[Federal Register: June 14, 2000 (Volume 65, Number 115)]
[Proposed Rules]               
[Page 37335-37343]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn00-36]                         

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DEPARTMENT OF ENERGY

48 CFR Part 970

RIN 1991-AB46

 
Acquisition Regulation: Changes to Department of Energy Cost 
Principles and Various Clauses

AGENCY: Energy.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Department of Energy (DOE) proposes to amend its 
Acquisition Regulation to delete those cost principles and related 
provisions of Department of Energy Acquisition Regulation (DEAR) that 
are adequately covered by the Federal Acquisition Regulation (FAR) and 
retaining only that coverage which supplements the FAR. There is one 
policy change in this rulemaking. Cost of Money, a previously 
unallowable cost, is proposed as an allowable cost. This proposed 
rulemaking results from a special review performed by DOE and it will 
be finalized concurrently with another recently proposed rule published 
March 13, 2000. The two rules will result in a complete reissuance of 
the DEAR.

DATES: Written comments must be submitted no later than August 14, 
2000.

ADDRESSES: Comments (3 copies) should be addressed to: Terrence D. 
Sheppard, Office of Procurement and Assistance Management, Office of 
Procurement and Assistance Policy (MA-51), Department of Energy, 1000 
Independence Avenue S.W., Washington, D.C. 20585.

FOR FURTHER INFORMATION CONTACT: Terrence D. Sheppard (202) 586-8193; 
e-mail terry.sheppard@hq.doe.gov; fax (202) 586-0545.

SUPPLEMENTARY INFORMATION:

I. Background
II. Section by Section Analysis
III. Public Comments
IV. Procedural Requirements
    A. Review Under Executive Order 12866
    B. Review Under Executive Order 12988
    C. Review Under the Regulatory Flexibility Act
    D. Review Under the Paperwork Reduction Act
    E. Review Under the National Environmental Policy Act
    F. Review Under Executive Order 12612
    G. Review Under the Unfunded Mandates Reform Act of 1995
    H. Review Under the Treasury and general Government 
Appropriations Act, 1999

I. Background

    The Department of Energy (DOE) and its predecessor agencies have 
traditionally accomplished their defense and energy research mission 
responsibilities through the use of management and operating (M&O) 
contracts. Although M&O contracts are authorized by the Federal 
Acquisition Regulation (FAR) at Part 17.6, FAR policies generally do 
not provide the special terms and conditions for award and contract 
administration processes tailored to the M&O contracting environment. 
Accordingly, the Department has established specific policies and 
procedures at Department of Energy Acquisition Regulation (DEAR) Parts 
917 and 970. Included among these policies and procedures is a unique 
set of cost principles which govern the allowability of costs under M&O 
contracts.
    Last year DOE conducted a review of the policies and procedures 
governing the award and administration of M&O contracts. One of the 
objectives of the review was to determine whether current DEAR cost 
principle coverage could be eliminated and reliance placed on similar 
coverage contained in the FAR. As a result of a comparative analysis 
between the FAR and the DEAR cost principles and related procedures, 
the review concluded that the FAR cost principles adequately addressed 
DOE interests, and that supplemental coverage was necessary only in a 
limited number of cases.
    In this notice DOE proposes to amend the DEAR to implement the 
results of a comparative analysis of the FAR, Part 31, and DEAR 970.31, 
and 970.52. The amendments will delete those cost principles and 
related provisions of DEAR 970 that are adequately covered by the FAR 
and renumber those cost principles supplemented in the DEAR to conform 
to the FAR numbering.
    One exception is the ``Travel costs'' cost principle (FAR 31.205-46 
and DEAR 970.3102-17). DOE has retained separate coverage, although 
identical to the current FAR coverage, because there is a proposed 
change to the FAR section on travel costs that will change the 
government-wide standard of travel cost allowability to a 
``reasonableness'' standard. If the FAR change is made, DOE will need 
to retain the current

[[Page 37336]]

travel cost requirements mandated by Congress. Section 309, Pub. L. 
106-60, Energy and Water Appropriations Act, 2000, requires DOE to 
limit travel cost reimbursement to the ``rates and amounts'' that apply 
to federal employees.
    Also, DOE has conducted a separate review of the Department's 
policies addressing home office/corporate allocations, bid and proposal 
costs, and cost of money. This separate review resulted in a 
determination that existing policy relative to home office/corporate 
allocations remains valid and that the individual locations should 
continue to determine appropriate home office/corporate allocations. 
The review also determined that bid and proposal costs should remain 
unallowable due to the unique nature of the M&O arrangement. For cost 
of money, DOE policy will be amended to state that such costs are 
allowable, rather than unallowable. This change should have little 
impact on DOE as most facilities are government-owned. Accordingly, the 
existing language which makes this cost unallowable is deleted. The 
result of this deletion is to make this an allowable cost under 
indirect and overhead cost allocations.
    In summary, DOE chooses to adopt all of the FAR cost principles 
except as supplemented in the areas identified:

