This is the accessible text file for GAO report number GAO-04-148R entitled 'Department of Energy: Reimbursement of Contractor Litigation Costs' which was released on December 29, 2003. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. November 26, 2003: The Honorable Edward J. Markey: House of Representatives: Subject: Department of Energy: Reimbursement of Contractor Litigation Costs: Dear Mr. Markey: 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. You asked us to study the extent to which DOE reimburses its contractors' litigation costs and the process for doing so. As agreed with your staff, we 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. We provided your staff with a formal briefing on our findings on October 16, 2003. (See encl. I.) This report presents the results of that briefing. In summary, we found the following: 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.[Footnote 1] 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.[Footnote 2] 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 we identified 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.[Footnote 3] 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. We met with DOE's Deputy General Counsel for Litigation and other DOE attorneys in the General Counsel's Office to discuss the facts in this report. They generally agreed with the information in our report and provided some clarifying comments that we incorporated as appropriate. Our methodology is discussed in enclosure II. We performed our work from March through October 2003 in accordance with generally accepted government auditing standards. As arranged with your office, unless you release its contents earlier, we plan no further distribution of this report until 30 days after its issuance date. At that time, we will send copies to interested parties. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report or need additional information, please contact me at (202) 512-3841. Key contributors to this report were Robert G. Crystal, William F. Fenzel, and Daniel J. Semick. Sincerely yours, Robin M. Nazzaro: Director, Natural Resources and Environment: Signed by Robin M. Nazzaro: Enclosures - 2: Enclosure I: [See PDF for images] [End of section] Enclosure II: Scope and Methodology: To determine how much DOE spent to reimburse its contractors for litigation costs from fiscal year 1998 through March 2003, we obtained data from DOE's Legal Management Tracking System (LMTS)--a Web-based database established to track such costs. It relies on entries from the relevant DOE field offices. To address the reliability of the LMTS data used in our review, we discussed the development of LMTS with agency officials. In addition, we received detailed responses to a list of questions about LMTS, including a description of the database, its development, limitations of the data it contains, its format, descriptions of how data are entered into the database, and quality control checks on its content. Also, we performed limited data reliability testing. Responses to these questions were prepared by agency officials who are responsible for overseeing the LMTS. In addition, we summarized some of the LMTS data for the 5-1/2 year period and compared these data with the information in DOE's summary. After taking these steps, we determined that the LMTS data were sufficiently reliable for the purposes of this report. To obtain information on the amount that contractors have spent without reimbursement from DOE, we surveyed DOE's 18 field offices. Since the information is not in a DOE database, DOE field office personnel obtained the information by analyzing their records of cases or asking the relevant contractors to assist them in providing the information. After we received the data, we discussed the responses with attorneys at several DOE field offices to obtain further explanations. Respondents in most DOE field offices said they were highly confident the information they received was accurate and complete for those cases in which contractors responded. However, contractors did not provide their unreimbursed costs for all cases, according to DOE's Deputy General Counsel for Litigation. He estimated that contractors might have several million dollars in additional unreimbursed costs for ongoing cases that they did not report to DOE. We determined the data were sufficiently reliable for the purposes of this report, and we added a note to our briefing slides indicating that several million dollars may not be included in the estimate. To determine DOE's major criteria for reimbursing its contractors' legal costs and how DOE implements the criteria, we examined federal regulations, including DOE's own regulations, on reimbursement of contractor legal costs, and we interviewed attorneys at DOE's headquarters and field offices about the guidance and their implementation. Similarly, to determine the major criteria the Department of Defense and the National Aeronautics and Space Administration use to reimburse contractor litigation costs, we examined federal laws and regulations, such as the Federal Acquisition Regulations, and we interviewed officials at the Department of Defense and the National Aeronautics and Space Administration responsible for developing those regulations as they pertain to reimbursing contractor litigation costs. To determine the extent to which a state university that is a DOE contractor may have a valid immunity defense, we examined relevant laws and court cases. To determine the extent to which DOE contractors have invoked immunity or immunity- related defenses, we obtained estimates from the University of California. University of California attorneys at DOE facilities said that in some cases they relied on examining files, but in other cases they relied on summaries of files and institutional memory. (360310): FOOTNOTES [1] See 48 C.F.R. §§ 31.205-47 and 970.5228-1 for the criteria. [2] The False Claims Act, 31 U.S.C. §§ 3729 to 3733, provides for civil monetary penalties and damages for anyone who knowingly submits false claims to the United States. [3] The Eleventh Amendment to the Constitution provides the states with immunity from lawsuit by a private party in federal court.