ML20154A462

Requests Reconsideration of 840531 Decision That NRC Lacked Legal Authority to Reimburse IEEE for Expenses Incurred in 1980 Rulemaking.Failure to Reimburse Could Jeopardize Future Benefits to Be Gained from Relationship

ML20154A462
Person / Time
Issue date:	02/10/1986
From:	Palladino N NRC COMMISSION (OCM)
To:	Bowsher C GENERAL ACCOUNTING OFFICE
Shared Package
ML20154A467	List: ML20154A462 ML20154A480 ML20154A488
References
NUDOCS 8603040047
Download: ML20154A462 (28)

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.....'o February 10, 1986 CHAIRMAN The Honorable Charles A. Bowsher Comptroller General of the United States General Accounting Office Washington, D. C. 20548

Dear Mr. Bowsher:

In a letter dated July 27, 1983, our General Counsel asked you to advise him whether the Nuclear Regulatory Commission ("NRC")

had the legal authority to reimburse the Institute of Electrical and Electronics En6 1 neers ("IEEE") for expenses it incurred in carrying out an agreement with NRC for preparatory work related to consideration by the Commission of a rulemaking in 1980, Attachment A. You responded by Decision of May 31, 1984 that the NRC lacked the legal authority to reimburse IEEE, Attachment B.

The Commission requests that you reconsider your earlier opinion. As the General Counsel explained in his letter, employees of NRC encouraged IEEE to perform the preparatory work and incur the related expenses. Both NRC and IEEE assumed at the time that NRC would promulgate a regulation which would have as one of its indirect effects the payment to IEEE of fees for certification of laboratories. The Commission believes that both parties acted in good faith, and that fafrness and equity require reimbursement to IEEE for its direct expenses which, we are informed, were nearly $500,000. Aside from fairness and equity, the Commission values its good working relationship with IEEE, which frequently results in substantial benefits to the NRC, and thereby to the public interest. Failure to reimburse in this case could seriously jeopardize future benefits to be gained from this good relationship.

Attachments C, D and E to this letter are IEEE's statements of reasons why reimbursement is appropriate. IEEE believes that the " valuable work product," which IEEE submitted to the NRC four months after you rendered your earlier opinion, supports reimbursement of expenses under a guantum meruit theory.

Attachment F is a memorandum from the NRC staff.

The Commission believes that, if there is any legal basis. IEEE i

should be allowed to recover reasonable value of its performance i so that it would be restored to the position that it was in j before the direct expenses in reliance on NRC's agreement with l

IEEE to institute a laboratory accreditation program. As a j result of IEEE's work, the valuable option was created that, had the Commission decided to go ahead with the plan, it could have j

8603040047 860210 PDR COMMS NRCC CORRESPONDENCE PDR

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executed the accreditation program. Moreover, as we have noted above, the Commission believes that fairness and equity require reimbursement of IEEE and that reimbursement is needed to restore an essential working relationship between IEEE and the NRC.

Sincerely, s')

)f.t L.% v/ 0$a flo ~- W Nunzio J. Palladino Attachments:

A. Ltr. to Bowsher from Plaine dated 7/27/83 (w/att.)

B. Comptroller General Decision dated 5/31/84 C. Ltr. to Plaine from Muntzing dated 8/16/85 (w/att.)

D. Ltr. to Plaine from Muntzing dated 12/5/85 E. Ltr. to DeYoung from Herz dated 9/24/84 F. Memo to Zech from Dircks dated 12/18/85

ATTACHMENT A a

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,q prf July 27, 1983 1

The Honcrable Charles A. Scwsher i Comptroller' General of the i United States  ;

Ceneral Accounting Office .

Washington, DC 20548 ,

Dear Mr. Bowsher:

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I am writing to seek the opinion of the General Accounting  ;

Office (GAO) on the ability of the Nuclear Regulatory t l Commission ("NRC" or " Commission") to reimburse the ,

i Institute for Electrical and Electronics Engineers (IEEE), a private, ncn-profit organization, for expenses it-incurred in carrying out an agreement with the Commission, despite the apparent absence of legal authority by the Commission to make such a reimbursement. For policy reasons, the i Commission may want to reimburse IEEE and thus seeks GAO's ,

I advice as to whether this would be an appropriate expendi- [

i ture of government funds. -

l t in 1977, the Commission began considering whether to upgrade  ;

e j its standards for the environmental qualification of equip-ment in nuclear power plants. " Environmental qualification" i may include the testing of equipment to determine whether (

that equipment will perform its intended function even in j the abnormal environments that may occur in an accident. In

July 1980, the Commission requested its staff to discuss ..

! with IEEE whether I.EEE would be willing to develop and implement an accreditation program for laboratories i i performing environmental qualification testing. The l j Commission selected IEEE because of its expertise and ,.

i leadership in the development of testing standards for .

. electrical equipment. At the time, the Commission envisioned that utilities would be required to have  !

environmental qualification testing performed at accredited  ?

laboratories only, i

In August 1980, pursuant to this Commission direction, the t NRC staff asked IEEE whether they would be willing to i j participate in such a program. Several letters were written  ;

to IEEE encouraging their participation; a public announce-l i

ment was released stating that the Commission was preparing i a rule that would require that future equipment qualifica- l I tion tests be performed in accredited laboratories and that j the NRC was working with IEEE and the American Society for ,

' Mechanical Engineers to establish such a program; and the i Director of the Office of Inspection and Enforcement made i

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The Honorable Charles A. Bowsher 2 presentations to IEEE in support of the propcsed program.

