[Federal Register Volume 66, Number 22 (Thursday, February 1, 2001)]
[Proposed Rules]
[Pages 8560-8567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1330]


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DEPARTMENT OF ENERGY

48 CFR Parts 904, 952 and 970

RIN 1991-AB54


Acquisition Regulations; Conditional Payment of Fee, Profit, and 
Other Incentives

AGENCY: Department of Energy, (DOE).

ACTION: Notice of proposed rulemaking and opportunity for public 
comment.

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SUMMARY: The Department of Energy (DOE) proposes to amend its 
Acquisition Regulation to: Implement, in part, the requirements of 
Section 3147 of the National Defense Authorization Act for Fiscal Year 
2000 relating to the safeguarding of classified information; establish 
more objective standards and procedures for considering and applying 
reductions of fee or other amounts payable for contractor performance 
failures relating to environment, safety, and health (ES&H); and make 
related technical and conforming amendments.

DATES: Written comments must be received on or before the close of 
business March 5, 2001.

ADDRESSES: Comments (3 copies) should be addressed to: Michael L. 
Righi, U.S. Department of Energy, Office of Procurement and Assistance 
Management, MA-51, 1000 Independence Avenue, SW., Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Michael L. Righi at 
<a href="/cdn-cgi/l/email-protection#3855515b50595d541654164a515f5051785049165c575d165f574e"><span class="__cf_email__" data-cfemail="c9a4a0aaa1a8aca5e7a5e7bba0aea1a089a1b8e7ada6ace7aea6bf">[email protected]</span></a> or (202) 586-8175.

SUPPLEMENTARY INFORMATION:

I. Background
II. Section by Section Analysis
III. Public Comments
IV. 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 of 1999

I. Background

    In addition to other performance requirements specified in their 
contracts, the Department's management and operating contractors and 
other designated contractors are subject to minimum performance 
requirements relating to environment, safety, and health (ES&H), and to 
safeguarding Restricted Data and other classified information. As a 
general rule, such performance requirements are so fundamental to the 
accomplishment of the Department's overall mission objectives that 
meeting expected levels of performance is considered a prerequisite for 
the payment of fee, profit, or a share of cost savings under DOE 
contracts which are subject to such requirements.
    In March 1999, the Department amended its Acquisition Regulation to 
revise its fee policies and related procedures for management and 
operating contracts and other designated contracts. The objectives of 
the Department's fee policy are to ensure that fees: are reasonable and 
commensurate with performance, business and cost risks; create and 
implement tailored incentives for performance-based management 
contracts; are structured to attract best business partners; and afford 
flexibility to provide incentives to contractors to perform better at 
less cost. The rule prescribed the use of a clause entitled, 
``Conditional Payment of Fee, Profit, or Incentives.'' The clause at 48 
CFR 970.5204-86 establishes the portion of total available fee, profit, 
or incentives that is subject to recovery by DOE due to a contractor's 
failure to meet minimum requirements for a specified level of 
performance, including cost performance, with an emphasis on 
requirements relating to ES&H, and the prevention of catastrophic 
performance failures.
    Section 3147 of the National Defense Authorization Act for Fiscal 
Year 2000 (42 U.S.C. 2282b) requires, in part, that DOE contracts 
include a clause which provides for an appropriate reduction in the 
fees or amounts paid to the contractor under the contract in the event 
of a violation by the contractor or contractor employee of any rule, 
regulation, or order relating to the safeguarding or security of 
Restricted Data or other classified or sensitive information. The 
statute also prescribes that the clause must specify various degrees of 
violations and the amount of the reduction attributable to each degree 
of violation. It is noted that since there is currently no rule, 
regulation or order which defines the term ``sensitive information,'' 
as used in the Act, this category of information is not addressed in 
this proposed regulation.
    In May 2000, the Secretary of Energy announced an initiative to 
improve contractor performance management by requiring greater 
responsibility and accountability from both the Department's senior 
managers and its

[[Page 8561]]

