In April 2003, the Department of Defense (DOD) sent a proposal entitled "The DefenseTransformation for the 21st Century Act" to Congress. (1) Changes in the uniformed military personnel and acquisitionsystems were the principal focus of the proposal. However, it also recommended changes to thestatutory bases for much of DOD's civilian personnel system, which covers some 700,000 civilianemployees (about 26% of federal civilian executive branch personnel worldwide). (2) On May 22, 2003, the House of Representatives passed H.R. 1588 , the NationalDefense Authorization Act for FY2004, amended, by a 361 to 68 (Roll No. 221) vote. (3) As reported to the House,H.R. 1588 included provisions at Subtitle A of Title XI related to government-widepersonnel management. The bill also included provisions for a National Security Personnel System(NSPS) for DOD at Subtitle B. Many of the provisions had originated in DOD's April 2003 proposaland had been included in H.R. 1836 , the Civil Service and National Security PersonnelImprovement Act, reported to the House, amended ( H.Rept. 108-116 , part 1), by the Committee onGovernment Reform on May 19, 2003. (4) The provisions were added to H.R. 1588 during ArmedServices Committee markup. (5) Several additional amendments were made to the personnelmanagement provisions during House consideration and passage of H.R. 1588. The Senateversion of the defense authorization bill, S. 1050 , as passed by the Senate, amended,on May 22, 2003, on a 98 to 1 (No. 194) vote, did not include these Title XI personnel managementprovisions (but included other personnel provisions at Title XI). On June 4, 2003, the Senate struckall after the enacting clause and substituted the text of S. 1050 in H.R. 1588. TheSenate then passed H.R. 1588, amended, by voice vote the same day. (6) H.R. 1588, aspassed by the Senate, included, at Title XI, personnel provisions on pay authority for criticalpositions, the experimental personnel program for scientific and technical personnel, and personnelinvestigations that were not included in the House-passed version of the bill or S. 1166 . Senator Susan Collins, Chairman of the Senate Committee on Governmental Affairs,introduced S. 1166 , the National Security Personnel System Act, on June 2, 2003, andit was referred to the Senate Governmental Affairs Committee. On June 4, 2003, the committeeconducted a hearing on the bill. Following the hearing, Senators Voinovich and Thomas Carperasked the Comptroller General, David Walker, to respond to several additional questions. Hisresponse, submitted on July 3, 2003, included the following comments. [I]t is critical that agencies or components have in placethe human capital infrastructure and safeguards before implementing new human capital reforms.This institutional infrastructure includes, at a minimum (1) a human capital planning process thatintegrates the agency's human capital policies, strategies, and programs with its program mission,goals, and desired outcomes, (2) the capabilities to develop and implement a new human capitalsystem effectively, and (3) a modern, effective, credible and, as appropriate, validated performanceappraisal and management system that includes adequate safeguards, such as reasonable transparencyand appropriate accountability mechanisms, to ensure the fair, effective, and nondiscriminatoryimplementation of the system. Although we do not believe that DOD should wait forthe full implementation of the new human capital system at the Department of Homeland Security(DHS), ... we do think that there are important lessons that can be learned from how DHS isdeveloping its new personnel system. For example, DHS has implemented an approach that includesa design team of employees from DHS, the Office of Personnel Management (OPM), and majorlabor unions. To further involve employees, DHS has conducted a series of town hall meetingsaround the country and held focus groups to further learn of employees' views and comments ...DOD ... needs to ensure that employees are involved in order to obtain their ideas and gain adequate"buy-in" for any related transformational efforts. [W]e suggest that DOD also be required to link itsperformance management system to program and performance goals and desired outcomes.... [This]helps the organization ensure that its efforts are properly aligned and reinforces the line of sightbetween individual performance and organizational success so that an individual can see how her/hisdaily responsibilities contribute to results and outcomes. In our view, it would be preferable to employ agovernmentwide approach to address certain flexibilities that have broad-based application andserious potential implications for the civil service system .... broad banding, pay for performance,reemployment, and pension offset waivers. In these situations, it may be prudent and preferable forCongress to provide such authorities on a governmentwide basis and in a manner that assures thata sufficient personnel infrastructure and appropriate safeguards are in place before an agencyimplements the new authorities. Based on our experience, while DOD's leadership hasthe intent and the ability to transform the department, the needed institutional infrastructure is notin place in a vast majority of DOD organizations.... In the absence of the right institutionalinfrastructure, granting additional human capital authorities will provide little advantage and couldactually end up doing damage if the authorities are not implemented properly by the respectivedepartment or agency. (7) The Senate Governmental Affairs Committee marked up the bill on June 17, 2003, and, onthe same day, ordered S. 1166 to be reported to the Senate, amended, on a 10 to 1 rollcall vote. During the mark-up, the committee agreed to an amendment offered by Senator JosephLieberman to clarify the intent of the bill's provisions on collective bargaining and an amendmentoffered by Senator George Voinovich to exclude 10 DOD laboratories from the NSPS. Bothamendments were agreed to by voice vote. On September 5, 2003, the committee reported S.1166 to the Senate with amendments and without a written report. Senator Collins, a conferee on the conference committee for H.R. 1588 , alongwith Senators Voinovich and Carl Levin (an H.R. 1588 conferee), among others, expressedthe hope that the provisions of S. 1166 , as amended, would be seriously considered bythe conference as an alternative to the provisions in H.R. 1588 on the NSPS. On July 14,2003, Senators Collins, Voinovich, Stevens, and Sununu wrote a letter to their Senate colleaguesexpressing their support for, and sharing their views on, the personnel provisions of S.1166. They stated that, "[a]s a template for future governmentwide civilian personnelreform, the personnel provisions in the defense bill must strike the right balance between promotinga flexible system and protecting the rights of our constituents who serve in the federal civil service"and that "[w]e believe that our proposal strikes such a balance." (8) Several provisions that werethe same or similar to S. 1166 were added to H.R. 1588 in conference. On November 7, 2003, the House agreed to the conference report ( H.Rept. 108-354 )accompanying H.R. 1588 on a 362-40, 2 present (Roll No. 617) vote. The Senateagreed to the conference report on a 95-3 (No. 447) vote on November 12, 2003. President Bushsigned H.R. 1588 into law on November 24, 2003, as P.L. 108-136 (117 Stat. 1392). This report discusses each of the provisions in Title XI of P.L. 108-136 and plans toimplement the law. (9) Fordiscussion of the background to the provisions and side-by-side comparisons of the provisions withcurrent law, see CRS General Distribution Memorandum, Department of Defense TransformationProposal (Title I, Subtitle A, Section 101) and H.R. 1588 Conference Report (Title XI,Subtitles A,B,C): A Side-by-Side Comparison , coordinated by [author name scrubbed]; CRS Report RL31924 , Civil Service Reform -- H.R. 1836, Homeland Security Act, and Current Law ,by [author name scrubbed] and [author name scrubbed]; and CRS Report RL31916 , Defense DepartmentOriginal Transformation Proposal: Compared to Existing Law , by [author name scrubbed], Gary J.Pagliano, [author name scrubbed], and [author name scrubbed]. Contributors to this report are Richard Best, Valerie Grasso, [author name scrubbed], Fred Kaiser,[author name scrubbed], Thomas Nicola, [author name scrubbed], Barbara Schwemle, [author name scrubbed], and JonShimabukuro. The timetable for implementing the NSPS has changed several times. Discussions onimplementation began in January 2004. (10) Initially, DOD planned to publish details of the new system byApril 2004, and cover 300,000 civilian DOD employees under the NSPS by October 1, 2004. Inearly February 2004, Secretary of Defense Donald Rumsfeld named then-Navy Secretary andnow-Deputy Secretary of Defense Gordon England as the DOD official responsible for negotiatingwith labor organizations on the personnel reform effort. (11) On April 14, 2004, Secretary England announced thatimplementation of the NSPS would be phased in over several years so that all employees would becovered by the NSPS by October 1, 2006. More specific implementation steps and a revised timetable were announced by SecretaryEngland on December 15, 2004, as follows. (12) Civilian DOD employees being converted to the NSPS were tobe grouped into three "spirals." Upwards of 300,000 General Schedule employees from the Army,Navy, Marine Corps, Air Force, Office of the Secretary of Defense, and other DOD offices who arebased in the United States were to comprise Spiral One. Spiral Two was to consist of all remainingeligible employees and Spiral Three was to cover employees of the DOD laboratories if currentlegislative restrictions covering laboratory employees had been eliminated. The new system was tobe implemented in phases. Spiral One was scheduled to be implemented in three phases over 18months beginning around July 2005 and covering some 60,000 employees. Spiral Two wasscheduled to begin after the department had assessed Spiral One and after the Secretary of Defensecertified DOD's performance management system. Full implementation of the new system wasanticipated anywhere from July 2007 through January 2008. Implementation of the labor relationscomponent of the new system was anticipated by summer 2005. On October 26, 2005, DOD announced a further revised implementation schedule for theNSPS. Key implementation steps were to occur as follows: In early FY2006, the labor relations system was to be implemented acrossDOD for employees who are currently covered by 5 U.S.C. Chapter 71, and training in performancemanagement was to begin for employees, managers and supervisors, and human resourcespractitioners. In early calendar year 2006, Spiral 1.1 was to be implemented and cover some65,000 employees. In spring 2006, Spiral 1.2 was to be implemented and cover some 48,000employees. In fall 2006, Spiral 1.3 was to be implemented and cover some 160,000employees and the performance cycle was to end for employees in Spirals 1.1 and1.2. In early calendar year 2007, employees in Spirals 1.1 and 1.2 were to receivetheir first pay-for-performance payout. In early calendar year 2008, employees in Spiral 1.3 were to receive their firstpay-for-performance payout. (13) Another revision to the NSPS implementation schedule was announced by DOD on January17, 2006, and updated on February 13, 2006, and March 3, 2006. Beginning in late April 2006, theclassification, performance management, compensation, staffing, and workforce shaping provisionsof the new system will be implemented. Under the revised schedule, the following was established: Spiral 1.1 will include the first employees to be covered by the NSPS, some11,000 workers in department-wide, Army, Navy, and Air Force activities. (14) The performance ratingcycle for these employees will extend through October 2006, and the first performance payout willoccur in January 2007. Spiral 1.2 will begin in October 2006, and Spiral 1.3 will begin in January2007. Performance payouts will occur in January 2008. The DOD agencies that will participate inthese Spirals are still to be determined. Spirals 2 and 3 will be formed and commence following certification of theperformance management system. (15) Proposed regulations to implement the system were jointly published in the Federal Register by DOD and OPM on February 14, 2005. (16) DOD and OPM conducted a joint briefing on the proposedregulations on February 10, 2005. (17) According to the Defense Department, more than 58,000comments were submitted on the proposed regulations. DOD and OPM jointly published the finalregulations in the Federal Register on November 1, 2005. (18) The regulations generallyexpress concepts for the new system rather than details about how it will operate. The regulationsstate that "issuances" to implement the regulations will be prepared by DOD. On November 23,2005, DOD released the drafts of the "issuances" and, as of the date of the report, are still underreview by the department and labor organizations. Revised drafts of the "issuances" on performancemanagement and pay pools were released on February 28, 2006, and, likewise, are subject tocontinuing collaboration between DOD and the unions. The process for designing the new personnel system involved Program Executive Officeworking groups, which began a nearly two-month process to develop and evaluate options for theNSPS in late July 2004. Focus groups and town hall meetings and discussions with union leaderswere employed by the working groups to gather input from employees and stakeholders. (19) Other specificimplementation steps are noted below under relevant sections of the law. DOD has established awebsite to monitor implementation of the NSPS. (20) Prior to the enactment of the provisions authorizing the Department of Defense to create anew human resources management system, DOD civilians were covered by the personnel lawscodified in Title 5 United States Code on government organization and employees. Under theauthority granted by Title XI of P.L. 108-136 , some 700,000 civilian employees are expected to becovered by the new National Security Personnel System. The NSPS policies (especially in the areasof pay, performance management, adverse actions and appeals, and labor management relations) aremore flexible than those under Title 5. During debate prior to the enactment of P.L. 108-136 andin discussions that have continued since, several Members of Congress stated that implementationof the NSPS (along with the Department of Homeland Security's new HRM system currently beingcreated) should be monitored as a possible model for amending Title 5 and extending thoseprovisions to the rest of the federal government's civilian workforce. Reflecting the importance of carefully crafting the NSPS, Senators Susan Collins, Carl Levin,Ted Stevens, John Sununu, and George Voinovich reportedly sent a letter to Secretary England onMarch 3, 2004, which stated that [t]he involvement of the civilian work force in thedesign of the new National Security Personnel System is critical to its ultimate acceptance andsuccessful implementation. Full collaboration with the Office of Personnel Management and thefederal employee unions will assist the department in meeting this critical challenge. (21) A March 12, 2004, letter sent by Senator Daniel Akaka to Secretary of Defense DonaldRumsfeld urged DOD to issue all proposals on the NSPS in the Federal Register and not as internalregulations, for reasons of "openness, transparency, public comment, and scrutiny of thedetails." (22) SenatorEdward Kennedy, in a December 10, 2004, press release, also emphasized development of the newsystem "in the most transparent way possible." According to the Senator: Congress gave the Department of Defense the authorityto make major personnel changes affecting 700,000 defense employees, but only with theunderstanding that those changes would be made in consultation with representatives of theemployees. It's appalling that the Bush Administration is ignoring that understanding bystonewalling the representatives and refusing to let them review personnel changes before they arepublished.... (23) Government Executive reported that Senator Kennedy wrote to Defense Secretary DonaldRumsfeld and OPM Director Kay Coles James on November 19, 2004, to voice opposition to theirrefusal to share the details of the new personnel system with officials of the unions representingDOD employees in advance of the publication of the regulations in the Federal Register . Reportedly, DOD believes that do to so would "depart from the intent of the AdministrativeProcedures Act." (24) In a press release issued on February 10, 2005, Senator Lieberman expressed his deepdisappointment with the personnel rules, stating: "The