Source: https://www.flra.gov/decisions/v43/43-064.html
Timestamp: 2016-08-25 09:41:05
Document Index: 124329149

Matched Legal Cases: ['§ 2462', 'art 169', 'art\n169', 'art 7', '§ 169', '§ 169', '§ 5596', '§\n7106', '§ 7106', '§ 7103', '§ 7106', '§ 7106', '§ 1491', '§ 1491', '§ 5596', '§ 550']

43:0791(64)AR - - NFFE Local 1263 and Defense Language Institute, Monterey, CA - - 1991 FLRAdec AR - - v43 p791 | FLRA
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[ v43 p791 ] 43:0791(64)AR
The decision of the Authority follows: 43 FLRA No. 64 FEDERAL LABOR RELATIONS AUTHORITY WASHINGTON, D.C. NATIONAL FEDERATION OF FEDERAL EMPLOYEES
LOCAL 1263 (Union) and U.S. DEPARTMENT OF DEFENSE DEFENSE LANGUAGE INSTITUTE MONTEREY, CALIFORNIA (Agency) 0-AR-1922 DECISION December 26, 1991 Before Chairman McKee and Members Talkin and
Arbitrator Norman Brand filed by the Agency under section 7122(a) of the
Agency's exceptions. The Agency contracted out the teaching of a number of languages. In
making the determination to contract out, the Agency did not conduct a cost
comparison pursuant to the procedures of OMB Circular A-76, as implemented by
Army Regulation (AR) 5-20. As a result of the contracting out, 27 civilian
employees of the Agency were separated by a reduction-in-force (RIF). The Union
filed a grievance contesting the determination to contract out. The Arbitrator
found that the grievance was grievable and arbitrable. On the merits, the
Arbitrator found that the Agency violated mandatory procurement laws and
regulations in determining to contract out without doing a cost comparison. The
Arbitrator ordered the Agency to conduct a cost comparison study. The
Arbitrator further ordered that if the study shows that the teaching of the
languages should not have been contracted out, the employees who were subject
to the RIF must be reinstated with backpay. This case presents an opportunity for us to reexamine the Authority's
approach to the authority of arbitrators in procurement cases as set forth in
Headquarters, 97th Combat Support Group (SAC), Blytheville Air Force Base,
Arkansas and American Federation of Government Employees, AFL-CIO, Local
2840, 22 FLRA 656 (1986) (Blytheville AFB). On reexamination, we
conclude that the basis on which an arbitrator may sustain a grievance
disputing an agency's decision to contract out agency work must be modified to
conform to section 7106(a)(2) of the Statute. We also conclude that the
restrictions placed by Blytheville AFB on the authority of arbitrators
to remedy violations by agencies of applicable procurement law are not
warranted, and we will now permit arbitrators to remedy violations of
procurement law. We will modify the award in this case to conform with the
approach we now adopt. II. Background and Arbitrator's Award Certain languages taught at the Agency have lower enrollment than
others and are denominated low-density languages. In 1989, the Agency
determined to contract out the teaching of 10 low-density languages by
diverting future students to the Foreign Language Contract Training Program
used by other Federal agencies. In making the determination to contract out,
the Agency did not conduct a cost comparison between the cost of contract
performance and in-house performance pursuant to the procedures of OMB Circular
A-76, as implemented by AR 5-20. As a result of the contracting out, 27
civilian employees of the Agency were separated by a RIF. The Union filed a
grievance on behalf of the 27 employees, contesting the determination to
contract out. The grievance was not resolved and was submitted to
arbitration. The parties were unable to stipulate an issue, but they ultimately
agreed to the Arbitrator's following understanding of the issues: 1. Is the grievance arbitrable? 2. Did the [Agency's] decision to eliminate 10 "low-density"
languages and divert future students in those languages to existing contracts
let by other agencies, under the Contract Foreign Language Training Program,
violate the negotiated agreement, laws, rules, or regulations?
Award at 2. The Arbitrator first determined that the grievance was
grievable and arbitrable. He ruled that because the grievance alleged a failure
to follow mandatory, nondiscretionary provisions of procurement law and
regulation, the grievance was not precluded by law under Authority case
precedent. He found that Authority case precedent governed his decision, and,
consequently, he declined to follow the decision of the court in Defense
Language Institute v. FLRA, 767 F.2d 1398 (9th Cir. 1985). He also found
that the Agency had failed to establish that this matter was not grievable
under the parties' collective bargaining agreement. On the merits, the Agency took the position before the Arbitrator that
it had simply exercised its discretion to exclude the language training from
coverage by Circular A-76 and AR 5-20 pursuant to an exemption for national
defense purposes provided by both the Circular and AR 5-20. The Agency
maintained that, therefore, it was not required to conduct a cost comparison
under Circular A-76 and AR 5-20 before contracting out the language training.
