[Federal Register Volume 70, Number 29 (Monday, February 14, 2005)]
[Proposed Rules]
[Pages 7552-7603]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2582]



[[Page 7551]]

-----------------------------------------------------------------------

Part II





Department of Defense

Office of Personnel Management





-----------------------------------------------------------------------



5 CFR Chapter XCIX and Part 9901



National Security Personnel System; Proposed Rule

  Federal Register / Vol. 70, No. 29 / Monday, February 14, 2005 / 
Proposed Rules  

[[Page 7552]]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCIX and Part 9901

RIN 3206-AK76/0790-AH82


National Security Personnel System

AGENCY: Department of Defense; Office of Personnel Management.

ACTION: Proposed rule.

-----------------------------------------------------------------------

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

DATES: Comments must be received on or before March 16, 2005.

ADDRESSES: You may submit comments, identified by docket number NSPS-
2005-001 and/or Regulatory Information Number (RIN) 3206-AK76 or 0790-
AH82. Please arrange and identify your comments on the regulatory text 
by subpart and section number; if your comments relate to the 
supplementary information, please refer to the heading and page number. 
There are multiple methods for submitting comments. Please submit only 
one set of comments via one of the methods described.
    Preferred Method for Comments: The preferred method for submitting 
comments is through the NSPS Web site at:
     http://www.cpms.osd.mil/nsps.
    Alternative Methods: If you are unable to submit comments via the 
NSPS Web site, you may submit comments in one of the following ways.
     Federal Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail to: Program Executive Office, National Security 
Personnel System, Attn: Bradley B. Bunn, 1400 Key Boulevard, Suite B-
200, Arlington, VA 22209-5144.
     E-mail to: [email protected]. Please put the 
following in the subject line: ``Comments on Proposed NSPS 
Regulations--RIN 3206-AK76/0790-AH82.''
     Hand delivery/courier to: Program Executive Office, 
National Security Personnel System, Attn: Bradley B. Bunn, 1400 Key 
Boulevard, Suite B-200, Arlington, VA 22209-5144. Delivery must be made 
between 8 a.m. and 5 p.m., Monday through Friday, except Federal 
holidays.
    Instructions: All submissions must include the agency name and 
docket number or RIN for this rulemaking. Mailed or hand-delivered 
comments must be in paper form. No mailed or hand-delivered comments in 
electronic form (CDs, floppy disk, or other media) will be accepted. 
The official Web site (http://www.cpms.osd.mil/nsps) will contain any 
public comments received, without change, as DoD and OPM receive them, 
unless the comment contains security-sensitive material, confidential 
business information, or other information whose public disclosure is 
restricted by statute. If such material is received, we will provide a 
reference to that material in the version of the comment that is placed 
in the docket. The system is an ``anonymous access'' system, which 
means that DoD and OPM will not know your identity, e-mail address, or 
other contact information unless you provide it in the body of your 
comment. Unless a comment is submitted anonymously, the names of all 
commenters will be public information.
    Please ensure your comments are submitted within the specified open 
comment period. Comments received after the close of the comment period 
will be marked ``late,'' and DoD and OPM are not required to consider 
them in formulating a final decision.
    Before acting on this proposal, DoD and OPM will consider all 
comments we receive on or before the closing date for comments. 
Comments filed late will be considered only if it is possible to do so 
without incurring expense or delay. Changes to this proposal may be 
made in light of the comments we receive.

FOR FURTHER INFORMATION CONTACT: For DoD, Bradley B. Bunn, (703) 696-
4664; for OPM, Ronald P. Sanders, (202) 606-6500.

SUPPLEMENTARY INFORMATION: The Department of Defense (DoD or ``the 
Department'') and the Office of Personnel Management (OPM) are 
proposing to establish the National Security Personnel System (NSPS), a 
human resources (HR) management system for DoD under 5 U.S.C. 9902, as 
enacted by section 1101 of the National Defense Authorization Act (Pub. 
L. 108-136, November 24, 2003). The following information is intended 
to provide interested parties with relevant background material about 
(1) the establishment of the National Security Personnel System, (2) 
the process used to design the NSPS, (3) a description of the proposed 
NSPS regulations, and (4) an analysis of the costs and benefits of 
those proposed regulations.

The Case for Action

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

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

[[Page 7553]]

