Department of Defense Human Resources Management and Labor Relations Systems

DEPARTMENT OF DEFENSE

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCIX and Part 9901

RIN 3206-AK76/0790-AH82

Department of Defense Human Resources Management and Labor Relations Systems

AGENCY:

Department of Defense; Office of Personnel Management.

ACTION:

Final rule.

SUMMARY:

The Department of Defense (DoD or the Department) and the Office of Personnel Management (OPM) are issuing final regulations to establish the National Security Personnel System (NSPS), a human resources management system, within DoD, as authorized by the National Defense Authorization Act (Pub. L. 108-136, November 24, 2003). These regulations govern basic pay, staffing, classification, performance management, labor relations, adverse actions, and employee appeals. These changes are designed to ensure that the Department's human resources management and labor relations systems align with its critical mission requirements and protects the civil service rights of its employees.

DATES:

Effective November 28, 2005.

FOR FURTHER INFORMATION CONTACT:

At OPM: Nancy Kichak at 202-606-6500; at DoD: Brad Bunn at 703-696-4664.

SUPPLEMENTARY INFORMATION:

Table of Abbreviations

AJ—Administrative Judge

COLA—Cost of Living Adjustment

CONUS—Continental United States

DARPA—Defense Advanced Research Projects Agency

DoD—Department of Defense

ECI—Employment Cost Index

EEO—Equal Employment Opportunity

EEOC—Equal Employment Opportunity Commission

EPI—Extraordinary Pay Increase

FLRA—Federal Labor Relations Authority

FLSA—Fair Labor Standards Act

FMCS—Federal Mediation and Conciliation Service

FSIP—Federal Service Impasses Panel

FWS—Federal Wage System

GAO—Government Accountability Office (former General Accounting Office)

GS—General Schedule

HR—Human Resources

KPP—Key Performance Parameter

LWOP—Leave Without Pay

MRO—Mandatory Removal Offense

MSPB—Merit Systems Protection Board

NAF—Nonappropriated Fund

NAPA—National Academy of Public Administration

NSLRB—National Security Labor Relations Board

NSPS—National Security Personnel System

OMB—Office of Management and Budget

OPM—Office of Personnel Management

PEO—Program Executive Office

PFR—Petition for Review

RFR—Request for Review

SES—Senior Executive Service

SL—Senior Level

ST—Scientific or Professional Positions

WGI—Within-Grade Increase

Table of Contents

This supplementary information section is organized as follows:

Introduction

The Case for Action

Pay and Classification

Performance Management

Staffing, Employment and Workforce Shaping

Adverse Action and Appeals

Labor-Management Relations

Development of the National Security Personnel System

Strategic Engagement and Establishment of the Program Executive Office

Development of Design Options

Guiding Principles and Key Performance Parameters

Communications During the Design Process

Outreach to Employee Representatives

Outreach to Employees

Outreach to Other Stakeholders

Development of Design Options—Working Groups

Publication of Proposed Regulations

Public Comments

Meet-and-Confer Process

Major Issues

Specificity of the Regulations

Pay for Performance and Pay Pool Funding

Adverse Actions and Appeals

Mandatory Removal Offenses

Labor Relations

Management Rights/Scope and Duty to Bargain

Independence of the National Security Labor Relations Board

Response to Specific Comments and Detailed Explanation of Regulations

Subpart A—General Provisions

Section 9901.101—Purpose

Section 9901.102—Eligibility and Coverage

Summary of Coverage Eligibility Chart

Section 9901.103—Definitions

Section 9901.104—Scope of Authority

Section 9901.105—Coordination with OPM

Section 9901.106—Continuing Collaboration

Section 9901.107—Relationship to Other Provisions

Section 9901.108—Program Evaluation

Subpart B—Classification

Section 9901.201—Purpose

Section 9901.202—Coverage

Section 9901.203—Waivers

Section 9901.204—Definitions

Section 9901.211—Career Groups

Section 9901.212—Pay Schedules and Pay Bands

Section 9901.221—Classification Requirements

Section 9901.222—Reconsideration of Classification Decisions

Section 9901.231—Conversion of Positions and Employees to the NSPS Classification System

Subpart C—Pay and Pay Administration

General Comments

Section 9901.301—Purpose

Section 9901.302—Coverage

Section 9901.303—Waivers

Section 9901.304—Definitions

Section 9901.311—Major Features

Section 9901.312—Maximum Rates

Section 9901.313—National Security Compensation Comparability

Section 9901.321—Structure

Section 9901.322—Setting and Adjusting Rate Ranges

Section 9901.323—Eligibility for Pay Increase Associated with a Rate Range Adjustment

Section 9901.331—General

Section 9901.332—Local Market Supplements

Section 9901.333—Setting and Adjusting Local Market Supplements

Section 9901.334—Eligibility for Pay Increase Associated with a Supplement Adjustment

Section 9901.341—General

Section 9901.342—Performance Payouts

Section 9901.343—Pay Reduction Based on Unacceptable Performance and/or Conduct

Section 9901.344—Other Performance Payments

Section 9901.345—Treatment of Developmental Positions

Section 9901.351—Setting an Employee's Starting Pay

Section 9901.352—Setting Pay Upon Reassignment

Section 9901.353—Setting Pay Upon Promotion

Section 9901.354—Setting Pay Upon Reduction in Band

Section 9901.355—Pay Retention

Section 9901.356—Miscellaneous

Section 9901.361—General

Section 9901.371—General

Section 9901.372—Creating Initial Pay Ranges

Section 9901.373—Conversion of Employees to the NSPS Pay System

Subpart D—Performance Management

General Comments

Section 9901.401—Purpose

Section 9901.402—Coverage

Section 9901.403—Waivers

Section 9901.404—Definitions

Section 9901.405—Performance Management System Requirements

Section 9901.406—Setting and Communicating Performance Expectations

Section 9901.407—Monitoring Performance and Providing Feedback

Section 9901.408—Developing Performance and Addressing Poor Performance

Section 9901.409—Rating and Rewarding Performance

Subpart E—Staffing and Employment

General Comments

Section 9901.501—Purpose

Section 9901.502—Scope of Authority

Section 9901.503—Coverage

Section 9901.504—Definitions

Section 9901.511—Appointing Authorities

Section 9901.512—Probationary Periods

Section 9901.513—Qualification Standards

Section 9901.514—Non-Citizen Hiring

Section 9901.515—Competitive Examining Procedures

Section 9901.516—Internal Placement

Subpart F—Workforce Shaping

General Comments

Section 9901.601—Purpose and Applicability

Section 9901.602—Scope of Authority

Section 9901.603—Definitions

Section 9901.604—Coverage

Section 9901.605—Competitive Area

Section 9901.606—Competitive Group

Section 9901.607—Retention Standing

Section 9901.608—Displacement, Release, and Position offers

Section 9901.609—Reduction in force Notices

Section 9901.610—Voluntary Separation

Section 9901.611—Reduction in force Appeals

Subpart G—Adverse Actions

General Comments

Section 9901.701—Purpose

Section 9901.702—Waivers

Section 9901.703—Definitions

Section 9901.704—Coverage

Section 9901.711—Standard for Action

Section 9901.712—Mandatory Removal Offenses

Section 9901.714—Proposal Notice

Section 9901.715—Opportunity to Reply

Section 9901.716—Decision Notice

Section 9901.717—Departmental Record

Subpart H—Appeals

General Comments

Section 9901.802—Applicable Legal Standards and Precedents

Section 9901.803—Waivers

Section 9901.804—Definitions

Section 9901.805—Coverage

Section 9901.806—Alternative Dispute Resolution

Section 9901.807—Appellate Procedures

Section 9901.808—Appeals of Mandatory Removal Actions

Section 9901.809—Actions Involving Discrimination

Subpart I—Labor-Management Relations

General Comments

Section 9901.901—Purpose

Section 9901.902—Scope of Authority

Section 9901.903—Definitions

Section 9901.904—Coverage

Section 9901.905—Impact on Existing Agreements

Section 9901.906—Employee Rights

Section 9901.907—National Security Labor Relations Board

Section 9901.908—Powers and Duties of the Board

Section 9901.909—Powers and Duties of the Federal Labor Relations Authority

Section 9901.910—Management Rights

Section 9901.911—Exclusive Recognition of Labor Organizations

Section 9901.912—Determination of Appropriate Units for Labor Organization Representation

Section 9901.913—National Consultation

Section 9901.914—Representation Rights and Duties

Section 9901.916—Unfair Labor Practices

Section 9901.917—Duty to Bargain and Consult

Section 9901.918—Multi-Unit Bargaining

Section 9901.919—Collective Bargaining Above the Level of Recognition

Section 9901.920—Negotiation Impasses

Section 9901.921—Standards of Conduct for Labor Organizations

Section 9901.922—Grievance Procedures

Section 9901.923—Exceptions to Arbitration Awards

Section 9901.924—Official Time

Section 9901.925—Compilation and Publication of Data

Section 9901.926—Regulations of the Board

Section 9901.927—Continuation of Existing Laws, Recognitions, Agreements, and Procedures

Section 9901.928—Savings Provisions

Next Steps

NSPS Implementation

Employee Transition Plan (Spiral Strategy)

HR and Labor Relations Transition

Development of Implementing Issuances and Continuing Collaboration Training

Regulatory Requirements

E.O. 12866—Regulatory Review

Regulatory Flexibility Act

E.O. 12988—Civil Justice Reform

E.O. 13132—Federalism

Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35)

Unfunded Mandates

Introduction

The Secretary of Defense, Donald Rumsfeld, and the Director of the Office of Personnel Management, Linda M. Springer, jointly prescribe this final regulation to establish a flexible and contemporary system, consistent with statutory merit system principles and prohibitions against prohibited personnel practices (in 5 U.S.C. 2301 and 2302, respectively), for managing the Department's human capital. This system has been developed pursuant to a process based on extensive outreach to employees and employee representatives. In addition, DoD and OPM have engaged in outreach to the public as well as to the Congress and other key stakeholders. As enacted by section 1101 of the National Defense Authorization Act (Pub. L. 108-136, November 24, 2003, hereinafter referred to as “enabling legislation” or “enabling statute”) and codified at 5 U.S.C. 9902, the system preserves all core civil service protections, including merit system principles, veterans' preference, and due process. It also protects against discrimination, retaliation against whistleblowers, and other prohibited personnel practices, and ensures that employees may organize and bargain collectively (when not otherwise prohibited by law, including these regulations, applicable Executive orders, and any other legal authority).

This Supplementary Information addresses the following areas:

• The Case for Action

• Summary of the Design Process

○ Strategic Engagement and Establishment of the Program Executive Office

○ Development of Design Options

○ Meet-and-Confer Process

• Major Issues

• Response to Specific Comments and Detailed Explanation of Regulations

• Next Steps

The Case for Action

“* * * a future force that is defined less by size and more by mobility and swiftness, one that is easier to deploy and sustain, one that relies more heavily on stealth, precision weaponry, and information technologies.”

With that statement on May 25, 2001, President Bush set a new direction for defense strategy and defense management—one toward transformation. On January 31, 2002, Secretary of Defense Donald Rumsfeld echoed the sentiments expressed by President Bush, stating that “[a]ll the high-tech weapons in the world will not transform the U.S. armed forces unless we also transform the way we think, the way we train, the way we exercise, and the way we fight.”

Transformation

is

more than acquiring new equipment and embracing new technology—it is the process of working and managing creatively to achieve real results. To transform the way DoD achieves its mission, it must transform the way it leads and manages the people who develop, acquire, and maintain our Nation's defense capability. Those responsible for defense transformation—including DoD civilian employees—must anticipate the future and wherever possible help create it. The Department must seek to develop new capabilities to meet tomorrow's threats as well as those of today. NSPS is a key pillar in the Department of Defense's transformation—a new way to manage its civilian workforce. NSPS is essential to the Department's efforts to create an environment in which the Total Force (military personnel, civilian employees, and contractors) thinks and operates as one cohesive unit.

DoD civilians are unique in government: They are an integral part of an organization that has a military function. DoD civilians must complement and support the military around the world in every time zone, every day. Just as new threats, new missions, new technology, and new tactics are changing the work of the military, they are changing the work of our 700,000 civilians. To support the

interests of the United States in today's national security environment—where unpredictability is the norm and greater agility the imperative—civilians must be an integrated, flexible, and responsive part of the team.

At best, the current personnel system is based on 20th century assumptions about the nature of public service and cannot adequately address the 21st century national security environment. Although the current Federal personnel management system is based on important core principles, those principles are operationalized in an inflexible, one-size-fits-all system of defining work, hiring staff, managing people, assessing and rewarding performance, and advancing personnel. These inherent weaknesses make support of DoD's mission complex, costly, and ultimately risky. Currently, pay and the movement of personnel are pegged to outdated, narrowly defined work definitions; hiring processes are cumbersome; high performers and low performers are paid alike; and the labor system encourages a dispute-oriented, adversarial relationship between management and labor. These systemic inefficiencies detract from the potential effectiveness of the Total Force. A more flexible, mission-driven system of human resources management that retains those core principles will provide a more cohesive Total Force. The Department's 20 years of experience with transformational personnel demonstration projects, covering nearly 30,000 DoD employees, has shown that fundamental change in personnel management has positive results on individual career growth and opportunities, workforce responsiveness, and innovation; all these things multiply mission effectiveness.

The immense challenges facing DoD today require a civilian workforce transformation: Civilians are being asked to assume new and different responsibilities, take more risk, and be more innovative, agile, and accountable than ever before. It is critical that DoD supports the entire civilian workforce with modern systems—particularly a human resources management system and a labor relations system that support and protect their critical role in DoD's Total Force effectiveness. The enabling legislation provides the Department of Defense with the authority to meet this transformation challenge.

More specifically, the law provides the Department and OPM—in collaboration with employee representatives—authority to establish a flexible and contemporary system of civilian human resources management for DoD civilians. The attacks of September 11 and the continuing war on terrorism make clear that flexibility is not a policy preference. It is nothing less than an absolute requirement, and it must become the foundation of DoD civilian human resources management.

NSPS is designed to promote a performance culture in which the performance and contributions of the DoD civilian workforce are more fully recognized and rewarded. The system offers the civilian workforce a contemporary pay-banding construct, which will include performance-based pay. As the Department moves away from the General Schedule system, it will become more competitive in setting salaries and it will be able to adjust salaries based on various factors, including labor market conditions, performance, and changes in duties. The HR management system is a foundation for a leaner, more flexible support structure and will help attract skilled, talented, and motivated people, while also retaining and improving the skills of the existing workforce.

Despite the professionalism and dedication of DoD civilian employees, the limitations imposed by the current personnel system often prevent managers from using civilian employees effectively. The Department sometimes uses military personnel or contractors when civilian employees could have and should have been the right answer. The current system limits opportunities for civilians at a time when the role of DoD's civilian workforce is expanding to include more significant participation in Total Force effectiveness. NSPS will generate more opportunities for DoD civilians by easing the administrative burden routinely required by the current system and providing an incentive for managers to turn to them first when certain vital tasks need doing. This will free uniformed men and women to focus on matters unique to the military.

