John Jaksch, Paul Kearns, Mark Weimar and Barry Robinson
PNNL

Marvin Laster and Lawrence Scully
Independent Consultants

William Lemeshewsky, Rob Gilbert and Neil Brown
USDOE

Contracting at the U.S. Department of Energy (DOE) is going through a transition. DOE is exploring the aspects of using market-driven contract approaches for some of its major procurements. The use of market-driven contract approaches must result in an advantageous relationship for both DOE and the contractor. This paper introduces, discusses, compares and presents the rationale for nonstandard contract terms and conditions for three DOE initiatives: the privatization of Hanford's tank waste treatment services; the Office of Civilian Radioactive Waste Management's waste acceptance and transportation services project for spent nuclear fuel from the Nation's civilian nuclear power plants; and the production of Yttrium 90 as a medical isotope.

Contracting at the US Department of Energy (DOE) is going through a transition. The DOE has traditionally relied on cost-plus-fixed-fee management and operating (M&O) type contracts to provide major goods and services to the Department. Over the last three years, this traditional approach to doing business has come under scrutiny and is changing as DOE explores the aspects of "market-driven approaches" for some of its major procurements.

Market-driven approach, as generally used in DOE procurement, means the substitution, in whole or in part, of private market mechanisms for the traditional government role as employer, financier, owner, operator and/or regulator of a product or service. The objectives in relying more upon private sector, market-driven mechanisms is to remove DOE from activities that are not inherently governmental functions or core business lines, to improve the management of remaining activities, to reduce the costs of doing business, and to shift greater performance and financial risk to the private sector (USDOE, 1997).

To ensure industry interest in DOE market-driven opportunities, contract terms and conditions must result in an advantageous relationship between DOE and the provider. Contractors interested in pursuing such opportunities with DOE have encouraged the Department to address risk issues that are not within the control of the contractor such as idle facilities, government furnished items, waste characterization and waste product acceptance, among others.

DOE, on-the-other-hand, requires the private sector to provide performance guarantees, private sector financing, environmental indemnification and fixed prices, among others. The art of being successful in employing market- driven approaches to contracting is to strike the proper "balance" between the buyer and seller in allocating and managing risk associated with each of these issues. A proper risk allocation or balance will ensure that the contractors are attracted to the opportunities and that DOE will get the required work done at a reasonable cost, often resulting in 20%^a plus cost savings over traditional M&O contracting approaches. Innovative contract terms and conditions are necessary to provide this balanced risk allocation.

This paper will introduce, discuss, compare and present the rationale for employment of nonstandard contract terms and conditions used in DOE's market-driven initiatives. The paper draws upon experience with the Hanford Tank Waste Remediation System (TWRS); the Office of Civilian Radioactive Waste Management (OCRWM), waste acceptance and transportation services contract for spent nuclear fuel (SNF) from the Nation's civilian nuclear power plants; and the production of Y-90 production use as a medical isotope. Innovative contract terms and conditions were developed for use in each initiative.

The TWRS contract acquires Hanford tank waste treatment services on a privatized basis. The contract consists of two parts. Part A establishes the technical, operational, regulatory and financial elements required to provide fixed-unit-priced waste treatment services on a privatized basis. In Part B the contractor would, on a demonstration scale and at fixed-unit-prices, treat Hanford tank waste utilizing facilities developed, financed, permitted, constructed, owned, operated and deactivated by the contractor. Two TWRS contracts were awarded September 25, 1996 for Part A. Currently Part A deliverables are being evaluated and a decision will be made by early Summer, 1998 whether to proceed with Part B (USDOE, 1996).

