81408 Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Proposed Rules 

1Additionally, APHIS may choose to initiate an 

evaluation of the animal health status of a foreign 

region on its own initiative. In such cases, APHIS 

will follow the same evaluation and notification 

procedures set forth in this section. 

reduction in time it would take under 

this proposal for APHIS to initiate and 

complete an evaluation of the animal 

disease status of a region. Based on the 

information presented in the analysis, 

we expect that decreasing the amount of 

time and APHIS resources required to 

initiate and complete such an 

evaluation would not have a significant 

economic effect on the entities affected. 

We invite comment on our economic 

analysis, which is posted with this 

proposed rule on the Regulations.gov 

Web site (see ADDRESSES above for 

instructions for accessing 

Regulations.gov) and may also be 

obtained from the person listed under 

FOR FURTHER INFORMATION CONTACT. 

Executive Order 12988 

This proposed rule has been reviewed 

under Executive Order 12988, Civil 

Justice Reform. If this proposed rule is 

adopted: (1) All State and local laws and 

regulations that are inconsistent with 

this rule will be preempted; (2) no 

retroactive effect will be given to this 

rule; and (3) administrative proceedings 

will not be required before parties may 

file suit in court challenging this rule. 

Paperwork Reduction Act 

This proposed rule contains no new 

information collection or recordkeeping 

requirements under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.). 

List of Subjects in 9 CFR Part 92 

Animal diseases, Imports, Livestock, 

Poultry and poultry products, Region, 

Reporting and recordkeeping 

requirements. 

Accordingly, we propose to amend 9 

CFR part 92 as follows: 

PART 92—IMPORTATION OF ANIMALS 

AND ANIMAL PRODUCTS; 

PROCEDURES FOR REQUESTING 

RECOGNITION OF REGIONS 

1. The authority citation for part 92 

continues to read as follows: 

Authority: 7 U.S.C. 1622 and 8301–8317; 

21 U.S.C. 136 and 136a; 31 U.S.C. 9701; 7 

CFR 2.22, 2.80, and 371.4. 

2. In § 92.2, paragraphs (a) through (f) 

are revised to read as follows: 

§ 92.2 Application for recognition of the 

animal health status of a region. 

(a) The representative of the national 

government(s) of any country or 

countries who has the authority to make 

such a request may request that APHIS 

recognize the animal health status of a 

region.1 Such requests must be made in 

English and must be sent to the 

Administrator, c/o National Center for 

Import and Export, VS, APHIS, 4700 

River Road Unit 38, Riverdale, MD 

20737–1231. (Where possible, include a 

copy of the request and accompanying 

information in electronic format.) 

(b) Requests for recognition of the 

animal health status of a region, other 

than requests submitted in accordance 

with paragraph (c) of this section, must 

include, in English, the following 

information about the region. More 

detailed information regarding the 

specific types of information that will 

enable APHIS to most expeditiously 

conduct an evaluation of the request is 

available at [address to be added in final 

rule] or by contacting the Director, 

Sanitary Trade Issues Team, National 

Center for Import and Export, VS, 

APHIS, 4700 River Road Unit 38, 

Riverdale, MD 20737. 

(1) Scope of the evaluation being 

requested. 

(2) Veterinary control and oversight. 

(3) Disease history and vaccination 

practices. 

(4) Livestock demographics and 

traceability. 

(5) Epidemiological separation from 

potential sources of infection. 

(6) Surveillance. 

(7) Diagnostic laboratory capabilities. 

(8) Emergency preparedness and 

response. 

(c) Requests for recognition that a 

region is historically free of a disease 

based on the amount of time that has 

elapsed since the disease last occurred 

in a region, if it has ever occurred, must 

include, in English, the following 

information about the region. More 

detailed information regarding the 

specific types of information that will 

enable APHIS to most expeditiously 

conduct an evaluation of the request is 

available at [address to be added in final 

rule] or by contacting the Director, 

Sanitary Trade Issues Team, National 

Center for Import and Export, VS, 

APHIS, 4700 River Road Unit 38, 

Riverdale, MD 20737. For a region to be 

considered historically free of a disease, 

the disease must not have been reported 

in domestic livestock for at least the 

past 25 years and must not have been 

reported in wildlife for at least the past 

10 years. 

(1) Scope of the evaluation being 

requested. 

(2) Veterinary control and oversight. 

(3) Disease history and vaccination 

practices. 

(4) Disease notification. 

(5) Disease detection. 

(6) Barriers to disease introduction. 

(d) A list of those regions that have 

requested APHIS’ recognition of their 

animal health status is available at 

[address to be added in final rule]. 

(e) If, after review and evaluation of 

the information submitted in 

accordance with paragraph (b) or (c) of 

this section, APHIS believes the request 

can be safely granted, APHIS will 

indicate its intent and make its 

evaluation available for public comment 

through a document published in the 

Federal Register. 

