Monday, September 26, 2016

Energy Department Updates Guidance on Legal Cost Allowability

The Department of Energy (DOE) just released an update to a chapter in its "Acquisition Guide" that significantly expands on the criteria for determining the allowability of legal costs claimed as reimbursable by DOE contractors. The updated chapter covers the following three broad subjects:

  1. Contractor Legal Management Requirements
  2. Approving Settlements
  3. Determining the Allowability of Settlement Costs

Because many of DOE's contracts are cost-reimbursable, the Department has, since at least the mid-1990s, had procedures in place that imposed substantive requirements of DOE field counsel, contractor counsel, and outside counsel to ensure that public funds were not spent imprudently. Contractors who failed to comply with those procedures faced the very real possibility that legal costs and settlement costs would be disallowed under the contract. For example, contractors must obtain DOE permission to settle certain matters involving contractor payment of $25 thousand and over.

Under existing regulations (10 CFR 719), contractors are required to submit a legal management plan describing its practices for managing legal costs and legal matters for which it procures the services of retained legal counsel. Contractors are required to submit an annual legal budget that includes cost projections for significant matters at a level of detail reflective of the types of billable activities and the stage of each such matter. Contractors are required to submit staffing and resource plans that describes the method for managing a significant matter in litigation. Contractors are required to furnish DOE copies of any engagement letters and whenever it initiates litigation, it must provide prior written notice to Department counsel.

The guiding principles under the revised Acquisition Guide are two-fold:

  • Close collaboration between Department counsel and Contracting Officers is required to ensure effective management of contractors' legal costs.
  • Decisions regarding contractors' requests to settle legal claims and the allowability of associated costs may be made simultaneously only in limited circumstances.

Even though contractors may diligently adhere to the regulations, the reasons for incurring legal costs (e.g. liability, fault or avoidability) is a separate issue. The reason for the contractor incurring costs may affect the allowability of the contractor's legal costs. For example, whistleblower claims, employment discrimination claims, and sometimes contractor managerial actions, are all suspect when it comes to cost allowability.

You can read the complete text of the updates here.

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