Acquisition Regulation; Department of Energy Management and Operating Contracts and Other Designated Contracts

DEPARTMENT OF ENERGY

48 CFR Parts 915 and 970

RIN 1991-AB32

Acquisition Regulation; Department of Energy Management and

Operating Contracts and Other Designated Contracts

AGENCY: Department of Energy.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department proposes to amend the Department of Energy

Acquisition Regulation (DEAR) to revise its fee policies and related

procedures for management and operating contracts and other designated

contracts. The proposed rule focuses on the use of fees to ensure that

they: are reasonable and commensurate with performance, business and

cost risks; create and implement tailored incentives for performance

based management contracts; are structured to attract best business

partners; and afford flexibility to provide incentives to contractors

to perform better at less cost.

DATES: Comments must be received by 4:30 p.m. local time on or before

June 9, 1998. A workshop will be held on May 19, 1998, beginning at

9:30 a.m. local time at the address listed below. Requests to speak at

the workshop or comments you would like specifically addressed should

be received by 4:30 p.m. local time on May 11, 1998. Later requests

will be accommodated to the extent practicable.

ADDRESSES: All comments (three copies), as well as requests to speak at

the workshop or issues you would like addressed, should be submitted

to: Stephen Michelsen, Office of Contract and Resource Management (HR-

53), Department of Energy, 1000 Independence Avenue, SW, Washington,

D.C. 20585, (202) 586-1368, (202) 586-9356 (facsimile),

[email protected] (Internet).

The workshop will be held at Department of Energy, 1000

Independence Avenue, SW, Room 8E089, Washington, DC.

The administrative record regarding this rulemaking that is on file

for public inspection, including a copy of the transcript of the

workshop and any additional public comments received, is located in the

Department's Freedom of Information Public Reading Room, Room 1E-190,

1000 Independence Avenue, SW, Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Stephen Michelsen, Office of Contract

and Resource Management (HR-53), Department of Energy, 1000

Independence Avenue, SW, Washington, D.C. 20585, (202) 586-1368; (202)

586-9356 (facsimile); [email protected] (Internet).

SUPPLEMENTARY INFORMATION:

I. Background and Analysis

II. Public Comments

III. Procedural Requirements

A. Review Under Executive Order 12866

B. Review Under Executive Order 12988

C. Review Under the Regulatory Flexibility Act

D. Review Under the Paperwork Reduction Act

E. Review Under Executive Order 12612

F. Review Under the National Environmental Policy Act

IV. Opportunities for Public Workshop

I. Background and Analysis

The proposed rule would amend DEAR Subpart 970.1509 to revise fee

policies and related procedures for management and operating contracts

and other designated contracts. Among other things, the proposed rule

complements the Department's June 27, 1997 (62 FR 34842) rulemaking

which implemented a number of recommendations to improve its management

and operating contracts. One of these recommendations involved the

adoption of performance-based contracting concepts. Since the

initiation of its contract reform initiatives, the Department has

tested a number of approaches to conform its use of fee to such

concepts. An additional element of contract reform was the adoption of

cost allowability and liability provisions which placed greater

financial risk on both for profit and nonprofit contractors. This

proposed rule also reflects these changes. The amendments to DEAR

proposed by this action are intended to ensure that fees are:

reasonable and commensurate with contract type and associated

performance and financial risks; structured to attract the best

organizations; and effectively used in conjunction with performance-

based management contract concepts as implemented by final rule dated

June 27, 1997 (62 FR 34842).

Proposed revisions to Subpart 970.1509 would: update fee schedules

based on the Bureau of Labor Statistics Producer Price Index for

Industrial Commodities to reflect the effects of inflation since 1991

(Sections 915.971-5 and 970.1509-5); add a new fee schedule for

environmental management work effort (Section 970.1509-5); redefine and

increase facility categories consistent with changes in work at major

facilities (Section 970.1509-8); eliminate management allowance for

educational institutions and place limitations on both fixed fee and

total available fee, including special limits on fee available to

nonprofit organizations (Section 970.1509-2); recognize and provide

guidance on the availability of various contract types (Section

970.1509-3); provide a preference for those contract types that

appropriately maximize the incentives for superior performance (Section

970.1509-3); define criteria for the use of multiple fee approaches

(Section 970.1509-3); correlate incentive-fee type arrangements to

Federal Acquisition Regulation guidance (Section 970.1509-3); require

that fee amounts tied to specific accomplishments or work activities

reflect the value of that work to the Department (Section 970.1509-4);

provide a preference for contract types under which all fee will be

based on performance (Section 970.1509-3); require the maximum

practical use of outcome oriented performance expectations consistent

with performance based management contract concepts (Section 970.1509-

3); eliminate references to fees for management and operating contracts

for support services; provide specialized policies for nonprofit

federally funded research and development centers, including those run

by educational institutions (Section 970.1509-2); restructure

considerations and techniques for determining fixed fees and total

available fee (Sections 970.1509-4 and 970.1509-8); delete a specified

contractor performance grading scale, Fee Conversion Table, and replace

it with a requirement for a site specific method of rating the

contractor's performance of the contract requirements and determining

fee earned (Section 970.1509-8); provide a new clause to establish a

threshold for the payment of any fee to ensure, among other things,

that performance in the critical area of environment, safety and health

is not compromised by any other performance objective (Section

970.5204-XX); and prescribe a new contract clause to address cost

reduction proposal programs based on guidance in DEAR 970.1509 (Section

970.5204-YY).

II. Public Comments

Interested persons are invited to participate by submitting data,

views, or arguments with respect to the DEAR amendments set forth in

this notice. Three copies of written comments should be submitted to

the address indicated in the ADDRESSES section of this notice. Comments

on the major items identified in the ``PUBLIC

[[Page 17801]]

WORKSHOP'' section should be identified on separate pages, with the

name of the item at the top of each page, e.g., comments regarding the

Department's fee policy as it applies to the use of multiple contract

types. In addition, it is requested that you provide a copy of your

comments on a WordPerfect 6.1 or ASCII diskette. Comments may be sent

to the Internet address in the ADDRESSES section of this notice 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's Freedom of Information Public 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 notice 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.

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) and 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 proposed regulations meet the relevant standards of Executive Order

12988.

C. Review Under the Regulatory Flexibility Act

This proposed 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 that is likely to have a significant

economic impact on a substantial number of small entities. Based on the

history of the Department and the requirements contained in its

management and operating contracts, the impact of the proposed rule

will be limited to large businesses not subject to the Regulatory

Flexibility Act, as small businesses generally do not have the

resources required to manage and operate the complex activities at the

Department's largest sites. Based on this review the Department

certifies that this proposed 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 record keeping requirements are

imposed by this proposed 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 proposed 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 proposed rule is categorically excluded from the

need to prepare an environmental impact statement or environmental

assessment.

IV. Opportunities for Public Workshop

For significant proposals to revise procurement regulations, DOE

has a practice of providing an opportunity for affected contractors,

potential offerors, and other interested persons to be heard. In this

rulemaking, a public workshop will be conducted on the proposed

regulatory amendments rather than a standard public hearing. There are

issues involved in this rulemaking that are both significant and

complex. DOE believes that the resolution of these issues, as well as

the overall quality of the final rule, will be enhanced by an

interactive exchange of ideas conducted in a more informal conference

style setting. The agenda for the workshop will include, at a minimum,

the following topics:

1. The use of multiple contract types within the structure of a

cost-plus-

[[Page 17802]]

award-fee contract. The Department believes that management and

operating contracts may be more efficiently and effectively performed

if there is latitude to utilize multiple contract types within the

structure of a cost-plus-award-fee contract. Therefore, the revised

policy allows for management and operating contracts, or portions of

these contracts to be awarded on a cost-plus-incentive-fee (CPIF),

fixed-price incentive (FPI), or firm-fixed-price (FFP) basis or

combination thereof. Comments are specifically solicited regarding:

a. the appropriateness of requiring that the preconditions set

forth in FAR 16.1 be met, as appropriate, for the contract type

employed;

b. the appropriateness of employing several contract types,

(assuming the contractor has the ability to segregate and track costs

by task); and

c. the impact on fee of using several contract types.