                                          Treatment of Current Sections
----------------------------------------------------------------------------------------------------------------
          Section No.                 Section Title          Retain        Delete         Amend      
Relocate
----------------------------------------------------------------------------------------------------------------
                                       Subpart 970.25--Foreign Acquisition
----------------------------------------------------------------------------------------------------------------
970.2501.......................  Severance payments for   ............  <check>       ............ 
............
                                  foreign nationals.
----------------------------------------------------------------------------------------------------------------
                             Subpart 970.31--Contract Cost Principles and Procedures
----------------------------------------------------------------------------------------------------------------
970.3100.......................  Scope and applicability  ............  <check>       ............ 
............
                                  of subpart.
970.3100-1.....................  Definitions............  ............  <check>       ............  ............
970.3100-2.....................  Responsibilities.......  ............  ............  ............  <check>
970.3100-3.....................  Deviation..............  ............  ............  ............  <check>
970.3101.......................  General policy.........  ............  <check>       ............  ............
970.3101-1.....................  Actual cost basis......  ............  <check>       ............  ............
970.3101-2.....................  Direct and indirect      ............  <check>       ............ 
............
                                  costs.
970.3101-3.....................  General basis for        ............  <check>       ............ 
............
                                  reimbursement of costs.
970.3101-4.....................  Cost determination       ............  <check>       ............ 
............
                                  based on audit.
970.3101-5.....................  Contractor's system of   ............  <check>       ............ 
............
                                  accounting.
970.3101-6.....................  Advance understandings   ............  <check>      
<check>       <check>
                                  on \1\ particular cost
                                  items.
970.3101-7.....................  Cost submission,         ............  ............  ............  <check>
                                  certification,
                                  penalties, and waivers.
970.3102.......................  Application of cost      ............  <check>       ............ 
............
                                  principles.
970.3102-1.....................  General and              ............  ............  ............  <check>
                                  administrative
                                  expenses.
970.3102-2.....................  Compensation for         ............  ............  <check>      
<check>
                                  personal services.
970.3102-3.....................   Cost of money.........  ............  <check>       ............  ............
970.3102-4.....................  Depreciation...........  ............  <check>       ............  ............
970.3102-5.....................  Employee morale,         ............  <check>       ............ 
............
                                  health, welfare, food
                                  service, and dormitory
                                  costs.
970.3102-6.....................  Facilities (plant and    ............  <check>       ............ 
............
                                  equipment).
970.3102-7.....................  Political activity       ............  ............  <check>      
<check>
                                  costs.
970.3102-8.....................  Membership in trade,     ............  <check>       ............ 
............
                                  business and
                                  professional
                                  organizations.
970.3102-9.....................  Outside technical and    ............  <check>       ............ 
............
                                  professional
                                  consultants.
970.3102-10....................  Overtime, shift, and     ............  ............  ............  <check>
                                  holiday premiums.
970.3102-11....................  Page charges in          ............  ............  ............  <check>
                                  scientific journals.
970.3102-12....................  Plant reconversion       ............  <check>       ............ 
............
                                  costs.
970.3102-13....................  Precontract costs......  ............  <check>       ............  ............
970.3102-14....................  Preparatory and make-    ............  <check>       ............ 
............
                                  ready costs.
970.3102-15....................  Procurement:             ............  <check>       ............ 
............
                                  Subcontracts,
                                  contractor-affiliated
                                  sources, and leases.
970.3102-16....................  Relocation costs.......  ............  <check>       ............  ............
970.3102-17....................  Travel costs...........  <check>       ............  ............ 
<check>
970.3102-18....................  Special funds in the     ............  <check>       ............ 
............
                                  construction industry.
970.3102-19....................  Public relations and     ............  <check>       ............ 
............
                                  advertising.
970.3102-20....................  Cost prohibitions        ............  <check>       ............ 
............
                                  related to legal and
                                  other proceedings.
970.3102-21....................  Fines and penalties....  ............  <check>       ............ 
............
970.3103.......................  Contract clauses.......  ............  <check>       ............  ............
970.5204-4.....................  New Mexico Gross         ............  ............  <check>      
............
                                  Receipts.
970.5204-13....................  Allowable costs and      ............  <check>       ............ 
............
                                  fixed-fee (Management
                                  and Operating
                                  contracts).
970.5204-14....................  Allowable costs and      ............  <check>       ............ 
............
                                  fixed-fee (support
                                  contracts).
970.5204-15....................  Obligation of funds....  <check>       ............  ............ 
............
970.5204-16....................  Payments and advances..  ............  ............  <check>      
............
970.5204-17....................  Political activity cost  ............  <check>       ............ 
............
                                  prohibition.
970.5204-61....................  Cost prohibitions        ............  <check>       ............ 
............
                                  related to legal and
                                  other proceedings.
970.5204-75....................  Preexisting conditions.  <check>       ............  ............ 
............
970.5204-84....................  Waiver of limitations    ............  <check>       ............ 
............
                                  on severance payments
                                  to foreign nationals.
----------------------------------------------------------------------------------------------------------------
\1\ Footnote: This subject heading has been moved to 970.3101-9, but all of the original text
has been deleted
  and replaced with new text.


[[Page 37337]]