The law requires the Department to establish a contemporary and flexible system of human resources management. DoD and OPM crafted NSPS through a collaborative process involving management, employees, and employee representatives. DoD leadership will ensure that supervisors and employees understand the new system and can function effectively within it. The system retains the core values of the civil service and allows employees to be paid and rewarded based on performance, innovation, and results. In addition, the system provides employees with greater opportunities for career growth and mobility within the Department.

A key to the success of NSPS is ensuring employees perceive the system as fair. In a human resources management system, fairness is the basis for trust between employees and supervisors. The Department's mission cannot be accomplished without the workforce. It is a tenet of the Department that employees will exercise personal responsibility and sustain a high level of individual performance and teamwork when they perceive that the human resources system and their supervisors are fair.

The Department and the Office of Personnel Management are addressing fairness in the National Security Personnel System in several dimensions: System design; the right to seek review of important categories of management decisions; workforce access to information about system provisions, processes, and decision criteria; and accountability mechanisms.

NSPS regulations and implementing issuances will include rules to guard against arbitrary actions. Examples include written performance expectations, the guarantee that employees rated higher than “unacceptable” will receive the full minimum by which their pay rate range is adjusted, the requirement to prescribe the conditions for probationary periods established by the Secretary, public notice of vacancies when the Department is recruiting externally, and prohibition against establishing reduction in force competitive areas that target an individual employee on the basis of non-merit factors.

NSPS continues employees' and labor organizations' rights to challenge or seek review of key decisions. For example, all employees will be able to request reconsideration of their performance ratings through an administrative grievance procedure. Bargaining unit employees will also have the option of using a negotiated grievance procedure. Employees must be notified in advance of a proposed adverse action, be given time and opportunity for reply, and be given a decision notice that includes the reasons for the decision. Labor organization officials may file unfair labor practice claims or grievances.

The Department and its Components will make information about NSPS rules, policies, and practices readily available to the workforce in the form of published regulations, published implementing issuances, local level instructions, training, and other sources.

The last dimension of accountability for fair decisions and practices under NSPS will call on two major streams of information. First, human resources management accountability reviews

within the Department will be used to identify and address issues regarding the observance of merit system principles and regulatory and policy requirements, including those established under NSPS. In addition, the Department will monitor the outcomes of administrative and negotiated grievances, performance rating reconsiderations, equal employment opportunity complaints, and whistleblower complaints to correct chronic problems and particular failings.

The second stream will be NSPS program evaluation findings. These will enable the Secretary and the Director to determine whether the design of NSPS and the pattern of its results meet statutory requirements like fairness and equity and the specific performance expectations of the NSPS Requirements Document for a credible and trusted system. Section 9901.108 of these final regulations codifies the requirement for NSPS program evaluation. It opens to designated employee representatives the design and results of evaluations of particular NSPS aspects so that they can provide comments and recommendations to help ensure balanced and fair methods and conclusions. A robust and long-term NSPS program evaluation plan of studies and reviews, transactional data analyses, opinion surveys, and other evaluative methods will be fielded with NSPS implementation.

Fairness in NSPS is not a specific thing, but rather an intrinsic quality being built into the design of a flexible human resources management system—one to be accounted for during reviews and evaluations of NSPS operations and decisions.

A. Pay and Classification

The NSPS pay and classification system will provide a more flexible support structure that will help attract skilled, talented, workers; retain and appropriately reward current employees; and create opportunities for civilians to participate more fully in the total integrated workforce. A pay banding structure will replace the artificial limitations created by the current pay and classification systems. With broad pay bands, the Department will be able to move employees more freely across a range of work opportunities without being bound by narrowly described work definitions. The pay structure will be much more responsive to market conditions. The Department will be able to adjust rate ranges and local market supplements based on variations relating to specific occupations, rather than the current one-size-fits all approach. Labor market conditions will also be considered when making pay-setting decisions. As prescribed in the enabling legislation, the new compensation system will better link individual pay to performance using performance rather than time on the job to determine pay increases.

B. Performance Management

In recognition of the increased importance of performance in making pay and retention decisions, the Department has created a much more robust performance management system.

The Department will use a multi-level system that makes distinctions in levels of employee performance. The system will link employee achievements, contributions, knowledge, and skills to organizational results. It will also allow the Department to better recognize and support team contributions and accomplishments. Performance expectations will be clearly communicated to employees and will be linked to the organization's strategic goals and objectives. The ability to recognize valid distinctions in performance and reward employees based on those distinctions will foster a high performance culture within the Department.

C. Staffing, Employment and Workforce Shaping

NSPS will retain the merit system principles and veterans' preference while giving the Department the flexibility necessary to streamline the hiring process and adapt quickly to critical mission needs. The Department will be able to use direct-hire authority for severe shortage or critical needs. NSPS will also provide for a more efficient process for creating appointing authorities, in conjunction with the Office of Personnel Management, as new requirements emerge. As part of this process, the system provides for transparency and public awareness through notice in the

Federal Register

. The new pay-setting flexibilities will also enhance the Department's ability to attract and retain the talented workforce necessary to accomplish its mission.

Through workforce shaping flexibilities, the Department will create a reduction in force system that places more emphasis on performance while continuing to protect veterans' preference rights. The downsizing process will be less disruptive to employees and the mission. The Department will continue to fully utilize tools such as separation incentives and the Priority Placement Program to avoid and mitigate the impact of any reductions it faces.

D. Adverse Actions and Appeals

Consistent with the enabling legislation, the final regulations streamline and simplify adverse actions and appeals procedures, but without compromising due process for DoD employees. Employees will still receive notice of a proposed adverse action, the right to reply, and the right to appeal to the Merit Systems Protection Board (MSPB). In the proposed regulations, we proposed to replace the two existing authorities and adopt a single process and standard for all actions whether based on unacceptable performance or misconduct. In doing so, we proposed to adopt the higher of the two current burdens of proof—“preponderance of the evidence”—rather than the lower standard—“substantial evidence.” We have retained this higher burden of proof. In addition, the final regulations clarify that the full MSPB's standard for review is as specified in the enabling legislation. The final regulations retain authority for the Secretary to establish a number of mandatory removal offenses (MROs) that have a direct and substantial adverse effect on the Department's national security mission. The final regulations also retain authority for the Department to review decisions of MSPB Administrative Judges who are the first step in the NSPS appeals process.

E. Labor Management Relations

To ensure that the Department has the flexibility to carry out its vital mission, as authorized by the enabling legislation, the regulations, among other things, revise management's rights and its duty to bargain to ensure that the Department can act as and when necessary. Collective bargaining is prohibited on such critical matters as procedures observed in making work assignments and deployments unless the Secretary, in his or her sole, exclusive, and unreviewable discretion, elects to bargain. The Secretary may authorize bargaining on these matters to advance the Department's mission accomplishment or promote organizational effectiveness. If the Secretary does not elect to bargain procedures on these matters, consultation is required. Management and exclusive representatives will negotiate over changes that have foreseeable, significant, and substantial impact, as well as appropriate arrangements for employees affected by those changes, under certain specified conditions. Additionally, the regulations create the National Security

Labor Relations Board (NSLRB) to address those issues that are most important to accomplishing the DoD mission, with other matters retained by the Federal Labor Relations Authority (FLRA). The regulations provide the Secretary discretion as to when the NSLRB will be in place. The regulations also provide the Secretary discretion, in consultation with the Director, to designate another third party to exercise the authority of the Board in the interim. The revisions to the regulations strike the right balance between the mission needs of DoD and the meaningful involvement of employees and their representatives.

Development of the National Security Personnel System

A. Strategic Engagement and Establishment of Program Executive Office

While dialogue with employee representatives began in January 2004, in April senior DoD leadership initiated a collaborative process to design and implement NSPS. This process was crafted by a group of 25 to 30 senior experts representing DoD, OPM, and the Office of Management and Budget. The Defense Acquisition Management model was used to establish the requirements for the design and implementation of NSPS, including Guiding Principles and Key Performance Parameters (KPPs), which defined the minimum requirements for NSPS. The Honorable Gordon R. England was appointed by the Secretary of Defense as the NSPS Senior Executive. As the NSPS Senior Executive, Secretary England established the NSPS Program Executive Office (PEO) as the central DoD policy and program office to conduct the design, planning and development, deployment, assessment, and full implementation of NSPS.

The entire process was accomplished jointly with OPM. An integrated executive management team composed of senior DoD and OPM leaders provided overall policy and strategic advice to the PEO and served as staff to the Senior Executive.

B. Development of Design Options

Guiding Principles and Key Performance Parameters

In setting up the process for the design of the system, senior leadership adopted a set of Guiding Principles as a compass to direct efforts throughout all phases of NSPS development. They translate and communicate the broad requirements and priorities outlined in the enabling legislation into concise, understandable requirements that underscore the Department's purpose and intent in creating NSPS. The Guiding Principles are:

• Put mission first—support National Security goals and strategic objectives;

• Respect the individual—protect rights guaranteed by law;

• Value talent, performance, leadership and commitment to public service;

• Be flexible, understandable, credible, responsive, and executable;

• Ensure accountability at all levels;

• Balance HR interoperability with unique mission requirements; and

• Be competitive and cost effective.

In addition, senior leadership approved a set of Key Performance Parameters (KPPs), which define the minimum requirements and/or attributes of the system. Those KPPs are summarized below:

• High Performing: Employees/supervisors are compensated/retained based on performance/contribution to mission;

• Agile and Responsive: Workforce can be easily sized, shaped, and deployed to meet changing mission requirements;

• Credible and Trusted: System assures openness, clarity, accountability and merit principles;

• Fiscally Sound: Aggregate increases in civilian payroll, at the appropriations level, will conform to OMB fiscal guidance, and managers will have flexibility to manage to budget;

• Supporting Infrastructure: Information technology support and training and change management plans are available and funded; and

• Schedule: NSPS will be operational and demonstrate success prior to November 2009.

Communications During the Design Process

In undertaking a project of this magnitude, impacting over 700,000 civilians of the Department, it was essential to ensure the availability of information on the new HR and labor relations systems. It was also critical to solicit the views and ideas of employees, employee representatives and other stakeholders.

In April 2004, the PEO developed and implemented a communications strategy. The objectives of DoD's communications strategy are to (1) demonstrate the rationale for and benefits of NSPS; (2) demonstrate openness and transparency in the design and process of converting to NSPS; (3) express DoD's commitment to ensuring NSPS is applied fairly and equitably; and (4) address potential criticism of NSPS.

The PEO identified numerous channels for disseminating relevant, timely, and consistent information. These include: Print and electronic media; e-mail; town hall meetings; focus groups; speeches; and briefings. A website was developed to serve as a primary, two-way communications tool for the workforce, other stakeholders, and the general public. The website includes the capability for visitors to submit questions and comments. The PEO has responded to thousands of questions and comments.

The website will remain available during implementation and will provide current information for managers, supervisors and employees.

Outreach to Employee Representatives

In January and February 2004, we met with union leaders for the purpose of exchanging ideas and interests on a new labor relations system. All unions holding DoD national consultation rights (NCR) at the time were invited to the January 22, 2004, meeting. Seven of these eight NCR unions elected to attend. In addition, one additional union without DoD national consultation rights was invited to attend and participated in the January 22, 2004, meeting. Union leadership from all of the 43 unions representing DoD employees were invited to attend and participate in the February 26-27, 2004, meeting. Twenty-six unions attended and participated in the February 2004 meeting.

In the spring of 2004 and continuing over the course of several months, we sponsored a series of additional meetings with union leadership to discuss design elements of NSPS. Officials from DoD and OPM met throughout the summer and fall with union officials representing many of the DoD civilians who are bargaining unit employees. These sessions provided the opportunity to discuss the design elements, options, and proposals under consideration for NSPS and solicit union feedback.

During this time, 10 meetings (in addition to the 2 meetings held in January and February 2004) were held with officials of the 43 unions that represent DoD employees, including the 9 unions that currently have national consultation rights. These union officials represent over 1,500 separate bargaining units covering about 450,000 employees. These meetings involved as many as 80 union leaders from the national and local level at any one time, and addressed a variety of topics, including: The reasons change is needed and the Department's interests; employee communications; and

proposed design options in the areas of labor relations and collective bargaining, adverse actions and appeals, and pay and performance management.

Outreach to Employees

In keeping with DoD's commitment to provide employees and managers an opportunity to participate in the development of NSPS, the PEO sponsored a number of Focus Group sessions and town hall meetings at various sites across DoD. In mid-July 2004, a total of 106 focus groups were held throughout DoD, including overseas locations. Separate focus groups were held for employees, civilian and military supervisors, and managers and practitioners from HR, legal and EEO communities. Bargaining unit employees and union leaders were invited to participate. For the major system design elements, focus group participants were asked what they thought worked well in the current HR systems and what they thought should be changed. Over 10,000 comments, ideas and suggestions received during the focus group sessions were summarized and provided to NSPS Working Groups for use in developing options for the labor relations, appeals, adverse actions, and human resources design elements of NSPS.

In addition, town hall meetings were held in DoD facilities around the world during the summer of 2004, providing an opportunity to communicate with the workforce, provide the status of the design and development of NSPS, and solicit thoughts and ideas. The NSPS Senior Executive, Secretary England, conducted the first town hall meeting at the Pentagon on July 7, 2004. Some of the town hall meetings were broadcast live, as well as videotaped and rebroadcast on military television channels and websites to facilitate the widest possible dissemination.

Outreach to Other Stakeholders

In addition to reaching out to DoD employees and labor organizations, DoD and OPM met with other groups who were thought to be interested in the design of a new HR system for DoD. DoD and OPM invited selected stakeholders to participate in briefings held at OPM in August and September 2004.

Those invited to the briefings included: Public interest groups, such as the National Academy of Public Administration (NAPA), Coalition for Effective Change, and Partnership for Public Service; veterans' service organizations; and non-union employee advocacy groups. Both before and after these briefings, DoD and OPM responded to dozens of requests for special briefings. DoD and OPM also met with the Government Accountability Office, Office of Management and Budget, and Department of Homeland Security to keep them up to date on the team's activities; and consulted with the Merit Systems Protection Board on the appeals process to ensure that it provides employees the protections of due process.

Development of Design Options—Working Groups

In order to incorporate all the information and develop options, the PEO established functionally aligned Working Groups. Over 120 employees representing the Military Departments (Army, Navy, Air Force), other DoD Components, and OPM participated in the process.

The Working Groups reviewed all available information, including: Pertinent laws, rules, regulations; input from NSPS focus groups and town hall; union consultation meetings; data review and analysis from alternative personnel systems and laboratory and acquisition demonstration projects; the enabling legislation; and Guiding Principles and Key Performance Parameters. In addition, subject matter experts briefed the Working Groups on a variety of topics, such as pay-for-performance systems, alternative personnel systems, pay pool management, and market sensitive compensation systems.