("I pledge NRC's full and enthusiastic participation and support in developing and implementing the accreditation system and look forward to an early notice that IEEE accepts the task.") .

After negotiations with NRC, IEEE decided to establish the requested accreditation program. IEEE and NRC then signed an agreement outlining their respective responsibilities.

See Enclosure 1. In broad terms, IEEE agreed to establish an accreditation program, and NRC agreed to issue a rule requiring its use. NRC also agreed to use its best efforts to promulgate the proposed rule in the first quarter cf 1982. No specific expenditures by the Commission were necessary to implement the agreement; hence, no funds were appropriated for this program.

After the agreement was signed, IEEE rented office space, hired additional staff, printed application forms, and held seminars in New Orleans and San Francisco, all in furtherance of an accreditation program. The Commission, however, never issued the proposed rule. Although the NRC staff recommended that the Commission approve publication of a notice of proposed rulemaking in April 1982, the '

ccmmission did not act on this recommendation until April 1983, when it decided not to issue the notice. In the meantime, assuming the Commission would take the agreed-upon action, the NRC staff continued to encourage IEEE participation. On May 13, 1983, the Commission informed IEEE that it no longer intended to issue a notice of proposed rulemaking and that it was terminating the NRC-IEEE agreement.

The NRC General Counsel believes that the Commission has no legal obligation to reimburse IEEE for tha expenses it incurred and therefore that the NRC's authority to reimburse IEEE is questionable. See Enclosure 2. There are strong +

policy considerations, however, that weigh in favor of reimbursenent ( e . g ._ , preservation of NRC's credibility with professional organizations on which NRC relies and with Thus, the which it interacts on a continuing basis) .

Commission may want to compensate IEEE despite the absence of a legal obligation to do so.

The Commission therefore seeks GAO's opinion as to whether such reinbursement can properly be made. Since the Commis-sion has told IEEE it is considering reimburnerent pending legal analysis, we would appreciate as prompt a response as possibia, and an indication of when such a response could be expected.

The Honorable Charles A. Bowsher 3 The Commission appreciates your assisti.nce in this matter.

If you have further questions concerning this request, please contact Dan Berkovitz (634-3224) of this office.

Sincerely.,

l k, Herzel M. E. Plaine General Counsel ,

~Cnclosures:

1. Agreement

2. Memo, 6/7/93, ritzgerald to Asselstine e

Unit 28. Stat s Nuchar ittguhtory Ccomission and The InstJtute cf El:ctrical and Electronics Engineers, Inc.

Rsgarding the Accreditatien of Testing Orga.nizations i

I. Pu:pse -

This Agreement between ' Die Institute of Electri:a! and Electronics Engineers, Inc. ("IEEE") and the United States Nuclear Reguistory Commissien ("SRC") ,

concerns the establishment and implementation of an independent program IProgrem) for the neereditation of testing crganizations which perictm quellfication testing of safety-related equipment" (Equipment) used in nuclear powcr gsnerating facilities licensed by NRC under the Atomic Energy Act of l 1954, as amended. It will be conducted by IEEE with* the endorsement, ,

participation, and assistance of NRC. It involves IEEE's issuance cf certificates of accreditation to testing organizations based upon its assessment that the organizations have the capability (e.g., understanding of requirements, appropriate equipment, programme 11e centrols, adequate orgenization and knowledgeable personnel) to perforr:, quellfication tests on Equipment. -

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II. The Need for the Program Some Equipment 1: sed to monitor and control nuclear power plants may be expored to combined ha-sh environinents, Including radiation, steam, chemieni spray, Mgh temperatures and pressures. The perfctmance of th!s Equipment

, under these conditions ha not, in many cases, teen adequately demens:;ated.

Because tha consequences of Equipment faDure in a nu:Icar power generating facility could h' ave an adverse i= pact upon the public health and safety, NRC requires that t!)e design of certain Equipment be verified'to assure the.t it wi!!

satisfactorDy perform its function in the most adverse environment to which it may b subjected through means such as qus11fication testing of prototypes. To aid in achieving co .sistency, uniformity,' adequate control of t-stirig and reliabibty of test results, the establishment of a testing crge.nizatica eccredi-tetion system, administered by an independent organization, is ccasidered -

necessary. The Icadership cnd technical ',mowledge demenstrated by IEEE, as the lead orgartization responsible 'fer qualification testing standards and for development of voluntary standards relating to electrica], instrumentatien, end control-type equipment used in varying envLonments, qu.3Mfies IEEE for this task.

For these reascns, NRC enters into this Agreement to help fulfill it*, statutory respon:ibi111ies, and IEEE, for its part, necepts its responsibiltics under this

- Agreement es a put;lic service in furtherence of the purposes for which it was estnblished.

uty-relsted equipment as used here is defined es equipment to be specified by 5

.tleraaking which is required to be qualification tested by en v. credited

.d ion.

