[Federal Register Volume 70, Number 210 (Tuesday, November 1, 2005)]
[Rules and Regulations]
[Pages 66116-66220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-21494]



[[Page 66115]]

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Part IV





Department of Defense





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Office of Personnel Management





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5 CFR Chapter XCIX and Part 9901



Department of Defense Human Resources Management and Labor Relations 
Systems; Final Rule

Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / 
Rules and Regulations

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DEPARTMENT OF DEFENSE

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCIX and Part 9901

RIN 3206-AK76/0790-AH82


Department of Defense Human Resources Management and Labor 
Relations Systems

AGENCY: Department of Defense; Office of Personnel Management.

ACTION: Final rule.

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

DATES: Effective November 28, 2005.

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

SUPPLEMENTARY INFORMATION:

Table of Abbreviations

AJ--Administrative Judge
COLA--Cost of Living Adjustment
CONUS--Continental United States
DARPA--Defense Advanced Research Projects Agency
DoD--Department of Defense
ECI--Employment Cost Index
EEO--Equal Employment Opportunity
EEOC--Equal Employment Opportunity Commission
EPI--Extraordinary Pay Increase
FLRA--Federal Labor Relations Authority
FLSA--Fair Labor Standards Act
FMCS--Federal Mediation and Conciliation Service
FSIP--Federal Service Impasses Panel
FWS--Federal Wage System
GAO--Government Accountability Office (former General Accounting 
Office)
GS--General Schedule
HR--Human Resources
KPP--Key Performance Parameter
LWOP--Leave Without Pay
MRO--Mandatory Removal Offense
MSPB--Merit Systems Protection Board
NAF--Nonappropriated Fund
NAPA--National Academy of Public Administration
NSLRB--National Security Labor Relations Board
NSPS--National Security Personnel System
OMB--Office of Management and Budget
OPM--Office of Personnel Management
PEO--Program Executive Office
PFR--Petition for Review
RFR--Request for Review
SES--Senior Executive Service
SL--Senior Level
ST--Scientific or Professional Positions
WGI--Within-Grade Increase

Table of Contents

    This supplementary information section is organized as follows:

Introduction
The Case for Action
    Pay and Classification
    Performance Management
    Staffing, Employment and Workforce Shaping
    Adverse Action and Appeals
    Labor-Management Relations
Development of the National Security Personnel System
    Strategic Engagement and Establishment of the Program Executive 
Office
    Development of Design Options
    Guiding Principles and Key Performance Parameters
    Communications During the Design Process
    Outreach to Employee Representatives
    Outreach to Employees
    Outreach to Other Stakeholders
    Development of Design Options--Working Groups
    Publication of Proposed Regulations
    Public Comments
    Meet-and-Confer Process
Major Issues
    Specificity of the Regulations
    Pay for Performance and Pay Pool Funding
    Adverse Actions and Appeals
    Mandatory Removal Offenses
    Labor Relations
    Management Rights/Scope and Duty to Bargain
    Independence of the National Security Labor Relations Board
Response to Specific Comments and Detailed Explanation of 
Regulations
Subpart A--General Provisions
    Section 9901.101--Purpose
    Section 9901.102--Eligibility and Coverage
    Summary of Coverage Eligibility Chart
    Section 9901.103--Definitions
    Section 9901.104--Scope of Authority
    Section 9901.105--Coordination with OPM
    Section 9901.106--Continuing Collaboration
    Section 9901.107--Relationship to Other Provisions
    Section 9901.108--Program Evaluation
Subpart B--Classification
    Section 9901.201--Purpose
    Section 9901.202--Coverage
    Section 9901.203--Waivers
    Section 9901.204--Definitions
    Section 9901.211--Career Groups
    Section 9901.212--Pay Schedules and Pay Bands
    Section 9901.221--Classification Requirements
    Section 9901.222--Reconsideration of Classification Decisions
    Section 9901.231--Conversion of Positions and Employees to the 
NSPS Classification System
Subpart C--Pay and Pay Administration
    General Comments
    Section 9901.301--Purpose
    Section 9901.302--Coverage
    Section 9901.303--Waivers
    Section 9901.304--Definitions
    Section 9901.311--Major Features
    Section 9901.312--Maximum Rates
    Section 9901.313--National Security Compensation Comparability
    Section 9901.321--Structure
    Section 9901.322--Setting and Adjusting Rate Ranges
    Section 9901.323--Eligibility for Pay Increase Associated with a 
Rate Range Adjustment
    Section 9901.331--General
    Section 9901.332--Local Market Supplements
    Section 9901.333--Setting and Adjusting Local Market Supplements
    Section 9901.334--Eligibility for Pay Increase Associated with a 
Supplement Adjustment
    Section 9901.341--General
    Section 9901.342--Performance Payouts
    Section 9901.343--Pay Reduction Based on Unacceptable 
Performance and/or Conduct
    Section 9901.344--Other Performance Payments
    Section 9901.345--Treatment of Developmental Positions
    Section 9901.351--Setting an Employee's Starting Pay
    Section 9901.352--Setting Pay Upon Reassignment
    Section 9901.353--Setting Pay Upon Promotion
    Section 9901.354--Setting Pay Upon Reduction in Band
    Section 9901.355--Pay Retention
    Section 9901.356--Miscellaneous
    Section 9901.361--General
    Section 9901.371--General
    Section 9901.372--Creating Initial Pay Ranges
    Section 9901.373--Conversion of Employees to the NSPS Pay System
Subpart D--Performance Management
    General Comments
    Section 9901.401--Purpose
    Section 9901.402--Coverage
    Section 9901.403--Waivers
    Section 9901.404--Definitions
    Section 9901.405--Performance Management System Requirements
    Section 9901.406--Setting and Communicating Performance 
Expectations
    Section 9901.407--Monitoring Performance and Providing Feedback
    Section 9901.408--Developing Performance and Addressing Poor 
Performance
    Section 9901.409--Rating and Rewarding Performance
Subpart E--Staffing and Employment
    General Comments
    Section 9901.501--Purpose
    Section 9901.502--Scope of Authority
    Section 9901.503--Coverage
    Section 9901.504--Definitions

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    Section 9901.511--Appointing Authorities
    Section 9901.512--Probationary Periods
    Section 9901.513--Qualification Standards
    Section 9901.514--Non-Citizen Hiring
    Section 9901.515--Competitive Examining Procedures
    Section 9901.516--Internal Placement
Subpart F--Workforce Shaping
    General Comments
    Section 9901.601--Purpose and Applicability
    Section 9901.602--Scope of Authority
    Section 9901.603--Definitions
    Section 9901.604--Coverage
    Section 9901.605--Competitive Area
    Section 9901.606--Competitive Group
    Section 9901.607--Retention Standing
    Section 9901.608--Displacement, Release, and Position offers
    Section 9901.609--Reduction in force Notices
    Section 9901.610--Voluntary Separation
    Section 9901.611--Reduction in force Appeals
Subpart G--Adverse Actions
    General Comments
    Section 9901.701--Purpose
    Section 9901.702--Waivers
    Section 9901.703--Definitions
    Section 9901.704--Coverage
    Section 9901.711--Standard for Action
    Section 9901.712--Mandatory Removal Offenses
    Section 9901.714--Proposal Notice
    Section 9901.715--Opportunity to Reply
    Section 9901.716--Decision Notice
    Section 9901.717--Departmental Record
Subpart H--Appeals
    General Comments
    Section 9901.802--Applicable Legal Standards and Precedents
    Section 9901.803--Waivers
    Section 9901.804--Definitions
    Section 9901.805--Coverage
    Section 9901.806--Alternative Dispute Resolution
    Section 9901.807--Appellate Procedures
    Section 9901.808--Appeals of Mandatory Removal Actions
    Section 9901.809--Actions Involving Discrimination
Subpart I--Labor-Management Relations
    General Comments
    Section 9901.901--Purpose
    Section 9901.902--Scope of Authority
    Section 9901.903--Definitions
    Section 9901.904--Coverage
    Section 9901.905--Impact on Existing Agreements
    Section 9901.906--Employee Rights
    Section 9901.907--National Security Labor Relations Board
    Section 9901.908--Powers and Duties of the Board
    Section 9901.909--Powers and Duties of the Federal Labor 
Relations Authority
    Section 9901.910--Management Rights
    Section 9901.911--Exclusive Recognition of Labor Organizations
    Section 9901.912--Determination of Appropriate Units for Labor 
Organization Representation
    Section 9901.913--National Consultation
    Section 9901.914--Representation Rights and Duties
    Section 9901.916--Unfair Labor Practices
    Section 9901.917--Duty to Bargain and Consult
    Section 9901.918--Multi-Unit Bargaining
    Section 9901.919--Collective Bargaining Above the Level of 
Recognition
    Section 9901.920--Negotiation Impasses
    Section 9901.921--Standards of Conduct for Labor Organizations
    Section 9901.922--Grievance Procedures
    Section 9901.923--Exceptions to Arbitration Awards
    Section 9901.924--Official Time
    Section 9901.925--Compilation and Publication of Data
    Section 9901.926--Regulations of the Board
    Section 9901.927--Continuation of Existing Laws, Recognitions, 
Agreements, and Procedures
    Section 9901.928--Savings Provisions
Next Steps
    NSPS Implementation
    Employee Transition Plan (Spiral Strategy)
    HR and Labor Relations Transition
    Development of Implementing Issuances and Continuing 
Collaboration Training
Regulatory Requirements
    E.O. 12866--Regulatory Review
    Regulatory Flexibility Act
    E.O. 12988--Civil Justice Reform
    E.O. 13132--Federalism
    Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35)
    Unfunded Mandates

Introduction

    The Secretary of Defense, Donald Rumsfeld, and the Director of the 
Office of Personnel Management, Linda M. Springer, jointly prescribe 
this final regulation to establish a flexible and contemporary system, 
consistent with statutory merit system principles and prohibitions 
against prohibited personnel practices (in 5 U.S.C. 2301 and 2302, 
respectively), for managing the Department's human capital. This system 
has been developed pursuant to a process based on extensive outreach to 
employees and employee representatives. In addition, DoD and OPM have 
engaged in outreach to the public as well as to the Congress and other 
key stakeholders. As enacted by section 1101 of the National Defense 
Authorization Act (Pub. L. 108-136, November 24, 2003, hereinafter 
referred to as ``enabling legislation'' or ``enabling statute'') and 
codified at 5 U.S.C. 9902, the system preserves all core civil service 
protections, including merit system principles, veterans' preference, 
and due process. It also protects against discrimination, retaliation 
against whistleblowers, and other prohibited personnel practices, and 
ensures that employees may organize and bargain collectively (when not 
otherwise prohibited by law, including these regulations, applicable 
Executive orders, and any other legal authority).
    This Supplementary Information addresses the following areas:
    <bullet> The Case for Action
    <bullet> Summary of the Design Process
    [cir] Strategic Engagement and Establishment of the Program 
Executive Office
    [cir] Development of Design Options
    [cir] Meet-and-Confer Process
    <bullet> Major Issues
    <bullet> Response to Specific Comments and Detailed Explanation of 
Regulations
    <bullet> Next Steps

The Case for Action

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

    With that statement on May 25, 2001, President Bush set a new 
direction for defense strategy and defense management--one toward 
transformation. On January 31, 2002, Secretary of Defense Donald 
Rumsfeld echoed the sentiments expressed by President Bush, stating 
that ``[a]ll the high-tech weapons in the world will not transform the 
U.S. armed forces unless we also transform the way we think, the way we 
train, the way we exercise, and the way we fight.''
    Transformation is more than acquiring new equipment and embracing 
new technology--it is the process of working and managing creatively to 
achieve real results. To transform the way DoD achieves its mission, it 
must transform the way it leads and manages the people who develop, 
acquire, and maintain our Nation's defense capability. Those 
responsible for defense transformation--including DoD civilian 
employees--must anticipate the future and wherever possible help create 
it. The Department must seek to develop new capabilities to meet 
tomorrow's threats as well as those of today. NSPS is a key pillar in 
the Department of Defense's transformation--a new way to manage its 
civilian workforce. NSPS is essential to the Department's efforts to 
create an environment in which the Total Force (military personnel, 
civilian employees, and contractors) thinks and operates as one 
cohesive unit.
    DoD civilians are unique in government: They are an integral part 
of an organization that has a military function. DoD civilians must 
complement and support the military around the world in every time 
zone, every day. Just as new threats, new missions, new technology, and 
new tactics are changing the work of the military, they are changing 
the work of our 700,000 civilians. To support the

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interests of the United States in today's national security 
environment--where unpredictability is the norm and greater agility the 
imperative--civilians must be an integrated, flexible, and responsive 
part of the team.
    At best, the current personnel system is based on 20th century 
assumptions about the nature of public service and cannot adequately 
address the 21st century national security environment. Although the 
current Federal personnel management system is based on important core 
principles, those principles are operationalized in an inflexible, one-
size-fits-all system of defining work, hiring staff, managing people, 
assessing and rewarding performance, and advancing personnel. These 
inherent weaknesses make support of DoD's mission complex, costly, and 
ultimately risky. Currently, pay and the movement of personnel are 
pegged to outdated, narrowly defined work definitions; hiring processes 
are cumbersome; high performers and low performers are paid alike; and 
the labor system encourages a dispute-oriented, adversarial 
relationship between management and labor. These systemic 
inefficiencies detract from the potential effectiveness of the Total 
Force. A more flexible, mission-driven system of human resources 
management that retains those core principles will provide a more 
cohesive Total Force. The Department's 20 years of experience with 
transformational personnel demonstration projects, covering nearly 
30,000 DoD employees, has shown that fundamental change in personnel 
management has positive results on individual career growth and 
opportunities, workforce responsiveness, and innovation; all these 
things multiply mission effectiveness.
    The immense challenges facing DoD today require a civilian 
workforce transformation: Civilians are being asked to assume new and 
different responsibilities, take more risk, and be more innovative, 
agile, and accountable than ever before. It is critical that DoD 
supports the entire civilian workforce with modern systems--
particularly a human resources management system and a labor relations 
system that support and protect their critical role in DoD's Total 
Force effectiveness. The enabling legislation provides the Department 
of Defense with the authority to meet this transformation challenge.
    More specifically, the law provides the Department and OPM--in 
collaboration with employee representatives--authority to establish a 
flexible and contemporary system of civilian human resources management 
for DoD civilians. The attacks of September 11 and the continuing war 
on terrorism make clear that flexibility is not a policy preference. It 
is nothing less than an absolute requirement, and it must become the 
foundation of DoD civilian human resources management.
    NSPS is designed to promote a performance culture in which the 
performance and contributions of the DoD civilian workforce are more 
fully recognized and rewarded. The system offers the civilian workforce 
a contemporary pay-banding construct, which will include performance-
based pay. As the Department moves away from the General Schedule 
system, it will become more competitive in setting salaries and it will 
be able to adjust salaries based on various factors, including labor 
market conditions, performance, and changes in duties. The HR 
management system is a foundation for a leaner, more flexible support 
structure and will help attract skilled, talented, and motivated 
people, while also retaining and improving the skills of the existing 
workforce.
    Despite the professionalism and dedication of DoD civilian 
employees, the limitations imposed by the current personnel system 
often prevent managers from using civilian employees effectively. The 
Department sometimes uses military personnel or contractors when 
civilian employees could have and should have been the right answer. 
The current system limits opportunities for civilians at a time when 
the role of DoD's civilian workforce is expanding to include more 
significant participation in Total Force effectiveness. NSPS will 
generate more opportunities for DoD civilians by easing the 
administrative burden routinely required by the current system and 
providing an incentive for managers to turn to them first when certain 
vital tasks need doing. This will free uniformed men and women to focus 
on matters unique to the military.
    The law requires the Department to establish a contemporary and 
flexible system of human resources management. DoD and OPM crafted NSPS 
through a collaborative process involving management, employees, and 
employee representatives. DoD leadership will ensure that supervisors 
and employees understand the new system and can function effectively 
within it. The system retains the core values of the civil service and 
allows employees to be paid and rewarded based on performance, 
innovation, and results. In addition, the system provides employees 
with greater opportunities for career growth and mobility within the 
Department.
    A key to the success of NSPS is ensuring employees perceive the 
system as fair. In a human resources management system, fairness is the 
basis for trust between employees and supervisors. The Department's 
mission cannot be accomplished without the workforce. It is a tenet of 
the Department that employees will exercise personal responsibility and 
sustain a high level of individual performance and teamwork when they 
perceive that the human resources system and their supervisors are 
fair.
    The Department and the Office of Personnel Management are 
addressing fairness in the National Security Personnel System in 
several dimensions: System design; the right to seek review of 
important categories of management decisions; workforce access to 
information about system provisions, processes, and decision criteria; 
and accountability mechanisms.
    NSPS regulations and implementing issuances will include rules to 
guard against arbitrary actions. Examples include written performance 
expectations, the guarantee that employees rated higher than 
``unacceptable'' will receive the full minimum by which their pay rate 
range is adjusted, the requirement to prescribe the conditions for 
probationary periods established by the Secretary, public notice of 
vacancies when the Department is recruiting externally, and prohibition 
against establishing reduction in force competitive areas that target 
an individual employee on the basis of non-merit factors.
    NSPS continues employees' and labor organizations' rights to 
challenge or seek review of key decisions. For example, all employees 
will be able to request reconsideration of their performance ratings 
through an administrative grievance procedure. Bargaining unit 
employees will also have the option of using a negotiated grievance 
procedure. Employees must be notified in advance of a proposed adverse 
action, be given time and opportunity for reply, and be given a 
decision notice that includes the reasons for the decision. Labor 
organization officials may file unfair labor practice claims or 
grievances.
    The Department and its Components will make information about NSPS 
rules, policies, and practices readily available to the workforce in 
the form of published regulations, published implementing issuances, 
local level instructions, training, and other sources.
    The last dimension of accountability for fair decisions and 
practices under NSPS will call on two major streams of information. 
First, human resources management accountability reviews

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within the Department will be used to identify and address issues 
regarding the observance of merit system principles and regulatory and 
policy requirements, including those established under NSPS. In 
addition, the Department will monitor the outcomes of administrative 
and negotiated grievances, performance rating reconsiderations, equal 
employment opportunity complaints, and whistleblower complaints to 
correct chronic problems and particular failings.
    The second stream will be NSPS program evaluation findings. These 
will enable the Secretary and the Director to determine whether the 
design of NSPS and the pattern of its results meet statutory 
requirements like fairness and equity and the specific performance 
expectations of the NSPS Requirements Document for a credible and 
trusted system. Section 9901.108 of these final regulations codifies 
the requirement for NSPS program evaluation. It opens to designated 
employee representatives the design and results of evaluations of 
particular NSPS aspects so that they can provide comments and 
recommendations to help ensure balanced and fair methods and 
conclusions. A robust and long-term NSPS program evaluation plan of 
studies and reviews, transactional data analyses, opinion surveys, and 
other evaluative methods will be fielded with NSPS implementation.
    Fairness in NSPS is not a specific thing, but rather an intrinsic 
quality being built into the design of a flexible human resources 
management system--one to be accounted for during reviews and 
evaluations of NSPS operations and decisions.

A. Pay and Classification

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

B. Performance Management

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

C. Staffing, Employment and Workforce Shaping

    NSPS will retain the merit system principles and veterans' 
preference while giving the Department the flexibility necessary to 
streamline the hiring process and adapt quickly to critical mission 
needs. The Department will be able to use direct-hire authority for 
severe shortage or critical needs. NSPS will also provide for a more 
efficient process for creating appointing authorities, in conjunction 
with the Office of Personnel Management, as new requirements emerge. As 
part of this process, the system provides for transparency and public 
awareness through notice in the Federal Register. The new pay-setting 
flexibilities will also enhance the Department's ability to attract and 
retain the talented workforce necessary to accomplish its mission.
    Through workforce shaping flexibilities, the Department will create 
a reduction in force system that places more emphasis on performance 
while continuing to protect veterans' preference rights. The downsizing 
process will be less disruptive to employees and the mission. The 
Department will continue to fully utilize tools such as separation 
incentives and the Priority Placement Program to avoid and mitigate the 
impact of any reductions it faces.

D. Adverse Actions and Appeals

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

E. Labor Management Relations

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

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

Development of the National Security Personnel System

A. Strategic Engagement and Establishment of Program Executive Office

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

B. Development of Design Options

Guiding Principles and Key Performance Parameters
    In setting up the process for the design of the system, senior 
leadership adopted a set of Guiding Principles as a compass to direct 
efforts throughout all phases of NSPS development. They translate and 
communicate the broad requirements and priorities outlined in the 
enabling legislation into concise, understandable requirements that 
underscore the Department's purpose and intent in creating NSPS. The 
Guiding Principles are:
    <bullet> Put mission first--support National Security goals and 
strategic objectives;
    <bullet> Respect the individual--protect rights guaranteed by law;
    <bullet> Value talent, performance, leadership and commitment to 
public service;
    <bullet> Be flexible, understandable, credible, responsive, and 
executable;
    <bullet> Ensure accountability at all levels;
    <bullet> Balance HR interoperability with unique mission 
requirements; and
    <bullet> 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:
    <bullet> High Performing: Employees/supervisors are compensated/
retained based on performance/contribution to mission;
    <bullet> Agile and Responsive: Workforce can be easily sized, 
shaped, and deployed to meet changing mission requirements;
    <bullet> Credible and Trusted: System assures openness, clarity, 
accountability and merit principles;
    <bullet> 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;
    <bullet> Supporting Infrastructure: Information technology support 
and training and change management plans are available and funded; and
    <bullet> Schedule: NSPS will be operational and demonstrate success 
prior to November 2009.
Communications During the Design Process
    In undertaking a project of this magnitude, impacting over 700,000 
civilians of the Department, it was essential to ensure the 
availability of information on the new HR and labor relations systems. 
It was also critical to solicit the views and ideas of employees, 
employee representatives and other stakeholders.
    In April 2004, the PEO developed and implemented a communications 
strategy. The objectives of DoD's communications strategy are to (1) 
demonstrate the rationale for and benefits of NSPS; (2) demonstrate 
openness and transparency in the design and process of converting to 
NSPS; (3) express DoD's commitment to ensuring NSPS is applied fairly 
and equitably; and (4) address potential criticism of NSPS.
    The PEO identified numerous channels for disseminating relevant, 
timely, and consistent information. These include: Print and electronic 
media; e-mail; town hall meetings; focus groups; speeches; and 
briefings. A website was developed to serve as a primary, two-way 
communications tool for the workforce, other stakeholders, and the 
general public. The website includes the capability for visitors to 
submit questions and comments. The PEO has responded to thousands of 
questions and comments.
    The website will remain available during implementation and will 
provide current information for managers, supervisors and employees.
Outreach to Employee Representatives
    In January and February 2004, we met with union leaders for the 
purpose of exchanging ideas and interests on a new labor relations 
system. All unions holding DoD national consultation rights (NCR) at 
the time were invited to the January 22, 2004, meeting. Seven of these 
eight NCR unions elected to attend. In addition, one additional union 
without DoD national consultation rights was invited to attend and 
participated in the January 22, 2004, meeting. Union leadership from 
all of the 43 unions representing DoD employees were invited to attend 
and participate in the February 26-27, 2004, meeting. Twenty-six unions 
attended and participated in the February 2004 meeting.
    In the spring of 2004 and continuing over the course of several 
months, we sponsored a series of additional meetings with union 
leadership to discuss design elements of NSPS. Officials from DoD and 
OPM met throughout the summer and fall with union officials 
representing many of the DoD civilians who are bargaining unit 
employees. These sessions provided the opportunity to discuss the 
design elements, options, and proposals under consideration for NSPS 
and solicit union feedback.
    During this time, 10 meetings (in addition to the 2 meetings held 
in January and February 2004) were held with officials of the 43 unions 
that represent DoD employees, including the 9 unions that currently 
have national consultation rights. These union officials represent over 
1,500 separate bargaining units covering about 450,000 employees. These 
meetings involved as many as 80 union leaders from the national and 
local level at any one time, and addressed a variety of topics, 
including: The reasons change is needed and the Department's interests; 
employee communications; and

[[Page 66121]]

proposed design options in the areas of labor relations and collective 
bargaining, adverse actions and appeals, and pay and performance 
management.
Outreach to Employees
    In keeping with DoD's commitment to provide employees and managers 
an opportunity to participate in the development of NSPS, the PEO 
sponsored a number of Focus Group sessions and town hall meetings at 
various sites across DoD. In mid-July 2004, a total of 106 focus groups 
were held throughout DoD, including overseas locations. Separate focus 
groups were held for employees, civilian and military supervisors, and 
managers and practitioners from HR, legal and EEO communities. 
Bargaining unit employees and union leaders were invited to 
participate. For the major system design elements, focus group 
participants were asked what they thought worked well in the current HR 
systems and what they thought should be changed. Over 10,000 comments, 
ideas and suggestions received during the focus group sessions were 
summarized and provided to NSPS Working Groups for use in developing 
options for the labor relations, appeals, adverse actions, and human 
resources design elements of NSPS.
    In addition, town hall meetings were held in DoD facilities around 
the world during the summer of 2004, providing an opportunity to 
communicate with the workforce, provide the status of the design and 
development of NSPS, and solicit thoughts and ideas. The NSPS Senior 
Executive, Secretary England, conducted the first town hall meeting at 
the Pentagon on July 7, 2004. Some of the town hall meetings were 
broadcast live, as well as videotaped and rebroadcast on military 
television channels and websites to facilitate the widest possible 
dissemination.
Outreach to Other Stakeholders
    In addition to reaching out to DoD employees and labor 
organizations, DoD and OPM met with other groups who were thought to be 
interested in the design of a new HR system for DoD. DoD and OPM 
invited selected stakeholders to participate in briefings held at OPM 
in August and September 2004.
    Those invited to the briefings included: Public interest groups, 
such as the National Academy of Public Administration (NAPA), Coalition 
for Effective Change, and Partnership for Public Service; veterans' 
service organizations; and non-union employee advocacy groups. Both 
before and after these briefings, DoD and OPM responded to dozens of 
requests for special briefings. DoD and OPM also met with the 
Government Accountability Office, Office of Management and Budget, and 
Department of Homeland Security to keep them up to date on the team's 
activities; and consulted with the Merit Systems Protection Board on 
the appeals process to ensure that it provides employees the 
protections of due process.
Development of Design Options--Working Groups
    In order to incorporate all the information and develop options, 
the PEO established functionally aligned Working Groups. Over 120 
employees representing the Military Departments (Army, Navy, Air 
Force), other DoD Components, and OPM participated in the process.
    The Working Groups reviewed all available information, including: 
Pertinent laws, rules, regulations; input from NSPS focus groups and 
town hall; union consultation meetings; data review and analysis from 
alternative personnel systems and laboratory and acquisition 
demonstration projects; the enabling legislation; and Guiding 
Principles and Key Performance Parameters. In addition, subject matter 
experts briefed the Working Groups on a variety of topics, such as pay-
for-performance systems, alternative personnel systems, pay pool 
management, and market sensitive compensation systems.
    In developing options for the NSPS, the Working Groups benefited 
from the Government's experience under demonstration project 
authorities (e.g. the China Lake Demonstration Project originally 
authorized by section 6 of the Civil Service Miscellaneous Amendments 
Act of 1983; the Defense reinvention laboratory demonstration projects 
authorized by section 342 of the National Defense Authorization act for 
fiscal year 1995, as amended; and the Acquisition Workforce 
Demonstration Project, authorized be section 4308 of the National 
Defense Authorization Act for fiscal year 1996, as amended) and 
alternative personnel systems (e.g. the Defense Intelligence Personnel 
System, the Government Accountability Office, and the Federal Aviation 
Administration), the DoD ``Best Practices'' initiative (68 FR 16120, 
April 2, 2003), and the compilation of research materials from the 
Department of Homeland Security HR Systems Design process.
    At the conclusion of the process, the Working Groups provided a set 
of options covering a broad range of variations on the six areas of 
focus: (1) Compensation (classification and pay banding); (2) 
performance management; (3) hiring, assignment, pay setting, and 
workforce shaping; (4) employee engagement; (5) adverse action and 
appeals; and (6) labor relations. Each option was evaluated against the 
Guiding Principles and KPPs.
    Potential options presented a wide range of views and concerns. The 
PEO and senior leaders representing organizations within DoD reviewed 
all the options. After extensive discussion, the selected options were 
presented to the Overarching Integrated Product Team (OIPT) for review 
and the Senior Executive for approval.
Publication of Proposed Regulations
    These extensive and collaborative design efforts all preceded the 
formal process for developing the new HR and labor relations systems. 
The enabling legislation established a formal process in this regard, 
officially beginning when the Secretary and the Director published 
proposed regulations to establish the new DoD HR and labor relations 
systems in the Federal Register on February 14, 2005. The process was 
designed to ensure collaboration with employee representatives in the 
design and implementation of the new HR and labor relations systems.
    The first formal step provided a 30-day period for the public, 
employees, and employee representatives to review and submit formal 
comments on the proposed system. The second step provided for a minimum 
of 30 days to ``meet and confer'' with employee representatives in 
order to attempt to reach agreement on the design of the new system. 
The third step required notification to Congress on the decision to 
implement the new system. The new system becomes effective 30 days 
after congressional notification.

C. Public Comments

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

[[Page 66122]]

fairness in the system and the need for training of employees and 
managers. Concerns were expressed about maintaining due process and the 
scope of bargaining.
    Many of the comments were from national labor organizations and 
their members.\1\ Almost 80 percent of the comments were form letters 
submitted by email or letter.\2\ The form letters expressed general 
opposition to the proposed regulations. These submissions expressed 
concerns that the proposed regulations lacked sufficient specificity. 
The comments also expressed a desire to remain with the current system, 
citing too much power being given to managers and supervisors, with no 
corresponding accountability. Specific concerns included: Adequate 
funding of pay pools; deployment of civilians to war zones; and the 
lack of third-party review for performance appraisals, adverse actions 
and labor disputes. There was also concern that the regulations did not 
adhere to congressional intent to maintain the requirements of the 
applicable labor relations statutes. Approximately 415 of the 
commenters included substantive analysis of the proposed regulations. 
Virtually all of these comments favor some changes, along with a wide 
variety of views on the merits of the proposed regulations.
---------------------------------------------------------------------------

    \1\ DoD has 43 different unions representing over 1,500 separate 
bargaining units covering about 450,000 employees. In the spring of 
2004, thirty-six unions joined together to form the United 
Department of Defense Workers Coalition (``the Coalition'').
    \2\ There were 41 different form letters totaling 43,714 
comments. An additional 1,850 form letters were received with 
additional comments added by the commenter.
---------------------------------------------------------------------------

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

D. The Meet-and-Confer Process

    The public comment period was followed by the second step in the 
formal development process--an additional 30-day period during which 
DoD and OPM representatives were to meet and confer with employee 
representatives to resolve differences over the proposed regulations 
wherever possible.
    The meet-and-confer process began officially in April 2005. On 
April 8, 2005, a meeting with labor organizations was held to discuss 
procedures to be followed during the meet-and-confer process.
    The following principals participated in the meet-and-confer 
process:
    <bullet> Forty-three labor organizations were invited to 
participate. Thirty-six of those labor organizations were represented 
by a ``coalition'' led by the AFL-CIO, and were authorized to send an 
unlimited number of representatives. Eighteen of the labor 
organizations chose to send representatives. The actual number of 
representatives present in the room typically ranged from 25 to 50.
    <bullet> The coalition includes: American Federation of State, 
County and Municipal Employees (AFSCME); American Nurses Assn. (ANA); 
Antilles Consolidated Education Assn. (ACEA); Assn. of Civilian 
Technicians (ACT); American Federation of Government Employees (AFGE); 
American Federation of Teachers (AFT); Communications Workers of 
America (CWA); Fairchild Federal Employees Union (FFEU); Federal 
Education Assn. (FEA); Int'l. Assn. of Machinists and Aerospace Workers 
(IAMAW); Graphic Communications International Union (GCIU); Hawaii 
Council of Commissary Dept. of Defense Unions (HCCDU); Int'l. 
Brotherhood of Boilermakers; Int'l. Assn. of Fire Fighters (IAFF); 
Int'l. Assn. of Tool Craftsman (IATC); Int'l. Brotherhood of Electrical 
Workers (IBEW); Int'l. Brotherhood of Teamsters, Chauffeurs, 
Warehousemen and Helpers of America (IBT); Int'l. Guard Union of 
America (IGUA); Int'l. Union of Operating Engineers (IUOE); Int'l. 
Union of Painters and Allied Trades (IUPAT); Int'l. Federation of 
Professional and Technical Engineers (IFPTE); Int l. Organization of 
Masters, Mates and Pilots (IOMMP); Laborers International Unions 
(LIUNA); National Marine Engineers Beneficial Assn. (MEBA); Metal 
Trades Dept./AFL-CIO (MTD); National Assn. of Aeronautical Examiners 
(NAAE); National Air Traffic Controller Assn. (NATC); National 
Federation of Federal Employees (NFFE); National Assn. of Gov. 
Employees (NAGE); Professional Airways Systems Specialists (PASS); 
Retail Wholesale, and Department Store Union (RWDSU); Seafarers Int'l. 
Union of North America (SIUNA); Service Employees International Union 
(SEIU); Sheet Metal Workers Int'l. Assn. (SMWIA); Sport Air Traffic 
Controllers (SPORT); United Assn. of Journeymen and Apprentices of the 
plumbing, sprinkler fitting industry of the U.S. and Canada (UA); 
United Nurses Assn. of California (UNAC); and United Power Trades Org. 
(UPTO)
    <bullet> Other unions also participated in the meet-and-confer 
process. These include: Fraternal Order of Police (FOP) and the 
National Assn. of Independent Labor (NAIL).
    <bullet> Five representatives from DoD, including the Principal 
Deputy Under Secretary of Defense (Personnel and Readiness), the 
Program Executive Officer, the Deputy PEO, and two senior program 
managers.
    <bullet> Two senior executives from the Office of Personnel 
Management (OPM) and various senior program managers as necessary.
    The Secretary, in consultation with the Acting Director,\3\ also 
requested the services of the Federal Mediation and Conciliation 
Service for the entire meet-and-confer process. Face-to-face meet-and-
confer sessions occurred from April 18, 2005, through June 2, 2005. 
During that period, the parties met for 19 days, with other days spent 
preparing for meetings and exchanging recommendations for amendments to 
the regulations. The Department provided 36 written recommendations to 
revise the regulations as well as 14 recommended clarifications of 
intent. The unions presented revised regulations for each subpart of 
the proposed regulations in addition to other revisions covering such 
topics as--exigencies and post-implementation bargaining, implementing 
issuances, and third-party review of performance appraisals and adverse 
actions. At the conclusion of the meet-and-confer process, the NSPS 
Senior Executive and the Acting Director of OPM met with 
representatives from the labor organizations in mid-June 2005, to 
provide them with an opportunity to present their issues and concerns 
directly to the principals.
---------------------------------------------------------------------------

    \3\ During this period of time, the Honorable Dan Blair was 
Acting Director of the Office of Personnel Management. On June 28, 
2005, the Honorable Linda M. Springer was sworn in as OPM's 
Director.
---------------------------------------------------------------------------

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

[[Page 66123]]

such as extending employees the right to grieve performance ratings of 
record, restricting authority to issue implementing issuances \4\ that 
supersede inconsistent provisions of collective bargaining agreements, 
changing the standard for mitigating penalties, providing an 
opportunity for labor organizations to submit names of potential 
members of the NSLRB, and retaining the current interest of justice 
standard for payment of attorney fees. Other revisions are purely 
technical.
---------------------------------------------------------------------------

    \4\ Implementing issuances are defined in Sec.  9901.103 of the 
regulations. Issuances are defined in Sec.  9901.903.
---------------------------------------------------------------------------

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

Major Issues

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

 a. Specificity of the Regulations

    A significant issue raised in the public comments and during the 
meet-and-confer process concerns the lack of specificity in the 
proposed regulations. Many of the commenters recommended that the 
regulations include far greater specificity, while others referred to 
the inability to provide substantive comments on the proposed rule 
without more information.
    These comments and concerns focused almost exclusively on the 
subparts establishing the HR system--those dealing with Subpart B--
Classification, Subpart C--Pay and Pay Administration, Subpart D--
Performance Management, Subpart E--Staffing and Employment, and Subpart 
F--Workforce Shaping. Those subparts remain relatively general in 
nature and expressly provide for the Department to develop implementing 
issuances to carry out the policies established in accordance with 
NSPS. In contrast, the subparts dealing with adverse actions, appeals, 
and labor relations (subparts G, H, and I, respectively) are more 
detailed, requiring fewer implementing issuances.
    The law requires the Department to establish a contemporary and 
flexible system of human resources management (see 5 U.S.C. 9902(b) (1) 
and (2)). Of all of the various objectives set by Congress for this 
system in the enabling legislation, flexibility was the very first 
enumerated. Unnecessary and excessive detail in subparts B, C, D, E, 
and F would undermine that objective. The regulations provide the 
overall framework for the new HR system without the inflexible 
requirements present in today's system. In response to these comments, 
and as a result of the meet-and-confer process, we have added greater 
detail to certain sections of the subparts at issue. These additions 
are documented at length in our responses to the detailed comments that 
follow.
    However, even with added detail, all five of the subparts at issue 
retain their original structure in the final regulations, establishing 
a general policy framework to be supplemented by detailed Departmental 
implementing issuances. We believe this is the appropriate approach, 
providing the Department the flexibility it requires in implementing an 
HR system of this scope.
    Labor organization comments focus primarily on process, asserting 
that by including greater detail in the proposed regulations, they 
would have been given an opportunity to participate and provide input 
to the final regulations via the statutory meet-and-confer process set 
forth in 5 U.S.C. 9902(f)(1)(A)-(C). Among other things, that statutory 
process requires the Department and OPM to provide employee 
representatives with an opportunity to comment on the proposed 
regulations and, thereafter, meet with DoD and OPM officials (under the 
auspices of the Federal Mediation and Conciliation Service, if 
necessary) in an attempt to resolve any concerns and disagreements. As 
the labor organizations and other commenters have correctly pointed 
out, the proposed regulations did not provide for an analogous 
opportunity with respect to the development of implementing issuances. 
This became a major topic of discussion during the meet-and-confer 
process, with labor organizations insisting that DoD and OPM either 
include all implementing details in these final regulations or subject 
the Department's implementing issuances to collective bargaining. We 
did not adopt either alternative. Including such detail in these 
regulations would not provide the Department the flexibility its 
mission requires. In addition, collective bargaining over the content 
of implementing issuances is prohibited by the enabling legislation.
    In summary, the inflexibility of the current system required new 
ways to meet the rapidly changing requirements for DoD civilians to 
provide support to the military members. A standardized, yet flexible 
DoD environment that promotes the growth of all employees and improves 
the manager's ability to manage the workforce is essential. The 
regulations were developed to provide the Department the ability to 
maintain flexibility, while at the same time involving employee 
representatives in

[[Page 66124]]

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

b. Pay for Performance and Pay Pool Funding

    The pay system we described in the proposed regulations was 
designed to fundamentally change the way we pay employees in the 
Department of Defense. Instead of a pay system based primarily on 
tenure and time-in-grade, we proposed a system that bases individual 
pay increases on performance. This proposal honors major points that 
were debated by the Congress and agreed upon with the passage of the 
enabling legislation. In addition, the proposed pay system would be far 
more market-sensitive than the current pay system. The proposed changes 
relating to classification, pay, and performance management were 
designed to achieve these two primary goals.
    A number of commenters agreed with the proposal to create a more 
occupation-specific and market- and performance-based classification 
and pay system. However, most commenters strongly recommended that we 
maintain the status quo; that is, that DoD continue to rely on the 
General Schedule (GS) and Federal Wage System (FWS) classification and 
pay systems. Many commenters thought the proposed pay-for-performance 
system would lower employee morale, increase competition among 
employees, and undermine teamwork and cooperation. Some also questioned 
the ability of the Department to successfully implement the proposed 
system, or of DoD managers to establish and apply performance standards 
fairly and consistently to pay decisions. Other commenters thought a 
pay-for-performance system would have a chilling effect on the 
expression of dissenting opinions, especially those concerning fraud, 
waste, and abuse. Some commenters recommended that current employees be 
allowed to remain in the existing system or have the option to stay in 
the current system or convert to NSPS. Still others wanted a more 
gradual implementation with testing of the effectiveness of the new 
system on various populations first.
    We have retained the system described in the proposed regulations. 
We believe Congress and the American people expect their public 
employees to be paid according to how well they perform, rather than 
how long they have been on the job. They also expect the Department to 
do everything it can to recruit and retain the most talented 
individuals it can find to carry out its critical mission. The GS and 
FWS pay systems do not provide the opportunity to appropriately reward 
top performers or pay them according to their true value in the labor 
market. Under the GS and FWS pay systems, performance is rewarded as an 
exception rather than the rule, and market is defined as ``one size 
fits all,'' with no distinction for differences in market pay based on 
occupation.
    The GS and FWS pay systems are primarily longevity-based systems--
that is, pay increases are linked primarily to the passage of time. 
While time in grade determines eligibility for a GS or FWS step 
increase, it is true that a finding that the employee is performing at 
an acceptable level of competence is also required. However, this 
minimal requirement is met by roughly 99 percent of all GS employees. 
Thus, at any given grade level, the vast majority of employees can 
expect to automatically receive base pay increases of up to 30 percent 
over time--in addition to the annual across-the-board pay increases--so 
long as their performance is ``acceptable.'' Even employees whose 
performance is unacceptable receive annual across-the-board pay 
increases that range from 3 to 5 percent, and special rates that are 
even higher. Over time, even less productive employees will progress 
steadily to the top of the GS and FWS pay ranges and may end up being 
paid significantly more than higher-performing employees with less time 
in grade. Such a system cannot be fairly characterized as providing 
performance-based pay.
    The NSPS pay-for-performance system, by contrast, is designed to 
recognize and reward performance in two key ways. First, it establishes 
the fundamental principle that no employee may receive a base pay or 
local market supplement increase if his or her performance does not 
meet or exceed expectations. In contrast to the present pay systems, 
employees rated unacceptable will not get an annual adjustment. Second, 
the NSPS system provides for individual base pay increases based on an 
employee's performance, whether by demonstrating requisite competencies 
at the entry/developmental level or by meeting or exceeding performance 
expectations at the full performance level. In contrast to the present 
pay systems, under NSPS, an employee will progress through the pay 
range based on how well he or she performs.
    This concept may be simply summarized: The higher the performance, 
the higher the pay. This, too, is a fundamental principle of the new 
system, and we choose the order of these words deliberately. This 
system does not assume that individuals are motivated by pay, but 
rather that we have an obligation as an employer to reward the highest 
performers with additional compensation--however they may be motivated 
to achieve excellence. The Department has a special responsibility in 
this regard. Thus, the system we have designed is not a ``performance-
for-pay'' system, but a ``pay-for-performance'' system. Nevertheless, 
we believe it will inspire DoD employees to perform at their best. This 
is in contrast to the GS and FWS pay systems, where it is possible for 
a high-performing employee to be paid the same, or even less, than a 
lower performing co-worker.
    As it designs and implements NSPS, the Department is taking the 
following steps to ensure that the performance management system 
functions properly:
    <bullet> Training managers to provide candid and constructive 
feedback to help employees maximize their contribution and potential;
    <bullet> Emphasizing the need for ongoing and meaningful dialogue 
between managers and employees;
    <bullet> Use of a pay pool process to ensure that performance 
decisions are made in a careful, deliberative environment that uses a 
consistent approach to decisions regarding performance ratings and 
shares;
    <bullet> Implementing a new competency-based performance management 
system that is intended to create a clear linkage between employee 
performance and the Department's strategic plan and core values;
    <bullet> Increasing employee understanding and ownership of 
organizational goals and objectives;
    <bullet> Adopting automation tools that facilitate ``best 
practices'' in the pay-for-performance environment;
    <bullet> Reinforcing the use of team and organizational rewards; 
and

[[Page 66125]]

    <bullet> Preserving non-cash rewards as tools to recognize 
performance.
    The 50-plus-year-old GS pay system also is not sufficiently market-
sensitive, potentially under-valuing the talents of the Department's 
most critical employees. Under the GS and FWS pay systems, all 
employees in a given geographic location receive the same annual pay 
adjustment without regard to their occupation or the level of duties 
and responsibilities they are expected to perform. This one-size-fits-
all approach treats all occupations alike, across the board as well as 
in particular locations, regardless of market value. Thus, we 
inevitably end up underpaying employees in some occupations and 
overpaying others. Even within an occupation, the rigidities of the 
current pay systems sometimes force us to underpay employees at the 
entry/developmental grades, with recruiting difficulties and high 
attrition the result.
    The new NSPS pay system is designed to be much more market-
sensitive. First, it allows NSPS, after coordination with OPM, to 
define occupational career groups and levels of work within each career 
group that are tailored to the Department's missions and components. 
Second, it gives DoD considerable discretion, after coordination with 
OPM, to set and adjust the minimum and maximum rates of pay for each of 
those career groups or bands, based on national and local labor market 
factors and other conditions. Instead of ``one size fits all'' pay 
rates and adjustments, the system allows DoD to customize those 
adjustments and optimize valuable but limited resources. This kind of 
flexibility, which is lacking under the GS and FWS pay systems, will 
enable DoD to allocate payroll dollars to the occupations and locations 
where they are most needed to carry out the Department's mission.
    The goals and principles of the new system are sound, and we have 
confidence that the Department has the capability to execute them 
effectively. Pay-for-performance systems like that proposed for DoD are 
not new. Pay banding has been around in the Federal Government since 
1980, and the Federal Government has substantial experience in 
implementing performance-based pay systems (e.g., in demonstration 
projects). DoD alone has tested and implemented 11 performance-based 
pay systems since 1980. Research shows that employee attitudes toward 
such systems change over time, as they gain experience with them. For 
example, employee support for the ``China Lake'' broadbanding/pay-for-
performance demonstration project was only 29 percent before the 
project began, reached 51 percent by 1985, and was 69 percent by 1988. 
Employee support was 70 percent when Congress made the project 
permanent in 1994. Today, thousands of Federal employees already are 
covered by successful performance-based pay systems.
    The system we have devised is also consistent with the findings and 
recommendations of NAPA in its May 2004 Report, ``Recommending 
Performance-Based Federal Pay.'' The basis for managing individual 
salary increases should be pay for performance. This recommendation has 
been a constant theme in discussions for more than two decades and the 
principle in every demonstration project that tested new pay policies. 
The evidence from the projects confirms that pay for performance can be 
successful in DoD. Nonetheless, the switch to a pay-for-performance 
system will be implemented via a spiral (multi-phase) approach 
resulting in application of the NSPS HR system, including the pay-for-
performance system, to new segments of the DoD population at 
approximately 6-month intervals over a 2-year period. The phased 
intervals of implementation will provide opportunities to assess and 
adjust the system as each new group of employees is covered by the new 
system. For the most part, populations phased into NSPS will be grouped 
by organization in order to facilitate the change in organizational 
culture that will be essential to the success of NSPS and the improved 
organizational performance resulting from its implementation.
    In summary, we believe the Department's pay-for-performance system 
is an imperative, essential to DoD's ability to attract, retain, and 
reward a workforce that is able to meet the high expectations set for 
it by the Department's senior leaders for the purpose of accomplishing 
the Department's mission--the defense of our nation.
    Many commenters expressed concern that there will not be sufficient 
resources made available to fund pay pools at adequate levels. There 
were also many comments suggesting that pay pool money will be diverted 
from pay to mission requirements or to reward supervisors and managers, 
thereby leaving less for lower-graded employees.
    Proper funding of pay pools is fundamental to the success of NSPS. 
DoD senior leadership recognized its importance in setting two Key 
Performance Parameters--``Credible and Trusted'' and ``Fiscally 
Sound.'' In addition, this issue was the subject of testimony by the 
NSPS Senior Executive to the Senate Armed Services Committee in April 
2005. Secretary England was asked what assurances he could give that 
limited appropriations or other budget pressures would not result in 
pay pools too small to truly reward performance. He declared that the 
Department viewed this as a basic covenant with its employees and 
confirmed that action is being taken to protect pay pool funding.
    The Department is implementing financial policies for NSPS. 
Protection of pay pool funding is being addressed in several different 
ways. First, the Department will mandate the minimum composition and 
expenditure of pay pool funds. Second, appropriate senior-level 
officials are required to certify that funds allocated to the 
performance-based pay pools have been used only for the purpose for 
which they were intended. Third, any exception to the minimum funding 
of the pay pool will be based on stringent criteria, along with higher-
level approval. Fourth, mechanisms will be in place to monitor 
compliance.
    In accordance with the enabling legislation, for fiscal years 2004 
through 2008, the aggregate amount allocated for compensation of DoD 
civilian employees under NSPS, to the maximum extent practicable, will 
not be less than if they had not been converted to the NSPS. This takes 
into account potential step increases and promotions employees would 
have received if not converted to NSPS. In addition, Sec.  9901.313(b) 
provides that for fiscal years 2009 and beyond, DoD will develop a 
formula that ensures, to the maximum extent possible, that employees 
are not disadvantaged in the overall amount of pay available, in the 
aggregate, as a result of conversion to NSPS, while providing 
flexibility to accommodate changes in the function of the organization, 
changes in the mix of employees performing those functions, and other 
changed circumstances that may affect pay levels.

c. Adverse Actions and Appeals

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

[[Page 66126]]

    The proposed regulations included a number of changes to adverse 
actions and appeals procedures. Consistent with the enabling 
legislation, these changes were intended to simplify and streamline 
those procedures and provide for greater individual accountability, all 
without compromising guaranteed due process or protections against 
whistleblower reprisal or discrimination. Greater accountability is 
particularly critical to the Department. By its very nature, the 
Department's national security mission requires an exceptionally high 
level of workplace order and discipline. The fact that DoD employees 
provide critical support to the military mission of defending the 
country means that they, and the Department have a special 
responsibility to the public.
    With that in mind, the proposed regulations provided for shorter 
notice for adverse actions, an accelerated appeals adjudication process 
using MSPB AJs, a preponderance of the evidence burden of proof to 
sustain the Department's adverse actions, whether based on conduct or 
performance, or both, and specifically limited the mitigation of agency 
selected penalties by MSPB AJs and private arbitrators. The proposed 
regulations also required that arbitration decisions on adverse actions 
be reviewable by the Department and the full MSPB prior to review by 
the Federal Circuit Court of Appeals. The proposed regulations also 
gave the Secretary authority to establish a number of mandatory removal 
offenses (MRO)--that is, offenses that have such a direct and 
substantial impact on national security that they must carry a 
mandatory removal penalty. While the enabling legislation provides 
authority to establish an internal appeals process using adjudicators 
other than MSPB AJs, the Secretary and the Director decided that with 
the changes outlined above, DoD could achieve the objectives of the 
enabling legislation using MSPB AJs for initial review of employee 
adverse action appeals. Ultimately, the enabling legislation provides 
for full MSPB review of any DoD final appeals decision as well as for 
judicial review.
    Commenters, including labor organizations participating in the 
meet-and-confer process, generally expressed concern that these 
changes, separately and together, would vitiate the due process rights 
of DoD employees. They argued that the changes would substantially 
diminish the authority of third parties such as MSPB and arbitrators to 
fully and fairly review and adjudicate adverse actions. Commenters, as 
well as some members of Congress, expressed particular concern, about 
the proposal to permit the Department to review arbitrator and MSPB AJ 
decisions on adverse actions. Commenters expressed skepticism that the 
stringent standards established for this review would adequately 
protect due process of employees. Commenters also expressed concern 
about the proposal to limit the ability to mitigate penalties unless 
the penalty was ``wholly without justification.'' Commenters generally 
supported the proposal to adopt a ``preponderance of evidence'' 
standard of proof, although a few commenters were opposed to this 
proposal.
    These comments express a fundamental misconception of the 
requirements of due process as established by the United States Supreme 
Court. For example, in accordance with Supreme Court decisions, due 
process requires that before an employee who has a property interest in 
a job is removed, he or she is entitled to notice, an opportunity to 
reply, a decision, and a post-decision review. The final regulations 
preserve these due process rights for covered employees and afford even 
greater protection than the U.S. Constitution requires. Recognizing 
that many of these comments were erroneously characterized as due 
process issues, we nevertheless considered their merits.
    DoD and OPM have decided that the final regulations will continue 
to provide for a shorter, 15-day minimum advance notice to an employee 
of a proposed adverse action (compared to a 30-day notice under current 
law). We have also retained the provision giving employees a minimum of 
10 days to respond to the charges specified in the notice of adverse 
actions. Some commenters suggested that the 10-day period was not long 
enough, but this notice is actually longer than the 7-day minimum reply 
period that is provided under current law. This reply period runs 
concurrently with the notice period, which is also consistent with 
current law. Employees continue to have a right to be heard before a 
proposed adverse action is taken against them. This change protects 
that right while still providing for a more streamlined process. Since 
these are minimum time periods, local management may extend these time 
limits on a case-by-case basis if necessary.
    We are persuaded by the concerns expressed by commenters, as well 
as labor organizations during the meet-and-confer process, that the 
enabling legislation establishes the standard by which the full MSPB 
may mitigate penalties. Specifically, the proposed regulations 
precluded mitigation except where a determination is made that the 
penalty is so disproportionate to the basis for the action as to be 
wholly without justification. Since the enabling legislation 
specifically provides the criteria for full MSPB review of NSPS appeals 
decisions, the Secretary and Director agree that it is unnecessary to 
require the full Board to apply the ``wholly without justification'' 
standard. The criteria for full MSPB review as provided in the enabling 
legislation have been added to these regulations. Furthermore, the 
Secretary and Director agree to revise the ``wholly without 
justification'' standard for MSPB AJs that are used as part of the 
Department's appeals process as well as arbitrators. The standard has 
been revised to preclude mitigation except when the action is ``totally 
unwarranted in light of all pertinent circumstances.'' This standard is 
similar to that recognized by the Federal courts and is intended to 
limit mitigation of penalties by providing deference to an agency's 
penalty determination. The Department has statutory authority to 
establish new legal standards. In this case, the Department is electing 
to adopt a legal standard that meets the need of the Department by 
ensuring deference is provided to the Department's penalty 
determinations along with the requirement that AJs give consideration 
to the Department's national security mission.
    Under the final regulations, MSPB AJs (as well as arbitrators) will 
also be able to mitigate penalties in adverse action cases, but only 
under limited circumstances. We continue to believe that, because the 
Department bears full accountability for national security, it is in 
the best position to determine the penalty for poor performance and/or 
misconduct, subject to a more limited review than exists now under 
chapter 75 of title 5, U.S. Code. Thus, its judgment in regard to 
penalty should be given deference. This limited standard for mitigation 
of penalties selected by DoD is intended to explicitly restrict the 
authority of MSPB AJs and arbitrators to modify penalties to those 
situations where the penalty is simply not warranted. MSPB AJs and 
arbitrators may not modify the penalty imposed by the Department unless 
such penalty is totally unwarranted in light of all pertinent 
circumstances. Consistent with the intent that deference be given to 
agency selected penalties, the regulations also provide that when a 
penalty is mitigated, the maximum justifiable penalty must be applied. 
In determining the maximum justifiable

[[Page 66127]]

penalty, MSPB AJs and arbitrators will use the applicable agency table 
of penalties or other internal guidance.
    Commenters and labor organizations expressed strong concerns over 
DoD reviewing MSPB AJ decisions. These concerns ranged from whether the 
Department had legal authority to conduct this review to whether this 
assists in achieving the Department's goal of streamlining the appeals 
process. Some expressed concerns that this would not be a truly 
independent appeals process as a result. We recognize these concerns, 
but believe that the process provides for appropriate review and 
safeguards. The enabling legislation authorizes an appeals process 
resulting in a final Department decision that is subject to full MSPB 
review. Consistent with this authority, we have established an 
independent appeals process using existing and familiar resources, MSPB 
AJs, to adjudicate employee appeals of DoD adverse actions. These AJs 
would issue initial decisions that would lead to a final Department 
decision subject to full MSPB review. The decision to utilize the MSPB 
AJ corps, rather than establishing a new corps of AJs, is purposeful. 
We are mindful of the need to conserve resources and recognize the 
value these AJs' independence brings to the process. Nevertheless, to 
ensure that the Department receives proper deference to its critical 
mission requirements, the Department will retain the opportunity to 
review and modify, under criteria prescribed in these regulations, 
those initial AJ decisions before they become final Department 
decisions. In response to concerns raised by the unions during the 
meet-and-confer process, this review will occur at the DoD level. This 
highlights that the highest levels of the Department wish to ensure 
that this process is applied fairly and consistently across the 
Department. Also, in order to ensure timely decisions by the Department 
when taking action on an AJ or arbitrator decision, time limits for 
taking action will be established in implementing issuances. 
Ultimately, any decision of the Department is subject to review by the 
full MSPB and the Court of Appeals for the Federal Circuit. We believe 
this process affords employees full and fair opportunity for redress, 
as well as adjudicative independence, and deference to DoD's critical 
mission needs, consistent with the NSPS statutory authority.
    Finally, many commenters and labor organizations participating in 
the meet-and-confer process expressed concerns about the organization 
of the appellate procedures, finding them difficult to follow. We are 
persuaded by their concerns and have reorganized the appellate 
procedures in a user-friendly format.
    With the changes outlined above, we believe we have addressed and 
resolved the concerns raised by commenters regarding adverse actions 
and appeals. Due process is preserved under the final regulations. 
Thus, the adverse actions and appeals procedures set forth in these 
regulations are ``fair, efficient, and expeditious,'' consistent with 
congressional direction.

d. Mandatory Removal Offenses

    The proposed regulations authorized the Secretary to identify 
offenses that, because they have a direct and substantial adverse 
impact on the Department's national security mission, warrant a 
mandatory penalty of removal from the Federal service. Only the 
Secretary could mitigate the removal of an employee determined to have 
committed such a mandatory removal offense (MRO). Employees alleged to 
have committed these offenses would have the right to advance notice, 
an opportunity to respond, and a written decision. They would also be 
entitled to appeal that decision to the independent MSPB AJs, who could 
reverse the action but could not mitigate the removal penalty. 
Decisions of the MSPB AJs are subject to review by DoD as well as the 
full MSPB.
    Commenters and unions expressed a number of objections to the 
concept of MROs. Since no examples of potential MROs were provided in 
the proposed regulations, they feared that removal could be too harsh a 
penalty as for yet unspecified offenses. They also were concerned that 
employees would not be given full and complete notice of such offenses 
prior to their application.
    As proposed, an MRO should have a direct and substantial adverse 
impact on the Department's national security mission. Accordingly, we 
have decided to retain MROs. However, in response to comments, the 
Secretary and the Director understand the concern over the lack of 
specificity with regard to MROs. During the meet-and-confer process, 
participating labor organizations expressed a similar concern, but we 
believe we were able to satisfactorily address most of their objections 
about lack of specificity by sharing with them potential mandatory 
removal offenses.
    In addition to those MROs discussed during the meet-and-confer 
process, an illustrative list of potential MROs follows:
    <bullet> Purchasing, using, or transporting weapons or materials 
for the purpose of committing, attempting to commit, or aiding and 
abetting terrorism.
    <bullet> Committing, attempting to commit, or aiding and abetting 
an act of sabotage against the Department of Defense that resulted or 
could have resulted in loss of life, significant financial loss or 
adverse impact on military readiness.
    <bullet> Soliciting or intentionally accepting a bribe or other 
unauthorized personal benefit in return for an act that compromises or 
could compromise national security.
    <bullet> Employees involved in the Personnel Reliability Program 
failing to safeguard the assets for which they are directly responsible 
and such failure results in loss, theft, sabotage, unauthorized use, 
destruction, detonation, or damage.
    <bullet> Intentionally engaging in activities that compromise or 
could compromise the information or financial infrastructure, including 
major procurement fraud, of the Department of Defense, when the 
employee knew or reasonably should have known of the compromise or 
potential compromise.
    There is no question that employees must be made aware of the final 
list of MROs approved by the Secretary. Both the Secretary and the 
Director believe that this is a basic issue of fairness and a tenet of 
an organizational culture that establishes clear accountability. That 
is why the proposed regulations provided that MROs will be identified 
to employees in advance, as part of implementing issuances, and made 
known to all employees upon identification. During the meet-and-confer 
process, participating labor organizations were especially concerned 
about this issue. We agree that these offenses should not be a surprise 
to anyone, and have retained these provisions in the final regulations 
but have also added a requirement that they be publicized via notice in 
the Federal Register. The Secretary also intends to consult with the 
Department of Justice in preparing the list of offenses for 
publication.
    With these changes, the final regulations provide for the 
independence demanded by commenters while assuring DoD's ability to 
remove employees who engage in offenses that have direct and 
substantial impact on the Department's national security mission. The 
Secretary is accountable to the President and the American people for 
safeguarding national security. No other agency or department bears 
this burden. These regulations ensure that the Secretary's authority 
aligns with that responsibility.

[[Page 66128]]

e. Labor Relations

    Without exception, employee representatives objected to the 
proposed labor relations regulations, both in their comments and during 
the meet-and-confer process. Employee representatives argued that 
Congress expressly specified only two modifications to chapter 71--
bargaining above the level of recognition and independent third party 
review of decisions. We disagree. In enacting chapter 99, Congress 
expressly recognized the need for the Department to design a labor 
relations system that both addresses the unique role that the 
Department's civilian workforce plays in supporting the Department's 
national security mission and allows for a collaborative issue-based 
approach to labor management relations.
    Moreover, Congress specifically authorized the Secretary, together 
with the Director, to establish and adjust this labor relations system 
in support of the overall HR management system notwithstanding the 
provisions of the current system as set forth in chapter 71. Thus, the 
Secretary and the Director have modified chapter 71 ``to address the 
unique role that the Department's civilian workforce plays in 
supporting the Department's national security mission.'' (5 U.S.C. 
9902(m)) In taking the steps necessary to establish and adjust this 
labor relations system, Congress further recognized that the provisions 
of this system will supersede existing collective bargaining agreements 
covering Department employees and negotiated pursuant to the provisions 
of chapter 71. Finally, Congress indicated that the authority of the 
Secretary and Director to devise and adjust the Department's labor 
relations system would expire in 2009 absent further action by Congress 
(5 U.S.C. 9902(d)(2) and 5 U.S.C. 9902(m)(1), (2), (8), and (9)).

f. Management Rights/Scope and Duty To Bargain

    The ability to act quickly is central to the Department's national 
security mission--not just during emergencies but, more importantly, in 
order to prepare for or prevent emergencies. The ability to act quickly 
is necessary even in meeting day-to-day operational demands. The 
Department must be able to assign employees and to introduce the latest 
security technologies without delay. This principle was crucial in the 
formulation of the enabling legislation and in the congressional debate 
that followed its introduction. Congress clearly recognized the 
Department's need to operate under a new labor relations system that 
would provide the flexibility necessary to respond to a variety of 
vital operational challenges and carry out its national security 
mission.
    To achieve this objective, the proposed regulations revised, among 
other things, the management rights and duty to bargain provisions 
found in 5 U.S.C. chapter 71. We expanded the list of management rights 
that are excluded from bargaining, including the numbers, types, and 
grades of employees or positions assigned to any organizational 
subdivision, work project, or tour of duty; and the technology, 
methods, and means of performing work--rights that deal directly with 
the Department's national security operations. In addition, we excluded 
from bargaining the procedures that the Department would follow in 
exercising these expanded operational management rights. We also 
proposed to allow the Department to take action in any of these areas 
without advance notice to labor organizations and without pre-
implementation bargaining.
    Without exception, labor organizations objected to the proposed 
regulations, both in their comments and during the meet-and-confer 
process, arguing that altering the scope of bargaining in any way is 
contrary to the enabling legislation. They also claimed that these 
changes were unnecessary because current law already provided the 
Department with sufficient flexibility to deal with emergencies. They 
also took strong exception to the provisions in the proposed 
regulations that would allow issuances to supersede conflicting 
provisions of any collective bargaining agreements and limit bargaining 
to only those matters that are not inconsistent with the issuances. 
Labor organizations did acknowledge the Department's need to take 
certain actions without pre-implementation bargaining, and during the 
meet-and-confer process they proposed a process for accelerated 
bargaining within established time limits and the use of binding 
arbitration to resolve all bargaining disputes. Additionally, they 
suggested that the term ``emergency'' be interpreted as including 
``exigencies requiring action reasonably necessary to carry out the 
Department's national security mission before collective bargaining 
concerning the action can be completed,'' and that in such exigencies 
the Department will afford the opportunity to bargain when 
circumstances reasonably allow. Their proposals would have allowed the 
Department to temporarily suspend provisions of collective bargaining 
agreements in situations where there is a direct connection between the 
exigency and the Department's national security mission. Even under 
such mission critical and exigent conditions, they insisted that post 
implementation agreements would have prospective effect only if the 
emergency was unforeseen. If the national security exigency were 
foreseen, then any remedy for Department action that was contrary to a 
contractual provision would have retroactive effect unless the 
retroactive effect would ``unduly disrupt Department operations 
reasonably necessary to carry out the Department's national security 
mission.''
    We recognize the good faith effort made by these labor 
organizations to meet the Department's operational needs. However, 
their proposals were lacking in several respects. We have, therefore, 
retained the management rights/scope of bargaining provisions in the 
proposed regulations with some modifications.
    With respect to procedures, the proposals offered by the labor 
organizations do not go far enough. They would still require the 
Department to bargain, before acting, over the procedures it would 
follow in exercising its management rights, including those that deal 
directly with its operations. Once negotiated, those procedures can and 
do place significant constraints on critical actions such as the 
assignment of work, the deployment of personnel, and the staffing of 
tours of duty. These procedures are negotiable under 5 U.S.C. chapter 
71. Labor organizations would have the Department continue that 
obligation, but under time limits and with an expanded interpretation 
of the chapter 71 provisions regarding emergencies that would allow 
management to bargain post implementation in certain limited 
circumstances.
    However, in today's operational environment, the exception has 
become the rule. Department managers, supervisors, and employees are 
critical to the Department's mission to defend our national security. 
The Department must be able to rely on the judgment and ability of 
managers and supervisors to make day-to-day decisions--even if this 
means deviating from established or negotiated procedures. Moreover, 
the Department's managers and supervisors must be able to make split-
second decisions to deal with operational realities free of procedural 
constraints.
    With respect to post-implementation bargaining, the proposals 
offered by labor organizations are similarly lacking. Although they 
would allow management to implement without bargaining in advance when 
faced with

[[Page 66129]]

an emergency, they would still require immediate post-implementation 
negotiations and third-party impasse resolution over such matters. 
However, the reality of DoD's operational environment today is that 
change is constant, and as a consequence, so too would be post-
implementation bargaining, with the prospect of prolonged third-party 
impasse resolution. These negotiations would be required even in cases 
where the change was short-lived and/or where its impact was 
insignificant, insubstantial, or transient. The demand on DoD's 
frontline managers, supervisors and employees to engage in constant 
post-implementation negotiations would divert them from accomplishing 
the mission. This is unacceptable and inconsistent with the authority 
Congress granted to the Department in the enabling legislation.
    Further, under 5 U.S.C. chapter 71, interpretations of negotiated 
appropriate arrangements tend to assume that those agreements have 
anticipated future changes, but today's operational environment belies 
that assumption. Changes necessitated by operational demands are 
recurring and variable. Our frontline managers and supervisors must not 
be bound by agreements presupposing circumstances that are assumed to 
be constant, when they must face current and future exigencies.
    Nevertheless, in recognition of the concerns articulated by 
commenters during the public comment period and during the meet-and-
confer process by participating labor organizations and as a result of 
the June 16, 2005, meeting of the United DoD Workers Coalition, DoD's 
NSPS Senior Executive, and OPM's Acting Director, the Secretary and the 
Director decided that the proposed regulations would be revised in a 
number of ways.
    First, we have modified the definition of ``issuances'' to make 
clear the distinction between an ``implementing issuance'' and an 
``issuance''. An ``implementing issuance'' is a document issued to 
carry out a policy or procedure implementing NSPS (but does not include 
internal operating guides, manuals, or handbooks that do not change 
employees' conditions of employment), while an ``issuance'' is a 
document to carry out a non-NSPS policy or procedure of the Department. 
We have also clarified that while an implementing issuance immediately 
supersedes those provisions of collective bargaining agreements that 
are inconsistent with the implementing issuance, an issuance does not 
supersede a conflicting provision of a collective bargaining agreement 
during the term of that agreement. This ensures the viability of the 
collective bargaining process under NSPS. When a provision of a 
collective bargaining agreement conflicts with an issuance, the 
collective bargaining provision remains in effect until the expiration 
or renegotiation of the agreement, at which time the parties will have 
to bring the conflicting provision into conformance with the issuance. 
This is comparable to the process that has long been followed regarding 
Governmentwide regulations. Specifically, issuances will be subject to 
national consultation with those labor organizations holding national 
consultation rights. Moreover, following consideration of comments and 
recommendations received through the national consultation process, 
issuances are subject to collective bargaining to the extent proposals 
are not inconsistent with the issuance and are otherwise negotiable 
under Sec.  9901.910 and Sec.  9901.917.
    More importantly, and in response to concerns that managers may 
issue implementing issuances and issuances for the sole purpose of 
invalidating particular provisions of a collective bargaining agreement 
that they do not like, we have also modified the regulations to specify 
that implementing issuances, that is, those that implement NSPS and 
supersede conflicting provisions of existing collective bargaining 
agreements, may only be issued by the Secretary, Deputy Secretary, 
Principal Staff Assistants, or Secretaries of the Military Departments. 
We have limited ``Principal Staff Assistants'' to senior officials in 
the Office of the Secretary of Defense who report directly to the 
Secretary and Deputy Secretary of Defense. We also have added a new 
subparagraph, Sec.  9901.905(c) to make clear that any provision of a 
collective bargaining agreement that is inconsistent with issuances 
that do not implement NSPS will remain in effect until the expiration, 
renewal, or extension of the agreement, whichever occurs first.
    Finally, we have modified the regulations to permit bargaining, in 
the sole, exclusive, unreviewable discretion of the Secretary, over the 
procedures that would be followed in exercising the expanded 
operational management rights. We have also modified the regulations to 
permit bargaining, at the election of the Secretary, over appropriate 
arrangements on the routine matters related to the expanded operational 
management rights. The Secretary may authorize such bargaining to 
advance the Department's mission accomplishment or promote 
organizational effectiveness. Mid-term agreements on appropriate 
arrangements and procedures for (a)(1) and (a)(2) management rights are 
not precedential or binding on subsequent acts, or retroactively 
applied, except at the Secretary's sole, exclusive, and unreviewable 
discretion. Procedures and appropriate arrangements in term agreements 
are binding, except that nothing will delay or prevent the Secretary 
from exercising his or her authority under subpart I. For example, the 
Secretary may authorize deviation from such agreements when it is 
necessary to carry out the Department's mission. This authority builds 
on the authority that exists today when an emergency occurs, as that 
term is applied under chapter 71, to address the unique nature of the 
Department's mission and the operational demands it must face.
    Taken together, we believe these revisions meet the Department's 
mission needs, are consistent with the enabling legislation's intent to 
preserve collective bargaining rights as provided for in 5 U.S.C. 
chapter 99, and assure employees that issuances will not be issued for 
the improper purpose of eliminating local bargaining. While commenters 
have argued that any alteration of the scope of bargaining violates the 
enabling legislation, this interpretation is inconsistent with the 
express authority Congress has given the Secretary and the Director to 
establish and from time to time adjust the labor relations system for 
the Department to address the unique role that the Department's 
civilian workforce plays in supporting the Department's national 
security mission. These regulations fulfill that statutory requirement 
while providing employees with the rights envisioned by Congress.

g. Independence of the National Security Labor Relations Board

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

[[Page 66130]]

jurisdiction of these matters away from the independent and impartial 
FLRA is to guarantee that DoD management can influence the NSLRB's 
decisions, giving them an unfair advantage over employee 
representatives.
    We have decided to retain the NSLRB. Employing the NSLRB to 
adjudicate labor disputes in place of the FLRA ensures timely and 
efficient case management by a body cognizant of the important and 
unique nature of the Department's mission. We believe that the final 
regulations have adequately balanced the Department's interest in 
timeliness and mission recognition with employees' desire to have an 
impartial dispute adjudicator. The regulations establish NSLRB 
membership criteria that require candidates to exhibit integrity and 
impartiality in addition to extensive knowledge of labor laws, DoD's 
mission, or both. Although the Secretary has authority to remove NSLRB 
members before the expiration of their terms, that authority is limited 
to removal for inefficiency, neglect of duty or malfeasance in office, 
which is a standard similar to that for removing members of the FLRA. 
In addition, since the standard is established in these jointly 
prescribed regulations, it may not be changed unilaterally by the 
Secretary. Finally, we stress that the NSLRB decisions are subject to 
review by the FLRA, which acts as another element of independent third-
party review. The FLRA decisions, including those reviewing decisions 
of the NSLRB, remain subject to judicial review as they are under 
chapter 71. These regulations establish that the NSLRB will operate 
independent of the chain of supervision as does any agency 
administrative judge or administrative review board whose decisions can 
be appealed to a higher authority.
    Multiple commenters, including labor organizations participating in 
the meet-and-confer process, recommended that the labor organizations 
be given the opportunity to participate in the NSLRB nomination 
process. We agree and have included in the final regulations an 
explicit requirement that the Secretary consider labor organization 
nominations. Whereas the proposed regulations did not provide a role 
for labor organizations in the nomination process, the final 
regulations provide that the Secretary will consider labor organization 
nominations in selecting the two non-chair members of the NSLRB. This 
assures labor organizations a voice in the NSLRB selection process.
    While we have not adopted all suggestions related to the NSLRB, we 
believe the final regulations ensure that NSLRB members will discharge 
their duties in a fair and impartial manner by (1) including employee 
representatives in the process for selecting such members; (2) 
requiring that individuals appointed as members have integrity, 
impartiality, and subject matter expertise; (3) limiting the grounds on 
which the Secretary can remove NSLRB members; and (4) providing for 
FLRA review of NSLRB decisions and, as prescribed in chapter 71, 
judicial review of FLRA decisions.