agility the imperative--civilians must be an integrated, flexible, and 
responsive part of the team.
    At best, the current personnel system is based on 20th century 
assumptions about the nature of public service and cannot adequately 
address the 21st century national security environment. Although the 
current Federal personnel management system is based on important core 
principles, those principles are operationalized in an inflexible, one-
size-fits-all system of defining work, hiring staff, managing people, 
assessing and rewarding performance, and advancing personnel. These 
inherent weaknesses make support of DoD's mission complex, costly, and 
ultimately, risky. Currently, pay and the movement of personnel are 
pegged to outdated, narrowly defined work definitions, hiring processes 
are cumbersome, high performers and low performers are paid alike, and 
the labor system encourages a dispute-oriented, adversarial 
relationship between management and labor. These systemic 
inefficiencies detract from the potential effectiveness of the total 
force. A more flexible, mission-driven system of human resources 
management that retains those core principles will provide a more 
cohesive total force. The Department's 20 years of experience with 
transformational personnel demonstration projects, covering nearly 
30,000 DoD employees, has shown that fundamental change in personnel 
management has positive results on individual career growth and 
opportunities, workforce responsiveness, and innovation; all these 
things multiply mission effectiveness.
    The immense challenges facing DoD today require a civilian 
workforce transformation: civilians are being asked to assume new and 
different responsibilities, take more risk, and be more innovative, 
agile, and accountable than ever before. It is critical that DoD 
supports the entire civilian workforce with modern systems; 
particularly a human resources management system that supports and 
protects their critical role in DoD's total force effectiveness. Public 
Law 108-136 provides the Department of Defense with the authority to 
meet this transformation challenge through development and deployment 
of the NSPS.
    More specifically, the law provides the Department and OPM--in 
collaboration with employee representatives--authority to establish a 
flexible and contemporary system of civilian human resources management 
for DoD civilians. The attacks of September 11 made it clear that 
flexibility is not a policy preference. It is nothing less than an 
absolute requirement and it must become the foundation of DoD civilian 
human resources management.
    NSPS is designed to promote a performance culture in which the 
performance and contributions of the DoD civilian workforce are more 
fully recognized and rewarded. The system will offer the civilian 
workforce a contemporary pay banding construct, which will include 
performance-based pay. As the Department moves away from the General 
Schedule system, it will become more competitive in setting salaries 
and it will be able to adjust salaries based on various factors, 
including labor market conditions, performance, and changes in duties. 
The HR management system will be the foundation for a leaner, more 
flexible support structure and will help attract skilled, talented, and 
motivated people, while also retaining and improving the skills of the 
existing workforce.
    Despite the professionalism and dedication of DoD civilian 
employees, the limitations imposed by the current personnel system 
often prevent managers from using civilian employees effectively. The 
Department sometimes uses military personnel or contractors when 
civilian employees could have and should have been the right answer. 
The current system limits opportunities for civilians at a time when 
the role of DoD's civilian workforce is expanding to include more 
significant participation in total force effectiveness. NSPS will 
generate more opportunities for DoD civilians by easing the 
administrative burden routinely required by the current system and 
providing an incentive for managers to turn to them first when certain 
vital tasks need doing. This will free uniformed men and women to focus 
on matters unique to the military.
    The law requires the Department to establish a contemporary and 
flexible system of human resources management. DoD and OPM are crafting 
NSPS through a collaborative process involving management, employees, 
and employee representatives, and are inviting comments from a broader 
community of other interested parties. DoD leadership will ensure that 
supervisors and employees understand the new system and can function 
effectively within it. The system will retain the core values of the 
civil service and allow employees to be paid and rewarded based on 
performance, innovation, and results. In addition, the system will 
provide employees with greater opportunities for career growth and 
mobility within the Department.

Relationship to the Department of Homeland Security

    In developing the National Security Personnel System, the 
Department of Defense has benefited greatly from the efforts of the 
Department of Homeland Security (DHS). After more than 2 years of work, 
DHS and OPM have recently issued final regulations establishing 
Homeland Security's new human resources (HR) system, and the Secretary 
and the Director were extensively informed by the DHS experience, in 
terms of both process and results, in designing, developing, and 
drafting these proposed regulations. In this regard, the DHS 
regulations were analyzed by staff-level working groups, as well as 
senior leadership, and where it made sense--that is, where it was 
consistent with and supported DoD's national security mission, 
operations, and statutory authorities--we adopted many of the concepts 
and approaches, and even much of the specific language set forth in the 
DHS regulations. For example, both regulations provide flexibilities in 
pay, performance management, labor relations, adverse actions, and 
appeals, while preserving the important core merit principles required 
by law. Similarly, both regulations provide essential management 
flexibilities to respond to mission and operational exigencies. At the 
same time, where there are differences between DHS and DoD--in terms of 
scope, mission, organizational culture, and human capital challenges, 
as well as the statutes that authorize the respective HR systems--DoD 
and OPM have broken new ground, and these proposed regulations are 
intended to stand on their own in that regard. Accordingly, this 
proposed regulation should not be viewed (or judged) in comparison to 
DHS, but rather as an independent effort, informed by the DHS 
experience, yet focused on DoD's mission and requirements.

Authority To Establish a New HR System

    The authority for NSPS is 5 U.S.C. 9902(a) through (h) and (k) 
through (m), which provide authority to establish a new human resources 
management system, appeals system, and labor relations system for the 
Department of Defense. NSPS allows the Department of Defense to 
establish a more flexible civilian personnel management system that is 
consistent with its overall human capital management strategy. NSPS 
will make the Department a more competitive and progressive employer at 
a time when the country's national security demands a highly responsive