, fnclosure 1

'W*

., NRC and IEEE generally apee:

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A. To evalugte the Propam periodically and independently of each other. '

3. To use their best efforts to carry on the Pregram for at least five years. -

C. .To' encourage frequent communication between each other on the

' administration of the Probam and to appoint primary contacts for this purpose. ,

D. To use information obtainid in the conduct of the Program as necessa.,y to carry out their respective respontibWties relating to the Propam.

. Proprietary information provided to NEC representatives will be subject to the Commis.sion's regulations in Section 2.790. Part 2, and in Part 9 of Title 10, Code of Federal Eegulations. .

IV. . IEEI's Res$onsibEties '

E EE agrees: . ,

A. To establish an orge.nl:stion capable of developing, implementing and

, maintaining thEPropam. IEEE will take reasonable steps to assure that

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technical support needs of the Propam are met within that organization and that the organizatica win have a balance 'of membership that will promote proper representation of those organizations involved in Equip-men 1: qualification. -

o B.' To develop Implement and document the Progr'am, including the estab-

. lishment of:

1. A system of accreditstion based on an orgard:ation's technical prograta, quality assurcnce propam, and a demonstrated ability to meet specified technical requirements directly applicable to -

Equipment qualification testing activities.

2. An accreditation review ccmmiitee assigned the responsibility for granting or withholding accreditation. . (Auditors or survey

. teams will not be given this authori:y.) Membership on this committee will be sufficiently dive.mified and working pro-cedures structured so that accreditation wW be reassnably available to all quellfied applicants.

, 3. '.Oguirements to assure that audit personnel red the eccredita-tion review committee are technical]y qualified and reasonably free of conflicts of interest.

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Proctdures for periodic re-audits to maintain accreditatlen.

6. Written procedures for the cosduct and ongoing documentation of accreditation activities. ,

. C. To permit and provide for NRC's designated representatives to review, audit, and inspect IEEE's documented Propam, accreditation records, and activities, including the performance of survey teams and the accredi-tation review committee.

D. To use its best efforts to hegin implementing the Propam during' the first calendar quarter of 1982 and to perform surveys at a rate that will give applicants applying by January 1982 a reasonable oppertunity to be audited by Janua.y 1,1983.

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V. NRC's Responsibilities '

.NR.C agrees: ~ -

A. To issue an NRC rule endorsing the Program and requiring its use after '

January 1,1983. NRC will use its best efforts to proraulgate a proposed rule in the first quarter of 1982.

,. B. To provide guidance and assistance la the developrnent of the Program and to , review it in order to assure its approval by NRC rulemaking. -

C., To provide NRC voting representation on the dppropriate IEEE com-mitte;s, boards and panels involved in administering the Propam.

D. To audit and inspect IEEE's accreditation records and actMtes, including -

the performance of survey teams and the accreditation review committee.

To discuss the results of its reviews, audits, and inspections with IEEE E.

officials responsible for taking corrective actions.

F. To inform the public, including NRC licensees and applicants, of, the agreements reached between NRC and IEEE by publishing this document, or a , summa.y thereof, in the Fede.al Register'as soon es practicable

. after its execution.

G. To recognize IEEE's accreditation system as an acceptable Propam which' may be used by NRC IIcensees and licensee applicants to satisfy NRC requirements relating to the evaluation of testin's Torgt.nizations QA and technical programs.

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. This Agroom:nt shall beccme offectiva cn September 30,1981, and shall remain

. In effcet unicss and until cither NRC or IEEE terminates it en 60 days' prior.

written nstfea to NP.C's Exscutiva Dircetor fer Operations er IEEE's General -

Manager, as appropriate. ,

U. S. Nuclear Regulatory Commission Washington, D. C. 20555 William obOircks k_ .

d L./Sh Date Executive Director for *

. Operations .

, _ The Institute of Eectrical and

• Eectronic Engineers, Inc. .

345 East 47th Street New York, NY 10017 -

• Date Eric Esrt .

General Manager - '

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June 7. 1983

,oc..o MEMJRANDUM F0h Comissioner Asselstine FROM: Jares A. Fitzgerald, Assistan General Counsel

SUBJECT:

NRC AUTHORITY TO REIMBURSE IEEE This responds to your request of March 18, 1983 for an analysis of the NRC's authority to reimburse IEEE for the expenses it incurred in developing an accreditation program for electrical equipcent testing organiFzations. We have consulted with OELD and they concur in this. _.

analysis. IE also has provided a de:.cription of the costs incurred by

IEEE in developing this program.

We conclude that IEEE's legal right to retrburserent is doubtful and that it is questionable whether NRC has any other authority to rei't.bune IEEE in the absence of such a legal right. Should the Commission decide ~

that the policy considerations in favor of reimbursement outweigh these legal consideraticns, it ray want to obtain the Comptroller General's opinion as to whether such reimbursement would be an appropriate expenditure

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of government funds. .

Attachments:

As stated cc: Chairman Palladir.o Comissioner Gilinsky Commissioner Ahearne Comissioner Roberts SECY

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ELO IE Contacts :

Dan M. Berkovitz, OGC. X43224 Ralph E. Avery OELD, X28556

,y r7CT7X

. L ', Enclosure 2

I. IEEE'c Legal'Right to Reimbursrm nt In our opinion, the arguments that IEEE has no legal right to reimbursement ' arc stronger than the arguments that they do have such a legal right. Because of the equities of this case, however, it is a realistic possibility that a court would adopt one of these weaker legal arguments in order to arrive at a result it considered just.