The Union argued, to the contrary, that the Agency was authorized for national
defense purposes under the procurement regulations only to retain performance
of language training in-house without a cost comparison. The Union maintained
that the exemption for national defense purposes did not authorize the Agency
to contract out language training without a cost comparison. The Arbitrator concluded that it was impossible to reconcile the
Agency's actions with the regulatory requirements. The Arbitrator found that
the national defense exemption provides regulatory authority to perform
commercial activities in-house and not authority to contract out without
performing a cost comparison. The Arbitrator further found that the applicable
procurement regulations do not permit a process in which the Agency first
removes the activity from the commercial activity program under the exemption
for national defense and then uses its absence from the program to contract out
without conducting a cost comparison. The Arbitrator ruled that the Agency's
position was untenable. He viewed the Agency's position as "nothing more than
an attempt to cloak the operative decision in the mantle of 'discretion' in
order to make it unreviewable." Id. at 18. In sum, the Arbitrator held
that the exemption for national defense purposes can only be used to justify
in-house performance of a commercial activity and cannot be used as a
"subterfuge" to avoid the application of AR 5-20, "which implements Circular
No. 76, DoD Directive 4100.15, and DoD Instruction 4100.33[.]" Id. at
17, 18. Accordingly, consistent with the Authority's decision in Blytheville
AFB, the Arbitrator found that the Agency violated mandatory procurement
laws and regulations "[i]n deciding to contract out without doing a cost
comparison in accordance with the provisions of AR 5-20, which implements OMB
Circular No. 76 and DoD procurement regulations[.]" Id. at 19. In
accordance with Blytheville AFB, the Arbitrator further found that the
failure to comply with AR 5-20 and DoD regulations materially affected the
decision to contract out because it permitted the Agency to make the decision
without the cost comparison on which the decision must be based. Also, in
accordance with Blytheville AFB, the Arbitrator found that the failure
to comply with AR 5-20 and DoD regulations materially harmed unit employees
because the determination to contract out had caused the separation by RIF of
27 employees. As a remedy, the Arbitrator ordered the Agency, in accordance with AR
5-20, to conduct a commercial activity study of the languages that were
contracted out. The Arbitrator directed that "[i]f the study shows that federal
employee performance is cost effective and the languages should not be
contracted out, the RIFed employees must be rehired with back pay, minus
interim earnings attributable to their being RIFed." Id. at 21. III. First Exception A. Positions of the Parties The Agency contends that the Arbitrator's award is deficient because
the Arbitrator found that the issue of the Agency's compliance with Circular
A-76 and AR 5-20 was a grievable and arbitrable matter. The Agency notes that
the U.S. Supreme Court stated in IRS v. FLRA, 110 S. Ct. 1623, 1629
(1990), that only external limitations constituting applicable laws may be
enforced by unions and arbitrators as limits on management's right to contract
out. The Agency argues that Circular A-76 and AR 5-20 do not constitute
applicable laws within the meaning of section 7106(a)(2) of the Statute and
that, consequently, the matter of the Agency's compliance with Circular A-76
and AR 5-20 was not grievable and arbitrable. The Agency alternatively argues that the award is deficient as contrary
to the Circular. The Agency notes that the Circular expressly precludes
coverage by a negotiated grievance procedure of commercial activity
proceedings. Thus, the Agency claims that, if the Authority finds that Circular
A-76 constitutes a Government-wide regulation, the Arbitrator's award is
deficient because the Arbitrator found that the grievance was grievable and
arbitrable in violation of the Circular's prohibition. The Union contends that the exception must be denied. The Union notes
that in its grievance in support of its position that the Agency was required
to have conducted a cost comparison, it relied on 10 U.S.C. § 2462; DoD
Directive 4100.15, 32 C.F.R. part 169; DoD Instruction 4100.33, 5 C.F.R. part
169a; and Federal Acquisition Regulations, 48 C.F.R. part 7.3, in addition to
Circular A-76 and AR 5-20. The Union asserts that these other provisions relied
on constitute applicable laws and independently support the Arbitrator's ruling
that the grievance was grievable and arbitrable. Therefore, the Union states
that the Authority need not address whether Circular A-76 and AR 5-20
constitute applicable laws under section 7106(a)(2) of the Statute.