OCRWM's market-driven initiative is a three-phase contract to acquire commercial SNF waste acceptance and transportation services. Phase A, Planning, (lasting one year) establishes the technical, operational, regulatory, financial and planning elements required to provide fixed-unit-price waste acceptance and transportation services. Phase B, Mobilization, (lasting 13 years) consists of the design; acquisition of necessary permits, communications and stakeholder outreach; equipment acquisitions; and mobilization necessary to begin waste acceptance and transportation of SNF. The first three years of Phase B will focus on initial operational readiness activities. Phase C, Operations,(lasting 10 years) consists of waste acceptance and transportation of SNF to a Federal Facility. Phase C operations cannot commence until the Federal depository facility is named and, at the earliest, would commence at the end of the third year of Phase B. DOE authorization is required for the contractors to proceed into each phase. OCRWM issued a draft RFP for public comment December 1996 (USDOE, December 1996). A revised draft, taking account of public comment on the December 1996 draft, was issued for public comment December 1997 (USDOE, December 1997). This paper focuses on the provisions of the December 1997 revised draft RFP.

The Y-90 project is distinguished from the other DOE market-driven projects in that it is the privatization of intellectual property by Battelle Memorial Institute's Pacific Northwest Division for DOE. The Y-90 project is designed to commercialize the production, packaging, distribution, marketing and sales of the Y-90 isotope for medical purposes. Battelle has released an RFP on the Y-90 initiative. Responses to the RFP were due November 21, 1997 (Battelle, 1997).

Under the traditional M&O approach to contracting, DOE has assumed virtually all the risks associated with the contract. This is illustrated by the teeter totter diagram in Figure 1. The movement toward the use of other contracting approaches, including market-driven approaches, is changing how DOE approaches sharing risk.

At the heart of market-driven approaches is risk allocation, because the private sector, and particularly the investment community, abhors uncertainty. The investment community requires a project structure which limits as much as possible the investor's financial exposure in the face of risk uncertainty. Two approaches may be employed, singly or in combination, to limit the investor's risk exposure: Contractors may levy a "risk premium" and/or allocate the risks between the parties to the contracts.

Risk premiums are levied by the private sector if they are unable to fully understand the risks, their impact, duration and potential financial impacts. In such instances, the vendor or financial lending community will insist on a risk premium to cover the potential eventuality of the uncertainty. The amount of the premium serves as a financial cushion and is contingent on how well the risk and its impacts are understood -- the less the understanding, the higher the premium.

The second method to limit the financial exposure is risk balancing or allocation. Here the government and the private sector share the project risks. Ideally with risk balancing each party to the project will accept those risks it can best manage or control. The contract terms and conditions determine the degree of mutual benefit to the parties in the allocation of the risks. Figure 2 is an illustration of the concept of risk sharing between the government and the contractor. If too much risk shifts to the private sector, especially risks that can have a large financial impact, the project's costs can increase to the extent that the market-driven approach would not result in cost savings. Also, in such instances, private sector interest in the procurement can be eroded to the extent where, in the extreme, private sector financing for the project is not available. Alternatively, if the government does not shift sufficient risk to the private sector, the contract arrangement, or "deal", could limit the ability of government to minimize cost.

In reality, what generally happens in the market-driven approach is a mixture of risk balancing and premium. Enough experience exists with the market-driven approach to know that the contractor and the financial community will require certain guarantees from DOE. These requirements, which are not adequately covered by the Federal Acquisition Regulations (FAR), are handled by special clauses in Section H of the RFP/contract generally known as "Special Contract Requirements". There follows a brief discussion of some of the Section H requirements relevant to market-driven approaches and how they are employed in the TWRS and OCRWM initiatives. Y-90 does not have a Section H, but deals with the risks in the scope of work and in other sections of the RFP. Table 1 lists the different types of risk discussed below and, for the three projects discussed, shows who owns or shares the risk.

The private sector prefers financing capital costs where the underlying investment's useful life coincides with the contract length. The contract term should be long enough to enable cash flow from the contract payments to amortize the investment and pay reasonable profit to the contractor. The government's ability to provide a long-term contract is hampered; e.g., those contracts subject to the Service Contract Act are limited to five years, although a Department of Labor waiver can allow for longer time periods (USDOE, 1997).

The TWRS privatization market-driven approach originally envisioned a contract period of five years for Part B operations. It soon became obvious that a longer contract period was needed for a project of this size and the number of years required to treat the tank waste. TWRS now envisions a Part B contract period of between ten and fourteen years (USDOE, 1996).

