HUMAN CAPITAL 

DOD’s Civilian Personnel 

Strategic Management 

and the Proposed 

National Security 

Personnel System 

Statement of David M. Walker, 

Comptroller General of the United States 

 

United States General Accounting Office

GAO Testimony 

Before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Senate Committee on Governmental Affairs

For Release on Delivery 

Expected at 12:30 p.m. EDT 

Monday, May 12, 2003 

GAO-03-493T 
 

DOD’s lack of attention to force shaping during its downsizing in the early 1990s 

has resulted in a workforce that is not balanced by age or experience and that 

puts at risk the orderly transfer of institutional knowledge. Human capital 

challenges are severe in certain areas. For example, DOD has downsized its 

acquisition workforce by almost half. More than 50 percent of the workforce 

will be eligible to retire by 2005. In addition, DOD faces major succession 

planning challenges at various levels within the department. Also, since 1987, 

the industrial workforce, such as depot maintenance, has been reduced by about 

56 percent, with many of the remaining employees nearing retirement, calling 

into question the longer-term viability of the workforce. DOD is one of the 

agencies that has begun to address human capital challenges through strategic 

human capital planning. For example, in April 2002, DOD published a 

department wide strategic plan for civilians. Although a positive step toward 

fostering a more strategic approach toward human capital management, the plan 

is not fully aligned with the overall mission of the department or results 

oriented. In addition, it was not integrated with the military and contractor 

personnel planning. 

We strongly support the concept of modernizing federal human capital policies 

within DOD and the federal government at large. Providing reasonable 

flexibility to management in this critical area is appropriate provided adequate 

safeguards are in place to prevent abuse. We believe that Congress should 

consider both governmentwide and selected agency, including DOD, changes to 

address the pressing human capital issues confronting the federal government. 

In this regard, many of the basic principles underlying DOD’s civilian human 

capital proposals have merit and deserve serious consideration. At the same 

time, many are not unique to DOD and deserve broader consideration. 

Agency-specific human capital reforms should be enacted to the extent that the 

problems being addressed and the solutions offered are specific to a particular 

agency (e.g., military personnel reforms for DOD). Several of the proposed DOD 

reforms meet this test. At the same time, we believe that Congress should 

consider incorporating additional safeguards in connection with several of 

DOD’s proposed reforms. In our view, it would be preferable to employ a 

government-wide approach to address certain flexibilities that have broad-based 

application and serious potential implications for the civil service system, in 

general, and the Office of Personnel Management (OPM), in particular. We 

believe that several of the reforms that DOD is proposing fall into this category 

(e.g., broad-banding, pay for performance, re-employment and pension offset 

waivers). In these situations, it may be prudent and preferable for the Congress 

to provide such authorities on a governmentwide basis and in a manner that 

assures that appropriate performance management systems and safeguards are 

in place before the new authorities are implemented by the respective agency. 

However, in all cases whether from a governmentwide authority or agency 

specific legislation, in our view, such additional authorities should be 

implemented (or operationalized) only when an agency has the institutional 

infrastructure in place to make effective use of the new authorities. Based on 

our experience, while the DOD leadership has the intent and the ability to 

implement the needed infrastructure, it is not consistently in place within the 

vast majority of DOD at the present time. 

 

HUMAN CAPITAL 

DOD’S CIVILIAN PERSONNEL 

STRATEGIC MANAGEMENT AND THE 

PROPOSED NATIONAL SECURITY 

PERSONNEL SYSTEM 

www.gao.gov/cgi-bin/getrpt?GAO-03-493T.

To view the full testimony, including the scope 

and methodology, click on the link above. 

For more information, contact 

Derek B.Stewart at (202) 512-5140 or 

Stewartd@gao.gov. 

Highlights of GAO-03-493T, a testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce and the District of Columbia, 

Senate Committee on Governmental 

Affairs 

May 2003 

People are at the heart of an 

organization’s ability to perform its 

mission. Yet, a key challenge for 

the Department of Defense (DOD), 

as for many federal agencies, is to 

strategically manage its human 

capital. With about 700,000 civilian 

employees on its payroll, DOD is 

the second largest federal employer

of civilians in the nation. Although 

downsized 38 percent between 

fiscal years 1989 and 2002, this 

workforce has taken on greater 

roles as a result of DOD’s 

restructuring and transformation. 

DOD’s proposed National Security 

Personnel System (NSPS) would 

provide for wide-ranging changes 

in DOD’s civilian personnel pay and 

performance management, 

collective bargaining, rightsizing, 

and other human capital areas. The 

NSPS would enable DOD to 

develop and implement a 

consistent DOD-wide civilian 

personnel system. Given the 

massive size of DOD, the proposal 

has important precedent-setting 

implications for federal human 

capital management and OPM. 

This testimony provides GAO’s 

preliminary observations on 

aspects of DOD’s proposal to make 

changes to its civilian personnel 

system and discusses the 

implications of such changes for 

governmentwide human capital 

reform. Past reports have 

contained GAO’s views on what 

remains to be done to bring about 

lasting solutions for DOD to 

strategically manage its human 

capital. DOD has not always 

concurred with our 

recommendations. 
Page 1 GAO-03-493T Human Capital 

Chairman Voinovich, Senator Durbin, and Members of the Subcommittee, 

It is a pleasure to appear before the Subcommittee to discuss the status and future 

of Department of Defense’s (DOD) civilian workforce—an integral part of DOD’s 

“total force”. DOD uses the term total force to refer to the different categories of 

workers that it uses to accomplish its mission. The total force includes military 

personnel, both active and reserve, federal civilian personnel, and private-sector 

contract personnel. Collectively, these people are at the heart of the department’s 

ability to perform its mission. 

