[Federal Register Volume 64, Number 65 (Tuesday, April 6, 1999)]
[Rules and Regulations]
[Pages 16649-16651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8454]
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DEPARTMENT OF ENERGY
48 CFR Parts 909 and 970
RIN 1991-AB44
Acquisition Regulations; Performance Guarantees
AGENCY: Department of Energy.
ACTION: Final rule.
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SUMMARY: The Department of Energy (DOE) is amending its acquisition
regulations to formally require a performance guarantee under
circumstances where a prospective awardee has been created solely for
the performance of the instant contract and lacks sufficient financial
or other resources to fulfill its obligations under the prospective
contract. In circumstances where the newly created entity likely will
be dependent upon the resources of the parent organization, this rule
allows Contracting Officers to consider the resources of the parent in
a determination of the newly created entity's responsibility only when
the parent provides a performance guarantee or other undertaking
satisfactory to the Contracting Officer. While this situation occurs
most often in the award of contracts for the management and operation
of DOE facilities, this rule makes a form of performance guarantee
necessary whenever these circumstances are encountered.
EFFECTIVE DATE: This rule will take effect May 6, 1999.
FOR FURTHER INFORMATION CONTACT: Robert M. Webb, U.S. Department of
Energy, Office of Procurement and Assistance Management, 1000
Independence Avenue, SW, Washington, DC 20585, (202) 586-8264.
SUPPLEMENTARY INFORMATION:
I. Background.
II. Resolution of Comment.
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 the National Environmental Policy Act.
F. Review Under Executive Order 12612.
G. Review Under Small Business Regulatory Enforcement Fairness
Act of 1996.
[[Page 16650]]
H. Review Under the Unfunded Mandates Reform Act of 1995.
I. Background
The Department of Energy in certain cases requires that the
contractor be a corporate entity organized specifically for the
performance of the contract at a specific DOE site. This requirement
occurs regularly in the award of management and operating contracts and
is intended (1) to assure the dedication of the contractor to the
performance of the contract; (2) to limit involvement of the Department
with the corporate parent; (3) to isolate the contractor from the
parent for purposes of security and classification matters; (4) to
limit the flow of information between the contractor and its parent,
limiting a potential source of organizational conflict of interest; (5)
to isolate the accounting system of the contractor, since often the
budget and accounting systems of such contractors are integrated into
DOE's budget and accounting systems; and (6) to limit the necessity of
corporate support thereby reducing or negating a basis for charging
general and administrative expense to the contract.
Such dedicated contractors, however, generally have limited assets.
In most cases, without consideration of the corporate assets of the
parent entity(ies), the DOE Contracting Officer would not be able to
make a determination that the contractor was financially responsible
and had sufficient resources available to assure successful performance
of the contract.
It has been a common practice of the Department in such instances
for the parent entity(ies) to provide some form of guarantee of
performance. While there are other means for the parent to guarantee
the subsidiary's fulfillment of all its contractual obligations, such
as an unconditional letter of credit, the most appropriate means under
these circumstances is a contractually binding performance guarantee.
This rulemaking incorporates the requirement for a performance
guarantee (or, where appropriate, equivalent enforceable commitment)
into the Department of Energy Acquisition Regulation.
The proposed rule was published in the Federal Register on November
9, 1998 (63 FR 60268).
II. Resolution of Comment
One comment was received in response to the proposed rule. It
suggests that the solicitation provision be modified to state
affirmatively that the performance guarantee is not intended to create
third party beneficiary status in any third party. The comment further
states that DOE recognizes this issue in the model performance
guarantee provided in other DOE guidance. The commenter seems to
believe that the solicitation provision is intended to be included in
the contract. That is not the case. DOE has chosen not to make the
suggested change since statements made in solicitation are generally
not binding after contract award, and the solicitation provision is
intended only to put prospective offerors on notice of the requirement
for a performance guarantee acceptable as a condition of award and will
not, itself, become part of the contract.
The solicitation notice as published in the proposed rule contained
a second paragraph putting prospective offerors on notice that if a
proposal is submitted by multiple entities, a performance guarantee
must be executed by each, making each jointly and severally liable. We
have deleted this paragraph from the notice. It is unnecessary because
the same requirement is discussed at both 909.104-3(e) and 970.0902(b)
of this rule, and the notice states that the performance guarantee(s)
must be to DOE's satisfaction.
III. Procedural Requirements
A. Review Under Executive Order 12866
Today's 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 final rule was not subject to review under that
Executive Order by the Office of Information and Regulatory Affairs of
the Office of Management and Budget (OMB).
B. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on
Executive agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. With regard to the review
required by section 3(a), section 3(b) of Executive Order 12988
specifically requires that Executive agencies make every reasonable
effort to ensure that the regulation: (1) Clearly specifies the
preemptive effect, if any; (2) clearly specifies any effect on existing
Federal law or regulation; (3) provides a clear legal standard for
affected conduct while promoting simplification and burden reduction;
(4) specifies the retroactive effect, if any; (5) adequately defines
key terms; and (6) addresses other important issues affecting clarity
and general draftsmanship under any guidelines issued by the Attorney
General. Section 3(c) of Executive Order 12988 requires Executive
agencies to review regulations in light of applicable standards in
section 3(a) and section 3(b) to determine whether they are met or it
is unreasonable to meet one or more of them. DOE has completed the
required review and determined that, to the extent permitted by law,
these regulations meet the relevant standards of Executive Order 12988.
