[Federal Register Volume 60, Number 106 (Friday, June 2, 1995)]
[Rules and Regulations]
[Pages 28737-28741]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13432]
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DEPARTMENT OF ENERGY
48 CFR Parts 933 and 970
RIN 1991-AB20
Acquisition Regulation; Department of Energy Management and
Operating Contracts
AGENCY: Department of Energy.
ACTION: Final rule.
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SUMMARY: The Department of Energy (DOE) today amends the Department of
Energy Acquisition Regulation (DEAR) to modify certain requirements for
management and operating contractor purchasing systems. These
requirements are revised to identify certain purchasing system
objectives and standards; eliminate the application of the ``Federal
norm''; and place greater reliance on commercial practices.
EFFECTIVE DATE: June 2, 1995.
FOR FURTHER INFORMATION CONTACT: James J. Cavanagh, Office of
Contractor Management and Administration (HR-55), U.S. Department of
Energy, 1000 Independence Avenue, SW., Washington, D.C. 20585;
telephone 202-586-8257.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background.
II. Disposition of Comments.
III. Procedural Requirements.
A. Review Under Executive Order 12866.
B. Review Under the National Environmental Policy Act.
C. Review Under the Paperwork Reduction Act.
D. Review Under the Regulatory Flexibility Act.
E. Review Under Executive Order 12612. [[Page 28738]]
F. Review Under Executive Order 12778.
I. Background
A proposed rule was published in the March 2, 1995, Federal
Register at 60 FR 11646. It proposed to amend the Department of Energy
Acquisition Regulation (DEAR) to revise the requirements for management
and operating (M&O) contractor purchasing systems by eliminating the
concept of the ``Federal norm.'' In lieu of the detailed tenets
contained in DEAR subpart 970.71, which have resulted in the
inefficient layering of non-commercial systems and practices, the
Department has identified certain purchasing system objectives and
standards which it believes are common to superior purchasing
activities, whether they be commercial or public. In this regard, the
proposed rule proposed to amend, revise or remove Secs. 933.170,
970.5204-22, 970.7101, 970.7102, and 970.7103 of the DEAR.
The March 2 publication also proposed the removal of DEAR 970.7106,
which prescribed procedures for the handling of mistake in bid
situations in purchasing by M&O contractors. Further, the Department
proposed the removal of DEAR 970.7107 which, until today, provided
guidelines for the consideration of subcontractor level protests. The
removal of this section is consistent with the General Accounting
Office proposed rule published in the Federal Register on January 31,
1995 at 60 FR 5871.
Subsequent to the March 2 notice of proposed rulemaking, the
Department published an amendment to the proposed rule in the April 27,
1995, Federal Register at 60 FR 20663. The amendment dealt with
administrative matters, mostly technical, that DOE reserved for further
analysis during the comment period for the March 2 notice of proposed
rulemaking. The comment period on the April 27 amendment to the
proposed rulemaking ended on May 30, 1995. The Department wishes to
effect the changes set forth in the March 2 proposed rulemaking and the
April 27 amendment thereto as quickly as possible to enable the DOE
contractor community to implement the changes to Subpart 970.71 of the
DEAR without delay. Accordingly, the Department is finalizing the
changes in the March 2 proposed rulemaking and the April 27 amendment
in two stages. With two exceptions, today's rule finalizes the changes
proposed in March 2 notice of proposed rulemaking. The two exceptions
are the changes proposed to be made to the Contractor Purchasing System
clause at Sec. 970.5204-22 and Sec. 970.7104. These proposed changes
were affected by the April 27 amendment and, therefore, are being held
in abeyance pending consideration of comments on the April 27
amendment. It is the intention of the Department to incorporate the
revised and new clauses provided for in the April 27 amendment into
existing M&O contracts as soon as practicable after the effective date
of the second final rule.
II. Disposition of Comments
Comments on the March 2, 1995 notice of proposed rulemaking were
received from a total of eleven commenters, nine of which are
organizations and two of which are individuals. All of the
organizations are contractors which have been awarded DOE M&O
contracts. Nine of the commenters expressed support for the proposed
rule and its intended effects upon the subcontracting processes of the
Department of Energy's M&O contractors. Six commenters offered comments
recommending revisions. Some of the recommendations were considered not
significant, non-substantive, or editorial and are not discussed in the
disposition of comments. Other recommendations were determined to be
outside the scope of this rulemaking and, therefore, were not
considered in formulating this final rule.