DOD is in the midst of a major transformation and it has undertaken a number of 

related initiatives to transform its forces and fundamentally improve its business 

operations. As part of DOD’s transformation process, the Secretary of Defense 

and senior civilian and military leaders have committed to adopt a capabilitiesbased approach to acquisition planning and to improve the linkage between 

overall strategy and individual investments. At the same time, DOD has embarked 

on a series of efforts to achieve strategic savings and improve its business 

processes, including strengthened financial management, support infrastructure 

reforms to include base closures, information technology modernization, logistics 

reengineering, and more strategic human capital management. Clearly, Secretary 

Rumsfeld and top DOD leadership is committed to transforming the very way that 

DOD conducts business. In that regard, I am pleased to serve as an observer to 

the Defense Business Practice Implementation Board. Notwithstanding these 

ongoing efforts, GAO has reported a range of DOD challenges for many years. 

Importantly, DOD also is covered by 9 of the 25 areas on our January 2003 highrisk list, including the area of strategic human capital management. 

DOD’s proposed National Security Personnel systems (NSPS) recognizes that, as 

GAO has stated and the experiences of leading public sector organizations here 

and abroad have found, strategic human capital management must be the 

centerpiece of any serious government transformation effort. The NSPS would 

provide for wide-ranging changes in DOD’s civilian personnel pay and 

performance management, collective bargaining, rightsizing, and a variety of other 

human capital areas. The NSPS would enable DOD to develop and implement a 

consistent, DOD-wide civilian personnel system bringing together the many 

disparate systems that exist today.1

 

We strongly support the concept of modernizing federal human capital policies 

both within DOD and for the federal government at-large. Providing reasonable 

flexibility to management in this critical area is appropriate. At the same time, 

incorporating adequate safeguards in order to maximize the chance for success 

and prevent abuse is essential. The federal personnel system is clearly broken in 

 

1

DOD officials have said that the Department’s current thinking is that NSPS will be based on practices 

were outlined in an April 2, 2003, Federal Register 68 Fed. Reg. 16,119-16,142 (2003) notice asking for 

comment on DOD’s plan to integrate all of its current science and technology reinvention laboratory 

demonstration projects under a single human capital framework consistent with the best practices DOD 

identified.
Page 2 GAO-03-493T Human Capital 

critical respects—designed for a time and workforce of an earlier era and not able 

to meet the needs and challenges of our rapidly changing and knowledge-based 

environment. In this regard, many of the basic principles underlying DOD’s 

civilian human capital proposals have merit and deserve serious consideration. At 

the same time, many are not unique to DOD and deserve broader consideration. 

We believe that Congress should consider both governmentwide and selected 

agency, including DOD, changes to address the pressing human capital issues 

confronting the federal government. Agency-specific human capital reforms 

should be enacted to the extent that the problems being addressed and the 

solutions offered are specific to a particular agency (e.g., military personnel 

reforms for DOD). In addition, targeted reforms should be considered in 

situations where additional testing or piloting is needed for fundamental 

governmentwide reform. Several of the proposed DOD reforms meet this test. At 

the same time, we believe that Congress should consider incorporating additional 

safeguards in connection with several of DOD’s proposed reforms. 

In our view, it would be preferable to employ a government-wide approach to 

address certain flexibilities that have broad-based application and serious 

potential implications for the civil service system, in general, and the Office of 

Personnel Management (OPM), in particular. We believe that several of the 

reforms that DOD is proposing fall into this category (e.g., broad-banding, pay for 

performance, re-employment and pension offset waivers). In these situations, it 

may be prudent and preferable for the Congress to provide such authorities on a 

governmentwide basis and in a manner that assures that appropriate performance 

management systems and safeguards are in place before the new authorities are 

implemented by the respective agency. This approach is not intended to delay 

action on DOD’s or any other individual agency’s efforts, but rather to accelerate 

needed human capital reform throughout the federal government in a manner that 

assures reasonable consistency on key principles within the overall civilian 

workforce. This approach also would provide agencies with reasonable flexibility 

while incorporating key safeguards to help maximize the chances of success and 

minimize the chances of abuse and failure. Finally, this approach also would help 

to maintain a level playing field among federal agencies in competing for talent. 

However, in all cases whether from a governmentwide authority or agency 

specific legislation, in our view, such additional authorities should be 

implemented (or operationalized) only when an agency has the institutional 

infrastructure in place to make effective use of the new authorities. This 

institutional infrastructure includes, at a minimum, a human capital planning 

process that integrates the agency’s human capital policies, strategies, and 

programs with its program goals and mission, and desired outcomes; the 

capabilities to effectively develop and implement a new human capital system; 

and importantly, the existence of a modern, effective, and credible performance 

management system that includes adequate safeguards, including reasonable 

transparency and appropriate accountability mechanisms, to ensure the fair, 

effective, and non-discriminatory implementation of the system. Thus, for 
Page 3 GAO-03-493T Human Capital 

example, while it is imperative that we take steps to better link employee pay to 

performance across the federal government, how it is done, when it is done, and 

the basis on which it is done, can make all the difference in whether or not such 

efforts are successful. Based on our experience, while the DOD leadership has 

the intent and the ability to implement the needed infrastructure, it is not in place 

within a vast majority of DOD at the present time. In that regard, last week the 

House Government Reform Committee marked-up H.R. 1836, which incorporates 

the DOD civilian personnel reforms. I was pleased to see that a number of 

safeguards, including several along the lines we have been suggesting, were 

included in the mark-up. I’m also pleased to see that the Committee added an 

amendment that removed language allowing DOD authority to waive the antinepotism requirements. As Congress continues to consider DOD’s proposed 

reforms, I believe it is very important that such safeguards and protections be 

included in future legislation. I will now discuss each of these three elements of 

an institutional infrastructure in more detail. 

