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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: October 18, 2000

FROM: Barry McVay, CPCM

SUBJECT: Department of Energy Acquisition Regulation (DEAR); Costs Associated With Whistleblower Actions

SOURCE: Federal Register, October 18, 2000, Vol. 65, No. 202, page 62299

AGENCIES: Department of Energy (DOE)

ACTION: Final Rule

SYNOPSIS: DOE is amending the DEAR Part 931, Contract Cost Principles and Procedure, to address contractor defense, settlement and award costs associated with contractor employee whistleblower actions. The cost principle applies to the DOE contractors and subcontractors with a contract amount exceeding $5,000,000.

EDITOR'S NOTE: The DEAR is available on the Internet at http://www.pr.doe.gov/Dear/dear.html.

EFFECTIVE DATE: November 17, 2000.

FOR FURTHER INFORMATION CONTACT: Terrence D. Sheppard (202) 586-8193, or e-mail to terry.sheppard@hq.doe.gov.

SUPPLEMENTAL INFORMATION: On January 5, 1998, DOE proposed amending the DEAR to create a clause that would address the costs associated with whistleblower actions. The clause would have disallowed costs if there was an adverse determination against the contractor but would have allowed litigation and settlement costs if the employee action was resolved prior to the adverse determination. Two comments were received, and both said the clause would encourage contractors to enter into settlements with alleged whistleblowers regardless of the merit of the claim.

Based on these comments, DOE decided to seek comments on an alternative approach in which a cost principle would address the allowability of costs relating to labor disputes generally, including whistleblower actions. It was DOE's opinion that the cost principle would be less prescriptive than the proposed contract clause, and would give contracting officers greater discretion to review the circumstances of each case in making a determination of allowability.

Based on the five comments addressing the cost principle approach, DOE has decided to adopt the cost principle approach, but in a modified form -- instead of the cost principle covering all labor cases, it has been modified to cover only employee whistleblower actions alleging a retaliatory act. All of the comments argued that the existing Federal Acquisition Regulation (FAR) and DEAR contract clauses and cost principle regulations provided sufficient coverage for labor settlements and litigation costs.

This final rule adds DEAR 931.205-47, Costs Related to Legal and Other Proceedings, and it consists solely of paragraph (h), Costs Associated with Whistleblower Actions. The following are the key provisions of DEAR 931.205-47(h):

In addition, DEAR 970.3102-20, Cost Prohibitions Related to Legal and Other Proceedings (which applies to DOE management and operating contracts), is amended by adding a paragraph (c), which cross-references DEAR 931.205-47(h) and states that it "is applicable to management and operating contracts under this part and must be included in the contract's cost reimbursement subcontracts."

EDITOR'S NOTE: The introductory material to this final rule includes the following statement: "This cost principle will be effective in contracts awarded or executed by the Department after the effective date of this regulation. Whistleblower costs clauses already contained in current contracts will continue to be effective unless a contract modification is executed deleting the clause in favor of cost principle coverage."

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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