National Security Personnel System

DEPARTMENT OF DEFENSE

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCIX and Part 9901

RIN 3206-AK76/0790-AH82

National Security Personnel System

AGENCY:

Department of Defense; Office of Personnel Management.

ACTION:

Proposed rule.

SUMMARY:

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

DATES:

Comments must be received on or before March 16, 2005.

ADDRESSES:

You may submit comments, identified by docket number NSPS-2005-001 and/or Regulatory Information Number (RIN) 3206-AK76 or 0790-AH82. Please arrange and identify your comments on the regulatory text by subpart and section number; if your comments relate to the supplementary information, please refer to the heading and page number. There are multiple methods for submitting comments. Please submit only one set of comments via one of the methods described.

Preferred Method for Comments:

The preferred method for submitting comments is through the NSPS Web site at:

•

http://www.cpms.osd.mil/nsps.

Alternative Methods:

If you are unable to submit comments via the NSPS Web site, you may submit comments in one of the following ways.

• Federal Rulemaking Portal:

http://www.regulations.gov.

Follow the instructions for submitting comments.

• Mail to: Program Executive Office, National Security Personnel System, Attn: Bradley B. Bunn, 1400 Key Boulevard, Suite B-200, Arlington, VA 22209-5144.

• E-mail to:

nspscomments@cpms.osd.mil.

Please put the following in the subject line: “Comments on Proposed NSPS Regulations—RIN 3206-AK76/0790-AH82.”

• Hand delivery/courier to: Program Executive Office, National Security Personnel System, Attn: Bradley B. Bunn, 1400 Key Boulevard, Suite B-200, Arlington, VA 22209-5144. Delivery must be made between 8 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

Instructions:

All submissions must include the agency name and docket number or RIN for this rulemaking. Mailed or hand-delivered comments must be in paper form. No mailed or hand-delivered comments in electronic form (CDs, floppy disk, or other media) will be accepted. The official Web site (

http://www.cpms.osd.mil/nsps

) will contain any public comments received, without change, as DoD and OPM receive them, unless the comment contains security-sensitive material, confidential business information, or other information whose public disclosure is restricted by statute. If such material is received, we will provide a reference to that material in the version of the comment that is placed in the docket. The system is an “anonymous access” system, which means that DoD and OPM will not know your identity, e-mail address, or other contact information unless you provide it in the body of your comment. Unless a comment is submitted anonymously, the names of all commenters will be public information.

Please ensure your comments are submitted within the specified open comment period. Comments received after the close of the comment period will be marked “late,” and DoD and OPM are not required to consider them in formulating a final decision.

Before acting on this proposal, DoD and OPM will consider all comments we receive on or before the closing date for comments. Comments filed late will be considered only if it is possible to do so without incurring expense or delay. Changes to this proposal may be made in light of the comments we receive.

FOR FURTHER INFORMATION CONTACT:

For DoD, Bradley B. Bunn, (703) 696-4664; for OPM, Ronald P. Sanders, (202) 606-6500.

SUPPLEMENTARY INFORMATION:

The Department of Defense (DoD or “the Department”) and the Office of Personnel Management (OPM) are proposing to establish the National Security Personnel System (NSPS), a human resources (HR) management system for DoD under 5 U.S.C. 9902, as enacted by section 1101 of the National Defense Authorization Act (Pub. L. 108-136, November 24, 2003). The following information is intended to provide interested parties with relevant background material about (1) the establishment of the National Security Personnel System, (2) the process used to design the NSPS, (3) a description of the proposed NSPS regulations, and (4) an analysis of the costs and benefits of those proposed regulations.

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 “All 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, uniformed personnel and civilians, 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 that supports and protects their critical role in DoD's total force effectiveness. Public Law 108-136 provides the Department of Defense with the authority to meet this transformation challenge through development and deployment of the NSPS.

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 made it 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 will offer 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 will be the 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 are crafting NSPS through a collaborative process involving management, employees, and employee representatives, and are inviting comments from a broader community of other interested parties. DoD leadership will ensure that supervisors and employees understand the new system and can function effectively within it. The system will retain the core values of the civil service and allow employees to be paid and rewarded based on performance, innovation, and results. In addition, the system will provide employees with greater opportunities for career growth and mobility within the Department.

Relationship to the Department of Homeland Security

In developing the National Security Personnel System, the Department of Defense has benefited greatly from the efforts of the Department of Homeland Security (DHS). After more than 2 years of work, DHS and OPM have recently issued final regulations establishing Homeland Security's new human resources (HR) system, and the Secretary and the Director were extensively informed by the DHS experience, in terms of both process and results, in designing, developing, and drafting these proposed regulations. In this regard, the DHS regulations were analyzed by staff-level working groups, as well as senior leadership, and where it made sense—that is, where it was consistent with and supported DoD's national security mission, operations, and statutory authorities—we adopted many of the concepts and approaches, and even much of the specific language set forth in the DHS regulations. For example, both regulations provide flexibilities in pay, performance management, labor relations, adverse actions, and appeals, while preserving the important core merit principles required by law. Similarly, both regulations provide essential management flexibilities to respond to mission and operational exigencies. At the same time, where there are differences between DHS and DoD—in terms of scope, mission, organizational culture, and human capital challenges, as well as the statutes that authorize the respective HR systems—DoD and OPM have broken new ground, and these proposed regulations are intended to stand on their own in that regard. Accordingly, this proposed regulation should not be viewed (or judged) in comparison to DHS, but rather as an independent effort, informed by the DHS experience, yet focused on DoD's mission and requirements.

Authority To Establish a New HR System

The authority for NSPS is 5 U.S.C. 9902(a) through (h) and (k) through (m), which provide authority to establish a new human resources management system, appeals system, and labor relations system for the Department of Defense. NSPS allows the Department of Defense to establish a more flexible civilian personnel management system that is consistent with its overall human capital management strategy. NSPS will make the Department a more competitive and progressive employer at a time when the country's national security demands a highly responsive

civilian workforce. The NSPS is a transformation lever to enhance the Department's ability to execute its national security mission.

Subsection (a) of section 9902 provides that the Secretary of Defense may establish a human resources management system, known as the “National Security Personnel System” (NSPS), in regulations jointly prescribed with the Director of OPM. The system established under subsection (a) may differ from the traditional civil service system established under title 5, U.S. Code, in certain respects. It is also subject to certain requirements and limitations that are specified in subsections (b) through (h) and (l) of section 9902. For example, NSPS must be flexible, contemporary, and consistent with statutory merit system principles and prohibitions against prohibited personnel practices (in 5 U.S.C. 2301 and 2302, respectively). The system must ensure that employees may organize and bargain collectively, subject to the provisions of chapter 99 of title 5 and other statutory requirements. The system must include a performance management system that incorporates certain elements listed in the law. Also, in establishing the system, only certain provisions of title 5 may be waived or modified by DoD and OPM:

• Chapter 31, 33, and 35 (dealing with staffing, employment, and workforce shaping, as authorized by 5 U.S.C. 9902(k));

• Chapter 43 (dealing with performance appraisal systems);

• Chapter 51 (dealing with General Schedule job classification);

• Chapter 53 (dealing with pay for General Schedule employees, pay and job grading for Federal Wage System employees, and pay for certain other employees);

• Subchapter V of chapter 55 (dealing with premium pay), except section 5545b (dealing with firefighter pay);

• Chapter 75 (dealing with adverse actions); and

• Chapter 77 (dealing with appeal of adverse actions and certain other actions).

In planning, developing, implementing, and adjusting NSPS established under subsection (a), DoD and OPM must use procedures that provide employee representatives with an opportunity to participate and collaborate in the process. This collaboration requirement is set forth in subsection (f) and is further described later in this Supplementary Information. The law provides that the collaboration procedures in subsection (f) are the “exclusive procedures” for the participation of employee representatives, provided in lieu of any collective bargaining requirements.

Subsection (h) of section 9902 provides authority to establish an appeals process for DoD employees covered by NSPS. This process must ensure that all affected DoD employees are afforded the protection of due process. Subsection (h) authorizes new standards and procedures for personnel actions based on either misconduct or performance that fails to meet expectations. The procedures may include a revised process for hearing appeals of adverse actions. Finally, subsection (h) provides that an employee against whom an adverse action is taken may seek review of the record of the case by the Merit Systems Protection Board. The Board may dismiss cases that do not raise substantial questions of fact or law. The Board may only order corrective action if it determines that the DoD decision was—

• Arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

• Obtained without procedures required by law, rule or regulation having been followed; or

• Unsupported by substantial evidence.

Subsection (k) of section 9902 provides that, in establishing and implementing the NSPS under subsection (a), DoD and OPM are not limited by any provision of title 5 or implementing regulations relating to—

• The methods of establishing qualification requirements for, recruitment for, and appointments to positions;

• The methods of assigning, reassigning, detailing, transferring, or promoting employees; and

• The methods of reducing overall agency staff and grade levels, except that performance, veterans' preference, tenure of employment, length of service, and such other factors as the Secretary considers necessary and appropriate must be considered in decisions to realign or reorganize the Department's workforce.

Thus, subsection (k) authorizes the modification of chapters 31, 33, and 35 of title 5, U.S. Code (dealing with staffing, employment, and workforce shaping). However, in implementing subsection (k), DoD must comply with veterans' preference requirements in 5 U.S.C. 2302(b)(11).

Subsection (m) provides a separate authority (independent of subsection (a) and notwithstanding subsection (d)) for the Secretary of Defense and the Director of OPM to establish a DoD labor relations system Subsection (m) establishes collaboration requirements to give employee representatives the opportunity to participate in developing, implementing, and adjusting the labor relations system. Subsection (m) provides authority to modify chapter 71. By law, the subsection (m) authority may not be used to expand the scope of bargaining. Also, by law, the DoD labor relations system supersedes all collective bargaining agreements for covered DoD bargaining units, except as otherwise determined by the Secretary. Finally, the law provides that the DoD labor relations system established under subsection (m) will expire 6 years after the date of enactment (

i.e.

, November 24, 2009), unless extended by statute. If subsection (m) expires, the provisions of chapter 71 of title 5, U.S. Code, would again apply.

Subsections (i) and (j) in section 9902 establish separate authorities that are not held jointly with OPM and are not addressed in these proposed regulations.

Process

Leadership

In April 2004, senior DoD leadership approved the collaborative process that the Department is using to design and implement NSPS. This process was crafted over a period of about 3 weeks by a group of 25 to 30 senior experts representing various elements within DoD, OPM, and the Office of Management and Budget. The senior leaders used the Defense Acquisition Management model as a way to establish the requirements for the design and implementation of NSPS. The senior leaders recommended Guiding Principles and Key Performance Parameters (KPPs), which defined the minimum requirements for NSPS. They also recommended establishing a Senior Executive and Program Executive Office (PEO), modeled after the Department's acquisition process. Subsequently, the Honorable Gordon England, was appointed by the Secretary of Defense as the NSPS Senior Executive, in addition to his duties as Secretary of the Navy, to design, develop, establish, implement, and adjust the NSPS on his behalf. As the NSPS Senior Executive, Secretary England established the NSPS PEO as the central DoD policy and program office to conduct the design, planning and development, deployment, assessment, and full implementation of NSPS. The PEO provides direction to and oversight of the Component program managers who

are dual-hatted under their parent Component and the PEO.

At OPM, the Director designated the Senior Advisor on the Department of Defense to lead agency activities in the joint development of the NSPS. The Director received frequent and regular briefings on the progress of NSPS and on the status of key policy options across the spectrum of authorities granted in the NSPS statute. Subsequently, in periodic reviews the Director exercised policy options, thereby providing guidance to the OPM team. Policy and regulatory development for NSPS are specifically vested in the Division for Strategic Human Resources Policy, and OPM's work teams and leadership cadres were drawn largely from this Division. In addition, a Senior Level Review Group reviewed NSPS decision documents to ensure consistency with the Director's priorities.

An integrated executive management team composed of senior DoD and OPM leaders provides overall policy and strategic advice to the PEO and serves as staff to the Senior Executive. The PEO meets with and consults with this team, the Overarching Integrated Product Team (OIPT), 8 to 10 times a month. The Senior Executive convenes meetings with the PEO and OIPT at least twice a month to monitor and direct the process.

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 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.

Working Groups

In July 2004, the PEO established Working Groups to begin the NSPS design process. Over 120 employees representing the Military Departments (Army, Navy, Air Force), the other DoD Components, and OPM began the process of identifying and developing options and alternatives for consideration in the design of NSPS. The Working Group members included representatives from the DoD human resources community, DoD military and civilian line managers, representatives from OPM, the legal community, and subject matter experts in equal employment opportunity, information technology, and financial management. In addition, other subject matter experts participated.

The Working Groups were functionally aligned to cover the following human resources program areas: (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 group was co-chaired by an OPM and DoD subject matter expert. The Working Groups' review and analysis included a compilation of pertinent laws, rules, regulations, and other related documents that were forwarded to them for advance preparation. Working Groups were also provided with available information and input from NSPS focus groups and town hall sessions held at strategic locations worldwide, union consultation meetings, data review and analysis from alternative personnel systems and laboratory and acquisition demonstration projects, the NSPS statute, Guiding Principles, as well as a review of earlier studies and working groups. 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.

Option Development Process

In developing options for the NSPS, the Working Groups benefited from the Government's experience under demonstration project authorities and alternative personnel systems, 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. The Working Groups also received and considered input from employees and their representatives. The resulting product was a set of options that covered a broad range of variations on the six areas of focus. Each option was evaluated against the Guiding Principles and Key Performance Parameters (KPPs).