In developing options for the NSPS, the Working Groups benefited from the Government's experience under demonstration project authorities (

e.g.

the China Lake Demonstration Project originally authorized by section 6 of the Civil Service Miscellaneous Amendments Act of 1983; the Defense reinvention laboratory demonstration projects authorized by section 342 of the National Defense Authorization act for fiscal year 1995, as amended; and the Acquisition Workforce Demonstration Project, authorized be section 4308 of the National Defense Authorization Act for fiscal year 1996, as amended) and alternative personnel systems (

e.g.

the Defense Intelligence Personnel System, the Government Accountability Office, and the Federal Aviation Administration), the DoD “Best Practices” initiative (68 FR 16120, April 2, 2003), and the compilation of research materials from the Department of Homeland Security HR Systems Design process.

At the conclusion of the process, the Working Groups provided a set of options covering a broad range of variations on the six areas of focus: (1) Compensation (classification and pay banding); (2) performance management; (3) hiring, assignment, pay setting, and workforce shaping; (4) employee engagement; (5) adverse action and appeals; and (6) labor relations. Each option was evaluated against the Guiding Principles and KPPs.

Potential options presented a wide range of views and concerns. The PEO and senior leaders representing organizations within DoD reviewed all the options. After extensive discussion, the selected options were presented to the Overarching Integrated Product Team (OIPT) for review and the Senior Executive for approval.

Publication of Proposed Regulations

These extensive and collaborative design efforts all preceded the formal process for developing the new HR and labor relations systems. The enabling legislation established a formal process in this regard, officially beginning when the Secretary and the Director published proposed regulations to establish the new DoD HR and labor relations systems in the

Federal Register

on February 14, 2005. The process was designed to ensure collaboration with employee representatives in the design and implementation of the new HR and labor relations systems.

The first formal step provided a 30-day period for the public, employees, and employee representatives to review and submit formal comments on the proposed system. The second step provided for a minimum of 30 days to “meet and confer” with employee representatives in order to attempt to reach agreement on the design of the new system. The third step required notification to Congress on the decision to implement the new system. The new system becomes effective 30 days after congressional notification.

C. Public Comments

In response to the proposed rule, the Department received 58,538 comments during 30-day public comment period. The Department received comments from a wide variety of individuals including DoD civilian and military personnel, DoD organizations, labor organizations, other Federal agencies, Members of Congress and the general public. At the conclusion of the public comment period, and continuing over the next several months, DoD and OPM staff reviewed and analyzed the comments.

In general, the comments ranged from overall rejection of the proposed regulations to enthusiastic acceptance. Many comments focused on the need for

fairness in the system and the need for training of employees and managers. Concerns were expressed about maintaining due process and the scope of bargaining.

Many of the comments were from national labor organizations and their members.

1

Almost 80 percent of the comments were form letters submitted by email or letter.

2

The form letters expressed general opposition to the proposed regulations. These submissions expressed concerns that the proposed regulations lacked sufficient specificity. The comments also expressed a desire to remain with the current system, citing too much power being given to managers and supervisors, with no corresponding accountability. Specific concerns included: Adequate funding of pay pools; deployment of civilians to war zones; and the lack of third-party review for performance appraisals, adverse actions and labor disputes. There was also concern that the regulations did not adhere to congressional intent to maintain the requirements of the applicable labor relations statutes. Approximately 415 of the commenters included substantive analysis of the proposed regulations. Virtually all of these comments favor some changes, along with a wide variety of views on the merits of the proposed regulations.

1

DoD has 43 different unions representing over 1,500 separate bargaining units covering about 450,000 employees. In the spring of 2004, thirty-six unions joined together to form the United Department of Defense Workers Coalition (“the Coalition”).

2

There were 41 different form letters totaling 43,714 comments. An additional 1,850 form letters were received with additional comments added by the commenter.

Acknowledging that there are strong views on the proposals presented, DoD and OPM reviewed and carefully considered all the comments and the arguments made for and against the proposed changes.

The major comments received on the proposed regulatory changes are summarized below, together with a discussion of the changes made as a result of the comments. Also summarized are the suggestions for changes considered where no change is being made. In addition to the more substantive comments discussed below, a number of editorial suggestions were made, some of which have been adopted and others which have not. A number of other changes have been made to better organize or structure the regulatory text. Finally, we received a number of comments on issues that go beyond the scope of these regulations, which are not addressed in the discussion that follows.

D. The Meet-and-Confer Process

The public comment period was followed by the second step in the formal development process—an additional 30-day period during which DoD and OPM representatives were to meet and confer with employee representatives to resolve differences over the proposed regulations wherever possible.

The meet-and-confer process began officially in April 2005. On April 8, 2005, a meeting with labor organizations was held to discuss procedures to be followed during the meet-and-confer process.

The following principals participated in the meet-and-confer process:

• Forty-three labor organizations were invited to participate. Thirty-six of those labor organizations were represented by a “coalition” led by the AFL-CIO, and were authorized to send an unlimited number of representatives. Eighteen of the labor organizations chose to send representatives. The actual number of representatives present in the room typically ranged from 25 to 50.

• The coalition includes: American Federation of State, County and Municipal Employees (AFSCME); American Nurses Assn. (ANA); Antilles Consolidated Education Assn. (ACEA); Assn. of Civilian Technicians (ACT); American Federation of Government Employees (AFGE); American Federation of Teachers (AFT); Communications Workers of America (CWA); Fairchild Federal Employees Union (FFEU); Federal Education Assn. (FEA); Int'l. Assn. of Machinists and Aerospace Workers (IAMAW); Graphic Communications International Union (GCIU); Hawaii Council of Commissary Dept. of Defense Unions (HCCDU); Int'l. Brotherhood of Boilermakers; Int'l. Assn. of Fire Fighters (IAFF); Int'l. Assn. of Tool Craftsman (IATC); Int'l. Brotherhood of Electrical Workers (IBEW); Int'l. Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (IBT); Int'l. Guard Union of America (IGUA); Int'l. Union of Operating Engineers (IUOE); Int'l. Union of Painters and Allied Trades (IUPAT); Int'l. Federation of Professional and Technical Engineers (IFPTE); Int l. Organization of Masters, Mates and Pilots (IOMMP); Laborers International Unions (LIUNA); National Marine Engineers Beneficial Assn. (MEBA); Metal Trades Dept./AFL-CIO (MTD); National Assn. of Aeronautical Examiners (NAAE); National Air Traffic Controller Assn. (NATC); National Federation of Federal Employees (NFFE); National Assn. of Gov. Employees (NAGE); Professional Airways Systems Specialists (PASS); Retail Wholesale, and Department Store Union (RWDSU); Seafarers Int'l. Union of North America (SIUNA); Service Employees International Union (SEIU); Sheet Metal Workers Int'l. Assn. (SMWIA); Sport Air Traffic Controllers (SPORT); United Assn. of Journeymen and Apprentices of the plumbing, sprinkler fitting industry of the U.S. and Canada (UA); United Nurses Assn. of California (UNAC); and United Power Trades Org. (UPTO)

• Other unions also participated in the meet-and-confer process. These include: Fraternal Order of Police (FOP) and the National Assn. of Independent Labor (NAIL).

• Five representatives from DoD, including the Principal Deputy Under Secretary of Defense (Personnel and Readiness), the Program Executive Officer, the Deputy PEO, and two senior program managers.

• Two senior executives from the Office of Personnel Management (OPM) and various senior program managers as necessary.

The Secretary, in consultation with the Acting Director,

3

also requested the services of the Federal Mediation and Conciliation Service for the entire meet-and-confer process. Face-to-face meet-and-confer sessions occurred from April 18, 2005, through June 2, 2005. During that period, the parties met for 19 days, with other days spent preparing for meetings and exchanging recommendations for amendments to the regulations. The Department provided 36 written recommendations to revise the regulations as well as 14 recommended clarifications of intent. The unions presented revised regulations for each subpart of the proposed regulations in addition to other revisions covering such topics as—exigencies and post-implementation bargaining, implementing issuances, and third-party review of performance appraisals and adverse actions. At the conclusion of the meet-and-confer process, the NSPS Senior Executive and the Acting Director of OPM met with representatives from the labor organizations in mid-June 2005, to provide them with an opportunity to present their issues and concerns directly to the principals.

3

During this period of time, the Honorable Dan Blair was Acting Director of the Office of Personnel Management. On June 28, 2005, the Honorable Linda M. Springer was sworn in as OPM's Director.

The review of the public comments and the proposals during the meet-and-confer process has led to significant revisions of the proposed regulations. Some of the revisions are substantial,

such as extending employees the right to grieve performance ratings of record, restricting authority to issue implementing issuances

4

that supersede inconsistent provisions of collective bargaining agreements, changing the standard for mitigating penalties, providing an opportunity for labor organizations to submit names of potential members of the NSLRB, and retaining the current interest of justice standard for payment of attorney fees. Other revisions are purely technical.

4

Implementing issuances are defined in § 9901.103 of the regulations. Issuances are defined in § 9901.903.

Significant differences with many of the labor organizations remain over such issues as the scope of bargaining, implementing issuances that supersede conflicting provisions of collective bargaining agreements, the specificity of the regulations, the ability to grieve pay decisions, the use of behavior as part of performance evaluation and the use of performance in a reduction in force. These differences cannot be reconciled with the need for a contemporary and flexible system of human resources management as DoD seeks to transform the civilian part of the Total Force of military personnel, civilian employees, and DoD contractors. The current system limits opportunities for civilians at a time when the role of DoD's civilian workforce is expanding to include more significant participation in Total Force effectiveness. NSPS will generate more opportunities for DoD civilians by easing the administrative burden routinely required by the current system. It will provide an incentive for managers to (1) identify military positions that can be converted to civilian and (2) to turn to civilians first when certain vital tasks need doing. This will free military men and women to focus on matters unique to the military, while greatly increasing the role of the Department's civilian employees. The need for a flexible and contemporary system to support the Department's national security mission is nothing less than an absolute requirement and it must become the foundation of DoD civilian human resources management.

Where we indicate agreement in this Supplementary Information, we are referring to agreements reached between DoD and OPM, after consideration of public comments and proposals made during the meet-and-confer process, rather than to agreements reached between management and labor organization representatives during the meet-and-confer process.

Major Issues

The 58,538 public comments, in addition to the face-to-face discussions during the meet-and-confer process, clearly defined the issues that were of most concern to DoD civilians potentially covered by all or parts of NSPS. Major issues identified were as follows: (a) Specificity of the Regulations; (b) Pay for Performance and Pay Pool Funding; (c) Adverse Actions and Appeals; (d) Mandatory Removal Offenses; (e) Labor Relations; (f) Management Rights/Scope and Duty to Bargain; and (g) Independence of the NSLRB. Because these issues are critical to understanding the objectives of the Department's new HR and labor relations systems, as well as the implementation of NSPS, we have given them particular attention in the following sections of this

SUPPLEMENTARY INFORMATION

.

a. Specificity of the Regulations

A significant issue raised in the public comments and during the meet-and-confer process concerns the lack of specificity in the proposed regulations. Many of the commenters recommended that the regulations include far greater specificity, while others referred to the inability to provide substantive comments on the proposed rule without more information.

These comments and concerns focused almost exclusively on the subparts establishing the HR system—those dealing with Subpart B—Classification, Subpart C—Pay and Pay Administration, Subpart D—Performance Management, Subpart E—Staffing and Employment, and Subpart F—Workforce Shaping. Those subparts remain relatively general in nature and expressly provide for the Department to develop implementing issuances to carry out the policies established in accordance with NSPS. In contrast, the subparts dealing with adverse actions, appeals, and labor relations (subparts G, H, and I, respectively) are more detailed, requiring fewer implementing issuances.

The law requires the Department to establish a contemporary and flexible system of human resources management (see 5 U.S.C. 9902(b) (1) and (2)). Of all of the various objectives set by Congress for this system in the enabling legislation, flexibility was the very first enumerated. Unnecessary and excessive detail in subparts B, C, D, E, and F would undermine that objective. The regulations provide the overall framework for the new HR system without the inflexible requirements present in today's system. In response to these comments, and as a result of the meet-and-confer process, we have added greater detail to certain sections of the subparts at issue. These additions are documented at length in our responses to the detailed comments that follow.

However, even with added detail, all five of the subparts at issue retain their original structure in the final regulations, establishing a general policy framework to be supplemented by detailed Departmental implementing issuances. We believe this is the appropriate approach, providing the Department the flexibility it requires in implementing an HR system of this scope.

Labor organization comments focus primarily on process, asserting that by including greater detail in the proposed regulations, they would have been given an opportunity to participate and provide input to the final regulations via the statutory meet-and-confer process set forth in 5 U.S.C. 9902(f)(1)(A)-(C). Among other things, that statutory process requires the Department and OPM to provide employee representatives with an opportunity to comment on the proposed regulations and, thereafter, meet with DoD and OPM officials (under the auspices of the Federal Mediation and Conciliation Service, if necessary) in an attempt to resolve any concerns and disagreements. As the labor organizations and other commenters have correctly pointed out, the proposed regulations did not provide for an analogous opportunity with respect to the development of implementing issuances. This became a major topic of discussion during the meet-and-confer process, with labor organizations insisting that DoD and OPM either include all implementing details in these final regulations or subject the Department's implementing issuances to collective bargaining. We did not adopt either alternative. Including such detail in these regulations would not provide the Department the flexibility its mission requires. In addition, collective bargaining over the content of implementing issuances is prohibited by the enabling legislation.

In summary, the inflexibility of the current system required new ways to meet the rapidly changing requirements for DoD civilians to provide support to the military members. A standardized, yet flexible DoD environment that promotes the growth of all employees and improves the manager's ability to manage the workforce is essential. The regulations were developed to provide the Department the ability to maintain flexibility, while at the same time involving employee representatives in

the details of new processes established through implementing issuances.

Five of the subparts in these final regulations remain relatively general in nature, providing broad policy parameters but leaving much of the details to implementing issuances. We believe this structure, patterned after the chapters in title 5 that they replace, is appropriate. By providing for detailed implementing issuances, the subparts dealing with Classification, Pay and Pay Administration, Performance Management, Staffing and Employment, and Workforce Shaping provide the Department with the flexibility mandated by Congress, and they do so without compromising the Department's commitment to substantive employee representative involvement in the development of those implementing issuances.

b. Pay for Performance and Pay Pool Funding

The pay system we described in the proposed regulations was designed to fundamentally change the way we pay employees in the Department of Defense. Instead of a pay system based primarily on tenure and time-in-grade, we proposed a system that bases individual pay increases on performance. This proposal honors major points that were debated by the Congress and agreed upon with the passage of the enabling legislation. In addition, the proposed pay system would be far more market-sensitive than the current pay system. The proposed changes relating to classification, pay, and performance management were designed to achieve these two primary goals.

