[Federal Register Volume 64, Number 47 (Thursday, March 11, 1999)]
[Rules and Regulations]
[Pages 12220-12237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6064]
[[Page 12219]]
_______________________________________________________________________
Part III
Department of Energy
_______________________________________________________________________
48 CFR Parts 915 and 970
Acquisition Regulation; Department of Energy Management and Operating
Contracts and Other Designated Contracts; Final Rule
Federal Register / Vol. 64, No. 47 / Thursday, March 11, 1999 / Rules
and Regulations
[[Page 12220]]
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: Final rule.
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SUMMARY: The Department today amends 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 final rule implements a fee policy that ensures that
fees: 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: This final rule is effective for new awards and extensions after
April 12, 1999.
FOR FURTHER INFORMATION CONTACT: Stephen Michelsen, Office of Contract
and Resource Management (MA-53), Department of Energy, 1000
Independence Avenue, SW, Washington, DC 20585, (202) 586-1368; (202)
586-9356 (facsimile); stephen.michelsen@hq.doe.gov (Internet).
SUPPLEMENTARY INFORMATION:
I. Background
II. Disposition of 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
G. Review Under Small Business Regulatory Enforcement Fairness
Act of 1996
H. Review Under the Unfunded Mandates Reform Act of 1995
I. Background
On April 10, 1998, the Department of Energy (DOE or Department)
published in the Federal Register (63 FR 17800) a Notice of Proposed
Rulemaking to amend the DEAR Subsection 970.15404-4 to revise fee
policies and related procedures for management and operating contracts
and other designated contracts. The Notice of Proposed Rulemaking
continued the effort introduced in the Department's June 27, 1997 (62
FR 34842) rule to improve its management and operating contracts.
Today's final rule amends DOE's fee policy to conform that policy to
performance-based contracting concepts introduced in the earlier rule.
The Notice of Proposed Rulemaking solicited comments on all aspects
of the proposed rulemaking, including the following five specific
elements:
The use of multiple contract types within the structure of
a cost-plus-award-fee contract;
The approach which places all fee at performance risk;
The fee policy as it applies to contracts with nonprofit
organizations including educational institutions, with an alternate
proposal;
The amount of fee necessary to attract the most capable
contractors; and
The application of the Conditional Payment of Fee, Profit
or Incentives clause.
Because there were issues involved in the rulemaking that were
significant and complex, a public workshop was conducted on May 19,
1998. This format allowed for the interactive exchange of ideas in an
informal conference style setting. The workshop agenda included
Department presentations on performance-based contract management, an
executive summary of the proposed rule, and draft answers to questions
that had been submitted by members of the public prior to the workshop.
Four attendees made presentations. Written comments on the Notice of
Proposed Rulemaking were due June 9, 1998. The Department received
comments from 26 entities. The administrative record, including the
transcript of the workshop is located in the Department's Freedom of
Information Public Reading Room and on the Department's home page at
http://www.pr.doe.gov.
Today's final rule adopts the Notice of Proposed Rulemaking with
certain changes discussed in the Disposition of Comments section. The
final rule reflects changes to existing regulations announced in the
Notice of Proposed Rulemaking which include:
Updated fee schedules based on the effects of inflation
since 1991 (Subsections 915.404-4-71-5 and 970.15404-4-5);
A new fee schedule for environmental management to support
the environmental remediation work effort (Subsection 970.15404-4-5);
Guidance on the availability of various contract types and
a preference, when incentive contracting is utilized, for contract
types under which all fee will be based on performance (Subsection
970.15404-4-3);
A preference for those contract types that appropriately
maximize the incentives for superior performance (Subsection 970.15404-
4-3);
Criteria for the use of multiple fee approaches
(Subsection 970.15404-4-3);
A correlation of incentive-fee type arrangements to
Federal Acquisition Regulation (FAR) guidance (Subsection 970.15404-4-
3);
A requirement to make the maximum appropriate use of
outcome oriented performance expectations consistent with performance-
based management contract concepts (Subsection 970.15404-4-3);
Restructuring of considerations and techniques for
determining fixed fees and total available fee (Subsections 970.15404-
4-4 and 970.15404-4-8);
A redefinition of Facility/Task Categories consistent with
changes in work at major facilities (Subsection 970.15404-4-8);
An elimination of the references to fees for management
and operating contracts for support services;
A rewritten and retitled total available fee clause
(Section 970.5204-54);
A new clause that seeks to ensure, among other things,
that performance affecting the critical areas of environment, safety
and health, catastrophic events, specified level of performance, and
cost performance is not compromised by any other performance objective
(Subsection 970.5204-86);
A new clause to address cost reduction proposal programs
based on guidance in DEAR 970.15404-4-3(f) and 970.15404-4-11
(Subsection 970.5204-87); and,
A new provision for identifying maximum available fee
(Subsection 970.5204-88).
The final rule also reflects modifications to the Notice of
Proposed Rulemaking in response to comments in the following areas:
Added criteria for using negative fee incentives
(Subsection 970.15404-4-1);
A fee policy for laboratory management and operation,
including Federally Funded Research and Development Centers (FFRDCs),
(Subsection 970.15404-4-2);
Limitation on using a fee schedule more than once in the
determination of the fee amount for an annual period (Subsection
970.15404-4-6);
The exclusion of at least 20% of the estimated cost or
price of subcontracts
[[Page 12221]]
from the fee base (Subsection 970.15404-4-6);
Description of fee schedule work efforts in the area of
construction directly supporting effort in the various Facility/Task
Categories (Subsection 970.1504-4-8);
The right of the Contracting Officer and DOE Operation/
Field Office Manager to make unilateral determinations (Subsections
970.5204-54, 970.5204-86, and 970.5204-87); and
Revision of the proposed Conditional Payment of Fee,
Profit, or Incentives clause which establishes the portion of total
available fee, profit or incentives that is subject to recovery due to
failure to meet minimum requirements for specified level of performance
or cost performance while ensuring proper emphasis on environment,
safety and health, and catastrophic events, including contracts with
fixed fees (Subsection 970.5204-86).
II. Disposition of Comments
The Department has considered and evaluated the comments received
during the public comment period. The following discussion provides a
summary of the comments received, the Department's responses to the
comments, and any resulting changes from the Notice of Proposed
Rulemaking. This discussion is grouped by the major items covered. Text
changes finalized by the rule are listed at the end of each major item
discussed.
Item 1--Special Considerations: Nonprofit Organizations
Comment: The majority of the commenters opposed the Notice of
Proposed Rulemaking at DEAR 970.15404-4-2, which would have placed
limitations on the availability of fee for nonprofit organizations and
educational institutions. Specifically, commenters expressed concerns
that the proposed rulemaking did not reflect the diversity of interests
of the contractors involved in managing laboratory operations.
Commenters stated there were fundamental differences in structure and
objectives between the diverse set of FFRDC contractors currently in
operation in the DOE complex. The operators of FFRDCs represent a
diverse set of organizations--educational institutions, educational
consortiums, private institutions, technology companies, and
combinations thereof.
Commenters suggested the total circumstances particular to the
FFRDC and the selected operating organization should be considered when
establishing compensation. Commenters stated that the Notice of
Proposed Rulemaking was predicated on invalid assumptions regarding
contractor performance incentives to satisfy the needs of the
laboratories. Rather than extend the Department's commercial fee policy
with its focus on incentives tied to financial and performance
considerations, commenters suggested that some form of the alternate
proposal be adopted, but with an emphasis on non-financial incentives.
Commenters suggested that the Department adopt a policy more in line
with the alternative policy proposed in the Notice of Proposed
Rulemaking that focused on FFRDCs.
Further, many of the educational institutions that submitted
comments sought to lessen the impact of Contract Reform liability
provisions (62 FR 34842).
Expressing concern that the alternative policy might not be
prepared on time for the publication of the final rule, several
commenters suggested that the publication of DEAR 970.15404-4-2 be
delayed.
While the majority of the commenters opposed the Notice of Proposed
Rulemaking for the reasons described above, several commenters offered
more general criticism that applied to both the proposed regulatory
text and the alternate policy. Some commenters pointed out that the
proposed regulatory text of DEAR 970.15404-4-2 did not provide adequate
total available fee to attract the best business partners. Finally, a
number of commenters questioned the Department's use of a definition of
``nonprofit'' that was inconsistent with the definition contained in
the Internal Revenue Code.