Response to Specific Comments and Detailed Explanation of Regulations

Subpart A--General Provisions

Section 9901.101--Purpose

    Section 9901.101 explains the overall purpose of the regulations in 
5 CFR part 9901, which is to implement a new human resources management 
system and a new labor relations system, as authorized by 5 U.S.C. 
9902. The section states various guiding principles and key operational 
characteristics and requirements. We have added a reference in Sec.  
9901.101(a) to the labor relations system, which is established under 5 
U.S.C. 9902(m), since this is a separate and distinct authority. (See 
additional discussion regarding this distinction in the analysis of 
comments regarding Sec.  9901.102.)
    Commenters questioned the authority to waive or modify statutes 
through these regulations. We are modifying Sec.  9901.101(a) to 
clarify that 5 U.S.C. 9902 provides authority for these regulations to 
waive or modify certain statutory provisions.
    A commenter recommended that the regulations restate the statutory 
merit principles instead of just referencing them as a guiding 
principle. We do not believe such a restatement is necessary; however, 
we have added a statutory citation--5 U.S.C. 2301--in Sec.  
9901.101(b)(1).
    Commenters expressed concern regarding the key operational 
characteristic ``Agile and Responsive Workforce and Management,'' which 
was further described as ``workforce can be easily sized, shaped, and 
deployed to meet changing mission requirements.'' In particular, some 
objected to viewing civilian employees as deployable in the same manner 
as military personnel. While DoD has always had and will continue to 
have the right to assign employees to serve in geographic locations 
based on mission requirements, the word ``deploy'' in this section is 
being used in a broader context and was intended to encompass the 
strategic organization of work based on employee skills and 
competencies and mission needs. In particular, we believe the authority 
in subpart B to classify work into broader career groups supports this 
objective.

Section 9901.102--Eligibility and Coverage

    Section 9901.102 sets forth general rules regarding employee 
eligibility and coverage under the various subparts of part 9901. 
Categories of eligible employees become covered only when the Secretary 
affirmatively approves coverage as of a specific effective date.
    Commenters indicated that the Secretary's discretionary authority 
in coverage matters is too broad. We believe it is essential that the 
Secretary be given such discretion. The authority to establish systems 
would be meaningless unless there is corresponding authority to place 
eligible employees under the system. The Secretary needs flexibility to 
phase in coverage in an orderly way, while retaining authority to 
change effective dates as needed, based on changing conditions or 
mission requirements.
    Commenters stated that the authority in Sec.  9901.102(b)(1) to 
establish an immediate effective date for subpart I (dealing with labor 
relations) conflicts with 5 U.S.C. 9902(l). Section 9902(l) provides 
that the Secretary may apply the ``National Security Personnel System'' 
only if (1) the affected organizational or functional unit has no more 
than 300,000 employees or (2) the Secretary determines ``in accordance 
with subsection (a)'' that the Department has in place a performance 
management system that meets the criteria in 5 U.S.C. 9902(b). The term 
``National Security Personnel System'' is defined in 5 U.S.C. 9902(a) 
to be the ``human resources management system,'' which is established 
under the authority of subsection (a). Section 9902(b) provides 
requirements for a system established ``under subsection (a).'' Under 5 
U.S.C. 9902(b)(3)(D) and (d), the human resources management system 
established under subsection (a) does not reach to the labor relations 
system established under 5 U.S.C. chapter 71. Instead, 5 U.S.C. 9902(m) 
provides a totally separate authority to establish and adjust a ``labor 
relations system.'' We believe it is clear that the limitations in 5 
U.S.C. 9902(l) apply only to the human resources management system 
established under 5 U.S.C. 9902(a).
    Commenters raised questions about the coverage of employees in 
certain DoD laboratories who are covered by a demonstration project or 
an alternative system. Section 9902(c) of title 5, U.S. Code, states 
that the National Security Personnel System will not apply to

[[Page 66131]]

defense laboratories in organizations listed in Section 9902(c)(2) 
before October 1, 2008, and will apply after that date only if the 
Secretary determines that greater flexibilities are available. 
Consistent with the explanation in the preceding paragraph, the 
reference to the ``National Security Personnel System'' in 5 U.S.C. 
9902(c) refers to the human resources management system which is 
defined as the National Security Personnel System in Section 9902(a). 
Thus, the restrictions in 5 U.S.C. 9902(c) do not apply to the coverage 
of these laboratory employees under the labor relations system 
established under 5 U.S.C. 9902(m), and these employees may be covered 
by subpart I (dealing with labor relations) before October 1, 2008.
    Commenters objected to the possible coverage of certain civilian 
mariners who are currently covered by a pay system established under 5 
U.S.C. 5348 and are also covered by 5 U.S.C. chapter 71. These 
employees will be covered by subpart I (dealing with labor relations). 
However, the Secretary has determined that they will not be covered by 
the human resources system, including the adverse actions and appeals 
provisions. Other commenters asked about certain Army Corps of 
Engineers employees under Public Law 97-257. U.S. Army Corps of 
Engineers employees paid from Corps of Engineers Special Power Rate 
Schedules will be covered by subpart I (dealing with labor relations). 
The Secretary has determined that they will not be covered by the human 
resources system, including the adverse actions and appeals provisions.
    Commenters asked whether a category of employees could be covered 
by some, but not all, provisions of subparts B through H. In 
particular, commenters noted that National Guard Technicians were 
eligible for coverage but were subject to certain provisions outside 
title 5--e.g., qualification requirements established under title 32, 
instead of qualification standards established under 5 U.S.C. chapter 
51. Since 5 U.S.C. 9902 does not provide authority to modify or waive 
statutory provisions outside of certain specified chapters in title 5, 
any such provisions would continue in effect. The Secretary may extend 
coverage to eligible employees under subparts B through H to the extent 
those provisions are not in conflict with other statutory requirements.
    Commenters proposed that certain occupations be excluded from 
coverage--e.g., attorneys or law enforcement officers--because of the 
nature of their work. We disagree. We believe the flexible systems we 
are authorizing can be applied successfully to all occupational 
categories.
    Commenters raised questions regarding the purpose of Sec.  
9901.102(f). Paragraph (f) is intended to allow the Secretary to extend 
NSPS coverage to employees who are currently covered by systems 
established administratively under authorities outside of title 5, but 
only when those authorities give DoD the discretion to cover those 
employees under administratively determined systems or to leave them in 
the title 5 systems that would otherwise apply. For example, if DoD has 
discretionary statutory authority to cover a category of employees 
under an administratively determined classification and pay system 
instead of the General Schedule, such employees remain potentially 
eligible for General Schedule coverage and accordingly would also be 
eligible for NSPS coverage. Commenters questioned whether paragraph (f) 
could be used to cover educators employed by the DoD Education Activity 
in an NSPS pay system. Since the pay system for those educators 
employed overseas (Department of Defense Dependents Schools) is 
established under nondiscretionary statutory provisions in title 20, 
they are not eligible for coverage under an NSPS pay system. However, 
the pay system for those educators employed in the Continental United 
States (Defense Domestic Elementary and Secondary Schools) is 
established under discretionary provisions in title 10. Therefore, they 
are eligible for coverage under an NSPS pay system.
    Commenters proposed that current employees (or at least current 
employees meeting certain age and service requirements) be 
``grandfathered'' and left in existing title 5 systems instead of being 
covered by NSPS, unless they elect otherwise. This proposal is not 
practicable from an administrative viewpoint and is contrary to the 
objectives behind the enabling legislation. We believe the 
flexibilities provided under the proposed NSPS will yield significant 
benefits to the Government and will also benefit employees based on 
their performance. It is therefore not acceptable to delay full 
application of NSPS.
    Commenters questioned why members of the Senior Executive Service 
(SES) are not covered by NSPS--specifically, the classification, pay, 
and performance provisions in subparts B through D. In fact, SES 
members are eligible for coverage under those NSPS provisions, subject 
to the conditions in Sec.  9901.102(d). (See coverage provisions in 
Sec. Sec.  9901.202(b)(4), 9901.302(b)(4), and 9901.402(b)(1).) We note 
that the SES pay and performance provisions in title 5 are already 
designed to be performance-sensitive. Thus, DoD does not plan to cover 
SES members in its initial implementation spirals. DoD may determine at 
a later date whether coverage under NSPS pay and performance provisions 
is necessary given the title 5 authorities that already apply to SES 
members.
    In light of the numerous comments regarding the coverage 
eligibility of specific categories of DoD employees under the various 
subparts of these regulations, we have prepared the following summary 
chart showing various categories of employees that are eligible for 
coverage under the NSPS systems. This chart is not intended to be 
comprehensive or authoritative, but covers the major categories of 
employees in DoD outside of the General Schedule. In the chart, 
categories of employees that are identified as eligible for coverage 
under a particular subpart are annotated with ``Yes,'' and those that 
are identified as ineligible for coverage are annotated with ``No.'' 
The chart and its footnotes must be read together for full information 
on coverage eligibility. Actual coverage is subject to applicable law 
and approval by the Secretary under Sec.  9901.102(b).

                   Summary of Non-General Schedule Coverage Eligibility Under 5 CFR Part 9901
----------------------------------------------------------------------------------------------------------------
                                                Eligible for human resources
                  Category                    system/appeals process (subparts    Eligible for labor relations
                                                            B-H)                       system (subpart I)
----------------------------------------------------------------------------------------------------------------
Air and Army Reserve Technicians...........  Yes..............................  Yes.
Army and Air National Guard technicians      Yes \1\..........................  Yes.\2\
 (dual status) under 32 U.S.C. 709.

[[Page 66132]]

 
Army and Air National Guard technicians      Yes \1\..........................  Yes.\2\
 (non dual status) under 32 U.S.C. 709.
Hydropower Corps of Engineers Special Power  No...............................  Yes.
 Rate Schedules (WB pay plan).
Navy Civil Service Mariner (WM pay plan)...  No...............................  Yes.
Overseas Teachers (DoDDS)..................  No...............................  Yes.
Pentagon Force Protection Agency (title 5    Yes \3\..........................  Yes.
 and title 10 employees).
Federal Wage System (WA, WD, WG, WJ, WK,     Yes..............................  Yes.
 WL, WN, WO, WS, WT, WY, XF, XG, XH pay
 plans).
Nonappropriated Fund.......................  Yes \4\..........................  Yes.
Domestic Teachers (DDESS)..................  Yes \4\..........................  Yes.
Defense Laboratories in Organizations        No \5\...........................  Yes.
 listed in 5 U.S.C. 9902(c).
Armed Services Board of Contract Appeals...  No for Board members;............  No for Board members;
                                             Yes for other employees..........  Yes for other employees.
Court of Appeals for the Armed Forces......  No for Judges and attorneys in     No for Judges and attorneys in
                                              chambers; Yes for other            chambers; Yes for other
                                              employees \6\.                     employees.\6\
Consultants and Experts (10 U.S.C. 129b)...  No...............................  No.
DARPA, scientists and engineers............  No...............................  No.
DCIPS (including DISES)....................  No...............................  No.
Executive Schedule.........................  No...............................  No.
Faculty at DoD Educational Institutions:...  Yes \4\..........................  Yes.
   Air University, Air Force Institute of
   Technology, Army War College/Command &
   General Staff College, Defense
   Acquisition University, National Defense
   University, Defense Language Institute,
   George C. Marshall Center, Asia-Pacific
   Center for Security Studies, Western
   Hemisphere Institute for Security
   Cooperation, U.S. Naval Postgraduate
   School, Naval War College/U.S. Marine
   Corps University, USAF Academy, U.S.
   Naval Academy, U.S. Military Academy.
Faculty and staff at USUHS.................  No...............................  No.
Foreign Nationals (Direct Hire)............  No...............................  No.
Schedule C.................................  Yes..............................  No.
SES........................................  Yes..............................  No.
Senior Level (SL/ST).......................  Yes..............................  Yes.
DoD Office of the Inspector General........  Yes, unless appointed under        No.
                                              authority of the Inspector
                                              General Act of 1978 (5 U.S.C.
                                              App. Sec.   6)\7\.
----------------------------------------------------------------------------------------------------------------
\1\ Subject to limitations pursuant to 32 U.S.C. 709.
\2\ But excluded from national level bargaining under 5 U.S.C. 9902(g).
\3\ Title 10 employees under title 10 discretionary authority and subject to 10 U.S.C. 2674.
\4\ Under title 10 discretionary authority.
\5\ Until 2008, excluded from HR system and appeals process pursuant to 5 U.S.C. 9902(c).
\6\ Pursuant to 10 U.S.C. chapter 47, subchapter XII.
\7\ Currently there are no appointees under that authority.

Section 9901.103--Definitions

    Section 9901.103 provides definitions of terms used in more than 
one subpart. Commenters expressed concerns about some definitions.
    Commenters requested greater clarity with respect to the use of 
``implementing issuances.'' Accordingly, we are revising the definition 
of ``implementing issuances'' to make clear that such documents can be 
issued by only certain high-level DoD officials (despite the 
Secretary's broad delegation authority), including those formally 
designated as acting in those high-level positions. We have also 
clarified that implementing issuances do not include internal operating 
guides, handbooks, or manuals that do not change conditions of 
employment. This is consistent with current practice. We have also 
added a definition of ``Military Department.''
    To address general comments regarding the need for greater 
specificity where possible, we have added definitions of the terms 
``initial probationary period'' and ``in-service probationary period.'' 
These terms are used in subpart E (Staffing and Employment) and subpart 
F (Workforce Shaping). In addition, we clarified the definition of 
``NSPS'' to more closely track the language in the statute. ``NSPS'' 
means the human resources management system established under 5 U.S.C. 
9902(a). It does not include the labor relations system established 
under 5 U.S.C. 9902(m). We do, however, use ``NSPS'' in the 
supplementary information and in public statements as a shorthand 
reference to describe both the HR and the labor relations systems. We 
also note that chapter 99 is entitled the National Security Personnel 
System.
    Commenters expressed concern about the definition of 
``performance.'' In particular, commenters objected to the

[[Page 66133]]

use of the terms ``behavior,'' ``demeanor,'' ``attitude,'' and ``manner 
of performance'' in defining performance. We note that these terms are 
used in a context that makes clear that we are dealing with observable 
behaviors that affect the accomplishment of assignments, 
responsibilities, and organizational goals. We believe performance 
assessments would not be complete without considering employees' 
behaviors in carrying out assigned work. For example, customer service 
is generally a paramount organizational objective. Thus, the manner in 
which employees treat customers is an important aspect of overall 
performance. Employee behaviors can be objectively observed and 
evaluated against established performance expectations. Some commenters 
suggested that assessments of manner of performance would open the door 
to abuse, cronyism, punishment for criticism of management, or 
retaliation against whistleblowers. We disagree. Under NSPS, employees 
are still protected against prohibited personnel practices and will 
have the same whistleblower rights they have always had. We note that 
managers will be held accountable for how they manage this process.
    A commenter questioned whether the definition of ``promotion'' 
allows management to add higher-level duties without providing pay 
increases. It appears that this comment is primarily directed at the 
new classification authority under subpart B that would allow DoD to 
reduce the number of grade level distinctions by using bands to 
describe levels of work. Each band will encompass a single broad level 
of work that may encompass a range of duties previously performed at 
different grade levels. Promotion is movement to a higher level of 
work, i.e., higher band.
    Commenters requested greater clarity regarding the term 
``unacceptable performance.'' In conjunction with related changes made 
in subpart D (Performance Management), we are clarifying that an 
employee's performance may be found to be unacceptable based on failure 
to successfully complete work assignments or other instructions that 
amplify written performance expectations.

Section 9901.104--Scope of Authority

    Section 9901.104 identifies the provisions in title 5 that are 
subject to waiver or modification under 5 U.S.C. 9902.
    Commenters objected to any modification or waiver of any title 5 
provision. A commenter suggested this section would grant legislative 
power reserved for Congress. In fact, this section merely implements an 
authority provided by Congress. Under 5 U.S.C. 9902, DoD and OPM may 
prescribe regulations establishing new human resources management and 
labor relations systems notwithstanding certain title 5 provisions. In 
other words, Congress has provided that systems established by 
regulation may be used in place of certain statutory systems. This is 
not dissimilar to numerous cases where Congress has excluded an agency 
from a title 5 provision and allowed the agency to develop its own 
rules administratively, except that, in the case of NSPS, Congress has 
actually established additional requirements to guide system 
development in terms of both substance and procedure.
    Commenters asserted that this section was misleading in that it did 
not reveal that the enabling legislation gave DoD authority to waive 
any part of title 5, including provisions dealing with retirement, 
health benefits, life insurance, leave, etc. This assertion is 
incorrect. Section 9901.104 identifies the limited number of title 5 
provisions that are subject to waiver or modification. DoD and OPM have 
no authority to waive or modify title 5 provisions, except as provided 
for in 5 U.S.C. 9902. (Other laws are affected only for the purpose of 
dealing with references to waived or modified provisions, as described 
in Sec.  9901.107). Section 9902(b)(5) of title 5, U.S. Code, states 
that a system established under 5 U.S.C. 9902(a) is ``not limited by 
any specific law or authority under this title [i.e., title 5] * * * 
that is waived in regulations prescribed under this chapter [i.e., 
chapter 99], subject to paragraph (3).'' The referenced paragraph (3) 
in 5 U.S.C. 9902(b) includes a subparagraph (D) that links to 5 U.S.C. 
9902(d), which in turn specifies that most of title 5 is nonwaivable, 
except as provided for in section 9902.
    Commenters questioned the inclusion of chapters 33 and 35 in the 
list of waivable or modifiable chapters in Sec.  9901.104, since those 
chapters include veterans' preference rules. However, Sec.  9901.104(a) 
states that chapters 33 and 35 may be waived or modified only as 
authorized by 5 U.S.C. 9902(k). Section 9902(k) of title 5, U.S. Code, 
requires the Secretary to comply with veterans' preference 
requirements. Thus, the regulations in subpart E (Staffing and 
Employment) and subpart F (Workforce Shaping) that modify parts of 
chapters 31 and 33 do not affect veterans' preference rights and 
protections.
    A commenter questioned the effect of the NSPS regulations on 
determinations under the Fair Labor Standards Act (FLSA). OPM's 
authority to administer the FLSA is found in section 4(f) of the Fair 
Labor Standards Act of 1938, as amended. (See also 29 U.S.C. 204(f).) 
Since this authority is outside the waivable title 5 chapters, these 
regulations do not affect OPM's FLSA regulations or OPM's authority to 
settle FLSA claims.

Section 9901.105--Coordination With OPM

    Section 9901.105 identifies the areas which trigger a requirement 
to coordinate DoD implementing issuances and certain other actions with 
OPM. As described in the section, ``coordination'' entails (1) 
providing OPM with an opportunity to review and comment on DoD 
proposals and to officially concur or nonconcur with all or part of the 
proposals, (2) taking OPM's views into account, and (3) advising OPM of 
the final DoD decision, including reasonable advance notice of the 
decision's effective date.
    Commenters expressed concern that Sec.  9901.105 gave DoD too much 
authority. Some recommended that DoD should be required to get formal 
OPM approval, rather than just ``coordinate'' with OPM. A commenter 
also suggested that DoD should be required to coordinate with other 
agencies with national security missions so that national security 
employees would have a common framework. Under the enabling 
legislation, OPM's authority is to approve jointly developed 
regulations, and OPM has exercised that authority in these part 9901 
regulations. By design, and in keeping with the statutory objective of 
establishing a ``flexible'' system, these regulations give DoD 
considerable authority within the regulatory framework. At the same 
time, OPM continues to have a role in overseeing the civil service 
system and in advising the President on civil service matters, 
including matters covered by these regulations. We believe a 
coordination role is sufficient to allow OPM to fulfill its 
responsibilities. In this coordination role, OPM will ensure that 
Governmentwide interests and the interests of other agencies are 
appropriately considered.
    In these final regulations, we have added a coordination 
requirement with respect to the establishment of policies and 
procedures for time-limited appointments under Sec.  9901.511(d), 
consistent with our original intent. The supplementary information for 
the proposed regulations stated that coordination with OPM would occur 
in this area. (See 70 FR 7563.) We have added a coordination 
requirement with

[[Page 66134]]

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

Section 9901.106--Continuing Collaboration

    As authorized by 5 U.S.C. 9902(f)(1)(D) and (m), section 9901.106 
of the regulations establishes a process called ``continuing 
collaboration'' for involving employee representatives in the further 
planning and development of the HR and labor relations systems after 
promulgation of the joint DoD/OPM enabling regulations. Under this 
continuing collaboration provision, DoD will provide employee 
representatives the opportunity to participate in the development of 
implementing issuances that carry out the provisions of part 9901.
    Section 9901.106 implements 5 U.S.C. 9902(f)(1)(D), which requires 
the Secretary and the Director to develop a method for employee 
representatives to participate in further planning and development 
after promulgation of joint DoD/OPM regulations establishing the HR 
system under 5 U.S.C. 9902(a). In addition, this section provides for 
the same continuing collaboration with respect to application of the 
labor relations system established by joint DoD/OPM regulations under 5 
U.S.C. 9902(m). Section 9901.106 does not apply to the adjustment of 
the NSPS enabling regulations themselves. Such regulatory adjustments 
must be made using the meet-and-confer process described in 5 U.S.C. 
9902(f)(1)(A)-(C) or (m), as applicable.
    During the meet-and-confer process, several participating labor 
organizations suggested that adjustments to the HR system or labor 
relations system should be subject to the meet-and-confer process 
rather than the continuing collaboration process, and others suggested 
that there should be collective bargaining over implementing issuances. 
In addition, commenters questioned whether continuing collaboration on 
implementing issuances met the requirements of 5 U.S.C. 9902(f)(1)(D), 
which requires a method for employee representatives to participate in 
any further planning or development which might become necessary.
    As we have already explained, we agree that adjustments to the HR 
system regulations or the labor relations system regulations would be 
subject to the meet-and-confer process described in 5 U.S.C. 
9902(f)(1)(A-(C) and (m)(3). However, we did not adopt the suggestion 
to require that implementing issuances be subject to collective 
bargaining or the meet-and-confer process. Collective bargaining is 
inappropriate for the development of HR system implementing issuances, 
since it is inconsistent with the requirements of Section 9902(f)(4). 
In addition, Congress expressly required DoD and OPM to develop a 
separate method, apart from the meet-and-confer process, for employee 
representatives to participate in the further planning and development 
of the HR system (which will be manifested in the implementing 
issuances). The continuing collaboration process does meet the 
requirements of 5 U.S.C. 9902(f)(1)(D), and we therefore have retained 
this process in the final regulations.
    In addition, we have added language to clarify that the continuing 
collaboration process in Sec.  9901.106 is the exclusive process for 
employee representatives to participate in the further planning, 
development, and implementation of the NSPS HR and labor relations 
systems established by these enabling regulations. (See 5 U.S.C. 
9902(f)(4) and (m)(1)-(2).)
    We also received comments during the meet-and-confer process, as 
well as written comments, suggesting that all labor organizations 
representing employees affected by an implementing issuance should have 
the opportunity to be represented in the continuing collaboration 
process. Labor organizations recommended that we eliminate the 
provision authorizing the Secretary to determine the number of employee 
representatives who will participate in the continuing collaboration 
process. While, as a practical matter, it would be administratively 
inefficient to include representatives from more than 1500 Departmental 
bargaining units in the continuing collaboration process, we do agree 
that bargaining units affected by an implementing issuance should be 
represented in the process. Therefore, we have retained the provision 
giving the Secretary sole and exclusive discretion to determine the 
number of employee representatives that may participate in the process, 
but we have modified the final regulations to make clear that each 
national labor organization with one or more bargaining units affected 
by an implementing issuance will be provided the opportunity to 
participate in the process. We believe this will provide for an 
efficient and meaningful continuing collaboration process, particularly 
when large numbers of bargaining units are affected.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that employee representatives should 
be involved before a draft implementing issuance is proposed. In fact 
the continuing collaboration process provides the Secretary flexibility 
to involve affected labor organizations whenever appropriate, including 
at the conceptual stage. These commenters further suggested that there 
should be some feedback to the labor organizations regarding the 
disposition of any recommendations made during the continuing 
collaboration process. We agree and have modified the regulations to 
ensure that the Department considers the views and recommendations 
offered during the process before taking final action. A commenter also 
expressed concern that the Secretary was not required to adopt 
suggestions or recommendations, but we believe 5 U.S.C. 9902 intended 
the Secretary to have the final authority to implement the NSPS. In 
addition, employee representatives will receive from the Department a 
written statement of the reasons for taking final action regarding an 
implementing issuance.
    Finally, commenters, including labor organizations participating in 
the meet-and-confer process, recommended that the regulations provide 
employee representatives a reasonable time to submit their comments. 
The complexity of issues will vary greatly from implementing issuance 
to implementing issuance, which makes it imprudent to establish a 
standard time for commenting in the regulations. Therefore, we have not 
adopted this recommendation and have retained the provision authorizing 
the Secretary to establish these timeframes.

[[Page 66135]]

Section 9901.107--Relationship to Other Provisions

    Section 9901.107 describes the relationship of the NSPS regulations 
to other laws and regulations. Commenters expressed confusion regarding 
the purpose of this section `` in particular, paragraph (b). For 
example, a commenter suggested that DoD was attempting to exempt itself 
from title 5 rules on back pay. Paragraph (b) is merely addressing 
situations where other laws contain references to statutory provisions 
that are being waived and replaced by NSPS regulations. In general, our 
purpose is to give those other laws continuing effect by deeming the 
references to waived provisions to be references to the NSPS 
regulations replacing those waived provisions. Thus, for example, we 
are not eliminating NSPS employees' entitlement to back pay under 5 
U.S.C. 5596, but are merely giving meaning to references in Section 
5596 to statutory provisions in chapters 71 and 77 that no longer apply 
to NSPS employees. The final regulations reflect a technical revision 
in paragraph (b)(3) to make clear that all references in section 5596 
to provisions in chapter 71 (dealing with labor relations) are 
considered to be references to corresponding provisions in subpart I of 
these regulations. Also, in paragraph (b)(2), we revised a regulatory 
citation consistent with the rearrangement of sections in subpart H.
    Commenters expressed concern regarding Sec.  9901.107(a)(2), which 
(1) provides that part 9901 must be interpreted in a manner that 
recognizes DoD's need to accomplish its critical national security 
mission swiftly and effectively and (2) accords DoD and OPM's 
interpretation of the regulations great deference. The principle of 
providing deference to the agencies responsible for regulating and 
implementing a statute is well established. We believe it is entirely 
appropriate that the regulations recognize that the need for deference 
is even greater when the agency is responsible for defending and 
protecting our country and its citizens against external threats. We 
have clarified that deference is to be given to DoD's and OPM's 
interpretation of these regulations. In paragraph (c), we have removed 
the reference to law enforcement officer geographic adjustments under 
section 404 of the Federal Employees Pay Comparability Act of 1990, 
since those adjustments are no longer payable.
    Finally, in paragraph (d), we have removed the reference to 29 CFR 
part 1614 as unnecessary because the paragraph specifically provides 
that the employment discrimination laws that the Equal Employment 
Opportunity Commission (EEOC) enforces under 42 U.S.C. 2000e et seq., 
29 U.S.C. 621 et seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 206(d) are 
not waived, modified, or otherwise affected by these regulations. This 
is consistent with the enabling statute and our commitment to full and 
vigorous enforcement of Federal sector nondiscrimination laws. This 
means that employees and applicants for employment will have the right 
to file EEO complaints under those provisions of law as they do today 
and that EEOC's jurisdiction over those complaints remains unchanged.

Section 9901.108--Program Evaluation

    Section 9901.108 requires that DoD establish procedures for 
evaluating the NSPS regulations and their implementation.
    Commenters recommended that other organizations, such as OPM, be 
involved in program evaluation. They consider it important that program 
evaluations be conducted by independent, unbiased organizations. This 
regulation is meant to place a self-evaluation requirement on DoD, not 
to address third-party evaluations of NSPS. We believe it is a matter 
of good management that any agency implementing new human resources 
management and labor relations systems have responsibility for 
evaluating those systems so that problems can be corrected and 
improvements made. Under law and Executive order, OPM has general 
oversight responsibilities with respect to agency administration of 
human resources management programs. Of course, OPM has a particular 
interest and accountability with respect to NSPS, since Congress 
authorized OPM and DoD to jointly prescribe the NSPS regulations. OPM 
expects to review the results of DoD evaluations of NSPS and may 
conduct evaluations of its own. Nothing in these regulations prevents 
evaluations of NSPS by other appropriate organizations, such as the 
Merit Systems Protection Board or the Government Accountability Office.
    A commenter suggested that DoD establish an ongoing mechanism 
whereby employees can submit observations and recommendations for 
improving NSPS (including anonymous submissions). The commenter 
observed that this was especially important when employees (including 
supervisors) are not part of a bargaining unit. We do not believe it is 
necessary to establish a special, ongoing mechanism for such input 
within this regulation. When appropriate for the subject, NSPS 
evaluation methods established under Sec.  9901.108 will elicit 
workforce observations and recommendations; and employees also may use 
normal Departmental processes to comment on the human resources system. 
In addition, we note that the term ``employee representative'' as used 
in 5 U.S.C. 9902 is not limited to representatives of labor 
organizations. DoD may request views and comments from representatives 
of other employee groups, such as a managers' association.
    Commenters requested greater detail on the nature of DoD 
evaluations, such as evaluation criteria, benchmarks, parameters, and 
timeframes. Commenters also stated that the program evaluation process 
in the proposed regulation is too vague with respect to the 
participation of employee representatives and recommended that we 
incorporate more specific provisions, such as providing information to 
employee organizations, timeframes for review, and procedures for 
employee organizations to collect information directly from employees. 
Section 9901.101 of these regulations already identifies ``key 
operational characteristics and requirements,'' which are essentially 
high-level evaluation criteria. DoD will provide additional detail as 
it develops its evaluation program. The timing, nature and complexity 
of NSPS program evaluations will vary greatly and will be affected by 
the spiral rollout strategy for the human resources system. We consider 
it to be imprudent to set standard timeframes. We believe this is an 
area where flexibility is essential so that DoD can adjust the 
evaluation program based on experience. Accordingly, we have not 
adopted the recommendations made by commenters for greater specificity.

Subpart B--Classification

General Comments

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

[[Page 66136]]

more specific and that employees and employee representatives be 
involved in the design of the NSPS classification system. Responding to 
the lack of detail in the regulations, labor organizations recommended 
that the bar on collective bargaining of the NSPS classification system 
under Sec.  9901.903 of the proposed regulations be removed. Commenters 
also requested that implementing issuances for this subpart be subject 
to public review and comment. We have not removed the bar on collective 
bargaining. While the detailed implementing issuances for this subpart 
will not be subject to public review and comment, they will be 
established under the ``continuing collaboration'' provisions in Sec.  
9901.106. Under continuing collaboration, the exclusive process for 
employee representative involvement (5 U.S.C. 9902(f)(4)), employee 
representatives will have the opportunity to review and comment on 
draft implementing issuances. Furthermore, we have added a new section 
at Sec.  9901.205, which further clarifies that classification matters 
are not subject to collective bargaining. This is consistent with the 
statutory mandate that the scope of bargaining not be expanded under 
NSPS (5 U.S.C. 9902(m)(7)).
    We understand the desire for the regulations to provide more 
specificity about how the NSPS classification system will operate. 
However, the regulations must provide sufficient flexibility for a 
classification system with career groups and bands that support the 
market-based features of the NSPS pay system and can be customized to 
meet DoD's mission requirements and strategic human capital needs both 
today and in the future. Except as otherwise explained in this section 
of the SUPPLEMENTARY INFORMATION, we have not modified subpart B of the 
regulations in response to these comments. The regulations provide for 
implementing issuances that will provide further details, including the 
criteria for the career groups and definitions of the bands. DoD will 
consider the suggestions and recommendations made by commenters as it 
develops these implementing issuances.
    Commenters recommended that DoD issue classification standards to 
ensure consistent application of the NSPS classification system. DoD 
will establish standardized classification procedures and criteria in 
the implementing issuances required by this subpart.

Other Comments on Specific Sections of Subpart B

Section 9901.201--Purpose

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

Section 9901.202--Coverage

    Section 9901.202 identifies the employees and positions eligible 
for coverage under this subpart, including those otherwise covered by 
the General Schedule and prevailing rate systems, employees in SL and 
ST positions, and members of the SES, subject to Sec.  9901.102(d). 
This section also provides the authority for the Secretary to designate 
additional employees and positions for coverage. Commenters requested 
clarification of coverage for students and for laboratories. Students 
in positions otherwise classified to the General Schedule or other 
covered classifications systems will be covered under the NSPS 
classification system. Section 9902(c) of title 5, U.S. Code, specifies 
that coverage will not occur before October 1, 2008, for the defense 
laboratories in the following organizations: Aviation and Missile 
Research Development and Engineering Center, Army Research Laboratory, 
Medical Research and Materiel Command, Engineer Research and 
Development Command, Communications-Electronics Command, Soldier and 
Biological Chemical Command, Naval Sea Systems Command Centers, Naval 
Research Laboratory, Office of Naval Research, and Air Force Research 
Laboratory. Section 9902(c)(1) of title 5, U.S. Code, provides that on 
or after October 1, 2008, these laboratories will be covered to the 
extent the Secretary determines the flexibilities provided by NSPS are 
greater than the flexibilities they currently have under demonstration 
authority.
    Commenters recommended excluding Civilian Mariner, Emergency 
Essential Civilians, and dual status military technicians from coverage 
under this subpart. We have not changed coverage under this subpart 
based on these comments. The classification system is an integral part 
of NSPS and provides the flexibility needed as the foundation for the 
performance management and pay components of the system.

Section 9901.203--Waivers

    Section 9901.203 of the regulations specifies the provisions of 
title 5, U.S. Code, that are waived for employees covered by the NSPS 
classification system established under subpart B. As specified in 
Sec.  9901.203(a) the waivers apply when a category of DoD employees is 
covered by a classification system established under this subpart, 
except with respect to OPM's authority under 5 U.S.C. 5112(b) and 
5346(c) to act on requests for review of classification decisions, 
under Sec.  9901.107 and Sec.  9901.222(d). Section 9901.203(b) states 
that the classification of positions above GS-15 is not waived for 
certain purposes.
    A commenter requested clarification of whether this section waives 
5 U.S.C. 6303(f) regarding the annual leave accrual for members of the 
SES and employees in SL and ST positions. As specified in Sec.  
9901.203(b), this is one of the enumerated provisions that may not be 
waived.

Section 9901.204--Definitions

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

Section 9901.211--Career Groups

    Section 9901.211 provides DoD the authority to establish career 
groups. DoD's implementing issuances will provide the criteria and 
rationale for grouping occupations or positions into career groups.
    One commenter noted that this section does not mention OPM's role 
in establishing the career groups. Under Sec.  9901.105(c)(1), DoD is 
required to coordinate with OPM before establishing career groups.

[[Page 66137]]

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

Section 9901.212--Pay Schedules and Pay Bands

    Section 9901.212 provides DoD with the authority to establish pay 
schedules within each career group, and pay bands within each pay 
schedule. One commenter noted that the bands, as defined in this 
section, are simple to understand.
    Commenters noted an incorrect reference in the proposed regulations 
at Sec.  9901.212(d). We have corrected the reference.
    Commenters noted that this section does not mention OPM oversight 
and recommended that OPM review and approve the pay schedules. Under 
Sec.  9901.105(c)(1), coordination of pay schedules and pay bands with 
OPM is required.
    The proposed regulations stated in Sec.  9901.221(a) that pay 
schedules ``may include two or more pay bands.'' We made a technical 
correction to clarify that a pay schedule may include one or more pay 
bands.
    Commenters expressed a need for consistent pay bands throughout 
DoD. We did not make a change in the regulations based on this comment; 
however, DoD anticipates that bands will be defined consistently for a 
given occupation. Several commenters recommended grouping particular 
General Schedule grades into pay bands. Commenters also recommended 
placing specific occupations (e.g., attorney) into particular bands. 
Additional commenters suggested ways to band supervisory positions, 
while other commenters requested clarification of how supervisory and 
team leader positions will be placed into bands. DoD will consider 
these suggestions and address the number and composition of pay bands 
and the assignment of supervisor and team leader positions to bands in 
its implementing issuances.
    Several commenters requested further detail on the classification 
of prevailing rate positions under NSPS. One commenter suggested 
adopting the bands used for DoD nonappropriated fund (NAF) employees. 
DoD will consider these comments when establishing NSPS pay schedules 
and pay bands for prevailing rate positions.
    A commenter questioned how duty levels within bands will be 
described. DoD will establish a process for consistently describing the 
duties of positions.
    Several commenters requested that DoD establish military rank 
equivalencies for each band, for purposes such as travel 
accommodations. Such equivalency determinations are outside the scope 
of the NSPS regulations.
    Several commenters noted the importance of dual career paths to 
support both supervisory and non-supervisory expertise. DoD agrees that 
this is an important feature to include in the NSPS classification 
system. The pay band structure supports this concept through pay bands, 
such as expert and supervisory bands, which could provide for parallel 
career progression.

Section 9901.221--Classification Process

    Section 9901.221 of the regulations requires DoD to establish a 
method for describing jobs and documenting those descriptions. DoD will 
establish procedures for assigning each job to an occupational series, 
career group, pay schedule, and band, and will classify each job 
accordingly.
    Labor organizations participating in the meet-and-confer process 
expressed concern that employee promotions might be unduly delayed 
because Sec.  9901.221(d) in the proposed regulations did not provide a 
timeframe for classification decisions. As a result of these 
discussions, we have added a requirement in this section that personnel 
actions implementing classification decisions occur within four pay 
periods after the date of the decision.
    Some commenters expressed concerns that under the NSPS 
classification system, position descriptions will not be required. They 
were concerned that the duties required by a position will not be 
clearly defined and will be too broad, which may result in uncertain 
expectations or the assignment of work unrelated to an employee's 
position. While NSPS provides increased flexibility, DoD will establish 
a process for consistently describing the requirements of positions.

Section 9901.222--Reconsideration of Classification Decisions

    Section 9901.222 of the proposed regulations provides employees the 
right to request that DoD or OPM reconsider the classification of their 
official position of record including the pay system, career group, 
occupational series, pay schedule, or pay band.
    Commenters expressed concern that this section provides 
insufficient detail. DoD's implementing issuances will establish 
policies and procedures for handling an employee's request for 
reconsideration of classification decisions.
    A commenter noted that current regulations provide employees the 
right to request reconsideration of official titles of their positions 
of record and asked that the regulations provide this right under the 
NSPS classification system. We agree and have added ``official title'' 
to Sec.  9901.222(a).
    Commenters were concerned that there was no independent review to a 
neutral party. Paragraphs (a) and (c) of this section provide employees 
the right to directly request OPM reconsider the classification of 
their official position and allow an employee to request that OPM 
reconsider a DoD classification reconsideration decision, respectively. 
This right is parallel to the classification appeal right of current 
General Schedule employees under 5 U.S.C. 5112(b).
    Commenters suggested that the regulations authorize retroactive 
promotions if an employee's position is found to be misclassified, and 
one commenter suggested that retroactive promotions be limited to 2 
years preceding the reconsideration determination. Under the current 
classification law and regulations (5 U.S.C. chapter 51 and 5 CFR part 
511) classification decisions generally may not be made effective 
retroactively. (See 5 CFR 511.701(a)(4).) In addition, the Supreme 
Court has held that neither the Classification Act under 5 U.S.C. 
chapter 51 nor the Back Pay Act under 5 U.S.C. 5596 creates a 
substantive right to back pay for periods of wrongful classifications. 
(See United States v. Testan, 424 U.S. 392 (1976).)
    OPM regulations at 5 CFR 511.703 provide an exception to this 
general rule and allow a retroactive effective date if upon 
classification appeal an employee is found to have been wrongfully 
demoted. Any similar retroactive effective date provisions regarding 
classification reconsideration decisions will be addressed in DoD's 
policies and procedures for reviewing these requests, under Sec.  
9901.222(b).
    Commenters suggested that classification reconsideration decisions 
should be based on OPM's classification standards. The appropriate 
criteria for reconsideration are those criteria used in classifying the 
position. As noted in Sec.  9901.222(e), where DoD has adopted OPM 
standards, OPM criteria will be

[[Page 66138]]

used; and where DoD has established its own criteria for classifying 
positions under this subpart, DoD criteria will be used.
    Commenters suggested that DoD should have a central classification 
appeals office. This change has not been made in the regulations. DoD 
currently has a central classification appeals office.

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

    Section 9901.231 of the regulations addresses the conversion of 
positions to the classification system established under this subpart.
    Commenters expressed concerns about the conversion process, finding 
it vague and requesting further detail. They questioned whether all 
positions will be reclassified, whether employees will be required to 
reapply for their current job, and how DoD will deal with employees in 
entry positions who have completed training but not yet met time-in-
grade criteria. A commenter requested that the length of ``save pay'' 
be a minimum of 2 years. Additionally, commenters requested guidance on 
converting employees currently classified under demonstration projects 
and on converting employees leaving DoD from NSPS to the General 
Schedule. A commenter requested that employees be provided new position 
descriptions prior to conversion. DoD will consider these comments when 
issuing the implementing issuances to prescribe the conversion process.
    Commenters questioned the applicability of the conversion rules to 
employees converted to the NSPS pay system from demonstration projects 
and alternative pay systems. In response to these comments, we revised 
Sec.  9901.231(b) to provide that DoD will convert employees to the 
system without a reduction in their rate of pay, including any 
applicable locality payment, special rate supplement, local market 
supplement, or ``similar payment under other legal authority.''
    We also made a technical correction, changing the term ``special 
rate'' to ``special rate supplement.'' This change is consistent with 
other recently published special rate regulations.

Subpart C--Pay and Pay Administration

General Comments

    Commenters and the labor organizations participating in the meet-
and-confer process articulated concerns about the lack of specificity 
in subpart C of the regulations on the pay structure and the pay 
administration rules governing the NSPS pay system. Commenters felt the 
regulations were too vague and difficult to understand because of the 
lack of detailed information on such issues as establishment of career 
groups and pay schedules, establishment and adjustment of pay band 
rates and rate ranges, establishment and adjustment of local market 
supplements, composition and funding of performance pay pools, pay-
setting, and premium pay. Commenters expressed difficulty in 
understanding how their rate of basic pay and pay adjustments would be 
determined under NSPS and the impact individual and group performance 
would have on pay. Other commenters recommended that the regulations be 
withdrawn until the entire system could be disclosed or tested.
    Commenters, including labor organizations participating in the 
meet-and-confer process, repeatedly referenced the lack of specificity 
when recommending a number of amendments to subpart C of the 
regulations which they felt would provide detailed criteria and 
situations for setting and adjusting rate ranges; entitlement to rate 
range adjustments; setting and adjusting local market supplements; 
entitlement to local market supplements; eligibility and amounts of 
performance pay increases; and setting pay for initial hires, 
reassignments, promotions, and reductions in band. Amendments were also 
suggested for initial conversion into NSPS.
    Citing the lack of specificity, commenters and the labor 
organizations participating in the meet-and-confer process stated that 
the regulations should be revised to remove the bar in subpart I on 
collective bargaining of the NSPS pay structure and system and to 
provide that the NSPS pay system be subject to national consultation 
rights.
    Numerous commenters requested that the regulations be more 
transparent and that DoD work closely with employees and employee 
representatives in designing the NSPS pay system. They also cited the 
lack of details in the regulations as the basis for doubting the 
fairness and equity of the NSPS pay system.
    We recognize the desire that the regulations provide greater 
specificity and guarantees pertaining to the NSPS pay system. However, 
the regulations must afford DoD sufficient flexibility to design an 
agile pay system that is performance-based, market-based, and tailored 
to DoD's performance goals, mission requirements, and strategic human 
capital needs. Except as otherwise explained in this section of the 
SUPPLEMENTARY INFORMATION, we have not modified subpart C of the 
regulations in response to these comments.
    However, we concur with commenters that the NSPS pay system must be 
designed in a transparent and credible manner that involves employees 
and employee representatives. While we have not removed the bar on 
collective bargaining in subpart I, the implementing issuances, as 
defined in Sec.  9901.103, which will include the details of the NSPS 
pay system, will be covered by the ``continuing collaboration'' 
provisions in Sec.  9901.106, which Congress established as the 
exclusive process for the involvement of employee representatives in 
the further planning and development of the HR system (5 U.S.C. 
9902(f)(1)(D) and (f)(4)). (See Section 9901.103--Definitions and 
Section 9901.106--Continuing Collaboration.) Further, DoD will consider 
the suggestions and recommendations made by commenters as it develops 
implementing issuances for the NSPS pay system. Finally, we have added 
a new section at Sec.  9901.305, which further clarifies that pay 
matters are not subject to collective bargaining. This is consistent 
with the statutory prohibition against expanding the scope of 
bargaining under NSPS to those matters not subject to bargaining today 
because they are governed by law or Governmentwide regulations (5 
U.S.C. 9902(m)(7)).
    Commenters also stated that the regulations should require the new 
pay system to fully comply with the merit system principles and protect 
against prohibited personnel practices, implement the performance 
management provisions of subpart D prior to implementing the pay system 
in subpart C, require DoD to assess the impact of the pay system on 
employees prior to implementation, and establish a DoD compensation 
board. Neither the merit system principles nor the rules regarding 
prohibited personnel practices are waived under NSPS. Regarding testing 
and/or assessment of the system prior to implementation, the Department 
has tested many of these flexibilities via the demonstration projects. 
Additionally, the Department will use a spiral implementation strategy 
that will allow it to make modifications as necessary based on lessons 
learned in the earlier spirals. With regard to the recommendation for a 
compensation board, establishment of a mechanism for determining rate 
range adjustments will be addressed in implementing issuances.

[[Page 66139]]

    Commenters stated the concern that they would lose pay 
comparability with DoD employees remaining under the General Schedule 
and with employees in other Federal agencies. Commenters stated that 
employees should receive pay increases equivalent to the increases they 
would have received under the General Schedule. Many commenters also 
stated that the Department should continue to rely on the General 
Schedule classification and pay system--in essence, a retention of the 
status quo--or make the General Schedule system more flexible. Other 
commenters questioned the Department's ability to successfully 
implement the system and/or the ability of the Department's managers to 
establish and apply performance standards fairly and consistently to 
pay determinations, especially if they have not used the current system 
effectively. Other commenters stated that the NSPS pay system must 
contain the transparency and objectivity of the General Schedule, 
including the involvement of Congress and the Federal Salary Council.
    The Department plans to implement the system described in the 
proposed regulations. That system is consistent with the statutory 
requirement that the Department establish a ``pay-for-performance'' 
system that better links individual pay to performance. (See 5 U.S.C. 
9902(b)(6)(I).) Furthermore, we believe Congress and the American 
public expect their public employees to be paid according to how well 
they perform, rather than how long they have been on the job. They also 
expect the Department to maximize its efforts to recruit and retain the 
most talented and motivated workforce to accomplish its critical 
national defense mission.
    The General Schedule classification and pay system is an impediment 
to these expectations. The General Schedule does not provide the 
opportunity to appropriately reward top performers and/or compensate 
them in relation to their labor market value. Under the General 
Schedule, performance is rewarded by exception, and market value is 
defined as ``one size fits all.''
    The General Schedule pay system is primarily a longevity-based 
system, i.e., pay increases are linked primarily to time in grade. In 
addition to length of time, employees must be found to be performing at 
an ``acceptable level of competence'' to receive a step increase. 
However, since 99 percent of all employees satisfy this requirement, 
virtually all employees can expect to receive base pay increases 
automatically of up to 30 percent over time. These increases are in 
addition to annual across-the-board pay increases. Even employees whose 
performance is unacceptable receive the annual across-the-board and 
locality pay increases that average between 3 and 5 percent. Over time, 
even minimally productive employees will progress steadily to the top 
of the General Schedule pay range and may be compensated significantly 
more than higher performing employees with less time in grade. A system 
based primarily on longevity is not designed to base compensation on 
performance.
    Commenters stated that employees have no basis to predict salary 
from year to year and that they have no way of knowing the amount of 
their annual salary increases. Commenters stated that many benefits 
(e.g., leave, retirement, life insurance) are based on salary, and 
since raises are not guaranteed and cannot be predicted under NSPS, 
they will be losing benefits. Other commenters stated that their 
``high-three'' average salary could be less under NSPS, which will 
reduce employee annuities. A commenter also noted that because salary 
costs under the NSPS pay system cannot be easily predicted, the A-76 
contract bidding process will be more difficult to analyze.
    The Department, while recognizing that there is less predictability 
under the NSPS pay system, also notes that pay increases are not 
completely predictable under the current system--other than periodic 
within-grade increases. Additionally, under current title 5 provisions 
a number of situations affect an employee's salary (e.g., transfer from 
one locality pay area to another and change from an occupation with a 
special rate to an occupation without one) and therefore affect an 
employee's annuity calculation. Furthermore, NSPS is a pay-for-
performance system that will provide meaningful financial rewards to 
high-performing employees and greater employee control over future pay 
increases. High-performing employees will have the opportunity to 
achieve significant pay increases--the higher the performance, the 
higher the pay. The Department will be able to use salary trends to 
estimate future costs for purposes such as A-76.
    Commenters questioned the Department's statements that DoD has more 
than 20 years' experience with pay-for-performance systems. Pay-for-
performance systems similar to this proposal are not new. Pay banding 
has been part of the Department's compensation program since 1980, and 
the Department has a significant amount of experience in implementing 
and evaluating performance-based pay systems (e.g., demonstration 
projects). Currently, approximately 44,000 of the Department's 
employees are covered by performance-based pay systems.

Other Comments on Specific Sections of Subpart C

Section 9901.301--Purpose

    Many commenters stated that the pay-for-performance system would 
lower employee morale, increase competition among employees, and 
undermine teamwork and cooperation.
    The NSPS performance management system provides opportunities for 
the Department to recognize and reward teamwork. The Department does 
not assume that employees are solely motivated by pay. As a responsible 
employer, the Department has the obligation to reward the highest 
performers with the highest levels of compensation--regardless of their 
motivational basis for achievement. The Department believes the new 
system will enhance employees' desire to strive for maximum 
achievement. More importantly, this will provide for more equitable 
treatment of employees based on level of performance (which is 
consistent with merit system principles) and will help create a high-
performance culture within the Department. In addition, a pay-for-
performance system will allow the Department to be more competitive in 
recruiting and retaining top performers who have higher value in the 
labor market.
    Commenters stated that since DoD bases military ``within-grade 
increases'' on longevity, civilian employees should continue to receive 
time-based increases. The enabling legislation did not grant the 
Department authority to waive the provisions of title 10, United States 
Code, under which military pay and benefits are established. 
Additionally, while the Department values both its military personnel 
and civilian employees, it continues to support separate pay and 
benefit systems in recognition of the different attributes and demands 
of military and civilian service.

Section 9901.302--Coverage

    Section 9901.302 lists the categories of employees eligible for 
coverage under subpart C. Commenters stated that Federal Wage System 
(FWS) and other prevailing rate employees should not be covered by the 
NSPS pay system. Others stated that since FWS and other prevailing rate 
pay systems are already based on market rates, such employees should be 
excluded from coverage. Other commenters thought the NSPS

[[Page 66140]]

pay system should cover GS and FWS employees at the same time.
    The Department intends to include all eligible employees in the 
NSPS human resources management and labor relations systems, as 
described in the Subpart A--General provisions section of this 
SUPPLEMENTARY INFORMATION. However, the Department does not intend to 
cover FWS employees in the initial implementation phases of the NSPS 
human resources management system. (See the Next Steps section of this 
SUPPLEMENTARY INFORMATION.) Prior to including FWS employees in the 
system, the Department will conduct additional analyses to determine 
the appropriate application of NSPS in the trades and crafts 
environment. Part of that analysis will include reviewing current wage 
survey approaches.
    A commenter urged the regulations to exclude law enforcement 
officers from the NSPS pay system. The commenter stated that DoD has 
not provided any evidence that a pay-for-performance system is 
appropriate for law enforcement work, that law enforcement work often 
has no counterpart outside the Federal Government for labor market 
comparisons, and that the proposal does not consider the current 
difficulties in recruiting and retaining law enforcement officers. The 
Department considers pay for performance appropriate for law 
enforcement work. It also recognizes that it will have to use 
appropriate comparisons when making determinations regarding pay ranges 
for law enforcement officers.
    Commenters stated that employees appointed under the authority of 
section 1113 of Public Law 106-398 should be added to the coverage 
statement in Sec.  9901.302. We believe that this refers to section 
1101 of the National Defense Authorization Act for Fiscal Year 1999, as 
amended. This section provides authority for DARPA and selected 
military department laboratories to hire and pay a limited number of 
scientists and engineers. As shown in our matrix, these positions are 
outside the scope of NSPS. (See Section 9901.102--Eligibility and 
Coverage.)

Section 9901.303--Waivers

    Section 9901.303 lists the provisions of title 5 which DoD may 
waive or modify under these regulations, including the student loan 
repayment authority at 5 U.S.C. 5379. Commenters expressed concern that 
attorneys and other excepted service positions are ineligible to 
participate in the student loan repayment program.
    Section 9901.303(c) states that employees occupying positions 
excepted from the competitive service because of their confidential, 
policy-determining, policy-making, or policy-advocating character are 
ineligible. This exclusion is identical to the exclusion in 5 CFR part 
537, Repayment of Student Loans, and it does not exclude most attorneys 
and other excepted service employees from eligibility for student loan 
repayment.

Section 9901.304--Definitions

    Section 9901.304 provides definitions of terms used in subpart C. 
Commenters asked whether extraordinary pay increases (EPIs) are basic 
pay increases or bonuses. We have revised the definition of 
``extraordinary pay increase'' or ``EPI'' to clarify that an EPI may be 
a basic pay increase or a bonus.
    A commenter asked for the meaning of ``pay pool level,'' as used in 
the definition of ``modal rating.'' The definition of modal rating has 
been revised to clarify that the term modal rating for this subpart 
refers to the most frequently occurring rating for employees in the 
same pay band within a particular pay pool for a particular rating 
cycle.
    In response to general comments requesting greater clarity, we have 
revised the definition of ``pay pool'' to mean ``the amount designated 
for performance payouts'' instead of ``the dollar value of the funds 
set aside for performance payouts.''
    Commenters made various other requests for additional definitions 
of terms used in subpart C, such as ``compensation,'' ``aggregate 
pay,'' ``conduct,'' ``pay system,'' and ``rate range.'' In some cases, 
we do not believe a definition is needed. In other cases, we believe it 
is more appropriate to define or explain such terms in implementing 
issuances in order to preserve the Department's flexibility.

Section 9901.311--Major Features

    Section 9901.311 provides DoD with the authority to establish the 
NSPS pay system through implementing issuances and lists the major 
features of the NSPS pay system. Commenters questioned whether 
supervisory and nonsupervisory employees will be under the same pay 
system. Others questioned the use of a supervisory differential under 
the system.
    The same pay structure and pay administration rules cover both 
supervisory and nonsupervisory employees. Details on the treatment of 
supervisors and non-supervisors under this section will be addressed in 
the implementing issuances. At this time, DoD plans to include 
supervisory and nonsupervisory employees in the same career groups but 
to place them under separate pay schedules. NSPS does not establish a 
supervisory differential.

Section 9901.312--Maximum Rates

    Section 9901.312 provides the Secretary with the authority to 
establish limitations on maximum rates of basic pay and aggregate pay 
for employees covered by the NSPS pay system. During the meet-and-
confer process, participating labor organizations recommended retitling 
the section ``Maximum and Minimum Rates'' and adding a requirement to 
the end of the section that the overall amount allocated for 
compensation for DoD employees covered by NSPS must not be less than 
the amount that would have been allocated for compensation if they had 
not been converted to NSPS. This section has not been changed; however, 
this topic is addressed under Section 9901.313--National Security 
Compensation Comparability of this SUPPLEMENTARY INFORMATION.
    Commenters expressed concerns that maximum rates would limit the 
Department's ability to reward pay for good performance and reduce 
current pay potential. However, we note that any pay system will 
include salary ranges (including a maximum rate) for any given set of 
jobs, consistent with the applicable labor market. Even the most 
outstanding performers will be limited by the salary range for the job 
they perform. The proposed NSPS pay system is designed to allow the 
best performers to progress in pay more rapidly. The ability to reach 
the range maximum more quickly is a benefit to the high-performing 
employee.

Section 9901.313--National Security Compensation Comparability

    Section 9901.313 is consistent with 5 U.S.C. 9902(e)(4), which 
requires that, to the maximum extent practicable, through fiscal year 
2008, the overall (aggregate) amount allocated for compensation of the 
Department's civilian employees covered by NSPS may not be less than 
the amount that would have been allocated for compensation of such 
employees if they had not been converted to the NSPS pay system.
    During the meet-and-confer process, the participating labor 
organizations recommended adding a new paragraph to this section of the 
regulations that requires the rates of compensation for DoD civilian 
employees to be adjusted at the same time and in the same proportion as 
the rates of compensation for members of the armed forces, as required 
by 5 U.S.C. 9902(e)(3). Other commenters recommended that civilian

[[Page 66141]]

employees receive pay increases identical to members of the armed 
forces. Comparability with military pay is already addressed under 5 
U.S.C. 9902(e)(3) and does not need to be repeated in these 
regulations.
    Commenters requested clarification on the formula DoD will develop 
in applying this section. Commenters recommended that DoD ensure that 
through 2008 each individual installation receive the same funding it 
would have received under the General Schedule. Others, including labor 
organizations during the meet-and-confer process, recommended that the 
final regulations state that the money allocated to employees 
collectively will be the same as that allocated under the General 
Schedule. Commenters also asked whether the amount of money available 
to employees after 2008 will be less than the amount available under 
the General Schedule. Commenters requested that Sec.  9901.313 include 
a requirement that the Department actually spend the same level of 
funding for employee pay increases under NSPS as would be spent under 
the General Schedule. Other commenters pointed out that this section 
protects a pool of money, but does not protect the pay of individual 
employees.
    The Department is developing financial policy guidance for 
issuance. In addition, training will be conducted to reinforce these 
funding requirements. However, Public Law 108-136 does not require that 
every installation be funded at the same level as under the General 
Schedule, nor does it require that each individual employee will 
receive the same pay increase under NSPS that he or she would have 
received under the General Schedule.
    One of the key requirements of the NSPS pay-for-performance system 
is providing meaningful financial rewards to high-performing employees. 
Without the proper funding, this requirement cannot be realized. 
Although the enabling legislation does not mandate a funding level 
beyond fiscal year 2008, the Department recognizes the importance 
adequate funding plays in a pay-for-performance system.
    Commenters questioned the meaning of various terms used in this 
section. For example, commenters asked what ``pay in the aggregate'' 
means in paragraph (a). Commenters also asked for a definition of ``to 
the maximum extent practicable'' in paragraph (b) of this section and 
who would decide what ``to the maximum extent practicable'' means. 
Commenters also questioned the meaning of ``flexibility to accommodate 
changes in the function of the organization and other changed 
circumstances that might impact pay levels'' in that same paragraph. 
Commenters stated that DoD could use the flexibility provided by this 
section to lower payroll costs and divert such funds to other budget 
needs.
    The enabling legislation recognizes that all future circumstances 
cannot be predicted. The terminology ``to the maximum extent 
practicable'' was used in the enabling legislation and was designed to 
preserve the flexibility to accommodate changes in missions, changes in 
the composition of the workforce (e.g., mix of new employees, long-term 
employees, and retirement eligible employees), and other changes that 
might affect pay levels. Further defining the term would be 
inconsistent with the intent of the law. However, under NSPS guiding 
principles, the Department values a high-performing workforce and 
recognizes that maximum effort to adequately fund civilian employee 
compensation is crucial. The term ``pay in the aggregate'' refers to 
the concept addressed earlier that the enabling legislation does not 
require that each individual employee will receive the same pay 
increase under NSPS that he or she would have received under the 
General Schedule. The enabling legislation protects pay for employees 
overall rather than at the individual level.
    A commenter recommended that the two uses of the term ``pay'' in 
Sec.  9901.313(b) be replaced with the term ``compensation'' because 
``compensation'' is defined in paragraph (c) and ``pay'' is not. We 
agree and have replaced the term ``pay'' with ``compensation'' in Sec.  
9901.313(b).
    During the meet-and-confer process, the participating labor 
organizations recommended adding a paragraph to this section to address 
locality pay funding. Another commenter recommended that the payments 
included as ``compensation'' under Sec.  9901.313(c) be clarified. To 
clarify what types of payments are included in the term 
``compensation'' as used in this section, we have redefined 
``compensation'' to mean basic pay ``taking into account any applicable 
locality payment under 5 U.S.C. 5304, special rate supplement under 5 
U.S.C. 5305, local market supplement under Sec.  9901.332, or similar 
payment under other legal authority.''

Section 9901.322--Setting and Adjusting Rate Ranges

    Section 9901.322 provides DoD with the authority to set and adjust 
rate ranges, determine the effective date of rate range adjustments, 
establish different rate ranges and provide different rate range 
adjustments for different pay bands, and adjust the minimum and maximum 
rates of a pay band by different percentages.
    Commenters, including labor organizations participating in the 
meet-and-confer process, were concerned about the frequency and 
effective dates of rate range adjustments. In response to these 
comments, paragraph (b), which says DoD may determine the effective 
date of newly set or adjusted band rate ranges, has been modified to 
add: ``Established rate ranges will be reviewed for possible adjustment 
at least annually.'' We anticipate making rate range adjustments (when 
warranted) and performance payouts in January of each year. However, we 
have not revised the regulations to prescribe an effective date for 
such adjustments because this would unduly limit the Department's 
ability to make adjustments at other times in response to significant 
labor market changes or nonstandard performance cycles.
    Commenters questioned whether consideration of the ``availability 
of funds'' in Sec.  9901.322(a) will allow DoD to use salary funds for 
other budget needs and noted that this factor appears to contradict the 
funding guarantees provided under Sec.  9901.313--National security 
compensation comparability. We believe it is clear in the regulations 
that DoD must comply with Sec.  9901.313. The availability of funds 
criterion may be considered only after the requirements of Sec.  
9901.313 have been met.
    Commenters asked why labor market conditions will be considered in 
setting and adjusting rate ranges. Others asked why different pay 
adjustments should be made for different pay bands. Other commenters 
felt that basing pay for employees on the local job market is a step in 
the right direction of closing the pay gap between Federal employees 
and their private sector counterparts. Commenters asked whether a 
private sector company's lay-offs will cause a rate range minimum or 
maximum to be adjusted downward.
    The Department has not revised Sec.  9901.322(c). The ability to 
adjust rate ranges based on labor market conditions and to adjust 
different pay bands by different percentages is a key flexibility in 
designing a system responsive to labor market factors. Under Sec.  
9901.322(a), the Department will consider a number of factors in 
determining appropriate rate ranges. Labor market conditions are only 
one of these factors. Others include such factors as the Department's 
mission requirements, availability of funds, and pay adjustments 
granted to employees

[[Page 66142]]

of other Federal agencies. The NSPS regulations do not give any one 
factor greater weight than others. Given the circumstances of a 
particular year, any factor may have a greater or lesser effect on 
decisions regarding adjustments in rate ranges. Section 9901.322 refers 
to ``other relevant factors,'' which could include any number of 
indicators, such as recruitment and retention rates for specific 
occupations/locations and the projected availability of candidates for 
specific occupations compared to projected vacancies in these 
occupations. In the framework set by Sec.  9901.322, private sector pay 
trends do not require the Department to match these trends 
automatically, because they are only one of several factors that may be 
considered in setting and adjusting rate ranges.
    Commenters and labor organizations participating in the meet-and-
confer process were concerned about the flexibility provided in Sec.  
9901.322(d) allowing DoD to adjust the minimum and maximum rates of a 
pay band by different percentages. The labor organizations recommended 
that the regulations require pay band minimum and maximum rates to be 
adjusted by the same percentage. Other commenters recommended that the 
minimum and maximum rates be adjusted by the same percentage to 
minimize administrative burdens and to avoid pay compression if the 
minimum rate is increased, but not the maximum rate.
    Commenters also felt that allowing the Department to adjust the 
maximum rate of a pay band by an amount different from the minimum rate 
could benefit a few favorite employees at the top of a band by 
providing opportunities for greater performance pay increases at the 
expense of other good employees. Commenters also were concerned that, 
if minimum pay band rates are not increased, employees in such bands 
will not receive a rate range adjustment. A commenter suggested that 
employees receive the average percentage increase of the minimum and 
maximum pay band rates to prevent DoD from freezing pay. The Department 
does not believe that a requirement to automatically adjust the minimum 
and maximum pay band rates by the same amount would provide the 
flexibility necessary to make the NSPS pay structure reflective of 
market-based factors. However, pay compression is one the factors that 
will be considered in establishing minimum and maximum rates.
    Commenters stated that only Congress should have power to set pay 
raises. Others stated that Sec.  9901.322 will allow DoD to reduce 
congressionally approved pay raises to a lower level and that all 
employees, including high performers, can have their pay cut if DoD 
decides to use the money for mission or other requirements. Others 
stated that every year Congress and the President determine the cost-
of-living adjustment (``COLA'') increase that employees receive and 
that it is not fair to take money Congress intended to offset inflation 
and put the money in a performance pool. Commenters recommended that 
DoD continue to allocate the annual average pay raise that is 
authorized and appropriated by Congress for GS employees to NSPS 
employees who are fully successful in addition to other rewards based 
on outstanding performance. The current practice under the General 
Schedule of increasing pay for all employees by the same amount results 
in the overpaying of employees in some occupations and the underpaying 
of employees in other occupations. Under NSPS, the Department is 
creating a system that allows the flexibility necessary to consider 
both market factors and performance in making compensation decisions.
    As set forth in 5 U.S.C. 5303, the amount of the annual January 
adjustment in the General Schedule is based on a formula using the 
Employment Cost Index (ECI)--a measure of the movement in wages and 
salaries for private industry workers. However, the President may 
propose an alternate plan due to national emergency or economic 
conditions and notify Congress of his plan to adjust the General 
Schedule by a different amount than that indicated by the ECI. In 
recent years Congress has specified in legislation the amount of the 
increase in General Schedule pay. However, whether it is specified by 
the President or by legislation, the adjustment in General Schedule 
rates is not based on a cost-of-living calculation, and is not a COLA 
increase. (As a point of clarification, nonforeign area cost-of-living 
allowances (COLAs) are paid as additional compensation to certain 
Federal employees in Alaska, Hawaii, Puerto Rico, Guam, the U.S. Virgin 
Islands, and the Commonwealth of the Northern Mariana Islands. The COLA 
is designed in recognition of the higher living costs in these local 
areas compared with living costs in the Washington, DC, area. To set 
the COLA rates, OPM surveys the prices of more than 200 items, 
including goods and services, housing, transportation, and 
miscellaneous expenses in each of the allowance areas and in the 
Washington, DC, area. Section 5941 of title 5, United States Code, and 
Executive Order 10000 (as amended) authorize the payment of COLAs in 
nonforeign areas.)
    Commenters stated that it is unfair for the Secretary to set pay in 
secret, that such decisions may result in no or smaller increases for 
some pay bands compared to others, that unlike General Schedule pay 
decisions, pay-setting decisions will now be made behind closed doors 
and employees will have no opportunities to influence the decisions, 
and that the Bureau of Labor Statistics (BLS) data used by the current 
system is available for public review and accountability. A commenter 
also questioned what safeguards are in place to ensure that rate range 
adjustments do not result in EEO violations. Merit system principles 
and anti-discrimination laws are not waived under NSPS. The merit 
system principle at 5 U.S.C. 2301(b)(3) ensures that ``Equal pay should 
be provided for work of equal value, with appropriate consideration of 
both national and local rates paid by employers in the private sector, 
and appropriate incentives and recognition should be provided for 
excellence in performance.''
    The Department concurs with commenters that the NSPS pay system 
must be designed and executed in a transparent and credible manner that 
involves employees and employee representatives. The Department will 
establish in its implementing issuances a process for determining rate 
range adjustments. Employee representatives will be involved through 
the ``continuing collaboration'' process.

Section 9901.323--Eligibility for Pay Increase Associated With a Rate 
Range Adjustment

    Section 9901.323 provides that an employee must have a rating of 
record above ``unacceptable'' to receive a pay increase associated with 
a rate range adjustment. A number of commenters stated that payment of 
rate range adjustments should not be based on employee performance. 
Commenters objected to withholding such annual increases for employees 
with an unacceptable rating, especially if employees are denied the 
ability to appeal or grieve the rating. As discussed in our analysis of 
comments on subpart D, we have revised the regulations to provide 
bargaining unit employees with the option of grieving a rating of 
record through a negotiated grievance process. The Department believes 
that providing pay increases to employees whose ratings are 
unacceptable is inconsistent with a performance-based pay system.
    Commenters and the labor organizations participating in the meet-
and-confer process expressed concerns

[[Page 66143]]

that Sec.  9901.323(c) penalizes employees who do not have a rating of 
record by not guaranteeing them a rate range adjustment and that such 
employees should be presumed to have a rating of above 
``unacceptable.'' In response to these comments, we have revised the 
regulations to provide that an employee without a current rating of 
record for the most recently completed appraisal period will receive 
the same percentage increase as employees with a rating above 
``unacceptable.'' Paragraph (a) has been modified to add that, except 
for employees receiving a retained rate under Sec.  9901.355, employees 
with a current rating of record above ``unacceptable,'' and employees 
who do not have a current rating of record for the most recently 
completed appraisal period, will receive a percentage increase in basic 
pay equal to the percentage by which the minimum of their rate range is 
increased (not to exceed the maximum rate of the band). Additionally, 
paragraph (c) has been deleted.
    Commenters stated it was not clear whether all employees with a 
rating of record above ``unacceptable'' will receive the same 
percentage increase. Other commenters stated that this section implies 
that all employees above ``unacceptable'' will receive a rate range 
adjustment, but those with salaries at the top of the pay band may not 
if the maximum rate of that band is not increased.
    Section 9901.323(a) provides that employees with a rating of record 
above unacceptable will receive a percentage increase in basic pay 
equal to the percentage by which the minimum rate of their rate range 
is increased. However, this increase is subject to Sec.  9901.356(b), 
which provides that an employee's rate of basic pay may not exceed the 
maximum rate of the employee's pay band rate range, except when pay 
retention under Sec.  9901.355 applies.
    Commenters asked if an employee's pay could drop below the minimum 
of the pay band rate range due to not receiving a pay increase based on 
unacceptable performance. Other commenters asked whether employees will 
be converted to the next lower band if pay falls below the pay band 
minimum rate. Under the NSPS pay system, an employee's pay could drop 
below the minimum of the pay band rate range if the minimum of the rate 
range exceeds the employee's salary. However, this situation does not 
require the employee to be placed in a lower pay band. The employee's 
pay band is determined by work assignment.
    Commenters asked if employees on retained rates will receive rate 
range increases. We have revised Sec.  9901.323(a) to clarify that 
employees receiving a retained rate under Sec.  9901.355 will not 
receive a rate range increase.