[[Page 7554]]

civilian workforce. The NSPS is a transformation lever to enhance the 
Department's ability to execute its national security mission.
    Subsection (a) of section 9902 provides that the Secretary of 
Defense may establish a human resources management system, known as the 
``National Security Personnel System'' (NSPS), in regulations jointly 
prescribed with the Director of OPM. The system established under 
subsection (a) may differ from the traditional civil service system 
established under title 5, U.S. Code, in certain respects. It is also 
subject to certain requirements and limitations that are specified in 
subsections (b) through (h) and (l) of section 9902. For example, NSPS 
must be flexible, contemporary, and consistent with statutory merit 
system principles and prohibitions against prohibited personnel 
practices (in 5 U.S.C. 2301 and 2302, respectively). The system must 
ensure that employees may organize and bargain collectively, subject to 
the provisions of chapter 99 of title 5 and other statutory 
requirements. The system must include a performance management system 
that incorporates certain elements listed in the law. Also, in 
establishing the system, only certain provisions of title 5 may be 
waived or modified by DoD and OPM:
     Chapter 31, 33, and 35 (dealing with staffing, employment, 
and workforce shaping, as authorized by 5 U.S.C. 9902(k));
     Chapter 43 (dealing with performance appraisal systems);
     Chapter 51 (dealing with General Schedule job 
classification);
     Chapter 53 (dealing with pay for General Schedule 
employees, pay and job grading for Federal Wage System employees, and 
pay for certain other employees);
     Subchapter V of chapter 55 (dealing with premium pay), 
except section 5545b (dealing with firefighter pay);
     Chapter 75 (dealing with adverse actions); and
     Chapter 77 (dealing with appeal of adverse actions and 
certain other actions).
    In planning, developing, implementing, and adjusting NSPS 
established under subsection (a), DoD and OPM must use procedures that 
provide employee representatives with an opportunity to participate and 
collaborate in the process. This collaboration requirement is set forth 
in subsection (f) and is further described later in this Supplementary 
Information. The law provides that the collaboration procedures in 
subsection (f) are the ``exclusive procedures'' for the participation 
of employee representatives, provided in lieu of any collective 
bargaining requirements.
    Subsection (h) of section 9902 provides authority to establish an 
appeals process for DoD employees covered by NSPS. This process must 
ensure that all affected DoD employees are afforded the protection of 
due process. Subsection (h) authorizes new standards and procedures for 
personnel actions based on either misconduct or performance that fails 
to meet expectations. The procedures may include a revised process for 
hearing appeals of adverse actions. Finally, subsection (h) provides 
that an employee against whom an adverse action is taken may seek 
review of the record of the case by the Merit Systems Protection Board. 
The Board may dismiss cases that do not raise substantial questions of 
fact or law. The Board may only order corrective action if it 
determines that the DoD decision was--
     Arbitrary, capricious, an abuse of discretion, or 
otherwise not in accordance with law;
     Obtained without procedures required by law, rule or 
regulation having been followed; or
     Unsupported by substantial evidence.
    Subsection (k) of section 9902 provides that, in establishing and 
implementing the NSPS under subsection (a), DoD and OPM are not limited 
by any provision of title 5 or implementing regulations relating to--
     The methods of establishing qualification requirements 
for, recruitment for, and appointments to positions;
     The methods of assigning, reassigning, detailing, 
transferring, or promoting employees; and
     The methods of reducing overall agency staff and grade 
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 in decisions to 
realign or reorganize the Department's workforce.
    Thus, subsection (k) authorizes the modification of chapters 31, 
33, and 35 of title 5, U.S. Code (dealing with staffing, employment, 
and workforce shaping). However, in implementing subsection (k), DoD 
must comply with veterans' preference requirements in 5 U.S.C. 
2302(b)(11).
    Subsection (m) provides a separate authority (independent of 
subsection (a) and notwithstanding subsection (d)) for the Secretary of 
Defense and the Director of OPM to establish a DoD labor relations 
system Subsection (m) establishes collaboration requirements to give 
employee representatives the opportunity to participate in developing, 
implementing, and adjusting the labor relations system. Subsection (m) 
provides authority to modify chapter 71. By law, the subsection (m) 
authority may not be used to expand the scope of bargaining. Also, by 
law, the DoD labor relations system supersedes all collective 
bargaining agreements for covered DoD bargaining units, except as 
otherwise determined by the Secretary. Finally, the law provides that 
the DoD labor relations system established under subsection (m) will 
expire 6 years after the date of enactment (i.e., November 24, 2009), 
unless extended by statute. If subsection (m) expires, the provisions 
of chapter 71 of title 5, U.S. Code, would again apply.
    Subsections (i) and (j) in section 9902 establish separate 
authorities that are not held jointly with OPM and are not addressed in 
these proposed regulations.

Process

Leadership

    In April 2004, senior DoD leadership approved the collaborative 
process that the Department is using to design and implement NSPS. This 
process was crafted over a period of about 3 weeks by a group of 25 to 
30 senior experts representing various elements within DoD, OPM, and 
the Office of Management and Budget. The senior leaders used the 
Defense Acquisition Management model as a way to establish the 
requirements for the design and implementation of NSPS. The senior 
leaders recommended Guiding Principles and Key Performance Parameters 
(KPPs), which defined the minimum requirements for NSPS. They also 
recommended establishing a Senior Executive and Program Executive 
Office (PEO), modeled after the Department's acquisition process. 
Subsequently, the Honorable Gordon England, was appointed by the 
Secretary of Defense as the NSPS Senior Executive, in addition to his 
duties as Secretary of the Navy, to design, develop, establish, 
implement, and adjust the NSPS on his behalf. As the NSPS Senior 
Executive, Secretary England established the NSPS PEO as the central 
DoD policy and program office to conduct the design, planning and 
development, deployment, assessment, and full implementation of NSPS. 
The PEO provides direction to and oversight of the Component program 
managers who