Response: In preparing the Notice of Proposed Rulemaking, DOE
recognized that there was no clear choice of a single policy which
would allow the Department the flexibility to appropriately incentivize
the performance of all of its laboratory contractors. Accordingly,
while the Notice of Proposed Rulemaking proposed a fee policy at DEAR
970.15404-4-2 for contracts with nonprofit organizations including
educational institutions, it also requested interested parties to
comment on an alternative to the proposed rulemaking that 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. The final rule at DEAR 970.15404-4-2 has retained those
provisions of the Notice of Proposed Rulemaking at DEAR 970.15404-4-2
that have not generally been in dispute. The final rule retains the
Contracting Officer's authority to consider whether fee is an
appropriate incentive in each FFRDC circumstance at DEAR 970.15404-4-
2(a). The Department recognizes that eliminating this commonly
understood and accepted procedure would complicate rather than simplify
the procurement process applied to FFRDCs. DOE agrees with the comments
that the Notice of Proposed Rulemaking did not recognize the diversity
of interests of the contractor operators of DOE laboratories.
Again, the alternative proposed a policy that more adequately
considered the diversity of contractor interests. Accordingly, the
Department has adopted in the final rule the guiding principles
contained in the alternate policy--a policy which applies to the
contractors operating the Department's laboratories without
specifically distinguishing between types of business organizations. To
that end, the final rule, among other things, does not specifically
define ``nonprofit organizations.'' The final rule DEAR 970.15404-4-2
language provides a substantial degree of flexibility to Contracting
Officers--including discretionary authority for the creation of
performance incentives suited for local FFRDC operations. Nevertheless,
because the purpose of the rulemaking is to implement the policy of
linking the payment of fee to risk and performance, the final rule
retains this requirement in DEAR 970.15404-4-2. As a result, the
Contracting Officer under DEAR 970.15404-4-2 now has authority to
consider whether fee is needed, and if so, how much is required, and
the fee structure to incentivize optimal contractor performance.
One of the primary rationales expressed in the alternate DEAR
970.15404-4-2 in the Notice of Proposed Rulemaking for the change in
fee policy was to establish uniformity and consistency in the payment
of fees to FFRDC operators. Prior to this rulemaking, the Department's
practices differed significantly from other agencies' contracting with
similar organizations. The adoption of DEAR 970.15404-4-2 as contained
in this final rule will bring the Department closer into conformance
with other similarly situated Government agencies. In writing the final
rule to apply to the management of the Department's laboratories, the
considerations and requirements were revised at DEAR 970.15404-4-2 to
reflect FAR Part 35 policy regarding FFRDCs and be more in line with
other agency policies as requested by several commenters.
[[Page 12222]]
The Contract Reform rule (62 FR 34842) imposed increased liability
on contractors in several areas including statutorily based unallowable
costs and costs due to failure to exercise prudent business judgment on
the part of the contractor's managerial personnel. In this final rule,
DOE is conforming its fee policy to the principles established by
Contract Reform. The Department's decision is based on consideration of
a number of internal and external factors, including parity with
liabilities imposed on ``commercial'' contractors, accountability for
taxpayer dollars, congressional interest and oversight, and the broad
objectives of Contract Reform. Nevertheless, the Department recognized
that the Notice of Proposed Rulemaking, in both the policy and the
alternate, may not provide sufficient fee to compensate for the
operator's assumption of both liability and performance risks that
Contract Reform had shifted to the FFRDC operators. As a result, the
final rule adds DEAR 970.15404-4-2(c)(4) to allow for the establishment
of fee for the life of the contract for operation of laboratories. To
provide educational or nonprofit organizations adequate compensation
for the liability they assume under their contracts and the risk posed
by having all or the majority of fee tied to performance, the final
rule also: allows the provision of fee to educational institutions;
allows for a performance fee which is higher than the fixed fee amount;
and minimizes risk by making fee subject to downward adjustment only if
performance is less than the target performance level stated in the
contract. Further, the policy allows the establishment of a fixed fee
or base fee in an amount reflective of the cost associated with the
risk of the liabilities assumed.
To the extent that a delay in implementation was requested, it is
not believed that any such delay would result in any further
improvements to DEAR 970.15404-4-2.
In summary, the final rule at DEAR 970.15404-4-2 addresses special
considerations for laboratory management and operation without
distinguishing between the types of organizations operating the
facilities; provides a substantial degree of flexibility to Contracting
Officers; brings the Department closer into conformance with other
similarly situated Government agencies; and allows for the
establishment of fee for the life of the contract for the operation of
laboratories.
Item 2--Calculating Fixed Fee
A. Comment: Three commenters recommended that the Department
conduct its negotiations and structure types of contracts more in
accordance with FAR. These comments included a proposal to negotiate
fees, to use FAR type cost-plus-incentive-fee or cost-plus-award-fee
contracts, and to use a weighted guideline approach. One commenter
recommended that fee not be artificially limited by fee schedules and
that fee schedules be utilized only as a guide for estimating fee
targets for negotiation. Six commenters recommended various alternative
indexes which would factor in more labor costs or a broader index for
inflation to represent the actual types of costs incurred by the
Department's contractors. The commenters also asserted that the
modifications to the fee schedules in the Notice of Proposed Rulemaking
were inadequate to account for inflation, the additional risks from the
added liabilities from Contract Reform, and the performance risk
environment.
Response: The nature of the management and operating contract does
not lend itself to the application of the weighted guidelines approach.
Therefore, the Department continues to use fee schedules associated
with various categories of work as the foundation for determining fees.
The schedules are regressive in nature, reflecting the general
principle applied to government contracting which provides lower fee
ranges for categories of cost which indicate less risk, complexity and
technical value; and higher fee ranges for categories of cost which
indicate greater risk, complexity and technical value (e.g., low fee
range for manufacturing labor, high fee range for engineering labor).
To better reflect the changing focus of the work being performed by the
Department, an additional schedule was added in the Notice of Proposed
Rulemaking to address environmental management work.
As proposed in the Notice of Proposed Rulemaking and adopted in the
final rule, the revised fee policy provides for the use of alternatives
to the traditional management and operating cost and fee arrangements.
However, the use of such alternatives is conditioned at DEAR 970.15404-
4-3 on obtaining and negotiating the costs for the alternative used and
complying with the conditions of DEAR Part 915 and FAR Parts 15 and 16.
In establishing fees under these alternative arrangements, a structured
approach as set forth in FAR Part 15 and DEAR Part 915 will be used.
As proposed, all of the fee schedules were adjusted based on
inflation which occurred from 1991 through 1997. This resulted in an
adjustment of 9.4% for the schedules in the Notice of Proposed
Rulemaking. Some commenters criticized this adjustment as not truly
representative of the actual inflation of costs incurred at the
Department's sites. In response to these comments, DOE conducted a
review of various indexes. After consideration of that review, the
complexities of index selection, and the applicability of the indexes
to the Department's specialized work, DOE determined to make no further
adjustments to the schedules proposed in the Notice of Proposed
Rulemaking. Nevertheless, in developing periodic inflation adjustments
in the future, DOE will consider other indexes as alternatives for use
if deemed better indicators of the DOE inflation experience.
B. Comment: Four commenters requested a definition for each of the
fee schedule work efforts at DEAR 970.15404-4-5 in order to reduce the
subjectivity of categorizing work scope as production, research and
development, or environmental management. They requested clarification
of classifying primary mission work versus performing contract efforts
(particularly environmental management) for the various fee schedules.
Commenters also requested a clarification of the application of
multiple fee schedules for multi-program facilities.
Response: The Notice of Proposed Rulemaking and final rule at DEAR
970.15404-4-5 allow for the work at a site to be broken into various
categories and the cost of such work allocated to an appropriate fee
schedule for the purposes of determining fee. There is latitude
provided to Contracting Officers in determining the appropriate
schedule against which to allocate the cost of various work categories.
For example, the Environmental Management schedule is designed to
include the grouping of various types of work related to environmental
management, including waste management, environmental remediation,
incidental construction, and incidental technology development/
demonstration. However, the Environmental Management schedule does not
contemplate inclusion of significant work which would more properly be
allocated to another schedule. For example, major construction
performed by the prime contractor (e.g., construction of a
vitrification facility) related to
[[Page 12223]]
environmental management should be grouped with other construction
projects using the construction schedule, while minor construction
(e.g., construction of temporary facility in which to collect low level
waste) incidental to environmental management should remain grouped
with other environmental management projects using the Environmental
Management schedule. No definitions of fee schedules were added to DEAR
970.15404-4-5.