Comments related to DEAR Clause 970.5204-22 and DEAR Sec. 970.7104
are reserved for resolution until the April 27, 1995 amendment to the
March 2, 1995 notice of proposed rulemaking is finalized and are,
therefore, not addressed in this final rule.
1. Policies and Procedures
One commenter suggests that DOE should clarify whether the proposed
rule would apply to performance-based management contractors, DOE's so-
called environmental remediation management contractors, and fixed
price and cost contracts. This rule amends DEAR Part 970 and
accordingly affects only M&O contracts which are the subject matter of
the part. Performance-based contracts are a new form of M&O contract
and are therefore affected. The rule also would affect M&O subcontracts
which may be cost-type or fixed-price. This final rule does not apply
to environmental restoration management contracts, or any other non-M&O
contract.
The same commenter also recommends that we retitle Part 970 as
``Prime Contractors.'' DEAR Part 970 is appropriately titled ``DOE
Management and Operating Contracts'' as its scope is limited to this
subject; therefore, no change has been made.
In addition, the same commenter requests that we define the
``Federal norm.'' A definition will not be provided since the purpose
of this rulemaking is, among other things, to delete the concept from
Subpart 970.71.
Another commenter recommends that DOE remove Subpart 970.71
entirely and use the appropriate subcontracts clause from 52.244 of the
Federal Acquisition Regulation (which would be the clause at 52.244-2).
This commenter believes that this clause provides a sufficient
framework for effective oversight of M&O subcontracting activities by
DOE. The recommended change has not been adopted. The experience of
this Department and its predecessors is that many unusual situations
arise in subcontracting activities by DOE's M&O contractors that
require treatment specific to the provisions of M&O contracts and DOE
programs. Further, the amended DEAR Subpart 970.71 focuses more on
outcome than processes and more clearly defines what the Department
expects of its contractors by establishing performance objectives.
One commenter states that the phrase ``and further * * * for review
and acceptance'' be removed from Sec. 970.7102(b)(1), doing away with
the requirement for submission of the M&O contractor's written
purchasing system and methods to DOE upon award or extension of the
contract. The suggested change has not been adopted because the
opportunity to review the system at that point in time is critical to
effective oversight by DOE.
Three commenters suggest additional language or changes to the
revision to Sec. 970.7102(b)(3) incorporating FAR 44.2 as the standard
for review by DOE of proposed subcontract transactions. One commenter
points out that the FAR provision requires review by the Government of
substantially all proposed subcontracts even where the contractor has
an approved system. The second suggests adding the phrase ``for
conformance with the procedural requirements of the contractor's
written systems and methods'' after the phrase ``pursuant to FAR
44.2.'' The third would substitute ``pursuant to the contractor's
approved written description of its purchasing system and methods'' for
the phrase incorporating FAR 44.2. The change to Sec. 970.7102(b)(3)
was not intended to place more stringent requirements on contractors,
but rather to establish review procedures which are consistent with FAR
44.2. The Department agrees that other review procedures may be
approved consistent with the contractor's approved purchasing
[[Page 28739]] system procedures, and accordingly has revised
Sec. 970.7102(b)(3) to clarify this intent in the final rule.
Another commenter stated that the proposed rule was unclear
regarding what contracting purchasing system objectives, expectations
and standards will replace the ``Federal norm'' and whether they will
be negotiated items or mandated by the DOE. Section 970.7103(a) clearly
states the objectives of M&O purchasing systems. Section 970.7103 (b)
and (c) set forth the requirements and expectations of the Department
as to acceptable purchasing systems. Those provisions state the
purchasing system requirements in terms of principles and results which
the contractor must attain, and are necessarily negotiable as to
specific approaches and methods which may then be tailored to the
specific circumstances of the contractor mission, operations and site.
Therefore, no change has been made to proposed Sec. 970.7103.