[[Page 7555]]

are dual-hatted under their parent Component and the PEO.
    At OPM, the Director designated the Senior Advisor on the 
Department of Defense to lead agency activities in the joint 
development of the NSPS. The Director received frequent and regular 
briefings on the progress of NSPS and on the status of key policy 
options across the spectrum of authorities granted in the NSPS statute. 
Subsequently, in periodic reviews the Director exercised policy 
options, thereby providing guidance to the OPM team. Policy and 
regulatory development for NSPS are specifically vested in the Division 
for Strategic Human Resources Policy, and OPM's work teams and 
leadership cadres were drawn largely from this Division. In addition, a 
Senior Level Review Group reviewed NSPS decision documents to ensure 
consistency with the Director's priorities.
    An integrated executive management team composed of senior DoD and 
OPM leaders provides overall policy and strategic advice to the PEO and 
serves as staff to the Senior Executive. The PEO meets with and 
consults with this team, the Overarching Integrated Product Team 
(OIPT), 8 to 10 times a month. The Senior Executive convenes meetings 
with the PEO and OIPT at least twice a month to monitor and direct the 
process.

Guiding Principles and Key Performance Parameters

    In setting up the process for the design of the system, senior 
leadership adopted a set of Guiding Principles as a compass to direct 
efforts throughout all phases of NSPS development. They translate and 
communicate the broad requirements and priorities outlined in the 
legislation into concise, understandable requirements that underscore 
the Department's purpose and intent in creating NSPS. The Guiding 
Principles are:
     Put mission first--support National Security goals and 
strategic objectives;
     Respect the individual--protect rights guaranteed by law;
     Value talent, performance, leadership and commitment to 
public service;
     Be flexible, understandable, credible, responsive, and 
executable;
     Ensure accountability at all levels;
     Balance HR interoperability with unique mission 
requirements; and
     Be competitive and cost effective.
    In addition, senior leadership approved a set of Key Performance 
Parameters (KPPs), which define the minimum requirements and/or 
attributes of the system. Those KPPs are summarized below:
     High Performing: Employees/supervisors are compensated/
retained based on performance/contribution to mission;
     Agile and Responsive: Workforce can be easily sized, 
shaped, and deployed to meet changing mission requirements;
     Credible and Trusted: System assures openness, clarity, 
accountability and merit principles;
     Fiscally Sound: Aggregate increases in civilian payroll, 
at the appropriations level, will conform to OMB fiscal guidance, and 
managers will have flexibility to manage to budget;
     Supporting Infrastructure: Information technology support 
and training and change management plans are available and funded; and
     Schedule: NSPS will be operational and demonstrate success 
prior to November 2009.

Working Groups

    In July 2004, the PEO established Working Groups to begin the NSPS 
design process. Over 120 employees representing the Military 
Departments (Army, Navy, Air Force), the other DoD Components, and OPM 
began the process of identifying and developing options and 
alternatives for consideration in the design of NSPS. The Working Group 
members included representatives from the DoD human resources 
community, DoD military and civilian line managers, representatives 
from OPM, the legal community, and subject matter experts in equal 
employment opportunity, information technology, and financial 
management. In addition, other subject matter experts participated.
    The Working Groups were functionally aligned to cover the following 
human resources 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. Each group was co-chaired 
by an OPM and DoD subject matter expert. The Working Groups' review and 
analysis included a compilation of pertinent laws, rules, regulations, 
and other related documents that were forwarded to them for advance 
preparation. Working Groups were also provided with available 
information and input from NSPS focus groups and town hall sessions 
held at strategic locations worldwide, union consultation meetings, 
data review and analysis from alternative personnel systems and 
laboratory and acquisition demonstration projects, the NSPS statute, 
Guiding Principles, as well as a review of earlier studies and working 
groups. In addition, subject matter experts briefed the Working Groups 
on a variety of topics, such as pay-for-performance systems, 
alternative personnel systems, pay pool management, and market 
sensitive compensation systems.

Option Development Process

    In developing options for the NSPS, the Working Groups benefited 
from the Government's experience under demonstration project 
authorities and alternative personnel systems, the DoD ``Best 
Practices'' initiative (68 FR 16120, April 2, 2003), and the 
compilation of research materials from the Department of Homeland 
Security HR Systems Design process. The Working Groups also received 
and considered input from employees and their representatives. The 
resulting product was a set of options that covered a broad range of 
variations on the six areas of focus. Each option was evaluated against 
the Guiding Principles and Key Performance Parameters (KPPs).
    To ensure that the options reflected the wide range of views and 
concerns expressed by various entities, the NSPS Working Groups did not 
attempt to reach consensus regarding the merits of the options. 
Consequently, none of the options necessarily represented a consensus 
view of the Working Groups. Some of the options integrate approaches to 
developing new HR systems across two or more of the six subject matter 
areas under consideration. This is especially true of the compensation 
architecture and pay-for-performance options, which were intended to 
illustrate how various classification, compensation, and performance 
system elements might work in combination. The performance and 
compensation/classification options also tended to cluster around 
several distinct themes, such as ``function/occupation-focused,'' 
``performance-focused,'' and ``contribution/ mission-focused.'' The 
initial draft options were reviewed by the PEO and Senior Advisory 
Group (SAG) to capture feedback prior to finalizing them for submission 
to the Overarching Integrated Product Team (OIPT) for review.