OCRWM (DOE-HQ) proposed in their December 1996 draft RFP a five-year contract period for Phase C (USDOE, December 1996). A number of comments were received that the contract period was too short considering the required capital investment. OCRWM increased the Phase C period of performance from five to ten years in the revised RFP (USDOE, December 1997).

The Y-90 RFP proposes a five year contract term. Five years is probably enough time given the more routine nature of the Y-90 production and the availability of DOE-owned production facilities which the contractor can lease. This minimizes the amount of investment capital required by the contractor (Battelle, 1997).

The prevailing market price for goods, services and labor the contractor purchases in the market place can rise significantly over time due to inflation. If the revenue stream received by the contractor is not similarly increased at an equal or greater rate, then the contractor's profit margins could be reduced or, in the extreme, eliminated all together. This, in turn, could jeopardize the project's ability to service its debt and provide a market rate of return to its equity investors. The longer the contract period without an adjustment, the more important or critical the problem becomes (PaineWebber, 1996).

The problem can be mitigated by introducing an adjustment based on applicable, published Federal indices. These indices are known by several terms including economic price adjustment (EPA), inflation index or cost of living index. EPA is the term used here to preserve consistency across the DOE's market-driven projects discussed in this paper.

The increased costs caused by inflation can be viewed as a risk continuum between DOE and the private sector. One of the entities could accept all the risks of inflation or the risks could be shared between them. The TWRS EPA formula is tied to employment costs, wages and salaries. DOE shares the cost inflation risk with the private sector by limiting to fifty percent the actual amount of the adjusted increase the private contractor receives (USDOE, 1996).

OCRWM has taken note of the need to develop an EPA clause and is developing a special contract clause to address this concern (USDOE, December 1997). At issues is which price adjustment indices to use and the formulation of the price adjustment equations.

The Y-90 RFP does not contain an EPA clause. It is not needed because of how the RFP/contract is structured. The contractor can raise the price of Y-90 after the contract's second year, enabling the quick recovery of any increased costs and thereby preserving profit margins (Battelle, 1997).

Idle facilities, or idle capacity charges, are designed to protect the contractor against government nonperformance when the contractor is willing and able to perform. In such circumstances, if DOE does not perform (e.g., provide waste for processing), the contractor is paid an amount for being ready to perform.

The TWRS contract has an idle facilities clause. To be considered idle, the contractor must stand operationally ready to receive and process waste feed and be in compliance with other contract requirements. The clause is applicable when DOE is delayed in providing waste feed to the contractor's plant (USDOE, 1996).

OCRWM in its December 1996 draft RFP did not include an idle facility clause (USDOE, December 1996). Public comments were received on the draft RFP questioning why a clause was not included. OCRWM, after reviewing the comments, reaffirmed its original position and did not include the clause in its release of the revised draft (USDOE, December 1997). DOE concluded that issues of government nonperformance are adequately covered by the Federal Acquisition Regulations (FAR) changes clause.

The Y-90 RFP does not contain an idle facilities clause. The reason is the contractor is not dependent on DOE as the product's purchaser and is initially selling the product to an established client base.

The minimum order quantity is a function of the indefinite delivery/indefinite quantity nature of the contract. The government is obligated to purchase the minimum amount of product or services. If DOE cannot meet the minimum order, then the contractor is made financially whole. The minimum order quantity can also serve as the financial floor of the order quantity and is used by the contractor to obtain third party financing. The net effect of including a minimum order clause should be lower contractor prices as a result of lower financing costs.

In TWRS the minimum order quantity is specified in a clause entitled "ordering and contract ordering quantities." DOE has four waste envelopes specified in the clause and a minimum and maximum order quantity specified for each (USDOE, 1996).

OCRWM's December 1996 draft RFP contained a minimum order quantity clause entitled "Order Quantities and Schedule." The minimum order is based upon the quantity and scheduled pickup of SNF (USDOE, December 1996). The clause was deleted from the December 1997 RFP release (USDOE, December 1997). The reason is the contractor-prepared "regional service plan" will identify the amount of SNF to be accepted annually from each utility within the four servicing regions. The schedules are initially set for the first three years of Phase C operations and then updated annually thereafter. The plan is to amend the Standard Contract to include the schedule (10CFR, Part 61). The schedule then becomes the minimum order quantity for a contractor servicing a specific region.^b

The Y-90 RFP does not specify minimum order clause. What it does contain is a list of current Y-90 customers which in effect reduces the market risk placed on the contractor. The contractor can, on their own, contract for sales directly with the purchasers.

