[Federal Register Volume 64, Number 197 (Wednesday, October 13, 1999)]
[Proposed Rules]
[Pages 55453-55455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26549]
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DEPARTMENT OF ENERGY
48 CFR Parts 909 and 970
RIN 1991-AB52
Acquisition Regulations; Purchasing by DOE Management and
Operating Contractors From Contractor Affiliated Sources
AGENCY: Department of Energy.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department of Energy (DOE) is proposing to amend its
acquisition regulations by altering its coverage on organizational
conflicts of interest and purchases by DOE's management and operating
contractors from affiliated entities to protect the Department when
DOE's management and operating contractors are involved in teaming
arrangements or mergers or acquisitions and with respect to the award
and administration of affiliated transactions.
DATES: Written comments on the proposed rulemaking must be received on
or before close of business November 12, 1999.
ADDRESSES: Comments (3 copies) should be addressed to: Robert M. Webb,
U.S. Department of Energy, Office of Procurement and Assistance
Management, 1000 Independence Avenue, SW., Washington, D.C. 20585.
FOR FURTHER INFORMATION CONTACT: Robert M. Webb at (202) 586-8264.
SUPPLEMENTARY INFORMATION:
I. Background.
II. Section by Section Analysis.
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 12612.
G. Review Under the Unfunded Mandates Reform Act of 1995.
I. Background
The purpose of this proposed rulemaking is to provide additional
guidance to DOE contracting officers with respect to organizational
conflicts of interest considerations in the award and administration of
DOE's management and operating contracts. Specifically, this proposed
rule would: (1) require contracting officers to acquire an
organizational conflicts of interest disclosure from all members of a
proposing ``team;'' (2) require the identification and treatment of
organizational conflicts of interest issues prior to the contracting
officer's consent to merger, sale or novation involving a management
and operating contractor or its parent; and (3) clarify existing rules
with respect to transactions between management and operating
contractors and affiliated entities.
DOE regulations already recognize the risks associated with
management and operating contractors doing business with affiliates. It
is specifically discussed at 970.7105. The necessity of providing
notice of a proposed transaction with an affiliate is covered at
970.7109. The clause at 970.5204-22 requires that the M&O contractor
comply with 970.7105.
However, in recent years the matter has become complex as a result
of increased incidence of corporate mergers and acquisitions and the
teaming of organizations as offerors under a DOE contract. For example,
as a result of a management and operating contractor's merger with the
corporate parent of an existing subcontractor, the new prime contractor
could be put in the position of administering a preexisting subcontract
with its affiliate. Similarly, if award of a management and operating
contractor were to go to a ``team,'' one participant, not the
contractor of record, could be an affiliate of a pre-existing
subcontractor. In both of these situations, the subcontract would exist
before the merger or contract award that would give rise to the
potential conflict of interest in the administration of the
subcontract.
Without the changes proposed in this rulemaking, the cognizant
operations office involved would not have the necessary information to
assure that these two situations are recognized and treated. As a
result, DOE's interests may not be protected by the management and
operating contractor's administration of such subcontracts. This rule
is intended to provide the contracting officer with complete
information on potential organizational conflicts with respect to
mergers and acquisitions and teaming arrangements to allow their
identification and mitigation.
Further, the proposed rule would modify existing coverage which
governs the transacting of business by management and operating
contractors with affiliated entities. The Department recognizes that
M&O contractors may appropriately acquire specialized services or
purchase goods from affiliated organizations. This rulemaking proposes
to revise the Department's acquisition regulation to identify and
clarify these situations.
The first situation involves an affiliate with special or unique
scientific expertise or facilities (e.g., test facilities) of use to
the M&O in the performance of some portion of the contract. In this
case, the affiliate transaction would be accomplished through an
intercompany transaction at cost with no fee. The second situation
arises when the affiliate sells goods in the commercial market for
which the M&O contractor has a need. In this second case, the affiliate
may receive the award only after competition and under terms and
conditions that are consistent with arms length negotiations.
The organizational conflict of interest clause at 952.209-72
prevents entities affiliated with the prime from proposing on
subcontracts. This prohibition was established to address the potential
for
[[Page 55454]]
unfair competitive advantage. This risk is avoided by prohibiting
affiliate transactions, except for the purchase of commercial items in
accordance with 970.7105 and gaining access to special or unique
scientific expertise or test equipment on a cost, no fee basis.
II. Section-by-Section Analysis
The Department of Energy proposes to change the organizational
conflicts of interest (OCI) regulations at subsection 909.507-1 and
section 970.0905 to require an OCI disclosure from the proposer and all
other members of the team when a proposer ``teams,'' either formally or
informally, with other entities in responding to a solicitation and to
require a special OCI review of existing subcontracts if an M&O
contractor or its parent proposes to merge with another corporation.
This proposed rule would also amend section 970.7105 to make clear
that there are only two situations in which a management and operating
contractor may do business with an affiliated entity. The first
involves an affiliate's selling commercial items, not commercial
services, following a competitive selection and under enforceable, arms
length terms and conditions. The second situation involves an affiliate
with special or unique scientific facilities to be made available on a
cost, no fee basis.
III. 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 proposed rule is 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 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,
these proposed regulations meet the relevant standards of Executive
Order 12988.
C. Review Under the Regulatory Flexibility Act
This proposed rule has been reviewed under the Regulatory
Flexibility Act, 5 U.S.C. 601 et seq., which requires preparation of an
initial regulatory flexibility analysis for any rule that must be
proposed for public comment and that is likely to have significant
economic impact on a substantial number of small entities. The proposed
rule establishes restrictions that would avoid organizational conflicts
of interest in the performance of management and operating contracts.
