[Federal Register: December 15, 2004 (Volume 69, Number 240)]
[Proposed Rules]
[Page 75017-75020]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de04-34]
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DEPARTMENT OF ENERGY
48 CFR Parts 901 and 970
RIN 1991-AB64
Acquisition Regulation: Make-or-Buy Plans
AGENCY: Department of Energy.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department of Energy (DOE) is proposing to amend the
Department of Energy Acquisition Regulation (DEAR) to revise its
requirements for contractor make-or-buy plans. The make-or-buy program,
as it is currently structured, is not delivering the value to the
Department commensurate with the costs of its implementation. The
proposed rule would eliminate the burden of make-or-buy analysis.
DATES: Written comments on the proposed rulemaking must be received on
or before close of business January 14, 2005.
ADDRESSES: This proposed rule is available and comments may be
submitted on line at http://www.regulations.gov. Comments may be submitted electronically to Irma.Brown@hq.doe.gov. Comments may be
mailed to U.S. Department of Energy, Attn: Irma Brown, Mail Code ME-62,
1000 Independence Avenue, SW., Washington, DC 20585.
FOR FURTHER INFORMATION CONTACT: Irma Brown at (202) 586-8455 or
Irma.Brown@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Background.
II. Section-by-Section Analysis.
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.
[[Page 75018]]
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.
K. Approval by the Office of the Secretary of Energy.
I. Background
In response to a report entitled Making Contracting Work Better and
Cost Less, Report of the Contract Reform Team, DOE/S-0107, February
1994, DOE promulgated a rule that established a make-or-buy policy on
June 27, 1997 (62 FR 34842). The make-or-buy policy established
criteria to assist management and operating (M&O) contractors in
categorizing all internal work activities under their contracts as
``make'' or ``buy'' activities. ``Make'' activities are core
competencies critical to the mission success that are not available for
outsourcing. ``Buy'' activities are non-core work activities that
provide strategic support to core competencies that are available for
outsourcing. Contractors use their make-or-buy plan to evaluate
subcontracting opportunities and improve in-house performance. The
objective of the make-or-buy policy is to require M&O contractors to
operate the Department's laboratories, weapons production plants, and
other facilities in a most cost effective and efficient manner.
DOE now has more than six years of experience with the make-or-buy
policy. All M&O contractors have approved make-or-buy plans in place.
The Department has evaluated the operation of the make-or-buy policy
and the effect that policy has had in achieving the Department's
objectives. As discussed in the following paragraphs, the make-or-buy
program is not delivering the value to the Department commensurate with
the costs of its implementation.
DOE conducted several assessments and implemented a number of
actions to improve the manner in which DOE and its contractors
implemented the make-or-buy plan requirements. Beginning in April 1998,
DOE conducted its initial assessment to determine whether the
requirements of make-or-buy were being implemented. The assessment
examined whether: (1) The make-or-buy clause had been incorporated into
the contract; (2) the contractor had prepared and submitted a make-or-
buy plan; and (3) the plans were approved by the contracting officer.
The results indicated that the implementation of the contractor make-
or-buy plan requirements was on schedule. However, there were several
issues noted in the early implementation of the make-or-buy plans: (1)
The plans did not always meet the documentation requirements of the
make-or-buy clause; (2) the make-or-buy plans did not always
demonstrate the basic intent (i.e., least cost alternative) of the
make-or-buy requirements; and (3) roles and responsibilities of key
individuals, including the contracting officer, were not clearly
understood.
In August 1999, follow-up action was initiated to determine
progress on the adequacy of the contractor make-or-buy plans and
whether contracting officer approvals were obtained. The results
indicated a number of contractors had well-thought-out and elaborate
processes for arriving at make-or-buy decisions and several contractors
were implementing productivity improvements for work areas retained
under ``make'' decisions. There were a number of examples where the
contractors had approved make-or-buy plans in place; however,
contractor analysis of all work activities under the contract were not
always accomplished. Overall, implementation across the DOE complex had
been inconsistent largely because of a general misunderstanding of the
make-or-buy policy and its attendant administration requirements.
Additionally, the assessment questioned whether the DOE requirements
for contractor's make-or-buy plans are overly stringent, unrealistic
and inappropriate, thereby creating an impossible standard of
performance.
DOE implemented a number of corrective actions to promote a better
understanding of the make-or-buy requirements: (1) In December 1999,
the M&O contractors conducted benchmarking studies of contractor make-
or-buy plans and procedures to develop a decision model and a sample
make-or-buy plan to be used by the M&O contractors; (2) in February
2000, program specific make-or-buy criteria were issued to the M&O
contractors to assist in identifying core and non-core activities; (3)
in July 2001, a workshop was conducted with federal and contractor
staff to discuss and promote an understanding of the make-or-buy
requirements and to identify potential problem areas where policy and
procedural improvements could be made, and (4) in August 2001
assessment compliance criteria were developed and implemented by the
Department to assist in the oversight of contractor make-or-buy plans.