Cost-plus contracts are traditionally employed by DOE. For payment under such contracts, DOE has generally relied on the use of advance payments, particularly with its M&O contractors. With advance payments, the contractor is minimally at risk, does not generally require financing and has little or no incentive to be cost efficient or to minimize its operational risks. DOE carries most of the contract risk.

A fixed price contract transfers more of the risk to the private sector. The contractor is incentivized to provide services or deliver goods quickly in order to recapture as early as possible their capital investment. An incentive exists over the contract's life for the contractor to continually keep contract expenses down to maintain or increase profits.

Both the TWRS contract and OCRWM RFP envision fixed prices. Payment in the TWRS contract would not begin until treated waste is produced -- potentially five years. The recovery of the contractor's start-up, permitting, and construction costs, among others, is rolled forward in time and does not occur until tank wastes are treated (USDOE, 1996). OCRWM's December 1997 draft RFP is similarly structured. All costs for Phase B, equipment acquisitions are rolled into the Phase C delivery price of SNF to the Federal Facility, a minimum three year wait (USDOE, December 1996).

The Y-90 RFP envisions a fixed price for the purchase or lease of the Y-90 generating material. The offeror shall propose fixed ceiling prices for the sale of Y-90 to an existing DOE customer base. These prices will not be exceeded in the first two years of the contract. At the end of two years, prices can be established at the contractor's discretion and without the need of prior DOE approval (Battelle, 1997).

A main objective of the market-driven approach is to use, to the maximum extent possible, private sector capital to finance the projects. This is accompanied by the private sector assuming some of the project risks and assuring that the private contractor has enough financially at stake in the project to perform successfully and cost effectively.

The TWRS, OCRWM and the Y-90 initiatives envisioned private sector financing. The initiatives can be financed through investment of equity capital by the contractor or through capital from the financial markets. The projects' structures and how the financial community evaluates the structures and risks determine the costs of the investment capital.

However, in the OCRWM draft RFP the contractor may submit a request to DOE for advance payments. The advance payments may only be used for the fabrication costs of the transportation casks. The contractor's exercise of the advance payment option enables the payments to flow promptly to the cask manufacturer. The concern, and the reason for inserting the advance payments provision, is the cask manufacturing industry may suffer cash flow problems during the early stages of the Contract and would be at a severe financial risk if forced to wait until Phase C of the contract to receive payment. Advance payments should lower the overall financial costs of the contract and, therefore, the project's overall financial risk because the contractor will have to raise less debt and/or contribute less equity capital.

Contractors bidding on government, market-driven initiatives will most likely establish a limited liability, special purpose corporation. In such instances, the government can require the "parent" corporation to provide a performance guarantee to ensure that the parent "stands behind" the corporate shell. Each performance guarantee is tailored to the particular business arrangements at hand. A parent company may warrant that: the product produced meets certain specifications; appropriate environmental permits are secured; regulatory compliance is achieved and maintained throughout the contract; plant construction and equipment delivery are within a specified time period and within budget; and the delivery of contracted for products or services are at an agreed upon fixed price regardless of actual costs. A performance guarantee can also be supplemented by investment, ownership and finance guarantees.

Both the TWRS contract and OCRWM draft RFP contemplate parent performance guarantees. The guarantees' purpose is to reduce DOE's risk of contract noncompliance and/or nonperformance by the limited liability company (USDOE, 1996 & USDOE, December 1997). The Y-90 RFP does not require a performance guarantee. Intellectual property and an established customer base are being provided to the winning contractor. While Battelle and DOE want the contractor to succeed, not as much is at risk (financially and environmentally) with Y-90 as with TWRS and OCRWM.

Government furnished items (GFI) is an easy avenue to reduce total government cost. The provision of GFI usually occurs when the government can provide the property or services more cheaply than the contractor can obtain the same items in the private sector.

