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[Federal Register Volume 65, Number 202 (Wednesday, October 18, 2000)]
[Rules and Regulations]
[Pages 62299-62302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26333]

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DEPARTMENT OF ENERGY

48 CFR Parts 931 and 970

RIN 1991-AB36

Acquisition Regulations; Costs Associated With Whistleblower 
Actions

AGENCY: Department of Energy.

ACTION: Final rule.

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SUMMARY: The Department of Energy (Department) is amending its 
acquisition regulations to address contractor defense, settlement and 
award costs associated with contractor employee whistleblower actions. 
This action implements a cost principle approach in the Department of 
Energy Acquisition Regulation (DEAR) which will apply to the 
Department's cost reimbursement contractors and subcontractors with a 
contract amount exceeding $5,000,000.

EFFECTIVE DATE: This final rule is effective November 17, 2000.

FOR FURTHER INFORMATION CONTACT: Terrence D. Sheppard, (202) 586-8193; 
e-mail [email protected].

SUPPLEMENTARY INFORMATION:
I. Background.
II. Disposition of Comments
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. Congressional Notification.

I. Background

    The purpose of this final rule is to establish the Department's 
policy on the reimbursement of contractor settlement, award and defense 
costs associated with contractor employee whistleblower actions. This 
policy will cover the Department's cost reimbursement contractors and 
subcontractors with a contract amount in excess of $5,000,000. Costs 
associated with whistleblower actions filed by an employee in Federal 
and state courts, and with Federal agencies under 29 CFR Part 24, 48 
CFR Subpart 3.9, 10 CFR Part 708 or 42 U.S.C. 7239 will be subject to 
the reimbursement provisions of the new regulation.
    This action grows out of rulemaking notices published on January 5, 
1998 (63 FR 386) and March 24, 1999 (64 FR 14206). The first notice 
published for comment a proposed rule to create a whistleblower costs 
clause. The second notice reopened the comment period for an alternate 
proposal using a cost principle approach.
    The alternate proposal was the result of a number of factors, 
including: (1) The Department's experience in a few high profile 
whistleblower actions; (2) further review of the practices of the rest 
of the Federal Government with this cost category; (3) a Department 
effort to reduce the number of cost clauses in DEAR Part 970 in favor 
of a cost principle approach (notice of proposed rule published June 
14, 2000 (65 FR 37335)); and (4) the comments received in response to 
the initial proposed rule.
    For the reasons stated below, the Department has now concluded that 
the cost principle approach, which provides contracting officers with 
greater flexibility in making determinations on a case-by-case basis, 
is the best approach for the circumstances facing the Department and 
its facility management contractors. However, the Department has 
modified its initial cost principle proposal in response to some of the 
comments received concerning that proposal.

II. Disposition of Comments

    Two sets of comments were received in response to the January 5, 
1998, notice of proposed rulemaking and five sets of comments were 
received in response to the March 24, 1999, notice to reopen the 
comment period. Except

[[Page 62300]]

for one set of comments from another Federal agency, all comments were 
from the Department's contractors.

Contract Cost Clause Approach

    Both sets of comments on the proposed cost clause pointed out that 
the result of the proposal to reimburse settlement costs, while 
excluding costs where an adverse determination is made, would provide a 
financial incentive for the Department's contractors to settle any 
employee claim of retaliation, no matter how lacking in merit, rather 
than risk an adverse determination and the disallowance of costs. The 
comments also asserted that such a liberal policy for settlement of 
questionable claims would encourage frivolous claims.
    It was, in part, as a result of these comments that the Department 
proposed the alternate cost principle approach providing contracting 
officers with greater flexibility in making case-by-case determinations 
based on the facts of each case. In a case-by-case approach, costs 
resulting from unlawful or egregious contractor conduct would be 
disallowed, while costs resulting from the exercise of prudent business 
judgment by the contractor would be allowable.

Cost Principle Approach

    Three of the contractors commented that the alternate proposal 
would create an administrative burden and unnecessary and unallowable 
expense, and they urged that the final regulation not be expanded to 
labor cases beyond whistleblower retaliation claims. All of the 
contractor comments argued that the existing contract clauses and cost 
principle regulations provided sufficient coverage for labor 
settlements and litigation costs.
    The Department agrees that the regulation should not be expanded to 
cover all labor cases and the final regulation covers only employee 
whistleblower actions alleging a retaliatory act.

