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[Federal Register Volume 78, Number 86 (Friday, May 3, 2013)]
[Rules and Regulations]
[Pages 25795-25818]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10485]

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DEPARTMENT OF ENERGY

10 CFR Part 719

48 CFR Parts 931, 952, and 970

RIN 1990-AA37

Contractor Legal Management Requirements; Acquisition Regulations

AGENCY: Office of General Counsel, Department of Energy.

ACTION: Final rule.

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SUMMARY: The Department of Energy revises existing regulations covering 
contractor legal management requirements. Conforming amendments are 
also made to the Department of Energy Acquisition Regulation (DEAR). 
The regulations 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.

DATES: Effective date: July 2, 2013.

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: eric.mulch@hq.doe.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Public Comments
III. Summary of Final Rule
IV. Procedural Requirements
    A. Review Under Executive Orders 12866 and 13563
    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
    K. Congressional Notification

I. Background

    The Department's contracts that include cost reimbursable elements 
generally allow reimbursement of legal costs, including the costs of 
litigation, if the costs are reasonable and incurred in accordance with 
the applicable cost principles and contract clauses. Consequently, the 
Department has an ongoing obligation to monitor 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 associated costs. This 
practice was formalized in 1994 when the Department published an 
interim Acquisition Letter as an interim policy in the Federal Register 
on August 31, 1994 (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 that 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).
    After a decade operating in accordance with the 2001 rulemaking, 
the Department determined that it should review, update and revise the 
rule. Therefore, it did so and issued the results in a Notice of 
Proposed Rulemaking (NOPR) on December 28, 2011 (76 FR 81408). The NOPR 
requested public comments no later than February 27, 2012. The public 
comment period was reopened on March 2, 2012 and extended until March 
16, 2012 (77 FR 12754).
    Today's final rule revises the current contractor legal management 
requirements found in part 719, in Title 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 counsel costs, including the 
costs associated with litigation. Today's amendments to part 719 and 
the associated portions of the Department of

[[Page 25796]]

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.
    Contracting Officers must include the changes of this Final Rule in 
solicitations issued on or after the effective date of this rule. 
Contracting Officers may, at their discretion, include the changes of 
this Final Rule in solicitations issued before the effective date of 
this rule, provided award of the resulting contract(s) occurs on or 
after the effective date.
    Contracting Officers must apply the changes of this Final Rule to 
affected contracts, prospectively, by including them in those contracts 
by bilateral modifications. The changes are to become effective on the 
date the modifications are executed. Contracting Officers are to 
attempt to execute modifications within 60 days of the publication in 
the Federal Register of this Final Rule. Affected contracts are all 
management and operating contracts and other contracts that currently 
contain DEAR 931.205-33 or otherwise reference the Department's 
litigation management procedures and cost guidelines. DEAR 931.205-33 
requires litigation and other legal expenses be incurred per 10 CFR 
Part 719, Contractor Legal Management Requirements, as a condition of 
allowability.
    Contracting Officers must also incorporate the changes of this 
Final Rule into affected contracts before: extending them, exercising 
options under them, or adding additional term to them per award term 
provisions.

II. Public Comments

    The Department of Energy received public comments from fifteen 
respondents concerning the NOPR. Commenters were divided in their 
reaction to the proposed rule. Many of the commenters expressed 
concerns about the enlarged scope of the regulations, while one 
commenter praised the Department's efforts to increase oversight of 
legal costs. The Department carefully considered each comment and made 
numerous changes to today's final rule based upon concerns raised by 
the responses to the NOPR.
    A short summary of the comments received and the Department of 
Energy's responses are set forth below. Comments from multiple 
responses were combined where the comments addressed similar issues and 
presented similar concerns. The comments are listed under the proposed 
part 719 subheading to which they pertain in order to ease readability.

Sec.  719.2 What are the definitions of terms used in this part?

    Comment 1: One commenter suggested that the monetary threshold for 
establishing a legal matter as a significant matter should be raised 
from $100,000 to $250,000.
    Response 1: The Department believes the current threshold has been 
workable and efficient. We are aware of no evidence to the contrary, 
much less any showing that the existing threshold has significantly 
burdened contractors or their counsel. Moreover, the Department's 
experience has shown that the existing level has protected the public 
fisc by enabling the Department to identify and eliminate duplicative 
and other unnecessary outside counsel expenses that we would not have 
been in a position to detect under the suggested higher threshold.
    Comment 2: One commenter suggested that the definition of 
Department Counsel be revised to clarify the distinction between DOE 
and NNSA field offices.
    Response 2: The Department believes that the proposed definition, 
identical in pertinent part to the definition included in the previous 
version of the rule, is sufficiently clear.
    Comment 3: One commenter suggested revising the definition of 
litigation to make it clear that, for purposes of the rule, the term 
applies only if the proceeding relates to a contract between the 
contractor and the Department. The commenter also suggested that the 
definition recognize that contractors may become parties in litigation 
in relation to a Department contract in territorial, District of 
Columbia, tribal or foreign courts or administrative bodies.
    Response 3: The Department amends the definition in section 719.2 
to implement the commenter's suggestions.
    Comment 4: One commenter suggested that proceedings before state or 
federal administrative bodies or arbitrators be removed from the 
definition of litigation. The commenter stated that the definition was 
too broad and that there would be added expense due to the ``onerous 
requirements that apply to litigation.''
    Response 4: The Department declines to remove matters before states 
or federal administrative bodies or arbitrators from the definition of 
litigation. The Department has limited the requirements for matters in 
litigation by not requiring submission of an engagement letter or 
Staffing and Resource Plan unless the matter in litigation is expected 
to exceed specified monetary thresholds. An engagement letter must be 
submitted for a matter in litigation only if retained legal counsel is 
expected to provide $25,000 or more in services. A Staffing and 
Resource Plan must be submitted only if it is anticipated that retained 
legal counsel costs will exceed $100,000.
    Comment 5: Multiple commenters expressed concern regarding the 
proposed rule's definition of legal matter. They stated that inclusion 
of an ``aggregate of legal issues associated with a particular subject 
area'' within the definition would result in overly broad application 
of certain requirements tied to significant matters.
    Response 5: The Department agrees with these comments and removes 
the previous definition of legal matter from today's rule. Where used, 
the term legal matter should be understood to carry its common meaning.
    Comment 6: Several commenters suggested that the Department should 
include only an objective methodology for defining significant matters.
    Response 6: Although the Department believes that Departmental 
authority to determine when a matter is to be considered significant is 
necessary, today's final rule includes a requirement that the 
Department notify the contractor in writing of all matters considered 
significant unless they cross the monetary threshold contained in 
section 719.2.
    Comment 7: Several commenters expressed concern regarding the 
proposed rule's definition of a significant matter that triggers the 
Staffing and Resource Plan requirements under section 719.15 when the 
matter is deemed significant by Department Counsel. These commenters 
criticized the subjective nature of this determination. One commenter 
noted that contractors may find it necessary to burden Department 
Counsel with requests for determinations on matters that are not 
clearly significant in order to manage the threat of unallowable costs.
    Response 7: The Department believes that the ability to define a 
matter as significant is essential to Departmental monitoring and 
managing contractor legal costs, but understands the need to have a 
clear identification of what constitutes a significant matter. Today's 
rule revises the definition of significant matter to state that a 
matter is significant when it is a legal matter that involves 
significant issues as determined by Department Counsel and identified 
to a contractor in writing, and where the amount of any legal costs,

[[Page 25797]]

over the life of the matter, is expected to exceed $100,000. Therefore, 
the final rule deletes section 719.16(d) of the proposed rule which 
requires that a contractor consult with Department Counsel when it is 
unclear whether a matter is significant.

Sec.  719.3 What contracts are covered by the part?

    Comment 8: One commenter suggested that the Department include 
language further explaining the threshold requirements for 
applicability of the part.
    Response 8: Based on experience administering the previous version 
of the part, the Department believes that further elaboration of the 
thresholds in section 719.3 is unnecessary.
    Comment 9: One commenter stated that the interplay among sections 
719.3, .4, and .5 is confusing and suggested that 719.4 and .5 be 
deleted.
    Response 9: The Department declines to follow this suggestion. The 
Department believes that section 719.4(b) (which permits the Department 
to make the part applicable to a particular contract by inserting a 
specific contract clause requiring compliance) is necessary to ensure 
that the Department has the ability to make this part applicable to a 
contract that would otherwise be exempt. The Department believes that 
section 719.5 aids the public in understanding the applicability of the 
part.

Sec.  719.4 Are law firms that are retained by contract by the 
Department covered by this part?

    Comment 10: One commenter suggested that section 719.4 be revised 
to specifically state which party is to determine whether costs are 
expected to exceed $100,000.
    Response 10: The Department agrees with the commenter and today's 
rule states that the Department will determine whether costs are 
expected to exceed $100,000 and that the Department will provide notice 
of this determination to retained legal counsel.

Sec.  719.6 Are there any types of legal matters not included in the 
coverage of this part?

    Comment 11: One commenter suggested that subcontractor bankruptcy 
matters be added to the list of legal matters to which the part does 
not apply in section 719.6.
    Response 11: The Department declines to follow this suggestion 
because subcontractor bankruptcy actions are not so commonplace as to 
fall within the same category as routine intellectual property law 
support services and routine workers and unemployment compensation 
matters.
    Comment 12: One commenter requested clarification as to whether 
routine workers compensation matters excluded from the purview of part 
719 would be excluded if such matters are handled through a 
retrospective insurance policy.
    Response 12: See the Department's responses to comments related to 
section 719.45 regarding retrospective insurance carriers.
    Comment 13: Several commenters requested that the Department 
reverse its proposal to include labor arbitrations within the purview 
of part 719. Some commenters stated that treating labor arbitrations 
like other litigation for purposes of part 719 coverage will 
inappropriately insert the Department in the bargaining relationship 
between the contractor and the union.
    Response 13: Labor arbitrations that are handled by in-house 
counsel for the contractor will not be subject to the majority of the 
requirements of part 719. In addition, labor arbitrations that are 
expected to result in less than $25,000 in retained legal counsel costs 
do not require the contractor to execute an engagement letter.
    As a matter of course, part 719 requirements will not apply to 
routine, low cost labor arbitrations; high cost arbitrations will be 
subject to the same litigation oversight requirements as other types of 
contractor litigation. In addition, departmental oversight over 
expenditure of these legal costs in no way places the Department in the 
bargaining relationship between a contractor and a union. In labor 
arbitrations, as with other litigation, the contractor represents 
itself in the matter and the Department reimburses the contractor for 
reasonable, allowable, and allocable costs associated with the 
arbitration.

Sec.  719.7 Is there a procedure for exceptions or deviations from this 
part?

    Comment 14: One commenter stated that the proposed rule fails to 
acknowledge legal management innovations adopted by the contractor 
community since part 719 was first published in 2001. The commenter 
proposed that part 719 be amended to include a provision allowing 
Department Management and Operating contractors to be exempted from the 
majority of part 719's approval requirements if the contractor 
demonstrates a management approach consistent with the best practices 
and contractor assurance principles identified in individual contracts 
and DOE Order 226.1B.
    Response 14: The Department acknowledges advancements in the larger 
DOE contractor community's legal cost management practices. Section 
719.7 provides Departmental flexibility to approve contractor request 
for exceptions or deviations from part 719. No changes to the part are 
necessary.
    Comment 15: One commenter suggested that there should be a deemed 
approval of requests for exceptions or deviations filed per section 
719.7, if the Department does not respond to the contractor's request 
within 30 days from receipt of the request. The commenter also 
suggested that when such requests are denied, the General Counsel and 
Senior Procurement Executive should be required to provide a written 
rationale for denial.
    Response 15: The Department does not believe that deemed approval 
of requests for exceptions or deviations from the regulations is 
appropriate. However, the Department agrees that a written response to 
such requests is appropriate and amends today's rule to provide for 
such a response by the General Counsel or his or her delegee. The 
response requirement is not intended to require a justification for the 
Department's exercise of its discretion.

Sec.  719.8 Does the provision of protected documents from the 
contractor to the Department constitute a waiver of privilege?

    Comment 16: Several commenters noted that the statement regarding 
application of privilege to documents exchanged between the Department 
and the contractors will apply only when the law of the relevant 
jurisdiction recognizes such a privilege.
    Response 16: Section 719.8 includes the following limitation: 
``[t]o the extent documents associated with compliance with this part . 
. . are protected from disclosure to third parties because the items 
constitute attorney work product and/or involve attorney client 
communications. . . .'' This language recognizes that the common 
interest applies only when the underlying documents are protected by a 
privilege and when the relevant jurisdiction recognizes the common 
interest under the facts presented by DOE contractors.
    Comment 17: One commenter noted that section 719.8 asserts that 
privilege is not waived by the sharing of documents with the Department 
is undermined when contractors are not able to rely on DOE approvals 
and authorizations to determine cost allowability.
    Response 17: The proposed revisions to part 719 do not change the 
allowability analysis performed by

[[Page 25798]]

Contracting Officers. Whether the Department's and contractor's 
interests are sufficiently aligned to support a finding of common 
interest for purposes of protecting items from disclosure is an 
analysis that will be performed by a court of competent jurisdiction as 
issues arise.
    Comment 18: One commenter noted the statement in section 719.8 that 
the common interest is ``rooted'' in the reimbursement of allowable 
costs excludes other sources of the common interest, such as mission 
completion.
    Response 18: To the extent that proposed section 719.8 implies that 
there is only one basis for the common interest between contractors and 
the Department, this misconception is clarified in the final rule. 
Today's final rule states that the common interest between the parties 
is primarily rooted in the Department's reimbursement of contractors 
for allowable costs incurred when litigation is threatened or initiated 
against contractors, but that other factors may also support a 
determination that the Department and the contractor share a common 
interest.
    Comment 19: One commenter suggested that section 719.8 should 
address how the privilege would apply and who is authorized to waive 
the privilege.
    Response 19: The parties authorized to waive the privilege and the 
operation of the privilege will be evaluated on a case-by-case basis. 
In some cases, a third party suing the contractor may assert that the 
privilege protecting certain documents from disclosure is waived 
because the documents were provided to an alleged outside party, the 
Department. Whether the privilege would operate in that circumstance 
depends on a host of details surrounding the disclosure and the 
underlying documents. Therefore, in the view of the Department, no 
additional details need to be added to the regulation.
    Comment 20: One commenter noted that the interests of the 
Department and a contractor may diverge at some point. For example, 
interests may diverge where an action could lead to government action 
against the contractor. The commenter suggested adding language to 
section 719.8 that would permit the contractor to withhold privileged 
information when it is reasonable to anticipate eventual divergence of 
interests.
    Response 20: Contractors are not permitted by this part to withhold 
documents required to be submitted pursuant to this part because the 
contractor anticipates that the interest of the Department and the 
contractor in a litigation matter may diverge. Section 719.40 makes 
clear that adherence to part 719, including provision of documents such 
as Staffing and Resource Plans and settlement memoranda as appropriate, 
is a prerequisite to allowability. Failure to provide information 
required by part 719 may result in the denial of reimbursement of 
associated costs.
    Comment 21: One commenter suggested that the Department require 
written common interest agreements before requesting privileged 
information from contractors.
    Response 21: The Department declines to adopt this suggestion. 
Written common interest agreements may be helpful in some cases to 
emphasize that the parties' exchange of documents on a specific matter 
occurred in furtherance of their common interest, particularly if the 
matter is in litigation or if litigation is imminent. However, it is 
the view of the Department that it is not necessary to require the 
parties to enter into a common interest agreement every time that the 
parties exchange potentially sensitive documents or communications. 
Such a requirement would potentially disrupt site operations by slowing 
the delivery of mission deliverables from the contractor to the 
government. Moreover, requiring the use of common interest agreements 
in all circumstances involving the sharing of potentially privileged 
information might undercut the ability of DOE and its contractors to 
protect the privilege when the parties did not enter into an agreement.

Sec.  719.10 Who must submit a Legal Management Plan?