proposal imposes excessive limits oncollective bargaining ... changes the appeals process to interfere with employees' rights to dueprocess ... and ... contains unduly vague and untested pay and performance provisions." (25) P.L. 108-136 provides the following. (26) Section 1101(a)(1) of P.L. 108-136 amends Part III, Subpart I,of Title 5 United States Code by adding a new Chapter 99 entitled Department of Defense (DOD)National Security Personnel System. The new system covers some 700,000 DOD civilianemployees. This section defines terms for the new chapter. "Director" means the Director of the Officeof Personnel Management (OPM) and "Secretary" means the Secretary of Defense. In General. The new Section 9902(a) of P.L.108-136 provides that notwithstanding any other provision of Part III, the Secretary of Defense may,in regulations prescribed jointly with the OPM Director, establish, and from time to time adjust, ahuman resources management (HRM) system, referred to as the National Security Personnel System(NSPS), for some or all of the organizational or functional units of DOD. Requirements for the HRM System. The HRMsystem must be flexible and contemporary. The new Section 9902(b) provides that it could notwaive, modify, or otherwise affect: the public employment principles of merit and fitness at 5 U.S.C. Â§2301,including the principles of hiring based on merit, fair treatment without regard to political affiliationor other non-merit considerations, equal pay for equal work, and protection of employees againstreprisal for whistleblowing; any provision of 5 U.S.C. Â§2302, relating to prohibited personnelpractices; any provision of law referred to in 5 U.S.C. Â§2302(b)(1)(8)(9); or any provisionof law implementing any provision of law referred to in 5 U.S.C. Â§2302(b)(1)(8)(9) by providing forequal employment opportunity through affirmative action; or providing any right or remedy availableto any employee or applicant for employment in the public service. Various subparts and chapters of Part III of Title 5 United States Code which cannot bewaived, modified, or otherwise affected in the new HRM system are listed at the new Section9902(d) as follows: Subpart A -- General Provisions, including Chapter 21Definitions; Chapter 23 Merit System Principles; Chapter 29 Commissions, Oaths, Records, andReports; Subpart B -- Employment and Retention, includingChapter 31 Authority for Employment; Chapter 33 Examination, Selection, and Placement; Chapter34 Part-time Career Employment Opportunities; Chapter 35 Retention Preference (RIF), Restoration,and Reemployment; Subpart E -- Attendance and Leave, including Chapter61 Hours of Work; Chapter 63 Leave; Subpart G -- Insurance and Annuities, including Chapter81 Compensation for Work Injuries; Chapters 83 and 84 Retirement; Chapter 85 UnemploymentCompensation; Chapter 87 Life Insurance; Chapter 89 Health Insurance; Chapter 90 Long Term CareInsurance; Subpart H -- Access to Criminal History RecordInformation, including Chapter 91 for individuals underinvestigation; Chapter 41 --Training; Chapter 45 -- IncentiveAwards; Chapter 47 -- Personnel Research Programs andDemonstration Projects; Chapter 55 -- Pay Administration, including biweeklyand monthly pay periods and computation of pay, advanced pay, and withholding of taxes from pay,except that Subchapter V of Chapter 55 on premium pay (overtime, night, Sunday pay), apart fromsection 5545b, may be waived or modified; Chapter 57 -- Travel, Transportation, andSubsistence; Chapter 59 -- Allowances, which includes uniforms,quarters, overseas differentials; Chapter 71 -- Labor Management and EmployeeRelations [ H.R. 1588 , as passed by the House, did not include thisprovision]; Chapter 72 -- Antidiscrimination, Right to PetitionCongress, including minority recruitment, antidiscrimination on the basis of marital status andhandicapping condition, furnishing information to Congress; Chapter 73 -- Suitability, Security, and Conduct,including security clearance, political activities (Hatch Act), misconduct (gifts, drugs,alcohol); Chapter 79 -- Services to Employees, including safetyprogram, protective clothing and equipment; or any rule or regulation prescribed under any provisionof law referred to in any of the statements in bullets immediatelyabove. Other requirements for the HRM system include that it must: ensure that employees may organize, bargain collectively as provided for inthe proposed Chapter 99, and participate through labor organizations of their own choosing indecisions that affect them, subject to the provisions of the proposed Chapter 99 and any exclusionfrom coverage or limitation on negotiability established pursuant to law; not be limited by any specific law or authority under Title 5, or by any rule orregulation prescribed under Title 5, that is waived in regulations prescribed under the proposedChapter 99, subject to the requirements stated above; and include a performance management system. Such a system must incorporatethese elements: adherence to the merit principles of 5 U.S.C. Â§2301; a fair, credible, and transparentemployee performance appraisal system; a link between the performance management system andthe agency's strategic plan; and a means for ensuring employee involvement in the design andimplementation of the system. Other elements the system must incorporate are: adequate trainingand retraining for supervisors, managers, and employees in the implementation and operation of theperformance management system; a process for ensuring ongoing performance feedback anddialogue between supervisors, managers, and employees throughout the appraisal period, and settingtimetables for review; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agencyresources are allocated for the design, implementation, and administration of the performancemanagement system; and a pay-for-performance evaluation system to better link individual pay toperformance, and provide an equitable method for appraising and compensatingemployees. Personnel Management at Defense Laboratories. The NSPS will not apply with respect to the laboratories listed below before October 1, 2008. It willapply on or after October 1, 2008, only to the extent that the Secretary determines that theflexibilities provided by the NSPS are greater than the flexibilities provided to those laboratoriespursuant to section 342 of the National Defense Authorization Act for Fiscal Year 1995( P.L.103-337 ) and section 1101 of the Strom Thurmond National Defense Authorization Act forFiscal Year 1999 (5 U.S.C. Â§3104 note) respectively. The laboratories covered by this provision (5U.S.C. Â§9902(c)) are the Aviation and Missile Research Development and Engineering Center; theArmy Research Laboratory; the Medical Research and Materiel Command; the Engineer Researchand Development Command; the Communications-Electronics Command; the Soldier andBiological Chemical Command; the Naval Sea Systems Command Centers; the Naval ResearchLaboratory; the Office of Naval Research; and the Air Force Research Laboratory. (SenatorVoinovich offered a similar provision as an amendment that was agreed to by voice vote by theSenate Governmental Affairs Committee during mark-up of S. 1166 . According toSenator Voinovich's office, the amendment continued the authority of the reinvention laboratoriesto use various personnel flexibilities that DOD has found to be successful. The NSPS provisionsmight reduce these personnel flexibilities at the laboratories if they were to be included in NSPS saidhis office. In an article on the Governmental Affairs Committee mark-up, The Washington Post quoted a DOD official who said that the provision "while designed to protect existing flexibilitiesat the labs, would prevent the Pentagon from increasing those flexibilities." (29) Limitations Relating to Pay. Nothing in Section9902 constitutes authority to modify the pay of any employee who serves in an Executive Scheduleposition. Except for this provision, the total amount of allowances, differentials, bonuses, awards,or other similar cash payments paid under Title 5 in a calendar year to any employee who is paidunder 5 U.S.C. Â§5376 (senior-level pay) or 5383 (Senior Executive Service pay) or under Title 10or other comparable pay authority established for DOD senior executives or equivalent employeesmay not exceed the total annual compensation payable to the Vice President ($212,100, as of January2006). The law provides that to the maximum extent practicable, the rates of compensation forcivilian DOD employees would be adjusted at the same rate, and in the same proportion, as are ratesof compensation for members of the uniformed services. To the maximum extent practicable, for FY2004 through FY2008, the overall amountallocated for compensation of the civilian employees of an organizational or functional unit of DODthat is included in the NSPS may not be less than the amount of civilian pay that would have beenallocated for compensation of such employees for such fiscal year if they had not been converted tothe NSPS. The amount will be based on, at a minimum, the number and mix of employees in suchorganizational or functional unit prior to the conversion of such employees to the NSPS; andadjusted for normal step increases and rates of promotion that would have been expected had suchemployees remained in their previous pay schedule. ( S. 1166 included a similarprovision.) To the maximum extent practicable, the regulations implementing the NSPS will provide aformula for calculating the overall amount to be allocated for fiscal years after FY2008 forcompensation of the civilian employees of an organizational or functional unit of DOD that isincluded in the NSPS. The formula will ensure that in the aggregate, employees are notdisadvantaged in terms of 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 inthe mix of employees performing those functions, and other changed circumstances that mightimpact pay levels. ( S. 1166 included a similar provision.) The Executive Schedule is the pay system for the heads of federal departments and agencies. As of January 2006, pay for the five levels of the Executive Schedule ranges from $133,900 to$183,500. This provision appears to authorize pay, for individual employees, which could exceedthat of the department or agency heads. Under current law, OPM is required to certify that an agencyhas an acceptable performance management system in place before salaries for these employeescould range up to the Vice President's salary. Since the proposals would not amend 5 U.S.C. Â§5307,it remains to be determined if OPM certification of the DOD policy will be required. Under the new Section 9902(d) in P.L. 108-136 , DOD is authorized to make changes in Title5 Chapters 43 (Performance Appraisal) and 53 (Pay Rates and Systems) in establishing the newHRM system. The law does not provide any further detail on the design and operation of that newpay system. Implementation of the Law. Several key chapters ofPart III of Title 5 United States Code may be waived, modified, or otherwise affected as the newHRM system is developed. These are: Chapter 43 -- Performance Appraisal Chapter 51 -- Position Classification Chapter 53 -- Pay Rates and Systems Chapter 71 -- Labor Management and EmployeeRelations Chapter 75 -- Adverse Actions Chapter 77 -- Appeals (30) During testimony before the House Subcommittee on Civil Service and Agency Organizationat its April 29, 2003 hearing on the proposed NSPS of the Defense Transformation for the 21stCentury Act, David Chu discussed DOD's Best Practices Initiative. He referred Members ofCongress to an April 2, 2003, Federal Register notice for additional details on the types of HRMflexibilities the department is implementing at its science and technology reinventionlaboratories. (31) A September 3, 2004, paper by the Program Executive Office working groups listed (withoutdetails) "Potential Options for the National Security Personnel System Human ResourceManagement System." Among the design options identified were those establishing a pay bandingsystem with broad salary ranges and simplified criteria and procedures for assigning positions to thebands; developing a market-sensitive pay system; streamlining and consolidating appointingauthorities to simplify the hiring of external candidates; developing a pay-for-performance systemallowing for progression through a pay band based on performance and/or contribution; allowingbase pay increases for reassignments; and streamlining the Performance Improvement Planprocess. (32) As stated above, the proposed regulations to implement the NSPS were published in the Federal Register on February 14, 2005, and the final regulations were published on November 1,2005. Provisions on Classification (Subpart B, Â§Â§9901.201-9901.231), Pay and Pay Administration(Subpart C, Â§Â§9901.301-9901.373), Performance Management (Subpart D, Â§Â§9901.401-9901.409),Staffing and Employment (Subpart E, Â§Â§9901.501-9901.516) and Workforce Shaping (Subpart F,Â§Â§9901.601-9901.611) are included in the regulations. Many of the details that will govern theoperation of these areas are currently under discussion by DOD and the labor organizations. A townhall briefing in March 2006 revealed the following details, which are subject to continuingcollaboration between the department and the unions. Classification. Positions will be grouped into broad pay bands based on thenature of the work and the competencies required to perform them. Performance, complexity of thejob, and market conditions will determine the progression of employees through a pay band.Positions descriptions will be less detailed. Managers will have flexibility to assign new or differentwork to employees. Classification decisions could be appealed. There are expected to be four careergroups -- Standard (covers 71% of DOD's white collar workforce), Scientific and Engineering(covers 18% of DOD's white collar workforce), Investigative and Protective Services (covers 6% ofDOD's white collar workforce), and Medical (covers 5% of DOD's white collar workforce). Table1 below shows the proposed career groups and the pay bands and salary ranges corresponding topositions under each. Table 1. Proposed Career Groups, Pay Bands, and Salary Rangesfor the National Security Personnel System Performance Management. The system will directly link pay, performance,and mission accomplishment. It will have five rating levels -- "Unsuccessful," "Fair," "ValuedPerformance," "Exceeds Expectations," and "Role Model." The performance of employees will berated on responsibilities, behaviors, skills, and tasks. An individual's technical proficiency, criticalthinking, cooperation and teamwork, communication, customer focus, resource management, andleadership will be evaluated. Employees who perform at Level 3, "Valued Performance," Level 4,"Exceeds Expectations," or Level 5, "Role Model," will be eligible for a rate range adjustment, alocal market supplement, and performance-based pay. Individuals who perform at Level 2, "Fair,"will be eligible for a rate range adjustment and a local market supplement. There will not be any payincreases for those employees whose performance is rated at Level 1,"Unsuccessful." Compensation. An employee could receive three types of pay adjustments --a rate range increase, a local market supplement, and a raise based on performance. The rate rangeincrease may vary by pay band. Employees must perform at Level 2, "Fair," or higher to receive arate range increase. The local market supplement will be included in base pay and will be based onmarket conditions in a geographic area or for an occupation. This increase could differ from oneoccupation to another within a given area. Employees must perform at Level 2, "Fair," or higher toreceive a local market supplement. The performance-based adjustment will be an annual pay raiseor bonus based on job performance. Employees must perform at Level 3, "Valued Performance,"or higher to receive a performance-based pay increase. High-performing employees could receivehigher pay raises. The rate ranges and local market supplements will be reviewed annually. Apromotion will result in a minimum six percent salary increase. Employees will not lose pay uponconverting to the new system. Individuals eligible for a within-grade increase will receive apro-rated salary increase. Staffing. The hiring process will be streamlined. Qualification requirementsfor positions will recognize DOD's unique mission. Some occupational categories will have longerprobationary periods for evaluating new employees. Veterans' preference rights willapply. Workforce Shaping. An employee's retention standing in a reduction in force(RIF) will be determined by tenure, veterans' preference, performance, and seniority. Multiple yearsof performance ratings will be used in making RIF determinations. Two years (104 