Alternatively, the Union argues that both Circular A-76 and AR 5-20 constitute
applicable laws and, therefore, support the Arbitrator's ruling. The Union also disputes the Agency's contention that Circular A-76 can
legitimately preclude coverage by a negotiated grievance procedure of
commercial activity proceedings. The Union asserts that a Government-wide
regulation cannot supersede the grievance procedure prescribed by the Statute
covering alleged violations of procurement law. The Union further asserts that,
in any event, the Circular's exclusive jurisdiction to resolve cost comparison
disputes does not apply to preclude the grievance in this case because the
Agency failed to conduct a cost comparison. B. Analysis and Conclusions In National Treasury Employees Union and U.S. Department of the
Treasury, Internal Revenue Service, 42 FLRA 377 (1991), petition for
review filed sub nom. Department of the Treasury, Internal Revenue
Service v. FLRA, No. 91-1573 (D.C. Cir. Nov. 25, 1991) (Treasury),
we examined the scope of the term "applicable laws" in section 7106(a)(2) of
the Statute and whether the term encompasses Circular A-76. For the reasons
fully set forth in Treasury, we concluded that OMB Circular A-76
constitutes an applicable law within the meaning of section 7106(a)(2) of the
Statute. 42 FLRA at 391. We also concluded that the Circular's provision for an
agency-established administrative appeal procedure does not preclude grievances
over compliance with Circular A-76. We held that OMB cannot preclude grievances
enforcing the Circular by issuing regulations that limit the scope of the
statutory grievance procedure. Id. at 404. In view of these determinations, we conclude that the Agency fails to
establish that the Arbitrator's ruling that the grievance was grievable and
arbitrable is deficient. As we stated in Treasury, grievances over
compliance with Circular A-76 "would require nothing more than that which is
already required by section 7106(a)(2) of the Statute itself, namely, that
determinations as to contracting out must be made 'in accordance with
applicable laws[.]'" Id.; accord U.S. Department of the Navy,
Pacific Missile Test Center, Point Mugu, California and National Association of
Government Employees, Local R 12-33, 43 FLRA 157 (1991). Furthermore, in our view, the Arbitrator's findings and references to
AR 5-20 and DoD regulations do not render the award deficient. Clearly,
Circular A-76 was the source and the authority of the Arbitrator's findings.
The violations he found were based on the requirements of Circular A-76 and not
DoD regulations or AR 5-20. As specifically recognized by the Arbitrator, AR
5-20 merely implements the requirements of Circular A-76 in the Agency.
Likewise, DoD Directive 4100.15 and DoD Instruction 4100.33 implement the
requirements of Circular A-76 throughout the Department of Defense. 32
C.F.R. § 169.1; 32 C.F.R. § 169a.1(a). AR 5-20 is simply the formal means by
which the requirements of the Circular are applied in the Agency. AR 5-20,
promulgated in response to Circular A-76, sets out Agency guidelines that both
reiterate and incorporate the requirements of Circular A-76. As the summary of
AR 5-20 states, the regulation "implements Office of Management and Budget
Circular A-76, DOD Directive 4100.15, and DOD Instruction 4100.33 [and] . . .
provides guidance for managing and carrying out the Commercial Activities (CA)
Program." Consequently, we view the Arbitrator's findings with respect to AR
5-20 and DoD regulations simply to constitute the Arbitrator's references to
the means by which the requirements of Circular A-76 are applied within the
Agency. The Arbitrator's mere referencing of AR 5-20 and DoD regulations does
not establish that he required anything more than is required by Circular
A-76. Accordingly, we will deny the exception. IV. Second Exception A. Position of the Parties The Agency contends that the award is contrary to management's right
under section 7106(a)(2)(B) of the Statute to make determinations with respect
to contracting out because it orders the Agency to rehire the employees
separated by the RIF if a cost comparison favors in-house performance. The
Agency argues that under the Authority's decision in Blytheville AFB, it
is the agency, and not the arbitrator, that determines what action to take as a
result of the reconstruction of the procurement process. The Agency notes that
in Blytheville AFB, the Authority held that if the decision to contract
out can no longer be justified, the agency must determine whether
considerations of cost, performance, and disruption override cancelling the
procurement action and must take whatever action is appropriate on the basis of
that determination. The Agency argues that by prescribing the remedy if the
decision to contract out can no longer be justified, the award is deficient
because it precludes management from determining what "action is appropriate on
the basis of that determination" and prevents management from exercising "its
discretion to fashion other remedies appropriate to the circumstances."
Exceptions at 7 (quoting Blytheville AFB, 22 FLRA at 662). The Union concedes that the Arbitrator exceeded his authority under
current Authority case precedent by ordering the employees separated by the RIF
reinstated with backpay if the decision to contract out could not be justified.