    Comment 22: One commenter questioned the continued wisdom of 
requiring contractor submission of a Legal Management Plan stating that 
it has been the commenter's experience that the plan is not often 
referenced by the Department. The commenter notes that frequent 
interaction between Department counsel and in-house counsel for the 
contractor obviates the need for a written Legal Management Plan.
    Response 22: The Legal Management Plan documents critical 
information allowing the Department to guide practices and manage 
costs. The Department notes further that Legal Management Plans are 
commonplace among businesses. The Legal Management Plan assists 
Department Counsel in understanding the contractor's internal 
procedures, litigation protocols and processes to manage costs. Legal 
Management Plans are submitted following the award of a contract and 
revised only upon request of the Contracting Officer. The Department 
believes that the benefit of requiring submission of the plans 
outweighs any burden associated with compliance with this requirement.

Sec.  719.11 When must a Legal Management Plan be submitted or revised?

    Comment 23: Several commenters suggested that the Department should 
be required to have a reason or justification for requesting a revised 
Legal Management Plan and should provide such reason or justification 
to the contractor with such a request.
    Response 23: The Department agrees in part and today's final rule 
states that a request for a revised plan shall include an explanation 
for the request. However, the explanation requirement is not intended 
to require a justification for the Department's exercise of its 
discretion.
    Comment 24: One commenter suggested that language be inserted at 
the end of section 719.11(b) allowing the Department to grant an 
extension of the deadline for submitting a revised Legal Management 
Plan. The commenter also suggested that the section state that all 
reasonable requests for extensions will not be denied.
    Response 24: The Department agrees that that Department Counsel 
should have the authority to extend the deadline for submitting a 
revised Legal Management Plan and today's rule reflects this change. 
The Department declines to include the suggested statement concerning 
the acceptance of reasonable requests. The Department believes that 
Department Counsel must maintain the discretion to accept or reject a 
request for deadline extension to ensure proper management of 
contractor legal costs.
    Comment 25: One commenter suggested that section 719.11(b), 
requiring contractors to submit a revised Legal Management Plan upon 
request of the contracting officer, should be deleted because it is 
unnecessary and burdensome.
    Response 25: The Department declines to accept the suggestion. The 
ability to request a revised plan is necessary to ensure proper 
management of contractor legal costs.

Sec.  719.12 What information must be included in the Legal Management 
Plan?

    Comment 26: Several commenters stated that the requirement in 
section 719.12(a) that the Legal Management Plan include a description 
of in-house counsel resources does not provide any benefit to the 
government and should be

[[Page 25799]]

eliminated. Some of these commenters questioned whether Department 
Counsel would be making determinations on whether in-house counsel 
would be qualified to handle a particular matter, thereby assuming the 
role of managing in-house counsel. Multiple commenters stated that the 
fact that a contractor has in-house counsel with experience in a 
specific area should not be determinative of whether engaging outside 
counsel is appropriate. Multiple commenters stated that as a 
contractor's in-house staff change, their levels of expertise will 
change and the Legal Management Plan will be quickly out of date.
    Response 26: The Department believes that requiring a contractor to 
provide a description of in-house counsel resources is essential to 
developing an understanding of the contractor's internal legal 
resources. Although not determinative on its own, having information 
concerning the areas of expertise among a contractor's in-house 
resources is essential when evaluating the reasonableness of outside 
counsel use. Neither the submission of such information nor the 
existence of contractor in-house expertise precludes reimbursement of 
contractor outside counsel costs in appropriate situations. The 
Department believes that the information required to be included in a 
Legal Management Plan required by section 719.12(a) is necessary to 
ensure proper management of contractor legal costs. However, the 
Department appreciates the commenters' concerns regarding the required 
listing of ``levels of experience of each legal staff member.'' Today's 
rule eliminates this requirement from the section.
    Comment 27: One commenter recommended deletion of subsection (d), 
which requires an outline of the factors that the contractor will use 
in selecting outside counsel.
    Response 27: The Department believes that the information requested 
under subsection (d) causes minimal burden and benefits the Department 
by providing the rationale for the selection of outside counsel. No 
change is made to today's final rule.
    Comment 28: Several commenters suggested that section 719.12(k)'s 
requirement that the Legal Management Plan include a description of 
procedures for providing the earliest possible notification to the 
Department of the likely initiation of any legal matter concerning 
certain topics which are of general importance to the Department, 
should be revised or eliminated. Several commenters noted that the 
language in section 719.21(k) creates unnecessary ambiguity. 
Specifically, one commenter stated that the term ``likely initiation'' 
did not specify the triggering initiator. The commenter noted that if a 
third party was ``likely initiating'' litigation it is unlikely that 
the contractor would be aware of it and if the contractor was ``likely 
initiating'' litigation it would be required to get Department approval 
under 719.30. Another commenter complained that the information 
requested was overly burdensome. One commenter suggested that this 
paragraph should include an expanded definition of ``classified 
information'' to ensure proper handling of such information.
    Response 28: The Department agrees that removal of section 
719.12(k) is appropriate. Other requirements ensure that the Department 
is timely notified of impending legal matters and therefore this 
subsection has been removed from the final rule. Also, requirements 
regarding the handing of classified information are fully addressed in 
statutory and regulatory provisions governing such information.
    Comment 29: Several commenters suggested that section 719.12(l) be 
eliminated because other regulations and contract provisions prohibit a 
contractor from submitting unallowable costs for reimbursement, and 
therefore it adds no value.
    Response 29: The Department agrees that section 719.12(l) is 
duplicative of other prohibitions regarding submission of unallowable 
costs for reimbursement. Today's rule removes this section.

Sec.  719.13 Who at the Department receives and reviews the Legal 
Management Plan?

    Comment 30: One commenter stated that section 719.13 should make 
plain that the Legal Management Plan is to be routed through the 
Contracting Officer.
    Response 30: The Department has carefully considered the assignment 
of Departmental responsibilities under part 719 and believes that 
Departmental Counsel receipt of the Legal Management Plan is 
appropriate. Departmental Counsel will appropriately coordinate their 
efforts with the cognizant Contracting Officer.

Sec.  719.14 Will the Department notify the contractor concerning the 
adequacy or inadequacy of the submitted Legal Management Plan?

    Comment 31: Multiple commenters objected to the proposed deletion 
of the subsection allowing contractors to file a letter or other 
communication with the General Counsel disputing a Departmental Legal 
Management Plan determination of inadequacy or noncompliance, noting 
that this process may avoid contract disputes.
    Response 31: The Department amends the final rule to permit 
contractors to file a letter with the General Counsel disputing a 
deficiency determination.

Sec.  719.15 What are the requirements for a Staffing and Resource 
Plan?

    Comment 32: One commenter noted that section 719.15(e) makes 
reference to the budget developed in paragraph (c) of the section, but 
that the particularized budget requirement for the matter in litigation 
is set forth in paragraph (d).
    Response 32: The Department recognizes this error and today's final 
rule corrects the section.
    Comment 33: Several commenters addressed the requirement that 
contractors submit Staffing and Resource Plans for significant matters. 
They noted that these plans must describe, among other things, the 
major phases likely to be involved in the handling of the matter. The 
commenters stated that requiring the plan for all significant matters 
is impractical because the definition of Significant Matter includes 
any legal matter where the amount of legal costs over the lifetime of 
the matter is expected to exceed $100,000. Because legal matter is 
defined to include an aggregate of legal issues associated with a 
particular subject area, the commenters are concerned that Staffing and 
Resource Plans will be required for series of discrete, unrelated 
issues which do not lend themselves to the preparation of such a plan.
    Response 33: The Department agrees that the application of the 
requirement to provide a Staffing and Resource Plan is most appropriate 
for matters in litigation. Therefore section 719.15(a) is changed so 
that it applies only to significant matters in litigation.
    Comment 34: Several commenters suggested that section 719.5(e) be 
changed to require contractor counsel to notify the Department of 
potential costs in excess of the Staffing and Resource Plan estimates 
instead of prohibiting the incurrence of such costs and requiring DOE 
approval. Several commenters suggested that the requirement for pre-
approval of over-budget costs should be deleted because it is 
impractical in the context of litigation, and litigation may be 
compromised if the contractor is required to go back to the Department 
for approval before incurring additional expenses. Some commenters 
expressed concern that advance approval for over-budget costs will lead 
to highly inflated budget estimates.
    Response 34: The Department agrees with some of the commenters that 
this

[[Page 25800]]

requirement should be changed from one of advance approval to advance 
notice. Under today's final rule the contractor must notify Department 
Counsel before incurring retained legal costs in excess of the budget 
developed pursuant to paragraph (d).

Sec.  719.16 When must the Staffing and Resource Plan be submitted?

    Comment 35: One commenter suggested that language be inserted in 
section 719.16(a) allowing the Department to grant an extension to the 
deadline for submitting a Staffing and Resource Plan. The commenter 
also suggested that the section include a requirement that no 
reasonable requests for extensions will be denied.
    Response 35: The Department agrees that Department Counsel should 
have the authority to extend the deadline for submitting a revised 
Staffing and Resource Plan and today's rule reflects this fact. The 
Department declines to include the suggested statement concerning the 
acceptance of reasonable requests. The Department believes that 
Department Counsel must maintain the discretion to accept or reject a 
request for deadline extension to ensure proper management of 
contractor legal costs.
    Comment 36: Multiple commenters suggested that the right to dispute 
Department Counsel's stated objections to a Staffing and Resource Plan 
to the General Counsel, which was deleted in the proposed rule, be 
retained. The commenters noted that this process may avoid contract 
disputes.
    Response 36: The Department amends the final rule to permit 
contractors to file a letter with the General Counsel disputing a 
stated objection.
    Comment 37: One commenter stated that requiring a plan be submitted 
within 30 days after DOE determines that a matter is to be considered a 
Significant Matter is unrealistic, noting that a contractor may not 
even have hired outside counsel within the 30 day period. The commenter 
further objected to the period allotted for DOE review of the plan, 
noting that waiting 30 days for DOE approval is not realistic during 
ongoing litigation.
    Response 37: The Department notes that a Staffing and Resource Plan 
is required to be filed within 30 days after the filing of an answer or 
a dispositive motion in lieu of an answer or within 30 days after a 
determination that associated costs are expected to exceed $100,000. 
These triggers should allow adequate time to prepare the required plan. 
The Department further believes that any concerns regarding the 
timeframe for contractor submission of the plan are adequately 
addressed by the addition of the option for Department Counsel to 
extend the deadline. Regarding the 30 day deadline for Department 
Counsel to state objections to the plan, the Department notes that 
there is no approval requirement and the regulation does not prohibit 
the contractor from taking any action during the 30 day period during 
which Department Counsel may state objections to the plan.

Sec.  719.17 Are there any budgetary requirements?

    Comment 38: One commenter expressed concern about the interplay 
between the definition of significant matters and the words ``existing 
or anticipated significant matters'' in the proposed rule. The 
commenter noticed that the use of the word anticipated was confusing 
and could create problems during implementation.
    Response 38: The Department agrees that the language ``existing or 
anticipated'' is not helpful, and today's final rule removes the words 
``existing'' and ``anticipated.''
    Comment 39: One commenter objected to the provision in section 
719.17(c) requiring the submission of a report comparing its budgeted 
and actual legal costs at the conclusion of the budget period. The 
commenter stated that the Department has access to the information that 
would be reflected in the report.
    Response 39: The Department believes that the required report will 
benefit its efforts to monitor and manage contractor legal costs. The 
contractor is in the best position to create the required report given 
that not all information regarding costs incurred during a particular 
budget period may have been provided to the Department within 30 days 
of the end of the budget period. Today's final rule retains this 
requirement.

Sec.  719.20 When must an engagement letter be submitted to Department 
Counsel?

    Comment 40: Multiple commenters expressed concern with the 
requirement that contractors submit to Department Counsel the terms of 
proposed engagement letters between the contractor and proposed 
retained legal counsel when the proposed legal services are expected to 
meet or exceed $25,000. The commenters noted that the previous version 
of the regulation required submission of executed, rather than 
proposed, engagement letters and characterized the proposed change as 
requiring that contractors obtain Department preapproval before 
executing an engagement letter. Several commenters stated that 
preapproval of engagement letters would unnecessarily burden 
contractors and delay the hiring of outside counsel. The commenters 
noted that Department preapproval of engagement letters is unnecessary 
because section 719.21 prescribes in great detail the information to be 
included in the engagement letter.
    Response 40: The Department has considered the comments and agrees 
that it need not review proposed engagement letters. Section 719.21 
provides clear guidance on requirements for these letters and 
preapproval may unnecessarily delay engagement of outside counsel. 
Today's final rule is amended to require the submission of executed, 
rather than proposed, engagement letters when retained counsel is 
expected to provide $25,000 or more in legal services for a particular 
matter.
    Comment 41: One commenter urged the Department to raise the $25,000 
threshold in section 719.20 that triggers the contractor obligation to 
obtain an engagement letter from retained legal counsel. The commenter 
noted that $25,000 is the amount included in this regulation in 2001, 
and that this figure is unreasonably low given the increase in 
litigation costs over the last years. Another commenter stated that it 
is unclear when initiation of the engagement letter process will be 
expected if contractor counsel engages outside counsel for ad hoc 
advisory services.
    Response 41: It is the view of the Department that obtaining an 
engagement letter from retained legal counsel that sets forth basic 
agreements regarding billing, invoice and record retention is a good 
practice and it is not an onerous requirement; rather, it is standard 
practice for companies hiring outside counsel and often required by 
State legal ethics rules. Also, section 719.20 states that contractors 
must submit the engagement letter ``when the proposed retained counsel 
is expected to provide $25,000 or more in legal services for a 
particular matter.'' It is the view of the Department that contractor 
counsel should form a good faith judgment whether a given matter will 
involve $25,000 or more of legal expenses.

Sec.  719.21 What are the required elements of an engagement letter?

    Comment 42: Several commenters noted that section 719.21(b)(6) 
should be clarified to specifically state that the initial assessment 
of the legal matter, along with a commitment to provide updates as 
necessary, must be provided

[[Page 25801]]

by retained legal counsel rather than contractor counsel.
    Response 42: The items set forth in section 719.21(b) describe the 
obligations of retained legal counsel. However, to ensure clarity, the 
text of section 719.21(b)(6) is changed to specify that the initial 
assessment and updates are the responsibility of retained legal 
counsel.
    Comment 43: One commenter objected to the fact that the engagement 
letter requirements at section 719.21(b)(4) require the contractor to 
obtain agreement from retained legal counsel to maintain all records 
for six years and three months after the final payment or after final 
case disposition, whichever is later. The commenter noted that the 
current regulations require the engagement letter to state retained 
legal counsel will maintain all records for three years and further 
noted that additional storage costs will be incurred because of the 
extended record maintenance period.
    Response 43: The requirement that retained legal counsel's records 
for a particular case must be maintained for six years, three months, 
aligns with the Contract Disputes Act statute of limitations. There is 
no change to the proposed record retention period in today's final 
rule.
    Comment 44: One commenter noted that the required engagement letter 
elements are overly prescriptive and should be eliminated.
    Response 44: The Department disagrees; obtaining an engagement 
letter from retained legal counsel that sets forth basic agreements 
regarding billing, invoices, and record retention reflects best 
practices for any company obtaining legal services.
    Comment 45: One commenter recommended that an addition be made to 
the engagement letter requirements in section 719.21, requiring 
retained legal counsel to affirm that (s)he has read section 719.8 
regarding waiver of privilege, and that provision of records to the 
Government is in no way intended to constitute a waiver of any 
applicable privilege.
    Response 45: Section 719.21(b)(2) contains a requirement that the 
engagement letter from retained legal counsel must include a statement 
acknowledging that provision of records to the Government is not a 
waiver of applicable legal privilege, protection or immunity with 
respect to disclosure of these records to third parties. No additional 
acknowledgement requirement is necessary.
    Comment 46: Several commenters suggested changes to section 
719.21(b)(11), which sets forth the requirement that all engagement 
letters contain a statement that retained legal counsel will provide a 
certification concerning costs submitted for reimbursement. Several 
commenters suggested that the portion of the certification described in 
section 719.21(b)(11) affirming that ``the costs and charges set forth 
herein are necessary'' should read instead ``the costs and charges set 
forth herein are reasonable, appropriate and in conformance with 10 CFR 
719 and the client engagement letter covering this invoice.'' In 
addition, the commenters suggested that section 719.21(b)(11) be 
changed from ``[i]nvoices must be submitted in conformance with the 
model bill format . . .'' to ``[i]nvoices must be submitted in 
conformance with the substance of the model bill format. . . .''
    Response 46: The Department agrees with the commenters in part. The 
certification language in section 719.21(b)(11) in today's final rule 
reads ``the costs and charges set forth herein are appropriate and 
related to the representation of the client'' to reinforce that 
retained legal counsel will certify that all billed items were 
necessary to represent its client, the contractor. With respect to the 
suggestion that the certification specifically state that retained 
legal counsel affirms that charges set forth are in conformance with 10 
CFR part 719, it is the contractor, not retained legal counsel, that 
must adhere to 10 CFR part 719. Section 719.21(a) reminds the DOE 
contracting community that the obligation to adhere to 10 CFR part 719 
is placed on the contractors: ``[t]he engagement letter must require 
retained legal counsel to assist the contractor in complying with this 
part and any supplemental guidance distributed under this part.'' With 
respect to the comment that the invoices should be submitted in 
conformance with the substance of the model bill, the language of 
section 719.21(b)(11) in today's final rule clarifies that retained 
legal counsel must submit all information included in the model bill 
format of Appendix A to 10 CFR part 719, but that the invoice need not 
mirror the model bill. The modified language reads: ``[i]nvoices must 
contain all elements (e.g., date of service, description of service, 
name of attorney) set forth in the model bill format in Appendix A to 
this part.''