contractors. Due to the potentially serious consequences which can 
result from performance failures relating to the Department's ES&H and 
safeguards and security programs, a major provision of the Secretary's 
initiative is to better define objective standards and procedures for 
considering and applying fee reductions for contractor performance 
failures relating to ES&H and the safeguarding of Restricted Data and 
classified information.
    In consideration of the foregoing, the Department proposes to amend 
its Acquisition Regulation to implement the aforementioned statutory 
requirements relating to the safeguarding of Restricted Data and other 
classified information and the Secretary's initiative for improving 
contractor performance management relating to ES&H. The proposed 
amendments to the Acquisition Regulation would apply to all DOE 
contracts and would be accomplished by use of one of two clauses.
    This proposed rule would add a clause entitled, ``Conditional 
Payment of Fee or Profit--Safeguarding Restricted Data and Other 
Classified Information.'' This clause would be prescribed for use in 
all DOE contracts which involve or are likely to involve classified 
information, except for DOE management and operating contracts and 
other contracts designated by the Procurement Executive, or designee. 
The clause would provide for reductions of earned fee or profit that is 
otherwise payable under applicable contracts for contractor violations 
of laws, regulations, or directives relating to the safeguarding of 
Restricted Data and other classified information. As proposed, the 
clause sets forth the conditions which may precipitate a reduction of 
fee or profit, percentage reduction ranges which correlate to three 
degrees of violations relating to the safeguarding of Restricted Data 
or other classified information, and the methodology to be used in 
determining the amount of earned fee or profit that will be subject to 
reduction under the clause.
    For DOE management and operating contracts and other contracts 
designated by the Procurement Executive, or designee, the clause at 48 
CFR 970.5204-86, would be renamed ``Conditional Payment of Fee, Profit, 
or Other Incentives--Facility Management Contracts'', and would be 
amended to provide for reductions of earned fee, fixed fee, profit, or 
share of cost savings which may otherwise be payable under the 
contract: for performance failures relating to ES&H; and, for contracts 
that involve or are likely to involve classified information, for 
contractor violations of laws, regulations, or DOE directives relating 
to the safeguarding of Restricted Data and other classified 
information. As proposed, the clause sets forth: the conditions that 
may precipitate a reduction of earned or fixed fee, profit, or share of 
cost savings under the contract; percentage fee, profit, or share of 
cost savings reduction ranges which correlate to three degrees of 
performance failures relating to ES&H and to the safeguarding of 
Restricted Data and other classified information; and the methodology 
to be used in determining the amount of earned or fixed fee, profit, or 
share of cost savings that will be subject to reduction under the 
clause.

II. Section-by-Section Analysis

    1. Section 904.402 would be amended to prescribe the Department's 
implementation of Section 3147 of the National Defense Authorization 
Act for Fiscal Year 2000 for DOE contracts which involve or are likely 
to involve the use of classified information, except DOE management and 
operating contracts and other contracts designated by the Procurement 
Executive, or designee. The section is also proposed to be amended to 
prescribe related coordination and approval requirements.
    2. Section 904.404 would be amended to add a prescription for the 
use of the new contract clause entitled, ``Conditional Payment of Fee 
or Profit--Safeguarding Restricted Data and Other Classified 
Information.''
    3. Section 952.204-XX would be added to incorporate the text of the 
new contract clause entitled, ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information.''
    4. Section 970.0404-2 would be amended to prescribe the 
Department's implementation of Section 3147 of the National Defense 
Authorization Act for Fiscal Year 2000 for DOE management and operating 
contracts and other contracts designated by the Procurement Executive, 
or designee.
    5. Section 970.15404-4-1 would be amended to prescribe the 
Department's policy pertaining to the payment of earned fee, fixed fee, 
profit, or share of cost savings under applicable DOE contracts for 
achieving minimum performance requirements relating to ES&H and to the 
safeguarding of Restricted Data and other classified information.
    6. Section 970.15404-4-11 would be amended to revise the 
prescription for use of the clause at 48 CFR 970.5204-86.
    7. Section 970.5204-86 would be amended to revise the title of the 
clause, and to provide for contractual implementation of the 
Department's policy prescribed at amended 970.15404-4-1 (see paragraph 
5.).
    8. Technical and conforming amendments would be made to various 
sections as a result of the amendments described in paragraphs 1. 
through 7.

III. Public Comments

    Interested persons are invited to participate by submitting data, 
views or arguments with respect to the new regulation proposed in this 
notice. Three copies of written comments should be submitted to the 
address indicated in the ADDRESSES section of this notice. All comments 
received will be available for public inspection as part of the 
administrative record on file for this rulemaking in the Department of 
Energy Reading Room, Room 1E-090, Forrestal Building, 1000 Independence 
Avenue, SW., Washington, DC 20585, (202) 586-3142, between the hours 9 
a.m. and 4 p.m., Monday through Friday, except Federal holidays. All 
written comments received by the date indicated in the DATES section of 
this notice of proposed rulemaking and all other relevant information 
in the record will be carefully assessed and fully considered prior to 
the publication of the final rule. Any information or data considered 
to be exempt from public disclosure by law must be so identified and 
submitted in writing, one copy, as well as one complete copy from which 
the information believed to be exempt from disclosure is deleted. The 
Department will determine if the information or data is exempt from 
disclosure.

IV. 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 action 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

[[Page 8562]]

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. The 
Department has completed the required review and determined that, to 
the extent permitted by law, the regulations meet the relevant 
standards of Executive Order 12988.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., requires 
that a Federal agency prepare a regulatory flexibility analysis for any 
rule for which the agency is required to publish a general notice of 
proposed rulemaking. Such an analysis is not required, however, if the 
agency certifies that the rule would not, if promulgated, have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C. 605(b)).
    The Department certifies that today's proposal will not have a 
significant economic impact on a substantial number of small entities. 
This rule, which implements, in part, the requirements of Section 3147 
of the National Defense Authorization Act for Fiscal Year 2000, applies 
predominantly to DOE's management and operating contractors which are 
not small entities. The rule will not directly regulate small entities, 
diminish any preference accorded to small businesses in Federal or DOE 
procurement programs, or impose requirements which may result in 
increased administrative costs to contractors.