The July 2001 workshop had a large attendance of both contractors
and federal staff from the offices responsible for implementing the
make-or-buy program. Discussions were held on what was working and what
was not. The following problem areas were quickly identified: (1) An
inconsistent approach by the M&O contractors in categorizing work
activities; (2) the DOE complex was relatively inexperienced in
conducting actual make-or-buy analyses; and (3) the costs to conduct
make-or-buy analyses were a major consideration in determining how many
would be done annually (in most cases the time estimated to complete
the make-or-buy analyses on the available ``buy'' inventory extended
beyond the expiration date of the contract). There were minor comments
made for improving the existing policies and procedures, however, it
was determined that these changes would have made minimal impact in
increasing the value of the make-or-buy program.
By June 2002, the Department began considering whether to
discontinue the make-or-buy program. But before moving in that
direction, the Department conducted a random sampling of four
contractors' make-or-buy plans. The results indicated that, based on
contractor inventories ranging from approximately 46 to 119 eligible
``buy'' functions, M&O contractors were conducting 4% or 2-5 make-or-
buy decisions per year for eligible ``buy'' functions, which is far
less than the anticipated 20% or approximately 9-24 make-or-buy
decisions per year. In most cases, the rationale for the low number of
actions per year was the significant costs and time required to conduct
comprehensive analyses on each make-or-buy decision. In one case, the
costs associated with the process were determined to be extremely high
relative to the potential benefits (2,149 hours of mostly senior level
management and professionals) only to make the decision to keep the
function in-house based on a variety of appropriate factors.
The conclusion drawn from these assessments is that there is little
evidence that these plans are producing the efficiencies and cost
savings anticipated by the Department. The Department has determined
that the lack of measurable progress, costs of complying, and
additional workload to monitor compliance with the make-or-buy policy
outweigh any potential benefits to the Department.
Although the results of the Department's evaluation of the make-or-
buy policy are a rationale for revising the Department's policy,
another consideration for revising the policy is the progress made in
the Department's contractual environment since the Department's
contract reform initiative in February 1994. Recognizing that there are
multiple approaches to achieving
[[Page 75019]]
cost efficiencies and operational effectiveness under a contract, the
Department has made great strides in its contract reform initiatives.
For its major site and facility contracts, the Department significantly
increased the use of Performance-Based Management Contracts, competing
more than 31 contracts while extending only 15 (four contracts only for
an interim period), increased subcontracting goals to as high as 60% in
some contracts, reduced DOE sponsored Federally Funded Research and
Development Center (FFRDC) contracts by 27%, and increased the use of
alternative contract types, such as cost plus incentive fee, to drive
both cost efficiencies and operational effectiveness in contractor
performance.
In consideration of the foregoing, the Department proposes to amend
its Acquisition Regulation to eliminate the requirement that M&O
contractors prepare and maintain formal make-or-buy plans.
The Department proposes to amend the clause at 970.5203-1 entitled
``Management Controls'' and the clause at 970.5203-2 entitled
``Performance Improvement and Collaboration'' by adding a requirement
in both clauses for contractors to consider outsourcing as a mechanism
to introduce improvements in the management of the contract.
Outsourcing would be one of many options available for improving the
contractor's cost effectiveness and performance.
In addition, the Department is proposing to amend the clause
entitled Contractor Purchasing System by removing and reserving
paragraph (n) entitled ``Make-or-Buy Plans.''
II. Section-by-Section Analysis
The Department proposes to amend the DEAR as follows.
1. Sections 901.105 would be amended to delete the reference to the
Office of Management and Budget, OMB, number for make-or-buy plans.
2. Section 970.1504-4-1 through 970.1504-4-3 would be eliminated.
3. Section 970.1504-5(b) would be eliminated.
4. Section 970.5203-1 would be amended to provide outsourcing of
functions for considerations of efficient and effective operations.
5. Section 970.5203-2 would be amended to provide a requirement for
contractors to consider outsourcing as a mechanism to increase
improvement in the management of the contract.
6. Section 970.5215-2 would be eliminated.
7. Section 970.5244-1 would be amended to remove and reserve
paragraph (n).
III. Procedural Requirements
A. Review Under Executive Order 12866
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 rule is not
subject to review under the Executive Order by the Office of
Information and Regulatory Affairs (OIRA) within the OMB.
B. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
Civil Justice Reform, 61 FR 4729 (February 7, 1996), imposes on
Executive agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. With regard to the review
required by section 3(a), section 3(b) of Executive Order 12988
specifically requires that Executive agencies make every reasonable
effort to ensure that the regulation: (1) Clearly specifies the
preemptive effect, if any; (2) clearly specifies any effect on existing
Federal law or regulation; (3) provides a clear legal standard for
affected conduct while promoting simplification and burden reduction;
(4) specifies the retroactive effect, if any; (5) adequately defines
key terms; and (6) addresses other important issues affecting clarity
and general draftsmanship under any guidelines issued by the Attorney
General. Section 3(c) of Executive Order 12988 requires Executive
agencies to review regulations in light of applicable standards in
section 3(a) and section 3(b) to determine whether they are met or it
is unreasonable to meet one or more of them. DOE has completed the
required review and determined that, to the extent permitted by law,
these regulations meet the relevant standards of Executive Order 12988.
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 that 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 no small entities are DOE M&O contractors and because the rule
would eliminate the existing burden of preparing make-or-buy analyses.
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
Information collection or recordkeeping requirements contained in
this rulemaking have been previously cleared under OMB paperwork
clearance package number 1910-5102. The existing burden will be removed
by this rulemaking.
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 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 rule and has
determined that it does not preempt State law and does 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.
[[Page 75020]]
G. Review Under the Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (Pub. L. 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 (Pub. L. 105-277), requires Federal agencies to issue a
Family Policymaking Assessment for any rule or policy that may affect
family well-being. This rule will have no impact on family well being.
I. Review Under Executive Order 13211
Executive Order 13211, Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use, (66 FR 28355,
May 22, 2001) requires Federal agencies to prepare and submit to the
OIRA, Office of Management and Budget, 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.
Today's 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 notice under the OMB and DOE guidelines and has
concluded that it is consistent with applicable policies in those
guidelines.
K. Approval by the Office of the Secretary of Energy
The Office of the Secretary of Energy has approved issuance of this
proposed rule.
List of Subjects in 48 CFR Parts 901 and 970
Government procurement.
Issued in Washington, DC, on December 8, 2004.
Richard H. Hopf,
Director, Office of Procurement and Assistance Management, Office of
Management, Budget and Evaluation, Department of Energy.
Robert C. Braden, Jr.,
Director, Office of Acquisition and Supply Management, National Nuclear
Security Administration.
For the reasons set out in the preamble, DOE proposes to amend
Chapter 9 of Title 48 of the Code of Federal Regulations as set forth
below:
1. The authority citation for part 901 is revised to read as
follows:
Authority: 42 U.S.C. 2201; 2282a; 2282b; 2282c; 42 U.S.C. 7101,
et. seq.; 41 U.S.C. 418b; 50 U.S.C. 2401, et seq.
PART 901--FEDERAL ACQUISITION REGULATIONS SYSTEM
2. Section 901.105 is amended by revising the second sentence to
read as follows:
901.105 OMB control numbers.
* * * The OMB control number for the collection of information
under 48 CFR chapter 9 is 1910-4100 except for Reporting and
Recordkeeping Requirements for Safety Management (see 48 CFR 970.5223-
1) which is 1910-5103.
3. 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.; 41 U.S.C. 418b; 50 U.S.C. 2401, et seq.
PART 970--DOE MANAGEMENT AND OPERATING CONTRACTS
970.1504-4-1-970.1504-4-3 [Removed and Reserved]
4. Sections 970.1504-4-1 through 970.1504-4-3 are removed and
reserved.
970.1504-5 [Amended]
5. Section 970.1504-5 is amended by removing paragraph (b), and
redesignating paragraphs (c), (d) and (e) as paragraphs (b), (c) and
(d) respectively.
970.5203-1 [Amended]
6. Section 970.5203-1 is amended by revising the clause date to
read [Date (Month and Year) 30 days following the date of publication
of the final rule in the Federal Register] and by adding in paragraph
(a)(1), second sentence, the words ``including consideration of
outsourcing of functions'' after the word ``promoted''.
970.5203-2 [Amended]
7. Section 970.5203-2, is amended by revising the clause date to
read [Date (Month and Year) 30 days following the date of publication
of the final rule in the Federal Register] and by adding in paragraph
(a), last sentence, the words ``outsourcing decisions,'' after the
words ``changes in organization.''
970.5215-2 [Removed and Reserved]
8. Section 970.5215-2, Make-or-Buy plan, is removed and reserved.
9. Section 970.5244-1 is amended by revising the clause date and by
removing and reserving paragraph (n) to read as follows:
970.5244-1 Contractor purchasing system.
* * *
Contractor Purchasing System
[Date (Month and Year) 30 days following date of publication of the
final rule in the Federal Register]
* * * * *
(n) [Removed and Reserved].
* * * * *
[FR Doc. 04-27417 Filed 12-14-04; 8:45 am]
BILLING CODE 6450-01-P