                      Organization of New Sections
------------------------------------------------------------------------
                                  Section title
                                  (FAR headings          Summary of
       New Section No.*               where        supplemental coverage/
                                   appropriate)          references
------------------------------------------------------------------------
 970.3100-1...................  Scope of subpart.  Coverage relocated
                                                    from current
                                                    970.3100-2.
 970.3101-1...................  Objectives.......  Coverage relocated
                                                    from current
                                                    970.3100-3.
 970.3101-3...................  Home Office        The coverage
                                 Expenses.          addressing Home
                                                    Office expenses is
                                                    rewritten in terms
                                                    of allocability
                                                    rather than
                                                    allowability (moved
                                                    from 970.3102-1(b)).
 970.3101-9...................  Advance            CO may identify
                                 Agreements.        selected cost items
                                                    requiring CO
                                                    approval.
 970.3101-10..................  Indirect cost      Coverage relocated
                                 rate               from current
                                 certification      970.3101-7.
                                 and penalties on
                                 unallowable
                                 costs.
 970.3102-4...................  Bonding Costs....  References DEAR
                                                    970.5204-31.
 970.3102-6...................  Compensation.....  --Personnel costs
                                                    determined in
                                                    accordance with
                                                    personnel appendix
                                                   --Limits on executive
                                                    compensation.
 970.3102-18..................  Bid and Proposal   B&P costs
                                 costs.             unallowable.
 970.3102-19..................  Insurance and      References DEAR
                                 indemnification.   970.5204-31.
 970.3102-20..................  Interest and       Imputed interest on
                                 Other Financial    capital leases
                                 Costs.             allowable.
 970.3102-22..................  Lobbying and       Addresses costs for
                                 Political          transportation,
                                 Activity Costs.    lodging, and meals
                                                    associated with
                                                    providing
                                                    information, advice
                                                    etc.
 970.3102-28..................  Other Business     Establishment and
                                 Expense.           maintenance of
                                                    financial
                                                    institution
                                                    accounts; allowable
                                                    (moved from 970.5204-
                                                    13(d)(15).
 970.3102-46..................  Travel costs.....  Section 309 of Pub.
                                                    L. 106-60, Energy
                                                    and Water
                                                    Development
                                                    Appropriations Act
                                                    2000 requires the
                                                    Department to limit
                                                    travel cost
                                                    reimbursement to the
                                                    ``rates and
                                                    amounts'' that apply
                                                    to Federal
                                                    employees.
                                                   Revise documentation
                                                    threshold from $25
                                                    to $75.
 970.3102-53..................  Preexisting        References DEAR
                                 conditions.        970.5204-75.
 970.4207-1...................  Contracting        Identifies procedures
                                 Officer            associated with cost
                                 Determination      resolution (moved
                                 procedure.         from 970.3101-3(b)).
 970.4207-2...................  Certificate of     Addresses procedures
                                 costs..            for cost
                                                    certification,
                                                    assessment and
                                                    waiver of penalties
                                                    (moved entire
                                                    970.3101-7).
 970.5204-4...................  New Mexico Gross   Change cross
                                 Receipts..         reference.
 970.5204-16..................  Payments and       Adds paragraph (k) to
                                 Advances.          reference FAR 31 and
                                                    DEAR 970.31
 970.5204-31..................  Insurance-         Changes reference in
                                 litigation and     Paragraph (h) to FAR
                                 claims.            31.2.
                                                   Adds -13/-14 (d)(4)
                                                    language at
                                                    paragraph (m)
 970.5204-xx..................  Penalties for      Clause for assessment
                                 unallowable        of penalties
                                 costs.             (repeats part of
                                                    970.4207-2).
------------------------------------------------------------------------
* Proposed section numbers correspond directly with the numbering of FAR
  coverage being supplemented.

II. Section-by-Section Analysis

    1. Subpart 970.25, Foreign Acquisitions, and the coverage contained 
in Section 970.2501, Severance payments for foreign nationals, would be 
removed because FAR 31.205-6(g)(3) provides coverage.
    2. We propose to revise subpart 970.31 and remove current sections 
970.3100 through 970.3103. They would be replaced by the following 
sections:
    A. Section 970.3100-1, Scope of subpart, prescribes the 
responsibilities and roles of the Procurement Executive and the Head of 
the Contracting Activity.
    B. Section 970.3101-1, Objectives, identifies the procedures for 
deviations to the cost principles.
    C. Section 970.3101-3, Home Office Expenses, is moved from 
970.3102-1, renamed, and rewritten in plain language.
    D. Section 970.3101-9, Advance agreements, establishes the 
contracting officer's authority to require the contracting officer's 
approval on selected items of cost.
    E. Section 970.3101-10, Indirect cost rate certification and 
penalties on unallowable costs, addresses the requirement for a cost 
certification and penalties associated with unallowable costs.
    F. Section 970.3102-4, Bonding costs, paragraph (d) references the 
clause at 970.5204-31, Insurance-litigation and claims.
    G. Section 970.3102-6(a) and (p) establish the requirement for a 
personnel appendix and set limits on the allowability of compensation 
costs for certain contractor personnel.
    H. Section 970.3102-18(c), Independent research and development and 
bid and proposal costs, addresses the allowability of bid and proposal 
costs.
    I. Section 970.3102-19, Insurance and indemnification, references 
970.5204--31, Insurance-litigation and claims.
    J. Section 970.3102-20, Interest and other financial costs, 
addresses the allowability of interest relating to capital leases.
    K. Section 970.3102-22(b)(1), Lobbying and political activity 
costs, addresses the allowability of costs of transportation, lodging, 
and/or meals associated with providing technical information.
    L. Section 970.3102-28(i), Other business expense, addresses the 
the maintenance of financial institution accounts. (Moved from 
970.5204-13(d)(15)).
    M. Section 970.3102-46, Travel costs, is retained as Section 309 of 
Pub. L. 106-60, Energy and Water Development Appropriations Act, 2000, 
requires the Department to limit travel cost reimbursement to the 
``rates and amounts'' that apply to Federal employees.
    Documentation threshold to support actual costs are revised from 
$25 to $75.
    N. Section 970.3102-53, Preexisting conditions, references 
970.5204-75, Preexisting conditions.
    3. Section 970.4207-1, Contracting officer determination procedure, 
identifies procedures associated with the resolution of questioned 
costs.
    4. Section 970.4207-2, Cost certification, identifies 
administrative

[[Page 37338]]

procedures associated with the cost certification.
     5. Section 970.5204-4, New Mexico gross receipts and compensating 
tax, would be revised by changing cross reference from ``Allowable 
costs and fixed fee'' which would be removed by this rulemaking and is 
replaced by a reference to ``Payments and advances.''
    6. Section 970.5204-13, Allowable costs and fixed-fee (Management 
and Operating contracts), would be removed and reserved.
    7. Section 970.5204-14, Allowable costs and fixed-fee (support 
contracts), would be removed and reserved.
    8. Section 970.5204-16 would be revised to add language referencing 
FAR Part 31 coverage and DEAR supplemental coverage.
    9. Section 970.5204-17, Political activity cost prohibition, would 
be removed and reserved. This section would be addressed in new section 
970.3102-22.
    10. Section 970.5204-31, Insurance-litigation and claims, would be 
revised by deleting the paragraph (h) cross reference to DEAR 970.3101-
3 and replacing with a reference to FAR Part 31 and DEAR 970.31, and 
adding a new paragraph (m) addressing the DOE approved contractor legal 
management procedures.
    11. Section 970.5204-61, Cost prohibitions related to legal and 
other proceedings, would be removed and reserved.
    12. Section 970.5204-84, Waiver of limitations on severance 
payments to foreign nationals, would be removed and reserved.
    13. Section 970.5204-XX, Penalties for unallowable costs, explains 
the penalty provisions associated with the submission of unallowable 
costs.