2. The approach which places all fee at performance risk. The

Department believes that with the introduction of performance based

incentives into its award fee management and operating contracts, that

all fee should be tied to performance risk. Comments are specifically

solicited regarding: the risk posed to contractors by not having any

base (fixed) fee amount; and the type and magnitude of potential costs

which would be incurred by the contractor if no fee were earned.

3. The policy, as it applies to contracts with nonprofit

organizations including educational institutions. The Department, while

generally preferring to minimize the amount of fee available for the

operation of its laboratories, believes that fee considerations should

include the nature and extent of financial or other liability or risk

assumed under the contract and the utility of fee as a performance

incentive. Any fee exceeding that associated with liability risk should

be tied to the organizations's performance. Comments are specifically

solicited regarding:

a. the appropriateness of fee in contracts with nonprofit

organizations or educational institutions;

b. limiting the fixed fee or base fee to an amount that reflects

the cost risk associated with the liability assumed by the

organization;

c. the ability of an organization to identify and support the

potential cost risk associated with its assumption of liability; and

d. the appropriateness of tying fee to performance.

4. An alternative to the proposed policy as described in item 3

above. The alternative under consideration would establish a fee policy

for the operators of the Department's FFRDCs which would not

distinguish between the types of business organizations operating them.

Consideration is being given to limiting the fee to a minimum amount

which recognizes that organizations may incur costs and risks in doing

business with the government which are not reimbursed. Comments are

specifically solicited regarding:

a. establishing a section of the policy which applies solely to the

Department's FFRDCs in contrast to all of its other operations;

b. the principle of setting a maximum allowable fee that is the

same for any entity which would operate a FFRDC;

c. minimizing the fee to an amount which recognizes that

organizations may incur costs and risks in doing business with the

government which are not reimbursed; and

d. the implications of an organization's tax status on the

foregoing.

5. The amount of fee necessary to attract the most capable

contractors. The Department, with this revised fee policy, is

attempting to provide meaningful incentives for contractors to perform

better at less cost. In addition, the Department is hoping to enlarge

the pool of contractors who are available to help DOE accomplish its

important and challenging missions. For these reasons, the Department

has created a fee policy which is intended to offer contractors

reasonable levels of total available fee relative to the work to be

performed and the contractor resources brought to the work. Comments

are specifically solicited on the Department's approach to the

determination of fee objectives and amounts specifically with regard to

the following elements:

a. the use of fee schedules;

b. the use of significant factors and facility/task category

factors; and

c. the calculation of total available fee.

6. The application of the Conditional Payment of Fee or Incentives

clause. As a general rule, performance requirements that do not lend

themselves to a specific incentive fee, should be included in the award

fee. However, there are certain performance requirements that are so

fundamental to the accomplishment of the overall mission objectives

that meeting expected levels of performance should be a prerequisite to

earning fee. In such cases, it may be appropriate to condition the

payment of any earned fee on the contractor's satisfactory performance

of these requirements. The proposed clause allows any otherwise earned

fee to be adjusted downward based on a lack of or failure to comply

with an environmental, safety, and health plan, or the occurrence of a

catastrophic event, or poor technical performance or poor cost

performance. Comments are specifically solicited including those

specifically regarding:

a. the need for such a clause in a performance based contract;

b. the relationship between primarily objective performance

incentives and a clause which allows the subjective adjustment to fee

earned based on the occurrence of specified events; and

c. alternatives by which the Department can ensure acceptable

performance of work effort under its management and operating contracts

not specifically tied to an incentive.

DOE is interested in receiving at the workshop comments and views

of interested persons concerning: (1) The above-listed topics; (2) the

proposed approach contained in this proposed rulemaking; and (3)

possible alternatives to the approach contained in this proposed

rulemaking. DOE is also interested in receiving views concerning other

topics relevant to the proposed regulatory amendments that workshop

participants believe should be discussed.

Members of the public interested in participating actively in the

workshop are invited to submit requests to speak to the FOR FURTHER

INFORMATION CONTACT identified at the beginning of this notice. Those

who make such a request are invited to suggest topics for inclusion in

the workshop agenda. DOE requests that participants who wish to make

brief oral presentations provide a written version or summary of their

views for inclusion in the rulemaking record. As time permits, there

will be an opportunity to engage in a general discussion of the topics

raised during the workshop.

The meeting will be conducted conference-style by a DOE official. A

record will be made of the proceedings of the workshop. A copy of the

minutes will be placed in the record available for public inspection in

the DOE Freedom of Information Public Reading Room at the address

indicated in the ADDRESSES section. Since this proceeding is not a

formal negotiated rulemaking, DOE officials will not seek a consensus

of workshop participants on how to resolve issues in principle or on

the specific wording of changes to the proposed regulatory text.

Otherwise, DOE welcomes public participation in its policy making

process and hopes that the workshop will be well attended.

List of Subjects in 48 CFR Parts 915 and 970

Government procurement.

[[Page 17803]]

Issued in Washington, D.C., on April 3, 1998.

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 proposed to be amended as set forth

below.

PART 915--CONTRACTING BY NEGOTIATION

1. The authority citation for Part 915 continues to read as

follows:

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

2. Section 915.971-5 is amended by revising paragraphs (d), (f),

and (h) to read as follows:

915.971-5 Fee schedules.

* * * * *

(d) The following schedule sets forth the base for construction

contracts:

Construction Contracts Schedule

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 5.47

1,000,000....................................................... 54,700 5.47 3.88

3,000,000....................................................... 132,374 4.41 3.28

5,000,000....................................................... 198,014 3.96 2.87

10,000,000...................................................... 341,328 3.41 2.60

15,000,000...................................................... 471,514 3.14 2.20

25,000,000...................................................... 691,408 2.77 1.95

40,000,000...................................................... 984,600 2.46 1.73

60,000,000...................................................... 1,330,304 2.22 1.56

80,000,000...................................................... 1,643,188 2.05 1.41

100,000,000..................................................... 1,924,346 1.92 1.26

150,000,000..................................................... 2,552,302 1.70 1.09

200,000,000..................................................... 3,094,926 1.55 0.80

300,000,000..................................................... 3,897,922 1.30 0.68

400,000,000..................................................... 4,581,672 1.15 0.57

500,000,000..................................................... 5,148,364 1.03 ..............

Over $500 Million 5,148,364 .............. 0.57

----------------------------------------------------------------------------------------------------------------

* * * * *

(f) The following schedule sets forth the base for construction

management contracts:

Construction Management Contracts Schedule

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 5.47

1,000,000....................................................... 54,700 5.47 3.88

3,000,000....................................................... 132,374 4.41 3.28

5,000,000....................................................... 198,014 3.96 2.87

10,000,000...................................................... 341,328 3.41 2.60

15,000,000...................................................... 471,514 3.14 2.20

25,000,000...................................................... 691,408 2.77 1.95

40,000,000...................................................... 984,600 2.46 1.73

60,000,000...................................................... 1,330,304 2.22 1.56

80,000,000...................................................... 1,643,188 2.05 1.41

100,000,000..................................................... 1,924,346 1.92 1.26

150,000,000..................................................... 2,552,302 1.70 1.09

200,000,000..................................................... 3,094,926 1.55 0.80

300,000,000..................................................... 3,897,922 1.30 0.68

400,000,000..................................................... 4,581,672 1.15 0.57

500,000,000..................................................... 5,148,364 1.03 ..............