DOE management and operating contracts have not been awarded to small
entities. The proposed constraints on the subcontracting of an M&O
contractor with its affiliates may lead to more subcontracting
opportunities for small businesses. There would not be an adverse
economic impact on small entities.
Accordingly, DOE certifies that this proposed rule would 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
This proposed rule would amend 48 CFR Secs. 909.507-1 and 970.0905
to require an organizational conflicts of interest disclosure from team
members of the apparent successful offeror. This disclosure is
necessary to provide the contracting officer with complete information
on potential organizational conflicts involved in teaming arrangements.
This proposed collection of information has been submitted to the
Office of Management and Budget for review and approval under the
Paperwork Reduction Act, 44 U.S.C. 3501, et seq.
DOE estimates the maximum number of respondents subject to the
disclosure requirement, in any one year, to be 20 and the number of
hours required for record-keeping and preparation of the disclosure
reports to be approximately 5 hours per respondent. The total annual
burden hours from compliance is expected to be 100 hours (20 x 5
hours per year). The collection of information contained in this
proposed rule is considered the least burdensome for obtaining the
needed organizational conflict of interest information.
DOE invites public comments concerning: (1) The need for the
reporting requirement; (2) the accuracy of DOE's estimate of the
reporting burden; (3) ways to enhance the quality, utility, and clarity
of the information to be collected; and (4) ways to minimize the burden
of the collection of information on respondents. Send comments
regarding this proposed collection of information to the contact person
named in this notice.
E. Review Under the National Environmental Policy Act
DOE has concluded that promulgation of this proposed 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 (NEPA) of 1969 (42 U.S.C. 4321 et
seq.). Specifically, this proposed rule is categorically excluded from
NEPA review because the amendments to the DEAR would be strictly
procedural (categorical exclusion A6). Therefore, this proposed 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 Federal Government and the States, or in the
distribution of power and responsibilities among the various 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
[[Page 55455]]
policy action. This proposed rule would merely govern organizational
conflicts of interest in merger and joint venture or teaming
arrangements and the awarding of subcontracts by DOE management and
operating contractors. States which contract with DOE will be subject
to this rule. However, DOE has determined that this proposed rule would
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 proposed rulemaking would only affect private sector
entities, and the impact is less than $100 million.
List of Subjects in 48 CFR Parts 909 and 970
Government procurement.
Issued in Washington, D.C. on September 22, 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 proposed to be amended as set forth
below.
PART 909--[AMENDED]
1. The authority citation for Part 909 continues to read as
follows:
42 U.S.C. 7254; 40 U.S.C. 486(c).
2. Subsection 909.507-1 is amended by revising paragraph (e) as
follows:
909.507-1 Solicitation provisions. (DOE coverage-paragraph (e)).
(e) The contracting officer shall insert the provision at 48 CFR
952.209-8, Organizational Conflicts of Interest-Disclosure, in
solicitations for advisory and assistance services expected to exceed
the simplified acquisition threshold. The disclosure requirement
applies to all entities that join, either formally (e.g., through a
joint venture or similar legal arrangement) or informally, with the
offeror in responding to a solicitation. In individual procurements,
the Head of the Contracting Activity may increase the period subject to
disclosure in 952.209-8(c)(1) up to 36 months.
PART 970--[AMENDED]
3. The authority citation for Part 970 continues to read:
Authority: Sec. 161 of the Atomic Energy Act of 1954 (42 U.S.C.
2201), sec. 644 of the Department of Energy Organization Act, Pub.
L. 95-91 (42 U.S.C. 7254).
4. At 970.0905 the existing paragraph is designated as paragraph
(a) and paragraphs (b) and (c) are added as follows:
970.0905 Organizational conflicts of interest.
(a) * * *
(b) The contracting officer shall insert the provision at 48 CFR
952.209-8, Organizational Conflicts of Interest-Disclosure, in
solicitations for management and operating contracts. The disclosure
requirements applies to all entities that join, either formally (e.g.,
through a joint venture or similar legal arrangement) or informally,
with the offeror in responding to the solicitation. In individual
procurements, the Head of the Contracting Activity may increase the
period subject to disclosure in 952.209-8(c)(1) up to 36 months.
(c) Before approving a proposed sale of assets, merger, or other
action that would result in the assignment to another entity of
contractual obligations of the management and operating contractor, the
contracting officer shall review existing subcontracts to ascertain
whether any improper relationships would result and, if so, to ensure
that those situations are appropriately resolved.
5. Section 970.7105 is revised to read as follows:
970.7105 Purchasing from contractor-affiliated sources.
(a) A management and operating contractor may purchase commercial
items, but not commercial services, from sources affiliated with the
contractor (any division, subsidiary, or affiliate of the contractor or
its parent company) in the same manner as from other sources, provided:
(1) The management and operating contractor's purchasing function
is independent of the proposed contractor-affiliated source;
(2) The same terms and conditions would apply if the purchase were
from an unaffiliated third party;
(3) Award is made in accordance with policies and procedures
designed to permit effective competition which have been approved by
the contracting officer; and
(4) The award is legally enforceable if the entities are separately
incorporated.
(b) A management and operating contractor may acquire technical
services from an affiliated source only if that source has special or
unique scientific facilities, the need for their use is documented, and
the services are provided on a cost, no fee basis.
[FR Doc. 99-26549 Filed 10-12-99; 8:45 am]
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