[Federal Register Volume 59, Number 168 (Wednesday, August 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21536]
[[Page Unknown]]
[Federal Register: August 31, 1994]
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DEPARTMENT OF ENERGY
Office of Procurement and Assistance Management
Contractor Litigation Costs Policies; Policies, Terms of Law Firm
Engagement, and Allowability of Costs
AGENCY: Department of Energy.
ACTION: Notice of interim policy statement.
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SUMMARY: The Department of Energy today publishes an interim
Acquisition Letter for public comment that has been issued to
contracting officers who are responsible for the administration of
management and operating contracts. The letter sets forth interim
policies regarding two contract clauses that are prescribed by the
Department of Energy Acquisition Regulation. The letter sets forth a
statement of policy with regard to the terms of engagement that should
be a condition of any authorization to a current or former management
and operating contractor to engage a law firm to defend a lawsuit. The
letter also sets forth policies for a contracting officer's
consideration in determining whether particular litigation costs are
reasonable and therefore allowable.
DATES: The effective dates are set forth in the interim Acquisition
Letter. Comments are due on or before September 30, 1994.
ADDRESSES: Comments may be submitted to Marc Johnston, Deputy General
Counsel for Judicial Litigation, U.S. Department of Energy, Washington,
DC 20585.
FOR FURTHER INFORMATION CONTACT: Marc Johnston, Deputy General Counsel
for Judicial Litigation, U.S. Department of Energy, Washington, DC
20585 (202) 586-2909.
SUPPLEMENTARY INFORMATION: The Department of Energy (Department) owns
facilities in various locations in the United States which have been
operated by former and current management and operating contractors. In
connection with these facilities, there is a substantial amount of
litigation against which the Department may elect to defend itself or
authorize the contractor to defend. The standard provisions of
management and operating contracts allow contracting officers to
authorize contractors to engage lawyers to defend lawsuits, subject to
such conditions as the contracting officers deem appropriate. See 48
CFR 970.5204-31. The standard provisions of management and operating
contracts also authorize contracting officers to determine whether the
costs charged are reasonable and therefore allowable when allocable to
contract work. See 48 CFR 970.5204-13.
Recently, the Department has experienced unacceptably high
litigation costs from management and operating contractors in
connection with the defense of lawsuits where the Department has
elected to have the contractor engage lawyers to conduct the
litigation. Moreover, contracting officers dealing with these costs
have differed in their approaches to determining whether a litigation
cost is reasonable. The Department has an urgent need to provide for a
more uniform approach by contracting officers to such costs and to stem
payment of unreasonable expenses. This need is particularly compelling
in light of the substantial dollar amounts at stake and the
Department's budgetary situation. In view of the foregoing, the
Department has issued the Acquisition Letter set forth below as an
interim policy, the effective dates of which are set forth below. The
Department will receive and consider public comment prior to issuing a
final version of this Acquisition Letter.
The provisions of the policy are largely self-explanatory. They are
based on past experience of the contractors, the Department of Energy,
and other federal agencies (including the Federal Deposit Insurance
Corporation and Resolution Trust Corporation) in managing and
controlling litigation costs throughout the Nation, and should provide
a reasonable decisionmaking framework for contracting officers without
being unnecessarily constraining. If any of the provisions of the
policy would be unreasonable as applied, contracting officers have
discretion to depart from the policy based upon particular facts and
circumstances.
The Department is seeking public comment on the interim Acquisition
Letter in order to give the public, including those persons who are
affected by the policies, an opportunity to comment on the interim
Letter before it is finalized.
Issued in Washington, DC, on August 26, 1994.
Richard H. Hopf,
Deputy Assistant Secretary, Office of Procurement and Assistance
Management.
Acquisition Letter 94-13, August 25, 1994.
Authority: This Acquisition Letter (AL) is issued by the
Procurement Executive pursuant to a delegation from the Secretary
and under authority of the Department of Energy Acquisition
Regulation (DEAR) Subpart 901.301-70.
Contents
Citation Title
970.5204-13..... Allowable costs and fixed-fee (Management and
Operating Contracts)
970.5204-31..... Litigation and claims
I. Purpose
The purpose of this AL is to establish interim policies on the
reasonableness of Management and Operating (``M&O'') contractor
litigation costs.
II. Background
Under the allowable costs clause of the Department's M&O contracts,
attorneys' fees and other litigation costs are allowable only if
reasonable and incurred in accordance with the Litigation and claims
clause. The policies set forth below are a prospective reference to aid
in Contracting Officers' determinations as to whether contractor
litigation costs under M&O contracts are reasonable.