A number of commenters agreed with the proposal to create a more occupation-specific and market- and performance-based classification and pay system. However, most commenters strongly recommended that we maintain the status quo; that is, that DoD continue to rely on the General Schedule (GS) and Federal Wage System (FWS) classification and pay systems. Many commenters thought the proposed pay-for-performance system would lower employee morale, increase competition among employees, and undermine teamwork and cooperation. Some also questioned the ability of the Department to successfully implement the proposed system, or of DoD managers to establish and apply performance standards fairly and consistently to pay decisions. Other commenters thought a pay-for-performance system would have a chilling effect on the expression of dissenting opinions, especially those concerning fraud, waste, and abuse. Some commenters recommended that current employees be allowed to remain in the existing system or have the option to stay in the current system or convert to NSPS. Still others wanted a more gradual implementation with testing of the effectiveness of the new system on various populations first.

We have retained the system described in the proposed regulations. We believe Congress and the American people expect their public employees to be paid according to how well they perform, rather than how long they have been on the job. They also expect the Department to do everything it can to recruit and retain the most talented individuals it can find to carry out its critical mission. The GS and FWS pay systems do not provide the opportunity to appropriately reward top performers or pay them according to their true value in the labor market. Under the GS and FWS pay systems, performance is rewarded as an exception rather than the rule, and market is defined as “one size fits all,” with no distinction for differences in market pay based on occupation.

The GS and FWS pay systems are primarily longevity-based systems—that is, pay increases are linked primarily to the passage of time. While time in grade determines eligibility for a GS or FWS step increase, it is true that a finding that the employee is performing at an acceptable level of competence is also required. However, this minimal requirement is met by roughly 99 percent of all GS employees. Thus, at any given grade level, the vast majority of employees can expect to automatically receive base pay increases of up to 30 percent over time—in addition to the annual across-the-board pay increases—so long as their performance is “acceptable.” Even employees whose performance is unacceptable receive annual across-the-board pay increases that range from 3 to 5 percent, and special rates that are even higher. Over time, even less productive employees will progress steadily to the top of the GS and FWS pay ranges and may end up being paid significantly more than higher-performing employees with less time in grade. Such a system cannot be fairly characterized as providing performance-based pay.

The NSPS pay-for-performance system, by contrast, is designed to recognize and reward performance in two key ways. First, it establishes the fundamental principle that no employee may receive a base pay or local market supplement increase if his or her performance does not meet or exceed expectations. In contrast to the present pay systems, employees rated unacceptable will not get an annual adjustment. Second, the NSPS system provides for individual base pay increases based on an employee's performance, whether by demonstrating requisite competencies at the entry/developmental level or by meeting or exceeding performance expectations at the full performance level. In contrast to the present pay systems, under NSPS, an employee will progress through the pay range based on how well he or she performs.

This concept may be simply summarized: The higher the performance, the higher the pay. This, too, is a fundamental principle of the new system, and we choose the order of these words deliberately. This system does not assume that individuals are motivated by pay, but rather that we have an obligation as an employer to reward the highest performers with additional compensation—however they may be motivated to achieve excellence. The Department has a special responsibility in this regard. Thus, the system we have designed is not a “performance-for-pay” system, but a “pay-for-performance” system. Nevertheless, we believe it will inspire DoD employees to perform at their best. This is in contrast to the GS and FWS pay systems, where it is possible for a high-performing employee to be paid the same, or even less, than a lower performing co-worker.

As it designs and implements NSPS, the Department is taking the following steps to ensure that the performance management system functions properly:

• Training managers to provide candid and constructive feedback to help employees maximize their contribution and potential;

• Emphasizing the need for ongoing and meaningful dialogue between managers and employees;

• Use of a pay pool process to ensure that performance decisions are made in a careful, deliberative environment that uses a consistent approach to decisions regarding performance ratings and shares;

• Implementing a new competency-based performance management system that is intended to create a clear linkage between employee performance and the Department's strategic plan and core values;

• Increasing employee understanding and ownership of organizational goals and objectives;

• Adopting automation tools that facilitate “best practices” in the pay-for-performance environment;

• Reinforcing the use of team and organizational rewards; and

• Preserving non-cash rewards as tools to recognize performance.

The 50-plus-year-old GS pay system also is not sufficiently market-sensitive, potentially under-valuing the talents of the Department's most critical employees. Under the GS and FWS pay systems, all employees in a given geographic location receive the same annual pay adjustment without regard to their occupation or the level of duties and responsibilities they are expected to perform. This one-size-fits-all approach treats all occupations alike, across the board as well as in particular locations, regardless of market value. Thus, we inevitably end up underpaying employees in some occupations and overpaying others. Even within an occupation, the rigidities of the current pay systems sometimes force us to underpay employees at the entry/developmental grades, with recruiting difficulties and high attrition the result.

The new NSPS pay system is designed to be much more market-sensitive. First, it allows NSPS, after coordination with OPM, to define occupational career groups and levels of work within each career group that are tailored to the Department's missions and components. Second, it gives DoD considerable discretion, after coordination with OPM, to set and adjust the minimum and maximum rates of pay for each of those career groups or bands, based on national and local labor market factors and other conditions. Instead of “one size fits all” pay rates and adjustments, the system allows DoD to customize those adjustments and optimize valuable but limited resources. This kind of flexibility, which is lacking under the GS and FWS pay systems, will enable DoD to allocate payroll dollars to the occupations and locations where they are most needed to carry out the Department's mission.

The goals and principles of the new system are sound, and we have confidence that the Department has the capability to execute them effectively. Pay-for-performance systems like that proposed for DoD are not new. Pay banding has been around in the Federal Government since 1980, and the Federal Government has substantial experience in implementing performance-based pay systems (

e.g.

, in demonstration projects). DoD alone has tested and implemented 11 performance-based pay systems since 1980. Research shows that employee attitudes toward such systems change over time, as they gain experience with them. For example, employee support for the “China Lake” broadbanding/pay-for-performance demonstration project was only 29 percent before the project began, reached 51 percent by 1985, and was 69 percent by 1988. Employee support was 70 percent when Congress made the project permanent in 1994. Today, thousands of Federal employees already are covered by successful performance-based pay systems.

The system we have devised is also consistent with the findings and recommendations of NAPA in its May 2004 Report, “Recommending Performance-Based Federal Pay.” The basis for managing individual salary increases should be pay for performance. This recommendation has been a constant theme in discussions for more than two decades and the principle in every demonstration project that tested new pay policies. The evidence from the projects confirms that pay for performance can be successful in DoD. Nonetheless, the switch to a pay-for-performance system will be implemented via a spiral (multi-phase) approach resulting in application of the NSPS HR system, including the pay-for-performance system, to new segments of the DoD population at approximately 6-month intervals over a 2-year period. The phased intervals of implementation will provide opportunities to assess and adjust the system as each new group of employees is covered by the new system. For the most part, populations phased into NSPS will be grouped by organization in order to facilitate the change in organizational culture that will be essential to the success of NSPS and the improved organizational performance resulting from its implementation.

In summary, we believe the Department's pay-for-performance system is an imperative, essential to DoD's ability to attract, retain, and reward a workforce that is able to meet the high expectations set for it by the Department's senior leaders for the purpose of accomplishing the Department's mission—the defense of our nation.

Many commenters expressed concern that there will not be sufficient resources made available to fund pay pools at adequate levels. There were also many comments suggesting that pay pool money will be diverted from pay to mission requirements or to reward supervisors and managers, thereby leaving less for lower-graded employees.

Proper funding of pay pools is fundamental to the success of NSPS. DoD senior leadership recognized its importance in setting two Key Performance Parameters—“Credible and Trusted” and “Fiscally Sound.” In addition, this issue was the subject of testimony by the NSPS Senior Executive to the Senate Armed Services Committee in April 2005. Secretary England was asked what assurances he could give that limited appropriations or other budget pressures would not result in pay pools too small to truly reward performance. He declared that the Department viewed this as a basic covenant with its employees and confirmed that action is being taken to protect pay pool funding.

The Department is implementing financial policies for NSPS. Protection of pay pool funding is being addressed in several different ways. First, the Department will mandate the minimum composition and expenditure of pay pool funds. Second, appropriate senior-level officials are required to certify that funds allocated to the performance-based pay pools have been used only for the purpose for which they were intended. Third, any exception to the minimum funding of the pay pool will be based on stringent criteria, along with higher-level approval. Fourth, mechanisms will be in place to monitor compliance.

In accordance with the enabling legislation, for fiscal years 2004 through 2008, the aggregate amount allocated for compensation of DoD civilian employees under NSPS, to the maximum extent practicable, will not be less than if they had not been converted to the NSPS. This takes into account potential step increases and promotions employees would have received if not converted to NSPS. In addition, § 9901.313(b) provides that for fiscal years 2009 and beyond, DoD will develop a formula that ensures, to the maximum extent possible, that employees are not disadvantaged in the overall amount of pay available, in the aggregate, as a result of conversion to NSPS, while providing flexibility to accommodate changes in the function of the organization, changes in the mix of employees performing those functions, and other changed circumstances that may affect pay levels.

c. Adverse Actions and Appeals

In authorizing the creation of a new human resources system for the Department, Congress specifically required that employees be afforded the protections of due process. Recognizing the critical nature of the Department's mission, Congress also stated in 5 U.S.C. 9902(h)(2) that the new appeals process may “establish legal standards and procedures for personnel actions, including standards for applicable relief, to be taken on the basis of employee misconduct, or performance that fails to meet expectations.”

The proposed regulations included a number of changes to adverse actions and appeals procedures. Consistent with the enabling legislation, these changes were intended to simplify and streamline those procedures and provide for greater individual accountability, all without compromising guaranteed due process or protections against whistleblower reprisal or discrimination. Greater accountability is particularly critical to the Department. By its very nature, the Department's national security mission requires an exceptionally high level of workplace order and discipline. The fact that DoD employees provide critical support to the military mission of defending the country means that they, and the Department have a special responsibility to the public.

With that in mind, the proposed regulations provided for shorter notice for adverse actions, an accelerated appeals adjudication process using MSPB AJs, a preponderance of the evidence burden of proof to sustain the Department's adverse actions, whether based on conduct or performance, or both, and specifically limited the mitigation of agency selected penalties by MSPB AJs and private arbitrators. The proposed regulations also required that arbitration decisions on adverse actions be reviewable by the Department and the full MSPB prior to review by the Federal Circuit Court of Appeals. The proposed regulations also gave the Secretary authority to establish a number of mandatory removal offenses (MRO)—that is, offenses that have such a direct and substantial impact on national security that they must carry a mandatory removal penalty. While the enabling legislation provides authority to establish an internal appeals process using adjudicators other than MSPB AJs, the Secretary and the Director decided that with the changes outlined above, DoD could achieve the objectives of the enabling legislation using MSPB AJs for initial review of employee adverse action appeals. Ultimately, the enabling legislation provides for full MSPB review of any DoD final appeals decision as well as for judicial review.

Commenters, including labor organizations participating in the meet-and-confer process, generally expressed concern that these changes, separately and together, would vitiate the due process rights of DoD employees. They argued that the changes would substantially diminish the authority of third parties such as MSPB and arbitrators to fully and fairly review and adjudicate adverse actions. Commenters, as well as some members of Congress, expressed particular concern, about the proposal to permit the Department to review arbitrator and MSPB AJ decisions on adverse actions. Commenters expressed skepticism that the stringent standards established for this review would adequately protect due process of employees. Commenters also expressed concern about the proposal to limit the ability to mitigate penalties unless the penalty was “wholly without justification.” Commenters generally supported the proposal to adopt a “preponderance of evidence” standard of proof, although a few commenters were opposed to this proposal.

These comments express a fundamental misconception of the requirements of due process as established by the United States Supreme Court. For example, in accordance with Supreme Court decisions, due process requires that before an employee who has a property interest in a job is removed, he or she is entitled to notice, an opportunity to reply, a decision, and a post-decision review. The final regulations preserve these due process rights for covered employees and afford even greater protection than the U.S. Constitution requires. Recognizing that many of these comments were erroneously characterized as due process issues, we nevertheless considered their merits.

DoD and OPM have decided that the final regulations will continue to provide for a shorter, 15-day minimum advance notice to an employee of a proposed adverse action (compared to a 30-day notice under current law). We have also retained the provision giving employees a minimum of 10 days to respond to the charges specified in the notice of adverse actions. Some commenters suggested that the 10-day period was not long enough, but this notice is actually longer than the 7-day minimum reply period that is provided under current law. This reply period runs concurrently with the notice period, which is also consistent with current law. Employees continue to have a right to be heard before a proposed adverse action is taken against them. This change protects that right while still providing for a more streamlined process. Since these are minimum time periods, local management may extend these time limits on a case-by-case basis if necessary.

We are persuaded by the concerns expressed by commenters, as well as labor organizations during the meet-and-confer process, that the enabling legislation establishes the standard by which the full MSPB may mitigate penalties. Specifically, the proposed regulations precluded mitigation except where a determination is made that the penalty is so disproportionate to the basis for the action as to be wholly without justification. Since the enabling legislation specifically provides the criteria for full MSPB review of NSPS appeals decisions, the Secretary and Director agree that it is unnecessary to require the full Board to apply the “wholly without justification” standard. The criteria for full MSPB review as provided in the enabling legislation have been added to these regulations. Furthermore, the Secretary and Director agree to revise the “wholly without justification” standard for MSPB AJs that are used as part of the Department's appeals process as well as arbitrators. The standard has been revised to preclude mitigation except when the action is “totally unwarranted in light of all pertinent circumstances.” This standard is similar to that recognized by the Federal courts and is intended to limit mitigation of penalties by providing deference to an agency's penalty determination. The Department has statutory authority to establish new legal standards. In this case, the Department is electing to adopt a legal standard that meets the need of the Department by ensuring deference is provided to the Department's penalty determinations along with the requirement that AJs give consideration to the Department's national security mission.

Under the final regulations, MSPB AJs (as well as arbitrators) will also be able to mitigate penalties in adverse action cases, but only under limited circumstances. We continue to believe that, because the Department bears full accountability for national security, it is in the best position to determine the penalty for poor performance and/or misconduct, subject to a more limited review than exists now under chapter 75 of title 5, U.S. Code. Thus, its judgment in regard to penalty should be given deference. This limited standard for mitigation of penalties selected by DoD is intended to explicitly restrict the authority of MSPB AJs and arbitrators to modify penalties to those situations where the penalty is simply not warranted. MSPB AJs and arbitrators may not modify the penalty imposed by the Department unless such penalty is totally unwarranted in light of all pertinent circumstances. Consistent with the intent that deference be given to agency selected penalties, the regulations also provide that when a penalty is mitigated, the maximum justifiable penalty must be applied. In determining the maximum justifiable

penalty, MSPB AJs and arbitrators will use the applicable agency table of penalties or other internal guidance.