To ensure that the options reflected the wide range of views and concerns expressed by various entities, the NSPS Working Groups did not attempt to reach consensus regarding the merits of the options. Consequently, none of the options necessarily represented a consensus view of the Working Groups. Some of the options integrate approaches to developing new HR systems across two or more of the six subject matter areas under consideration. This is especially true of the compensation architecture and pay-for-performance options, which were intended to illustrate how various classification, compensation, and performance system elements might work in combination. The performance and compensation/classification options also tended to cluster around several distinct themes, such as “function/occupation-focused,” “performance-focused,” and “contribution/ mission-focused.” The initial draft options were reviewed by the PEO and Senior Advisory Group (SAG) to capture feedback prior to finalizing them for submission to the Overarching Integrated Product Team (OIPT) for review.

Outreach

A comprehensive outreach and communications strategy is essential for designing and implementing a new HR system. Outreach facilitates employee awareness and understanding of NSPS;

it's the primary strategy for sharing the NSPS vision. 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 channels for disseminating relevant, timely, and consistent information, including a wide variety of print and electronic media, e-mail, town hall meetings, focus groups, speeches, and briefings, and developed an action plan for communicating with each stakeholder. The PEO also developed key messages to include in stakeholder communications to reinforce the Guiding Principles of the NSPS HR systems design process. A website was developed and launched to serve as a primary, two-way communications tool for the workforce, other stakeholders, and the general public. PEO updates the website regularly with new information concerning the design, development, and implementation of NSPS. Further, the website includes the capability for visitors to submit questions and comments. To date, PEO has responded to thousands of questions and comments.

Outreach to Employee Representatives

Beginning in the spring of 2004 and continuing over the course of several months, the PEO sponsored a series of 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.

To date, DoD and OPM have conducted 10 joint meetings with officials of the 41 unions that represent DoD employees, including the 9 unions that currently have national consultation rights. These union officials represent some 1,500 separate bargaining units covering about 445,000 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; the results of Department-wide focus group sessions held with a broad cross-section of DoD employees; the proposed NSPS implementation schedule; 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. Focus Group sessions began in mid-July 2004, and continued for approximately 3 weeks. 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. Each focus group was conducted by a trained facilitator. 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 Gordon England, conducted the first town hall meeting at the Pentagon on July 7, 2004. The format for town hall meetings included an introductory presentation by a senior leader followed by a question and answer session where anyone in the audience was free to ask a question or make a comment. Some of the town hall meetings were broadcast live, as well as videotaped and rebroadcast on military television channels and Web sites to facilitate the widest possible dissemination.

The focus group sessions and town hall meetings, as well as the Working Groups and union consultation sessions, underscore the Department's commitment to ensuring an open, transparent design process. The sessions assured that civilian employees, managers, supervisors, union leadership, and other key stakeholders were involved in the design and implementation of NSPS and had ample opportunity to provide input.

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.

The first stakeholder briefing was for public interest groups, such as the National Association of Public Administrators (NAPA), Coalition for Effective Change, and Partnership for Public Service. The second stakeholder briefing was for veterans' service organizations. A third stakeholder briefing was conducted with non-union employee advocacy groups. Attendees at all three briefings received background information about NSPS, an update on the PEO work plan, an overview of the NSPS Guiding Principles, and updates on the activities of the team, including town hall meetings and focus groups. Attendees were afforded an opportunity to participate in a question-and-answer session following these presentations.

Both before and after these three stakeholder 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.

General Provisions—Subpart A

Subpart A of the proposed regulations provides the purpose and the establishment of the general provisions governing coverage under the new DoD HR system, and defines terms that are used throughout the new part 9901. Part 9901 applies to employees in DoD organizational and functional units identified under the regulations as eligible for coverage and who are approved for coverage, as of a specified date, by the Secretary of Defense. This enables DoD to phase in coverage of particular groups of employees or Components of the Department. Subpart A also allows DoD to prescribe internal Departmental issuances that further define the design characteristics of the new HR system. (

See

the “Next Steps” section at the end of this

SUPPLEMENTARY INFORMATION

.) Finally,

subpart A clarifies the relationship of the regulations in part 9901 to other provisions of law and regulations outside those that are being waived with respect to DoD.

Purpose

The purpose of the proposed regulations is to establish a system designed to meet the statutory requirements, the NSPS KPPs and Guiding Principles.

Eligibility and Coverage

All DoD employees currently covered by the classification and pay systems established under chapter 51 or 53 of title 5, U.S. Code, are eligible for coverage under one or more of subparts B through I of this part, except to the extent specifically prohibited by law (

e.g.

, Executive Schedule officials, who, by law, remain covered by subchapter II of chapter 53). DoD will transition to the NSPS human resources system beginning with its General Schedule (GS) employees (and equivalent). Other categories of employees, including those covered by other systems outside of title 5, will be phased in as appropriate. SES members and certain other similar types of DoD employees will be eligible for coverage under the new DoD pay system. However, the proposed regulations provide that any new pay system covering SES members must be consistent with the performance-based features of the new Governmentwide SES pay-for-performance system authorized by section 1125 of the National Defense Authorization Act (Pub. L. 108-136, November 24, 2003). If DoD wishes to establish an SES pay system that varies substantially from the new Governmentwide SES pay-for-performance system, DoD and OPM will issue joint authorizing regulations consistent with all of the requirements of the National Security Personnel System, as set forth in 5 U.S.C. 9902. In addition, DoD and OPM will involve SES members and other interested parties in the design and implementation of any new pay system for SES members employed by DoD.

Scope of Authority

Subject to the requirements and limitations in 5 U.S.C. 9902, the provisions in the following chapters of title 5, U.S. Code, and any related regulations, may be waived or modified:

• The rules governing staffing, employment, and workforce shaping (as permitted by 5 U.S.C. 9902(k)) established under chapters 31, 33, and 35;

• The rules governing performance appraisal systems established under chapter 43;

• The General Schedule classification system established under chapter 51;

• The pay systems for General Schedule employees, pay and job grading for Federal Wage System employees, and pay for certain other employees, as set forth in chapter 53;

• The premium pay system for employees, as set forth in chapter 55, subsection V, except section 5545(b) relating to pay for firefighters;

• The labor relations system (as authorized by 5 U.S.C. 9902(m)) established under chapter 71;

• The rules governing adverse actions and certain other actions taken under chapter 75; and

• The rules governing the appeal of adverse actions and certain other actions under chapter 77.

Coordination Between DoD and OPM

In implementing the intent of Congress that the Secretary and the Director jointly prescribe regulations for NSPS, DoD and OPM recognize that both agencies have significant legitimate interests that must be taken into account. DoD requires an agile and responsive civilian personnel system to support its Total Force and execute its national security mission. At the same time, OPM is responsible for providing guidance and assistance to DoD in developing a new human resources management system while simultaneously protecting Governmentwide institutional interests regarding the civil service system.

Section 9901.105 of the proposed regulations provides that the Secretary will advise and/or coordinate with OPM in advance, as applicable, regarding the proposed promulgation of certain DoD implementing issuances and certain other actions related to the ongoing operation of the NSPS where such actions could have a significant impact on other Federal agencies and the Federal civil service as a whole. The Secretary and the Director fully expect their staffs to work closely together on the matters specified in this section, before such matters are submitted for official OPM coordination and DoD decision, so as to maximize the opportunity for consensus and agreement before an issue is so submitted.

When a matter requiring OPM coordination pursuant to the coordination requirements established in these regulations, is to be submitted to the Secretary for decision, the Director will be provided an opportunity, as part of the Department's normal coordination process, to review and comment on the recommendations and officially concur or nonconcur with all or part of them. The Secretary will take the Director's comments and concurrence/nonconcurrence into account, advise the Director of his or her determination, and provide the Director with reasonable advance notice of its effective date. Thereafter, the Secretary and the Director may take such action(s) as they deem appropriate, consistent with their respective statutory authorities and responsibilities.

Continuing Collaboration

The NSPS law requires that the implementation of a new HR system for DoD will be carried out with the participation of, and in collaboration with, employee representatives. The law spells out the specific process for involvement of employee representatives in the establishment of the system, known generally as the “30/30/30” process. These proposed regulations will be subject to that statutory process, which includes a comment period of 30 days, a minimum of 30 days for DoD and OPM to “meet and confer” with employee representatives on their recommendations, and a final 30 days for congressional notification prior to implementation.

The NSPS law also provides that the Secretary and the Director develop a process to involve employee representatives in the further planning, development, and/or adjustment of the system. To that end, § 9901.106 establishes a process by which employee representatives will be provided an opportunity to review, comment, and participate in discussions regarding proposals for further adjustments to the system, including DoD implementing issuances. This process is called “continuing collaboration” and is a separate and distinct process from the provisions found in subpart I, Labor-Management Relations. While the proposed NSPS regulations establish the overall NSPS human resources management system, there are several areas that will require DoD to promulgate implementing directives, instructions, manuals, and other issuances that provide the detailed procedures needed to implement the system. For example, the proposed regulations provide for an administrative process in which employees may seek reconsideration of their performance ratings; this is to ensure transparency in the performance management system. The specific procedures for that reconsideration process are not spelled out in these

proposed regulations; rather, they will be established in internal DoD issuances. In order to ensure that the views and concerns of employee representatives are considered in the development of those procedures, DoD will engage in the “continuing collaboration” process.

Under continuing collaboration, employee representatives (for those employees affected by the proposed issuance) will be provided a draft proposal and given a timeframe to review and submit written comments on the proposal, and they will be afforded the opportunity to discuss their views and concerns with DoD officials prior to finalization of the issuance. At the Secretary's discretion, this collaboration may also be initiated prior to the drafting of proposed issuances (

e.g.

, at the conceptual stage of the process). The proposed regulations guarantee that any written comments submitted within the timeframes will become part of the official record and be considered before final decisions are made. While this process does not affect the right of the Secretary to make the final determination as to the content of implementing issuances, it offers the opportunity for employee representatives to participate meaningfully in the process and influence the further development and refinement of NSPS.

Relationship to Other Provisions of the Law

Paragraph (a)(2) of § 9901.107 establishes a rule of construction requiring all provisions of this part be interpreted in a way that recognizes the critical national security mission of the Department. Each provision must be construed to promote the swift, flexible, and effective day-to-day accomplishment of that mission, as defined by the Secretary. DoD's and OPM's interpretation of these regulations must be accorded great deference.

Paragraph (b) of § 9901.107 describes the relationship between the proposed part 9901 and laws that are not waivable or modifiable under the NSPS law. For the purpose of applying other provisions of law or Governmentwide regulations that reference provisions under the waivable or modifiable chapters (

i.e.

, chapters 31, 33, 35, 43, 51, 53, 55 (subchapter V only), 71, 75, and 77 of title 5, U.S. Code), the referenced provisions are not waived but are modified consistent with the corresponding regulations in part 9901, except as otherwise provided in that part or in DoD implementing issuances. For example, physicians' comparability allowances under 5 U.S.C. 5948 are limited to physicians in certain listed pay systems, including the General Schedule. To ensure that DoD physicians continue to be eligible for physicians' comparability allowances when they convert from the General Schedule to the NSPS pay system, they will be deemed to be covered by the General Schedule for the purpose of applying section 5948. In addition, in applying the back pay law in 5 U.S.C. 5596 to DoD employees covered by subpart H of these proposed regulations (dealing with appeals), the reference in section 5596(b)(1)(A)(ii) to 5 U.S.C. 7701(g) (dealing with attorney fees) is considered to be a reference to a modified section 7701(g) that is consistent with § 9901.807(h).

Classification—Subpart B

Subpart B provides DoD with the authority to replace the current GS and FWS classification and qualifications systems and other current classification systems with a new method of evaluating and classifying jobs by grouping them into occupational categories and levels of work for pay and other related purposes. Under this new system, DoD (in coordination with OPM) will have the authority to establish qualifications for positions and to assign occupations and positions to broad occupational career groups and pay bands (or levels).

DoD (in coordination with OPM) will establish broad occupational career groups by grouping occupations and positions that are similar in types of work, mission, developmental/career paths, and/or competencies. The occupational career groups will serve as the basic framework for the NSPS classification and pay system. Within career groups, DoD may establish pay schedules that apply to subgroupings of related occupations. Within each pay schedule, DoD (in coordination with OPM) will establish broad salary ranges, commonly referred to as pay bands. The pay bands within a pay schedule represent progressively higher levels of work with correspondingly higher pay ranges.

DoD may elect to phase in the coverage of specific categories of employees or occupations under the new classification and pay system established under these proposed regulations. DoD may use OPM-approved occupational series and titles to identify and assign positions to a particular career group and pay schedule. Pay schedules typically will include most or all of the following levels of work:

• Entry/developmental work that involves a combination of formal training and/or on-the-job experience designed to provide the employee with the competencies needed to perform successfully at the full performance level.

• Work that involves nonsupervisory duties and responsibilities at the full performance level of the occupation.

• Nonsupervisory expert work that involves a high level of specialized knowledge or technical expertise clearly beyond the requirements for work at the full performance level upon which the employing organization relies for the accomplishment of critical mission goals and objectives.

• Work that involves the supervision of employees at the full performance or expert level.

• Managerial work whose primary purpose is to direct key DoD/Component scientific, medical, legal, administrative, or other programs.

Career groups, pay schedules, and pay bands provide clearly defined career paths for occupations. Table 1 illustrates the career group structure concept.