Section 9901.331--General

    Section 9901.331 includes general provisions regarding local market 
supplements. Commenters asked for clarification of the difference 
between GS locality pay and the NSPS local market supplements described 
in Sec.  9901.331. Commenters also asked whether local market 
supplements will replace current GS locality rates and special rates 
and nonforeign area cost-of living-allowances. Finally, some commenters 
questioned the cost of administering a new locality pay system.
    The local market supplement authority replaces the GS locality pay 
and special rate authorities. Under NSPS, employees stationed in 
locations outside the 48 contiguous States will continue to receive 
applicable foreign and nonforeign area cost-of-living allowances and 
other differentials and allowances under 5 U.S.C. chapter 59.
    Under the GS locality pay system, all employees in a geographic 
location receive the same locality rate without regard to their 
occupation or the level of duties and responsibilities they are 
expected to perform. This ``one-size fits all'' method treats all 
occupations alike, regardless of market value and competition. This 
method results in underpaying employees in some occupations and 
geographic areas while overpaying others (as compared to the applicable 
labor market). NSPS is designed to be much more market-sensitive. It 
gives the Department significant discretion to set and adjust the 
minimum and maximum rates of pay for each pay band based on national 
and local labor market factors and conditions. Instead of ``one size 
fits all'' pay increases, NSPS allows the Department to allocate 
payroll dollars to the occupations and locations where they are most 
needed to carry out the Department's mission. The Department believes 
that the development of a new system to identify appropriate rate range 
adjustments and local market supplements is critical to appropriately 
compensating its workforce and will consider cost factors as it 
determines the most effective and efficient method for this purpose.
    In response to comments regarding the lack of specificity in the 
pay retention provisions of the regulations, we have removed the 
language in Sec.  9901.331 providing DoD with the authority to 
determine the extent to which local market supplements will apply to 
employees receiving a retained rate. Section 9901.355(e) provides that 
employees receiving a retained rate are entitled to any applicable 
local market supplement. (See Section 9901.355--Pay retention.)

Section 9901.332--Local Market Supplements

    Section 9901.332 provides DoD with the authority to establish local 
market supplements and local market area boundaries. This section also 
provides the purposes for which local market supplements are considered 
basic pay.
    A number of commenters expressed concerns about variations among 
local market supplements for occupations in the same geographic area. 
The commenters felt this flexibility allows errors and inequities to 
develop over time and will be confusing to employees. Other commenters 
were pleased to see a shift in the determination of locality pay from 
strictly geographic to occupation-based as a way to help recruit and 
retain employees. The Department believes that variations in local 
market supplements based on occupations are appropriate and reflective 
of the conditions in some labor markets.
    Commenters felt that the criteria for establishing local market 
supplements and local market areas should be in regulation. A commenter 
stated that the regulations should require clear, compelling criteria 
for the establishment of additional local market supplements that 
require a balance of human resources interoperability with mission 
requirements. Another commenter recommended that the regulations be 
modified to ensure that employees in rural areas and those adjacent to 
current locality pay areas are not unfairly impacted. Others questioned 
whether the cost of living, hazardous duties, education, or unique or 
special skills requirements will be considered in establishing local 
market supplements. A number of commenters asked whether local market 
supplements will apply to employees stationed in nonforeign and foreign 
areas and noted that such payments may help with staffing in those 
areas.
    In response to comments requesting additional specificity, we have 
revised paragraph (a) to clarify that the Secretary will have sole and 
exclusive authority to establish local market areas for ``standard 
local market supplements'' and ``targeted local market supplements.'' 
We have also added definitions of ``standard local market supplement'' 
and ``targeted local

[[Page 66144]]

market supplement'' in Sec.  9901.304. Standard local market 
supplements apply to employees within a given pay schedule or band who 
are stationed within a specified local market area, unless a targeted 
local market supplement applies. Targeted local market supplements 
apply to a defined category of employees (based on occupation or other 
appropriate factors) that may be established to address recruitment and 
retention difficulties or for other appropriate reasons.
    DoD will consider the comments regarding the establishment of local 
market supplements and local market areas in developing the 
implementing issuances. The regulations do allow for the possibility of 
establishing local market supplements in foreign and nonforeign areas 
outside the 48 contiguous States; however, in determining the need for 
and level of any such supplements, DoD will take into account 
employees' entitlement to allowances and differentials under 5 U.S.C. 
chapter 59.
    A commenter questioned the attempt to preclude judicial review of 
local market area boundaries under Sec.  9901.332(b). We have clarified 
Sec.  9901.332(b) to be more consistent with the limitation on judicial 
review of locality pay areas in 5 U.S.C. 5304(f)(2). Section 5304(f)(2) 
of title 5, U.S. Code, is not waived by these regulations, but is 
modified for continued application. Judicial review of any DoD 
regulation regarding the boundaries of standard local market areas is 
limited to whether or not the regulation was promulgated in accordance 
with the administrative procedures requirements in 5 U.S.C. 553. This 
same type of limitation on judicial review applies to locality pay 
areas administered by the President's Pay Agent under the current 
locality pay law.
    A number of commenters asked for clarification on the purposes for 
which local market supplements are considered basic pay. Commenters 
stated that local market supplements should be considered basic pay for 
the same purposes as GS locality rates. Commenters also questioned 
whether local market supplements will be used to compute awards and 
performance payouts under Sec.  9901.342 that are computed as a 
percentage of basic pay.
    In response to these comments, we have revised paragraph (c) to add 
that local market supplements are basic pay for recruitment, 
relocation, and retention incentives, supervisory differentials, and 
extended assignment incentives under 5 U.S.C. chapter 57, subchapter 
IV, and 5 CFR part 575, and for lump-sum payments for accumulated and 
accrued annual leave under 5 CFR part 550, subpart L, consistent with 
the locality pay regulations at 5 CFR part 531, subpart F. We note that 
paragraph (c) includes a catchall provision under which local market 
supplements are considered basic pay in computing other payments and 
adjustments for which locality pay under 5 U.S.C. 5304 is considered 
basic pay. (See Sec.  9901.332(c)(11) in these final regulations. We 
have revised the language in the proposed regulations, which was 
located in Sec.  9901.332(c)(8), to clarify this provision.) Thus, 
local market supplements also would be used in computing percentage-
based awards under 5 U.S.C. chapter 45, consistent with the treatment 
of locality pay under 5 CFR 531.610(h). Local market supplements are 
not considered basic pay in applying the performance payouts provision; 
instead, local market supplements are applied after determining the 
employee's new rate of basic pay.

Section 9901.333--Setting and Adjusting Local Market Supplements

    Section 9901.333 provides DoD with the authority to set and adjust 
local market supplements and determine the effective date of such 
adjustments. A number of commenters requested clarification on how 
labor market conditions would be considered in setting local market 
supplements. For example, some commenters questioned how local market 
supplements will work for occupations that have no local labor market, 
no private-sector job equivalents, or where local market rates are not 
high. Other commenters noted that local labor markets can be volatile 
and that the ups and downs of the market may be difficult for employees 
to understand. Commenters also questioned whether local market 
supplements may be reduced. The Department will consider these comments 
as it develops its procedures for setting and adjusting local market 
supplements.
    Commenters stated that 9901.333(b) should be revised to state that 
supplements will be reviewed periodically. Labor organizations 
participating in the meet-and-confer process recommended that the 
regulations be amended to require that local market supplements be 
adjusted the first pay period in January and that supplements be 
reviewed at least annually in conjunction with rate range adjustments 
to determine whether an adjustment is warranted. Section 9901.333(b) 
provides that DoD will review established local market supplements at 
least annually. This language is retained since it does not prevent the 
Department from conducting a review more frequently. However, we have 
not revised the regulations to prescribe an effective date for such 
adjustments because this would unduly limit the Department's ability to 
make adjustments at other times in response to significant labor market 
changes.

Section 9901.334--Eligibility for Pay Increase Associated With a 
Supplement Adjustment

    Section 9901.334 provides that an employee must have a rating of 
record above ``unacceptable'' to receive a pay increase associated with 
a local market supplement adjustment. A number of commenters stated 
that payment of local market supplement adjustments should not be based 
on employee performance. Commenters objected to withholding such 
increases for employees with an unacceptable rating, especially if 
employees are denied the ability to appeal or grieve the rating. As 
discussed in our analysis of comments on subpart D, we have revised the 
regulations to provide bargaining unit employees with the option of 
grieving a rating of record through a negotiated grievance process. 
However, the Department does not consider providing pay increases to 
employees with ratings of unacceptable to be consistent with the intent 
of a performance-based system.
    Commenters and the labor organizations participating in the meet-
and-confer process expressed concerns that Sec.  9901.334(c) penalizes 
employees who do not have a rating of record by not guaranteeing them a 
local market supplement adjustment and that such employees should be 
presumed to have a rating of above ``unacceptable.'' In response to 
these comments, we have revised the regulations to specify that an 
employee without a current rating of record for the most recently 
completed appraisal period will receive the same percentage increase as 
employees with a rating above ``unacceptable.'' Paragraph (a) has been 
modified to add that employees with a current rating of record above 
``unacceptable'' and employees who do not have a current rating of 
record for the most recently completed appraisal period will receive a 
pay increase resulting from a supplement adjustment. Additionally, 
paragraph (c) has been deleted.
    Commenters asked whether employees on retained rates will receive 
local market supplement increases. Commenters also asked whether all 
employees with a rating of record above unacceptable will receive the 
same percentage local market supplement

[[Page 66145]]

increase. As previously discussed in this Supplementary Information, 
Sec.  9901.355 is revised to provide that employees receiving a 
retained rate will receive any applicable local market supplement 
increase.

Section 9901.341--General

    During the meet-and-confer process, the participating labor 
organizations recommended adding language at the end of Sec.  9901.341 
stating that the pay and pay administration process must be fair, 
transparent, and credible. The regulations already set forth the 
objectives that the entire NSPS, including the NSPS pay system, be 
understandable, credible, trusted, and consistent with merit system 
principles. (See Sec.  9901.101.)
    Based on a comment regarding language consistency between 
Sec. Sec.  9901.341 and 9901.342(a), to maintain consistency we have 
added individual contribution as a factor in awarding performance-based 
pay to employees.

Section 9901.342--Performance Pay Increases

    Section 9901.342(a) provides an overview of the DoD performance-
based pay system for employees under a performance management system 
established under subpart D. Under a pay-for-performance system, a 
portion of the annual salary increase received by an employee is based 
on his or her rating of record. The rating is retrospective, looking 
back over the employee's performance and contribution over the 
applicable rating period. This section establishes that NSPS will use a 
pay pool concept to manage, control and distribute performance-based 
payouts. Pay pool panels serve as calibration committees and are 
normally populated by management officials. DoD implementing issuances 
will provide additional details regarding pay pool constructs, pay pool 
management, and a pay pool reconciliation process. The pay pool concept 
improves fairness over the current performance evaluation methodologies 
in the Department by forcing the open collaboration of peer managers in 
discussing and assigning ratings to employees within the pay pool. The 
specific processes for performance management and the accompanying 
performance-based pay decisions will be addressed in DoD implementing 
issuances.
    Commenters expressed mixed concerns about basing performance 
payouts on employee contributions. Some commenters recommended that the 
regulations allow components to implement a contribution-based system. 
Other commenters agreed that the level and value of an employee's 
contribution should be factored into performance payouts. Others 
recommended that contributions not be factored into performance payouts 
because management controls an employee's possible contribution level 
and the contribution assessment is arbitrary. NSPS is a performance-
based system, and we believe it is appropriate to consider an 
employee's contribution in the rating and performance payout an 
employee receives.
    Based on a comment regarding language consistency between 
Sec. Sec.  9901.341 and 9901.342(a), we have added team performance as 
a factor in awarding performance-based pay to employees. Other 
commenters questioned how team or organizational performance will 
affect individual employee payouts. Some commenters believe that 
organizational performance should not affect an individual's pay, while 
other commenters stated that performance payouts should be based on 
organizational performance. Under the NSPS range of shares concept, 
organizational performance can be considered in determining the 
appropriate share assignment.
    Regarding the use of pay pool panels, a number of comments 
suggested that pay pool deliberations and recommendations are 
susceptible to internal politics, funding availability, staffing needs, 
and personal favoritism. Similarly, many commenters, including labor 
organizations participating in the meet-and-confer process, expressed 
concern that unless the regulations preclude supervisors from inclusion 
in the same pay pool as their subordinate employees, management 
cronyism would undermine the system. Commenters also expressed concerns 
about a pay pool manager's ability to overturn a supervisor's 
decisions. Other commenters questioned how consistency will be ensured 
among pay pools.
    Subject to continuing collaboration, implementing issuances will 
require that pay pool management be transparent and credible while 
protecting the privacy interests of employees concerned and allowing 
the free exchange of viewpoints and observations. Subject to continuing 
collaboration, implementing issuances will provide safeguards to 
support the neutrality and impartiality of pay pool proceedings. The 
responsibilities of a pay pool manager under a pay-for-performance 
system typically include the review of supervisors' proposed ratings of 
record for consistency and equity across organizational units and to 
guard against potential discrimination or politicization before 
finalizing ratings. The regulations and implementing issuances will 
require that decisions made by pay pool panel members and managers must 
be consistent with the merit systems principles found in 5 U.S.C. 2301. 
We have added a new paragraph (a)(3) in Sec.  9901.342 that expressly 
states the requirement that pay pools will be managed by a pay pool 
manager or pay pool panel, with the responsibility for reviewing 
proposed rating and share assignments to ensure fairness and 
consistency.
    Regarding the comments on the commingling of employees and 
supervisors in the same pay pool, we have not prescribed this level of 
specificity for the structuring of the pay pool in this rule. There are 
a number of considerations relative to pay pool constructs. These 
include functional or organizational orientations, funding, and 
population size. Depending on these and other factors it may be 
appropriate to commingle supervisory and non-supervisory personnel 
provided other measures are taken to prevent actual and perceived 
conflicts of interest. For example, participants in the pay pool 
process will not be allowed to participate in deliberations that 
directly affect their own performance assessment or pay. This level of 
detail is best handled in implementing issuances.
    Some comments expressed the belief that pay-for-performance is 
contrary to the needs of national security and that instead of 
encouraging team cooperation and organizational efforts, the system 
will encourage unhealthy competition. The deterioration of team or 
collaborative work ethics and atmosphere is not an inevitable outcome 
of a pay-for-performance system. We expect that the importance of 
teamwork and cooperation will be reinforced in the expression of 
performance standards and performance objectives. Through 
communication, ongoing feedback, performance rating and performance 
rewards, the importance of teamwork and cooperation will be impressed 
on employees.
    Some commenters questioned the use of the modal rating for 
employees who do not have a rating of record. The final regulations 
continue to provide that, for certain employees without a rating of 
record, DoD will base the performance payout under Sec.  9901.342 on 
the employee's last rating of record or modal rating, whichever is most 
advantageous to the employee. (As discussed later, we have made some

[[Page 66146]]

clarifying language changes in Sec.  9901.342(f) and (g) and added a 
sentence to give DoD authority to address situations where it is not 
possible to determine the modal rating. Also, we have revised the 
definition of ``modal rating'' in Sec.  9901.304.) DoD considered 
several options for addressing this issue and determined that use of a 
modal rating is the most equitable. The modal rating provision applies 
only to employees returning from a period of military service as 
described in Sec.  9901.342(f) or employees returning to duty after 
being in a workers' compensation status as described in Sec.  
9901.342(g), except as otherwise provided in DoD implementing 
issuances. (See Sec.  9901.342(a)(2).)
    We note that in Sec.  9901.342(a)(2), the term ``performance 
payout'' has been substituted for ``pay increase or bonus payment under 
this part'' as a matter of consistent terminology.
    During the meet-and-confer process, the participating labor 
organizations recommended deletion of the proposed language at Sec.  
9901.342(a)(2) authorizing the appropriate rating official to prepare a 
more current rating of record, consistent with Sec.  9901.409(b). Other 
commenters also were concerned about the fairness of this provision. 
One commenter agreed with the flexibility to prepare a more current 
rating of record, but cautioned that any payout should be based on 
overall performance, not performance that has occurred more recently.
    We have not changed the regulations in response to these comments. 
This provision is intended to allow a rating official to raise or lower 
an employee's rating of record based on sustained and significant 
changes in his or her performance since the last rating of record and 
is consistent with current regulations. In keeping with the principle 
that pay and retention should be linked to performance, it is incumbent 
on management to ensure that the record accurately reflects 
performance, whether it has improved or deteriorated. This is 
particularly true in the case of an employee who was previously 
performing below expectations and who shows improvement over a 
significant period of time, perhaps as a result of work restructuring 
or additional training. We note that the issuance of any rating of 
record is subject to reconsideration procedures. While the regulations 
remain unchanged, the implementing issuances will require that such 
ratings be subject to procedures similar to those required for ratings 
issued at the end of the appraisal period.
    A number of comments addressed concerns that pay increases will be 
subject to influences beyond the control of the individual employee, 
such as the number of shares assigned to other employees in the pay 
pool, pay pool funding levels, the use of pay pool funds for entry/
developmental pay increases, and the distribution of discretionary 
payments. Similarly, many commenters were concerned that if more 
employees within a pay pool receive higher ratings, the value of the 
payout for each employee is reduced. Commenters also suggested that 
this pay pool and shares system will result in forced ratings 
distributions and quotas. Other commenters, including the labor 
organizations participating in the meet-and-confer process, made a 
number of recommendations regarding the funding for pay pools. Finally, 
a number of commenters expressed concerns about including across-the-
board increase money in pay pool funds.
    It is true that pay pools will not have unlimited funds available. 
To create a system based on that approach would be fiscally unsound. In 
keeping with our guiding principles, the NSPS performance management 
system is designed to place greater emphasis on making meaningful 
distinctions between different levels of performance and to reward 
employees appropriately based on those levels. The proposed regulations 
state that supervisors and managers will be held accountable for making 
meaningful distinctions among employees based on performance and 
contribution. Implementing issuances will continue to stress 
accountability at all levels for performance evaluations and the 
related pay decisions and will provide more specific guidance on pay 
pool funding. We note that a share-based system does not result in 
forced distribution of ratings, since a share-based system does not 
rely on the distribution of ratings to control costs. Current across-
the-board increases will be replaced by a combination of adjustments, 
including adjustments to minimum levels of the rate ranges and 
performance-based increases, and, thus, such funding may be included in 
the pay pool. The Department believes that this is consistent with 
intent of the enabling legislation.
    Another recurring theme among commenters was the concern that an 
employee's pay would be subject to his or her manager's communication 
and persuasion skills as demonstrated at the pay pool panel meetings. 
We agree that care must be taken during the pay pool management process 
to ensure that an employee's final rating is more than a function of 
the negotiating skills of his or her manager. Expectations for raters 
and pay pool panel participants will be emphasized in training 
materials and implementing issuances.
    During the meet-and-confer process, participating labor 
organizations requested that a fixed number of shares, rather than a 
range of shares, be associated with a particular rating level. 
Commenters also expressed the belief that by fixing a single share per 
level of performance, employees would be better insulated from bias and 
unfair treatment by management. The Department recognizes that a valid, 
reliable, and transparent performance management system with adequate 
safeguards for employees is essential. However, for a system to be 
effective, it must avoid a rigid, one-size-fits-all approach by 
providing the flexibility to address a variety of circumstances. By 
allowing a range of decision points regarding the number of shares, 
managers can more appropriately address the variety and complexity of 
factors that relate to employee compensation. For example, factors that 
may be considered in the assignment of shares could include the 
position of the employee's salary within the rate range, the receipt of 
a promotion pay increase within the last year, the employee's 
contribution to the accomplishment of important organizational 
objectives, team/organizational performance, whether the performance 
was sustained and likely to continue over time or related to a 
particular set of tasks or projects, or other appropriate factors. In 
response to the concerns expressed regarding use of a range of shares, 
we have added a new paragraph (c)(3) in Sec.  9901.342, which (1) 
requires that DoD provide in implementing issuances additional guidance 
on the use of share ranges, including some examples of appropriate use 
of factors in making specific share assignments; (2) requires that DoD 
organizations inform employees of the factors that may be considered in 
making share assignments within their pay pool at least 90 days prior 
to the end of the appraisal period; and (3) provides that pay pool 
managers and/or pay pool panels will review proposed share assignments 
to ensure that factors are applied consistently across the pay pool and 
in accordance with the merit system principles.
    Section 9901.342(d) of the regulations provides the parameters and 
criteria for the performance share calculation methodology in 
sufficient specificity so that managers, employees, and employee 
representatives can better understand how performance pay increases 
will be determined and paid. At the same time, the regulations allow

[[Page 66147]]

DoD to tailor the performance share calculation to the mission and 
performance needs of individual components and the specific performance 
requirements and priorities of organizations, individuals, and 
occupational groups.
    Commenters requested that the regulations provide a more detailed 
explanation of the formulas used to derive share values and payout 
amounts. This can best be handled by DoD in its implementing issuances 
or operating procedures. Similarly, some comments requested that share 
values be set or predetermined. Some commenters recommended that share 
value be expressed as a dollar amount. Others recommended that share 
value be expressed as a percentage. Because DoD is prohibiting the use 
of forced ratings distribution, the exact value of a share cannot be 
determined prior to completion of the rating process. In addition, the 
regulations preserve flexibility in setting share values to establish a 
more nimble pay-for-performance system. We have not changed the 
regulations in response to these comments.
    Commenters questioned the relationship of the share value to the 
employee's salary. DoD intends to prescribe a payout calculation such 
that an employee's payout will be a function of the pool total base 
salary value, the number of shares assigned within the pool, the 
employee's salary (if the share value is computed on a percentage 
basis), and the number of shares assigned to the employee.
    Section 9901.342(d)(3) authorizes DoD to establish ``control 
points'' within a pay band that limit increases in the rate of basic 
pay and may require certain criteria to be met for increases above the 
control point. A commenter likened control points to ``invisible 
barriers that prevent most employees from ever reaching the top of 
their band.'' The same commenter suggested that the use of pay pools 
will provide sufficient cost control without the need for control 
points. A number of other commenters also expressed similar concerns 
about control points. During the meet-and-confer process, participating 
labor organizations recommended that the authority to establish control 
points be deleted from the regulations.
    The concept of control points is not inconsistent with the goals of 
a pay-for-performance system, which envisions a greater link between 
pay decisions and an individual's performance. Control points are tools 
to manage employees' progression through the bands and can help to 
ensure that only the highest performers move into the upper range of a 
pay band, which would allow the Department to set pay more consistently 
with the labor market and to be more effective in attracting and 
retaining top performers. Several DoD personnel demonstration projects 
have successfully used control points in their pay-for-performance 
systems. We will ensure that if control points are used under NSPS, 
they are well defined and understandable to employees.
    Section 9901.342(d)(4) specifies that a performance payout may not 
cause an employee's rate of basic pay to exceed the maximum rate of the 
band or applicable control point. Commenters expressed concerns that 
this provision unduly limits pay increases and that the paragraph 
should be modified to state that an employee's rate of basic pay may 
not exceed a control point only if the employee does not meet the 
applicable control point criteria. We have not modified the regulations 
in response to this comment, since we believe the regulatory text is 
clear. Section 9901.342(d)(4) states that an employee may not receive a 
pay increase that causes his or her rate of basic pay to exceed an 
``applicable'' control point. A control point is not applicable unless 
the employee fails to meet the criteria established under Sec.  
9901.342(d)(3).
    Also relative to Sec.  9901.342(d)(4), a number of comments relayed 
concern that management decisions relative to the distribution of 
performance payouts between bonuses and increases in basic pay would be 
subject to bias and favoritism. Many comments suggested that 
organizations might institute polices that promote the use of lump-sum 
payments in lieu of increases in basic pay as a cost savings measure. 
Commenters especially emphasized the long-term cost to employees in 
terms of retirement benefits. We acknowledge that such decisions cannot 
be taken lightly. Again, these regulations require, and DoD 
implementing issuances will emphasize, that such distinctions must be 
consistent with the merit system principles found in 5 U.S.C. 2301 and 
supported by employee job performance and contribution. Training and 
supplemental guidance will illustrate the short- and long-term outcomes 
of payout distribution decisions as they affect organizations and 
employees. In addition to the system requirements at Sec.  
9901.405(b)(4) and (c), which hold supervisors accountable for 
effective performance management, the proposed regulations provide at 
Sec.  9901.406(c) that the performance expectations for supervisors and 
managers will include the assessment and measurement of how well they 
exercise their performance management responsibilities under NSPS.
    Consistent with other changes in the regulations that clarify how 
DoD will grant performance payouts to retained rate employees, we have 
amended Sec.  9901.342(d)(6) to clarify that for an employee receiving 
a retained rate under Sec.  9901.355, a lump-sum performance payout may 
not exceed the amount that may be received by an employee in the same 
pay pool with the same rating of record who is at the maximum rate of 
the band. (See Section 9901.355--Pay Retention for additional 
information.)
    Section 9901.342(e) specifies the circumstances under which 
performance payouts may be prorated. Commenters asked for clarification 
or made suggestions regarding when and how performance payouts would be 
prorated. This language remains unchanged. Policies relative to 
proration can best be handled by DoD in its implementing issuances.
    Sections 9901.342(f) clarifies how DoD will set the rate of basic 
pay for employees upon reemployment after performing honorable service 
in the uniformed services and how intervening performance pay 
adjustments for such employees would be determined upon reemployment. 
The regulations require DoD to issue implementing issuances governing 
how it will set the rate of basic pay for employees upon reemployment 
and require DoD to credit the employee with intervening rate range 
adjustments under Sec.  9901.323 and increases from performance 
payouts. Commenters agreed that employees returning from performing 
honorable uniformed service should not be disadvantaged under the NSPS 
pay system. However, some comments suggested that employees performing 
military service will be negatively affected upon return to civilian 
service under NSPS. For example, a commenter noted that the regulations 
do not address the flexibility managers will have to assign a returning 
service member to the low end or the high end of the share range 
assigned to a rating level. We have revised the language to clarify 
that the pay of an employee returning from qualifying service (who does 
not have a rating of record for the appraisal period serve as the basis 
for the performance payout) will be set at a rate including 
performance-based pay increases equal to either the average increase 
received by employees assigned the modal rating or assigned the same 
rating as the employee's actual, most recent rating of record, 
whichever is most advantageous to the employee.

[[Page 66148]]

    Additionally, the following language was added to Sec.  
9901.342(f): ``In unusual cases where insufficient statistical 
information exists to determine the modal rating or when previous 
ratings do not convert to the NSPS rating scale, DoD may establish 
alternative procedures for determining a basic pay increase under this 
section.'' This language was added primarily in response to concerns 
that some organization may experience skewed pay pools during the first 
years NSPS is implemented because of the absence of a statistically 
significant number of employees in the pay pool due to mobilizations 
(as in the case of military technicians).
    Section 9901.342(g) clarifies how DoD will set the rate of basic 
pay for employees upon reemployment after being in a workers' 
compensation status. This section has been modified to the extent 
necessary so that it remains consistent with Sec.  9901.342(f) and in 
response to comments made about paragraph (g) that were similar to 
those made about paragraph (f).
    During the meet-and-confer process, the participating labor 
organizations recommended adding a new paragraph to Sec.  9901.342 
requiring that all provisions in part 9901, including ratings of record 
and payouts, be subject to a final independent third-party review. A 
commenter agreed with the rule in Sec.  9901.342(c) that employees with 
unacceptable ratings of record should not receive a performance payout, 
but only if the employee has the ability to appeal or grieve the 
rating. Other commenters made similar recommendations and questioned 
what appeals or grievance process employees can use if they do not 
agree with their pay increase. As discussed in our analysis of comments 
on subpart D, we have revised the regulations to provide bargaining 
unit employees with the option of grieving a rating of record through a 
negotiated grievance process. If that process results in a new rating 
of record, the employee's rate of basic pay would be adjusted 
accordingly. However, management decisions as to the amount of a pay 
increase are not subject to review as long as those decisions are 
consistent with the validated rating of record and within the 
flexibilities provided by the regulations.
    During the meet-and-confer process, the participating labor 
organizations recommended adding a requirement to the regulations for 
all employees rated ``fully successful'' or better to share in 
performance payouts. We have not accepted this recommendation. The 
Department has not definitively identified the number of rating levels 
or their descriptors. Therefore, it is premature to guarantee a pay 
increase to any specific group of employees.

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

    Section 9901.343 provides DoD with the authority to reduce an 
employee's rate of basic pay for unacceptable performance or conduct 
under the adverse action procedures in subpart F of these regulations. 
During the meet-and-confer process, the participating labor 
organizations were very concerned that the proposed regulations 
provided DoD with the authority to reduce an employee's pay any number 
of times within the appraisal period. In response we have revised this 
section to specify that an employee's rate of basic pay may not be 
reduced more than once in a 12-month period based on unacceptable 
performance, conduct, or both.
    Other commenters felt that pay reductions should not be permitted 
for any reason and that pay reductions do not improve performance, are 
disruptive to the workplace, and have greater impact on an employee's 
family than on the employee. DoD believes it is necessary to retain 
flexibility to reduce the pay of an unacceptable performer in order to 
achieve and retain a high-performing workforce.
    During the meet-and-confer process, participating labor 
organizations recommended that Sec.  9901.343 specify that the maximum 
10 percent reduction will include any annual increase, local market 
supplement, or other pay increases withheld from the employee but given 
to employees who are similarly situated and rated above unacceptable. 
Similarly, the labor organizations recommended that the proposed 
regulations be revised to provide that the pay of employees who improve 
performance within 90 days will be adjusted retroactively to reflect 
pay increases they would have received if they had been performing at 
an acceptable level at the time such increases were effected for the 
rest of the workforce. Other commenters felt that a 10 percent limit on 
pay reductions is too high. The recommendation to count increases not 
received (e.g., minimum rate range adjustments) as part of the 10 
percent reduction limit, to restore all lost pay if the employee's 
performance improves during a 90-day improvement period, and to lower 
the pay reduction limit are inconsistent with the intent of the NSPS 
pay system.
    Commenters and the labor organizations participating in the meet-
and-confer process recommended that Sec.  9901.343 clarify that 
reductions in pay under this section are subject to adverse action 
procedures. Such clarification is unnecessary because Sec.  9901.343 
already refers to the regulations at Sec.  9901.352 and Sec.  9901.354 
clarifying that such reductions are subject to adverse action 
procedures under subpart G (or similar authority).

Section 9901.344--Other Performance Payments

    Section 9901.344 of the regulations provides DoD with the authority 
to reward employees or groups of employees through other types of 
payments. Situations where such payments may be warranted include 
recognition of extraordinary individual performance and organizational 
or team achievements. This section further explains that an employee in 
receipt of an extraordinary pay increase (EPI) is expected to continue 
to perform and contribute at an exceptionally high level.
    Both public comments and recommendations made by labor 
organizations participating in the meet-and-confer process suggested 
that funding for these payments should be separate from funding for the 
performance pay pools. Some of the comments expressed concern that use 
of these payments would unfairly divert funds from deserving employees 
to unfairly reward or overpay other employees. As stated previously, 
managers and supervisors at all levels will be held accountable for 
fairly and impartially making performance-based reward determinations. 
DoD implementing issuances will provide for checks and balances to 
mitigate the potential for abuse.
    Commenters asked whether extraordinary pay increases (EPIs) are 
basic pay increases or bonuses. As previously stated, we have revised 
the definition of ``extraordinary pay increase'' or ``EPI'' in Sec.  
9901.304 to clarify that an EPI may be a basic pay increase or bonus. 
(See Section 9901.304--Definitions.)
    Commenters questioned whether an EPI could be revoked if an 
employee does not continue to perform at an exceptionally high level. 
Others recommended that the exceptionally high level performance 
expectation be removed from the regulations as an unfair requirement. 
We believe that the extraordinary pay increase is an important 
flexibility and have not revised the language.
    Commenters asked for clarification on whether payments in 
recognition for organizational or team achievement will be basic pay 
increases or bonuses and

[[Page 66149]]

what other special circumstances might warrant additional payments. 
Under NSPS payouts based on organizational or team achievement could 
take the form of either basic pay increases or bonuses. Any other 
special circumstances will be addressed in implementing issuances.

Section 9901.345--Treatment of Developmental Positions

    Section 9901.345 of the regulations provides DoD with the authority 
to establish policies and procedures for adjusting the pay of employees 
in developmental positions. During the meet-and-confer process, the 
participating labor organizations requested that the regulations 
clarify how such employees will progress through a pay band. Other 
commenters also asked for clarification and recommended that entry/
developmental employees receive pay increases equivalent to GS entry/
developmental pay increases. The language has been modified to clarify 
that entry/developmental pay adjustments may be made in lieu of or in 
addition to those authorized under Sec.  9901.342. However, we have not 
modified the language to require that developmental employees progress 
in the same time frames as under the current system, because such a 
change would be inconsistent with a performance-based system.
    During the meet-and-confer process, participating labor 
organizations also requested the addition of language so that employees 
in developmental positions will be given equivalent access to the 
training and assignments needed to meet standardized assessment or 
certification points and progress to the full performance band on a 
timely basis. In many cases, employee training and development occurs 
within DoD on a decentralized basis. Since training and development 
opportunities are administered according to each unit's needs and 
competency requirements, it would be difficult to address these issues 
appropriately at the DoD-wide level. However, all of these programs 
must be consistent with the merit system principles. DoD will provide 
further guidance in implementing issuances regarding increases 
resulting from the acquisition of skills and competencies for employees 
in developmental positions.
    Commenters questioned whether entry/developmental pay increases 
will come out of the performance pay pool. The Department will address 
the financial management of pay pools in financial policies.

Section 9901.351--Setting an Employee's Starting Pay

    Section 9901.351 of the proposed regulations provides for DoD to 
set the starting rate of pay for individuals who are newly appointed or 
reappointed to the Federal service anywhere within the assigned pay 
band, subject to DoD implementing issuances. Some commenters expressed 
concern over the lack of specificity in this section and questioned 
what criteria will be used in setting pay for new employees. Other 
commenters expressed the belief that it is unfair to offer new 
employees higher salaries than current employees.
    We have not changed the regulation in response to these comments. 
The Department needs maximum flexibility in setting starting rates of 
pay to be competitive when recruiting new talent. Appropriate 
parameters will be described in implementing issuances.
    Commenters requested clarification on the meaning of the terms 
``newly appointed'' and ``reappointed'' and whether this section will 
be used to set pay for employees of other agencies who are ``newly 
appointed'' to an NSPS position. A commenter stated that any Government 
employee entering into the NSPS pay system should receive no reduction 
in basic pay. Except for the pay administration terms defined in Sec.  
9901.103, NSPS pay administration terminology and additional guidance 
as to how pay will be set for individuals moving into NSPS from outside 
the Federal Government and from other Federal agencies will be 
addressed in implementing issuances.
    A commenter suggested that NSPS incorporate a signing or 
recruitment bonus authority in Sec.  9901.351 or another section of the 
regulations. The enabling legislation does not give the Department the 
authority to waive the recruitment, relocation, or retention incentive 
authorities in 5 U.S.C. chapter 57. Therefore, these provisions remain 
applicable to NSPS employees.

Section 9901.352--Setting Pay Upon Reassignment

    Section 9901.352(a) provides for DoD to set pay anywhere within the 
assigned pay band when an employee is reassigned, either voluntarily or 
involuntarily. Some commenters expressed concern over the lack of 
specificity in the regulations. Others expressed concern about the 
opportunity for management to show favoritism in setting pay. Except as 
discussed in this section of the SUPPLEMENTARY INFORMATION, we have not 
changed the regulation in response to these comments, thereby ensuring 
the Department has maximum flexibility in setting rates of pay when 
employees are reassigned from one position to another within a pay band 
or across comparable pay bands. However, we have clarified that 
appropriate parameters will be described in implementing issuances.
    In response to comments regarding the applicability of the adverse 
action procedures to certain employees, we have revised Sec.  
9901.352(b) to clarify the procedures applicable to employees subject 
to actions not covered by subpart G.
    A number of commenters strongly objected to providing DoD with the 
authority to reduce pay when an employee is involuntarily reassigned to 
a comparable band when not as a result of unacceptable performance or 
conduct. Commenters suggested that this authority could be used to 
punish employees and could result in significant pay reductions. 
Commenters asked whether pay retention would apply in such involuntary 
situations. The Department will address specific parameters and 
guidance concerning management's authority to set or reduce pay when an 
employee is involuntarily reassigned, to include defining appropriate 
circumstances for pay retention consistent with the changes in Sec.  
9901.355.
    Commenters asked whether adverse action procedures apply to all pay 
reductions under Sec.  9901.352. Commenters and the labor organizations 
participating in the meet-and-confer process recommended that Sec.  
9901.352(a) be amended to make any reduction in pay subject to adverse 
action procedures. However, there are situations when reductions in pay 
would not appropriately be covered by adverse action procedures (e.g., 
return of an employee to their position of record at the end of a 
temporary promotion). Therefore, we have not adopted this suggestion.
    Other commenters agreed to the 10 percent limit on pay reductions, 
but were concerned that the adverse action procedures and methods for 
challenging performance ratings in the NSPS regulations are inadequate. 
We believe these concerns are appropriately covered in subparts D and 
G, respectively.
    During the meet-and-confer process, participating labor 
organizations recommended that the language in Sec.  9901.352 specify 
that the maximum 10 percent reduction will include any annual increase, 
local market supplement, or other pay increases withheld from the 
employee but given to employees who are similarly situated and rated 
above unacceptable. We

[[Page 66150]]

believe counting increases not received (e.g., minimum rate range 
adjustments) as part of the 10 percent reduction limit is inconsistent 
with the intent of the NSPS pay system.
    The labor organizations participating in the meet-and-confer 
process also recommended deleting the reference to ``conduct'' in Sec.  
9901.352(b), and other commenters stated that conduct should not be a 
basis for pay reductions. We believe we have appropriately addressed 
the issue of conduct as part of performance in our discussion of the 
definition of ``performance'' in subpart A.
    A commenter asked whether Sec.  9901.352 provides DoD with the 
authority to increase an employee's pay upon reassignment to a 
different position in the same pay band. We have revised Sec.  
9901.352(a) to clarify that DoD may set pay anywhere within the 
assigned pay band when an employee is reassigned to a position in the 
same or comparable pay band. We have also added a new paragraph (c) to 
Sec.  9901.352 to provide that when an employee completes a temporary 
reassignment or when an employee's in-service probationary period is 
terminated, the employee's rate of basic pay will be set at the same 
rate the employee received prior to the temporary reassignment or 
placement in the position requiring the in-service probationary period, 
with appropriate adjustment of the employee's rate of basic pay based 
on rate range increases or performance payouts that occurred during the 
time the employee was assigned to the new position.

Section 9901.353--Setting Pay Upon Promotion

    Section 9901.353 of the proposed regulations allowed DoD to set pay 
anywhere within the assigned pay band when an employee is promoted to a 
position in a higher pay band, subject to DoD's implementing issuances. 
During the meet-and-confer process, participating labor organizations 
expressed concern that no parameters were provided on pay setting 
actions and suggested a pay increase of at least a 6 percent increase 
over current pay when an employee is promoted under NSPS. Other 
commenters also expressed strong concerns that the proposed regulations 
did not guarantee pay increases upon promotion and provided for 
possible pay reductions.
    In response, we have revised the final regulations to provide a 
general rule establishing a minimum percentage increase of 6 percent 
for promotions; however, regardless of the minimum percentage, the 
salary resulting from the promotion cannot be lower than the minimum of 
the rate range for the applicable pay band and no higher than the 
maximum of the rate range for the applicable pay band.
    Commenters also requested that the regulations clarify what types 
of movements will be considered ``promotions.'' The Department will 
provide specific guidance on the types of movements which will be 
considered ``promotions'' for pay administration purposes under NSPS in 
implementing issuances.

Section 9901.354--Pay Setting Upon Reduction in Band

    Section 9901.354(a) of the proposed regulations allowed DoD to set 
pay anywhere within the assigned pay band when an employee is reduced 
in band, either voluntarily or involuntarily, subject to Sec.  
9901.354(b). Some commenters expressed concern over the lack of 
specificity in the regulations. Others expressed concern about the 
opportunity for management to reduce an employee's pay repeatedly or 
for any reason. The Department will ensure appropriate parameters are 
described in implementing issuances. We have not changed Sec.  
9901.354(a) to provide more specificity. However, in response to 
comments requesting clarification, we have amended paragraph (a) to 
state that DoD may set pay anywhere within the assigned pay band 
subject to Sec.  9901.354(b) and (c).
    Some commenters objected to pay reductions of any amount upon 
reduction in band. Others felt that the 10 percent limit on pay 
reductions under Sec.  9901.354(b) is too high. Some commenters agreed 
to the 10 percent limit, but were concerned that the adverse action 
procedures and methods for challenging performance ratings in the NSPS 
regulations are inadequate. Other commenters stated that conduct should 
not be a basis for pay reductions or reductions in band. We have not 
revised the regulations in response to these comments. We believe that 
allowing for reductions in pay within defined limits for unacceptable 
performance or conduct is an essential feature of a performance-based 
pay system. Consistent with NSPS as a performance-based system, the 
Department will address in implementing issuances the parameters and 
guidance covering circumstances which could lead to a reduction in pay 
as a result of a reduction in band and the appropriate percentage of 
the reduction.
    During the meet-and-confer process, participating labor 
organizations recommended that the language in section Sec.  
9901.354(b) specify that the maximum 10 percent reduction will include 
any annual increase, local market supplement, or other pay increases 
withheld from the employee but given to employees who are similarly 
situated and rated above unacceptable. We believe counting increases 
not received (e.g., minimum rate range adjustments) as part of the 10 
percent reduction limit is inconsistent with the intent of the NSPS pay 
system.
    In response to comments regarding the applicability of the adverse 
action procedures to certain employees, we have revised Sec.  
9901.354(b) to clarify the procedures applicable to employees subject 
to actions not covered by subpart G.
    Section 9901.354(c) of the proposed regulations provided that if an 
employee is reduced in band involuntarily, but not through adverse 
action procedures (e.g., termination of a temporary promotion or 
failure to successfully complete a supervisory probationary period), 
DoD would limit any reduction in pay in accordance with implementing 
issuances. During the meet-and-confer process, participating labor 
organizations recommended that we amend this section to ensure an 
employee reduced in band involuntarily, but not through adverse action 
procedures, will have his or her pay reduced to not less than the 
amount the employee would have received if he or she had not been 
temporarily promoted or assigned to a supervisory position. Other 
commenters raised similar concerns. Based on these recommendations, we 
have revised this section to state that such an employee's pay will be 
set at the level the employee would have received if he or she had not 
been temporarily promoted or assigned to a supervisory or other 
position requiring an in-service probationary period, including rate 
range and performance payout increases that occurred during the 
intervening period. We have also clarified that any resulting reduction 
in pay is not considered an adverse action under subpart G (or similar 
authority) consistent with the provision in Sec.  9901.356(e) of the 
proposed regulations.

Section 9901.355--Pay Retention

    Section 9901.355 of the proposed regulations provided that DoD 
would issue implementing issuances regarding pay retention. This 
section also provided that pay retention would be based on the 
employee's rate of basic pay in effect immediately before the action 
that would otherwise reduce the employee's rate and that a retained 
rate

[[Page 66151]]

will be compared to the range of rates of basic pay applicable to the 
employee's position. During the meet-and-confer process, participating 
labor organizations recommended that we address the lack of specifics 
on pay retention. Other commenters also suggested that the regulations 
provide more detail on pay retention entitlements.
    Accordingly, we have revised the language in this section to 
clarify that (1) employees will receive pay retention for a 2-year 
period under appropriate circumstances, e.g., reduction in force or 
reclassification; (2) employees on pay retention may receive 
performance payouts as bonuses, not salary adjustments; (3) employees 
on pay retention will not receive minimum rate range adjustments; (4) 
employees on pay retention will receive local market supplements; and 
(5) local market supplements are not considered part of basic pay in 
applying pay retention. In addition, as previously discussed, we have 
revised Sec.  9901.342(d)(6) to clarify how performance bonus payouts 
will be computed for an employee receiving a retained rate. (See 
Section 9901.342--Performance Pay Increases for additional 
information.)
    Commenters questioned whether grade or ``band'' retention will 
apply under the NSPS pay system. The NSPS pay system does not include a 
grade or ``band'' retention authority.

Section 9901.356--Miscellaneous

    Section 9901.356 provides miscellaneous pay administration rules 
for the NSPS pay system. Commenters were confused by Sec.  9901.356(a) 
and asked whether an employee's pay can be less than the minimum rate 
of the pay band. Under the NSPS system, an employee's pay could drop 
below the minimum rate of the pay band if the minimum rate of the rate 
range for that band exceeds the employee's salary. This could occur if 
the employee has an unacceptable performance rating and does not 
receive a rate range adjustment under Sec.  9901.323. However, this 
situation does not require the employee to be placed in a lower pay 
band. The employee's pay band is determined by work assignment.
    Commenters asked whether the special pay increase under Sec.  
9901.356(d), which DoD may pay to an NSPS employee prior to moving to a 
GS position, will be paid to employees moving to GS positions in DoD 
and other agencies. DoD may apply Sec.  9901.356(d) to an NSPS employee 
moving to a GS position within or outside of DoD.
    During the meet-and-confer process, the participating labor 
organizations recommended that Sec.  9901.356(e) be revised to require 
DoD to set an employee's pay upon expiration of a temporary 
reassignment or promotion under Sec.  9901.354(c) and not be subject to 
separate implementing issuances. Other commenters asked whether 
Sec. Sec.  9901.356(e) and 9901.354(c), which both cover pay-setting 
upon expiration of temporary promotions, are consistent. Other 
commenters requested a definition of ``temporary reassignment'' and 
expressed concerns that Sec.  9901.356(e) provided a loophole DoD could 
use to reduce an employee's pay without following adverse action 
procedures. The term ``reassignment'' is defined in Sec.  9901.103 of 
subpart A. The specific conditions and considerations of pay setting 
upon reassignment are more appropriately addressed in implementing 
issuances. However, as previously discussed, we have revised Sec. Sec.  
9901.352 and 9901.354 to clarify that upon completion of a temporary 
reassignment or temporary promotion, an employee's rate of basic pay 
will be set at the same rate the employee received prior to a temporary 
reassignment or temporary promotion. In addition, we do not believe 
Sec. Sec.  9901.356(e) and 9901.354(c) were inconsistent. However, to 
further clarify, we have moved the provision in Sec.  9901.356(e) of 
the proposed regulations to new Sec. Sec.  9901.352(c) and 9901.354(c) 
to provide that any reductions in pay at the conclusion of a temporary 
promotion or temporary reassignment would not be covered by adverse 
action procedures. We have removed Sec.  9901.356(e) from the final 
regulations because it is no longer necessary. (See Section 9901.352--
Setting Pay Upon Reassignment and Section 9901.354--Setting Pay Upon 
Reduction in Band in this SUPPLEMENTARY INFORMATION for additional 
information.)
    During the meet-and-confer process, participating labor 
organizations also recommended adding a new paragraph (f) to Sec.  
9901.356 to address determinations of ratings of record for employees 
who perform activities during duty time that are not DoD assignments 
(e.g., EEO counselors and union representatives) for the purpose of 
performance payouts and RIF retention. This issue will be addressed in 
implementing issuances.

Section 9901.361--General

    Section 9901.361 provides DoD with the authority to issue 
implementing issuances establishing premium pay provisions. A number of 
commenters strongly objected to providing DoD such authority. They did 
not understand why title 5 premium pay provisions need to be waived and 
were concerned that DoD will reduce premium pay entitlements to save 
money. Commenters expressed concerns about the lack of specificity in 
this section and that this section provides DoD with too much authority 
to affect employees' pay. Other commenters questioned whether specific 
types of premium pay, such as environmental differential pay and 
compensatory time off for travel, would be waived under this authority. 
During the meet-and-confer process, participating labor organizations 
recommended adding a paragraph to this section providing that premium 
pay under NSPS will not be less than would have been applicable if 
employees had not been converted to NSPS. Other commenters made similar 
recommendations.
    We believe the ability to modify premium pay in response to current 
and future Departmental needs is a critical feature of NSPS. This 
flexibility facilitates the Department's ability to accomplish its 
diverse missions. For example, it is essential that the Department have 
the ability to fully compensate deployed employees and employees 
supporting surge requirements; the ability to equitably compensate 
employees performing overtime work; and the ability to make premium pay 
provisions fair, equitable, understandable, and credible to our 
employees. Specific issues regarding premium pay, including payments 
made under subchapter V of chapter 55 as well as those made in lieu of 
subchapter V of chapter 55, will be addressed in implementing 
issuances. Implementing issuances are subject to continuing 
collaboration. Also, under Sec.  9901.105, any policies regarding 
premium pay that differ from those that exist in Governmentwide 
regulations must be coordinated with OPM. We have revised Sec.  
9901.361(a) to clarify that these regulations are the source of the 
authority to waive the premium pay provisions, consistent with Sec.  
9901.303(a)(2).
    Commenters stated that law enforcement officer availability pay 
should not be waived for NSPS law enforcement officers. Commenters 
noted that OPM has stated that Federal law enforcement officers should 
have consistency in terms of premium pay entitlements. Other commenters 
questioned why firefighter pay under 5 U.S.C. 5545b is not waivable, if 
DoD can waive availability pay.
    Under 5 U.S.C. 9902(d)(2), DoD may waive premium pay provisions 
under 5

[[Page 66152]]

U.S.C. chapter 55, subchapter V, including availability pay for 
criminal investigators under 5 U.S.C. 5545a, but is prohibited from 
waiving pay for firefighters under 5 U.S.C. 5545b. DoD must coordinate 
with OPM prior to establishing policies regarding premium pay for law 
enforcement officers that differ from those in Governmentwide 
regulations. (See Sec.  9901.105.)
    Commenters also questioned whether this section provides DoD with 
the authority to change FLSA overtime pay. As previously discussed, 
since the FLSA authority is outside the waivable title 5 chapters, 
these regulations do not affect FLSA overtime pay entitlements. (See 
Section 9901.104--Scope of Authority for additional information.)

Section 9901.371--General

    Commenters requested that Sec. Sec.  9901.371 through 9901.373, 
regarding the conversion of employees into the NSPS pay system, be 
revised to provide detailed information on converting employees in 
demonstration projects and alternative personnel systems to NSPS.
    The Department recognizes the desire that the regulations provide 
greater specificity. However, employees in organizations currently 
covered by demonstration projects and alternative personnel systems 
have the same rights and protections as other employees upon their 
conversion to the NSPS pay system. Sections 9901.372 and 9901.373 have 
been revised to clarify such protections. (See Section 9901.372--
Creating Initial Pay Ranges and Section 9901.373--Conversion of 
Employees to the NSPS Pay System.)
    Commenters asked whether Sec. Sec.  9901.371 through 9901.373 are 
applicable to employees coming into NSPS after the initial spiral for 
an organization. Other commenters asked whether the pay-setting rules 
in Sec. Sec.  9901.351, 9901.352, and 9901.353 will apply to such 
employees. Another commenter stated that the language in Sec.  
9901.371(a), which excludes employees ``reassigned or transferred'' to 
the NSPS system, is not adequate, since employees could move into such 
positions by another pay action.
    These sections apply only to employees in an organization at the 
time the organization undergoes its conversion to the NSPS pay system. 
They do not apply to an employee who moves into an organization after 
the organization has been converted to the NSPS pay system. We have 
revised Sec.  9901.371(a) by replacing ``are reassigned or 
transferred'' with ``move'' to clarify that the conversion provisions 
exclude employees who move from a non-NSPS position to a position 
already covered by NSPS under any circumstances. The Department will 
issue implementing issuances detailing the conversion procedure for 
employees entering an organization after its conversion to the NSPS pay 
system.
    Commenters requested a 3-year moratorium on any action that would 
reduce an employee's pay after the employee's conversion to the NSPS 
pay system. The Department is not changing the conversion rules to 
provide a moratorium on such actions. The Department guarantees 
employees will convert into the NSPS pay system without a reduction in 
pay. However, subsequent employee pay actions will be based on pay-for-
performance criteria.

Section 9901.372--Creating Initial Pay Ranges

    Section 9901.372 provides DoD with the authority to set initial pay 
band rate ranges under subpart C. Some commenters supported the use of 
the General Schedule salary structure as the baseline for moving an 
employee into a new band to allay concerns that pay rates will be 
reduced. Other commenters recommended that the regulations guarantee 
that the initial rate ranges be at least equal to the employees' former 
rate ranges. During the meet-and-confer process, the participating 
labor organizations recommended that Sec.  9901.372 be amended to 
require initial pay band rate ranges to link to the ranges that applied 
to employees in their former pay system. The Department has not changed 
the regulatory language in this area but will consider these comments 
when developing implementing issuances.
    In response to comments regarding the applicability of the 
conversion rules to employees converted to the NSPS pay system from 
demonstration projects and alternative pay systems, we have revised 
Sec.  9901.372 to provide that initial pay band ranges may link to the 
ranges that apply to employees in their previously applicable pay 
system, taking into account any applicable locality payment, special 
rate supplement, local market supplement, or ``similar payment under 
other legal authority.''

Section 9901.373--Conversion of Employees to the NSPS Pay System

    Section 9901.373 provides the rules for converting employees into 
the NSPS pay system when that system is initially applied to a category 
of employees. Section 9901.373(a) provides that DoD will convert 
employees into the system without a reduction in their rate of pay.
    In response to comments regarding the applicability of the 
conversion rules to employees converted to the NSPS pay system from 
demonstration projects and alternative pay systems, we have revised 
Sec.  9901.373(a) to provide that DoD will convert employees to the 
system without a reduction in their rate of pay, including any 
applicable locality payment, special rate supplement, local market 
supplement, or ``similar payment under other legal authority.'' Also, 
consistent with other changes in subpart C, we have revised Sec.  
9901.373(b) to address other adverse action authorities for employees 
subject to actions not covered by subpart G.
    Commenters stated that employees on temporary promotions will lose 
money at conversion under Sec.  9901.373(d). Others stated that all 
employees on temporary promotions will be downgraded upon conversion 
into NSPS. Other commenters recommended that the regulations provide 
DoD components the option to terminate temporary promotions prior to 
conversion and repromote the employee immediately after conversion.
    Under Sec.  9901.372(d) employees will be returned to their 
permanent position upon conversion to the NSPS pay system. However, 
organizations may simultaneously reassign or repromote an employee to 
the position held prior to conversion. The Department will issue 
implementing issuances detailing the pay-setting procedures for 
employees who are returned to a temporary position.
    Many commenters requested details on whether employees would 
receive a pay increase for the time spent towards their next within-
grade increase upon conversion into the system and recommended that the 
regulations provide explicitly for such increases. During the meet-and-
confer process, the participating labor organizations also recommended 
that the regulations require such increases to be paid upon conversion. 
Other commenters stated that Sec.  9901.373(e) is confusing, since it 
implies the Secretary of Defense could use this authority to reduce 
pay. Still others asked whether DoD will pay such increases to 
employees converting into NSPS from demonstration projects or 
alternative pay systems.
    During the conversion to NSPS, the Department will provide a 
prorated pay increase based on the amount of service a GS or prevailing 
rate employee performing at an acceptable level has completed towards 
the next within-grade increase (WGI). Section 9901.373(e) is the 
authority under which the Department will provide the prorated pay 
increase--commonly

[[Page 66153]]

referred to as a ``WGI buy-in.'' We have revised this paragraph to 
provide DoD with the discretion to pay conversion increases to 
employees in other pay systems, subject to DoD implementing issuances.
    Some other commenters asked whether employees on a special rate 
would receive a pay increase for the time spent towards their next 
within-grade increase and others asked whether such a pay increase 
would be calculated using the applicable special rate table or the 
General Schedule base rate.
    During the conversion to NSPS, the Department will provide a 
prorated pay increase to employees on a special rate. The increase will 
use the same formula for determining the prorated pay increase that 
will be used for employees on regular General Schedule rates.
    Commenters requested details on whether employees would receive a 
pay increase for the time spent in grade towards a career-ladder 
promotion. During the meet-and-confer process, the participating labor 
organizations recommended that the regulations require that such 
increases be paid upon conversion. A number of other commenters made 
similar recommendations.
    The Department does not consider prospective career-ladder 
promotions to be time-based. All promotions, even career-ladder 
promotions, involve the assignment of higher-graded duties to an 
employee. After employees have converted to NSPS, the system will 
provide sufficient capability to recognize the progression of trainees 
through pay increases under Sec.  9901.345.
    Commenters asked how employees on leave without pay (LWOP) and on 
other absences, such as suspensions, long-term training assignments, 
and Intergovernmental Personnel Act assignments, will be converted into 
the NSPS pay system. Other commenters asked how employees on grade and 
pay retention will convert into the NSPS system.
    Employees are placed in a LWOP status for a number of different 
reasons. Each circumstance affects the conversion rules applicable to 
an employee. In recognition of this, the Department will issue 
implementing issuances governing the conversion procedures for 
employees in a LWOP status. Implementing issuances also will address 
the conversion of (1) employees absent for various other reasons and 
(2) employees on grade or pay retention.
    Commenters stated that employees outside CONUS could be negatively 
affected when they return to CONUS positions in NSPS because, unlike 
CONUS employees whose conversion will be based on base pay plus 
locality pay, employees outside CONUS do not have a locality pay rate 
which will result in a lower pay rate at the time of conversion.
    Under the current title 5 provisions, employees returning to CONUS 
positions receive the applicable locality rate. Under NSPS provisions, 
employees returning to CONUS positions will receive the local market 
supplement applicable to their new position and geographic location. We 
anticipate that local market supplements will initially be set equal to 
the applicable locality pay rate.
    Commenters asked for assurances regarding how pay will be set if 
employees leave NSPS and return to GS positions. Upon movement to a GS 
position, pay for NSPS employees will be set under the GS pay-setting 
rules at 5 CFR part 531, subpart B, subject to the gaining 
organization's pay-setting policies.

Subpart D--Performance Management

General Comments

    A general concern expressed by many commenters, as well as labor 
organizations during the meet-and-confer process, was a lack of 
specificity in the proposed regulations. Many commenters wanted to see 
detailed requirements and procedures for how the classification, pay, 
and performance systems would operate. The regulations set forth the 
general requirements and establish a framework for the development of 
more specific systems through a series of implementing issuances. For 
example, the performance management implementing issuances will address 
the specific processes and practices that will be used within the 
Department and its components regarding such matters as rating levels, 
core competencies, standard performance factors, and progress reviews.
    By far the greatest concern expressed by commenters regarding the 
proposed performance management regulations involved the perception of 
fairness of the new system. This concern was expressed in a variety of 
ways, including the following:
    <bullet> Potential for rater subjectivity, consistency of raters, 
rater favoritism, rater bias, and potential for ``cronyism.''
    <bullet> Equality of treatment across agency lines, i.e., employees 
performing the same amount and quality of work in one DoD agency could 
receive a lower performance-based pay increase than a counterpart in 
another DoD organization.
    <bullet> Concern that employees with the same performance rating 
could receive two different amounts of money or that one could receive 
a pay increase and another a bonus.
    Directly related to the concern for fairness was the concern that 
the new system provide adequate performance management safeguards and 
the recommendation that the new system provide adequate checks and 
balances over the exercise of discretionary authority of supervisors 
and managers to affect the pay of employees through performance. Some 
commenters assumed that the accountability measures provided in the 
proposed regulations were the only safeguards to be included in NSPS 
and therefore found the proposed regulations insufficient. Some 
understood that the implementing issuances would further define these 
tools, which could include the use of an oversight panel, but preferred 
that they be specified in the enabling regulations. Others simply 
wanted to emphasize the importance of safeguards and checks and 
balances in a pay-for-performance system.
    The regulations make every attempt to ensure that the NSPS 
performance management system will be fair. First, the regulations 
adopt guiding principles based on the performance management system 
criteria Congress has recently enacted with respect to chapters 47, 54, 
and 99 of title 5, United States Code. These principles require any 
performance management system(s) established by DoD to be fair, 
credible, and transparent and to adhere to the merit system principles 
found in 5 U.S.C. 2301. Second, the Department is committed to further 
developing these principles as it designs its performance management 
system through its implementing issuances. Section 9901.401 requires 
DoD to establish ``effective safeguards to ensure that the management 
of the system is fair and equitable and based on employee 
performance,'' and Sec.  9901.405(c) specifies supervisory and 
managerial responsibilities for effective performance management.
    Many commenters recognized that conversion to the NSPS would 
require new skills, knowledge, and a change in organizational culture. 
These commenters overwhelmingly emphasized the need for DoD to include 
proper training programs for employees, but especially supervisors and 
managers, since they will carry the primary responsibility for 
administering a pay-for-performance system. The commenters further 
acknowledged the need for NSPS training programs to be properly funded 
and appeared to draw

[[Page 66154]]

a nexus between fair administration of performance management and pay 
and the level of supervisory competency and training. A significant 
number of commenters were also concerned about the participation of 
military supervisors in the administration of civilian performance 
management and pay under NSPS. These commenters were concerned about 
the potential effect military supervisors unfamiliar with civilian 
performance management and pay-for-performance processes might have on 
employees' pay and retention. They also raised concerns about the 
effect of frequent military assignment rotations on the familiarity of 
supervisors with the civilian subordinates' work and performance.
    DoD is committed to extensive training for managers, supervisors, 
and employees so that they understand the requirements of the 
performance management system. Further, DoD is committed to the 
training of managers and supervisors, including military members, and 
will focus that training on how to establish and communicate 
performance expectations, how to assess employee performance, and how 
to appropriately translate that assessment into pay adjustments. 
Finally, the Department is committed to creating a performance culture 
in DoD that sustains a high performance organization.
    Commenters also suggested that there should be a formal evaluation 
of any performance management system. Section 9901.108 of both the 
proposed and final regulations includes the requirement for the 
establishment of procedures for evaluating regulations and the 
implementation of any regulations established under 5 U.S.C. 9902. 
Therefore, no change was made in subpart D to address this comment 
because the performance management system is covered by the overall 
evaluation requirement.
    In addition, during the meet-and-confer process, participating 
labor organizations suggested including a requirement for the 
Government Accountability Office (GAO) to conduct an annual review of 
the performance management system, including pay-for-performance 
provisions and payouts, and make a report to Congress. Congress has 
stated that it will carefully monitor the development and 
implementation of the NSPS. Furthermore, it would not be appropriate 
for DoD and OPM to mandate that GAO prepare an annual report to 
Congress.
    Most of the suggestions discussed in the general comments section, 
as well as many others that suggest specific practices or processes, by 
their nature relate to the operation of the performance management 
system DoD will establish through implementing issuances. As such, they 
are not specifically addressed by these enabling regulations. These 
comments will be taken into account by DoD as it develops a more 
detailed picture of the NSPS performance management system through 
implementing issuances.

Other Comments on Specific Sections of Subpart D

Section 9901.401--Purpose

    Many commenters, including participating labor organizations during 
the meet-and-confer process, questioned the need to revise current 
performance management rules, stating that what NSPS proposes under the 
new performance management system could be done under the current 
rules, with additional training for management and staff, or through 
minor modifications of 5 U.S.C. chapter 43 rather than the redesign of 
the entire performance management system. Others recommended putting 
specific provisions from chapter 43 into the NSPS performance 
management requirements.
    Section 9901.401 provides for the establishment of a DoD 
performance management system and sets out the guiding principles that 
govern it. These guiding principles are based on the criteria Congress 
recently enacted with respect to chapter 99 of title 5, U.S. Code. The 
regulations are based on a clear mandate from Congress to strengthen 
the performance management system to support a high performance culture 
and serve as the basis for pay decisions, as explained in the Case for 
Action.

Section 9901.402--Coverage

    Section 9901.402 of the proposed regulations clarified which 
categories of employees are eligible for coverage under subpart D--
Performance Management. Commenters recommended that this subpart be 
revised to exclude employees whose pay is set by other statute (e.g., 
overseas teachers). Other commenters raised questions concerning 
whether certain populations of employees would be covered by this 
subpart. Section 9902(a) of title 5, U.S. Code, provides authority for 
the Secretary of Defense to make such determinations upon establishment 
of the NSPS or after NSPS is established by regulation. Therefore, it 
is not necessary to determine inclusion/ exclusion of each unique 
population within DoD in the enabling regulations. Consequently, no 
change was made to this section.

Section 9901.403--Waivers

    Section 9901.403 specifies that employee coverage under this 
subpart results in the waiver of the provisions of 5 U.S.C. chapter 43 
with regard to that employee or category of employees. Many employees 
and labor organizations strongly recommended that we continue to manage 
performance subject to 5 U.S.C. chapter 43. However, for the reasons 
explained in the Pay for Performance discussion under Part VII, Major 
Issues, of this SUPPLEMENTARY INFORMATION, we have concluded that the 
waiver of chapter 43 is appropriate. No change has been made in this 
section.

Section 9901.404--Definitions

    Commenters asked for additional explanation of terms used in the 
proposed regulations or that we define additional terms. We have 
addressed some of these terms in the SUPPLEMENTARY INFORMATION 
regarding subpart A of the regulations, where we have defined common 
terminology that is used in several subparts of the regulations. Many 
of the terms are more appropriately left to implementing issuances. 
However, two of the terms related to this subpart that drew a number of 
comments are addressed here.
    Several commenters expressed concern about the definition of 
``unacceptable performance'' in Sec.  9901.103. That definition defines 
``unacceptable performance'' as ``the failure to meet one or more 
performance expectations.'' A few commenters expressed concern that 
under the proposed definition, performance measures could only define 
and differentiate ``acceptable'' and ``unacceptable'' performance. 
Other commenters were concerned that unattainable goals and 
expectations would be used in conjunction with the proposed definition. 
In response to these concerns, we have modified the definition of 
``unacceptable performance'' found in Sec.  9901.103. The new 
definition provides that performance expectations may be amplified 
through work assignments or other instructions, for which the employee 
is held individually accountable. As part of its implementation 
strategy, DoD will provide training on setting appropriate performance 
expectations.
    During the meet-and-confer process, the participating labor 
organizations suggested that the definition of ``performance 
expectations'' in the

[[Page 66155]]

proposed regulations be amended to require such expectations to meet 
certain characteristics (e.g., objective and observable or verifiable 
descriptions of manner, quality, quantity, timeliness, and cost 
effectiveness). Many of the commenters also suggested that this 
language be modified to require that any performance expectation used 
in assessment of performance be ``objective and measurable.'' While 
many of these characteristics are noteworthy, due to the breadth of 
missions and types of work performed in DoD, such characteristics may 
not always be applicable to each and every performance expectation. In 
response to comments that the definition of ``performance 
expectations'' was too broad, we have revised the definition to explain 
that expectations are based on (1) the duties, responsibilities, 
competencies, and objectives associated with an employee's position and 
(2) the contributions and demonstrated competencies management expects 
of an employee.

Section 9901.405--Performance Management System Requirements

    Section 9901.405 provides for the establishment of a performance 
management system under NSPS through the use of implementing issuances. 
This section also establishes the requirements that must be met by the 
NSPS performance management system.
    During the meet-and-confer process, participating labor 
organizations proposed that the development of the performance 
management system be accomplished through a three-step process: 
Continuing collaboration, national consultation, and finally 
bargaining. Such a cumbersome and inefficient process would inevitably 
lead to a fragmented and inconsistent implementation of the NSPS. 
Furthermore, it is inconsistent with the statutory prohibition against 
expanding the scope of bargaining (5 U.S.C. 9902(m)(7)) and the mandate 
that the collaborative process established by 5 U.S.C. 9902(f) be the 
exclusive process for involvement of employee representatives in the 
planning, development, and implementation of the NSPS HR system. 
Therefore, this suggestion has not been incorporated into the final 
regulations, and continuing collaboration in the development of the 
implementing issuances will be the means for ensuring employee 
involvement in the design and implementation of the performance 
management system.
    Many commenters had specific ideas and recommendations for the 
design and operation of performance management systems. We will address 
some of these concerns here, and others will be addressed more 
appropriately as DoD develops the implementing issuances. For example, 
a few commenters recommended more overtly embedding the concept of 
contribution in the enabling regulations. However, we find that the 
concept of contribution already is clearly presented in the enabling 
regulations, including a definition of the term in subpart A.
    Other commenters suggested providing system transparency by 
requiring the agency to publish the performance ratings and payouts for 
all employees. We agree with the concept of incorporating additional 
transparency in the performance management system, but not at the 
expense of employee confidentiality and privacy. There are many other 
effective methods for providing transparency that do not require 
disclosure of individual performance ratings. Many of these methods are 
practiced today in DoD's pay-for-performance demonstration projects. 
While protecting individual identifying information, organizations 
often publish summary results and aggregate data such as average 
ratings and payouts within pay pools and career paths. Additionally, 
organizations often provide employees with comparative compensation 
data in the form of scatter grams or similar graphic representations of 
payout statistics, in which data points are anonymous.
    Several commenters proposed tying performance ratings to customer 
satisfaction and/or the use of 360-degree ratings. These suggestions 
are related to the operation of the performance management system, the 
details of which DoD will establish through implementing issuances. 
While we agree that the use of customer input and/or 360 degree ratings 
should be tools available to DoD Components in the implementation of 
this subpart, these tools are not appropriate for application to all 
types of work and work environments. Therefore, we did not adopt the 
suggestion to require their use Department-wide.
    During the meet-and-confer process, the participating labor 
organizations recommended that appraisals be required once a year. 
Management agreed with this recommendation, and this section has been 
modified to include the requirement that performance appraisals occur 
at least annually.