III. Public Comments

    Interested persons are invited to participate by submitting data, 
views, or arguments with respect to the proposed DEAR amendments set 
forth in this notice. Three copies of written comments should be 
submitted to the address indicated in the ADDRESSES section of this 
notice. All comments received will be available for public inspection 
in the DOE Reading Room, Room lE-190, Forrestal Building, 1000 
Independence Avenue, SW., Washington, D.C. 20585, between the hours of 
9 a.m. and 4 p.m., Monday through Friday, except Federal holidays. All 
written comments received by the date indicated in the DATES section of 
this notice and all other relevant information in the record will be 
carefully assessed and fully considered prior to publication of the 
final rule. Any information considered to be confidential must be so 
identified and submitted in writing, one copy only. DOE reserves the 
right to determine the confidential status of the information and to 
treat it according to our determination (See 10 CFR 1004.11).
    The Department has concluded that this proposed rule does not 
involve a substantial issue of fact or law and that the proposed rule 
should not have substantial impact on the nation's economy or a large 
number of individuals or businesses. Therefore, pursuant to Public Law 
95-91, the DOE Organization Act, and the Administrative Procedure Act 
(5 U.S.C. 553), the Department does not plan to hold a public hearing 
on this proposed rule.

IV. Procedural Requirements

A. Review Under Executive Order 12866

    Today's regulatory action has been determined not to be a 
``significant regulatory action'' under Executive Order 12866, 
``Regulatory Planning and Review,'' (58 FR 51735, October 4, 1993). 
Accordingly, this 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), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) Clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftmenship 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. The Department of Energy 
has completed the required review and determined that, to the extent 
permitted by law, the regulations meet the relevant standards of 
Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    This proposed rule was reviewed under the Regulatory Flexibility 
Act, 5 U.S.C. 601 et seq., which requires preparation of a regulatory 
flexibility analysis for any rule which is likely to have significant 
economic impact on a substantial number of small entities. Today's 
proposed rule streamlines the cost principles that apply to DOE M&O 
contracts. M&O contractors are not small entities. Accordingly, DOE 
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 or recordkeeping requirements are imposed by 
this rulemaking. Accordingly, no OMB clearance is required under the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

E. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this rule falls into a class 
of actions which would not individually or cumulatively have 
significant impact on the human environment, as determined by DOE's 
regulations (10 CFR Part 1021, Subpart D) implementing the National 
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.). 
Specifically, this rule is categorically excluded from NEPA review 
because the proposed amendments to the DEAR do not change the 
environmental effect of the rule being amended (categorical exclusion 
A5). Therefore, this rule does not require an environmental impact 
statement or environmental assessment pursuant to NEPA.

F. Review Under Executive Order 12612

    Executive Order 12612 (52 FR 41685, October 30, 1987) requires that 
regulations, rules, legislation, and any other policy actions be 
reviewed for any substantial direct effects on States, on the 
relationship between the National Government and the States, or in the 
distribution of power and responsibilities among the various

[[Page 37339]]

levels of Government. If there are sufficient substantial direct 
effects, then the Executive Order requires the preparation of a 
federalism assessment to be used in all decisions involved in 
promulgating and implementing a policy action. This proposed rule, when 
finalized, will revise certain policy and procedural requirements. 
States which contract with DOE will be subject to this rule. However, 
DOE has determined that this rule will not have a substantial direct 
effect on the institutional interests or traditional functions of the 
States.

G. 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 affects private sector entities, and the 
impact is less than $100 million.

H. Treasury and General Government Appropriations Act, 1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any proposed rule that may affect family 
well-being. Today's proposal would not have any impact on the autonomy 
or integrity of the family as in institution. Accordingly, DOE has 
concluded that it is not necessary to prepare a Family Policymaking 
Assessment.

List of Subjects in 48 CFR Part 970

    Government procurement.

    Issued in Washington, D.C. on June 6, 2000.
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 proposed to be amended as set forth 
below.
    1. The authority citation for Part 970 continues to read as 
follows:

    Authority: Atomic Energy Act of 1954 (42 U.S.C. 2201); 
Department of Energy Organization Act (42 U.S.C. 7101); National 
Nuclear Security Administration Act (50 U.S.C. 2401, et seq.).

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS


Subpart 970.25  [Removed]

    2. Subpart 970.25 consisting of 970.2501 is removed.
    3. Subpart 970.31, Contract Cost Principles and Procedures, is 
revised to read as follows:

Sec.
970.3100-1  Scope of subpart.
970.3101-1  Objectives.
970.3101-3  Home office expenses
970.3101-9  Advance agreements.
970.3101-10  Cost certification.
970.3102-4  Bonding costs.
970.3102-6  Compensation for personal services.
970.3102-18  Independent research and development and bid and 
proposal costs.
970.3102-19  Insurance and indemnification.
970.3102-20  Interest and other financial costs.
970.3102-22  Lobbying and political activity costs.
970.3102-28  Other business expenses.
970.3102-46  Travel costs.
970.3102-53  Preexisting conditions.

Subpart 970.31--Contract cost principles and procedures


970.3100-1  Scope of subpart.

    (a) The Procurement Executive is responsible for developing and 
revising the policy and procedures for the determination of allowable 
costs reimbursable under a management and operating contract, and for 
coordination with other Headquarters' offices having joint interests.
    (b) The Head of the Contracting Activity is responsible for 
following the policy, principles and standards set forth in this 
subpart in establishing the compensation and reimbursement provisions 
of contracts and subcontracts and for submission of deviations for 
Headquarters consideration and approval.


970.3101-1  Objectives.

    Deviations from the policy and principles set forth in this subpart 
shall not be made unless such action is authorized by the Procurement 
Executive, on the basis of a written justification stating clearly the 
special circumstances involved.


970.3101-3,  Home office expenses.