However, the Union requests that we reconsider Blytheville AFB and hold
that an arbitrator has authority to award employees reinstatement and other
compensation for injuries suffered as a result of an agency's violation of
procurement laws. The Union argues that the limits on an arbitrator's authority set forth
in Blytheville AFB are inconsistent with the Back Pay Act, 5
U.S.C. § 5596, and are inconsistent with the authority granted arbitrators in
other areas. The Union maintains that under the Back Pay Act, an employee who
is affected by an unjustified or unwarranted personnel action is entitled on
correction of the action to the pay, allowances, or differentials that the
employee would have received if the action had not occurred. The Union asserts
that in order to conform to the Back Pay Act, the Authority must permit
arbitrators to order reinstatement with backpay when a reconstructed commercial
activity study determines that in-house performance is more cost effective than
conversion to contract. The Union also asserts that procurement laws should be
no less enforceable by arbitrators than other laws, such as the laws governing
performance appraisals. The Union claims that it is inconsistent for an
arbitrator to have authority to remedy agency violations of laws governing
performance appraisals, but not to have the authority to remedy violations of
procurement law. In the Union's view, in either case, employees are entitled to
be made whole by the arbitrator. B. Analysis and Conclusions This case presents us with the opportunity to reexamine the Authority's
approach, as set forth in Blytheville AFB, to the role of arbitrators in
resolving grievances disputing determinations by agencies to contract out
agency work. In Blytheville AFB, the Authority noted that, in recognition of
the substantial discretion accorded agency officials under procurement law and
regulation, and the many decisions made as a part of the procurement process
that necessarily involve judgment and managerial choices, the scope of review
of procurement actions by courts and administrative bodies has been narrow and
limited. 22 FLRA at 659. The Authority recognized that courts generally hold
that a procurement decision may not be overturned unless it is demonstrated
that there is no rational basis for the agency's decision and that no public
interest considerations override cancelling the procurement. Id. at 660.
The Authority held that in view of the substantial discretion vested in agency
procurement officials, the paramount public interest in the efficient
procurement of goods and services, and the avoidance of excessive costs,
arbitrators are "without authority to order cancellation of a procurement
action or to review an agency decision in the procurement process concerning a
matter of agency judgment or discretion." Id. at 661. The Authority
concluded that arbitrators "are authorized to consider only grievances
challenging a decision to contract out on the basis that the agency failed to
comply with mandatory and nondiscretionary provisions of applicable procurement
law or regulation" and that "[t]hese provisions must be sufficiently specific
to permit the arbitrator to adjudicate whether there has been compliance with
such provisions." Id. The Authority advised that when an arbitrator is presented with such a
grievance, the arbitrator may sustain the grievance if the arbitrator finds
that the agency failed to comply with such provisions of procurement laws or
regulation. However, the Authority ruled that in sustaining the grievance, the
arbitrator is limited to ordering the agency to reconstruct the procurement
action. Id. at 661-62. Under Blytheville AFB, the agency must
determine on reconstruction whether the decision to contract out is in
accordance with law and regulation and, if the decision to contract out cannot
be justified, "the agency must determine whether considerations of cost,
performance, and disruption override cancelling the procurement action and take
whatever action is appropriate on the basis of that determination." Id.
at 662. On reexamination, we conclude that the basis on which an arbitrator may
sustain a grievance directly challenging an agency's decision to contract out
agency work must be modified to conform to section 7106(a)(2) of the Statute,
as discussed in Treasury. On reexamination, we further conclude that the
restrictions on the authority of arbitrators to remedy violations by agencies
of applicable procurement law are not warranted, and we will now permit
arbitrators to remedy violations of procurement law in conformity with the
remedial authority of Federal courts in such matters. In IRS v. FLRA, the U.S. Supreme Court reversed the Authority's
holding that compliance with OMB Circular A-76 could be enforced through a
negotiated grievance procedure because the Circular constituted a law, rule, or
regulation within the meaning of section 7103(a)(9) of the Statute. The Court
stated that the Authority's holding was "flatly contradicted by . . . §
7106(a)'s command that nothing in this chapter . . . shall affect the
authority of agency officials to make contracting-out determinations in
accordance with applicable laws." 110 S. Ct. at 1627 (emphasis in original).
The Court stated that "there are no 'external limitations' on management
rights, insofar as union powers under § 7106(a) are concerned, other than
the limitations imposed by 'applicable laws.'" Id. at 1629 (emphasis in
original). The Court also held that the term "applicable laws" in section
7106(a)(2) is not synonymous with the phrase "any law, rule, or regulation" in
section 7103(a)(9) of the Statute. The Court stated that "[i]t cannot be true .
. . that all actions not in accordance with a 'law, rule, or regulation'
under § 7103(a)(9) are, by definition, also actions not 'in accordance
with applicable laws' in § 7106(a)." Id. (emphasis in original).
However, the Court stated that it is a "permissible (though not an inevitable)
construction of the [S]tatute that the term 'applicable laws' in § 7106(a)
extends to some, but not all, rules and regulations . . . ." Id.
(footnote omitted). Because the scope of the term "applicable laws" in section
7106(a)(2) was not considered by the U.S. Court of Appeals for the D.C.
Circuit, the Supreme Court remanded the case to the D.C. Circuit to consider
that issue or "await [the Authority's] specification, on remand, of the
particular permissible interpretation of 'applicable laws' (if any) it believes
embraces the Circular." Id. at 1630. The D.C. Circuit subsequently remanded the case to the Authority.
IRS v. FLRA, No. 87-1439 (D.C. Cir. May 11, 1990) (order). Following the
remand, we examined the scope of the term "applicable laws" in Treasury.