Over $500 Million............................................... 5,148,364 .............. 0.57

----------------------------------------------------------------------------------------------------------------

* * * * *

(h) The schedule of fees for consideration of special equipment

purchases and for consideration of the subcontract program under a

construction management contract is as follows:

Special Equipment Purchases/Subcontract Work Schedule

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 1.64

1,000,000....................................................... 16,410 1.64 1.09

[[Page 17804]]

2,000,000....................................................... 27,350 1.37 0.93

4,000,000....................................................... 45,948 1.15 0.77

6,000,000....................................................... 61,264 1.02 0.71

8,000,000....................................................... 75,486 0.94 0.66

10,000,000...................................................... 88,614 0.89 0.61

15,000,000...................................................... 119,246 0.79 0.53

25,000,000...................................................... 171,758 0.69 0.47

40,000,000...................................................... 242,868 0.61 0.43

60,000,000...................................................... 329,294 0.55 0.39

80,000,000...................................................... 406,968 0.51 0.37

100,000,000..................................................... 480,266 0.48 0.28

150,000,000..................................................... 619,204 0.41 0.23

200,000,000..................................................... 732,980 0.37 0.13

300,000,000..................................................... 867,542 0.29 ..............

Over $300 Million............................................... 867,542 .............. 0.13

----------------------------------------------------------------------------------------------------------------

Section 915.972 is amended by revising the introductory text of

paragraph (a) to read as follows:

915.972 Special considerations for cost-plus-award-fee contracts.

(a) When a contract is to be awarded on a cost-plus-award-fee basis

in accordance with 48 CFR 916.404-2, several special considerations are

appropriate. Fee objectives for management and operating contracts or

other site management contracts as determined by the Procurement

Executive, including those using the Construction, Construction

Management, or Special Equipment Purchases/Subcontract Work schedules

from 48 CFR 915.971-5, shall be developed pursuant to the procedures

set forth in 48 CFR 970.1509-8. Fee objectives for other cost-plus-

award-fee contracts shall be developed as follows:

* * * * *

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).

5. Section 970.1509, including subsections 970.1509-1 through

970.1509-8, is revised to read as follows:

970.1509 Fees for management and operating contracts.

970.1509-1 Fee policy.

970.1509-2 Special considerations: nonprofit organizations.

970.1509-3 Types of Contracts.

970.1509-4 General considerations and techniques for determining

fixed fees.

970.1509-5 Calculating fixed fee.

970.1509-6 Fee base.

970.1509-7 Special equipment purchases.

970.1509-8 Specific considerations: cost-plus-award-fee.

970.1509-9 Special considerations: fee limitations.

970.1509-10 Documentation.

970.1509-11 Solicitation provision and contract clauses.

970.1509 Fees for management and operating contracts.

This section sets forth the Department's policies on fees for

management and operating contracts and may be applied to other site

management contracts as determined by the Procurement Executive or

designee.

970.1509-1 Fee policy.

(a) DOE management and operating contractors may be paid a fee in

accordance with the requirements of this part.

(b) Fee objectives and amounts are to be determined for each

contract. Standard fees or across the board agreements will not be used

or made. Due to the nature of funding management and operating

contracts, it is anticipated that fee shall be established in

accordance with the funding cycle; however, with the prior approval of

the Procurement Executive or designee, a longer period may be used

where necessary to incentivize performance objectives that span funding

cycles or to optimize cost reduction efforts.

(c) Fee amounts payable shall be established in accordance with

this part. Amounts payable shall not exceed maximum amounts derived

from the appropriate fee schedule (and classification factor, if

applicable) unless approved in advance by the Procurement Executive or

designee. In no event shall any fee exceed statutory limits imposed by

41 U.S.C. 254(b).

(d) Prior to the issuance of a competitive solicitation or the

initiation of negotiations for an extension of an existing contract,

the HCA shall coordinate the maximum available fee as allowed by 48 CFR

part 970 and the fee amount targeted for negotiation, if less, with the

procurement executive. Solicitations shall identify maximum available

fee under the contract. Offerors are invited to propose fee less than

the maximum available.

(e) When a contract subject to this part requires a contractor to

use its own facilities or equipment, or other resources to make its own

cost investment for contract performance, (e.g., when there is no

letter-of-credit financing) consideration may be given subject to

approval by the Procurement Executive or designee, to increasing the

fee amount above that otherwise provided by this part.

(f) Multiple fee arrangements may be used in accordance with 48 CFR

970.1509-3.

970.1509-2 Special considerations: nonprofit organizations.

(a) A nonprofit organization is a business entity:

(1) Which operates exclusively for charitable, scientific, or

educational purposes;

(2) Whose earnings do not benefit any private shareholder or

individual;

(3) Whose activities do not involve influencing legislation or

political campaigning for any candidate for public office; and

(4) Which is exempted from Federal income taxation under section

501 of the Internal Revenue Code (title 26, United States Code).

(b) For nonprofit organizations, the contracting officer:

(1) Should consider whether any fee is appropriate. Considerations

should include:

[[Page 17805]]

(i) The nature and extent of financial or other liability or risk

assumed or to be assumed under the contract;

(ii) The proportion of retained earnings (as established under

generally accepted accounting methods) that relates to DOE contracted

effort;

(iii) Facilities capital or capital equipment acquisition plans;

(iv) Other funding needs, to include contingency funding, working

capital funding, and provision for funding unreimbursed costs deemed

ordinary and necessary; and

(v) The utility of fee as a performance incentive.

(2) In the event fee is considered appropriate, shall determine the

amount of fee in accordance with this part.

(i) Fee shall be limited to that amount necessary to reflect the

need for fee based on the applicable considerations in 48 CFR 1509-

2(b)(1).

(ii) If only a cost-plus-fixed-fee type contract is appropriate,

the fee shall not exceed the lesser of: the cost risk associated with

liabilities that the contractor assumes; or 75% of the fixed fee that

would be calculated per 48 CFR 970.1509-4. If a cost-plus-award-fee

type contract is appropriate, the total available fee shall not exceed

75% of the fee calculated per 48 CFR 970.1509-8, with any base fee not

exceeding the cost risk associated with liabilities that the contractor

assumes and all remaining fee associated with performance.

(iii) If the nonprofit organization is a federally funded research

and development center operated by an educational institution, the

contractor's use of fee may be restricted.

970.1509-3 Types of contracts.

(a) Contract types suitable for management and operating contracts

may include cost, cost-plus-fixed-fee, cost-plus-award-fee, and under a

multiple fee arrangement, cost-plus-incentive-fee, fixed-price

incentive, or firm-fixed-price. See FAR 16.1.

(b) Consistent with the concept of a performance based management

contract, those contract types which incentivize performance and cost

control are preferred over a cost-plus-fixed-fee arrangement.

Accordingly, a cost-plus-fixed-fee contract may only be used when

approved in advance by the Procurement Executive or designee.

(c) A cost-plus-award-fee contract is generally the appropriate

contract type for a management and operating contract.

(1) The attainment of acquisition objectives generally will be

enhanced by using a cost-plus-award-fee contract to effectively

motivate the contractor to exceptional performance and to provide the

Department with flexibility to evaluate actual performance and the

conditions under which it was achieved. Also, it may not be feasible to

devise effective predetermined objective incentive targets applicable

to cost, technical performance, or schedule for work activities under

other types of contracts.

(2) The construct of fee for a cost-plus-award-fee management and

operating contract is that total available fee will equal a base fee

amount and a performance fee amount. The base fee amount will typically

equal zero unless otherwise approved by the Procurement Executive or

designee. The performance fee amount will consist of an incentive fee

component for objective performance requirements, an award fee

component for subjective performance requirements, or both.

