[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2044]
[[Page Unknown]]
[Federal Register: February 1, 1994]
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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1726
Permitted Contract Modifications--Indemnification
AGENCY: Rural Electrification Administration, USDA.
ACTION: Proposed rule.
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SUMMARY: The Rural Electrification Administration (REA) proposes to
amend its regulations by adding a new subpart. This subpart will allow
borrowers to alter REA's standard forms of electric construction
contracts by inserting an alternative provision relating to
indemnification of the owner (borrower) by the contractor. Some
borrowers have requested approval to incorporate an alternative
indemnification clause in certain contracts that they feel provides
them protection in addition to that afforded by the existing clause.
When this proposed rule is finalized, borrowers may use the alternative
indemnification provision contained in this provision.
DATES: Written comments must be received by REA, or bear a postmark or
equivalent, no later than April 4, 1994.
ADDRESSES: Submit written comments to Archie W. Cain, Director,
Electric Staff Division, Rural Electrification Administration, Room
1246-S, U.S. Department of Agriculture, Washington, DC 20250-1500. REA
requires a signed original and 3 copies of all comments (7 CFR
1700.30(e)). Comments will be made available for public inspection at
room 2234 South Building between 8:30 a.m. and 5 p.m. on official work
days (7 CFR 1.27 (b)).
FOR FURTHER INFORMATION CONTACT: Mr. Fred J. Gatchell, Deputy Director,
Electric Staff Division, Rural Electrification Administration, U.S.
Department of Agriculture, Washington, DC 20250-1500. Telephone (202)
720-1398.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This proposed rule is issued in conformance with Executive Order
12866.
Regulatory Flexibility Act Certification
This action does not fall within the scope of the Regulatory
Flexibility Act.
Information Collection and Recordkeeping Requirements
This proposed rule contains no information collection or
recordkeeping requirements under the Paperwork Reduction Act of 1980
(Pub. L. 96-511).
National Environmental Policy Act Certification
The Administrator of REA has determined that this proposed rule
will not significantly affect the quality of the human environment as
defined by the National Environmental Policy Act of 1969 (42 U.S.C.
4321 et seq.). Therefore, this action does not require an environmental
impact statement or assessment.
Catalog of Federal Domestic Assistance
This program described by this proposed rule is listed in the
Catalog of Federal Domestic Assistance under Number 10.850, Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402. Telephone
(202) 720-3238.
Executive Order 12372
This proposed rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation, which may require consultation
with State and local officials. A Notice of Final Rule entitled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR 47034) exempts REA loans and loan guarantees from coverage under
this order.
Executive Order 12778
This proposed rule has been reviewed under Executive Order 12778,
Civil Justice Reform. If adopted, this proposed rule will not:
(1) Preempt any State or local laws, regulations, or policies
unless they present an irreconcilable conflict with this rule;
(2) Have any retroactive effect; or
(3) Require administrative proceedings before parties may file suit
challenging the provisions of this rule.
Background
REA requires as a tenet of its loan agreement with borrowers that
borrowers use standard contract forms for certain construction,
material supply, equipment supply, architectural services, and
engineering services contracts. The construction contract forms contain
a standard indemnification (also called ``hold harmless'') clause
pursuant to which the contractor agrees to indemnify the owner against
certain risks. Some borrowers have requested approval to incorporate an
alternative indemnification clause in certain contracts that they feel
provides them protection in addition to that afforded by the existing
clause. Some contractors have expressed concern about the extent of
their potential liability under such a modified indemnification
provision, particularly for certain actions of the owner. REA has
determined that it is in the Government's and the borrowers' best
interest to have a reasonable and balanced indemnification provision:
one that provides adequate protection for the borrower while not
placing an unreasonable business risk on the contractor. An
indemnification provision that does not adequately protect the borrower
could expose the borrower to liability for damages which could endanger
the Government's loan security. An indemnification provision which
places an unreasonable business risk on the contractor could result in
qualified, capable contractors declining to bid under such conditions,
which could result in reduced competition and higher costs. It could
even result in the borrower being exposed to increased liability if
only financially weak contractors bid, since the contractor may be
financially unable to meet its indemnification obligations. REA has
also determined that reasonable uniformity in the borrowers' contract
language is necessary for the orderly administration of the program and
gives REA, the borrowers, and the contractors comfort that past
experience with the contract language will continue in the future.
Therefore, it is appropriate to publish an alternative indemnification
clause which borrowers may use in lieu of the standard indemnification
clause currently required in REA contract forms.
REA recognizes that indemnification and insurance are related
issues. REA considered certain additional contractor insurance
requirements, such as requiring the borrower and/or the engineer to be
named as additional insured and requiring ``contractual liability''
insurance, but has decided to make no changes in the contractor
insurance requirements at this time. However, comments are invited on
this related issue.