    (a) For on-site work, DOE's fee for management and operating 
contract, determined under the policy of and calculated per the 
procedures in 970.15404-4, provides adequate compensation for home or 
corporate office general and administrative expenses incurred in the 
general management of the contractor's business as a whole.
    (1) DOE recognizes that some Home Office Expenses are incurred for 
the benefit of a management and operating contract. DOE has elected to 
recognize that benefit through fee due to the difficulty of determining 
the dollar value applicable to any management and operating contract. 
The difficulty arises because:
    (i) The general construct of a management and operating contract 
results in minimal Home Office involvement in the contract work, and
    (ii) Conventional Home Office Expense allocation techniques that 
use bases such as total operating costs, labor dollars, hours etc., are 
not appropriate because they inherently assume significant contractor 
investment (in terms of its own resources, such as, labor, material, 
overhead, etc.). Contractor investments are minimal under DOE's 
operating and management contracts. The contracts are totally financed 
by DOE advance payments, and DOE provides government-owned facilities, 
property, and other needed resources.
    (2) From time to time, the fee for a management and operating 
contract may not be adequate compensation for Home Office Expenses 
incurred for the benefit of the contract. An indication that such a 
case exists is the need for significant home office support to deal 
with issues at the site that occur without the fault or negligence of 
the contractor, for example, the need for home office legal support to 
deal with third party, environmental, safety, or health issues.
    (3) In such a case, the contracting officer, after obtaining the 
HCA's approval, may consider a contractor request for additional 
compensation. The contractor may request:
    (i) Fee in addition to its normal fee; or
    (ii) Compensation on the basis of actual cost.
    (4) Because the contract's fee provides some compensation for Home 
Office Expenses, the contractor's request for additional compensation 
must always be for an amount less than the Home Office Expenses that 
are incurred for the benefit of the management and operating contract.
    (b) For off-site work, the DOE allows Home Office Expenses under 
architect-engineer, supply and research contracts with commercial 
contractors performing the work in their own facilities. Home Office 
Expenses may, however, be included for reimbursement under such DOE 
off-site architect-engineer, supply and research contracts, only to the 
extent that they are determined, after careful examination, to be 
allowable, reasonable, and properly allocable to the

[[Page 37340]]

work. Work performed in a contractor's own facilities under a 
management and operating or construction contract may likewise be 
allowed to bear the properly allocable portion of allowable Home Office 
Expenses.


970.3101-9   Advance agreements. (DOE coverage-paragraph (i))

    (i) At any time, the contracting officer may institute an advance 
approval requirement for any cost item under a contract.


970.3101-10  Cost certification.

    (a) Certain contracts require certification of the costs proposed 
for final payment purposes. Section 970.4207-2 states the 
administrative procedures for the certification provisions and the 
related contract clause prescription.
    (b) If unallowable costs are included in final cost settlement 
proposals, penalties may be assessed. Section 970.4207-2 states the 
administrative procedures for penalty assessment provisions and the 
related clause prescription.


970.3102-4  Bonding costs. (DOE coverage-paragraph (d))

    (d) The allowability of bonding costs shall be determined pursuant 
to 970.5204-31, Insurance-litigation and claims.


970.3102-6  Compensation for personal services. (DOE coverage-
paragraphs (a) and (p))

    (a)(6) In determining the reasonableness of compensation, the 
compensation of each individual contractor employee normally need not 
be subjected to review and approval. Generally, the compensation paid 
individual employees should be left to the judgment of contractors 
subject to the limitations of DOE-approved compensation policies, 
programs, classification systems, and schedules, and amounts of money 
authorized for wage and salary increases for groups of employees. 
However, the contracting officer shall designate a compensation 
threshold appropriate for the particular situation. The contract shall 
specifically provide that contracting officer approval is required for 
compensating an individual contractor employee above the threshold if a 
total of 50 percent or more of such compensation is reimbursed under 
DOE cost-type contracts. For purposes of designating the threshold, 
total compensation includes only the employee's salary and cash bonus 
or incentive compensation.
    (7)(i) Reimbursable costs for compensation for personal services 
are to be set forth in a personnel appendix which is a part of the 
contract. This personnel appendix shall be negotiated using the 
principles and policies of FAR 31.205-6, Compensation, as supplemented 
by this section, 970.3102-6, and other pertinent parts of the DEAR. 
Costs that are unallowable under other contract terms shall not be 
allowable as compensation for personnel services.
    (ii) The personnel appendix sets forth in detail personnel costs 
and related expenses allowable under the contract and documents 
personnel policies, practices and plans which have been found 
acceptable by the contracting officer. The contractor will advise DOE 
of any proposed changes in any matters covered by these policies, 
practices or plans which relate to personnel costs. The personnel 
appendix may be modified from time to time in writing by mutual 
agreement of the contractor and DOE without execution of an amendment 
to the contract. Such modifications shall be evidenced by execution of 
written numbered approval letters from the contracting officer or his 
representative. Types of personnel costs and related expenses addressed 
in the personnel appendix, or amendments thereto, are as follows: 
salaries and wages; bonuses and incentive compensation; overtime, shift 
differential, holiday, and other premium pay for time worked; welfare 
benefits and retirement programs; paid time off, and salaries and wages 
to employees in their capacity as union stewards and committeemen for 
time spent in handling grievances, or serving on labor management 
(contractor) committees. Provided, however, that the contracting 
officer's approval is required in each instance of total compensation 
to an individual employee above an annual rate as specified in the 
personnel appendix.
    (p)(1) Notwithstanding paragraph (a) of this section, costs 
incurred for compensation of a senior executive in excess of the 
benchmark compensation amount determined applicable for the contractor 
fiscal year by the Administrator, Office of Federal Procurement Policy, 
are unallowable. Allowable costs of executive compensation shall be 
determined pursuant to Federal Acquisition Regulation 31.205-6(p).


970.3102-18  Independent research and development and bid and proposal 
costs. (DOE coverage-paragraph (c))

    (c) Bid and Proposal costs are unallowable.


970.3102-19  Insurance and indemnification.

    The supplemental material on the costs of insurance and 
indemnification is found in 970.5204-31, Insurance-litigation and 
claims.


970.3102-20  Interest and other financial costs.