Commenters and labor organizations expressed strong concerns over DoD reviewing MSPB AJ decisions. These concerns ranged from whether the Department had legal authority to conduct this review to whether this assists in achieving the Department's goal of streamlining the appeals process. Some expressed concerns that this would not be a truly independent appeals process as a result. We recognize these concerns, but believe that the process provides for appropriate review and safeguards. The enabling legislation authorizes an appeals process resulting in a final Department decision that is subject to full MSPB review. Consistent with this authority, we have established an independent appeals process using existing and familiar resources, MSPB AJs, to adjudicate employee appeals of DoD adverse actions. These AJs would issue initial decisions that would lead to a final Department decision subject to full MSPB review. The decision to utilize the MSPB AJ corps, rather than establishing a new corps of AJs, is purposeful. We are mindful of the need to conserve resources and recognize the value these AJs' independence brings to the process. Nevertheless, to ensure that the Department receives proper deference to its critical mission requirements, the Department will retain the opportunity to review and modify, under criteria prescribed in these regulations, those initial AJ decisions before they become final Department decisions. In response to concerns raised by the unions during the meet-and-confer process, this review will occur at the DoD level. This highlights that the highest levels of the Department wish to ensure that this process is applied fairly and consistently across the Department. Also, in order to ensure timely decisions by the Department when taking action on an AJ or arbitrator decision, time limits for taking action will be established in implementing issuances. Ultimately, any decision of the Department is subject to review by the full MSPB and the Court of Appeals for the Federal Circuit. We believe this process affords employees full and fair opportunity for redress, as well as adjudicative independence, and deference to DoD's critical mission needs, consistent with the NSPS statutory authority.

Finally, many commenters and labor organizations participating in the meet-and-confer process expressed concerns about the organization of the appellate procedures, finding them difficult to follow. We are persuaded by their concerns and have reorganized the appellate procedures in a user-friendly format.

With the changes outlined above, we believe we have addressed and resolved the concerns raised by commenters regarding adverse actions and appeals. Due process is preserved under the final regulations. Thus, the adverse actions and appeals procedures set forth in these regulations are “fair, efficient, and expeditious,” consistent with congressional direction.

d. Mandatory Removal Offenses

The proposed regulations authorized the Secretary to identify offenses that, because they have a direct and substantial adverse impact on the Department's national security mission, warrant a mandatory penalty of removal from the Federal service. Only the Secretary could mitigate the removal of an employee determined to have committed such a mandatory removal offense (MRO). Employees alleged to have committed these offenses would have the right to advance notice, an opportunity to respond, and a written decision. They would also be entitled to appeal that decision to the independent MSPB AJs, who could reverse the action but could not mitigate the removal penalty. Decisions of the MSPB AJs are subject to review by DoD as well as the full MSPB.

Commenters and unions expressed a number of objections to the concept of MROs. Since no examples of potential MROs were provided in the proposed regulations, they feared that removal could be too harsh a penalty as for yet unspecified offenses. They also were concerned that employees would not be given full and complete notice of such offenses prior to their application.

As proposed, an MRO should have a direct and substantial adverse impact on the Department's national security mission. Accordingly, we have decided to retain MROs. However, in response to comments, the Secretary and the Director understand the concern over the lack of specificity with regard to MROs. During the meet-and-confer process, participating labor organizations expressed a similar concern, but we believe we were able to satisfactorily address most of their objections about lack of specificity by sharing with them potential mandatory removal offenses.

In addition to those MROs discussed during the meet-and-confer process, an illustrative list of potential MROs follows:

• Purchasing, using, or transporting weapons or materials for the purpose of committing, attempting to commit, or aiding and abetting terrorism.

• Committing, attempting to commit, or aiding and abetting an act of sabotage against the Department of Defense that resulted or could have resulted in loss of life, significant financial loss or adverse impact on military readiness.

• Soliciting or intentionally accepting a bribe or other unauthorized personal benefit in return for an act that compromises or could compromise national security.

• Employees involved in the Personnel Reliability Program failing to safeguard the assets for which they are directly responsible and such failure results in loss, theft, sabotage, unauthorized use, destruction, detonation, or damage.

• Intentionally engaging in activities that compromise or could compromise the information or financial infrastructure, including major procurement fraud, of the Department of Defense, when the employee knew or reasonably should have known of the compromise or potential compromise.

There is no question that employees must be made aware of the final list of MROs approved by the Secretary. Both the Secretary and the Director believe that this is a basic issue of fairness and a tenet of an organizational culture that establishes clear accountability. That is why the proposed regulations provided that MROs will be identified to employees in advance, as part of implementing issuances, and made known to all employees upon identification. During the meet-and-confer process, participating labor organizations were especially concerned about this issue. We agree that these offenses should not be a surprise to anyone, and have retained these provisions in the final regulations but have also added a requirement that they be publicized via notice in the

Federal Register

. The Secretary also intends to consult with the Department of Justice in preparing the list of offenses for publication.

With these changes, the final regulations provide for the independence demanded by commenters while assuring DoD's ability to remove employees who engage in offenses that have direct and substantial impact on the Department's national security mission. The Secretary is accountable to the President and the American people for safeguarding national security. No other agency or department bears this burden. These regulations ensure that the Secretary's authority aligns with that responsibility.

e. Labor Relations

Without exception, employee representatives objected to the proposed labor relations regulations, both in their comments and during the meet-and-confer process. Employee representatives argued that Congress expressly specified only two modifications to chapter 71—bargaining above the level of recognition and independent third party review of decisions. We disagree. In enacting chapter 99, Congress expressly recognized the need for the Department to design a labor relations system that both addresses the unique role that the Department's civilian workforce plays in supporting the Department's national security mission and allows for a collaborative issue-based approach to labor management relations.

Moreover, Congress specifically authorized the Secretary, together with the Director, to establish and adjust this labor relations system in support of the overall HR management system notwithstanding the provisions of the current system as set forth in chapter 71. Thus, the Secretary and the Director have modified chapter 71 “to address the unique role that the Department's civilian workforce plays in supporting the Department's national security mission.” (5 U.S.C. 9902(m)) In taking the steps necessary to establish and adjust this labor relations system, Congress further recognized that the provisions of this system will supersede existing collective bargaining agreements covering Department employees and negotiated pursuant to the provisions of chapter 71. Finally, Congress indicated that the authority of the Secretary and Director to devise and adjust the Department's labor relations system would expire in 2009 absent further action by Congress (5 U.S.C. 9902(d)(2) and 5 U.S.C. 9902(m)(1), (2), (8), and (9)).

f. Management Rights/Scope and Duty To Bargain

The ability to act quickly is central to the Department's national security mission—not just during emergencies but, more importantly, in order to prepare for or prevent emergencies. The ability to act quickly is necessary even in meeting day-to-day operational demands. The Department must be able to assign employees and to introduce the latest security technologies without delay. This principle was crucial in the formulation of the enabling legislation and in the congressional debate that followed its introduction. Congress clearly recognized the Department's need to operate under a new labor relations system that would provide the flexibility necessary to respond to a variety of vital operational challenges and carry out its national security mission.

To achieve this objective, the proposed regulations revised, among other things, the management rights and duty to bargain provisions found in 5 U.S.C. chapter 71. We expanded the list of management rights that are excluded from bargaining, including the numbers, types, and grades of employees or positions assigned to any organizational subdivision, work project, or tour of duty; and the technology, methods, and means of performing work—rights that deal directly with the Department's national security operations. In addition, we excluded from bargaining the procedures that the Department would follow in exercising these expanded operational management rights. We also proposed to allow the Department to take action in any of these areas without advance notice to labor organizations and without pre-implementation bargaining.

Without exception, labor organizations objected to the proposed regulations, both in their comments and during the meet-and-confer process, arguing that altering the scope of bargaining in any way is contrary to the enabling legislation. They also claimed that these changes were unnecessary because current law already provided the Department with sufficient flexibility to deal with emergencies. They also took strong exception to the provisions in the proposed regulations that would allow issuances to supersede conflicting provisions of any collective bargaining agreements and limit bargaining to only those matters that are not inconsistent with the issuances. Labor organizations did acknowledge the Department's need to take certain actions without pre-implementation bargaining, and during the meet-and-confer process they proposed a process for accelerated bargaining within established time limits and the use of binding arbitration to resolve all bargaining disputes. Additionally, they suggested that the term “emergency” be interpreted as including “exigencies requiring action reasonably necessary to carry out the Department's national security mission before collective bargaining concerning the action can be completed,” and that in such exigencies the Department will afford the opportunity to bargain when circumstances reasonably allow. Their proposals would have allowed the Department to temporarily suspend provisions of collective bargaining agreements in situations where there is a direct connection between the exigency and the Department's national security mission. Even under such mission critical and exigent conditions, they insisted that post implementation agreements would have prospective effect only if the emergency was unforeseen. If the national security exigency were foreseen, then any remedy for Department action that was contrary to a contractual provision would have retroactive effect unless the retroactive effect would “unduly disrupt Department operations reasonably necessary to carry out the Department's national security mission.”

We recognize the good faith effort made by these labor organizations to meet the Department's operational needs. However, their proposals were lacking in several respects. We have, therefore, retained the management rights/scope of bargaining provisions in the proposed regulations with some modifications.

With respect to procedures, the proposals offered by the labor organizations do not go far enough. They would still require the Department to bargain, before acting, over the procedures it would follow in exercising its management rights, including those that deal directly with its operations. Once negotiated, those procedures can and do place significant constraints on critical actions such as the assignment of work, the deployment of personnel, and the staffing of tours of duty. These procedures are negotiable under 5 U.S.C. chapter 71. Labor organizations would have the Department continue that obligation, but under time limits and with an expanded interpretation of the chapter 71 provisions regarding emergencies that would allow management to bargain post implementation in certain limited circumstances.

However, in today's operational environment, the exception has become the rule. Department managers, supervisors, and employees are critical to the Department's mission to defend our national security. The Department must be able to rely on the judgment and ability of managers and supervisors to make day-to-day decisions—even if this means deviating from established or negotiated procedures. Moreover, the Department's managers and supervisors must be able to make split-second decisions to deal with operational realities free of procedural constraints.

With respect to post-implementation bargaining, the proposals offered by labor organizations are similarly lacking. Although they would allow management to implement without bargaining in advance when faced with

an emergency, they would still require immediate post-implementation negotiations and third-party impasse resolution over such matters. However, the reality of DoD's operational environment today is that change is constant, and as a consequence, so too would be post-implementation bargaining, with the prospect of prolonged third-party impasse resolution. These negotiations would be required even in cases where the change was short-lived and/or where its impact was insignificant, insubstantial, or transient. The demand on DoD's frontline managers, supervisors and employees to engage in constant post-implementation negotiations would divert them from accomplishing the mission. This is unacceptable and inconsistent with the authority Congress granted to the Department in the enabling legislation.

Further, under 5 U.S.C. chapter 71, interpretations of negotiated appropriate arrangements tend to assume that those agreements have anticipated future changes, but today's operational environment belies that assumption. Changes necessitated by operational demands are recurring and variable. Our frontline managers and supervisors must not be bound by agreements presupposing circumstances that are assumed to be constant, when they must face current and future exigencies.

Nevertheless, in recognition of the concerns articulated by commenters during the public comment period and during the meet-and-confer process by participating labor organizations and as a result of the June 16, 2005, meeting of the United DoD Workers Coalition, DoD's NSPS Senior Executive, and OPM's Acting Director, the Secretary and the Director decided that the proposed regulations would be revised in a number of ways.

First, we have modified the definition of “issuances” to make clear the distinction between an “implementing issuance” and an “issuance”. An “implementing issuance” is a document issued to carry out a policy or procedure implementing NSPS (but does not include internal operating guides, manuals, or handbooks that do not change employees' conditions of employment), while an “issuance” is a document to carry out a non-NSPS policy or procedure of the Department. We have also clarified that while an implementing issuance immediately supersedes those provisions of collective bargaining agreements that are inconsistent with the implementing issuance, an issuance does not supersede a conflicting provision of a collective bargaining agreement during the term of that agreement. This ensures the viability of the collective bargaining process under NSPS. When a provision of a collective bargaining agreement conflicts with an issuance, the collective bargaining provision remains in effect until the expiration or renegotiation of the agreement, at which time the parties will have to bring the conflicting provision into conformance with the issuance. This is comparable to the process that has long been followed regarding Governmentwide regulations. Specifically, issuances will be subject to national consultation with those labor organizations holding national consultation rights. Moreover, following consideration of comments and recommendations received through the national consultation process, issuances are subject to collective bargaining to the extent proposals are not inconsistent with the issuance and are otherwise negotiable under § 9901.910 and § 9901.917.

More importantly, and in response to concerns that managers may issue implementing issuances and issuances for the sole purpose of invalidating particular provisions of a collective bargaining agreement that they do not like, we have also modified the regulations to specify that implementing issuances, that is, those that implement NSPS and supersede conflicting provisions of existing collective bargaining agreements, may only be issued by the Secretary, Deputy Secretary, Principal Staff Assistants, or Secretaries of the Military Departments. We have limited “Principal Staff Assistants” to senior officials in the Office of the Secretary of Defense who report directly to the Secretary and Deputy Secretary of Defense. We also have added a new subparagraph, § 9901.905(c) to make clear that any provision of a collective bargaining agreement that is inconsistent with issuances that do not implement NSPS will remain in effect until the expiration, renewal, or extension of the agreement, whichever occurs first.

Finally, we have modified the regulations to permit bargaining, in the sole, exclusive, unreviewable discretion of the Secretary, over the procedures that would be followed in exercising the expanded operational management rights. We have also modified the regulations to permit bargaining, at the election of the Secretary, over appropriate arrangements on the routine matters related to the expanded operational management rights. The Secretary may authorize such bargaining to advance the Department's mission accomplishment or promote organizational effectiveness. Mid-term agreements on appropriate arrangements and procedures for (a)(1) and (a)(2) management rights are not precedential or binding on subsequent acts, or retroactively applied, except at the Secretary's sole, exclusive, and unreviewable discretion. Procedures and appropriate arrangements in term agreements are binding, except that nothing will delay or prevent the Secretary from exercising his or her authority under subpart I. For example, the Secretary may authorize deviation from such agreements when it is necessary to carry out the Department's mission. This authority builds on the authority that exists today when an emergency occurs, as that term is applied under chapter 71, to address the unique nature of the Department's mission and the operational demands it must face.

Taken together, we believe these revisions meet the Department's mission needs, are consistent with the enabling legislation's intent to preserve collective bargaining rights as provided for in 5 U.S.C. chapter 99, and assure employees that issuances will not be issued for the improper purpose of eliminating local bargaining. While commenters have argued that any alteration of the scope of bargaining violates the enabling legislation, this interpretation is inconsistent with the express authority Congress has given the Secretary and the Director to establish and from time to time adjust the labor relations system for the Department to address the unique role that the Department's civilian workforce plays in supporting the Department's national security mission. These regulations fulfill that statutory requirement while providing employees with the rights envisioned by Congress.

g. Independence of the National Security Labor Relations Board

The National Security Labor Relations Board (NSLRB) described in the NSPS regulations is intended to act as one element of independent third-party review of collective bargaining disputes as provided for in 5 U.S.C. 9902(m)(6). Commenters, including labor organizations participating in the meet-and-confer process, objected to the creation of the NSLRB because they believe that an internal DoD review board would not be independent from management influence, unlike the Federal Labor Relations Authority (FLRA). Commenters suggested that any board whose membership would be appointed and removed by the Secretary could not reasonably be expected to remain impartial. They also suggested that the primary reason for taking

jurisdiction of these matters away from the independent and impartial FLRA is to guarantee that DoD management can influence the NSLRB's decisions, giving them an unfair advantage over employee representatives.