Sec.  719.30 In what circumstances may the contractor initiate 
litigation, including appeals from adverse decisions?

    Comment 47: Several commenters objected to the proposed requirement 
in that contractors obtain prior authorization from Department Counsel 
if the contractor wishes to file a counterclaim in a matter in 
litigation. The commenters asserted that counterclaims are 
fundamentally different from initiating litigation insofar as 
counterclaims do not start a lawsuit; rather, they are asserted or 
waived when a contractor is sued. Several commenters objected to this 
new requirement on its face and urged that if it is not removed 
entirely the regulation should, at the very least, require Department 
Counsel to respond to the contractor's request within a finite period 
of time. The commenters expressed concern that a lack of a timely 
response by Department Counsel may result in a waiver of the 
contractor's right to file counterclaims.
    Response 47: The Department recognizes that contractors may need to 
file counterclaims in a short time frame. Today's final rule removes 
the requirement that contractors obtain Department Counsel approval 
before filing counterclaims.
    Comment 48: Several commenters noted that section 719.30 states 
that contractors must obtain prior written authorization from 
Department Counsel to initiate litigation and counterclaims but that 
719.30(b) confuses matters by implying the contracting officer would 
communicate the Department's decision on whether the contractor may 
initiate or appeal adverse decisions.
    Response 48: The Department agrees that proposed section 719.30(b) 
creates an internal inconsistency. Today's final rule deletes proposed 
section 719.30(b) because it confuses the identity of the individual 
responsible for communicating approval of initiation of litigation to 
the contractor.
    Comment 49: One commenter suggested that section 719.30(a)(10) be 
modified to state that the Department must benefit from approved 
litigation and that benefits to the contractor should not be factored 
in when considering requests to approve litigation.
    Response 49: The Department declines to modify today's final rule 
to incorporate the commenter's suggestion. The language of the proposed 
rule provides the Department with the information needed to use its 
discretion in determining whether to approve contractor initiation of 
litigation.

[[Page 25802]]

Sec.  719.31 When must the contractor initiate litigation against third 
parties?

    Comment 50: One commenter noted that a contractor's counsel may be 
acting in violation of ethical responsibilities to the client if the 
attorney follows Departmental direction to engage in litigation that is 
not meritorious.
    Response 50: We reject any suggestion that the Department would 
direct a contractor to initiate unmeritorious litigation to fulfill its 
contractual obligations. Resolution of hypothetical future 
disagreements concerning contractors' obligations in such circumstances 
is beyond the purview of these regulations. Any contractor concerns 
should be directed to Department Counsel.
    Comment 51: Several commenters noted that the provision in section 
719.31 requiring contractors to initiate litigation against third 
parties upon the request of the contracting officer should be deleted 
because it does not specifically confirm that reasonable costs arising 
from such litigation will be allowable.
    Response 52: The Department believes that section 719.31 merely 
reserves to the government the right to direct the contractor to engage 
in litigation that it deems to be in the best interest of the 
Department. The allowability of litigation costs, including costs 
associated with litigation that the Department directs the contractor 
to undertake, will be evaluated by the contracting officer for 
reasonableness in light of the circumstances in the same manner as 
other costs incurred under the contract. Therefore, no blanket 
statement regarding the allowability of these costs is appropriate. No 
change to section 719.31 is necessary.
    Comment 52: One commenter noted that the Department should add a 
discussion to the rule describing the effect of initiating litigation 
on the contractor and the Department, and stating why initiation of 
litigation would prove beneficial to the Department.
    Response 52: The Department declines to implement the commenter's 
suggestion. The circumstances under which contractor initiation of 
litigation may be beneficial to the government will vary, but would 
normally be rooted in the government's interest in prudent expenditure 
of public funds (e.g., requiring a cost reimbursement contractor to 
file a lawsuit against a subcontractor when a positive outcome in the 
lawsuit would result in cost recapture for the government). Section 
719.31 preserves all options so that the government may assert its 
right, among others, to cost recovery vis-a-vis the contractors that it 
reimburses.

Sec.  719.32 What must the contractor do when it receives notice that 
it is a party to litigation?

    Comment 53: Several commenters noted that the Department should 
articulate why contractor litigation is subject to extra scrutiny in 
this regulation, suggesting instead that litigation should be treated 
like other contractor purchases that involve less government oversight.
    Response 53: Contractor litigation costs can significantly affect 
the Department's financial resources. In addition, litigation against 
contractors often directly affects the reputation of the Department 
and, directly or indirectly, its legal position. In light of these 
facts, the Department believes it is appropriate to subject contractor 
litigation to scrutiny that is not applied to contractor purchases of 
other goods and services.
    Comment 54: One commenter suggested that ``DOE/NNSA-approved'' 
should be stricken and instead ``Department Counsel-approved'' should 
be inserted in section 719.32(c)(1).
    Response 54: The Department agrees to modify today's final rule to 
state that Department representatives will collaborate with contractor 
in-house counsel or Department Counsel approved outside counsel. This 
change is consistent with 719.32(b), which contemplates that the 
contractor shall proceed with litigation as directed from time to time 
by Department Counsel.
    Comment 55: Several commenters suggested changing ``claim'' in 
section 719.32(c), (c)(1), and (c)(2) to ``legal proceeding'' because 
the remainder of 719.32 regulates a ``legal proceeding.''
    Response 55: The Department agrees that the term ``legal 
proceeding'' used at the start of section 719.32 in (a) should be used 
throughout this subpart to ensure consistency.

Sec.  719.33 In what circumstances must the contractor seek permission 
from the Department to enter a settlement agreement?

    Comment 56: A number of commenters asserted that the $25,000 
settlement agreement approval threshold is too low. Several commenters 
suggested that the settlement approval authority threshold be increased 
to at least $100,000. Several commenters also noted the lack of a 
finite deadline for the Department to respond to the contractor's 
request to settle a lawsuit. In addition, several commenters noted that 
719.33's statement that Departmental approval to settle a case does not 
mean that the settlement amount or associated legal costs will be 
determined to be allowable is a departure from longstanding DOE 
practice.
    Response 56: The Department believes that the $25,000 settlement 
agreement approval threshold is appropriate and no change is necessary. 
As noted previously, lawsuits against DOE/NNSA contractors have the 
potential to significantly affect DOE/NNSA budgetary resources and 
often bring additional non-monetary sensitivities. The Department 
believes it is appropriate to review and authorize settlement of cases 
for $25,000 or more. In addition, the vast majority of existing Legal 
Management Plans require Department Counsel approval of settlements for 
any monetary value and, therefore, section 719.33 does not represent a 
radical departure from existing practice. With respect to the request 
for a deadline for Department Counsel to reply to a request for 
authority to enter into a settlement agreement, the Department declines 
to include such a deadline. The Department understands the need for 
expeditious review of settlement requests and Department Counsel will 
endeavor to approve settlement requests as soon as is practicable upon 
receipt. With respect to the assertions that in the past, approval to 
settle was granted simultaneously with a determination on allowability, 
the Department acknowledges that in some instances, in the past, 
Contracting Officers made explicit allowability determinations at the 
same time that Department Counsel notified the contractor that it could 
settle a matter. Under today's final rule, contracting officers may 
still, in their discretion, make simultaneous settlement approval and 
cost allowability determinations. However, it should be noted that 
existing part 719 Appendix 5.2(B) makes clear that in some cases the 
final determination of allowability of legal costs cannot be made until 
a matter is fully resolved. In addition, 48 CFR (FAR) 31.201-3, clearly 
states that no presumption of reasonableness is attached to the 
incurrence of costs by a contractor. Therefore, the proposed statement 
in section 719.33 that the Departmental cost allowability determination 
is distinct from a determination regarding settlement approval 
reiterates a concept that has been reflected since part 719's initial 
publication and is a well-established cost reimbursement contracting 
principle. In addition, at the time the contractor seeks settlement 
authority from Department Counsel, the

[[Page 25803]]

contractor is in a position of superior knowledge regarding the 
underlying facts that may factor into a determination of the 
reasonableness of the costs, which may be revealed subsequent to the 
grant of settlement authority by Department Counsel to the contractor.

Sec.  719.34 What documentation must the contractor provide to 
Department Counsel when it seeks permission to enter a settlement 
agreement?

    Comment 57: Two commenters noted that plaintiffs' counsel with whom 
they are engaging in settlement discussions might not be willing to 
share the type of information required to be provided to the Department 
under section 719.34(g), such as the proposed amount to be provided to 
each plaintiff. The commenters noted that inability to furnish 
information to the DOE for this reason should not be considered a 
violation of the regulation.
    Response 57: The Department recognizes that when a contractor is 
sued, plaintiff's counsel may not share with the contractor the 
monetary amount to be provided to each plaintiff. However, the 
Department believes no change is necessary because the first sentence 
of section 719.34 states that the contractor must provide a list of 
items in its settlement authority request ``that includes the following 
information, as applicable.'' The Department believes that use of the 
term ``as applicable'' accounts for the circumstance when a plaintiff's 
counsel simply will not reveal to the contractor how much each 
plaintiff will receive pursuant to the contemplated settlement 
agreement. Therefore, no change is required.
    Comment 58: Two commenters noted that section 719.34's requirement 
that the contractor submit several documents to Department Counsel to 
inform the decision as to whether settlement authority should be 
granted puts the attorney client/work product privilege at risk.
    Response 58: The Department declines to make any change to section 
719.34 based on this comment. As stated in section 719.8, it is the 
view of the Department that otherwise privileged documents provided to 
the Department pursuant to part 719 are protected from disclosure to 
third parties because the Department and the contractors share a common 
interest in the litigation.
    Comment 59: One commenter noted that the requirement in section 
719.34(f) for contractors to provide information about all of the terms 
of the settlement agreement, including non-monetary terms, is intrusive 
and, further, the contractors have the contractual authority to manage 
their workforces, including handling nonmonetary settlement terms. The 
commenter also stated that the general requirement in section 719.34 to 
provide a settlement memorandum is unnecessary.
    Response 59: The Department believes that contractor provision of 
all of the terms associated with a settlement proposal assists the 
Department in fully understanding and evaluating the contractor's 
settlement request. This subpart does not limit the contractor's 
ability to manage its workforce. No change is necessary.

Sec.  719.35 When must the contractor provide a copy of the executed 
settlement agreement?

    Comment 60: Several commenters noted that the requirement in 
section 719.35 to provide an executed copy of the settlement agreement 
should be eliminated because the agreement may be subject to disclosure 
pursuant to FOIA. The commenters also noted that the requirement to 
submit the settlement agreement within seven days of execution was 
unnecessary.
    Response 60: The Department discloses all documents subject to the 
Freedom of Information Act to promote the goals of transparency and 
accountability in government. The release of settlement agreements in 
the possession of the Department, both draft and executed, will be 
governed by FOIA. The benefit of Department Counsel review of all 
relevant provisions of a settlement agreement (e.g., to assist in a 
determination of the reasonableness of the underlying costs) outweighs 
the burden associated with potential disclosure of settlement 
agreements pursuant to FOIA. It is the view of the Department that it 
is not unduly burdensome for contractors to transmit a settlement 
agreement within seven days of execution. Therefore, no change to the 
time period is necessary.

Sec.  719.40 What effect do the regulations of this part have on cost 
allowability?

    Comment 61: Several commenters objected to the language in section 
719.40, which states that compliance with part 719 is a prerequisite 
for the allowability of legal costs. Some commenters asked whether the 
Department intends to establish a new standard for determining the 
allowability of legal costs.
    Response 61: The purpose of the language in section 719.40 is to 
clarify language regarding cost allowability issues previously 
appearing at section 5.0 of the Appendix to the part, which was deleted 
in the proposed rule. Compliance with part 719 has always been one of 
several considerations in determining the allowability of legal costs 
and is not sufficient by itself to determine that costs are allowable. 
Another consideration is compliance with the other contract terms and 
conditions, including the standards for allowability articulated in FAR 
part 31 and DEAR part 931. Nevertheless, in order to ensure clarity, 
the following language is added to the last sentence of the section: 
``In accordance with 48 CFR (FAR) part 31 and (DEAR) part 931 and all 
other applicable contract terms and conditions.''
    Comment 62: One commenter recommended adding a ``mechanism for the 
contractor to challenge determinations that could increase potentially 
unreimbursed liabilities under the Disputes Clause.''
    Response 62: The Department believes that the Contract Disputes Act 
referenced in the Disputes Clause of DOE contracts provides the legal 
mechanism for contractors to challenge Department decisions regarding 
cost allowability.

Sec.  719.41 How does the Department determine whether fees are 
reasonable?

    Comment 63: One commenter recommends amending paragraph (b) to 
read: ``(b) Whether lower rates from other firms providing comparable 
services at comparable competency and experience levels were 
available.'' Another commenter recommended deleting this section 
because it could be misconstrued and understood to mean that the 
contractor must always use the least expensive option.
    Response 63: The Department believes that in routine and 
unspecialized cases it is often unnecessary to engage law firms that 
charge higher than ordinary fees even where such law firms may be 
considered to have more or better experience in similar matters. The 
Department expects contractors to engage law firms that provide 
competent legal services at a good value. Therefore, a modified version 
of the suggested language is added to today's final rule to make it 
clear that the government expects contractors to engage outside counsel 
who are appropriately competent and experienced and who offer 
competitive rates.

Sec.  719.44 What categories of costs require advance approval?