D. Review Under the Paperwork Reduction Act

    This proposed rule does not contain information collection 
requirements that require approval by the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3507 et seq.).

E. Review Under the National Environmental Policy Act

    The Department has concluded that promulgation of this proposed 
rule falls into a class of actions which would not individually or 
cumulatively have significant impact on the human environment, as 
determined by Department of Energy 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 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.'' As defined 
in the Executive Order, policies that have federalism implications 
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. The Department has examined this proposed 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 affects private sector entities, and the 
impact is less than $100 million.

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

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any proposed rule or policy that may affect 
family well-being. Today's rule does not impact on the autonomy or 
integrity of the family institution. Accordingly, the Department has 
concluded that it is not necessary to prepare a Family Policymaking 
Statement.

List of Subjects in 48 CFR Parts 904, 952, and 970

    Government procurement.

    Issued in Washington, DC on January 10, 2001.
T.J. Glauthier,
Deputy Secretary, Department of Energy.

    For the reasons set out in the preamble, DOE proposes to amend 
Chapter 9 of Title 48 of the Code of Federal Regulations as set forth 
below.
    1. The authority citation for parts 904 and 952 is revised to read 
as follows:

    Authority: 42 U.S.C. 7101 et seq.; 41 U.S.C. 418b; 50 U.S.C. 
2401 et seq.

PART 904--ADMINISTRATIVE MATTERS

    2. Section 904.402 is amended by adding a new paragraph (c) to read 
as follows:


904.402  General.

* * * * *
    (c)(1) Section 3147 of the National Defense Authorization Act for 
Fiscal Year 2000 (42 U.S.C. 2282b) requires that applicable DOE 
contracts include a clause which provides for an appropriate reduction 
in the fees or amounts paid to the contractor under the contract in the 
event of a violation by the contractor or any contractor employee of 
any rule, regulation, or order relating to the safeguarding or security 
of Restricted Data or other classified information. The clause is 
required to specify various degrees of violations and the amount of the 
reduction attributable to each degree of violation. The clause 
prescribed in 48 CFR 904.404(d)(5) shall be used for this purpose 
unless the clause prescribed at 48 CFR 970.15404-4-11(b) is used.
    (2) The clause entitled ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information'' 
provides for reductions of fee or profit that is earned by the

[[Page 8563]]

contractor and that may otherwise be payable under the contract 
depending upon the severity of the contractor's failure to comply with 
contract terms or conditions relating to the safeguarding of Restricted 
Data or other classified information. However, when reviewing 
performance failures that occur during the performance of the contract 
that would otherwise warrant a potential reduction of earned fee, the 
contracting officer may consider mitigating factors that may warrant a 
reduction below the applicable range specified in the clause, including 
a determination that no reduction should be made. Such factors may 
include situations in which a contractor self-identifies a problem 
requiring corrective action, and is actively working to correct the 
problem.
    (3) The contracting officer must obtain the concurrence of the Head 
of the Contracting Activity--
    (i) Prior to effecting any reduction of fee or amounts otherwise 
payable to the contractor in accordance with the terms and conditions 
of the clause entitled, ``Conditional Payment of Fee or Profit--
Safeguarding Restricted Data and Other Classified Information;'' and
    (ii) For determinations that no reduction of fee is warranted for a 
particular performance failure(s) that would otherwise be subject to a 
reduction.
    3. Section 904.404 is amended by adding a new paragraph (d)(5) to 
read as follows:


904.404  Contract clause.

    (d) * * *
    (5) Except as prescribed in 48 CFR 970.15404-4-11(b), the clause at 
48 CFR 952.204-XX, Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information, shall be inserted in 
all contracts which contain the clause at 48 CFR 952.204-2, Security.

PART 952--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    4. Section 952.204-XX is added in Subchapter H to read as follows:


952.204-XX  Conditional Payment of Fee or Profit--Safeguarding 
Restricted Data and Other Classified Information.

    As prescribed in 48 CFR (DEAR) 904.404(d)(5) insert the following 
clause.

Conditional Payment of Fee or Profit--Safeguarding Restricted Data and 
Other Classified Information (Month and Year TBD)