The Notice of Proposed Rulemaking stated at DEAR 970.15404-4-6(c):
``the fee base is to be allocated to the category reflecting the work
to be performed,'' but did not state that each schedule should be used
no more than once to calculate fee for an annual period. Dividing work
and applying a fee schedule multiple times in a year would artificially
raise the fee for the total work. This is because the fee rate declines
as the total fee base increases. Each fee schedule is intended to apply
annually to the total work of a particular type. DEAR 970.15404-4-6(e)
was added to the final rule to clearly state this.
Nevertheless, in unusual circumstances, e.g., where fee is to be
determined for work which (1) is distinct, but related and of such
magnitude that combining it for application against one schedule will
result in an unreasonably low fee, or (2) covers more than an annual
period such that combining the total work for application against one
schedule will result in an unreasonably low fee, a schedule may be used
more than once during a fee cycle with the approval of the Procurement
Executive, or designee.
Item 3--Authority
Comment: Four commenters recommended decreasing the approval level
of decision authority from the Procurement Executive, or designee, to
the Contracting Officer in areas of: base fee, total available fees
exceeding fee schedules, and establishing fees for longer than the
funding cycle. One commenter recommended increasing the level of
decision authority from the Field Office Manager to DOE Headquarters
for withholding earned fee under the ``Conditional Payment of Fee,
Profit, or Incentives'' clause because of its subjective and unilateral
basis, while another commenter recommended that determinations to
withhold fee be made by the Contracting Officer with concurrence of the
Procurement Executive and the Department's General Counsel.
Response: The levels of decision authority specified in the fee
policy reflect a balance between DOE Operations/Field Office Mangers
and the Procurement Executive, or designee, for flexibility and
authority to support mission objectives and establish consistency in
the Department's application of fee. At this time, generally, authority
regarding operational decisions is with DOE Operations/Field Office
Managers, and Department-wide application of fee consistency decisions,
including annual total available fee amounts not established in
accordance with DEAR 970.15404-4 is with the Procurement Executive, or
designee. As such, it has been determined that the Department will
retain in the final rule Procurement Executive, or designee, approvals
listed in the Notice of Proposed Rulemaking to reflect these
considerations.
Item 4--Special Considerations: Cost-Plus-Award-Fee
Comment: Six commenters recommended changes to the Facility/Task
Categories and associated Classification Factors at DEAR 970.15404-4-8
in several areas. The first area was that the fee policy give special
consideration for facilities on Environmental Protection Agency's
National Priority List (NPL) since higher risks are involved.
Commenters recommended that those NPL-designated facilities continue,
as stated in the current DEAR, to be classified at the site and/or
contract level in recognition of the contractor's overall integration
responsibilities and asked DOE to consider work at NPL sites to be
among the ``riskiest'' work for DOE. The second comment area was that
research and development (R&D) conducted at a laboratory was assigned
too low a classification factor (lower than current DEAR) which three
commenters believed downgraded the importance of R&D when laboratory
R&D contractors are subject to the same risks as non-laboratory
contractors. Two additional commenters recommended broadening the
considerations to also consider financial risk, degree of managerial
skill, and value of the task to DOE. They stated the considerations
fall short in that they focus exclusively on the technical scope of
work, and strongly urged DOE to consider other non-technical contractor
challenges in its selection of Facility/Task Categories. Also,
clarification was requested regarding the assignment of Facility/Task
Categories and Classification Factors to the construction effort
associated with the Facility/Task Categories.
Response: The effort performed at NPL sites is included in the
Facility/Task Categories based on the primary focus of the effort to be
performed. NPL sites are all different. NPL work is at different stages
of the environmental cleanup process, which impacts the amount of
technical uncertainty and information available to determine risk to
the Government. The work at the various sites has different waste
types, components, special handling requirements, and regulatory
requirements and should be classified accordingly. The Facility/Task
Categories and associated Classification Factors accommodate the
variety of categories of work and associated risks. Each category is
assigned a factor by which the calculated fixed fee associated with
that work should be increased if fee is no longer to be fixed, but tied
entirely to performance. This factor reflects the potential risk of not
earning the fee. It is not the Department's intent to create an equal
progression between the factors associated with the different
categories. With the creation of a Facility/Task Category for the
performance of R&D work in a laboratory, performance risk is less on a
relative scale, and, therefore, the factor of 1.25 remains unchanged
from the Notice of Proposed Rulemaking at DEAR 970.15404-4-8(d).
The Notice of Proposed Rulemaking at DEAR 970.15404-4-8(c) moves
away from past approaches where a factor was applied on a site wide
basis to one where the factor is applied at the work element level,
which supports performance-based contracting concepts. Assignment of
Facility/Task Categories and associated Classification Factors should
be based on the technology used or the inherent risk of the work.
DEAR 970.15404-4-4(b) in the Notice of Proposed Rulemaking allows
judgmental evaluation of eight significant factors and the assignment
of appropriate fee values according to financial and management risk.
The value of tasks to DOE is reflected in the requirements subject to
incentives, the amount of fee, and the allocation of fee.
The final rule was revised at DEAR 970.15404-4-8(e) to clarify that
construction directly supporting work in the various Facility/Task
Categories is to be included in each Facility/Task Category.
Item 5--Fee Amount
A. Comment: Four commenters stated that the Notice of Proposed
Rulemaking appears to reduce available fees by eliminating base fee,
requiring fee discounts in competitive solicitations, and expanding the
scope of DEAR 970.5204-86, ``Conditional Payment of
[[Page 12224]]
Fee, Profit, or Incentives'' clause. These commenters recommended that
no maximum available fee be set in competitive solicitations, that the
policy should be a guideline not a means of ``fee fixing'' beyond
statutory limits (FAR 15.404-4(c)(4)(i)), and that greater reliance be
placed on competition and negotiation.
Response: As part of the process of developing a final rule fee
policy, DOE performed analysis using historical cost and fee data from
actual contracts and applied different approaches to fee calculation as
well as different variations of the fee policy. Additionally, DOE
analyzed all data for FY 98 comparing total available fees as
calculated by the current DEAR, the Notice of Proposed Rulemaking, and
actual total available fee awarded. The FY 98 data reinforced previous
analyses. After adjusting for the effects of inflation in the proposed
fee schedules, total available fees calculated as set forth in the
Notice of Proposed Rulemaking tended to be somewhat higher than those
calculated under the current DEAR. This reflects, among other things,
the greater risk associated with earning those fees. It was the
Department's specific intent to provide a greater risk-reward ratio.
The notable exception to somewhat higher fees was the total available
fees tied to performance calculated for nonprofit organizations
operating the Department's laboratories. In those cases where fee was
paid to nonprofits in the past, the fees calculated under the final
rule were lower than those previously awarded, due to the introduction
of the new Facility/Task Category ``D'' and ``1.25'' factor for the
performance of R&D in a laboratory in proposed DEAR 970.15404-4-8(d).
However, under the final rule, not only nonprofit organizations but
also educational institutions may be paid fee.
Another facet of the fee policy which was observed by commenters to
potentially reduce fee is its application to competitive solicitations.
In most cases where the actual total available fee amount had been
established as part of a competitive award process, the fees tended to
be higher than the total available fees calculated using either the
current DEAR or the Notice of Proposed Rulemaking. The Department has
observed that competition forces on fee were not adequate given the
weight generally attached to fee in the source selection process.
Accordingly, DEAR 970.15404-4-1(f) is intended to establish the maximum
available fee and fee amount targeted for negotiation for competitive
solicitations or the initiation of negotiations for an extension of an
existing contract. In view of this, the final fee rule remains
unchanged for contracts at DEAR 970.15404-4-1(f), which was renumbered
from DEAR 970.15404-4-1(d) and DEAR 970.5204-88 Limitation on Fee
clause, stating the requirement that fixed fee and total available fee
proposed not exceed the limits set forth in the policy. Fees that are
proposed below the limits set in the Notice of Proposed Rulemaking and
set by the final rule may be considered and evaluated as part of the
award process.
