Department of Energy:

Reimbursement of Contractor Litigation Costs

GAO-04-148R: Published: Nov 26, 2003. Publicly Released: Dec 29, 2003.

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Robin M. Nazzaro
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The Department of Energy (DOE) contracts with not-for-profit universities and private companies to operate its facilities. As part of the cost of operating these facilities, DOE can reimburse its contractors for the litigation costs associated with cases brought against them. Each year the department spends millions of dollars in such reimbursements. For the most part, litigation expenses involve the costs of outside counsel and resulting judgments and settlements for a variety of types of cases, such as equal employment opportunity, radiation and/or toxic exposure, personal injury, wrongful termination of employment, and whistleblower protections. Rep. Edward J. Markey asked GAO to study the extent to which DOE reimburses its contractors' litigation costs and the process for doing so. GAO obtained information on (1) how much DOE spends to reimburse litigation costs for its contractors, (2) what major criteria DOE uses to reimburse its contractors for litigation costs and how it implements these criteria, (3) what major criteria the Department of Defense and the National Aeronautics and Space Administration use to reimburse their contractors for litigation costs, (4) the extent to which a state university that is a DOE contractor has a valid immunity defense to a lawsuit, and (5) the extent to which state universities that are DOE contractors have invoked immunity as a defense.

DOE reimbursed contractors for $330.5 million in litigation costs associated with 1,895 cases from fiscal year 1998 through March 2003, including $249.4 million for litigation costs and $81.1 million for judgments and settlements. During the same period, DOE estimates that contractors spent about $12 million without being reimbursed. The major criteria DOE uses to reimburse contractors depend on the nature of a case. DOE pays all reasonable litigation costs in most cases. DOE does not pay litigation costs when the contractor's actions involved either willful misconduct; lack of good faith; or failure to exercise prudent business judgment by the contractor's managerial personnel; nor does DOE pay in certain other circumstances, such as when the contractor is liable under the False Claims Act. When a contractor prevails in a False Claims Act case or prevails in other cases where a government entity has sued the contractor, DOE pays a maximum of 80 percent of reasonable litigation costs. The major criteria the Department of Defense and the National Aeronautics and Space Administration use to reimburse contractors for litigation costs are similar to DOE's. The only important difference was that the Department of Defense and the National Aeronautics and Space Administration do not have specific criteria prohibiting payment to a contractor involving the contractor's managerial personnel's willful misconduct, lack of good faith, or failure to exercise prudent business judgment. A state university that is sued in the course of its operation of a DOE facility may be entitled to assert immunity under the Eleventh Amendment and other immunity-related defenses, such as being exempt from punitive damages under state law. Whether a particular state university is entitled to assert such defenses depends on whether it qualifies as a state entity, which in turn depends on a variety of factors, such as whether the state is liable for judgments against the university, the nature of the functions the university is performing, and whether the university is a separate incorporated entity. The University of California is the only DOE contractor to use immunity as a defense. Officials at the university, which operates three DOE facilities--Los Alamos National Laboratory, Lawrence Livermore National Laboratory, and Lawrence Berkely National Laboratory--estimated that the university used Eleventh Amendment immunity in 8 of about 35 federal cases in 5-1/2 years. Also, officials at the University of California estimated that the university, in its role as a DOE contractor, has asserted other immunity-related defenses in at least 62 of about 137 cases, predominantly to defend against punitive damages.

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