C. Review Under the Regulatory Flexibility Act
This final rule has been reviewed under the Regulatory Flexibility
Act 5 U.S.C. 601, et seq., which requires preparation of an initial
regulatory flexibility analysis for any rule that must be proposed for
public comment and that is likely to have significant economic impact
on a substantial number of small entities. The contracts to which this
rulemaking apply involve award to newly formed subsidiaries organized
by a parent corporations to perform specific DOE contracts. In such
instances, the parent will be required to guarantee the performance of
the subsidiary. There would not be an adverse economic impact on
contractors or subcontractors. In addition, DOE management and
operating contractors historically have not been small entities.
Accordingly, DOE certifies that this final rule would 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 additional information or record keeping requirements are
imposed by this rulemaking. Accordingly, no OMB clearance is required
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
E. Review Under the National Environmental Policy Act
DOE has concluded that promulgation of this final rule falls into a
class of actions which would not individually or cumulatively have
significant impact on the human environment, as determined by DOE's
regulations (10 CFR part 1021, subpart D) implementing the National
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Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.).
Specifically, this final rule is categorically excluded from NEPA
review because the amendments to the DEAR would be strictly procedural
(categorical exclusion A6). Therefore, this final rule does not require
an environmental impact statement or environmental assessment pursuant
to NEPA.
F. Review Under Executive Order 12612
Executive Order 12612, (52 FR 41685, October 30, 1987), requires
that regulations, rules, legislation, and any other policy actions be
reviewed for any substantial direct effects on States, on the
relationship between the Federal Government and the States, or in the
distribution of power and responsibilities among the various levels of
Government. If there are sufficient substantial direct effects, then
the Executive Order requires the preparation of a federalism assessment
to be used in all decisions involved in promulgating and implementing a
policy action. This final rule merely reflects current practice
relating to determinations of responsibility. States which contract
with DOE will be subject to this rule. However, DOE has determined that
this rule would not have a substantial direct effect on the
institutional interests or traditional functions of the States.
G. Review Under Small Business Regulatory Enforcement Fairness Act of
1996
As required by 5 U.S.C. 801, DOE will report to Congress
promulgation of the rule prior to its effective date. The report will
state that it has been determined that this final 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 final rulemaking would only affect private sector
entities, and the impact is less than $100 million.
List of Subjects in 48 CFR Parts 909 and 970
Government procurement.
Issued in Washington, D.C. on March 30, 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 909--CONTRACTOR QUALIFICATIONS
1. The authority citation for Part 909 continues to read as
follows:
Authority: 42 U.S.C. 7254; 40 U.S.C. 486(c).
2. Subsection 909.104-3 is added as follows:
909.104-3 Application of standards. (DOE coverage-paragraph (e))
(e) DOE may select an entity which was newly created to perform the
prospective contract, including, but not limited to, a joint venture or
other similarly binding corporate partnership. In such instances when
making the determination of responsibility pursuant to 48 CFR 9.103,
the contracting officer may evaluate the financial resources of other
entities only to the extent that those entities are legally bound,
jointly and severally if more than one, by means of a performance
guarantee or other equivalent enforceable commitment to supply the
necessary resources to the prospective contractor and to assume all
contractual obligations of the prospective contractor. The guaranteeing
corporate entity(ies) must be found to have sufficient resources in
order to satisfy its guarantee.
PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS
3. The authority citation for Part 970 continues to read:
Authority: Sec. 161 of the Atomic Energy Act of 1954 (42 U.S.C.
2201), sec. 644 of the Department of Energy Organization Act, Pub.L.
95-91 (42 U.S.C. 7254).
4. Section 970.0902 is added as follows:
970.0902 Determination of responsibility.
(a) In the award of a management and operating contract, the
contracting officer shall determine that the prospective contractor is
a responsible contractor and is capable of providing all necessary
financial, personnel, and other resources in performance of the
contract.
(b) DOE contracts with entities that have been created solely for
the purpose of performing a specific management and operating contract.
Such a newly created entity generally will have very limited financial
and other resources. In such instances, when making the determination
of responsibility required under this section, the contracting officer
may evaluate the financial resources of other entities only to the
extent that those entities are legally bound, jointly and severally if
more than one, by means of a performance guarantee or other equivalent
enforceable commitment to supply the necessary resources to the
prospective contractor and to assume all contractual obligations of the
prospective contractor. A performance guarantee should be the means
used unless an equivalent degree of commitment can be obtained by an
alternative means.
(c) The guaranteeing corporate entity(ies) must be found to have
sufficient resources in order to satisfy its guarantee.
(d) Contracting officers shall insert the provision at 970.5204-89
in solicitations where the awardee is required to be organized solely
for performance of the requirement.
5. Section 970.5204-89 is added as follows:
970.5204-89 Requirement for guarantee of performance.
In accordance with 970.0902(d), insert the following provision in
appropriate solicitations.
Requirement for Guarantee of Performance (APR 1999)
The successful proposer is required by other provisions of this
solicitation to organize a dedicated corporate entity to carry out
the work under the contract to be awarded as a result of this
solicitation. The successful proposer will be required, as part of
the determination of responsibility of the newly organized,
dedicated corporate entity and as a condition of the award of the
contract to that entity, to furnish a guarantee of that entity's
performance. That guarantee of performance must be satisfactory in
all respects to the Department of Energy.
[FR Doc. 99-8454 Filed 4-5-99; 8:45 am]
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