Two commenters recommended the deletion of the word ``directly''
from the first sentence of proposed Sec. 970.7103(c). The
recommendation has not been adopted. Certainly, the FAR does not
directly apply to purchasing activities of an M&O contractor or any
other type of Federal contractor. However, certain conditions found in
the FAR do apply to subcontracting transactions through flowdown
requirements, e.g., Truth in Negotiations submissions, Cost Accounting
Standards, various labor provisions, or otherwise.
One commenter questioned the implicit assumption in the proposed
Sec. 970.7103(d) that there is a ``best'' in commercial purchasing
practices and procedures. The comment further noted that it is unclear
who is to decide what is ``best,'' the contractor or the DOE. The
purpose of the change in the Department's policy regarding contractor
purchasing systems and methods is to allow M&O contractors to make
maximum use of efficient and effective commercial business practices in
their subcontracting. Although there is no established list of best
commercial practices that generally fits all situations, there is a
growing body of research into and knowledge of effective purchasing
techniques. As stated in the proposed Sec. 970.7103(a), contractors are
expected to use their experience, expertise, and initiative consistent
with Subpart 970.71. This approach provides these contractors with
great discretion in designing their purchasing systems and methods. It
is the intention of the Department, however, to work collegially with
its contractor community to establish mechanisms by which commercial
purchasing trends and best practices may be periodically identified and
assessed for inclusion in contractor purchasing systems. It is further
the intention of the Department to perform its fiduciary responsibility
by evaluating contractors' practices to ensure the appropriate
expenditure of funds.
Another commenter recommended that all of Sec. 970.7103(d) after
the first sentence be deleted. The suggested deletion has not been
accepted because such a statement of principles is necessary to assure
agreement between the Department and its M&O contractors as to the
foundation of the purchasing system that is to be developed and
described.
Two commenters recommended the alteration of Sec. 970.7103(d)(1) to
substitute ``best value'' for ``fair and reasonable prices.'' One
commenter stated that this change would be consistent with the proposed
changes in Sec. 970.7103 (c) and (d). The Department does not believe
that these terms are inconsistent. The discretion provided by the
provisions of this revision to DEAR 970.71 allow for purchasing using a
best value approach. The use of ``fair and reasonable'' in the context
of 970.7103(d)(1) makes clear the standard against which the results of
the purchase will be assessed.
2. Protest Procedures
Two commenters question what process for protests against award of
subcontracts by DOE M&O contractors will replace that which is being
deleted by this final rule at Sec. 970.7107. One commenter stated that
DOE should identify any circumstances where it will request GAO
jurisdiction. Consistent with the preamble of the proposed rule on
March 2, 1995, this final rule deletes the guidelines in DEAR 970.7107
for consideration of subcontractor protests. This result is consistent
with the GAO proposed rule of January 31, 1995 (60 FR 5871). The
Department has advised the GAO of our decision. At the present time, we
do not foresee any particular circumstances where DOE will request GAO
subcontractor protest resolution assistance.
The second commenter questions ``whether DOE will continue to
accept and rule on [subcontractor] protests.'' The Department will not
continue to accept or rule on subcontractor protests on a subcontract
awarded after the effective date of this rule. As noted in the preamble
to the proposed rule and this final rule, DEAR Sec. 933.170 and
Sec. 970.7107 have been deleted in recognition of the elimination of
the ``Federal norm.'' The Department believes that disagreements over
the award of individual subcontracts should be resolved in the same
manner used by non-Federal entities and their suppliers. The Department
has endorsed the contractors' use of alternative disputes resolution
where appropriate.
3. DOE Oversight
The remaining comments received deal with the question of controls
on M&O contractor purchasing systems and the process by which the
controls will be enforced. This rule does not obviate the need for
effective contract administration. In fact, initially the Department's
participation in the development of an M&O purchasing system based upon
``best commercial practices'' may actually increase. We expect that the
nature of DOE's oversight activity will change coincident with the
identification, adoption, and systemic reflections of effective
commercial practices consistent with the overriding expectations for
contractor purchasing systems. The Department intends to focus its
oversight on results, as opposed to process, and is working with its
contractor base to establish meaningful outcome oriented performance
indicators.
Another commenter recommended that DOE clarify whether M&O
contractors are required to seek competition in subcontracting. The
final rule at 970.7103(d)(4) establishes the use of effective
competition as a system standard. This term, however, is not intended
to equate to the Federal concept of full and open competition.