In Treasury, we held that, insofar as management rights under section
7106(a)(2) are concerned, proposals that require compliance with applicable
laws do not directly interfere with the exercise of such rights. We also held
that the term "applicable laws" in section 7106(a)(2) includes, among other
things, provisions of the U.S. Code and provisions of rules and regulations
having "the force and effect of law." 42 FLRA at 390-91. We concluded that in
order for a regulation to have the force and effect of law, so as to constitute
an applicable law, the regulation, among other things, must have substantive
characteristics affecting individual rights and obligations. Id. at
391. In view of these determinations, the basis on which an arbitrator may
sustain a grievance claiming that an agency decision to contract out agency
work failed to comply with applicable procurement regulations must be modified
to conform to section 7106(a)(2) of the Statute. In accordance with IRS v.
FLRA and Treasury, we now hold that an arbitrator may sustain a
grievance disputing an agency's determination to contract out on the basis of a
procurement regulation only if that regulation constitutes an applicable law
within the meaning of section 7106(a)(2) of the Statute. However, a regulation
must have certain substantive characteristics to have the force and effect of
law, and, as noted in Blytheville AFB, 22 FLRA at 660, the courts have
stressed that the procurement regulations alleged to have been violated must
contain discernible requirements and meaningful criteria against which the
determination to contract out may be analyzed and reviewed. Therefore, we will
continue to adhere to that portion of Blytheville AFB, id. at
661, holding that the applicable provision must be mandatory and
nondiscretionary and must contain sufficiently specific standards against which
an arbitrator can objectively analyze and review the agency's actions to
determine whether the agency failed to comply with the requirements. As we have noted, in addition to limiting the basis on which an
arbitrator was permitted to sustain a grievance, Blytheville AFB also
concluded that "arbitrators are not authorized to cancel a procurement action."
Id. That conclusion was reached without any discussion as to the relief
granted by courts in procurement cases. On review of the type of relief granted
by the Federal courts in procurement cases, we cannot justify the restrictions
of Blytheville AFB on the authority of arbitrators to remedy grievances
disputing determinations to contract out. In Choctaw Manufacturing Co. Inc., v. United States, 761 F.2d
609 (11th Cir. 1985) (Choctaw Mfg.), the court held that "[t]here is no
question that a district court may '[e]njoin the performance of a [government]
contract if the award was the result of procedures not comporting with the law
. . . .'" 761 F.2d at 619 (quoting Sea-Land Service, Inc. v. Brown, 600
F.2d 429, 433 (3d Cir. 1979). In Ulstein Maritime, Ltd. v. U.S., 833
F.2d 1052 (1st Cir. 1987) (Ulstein Maritime), the court held that
disappointed bidders for Federal government contracts may seek judicial review
and that when the actions of contracting officers violate applicable
procurement laws or regulations, "the award may be set aside." 833 F.2d at
1057. The court also noted that Congress in enacting 28 U.S.C. § 1491(a)(3) explicitly endorsed the authority of Federal district courts to
grant equitable relief from illegalities in the Federal procurement process.
The court explained that in enlarging the powers of the U.S. Claims Court under
28 U.S.C. § 1491(a)(3), Congress recognized and did not alter the
preexisting powers of the district court to award injunctive relief in
procurement cases. Id. at 1057-58. In Delta Data Systems Corp. v. Webster, 744 F.2d 197 (D.C. Cir.
1984) (Delta Data), in an opinion by then Judge (now Justice) Scalia,
the court stated that the court's role in reviewing agency procurement
decisions is limited to determining whether the agency acted in accord with
applicable standards and regulations and had a rational basis for its decision.
744 F.2d at 204. Although observing that the "ultimate grant of a government
contract must be left to the discretion of the government agency," the court
held that a district court may order that a contract be awarded when "it is
clear that, but for the illegal behavior of the agency, the contract would have
been awarded to the party asking the court to order the award." Id.;
accord Ulstein Maritime, 833 F.2d at 1058; Choctaw Mfg.,
761 F.2d at 619. The court explained that "the main objective of our effort at
framing a remedy is to assure that the government obtains the most advantageous
contracts by complying with the procedures which Congress and applicable
regulations have provided. Putting the disappointed bidder in the economic
position it would have occupied but for the error is normally the best approach
to this result." Id. at 206-07. The court cautioned, however, that
"[w]here that is impractical . . . or can only be achieved at a cost to the
government that will greatly exceed the benefits derived from requiring
observance of the proper procedures in [a] particular case, we must seek a more
reasonable alternative." Id. at 207. Similarly, the court in Choctaw Mfg. held that a district court,
in determining whether to exercise the authority to award a contract to an
unsuccessful bidder, "must consider several equitable factors, among them:
whether the contract has already been awarded to another party and, if so, is
being performed; the extent an order awarding the contract to the unsuccessful
bidder is necessary to vindicate the interest of the public, and competing
bidders, in the agency's adherence to the law; and the cost to the government,
and hence to the taxpayers, of substituting an unsuccessful bidder for the
successful bidder whose price may have been considerably lower." 761 F.2d at
619. Because these cases frequently involve the Department of Defense, courts
have also been careful to consider the possible detriment to the national
interest before granting an injunction in a procurement case. For
example, Diebold v. U.S., No. 90-5373 (6th Cir. Oct. 15, 1991), slip
op. at 17 (Diebold). Although the courts have acknowledged the availability of equitable
relief, they nevertheless have clearly recognized that the granting of such
relief should be extraordinary. "They have looked carefully at the interests to
be affected by equitable relief, fully aware that the Government and the public
may be harmed when courts interfere with agencies' procurement decisions."