The Department recognizes that these policies can be most
effectively achieved for pending cases through the cooperation of the
contractors and the law firms involved. The Department intends to work
closely with the contractors to ensure a smooth implementation that
will not compromise the defense of pending matters.
III. Guidance
These policies apply to reimbursement of present and former M&O
contractors for amounts paid to outside law firms and consultants
(``outside firms'') in connection with litigation to which the
contractor is a party, except to the extent the contractor's own
litigation procedures or current retainer agreements contain more cost-
restrictive provisions. The Contracting Officer, or his or her
designated representative (hereinafter ``Contracting Officer''), may,
after consultation with Department counsel, authorize an exception to
the policies described below based upon economy, the interests of the
Government, or other good cause. These policies may be modified, from
time to time, as the Department determines appropriate. The Contracting
Officer has authority to exclude from these policies cases whose
expected costs of defense are less than $25,000 and/or routine matters
handled by outside counsel retained and supervised by an insurance
carrier.
A. Interim Policies
Contracting Officers shall refer to and consider the following
policies in determining the reasonableness of contractor litigation
costs. The failure to specify or describe a particular category of cost
in paragraphs III.A.1. through III.A.10. does not imply that such
category of cost is either allowable or unallowable.
1. Terms Of Engagement
In order for costs incurred by an M&O contractor for an outside
firm to be considered reasonable, they shall be incurred in accordance
with the terms of engagement between the contractor and the outside
firm which have been approved by the Contracting Officer. The terms of
engagement between the contractor and the outside firm shall
incorporate and include the policies included in paragraphs III.A.1.
through III.A.10. of this AL. The terms of engagement shall also
provide that the outside firm will comply with the Department's
Litigation Management Procedures, which, among other things, require a
Staffing and Resource Plan (for significant cases), periodic case
assessments and budgets, adequate audit provisions, and notification to
the Department and the contractor of any significant change in the
Staffing and Resource Plan.
a. Bills and invoices. All bills and invoices shall reflect the
information and contents set forth in the model format of Attachment A.
Any bill or invoice shall also contain a certification signed by a
representative of the outside law firm to the effect that:
``Under penalty of law, [the representative] acknowledges the
expectation that the bill will be paid by the contractor and that the
contractor will be reimbursed by the Federal Government through the
U.S. Department of Energy, and, based on personal knowledge and a good
faith belief, certifies that the bill is truthful and accurate, and
that the services and charges set forth herein comply with the terms of
engagement and the policies set forth in [this Acquisition Letter], and
that the costs and charges set forth herein are necessary for the
litigation.''
b. Audit. All terms of engagement must contain a provision for
auditing expenditures under the terms of engagement to determine and
ensure compliance with the terms of engagement and the provisions of
the prime contract, and to determine the accuracy of any bill or
invoice for the services of the outside firm. The provision shall
include a statement that:
[The outside firm] expects that the costs of the services
rendered under the terms of engagement will be paid by the contractor
and that the contractor will be reimbursed by the Federal Government
through the U.S. Department of Energy.
[The contractor] and the Department of Energy, its
designated representative, and the General Accounting Office, have the
right upon request, at reasonable times and at reasonable locations, to
inspect, copy, and audit all records documenting billable fees and
costs under the terms of engagement, the systems employed by [the
outside firm] to capture, record, and bill the fees and costs, and any
other records relevant to the representation by the outside firm under
the terms of engagement.
[The outside firm] will retain all such records for a
period of three (3) years after the final payment under the terms of
engagement.
The provision does not constitute a waiver of any
applicable legal privilege, protection, or immunity with respect to
disclosure of these records to third parties.
2. Fees
In determining whether fees or rates charged by an outside firm are
reasonable for purposes of approving a contractor's terms of engagement
with an outside firm, the Contracting Officer shall consider whether
the contractor sought the lowest reasonably achievable fees or rates
(including any currently available or possibly negotiable discounts)
from the outside firm, whether the contractor considered rates
available from other firms providing comparable services, and whether
the contractor considered alternative rate structures such as flat,
contingent, and other innovative proposals.
3. Profit And Overhead
The rate or fee structure shall include all outside firm
``overhead'' and ``profit,'' and, therefore, any additional overhead or
profit charged by the outside firm shall be considered unreasonable.
Similarly, any markups by the outside firm for supplies or services
procured from third parties would be unreasonable. For instance, only
the actual costs of messenger services shall be allowed, whether the
service was performed by the outside firm or a third party.
Additionally, any interest the contractor incurred on any outstanding
(unpaid) bills from outside firms is not reimbursable under the DEAR.