    (a) General. (1) The payment of fee or profit (i.e., award fee, 
fixed fee, and incentive fee or profit) under this contract is 
dependent upon the contractor's compliance with the terms and 
conditions of this contract relating to the safeguarding of 
Restricted Data and other classified information (i.e., Formerly 
Restricted Data and National Security Information) including 
compliance with applicable law, regulation, and DOE directives. The 
term ``contractor'' as used in this clause to address failure to 
comply shall mean ``contractor or contractor employee.''
    (2) In addition to other remedies available to the Federal 
Government, if the contractor fails to comply with the terms and 
conditions of this contract relating to the safeguarding of 
Restricted Data and other classified information, the contracting 
officer may unilaterally reduce the amount of earned fee, fixed fee, 
or profit which is otherwise payable to the contractor in accordance 
with the terms and conditions of this clause.
    (3) Any reduction in the amount of fee or profit earned by the 
contractor will be determined by the severity of the contractor's 
failure to comply with contract terms and conditions relating to the 
safeguarding of Restricted data or other classified information 
pursuant to the degrees specified in paragraph (c) of this clause.
    (b) Reduction Amount. (1) If it is found that the contractor has 
failed to comply with contract terms and conditions relating to the 
safeguarding of Restricted Data or other classified information, the 
contractor's earned or fixed fee, or profit may be reduced. Such 
reduction shall not be less than 51% nor greater than 100% of the 
total fee or profit earned for a first degree performance failure, 
not less than 26% nor greater than 50% for a second degree 
performance failure, and up to 25% for a third degree performance 
failure. The contracting officer may consider mitigating factors 
that may warrant a reduction below the specified range, including a 
determination that no reduction should be made (see 48 CFR 
904.402(c)).
    (2)(i) For purposes of this clause, the contracting officer will 
at the time of contract award allocate the total amount of fee or 
profit that is available under this contract to equal periods of 
[insert 6 or 12] months to run sequentially for the entire term of 
the contract (i.e., from the effective date of the contract to the 
expiration date of the contract, including all options). The amount 
of fee or profit to be allocated to each period shall be equal to 
the average monthly fee or profit that is available or otherwise 
payable during the entire term of the contract, multiplied by the 
number of months established above for each period.
    (ii) The total amount of fee or profit that is subject to 
reduction under this clause, in combination with any reduction made 
under any other clause in the contract that provides for a reduction 
to the fee or profit, shall not exceed the amount of fee or profit 
that is earned by the contractor in the period established pursuant 
to paragraph (b)(2)(i) of this clause in which a performance failure 
warranting a reduction occurs.
    (3) For performance-based firm-fixed-price contracts, the 
contracting officer will at the time of contract award include 
negative monetary incentives in the contract for contractor 
violations relating to the safeguarding of Restricted Data and other 
classified information.
    (c) Safeguarding Restricted Data and Other Classified 
Information. The degrees of performance failures relating to the 
contractor's obligations under this contract for safeguarding of 
Restricted Data and other classified information are as follows:
    (1) First Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have resulted in, or that can reasonably be expected 
to result in, exceptionally grave damage to the national security. 
The following performance failures or performance failures of 
similar import will be considered first degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating a risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information classified as Top Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Restricted Data, or other classified information which 
is classified as Top Secret.
    (iii) Failure to implement corrective actions stemming from the 
loss, compromise, or unauthorized disclosure of Restricted Data or 
other classified information classified as Top Secret.
    (2) Second Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, serious damage to the national security. The 
following performance failures or performance failures of similar 
import will be considered second degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information which is classified as Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Restricted Data, or other classified information which 
is classified as Secret.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Restricted Data or other classified 
information regardless of classification.
    (iv) Failure to implement corrective actions stemming from the 
loss, compromise, or unauthorized disclosure of Restricted Data or 
other classified information classified as Secret.
    (3) Third Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, undue risk to the common defense and 
security. In addition, this category includes performance failures 
that result from a lack of contractor management and/or employee 
attention to the proper safeguarding of Restricted Data and other 
classified information. These performance failures may be indicators 
of

[[Page 8564]]

future, more severe performance failures and/or conditions, and if 
identified and corrected early would prevent serious incidents. The 
following performance failures or performance failures of similar 
import will be considered third degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information which is classified as Confidential.
    (ii) Failure to promptly report alleged or suspected violations 
of laws, regulations, or directives pertaining to the safeguarding 
of Restricted Data or other classified information.
    (iii) Failure to identify or execute corrective actions to 
mitigate or eliminate identified vulnerabilities and reduce residual 
risk relating to the protection of Restricted Data or other 
classified information in accordance with the contractor's 
Safeguards and Security Plan or other security plan, as applicable.
    (iv) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the contractor's 
safeguards and security management system relating to the protection 
of Restricted Data and other classified information.

(End of Clause)

PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS

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

    Authority: 42 U.S.C. 2201; 42 U.S.C. 7101 et seq.; 50 U.S.C. 
2401 et seq.

    6. Section 970.0404-2 is amended by adding paragraph (f) to read as 
follows:


970.0404-2  General.

* * * * *
    (f) For DOE management and operating contracts and other contracts 
designated by the Procurement Executive, or designee, the clause 
entitled, ``Conditional Payment of Fee, Profit, and Other Incentives--
Facility Management Contracts,'' implements the requirements of Section 
3147 of the National Defense Authorization Act for Fiscal Year 2000 
(see 48 CFR 904.402(c)(1)) for the use of a contract clause which 
provides for an appropriate reduction in the fee or amount paid to the 
contractor under the contract in the event of a violation by the 
contractor or any contractor employee of any rule, regulation, or order 
relating to the safeguarding or security of Restricted Data or other 
classified information. The clause, in part, provides for reductions in 
the amount of fee, profit, or share of cost savings that is otherwise 
earned by the contractor for performance failures relating to the 
safeguarding of Restricted Data and other classified information.
    7. Section 970.1504-1-2 is amended by adding new paragraph (i) to 
read as follows:


970.1504-1-2  Fee policy.