    Comment 64: Several commenters requested that the Department 
clarify section 719.44 by stating that it only

[[Page 25804]]

applies to costs incurred by retained legal counsel.
    Response 64: The Department agrees that this section applies to 
certain costs incurred by retained counsel and not costs associated 
with in-house counsel. The Department has revised this section 
accordingly.
    Comment 65: One commenter suggested that contractors' 
determinations regarding the reasonableness of outside counsel fee 
increases during the course of ongoing litigation action should be 
sufficient and recommended that requiring Department approval of such 
increases is unnecessary.
    Response 65: Because litigation often lasts for long periods of 
time, the Department believes that it is important for it to approve 
fee increases in order to maintain effective cost control. The 
Department does not believe that obtaining Department approval for a 
fee increase in the middle of an action is likely to be an impediment 
to the progress of the action because sufficient notice of a fee 
increase should be given by outside counsel before it becomes 
effective, thereby providing ample time for the contractor to obtain 
DOE approval.
    Comment 66: One commenter recommended that section 719.44(a)(1) be 
deleted, or in the alternative, the use of e-discovery vendors, 
commercially available software, and web-based review and production 
databases should be excluded from its purview. The commenter stated 
that the use of software analytics is standard industry practice and 
therefore the provision has outlived its usefulness. The commenter also 
objected to the language stating that the Department be given 
``dominion over any computers or any general application software.'' 
The commenter expressed a concern that e-discovery vendors would object 
to the term and that it may violate the terms of software licenses.
    Response 66: The Department declines to accept the commenter's 
proposals for section 719.44(a)(1). The regulation covers only 
computers, software, and databases purchased or created for specific 
matters. With respect to the commenter's objection to the Department's 
request for ``dominion'' over computers or software, this section does 
not involve access to all of the information on contractor counsel's 
computers, only the information related to the particular matters 
covered by the rule.
    Comment 67: One commenter suggests deleting the requirement for DOE 
approval for two or more attorneys to attend depositions, the use of 
law clerks, and the retention of expert witnesses. These approvals were 
described as unduly burdensome and not cost-effective because 
contractors can effectively manage such costs.
    Response 67: The Department believes that it is appropriate to 
require approval for these types of costs in order to maintain 
effective cost control. No change is required.
    Comment 68: One commenter suggests an increase of the $5,000 
threshold in subpart (a)(2) to $25,000 to reflect increases in costs of 
materials and non-attorney services over the last decade.
    Response 68: The Department has removed the requirement for 
preapproval of charges for materials or non-attorney services exceeding 
$5,000.
    Comment 69: One commenter suggested that any time the Department 
approves a fee increase for retained counsel, the approved increase 
should be deemed reasonable and allowable unless unallowable under some 
other applicable contract term or cost principle.
    Response 69: Approval by the Department of a fee increase is one 
factor in determining the reasonableness of legal costs that include 
such a fee. However, when determining whether legal costs are 
allowable, factors other than the fee amount that must be considered 
and determined to be reasonable. The Department declines to modify 
today's final rule based upon the commenter's suggestion.

Sec.  719.45 Are there any special procedures or requirements regarding 
subcontractor and retrospective insurance carrier legal costs?

    Comment 70: Some commenters objected to the already-existing 
monitoring requirements applicable to legal costs incurred by 
subcontractors whose contracts provide for the reimbursement of legal 
costs.
    Response 70: Through these regulations, the Department seeks to 
achieve an appropriate balance of Department oversight, contractor 
oversight, and the flexibility to allow subcontractors to handle legal 
matters with an appropriate degree of discretion. The general 
requirement for contractors to monitor legal costs incurred by their 
cost-reimbursement subcontractors is not new, and the Department 
considers it necessary to retain this requirement in order to ensure 
that all costs reimbursed to the contractor are reasonable and 
allowable, including pass-through costs incurred by lower-tier 
contractors and service providers.
    Comment 71: Many commenters objected to the proposed requirements 
applicable to legal matters handled by retrospective insurance 
carriers. In the notice of proposed rulemaking, the Department proposed 
requirements applicable to all subcontractors as well as additional 
requirements applicable only to retrospective insurance carriers. The 
proposed rule would have required contractors to obtain from 
retrospective insurance carriers a Staffing and Resource Plan for all 
legal matters that are expected to reach or exceed $100,000 in cost, 
and engagement letters when insurance carriers retain the services of 
outside counsel for $25,000 or more. Contractors would also have needed 
to obtain approval from Department Counsel before authorizing 
retrospective insurance carriers to make settlements in amounts of 
$25,000 or more.
    Many commenters expressed concern that these requirements would 
conflict with the existing cost and litigation controls and protocols 
used by retrospective insurance carriers and would lead to increases in 
premiums or possibly result in insurance carriers being unwilling to 
provide DOE contractors with retrospective insurance policies. The 
commenters noted that DOE has had a long-standing policy of encouraging 
the use of retrospective insurance carriers as a way to gain cost-
effective claims-handling expertise and that including these 
requirements would potentially undermine the Department's objectives 
with respect to the use of retrospective insurance carriers. Some 
commenters also recommended that if DOE wishes to promulgate these 
additional requirements, DOE should directly negotiate with the 
insurance industry. Additionally, a number of commenters suggested that 
part 719's new retrospective insurance requirements conflict with the 
Department's policies on retrospective insurance articulated in DOE 
Order 350.1. Finally, one commenter objected to the section's 
characterization of retrospective insurance carriers as 
``subcontractors.'' The commenter questioned the implications of this 
characterization.
    Most comments urged the elimination of these new provisions, but 
some suggested in the alternative that DOE limit the application of the 
new requirements by excluding workers compensation and general 
liability policies from part 719. The comments also requested 
clarification on whether or not routine workers compensation matters 
handled by retrospective insurance carriers were meant to be excluded 
from the new requirements.

[[Page 25805]]

    Response 71: The Department has fully considered the comments and 
has determined that many of the observations have merit. The Department 
recognizes the claims-handling expertise of retrospective insurance 
carriers and agrees that the proposed requirements could result in 
unnecessary redundancies in the insurance carriers' existing litigation 
management procedures and potentially result in higher premiums. 
However, the Department does not agree that the section should be 
eliminated in its entirety or that the Department should directly 
contract for retrospective insurance services. The Department believes 
that it is necessary for both the contractor and the Department to 
monitor the progress of certain legal matters handled by subcontractors 
whose contracts provide for the reimbursement of legal costs. 
Therefore, in light of the Department's objectives and the comments 
received, the Department has decided to modify the proposed rule as 
follows:
    (1) The regulation includes a requirement that contractors employ a 
monitoring system for all significant matters handled by subcontractors 
other than retrospective insurance carriers whose legal costs will be 
reimbursed by the Department to ensure that both the contractor and the 
Department are regularly apprised of developments in the progress of 
significant matters.
    (2) The regulation does not include a requirement that 
retrospective insurance carriers provide Staffing and Resource Plans or 
engagement letters.
    (3) A requirement to provide the Department with cost information 
associated with legal matters handled by retrospective insurance 
carriers and other subcontractors upon request was added to facilitate 
determining cost allowability as necessary.
    (4) Proposed section 719.46(g) discussing audits was deleted 
because it is redundant to the statement in section 719.46 regarding 
the Government right to audit costs.
    (5) The requirement for contractors to provide the Department with 
cost and status updates for significant matters handled by 
subcontractors was retained in order to ensure that the Department is 
fully informed of the progress of significant matters and costs 
associated with such matters. However, this requirement no longer 
applies to significant matters handled by retrospective insurance 
carriers, except upon the written request by the Department.
    (6) The regulation requires subcontractors, including retrospective 
insurance carriers, to obtain permission to enter into settlement 
agreements that exceed certain thresholds. The Department has 
determined that the appropriate settlement threshold for retrospective 
insurance carriers is $100,000, and the appropriate threshold for other 
subcontractors is $25,000.
    The settlement threshold of $100,000 for retrospective insurance 
carriers is appropriate because it is recognized that insurance 
carriers bring certain claims-handling expertise. Additionally, 
settlements or payments by retrospective insurance carriers that are 
$100,000 or more represent a very small portion of the total claims 
handled by retrospective insurance carriers under DOE contracts. 
Therefore, it is anticipated that the $100,000 settlement approval 
requirement threshold will be triggered only occasionally.
    The settlement approval threshold of $25,000 for subcontractors is 
appropriate because it is consistent with the requirement applicable to 
DOE prime contractors and because other subcontractors do not have the 
same expertise in handling claims or other legal matters that 
retrospective insurance carriers have.
    Finally, the Department notes that coverage exclusions set forth in 
section 719.6 are applicable to the requirements of section 719.45.

Sec.  719.50 What authority does Department counsel have?

    Comment 72: Two commenters noted that Department Counsel should be 
authorized Contracting Officer's Representatives (COR).
    Response 72: The Department notes that the rule, as drafted, 
contemplates Department Counsel serving as authorized CORs for 
contracts subject to the part.

Sec.  719.51 What information must be forwarded to the General 
Counsel's office concerning contractor submissions to Department 
Counsel under this part?

    Comment 73: One commenter stated that the requirement in section 
719.51 that Department Counsel forward certain information to the 
General Counsel's office is overly burdensome.
    Response 73: The Department disagrees. Moreover, the requirement 
relates to internal Department procedures, not contractor obligations.

Sec.  719.52 What types of field actions must be coordinated with the 
General Counsel?

    Comment 74: One commenter recommended deletion of section 719.52 to 
the extent that it requires General Counsel approval for any exception 
or deviation from the part.
    Response 74: The Department declines to follow this suggestion and 
today's rule requires General Counsel approval of deviations or 
exceptions to the part to ensure a coordinated approach to contractor 
legal management across the DOE complex.

Appendix A to Part 719--Guidance for Legal Resource Management

    Comment 75: One commenter recommended deletion of the language 
concerning alternative dispute resolution. The commenter suggested 
prescriptive guidance on ADR has no value because each matter is case-
specific.
    Response 75: The new language merely encourages the contractor to 
consult with the Department's Office of Conflict Prevention and 
Resolution to evaluate whether a matter may be effectively and 
efficiently resolved by alternative dispute resolution. No change is 
necessary to the Appendix language.
    Comment 76: One commenter objected to the limitation on copying 
charges to ten cents per page, because it has not been changed in the 
last 15 years.
    Response 76: Today's rule eliminates the ten cents per page example 
from Note 2 to the Appendix and inserts ``number of pages times cost 
per page'' in its place.

Title 48--Federal Acquisition Regulations System

Part 970--DOE Management and Operating Contracts
    Comment 77: One commenter inquired about the intended effect of 
deleting former subparagraph (i) of 48 CFR 970.5228-1. This paragraph 
stated that a contractor has the burden of proof to establish that 
costs are allowable and reasonable if, after an initial review of the 
facts, the Contracting Officer challenges a specific cost or informs 
the contractor that there is reason to believe that the cost results 
from willful misconduct, lack of good faith, or failure to exercise 
prudent business judgment by contractor managerial personnel.
    Response 77: The Department determined that this subparagraph is 
duplicative and unnecessary as FAR 31.201-3, Determining 
reasonableness, provides that the contractor holds the burden of proof 
if a cost is challenged by the contracting officer or COR.
    Comment 78: One commenter asked what the Department intended when 
revising the direction in 48 CFR 952.231-71 and 970.5228-1 previously

[[Page 25806]]

at paragraph (j)(1) and in the proposed rule at (g)(1) regarding 
contractor handling of litigation costs. Specifically, the commenter 
asked what the Department means by requiring such costs to be 
``excluded'' and whether the revised language expressed the presumption 
that litigation costs are unallowable.
    Response 78: The Department appreciates the commenter's concern and 
understands that the revised language, when read in conjunction with 
FAR 31.201-6, Accounting for unallowable costs, may be read as 
indicating a presumption of unallowability. No such presumption is 
intended and the Department revises today's final rule to delete the 
term ``excluded'' from 48 CFR 952.231-71 and 970.5228-1 paragraph 
(j)(1). Paragraphs (g)(1) of the two clauses now mirror the language 
included at 48 CFR 31.205-47. The paragraphs state in pertinent part: 
``All litigation costs, including counsel fees, judgments and 
settlements shall be segregated and accounted for by the contractor 
separately.''

General Comments

    Comment 79: One commenter expressed concerns regarding the varying 
requirements that the contractor seek approvals and provide submissions 
to Department Counsel, the Contracting Officer, or both. The commenter 
suggests that the Department require Contracting Officers to designate 
Department Counsel as the single point of contact for part 719 
requirements.
    Response 79: The Department acknowledges the varying requirements 
identified by the commenter and today's final rule consistently 
identifies Department Counsel as the primary point of contractor 
contact for purposes of part 719.
    Comment 80: One commenter suggested that Management and Operating 
contractors should not be subject to part 719 and instead should have a 
separate regulation for litigation expenses. The commenter noted the 
differences between Management and Operating contractors and other cost 
reimbursement contractors as significant and deserving of separate 
regulations.
    Response 80: The Department does not believe that separate 
regulations for Management and Operations contractors and other cost 
reimbursement contractors are necessary or prudent. Part 719 provides 
an appropriate level of oversight for all contractors who are subject 
to its provisions.
    Comment 81: One commenter suggested that the Department rescind 
part 719 and convert the substance of the part to a Department-issued 
manual. The commenter recommends that such a manual contain best 
management practices for legal management and that DOE issue the manual 
as a guide to be applied with skill and judgment of Department Counsel 
and contractor counsel through a graded approach depending on the 
experience level of contractor counsel. The commenter suggests that the 
proposed manual co-exist with a required Legal Management Plan 
developed and administered jointly by the contractor and the 
Department, compliance with which would be specifically required by a 
new contract clause. The commenter suggests that the Department should 
rely on 48 CFR 31.205-33 in determining cost allowability and consider 
allocating a portion of the contractor's fee to the ``management 
effectiveness'' section of the contractor's annual Performance 
Evaluation Management Plan, with fee deductions occurring for those 
contractors who do not manage their Legal Management Plan and/or 
litigation as provided in the Performance Evaluation Management Plan.
    Response 81: The Department disagrees with the commenter's proposal 
that the regulation be rescinded and its substance converted to a 
manual of best practices. The Department believes that a uniform rule 
provides for consistency in oversight and control of contractor legal 
management and associated costs across the DOE complex. Of the possible 
approaches to contractor legal management, the Department believes that 
today's rule as amended in response to public comments strikes an 
appropriate balance and provides the best approach.
    Comment 82: One commenter suggested that the regulations be applied 
only to contractor legal matters for which costs are expected to exceed 
$100,000. The commenter recommended that this will align treatment of 
contractor and Department retained counsel. Another commenter suggested 
that the Federal Acquisition Regulation Simplified Acquisition 
Threshold be used as a threshold under which legal matters could be 
handled with autonomy by the contractor.
    Response 82: These recommendations would effectively raise all 
thresholds for requirements under the part to a minimum of $100,000. As 
explained herein, the Department believes that lower thresholds for 
various requirements are necessary to facilitate control of legal 
costs. Additionally, the distinction between applicability of the part 
to contractor and Department-retained counsel is justified because the 
Department has direct control of its costs in these matters as the 
represented client.
    Comment 83: One commenter suggested that the proposed rule would 
increase costs and improperly increases oversight and administrative 
burdens. This commenter recommended that DOE withdraw the proposed 
rule, restart the rulemaking process, and proceed with increased 
contractor engagement.
    Response 83: The Department has engaged contractors regarding the 
subject of today's rule during the years spent administering the 
regulations that previously appeared at 10 CFR part 719. The Department 
has carefully considered the comments received in response to the 
Notice of Proposed Rulemaking and believes that today's rule 
appropriately balances the benefits and burdens related to contractor 
legal management requirements.
    Comment 84: Multiple commenters expressed that the proposed rule is 
contrary to the Department's general governance reform efforts and that 
the part increases the level of control over contractor legal 
management. One commenter stated that the proposed rule fails to 
acknowledge legal management innovations adopted by the contractor 
community since the part was first published in 2001 and is not 
properly innovative in its approach to the legal management landscape. 
Multiple commenters stated that the revisions to the part would 
increase burdens placed on the contractors and correspondingly increase 
costs. Multiple commenters stated that DOE and NNSA field counsel 
should have been more involved in the rulemaking process. Commenters 
also stated that the proposed rule goes beyond the recommendation of 
the 2009 Office of Inspector General Report regarding contractor 
litigation costs that was offered by the Department as one impetus for 
today's revision.
    Response 84: The Department believes that today's rule provides for 
the correct amount of contractor and department-retained counsel 
oversight. The regulation reduces or eliminates several requirements 
contained in the previous version and adds only limited requirements 
necessary to ensure proper stewardship of taxpayer dollars. Certain 
requirements included in the regulation for the first time with today's 
rule (e.g., Department approval of contractor settlements in section 
719.33) are simply codifications of contractual requirements. 
Additionally, the Department has carefully considered the comments 
received in response to the proposed rule and has deleted a number of 
proposed requirements. For example,

[[Page 25807]]

the requirements in Subpart E regarding retrospective insurance 
carriers have been significantly reduced. Today's final rule is the 
result of significant efforts to balance the needs of the Department 
with those of its contractors. Although the 2009 Inspector General 
Report was one impetus for today's final rule, it was not the only 
reason for the revision. The Department believes that the thorough 
review conducted by the Department and today's revisions to the rule 
will result in better management of retained legal counsel and 
contractor legal costs.
    Comment 85: One commenter suggested broadly that the language 
regarding costs previously included in part 719 be restored. The 
commenter suggested that the primary purpose of the proposed revisions 
was to change the Department's approach to allowability of legal costs, 
but the Department failed to state this purpose.
    Response 85: The Department disagrees with the commenter's 
characterization of the revisions to part 719. As discussed in the NOPR 
(76 FR 8148), the primary purposes of the revisions are to amend the 
requirements related to management of contractor legal costs to clarify 
and streamline existing requirements, improve efficiency of contractor 
legal management, and facilitate oversight of the expenditure of 
taxpayer dollars.
    Comment 86: One commenter suggested revising the statement of 
authority underlying the part to include additional statutory 
citations.
    Response 86: The Department declines to revise the statement of 
authority for the part. The current statement is accurate and 
sufficient.