(f) APHIS will provide a period of 

time during which the public may 

comment on its evaluation. During the 

comment period, the public will have 

access to the information upon which 

APHIS based its evaluation, as well as 

the evaluation itself. Once APHIS has 

reviewed all comments received, it will 

make a final determination regarding 

the request and will publish that 

determination in the Federal Register. 

* * * * * 

Done in Washington, DC, this 19th day of 

December 2011. 

Kevin Shea, 

Acting Administrator, Animal and Plant 

Health Inspection Service. 

[FR Doc. 2011–33206 Filed 12–27–11; 8:45 am] 

BILLING CODE 3410–34–P 

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: Notice of proposed rulemaking 

and opportunity for public comment. 

SUMMARY: The Department of Energy 

(DOE or Department) is proposing to 

revise existing regulations covering 

contractor legal management 

requirements. Conforming amendments 

are also proposed to the Department of 

Energy Acquisition Regulation (DEAR). 

The proposed regulations will provide 

rules for handling of legal matters and 

associated costs by certain contractors 

whose contracts exceed $100,000,000 as 

well as legal counsel retained directly 

by the Department for matters in which 

costs exceed $100,000. 

DATES: DOE will accept comments, data, 

and information regarding this notice of 

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Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Proposed Rules 81409 

proposed rulemaking (NOPR) no later 

than February 27, 2012. 

ADDRESSES: Any comments submitted 

must identify this NOPR on Contractor 

Legal Management Requirements, and 

provide regulatory information number 

(RIN) 1990–AA37. Comments may be 

submitted using any of the following 

methods: 

1. Federal eRulemaking Portal: 

www.regulations.gov. Follow the 

instructions for submitting comments. 

2. Email: 

DOE.719comments@hq.doe.gov. Include 

RIN 1990–AA37 in the subject line of 

the message. 

3. Mail: Lisa Pinder, Administrative 

Assistant, U.S. Department of Energy, 

Office of General Counsel, GC–60, 1000 

Independence Ave. SW., Washington, 

DC 20585. If possible, please submit all 

items on a compact disc (CD), in which 

case it is not necessary to include 

printed copies. 

4. Hand Delivery/Courier: Ms. Lisa 

Pinder, Administrative Assistant, U.S. 

Department of Energy, GC–60, 1000 

Independence Ave. SW., Washington, 

DC, 20585. Telephone: (202) 586–5426. 

If possible, please submit all items on a 

CD, in which case it is not necessary to 

include printed copies. 

No faxes will be accepted. 

For further information on how to 

submit a public comment, review other 

public comments and the docket, 

contact Ms. Lisa Pinder (202) 586–5426 

or by Email: lisa.pinder@hq.doe.gov. 

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. Summary of the Proposed Rule. 

III. Procedural Requirements. 

A. Review Under Executive Order 12866. 

B. Review Under Executive Order 12988. 

C. Review Under the Regulatory Flexibility 

Act. 

D. Review Under the Paperwork Reduction 

Act. 

E. Review Under the National 

Environmental Policy Act. 

F. Review Under Executive Order 13132. 

G. Review Under the Unfunded Mandates 

Reform Act of 1995. 

H. Review Under the Treasury and General 

Government Appropriations Act, 1999. 

I. Review Under Executive Order 13211. 

J. Review Under the Treasury and General 

Government Appropriations Act, 2001. 

I. Background 

The Department’s high dollar 

contracts that include cost reimbursable 

elements generally make legal costs, 

including the cost of litigation, 

allowable if reasonable and incurred in 

accordance with the applicable cost 

principles and contract clauses. 

Consequently, the Department has an 

ongoing obligation to monitor, 

supervise, and control the legal costs 

that it reimburses. 

The Department has a long history of 

overseeing aspects of its contractors’ 

management of legal matters and costs. 

This practice was formalized in 1994 

when the Department published an 

interim Acquisition Letter as an interim 

policy in the Federal Register (59 FR 

44981). The interim Acquisition Letter 

was finalized as a Policy Statement on 

April 3, 1996 (61 FR 14763). This Policy 

Statement was followed by a formal 

rulemaking which added part 719, 

Contractor Legal Management 

Requirements, to Title 10 of the Code of 

Federal Regulations with an effective 

date of April 23, 2001 (66 FR 4616, 66 

FR 19717). 

Today’s proposed rule revises the 

current contractor legal management 

requirements found in part 719, in 

Chapter 10 of the Code of Federal 

Regulations. The revisions reflect 

lessons learned by the Department 

during the years since implementing 

part 719. The part establishes 

regulations to monitor and control legal 

costs and to provide guidance to aid 

contractors and the Department in 

making determinations regarding the 

reasonableness of outside legal costs, 

including the costs associated with 

litigation. Today’s amendments to part 

719 and the associated portions of the 

Department of Energy Acquisition 

Regulation (DEAR) are designed to 

clarify and streamline existing 

requirements, improve efficiency of 

contractor legal management, and 

facilitate oversight over the expenditure 

of taxpayer dollars. 