(3) In a cost-plus-award-fee type contract any base fee amount is

fixed at inception of the contract and the performance fee amount the

contractor may earn, in whole or in part during performance, is

established sufficient to motivate performance excellence. However,

consistent with concepts of performance based contracting, it is

Departmental policy to place all fee at risk based on performance.

Accordingly, a base fee amount will be available only where approved in

advance by the Procurement Executive or designee, except in the case of

a nonprofit organization, where a base amount reflecting financial risk

assumed under the contract may be used.

(d) Consistent with performance based contracting concepts,

performance objectives and criteria related to performance fee should

be as clearly defined as possible, and where feasible expressed in

terms of desired performance results or outcomes. Specific measures for

determining performance achievement may be used.

(e) Because the nature of the work performed under a management and

operating contract may be complex and varied, opportunities may exist

to utilize multiple contract types. The contracting officer should

apply that contract type most appropriate to the work component,

consistent with FAR 16.1. However, such multiple fee arrangements must

conform to the requirements of FAR part 16, and where appropriate to

the type, must be supported by negotiated costs subject to the

requirements of the Truth in Negotiations Act, and require a pre-

negotiation memorandum and a plan describing how each contract type

will be administered.

(f) A clause providing for cost reduction incentives which result

in quantifiable cost reductions for contractor proposed changes to a

design, process, or method that has an established baseline, is

defined, and is subject to a formal control procedure may be included

in management and operating contracts. Proposed changes must be

initiated by the contractor, must be innovative, applied to a specific

project or program, and not otherwise be included in an incentive under

the contract. Such cost reduction incentives do not constitute fee and

are not subject to statutory or regulatory fee limitations, however,

they shall be subject to all appropriate requirements set forth in this

section.

(g) Operations and field offices shall take the lead in developing

and implementing the most appropriate pricing arrangement or cost

reduction incentive for the requirements. Pricing arrangements which

provide incentives for performance and cost control are preferred over

those that do not. The operations and field offices are to ensure the

necessary resources and infrastructure exist within both the

contractor's and government's organizations to prepare, evaluate, and

administer the pricing arrangement or cost reduction incentive prior to

their implementation.

970.1509-4 General considerations and techniques for determining

fixed fees.

(a) The Department's fee policy recognizes that fee is remuneration

to contractors for the entrepreneurial function of organizing and

managing resources, the use of their resources (including capital

resources), and their assumption of the risk that all incurred costs

(operating and capital) may not be reimbursed.

(b) Use of a purely cost-based structured approach for determining

fee objectives and amounts for typical DOE management and operating

contracts is inappropriate considering the limited level of contractor

cost, capital goods, and operating capital outlays for performance of

such contracts. Instead of being solely cost-based, the desirable

approach calls for a structure that allows judgmental evaluation of

eight significant factors, as outlined in this paragraph (b) in order

of importance, and the assignment of appropriate fee values (subject to

the limitations on fixed fee in 48 CFR 970.1509-5):

(1) Management risk relating to performance, including:

(i) The composite risk and complexity of principal work tasks

required to do the job;

(ii) The labor intensity of the job;

[[Page 17806]]

(iii) The special control problems; and

(iv) The advance planning, forecasting and other such requirements;

(2) The presence or absence of financial risk, including the type

and terms of the contract;

(3) The relative difficulty of work, including specific performance

objectives, environmental, safety and health concerns, and the

technical and administrative knowledge, and skill necessary for work

accomplishment and experience;

(4) Degree and amount of contract work required to be performed by

and with the contractor's own resources, as compared to the nature and

degree of subcontracting and the relative complexity of subcontracted

efforts, subcontractor management and integration;

(5) Size and operation (number of locations, plants, differing

operations, etc.);

(6) Influence of alternative investment opportunities available to

the contractor (i.e., the extent to which undertaking a task for the

Government displaces a contractor's opportunity to make a profit with

the same staff and equipment in some other field of activity);

(7) Benefits which may accrue to the contractor from gaining

experience and knowledge of how to do something, from establishing or

enhancing a reputation, or from being enabled to hold or expand a staff

whose loyalties are primarily to the contractor; and

(8) Other special considerations, including support of Government

programs such as those relating to small and minority business

subcontracting, energy conservation, etc.

(c) The total fee objective for a particular fixed fee negotiation

is established by evaluating the factors in paragraph (b) of this

section, assigning fee values to them, and totaling the resulting

amounts (subject to limitations on total fixed fee in 48 CFR 970.1509-

5).

970.1509-5 Calculating fixed fee.

(a) In recognition of the complexities of the fee determination

process, and to assist in promoting a reasonable degree of consistency

and uniformity in its application, the following fee schedules set

forth the maximum amounts of fee that contracting activities are

allowed to award for a particular fixed fee transaction.

(b) Fee schedules representing the maximum allowable fixed fee

available under management and operating contracts have been

established for the following management and operating contract

efforts:

(1) Production;

(2) Research and Development; and

(3) Environmental Management.

(c) The schedules are:

Production Efforts

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 7.66

1,000,000....................................................... 76,580 7.66 6.78

3,000,000....................................................... 212,236 7.07 6.07

5,000,000....................................................... 333,670 6.67 4.90

10,000,000...................................................... 578,726 5.79 4.24

15,000,000...................................................... 790,962 5.27 3.71

25,000,000...................................................... 1,161,828 4.65 3.35

40,000,000...................................................... 1,663,974 4.16 2.92

60,000,000...................................................... 2,247,076 3.75 2.57

80,000,000...................................................... 2,761,256 3.45 2.34

100,000,000..................................................... 3,229,488 3.23 1.45

150,000,000..................................................... 3,952,622 2.64 1.12

200,000,000..................................................... 4,510,562 2.26 0.61

300,000,000..................................................... 5,117,732 1.71 0.53

400,000,000..................................................... 5,647,228 1.41 0.45

500,000,000..................................................... 6,097,956 1.22 ..............

Over $500 Million............................................... 6,097,956 .............. 0.45

----------------------------------------------------------------------------------------------------------------

Research and Development Efforts

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 8.42

1,000,000....................................................... 84,238 8.42 7.00

3,000,000....................................................... 224,270 7.48 6.84

5,000,000....................................................... 361,020 7.22 6.21

10,000,000...................................................... 671,716 6.72 5.71

15,000,000...................................................... 957,250 6.38 4.85

25,000,000...................................................... 1,441,892 5.77 4.22

40,000,000...................................................... 2,075,318 5.19 3.69

60,000,000...................................................... 2,813,768 4.69 3.27

80,000,000...................................................... 3,467,980 4.33 2.69

100,000,000..................................................... 4,006,228 4.01 1.69

150,000,000..................................................... 4,850,796 3.23 1.14

200,000,000..................................................... 5,420,770 2.71 0.66

300,000,000..................................................... 6,083,734 2.03 0.58

400,000,000..................................................... 6,667,930 1.67 0.50

500,000,000..................................................... 7,172,264 1.43 ..............

Over $500 Million............................................... 7,172,264 .............. 0.50

----------------------------------------------------------------------------------------------------------------

[[Page 17807]]

Environmental Management Efforts

----------------------------------------------------------------------------------------------------------------

Increase

Fee base (dollars) Fee (dollars) Fee (percent) (percent)

----------------------------------------------------------------------------------------------------------------

Up to $1 Million................................................ .............. .............. 7.33

1,000,000....................................................... 73,298 7.33 6.49

3,000,000....................................................... 203,120 6.77 5.95

5,000,000....................................................... 322,118 6.44 5.40

10,000,000...................................................... 592,348 5.92 4.83

15,000,000...................................................... 833,654 5.56 4.03

25,000,000...................................................... 1,236,340 4.95 3.44

40,000,000...................................................... 1,752,960 4.38 3.29

60,000,000...................................................... 2,411,890 4.02 3.10

80,000,000...................................................... 3,032,844 3.79 2.49

100,000,000..................................................... 3,530,679 3.53 1.90

150,000,000..................................................... 4,479,366 2.99 1.48

200,000,000..................................................... 5,219,924 2.61 1.12

300,000,000..................................................... 6,337,250 2.11 0.88

400,000,000..................................................... 7,219,046 1.80 0.75

500,000,000..................................................... 7,972,396 1.59 0.58

750,000,000..................................................... 9,423,463 1.26 0.55

1,000,000,000................................................... 10,786,788 1.08 ..............