Section 9901.406--Setting and Communicating Performance Expectations

    Section 9901.406 provides the requirements and guidelines for 
communicating with employees regarding their performance through the 
use of ``performance expectations.''
    Regarding the requirements in Sec.  9901.406(a), some commenters 
said it would be difficult to link individual performance to the 
Department's strategic objectives, some thought the linkage already 
exists in the current system, and some recommended that DoD 
implementing issuances amplify how this be done. We agree that 
additional guidance will be helpful and that this degree of specificity 
is best accomplished through DoD implementing issuances and/or DoD 
Component regulations and guidance. Therefore, no changes were made in 
response to these comments.
    We received comments concerning the content of Sec.  9901.406(b), 
which also was a topic of discussion during the meet-and-confer 
process. A majority of commenters objected to the inclusion of 
``professionalism and standards of appropriate conduct and behavior, 
such as civility and respect for others' as indicators of performance. 
Most of these commenters believed assessment of these traits would lead 
to arbitrary and subjective determinations. Others thought this 
provision would be a tool for advancing favoritism or retaliation in 
the workforce. Still others interpreted this requirement to apply to 
nonsupervisory employees only and recommended the application of this 
requirement to supervisors and managers, as well. We have addressed 
these issues in our discussion of the definition of ``performance'' in 
subpart A. These requirements apply equally to all employees, including 
supervisors and managers.
    During the meet-and-confer process, the participating labor 
organizations recommended changes to specify that performance 
expectations are appropriately and clearly communicated to employees. 
Management shared these concerns and agreed that the basic performance 
expectations should be provided to employees in writing. We have 
revised this section accordingly.
    Other comments expressed concern that employees could be rated 
against expectations that had not been communicated or that employees 
would be rated against continually varying and changing expectations. 
We believe the regulations sufficiently address concerns about 
communication of

[[Page 66156]]

performance expectations. This section of the proposed regulations 
clearly stated the requirement that performance expectations be 
communicated to employees prior to holding the employee accountable for 
them. No changes were made in the regulations to address concerns about 
management flexibility to change performance expectations. Such 
flexibility is necessary to enable DoD to respond to changes in 
organizational mission and priorities.
    Labor organizations participating in the meet-and-confer process, 
as well as many commenters, raised concerns regarding supervisory and 
managerial accountability. Specifically, they questioned how this would 
be accomplished, since many believe supervisors and managers are not 
held accountable now. Section 9901.406(c) expressly states that 
supervisors' and managers' performance expectations will include 
``assessment and measurements'' of how well they complete their 
performance management responsibilities. DoD will provide training on 
the appropriate competencies to ensure that supervisors and managers 
are prepared to do this. In addition, supervisors' and managers' 
ratings of record will be based, in part, on how well they perform this 
important function. Ultimately, pay decisions for supervisors and 
managers will be affected by their performance of this function.
    Section 9901.406(d) of the proposed regulations provides examples 
of a variety of forms performance expectations could take. Many 
commenters made suggestions regarding the purpose and content of 
performance expectations. Some of these commenters recommended the 
establishment of standard performance elements in order to promote 
consistency across organizational lines. Other commenters recommended 
the use of performance standards tied to each individual's area of 
responsibility. The performance management system envisioned by the 
Department will include both standard performance elements and 
individual goals and objectives. These elements of the system will be 
addressed in the DoD implementing issuances.
    In addition, individual commenters and participating labor 
organizations alike expressed concern that the explanation of 
performance expectations was too broad. In response, a new paragraph 
has been added to Sec.  9901.406 to explain that performance 
expectations may be amplified through particular work assignments or 
other instructions, which need not be in writing, and 9901.406(d)(5), 
which allowed for the use of any other means as long as it would be 
clear to a reasonable person, has been deleted.
    Several commenters objected to the language in Sec.  9901.406(f) 
limiting employee involvement in developing performance expectations to 
``insofar as practicable.'' In some cases, individual employees may not 
be directly involved in the development of particular performance 
expectations because the performance expectations were developed 
through a group endeavor, or the same expectations might be applied to 
an entire group of employees where a smaller group of employees was 
involved in their initial development. Some commenters also objected to 
reserving final decisions regarding performance expectations to the 
sole and exclusive discretion of management. This is no different than 
the current practice regarding performance elements and standards, and 
both performance elements/ standards and performance expectations are 
part of assigning work, which is a management right.

Section 9901.407--Monitoring Performance and Providing Feedback

    Section 9901.407 establishes the basic responsibility for 
supervisors to monitor employee and organizational performance and 
inform employees of their progress in meeting their performance 
expectations. This section received two primary comments:
    (1) The recommendation that the regulation require more than one 
progress review per year and (2) the concern that interim performance 
or progress reviews would not occur despite regulatory language. We 
agree that multiple interim performance reviews and/or interim feedback 
are appropriate for many types of work and positions. However, since 
this is not true of all types of work, the enabling regulation will 
continue to specify a minimum interim performance review requirement of 
at least once during each appraisal period. We also made no change in 
response to comments indicating that regulations alone would not result 
in conducting interim performance reviews. We believe the proposed 
regulation provides sufficient language in subpart D to hold 
supervisors and managers accountable for effectively managing the 
performance of employees. (See our previous discussion regarding Sec.  
9901.406(c).)

Section 9901.408--Developing Performance and Addressing Poor 
Performance

    Section 9901.408 addresses two aspects of developing or improving 
performance: The continual improvement that is part of a high-
performance culture and the remedial improvement that addresses poor 
performance.
    Many commenters expressed concern that without the protections 
provided by mandatory improvement periods, management would be overly 
harsh in adverse actions related to poor performance. Similarly, during 
the meet-and-confer process and through written comments, participating 
labor organizations asked that employees be provided a reasonable 
opportunity to improve performance before an adverse action is proposed 
or initiated, except in the most extreme case of a performance 
deficiency that endangers national security or the safety of personnel. 
The proposed regulations provided for an improvement period as one of 
several options available to address or correct unacceptable 
performance prior to taking an adverse action. We continue to believe 
an improvement period should be an option under the new system, but not 
a requirement as it is now under chapter 43 of title 5, U.S. Code. 
Therefore, we made no changes as a result of these recommendations. An 
agency may now take a performance action under chapter 75 without 
affording an improvement period. Additionally, as specified in subpart 
H, employees continue to have the right to appeal adverse actions.
    At least two commenters recommended modification of the language in 
Sec.  9901.408(c) to acknowledge adverse action appeal procedures for 
groups of employees not covered by subpart H of the NSPS regulations. 
In response to this recommendation, we have revised this section to 
reference appropriate appeal procedures for employees not covered by 
actions subject to subpart H.

Section 9901.409--Rating and Rewarding Performance

    Section 9901.409 establishes the requirements regarding rating and 
rewarding employee performance, including the use of a multi-level 
rating system, the purposes for which ratings may be issued, and 
procedures for challenging a rating of record.
    Section 9901.409(a) received many comments indicating that DoD was 
taking a step backward in moving from, in some cases, a pass/fail 
performance management systems to a multi-level

[[Page 66157]]

rating system. A few comments indicated that the new performance 
management system should require more than three rating levels. Since 
meaningful performance distinctions are an essential requirement in a 
pay-for-performance system, language requiring a multi-level rating 
system was retained. While the regulations specify minimum 
requirements, the details of the performance management system will be 
developed through the implementing issuances. Such details would 
include specifying the number of rating levels and providing 
descriptions of the different levels of performance.
    In regard to Sec.  9901.409(b), some commenters were happy to see 
their performance rating of record used as a basis for pay. Most 
commenters, however, did not agree with the linkage of pay to 
performance and indicated their preference for pay based on longevity. 
As stated under the Pay for Performance portion in the Major Issues 
Section of the SUPPLEMENTARY INFORMATION, the enabling statute requires 
that the Department establish a ``pay-for-performance'' system that 
better links individual pay to performance. (See 5 U.S.C. 
9902(b)(6)(I).) Also, we believe Congress and the American people want 
to see DoD's employees compensated based on performance rather than 
longevity. Therefore, we retained the language establishing the rating 
of record as a basis for pay determinations.
    In addition, commenters expressed concern that the authority to 
issue additional ratings may be vulnerable to abuse, especially during 
RIF. The authority to issue additional ratings of record enables 
management to issue new ratings of record to recognize significant 
deterioration or improvement in performance since the previous rating 
of record was issued. DoD will include appropriate safeguards in its 
implementing issuances.
    Similarly, while some commenters were happy that performance would 
be used as a basis for determining reduction in force (RIF) standing, 
others thought performance should be given equal weight with seniority. 
However, most commenters thought seniority should continue to determine 
retention standing in the event of a RIF. Length of service does play a 
role. However, we believe that it is essential that performance play a 
larger role in retention so no change was made in this section of the 
regulations.
    We received a number of comments concerning Sec.  9901.409(g). The 
majority of commenters thought the reconsideration process to challenge 
performance ratings should include an opportunity for third-party 
review. This issue was also raised during the meet-and-confer process 
with participating labor organizations. These organizations indicated 
their strong belief and desire that employees must have access to a 
negotiated grievance procedure and binding arbitration for the 
reconsideration process to be credible. In response to these concerns, 
Sec.  9901.409(h) was added to enable bargaining unit employees to 
choose to use either an administrative reconsideration process under 
this subpart or a negotiated grievance process under Sec.  9901.922(h), 
but not both.
    In addition to concerns regarding the ability to grieve a rating of 
record, many commenters also expressed a similar concern regarding the 
ability to have a pay determination reconsidered. This was also a topic 
of discussion during the meet-and-confer process. We have made no 
changes in the final regulations in this regard. However, we recognize 
that changing a rating of record as the result of a reconsideration 
could lead to a conforming change in the employee's payout.
    A few commenters recommended modification of Sec.  9901.409(i) to 
recognize alternative reduction in force procedures for employee groups 
not covered by subpart F of these regulations. We agree and have 
modified this section accordingly.

Subpart E--Staffing and Employment

General Comments

    As previously addressed in the subpart A supplemental information, 
commenters expressed concerns about the lack of specificity in subpart 
E of the proposed regulations on external recruitment and internal 
placement. Although some commenters found the staffing and employment 
concepts to be simple and supported our plan, many commenters felt the 
proposed regulations were too vague. They did not support issuing 
detailed guidance in internal implementing issuances because that 
process does not adequately allow for public comment.
    Because of the lack of specificity, commenters recommended a number 
of different amendments to subpart E of the regulations to provide 
detailed criteria and conditions for addressing staffing and employment 
issues involving external hiring and internal placement. The commenters 
recommended the regulations:
    <bullet> Specify the time limits for probationary periods;
    <bullet> Limit probationary periods to the initial hire and the 
first supervisory appointment only;
    <bullet> Include information on crediting time toward completion of 
a probationary period and appeal rights;
    <bullet> List the series that will be covered by direct hire 
authority and specify who may determine which series will be added or 
deleted;
    <bullet> Clarify whether time-in-grade still applies;
    <bullet> Specify what happens to career-conditional employees when 
they move into NSPS;
    <bullet> Identify the contemporary hiring practices that are 
acceptable, e.g., using headhunters, signing bonuses, newspaper ads; 
and
    <bullet> Address how NSPS will streamline the lengthy process of 
rating and ranking.
    We understand the desire for the regulations to provide more 
specificity and assurances regarding NSPS staffing and employment. 
However, the regulations must also provide DoD with sufficient 
flexibility to design an agile system to attract high quality employees 
and the ability to place employees in a manner consistent with mission 
requirements and strategic human capital needs. These suggestions and 
requests for more detailed information will be considered in developing 
the implementing issuances.
    Many commenters stated current hiring flexibilities were sufficient 
and felt the Department had not demonstrated why changes were needed in 
the staffing and employment areas or how our proposals would result in 
a less cumbersome or fairer hiring process. Still others indicated they 
saw little in our proposal that would substantially alter or improve 
management's ability to hire or move employees as mission-related 
requirements dictate. We disagree. For example, in Sec.  9901.511(c), 
we have removed a time-consuming step in establishing a direct hire 
authority by providing DoD with the authority to make severe shortage 
and critical need determinations without approval by OPM. In addition, 
Sec.  9901.515(a) permits limiting consideration under competitive 
examining to highly qualified applicants in a commuting area instead of 
having to consider potentially thousands of applications from across 
the country. Also, Sec.  9901.511(d) provides DoD the capability to 
convert employees on time-limited appointments, which may be necessary 
because of funding or organizational issues, to career appointments, if 
such a possibility is stated in the vacancy announcement so that 
interested persons may apply for

[[Page 66158]]

the potential conversion opportunity. We believe these additional 
flexibilities will permit DoD to meet workforce and organizational 
goals in a much more timely fashion.
    Numerous commenters also believed that management does not 
currently fully utilize existing hiring flexibilities. The Department 
will continue to provide training on existing hiring flexibilities, and 
we are confident that the extensive training planned for NSPS 
implementation will educate managers and employees about the new 
flexibilities NSPS will offer. Once managers are aware of these 
flexibilities, we believe they will utilize them to more effectively 
hire and place employees where their skills and knowledge will be most 
useful to the Department.
    Several comments pointed out our proposals do not address the issue 
of lengthy background security checks or other impediments to hiring, 
such as funding problems and hiring freezes. While we understand that 
the administrative processes involved in completing background security 
investigations and resolving funding issues may play a significant role 
in the speed of the hiring process, they are outside the scope of the 
enabling legislation.
    Commenters, including labor organizations participating in the 
meet-and-confer process, were concerned about a perceived threat of 
involuntary deployment, particularly to hazardous overseas locations. 
While they understand the requirement to support our military members 
in every way, some believe that NSPS is an attempt to institute a 
``backdoor draft.'' Commenters also stressed that management should not 
have the ability to reassign or detail employees to perform similar or 
different duties at a moment's notice. Our need to institute a flexible 
system with the ability to deploy the Department's personnel in a 
manner consistent with mission requirements does not mean that 
employees will be reassigned in a capricious, arbitrary manner or 
totally without warning. Under current law, management already has 
authority to assign work to be performed and to accomplish the mission 
of the Department, including the authority to reassign or detail 
employees. We intend to continue to treat our employees in a fair, 
credible, and respectful manner. We will develop the processes and 
procedures under NSPS that will help us to achieve this.
    Several commenters, including labor organizations participating in 
the meet-and-confer process, raised questions about priority placement 
programs and how they will work under NSPS. Commenters inquired as to 
how pay-banded positions would be dealt with, how hiring flexibilities 
will impact the DoD Priority Placement Program, and whether or not the 
Governmentwide priority placement mechanism, the Reemployment Priority 
List, might be eliminated because it is inconsistent with a 
performance-based human resources system. The Department has a 
longstanding commitment to protect and assist employees who have been 
affected by its workforce shaping initiatives, and we will continue to 
honor that responsibility. DoD's Priority Placement Program will be 
modified to incorporate NSPS features, just as it has previously been 
modified to accommodate other changes throughout the years.
    Many commenters referred to the requirement that DoD staffing and 
employment regulations be designed in a transparent and credible manner 
that involves employees and employee representatives. We agree that 
employee representatives should be provided an opportunity to 
participate in the development of implementing issuances. This issue is 
specifically addressed in the SUPPLEMENTARY INFORMATION in subpart A.

Comments on Specific Sections of Subpart E

Section 9901.501--Purpose

    Section 9901.501 of the proposed regulation explains the purpose of 
subpart E, which contains regulations for the establishment of 
qualification requirements; recruitment for, and appointment to, 
positions; and assignment, reassignment, detail, transfer, or promotion 
of employees, consistent with 5 U.S.C. 9902(a) and (k). During the 
meet-and-confer process, participating labor organizations recommended 
that we add paragraphs (d) and (e) to this section, as follows:
    (d) The policies and procedures for staffing and employment will be 
planned and developed in accordance with 5 U.S.C. 9902(f)(1)(d), and 
will be subject to national consultation rights and the duty to bargain 
under 5 U.S.C. chapter 71.
    (e) Compliance with the policies, procedures, issuances and 
provisions of collective bargaining agreements on staffing and 
employment will be subject to the negotiated grievance procedure and 
binding arbitration before an independent third party, an alternative 
dispute resolution process that is mutually agreed to by the parties, 
or the Merit Systems Protection Board, as appropriate.
    These and other bargaining issues are specifically addressed in 
several places in the SUPPLEMENTARY INFORMATION under Major Issues, as 
well as in subparts A and I.

Section 9901.502--Scope of Authority

    Section 9901.502 of the proposed regulation authorizes the 
modification and replacement of certain provisions of title 5 related 
to hiring and assigning employees when a specified category of 
employees, applicants, and positions is covered by this subpart. This 
section also authorizes DoD to prescribe, in accordance with Sec.  
9901.105, implementing issuances to carry out the provisions of this 
subpart. Commenters objected to the proposed waiver and/or modification 
of various provisions of title 5; however, modification and/or 
replacement of the specified sections of title 5 is authorized by 
enabling legislation (5 U.S.C. 9902(k)) and is essential to the 
development of a more flexible system for hiring and assigning 
employees.

Section 9901.503--Coverage

    Section 9901.503 provides the Secretary the authority to determine 
employee eligibility and coverage in accordance with Sec.  9901.102(b). 
Several commenters, including labor organizations participating in the 
meet-and-confer process, recommended that certain types of positions be 
excluded from coverage under the new personnel system, including Police 
Officers, Teachers, Civil Service Mariners, and National Guard 
Technicians under title 32. These and other coverage issues are 
specifically addressed in the SUPPLEMENTARY INFORMATION in subpart A.

Section 9901.504--Definitions

    In response to multiple comments requesting an explanation of, and/
or improved distinctions between, similar terms, we have--
    <bullet> Revised the definition of ``temporary employee'' to 
clarify the Department's intent. A temporary employee is an individual 
not on a career appointment who is employed for a limited period of 
time not to exceed 1 year. The appointment may be extended, up to a 
maximum established by implementing issuances, to perform the work of a 
position that does not require an additional career employee.
    <bullet> Revised the definition of ``term employee'' to clarify the 
Department's intent. A term employee is an individual not on a career 
appointment who is employed for a period of time of

[[Page 66159]]

more than 1 year. The appointment may be extended, up to a maximum 
established by implementing issuances, when the need for an employee's 
service is not permanent.
    <bullet> Revised the definition of ``time-limited employee'' to 
clarify the meaning. A time-limited employee is an individual appointed 
to a position for a period of limited duration (i.e., term or 
temporary) in either the competitive or excepted service.
    <bullet> Added a definition of ``initial probationary period'' to 
subpart A to clarify the intent of Sec.  9901.512 and ensure 
consistency between subpart E and subpart H. An initial probationary 
period means the period of time, as designated by the Secretary, 
immediately following an employee's appointment during which an 
authorized management official determines whether the employee fulfills 
the requirements of the position to which assigned.
    <bullet> Added a definition of ``in-service probationary period'' 
to subpart A to clarify the intent and ensure consistency between 
subpart E and subpart H. An in-service probationary period, such as a 
supervisory probationary period, means the period of time, as 
designated by the Secretary, during which an authorized management 
official determines whether the employee fulfills the requirements of 
the position to which assigned.

Section 9901.511--Appointing Authorities

    Section 9901.511(b)(2) of the proposed regulations provides for DoD 
and OPM to jointly publish a notice in the Federal Register when 
establishing a new competitive appointing authority or a new excepted 
appointing authority that may lead to a subsequent noncompetitive 
appointment to a competitive position in the career service. Further, 
the section requires a period of public comment prior to the 
establishment of such an authority unless a critical mission 
requirement exists. Commenters criticized this section stating that 
this authority and our lack of specificity will lead to a patronage or 
spoils system and corruption of the merit system. They generally 
opposed the Department's ability to establish a new appointing 
authority, even if a critical mission requirement exists, without first 
issuing a notice in the Federal Register allowing for a public comment 
period.
    During the meet-and-confer process, participating labor 
organizations recommended that we add paragraph (iii) to 9901.511(b)(2) 
to state: ``In exercising its authority under paragraph (b)(2)(ii) of 
this section, DoD will provide reasonable advance notice, where 
practicable, to the relevant congressional committees and to the 
respective labor organizations, of the reason(s) why the Secretary has 
elected to establish a new appointing authority to meet critical 
mission requirements or fill a severe shortage/critical hiring need 
without a preceding comment period. We do not agree. We recognize that 
if these hiring authorities are exercised and conditions of employment 
are impacted, local bargaining may occur in accordance with subpart I, 
as appropriate. We also agree that labor organizations, and indeed all 
employees, should receive notice via well-established processes, such 
as publication of notices in the Federal Register.
    Some commenters did not understand the need for additional 
appointing authorities and viewed this flexibility as diminishing 
veterans' preference and as a mechanism for promoting nepotism, 
favoritism, and cronyism that will lead to more discrimination 
complaints and grievances. In a related issue, one commenter expressed 
concern over the lack of any reference to granting 5 or 10 preference 
points to veterans.
    In establishing new appointing authorities, the regulations provide 
for review by OPM and, when an appointment is made using a new 
competitive appointing authority or a new excepted appointing authority 
that may lead to a subsequent noncompetitive appointment to a 
competitive position in the career service, a requirement for public 
comment. Implementing issuances will provide additional guidance and 
parameters to ensure that these authorities are utilized for specified 
purposes in accordance with merit system principles and the principles 
of veterans' preference. NSPS does not change or diminish preference as 
indicated in Sec.  9901.501(c).
    Section 9901.511(c) authorizes the Secretary to exercise direct 
hire authority when there is a severe shortage of candidates or a 
critical hiring need. One commenter suggested that direct hire 
authority should be automatically allowed without extensive 
documentation for those positions for which a separate pay schedule is 
authorized. We have not adopted this suggestion. Other commenters 
wondered if the direct hire authorities could apply to career employees 
or if they were meant only for new hires. The specific criteria and 
instructions concerning direct hire authorities will be provided in the 
implementing issuances; however, generally, a direct hire authority is 
used to appoint applicants not currently employed in the civil service.
    A technical correction was made to Sec.  9901.511(c)(3) by removing 
the reference to paragraph (a).
    Section 9901.511(d) authorizes the Secretary to prescribe 
procedures for making time-limited appointments and for converting 
those employees without further competition to the career service 
provided certain conditions are met. Commenters cited unease with our 
idea of time-limited appointments that they believe will result in NSPS 
evolving into a system based on temporary employment. Some commenters 
do not believe temporary employees should have the ability to convert 
to permanent appointments without once again going through a 
competitive process. During the meet-and-confer process, participating 
labor organizations indicated that term employees should not perform 
work of permanent positions.
    Regarding the comment about NSPS developing a system based on 
temporary employment, we have revised definitions for time-limited 
appointments, both temporary and term, in Sec.  9901.504 to include 
specific information on appropriate timeframes for time-limited 
appointments. The Department will provide further guidance in 
implementing issuances on the appropriate use of time-limited 
appointments to meet mission needs. Regarding the comment about 
additional competition before converting a temporary appointment to a 
career appointment, we note that Sec.  9901.511(d)(2) requires a time-
limited vacancy announcement to include information about the 
possibility of noncompetitive conversion, if applicable, and that the 
individual be appointed to the time-limited appointment under NSPS 
competitive examining procedures. We believe that additional 
competition is not necessary due to the competition required for 
initial placement into the time-limited appointment. Also, in response 
to the comment during meet-and-confer, we have revised and clarified 
Sec.  9901.511(d) to indicate that: (1) Term employment will not be 
used for positions that should be filled on a permanent basis; and (2) 
term appointments may be used to accomplish permanent work in 
circumstances where the position cannot be filled permanently, e.g., 
the incumbent will be out of the position for a significant period of 
time, but is expected to return.
    One commenter suggested that since there is no clear distinction 
between temporary and term employees, we

[[Page 66160]]

should refer to these employees simply as time-limited and delete the 
example ``(e.g., an individual employed on a temporary or term basis)'' 
from Sec.  9901.511(d)(2). We deleted this example as it is not 
necessary and we have clarified the distinction between temporary and 
term employees with the revised definitions in Sec.  9901.504.
    Another commenter suggested that we have only two appointment 
types, permanent and temporary, to simplify recruitment. We did not 
adopt this suggestion. Different circumstances and needs justify the 
use of both temporary employees and term employees.

Section 9901.512--Probationary Periods

    Section 9901.512 of the proposed regulations provides that the 
Secretary may establish probationary periods, both initial and in-
service, for employees appointed to positions in the competitive and 
excepted service covered by the National Security Personnel System. For 
clarity, we consolidated all information pertaining to probationary 
periods, both initial and in-service, in this section and deleted 
references to in-service probationary periods from Sec.  9901.516. We 
have also added a definition of initial probationary period to subpart 
A of part 9901.
    Commenters were disturbed by the lack of specificity on 
probationary periods. They pointed out that the opportunity for 
multiple or extended probationary periods may result in inconsistencies 
and abusive treatment by supervisors who might retain employees in a 
perpetual probationary status simply by moving them from one position 
to another. Commenters were concerned that managers will be able to 
make arbitrary decisions as to who serves an in-service probationary 
period and when. Commenters, including labor organizations 
participating in the meet-and-confer process, indicated that 
probationary periods should not exceed 1 year. Some commenters asserted 
that probationary periods of longer than 1 year show a lack of faith in 
management to make decisions about an individual's ability to perform 
satisfactorily within that timeframe. Commenters wanted to either 
retain the Governmentwide probationary periods established by OPM or to 
establish specific probationary periods to be published in the Federal 
Register. A few commenters supported longer probationary periods, such 
as a 3-year probationary period to substitute for the career-
conditional period that currently exists. However, other commenters 
expressed concern because probationary periods could be as long as 5 or 
10 years. During the meet-and-confer process, labor organizations 
indicated that in-service probationary periods should apply to 
supervisory positions only.
    Based on the comments received, including comments from labor 
organizations participating in the meet-and-confer process, we have 
revised the final regulations to set parameters on probationary periods 
and to indicate the types of circumstances that would lead the 
Department to establish longer probationary periods. The Department 
will retain the flexibility to create probationary periods of varying 
lengths within those overall time frames. Specifically, we revised 
Sec.  9901.512 to include that: (1) Probationary periods under NSPS 
will be between 1 year and 3 years; (2) probationary periods 
established for more than 1 year will be applied to categories of 
positions or types of work that require a longer time period to 
evaluate the employee's ability to perform the work; (3) in-service 
probationary periods will apply to certain groups of positions or 
occupations under prescribed specific conditions; and (4) that an 
employee who fails to complete an in-service probationary period will 
be returned to a grade or band no lower than that held before the in-
service probationary period and the employee will be entitled to have 
his or her pay set in accordance with the applicable section of subpart 
C. Implementing issuances will clarify that decisions to establish 
probationary periods longer than 1 year will be made at the Department 
level. In addition, we have clarified that nothing in this section 
prohibits an action against an individual serving an in-service 
probationary period for cause unrelated to performance.

Section 9901.513--Qualification Standards

    Section 9901.513 provides for DoD to either continue to use 
qualification standards established or approved by OPM, or to establish 
its own for positions covered by NSPS. One commenter wanted to know 
what is wrong with the OPM qualification standards and if he/she would 
be required to have different qualifications from the position hired 
into; another commenter suggested that we obtain OPM approval for all 
qualification standards for positions covered by NSPS; several others 
suggested possible changes for NSPS qualification standards. One 
commenter stated that the first sentence of this section contradicts 
the second sentence and suggested we add the following at the end of 
the second sentence: ``when OPM standards do not fully cover the 
occupation or are not available.''
    We believe the Department may have a need to modify existing, or 
establish new, qualification standards to meet mission requirements. In 
addition, Sec.  9901.105 of subpart A does include the establishment of 
alternative or additional qualification standards as an item to be 
coordinated with OPM. Therefore, we have not revised this section.

Section 9901.514--Non-Citizen Hiring

    Section 9901.514 of the proposed regulations provides for DoD to 
establish procedures for appointing non-citizens to excepted service 
positions within the National Security Personnel System. During the 
meet-and-confer process, participating labor organizations recommended 
that we strike this entire section and also remove references to non-
citizen hiring authority. Several commenters also disagreed with the 
hiring of non-citizens citing that such appointments are inconsistent 
with ``national security'' or might lead to the outsourcing of DoD 
functions. Many were skeptical that qualified U.S. citizens could not 
be found or trained. The Department currently has the authority, 
delegated by OPM, to hire non-citizens. Therefore, this provision 
simply codifies in the regulation the authority already given to the 
Department. We have retained the Governmentwide criteria that this 
authority can only be used in the absence of qualified U.S. citizens 
and when immigration and security requirements are met. Although the 
non-citizen hiring authority is rarely used, the Department does 
occasionally have situations where there are no qualified U.S. citizens 
available for critical positions.

Section 9901.515--Competitive Examining Procedures

    Section 9901.515 of the proposed regulations provides DoD authority 
to establish procedures for examining applicants for entry into 
competitive and excepted service positions in NSPS, including the use 
of traditional numerical rating and ranking or alternative ranking and 
selection procedures (category rating), and specifies which 
applications/applicants the Department must accept and consider after a 
period of public notice. In response to comments we received on Sec.  
9901.515(a) asking who competitive examining procedures apply to, we 
have added wording to clarify that we are referring to applicants from 
outside of the civil service when we address who is recruited under 
competitive

[[Page 66161]]

examining procedures. We have modified Sec.  9901.515(a)(1) to reflect 
that DoD will accept applications for vacant positions from all ``U.S. 
citizens,'' as opposed to all ``sources,'' to reflect a commenter's 
concern that the term ``sources'' implies we are referring to 
noncompetitive sources.
    In a related matter, commenters expressed concern about DoD's 
ability to narrow the groups of employees who will be considered for 
jobs, including the elimination of highly-qualified workers from 
various segments of society and the treatment of veterans. The ability 
to narrow the area of consideration will not preclude us from opening 
any recruitment action as broadly as we choose. However, because 
technology has made the Federal Government a more applicant-friendly 
employer, it has also increased the administrative burden involved to 
efficiently and effectively fill mission-critical jobs. At times, we 
are overwhelmed by the volume of applications that must be evaluated 
and considered, especially when filling a small number of jobs. In 
these instances, we need the ability to narrow the pool of applicants 
we consider, and there may be a sufficient number of qualified 
applicants within the local commuting area. DoD will continue to 
provide equal treatment and equal access and will comply with the merit 
system principles.
    Section 9901.515(b) of the proposed regulations allows DoD to 
establish procedures for the examination of applicants for entry into 
competitive and excepted service positions in NSPS. Such procedures 
must adhere to the merit system principles in 5 U.S.C. 2301 and 
veterans' preference requirements as set forth in 5 U.S.C. 3309 through 
3320, and include provisions for employees entitled to priority 
consideration in accordance with 5 U.S.C. 8151. In response to a 
comment we received suggesting that this paragraph should address 
preference eligibility in the competitive service as well as the 
excepted service under NSPS procedures, and to provide clarity 
regarding the application of veterans' preference, we have revised the 
second sentence of this section to include a reference to 5 U.S.C. 
1302(b) and (c) concerning veterans' preference in employment. We also 
made a technical correction to the third sentence by removing the 
reference to 5 U.S.C. 1302(c).

Section 9901.516--Internal Placement

    Section 9901.516 of the proposed regulations provides for DoD to 
prescribe implementing issuances regarding the assignment, 
reassignment, reinstatement, detail, transfer, and promotion of 
individuals or employees into or within NSPS. This section also 
addressed the establishment of in-service probationary periods by way 
of the implementing issuances. For clarity, we moved all references to 
probationary periods, to include in-service probationary periods, to 
Sec.  9901.512. We made no other changes to this section.

Subpart F--Workforce Shaping

General Comments

    Commenters, including comments during the meet-and-confer process, 
were concerned that subpart F provides the Department with excessive 
rights to make decisions concerning the staffing of organizations, the 
abolishment of positions, and the need to implement a reduction in 
force (RIF). We disagree. The Department has no greater right to make 
restructuring decisions under subpart F than the Department presently 
has under section 351.201(a)(1) of OPM's RIF regulations.
    Commenters, including comments during the meet-and-confer process, 
were also concerned that because subpart F provides more weight to 
performance as a retention factor than under OPM's 5 CFR part 351 RIF 
regulations, employees' retention standing under subpart F would be 
primarily based upon performance ratings rather than upon tenure and 
veterans' preference. In fact, subpart F provides that, consistent with 
OPM's RIF regulations, tenure remains the most important retention 
factor, with veterans' preference the second most important factor. 
Subpart F gives performance greater retention weight by providing that 
performance is the third most important factor, while creditable 
service is the least important of the four factors. Under OPM's RIF 
regulations, creditable service is the third most important factor 
while performance is the least important factor. The additional weight 
on performance is consistent with the Department's implementation of a 
performance-based HR system.

              Table.--Relative Weight of Retention Factors
------------------------------------------------------------------------
                                                       NSPS 5 CFR 9901
 Order of retention factors   OPM's 5 CFR part 351   subpart F workforce
   from highest to lowest        RIF regulations     shaping regulations
------------------------------------------------------------------------
1...........................  Tenure (i.e., type    Tenure (i.e., type
                               of appointment).      of appointment).
2...........................  Veterans' Preference  Veterans'
                                                     Preference.
3...........................  Creditable Federal    Performance Ratings.
                               Service.
4...........................  Performance Ratings.  Creditable Federal
                                                     Service.
------------------------------------------------------------------------

    In order to ensure fairness in RIF actions and an impartial review 
of Department decisions, such as abolishing positions and crediting 
performance ratings, subpart F provides an appeal right under Sec.  
9901.611 for an employee who is reached for a RIF action resulting in 
separation, reduction in pay band, or furlough for more than 30 
consecutive days (or more than 22 discontinuous workdays), and who 
believes that the Department improperly applied subpart F.
    Commenters, including labor organizations participating in the 
meet-and-confer process, recommended that the design and implementation 
of subpart F should be subject to collective bargaining. This would be 
inconsistent with the enabling legislation (5 U.S.C. 9902(f)(4)), which 
makes the collaborative process the exclusive process for involvement 
of employee representatives in the planning, development, and 
implementation of the HR system. We have added language at Sec. Sec.  
9901.605(f) and 9901.606(e), which further clarifies that competitive 
areas and competitive groups are not subject to collective bargaining. 
Even so, in developing final subpart F regulations, we did consider all 
comments submitted by participating labor organizations, including 
comments during the meet-and-confer process.

[[Page 66162]]

Other Comments on Specific Sections of Subpart F

Section 9901.601--Purpose and Applicability

    Section 9901.601 specifies that subpart F implements the 
Department's system to determine employees' retention rights resulting 
from organizational decisions such as realignment, reorganization, and 
closure.
    As an alternative to the RIF system in the proposed regulation, 
commenters suggested that the Department retain or modify OPM's present 
5 CFR part 351 retention regulations as an alternative to subpart F. 
These suggestions were inconsistent with a performance-based HR system 
and were not adopted.

Section 9901.602--Scope of Authority

    As authorized by 5 U.S.C. 9902(k), Sec.  9901.602 provides that 
subpart F modifies and then applies the statutory retention provisions 
in 5 U.S.C. 3501 through 3503, except for the veterans' preference 
provisions which are not modified in sections 3501 and 3502. Finally, 
the section also provides that the Department will further implement 
subpart F through implementing issuances in accordance with Sec.  
9901.105.

Section 9901.603--Definitions

    Section 9901.603 defines specific terms for purposes of subpart F.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that subpart F clarify the 
definition of ``competing employee.'' The Department will publish 
implementing issuances clarifying who is a ``competing employee'' under 
subpart F.
    In order to clarify how the Department will consider performance as 
a retention factor under Sec.  9901.607(a)(3), we added a definition of 
``modal rating'' to Sec.  9901.603. For purposes of subpart F, ``modal 
rating'' means the rating of record that occurs most frequently in a 
particular competitive group. The Department will publish implementing 
issuances further clarifying the consideration of performance in RIF 
competition under subpart F.
    Commenters, including comments during the meet-and-confer process, 
on both sections 9901.603 and 9901.607 (``retention list'') suggested 
that the definition of ``retention factors'' specifically address the 
provision that retention factors includes ``such other factors as the 
Secretary considers necessary and appropriate to rank employees within 
a particular retention list.'' Commenters were also concerned that this 
discretion in the definition could lead to abuse in conducting RIF 
actions. After consideration of the comments, we decided to revise the 
definition of ``retention factors'' to reflect the actual ranking order 
of the four principal retention factors found in Sec.  9901.607(a) 
(i.e., tenure first, veterans' preference second, performance third, 
and creditable service fourth) without any additional changes to the 
definition. The Department will appropriately cover any consideration 
given to additional retention factors through implementing issuances. 
However, even if the Department chooses to give consideration to 
additional factors under authority of this definition, the Department 
must still follow the ranking order of the four factors found in Sec.  
9901.607(a).
    A commenter suggested that a definition of ``tenure'' be added to 
Sec.  9901.603. We did not adopt this suggestion. Section 9901.603 
defines ``tenure group'' as the initial grouping of employees for RIF 
competition on the basis of the type of their appointments. Section 
9901.607(a)(1) provides the ranking order of tenure as used in RIF 
actions under subpart F. The Department will publish implementing 
issuances on ``tenure'' to clarify for purposes of subpart F that 
tenure is granted and governed by the type of appointment under which 
an employee is currently serving without regard to whether his or her 
appointment is in a competitive position or an excepted position.

Section 9901.604--Coverage

    Section 9901.604 specifies which employees and which personnel 
actions are covered by subpart F.
    Commenters suggested that Sec.  9901.604(a) of subpart F 
specifically exclude National Guard technicians who have retention 
rights under 32 U.S.C. 709. The technicians are not currently covered 
by OPM's RIF regulations; therefore, implementing issuances will 
similarly exclude the National Guard technicians from subpart F.
    Commenters, including comments during the meet-and-confer process, 
suggested that the regulations specifically address the provision in 
Sec.  9901.604(a)(2) providing that subpart F also applies to other 
employees ``designated by the Secretary as DoD may be authorized to 
include under 5 U.S.C. 9902.'' We retained the section as originally 
proposed. The Department will implement Sec.  9901.604(a)(2) through 
implementing issuances.
    A commenter suggested that subpart F include term employees, who in 
fact compete for retention in the ranking order covered in Sec.  
9901.607(a)(1). Other commenters, including comments during the meet-
and-confer process, suggested that subpart F exclude term employees 
from RIF competition. We did not adopt this suggestion. The Department 
will clarify the coverage of term employees in subpart F through 
implementing issuances. In response to another comment, the Department 
will also clarify through implementing issuances the retention rights 
under subpart F of seasonal employees, employees on other nonpermanent 
appointments, and employees on probationary appointments.
    Commenters, including comments during the meet-and-confer process, 
asked for clarification when subpart F would apply to employees of the 
Department. We agree that clarification is necessary. Proposed Sec.  
9901.604(b)(1) provided that subpart F applies to the release of a 
competing employee from a retention list by actions such as separation 
or reduction in band for a reason covered in Sec.  9901.601 (e.g., 
realigning, reshaping, etc). After consideration of the comments, we 
revised Sec.  9901.604(b)(1) to clarify that subpart F also applies to 
a displacement action affecting a competing employee within a retention 
list.
    A commenter agreed with the transfer of function provisions in 
Sec.  9901.604(b)(2), which provides that the Department applies 5 CFR 
part 351, subpart C, of OPM's regulations to a transfer of function 
situation. Also, other commenters suggested that the Department develop 
its own transfer of function procedures for purposes of subpart F. 
After consideration of the comments, we revised Sec.  9901.604(b)(2) 
and a conforming change in Sec.  9901.602 to provide that, consistent 
with the requirements in section 5 U.S.C. 3503, the Department may 
through implementing issuances implement its own transfer of function 
procedures under subpart F.
    Section 9901.604(b)(3) provides that the Department applies section 
351.604 of OPM's regulations to implement a RIF furlough of more than 
30 consecutive calendar days. Commenters suggested that the Department 
develop its own RIF furlough procedures for purposes of subpart F. 
However, we believe that only clarification is necessary. Consistent 
with the definition of ``furlough'' in 5 CFR 351.203 and the 
regulations in 5 CFR 351.604, we revised Sec.  9901.604(b)(3) to 
provide that subpart F applies to the furlough of a competing employee 
for

[[Page 66163]]

more than 30 consecutive days or more than 22 discontinuous workdays. 
The Department will implement Sec.  9901.604(b)(3) through implementing 
issuances covering both continuous and discontinuous furloughs.
    Section 9901.604(c)(2) provides that subpart F does not apply to a 
reduction in band based upon reclassification due to new classification 
standards or the correction of classification error. Demotions 
resulting from misclassification or a new classification standard are 
similarly excluded from OPM's RIF regulations. Commenters, including 
labor organizations participating in the meet-and-confer process, 
suggested that Sec.  9901.604(c)(2) be revised to apply subpart F to 
both a reduction in band and a reduction in pay resulting from a 
classification decision. We did not adopt this suggestion because the 
Department believes there is no need to establish rules that differ 
from the Governmentwide RIF regulations in this regard.
    Section 9901.604(c)(7) provides that, with one exception, subpart F 
does not apply to a reduction in band based upon job erosion. The 
exception provides that subpart F applies to a reduction in band based 
upon job erosion when the agency has formally announced a reduction in 
force in the competitive area that will be effective within 180 days. 
Demotions resulting from job erosion are similarly excluded from OPM's 
RIF regulations, with a comparable exception. Commenters, including 
labor organizations participating in the meet-and-confer process, 
suggested that Sec.  9901.604(c)(7) be revised to apply subpart F to 
both a reduction in band and a reduction in pay resulting from job 
erosion. We did not adopt this suggestion because the Department 
believes there is no need to establish rules that differ from the 
Governmentwide RIF regulations in this regard.

Section 9901.605--Competitive Area

    Section 9901.605 covers ``Competitive Area,'' which defines the 
organizational and geographic boundaries within which employees compete 
for retention under subpart F.
    Commenters, including labor organizations participating in the 
meet-and-confer process, believed that the minimum competitive area 
under Sec.  9901.605(a) was too narrow and could encourage the 
Department to target employees for RIF actions. One commenter supported 
the competitive area standard under Sec.  9901.605(a). After 
consideration of comments on the competitive area standard, we have 
retained Sec.  9901.605(a) without revision. Section 9901.605(a) 
provides the Department with the option of restricting RIF actions to 
organizations and positions directly affected by organizational 
decisions such as realignment, reorganization, and closure. The 
Department also retains the option to use a competitive area larger 
than the minimum standard (e.g., an entire activity could be defined as 
a single competitive area).
    To ensure fairness in the Department's competitive area decisions, 
Sec.  9901.605(e) requires that a competitive area must be established 
only on the basis of legitimate organizational reasons. The section 
prohibits establishment of a competitive area for the purpose of 
targeting an employee for a RIF action because of nonmerit factors. An 
employee who is reached for a separation, demotion, or furlough action, 
and believes that the Department improperly established a competitive 
area under subpart F, may appeal the Department's decision under Sec.  
9901.611.
    Commenters suggested that subpart F clarify the competitive area 
standard and terminology under Sec.  9901.605(a). Commenters also 
requested that subpart F clarify the Department's oversight role in 
reviewing competitive area decisions. Another commenter suggested that 
subpart F clarify whether Sec.  9901.605 potentially authorizes 
establishment of a one-person competitive area. Finally, commenters, 
including labor organizations participating in the meet-and-confer 
process, suggested that subpart F clarify the Department's procedures 
for approving a change in the competitive area definition within 90 
days of the effective date of the RIF. The Department will clarify the 
competitive area standard, its terminology, and related material in 
implementing issuances.
    Labor organizations participating in the meet-and-confer process 
suggested that Sec.  9901.605 be revised to provide that a competitive 
area may not include only preference eligibles. This suggestion was not 
adopted. Section 9901.605 provides that the Department establishes 
competitive areas solely on the basis of organizational and geographic 
decisions, not on the basis of the retention standing of individual 
employees in the competitive areas.
    A commenter was concerned that a competitive area defined under 
Sec.  9901.605 could result in the release of an employee with higher 
performance ratings than another employee in a different competitive 
area. We recognize that this scenario may result from any RIF 
situation, and could also occur today under current OPM regulations 
where employees compete for retention only within a single competitive 
area.
    A commenter was concerned that a competitive area defined in Sec.  
9901.605 could limit the potential future promotion opportunities of an 
employee involved in RIF competition. That scenario, too, may result 
from any RIF situation, including actions taken today under OPM's 
regulations.
    A commenter was concerned that an employee reached for a RIF action 
under subpart F could not appeal a competitive area decision. As 
previously noted, an employee may appeal the competitive area as part 
of a RIF appeal under Sec.  9901.611.

Section 9901.606--Competitive Group

    Section 9901.606 covers the ``competitive group,'' which serves as 
the basis for ranking employees on the basis of their relative 
retention standing. After the Department applies the retention factors 
(i.e., tenure, veterans' preference, performance, and creditable 
service), the competitive group ranks employees in the order of their 
relative standing on a ``retention list'' that is similar to a 
``retention register'' under 5 CFR 351.404 of OPM's RIF regulations.
    Commenters, including labor organizations participating in the 
meet-and-confer process, were concerned that a competitive group 
established under Sec.  9901.606(a) provides too narrow a basis for RIF 
competition. After consideration of comments on establishment of a 
competitive group, Sec.  9901.606(a) is adopted without revision. 
Section 9901.606(a) provides the Department with an additional option 
to restrict RIF actions to organizations and positions directly 
affected by organizational decisions such as realignment, 
reorganization, and closure. The Department also retains the option to 
establish a larger competitive group that potentially could cover an 
entire activity.
    A commenter was concerned that a competitive group defined in Sec.  
9901.606(a) could limit the potential future promotion opportunities of 
an employee involved in RIF competition. That situation could result in 
any RIF, including actions taken today under OPM's regulations.
    Commenters suggested that subpart F clarify how and when the 
Department will establish and/or modify competitive groups. A commenter 
also suggested that subpart F clarify competitive group terminology. 
The Department will clarify its competitive group policies in 
implementing issuances.

[[Page 66164]]

    Section 9901.606(c) provides that the Department uses employees' 
official positions of record to place employees into a competitive 
group. The section also provides that the Department ``may supplement 
an employee's official position description by using other applicable 
records that document the employee's actual duties and 
responsibilities.'' A commenter suggested that the Department place 
employees into a competitive group only on the basis of their official 
positions of record. Other commenters suggested that subpart F cover 
how the Department will use records other than official positions to 
establish competitive groups. After consideration of the comments, we 
have retained Sec.  9901.606(c) without revision. Section 9901.606(c) 
provides the Department with maximum flexibility in establishing 
competitive groups based upon employees' actual duties and 
responsibilities.
    Commenters suggested revision of Sec.  9901.606 to provide that the 
Department may not establish a competitive group comprised of fewer 
than 25 employees. Commenters, including labor organizations 
participating in the meet-and-confer process, also suggested revision 
of Sec.  9901.606 to provide that the Department may not establish a 
competitive group comprised only of preference eligibles. We did not 
adopt these suggestions. The Department makes staffing decisions under 
subpart F based upon organizational considerations. Consistent with 
this premise, Sec.  9901.606 provides that the Department establishes 
competitive groups based upon employees' positions without regard to 
the number of employees performing those positions.

Section 9901.607--Retention Standing

    Section 9901.607 covers ``retention standing'' on a ``retention 
list'' under subpart F. The Department ranks employees on a ``retention 
list'' on the basis of their relative retention standing. This section 
also covers access by employees and their representatives to the 
retention list.
    Commenters suggested that subpart F clarify the ranking order of 
the factors the Department uses to establish retention lists under 
Sec.  9901.607. In fact, sections 9901.607(a)(1)-(4) mandate the 
required order and weight of the retention factors (i.e., tenure has 
the most weight, creditable service has the least weight). The 
Department will publish implementing issuances further clarifying the 
ranking order of the retention factors in Sec.  9901.607(a).
    Section 9901.607(a)(1) provides that in ranking employees on the 
retention list, employees with career tenure, including employees 
serving an initial probationary period, are listed first, followed by 
employees on term and similar appointments as identified in DoD 
implementing issuances. Commenters, including comments during the meet-
and-confer process, suggested that employees serving an initial 
probationary period on appointment to the Federal service be listed 
below employees with career tenure, and above employees with term or 
similar appointments. We agree with this suggestion and have 
accordingly revised Sec.  9901.607(a)(1) to incorporate this change. 
Commenters suggested that Sec.  9901.607(a)(1) be revised to clarify 
whether, before a RIF, the Department may convert a temporary 
noncompeting employee with no retention rights under subpart F to a 
permanent position that provides the incumbent with full retention 
rights. We did not adopt this suggestion. The Department has the right 
to take appropriate personnel actions before, during, and after the 
effective date of the RIF. A commenter suggested that Sec.  
9901.607(a)(1) be revised to include service as a tenure element. We 
did not adopt this suggestion. Creditable service is a separate 
retention factor covered by Sec.  9901.607(a)(4).
    Commenters noted that Sec.  9901.607(a)(2) erroneously referenced 5 
CFR 351.504(c) and (d) rather than 5 CFR 351.501(c) and (d) of OPM's 
RIF regulations. We corrected this misprint.
    Commenters were concerned that Sec.  9901.607(a)(2) reduces the 
relative weight of veterans' preference as a retention factor under 
subpart F. In fact, Sec.  9901.607(a)(2) applies veterans' preference 
with the same retention weight as under OPM's current RIF regulations, 
which are referenced in Sec.  9901.607(a)(2). Specifically, under Sec.  
9901.607(a)(2) veterans' preference is considered as a retention 
ranking factor immediately after tenure on the same basis as OPM's 
regulations consider veterans' preference in the context of tenure.
    A commenter suggested that Sec.  9901.607(a)(2) be revised to 
include a cite to the statutory basis for veterans' preference in RIF. 
This suggestion was not adopted. Section 9901.602 states that, without 
modification, subpart F applies the RIF and statutory preference 
requirements mandated by 5 U.S.C. 3501 through 3503. Also, Sec.  
9901.607(a)(2) references back to the provisions in 5 CFR 351.501(c) 
and (d) of OPM's reduction in force regulations that implement the 
retention preference requirements.
    A commenter suggested that Sec.  9901.607(a)(2) be revised to 
increase the relative weight of veterans' preference as a retention 
factor. This suggestion was not adopted. Section 9901.607(a)(2) 
provides veterans' preference with the same weight in determining RIF 
retention standing as under OPM's regulations.
    As noted in the General Comments section above, commenters, 
including labor organizations participating in the meet-and-confer 
process, were concerned that Sec.  9901.607(a)(3) excessively increases 
the relative weight of performance as a retention factor under subpart 
F. Section 9901.607(a)(3) considers performance as the third most 
important retention factor after tenure and veterans' preference. Under 
OPM's RIF regulations, performance receives the least weight as a 
retention factor. As we noted in the General Comments, the additional 
retention weight for performance is fully consistent with the goal of 
increasing the likelihood that higher-performing employees will be 
retained in the event of a RIF.
    Commenters, including labor organizations participating in the 
meet-and-confer process, asked that Sec.  9901.607(a)(3) clarify how 
the Department will provide additional weight to performance as a 
retention factor. The Department will publish implementing issuances 
clarifying the consideration of performance in RIF competition under 
subpart F. Other commenters requested clarification on how the 
Department will ensure that ratings are impartial and objective, as 
well as how an employee may contest a rating within the Department. 
These concerns are discussed in subpart D.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that Sec.  9901.607(a)(3) be revised 
to clarify that the Department will not always use a single rating of 
record to determine the weight of performance upon an employee's 
retention standing. We agree with this suggestion. The Department's 
implementing issuances covering the consideration of performance in RIF 
competition under subpart F will explain how employees will receive 
retention credit for their multiple ratings under the Department's 
personnel system. In a conforming change, Sec.  9901.603 includes a 
definition of ``modal rating'' that the Department will use to 
determine retention credit for employees who do not have any ratings of 
record under the Department's personnel system.

[[Page 66165]]

    Commenters suggested that Sec.  9901.607(a)(3) be revised to 
provide that performance receive the same or no greater retention 
weight than creditable service. This suggestion was not adopted. 
Consistent with the Department's personnel system that emphasizes 
performance, Sec.  9901.607(a)(3) provides that performance receives 
greater weight as a retention factor than creditable service.
    A commenter suggested that performance receive less weight under 
subpart F than veterans' preference. As previously noted, Sec. Sec.  
9901.607(a)(2) and (a)(3) provide that veterans' preference is 
considered as a retention factor before performance under subpart F.
    Commenters suggested that Sec.  9901.607(a)(3) be revised to 
increase the relative weight of performance over veterans' preference 
as a retention factor. This suggestion was not adopted. Section 
9901.607(a)(2) considers veterans' preference on the same basis as 
under OPM's regulations determining RIF retention standing, while Sec.  
9901.607(a)(3) provides less weight to performance than veterans' 
preference as a retention factor.
    Commenters suggested that subpart F provide retention credit for 
performance on the same basis as OPM regulations. This suggestion was 
not adopted. The additional weight for performance as a retention 
factor under subpart F is consistent with the increased emphasis on 
performance in the Department's new personnel system.
    Commenters, including labor organizations participating in the 
meet-and-confer process, were concerned that Sec.  9901.607(a)(4) 
excessively decreases the relative weight of creditable service as a 
retention factor under subpart F. Section 9901.607(a)(4) considers 
service as the fourth and least important retention factor. Under OPM's 
RIF regulations, service is the third most important retention factor, 
while performance receives the least weight as a factor. Again, the 
decreased retention weight on service and the additional weight for 
performance are consistent with the increased emphasis on performance 
in the Department's performance-based personnel system.
    A commenter suggested that subpart F clarify ``length of service.'' 
Section 9901.607(a)(4) provides that employees receive retention credit 
for creditable civilian and Armed Forces service on the basis of 5 
U.S.C. 3502(a)(A) and (B), and OPM's regulations in 5 CFR 351.503. 
However, we believe that clarification is necessary. We revised Sec.  
9901.607(a)(4) to provide that in calculating creditable civilian and 
uniformed service under subpart F, the Department uses 5 CFR 351.503 of 
OPM's RIF regulations, but without regard to provisions covering 
additional service credit for performance in 5 CFR 351.503(c)(3) and 
(e) of OPM's regulations. The Department will publish implementing 
issuances clarifying RIF service credit under subpart F.
    In a clarifying edit, we added Sec.  9901.607(a)(5), which provides 
that the Department may establish tie-breaking procedures when two or 
more employees have the same retention standing. This sentence was 
included in Sec.  9901.607(a)(4) of the proposed regulations.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that Sec.  9901.607(c) be revised to 
provide that all employees have access to a retention list established 
under Sec.  9901.607(a)(1). We did not adopt this suggestion because 
Sec.  9901.607(c) provides that employees who have received a specific 
written RIF notice have access to a retention list in accordance with 5 
CFR 351.505 of OPM's RIF regulations. However, we believe that 
clarification is necessary. We revised Sec.  9901.607(c) to provide 
that in allowing access to retention records, the Department uses 
section 5 CFR 351.505 of OPM's reduction in force regulations, but 
substitutes ``retention list'' for ``competitive level'' or ``retention 
register.'' The Department will publish implementing issuances 
clarifying access to retention lists under 9901.607(c).

Section 9901.608--Displacement, Release, and Position Offers

    Section 9901.608 covers personnel actions that result in 
displacement within the retention list or the release of an employee 
from a retention list under subpart F. A qualified employee reached for 
release from his/her present position because of position abolishment 
or displacement by a higher-standing employee on the retention list may 
potentially displace a lower-standing employee on the list before 
separation or furlough by RIF.
    A commenter suggested that Sec.  9901.608(a) be revised to clarify 
how the Department determines that a higher-standing employee is 
qualified to displace a lower-standing employee on the retention list. 
Another commenter suggested that Sec.  9901.608(a)(1)(i) be revised to 
eliminate a requirement that the Department only uses 5 CFR 351.702 of 
OPM's retention regulations to determine employees' qualifications for 
displacing a lower-standing employee on the retention list under 
subpart F. We agree that clarification is necessary. We revised Sec.  
9901.608(a)(1)(i) to provide that in determining the qualifications of 
a higher-standing employee to displace a lower-standing employee under 
subpart F, the Department uses, as applicable, 5 CFR 351.702 of OPM's 
retention regulations, or its own qualifications, consistent with other 
requirements in 5 CFR 351.702. The Department will publish implementing 
issuances clarifying qualification determinations for displacement 
within a retention list under Sec.  9901.608(a). We also added Sec.  
9901.608(a)(1)(iii) to clarify that a displaced employee must be in the 
same or lower pay band as the higher-standing employee who displaced 
him/her.
    Commenters suggested that Sec.  9901.608(a) be revised to clarify 
terminology such as ``status'' and ``undue interruption.'' The 
Department will publish implementing issuances clarifying terminology 
under 9901.608(a).
    A commenter suggested that Sec.  9901.608(a) be revised to require 
the Department to provide positive efforts that would increase the 
likelihood of higher-standing employees being qualified to displace 
employees with lower retention standing. We did not adopt this 
suggestion. We believe it would be unfair for the Department to pursue 
a program whose purpose is to increase the likelihood of one category 
of employees displacing a different category of employees in a RIF.
    Commenters suggested that Sec.  9901.608(b)(1) be revised to 
clarify the order in which employees are released from the retention 
list. Section 9901.608(b)(1) provides that, consistent with the order 
of retention required by Sec.  9901.607(a), employees with the lowest 
retention standing are released before higher standing employees on the 
retention list.
    Commenters also suggested that Sec.  9901.608(b)(2) clarify 
displacement rights involving time-limited positions. We agree that 
clarification is necessary. We revised Sec.  9901.608(b)(2) to provide 
that under subpart F a competing employee may not be released from a 
retention list containing a position held by a temporary employee when 
the competing employee is qualified for the position under Sec.  
9901.608(a)(1)(i). The Department will publish implementing issuances 
clarifying release from retention lists under 9901.608(b).
    A commenter suggested that Sec.  9901.608(b) clarify the procedures 
that the Department uses to break ties in employees' relative retention 
standing. The Department will publish implementing issuances clarifying 
tie-

[[Page 66166]]

breaking procedures in releasing employees from retention lists. 
Section 9901.607(a)(5) of the final regulations covers the Department's 
right to establish tie-breaking procedures.
    A commenter suggested that Sec.  9901.608(b)(3) clarify how the 
Department will use exceptions to the regular order of release from the 
retention list. We agree that clarification is necessary. We revised 
Sec.  9901.608(b)(3) to provide that in temporarily postponing the 
release of an employee from the retention list, the Department uses 5 
CFR 351.506, 351.606, 351.607, and 351.608 of OPM's RIF regulations, 
but substitutes the term ``retention list'' for the term ``competitive 
level'' where part 351 uses that term in the four identified sections. 
The Department will publish implementing issuances further clarifying 
exceptions to the usual order of release under Sec.  9901.608(b)(3).
    Commenters suggested that Sec.  9901.608(c) clarify whether the 
Department will consider employees' retention standing in offering 
vacant positions under subpart F. We agree that clarification is 
necessary. Section 9901.608(c) provides that the Department must use 
retention standing in offering a vacant position in the same 
competitive area to an employee released from a retention list under 
subpart F. We revised Sec.  9901.608(c) to clarify that the Department 
must use retention standing when offering a vacancy in the same 
competitive area to an employee who is competing on the retention list 
under Sec.  9901.608(a)(1) because of either position abolishment or 
displacement by an employee with higher retention standing. The 
Department will publish implementing issuances clarifying offers of 
vacancies under Sec.  9901.608(c).
    A commenter asked whether a released employee who is offered a 
vacancy under Sec.  9901.608(c) has any potential rights to pay 
retention. The Department will publish implementing issuances 
clarifying employees' entitlements to pay retention under Sec.  
9901.608(c). However, in a conforming change, we have revised Sec.  
9901.355 of subpart C to provide additional information on pay 
retention.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that Sec.  9901.608(d) be revised to 
provide that, in lieu of RIF separation or furlough, an employee 
released from a retention list would have potential displacement rights 
to positions held by lower-standing employees on other retention lists 
similar to ``bump'' and ``retreat'' regulations provided to released 
employees under subpart G of part 351 of OPM's RIF regulations. This 
suggestion was not adopted. Section 9901.608(d) provides the Department 
with flexibility to restrict RIF actions to organizations and positions 
directly affected by organizational decisions such as realignment, 
reorganization, and closure. In a related clarification, we revised 
Sec.  9901.608(d)(2) to provide that the furlough of an employee 
released from a retention list is covered by Sec.  9901.604(b)(3). The 
Department will publish implementing issuances clarifying actions 
following the release of employees from a retention list under Sec.  
9901.608(d).

Section 9901.609--Reduction in Force Notices

    Section 9901.609 covers the notice that the Department must issue 
to each employee before release from the retention list under subpart 
F. The Department must issue a specific written notice a minimum of 60 
days before the employee is reached for release from the retention list 
by a RIF action (e.g., separation or furlough).
    Commenters suggested that Sec.  9901.609 be revised to provide 120 
days written notice. This suggestion was not adopted. The requirement 
for a minimum 60 days notice of a RIF action is consistent with the 
requirements of 5 U.S.C. 3502(d)(1)(A) for OPM's regulations published 
in 5 CFR 351.801(a)(1). The Department will publish implementing 
issuances clarifying the content of RIF notices issued under Sec.  
9901.609.
    In a clarifying change consistent with management flexibilities 
provided by 5 CFR 351.801(b), Sec.  9901.609 is revised to provide that 
when the Department applies subpart F because of circumstances not 
reasonably foreseeable, the Secretary, at the request of a component 
head or designee, may approve a RIF notice period of less than 60 days. 
The notice period must cover at least 30 days before the date of 
release from the retention list. The Department will publish 
implementing issuances covering a RIF notice period of less than 60 
days under Sec.  9901.609.

Section 9901.610--Voluntary Separation

    Section 9901.610 covers voluntary separation from the Department as 
a RIF action. Under this option, the Department may allow an employee 
to volunteer for separation from the service by reduction in force when 
the action avoids the RIF separation of another employee.
    One commenter suggested that the Department use the voluntary 
separation option to avoid RIF actions. The Department will publish 
implementing issuances clarifying the applicability of voluntary RIF 
separations under Sec.  9901.610.

Section 9901.611--Reduction in Force Appeals

    Section 9901.611 covers RIF appeals. An employee who is reached for 
a RIF action resulting in separation, reduction in band, or furlough 
under Sec.  9901.604(b), and who believes that the Department 
improperly applied subpart F, has the right to appeal to the Merit 
Systems Protection Board. Also, commenters during the meet-and-confer 
process suggested, as an alternative to appealing RIF actions to the 
Board, employees should instead have the right to file a grievance. We 
did not adopt this suggestion. Section 9901.611(a) references 5 CFR 
351.901 of OPM's regulations in providing the same impartial right to 
appeal a RIF action under subpart F as provided to an employee under 
OPM's retention regulations.
    For clarification, we revised Sec.  9901.611(a)(3) to provide that 
an employee has the right under subpart F to appeal a furlough of more 
than 30 days, as defined in Sec.  9901.604(b)(3).
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that Sec.  9901.611(a) be revised to 
provide a right to appeal a RIF action under subpart H of part 9901 
(``Appeals''). This suggestion was not adopted. Subpart H of part 9901 
only covers appeals of certain adverse actions taken under subpart G of 
part 9901 (e.g., removals, suspensions for more than 14 days, furloughs 
of 30 or less consecutive days, and reductions in pay band--or a 
comparable reduction). The procedures in subpart H are appropriate for 
reviewing an adverse action appeal (i.e., an appeal of a personnel 
action that the Department took for cause). In contrast, Sec.  
9901.611(a) provides for the right to appeal a RIF action (i.e., an 
appeal of a personnel action that the Department took for an 
organizational reason) on the same basis as under OPM's RIF 
regulations.
    Commenters suggested revision of Sec.  9901.611(a) to provide for 
expedited Board review of appeals under subpart F. This suggestion was 
not adopted. Section 9901.611 provides for the right to appeal a RIF 
action to the Board using the same procedures as an appeal under OPM's 
regulations.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested revision of Sec.  9901.611(b) to 
provide for the right

[[Page 66167]]

to appeal to the Board, or another third-party appellate body, an 
action taken under internal Department placement programs. This 
suggestion was not adopted. Section 9901.611(b) does not provide the 
right to appeal an internal placement action (including a placement 
under the Priority Placement Program). An employee who believes that 
the Department failed to properly effect an internal placement action 
may contest the action through a grievance or other remedy available 
for the review of the Department's internal staffing decisions.

Subpart G--Adverse Actions

General Comments

    Many commenters, including labor organizations participating in the 
meet-and-confer process, objected to the provisions in subpart G. They 
felt that the proposed regulations would adversely impact due process 
rights, discrimination and whistleblowing claims, and the ability to 
retain staff. We disagree. Under the enabling legislation, DoD is 
prohibited from waiving or modifying any provision relating to 
prohibited personnel practices or merit system principles, including 
reprisal for whistleblowing or unlawful discrimination. The regulations 
therefore do not modify these protections in any way. The enabling 
legislation also requires DoD to ensure that employees are afforded the 
protections of due process, which we have done. In accordance with U.S. 
Supreme Court decisions, the regulations ensure employees notice, a 
right to reply, a final written decision, and a post-decision review 
when the Secretary proposes to deprive them of constitutionally 
protected interests in their employment. Although we have made changes 
to the proposed regulations, due process and other legal protections 
are preserved as required by Congress, and we do not believe the 
regulations in this subpart will have any negative effect on retention 
efforts.

Section 9901.701--Purpose

    This section outlines the purpose of this subpart and provides for 
the development and publication of DoD implementing issuances. During 
the meet-and-confer process, the participating labor organizations 
stated that DoD does not have the authority to prescribe implementing 
issuances to carry out the provisions of this subpart. We disagree. The 
enabling legislation expressly states that the Secretary and the 
Director will jointly prescribe regulations for the system. This 
carries with it the authority for the Secretary to provide further 
clarification, guidance, and instruction on these regulations through 
implementing issuances. It is also consistent with the continuing 
collaboration process described in Sec.  9901.106 which implements 5 
U.S.C. 9902(f)(1)(D).

Section 9901.702--Waivers

    This section specifies the provisions of title 5, U.S. Code, that 
are waived for employees that are covered by the NSPS adverse action 
system established under subpart G. During the meet-and-confer process, 
the participating labor organizations recommended that this provision 
be deleted. We do not agree with this recommendation because it is 
inconsistent with the enabling legislation, which allows waiver of 
certain provisions of title 5, U.S. Code, and the creation of new 
adverse action procedures. We have made no changes to this section.

Section 9901.703--Definitions

    This section defines terms relevant to this subpart. The labor 
organizations participating in the meet-and-confer process recommended 
that the definition of ``adverse action'' be amended to include 
``demotion'' and exclude the words ``or other comparable reduction.'' 
We disagree. The term ``demotion'' is not used in the regulations. The 
concept of demotion is covered through reduction in pay band (or 
comparable reduction). The term ``comparable reduction'' is taken 
directly from the enabling legislation. These labor organizations also 
recommended that a definition be added for ``band.'' Commenters, and 
labor organizations during the meet-and-confer process, recommended 
that a definition be added for ``day.'' We agree and have added 
definitions for those terms. A definition of ``reduction in pay'' has 
also been added to clarify that nonreceipt of a pay increase (such as a 
rate range adjustment, supplemental adjustment, or a performance pay 
increase) does not constitute a reduction in pay and therefore is not 
an adverse action.
    During the meet-and-confer process, labor organizations also 
suggested that the definitions of ``indefinite suspension,'' ``pay,'' 
and ``suspension'' be modified. Since the definitions for these terms 
are essentially identical to current statutory and regulatory 
definitions, we see no basis for making the suggested modifications. 
Finally, labor organizations, as well as commenters, recommended the 
deletion of ``mandatory removal offenses'' (MROs). We disagree because 
of that term's relevance to this section and the fact that the concept 
of MROs is retained.

Section 9901.704--Coverage

    Section 9901.704 describes the types of actions and employees 
covered by and excluded from coverage under the subpart. Commenters, as 
well as labor organizations participating in the meet-and-confer 
process, recommended that employees who are serving in-service 
probationary periods be given appeal rights. We have clarified that 
employees who are serving an in-service probationary period will have 
appeal rights if they are not returned to a grade or band and pay rate 
no lower than that held before the in-service probationary period. The 
labor organizations, during the meet-and-confer process, also 
recommended that we add a provision stating that employees who are 
excluded from the enabling legislation are not covered by this 
provision. Such a provision is unnecessary because employees excluded 
from coverage under the enabling legislation are not covered by any 
provision of the NSPS regulations.
    We received many comments suggesting we add reduction in force 
(RIF) actions to coverage. We believe the NSPS appeal system should be 
limited to removals, suspensions for more than 14 days, furlough for 30 
days or less, and reduction in pay or pay band (or comparable 
reduction) as set forth in 5 U.S.C. 9902(h)(4)(A). Employees subject to 
RIF actions will continue to have the same appeal rights as they do 
today and that is made clear in subpart F of the regulations. 
Commenters recommended clarification as to whether adverse actions 
resulting from agency suitability determinations are excluded. We 
believe such clarification is unnecessary since agency suitability 
actions, including removals, are taken under 5 U.S.C. chapter 73. 
Suitability actions under chapter 73 are by definition not adverse 
actions. Moreover, the enabling legislation expressly excludes from its 
coverage suitability actions taken under 5 U.S.C. chapter 73. See 5 
U.S.C. 9902(d)(2). Other commenters recommended that term employees be 
excluded from coverage. The Department wishes to maintain the status 
quo with respect to term employees' appeal rights. One commenter 
suggested that the movement of an employee to a lower pay band not be 
considered an adverse action under NSPS when such movement is the 
result of a less than fully successful performance rating. We disagree. 
The enabling legislation identified a reduction in pay band as an 
appealable action.

[[Page 66168]]

Section 9901.711--Standard for Action

    This provision describes the standard for taking an action against 
an employee as ``for such cause as will promote the efficiency of the 
service.'' During the meet-and-confer process, participating labor 
organizations, as well as most commenters, agreed with this provision. 
However, some commenters stated that this standard provides management 
too much discretion. We have retained this long-standing and well 
established ``efficiency of the service'' standard.

Section 9901.712--Mandatory Removal Offenses

    This provision gives the Secretary the authority to identify 
Mandatory Removal Offenses (MROs), which are offenses that have a 
direct and substantial impact on the Department's national security 
mission. An employee who commits such an offense must be removed from 
Federal service, unless the Secretary determines in his or her sole and 
exclusive discretion that a lesser penalty is appropriate. Commenters 
as well as participating labor organizations during the meet-and-confer 
process stated that this provision should be deleted in its entirety 
because in their view, the establishment of MROs exceeds DoD's 
authority under the enabling legislation and is open to abuse. Some 
commenters stated that MROs should be defined and subject to public 
comment through the formal rule-making process. Commenters expressed 
concern that the Secretary can issue and change the list at will. Some 
commenters stated that the Secretary should not be the only mitigating 
authority for MROs and that his non-reviewable discretion is 
inappropriate for a political appointee. In addition, commenters stated 
MROs do not leave any room for flexibility based on individual 
circumstances or mitigating factors and takes the flexibility away from 
DoD supervisors. Other commenters expressed concern that if an MRO 
offense is not sustained, an employee can still be charged with a non-
MRO offense based on the same facts.
    We disagree that the establishment of MROs exceeds the Department's 
authority. The enabling legislation expressly provides authority to 
waive the current statutory provision governing adverse action in 
establishing the HR system. Although no MROs have been established, the 
provision that allows for the establishment of MROs must be retained to 
support the vital mission of the Department. We have revised the 
proposed regulations to provide, at a minimum, that MROs will be (1) 
identified in advance as part of the Department's implementing 
issuances, (2) publicized upon establishment via notice in the Federal 
Register, and (3) made known to all employees on a periodic basis, as 
appropriate, through means determined by the Department. Examples of 
potential MROs are provided under Major Issues: Adverse Actions and 
Appeals. The offenses that may be identified as MROs will be so 
egregious as to have a direct and substantial adverse impact on the 
Department's national security mission, and therefore would not 
properly be subject to mitigation except in unusual circumstances as 
determined by the Secretary. Employees who commit such offenses must be 
removed from the Department and the Federal service. The support of the 
national security mission outweighs any loss of flexibility in the 
system. We disagree that it is inappropriate for the Department to have 
the ability to take a subsequent action if the offense is found to not 
be an MRO. We believe that if an employee's misconduct is found to 
qualify as an MRO, it does not mean that the misconduct should not be 
addressed. For misconduct amounting to an MRO, mitigation of penalties, 
review of notice letters, and designation of offenses must be at the 
highest levels of the Department to prevent abuse, ensure judicious use 
of the authority, and provide maximum transparency for employees. In 
light of the above, we believe that MROs need not be subject to public 
comment through the formal rule-making process. They will, however, be 
subject to continuing collaboration with employee representatives. This 
ensures transparency in the process of establishing MROs.