Today’s proposed rules and guidance 

slightly expands the coverage of the 

existing regulations. The proposed rules 

cover all outside legal costs incurred 

under the Department’s Management 

and Operating (M&O) contracts, nonmanagement and operating cost 

reimbursement contracts exceeding 

$100,000,000, and non-management and 

operating contracts exceeding 

$100,000,000 that include cost 

reimbursable elements exceeding 

$10,000,000. The proposed rules delete 

current requirements limiting 

applicability of the part to contracts 

involving work performed at facilities 

owned or leased by the Department. Part 

719 would continue to apply to legal 

counsel retained directly by the 

Department where the legal costs over 

the life of the matter for which counsel 

has been retained are expected to 

exceed $100,000. The proposed rules 

also delete the current coverage 

exception for legal matters handled 

through retrospective insurance 

arrangements and make certain portions 

of the rules applicable to such 

arrangements. 

The proposed regulations continue to 

require contractor submission of legal 

management plans, staffing and 

resource plans, and engagement letters 

under specific circumstances and set 

forth the requirements for these 

submissions. Today’s proposed rules 

require contractors to submit proposed 

legal settlements requiring Contractor 

payment of $25,000 or more for 

Department review and approval. 

Currently, common practice requires 

contractors to obtain permission from 

Department counsel to enter a 

settlement agreement requiring 

Contractor payment of $50,000 or more. 

The Department is seeking public 

comment regarding the proposed 

reduction of the threshold to $25,000 

and the proposed inclusion of the 

requirement in the regulations. In order 

to streamline and simplify the 

regulations related to contractor 

litigation, requirements related to 

initiation, defense, and settlement of 

litigation have been removed from the 

DEAR and consolidated in part 719. The 

proposed rule moves much of the 

material currently located in the 

Appendix to part 719 to the part, itself. 

The proposed part 719 continues to 

identify certain costs that generally 

would be considered unallowable. 

Certain categories of costs that require 

Departmental pre-approval in order to 

be considered for reimbursement are 

also identified. The proposed rules 

provide that compliance with part 719 

is a prerequisite for allowability of legal 

costs, but notes that compliance with 

the part does not guarantee that costs 

will be determined to be allowable. All 

costs, whether or not identified as 

specifically allowable or unallowable, 

are still subject to the rules of 

allowability in the Federal Acquisition 

Regulation (FAR) and the DEAR. 

The Department also proposes 

changes to the DEAR. The changes 

correspond to the proposed substantive 

changes to part 719 as well as clarify 

and streamline the DEAR provisions 

related to contractor legal management. 

The proposed rules require inclusion of 

48 CFR 952.231–71, Insurance— 

Litigation and Claims, or 48 CFR 

970.5228–1, Insurance—Litigation and 

Claims, in the majority, but not all 

contracts, to which part 719 applies. 

Both Insurance—Litigation and Claims 

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81410 Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Proposed Rules 

clauses have been revised to delete 

requirements related to contractor 

initiation or defense of litigation that are 

proposed for consolidation in part 719. 

II. Summary of the Proposed Rule 

Subpart A, sections 719.1–719.8, 

includes general provisions. The 

subpart provides definitions and 

addresses applicability of the part. 

Section 719.3 states that the part covers 

all Management and Operating (M&O) 

contracts, non-management and 

operating cost reimbursement contracts 

exceeding $100,000,000, and nonmanagement and operating contracts 

exceeding $100,000,000 that include 

cost reimbursable elements exceeding 

$10,000,000. Sections 719.3 and 719.4 

make it clear that any contract 

exceeding $100,000 that the Department 

awards directly to retained legal counsel 

are subject to compliance with the rules. 

Sections 719.5 and 719.6 describe types 

of contracts and legal matters not 

covered by the part. The proposed rules 

include coverage of certain retrospective 

insurance arrangements that are 

excluded from coverage under the 

current rules. Procedures for exceptions 

or deviations from the part are set out 

in section 719.7. In the case of a 

Department contract, the determination 

would be made by the Department’s 

General Counsel; in the case of a 

National Nuclear Security 

Administration (NNSA) contract, it 

would be made by the NNSA General 

Counsel. Section 719.8 states that the 

sharing of certain information between 

contractors and the Department does not 

waive any applicable privilege. 

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. The subpart describes 

what is to be included in the plans and 

in the budget. The proposed rules 

modify the current requirements for 

legal management plans, in response to 

lessons learned by the Department and 

to ensure adequate oversight of 

contractor legal management. Section 

719.11 provides that contractors must 

submit a legal management plan within 

60 days following execution of a 

contract with the Department or upon 

request of the contracting officer. 

Section 719.15 sets out a requirement 

for submission of a staffing and resource 

plan for significant matters (those with 

legal costs estimated to exceed $100,000 

over the life of the matter or as 

determined by Department Counsel). 