* * * * *
    (i)(1) In addition to other performance requirements specified in 
the contract, DOE management and operating contractors and other 
contracts designated by the Procurement Executive, or designee, are 
subject to minimum performance requirements relating to environment, 
safety, and health (ES&H), and to the safeguarding of Restricted Data 
and other classified information. Minimum performance requirements 
relating to ES&H will be set forth in a DOE approved Integrated Safety 
Management System (ISMS), or similar document, as required by the terms 
and conditions of the contract. As applicable, requirements relating to 
the safeguarding of Restricted Data and other classified information 
will be set forth in the clauses of the contract entitled ``Security'' 
and ``Laws, Regulations, and DOE Directives,'' and in other terms and 
conditions that may be included in the contract which prescribe 
requirements for the safeguarding of Restricted Data and other 
classified information.
    (2) If the contractor fails to obtain DOE approval of the ISMS, 
fails to achieve the minimum performance requirements of the contract 
relating to ES&H, or violates any law, regulation, or directive 
relating to the safeguarding of Restricted Data and other classified 
information, otherwise earned fee, fixed fee, profit, or share of cost 
savings may be unilaterally reduced by the DOE Operations Office/Field 
Manager, or designee, in accordance with the terms and conditions of 
the clause entitled ``Conditional Payment of Fee, Profit, and Other 
Incentives--Facility Management Contracts.''
    (3) The clause entitled ``Conditional Payment of Fee, Profit, and 
Other Incentives--Facility Management Contracts,'' provides for 
reductions of earned fee, fixed fee, profit, or share of cost savings 
under the contract depending upon the severity of a contractor 
performance failure relating to ES&H requirements and, if applicable, 
for the safeguarding of Restricted Data and other classified 
information. However, when reviewing performance failures that occur 
during the performance of the contract that would otherwise warrant a 
potential reduction of earned fee, fixed fee, profit, or share of cost 
savings, the DOE Operations Office/Field Manager, or designee, may 
consider mitigating factors that may warrant a reduction below the 
applicable range specified in the clause, including a determination 
that no reduction should be made. Such factors may include situations 
in which a contractor self-identifies a problem requiring corrective 
action, and is actively working to correct the problem.
    (4) The DOE Operations Office/Field Manager, or designee, must 
obtain the concurrence of the Cognizant Secretarial Officer--
    (i) Prior to effecting any reduction of fee or profit in accordance 
with the terms and conditions of the clause entitled, ``Conditional 
Payment of Fee, Profit, and Other Incentives--Facility Management 
Contracts;'' and
    (ii) For determinations that no reduction of fee or profit is 
warranted for a particular performance failure(s) that would otherwise 
be subject to a reduction.


970.1504-1-3  [Amended]

    8. Section 970.1504-1-3 is amended in paragraph (c)(1) by revising 
``Conditional Payment of Fee, Profit, or Incentives'' to read 
``Conditional Payment of Fee, Profit, and Other Incentives--Facility 
Management Contracts.''
    9. Section 970.1504-5 is amended by revising paragraph (b) to read 
as follows:


970.1504-5  Solicitation provision contract clauses.

* * * * *
    (b) (1) The contracting officer shall insert the clause at 48 CFR 
970.5204-86, Conditional Payment of Fee, Profit, and Other Incentives--
Facility Management Contracts, in all DOE management and operating 
contracts and other contracts determined by the Procurement Executive, 
or designee.
    (2) The contracting officer shall include the clause with its 
Alternate I in contracts which do not contain the clause at 48 CFR 
952.204-2, Security.
    (3) The contracting officer shall include the clause with its 
Alternate II in contracts which are awarded on a cost-plus-award-fee, 
incentive fee, or multiple fee basis.
* * * * *


970.5215-1  [Amended]

    10. Section 970.5215-1 is amended in paragraph (c)(3) by revising 
``Conditional Payment of Fee, Profit, or Incentives'' to read 
``Conditional Payment of Fee, Profit, and Other Incentives--Facility 
Management Contracts.''
    11. Section 970.5215-3 is revised to read as follows:

[[Page 8565]]

970.5215-3  Conditional payment of fee, profit, and other incentives--
facility management contracts.

