Proposed Rule

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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.

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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
1 Additionally,

APHIS may choose to initiate an
evaluation of the animal health status of a foreign

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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.
region on its own initiative. In such cases, APHIS
will follow the same evaluation and notification
procedures set forth in this section.

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(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
Office of General Counsel,
Department of Energy.
ACTION: Notice of proposed rulemaking
and opportunity for public comment.
AGENCY:

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
SUMMARY:

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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:
[email protected]. 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: [email protected].
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:
[email protected].
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

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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

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81409

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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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

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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

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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.

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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

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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.

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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.

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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,

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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:

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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.

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§ 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.

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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

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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
part?

What contracts are covered by this

(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.

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§ 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

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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;

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(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
submission of the plan of any non-

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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.

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§ 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.

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(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.

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(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

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§ 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

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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.

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§ 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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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.

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.

§ 719.41 How does the department
determine whether fees are reasonable?

§ 719.44 What categories of costs require
advance approval?

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.

(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;

Subpart E—Reimbursement of Costs
Subject to This Part
§ 719.40 What effect do the regulations of
this part have on cost allowability?

§ 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.

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§ 719.43
costs?

What is the treatment for travel

(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,

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(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?

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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

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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

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.

§ 719.50 What authority does department
counsel have?

Appendix A to Part 719—Guidance for
Legal Resource Management

(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

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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

Name or
initials of
attorney

Description
of service

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

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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:

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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.

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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
claims.

Insurance-litigation and

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

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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
claims.

Insurance—litigation and

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

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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
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
National Credit Union
Administration (NCUA).
ACTION: Proposed rule with request for
comments.
AGENCY:

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
[email protected]. 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

mstockstill on DSK4VPTVN1PROD with PROPOSALS

SUMMARY:

VerDate Mar<15>2010

17:25 Dec 27, 2011

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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
[email protected].
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
1 President 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.

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81421

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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