III. Summary of Final Rule

    Subpart A, sections 719.1-719.8, includes general provisions, 
defines important terms, and addresses applicability of the part. 
Section 719.2 defines terms used throughout the part. Today's final 
rule no longer includes a definition of legal matter because 
respondents noted that it caused confusion about the applicability of 
the part. The definitions of litigation, retrospective insurance, 
significant matters, and Staffing and Resource Plan were also modified 
in the final rule based on commenter concerns. The definition of 
significant matter now includes language requiring the Department to 
notify a contractor in writing if the Department determines a matter is 
significant.
    Section 719.3 continues to 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. Today's final rule retains the proposed expansion of 
applicability of the part; however, it now also references section 
719.5 to make it clear that the part does not apply to contracts under 
which the Department does not reimburse legal costs even if they 
otherwise meet the criteria described in section 719.3. Sections 719.3 
and 719.4 continue to apply this part to legal counsel retained 
directly by the Department where the legal costs over the life of the 
matter are expected to exceed $100,000.
    Sections 719.5 and 719.6 describe types of contracts and legal 
matters not covered by this part and no significant changes were made 
to the NOPR in today's final rule. Procedures for exceptions or 
deviations from the part are set out in section 719.7. Today's final 
rule provides that, where a deviation or exception is requested, the 
General Counsel will provide a written response. Section 719.8 states 
that the sharing of certain information between contractors and the 
Department does not waive any applicable privilege, and today's final 
rule adds more potential bases for the privilege.
    Subpart B, sections 719.10-719.17, describes the requirements for 
submission of a Legal Management Plan, Staffing and Resource Plan, and 
annual legal budget. Sections 719.10-719.14 concern the requirement for 
a Legal Management Plan. Today's final rule clarifies that requests for 
revised Legal Management Plans shall include an explanation and that 
the deadline for revised Legal Management Plans may be extended. 
Today's final rule removes two requirements from the Legal Management 
Plan under proposed section 719.12. The contractor no longer needs to 
provide a description of procedures for providing notification of the 
likely initiation of a legal matter to the Department or a description 
of procedures the contractor uses to ensure unallowable costs are not 
submitted for reimbursement. Section 719.14, concerning the adequacy of 
Legal Management Plans, is modified in today's final rule to allow the 
contractor the option of filing a letter disputing the determination of 
a deficiency.
    Sections 719.15-719.17 explain the requirements associated with the 
Staffing and Resource Plan and budgets. Changes were made to 719.15 to 
limit the Staffing and Resource Plan requirement to litigation matters 
and to eliminate the need for contractors to obtain prior approval 
before incurring legal costs in excess of the budget. The contractor 
must still notify the Department before exceeding budget costs.
    Subpart C, sections 719.20-719.21, describes the requirements for 
engagement letters. Contractors must submit executed engagement letters 
to Department Counsel when legal services are expected to exceed 
$25,000, as described in section 719.20. Section 719.21 describes the 
required elements of an engagement letter.
    Subpart D, sections 719.30-719.35, describes the requirements 
related to contractor initiation of offensive or defensive litigation, 
including appeals, and for contractor settlement of legal matters. 
Current part 719 addresses initiation and defense of litigation in the 
Appendix to the part. Today's final rule deletes these portions of the 
Appendix and modifies and moves requirements regarding initiation and 
notification of litigation to subpart D. The regulations also modify 
and move requirements related to initiation and notification of 
litigation from the DEAR Insurance--Litigation and Claims clauses, 48 
CFR 952.231-71 and 48 CFR 970.5228-1, to part 719, subpart D, in order 
to clarify the requirements and streamline the regulations. In today's 
final rule, the Department, of its own accord, decides to no longer 
assume the authority to prevent the contractor from initiating or 
defending litigation, including appeals, but the Department requires 
notice before litigation is initiated and maintains the right to 
authorize offensive litigation for which the contractor seeks 
reimbursement.
    Section 719.33 requires a contractor to obtain permission from 
Department Counsel to enter a settlement agreement requiring contractor 
payment of $25,000 or more. Previously this requirement was included in 
contractor Legal Management Plans. Section 719.34 lists documentation 
that must be submitted with a contractor's request to settle a matter, 
and 719.35 provides contractors with a deadline for submitting executed 
settlement agreements to the Department.
    Subpart E, sections 719.40-719.47, describes the policies and 
limitations for reimbursement of legal costs associated with retained 
legal counsel. Section 719.40 makes it clear that compliance with part 
719 is a prerequisite for allowability of legal costs. Sections 719.42-
719.44 describe categories of costs that are unallowable, require 
special treatment or need advance approval.

[[Page 25808]]

    Section 719.45 describes special requirements related to 
subcontractors, including retrospective insurance carriers. These 
requirements are significantly modified from the Notice of Proposed 
Rulemaking. Retrospective insurance carriers must get prior approval 
from contractors if settlement payment is likely to reach $100,000 or 
more and subcontractors must get prior approval if settlement payment 
is likely to reach $25,000 or more. The contractor must obtain 
Department approval before authorizing payments to claimants exceeding 
the settlement thresholds.
    Subpart F, sections 719.50-719.52, discusses the roles and 
responsibilities of Department Counsel. Section 719.50 describes the 
limitations on Department Counsel authority. Sections 719.51 and 719.52 
set forth parameters for Department Counsel coordination with 
Department of Energy and National Nuclear Security Administration 
Offices of General Counsel.
    The Appendix to part 719 discusses expectations related to 
alternative dispute resolution. The Appendix also makes clear that 
there is no presumption of reasonableness attached to incurrence of 
costs by a contractor and notes that the reasons underlying incurrence 
of a legal cost may affect its allowability. The Attachment to part 719 
includes a model bill format for contractor use.
    The Department is also making corresponding changes to the DEAR. 
The clause prescription at 48 CFR 931.205-19 is revised to prescribe 
insertion of the clause at 48 CFR 952.231-71 in (1) non-Management and 
Operating cost reimbursement contracts exceeding $100,000,000, and (2) 
non-Management and Operating contracts exceeding $100,000,000 that 
include cost reimbursable elements exceeding $10,000,000. The clause 
prescription at 48 CFR 970.2803-2 is revised to prescribe insertion of 
the clause at 48 CFR 970.5228-1 in all Management and Operating 
contracts. Both prescriptions are revised to clarify that the 
prescribed clauses are to be inserted instead of the clause at 48 CFR 
52.228-7. The Insurance--litigation and claims clauses at 48 CFR 
952.231-71 and 48 CFR 970.5228-1 are revised to reflect the above 
described consolidation of requirements related to initiation and 
notification of litigation in subpart D of part 719. Other changes to 
the clauses are included to simplify and clarify their requirements. 
Paragraph (a) of both DEAR clauses requires compliance with 10 CFR part 
719 ``if applicable,'' recognizing that the clause sometimes may be 
included in contracts which do not provide for the reimbursement of 
legal costs subject to 10 CFR part 719. The cost principle at 48 CFR 
931.205-33 is revised to reflect the amended applicability of the DEAR 
Insurance--litigation and claims clauses and to clarify the requirement 
for contractor compliance with part 719 when the part is applicable to 
a particular contract.

IV. Procedural Requirements

A. Review Under Executive Orders 12866 and 13563

    This 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 rule is not 
subject to review under the Executive Order by the Office of 
Information and Regulatory Affairs (OIRA) within the Office of 
Management and Budget. DOE has also reviewed this rule pursuant to 
Executive Order 13563, issued on January 18, 2011 (76 FR 3281 (Jan. 21, 
2011)). Executive Order 13563 is supplemental to, and explicitly 
reaffirms, the principles, structures, and definitions governing 
regulatory review established in Executive Order 12866. To the extent 
permitted by law, agencies are required by Executive Order 13563 to: 
(1) Propose or adopt a regulation only upon a reasoned determination 
that its benefits justify its costs (recognizing that some benefits and 
costs are difficult to quantify); (2) tailor regulations to impose the 
least burden on society, consistent with obtaining regulatory 
objectives, taking into account, among other things, and to the extent 
practicable, the costs of cumulative regulations; (3) select, in 
choosing among alternative regulatory approaches, those approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety, and other advantages; distributive impacts; 
and equity); (4) to the extent feasible, specify performance 
objectives, rather than specifying the behavior or manner of compliance 
that regulated entities must adopt; and (5) identify and assess 
available alternatives to direct regulation, including providing 
economic incentives to encourage the desired behavior, such as user 
fees or marketable permits, or providing information upon which choices 
can be made by the public.
    DOE emphasizes as well that Executive Order 13563 requires agencies 
to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible. In its 
guidance, the Office of Information and Regulatory Affairs has 
emphasized that such techniques may include identifying changing future 
compliance costs that might result from technological innovation or 
anticipated behavioral changes. DOE believes that today's final rule is 
consistent with these principles, including the requirement that, to 
the extent permitted by law, agencies adopt a regulation only upon a 
reasoned determination that its benefits justify its costs and, in 
choosing among alternative regulatory approaches, those approaches 
maximize net benefits.

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; (3) provide a clear legal standard 
for affected conduct rather than a general standard; and (4) 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 that 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 regulations meet the relevant standards of Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires 
preparation of an initial regulatory flexibility analysis for any rule 
that must be proposed for public comment and is likely to have a 
significant economic impact on a substantial number of small entities 
unless the agency certifies that

[[Page 25809]]

the rule will not have a significant economic impact on a substantial 
number of small entities. DOE certified at the time of the proposed 
rule that this rulemaking would not have a significant economic impact 
on a substantial number of small entities. No comments were received 
regarding that certification. As a result, DOE adopts as final that 
certification and, therefore, no regulatory flexibility analysis has 
been prepared.

D. Review Under the Paperwork Reduction Act

    The final rule requires each covered contractor to submit a Legal 
Management Plan that describes the contractor's practices for managing 
legal matters for which it procures the services of retained legal 
counsel. Under certain circumstances Staffing and Resource Plans, 
annual legal budgets, and engagement letters are required to be 
submitted to the Department. Documentation related to initiation of 
litigation and settlement of legal matters also may be required. This 
collection of information is required for the Department to determine 
whether to approve reimbursement of contractors' litigation and other 
legal expenses.
    Under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq., an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection has been 
reviewed and assigned a control number by Office of Management and 
Budget (OMB). OMB approved the information collection associated with 
this final rule under OMB Control Number 1910-5115.

E. Review Under the National Environmental Policy Act

    DOE has concluded that promulgation of this final rule falls into a 
class of actions that 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 rule is categorically excluded from NEPA review 
because today's rule is strictly procedural (categorical exclusion A6). 
Therefore, this rule does not require an environmental impact statement 
or environmental assessment pursuant to NEPA.

F. Review Under Executive Order 13132

    Executive Order 13132, 64 FR 43255, August 4, 1999, imposes certain 
requirements on agencies formulating and implementing policies or 
regulations that preempt state law or that have federalism 
implications. Agencies are required to examine the constitutional and 
statutory authority supporting any action that would limit the 
policymaking discretion of the states and carefully assess the 
necessity for such actions. DOE has examined today's rule and has 
determined that it would not preempt state law and would not have a 
substantial direct effect on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government. No further 
action is required by Executive Order 13132.

G. Review Under the Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995, Public Law 104-4, 
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 in any single year. This rule does not impose a federal mandate 
on state, local or tribal governments or on the private sector.

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

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999, Public Law 105-277, requires federal agencies to issue a 
Family Policymaking Assessment for any rule or policy that may affect 
family well-being. This rule would have no impact on family well-being.

I. Review Under Executive Order 13211

    Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use, 66 FR 28355, 
May 22, 2001, requires federal agencies to prepare and submit to the 
Office of Information and Regulatory Affairs (OIRA), Office of 
Management and Budget (OMB), a Statement of Energy Effects for any 
significant energy action. A ``significant energy action'' is defined 
as any action by an agency that promulgates or is expected to lead to 
promulgation of a final rule, and that: (1) Is a significant regulatory 
action under Executive Order 12866, or any successor order; and (2) is 
likely to have a significant adverse effect on the supply, 
distribution, or use of energy, or (3) is designated by the 
Administrator of OIRA as a significant energy action. For any 
significant energy action, the agency must give a detailed statement of 
any adverse effects on energy supply, distribution, or use should the 
proposal be implemented, and of reasonable alternatives to the action 
and their expected benefits on energy supply, distribution, and use.
    This rule is not a significant energy action. Accordingly, DOE has 
not prepared a Statement of Energy Effects.

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

    The Treasury and General Government Appropriations Act, 2001, 44 
U.S.C. 3516, note, provides for agencies to review most disseminations 
of information to the public under implementing guidelines established 
by each agency pursuant to general guidelines issued by OMB. OMB's 
guidelines were published at 67 FR 8452, February 22, 2002, and DOE's 
guidelines were published at 67 FR 62446, October 7, 2002. DOE has 
reviewed today's final rule under the OMB and DOE guidelines and has 
concluded that it is consistent with applicable policies in those 
guidelines.

K. Congressional Notification

    As required by 5 U.S.C. 801, the Department will submit to Congress 
a report regarding the issuance of today's final rule prior to the 
effective date set forth at the outset of this rule. The report will 
state that it has been determined that the rule is not a ``major rule'' 
as defined by 5 U.S.C. 804(2).

List of Subjects

10 CFR Part 719

    Government contracts, Legal services, Reporting and recordkeeping 
requirements.

48 CFR Parts 931, 952, and 970

    Government contracts, Government procurement.

    Issued in Washington, DC, on April 25, 2013.
Daniel B. Poneman,
Acting Secretary of Energy.