B. Comment: Use of Fixed Price contracts.
One commenter recommended that three basic principles should
underlie the Department's fee policy. It agreed that the more risk a
contractor is willing to take, the more fee should be available. As
envisioned by the commenter, however, this would include not only
putting fee at risk, as proposed in the Notice of Proposed Rulemaking,
but also putting the reimbursement of otherwise allowable, allocable,
and reasonable costs at risk. The commenter also recommended that when
work elements cannot be fixed price, award fees tied to objective
measures should be used to the maximum extent practicable. The
commenter further recommended that when work elements cannot be fixed
price and award fees are tied to either objective or subjective
measures, each measure should be directly tied to a sum certain portion
of the fee pool.
In addition, the commenter recommended that DOE include negative
fee incentives in contracts when appropriate.
Response: DOE added DEAR 970.15404-4-1(b) to the final rule to list
the basic principles underlying the Department's fee policy. These
principles are: the amount of fee should reflect the financial risk
assumed by the contractor; when work elements cannot be fixed price,
incentive fees (including award fees) should be tied to objective
measures to the maximum extent appropriate; and when work elements
cannot be fixed price and award fees are employed, they should be tied
to either objective or subjective measures with each measure to the
maximum extent appropriate tied to a specific portion of the fee pool.
These three basic principles were discussed at DEAR 970.15404-4-3 in
the Notice of Proposed Rulemaking and expanded in the final rule. DEAR
970.15404-4-3 (c)(4) of the final rule clearly states that objective
performance measures provide greater incentives for superior
performance than do subjective performance measures and should be used
to the maximum extent appropriate.
The Department did not accept the recommendation to go beyond
putting fee at risk by putting the reimbursement of otherwise
allowable, allocable, and reasonable costs at risk. DOE did, however,
add criteria for using negative fee incentives at DEAR 970.15404-4-
1(e). When performance is considered to be less than the level of
performance set forth in the contract, the Department may adjust the
fee determination to reflect such performance. DEAR 970.15404-4-3(c)(3)
remains unchanged from the Notice of Proposed Rulemaking placing only
fee at risk.
After consideration of the types of management and operating
contracts utilized at the Department, the Department intends to
structure contracts in such a manner that the risk is manageable, and
therefore, assumable by the contractor. To the extent the requirements
of DEAR Part 915 and FAR Parts 15 and 16 can be met, the most
appropriate contract type and fee arrangement listed at DEAR 970.15404-
4-3(a) should be used. If it is appropriate to use fixed price
arrangements, the policy as proposed supports their use.
DEAR 970.15404-4-3(b) remains unchanged from the Notice of Proposed
Rulemaking continuing to require Procurement Executive, or designee,
approval for use of a cost-plus-fixed-fee contract.
C. Comment: Nine commenters recommended that DEAR 970.15404-4-6(b)
either include all subcontracts and major contractor procurements, or
not arbitrarily limit the amount of subcontract costs used to calculate
the fee base. Their concerns focused on creating a bias for doing work
in-house when subcontracting allows a contractor flexibility to adjust
workforce, meet Contract Reform subcontracting initiatives, and comply
with make or buy plans.
Response: The exclusion of at least 20% of subcontractor costs from
the fee base at DEAR 970.15404-4-6(b)(2) of the final rule reflects the
general principle that the contributions of the prime contractor to the
accomplishment of the work may be less as the amount of subcontracting
increases. We note however, that in some cases, there are types of
subcontracts that are as managerially demanding and complex to
administer as the supervision of the workforce directly performing work
for the prime contractor.
The final rule is our attempt to balance these disparate aspects of
subcontracting fee policy. It is not intended that the application of
the
[[Page 12225]]
policy should discourage subcontracting, especially since the trend is
toward outsourcing and privatization, but it is anticipated that in
most cases, a portion of the subcontracting effort will require less
oversight and involvement by the prime contractor. In that regard the
rule allows the inclusion of up to 80% of subcontracting costs in the
calculation of the fee base. It is noted that FAR Part 15 permits 100%
of subcontract costs to be used in the base to calculate fee. However
the FAR also provides that the amount of fee associated with
subcontractor costs may be less than fee amounts associated with fee
categories directly contributed to by the prime. As written, the final
rule has been brought closer into conformance with the Federal
contracting practices broadly applied under the FAR.
With respect to the concern that this adjustment may also
negatively impact the Department's ability to incentivize prime
contractors to contract work out as in the case of the management and
integrating contracts, there are many factors which will influence
proper implementation of ``make or buy'' decisions, with fee only one
of them. However, if, in the opinion of the Contracting Officer, it is
evident that the exclusion of the 20% of subcontract costs is adversely
impacting the implementation of the Department's goals, the Contracting
Officer shall seek a waiver from the Procurement Executive, or
designee, to include additional subcontractor costs above the 80%.
In the final rule, DEAR 970.15404-4-6(b)(2) was clarified to state
that the prime contractor's fee base shall exclude (1) at least 20% of
the estimated cost or price of subcontracts and other major contractor
procurements; and (2) up to 100% of such costs if they are of a
magnitude or nature as to distort the technical and management effort
actually required of the contractor.
D. Comment: One commenter stated the fee policy did not go far
enough in providing an acceptable mix of incentives necessary to
encourage accelerated closure of the Department's facilities. They
stated that projects must have flexibility to link greater fee
opportunity to real value to the Government from significant
acceleration of schedule. They believed there is a negative incentive
for contractors to significantly expedite schedule/reduce cost because
such action frequently will result in reduction of earned fee during
the life of the contract.
Response: It is beyond the scope of the fee policy to address the
numerous ways incentives may be used, including their use in
encouraging accelerated closure. However, with respect to accelerated
closure, the Department is piloting the use of fees calculated using
uncosted balances which result from achieved cost efficiency. The use
of uncosted balances is being considered as a viable approach even
though the Notice of Proposed Rulemaking precluded the use of any
portion of an uncosted balance which has been previously included in a
fee base used to calculate fee without the DEAR 970.15404-4-6(b)(9)
waiver approval of the Procurement Executive, or designee. The concern
the Department has in using an uncosted balance in calculating
additional fee pertains to the accuracy of the estimates of the work
which can be done within a given budget or the cost of the work
scheduled to be performed. The approaches presently being explored
attempt to ensure adequate fee is available to incentivize the
acceleration of the work, while ensuring that the funds for its
acceleration are available due to achieved efficiencies rather than to
poor estimating. As an alternative approach, where cost, performance
and schedule are negotiated and improved performance can be
incentivized the requirements of DEAR Part 915 and FAR Parts 15 and 16
would apply rather than the DEAR Part 970 provisions.
DEAR 970.15404-4-6(b) remains unchanged from the Notice of Proposed
Rulemaking in this area.
Item 6--Clauses
A. Comment: Several comments were received questioning the need for
the Contracting Officer to retain the unilateral right to determine or
modify requirements, specific incentives, and the amount and allocation
of fee under DEAR 970.5204-54 Total Available Fee: Base Fee Amount and
Performance Fee Amount. Also, commenters suggested that all unilateral
decisions should be subject to appeal under the Disputes clause. A
number of commenters suggested that the Performance Evaluation and
Measurement Plan (PEMP) should be bilaterally established.
Response: DEAR 970.5204-54 Total Available Fee: Base Fee Amount and
Performance Fee Amount clause continues to provide for the Contracting
Officer to make unilateral determinations when the parties fail to
reach agreement on work scope, cost, incentives, fee amounts and
allocation, and fee determination. This right is retained due to the
unique structure of the Department's major site management contracts.
These contracts are awarded for a period of five years and usually
contain an option for an additional five years; however, the scope of
work is only defined for annual periods. The unilateral provision of
the clause ensures that the Department can continue to require
performance within defined bounds in the event of a disagreement with
the contractor. The clause, DEAR 970.5204-54, has been changed from the
Notice of Proposed Rulemaking to delete all reference to the Disputes
clause of the contract. This change was made to reflect the fact that
the policy will remain silent regarding the applicability of the
Disputes clause to Contracting Officer decisions. It is the
Department's position that applicability of the Contracts Dispute Act
is provided by statute and needs no further amplification in the DOE
acquisition policy.
The PEMP is intended as a management tool for the government's use.