We have decided to retain the NSLRB. Employing the NSLRB to adjudicate labor disputes in place of the FLRA ensures timely and efficient case management by a body cognizant of the important and unique nature of the Department's mission. We believe that the final regulations have adequately balanced the Department's interest in timeliness and mission recognition with employees' desire to have an impartial dispute adjudicator. The regulations establish NSLRB membership criteria that require candidates to exhibit integrity and impartiality in addition to extensive knowledge of labor laws, DoD's mission, or both. Although the Secretary has authority to remove NSLRB members before the expiration of their terms, that authority is limited to removal for inefficiency, neglect of duty or malfeasance in office, which is a standard similar to that for removing members of the FLRA. In addition, since the standard is established in these jointly prescribed regulations, it may not be changed unilaterally by the Secretary. Finally, we stress that the NSLRB decisions are subject to review by the FLRA, which acts as another element of independent third-party review. The FLRA decisions, including those reviewing decisions of the NSLRB, remain subject to judicial review as they are under chapter 71. These regulations establish that the NSLRB will operate independent of the chain of supervision as does any agency administrative judge or administrative review board whose decisions can be appealed to a higher authority.

Multiple commenters, including labor organizations participating in the meet-and-confer process, recommended that the labor organizations be given the opportunity to participate in the NSLRB nomination process. We agree and have included in the final regulations an explicit requirement that the Secretary consider labor organization nominations. Whereas the proposed regulations did not provide a role for labor organizations in the nomination process, the final regulations provide that the Secretary will consider labor organization nominations in selecting the two non-chair members of the NSLRB. This assures labor organizations a voice in the NSLRB selection process.

While we have not adopted all suggestions related to the NSLRB, we believe the final regulations ensure that NSLRB members will discharge their duties in a fair and impartial manner by (1) including employee representatives in the process for selecting such members; (2) requiring that individuals appointed as members have integrity, impartiality, and subject matter expertise; (3) limiting the grounds on which the Secretary can remove NSLRB members; and (4) providing for FLRA review of NSLRB decisions and, as prescribed in chapter 71, judicial review of FLRA decisions.

Response to Specific Comments and Detailed Explanation of Regulations

Subpart A—General Provisions

Section 9901.101—Purpose

Section 9901.101 explains the overall purpose of the regulations in 5 CFR part 9901, which is to implement a new human resources management system and a new labor relations system, as authorized by 5 U.S.C. 9902. The section states various guiding principles and key operational characteristics and requirements. We have added a reference in § 9901.101(a) to the labor relations system, which is established under 5 U.S.C. 9902(m), since this is a separate and distinct authority. (See additional discussion regarding this distinction in the analysis of comments regarding § 9901.102.)

Commenters questioned the authority to waive or modify statutes through these regulations. We are modifying § 9901.101(a) to clarify that 5 U.S.C. 9902 provides authority for these regulations to waive or modify certain statutory provisions.

A commenter recommended that the regulations restate the statutory merit principles instead of just referencing them as a guiding principle. We do not believe such a restatement is necessary; however, we have added a statutory citation—5 U.S.C. 2301—in § 9901.101(b)(1).

Commenters expressed concern regarding the key operational characteristic “Agile and Responsive Workforce and Management,” which was further described as “workforce can be easily sized, shaped, and deployed to meet changing mission requirements.” In particular, some objected to viewing civilian employees as deployable in the same manner as military personnel. While DoD has always had and will continue to have the right to assign employees to serve in geographic locations based on mission requirements, the word “deploy” in this section is being used in a broader context and was intended to encompass the strategic organization of work based on employee skills and competencies and mission needs. In particular, we believe the authority in subpart B to classify work into broader career groups supports this objective.

Section 9901.102—Eligibility and Coverage

Section 9901.102 sets forth general rules regarding employee eligibility and coverage under the various subparts of part 9901. Categories of eligible employees become covered only when the Secretary affirmatively approves coverage as of a specific effective date.

Commenters indicated that the Secretary's discretionary authority in coverage matters is too broad. We believe it is essential that the Secretary be given such discretion. The authority to establish systems would be meaningless unless there is corresponding authority to place eligible employees under the system. The Secretary needs flexibility to phase in coverage in an orderly way, while retaining authority to change effective dates as needed, based on changing conditions or mission requirements.

Commenters stated that the authority in § 9901.102(b)(1) to establish an immediate effective date for subpart I (dealing with labor relations) conflicts with 5 U.S.C. 9902(l). Section 9902(l) provides that the Secretary may apply the “National Security Personnel System” only if (1) the affected organizational or functional unit has no more than 300,000 employees or (2) the Secretary determines “in accordance with subsection (a)” that the Department has in place a performance management system that meets the criteria in 5 U.S.C. 9902(b). The term “National Security Personnel System” is defined in 5 U.S.C. 9902(a) to be the “human resources management system,” which is established under the authority of subsection (a). Section 9902(b) provides requirements for a system established “under subsection (a).” Under 5 U.S.C. 9902(b)(3)(D) and (d), the human resources management system established under subsection (a) does not reach to the labor relations system established under 5 U.S.C. chapter 71. Instead, 5 U.S.C. 9902(m) provides a totally separate authority to establish and adjust a “labor relations system.” We believe it is clear that the limitations in 5 U.S.C. 9902(l) apply only to the human resources management system established under 5 U.S.C. 9902(a).

Commenters raised questions about the coverage of employees in certain DoD laboratories who are covered by a demonstration project or an alternative system. Section 9902(c) of title 5, U.S. Code, states that the National Security Personnel System will not apply to

defense laboratories in organizations listed in Section 9902(c)(2) before October 1, 2008, and will apply after that date only if the Secretary determines that greater flexibilities are available. Consistent with the explanation in the preceding paragraph, the reference to the “National Security Personnel System” in 5 U.S.C. 9902(c) refers to the human resources management system which is defined as the National Security Personnel System in Section 9902(a). Thus, the restrictions in 5 U.S.C. 9902(c) do not apply to the coverage of these laboratory employees under the labor relations system established under 5 U.S.C. 9902(m), and these employees may be covered by subpart I (dealing with labor relations) before October 1, 2008.

Commenters objected to the possible coverage of certain civilian mariners who are currently covered by a pay system established under 5 U.S.C. 5348 and are also covered by 5 U.S.C. chapter 71. These employees will be covered by subpart I (dealing with labor relations). However, the Secretary has determined that they will not be covered by the human resources system, including the adverse actions and appeals provisions. Other commenters asked about certain Army Corps of Engineers employees under Public Law 97-257. U.S. Army Corps of Engineers employees paid from Corps of Engineers Special Power Rate Schedules will be covered by subpart I (dealing with labor relations). The Secretary has determined that they will not be covered by the human resources system, including the adverse actions and appeals provisions.

Commenters asked whether a category of employees could be covered by some, but not all, provisions of subparts B through H. In particular, commenters noted that National Guard Technicians were eligible for coverage but were subject to certain provisions outside title 5—

e.g.

, qualification requirements established under title 32, instead of qualification standards established under 5 U.S.C. chapter 51. Since 5 U.S.C. 9902 does not provide authority to modify or waive statutory provisions outside of certain specified chapters in title 5, any such provisions would continue in effect. The Secretary may extend coverage to eligible employees under subparts B through H to the extent those provisions are not in conflict with other statutory requirements.

Commenters proposed that certain occupations be excluded from coverage—

e.g.

, attorneys or law enforcement officers—because of the nature of their work. We disagree. We believe the flexible systems we are authorizing can be applied successfully to all occupational categories.

Commenters raised questions regarding the purpose of § 9901.102(f). Paragraph (f) is intended to allow the Secretary to extend NSPS coverage to employees who are currently covered by systems established administratively under authorities outside of title 5, but only when those authorities give DoD the discretion to cover those employees under administratively determined systems or to leave them in the title 5 systems that would otherwise apply. For example, if DoD has discretionary statutory authority to cover a category of employees under an administratively determined classification and pay system instead of the General Schedule, such employees remain potentially eligible for General Schedule coverage and accordingly would also be eligible for NSPS coverage. Commenters questioned whether paragraph (f) could be used to cover educators employed by the DoD Education Activity in an NSPS pay system. Since the pay system for those educators employed overseas (Department of Defense Dependents Schools) is established under nondiscretionary statutory provisions in title 20, they are not eligible for coverage under an NSPS pay system. However, the pay system for those educators employed in the Continental United States (Defense Domestic Elementary and Secondary Schools) is established under discretionary provisions in title 10. Therefore, they are eligible for coverage under an NSPS pay system.

Commenters proposed that current employees (or at least current employees meeting certain age and service requirements) be “grandfathered” and left in existing title 5 systems instead of being covered by NSPS, unless they elect otherwise. This proposal is not practicable from an administrative viewpoint and is contrary to the objectives behind the enabling legislation. We believe the flexibilities provided under the proposed NSPS will yield significant benefits to the Government and will also benefit employees based on their performance. It is therefore not acceptable to delay full application of NSPS.

Commenters questioned why members of the Senior Executive Service (SES) are not covered by NSPS—specifically, the classification, pay, and performance provisions in subparts B through D. In fact, SES members are eligible for coverage under those NSPS provisions, subject to the conditions in § 9901.102(d). (See coverage provisions in §§ 9901.202(b)(4), 9901.302(b)(4), and 9901.402(b)(1).) We note that the SES pay and performance provisions in title 5 are already designed to be performance-sensitive. Thus, DoD does not plan to cover SES members in its initial implementation spirals. DoD may determine at a later date whether coverage under NSPS pay and performance provisions is necessary given the title 5 authorities that already apply to SES members.

In light of the numerous comments regarding the coverage eligibility of specific categories of DoD employees under the various subparts of these regulations, we have prepared the following summary chart showing various categories of employees that are eligible for coverage under the NSPS systems. This chart is not intended to be comprehensive or authoritative, but covers the major categories of employees in DoD outside of the General Schedule. In the chart, categories of employees that are identified as eligible for coverage under a particular subpart are annotated with “Yes,” and those that are identified as ineligible for coverage are annotated with “No.” The chart and its footnotes must be read together for full information on coverage eligibility. Actual coverage is subject to applicable law and approval by the Secretary under § 9901.102(b).

Summary of Non-General Schedule Coverage Eligibility Under 5 CFR Part 9901

Category

Eligible for human resources system/appeals process (subparts B-H)

Eligible for labor relations system (subpart I)

Air and Army Reserve Technicians

Yes

Yes.

Army and Air National Guard technicians (dual status) under 32 U.S.C. 709

Yes

1

Yes.

2

Army and Air National Guard technicians (non dual status) under 32 U.S.C. 709

Yes

1

Yes.

2

Hydropower Corps of Engineers Special Power Rate Schedules (WB pay plan)

No

Yes.

Navy Civil Service Mariner (WM pay plan)

No

Yes.

Overseas Teachers (DoDDS)

No

Yes.

Pentagon Force Protection Agency (title 5 and title 10 employees)

Yes

3

Yes.

Federal Wage System (WA, WD, WG, WJ, WK, WL, WN, WO, WS, WT, WY, XF, XG, XH pay plans)

Yes

Yes.

Nonappropriated Fund

Yes

4

Yes.

Domestic Teachers (DDESS)

Yes

4

Yes.

Defense Laboratories in Organizations listed in 5 U.S.C. 9902(c)

No

5

Yes.

Armed Services Board of Contract Appeals

No for Board members;

Yes for other employees

No for Board members;

Yes for other employees.

Court of Appeals for the Armed Forces

No for Judges and attorneys in chambers; Yes for other employees

6

No for Judges and attorneys in chambers; Yes for other employees.

6

Consultants and Experts (10 U.S.C. 129b)

No

No.

DARPA, scientists and engineers

No

No.

DCIPS (including DISES)

No

No.

Executive Schedule

No

No.

Faculty at DoD Educational Institutions:

Yes

4

Yes.

Air University, Air Force Institute of Technology, Army War College/Command & General Staff College, Defense Acquisition University, National Defense University, Defense Language Institute, George C. Marshall Center, Asia-Pacific Center for Security Studies, Western Hemisphere Institute for Security Cooperation, U.S. Naval Postgraduate School, Naval War College/U.S. Marine Corps University, USAF Academy, U.S. Naval Academy, U.S. Military Academy

Faculty and staff at USUHS

No

No.

Foreign Nationals (Direct Hire)

No

No.

Schedule C

Yes

No.

SES

Yes

No.

Senior Level (SL/ST)

Yes

Yes.

DoD Office of the Inspector General

Yes, unless appointed under authority of the Inspector General Act of 1978 (5 U.S.C. App. § 6)

7

No.

1

Subject to limitations pursuant to 32 U.S.C. 709.

2

But excluded from national level bargaining under 5 U.S.C. 9902(g).

3

Title 10 employees under title 10 discretionary authority and subject to 10 U.S.C. 2674.

4

Under title 10 discretionary authority.

5

Until 2008, excluded from HR system and appeals process pursuant to 5 U.S.C. 9902(c).

6

Pursuant to 10 U.S.C. chapter 47, subchapter XII.

7

Currently there are no appointees under that authority.

Section 9901.103—Definitions

Section 9901.103 provides definitions of terms used in more than one subpart. Commenters expressed concerns about some definitions.

Commenters requested greater clarity with respect to the use of “implementing issuances.” Accordingly, we are revising the definition of “implementing issuances” to make clear that such documents can be issued by only certain high-level DoD officials (despite the Secretary's broad delegation authority), including those formally designated as acting in those high-level positions. We have also clarified that implementing issuances do not include internal operating guides, handbooks, or manuals that do not change conditions of employment. This is consistent with current practice. We have also added a definition of “Military Department.”

To address general comments regarding the need for greater specificity where possible, we have added definitions of the terms “initial probationary period” and “in-service probationary period.” These terms are used in subpart E (Staffing and Employment) and subpart F (Workforce Shaping). In addition, we clarified the definition of “NSPS” to more closely track the language in the statute. “NSPS” means the human resources management system established under 5 U.S.C. 9902(a). It does not include the labor relations system established under 5 U.S.C. 9902(m). We do, however, use “NSPS” in the supplementary information and in public statements as a shorthand reference to describe both the HR and the labor relations systems. We also note that chapter 99 is entitled the National Security Personnel System.