4. Travel and Related Expenses
Charges for air travel shall be the actual cost, not to exceed the
coach class fare. Charges for local ground travel shall be the actual
cost of the taxi service, or the existing Internal Revenue Service's
mileage deduction allowance if the person drives his or her own
automobile. Charges billed for meals, lodging and rental cars must be
moderate. The rates set forth in the Federal Travel Regulations will be
deemed presumptively reasonable. See 41 CFR ch. 301. Charges for luxury
hotels, cars, or services such as movies and fitness facilities are
neither necessary nor reasonable.
Travel by more than one person from an outside law or consulting
firm to attend a deposition, court hearing, interview, or meeting
outside the person's home office shall not be considered reasonable
except when authorized by contractor counsel in accordance with
procedures agreed upon with Department counsel.
Any travel time may be reimbursed at a full rate for the portion of
time during which the outside firm performs work for the contractor.
For air travel, any remaining travel time during normal working hours
shall be reimbursed at 50 percent. In no event is travel time for time
during which work was performed for other clients reimbursable.
5. Copying
Copying charges shall not exceed ten cents a page, unless supported
by a cost study and approved in advance by the Contracting Officer.
Copying projects where volume would generate substantial savings should
be sent to outside vendors when practicable and cheaper. As with costs
for all supplies and services, the Contracting Officer should look to
local commercial rates as a benchmark.
6. Telephone Charges and Faxes
Charges billed for toll or long distance calls, including
facsimile/telecopier transmissions, shall not exceed the actual charge
for each call, with no overhead or surcharge adjustment.
7. Computer Time
Charges for computer-assisted research shall not exceed the actual
cost, with no overhead or surcharge adjustments.
8. Overtime and Certain Temporary Employees
Secretarial and clerical overtime or costs of temporary support
personnel billed by the outside firm shall not be charged, unless the
Contracting Officer approves such overtime or temporary support
personnel or the cost is caused or required by an emergency situation
not of the contractor or the outside attorney's making. Time charged by
summer associates should be scrutinized for its efficiency and
consistency with the Staffing and Resource Plan.
9. Experts Employed by DOE Contractors
If the contractor or outside counsel wishes to retain as a
consultant in a matter an employee of another contractor of the
Department of Energy, the requesting contractor must receive prior
approval from the Department of Energy, which will attempt to furnish
the expert directly through the contractor that currently employs the
potential consultant. This policy does not alter any applicable
provisions of the prime contract with either the requesting or the
employing contractor.
10. Specific Non-reimbursable Costs
The contracting officer shall not consider for reimbursement any
proposed costs by the contractor for any direct costs incurred by
outside firms for the following items: entertainment; alcoholic
beverages; secretarial or clerical support time (except as provided
under paragraph 8, above); word processing; computers or general
application software; client development and related activities; trade
publications, books, treatises, background materials, and other similar
documents; professional/educational seminars and conferences;
preparation of bills; parking fines or any other fines or penalties for
illegal conduct; and food, beverages and the like when the attorney or
consultant is not on travel status and away from the home office. An
exception may be made, however, for reasonable expenses for working
meals during an in-house meeting not in excess of $10 per person. No
outside firm's bills are to contain any items representing
disbursements made for the benefit of the contractor's employees, such
as meals or lodging for contractor's current personnel (other than
conference meals at which contractor personnel are present under this
paragraph).
IV. Effective Dates
These policies are effective with respect to determinations of
reasonableness and allowability of costs for services rendered and
expenses incurred:
1. on or after October 1, 1994, for all class actions;
2. on or after November 1, 1994, for all non-class actions
commenced on or after October 1, 1994; and
3. on or after February 1, 1995, for all non-class-action
litigation commenced before October 1, 1994.
V. Expiration Date
The Department is seeking public comment on these policies. This AL
will remain in effect on an interim basis until the Department takes
further action after reviewing any public comments on these policies.
Attachment A.--U.S. Department of Energy, Office of General Counsel, Contractor Litigation Costs, Model Bill Format and contents
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I. FOR FEES
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Name or initials of Amount (rate x
Date of service Description of service attorney Approved rate Time charged time)
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(See Note 1 below).
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II. FOR DISBURSEMENTS
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Date Description of disbursement Amount
(See Note 2 below).
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 DOE policies on contractor litigation costs and the
terms of engagement between the contractor and the law firm (e.g. if copying charges, include number of pages
copied and cost per page).
[FR Doc. 94-21536 Filed 8-30-94; 8:45 am]
BILLING CODE 6450-01-P