EP14fe05.000

The new classification system for DoD will result in a streamlined method of classifying positions that no longer relies on lengthy classification standards and position descriptions. The new system does not require artificial distinctions between closely related levels of work, as currently required under the GS and Federal Wage System (FWS) classification systems. This more fully supports the merit system principle 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 * * * for excellence in performance.” Employees will be permitted to request reconsideration of the classification (career group, pay schedule, occupational series, or pay band) of their official positions of record at any time with DoD and/or OPM, as they can today under the GS system. The system described here, together with the new pay system described below, will provide DoD with greater flexibility to adapt the Department's job and pay structure to meet present and future mission requirements.

Pay and Pay Administration—Subpart C

This subpart contains proposed regulations establishing pay structures and pay administration rules for covered DoD employees to replace the pay structures and pay administration rules established under 5 U.S.C. chapter 53 and 5 U.S.C. chapter 55, subchapter V. This new system links pay to employees' performance ratings and is designed to promote a high-performance culture within DoD.

National Security Compensation Comparability

In accordance with the NSPS law, to the maximum extent practicable, for fiscal years 2004 through 2008, the aggregate amount allocated for compensation of DoD civilian employees under NSPS will not be less than if they had not been converted to the NSPS. This takes into account potential step increases and rates of promotion had employees remained in their previous pay schedule.

In addition, NSPS implementing issuances will provide a formula for calculating the aggregate compensation amount, for fiscal years after fiscal year 2008. The formula will ensure that, to the maximum extent practicable, in the aggregate, employees are not disadvantaged in the overall amount of pay available as a result of conversion to the 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 might impact pay levels.

Setting and Adjusting Rate Ranges

Setting Rate Ranges and Local Market Supplements:

The proposed regulations establish a pay system that governs the setting and adjusting of covered employees' rates of pay. The system will have a rate range, with a minimum and maximum rate, for each band in each career group based on factors such as labor market rates, recruitment and retention information, mission requirements, operational needs, and overall budgetary constraints. The bands will have open pay ranges, with no fixed step rates. DoD will also set local market supplements (a supplement to basic pay in lieu of locality pay) for rate ranges based on geographic and occupational factors. DoD will coordinate setting and adjusting rate ranges and local market supplements with OPM.

Adjusting Rate Ranges and Local Market Supplements:

DoD will

determine the rate range adjustments and local market supplements considering mission requirements, labor market conditions, availability of funds, pay adjustments received by employees in other Federal agencies, allowances and differentials under 5 U.S.C. chapter 59, and other relevant factors. Rate range adjustments and local market supplements may differ by career group, pay schedule, or pay band. The minimum and maximum of a range may be adjusted at different rates. DoD may determine local market areas as well as the timing of these pay adjustments.

The proposed regulations provide that employees may receive pay adjustments as a result of a rate range adjustment. Generally, employees will receive an adjustment equal to any increase to the minimum rate of their band and will receive any applicable local market supplement. In keeping with the desire of the Secretary and the Director to achieve and sustain a culture of high performance, the proposed regulations provide that these pay adjustments will not be provided to employees with an unacceptable performance rating.

Performance-Based Pay

The NSPS pay system will be a performance-based pay system that will result in a distribution of pay raises and bonuses based upon individual performance, individual contribution, organizational performance, team performance, or a combination of those elements. The NSPS system will use pay pools to manage, control, and distribute performance-based pay increases and bonuses. Under the proposed regulations, the term “pay pool” means the organizational elements/units or other categories of employees that are combined for the purpose of determining performance payouts or the dollar value of the funds set aside for performance payouts for employees covered by a pay pool. The performance payout is a function of the amount of money in the performance pay pool and the number of shares assigned to individual employees.

Annual Performance-based Payouts:

Employees will receive annual performance-based payouts based on their rating of record and assigned shares. Each rating level will have a share or range of shares associated with it.

Rating Methodology:

DoD implementing issuances will define the specific methodologies and practices that will be used in the Department. DoD expects to use a methodology that includes at least three rating levels and identifies a range of performance shares that can be assigned for rating levels. An example of a possible rating methodology is provided by Table 2. This example illustrates a five-level rating methodology with associated share ranges in which level five signifies the highest level of performance. The rater will prepare and recommend the rating, number of shares, and the distribution of the payout between basic pay increase and bonus, as applicable, for each employee. These recommendations will then be reviewed by the pay pool panel to ensure equitable rating criteria and methodology have been applied to all pay pool employees. The final determination of the rating, number of shares, and payout distribution will be a function of the pay pool panel process and will be approved by the pay pool manager. The criteria used to determine the number of shares to assign an employee may include assessment of the employee's contribution to the mission, the employee's type and level of work, consideration of specific achievements, or other job-related significant accomplishments or contributions.

Table 2.—Sample Rating Methodology

Rating level

Share range

5

6-8

4

3-6

3

1-2

2

0

1

N/A

Performance Pay Pools:

Performance pay pools will be established by combining organizational elements, functional groupings, or other categories of employees. Distinctions may also be made using criteria such as location or mission. Each pay pool will be managed by a pay pool manager in concert with appropriate management officials. The pay pool manager is the individual charged with the overall responsibility for rating determinations and distribution of the payout funds in a given pay pool. The funding of a performance pay pool consists of the money allocated for performance-based payouts for a defined group of employees. The amount of money available within a pay pool is normally based on the money that would have been available for within-grade increases, quality step increases, promotions between grades that have been banded in the NSPS pay system, and applicable across-the-board pay increases. Funds previously used for end-of-rating cycle performance awards or incentive awards may also be used to fund the pay pool. Note that the provisions of 5 U.S.C. chapter 45, “Incentive Awards,” remain in place and provide a valuable means to recognize employee achievements throughout the rating cycle.

Performance Payout:

The performance payout is composed of an increase to basic pay, a bonus, or a combination of these. A bonus is a one-time lump-sum payment that is not paid as basic pay. Subject to DoD guidelines, pay pool managers will have the discretion to determine the proportion of an employee's total performance payout paid as an increase to basic pay or as a bonus. Increases to basic pay may not cause the basic pay of an employee to exceed the maximum of his or her pay band. In such situations, the amount of the payout that exceeds the maximum of the pay band will be paid in the form of a bonus.

Example:

If the maximum of a pay band is $30,000, and an employee earning $28,750 is awarded a payout of $3,000, then the employee may receive an increase in basic pay of not more than $1,250 ($28,750 + $1,250 = $30,000) with the remainder (at least $1,750) paid as a bonus.

In addition, the proposed regulations allow DoD to establish “control points” or other mechanisms within a band, beyond which basic pay increases may be granted only for meeting criteria established by DoD. An example of such a control point is a requirement for the employee to have achieved the highest performance rating.

Other Performance Payouts:

Extraordinary pay increases (EPI), organizational achievement recognition, or other special payments may be paid to employees in accordance with implementing issuances. The amount of such payments may not cause the employee's basic pay to exceed the maximum rate of the employee's assigned pay band.

•

Extraordinary Pay Increase:

An extraordinary pay increase (EPI) is a basic pay increase to reward employees when the payout formula does not adequately compensate them for their extraordinary performance. It is to be used sparingly and only to reward exceptionally high-performing employees whose performance and contributions to the organization are of an exceedingly high value. The performance must be expected to continue at an extraordinarily high level in the future.

•

Organizational Achievement Recognition:

This type of recognition may take the form of additional compensation paid to employees of a team, unit, branch, or organization

whose performance and contributions have successfully and directly advanced organizational goal(s).

Developmental Positions:

Employees in developmental positions may receive pay adjustments as they acquire the competencies, skills, and knowledge necessary to advance to the full performance level.

Pay Administration

The new DoD pay system provides the Department with an enhanced ability to establish and adjust overall pay levels in keeping with changes in national and local labor markets. It is designed to adjust individual pay levels based on the acquisition and assessment of competencies, skills, and knowledge and on the basis of performance or contributions to mission. The new system is capable of adapting to changing circumstances and mission requirements.

Initial Conversion:

Upon implementation of the new system, employees will be converted based on their official position of record. Initial entry into NSPS will ensure that each employee is placed in the appropriate pay band without loss of pay.

New Appointments/Reinstatements:

When an employee is newly appointed or reinstated to a position in NSPS, management may establish pay at any rate up to the maximum of the pay band in accordance with implementing issuances. The hiring official will determine starting pay based on available labor market considerations; specific qualification requirements; scarcity of qualified applicants; program needs; education or experience of the candidate; and other criteria as appropriate. When an employee moves to a pay band with a higher earning potential, pay will be set in accordance with implementing issuances.

Temporary Promotion:

Employees on temporary promotions will be returned to their official position of record prior to conversion. GS employees will be converted at their current rate of basic pay, including any locality payment, adjusted on a one-time, pro-rata basis, for the time spent towards their next within-grade increase.

Career-ladder Positions:

Employees in career-ladder positions below the full performance level will be placed in the appropriate career group, pay schedule, and entry or developmental band.

Promotion:

Promotion pay increases (from a lower band to a higher band in the same cluster or to a higher band in a different cluster) generally will be a fixed percent of the employee's rate of basic pay or the amount necessary to reach the minimum rate of the higher band, whichever is greater. This amount is roughly equivalent to the value of a promotion to a higher grade within the GS system.

Reassignment:

An employee who moves to a position in a comparable pay band will have pay set depending on whether the move is voluntary or involuntary as a result of unacceptable performance and/or conduct. If the move is voluntary or involuntary and not due to unacceptable performance and/or conduct, pay will generally be set at the existing rate of pay; however, pay may be set at a higher rate within limitations specified in DoD implementing issuances. If the move is involuntary due to unacceptable performance and/or conduct, there may be a reduction in basic pay of up to 10 percent as provided in these proposed regulations and in DoD implementing issuances. Pay may not be set lower than the minimum of the pay band level or exceed the maximum of the pay band level.

Reduction in Band:

When an employee moves to a lower pay band, pay will be set depending on whether the move is voluntary or involuntary. If the move is voluntary, pay may generally be set anywhere within the pay band within limits specified in the implementing issuances. If the move is involuntary due to an adverse action based on unacceptable performance and/or conduct, there may be a reduction in basic pay within the limits specified in these proposed regulations and in DoD implementing issuances (not to exceed 10 percent, unless a larger reduction is needed to place the employee at the maximum rate of the lower band). For other involuntary moves, any reduction in pay will be limited in accordance with DoD implementing issuances. Where pay retention is applicable (

e.g.

, following a reduction in force), the employee's pay will be protected under conditions and parameters to be identified in the implementing issuances.

Premium Pay

Section 9901.361 of the proposed regulations addresses DoD's authority to waive and replace the premium pay provisions in 5 U.S.C. chapter 55, subchapter V (except section 5545b), in whole or in part for employees in a category approved by the Secretary. DoD (in coordination with OPM) will establish any NSPS premium payments through implementing issuances.

Performance Management—Subpart D

The current performance management system is burdensome because of its actual and/or perceived inflexibility and strict adherence to written elements and standards established at the beginning of a rating cycle. Supervisors feel restricted in making any mid-course corrections or modifications to a performance plan, resulting in a final assessment that does not meet their needs. These static standards make it difficult for managers to adjust performance requirements and expectations in response to the Department's rapidly changing work environment, hold individual employees accountable for those general and/or assignment-specific work requirements and expectations, and make meaningful distinctions in employee performance as they accomplish those assignments. The proposed regulations are designed to address these deficiencies.

DoD has decided to waive the provisions of chapter 43 of title 5, U.S. Code, in order to design a performance management system that will complement and support the Department's proposed performance-based pay system described above. The proposed system will also ensure greater employee and supervisor accountability with respect to individual performance expectations, as well as organizational results.

The proposed system builds in the flexibility to modify, amend, and change performance and behavioral expectations during the course of a performance year, subject to employees being advised of, and involved in to the maximum feasible extent, the adjusted expectations. For example, supervisors have the option of establishing and communicating performance expectations during the course of the appraisal period through specific work assignments or other means. These other means may include standard operating procedures, organizational directives, manuals, and other generally established job requirements that apply to employees in a particular occupation and/or unit.

Coverage

Generally, DoD employees who are currently covered by chapter 43 of title 5, U.S. Code, are eligible for coverage under the new performance management provisions in subpart D of the proposed regulations. Employees who are currently excluded by chapter 43 of title 5, such as administrative law judges and presidential appointees, will not be eligible for coverage. Certain categories of employees are currently excluded from chapter 43 by OPM administrative action, as authorized by 5 CFR 430.202(d). Such employees are eligible for coverage under the new DoD

performance management provisions. DoD will decide which of those categories of otherwise eligible employees are covered by the Department's new performance management system or systems. The proposed regulations also allow DoD to develop, implement, and administer systems tailored to specific organizations and/or categories of employees.

Performance and Behavior Accountability

Typically, poor behavior or misconduct has been addressed only through the disciplinary process. Little attention has been paid to the impact of behavior, good or bad, on performance outcomes of the employee and the organization. DoD has determined that conduct and behavior affecting performance outcomes (actions, attitude, manner of completion, and/or conduct or professional demeanor) should be a tracked and measured aspect of an employee's performance. The NSPS regulations provide for consideration of employee behavior as a performance factor, element, or objective, such as “teamwork/cooperation.”

