by Mary Anne Sullivan and David Burgett, Hogan & Hartson
Under the American Recovery and Reinvestment Act, billions of dollars are flowing from the U.S. Department of Energy (DOE) to the private sector to advance the clean energy agenda. Most of that money will flow through cooperative agreements.
The for-profit entities receiving much of the Recovery Act funding are not accustomed to doing business with the government and are finding many of the standard requirements foreign, but they represent the cost of accepting DOE dollars. This is a short primer on what to expect in negotiations with the DOE.
General Background
A cooperative agreement is distinct from a procurement contract, the vehicle the government uses to procure goods and services for its own needs.
A cooperative agreement is instead a vehicle by which the DOE obtains a right to “substantial involvement” in a project that it helps fund to advance energy policy interests. The DOE’s principal remedy for noncompliance with a cooperative agreement is termination of the agreement.
Although the DOE speaks in terms of its right to substantial involvement under a cooperative agreement, it does not seek to manage a funded project. DOE involvement takes the form of oversight: the rights to do site visits, receive information, monitor compliance with the cooperative agreement and, for large projects, make go-no-go funding decisions at key points.
A cooperative agreement has standard provisions and provisions that are unique to the specific project. The DOE usually is unwilling to modify standard provisions. Examples are provisions that have been developed to implement the requirements of the Recovery Act.
For example, even if Davis-Bacon or Buy American requirements have no applicability to the work to be done under an agreement, the DOE is likely to want to include the standard clauses spelling out those requirements. The DOE may be open to including a separate statement acknowledging the likely inapplicability of those clauses, but still leave the standard language in place.
The unique portion of each cooperative agreement usually is referred to as the Statement of Project Objectives, or SOPO. This is the part of the agreement that an awardee can shape through negotiation. The SOPO will cover issues such as timeline and work scope.
For parties receiving less money than they applied for, there will be negotiation about what portion of the project can be completed within the available funding. The DOE is generally open to modest adjustments to a project description from what an applicant proposed, provided the nature of the project and the outputs that the DOE is seeking are not substantially altered.
In some projects, it is in the nature of what has been proposed that project definition will continue through early stages of a project.
Being selected for negotiation of a cooperative agreement does not necessarily mean that the DOE was satisfied with every aspect of a proposal. Budgeting, project management and cost tracking are areas where the DOE likely will negotiate for more than was proposed.
The principal point of contact with the DOE for negotiation of and performance under the cooperative agreement usually is a contracting officer. That person must also approve any modifications to the agreement during performance. An awardee may rely only on decisions of the contracting officer.
Recovery Act Requirements
Consistent with the statutory goals of promoting economic growth, preserving or creating American jobs, providing transparency about how government funds are being spent and avoiding waste, fraud and abuse, there are a number of requirements the DOE will impose in any cooperative agreement funded by the Recovery Act:
- Buy American. Projects “for the construction, alteration, maintenance, or repair of a public building or public work” must use iron, steel and manufactured goods that were made in the United States. There are very limited grounds for waiver of this requirement, but whether a project is for the construction or alteration of a public work may not be straightforward.
- Davis-Bacon Prevailing Wage Requirements. For contracts more than $2,000, award recipients and their subcontractors must comply with the Davis-Bacon Act. That includes: (a) paying wages and fringe benefits at local prevailing rates, as determined by the U.S. secretary of labor to all laborers and mechanics engaged in construction, alteration or repair work and (b) obligations regarding the posting of prevailing wage information. The key to compliance is identification of covered workers.
- Segregation of Costs. Recipients must segregate Recovery Act funds and maintain financial and accounting systems that enable them to demonstrate that they have not commingled the funds or used them for unauthorized purposes. This is a challenge for entities that do not have tools to closely track project funds.
- Reporting Requirements. The DOE routinely requires grant recipients to provide substantial programmatic reporting so the DOE can understand whether funding objectives have been achieved. In addition, however, the Recovery Act requires all funding recipients to make quarterly reports to their DOE contracting officers about funds received, obligated and expended, project status and job creation. The DOE likely will impose standard reporting forms and protocols.
- Access to Records and Personnel. The inspector general and Government Accountability Office both receive the right under the Recovery Act to inspect records and interview employees and subcontractors working on projects funded by the act.