Other comments requested clarification of the application of
certain statutory and regulatory requirements on the award of
subcontracts (e.g., socio-economic and Buy American requirements). The
current rulemaking does not effect the requirements of public law,
applicable regulations, or the terms and conditions of the M&O
contracts. For example, the requirement is for M&O contractors to put
forth their best efforts to achieve agreed upon goals negotiated in
their small business subcontracting plan. This rule neither defines,
nor limits, the approaches that the contractor may utilize to achieve
the results sought. Issues relating to specific statutory and
regulatory requirements previously identified in Sec. 970.7104 will be
addressed in the final rule based upon the April 27, 1995 amendment.
One commenter stated that it is unclear whether the contractor can
unilaterally implement the changes that it believes are necessary as a
result of the proposed rule or whether DOE will require that such
changes be submitted [[Page 28740]] to it for review and approval. As
stated in Sec. 970.7103(b)(1), the contractor's purchasing systems and
methods shall be submitted to the contracting officer for review and
acceptance. Changes to existing systems, such as those required to
implement this rule, are substantive and will require review and
approval by the contracting officer. The Department is currently
working with its contractor community to identify effective commercial
purchasing practices and intends to be a constructive participant in
the re-engineering of contractor purchasing systems.
Another commenter asks whether costs resulting from the
implementation of this rule will be allowable costs. Costs associated
with implementation of this rule are reimbursable expenses, so long as
they are reasonable, allowable and allocable as set forth in the
contract's cost principles.
The same commenter also recommends that a periodic review of the
effectiveness of the changes resulting from this final rule be made,
including the potential effects on small, small disadvantaged, and
small women-owned businesses. The comment goes on to recommend that DOE
engage an outside consultant. The Department, as part of ongoing
contract administration as well as when periodically assessing the
continued approval of a contractor's purchasing system, will perform an
evaluation of the impact of the changes effected by this rule. The
Department does not believe that outside consultative services are
required for such assessments.
Finally, that commenter questions whether existing contracts will
be modified to reflect the effects of this rule. The last paragraph of
the Background section of the notice of proposed rule stated, ``It is
the intention of the Department to incorporate the changes made by this
proposed rule into existing management and operating contracts as soon
as practicable after the effective date of a final rule.''
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 the Executive
Order by the Office of Information and Regulatory Affairs.
B. Review Under the National Environmental Policy Act
Pursuant to the Council on Environmental Quality Regulations (40
CFR parts 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 part 1021, National Environmental Policy Act
Implementing Procedures (Categorical Exclusion A6), the Department of
Energy has determined that this final rule is categorically excluded
from the need to prepare an environmental impact statement or
environmental assessment.
C. Review Under the Paperwork Reduction Act
To the extent that new information collection or record keeping
requirements are imposed by this rulemaking, they are provided for
under Office of Management and Budget paperwork clearance package No.
1910-0300. No new information collection is proposed by this rule.
D. Review Under the Regulatory Flexibility Act
The proposed rule was reviewed under the Regulatory Flexibility Act
of 1980, Public Law 96-354, which requires preparation of a regulatory
flexibility analysis for any rule which is likely to have significant
economic impact on a substantial number of small entities. DOE
concluded that the rule will have no impact on interest rates, tax
policies or liabilities, the cost of goods or services, or other direct
economic factors. It will also not have any indirect economic
consequences, such as changed construction rates. Accordingly, DOE
certified 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. DOE did not receive any
comments on this certification.
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 of Energy
has determined that this final rule will not have a substantial direct
effect on the institutional interests or traditional functions of
States.
F. Review Under Executive Order 12778
Section 2 of Executive Order 12778 instructs each agency to adhere
to certain requirements in promulgating new regulations and reviewing
existing regulations. These requirements, set forth in sections 2(a)
and (b)(2), include eliminating drafting errors and needless ambiguity,
drafting the regulations to minimize litigation, providing clear and
certain legal standards for affected legal conduct, and promoting
simplification and burden reduction. Agencies are also instructed to
make every reasonable effort to ensure that the regulation: specifies
clearly any preemptive effect, effect on existing Federal law or
regulation, and retroactive effect; describes any administrative
proceedings to be available prior to judicial review and any provisions
for the exhaustion of such administrative proceedings; and defines key
terms. DOE certifies that this rule meets the requirements of sections
2(a) and 2(b) of Executive Order 12778.
