule will not have a substantial direct effect on

the institutional interests or traditional functions of States.

F. Review Under the National Environmental Policy Act

Pursuant to the Council on Environmental Quality Regulations (40

CFR 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 1021, National Environmental Policy Act

Implementing Procedures (Categorical Exclusion A6), the Department has

determined that this rule is categorically excluded from the need to

prepare an environmental impact statement or environmental assessment.

IV. Public Comments

A. Written Comments

Although the interim regulations published in this rule are not

substantive regulations with the kind of impact that warrants prior

notice, the Department is nevertheless providing an opportunity for

public comment. Interested persons are invited to participate by

submitting data, views, or arguments with respect to the DEAR

amendments set forth in this rule. Three copies of written comments

should be submitted to the address indicated in the ADDRESSES section

of this rule. In addition, it is requested that you provide a copy of

your comments on a

[[Page 32586]]

WordPerfect 6.1 or ASCII diskette. Comments may be sent to the Internet

address in the ADDRESSES section of this rule instead of the written

copies and diskette, provided they are transmitted in a WordPerfect 6.1

compatible format and include the name, title, organization, postal

address, and Internet address with the text of the comments. All

comments received will be available for public inspection in the

Department of Energy Reading Room, 1E-190, Forrestal Building, 1000

Independence Avenue, SW., Washington, D.C. 20585, between the hours of

9 a.m. and 4 p.m., Monday through Friday, except Federal holidays. All

written comments received on or before the date specified in the

beginning of this rule and all other relevant information will be

considered by the Department before taking final action. Comments

received after that date will be considered to the extent that time

allows. Any person submitting information which that person believes to

be confidential and which may be exempt from public disclosure should

submit one complete copy, as well as an additional copy from which the

information claimed to be confidential has been deleted. The Department

reserves the right to determine the confidential status of the

information or data and to treat it according to its determination. The

Department's generally applicable procedures for handling information

which has been submitted in a document and may be exempt from public

disclosure are set forth in 10 CFR 1004.11.

B. Public Hearing Determination

The Department has concluded that this rule does not involve any

significant issues of law or fact. Therefore, consistent with 5 U.S.C.

553, the Department has not scheduled a public hearing. However, a

public hearing will be held on the notice of proposed rulemaking

published elsewhere in this issue of the Federal Register on other

contract reform changes proposed to the Department of Energy

Acquisition Regulation. Any person who has an interest in those

proposed contract reform changes may request an opportunity to make an

oral presentation in accordance with the procedures described in that

rulemaking.

List of Subjects in 48 CFR Parts 917 and 970

Government procurement.

Issued in Washington, D.C., on June 7, 1996.

Richard H. Hopf,

Deputy Assistant Secretary for Procurement and Assistance Management.

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:

PART 917--SPECIAL CONTRACTING METHODS

1. The authority citation for Part 917 continues to read as

follows:

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

2. Subpart 917.6, Management and Operating Contracts, is amended to

add new section 917.602, Policy, to read as follows:

917.602 Policy.

(a) It is the policy of the Department of Energy to provide for

full and open competition in the award of management and operating

contracts, including performance-based management contracts.

(b) A management and operating contract may be awarded or extended

at the completion of its term without providing for full and open

competition only when such award or extension is justified under one of

the statutory authorities identified in FAR 6.302 and only when

authorized by the Head of the Agency. Documentation and processing

requirements for justifications for the use of other that full and open

competition shall be accomplished in accordance with internal agency

procedures.

3. Section 917.605 is revised to read as follows:

917.605 Award, renewal, and extension.

Conditional Authorization of Non-competitive Extension Made

Pursuant to Authority Under CICA. Authorization to extend by the Head

of the Agency shall be considered conditional upon the successful

negotiation of the contract to be extended in accordance with the

Department's negotiation objectives. The Head of the Contracting

Activity shall advise the Procurement Executive no later than 6 months

after receipt of the conditional authorization as to whether the

Department's objectives will be met and, if not, the contracting

activity's plans for competing the requirement.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

4. 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, Public

Law 95-91 (42 U.S.C. 7254).