Section 9901.714--Proposal Notice

    This provision outlines procedures for issuing proposal notices, 
including a shorter advance notice period of at least 15 days. 
Commenters and labor organizations participating in the meet-and-confer 
process recommended retaining the current 30-day written notice of a 
proposed adverse action. Other commenters argued that due process is 
denied because of the potential inability to gather and review evidence 
within the proposed time frame. We disagree that the advance written 
notice period should be 30 days. The shortened notice supports the NSPS 
goal of streamlining the adverse action process and provides adequate 
time for consideration of evidence. We have clarified in the 
regulations that the 15-day notice period represents the minimum period 
of time for advance notice to the employee. We have further modified 
this section to clarify that notice of proposed adverse action or 
opportunity to reply are not required in the event of a furlough of 30 
days or less without pay due to unforeseeable circumstances.
    This provision also shortens the minimum notice period from 7 to 5 
days in situations where there is reasonable cause to believe a crime 
has been committed. Commenters and labor organizations participating in 
the meet-and-confer process recommended retaining the current crime 
provision notice period of 7 days. We believe that 5 days is the 
appropriate amount of time to allow for notice and reply in such 
situations given the need to take action in these situations. 
Commenters expressed concern over the lack of an explicit requirement 
that the Department have actual knowledge of a criminal investigation 
or criminal charges being filed against an employee before imposing the 
5-day notice period. Commenters also recommended that ``reasonable 
cause'' be defined. The criteria under which the crime provision may be 
invoked is well established in current statute, regulation, and case 
law and was not changed in the proposed regulations. We do not believe 
it necessary to define reasonable cause in these regulations. Each case 
is unique and considerable guidance is provided in existing case law.
    Labor organizations during the meet-and-confer process recommended 
including a requirement for DoD to provide employees copies of all 
evidence including exculpatory evidence during the notice period. While 
the regulations do not require that copies of evidence be delivered to 
the employee, the Department will ensure that the employee is informed 
of his or her right to review the Department's evidence supporting the 
proposed action. There is no need to specifically require DoD to make 
exculpatory evidence available to the employee during the notice period 
since all evidence relied upon by the decision-maker must be made 
available to the employee.
    Labor organizations during the meet-and-confer process also 
recommended modifying the proposed regulations with regard to the 
status of an employee during the notice period. Under current law and 
regulation, an employee is normally entitled to be in a pay status 
during the notice period. A Component may place an employee in a 
different position or even in a non-duty status, but the employee must 
continue to be

[[Page 66169]]

paid. The labor organizations recommended that the Department's 
authority to assign an employee to other duties or to place the 
employee in a non-duty pay status should be substantially limited, even 
if the Department determines that the employee's continued presence 
would have an adverse impact on the Department's mission. The labor 
organizations recommended deleting ``the Department's mission'' as a 
possible justification for assigning an employee to a different status 
or position. We do not believe such modification is appropriate. 
Deleting ``the Department's mission'' as a reason for reassigning an 
employee to other duties or placing him or her in a non-duty pay status 
would adversely impact the Department's flexibility in accomplishing 
the mission.
    Commenters stated the Department should not be allowed to require 
an employee to use personal leave during the notice period. We disagree 
with the labor organizations' recommended deletion of language in this 
area. We do not envision requiring an employee to use personal leave 
during a notice period; however, an employee may voluntarily elect to 
request leave. If, in the exceptional case, the Department places an 
employee on personal leave involuntarily, such action would constitute 
an adverse action and be subject to the procedural requirements of 
subpart G and, depending on the facts of the case, could potentially be 
appealed under subpart H. This is consistent with current law and the 
proposed language is not intended to modify the status quo.

Section 9901.715--Opportunity to Reply

    This provision outlines procedures related to the opportunity to 
reply and provides that employees be granted at least 10 days to reply 
(or 5 days when there is reasonable cause to believe the employee has 
committed a crime). Commenters and labor organizations participating in 
the meet-and-confer process recommended employees be provided at least 
30 days to reply instead of 10 days, and at least 7 days when there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed. They believe the 
minimum 10-day (or 5-day, under the crime provision) reply period is 
not sufficient time for the employee to provide a response and that the 
shortened time period limits managers' ability to fully consider the 
employee's reply. Other commenters stated the regulations should allow 
for the extension of time limits. Commenters and labor organizations 
participating during the meet-and-confer process also recommended 
deletion of the requirement that a reply period run concurrently with a 
notice period.
    We disagree that the reply period should be increased and believe 
the proposed minimum 10-day reply period (or 5 days when the ``crime 
provision'' is invoked) is ample time for an employee to prepare a 
response. We also believe that such a period provides sufficient time 
for a manager to consider an employee's reply. Furthermore, both the 
15-day notice period and the 10-day reply period represent minimums and 
may be extended as necessary at the Department's discretion. We believe 
that the reply period should run concurrently with the notice period. 
This is consistent with the goal of streamlining the procedure and is 
unchanged from current law. The reply period does end prior to the end 
of the notice period; however, this is necessary to allow time for 
managers to consider the reply and make a timely decision.
    Commenters and labor organizations participating in the meet-and-
confer process requested clarification of provisions in this section 
which refer to an employee being represented by an individual ``at the 
employee's expense.'' The circumstances under which the employee will 
be responsible for paying for his or her own representation (e.g., non-
Federal employee representative) were clarified during the meet-and-
confer process and are reflected in the final regulations. They also 
recommended deletion of the provision that covers disallowing an 
individual to serve as the employee's representative, stating that the 
exclusion of representative standard is too broad and should not be 
within the discretion of the Department. We disagree with this 
recommendation because such procedures are necessary for the orderly 
and fair resolution of the action. We disagree that the standard is too 
broad, as the criteria are specifically related to the Department's 
mission.
    During the meet-and-confer process, the participating labor 
organizations also recommended extending the reply period when the 
Department is considering an employee's medical condition in regard to 
a proposed adverse action. We disagree that extending the reply period 
in such situations is necessary in regulation. The 10-day reply period 
set forth in Sec.  9901.714 represents a minimum and may be increased 
at the Department's discretion.
    Commenters stated that regulations do not allow duty time for the 
employee to prepare a response and one commenter suggested that we 
clarify what is meant by a ``reasonable amount of official time'' to 
review the evidence. Commenters stated the regulations do not discuss 
whether the employee's representative will be allowed official time to 
assist the employee. We disagree that the regulations do not allow duty 
time for the employee to prepare a response. The employee may receive 
official time to review the Department's supporting evidence and to 
furnish affidavits and other documentary evidence, if the employee is 
otherwise in an active duty status. With regard to an employee's 
representative being allowed official time, the proposed regulation is 
essentially the same as current law.

Section 9901.716--Decision Notice

    This provision outlines procedures for issuance of decision 
notices. During the meet-and-confer process, participating labor 
organizations gave alternative proposals regarding the delivery of the 
decision notice to the employee. One proposal recommended providing the 
decision notice to the employee on or before the effective date and 
deleting all language providing guidance if unable to deliver the 
notice in person. The other proposal recommended delivery by electronic 
mail and certified mail, return receipt requested if unable to deliver 
the notice in person. During the meet-and-confer process, participating 
labor organizations also stated that the Department had no legal 
authority to mail a decision letter to the last known address. We 
believe that in circumstances when the Department is unable to deliver 
the decision notice in person, there must be guidelines provided to 
ensure all parties understand their responsibilities; therefore, we did 
not delete the guidance contained in the subsection. However, in 
response to discussions with labor organizations during the meet-and-
confer process and public comments received, the language was modified 
to broaden delivery methods to include mail, overnight or express 
delivery service or the use of a messenger service. The regulations 
will retain the language that the Department will deliver the decision 
letter to the last known address of record, if unable to deliver in 
person, as the method of last resort.

Section 9901.717--Departmental Record

    This provision describes the Departmental Record. During the meet-
and-confer process, participating labor organizations recommended that 
we amend this provision to be consistent

[[Page 66170]]

with 5 U.S.C. 7513(e) by deleting the requirement to retain documents 
pursuant to the General Records Schedule and the Guide to Personnel 
Recordkeeping. Additionally, they recommended that this provision be 
amended to require the retention of exculpatory evidence and any 
material relevant to the action. Some commenters stated that the 
Department should retain any information that the employee requests to 
be retained as a part of the official record of any adverse action. We 
did not revise this provision. This provision establishes sound 
recordkeeping procedures which are substantively the same as those in 5 
U.S.C. 7513(e) except that the proposed provision provides more 
guidance regarding recordkeeping procedures. Any and all directly 
relevant evidence will be retained regardless of whether the employee 
requests the Department do so. One commenter suggested that notation be 
made in an employee's official records in cases where an employee under 
investigation for misconduct resigns prior to issuance of a proposal 
notice. The commenter argued that such documentation could prevent the 
future employment of an employee who might present a security risk. We 
do not believe such a notation, based on an ongoing investigation, 
would be appropriate.

Subpart H--Appeals

General Comments

    Subpart H modifies current MSPB appellate procedures for certain 
adverse actions taken under subpart G. Such changes include 
establishment of streamlined appellate procedures, providing for 
Department review of initial decisions, limited discovery, summary 
judgment, and expedited timeframes. Commenters, including labor 
organizations participating in the meet-and-confer process, objected to 
the provisions in subpart H, stating that DoD does not have the 
authority to make changes in MSPB appellate procedures. They argued 
that there was no evidence that current procedural protections or the 
decisions of an arbitrator or MSPB jeopardize national security/defense 
and there is no need to improve efficiency of the MSPB process. They 
asserted that it is not necessary for MSPB to provide greater deference 
to DoD than to any other agency. We disagree. Section 9902(h) expressly 
authorizes the Secretary to establish an appellate process for 
employees covered by NSPS, including establishing legal standards and 
procedures, including standards for applicable relief. In addition, 
section 9902(d) makes waivable the current statutory requirements for 
the appeals process. Section 9902(b)(5) also states that the system 
established under section 9902(a) is not to be limited by any law or 
authority that is waived in the NSPS regulations. The modifications in 
this subpart were made following consultation with MSPB officials, as 
called for in the enabling statute.
    In addition, some commenters argued that any modification of 
current rules regarding an employee's ability to make and have an 
allegation of discrimination reviewed was beyond the authority of NSPS. 
We believe these regulations do not impermissibly modify existing EEO 
procedures and fully retain the right of employees to have allegations 
of discrimination fully and fairly reviewed and adjudicated. Under 
these regulations, employees can raise allegations of discrimination as 
part of any appeal or grievance of an adverse action and, if 
dissatisfied with the final DoD decision, obtain full MSPB and EEOC 
review of such allegations.
    Commenters also stated that the current personnel system already 
allows separation or removal to be effected rapidly if in the interest 
of national security under 5 U.S.C. 7532. Section 7532 is limited in 
its scope regarding the basis for action and employee appeal channels; 
therefore we don't believe it appropriately addresses the broad range 
of offenses and penalties that are necessary to ensure the well 
disciplined workforce needed to carry out the Department's mission.
    Finally, many commenters objected to the Department's review of AJ 
decisions, questioning the neutrality and impartiality of the review 
process, as well as its negative impact on due process. While the 
Department has the authority to review initial AJ decisions, that 
authority will be limited to those decisions for which either party has 
timely filed a request for review. The Department may remand, modify or 
overturn the AJ's decision only based on the criteria in Sec.  
9901.807(g)(2)(ii)(B) of these final regulations.
    We will continuously monitor and evaluate the appeals process to 
ensure that these changes are fair.

Other Comments on Specific Sections of Subpart H

Section 9901.802--Applicable Legal Standards and Precedents

    These regulations state that in applying existing legal standards 
and precedents, MSPB and arbitrators are bound by the legal standard 
set forth in Sec.  9901.107(a)(2). Section 9901.107(a)(2) provides that 
these regulations must 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, effective day-to-day 
accomplishment of this mission as defined by the Secretary; DoD's and 
OPM's interpretation of NSPS regulations must be accorded great 
deference. During the meet-and-confer process, the participating labor 
organizations recommended that we delete the requirement that the MSPB 
consider DoD's mission when applying legal standards not inconsistent 
with this subpart. Some commenters also recommended DoD and OPM not be 
given deference in their interpretations of NSPS regulations.
    The authority to require MSPB to give deference to DoD's and OPM's 
interpretation of NSPS regulations derives from 5 U.S.C. 9902, 
including section 9902(h)(3), which authorizes establishment of legal 
standards. It is also based on longstanding standards of legal 
interpretation, which provides that considerable weight be given to an 
agency's interpretation of its own regulations. Accordingly, we have 
not modified this section. We believe that the Department's and OPM's 
interpretation of the regulations in part 9901 must be given great 
deference to ensure that appropriate recognition is given to 
accomplishment of the Department's national security mission when 
appeals decisions are made. Also during the meet-and-confer process, 
the participating labor organizations recommended that we modify the 
language of this section to include references to 5 U.S.C. 2301 and 
9902(h)(2) and (3). The suggested additional citations are not 
necessary as the law and citations noted in this subpart adequately 
provide for all requirements.

Section 9901.803--Waivers

    This section specifies the provisions of title 5, U.S. Code, that 
are waived for employees covered by the NSPS appeals process 
established under subpart H. This section also specifies that the 
appellate procedures in subpart H replace those of the Merit Systems 
Protection Board (MSPB) to the extent MSPB's procedures are 
inconsistent with these regulations, and that MSPB must follow these 
regulations until it issues conforming regulations. Some commenters 
recommended we delete the reference to modification of 5 U.S.C. 7702 
stating this was beyond the authority of NSPS. During the meet-and-
confer process, the participating labor organizations also voiced 
concern that NSPS does not give DoD the authority

[[Page 66171]]

to waive or modify discrimination complaint procedures.
    The Department's authority to modify 5 U.S.C. 7702 is found in 5 
U.S.C. 9902(h), which authorizes the establishment of a new appeals 
process. Consistent with section 9902(h)(7), we may modify or adapt the 
mixed case process in these regulations, provided employee rights and 
remedies are preserved. The final regulations modify some of the 
procedures for processing mixed cases, while preserving the rights and 
remedies as required by Sec.  9902(h)(7). These rights include the 
right to seek EEOC review of an MSPB decision in a mixed case pursuant 
to 5 U.S.C. 7702(b), which has not been modified. They also preserve 
judicial review in such cases. Consistent with the enabling 
legislation, these regulations assure due process and appropriately 
streamline the procedures of the appeals process dealing with mixed 
cases.

Section 9901.804--Definitions

    During the meet-and-confer process, the participating labor 
organizations recommended that we amend or delete a number of 
definitions, such as ``request for review'' and ``mandatory removal 
offense.'' We did not accept these recommendations because the proposed 
changes would alter the essence of underlying procedural concepts that 
are critical to the successful implementation of NSPS.

Section 9901.805--Coverage

    This section of the proposed regulation provided that the appeals 
process covers employee appeals of certain adverse actions taken under 
subpart G. Commenters and labor organizations participating in the 
meet-and-confer process suggested we add reduction in force (RIF) and 
demotions as covered actions. Commenters also recommended that 
suspensions of 14 days or less be a covered action. Commenters, as well 
as labor organizations participating in the meet-and-confer process, 
stated that exclusion of RIF actions from NSPS coverage under the NSPS 
appeals process contradicts Sec.  9901.611 which states that RIF 
actions are appealable to the MSPB under 5 CFR 351.901. We disagree 
that these are contradictory. The provisions indicate that RIF actions 
are not included as appealable actions under NSPS but are independently 
appealable to the MSPB. We believe the NSPS appeal system should be 
limited to those actions set forth in the enabling legislation. 
Inclusion of additional actions (such as suspensions of 14 days or 
less) goes beyond the intent of the enabling legislation. ``Demotions'' 
in NSPS are covered by the concept of reduction in pay band (or 
comparable reduction), which is covered under Sec.  9901.805(a).
    One commenter recommended that we specify when appeal rights are 
granted or denied based on failure to maintain a condition of 
employment and explain why appeal rights vary depending on whether the 
condition of employment was specified at the time of appointment or 
subsequent to appointment. The applicability of appeal rights when an 
adverse action is based on failure to maintain a condition of 
employment requires an individualized assessment of an employee's 
status and the specific facts of the case. It is not possible to 
specify a broad rule that would cover all such actions.

Section 9901.806--Alternative Dispute Resolution

    This section of the proposed regulations encouraged the use of 
alternative dispute resolution (ADR) methods to address employee-
employer disputes arising in the workplace, including those which may 
involve disciplinary actions. The proposed regulations also recognize 
that these methods may be subject to collective bargaining to the 
extent permitted by subpart I of part 9901. During the meet-and-confer 
process, participating labor organizations endorsed the concept. 
Commenters endorsed the concept of ADR and urged a stronger statement 
on the use of ADR. Commenters suggested that we establish ombudsman 
offices at each component in order to follow the ``best practices'' 
noted elsewhere by the Government Accountability Office, and to 
facilitate resolution of disputes at the lowest possible level. We 
believe that the proposed regulations adequately stress the importance 
of ADR and have made no changes to this section.

Section 9901.807--Appellate Procedures

    This section established streamlined appellate procedures and 
provided for such things as Department review of initial decisions, 
limited discovery, summary judgment, and expedited timeframes. 
Commenters and labor organizations participating in the meet-and-confer 
process stated that this section of the proposed regulations was not 
organized well and was difficult to follow. We agree and have 
reorganized the material as indicated below with the previous section 
designation in brackets. For example, ``9901.807(a)(1) [9901.807(a)]'' 
indicates that ``9901.807(a)(1)'' is the new designation in the final 
rules and ``[9901.807(a)]'' is the old designation in the proposed 
rules. Some commenters recommended that the entire section be deleted, 
stating DoD does not have the authority to make the changes set forth 
in this section. We disagree. Section 9902(h) expressly authorizes the 
Secretary to establish an appeals process. In addition, Sec.  9902(d) 
expressly authorizes the waiver of the current statutory appeals 
process. Commenters noted that Sec.  9901.807 does not include a 
provision for MSPB to re-open a decision of its AJs. This is consistent 
with the enabling legislation which limits MSPB review to the 
Department's final decisions which have been appealed to the Board and 
thus does not authorize Board reopening of initial AJ decisions. 
Adequate and appropriate review of AJ decisions will result from the 
Request for Review (RFR) and Petition for Review (PFR) processes.

Section 9901.807(a)(1) [9901.807(a)]

    There was no change in this provision. It was merely redesignated.

Section 9901.807(a)(2)(i) [9901.807(b)(1)]

    There was no change in this provision. It was merely redesignated. 
This provision of the proposed regulations is introductory in nature. 
The actual changes are set forth in later provisions. While there was 
discussion during the meet-and-confer process and comments on the 
system elements, we will discuss those comments in the applicable 
sections.

Section 9901.807(a)(2)(ii) [9901.807(b)(2)]

    This provision provides that the AJ will adjudicate appeals and 
deliver his or her decision to each party and to OPM. During the meet-
and-confer process, participating labor organizations recommended that 
NSPS processing rules be deleted and that the full MSPB have overall 
and exclusive authority in adjudicating appeals. We disagree. As 
written, the regulations meet the goals of ensuring appropriate 
deference to DoD's decisions and penalty determination in adverse 
actions and streamlining the way such cases are handled while 
continuing to preserve and safeguard employee due process protections.

Section 9901.807(a)(3) [9901.807(e)]

    This provision allows OPM to participate or intervene in the appeal 
at any time it believes that an erroneous decision may result which 
will have a substantial impact on civil service law, rule, regulation 
or policy directive.

[[Page 66172]]

During the meet-and-confer process, participating labor organizations 
stated that this provision should be deleted. We do not agree with the 
recommendation, as we believe this provision is consistent with current 
law and is necessary for OPM to carry out its mission.

Section 9901.807(a)(4)(i) and (ii) [9901.807(g)(1) and (2)]

    There were no changes in these provisions. They were merely 
redesignated.

Section 9901.807(a)(5) [9901.807(j)]

    There was no change in this provision. It was merely redesignated.

Section 9901.807(a)(6) [9901.807(k)(1)]

    This provision sets the time limit for an employee to file an 
initial appeal through the NSPS appeal system at 20 days. Commenters 
noted that EEOC regulations provide complainants 30 days to file an 
appeal with the MSPB after agency decision in mixed cases. Other 
commenters and labor organizations during the meet-and-confer process 
expressed concern because the employees were given less time in the 
appeal process. In regard to the comments on EEOC regulations, we note 
that the 30-day period provided in EEOC regulations simply reflects the 
Commission's adoption of the time limit provided in the Board's current 
regulations.

Section 9901.807(a)(7) [9901.807(k)(2)]

    This provision covers disqualification of a party's representative 
at any time during the appeal process. During the meet-and-confer 
process, participating labor organizations stated that this provision 
should be deleted. Commenters stated it was not necessary to provide 
for procedures to disqualify a party's representative. Some commenters 
expressed concern that there are no listed criteria for 
disqualification. We believe this provision is necessary in order to 
ensure an orderly and fair adjudication. Decisions regarding 
disqualification will be at the discretion of the AJ and should be 
consistent (to the degree not inconsistent with these regulations) with 
current Board rules at 5 CFR 1201.31(b) which provide criteria under 
which a representative may be disqualified. One commenter requested 
that we clarify that Department representatives will avoid the 
appearance of conflict of interest, but may not be disqualified solely 
on the basis of having advised management on the processing of 
underlying matters where such advice was within the scope of their 
responsibilities. For purposes of these regulations, we believe the 
proposed language adequately covers the disqualification issue.

Section 9901.807(b) [9901.807(k)(4)]

    This provision allows the AJ to suspend processing a case only if 
jointly requested by the parties. During the meet-and-confer process, 
participating labor organizations recommended that a joint case 
suspension request requirement be deleted. Commenters recommended 
allowing the AJ to suspend the case if a single party shows good cause 
since appellants might need extra time to hire an attorney or locate 
witnesses. We believe the proposed regulations provide sufficient time 
to prepare a case, provide an appropriate means to suspend a case, and 
comport with the goals of NSPS. No changes have been made to this 
section.

Section 9901.807(c)(1) and (2) [9901.807(i)(1) and (2)]

    These provisions discuss settlements. They prohibit the presiding 
MSPB AJ from requiring settlement discussions. Where the parties agree 
to participate in formal settlement discussions, these discussions will 
be conducted by an official other than the presiding AJ. During the 
meet-and-confer process, participating labor organizations recommended 
deletion of Sec.  9901.807(i)(1). Commenters were in favor of 
settlement discussions; however, some believe that the proposed 
regulations do not encourage such discussions. Some commenters stated 
that settlement discussions being conducted by the presiding AJ allows 
the AJ latitude in this area to facilitate settlement and eliminate 
additional formal settlement procedures. The regulations do encourage 
settlement; however, we believe strongly that settlement should be 
completely voluntary and based on the parties' individual interests. 
Also, we believe that settlement proceedings should be conducted by an 
official who is not adjudicating the case to avoid actual or perceived 
conflicts of interest on the part of MSPB adjudicating officials. We 
have made no change in this section.

Section 9901.807(d)(1), (2), and (3) [9901.807(k)(3), (i), (ii), and 
(iii)]

    These sections modify discovery procedures by placing limits on the 
extent of discovery. During the meet-and-confer process, participating 
labor organizations stated that the limits are too restrictive and may 
be easily abused. Commenters stated the limits would prevent adequate 
methods to gather evidence necessary for the case and that the limits 
are arbitrary, placing the employee at a disadvantage. Commenters 
stated the regulations are unfair, hamper due process, and limit 
employee defense. We believe these limits will usually allow adequate 
methods for discovery of evidence, are fair, and do not violate due 
process. Additionally, we have clarified in these regulations that the 
AJ may grant additional discovery for necessity and good cause. One 
commenter requested that we clarify whether the new limitations on 
discovery replace or augment the existing motion to compel process. To 
the extent existing rules on discovery, including provisions regarding 
motions to compel process, are inconsistent with these new limitations 
on discovery, the existing provisions are modified. Another commenter 
requested that we limit the number of all requests for production to a 
total of 50 per case. The regulations already limit the number of 
requests for production to 25 per pleading. However, the AJ may grant a 
party's motion for additional discovery upon a showing of necessity and 
good cause. We believe that this provides appropriate limits on 
requests for production while providing an avenue for additional 
discovery if appropriate. Therefore, we choose not to adopt the 
suggestion.

Section 9901.807(e)(1), (i), (ii), and (iii) [9901.807(d)(1), (i), 
(ii), and (iii)]

    These provisions describe the standard of proof, which must be met 
by the Department for a decision to be sustained. Preponderance of the 
evidence is the single standard of proof under NSPS. Commenters have 
stated the burden of proof for employees has been increased; however, 
this is inaccurate. The only change in the level of proof is that the 
regulations adopt a single burden of proof--preponderance of the 
evidence--for cases based on performance and/or misconduct. (Under 
current law, agencies must only meet a substantial evidence burden of 
proof in performance cases taken under chapter 43 of title 5. This is a 
lower burden than preponderance of the evidence.) The burden remains 
the same for an appellant. Other commenters stated that the differences 
between conduct and performance should be acknowledged by maintaining 
the previous standard (``substantial evidence'') for performance cases. 
We do not believe the differences warrant different standards and note 
that under current title 5 provisions, actions taken under chapter 75 
based on unacceptable performance are subject to the higher standard of 
proof. The single (``preponderance'') standard for all

[[Page 66173]]

cases, whether taken for reasons of performance, or conduct, or a 
combination of both, simplifies the appeals process and assures 
consistency without compromising fairness or burdening the employee. No 
changes have been made to these provisions.

Section 9901.807(e)(2) [9901.807(k)(5)]

    This provision covers the AJ's ability, when some or all materials 
facts are not in dispute, to issue an order to limit the scope of the 
hearing or issue a decision without holding a hearing. During the meet-
and-confer process, participating labor organizations stated that they 
accepted the use of summary judgment where the facts of the case are 
not in dispute; however, they recommended the AJ not be able to render 
such a decision on his or her own initiative. They also recommended 
that credibility determinations should not be made absent a hearing. 
Commenters stated that the burden of proof for the employee has been 
increased before the employee is allowed a hearing. Other commenters 
stated a hearing should be held if a material fact is in dispute and 
there is a credibility question. Some commenters also stated summary 
judgments have not worked in other forums. Additionally, there were 
concerns that the employee entitlement to a hearing has been 
diminished. We did not revise this provision. We believe that the AJ 
should have the authority to rule in this area on his or her own 
initiative when some or all material facts are not in dispute. Allowing 
summary judgment when no material facts are in dispute eliminates the 
requirement for unnecessary and time-consuming hearings, expediting the 
process for both parties. Similarly, when a hearing is appropriate, 
limiting the scope of such hearing to matters in dispute serves the 
interests of all parties. Both of these measures will streamline the 
appeals process without compromising due process. Summary judgments are 
a well-established and effective way of fairly handling cases where 
material facts are not in dispute. When material facts are in dispute, 
the normal hearing process will be followed.

Section 9901.807(f)(1) [9901.807(k)(7)]

    This provision covers the 90-day time limit in which an AJ must 
make an initial decision. During the meet-and-confer process, 
participating labor organizations stated that they accepted expediting 
the process to require that decisions be issued within 90 days by the 
MSPB AJ. Commenters expressed concern these time limits, with no 
provisions for extension, will result in inadequate time for case 
preparation, settlement discussions, and discovery, and fail to take 
into account unavoidable witness unavailability. Other commenters 
suggested that this section be modified to require AJs to issue 
decisions within 30 or 45 days of the last day of a hearing, or the 
last written response to a summary judgment motion. We did not revise 
this provision as we believe the 90-day time frame provides ample time 
for the AJ to make a fair decision and for appropriate pre-hearing and 
witness arrangements. The new time frame also facilitates the efficient 
and expeditious resolution of an appeal without impairing due process 
protections.

Section 9901.807(f)(2)(i)-(v) [9901.807(k)(6)]

    These provisions cover mitigation of a penalty and require great 
deference to the Department's penalty determination. While mitigation 
is allowed, it is allowed under a limited standard. The labor 
organizations participating in the meet-and-confer process objected to 
the deference being shown to the Department in penalty determination 
and the wholly without justification mitigation standard. They further 
stated that the proposed language placing a standard for review on the 
full MSPB is not permissible and stated that the fact finder or 
reviewing entity should consider the factors as set forth in Douglas v. 
VA, 5 MSPR 280, 305-06 (1981), in determining whether the proposed 
penalty is appropriate. We also received numerous comments expressing 
concern regarding the mitigation standard of wholly without 
justification and the appearance that the Department will have to meet 
a lower threshold to sustain the penalty. Commenters expressed concern 
that MSPB has less latitude to modify decisions and protect employee 
rights. Commenters objected to the fact that adjudicators would be 
required to give deference to the Department's penalty determination. 
Based on these comments and concerns we have reconsidered this 
provision and have removed the full MSPB from coverage by this 
standard. The standards for review for the full MSPB are provided in 5 
U.S.C. 9902(h)(5). We will also consider placing pertinent 
circumstances in an implementing issuance to be used for consideration 
in penalty determination. Furthermore, we agree to revise the ``wholly 
without justification'' standard for MSPB AJs that are used as part of 
the Department's appeals process, as well as arbitrators. Since Sec.  
9901.922(f)(2) broadly provides that arbitrators hearing a matter 
appealable under 5 U.S.C. 7701 or subpart H are bound by the rules in 
part 9901 (which include the standard for mitigation), we have deleted 
the references to arbitrators in Sec.  9901.807(f)(2) as superfluous. 
The standard has been revised to preclude mitigation except when the 
action is ``totally unwarranted in light of all pertinent 
circumstances.'' This standard is similar to that recognized by the 
Federal courts and is intended to limit mitigation of penalties by 
providing deference to an agency's penalty determination. The 
Department has statutory authority to establish new legal standards. 
(See 5 U.S.C. 9902(h)(2).) In this case, the Department is electing to 
adopt a legal standard that meets the need of the Department by 
ensuring deference is provided to the Department's penalty 
determinations along with the requirement that AJs give consideration 
to the Department's national security mission. The Department bears 
full accountability for national security; therefore, it is in the best 
position to determine the most appropriate penalty for misconduct or 
unacceptable performance. In the past, MSPB has exercised considerable 
latitude in modifying agency penalties, sometimes to the detriment of 
DoD's mission. The MSPB AJ and arbitrator may still mitigate penalties 
for all types of offenses, except mandatory removal offenses. The 
intent is to restrict the breadth of their discretion to mitigate 
penalties to only those situations where the penalty is totally 
unwarranted in light of all pertinent circumstances. When mitigating a 
penalty, MSPB AJs and arbitrators must apply the maximum justifiable 
penalty, using the applicable agency table of penalties or other 
internal guidance.

Section 9901.807(f)(3) and (4) [9901.807(d)(2) and (3)]

    These provisions cover the review of charges and performance 
expectations. They provide that neither the MSPB AJ nor the full MSPB 
may reverse the Department's action based on the way in which the 
charge is labeled or the conduct characterized, provided the employee 
is on notice of the facts sufficient to respond to the factual 
allegations of the charge. Similarly, an MSPB AJ or full MSPB may not 
reverse the Department's action based on the way a performance 
expectation is expressed, provided the performance expectation would be 
clear to a reasonable person. The labor organizations participating in 
the meet-and-confer process stated that the AJ or the full Board should 
have the authority to consider the way in which the charge

[[Page 66174]]

is labeled, the conduct is characterized, or the way the performance 
expectation is expressed in determining whether the agency's penalty is 
appropriate. We received many comments stating that the elimination of 
the requirement to clearly articulate the charge is unfair, does not 
provide the employee sufficient information to prepare a defense, and 
should not be permitted. Other commenters expressed concern over 
whether the AJ would be allowed to mitigate the penalty if the AJ found 
that the stated charge was mischaracterized or mislabeled. These 
commenters also questioned whether ``factual allegations'' meant the 
same as ``basis for the action.'' We did not revise this provision, as 
we believe that as long as the employee has sufficient notice to 
respond to the allegations of a charge, the Department will have 
complied with the notice and due process requirements of these 
regulations. The Department must prove by preponderance of the evidence 
that an action taken against an employee promotes the efficiency of the 
service. Mitigation may also be appropriate in such cases provided it 
meets the standards established in these regulations. Additionally, 
this section requires that performance expectations be clearly conveyed 
in a manner understandable to a ``reasonable person.'' MSPB AJs and the 
full MSPB will judge the Department's expression of performance 
expectations by a ``reasonable person'' standard. These provisions are 
written to eliminate overly technical and legalistic aspects of the 
current appeals process, while preserving employees' due process 
rights.

Section 9901.807(f)(5), (i) and (ii) [9901.807(c), (1) and (2)]

    These provisions covered the granting of interim relief. They 
stated the full MSPB may not grant interim relief until after the 
Department's final decision. During the meet-and-confer process, 
participating labor organizations recommended that interim relief be 
granted by the full MSPB as a matter of course if the AJ finds in favor 
of the appellant. We received comments stating that the enabling 
legislation does not specifically allow DoD to limit the full MSPB's 
authority to grant interim relief in this way. Commenters also stated 
this limitation might impermissibly alter EEO procedures. Commenters, 
including labor organizations during the meet-and-confer process, 
stated DoD should not have discretion to temporarily place an employee 
in a different position when interim relief is ordered by the full 
MSPB. Commenters also questioned what the employee's pay status would 
be while on excused absence. Other commenters recommended we allow the 
AJ to grant interim relief or, in the alternative, establish a 
procedure for interlocutory appeal to allow a stay until the Board 
hears the full case. Commenters objected to attorney fees not being 
paid until a final MSPB decision. We believe the limitation on the AJs' 
authority to grant interim relief is necessary. In addition, it is 
consistent with the enabling legislation, which prohibits granting 
interim relief unless it is specifically ordered by the full Board (5 
U.S.C. 9902(h)(4)). It is premature for the AJ to grant interim relief 
when DoD has filed a request for review. To provide for the efficient 
accomplishment of the mission and to avoid disruption in the workplace, 
DoD should have discretion in determining the placement of an employee 
during the period of interim relief. Explanation of the pay status of 
employees in a period of excused absence is not required because, by 
definition, excused absence is an absence from duty without loss of pay 
and without charge to leave. Finally, the provision relating to 
attorney fees represents no change from current law.

Section 9901.807(f)(6)(i) and (ii) [9901.807(h)(1) and (h)(2)]

    These provisions of the proposed regulations established a new 
standard for recovering attorney fees, which was intended to simplify 
the process. Comments received on the proposed regulations and labor 
organizations, during the meet-and-confer process, argued that the new 
standard was unreasonable, unfair, would discourage employees from 
challenging wrongful terminations, violated the Back Pay Act, and would 
result in uneconomical, piecemeal litigation. After consideration of 
these comments, we have revised the NSPS regulations to retain the pre-
NSPS statutory standard under which such fees may be awarded; 
therefore, all objections to proposed changes have been addressed.

Section 9901.807(g) [9901.807(k)(8)]

    This provision covers the procedures utilized to arrive at the 
Department's final decision in appeals of adverse actions. Commenters, 
and participating labor organizations during the meet-and-confer 
process, stated that the provisions for the RFR process and the 
Department's review of AJ decisions should be deleted from the 
regulations. Commenters also recommended simplifying the process and 
placing deadlines in the Department's review of AJ decisions. Further, 
commenters stated that the RFR process is unwarranted, fails to 
preserve due process protections, and detracts from the goals of 
streamlining the appeals process. These provisions will not be deleted 
from the regulations. Though somewhat detailed, the Secretary is 
expressly authorized by 5 U.S.C. 9902(h) to establish an appeals 
process. The process contained in this regulation is necessary to 
assure that the Department's national security mission is appropriately 
considered in adverse action appeals decisions. The Department will be 
constrained in the exercise of this authority by the provisions of 
Sec.  9901.807(g)(2)(ii). We anticipate that relatively few cases will 
be reviewed by the Department under this authority.

Section 9901.807(g)(1) [9901.807(k)(8)(i)]

    This provision covers who will receive and act on an RFR. During 
the meet-and-confer process, participating labor organizations stated 
that the proposed regulations did not specify the official who would 
remand, modify, or reverse the MSPB AJ's initial decision. We also 
received comments regarding the extension of the strict time frames 
within the NSPS appeals process. DoD will establish the process for 
receiving and acting on an RFR, including time limits for the 
Department to take action on an RFR, in implementing issuances. We have 
clarified that in light of the expedited time frames in the appellate 
process, an extension for the request for review will be granted if a 
good reason for the delay is shown. `

Section 9901.807(g)(2)(i), (ii), (A), (B) and (C) [9901.807(k)(8)(ii), 
(iii), (A), (B), and (C)]

    These provisions cover the RFR process where, under limited 
circumstances, the Department may affirm, remand, modify, or reverse an 
AJ's initial decision for which an RFR has been filed. Commenters and 
labor organizations during the meet-and-confer process stated that this 
review authority is arbitrary, capricious and a violation of due 
process. Comments were received regarding additional complexity, 
expense, and length added to the appeal process by the internal DoD 
review. We agree that the internal appellate process must be credible 
and preserve due process. It preserves due process for reasons stated 
in the general comments on adverse actions and appeals. To that end, 
the Department is committed to establishing an internal entity that 
adheres to merit system principles. This process provides the 
Department the necessary authority to

[[Page 66175]]

review initial AJ decisions to ensure that such decisions interpret 
NSPS and these regulations in a way that recognizes the critical 
mission of the Department and to determine which of those cases are of 
a precedent-setting nature. Although the process may be lengthened in 
some aspects, we have gained efficiencies and mission-related benefits 
in other areas that more than offset any potential increases in time or 
costs at any step of the process. Moreover, we anticipate relatively 
few cases will be reviewed by DoD, since DoD may reverse or modify 
initial AJ decisions only under the limited criteria specified in Sec.  
9901.807(g), thus minimizing any increase in processing time.
    Some commenters questioned two of the bases for modifying or 
reversing an AJ decision: The Department's national security mission 
and conflict with Governmentwide rules. These commenters stated that 
impact on national security mission alone, regardless of the 
appellant's guilt or innocence, would not be grounds to modify or 
reverse an AJ decision. The second point the commenters made was that 
the Department lacked expertise to interpret Governmentwide 
regulations. We recognize that the wording of the regulation regarding 
the Department's modification or reversal of an AJ's decision based on 
national security fails to specifically reference the employee's guilt 
or innocence. However, an employee's culpability is a prerequisite to 
sustaining an action. Additionally, the requirement for all actions to 
promote the efficiency of the service and further review by the full 
MSPB provide additional safeguards for employees. We believe the 
Department has sufficient expertise to determine compliance with 
Governmentwide regulations.
    Lastly, we received comments regarding vague remand provisions and 
lack of time for the AJ to make a decision if a summary judgment was 
remanded with a direction to hold a hearing. We will establish 
timelines and remand provisions for the Department's review of the AJ's 
decision in an implementing issuance. Further, we have revised the 
regulation to allow the AJ more time, 45 days versus 30 days, to make a 
decision in those instances where they are directed to hold a hearing 
in a case involving summary judgment.

Section 9901.807(g)(3)(A) and (B) [9901.807(k)(8)(ii), (A) and (B)]

    This provision covers the precedential effect of a Department 
decision. Commenters and labor organizations participating in the meet-
and-confer process stated that the Department should not be allowed to 
determine which cases would set precedent, and they recommended 
revising the regulation to state that any AJ decision is precedential 
unless it is reversed or modified by the full MSPB. Commenters stated 
that Departmental decisions should be considered precedential even if 
subsequently overturned by the full MSPB. We believe the Department 
should be able to determine that some Department decisions are 
important enough to serve as precedent even though not acted upon by 
the full MSPB. Further, we believe that the Department must be governed 
by the rulings of the full MSPB, if the Department's decision is 
reversed or modified by the full MSPB, unless overturned by a court.

Section 9901.807(g)(4) [9901.807(k)(8)(ii)]

    This provision covers the publication of precedential decisions. 
During the meet-and-confer process, participating labor organizations 
stated that there were not any details regarding the publication of 
decisions. Commenters echoed this concern. We agree with the labor 
organizations and have added clarifying language regarding publication 
of DoD precedential decisions, the details of which will be provided in 
implementing issuances.

Section 9901.807(h)(1) [9901.807(f)]

    This provision provides for filing for a Petition for Review by a 
party or the Director of OPM. During the meet-and-confer process, 
participating labor organizations stated that the Department should 
delete the provision which allows OPM to petition MSPB for review. We 
disagree. While OPM is responsible for providing guidance and 
assistance to DoD in developing a new human resources management 
system, it also has responsibility for protecting Governmentwide 
institutional interests regarding the civil service system. Therefore, 
we believe that OPM must have the authority to act if it believes a 
decision will have substantial impact on civil service law, rule, 
regulation, or policy directive. One commenter requested that we 
clarify whether this provision eliminates MSPB's right to reopen an 
appeal on its own motion. In accordance with Sec.  9901.807, MSPB may 
only review those decisions for which a petition for review has been 
filed by the Department, OPM, or an employee.

Section 9901.807(h)(2)(i), (ii), and (iii)(A)(B)(C) and (iv) 
[9901.807(k)(9) and (10)]

    These provisions cover the petition for review process to the full 
MSPB. Further, these provisions cover the standards for the full MSPB 
review as stated in 5 U.S.C. 9901(h). During the meet-and-confer 
process, participating labor organizations accepted expediting the 
process to require decisions be issued within 90 days by the full MSPB. 
However, these provisions have been clarified by including the review 
standards as stated in 5 U.S.C. 9901(h).

Section 9901.807(h)(3) [9901.807(k)(11)]

    This provision covers OPM's request for reconsideration of an MSPB 
decision. During the meet-and-confer process, participating labor 
organizations recommended that this provision be deleted. We did not 
accept this recommendation because this provision is consistent with 
current law. This provision is necessary for OPM to carry out its 
mission, which includes protecting Governmentwide institutional 
interests regarding the civil service system.

Section 9901.807(h)(4) [9901.807(l)]

    This provision addresses the failure of MSPB to meet established 
deadlines and the reporting requirements. Commenters recommended that 
this reporting requirement be deleted while other commenters 
recommended that MSPB submit quarterly or annual reports. We did not 
accept the recommendations to change the provisions as we consider the 
timelines placed on MSPB as being an integral part of streamlining the 
Department's appellate process. This reporting requirement is only 
imposed if a deadline is missed. We are confident that MSPB will 
rarely, if ever, fail to meet the required deadlines. As a result, any 
report required by this provision will rarely be necessary.

Section 9901.807(i) [9901.807(m)]

    This provision covers the Department's authority to seek judicial 
review of MSPB decisions. We made a technical correction to delete the 
reference to the Department seeking reconsideration by MSPB of a final 
MSPB decision because the Department has that ability under current 
MSPB rules.

Section 9901.808--Appeals of Mandatory Removal Actions

    This provision covers appeals of mandatory removal actions (MROs). 
It states that only the Secretary may mitigate the penalty for a 
sustained MRO. Additionally, it states that if the

[[Page 66176]]

MSPB AJ or the full MSPB sustains an employee's appeal based on a 
finding that the employee did not commit an MRO, the Department is not 
precluded from subsequently proposing an adverse action based in whole 
or in part of the same or similar evidence. During the meet-and-confer 
process, participating labor organizations stated that this provision 
should be deleted in its entirety. Commenters and labor organizations 
in the meet-and-confer process stated that the Secretary should not be 
the only authority to mitigate MROs and that limiting the full Board's 
ability to mitigate MROs is contrary to the enabling legislation. 
Commenters also stated that the proposed provisions inappropriately 
give DoD ``two bites at the apple'' when an action is not found to 
amount to an MRO since the Department may take a subsequent action on 
the same evidence. Other commenters were concerned that an employee 
might not be entitled to attorney fees even if the employee prevailed 
on the MRO issue, but failed in prevailing in a subsequent action based 
on the same facts. We disagree that this provision should be deleted. 
The Secretary is expressly authorized under 5 U.S.C. 9902(h) to 
establish appeals procedures and standards for relief, including 
standards for mitigation of penalties. This process is necessary to 
support the national security mission of the Department. We do agree, 
however, that the enabling legislation allows mitigation of MRO 
penalties by the full MSPB and have modified the provision accordingly. 
We disagree that it is inappropriate for the Department to have the 
ability to take a subsequent action if the offense is found to not be 
an MRO. Though an employee's misconduct may not be found to qualify as 
an MRO, it does not mean that the misconduct should not be addressed. 
Subsequent proposal of an adverse action based in whole or in part on 
the same or similar evidence is consistent with what can occur today 
under current law. Finally, we believe attorney fees will be fairly 
awarded based on the latest change to these regulations.

Section 9901.809--Actions Involving Discrimination

    This provision outlines the processes for handling appeals of 
actions in which discrimination is alleged. During the meet-and-confer 
process participating labor organizations stated that this provision 
should be deleted because it inappropriately modifies processes for 
discrimination claims. We disagree. Section 9902(h) expressly 
authorizes the Secretary to establish legal standards and procedures 
for employee appeals. Consistent with section 9902(h)(7), we may modify 
or adapt the mixed case process in these regulations, provided employee 
rights and remedies are preserved. The final regulations modify some of 
the procedures for processing mixed cases, while preserving the rights 
and remedies as required by section 9902(h)(7).
    Some commenters stated this provision is unclear and suggested that 
we delete the provision or rewrite it. Several commenters stated that 
the provision should be modified to eliminate potential confusion over 
language that appears to require the Department to forward to MSPB a 
non-appealed action. We agree with this comment and have amended the 
regulations to provide that an appellant may choose to pursue his or 
her allegation of discrimination even when no PFR is filed with the 
Board. In such cases, the appellant can request the Department to refer 
the discrimination issue to the Board, the Board will then issue a 
final decision on the discrimination allegation which may then be 
pursued to EEOC or district court. Some commenters recommended we 
delete the reference to modifying 5 U.S.C. 7702 stating this was beyond 
the authority of NSPS. We believe the proposed regulations do not 
impermissibly modify existing EEO rights and remedies. To clarify this 
section, we have modified some of the proposed language without 
altering any of the proposed intent.

Subpart I--Labor-Management Relations

General Comments

    Commenters, including, labor organizations participating in the 
meet-and-confer process, objected to subpart I in its entirety arguing 
that Congress did not authorize the Secretary and Director to modify 5 
U.S.C. 71 beyond providing for bargaining above the level of unit 
recognition and the establishment of a new independent third party to 
review and resolve labor management disputes. We disagree. In enacting 
chapter 99, Congress expressly recognized the need for the Department 
to design a labor relations system that both addresses the unique role 
that the Department's civilian workforce plays in supporting the 
Department's national security mission and allows for a collaborative 
issued-based approach to labor management relations. The labor 
relations system established in subpart I does this by creating a new, 
tailored approach to labor relations. While the scope of bargaining is 
reduced in some areas, such as management rights, to enable the 
Department to better utilize its civilian workforce to support rapidly 
changing national security challenges, such as the Global War on 
Terrorism and supporting humanitarian assistance missions here and 
abroad, employee representatives are given opportunities to participate 
in new areas that have a substantive impact on the daily lives of the 
workers they represent. However, through continuing collaboration 
(Sec.  9901.107), employee representatives will have the opportunity to 
participate in the planning, development, and implementation of the 
Department's implementing issuances, which will cover subjects ranging 
from the pay and performance management systems to staffing and 
classification.
    The labor relations system is consistent with the general 
parameters Congress provided, including the process for involving 
employee representatives (see 5 U.S.C. 9902(m)(3) and (4)). It mandated 
that the new system may not expand the scope of collective bargaining 
beyond the scope of bargaining available today under chapter 71, even 
where provisions of title 5 are waived or waivable (5 U.S.C. 
9902(m)(7)), and required that employees be authorized to organize and 
bargain collectively within the framework established in chapter 99, 
that is, within the framework of a system that promotes a collaborative 
issue-based approach to labor relations and which is developed, 
established, and implemented to enable the Department's civilian 
workforce to better support the Department's national security mission 
(5 U.S.C. 9902(b)(4)).
    These commenters also argued that there is no legal authority to 
invalidate provisions in collective bargaining agreements with 
implementing issuances or issuances. Again, we disagree. First, 
Congress authorized the Department to establish and implement the HR 
system by providing an alternative to collective bargaining for 
involving employee representatives in the planning, development, and 
implementation of that system and making this the exclusive process for 
their involvement (5 U.S.C. 9902(f)). It would be impossible to 
implement the HR system authorized by Congress without overriding 
conflicting provisions of existing collective bargaining agreements.
    Moreover, in taking the steps necessary to establish and adjust the 
labor relations system, Congress specifically recognized that the 
provisions of this system will supersede existing collective bargaining 
agreements covering Department employees and negotiated pursuant to

[[Page 66177]]

the provisions of chapter 71 except as otherwise determined by the 
Secretary (5 U.S.C. 9902(m)(8)). The proposed regulations stopped well 
short of this authority by providing for a process that would not 
supersede collective bargaining agreements in their entirety. Instead, 
the proposed regulations provided a much more constrained approach, 
providing only that those specific provisions of collective bargaining 
agreements conflicting with these NSPS regulations or NSPS implementing 
issuances would be superseded. This very narrow authority is essential 
to enable the Department to establish and implement one NSPS across the 
Department. Absence of this authority would effectively defeat the 
intent of Congress by denying the Department the ability to have a 
single HR system to support the Department's national security mission.
    During the meet-and-confer process, it became clear that there was 
confusion over which type of issuance would supersede conflicting 
provisions of collective bargaining agreements. Some commenters, and 
labor organizations participating in the meet-and-confer process, 
recommended that collective bargaining agreements should not be 
superseded before their expiration. Participating labor organizations 
effectively argued that the Department did not need the authority to 
immediately supersede collective bargaining provisions with issuances 
not implementing NSPS. We agree and have amended the final regulations 
to provide that conflicting collective bargaining agreement provisions 
will not immediately be superseded by issuances, although such 
provisions must be brought into conformance with the issuance upon 
expiration of the agreement or renegotiation of the provision during 
the term of the agreement.
    However, to ensure consistent implementation of NSPS across 
organizations with representation by different bargaining units, we 
continue to believe that implementing issuances must take effect 
immediately and thus supersede any conflicting provisions of collective 
bargaining agreements for NSPS-covered employees. While DoD plans to 
implement the labor relations system DoD-wide immediately, the HR 
system will be implemented in spirals. The implementing issuances for 
the HR system will only apply to employees who are covered by the NSPS 
HR system.
    Commenters, including labor organizations during the meet-and-
confer process, also recommended that the design and implementation of 
every aspect of the proposed NSPS, including the pay, performance, and 
classification system and appeals process, be subject to collective 
bargaining. Congress expressly prohibited expanding the scope of 
collective bargaining in 5 U.S.C. 9902(m)(7) which provides that 
nothing in section 9902 will be construed to expand the scope of 
bargaining with respect to provisions in title 5 that may be waived, 
modified, or otherwise affected under section 9902. In lieu of 
bargaining, Congress charged OPM and DoD to establish the mechanism for 
continuing involvement of employee representatives in 5 U.S.C. 
9902(f)(1)(d) and (m)(2). With this in mind, we provided a number of 
mechanisms to ensure the substantive involvement of labor organizations 
in such things as the development of implementing issuances, the 
administration of the Department's new pay system, and the nomination 
of members to the National Security Labor Relations Board (NSLRB or 
Board). Other concerns related to the scope of bargaining are addressed 
in the discussion of the related sections of subpart I that follow.
    We also expressly provided two specific mechanisms to address the 
mandate that the labor relations system should allow for a 
collaborative, issue-based approach to labor relations. National level 
bargaining, as provided for in this regulation, and which is expressly 
authorized in the enabling legislation (5 U.S.C. 9902(g)), allows for 
an issue-based approach to addressing matters of significance to the 
Department as a whole. Multi-unit bargaining, as provided for in these 
regulations, allows for a collaborative, issue-based approach to 
addressing matters of interest to specific communities of interest 
within DoD, such as military installations that house multiple 
organizations and multiple bargaining units.

Other Comments on Specific Sections of Subpart I

Section 9901.901--Purpose

    The proposed regulation restates the enabling legislation's purpose 
to provide DoD and OPM with a labor-management relations system that 
addresses the unique role that Department employees have in supporting 
the Department's national security mission and to promote a 
collaborative issue-based approach to labor management relations. In 
their comments and during the meet-and-confer process, participating 
labor organizations recommended that we include in this section a 
statement that labor organizations and collective bargaining are in the 
public interest, consistent with the enabling legislation's 
preservation of collective bargaining rights.
    We have decided to retain the originally proposed language, while 
adding an express reference to the collaborative issued-based approach 
authorized by the enabling legislation. This section of the regulations 
recognizes and stresses the fundamental purpose underlying the enabling 
legislation and the statutory mandate to build a flexible HR system 
that supports the unique mission of DoD and the role of DoD civilian 
employees as a critical part of the Department's Total Force. 
Consistent with the enabling legislation, the labor relations system 
specifically recognizes the right of employees to organize and bargain 
collectively subject to limitations established by law, including these 
regulations, applicable Executive orders, and any other legal 
authority.

Section 9901.902--Scope of Authority

    A number of commenters, including labor organizations participating 
in the meet-and-confer process, presented their views that the enabling 
legislation did not authorize the Department and OPM to modify 
provisions of 5 U.S.C. chapter 71. We disagree. The enabling 
legislation authorizes the Secretary, together with the Director, to 
establish and adjust a labor relations system in support of the overall 
HR system notwithstanding the provisions of the current system, as set 
forth in chapter 71 (5 U.S.C. 9902(d)(2) and 5 U.S.C. 9902(m)(1) and 
(2)). In addition, as discussed in General Comments, Congress provided 
the parameters for that system, including, for example, prohibiting the 
expansion of the scope of bargaining; requiring that the system address 
the unique role that the Department's civilian force work plays in 
supporting the Department's national security mission; authorizing the 
system to allow for a collaborative issue-based approach to labor 
management relations; requiring that employees be authorized to bargain 
collectively, as provided for in chapter 99 (not as provided for in 
chapter 71); mandating that the system provide for third party review 
of decisions; and authorizing the system to utilize national level 
bargaining (an authority separately established in 5 U.S.C. 9902(g)).

Section 9901.903--Definitions

    In their comments and during the meet-and-confer process, 
participating labor organizations recommended that the current 
definition of ``conditions of

[[Page 66178]]

employment'' be expanded to include the classification of any position. 
A number of commenters, including labor organizations participating in 
meet-and-confer process, also recommended that we modify the definition 
of conditions of employment to eliminate the exclusion of pay. As a 
general matter, the classification or pay of Federal employees is not 
subject to negotiation today. This restriction is consistent with the 
prohibition on any expansion of the scope of bargaining in 5 U.S.C. 
9902(m)(7). Therefore, we have not adopted this suggestion.
    Some commenters, including labor organizations participating in 
meet-and-confer process, also raised concerns that the revised 
definition of ``confidential employee'' was overbroad and could be 
subject to misapplication. They recommended that we retain the 
definition of ``confidential employee'' contained in 5 U.S.C. 7103. We 
agree with the recommendation and have modified the regulation 
accordingly.
    During the meet-and-confer process, the impact of issuances on the 
collective bargaining process and existing collective bargaining 
agreements was discussed. During these discussions it became apparent 
that there was confusion surrounding the distinction between 
``implementing issuances'' and ``issuances.'' To address these 
concerns, we have modified the definitions, including the definition of 
``implementing issuance'' as it appears in subpart A. In addition, we 
have cross-referenced the definitions of both ``issuance'' and 
``implementing issuance'' that appear in subpart A so that the 
differences in the two types of issuances will be readily apparent.
    The labor organizations participating in the meet-and-confer 
process expressed concerns that any manager could simply sign an 
issuance or implementing issuance and thereby invalidate legitimate 
provisions of a collective bargaining agreement. They recommended that 
we restrict the authority to sign such issuances to the Secretary or 
Deputy Secretary alone. We believe that restricting this authority to 
the Secretary or Deputy Secretary is far too restrictive for such a 
large and diverse Department. Therefore, we have revised the language 
to make clear that only the Secretary, Deputy Secretary, Principal 
Staff Assistants, or Secretaries of the Military Departments may sign 
an ``implementing issuance.'' In addition, we have revised the language 
to make clear that only these same officials may sign an ``issuance,'' 
which may limit the scope of collective bargaining as provided for in 
this regulation. This is a very high level of approval and requires 
extensive coordination within the Department. We believe that this 
change addresses the legitimate concerns of the commenters while 
providing the Department the necessary flexibility to meet changing 
national security requirements and to efficiently manage its workforce.
    A number of commenters and labor organizations participating in the 
meet-and-confer process recommended that we not change the definition 
of ``supervisor'' with regard to nurses and firefighters. We agree, and 
have revised the definition of ``supervisor'' as it relates to 
firefighters and nurses to be consistent with what is in chapter 71 
today. Commenters also expressed a range of concerns regarding the 
portion of the definition of ``supervisor'' dealing with supervision of 
members of the armed forces. A number of commenters questioned if the 
intent was that military technicians who supervise members of the 
reserves, such as on drill weekends, would be considered supervisors. 
While we believe this language is clear, the comments lead us to 
believe that it has been misunderstood. This provision only affects 
civilian employees and was intended to apply to those situations where 
a civilian is exercising supervisory control over military members. 
With regard to military technicians who are required to hold military 
reserve positions in addition to their civilian positions, this 
definition would only be applicable while serving in their civilian 
capacity. Thus, an individual who is not a supervisor in his or her 
civilian status, but supervises reservists while in military status, 
would not meet the definition of ``supervisor'' for purposes of subpart 
I. If an individual is exercising supervisory duties and authorities 
over military personnel, as defined in the regulation, we believe that 
individual is a member of the management team, and his or her inclusion 
within a bargaining unit would create an inherent conflict of interest. 
Therefore, we have retained that portion of the definition of 
``supervisor'' with respect to the supervision of members of the armed 
forces.

Section 9901.904--Coverage

    During the meet-and-confer process, the participating labor 
organizations recommended that the labor relations system be phased in 
spirals like the HR system rather than implemented concurrently 
Department-wide. In fact, the participating labor organizations 
asserted that the requirement to phase in the HR system was equally 
applicable to the labor relations system. We disagree. The provisions 
authorizing the establishment of a labor relations system (5 U.S.C. 
9902(m)) are clearly separate from the authority to establish an HR 
system (5 U.S.C. 9902(a)) and the requirement for phased implementation 
in 5 U.S.C. 9902(l) is not applicable to the labor relations system. We 
have therefore not adopted this recommendation.
    We also received comments that certain groups of employees were 
unique and therefore should not be covered by the labor relations 
system. Specifically, commenters suggested that teachers should be 
excluded from coverage as they do not play a combat support role and 
already sign mobility agreements giving management all the flexibility 
it needs. We disagree. Their contributions in teaching the children of 
our service men and women and the civilian employees who support them 
are absolutely critical to the successful accomplishment of the 
Department's national security mission. Thus, the final regulations 
continue to cover teachers in the labor relations system. Another group 
of employees that commenters recommended for exclusion from the labor 
relations system based on their unique characteristics are employees 
covered under the Civilian Mariner or CIVMARS program. While we agree 
that some of the rules governing these employees are unique within the 
Department, these employees are presently covered by chapter 71. Given 
that fact, we find no compelling argument that these employees should 
not now be covered under the labor relations provisions of these 
regulations and we have therefore not adopted the recommendation.
    Some commenters, including participating labor organizations, 
stated that there was no indication in the proposed regulations that 
DoD or OPM responded to the intent of Congress that ``in designing the 
labor relations system the Secretary should take into consideration the 
unique requirements and contributions of public safety employees in 
supporting the national security mission of the Department.'' The 
commenters are referring to the Conference Report on H.R. 1588, the 
``National Defense Authorization Act for Fiscal Year 2004,'' H. Rpt. 
108-354, page 760. While the proposed regulations were silent regarding 
this provision in the conference report, we have taken into 
consideration the unique requirements and contributions of public 
safety employees in supporting the national security mission of the 
Department. The role of public safety employees was considered 
throughout the design process for the

[[Page 66179]]

labor relations system. While we agree that these employees are unique 
within the Department, they are presently covered by chapter 71 and we 
found no compelling reason that these employees should not now be 
covered under the labor relations provisions of these regulations.

Section 9901.905--Impact on Existing Agreements

    Commenters, including labor organizations participating in the 
meet-and-confer process, expressed concern that Congress did not intend 
the Department to have the authority to supersede valid provisions of 
collective bargaining agreements through the promulgation of 
implementing issuances and issuances. These commenters argued that 
conflicting provisions of collective bargaining agreements should 
remain intact until renegotiated regardless of the extension of a new 
Department policy through implementing issuances or issuances. We 
disagree with respect to ``implementing issuances,'' but agree as to 
``issuances,'' for the reasons explained under General Comments. We 
have added a new subparagraph, Sec.  9901.905(c) to make clear that any 
provision of a collective bargaining agreement that is inconsistent 
with issuances that do not implement NSPS will remain in effect until 
the expiration, renewal, or extension of the agreement, whichever 
occurs first.
    Commenters also expressed concern that 60 days is not sufficient 
time to bring into conformance the remaining negotiable provisions of a 
collective bargaining agreement, following invalidation as authorized 
by Sec.  9901.905 of the regulations. We disagree. This bargaining will 
be limited to only those specific contract provisions that are rendered 
unenforceable, or require changes to their language to conform to the 
implementing issuance or these regulations. Therefore, we believe that 
60 days is sufficient time for bargaining, given the limited scope. For 
these reasons, we have not adopted the recommended changes.
    We received several comments that this section is confusing. We 
agree with these comments and have revised the language in Sec.  
9901.905(b) to make clear that it is only those collective bargaining 
agreement provisions that are directly affected by the collective 
bargaining agreement provisions rendered unenforceable by this 
regulation or an implementing issuance that must be brought into 
conformance.
    We have also substantively modified the provisions in Sec.  
9901.905(b) in response to concerns raised during the meet-and-confer 
process that the language in the proposed regulations would have the 
effect of forcing the parties to wait until expiration of the 60-day 
period to seek assistance with any bargaining impasse. We agree with 
this concern and have modified the language in the final regulation to 
permit the parties to utilize Sec.  9901.920 impasse procedures to 
obtain assistance at any time.

Section 9901.906--Employee Rights

    Commenters recommended that we delete this section as it is 
essentially identical to 5 U.S.C. 7102 and, thus, unnecessary. We 
disagree. Although this provision is essentially the same as the 
chapter 71 provision, we believe that it is important to clearly 
restate these rights in subpart I to provide employees notice of their 
statutory rights. Therefore, we have not adopted the recommended 
change.

Section 9901.907--National Security Labor Relations Board

    Commenters raised the concern that the NSLRB will not be fully 
staffed and operational before the onset of bargaining disputes arising 
from implementation of subpart I. We agree with this concern and have 
modified the regulation to provide the Secretary with the authority to 
determine the effective date for the establishment of the NSLRB.
    Commenters objected to the creation of the NSLRB, and recommended 
that the regulations preserve the authority of FLRA, FMCS, and FSIP. 
They remarked that these agencies, which are independent, impartial, 
and already funded, currently adjudicate the labor disputes that the 
proposed regulations authorize the NSLRB to resolve. In this regard, 
they challenged the independence and impartiality of any NSLRB member 
appointed by the Secretary. Therefore, they objected to any change to 
the status quo.
    We disagree that the NSLRB will not be an independent and impartial 
third party. The proposed regulations provide that NSLRB members may 
only be removed by the Secretary for inefficiency, neglect of duty, or 
malfeasance in office. This is the same standard that currently applies 
to members of the FLRA. Since this standard and the establishment of 
the NSLRB itself are provided for in these enabling regulations, they 
are beyond the scope of the Secretary's authority to change 
unilaterally. In addition, these regulations authorize the NSLRB to 
issue its own rules and operational procedures. The concatenation of 
these provisions assures the NSLRB's independence. Moreover, while 
there will be costs associated with the establishment of the NSLRB, we 
believe these costs will be offset by the increased efficiency in the 
resolution of labor disputes.
    Commenters recommended that the final regulations set strict tenure 
requirements and limit the tenure for NSLRB board members to one term, 
with no possibility for renewal or extension. We note that the proposed 
regulations set the term of NSLRB member appointments at 3 years, but 
we do not agree that there should be a prohibition on members serving 
an additional term. These individuals may be viewed as exemplary 
adjudicators not only to management, but also to the labor 
organizations. To unilaterally exclude members from serving additional 
terms would limit the applicant pool and possibly lead to extended 
vacancies. We therefore have not accepted the recommendation.
    However, commenters, including labor organizations participating in 
the meet-and-confer process, recommended that we provide for more union 
involvement in the appointment of NSLRB members. We agree with these 
commenters and, thus, have modified the regulations to provide a 
process whereby employee representatives may submit a list of nominees 
for the Secretary's consideration for appointment of non-chair members 
of the NSLRB. We have also provided that the Secretary may consult with 
employee organizations to obtain additional information regarding any 
nominee submitted.
    Other commenters approved of the proposal to establish the NSLRB, 
indicating that the NSLRB would afford the Department greater 
regularity and consistency in case processing than currently provided 
by FLRA. Labor organizations participating in the meet-and-confer 
process noted that the ``one-stop shop'' concept of the NSLRB was 
preferable to the division of prosecutorial, adjudicatory, and 
mediation responsibilities provided for in the current system. We 
agree.
    Commenters suggested that we pursue a new statutory authority for 
direct judicial review of NSLRB decisions. While such a proposal is 
reasonable, enactment would be time consuming, uncertain, and subject 
to significant revision during the legislative process. Our proposed 
process as authorized by section 9902(m)(6) subjects certain final 
NSLRB decisions to FLRA review, which in turn would be subject to 
judicial review as it is under chapter 71. We believe this is a more 
expeditious and appropriate approach. This process affords the parties 
the opportunity to

[[Page 66180]]

obtain review of an NSLRB decision without the need for court 
proceedings and, in many cases, the FLRA review may be sufficient to 
resolve the dispute. Therefore, we have not adopted this suggestion.
    However, comments related to judicial review revealed confusion 
regarding the process for judicial review, and we have, therefore, 
eliminated the reference to judicial review in Sec.  9901.907. We have 
instead added a new paragraph (c) in Sec.  9901.909 that describes the 
process for appellate review of NSLRB decisions. To be absolutely 
clear, Sec.  9901.909 provides the mechanism for obtaining judicial 
review beginning with the appellate review of the FLRA. We have also 
modified paragraph (d) (paragraph (c) in the proposed regulation) of 
Sec.  9901.909 by adding language reflecting our intent that judicial 
review of FLRA decisions is obtained pursuant to 5 U.S.C. 7123, which 
is modified only to conform relevant citations in chapter 71 to the 
corresponding provisions in subpart I.
    Although many commenters, including labor organizations 
participating in the meet-and-confer process, did not support its 
establishment, we have decided to retain the NSLRB. As we indicated in 
the Preamble accompanying the proposed regulations, it ensures that 
those who adjudicate the most critical labor disputes in the Department 
do so quickly and with an understanding and appreciation of the unique 
challenges that the Department faces in carrying out its mission.

Section 9901.908--Powers and Duties of the Board and Section 9901.909--
Powers and Duties of the Federal Labor Relations Authority

    Commenters recommended that FLRA retain greater jurisdiction over 
the Department's labor disputes. Specifically, they expressed the view 
that not all labor relations disputes arising under NSPS will 
significantly impact the DoD's mission enough to warrant their removal 
from FLRA jurisdiction. We disagree. It is imperative that the NSLRB 
retain jurisdiction over matters that require efficient review and 
understanding of the Department's mission. This is consistent with the 
requirement in 5 U.S.C. 9902(m)(1) that the system OPM and DoD 
establish address the unique role that the Department's civilian 
workforce plays in support of the Department's national security 
mission. As a result, the final regulations give the NSLRB jurisdiction 
over disputes concerning the duty to bargain, the scope of bargaining, 
negotiation impasses, and related exceptions to arbitration awards. In 
addition, the final regulations clarify that the FLRA will review Board 
decisions on unfair labor practices (except when the Board declines to 
adjudicate the matter), arbitration awards under Sec.  9901.908, and 
negotiability disputes.
    Commenters further inquired about the NSLRB's authority to 
investigate unfair labor practices and other labor disputes. We agree 
that the NSLRB should have the authority to investigate and have 
modified the regulations to provide the NSLRB with authority to 
establish procedures for investigations in their regulations. In 
addition, we have clarified that the Board has the authority, similar 
to that exercised today by the FLRA General Counsel, to exercise 
unreviewable discretion to dismiss unfair labor practice allegations.
    Commenters expressed concern that the Board would not be fully 
equipped to handle the extreme workload related to the implementation 
of the labor relations system at stand up. We agree. We have added a 
new Sec.  9901.908(a), to reflect the change discussed under Sec.  
9901.907, National Security Labor Relations Board, which provides the 
Secretary with the authority to determine the date of establishment of 
the NSLRB. Pending establishment of the NSLRB, the regulations also 
provide the Secretary discretion, in consultation with the Director, to 
designate another third party to exercise the authority of the Board in 
the interim.
    Commenters questioned why the proposed regulations authorized the 
NSLRB to issue, at the request of any party, binding opinions on 
matters within its jurisdiction that would be subject to FLRA and 
judicial review. They further questioned who would have standing to 
seek review, other than the initial requester, since there would be no 
specific labor dispute at issue, and recommended the deletion of this 
provision. In response to these concerns, we have revised the language 
to strike the phrase ``binding Department-wide opinions'' and replaced 
it with ``guidance,'' thus allowing the NSLRB to issue non-binding 
guidance. While we have struck the language that would have allowed 
FLRA and judicial review of this guidance, we anticipate that the 
guidance will be accorded deference by other third parties in the cases 
before them. We also received a comment suggesting that the procedures 
to request an opinion under this provision are confusing. We disagree 
and have made no changes to this process.
    Commenters raised concerns about the NSLRB's authority under Sec.  
9901.908(a)(3) of the proposed regulations to resolve disputes 
concerning requests for information under Sec.  9901.914(b)(5). 
Accordingly, we have deleted this provision. Disputes concerning denial 
of information requests are processed as unfair labor practices, which 
are included in Sec.  9901.908(b)(1).
    Commenters, including labor organizations participating in the 
meet-and-confer process, expressed concern with the NSLRB's authority 
to resolve national consultation disputes. We agree and have amended 
the regulations to retain FLRA jurisdiction over disputes regarding the 
granting of National Consultation Rights. Accordingly, we have deleted 
Sec.  9901.908(a)(8) of the proposed regulations, which had reserved 
this authority to the NSLRB.
    Some commenters expressed concern with the limitation on the 
Board's authority to issue status quo ante awards. These commenters 
argued that the authority to order status quo ante remedies to make 
aggrieved employees whole was essential for employees to perceive the 
NSLRB as legitimate. We disagree. We believe that the limitations on 
the award of status quo ante remedies appropriately recognize and 
correctly balance the Department's national security mission and the 
unique role that DoD civilian employees play in supporting that 
mission. We believe the limitations provided in the regulations are 
appropriate and have not accepted the recommendations.
    A labor organization expressed concern that the Board's de novo 
review authority of an arbitrator's findings of fact made the proposed 
system illegitimate. We disagree. We believe it is necessary for the 
Board to review the underlying facts in any dispute to ensure that a 
correct determination has been rendered.
    Commenters also recommended that we define the Board's remedial 
authorities. We do not believe that this is necessary, just as it was 
unnecessary to define the FLRA's remedial authorities under chapter 71.
    Commenters also raised concerns regarding the Board's authority 
under Sec.  9901.908(a)(1) and (a)(5) of the proposed regulations to 
decline jurisdiction over individual labor disputes. We share their 
concerns and have amended the proposed language to give the Board the 
added authority to reject unfair labor practices and negotiation 
impasses.