The NRC-IEEE agreement appears to be a contract. Both parties have manifested assent to an exchange of promises.

There alsp appears to be ccnsideration to support the mutual promises. These are the normal indicia of a contract.

There are several features of the'NRC-IEEE agreement, however, that distinguish it from a typical government contract for goods or services. First, the NRC did,not expressly cbligate itself to pay IEEE in return for its services. Second, there does not appear to be the usual authorization for appropriations or reservation of funds that accompanies a government contract. Presumably, IEEE was to recover its expenses from the laboratories to which it gave accreditation. These distinguishing features, ~

however, do not appear to destroy the contractual nature of the agreement.

The NRC promised to issue a rule " endorsing the [IEEE]

- Program and requiring its use after January 1, 1983." In order to do this, it would appear that the rule would have had to be promulgated before January 1, 1983. Thus, an implied promise in the contract appears to be that the NRC would promulgate the rule before January 1,1983.

The NRC did not promulgate the rule by January 1,1983.

Thus, if the promises to enact the rule by that date are valid, the NRC breached the contract and may be liable to IEEE for damages incurred as a result. If, however, the promises are not valid, then the NRC would not be liable to IEEE for damages allegedly caused by the f ailure to promul-gate a rule.

In our view, a court probably would hold NRC's promise to

\ issue a rule endorsing 'IEEE's program and requiring its use 1As discussed below, NBC's promise to promulgate a rule endorsing IEEE's program and requiring its use af ter January 1, 1903 eay be an unenforceable or void promise.

Nonetheless, the NRC made other promises, which do not appear to suffer from the same probices, so that there is consideration for IEEE's promises, regardless of the validity of the rulemaking promise.

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l .to be contrary to public policy and void. Although the case i law we found on point is sparse, and is not binding on the federal courts, these cases uniformly and forcefully hold that a government agency or of ficial cannot agree to limit

the discretion of the' agency whey exercising its executive, 1 legislative, or judicial powers.

" [ Al s a matter of law, . ; . the plaintiff was charged with

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notice that the [public official's] powers were conferred by law for public purposes, and the exercise thereof, involving j a matter of future policy subject to change to meet changing j conditions, could not be restricted by the attempted agree-l ment here." School District No. 69 of Maricopa Co. v~.

Altherr,10 Ariz. App. 333, 458 P.2d 537 (1969). See also l' Lane v. Summer County, 298 S.W.2d 708 (Tenn. 1957 ) ' (con-l tracts made for the purpose of unduly affecting conduct of

! legislative functions " strike at the very foundations of l government and intend [ sic] to destroy that confidence and

integrity and discretion of public action which is essential l

to the preservation of civilized society," . id. at 710, ~

l quoting Pomeroy, S 935) ; Johnson v. Board of Commr's of -Wake County, 135 S.E. 618 (N.C. 1926); Edwards v. City of Goldsboro, 53 S.E. 652 (N,C. 1906). Thus, it appears that l - NRC's promise to enact a rule is contrary to *public policy  ;

and void. Accordingly, the NRC would not be liable to IEEE I for not promulgating a rule. ','

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IEEE may argue that even if the NRC is not contractully a obligated to promulgate a rule, IEEE is entitled to damages [

I incurred as a result of its reliance on the NRC's repeated l

representations that it would do so, "A promise which the promisor should reasonably expect to induce action or. >

forbearance of a deficient and substantial character on the  !

j - part of the promisee and which does induce such actipn or '

forbearance is binding if injustice can be avoided only by 1 enforcement of the progise." Restatement (Second) of 1 Contracts S 90 (1973). , , . , _ ,  ;

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There are, however, several analytical difficulties with l

adopting this theory (promissory estoppel) . First, }

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A contract with a private party to enact a rule also 1 .

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l appears to be contrary to the rulemaking provisions of the  ;

i Administrative Procedure Act, 5 U.S.C. S 553. i t

a 3 In the IEEE case, enforcement would mean a cause of , l action for damages would lie for non-performance. l

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3 promissory estoppel is normally used as a substitute for consideration in order to put the promisee in the same position as if there were a contract. In this case, there already is adequate consideration to support the contract, even without the promise to promulgate the rule. Secondly, reasonable reliance is necessary for promissory estoppel.

If the promise itself is contrary to public policy, it may be contrary to public policy to allow a person to reasonably rely upon such a promise. "One cannot close his eyes to a situation.and then be heard to ;sy that he had a right to rely... The plaintiff, charged with knowledge of the legal ef fect of an unenforceable agreement, as a matter of law, had no right to_ rely thereon." School: District No. 69 of Maricopa Co. v. Altherr, supra, 458 P.2d at 54 3. - .

