The National Defense Authorization Act for Fiscal Year 2004 provided DOD with authority to establish (1) a pay and performance management system, (2) an appeals process, and (3) a labor relations system—which together comprise NSPS. The legislation permits significant flexibility for designing NSPS, allowing for a new framework of rules, regulations, and processes to govern how defense civilian employees are hired, compensated, promoted, and disciplined. The law granted DOD certain exemptions from laws governing federal civilian personnel management found in Title 5 of the U.S. Code. The Congress provided these flexibilities in response to DOD’s position that the inflexibility of federal personnel systems was one of the most important constraints to the department’s ability to attract, retain, reward, and develop a civilian workforce to meet the national security mission of the 21st century. The initial proposals for NSPS were developed by DOD and were based on a 2002 compilation of best practices generated by demonstration projects that experimented with different personnel management concepts. After these proposals were sent to OPM for review, OPM identified a broad range of legal, policy, and technical concerns, and also noted that the labor- management relations proposal was developed without any prior OPM involvement or union input. OPM also indicated that the initial proposals had been crafted with only token employee involvement, and it noted a high level of concern expressed by congressional oversight committees, stakeholders, and constituent groups. In addition to OPM, assistant secretaries for the military services’ manpower organizations also expressed concerns that NSPS as designed would not work. Subsequently, the Secretary of Defense established a 3-week reassessment of system requirements, process issues, personnel and communication strategies, and program schedules and milestones. The Overarching Integrated Product Team (OIPT), an advisory group co-chaired by the Principal Deputy Under Secretary of Defense for Personnel and Readiness and OPM, and including the military services’ assistant secretaries for manpower and reserve affairs, oversaw this reassessment. NSPS labor relations provisions will be implemented across the entire department once final NSPS regulations are issued and effective, and they will apply to all DOD employees currently covered by the labor relations provisions of Title 5, U.S. Code, Chapter 71. In contrast, NSPS regulations governing the new pay and performance management system and appeals process will be phased in and will not apply to some employees, as stipulated by law (e.g., intelligence personnel and employees in DOD’s laboratory demonstration organizations). The authorizing legislation stipulates that these latter regulations may not apply to organizations with more than 300,000 employees until the Secretary of Defense determines and certifies that the department has a performance management system in place that meets the statutory criteria established for NSPS. The first phase of implementation—Spiral One—will provide the basis for this certification prior to the deployment of Spiral Two. Spiral One includes approximately 300,000 general schedule defense civilian employees, who will be converted to the new system over a period of 18 months. DOD currently plans to initiate Spiral One, beginning in early fiscal year 2006. Spiral Two will include the remainder of DOD’s eligible workforce, including wage-grade employees. Spiral Three will apply to demonstration laboratory employees no earlier than October 1, 2008, and then only to the extent the Secretary of Defense determines that NSPS provides greater personnel management flexibilities to the laboratories than those currently implemented. According to DOD, almost two-thirds of its more than 700,000 civilian employees are represented by 43 labor unions, including over 1,500 separate bargaining units. Table 1 in appendix II lists current DOD labor unions, the estimated number of employees represented by each union, and which unions belong to the United Defense Workers Coalition. According to a DOD official, since 2000, defense civilian employee membership in DOD’s labor unions has remained about the same; however, the number of unions has dropped from about 60 unions to the current 43 unions, primarily the result of mergers and consolidation among the unions. In our prior work, we identified key practices and lessons learned from major public and private sector organizational mergers, acquisitions, and transformations. This work was undertaken to help federal agencies implement successful cultural transformations in response to governance challenges. While no two mergers or transformation efforts are exactly alike and the "best" approach depends on a variety of factors specific to each context, there was general agreement on a number of key practices, which are as follows: 1. Ensure top leadership drives the transformation. Leadership must set the direction, pace, and tone and provide a clear, consistent rationale that brings everyone together behind a single mission. 2. Focus on a key set of principles and priorities at the outset of the transformation. A clear set of principles and priorities serves as a framework to help the organization create a new culture and drive employee behaviors. 3. Set implementation goals and a timeline to build momentum and show progress from day one. Goals and a timeline are essential because the transformation could take years to complete. 