Over $1.0 Billion............................................... 10,786,788 .............. 0.55

----------------------------------------------------------------------------------------------------------------

970.1509-6 Fee base.

(a) The fee base is an estimate of necessary allowable costs, with

some exclusions. It is used in the fee schedules to determine the

maximum fee for a fixed fee contract. That portion of the fee base that

represents the cost of the Production, Research and Development, or

Environmental Management work to be performed, shall be exclusive of:

the cost of source and special nuclear materials; estimated costs of

land, buildings and facilities whether to be leased, purchased or

constructed; depreciation of Government facilities; and any estimate of

effort for which a separate fee is to be negotiated.

(b) Such portion of the fee base, in addition to the adjustments in

paragraph (a) of this section, shall exclude:

(1) Any part of the following types of costs which are of such

magnitude or nature as to distort the technical and management effort

actually required of the contractor:

(i) Estimated cost of capital equipment (other than special

equipment) which the contractor procures by subcontract;

(ii) Estimated cost or price of subcontracts and other major

contractor procurements, however, up to 80 percent of such costs may be

included if the contracting officer determines that there are unique

circumstances involving extraordinary management effort required to

manage subcontract activities; and

(iii) Other similar costs.

(2) Special equipment as defined in 48 CFR 970.1509-7;

(3) Estimated cost of Government-furnished property, services and

equipment;

(4) All estimates of costs not directly incurred by or reimbursed

to the operating contractor;

(5) Estimates of home office or corporate general and

administrative expenses that shall be reimbursed through the contract;

(6) Estimates of any independent research and development cost or

bid and proposal expenses that may be approved under the contract;

(7) Any cost of work funded with uncosted balances previously

included in a fee base of this or any other contract; and

(8) Cost of rework attributable to the contractor.

(c) In calculating the fee amounts associated with the Production,

Research and Development, or Environmental Management work to be

performed, the fee base is to be allocated to the category reflecting

the work to be performed and the appropriate fee schedule utilized.

(d) The portion of the fee base associated with the Production,

Research and Development, or Environmental Management work to be

performed and the associated schedules in this part are not intended to

reflect the portion of the fee base or related compensation for unusual

architect-engineer, construction services, or special equipment

provided by the management and operating contractor. Architect-engineer

and construction services are normally covered by special agreements

based on the policies applying to architect-engineer or construction

contracts. Fees paid for such services shall be calculated using the

provisions of 48 CFR 915.9 relating to architect-engineer or

construction fees. Fees paid for such purchases shall be in addition to

the operating fees calculated for the Production, Research and

Development, or Environmental Management work to be performed. Special

equipment purchases shall be addressed in accordance with the

provisions of 48 CFR 970.1509-7 relating to Special equipment.

970.1509-7 Special equipment purchases.

(a) Special equipment is sometimes procured in conjunction with

management and operating contracts. When a contractor procures special

equipment, the DOE negotiating official shall determine separate fees

for the equipment and use the schedule in 48 CFR 915.971-5(h).

(b) In determining appropriate fees, factors such as complexity of

equipment, ratio of procurement transactions to volume of equipment to

be purchased and completeness of services should be considered. Where

possible, the reasonableness of the fees should be checked by their

relationship to actual costs of comparable procurement services.

(c) The maximum allowable fee for such services shall not exceed

the fee schedule set forth in 48 CFR 915.971-5(h) for such services as

performed by construction contractors. The fee is based on the

estimated price of the equipment being purchased.

(d) For purposes of this part, special equipment is equipment for

which the purchase price is of such a magnitude compared to the cost of

installation as to distort the amount of technical direction and

management effort required of the contractor. Special

[[Page 17808]]

equipment is of a nature that requires less management attention. When

a contractor procures special equipment, the DOE negotiating official

shall determine separate fees for the equipment using the schedule in

48 CFR 915.971-5(h). The determination of specific items of equipment

in this category requires application of judgment and careful study of

the circumstances involved in each project. This category of equipment

would generally include:

(1) Major items of prefabricated process or research equipment; and

(2) Major items of preassembled equipment such as packaged boilers,

generators, machine tools, and large electrical equipment. In some

cases, it would also include special apparatus or devices such as

reactor vessels and reactor charging machines.

970.1509-8 Special considerations: cost-plus-award-fee.

(a) When a management and operating contract is to be awarded on a

cost-plus-award-fee basis, several special considerations are

appropriate.

(b) All performance incentives identified under these contracts are

funded from total available fee, which consists of a base fee amount

(which may be zero) and a performance fee amount (which may consist of

an incentive fee component for objective performance requirements, an

award fee component for subjective performance requirements, or both).

(c) The total available fee for the contract shall equal the

product of the fee(s) that would have been calculated for a fixed fee

contract and the classification factor(s) most appropriate for the

work. (The fixed fee(s) for nonprofit organizations is calculated per

48 CFR 970.1509-2. The fixed fee(s) for profit making organizations is

calculated per 48 CFR 970.1509-4) If more than one fee schedule is

applicable to the contract, the total available fee shall be the sum of

the available fees derived from: each fee schedule; consideration of

significant factors applicable to each fee schedule; and application of

a Classification Factor(s) most appropriate for the work.

(d) Classification factors applied to each Facility/Task Category

are:

------------------------------------------------------------------------

Classification

Facility/task category factor

------------------------------------------------------------------------

A.................................................... 3.00

B.................................................... 2.50

C.................................................... 2.00

D.................................................... 1.25

------------------------------------------------------------------------

(e) The contracting officer shall select the Facility/Task Category

after considering the following:

(1) Facility/Task Category A. The main focus of effort performed is

related to:

(i) The manufacture, assembly, retrieval, disassembly, or disposal

of nuclear weapons with explosive potential;

(ii) The physical cleanup, processing, or storage of nuclear

radioactive or toxic chemicals if the nature of the work is

significantly advancing state of the art technologies in cleanup,

processing or storage operations and/or the inherent difficulty or risk

of the work is significantly more demanding than that found in similar

industrial/DOE settings (i.e., nuclear energy, chemical processing,

industrial environmental cleanup); or

(iii) Research and development directly supporting paragraphs

(e)(1)(i) or (ii) of this section and not conducted in a laboratory, or

as designated by the Procurement Executive. (Classification factor 3.0)

(2) Facility/Task Category B. The main focus of effort performed is

related to:

(i) The safeguarding and maintenance of nuclear weapons or nuclear

material;

(ii) The manufacture or assembly of nuclear components;

(iii) The physical cleanup, processing, handling, or storage of

nuclear radioactive or toxic chemicals, or other substances which pose

a significant threat to the environment or the health and safety of

workers or the public, if the nature of the work is using state of the

art technologies or applications in such operations and/or the inherent

difficulty or risk of the work is more demanding than that found in

similar industrial/DOE settings (i.e., nuclear energy, chemical or

petroleum processing, industrial environmental cleanup);

(iv) The detailed planning necessary for the assembly/disassembly

of nuclear weapons/components; or

(v) Research and development directly supporting paragraphs

(e)(2)(i), (ii), (iii), or (iv) of this section and not conducted in a

laboratory, or as designated by the Procurement Executive.