Section 9901.910--Management Rights

    Commenters, including labor organizations participating in the 
meet-and-confer process, recommended that

[[Page 66181]]

we retain the current language in 5 U.S.C. chapter 71 with regard to 
management rights, arguing that the proposed regulations unduly limited 
the scope of bargaining. Specifically, commenters expressed concern 
that limiting collective bargaining over the assignment of equipment 
and shifts could compromise public safety. These commenters recommended 
that management retain the right to permissively bargain certain 
subjects when appropriate, rather than replacing the requirement to 
bargain with a requirement to consult with the labor organizations 
concurrent with taking action. Moreover, commenters suggested that 
labor organizations should be able to bargain appropriate arrangements 
prior to management taking an action that potentially could adversely 
affect bargaining unit employees rather than providing for post 
implementation bargaining. Commenters, most notably labor 
organizations, objected to the prohibition of bargaining procedures 
concerning management rights at Sec.  9901.910(a)(1) and (2). Labor 
organizations also suggested that the right to negotiate procedures for 
management rights at Sec.  9901.910(a)(3) is illusory. Labor 
organizations suggested that no justification has been provided to 
restrict bargaining over procedures and this restriction is contrary to 
law. Finally, commenters objected to the provision that allowed 
management to deviate from established procedures because they believe 
such an action is unreasonable.
    Although these issues were discussed during the meet-and-confer 
process, the employee and management representatives were unable to 
fashion a recommendation to resolve these differences that would be 
acceptable to all parties. The labor organizations participating in the 
meet-and-confer process, while willing to discuss some modifications to 
the procedures in chapter 71, held fast to their position that the 
existing labor relations system only needed slight modifications to 
meet the Department's need for flexibility and agility to support its 
national security mission. We disagree with the labor organizations' 
suggestion that implementing issuances and issuances should be subject 
to an adaptation of the FLRA's compelling need standard, which requires 
a link between the policy to be implemented and national security, to 
override collective bargaining agreements. Furthermore, we believe 
that, even with modifications discussed with the labor organizations 
during the meet-and-confer process, to interpret the emergency 
provisions of chapter 71 more liberally and to allow post-
implementation bargaining in certain limited situations, the current 
statute does not give the Department the flexibility necessary to carry 
out its vital national security mission. Today, the Department is 
increasingly faced with an enemy that can attack with little or no 
advance warning. The Department must be agile enough to respond to the 
emerging and rapidly evolving threats inherent in 21st century warfare.
    Finally, we have modified the regulations to permit bargaining, in 
the sole, exclusive, unreviewable discretion of the Secretary, over the 
procedures that would be followed in exercising the expanded 
operational management rights. We have also modified the regulations to 
permit bargaining, at the election of the Secretary, over appropriate 
arrangements on the routine matters related to the expanded operational 
management rights. The Secretary may authorize such bargaining to 
advance the Department's mission accomplishment or promote 
organizational effectiveness. Mid-term agreements on appropriate 
arrangements and procedures for (a)(1) and (a)(2) management rights are 
not precedential or binding on subsequent acts, or retroactively 
applied, except at the Secretary's sole, exclusive, and unreviewable 
discretion. Procedures and appropriate arrangements in term agreements 
are binding, except that nothing will delay or prevent the Secretary 
from exercising his or her authority under subpart I. For example, the 
Secretary may authorize deviation from such agreements when it is 
necessary to carry out the Department's mission. This authority is 
comparable to what occurs today when an emergency exists.
    We have also made some minor changes to the section to make 
technical corrections and to clarify intent. Specifically, in Sec.  
9901.910(e) we have corrected the citation from ``Sec.  9901.913'' to 
the correct citation of ``Sec.  9901.917.'' In response to another 
commenter, we have removed the ``foreseeable, substantial, and 
significant'' standard from Sec.  9901.910(e)(2)(i) because it is 
unnecessary given the language in Sec.  9901.917(d)(2). We have also 
added references to sections 9901.918 and 9901.919 to conform to the 
authorities in those sections for multi-unit bargaining and bargaining 
above the level of recognition, respectively.

Section 9901.911--Exclusive Recognition of Labor Organizations

    Labor organizations recommended that we delete the section as it is 
duplicative of the introductory provisions in 5 U.S.C. 7111. We 
disagree. Although labor organization recognition remains unchanged 
from 5 U.S.C. chapter 71, we believe that it is important to 
affirmatively state in these regulations that labor organizations will 
be recognized under subpart I in the same manner as they are under 
chapter 71.

Section 9901.912--Determination of Appropriate Units for Labor 
Organization Representation

    The proposed regulations under Sec.  9901.912(b)(3) and (4) would 
exclude all employees engaged in personnel work and individuals 
employed in attorney positions. In response to comments received, 
particularly from labor organizations participating in the meet-and-
confer process, which opposed these exclusions as unnecessary and 
overbroad, we have revised the language to reflect the current language 
in 5 U.S.C. chapter 71.
    Although the proposed regulations did not explicitly provide 
special rules for bargaining unit inclusion or exclusion for employees 
holding security clearances, there were multiple comments on the 
subject. Commenters suggested that employees with security clearances 
should be excluded from bargaining units because of national security 
concerns. Labor organizations participating in the meet-and-confer 
process recommended an alternative approach that would require an 
employee with a security clearance to be excluded if that employee's 
duties required independent judgment in the formulation of national 
security policy. While we understand the complexity of the issue, we 
disagree with both recommendations because we believe the existing 
approach of case-by-case exclusion is appropriate. Given the 
sensitivity of the issue, we believe a universal approach to security 
clearance exclusion would be inflexible and ineffective.

Section 9901.913--National Consultation

    Commenters, including labor organizations participating in the 
meet-and-confer process, recommended deleting these provisions because, 
in their view, they are unlawful deviations from chapter 71. We 
disagree for the reasons stated under General Comments. Commenters 
further recommended that the FLRA should retain jurisdiction over 
national consultation issues. We have adopted this recommendation and 
modified the language accordingly. We also received comments suggesting 
that the phrases

[[Page 66182]]

``substantial number of employees'' and ``reasonable time'' are vague. 
However, this is the exact language that appears in chapter 71 and the 
FLRA has a long history of interpreting this language. Therefore, we 
have retained the language.

Section 9901.914--Representation Rights and Duties

    Commenters, including labor organizations participating in the 
meet-and-confer process, strongly objected to the elimination of the 
right of an employee to request representation when examined by 
representatives of the Office of the Inspector General and other 
independent Department and Component organizations whose mission 
includes criminal investigations. These commenters argued that such 
representation protects employees against abusive or illegal interview 
techniques and provides reassurance and guidance to employees. We 
agree, and have revised the regulations to eliminate these restrictions 
on representation.
    We also received comments, including comments from labor 
organizations participating in the meet-and-confer process, that 
opposed the restrictions on the union's right to attend formal EEO 
proceedings. Alternatively, other commenters strongly supported this 
restriction. We have carefully considered the comments and have come to 
the conclusion that the often sensitive nature of discrimination 
complaints, coupled with the fact that the employee has exercised an 
option to not use the negotiated grievance procedure, supports this 
limitation on a labor organization's right to attend such discussions. 
We believe the procedures as described in the proposed regulations 
provide the best balance between the unions' institutional interest in 
the matter and the employee's right to privacy. Consistent with this 
determination, we have added clarifying language in Sec.  
9901.915(a)(2)(C).
    Commenters, including labor organizations participating in the 
meet-and-confer process, expressed the view that there is no valid 
reason to restrict the union's right to attend formal discussions over 
operational matters. Some of these comments appear to confuse this 
right as it currently exists under chapter 71. Some commenters suggest 
that any formal meeting with employees requires an invitation for union 
attendance. This is clearly not the case today, and case law is clear 
that it must be a formal meeting where a change to existing conditions 
of employment is discussed. Many meetings where operational matters are 
discussed, such as the routine assignment of work, do not rise to the 
level of requiring union participation. Furthermore, we believe that 
allowing managers to respond to basic questions regarding conditions of 
employment, such as a routine question by a newer employee regarding 
how an overtime roster operates, should not require union participation 
as the manager is merely reiterating existing policy. Management and 
employees must be able to freely communicate on such routine matters if 
the Department is to operate efficiently. Furthermore, such a 
communication in no way diminishes the role of the union, and does not 
in any way authorize a manager to discuss changing these procedures 
without union participation. For the forgoing reasons, we have not 
accepted the recommendation and have retained the language as it 
appeared in the proposed regulation.
    Labor organizations participating in the meet-and-confer process 
and other commenters also recommended that we retain the ``flagrant 
misconduct'' standard for employee conduct while serving as union 
officials. Commenters argued that union representatives are different 
than other employees because they have the right to speak, write, 
associate, and petition for the redress of wronged employees. However, 
all employees, regardless of whether they are union representatives, 
are expected to express their concerns in an appropriate manner, 
particularly in scenarios where there could be a safety or security 
violation. The intent is not to prevent honest and open discussion, but 
rather to ensure that such discussions are undertaken in a professional 
and courteous manner. Under the proposed standard, there is no 
requirement that a union representative not assert the union's 
position. The only conduct the revised standard is intended to stop is 
the rare, but utterly unacceptable use of vulgar or sexually explicit 
language, as well as physical intimidation by union officials. We 
believe the revised standard is appropriate, particularly in a military 
organization that has a longstanding tradition of professionalism and 
courtesy. We have therefore not accepted this recommendation.
    Commenters, including labor organizations participating in the 
meet-and-confer process, objected to the limitations on management's 
obligation to provide information to a union under the proposed 
regulations. Generally these comments focused on the provisions 
allowing an authorized official to block the release of information if 
that official determines the release would compromise mission, 
security, or employee safety. These provisions generally codify current 
case law in which the right of the union to information is weighed 
against the rights of employees and management. This language simply 
clarifies the existing state of affairs. Thus, we have not adopted the 
recommendations to eliminate these provisions.
    Several commenters also suggested that the 30-day period for agency 
head review was unreasonably short. The process of agency head review, 
including the 30-day limitation, as provided for in Sec.  
9901.914(d)(1)-(4) is based on, and adopts, the authority of heads of 
agencies that exists today under 5 U.S.C. 7114(c). This standard has 
been in effect for many years under 5 U.S.C. chapter 71 and has worked 
efficiently. Thus, we believe that this is sufficient time for agency 
head review to occur and we have retained the 30-day time frame. We 
have modified Sec.  9901.914(d)(2) and (3) to conform the provisions to 
the revised definition of ``issuances'' that could serve as the basis 
for disapproval of conflicting provisions of collective bargaining 
agreements upon agency head approval. We have also adopted a comment to 
revise Sec.  9901.914(d)(5) to clarify that agreements are 
unenforceable because they conflict with applicable law, rule or 
regulation, or issuance, rather than because an authorized agency 
official has made such a determination. We have added clarifying 
language to this paragraph in response to numerous comments regarding 
the impact of issuances on collective bargaining agreements. The 
revised language clarifies that collective bargaining agreement 
provisions that conflict with issuances remain in effect until 
expiration of the agreement at which time the agreement must be brought 
into conformance with the issuance.

Section 9901.916--Unfair Labor Practices

    Commenters, including labor organizations participating in the 
meet-and-confer process, recommended that DoD should not be permitted 
to enforce a rule or regulation that is in conflict with a collective 
bargaining agreement if the agreement was in effect prior to the 
issuance of the rule or regulation. We agree with these recommendations 
to the extent that the rule or regulation is not implementing NSPS and 
have amended the regulations to reflect the current 5 U.S.C. 7116(a)(7) 
unfair labor practice with a modification to exclude implementing 
issuances, which under these regulations, will immediately

[[Page 66183]]

supersede conflicting provisions of collective bargaining agreements.
    Commenters, including labor organizations participating in the 
meet-and-confer process, suggested that employees or employee 
representatives should have more than 90 days to file an unfair labor 
practice with the Board. We concur and have revised the regulation to 
provide six months, which is consistent with the current filing limits 
under chapter 71. Finally, to conform this section to the changes made 
to Sec.  9901.908 and to clarify the Board's authority with respect to 
unreviewable discretion, we have eliminated reference to the term 
``charge'' and inserted instead the generic term ``allegation.'' This 
also supports our goal for the Board to use a single, integrated, 
streamlined process for resolving labor relations disputes, including 
unfair labor practices.

Section 9901.917--Duty To Bargain and Consult

    Commenters, including labor organizations participating in the 
meet-and-confer process, objected to the establishment of a 30-day time 
limit to complete mid-term bargaining, as proposed in Sec.  
9901.917(c). We have modified this section to allow the parties, by 
mutual consent, to continue mid-term negotiations beyond the proposed 
30-day limitation. This change to Sec.  9901.917(c) parallels identical 
language in Sec.  9901.917(b).
    Additionally, based on comments made during the meet-and-confer 
process that it was illogical to restrict the parties' ability to seek 
bargaining assistance early in the process, we changed the proposed 
language in Sec.  9901.917(b) and (c) to allow either party, at any 
time prior to going to the Board, to refer matters at impasse to FMCS 
or, if mutually agreeable, to another third party.
    We made technical changes to the language in Sec.  9901.917(d)(1) 
to conform it to the revised definitions of ``implementing issuance'' 
and ``issuance.'' Commenters found the Sec.  9901.917(d)(2) limitation 
on bargaining to be unnecessary and unclear. First, commenters 
suggested that the lead phrase, ``except as otherwise provided in 
910(c),'' was unnecessary. We disagree. The phrase is intended to 
convey that labor organizations will have a right to consult on 
procedures in exercising management rights at Sec.  9901.910(a)(1) and 
(2) even though Sec.  9901.917(d)(2) limits consultation to otherwise 
negotiable changes in conditions of employment subject to the 
foreseeable, substantial and significant standard. In other words, this 
requires consultation on procedures for these particular management 
rights although ``bargaining'' on procedures is prohibited at Sec.  
9901.910(b). Commenters also raised concerns about the application of 
the Sec.  9901.917(d)(2) standard, given that it contains a number of 
undefined words and phrases, e.g., ``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.'' Commenters fear that, absent a definition of 
these terms and phrases, DoD management could interpret them in a way 
that would render employee and union rights meaningless. Commenters 
recommended that we delete the provision altogether and rely on the 
FLRA's existing de minimis standard. We have not adopted these 
suggestions. While we agree that the standard is subject to 
interpretation, we anticipate that a body of case law will develop to 
guide the parties in applying this standard, just as there is a body of 
case law regarding the FLRA's de minimis standard.

Section 9901.918--Multi-unit Bargaining

    Commenters expressed concern that while unions could request multi-
unit bargaining, the Secretary has sole and exclusive authority to 
grant such request. While we recognize this concern, we believe that 
the Secretary is in a unique position to determine when an issue is 
appropriate for multi-unit bargaining given variations in mission and 
organization across the Department. We are also unclear as to how one 
union could require another union to participate in multi-unit 
bargaining. We have therefore rejected recommendations to allow unions 
to require multi-unit bargaining. However, we have modified the 
language to clarify the Secretary's authority to require multi-unit 
bargaining.
    Commenters, including labor organizations participating in the 
meet-and-confer process, expressed strong opinions regarding the 
prohibition on ratification of contracts. While we understand that 
ratification is an internal union process, we believe it would be 
untenable to give each individual bargaining unit veto power over a 
multi-unit agreement after the parties have reached agreement. Thus, we 
have adopted the recommendation to eliminate the prohibition on 
ratification, but added a provision that when an agreement is reached 
under this section, individual bargaining units may not opt out of or 
veto that agreement.

Section 9901.919--Collective Bargaining Above the Level of Recognition

    Several comments questioned the procedures that will be used for 
bargaining above the level of recognition, such as the approval process 
for official time requested by union officials who may be under 
different Military Departments. In response, we have added a provision 
that the Department will prescribe implementing issuances on the 
procedures associated with collective bargaining above the level of 
recognition.
    Commenters, including labor organizations participating in the 
meet-and-confer process, acknowledged that bargaining at the national 
level could be appropriate, under certain circumstances. They objected, 
however, to giving the Secretary the sole and exclusive discretion over 
the use of this special bargaining authority as well as the provisions 
requiring these negotiations to supersede all conflicting provisions of 
existing collective bargaining agreements. We disagree. These 
provisions are required by 5 U.S.C. 9902(g)(2). In addition, we believe 
they are necessary for effective national level bargaining.
    Commenters also objected to the prohibition on ratification in 
Sec.  9901.919(b)(5). Based on the same rationale relating to this 
issue with regard to multi-unit bargaining, we have adopted the 
recommendation to delete the proposed ratification language. In its 
place, Sec.  9901.919(b)(5) now provides that individual labor 
organizations cannot opt out of, or veto, a final national level 
bargaining agreement.

Section 9901.920--Negotiation Impasses

    Labor organizations objected to the NSLRB adjudicating negotiation 
impasses because they assert that the NSLRB is not an independent third 
party. We disagree with this assertion for the reasons discussed in the 
Major Issues section. During the meet-and-confer process, the 
participating labor organizations recommended using arbitrators to 
resolve negotiation impasses. We disagree because such a system would 
lead to inconsistent and inefficient results. Use of the NSLRB will, 
over time, result in an established body of precedent upon which both 
management and unions may rely.
    We have made a conforming change by adding Sec.  9901.905 to the 
list of sections for which the parties may submit disputed issues to 
the Board. We

[[Page 66184]]

also made a technical correction deleting a reference to judicial 
review for unfair labor practices involving negotiation impasses since 
this is already provided for in Sec.  9901.909.

Section 9901.921--Standards of Conduct for Labor Organizations

    Labor organizations objected to this section as duplicative of 5 
U.S.C. chapter 71. However, we have decided to retain it to ensure that 
labor organizations are cognizant of applicable standards of conduct.

Section 9901.922--Grievance Procedure

    Commenters recommended that the term ``administrative'' be 
reinserted into the description of the negotiated grievance procedure 
in order to retain access to judicial review. As the Government's brief 
in the pending case Whitman v. DOT (S. Ct. No. 04-1131) demonstrates, 
we do not believe the inclusion of the word ``administrative'' in 
chapter 71 was intended to authorize judicial review of grievances. 
Nonetheless, since some courts and parties have taken the position that 
the addition of the word ``administrative'' authorized judicial review, 
we have removed that term from the regulation to avoid any suggestion 
that this regulation would authorize judicial review. Because this 
change clarifies that judicial review over many issues is not 
available, it does not restrict an employee's right to obtain MSPB or 
EEOC review of adverse actions and subsequent judicial review of those 
decisions. Therefore, we have rejected the recommendation and retained 
that language as proposed.
    Commenters, including the labor organizations participating in the 
meet-and-confer process, recommended that classification issues should 
be subject to the grievance procedure. However, the classification of 
positions generally has been excluded from the grievance procedure. We 
believe that consistency of classification, while always important, 
becomes critical as we move into a pay-for-performance environment. 
Subjecting classification decisions to inconsistent interpretations by 
arbitrators would undermine the system. This would result in a 
fragmented classification system throughout the Department with 
similarly situated employees being treated differently. Such a result 
would be inconsistent with the NSPS Guiding Principles and KPPs, which 
require that the system be credible and trusted. Therefore, we have not 
adopted this recommended change.
    Commenters, including labor organizations participating in the 
meet-and-confer process recommended that pay be subject to the 
grievance procedure. We note that pay has almost exclusively been 
excluded from the grievance procedure as it has historically been 
covered by Governmentwide regulation or law. The exclusion of pay from 
the grievance procedure is in keeping with this longstanding practice 
as we move into a pay for performance system. As with classification, 
subjecting pay determinations to inconsistent arbitrator 
interpretations would undermine the pay system and be inconsistent with 
statutory requirements that the pay system be fair, credible, and 
transparent. Thus, we have retained the language as proposed.
    Many commenters, including labor organizations participating in the 
meet-and-confer process, presented strong arguments that employee 
ratings of record should continue to be subject to the grievance 
procedure and binding arbitration. Most commenters expressed concern 
that receiving an accurate performance rating was crucial to employees 
because that rating will be used in determining an employee's pay. 
Thus, employees need a credible system to challenge ratings of record 
that they believe are inaccurate. We agree and have provided employees 
the right to grieve their performance ratings of record through the 
negotiated grievance procedure. Moreover, during the meet-and-confer 
process, the unions agreed that the use of panels, consisting of an 
arbitrator, a management official and a union official, to decide 
grievances regarding ratings of record should be an option for 
employees. Thus, we have modified the regulations to provide that an 
employee may challenge a rating of record either through the negotiated 
grievance procedure using either a panel or traditional arbitration. 
Employees also have the option of using the administrative 
reconsideration process as set out in Sec.  9901.409(g).
    We have also added language to reflect case law which prevents an 
arbitrator, or a panel, from conducting an independent evaluation of 
performance or otherwise substituting his or her judgment for that of a 
manager. We have made clear that the arbitrator or panel has no 
authority to determine appropriate share payouts under the pay-for-
performance system, as such determinations are made by management based 
on the rating of record. We believe that these changes address the 
concerns of commenters and will serve to instill confidence in the 
performance rating process.
    Finally, a commenter recommended that appealable adverse actions be 
removed from the scope of the negotiated grievance procedure because of 
other available forums for redress. We agree that there is a statutory 
right to file an appeal with the Merit Systems Protection Board (MSPB), 
but the option to grieve these adverse actions as an alternative to the 
MSPB is a well established employee right. To address the requirement 
that the appeals process be fair and to ensure that the Department's 
national security mission is considered, we have retained regulatory 
language ensuring uniform review and interpretation of arbitral awards 
and AJ decisions. Thus, we have rejected this comment.
    We also made a technical change to Sec.  9901.922(e) to assure that 
mixed cases processed through a negotiated grievance procedure can 
properly be reviewed by the Equal Employment Opportunity Commission.

Section 9901.923--Exceptions to Arbitration Awards

    Labor organizations participating in the meet-and-confer process 
suggested that we reconsider subjecting exceptions from arbitration 
decisions on appealable adverse actions to the Merit Systems Protection 
Board for appellate review. We disagree. The Secretary must retain full 
authority to review an arbitrator's decision on an appealable adverse 
action, similar to the need to review decisions of MSPB Administrative 
Judges, to ensure that the arbitrator interprets NSPS and these 
regulations in a way that recognizes the critical mission of the 
Department and to ensure that deference is provided to the Department's 
interpretation of these regulations. This provision is designed to 
ensure uniformity of interpretation and application of NSPS and these 
regulations. Allowing direct judicial review of arbitration decisions 
would create an inconsistent approach in how MSPB Administrative Judges 
and arbitrator decisions are treated on identical matters.

Section 9901.924--Official Time

    Commenters found the proposed regulations to be unclear as to how 
official time would be allocated among union officials from different 
locals when they are engaged in multi-unit and/or national level 
bargaining. We note that the proposed regulations provide that the 
Secretary will prescribe implementing issuances on the procedures and 
constraints associated with multi-unit bargaining. These issuances will 
address a variety of issues including the granting of official time. 
However, the comment revealed that a parallel provision for collective

[[Page 66185]]

bargaining above the level of recognition has been inadvertently 
omitted for Sec.  9901.919. Although multi-unit bargaining may also be 
at the level of recognition, there are situations where it could occur 
above the level of recognition. Therefore, to ensure clarity, we have 
amended this section to provide that the Secretary will prescribe 
implementing issuances on the procedures and constraints associated 
with bargaining above the level of recognition.

Section 9901.925--Compilation and Publication of Data

    Commenters recommended that this section be deleted as its sole use 
and purpose, in their view, is to facilitate the Board's unlawful 
functioning. We disagree for the reasons explained under General 
Comments, and have retained this section.

Section 9901.926--Regulations of the Board

    Commenters recommended that this section be deleted as its sole 
purpose, in their view, is to facilitate the Board's unlawful 
functioning. Commenters asserted that the Board must develop its own 
regulations and that the Department does not have the authority to 
issue interim regulations for an independent Board's operation. We 
agree that the Board should issue its own regulations and have provided 
the Board with that authority. However, we believe that it would be 
impractical for the Board to operate without interim rules until such 
time as the Board issues its own regulations. Thus, we have retained 
the Secretary's authority to develop interim NSLRB regulations.

Section 9901.927--Continuation of Existing Laws, Recognitions, and 
Procedures

    Commenters recommended deletion of this section on the basis that 
invalidation of collective bargaining agreements provisions before the 
expiration of their term is, in their view, unlawful. Again, we 
disagree for the reasons explained under General Comments.
    Commenters also suggested that the statements concerning the 
continuation of existing collective bargaining agreements and labor 
organization recognitions are unnecessary. We disagree because we want 
to ensure that there is no misunderstanding that these regulations will 
not dissolve established bargaining units within the Department nor 
cancel entire collective bargaining agreements.

Section 9901.928--Savings Provisions

    We received comments recommending deletion of this section because 
the commenters believe that excluding administrative remedies for 
pending grievances is contrary to law. We disagree. To the extent that 
an award is prospective in nature, it must comply with the applicable 
procedures, whether established through law, rule, regulation or 
collective bargaining agreement.

Next Steps

A. NSPS Implementation

1. Employee Transition Plan (Spiral Strategy)
    The Secretary adopted an ``acquisition model'' to design and 
implement NSPS. Eligible employees will transition to NSPS in phases or 
``spirals.'' The spiral concept allows the Department to introduce NSPS 
in successive waves--to initially deploy the new personnel system to a 
number of organizations so that we can manage implementation and 
troubleshoot, evaluate, and report on the results in a timely manner. 
As with any new system, especially one with the size and complexity of 
NSPS, we may need to make refinements as we roll it out to the rest of 
the workforce. The first spiral, spiral one, is limited to General 
Schedule (GS and GM), Acquisition Demonstration Project, and certain 
alternative personnel system employees. As required by 5 U.S.C. 
9902(l), the NSPS HR system under 5 U.S.C. 9902(a) may be implemented 
to a maximum of 300,000 employees without having to make a 
determination that the Department has in place a performance management 
system that meets the criteria in 5 U.S.C. 9902(b). Spiral one will 
cover up to the statutory limit of 300,000 employees.
    After the assessment cycle and certification of the performance 
management system are completed, the second spiral will deploy. Spiral 
two includes Federal Wage System employees, overseas employees, and 
other eligible employees. Spiral three will comprise the DoD labs, 
currently excluded by 5 U.S.C. 9902(c), should the Secretary make the 
determination required by that section.
2. HR and Labor Relations Transition
    Transition to the HR system occurs when employees convert or spiral 
into NSPS. Employees covered by the HR system are under the appeals 
process. Upon conversion, employees will be covered by the NSPS 
performance management, classification, pay, reduction in force, 
adverse action, and appeals regulations.
    The labor relations provisions will be implemented DoD-wide for all 
eligible DoD employees at the same time. The labor relations provisions 
apply to all eligible employees even if the HR system does not cover 
them.

B. Development of Implementing Issuances and Continuing Collaboration

    The Secretary will engage in continuing collaboration with employee 
representatives in developing implementing issuances. This will provide 
employee representatives an opportunity to submit written comments and 
discuss their views on human resources management issues. In some 
areas, such as classification and pay matters, law or other agency 
rules have governed decisions with no avenue for labor organizations to 
provide input to DoD. Continuing collaboration provides an historic 
opportunity for employee representatives to have input into the 
development of the Department's human resources management system, as 
well as certain aspects of the adverse actions, appeals, and labor 
relations programs not specifically covered by these regulations. It is 
an opportunity for their views and interests to be heard and considered 
in the development process and gives the Secretary the benefit of their 
insight. We encourage employee representatives to take advantage of 
this process and the benefits it offers.
    The Secretary will provide the employee representatives draft 
copies of implementing issuances for review and comment. If necessary 
and appropriate, continuing collaboration could include face-to-face 
meetings or any other means to exchange information and ideas. We 
expect continuing collaboration to begin shortly after these final 
regulations become effective.

C. Training

    The NSPS training plan presents a comprehensive, well-planned 
learning strategy to prepare the DoD workforce for the transition to 
NSPS. The plan is grounded in the belief that participants need to be 
informed and educated about NSPS and trust and value it as a system 
that fosters accountability, respects the individual, and protects his 
and her rights under the law. In building the plan, the Department 
seeks to educate employees about NSPS, teach the skills and behaviors 
necessary to implement and sustain NSPS, foster support and confidence 
in NSPS, and facilitate the transition to a performance-based, results-
oriented culture.

[[Page 66186]]

    The plan adopts a two-fold strategy centered around two 
interrelated training domains: The NSPS functional domain covering the 
NSPS system elements contained within the human resources, labor 
relations, and appeals sections of the regulations; and the change 
management domain, which focuses on the skills, attitudes, and 
behaviors necessary for success under NSPS. The plan incorporates a 
blended learning approach featuring Web-based and classroom instruction 
supplemented by a variety of learning products, informational 
materials, and workshops to effectively reach intended audiences with 
engaging, accurate, and timely content.
    Within the functional domain, the Department will offer specialized 
courses for all of the functional areas covered by the NSPS 
regulations, tailored for specialized audiences (e.g., supervisors/
managers, human resources practitioners, attorneys, and non-supervisory 
employees). These courses will cover pay banding, staffing 
flexibilities, performance management, labor relations, the appeals 
process, and other matters. The Department has a robust training 
infrastructure already in place to train and educate its personnel and 
will leverage that infrastructure as we implement NSPS-specific 
training.
    Managers and supervisors, including military managers and 
supervisors, are key to the success of NSPS and extensive training will 
be given to ensure their understanding of the system and the key role 
they play. Courses aimed at managers and supervisors will focus heavily 
on the performance management aspect of NSPS. DoD's Program Executive 
Office is developing these courses now and will make them available to 
components in time to train employees in advance of NSPS 
implementation. Training will focus on improving skills needed for 
effective performance management, such as setting clear goals and 
expectations, communicating with employees, and linking individual 
expectations to the goals and objectives of the organization.
    The Department is also focusing attention on change management 
training to address the behavioral aspects of moving to NSPS and to 
better prepare the workforce for the changes NSPS will bring. The 
behavior-based training provides the foundation for future NSPS 
learning activities and facilitates increased communication between 
supervisors and employees as they discuss and jointly develop 
performance objectives tied to the overall organization's mission. This 
is essential if this new system is to be successful. Some of the 
component behavior-based training has already begun, and other courses 
are in development and will be available to train all affected 
employees in advance of NSPS implementation. Course offerings include 
interpersonal communication, team building, and conflict management to 
help facilitate interaction between employees and supervisors. In 
addition, components continue to offer a variety of informational 
forums and learning activities with sponsorship and active continuing 
involvement by DoD's senior leadership.
    The design of the pay-for-performance system includes the use of 
pay pools, and we will also provide training for pay pool managers 
covering the pay pool process, goals and objectives, authorities, 
funding considerations, documentation, effective panel characteristics, 
etc. Roles and responsibilities of the pay pool manager and 
participating supervisors will also be covered extensively. The 
training will also feature a mock pay pool panel process that takes pay 
pool panel members through the full assessment process to include mock 
payout and employee feedback. This training builds in accountability 
and supports the needs of both employees and managers by providing an 
opportunity to experience the process and identify and correct 
procedures prior to undergoing the actual pay pool experience.
    The PEO training plan was based on our extensive experience with 
previous demonstration projects. Training needs will vary by individual 
and organization depending on their familiarity with the fundamentals 
of a performance-oriented work environment. The core functional 
training courses available will include--
    <bullet> 18 hours for managers and supervisors;
    <bullet> 13 hours for employees; and
    <bullet> 25 to 40 hours for HR practitioners (depending on the 
functional area of expertise; includes training on labor relations and 
appeals).
    Although the time spent in training represents the Secretary's 
commitment to preparing the workforce, it is focusing on the results 
and outcomes of that training, as opposed to a prescriptive ``one size 
fits all'' strategy.
    Employees will receive functional training through three primary 
vehicles:
    Print Materials --directed to various targeted audiences to raise 
awareness and educate them on key NSPS elements and performance 
management concepts.
    Web-based Training--two hour-long courses, ``Fundamentals of NSPS'' 
and ``NSPS 101,'' providing introductory, on-line training delivered in 
a consistent manner in a self-paced, on-demand format. The ``NSPS 101'' 
course serves as a prerequisite for the classroom sessions.
    Classroom Sessions--the primary vehicle to communicate critical 
information, classroom sessions are under development for employees, 
managers and supervisors, human resources practitioners, and labor 
relations practitioners. The sessions will provide key operational 
information on all NSPS systems elements, with particular emphasis on 
performance management. Topics will include the performance management 
cycle, developing performance objectives, performance evaluation and 
assessment, performance coaching, and performance-based communication. 
Classroom training will be conducted using a train-the-trainer 
strategy, with trainers who participate in a train-the-trainer program 
leading all classroom training.
    Trainers will be provided with instructor guides and will include 
basic instructional content supplemented by video vignettes and 
interactive exercises. Classroom training is scheduled to occur on a 
``just-in-time'' basis, approximately 4 to 6 weeks prior to NSPS 
implementation.
    The Department's leadership recognizes and is committed to 
providing the necessary training. Secretary England, during testimony 
to the Senate Armed Services Committee, stated that ``[t]raining is one 
of the most critical elements for a smooth and successful transition to 
NSPS. The Department is fully committed to a comprehensive training 
program for our managers, supervisors and employees. All employees will 
be trained to understand the system, how it works, and how it will 
affect them.''
    The necessary resources are available to provide the training. To 
address these requirements, the PEO allocated $2 million in FY05 and 
anticipates allocating another $3 million in FY06 to fund development 
and delivery of core NSPS training courses and delivery of the ``train-
the-trainer'' sessions.

Regulatory Requirements

E.O. 12866, Regulatory Review

    DoD and OPM have determined that the National Security Personnel 
System (NSPS) is a significant regulatory action as enacted by Section 
1101 of the National Defense Authorization Act for Fiscal Year 2004 
(Pub. L. 108-136, November 24, 2003) because there is a significant 
public interest in revisions of the DoD civilian employment system.

[[Page 66187]]

DoD and OPM have analyzed the expected costs and benefits of NSPS to be 
implemented by DoD and that analysis is presented here.
    Integral to the administration of the new performance-based 
personnel system is a commitment to the DoD workforce to the maximum 
extent practicable, for fiscal years 2004 through 2008, that the 
aggregate amount allocated for compensation of DoD employees under NSPS 
will not be less than if they had not been converted to 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 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.
    Accordingly, the NSPS performance-based pay system carries with it 
potential implications relative to the base pay of individual 
employees, depending upon local labor market conditions and individual, 
team, and organizational performance. However, 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 creation of the performance-based NSPS will result in some 
initial implementation costs, which can be expressed in two basic 
categories: (1) Program implementation costs and (2) NSLRB start-up 
costs. The program category refers to the costs associated with 
designing and implementing the system. This includes the start-up and 
operation of the Program Executive Office, executing the system design 
process, developing and delivering new training specifically for NSPS, 
conducting outreach for employees and other parties, engaging in 
collaboration activities with employee representatives, and modifying 
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 information 
technology 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 
National Security Labor Relations Board (NSLRB). 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 start-up and sustainment 
cost.
    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 final 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 the enabling legislation and 
corresponding regulations. The portion of the 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 cost 
benefit analysis for regulatory review purposes.
    In addition, DoD will incur costs relating to such matters as 
training development, support, and execution; reprogramming automated 
payroll and human resources information systems; developing guiding 
issuances, implementation planning, scheduling, and monitoring; design, 
production, and distribution of communication materials; conducting 
employee education and communication activities; developing and 
conducting pay surveys to determine future pay adjustments in relation 
to the labor market; conducting surveys and data analysis to ensure key 
performance parameters are met; the establishment of the National 
Security Labor Relations Board (NSLRB); and the overall operation of 
the NSPS Program Executive Office. The extent of these costs will be 
directly related to the level of comprehensiveness desired by DoD.
    DoD estimates the overall costs associated with implementing the 
new DoD HR system--including the development and implementation of a 
new human resources system and the creation of the NSLRB--will be 
approximately $158 million through 2008. Less than $100 million will be 
spent in any given 12-month period.
    The primary benefit to the public of this new system resides in the 
flexibilities that will enable DoD to build a high-performance 
organization focused on mission accomplishment. The new job evaluation, 
performance-based pay and management system provides DoD with an 
increased ability to attract and retain a more qualified and proficient 
workforce. The new and improved processes in labor management 
relations, adverse actions, and appeals will afford DoD greater 
flexibility to manage its workforce in the face of constantly changing 
threats to the United States and to successfully support its primary 
mission of Defense and the Global War on Terrorism. Taken as a whole, 
the changes included in these final 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 will not have a 
significant economic impact on a substantial number of small entities 
because they will apply only to Federal agencies and employees.

E.O. 12988, Civil Justice Reform

    This 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 that these regulations will not have

[[Page 66188]]

federalism implications because they will apply only to Federal 
agencies and employees. The regulations will 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.

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

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

Unfunded Mandates

    These regulations will 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.

Linda M. Springer,
Director, Office of Personnel Management.
Donald Rumsfeld,
Secretary, Department of Defense.


0
Accordingly, under the authority of section 9902 of title 5, United 
States Code, the Department of Defense and the Office of Personnel 
Management amend title 5, Code of Federal Regulations, by establishing 
chapter XCIX consisting of part 9901 as follows:

CHAPTER XCIX--DEPARTMENT OF DEFENSE HUMAN RESOURCES MANAGEMENT AND 
LABOR RELATIONS SYSTEMS (DEPARTMENT OF DEFENSE--OFFICE OF PERSONNEL 
MANAGEMENT)

PART 9901--DEPARTMENT OF DEFENSE HUMAN RESOURCES MANAGEMENT AND 
LABOR RELATIONS SYSTEMS

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.
9901.205 Bar on collective bargaining.

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.
9901.305 Bar on collective bargaining.

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 separation.
9901.611 Reduction in force appeals.
Subpart G--Adverse Actions

General

9901.701 Purpose.
9901.702 Waivers.
9901.703 Definitions.
9901.704 Coverage.

Requirements for Removal, Suspension, Furlough of 30 Days or Less, 
Reduction in Pay, or Reduction in Band (or Comparable Reduction)

9901.711 Standard for action.
9901.712 Mandatory removal offenses.
9901.713 Procedures.
9901.714 Proposal notice.
9901.715 Opportunity to reply.
9901.716 Decision notice.
9901.717 Departmental record.

Savings Provision

9901.721 Savings provision.
Subpart H--Appeals
9901.801 Purpose.
9901.802 Applicable legal standards and precedents.
9901.803 Waivers.
9901.804 Definitions.
9901.805 Coverage.
9901.806 Alternative dispute resolution.
9901.807 Appellate procedures.
9901.808 Appeals of mandatory removal actions.
9901.809 Actions involving discrimination.
9901.810 Savings provision.

[[Page 66189]]

Subpart I--Labor-Management Relations
9901.901 Purpose.
9901.902 Scope of authority.
9901.903 Definitions.
9901.904 Coverage.
9901.905 Impact on existing agreements.
9901.906 Employee rights.
9901.907 National Security Labor Relations Board.
9901.908 Powers and duties of the Board.
9901.909 Powers and duties of the Federal Labor Relations Authority.
9901.910 Management rights.
9901.911 Exclusive recognition of labor organizations.
9901.912 Determination of appropriate units for labor organization 
representation.
9901.913 National consultation.
9901.914 Representation rights and duties.
9901.915 Allotments to representatives.
9901.916 Unfair labor practices.
9901.917 Duty to bargain and consult.
9901.918 Multi-unit bargaining.
9901.919 Collective bargaining above the level of recognition.
9901.920 Negotiation impasses.
9901.921 Standards of conduct for labor organizations.
9901.922 Grievance procedures.
9901.923 Exceptions to arbitration awards.
9901.924 Official time.
9901.925 Compilation and publication of data.
9901.926 Regulations of the Board.
9901.927 Continuation of existing laws, recognitions, agreements, 
and procedures.
9901.928 Savings provisions.

    Authority: 5 U.S.C. 9902

Subpart A--General Provisions


Sec.  9901.101  Purpose.

    (a) This part contains regulations governing the establishment of a 
new human resources management system and a new labor relations system 
within the Department of Defense (DoD), as authorized by 5 U.S.C. 9902. 
Consistent with 5 U.S.C. 9902, these regulations waive or modify 
various statutory provisions that would otherwise be applicable to 
affected DoD employees. These regulations are prescribed jointly by the 
Secretary of Defense and the Director of the Office of Personnel 
Management (OPM).
    (b)(1) This part is designed to meet a number of essential 
requirements for the implementation of a new human resources management 
system and a new labor relations system for DoD. The guiding principles 
for establishing these requirements are to put mission first; respect 
the individual; protect rights guaranteed by law, including the 
statutory merit system principles in 5 U.S.C. 2301; value talent, 
performance, leadership, and commitment to public service; be flexible, 
understandable, credible, responsive, and executable; ensure 
accountability at all levels; balance human resources system 
interoperability with unique mission requirements; and be competitive 
and cost effective.
    (2) The key operational characteristics and requirements of NSPS 
and the labor relations system, which these regulations are designed to 
facilitate, are as follows: High Performing Workforce and Management--
employees and supervisors are compensated and retained based on their 
performance and contribution to mission; Agile and Responsive Workforce 
and Management--workforce can be easily sized, shaped, and deployed to 
meet changing mission requirements; Credible and Trusted--system 
assures openness, clarity, accountability, and adherence to the public 
employment principles of merit and fitness; Fiscally Sound--aggregate 
increases in civilian payroll, at the appropriations level, will 
conform to OMB fiscal guidance; Supporting Infrastructure--information 
technology support, and training and change management plans are 
available and funded; and Schedule--NSPS and the labor relations system 
will be operational and demonstrate success prior to November 2009.


Sec.  9901.102  Eligibility and coverage.

    (a) Pursuant to the provisions of 5 U.S.C. 9902, all civilian 
employees of DoD are eligible for coverage under one or more of 
subparts B through I of this part, except to the extent specifically 
prohibited by law.
    (b) At his or her sole and exclusive discretion, the Secretary may, 
subject to Sec.  9901.105(b)--
    (1) Establish or change the effective date for applying subpart I 
of this part to all eligible employees in accordance with 5 U.S.C. 
9902(m); and
    (2) With respect to subparts B through H of this part, apply these 
subparts to a specific category or categories of eligible civilian 
employees in organizations and functional units of the Department at 
any time in accordance with the provisions of 5 U.S.C. 9902. However, 
no category of employees may be covered by subparts B, C, E, F, G, or H 
of this part unless that category is also covered by subpart D of this 
part.
    (c) Until the Secretary makes a determination under paragraph (b) 
of this section to apply the provisions of one or more subparts of this 
part to a particular category or categories of eligible employees in 
organizations and functional units, those employees, will continue to 
be covered by the applicable Federal laws and regulations that would 
apply to them in the absence of this part. All personnel actions 
affecting DoD employees will be based on the Federal laws and 
regulations applicable to them on the effective date of the action.
    (d) Any new NSPS classification, pay, or performance management 
system covering Senior Executive Service (SES) members will be 
consistent with the policies and procedures established by the 
Governmentwide SES pay-for-performance framework authorized by 5 U.S.C. 
chapter 53, subchapter VIII, and applicable OPM regulations. If the 
Secretary determines that SES members employed by DoD should be covered 
by classification, pay, or performance management provisions that 
differ substantially from the Governmentwide SES pay-for-performance 
framework, the Secretary and the Director will issue joint regulations 
consistent with all of the requirements of 5 U.S.C. 9902.
    (e) At his or her sole and exclusive discretion, the Secretary may 
rescind the application under paragraph (b) of this section of one or 
more subparts of this part to a particular category of employees and 
prescribe implementing issuances for converting that category of 
employees to coverage under applicable title 5 or other applicable 
provisions. The Secretary will notify affected employees and labor 
organizations in advance of a decision to rescind the application of 
one or more subparts of this part to them.
    (f)(1) Notwithstanding any other provision of this part, but 
subject to the following conditions, the Secretary may, at his or her 
sole and exclusive discretion, apply one or more subparts of this part 
as of an effective date specified to a category of employees in 
organizational and functional units not currently eligible for coverage 
because of coverage under a system established by a provision of law 
outside the waivable or modifiable chapters of title 5, U.S. Code, if 
the provision of law outside those waivable or modifiable title 5 
chapters provides discretionary authority to cover employees under a 
given waivable or modifiable title 5 chapter or to cover them under a 
separate system established by the Secretary.
    (2) In applying paragraph (f)(1) of this section with respect to 
coverage under subparts B and C of this part, the affected employees 
will be converted directly to the NSPS pay system from their current 
pay system. The Secretary may establish conversion rules for these 
employees similar to the conversion rules established under Sec.  
9901.373.


Sec.  9901.103  Definitions.

    In this part:
    Band means pay band.

[[Page 66190]]

    Basic pay means an employee's rate of pay before any deductions and 
exclusive of additional pay of any kind, except as expressly provided 
by applicable law or regulation. For the specific purposes prescribed 
in Sec.  9901.332(c) only, basic pay includes any local market 
supplement.
    Career group means a grouping of one or more associated or related 
occupations. A career group may include one or more pay schedules.
    Competencies means the measurable or observable knowledge, skills, 
abilities, behaviors, and other characteristics that an individual 
needs to perform a particular job or job function successfully.
    Contribution means a work product, service, output, or result 
provided or produced by an employee or group of employees that supports 
the Departmental or organizational mission, goals, or objectives.
    Day means a calendar day.
    Department or DoD means the Department of Defense.
    Director means the Director of the Office of Personnel Management.
    Employee means an employee within the meaning of that term in 5 
U.S.C. 2105.
    Furlough means the placement of an employee in a temporary status 
without duties and pay because of lack of work or funds or other non-
disciplinary reasons.
    General Schedule or GS means the General Schedule classification 
and pay system established under chapter 51 and subchapter III of 
chapter 53 of title 5, U.S. Code.
    Implementing issuance(s) means a document or documents issued by 
the Secretary, Deputy Secretary, Principal Staff Assistants (as 
authorized by the Secretary), or Secretaries of the Military 
Departments to carry out a policy or procedure implementing this part. 
These issuances may apply Department-wide or to any part of DoD as 
determined by the Secretary at his or her sole and exclusive 
discretion. These issuances do not include internal operating guidance, 
handbooks, or manuals that do not change conditions of employment, as 
defined in Sec.  9901.903.
    Initial probationary period means the period of time, as designated 
by the Secretary, immediately following an employee's appointment, 
during which an authorized management official determines whether the 
employee fulfills the requirements of the position to which assigned.
    In-service probationary period, such as a supervisory probationary 
period, means the period of time, as designated by the Secretary, 
during which an authorized management official determines whether the 
employee fulfills the requirements of the position to which assigned.
    Labor organization means an organization composed in whole or in 
part of employees, in which employees participate and pay dues, and 
which has as a purpose the dealing with the Department concerning 
grievances and conditions of employment, but does not include--
    (1) An organization which, by its constitution, bylaws, tacit 
agreement among its members, or otherwise, denies membership because of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (2) An organization which advocates the overthrow of the 
constitutional form of government of the United States;
    (3) An organization sponsored by the Department; or
    (4) An organization which participates in the conduct of a strike 
against the Government or any agency thereof or imposes a duty or 
obligation to conduct, assist, or participate in such a strike.
    Mandatory removal offense (MRO) means an offense that the Secretary 
determines in his or her sole, exclusive, and unreviewable discretion 
has a direct and substantial adverse impact on the Department's 
national security mission.
    Military Department means the Department of the Army, the 
Department of the Navy, or the Department of the Air Force.
    MSPB means the Merit Systems Protection Board.
    National Security Personnel System (NSPS) means the human resources 
management system established under 5 U.S.C. 9902(a). It does not 
include the labor relations system established under 5 U.S.C. 9902(m).
    Occupational series means a group or family of positions performing 
similar types of work. Occupational series are assigned a number for 
workforce information purposes (for example: 0110, Economist Series; 
1410, Librarian Series).
    OPM means the Office of Personnel Management.
    Pay band or band means a work level and associated pay range within 
a pay schedule.
    Pay schedule means a set of related pay bands for a specified 
category of employees within a career group.
    Performance means accomplishment of work assignments or 
responsibilities and contribution to achieving organizational goals, 
including an employee's behavior and professional demeanor (actions, 
attitude, and manner of performance), as demonstrated by his or her 
approach to completing work assignments.
    Principal Staff Assistants means senior officials of the Office of 
the Secretary who report directly to the Secretary or Deputy Secretary 
of Defense.
    Promotion means the movement of an employee from one pay band to a 
higher pay band under implementing issuances. This includes movement of 
an employee currently covered by a non-NSPS Federal personnel system to 
a position determined to be at a higher level of work in NSPS.
    Rating of record means a performance appraisal prepared--
    (1) At the end of an appraisal period covering an employee's 
performance of assigned duties against performance expectations over 
the applicable period; or
    (2) As needed to reflect a substantial and sustained change in the 
employee's performance since the last rating of record as provided in 
implementing issuances.
    Reassignment means the movement of an employee within DoD from his 
or her position of record to a different position or set of duties in 
the same or a comparable pay band under implementing issuances on a 
permanent or temporary/time-limited basis. This includes the movement 
of an employee between positions at a comparable level of work in NSPS 
and a non-NSPS Federal personnel system.
    Reduction in band means the voluntary or involuntary movement of an 
employee from one pay band to a lower pay band under implementing 
issuances. This includes movement of an employee currently covered by a 
non-NSPS Federal personnel system to a position determined to be at a 
lower level of work in NSPS.
    Secretary means the Secretary of Defense, consistent with 10 U.S.C. 
113.
    SES means the Senior Executive Service established under 5 U.S.C. 
chapter 31, subchapter II.
    SL/ST refers to an employee serving in a senior-level position paid 
under 5 U.S.C. 5376. The term ``SL'' identifies a senior-level employee 
covered by 5 U.S.C. 3324 and 5108. The term ``ST'' identifies an 
employee who is appointed under the special authority in 5 U.S.C. 3325 
to a scientific or professional position established under 5 U.S.C. 
3104.
    Unacceptable performance means performance of an employee which 
fails to meet one or more performance

[[Page 66191]]

expectations, as amplified through work assignments or other 
instructions, for which the employee is held individually accountable.


Sec.  9901.104  Scope of authority.

    The authority for this part is 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 in exercising the authority in 5 U.S.C. 9902:
    (a) Chapters 31, 33, and 35, dealing with staffing, employment, and 
workforce shaping (as authorized by 5 U.S.C. 9902(k));
    (b) Chapter 43, dealing with performance appraisal systems;
    (c) Chapter 51, dealing with General Schedule job classification;
    (d) Chapter 53, dealing with pay for General Schedule employees, 
pay and job grading for Federal Wage System employees, and pay for 
certain other employees;
    (e) Chapter 55, subchapter V, dealing with premium pay, except 
section 5545b;
    (f) Chapter 71, dealing with labor relations (as authorized by 5 
U.S.C. 9902(m));
    (g) Chapter 75, dealing with adverse actions and certain other 
actions; and
    (h) Chapter 77, dealing with the appeal of adverse actions and 
certain other actions.


Sec.  9901.105  Coordination with OPM.

    (a) As specified in paragraphs (b) through (e) of this section, the 
Secretary will advise and/or coordinate with OPM in advance, as 
applicable, regarding the proposed promulgation of certain 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. Such pre-
decisional coordination is intended as an internal DoD/OPM matter to 
recognize the Secretary's special authority to direct the operations of 
the Department of Defense pursuant to title 10, U.S. Code, as well as 
the Director's institutional responsibility to oversee the Federal 
civil service system pursuant to 5 U.S.C. chapter 11.
    (b) DoD will advise OPM in advance regarding the extension of 
specific subparts of this part to specific categories of DoD employees 
under Sec.  9901.102(b).
    (c) Subpart B of this part authorizes the Secretary to establish 
and administer a position classification system and classify positions 
covered by the NSPS; in so doing, DoD will coordinate with OPM prior 
to--
    (1) Establishing or substantially revising career groups, 
occupational pay schedules, and pay bands under Sec. Sec.  9901.211 and 
9901.212(a);
    (2) Establishing alternative or additional occupational series for 
a particular career group or occupation under Sec.  9901.221(b)(1) that 
differ from Governmentwide series and/or standards;
    (3) Establishing alternative or additional classification standards 
for a particular career group or occupation under Sec.  9901.221(b)(1) 
that differ from Governmentwide classification standards; and
    (4) Establishing the process by which DoD employees may request 
reconsideration of classification decisions by the Secretary under 
Sec.  9901.222, to ensure compatibility between DoD and OPM procedures.
    (d) Subpart C of this part authorizes the Secretary to establish 
and administer a compensation system for employees of the Department 
covered by the NSPS; in so doing, DoD will coordinate with OPM prior 
to--
    (1) Establishing maximum rates of basic pay and aggregate pay under 
Sec.  9901.312 that exceed those established under 5 U.S.C. chapter 53;
    (2) Establishing and adjusting pay ranges for occupational pay 
schedules and pay bands under Sec. Sec.  9901.321(a), 9901.322(a) and 
(b), and 9901.372;
    (3) Establishing and adjusting local market supplements under 
Sec. Sec.  9901.332(a) and 9901.333;
    (4) Establishing alternative or additional local market areas under 
Sec.  9901.332(b) that differ from those established for General 
Schedule employees under 5 CFR 531.603;
    (5) Establishing policies regarding starting rates of pay for newly 
appointed or transferred employees under Sec. Sec.  9901.351 through 
9901.354 and pay retention under Sec.  9901.355;
    (6) Establishing policies regarding premium pay under Sec.  
9901.361 that differ from those that exist in Governmentwide 
regulations; and
    (7) Establishing policies regarding the student loan repayment 
program under Sec.  9901.303(c) that differ from Governmentwide 
policies with respect to repayment amounts, service commitments, and 
reimbursement.
    (e) Subpart E of this part authorizes the Secretary to establish 
and administer authorities for the examination and appointment of 
employees to certain organizational elements of the Department covered 
by the NSPS; in so doing, DoD will coordinate with OPM prior to--
    (1) Establishing alternative or additional examining procedures 
under Sec.  9901.515 that differ from those applicable to the 
examination of applicants for appointment to the competitive and 
excepted service under 5 U.S.C. chapters 31 and 33, except as otherwise 
provided by subpart E of this part;
    (2) Establishing policies and procedures for time-limited 
appointments under Sec.  9901.511(d) regarding appointment duration, 
advertising requirements, examining procedures, the appropriate uses of 
time-limited employees, and the procedures under which a time-limited 
employee in a competitive service position maybe be converted without 
further competition to the career service; and
    (3) Establishing alternative or additional qualification standards 
for a particular occupational series, career group, occupational pay 
schedule, and/or pay band under Sec.  9901.212(d) or 9901.513 that 
significantly differ from Governmentwide standards.
    (f) Subpart F of this part authorizes the Secretary to establish 
and administer a workforce shaping system for employees of the 
Department covered by the NSPS; in so doing, DoD will coordinate with 
OPM prior to modifying coverage, retention procedures, or appeal rights 
under subpart F of this part.
    (g) Section 9902(l) of title 5, U.S. Code, requires the Secretary 
to make a determination that the Department has in place a performance 
management system that meets the criteria in 5 U.S.C. 9902(b) before 
the Secretary may apply the human resources management system 
established under 5 U.S.C. 9902(a) to an organization or functional 
unit that exceeds 300,000 civilian employees. In making this 
determination, the Secretary will coordinate with the Director.
    (h) When a matter requiring OPM coordination is 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 the effective date of the matter. Thereafter, the 
Secretary and the Director may take such action(s) as they deem 
appropriate, consistent with their respective statutory authorities and 
responsibilities.
    (i) The Secretary and the Director fully expect their staffs to 
work closely

[[Page 66192]]

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.


Sec.  9901.106  Continuing collaboration.

    (a) Continuing collaboration with employee representatives. (1) 
Consistent with 5 U.S.C. 9902, this section provides employee 
representatives with an opportunity to participate in the development 
of implementing issuances that carry out the provisions of this part. 
This process is the exclusive procedure for the participation of 
employee representatives in the planning, development, or 
implementation of the implementing issuances that carry out the 
provisions of this part. Therefore, this process is not subject to the 
requirements of 5 U.S.C. chapter 71, including but not limited to the 
exercise of management rights, enforcement of the duty to consult or 
negotiate, the duty to bargain and consult, or impasse procedures, or 
the requirements established by subpart I of this part, including but 
not limited to Sec. Sec.  9901.910 (regarding the exercise of 
management rights), 9901.916(a)(5) (regarding enforcement of the duty 
to consult or negotiate), 9901.917 (regarding the duty to bargain and 
consult), and 9901.920 (regarding impasse procedures).
    (2)(i) For the purpose of this section, the term ``employee 
representatives'' includes representatives of labor organizations with 
exclusive recognition rights for units of DoD employees, as determined 
pursuant to subpart I of this part.
    (ii) The Secretary, at his or her sole and exclusive discretion, 
may determine the number of employee representatives to be engaged in 
the continuing collaboration process. However, each national labor 
organization with one or more bargaining units accorded exclusive 
recognition in the Department affected by an implementing issuance will 
be provided the opportunity to participate in the continuing 
collaboration process.
    (iii) Each national labor organization with multiple collective 
bargaining units accorded exclusive recognition will determine how its 
units will be represented within the limitations imposed by the 
Secretary under paragraph (a)(2)(ii) of this section.
    (3)(i) Within timeframes specified by the Secretary, employee 
representatives will be provided with an opportunity to submit written 
comments to, and to discuss their views and recommendations with, DoD 
officials on any proposed final draft implementing issuances. If views 
and recommendations are presented by employee representatives, the 
Secretary must consider these views and recommendations before taking 
final action. The Secretary will provide employee representatives a 
written statement of the reasons for taking the final action regarding 
the implementing issuance.
    (ii) To the extent that the Secretary determines necessary, 
employee representatives will be provided with an opportunity to 
discuss their views with DoD officials and/or to submit written 
comments, at initial identification of implementation issues and 
conceptual design and/or at review of draft recommendations or 
alternatives.
    (4) Employee representatives will be provided with access to 
information for their participation in the continuing collaboration 
process to be productive.
    (5) Nothing in the continuing collaboration process will affect the 
right of the Secretary, Deputy Secretary, Principal Staff Assistants, 
or Secretaries of the Military Departments to determine the content of 
implementing issuances and to make them effective at any time.
    (b) Continuing collaboration with other interested organizations. 
The Secretary may also establish procedures for continuing 
collaboration with appropriate organizations that represent the 
interests of a substantial number of nonbargaining unit employees.


Sec.  9901.107  Relationship to other provisions.

    (a)(1) The provisions of title 5, U.S. Code, are waived, modified, 
or replaced to the extent authorized by 5 U.S.C. 9902 to conform to the 
provisions of this part.
    (2) This part must be interpreted in a way that recognizes the 
critical national security mission of the Department, and each 
provision of this part must be construed to promote the swift, 
flexible, effective day-to-day accomplishment of this mission, as 
defined by the Secretary. The interpretation of the regulations in this 
part by DoD and OPM must be accorded great deference.
    (b) For the purpose of applying other provisions of law or 
Governmentwide regulations that reference provisions under 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 this part, except as 
otherwise provided in this part (including paragraph (c) of this 
section) or in implementing issuances. Applications of this rule 
include, but are not limited to, the following:
    (1) If another provision of law or Governmentwide regulations 
requires coverage under one of the chapters modified or waived under 
this part (i.e., chapters 31, 33, 35, 43, 51, 53, 55 (subchapter V 
only), 71, 75, and 77 of title 5, U.S. Code), DoD employees are deemed 
to be covered by the applicable chapter notwithstanding coverage under 
a system established under this part. Selected examples of provisions 
that continue to apply to any DoD employees (notwithstanding coverage 
under subparts B through I of this part) include, but are not limited 
to, the following:
    (i) Foreign language awards for law enforcement officers under 5 
U.S.C. 4521 through 4523;
    (ii) Pay for firefighters under 5 U.S.C. 5545b;
    (iii) Recruitment, relocation, and retention payments under 5 
U.S.C. 5753 through 5754; and
    (iv) Physicians' comparability allowances under 5 U.S.C. 5948.
    (2) In applying the back pay law in 5 U.S.C. 5596 to DoD employees 
covered by subpart H of this part (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 Sec.  9901.807(f)(6).
    (3) In applying the back pay law in 5 U.S.C. 5596 to DoD employees 
covered by subpart I of this part (dealing with labor relations), the 
references in section 5596 to provisions in chapter 71 are considered 
to be references to those particular provisions as modified by subpart 
I of this part.
    (c) Law enforcement officer special base rates under section 403 of 
the Federal Employees Pay Comparability Act of 1990 (section 529 of 
Pub. L. 101-509) do not apply to employees who are covered by an NSPS 
classification and pay system established under subparts B and C of 
this part.
    (d) Nothing in this part waives, modifies or otherwise affects the 
employment discrimination laws that the Equal Employment Opportunity 
Commission (EEOC) enforces under 42 U.S.C. 2000e et seq., 29 U.S.C. 621 
et seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 206(d).


Sec.  9901.108  Program evaluation.

    (a) The Secretary will evaluate the regulations in this part and 
their implementation. The Secretary will provide designated employee 
representatives with an opportunity to be briefed and a specified 
timeframe to

[[Page 66193]]

provide comments on the design and results of program evaluations.
    (b) Involvement of employee representatives in the evaluation 
process does not waive the rights of any party under applicable law or 
regulations.

Subpart B--Classification

General


Sec.  9901.201  Purpose.

    (a) This subpart contains regulations establishing a classification 
structure and rules for covered DoD employees and positions to replace 
the classification structure and rules in 5 U.S.C. chapter 51 and the 
job grading system in 5 U.S.C. chapter 53, subchapter IV, in accordance 
with the merit 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 should be provided for excellence in 
performance.
    (b) Any classification system prescribed under this subpart will be 
established in conjunction with the pay system described in subpart C 
of this part.


Sec.  9901.202  Coverage.

    (a) This subpart applies to eligible DoD employees and positions 
listed in paragraph (b) of this section, subject to a determination by 
the Secretary under Sec.  9901.102(b)(2).
    (b) The following employees of, or positions in, DoD organizational 
and functional units are eligible for coverage under this subpart:
    (1) Employees and positions that would otherwise be covered by the 
General Schedule classification system established under 5 U.S.C. 
chapter 51;
    (2) Employees and positions that would otherwise be covered by a 
prevailing rate system established under 5 U.S.C. chapter 53, 
subchapter IV;
    (3) Employees in senior-level (SL) and scientific or professional 
(ST) positions who would otherwise be covered by 5 U.S.C. 5376;
    (4) Members of the Senior Executive Service (SES) who would 
otherwise be covered by 5 U.S.C. chapter 53, subchapter VIII, subject 
to Sec.  9901.102(d); and
    (5) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.


Sec.  9901.203  Waivers.

    (a) When a specified category of employees is covered by a 
classification system established under this subpart, the provisions of 
5 U.S.C. chapter 51 and 5 U.S.C. 5346 are waived with respect to that 
category of employees, except as provided in paragraph (b) of this 
section, Sec. Sec.  9901.107, and 9901.222(d) (with respect to OPM's 
authority under 5 U.S.C. 5112(b) and 5346(c) to act on requests for 
review of classification decisions).
    (b) Section 5108 of title 5, U.S. Code, dealing with the 
classification of positions above GS-15, is not waived for the purpose 
of defining and allocating senior executive service positions under 5 
U.S.C. 3132 and 3133 or applying provisions of law outside the waivable 
and modifiable chapters of title 5, U.S. Code--e.g., 5 U.S.C. 4507 and 
4507a (regarding Presidential rank awards) and 5 U.S.C. 6303(f) 
(regarding annual leave accrual for members of the SES and employees in 
SL/ST positions).


Sec.  9901.204  Definitions.

    In this subpart:
    Band means pay band.
    Basic pay has the meaning given that term in Sec.  9901.103.
    Career group has the meaning given that term in Sec.  9901.103.
    Classification, also referred to as job evaluation, means the 
process of analyzing and assigning a job or position to an occupational 
series, career group, pay schedule, and pay band for pay and other 
related purposes.
    Competencies has the meaning given that term in Sec.  9901.103.
    Occupational series has the meaning given that term in Sec.  
9901.103.
    Pay band or band has the meaning given that term in Sec.  9901.103.
    Pay schedule has the meaning given that term in Sec.  9901.103.
    Position or job means the duties, responsibilities, and related 
competency requirements that are assigned to an employee whom the 
Secretary approves for coverage under Sec.  9901.202(a).


Sec.  9901.205  Bar on collective bargaining.

    Pursuant to 5 U.S.C. 9902(f)(4) and (m)(7), any classification 
system established under this subpart is not subject to collective 
bargaining. This bar on collective bargaining applies to all aspects of 
the classification system, including, but not limited to coverage 
determinations, the design of the classification structure, and 
classification methods, criteria, and administrative procedures and 
arrangements.

Classification Structure


Sec.  9901.211  Career groups.

    For the purpose of classifying positions, the Secretary may 
establish career groups based on factors such as mission or function; 
nature of work; qualifications or competencies; career or pay 
progression patterns; relevant labor-market features; and other 
characteristics of those occupations or positions. The Secretary will 
document in implementing issuances the criteria and rationale for 
grouping occupations or positions into career groups.


Sec.  9901.212  Pay schedules and pay bands.

    (a) For purposes of identifying relative levels of work and 
corresponding pay ranges, the Secretary may establish one or more pay 
schedules within each career group.
    (b) Each pay schedule may include one or more pay bands.
    (c) The Secretary will document in implementing issuances the 
definitions for each pay band which specify the type and range of 
difficulty and responsibility; qualifications or competencies; or other 
characteristics of the work encompassed by the pay band.
    (d) The Secretary will designate qualification standards and 
requirements for each career group, occupational series, pay schedule, 
and/or pay band, as provided in Sec.  9901.513.

Classification Process


Sec.  9901.221  Classification Requirements.

    (a) The Secretary will develop a methodology for describing and 
documenting the duties, qualifications, and other requirements of 
categories of jobs, and will make such descriptions and documentation 
available to affected employees.
    (b) The Secretary will--
    (1) Assign occupational series to jobs consistent with occupational 
series definitions established by OPM under 5 U.S.C. 5105 and 5346, or 
by DoD; and
    (2) Apply the criteria and definitions required by Sec. Sec.  
9901.211 and 9901.212 to assign jobs to an appropriate career group, 
pay schedule, and pay band.
    (c) The Secretary will establish procedures for classifying jobs 
and may make such inquiries of the duties, responsibilities, and 
qualification requirements of jobs as it considers necessary for the 
purpose of this section.
    (d) Classification decisions become effective on the date an 
authorized official approves the classification. A classification 
decision is implemented by a personnel action. The personnel action 
implementing a classification decision must occur within four pay 
periods after the date of the decision. Except as provided for in Sec.  
9901.222(b), such decisions will be applied prospectively and do not 
convey any retroactive entitlements.

[[Page 66194]]

Sec.  9901.222  Reconsideration of classification decisions.

    (a) An individual employee may request that DoD or OPM reconsider 
the classification (i.e., pay system, career group, occupational 
series, official title, pay schedule, or pay band) of his or her 
official position of record at any time.
    (b) The Secretary will establish implementing issuances for 
reviewing requests for reconsideration. Such issuances will include a 
provision stating that a retroactive effective date may be required 
only if the employee is wrongfully reduced in band.
    (c) An employee may request OPM to review a DoD determination made 
under paragraph (a) of this section. If an employee does not request an 
OPM reconsideration decision, DoD's classification determination is 
final and not subject to further review or appeal.
    (d) OPM's final determination on a request made under this section 
is not subject to further review or appeal.
    (e) Any determination made under this section will be based on 
criteria issued by the Secretary or, where the Secretary has adopted an 
OPM classification standard, criteria issued by OPM.

Transitional Provisions


Sec.  9901.231  Conversion of positions and employees to the NSPS 
classification system.

    (a) This section describes the transitional provisions that apply 
when DoD positions and employees initially are converted to a 
classification system established under this subpart. Affected 
positions and employees may convert from the GS system, a prevailing 
rate system, the SL/ST system, the SES system, or such other DoD 
systems as may be designated by the Secretary, as provided in Sec.  
9901.202. For the purpose of this section, the terms ``convert,'' 
``converted,'' ``converting,'' and ``conversion'' refer to positions 
and employees that become covered by the NSPS classification system as 
a result of a coverage determination made under Sec.  9901.102(b)(2) 
and exclude employees who move from a noncovered position to a position 
already covered by NSPS.
    (b) The Secretary will issue implementing issuances prescribing 
policies and procedures for converting DoD employees to a pay band upon 
initial implementation of the NSPS classification system. Such 
procedures will include provisions for converting an employee who is 
retaining a grade under 5 U.S.C. chapter 53, subchapter VI, immediately 
prior to conversion. The Secretary will convert an employee's rate of 
pay as provided in Sec.  9901.373.

Subpart C--Pay and Pay Administration

General


Sec.  9901.301  Purpose.

    (a) This subpart contains 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, as authorized by 5 
U.S.C. 9902. Various features that link pay to employees' performance 
ratings are designed to promote a high-performance culture within DoD.
    (b) Any pay system prescribed under this subpart will be 
established in conjunction with the classification system described in 
subpart B of this part.
    (c) Any pay system prescribed under this subpart will be 
established in conjunction with the performance management system 
described in subpart D of this part.


Sec.  9901.302  Coverage.

    (a) This subpart applies to eligible DoD employees and positions in 
the categories listed in paragraph (b) of this section, subject to a 
determination by the Secretary under Sec.  9901.102(b)(2).
    (b) The following employees of, or positions in, DoD organizational 
and functional units are eligible for coverage under this subpart:
    (1) Employees and positions who would otherwise be covered by the 
General Schedule pay system established under 5 U.S.C. chapter 53, 
subchapter III;
    (2) Employees and positions who would otherwise be covered by a 
prevailing rate system established under 5 U.S.C. chapter 53, 
subchapter IV;
    (3) Employees in senior-level (SL) and scientific or professional 
(ST) positions who would otherwise be covered by 5 U.S.C. 5376;
    (4) Members of the Senior Executive Service (SES) who would 
otherwise be covered by 5 U.S.C. chapter 53, subchapter VIII, subject 
to Sec.  9901.102(d); and
    (5) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.
    (c) This section does not apply in determining coverage under Sec.  
9901.361 (dealing with premium pay).


Sec.  9901.303  Waivers.

    (a) When a specified category of employees is covered under this 
subpart--
    (1) The provisions of 5 U.S.C. chapter 53 are waived with respect 
to that category of employees, except as provided in Sec.  9901.107 and 
paragraphs (b) and (c) of this section; and
    (2) The provisions of 5 U.S.C. chapter 55, subchapter V (except 
section 5545b), are waived with respect to that category of employees 
to the extent that those employees are covered by alternative premium 
pay provisions established by the Secretary under Sec.  9901.361 in 
lieu of the provisions in 5 U.S.C. chapter 55, subchapter V.
    (b) The following provisions of 5 U.S.C. chapter 53 are not waived:
    (1) Sections 5311 through 5318, dealing with Executive Schedule 
positions;
    (2) Section 5371, insofar as it authorizes OPM to apply the 
provisions of 38 U.S.C. chapter 74 to DoD employees in health care 
positions covered by section 5371 in lieu of any NSPS pay system 
established under this subpart or the following provisions of title 5, 
U.S. Code: Chapters 51, 53, and 61, and subchapter V of chapter 55. The 
reference to ``chapter 51'' in section 5371 is deemed to include a 
classification system established under subpart B of this part; and
    (3) Section 5377, dealing with the critical pay authority.
    (c) Section 5379 is modified. The Secretary may establish and 
administer a student loan repayment program for DoD employees, except 
that the Secretary may not make loan payments for any noncareer 
appointee in the SES (as defined in 5 U.S.C. 3132(a)(7)) or for any 
employee occupying a position that is excepted from the competitive 
service because of its confidential, policy-determining, policy-making, 
or policy-advocating character. Notwithstanding Sec.  9901.302(a), any 
DoD employee otherwise covered by section 5379 is eligible for coverage 
under the provisions established under this paragraph, subject to a 
determination by the Secretary under Sec.  9901.102(b)(2).