weeks) ofretained pay will be provided to employees who are displaced. Provisions to Ensure Collaboration With EmployeeRepresentatives on National Security Personnel System. P.L. 108-136 adds a newsection, 5 U.S.C. Â§9902(f), that requires the Secretary of Defense and the Director of OPM toprovide a written description of the proposed personnel system or adjustments to such system to thelabor organizations representing employees in the department. The measure uses the term "employeerepresentatives" to describe these organizations. The employee representatives are given at least 30calendar days to review and make recommendations with respect to the proposal, unlessextraordinary circumstances require earlier action. Such recommendations must be given full andfair consideration by the Secretary and the Director. Section 9902(f)(B)(i) requires the Secretary andthe Director to notify Congress of those parts of the proposal for which recommendations weremade, but not accepted. Section 9902(f)(B)(ii) requires the Secretary and the Director to meet and confer with theemployee representatives for not less than 30 calendar days to attempt to reach agreement on whetherand how to proceed with those parts of the proposal for which recommendations were made, but notaccepted. At the Secretary's option, or if requested by a majority of the employee representativesparticipating, the Federal Mediation and Conciliation Service may assist with the discussions. After30 calendar days following notification and consultation, the Secretary may implement any or all ofthe disputed parts of the proposal if it is determined that further consultation and mediation areunlikely to produce agreement. However, such implementation may occur only after 30 daysfollowing notice to Congress of the decision to implement the part or parts involved. Implementationmay occur immediately for those parts of the proposal that did not generate recommendations fromthe employee representatives, and where the Secretary and the Director accepted therecommendations of the employee representatives. The Secretary may, at his discretion, engage inany and all of the collaboration activities at an organizational level above the level of exclusiverecognition. If a proposal is implemented, the Secretary and the Director must develop a method foremployee representatives to participate in any further planning or development which might becomenecessary. In addition, employee representatives must be given adequate access to information tomake participation productive. Provisions Regarding National Level Bargaining. A new section, 5 U.S.C. Â§9902(g)(1), allows any personnel system implemented or modified underSection 9902(f) to include employees from any bargaining unit with respect to which a labororganization has been accorded exclusive recognition. (A labor organization is described generallyas having been accorded "exclusive recognition" when an election has occurred (with the labororganization receiving support from a majority of employees) and the results have been certified bythe Federal Labor Relations Authority ("FLRA").) For any of these bargaining units, the Secretaryis permitted to bargain at an organizational level above the level of exclusive recognition. Thedecision to bargain at a level above the level of exclusive recognition is not subject to review or todispute resolution procedures outside the department. Any bargaining conducted at a level above the level of exclusive recognition is binding onall subordinate bargaining units and on the department and its subcomponents; supersedes all othercollective bargaining agreements, except as otherwise determined by the Secretary; is not subject tofurther negotiations for any purpose, except as provided for by the Secretary; and is subject to reviewby an independent third party only to the extent permitted by the act. Because organizational bargaining would likely focus on the larger issues affecting allemployees, other topics may not be considered, including concerns that are significant only to aparticular bargaining unit. Proponents of organizational bargaining, however, contend that suchbargaining is more expeditious. Provisions to Ensure Collaboration With EmployeeRepresentatives on Development of Labor Relations System. Section 9902(d)(2)prevents the new personnel system from waiving the application of Title 5, Chapter 71 of the UnitedStates Code . Chapter 71 sets forth the labor-management relations structure for the federalgovernment. At the same time, however, Section 9902(m)(1) states: "Notwithstanding section9902(d)(2), the Secretary, together with the Director, may establish and from time to time adjust alabor relations system for the Department of Defense to address the unique role that the Department'scivilian workforce plays in supporting the Department's national security mission." To ensure that there is collaboration between the Secretary, the Director, and employeerepresentatives, the Secretary is required to implement a process similar to the one defined for thecreation of the NSPS. The Secretary and the Director are required to give employee representativesand management the opportunity to have meaningful discussions concerning the development of thenew system. Representatives must be given at least 30 calendar days to review the proposal for thesystem and make recommendations with respect to the proposal, unless extraordinary circumstancesrequire earlier action. Recommendations must be given full and fair consideration. Section 9902(m)(3)(B)(i) requires the Secretary and the Director to meet and confer with theemployee representatives for not less than 30 calendar days to attempt to reach agreement on whetherand how to proceed with those parts of the proposal for which recommendations were made, but notaccepted. At the Secretary's option, or if requested by a majority of the employee representativesparticipating, the Federal Mediation and Conciliation Service may assist with the discussions. After30 calendar days following consultation and mediation, the Secretary may implement any or all ofthe disputed parts of the proposal if it is determined that further consultation and mediation isunlikely to produce agreement. However, such implementation may occur only after 30 daysfollowing notice to Congress of the decision to implement the part or parts involved. Implementation may occur immediately for those parts of the proposal that do not generaterecommendations from the employee representatives, and where the Secretary and the Director haveaccepted the recommendations of the employee representatives. The process for collaboration with the employee representatives must begin no later than 60calendar days after the date of enactment. Section 9902(m)(4) authorizes the Secretary to engagein any and all of the collaboration activities at an organizational level above the level of exclusiverecognition. The labor relations system developed or adjusted under Section 9902(m) must provide forthe independent third party review of decisions and for determining which decisions could bereviewed, who would conduct the review, and the standards to be used during the review. Unlessextended or otherwise provided for in law, the authority to establish, implement, and adjust the laborrelations system expires six years after the date of enactment. At that time, the provisions of Chapter71 will apply. Implementation. On November 7, 2005, followingthe issuance of final regulations to establish the NSPS, a coalition of federal unions, including theAmerican Federation of Government Employees, filed a lawsuit in federal district court challengingthe regulations. On February 27, 2006, the court enjoined the new regulations on the grounds thatthey failed to ensure collective bargaining rights, did not provide for the independent third-partyreview of labor relations decisions, and failed to provide a fair process for appealing adverseactions. (33) DOD hasindicated that it will appeal the decision. (34) Despite the court's actions, this section reviews and discussesthe new regulations. Subpart I of the regulations defines the department's labor-relations system. The regulationsprovide for a variety of new features that would be unique to DOD. For example, the regulationsestablish a new labor relations board that would assume some of the duties that are performedcurrently by the FLRA. The regulations would also expand management rights beyond whatcurrently exists under chapter 71. The regulations provide for the creation of a National Security Labor Relations Board(NSLRB) that would do the following: conduct hearings and resolve complaints of unfair laborpractices; resolve issues relating to the scope of bargaining and the duty to bargain in good faith;resolve disputes concerning requests for information; resolve exceptions to arbitration awards;resolve negotiation impasses; and conduct de novo reviews on all matters within the Board'sjurisdiction. (35) Underthe regulations, the Board could also issue binding department-wide opinions for matters within itsjurisdiction upon request of a department component or a labor organization. (36) Many of these duties arecurrently performed by the FLRA pursuant to 5 U.S.C. Â§ 7105. The regulations contemplate a more limited role for the FLRA. Under the regulations, theFLRA is authorized to determine the appropriateness of bargaining units, to supervise or conductelections to determine whether a labor organization has been selected as an exclusive representativeby a majority of the employees in an appropriate unit, to resolve disputes regarding the granting ofnational consultation rights, and to review specified NSLRB decisions. (37) In addition to retaining many of the rights otherwise provided to management under Title 5,Chapter 71 of the United States Code , department managers are granted additional rights under thefinal regulations. For example, management is given the right "to determine the numbers, types, payschedules, pay bands and/or grades of employees or positions assigned to any organizationalsubdivision, work project or tour of duty, and the technology, methods, and means of performingwork." (38) Managementcould also assign employees to meet any operational demand. (39) Under the regulations,management is prohibited from bargaining not only over the exercise of its rights, but over theprocedures it would observe in exercising its rights. Although the regulations require the agency and any exclusive representative in anyappropriate unit to meet and negotiate in good faith for the purpose of arriving at a collectivebargaining agreement, they also indicate that management would have no obligation to bargain overa change to a condition of employment "unless the change is otherwise negotiable pursuant to [the]regulations and is foreseeable, substantial, and significant in terms of both impact and duration onthe bargaining unit, or on those employees in that part of the bargaining unit affected by thechange." (40) Theregulations do not identify when a change would be considered "substantial" and "significant." Finally, the regulations provide for the establishment of procedures by the NSLRB for the"fair, impartial, and expeditious" assignment and disposition of cases. (41) The NSLRB would usea single, integrated process to address disputes and claims, to the extent practicable. Certaindecisions by the NSLRB, including those involving negotiability disputes and arbitral awards, couldbe reviewed by the FLRA. Under the regulations, the FLRA would have to accept the findings of factand interpretations made by the NSLRB and sustain the NSLRB's decision unless the partyrequesting review could show that the NSLRB's decision was (1) arbitrary, capricious, an abuse ofdiscretion, or otherwise not in accordance with law; (2) caused by harmful error in the applicationof the Board's procedures in arriving at such a decision; or (3) was unsupported by substantialevidence. (42) Provisions Relating to Adverse Actions and AppellateProcedures. (43) The new section, 5 U.S.C. Â§9902(h), of P.L. 108-136 (1) (A)authorizes the Secretary of Defense to establish an appeals process that must provide employees ofDOD organizational and functional units that are included in the NSPS fair treatment in any appealsthat they bring in decisions relating to their employment; and (B) mandates that the Secretary, inprescribing regulations for that appeals process, (i) ensure that these employees are afforded dueprocess protections; and (ii) toward that end, be required to consult with the Merit SystemsProtection Board (MSPB) before issuing such regulations. (2) Regulations implementing theappeals process may establish legal standards and procedures for personnel actions, includingstandards for applicable relief, to be taken for employee misconduct or performance that fails to meetexpectations. These standards must be consistent with the public employment principles of meritand fitness set forth in section 2301 of Title 5 of the United States Code . (3) Legal standards andprecedents applied before the effective date of the new section 9902 of Title 5 by the MSPB and thecourts under Chapters 43 (Performance Appraisal), 75 (Adverse Actions) and 77 (Appeals) of Title5 must apply to DOD employees included in the NSPS, unless these standards and precedents areinconsistent with standards established in section 9902. (4) An employee who (A) is removed, suspended for more than 14 days, furloughed for 30days or less, reduced in pay, or reduced in pay band (or comparable reduction) by a final decisionunder the appeals process established under paragraph 1; (B) is not serving a probationary periodunder regulations established under paragraph (2); and (C) is otherwise eligible to appeal aperformance-based or adverse action under Chapters 43 or 75, as applicable, to the MSPB has theright to petition the full MSPB for a review of the record of that decision pursuant to regulationsestablished under paragraph (2). The board is authorized to dismiss any petition that, in the board'sview, does not raise substantial questions of fact or law. No personnel action may be stayed and nointerim relief may be granted during the pendency of the board's review unless specifically orderedby the board. (5) The board is authorized to order corrective action as it considers appropriate only if itdetermines that the department's decision was (A) arbitrary, capricious, an abuse of discretion, orotherwise not in accordance with law; (B) obtained without procedures required by law, rule, orregulation having been followed; or (C) unsupported by substantial evidence. (6) An employee whois adversely affected by a final order or decision of the MSPB may obtain judicial review of the orderor decision as provided in section 7703. The Secretary of Defense, after notifying the OPM Director,may obtain judicial review of any board final order or decision under the same terms and conditionsas provided an employee. (7) Nothing in subsection (h) of the new section 9902 of Title 5 of the United States Code should be construed to authorize the waiving of any provision of law, including an appeals provisionproviding a right or remedy under section 2302(b)(1), (8), or (9) of Title 5 that is not otherwisewaivable under subsection (a) of the new section 9902. Section 2302(b)(1) makes it a prohibitedpersonnel practice to discriminate for or against any employee on such bases as race, color, religion,sex, or national origin, age, handicapping conditions under relevant statutes, or marital status orpolitical status under any law, rule, or regulation. Section 2302(b)(8) prohibits personnel actions inreprisal for whistleblowing. Section 2302(b)(9) prohibits personnel actions in reprisal for suchthings as exercising any right of appeal, complaint, or grievance; cooperating with or disclosinginformation to the Inspector General or Special Counsel; or refusing to obey an order that wouldrequire an individual to violate a law. (8) The right of an employee to petition the final decision of DOD on an action covered byparagraph (4) of section 9902(h) to MSPB, and the right of the board to review such action or toorder corrective action pursuant to paragraph (5), is provisional for seven years after the date Chapter99 is enacted, and becomes permanent unless Congress acts to revise such provisions. Chapter 77 is one of the chapters of Title 5 that is subject to waiver or modification by theSecretary of Defense in establishing an HRM system for DOD. Section 7701 of Title 5 grantsemployees and applicants for employment a right to appeal to MSPB any action which is appealableto the board under any law, rule, or regulation. An appellant has a right to a hearing at which atranscript will be kept and to be represented by an attorney or other representative. An agency decision is sustained by the board only if