    For the reasons set out in the preamble, the Department of Energy 
(DOE) amends Chapter III of Title 10 and Chapter IX of Title 48 of the 
Code of Federal Regulations as set forth below:

TITLE 10--ENERGY

Chapter III--Department of Energy

0
1. Part 719 is revised to read as follows:

[[Page 25810]]

PART 719--CONTRACTOR LEGAL MANAGEMENT REQUIREMENTS

Sec.
Subpart A--General Provisions
719.1 What is the purpose of this part?
719.2 What are the definitions of terms used in this part?
719.3 What contracts are covered by this part?
719.4 Are law firms that are retained by contract by the Department 
covered by this part?
719.5 What contracts are not covered by this part?
719.6 Are there any types of legal matters not included in the 
coverage of this part?
719.7 Is there a procedure for exceptions or deviations from this 
part?
719.8 Does the provision of protected documents from the contractor 
to the Department constitute a waiver of privilege?
Subpart B--Legal Management Plan, Staffing and Resource Plan and Annual 
Legal Budget
719.10 Who must submit a Legal Management Plan?
719.11 When must a Legal Management Plan be submitted or revised?
719.12 What information must be included in the Legal Management 
Plan?
719.13 Who at the Department receives and reviews the Legal 
Management Plan?
719.14 Will the Department notify the contractor concerning the 
adequacy or inadequacy of the submitted Legal Management Plan?
719.15 What are the requirements for a Staffing and Resource Plan?
719.16 When must the Staffing and Resource Plan be submitted?
719.17 Are there any budgetary requirements?
Subpart C--Engagement Letter
719.20 When must an engagement letter be submitted to Department 
Counsel?
719.21 What are the required elements of an engagement letter?
Subpart D--Requests from Contractor Counsel to Initiate, Defend, and 
Settle Legal Matters
719.30 In what circumstances may the contractor initiate litigation, 
including appeals from adverse decisions?
719.31 When must the contractor initiate litigation against third 
parties?
719.32 What must the contractor do when it receives notice that it 
is a party to litigation?
719.33 In what circumstances must the contractor seek permission 
from the Department to enter a settlement agreement?
719.34 What documentation must the contractor provide to Department 
Counsel when it seeks permission to enter a settlement agreement?
719.35 When must the contractor provide a copy of an executed 
settlement agreement?
Subpart E--Reimbursement of Costs Subject to this Part
719.40 What effect do the regulations of this part have on cost 
allowability?
719.41 How does the Department determine whether fees are 
reasonable?
719.42 What categories of costs are unallowable?
719.43 What is the treatment of travel costs?
719.44 What categories of costs require advance approval?
719.45 Are there any special procedures or requirements regarding 
subcontractor and retrospective insurance carrier legal costs?
719.46 Are costs covered by this part subject to audit?
719.47 What happens when more than one contractor is a party to a 
matter?
Subpart F--Department Counsel
719.50 What authority does Department Counsel have?
719.51 What information must be forwarded to the General Counsel's 
Office concerning contractor submissions to Department Counsel under 
this part?
719.52 What types of field actions must be coordinated with the 
General Counsel?

Appendix A to Part 719--Guidance for Legal Resource Management

    Authority: 42 U.S.C. 2201, 5814, 5815 and 7101, et seq.; 50 
U.S.C. 2401, et seq.

Subpart A--General Provisions

Sec.  719.1  What is the purpose of this part?

    This part facilitates management of retained legal counsel and 
contractor legal costs, including litigation and legal matter costs. It 
requires the contractor to develop a Legal Management Plan, to document 
the analysis used to decide when to utilize outside counsel, and to 
document what law firm or individual attorney will be engaged as 
outside counsel. This part also requires the contractor to document the 
terms of the engagement with retained legal counsel. Payment of 
Department-retained law firm invoices and reimbursement of contractor 
legal costs under covered contracts are subject to compliance with this 
part.

Sec.  719.2  What are the definitions of terms used in this part?

    For purposes of this part:
    Alternative dispute resolution includes, but is not limited to, 
processes such as mediation, neutral evaluation, mini-trials and 
arbitration.
    Contractor means any person or entity with whom the Department 
contracts for the acquisition of goods or services.
    Covered contracts means those contracts described in Sec.  719.3 of 
this part.
    Days means calendar days.
    Department means the Department of Energy (DOE), including the 
National Nuclear Security Administration (NNSA).
    Department Counsel means the attorney in the DOE or NNSA field 
office, or Headquarters office, designated as the contracting officer's 
representative and point of contact for a contractor or for Department 
retained legal counsel, for purposes of this part.
    General Counsel means the DOE General Counsel for DOE legal matters 
and the NNSA General Counsel for NNSA legal matters.
    Legal costs means, but is not limited to, administrative expenses 
associated with the provision of legal services by retained legal 
counsel; the costs of legal services provided by retained legal 
counsel; the costs of the services, if the services are procured in 
connection with a legal matter, of accountants, consultants, experts or 
others retained by the contractor or by retained legal counsel; and any 
similar costs incurred by retained legal counsel or in connection with 
the services of retained legal counsel.
    Legal Management Plan means a document required by subpart B of 
this part describing the contractor's practices for managing legal 
costs and legal matters for which it procures the services of retained 
legal counsel.
    Litigation means a proceeding arising under or related to a 
contract between the contractor and the Department to which the 
contractor is a party in a State, tribal, territorial, foreign, or 
federal court or before an administrative body or an arbitrator.
    Retained legal counsel means a licensed attorney working in the 
private sector who is retained by a contractor or the Department to 
provide legal services.
    Retrospective insurance means any insurance policy under which the 
premium is not fixed but is subject to adjustments to reimburse the 
insurance carrier for actual losses incurred or paid (e.g. claims, 
settlements, damages, and legal costs). Retrospective insurance 
includes service-type insurance policies as described in 48 CFR 
928.370.
    Settlement agreement means a written agreement between a contractor 
and one or more parties pursuant to which one or more parties waives 
the right to pursue a legal claim in exchange for something of value.
    Significant matters means legal matters involving significant 
issues as determined by Department Counsel and identified to a 
contractor in writing, and any legal matters where the amount of any 
legal costs, over the life of the matter, is expected to exceed 
$100,000.
    Staffing and Resource Plan means a statement prepared in accordance 
with

[[Page 25811]]

subpart B of this part by retained legal counsel that describes the 
method for managing a Significant Matter in litigation.

Sec.  719.3  What contracts are covered by this part?

    (a) Unless excluded under Sec.  719.5, this part covers the 
following three categories of contracts:
    (1) All management and operating contracts;
    (2) Non-management and operating cost reimbursement contracts 
exceeding $100,000,000; and
    (3) Non-management and operating contracts exceeding $100,000,000 
that include cost reimbursable elements exceeding $10,000,000 (e.g., 
contracts with both fixed-price and cost-reimbursable line items where 
the cost-reimbursable line items exceed $10,000,000 or time and 
materials contracts where the materials portions exceed $10,000,000).
    (b) This part also covers contracts otherwise not covered by 
paragraph (a) of this section but which contain a clause requiring 
compliance with this part.
    (c) This part also covers any contract the Department awards 
directly to retained legal counsel exceeding $100,000.

Sec.  719.4  Are law firms that are retained by contract by the 
Department covered by this part?

    Legal counsel retained under fixed rate or other type of contract 
or other agreement by the Department to provide legal services must 
comply with the following if the legal costs over the life of the 
matter for which counsel has been retained are expected by the 
Department to exceed $100,000 and retained legal counsel are so 
notified by the Department:
    (a) Requirements related to Staffing and Resource Plans in subpart 
B of this part;
    (b) Cost guidelines in subpart E of this part; and
    (c) Engagement letter requirements in subpart C of this part if the 
retained legal counsel subcontracts legal work valued at $25,000 or 
more (e.g., a law firm retained by the Department subcontracts with 
another law firm to provide $26,000 in discovery-related legal work).

Sec.  719.5  What contracts are not covered by this part?

    This part does not cover any contract under which the Department is 
not responsible for directly reimbursing the contractor for legal 
costs, such as fixed price contracts.

Sec.  719.6  Are there any types of legal matters not included in the 
coverage of this part?

    Legal matters not covered by this part include:
    (a) Matters handled by counsel retained by an insurance carrier, 
except under retrospective insurance in accordance with Sec.  719.45;
    (b) Routine intellectual property law support services; and
    (c) Routine workers and unemployment compensation matters.

Sec.  719.7  Is there a procedure for exceptions or deviations from 
this part?

    (a) Requests for exceptions or deviations from this part must be 
made in writing to Department Counsel and approved by the General 
Counsel. If an alternate procedure is proposed for compliance with an 
individual requirement in this part, that procedure must be included in 
the written request by the contractor. The General Counsel or his/her 
delegee shall provide a written response to such requests; however the 
response shall not require a justification of the Department's exercise 
of its discretion.
    (b) The General Counsel may authorize exceptions or deviations 
requested under paragraph (a) of this section. The General Counsel may 
also establish exceptions to this part based on current field office 
and contractor practices that satisfy the purpose of these 
requirements.
    (c) Exceptions to this part that are also a deviation from the 
Department of Energy Acquisition Regulation (DEAR) cost principles (see 
subpart D of this part) must be approved in accordance with applicable 
DOE procurement policy. See, e.g., DOE Acquisition Guide chapter 1.1, 
requiring approval by the Senior Procurement Executive of DOE or NNSA 
as applicable. In any event, the written request from a contractor for 
a deviation from a cost principle relating to this part must be 
submitted to the contracting officer, with a copy provided to 
Department Counsel.

Sec.  719.8  Does the provision of protected documents from the 
contractor to the Department constitute a waiver of privilege?

    Contractors are required to provide detailed information about 
third-party claims and litigation to the Department. The Department and 
its contractors typically share common legal and strategic interests 
relating to pending or threatened litigation. The common interest 
between the parties is primarily rooted in the fact that the Department 
reimburses contractors for allowable costs incurred when litigation is 
threatened or initiated against contractors. However, other sources of 
the common interest between the Department and its contractors may 
include, but are not limited to, an interest in completion of the 
agency's important mission work and an interest in safe and efficient 
operation of the Department's facilities. To the extent documents 
associated with compliance with this part (e.g., Staffing and Resource 
Plans, invoices, engagement letters, settlement authority requests, and 
draft pleadings) are protected from disclosure to third parties because 
the items constitute attorney work product and/or involve attorney 
client communications, the contractor's provision of these items to the 
Department does not constitute a waiver of privilege. As long as the 
Department and the contractor share a common interest in the outcome of 
legal matters, this mutual legal interest permits the parties to share 
privileged material without waiving any applicable privilege.

Subpart B--Legal Management Plan, Staffing and Resource Plan and 
Annual Legal Budget

Sec.  719.10.  Who must submit a Legal Management Plan?

    Contractors who are parties to contracts identified under Sec.  
719.3(a) and (b) must submit a Legal Management Plan.

Sec.  719.11  When must a Legal Management Plan be submitted or 
revised?

    (a) Contractors must submit a Legal Management Plan to Department 
Counsel within 60 days following award of the contract. The deadline 
for submitting the Legal Management Plan may be extended by Department 
Counsel.
    (b) Contractors must submit a revised Legal Management Plan upon 
request of Department Counsel within 60 days of receipt of the 
Department Counsel's request. The request for a revised Legal 
Management Plan shall include an explanation of the request. The 
deadline for submitting the Legal Management Plan may be extended by 
the Department Counsel.

Sec.  719.12  What information must be included in the Legal Management 
Plan?

    The Legal Management Plan must include the following items:
    (a) A description of the contractor's in-house counsel resources at 
the time the Legal Management Plan is submitted, including areas of 
expertise and an explanation of the types of matters expected to be 
handled in-house.

[[Page 25812]]

    (b) A description of the legal matters that may necessitate 
engagement of retained legal counsel.
    (c) A description of the factors the contractor will consider in 
determining whether to handle a particular matter utilizing retained 
legal counsel.
    (d) An outline of the factors the contractor must consider in 
selecting retained legal counsel, including:
    (1) Cost;
    (2) Past performance of previously retained counsel;
    (3) Particular expertise in a specific area of the law;
    (4) Familiarity with the Department's activity at the particular 
site and the prevalent issues associated with facility history and 
current operations;
    (5) Location of retained legal counsel relative to:
    (i) The site involved in the matter,
    (ii) Any forum in which the matter will be processed, and
    (iii) The location where a significant portion of the work will be 
performed;
    (6) Experience as an advocate in alternative dispute resolution 
procedures such as mediation;
    (7) Actual or potential conflicts of interest; and
    (8) The means and rate of compensation (e.g., hourly billing, fixed 
fee, blended fees).
    (e) A description of the system that the contractor will use to 
review each matter in litigation to determine whether and when 
alternative dispute resolution is appropriate.
    (f) A description of the role of in-house counsel in cost 
management.
    (g) A description of the contractor's process for review and 
approval of invoices for legal costs.
    (h) A description of the contractor's strategy for interaction 
with, and supervision of, retained legal counsel.
    (i) A description of the procedures the contractor will employ in 
order to seek timely approval from Department Counsel to settle any 
legal matters as required by Sec.  719.34 of this part;
    (j) A description of the contractor's strategy for keeping 
Department Counsel apprised of all legal matters covered by this part 
(e.g., regularly scheduled meetings and written communications).

Sec.  719.13  Who at the Department receives and reviews the Legal 
Management Plan?

    Contractors must submit a Legal Management Plan to Department 
Counsel. If the contractor has not been notified of the assignment of 
Department Counsel, the contractor must submit the Legal Management 
Plan to the contracting officer and the DOE Deputy General Counsel for 
Litigation and Enforcement or the NNSA Deputy General Counsel as 
appropriate.

Sec.  719.14  Will the Department notify the contractor concerning the 
adequacy or inadequacy of the submitted Legal Management Plan?

    The Contracting Officer or Department Counsel will notify the 
contractor of any non-compliance or inadequate information relating to 
requirements in Sec.  719.12 within 30 days of the contractor's 
submission of the plan. The contractor must either correct matters 
identified within 30 days of notification or file a letter with the 
General Counsel disputing the determination of a deficiency.

Sec.  719.15  What are the requirements for a Staffing and Resource 
Plan?

    (a) For significant matters in litigation, the contractor must 
require retained legal counsel to prepare a Staffing and Resource Plan. 
The contractor must then forward the Staffing and Resource Plan to 
Department Counsel.
    (b) Retained legal counsel retained directly by the Department 
subject to this part must prepare a Staffing and Resource Plan and 
forward it to Department Counsel.
    (c) A Staffing and Resource Plan must describe the following:
    (1) Major phases likely to be involved in the handling of the 
matter;
    (2) Timing and sequence of such phases;
    (3) Projected cost for each phase of the representation; and
    (4) Detailed description of resources that the retained legal 
counsel intends to devote to the representation.
    (d) A Staffing and Resource Plan must include a budget, broken down 
by phases, including at a minimum the following phases:
    (1) Matter assessment, development and administration;
    (2) Pretrial pleadings and motions;
    (3) Discovery;
    (4) Trial preparation and trial; and
    (5) Appeal.
    (e) The contractor must notify Department Counsel before incurring 
retained legal counsel costs in excess of costs listed in the budget 
developed pursuant to paragraph (d) of this section.

Sec.  719.16  When must the Staffing and Resource Plan be submitted?

    (a) The contractor or retained legal counsel must submit the 
Staffing and Resource Plan to Department Counsel within 30 days after 
the filing of an answer or a dispositive motion in lieu of an answer, 
30 days after a determination that the cost is expected to exceed 
$100,000, or 30 days after notification from Department Counsel that a 
matter is considered significant, whichever is sooner. The deadline for 
submitting the Staffing and Resource Plan may be extended by Department 
Counsel.
    (b) Department Counsel may state objections to the Staffing and 
Resource Plan within 30 days of receipt of a Staffing and Resource 
Plan. When an objection is stated, the contractor or retained legal 
counsel must either revise the Staffing and Resource Plan to satisfy 
the objection within 30 days or file a letter with the General Counsel 
disputing the objection.
    (c) Contractors must require retained legal counsel to update 
Staffing and Resource Plans annually or more frequently if there are 
significant changes in the matter. The contractor must submit the 
Staffing and Resource Plan updates to Department Counsel. Similarly, 
Department retained legal counsel must submit to Department Counsel 
annual Staffing and Resource Plan updates or more frequent updates if 
there are significant changes in the matter.

Sec.  719.17  Are there any budgetary requirements?

    (a) Contractors required to submit a Legal Management Plan must 
also submit an annual legal budget to Department Counsel.
    (b) The annual legal budget must include cost projections for 
significant matters at a level of detail reflective of the types of 
billable activities and the stage of each such matter.
    (c) For informational purposes for both the contractor and 
Department Counsel, the contractor must submit a report to Department 
Counsel comparing its budgeted and actual legal costs within 30 days of 
the conclusion of the period covered by each annual legal budget. The 
Department recognizes, however, that there may be departures from the 
annual budget beyond the control of the contractor.

Subpart C--Engagement Letter

Sec.  719.20  When must an engagement letter be submitted to Department 
Counsel?