Commenters expressed concern about the definition of “performance.” In particular, commenters objected to the

use of the terms “behavior,” “demeanor,” “attitude,” and “manner of performance” in defining performance. We note that these terms are used in a context that makes clear that we are dealing with observable behaviors that affect the accomplishment of assignments, responsibilities, and organizational goals. We believe performance assessments would not be complete without considering employees' behaviors in carrying out assigned work. For example, customer service is generally a paramount organizational objective. Thus, the manner in which employees treat customers is an important aspect of overall performance. Employee behaviors can be objectively observed and evaluated against established performance expectations. Some commenters suggested that assessments of manner of performance would open the door to abuse, cronyism, punishment for criticism of management, or retaliation against whistleblowers. We disagree. Under NSPS, employees are still protected against prohibited personnel practices and will have the same whistleblower rights they have always had. We note that managers will be held accountable for how they manage this process.

A commenter questioned whether the definition of “promotion” allows management to add higher-level duties without providing pay increases. It appears that this comment is primarily directed at the new classification authority under subpart B that would allow DoD to reduce the number of grade level distinctions by using bands to describe levels of work. Each band will encompass a single broad level of work that may encompass a range of duties previously performed at different grade levels. Promotion is movement to a higher level of work, i.e., higher band.

Commenters requested greater clarity regarding the term “unacceptable performance.” In conjunction with related changes made in subpart D (Performance Management), we are clarifying that an employee's performance may be found to be unacceptable based on failure to successfully complete work assignments or other instructions that amplify written performance expectations.

Section 9901.104—Scope of Authority

Section 9901.104 identifies the provisions in title 5 that are subject to waiver or modification under 5 U.S.C. 9902.

Commenters objected to any modification or waiver of any title 5 provision. A commenter suggested this section would grant legislative power reserved for Congress. In fact, this section merely implements an authority provided by Congress. Under 5 U.S.C. 9902, DoD and OPM may prescribe regulations establishing new human resources management and labor relations systems notwithstanding certain title 5 provisions. In other words, Congress has provided that systems established by regulation may be used in place of certain statutory systems. This is not dissimilar to numerous cases where Congress has excluded an agency from a title 5 provision and allowed the agency to develop its own rules administratively, except that, in the case of NSPS, Congress has actually established additional requirements to guide system development in terms of both substance and procedure.

Commenters asserted that this section was misleading in that it did not reveal that the enabling legislation gave DoD authority to waive any part of title 5, including provisions dealing with retirement, health benefits, life insurance, leave, etc. This assertion is incorrect. Section 9901.104 identifies the limited number of title 5 provisions that are subject to waiver or modification. DoD and OPM have no authority to waive or modify title 5 provisions, except as provided for in 5 U.S.C. 9902. (Other laws are affected only for the purpose of dealing with references to waived or modified provisions, as described in § 9901.107). Section 9902(b)(5) of title 5, U.S. Code, states that a system established under 5 U.S.C. 9902(a) is “not limited by any specific law or authority under this title [i.e., title 5] * * * that is waived in regulations prescribed under this chapter [i.e., chapter 99], subject to paragraph (3).” The referenced paragraph (3) in 5 U.S.C. 9902(b) includes a subparagraph (D) that links to 5 U.S.C. 9902(d), which in turn specifies that most of title 5 is nonwaivable, except as provided for in section 9902.

Commenters questioned the inclusion of chapters 33 and 35 in the list of waivable or modifiable chapters in § 9901.104, since those chapters include veterans' preference rules. However, § 9901.104(a) states that chapters 33 and 35 may be waived or modified only as authorized by 5 U.S.C. 9902(k). Section 9902(k) of title 5, U.S. Code, requires the Secretary to comply with veterans' preference requirements. Thus, the regulations in subpart E (Staffing and Employment) and subpart F (Workforce Shaping) that modify parts of chapters 31 and 33 do not affect veterans' preference rights and protections.

A commenter questioned the effect of the NSPS regulations on determinations under the Fair Labor Standards Act (FLSA). OPM's authority to administer the FLSA is found in section 4(f) of the Fair Labor Standards Act of 1938, as amended. (See also 29 U.S.C. 204(f).) Since this authority is outside the waivable title 5 chapters, these regulations do not affect OPM's FLSA regulations or OPM's authority to settle FLSA claims.

Section 9901.105—Coordination With OPM

Section 9901.105 identifies the areas which trigger a requirement to coordinate DoD implementing issuances and certain other actions with OPM. As described in the section, “coordination” entails (1) providing OPM with an opportunity to review and comment on DoD proposals and to officially concur or nonconcur with all or part of the proposals, (2) taking OPM's views into account, and (3) advising OPM of the final DoD decision, including reasonable advance notice of the decision's effective date.

Commenters expressed concern that § 9901.105 gave DoD too much authority. Some recommended that DoD should be required to get formal OPM approval, rather than just “coordinate” with OPM. A commenter also suggested that DoD should be required to coordinate with other agencies with national security missions so that national security employees would have a common framework. Under the enabling legislation, OPM's authority is to approve jointly developed regulations, and OPM has exercised that authority in these part 9901 regulations. By design, and in keeping with the statutory objective of establishing a “flexible” system, these regulations give DoD considerable authority within the regulatory framework. At the same time, OPM continues to have a role in overseeing the civil service system and in advising the President on civil service matters, including matters covered by these regulations. We believe a coordination role is sufficient to allow OPM to fulfill its responsibilities. In this coordination role, OPM will ensure that Governmentwide interests and the interests of other agencies are appropriately considered.

In these final regulations, we have added a coordination requirement with respect to the establishment of policies and procedures for time-limited appointments under § 9901.511(d), consistent with our original intent. The supplementary information for the proposed regulations stated that coordination with OPM would occur in this area. (See 70 FR 7563.) We have added a coordination requirement with

respect to the modification of coverage, retention procedures, or appeals rights under subpart F (Workforce Shaping). This coordination requirement is consistent with § 9901.602, which provides that, in accordance with § 9901.105, DoD will prescribe implementing issuances to carry out the provisions of subpart F. Also, we have moved the coordination provision related to qualification standards from § 9901.105(c) to § 9901.105(e) to address concerns raised during the meet-and-confer process that language in the proposed regulations did not clearly identify OPM's role in this matter. Finally, we have added a requirement that the Secretary coordinate with the Director regarding the Secretary's determination under 5 U.S.C. 9902(l) that the Department has in place a performance management system that meets the criteria in 5 U.S.C. 9902(b). This determination must be made before the Department applies the human resources management system established under 5 U.S.C. 9902(a) to an organization or functional unit that exceeds 300,000 civilian employees.

Section 9901.106—Continuing Collaboration

As authorized by 5 U.S.C. 9902(f)(1)(D) and (m), section 9901.106 of the regulations establishes a process called “continuing collaboration” for involving employee representatives in the further planning and development of the HR and labor relations systems after promulgation of the joint DoD/OPM enabling regulations. Under this continuing collaboration provision, DoD will provide employee representatives the opportunity to participate in the development of implementing issuances that carry out the provisions of part 9901.

Section 9901.106 implements 5 U.S.C. 9902(f)(1)(D), which requires the Secretary and the Director to develop a method for employee representatives to participate in further planning and development after promulgation of joint DoD/OPM regulations establishing the HR system under 5 U.S.C. 9902(a). In addition, this section provides for the same continuing collaboration with respect to application of the labor relations system established by joint DoD/OPM regulations under 5 U.S.C. 9902(m). Section 9901.106 does not apply to the adjustment of the NSPS enabling regulations themselves. Such regulatory adjustments must be made using the meet-and-confer process described in 5 U.S.C. 9902(f)(1)(A)-(C) or (m), as applicable.

During the meet-and-confer process, several participating labor organizations suggested that adjustments to the HR system or labor relations system should be subject to the meet-and-confer process rather than the continuing collaboration process, and others suggested that there should be collective bargaining over implementing issuances. In addition, commenters questioned whether continuing collaboration on implementing issuances met the requirements of 5 U.S.C. 9902(f)(1)(D), which requires a method for employee representatives to participate in any further planning or development which might become necessary.

As we have already explained, we agree that adjustments to the HR system regulations or the labor relations system regulations would be subject to the meet-and-confer process described in 5 U.S.C. 9902(f)(1)(A-(C) and (m)(3). However, we did not adopt the suggestion to require that implementing issuances be subject to collective bargaining or the meet-and-confer process. Collective bargaining is inappropriate for the development of HR system implementing issuances, since it is inconsistent with the requirements of Section 9902(f)(4). In addition, Congress expressly required DoD and OPM to develop a separate method, apart from the meet-and-confer process, for employee representatives to participate in the further planning and development of the HR system (which will be manifested in the implementing issuances). The continuing collaboration process does meet the requirements of 5 U.S.C. 9902(f)(1)(D), and we therefore have retained this process in the final regulations.

In addition, we have added language to clarify that the continuing collaboration process in § 9901.106 is the exclusive process for employee representatives to participate in the further planning, development, and implementation of the NSPS HR and labor relations systems established by these enabling regulations. (See 5 U.S.C. 9902(f)(4) and (m)(1)-(2).)

We also received comments during the meet-and-confer process, as well as written comments, suggesting that all labor organizations representing employees affected by an implementing issuance should have the opportunity to be represented in the continuing collaboration process. Labor organizations recommended that we eliminate the provision authorizing the Secretary to determine the number of employee representatives who will participate in the continuing collaboration process. While, as a practical matter, it would be administratively inefficient to include representatives from more than 1500 Departmental bargaining units in the continuing collaboration process, we do agree that bargaining units affected by an implementing issuance should be represented in the process. Therefore, we have retained the provision giving the Secretary sole and exclusive discretion to determine the number of employee representatives that may participate in the process, but we have modified the final regulations to make clear that each national labor organization with one or more bargaining units affected by an implementing issuance will be provided the opportunity to participate in the process. We believe this will provide for an efficient and meaningful continuing collaboration process, particularly when large numbers of bargaining units are affected.

Commenters, including labor organizations participating in the meet-and-confer process, suggested that employee representatives should be involved before a draft implementing issuance is proposed. In fact the continuing collaboration process provides the Secretary flexibility to involve affected labor organizations whenever appropriate, including at the conceptual stage. These commenters further suggested that there should be some feedback to the labor organizations regarding the disposition of any recommendations made during the continuing collaboration process. We agree and have modified the regulations to ensure that the Department considers the views and recommendations offered during the process before taking final action. A commenter also expressed concern that the Secretary was not required to adopt suggestions or recommendations, but we believe 5 U.S.C. 9902 intended the Secretary to have the final authority to implement the NSPS. In addition, employee representatives will receive from the Department a written statement of the reasons for taking final action regarding an implementing issuance.

Finally, commenters, including labor organizations participating in the meet-and-confer process, recommended that the regulations provide employee representatives a reasonable time to submit their comments. The complexity of issues will vary greatly from implementing issuance to implementing issuance, which makes it imprudent to establish a standard time for commenting in the regulations. Therefore, we have not adopted this recommendation and have retained the provision authorizing the Secretary to establish these timeframes.

Section 9901.107—Relationship to Other Provisions

Section 9901.107 describes the relationship of the NSPS regulations to other laws and regulations. Commenters expressed confusion regarding the purpose of this section “ in particular, paragraph (b). For example, a commenter suggested that DoD was attempting to exempt itself from title 5 rules on back pay. Paragraph (b) is merely addressing situations where other laws contain references to statutory provisions that are being waived and replaced by NSPS regulations. In general, our purpose is to give those other laws continuing effect by deeming the references to waived provisions to be references to the NSPS regulations replacing those waived provisions. Thus, for example, we are not eliminating NSPS employees' entitlement to back pay under 5 U.S.C. 5596, but are merely giving meaning to references in Section 5596 to statutory provisions in chapters 71 and 77 that no longer apply to NSPS employees. The final regulations reflect a technical revision in paragraph (b)(3) to make clear that all references in section 5596 to provisions in chapter 71 (dealing with labor relations) are considered to be references to corresponding provisions in subpart I of these regulations. Also, in paragraph (b)(2), we revised a regulatory citation consistent with the rearrangement of sections in subpart H.

Commenters expressed concern regarding § 9901.107(a)(2), which (1) provides that part 9901 must be interpreted in a manner that recognizes DoD's need to accomplish its critical national security mission swiftly and effectively and (2) accords DoD and OPM's interpretation of the regulations great deference. The principle of providing deference to the agencies responsible for regulating and implementing a statute is well established. We believe it is entirely appropriate that the regulations recognize that the need for deference is even greater when the agency is responsible for defending and protecting our country and its citizens against external threats. We have clarified that deference is to be given to DoD's and OPM's interpretation of these regulations. In paragraph (c), we have removed the reference to law enforcement officer geographic adjustments under section 404 of the Federal Employees Pay Comparability Act of 1990, since those adjustments are no longer payable.

Finally, in paragraph (d), we have removed the reference to 29 CFR part 1614 as unnecessary because the paragraph specifically provides that the employment discrimination laws that the Equal Employment Opportunity Commission (EEOC) enforces under 42 U.S.C. 2000e

et seq.

, 29 U.S.C. 621

et seq.

, 29 U.S.C. 791

et seq.

, and 29 U.S.C. 206(d) are not waived, modified, or otherwise affected by these regulations. This is consistent with the enabling statute and our commitment to full and vigorous enforcement of Federal sector nondiscrimination laws. This means that employees and applicants for employment will have the right to file EEO complaints under those provisions of law as they do today and that EEOC's jurisdiction over those complaints remains unchanged.

Section 9901.108—Program Evaluation

Section 9901.108 requires that DoD establish procedures for evaluating the NSPS regulations and their implementation.

Commenters recommended that other organizations, such as OPM, be involved in program evaluation. They consider it important that program evaluations be conducted by independent, unbiased organizations. This regulation is meant to place a self-evaluation requirement on DoD, not to address third-party evaluations of NSPS. We believe it is a matter of good management that any agency implementing new human resources management and labor relations systems have responsibility for evaluating those systems so that problems can be corrected and improvements made. Under law and Executive order, OPM has general oversight responsibilities with respect to agency administration of human resources management programs. Of course, OPM has a particular interest and accountability with respect to NSPS, since Congress authorized OPM and DoD to jointly prescribe the NSPS regulations. OPM expects to review the results of DoD evaluations of NSPS and may conduct evaluations of its own. Nothing in these regulations prevents evaluations of NSPS by other appropriate organizations, such as the Merit Systems Protection Board or the Government Accountability Office.

A commenter suggested that DoD establish an ongoing mechanism whereby employees can submit observations and recommendations for improving NSPS (including anonymous submissions). The commenter observed that this was especially important when employees (including supervisors) are not part of a bargaining unit. We do not believe it is necessary to establish a special, ongoing mechanism for such input within this regulation. When appropriate for the subject, NSPS evaluation methods established under § 9901.108 will elicit workforce observations and recommendations; and employees also may use normal Departmental processes to comment on the human resources system. In addition, we note that the term “employee representative” as used in 5 U.S.C. 9902 is not limited to representatives of labor organizations. DoD may request views and comments from representatives of other employee groups, such as a managers' association.