This administrative plan has never been intended to be a comprehensive,
legally binding contractual document. To have an administrative plan,
which is subject to many changes, bilaterally agreed to would place an
undue administrative burden on the parties involved; therefore, DEAR
970.5204-54(d) was not changed in this area.
B. Comment: Several comments questioned the equity of DEAR
970.5204-86 Conditional Payment of Fee, Profit or Incentives clause
which allows the government to unilaterally and subjectively reduce any
otherwise earned fee, profit, or share of cost savings based on the
occurrence of any one of several events. Several commenters sought
clarification of the circumstances which would trigger the first two
conditions identified in paragraphs (a) and (b) of the clause. A number
of commenters requested that if the clause is to be used that it be
restricted regarding the amount of fee, profit or contractor's share of
cost savings which is subject to adjustment.
Response: The Department is moving toward better defined
performance-based contracts for the majority of its management and
operating and similar contracts. However, these contracts retain broad
requirements, characteristics and concerns which cannot be ignored when
determining fee. The Department, in its implementation of performance-
based contracting, is attempting to narrow the focus to critical
performance while maintaining acceptable performance overall. However,
because of the breadth of the Department's requirements at its various
sites, there is the potential that while focus is given to the
performance of critical requirements, the
[[Page 12226]]
performance of other requirements, either due to their number or the
cross cutting impact of many of them, if performed poorly, could
seriously jeopardize overall contract performance. The use of this
clause affords the Department flexibility to emphasize critical
requirements (through the direct association to fee) while not ignoring
the significant number of other requirements which still must be
performed. This also allows the contractor to reasonably allocate its
resources. The clause is intended to be more specific than similar
clauses in the previous management and operating award fee contracts,
but not so specific as to unduly limit the Department's recourse in the
event of poor performance.
Regarding paragraph (a) of the clause, the failure to have
developed and obtained an approved Safety Management System by an
agreed-to date would be a trigger. Failure to meet agreed upon
performance commitments would also be a trigger, but any action taken
is at the discretion of the DOE Operations/Field Office Manager.
Regarding paragraph (b) of the clause, any of the examples in the
clause, or incidences of a similar magnitude, would act as a trigger,
but again any action taken is at the discretion of the DOE Operations/
Field Office Manager. In both instances, the triggering events should
be well defined (e.g., the system and performance commitments) and
agreed to between the DOE and the contractor. With regard to
catastrophic events, DOE believes the language and examples provide
sufficient clarity and definition.
The DOE Operations/Field Office Manager also has been given broad
latitude to exercise judgement in the application of any adjustment to
fee in recognition of possible mitigating circumstances associated with
any occurrence.
The comments regarding restrictions on the amount of fee, profit or
contractor's share of cost savings which is subject to adjustment were
considered; and DOE revised the clause limiting the adjustment which
could be made due to poor technical and cost performance.
C. Comment: Five commenters stated that DEAR 970.5204-87 Cost
Reduction clause was too limiting, overly prescriptive, and
administratively burdensome. They stated that the complex
administrative requirements in the clause may turn out to be a
disincentive. One commenter asserted that the clause should only be
used where there are adequate baseline definitions and the likelihood
of savings sufficient to warrant the administrative and infrastructure
expense.
Response: This clause provides the opportunity for the Department
to benefit from valid cost reductions, while providing contractors
additional fee or a share of cost savings. Because the cost of most
management and operating and similar contracts is not negotiated, the
clause is more limiting and prescriptive than the standard value
engineering clause found in the FAR. Accordingly, no changes were made
in this area at DEAR 970.5204-87. The alternative, which is allowed by
the fee policy, is to negotiate the cost of the work, rather than
basing the cost of the work on budgets, and incorporate the FAR
clauses. The clause defines a design, process, or method change as one
which has established cost, technical and schedule baselines.
D. Comment: Two commenters stated that DEAR 970.5204-88 Limitation
on Fee creates artificial maximum fees beyond statutory limitation and
will not attract quality contractors.
Response: The fee amounts established by the revision to the fee
policy are believed reasonable given the fact that fee is not heavily
weighted in the Department's source selection evaluation criteria and
that the competitive market place has not kept proposed fees within the
policy limitations. For further discussion see Item 5A comment and
response regarding fee discounts in competitive solicitations. DEAR
970.5204-88 remains unchanged in this area.
Item 7--Clarifications
Comment: Several commenters included minor clarifications,
editorial comments or consistent terminology recommendations in the
areas of ``annual'' funding cycle, fee amounts, and performance
incentives; references to sections and subsections within the final
rule; logical order; use of subjective measures; and determinations by
the Government, Fee Determination Official, and Manager.
Response: In almost every case, the nonsubstantive revisions for
clarity were made and are contained in the final rule. The
clarification of ``annual'' funding cycles, ``annual'' fee amounts, and
``annual'' performance incentives was added to distinguish between fees
now allowed to be negotiated for the life of the contract for
laboratory operation; however, fee schedules both currently and
historically are based on annual fee bases. For clarification, state
taxes were added to DEAR 970.15404-4-6(b) as a specific exclusion to
fee base. They previously were intended to fall within the exclusion
category of costs which are of such magnitude or nature as to distort
the technical and management effort actually required of the
contractor. For consistency, references to Government determinations
were changed to DOE Operations/Field Office Manager determinations.
Subsections were renumbered to conform with the October 23, 1998 (63 FR
56849) DEAR numbering changes to conform with September 30, 1997 (62 FR
51224) FAR Part 15 rewrite.
The following crosswalk reflects the DEAR numbering changes from
the Notice of Proposed Rulemaking to the final rule:
------------------------------------------------------------------------
Notice of proposed rulemaking Final rule
------------------------------------------------------------------------
915.971-5.............................. 915.404-4-71-5
915.972................................ 915.404-4-72
970.1509............................... 970.15404-4
970.1509-1............................. 970.15404-4-1
970.1509-2............................. 970.15404-4-2
970.1509-3............................. 970.15404-4-3
970.1509-4............................. 970.15404-4-4
970.1509-5............................. 970.15404-4-5
970.1509-6............................. 970.15404-4-6
970.1509-7............................. 970.15404-4-7
970.1509-8............................. 970.15404-4-8
970.1509-9............................. 970.15404-4-9
970.1509-10............................ 970.15404-4-10
970.1509-11............................ 970.15404-4-11
970.5204-54............................ 970.5204-54
970.5204-XX............................ 970.5204-86
970.5204-YY............................ 970.5204-87
970.5204-ZZ............................ 970.5204-88
------------------------------------------------------------------------
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
[[Page 12227]]
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 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. Currently
all 42 of the Department's management and operating and other site
management operators are large businesses. Based on the history of the
Department and the requirements contained in its management and
operating contracts, the rule will not affect small entities as small
businesses generally do not have the resources required to manage and
operate the complex activities at the Department's largest sites. The
rule establishes the policy for the payment of fee to prime
contractors. There are no mandatory flowdown requirements to
subcontractors and no significant economic impact on subcontractors.
One commenter suggested that the fee base adjustment for subcontract
costs may have an impact on small entities by altering the prime
contractor's ``Make or Buy'' decisions. The fee base adjustment is a
clarification of rather than a major change to the current DEAR which
excludes subcontract costs if they distort the prime's contribution.
The extent a prime subcontracts work is in accordance with its ``Make
or Buy Plan,'' and while fee may be a factor, the decision to not
subcontract is not driven by fee considerations. Based on the foregoing
reasons, the Department certifies that this rule will not have a
significant economic impact on a substantial number of small entities
and, therefore, no regulatory flexibility analysis has been prepared.
D. Review Under the Paperwork Reduction Act
No new information collection or record keeping 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.
G. Review Under Small Business Regulatory Enforcement Fairness Act of
1996
As required by 5 U.S.C. 801, the Department of Energy will report
to Congress promulgation of the rule prior to its effective date. The
report will state that it has been determined that the rule is not a
``major rule'' as defined by 5 U.S.C. 804(3).
H. Review Under the Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally
requires a Federal agency to perform a detailed assessment of costs and
benefits of any rule imposing a Federal Mandate with costs to State,
local or tribal governments, or to the private sector, of $100 million
or more. This rulemaking only affects private sector entities, and the
impact is less than $100 million.
List of Subjects in 48 CFR Parts 915 and 970
Government procurement.
Issued in Washington, DC, on March 2, 1999.