Outreach

    A comprehensive outreach and communications strategy is essential 
for designing and implementing a new HR system. Outreach facilitates 
employee awareness and understanding of NSPS;

[[Page 7556]]

it's the primary strategy for sharing the NSPS vision. In April 2004, 
the PEO developed and implemented a communications strategy. The 
objectives of DoD's communications strategy are to (1) demonstrate the 
rationale for and benefits of NSPS; (2) demonstrate openness and 
transparency in the design and process of converting to NSPS; (3) 
express DoD's commitment to ensuring NSPS is applied fairly and 
equitably; and (4) address potential criticism of NSPS.
    The PEO identified channels for disseminating relevant, timely, and 
consistent information, including a wide variety of print and 
electronic media, e-mail, town hall meetings, focus groups, speeches, 
and briefings, and developed an action plan for communicating with each 
stakeholder. The PEO also developed key messages to include in 
stakeholder communications to reinforce the Guiding Principles of the 
NSPS HR systems design process. A website was developed and launched to 
serve as a primary, two-way communications tool for the workforce, 
other stakeholders, and the general public. PEO updates the website 
regularly with new information concerning the design, development, and 
implementation of NSPS. Further, the website includes the capability 
for visitors to submit questions and comments. To date, PEO has 
responded to thousands of questions and comments.

Outreach to Employee Representatives

    Beginning in the spring of 2004 and continuing over the course of 
several months, the PEO sponsored a series of meetings with union 
leadership to discuss design elements of NSPS. Officials from DoD and 
OPM met throughout the summer and fall with union officials 
representing many of the DoD civilians who are bargaining unit 
employees. These sessions provided the opportunity to discuss the 
design elements, options, and proposals under consideration for NSPS 
and solicit union feedback.
    To date, DoD and OPM have conducted 10 joint meetings with 
officials of the 41 unions that represent DoD employees, including the 
9 unions that currently have national consultation rights. These union 
officials represent some 1,500 separate bargaining units covering about 
445,000 employees. These meetings involved as many as 80 union leaders 
from the national and local level at any one time, and addressed a 
variety of topics, including: the reasons change is needed and the 
Department's interests; the results of Department-wide focus group 
sessions held with a broad cross-section of DoD employees; the proposed 
NSPS implementation schedule; employee communications; and proposed 
design options in the areas of labor relations and collective 
bargaining, adverse actions and appeals, and pay and performance 
management.

Outreach to Employees

    In keeping with DoD's commitment to provide employees and managers 
an opportunity to participate in the development of NSPS, the PEO 
sponsored a number of Focus Group sessions and town hall meetings at 
various sites across DoD. Focus Group sessions began in mid-July 2004, 
and continued for approximately 3 weeks. A total of 106 focus groups 
were held throughout DoD, including overseas locations. Separate focus 
groups were held for employees, civilian and military supervisors, and 
managers and practitioners from HR, legal and EEO communities. 
Bargaining unit employees and union leaders were invited to 
participate. Each focus group was conducted by a trained facilitator. 
For the major system design elements, focus group participants were 
asked what they thought worked well in the current HR systems and what 
they thought should be changed. Over 10,000 comments, ideas and 
suggestions received during the Focus Group sessions were summarized 
and provided to NSPS Working Groups for use in developing options for 
the labor relations, appeals, adverse actions, and human resources 
design elements of NSPS.
    In addition, town hall meetings were held in DoD facilities around 
the world during the summer of 2004, providing an opportunity to 
communicate with the workforce, provide the status of the design and 
development of NSPS, and solicit thoughts and ideas. The NSPS Senior 
Executive, Secretary Gordon England, conducted the first town hall 
meeting at the Pentagon on July 7, 2004. The format for town hall 
meetings included an introductory presentation by a senior leader 
followed by a question and answer session where anyone in the audience 
was free to ask a question or make a comment. Some of the town hall 
meetings were broadcast live, as well as videotaped and rebroadcast on 
military television channels and Web sites to facilitate the widest 
possible dissemination.
    The focus group sessions and town hall meetings, as well as the 
Working Groups and union consultation sessions, underscore the 
Department's commitment to ensuring an open, transparent design 
process. The sessions assured that civilian employees, managers, 
supervisors, union leadership, and other key stakeholders were involved 
in the design and implementation of NSPS and had ample opportunity to 
provide input.

Outreach to Other Stakeholders

    In addition to reaching out to DoD employees and labor 
organizations, DoD and OPM met with other groups who were thought to be 
interested in the design of a new HR system for DoD. DoD and OPM 
invited selected stakeholders to participate in briefings held at OPM 
in August and September 2004.
    The first stakeholder briefing was for public interest groups, such 
as the National Association of Public Administrators (NAPA), Coalition 
for Effective Change, and Partnership for Public Service. The second 
stakeholder briefing was for veterans' service organizations. A third 
stakeholder briefing was conducted with non-union employee advocacy 
groups. Attendees at all three briefings received background 
information about NSPS, an update on the PEO work plan, an overview of 
the NSPS Guiding Principles, and updates on the activities of the team, 
including town hall meetings and focus groups. Attendees were afforded 
an opportunity to participate in a question-and-answer session 
following these presentations.
    Both before and after these three stakeholder briefings, DoD and 
OPM responded to dozens of requests for special briefings. DoD and OPM 
also met with the Government Accountability Office, Office of 
Management and Budget, and Department of Homeland Security to keep them 
up to date on the team's activities.