Final Rule

    The final rule creates a cost principle regulation to be added to 
48 CFR (DEAR) Part 931 and incorporated by reference in 48 CFR (DEAR) 
Subpart 970.31. Contractors and subcontractors covered by this 
regulation are those with contracts for an amount in excess of 
$5,000,000. The regulation requires contracting officers to determine 
allowability of defense, settlement and award costs on a case-by-case 
basis after considering the terms of the contract, relevant cost 
regulations, and relevant facts and circumstances, including federal 
law and policy prohibiting reprisal against whistleblowers, at the 
conclusion of the employee whistleblower claim. The cost principle 
addresses only the costs associated with whistleblower retaliation 
claims filed in Federal and state courts and with Federal agencies 
under 29 CFR Part 24, 48 CFR subpart 3.9, 10 CFR Part 708 or 42 U.S.C. 
7239.
    The Department recognizes that a potential disadvantage of a case-
by-case approach is unwarranted variation in cost allowability 
determinations in cases involving similar circumstances. Therefore, in 
order to promote an evenhanded approach and to avoid unwarranted 
variation, the Department will name a member of the Office of General 
Counsel who will consult with representatives from the Office of 
Procurement and Assistance Management, the Office of Environment, 
Safety and Health, and other Headquarters program offices on 
whistleblower costs. The Department's contracting officers will be 
required to report their final allowability determinations, and the 
analysis or basis for their determinations, to the Office of 
Procurement and Assistance Management, which will collect that 
information to determine whether additional guidance to the field is 
necessary. The collected information will also be a resource for 
providing advice to contracting officers. Internal guidance is being 
issued to establish procedures and points of contact for consulting and 
reporting purposes.
    This cost principle will be effective in contracts awarded or 
executed by the Department after the effective date of this regulation. 
Whistleblower costs clauses already contained in current contracts will 
continue to be effective unless a contract modification is executed 
deleting the clause in favor of cost principle coverage.
    Since the Department published the January 5, 1998, notice and the 
March 24, 1999, notice, the National Defense Authorization Act for FY 
2000 (Pub.L. 106-65) reorganized the Department. Consistent with that 
Act, the Department has amended the authority citation for 48 CFR 
(DEAR) Parts 931 and 970 to include the citation for that Act.

III. Procedural Requirements

A. Review Under Executive Order 12866

    Today's regulatory action has been determined not to be a 
``significant regulatory action'' under Executive Order 12866, 
``Regulatory Planning and Review,'' (58 FR 51735, October 4, 1993). 
Accordingly, this final rule was not subject to review under that 
Executive Order by the Office of Information and Regulatory Affairs of 
the Office of Management and Budget (OMB).

B. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; (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 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, this regulation meets 
the relevant standards of Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) 
requires preparation of an initial regulatory flexibility analysis for 
any rule that by law must be proposed for public comment unless the 
agency certifies that the rule will not have a ``significant economic 
impact on a substantial number of small entities.'' DOE is not required 
by the Administrative Procedure Act (5 U.S.C. 553) or any other law to 
propose this procurement rule for public comment. Accordingly, the 
Regulatory Flexibility Act requirements do not apply to this 
rulemaking, and no regulatory flexibility analysis has been prepared.

[[Page 62301]]

D. Review Under the Paperwork Reduction Act

    No new information or record keeping requirements are imposed by 
this rulemaking. Accordingly, no OMB clearance is required 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 rule falls into a class 
of actions which would not individually or cumulatively have 
significant impact on the human environment, as determined by DOE's 
regulations (10 CFR part 1021, subpart D) implementing the National 
Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.). 
Specifically, this rule is categorically excluded from NEPA review 
because the amendments to the DEAR would be strictly procedural 
(categorical exclusion A6). Therefore, this rule does not require an 
environmental impact statement or environmental assessment pursuant to 
NEPA.

F. Review Under Executive Order 13132

    Executive Order 13132 (64 FR 43255, August 10, 1999) requires 
agencies to develop an accountable process to ensure meaningful and 
timely input by State and local officials in the development of 
regulatory policies that have ``federalism implications.'' Policies 
that have federalism implications are defined in the Executive Order to 
include regulations that have substantial direct effects 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. DOE has examined this rule and has determined 
that it 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 (Pub. L. 104-4) generally 
requires a Federal agency to perform a detailed assessment of costs and 
benefits of any rule imposing a Federal Mandate with costs to State, 
local or tribal governments, or to the private sector, of $100 million 
or more. This rulemaking, which provides guidance on the reimbursement 
of certain contractor legal defense costs, does not impact any state, 
local or tribal government.

H. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress 
promulgation of this final rule prior to its effective date. The report 
will state that it has been determined that the rule is not a ``major 
rule'' as defined by 5 U.S.C. 804(2).

List of Subjects in 48 CFR Parts 931 and 970.

    Government procurement.

    Issued in Washington, D.C. on October 2, 2000.
T.J. Glauthier,
Deputy Secretary.

    For the reasons set out in the preamble, chapter 9 of Title 48 of 
the Code of Federal Regulations is amended as set forth below.

PART 931--CONTRACT COST PRINCIPLES AND PROCEDURES

    1. The authority citation for Part 931 continues to read as 
follows:

    Authority: 42 U.S.C. 7101, et seq.; 40 U.S.C. 486(c); 50 U.S.C. 
2401, et seq.; 42 U.S.C. 2201.

    2. Section 931.205-47 is added to read as follows:

931.205-47  Costs related to legal and other proceedings. (DOE 
coverage-paragraph (h)).

    (h) Costs Associated with Whistleblower Actions.
    (1) Definitions for purposes of this paragraph (h):
    Covered contractors and subcontractors means those contractors and 
subcontractors with contracts exceeding $5,000,000.
    Employee whistleblower action means any action filed by an employee 
in Federal or state court for redress of a retaliatory act by a 
contractor and any administrative procedure initiated by an employee 
under 29 CFR Part 24, 48 CFR subpart 3.9, 10 CFR Part 708 or 42 U.S.C. 
7239.
    Retaliatory act means a discharge, demotion, reduction in pay, 
coercion, restraint, threat, intimidation or other similar negative 
action taken against an employee by a contractor as a result of an 
employee's activity protected as a whistleblower activity by a Federal 
or state statute or regulation.
    Settlement and award costs means defense costs and costs arising 
from judicial orders, negotiated agreements, arbitration, or an order 
from a Federal agency or board and includes compensatory damages, 
underpayment for work performed, and reimbursement for a complainant 
employee's legal counsel.
    (2) For costs associated with employee whistleblower actions where 
a retaliatory act is alleged against a covered contractor or 
subcontractor, the contracting officer:
    (i) May authorize reimbursement of costs on a provisional basis, in 
appropriate cases;
    (ii) Must consult with the Office of General Counsel whistleblower 
costs point of contact, who will consult with other Headquarters points 
of contact as appropriate, before making a final allowability 
determination; and
    (iii) Must determine allowability of defense, settlement and award 
costs on a case-by-case basis after considering the terms of the 
contract, relevant cost regulations, and the relevant facts and 
circumstances, including federal law and policy prohibiting reprisal 
against whistleblowers, available at the conclusion of the employee 
whistleblower action.
    (3) Covered contractors and subcontractors must segregate legal 
costs, including costs of in-house counsel, incurred in the defense of 
an employee whistleblower action so that the costs are separately 
identifiable.
    (4) If a contracting officer provisionally disallows costs 
associated with an employee whistleblower action for a covered 
contractor or subcontractor, funds advanced by the Department may not 
be used to finance costs connected with the defense, settlement and 
award of an employee whistleblower action.
    (5) Contractor defense, settlement and award costs incurred in 
connection with the defense of suits brought by employees under section 
2 of the Major Fraud Act of 1988 are excluded from coverage of this 
section.

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

    3. The authority citation for Part 970 continues to read as 
follows:

    Authority: Atomic Energy Act of 1954 (42 U.S.C. 2201); 
Department of Energy Organization Act (42 U.S.C. 7101, et seq.); and 
National Nuclear Security Administration Act (50 U.S.C. 2401, et 
seq.)

    4. Section 970.3102-20, Cost prohibitions related to legal and 
other proceedings, is amended by adding paragraph (c), Costs Associated 
with Whistleblower Actions, to read as follows:

970.3102-20  Costs related to legal and other proceedings.

* * * * *
    (c) Costs Associated with Whistleblower Actions. Section

[[Page 62302]]

931.205-47(h) of this chapter is applicable to management and operating 
contracts under this part and must be included in the contract's cost 
reimbursement subcontracts.

[FR Doc. 00-26333 Filed 10-17-00; 8:45 am]
BILLING CODE 6450-01-P
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