it is supported by substantial evidencein the case of an action based on unacceptable performance described in 5 U.S.C. Â§4303 or a removalfrom the Senior Executive Service for failing to be recertified or if it is supported by a preponderanceof evidence in any other case. Notwithstanding these standards, an agency's decision may not besustained, if the employee or applicant for employment (1) shows harmful error in the applicationof the agency's procedures in arriving at its decision; (2) shows that the decision was based on anyprohibited personnel practice described in 5 U.S.C. Â§2302; or (3) shows that the decision was notin accordance with law. Section 7702 of Title 5 prescribes special procedures for any case in which an employee orapplicant who has been affected by an action appeals to the board and alleges that a basis for theaction was discrimination. The board first decides both the appealable action and the issue ofdiscrimination within 120 days after it is filed. In any action before an agency which involves anappealable action and discrimination, the agency must resolve the matter within 120 days. Anagency decision is judicially reviewable unless the employee appeals the matter to the board. Any decision of the board in an appealable action where discrimination has been alleged isjudicially reviewable as of the date the board issues its decision if an employee or the applicant doesnot file a petition for consideration by the Equal Employment Opportunity Commission. Within 30days after a petition is filed, the commission must decide whether to consider the board's decision. If the commission decides to consider such a decision, within 60 days it must concur in the board'sdecision or issue a written decision which differs from it. Within 30 days after receiving acommission decision that differs from the board's initial decision, the board must consider thecommission's decision and either concur in whole in it or reaffirm its initial decision or reaffirm itsinitial decision with appropriate revisions. A board decision to concur and adopt in whole acommission decision is judicially reviewable. If the board reaffirms its initial decision or reaffirms it with revisions that it determinesappropriate, the matter must immediately be certified to a special panel comprised of one individualappointed by the President, one board member, and one commission member. Within 45 days aftercertification, the special panel is required to review the record, decide the disputed issues on thebasis of the record, and issue a final decision, which is judicially reviewable. The special panel mustrefer its decision to the board, which is required to order the agency involved to take any appropriateaction to carry out the panel's decision. The panel must permit the employee or applicant whobrought the complaint and the agency to appear before it to present oral arguments and to presentwritten arguments. If prescribed time periods for action by an agency, board, or commission are not met, anemployee is entitled to file a civil action in district court under some antidiscrimination statutes. Ifan agency does not resolve a matter appealable to the board where discrimination has been allegedwithin 120 days, the employee may appeal the matter to the board. Nothing in section 7702 of Title5 "Actions Involving Discrimination" can be construed to affect the right to trial de novo in districtcourt under named antidiscrimination statutes after a judicially reviewable action. Under Section 7703 of Title 5, any employee or applicant who is adversely affected oraggrieved by a final order or decision of the MSPB may obtain judicial review of the order ordecision. Except in cases involving allegations of discrimination, a petition to review a final boardorder or decision must be filed with the United States Court of Appeals for the Federal Circuit within60 days after the petitioner received notice of the final order or decision. Cases involvingdiscrimination must be filed in district court under procedures prescribed in antidiscriminationstatutes within 30 days after the individual filing the case receives notice of a judicially reviewableaction. In any case filed with the Federal Circuit Court of Appeals, the court is required to holdunlawful and set aside any agency action, findings, or conclusions found to be (1) arbitrary,capricious, an abuse of discretion, or otherwise not in accordance with law; (2) obtained withoutprocedures required by law, rule, or regulations having been followed; or (3) unsupported bysubstantial evidence, except that in the case of discrimination brought under namedantidiscrimination statutes, an employee or applicant has a right to have the facts heard in a trial denovo by a reviewing court. Implementation. Subpart G of the final regulationson adverse actions contains procedural requirements for employees who are removed, suspended,furloughed for 30 days or less, reduced in pay, or reduced in a pay band (or comparable reduction). DOD may prescribe implementing issuances to carry out the provisions of the subpart. With respectto any covered category of employee, these regulations waive and replace relevant subchapters ofChapter 75 "Adverse Actions" and Chapter 43 "Performance Appraisal" of Title 5 of the UnitedStates Code. Subpart G authorizes the Department to take an adverse action under this subpart for suchcause as will promote the efficiency of the service. It grants to the Secretary of Defense sole,exclusive, and unreviewable discretion to identify "mandatory removal offenses" (i.e., those thathave a direct and substantial adverse effect on the Department's national security mission). Theseoffenses will be identified in advance in implementing issuances, publicized in notices in the FederalRegister and made known to all employees on a periodic basis, as appropriate, through meansdetermined by the Secretary. The proposed regulation provided that mandatory removal offenseswould be identified in advance as part of departmental regulations and that employees would benotified when they are identified. Under the final and proposed regulation, the Secretary has thesole, exclusive, and unreviewable discretion to mitigate the removal penalty on his or her owninitiative or at the request of the employee in question and the Secretary's authority to removeemployees for offenses other than those that the Secretary identifies as mandatory removal offensesis not limited by the regulation relating to them. An employee against whom an adverse action is proposed is entitled to (1) a proposal notice,(2) an opportunity to reply, and (3) a decision notice. The Department must provide a minimum of15 days advance written notice of a proposed adverse action, unless there is reasonable cause tobelieve that the employee has committed a crime for which a prison sentence may be imposed, inwhich case the advance notice period can be shortened to a minimum of five days. No proposalnotice is required for furlough without pay, such as sudden breakdown of equipment, acts of God,or sudden emergencies requiring immediate curtailment of activities. Covered DOD employees are given a minimum of ten days, which run concurrently with thenotice period, to reply orally and/or in writing. If there is reasonable cause to believe that theemployee has committed a crime for which a prison sentence may be imposed, however, theDepartment may be reduced to a minimum of five days, which run concurrently with the noticeperiod, to reply orally and/or in writing. No opportunity for reply is necessary for furlough withoutpay due to unforeseen circumstances such as acts of God, or sudden emergencies requiringimmediate curtailment of activities. The opportunity to reply orally does not include the right to a formal hearing withexamination of witnesses. During the opportunity to reply period, an employee is given a reasonableamount of official time to review evidence and to furnish affidavits and other documentary evidenceif the employee is otherwise in active duty status. The Department is required to designate an official to receive the employee's written and/ororal response. That official has authority to make or recommend a final decision on the proposedadverse action. The employee may be represented by an attorney or other representative of theemployee's choice and at the employee's expense, but the Department may disallow a representativeunder some conditions. In arriving at its decision on an adverse action, DOD may not consider any reasons other thanthose specified in the proposal notice. The Department must consider any response from theemployee and the employee's representative given to the designated official during the opportunityto reply period, as well as any medical documentation furnished in accordance with relevantregulations. The decision notice must specify in writing the reasons for the decision and advise theemployee of any appeal or grievance rights. To the extent practicable, the Department must deliverthe notice to the employee on or before the effective date of the action. If the notice cannot bedelivered in person, the Department may mail the notice to the employee's last known address ofrecord. The Department is required to keep a record of all relevant documentation concerning theaction for a period of time pursuant to the General Records Schedule and the Guide to PersonnelRecordkeeping. DOD must make the record available for review by the employee and furnish a copyof the record upon request of the employee or the Merit Systems Protection Board. The requirementsin Subpart G do not apply to adverse actions proposed prior to the date of an affected employee'scoverage under the subpart. Subpart H of the final regulations on appeals implements the provisions of Section 9902(h)of Title 5 of the United States Code, which establishes the system for DOD employees to appealcertain adverse actions covered under Subpart G. In applying existing legal standards andprecedents, the Merit Systems Protection Board (MSPB) is bound by the regulation set forth inSection 9901.107(a)(2)of Title 5 of the Code of Federal Regulations, which provides that theregulations must be interpreted in a way that recognizes the critical national security mission of theDepartment of Defense and that each provision must be construed to promote the swift, flexible,effective day-to-day accomplishment of this mission as defined by the Secretary of Defense. When a specified category of employees is covered by an appeals system established underthis subpart, these regulations waive the provisions of Section 7701 "Appellate procedures" of Title5 of the United States Code established for that category to the extent that they are inconsistent withthe subpart. The regulation on discrimination cases, Section 9901.809 of Title 5 of the Code ofFederal Regulations, modifies the provisions of Section 7702 "Actions involving discrimination" ofTitle 5 of the United States Code. The appellate procedures specified in Subpart H supersede thoseof the MSPB to the extent that the MSPB regulations are inconsistent with the subpart. MSPB isrequired to follow the provisions of Subpart H until it issues conforming regulations, which may notconflict with the DOD regulations. Appellate procedures in Subpart H, subject to a determination by the Secretary of Defense,apply to employees in DOD organizational and functional units included under the National SecurityPersonnel System who appeal removals; suspensions for more than 14 days, including indefinitesuspensions; furloughs of 30 days or less; reductions in pay; or reductions in a pay band (orcomparable reductions), which constitute appealable adverse actions for the purpose of the subpart,provided that they are covered by the adverse actions procedures in Subpart G. The Department of Defense recognizes the value of using alternative dispute resolutionmethods such as mediation, an ombudsman, or interest-based problem-solving to addressemployee-employer disputes and encourages using alternative dispute resolution. The methods aresubject to collective bargaining under Subpart I "Labor Management Relations" of the DODregulations. A covered DOD employee may appeal an appealable adverse action to the Merit SystemsProtection Board. The employee has a right to be represented by an attorney or other representativeof his or her own choosing. The MSPB is required to refer all appeals to an administrative judge foradjudication. The administrative judge must make a decision at the close of the review and providea copy of the decision to each party to the appeal and to the Office of Personnel Management. Allappeals, including class appeals, must be filed no later than 20 days after the effective date of theaction being appealed, or no later than 20 days after the date of service of an adverse action,whichever is later. An initial decision by an administrative judge must be made no later than 90 daysafter the date on which the appeal is taken. An adverse action taken against an employee must be sustained by the MSPB administrativejudge if it is supported by a preponderance of evidence unless the employee shows by apreponderance of the evidence that (1) there was harmful error in the application of DODprocedures in arriving at the decision; (2) the decision was based on any prohibited personnelpractice; or (3) the decision was not in accordance with law. Preponderance of the evidence isdefined as the degree of relevant evidence that a reasonable person, considering the record as awhole, would accept as sufficient to find that a contested fact is more likely to be true than untrue. A Board administrative judge must give great deference to DOD's determination regardingthe penalty imposed. An administrative judge may not modify the penalty imposed unless it istotally unwarranted in light of all pertinent circumstances. In evaluating the appropriateness of apenalty, the administrative judge must give primary consideration to the impact of the sustainedmisconduct or poor performance on the Department's national security mission. In cases of multiplecharges, the third party's determination in this regard is to be based on the justification for the penaltyas it relates to the sustained charge or charges. When a penalty is mitigated, the maximum justifiablepenalty must be applied. That penalty is the severest one that is not so disproportionate to the basisfor the action as to be totally unwarranted in light of all pertinent circumstances. The final regulation changes some aspects of the proposed regulation. It states that anadministrative judge cannot modify a DOD penalty; the proposed regulation stated that anadministrative judge, an arbitrator, or the full MSPB could not modify one. The final regulation alsochanges the standard for mitigation. The final regulation provides that an administrative judge maynot modify a penalty imposed by DOD "unless it is totally unwarranted in light of all pertinentcircumstances;" the proposed regulation said that such a penalty could not be modified unless it is"so disproportionate to the basis for the action as to be wholly without justification." Under the final regulation, like the proposed one, neither the MSPB administrative judge northe full MSPB may reverse an action of DOD based on the way in which the charge is labeled or theconduct is characterized, provided that the employee is on notice of the facts sufficient to respondto the factual allegations of the charge. Moreover, neither the MSPB administrative judge nor thefull MSPB may reverse the Department's action based on the way that a performance expectation isexpressed, provided that the expectation would be clear to a reasonable person. An employee willnot be granted interim relief, nor will an action taken against an employee be stayed, unlessspecifically ordered by the full Board after a final decision by the Department of Defense. Back paymay not be awarded and attorney fees may not be paid before a Board decision becomes final. Generally, an administrative judge of the MSPB may require DOD to pay attorney fees ifthe employee is the prevailing party and the administrative judge determines that such payment iswarranted in the interest of justice, including any case in which the Department was engaged in aprohibited personnel practice or any case in which the agency's action was clearly without merit. Ifthe employee is the prevailing party and the decision is based on a finding of discriminationinvolving a prohibited personnel practice under 5 U.S.C. section 2302(b)(1), however, payment ofreasonable attorney fees must be in accordance with the standards prescribed in section 706(k) ofthe Civil Rights Act of 1964, 42 U.S.C. 2000e-5(k). The final regulation relating to attorney fees is less restrictive than the proposed regulation. Under the proposed regulation, attorney fees were warranted to