B.K. Instrument, Inc. v. U.S., 715 F.2d 713, 730 (2d Cir. 1983). In many
cases, despite finding merit in the claims of disappointed bidders, "they have
struck the balance of equities in favor of the government's interests in the
smooth and efficient functioning of the procurement process at the expense of
the interests of the unsuccessful bidder in the integrity of the bidding
process and equal access to the procurement dollar (and of the public in
fairness and competitive bidding)." Gull Airborne Instruments, Inc. v.
Weinberger, 694 F.2d 838, 846 n.9 (D.C. Cir. 1982). Moreover, Congress in
expanding the equitable powers of the U.S. Claims Court "affirmed this judicial
reluctance to enjoin contract awards, recognizing that 'courts ordinarily
refrain from interference with the procurement process by declining to enjoin
the Government from awarding a contract.'" Diebold, slip op. at 17
(quoting S. Rep. No. 275, 97th Cong., 2d Sess. at 23). Clearly, the circumstances warranting the grant of injunctive relief do
not reduce to an objective delineation. However, the court in Choctaw
Mfg. offers some guidance in the balancing of equities to determine whether
to award a contract by contrasting the situations in Superior Oil Co. v.
Udall, 409 F.2d 1115 (D.C. Cir. 1969) (Superior Oil) and Delta
Data. The court explained that in Superior Oil the district court
was presented with a clear violation of law that required the cancellation of
the contract. In addition, the court noted that, but for the violation, the
unsuccessful bidder, Superior Oil, would have received the contract. In the
judgment of the court in Choctaw Mfg., the district court in Superior
Oil "had the authority to order that the contract be awarded to [Superior
Oil] and the relevant equities counseled that it exercise that authority." 761
F.2d at 620. The court in Choctaw Mfg. concluded that the equities
warranted award of the contract because the challenged bidder and the
government had not materially changed their respective positions and no
significant expense or disruption of a governmental function would have
attended the substitution of Superior Oil for the successful bidder. The court
additionally concluded that "'the need to promote the integrity of the bidding
process' outweighed the fact that such substitution would cost the government
'approximately two million dollars more in immediate revenue . . . .'"
Id. In contrast, the court in Choctaw Mfg. noted that in Delta
Data no award was found to be appropriate because in Delta Data
there was no showing that, but for the agency's failure to comply with
regulations, Delta Data would have been awarded the contract. Following the
example of Superior Oil, the court in Choctaw Mfg. ordered award
of the contract to Choctaw, an unsuccessful bidder. The court was persuaded to
exercise its discretion because, but for the violations of procurement
regulations, Choctaw would have received the contracts; the successful bidder
had not commenced performance of the contracts; the substitution of Choctaw
would cause only an insignificant disruption of the procurements; and the
interest to the public, and those who bid for the agency's work, outweighed the
higher price the Government would have to pay for the procurements. Id.