(Classification factor 2.5)

(3) Facility/Task Category C. The main focus of effort performed is

related to:

(i) The physical cleanup, processing, or storage of nuclear

radioactive or toxic chemicals if the nature of the work is using

routine technologies in cleanup, processing or storage operations and/

or the inherent difficulty or risk of the work is similar to that found

in similar industrial/DOE settings (i.e., nuclear energy, chemical

processing, industrial environmental cleanup);

(ii) Plant and facility maintenance;

(iii) Plant and facility security (other than the safeguarding of

nuclear weapons and material); or

(iv) Research and development directly supporting paragraphs

(e)(3)(i), (ii) or (iii) of this section and not conducted in a

laboratory, or as designated by the Procurement Executive.

(Classification factor 2.0)

(4) Facility/Task Category D. The main focus of the effort

performed is research and development conducted at a laboratory.

(Classification factor 1.25)

(f) Where the Procurement Executive or designee has approved a base

fee, the Classification Factors shall be reduced, as approved by the

Procurement Executive or designee.

(g) Any risks which are indemnified by the Government (for example,

by the Price-Anderson Act) will not be considered as risk to the

contractor.

(h) All management and operating contracts awarded on a cost-plus-

award-fee basis shall set forth in the contract, or the Performance

Evaluation and Measurement Plan(s) required by the contract clause at

48 CFR 970.5204-54, a site specific method of rating the contractor's

performance of the contract requirements in relation to the required/

desired performance of the contract requirements, and a method of fee

determination tied to the method of rating.

(i) Prior approval of the Procurement Executive or designee, is

required for total available fee amount exceeding the guidelines in

paragraph (c) of this section.

(j) Fee Determination Officials must ensure that all important

areas of contract performance are specified in the contract or

Performance Evaluation and Measurement Plan(s), even if such areas are

not assigned specific weights or percentages of available fee.

970.1509-9 Special considerations: fee limitations.

In situations where the objective performance incentives are of

unusual difficulty or where the successful completion of the

performance incentives would provide extraordinary value to the

Government, fees in excess of those allowed under other provisions of

this fee policy may be allowed with the approval of the Procurement

Executive or designee. Requests to allow fees in excess of those

allowed under other provisions of the fee policy in this section must

be accompanied by a written justification with detailed supporting

rationale as to how the

[[Page 17809]]

specific circumstances satisfy the two criteria listed in this

subsection.

970.1509-10 Documentation.

The contracting officer shall tailor the documentation of the

determination of fee prenegotiation objective based on FAR 15.406-1,

Prenegotiation objectives, and the determination of the negotiated fee

in accordance with FAR 15.406-3, Documenting the negotiation. The

contracting officer shall include as part of the documentation: the

rationale for the allocation of cost and the assignment of facility/

task categories; a discussion of the calculations described in 48 CFR

970.1509-4; and discussion of any other relevant provision of this

section.

970.1509-11 Solicitation provision and contract clauses.

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

970.5204-54, Total Available Fee: Base Fee Amount and Performance Fee

Amount, in management and operating contracts, and other contracts

designated by the Procurement Executive or designee, that include cost-

plus-award-fee structures.

(b) Due to the various types of fee and incentive arrangements

which may be included in a contract and the need to ensure the overall

balanced performance of the contract, the contracting officer shall

insert the clause at 48 CFR 970.5204-XX, Conditional Payment of Fee or

Incentives, in management and operating contracts, and other contracts

designated by the Procurement Executive or designee, awarded on a cost-

plus-award-fee, multiple fee, or incentive basis.

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

970.5204-YY, Cost Reduction, in management and operating contracts, and

other contracts designated by the Procurement Executive or designee, if

cost savings programs are contemplated.

(d) The Contracting Officer shall insert the provision at 48 CFR

970.5204-ZZ, Limitation on Fee, in solicitations for management and

operating contracts, and other contracts designated by the Procurement

Executive or designee.

6. Section 970.5204-54 is revised to read as follows:

970.5204-54 Total available fee: base fee amount and performance fee

amount.

As prescribed in 48 CFR 970.1509-11(a), insert the following

clause. The clause should be tailored to reflect the contract's actual

inclusion of base fee amount and performance fee amount.

Total Available Fee: Base Fee Amount and Performance Fee Amount (Month

and Year TBE)

(a) Total available fee. Total available fee, consisting of a

base fee amount (if any) and a performance fee amount (consisting of

an incentive fee component for objective performance requirements,

an award fee component for subjective performance requirements, or

both) determined in accordance with the provisions of this clause,

is available for payment in accordance with the clause of this

contract entitled ``Payments and advances.''

(b) Fee Negotiations. Prior to the beginning of each fiscal year

under this contract, or other appropriate period as mutually agreed

upon, the Contracting Officer and Contractor shall enter into

negotiation of the evaluation areas and individual requirements

subject to incentives, the amount of fee, and the allocation of fee.

The Contracting Officer shall modify this contract at the conclusion

of each negotiation to reflect the negotiated evaluation areas and

individual requirements subject to incentives, the amount of fee,

and the allocation of fee. In the event the parties fail to agree on

the amount of fee, the Contracting Officer may make a unilateral

decision, subject to appeal under the clause of the contract

entitled Disputes. In the event the parties fail to agree on the

evaluation areas and individual requirements subject to incentives

or on the allocation of fee, a unilateral determination will be made

by the Contracting Officer. It is herein agreed the total available

fee amount shall be allocated to a twelve month cycle composed of

one or more evaluation periods, or such longer period as may be

approved by the Procurement Executive or designee.

(c) Determination of Total Available Fee Amount Earned.

(1) The Government shall, at the conclusion of each specified

evaluation period, evaluate the contractor's performance of all

requirements, including performance based incentives completed

during the period and determine the total available fee amount

earned. At the Contracting Officer's discretion, evaluation of

incentivized performance may occur at the scheduled completion of

the incentivized requirement.

(2) The Government Fee Determination Official (FDO) will be

(insert title of FDO). The contractor agrees that the determination

as to the total available fee earned is a unilateral determination

made by the Government FDO.

(3) The evaluation of contractor performance shall be in

accordance with the Performance Evaluation and Measurement Plan(s)

described in subparagraph (d), below, unless otherwise set forth in

the contract. The Contractor shall be promptly advised in writing of

the fee determination, and the reasons why the total available fee

amount was or was not earned. In the event that the contractor's

performance is considered to be less than the level of performance

set forth in the Statement of Work, as amended to include the

current Work Authorization Directive or similar document, for any

contract requirement, the FDO may at his/her discretion adjust the

fee determination to reflect such performance. Any such adjustment

shall be in accordance with the clause entitled ``Conditional

Payment of Fee or Incentives'' if contained in the contract.

(d) Performance Evaluation and Measurement Plan(s). To the

extent not set forth elsewhere in the contract:

(1) The Government shall establish a Performance Evaluation and

Measurement Plan(s) upon which the determination of the total

available fee amount earned shall be based. The Performance

Evaluation and Measurement Plan(s) will contain all important areas

of contract performance specified in the contract, even if such

areas are not assigned specific weights or percentages of available

fee; and evaluation areas and individual requirements that are

subject to incentives and the amount and allocation of fee to such

areas and requirements. A copy of the Plan(s) shall be provided to

the Contractor:

(i) prior to the start of an evaluation period if the evaluation

areas, individual requirements, amount of fee, and allocation of fee

to such evaluation areas and individual requirements have been

mutually agreed to by the parties; or

(ii) not later than thirty days prior to the scheduled start

date of the evaluation period, if the evaluation areas, individual

requirements, amount of fee, and allocation of fee to such

evaluation areas and requirements have been unilaterally established

by the Contracting Officer.