a prevailing party "in the interest ofjustice," a phrase defined as "only when the Department was engaged in a prohibited personnelpractice or the Department's action was clearly without merit based upon facts known tomanagement when the action was taken." The final regulation, like the proposed regulation, provides that an initial decision of anadministrative judge becomes the Department's final decision 30 days after it is issued unless eitherparty files a request for review with MSPB and the Department concurrently (with service to theother party) within that 30-day period. The final regulation states that the request must be filed "inaccordance. with 5 U.S.C. section 9902(h), MSPB's regulations, and this subpart [Subpart H"Appeals"]." It adds that if a party does not submit a request for review within the time limit, therequest will be dismissed as untimely filed unless a good reason for the delay is shown. The finalregulation deletes language in the proposed regulation which provided that a request for review hadto be served on the other party "as specified by DOD implementing issuances." Moreover, languagein the final regulation regarding dismissing a request for review as untimely if it was not submittedwithin the 30 day period did not appear in the proposed regulation. Under the final regulation, thirty days after the timely filing of a request for review, the initial decision of the MSPB administrative judge becomes the Department's final, nonprecedentialdecision, unless notice is served on the parties and MSPB within that period that the Department willact on the request. When no such notice is served, MSPB must docket and process a party's requestas a petition for full Board review in accordance with 5 U.S.C. section 9902(h), MSPB's regulations,and this subpart. Timeframes will be established in implementing issuances for those instanceswhere action is taken on a request for review. If DOD decides to act on the request for review, the other party to the case is given 15 daysto respond to the request. An extension to the filing period may be granted for good cause. Afterreceiving a timely response to the request for review, the Department may (1) remand the matter tothe assigned administrative judge for further adjudication or issue a final DOD decision modifyingor reversing that initial decision or decision after remand; (2) issue a final DOD decision modifyingor reversing the initial decision; or (3) issue a final DOD decision affirming that initial decision. Anadministrative judge must make a decision after remand under (1) no later than 30 days afterreceiving a remand notice, unless the remand order requires that a hearing must be held, in whichcase the decision of the administrative judge must be made no later than 45 days after receiving theremand order. Decisions on remand are treated as initial decisions for the purpose of further review. Any decision issued by the Department after reviewing an initial decision of anadministrative judge is precedential unless the Secretary determines that the DOD decision is notprecedential or the final DOD decision is reversed or modified by the full Merit Systems ProtectionBoard. Precedential decisions must be published according to details provided in implementingissuances. The proposed regulation did not require publishing precedential decisions. Under the final regulation, any decision following the period for DOD review is final unlessa party to the appeal or the Director of the Office of Personnel Management petitions the full MSPBfor review within 30 days. The Director, after consulting with the DOD Secretary, may petition thefull Board for review if the Director believes that the decision is erroneous and will have asubstantial effect on a civil service law, rule, regulation, or policy directive. MSPB, for good causeshown, may extend the filing period. Upon receiving a final DOD decision, an employee or the Office of Personnel Managementmay file a petition for review with the full Board within 30 days in accordance with 5 U.S.C. section9902(h), MSPB's regulations, and this subpart. The Board may dismiss any petition that, in itsopinion, does not raise substantial questions of fact or law. The full Board may order correctiveaction only if it determines that the decision was (1) arbitrary, capricious, and an abuse of discretion,or otherwise not in accordance with law; (2) obtained without procedures required by law, rule, orregulation having been followed; or (3) unsupported by substantial evidence. The final regulation sets out these standards which are prescribed in the statute at section 9901(h) of of Title 5 of theUnited States Code. The proposed regulation did not set them out. Under the final regulation, upon receipt of a petition for full MSPB review or a request forreview that becomes a petition for review as a result of expiration of the Department's review periodfollowing an initial decision by an administrative judge, the other party to the case and/or OPM, asapplicable, has 30 days to file a response to the petition. The full Board is required to act on apetition within 90 days after receiving a timely response, or the expiration of the response period,as applicable, in accordance with 5 U.S.C. section 9902(h), MSPB's regulations, and this subpart. Section 9902(h) of Title 5 of the United States Code grants an eligible employee who isremoved, suspended for more than 14 days, furloughed for 30 days or less, reduced in pay, orreduced in a pay band (or comparable reduction) by a final decision under the appeals process theright to petition the full MSPB for review of the decision. This subsection also authorizes the Boardto dismiss any petition that, in the view of the Board, does not raise substantial questions of law orfact. No personnel action can be stayed and no interim relief can be granted during the pendency ofthe Board's review unless specifically ordered by the Board. The Director of the Office of Personnel Management, after consulting with the Secretary ofDefense, may seek reconsideration by MSPB of a final Board decision. Reconsideration must besought within 35 days after the Board's final order is served. If the Director seeks reconsideration,the full Board must render its decision no later than 60 days after receiving a response to OPM'spetition in support of reconsideration and state reasons for its decision. The 35-day deadline torequest reconsideration did not appear in the proposed regulation. Failure of MSPB to meet deadlines imposed by provisions relating to an initial decision byan administrative judge, a decision by the full Board on a petition for review, and Boardreconsideration sought by the Director of OPM does not prejudice any party to the case and does notform the basis for any legal action by any party. If the administrative judge or the full Board failsto meet time limits, the full Board is required to inform the Secretary of Defense in writing of thecause of the delay and recommend future actions to remedy the problem. The Secretary of Defense or an employee adversely affected by a final order or decision ofMSPB may seek judicial review under Section 9002(h) of Title 5 of the United States Code, whichauthorizes an adversely affected employee and the Secretary to obtain judicial review as providedin 5 U.S.C. Section 7703 "Judicial review of decisions of the Merit Systems Protection Board."Language in the proposed regulation that authorized the Secretary of Defense to seek reconsiderationby MSPB of a final MSPB decision before seeking judicial review was deleted because currentMSPB rules authorize such a review. Procedures for appeals of adverse actions to MSPB based on mandatory removal offensesare the same as for other offenses except that if one or more mandatory removal offenses is or aresustained, the MSPB administrative judge may not mitigate the penalty. Only the Secretary ofDefense may mitigate the penalty within the Department. If the administrative judge or full Boardsustains an employee's appeal based on a finding that the employee did not commit a mandatoryremoval offense, a subsequent proposed adverse action (other than a mandatory removal offense)based in whole or in part on the same or similar evidence is not precluded. This final regulation differs from the proposed one in that it precludes only an administrativejudge of the MSPB to mitigate a penalty for a mandatory removal offense; the proposed regulationprecluded not only an administrative judge, but also the full Board from mitigating it. Moreover,the final regulation provides that "only the Secretary may mitigate the penalty within theDepartment"; the proposed regulation did not include the phrase "within the Department." In considering any appeal of an action filed under Section 7702 "Actions involvingdiscrimination" of Title 5 of the United States Code, the Merit Systems Protection Board is requiredto apply the provisions of 5 U.S.C. Section 9902 "Establishment of human resources system" and these DOD regulations. In any appeal of an action filed under 5 U.S.C. Section 7702 that results ina "final Department decision, if no petition for review of the Department's decision is filed with thefull Board, and if requested by the appellant, the Department will refer only the discrimination issueto the full Board for adjudication." All references in 5 U.S.C. Section 7702 to 5 U.S.C. Section 7701"Appellate procedures" are modified to read Part 9901 "Department of Defense National SecurityPersonnel System" of Title 5 of the Code of Federal Regulations. This final regulation changed the proposed regulation by adding "final" to precede"Department decision," and "and if requested by the appellant" after "if no petition for review of theDepartment's decision is filed with the full Board" to the proposed regulation. Subpart H does notapply to adverse actions that were proposed prior to the date of an affected employee's coverageunder this subpart. Congress authorized DOD and OPM to establish an appeals process that provides employeeswith "fair treatment in any appeals that they bring in decisions relating to their employment." Theprocess also must "ensure that employees ... are afforded the protections of due process." OnNovember 7, 2005, following the issuance of final regulations to establish the NSPS, a coalition offederal unions, including the American Federation of Government Employees, filed a lawsuit infederal district court challenging the regulations. On February 27, 2006, the court enjoined the newregulations on the grounds that they failed to ensure collective bargaining rights, did not provide forthe independent third-party review of labor relations decisions, and failed to provide a fair processfor appealing adverse actions. (44) DOD has indicated that it will appeal the decision. (45) The courtheld that theprocess of appealing adverse actions in the final regulations would fail to provide employees with"fair treatment" and, therefore, were contrary to authority that had been granted in the statute. The following regulations were found to be unfair: Regulations that would authorize DOD to reverse a decision of anadministrative judge of the Merit Systems Protection Board if the department determined that therehad been a "material error of fact" or that the decision had a "direct and substantial impact of thedepartment's national security mission." The court said that, "These regulations, in effect, allow oneparty to unilaterally modify or reverse the decision of an independent administrative lawjudge." A regulation that would prohibit an administrative judge from modifying apenalty imposed by the department "unless such penalty is totally unwarranted in light of allcircumstances" and required an administrative judge who did mitigate a penalty to impose themaximum justifiable one. The court quoted from an court decision which held that final regulationsof the Department of Homeland Security exceeded statutory authority to say that this DODregulation, like a similar one for DHS, would "put the thumbs of the agencies down hard on thescales of justice in [the agencies'] favor." A regulation that would permit the Secretary "in his or her sole, exclusive andunreviewable discretion" to place an employee in an alternative position or on an excused absenceif the Secretary determined that the employee's return ordered by the Merit Systems Protection Boardwould be "impracticable or unduly disruptive to the work environment." The court found that therewas no basis in the statute for this authority and conflicted with a statutory requirement that nointerim relief could be granted except by the board. A regulation that would authorize the Secretary "in his sole, exclusive, andunreviewable discretion" to "identify offenses [known as mandatory removal offenses] that have adirect and substantial impact on the department's national security mission." An employee deemedto have committed one of these offenses would be removed from employment. The court said thatalthough the statute granted the department the discretionary authority to establish an appealsprocess, any process that it established had to provide employees with fair treatment and that thisregulation failed to do so. Provisions Related to Separation and RetirementIncentives. Under current law, a federal agency that is restructuring or downsizingcan, with the approval of OPM, offer voluntary early retirement to employees in specificoccupational groups, organizational units, or geographic locations who are age 50 or older and haveat least 20 years of service, or who are any age and have at least 25 years of service. Also with theapproval of OPM, a federal agency may offer voluntary separation incentive payments of up to$25,000 to employees who retire or resign. The full amount must be repaid if individual isre-employed by the federal government within five years. P.L. 108-136 creates a new Section 9902(i) of Title 5 that authorizes the Secretary ofDefense, without review by OPM, to establish a program within DOD under which employees maybe eligible for early retirement, offered separation incentive pay to separate from service voluntarily,or both. The authority may be used to reduce the number of personnel employed by DOD or torestructure the workforce to meet mission objectives without reducing the overall number ofpersonnel. It is in addition to, and notwithstanding, any other authorities established by law orregulation for such programs. The Secretary may not authorize the payment of voluntary separation incentive pay (VSIP)to more than 25,000 employees in any fiscal year, except that employees who receive VSIP as aresult of a closure or realignment of a military installation under the Defense Base Closure andRealignment Act of 1990 (Title XXIX of P.L. 101-510 ) will not be included in that number. TheSecretary must prepare a report each fiscal year setting forth the number of employees who receivedsuch pay as a result of a closure or realignment of a military base and submit it to the SenateCommittees on Armed Services and Governmental Affairs and the House Committees on ArmedServices and Government Reform. "Employee" means a DOD employee serving under an appointment without time limitation. The term does not include (1) a reemployed annuitant under 5 U.S.C. Subchapter III, Chapters 83or 84, or another retirement system for federal employees; (2) an employee having a disability on thebasis of which he or she is or would be eligible for disability retirement; or (3) for purposes ofeligibility for separation incentives, an employee who has received a decision notice of involuntaryseparation for misconduct or unacceptable performance. An employee who is at least 50 years of age and has completed 20 years of service, or hasat least 25 years of service, could, pursuant to regulations promulgated under this section, apply andbe retired from DOD and receive benefits in accordance with Chapters 83 or 84 if he or she has beenemployed continuously within DOD for more than 30 days before the date on which thedetermination to conduct a reduction or restructuring within one or more DOD components isapproved. Separation pay will be paid in a lump sum or in installments and will be equal to the lesserof (1) an amount equal to the amount the employee would be entitled to receive under 5 U.S.C.5595(c), if the employee were entitled to payment; or (2) $25,000. Separation pay is not a basis forpayment, and is not included in the computation, of any other type of government benefit. It will notbe taken into account to determine the amount of any severance pay to which an individual couldbe entitled under 5 U.S.C. 5595, based on any other separation. If paid in installments, separationpay will cease to be paid upon the recipient's acceptance of federal employment, or commencementof work under a personal services contract. An employee who