[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Proposed Rules]
[Pages 60268-60270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29941]
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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: Notice of Proposed Rulemaking.
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SUMMARY: The Department of Energy (DOE) is proposing to amend 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 proposal would allow 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 proposal would
make a form of performance guarantee necessary whenever these
circumstances are encountered.
DATES: Written comments on the proposed rulemaking must be received on
or before close of business December 9, 1998.
ADDRESSES: Comments (3 copies) should be addressed to: Robert M. Webb
at the address indicated below.
FOR FURTHER INFORMATION CONTACT: Robert M. Webb, U.S. Department of
Energy, Office of Procurement and Assistance Management, 1000
Independence Avenue, SW., Washington, D.C. 20585, (202) 586-8264.
SUPPLEMENTARY INFORMATION:
I. Background.
II. Section by Section Analysis.
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.
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
[[Page 60269]]
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. Recently, the Department issued Acquisition
Letter 98-05R to assure a uniform process for dealing with this
circumstance. This rulemaking proposes to incorporate the requirement
for a performance guarantee into the Department of Energy Acquisition
Regulation.
II. Section-by-Section Analysis
This rulemaking proposes to add a subsection 909.104-3(e) to the
DEAR to supplement the coverage in the Federal Acquisition Regulation
at 48 CFR 9.104-3. The proposed subsection would require some binding
form of performance guarantee in contracts other than management and
operating contracts where the contractor has been formed specifically
for performance of the contract and lacks sufficient resources to carry
out performance of the prospective contract.
It further proposes to add a section 970.0902 to treat this matter
in the context of the award of DOE management and operating contracts.
Since this situation will occur predominately in the award of
management and operating contracts, the proposed 970 coverage includes
a solicitation provision for use when DOE's solicitation requires a
dedicated performing entity.
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 proposed 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 proposed regulations meet the relevant standards of Executive
Order 12988.
C. Review Under the Regulatory Flexibility Act
This proposed rule has been reviewed under the Regulatory
Flexibility Act of 1980, Public Law 96-354, that 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 would apply involve awards to newly
formed subsidiaries organized by a parent corporations to perform
specific DOE contracts. In such instances, the parent would be required
to guarantee the performance of the subsidiary. There would not be an
adverse economic impact on contractors or subcontractors. Accordingly,
DOE certifies that this proposed 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 of 1980 (44 U.S.C. 3501 et seq.).
E. Review Under the National Environmental Policy Act
DOE has concluded that promulgation of this proposed 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 Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et
seq.). Specifically, this proposed rule is categorically excluded from
NEPA review because the amendments to the DEAR would be strictly
procedural (categorical exclusion A6). Therefore, this proposed 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 proposed 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 proposed 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 proposed 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 proposed rulemaking would only affect
[[Page 60270]]
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 November 2, 1998.
Richard H. Hopf,
Deputy Assistant Secretary for Procurement and Assistance Management.
For the reasons set out in the preamble, Chapter 9 of Title 48 of
the Code of Federal Regulations is proposed to be amended as set forth
below.
PART 909--[AMENDED]
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--[AMENDED]
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-XX
in solicitations where the awardee is required to be organized solely
for performance of the requirement.
5. Section 970.5204-XX is added as follows:
Sec. 970.5204-XX Requirement for guarantee of performance.
In accordance with 970.0902(d), insert the following provision in
appropriate solicitations.
Requirement for Guarantee of Performance (XXX 1998)
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.
In order to consider the financial or other resources of the
parent corporate entity(ies) or other guarantors, each of those
entities must be legally bound, jointly and severally if more than
one, to provide the necessary resources to the prospective
contractor and to assume all contractual obligations of the
prospective contractor.
[FR Doc. 98-29941 Filed 11-6-98; 8:45 am]
BILLING CODE 6450-01-P