(2) The Performance Evaluation and Measurement Plan(s) will set

forth the criteria upon which the Contractor will be evaluated

relating to any technical, schedule, management, and/or cost

objectives selected for evaluation. Such criteria may be objective,

subjective, or both. The Plan(s) shall also set forth the method by

which the total available fee amount will be allocated and the

amount earned determined.

(3) The Performance Evaluation and Measurement Plan(s) may,

consistent with the contract statement of work, be revised during

the period of performance. The Contracting Officer shall notify the

contractor:

(i) of such unilateral changes at least ninety calendar days

prior to the end of the affected evaluation period and at least

thirty calendar days prior to the effective date of the change;

(ii) of such bilateral changes at least sixty calendar days

prior to the end of the affected evaluation period; or

(iii) if such change, whether unilateral or bilateral, is urgent

and high priority, at least thirty calendar days prior to the end of

the evaluation period.

(e) Schedule for total available fee amount earned

determinations. The FDO shall issue the final total available fee

amount earned determination in accordance with the schedule set

forth in the Performance Evaluation and Measurement Plan(s).

However, a determination must be made within sixty calendar days

after the receipt by the Contracting Officer of the Contractor's

self-assessment, if one is required or permitted per paragraph (f)

of this clause, or seventy calendar days after the end of the

evaluation period, whichever is later. If the Contracting Officer

evaluates the Contractor's performance of specific requirements on

their

[[Page 17810]]

completion, the payment of any earned fee amount must be made within

seventy calendar days (or such other time period as mutually agreed

to between the Contracting Officer and the Contractor) after such

completion. If the determination is delayed beyond that date, the

Contractor shall be entitled to interest on the determined total

available fee amount earned at the rate established by the Secretary

of the Treasury under section 12 of the Contract Disputes Act of

1978 (41 U.S.C. 611) that is in effect on the payment date. This

rate is referred to as the ``Renegotiation Board Interest Rate,''

and is published in the Federal Register semiannually on or about

January 1 and July 1. The interest on any late total available fee

amount earned determination will accrue daily and be compounded in

30-day increments inclusive from the first day after the schedule

determination date through the actual date the determination is

issued. That is, interest accrued at the end of any 30-day period

will be added to the determined amount of fee earned and be subject

to interest if not paid in the succeeding 30-day period.

Alternate I: When the award fee cycle consists of two or more

evaluation periods, add the following as paragraph (c)(4): At the

sole discretion of the Government, unearned total available fee

amounts may be carried over from one evaluation period to the next,

so long as the periods are within the same award fee cycle.

Alternate II: When the award fee cycle consists of one

evaluation period, add the following as paragraph (c)(4): Award fee

not earned during the evaluation period shall not be allocated to

future evaluation periods.

Alternate III: When the FDO requires the contractor to submit a

self-assessment, add the following text as paragraph (f): Contractor

self-assessment. Following each evaluation period, the Contractor

shall submit a self-assessment within (Insert Number) calendar days

after the end of the period. This self-assessment shall address both

the strengths and weaknesses of the Contractor's performance during

the evaluation period. Where deficiencies in performance are noted,

the Contractor shall describe the actions planned or taken to

correct such deficiencies and avoid their recurrence. The FDO will

review the Contractor's self-assessment, if submitted, as part of

the evaluation of the contractor's management during the period. The

self-assessment, if any, itself will not be the basis for the award

fee determination.

Alternate IV: When the FDO permits the contractor to submit a

self-assessment at the contractor's option, add the following text

as paragraph (f): Contractor self-assessment. Following each

evaluation period, the Contractor may submit a self-assessment,

provided such assessment is submitted within (Insert Number)

calendar days after the end of the period. This self-assessment

shall address both the strengths and weaknesses of the Contractor's

performance during the evaluation period. Where deficiencies in

performance are noted, the Contractor shall describe the actions

planned or taken to correct such deficiencies and avoid their

recurrence. The FDO will review the Contractor's self-assessment, if

submitted, as part of the evaluation of the Contractor's management

during the period. The self-assessment, if any, itself will not be

the basis for the award fee determination.

7. Section 970.5204-XX, Conditional Payment of Fee or Incentives;

970.5204-YY, Cost Reduction; and 970.5204-ZZ, Limitation on Fee, are

added to read as follows:

970.5204-XX Conditional payment of fee or incentives.

As prescribed in 48 CFR 970.1509-11(b), insert the following

clause:

Conditional Payment of Fee or Incentives (Month and Year TBE)

In order for the Contractor to receive all otherwise earned fee,

profit, or share of cost savings under the contract in an evaluation

period, the Contractor must meet the minimum requirements in

paragraphs (a) through (d) of this clause. If the Contractor does

not meet the minimum requirements, the DOE Operations Office Manager

or his/her designee may make a unilateral determination to reduce

the evaluation period's otherwise earned fee, profit or share of

cost savings as described in paragraphs (a) through (d) of this

clause. This clause does not apply to any Base Fee included in the

contract.

(a) Minimum requirements for Environment, Safety & Health (ES&H)

Program. The Contractor shall develop, obtain DOE approval of, and

implement a Safety Management System in accordance with the

provisions of the clause entitled, ``Integration of Environment,

Safety and Health into Work Planning and Execution,'' if included in

the contract, or as otherwise agreed to with the Contracting

Officer. The minimal performance requirements of the system will be

set forth in the approved Safety Management System, or similar

document. If the Contractor fails to obtain approval of the Safety

Management System or fails to achieve the minimum performance

requirements of the system during the evaluation period, the DOE

Operations Office Manager or his/her designee, at his/her sole

discretion, may reduce, any otherwise earned fees, profit or share

of cost savings, for the evaluation period by an amount up to the

amount earned.

(b) Minimum requirements for catastrophic event. If, in the

performance of this contract, there is a catastrophic event (such as

a fatality, or a serious workplace related injury or illness to one

or more employees, loss of control over classified or special

nuclear material, or significant damage to the environment), the DOE

Operations Office Manager or his/her designee, may reduce any

otherwise earned fee for the evaluation period by an amount up to

the fees earned. In determining any diminution of fee resulting from

a catastrophic event, the DOE Operations Office Manager or his/her

designee will consider whether willful misconduct and/or negligence

contributed to the occurrence and will take into consideration any

mitigating circumstances presented by the contractor or other

sources. This clause is in addition to any other remedies available

to the Government that may be contained in this contract.

(c) Minimum requirements for specified level of performance.

(1) At a minimum the Contractor must perform the following:

(i) the requirements with specific incentives at the level of

performance set forth in the Statement of Work, Work Authorization

Directive, or similar document;

(ii) all of the performance requirements directly related to the

incentive requirements at a level of performance such that the

overall performance of these requirements is at an acceptable level;

and

(iii) all other requirements at a level of performance such that

the total performance of the contract is not jeopardized.

(2) The evaluation of the Contractor's achievement of the level

of performance shall be unilaterally determined by the Contracting

Officer. To the extent that the Contractor fails to achieve the

minimum performance levels specified in the Statement of Work, Work

Authorization Directive, or similar document, during the evaluation

period, the DOE Operations Office Manager or his/her designee, may

reduce any otherwise earned fee, profit, or shared net savings for

the evaluation period, by an amount up to the amount earned.

(d) Minimum requirements for cost performance.

(1) Requirements incentivized by other than cost incentives must

be performed within their specified cost and must not adversely

impact the costs of performing unrelated activities.

(2) The performance of requirements with a specific cost

incentive must not adversely impact the costs of performing

unrelated requirements.

(3) The Contractor's performance within the stipulated cost

performance levels for the evaluation period shall be determined by

the Contracting Officer. To the extent the Contractor fails to

achieve the stipulated cost performance levels, the DOE Operations

Office Manager or his/her designee, at his/her sole discretion, may

reduce in whole or in part any otherwise earned fee, profit, or

shared net savings for the evaluation period by an amount up to the

amount earned.