The TWRS contract and OCRWM RFP contain clauses dealing with the availability of government furnished items. In both cases, GFI are specified and the contractors shall have sole responsibility and expense for items that are not specified. In TWRS, GFI will be provided on a best efforts basis consistent with the historical reliability of the item to be furnished.

The contractor has an opportunity to lease DOE-owned facilities to produce Y-90, to purchase or lease from DOE 40 curies of the Sr-90/Y-90 generators and to use government owned shipment containers (Battelle, 1997).

In light of the major investments that they are being asked to make, contractors are justifiably concerned about the likelihood and consequences of the government terminating the contract. Under FAR, the government obtains the unilateral right to terminate a contract (T for C), at any time, when it is in the government's interest to do so. There are two approaches that have been utilized by DOE to address the concerns of the private sector.

There is contract language in TWRS and the OCRWM RFP that states that the government, subject to the availability of appropriations from which payment for contract purposes can be made, intends to obligate to the contract sufficient funds to, at all times, cover the potential liability in the event of a T for C. The contractor has no obligation to perform further unless sufficient funds are obligated to the contract to cover performance to date. Failure of the government to provide additional funds within a reasonable time will result in a T for C.

Further, the FAR cost principles applicable to a T for C do not allow interest and some financing costs to be paid to the contractor. The TWRS contract includes a deviation from the FAR to allow financing costs and any legal, underwriter, third party credit support, and other professional fees directly related to obtaining necessary financing. OCRWM plans to request such a FAR deviation at the time of final RFP (USDOE, December 1997).

One unknown in dealing with DOE, TWRS generated waste is how well the wastes have been characterized. If the waste characterization is not fully known, then the risks in treating the waste are highly uncertain. The contractor's production treatment technology risk tolerances may prove to be insufficient to handle the waste material's variation, resulting in produced products not meeting the required acceptance specifications.

The issue, in situations where the wastes are not adequately characterized, is who takes the risk, or is it a shared risk? The SNF at the Nation's power plants is fairly well characterized -- there are no anticipated surprises. With TWRS DOE has sought to reduce, balance and offset the uncertainty. In Part A of the contract, the contractor will be dealing with waste that is considered by DOE to be well characterized. In characterizing the wastes, DOE has established four waste envelopes which delineate particular constituent wastes. Ten samples will be drawn from each of the four waste envelopes representing the different tanks which will be made available to the contractor. The methodology of how the samples were drawn and processed will also be shared with the contractor as well (USDOE, 1996).

SNF from the Nations's nuclear power plants are physically identified and verified prior to the acceptance of the fuel by DOE, as discussed in the "Product Acceptance" section which follows immediately below. The Y-90 RFP is not concerned with waste characterization. Sr-90 is used to generate the Y-90 medical isotopes. It, and the associated waste byproducts, are fairly well characterized.

Clarity of the waste acceptance procedures and criteria will have a material impact on the contractor's ability to obtain investment funding. The contractor must understand precisely what it must do to earn its payments. Product acceptance is a two-edged sword. Both DOE and the contractor may be impacted if product specifications are not met: the contractor's ability to retire debt or equity is impacted; DOE's consequence may be time, money and the potential for delays in achieving programmatic goals and meeting deadlines.

Several ways exist to manage the problem. First, the contract provisions could require damages from the contractor for failure to meet product specifications. Second, the contract could require pre-start up production facility demonstrations or tests. In such instances, the test protocols must be carefully designed and crafted, making it exceedingly difficult for the contractor to obscure unsatisfactory performance. Finally, a substantial equity investment in the contract may be required of the contractor, thus placing at risk its own capital.

The TWRS contract contains both an interim and final product acceptance. Interim acceptance requires objective evidence the product meets certain analytical specifications and certification the produced product meets contract requirements. Final acceptance is made on a "lot" basis within 90 days after the submission of the required documentation submitted for the interim acceptance. If the waste treatment products are not acceptable, then DOE may revoke the acceptance, require the contractor to develop a corrective action plan for the nonconforming product and a plan to prevent further recurrence (USDOE, 1996).