General Provisions--Subpart A

    Subpart A of the proposed regulations provides the purpose and the 
establishment of the general provisions governing coverage under the 
new DoD HR system, and defines terms that are used throughout the new 
part 9901. Part 9901 applies to employees in DoD organizational and 
functional units identified under the regulations as eligible for 
coverage and who are approved for coverage, as of a specified date, by 
the Secretary of Defense. This enables DoD to phase in coverage of 
particular groups of employees or Components of the Department. Subpart 
A also allows DoD to prescribe internal Departmental issuances that 
further define the design characteristics of the new HR system. (See 
the ``Next Steps'' section at the end of this SUPPLEMENTARY 
INFORMATION.) Finally,

[[Page 7557]]

subpart A clarifies the relationship of the regulations in part 9901 to 
other provisions of law and regulations outside those that are being 
waived with respect to DoD.

Purpose

    The purpose of the proposed regulations is to establish a system 
designed to meet the statutory requirements, the NSPS KPPs and Guiding 
Principles.

Eligibility and Coverage

    All DoD employees currently covered by the classification and pay 
systems established under chapter 51 or 53 of title 5, U.S. Code, are 
eligible for coverage under one or more of subparts B through I of this 
part, except to the extent specifically prohibited by law (e.g., 
Executive Schedule officials, who, by law, remain covered by subchapter 
II of chapter 53). DoD will transition to the NSPS human resources 
system beginning with its General Schedule (GS) employees (and 
equivalent). Other categories of employees, including those covered by 
other systems outside of title 5, will be phased in as appropriate. SES 
members and certain other similar types of DoD employees will be 
eligible for coverage under the new DoD pay system. However, the 
proposed regulations provide that any new pay system covering SES 
members must be consistent with the performance-based features of the 
new Governmentwide SES pay-for-performance system authorized by section 
1125 of the National Defense Authorization Act (Pub. L. 108-136, 
November 24, 2003). If DoD wishes to establish an SES pay system that 
varies substantially from the new Governmentwide SES pay-for-
performance system, DoD and OPM will issue joint authorizing 
regulations consistent with all of the requirements of the National 
Security Personnel System, as set forth in 5 U.S.C. 9902. In addition, 
DoD and OPM will involve SES members and other interested parties in 
the design and implementation of any new pay system for SES members 
employed by DoD.

Scope of Authority

    Subject to the requirements and limitations in 5 U.S.C. 9902, the 
provisions in the following chapters of title 5, U.S. Code, and any 
related regulations, may be waived or modified:
     The rules governing staffing, employment, and workforce 
shaping (as permitted by 5 U.S.C. 9902(k)) established under chapters 
31, 33, and 35;
     The rules governing performance appraisal systems 
established under chapter 43;
     The General Schedule classification system established 
under chapter 51;
     The pay systems for General Schedule employees, pay and 
job grading for Federal Wage System employees, and pay for certain 
other employees, as set forth in chapter 53;
     The premium pay system for employees, as set forth in 
chapter 55, subsection V, except section 5545(b) relating to pay for 
firefighters;
     The labor relations system (as authorized by 5 U.S.C. 
9902(m)) established under chapter 71;
     The rules governing adverse actions and certain other 
actions taken under chapter 75; and
     The rules governing the appeal of adverse actions and 
certain other actions under chapter 77.

Coordination Between DoD and OPM

    In implementing the intent of Congress that the Secretary and the 
Director jointly prescribe regulations for NSPS, DoD and OPM recognize 
that both agencies have significant legitimate interests that must be 
taken into account. DoD requires an agile and responsive civilian 
personnel system to support its Total Force and execute its national 
security mission. At the same time, OPM is responsible for providing 
guidance and assistance to DoD in developing a new human resources 
management system while simultaneously protecting Governmentwide 
institutional interests regarding the civil service system.
    Section 9901.105 of the proposed regulations provides that the 
Secretary will advise and/or coordinate with OPM in advance, as 
applicable, regarding the proposed promulgation of certain DoD 
implementing issuances and certain other actions related to the ongoing 
operation of the NSPS where such actions could have a significant 
impact on other Federal agencies and the Federal civil service as a 
whole. The Secretary and the Director fully expect their staffs to work 
closely together on the matters specified in this section, before such 
matters are submitted for official OPM coordination and DoD decision, 
so as to maximize the opportunity for consensus and agreement before an 
issue is so submitted.
    When a matter requiring OPM coordination pursuant to the 
coordination requirements established in these regulations, is to be 
submitted to the Secretary for decision, the Director will be provided 
an opportunity, as part of the Department's normal coordination 
process, to review and comment on the recommendations and officially 
concur or nonconcur with all or part of them. The Secretary will take 
the Director's comments and concurrence/nonconcurrence into account, 
advise the Director of his or her determination, and provide the 
Director with reasonable advance notice of its effective date. 
Thereafter, the Secretary and the Director may take such action(s) as 
they deem appropriate, consistent with their respective statutory 
authorities and responsibilities.