970.5204-YY Cost Reduction.

As prescribed in 48 CFR 970.1509-11(c), insert the following

clause:

Cost Reduction (Month and Year TBE)

(a) General. It is the Department of Energy's (DOE's) intent to

have its facilities and laboratories operated in an efficient and

effective manner. To this end the Contractor shall assess its

operations and identify areas where cost reductions would bring cost

efficiency to operations without adversely affecting the level of

performance required by the contract. The Contractor, to the maximum

extent practical, shall identify areas where cost reductions may be

effected and develop and submit Cost Reduction Proposals (CRPs) to

the Contracting Officer. If accepted, the Contractor may share in

any shared net savings from accepted CRPs in accordance with

paragraph (g).

[[Page 17811]]

(b) Definitions.

Administrative cost is the contractor cost of developing and

administering the CRP.

DOE cost is the Government cost incurred in implementing and

validating the CRP.

Design, process, or method change is a change to a design,

process, or method which has an established baseline, is defined,

and is subject to a formal control procedure. Such a change must be

innovative, initiated by the contractor, and applied to a specific

project or program.

Development cost is the contractor cost of up front planning,

engineering, prototyping, and testing of a design, process, or

method.

Implementation cost is the contractor cost of tooling,

facilities, documentation, etc., required to effect a design,

process, or method change once it has been tested and approved.

Net Savings means a reduction in the total amount (to include

all related costs and fee) of performing the effort where the

savings revert to the DOE control and may be available for

deobligation. Such savings may result from a specific cost reduction

effort which is negotiated on a cost-plus-incentive-fee, fixed-price

incentive, or firm-fixed-price basis, or may result directly from a

design, process, or method change. They may also be savings

resulting from formal or informal direction given by DOE or from

changes in the mission, work scope, or routine reorganization of the

Contractor due to changes in the budget.

Shared Net Savings are those net savings which result from:

(1) a specific cost reduction effort which is negotiated on a

cost-plus-incentive-fee or fixed-price incentive basis and are the

difference between the negotiated target cost of performing an

effort as negotiated and the actual allowable cost of performing

that effort or

(2) which result directly from a design, process, or method

change, occur in the fiscal year in which the change is accepted and

the subsequent fiscal year and are the difference between the

estimated cost of performing an effort as originally planned and the

actual allowable cost of performing that same effort utilizing a

revised plan intended to reduce costs along with any Contractor

development costs, implementation costs, administrative costs, and

DOE costs associated with the revised plan. Administrative costs and

DOE costs are only included at the discretion of the Contracting

Officer. Savings resulting from formal or informal direction given

by the DOE or changes in the mission, work scope, or routine

reorganization of the Contractor due to changes in the budget are

not to be considered as shared net savings for purposes of this

clause and do not qualify for incentive sharing.

(c) Procedure for submission of CRPs.

(1) CRPs for the establishment of cost-plus-incentive-fee,

fixed-price incentive, or firm-fixed-price efforts or for design,

process, or methods changes submitted by the Contractor shall

contain, at a minimum, the following:

(i) Current Method (Baseline)--A verifiable description of the

current scope of work, cost, and schedule to be impacted by the

initiative; and supporting documentation.

(ii) New Method (Baseline)--A verifiable description of the new

scope of work, cost, and schedule, how the initiative will be

accomplished; and supporting documentation.

(iii) Feasibility Assessment--A description and evaluation of

the proposed initiative and benefits, risks, and impacts of

implementation. This evaluation shall include an assessment of the

difference between the current method (baseline) and proposed new

method including all related costs.

(2) In addition, CRPs for the establishment of cost-plus-

incentive-fee, fixed-price incentive, or firm-fixed-price efforts

shall contain, at a minimum, the following:

(i) the proposed contractual arrangement and the justification

for its use; and

(ii) a detailed cost/price estimate and supporting rationale. If

the approach is proposed on an incentive basis, minimum and maximum

cost estimates should be included along with any proposed sharing

arrangements.

(d) Evaluation and Decision. All CRPs must be submitted to and

approved by the Contracting Officer. Included in the information

provided by the CRP must be the following regarding the extent the

proposed cost reduction effort may:

(1) pose a risk to the health and safety of workers, the

community, or to the environment;

(2) result in a waiver or deviation from DOE requirements, such

as DOE Orders and joint oversight agreements;

(3) require a change in other contractual agreements;

(4) result in significant organizational and personnel impacts;

(5) create a negative impact on the cost, schedule, or scope of

work in another area;

(6) pose a potential negative impact on the credibility of the

Contractor or the DOE; and

(7) impact successful and timely completion of any of the work

in the baseline.

(e) Acceptance or Rejection of CRPs. Acceptance or rejection of

a CRP is a unilateral determination made by the Contracting Officer.

The Contracting Officer will notify the Contractor that a CRP has

been accepted, rejected, or deferred within (Insert Number) days of

receipt. The only CRPs that will be considered for acceptance are

those which the Contractor can demonstrate, at a minimum, will:

(1) result in net savings (in the sharing period if a design,

process, or method change);

(2) not reappear as costs in subsequent periods; and

(3) not result in any impairment of essential functions. The

failure of the Contracting Officer to notify the Contractor of the

acceptance, rejection, or deferral of a CRP within the specified

time shall not be construed as approval.

(f) Adjustment to Original Estimated Cost and Fee. If a CRP is

established on a cost-plus-incentive-fee, fixed-price incentive or

firm-fixed-price basis, the originally estimated cost and fee for

the total effort from which the CRP effort was removed shall be

adjusted to remove the estimated cost and fee amount associated with

the CRP effort.

(g) Sharing Arrangement. If a CRP is accepted, the Contractor

may share in the shared net savings. For a CRP negotiated on a cost-

plus-incentive-fee or fixed-price incentive basis, with the specific

incentive arrangement (negotiated target costs, target fees, share

lines, ceilings, profit, etc.) set forth in the contractual document

authorizing the effort, the Contractor's share shall be the actual

fee or profit resulting from such an arrangement. For a CRP

negotiated as a cost savings incentive resulting from a design,

process, or method change, the Contractor's share shall be a

percentage no greater than 25 percent of the shared net savings. The

specific percentage and sharing period shall be set forth in the

contractual document.

(h) Validation of Shared Net Savings. The Contracting Officer

shall validate actual shared net savings. If actual shared net

savings can not be validated, the contractor will not be entitled to

a share of the net shared savings.

(i) Relationship to Other Incentives. Only those benefits of an

accepted CRP not rewardable under other clauses of this contract

shall be rewarded under this clause.

(j) Subcontracts. The Contractor may include a clause similar to

this clause in any subcontract. In calculating any estimated shared

net savings in a CRP under this contract, the Contractor's

administration, development, and implementation costs shall include

any Subcontractor's allowable costs, and any CRP incentive payments

to a Subcontractor resulting from the acceptance of such CRP. The

Contractor may choose any arrangement for Subcontractor CRP

incentive payments, provided that the payments not reduce the DOE's

share of shared net savings.

970.5204-ZZ Limitation on Fee.

As prescribed in 48 CFR 970.1509-11(d), insert the following

provision:

Limitation of Fee (Month and Year TBE)

For the purpose of this solicitation fee amounts shall not

exceed the total available fee allowed by the fee policy. The

Government reserves the unilateral right, in the event an offeror's

proposal is selected for award, to limit: fixed fee to not exceed an

amount established pursuant to 48 CFR 970.1509-4; and total

available fee to not exceed an amount established pursuant to 48 CFR

970.1509-8.

[FR Doc. 98-9501 Filed 4-9-98; 8:45 am]

BILLING CODE 6450-01-P