970.0001 [Removed and reserved]

5. Section 970.0001 is removed and reserved.

6. Subpart 970.17, Special contracting methods, is added to read as

follows:

970.17 Special contracting methods.

970.1702-1 Term of contract and option to extend.

970.1702-2 Solicitation provision and contract clause.

970.1702-1 Term of contract and option to extend.

(a) Contract term. Effective work performance under a management

and operating contract is facilitated by the use of a relatively long

contract term of up to ten (10) years. Accordingly, management and

operating contracts shall provide for a basic contract term not to

exceed five (5) years and may include an option(s) to extend the term

for additional periods; provided, that no one option period exceeds

five (5) years in duration and the total term of the contract,

including any options exercised, does not exceed ten (10) years. The

specific term of the base period and of any options periods shall be

determined at the time of the authorization to compete or extend the

contract. The term ``option'' as used herein means a unilateral right

in the contract by which the Government can extend the term of the

contract. Accordingly, except as may be provided for through the

inclusion of an option(s) in the contract to extend the term, any

extension to continue the contract with the incumbent contractor beyond

its term shall only occur when such extension can be justified under

one of the statutory authorities identified in FAR 6.302 and when

authorized by the Head of the Agency.

(b) Exercise of option. As part of the review required by FAR

17.605(b), the contracting officer shall assess whether competing the

contract will produce a more advantageous offer than exercising the

option. The incumbent contractor's past performance under the contract,

the extent to which performance-based management contract provisions

are present, or can be negotiated into, the contract, and the impact of

a change in a contractor on the Department's discharge of its programs

are considerations that shall be addressed in the contracting officer's

decision that the exercise of the option is in the Government's best

interest. The contracting officer's decision shall be approved by the

Procurement Executive and the cognizant Assistant Secretary(s).

[[Page 32587]]

970.1702-2 Solicitation provision and contract clause.

(a) The contracting officer shall insert a provision substantially

the same as the provision at 48 CFR (DEAR) 970.5204-73, Notice

Regarding Options, in solicitations when the inclusion of an option to

extend the term of the contract has been authorized.

(b) The contracting officer shall insert the clause at 48 CFR

(DEAR) 970.5204-74, Option to extend the term of the contract, when the

inclusion of an option to extend the term of the contract has been

authorized.

7. Subpart 970.52 is amended by adding sections 970.5204-73, Notice

regarding options, and 970.5204-74, Option to extend the term of the

contract, to read as follows:

970.5204-73 Notice regarding options.

As prescribed in 48 CFR (DEAR) 970.1702-2(a), insert the following

provision:

Notice Regarding Options (June 1996)

The contract resulting from this solicitation is expected to

include one or more options to extend the term of the contract.

Exercise of any option to extend the term of contract will be at the

unilateral right of the Department of Energy. The contractor's

performance under the basic contract, including any previously

exercised options, will be among the significant considerations in

the Department's decision to exercise any option.

970.5204-74 Option to extend the term of the contract.

As prescribed in 48 CFR (DEAR) 970.1702-2(b), insert the following

clause:

Option to Extend the Term of The Contract (June 1996)

(a) The Department of Energy may unilaterally extend the term of

this performance-based management contract by written notice to the

contractor within [Insert the period of time in which the

contracting officer has to exercise the option]; provided, that the

Department of Energy shall give the contractor a preliminary written

notice of its intent to extend at least twelve (12) months before

the basic term of the contract expires. The preliminary notice does

not commit the Department of Energy to an extension.

(b) The option(s) to extend the contract is identified in

[Specify section of contract and clause number and name] of the

contract. The Department of Energy may exercise any, or all, of the

options identified in the contract. The total duration of this

contract, including the exercise of any option(s) under this clause,

shall not exceed 120 months.

[FR Doc. 96-15366 Filed 6-21-96; 8:45 am]

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