Section 719.16 requires submission of 

the staffing and resource plan no later 

than 30 days after the filing of an 

answer or a dispositive motion in lieu 

of an answer in a significant matter 

involving litigation, 30 days after a 

determination that the cost is expected 

to exceed $100,000, or 30 days after 

notification by Department Counsel that 

a matter is considered significant, 

whichever is sooner. Section 719.17 

requires submission of an annual legal 

budget for existing or anticipated 

significant matters. 

Subpart C, sections 719.20–719.21, 

describes the requirements for 

engagement letters. Engagement letters 

must be prepared and submitted to 

Department Counsel for matters where 

costs are expected to exceed $25,000. 

Section 719.21 states the requirements 

for engagement letters. Section 

719.21(b)(3) requires the contractor to 

include the right of the government to 

inspect, copy and audit documentation 

of billable fees and other records where 

the Department is reimbursing the legal 

costs. Section 719.21(b)(8) requires that 

the engagement letter set forth an 

agreement that retained counsel will 

prepare a staffing and resource plan in 

accordance with the part. Section 

719.21(b)(11) requires that the 

engagement letter include a requirement 

that a specific certification be included 

in invoices. This certification 

requirement is currently set forth in the 

Attachment to the part. 

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 proposed 

rules delete these portions of the 

Appendix and move all requirements 

regarding initiation and notification of 

litigation to subpart D. The proposed 

regulations 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. Requirements regarding 

Departmental approval of contractor 

settlements are currently included in 

contractor legal management plans. The 

proposed rules regulate requirements 

related to contractor settlement of legal 

matters for the first time. Section 719.33 

requires that a contractor obtain 

permission from Department Counsel to 

enter a settlement agreement requiring 

Contractor payment of $25,000 or more. 

Section 719.34 lists documentation that 

must be submitted with a contractor’s 

request to settle a matter. 

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 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 

or which require special treatment or 

advance approval. Section 719.43 

describes the treatment of outside 

counsel travel costs. Section 719.45 of 

the proposed rules makes certain 

aspects of part 719 applicable to 

subcontractors and retrospective 

insurance carriers. Retrospective 

insurance arrangements are currently 

excluded from coverage of the current 

part 719 and the Department is seeking 

public comment regarding the proposed 

coverage of retrospective insurance 

carriers. Coverage of such carriers is 

proposed in order to ensure consistent 

management of all contractor legal 

management costs that may be 

reimbursed by the Department. Among 

the proposed requirements is 

Departmental approval of retrospective 

insurance carrier settlements of matters 

involving payment of $25,000 or more. 

Section 719.46 clearly states that costs 

covered by the part are subject to audit. 

Section 719.47 describes what happens 

when more than one Departmental 

contractor is party to a legal matter. 

Subpart F, sections 719.50–719.52, 

discusses the roles and responsibilities 

of Department Counsel. Section 719.50 

discusses the limitations of Department 

Counsel authority. Sections 719.51 and 

719.52 set forth parameters for 

Department Counsel coordination with 

DOE and NNSA 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 proposing 

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) nonmanagement and operating contracts 

exceeding $100,000,000 that include 

cost reimbursable elements exceeding 

$100,000,000. 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 

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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. 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. 

III. 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 proposed 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 regulation 

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 NOPR 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 

This proposed rule has been reviewed 

under the Regulatory Flexibility Act, 5 

U.S.C. 601 et seq., which requires 

preparation of an initial regulatory 

flexibility analysis for any rule that 

must be proposed for public comment 

and is likely to have a significant 

economic impact on a substantial 

number of small entities. The proposed 

rule would not have a significant 

economic impact on small entities 

because it imposes no significant 

burdens. 

Accordingly, DOE certifies that this 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities, 

and, therefore, no regulatory flexibility 

analysis has been prepared. 

D. Review Under Paperwork Reduction 

Act 

The proposed rule would require 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 

may also 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). The existing regulations 

at 10 CFR part 719 have been assigned 

OMB control number 1910–5115, 75 FR 

38514–02. 

The Department is submitting to the 

Office of Management and Budget 

(OMB), simultaneously with the 

publication of this proposed rule, 

information explaining the proposed 

amendments to the current collection of 

information for review and approval 

under the Paperwork Reduction Act, 44 

U.S.C. 3501 et seq. 

E. Review Under the National 

Environmental Policy Act 

DOE has concluded that promulgation 

of this proposed rule falls into a class of 

actions which would not individually or 

cumulatively have significant impact on 

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the human environment, as determined 

by DOE’s regulations, 10 CFR Part 1021, 

Subpart D, implementing the National 

Environmental Policy Act (NEPA) of 

1969, 42 U.S.C. 4321 et seq. 

Specifically, this proposed rule is 

categorically excluded from NEPA 

review because the amendments to the 

DEAR would be strictly procedural 

(categorical exclusion A6). Therefore, 

this proposed rule does not require an 

environmental impact statement or 

environmental assessment pursuant to 

NEPA. 