Richard H. Hopf,
Director, Office of 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 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. Subsection 915.404-4-71-5 is amended by revising paragraphs (d),
(f), and (h) to read as follows:
Sec. 915.404-4-71-5 Fee schedules.
* * * * *
(d) The following schedule sets forth the base for construction
contracts:
Construction Contracts Schedule
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
Up to $1 Million......................... ........... ....... 5.47
1,000,000................................ 54,700 5.47 3.88
3,000,000................................ 132,374 4.41 3.28
[[Page 12228]]
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
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
Up to $1 Million......................... ........... ....... 1.64
1,000,000................................ 16,410 1.64 1.09
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
[[Page 12229]]
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 ....... 013
------------------------------------------------------------------------
3. Subsection 915.404-4-72 is amended by revising the introductory
text of paragraph (a) to read as follows:
915.404-4-72 Special considerations for cost-plus-award-fee
contracts.
(a) When a contract is to be awarded on a cost-plus-award-fee basis
several special considerations are appropriate. Fee objectives for
management and operating contracts or other contracts as determined by
the Procurement Executive, including those using the Construction,
Construction Management, or Special Equipment Purchases/Subcontract
Work schedules from 48 CFR 915.404-4-71-5, shall be developed pursuant
to the procedures set forth in 48 CFR 970.15404-4-8. Fee objectives for
other cost-plus-award-fee contracts shall be in accordance with 48 CFR
916.404-2 and 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. Subsection 970.15404-4, including subsections 970.15404-4-1
through 970.15404-4-11, is revised to read as follows:
970.15404-4 Fees for management and operating contracts.
This subsection sets forth the Department's policies on fees for
management and operating contracts and may be applied to other
contracts as determined by the Procurement Executive, or designee.
970.15404-4-1 Fee policy.
(a) DOE management and operating contractors may be paid a fee in
accordance with the requirements of this subsection.
(b) There are three basic principles underlying the Department's
fee policy:
(1) The amount of available fee should reflect the financial risk
assumed by the contractor.
(2) It is the policy of the Department, when work elements cannot
be fixed price, incentive fees (including award fees) tied to objective
measures should be used to the maximum extent appropriate.
(3) When work elements cannot be fixed price and award fees are
employed, they should be tied to either objective or subjective
measures. Each measure should, to the maximum extent appropriate, be
directly tied to a specific portion of the fee pool.
(c) Fee objectives and amounts are to be determined for each
contract. Standard fees or across-the-board fee 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 annual 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.
(d) Annual fee amounts shall be established in accordance with this
subsection. Annual amounts 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).
(e)(1) Contracting Officers shall include negative fee incentives
in contracts when appropriate. A negative fee incentive is one in which
the contractor will not be paid the full target fee amount when the
actual performance level falls below the target level established in
the contract.
(2) Negative fee incentives may only be used when:
(i) A target level of performance can be established, which the
contractor can reasonably be expected to reach;
(ii) The value of the negative incentive is commensurate with the
lower level of performance and any additional administrative costs;
(iii) Factors likely to prevent attainment of the target level of
performance are clearly within the control of the contractor; and
(iv) The contract indicates clearly a level below which performance
is not acceptable.
(f) 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 970.15404-4, and the fee amount targeted for negotiation, if less,
with the Procurement Executive, or designee. Solicitations shall
identify maximum available fee under the contract and may invite
offerors to propose fee less than the maximum available.
(g) When a contract subject to this subsection 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 total available fee amount above that otherwise provided
by this subsection. (h) Multiple fee arrangements should be used in
accordance with 48 CFR 970.15404-4-3.
970.15404-4-2 Special considerations: laboratory management and
operation.
(a) For the management and operation of a laboratory, the
contracting officer shall consider whether any fee is appropriate.
Considerations should include:
(1) The nature and extent of financial or other liability or risk
assumed or to be assumed under the contract;
(2) The proportion of retained earnings (as established under
generally accepted accounting methods) that are utilized to fund the
performance of work related to the DOE contracted effort;
(3) Facilities capital or capital equipment acquisition plans;
(4) Other funding needs, to include contingency funding, working
capital funding, and provision for funding unreimbursed costs deemed
ordinary and necessary;
[[Page 12230]]
(5) The utility of fee as a performance incentive; and
(6) The need for fee to attract qualified contractors,
organizations, and institutions.
(b) In the event fee is considered appropriate, the contracting
officer shall determine the amount of fee in accordance with this
subsection.
(1) Costs incurred in the operation of a laboratory that are
allowable and allocable under the cost principles (i.e., commercial
using FAR 31.2, nonprofit using OMB Circular A-122, or university-
affiliated using OMB Circular A-21), regulations, or statutes
applicable to the operating contractor should be classified as direct
or indirect (overhead or G&A) charges to the contract and not included
as proposed fee. Exceptions must be approved by the Procurement
Executive, or designee.
(2) Except as specified in 48 CFR 970.15404-4-2(c)(3), the maximum
total amount of fee shall be calculated in accordance with 48 CFR
970.15404-4-4 or 48 CFR 970.15404-4-8, as appropriate. The total amount
of fee under any laboratory management and operating contract or other
designated contract shall not exceed, and may be significantly less
than, the result of that calculation. In determining the total amount
of fee, the contracting officer shall consider the evaluation of the
factors in paragraph (a) of this subsection as well as any benefits the
laboratory operator will receive due to its tax status.
(c) In the event fee is considered appropriate, the contracting
officer shall establish the type of fee arrangement in accordance with
this subsection.
(1) The amount of fee may be established as total available fee
with a base fee portion and a performance fee portion. Base fee, if
any, shall be an amount in recognition of the risk of financial
liability assumed by the contractor and shall not exceed the cost risk
associated with those liabilities or the amount calculated in
accordance with 48 CFR 970.15404-4-4, whichever is less. The total
available fee, excepting any base fee, shall normally be associated
with performance at or above the target level of performance as defined
by the contract. If performance in either of the two general work
categories appropriate for laboratories (science/technology and
support) is rated at less than the target level of performance, the
total amount of the available fee shall be subject to downward
adjustment. Such downward adjustment shall be subject to the terms of
48 CFR 970.5204-86, ``Conditional Payment of Fee, Profit, or
Incentives,'' clause, if contained in the contract.
(2) The amount of fee may be established as a fixed fee in
recognition of the risk of financial liability to be assumed by the
contractor, with such fixed fee amount not exceeding the cost risk
associated with the liabilities assumed or the amount of fee calculated
in accordance with 48 CFR 970.15404-4-4, whichever is less.
(3) If the fixed fee or total available fee exceeds 75% of the fee
that would be calculated per 48 CFR 970.15404-4-4 or 48 CFR 970.15404-
4-8; or if a fee arrangement other than one of those set forth in
paragraphs (c) (1) or (2) of this subsection is considered appropriate,
the approval of the Procurement Executive, or designee, shall be
obtained prior to its use.
(4) Fee, if any, as well as the type of fee arrangement, will
normally be established for the life of the contract. It will be
established at time of award, as part of the extend/compete decision,
at the time of option exercise, or at such other time as the parties
can mutually reach agreement, e.g., negotiations. Such agreement shall
require the approval of the Procurement Executive, or designee.
(5) Fee established for longer than one year shall be subject to
adjustment in the event of a significant change (greater than +/-10% or
a lessor amount if appropriate) to the budget or work scope.
(6) Retained earnings (reserves) shall be identified and a plan for
their use and disposition developed.
(7) The use of retained earnings as a result of performance of
laboratory management and operation may be restricted if the operator
is an educational institution.
970.15404-4-3 Types of contracts and fee arrangements.
(a) Contract types and fee arrangements suitable for management and
operating contracts may include cost, cost-plus-fixed-fee, cost-plus-
award-fee, cost-plus-incentive-fee, fixed-price incentive, firm-fixed-
price or any combination thereof. See FAR 16.1. In accordance with 48
CFR 970.15404-4-1(b)(1), the fee arrangement chosen for each work
element should reflect the financial risk for project failure that
contractors are willing to accept. Contracting officials shall
structure each contract and the elements of the work in such a manner
that the risk is manageable and, therefore, assumable by the
contractor.