receives separation pay may not be reemployed by DOD for a 12-monthperiod beginning on the effective date of the employee's separation, unless this prohibition is waivedby the Secretary on a case-by-case basis. An employee who receives separation pay on the basis ofa separation occurring on or after the enactment date of the Federal Workforce Restructuring Act of1994 ( P.L. 103-236 ) and accepts employment with the federal government, or who commences workthrough a personal services contract with the United States within five years after the date of theseparation on which payment of the separation pay is based, would be required to repay the entireamount of the separation pay to DOD. If the employment is with an executive agency other thanDOD, the OPM Director could, at the request of the agency head, waive the repayment if theindividual involved possesses unique abilities and is the only qualified applicant available for theposition. If the employment is within DOD, the Secretary could waive the repayment if theindividual involved is the only qualified applicant available for the position. If the employment iswith an entity in the legislative branch, or with the judicial branch, the head of the entity or theappointing official, or the Director of the Administrative Office of the U.S. Courts, could waive therepayment if the individual involved possesses unique abilities and is the only qualified applicantavailable for the position. Under this program, early retirement and separation pay may be offered only pursuant toregulations established by the Secretary, subject to such limitations or conditions as the Secretarymay require. Implementation. The Deputy Under Secretary ofDefense for Civilian Personnel Policy, Ginger Groeber, issued a memorandum to implement thevoluntary separation incentive payments (buyouts) and the voluntary early retirement provisions onDecember 30, 2004. Buyouts are limited to 25,000 employees annually. For FY2004, the Army,Navy, Air Force, and Defense agencies were allocated 7,722; 7,135; 5,873; and 4,270 buyouts,respectively. Voluntary early retirements are not limited. To be eligible for a buyout, an individualmust have been employed by DOD for a continuous period of at least 12 months. According to theDOD guidance, members of the Senior Executive Service and employees above GS-15 are noteligible for buyouts or early retirement unless the Principal Deputy Under Secretary of Defense forPersonnel and Readiness approves the action to avoid a reduction in force or to restructure theworkforce. (46) Provisions Relating to Reemployment. Undercurrent law, a retired federal employee who is re-employed by the federal government may notreceive a federal retirement annuity and a federal salary simultaneously. Sections 8344 (CivilService Retirement System (CSRS)) and 8468 (Federal Employees' Retirement System (FERS)) ofTitle 5 provide that if a retired federal employee who is receiving an annuity from the Civil ServiceRetirement and Disability Fund is re-employed by a federal agency, an amount equal to the annuityshall be deducted from his or her pay. If re-employment lasts more than one year, the individual willbe eligible for a supplemental annuity for the period of re-employment when he or she retires. P.L. 108-136 creates a new Section 9902(j) of Title 5 that provides that if a retired federalemployee who is receiving an annuity from the Civil Service Retirement and Disability Fund wereto be employed by DOD, his or her annuity would continue. The employee would not accrueadditional credit under either CSRS or FERS during this period of re-employment. Implementation. On March 18, 2004, the UnderSecretary of Defense for Personnel and Readiness, David Chu, issued a memorandum to implementthe reemployment provisions. According to Mr. Chu, "This critical hiring flexibility will helpaddress the challenges of 'retirement-driven talent drain' as our current generation of dedicated civilservants become eligible to retire." Under the DOD guidance, annuitants may be reemployed: In positions that are hard-to-fill as evidenced byhistorically high turnover, a severe shortage of candidates or other significant recruiting difficulty;or positions that are critical to the accomplishment of the organization's mission; or to complete aspecific project or initiative; [If they] have unique or specialized skills, or unusualqualifications not generally available; or For not more than 2087 hours (e.g., one year full time,or two years part time) to mentor less experienced employees and/or to provide continuity duringcritical organizational transitions. Extensions beyond 2087 hours are not authorized. (47) The next-level manager or supervisor must certify in writing that one or more of the aboveconditions exists if a retiree seeks to return to the same or a substantially similar position as the onefrom which he or she retired. If less than 90 days has elapsed between the retirement and thereemployment, the certification must indicate that retention options were considered and offered tothe employee before retirement. The DOD guidance covers annuitants who are rehired afterNovember 23, 2004. The Deputy Under Secretary of Defense for Civilian Personnel Policy willmonitor the use of the reemployment authority and may establish reporting requirements. Additional Provisions Relating to PersonnelManagement. Notwithstanding Section 9902(d), the Secretary of Defense, inestablishing and implementing the NSPS, is not limited by any provision of Title 5 or any rule orregulation prescribed under Title 5 in establishing and implementing regulations relating to -- (A) the methods of establishing qualificationrequirements for, recruitment for, and appointments to positions; (B) the methods of assigning, reassigning, detailing,transferring, or promoting employees; and (C) the methods of reducing overall agency staff andgrade levels, except that performance, veterans' preference, tenure of employment, length of service,and such other factors as the Secretary considers necessary and appropriate must be considered indecisions to realign or reorganize the Department's workforce. In implementing this subsection, the Secretary must comply with 5 U.S.C. Â§2302(b)(11),regarding veterans' preference requirements. Phase-In. The Secretary may apply the NSPS toan organizational or functional unit that includes up to 300,000 civilian DOD employees and to anorganizational or functional unit that includes more than 300,000 civilian DOD employees, if theSecretary determines that the department has in place a performance management system that meetsthe criteria specified. ( S. 1166 included a similar phase-in provision.) The new Section 9903 authorizes the Secretary of Defense to carry out a program in orderto attract highly qualified experts in needed occupations, as determined by him. Under the program,the Secretary may appoint personnel from outside the civil service and uniformed services (as suchterms are defined in 5 U.S.C. Â§2101) to positions in DOD without regard to any provision of Title5 governing the appointment of employees to positions in DOD. The Secretary also may prescribethe rates of basic pay for positions to which employees are appointed at rates not in excess of themaximum rate of basic pay authorized for senior-level positions under 5 U.S.C. Â§5376 (ExecutiveSchedule (EX) Level IV, $143,000 as of January 2006), as increased by locality-based comparabilitypayments (total cannot exceed EX level III, $152,000 as of January 2006), notwithstanding anyprovision of Title 5 governing the rates of pay or classification of employees in the executive branch. The Secretary may pay any employee appointed under this section payments in addition to basic paywithin the limits applicable to the employee as discussed below. The service of an employee under an appointment made pursuant to this section may notexceed five years. The Secretary may, however, in the case of a particular employee, extend theperiod to which service is limited by up to one additional year if he determines that such action isnecessary to promote DOD's national security missions. The total amount of the additional payments paid to an employee under this section for any12-month period may not exceed the lesser of $50,000 in FY2004, or an amount equal to 50% ofthe employee's annual rate of basic pay. The $50,000 may be adjusted annually thereafter by theSecretary, with a percentage increase equal to one-half of one percentage points less than thepercentage by which the Employment Cost Index (ECI), published quarterly by the Bureau of LaborStatistics, for the base quarter of the year before the preceding calendar year exceeds the ECI for thebase quarter of the second year before the preceding calendar year. "Base quarter" has the samemeaning given at 5 U.S.C. Â§5302(3). An employee appointed under this section is not eligible for any bonus, monetary award, orother monetary incentive for service except for payments authorized under this section. Notwithstanding any other provision of this subsection or of 5 U.S.C. Â§5307, no additional paymentsmay be paid to an employee in any calendar year, if, or to the extent that, the employee's total annualcompensation will exceed the maximum amount of total annual compensation payable to the VicePresident ($212,100, as of January 2006). The number of highly qualified experts appointed and retained by the Secretary may notexceed 2,500 at any time. (Under S. 1166 , the limitation would have been 300.) In the event that the Secretary terminates this program, the following will occur. In the caseof an employee who on the day before the termination of the program is serving in a positionpursuant to an appointment under this section, the termination of the program does not affect theemployee's employment in that position before the expiration of the lesser of the period for whichthe employee was appointed or the period to which the employee's service is limited, including anyextension made under this section before the termination of the program. The rate of basic payprescribed for the position may not be reduced as long as the employee continues to serve in theposition without a break in service. The committee report which accompanied H.R. 1836 stated that "[t]he authority[in this provision] is consistent with that now available to the Defense Advanced Research ProjectsAgency and Military Departments for hiring scientists and engineers." (49) Implementation. DOD issued guidance toimplement the provision on highly qualified experts on February 27, 2004. The guidance identifiessuch an expert as: an individual possessing uncommon, specialknowledges or skills in a particular occupational field beyond the usual range of expertise, who isregarded by others as an authority or practitioner of unusual competence and skill. The expertknowledge or skills are generally not available within the Department and are needed to satisfy anemerging and relatively short-term, non-permanent requirement. (50) The hiring authority cannot be used to provide temporary employment in anticipation ofpermanent employment, to provide services that are readily available with DOD or another federalagency, to perform continuing DOD functions, to bypass or undermine personnel ceilings or paylimitations, to aid in influencing or enacting legislation, to give former federal employees preferentialtreatment, to do work performed by regular employees, or to fill in during staff shortages. (51) Basic pay for experts would be determined according to such factors as: Labor market conditions; Type of position; Location of position; Work schedule; Level of independence in establishing work objectives; Working conditions; Organizational needs; Personal qualifications; Type of degree; Personal recommendations; Experience (recency, relevance); Budget considerations; Organizational equity/pay considerations; and Mission impact of work assignments. (52) An expert's pay may be increased because of an "exceptional level of accomplishment relatedto projects, programs, or tasks that contribute to the Department or Component strategicmission." (53) The Defense Civilian Personnel Data System will be used to record the employment of highlyqualified experts. Written documentation must be maintained and must include the criteria for theappointment and the factors and criteria used to set and increase pay and to provide additionalpayments. The records must be retained for three years after an employee is terminated. (54) The new Section 9904 of P.L. 108-136 authorizes the Secretary of Defense to provideallowances and benefits to certain civilian DOD employees assigned to activities outside the UnitedStates, as determined by the Secretary to be in support of DOD activities abroad hazardous to lifeor health or so specialized because of security requirements as to be clearly distinguishable fromnormal government employment. Such allowances and benefits will be comparable to thoseprovided by the Secretary of State to members of the Foreign Service under Chapter 9 of Title I ofthe Foreign Service Act of 1980 or any other provision of law; or comparable to those provided bythe Director of Central Intelligence to personnel of the Central Intelligence Agency (CIA). Specialretirement accrual benefits and disability that are in the same manner provided for by the CIARetirement Act and in Section 18 of the CIA Act of 1949 also will be provided. Section 1101(b) of P.L. 108-136 provides that any exercise of authority under the proposednew Chapter 99, including under any system established under that chapter, must be in conformancewith the requirements of this subsection. No other provision of this act or of any amendment madeby this act may be construed or applied in a manner so as to limit, supersede, or otherwise affect theprovisions of this section, except to the extent that it does so by specific reference to this section. Section 1113 of P.L. 108-136 amends 5 U.S.C. Â§6323 to authorize military leave for anindividual who performs full-time military service as a result of a call or order to active duty insupport of a contingency operation. (57) Under military leave, the individual receives leave without lossof, or reduction in, pay, leave to which he or she is otherwise entitled, credit for time or service, orperformance or efficiency rating, for up to 22 workdays in a calendar year. The provision appliesto military service performed on or after the act's enactment date, November 24, 2003. The committee report accompanying H.R. 1836 explained the need for theprovision: This section would help Federal civilian employeeswhose military pay is less than their Federal civilian salary "transition" to military service byallowing them to receive 22 additional workdays of military leave when mobilized. Such leavewould help alleviate the difference in pay for the first month of service by enabling them to receivethe difference between their Federal civilian pay and their military pay. Current law only entitlesReserve component members to the additional military leave. (58) Section 1116 amends Subsection (e)(1) of Section 1101 of the Strom Thurmond NationalDefense Authorization Act for FY1999 ( P.L. 105-261 ; 112 Stat. 2139; 5 U.S.C. Â§3104 note) toextend the experimental personnel program for scientific and technical personnel until September30, 2008 (the annual report will be required in 2009). Subtitle B of Title XI of P.L. 108-136 also includes provisions on an automated personnelmanagement program, the demonstration project relating to certain acquisition personnelmanagement, restoration of annual leave to certain DOD employees affected by base closings, andemployment of certain civilian faculty members at a Defense institution, which are beyond thepurview of this report. The provisions at Subtitle C of Title XI of P.L. 108-136 apply to federal civilian employeesgovernment-wide. Section 1121 amends 5 U.S.C. Â§5542(a)(2) which covers the computation of overtime ratesof pay. It provides that such an employee will receive overtime at a rate which will be the greaterof one and one-half times the hourly rate for GS-10, step 1, or his or her hourly rate of basic pay. The law previously in effect provided that an employee whose basic pay rate exceeded GS-10, step1 (including any locality pay or special pay rate) received overtime at a rate of one and one-half timesthe hourly rate for GS-10, step 1 (150% of GS-10, step 1). For employees whose regular pay is greater than the 150% of GS-10, step 1 cap, the lawpreviously in effect resulted in overtime pay at a rate less than their regular hourly rate. P.L. 108-136 addresses this circumstance and the situation in which managers and supervisors, whose overtimerate is capped at 150% of GS-10, step 1, receive less compensation for overtime work thanemployees who are subordinate to them. The Congressional