Sec.  9901.304  Definitions.

    In this part:
    Band means pay band.
    Band rate range means the range of rates of basic pay (excluding 
any local market supplements) applicable to employees in a particular 
pay band, as described in Sec.  9901.321. Each band rate range is 
defined by a minimum and maximum rate.
    Basic pay has the meaning given that term in Sec.  9901.103.
    Bonus means an element of the performance payout that consists of a 
one-time lump-sum payment made to employees. It is not part of basic 
pay.
    Career group has the meaning given that term in Sec.  9901.103.

[[Page 66195]]

    Competencies has the meaning given that term in Sec.  9901.103.
    Contribution has the meaning given that term in Sec.  9901.103.
    Contribution assessment means the determination made by the pay 
pool manager as to the impact, extent, and scope of contribution that 
the employee's performance made to the accomplishment of the 
organization's mission and goals.
    CONUS or Continental United States means the States of the United 
States, excluding Alaska and Hawaii, but including the District of 
Columbia.
    Extraordinary pay increase or EPI means a discretionary basic pay 
increase or bonus to reward an employee at the highest performance 
level who has been assigned the maximum number of shares available 
under the rating and contribution scheme when the payout formula does 
not adequately compensate them for the employee's extraordinary 
performance and contribution, as described in Sec.  9901.344(b).
    Local market supplement means a geographic- and occupation-based 
supplement to basic pay, as described in Sec.  9901.332.
    Modal rating means, for the purpose of pay administration, the most 
frequent rating of record assigned to employees in the same pay band 
within a particular pay pool for a particular rating cycle.
    Pay band or band has the meaning given that term in Sec.  9901.103.
    Pay pool means the organizational elements/ units or other 
categories of employees that are combined for the purpose of 
determining performance payouts. Each employee is in only one pay pool 
at a time. Pay pool also means the amount designated for performance 
payouts to employees covered by a pay pool.
    Pay schedule has the meaning given that term in Sec.  9901.103.
    Performance has the meaning given that term in Sec.  9901.103.
    Performance payout means the total monetary value of a performance 
pay increase and bonus provided under Sec.  9901.342.
    Performance share means a unit of performance payout awarded to an 
employee based on performance. Performance shares may be awarded in 
multiples commensurate with the employee's performance and contribution 
rating level.
    Performance share value means a calculated value for each 
performance share based on pay pool funds available and the 
distribution of performance shares across employees within a pay pool, 
expressed as a percentage or fixed dollar amount.
    Promotion has the meaning given that term in Sec.  9901.103.
    Rating of record has the meaning given that term in Sec.  9901.103.
    Reassignment has the meaning given that term in Sec.  9901.103.
    Reduction in band has the meaning given that term in Sec.  
9901.103.
    Standard local market supplement means the local market supplement 
that applies to employees in a given pay schedule or band who are 
stationed within a specified local market area (the boundaries of which 
are defined under Sec.  9901.332(b)), unless a targeted local market 
supplement applies.
    Targeted local market supplement means a local market supplement 
established to address recruitment or retention difficulties or other 
appropriate reasons and which applies to a defined category of 
employees (based on occupation or other appropriate factors) in lieu of 
the standard local market supplement that would otherwise apply.
    Unacceptable performance has the meaning given that term in Sec.  
9901.103.


Sec.  9901.305  Bar on collective bargaining.

    Pursuant to 5 U.S.C. 9902(f)(4) and (m)(7), any pay program 
established under authority of this subpart is not subject to 
collective bargaining. This bar on collective bargaining applies to all 
aspects of the pay program, including but not limited to coverage 
decisions, the design of pay structures, the setting and adjustment of 
pay levels, pay administration rules and policies, and administrative 
procedures and arrangements.

Overview of Pay System


Sec.  9901.311  Major features.

    Through the issuance of implementing issuances, the Secretary will 
establish a pay system that governs the setting and adjusting of 
covered employees' rates of pay and the setting of covered employees' 
rates of premium pay. The NSPS pay system will include the following 
features:
    (a) A structure of rate ranges linked to various pay bands for each 
career group, in alignment with the classification structure described 
in subpart B of this part;
    (b) Policies regarding the setting and adjusting of band rate 
ranges based on mission requirements, labor market conditions, and 
other factors, as described in Sec. Sec.  9901.321 and 9901.322;
    (c) Policies regarding the setting and adjusting of local market 
supplements to basic pay based on local labor market conditions and 
other factors, as described in Sec. Sec.  9901.331 through 9901.333;
    (d) Policies regarding employees' eligibility for pay increases 
based on adjustments in rate ranges and supplements, as described in 
Sec. Sec.  9901.323 and 9901.334;
    (e) Policies regarding performance-based pay, as described in 
Sec. Sec.  9901.341 through 9901.345;
    (f) Policies on basic pay administration, including movement 
between career groups, positions, pay schedules, and pay bands, as 
described in Sec. Sec.  9901.351 through 9901.356;
    (g) Linkages to employees' ratings of record, as described in 
subpart D of this part; and
    (h) Policies regarding the setting of and limitations on premium 
payments, as described in Sec.  9901.361.


Sec.  9901.312  Maximum rates.

    The Secretary will establish limitations on maximum rates of basic 
pay and aggregate pay for covered employees.


Sec.  9901.313  National security compensation comparability.

    (a) To the maximum extent practicable, for fiscal years 2004 
through 2008, the overall amount allocated for compensation of the DoD 
civilian employees who are included in the NSPS may not be less than 
the amount that would have been allocated for compensation of such 
employees for such fiscal years if they had not been converted to the 
NSPS, based on at a minimum--
    (1) The number and mix of employees in such organizational or 
functional units prior to conversion of such employees to the NSPS; and
    (2) Adjustments for normal step increases and rates of promotion 
that would have been expected, had such employees remained in their 
previous pay schedule.
    (b) To the maximum extent practicable, implementing issuances will 
provide a formula for calculating the overall amount to be allocated 
for fiscal years beyond fiscal year 2008 for compensation of the 
civilian employees included in the NSPS. The formula will ensure that 
in the aggregate employees are not disadvantaged in terms of the 
overall amount of compensation available as a result of conversion to 
the NSPS, while providing flexibility to accommodate changes in the 
function of the organization and other changed circumstances that might 
impact compensation levels.
    (c) For the purpose of this section, ``compensation'' for civilian 
employees means basic pay, taking into account any applicable locality 
payment under 5 U.S.C. 5304, special rate supplement

[[Page 66196]]

under 5 U.S.C. 5305, local market supplement under Sec.  9901.332, or 
similar payment under other legal authority.

Setting and Adjusting Rate Ranges


Sec.  9901.321  Structure.

    (a) The Secretary will establish ranges of basic pay for pay bands, 
with minimum and maximum rates set and adjusted as provided in Sec.  
9901.322.
    (b) For each pay band within a career group, the Secretary will 
establish a common rate range that applies in all locations.


Sec.  9901.322  Setting and adjusting rate ranges.

    (a) Within his or her sole and exclusive discretion, the Secretary 
may, subject to Sec.  9901.105(d)(2), set and adjust the rate ranges 
established under Sec.  9901.321. In determining the rate ranges, the 
Secretary may consider mission requirements, labor market conditions, 
availability of funds, pay adjustments received by employees of other 
Federal agencies, and any other relevant factors.
    (b) The Secretary may determine the effective date of newly set or 
adjusted band rate ranges. Established rate ranges will be reviewed for 
possible adjustment at least annually.
    (c) The Secretary may establish different rate ranges and provide 
different rate range adjustments for different pay bands.
    (d) The Secretary may adjust the minimum and maximum rates of a pay 
band by different percentages.


Sec.  9901.323  Eligibility for pay increase associated with a rate 
range adjustment.

    (a) Employees with a current rating of record above 
``unacceptable'' and employees who do not have a current rating of 
record for the most recently completed appraisal period will receive a 
percentage increase in basic pay equal to the percentage by which the 
minimum of their rate range is increased. This section does not apply 
to employees receiving a retained rate under Sec.  9901.355.
    (b) Employees with a current rating of record of ``unacceptable'' 
will not receive a pay increase under this section.

Local Market Supplements


Sec.  9901.331  General.

    The basic pay ranges established under Sec. Sec.  9901.321 through 
9901.323 may be supplemented in appropriate circumstances by local 
market supplements, as described in Sec. Sec.  9901.332, 9901.333, and 
9901.334. These supplements are expressed as a percentage of basic pay 
and are set and adjusted as described in Sec.  9901.333.


Sec.  9901.332  Local market supplements.

    (a) The Secretary may establish local market supplements that apply 
in specified local market areas whose boundaries are set at the 
Secretary's sole and exclusive discretion, subject to paragraph (b) of 
this section and Sec.  9901.105(d)(4). Local market supplements apply 
to employees whose official duty station is located in the given local 
market area. The Secretary may establish standard or targeted local 
market supplements.
    (b)(1) The establishment or modification of geographic area 
boundaries for standard local market supplements by the Secretary will 
be effected by regulations which, notwithstanding 5 U.S.C. 553(a)(2), 
will be promulgated in accordance with the notice and comment 
requirements of 5 U.S.C. 553. As provided by the non-waived provisions 
of 5 U.S.C. 5304(f)(2) (modified here to apply to DoD regulations 
issued under the authority of this paragraph), judicial review of any 
such regulation is limited to whether or not it was promulgated in 
accordance with such requirements.
    (2) Notwithstanding paragraph (b)(1) of this section, the 
Secretary's establishment of a standard local market area boundary or 
boundaries identical to those used for locality pay areas established 
under 5 U.S.C. 5304 does not require separate DoD regulations.
    (c) Local market supplements are considered basic pay for only the 
following purposes:
    (1) Retirement deductions, contributions, and benefits under 5 
U.S.C. chapter 83 or 84;
    (2) Life insurance premiums and benefits under 5 U.S.C. chapter 87;
    (3) Premium pay under 5 U.S.C. chapter 55, subchapter V, or similar 
payments under other legal authority, including this subpart;
    (4) Severance pay under 5 U.S.C. 5595;
    (5) Cost-of-living allowances and post differentials under 5 U.S.C. 
5941;
    (6) Overseas allowances and differentials under 5 U.S.C. chapter 
59, subchapter III, to the extent authorized by the Department of 
State;
    (7) Recruitment, relocation, and retention incentives, supervisory 
differentials, and extended assignment incentives under 5 U.S.C. 
chapter 57, subchapter IV, and 5 CFR part 575;
    (8) Lump-sum payments for accumulated and accrued annual leave 
under 5 CFR 550, subpart L;
    (9) Determining the rate of basic pay upon conversion to the NSPS 
pay system as provided in Sec.  9901.373(b);
    (10) Other payments and adjustments authorized under this subpart 
as specified by implementing issuances;
    (11) Other payments and adjustments under other statutory or 
regulatory authority for which locality-based comparability payments 
under 5 U.S.C. 5304 are considered part of basic pay; and
    (12) Any provisions for which DoD local market supplements are 
treated as basic pay by law.


Sec.  9901.333  Setting and adjusting local market supplements.

    (a) Within his or her sole and exclusive discretion, the Secretary 
may, subject to Sec.  9901.105(d)(3), set and adjust local market 
supplements. In determining the amounts of the supplements, the 
Secretary will consider mission requirements, labor market conditions, 
availability of funds, pay adjustments received by employees of other 
Federal agencies, allowances and differentials under 5 U.S.C. chapter 
59, and any other relevant factors.
    (b) The Secretary may determine the effective date of newly set or 
adjusted local market supplements. Established supplements will be 
reviewed for possible adjustment at least annually in conjunction with 
rate range adjustments under Sec.  9901.322.


Sec.  9901.334  Eligibility for pay increase associated with a 
supplement adjustment.

    (a) When a local market supplement is adjusted under Sec.  
9901.333, employees to whom the supplement applies with a current 
rating of record above ``unacceptable,'' and employees who do not have 
a current rating of record for the most recently completed appraisal 
period, will receive any pay increase resulting from that adjustment.
    (b) Employees with a current rating of record of ``unacceptable'' 
will not receive a pay increase under this section.

Performance-Based Pay


Sec.  9901.341  General.

    Sections 9901.342 through 9901.345 describe the performance-based 
pay that is part of the pay system established under this subpart. 
These provisions are designed to provide the Secretary with the 
flexibility to allocate available funds to employees based on 
individual performance or contribution or team or organizational 
performance as a means of fostering a high-performance culture that 
supports mission accomplishment.


Sec.  9901.342  Performance payouts.

    (a) Overview. (1) The NSPS pay system will be a pay-for-performance 
system and, when implemented, will

[[Page 66197]]

result in a distribution of available performance pay funds based upon 
individual performance, individual contribution, team or organizational 
performance, or a combination of those elements. The NSPS pay system 
will use a pay pool concept to manage, control, and distribute 
performance-based pay increases and bonuses. 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.
    (2) The rating of record used as the basis for a performance pay 
increase is the one assigned for the most recently completed appraisal 
period, except that if an appropriate rating official determines that 
an employee's current performance is inconsistent with that rating, 
that rating official may prepare a more current rating of record, 
consistent with Sec.  9901.409(b). Unless otherwise provided in 
implementing issuances, if an employee is not eligible to have a rating 
of record for the current rating cycle for reasons other than those 
identified in paragraphs (f) and (g) of this section, such employee 
will not be eligible for a performance payout under this part.
    (3) Pay pools will be managed by a pay pool manager and/or pay pool 
panel. The Secretary will define in implementing issuances the 
responsibilities of pay pool managers and pay pool panels to include 
the review of proposed rating and share assignments to ensure that 
employees are treated fairly and consistently and in accordance with 
the merit system principles.
    (b) Performance pay pools. (1) The Secretary will issue 
implementing issuances for the establishment and management of pay 
pools for performance payouts.
    (2) The Secretary may determine a percentage of pay to be included 
in pay pools and paid out in accordance with accompanying implementing 
issuances as--
    (i) A performance-based pay increase;
    (ii) A performance-based bonus; or
    (iii) A combination of a performance-based pay increase and a 
performance-based bonus.
    (c) Performance shares. (1) The Secretary will issue implementing 
issuances regarding the assignment of a number or range of shares for 
each rating of record level, subject to paragraphs (c)(2) and (c)(3) of 
this section. Performance shares will be used to determine performance 
pay increases and/or bonuses.
    (2) Employees with unacceptable ratings of record will be assigned 
zero shares.
    (3) Where the Secretary establishes a range of shares for a rating 
of record level, he or she will provide guidance in implementing 
issuances on the use of share ranges. DoD organizations will notify 
employees at least 90 days prior to the end of the appraisal period of 
the factors that may be considered in making specific share 
assignments. Pay pool managers and/or pay pool panels will review 
proposed share assignments to ensure that factors are applied 
consistently across the pay pool and in accordance with the merit 
system principles.
    (d) Performance payout. (1) The Secretary will establish a 
methodology that authorized officials will use to determine the value 
of a performance share. A performance share may be expressed as a 
percentage of an employee's rate of basic pay (exclusive of local 
market supplements under Sec.  9901.332) or as a fixed dollar amount, 
or both.
    (2) To determine an individual employee's performance payout, the 
share value determined under paragraph (d)(1) of this section will be 
multiplied by the number of performance shares assigned to the 
employee.
    (3) The Secretary may provide for the establishment of control 
points within a band that limit increases in the rate of basic pay. The 
Secretary may require that certain criteria be met for increases above 
a control point.
    (4) A performance payout may be an increase in basic pay, a bonus, 
or a combination of the two. However, an increase in basic pay may not 
cause the employee's rate of basic pay to exceed the maximum rate or 
applicable control point of the employee's band rate range. 
Implementing issuances will provide guidance for determining the payout 
amount and the appropriate distribution between basic pay and bonus.
    (5) The Secretary will determine the effective date(s) of increases 
in basic pay made under this section.
    (6) Notwithstanding any other provision of this section, the 
Secretary will issue implementing issuances to address the 
circumstances under which an employee receiving a retained rate under 
Sec.  9901.355 may receive a lump-sum performance payout. Any 
performance payout in the form of a bonus for a retained rate employee 
may not exceed the amount that would be received by an employee in the 
same pay pool with the same rating of record whose rate of pay is at 
the maximum rate of the same band.
    (e) Proration of performance payouts. The Secretary will issue 
implementing issuances regarding the proration of performance payouts 
for employees who, during the period between performance payouts, are--
    (1) Hired, transferred, reassigned, or promoted;
    (2) In a leave-without-pay status (except as provided in paragraphs 
(f) and (g) of this section); or
    (3) In other circumstances where prorating is considered 
appropriate.
    (f) Adjustments for employees returning after performing honorable 
service in the uniformed services. The Secretary will issue 
implementing issuances regarding how to set the rate of basic pay 
prospectively for an employee who leaves a DoD position to perform 
service in the uniformed services (in accordance with 38 U.S.C. 4303 
and 5 CFR 353.102) and returns through the exercise of a reemployment 
right provided by law, Executive order, or regulation under which 
accrual of service for seniority-related benefits is protected (e.g., 
38 U.S.C. 4316). The Secretary will credit the employee with increases 
under Sec.  9901.323 and increases to basic pay under this section 
based on the employee's DoD rating of record for the appraisal period 
upon which these adjustments are based. If an employee does not have a 
rating of record for the appraisal period serving as a basis for these 
adjustments, the Secretary will base such adjustments on the average 
basic pay increases granted to other employees in the same pay pool and 
pay band who received the same rating as the employee's last DoD rating 
of record or the modal rating, whichever is most advantageous to the 
employee. In unusual cases where insufficient statistical information 
exists to determine the modal rating or when previous ratings do not 
convert to the NSPS rating scale, the Secretary may establish 
alternative procedures for determining a basic pay increase under this 
section.
    (g) Adjustments for employees returning to duty after being in 
workers' compensation status. The Secretary will issue implementing 
issuances regarding how to set the rate of basic pay prospectively for 
an employee who returns to duty after a period of receiving injury 
compensation under 5 U.S.C. chapter 81, subchapter I (in a leave-
without-pay status or as a separated employee). For the intervening 
period, the Secretary will credit the employee with increases under 
Sec.  9901.323 and increases to basic pay under this section based on 
the employee's DoD rating of record for the appraisal period upon which 
these adjustments are based. If an employee does not have a rating of 
record for the appraisal period serving as a basis for these 
adjustments, such adjustments

[[Page 66198]]

will be based on the average basic pay increases granted to other 
employees in the same pay pool and pay band who received the same 
rating as the employee's last DoD rating of record or the modal rating, 
whichever is most advantageous to the employee. In unusual cases where 
insufficient statistical information exists to determine the modal 
rating or when previous ratings do not convert to the NSPS rating 
scale, the Secretary may establish alternative procedures for 
determining a basic pay increase under this section.


Sec.  9901.343  Pay reduction based on unacceptable performance and/or 
conduct.

    An employee's rate of basic pay may be reduced based on a 
determination of unacceptable performance, conduct, or both. Such 
reduction may not exceed 10 percent unless the employee has been 
changed to a lower pay band and a greater reduction is needed to set 
the employee's pay at the maximum rate of the pay band. (See also 
Sec. Sec.  9901.352 and 9901.354.) An employee's rate of basic pay may 
not be reduced more than once in a 12-month period based on 
unacceptable performance, conduct, or both.


Sec.  9901.344  Other performance payments.

    (a) In accordance with implementing issuances authorized officials 
may make other payments to--
    (1) Recognize organizational or team achievement;
    (2) Reward extraordinary individual performance through an 
extraordinary pay increase (EPI), as described in paragraph (b) of this 
section; and
    (3) Provide for other special circumstances.
    (b) An EPI is paid in addition to performance payouts under Sec.  
9901.342 and will usually be made effective at the time of those 
payouts. The future performance and contribution level exhibited by the 
employee will be expected to continue at an extraordinarily high level.


Sec.  9901.345  Treatment of developmental positions.

    The Secretary may issue implementing issuances regarding pay 
increases for developmental positions. These issuances may require 
employees to meet certain standardized assessment or certification 
points as part of a formal training/developmental program. The 
Secretary may provide adjustments under this section in lieu of or in 
addition to adjustments under Sec.  9901.342.

Pay Administration


Sec.  9901.351  Setting an employee's starting pay.

    Subject to implementing issuances, the Secretary may set the 
starting rate of pay for individuals who are newly appointed or 
reappointed to the Federal service anywhere within the assigned pay 
band.


Sec.  9901.352  Setting pay upon reassignment.

    (a) Subject to paragraphs (b) and (c) of this section and subject 
to implementing issuances, the Secretary may set pay anywhere within 
the assigned pay band when an employee is reassigned, either 
voluntarily or involuntarily, to a position in the same or comparable 
pay band.
    (b) Subject to the adverse action procedures set forth in subpart G 
of this part and implementing issuances (or other appropriate adverse 
action procedures for employees not covered by subpart G of this part, 
such as procedures for National Guard Technicians under 32 U.S.C. 
709(f)), the Secretary may reduce an employee's rate of basic pay 
within a pay band for unacceptable performance and/or conduct. A 
reduction in pay under this paragraph may not be more than 10 percent 
or cause an employee's rate of basic pay to fall below the minimum rate 
of the employee's pay band. Such a reduction may be made effective at 
any time.
    (c) The Secretary will prescribe policies in implementing issuances 
regarding setting pay for an employee whose pay is reduced 
involuntarily, but not through adverse action procedures. In the case 
of completion of a temporary reassignment or failure to successfully 
complete an in-service probationary period, the employee's rate of 
basic pay will be set at the same rate the employee received prior to 
the temporary reassignment or placement in the position requiring the 
probationary period, with appropriate adjustment of the employee's rate 
of basic pay based on rate range increases or performance payouts that 
occurred during the time the employee was assigned to the new position. 
Any resulting reduction in basic pay is not considered an adverse 
action under subpart G of this part (or similar authority).


Sec.  9901.353  Setting pay upon promotion.

    Except as otherwise provided in implementing issuances, upon an 
employee's promotion, the employee will receive an increase in his or 
her rate of basic pay equal to at least 6 percent, unless this minimum 
increase results in a rate of basic pay higher than the maximum rate of 
the applicable pay band. An employee's rate of basic pay upon promotion 
may not be less than the minimum of the rate range.


Sec.  9901.354  Setting pay upon reduction in band.

    (a) Subject to paragraphs (b) and (c) of this section, pay may be 
set anywhere within the assigned pay band when an employee is reduced 
in band, either voluntarily or involuntarily. As applicable, pay 
retention provisions established under Sec.  9901.355 will apply.
    (b) Subject to the adverse action procedures set forth in subpart G 
of this part (or other appropriate adverse action procedures for 
employees not covered by subpart G of this part, such as procedures for 
National Guard Technicians under 32 U.S.C. 709(f)), the Secretary may 
assign an employee involuntarily to a position in a lower pay band for 
unacceptable performance and/or conduct, and may simultaneously reduce 
the employee's rate of basic pay. A reduction in basic pay under this 
paragraph may not cause an employee's rate of basic pay to fall below 
the minimum rate of the employee's new pay band, or be more than 10 
percent unless a larger reduction is needed to place the employee at 
the maximum rate of the lower band.
    (c) The Secretary will prescribe policies in implementing issuances 
regarding setting pay for an employee who is reduced in band 
involuntarily, but not through adverse action procedures. In the case 
of termination of a temporary promotion or failure to successfully 
complete an in-service probationary period, the employee's rate of 
basic pay will be set at the same rate the employee received prior to 
the temporary promotion or placement in the position requiring the 
probationary period, with appropriate adjustment of the employee's rate 
of basic pay based on rate range increases or performance payouts that 
occurred during the time the employee was assigned to the new position. 
Any resulting reduction in basic pay is not considered an adverse 
action under subpart G of this part (or similar authority).


Sec.  9901.355  Pay retention.

    (a) Subject to the requirements of this section, the Secretary will 
issue implementing issuances regarding pay retention. Pay retention 
prevents a reduction in basic pay that would otherwise occur by 
preserving the former rate of basic pay within the employee's new pay 
band or by establishing a retained rate that exceeds

[[Page 66199]]

the maximum rate of the new pay band. Local market supplements are not 
considered part of basic pay in applying pay retention.
    (b) Pay retention will be based on the employee's rate of basic pay 
in effect immediately before the action that would otherwise reduce the 
employee's rate. A retained rate will be compared to the range of rates 
of basic pay applicable to the employee's position.
    (c) Subject to any employee eligibility requirements the Secretary 
may prescribe, pay retention will apply when an employee is reduced in 
band through reduction in force (RIF), reclassification, or other 
appropriate circumstances, as specified in implementing issuances. Pay 
retention will be granted for a period of 2 years (that is, 104 weeks).
    (d) Employees entitled to a retained rate will receive any 
performance payouts in the form of bonuses, rather than salary 
adjustments, as provided in Sec.  9901.342(d)(6).
    (e) Employees entitled to a retained rate will not receive minimum 
rate range adjustments under Sec.  9901.323(a), but are entitled to 
receive any applicable local market supplement adjustments under Sec.  
9901.334(a).


Sec.  9901.356  Miscellaneous.

    (a) Except in the case of an employee who does not receive a pay 
increase under Sec.  9901.323 because of an unacceptable rating of 
record, an employee's rate of basic pay may not be less than the 
minimum rate of the employee's pay band.
    (b) Except as provided in Sec.  9901.355, an employee's rate of 
basic pay may not exceed the maximum rate of the employee's band rate 
range.
    (c) The Secretary will follow the rules for establishing pay 
periods and computing rates of pay in 5 U.S.C. 5504 and 5505, as 
applicable. For employees covered by 5 U.S.C. 5504, annual rates of pay 
will be converted to hourly rates of pay in computing payments received 
by covered employees.
    (d) The Secretary may promulgate implementing issuances that 
provide for a special increase prior to an employee's movement in 
recognition of the fact that the employee will not be eligible for a 
promotion increase under the GS system, if a DoD employee moves from 
the pay system established under this subpart to a GS position having a 
higher level of duties and responsibilities.

Premium Pay


Sec.  9901.361  General.

    (a) This section applies to eligible DoD employees and positions 
which would otherwise be covered by 5 U.S.C. chapter 55, subchapter V, 
subject to a determination by the Secretary under Sec.  9901.102(b)(2). 
As provided in Sec.  9901.303(a)(2), for employees covered by such a 
determination, the provisions of 5 U.S.C. chapter 55, subchapter V 
(except section 5545b), are waived or modified to the extent that the 
Secretary establishes alternative premium pay provisions for such 
employees in lieu of the provisions in 5 U.S.C. chapter 55, subchapter 
V.
    (b) The Secretary may establish alternative or additional forms of 
premium pay, or make modifications in premium payments under 5 U.S.C. 
chapter 55, subchapter V (except section 5545b), for specified 
categories of employees through implementing issuances. The types of 
premium payments the Secretary may establish or modify include, but are 
not limited to--
    (1) Overtime pay (excluding overtime pay under the Fair Labor 
Standards Act);
    (2) Compensatory time off;
    (3) Sunday, holiday, and night pay;
    (4) Annual premium pay for standby duty and administratively 
uncontrollable overtime work;
    (5) Availability pay for criminal investigators; and
    (6) Hazardous duty differentials.
    (c) The Secretary will determine the conditions of eligibility for 
the amounts of and the limitations on payments made under the authority 
of this section.

Conversion Provisions


Sec.  9901.371  General.

    (a) This section and Sec. Sec.  9901.372 and 9901.373 describe the 
provisions that apply when DoD employees are converted to the NSPS pay 
system established under this subpart. An affected employee may convert 
from the GS system, a prevailing rate system, the SL/ST system, or the 
SES system (or such other systems designated by the Secretary as DoD 
may be authorized to include under 5 U.S.C. 9902), as provided in Sec.  
9901.302. For the purpose of this section and Sec. Sec.  9901.372 and 
9901.373, the terms ``convert,'' ``converted,'' ``converting,'' and 
``conversion'' refer to employees who become covered by the pay system 
without a change in position (as a result of a coverage determination 
made under Sec.  9901.102(b)(2)) and exclude employees who move from a 
noncovered position to a position already covered by the NSPS pay 
system.
    (b) The Secretary will issue implementing issuances prescribing the 
policies and procedures necessary to implement these transitional 
provisions.


Sec.  9901.372  Creating initial pay ranges.

    DoD will set the initial band rate ranges for the NSPS pay system 
established under this subpart. The initial ranges may link to the 
ranges that apply to converted employees in their previously applicable 
pay system (taking into account any applicable locality payment under 5 
U.S.C. 5304, special rate supplement under 5 U.S.C. 5305, local market 
supplement under Sec.  9901.332, or similar payment under other legal 
authority).


Sec.  9901.373  Conversion of employees to the NSPS pay system.

    (a) When the NSPS pay system is established under this subpart and 
applied to a category of employees, employees will be converted to the 
system without a reduction in their rate of pay (including basic pay 
and any applicable locality payment under 5 U.S.C. 5304, special rate 
supplement under 5 U.S.C. 5305, local market supplement under Sec.  
9901.332, or similar payment under other legal authority).
    (b) When an employee receiving a special rate under 5 U.S.C. 5305 
before conversion is converted to an equal rate of pay under the NSPS 
pay system that consists of a basic rate and a local market supplement, 
the conversion is not a reduction in pay for the purpose of applying 
subpart G of this part (or similar authority).
    (c) If another personnel action (e.g., promotion, geographic 
movement) takes effect on the same day as the effective date of an 
employee's conversion to the new pay system, the other action will be 
processed under the rules pertaining to the employee's former system 
before processing the conversion action.
    (d) An employee on a temporary promotion at the time of conversion 
will be returned to his or her official position of record prior to 
processing the conversion. If the employee is temporarily promoted 
immediately after the conversion, pay will be set under the rules for 
promotion increases under the NSPS pay system.
    (e) The Secretary has discretion to make one-time pay adjustments 
for employees when they are converted to the NSPS pay system. The 
Secretary will issue implementing issuances governing any such pay 
adjustment, including rules governing employee eligibility, pay 
computations, and the timing of any such pay adjustment.

Subpart D--Performance Management


Sec.  9901.401  Purpose.

    (a) This subpart provides for the establishment in DoD of a 
performance

[[Page 66200]]

management system as authorized by 5 U.S.C. 9902.
    (b) The performance management system established under this 
subpart is designed to promote and sustain a high-performance culture 
by incorporating the following elements:
    (1) Adherence to merit principles set forth in 5 U.S.C. 2301;
    (2) A fair, credible, and transparent employee performance 
appraisal system;
    (3) A link between the performance management system and DoD's 
strategic plan;
    (4) A means for ensuring employee involvement in the design and 
implementation of the system;
    (5) Adequate training and retraining for supervisors, managers, and 
employees in the implementation and operation of the performance 
management system;
    (6) A process for ensuring ongoing performance feedback and 
dialogue among supervisors, managers, and employees throughout the 
appraisal period, and setting timetables for review;
    (7) Effective safeguards to ensure that the management of the 
system is fair and equitable and based on employee performance;
    (8) A means for ensuring that adequate agency resources are 
allocated for the design, implementation, and administration of the 
performance management system; and
    (9) A pay-for-performance evaluation system to better link 
individual pay to performance, and provide an equitable method for 
appraising and compensating employees.


Sec.  9901.402  Coverage.

    (a) This subpart applies to eligible DoD employees and positions in 
the categories listed in paragraph (b) of this section, subject to a 
determination by the Secretary under Sec.  9901.102(b)(2), except as 
provided in paragraph (c) of this section.
    (b) The following employees and positions in DoD organizational and 
functional units are eligible for coverage under this subpart:
    (1) Employees and positions who would otherwise be covered by 5 
U.S.C. chapter 43;
    (2) Employees and positions who were excluded from chapter 43 by 
OPM under 5 CFR 430.202(d) prior to the date of coverage of this 
subpart; and
    (3) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.
    (c) This subpart does not apply to employees who have been, or are 
expected to be, employed in an NSPS position for less than a minimum 
period (as defined in Sec.  9901.404) during a single 12-month period.


Sec.  9901.403  Waivers.

    When a specified category or group of employees is covered by the 
performance management system(s) established under this subpart, the 
provisions of 5 U.S.C. chapter 43 are waived with respect to that 
category of employees.


Sec.  9901.404  Definitions.

    In this subpart--
    Appraisal means the review and evaluation of an employee's 
performance.
    Appraisal period means the period of time established under a 
performance management system for reviewing employee performance.
    Competencies has the meaning given that term in Sec.  9901.103.
    Contribution has the meaning given that term in Sec.  9901.103.
    Minimum period means the period of time established by the 
Secretary during which an employee will perform under applicable 
performance expectations before receiving a rating of record.
    Pay-for-performance evaluation system means the performance 
management system established under this subpart to link individual pay 
to performance and provide an equitable method for appraising and 
compensating employees.
    Performance has the meaning given that term in Sec.  9901.103.
    Performance expectations means the duties, responsibilities, and 
competencies required by, or objectives associated with, an employee's 
position and the contributions and demonstrated competencies management 
expects of an employee, as described in Sec.  9901.406(d).
    Performance management means applying the integrated processes of 
setting and communicating performance expectations, monitoring 
performance and providing feedback, developing performance and 
addressing poor performance, and rating and rewarding performance in 
support of the organization's goals and objectives.
    Performance management system means the policies and requirements 
established under this subpart, as supplemented by implementing 
issuances, for setting and communicating employee performance 
expectations, monitoring performance and providing feedback, developing 
performance and addressing poor performance, and rating and rewarding 
performance. It incorporates the elements set forth in Sec.  
9901.401(b).
    Rating of record has the meaning given that term in Sec.  9901.103.
    Unacceptable performance has the meaning given that term in Sec.  
9901.103.


Sec.  9901.405  Performance management system requirements.

    (a) The Secretary will issue implementing issuances that establish 
a performance management system for DoD employees, subject to the 
requirements set forth in this subpart.
    (b) The NSPS performance management system will--
    (1) Specify the employees covered by the system(s);
    (2) Provide for the appraisal of the performance of each employee 
at least annually;
    (3) Specify the minimum period during which an employee will 
perform before being eligible to receive a rating of record;
    (4) Hold supervisors and managers accountable for effectively 
managing the performance of employees under their supervision as set 
forth in paragraph (c) of this section;
    (5) Specify procedures for setting and communicating performance 
expectations, monitoring performance and providing feedback, and 
developing, rating, and rewarding performance; and
    (6) Specify the criteria and procedures to address the performance 
of employees who are detailed or transferred and for employees in other 
special circumstances.
    (c) In fulfilling the requirements of paragraph (b) of this 
section, supervisors and managers are responsible for--
    (1) Clearly communicating performance expectations and holding 
employees responsible for accomplishing them;
    (2) Making meaningful distinctions among employees based on 
performance and contribution;
    (3) Fostering and rewarding excellent performance;
    (4) Addressing poor performance; and
    (5) Assuring that employees are assigned a rating of record when 
required by implementing issuances.


Sec.  9901.406  Setting and communicating performance expectations.

    (a) Performance expectations will support and align with the DoD 
mission and its strategic goals, organizational program and policy 
objectives, annual performance plans, and other measures of 
performance.
    (b) Performance expectations will be communicated in writing, 
including those that may affect an employee's retention in the job. 
Performance expectations will be communicated to the employee prior to 
holding the employee accountable for them.

[[Page 66201]]

However, notwithstanding this requirement, employees are always 
accountable for demonstrating professionalism and standards of 
appropriate conduct and behavior, such as civility and respect for 
others.
    (c) Performance expectations for supervisors and managers will 
include assessment and measurements of how well supervisors and 
managers plan, monitor, develop, correct, and assess subordinate 
employees' performance.
    (d) Performance expectations may include--
    (1) Goals or objectives that set general or specific performance 
targets at the individual, team, and/or organizational level;
    (2) Organizational, occupational, or other work requirements, such 
as standard operating procedures, operating instructions, manuals, 
internal rules and directives, and/or other instructions that are 
generally applicable and available to the employee; and
    (3) Competencies an employee is expected to demonstrate on the job, 
and/or the contributions an employee is expected to make.
    (e) Performance expectations may be amplified through particular 
work assignments or other instructions (which may specify the quality, 
quantity, accuracy, timeliness, or other expected characteristics of 
the completed assignment, or some combination of such characteristics). 
Such assignments and instructions need not be in writing.
    (f) Supervisors will involve employees, insofar as practicable, in 
the development of their performance expectations. However, final 
decisions regarding performance expectations are within the sole and 
exclusive discretion of management.


Sec.  9901.407  Monitoring performance and providing feedback.

    In applying the requirements of the performance management system 
and its implementing issuances and policies, supervisors will--
    (a) Monitor the performance of their employees and their 
contribution to the organization; and
    (b) Provide ongoing (i.e., regular and timely) feedback to 
employees on their actual performance with respect to their performance 
expectations, including one or more interim performance reviews during 
each appraisal period.


Sec.  9901.408  Developing performance and addressing poor performance.

    (a) Implementing issuances will prescribe procedures that 
supervisors will use to develop employee performance and to address 
poor performance.
    (b) If at any time during the appraisal period a supervisor 
determines that an employee's performance is unacceptable, the 
supervisor will--
    (1) Consider the range of options available to address the 
performance deficiency, which 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 as defined 
in subpart G of this part, including a reduction in rate of basic pay 
or pay band; and
    (2) Take appropriate action to address the deficiency, taking into 
account the circumstances, including the nature and gravity of the 
unacceptable performance and its consequences.
    (c) As specified in subpart H of this part (or other appropriate 
appeal procedures, if not covered by subpart H of this part, such as 
procedures for National Guard Technicians under 32 U.S.C. 709(f)), 
employees may appeal adverse actions (e.g., suspensions of more than 14 
days, reductions in pay and pay band, and removal) based on 
unacceptable performance and/or conduct.


Sec.  9901.409  Rating and rewarding performance.

    (a) The NSPS performance management system will establish a multi-
level rating system as described in the implementing issuances.
    (b) An appropriate rating official will prepare and issue a rating 
of record after the completion of the appraisal period. In accordance 
with implementing issuances, an additional rating of record may be 
issued to reflect a substantial and sustained change in the employee's 
performance since the last rating of record. A rating of record will be 
used as a basis for--
    (1) A pay determination under any applicable pay rules;
    (2) Determining reduction in force retention standing; and
    (3) Such other action that the Secretary considers appropriate, as 
specified in implementing issuances.
    (c) A rating of record will assess an employee's performance with 
respect to his or her performance expectations, as amplified through 
work assignments or other instructions, and/or relative contributions 
and is considered final when issued to the employee with all 
appropriate reviews and signatures.
    (d) An appropriate rating official will communicate the rating of 
record and number of shares to the employee prior to payout.
    (e) A rating of record issued under this subpart is an official 
rating of record for the purpose of any provision of title 5, Code of 
Federal Regulations, for which an official rating of record is 
required. Ratings of record will be transferred between subordinate 
organizations and to other Federal departments or agencies in 
accordance with implementing issuances.
    (f) The Secretary may not lower the rating of record of an employee 
based on an approved absence from work, including the absence of a 
disabled veteran to seek medical treatment as provided in Executive 
Order 5396.
    (g) A rating of record may be challenged by a nonbargaining unit 
employee only through a reconsideration process as provided in 
implementing issuances. This process will be the sole and exclusive 
method for all nonbargaining unit employees to challenge a rating of 
record. A payout determination will not be subject to the 
reconsideration process.
    (h) A bargaining unit employee may choose a negotiated grievance 
procedure or the administrative reconsideration process established 
under paragraph (g) of this section, but not both, to challenge his or 
her rating of record. An employee who chooses the administrative 
reconsideration process may not revert to a negotiated grievance 
procedure. A payout determination will not be subject to the negotiated 
grievance procedure. Any individual or panel reviewing a rating of 
record under a negotiated grievance procedure may not conduct an 
independent evaluation of the employee's performance, determine the 
appropriate share payout, or otherwise substitute his or her judgment 
for that of the rating official.
    (i) A supervisor or other rating official may prepare an additional 
performance appraisal for the purposes specified in the applicable 
performance management system (e.g., transfers and details) at any time 
after the completion of the minimum period. Such an appraisal is not a 
rating of record.
    (j) Implementing issuances will establish policies and procedures 
for crediting performance in a reduction in force in accordance with 
subpart F of this part (or other appropriate workforce shaping 
procedures for those not covered by subpart F of this part, such as 
National Guard Technicians under 32 U.S.C. 709).

Subpart E--Staffing and Employment

General


Sec.  9901.501  Purpose.

    (a) This subpart sets forth policies and procedures for the 
establishment of qualification requirements; recruitment

[[Page 66202]]

for, and appointment to, positions; and assignment, reassignment, 
detail, transfer, or promotion of employees, consistent with 5 U.S.C. 
9902(a) and (k).
    (b) The Secretary will comply with merit principles set forth in 5 
U.S.C. 2301 and with 5 U.S.C. 2302 (dealing with prohibited personnel 
practices).
    (c) The Secretary will adhere to veterans' preference principles 
set forth in 5 U.S.C. 2302(b)(11), consistent with 5 U.S.C. 9902(a) and 
(k).


Sec.  9901.502  Scope of authority.

    When a specified category of employees, applicants, and positions 
is covered by the system established under this subpart, the provisions 
of 5 U.S.C. 3301, 3302, 3304, 3317(a), 3318 and 3319 (except with 
respect to veterans' preference), 3321, 3324, 3325, 3327, 3330, 3341, 
and 5112(a) are modified and replaced with respect to that category, 
except as otherwise specified in this subpart. In accordance with Sec.  
9901.105, the Secretary will prescribe implementing issuances to carry 
out the provisions of this subpart.


Sec.  9901.503  Coverage.

    (a) This subpart applies to eligible DoD employees and positions in 
the categories listed in paragraph (b) of this section, subject to a 
determination by the Secretary under Sec.  9901.102(b).
    (b) The following employees and positions in DoD organizational and 
functional units are eligible for coverage under this subpart:
    (1) Employees and positions who would otherwise be covered by 5 
U.S.C. chapters 31 and 33 (excluding members of the Senior Executive 
Service); and
    (2) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.


Sec.  9901.504  Definitions.

    In this subpart--
    Career employee means an individual appointed without time limit to 
a competitive or excepted service position in the Federal career 
service.
    Initial probationary period has the meaning given that term in 
Sec.  9901.103.
    In-service probationary period has the meaning given that term in 
Sec.  9901.103.
    Promotion has the meaning given that term in Sec.  9901.103.
    Reassignment has the meaning given that term in Sec.  9901.103.
    Reduction in band has the meaning given that term in Sec.  
9901.103.
    Temporary employee means an individual not on a career appointment 
who is employed for a limited period of time not to exceed 1 year. The 
appointment may be extended, up to a maximum established by 
implementing issuances, to perform the work of a position that does not 
require an additional permanent employee.
    Term employee means an individual not on a career appointment who 
is employed for a period of more than 1 year up to a maximum 
established by implementing issuances, when the need for an employee's 
service is not permanent.
    Time-limited employee means an individual appointed to a position 
for a period of limited duration (e.g., term or temporary) in either 
the competitive or excepted service.

External Recruitment and Internal Placement


Sec.  9901.511  Appointing authorities.

    (a) Competitive and excepted appointing authorities. The Secretary 
may 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, and those individuals will be given career or time-limited 
appointments, as appropriate.
    (b) Additional appointing authorities. (1) The Secretary and the 
Director may enter into written agreements providing for new excepted 
and competitive appointing authorities for positions covered by the 
National Security Personnel System, including noncompetitive 
appointments, and excepted appointments that may lead to a subsequent 
noncompetitive appointment to the competitive service.
    (2)(i) DoD and OPM will jointly publish a notice in the Federal 
Register when establishing a new competitive appointing authority or a 
new excepted appointing authority that may lead to a subsequent 
noncompetitive appointment to a competitive position in the career 
service. DoD and OPM will issue a notice with a public comment period 
before establishing such authority, except as provided in paragraph 
(b)(2)(ii) of this section.
    (ii) If the Secretary determines that a critical mission 
requirement exists, DoD and OPM may establish a new appointing 
authority as described in paragraph (b)(2)(i) of this section effective 
upon publication of a Federal Register notice without a preceding 
comment period. However, the notice will invite public comments, and 
DoD and OPM will issue another notice if the authority is revised based 
on those comments.
    (3) The Secretary will prescribe appropriate implementing issuances 
to administer a new appointing authority established under paragraph 
(b) of this section.
    (4) At least annually, a consolidated list of all appointing 
authorities established under this section and currently in effect will 
be published in the Federal Register.
    (c) Severe shortage/critical need hiring authority. (1) The 
Secretary may determine that there is a severe shortage of candidates 
or a critical hiring need, as defined in 5 U.S.C. 3304(a)(3) and 5 CFR 
part 337, subpart B, for particular occupations, pay bands, career 
groups, and/or geographic locations, and establish a specific authority 
to make appointments without regard to Sec.  9901.515. Public notice 
will be provided in accordance with 5 U.S.C. 3304(a)(3)(A).
    (2) For each specific authority, the Secretary will document the 
basis for the severe shortage or critical hiring need, consistent with 
5 CFR 337.204(b) or 337.205(b), as applicable.
    (3) The Secretary will terminate or modify a specific authority to 
make appointments under this section when it determines that the severe 
shortage or critical need upon which the authority was based no longer 
exists.
    (4) The Secretary will prescribe appropriate implementing issuances 
to administer this authority and will notify OPM of determinations made 
under this section.
    (d) Time-limited appointing authorities. (1) The Secretary may 
prescribe the procedures for appointing employees, the duration of such 
appointments, and the appropriate uses of time-limited employees. These 
procedures will preclude the use of employees on term appointments in 
positions that should be filled on a permanent basis. Term appointments 
may be used to accomplish permanent work in circumstances where the 
position cannot be filled permanently, e.g., the incumbent will be out 
of the position for a significant period of time, but is expected to 
return.
    (2) The Secretary will prescribe implementing issuances 
establishing the procedures under which a time-limited employee serving 
in a competitive service position may be converted without further 
competition to the career service if--
    (i) The vacancy announcement met the requirements of Sec.  
9901.515(a) and included the possibility of noncompetitive conversion 
to a competitive position in the career service at a later date;
    (ii) The individual was appointed using the competitive examining 
procedures set forth in Sec.  9901.515(b) and (c); and

[[Page 66203]]

    (iii) The employee completed at least 2 years of continuous service 
at the fully successful level of performance or better.


Sec.  9901.512  Probationary periods.

    (a) The Secretary may establish initial probationary periods of at 
least 1 year, but not to exceed 3 years, as deemed appropriate for 
employees appointed to positions in the competitive and excepted 
service covered by NSPS. The Secretary will prescribe the conditions 
for such periods, such as creditable service, in implementing 
issuances. Initial probationary periods established for more than 1 
year will be applied to categories of positions or types of work that 
require a longer time period to evaluate the employee's ability to 
perform the work. A preference eligible who has completed 1 year of an 
initial probationary period is covered by subparts G and H of this 
part.
    (b) The Secretary may establish in-service probationary periods. 
The Secretary will prescribe the conditions for such periods, such as 
creditable service and groups of positions or occupations to be 
covered, in implementing issuances. An employee who does not 
satisfactorily complete an in-service probationary period will be 
returned to a grade or band no lower than that held before the in-
service probationary period and will have his or her rate of basic pay 
set in accordance with Sec.  9901.352(c) or 9901.354(c), as applicable. 
Nothing in this section prohibits an action against an individual 
serving an in-service probationary period for cause unrelated to 
performance.


Sec.  9901.513  Qualification standards.

    The Secretary may continue to use qualification standards 
established or approved by OPM. The Secretary also may establish 
qualification standards for positions covered by NSPS.


Sec.  9901.514  Non-citizen hiring.

    The Secretary may establish procedures for appointing non-citizens 
to positions within NSPS under the following conditions:
    (a) In the absence of a qualified U.S. citizen, the Secretary may 
appoint a qualified non-citizen in the excepted service; and
    (b) Immigration and security requirements will apply to these 
appointments.


Sec.  9901.515  Competitive examining procedures.

    (a) In recruiting applicants from outside of the civil service for 
competitive appointments to competitive service positions in NSPS, the 
Secretary will provide public notice for all vacancies in the career 
service in accordance with 5 CFR part 330 and--
    (1) Will accept applications for the vacant position from all U.S. 
citizens;
    (2) Will, at a minimum, consider applicants from the local 
commuting area;
    (3) May concurrently consider applicants from other targeted 
recruitment areas, as specified in the vacancy announcement, in 
addition to those applicants from the minimum area of consideration; 
and
    (4) May consider applicants from outside that minimum area(s) of 
consideration as necessary to provide sufficient qualified candidates.
    (b) The Secretary may establish procedures for the examination of 
applicants for entry into competitive and excepted service positions in 
the National Security Personnel System. Such procedures will adhere to 
the merit system principles in 5 U.S.C. 2301 and veterans' preference 
requirements as set forth in 5 U.S.C. 1302(b) and (c) and 3309 through 
3320, as applicable, and will be available in writing for applicant 
review. These procedures will also include provisions for employees 
entitled to priority consideration referred to in 5 U.S.C. 8151.
    (c) In establishing examining procedures for appointing employees 
in the competitive service under paragraph (b) of this section, the 
Secretary may use traditional numerical rating and ranking or 
alternative ranking and selection procedures (category rating) in 
accordance with 5 U.S.C. 3319(b) and (c).
    (d) The Secretary will apply the requirements of paragraphs (a) 
through (c) of this section to the recruitment of applicants for time-
limited positions in the competitive service in order to qualify an 
appointee for noncompetitive conversion to a competitive position in 
the career service, in accordance with Sec.  9901.511.


Sec.  9901.516  Internal placement.

    The Secretary may prescribe implementing issuances regarding the 
assignment, reassignment, reinstatement, detail, transfer, and 
promotion of individuals or employees into or within NSPS. Such 
implementing issuances will be made available to applicants and 
employees. Internal placement actions may be made on a permanent or 
temporary basis using competitive and noncompetitive procedures. Those 
exceptions to competitive procedures set forth in 5 CFR part 335 apply 
to NSPS.

Subpart F--Workforce Shaping


Sec.  9901.601  Purpose and applicability.

    This subpart contains the regulations implementing the provisions 
of 5 U.S.C. 9902(k) concerning the Department's system for realigning, 
reorganizing, and reshaping its workforce. This subpart applies to 
categories of positions and employees affected by such actions 
resulting from the planned elimination, addition, or redistribution of 
functions, duties, or skills within or among organizational units, 
including realigning, reshaping, delayering, and similar 
organizational-based restructuring actions. This subpart does not apply 
to actions involving the conduct and/or performance of individual 
employees, which are covered by subpart G of this part.


Sec.  9901.602  Scope of authority.

    When a specified category of employees is covered by the system 
established under this subpart, the provisions of 5 U.S.C. 3501 through 
3503 (except with respect to veterans' preference) are modified and 
replaced with respect to that category, except as otherwise specified 
in this subpart. In accordance with Sec.  9901.105, the Secretary will 
prescribe implementing issuances to carry out the provisions of this 
subpart.


Sec.  9901.603  Definitions.

    In this subpart:
    Competing employee means a career employee (including an employee 
serving an initial probationary period), an employee serving on a term 
appointment, and other employees as identified in implementing 
issuances.
    Competitive area means the boundaries within which employees 
compete for retention under this subpart, based on factors described in 
Sec.  9901.605(a).
    Competitive group means employees within a competitive area who are 
on a common retention list for the purpose of exercising displacement 
rights.
    Displacement right means the right of an employee who is displaced 
from his or her present position because of position abolishment, or 
because of displacement resulting from the abolishment of a higher-
standing employee on the retention list, to displace a lower-standing 
employee on the list on the basis of the retention factors.
    Modal rating means, for the purpose of reduction in force, the 
rating of record that occurs most frequently in a particular 
competitive group.
    Notice means a written communication to an individual

[[Page 66204]]

employee stating that the employee will be displaced from his or her 
position as a result of a reduction in force action under this subpart.
    Rating of record has the meaning given that term in Sec.  9901.103.
    Retention factors means tenure, veterans' preference, performance, 
length of service, and such other factors as the Secretary considers 
necessary and appropriate to rank employees within a particular 
retention list.
    Retention list means a list of all competing employees occupying 
positions in the competitive area, who are grouped in the same 
competitive group on the basis of retention factors. While all 
positions in the competitive group are listed, only competing employees 
have retention standing.
    Tenure group means a group of employees with a given appointment 
type. In a reduction in force, employees are first placed in a tenure 
group and then ranked within that group according to other retention 
factors.
    Undue interruption means a degree of interruption that would 
prevent the completion of required work by an employee within 90 days 
after the employee has been placed in a different position.


Sec.  9901.604  Coverage.

    (a) Employees covered. The following employees and positions in DoD 
organizational and functional units are eligible for coverage under 
this subpart:
    (1) Employees and positions who would otherwise be covered by 5 
U.S.C. chapter 35 (excluding members of the Senior Executive Service 
and employees who are excluded from coverage by other statutory 
authority); and
    (2) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.
    (b) Actions covered. (1) Reduction in force. This subpart will 
apply when a displacement action occurs within a retention list or when 
releasing a competing employee from a retention list by separation, 
reduction in band, or assignment involving displacement, and the 
release results from an action described in Sec.  9901.601.
    (2) Transfer of function. The Secretary will issue implementing 
issuances consistent with 5 U.S.C. 3503 prescribing procedures to be 
used when a function transfers from one competitive area to a different 
competitive area.
    (3) Furlough. The provisions in 5 CFR 351.604 will apply when 
furloughing a competing employee for more than 30 consecutive calendar 
days, or more than 22 workdays in 1 calendar year if done on a 
discontinuous basis, except as otherwise provided in this subpart.
    (c) Actions excluded. This subpart does not apply to--
    (1) The termination of a temporary promotion or temporary 
reassignment and the subsequent return of an employee to the position 
held before the temporary promotion or temporary reassignment (or to a 
position with comparable pay band, pay, status, and tenure);
    (2) A reduction in band based on the reclassification of an 
employee's position due to the application of new classification 
standards or the correction of a classification error or classification 
actions covered under Sec.  9901.222;
    (3) Placement of an employee serving on a seasonal basis in a 
nonpay, nonduty status in accordance with conditions established at 
time of appointment;
    (4) A change in an employee's work schedule from other-than-full-
time to full-time;
    (5) A change in an employee's mixed tour work schedule in 
accordance with conditions established at time of appointment;
    (6) A change in the scheduled tour of duty of an other-than-full-
time schedule;
    (7) A reduction in band based on the reclassification of an 
employee's position due to erosion of duties, except that this 
exclusion does not apply to such reclassification actions that will 
take effect after an agency has formally announced a reduction in force 
in the employee's competitive area and when the reduction in force will 
take effect within 180 days; or
    (8) Any other personnel action not covered by paragraph (b) of this 
section.


Sec.  9901.605  Competitive area.

    (a) Basis for competitive area. The Secretary may establish a 
competitive area on the basis of one or more of the following 
considerations:
    (1) Geographical location(s);
    (2) Line(s) of business;
    (3) Product line(s);
    (4) Organizational unit(s); and
    (5) Funding line(s).
    (b) Employees included in competitive area. A competitive area will 
include all competing employees holding official positions of record in 
the defined competitive area.
    (c) Review of competitive area determinations. The Secretary will 
make all competitive area definitions available for review.
    (d) Change of competitive area. Competitive areas will be 
established for a minimum of 90 days before the effective date of a 
reduction in force. In implementing issuances, the Secretary will 
establish approval procedure requirements for any competitive area 
identified less than 90 days before the effective date of a reduction 
in force.
    (e) Limitations. The Secretary will establish a competitive area 
only on the basis of legitimate organizational reasons, and competitive 
areas will not be used for the purpose of targeting an individual 
employee for reduction in forces on the basis of nonmerit factors.
    (f) Bar on collective bargaining. Pursuant to 5 U.S.C. 9902(f)(4) 
and (m)(7), the establishment of a competitive area under the authority 
of this subpart is not subject to collective bargaining.


Sec.  9901.606  Competitive group.

    (a) The Secretary will 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 (e.g., full-time, part-time, 
seasonal, intermittent).
    (b) The Secretary may further define competitive groups on the 
basis of one or more of the following considerations:
    (1) Career group;
    (2) Pay schedule;
    (3) Occupational series or specialty;
    (4) Pay band; or
    (5) Trainee status.
    (c) An employee is placed into a competitive group based on the 
employee's official position of record. An employee's official position 
description may be supplemented with other applicable records that 
document the employee's actual duties and responsibilities.
    (d) The competitive group includes the official positions of 
employees on a detail or other nonpermanent assignment to a different 
position from the competitive group.
    (e) Pursuant to 5 U.S.C. 9902(f)(4) and (m)(7), the establishment 
of a competitive group under the authority of this subpart is not 
subject to collective bargaining.


Sec.  9901.607  Retention standing.

    (a) Retention list. Within each competitive group, the Secretary 
will establish a retention list of competing employees in descending 
order based on the following:
    (1) Tenure, with career employees listed first, followed by 
employees serving an initial probationary period, and then followed by 
employees on term appointments and other employees as identified in 
implementing issuances;

[[Page 66205]]

    (2) Veterans' preference, in accordance with the preference 
requirements in 5 CFR 351.501(c) and (d), including the preference 
restrictions found in 5 U.S.C. 3501(a);
    (3) The ratings of record, as determined in accordance with 
implementing issuances;
    (4) Creditable civilian and/or uniformed service in accordance with 
5 U.S.C. 3502(a)(A) and (B) and 5 CFR 351.503, but without regard to 
provisions covering additional service credit for performance in 5 CFR 
351.503(c)(3) and (e); and
    (5) The Secretary may establish tie-breaking procedures when two or 
more employees have the same retention standing.
    (b) Active uniformed service member not on list. The retention list 
does not include the name of an employee who, on the effective date of 
the reduction in force, is on active duty in the uniformed services 
with a restoration right under 5 CFR part 353.
    (c) Access to retention list. An employee who received a specific 
reduction in force notice and the employee's representative have access 
to the applicable retention list in accordance with 5 CFR 351.505. 
Where 5 CFR 351.505 uses the terms ``competitive level'' or ``retention 
register,'' the term retention list (as defined in this subpart) is 
substituted.


Sec.  9901.608  Displacement, release, and position offers.

    (a) Displacement to other positions on the retention list. (1) An 
employee who is displaced because of position abolishment, or because 
of displacement resulting from the abolishment of the position of a 
higher-standing employee on the retention list, may displace a lower-
standing employee on the list if--
    (i) The higher-standing employee is qualified for the position 
consistent, as applicable, with 5 CFR 351.702, or the Department's own 
qualifications applied consistent with other requirements in 5 CFR 
351.702;
    (ii) No undue interruption would result from the displacement; and
    (iii) The position of the lower-standing employee is in the same 
pay band, or in a lower pay band, as the position of the higher-
standing employee.
    (2) A displacing employee retains his or her status and tenure.
    (b) Release from the retention list. (1) Employees are selected for 
release from the list on the basis of the ascending order of retention 
standing set forth in Sec.  9901.607(a).
    (2) A competing employee may not be released from a retention list 
that contains a position held by a temporary employee when the 
competing employee is qualified to perform in that position under Sec.  
9901.608(a)(1)(i).
    (3) The release of an employee from the retention list may be 
temporarily postponed when appropriate under 5 CFR 351.506, 351.606, 
351.607, and 351.608. Where part 351 uses the term ``competitive 
level'' in these four sections, the term retention list (as defined in 
this subpart) is substituted.
    (c) Placement in vacant positions. At the Secretary's option, an 
employee affected by Sec.  9901.608(a)(1) may be offered a vacant 
position within the competitive area in lieu of reduction in force, 
based on relative retention standing as specified in Sec.  9901.607(a).
    (d) Actions for employees with no offer. If a released employee 
does not receive an offer of another position under paragraph (c) of 
this section to a position on a different retention list, the Secretary 
may--
    (1) Separate the employee by reduction in force; or
    (2) Furlough the employee under Sec.  9901.604(b)(3).


Sec.  9901.609  Reduction in force notices.

    The Secretary will provide a specific written notice to each 
employee reached for an action in reduction in force competition at 
least 60 days before the reduction in force becomes effective. When a 
reduction in force is caused by circumstances not reasonably 
foreseeable, the Secretary, at the request of a Component head or 
designee, may approve a notice period of less than 60 days. The 
shortened notice period must cover at least 30 full days before the 
effective date of release. The content of the notice will be prescribed 
in implementing issuances.


Sec.  9901.610  Voluntary separation.

    (a) The Secretary may--
    (1) Separate from the service any employee who volunteers to be 
separated even though the employee is not otherwise subject to 
separation due to a reduction in force; and
    (2) For each employee voluntarily separated under paragraph (a)(1) 
of this section, retain an employee in a similar position who would 
otherwise be separated due to a reduction in force.
    (b) The separation of an employee under paragraph (a) of this 
section will be treated as an involuntary separation due to a reduction 
in force.


Sec.  9901.611  Reduction in force appeals.

    (a) An employee who believes the provisions of this subpart were 
not properly applied may appeal the reduction in force action to the 
Merit Systems Protection Board as provided for in 5 CFR 351.901 if the 
employee was--
    (1) Separated by reduction in force;
    (2) Reduced in band by reduction in force; or
    (3) Furloughed by reduction in force under Sec.  9901.604(b)(3).
    (b) Paragraph (a) of this section does not apply to actions taken 
under internal DoD placement programs, including the DoD Priority 
Placement Program.

Subpart G--Adverse Actions

General


Sec.  9901.701  Purpose.

    This subpart contains regulations prescribing the requirements for 
employees who are removed, suspended, furloughed for 30 days or less, 
reduced in pay, or reduced in pay band (or comparable reduction). The 
Secretary may prescribe implementing issuances to carry out the 
provisions of this subpart.


Sec.  9901.702  Waivers.

    With respect to any category of employees covered by this subpart, 
subchapters I and II of 5 U.S.C. chapter 75, in addition to those 
provisions of 5 U.S.C. chapter 43 specified in subpart D of this part, 
are waived and replaced by this subpart.


Sec.  9901.703  Definitions.

    In this subpart:
    Adverse action means a removal, suspension, furlough for 30 days or 
less, reduction in pay, or reduction in pay band (or comparable 
reduction).
    Band has the meaning given that term in Sec.  9901.103.
    Day has the meaning given that term in Sec.  9901.103.
    Furlough has the meaning given that term in Sec.  9901.103.
    Indefinite suspension means the placement of an employee in a 
temporary status without duties and pay pending investigation, inquiry, 
or other administrative action. An indefinite suspension continues for 
an indeterminate period of time and ends with the occurrence of pending 
conditions set forth in the notice of actions which may include the 
completion of any subsequent administrative action.
    Initial probationary period has the meaning given that term in 
Sec.  9901.103.
    In-service probationary period has the meaning given that term in 
Sec.  9901.103.
    Mandatory removal offense (MRO) has the meaning given that term in 
Sec.  9901.103.
    Reduction in pay means a decrease in an employee's rate of basic 
pay fixed by

[[Page 66206]]

law or administrative action for the position held by the employee 
before any deductions and exclusive of additional pay of any kind. 
Basic pay does not include local market supplements under subpart C of 
this part or similar payments. Nonreceipt of a pay increase is not a 
reduction in pay.
    Removal means the involuntary separation of an employee from the 
Federal service.
    Suspension means the temporary placement of an employee, for 
disciplinary reasons, in a nonduty/ nonpay status.


Sec.  9901.704  Coverage.

    (a) Actions covered. This subpart covers removals, suspensions, 
furloughs of 30 days or less, reductions in pay, or reductions in band 
(or comparable reductions).
    (b) Actions excluded. This subpart does not cover--
    (1) An action taken against an employee during an initial 
probationary period established under Sec.  9901.512(a), except when 
the employee is a preference eligible who has completed 1 year of that 
probationary period;
    (2) A reduction in pay or pay band of an employee who does not 
satisfactorily complete an in-service probationary period under Sec.  
9901.512(b) if the employee is returned to a grade or band and rate of 
basic pay no lower than that held before the in-service probationary 
period.
    (3) An action that terminates a temporary or term promotion and 
returns the employee to the position from which temporarily promoted, 
or to a different position in a comparable pay band, if the employee 
was informed that the promotion was to be of limited duration;
    (4) A reduction in force action under subpart F of this part;
    (5) An action imposed by the Merit Systems Protection Board under 5 
U.S.C. 1215;
    (6) A voluntary action by an employee;
    (7) An action taken or directed by OPM based on suitability under 5 
CFR part 731;
    (8)(i) Termination of appointment on the expiration date specified 
as a basic condition of employment at the time the appointment was 
made;
    (ii) Termination of appointment before the expiration date 
specified as a basic condition of employment at the time the 
appointment was made, except when the termination is taken against--
    (A) A preference eligible employee who has completed 1 year under a 
time-limited appointment; or
    (B) An employee who has completed a probationary period under a 
term appointment;
    (9) Cancellation of a promotion to a position not classified prior 
to the promotion;
    (10) Placement of an employee serving on an intermittent or 
seasonal basis in a temporary non-duty, non-pay status in accordance 
with conditions established at the time of appointment;
    (11) Reduction of an employee's rate of basic pay from a rate that 
is contrary to law or regulation;
    (12) An action taken under a provision of statute, other than one 
codified in title 5, U.S. Code, which excludes the action from 5 U.S.C. 
chapter 75 or this subpart;
    (13) A classification determination, including a classification 
determination under subpart B of this part;
    (14) Suspension or removal under 5 U.S.C. 7532; and
    (15) An action to terminate grade retention upon conversion to the 
NSPS pay system established under subpart C of this part.
    (c) Employees covered. Subject to a determination by the Secretary 
under Sec.  9901.102(b)(2), this subpart applies to DoD employees, 
except as excluded by paragraph (d) of this section.
    (d) Employees excluded. This subpart does not apply to--
    (1) An employee who is serving a probationary period, except when 
the employee is a preference eligible who has completed 1 year of that 
probationary period;
    (2) A member of the Senior Executive Service;
    (3) An employee who is terminated in accordance with terms 
specified as conditions of employment at the time the appointment was 
made;
    (4) An employee whose appointment is made by and with the advice 
and consent of the Senate;
    (5) An employee whose position has been determined to be of a 
confidential, policy-determining, policy-making, or policy-advocating 
character by--
    (i) The President, for a position that the President has excepted 
from the competitive service;
    (ii) OPM, for a position that OPM has excepted from the competitive 
service; or
    (iii) The President or the Secretary for a position excepted from 
the competitive service by statute;
    (6) An employee whose appointment is made by the President;
    (7) A reemployed annuitant who is receiving an annuity from the 
Civil Service Retirement and Disability Fund or the Foreign Service 
Retirement and Disability Fund;
    (8) An employee who is an alien or non-citizen occupying a position 
outside the United States, as described in 5 U.S.C. 5102(c)(11);
    (9) A member of the National Security Labor Relations Board;
    (10) A non-appropriated fund employee;
    (11) A National Guard technician who is employed under 32 U.S.C. 
709; and
    (12) An employee against whom an adverse personnel action is taken 
or imposed under any statute or regulation other than this subpart.

Requirements for Removal, Suspension, Furlough of 30 Days or Less, 
Reduction in Pay, or Reduction in Band (or Comparable Reduction)


Sec.  9901.711  Standard for action.

    The Secretary may take an adverse action under this subpart only 
for such cause as will promote the efficiency of the service.


Sec.  9901.712  Mandatory removal offenses.

    (a) The Secretary has the sole, exclusive, and unreviewable 
discretion to identify offenses that have a direct and substantial 
adverse impact on the Department's national security mission. Such 
offenses will be identified in advance in implementing issuances, 
publicized upon establishment via notice in the Federal Register, and 
made known to all employees on a periodic basis, as appropriate, 
through means determined by the Secretary.
    (b) The procedures in Sec. Sec.  9901.713 through 9901.716 apply to 
actions taken under this section. However, a proposed notice required 
by Sec.  9901.714 may be issued to the employee in question only after 
the Secretary's review and approval.
    (c) The Secretary has the sole, exclusive, and unreviewable 
discretion to mitigate the removal penalty on his or her own initiative 
or at the request of the employee in question.
    (d) Nothing in this section limits the discretion of the Secretary 
to remove employees for offenses other than those identified by the 
Secretary as an MRO.


Sec.  9901.713  Procedures.

    An employee against whom an adverse action is proposed is entitled 
to the following:
    (a) A proposal notice under Sec.  9901.714;
    (b) An opportunity to reply under Sec.  9901.715; and
    (c) A decision notice under Sec.  9901.716.


Sec.  9901.714  Proposal notice.

    (a) Notice period. An employee will receive a minimum of 15 days 
advance

[[Page 66207]]

written notice of a proposed adverse action. However, if there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the notice period may 
be shortened to a minimum of 5 days. No notice of proposed action is 
necessary for furlough without pay due to unforeseen circumstances, 
such as sudden breakdown in equipment, acts of God, or sudden 
emergencies requiring immediate curtailment of activities.
    (b) Contents of notice. (1) The proposal notice will inform the 
employee of the factual basis for the proposed action in sufficient 
detail to permit the employee to reply to the notice, and inform the 
employee of his or her right to review the evidence supporting the 
proposed action. Evidence may not be used that cannot be disclosed to 
the employee, his or her representative, or designated physician 
pursuant to 5 CFR 297.204.
    (2) When some but not all employees in a given category and/or 
organizational unit are being furloughed, the proposal notice will 
state the basis for selecting a particular employee for furlough, as 
well as the reasons for the furlough.
    (c) Duty status during notice period. An employee will remain in a 
duty status in his or her regular position during the notice period. 
However, if it is determined that the employee's continued presence in 
the workplace during the notice period may pose a threat to the 
employee or others, result in loss of or damage to Government property, 
adversely impact the Department's mission, or otherwise jeopardize 
legitimate Government interests, one or a combination of the following 
alternatives may be taken:
    (1) Assign the employee to duties where it is determined that the 
employee is no longer a threat to the employee or others, the 
Department's mission, or Government property or interests;
    (2) Allow the employee to take leave, or place him or her in an 
appropriate leave status (annual leave, sick leave, or leave without 
pay) or absence without leave if the employee has absented himself or 
herself from the worksite without approved leave; or
    (3) Place the employee in a paid, non-duty status for such time as 
is necessary to effect the action.


Sec.  9901.715  Opportunity to reply.

    (a) An employee will be provided a minimum of 10 days, which will 
run concurrently with the notice period, to reply orally and/or in 
writing to a notice of proposed adverse action. However, if there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the reply period may 
be reduced to a minimum 5 days, which will run concurrently with the 
notice period. No opportunity to reply is necessary for furlough 
without pay due to unforeseen circumstances, such as sudden breakdown 
in equipment, acts of God, or sudden emergencies requiring immediate 
curtailment of activities.
    (b) The opportunity to reply orally does not include the right to a 
formal hearing with examination of witnesses.
    (c) During the opportunity to reply period, the employee will be 
provided a reasonable amount of official time to review the evidence, 
and to furnish affidavits and other documentary evidence, if the 
employee is otherwise in an active duty status.
    (d) An official will be designated to receive the employee's 
written and/or oral response. The official will have authority to make 
or recommend a final decision on the proposed adverse action.
    (e) The employee may be represented by an attorney or non-Federal 
employee representative, at the employee's expense, or other 
representative of the employee's choice, subject to paragraph (f) of 
this section. The employee will provide a written designation of his or 
her representative.
    (f) An employee's representative may be disallowed if the 
representative is--
    (1) An individual whose activities as representative would cause a 
conflict between the interest or position of the representative and 
that of the Department,
    (2) An employee of the Department whose release from his or her 
official position would give rise to unreasonable costs or whose work 
assignments preclude his or her release; or
    (3) An individual whose activities as representative could 
compromise security.
    (g)(1) An employee who wishes consideration of any medical 
condition that may be relevant to the proposed adverse action will 
provide medical documentation, as that term is defined at 5 CFR 
339.104, during the opportunity to reply, whenever possible.
    (2) A medical examination may be required or offered pursuant to 5 
CFR part 339, subpart C, when an employee's medical documentation is 
under consideration.
    (3) Withdrawal or delay of a proposed adverse action is not 
required when an employee's medical condition is under consideration . 
However--
    (i) The employee will be allowed to provide medical documentation 
during the opportunity to reply;
    (ii) Compliance with 29 CFR 1614.203 and relevant Equal Employment 
Opportunity Commission rules will occur; and
    (iii) Compliance with 5 CFR 831.1205 or 844.202, as applicable, 
will occur in the issuance of a decision to remove.