    As prescribed in 48 CFR 970.15404-4-11(b)(1), insert the following 
clause:


970.5204.86  Conditional Payment of Fee, Profit, and Other Incentives--
Facility Management Contracts (Month and Year TBD)

    (a) General. (1) The payment of earned fee, fixed fee, profit, 
or share of cost savings under this contract is dependent upon the 
contractor's development of, and performance under, an approved 
Integrated Safety Management System (ISMS), and the contractor's or 
contractor employee's compliance with the terms and conditions of 
this contract relating to the safeguarding of Restricted Data and 
other classified information.
    (2) The minimum performance requirements of this contract 
relating to environment, safety, and health (ES&H) will be set forth 
in an approved ISMS, or similar document, as required by the terms 
and conditions of this contract. These minimum requirements are: (i) 
implementation of the DOE-approved ISMS; (ii) compliance with 
applicable laws, regulations, and DOE directives; (iii) 
accomplishment of annual performance commitments relating to ES&H 
and (iv) prevention of catastrophic performance failures (e.g., 
fatality; serious workplace-related injury or illness to one or more 
federal, contractor, or subcontractor employees or the general 
public; significant damage to the environment).
    (3) Requirements of this contract relating to the safeguarding 
of Restricted Data and other classified information will be set 
forth in the clauses of this contract entitled, ``Security'' and 
``Laws, Regulations, and DOE Directives,'' as well as other terms 
and conditions that may be prescribed elsewhere in this contract.
    (4) If the contractor fails to obtain approval of the ISMS, or 
otherwise fails to achieve the minimum performance requirements of 
this contract relating to ES&H or to the safeguarding of Restricted 
Data and other classified information during any performance 
evaluation period established under the contract pursuant to the 
clause of this contract entitled, ``Total Available Fee: Base Fee 
Amount and Performance Fee Amount,'' otherwise earned fee, fixed 
fee, profit or share of cost savings may be unilaterally reduced by 
the DOE Operations Office/Field Manager, or designee.
    (b) Reduction Amount. (1) The amount of earned fee, fixed fee, 
profit, or share of cost savings that is subject to reduction will 
be determined by the severity of the performance failure relating to 
ES&H or to the safeguarding of Restricted Data and other classified 
information pursuant to the degrees specified in paragraphs (c) and 
(d) of this clause.
    (2) If it is found that the facts and circumstances warrant a 
reduction of earned fee, fixed fee, profit, or share of cost 
savings, such reduction shall not be less than 51% nor greater than 
100% of the amount of earned fee, fixed fee, profit, or the 
contractor's share of cost savings for a first degree performance 
failure, not less than 26% nor greater than 50% for a second degree 
performance failure, and up to 25% for a third degree performance 
failure. The DOE Operations Office/Field Manager, or designee, may 
consider mitigating factors that may warrant a reduction below the 
applicable range, including a determination that no reduction should 
be made (see 48 CFR 970.15404-4-1(h)).
    (3)(i) The amount of fee, fixed fee, profit, or share of cost 
savings that is otherwise earned by a contractor during an 
evaluation period may be reduced in accordance with this clause if 
it is determined that a performance failure warranting a reduction 
under this clause occurs within the evaluation period.
    (ii) The amount of reduction under this clause, in combination 
with any reduction made under any other clause in the contract, 
shall not exceed the amount of fee, fixed fee, profit, or the 
contractor's share of cost savings that is otherwise earned during 
the evaluation period.
    (iii) For the purposes of this clause, earned fee, fixed fee, 
profit, or share of cost savings shall mean the amount determined by 
the contracting officer or fee determining official as otherwise 
payable based on the contractor's performance during an evaluation 
period. Where the contract provides for one or more financial 
incentives which extend beyond a single evaluation period, this 
amount shall also include any provisional incentive amounts 
determined otherwise payable, or if provisional payments are not 
provided for, the allocable amount of any incentive determined 
otherwise payable at the conclusion of a subsequent evaluation 
period. The allocable amount shall be the total amount of the earned 
incentive divided by the number of evaluation periods over which it 
is earned.
    (iv) The Government will effect the reduction at the end of the 
evaluation period in which the performance failure occurs (unless 
the Government is not aware of the failure; in this case the 
Government will effect the reduction as soon as practical), except 
for that portion of the reduction requiring an allocation. The 
Government will effect this portion of the reduction at the end of 
the evaluation period in which it determines the total amount earned 
under the incentive. If at any time a reduction causes the sum of 
the payments the contractor has received for fee, fixed fee, profit, 
or share of cost savings to exceed the sum of fee, fixed fee, 
profit, or share of cost savings the contractor has earned 
(provisionally or otherwise), the contractor shall immediately 
return the excess to the Government. (What the contractor ``has 
earned'' reflects any reduction made under this or any other clause 
of the contract.)
    (v) At the end of the contract:
    (A) The Government will pay the contractor the amount by which 
the sum of fee, fixed fee, profit, or share of cost savings the 
contractor has earned exceeds the sum of the payments the contractor 
has received; or
    (B) The contractor shall return to the Government the amount by 
which sum of the payments the contractor has received exceed the sum 
of fee, fixed fee, profit, or share of cost savings the contractor 
has earned. (What the contractor ``has earned'' reflects any 
reduction made under this or any other clause of the contract.)
    (c) Environment, Safety and Health (ES&H). The degrees of ES&H 
performance failures under which reductions of earned or fixed fee, 
profit, or share of cost savings will be determined are as follows:
    (1) First Degree: Performance failures that are considered 
catastrophic or could threaten the successful completion of a 
program or project. The following performance failures or 
performance failures of similar import will be considered first 
degree:
    (i) Failure to develop and obtain required DOE approval of a 
Safety Management System.
    (ii) Failure to comply with an approved Safety Management System 
which results in any of the following performance failures:
    (A) Fatality.
    (B) Serious workplace-related injury or illness to one or more 
Federal, contractor, or subcontractor workers or member(s) of the 
public.
    (C) Significant damage to the environment.
    (D) Contractor actions leading to a Type A accident 
investigation (reference DOE O 225.1A, ``Accident 
Investigations.'').
    (E) Breakdown of the safety management system creating risk of a 
Type A performance failure.
    (F) Non-compliance with applicable environmental, safety, and 
health laws, regulations, and DOE directives posing a Type A risk.
    (G) Failure to notify DOE of an imminent danger situation after 
discovery.
    (H) Failure to report performance failures that could warrant 
consideration of a Type A or Type B investigation.
    (iii) Failure to implement corrective action(s) in response to 
the occurrence of any first degree performance failure.
    (2) Second Degree: Performance failures that are significantly 
adverse to safety or could result in significant additional cost to 
the Federal Government. The following performance failures or 
performance failures of similar import will be considered second 
degree:
    (i) Contractor actions leading to a Type B accident 
investigation (reference DOE O 225.1A, ``Accident Investigations'').
    (ii) Breakdown of the safety management system creating the risk 
of a Type B performance failure.
    (iii) Non-compliance with applicable environmental, safety, and 
health law, regulation, or DOE directive creating risk of a Type B 
performance failure.
    (iv) Failure to execute DOE approved implementation plans in 
response to Defense Nuclear Facilities Safety Board recommendations.
    (v) Failure to meet key program milestones designed to 
substantially reduce risk to workers, the public, and the 
environment.
    (vi) Failure to implement corrective action(s) in response to 
the occurrence of any second degree performance failure.
    (3) Third Degree: Performance failures that result from lack of 
management and/or worker attention to safety. These performance 
failures may be indicators of