F. Review Under Executive Order 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 

proposed 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 rulemaking 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 wellbeing. This proposed 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 OIRA, 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 proposed 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 proposed rulemaking 

under the OMB and DOE guidelines and 

has concluded that it is consistent with 

applicable policies in those guidelines. 

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 December 

16, 2011. 

Steven Chu, 

Secretary of Energy. 

For the reasons set out in the 

preamble, the Department of Energy 

(DOE) proposes to amend Chapter III of 

Title 10 and Chapter 9 of Title 48 of the 

Code of Federal Regulations as set forth 

below: 

Title 10—Energy 

Chapter III—Department of Energy 

1. Part 719 is revised to read as 

follows: 

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 

used? 

719.21 What are the required elements of an 

engagement letter? 

Subpart D—Requests From Contractor 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? 

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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 for 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 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 

§ 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 law firm invoices and 

reimbursement of Contractor legal costs 

under Covered Contracts is subject to 

compliance with this part. 

§ 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 § 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. 

Legal matter means any particular 

legal issue, or aggregate of legal issues 

associated with a particular subject area, 

e.g., employee benefits, immigration, 

taxation, for which the Contractor 

retains legal counsel, including but not 

limited to litigation. 

Litigation means a proceeding to 

which the Contractor is a party in state 

or federal court or before a state or 

federal 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 based on actual losses 

incurred or paid (e.g. claims, 

settlements, damages, and legal costs). 

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, including litigation, involving 

significant issues as determined by 

Department Counsel, and any legal 

matter 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 

subpart B of this part by retained legal 

counsel that describes the method for 

managing a significant matter. 

§ 719.3 What contracts are covered by this 

part? 

(a) This part covers 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 costreimbursable line items where the costreimbursable 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. 

§ 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 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 to exceed $100,000: 

(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). 

§ 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. 

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§ 719.6 Are there any types of legal 

matters not included in the coverage of this 

part? 

Matters not covered by this part 

include: 

(a) Matters handled by counsel 

retained by an insurance carrier, except 

under Retrospective Insurance in 

accordance with § 719.45; 

(b) Routine intellectual property law 

support services; and 

(c) Routine workers and 

unemployment compensation matters. 

§ 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. 

(b) The General Counsel may 

authorize exceptions. 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 by the Senior 

Procurement Executive of DOE or NNSA 

as applicable. Written requests from 

Contractors for a deviation from a cost 

principle must be submitted to the 

contracting officer, with a copy 

provided to Department Counsel. 

§ 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 rooted in 

the fact that the Department reimburses 

Contractors for allowable costs incurred 

when litigation is threatened or initiated 

against Contractors. 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 

§ 719.10. Who must submit a Legal 

Management Plan? 

Contractors who are parties to 

contracts identified under § 719.3(a) and 

(b) must submit a Legal Management 

Plan. 

§ 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 the contracting 

officer. 

(b) Contractors must submit a revised 

Legal Management Plan upon request of 

the contracting officer within 60 days of 

receipt of the contracting officer’s 

request. 

§ 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 levels of experience of each legal 

staff member and an explanation of the 

types of matters expected to be handled 

in-house. 

(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 inhouse 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 § 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). 

(k) A description of procedures 

providing for earliest possible 

notification to the Department of the 

likely initiation of any legal matter 

involving class actions, radiation or 

toxic substance exposure, the 

safeguarding of classified information, 

and any other matters involving issues 

which the Contractor has reason to 

believe are of general importance to the 

Department or the government as a 

whole. 

(l) A description of the procedures the 

Contractor will employ to ensure that 

unallowable costs are not submitted for 

Department reimbursement. 

§ 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. 

§ 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 

within 30 days of the Contractor’s 

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compliances or inadequate information 

relating to requirements in § 719.12. The 

Contractor must correct matters 

identified within 30 days of notification. 

§ 719.15 What are the requirements for a 

staffing and resource plan? 

(a) For significant matters, 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) For significant matters in 

litigation, in addition to the generalized 

annual budget required by § 719.17, 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 obtain 

Department Counsel approval before 

incurring retained legal counsel costs in 

excess of costs listed in the budget 

developed pursuant to paragraph (c) of 

this section. 

§ 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. 

(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, retained legal 

counsel has 30 days to revise the 

Staffing and Resource Plan to satisfy 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. 

(d) When it is unclear whether a 

matter is significant, the Contractor 

must consult with Department Counsel 

on the question. 

§ 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 existing or 

anticipated 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 Letters 

§ 719.20 When must an engagement letter 

be used? 

Contractors must submit the terms of 

a proposed engagement letter between it 

and proposed retained legal counsel, to 

Department Counsel when the proposed 

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. 

§ 719.21 What are the required elements of 

an engagement letter? 

(a) The engagement letter must 

require retained legal counsel to assist 

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, 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, 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 

agreement that the retained legal 

counsel will prepare a Staffing and 

Resource Plan in accordance with the 

requirements of § 719.15. 