Strategic Human Capital Planning and Management at DOD

With almost 700,000 civilian employees on its payroll, DOD is the second largest 

federal employer of civilians in the nation, after the Postal Service. Defense 

civilian personnel, among other things, develop policy, provide intelligence, 

manage finances, and acquire and maintain weapon systems. Given the current 

global war on terrorism, the role of DOD’s civilian workforce is expanding, such 

as participation in combat support functions that free military personnel to focus 

on warfighting duties for which they are uniquely qualified. Career civilians 

possess “institutional memory,” which is particularly important in DOD because 

of the frequent rotation of military personnel and the short tenure of the average 

political appointee. However, since the end of the Cold War, the civilian 

workforce has undergone substantial change, due primarily to downsizing, base 

realignments and closures, competitive sourcing initiatives, and DOD’s changing 

missions. For example, between fiscal years 1989 and 2002, DOD reduced its 

civilian workforce by about 38 percent, with an additional reduction of about 

55,000 personnel proposed through fiscal year 2007. 

Without a strategic view, DOD’s approach to civilian downsizing in the early 1990s 

relied primarily on voluntary turnover and retirements and varying freezes on 

hiring authority. DOD also used existing authority for early retirements to 

encourage voluntary separations at activities facing major reductions in force. 

The fiscal year 1993 National Defense Authorization Act authorized a number of 

transition assistance programs for civilian employees, including financial 

separation incentives, or “buyouts,” to induce the voluntary separation of civilian 

employees and reduce authorized positions. DOD has credited the use of 

separation incentives, early retirement authority, and various job placement 

opportunities as ways to avoid nearly 200,000 involuntary demotions and 

separations. 
Page 4 GAO-03-493T Human Capital 

While the tools available to DOD to manage its civilian downsizing helped mitigate 

the adverse effects of force reductions, DOD’s approach to the reductions was not 

oriented toward shaping the makeup of the workforce. During our work on the 

early phases of the DOD downsizing, some DOD officials voiced concerns about 

what was perceived to be a lack of attention to identifying and maintaining a 

balanced basic level of skills needed to maintain in-house capabilities as part of 

the defense industrial base. Historically, DOD has not focused on human capital 

planning for civilians to the extent that it has for its military force. In 2000, the 

Defense Science Board reported that senior civilian and military leaders have 

devoted “far less” attention to civilian personnel challenges than the challenges of 

maintaining an effective military force. 

The consequences of the lack of attention to force shaping can be seen in the 

current age distribution of the civilian workforce in comparison to the distribution 

at the start of the drawdown. Today’s workforce is older and more experienced; 

and not surprisingly, 58 percent of the workforce will be eligible for early or 

regular retirement in the next 3 years. 

The net effect is a workforce that is not balanced by age or experience and that 

puts at risk the orderly transfer of institutional knowledge. The continuing 

increase in the number of retirement-age employees, as well as the loss of 

experienced personnel which can result from ongoing emphasis on public-private 

sector competition involving commercial activities under OMB Circular A-76, 

could make it difficult for DOD to infuse its workforce with new and creative 

ideas and develop the skilled civilian workers, managers, and leaders it will need 

to meet future mission requirements. With senior management attention, 

strategic leadership and results-oriented performance management, however, 

DOD can rebuild its civilian workforce to meet future requirements for specific 

skills and experience. The work of the congressionally mandated Commercial 

Activities Panel, which I chaired, noted the importance of government human 

capital practices in sourcing decisions. In fact, one of the ten principles adopted 

by the Panel to guide future sourcing decisions, stipulates that sourcing and 

related policies should be consistent with human capital practices designed to 

attract, motivate, retain, and reward a high-performing workforce.2

This principle underscores the importance of considering human capital concerns 

in connection with the sourcing process. While it does not mean that agencies 

should refrain from outsourcing due to its impact on the affected employees, it 

does mean that the federal government’s sourcing policies and practices should 

consider the potential impact on the government’s ability to attract, motivate, 

retain, and reward a high-performing workforce both now and in the future. 

 

2

 The Panel, mandated by section 832 of the Defense Authorization Act for fiscal year 2001, 

required the Comptroller General to convene a panel of experts to study the process used by the 

federal government to make sourcing decisions. After a yearlong study, the Panel published its 

report on April 30, 2002. See Commercial Activities Panel, Improving the Sourcing Decisions of 

the Government: Final Report, (Washington, D.C.: April 30, 2002). The report can be found on 

GAO’s web site at www.gao.gov under the Commercial Activities Panel heading. 
Page 5 GAO-03-493T Human Capital 

Regardless of the result of specific sourcing decisions, it is important for the 

workforce to know and believe that they will be viewed and treated as valuable 

assets. 

The Acquisition and Logistics Workforces

These human capital challenges are even more severe in certain areas, such as 

acquisition and logistics. The acquisition area is a part of the workforce that the 

United States has relied upon to maintain the technological superiority that plays 

an essential role in the national security strategy. According to DOD’s Acquisition 

2005 task force report, the rate of reduction in the civilian acquisition workforce 

has substantially exceeded that of the rest of the DOD workforce. In the past 

decade, DOD has downsized its acquisition workforce by almost half. More than 

50 percent of the remaining acquisition workforce will be eligible to retire by 

2005; and in some occupations, DOD projects that half of the current employees 

will have retired by 2006. 