List of Subjects in 48 CFR Parts 933 and 970
Government procurement.
Issued in Washington, DC, on May 26, 1995.
Richard H. Hopf,
Deputy Assistant Secretary for Procurement and Assistance Management.
For the reasons set forth in the preamble, Chapter 9 of Title 48 of
the Code of Federal Regulations is amended as set forth below.
PART 933--PROTESTS, DISPUTES, AND APPEALS
1. The authority citation for Part 933 continues to read as
follows:
Authority: 42 U.S.C. 7254; 40 U.S.C. 486(c).
Sec. 933.170 [Removed]
2. Section 933.170, Subcontract level protests, is removed.
PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS
3. 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, Pub.
L. 95-91 (42 U.S.C. 7254). [[Page 28741]]
Sec. 970.7101 [Amended]
4. Section 970.7101, General, is amended by removing paragraphs (c)
and (d).
Sec. 970.7102 [Amended]
5. Section 970.7102, DOE responsibility, is amended at: Paragraph
(a) to remove the parenthetical last two sentences at the end of the
paragraph; paragraph (b)(3) by removing the words ``to assure that
management and operating contractors implement DOE policies and
requirements as defined in this subpart, in accordance with the
contractor's accepted system and methods'' and adding in its place the
words ``pursuant to 48 CFR (FAR) 44.2 or as set forth in the
contractor's approved system and methods''; and paragraph (b)(4) by
revising the last parenthetical ``(See Subpart 944.3 and 970.7108)'' to
read ``(See 970.7103)''.
6. Section 970.7103, Policies, is revised to read as follows:
Sec. 970.7103 Contractor purchasing system.
The following shall apply to the purchasing systems of management
and operating contractors:
(a) The objective of a management and operating contractor's
purchasing system is to deliver to its customers on a timely basis
those best value products and services necessary to accomplish the
purposes of the Government's contract. To achieve this objective,
contractors are expected to use their experience, expertise and
initiative consistent with this subpart.
(b) The purchasing systems and methods used by management and
operating contractors shall be well-defined, consistently applied, and
shall follow purchasing practices appropriate for the requirement and
dollar value of the purchase. It is anticipated that purchasing
practices and procedures will vary among contractors and according to
the type and kinds of purchases to be made.
(c) Contractor purchases are not Federal procurements, and are not
directly subject to the Federal Acquisition Regulations in 48 CFR.
Nonetheless, certain Federal laws, Executive Orders, and regulations
may affect contractor purchasing, as required by statute, regulation,
or contract terms and conditions.
(d) Contractor purchasing systems shall identify and apply the best
in commercial purchasing practices and procedures (although nothing
precludes the adoption of Federal procurement practices and procedures)
to achieve system objectives. Where specific requirements do not
otherwise apply, the contractor purchasing system shall provide for
appropriate measures to ensure the:
(1) Acquisition of quality products and services at fair and
reasonable prices;
(2) Use of capable and reliable subcontractors who either
(i) Have track records of successful past performance, or
(ii) Can demonstrate a current superior ability to perform;
(3) Minimization of acquisition lead-time and administrative costs
of purchasing;
(4) Use of effective competitive techniques;
(5) Reduction of performance risks associated with subcontractors,
and facilitation of quality relationships which can include techniques
such as partnering agreements, ombudsmen, and alternative disputes
procedures;
(6) Use of self-assessment and benchmarking techniques to support
continuous improvement in purchasing;
(7) Maintenance of the highest professional and ethical standards;
and
(8) Maintenance of file documentation appropriate to the value of
the purchase and which is adequate to establish the propriety of the
transaction and the price paid.
Sec. 970.7106, 970.7107 [Removed]
7. Sections 970.7106, Procedures for handling mistakes relating to
management and operating contractor purchases, and 970.7107, Protest of
management and operating contractor procurements, are removed.
[FR Doc. 95-13432 Filed 6-1-95; 8:45 am]
BILLING CODE 6450-01-P