(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 in instances other than
those set forth in 48 CFR 970.15404-4-2(c)(2) 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) Where work cannot be adequately defined to the point that a
fixed price contract is acceptable, the attainment of acquisition
objectives generally will be enhanced by using a cost-plus-award-fee
contract or other incentive fee arrangement to effectively motivate the
contractor to superior performance and to provide the Department with
flexibility to evaluate actual performance and the conditions under
which it was achieved.
(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 total available fee amount including the performance fee amount
the contractor may earn, in whole or in part during performance, shall
be established annually (or as otherwise agreed to by the parties and
approved by the Procurement Executive, or designee), in an amount
sufficient to motivate performance excellence.
(3) However, consistent with concepts of performance-based
contracting, it is Departmental policy to place fee at risk based on
performance. Accordingly, a base fee amount will be available only when
approved in advance by the Procurement Executive, or designee, except
as permitted in 48 CFR 970.15404-4-2(c)(1). Any base fee amount shall
be fixed, expressed as a percent of the total available fee at
inception of the contract, and shall not exceed that percent during the
life of the contract.
(4) The performance fee amount may consist of an objective fee
component and a subjective fee component. Objective performance
measures, when appropriately applied, provide greater incentives for
superior performance than do subjective performance measures and should
be used to the maximum extent appropriate. Subjective measures should
be used when it is not feasible to devise effective predetermined
objective measures applicable to cost, technical performance, or
schedule for particular work elements.
(d) Consistent with performance-based contracting concepts,
[[Page 12231]]
performance objectives and measures 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 should be used. The contract should
identify the amount and allocation of fee to each performance result or
outcome.
(e) Because the nature and complexity of the work performed under a
management and operating contract may be varied, opportunities may
exist to utilize multiple contract types and fee arrangements.
Consistent with paragraph (a) of this subsection and FAR 16.1, the
contracting officer should apply that contract type or fee arrangement
most appropriate to the work component. However, multiple contract
types or fee arrangements:
(1) Must conform to the requirements of DEAR Part 915 and FAR Parts
15 and 16, and
(2) Where appropriate to the type, must be supported by
(i) Negotiated costs subject to the requirements of the Truth in
Negotiations Act,
(ii) A pre-negotiation memorandum, and
(iii) A plan describing how each contract type or fee arrangement
will be administered.
(f) Cost reduction incentives are addressed in 48 CFR 970.5204-87,
``Cost Reduction.'' This clause provides for incentives for
quantifiable cost reductions associated with contractor proposed
changes to a design, process, or method that has an established cost,
technical, and schedule baseline, is defined, and is subject to a
formal control procedure. The clause is to be included in management
and operating contracts as appropriate. Proposed changes must be:
initiated by the contractor, innovative, applied to a specific project
or program, and not otherwise 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
are subject to all appropriate requirements set forth in this
regulation.
(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 that
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
its implementation.
970.15404-4-4 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, as appropriate, their assumption of the risk that some
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 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 evaluation of the following eight
significant factors, as outlined in order of importance, and the
assignment of appropriate fee values (subject to the limitations on
fixed fee in 48 CFR 970.15404-4-5):
(1) The presence or absence of financial risk, including the type
and terms of the contract;
(2) The relative difficulty of work, including specific performance
objectives, environment, safety and health concerns, and the technical
and administrative knowledge, and skill necessary for work
accomplishment and experience;
(3) Management risk relating to performance, including:
(i) Composite risk and complexity of principal work tasks required
to do the job;
(ii) Labor intensity of the job;
(iii) Special control problems; and
(iv) Advance planning, forecasting and other such requirements;
(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 having the opportunity 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 annual fixed fee
negotiation is established by evaluating the above factors, assigning
fee values to them, and totaling the resulting amounts (subject to
limitations on total fixed fee in 48 CFR 970.15404-4-5).
970.15404-4-5 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 calculated
annually.
(b) Fee schedules representing the maximum allowable annual 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
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
Up to $1 Million......................... ........... ....... 7.66
1,000,000................................ 76,580 7.66 6.78
[[Page 12232]]
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
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
Environmental Management Efforts
------------------------------------------------------------------------
Fee Incr.
Fee base (dollars) Fee (per (per
(dollars) cent) cent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
[[Page 12233]]
970.15404-4-6 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 annual 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 subsection, shall exclude:
(1) Any part of the estimated cost of capital equipment (other than
special equipment) which the contractor procures by subcontract or
other similar costs which is of such magnitude or nature as to distort
the technical and management effort actually required of the
contractor;
(2) At least 20% of the estimated cost or price of subcontracts and
other major contractor procurements;
(3) Up to 100% of the estimated cost or price of subcontracts and
other major contractor procurements if they are of a magnitude or
nature as to distort the technical and management effort actually
required of the contractor;
(4) Special equipment as defined in 48 CFR 970.15404-4-7;
(5) Estimated cost of Government-furnished property, services and
equipment;
(6) All estimates of costs not directly incurred by or reimbursed
to the operating contractor;
(7) Estimates of home office or corporate general and
administrative expenses that shall be reimbursed through the contract;
(8) Estimates of any independent research and development cost or
bid and proposal expenses that may be approved under the contract;
(9) Any cost of work funded with uncosted balances previously
included in a fee base of this or any other contract performed by the
contractor;
(10) Cost of rework attributable to the contractor; and
(11) State taxes.
(c) In calculating the annual 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 915.404-4 relating to architect-engineer or
construction fees and 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 970.15404-4-7 relating to special equipment.
(e) No schedule set forth in 48 CFR 915.404-4-71-5 or 48 CFR
970.15404-4-5 shall be used more than once in the determination of the
fee amount for an annual period, unless prior approval of the
Procurement Executive, or designee, is obtained.
970.15404-4-7 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 which shall not exceed the maximum fee allowable as
established using the schedule in 48 CFR 915.404-4-71-5(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) For purposes of this subsection, 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 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
915.404-4-71-5(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.
970.15404-4-8 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 annual performance incentives identified under these
contracts are funded from the annual total available fee, which
consists of a base fee amount (which may be zero) and a performance fee
amount (which typically will consist of an incentive fee component for
objective performance requirements, an award fee component for
subjective performance requirements, or both).
(c) The annual total available fee for the contract shall equal the
product of the fee(s) that would have been calculated for an annual
fixed fee contract and the classification factor(s) most appropriate
for the facility/task. If more than one fee schedule is applicable to
the contract, the annual total available fee shall be the sum of the
available fees derived proportionately 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....................................................... 3.0
B....................................................... 2.5
C....................................................... 2.0
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:
[[Page 12234]]
(i) The manufacture, assembly, retrieval, disassembly, or disposal
of nuclear weapons with explosive potential;
(ii) The physical cleanup, processing, handling, or storage of
nuclear radioactive or toxic chemicals with consideration given to the
degree the nature of the work advances state of the art technologies in
cleanup, processing or storage operations and/or the inherent
difficulty or risk of the work is significantly demanding when compared
to similar industrial/DOE settings (i.e., nuclear energy processing,
industrial environmental cleanup);
(iii) Construction of facilities such as nuclear reactors, atomic
particle accelerators, or complex laboratories or industrial units
especially designed for handling radioactive materials;
(iv) Research and development directly supporting paragraphs
(e)(1)(i), (ii), or (iii) of this subsection and not conducted in a
laboratory, or
(v) As designated by the Procurement Executive, or designee.
(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 uses 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;
(v) Construction of facilities involving operations requiring a
high degree of design layout or process control;
(vi) Research and development directly supporting paragraphs
(e)(2)(i), (ii), (iii), (iv) or (v) of this subsection and not
conducted in a laboratory; or
(vii) As designated by the Procurement Executive, or designee.
(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 uses 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);
(iv) Construction of facilities involving operations requiring
normal processes and operations; general or administrative service
buildings; or routine infrastructure requirements;
(v) Research and development directly supporting paragraphs
(e)(3)(i), (ii), (iii) or (iv) of this subsection and not conducted in
a laboratory; or
(vi) As designated by the Procurement Executive, or designee.
(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 and a method of fee
determination tied to the method of rating.
(i) Prior approval of the Procurement Executive, or designee, is
required for an annual total available fee amount exceeding the
guidelines in paragraph (c) of this subsection.
(j) DOE Operations/Field Office Managers 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.
970.15404-4-9 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 48 CFR 970.15404-4-4
and 48 CFR 970.15404-4-8 may be allowed with the approval of the
Procurement Executive, or designee. Requests to allow fees in excess of
those provided under other provisions of this fee policy must be
accompanied by a written justification with detailed supporting
rationale as to how the specific circumstances satisfy the two criteria
listed in this Subsection.