Several engineering firms have expressed a desire to include the
engineer within the scope of the borrower's indemnification clause
because of the nature of the relationship between the borrower and the
engineer. Since the engineer is an entity independent of the borrower
and has no direct contractual relationship with the contractor, REA has
determined that a clear separation should be maintained between the
engineer and the contractor. Therefore, the proposed indemnification
clause does not extend to the engineer. However, comments are invited
on this issue.
List of Subjects in 7 CFR Part 1726
Electric power, Loan programs--energy, Rural areas.
For reasons set forth in the preamble, REA proposes to amend 7 CFR
part 1726 as follows:
PART 1726--ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES
1. The authority citation for part 1726 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.
2. Subpart H of part 1726 is added to read as follows:
Subpart H--Modifications to REA Standard Contract Forms
Sec.
1726.250--1726.255 [Reserved]
1726.256 Permitted contract modifications--indemnification.
Subpart H--Modifications to REA Standard Contract Forms
Secs. 1726.250--1726.255 [Reserved]
Sec. 1726.256 Permitted contract modifications--indemnification.
(a) As an alternative to the indemnification provision required in
REA standard construction contract forms, the borrower may insert the
following:
``i. To the maximum extent permitted by law, Bidder shall
defend, indemnify, and hold harmless Owner and Owner's directors,
officers, and employees from all claims, causes of action, losses,
liabilities, and expenses (including reasonable attorney's fees) for
personal loss, injury, or death to persons (including but not
limited to Bidder's employees) and loss, damage to or destruction of
Owner's property or the property of any other person or entity
(including but not limited to Bidder's property) in any manner
arising out of or connected with the Contract, or the materials or
equipment supplied or services performed by Bidder, its
subcontractors and suppliers of any tier. But nothing herein shall
be construed as making Bidder liable for any injury, death, loss,
damage, or destruction caused by the sole negligence of Owner.
ii. To the maximum extent permitted by law, Bidder shall defend,
indemnify, and hold harmless Owner and Owner's directors, officers,
and employees from all liens and claims filed or asserted against
Owner, its directors, officers, and employees, or Owner's property
or facilities, for services performed or materials or equipment
furnished by Bidder, its subcontractors and suppliers of any tier,
and from all losses, demands, and causes of action arising out of
any such lien or claim. Bidder shall promptly discharge or remove
any such lien or claim by bonding, payment, or otherwise and shall
notify Owner promptly when it has done so. If Bidder does not cause
such lien or claim to be discharged or released by payment, bonding,
or otherwise, Owner shall have the right (but shall not be
obligated) to pay all sums necessary to obtain any such discharge or
release and to deduct all amounts so paid from the amount due
Bidder.
iii. Bidder shall provide to Owner's satisfaction evidence of
Bidder's ability to comply with the indemnification provisions of
subparagraphs i and ii above, which evidence may include but may not
be limited to a bond or liability insurance policy obtained for this
purpose through a licensed surety or insurance company.''
(b) If the alternative in paragraph (a) of this section is chosen
by the borrower, the language of paragraph (a) of this section would be
inserted in lieu of the last sentence of the section indicated in the
following REA standard construction contract forms:
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Form No. Title Designated Section
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200.................... Construction Contract-- Article IV, Section 1
Generating. (c)
201.................... Right-of-Way Clearing Article IV, Section 1
Contract. (e)
203.................... Transmission System Article IV, Section 1
Right-of-Way Clearing (f)
Contract.
257.................... Contract to Construct Article IV, Section 1
Buildings. (b)
764.................... Substation and Article IV, Section 1
Switching Station (f)
Erection Contract.
786.................... Electric System Article IV, Section 1
Communications and (c)
Control Equipment
Contract.
790.................... Distribution Line Article IV, Section 1
Extension Construction (f)
Contract (labor &
materials).
792.................... Distribution Line Article IV, Section 1
Extension Construction (f)
Contract (labor only).
830.................... Electric System Article IV, Section 1
Construction Contract (f)
(labor & material).
831.................... Electric Transmission Article IV, Section 1
Construction Contract (f)
(labor & material).
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(c) In Forms 201, 790, and 792, the word ``Contractor'' would
replace the word ``Bidder'' in the alternative indemnification clause
in paragraph (a) of this section.
(d) In Form 786, the word ``Seller'' would replace the word
``Bidder'' and the word ``Purchaser'' would replace the word ``Owner''
in the alternative indemnification clause in paragraph (a) of this
section.
(e) Nothing in this section modifies existing requirements relating
to REA approval of contracts.
Dated: January 25, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc 94-2044 Filed 1-31-94; 8:45 am]
BILLING CODE 3410-15-F