at 621. Other courts have also recognized when there may be "sound reasons" for
granting equitable relief. Motor Coach Industries Inc., v. Dole, 725
F.2d 958, 968 (4th Cir. 1984) (MCI). In MCI, the court was
persuaded that injunctive relief was necessary because the agency's actions did
not constitute only a "technical violation" of procurement law: "Rather, the
agency completely ignored the [Federal Property and Administrative Services]
Act's substantive and procedural requirements . . . ." Id. at 968. In
the court's view, "[a]llowing the purchase contract to stand in such
circumstances would soon make the procurement statutes little more than 'dead
letters on a page.'" Id. On the basis of our review of the remedial authority of Federal courts
in procurement cases, we now hold, contrary to Blytheville AFB, that an
arbitrator may order a procurement contract terminated and performance of the
activity converted to in-house.(1) We recognize that these cases have involved Federal court review,
rather than arbitration awards, and unsuccessful or disappointed bidders,
rather than employees or unions representing employees. The reason that these
cases have not involved employees or unions is that the courts have denied
employees and unions standing to bring an action alleging that an agency
wrongfully converted to contract an activity previously performed in-house by
agency personnel. For example, NFFE v. Cheney, 883 F.2d 1038
(D.C. Cir. 1989). However, in cases like the one before us, we are not
constrained by a lack of standing. The lack of standing in court of unions and
employees cannot limit the extent of relief available in arbitration under the
Statute where they undeniably have standing. Indeed, in Treasury, we
determined that the inability of unions or employees to challenge procurement
decisions in court was not dispositive of whether OMB Circular A-76 constituted
an applicable law under the Statute. In view of our decision that Circular A-76
is an applicable law, and the statutory right of employees and unions to
resolve issues concerning conditions of employment through a negotiated
grievance procedure, it is clear to us that arbitrators must have the authority
to make employees whole in cases where in-house performance of an activity was
converted to contract in violation of Circular A-76 or any other applicable
procurement law or procurement regulation having the force and effect of
law. We find no basis in procurement law or regulation or in the Statute or
its legislative history for continuing to hold that this relief that is granted
by the courts cannot be granted on the same grounds by arbitrators. We also
agree with the Union that the Back Pay Act, 5 U.S.C. § 5596, provides
arbitrators with the authority to reinstate with backpay employees subjected to
a RIF. The Authority has repeatedly held that the Back Pay Act authorizes
arbitrators to make employees whole for pay, allowances, or differentials lost
as a result of an unjustified or unwarranted personnel action. For
example, American Federation of Government Employees, Local 31 and U.S.
Department of Veterans Affairs Medical Center, Cleveland, Ohio, 41 FLRA
514, 517 (1991). The Authority has advised that, in order to award backpay, the
arbitrator must find that: (1) the aggrieved employee was affected by an
resulted in the withdrawal or reduction of the employee's pay, allowances or
differentials; and (3) but for such action, the employee would not otherwise
have suffered the withdrawal or reduction. Id. at 517. Furthermore, an
"unjustified or unwarranted personnel action" is specifically defined to
include an action found to have been unjustified or unwarranted under
applicable law. 5 C.F.R. § 550.803. In our view, the Back Pay Act clearly
encompasses a conversion to contract in violation of Circular A-76, or any
other applicable procurement law or regulation having the force and effect of
law, as a result of which employees are separated by RIF. Moreover, the
findings necessary to support an award of backpay under the Back Pay Act are no
different from the findings necessary to award a contract. In both, a "but for"
or causal connection finding is necessary and in both the aggrieved party is
placed in the position the party would otherwise have achieved if the violation
had not occurred. Based on our review of the law, we conclude that we should not permit
agencies to maintain unreviewable discretion to "take whatever action is
appropriate[.]" Blytheville AFB, 22 FLRA at 662. Consequently, we will
no longer deprive arbitrators of the power and responsibility under the Statute
to appropriately remedy unlawful actions taken with respect to contracting out.
In resolving such cases under the authority we have now prescribed, arbitrators
will not be exercising any additional authority beyond that which they
generally exercise in resolving other grievances, including those that involve
the exercise of other management rights under the Statute. See Social
AFL-CIO, 30 FLRA 1156 (1988); Newark Air Force Station and American
Federation of Government Employees, Local 616, 30 FLRA 616 (1987).
Arbitrators will simply be examining an action by management to determine
whether that action was lawful and, if they determine that the action was not
lawful, to make employees whole who were aggrieved as a result of the action.
In our view, this is precisely one of the functions that arbitrators perform,
and that Congress intended arbitrators to perform, under the Statute. As noted by the court in Diebold, "[t]hese wrongful
privatization cases under procurement statutes and regulations like Circular
A-76 are basically accounting cases. Courts have long dealt with disputes that
required an accounting of one party or the other. Otherwise the cases are like
other administrative review cases. The delay, judicial expertise, and
floodgates arguments are no more persuasive here than other cases. Congress
made a policy decision that agency action should be reviewable." Slip op. at
22. We would reiterate the court's conclusion in terms of the authority of
arbitrators to remedy these grievances under the Statute. In our view, in
requiring parties to negotiate grievance procedures that result in binding
arbitration, and in broadly defining what grievances could encompass, Congress
fully expected arbitrators to review and, when necessary, to appropriately
remedy a wide variety of actions taken by management, including determinations
to contract out. Accordingly, we conclude that the permissible remedies
available to arbitrators include termination of the contract and reconversion
to in-house performance of the disputed activity as well as the authority to
order make-whole relief to employees affected by the wrongful conversion to
contract. We believe our approach accommodates the deference afforded the
procurement process by the courts. An arbitrator may sustain a grievance on the
basis of procurement law or regulation only if the arbitrator finds a violation
of a mandatory and nondiscretionary provision. We will continue to adhere to
that portion of Blytheville AFB holding that the provisions must contain
sufficiently specific standards to objectively analyze and review the agency's
actions and permit an objective conclusion that the agency failed to comply
with the requirements. This approach protects from interference matters of
agency judgment or discretion. In our view, this assures that the arbitration
process does not "improperly intrud[e] into the agency's decision making
process[.]" Delta Data, 744 F.2d at 203 (quoting Vermont Yankee
Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519, 525
(1978)). Although the circumstances warranting the granting of equitable relief
cannot be fully prescribed, we note the following authority of arbitrators in
procurement cases. When an arbitrator finds that an agency has violated a
mandatory and nondiscretionary provision of applicable procurement law or
procurement regulation having the force and effect of law, the arbitrator may
sustain the grievance over the disputed procurement. We emphasize that the
provision of law or regulation must be sufficiently specific to permit the
arbitrator to adjudicate whether there has been compliance with such provision.