The risks of product acceptance/nonacceptance are shared by DOE and the contractor in the OCRWM initiative. Loaded canisters of SNF are accepted for payment when delivered to the Federal Facility. Objective evidence, prior to the acceptance of title by DOE to the SNF, is required that the canisters and their contents have been verified in accordance with DOE's Spent Fuel Verification Plan (USDOE, December 1997). OCRWM does not plan to witness the loading of the sealed canisters and/or transportation casks at the utility's site, nor to require that the canisters be unsealed to verify their contents upon delivery to the Federal facility as long as OCRWM's plans for verification are followed. However, OCRWM reserves the right to conduct such inspections and verifications as required to ensure proper procedures have been followed.

The Y-90 acceptance process is more straight forward. The Y-90 production process yields a radiochemically pure isotope produced under conditions which meet appropriate chemical, pharmaceutical safety standards and quality for radioactive drugs used in research (Battelle, 1997).

The TWRS contract requires that, prior to the commencement of Part B, a waste minimization incentive/penalty be negotiated for processing wastes associated with waste treatment products. These wastes, some of which are radioactive, need to be disposed of safely. Any incentive which reduces production generated waste could result in significant cost savings over the life of the contract.

The incentive/penalty works as follows. A contract price adjustment occurs if the production waste volumes exceed so called "reference values." The referenced values are negotiated early in Part A for final and intermediate products and secondary wastes -- so called control elements. "Actual" values for the products and wastes are established during Part B, waste treatment services. The price adjustment measurement period will be one month or greater. If the actual, controlled valued elements stay within a predetermined threshold range of the referenced value, then no incentive or penalty will apply. If the actual values are outside the measurement period, then a penalty or incentive applies. Any price adjustment to the contract will not modify or replace established specifications for final or intermediate products or secondary waste generation (USDOE, 1996).

OCRWM does not have such a provision. No significant waste byproducts are associated with the acceptance, transport or delivery of SNF. Neither does the Y-90 project. Only 55 gallons of low level radioactive wastes are expected to be produced annually from the Y-90 production process. All high level wastes are returned to the DOE for ultimate disposal. Hence, the pressures and costs for waste disposal are not that significant (Battelle, 1997).

DOE has several options it can employ to address risks posed in this arena. These options nicely illustrate the concept of risk balance and the allocation of the risk to the party most able to accept it. Before making the allocation, there are trade offs the government needs to evaluate: Which entity (the government or private sector) is best able to manage and/or accept the risk? What are the relative project cost savings that could result? Three approaches to illustrate these tradeoffs are discussed in this section: Price-Anderson Act^c indemnification in the event of a nuclear incident; environmental and insurance indemnification in the event of environmental or health and safety incidences; and claims and uncontrollable circumstances including force majeure (Acts of God).

For risk of nuclear incident, the TWRS contract and OCRWM draft RFP, employ the provisions of the Price-Anderson Act to indemnify the contractor from the claims arising from such an incident or investigation. For Y-90, Price-Anderson applies only if government facilities are leased to produce Y-90. The potential claims arising from nuclear incidents could be financially catastrophic for any firm having to incur them. Even if private insurance to cover the risk of nuclear incident were available, the premium would be exorbitant and would, in most instances, be passed to DOE in the contractor's price. Thus, it makes sense for DOE to "own" these risks.

The contractors in the TWRS and OCRWM projects are required to obtain commercial insurance and to indemnify DOE from all environmental as well as certain other risks. The insurance policies must have adequate, minimum levels of protection, and name DOE as an insured party (USDOE, 1996 & USDOE, December 1997).

The Y-90 RFP requires the contractor to indemnify the government, DOE and Battelle from: claims and any penalties, etc., arising from any breach of any term of the contract; failure to fully comply with applicable statutory and regulatory requirements; performance by the government, DOE or Battelle of any acts required or directed by the contractor to be performed under the contract to the extent not caused by the negligence or willful misconduct of the indemnified parties.the contractor to be performed under the contract to the extent not caused by the negligence or willful misconduct of the indemnified parties.