Continuing Collaboration

    The NSPS law requires that the implementation of a new HR system 
for DoD will be carried out with the participation of, and in 
collaboration with, employee representatives. The law spells out the 
specific process for involvement of employee representatives in the 
establishment of the system, known generally as the ``30/30/30'' 
process. These proposed regulations will be subject to that statutory 
process, which includes a comment period of 30 days, a minimum of 30 
days for DoD and OPM to ``meet and confer'' with employee 
representatives on their recommendations, and a final 30 days for 
congressional notification prior to implementation.
    The NSPS law also provides that the Secretary and the Director 
develop a process to involve employee representatives in the further 
planning, development, and/or adjustment of the system. To that end, 
Sec.  9901.106 establishes a process by which employee representatives 
will be provided an opportunity to review, comment, and participate in 
discussions regarding proposals for further adjustments to the system, 
including DoD implementing issuances. This process is called 
``continuing collaboration'' and is a separate and distinct process 
from the provisions found in subpart I, Labor-Management Relations. 
While the proposed NSPS regulations establish the overall NSPS human 
resources management system, there are several areas that will require 
DoD to promulgate implementing directives, instructions, manuals, and 
other issuances that provide the detailed procedures needed to 
implement the system. For example, the proposed regulations provide for 
an administrative process in which employees may seek reconsideration 
of their performance ratings; this is to ensure transparency in the 
performance management system. The specific procedures for that 
reconsideration process are not spelled out in these

[[Page 7558]]

proposed regulations; rather, they will be established in internal DoD 
issuances. In order to ensure that the views and concerns of employee 
representatives are considered in the development of those procedures, 
DoD will engage in the ``continuing collaboration'' process.
    Under continuing collaboration, employee representatives (for those 
employees affected by the proposed issuance) will be provided a draft 
proposal and given a timeframe to review and submit written comments on 
the proposal, and they will be afforded the opportunity to discuss 
their views and concerns with DoD officials prior to finalization of 
the issuance. At the Secretary's discretion, this collaboration may 
also be initiated prior to the drafting of proposed issuances (e.g., at 
the conceptual stage of the process). The proposed regulations 
guarantee that any written comments submitted within the timeframes 
will become part of the official record and be considered before final 
decisions are made. While this process does not affect the right of the 
Secretary to make the final determination as to the content of 
implementing issuances, it offers the opportunity for employee 
representatives to participate meaningfully in the process and 
influence the further development and refinement of NSPS.

Relationship to Other Provisions of the Law

    Paragraph (a)(2) of Sec.  9901.107 establishes a rule of 
construction requiring all provisions of this part be interpreted in a 
way that recognizes the critical national security mission of the 
Department. Each provision must be construed to promote the swift, 
flexible, and effective day-to-day accomplishment of that mission, as 
defined by the Secretary. DoD's and OPM's interpretation of these 
regulations must be accorded great deference.
    Paragraph (b) of Sec.  9901.107 describes the relationship between 
the proposed part 9901 and laws that are not waivable or modifiable 
under the NSPS law. For the purpose of applying other provisions of law 
or Governmentwide regulations that reference provisions under the 
waivable or modifiable chapters (i.e., chapters 31, 33, 35, 43, 51, 53, 
55 (subchapter V only), 71, 75, and 77 of title 5, U.S. Code), the 
referenced provisions are not waived but are modified consistent with 
the corresponding regulations in part 9901, except as otherwise 
provided in that part or in DoD implementing issuances. For example, 
physicians' comparability allowances under 5 U.S.C. 5948 are limited to 
physicians in certain listed pay systems, including the General 
Schedule. To ensure that DoD physicians continue to be eligible for 
physicians' comparability allowances when they convert from the General 
Schedule to the NSPS pay system, they will be deemed to be covered by 
the General Schedule for the purpose of applying section 5948. In 
addition, in applying the back pay law in 5 U.S.C. 5596 to DoD 
employees covered by subpart H of these proposed regulations (dealing 
with appeals), the reference in section 5596(b)(1)(A)(ii) to 5 U.S.C. 
7701(g) (dealing with attorney fees) is considered to be a reference to 
a modified section 7701(g) that is consistent with Sec.  9901.807(h).

Classification--Subpart B

    Subpart B provides DoD with the authority to replace the current GS 
and FWS classification and qualifications systems and other current 
classification systems with a new method of evaluating and classifying 
jobs by grouping them into occupational categories and levels of work 
for pay and other related purposes. Under this new system, DoD (in 
coordination with OPM) will have the authority to establish 
qualifications for positions and to assign occupations and positions to 
broad occupational career groups and pay bands (or levels).
    DoD (in coordination with OPM) will establish broad occupational 
career groups by grouping occupations and positions that are similar in 
types of work, mission, developmental/career paths, and/or 
competencies. The occupational career groups will serve as the basic 
framework for the NSPS classification and pay system. Within career 
groups, DoD may establish pay schedules that apply to subgroupings of 
related occupations. Within each pay schedule, DoD (in coordination 
with OPM) will establish broad salary ranges, commonly referred to as 
pay bands. The pay bands within a pay schedule represent progressively 
higher levels of work with correspondingly higher pay ranges.
    DoD may elect to phase in the coverage of specific categories of 
employees or occupations under the new classification and pay system 
established under these proposed regulations. DoD may use OPM-approved 
occupational series and titles to identify and assign positions to a 
particular career group and pay schedule. Pay schedules typically will 
include most or all of the following levels of work:
     Entry/developmental work that involves a combination of 
formal training and/or on-the-job experience designed to provide the 
employee with the competencies needed to perform successfully at the 
full performance level.
     Work that involves nonsupervisory duties and 
responsibilities at the full performance level of the occupation.
     Nonsupervisory expert work that involves a high level of 
specialized knowledge or technical expertise clearly beyond the 
requirements for work at the full performance level upon which the 
employing organization relies for the accomplishment of critical 
mission goals and objectives.
     Work that involves the supervision of employees at the 
full performance or expert level.
     Managerial work whose primary purpose is to direct key 
DoD/Component scientific, medical, legal, administrative, or other 
programs.
    Career groups, pay schedules, and pay bands provide clearly defined 
career paths for occupations. Table 1 illustrates the career group 
structure concept.