- Whistleblower Protections. Employers may not retaliate against employees for reporting waste, abuse or mismanagement of project funds, health or safety issues in the execution of a funded project or law violations with respect to a funded project.
- Reporting Waste, Fraud or Abuse. A recipient of Recovery Act funds must inform the DOE of any credible evidence that “a principal, employee, agent, contractor, subgrantee, subcontractor or other person” has submitted a false claim or committed a criminal or civil violation pertaining to fraud, conflict of interest, bribery or similar misconduct involving grant funds. This non-negotiable requirement applies throughout the performance under the agreement.
- Prohibited Uses. The Recovery Act prohibits the use of funds for any casino or other gambling establishment, aquarium, zoo, golf course or swimming pool. On its face, this may sound sensible, but it may have some unintended applications to, for example, a smart grid award.
Standard Cooperative Agreement Provisions
- Cost Share Arrangements. Cooperative agreements entail cost sharing by the awardee. A recipient need not fund its cost share on a pro rata basis throughout the project. Other sources of federal funding, however, cannot be used to satisfy a cost share obligation. Program income received by a recipient in carrying out a funded project can be used to cover cost share. If that is not done, total eligible project costs may be reduced by the amount of the program income, which would in turn reduce the federal cost share—a generally undesirable outcome. The DOE funds awards to for-profit entities on the basis of invoices submitted for work completed. Project costs incurred within 90 days prior to execution of an agreement can be reimbursed. For costs incurred more than 90 days prior to award, contracting officer approval is required and should not be assumed. The DOE will make clear in the agreement that it bears no responsibility for project cost overruns. Nevertheless, if the DOE has funds available when a cost overrun situation arises, it may consider an increase in the award.
- Subawardees. There are a number of requirements that the DOE requires an awardee to “flow down” to subawardees, but not to vendors. It is not always clear, however, whether a party is a subawardee or vendor. A subawardee is a party with responsibility for programmatic decision-making, while a vendor tends to be an entity that provides like goods and services to many purchasers on similar terms. Because of the burdens associated with flow-down obligations, it is preferable to structure vendor relationships with suppliers.
- National Environmental Policy Act. The government must analyze the environmental impacts of projects receiving federal funds; no federal funds may be spent before the analysis is complete. Depending on the level of analysis required, the resulting delay can be nonexistent, where there are no impacts, up to 18 months or more for projects with significant impacts. (A recipient may use its own funds that are part of its cost share prior to completion of National Environmental Policy Act (NEPA) analysis, but it does so at its own risk.)
- Term of the Agreement. Given the reporting and oversight to which the company is subject during performance, it is desirable to negotiate a term that is as short as possible consistent with project objectives.
- Property Provisions. The DOE takes an “equitable interest” in any real or tangible property acquired in a project that has a value of $5,000 or more. Upon sale of that property, the DOE is entitled to its depreciated share of the value of the property. As long as an awardee continues to use the property for project purposes, however, the issue does not arise.
- Intellectual Property. If an invention is either conceived or first reduced to practice under a cooperative agreement, it is a “subject invention.” The DOE owns subject inventions by default, and the inventor or recipient has a nonexclusive, perpetual, royalty-free license to practice it. If the recipient wishes to retain the title, it must seek a waiver of ownership from the DOE. If the DOE grants a waiver, the DOE will have a nonexclusive, perpetual, royalty-free license to practice the patent for government purposes, including through licensing to a third party.
Recipients also must follow certain procedural requirements or risk the loss of patent rights. These include reporting subject inventions timely and acknowledging DOE sponsorship in the patent specification.
The DOE also has rights in technical data that is first produced in performing an award.
The DOE may obtain, reproduce, publish and use the data for government purposes and authorize others to do so.
The DOE may not authorize third parties to use the data for nongovernmental purposes.
If a recipient discloses to the DOE technical data not first produced in performing the award, the data may qualify as trade secrets. Such data should be marked proprietary, and the Trade Secrets Act will then protect against unauthorized government use or disclosure.
Authors
Mary Anne Sullivan is a partner in the energy practice at the Washington, D.C., law firm Hogan & Hartson and a former U.S. Department of Energy general counsel. Reach her at masullivan@hhlaw.com.
David Burgett is a partner in Hogan & Hartson’s government contracts practice. Reach him at dwburgett@hhlaw.com.