    Contractors must submit a copy of an executed engagement letter 
between it and retained legal counsel to Department Counsel when the 
retained counsel is expected to provide $25,000 or more in legal 
services for a particular matter. A copy of the executed engagement 
letter must be submitted to Department Counsel upon execution.

Sec.  719.21  What are the required elements of an engagement letter?

    (a) The engagement letter must require retained legal counsel to 
assist

[[Page 25813]]

the contractor in complying with this part and any supplemental 
guidance distributed under this part.
    (b) At a minimum, the engagement letter must include the following:
    (1) A process for review and documented approval of all billing by 
a contractor representative including the timing and scope of billing 
reviews.
    (2) A statement that provision of records to the Government is not 
intended to constitute a waiver of any applicable legal privilege, 
protection, or immunity with respect to disclosure of these records to 
third parties. An exemption for specific records may be obtained where 
contractors can demonstrate that a particular situation may provide 
grounds for a waiver.
    (3) A requirement that the contractor, the Department, and the 
Government Accountability Office have the right, upon request, and at 
reasonable times and locations to inspect, copy, and audit all records 
documenting billable fees and costs.
    (4) A statement that all records must be retained for a period of 
six (6) years and three (3) months after the final payment or after 
final case disposition, whichever is later.
    (5) Identification of all attorneys and staff who are assigned to 
the matter and the rate and basis of their compensation (i.e., hourly 
rates, fixed fees, contingency arrangement) and a process for obtaining 
approval of temporary adjustments in staffing levels or identified 
attorneys.
    (6) An initial assessment of the matter by retained legal counsel, 
along with a commitment to provide updates as necessary.
    (7) A description of billing procedures, including frequency of 
billing and billing statement format.
    (8) A statement setting forth an agreement that the retained legal 
counsel will prepare a Staffing and Resource Plan in accordance with 
the requirements of Sec.  719.15.
    (9) A statement setting forth an agreement to consider alternative 
dispute resolution at the earliest possible stage and thereafter as 
appropriate where litigation is involved.
    (10) A statement setting forth an agreement that retained legal 
counsel must comply with the cost guidelines in subpart E of this part.
    (11) A statement setting forth an agreement that retained legal 
counsel will provide a certification concerning the costs submitted for 
reimbursement. The certification that must be included in bills or 
invoices submitted by retained legal counsel must appear as follows: 
``Under penalty of law, [the representative] acknowledges the 
expectation that the bill will be paid by the contractor and that the 
contractor will be reimbursed by the Federal Government through the 
U.S. Department of Energy, and, based on personal knowledge and a good 
faith belief, certifies that the bill is truthful and accurate, and 
that the services and charges set forth herein comply with the terms of 
engagement and the policies set forth in the Department of Energy's 
regulation and guidance on contractor legal management requirements, 
and that the costs and charges set forth herein are appropriate and 
related to the representation of the client.'' The certification must 
be signed and dated by a representative of the retained legal counsel. 
Invoices must contain all elements (e.g., date of service, description 
of service, name of attorney, etc.) set forth in the model bill format 
in Appendix A to this part.
    (12) A statement setting forth agreement to identify and address 
promptly any professional conflicts of interest.
    (c) There may be additional requirements for an engagement letter 
based on the needs of the contractor or the Departmental element 
requiring the services of the Department retained legal counsel.

Subpart D--Requests From Contractor Counsel To Initiate, Defend, 
and Settle Legal Matters

Sec.  719.30  In what circumstances may the contractor initiate 
litigation, including appeals from adverse decisions?

    (a) The contractor must provide written notice to Department 
Counsel prior to initiating litigation or appealing from adverse 
decisions.
    (b) The contractor may not initiate litigation for which it seeks 
reimbursement without prior written authorization of Department 
Counsel.
    (c) The following information must be provided to Department 
Counsel by the contractor prior to initiating litigation or appealing 
an adverse decision:
    (1) Identification of the proposed parties;
    (2) The nature of the proposed action;
    (3) Relief sought;
    (4) Venue;
    (5) Proposed representation and reason for selection;
    (6) An analysis of the issues and the likelihood of success, and 
any time limitation associated with the requested approval;
    (7) The estimated costs associated with the proposed action, 
including whether outside counsel has agreed to a contingent fee 
arrangement;
    (8) Whether, for any reason, the contractor will assume any part of 
the costs of the action;
    (9) A description of any attempts to resolve the issues that would 
be the subject of the litigation, such as through mediation or other 
means of alternative dispute resolution; and
    (10) A discussion regarding why initiating litigation would prove 
beneficial to the contractor and to the Department.

Sec.  719.31  When must the contractor initiate litigation against 
third parties?

    The contractor must initiate litigation, upon the request of the 
contracting officer, against third parties including proceedings before 
administrative agencies, in connection with the contract. The 
contractor shall proceed with such litigation in good faith and as 
directed from time to time by Department Counsel.

Sec.  719.32  What must the contractor do when it receives notice that 
it is a party to litigation?

    (a) The contractor shall give the contracting officer and 
Department Counsel immediate notice in writing of any legal proceeding, 
including any proceeding before an administrative agency and any claim 
which will be handled by a retrospective insurance carrier if costs 
(including Legal costs, settlements, claims paid, damages, etc.) are 
likely to be $100,000 or more, filed against the contractor arising out 
of the performance of the contract and shall provide a copy of all 
relevant filings and any other documents that may be requested by the 
contracting officer and/or Department Counsel. The Department Counsel 
will direct the contractor as to:
    (1) Whether the contractor must authorize the Government to defend 
the action;
    (2) Whether the Government will take charge of the action; or
    (3) Whether the Government must receive an assignment of the 
contractor's rights.
    (b) The contractor shall proceed with such litigation in good faith 
and as directed from time to time by the Department Counsel.
    (c) If the costs and expenses associated with the legal proceeding 
against the contractor are potentially allowable under the contract, 
the contractor shall:
    (1) Authorize Department representatives to collaborate with 
contractor in-house counsel or Department Counsel-approved outside 
counsel in settling or defending the legal proceeding; or counsel for 
any associated insurance carrier in settling

[[Page 25814]]

or defending the claim if retrospective insurance applies or the amount 
of liability claimed exceeds the amount of insurance coverage; and
    (2) Authorize Department representatives to settle the legal 
proceeding or to defend or represent the contractor in and/or to take 
charge of any litigation, if required by the Department, except where 
the liability is covered by bond or is insured by an insurance policy 
other than retrospective insurance.

Sec.  719.33  In what circumstances must the contractor seek permission 
from the Department to enter a settlement agreement?

    The contractor must obtain permission from Department Counsel to 
enter a settlement agreement if the settlement agreement requires 
contractor payment of $25,000 or more. Obtaining this approval does not 
represent a determination that the settlement amount and/or the legal 
costs incurred in connection with the underlying legal matter will be 
determined to be allowable.

Sec.  719.34  What documentation must the contractor provide to 
Department Counsel when it seeks permission to enter a settlement 
agreement?

    The contractor must provide a written statement to the Department 
Counsel that includes the following information, as applicable:
    (a) The amount of any proposed monetary settlement payment.
    (b) Titles and docket numbers associated with the case(s) for which 
the contractor is seeking approval to settle;
    (c) The procedural history of the case(s) or issue(s);
    (d) A narrative description of the legal claims or allegations at 
issue in the matter and any background information that explains events 
that precipitated the initiation of the matter;
    (e) A description of the history of the settlement discussions;
    (f) A description of the terms of the proposed settlement agreement 
or requested settlement authority and the rationale for the contractor 
entering into the proposed agreement;
    (g) If the proposed total monetary settlement amount would be 
allocated among multiple plaintiffs, a list of the plaintiffs and the 
amount of money each would receive pursuant to the proposed settlement 
agreement as well as an explanation as to why the settlement amount is 
different for any particular plaintiff, if appropriate;
    (h) A description as to why settlement of the matter is in the best 
interest of the Department; and
    (i) Any additional supporting documents requested by Department 
Counsel.

Sec.  719.35  When must the contractor provide a copy of an executed 
settlement agreement?

    A contractor must provide a copy of an executed settlement 
agreement within seven (7) days of execution.

Subpart E--Reimbursement of Costs Subject to This Part

Sec.  719.40  What effect do the regulations of this part have on cost 
allowability?

    Contractor and retained legal counsel compliance with this part is 
a prerequisite for allowability of legal costs. However, compliance 
with this part does not guarantee that legal costs will be determined 
to be allowable. Only the contracting officer has the authority to 
determine allowability of costs in accordance with 48 CFR (FAR) part 31 
and (DEAR) part 931 and all other applicable contract terms and 
conditions.

Sec.  719.41  How does the Department determine whether fees are 
reasonable?

    In determining whether fees or rates charged by retained legal 
counsel are reasonable, the Department may consider among other things:
    (a) Whether the lowest reasonably achievable fees or rates 
(including any currently available or negotiable discounts) were 
obtained from retained legal counsel;
    (b) Whether lower rates from other firms providing comparable 
services, at appropriate competency and experience levels, were 
available;
    (c) Whether alternative rate structures such as flat, contingent, 
and other innovative proposals, were considered; and
    (d) The complexity of the legal matter and the expertise of the law 
firm in this area.

Sec.  719.42  What categories of costs are unallowable?

    (a) Specific categories of unallowable costs are contained in the 
cost principles at 48 CFR (FAR) part 31 and 48 CFR (DEAR) part 931 and 
48 CFR 970.31. See also 41 U.S.C. 4304.
    (b) Costs that are customarily or already included in billed hourly 
rates are not separately reimbursable.
    (c) Interest charges that a contractor incurs on any outstanding 
(unpaid) bills from retained legal counsel are not reimbursable.

Sec.  719.43  What is the treatment of travel costs?

    (a) Travel and related expenses must at a minimum comply with the 
restrictions set forth in 48 CFR 31.205-46, or 48 CFR (DEAR) 970.3102-
05-46, as appropriate, to be reimbursable.
    (b) Travel time may be allowed at a full hourly rate for the 
portion of time during which retained legal counsel performs legal work 
for which it was retained; any remaining travel time shall be 
reimbursed at 50 percent of the full hourly rate, except that in no 
event will travel time spent working for other clients be allowable. 
Also, for long distance travel that could be completed by various 
methods of transportation, e.g., car, train, or plane, costs charged by 
retained legal counsel or any agent of retained legal counsel will be 
considered reasonable only if the individuals charge no more travel 
time than it would take to utilize the fastest mode of transportation 
that is cost-effective. For example, if retained legal counsel travels 
for 10 hours by train when a cost-effective flight that would take two 
hours to get to the same destination is available, the attorney may 
charge a maximum of two hours for the time spent traveling.

Sec.  719.44  What categories of costs require advance approval?

    (a) To be considered for reimbursement, costs incurred by retained 
legal counsel for the following require advance written approval from 
Department Counsel or the submission of subsequent specific 
justification to Department Counsel when circumstances out of the 
contractor's control make advance approval unobtainable:
    (1) Computers or general application software, or non-routine 
computerized databases, if they are specifically created for a 
particular matter. For costs associated with the creation and use of 
computerized databases, contractors and retained legal counsel must 
ensure that the creation and use of computerized databases is necessary 
and cost-effective. Use of databases originally created by the 
Department or its contractors for other purposes, but that can be used 
to assist a contractor or retained legal counsel in connection with a 
particular matter, should be considered. Contractors and retained legal 
counsel must ensure that DOE is provided the discretion to obtain 
unlimited access to and dominion over any computers or general 
application software, or non-routine computerized databases 
specifically created for a particular matter;
    (2) Secretarial and support services, word processing, or temporary 
support personnel;

[[Page 25815]]

    (3) Attendance by more than one attorney at a deposition, court 
hearing or interview;
    (4) Expert witnesses and consultants;
    (5) Trade publications, books, treatises, background materials, and 
other similar documents;
    (6) Professional or educational seminars and conferences;
    (7) Preparation of bills or time spent responding to questions 
about bills from either the Department or the contractor;
    (8) Food and beverages when the attorney or consultant is not on 
travel status and away from the home office;
    (9) Pro hac vice admissions; and
    (10) Time charged for law students' or interns' services.
    (b) Requests for fee increases by retained legal counsel, other 
than those under contract directly with the Department, must be sent in 
writing to the contractor, who will review the request for 
reasonableness. If the contractor determines the request is reasonable, 
the contractor must seek approval for the increase from Department 
Counsel before it authorizes any increase. Contractors should attempt 
to lock in rates for partners, associates and paralegals for at least a 
two year period.

Sec.  719.45  Are there any special procedures or requirements 
regarding subcontractor and retrospective insurance carrier legal 
costs?

    (a) The contractor shall establish a monitoring system for 
significant matters in litigation which are handled by subcontractors 
other than retrospective insurance carriers whose contracts provide for 
the reimbursement of legal costs. The purpose of this monitoring system 
is to enable the contractor to be regularly informed of the progress of 
the Significant Matter, to monitor the associated costs and help ensure 
that they are reasonable, and to report on the progress of the 
Significant Matter and the associated costs to Department Counsel.
    (b) The contractor shall require retrospective insurance carriers 
and other subcontractors whose contracts provide for the reimbursement 
of legal costs to request prior permission from the contractor to enter 
into a settlement agreement with, or make any payments to, claimants or 
third-parties if:
    (1) In the case of a subcontractor other than a retrospective 
insurance carrier, the settlement or payment amount is likely to reach 
$25,000 or more; or
    (2) In the case of a retrospective insurance carrier, the 
settlement or payment amount is likely to reach $100,000 or more.
    (c) The contractor shall require the insurance carrier or other 
subcontractor to submit all documentation described in Sec.  719.34 and 
to provide the contractor with a copy of the executed settlement 
agreement within seven days of execution, which the contractor will 
promptly forward to Department Counsel. The contractor shall not 
authorize the subcontractor to enter into a settlement agreement or 
make a payment to a claimant or third-party that is likely to reach or 
exceed the above-stated threshold amounts without first obtaining the 
approval of the Department Counsel.
    (d) Upon request from Department Counsel, the Contracting Officer, 
or other authorized representative of the Department, the contractor 
shall provide detailed cost information regarding particular legal 
matters handled by retrospective insurance carriers or other 
subcontractors whose contracts provide for the reimbursement of legal 
costs.
    (e) The contractor shall provide reviewed costs and status updates 
for all significant matters in litigation handled by subcontractors 
whose contracts provide for the reimbursement of legal costs in 
accordance with Sec.  719.51. The contractor is not required to provide 
cost and status updates for matters handled by retrospective insurance 
carriers except upon the written request of the cognizant Contracting 
Officer or Department Counsel.

Sec.  719.46  Are costs covered by this part subject to audit?

    All costs covered by this part are subject to audit by the 
Department, its designated representative, or the Government 
Accountability Office. See Sec.  719.21.

Sec.  719.47  What happens when more than one contractor is a party to 
a matter?

    (a) If more than one contractor is a party in a particular matter 
and the issues involved are similar for all the contractors, a single 
legal counsel designated by the General Counsel must either represent 
all of the contractors or serve as lead counsel, when the rights of the 
contractors and the Government can be effectively represented by a 
single legal counsel, consistent with the standards for professional 
conduct applicable in the particular matter. Contractors may propose to 
the General Counsel their preference for the individual or law firm to 
perform as the lead counsel for a particular matter.
    (b) If a contractor, having been afforded an opportunity to present 
its views concerning joint or lead representation, does not acquiesce 
in the designation of one retained legal counsel to represent a number 
of contractors, or serve as lead counsel, then the legal costs of such 
contractor are not reimbursable by the Department, unless the 
contractor demonstrates that it was reasonable for the contractor to 
incur such expenses.

Subpart F--Department Counsel

Sec.  719.50  What authority does Department Counsel have?