    Imputed interest costs relating to leases classified and accounted 
for as capital leases under generally accepted accounting principles 
(GAAP) are allowable when the decision to enter into a capital leasing 
arrangement has been specifically authorized and approved by the DOE in 
accordance with applicable procedures and such interest costs are 
recorded in a DOE account established for such purpose.


970.3102-22  Lobbying and political activity costs. (DOE coverage--
paragraph (b))

    (b) Costs of the following activities are excepted from FAR 31.205-
22, Lobbying and political activity costs, coverage, provided that the 
resultant costs are reasonable and otherwise fall into the following 
exceptions:
    (1) Providing Members of Congress, their staff members or staff of 
cognizant legislative committees, in response to a request (written or 
oral, prior or contemporaneous) from Members of Congress, their staff 
members or staff of cognizant legislative committees, or as otherwise 
directed by the Contracting Officer, information or expert advice of a 
factual, technical, or scientific nature, with respect to topics 
directly related to the performance of the contract or proposed 
legislation. In providing this information or expert advice, the 
contractor shall indicate to the recipient that it is not presenting 
the views of DOE. Reasonable costs for transportation, lodging or meals 
incurred by contractor employees for the purpose of providing such 
information or expert advice shall also be reimbursable, provided the 
request for such information or expert advice is a prior written 
request signed by a Member of Congress.
    (2) Providing State legislatures or subdivisions thereof, their 
staff members, or staff of cognizant legislative committees, in 
response to a prior written request from a State legislator, or as 
otherwise directed by the Contracting Officer, information or expert 
advice of a factual, technical, or scientific nature, with respect to 
topics directly related to the performance of the contract or proposed 
legislation. In providing this information or expert advice, the 
contractor shall indicate to the recipient that it is not presenting 
the views of DOE. Reasonable costs for

[[Page 37341]]

transportation, lodging, or meals incurred by contractor employees 
shall be reimbursable.


970.3102-28  Other business expenses. (DOE coverage--paragraph (i))

    (i) Reasonable costs associated with the establishment and 
maintenance of financial institution accounts in connection with the 
work under this subpart are allowable, including, but not limited to, 
service charges, the cost of disbursing cash, necessary guards, 
cashiers, and paymasters. If payments to employees are made by check, 
facilities and arrangements for cashing checks may be provided without 
expense to the employees, subject to the approval of the contracting 
officer.


970.3102-46  Travel costs.

    (a) Costs for transportation, lodging, meals, and incidental 
expenses.
    (1) Costs incurred by contractor personnel on official company 
business are allowable, subject to the limitations contained in this 
subsection. Costs for transportation may be based on mileage rates, 
actual costs incurred, or on a combination thereof, provided the method 
used results in a reasonable charge. Costs for lodging, meals, and 
incidental expenses may be based on per diem, actual expenses, or a 
combination thereof, provided the method used results in a reasonable 
charge.
    (2) Except as provided in paragraph (a)(3) of this subsection, 
costs incurred for lodging, meals, and incidental expenses (as defined 
in the regulations cited in paragraphs (a)(2)(i) through (iii) of this 
subsection) shall be considered to be reasonable and allowable only to 
the extent that they do not exceed on a daily basis the maximum per 
diem rates in effect at the time of travel as set forth in the--
    (i) Federal Travel Regulation, prescribed by the General Services 
Administration, for travel in the conterminous 48 United States, 
available on a subscription basis from the Superintendent of Documents, 
U.S. Government Printing Office, Washington, DC 20402, Stock No. 922-
002-00000-2;
    (ii) Joint Travel Regulations, DoD Civilian Personnel, Appendix A, 
prescribed by the Department of Defense, for travel in Alaska, Hawaii, 
The Commonwealth of Puerto Rico, and territories and possessions of the 
United States, available on a subscription basis from the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402, Stock No. 908-010-00000-1; or
    (iii) Standardized Regulations (Government Civilians, Foreign 
Areas), section 925, ``Maximum Travel Per Diem Allowances for Foreign 
Areas,'' prescribed by the Department of State, for travel in areas not 
covered in paragraphs (a)(2)(i) and (ii) of this subsection, available 
on a subscription basis from the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402, Stock No. 744-008-
00000-0.
    (3) In special or unusual situations, actual costs in excess of the 
maximum per diem rates are allowable provided that such amounts do not 
exceed the higher amounts authorized for Federal civilian employees as 
permitted in the regulations referenced in pargraphs (a)(2)(i), (ii), 
or (iii) of this subsection. For such higher amounts to be allowable, 
all of the following conditions must be met:
    (i) One of the conditions warranting approval of the actual expense 
method, as set forth in the regulations referred in paragraphs 
(a)(2)(i), (ii), or (iii) of this subsection, must exist.
    (ii) A written justification for use of the higher amounts must be 
approved by an officer of the contractor's organization or designee to 
ensure that the authority is properly administered and controlled to 
prevent abuse.
    (iii) If it becomes necessary to exercise the authority to use the 
higher actual expense method repetitively or on a continuing basis in a 
particular area, the contractor must obtain advance approval from the 
contracting officer.
    (iv) Documentation to support actual costs incurred shall be in 
accordance with the contractor's established practices, subject to 
paragraph (a)(7) of this subsection, and provided that a receipt is 
required for each expenditure of $75.00 or more. The approved 
justification required by paragraph (a)(3)(ii) and, if applicable, 
paragraph (a)(3)(iii) of this subsection must be retained.
    (4) Paragraphs (a)(2) and (a)(3) of this subsection do not 
incorporate the regulations cited in paragraphs (a)(2)(i), (ii), and 
(iii) of this subsection in their entirety. Only the maximum per diem 
rates, the definitions of lodging, meals, and incidental expenses, and 
the regulatory coverage dealing with special or unusual situations are 
incorporated in those paragraphs.
    (5) An advance agreement (see FAR 31.109 and DEAR 970.3101-9) with 
respect to compliance with paragraphs (a)(2) and (a)(3) of this 
subsection may be useful and desirable.
    (6) The maximum per diem rates referenced in paragraph (a)(2) of 
this subsection generally would not constitute a reasonable daily 
charge--
    (i) When no lodging costs are incurred; and/or
    (ii) On partial travel days (e.g., day of departure and return). 
Appropriate downward adjustments from the maximum per diem rates would 
normally be required under these circumstances. While these adjustments 
need not be calculated in accordance with the Federal Travel Regulation 
or Joint Travel Regulations, they must result in a reasonable charge.
    (7) Costs shall be allowable only if the following information is 
documented:
    (i) Date and place (city, town, or other similar designation) of 
the expenses;
    (ii) Purpose of the trip; and
    (iii) Name of person on trip and that person's title or 
relationship to the contractor.
    (b) Travel costs incurred in the normal course of overall 
administration of the business are allowable and shall be treated as 
indirect costs.
    (c) Travel costs directly attributable to specific contract 
performance are allowable and may be charged to the contract under FAR 
31.202.
    (d) Airfare costs in excess of the lowest customary standard, 
coach, or equivalent airfare offered during normal business hours are 
unallowable except when such accommodations require circuitous routing, 
require travel during unreasonable hours, excessively prolong travel, 
result in increased cost that would offset transportation savings, are 
not reasonably adequate for the physical or medical needs of the 
traveler, or are not reasonably available to meet mission requirements. 
However, in order for airfare costs in excess of the standard airfare 
to be allowable, the applicable condition(s) must be documented and 
justified.
    (e)(1) ``Cost of travel by contractor-owned, -leased, or -chartered 
aircraft,'' as used in this paragraph, includes the cost of lease, 
charter, operation (including personnel), maintenance, depreciation, 
insurance, and other related costs.
    (2) The costs of travel by contractor-owned, -leased, or -chartered 
aircraft are limited to the standard airfare described in paragraph (d) 
of this subsection for the flight destination unless travel by such 
aircraft is specifically required by contract specification, term, or 
condition, or a higher amount is approved by the contracting officer. A 
higher amount may be agreed to when one or more of the circumstances 
for justifying higher than standard airfare listed in paragraph (d) of 
this subsection are applicable, or when an advance agreement under 
paragraph (e)(3) of this