The task force report made a series of recommendations to DOD in October 2000. 

In April 2002, we reported on DOD’s plans to implement these recommendations. 

We noted that DOD has made progress in laying a foundation for reshaping its 

acquisition workforce. Taking a strategic approach to human capital can be 

challenging itself. First, it requires a shift in how the human resources function is 

perceived, from strictly a support function to one integral to an agency’s mission. 

Second, agencies may also find that they need some of the basic tools and 

information to develop strategic plans, such as accurate and complete information 

on workforce characteristics. Consequently, DOD views implementation of the 

recommendations as long-term efforts with specific outcomes taking years to 

achieve. 

As a result of downsizing initiatives, the increased use of the private sector for 

logistics support activities, and other factors, the civilian workforce in DOD’s 

industrial activities--maintenance depots, arsenals, and ammunition 

manufacturing plants--was reduced by about 56 percent between 1987 and 2002. 

The result is that many in this workforce—which comprises about twelve percent 

of DOD’s total civilian workforce—are currently eligible to retire and about 43 

percent will be eligible to retire by 2009. In recent years, we have specifically 

identified deficiencies in DOD’s planning for depot maintenance operations. In 

October 2001, we reported that DOD had no overall plan that tied investments in 

depot maintenance facilities and equipment with future workloads and, in turn, 

with human capital needs.3

 We recommended, among other things, that DOD 

develop a depot strategic plan that would delineate future workloads to be 

accomplished in each of the services’ maintenance depots. We recently reported 

 

3

 U.S. General Accounting Office, Defense Logistics: Actions Needed to Overcome Capability 

Gaps in the Public Deport System, GAO-02-105 (Washington, D.C.: Oct. 12, 2001). 
Page 6 GAO-03-493T Human Capital 

that while DOD has initiated some action toward developing a depot strategic 

plan, the department still has no depot strategic plan. We also reported that while 

DOD has initiated some action toward developing a depot strategic plan, the 

department still has no depot strategic plan and the future of these activities is 

uncertain.4

 

Without the benefit of a departmentwide strategic depot plan, the services’ efforts 

to develop comprehensive depot strategic plans vary. For example, the Army, Air 

Force and Marine Corps have developed depot plans, but the Army plan has been 

suspended, the Air Force plan does not address one depot nor identify specific 

new work, and the Marine Corps plan has not been approved and has no approval 

schedule. While the Navy has not developed a strategic depot plan, two of the 

Navy components—the shipyard and aviation communities—have begun strategic 

planning efforts. 

In addition, we reported that the services have also not developed and 

implemented strategic workforce plans that will position the civilian industrial 

workforce to meet future requirements. Except for the Air Force, the services 

industrial activities’ workforce plans are mostly short-term rather than strategic. 

The plans are also lacking in other areas that OPM guidance and high-performing 

organizations identify as key to successful workforce planning. Specifically, they 

(1) usually do not assess the competencies needed for current and future 

workforces; (2) do not develop comprehensive retention plans that identify 

employees critical to accomplishment of organizational goals, develop an 

infrastructure to assist workers in becoming long-term assets of the organization, 

or provide meaningful incentives to retain valued employees; and (3) sometimes 

do not develop performance measure for evaluating workforce plans to identify 

corrective actions needed to improve planning efforts. 

In our April 2003 report we made recommendations to strengthen strategic 

workforce planning for DOD industrial activities. DOD concurred with most of 

our recommendations and highlighted the importance the department places in 

human capital management. In non-concurring with two of our 

recommendations, DOD officials said that DOD’s new NSPS will provide all the 

flexibilities and authorities needed to maintain and enhance human resources 

competencies, capabilities, and performance across the department. We believe it 

is premature to assume that all its provisions will be approved and that the new 

system will address our concerns. 

DOD’s Development of Strategic Human Capital Plans 

Over the past few years, DOD has recognized the need for strategic human capital 

management. Most recently the Quadrennial Defense Review Report (2001) 

 

4

 U.S. General Accounting Office, DOD Civilian Personnel: Improved Strategic Planning Needed 

to Help Ensure Viability of DOD’s Civilian Industrial Workforce, GAO-03-472 (Washington, D.C.: 

Apr. 30, 2003). 
Page 7 GAO-03-493T Human Capital 

called upon DOD to modernize and transform its civilian force so that it is as 

equally agile, flexible, and innovative as a transformed U.S. military force. In April 

2002, DOD published a department wide strategic plan, the Civilian Human 

Resources Strategic Plan, to set forth its vision to “design, develop, and 

implement human resource policies, strategies, systems, and tools to ensure a 

mission-ready civilian workforce that is motivated to excel.” As we reported in 

March 2003, top-level leaders in the Air Force, the Marine Corps, the Defense 

Contract Management Agency, and the Defense Finance and Accounting Service 

have initiated planning efforts and are working in partnership with their civilian 

human capital professionals to develop and implement civilian strategic plans; 

such leadership, however, was increasing in the Army and not as evident in the 

Navy.5

 

DOD's issuance of its departmentwide civilian human capital plan begins to lay a 

foundation for strategically addressing civilian human capital issues; however, 

DOD has not provided guidance on aligning the component-level plans with the 

department-level plan to obtain a coordinated focus to carry out the Secretary of 

Defense's transformation initiatives in an effective manner. High-level leadership 

attention is critical to developing and directing reforms because, without the 

overarching perspective of such leaders as Chief Operating Officers and the Chief 

Human Capital Officers, reforms may not be sufficiently focused on mission 

accomplishment, and without their support, reforms may not receive the 

resources needed for successful implementation. We have previously reported 

that the concept of a Chief Operating Officer (COO) could offer the leadership to 

help elevate attention on key management issues and transformational change, 

integrate these various efforts, and institutionalize accountability for addressing 

management issues and leading transformational change both within and between 

administrations6

. In our view, DOD is a prime candidate to adopt this COO 

concept. In addition, if Congress provides DOD with many of the flexibilities it is 

seeking under the NSPS, the basis for adding a COO position at DOD would be 

even stronger. 

