DOE Management:

Consistent Cleanup Indemnification Policy Is Needed

RCED-93-167: Published: Jul 12, 1993. Publicly Released: Sep 8, 1993.

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Pursuant to a congressional request, GAO evaluated the Department of Energy's (DOE) approach for indemnifying its contractors against liabilities that could arise from the cleanup of the nation's nuclear weapons complex.

GAO found that: (1) under the cost reimbursement approach, DOE reimburses its contractors for all allowable costs, including environmental costs, incurred in contract performance; (2) under the accountability rule, contractors are reimbursed for all allowable costs, but are liable for avoidable costs; (3) as required by the Price-Anderson Act, the government provides indemnification protection from nuclear incidents or nuclear waste activities to all DOE contractors without regard to who caused the incident; (4) the National Defense Contracts Act authorizes DOE to provide extraordinary contract relief if a contractor's activities are necessary to facilitate the national defense; (5) special provisions that modify standard DOE or federal contract clauses may be the result of previous agreements or other negotiations with the contractors and can define or expand the government's liability; (6) DOE determines what approach to use for indemnifying its cleanup contractors on an individual basis; (7) DOE is aware of the problems with the use of nonstandard clauses and plans to negotiate contracts that include as many standard clauses as possible; (8) the Environmental Protection Agency (EPA) is responsible for developing indemnification guidelines; and (9) EPA intends to offer indemnification only if it does not receive a sufficient number of qualified bids and the lack of response can be linked to the absence of indemnification.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: DOE's Contract Reform Team issued its report on contract reforms in February 1994. That report includes action items on indemnification that will address some of the components of GAO's recommendations. In December 1994, DOE decided to include all liability issues in the Department of Energy Acquisition Regulations (DEAR). Contracts being renegotiated, renewed, or awarded are including a provision for contractors to use commercial insurance whenever it is available at a reasonable cost. In addition, DEAR is being updated and is in draft NPRM stage. These are all of the steps DOE believes it can reasonably pursue to address this issue.

    Recommendation: To ensure that DOE consistently indemnifies its cleanup contractors, the Secretary of Energy should develop a consistent environmental indemnification policy to be applied to the DOE cleanup sites. This policy should reflect existing statutory requirements, including section 119, and apply the principles contained in EPA guidelines, including: (1) restricting indemnification to those contracts where it is proven to be needed; (2) setting time and payment limits on the government's liabilities if DOE analysis indicates that EPA limits for Superfund Amendments and Reauthorization Act section 119 are not appropriate; and (3) requiring contractors to be responsible for some portion of the costs that arise from lawsuits for injury or damage caused by their negligence during cleanup activities.

    Agency Affected: Department of Energy


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