[[Page 8566]]

future, more severe performance failures and/or conditions, and if 
identified and corrected early can prevent serious accidents. The 
following performance failures or performance failures of similar 
import will be considered third degree:
    (i) Failure to implement corrective actions resulting from 
oversight evaluations, assessments, and inspections.
    (ii) Failure to implement actions designed to integrate lessons-
learned into work planning and execution.
    (iii) Failure to implement corrective actions resulting from 
self-assessments.
    (iv) Contractor actions that result in a lapse in Safety 
Management System implementation posing less than a Type B risk.
    (v) Non-compliance with applicable environmental, safety, and 
health laws, regulations, and DOE directives posing less than a Type 
B risk.
    (vi) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the safety 
management system.
    (vii) Failure to implement corrective action(s) in response to 
the occurrence of any third degree performance failure.
    (d) Safeguarding Restricted Data and Other Classified 
Information. The degrees of performance failures relating to the 
contractor's and contractor employee's obligations under this 
contract for the safeguarding of Restricted Data and other 
classified information under which reductions of fee, profit, or 
share of cost savings will be determined are as follows:
    (1) First Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have resulted in, or that can reasonably be expected 
to result in, exceptionally grave damage to the national security. 
The following performance failures or performance failures of 
similar import will be considered first degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating a risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information classified as Top Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Restricted Data, or other classified information which 
is classified as Top Secret.
    (iii) Failure to implement corrective actions stemming from the 
loss, compromise, or unauthorized disclosure of Restricted Data or 
other classified information classified as Top Secret.
    (2) Second Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, serious damage to the national security. The 
following performance failures or performance failures of similar 
import will be considered second degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information which is classified as Secret.
    (ii) Contractor actions that result in a breakdown of the 
safeguards and security management system that can reasonably be 
expected to result in the loss, compromise, or unauthorized 
disclosure of Restricted Data, or other classified information which 
is classified as Secret.
    (iii) Failure to promptly report the loss, compromise, or 
unauthorized disclosure of Restricted Data or other classified 
information regardless of classification.
    (iv) Failure to implement corrective actions stemming from the 
loss, compromise, or unauthorized disclosure of Restricted Data or 
other classified information classified as Secret.
    (3) Third Degree: Performance failures that have been 
determined, in accordance with applicable DOE regulation or 
directive, to have actually resulted in, or that can reasonably be 
expected to result in, undue risk to the common defense and 
security. In addition, this category includes performance failures 
that result from a lack of contractor management and/or employee 
attention to the proper safeguarding of Restricted Data and other 
classified information. These performance failures may be indicators 
of future, more severe performance failures and/or conditions, and 
if identified and corrected early would prevent serious incidents. 
The following performance failures or performance failures of 
similar import will be considered third degree:
    (i) Non-compliance with applicable laws, regulations, and DOE 
directives actually resulting in, or creating risk of, loss, 
compromise, or unauthorized disclosure of Restricted Data or other 
classified information which is classified as Confidential.
    (ii) Failure to promptly report alleged or suspected violations 
of laws, regulations, or directives pertaining to the safeguarding 
of Restricted Data or other classified information.
    (iii) Failure to identify or execute corrective actions to 
mitigate or eliminate identified vulnerabilities and reduce residual 
risk relating to the protection of Restricted Data or other 
classified information in accordance with the contractor's 
Safeguards and Security Plan or other security plan, as applicable.
    (iv) Contractor actions that result in performance failures 
which unto themselves pose minor risk, but when viewed in the 
aggregate indicate degradation in the integrity of the contractor's 
safeguards and security management system relating to the protection 
of Restricted Data and other classified information.