When an employee's behavior enhances or impairs task/job accomplishment, it should affect the employee's performance appraisal. Behavior that significantly enhances the mission should also be noted. This does not change a supervisor's responsibility to take prompt corrective action in the event of actionable misconduct; it merely recognizes the fact that behavior can and does affect an employee's overall performance and should be recognized. For example, an employee may receive corrective action at the time of misconduct. The nature of that misconduct has an impact on the successful execution of duties and should therefore impact the employee's performance assessment at the conclusion of the performance rating period. The impact of misconduct on the employee's performance rating will depend on its seriousness, evidence of correction, and any other relevant factors.

Though behavior must be addressed in the performance management system, it need not be a separate factor, element, or objective, if sufficiently covered by a more general factor, element, or objective, such as “teamwork/cooperation.'' Whether constructed as a separate or combined factor, element, or as an objective, the behavioral expectations must be set by the supervisor at the beginning of an appraisal period, and as with other performance expectations, modified or reinforced throughout the appraisal cycle. These expectations normally would include the general behavioral expectations for all employees as stated in the Standards of Ethical Conduct for Employees in the Executive Branch and the DoD Joint Ethics Regulations, as well as any behavioral expectations specifically related to the local organization.

By providing supervisors and managers realistic alternatives for setting employee expectations, and assessing behavior and performance against those expectations, DoD will be better able to hold its employees accountable and recognize and reward those who excel. As part of the performance management system, supervisors and employees should stay aware of the status of performance and behavior and be better able to anticipate and address difficulties. The performance management system is intended to assist in employee performance and behavior development, recognize and reward exemplary performance and behaviors, and identify and remedy shortfalls. Employees share the responsibility of identifying and communicating difficulties, whether due to problems in understanding, communication, or accomplishment of expectations.

By the same token, supervisors and managers will be held accountable for clearly and effectively communicating expectations and providing timely feedback regarding behavior and performance. Supervisors and managers must make meaningful behavior and performance distinctions in support of DoD's new performance-based pay system, as well as identifying and addressing unacceptable performance and misconduct.

Further, supervisors and managers will have a broad range of options for dealing with unacceptable performance. These include but are not limited to remedial training, an improvement period, a reassignment, an oral warning, a letter of counseling, a written reprimand, or adverse action defined in subpart G of these proposed regulations, including a reduction in rate of basic pay or pay band. Resolution of employment difficulties must utilize appropriate methodologies, using remedial and corrective actions, when appropriate, prior to consideration of taking an adverse action. The range of adverse actions will include the involuntary movement of an employee to a lower pay band, giving supervisors and managers another means of dealing with unacceptable performance.

These proposed regulations lay the foundation for a performance management system that is fair, credible, and transparent, and that holds employees, supervisors, and managers accountable for results. However, a performance management system is only as effective as its implementation and administration. To that end, DoD is committed to providing its employees, supervisors, and managers with extensive training on the new performance management system and its relationship to other HR policies and programs.

Setting and Communicating Performance Expectations

Supervisors and managers must establish performance expectations and communicate them to employees. Performance expectations must align with and support the DoD mission and goals. Performance expectations may take the form of goals or objectives that set general or specific performance targets at the individual, team, and/or organizational level, and may include observable or verifiable descriptions of manner, quality, quantity, timeliness, and cost effectiveness. Performance expectations will be communicated to the employee prior to holding the employee accountable and promptly adjusted as changes occur.

Supervisors will involve employees in the planning process to the maximum extent practicable. In so doing employees will better understand the goals of the organization, what needs to be done, why it needs to be done, and how well it should be done. Final determinations in setting expectations, however, are within the authority of the supervisor.

Monitoring Performance and Providing Feedback

One of the main objectives of the pay-for-performance system is to replace the culture of pay-for-longevity with pay-for-results-driven performance. Over time, there should be individual distinctions based on performance, and high performers should receive more pay than average or low performers. Performance-based pay requires improved communication of expectations and performance feedback on the part of supervisors, since employees must understand what they have to do in order to receive higher ratings and increased pay. To achieve that objective, the proposed regulations require ongoing feedback with at least one interim performance review during each appraisal period.

Performance Rating Challenges

The NSPS performance management system, even with its greater emphasis on communication and clarity of purpose, will result in questions and challenges, at least in the beginning. To be effective and allow for appropriate and reasonable rating adjustments, a process needs to be established for challenge purposes. Such a process will allow for the timely determination of rating adjustments, so that final pay adjustment determinations can be made.

As provided in subpart C of the proposed regulations, performance ratings of record will be used to make individual pay adjustments under the new DoD pay system. In recognition of this impact on pay, the regulations permit employees to request timely reconsideration of their ratings of record. Because of the unique nature of such challenges, the implementing issuances will prescribe a separate reconsideration process that will afford every employee an opportunity to seek appropriate redress.

Staffing and Employment—Subpart E

In order to meet its critical mission requirements in a dynamic national security environment, the Department needs greater flexibility to attract, recruit, shape, and retain a high quality workforce. While preserving merit principles and veterans' preference requirements, subpart E of the proposed regulations provides DoD with an expanded set of flexible hiring tools to respond effectively to continuing mission changes and priorities. DoD managers will have greater flexibility in acquiring, advancing, and shaping a workforce tailored to the Department's needs. The new flexibilities provide DoD managers with a greater range of options to adapt their recruitment and hiring strategies to meet changing mission and organizational needs, including consideration of the nature and duration of work. The proposed regulations also address the need to compete for the best talent available by providing the Department with the ability to streamline and accelerate the recruitment process.

Definitions

The proposed regulations simplify the categories of employment. Under NSPS, employees will be defined as either career or time-limited. Career employees serve without time limit in competitive or excepted service positions. Time-limited employees serve either for a specified duration (term) or for an unspecified, but limited duration (temporary). The proposed regulations eliminate the category of “career-conditional employment;” under NSPS, those employees may be hired directly into the career service.

The proposed regulations redefine the terms “promotion” and “reassignment” to fit the NSPS pay banding environment. In addition, the regulations introduce a new term—“reduction in band”—that replaces “change to lower grade.” Under pay banding, the GS grade structure is collapsed into fewer, broader salary ranges. Employees progress through those ranges based primarily on performance and job duties. Under NSPS, employees can also receive increased pay as a result of a reassignment within a pay band or promotion to a higher pay band, as provided in subpart C of these proposed regulations.

Appointing Authorities

Governmentwide Appointing Authorities.

Under the proposed regulations, the Department will continue to use excepted and competitive appointing authorities and entitlements under chapters 31 and 33 of title 5, U.S. Code, Governmentwide regulations, or Executive orders, as well as other statutes. Individuals hired under those authorities will be designated as career or time-limited employees, as appropriate.

Additional NSPS Appointing Authorities.

Under the proposed regulations, the Secretary and the Director may establish new excepted and competitive appointing authorities for positions covered by NSPS. For any appointing authority that may result in entry into the competitive service, including excepted appointments that may lead to a subsequent noncompetitive appointment to the competitive service, DoD and OPM will jointly publish advance notice in the

Federal Register

and provide for a public comment period prior to establishing the authority. However, where DoD determines that it has a critical mission requirement, the Department and OPM may establish such an authority, upon notice in the

Federal Register

but without a preceding comment period. In addition, DoD and OPM may establish excepted appointing authorities for positions that are not in the competitive service without specific notice in the

Federal Register

. The proposed regulations require DoD to publish annually a list of appointing authorities created under this authority and remain in effect. DoD will prescribe appropriate implementing issuances to administer a new authority.

Direct Hire Authority.

The proposed regulations authorize DoD to exercise direct hire authority, subject to existing legal and regulatory standards. DoD will prescribe implementing issuances to administer this authority, provide public notice in accordance with 5 U.S.C. 3304(a)(3)(A), inform OPM of all determinations made with respect to the exercise of this authority, and maintain appropriate records and documentation.

Time-limited Appointing Authorities.

DoD may continue to use existing time-limited appointing authorities; however, the proposed regulations provide the Secretary (in coordination with OPM) with the authority to prescribe the duration of such appointments, advertising requirements, examining procedures, and the appropriate uses of time-limited employees. The Secretary may also establish procedures under which a time-limited employee who competed for and is serving in a competitive service position may be converted without further competition to the career service, but under the conditions specified in the proposed regulations.

Recruitment and Competitive Examining

In order to increase the efficiency of the recruiting and hiring process without compromising merit principles, the proposed regulations allow DoD to target its recruiting strategy. DoD will provide public notice for all vacancies in the career service and accept applications from all sources; however, applicants from the local commuting area and other targeted sources may be considered first. If there are insufficient qualified candidates in the local commuting area, DoD may consider applicants from outside that area. The proposed regulations also extend examining authority to DoD, to be exercised in accordance with chapters 31 and 33 of title 5, U.S. Code. To exercise this authority, DoD will develop and coordinate examining procedures which will remain subject to OPM oversight. Examining procedures will adhere to the merit system principles in 5 U.S.C. 2301 and veterans' preference requirements set forth in 5 U.S.C. 3309 through 3320, as applicable, and will be available in writing for applicants to review.

Probationary Periods

NSPS is a performance-based system; therefore, a critical first step is the ability to assess employees' performance during their initial entry into the Federal service and as they move to positions requiring markedly new skill sets. Employees' performance during

this time period usually serves as a good indication of how well they will perform throughout their career or as a supervisor. During this period, supervisors should provide assistance to help new employees improve their performance and, at the same time, determine whether or not the employee is suited for the position.

Under the proposed regulations, the Department may prescribe implementing issuances to establish probationary periods as deemed appropriate for certain categories of employees newly appointed to career service positions covered by NSPS. DoD will prescribe the conditions for such periods, including duration and creditable service, in implementing issuances. Employees who are separated during their initial probationary period receive limited appeal rights under subpart H of these proposed regulations; however, a preference eligible who has completed 1 year of creditable service has full appeal rights as provided by subparts G and H of these proposed regulations.

DoD may also prescribe in-service probationary periods for current Federal career employees who move into certain categories of positions. An employee who fails to complete the in-service probationary period will be returned to a position and rate of pay comparable to the position and rate of pay he or she held before the probationary period.

Workforce Shaping—Subpart F

Subpart F provides the Department with the authority to reduce, realign, and reorganize the Department's workforce in a manner consistent with a performance-based HR system. The proposed regulations retain existing veterans' preference protections in reduction in force (RIF). However, the proposed regulations do provide the Department with additional flexibilities to minimize disruption resulting from any reduction in force actions that take place.

For example, under current regulations, the minimum RIF competitive area (

i.e.

, the organizational and geographic boundaries in which employees compete for retention) is an organization with separate personnel administrative authority in a local commuting area. Under the proposed regulations the Department may establish a minimum RIF competitive area on the basis of one or more of the following factors: geographical location(s), line(s) of business, product line(s), organizational unit(s), and funding line(s). These factors provide the Department with additional flexibility to limit the impact of a reduction in force upon its employees (

e.g.

, confining reduction in force actions only to positions directly impacted by a decision to realign the work of those positions to another facility). However, the proposed regulations prohibit the use of competitive areas to target an individual employee for RIF based on nonmerit factors.

The proposed regulations also simplify the RIF process. The first step in determining employees' retention rights under that process is to place employees in the appropriate tenure group (

i.e.

, a group of employees with a given appointment type). Current regulations provide for three tenure groups, including a tenure group comprised of employees serving on career-conditional appointments. The proposed regulations eliminate that tenure group and place all employees in one of two tenure groups: (1) career employees (including employees serving an initial probationary period) and (2) employees on term and comparable non-permanent appointments in a separate, lower tenure group.

The regulations also provide for “competitive groups” as a way of identifying those employees who will compete against one another for retention in a RIF, based on their ranking on a retention list (similar to a “retention register” under the present reduction in force regulations). Consistent with current regulations, the Department will continue to establish separate competitive groups for employees (1) in the excepted and competitive service, (2) under different excepted service appointment authorities, and (3) with different work schedules. The proposed regulations provide the Department with the flexibility to further define competitive groups on the basis of career group, pay schedule, occupational series or specialty, pay band, and/or trainee status. This new flexibility provides the Department with additional options to minimize disruption if a reduction in force is necessary.

Finally, the proposed regulations give greater emphasis to performance in RIF retention by placing performance ahead of length of service. Under current regulations performance is the least important factor. Under the proposed regulations, employees are placed on a competitive group's retention list in the following order: (1) Tenure group, (2) veterans' preference, (3) individual performance rating, and (4) length of service. As provided by current law, within each tenure group, the Department will list employees with a compensable service-connected disability of 30 percent or more ahead of all other preference eligibles, and will list all other preference eligibles ahead of non-preference eligibles. Within a particular retention list, a qualified higher-standing employee may displace a lower-standing employee; when there are no lower-standing employees, the displaced employee may be released from the retention list and separated by reduction in force. Employees who are separated by reduction in force will continue to be eligible for the existing programs that provide hiring preferences and assistance for obtaining other employment.

Adverse Actions—Subpart G

The regulations propose several revisions and additions to the current adverse actions system. These changes are directed at the cumbersome and restrictive requirements for addressing and resolving unacceptable performance and misconduct. The proposed changes streamline the rules and procedures for taking adverse actions, to better support the mission of the Department while ensuring that employees receive due process and fair treatment guaranteed by the law authorizing the establishment of NSPS.

The following sections identify the major changes proposed by this subpart and briefly describe the purpose of each change.

1. Actions and Employees Covered

Adverse actions include removals, suspensions of any length, furloughs of 30 days or less, reductions in pay, and reductions in pay band (or comparable reduction). Additionally, all actions currently excluded from coverage remain excluded. Subject to § 9901.102(b)(2), all DoD employees are eligible for coverage under subpart G, except where specifically excluded by law or regulation. Members of the National Security Labor Relations Board established in § 9901.907 are also excluded from coverage.

