99-6064. Acquisition Regulation; Department of Energy Management and Operating Contracts and Other Designated Contracts  

  • [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]
    
    
    
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    _______________________________________________________________________
    
    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
    
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    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.
    
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        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
    
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    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
    
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    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
    
    
    

Document Information

Effective Date:
4/12/1999
Published:
03/11/1999
Department:
Energy Department
Entry Type:
Rule
Action:
Final rule.
Document Number:
99-6064
Dates:
This final rule is effective for new awards and extensions after April 12, 1999.
Pages:
12220-12237 (18 pages)
RINs:
1991-AB32: Fee Policy
RIN Links:
https://www.federalregister.gov/regulations/1991-AB32/fee-policy
PDF File:
99-6064.pdf
CFR: (1)
48 CFR 915.404-4-71-5