A cou'rt, however, need not go this far in the absence of binding precedent to do so. Perhaps because of the con-tinuous and repeated nature of the NRC representations to IEEE, a court could find that in this particular case '

reliance was justifiable, -

Another possible analyticai~ avenue of escape from these uncompromising rules of law might be to argue that NRC's

. liability,toward IEEE was incurred at the time of contract-ing rather than at the time NRC failed to perform its promise to promulgate a rule. This would avoid the public policy argument that the promise is void because if the promise were valid it would create a contractual right of action in a private party against the government when the government acted in the public interest in subsequently

, determining not to promulgate a rule. The problem with viewing the agreement as creating a liability at the time of contracting is factual -- at the time of contracting there

- was no reservation of funds or authorization of money to be paid to IEEE. It is difficult to argue, therefore, that at the time o,f contracting the NRC made any sort of investment or promise to reimburse IEEE for its services. ,

IEEE might argue that the NRC breached other promises in the agreement. It would not be the alleged failure to perform any of these other promises, however, that caused IEEE's damages. It was the NRC's failure to enact the rule that led to IEEE's losses. Thus, even if the NRC breached any of its other promises, such a breach would not enable IEEE to recover most of its expenses.

IEEE may argue that the termination clause is a termination-for-convenience clause. Termination-for-convenience clauses are standard in government contracts for goods or services and allow the government to terminate a contract with a

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4 resultant liability to the other party only of expenses already incurred by that party, with no liability for lost profits. See, e.g., Colonial Metals Co. v. U.S., 494 F.2d 1355 (Ct.C1. 1974). There are several reasons, however, why the termination clause in the NRC-IEEE agreement should not

, be treated as a termination-for-convenience clause. First, it wss not drafted as one. There is no manifestation of intent for it to be treated as this particular type of clause. Second, unlike the standard termination-for .

convenience clause, both parties were given the power to terminate. It appears that IEEE also could have escaped liability unde.r the agreement at any. time ,i,t so,desi,r,ed.

In sum, f rom a strictly analytical perspective, it appears that IEEE does not have a right to reimbursement. Because of the facts of this case, however, we cannot state with any substantial degree of confidence that a court would actually so hold. .. .. . . . .

II. NRC's Authority To Reimburse IEEE If IEEE Has No Legal . ,

Right To Reimbursement ".- :

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Public Law 85-804 enables the President to authori e.any department or. agency "which exercises functions in con-nection with the national defense, acting in accordance with regulations' prescribed by the President for the pr6tection of the Government, to enter into contracts or into amend-ments or modifications of contracts, without regard to other provisions of law related to the making, performance, amendment or modification of contracts, whenever he deems that such action would facilitate the national defense." 50 U.S.C. S 1431. By Executive Order 10789, 23 FR 8897 (Nov . 17, 1958), President Eisenhower gave such au - -

thoriration to the AEC. . ..  :  :..-

Under this st'atute, "[a] contractor can obtain payments or -

other forms of relief even though such relief is directly prohibited by statute or common law. In this sense, Public Law 85-804 is a giveaway, since it allows the Government to '

make contractual payments it is not legally obligated to make." Jansen, Public Law 85-804 and Extraordinary Contractual

' Relief, 55'Geo. L.J. 959 (1967).

In the past, the AEC has interpreted the authority conferred by P.L.85-804 in a very broad context. For example, all activities, contractual and otherwise, were interpreted as meeting the standard "which f acilitates the national de-fense." The nexus between facilitating the national defense and the particular matter at hand appears quite tenuous. We

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5 therefore believe that the use of P.L.85-804 for purposes of compensating IEEE could be interpreted as extending our authority beyond reasonable bounds.

Finally, it should be noted that 50 U.S.C. S 1434 would require the NRC to report to Congress any reimbursement under S 1431 in excess of S50,000, and to " state further the circumstances justifying the action taken." Thus, reim-bursement to IEEE under Public Law 85-804 would be subject

.. to Congressional review. -

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III. Conclusion Thestrongerlegalargumentsar[ethatIEEEhasnolegal .

right to reimbursement. It is questionable whether the NRC has authority to reimburse IEEE absent such a legal right.

It is our' unde.1 standing, however, that there are strong equitable and policy considerations supporting ,

reimbursement. The Commission therefore may want to seek. '

the Comptroller General's opinion as to the acceptability of reimbursement under these circumstances.

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May 3, 1983

' MEMORANDUM FOR: James Fitzgerald ,

Assistant General Counsel FROM: - Richard C. Deioung, Director Office of Inspection and Enforcement

SUBJECT:

IEEE EXPENSES IN DEVELOPING ACCREDITATION STANDARDS By memorandum dated March 21, 1983, you had requested a description of the types of expenses and an estimate of the total cost incurred by IEEE in developing the proposed equipment qualification testing laboratory accredi-tation program.

In a meeting with Comissioner Asselstine on March 2,1983, representatives of the IEEE stated that approximately $1.5 million has been spent by IEEE as of that date on the laboratory accreditation program. s.tbre specific information regarding exact costs and a specific breakdown of the types of expenses incurred are not available in .IE. .

If appropriate IE recocinends that arrangements be made with IEEE for a government auditor to review IEEE accounts. This should be done only if NRC determines there is a basis for reimbursing IEEE.

Richard C. _ Young, ' rector Office of spectio and Enforcement cc: W. J. Dircks, EDO

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, DECISION ! . n . l DF THE U N ITE D STATEB

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FILE: B-212529 DATE: May 31, 1984 MATTER OF: Nuclear Regulatory Commission--

Reimbursement of Institute for Electrical and Electronics Engineers DIGEST:

1. The Nuclear Regulatory Commission (NRC) is not liable for the expenses the Institute for Electrical and Elec-tronics Engineers (IEEE) incurred in reliance upon the NRC's agreement to promulgate a rule to establish a laboratory accreditation program when the NRC decided later not to promu'-

gate the rule. The agreement to issue the rule is against public policy and therefore unenforceable. NRC is not liable in contract for a promise which is void.