(9) A statement setting forth 

agreement to consider alternative 

dispute resolution at as early a stage as 

possible and thereafter as appropriate 

where litigation is involved. 

(10) A statement setting forth 

agreement that retained legal counsel 

must comply with the cost guidelines in 

subpart E of this part. 

(11) A statement setting forth 

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 

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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 necessary.’’ The certification 

must be signed and dated by a 

representative of the retained legal 

counsel. Invoices must be submitted in 

conformance with the model bill format 

which is set forth in the Attachment to 

the Appendix 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 

§ 719.30 In what circumstances may the 

contractor initiate litigation, including 

appeals from adverse decisions? 

The Contractor may not initiate 

litigation (including counterclaims) or 

appeals from adverse decisions, without 

the prior written authorization of 

Department Counsel. 

(a) The following information must be 

provided to Department Counsel in 

connection with a Contractor request to 

initiate litigation: 

(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. 

(b) Department Counsel should advise 

the contracting officer concerning each 

request and should provide assistance to 

the contracting officer in 

communicating the Department’s 

decision to the Contractor. 

§ 719.31 When must the contractor initiate 

litigation against third parties? 

The Contractor must, upon the 

request of the contracting officer, 

initiate litigation 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. 

§ 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, filed against the Contractor 

arising out of the performance of the 

contract and 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 or not the Contractor may 

proceed with the defense of the 

litigation, and any applicable 

conditions; 

(2) Whether the Contractor must 

authorize the Government to defend the 

action; 

(3) Whether the Government will take 

charge of the action; or 

(4) 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 claim against the 

Contractor are potentially allowable 

under the contract, the Contractor shall: 

(1) Authorize Department 

representatives to collaborate with 

Contractor in-house counsel or DOE/ 

NNSA-approved outside counsel in 

settling or defending the claim; or 

counsel for any associated insurance 

carrier in settling 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 claim 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. 

§ 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. 

§ 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. 

§ 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. 

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Subpart E—Reimbursement of Costs 

Subject to This Part 

§ 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. 

§ 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: 

(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 

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. 

§ 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, 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. 

§ 719.43 What is the treatment for 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 costeffective. 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. 

§ 719.44 What categories of costs require 

advance approval? 

(a) To be considered for 

reimbursement, costs 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 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) Charges for materials or 

nonattorney services exceeding $5,000; 

(3) Secretarial and support services, 

word processing, or temporary support 

personnel; 

(4) Attendance by more than one 

attorney at a deposition, court hearing 

or interview; 

(5) Expert witnesses and consultants; 

(6) Trade publications, books, 

treatises, background materials, and 

other similar documents; 

(7) Professional or educational 

seminars and conferences; 

(8) Preparation of bills or time spent 

responding to questions about bills from 

either the Department or the Contractor; 

(9) Food and beverages when the 

attorney or consultant is not on travel 

status and away from the home office; 

(10) Pro hac vice admissions; and 

(11) 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 and the contracting 

officer before it authorizes any increase. 

Contractors should attempt to lock in 

rates for partners, associates and 

paralegals for at least a two year period. 

§ 719.45 Are there any special procedures 

or requirements regarding subcontractor 

and retrospective insurance carrier legal 

costs? 

(a) The Contractor must have a 

monitoring system for subcontractor 

legal matters likely to reach $100,000 

over the life of the matter when the 

Contractor’s contract with the 

subcontractor provides that the 

Contractor will reimburse the 

subcontractor’s legal costs resulting 

from the subcontractor’s performance 

under its contract. The purpose of this 

system is to enable the Contractor to 

perform the same type and level of 

analysis and review of subcontractor 

legal management practices that the 

Department can perform of the 

Contractor’s legal management 

practices. The monitoring system is 

intended to enable the Contractor to 

keep the Department informed about 

significant subcontractor legal matters, 

including significant matters in 

litigation. The Contractor is responsible 

for answering questions raised by the 

Department concerning significant 

subcontractor legal matters. 

(b) Contractors must submit 

informational copies of subcontractor 

invoices for legal services to Department 

Counsel. 

(c) Insurance carriers that provide 

insurance coverage to Contractors 

pursuant to retrospective insurance are 

‘‘subcontractors’’ for purposes of this 

part. 

(d) In addition to the requirements set 

forth in paragraphs (a) and (b) of this 

section, the Contractor shall require any 

insurance carrier with whom the 

Contractor enters into a retrospective 

insurance arrangement after the 

effective date of this part, including any 

policy renewals, to provide to the 

Contractor for prior approval a staffing 

and resource plan for all legal matters 

that are expected to exceed $100,000 in 

cost. The staffing and resource plan 

submitted by the insurance carrier must 

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contain all of the items described in 

§ 719.15, including, but not limited to, 

a description of the major phases and 

timing and sequence of events 

anticipated in handling the matter, and 

a corresponding budget breakdown. 