The human capital strategic plans we reviewed in our March report, for the most 

part, lacked key elements found in fully developed plans. Most of the civilian 

human capital goals, objectives, and initiatives were not explicitly aligned with the 

overarching missions of the organizations. Consequently, DOD and defense 

components cannot be sure that strategic goals are properly focused on mission 

achievement. Also, none of the plans contained results-oriented performance 

measures to assess the impact of their civilian human capital initiatives (i.e., 

 

5

 U.S. General Accounting Office, DOD Personnel: DOD Actions Needed to Strengthen Civilian 

Human Capital Strategic Planning and Integration with Military Personnel and Sourcing 

Decisions, GAO-03-475, (Washington, D.C.: Mar. 28, 2003). 6

 U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating Officer Concept: 

A Potential Strategy To Address Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 

4, 2002). 
Page 8 GAO-03-493T Human Capital 

programs, policies, and processes). Thus, DOD and the components cannot gauge 

the extent to which their human capital initiatives contribute to achieving their 

organizations’ missions. Finally, the plans did not contain data on the skills and 

competencies needed to successfully accomplish future missions; therefore, DOD 

and the components risk not being able to put the right people, in the right place, 

and at the right time, which can result in diminished accomplishment of the 

overall defense mission. 

Moreover, the civilian plans we reviewed did not address how the civilian 

workforce will be integrated with their military counterparts or with sourcing 

initiatives. DOD’s three human capital strategic plans—two military and one 

civilian—were prepared separately and were not integrated to form a seamless 

and comprehensive strategy and did not address how DOD plans to link its human 

capital initiatives with its sourcing plans, such as efforts to outsource non-core 

responsibilities. The components’ civilian plans acknowledge a need to integrate 

planning for civilian and military personnel—taking into consideration 

contractors—but have not yet done so. Without an integrated strategy, DOD may 

not effectively and efficiently allocate its scarce resources for optimal readiness.

In our March report we recommended, among other things, that DOD improve 

future revisions and updates to the departmentwide strategic human capital plan 

by more explicitly aligning its elements with DOD’s overarching mission, 

including performance measures, and focusing on future workforce needs. DOD 

only partially concurred with our recommendation, and, as explanation stated 

that the recommendation did not recognize the involvement in and impact of 

DOD’s Quadrennial Defense Review on the development of the departmentwide 

plan. We also recommended that DOD assign a high priority to and set a target 

date for developing an integrated departmentwide plan for both military and 

civilian workforces that takes into account contractor roles and sourcing 

initiatives. DOD did not concur with this recommendation and stated that it 

presently has both a military and civilian plan; the use of contractors is just 

another tool to accomplish the mission, not a separate workforce, with separate 

needs, to manage. Finally, we wish to note that the Under Secretary of Defense 

for Personnel and Readiness made a point that DOD is in the early stages of its 

strategic planning efforts.7

 We recognize this and believe that our 

recommendations represent opportunities that exist to strengthen its developing 

planning efforts. 

The Capabilities Needed to Effectively Develop and Implement Human 

Capital Flexibilities

Our work has identified a set of key practices that appear to be central to the 

effective use of human capital authorities. These practices, which are shown in 

 

7

 U.S. General Accounting Office, DOD Personnel: DOD Comments on GAO’s Report on DOD’s 

Civilian Human Capital Strategic Planning, GAO-03-690R (Washington, D.C.: Apr. 18, 2003). 
Page 9 GAO-03-493T Human Capital 

figure 1, center on effective planning and targeted investments, involvement and 

training, and accountability and cultural change.8 

Figure 1: Key Practices for Effective Use of Human Capital Flexibilities

Congress should consider the extent to which an agency is capable of employing 

these practices before additional human capital flexibilities are implemented. In 

the context of NSPS, Congress should consider whether and to what extent DOD 

has used and is using these practices as it develops and implements its new 

civilian personnel system. 

Adequate Safeguards, Reasonable Transparency, and Appropriate 

Accountability 

In the absence of the right institutional infrastructure, granting additional human 

capital authorities will provide little advantage and could actually end up doing 

damage if the new flexibilities are not implemented properly. Our work looking at 

DOD’s strategic human capital planning efforts and our work looking across the 

federal government at the use of human capital flexibilities and related human 

capital efforts underscores the critical steps that DOD needs to take to properly 

develop and effectively implement any new personnel authorities. As I 

mentioned at the outset, should Congress decide to provide DOD additional 

authorities, a set of adequate safeguards, including reasonable transparency and 

appropriate accountability mechanisms to ensure the fair and merit-based 

 

8

 U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist 

Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002). 
Page 10 GAO-03-493T Human Capital 

implementation and application of the new authorities is important to maximize 

the chances of success and minimize the chances of abuse. Similarly, Congress 

should consider ensuring that safeguards are in place for any additional 

governmentwide human capital authorities that are provided to agencies. 