[[Page 37342]]

subsection has been executed. In all cases, travel by contractor-owned, 
-leased, or -chartered aircraft must be fully documented and justified. 
For each contractor-owned, -leased, or -chartered aircraft used for any 
business purpose which is charged or allocated, directly or indirectly, 
to a Government contract, the contractor must maintain and make 
available manifest/logs for all flights on such company aircraft. As a 
minimum, the manifest/log shall indicate--
    (i) Date, time, and points of departure;
    (ii) Destination, date, and time of arrival;
    (iii) Name of each passenger and relationship to the contractor;
    (iv) Authorization for trip; and
    (v) Purpose of trip.
    (3) Where an advance agreement is proposed (see 31.109), 
consideration may be given to the following:
    (i) Whether scheduled commercial airlines or other suitable, less 
costly, travel facilities are available at reasonable times, with 
reasonable frequency, and serve the required destinations conveniently;
    (ii) Whether increased flexibility in scheduling results in time 
savings and more effective use of personnel that would outweigh 
additional travel costs.
    (f) Costs of contractor-owned or -leased automobiles, as used in 
this paragraph, include the costs of lease, operation (including 
personnel), maintenance, depreciation, insurance, etc. These costs are 
allowable, if reasonable, to the extent that the automobiles are used 
for company business. That portion of the cost of company-furnished 
automobiles that relates to personal use by employees (including 
transportation to and from work) is compensation for personal services 
and is unallowable as stated in FAR 31.205-6(m)(2).


970.3102-53  Preexisting conditions.

    Clause 970.5204-75, Preexisting conditions, provides guidance on 
situations where this category of costs may be allowable.


970.42  Contract Administration.

    4. 970.4207-1, Contracting officer determination procedure, is 
added to read as follows:


970.4207-1  Contracting officer determination procedure. (DOE coverage-
paragraph (b))

    (b)(4) A contracting officer shall not resolve any questioned costs 
until the contracting officer has obtained:
    (i) Adequate documentation with respect to such costs; and
    (ii) The opinion of the Department of Energy's auditor on the 
allowability of such costs.
    (5) The contracting officer shall ensure that the documentation 
supporting the final settlement addresses the amount of the questioned 
costs and the subsequent disposition of such questioned costs.
    (6) The contracting officer shall ensure, to the maximum extent 
practicable, that the Department of Energy's auditor is afforded an 
opportunity to attend any negotiation or meeting with the contractor 
regarding a determination of allowability.
    5. Section 970.4207-2, is added to read as follows:


970.4207-2  Certificate of costs.