2. The NRC is not liable under'. the doctrine of promissorj estoppel for the expenses the IEEE incurred in reliance upon the NRC's agreement to promulgate a rule to establish a laboratory accreditation program when the NRC decided later not to promul-gate the rule. A promise is binding under the doctrine only if the pro-misor should have expected that his promise would induce the promisee to take substantial action. It was not reasonable for the NRC, when it agreed to promulgate the rule, to expect the IEEE to make substantial expenditures since, under the Administrative Proce-dure Act, the NRC still had to con-sider the views of interested persons before deciding whether to issue a final rule.

3. NRC cannot reimburse the IEEE on a quantum meruit basis for expenses the IEEE incurred in preparation for a laboratory accreditation program 6

B-212529 which the NRC later decided not to conduct. Reimbursement on the basis of quantum meruit is proper only if the Government has received and accepted a benefit from the services for which a party is seeking payment.

The NRC received no benefit from the activities conducted by the IEEE in preparation for conducting the accred-itation program which consisted of renting office space, hiring addi-tional staff, printing application forms and holding seminars.

4. Public Law 85-804 permits certain agencies to provide extraordinary relief to contractors when necessary to facilitate the national defense.

While GAO does not have jurisdiction to make determinations under Public Law 85-804, use of that statute to permit NRC to reimburse professional organization for expenses incurred in preparation for a laboratory accreditation program which NRC later decided not to conduct appears beyond its intended scope.

5. NRC may not expend appropriated funds for the purpose of preserving its credibility with professional organizations with which it interacts on a continuing basis. Policy factors such as maintaining credibility cannot justify an expenditure which otherwise lacks legal authority.

The General Counsel of the Nuclear Regulatory Commission,(NRC) requested our opinion on whether the Commission may reimburse the Institute for Electrical and Electronics Engineers (IEEE) for expenses it incurred in preparing to carry out an agreement with the NRC which the Commission later failed to carry through to completion. We hold that the Commission is not authorized to reimburse the Institute, as explained below.

B-212529 Facts In 1977, the Commission began to consider revising its environmental qualification standards for nuclear power plant equipment. Environmental qualification consists, in i part, of laboratory testing of the equipment to determine how it would function after a nuclear accident. The Commis-sion envisioned that the revised standards would require that the laboratories doing the environmental qualification testing be accredited.

The Commission's staff asked the IEEE in August 1980 to participate in the proposed accreditation program. The Commission sent several letters to the Institute encouraging its participation. The NRC also announced at that time that it was preparing a rule which would require that only accredited laboratories perform equipment qualification testing and that the Commission wan working with the IEEE and the American Society for Mechanical Engineers to estab-lish an accreditation program. Moreover, the Director of the Office of Inspection and Enforcement made presentations to the IEEE supporting the proposed program.

The NRC and the IEEE executed a written agreement, effective September 30, 1981, for the accreditation pro-gram s implementation. The Institute agreed to be respon-i sible for establishing and conducting the program and to use its best efforts to begin implementing the program during the first calendar quarter of 1982. The agreement further states that the IEEE accepts its responsibility to conduct the accreditation program as a public service in furtherance of the purposes for which the Institute was established.

The Commission agreed to issue a rule endorsing the accred-itation program and requiring its use after January 1, 1983. It also promised to use its best efforts to promulgate a proposed rule in the first quarter of 1982.

However, the agreement cid not promise to reimburse the Institute for any expenses it might incur in connection with the proposed accreditation program nor did it promise any other form of compensa: ion.

After the parties signed the agreement, the Institute rented office space, hired additional staff, printed appli-cation forms and held seminars in New Orleans and San Francisco to prepare for conducting the accreditation

B-212529 program. The IEEE stated that it spent approximately S1.5 million on program preparation as of March 2, 1983.1/

However, the Commission never promulgated the rule requiring that equipment qualification testing laboratories be accredited. The NRC staff recommended that the Commis-sion approve the publication of a notice of proposed rule-making in April 1982. The Commission decided not to issue the notice about a year after the staff recommendation. On May 13, 1983, the Commission informed the IEEE that it no longer intended to issue a notice of proposed rulemaking and that it was terminating their agreement.f/

The NRC General Counsel has concluded that the Commis-sion is not legally obligated to reimburse the Institute for the expenses it incurred in preparing to conduct the ac-creditation program. We have reviewed the several possible grounds for liability suggested by the NRC, and we agree that there is no legal basis for reimbursement.

Contractual Liability The IEEE seeks reimbursement of the funds it expended because the Commission breached its agreement to promulgate a rule requiring laboratory accreditation. The NRC is not liable for breach of contract, however, because an agreement by an administrative agency to promulgate a rule is against public policy and therefore unenforceable. Public offi-cials, as servants of the people, must be free to act in the public interest. Thus, agreements by public bodies which interfere with the unbiased discharge of their official responsibilities are void. E.g., School District No. 69 of Maricopa County v. Altherr, 458 P.2d 537 (Ariz. Ct. App.

1969).