The following provides some safeguards Congress should consider in regards to 

the proposed NSPS. First, I offer some suggestions for safeguards for the overall 

design for the NSPS. Second, I suggest some safeguards for specific elements of 

the NSPS. In that regard, last week the House Government Reform Committee 

marked-up H.R. 1836, which incorporates the DOD civilian personnel reforms. I 

was pleased to see that a number of safeguards, including several along the lines 

suggested below, were included in the mark-up. I’m also pleased to see that the 

Committee added an amendment that removed language allowing DOD authority 

to waive the anti-nepotism requirements. As Congress continues to consider 

DOD’s proposed reforms, I believe it is very important that such safeguards and 

protections be included in future legislation.

Safeguards for the DOD’s Overall Human Capital Program

Authority To Act Independently From The Director Of The Office Of 

Personnel Management

The DOD proposal would allow the Secretary of Defense to jointly prescribe 

regulations with the Director of OPM to establish a flexible and contemporary 

human resources management system for DOD—NSPS. The joint issuance of 

regulations is similar to that set forth in the Homeland Security Act of 20029

between the Secretary of Homeland Security and the Director of OPM for the 

development of the DHS human resources management system. However, unlike 

the legislation creating Department of Homeland Security (DHS), the Defense 

Transformation for the 21st Century Act would allow the Secretary of Defense to 

waive the requirement for joint issuance of regulations if, in his or her judgment, it 

is “essential to the national security”—which is not defined in the act. Congress 

may want to consider eliminating this provision to make the NSPS consistent with 

the Homeland Security Act of 2002. If Congress decides to move forward with the 

provision, it should consider the following safeguards: 

Potential Safeguards: 

• Provide statutory criteria to define what is “essential to the national security”, 

or stipulate that such criteria should be developed in consultation with the 

Director, Office of Management and Budget. 

• Require that the criteria consider Federal Labor Relation Authority (FLRA) 

administrative case law decisions. FLRA has ruled on several cases involving 

the application of 5 U.S.C. 7112 where the FLRA determines the appropriate 

units for labor organization representation. 

 

9

Pub. L. No. 107-296, Nov. 25, 2002. 
Page 11 GAO-03-493T Human Capital 

• Require that the Director of OMB or the President certify the determination by 

the Secretary of Defense that an action is “essential to the national security”, 

rather than giving the sole authority to the Secretary. This would provide for 

an institutionally independent “tie-breaker” approach to such issues. 

Strategic Human Capital Planning

Under the DOD proposal, key governmentwide provisions of the Homeland 

Security Act concerning strategic human capital management and planning, such 

as the creation of a Chief Human Capital Officer (CHCO) Act can be waived. 

Congress should consider requiring that key governmentwide provisions of the 

Homeland Security Act concerning strategic human capital management and 

planning be nonwaiveable by DOD. This would include such provisions as: 

• Appointment of a DOD Chief Human Capital Officer. 

• Requirement that DOD’s human capital planning be included in 

Government Performance and Results Act performance plans and 

programs performance reports. 

• Adherence to strategic human capital management standards set by OPM. 

(The Homeland Security Act requires OPM to design a set of systems to 

assess the management of human capital by federal agencies, including 

appropriate metrics.) 

Employee Involvement

The proposed Defense Transformation for the 21st Century Act includes 

provisions intended to ensure collaboration with employee representatives in the 

planning, development, and implementation of a human resources management 

system. Such provisions include allowing employees to comment on, and review 

the proposed human capital system and provides for a mediation procedure if 

agreement cannot be reached. The provisions are generally consistent with those 

required of DHS. In addition, the legislation provides that the Secretary may at his 

or her sole and exclusive discretion engage in national level bargaining. 

 

Potential Safeguards: 

• Explicitly state the intent of Congress on the importance of allowing DOD 

employees to participate in a meaningful way in the creation of any human 

resources management system affecting them. This was done for DHS in the 

Homeland Security Act. 

• Require DOD to submit disagreements with the union over the design of the 

human resources system after 30 days to an independent body for some level 

of assistance in resolution rather than provide that the Secretary may 

implement and inform Congress. As the bill is now written, if an agreement has 

not been reached after 30 days, and the Secretary determines that further 

consultation with employee representatives will not produce agreement, the 
Page 12 GAO-03-493T Human Capital 

Secretary may implement any or all parts of the proposal, including any 

modifications made in response to the recommendations. The Secretary is to 

notify Congress of the implementation of any part of the proposal, any changes 

made to the proposal as a result of recommendations from the employee 

representatives, and the reasons why implementation is appropriate. 

• Provide guidance as to appropriate issues to be resolved at the national and 

local levels. 

Employee Appeals Procedures

The proposal states that the appeals procedures shall ensure due process 

protections and expeditious handling, to the maximum extent possible. In this 

regard, the proposal provides that presently applicable appeals procedures should 

only be modified insofar as such modifications are designed to further the fair, 

efficient, and expeditious resolution of matters involving DOD employees. This 

provision is substantially the same as a similar provision in the Homeland Security 

Act of 2002 allowing DHS to prescribe regulations for employee appeals related to 

their employment. Similar to the requirement for the Secretary of DHS, the 

Secretary of Defense would likewise be required to consult with MSPB prior to 

issuing regulations. However, neither the Homeland Security Act nor the 

proposed legislation expressly requires that employee appeals be heard and 

decided by the MSPB. There is also no express provision for judicial review of 

decisions regarding employee appeals decisions. 