    (a) Department Counsel will receive written delegated authority 
from the contracting officer to serve as the contracting officer's 
representative for legal matters.
    (b) Actions by Department Counsel may not exceed the 
responsibilities and limitations as delegated by the contracting 
officer. Delegated contracting officer representative authority shall 
not be construed to include the authority to execute or modify the 
contract or resolve any contract dispute arising under the contract. 
Additional discussion of the authority and limitation of contracting 
officers can be found at 48 CFR 1.602-1, and contracting officer's 
representatives at 48 CFR (DEAR) 942.270-1. The clause, Technical 
Direction, 48 CFR (DEAR) 952.242-70, also discusses the 
responsibilities and authority of a contracting officer's 
representative.

Sec.  719.51  What information must be forwarded to the General 
Counsel's Office concerning contractor submissions to Department 
Counsel under this part?

    Department Counsel must submit through the General Counsel 
reporting system, the reviewed costs and status updates for all matters 
involving retained counsel, including but not limited to contractor 
litigation. The reports are to be received by the 15th day of the month 
following the end of each quarter of the fiscal year.

Sec.  719.52  What types of field actions must be coordinated with the 
General Counsel?

    (a) Requests from contractors for exceptions or deviations from 
this part must be submitted to the contracting officer and Department 
Counsel, and approved by the General Counsel or his/her delegee.
    (b) Requests from contractors for approval to initiate or defend 
litigation, or to appeal from adverse decisions, where legal issues of 
first impression, sensitive issues, issues of national significance to 
the Department or of broad applicability to the Government that might 
adversely impact its operations are involved must be coordinated by 
Department Counsel with the General Counsel or his/her delegee.

[[Page 25816]]

    (c) Department Counsel must inform the General Counsel of any 
Significant Matter, as defined in this part, and must coordinate any 
action involving a Significant Matter with the General Counsel, or his/
her delegee, as directed by the General Counsel or his/her delegee.

Appendix A to Part 719--Guidance for Legal Resource Management

Management and Administration of Outside Legal Services

1.0 Alternative Dispute Resolution
2.0 Cost Allowability Issues
2.1 Underlying Cause for Incurrence of Costs
Attachment--Contractor Litigation and Legal Costs, Model Bill Format

Management and Administration of Outside Legal Services

    This guidance is intended to assist contractors, contracting 
officers and retained legal counsel in managing the costs of outside 
legal services.

1.0 Alternative Dispute Resolution

    Contractors are expected to evaluate all matters for appropriate 
alternative dispute resolution (ADR) at various stages of an issue 
in dispute, e.g., before a case is filed, during pre-discovery, 
after initial discovery and during pretrial. This evaluation should 
be done in coordination with the Department's ADR liaison if one has 
been established or appointed or Department Counsel if an ADR 
liaison has not been appointed. Contractors, contractor counsel, and 
Department Counsel are also encouraged to consult with the 
Department's Director of the Office of Conflict Prevention and 
Resolution. The Department anticipates that mediation will be the 
principal and most common method of alternative dispute resolution. 
Agreement to arbitrate should generally be consistent with the 
Administrative Dispute Resolution Act (incorporated in part at 5 
U.S.C. 571, et seq.) and Department guidance issued under that Act. 
When a decision to arbitrate is made, a statement fixing the maximum 
award amount should be agreed to in advance by the participants.

2.0 Cost Allowability Issues

    A determination of cost reasonableness depends on a variety of 
considerations and circumstances. 48 CFR 31.201-3 establishes that 
no presumption of reasonableness is attached to the incurrence of 
costs by a contractor.

2.1 Underlying Cause for Incurrence of Costs

    While 10 CFR part 719 provides procedures associated with 
incurring and monitoring legal costs, the evaluation of the reason 
for the incurrence of the legal costs, e.g., liability, fault or 
avoidability, is a separate issue. The reason for the contractor 
incurring costs may affect the allowability of the contractor's 
legal costs. In some cases, the final determination of allowability 
of legal costs cannot be made until a matter is fully resolved. In 
certain circumstances, contract and cost principle language may 
permit conditional reimbursement of costs pending the outcome of the 
legal matter. Whether the Department makes conditional 
reimbursements or withholds any payment pending the outcome, legal 
costs ultimately reimbursed by the Department must comply with the 
applicable cost principles, the terms of the contract, and part 719.

Attachment--Contractor Litigation and Legal Costs, Model Bill Format

1. Model Bill Format

                                                                       I--For Fees
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Name or initials of
          Date of service            Description of service         attorney            Approved rate           Time charged       Amount (rate x time)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               (See Note 1 to this table).
--------------------------------------------------------------------------------------------------------------------------------------------------------

                          II--For Disbursements
------------------------------------------------------------------------
                                       Description of
               Date                     disbursement          Amount
------------------------------------------------------------------------
                       (See Note 1 to this table).
------------------------------------------------------------------------

    Note 1--Description of Service: All fees must be itemized and 
described in sufficient detail and specificity to reflect the 
purpose and nature of the work performed (e.g., subject matter 
researched or discussed; names of participants of calls/meetings; 
type of documents reviewed).
    Note 2--Description of Disbursement: Description should be in 
sufficient detail to determine that the disbursement expense was in 
accordance with all applicable Department policies on reimbursement 
of contractor legal costs and the terms of engagement between the 
contractor and the retained legal counsel. The date the expense was 
incurred or disbursed should be listed rather than the date the 
expense was processed. The following should be itemized: copy charge 
(i.e., number of pages times the price per page); fax charges (date, 
phone number and actual amount); overnight delivery (date and 
amount); electronic research (date and amount); extraordinary 
postage (e.g., bulk or certified mail); court reporters; expert 
witness fees; filing fees; outside copying or binding charges; 
temporary help (assuming prior approval).
    Note 3--Receipts: Receipts for all expenses equal to or above 
$75 must be attached.

TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

Chapter 9--Department of Energy

PART 931--CONTRACT COST PRINCIPLES AND PROCEDURES

0
2. The authority citation for part 931 continues to read as follows:

    Authority: 42 U.S.C. 7101, et seq.; 50 U.S.C. 2401, et seq.

0
3. Section 931.205-19 is revised to read as follows:

 931.205-19  Insurance and indemnification.

    (f) The contracting officer shall insert the clause at 952.231-71, 
Insurance-litigation and claims, instead of the clause at 48 CFR 
52.228-7, in
    (1) Non-management and operating cost reimbursement contracts 
exceeding $100,000,000, and
    (2) Non-management and operating contracts exceeding $100,000,000 
that include cost reimbursable elements exceeding $10,000,000 (e.g. 
contracts with both fixed-price and cost-reimbursable line items where 
the cost-reimbursable line items exceed $10,000,000 or time and 
materials contracts where the materials portions exceed $10,000,000.

0
4. Section 931.205-33 is revised to read as follows:

931.205-33  Professional and consultant service costs.

    (g) If the clause at 48 CFR 952.231-71 or the clause at 48 CFR 
970.5228-1 is included in the contract, or the contract is a non-
management and operating contract exceeding $100,000,000 that includes 
cost reimbursable elements exceeding $10,000,000 (for example, 
contracts with both fixed-price and cost-reimbursable line items where 
the cost-reimbursable line items exceed $10,000,000 or time and 
materials contracts where the materials portions exceed $10,000,000), 
litigation and other legal costs are only allowable if both: incurred 
in accordance with 10 CFR part 719, Contractor Legal Management 
Requirements; and not otherwise made unallowable by law, regulation, or 
the terms of the contract.

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. The authority citation for part 952 continues to read as follows:

    Authority: 42 U.S.C. 7101 et seq. and 50 U.S.C. 2401 et seq.

[[Page 25817]]

0
6. Section 952.231-71 is revised to read as follows:

952.231-71  Insurance-litigation and claims.

    As prescribed in 931.205-19(f), insert the following clause in 
applicable non-management and operating contracts:

Insurance--Litigation and Claims (JUL 2013)

    (a) The contractor must comply with 10 CFR part 719, contractor 
Legal Management Requirements, if applicable.
    (b)(1) Except as provided in paragraph (b)(2) of this clause, 
the contractor shall procure and maintain such bonds and insurance 
as required by law or approved in writing by the Contracting 
Officer.
    (2) The contractor may, with the approval of the Contracting 
Officer, maintain a self-insurance program in accordance with FAR 
28.308; provided that, with respect to workers' compensation, the 
contractor is qualified pursuant to statutory authority.
    (3) All bonds and insurance required by this clause shall be in 
a form and amount and for those periods as the Contracting Officer 
may require or approve and with sureties and insurers approved by 
the Contracting Officer.
    (c) The contractor agrees to submit for the Contracting 
Officer's approval, to the extent and in the manner required by the 
Contracting Officer, any other bonds and insurance that are 
maintained by the contractor in connection with the performance of 
this contract and for which the contractor seeks reimbursement. If 
an insurance cost (whether a premium for commercial insurance or 
related to self-insurance) includes a portion covering costs made 
unallowable elsewhere in the contract, and the share of the cost for 
coverage for the unallowable cost is determinable, the portion of 
the cost that is otherwise an allowable cost under this contract is 
reimbursable to the extent determined by the Contracting Officer.
    (d) Except as provided in paragraph (f) of this clause, or 
specifically disallowed elsewhere in this contract, the contractor 
shall be reimbursed--
    (1) For that portion of the reasonable cost of bonds and 
insurance allocable to this contract required in accordance with 
contract terms or approved under this clause, and
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance without regard to the limitation of cost or 
limitation of funds clause of this contract.
    (e) The Government's liability under paragraph (d) of this 
clause is subject to the availability of appropriated funds. Nothing 
in this contract shall be construed as implying that the Congress 
will, at a later date, appropriate funds sufficient to meet 
deficiencies.
    (f)(1) Notwithstanding any other provision of this contract, the 
contractor shall not be reimbursed for liabilities to third parties, 
including contractor employees, and directly associated costs which 
may include but are not limited to litigation costs, counsel fees, 
judgment and settlements--
    (i) Which are otherwise unallowable by law or the provisions of 
this contract, including the cost reimbursement limitations 
contained in 48 CFR part 31, as supplemented by 48 CFR 970.31;
    (ii) For which the contractor has failed to insure or to 
maintain insurance as required by law, this contract, or by the 
written direction of the Contracting Officer; or
    (iii) Which were caused by contractor managerial personnel's--
    (A) Willful misconduct;
    (B) Lack of good faith; or
    (C) Failure to exercise prudent business judgment, which means 
failure to act in the same manner as a prudent person in the conduct 
of competitive business; or, in the case of a non-profit educational 
institution, failure to act in the manner that a prudent person 
would under the circumstances prevailing at the time the decision to 
incur the cost is made.
    (2) The term ``contractor's managerial personnel'' is defined in 
the Property clause in this contract.
    (g)(1) All litigation costs, including counsel fees, judgments 
and settlements shall be segregated and accounted for by the 
contractor separately. If the Contracting Officer provisionally 
disallows such costs, then the contractor may not use funds advanced 
by DOE under the contract to finance the litigation.
    (2) Punitive damages are not allowable unless the act or failure 
to act which gave rise to the liability resulted from compliance 
with specific terms and conditions of the contract or written 
instructions from the Contracting Officer.
    (3) The portion of the cost of insurance obtained by the 
contractor that is allocable to coverage of liabilities referred to 
in paragraph (f) of this clause is not allowable.
    (h) The contractor may at its own expense and not as an 
allowable cost procure for its own protection insurance to 
compensate the contractor for any unallowable or non-reimbursable 
costs incurred in connection with contract performance.

(End of clause)

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

0
7. The authority citation for part 970 continues to read as follows:

    Authority: 42 U.S.C. 2201: 2282a: 2282b: 2282c: 42 U.S.C. 7101 
et seq.: 50 U.S.C. 2401, et seq.

0
8. Section 970.2803-2 is revised to read as follows:

970.2803-2  Contract clause.

    The contracting officer shall insert the clause at 970.5228-1, 
Insurance--Litigation and Claims, instead of the clause at 48 CFR 
52.228-7, in all management and operating contracts. Paragraphs 
(f)(3)(C) and (g)(2) of that clause apply to a nonprofit contractor 
only to the extent specifically provided in the individual contract.

0
9. Section 970.5228-1 is revised to read as follows:

970.5228-1  Insurance--litigation and claims.

    As prescribed in 970.2803-2, insert the following clause:

Insurance--Litigation and Claims (JUL 2013)

    (a) The contractor must comply with 10 CFR part 719, Contractor 
Legal Management Requirements, if applicable.
    (b)(1) Except as provided in paragraph (b)(2) of this clause, 
the contractor shall procure and maintain such bonds and insurance 
as required by law or approved in writing by the Contracting 
Officer.
    (2) The contractor may, with the approval of the Contracting 
Officer, maintain a self-insurance program in accordance with FAR 
28.308; provided that, with respect to workers' compensation, the 
contractor is qualified pursuant to statutory authority.
    (3) All bonds and insurance required by this clause shall be in 
a form and amount and for those periods as the Contracting Officer 
may require or approve and with sureties and insurers approved by 
the Contracting Officer.
    (c) The contractor agrees to submit for the Contracting 
Officer's approval, to the extent and in the manner required by the 
Contracting Officer, any other bonds and insurance that are 
maintained by the contractor in connection with the performance of 
this contract and for which the contractor seeks reimbursement. If 
an insurance cost (whether a premium for commercial insurance or 
related to self-insurance) includes a portion covering costs made 
unallowable elsewhere in the contract, and the share of the cost for 
coverage for the unallowable cost is determinable, the portion of 
the cost that is otherwise an allowable cost under this contract is 
reimbursable to the extent determined by the Contracting Officer.
    (d) Except as provided in paragraph (f) of this clause, or 
specifically disallowed elsewhere in this contract, the contractor 
shall be reimbursed--
    (1) For that portion of the reasonable cost of bonds and 
insurance allocable to this contract required in accordance with 
contract terms or approved under this clause, and
    (2) For liabilities (and reasonable expenses incidental to such 
liabilities, including litigation costs) to third persons not 
compensated by insurance without regard to the clause of this 
contract entitled ``Obligation of Funds.''
    (e) The Government's liability under paragraph (d) of this 
clause is subject to the availability of appropriated funds. Nothing 
in this contract shall be construed as implying that the Congress 
will, at a later date, appropriate funds sufficient to meet 
deficiencies.
    (f)(1) Notwithstanding any other provision of this contract, the 
contractor shall not be reimbursed for liabilities to third parties, 
including contractor employees, and directly associated costs which 
may include but are not limited to litigation costs, counsel fees, 
judgments and settlements--
    (i) Which are otherwise unallowable by law or the provisions of 
this contract,

[[Page 25818]]

including the cost reimbursement limitations contained in 48 CFR 
part 31, as supplemented by 48 CFR 970.31;
    (ii) For which the contractor has failed to insure or to 
maintain insurance as required by law, this contract, or by the 
written direction of the Contracting Officer; or
    (iii) Which were caused by contractor managerial personnel's--
    (A) Willful misconduct;
    (B) Lack of good faith; or
    (C) Failure to exercise prudent business judgment, which means 
failure to act in the same manner as a prudent person in the conduct 
of competitive business; or, in the case of a non-profit educational 
institution, failure to act in the manner that a prudent person 
would under the circumstances prevailing at the time the decision to 
incur the cost is made.
    (2) The term ``contractor's managerial personnel'' is defined in 
the Property clause in this contract.
    (g)(1) All litigation costs, including counsel fees, judgments 
and settlements shall be segregated and accounted for by the 
contractor separately. If the Contracting Officer provisionally 
disallows such costs, then the contractor may not use funds advanced 
by DOE under the contract to finance the litigation.
    (2) Punitive damages are not allowable unless the act or failure 
to act which gave rise to the liability resulted from compliance 
with specific terms and conditions of the contract or written 
instructions from the Contracting Officer.
    (3) The portion of the cost of insurance obtained by the 
contractor that is allocable to coverage of liabilities referred to 
in paragraph (f) of this clause is not allowable.
    (h) The contractor may at its own expense and not as an 
allowable cost procure for its own protection insurance to 
compensate the contractor for any unallowable or non-reimbursable 
costs incurred in connection with contract performance.

(End of clause)

[FR Doc. 2013-10485 Filed 5-2-13; 8:45 am]
BILLING CODE 6450-01-P
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