In this case, the Commission's agreeing to issue a final rule with specified content restricts the discretion it is bound to exercise under the Administrative Procedure Act (APA), 5 U.S.C. S 553 (1982), when promulgating rules affecting the public interest. The NRC must follow the procedures set forth in 5 U.S.C. S 553 to promulgate a rule 1/ We have not been furnished with a more specific breakdown of this Sl.5 million figure. One member of the IEEE has stated the amount as S500,000.

l 2/ The agreement provided for termination by either party upon 60 days' written notice.

B-212529 requiring accreditation of laboratories doing nuclear power plant equipment qualification testing; the rule is invalid if it does not. City of New York v. Diamond, 379 F. Supp.

503, 515-516 (S.D.N.Y. 1974); Hatch v. United States, 212 F.2d 280 (9th Cir. 1954).

The purpose of the procedures mandated by the APA is to afford interested parties the opportunity to meaningfully participate in the decision-making process. Subsection (b) of 5 U.S.C. 553 generally requires an agency which is con-sidering making a rule to publish a notice of proposed rule-making in the Federal Register. The notice must include either the terms or substance of the proposed rule or a description of the subjects and issues involved. After the notice is printed in the Federal Register, the publishing agency must give interested persons the opportunity to participate in the rulemaking by allowing them to submit written data, views or arguments and possibly oral pre-sentations. 5 U.S.C. S 553(c). Agencies must consider the public comments before issuing a final rule. Id.

If the interested persons have presented persuasive arguments against the rule under consideration, or for modification to it, the proposing agency is. supposed to be guided by those views when making its final decision con-cerning the rule. As the court stated in Home Box Office, Inc. v. Federal Communications Commission, 567 F.2d 9, 35 (D.C. Cir. 1977):

"The APA sets out three procedural require-ments: notice of the proposed rulemaking, an opportunity for interested persons to comment, and

'a concise general statement of [the] basis and purpose' of the rules ultimately adopted.

5 U.S.C. S 553(b)-(c). As interpreted by recent decisions of this court, these procedural require-ments are intended to assist judicial review as well as to provide fair treatment for persons affected by a rule. * *

• To this end there must be an. exchange of views, information, and criticism between interested persons and the agency. * *

• Consequently, the notice required by the APA, or information subsequently supplied to the public, must disclose in detail the thinking that has animated the form of a proposed rule and the data upon which that rule is based.

Moreover, a dialogue is a two-way street: the opportunity to comment is meaningless unless the agency responds to significant points raised by the public. * * *"

B-212529 The Commission, by promising the IEEE that it would issue a laboratory accreditation rule, agreed in effect to disregard any adverse comments it might receive, thereby violating the APA. Such an agreement is in violation of puolic policy because it thwarts the very purpose of the APA which is to give interested persons the opportunity to in-fluence agency deliberations in the rulemaking process.

Accordingly, the Commission's promise to promulgate a laboratory accreditation rule is void because it violates public policy. It is axiomatic that no recovery may be had in contract on a void promise. The Commission is therefore not liable in contract to the Institute for its failure to carry out its agreement to promulgate , the rule.

Promissory Estoopel The Commission is not liable to the Institute under the doctrine of promissory estoppel. A promise is binding under the doctrine if the promisor should have expected that his promise would induce the promisee to take substantial action, that the promisee in fact took such action and injustice can be avoided only by enforcement of the pro ^

mise. R.S. Bennett G. Co. v. Economy Mechanical Industries, Inc., 606 F.2d 182 (7th Cir. 1979). The Commission should not have expected that its promise to issue a rule endorsing the laboratory accreditation programs would prompt the In-stitute to incur the substantial expenses it did by renting 3

office space, hiring staff, printing application forms and holding seminars, at least before a proposed rule was actually issued.

Under paragraph IV-D of the agreement, the IEEE agreed to "use its best efforts to begin implementing the Program during the first calendar quarter of 1982 and to perform surveys at a rate that will give applicants applying by January 1982 a reasonable opportunity to be audited by January 1, 1983." Under paragraph V-A, the NRC agreed (1) to issue a rule requiring use of the accreditation program after January 1, 1983, and (2) to use its best efforts to promulgate a proposed rule in the first quarter of 1982.

Assuming that the agreement was otherwise proper, the IEEE could not wait until issuance of a final rule before begin-ning to incur expenses. In order to fulfill its respon-sibilities under paragraph IV-D, the IEEE would have to start preparation in early 1982. Thus, the NRC should perhaps have expected that its promise would induce action on the part of IEEE prior to issuance of a final rule--the IEEE would have little choice under the terms of the agree-ment if it hoped to meet the contemplated time schedule.

I

B-212529 However, even if we were to disregard the fact that IEEE must as a matter of law be charged with notice of the requirements of the APA, it was clear from the agreement that a two-step rulemaking process was contemplated. The first step was issuance of a proposed rule, to coincide with the first phase of activity by the IEEE. Although NRC staff recommended issuance of the proposed rule in April 1982, the Commission did not approve it, and in fact took no action until terminating the agreement in May 1983. While we are not implying that reliance on a proposed rule would have been reasonable, we think it was clearly unreasonable for the IEEE to incur expenses when the NRC had not even taken its first step.

