Acquisition Regulation: Costs Associated With Whistleblower Actions

Summary

On January 5, 1998, the Department of Energy (DOE or Department) published a notice of proposed rulemaking (NOPR) to amend the Department of Energy Acquisition Regulations (DEAR) to incorporate a contract reform initiative concerning costs associated with defense of whistleblower actions. DOE has issued this document to invite public comments on alternate regulatory text that DOE is considering. The alternate text would implement a cost principle instead of a contract clause approach, and it would expand the coverage of the proposed DEAR revision to include allowability of labor settlement costs generally.

Full text

SUMMARY: On January 5, 1998, the Department of Energy (DOE or 
Department) published a notice of proposed rulemaking (NOPR) to amend 
the Department of Energy Acquisition Regulations (DEAR) to incorporate 
a contract reform initiative concerning costs associated with defense 
of whistleblower actions. DOE has issued this document to invite public 
comments on alternate regulatory text that DOE is considering. The 
alternate text would implement a cost principle instead of a contract 
clause approach, and it would expand the coverage of the proposed DEAR 
revision to include allowability of labor settlement costs generally.

DATES: Written comments must be submitted no later than April 23, 1999.

ADDRESSES: Comments should be addressed to: Terrence D. Sheppard, 
Office of Procurement and Assistance Policy (MA-51), Department of 
Energy, 1000 Independence Avenue, SW., Washington, D.C. 20585-0705.

FOR FURTHER INFORMATION CONTACT: Terrence D. Sheppard (202) 586-8193; 
fax (202) 586-0545; e-mail terry.sheppard@hq.doe.gov. SUPPLEMENTARY INFORMATION:

I. Background
II. Public Comment

I. Background

    On January 5, 1998 the Department published a NOPR to amend the 
DEAR to incorporate a contract reform initiative concerning costs 
associated with defense of whistleblower actions (63 FR 386). On the 
same day, the Department also published proposed revisions to its 
whistleblower protection program (10 CFR Part 708). (63 FR 374).
    This document invites public comment on an alternate approach to 
the cost clause that DOE proposed in the January 1998 NOPR. The 
alternative that DOE is considering would add a new cost principle in 
DEAR subpart 970.31. The cost principle would address the allowability 
of costs relating to labor disputes generally, including whistleblower 
actions. The cost principle would be less prescriptive than the 
proposed contract clause, and would give contracting officers greater 
discretion to review the circumstances of each case in making a 
determination of allowability.
    DOE developed this cost principle approach after considering 
written comments from two entities that were critical of the contract 
clause proposed in the January 1998 NOPR. One commenter objected to the 
proposed contract clause provision that would generally disallow the 
costs of defending a whistleblower action if an adverse determination 
had been issued against the contractor. See proposed 970.5204-XX(c)(2). 
The commenter argued that it would be unfair to treat all adverse 
decisions in the same manner, regardless of the circumstances 
surrounding the decision. The commenter further pointed out that some 
cases may represent situations where two reasonable minds could 
disagree and the reviewer rules in favor of the employee; such close 
cases would not represent bad faith by the contractor.
    In reformulating the whistleblower cost clause as a cost principle, 
contracting officers would have greater latitude and discretion to 
review the facts of each case in determining the allowability of 
defense costs. In some situations, the contracting officer could also 
determine settlement costs to be unallowable when the facts warrant 
that determination. Both commenters on the January 1998 NOPR stated 
that the proposed cost clause, by disallowing costs if there has been 
an adverse determination against the contractor, would have the 
practical effect of encouraging contractors to enter into settlements 
with alleged whistleblowers, regardless of the merit of the claim and 
whether the contractor's defense of its action was a prudent business 
decision. In their view, a liberal settlement policy would encourage 
meritless or questionable claims.
    DOE thinks the cost principle that follows this paragraph would 
provide greater leeway in allowability determinations for situations 
where a contractor's prudent business judgment determines the need to 
defend against claims of undetermined merit or claims that may 
adversely impact industrial relations and employee morale. The cost 
principle also would bring the Department into greater conformity with 
the rest of the federal government, particularly as reflected in the 
decisions of the various Boards of Contract Appeals.
    As an alternate to the proposed rule published on January 5, 1998 
at 63 FR 386, DOE proposes to add a new section to part 970 to read as 
follows:
    970.3102-XX Labor disputes and whistleblower actions.
    (a) Labor settlement costs (awards) can arise from judicial orders, 
negotiated agreements, arbitration, or an order from a Federal agency 
or board. The awards generally involve a violation in one of the 
following areas:
    (1) Equal Employment Opportunity (EEO) laws,
    (2) Union agreements,
    (3) Federal labor laws, and
    (4) Whistleblower protection laws.
    (b) An award or settlement can cover compensatory damages, or 
underpayment for work performed. Reimbursement for a complainant 
employee's legal counsel may also be covered by an award or settlement.
    (c) The allowability of these costs should be determined on a case-
by-case basis after considering the relevant terms of the contract and 
the surrounding circumstances; i.e., looking behind the settlement and 
considering the causes. If the dispute resulted from actions that would 
be taken by a prudent business person (FAR 31.201-3 and 48 CFR (DEAR) 
970.3101-3), the costs would be allowable. However, if the dispute was 
occasioned by contractor actions which are unreasonable or were found 
by the agency or board ruling on the dispute to be caused by unlawful, 
negligent or other malicious conduct, the costs would be unallowable.
    (d) The allocability of these costs must also be reviewed (FAR 
31.201-4 and 48 CFR (DEAR) 970.3101-3). In some circumstances an award 
may not impact direct costs, but may be determined to be an allowable 
indirect cost.
    (e) Litigation costs incurred as part of labor settlements shall be 
differentiated and accounted for so as to be separately identifiable. 
If a contracting officer provisionally disallows such costs, the 
contractor may not use funds advanced by DOE to finance litigation 
costs connected with the defense of a labor dispute or whistleblower 
action.
    (f) Settlement and litigation costs associated with actions 
resolved prior to an adverse determination or finding against a 
contractor through judicial action or an agency board will, depending 
on the circumstances and facts of each case, generally be allowable, if 
consistent with paragraph (c) of this section. Litigation costs 
associated with an adverse determination against the contractor require 
a higher level of scrutiny before a determination of allowability can 
be made.

II. Public Comment

    DOE invites public comment on this cost principle, as well as 
general comment on the relative merits of the contract clause and cost 
principle approaches. DOE also invites public comment on the suggested 
expansion of coverage to include labor settlement costs generally. DOE 
will finally decide these issues after considering public comments it 
receives.

    Issued in Washington, D.C. on March 17, 1999.
Richard H. Hopf,
Deputy Assistant Secretary for Procurement and Assistance Management.
[FR Doc. 99-7065 Filed 3-23-99; 8:45 am]
BILLING CODE 6450-01-P  

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