Commenters requested greater detail on the nature of DoD evaluations, such as evaluation criteria, benchmarks, parameters, and timeframes. Commenters also stated that the program evaluation process in the proposed regulation is too vague with respect to the participation of employee representatives and recommended that we incorporate more specific provisions, such as providing information to employee organizations, timeframes for review, and procedures for employee organizations to collect information directly from employees. Section 9901.101 of these regulations already identifies “key operational characteristics and requirements,” which are essentially high-level evaluation criteria. DoD will provide additional detail as it develops its evaluation program. The timing, nature and complexity of NSPS program evaluations will vary greatly and will be affected by the spiral rollout strategy for the human resources system. We consider it to be imprudent to set standard timeframes. We believe this is an area where flexibility is essential so that DoD can adjust the evaluation program based on experience. Accordingly, we have not adopted the recommendations made by commenters for greater specificity.

Subpart B—Classification

General Comments

Commenters were concerned about the lack of specificity about the structure of the NSPS classification system and commented on this issue with regard to each section of this subpart. A number of commenters felt the proposed regulations were too vague and did not provide enough details about how the career groups and bands will be established, which occupations will be in each career group, and which positions will be in each band. Commenters recommended a number of amendments to subpart B to provide more detailed criteria.

Commenters expressed a strong desire that this subpart of the regulations be

more specific and that employees and employee representatives be involved in the design of the NSPS classification system. Responding to the lack of detail in the regulations, labor organizations recommended that the bar on collective bargaining of the NSPS classification system under § 9901.903 of the proposed regulations be removed. Commenters also requested that implementing issuances for this subpart be subject to public review and comment. We have not removed the bar on collective bargaining. While the detailed implementing issuances for this subpart will not be subject to public review and comment, they will be established under the “continuing collaboration” provisions in § 9901.106. Under continuing collaboration, the exclusive process for employee representative involvement (5 U.S.C. 9902(f)(4)), employee representatives will have the opportunity to review and comment on draft implementing issuances. Furthermore, we have added a new section at § 9901.205, which further clarifies that classification matters are not subject to collective bargaining. This is consistent with the statutory mandate that the scope of bargaining not be expanded under NSPS (5 U.S.C. 9902(m)(7)).

We understand the desire for the regulations to provide more specificity about how the NSPS classification system will operate. However, the regulations must provide sufficient flexibility for a classification system with career groups and bands that support the market-based features of the NSPS pay system and can be customized to meet DoD's mission requirements and strategic human capital needs both today and in the future. Except as otherwise explained in this section of the

SUPPLEMENTARY INFORMATION

, we have not modified subpart B of the regulations in response to these comments. The regulations provide for implementing issuances that will provide further details, including the criteria for the career groups and definitions of the bands. DoD will consider the suggestions and recommendations made by commenters as it develops these implementing issuances.

Commenters recommended that DoD issue classification standards to ensure consistent application of the NSPS classification system. DoD will establish standardized classification procedures and criteria in the implementing issuances required by this subpart.

Other Comments on Specific Sections of Subpart B

Section 9901.201—Purpose

Section 9901.201 explains the purpose of subpart B, which establishes a classification structure and rules for covered DoD positions and employees. The lack of details in this subpart of the proposed regulations caused some commenters to question whether the proposed classification system would provide for “equal pay for equal work.” The merit system principle at 5 U.S.C. 2301(b)(3) ensures that “Equal pay should be provided for work of equal value, with appropriate consideration of both national and local rates paid by employers in the private sector, and appropriate incentives and recognition should be provided for excellence in performance.” The NSPS classification system established by these regulations will provide for a classification structure with consistently defined work levels, while the performance management and compensation systems will establish the value of that work, as required under this principle.

Section 9901.202—Coverage

Section 9901.202 identifies the employees and positions eligible for coverage under this subpart, including those otherwise covered by the General Schedule and prevailing rate systems, employees in SL and ST positions, and members of the SES, subject to § 9901.102(d). This section also provides the authority for the Secretary to designate additional employees and positions for coverage. Commenters requested clarification of coverage for students and for laboratories. Students in positions otherwise classified to the General Schedule or other covered classifications systems will be covered under the NSPS classification system. Section 9902(c) of title 5, U.S. Code, specifies that coverage will not occur before October 1, 2008, for the defense laboratories in the following organizations: Aviation and Missile Research Development and Engineering Center, Army Research Laboratory, Medical Research and Materiel Command, Engineer Research and Development Command, Communications-Electronics Command, Soldier and Biological Chemical Command, Naval Sea Systems Command Centers, Naval Research Laboratory, Office of Naval Research, and Air Force Research Laboratory. Section 9902(c)(1) of title 5, U.S. Code, provides that on or after October 1, 2008, these laboratories will be covered to the extent the Secretary determines the flexibilities provided by NSPS are greater than the flexibilities they currently have under demonstration authority.

Commenters recommended excluding Civilian Mariner, Emergency Essential Civilians, and dual status military technicians from coverage under this subpart. We have not changed coverage under this subpart based on these comments. The classification system is an integral part of NSPS and provides the flexibility needed as the foundation for the performance management and pay components of the system.

Section 9901.203—Waivers

Section 9901.203 of the regulations specifies the provisions of title 5, U.S. Code, that are waived for employees covered by the NSPS classification system established under subpart B. As specified in § 9901.203(a) the waivers apply when a category of DoD employees is covered by a classification system established under this subpart, except with respect to OPM's authority under 5 U.S.C. 5112(b) and 5346(c) to act on requests for review of classification decisions, under § 9901.107 and § 9901.222(d). Section 9901.203(b) states that the classification of positions above GS-15 is not waived for certain purposes.

A commenter requested clarification of whether this section waives 5 U.S.C. 6303(f) regarding the annual leave accrual for members of the SES and employees in SL and ST positions. As specified in § 9901.203(b), this is one of the enumerated provisions that may not be waived.

Section 9901.204—Definitions

This subpart defines the key components and terms used in the NSPS classification system. A commenter suggested revising the definition of “classification” to remove the phrase “job evaluation,” to eliminate potential confusion with “performance evaluation.” We did not make this change. The phrase is not used to define classification, but rather is included to explain that the terms may be used interchangeably.

Section 9901.211—Career Groups

Section 9901.211 provides DoD the authority to establish career groups. DoD's implementing issuances will provide the criteria and rationale for grouping occupations or positions into career groups.

One commenter noted that this section does not mention OPM's role in establishing the career groups. Under § 9901.105(c)(1), DoD is required to coordinate with OPM before establishing career groups.

Commenters expressed a need for consistent career groups across DoD. We did not make a change in the regulations based on this comment; however, DoD anticipates uniform career groups. Several commenters provided specific recommendations about grouping occupations together into career groups. Other comments recommended limiting the number of career groups to keep the system simple. In developing the implementing issuances, DoD will consider these suggestions.

Section 9901.212—Pay Schedules and Pay Bands

Section 9901.212 provides DoD with the authority to establish pay schedules within each career group, and pay bands within each pay schedule. One commenter noted that the bands, as defined in this section, are simple to understand.

Commenters noted an incorrect reference in the proposed regulations at § 9901.212(d). We have corrected the reference.

Commenters noted that this section does not mention OPM oversight and recommended that OPM review and approve the pay schedules. Under § 9901.105(c)(1), coordination of pay schedules and pay bands with OPM is required.

The proposed regulations stated in § 9901.221(a) that pay schedules “may include two or more pay bands.” We made a technical correction to clarify that a pay schedule may include one or more pay bands.

Commenters expressed a need for consistent pay bands throughout DoD. We did not make a change in the regulations based on this comment; however, DoD anticipates that bands will be defined consistently for a given occupation. Several commenters recommended grouping particular General Schedule grades into pay bands. Commenters also recommended placing specific occupations (

e.g.

, attorney) into particular bands. Additional commenters suggested ways to band supervisory positions, while other commenters requested clarification of how supervisory and team leader positions will be placed into bands. DoD will consider these suggestions and address the number and composition of pay bands and the assignment of supervisor and team leader positions to bands in its implementing issuances.

Several commenters requested further detail on the classification of prevailing rate positions under NSPS. One commenter suggested adopting the bands used for DoD nonappropriated fund (NAF) employees. DoD will consider these comments when establishing NSPS pay schedules and pay bands for prevailing rate positions.

A commenter questioned how duty levels within bands will be described. DoD will establish a process for consistently describing the duties of positions.

Several commenters requested that DoD establish military rank equivalencies for each band, for purposes such as travel accommodations. Such equivalency determinations are outside the scope of the NSPS regulations.

Several commenters noted the importance of dual career paths to support both supervisory and non-supervisory expertise. DoD agrees that this is an important feature to include in the NSPS classification system. The pay band structure supports this concept through pay bands, such as expert and supervisory bands, which could provide for parallel career progression.

Section 9901.221—Classification Process

Section 9901.221 of the regulations requires DoD to establish a method for describing jobs and documenting those descriptions. DoD will establish procedures for assigning each job to an occupational series, career group, pay schedule, and band, and will classify each job accordingly.

Labor organizations participating in the meet-and-confer process expressed concern that employee promotions might be unduly delayed because § 9901.221(d) in the proposed regulations did not provide a timeframe for classification decisions. As a result of these discussions, we have added a requirement in this section that personnel actions implementing classification decisions occur within four pay periods after the date of the decision.

Some commenters expressed concerns that under the NSPS classification system, position descriptions will not be required. They were concerned that the duties required by a position will not be clearly defined and will be too broad, which may result in uncertain expectations or the assignment of work unrelated to an employee's position. While NSPS provides increased flexibility, DoD will establish a process for consistently describing the requirements of positions.

Section 9901.222—Reconsideration of Classification Decisions

Section 9901.222 of the proposed regulations provides employees the right to request that DoD or OPM reconsider the classification of their official position of record including the pay system, career group, occupational series, pay schedule, or pay band.

Commenters expressed concern that this section provides insufficient detail. DoD's implementing issuances will establish policies and procedures for handling an employee's request for reconsideration of classification decisions.

A commenter noted that current regulations provide employees the right to request reconsideration of official titles of their positions of record and asked that the regulations provide this right under the NSPS classification system. We agree and have added “official title” to § 9901.222(a).

Commenters were concerned that there was no independent review to a neutral party. Paragraphs (a) and (c) of this section provide employees the right to directly request OPM reconsider the classification of their official position and allow an employee to request that OPM reconsider a DoD classification reconsideration decision, respectively. This right is parallel to the classification appeal right of current General Schedule employees under 5 U.S.C. 5112(b).

Commenters suggested that the regulations authorize retroactive promotions if an employee's position is found to be misclassified, and one commenter suggested that retroactive promotions be limited to 2 years preceding the reconsideration determination. Under the current classification law and regulations (5 U.S.C. chapter 51 and 5 CFR part 511) classification decisions generally may not be made effective retroactively. (See 5 CFR 511.701(a)(4).) In addition, the Supreme Court has held that neither the Classification Act under 5 U.S.C. chapter 51 nor the Back Pay Act under 5 U.S.C. 5596 creates a substantive right to back pay for periods of wrongful classifications. (See

United States

v.

Testan

, 424 U.S. 392 (1976).)

OPM regulations at 5 CFR 511.703 provide an exception to this general rule and allow a retroactive effective date if upon classification appeal an employee is found to have been wrongfully demoted. Any similar retroactive effective date provisions regarding classification reconsideration decisions will be addressed in DoD's policies and procedures for reviewing these requests, under § 9901.222(b).

Commenters suggested that classification reconsideration decisions should be based on OPM's classification standards. The appropriate criteria for reconsideration are those criteria used in classifying the position. As noted in § 9901.222(e), where DoD has adopted OPM standards, OPM criteria will be

used; and where DoD has established its own criteria for classifying positions under this subpart, DoD criteria will be used.

Commenters suggested that DoD should have a central classification appeals office. This change has not been made in the regulations. DoD currently has a central classification appeals office.

Section 9901.231—Conversion of Positions and Employees to the NSPS Classification System

Section 9901.231 of the regulations addresses the conversion of positions to the classification system established under this subpart.

Commenters expressed concerns about the conversion process, finding it vague and requesting further detail. They questioned whether all positions will be reclassified, whether employees will be required to reapply for their current job, and how DoD will deal with employees in entry positions who have completed training but not yet met time-in-grade criteria. A commenter requested that the length of “save pay” be a minimum of 2 years. Additionally, commenters requested guidance on converting employees currently classified under demonstration projects and on converting employees leaving DoD from NSPS to the General Schedule. A commenter requested that employees be provided new position descriptions prior to conversion. DoD will consider these comments when issuing the implementing issuances to prescribe the conversion process.

Commenters questioned the applicability of the conversion rules to employees converted to the NSPS pay system from demonstration projects and alternative pay systems. In response to these comments, we revised § 9901.231(b) to provide that DoD will convert employees to the system without a reduction in their rate of pay, including any applicable locality payment, special rate supplement, local market supplement, or “similar payment under other legal authority.”

We also made a technical correction, changing the term “special rate” to “special rate supplement.” This change is consistent with other recently published special rate regulations.

Subpart C—Pay and Pay Administration

General Comments

Commenters and the labor organizations participating in the meet-and-confer process articulated concerns about the lack of specificity in subpart C of the regulations on the pay structure and the pay administration rules governing the NSPS pay system. Commenters felt the regulations were too vague and difficult to understand because of the lack of detailed information on such issues as establishment of career groups and pay schedules, establishment and adjustment of pay band rates and rate ranges, establishment and adjustment of local market supplements, composition and funding of performance pay pools, pay-setting, and premium pay. Commenters expressed difficulty in understanding how their rate of basic pay and pay adjustments would be determined under NSPS and the impact individual and group performance would have on pay. Other commenters recommended that the regulations be withdrawn until the entire system could be disclosed or tested.

Commenters, including labor organizations participating in the meet-and-confer process, repeatedly referenced the lack of specificity when recommending a number of amendments to subpart C of the regulations which they felt would provide detailed criteria and situations for setting and adjusting rate ranges; entitlement to rate range adjustments; setting and adjusting local market supplements; entitlement to local market supplements; eligibility and amounts of performance pay increases; and setting pay for initial hires, reassignments, promotions, and reductions in band. Amendments were also suggested for initial conversion into NSPS.

Citing the lack of specificity, commenters and the labor organizations participating in the meet-and-confer process stated that the regulations should be revised to remove the bar in subpart I on collective bargaining of the NSPS pay structure and system and to provide that the NSPS pay system be subject to national consultation rights.

Numerous commenters requested that the regulations be more transparent and that DoD work closely with employees and employee representatives in designing the NSPS pay system. They also cited the lack of details in the regulations as the basis for doubting the fairness and equity of the NSPS pay system.

We recognize the desire that the regulations provide greater specificity and guarantees pertaining to the NSPS pay system. However, the

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