(e) When the insurance carrier retains 

outside counsel and outside counsel is 

expected to provide $25,000 or more in 

legal services for a particular matter, the 

Contractor shall require the insurance 

company to provide it with a copy of 

any engagement letter that outlines the 

terms of the arrangement between the 

insurance company and the law firm it 

retains to defend lawsuits that are 

covered by retrospective insurance. The 

engagement letter must contain all of 

the items described in § 719.21. 

(e) The Contractor shall require the 

insurance company to request prior 

permission from the Contractor to enter 

into settlement agreements with third 

parties involving payment of $25,000 or 

more. The Contractor shall require the 

insurance carrier to submit all 

documentation described in § 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 insurance carrier to enter 

into any settlement agreement involving 

payment of $25,000 or more without 

obtaining the approval of the 

Department Counsel. 

(f) Staffing and resource plans and 

engagement letters required under this 

section must be reviewed and approved 

by the Contractor and approved by 

Department Counsel. 

(g) All legal costs incurred by 

insurance carriers under retrospective 

insurance are subject to audit pursuant 

to § 719.46. The Contractor shall 

provide reviewed costs and status 

updates for all matters handled by 

retrospective insurance carriers in 

accordance with § 719.51. 

§ 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 

§ 719.21. 

§ 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 

§ 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. 

§ 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. 

§ 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 

or her designee. 

(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 

designee. 

(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 designee, as directed 

by the General Counsel or his/her 

designee. 

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 

prediscovery, 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 

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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 impact 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

Date of 

service 

Description 

of service 

Name or 

initials of 

attorney 

Approved 

rate Time charged Amount (rate × time) 

(See Note 1 to this table). 

II—FOR DISBURSEMENTS

Date Description of disbursement Amount 

(See Note 2 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 a maximum of 10 

cents 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 

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; 

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, Insurancelitigation 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 that include cost reimbursable 

elements exceeding $100,000,000, for 

example, contracts with both fixed-price 

and cost-reimbursable line items where 

the cost-reimbursable line items exceed 

$100,000,000 or time and materials 

contracts where the materials portions 

exceed $100,000,000. 

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 costreimbursable line items where the costreimbursable 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 

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. 

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 nonmanagement and operating contracts: 

Insurance—Litigation and Claims (XX 

20XX) 

(a) The Contractor must comply with 10 

CFR part 719, Contractor Legal Management 

Requirements. 

(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 selfinsurance 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 

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commercial insurance or related to selfinsurance) 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 

properly allocated, segregated and excluded 

by the Contractor. 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 nonreimbursable costs incurred in connection 

with contract performance. 

(End of clause) 

PART 970—DOE MANAGEMENT AND 

OPERATING CONTRACTS 

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. 

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. 

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 (XX 

20XX) 

(a) The Contractor must comply with 10 

CFR part 719, Contractor Legal Management 

Requirements. 

(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 selfinsurance 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 selfinsurance) 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, 

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 

properly allocated, segregated and excluded 

by the Contractor. 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 

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Federal Register / Vol. 76, No. 249 / Wednesday, December 28, 2011 / Proposed Rules 81421 

1President Obama also signed the Plain Writing 

Act of 2010 (Pub. L. 111–274) into law on October 

13, 2010 ‘‘to improve the effectiveness and 

accountability of Federal agencies to the public by 

promoting clear Government communication that 

the public can understand and use.’’ This preamble 

is written to meet plain writing objectives. 

own protection insurance to compensate the 

Contractor for any unallowable or nonreimbursable costs incurred in connection 

with contract performance. 

(End of clause) 

[FR Doc. 2011–33170 Filed 12–27–11; 8:45 am] 

BILLING CODE 6450–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 701, 703, 723, and 742 

RIN 3133–AD98 

Eligible Obligations, Charitable 

Contributions, Nonmember Deposits, 

Fixed Assets, Investments, Member 

Business Loans, and Regulatory 

Flexibility Program 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule with request for 

comments. 

SUMMARY: NCUA proposes to eliminate 

the Regulatory Flexibility Program 

(RegFlex) to provide regulatory relief to 

Federal credit unions. NCUA also 

proposes to remove or amend related 

rules to ease compliance burden while 

retaining certain safety and soundness 

standards. Those rules pertain to 

eligible obligations, charitable 

contributions, nonmember deposits, 

fixed assets, investments, and member 

business loans. 

DATES: Send your comments to reach us 

on or before February 27, 2012. We may 

not consider comments received after 

the above date in making our decision 

on the proposed rule. 

ADDRESSES: You may submit comments 

by any of the following methods (Please 

send comments by one method only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

NCUA Web Site: http://www.ncua.gov/ 

Legal/Regs/Pages/PropRegs.aspx Follow 

the instructions for submitting 

comments. 

• E-mail: Address to 

regcomments@ncua.gov. Include ‘‘[Your 

name] Comments on Proposed Rule 742, 

Regulatory Flexibility Program’’ in the 

e-mail subject line. 

• Fax: (703) 518–6319. Use the 

subject line described above for e-mail. 