970.15404-4-10 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
970.15404-4-4; and discussion of any other relevant provision of this
Subsection.
970.15404-4-11 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
determined by the Procurement Executive, or designee, that include
cost-plus-award-fee arrangements.
(b) The contracting officer shall insert the clause at 48 CFR
970.5204-86, ``Conditional Payment of Fee, Profit, or Incentives,'' in
management and operating contracts, and other contracts determined by
the Procurement Executive, or designee. Further, 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, Alternate I shall be included in such contracts awarded on a
cost-plus-award-fee, multiple fee, or incentive fee basis.
(c) The contracting officer shall insert the clause at 48 CFR
970.5204-87, ``Cost Reduction,'' in management and operating contracts,
and other contracts determined by the Procurement Executive, or
designee, if cost savings programs are contemplated.
(d) The Contracting Officer shall insert the provision at 48 CFR
970.5204-88, ``Limitation on Fee,'' in solicitations for management and
operating contracts, and other contracts determined by the Procurement
Executive, or designee.
[[Page 12235]]
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 970.15404-4-11(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 (April
1999)
(a) Total available fee. Total available fee, consisting of a
base fee amount (which may be zero) 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 and, if exceeding one year, approved by the Procurement
Executive, or designee, the Contracting Officer and Contractor shall
enter into negotiation of the requirements for the year or
appropriate period, including the evaluation areas and individual
requirements subject to incentives, the total available fee, and the
allocation of fee. The Contracting Officer shall modify this
contract at the conclusion of each negotiation to reflect the
negotiated requirements, evaluation areas and individual
requirements subject to incentives, the total available fee, and the
allocation of fee. In the event the parties fail to agree on the
requirements, the evaluation areas and individual requirements
subject to incentives, the total available fee, or the allocation of
fee, a unilateral determination will be made by the Contracting
Officer. 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 mutually agreed to between the parties
and 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
specific incentivized requirements.
(2) The DOE Operations/Field Office Manager, or designee, will
be (insert title of DOE Operations/Field Office Manager, or
designee). The contractor agrees that the determination as to the
total available fee earned is a unilateral determination made by the
DOE Operations/Field Office Manager, or designee .
(3) The evaluation of contractor performance shall be in
accordance with the Performance Evaluation and Measurement Plan(s)
described in subparagraph (d) of this clause unless otherwise set
forth in the contract. The Contractor shall be promptly advised in
writing of the fee determination, and the basis of the fee
determination. 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, it will be considered by the DOE Operations/Field
Office Manager, or designee, who 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, Profit, 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 address all of the
requirements of contract performance specified in the contract
directly or by reference. A copy of the Performance Evaluation and
Measurement Plan(s) shall be provided to the Contractor:
(i) Prior to the start of an evaluation period if the
requirements, evaluation areas, specific incentives, amount of fee,
and allocation of fee to such evaluation areas and specific
incentives 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 requirements, evaluation
areas, specific incentives, amount of fee, and allocation of fee to
such evaluation areas and specific incentives 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 should be
objective, but may also include subjective criteria. 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 DOE Operations/Field Office Manager, or
designee, 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 by 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
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 DOE Operations/Field Office Manager, or
designee, 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 DOE Operations/Field Office Manager, or
designee, will review the Contractor's self-assessment, if
submitted, as part of its independent evaluation of the contractor's
management during the period.
[[Page 12236]]
A self-assessment, in and of itself may not be the only basis for
the award fee determination.
Alternate IV: When the DOE Operations/Field Office Manager, or
designee, 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 DOE Operations/Field
Office Manager, or designee, will review the Contractor's self-
assessment, if submitted, as part of its independent evaluation of
the Contractor's management during the period. A self-assessment, in
and of itself may not be the only basis for the award fee
determination.
7. Subsection 970.5204-86, Conditional Payment of Fee, Profit, or
Incentives; 970.5204-87, Cost Reduction; and 970.5204-88, Limitation on
Fee, are added to read as follows:
970.5204-86 Conditional payment of fee, profit, or incentives.
As prescribed in 48 CFR 970.15404-4-11(b), insert the following
clause:
Conditional Payment of Fee, Profit, Or Incentives (April 1999)
In order for the Contractor to receive all otherwise earned fee,
fixed fee, profit, or share of cost savings under the contract in an
evaluation period, the Contractor must meet the minimum requirements
in paragraphs (a) and (b) of this clause and if Alternate I is
applicable (a) through (d) of this clause. If the Contractor does
not meet the minimum requirements, the DOE Operations/Field Office
Manager or designee may make a unilateral determination to reduce
the evaluation period's otherwise earned fee, fixed fee, profit or
share of cost savings as described in the following paragraphs of
this clause.
(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/Field Office Manager or designee, at his/her sole
discretion, may reduce any otherwise earned fees, fixed fee, 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 Federal, contractor, or subcontractor employees or the
general public, loss of control over classified or special nuclear
material, or significant damage to the environment), the DOE
Operations/Field Office Manager or designee may reduce any otherwise
earned fee for the evaluation period by an amount up to the amount
earned. In determining any diminution of fee, fixed fee, profit, or
share of cost savings resulting from a catastrophic event, the DOE
Operations/Field Office Manager or 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.
Alternate I: Add the following paragraphs (c) and (d) in
contracts awarded on a cost-plus-award-fee, incentive fee or
multiple fee basis:
(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 unless an otherwise minimal level of
performance has been established in the specific incentive;
(ii) All of the performance requirements directly related to
requirements specifically incentivized at a level of performance
such that the overall performance of these related 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/Field Office Manager, or designee, may
reduce any otherwise earned fee, fixed fee, profit, or shared net
savings for the evaluation period. Such reduction shall not result
in the total of earned fee, fixed fee, profit, or shared net savings
being less than 25% of the total available fee amount. Such 25%
shall include base fee, if any.
(d) Minimum requirements for cost performance.
(1) Requirements incentivized by other than cost incentives must
be performed within their specified cost constraint 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/
Field Office Manager, or designee, at his/her sole discretion, may
reduce in whole or in part any otherwise earned fee, fixed fee,
profit, or shared net savings for the evaluation period. Such
reduction shall not result in the total of earned fee, fixed fee,
profit or shared net savings being less than 25% of the total
available fee amount. Such 25% shall include base fee, if any.
970.5204-87 Cost reduction.
As prescribed in 48 CFR 970.15404-4-11(c), insert the following
clause:
Cost Reduction (April 1999)
(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) of this clause.
(b) Definitions.
Administrative cost is the contractor cost of developing and
administering the CRP.
Design, process, or method change is a change to a design,
process, or method which has established cost, technical and
schedule 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.
DOE cost is the Government cost incurred implementing and
validating the CRP.
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 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 is the
difference between the negotiated target cost of performing an
effort as negotiated and the actual allowable cost of performing
that effort or
[[Page 12237]]
(2) A design, process, or method change, which occurs in the
fiscal year in which the change is accepted and the subsequent
fiscal year, and is 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 (New Proposed 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 a discussion of 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 cost, technical, and schedule 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.
(f) 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.
(g) 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 shall be adjusted to remove the estimated cost and
fee amount associated with the CRP effort.
(h) 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, not to exceed 25% of the shared net savings. The
specific percentage and sharing period shall be set forth in the
contractual document.
(i) Validation of Shared Net Savings. The Contracting Officer
shall validate actual shared net savings. If actual shared net
savings cannot be validated, the contractor will not be entitled to
a share of the net shared savings.
(j) 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.
(k) 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.
970.5204-88 Limitation on Fee.
As prescribed in 48 CFR 970.15404-4-11(d), insert the following
provision:
Limitation on Fee (April 1999)
For the purpose of this solicitation, fee amounts shall not
exceed the total available fee allowed by the fee policy at 48 CFR
970.15404-4 or as specifically stated elsewhere in the solicitation.
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 970.15404-4-4; and
total available fee to not exceed an amount established pursuant to
48 CFR 970.15404-4-8; or fixed fee or total available fee to an
amount as specifically stated elsewhere in the solicitation.
[FR Doc. 99-6064 Filed 3-10-99; 8:45 am]
BILLING CODE 6450-01-P