Taking the nature of the APA as discussed earlier into consideration--that is, considering that an agency cannot

" guarantee" the content of a final rule unless it agrees, in effect, to act arbitrarily--we think there was no basis for the NRC to reasonably expect that its promise, unsupported at the very least by issuance of a proposed rule, would induce substantial expenditures by the IEEE. The NRC's failure to issue a proposed rule should have put the IEEE on notice that implementation of the agreement was not pro-ceeding on schedule and that perhaps something was wrong.

In these circumstances, it is difficult to conclude that enforcement of the promise is necessary in order to avoid injustice. Therefore, even if we were to assume that a void promise can trigger liability under the promissory estoppel doctrine, we do not find sufficient basis to apply that doctrine here.

Quantum meruit The IEEE is 'not entitled to reimbursement on a cuantun -

meruit basis because the Institute's activities did not benefit the Commission. The premise underlying recovery on a cuantum mernit basis is that where performance by one party has benefited another, even in the absence of an enforceable contract between them, equity requires that the party recei.ving the benefit should not gain a windfall at the expense of the performing party. B-207557, July 11, 1983.

Before we can approve a quantum meruit payment, several conditions must be met. The agency involved must have the authority to expend its funds to procure the services per-formed. Also, the party who provided the services must have acted in good faith, the amount to be paid must represent a B-212529 reasonable value for the services performed, and the Govern-ment must have received and accepted a benefit from the services performed. 40 Comp. Gen. 447 (1961); B-207557, supra.

The Commission did not benefit from the activities for which the Institute is seeking payment (i.e., renting offices, hiring additional staff, printing application forms and holding seminars in New Orleans and San Francisco).

Accordingly, the Commission cannot reimburse the Institute for the expenses it incurred in conducting those activities on the basis of quantum meruit. .

Public Law 85-804 Although this Office does not have, jurisdiction to _

review agency determinations regarding payments under the authority of Public Law 85-804, in our opinion, reimbursing the IEEE on the basis of that statute's authority is questionable.

Public Law 85-804, codified at 50 U.S.C. S 1431-1435 (1976), grants to the President the authority to authorize any agency which exercises functions in connection with the national defense to enter into contracts or into amendments or modifications of contracts without regard to other provi-sions of law relating to the making, performance, amendment, or modification of contracts whenever he ueems that it would facilitate the national defense.3/ 50 U.S.C. S 1431 (1976). The NRC's predecessor agency, the Atomic Energy Commission, was granted authority to use Public Law 85-804 by Executive Order No. 10789, issued on November 14, 1958, 23 Fed. Reg. 8897. Under 50 U.S.C. S 1434, all actions taken under Public Law 85-804 must be reported to Congress annually, and the reports are published in the Congressional Record. The report must, for expenditures in excess of S50,000, describe the services and include justification for the action taken. This Office does not have authority to 3/ Public Law 85-804 is effective only curing a national emergency declared by the Congress or the President and for 6 months after the termination of the emergency or until an earlier date the Congress designates by concurrent resolution. 50 U.S.C. S 1435 (1976).

However, for purposes of Public Law 85-804, the national emergency which was otherwise terminated by 50 U.S.C.

S 1601 (the Korean Conflict) remains in effect.

50 U.S.C. 5 1651; B-193687, August 22, 1979.

-- ..- - m- , , , ~ , - . , - . . . + . - - r, . - , . . . . , - - -- .

B-212529 i

' a make determinations undeE Public Law 85-804. B-195080, August 1, 1979; B-188042, February 10, 1977; B-185709, June 28, 1976.

The legislative history of Public Law 85-804 indicates that it was intended to be "primarily of an emergency nature," and that it was intended to be used to facilitate the national defense, not merely authority for agencies to

" dispense aid solely for the benefit of contractors."

S. Rep. No. 2281, 85th Cong., 2d Sess. 3 (1958). "[T]he primary consideration is, and must be, whether such aid will facilitate the national defense." Id. The legal memorandum prepared by the NRC concludes that "the use of P.L.85-804 for purposes of compensating IEEE could be interpreted as extending (its] authority beyond reasonable bounds." While we could not legally object to a reimbursement by the NRC under the authority of Public Law 85-804, we are inclined to agree with the NRC that to invoke Public Law 85-804 in this case would be beyond the intended scope of that statute.

Preservation of credibility Finally, the NRC notes that denial of reimbursement in this case c.ight damage the Commission's credibility with professional organizations in the future, and asks whether this f actor might constitute suf ficient grounds for reim-bursement notwithstanding the lack of a legal obligation.

The answer, of course, is no.

The expenditure of public funds must be grounded on legal authority. More specifically in relation to this case, the payment of a claim must be based on the liability of the United States either under a particular statute or under some recognized legal theory. Policy factors such as maintaining credibility cannot justify an expenditure which lacks legal authority.

In addition, 31 U.S.C. S 1301(a) (formerly 31 U.S.C.

S 628) restricts the use of appropriated funds to the pur-poses for which they were appropriated. We certainly do not question that it is important for the NRC to maintain good I

B-212529 relations with the organizations with which it interacts.

However, we find it difficult to view a payment to IEEE in this case as reasonably necessary to carry out the objects of NRC's appropriation when the objective of maintaining good relations could have been effectively accomplished without the expenditure of Federal funds.

1 s Comptroller General j of the United States l

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