• Mail: Address to Mary Rupp, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314– 

3428. 

• Hand Delivery/Courier: Same as 

mail address. 

Public Inspection: You can view all 

public comments on NCUA’s Web site 

at http://www.ncua.gov/Legal/Regs/ 

Pages/PropRegs.aspx as submitted, 

except for those we cannot post for 

technical reasons. NCUA will not edit or 

remove any identifying or contact 

information from the public comments 

submitted. You may inspect paper 

copies of comments in NCUA’s law 

library at 1775 Duke Street, Alexandria, 

Virginia 22314, by appointment 

weekdays between 9 a.m. and 3 p.m. To 

make an appointment, call (703) 518– 

6546 or send an e-mail to 

OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: 

Chrisanthy Loizos, Staff Attorney, Office 

of General Counsel, at the above address 

or telephone (703) 518–6540, or 

Matthew J. Biliouris, Director of 

Supervision, or J. Owen Cole, Director, 

Division of Capital Markets, Office of 

Examination and Insurance, at the above 

address or telephone (703) 518–6360. 

SUPPLEMENTARY INFORMATION: 

I. Background 

II. The Rule as Proposed 

III. Section-by-Section Analysis 

IV. Regulatory Procedures 

I. Background 

a. Why is NCUA proposing this rule? 

On July 11, 2011, President Obama 

issued Executive Order 13579, ordering 

independent agencies, including NCUA, 

to consider whether they can modify, 

streamline, expand, or repeal existing 

rules to make their programs more 

effective and less burdensome.1

Consistent with the spirit of the 

Executive Order and as part of NCUA’s 

Regulatory Modernization Initiative, the 

NCUA Board (Board) has decided to 

propose a rule that streamlines its 

regulatory program by eliminating 

RegFlex. The proposed rule would 

relieve regulatory burden on Federal 

credit unions (FCUs) because they 

would no longer need to engage in any 

process for a RegFlex designation. In 

addition, FCUs that are currently not 

RegFlex eligible would receive 

regulatory relief because the proposal 

extends to them most of the flexibilities 

previously available only to RegFlex 

FCUs. 

b. What is RegFlex? 

RegFlex relieves FCUs from certain 

regulatory restrictions and grants them 

additional powers if they have 

demonstrated sustained superior 

performance as measured by CAMEL 

rating and net worth classification. 12 

CFR 742.1. An FCU may qualify for 

RegFlex treatment automatically or by 

application to the appropriate regional 

director. 12 CFR 742.2. Specifically, an 

FCU automatically qualifies when it has 

received a composite CAMEL rating of 

‘‘1’’ or ‘‘2’’ during its last two 

examinations and has maintained a net 

worth classification of ‘‘well 

capitalized’’ under part 702 of NCUA’s 

rules for the last six quarters. If an FCU 

is subject to a risk-based net worth 

(RBNW) requirement under part 702, it 

also qualifies for RegFlex treatment 

when it has remained ‘‘well capitalized’’ 

for the last six quarters after applying 

the applicable RBNW requirement. An 

FCU that does not automatically qualify 

may apply for a RegFlex designation 

with the appropriate regional director. 

12 CFR 742.2(a) and (b). 

The Board established RegFlex in 

2002. 66 FR 58656 (Nov. 23, 2001). 

Since then, NCUA has amended 

RegFlex a number of times to increase 

available relief for FCUs from a variety 

of regulatory restrictions, reduce the 

criteria to obtain RegFlex status, or 

enhance safety and soundness for FCUs. 

71 FR 4039 (Jan. 25, 2006); 72 FR 30247 

(May 31, 2007); 74 FR 13083 (Mar. 26, 

2009); 75 FR 66298 (Oct. 28, 2010). 

The current RegFlex rule provides 

RegFlex FCUs with relief from 

restrictions in the following six areas or 

‘‘flexibilities’’: (1) Charitable 

contributions; (2) nonmember deposits; 

(3) fixed assets; (4) zero-coupon 

investments; (5) borrowing repurchase 

transactions; and (6) commercial 

mortgage related securities. It also 

provides an additional flexibility by 

specifically authorizing the purchase of 

obligations from federally insured credit 

unions beyond those an FCU may 

purchase under the NCUA’s eligible 

obligations rule, § 701.23. 

II. The Rule as Proposed 

a. How would this rule change RegFlex 

and reduce regulatory burden on FCUs? 

NCUA proposes to eliminate RegFlex 

and the charitable contributions rule, 

and amend the rules that apply to 

eligible obligations, nonmember 

deposits, fixed assets, and investments. 

With this proposal, the Board intends to 

enable FCUs to engage in the activities 

permitted by the existing RegFlex rule. 

As of June 30, 2011, there are 4,534 

FCUs, 2,764 of which are RegFlex FCUs. 

The proposed changes would extend 

regulatory relief to the remaining 1,770 

FCUs that do not currently enjoy a 

RegFlex designation. NCUA requests 

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