4. Dedicate an implementation team to manage the transformation process. A strong and stable team is important to ensure that the transformation receives the needed attention to be sustained and successful. 5. Establish a communication strategy to create shared expectations and report related progress. The strategy must reach out to employees, customers, and stakeholders and engage them in a two-way exchange. 6. Involve employees to obtain their ideas and gain their ownership for the transformation. Employee involvement strengthens the process and allows them to share their experiences and shape policies. DOD’s current process to design NSPS is divided into four stages: (1) development of options for the personnel system, (2) assessment of the options and translation into recommended proposals, (3) issuance of proposed regulations, and (4) a statutory public comment period, a meet and confer period with employee representatives, and a congressional notification period. As discussed earlier, DOD’s initial process to design NSPS was unrealistic and inappropriate. However, after a 3-week reassessment, DOD adjusted its approach and attempted to create a more cautious and deliberate process that would involve all of the key stakeholders, including OPM. At this time, DOD adopted a management framework to guide the design of NSPS based on DOD’s acquisition management model and adopted an analytical framework to identify system requirements as well as a phased approach to implementing the new system, also based on the acquisition management model. Figure 1 presents the four stages in DOD’s current process in terms of the key organizational elements, inputs, and outputs. In the first stage, the NSPS PEO convened six multidisciplinary design teams—called working groups—that were functionally aligned to cover the following personnel program areas: (1) compensation (classification and pay banding); (2) performance management; (3) hiring, assignment, pay setting, and workforce shaping; (4) employee engagement; (5) adverse action and appeals; and (6) labor relations. The working groups were co- chaired by DOD and OPM, and they were largely staffed from the defense components. The working groups reviewed and analyzed data from alternative federal personnel systems and laboratory and acquisition demonstration projects, research materials from the Department of Homeland Security’s personnel system design process, and private industry practices. According to DOD, the working groups also received input and participation from DOD human resources practitioners, attorneys, financial management experts, and equal employment opportunity specialists. The working groups also reviewed input gathered from DOD employee and employee representatives. The PEO was responsible for conducting outreach to employees and employee representatives, in conjunction with NSPS program managers in the DOD components; their efforts included 106 focus groups, more than 50 town hall meetings worldwide, and 10 meetings with DOD employee representatives. The working groups provided a broad range of options for the OIPT in September and October 2004; they did not prioritize the design options. In the second stage of the design process, OIPT assessed the design options, and then submitted them to the NSPS Senior Executive in November 2004. The Senior Executiveappointed by the Secretary of Defense to design and implement NSPS on his behalf—reviewed and approved the design options and presented them as proposed enabling regulations to submit to the Secretary of Defense and the Director of OPM for a decision. Throughout this period, the OIPT, PEO, and working group members continued to participate, both in drafting and reviewing the proposed regulations. In the third stage, the Secretary of Defense and Director of OPM reviewed the proposals submitted by the NSPS Senior Executive. After finalizing the proposed regulations, the Secretary and Director jointly released them for public comment in the Federal Register on February 14, 2005. In the fourth stage, the NSPS proposed regulations were subjected to a statutory 30-day public comment period, after which DOD held a 30-day meet and confer period (which began on April 18, 2005), with employee representatives to discuss their views; the meetings were facilitated by the Federal Mediation and Conciliation Service. As allowed by statute, DOD extended the meet and confer process. Lastly, DOD is to engage in a 30-day congressional notification period. As called for in the authorizing legislation, the proposed regulations are subject to change based on consideration of formal comments received during the 30-day public comment period and the results of a 30-day meet and confer process with employee representatives. As provided for in the authorizing legislation, DOD can immediately implement those parts of the regulations upon which they have reached agreement with employee representatives. DOD can implement those parts of the proposed regulations not agreed to only after another 30 calendar days have elapsed after (1) notifying the Congress of the decision to proceed with implementation and (2) explaining why implementation is appropriate. DOD’s NSPS design process generally reflects four of six key practices we identified that have consistently been found at the center of successful transformations.