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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 10, 2003

SUBJECT: Department of Energy Acquisition Regulation (DEAR); Conditional Payment of Fee, Profit, and Other Incentives

SOURCE: Federal Register, December 10, 2003, Vol. 68, No. 237, page 68771

AGENCIES: Department of Energy (DOE)

ACTION: Interim Final Rule (IFR)

SYNOPSIS: DOE is amending the DEAR to implement provisions relating to the safeguarding of classified information, and to establish more objective standards and procedures for considering and applying reductions of fee or other amounts payable for Management & Operating (M&O) contractor performance failures relating to environment, safety, and health (ES&H), including worker safety and health (WS&H), at contractor-operated sites.

EDITOR'S NOTE: The DEAR is Part 9 of Title 48 of the Code of Federal Regulations (CFR). It is available on the Internet at http://professionals.pr.doe.gov/ma5/MA-5Web.nsf/Procurement/Acquisition+Regulation?OpenDocument.

For more on the Notice of Proposed Rulemaking (NOPR) that partially resulted in this IFR, see the February 1, 2001, FEDERAL CONTRACTS DISPATCH "Department of Energy Acquisition Regulation (DEAR); Conditional Payment of Fee, Profit, and Other Incentives."

DATES: This IFR is effective January 9, 2004. Contracting officers may, at their discretion, include these changes in solicitations issued before the effective date of this IFR, provided award of the contract occurs on or after the effective date.

Comments on the portions of this IFR implementing Section 234C of the Atomic Energy Act must be received by January 26, 2004.

ADDRESSES: Submit three copies of comments on the Section 234C portions of this IFR to Michael L. Righi, U.S. Department of Energy, Office of Procurement and Assistance Management, ME-61, 1000 Independence Avenue, SW, Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Michael L. Righi, Office of Procurement and Assistance Policy (ME-61), 202-586-8175, or e-mail: michael.l.righi@hq.doe.gov.

SUPPLEMENTAL INFORMATION: Section 3147 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106-65), Department of Energy Regulations Relating to the Safeguarding and Security of Restricted Data, added Section 234B to the Atomic Energy Act. Section 234B requires that DOE contracts include a clause "which provides an appropriate reduction in the fees or amounts paid to the contractor under the contract in the event of a violation by the contractor or contractor employee of any rule, regulation, or order relating to the safeguarding or security of Restricted Data or other classified or sensitive information. The provisions shall specify various degrees of violations and the amount of the reduction attributable to each degree of violation." Section 234B applies to prime contractors, including management and operating (M&O) contractors and certain non-M&O contractors.

In addition, in May 2000 the Secretary of Energy announced an initiative to improve M&O contractor performance management by requiring greater responsibility and accountability from both DOE's senior managers and its contractors (see the May 23, 2000, FEDERAL CONTRACTS DISPATCH "Department of Energy; Initiative to Improve Contractor Accountability and Performance."). Because of the serious consequences which can result from performance failures relating to the DOE's ES&H and safeguards and security programs, a major provision of the Secretary's initiative wa to better define objective standards and procedures for considering and applying fee reductions for contractor performance failures relating to ES&H and the safeguarding of restricted data and classified information.

To implement Section 3147 of Public Law 106-65 and the Secretary's initiative, DOE published on February 1, 2001, a NOPR to add to the DEAR regulatory amendments dealing with reductions in fee and other payments to these contractors as a result of performance failures in carrying out contract obligations related to (1) safeguarding classified information; and (2) protection of EH&S.

Sixteen respondents submitted comments on the NOPR. Many of the respondents recommended that DOE eliminate the NOPR's ES&H coverage because it goes beyond the focus in Section 234B of the Atomic Energy Act on security issues. Subsequent to the publication of the NOPR, Congress enacted the National Defense Authorization Act for Fiscal Year 2003 (Public Law 107-314). Section 3173 of the act added Section 234C to the Atomic Energy Act, which requires DOE to include in each contract with a contractor that has entered into a Price Anderson indemnification agreement (DEAR 952.250-70, Nuclear Hazards Indemnification Agreement) additional clauses that provide an appropriate reduction in the fees or amounts paid to the contractor in the event of a violation by the contractor or contractor employee of any regulation that protects WS&H. Section 234C also requires that contract provisions specify various degrees of violations and the amount of reduction attributable to each degree of violation.

DOE states in the introduction to the IFR, "The Department's decision to include degrees of violation for ES&H-related fee reductions was fortuitous since...the Department must now address a statutory requirement for fee reductions for violations related to WS&H concerns...The new requirement is similar to that contained in Section 234B of the Atomic Energy Act, which was focused on security concerns."

Elsewhere in the IFR's introduction, DOE states, "Since the provisions of Section 234C are substantially similar to those of Section 234B, DOE does not believe that there are policy issues with regard to Section 234C that differ from those concerning Section 234B. However, in addition to its review of comments submitted during the comment period on the NOPR, DOE is inviting public comment limited to the portions of the IFR that implement Section 234C to ensure that DOE has not overlooked any subtle, relevant issues that are unique to Section 234C."

The following are the significant differences between the NOPR and this IFR:

Because the Section 234B portions of the IFR has already been the subject of comments (having been the subject of the NOPR), DOE is soliciting comments on the Section 234C portions of the IFR only. Those portions are: (1) the revised language in DEAR 970.5215-3(a)(1)(i) that makes it clear that ES&H includes WS&H; (2) new DEAR 952.223-76 and DEAR 952.223-77; and (3) miscellaneous additions in the DEAR cross-referencing the new clauses.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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