Employees who are serving a probationary period, as established under subpart E, are not covered by this subpart. However, employees who are removed during a probationary period are covered by the termination procedures found in 5 CFR 315.804 or 315.805. Preference eligible employees who are removed after completing 1 year of a probationary period are covered by the adverse action procedures of this subpart.

2. Mandatory Removal Offenses

This subpart permits the Secretary to identify offenses that have a direct and

substantial adverse impact on the Department's national security mission. These offenses would carry a mandatory penalty of removal from Federal service. This proposed change allows management to act swiftly to address and resolve misconduct or unacceptable performance that would be most harmful to the Department's critical mission. These proposed mandatory removal offenses would be identified in advance and made known to all employees. Employees alleged to have committed these offenses will have the same MSPB appeal rights as provided other employees against whom appealable adverse actions are taken. However, only the Secretary may mitigate the penalty for committing a mandatory removal offense (MRO). The proposed MRO procedures include a requirement that a proposed notice of mandatory removal be issued only after approval by the Secretary. DoD has not yet identified a proposed list of such offenses. However, it is important to preserve the Secretary's flexibility to carefully and narrowly determine the offenses that will fall into this category and to make changes over time. The absence of this flexibility has been problematic at the Internal Revenue Service (IRS), where the IRS Restructuring Act codified mandatory disciplinary offenses in law and limited the agency's ability to make needed changes. The Department will identify and publish mandatory removal offenses through implementing issuances in advance of their application.

3. Adverse Action Procedures

This subpart retains an employee's right to representation and a written decision but provides shorter advance notice periods and reply periods than are currently required for appealable adverse actions. Employees are entitled to a minimum of 15 days advance notice and a minimum of 10 days to reply, which run concurrently. However, if there is a reasonable cause to believe the employee has committed a crime for which a sentence of imprisonment may be imposed, the Department will provide a minimum 5 days advance notice and opportunity to reply, which will run concurrently. These proposed changes facilitate timely resolution of adverse actions while preserving employee rights.

4. Single Process and Standard for Action for Unacceptable Performance and Misconduct

This subpart establishes a single system for taking adverse actions based on misconduct and/or unacceptable performance. This proposed change represents a return to a simplified approach that existed prior to the 1978 passage of the Civil Service Reform Act and chapter 43 of title 5, U.S. Code.

Congress enacted chapter 43 in part to create a simple, dedicated process for agencies to use in taking adverse actions based on unacceptable performance. Since that time, however, chapter 43 has not worked as Congress intended. In particular, interpretations of chapter 43 have made it difficult for agencies to take actions against poor performers and to have those actions upheld. As a result, agencies have consistently preferred to use the procedures available under chapter 75 of title 5 rather than chapter 43 when taking actions for unacceptable performance.

The proposed regulations eliminate the requirement for a formal, set period for an employee to improve performance before management may take an adverse action. Management selects employees for their positions because the employees are well qualified. As set forth in proposed subpart D, management must explain to employees what is expected of them when it comes to performance. If an employee fails to perform at an acceptable level, management may use a variety of measures, including training, regular feedback, counseling and, at management's discretion, an improvement period, to address and resolve performance deficiencies. If an employee is still unable or unwilling to perform as expected, it is reasonable for management to take an action against the employee.

The proposed standard for taking an adverse action remains “for such cause as will promote efficiency of the service” as currently in title 5, U.S. Code.

Appeals—Subpart H

Subpart H of part 9901 covers employee appeals of certain adverse actions taken under subpart G. Appealable actions include removals, suspensions for more than 14 days, furloughs, reductions in pay, or reductions in pay band (or comparable reduction). Suspensions of 14 days or less and other lesser disciplinary measures are not appealable to MSPB, but may be grieved through a negotiated grievance procedure or an administrative grievance procedure, whichever is applicable. Also, actions taken under DoD placement programs are not appealable to MSPB. Furthermore, employees who are removed during a probationary period are provided the appeal rights found in 5 CFR 315.806. Preference eligible employees who are removed after completing 1 year of a probationary period are provided the appeal rights of this subpart.

Section 9902 of title 5, U.S. Code, requires that these appeal regulations provide DoD employees fair treatment, and are afforded the protections of due process. It provides employees the right to petition the full Merit Systems Protection Board for review of the record of a final Department decision. The law also provides that current legal standards and precedents applied by MSPB under 5 U.S.C., chapter 77, continue to apply, unless such standards and precedents are inconsistent with legal standards established under this subpart. These regulations state that in applying existing legal standards and precedents, MSPB is bound by the legal standard set forth in § 9901.107(a)(2), which provides that these regulations must be interpreted in a way that recognizes the critical national security mission of the Department, and each provision must be construed to promote the swift, flexible, effective day-to-day accomplishment of this mission as defined by the Secretary.

This subpart establishes procedures and timeframes for filing appeals with MSPB and modifies rules that MSPB will use to process appeals from DoD employees. These regulations are intended to ensure appropriate deference to the adverse actions taken by DoD and to streamline the way MSPB cases are handled while continuing to preserve and safeguard employee due process protections. In addition, they provide for an internal DoD review process of initial decisions issued by MSPB administrative judges.

The Secretary and the Director will conduct an ongoing evaluation of the DoD HR system to ensure that it is achieving its intended purposes. As part of this evaluation, the Department and OPM will pay particular attention to the adverse action and appeal procedures established by these regulations. As noted (and discussed in more detail below), those procedures continue to permit employees to appeal most adverse actions to MSPB, despite the fact that DoD and OPM could have established a separate appellate body for the initial review of all such actions, particularly “mandatory removal offenses.”

In proposing these appellate procedures, the Secretary and the Director were especially mindful of 5 U.S.C. 9902(h)(1), which requires that the Secretary consult with MSPB on changes to chapter 77 of title 5. This requirement was met through consultations between members and

staffs of MSPB, DoD, and OPM. During those consultations, DoD and OPM officials described specific concerns with existing procedures and discussed the range of appellate options and alternatives that were under consideration. For their part, MSPB officials were particularly constructive in responding to those concerns, offering numerous suggestions to address them, including several modifications to their own rules and regulations, and expressing the intention to issue conforming regulations.

The appellate procedures below reflect many of those suggestions, as well as the constructive dialogue that gave rise to them. Indeed, the proposal to retain MSPB administrative judges was predicated on the results of that dialogue. However, the cumulative effect of these changes can be assessed only as they are actually implemented and administered by MSPB. Such an assessment will be undertaken by DoD and OPM after the Department has accumulated sufficient experience under NSPS.

1. Appeals to MSPB

These regulations retain MSPB administrative judges as the initial adjudicators of employee appeals of adverse actions. At the same time, these regulations propose new substantive standards that MSPB will apply to DoD cases to improve the appeals process and accommodate and support the agency's critical national security mission. These regulations also propose new case-handling procedures that MSPB will apply to facilitate the efficient and expeditious resolution of appeals.

We gave serious consideration to establishing a DoD internal appeals board to replace MSPB administrative judges. However, we concluded that the potential advantages of creating an internal DoD appeals board—greater efficiency of decision-making and deference to agency mission and operations, among them—could be achieved if MSPB administrative judges were retained as the initial adjudicators for adverse actions but with substantive and significant procedural modifications. In accordance with 5 U.S.C., section 9902, employees retain the right to petition the full Merit Systems Protection Board for review of the record of a final Department decision.

2. Department Review of Initial MSPB Administrative Judge Decisions

This subpart authorizes the Department to review initial decisions of MSPB administrative judges (AJ). The authority provides that DoD may reconsider and affirm, remand, modify, or reverse an initial MSPB AJ decision for which a request for review (RFR) has been filed by either party concurrently with the full MSPB and the Department. DoD will promulgate implementing issuances that establish procedures for the submission of an RFR and review of an initial decision. The Department's review authority includes:

• Affirming an initial MSPB AJ decision where the Department determines that such decision shall serve as precedent.

• Remanding an initial MSPB AJ decision to the assigned AJ for further adjudication where the Department believes that there has been a material error of fact, or that there is new evidence material to the case.

• Modifying or reversing an initial MSPB AJ decision or an MSPB AJ decision on remand where the Department determines that (1) the decision has a direct and substantial adverse impact on the Department's national security mission, (2) the decision is based on an erroneous interpretation of law, this subpart, or Governmentwide rule or regulation, (3) the decision is based on a material error of fact, or (4) there is new evidence material to the case.

Either party who wishes to file a request for review (RFR) must file the RFR with the Department (and concurrently with the full MSPB) no later than 30 days after issuance of an initial MSPB AJ decision. If the Department intends to review an initial MSPB AJ decision, the Department must provide notice of its intent no later than 30 days after receipt of a timely filed RFR.

Any initial MSPB AJ decision for which an RFR has been filed (or any remand decision) that DoD affirms, modifies, or reverses will become the final Department decision. In such cases, the final Department decision is precedential unless otherwise determined by the Department or reversed or modified by the full MSPB. An employee or OPM may file a petition for review (PFR) to the full MSPB, and must file such petition within 30 days after issuance of the final Department decision.

Any initial MSPB AJ decision for which an RFR has been filed that DoD does not affirm, remand, modify, or reverse shall become the final Department decision. In such cases, the final Department decision is not precedential. The RFR will be processed as a PFR by the full MSPB.

Any initial MSPB AJ decision for which no RFR has been filed shall become the final Department decision. That decision is not precedential and may not be appealed to the full MSPB.

In authorizing establishment of a human resources management system under the National Security Personnel System Act (NSPS), Congress specifically required that the full MSPB may order corrective action as it considers appropriate only if MSPB determines that the final Department decision was: (a) Arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (b) obtained without procedures required by law, rule, or regulation having been followed; or (c) unsupported by substantial evidence. These standards are an adoption of the standards for judicial review of a final MSPB decision currently provided under 5 U.S.C. 7703. Although these standards are appropriate for judicial review, we believe they are too high for an administrative review of adverse actions. That is, such standards would significantly weaken the opportunity to correct an erroneous MSPB AJ decision, whether the employee or the Department petitions the correction. These regulations provide that the Department may review an initial MSPB AJ decision, and correct such decision as appropriate by applying a standard that provides for meaningful corrective action and preserves statutory requirements of fairness and due process.

The Department needs the authority to review initial MSPB AJ decisions to ensure that MSPB interprets NSPS and these regulations in a way that recognizes the critical mission of the Department; and to ensure that MSPB gives proper deference to such interpretation.

Notwithstanding the Department's need for review authority, that authority should not be unlimited. Therefore, as previously described, these regulations limit the Department's review to those initial MSPB AJ decisions for which either party has timely filed a request for review, and the authority to issue a final Department decision that modifies or reverses an initial MSPB AJ decision is limited by specific criteria set forth in these regulations.

3. Appeals of Mandatory Removal Offenses

An employee will be able to appeal a removal action to MSPB based on an MRO in substantially the same manner he or she will be able to appeal an adverse action, including removal, based on a non-MRO.

4. MSPB Appellate Procedure Improvements

MSPB will have the authority to review and adjudicate actions covered by this subpart as prescribed in 5 U.S.C. 9902. These regulations propose to modify certain case processing rules, legal standards, and precedents. Current title 5 provisions and MSPB regulations will govern the initial review and adjudication of adverse action appeals, unless inconsistent with the modifications identified in this section. The modifications being made to current MSPB requirements will further the mission of DoD without impairing fair treatment and due process protections. Key procedural modifications include the following:

• When some or all material facts are not in genuine dispute, the AJ may limit the scope of the hearing, or issue a decision without a hearing.

• The appeal filing deadline, including the deadline for class appeals, is decreased from 30 days to 20 days.

• The administrative judge's initial decision must be made no later than 90 days after the date on which the appeal is filed.

• If the full MSPB reviews a final Department decision, either through an employee's petition for review or OPM intervention, the full MSPB must render its final decision no later than 90 days after the close of record. If OPM seeks reconsideration of a final MSPB decision or order, MSPB must render its decision no later than 60 days after receipt of the opposition to OPM's petition in support of such reconsideration.

• Currently, the parties to an appeal may submit unilateral requests for additional time to pursue discovery or settlement. The ability of the parties to unilaterally submit a request for case suspension is eliminated.

• The parties may seek discovery regarding any matter that is relevant to any of their claims or defenses. However, by motion to MSPB, either party can seek to limit any discovery being sought because it is privileged; not relevant; unreasonably cumulative or duplicative; or can be secured from some other source that is more convenient, less burdensome, or less expensive. Discovery can also be limited through such a motion if the burden or expense of providing a response outweighs its benefit. Prior to filing such a motion with MSPB, the parties must confer and attempt to resolve any pending objections. When engaging in discovery, either party can submit only one set of interrogatories, requests for production, and requests for admissions. The number of interrogatories or requests for production or admissions may not exceed 25 per pleading, including subparts, and neither party may conduct/compel more than 2 depositions. However, either party may file a motion requesting additional discovery. Such a motion will be granted only if MSPB determines that necessity and good cause has been shown to justify additional discovery.

• An administrative judge may not grant interim relief or grant a stay of an action taken against an employee. Only the full MSPB may order interim relief or stay an adverse action following the final Department decision regarding the adverse action.

• Any response to a petition for review or a cross petition for review must be filed within 30 days after the date of service of the petition or cross petition.