Budget Office (CBO) determined thatthe provision would affect employees above GS-12, step 5. (61) Implementation. OPM advised agencies to ensurethat proper overtime payments were being made as of November 24, 2003, the law's enactment date. Final regulations to implement the provision were published by OPM in the Federal Register onMay 13, 2004, and became effective on the same day. (62) Section 1122 amends 5 U.S.C. Â§5343(c)(4), which authorizes blue-collar employees toreceive pay differentials for unusually severe working conditions or unusually severe hazards, and5 U.S.C. Â§5545(d), which authorizes pay differentials for unusual physical hardship or hazard forGeneral Schedule (GS) employees. The amendment provides that pay differentials for any hardshipor hazard related to asbestos will be determined by applying occupational safety and health standardsconsistent with the permissible exposure limit promulgated by the Secretary of Labor under theOccupational Safety and Health Act of 1970. Subject to any vested constitutional property rights,any administrative or judicial determination after the act's enactment date concerning backpay fora differential under 5 U.S.C. Â§5343(c)(4) or 5545(d) will be based on occupational safety and healthstandards under the Occupational Safety and Health Act of 1970. The Congressional Budget Office (CBO) explained the provision in its cost estimate for H.R. 1836 . According to CBO, the provision provides that federal wage-grade employees would be subject to thesame standards as general schedule employees when determining eligibility for environmentaldifferential pay (EDF) due to exposure to asbestos. Under current law, general schedule employeesare entitled to 8 percent hazard differential pay [HDP] if they are exposed to asbestos that exceedsthe permissible exposure limits established by OSHA. The current EDP standard for wage-gradeemployees entitles them to the same 8 percent of pay but does not set an objective measure fordetermining the level of asbestos exposure necessary to qualify for EDP. In several instances whenwage-grade employees have sought back pay for EDP, arbitrators have found in favor of theemployees when asbestos levels were below those consistent with OSHA standards. (64) Implementation. According to OPM,administrative or judicial determinations concerning EDP or HDP for asbestos exposure must bebased on the OSHA permissible exposure limits for asbestos as of November 24, 2003. OPMregulations on HDP for GS employees include this requirement. The personnel agency will updatethe EDP regulations for wage employees to include the requirement. Section 1123 amends 5 U.S.C. Â§5379(b)(2)(A) to provide that student loan repayments to anemployee may not exceed $10,000 in any calendar year, replacing the up to $6,000 per calendar yearthat the current law allows. The provision became effective on January 1, 2004. Given the increasingly larger burdens of debt that graduates are assuming, this provisioncould provide additional flexibility to managers and agencies wanting to offer student loanrepayments to their employees. Federal agencies have said that they would need additionalappropriations to fund such incentives as student loan repayments. Implementation. OPM issued regulations toimplement the program on April 20, 2004. (66) Section 1124 "allow[s] cabinet secretaries, secretaries of military departments and heads ofexecutive agencies to be paid bi-weekly like most Federal employees. This proposal save[s] timeand cost resources by relieving civilian pay and disbursing operations from having to utilize specialmanual procedures to accommodate these personnel." (68) Section 5504 of Title 5 is modified by consolidating the definition of employee for thepurpose of the section so that the same groups are covered by the requirement for a bi-weekly payperiod and by the methods for converting annual rates of pay into hourly, daily, weekly, or biweeklyrates. Currently "employee" is defined under each of these provisions and both exclude groups ofpeople excluded from the definitions of employees in 5 U.S.C. Â§5541 on premium pay. P.L. 108-136 continues that exclusion, but adds a provision that an agency could elect to have excluded employeesbe paid on the bi-weekly basis. It should be noted that under the current provisions, employees inthe judicial branch are covered under the conversion language, but are not included in the languageof this provision. It is not known if that omission was by intent or if the latitude for discretionaryinclusion was assumed to apply to that class of employee. Implementation. The provision became effectiveon the first day of the first applicable pay period beginning on or after November 24, 2003, whichwas November 30, 2003, for most officials and employees. OPM published proposed regulationsto implement the provision in the Federal Register on October 7, 2004. (69) Section 1125(a), which amended portions of 5 U.S.C. Â§Â§ 5304, 5382, and 5383, effectedchanges to basic pay and locality pay for members of the Senior Executive Service (SES), andindividuals in certain other positions. OPM issued the final rule to establish the new pay system, andto implement a higher cap on aggregate compensation for senior executives, in December 2004. (71) Significant changes forthe SES included the replacement of six pay rates or levels (ES-1 through ES-6) with one broad payrange; an increase in the cap on base pay from Executive Schedule level IV (EX-IV) to EX-III; theaddition of a second, higher cap on base pay, EX-II, for agencies whose SES performance appraisalsystems have been certified by the OPM, with the concurrence of OMB; and the elimination oflocality pay. (72) Eachsenior executive is to be paid at one of the rates within the broad pay range based on individualperformance, contribution to the agency's performance, or both. Previously, 5 U.S.C. Â§ 5382 requiredthe establishment of at least five rates of basic pay, and each senior executive was paid at one of therates. For agencies whose appraisal systems have not been certified, the cap on SES base pay in2006 is $152,000 (EX-III). (Previously, the cap would have been $143,000 (EX-IV).) For agencieswho have received certification, the cap on base pay in 2006 is $165,200 (EX-II). Demonstratingthat the design and implementation of its performance appraisal systems make "meaningfuldistinctions based on relative performance" is crucial to an agency's application forcertification. (73) (Anagency may have more than one performance appraisal system for senior employees.) Instituting a pay band and shifting the cap on basic pay from level IV to level III (or level IIfor agencies with certified appraisal systems) will help to ease pay compression, at least temporarily,within the SES. Many believe this provision has the potential for interjecting more accountabilityinto the SES. Others are concerned that in an effort to develop and apply a performance appraisalsystem that is based on meaningful distinctions, agencies might create and impose a forceddistribution of performance ratings. In addition to positions in the SES, positions in the Federal Bureau of Investigation (FBI) andDrug Enforcement Administration (DEA) SES, and positions in a system equivalent to the SES, asdetermined by the President's Pay Agent, are no longer eligible for locality pay. Considering thechanges made to the caps on basic pay, which resulted in the establishment of caps at levels II andIII of the Executive Schedule, the elimination of locality pay might be viewed as a practical matter. However, senior executives employed by an agency whose performance appraisal system is notcertified could be adversely affected by the loss of locality pay. Total Compensation. The performance appraisalcertification process was established by another statute, the Homeland Security Act of 2002 ( P.L.107-296 ; 116 Stat. 2135, at 2297), which also shifted the cap on total compensation. For seniorexecutives subject to a performance appraisal system that has not been certified by OPM, the cap ontotal compensation remains EX-I ($183,500 in 2006). For individuals subject to a certified appraisalsystem, the cap has shifted upward to the Vice President's salary, which is $212,100 in 2006. Thesignificance of this change has to do with timing. For senior executives with certified appraisalsystems, they are more likely to receive all of their compensation in one year instead of having somepayments deferred to the following year (which is what occurs when an individual's totalcompensation exceeds the applicable cap). Under Section 1125(c), the amendments made by this section took effect on the first date ofthe first pay period that began on or after January 1, 2004 (which was January 11 for most seniorexecutives). (74) Section1125(c) also ensures that a senior executive's basic rate of pay will not be reduced, as a result ofchanges effected by Section 1125(a), during the first year after enactment. For the purpose ofensuring that an individual's rate of basic pay is not reduced, a senior executive's rate of basic paywill equal the rate of basic pay and the locality pay he or she was being paid on the date of enactmentof this legislation. Section 1125(c) noted that any reference in law to a rate of basic pay above theminimum level and below the maximum level payable to senior executives will be considered areference to the rate of pay for Executive Schedule level IV. (75) Section 1125(b) applies the post-employment conflict of interest provision commonly knownas the one-year "cooling off" period (18 U.S.C. Â§207(c)(1)) to (in addition to those paid on theExecutive Schedule) those not paid on the Executive Schedule but who are compensated at a rateof pay equal to, or greater than, 86.5% of the rate of basic pay for level II of the Executive Schedule($165,200 in 2006, so $142,898), or, for two years after the enactment of this act, those persons whowould have been covered by the restriction the day before the act was passed (those compensatedat a base rate of pay equal to or greater than a level 5 for the SES). The provision amends 18 U.S.C.Â§207(c)(2)(A)(ii). (77) The post-employment restrictions, according to OPM, require that for one year after service in a coveredposition ends, no former employee may knowingly make, with the intent to influence, anycommunication to or appearance before an employee of a department or agency in which he or sheserved in any capacity during the one-year period prior to ending service in that position, if thatcommunication or appearance is made on behalf of any other person (except the United States) inconnection with any matter concerning which he or she seeks official action by that employee. Employees ... also are subject to 18 U.S.C. Â§207(f), which imposes additional restrictions onrepresenting, aiding, or advising certain foreign entities with the intent to influence any officer oremployee of any department or agency of the United States. (78) Implementation. OPM published interimregulations to implement the provision in the Federal Register on October 15, 2004. (79) The regulations becameeffective on the first day of the first applicable pay period beginning on or after October 15, 2004. According to OPM, with the January 2004 implementation of the new Senior Executive Service(SES) performance-based pay system "the vast majority of SES members are now subject to thepost-employment restrictions." (80) Section 1126 amends 5 U.S.C. Chapter 47 which covers the conduct of personnel researchprograms and demonstration projects. The provision specifies certain elements that must be presentin a demonstration project's pay-for-performance system. The eight elements are as follows: adherence to merit system principles under 5 U.S.C.Â§2301; a fair, credible, and transparent employee performance appraisalsystem; a link between elements of the pay-for-performance system, the employeeperformance appraisal system, and the agency's strategic plan; a means for ensuring employee involvement in the design and implementationof the system; adequate training and retraining for supervisors, managers, and employees inthe implementation and operation of the pay-for-performance system; a process for ensuring ongoing performance feedback and dialogue betweensupervisors, managers, and employees throughout the appraisal period, and setting timetables forreview; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agency resources are allocated for thedesign, implementation, and administration of the pay-for-performancesystem. These eight elements address longstanding concerns expressed by employees, their unions,and representatives about the pay-for-performance component of demonstration projects. Implementation. In its semiannual regulatoryagenda published in the Federal Register on December 13, 2004, OPM states that it will issue"proposed regulations to position agencies to operate pay-for-performance by having in placeperformance appraisal systems for covered employees that are capable of making performancedistinctions to support these pay systems." (82) The agenda anticipates final action by June 2005. Section 1127 prohibits federal agencies that offer flexible spending accounts (FSAs) fromimposing fees on employees to defray their administrative costs. It also requires agencies to forwardto OPM (or an entity it designates) amounts to offset these costs. OPM is required to submit to theHouse Committee on Government Reform and the Senate Committee on Governmental Affairs, nolater than March 31, 2004, reports on the administrative costs associated with the government-wideFSA program for FY2003 and the projected administrative costs for each of the five fiscal yearsthereafter. At the end of each of the first three calendar years in which an agency offers FSAs, theagency will be required to submit a report to the Office of Management and Budget (OMB) on theemployment tax savings from the accounts (i.e., the Social Security and Medicare taxes theyotherwise would have had to pay), net of administrative fees paid. Employees in most federal agencies were given an FSA option starting in July 2003. Thenew benefit allows employees to put pretax money aside for unreimbursed health care or dependentcare expenses in exchange for receiving lower pay. (Section 5525 of Title 5 provides that agencyheads may establish procedures under which employees are permitted to make allotments andassignments out of their pay for such purposes as the agency head considers appropriate.) Forexample, employees might elect to reduce their pay by $50 each pay period in exchange for having$1,300 (i.e., $50 x 26 pay periods in a year) placed in their health care FSA. When they incurunreimbursed health care expenses (e.g., copayments and deductibles, or dental expenditures notcovered by insurance) they would be reimbursed from their account. FSA reimbursements areexempt from federal income and employment taxes as well as state income taxes; thus, employeeselecting to participate can save on taxes they otherwise would have incurred had they instead usedtake-home pay for the expenses. Information about the federal FSAs can be found at https://www.fsafeds.com/fsafeds/index.asp . FSAs involve administrative costs, particularly for determining the eligibility of submittedclaims. OPM, which has contracted with SHPS, Inc., to administer the FSAs, originally intendedto have participating employees pay $4 a month for their health care FSA and 1.5% annually of theamount set aside for their dependent care FSA. Shortly before the program started, OPM gaveagencies the option of absorbing administrative expenses themselves, and most have done so. P.L.108-136 requires participating agencies to pay the administrative costs and prohibits the governmentfrom charging fees to employees. One argument for having employees pay FSA administrative costs is that they are theprincipal beneficiaries; if the government were to pay, the cost might be partially borne by employeeswithout FSAs or by other programs or even taxpayers generally. However, imposing fees onemployees could discourage participation. Few private sector or other employers impose FSA feeson participants; most pay for the administrative costs out of their employment tax savings. Implementation. As directed in P.L. 108-136 ,OPM reported to Congress in April 2004 on "the cost of administrative fees agencies will pay tocover employees enrolled in a flexible spending account." The report showed that 117,950employees opened a health-care FSA and 18,178 employees opened a dependent-care FSA in 2004. OPM projected that more than 283,000 employees would have health-care FSAs and 43,627 wouldhave dependent-care FSAs by 2007. A January 2005 news release by OPM reported that 157,000employees are participating in the FSA program for 2005. (84) In the April 2004 report,administrative fees