Potential safeguards:

• Require that DOD establish an independent appeals authority if it decides not 

to use MSPB. 

• Require that the qualifications, experience, and terms of appointment of the 

members be specified in the statute or established jointly in consultation with 

MSPB. 

• Expressly state that decisions of any DOD appeals board would be subject to 

judicial review. 

Evaluation and Reporting

DOD has stated that it would continue its evaluation of the science and 

technology reinvention laboratory demonstration projects when they are 

integrated under a single human capital framework. An evaluation and reporting 

requirement would facilitate congressional oversight of NSPS, allow for any midcourse corrections in its implementation, and serve as a tool for documenting best 

practices and sharing lessons learned with employees, stakeholders, other federal 

agencies, and the public. 
Page 13 GAO-03-493T Human Capital 

Potential safeguards: 

• Require DOD to fully track and periodically report on its implementation and 

results of its new human capital program. Such reporting could be on a 

specified timetable with sunset provisions. 

• Require DOD to undertake evaluations that are broadly modeled on the 

evaluation requirements of OPM's personnel demonstration program. Under 

the demonstration project authority, agencies must evaluate and periodically 

report on results, implementation of the demonstration project, cost and 

benefits, impacts on veterans and other EEO groups, adherence to merit 

principles, and extent to which the lessons from the project can be applied 

elsewhere, including governmentwide. Provide that such reports be done 

jointly, in consultation with, or subject to review and approval of OPM. 

Safeguards for Specific DOD Human Capital Policies and Practices

Performance Management and Pay Reform

DOD has said that the cornerstone of the NSPS will be a broad banded 

performance management and pay for performance systems. Performance-based 

pay flexibility for broad-based employee groups should be grounded in 

performance management systems that are capable of supporting pay and related 

decisions. DOD’s personnel demonstration projects clearly provide helpful 

insights and valuable lessons learned in connection with broad banding and pay 

for performance efforts. At the same time these projects and related DOD efforts 

involve less than 10 percent of DOD’s civilian workforce and expanding these 

approaches to the entire department will require significant effort and likely need 

to be implemented in phases over several years. 

Potential safeguards: 

• Establish statutory standards that an agency must have in place before it can 

implement broad banding or a more performance-based pay program: 

• Assure that the agency’s performance management systems (1) link to the 

agency’s strategic plan, related goals, and desired outcomes, and (2) result in 

meaningful distinctions in individual employee performance. This should 

include consideration of critical competencies and achievement of concrete 

results. 

• Involve employees, their representatives, and other stakeholders in the design 

of the system, including having employees directly involved in validating any 

related competencies, as appropriate. 

• Assure that certain predecisional internal safeguards exist to help achieve the 

consistency, equity, nondiscrimination, and nonpoliticization of the 

performance management process (e.g., independent reasonableness reviews 

by Human Capital Offices and/or Offices of Opportunity and Inclusiveness or 

their equivalent in connection with the establishment and implementation of a 
Page 14 GAO-03-493T Human Capital 

performance appraisal system, as well as reviews of performance rating 

decisions, pay determinations, and promotion actions before they are finalized 

to ensure that they are merit-based; internal grievance processes to address 

employee complaints; and pay panels whose membership is predominately 

made up of career officials who would consider the results of the performance 

appraisal process and other information in connection with final pay 

decisions). 

• Assure reasonable transparency and appropriate accountability mechanisms in 

connection with the results of the performance management process (e.g., 

publish overall results of performance management and pay decisions while 

protecting individual confidentiality, and report periodically on internal 

assessments and employee survey results). 

• Require DOD to have OPM certify that a modern, effective, credible, and, as 

appropriate, validated performance management system with adequate 

safeguards, including reasonable transparency and appropriate accountability 

mechanisms, is in place to support more performance-based pay and related 

personnel decisions, before DOD could implement a new system. OPM should 

be required to act on any individual certifications within prescribed time 

frames (e.g., 30-60 days). 

 

SES Pay and Performance

The proposed NSPS, similar to the Homeland Security Act, would increase the 

current total allowable annual compensation limit for senior executives up to the 

Vice President’s total annual compensation. However, the Homeland Security Act 

provides that OPM, with the concurrence of the Office of Management and 

Budget, certify that agencies have performance appraisal systems that, as 

designed and applied, make meaningful distinctions based on relative 

performance. NSPS does not include such a certification provision. 

Potential Safeguards: 

• Require OPM to certify that the DOD SES performance management system 

makes meaningful distinctions in performance and employs the other 

practices used by leading organizations to develop effective performance 

management systems, before DOD could increase the annual compensation 

limit for senior executives. 

• As part of that certification, require that DOD show how its SES performance 

management approaches are consistent with leading organizations’, 

particularly in regards to establishing a clear, direct connection between SES 

performance ratings and rewards and the degree to which the organization 

achieved its goals. 
Page 15 GAO-03-493T Human Capital 

SES Non-Career Appointments

The DOD proposal would allow the Secretary to waive the provisions of Title 5 

that limits non-career SES appointments to 25 percent of an agency’s total SES. 

We believe that Congress should consider eliminating the proposed waiver 

authority or otherwise place alternative numerical or percent of SES workforce 

caps on DOD’s authority to make non-career SES appointments. 

Attracting Key Talent 

The legislation has a number of provisions designed to give DOD flexibility to help 

obtain key critical talent. Specifically, it allows DOD greater flexibility to (1) 

augment the use of temporary appointment authorities, (2) hire experts and 

consultants and pay them special rates and (3) define benefits for overseas 

employees. Specifically, the Secretary would have the authority to establish a 

program to attract highly qualified experts in needed occupations with the 

flexibility to establish the rate of pay, eligibility for additional payments, and 

terms of the appointment. These authorities give DOD considerable flexibility to 

obtain and compensate individuals and exempt them from several provisions of 

current law. 