Sec.  9901.716  Decision notice.

    (a) Any reasons for the action other than those specified in the 
proposal notice may not be considered in a decision on a proposed 
adverse action.
    (b) Any response from the employee and the employee's 
representative, if the response is provided to the official designated 
under Sec.  9901.715(d) during the opportunity to reply period, and any 
medical documentation furnished under Sec.  9901.715(g) will be 
considered.
    (c) The decision notice will specify in writing the reasons for the 
decision and advise the employee of any appeal or grievance rights 
under subparts H or I of this part.
    (d) To the extent practicable, the notice to the employee will be 
delivered on or before the effective date of the action. If delivery 
cannot be made to the employee in person, the notice may be delivered 
to the employee's last known address of record on or before the 
effective date of the action.


Sec.  9901.717  Departmental record.

    (a) Document retention. The Department will keep a record of all 
relevant documentation concerning the action for a period of time 
pursuant to the General Records Schedule and the Guide to Personnel 
Recordkeeping. The record will include the following:
    (1) A copy of the proposal notice;
    (2) The employee's written response, if any, to the proposal;
    (3) A summary of the employee's oral response, if any;
    (4) A copy of the decision notice; and
    (5) Any supporting material that is directly relevant and on which 
the action was substantially based.
    (b) Access to the record. The Department will make the record 
available for review by the employee and furnish a copy of the record 
upon the employee's request or the request of the Merit Systems 
Protection Board (MSPB), but not less than 15 days after such a 
request.

Savings Provision


Sec.  9901.721  Savings provision.

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

[[Page 66208]]

Subpart H--Appeals


Sec.  9901.801  Purpose.

    This subpart implements the provisions of 5 U.S.C. 9902(h), which 
establishes the process for Department employees to appeal certain 
adverse actions covered under subpart G of this part.


Sec.  9901.802  Applicable legal standards and precedents.

    In accordance with 5 U.S.C. 9902(h)(3), in applying existing legal 
standards and precedents, MSPB and arbitrators, in applicable cases, 
are bound by the legal standard set forth in Sec.  9901.107(a)(2).


Sec.  9901.803  Waivers.

    When a specified category of employees is covered by an appeals 
process established under this subpart, the provisions of 5 U.S.C. 7701 
are waived with respect to that category of employees to the extent 
they are inconsistent with the provisions of this subpart. The 
provisions of 5 U.S.C. 7702 are modified as provided in Sec.  9901.809. 
The appellate procedures specified herein supersede those of MSPB to 
the extent MSPB regulations are inconsistent with this subpart. MSPB 
will follow the provisions in this subpart until it issues conforming 
regulations, which may not conflict with this part.


Sec.  9901.804  Definitions.

    In this subpart:
    Administrative judge or AJ means the official, including an 
administrative law judge, authorized by MSPB to hold a hearing in a 
matter covered by this subpart and subpart G of this part, or to decide 
such a matter without a hearing.
    Class appeal means an appeal brought by a representative(s) of a 
group of similarly situated employees consistent with the provisions of 
Rule 23 of the Federal Rules of Civil Procedure.
    Harmful error means error by the Department in the application of 
its procedures that is likely to have caused it to reach a conclusion 
different from the one it would have reached in the absence or cure of 
the error. The burden is on the appellant to show that the error was 
harmful, i.e., that it caused substantial harm or prejudice to his or 
her rights.
    Mandatory removal offense (MRO) has the meaning given that term in 
Sec.  9901.103.
    MSPB means the Merit Systems Protection Board.
    Petition for Review (PFR) means a request for full MSPB review of a 
final Department decision.
    Preponderance of the evidence means the degree of relevant evidence 
that a reasonable person, considering the record as a whole, would 
accept as sufficient to find that a contested fact is more likely to be 
true than untrue.
    Request for Review (RFR) means a preliminary request for review of 
an initial decision of an MSPB administrative judge before that 
decision has become a final Department decision.


Sec.  9901.805  Coverage.

    (a) Subject to a determination by the Secretary under Sec.  
9901.102(b)(2), this subpart applies to employees in DoD organizational 
and functional units that are included under NSPS who appeal removals; 
suspensions for more than 14 days, including indefinite suspensions; 
furloughs of 30 days or less; reductions in pay; or reductions in pay 
band (or comparable reductions), which constitute appealable adverse 
actions for the purpose of this subpart, provided such employees are 
covered by Sec.  9901.704.
    (b) This subpart does not apply to a reduction in force action 
taken under subpart F of this part, nor does it apply to actions taken 
under internal DoD placement programs, including the DoD Priority 
Placement Program.
    (c) Appeals of suspensions of 14 days or less and other lesser 
disciplinary measures are not covered under this subpart but may be 
grieved through a negotiated grievance procedure or an administrative 
grievance procedure, whichever is applicable.
    (d) The appeal rights in 5 CFR 315.806 apply to the termination of 
an employee in the competitive service while serving a probationary 
period.
    (e) Actions taken under 5 U.S.C. 7532 are not appealable to MSPB.
    (f) Except as expressly provided in subpart C of this part, actions 
taken under that subpart are not appealable to MSPB.


Sec.  9901.806  Alternative dispute resolution.

    The Secretary recognizes the value of using alternative dispute 
resolution methods such as mediation, an ombudsman, or interest-based 
problem-solving to address employee-employer disputes arising in the 
workplace, including those which may involve disciplinary or adverse 
actions. Such methods can result in more efficient and more effective 
outcomes than traditional, adversarial methods of dispute resolution. 
The use of alternative dispute resolution is encouraged. Such methods 
will be subject to collective bargaining to the extent permitted by 
subpart I of this part.


Sec.  9901.807  Appellate procedures.

    (a) General. (1) A covered Department employee may appeal to MSPB 
an adverse action listed in Sec.  9901.805(a). Such an employee has a 
right to be represented by an attorney or other representative of his 
or her own choosing. The procedures in this subpart do not apply when 
the action is taken under the special national security provisions 
established by 5 U.S.C. 7532.
    (2)(i) This section modifies MSPB's appellate procedures with 
respect to appeals under this subpart, as applicable.
    (ii) MSPB will refer appeals to an AJ for adjudication. The AJ must 
make a decision at the close of the review and provide a copy of the 
decision to each party to the appeal and to OPM.
    (3) The Director of OPM may, as a matter of right at any time in 
the proceeding, intervene or otherwise participate in any proceeding 
under this section in any case in which the Director believes that an 
erroneous decision will have a substantial impact on a civil service 
law, rule, regulation, or policy directive.
    (4) If the AJ is of the opinion that an appeal could be processed 
more expeditiously without adversely affecting any party, the AJ may--
    (i) Consolidate appeals filed by two or more appellants; or
    (ii) Join two or more appeals filed by the same appellant and hear 
and decide them concurrently.
    (5) If an employee has been removed under subpart G of this part, 
neither the employee's status under any retirement system established 
by Federal statute nor any election made by the employee under any such 
system will affect the employee's appeal rights.
    (6) All appeals, including class appeals, will be filed no later 
than 20 days after the effective date of the action being appealed, or 
no later than 20 days after the date of service of a decision under 
subpart G of this part, whichever is later.
    (7) Either party may file a motion to disqualify a party's 
representative at any time during the proceedings.
    (b) Case suspension. Requests for case suspensions must be 
submitted jointly by the parties.
    (c) Settlement. (1) An MSPB AJ may not require any party to engage 
in settlement discussions in connection with any action appealed under 
this section. Where the parties voluntarily agree to enter into 
settlement discussions under paragraph (c)(2) of

[[Page 66209]]

this section, if either party decides that such discussions are not 
appropriate, the matter will proceed to adjudication.
    (2) Where the parties agree to engage in formal settlement 
discussions, these discussions will be conducted by an official other 
than the AJ assigned to adjudicate the case. Nothing prohibits the 
parties from engaging in settlement discussions on their own.
    (d) Discovery. The parties may seek discovery regarding any matter 
that is relevant to any of their claims or defenses. However, by 
motion, either party may seek to limit such discovery because the 
burden or expense of providing the material outweighs its benefit, or 
because the material sought 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.
    (1) Prior to filing a motion to limit discovery, the parties must 
confer and attempt to resolve any pending objection(s).
    (2) Neither party may submit more than one set of interrogatories, 
one set of requests for production, and one set of requests for 
admissions. The number of interrogatories or requests for production or 
admissions may not exceed 25 per pleading, including subparts; in 
addition, neither party may conduct/compel more than 2 depositions.
    (3) The AJ may grant a party's motion for additional discovery only 
upon a showing of necessity and good cause.
    (e) Hearing. (1) Burden of proof. An adverse action taken against 
an employee will be sustained by the MSPB AJ if it is supported by a 
preponderance of the evidence, unless the employee shows by a 
preponderance of the evidence--
    (i) That there was harmful error in the application of Department 
procedures in arriving at the decision;
    (ii) That the decision was based on any prohibited personnel 
practice described in 5 U.S.C. 2302(b); or
    (iii) That the decision was not in accordance with law.
    (2) Decisions without a hearing. If the AJ determines upon his or 
her own initiative or upon request by either party that some or all 
material facts are not in genuine dispute, he or she may, after giving 
notice to the parties and providing them an opportunity to respond in 
writing, including filing evidence and/or arguments, within 15 calendar 
days, issue an order limiting the scope of the hearing or issue a 
decision without holding a hearing.
    (f) Initial decision. (1) Time limit. An initial decision must be 
made by an AJ no later than 90 days after the date on which the appeal 
is filed.
    (2) Mitigation. (i) An AJ will give great deference to the 
determination regarding the penalty imposed.
    (ii) An AJ may not modify the penalty imposed unless such penalty 
is totally unwarranted in light of all pertinent circumstances. In 
evaluating the appropriateness of the penalty, the AJ will give primary 
consideration to the impact of the sustained misconduct or poor 
performance on the Department's national security mission in accordance 
with Sec.  9901.107(a)(2).
    (iii) In cases of multiple charges, the third party's determination 
in this regard is based on the justification for the penalty as it 
relates to the sustained charge(s).
    (iv) When a penalty is mitigated, the maximum justifiable penalty 
must be applied. The maximum justifiable penalty is the severest 
penalty that is not so disproportionate to the basis for the action as 
to be totally unwarranted in light of all pertinent circumstances.
    (v) If the adverse action is based on an MRO, the penalty may only 
be mitigated as prescribed in Sec.  9901.808.
    (3) Reviewing charges. Neither the MSPB AJ, nor the full MSPB, may 
reverse an action based on the way in which the charge is labeled or 
the conduct characterized, provided the employee has sufficient notice 
to respond to the charge.
    (4) Performance expectations. Neither the MSPB AJ, nor the full 
MSPB, may reverse an action based on the way a performance expectation 
is expressed, provided that the expectation would be clear to a 
reasonable person.
    (5) Interim relief. Pursuant to 5 U.S.C. 9902(h)(4), employees will 
not be granted interim relief, nor will an action taken against an 
employee be stayed, unless specifically ordered by the full MSPB 
following final decision by the Department.
    (i) If the interim relief ordered by the full MSPB provides that 
the employee will return or be present at the place of employment 
pending the outcome of any petition for review, and the Secretary 
determines, in his or her sole, exclusive, and unreviewable discretion, 
that the employee's return to the workplace is impracticable or the 
presence of the employee is unduly disruptive to the work environment, 
the employee may be placed in an alternative position, or may be placed 
on excused absence pending final disposition of the employee's appeal.
    (ii) Nothing in paragraph (f)(5) of this section may be construed 
to require that any award of back pay or attorney fees be paid before 
an MSPB decision becomes final.
    (6) Attorney fees. (i) Except as provided in paragraph (f)(6)(ii) 
of this section or as otherwise provided by law, the AJ may require 
payment by the Department of reasonable attorney fees incurred by an 
employee if the employee is the prevailing party and the AJ determines 
that payment by the Department is warranted in the interest of justice, 
including any case in which a prohibited personnel practice was engaged 
in by the agency or any case in which the agency's action was clearly 
without merit.
    (ii) If the employee is the prevailing party and the decision is 
based on a finding of discrimination prohibited under 5 U.S.C. 
2302(b)(1), the payment of reasonable attorney fees must be in 
accordance with the standards prescribed in Sec.  706(k) of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e-5(k)).
    (g) Department's final decision. (1) Request for Review. The 
initial AJ decision will become the Department's final decision 30 days 
after its issuance, unless either party files an RFR with MSPB and the 
Department concurrently (with service on the other party) within that 
30-day period in accordance with 5 U.S.C. 9902(h), MSPB's regulations, 
and this subpart. If a party does not submit an RFR within the above 
time limit, the RFR will be dismissed as untimely filed unless a good 
reason for the delay is shown.
    (2) Department review process. (i) Thirty days after the timely 
filing of an RFR, the initial AJ decision will become the Department's 
final, nonprecedential decision, unless notice is served on the parties 
and MSPB within that 30-day period that the Department will act on the 
RFR. When no such notice is served, MSPB will docket and process a 
party's RFR as a petition for full MSPB review in accordance with 5 
U.S.C. 9902(h), MSPB's regulations, and this subpart. Timeframes will 
be established in implementing issuances for those instances where 
action is taken on an RFR.
    (ii) If a decision is made to act on the RFR, the other party to 
the case will be provided 15 days to respond to the RFR. An extension 
to the filing period may be granted for good cause. After receipt of a 
timely response to the RFR--
    (A) If a determination is made that there has been a material error 
of fact, or that there is new and material evidence available that, 
despite due diligence, was not available when the record closed, the 
matter will be remanded to the assigned AJ for further adjudication or 
a final DoD decision will be issued modifying or reversing

[[Page 66210]]

that initial decision or decision after remand. Any remand will be 
served on all parties with an opportunity for those parties to comment 
to the AJ. An AJ decision after remand must be made no later than 30 
days after the date of receipt of the remand. However, if the 
Department's remand order includes instructions to hold a hearing, the 
AJ decision will be made not later than 45 days after receipt of the 
remand order. Decisions on remand will be treated as initial decisions 
for purpose of further review.
    (B) Where it is determined that the initial AJ decision has a 
direct and substantial adverse impact on the Department's national 
security mission, or is based on an erroneous interpretation of law, 
Governmentwide rule or regulation, or this part, a final DoD decision 
will be issued modifying or reversing that initial decision; or
    (C) Where it is determined that the initial AJ decision should 
serve as precedent, a final DoD decision will be issued affirming that 
initial decision for such purposes.
    (3) Precedential effect. Any decision issued by the Department 
after reviewing an initial AJ decision is precedential unless--
    (i) The Secretary determines that the DoD decision is not 
precedential; or
    (ii) The final DoD decision is reversed or modified by the full 
MSPB.
    (4) Publication of decisions. Precedential DoD decisions will be 
published. Further details regarding the publication of DoD 
precedential decisions will be provided in implementing issuances.
    (h) Appeal of Department's final decision. (1) OPM Petition for 
Review. Any decision under paragraph (a)(2) of this section is final 
unless a party to the appeal or the Director of OPM petitions the full 
MSPB for review within 30 days. The Director, after consultation with 
the Secretary, may petition the full MSPB for review if the Director 
believes the decision is erroneous and will have a substantial impact 
on a civil service law, rule, regulation, or policy directive. MSPB, 
for good cause shown, may extend the filing period.
    (2) Petition for Review. (i) Upon receipt of a final DoD decision 
issued under paragraph (g)(2)(ii) of this section, an employee or OPM 
may file a PFR with the full MSPB within 30 days in accordance with 5 
U.S.C. 9902(h), MSPB's regulations, and this subpart.
    (ii) The Board may dismiss any petition that, in the view of the 
Board, does not raise substantial questions of fact or law.
    (iii) The full MSPB may order corrective action only if the Board 
determines that the decision was--
    (A) Arbitrary, capricious, and 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.
    (iv) Upon receipt of a petition for full MSPB review or an RFR that 
becomes a PFR as a result of the expiration of the Department's review 
period in accordance with paragraph (g)(2)(i) of this section, the 
other party to the case and/or OPM, as applicable, will have 30 days to 
file a response to the petition. The full MSPB will act on a PFR within 
90 days after receipt of a timely response, or the expiration of the 
response period, as applicable, in accordance with 5 U.S.C. 9902(h), 
MSPB's regulations, and this subpart.
    (3) Request for reconsideration of final MSPB decision. The 
Director of OPM, after consultation with the Secretary, may seek 
reconsideration by MSPB of a final MSPB decision in accordance with 5 
U.S.C. 7703(d), which is modified for this purpose. The Director of OPM 
must seek reconsideration within 35 days after the date of service of 
the Board's final order. If the Director seeks such reconsideration, 
the full MSPB must render its decision no later than 60 days after 
receipt of a response to OPM's petition in support of such 
reconsideration. The full MSPB must state the reasons for its decision.
    (4) Failure of MSPB to meet deadlines. Failure of MSPB to meet the 
deadlines imposed by paragraphs (f)(1), (h)(2)(iv), and (h)(3) of this 
section in a case will not prejudice any party to the case and will not 
form the basis for any legal action by any party. If the AJ or full 
MSPB fails to meet the above time limits, the full MSPB will inform the 
Secretary in writing of the cause of the delay and will recommend 
future actions to remedy the problem.
    (i) Judicial review. The Secretary or an employee adversely 
affected by a final order or decision of MSPB may seek judicial review 
under 5 U.S.C. 9902(h)(6).


Sec.  9901.808  Appeals of mandatory removal actions.

    (a) Procedures for appeals of adverse actions to MSPB based on MROs 
will be the same as for other offenses except as otherwise provided by 
this section.
    (b) If one or more MROs are sustained, the MSPB AJ may not mitigate 
the penalty.
    (c) Only the Secretary may mitigate the penalty within the 
Department.
    (d) If the MSPB AJ or the full MSPB sustains an employee's appeal 
based on a finding that the employee did not commit an MRO, a 
subsequent proposed adverse action (other than an MRO) based in whole 
or in part on the same or similar evidence is not precluded.


Sec.  9901.809  Actions involving discrimination.

    (a) In considering any appeal of an action filed under 5 U.S.C. 
7702, the Board will apply the provisions of 5 U.S.C. 9902 and this 
part.
    (b) In any appeal of an action filed under 5 U.S.C. 7702 that 
results in a final Department decision, if no petition for review of 
the Department's decision is filed with the full Board, and if 
requested by the appellant, the Department will refer only the 
discrimination issue to the full Board for adjudication.
    (c) All references in 5 U.S.C. 7702 to 5 U.S.C. 7701 are modified 
to read 5 CFR part 9901, subpart H.


Sec.  9901.810  Savings provision.

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

Subpart I--Labor-Management Relations


Sec.  9901.901  Purpose.

    This subpart contains the regulations which implement the 
provisions of 5 U.S.C. 9902(m) relating to the Department's labor-
management relations system. This labor management relations system 
addresses the unique role that the Department's civilian workforce 
plays in supporting the Department's national security mission and 
promotes a collaborative issue-based approach to labor management 
relations. These regulations recognize the rights of DoD employees to 
organize and bargain collectively, as provided for in 5 U.S.C. 9902 and 
this part and subject to any exclusion from coverage or limitation on 
the scope of bargaining pursuant to law, including this part, 
issuances, and implementing issuances, applicable Presidential 
issuances (e.g., Executive orders), and any other applicable legal 
authority.


Sec.  9901.902  Scope of authority.

    When a specified category of employees is covered by the labor-
management relations system established under this subpart, the 
provisions of 5 U.S.C. 7101 through 7135 are modified and replaced by 
the

[[Page 66211]]

provisions in this subpart with respect to that category, except as 
otherwise specified in this subpart. Implementing issuances may be 
prescribed to carry out the provisions of this subpart.


Sec.  9901.903  Definitions.

    In this subpart:
    Authority means the Federal Labor Relations Authority described in 
5 U.S.C. 7104(a).
    Board means the National Security Labor Relations Board established 
by this subpart.
    Collective bargaining means the performance of the mutual 
obligation of a management representative of the Department and an 
exclusive representative of employees in an appropriate unit in the 
Department to meet at reasonable times and to bargain in a good faith 
effort to reach agreement, pursuant to 5 U.S.C. 9902 and this subpart, 
with respect to the conditions of employment affecting such employees 
and to execute, if requested by either party, a written document 
incorporating any collective bargaining agreement reached, but the 
obligation referred to in this paragraph does not compel either party 
to agree to a proposal or to make a concession.
    Collective bargaining agreement means an agreement entered into as 
a result of collective bargaining pursuant to the provisions of 5 
U.S.C. 9902 and this subpart.
    Component means an organizational unit so prescribed and designated 
by the Secretary in his or her sole and exclusive discretion, such as, 
for example, the Office of the Secretary of Defense, a Military 
Department, a Defense Agency, or a DoD Field Activity.
    Conditions of employment means personnel policies, practices, and 
matters affecting working conditions--whether established by rule, 
regulation, or otherwise--except that such term does not include 
policies, practices, and matters relating to--
    (1) Political activities prohibited under 5 U.S.C. chapter 73, 
subchapter III;
    (2) The classification of any position, including any 
classification determinations under subpart B of this part;
    (3) The pay of any employee or for any position, including any 
determinations regarding pay or adjustments thereto under subpart C of 
this part; or
    (4) Any matters specifically provided for by Federal statute.
    Confidential employee means an employee who acts in a confidential 
capacity with respect to an individual who formulates or effectuates 
management policies in the field of labor-management relations.
    Consult means to consider the interests, opinions, and 
recommendations of a recognized labor organization in rendering 
decisions. This can be accomplished in face-to-face meetings or through 
other means, e.g., teleconferencing, e-mail, and written 
communications.
    Dues means dues, fees, and assessments.
    Exclusive representative means any labor organization which is 
recognized as the exclusive representative of employees in an 
appropriate unit consistent with the Department's organizational 
structure, pursuant to 5 U.S.C. 7111 or as otherwise provided by Sec.  
9901.911.
    FMCS means Federal Mediation and Conciliation Service.
    Grade means a level of work under a position classification or job 
grading system.
    Grievance means any complaint--
    (1) By any employee concerning any matter relating to the 
conditions of employment of the employee;
    (2) By any labor organization concerning any matter relating to the 
conditions of employment of any employee; or
    (3) By any employee, labor organization, or the Department 
concerning--
    (i) The effect or interpretation, or a claim of breach, of a 
collective bargaining agreement; or
    (ii) Any claimed violation, misinterpretation, or misapplication of 
any law, rule, regulation, or issuance issued for the purpose of 
affecting conditions of employment.
    Implementing issuance or issuances has the meaning given that term 
in Sec.  9901.103.
    Issuance or issuances means a document issued by the Secretary, 
Deputy Secretary, Principal Staff Assistants (as authorized by the 
Secretary), or Secretaries of the Military Departments to carry out a 
policy or procedure of the Department other than those issuances 
implementing this part.
    Labor organization has the meaning given that term in Sec.  
9901.103.
    Management official means an individual employed by the Department 
in a position the duties and responsibilities of which require or 
authorize the individual to formulate, determine, or influence the 
policies of the Department.
    Person has the meaning given that term in 5 U.S.C. 7103(a)(1).
    Professional employee has the meaning given that term in 5 U.S.C. 
7103(a)(15).
    Supervisor means an individual employed by the Department having 
authority in the interest of the Department to hire, direct, assign, 
promote, reward, transfer, furlough, layoff, recall, suspend, 
discipline, or remove employees; to adjust their grievances; or to 
effectively recommend such action, if the exercise of the authority is 
not merely routine or clerical in nature but requires the consistent 
exercise of independent judgment, except that, with respect to any unit 
which includes firefighters or nurses, the term ``supervisor'' includes 
only those individuals who devote a preponderance of their employment 
time to exercising such authority. It also means an individual employed 
by the Department who exercises supervisory authority over military 
members of the armed services, such as directing or assigning work or 
evaluating or recommending evaluations.


Sec.  9901.904  Coverage.

    (a) Employees covered. This subpart applies to eligible DoD 
employees, subject to a determination by the Secretary under Sec.  
9901.102(b)(1), except as provided in paragraph (b) of this section. 
DoD employees who would otherwise be eligible for bargaining unit 
membership under 5 U.S.C. chapter 71, as modified by Sec.  9901.912, 
are eligible for bargaining unit membership under this subpart. In 
addition, this subpart applies to an employee whose employment in the 
Department has ceased because of any unfair labor practice under Sec.  
9901.916 of this subpart and who has not obtained any other regular and 
substantially equivalent employment.
    (b) Employees excluded. This subpart does not apply to--
    (1) An alien or noncitizen of the United States who occupies a 
position outside the United States;
    (2) A military member of the armed services;
    (3) A supervisor or a management official;
    (4) Any person who participates in a strike in violation of 5 
U.S.C. 7311; or
    (5) Any employee excluded pursuant to Sec.  9901.912 or any other 
legal authority.


Sec.  9901.905  Impact on existing agreements.

    (a) Any provision of a collective bargaining agreement that is 
inconsistent with this part and/or implementing issuances is 
unenforceable on the effective date of the applicable subpart(s) or 
such issuances. The exclusive representative may appeal a determination 
that a provision is unenforceable to the

[[Page 66212]]

National Security Labor Relations Board in accordance with the 
procedures and time limits pursuant to Sec.  9901.908 and the Board's 
regulations. However, the Secretary, in his or her sole and exclusive 
discretion, may continue all or part of a particular provision(s) with 
respect to a specific category or categories of employees and may 
cancel such continuation at any time; such determinations are not 
precedential.
    (b) Upon request by an exclusive representative, the parties will 
have 60 days after the effective date of coverage under the applicable 
subpart and/or implementing issuance to bring into conformance those 
remaining negotiable collective bargaining agreement provisions 
directly affected by the collective bargaining agreement provisions 
rendered unenforceable by the applicable subpart and/or implementing 
issuance. During that period, the parties may utilize the negotiation 
impasse provisions of Sec.  9901.920 to assist in resolving any 
impasses.
    (c) Any provision of a collective bargaining agreement that is 
inconsistent with an issuance remains in effect until the expiration, 
renewal, or extension of the term of the agreement, whichever occurs 
first.


Sec.  9901.906  Employee rights.

    Each employee has the right to form, join, or assist any labor 
organization, or to refrain from any such activity, freely and without 
fear of penalty or reprisal, and each employee will be protected in the 
exercise of such right. Except as otherwise provided under this 
subpart, such right includes the right--
    (a) To act for a labor organization in the capacity of a 
representative and the right, in that capacity, to present the views of 
the labor organization to heads of agencies and other officials of the 
executive branch of the Government, the Congress, or other appropriate 
authorities; and
    (b) To engage in collective bargaining with respect to conditions 
of employment through representatives chosen by employees under this 
subpart.


Sec.  9901.907  National Security Labor Relations Board.

    (a) The Secretary has sole, exclusive, and unreviewable authority 
to determine the effective date for the establishment of the National 
Security Labor Relations Board.
    (b)(1) The National Security Labor Relations Board is composed of 
at least three members who are appointed by the Secretary for terms of 
3 years, except that the appointments of the initial Board members will 
be for terms of 1, 2, and 3 years, respectively. The Secretary may 
extend the term of any member beyond 3 years when necessary to provide 
for an orderly transition and/or appoint the member for up to two 
additional 1-year terms. The Secretary, in his or her sole and 
exclusive discretion, may appoint additional members to the Board; in 
so doing, he or she will make such appointments to ensure that the 
Board consists of an odd number of members.
    (2) Members of the Board will be independent, distinguished 
citizens of the United States who are well known for their integrity, 
impartiality, and expertise in labor relations, and/or the DoD mission 
and/or other related national security matters, and will be able to 
acquire and maintain an appropriate security clearance. Members may be 
removed by the Secretary only for inefficiency, neglect of duty, or 
malfeasance in office.
    (3) An individual chosen to fill a vacancy on the Board will be 
appointed for the unexpired term of the member who is replaced and, at 
the Secretary's option, an additional term or terms.
    (c) Appointment of the Chair. The Secretary, at his or her sole and 
exclusive discretion, will appoint one member to serve as Chair of the 
NSLRB.
    (d) Appointment procedures for non-Chair NSLRB members. (1) The 
appointments of the two non-Chair NSLRB members will be made by the 
Secretary, at his or her sole and exclusive discretion, after he or she 
considers any lists of nominees submitted by labor organizations that 
represent employees in the Department.
    (2) The submission of lists of recommended nominees by labor 
organizations must be in accordance with timelines and requirements set 
forth by the Secretary, who may provide for consultation in order to 
obtain further information about a recommended nominee. The ability of 
the Secretary to appoint NSLRB members may not be delayed or otherwise 
affected by the failure of any labor organization to provide a list of 
nominees that meets the timeframe and requires established by the 
Secretary.
    (e) Appointment of additional non-Chair NSLRB members. If the 
Secretary determines that additional members are needed, he or she may, 
subject to the criteria set forth in paragraph (b)(2) of this section, 
appoint the additional members according to the procedures established 
by paragraph (d) of this section.
    (f) A Board vacancy will be filled according to the procedure used 
to appoint the member whose position was vacated.
    (g)(1) The Board will establish procedures for the fair, impartial, 
and expeditious assignment and disposition of cases, including 
standards for asserting or declining jurisdiction.
    (2) To the extent practicable, the Board will use a single, 
integrated process to address all matters associated with a 
negotiations dispute, including unfair labor practices, negotiability 
disputes, and bargaining impasses. The Board may, pursuant to its 
regulations, use a combination of mediation, factfinding, and any other 
appropriate dispute resolution methods to resolve all such disputes at 
the earliest practicable time and with a minimum administrative burden.
    (3) A vote of the majority of the Board (or a three-person panel of 
the Board) will be final. A vacancy on the Board does not impair the 
right of the remaining members to exercise all of the powers of the 
Board. The vote of the Chair will be dispositive in the event of a tie.
    (h) Decisions of the Board are final and binding.


Sec.  9901.908  Powers and duties of the Board.

    (a) Section 9902(m)(6) of title 5, U.S. Code, requires that the 
labor relations system established under this subpart provide for an 
independent third party review of labor relations issues set out in 
Sec.  9901.908(b), including defining the third party to provide the 
review. Notwithstanding Sec.  9901.907 and pending establishment of the 
Board, the Secretary, in consultation with the Director, may designate 
a third party to exercise the authority of the Board in accordance with 
this subpart.
    (b) The Board may to the extent provided in this subpart and in 
accordance with regulations prescribed by the Board--
    (1) Conduct investigations and hearings, and resolve allegations of 
unfair labor practices, including allegations concerning strikes, work 
stoppages, slowdowns, and picketing, or condoning such activity by 
failing to take action to prevent or stop such activity;
    (2) Resolve issues relating to the scope of bargaining and the duty 
to bargain in good faith under Sec.  9901.917;
    (3) Resolve exceptions to arbitration awards. In doing so, the 
Board will conduct any review of an arbitral award in accordance with 5 
U.S.C. 7122(a) as modified in Sec.  9901.923;
    (4) Resolve negotiation impasses in accordance with Sec.  9901.920;

[[Page 66213]]

    (5) Conduct de novo review involving all matters within the Board's 
jurisdiction; and
    (6) Have discretion to evaluate the evidence presented in the 
record and reach its own independent conclusions with respect to the 
matters at issue, but in no case may the Board issue status quo ante 
remedies, where such remedies are not intended to cure egregious 
violations of this subpart or where such an award would impose an 
economic hardship or interfere with the efficiency or effectiveness of 
the Department's mission or impact national security.
    (c) In any case in which the Board or its authorized agent, in the 
Board's or the agent's unreviewable discretion, declines to adjudicate 
any unfair labor practice allegation(s) because the allegation(s) was 
not timely filed, fails to state an unfair labor practice, or for other 
appropriate reasons, the Board or the agent, as applicable, will 
provide the person making the allegation(s) a written statement of the 
reasons for such determination.
    (d) Upon the request of a DoD Component or a labor organization 
concerned, the Board may issue guidance for matters within its 
jurisdiction.
    (e) The Board's decisions will be written and published.


Sec.  9901.909  Powers and duties of the Federal Labor Relations 
Authority.

    (a) To the extent provided in this subpart (pursuant to the 
authority in 5 U.S.C. 9902), the Federal Labor Relations Authority, in 
accordance with conforming regulations prescribed by the Authority, 
may--
    (1) Determine the appropriateness of bargaining units pursuant to 
the provisions of Sec.  9901.912;
    (2) Supervise or conduct elections to determine whether a labor 
organization has been selected as an exclusive representative by a 
majority of the employees in an appropriate unit and otherwise 
administer 5 U.S.C. 7111 (relating to the according of exclusive 
recognition to labor organizations), which is not waived for the 
purpose of this subpart;
    (3) Resolve disputes regarding the granting of national 
consultation rights; and
    (4) Upon request of a party, review only those Board decisions on--
    (i) Unfair labor practices, except those issued under Sec.  
9901.908(c);
    (ii) Arbitral awards under Sec.  9901.908; and
    (iii) Negotiability disputes.
    (b) In any matter filed with the Authority, if the responding party 
believes that the Authority lacks jurisdiction, that party will timely 
raise the issue with the Authority and simultaneously file a copy of 
its response with the Board in accordance with regulations established 
by the Authority. The Authority will promptly transfer the case to the 
Board, which will determine whether the matter is within the Board's 
jurisdiction. If the Board determines that the matter is not within its 
jurisdiction, the Board will return the matter to the Authority for a 
decision on the merits of the case. The Board's determination with 
regard to its jurisdiction in a particular matter is final and not 
subject to review by the Authority. The Authority will promptly decide 
those cases that the Board has determined are within the jurisdiction 
of the Authority.
    (c)(1) To obtain review by the Authority of a Board decision, a 
party will request a review of the record of a Board decision by the 
Authority by filing such a request in writing within 15 days after the 
issuance of the decision. A copy of the request will be served on all 
parties. Within 15 days after service of the request, any response will 
be filed. The Authority will establish, in conjunction with the Board, 
standards for the sufficiency of the record and other procedures, 
including notice to the parties. The Authority will accept the findings 
of fact and interpretations of this part made by the Board and sustain 
the Board's decision unless the requesting party shows that the Board's 
decision was--
    (i) Arbitrary, capricious, an abuse of discretion, or otherwise not 
in accordance with law;
    (ii) Caused by harmful error in the application of the Board's 
procedures in arriving at such decision; or
    (iii) Unsupported by substantial evidence.
    (2) The Authority will complete its review of the record and issue 
a final decision within 30 days after receiving the party's response to 
such request for review. If the Authority does not issue a final 
decision within this mandatory time limit, the Authority will be 
considered to have denied the request for review of the Board's 
decision, which will constitute a final decision of the Authority and 
is subject to judicial review in accordance with 5 U.S.C. 7123.
    (d) Judicial review of any Authority decision is as prescribed in 5 
U.S.C. 7123(a). The references in 5 U.S.C. 7123(a) to other provisions 
in 5 U.S.C. chapter 71 are considered to be references to those 
particular provisions as modified by this subpart.


Sec.  9901.910  Management rights.

    (a) Subject to paragraphs (b) through (e) of this section, nothing 
in this subpart may affect the authority of any management official or 
supervisor of the Department--
    (1) To determine the mission, budget, organization, number of 
employees, and internal security practices of the Department;
    (2) 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/or 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; and
    (3) 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.
    (b) Management is prohibited from bargaining over the exercise of 
any authority under paragraph (a) of this section or the procedures 
that it will observe in exercising the authorities set forth in 
paragraphs (a)(1) and (a)(2) of this section.
    (c) Notwithstanding paragraph (b) of this section, the Secretary in 
his or her sole, exclusive, and unreviewable discretion, may authorize 
bargaining over the procedures that will be observed in exercising the 
authorities set forth in paragraphs (a)(1) and (a)(2) of this section. 
This authorization will be based on a determination by the Secretary, 
in his or her sole, exclusive, and unreviewable discretion, that 
bargaining is necessary to advance the Department's mission or promote 
organizational effectiveness. Any specific authorization remains in 
effect until an agreement is reached or management withdraws from 
negotiations, whichever occurs first.
    (d) Unless the Secretary elects to bargain under paragraph (c) of 
this section, management will consult at the request of an exclusive 
representative as required under Sec.  9901.917 over the procedures 
that will be observed in exercising the authorities set forth in 
paragraphs (a)(1) and (a)(2) of this

[[Page 66214]]

section. Consultation does not require that the parties reach agreement 
on any covered matter. The parties may, upon mutual agreement, provide 
for FMCS or another third party to assist in this process. Neither the 
Board nor the Authority may intervene in this process.
    (e) If an obligation exists under Sec.  9901.917 to bargain or 
consult regarding any authority under paragraph (a) of this section, 
management will provide notice to the exclusive representative 
concurrently with the exercise of that authority. However, at its sole, 
exclusive, and unreviewable discretion, management may provide notice 
to an exclusive representative of its intention to exercise an 
authority under paragraph (a) of this section as far in advance as 
practicable. Further, nothing in paragraph (e) of this section 
establishes an independent right to bargain or consult.
    (f) When an obligation exists under Sec.  9901.917, management will 
provide notice to the exclusive representative and an opportunity to 
present its views and recommendations regarding the exercise of an 
authority under paragraph (a) of this section, and the parties will 
bargain at the level of recognition (unless otherwise delegated below 
that level, at their mutual agreement, or as provided for in Sec. Sec.  
9901.917 and 9901.918) over otherwise negotiable--
    (1)(i) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraph (a)(3) of this section 
and procedures which management officials and supervisors will observe 
in exercising any authority under paragraph (a)(3) of this section; and
    (ii) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraphs (a)(1) and (a)(2) of 
this section. Appropriate arrangements within the duty to bargain 
include proposals on matters such as personal hardships and safety 
measures.
    (2) Appropriate arrangements within the duty to bargain do not 
include proposals on matters such as the routine assignment to specific 
duties, shifts, or work on a regular or overtime basis except when the 
Secretary in his or her sole, exclusive, and unreviewable discretion 
authorizes such bargaining. This authorization will be based on a 
determination by the Secretary, in his or her sole, exclusive, and 
unreviewable discretion, that bargaining is necessary to advance the 
Department's mission or promote organizational effectiveness. Any 
specific authorization remains in effect until an agreement is reached 
or management withdraws from negotiations, whichever occurs first.
    (g) Where a proposal falls within the coverage of both paragraph 
(a)(1) and (a)(3) of this section or paragraph (a)(2) and (a)(3) of 
this section, the matter will be determined to be covered by paragraph 
(a)(1) or (a)(2) of this section for the purpose of collective 
bargaining.
    (h) Any mid-term agreements, reached with respect to paragraphs 
(c), (f)(1)(ii), or (f)(2) of this section will not be precedential or 
binding on subsequent acts, or retroactively applied, except at the 
Secretary's sole, exclusive, and unreviewable discretion.
    (i) Nothing will delay or prevent the Secretary from exercising his 
or her authority under this subpart.


Sec.  9901.911  Exclusive recognition of labor organizations.

    Exclusive recognition will be accorded to a labor organization if 
the organization has been selected as the representative, in a secret 
ballot election, by a majority of the employees, in an appropriate unit 
as determined by the Authority, who cast valid ballots in the election.


Sec.  9901.912  Determination of appropriate units for labor 
organization representation.

    (a) The Authority will determine the appropriateness of any unit. 
The Authority will determine in each case whether, in order to ensure 
employees the fullest freedom in exercising the rights guaranteed under 
this subpart, the appropriate unit should be established on a 
Department, plant, installation, functional, or other basis and will 
determine any unit to be an appropriate unit only if the determination 
will ensure a clear and identifiable community of interest among the 
employees in the unit and will promote effective dealings with, and 
efficiency of the operations of the Department, consistent with the 
Department's mission and organizational structure and Sec.  
9901.107(a).
    (b) A unit may not be determined to be appropriate under this 
section solely on the basis of the extent to which employees in the 
proposed unit have organized, nor may a unit be determined to be 
appropriate if it includes--
    (1) Except as provided under 5 U.S.C. 7135(a)(2), which is not 
waived for the purpose of this subpart, any management official or 
supervisor;
    (2) A confidential employee;
    (3) An employee engaged in personnel work in other than a purely 
clerical capacity;
    (4) An employee engaged in administering the provisions of this 
subpart;
    (5) Both professional employees and other employees, unless a 
majority of the professional employees vote for inclusion in the unit;
    (6) Any employee engaged in intelligence, counterintelligence, 
investigative, or security work which directly affects national 
security; or
    (7) Any employee primarily engaged in investigation or audit 
functions relating to the work of individuals employed by the 
Department whose duties directly affect the internal security of the 
Department, but only if the functions are undertaken to ensure that the 
duties are discharged honestly and with integrity.
    (c) Any employee who is engaged in administering any provision of 
law or this subpart relating to labor-management relations may not be 
represented by a labor organization--
    (1) Which represents other individuals to whom such provision or 
subpart applies; or
    (2) Which is affiliated directly or indirectly with an organization 
which represents other individuals to whom such provision or subpart 
applies.
    (d) Two or more units in the Department for which a labor 
organization is the exclusive representative may, upon petition by the 
Secretary or labor organization, be consolidated with or without an 
election into a single larger unit if the Authority considers the 
larger unit to be appropriate. The Authority will certify the labor 
organization as the exclusive representative of the new larger unit.


Sec.  9901.913  National consultation.

    (a) If, in connection with the Department or Component, no labor 
organization has been accorded exclusive recognition on a Department or 
Component basis, a labor organization that is the exclusive 
representative of a substantial number of the employees of the 
Department or Component, as determined in accordance with criteria 
prescribed by the Authority, will be granted national consultation 
rights by the Department or Component. National consultation rights 
will terminate when the labor organization no longer meets the criteria 
prescribed by the Authority. Any issue relating to any labor 
organization's eligibility for, or continuation of, national 
consultation rights will be subject to determination by the Authority.
    (b)(1) Any labor organization having national consultation rights 
in connection with any Department or Component under subsection (a) of 
this section will--
    (i) Be informed of any substantive change in conditions of 
employment

[[Page 66215]]

proposed by the Department or Component; and
    (ii) Be permitted reasonable time to present its views and 
recommendations regarding the changes.
    (2) If any views or recommendations are presented under paragraph 
(b)(1) of this subsection to the Department or Component by any labor 
organization--
    (i) The Department or Component will consider the views or 
recommendations before taking final action on any matter with respect 
to which the views or recommendations are presented; and
    (ii) The Department or Component will provide the labor 
organization a written statement of the reasons for taking the final 
action.
    (c) Section 9901.913(b) does not apply where the proposed change is 
bargained at the national level or where continuing collaboration 
procedures under Sec.  9901.106 apply.
    (d) Nothing in this section precludes the Department or the 
Component from seeking views and recommendations from labor 
organizations having exclusive representation within the Department or 
Component which do not have national consultation rights.
    (e) Nothing in this section will be construed to limit the right of 
the agency or exclusive representative to engage in collective 
bargaining.


Sec.  9901.914  Representation rights and duties.

    (a)(1) A labor organization which has been accorded exclusive 
recognition is the exclusive representative of the employees in the 
unit it represents and is entitled to act for, and negotiate collective 
bargaining agreements covering, all employees in the unit. An exclusive 
representative is responsible for representing the interests of all 
employees in the unit it represents without discrimination and without 
regard to labor organization membership.
    (2) An exclusive representative of an appropriate unit will be 
given the opportunity to be represented at--
    (i) Any formal discussion between a Department management 
official(s) and bargaining unit employees, the purpose of which is to 
discuss and/or announce new or substantially changed personnel 
policies, practices, or working conditions. This right does not apply 
to meetings between a management official(s) and bargaining unit 
employees for the purpose of discussing operational matters where any 
discussion of personnel policies, practices or working conditions--
    (A) Constitutes a reiteration or application of existing personnel 
policies, practices, or working conditions;
    (B) Is incidental or otherwise peripheral to the announced purpose 
of the meeting; or
    (C) Does not result in an announcement of a change to, or a promise 
to change, an existing personnel policy(s), practice(s), or working 
condition(s);
    (ii) Any discussion between one or more Department representatives 
and one or more bargaining unit employees concerning any grievance 
filed under the negotiated grievance procedure;
    (iii) Any examination of a bargaining unit employee by a 
representative of the Department in connection with an investigation if 
the employee reasonably believes that the examination may result in 
disciplinary action against the employee and the employee requests such 
representation; or
    (iv) Any discussion between one or more Department representatives 
and one or more bargaining unit employees in connection with a formal 
complaint of discrimination only if the employee(s), in his or her sole 
and exclusive discretion, requests such representation.
    (3) Bargaining unit employees will be informed annually of their 
rights under paragraph (a)(2)(iii) of this section.
    (4) Employee representatives employed by the Department are subject 
to the same expectations regarding conduct as any other employee, 
whether they are serving in their representative capacity or not.
    (5) Except in the case of grievance procedures negotiated under 
this subpart, the rights of an exclusive representative under this 
section may not be construed to preclude an employee from--
    (i) Being represented by an attorney or other representative of the 
employee's own choosing, other than the exclusive representative, in 
any grievance or appeal action; or
    (ii) Exercising grievance or appellate rights established by law, 
rule, or regulation.
    (b) The duty of the Secretary or appropriate Component(s) of the 
Department and an exclusive representative to negotiate in good faith 
under paragraph (a) of this section includes the obligation--
    (1) To approach the negotiations with a sincere resolve to reach a 
collective bargaining agreement;
    (2) To be represented at the negotiations by duly authorized 
representatives prepared to discuss and negotiate on any condition of 
employment;
    (3) To meet at reasonable times and convenient places as frequently 
as may be necessary, and to avoid unnecessary delays;
    (4) If agreement is reached, to execute on the request of any party 
to the negotiation, a written document embodying the agreed terms, and 
to take such steps as are necessary to implement such agreement; and
    (5) In the case of the Department or appropriate Component(s) of 
the Department, to furnish information to an exclusive representative, 
or its authorized representative, when--
    (i) Such information exists, is normally maintained in the regular 
course of business, and is reasonably available;
    (ii) The exclusive representative has requested such information 
and demonstrated a particularized need for the information in order to 
perform its representational functions in grievance or unfair labor 
practice proceedings, or in negotiations; and
    (iii) Disclosure is not prohibited by law.
    (c) Disclosure of information in paragraph (b)(5) of this section 
does not include the following:
    (1) Disclosure prohibited by law or regulations, including, but not 
limited to, the regulations in this part, Governmentwide rules and 
regulations, Departmental implementing issuances and other policies and 
regulations, and Executive orders;
    (2) Disclosure of information 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;
    (3) Internal Departmental guidance, counsel, advice, or training 
for managers and supervisors relating to collective bargaining;
    (4) Any disclosures where an authorized official has determined 
that disclosure would compromise the Department's mission, security, or 
employee safety; and
    (5) Personal addresses, personal telephone numbers, personal e-mail 
addresses, or any other information not related to an employee's work.
    (d)(1) An agreement between the Department or appropriate 
Component(s) of the Department and the exclusive representative is 
subject to approval by the Secretary.
    (2) The Secretary will approve the agreement within 30 days after 
the date the agreement is executed if the agreement is in accordance 
with the provisions of these regulations and any

[[Page 66216]]

other applicable law, rule, regulation, issuance, or implementing 
issuance.
    (3) If the Secretary does not approve or disapprove the agreement 
within the 30-day period specified in paragraph (d)(2) of this section, 
the agreement will take effect and is binding on the Department or 
Component(s), as appropriate, and the exclusive representative, but 
only to the extent it is consistent with Federal law, Presidential 
issuance (e.g., Executive order), Governmentwide regulations, issuances 
and implementing issuances, or the regulations in this part.
    (4) A local agreement subject to a national or other controlling 
agreement at a higher level may be approved under the procedures of the 
controlling agreement or, if none, under Departmental regulations. 
Bargaining will be at the level of recognition except where delegated.
    (5) Provisions in existing collective bargaining agreements are 
unenforceable if they are contrary to Federal law, Presidential 
issuance (e.g., Executive order), the regulations in this part, or 
implementing issuances. Provisions in existing collective bargaining 
agreements that are inconsistent with Governmentwide regulations or 
issuances (other than implementing issuances), are unenforceable upon 
expiration, extension, renewal, or renegotiation of the collective 
bargaining agreement, whichever occurs first.


Sec.  9901.915  Allotments to representatives.

    (a) If the Department has received from an employee in an 
appropriate unit a properly executed written or electronic assignment 
which authorizes the Department to deduct from the pay of the employee 
amounts for the payment of regular and periodic dues and other 
financial assessments of the exclusive representative of the unit, the 
Department will honor the assignment and make an appropriate allotment 
pursuant to the assignment. Any such allotment will be made at no cost 
to the exclusive representative or the employee. Except as provided 
under paragraph (b) of this section, any such assignment may not be 
revoked for a period of 1 year.
    (b) An allotment under paragraph (a) of this section for the 
deduction of dues with respect to any employee terminates when--
    (1) The agreement between the Department or Department Component 
and the exclusive representative involved ceases to be applicable to 
the employee; or
    (2) The employee is suspended or expelled from membership by the 
exclusive representative.
    (c)(1) Subject to paragraph (c)(2) of this section, if a petition 
has been filed with the Authority by a labor organization alleging that 
10 percent of the employees in an appropriate unit in the Department 
have membership in the labor organization, the Authority will 
investigate the petition to determine its validity. Upon certification 
by the Authority of the validity of the petition, the Department has a 
duty to negotiate with the labor organization solely concerning the 
deduction of dues of the labor organization from the pay of the members 
of the labor organization who are employees in the unit and who make a 
voluntary allotment for such purpose.
    (2)(i) The provisions of paragraph (c)(1) of this section do not 
apply in the case of any appropriate unit for which there is an 
exclusive representative.
    (ii) Any agreement under paragraph (c)(1) of this section between a 
labor organization and the Department or Department Component with 
respect to an appropriate unit becomes null and void upon the 
certification of an exclusive representative of the unit.


Sec.  9901.916  Unfair labor practices.

    (a) For the purpose of this subpart, it is an unfair labor practice 
for the Department--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To encourage or discourage membership in any labor organization 
by discrimination in connection with hiring, tenure, promotion, or 
other conditions of employment;
    (3) To sponsor, control, or otherwise assist any labor 
organization, other than to furnish, upon request, customary and 
routine services and facilities on an impartial basis to other labor 
organizations having equivalent status;
    (4) To discipline or otherwise discriminate against an employee 
because the employee has filed a complaint or petition, or has given 
any information or testimony under this subpart;
    (5) To refuse, as determined by the Board, to negotiate in good 
faith or to consult with a labor organization, as required by this 
subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions, as required by this subpart;
    (7) To enforce any issuance (other than an implementing issuance), 
or Governmentwide regulation, which is in conflict with an applicable 
collective bargaining agreement if the agreement was in effect before 
the issuance or regulation was prescribed.
    (8) To fail or refuse otherwise to comply with any provision of 
this subpart.
    (b) For the purpose of this subpart, it is an unfair labor practice 
for a labor organization--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To cause or attempt to cause the Department to discriminate 
against any employee in the exercise by the employee of any right under 
this subpart;
    (3) To coerce, discipline, fine, or attempt to coerce a member of 
the labor organization as punishment, reprisal, or for the purpose of 
hindering or impeding the member's work performance or productivity as 
an employee or the discharge of the member's duties as an employee;
    (4) To discriminate against an employee with regard to the terms 
and conditions of membership in the labor organization on the basis of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (5) To refuse, as determined by the Board, to negotiate in good 
faith or to consult with the Department as required by this subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions as required by this subpart;
    (7)(i) To call, or participate in, a strike, work stoppage, or 
slowdown, or picketing of the Department in a labor-management dispute 
if such picketing interferes with an agency's operations; or
    (ii) To condone any activity described in paragraph (b)(7)(i) of 
this section by failing to take action to prevent or stop such 
activity; or
    (8) To otherwise fail or refuse to comply with any provision of 
this subpart.
    (c) Notwithstanding paragraph (b)(7) of this section, informational 
picketing which does not interfere with the Department's operations 
will not be considered an unfair labor practice.
    (d) For the purpose of this subpart, it is an unfair labor practice 
for an exclusive representative to deny membership to any employee in 
the appropriate unit represented by the labor organization, except for 
failure to meet reasonable occupational standards uniformly required 
for admission or to

[[Page 66217]]

tender dues uniformly required as a condition of acquiring and 
retaining membership. This does not preclude any labor organization 
from enforcing discipline in accordance with procedures under its 
constitution or bylaws to the extent consistent with the provisions of 
this subpart.
    (e) The Board will not consider any allegation of an unfair labor 
practice filed more than 6 months after it occurred, unless the Board 
determines, pursuant to its regulations, that there is good cause for 
the late filing.
    (f) Unfair labor practice issues which can properly be raised under 
an appeals procedure may not be raised as unfair labor practices 
prohibited under this section. Except where an employee has an option 
of using the negotiated grievance procedure or an appeals procedure in 
connection with an adverse action, issues which can be raised under a 
grievance procedure may, in the discretion of the aggrieved party, be 
raised under the grievance procedure or as an unfair labor practice 
under this section, but not under both procedures.
    (g) The expression of any personal view, argument, opinion, or the 
making of any statement which publicizes the fact of a representational 
election and encourages employees to exercise their right to vote in 
such an election, corrects the record with respect to any false or 
misleading statement made by any person, or informs employees of the 
Government's policy relating to labor-management relations and 
representation, will not, if the expression contains no threat of 
reprisal or force or promise of benefit or was not made under coercive 
conditions--
    (1) Constitute an unfair labor practice under any provision of this 
subpart; or
    (2) Constitute grounds for the setting aside of any election 
conducted under any provision of this subpart.


Sec.  9901.917  Duty to bargain and consult.

    (a) The Department or appropriate Component(s) of the Department 
and any exclusive representative in any appropriate unit in the 
Department, through appropriate representatives, will meet and 
negotiate in good faith as provided by this subpart for the purpose of 
arriving at a collective bargaining agreement. In addition, the 
Department or appropriate Component(s) of the Department and the 
exclusive representative may determine appropriate techniques, 
consistent with the operational rules of the Board, to assist in any 
negotiation.
    (b) If bargaining over an initial collective bargaining agreement 
or any successor agreement is not completed within 90 days after such 
bargaining begins, the parties may mutually agree to continue 
bargaining, or either party may refer the matter to the Board for 
resolution in accordance with procedures established by the Board. At 
any time prior to going to the Board, either party may refer the matter 
to FMCS for assistance.
    (c) If the parties bargain during the term of an existing 
collective bargaining agreement, or in the absence of a collective 
bargaining agreement, over a proposed change affecting bargaining unit 
employees' conditions of employment, and no agreement is reached within 
30 days after such bargaining begins, the parties may mutually agree to 
continue bargaining, or either party may refer the matter to the Board 
for resolution in accordance with procedures established by the Board. 
Either party may refer the matter to FMCS for assistance at any time.
    (d)(1) Management may not bargain over any matters that are 
inconsistent with law or the regulations in this part, Governmentwide 
rules and regulations, issuances and implementing issuances, or 
Executive orders.
    (2) Except as otherwise provided in Sec.  9901.910(d), management 
has no obligation to bargain or consult over a change to a condition of 
employment unless the change is otherwise negotiable pursuant to these 
regulations and 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.
    (3) Nothing in paragraphs (b) or (c) of this section prevents 
management from exercising the rights enumerated in Sec.  9901.910.
    (e) If a management official involved in collective bargaining with 
an exclusive representative alleges that the duty to bargain in good 
faith does not extend to any matter, the exclusive representative may 
appeal the allegation to the Board in accordance with procedures 
established by the Board.


Sec.  9901.918  Multi-unit bargaining.

    (a) Negotiations can occur at geographical or organizational levels 
within DoD or a Component with the local exclusive representatives 
impacted by the proposed change.
    (b) Any such negotiations will--
    (1) Be binding on all parties afforded the opportunity to bargain 
with representatives of DoD or the Component;
    (2) Supersede all conflicting provisions of applicable collective 
bargaining agreements of the labor organization(s) affected by the 
negotiations; and
    (3) Be subject to impasse resolution by the Board under procedures 
prescribed by the Board. In resolving impasses, the Board will ensure 
that agreement provisions are consistent with regard to all similarly 
situated employees. The determination as to which organizations are 
covered under multi-unit bargaining is not subject to review by the 
Board.
    (c) When agreement is reached under this section, individual 
bargaining units cannot opt out of or veto the agreement.
    (d) Any party may request the services of FMCS to assist with these 
negotiations.
    (e) Labor organizations may request multi-unit bargaining, as 
appropriate. The Secretary has sole and exclusive authority to grant 
the labor organizations' request.
    (f) The Department will prescribe implementing issuances on the 
procedures and constraints associated with multi-unit bargaining.


Sec.  9901.919  Collective bargaining above the level of recognition.

    (a) Negotiations can occur at the DoD or Component level with labor 
organization(s) at an organizational level above the level of exclusive 
recognition. The decision to negotiate at a level above the level of 
recognition as well as the unions involved, is within the sole and 
exclusive discretion of the Secretary to determine and will not be 
subject to review.
    (b) Any such agreement reached in these negotiations will--
    (1) Be binding on all subordinate bargaining units of the labor 
organization(s) afforded the opportunity to bargain above the level of 
recognition, and on DoD and its Components, without regard to levels of 
recognition;
    (2) Supersede all conflicting provisions of other collective 
bargaining agreements of the labor organization(s), including 
collective bargaining agreements negotiated with an exclusive 
representative at the level of recognition, except as otherwise 
determined by the Secretary;
    (3) Not be subject to further negotiations with the labor 
organizations for any purpose, including bargaining at the level of 
recognition, except as the Secretary may decide, in his or her sole and 
exclusive discretion; and
    (4) Be subject to review by the Board only to the extent provided 
by this subpart.
    (c) When agreement is reached under this section, individual labor 
organizations or bargaining units cannot opt out of or veto the 
agreement.
    (d) Negotiations will be subject to impasse resolution by the Board 
under

[[Page 66218]]

procedures prescribed by the Board. In resolving impasses, the Board 
will ensure that agreement provisions are consistent with regard to all 
similarly situated employees. The determination as to which 
organizations are covered under national level bargaining is not 
subject to review by the Board;
    (e) The National Guard Bureau and the Army and Air Force National 
Guard are excluded from coverage under this section. Where National 
Guard employees are impacted, negotiations at the level of recognition 
are authorized.
    (f) The Secretary may require and a labor organization or 
organizations may request bargaining above the level of recognition, as 
appropriate. The Secretary has sole and exclusive authority to grant 
such requests; and
    (g) The Department will prescribe implementing issuances on the 
procedures and constraints associated with collective bargaining above 
the level of recognition.


Sec.  9901.920  Negotiation impasses.

    (a) If the Department and exclusive representative are unable to 
reach an agreement under Sec. Sec.  9901.905, 9901.914, 9901.917, 
9901.918, or 9901.919, either party may submit the disputed issues to 
the Board for resolution.
    (b) The Board may take whatever action is necessary and not 
inconsistent with this subpart to resolve the impasse, to include use 
of settlement efforts.
    (c) Pursuant to Sec. Sec.  9901.907 and 9901.926, the Board's 
regulations will provide for a single, integrated process to address 
all matters associated with a negotiations dispute, including unfair 
labor practices, negotiability disputes, and negotiation impasses.
    (d) Notice of any final action of the Board under this section will 
be promptly served upon the parties. The action will be binding on such 
parties during the term of the agreement, unless the parties agree 
otherwise.


Sec.  9901.921  Standards of conduct for labor organizations.

    Standards of conduct for labor organizations are those prescribed 
under 5 U.S.C. 7120, which is not modified.


Sec.  9901.922  Grievance procedures.

    (a)(1) Except as provided in paragraph (a)(2) of this section, any 
collective bargaining agreement will provide procedures for the 
settlement of grievances, including questions of arbitrability. Except 
as provided in paragraphs (e), (f) and (h) of this section, the 
procedures will be the exclusive procedures for grievances which fall 
within its coverage.
    (2) Any collective bargaining agreement may exclude any matter from 
the application of the grievance procedures which are provided for in 
the agreement.
    (b)(1) Any negotiated grievance procedure referred to in paragraph 
(a) of this section will be fair and simple, provide for expeditious 
processing, and include procedures that--
    (i) Assure an exclusive representative the right, in its own behalf 
or on behalf of any employee in the unit represented by the exclusive 
representative, to present and process grievances;
    (ii) Assure such an employee the right to present a grievance on 
the employee's own behalf, and assure the exclusive representative the 
right to be present during the grievance proceeding; and
    (iii) Provide that any grievance not satisfactorily settled under 
the negotiated grievance procedure is subject to binding arbitration, 
which may be invoked by either the exclusive representative or the 
Department.
    (2) The provisions of a negotiated grievance procedure providing 
for binding arbitration in accordance with paragraph (b)(1)(iii) of 
this section will, to the extent that an alleged prohibited personnel 
practice is involved, allow the arbitrator to order a stay of any 
personnel action in a manner similar to the manner described in 5 
U.S.C. 1221(c) with respect to the Merit Systems Protection Board and 
order the Department to take any disciplinary action identified under 5 
U.S.C. 1215(a)(3) that is otherwise within the authority of the 
Department to take.
    (3) Any employee who is the subject of any disciplinary action 
ordered under paragraph (b)(2) of this section may appeal such action 
to the same extent and in the same manner as if the Department had 
taken the disciplinary action absent arbitration.
    (c) The preceding paragraphs of this section do not apply with 
respect to any matter concerning--
    (1) Any claimed violation of 5 U.S.C. chapter 73, subchapter III 
(relating to prohibited political activities);
    (2) Retirement, life insurance, or health insurance;
    (3) Any examination, certification, or appointment;
    (4) A removal taken under mandatory removal authority as defined in 
Sec.  9901.712;
    (5) Any subject not within the definition of grievance in Sec.  
9901.903 (e.g., the classification or pay of any position), except for 
an adverse action under applicable authority, including subpart G of 
this part, which is not otherwise excluded by paragraph (c) of this 
section; or
    (6) A suspension or removal taken under 5 U.S.C. 7532.
    (d) To the extent not already excluded by existing collective 
bargaining agreements, the exclusions contained in paragraph (c) of 
this section apply upon the effective date of this subpart, as 
determined under Sec.  9901.102(b)(1).
    (e)(1) An aggrieved employee affected by a prohibited personnel 
practice under 5 U.S.C. 2302(b)(1) which also falls under the coverage 
of the negotiated grievance procedure may raise the matter under the 
applicable statutory procedures, or the negotiated procedure, but not 
both.
    (2) An employee is deemed to have exercised his or her option under 
paragraph (e)(1) of this section to raise the matter under the 
applicable statutory procedures, or the negotiated procedure, at such 
time as the employee timely initiates an action under the applicable 
statutory or regulatory procedure or timely files a grievance in 
writing in accordance with the provisions of the parties' negotiated 
grievance procedure, whichever event occurs first.
    (3) Selection of the negotiated grievance procedure in no manner 
prejudices the right of an aggrieved party to request the Merit Systems 
Protection Board to review the final decision pursuant to 5 U.S.C. 7702 
in the case of any personnel action that could have been appealed to 
the Board, or, where applicable, to request the Equal Employment 
Opportunity Commission to review a final decision in any other matter 
involving a complaint of discrimination of the type prohibited by any 
law administered by the Equal Employment Opportunity Commission.
    (f)(1) For appealable matters, except for mandatory removal 
offenses under Sec.  9901.712, an aggrieved employee may raise the 
matter under an applicable appellate procedure or under the negotiated 
grievance procedure, but not both. An employee will be deemed to have 
exercised his or her option under this section when the employee timely 
files an appeal under the applicable appellate procedures or a 
grievance in accordance with the provisions of the parties' negotiated 
grievance procedure, whichever occurs first.
    (2) An arbitrator hearing a matter appealable under 5 U.S.C. 7701 
or subpart H of this part is bound by the applicable provisions of this 
part.
    (g)(1) This paragraph applies with respect to a prohibited 
personnel practice other than a prohibited personnel practice to which 
paragraph (e) of this section applies.
    (2) An aggrieved employee affected by a prohibited personnel 
practice described in paragraph (g)(1) of this

[[Page 66219]]

section may elect not more than one of the procedures described in 
paragraph (g)(3) of this section with respect thereto. A determination 
as to whether a particular procedure for seeking a remedy has been 
elected will be made as set forth under paragraph (g)(4) of this 
section.
    (3) The procedures for seeking remedies described in this paragraph 
are as follows:
    (i) An appeal under 5 U.S.C. 7701 or under subpart H of this part;
    (ii) A negotiated grievance under this section; and
    (iii) Corrective action under 5 U.S.C. chapter 12, subchapters II 
and III.
    (4) For the purpose of this paragraph, an employee is considered to 
have elected one of the following, whichever election occurs first:
    (i) The procedure described in paragraph (g)(3)(i) of this section 
if such employee has timely filed a notice of appeal under the 
applicable appellate procedures;
    (ii) The procedure described in paragraph (g)(3)(ii) of this 
section if such employee has timely filed a grievance in writing in 
accordance with the provisions of the parties' negotiated procedure; or
    (iii) The procedure described in paragraph (g)(3)(iii) of this 
section if such employee has sought corrective action from the Office 
of Special Counsel by making an allegation under 5 U.S.C. 1214(a)(1).
    (h)(1) An employee may challenge a rating of record issued under 
subpart D of this part, through either the negotiated grievance 
procedure or an administrative reconsideration process under Sec.  
9901.409(h), but not both, so long as the rating of record has not been 
raised in connection with an appeal under the provisions of 5 U.S.C. 
7701 or subpart H of this part. Once an employee raises an issue on his 
or her rating of record issue in an appeal under 5 U.S.C. 7701 or 
subpart H of this part, any pending grievance, arbitration, or request 
for administrative reconsideration under Sec.  9901.409(h), will be 
dismissed with prejudice.
    (2) Final decision authority in the negotiated grievance procedure 
may rest with--
    (i) An independent arbitrator; or
    (ii) A panel consisting of an independent arbitrator, a union 
representative, and a management representative.
    (3) An arbitrator or panel may not conduct an independent 
evaluation of the employee's performance, determine the appropriate 
share payout, or otherwise substitute his or her judgment for that of 
the supervisor or pay pool panel.
    (i) An arbitrator or panel hearing a matter under this subpart is 
bound by all applicable laws, rules, regulations, including applicable 
provisions of this part, issuances, and implementing issuances.


Sec.  9901.923  Exceptions to arbitration awards.

    (a) Either party to arbitration under this subpart may file with 
the Board an exception to any arbitrator's award, except an award 
issued in connection with an appealable matter under Sec.  9901.922(f) 
or matters similar to those covered under 5 U.S.C. 4303 and 7512 
arising under other personnel systems, which will be adjudicated under 
procedures described in Sec.  9901.807(g) and (h). Such procedures are 
adopted in this subpart for these purposes.
    (b) In addition to the bases contained in 5 U.S.C. 7122, exceptions 
may also be filed by the parties based on the arbitrator's failure to 
properly consider the Department's national security mission or to 
comply with applicable issuances and implementing issuances. The Board 
may take such action concerning the award as is consistent with this 
subpart.
    (c) If no exception to an arbitrator's award is filed under 
paragraph (a) of this section during the 30-day period beginning on the 
date of such award, the award is final and binding. Either party will 
take the actions required by an arbitrator's final award. The award may 
include the payment of back pay (as provided under 5 U.S.C. 5596 and 5 
CFR part 550, subpart H).
    (d) Nothing in this section prevents the Board from determining its 
own jurisdiction without regard to whether any party has raised a 
jurisdictional issue.


Sec.  9901.924  Official time.

    (a) Any employee representing an exclusive representative in the 
negotiation of a collective bargaining agreement under this subpart 
will be authorized official time for such purposes, including 
attendance at impasse proceedings, during the time the employee 
otherwise would be in a duty status. The number of employees for whom 
official time is authorized under this section may not exceed the 
number of individuals designated as representing the Department for 
such purposes.
    (b) Any activities performed by any employee relating to the 
internal business of the labor organization, including but not limited 
to the solicitation of membership, elections of labor organization 
officials, and collection of dues, will be performed during the time 
the employee is in a nonduty status.
    (c) Except as provided in paragraph (a) of this section, the 
Authority or the Board, as appropriate, will determine whether an 
employee participating for, or on behalf of, a labor organization in 
any phase of proceedings before the Authority or the Board will be 
authorized official time for such purpose during the time the employee 
would otherwise be in a duty status.
    (d) Except as provided in the preceding paragraphs of this section, 
any employee representing an exclusive representative or, in connection 
with any other matter covered by this subpart, any employee in an 
appropriate unit represented by an exclusive representative, will be 
granted official time in any amount the agency and the exclusive 
representative involved agree to be reasonable, necessary, and in the 
public interest.
    (e) Official time for representational activities will not extend 
to the representation of employees outside the representative's 
bargaining unit, except for multi-unit bargaining and/or bargaining 
above the level of recognition, in accordance with Sec. Sec.  9901.918 
and 9901.919 and mutual agreement of the agency and the exclusive 
representatives involved.


Sec.  9901.925  Compilation and publication of data.

    (a) The Board will maintain a file of its proceedings.
    (b) All files maintained under paragraph (a) of this section will 
be open to inspection and reproduction in accordance with 5 U.S.C. 552 
and 552a. The Board will establish rules in consultation with the 
Department for maintaining and making available for inspection 
sensitive information.


Sec.  9901.926  Regulations of the Board.

    The Department may issue initial interim rules for the operation of 
the Board and will consult with labor organizations granted national 
consultation rights on the rules. The Board will prescribe and publish 
rules for its operation in the Federal Register.


Sec.  9901.927  Continuation of existing laws, recognitions, 
agreements, and procedures.

    (a) Except as otherwise provided by Sec. Sec.  9901.905 or 
9901.912, nothing contained in this subpart precludes the renewal or 
continuation of an exclusive recognition, certification of an exclusive 
representative, or an agreement that is otherwise consistent with law, 
the regulations in this part and DoD or

[[Page 66220]]

Component issuances between the Department or a Component thereof and 
an exclusive representative of its employees, which is entered into 
before the effective date of this subpart, as determined under Sec.  
9901.102(b)(1).
    (b) Policies, regulations, and procedures established under and 
decisions issued under Executive Orders 11491, 11616, 11636, 11787, and 
11838 or any other Executive order, in effect on the effective date of 
this subpart (as determined under Sec.  9901.102(b)(1)), will remain in 
full force and effect until revised or revoked by the President, or 
unless superseded by specific provisions of this subpart or by 
implementing issuances or decisions issued pursuant to this subpart.


Sec.  9901.928  Savings provisions.

    This subpart does not apply to grievances or other administrative 
proceedings already pending on the date of coverage of this subpart, as 
determined under Sec.  9901.102(b)(1). Any remedy that applies after 
the date of coverage under any provision of this part and that is in 
conflict with applicable provisions of this part is not enforceable.

[FR Doc. 05-21494 Filed 10-27-05; 8:45 am]
BILLING CODE 6325-39-P; 5001-06-P