In sustaining the grievance, the arbitrator as a preliminary remedy may
properly order reconstruction of the procurement action when the agency's
noncompliance materially affected the final procurement decision. We note that
this would likely be the remedy in cases such as this case where a required
cost comparison was never conducted. An agency in taking the action required by such an award must
reconstruct the procurement process in accordance with the provisions that were
previously not complied with and must determine on reconstruction whether the
decision to convert to contract is justifiable based on applicable law and
regulation. If, after reconstruction, the decision to contract out cannot be
justified and it is established that, but for the violation(s) of procurement
law or regulation, the activity would not have been converted to contract, the
arbitrator must determine whether consideration of the various factors that
have been recognized by the courts in procurement cases warrants an order
directing that the agency terminate the contract, reconvert the activity to
in-house performance, and make employees adversely affected by the conversion
to contract whole for their losses resulting from the unjustified conversion to
contract. In this respect, we reiterate the guidance of the court in Delta
Data: the objective in framing a remedy is to assure that the Government
obtains the most advantageous contracts by complying with the requirements of
applicable law. 744 F.2d at 206-07. In determining whether to grant the conversion of the contract, the
arbitrator must set forth in a fully articulated and reasoned decision the
basis for determining whether or not to grant such relief. We caution
arbitrators that the granting of such relief is extraordinary and that courts
ordinarily refrain from interference with procurement decisions. Thus, an
arbitrator initially must determine whether it is clear that, but for the
illegal actions of the agency, the performance of the work would have remained
in-house. The arbitrator should also examine whether the contract has already
been awarded to another party and, if so, the extent to which it has been
performed, and whether the cost to the Government of the contemplated remedy
will greatly exceed the benefits that would be derived from observing the
proper procedures. The arbitrator should also take into consideration any
possible detriment to the national interest. On the filing of exceptions, we
will review the award to decide whether the arbitrator's determination of
remedy is arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law. In sum, if, in sustaining a grievance, an arbitrator is able to
determine on the basis of the record presented that the decision to contract
out cannot be justified and that, but for the violations of procurement law or
regulation, the activity would not have been converted to contract, the
arbitrator need not order a reconstruction. Instead, the arbitrator may
directly determine whether the circumstances warrant reconversion to in-house
performance. Because we have modified the remedial authority of arbitrators in
contracting out cases, we will modify the Arbitrator's award to permit the
application of the principles we have announced in this case. We conclude that
the Arbitrator's award must be modified to provide for consideration by the
Arbitrator, if necessary, of the various factors that need to be examined
before reconversion to in-house performance and a make-whole remedy for
affected employees can be ordered.(2) The Arbitrator may use whatever means he considers
appropriate to assess these factors and to make his determination.
Consequently, we will modify the award accordingly. V. Decision The Arbitrator's remedy set forth in paragraph 2 of the "AWARD" is
modified to provide as follows: 2. DLI must perform a commercial activity study of the language
instruction contracted out, in accordance with applicable procurement law and
regulation. If the study shows that the decision to contract out cannot be
justified in accordance with law and regulation and it is established that, but
for the violations of OMB Circular A-76, as implemented by the Agency, the
languages would not have been contracted out, I will determine, after
consideration of all relevant circumstances, the appropriate action to be
taken. FOOTNOTES: (If blank, the decision does not
have footnotes.) 1. For a discussion of the difference
between a cancellation or rescission of a contract and an order to terminate
the contract under the contract's
termination-for-the-convenience-of-the-government clause, see United States
v. Amdahl Corp., 786 F.2d 387, 394-95 (Fed. Cir. 1986) (Amdahl
Corp.). In accordance with Amdahl Corp., when the contractor was not
the cause of the illegality and was not aware of the illegality, the
appropriate order would be to direct the termination of the contract and not to
order the contract cancelled or rescinded. 2. We need not, and do not, decide here
whether backpay can be ordered under the Back Pay Act in a case where an
arbitrator finds that an agency has violated a mandatory and nondiscretionary
provision of applicable procurement law or procurement regulation having the
force and effect of law but does not order a conversion of the contract after
applying the standards set forth above. Federal Labor Relations Authority