All of these modifications will expedite and streamline the appeals process so that both employees and the Department will be able to resolve appeals more quickly and efficiently than is possible today. These regulations also retain due process protections—notice, an opportunity to respond, and a third-party review, either in person or on the record—for removal actions. These regulations provide the same procedural protections for all actions covered in subpart G. These regulations retain the statutory requirement that the appealability of a removal be unaffected by the individual's status under any retirement system.

Section 7701 of title 5, U.S. Code, currently authorizes the Director of OPM to intervene in an MSPB proceeding or to petition MSPB for review of a decision if the Director believes that an erroneous decision will have a substantial impact on a civil service law, rule, or regulation under OPM's jurisdiction. Given OPM's responsibility for Governmentwide personnel management, these regulations authorize OPM to intervene in such situations regardless of whether the law, rule or regulation is one that falls under OPM jurisdiction. These regulations provide that the Director may exercise this intervention authority after consultation with the Secretary.

5. Standard of Proof

Currently, actions taken under chapter 75 are sustained if supported by a preponderance of the evidence, and performance actions taken under chapter 43 are sustained if supported by substantial evidence, a lower standard of proof than preponderance. In all cases arising under this subpart, dealing either with performance or conduct, the Department's decision will be sustained if it is supported by a preponderance of the evidence. Changing the standard of proof to the single, higher standard regardless of the nature of the action simplifies the appeal process, and assures consistency without compromising fairness.

6. Affirmative Defenses

Consistent with current law, the Department's action will not be sustained if MSPB determines that (1) a harmful procedural error occurred; (2) the decision was based on any prohibited personnel practice; or (3) the decision was not otherwise in accordance with law.

These regulations require the Department to prove by a preponderance of the evidence that an action taken against an employee promotes the efficiency of the service, but these regulations do not permit MSPB to reverse the action based on the way in which the charge is labeled or the misconduct is characterized. This will eliminate excessively technical pleading requirements in adverse action proceedings imposed by MSPB and the U.S. Court of Appeals for the Federal Circuit in

King

v.

Nazelrod,

43 F.3d 663, and similar cases. As long as the employee is on notice of the facts sufficient to respond to the factual allegations of a charge, the Department will have complied with the notice and due process requirements of these regulations.

Moreover, MSPB may not reverse the Department's action based on the way a performance expectation is expressed, as long as the expectation would be clear to a reasonable person.

7. Penalty Review

In cases involving a mandatory removal offense, the penalty selected by the Department may not be reduced or otherwise modified by MSPB. Only the Secretary may mitigate the penalty under these regulations.

In all other cases arising under this subpart, MSPB (as well as arbitrators) may mitigate penalties, but only under very limited circumstances. Because the Department bears full accountability for national security, it is in the best position to determine the most appropriate adverse action for unacceptable performance or misconduct. The Department's judgment in regard to penalty should be given deference. These regulations preclude mitigation of the penalty selected by DoD except where, after granting deference to the Department, a determination is made that the penalty

is so disproportionate to the basis for the action as to be wholly without justification.

This authority is significantly more limited than MSPB's current mitigation authority under the standard first enunciated in

Douglas

v.

Veterans Administration

(5 M.S.P.R. 280 (1981)). Under that decision, MSPB stated that it would evaluate agency penalties to determine not only whether they were too harsh or otherwise arbitrary but also whether they were unreasonable under all the circumstances. In practice, this has meant that MSPB has exercised considerable latitude in modifying agency penalties.

With this new, substantially more limited standard for MSPB mitigation of penalties selected by DoD, the intent is to explicitly restrict the authority of MSPB to modify those penalties to situations where there is simply no justification for the penalty. MSPB may not modify the penalty imposed by the Department unless such penalty is so disproportionate to the basis for the action as to be wholly without justification. In cases of multiple charges, MSPB or an arbitrator may mitigate a penalty where not all of the charges are sustained. The third party's judgment is based on the justification for the penalty as it relates to the sustained charge(s). These regulations are intended to ensure that when a penalty is mitigated, the maximum justifiable penalty must be applied.

Nothing in these regulations would limit the Secretary's sole and exclusive authority to mitigate any penalty imposed on, or rescind any action taken against a DoD employee pursuant to subpart G.

8. Attorney Fees

OPM and DoD have modified the current standard for recovering attorney fees. Under the current standard, the Department may be required to pay attorney fees based on facts that were not known to management when the action was taken. This is an unreasonable standard that can deter the Department from taking action in appropriate cases and has a chilling effect on the Department's ability to carry out its mission. Accordingly, the proposed regulations provide that a prevailing appellant may recover attorney fees if the Department's action was clearly without merit based upon facts known to management when the action was taken. The proposed regulations also continue to require attorney fees if a prohibited personnel practice was committed by the Department.

9. Alternative Dispute Resolution

These regulations encourage the use of alternative dispute resolution (ADR) procedures and provide that ADR will be subject to collective bargaining to the extent permitted by subpart I, Labor-Management Relations. However, because ADR and settlement efforts are most successful when voluntary, these regulations prohibit MSPB from

requiring

ADR or settlement in connection with any action taken under this subpart. Once either party decides that settlement is not desirable, the matter will proceed to adjudication. Eliminating settlement efforts that are contrary to the expressed wishes of one or both of the parties will speed up the adjudication process and strengthen management decisionmaking authority.

Where the parties agree to engage in settlement discussions, the case will be assigned to an official specifically designated for that sole purpose, rather than the official responsible for adjudication. This is necessary to avoid actual or perceived conflicts of interest on the part of MSPB adjudicating officials.

10. Discrimination Allegations

The proposed regulations do not alter the substance of existing law regarding actions involving discrimination. They preserve the rights of employees to obtain review of their discrimination claims by EEOC in “mixed cases,”

i.e.

, cases that are appealable to MSPB involving allegations of discrimination, and they also preserve judicial review in such cases.

11. Judicial Review

Decisions of MSPB are subject to review by the U.S. Court of Appeals for the Federal Circuit based on the same standard currently provided for in 5 U.S.C. 7703. As provided by 5 U.S.C. 9902(h)(6), the Secretary, after notifying the Director, may obtain judicial review of any final order or decision of the full MSPB under the same terms and conditions as provided an employee. Before seeking judicial review, the Secretary may seek reconsideration of a final MSPB decision.

12. Savings Provision

These regulations clarify that this subpart does not apply to adverse actions proposed prior to the date of an affected employee's coverage under this subpart.

Labor-Management Relations—Subpart I

Congress recognized DoD's need for enhanced flexibilities to ensure mission accomplishment when it passed the National Defense Authorization Act providing for the creation of the National Security Personnel System (NSPS). Such a system must be “flexible” and “contemporary,” enabling a swift response to ever-changing national security threats. The labor-management relations regulations in this part are designed to meet these compelling concerns.

1. Purpose

DoD's ability to carry out its mission swiftly and authoritatively is of paramount importance to national security. The DoD civilian workforce plays a critical role in the successful accomplishment of that mission. In authorizing the creation of the NSPS, Congress recognized that maintaining the status quo with respect to labor-management relations would not provide DoD with a workforce that is sufficiently agile and flexible to execute the current and future national security mission. Thus, it authorized the Secretary of Defense and the Director of the Office of Personnel Management to establish a labor-management relations system that addresses the unique role that the Department's civilian workforce has in supporting the Department's national security mission.

See

5 U.S.C. 9902(m).

These regulations modify the provisions of 5 U.S.C. 7101 through 7135, unless noted otherwise in this subpart, and define the purpose of the labor-management relations system. They implement the requirements of 5 U.S.C. 9902 by ensuring the right of employees to organize, bargain collectively, and participate through labor organizations of their own choosing in decisions which affect them, subject to the provisions of chapter 99 and any exclusion from coverage or limitation on negotiability established pursuant to law, rule, DoD issuance and any other legal authority, including the authority granted to DoD and OPM to promulgate these regulations.

2. Definitions

These regulations keep intact a number of definitions provided for in chapter 71 of title 5, but those definitions have been edited where applicable to reflect references to the proposed regulations. For example, as a general matter, the term “agency,” which is used throughout the definition section of chapter 71, has been replaced by the term “Department” and refers to the Department of Defense. The regulations adopt the following terms and their associated definitions from that chapter and apply them to DoD:

“Authority,” “dues,” “person,” and “professional employee.” To better fit the Department's labor-management relations system, the regulations make substantive modifications to the following terms:

•

Collective bargaining

is modified to specifically identify the Department instead of the term agency in chapter 71 and to remove the term “consult” because consultation, under the proposed regulations, as well as under chapter 71, does not require that the parties reach an agreement;

•

Conditions of employment

is modified to exclude determinations regarding pay and pay adjustments, in addition to classification determinations;

•

Confidential employee

is modified to include those employees providing confidential support to an individual who formulates or effectuates management policies, not just those employees providing support to an individual who formulates or effectuates labor-management relations policies;

•

Grievance

is modified to limit grievances solely to those issues defined as conditions of employment. Grievances regarding the application of laws, rules, regulations, and DoD issuances are limited to those issued for the purpose of affecting the working conditions of employees—not those that may do so indirectly or incidentally. To this extent, DoD and OPM adopt the D.C. Circuit's interpretation in

U.S. Dep't of Treasury, U.S. Customs Service

v.

FLRA,

43 F.3d 682 (1994), of what constitutes a “grievance;”

•

Management official

is modified to include individuals who have the authority to recommend actions, if the exercise of the authority is not merely routine or clerical in nature; and

•

Supervisor

is modified to include employees who supervise military members of the armed services.

The following terms have been added because of their significance to the NSPS system:

•

Board

refers to the newly established National Security Labor Relations Board (NSLRB);

•

Component

was added to clarify that the Secretary determines which organizations within DoD are considered components for purposes of this subpart;

•

Consult

was added as a distinct and separate method for considering the interests, opinions, and recommendations of a recognized labor organization. Consultation can be accomplished in face-to-face meetings or through other means such as teleconferencing or written communications;

•

DoD issuance or issuances

identifies the types of documents that are considered issuances; and

•

Grade

is defined to clarify its usage under various job grading and position classification systems.

3. Coverage

Employees, who would otherwise be covered by chapter 71, except as modified by this subpart, are covered under the NSPS labor-management relations system.

4. Impact on Existing Agreements

In order to ensure consistent application of DoD issuances, as well as this part and its implementing issuances, provisions of collective bargaining agreements that conflict with this part and/or such issuances are unenforceable as of the effective date of this part or such issuances. If the union believes that management has inappropriately found contract provisions unenforceable, it may appeal such decisions to the National Security Labor Relations Board. While as a general matter, contract provisions that conflict with the provisions of these regulations and their implementing issuances are unenforceable, the Secretary may allow for the continuance of all or part of such provisions. Where contract provisions conflict with these regulations or their implementing issuances, the parties, upon request by the exclusive representative, will have 60 days to bring the remaining negotiable terms directly affected by the regulations into conformance.

5. Employee Rights

This section of the regulations parallels the provisions contained in 5 U.S.C. 7102. Covered employees, as defined in the regulations, will have the right to form, join, or assist any labor organization, or to refrain from such activity. Each employee will be protected in the exercise of any rights under the regulations through procedures established in this subpart.

6. National Security Labor Relations Board

The Department will create a National Security Labor Relations Board (NSLRB) composed of at least three members appointed to fixed terms. The Secretary will appoint the members, with one member appointed from a list developed in consultation with the Director of OPM. Members will be independent, distinguished citizens known for their integrity, impartiality and expertise in labor relations and/or the DoD mission, and/or relevant national security matters. The NSLRB must interpret the regulations in subpart I and related decisions and policies in a way that recognizes the critical mission of the Department and the need for flexibility.

The NSLRB's decisions are subject to limited review by the Authority, and subsequent judicial review under the rules established in 5 U.S.C. 7123. Excluded from NSLRB review are arbitration exceptions involving adverse actions appealable under subpart H of this part or 5 U.S.C. chapters 43 and 75. While the Department may issue interim rules for the NSLRB, the NSLRB will ultimately prescribe its own rules and publish them in the

Federal Register.

In evaluating the merits of a separate National Security Labor Relations Board that would largely replace FLRA, with its Governmentwide responsibilities, DoD and OPM put a high premium on the opportunity to establish an NSLRB whose members would have a deep understanding of and appreciation for the unique challenges the Department faces in carrying out its national security mission. To ensure independence and impartiality, the DoD NSLRB members will be appointed to fixed terms and be subject to the same criteria for removing members of the Authority and MSPB,

i.e.,

inefficiency, neglect of duty, or malfeasance.

DoD and OPM considered splitting jurisdiction for adjudicating certain labor disputes between FLRA and the NSLRB. The proposed regulations give the NSLRB jurisdiction for all such disputes, except those involving questions of representation, to ensure consistent application of the NSPS labor relations system as well as to minimize various forums for addressing matters stemming from a single incident. Thus, the NSLRB will issue decisions on unfair labor practices, to include scope of bargaining, duty to bargain in good faith, and information requests; certain arbitration exceptions; negotiation impasses; and questions regarding national consultation rights. However, DoD and OPM specifically solicit comments on other alternatives, such as requiring (or entering into a service level agreement with) FLRA or some other organization to provide investigative and other services, subject to these regulations.

Both the NSLRB and FLRA must interpret the regulations in subpart I in a way that promotes the swift, flexible and effective, day-to-day accomplishment of the Department's mission as defined by the Secretary. The NSLRB is authorized to issue advisory opinions on important issues of law that are binding on the parties. These opinions will help both labor and management understand how key

provisions of the regulations will be interpreted without the time and expense of years of litigation.