    (a) The contracting officer shall require that management and 
operating contractors provide a submission, pursuant to 970.5204-16(e), 
for settlement of costs incurred during the period stipulated on the 
submission and a certification that the costs included in the 
submission are allowable. The contracting officer shall assess a 
penalty pursuant to 970.5204-XX if unallowable costs are included in 
the submission. Unallowable costs are either expressly unallowable or 
determined unallowable.
    (1) An expressly unallowable cost is a particular item or type of 
cost which, under the express provisions of an applicable law, 
regulation, or this contract, is specifically named and stated to be 
unallowable.
    (2) A cost determined unallowable is one which, for that 
contractor,
    (i) Was subject to a contracting officer's final decision and not 
appealed;
    (ii) The Department's Board of Contract Appeals or a court has 
previously ruled as unallowable; or
    (iii) Was mutually agreed to be unallowable.
    (b) If, during the review of the submission, the contracting 
officer determines that the submission contains an expressly 
unallowable cost or a cost determined to be unallowable prior to the 
submission, the contracting officer shall assess a penalty.
    (c) If the contracting officer determines that a cost submitted by 
the contractor in its submission for settlement is:
    (1) Expressly unallowable, then the contracting officer shall 
assess a penalty in an amount equal to the disallowed cost allocated to 
the contract plus interest on the paid portion of the disallowed cost. 
Interest shall be computed from the date of overpayment to the date of 
repayment using the interest rate specified by the Secretary of the 
Treasury pursuant to Public Law 92-41 (85 Stat. 97).
    (2) Determined unallowable, then the contracting officer shall 
assess a penalty in an amount equal to two times the amount of the 
disallowed cost allocated to the contract.
    (d) The contracting officer may waive the penalty provisions when:
    (1) The contractor withdraws the submission before the formal 
initiation of an audit of the submission and submits a revised 
submission;
    (2) The amount of the unallowable costs allocated to covered 
contracts is $10,000 or less; or
    (3) The contractor demonstrates to the contracting officer's 
satisfaction that:
    (i) It has established appropriate policies, personnel training, 
and an internal control and review system that provides assurances that 
unallowable costs subject to penalties are precluded from the 
contractor's submission for settlement of costs; and
    (ii) The unallowable costs subject to the penalty were 
inadvertently incorporated into the submission.
    (e) The Head of the Contracting Activity may waive the 
certification when--
    (1) It determines that it would be in the best interest of the 
United States to waive such certification; and
    (2) It states in writing the reasons for that determination and 
makes such determination available to the public.


970.5204-4  [Amended]

    6. Subsection 970.5204-4 is amended by revising the reference to 
``Allowable Costs and Fixed Fee'' to read ``Payment and advances.''


970.5204-13 and 970.5204-14  [Removed and Reserved]

    7. Section 970.5204-13, Allowable costs and fixed-fee (Management 
and Operating contracts), is removed and reserved.
    8. Section 970.5204-14, Allowable costs and fixed-fee (support 
contracts), is removed and reserved.
    9. Section 970.5204-16 is amended by adding a new paragraph (k) to 
read as follows:


970.5204-16  Payments and advances.

* * * * *

    (k) Determining allowable costs. The contracting officer shall 
determine allowable costs in accordance with the Federal Acquisition 
Regulation subpart 31.2 and the Department of Energy Acquisition 
Regulation subpart 970.31 in effect on the date of this contract and 
other provisions of this contract.


[[Page 37343]]




970.5204-17  [Removed and Reserved]

    10. Section 970.5204-17, Political activity cost prohibition is 
removed and reserved.
    11. Section 970.5204-31 is amended by revising the introductory 
paragraph of clause paragraph (h) and adding clause paragraph (m) to 
read as follows:


970.5204-31  Insurance-litigation and claims.

* * * * *

    (h) In addition to the cost reimbursement limitations contained 
in FAR part 31, as supplemented by DEAR 970.31, and notwithstanding 
any other provision of this contract, the contractor's liabilities 
to third persons, including employees but excluding costs incidental 
to worker's compensation actions, (and any expenses incidental to 
such liabilities, including litigation costs, counsel fees, 
judgments and settlements) shall not be reimbursed if such 
liabilities were caused by contractor managerial personnel:
* * * * *
    (m) Reasonable litigation and other legal expenses are allowable 
when incurred in accordance with the DOE approved contractor legal 
management procedures (including cost guidelines) as such procedures 
may be revised from time to time, and if not otherwise made 
unallowable by law or the provisions of this contract.

970.5204-61  [Removed and Reserved]

    12. Section 970.5204-61, Cost prohibitions related to legal and 
other proceedings is removed and reserved.


970.5204-84  [Removed and Reserved]

    13. Section 970.5204-84, Waiver of limitations on severance 
payments to foreign nationals, is removed and reserved.
    14. Section 970.5204-XX is added to read as follows:

970.5204-XX  Penalties for unallowable costs.

    As prescribed in 970.4207-3 use the following clause:

    Penalties for unallowable costs (APR 2000)
    (a) Contractors which include unallowable cost in a submission 
for settlement for cost incurred, may be subject to penalties.
    (b) If, during the review of a submission for settlement of cost 
incurred, the contracting officer determines that the submission 
contains an expressly unallowable cost or a cost determined to be 
unallowable prior to the submission, the contracting officer shall 
assess a penalty.
    (c) Unallowable costs are either expressly unallowable or 
determined unallowable.
    (1) An expressly unallowable cost is a particular item or type 
of cost which, under the express provisions of an applicable law, 
regulation, or this contract, is specifically named and stated to be 
unallowable.
    (2) A cost determined unallowable is one which, for that 
contractor,
    (i) Was subject to a contracting officer's final decision and 
not appealed;
    (ii) The Department's Board of Contract Appeals or a court has 
previously ruled as unallowable; or
    (iii) Was mutually agreed to be unallowable.
    (d) If the contracting officer determines that a cost submitted 
by the contractor in its submission for settlement of cost incurred 
is:
    (1) Expressly unallowable, then the contracting officer shall 
assess a penalty in an amount equal to the disallowed cost allocated 
to this contract plus interest on the paid portion of the disallowed 
cost. Interest shall be computed from the date of overpayment to the 
date of repayment using the interest rate specified by the Secretary 
of the Treasury pursuant to Public Law 92-41 (85 Stat. 97); or
    (2) Determined unallowable, then the contracting officer shall 
assess a penalty in an amount equal to two times the amount of the 
disallowed cost allocated to this contract.
    (e) The contracting officer may waive the penalty provisions 
when:
    (1) The contractor withdraws the submission before the formal 
initiation of an audit of the submission and submits a revised 
submission;
    (2) The amount of the unallowable costs allocated to covered 
contracts is $10,000 or less; or
    (3) The contractor demonstrates to the contracting officer's 
satisfaction that:
    (i) It has established appropriate policies, personnel training, 
and an internal control and review system that provides assurances 
that unallowable costs subject to penalties are precluded from the 
contractor's submission for settlement of costs; and
    (ii) The unallowable costs subject to the penalty were 
inadvertently incorporated into the submission.

(End of clause)

[FR Doc. 00-14866 Filed 6-13-00; 8:45 am]
BILLING CODE 6450-01-P