were projected to be $5.6 million for health-care FSAs and $980,000 fordependent-care FSAs in 2004 and were expected to total nearly $80 million for health-care FSAs,dependent-care FSAs, or both through 2007. According to OPM: "Employees benefit becauseuntaxed contributions from their salaries are deposited into their FSA accounts, and the loweremployee taxable income translates into agencies paying out less in Social Security and Medicaretaxes ... because agencies pay less in taxes, they more than recover the cost of paying FSAadministrative fees." (85) Section 1128 mandates annual surveys of employees by federal executive departments,government corporations, and independent establishments. OPM will issue regulations prescribingsurvey questions that will appear on all agency surveys so as to allow a comparison of results acrossagencies. Questions unique to an agency also may be included on the survey. The surveys willaddress leadership and management practices that contribute to agency performance. Employeesatisfaction with leadership policies and practices, work environment, rewards and recognition forprofessional accomplishment and personal contributions to achieving organizational mission,opportunity for professional development and growth, and opportunity to contribute to achievingorganizational mission also will be surveyed. Agency results will be available to the public. Theyalso will be posted on the respective agency's website unless the agency head determines that doingso would jeopardize or negatively affect national security. From time to time, OPM has conducted surveys of federal employees, but the surveysauthorized by this provision would be conducted by agencies and particularly focus on theirleadership and performance and employee contribution to agency mission. The provision does notmandate any remedial actions that an agency might want to take once the survey results are known. As to not posting survey results for reasons of national security, the term "national security" is notdefined. OPM could address this issue in its regulations to implement the program which areanticipated in 2004. Implementation. OPM's semiannual regulatoryagenda published in the Federal Register on December 13, 2004, indicates that the regulations onemployee surveys were withdrawn as an agenda item on November 5, 2004. (87) No further informationwas provided. Section 1129 amends Part III, Subpart D of Title 5 United States Code by adding a newChapter 54 entitled Human Capital Performance Fund. The legislation states that the purpose of theprovision is to promote greater performance in the federal government. According to the law, thefund will reward the highest performing and most valuable employees in an agency and offer federalmanagers a new tool for recognizing employee performance that is critical to an agency achievingits mission. Organizations eligible for consideration to participate in the fund are executive departments,government corporations, and independent agencies. The Government Accountability Office is notcovered by the chapter. The fund may be used to reward General Schedule, Foreign Service, andVeterans Health Administration employees; prevailing rate employees; and employees included byOPM following review of plans submitted by agencies seeking to participate in the fund. ExecutiveSchedule (or comparable rate) employees; SES members; administrative law judges; contract appealsboard members; administrative appeals judges; and individuals in positions which are excepted fromthe competitive service because of their confidential, policy-determining, policy-making, orpolicy-advocating character are not eligible to receive payments from the fund. OPM will administer the fund which is authorized a $500,000,000 appropriation forFY2004. (89) Such sumsas may be necessary to carry out the provision are authorized for each subsequent fiscal year. In thefirst year of implementation, up to 10% of any appropriation will be available to participatingagencies to train supervisors, managers, and other individuals involved in the appraisal process onusing performance management systems to make meaningful distinctions in employee performanceand on using the fund. Agencies seeking to participate in the fund will submit plans to OPM for approval. The plansmust incorporate the following elements: adherence to merit principles under 5 U.S.C. Â§2301; a fair, credible, and transparent performance appraisalsystem; a link between the pay-for-performance system, the employee performanceappraisal system, and the agency's strategic plan; a means for ensuring employee involvement in the design and implementationof the system; adequate training and retraining for supervisors, managers, and employees inthe implementation and operation of the pay-for-performance system; a process for ensuring ongoing performance feedback and dialogue betweensupervisors, managers, and employees throughout the appraisal period, and setting timetables forreview; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agency resources are allocated for thedesign, implementation, and administration of the pay-for-performancesystem. An agency will receive an allocation of monies from the fund once OPM, in consultation withthe Chief Human Capital Officers Council, reviews and approves its plan. (90) After the reduction fortraining (discussed above), 90% of the remaining amount of any appropriation to the fund may beallocated to the agencies. An agency's prorated distribution may not exceed its prorated share ofexecutive branch payroll. (Agencies will provide OPM with necessary payroll information.) If OPMwere not to allocate an agency's full prorated share, the remaining amount will be available fordistribution to other agencies. After the reduction for training, 10% of the remaining amount of any appropriation to thefund as well as the amount of an agency's prorated share not distributed because of the agency'sfailure to submit a satisfactory plan, will be allocated among agencies with exceptionallyhigh-quality plans. Such agencies will be eligible to receive a distribution in addition to their fullprorated distribution. Agencies, in accordance with their approved plans, may make human capital performancepayments to employees based on exceptional performance contributing to the achievement of theagency mission. In any year, the number of employees in an agency receiving payments may not bemore than the number equal to 15% of the agency's average total civilian full-time and part-timepermanent employment for the previous fiscal year. A payment may not exceed 10% of theemployee's basic pay rate. The employee's aggregate pay (basic, locality pay, human capitalperformance pay) may not exceed Executive Level IV ($143,000 in 2006). A human capital performance payment will be in addition to annual pay adjustments andlocality-based comparability payments. Such payments will be considered basic pay for purposesof Civil Service Retirement System, Federal Employees' Retirement System, life insurance, and forsuch other purposes (other than adverse actions) which OPM determines by regulation. Informationon payments made and the use of monies from the fund will be provided by the agencies to OPMas specified. Initially, agencies will use monies from the fund to make the human capital performancepayments. In subsequent years, continued financing of previously awarded payments will be derivedfrom other agency funds available for salaries and expenses. Under current law (5 U.S.C. Â§5335)agencies pay periodic within-grade increases to employees performing at an acceptable level ofcompetence. Presumably, funds for such within-grade increases could be used to pay human capitalperformance payments. Monies from the fund may not be used for new positions, for otherperformance-related payments, or for recruitment or retention incentives. OPM will issue regulations to implement the new Chapter 54 provisions. Those regulationsmust include criteria governing the following: an agency's plan; allocation of monies from the fund to the agencies; the nature, extent, duration, and adjustment of, and approval processes for,payments to employees; the relationship of agency performance management systems to the HumanCapital Performance Fund; training of supervisors, managers, and other individuals involved in the processof making performance distinctions; and the circumstances under which funds could be allocated by OPM to an agencyin amounts below or in excess of the agency's pro rated share. The Human Capital Performance Fund was proposed by President George Bush in hisFY2004 budget. According to the budget, the fund "is designed to create performance-driven paysystems for employees and reinforce the value of employee performance management systems." (91) The effectiveness ofagency performance management systems and whether the performance ratings would be determinedaccording to preconceived ideas of how the ratings would be arrayed across the particular ratingcategories are among the concerns expressed by federal employees and their unions andrepresentatives. Other concerns are that the fund could take monies away from the already reducedlocality-based comparability payments and that the performance award amounts would be so smallas to not serve as an incentive. Implementation. OPM's semiannual regulatoryagenda published in the Federal Register on December 13, 2004, indicates that the agency plans toissue an interim final rule implementing the Human Capital Performance Fund, but also indicatesthat the timetable for publishing the rule is yet to be determined. (92) The ConsolidatedAppropriations Act for FY2005, P.L. 108-447 , does not provide an appropriation for the fund. (93) Title VIII, Subtitle D, Section 841, of P.L. 108-136 amends 10 U.S.C. Â§129(b) by adding anew subsection that authorizes the Secretary to enter into personal services contracts if the personalservices (1) are to be provided by individuals outside the United States, regardless of theirnationality, and are determined by the Secretary to be necessary and appropriate for supporting theactivities and programs of DOD outside the United States; (2) directly support the mission of adefense intelligence component or counterintelligence organization of DOD; or (3) directly supportthe mission of the special operations command of DOD. The contracting officer for a personalservices contract under this subsection is responsible for insuring that (1) the services to be procuredare urgent or unique; and (2) it would be impracticable for DOD to obtain such services by othermeans. The requirements of 5 U.S.C. 3109 will not apply to a contract entered into under thissubsection. (94) Title IX, Section 906, of P.L. 108-136 authorized the transfer of the personnel securityinvestigations functions and associated personnel from the Department of Defense Security Service(DSS) to the Office of Personnel Management (OPM). (95) OPM now has responsibility for approximately 90% of allpersonnel security investigations (PSIs). This development has also been affected by the subsequentIntelligence Reform and Terrorism Prevention Act of 2004 (Title III, P.L. 108-458 ), which calledfor a consolidated and improved personnel investigative system. The functional transfer from DOD had to be accepted by both the Secretary of Defense andthe Director of OPM, as the law required. In addition, the move of DSS investigative personnel toOPM was mandatory, while the transfer of support personnel remained at the discretion of theSecretary and the Director. The transfer was also made contingent on the Director, in coordinationwith the Secretary, to review all functions performed at the time of the transfer by DSS and makea "written determination regarding whether each such function is inherently governmental or isotherwise inappropriate for performance by contractor personnel." Such functions may not becontracted to private contractors unless and until the Director makes a written determination thatthese are not inherently governmental or otherwise not inappropriate for contractor performance. If so decided, the contracting is governed by the requirements of OMB Circular A-76. On November22, 2004, the DOD and OPM announced the transfer of the function, along with 1,850 staff, fromDSS to OPM. On February 15, 2005, OPM announced the selection of 12 managers for keyleadership positions in the personnel security investigations program. According to OPM,"Beginning February 20, the transfer [of DSS' personnel security investigations program to OPM]will establish OPM as the single source for federal national security background and suitabilityinvestigative services for more than 90 percent of the federal government." (96) The Intelligence Reform Act added several new requirements to the clearance process, whichaffected OPM. Designed to expedite, simplify, and standardize the process, the Intelligence ReformAct also called upon the President to designate a single executive branch agency to be responsiblefor security clearance investigations and directed the head of OPM to establish and operate anintegrated, secure database on security clearances. In response, the Office of Management andBudget, along with OPM, developed a plan to accomplish these goals, in part by setting prioritiesamong requests and emphasizing reciprocity among federal agencies in accepting previous PSIresults. (97) The plan alsoconsolidated responsibility for operating the investigative process system in OPM.

Summary: Title XI of the National Defense Authorization Act for FY2004, P.L. 108-136 , includesprovisions on a National Security Personnel System (NSPS) for the Department of Defense (DOD)and provisions on personnel management that are applicable government-wide. The law was enactedon November 24, 2003. Title XI, Subtitle A, of the law authorizes the Secretary of Defense and the Director of theOffice of Personnel Management (OPM) to establish a new human resources management (HRM)system for DOD's civilian employees and to jointly prescribe regulations for the system. TheSecretary and the Director are authorized to establish and adjust a labor relations system and arerequired to provide a written description of the proposed personnel system or any adjustments tosuch system to the labor organizations representing DOD employees. A collaboration proceduremust be followed by the Secretary, Director, and employee representatives. The Secretary isauthorized to engage in any collaboration activities and collective bargaining at an organizationallevel above the level of exclusive recognition. The Secretary also is authorized to establish anappeals process that provides fair treatment for DOD employees covered by the NSPS. Regulationsapplicable to employee misconduct or performance that fails to meet expectations may not beprescribed until after the Secretary consults with the Merit Systems Protections Board (MSPB) andmust afford due process protections and conform to public employment principles of merit andfitness at 5 U.S.C. Â§3201. A qualifying employee subject to some severe disciplinary actions maypetition the MSPB for review of the department's decision. The board could dismiss any petition thatdoes not raise a substantial question of fact or law and order corrective action only if the board findsthat the department's personnel decision did not meet some prescribed standards. An employeeadversely affected by a final decision or order of the board could obtain judicial review. Subtitle Cof Title XI includes amendments to the government-wide policies for the federal employee overtimepay cap, military leave, and Senior Executive Service pay, and creates a Human Capital PerformanceFund to reward the highest-performing and most valuable employees in an agency. DOD and OPM jointly published final regulations for the NSPS in the Federal Register onNovember 1, 2005. The regulations state that "issuances" to implement the regulations will beprepared by DOD. Draft versions of the "issuances" are currently under discussion by thedepartment and labor organizations. A coalition of federal unions, including the AmericanFederation of Government Employees, filed a lawsuit in federal district court challenging the finalregulations. On February 27, 2006, the court enjoined the regulations because they failed to ensurecollective bargaining rights, did not provide for independent third-party review of labor relationsdecisions, and failed to provide a fair process for appealing adverse actions. DOD said that it willappeal the decision. In early March 2006, DOD stated that the phased implementation of the newsystem and its classification, performance management, compensation, staffing, and workforceshaping components would begin in April 2006, with some 11,000 employees. This report will beupdated to reflect changes in the status of implementation.