Matters that come before the NSLRB may be reviewed

de novo,

which means that the NSLRB will have the discretion to reevaluate the evidence presented by the record and reach its own independent conclusions with respect to the matters at issue. Under chapter 71, FLRA reviews issues of law

de novo.

The Board will have the same authority, but it may also employ a

de novo

review to factual findings and contract interpretation. Given the inherently executive branch nature of decisions relating to national security and the Department's unique responsibilities in this area, the Board is authorized to conduct a thorough review of all matters, including factual determinations by its adjudicators or arbitrators, to safeguard the Department's national security mission.

7. Management Rights

To carry out its national security mission, the Department must have the authority to take actions quickly when circumstances demand; it must be able to develop and rapidly deploy resources to confront threats in an ever-changing national security environment; and it must be able to act without unnecessary delay.

Actions such as these involve the exercise of management's reserved rights and lie at the very core of how DoD carries out its mission. Under chapter 71 of title 5, the obligation to notify the union well ahead of any changes in the workplace and complete all negotiations

before

making any changes can seriously impede the Department's ability to meet mission demands. To ensure that the Department has the flexibility it needs, the Department and OPM propose to revise the management rights provisions of chapter 71. Expanding the list of nonnegotiable subjects in section 7106 to include what are now permissive subjects of bargaining—the numbers, types, and grades of employees and the technology, methods, and means of performing work—is proposed. The proposed regulations prohibit bargaining over the exercise of these rights and over other rights enumerated in chapter 71, including the right to determine mission, budget, organization, and internal security practices, and the right to hire, assign and direct employees, and contract out.

In addition, the proposed regulations prohibit bargaining over the procedures management will follow in the exercise of certain of its rights—to determine the mission, budget, organization, number of employees, and internal security practices of the Department; to hire, assign, and direct employees in the Department; to assign work, make determinations with respect to contracting out, and to determine the personnel by which Departmental operations may be conducted; to determine the numbers, types, pay schedules, pay bands 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; to assign employees to meet any operational demand; and to take whatever other actions may be necessary to carry out the Department's mission. The Department can take action in any of these areas without advance notice to the union.

The Department will bargain over procedures and appropriate arrangements management will follow in the exercise of certain other rights—to lay off and retain employees, or to suspend; remove; reduce in pay, pay band, or grade; or take other disciplinary action against such employees or, with respect to filling positions, to make selections for appointments from properly ranked and certified candidates for promotion or from any other appropriate source—as provided for in these regulations. This bargaining may be prospective, that is, after management has exercised such right. Where management is not required to negotiate over procedures stemming from the exercise of its rights, the proposed regulations provide a mechanism for obtaining an exclusive representative's views and recommendations regarding such procedures.

8. Exclusive Recognition of Labor Organizations

Election procedures for determining exclusive representatives have not changed from the requirements of chapter 71.

9. Determination of Appropriate Units for Labor Organization Representation

In determining appropriate bargaining units, FLRA will continue to apply the same factors set forth under chapter 71. However, in applying these criteria, the proposed regulations require FLRA to apply them consistent with the Department's mission, organizational structure, and the requirements of § 9901.107(a). Using this standard will help align the Department's bargaining units as closely as possible with the agency's mission and organizational structure.

Besides requiring consideration of the Department's mission and organizational structure in determining appropriate units, the proposed regulations exclude additional categories of employees from coverage. Supervisors of military members of the armed services are excluded from coverage because they engage in supervisory functions and their inclusion in bargaining units creates a conflict of interest. The tasks associated with supervision do not change based on the type of person supervised. Employees engaged in all types of personnel work are also excluded from the unit. This is a change from the current law, which allows employees engaged in personnel work of a purely clerical capacity to be included in a bargaining unit. The regionalization of DoD's personnel functions has made the clerical nature of personnel work a false distinction for bargaining unit membership. Those individuals are now, and will continue to be, frequently called upon to provide advice and guidance to management officials on personnel functions. Additionally, these individuals have direct access to all confidential personnel records and discussions. By including these individuals in bargaining units, a conflict of interest exists such that management officials risk compromising confidential management information when seeking or accepting guidance from personnelists within the personnel office. Further, inclusion of clerical personnelists in the bargaining unit prohibits the personnel officer from using his or her full staff in areas that are vital to the efficient accomplishment of the mission. The removal of these positions will eliminate unnecessary administrative disputes. Finally, this section removes attorney positions from bargaining unit coverage. Supervisors and managers must be assured that communications with attorneys are confidential and unbiased. These communications often go to the heart of the managerial function and thus inclusion of attorneys in the bargaining unit creates at a minimum the perception of a conflict of interest.

10. National Consultation

The Department and Components will conduct national consultation over substantive changes in conditions of employment generated by the Department or the Component with those unions holding national consultation rights. National consultation is not required where national level bargaining has occurred or where the continuing collaboration procedures of 9901.105 apply. Nothing

in this section precludes management from seeking the views of other labor organizations not holding national consultation rights, nor does the conduct of national consultation eliminate any local labor relations obligations.

11. Representation Rights and Duties

As in chapter 71, these proposed regulations provide that recognized unions are the exclusive representatives of the employees in the unit and act for and negotiate on their behalf, consistent with law and regulation.

Under current law, a union has the right to send a representative to a formal discussion (“formal meetings”) called by management to discuss general working conditions with employees. Determining what is and is not a formal discussion, as FLRA and courts have interpreted that term, requires managers to balance numerous factors concerning the relative formality of the meeting and the precise subject matter discussed. Because of the complicated and confusing criteria, front-line managers and supervisors are often reluctant to hold discussions with employees concerning everyday workplace issues, which can affect work unit effectiveness and efficiency and inhibit communication and problem solving.

The proposed language redefines formal discussions as discussions or announcements of new or substantially changed personnel policies, practices, or working conditions. It specifically excludes discussions on operational matters where discussions do not involve the establishment of new policies or practices.

An exclusive representative is entitled to attend discussions regarding grievances filed under its negotiated grievance procedure. Moreover, these proposed regulations resolve any uncertainty resulting from litigation about whether unions have an institutional right to be present during EEO proceedings, to include mediation efforts, after a formal EEO complaint has been filed or other matters appealed by employees. Under these proposed regulations, unions do not have such a right unless the complainant raises the matter in the negotiated grievance procedures.

Where an employee elects to use a procedure outside the negotiated grievance procedure (such as EEO), the employee has the choice of personal representatives (including, at the employee's option, a union official acting as personal representative). However, the union has no institutional right to represent the employee or attend meetings related to the resolution of the employee's issues. Where a resolution impacts the bargaining unit as a whole, the union will be fully advised and afforded the opportunity to exercise applicable rights. This change strikes an appropriate balance between the union's institutional rights and employee privacy and, with regard to complaint processes other than negotiated grievance procedures.

The proposed regulations also preserve what has come to be known as the “Weingarten” right, which permits union representation at the employee's request when management examines an employee during an investigation and the employee reasonably believes that discipline will follow. However, the proposed regulations exclude investigations conducted by the Offices of the Inspectors General and other independent Department or Component investigatory organizations, such as U.S. Army Criminal Investigation Command and the Air Force Office of Special Investigations; “Weingarten” representation rights do not apply in such investigations. These exclusions were identified to ensure that independent bodies can conduct truly independent investigations. Further, this change ensures that investigations involving criminal matters are not affected by unnecessary delay, harm to the integrity of the investigation, or issues of confidentiality.

Under these regulations, the Department will hold employee representatives to the same conduct requirements as any other DoD employees. The proposed regulations clarify that the Department may address the misconduct of any employee, including employees acting as union representatives, as long as the agency does not treat employees more severely because they are engaging in union activity. The Department will no longer be bound by FLRA's “flagrant misconduct” standard or any other test developed through case decisions which may immunize union representatives engaged in otherwise actionable misconduct. However, the proposed regulation is not intended to target the content of ideas.

This section also retains the requirement that the parties are to negotiate in good faith and approach negotiations with a sincere resolve to reach a collective bargaining agreement. Such agreements will be subject to agency head review as currently provided in chapter 71.

Under chapter 71, a union has the right to information maintained by the agency if the information is necessary and relevant to the union's representational responsibilities. This right is maintained with some modifications in these regulations. Under these regulations, disclosure of information is not required if adequate alternative means exist for obtaining the requested information, or if proper discussion, understanding, or negotiation of a particular subject within the scope of collective bargaining is possible without recourse to the information. This change also relieves management of the unnecessary administrative burden of producing information that can readily be obtained some other way and recognizes technological advances in information access and sharing. The proposed regulations further provide that information may not be disclosed if an authorized official determines that disclosure would compromise the Department's mission, security, or employee safety.

The regulations specify that sensitive information such as personal addresses, personal telephone numbers, personal e-mail addresses, or any other information not related to an employee's work, may not be disclosed. While this is not a change in existing statutory interpretation, it is necessary to specify these limitations in the proposed regulations, given the extremely sensitive nature of the Department's mission and the serious consequences if such information were deliberately or inadvertently disclosed to an inappropriate source.

In recognition of the foregoing duties of the union, the regulations preserve the official time provisions in chapter 71. In so doing, we have clarified that, consistent with current law, official time is not permitted for representational duties outside the exclusive representative's bargaining unit. However, we have provided an exception for multi-unit bargaining and bargaining above the level of exclusive recognition, subject to mutual agreement of the parties. Current chapter 71 authorizations and requirements concerning allotments also are retained in this section.

12. Unfair Labor Practices

Management's unfair labor practices (ULPs) remain almost identical to those contained in chapter 71. One major difference is the elimination of 7116(a)(7), which provided that it is a ULP to enforce a rule or regulation, which is in conflict with a collective bargaining agreement if the agreement was in effect prior to the issuance of the rule or regulation. Such action is no longer a ULP because the proposed regulations provide that law, Governmentwide rules and regulations,

Presidential issuances, and DoD issuances will supersede current collective bargaining agreements where the terms conflict. This includes Department issuances in existence prior to the effective date of these regulations. There is no significant change to the union ULPs contained in chapter 71.

13. Duty To Bargain and Consult

In order to ensure a consistent approach to managing the Department within a multi-union, multi-bargaining unit environment, the proposed regulations specify that there is no duty to bargain over DoD issuances (which includes Component issuances). In addition, management has no obligation to bargain over changes to conditions of employment unless the change is foreseeable, substantial, and significant in terms of both impact and duration on the bargaining unit, or on those employees in that part of the bargaining unit affected by the change. Typically, where a change in conditions of employment is of duration shorter than the bargaining process associated with that change, or where it affects a minimal number of employees, there is no bargaining obligation associated with that change. This regulatory change will focus bargaining on those matters that are of significant concern and impact and relieve the parties of potentially lengthy negotiations over matters that are limited in scope and effect.

If parties bargain over an initial term agreement or its successor and do not reach agreement within 90 days, the parties may agree to continue bargaining after the 90-day period or either party may refer the matter to the NSLRB for impasse resolution. Mid-term bargaining over proposed changes in conditions of employment must be completed within 30 days or management will be able to implement the change after notifying the union. Either party may refer the matter to the NSLRB for impasse resolution after the 30-day period. The obligation to bargain, however, does not prevent management from exercising its management rights identified in § 9901.910.

14. Multi-Unit Bargaining

A number of installations and organizations within the Department of Defense have multiple bargaining units. When a change is needed affecting the entire installation, management must engage in as many negotiations as there are units. This is unnecessarily time consuming and frequently results in numerous variations to a single policy. In order to expedite negotiations and ensure consistent application of the policy, management may require multi-unit bargaining over particular issues. Such negotiations will be binding on all parties requested to participate in the negotiations and supersede any conflicting provisions in current negotiated agreements or past practices. Such agreements will not be subject to ratification as such efforts contradict the basis for such negotiations: Timely, uniform application of policies. These negotiations are subject to the impasse resolution procedures of the NSLRB. Additional instructions and requirements associated with multi-unit bargaining will be issued in Department implementing issuances. Unions may request to negotiate multi-unit agreements; however, the Department has sole and exclusive authority to grant the labor organizations' requests.

15. Collective Bargaining Above the Level of Recognition

This section describes procedures associated with negotiations above the level of exclusive recognition. The decision to negotiate at this level rests with the Secretary and is not subject to review or statutory third-party dispute resolution procedures. Such negotiations are subject to impasse resolution by the NSLRB and any agreement reached will be binding on all subordinate bargaining units and Components of the Department. Such agreements supersede conflicting provisions of existing collective bargaining agreements. Any agreement reached will not be subject to ratification as this unnecessarily delays implementation. Representatives participating in these negotiations are expected to come to the table with authority to bind their respective parties. These agreements, however, are subject to agency head review to ensure compliance with applicable law, rule, and regulation. Unions may request to negotiate at a level above recognition; however, the Department has sole and exclusive discretion to grant the labor organizations' requests.

Negotiations above the level of recognition will not apply to the National Guard Bureau and the Army and Air Force National Guard. Where these organizations are impacted by an agreement negotiated above the level of recognition, they may negotiate at the level of recognition, as provided in this subchapter.

16. Grievance Procedures

As a result of the decision of the Federal Circuit Court of Appeals in

Mudge

v.

U.S.

