Contractor Legal Management Requirements; Acquisition Regulations

SUMMARY: The Department of Energy (DOE or Department) is proposing to revise existing regulations covering contractor legal management requirements. Conforming amendments are also proposed to the Department of Energy Acquisition Regulation (DEAR). The proposed regulations will provide rules for handling of legal matters and associated costs by certain contractors whose contracts exceed $100,000,000 as well as legal counsel retained directly by the Department for matters in which costs exceed $100,000.

EFFECTIVE DATE: DOE will accept comments, data, and information regarding this notice of proposed rulemaking (NOPR) no later than February 27, 2012.

ADDRESSES: Any comments submitted must identify this NOPR on Contractor Legal Management Requirements, and provide regulatory information number (RIN) 1990-AA37. Comments may be submitted using any of the following methods:

1. Federal eRulemaking Portal: www.regulations.gov. Follow the instructions for submitting comments.

2. Email: [email protected]. Include RIN 1990-AA37 in the subject line of the message.

3. Mail: Lisa Pinder, Administrative Assistant, U.S. Department of Energy, Office of General Counsel, GC-60, 1000 Independence Ave. SW., Washington, DC 20585. If possible, please submit all items on a compact disc (CD), in which case it is not necessary to include printed copies.

4. Hand Delivery/Courier: Ms. Lisa Pinder, Administrative Assistant, U.S. Department of Energy, GC-60, 1000 Independence Ave. SW., Washington, DC, 20585. Telephone: (202) 586-5426. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

No faxes will be accepted.

For further information on how to submit a public comment, review other public comments and the docket, contact Ms. Lisa Pinder (202) 586-5426 or by Email: [email protected].

FOR FURTHER INFORMATION CONTACT: Mr. Eric Mulch, Attorney-Adviser, U.S. Department of Energy, Office of General Counsel, 1000 Independence Avenue SW., Washington, DC, 20585-0121. Telephone: (202) 287-5746. Email: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background.

II. Summary of the Proposed Rule.

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 the National Environmental Policy Act.

F. Review Under Executive Order 13132.

G. Review Under the Unfunded Mandates Reform Act of 1995.

H. Review Under the Treasury and General Government Appropriations Act, 1999.

I. Review Under Executive Order 13211.

J. Review Under the Treasury and General Government Appropriations Act, 2001.

I. Background

The Department's high dollar contracts that include cost reimbursable elements generally make legal costs, including the cost of litigation, allowable if reasonable and incurred in accordance with the applicable cost principles and contract clauses. Consequently, the Department has an ongoing obligation to monitor, supervise, and control the legal costs that it reimburses.

The Department has a long history of overseeing aspects of its contractors' management of legal matters and costs. This practice was formalized in 1994 when the Department published an interim Acquisition Letter as an interim policy in the Federal Register (59 FR 44981). The interim Acquisition Letter was finalized as a Policy Statement on April 3, 1996 (61 FR 14763). This Policy Statement was followed by a formal rulemaking which added part 719, Contractor Legal Management Requirements, to Title 10 of the Code of Federal Regulations with an effective date of April 23, 2001 (66 FR 4616, 66 FR 19717).

Today's proposed rule revises the current contractor legal management requirements found in part 719, in Chapter 10 of the Code of Federal Regulations. The revisions reflect lessons learned by the Department during the years since implementing part 719. The part establishes regulations to monitor and control legal costs and to provide guidance to aid contractors and the Department in making determinations regarding the reasonableness of outside legal costs, including the costs associated with litigation. Today's amendments to part 719 and the associated portions of the Department of Energy Acquisition Regulation (DEAR) are designed to clarify and streamline existing requirements, improve efficiency of contractor legal management, and facilitate oversight over the expenditure of taxpayer dollars.

Today's proposed rules and guidance slightly expands the coverage of the existing regulations. The proposed rules cover all outside legal costs incurred under the Department's Management and Operating (M&O) contracts, non-management and operating cost reimbursement contracts exceeding $100,000,000, and non-management and operating contracts exceeding $100,000,000 that include cost reimbursable elements exceeding $10,000,000. The proposed rules delete current requirements limiting applicability of the part to contracts involving work performed at facilities owned or leased by the Department. Part 719 would continue to apply to legal counsel retained directly by the Department where the legal costs over the life of the matter for which counsel has been retained are expected to exceed $100,000. The proposed rules also delete the current coverage exception for legal matters handled through retrospective insurance arrangements and make certain portions of the rules applicable to such arrangements.

The proposed regulations continue to require contractor submission of legal management plans, staffing and resource plans, and engagement letters under specific circumstances and set forth the requirements for these submissions. Today's proposed rules require contractors to submit proposed legal settlements requiring Contractor payment of $25,000 or more for Department review and approval. Currently, common practice requires contractors to obtain permission from Department counsel to enter a settlement agreement requiring Contractor payment of $50,000 or more. The Department is seeking public comment regarding the proposed reduction of the threshold to $25,000 and the proposed inclusion of the requirement in the regulations. In order to streamline and simplify the regulations related to contractor litigation, requirements related to initiation, defense, and settlement of litigation have been removed from the DEAR and consolidated in part 719. The proposed rule moves much of the material currently located in the Appendix to part 719 to the part, itself.

The proposed part 719 continues to identify certain costs that generally would be considered unallowable. Certain categories of costs that require Departmental pre-approval in order to be considered for reimbursement are also identified. The proposed rules provide that compliance with part 719 is a prerequisite for allowability of legal costs, but notes that compliance with the part does not guarantee that costs will be determined to be allowable. All costs, whether or not identified as specifically allowable or unallowable, are still subject to the rules of allowability in the Federal Acquisition Regulation (FAR) and the DEAR.

The Department also proposes changes to the DEAR. The changes correspond to the proposed substantive changes to part 719 as well as clarify and streamline the DEAR provisions related to contractor legal management. The proposed rules require inclusion of 48 CFR 952.231-71, Insurance--Litigation and Claims, or 48 CFR 970.5228-1, Insurance--Litigation and Claims, in the majority, but not all contracts, to which part 719 applies. Both Insurance--Litigation and Claims clauses have been revised to delete requirements related to contractor initiation or defense of litigation that are proposed for consolidation in part 719.

II. Summary of the Proposed Rule

Subpart A, sections 719.1-719.8, includes general provisions. The subpart provides definitions and addresses applicability of the part. Section 719.3 states that the part covers all Management and Operating (M&O) contracts, non-management and operating cost reimbursement contracts exceeding $100,000,000, and non-management and operating contracts exceeding $100,000,000 that include cost reimbursable elements exceeding $10,000,000. Sections 719.3 and 719.4 make it clear that any contract exceeding $100,000 that the Department awards directly to retained legal counsel are subject to compliance with the rules. Sections 719.5 and 719.6 describe types of contracts and legal matters not covered by the part. The proposed rules include coverage of certain retrospective insurance arrangements that are excluded from coverage under the current rules. Procedures for exceptions or deviations from the part are set out in section 719.7. In the case of a Department contract, the determination would be made by the Department's General Counsel; in the case of a National Nuclear Security Administration (NNSA) contract, it would be made by the NNSA General Counsel. Section 719.8 states that the sharing of certain information between contractors and the Department does not waive any applicable privilege.

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of proposed rulemaking and opportunity for public comment.

CFR Part: "10 CFR Part 719"

RIN Number: "RIN 1990-AA37"

Citation: "76 FR 81408"

Federal Register Page Number: "81408"

"Proposed Rules"