(End of Clause)

    Alternate I (Month and Year TBD). As prescribed in 48 CFR 
970.15404-4-11(b)(2), replace paragraphs (a) and (b)(1) of the basic 
clause with the following paragraphs (a) and (b)(1), and delete 
paragraph (d).
    (a) General. (1) The payment of earned fee, fixed fee, profit, 
or share of cost savings under this contract is dependent upon the 
contractor's development of, and performance under, an approved 
Integrated Safety Management System (ISMS).
    (2) The minimum performance requirements of this contract 
relating to environment, safety, and health (ES&H) will be set forth 
in an approved ISMS, or similar document, as required by the terms 
and conditions of this contract. These minimum requirements are: (i) 
implementation of the DOE-approved ISMS; (ii) compliance with 
applicable laws, regulations, and DOE directives; (iii) 
accomplishment of annual performance commitments relating to ES&H; 
and (iv) prevention of catastrophic performance failures (e.g., 
fatality; serious workplace-related injury or illness to one or more 
federal, contractor, or subcontractor employees or the general 
public; significant damage to the environment).
    (3) If the contractor fails to obtain approval of the ISMS, or 
otherwise fails to achieve the minimum performance requirements of 
this contract relating to ES&H during the performance evaluation 
period, otherwise earned fee, fixed fee, profit or share of cost 
savings may be unilaterally reduced by the DOE Operations Office/
Field Manager, or designee.
    (b) Reduction Amount. (1) The amount of earned fee, fixed fee, 
profit, or share of cost savings that is subject to reduction will 
be determined by the severity of the performance failure relating to 
ES&H pursuant to the degrees specified in paragraphs (c) of this 
clause.
    Alternate II (Month and Year TBD). As prescribed in 48 CFR 
970.15404-4-11(b)(3), insert the following as paragraphs (e) and (f) 
in contracts awarded on a cost-plus-award fee, incentive fee or 
multiple fee basis (if Alternate I is also used, redesignate the 
following as paragraphs (d) and (e)).
    (e) Minimum requirements for specified level of performance. (1) 
At a minimum the contractor must perform the following:
    (i) The requirements with specific incentives which do not 
require the achievement of cost efficiencies in order to be 
performed at the level of performance set forth in the Statement of 
Work, Work Authorization Directive, or similar document unless an 
otherwise minimal level of performance has been established in the 
specific incentive;
    (ii) All of the performance requirements directly related to 
requirements specifically incentivized which do not require the 
achievement of cost efficiencies in order to be performed at a level 
of performance such that the overall performance of these related 
requirements is at an acceptable level; and
    (iii) All other requirements at a level of performance such that 
the total performance of the contract is not jeopardized.
    (2) The evaluation of the Contractor's achievement of the level 
of performance shall be unilaterally determined by the Government. 
To the extent that the Contractor fails to achieve the minimum 
performance levels specified in the Statement of Work, Work 
Authorization Directive, or similar document, during the performance 
evaluation period, the DOE Operations/Field Office Manager, or 
designee, may reduce any otherwise earned fee, fixed fee, profit, or 
shared net savings for the performance

[[Page 8567]]

evaluation period. Such reduction shall not result in the total of 
earned fee, fixed fee, profit, or shared net savings being less than 
25% of the total available fee amount. Such 25% shall include base 
fee, if any.
    (f) Minimum requirements for cost performance. (1) Requirements 
incentivized by other than cost incentives must be performed within 
their specified cost constraint and must not adversely impact the 
costs of performing unrelated activities.
    (2) The performance of requirements with a specific cost 
incentive must not adversely impact the costs of performing 
unrelated requirements.
    (3) The contractor's performance within the stipulated cost 
performance levels for the performance evaluation period shall be 
determined by the Government. To the extent the contractor fails to 
achieve the stipulated cost performance levels, the DOE Operations/
Field Office Manager, or designee, may reduce in whole or in part 
any otherwise earned fee, fixed fee, profit, or shared net savings 
for the performance evaluation period. Such reduction shall not 
result in the total of earned fee, fixed fee, profit or shared net 
savings being less than 25% of the total available fee amount. Such 
25% shall include base fee, if any.

[FR Doc. 01-1330 Filed 1-31-01; 8:45 am]
BILLING CODE 6450-01-P


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