, 308 F.3d 1220 (Fed. Cir. 2002), DoD and OPM propose to modify 5 U.S.C. 7121(a)(1) by removing the term “administrative” from the second sentence of that subsection. In so doing, the proposed regulations make it clear that the negotiated grievance procedure is the only authorized procedure for resolving issues under its exclusive coverage. This modification is consistent with the Federal Circuit's decision in

Carter

v.

Gibbs

, 909 F.2d 1452 (Fed. Cir. 1990), interpreting 5 U.S.C. 7121(a)(1) prior to its amendment in 1994. Under the regulations, matters excluded from the grievance procedure under 5 U.S.C. 7121(c) will remain excluded from coverage. The regulations codify the well-established interpretation that classification determinations are excluded from coverage. In addition, given the changes to the HR system, the proposed regulations exclude three additional matters from the negotiated grievance procedure—pay, ratings of record issued under subpart D of these regulations, and mandatory removal actions.

The Department recognizes that employees covered by subpart D should have a way to challenge ratings of record to ensure such ratings are accurate reflections of employees' performance and the performance management system is credible and transparent. Therefore, in subpart D of these proposed regulations, the Department and OPM have provided for the development of a formal process whereby employees covered by subpart D may seek reconsideration of their ratings of record issued under this system. Similarly, subpart H provides a procedure for seeking redress of removals based on mandatory removal offenses for employees covered by that subpart.

The proposed regulations continue to provide for arbitration of adverse actions that are otherwise appealable to MSPB. However, where a party covered by subpart H seeks review of an arbitrator's award involving an appealable matter, the arbitrator's award will be treated in the same manner as an initial decision by an MSPB AJ under procedures provided in that subpart; this allows an arbitrator's decision to be appealed to the full MSPB for review, rather than to the Federal Circuit directly.

17. Exceptions to Arbitration Awards

Exceptions to arbitrators' awards, except those involving appealable actions under subpart G, are filed with the NSLRB. As noted, exceptions involving appealable actions are filed either with the Federal Circuit or MSPB, as applicable, according to coverage under subpart H. In addition to bases contained in 5 U.S.C. 7122, exceptions may also be filed based on the

arbitrator's failure to properly consider the Department's national security mission or to comply with applicable NSPS regulations and DoD issuances. In reviewing exceptions, the NSLRB may determine its own jurisdiction without regard to whether any party has raised a jurisdictional issue.

18. Savings Provisions

Where a grievance or other administrative proceeding was already pending on the date of coverage of this subpart, the grievance or proceeding will continue to be processed in accordance with the rules under which it was initially filed. However, any remedy issued must be in compliance with the applicable provisions of this part.

Next Steps

The National Defense Authorization Act for Fiscal Year 2004 provides that the development and implementation of a new HR system for DoD will be carried out with the participation of, and in collaboration with, employee representatives. The Secretary and the Director must provide employee representatives with a written description of the proposed new or modified HR system. The description contained in this

Federal Register

notice satisfies this requirement. The Act further provides that employee representatives must be given 30 calendar days to review and make recommendations regarding the proposal. Any recommendations must be given full and fair consideration. If the Secretary and Director do not accept one or more recommendations, they must notify Congress of the disagreement and then meet and confer with employee representatives for at least 30 calendar days in an effort to reach agreement. The Federal Mediation and Conciliation Service may provide assistance at the Secretary's option, or if requested by a majority of employee representatives who have made recommendations.

If there is no objection to or recommendation on a proposal, it may be implemented immediately. Similarly, when the Secretary and the Director accept any recommendation from employee representatives, the revised proposal may be implemented immediately. If the Secretary and the Director do not fully accept a recommendation, the Secretary may implement the proposal (including any modifications made in response to the recommendations) at any time after 30 calendar days have elapsed since the initiation of congressional notification, consultation, and mediation procedures. To proceed with implementation in this circumstance, the Secretary must determine (in his/her sole and unreviewable discretion) that further consultation and mediation are unlikely to produce agreement. The Secretary must notify Congress promptly of the implementation of any such contested proposal.

The Secretary and the Director must develop a method under which each employee representative may participate in any further planning or development in connection with implementation of a proposal. Also, the Secretary and the Director must give each employee or representative adequate access to information to make that participation productive.

DoD plans to make the new labor relations provisions effective 30 days after the issuance of final regulations, and notification to Congress as required by the law. At this time, DoD intends to implement the new HR system in phases, or spirals. The tentative schedule for implementing the spirals is outlined as follows:

• In the first spiral, up to 300,000 General Schedule (GS and GM), Acquisition Demonstration Project, and certain alternative personnel system employees will be brought into the system through incremental deployments.

• After the assessment cycle and certification of the performance management system are completed, the second spiral will be deployed.

• Spiral two will consist of Federal Wage System employees, overseas employees, and all other eligible employees.

E.O. 12866, Regulatory Review

DoD and OPM have determined that this action is a significant regulatory action within the meaning of Executive Order 12866 because there is a significant public interest in revisions of the Federal employment system. DoD and OPM have analyzed the expected costs and benefits of the proposed HR system to be adopted for DoD, and that analysis is presented below.

Among the NSPS design requirements is to build a system that is competitive, cost effective, and fiscally sound, while also being flexible, credible, and trusted. NSPS will bring many flexibilities and modern HR practices, including a movement towards market sensitive pay, pay increases based on performance rather than the passage of time, and the flexibility to offer competitive salaries. This requires striking a balance among the values of pay flexibility, valuing high performance, fiscal constraint, and credibility. While these flexibilities will improve DoD's ability to attract and retain a high-performing workforce, it is expected that actual payroll costs under this system will be constrained by the amount budgeted for overall DoD payroll expenditures, as is the case with the present GS pay system. DoD anticipates that accessions, separations, and promotions will net out and, as with the present system, not add to the overall cost of administering the system.

The implementation of NSPS will, however, result in some initial implementation costs, which can be expressed in two basic categories: (1) Program implementation costs and (2) NSLRB startup costs. The program implementation category refers to the costs associated with designing and implementing the system. This includes establishing and funding the operations of the Program Executive Office, executing the system design process, developing and delivering new training specifically for NSPS, conducting outreach to employees and other parties, engaging in collaboration activities with employee representatives, and modifying automated human resources information systems, including personnel and payroll transaction processing systems. In the areas of training and HR automated systems, the costs associated with implementing NSPS will not be extensive, since DoD has significant training and IT infrastructures in place for current operations. DoD will not have to build new systems or delivery mechanisms, but rather will modify existing systems and approaches to accommodate changes brought about by NSPS. The other cost category refers to the cost to establish the proposed National Security Labor Relations Board. This includes typical organizational stand-up costs, as well as staffing the NSLRB with members and a professional staff. It is expected that the NSLRB will develop streamlined processes and procedures and leverage existing infrastructures and technology to minimize startup and sustainment costs.

As has been the practice with implementing other alternative personnel systems, DoD expects to incur an initial payroll cost related to the conversion of employees to the pay banding system. This is often referred to as a within-grade increase (WGI) “buyout,” in which an employee's basic pay, upon conversion, is adjusted by the amount of the WGI earned to date. While this increase is paid earlier than scheduled, it represents a cost that would have been incurred under the current system at some point. However, under the NSPS proposed regulations,

WGIs no longer exist; once under NSPS, such pay increases will be based on performance. Accordingly, the total cost of the accelerated WGI “buyout” should not be treated as a “new” cost attributed to implementation of NSPS, since it is a cost that DoD would bear under the current HR system in the absence of NSPS authority and implementing regulations. The portion of the WGI buyout cost attributable to NSPS implementation is the marginal difference between paying out the earned portion of a WGI upon conversion and the cost of paying the same WGI according to the current schedule. In the absence of NSPS, WGIs would be spread out over time instead of being paid “up front.” The marginal cost of the accelerated payment of earned WGIs is difficult to estimate, but is not a significant factor in the benefit cost analysis for regulatory review purposes.

DoD estimates the overall costs associated with implementing the new DoD HR system—including the development and implementation of a new human resources management system and the creation of the NSLRB—will be approximately $158M through FY 2008. Less than $100 million will be spent in any 12-month period.

The primary benefit to the public of this new system resides in the HR flexibilities that will enable DoD to attract, build, and retain a high-performing workforce focused on effective and efficient mission accomplishment. A performance-based pay system that rewards excellent performance will result in a more qualified and proficient workforce and will generate a greater return on investment in terms of productivity and effectiveness. It is also expected that new flexibilities and improved processes in labor management relations, adverse actions, and appeals will result in more efficient and faster resolution of workplace and labor disputes, timelier and less costly bargaining processes, and quicker implementation of workplace changes needed to carry out the national security mission of the Department, while preserving basic employee rights. Taken as a whole, the changes included in these proposed regulations will result in a contemporary, merit-based HR system that focuses on performance, generates respect and trust, and supports the primary mission of DoD.

Regulatory Flexibility Act

DoD and OPM have determined that these regulations would not have a significant economic impact on a substantial number of small entities because they would apply only to Federal agencies and employees.

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

This proposed regulatory action will not impose any additional reporting or recordkeeping requirements under the Paperwork Reduction Act.

E.O. 12988, Civil Justice Reform

This proposed regulation is consistent with the requirements of E.O. 12988. The regulation clearly specifies the effects on existing Federal law or regulation; provides clear legal standards; has no retroactive effects; specifies procedures for administrative and court actions; defines key terms; and is drafted clearly.

E.O. 13132, Federalism

DoD and OPM have determined these proposed regulations would not have federalism implications because they would apply only to Federal agencies and employees. The proposed regulations would not have financial or other effects on States, the relationship between the Federal Government and the States, or the distribution of power and responsibilities among the various levels of government.

Unfunded Mandates

These proposed regulations would not result in the expenditure by State, local, or tribal governments of more than $100 million annually. Thus, no written assessment of unfunded mandates is required.

List of Subjects in 5 CFR Part 9901

Administrative practice and procedure, Government employees, Labor management relations, Labor unions, Reporting and recordkeeping requirements, Wages.

Department of Defense.

Donald Rumsfeld,

Secretary.

Office of Personnel Management.

Kay Coles James,

Director.

Accordingly, under the authority of section 9902 of title 5, United States Code, the Department of Defense and the Office of Personnel Management are proposing to amend title 5, Code of Federal Regulations, by establishing chapter XCIX consisting of part 9901 as follows:

CHAPTER XCIX—DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM (DEPARTMENT OF DEFENSE—OFFICE OF PERSONNEL MANAGEMENT)

PART 9901—DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM

Subpart A—General Provisions

Sec.

9901.101

Purpose.

9901.102

Eligibility and coverage.

9901.103

Definitions.

9901.104

Scope of authority.

9901.105

Coordination with OPM.

9901.106

Continuing collaboration.

9901.107

Relationship to other provisions.

9901.108

Program evaluation.

Subpart B—Classification

General

9901.201

Purpose.

9901.202

Coverage.

9901.203

Waivers.

9901.204

Definitions.

Classification Structure

9901.211

Career groups.

9901.212

Pay schedules and pay bands.

Classification Process

9901.221

Classification requirements.

9901.222

Reconsideration of classification decisions.

Transitional Provisions

9901.231

Conversion of positions and employees to the NSPS classification system.

Subpart C—Pay and Pay Administration

General

9901.301

Purpose.

9901.302

Coverage.

9901.303

Waivers.

9901.304

Definitions.

Overview of Pay System

9901.311

Major features.

9901.312

Maximum rates.

9901.313

National security compensation comparability.

Setting and Adjusting Rate Ranges

9901.321

Structure.

9901.322

Setting and adjusting rate ranges.

9901.323

Eligibility for pay increase associated with a rate range adjustment.

Local Market Supplements

9901.331

General.

9901.332

Local market supplements.

9901.333

Setting and adjusting local market supplements.

9901.334

Eligibility for pay increase associated with a supplement adjustment.

Performance-Based Pay

9901.341

General.

9901.342

Performance payouts.

9901.343

Pay reduction based on unacceptable performance and/or conduct.

9901.344

Other performance payments.

9901.345

Treatment of developmental positions.

Pay Administration

9901.351

Setting an employee's starting pay.

9901.352

Setting pay upon reassignment.

9901.353

Setting pay upon promotion.

9901.354

Setting pay upon reduction in band.

9901.355

Pay retention.

9901.356

Miscellaneous.

Premium Pay

9901.361

General.

Conversion Provisions

9901.371

General.

9901.372

Creating initial pay ranges.

9901.373

Conversion of employees to the NSPS pay system.

Subpart D—Performance Management

9901.401

Purpose.

9901.402

Coverage.

9901.403

Waivers.

9901.404

Definitions.

9901.405

Performance management system requirements.

9901.406

Setting and communicating performance expectations.

9901.407

Monitoring performance and providing feedback.

9901.408

Developing performance and addressing poor performance.

9901.409

Rating and rewarding performance.

Subpart E—Staffing and Employment

General

9901.501

Purpose.

9901.502

Scope of authority.

9901.503

Coverage.

9901.504

Definitions.

External Recruitment and Internal Placement

9901.511

Appointing authorities.

9901.512

Probationary periods.

9901.513

Qualification standards.

9901.514

Non-citizen hiring.

9901.515

Competitive examining procedures.

9901.516

Internal placement.

Subpart F—Workforce Shaping

9901.601

Purpose and applicability.

9901.602

Scope of authority.

9901.603

Definitions.

9901.604

Coverage.

9901.605

Competitive area.

9901.606

Competitive group.

9901.607

Retention standing.

9901.608

Displacement, release, and position offers.

9901.609

Reduction in force notices.

9901.610

Voluntary sep

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