Both the TWRS contract and OCRWM draft RFP, require the contractor to obtain permits and applications in its own name, remain in compliance with them and indemnify DOE from third party claims for damages as a result of failure to meet their requirements. In the event of T for C, DOE will assume all applicable permits, certificates and applications and relieve the contractor from future liabilities incident to them. However, the contractor is liable for acts it incurs while holding the permits, applications or certificates (USDOE, 1996 & USDOE, December 1997).

A clause dealing with protection of the contractor against circumstances beyond its control appears in the TWRS contract. The clause states that, in the event of an uncontrollable circumstance (UC) causing a material change in the amount, cost or character of the work performed in Part B of the contract (waste treatment), an equitable adjustment will be made to the contract's price. The application of the UC clause is limited to named events (e.g., acts of God, civil disturbance, etc.). The UC provision cannot be invoked if the contractor, or its subcontractors, is at fault or could have reasonably anticipated and avoided occurrence of the named events (USDOE, 1996). Again, as with Price-Anderson, the issue is who is best able to own the risk and at what cost? Private insurance may be either unavailable or prohibitively expensive and the costs would, most likely, be passed onto DOE. Under such circumstances, it is often more cost-effective for DOE to take the risk.

The OCRWM revised draft RFP does not have a UC clause. Numerous public comments have been raised on the issue. DOE has taken note of these comments, particularly potential delays to contract performance during Phase C caused by events outside the contractor's and/or Government's control. DOE is in the process of developing a special contract clause to address the concerns (USDOE, December 1997). The Y-90 RFP also does not contain a UC clause. Intellectual property, an established customer base and a known production process are being transferred to the contractor for profit purposes. Given these circumstances, it makes sense for the contractor to own the risks associated with UC.

In order to address the special needs of high cost, long-term, complex DOE market-driven projects and initiatives, innovative contract terms and conditions must be developed and employed. These terms and conditions, which in large measure mirror commercial practice, will, among other things, allocate risks between the government and the private sector in such a manner as to (1) ensure that the government's interests are fully protected, including its interest in minimizing project costs; and (2) encourage the broadest possible participation by qualified private sector firms. Absent political or policy considerations, contract risks should be allocated to the party best able to manage or control the risk. Risks not equitably allocated between the public and private sectors will always be reflected either in higher prices for the work or minimal private sector participation, or both.

1. Battelle Memorial Institute, Pacific Northwest Division, "Commercialization of the Production, Packaging, Distribution, Marketing and Sales of Yttrium (Y-90) Isotope for Medical Purposes" (Informal Title), Request for Proposal (RFP) No. 296956, Richland, Washington (October 1997).
2. ROGER D. FELDMAN, "Privatization at the Department of Energy - Contract Reform for Policy Implementation," Partner Bingham, Dana and Gould, Washington, D.C., Remarks made at a public forum, Washington, DC. (1997).
3. PAINEWEBBER, "Financial Advisory Project Task 2 Draft Report: Survey of Financing Options for Hanford Tank Waste Remediation System Phase I Vitrification Projects," Prepared for Washington State Department of Community, Trade and Economic Development, (September 12, 1996).
4. SMITH BARNEY, "A Preliminary, Independent Feasibility Assessment: Final Letter Report," (March 1995).
5. U.S. Department of Energy, "Acquisition of Waste Acceptance and Transportation Services for the Office of Civilian Radioactive Waste Management," Office of Management Support, Headquarters Procurement Operation, Washington, DC. (December 27, 1996).
6. U.S. Department of Energy, "Acquisition of Waste Acceptance and Transportation Services for the Office of Civilian Radioactive Waste Management," Office of Management Support, Headquarters Procurement Operation, Washington, DC. (December 1997)
7. U.S. Department of Energy, "Contract #DE-AC06-RL13308, U.S. Department of Energy & BNFL" and "Contract #DE-AC06-RL13309, U.S. Department of Energy & Lockheed Martin Advanced Energy Systems," Richland, Washington (September 25, 1996).
8. U.S. Department of Energy, "Harnessing the Market: The Opportunities and Challenges of Privatization", Washington, DC. (1997).
9. Code of Federal Regulations, Title 10, Part 961., "Standard Contract for Disposal of Spent Nuclear Fuel and/or High Level Radioactive Waste".