Potential Safeguards:

• Place numerical or workforce percentage caps on the use of these provisions. 

• Require these provisions only be used to fill critically needed skills that are 

identified as such in DOD’s strategic human capital plan. 

• Place limits on the terms of individuals appointed under certain of the 

authorities noted above (e.g., the experts and consultants). Allow for limited 

re-appointment. 

• Periodically report on the use of such authorities. 

Personal Services Contracts

The legislation gives DOD greater flexibility to enter into personal services 

contracts for experts and consultants for national security missions, including for 

service outside of the United States. Such contracts may waive the Ethics in 

Government Act of 1978, chapter 73 of Title 5 US Code (which includes conduct 

and the Hatch Act), and section 27 of the Office of Federal Procurement Policy 

Act (which includes limitations of subsequent employment for contracting 

officials). We believe that Congress should consider eliminating the waiver 

authority for some or all of the waiver provisions. 
Page 16 GAO-03-493T Human Capital 

Reduction in Force

The legislation could also allow DOD to revise Reduction-in-Force (RIF) rules to 

place greater emphasis on an employee's performance. DOD has indicated that it 

will be considering for application DOD-wide, personnel practices that were 

identified in the April 2, 2003, Federal Register notice. This notice describes 

revised RIF procedures that change the order in which employees would be 

retained under a RIF order and does not directly provide for length of service to 

be considered. Specifically, employees would be placed on a retention list in the 

following order: type of employment (i.e., permanent, temporary), level of 

performance, and veterans’ preference eligibility (disabled veterans will be given 

additional priority), which would reduce the order in which veterans’ preference 

is currently provided. 

Potential safeguards: 

• See the safeguards related to modern, effective and credible performance 

management systems above. 

• Specify in statute—rather than leaving it to DOD to determine--the criteria for 

the release of competing employees in a reduction in force. These may 

include: type of employment, (e.g., permanent, temporary), performance, 

veterans’ preference, and length of service. 

Rightsizing and Organizational Alignment

The proposal also provides that annuitants who receive an annuity from the Civil 

Service Retirement and Disability Fund and become employed in a position within 

the Department of Defense shall continue to receive their unreduced annuity. 

This and selected other NSPS provisions will clearly have incremental budget 

implications for which we have not seen any related cost estimate. 

Potential Safeguards: 

• Require additional financial accountability by requiring DOD to consult with 

OPM on the planned number of reemployed annuitants. 

• Place numerical or FTE percentage limitations on the use of these provisions. 

• Require these provisions only be used to fill critically needed skills that are 

identified as such in DOD’s strategic human capital plan. 

• Place limits on the terms of individuals appointed under this authority. Allow 

for limited re-appointment. 

• Periodically report on the use of such authorities. 

Summary Observations

We at GAO strongly support transforming DOD and the federal government at 

large. In fact, we are in the vanguard of the federal government’s transformation 

and we plan to stay there. We applaud Secretary Rumsfeld and DOD’s 

leadership’s efforts to transform how DOD does business. 
Page 17 GAO-03-493T Human Capital 

Many of the basic principles underlying DOD’s civilian human capital proposal 

have merit and deserve serious consideration. The proposal is, however, 

unprecedented in its size, scope, and significance. As a result, it should be 

considered carefully--and not just from a DOD perspective. DOD’s proposal has 

significant precedent-setting implications for the human capital area in 

government in general, and for OPM, in particular. DOD’s request raises several 

critical questions both for DOD as well as governmentwide policies and 

approaches. Should DOD and/or other federal agencies be granted broad-based 

exemptions from existing law, and if so, on what basis? Does DOD have the 

institutional infrastructure in place to make effective use of the new authorities? 

Agency-specific human capital reforms should be enacted to the extent that the 

problems being addressed and the solutions offered are specific to a particular 

agency (e.g., military personnel reforms for DOD). A government-wide approach 

should be used to address certain flexibilities that have broad-based application 

and serious potential implications for the civil service system, in general, and the 

OPM, in particular. However, in all cases whether from a governmentwide 

authority or agency specific legislation, in our view, such additional authorities 

should be implemented (or operationalized) only when an agency has the 

institutional infrastructure in place to make effective use of the new authorities. 

As you know, we have strongly supported the concept of modernizing federal 

human capital policies, including providing reasonable flexibility to management 

in this critical area. However, adequate safeguards must be in place to prevent 

abuse. Significant progress has been—and is being—made in addressing the 

federal government’s pressing human capital challenges. But experience has 

shown that how it is done, when it is done, and the basis on which it is done, can 

make all the difference in whether or not we are ultimately successful. 

Chairman Voinovich, Mr. Durbin, and Members of the Subcommittee, this 

concludes my prepared statement. I would be pleased to respond to any 

questions that you may have. 

Contacts and Acknowledgments

For questions about this statement, please contact Derek B. Stewart, Director, 

Defense Capabilities and Management on (202) 512-5140 or at stewartd@gao.gov. 

For further information on governmentwide human capital issues, please contact 

J. Christopher Mihm, Director, Strategic Issues, on (202) 512-6806 or at 

mihmj@gao.gov. Major contributors to this testimony included Julia Denman, 

William Doherty, Brenda S. Farrell, Christine Fossett, and Edward H. Stephenson. 

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