[[Page 7559]]

[GRAPHIC] [TIFF OMITTED] TP14FE05.000

    The new classification system for DoD will result in a streamlined 
method of classifying positions that no longer relies on lengthy 
classification standards and position descriptions. The new system does 
not require artificial distinctions between closely related levels of 
work, as currently required under the GS and Federal Wage System (FWS) 
classification systems. This more fully supports the merit system 
principle that ``equal pay should be provided for work of equal value, 
with appropriate consideration of both national and local rates paid by 
employers in the private sector, and appropriate incentives and 
recognition * * * for excellence in performance.'' Employees will be 
permitted to request reconsideration of the classification (career 
group, pay schedule, occupational series, or pay band) of their 
official positions of record at any time with DoD and/or OPM, as they 
can today under the GS system. The system described here, together with 
the new pay system described below, will provide DoD with greater 
flexibility to adapt the Department's job and pay structure to meet 
present and future mission requirements.

Pay and Pay Administration--Subpart C

    This subpart contains proposed regulations establishing pay 
structures and pay administration rules for covered DoD employees to 
replace the pay structures and pay administration rules established 
under 5 U.S.C. chapter 53 and 5 U.S.C. chapter 55, subchapter V. This 
new system links pay to employees' performance ratings and is designed 
to promote a high-performance culture within DoD.

National Security Compensation Comparability

    In accordance with the NSPS law, to the maximum extent practicable, 
for fiscal years 2004 through 2008, the aggregate amount allocated for 
compensation of DoD civilian employees under NSPS will not be less than 
if they had not been converted to the NSPS. This takes into account 
potential step increases and rates of promotion had employees remained 
in their previous pay schedule.
    In addition, NSPS implementing issuances will provide a formula for 
calculating the aggregate compensation amount, for fiscal years after 
fiscal year 2008. The formula will ensure that, to the maximum extent 
practicable, in the aggregate, employees are not disadvantaged in the 
overall amount of pay available as a result of conversion to the NSPS, 
while providing flexibility to accommodate changes in the function of 
the organization, changes in the mix of employees performing those 
functions, and other changed circumstances that might impact pay 
levels.

Setting and Adjusting Rate Ranges

    Setting Rate Ranges and Local Market Supplements: The proposed 
regulations establish a pay system that governs the setting and 
adjusting of covered employees' rates of pay. The system will have a 
rate range, with a minimum and maximum rate, for each band in each 
career group based on factors such as labor market rates, recruitment 
and retention information, mission requirements, operational needs, and 
overall budgetary constraints. The bands will have open pay ranges, 
with no fixed step rates. DoD will also set local market supplements (a 
supplement to basic pay in lieu of locality pay) for rate ranges based 
on geographic and occupational factors. DoD will coordinate setting and 
adjusting rate ranges and local market supplements with OPM.
    Adjusting Rate Ranges and Local Market Supplements: DoD will

[[Page 7560]]

determine the rate range adjustments and local market supplements 
considering mission requirements, labor market conditions, availability 
of funds, pay adjustments received by employees in other Federal 
agencies, allowances and differentials under 5 U.S.C. chapter 59, and 
other relevant factors. Rate range adjustments and local market 
supplements may differ by career group, pay schedule, or pay band. The 
minimum and maximum of a range may be adjusted at different rates. DoD 
may determine local market areas as well as the timing of these pay 
adjustments.
    The proposed regulations provide that employees may receive pay 
adjustments as a result of a rate range adjustment. Generally, 
employees will receive an adjustment equal to any increase to the 
minimum rate of their band and will receive any applicable local market 
supplement. In keeping with the desire of the Secretary and the 
Director to achieve and sustain a culture of high performance, the 
proposed regulations provide that these pay adjustments will not be 
provided to employees with an unacceptable performance rating.

Performance-Based Pay

    The NSPS pay system will be a performance-based pay system that 
will result in a distribution of pay raises and bonuses based upon 
individual performance, individual contribution, organizational 
performance, team performance, or a combination of those elements. The 
NSPS system will use pay pools to manage, control, and distribute 
performance-based pay increases and bonuses. Under the proposed 
regulations, the term ``pay pool'' means the organizational elements/
units or other categories of employees that are combined for the 
purpose of determining performance payouts or the dollar value of the 
funds set aside for performance payouts for employees covered by a pay 
pool. The performance payout is a function of the amount of money in 
the performance pay pool and the number of shares assigned to 
individual employees.
    Annual Performance-based Payouts: Employees will receive annual 
performance-based payouts based on their rating of record and assigned 
shares. Each rating level will have a share or range of shares 
associated with it.
    Rating Methodology: DoD implementing issuances will define the 
specific methodologies and practices that will be used in the 
Department. DoD expects to use a methodology that includes at least 
three rating levels and identifies a range of performance shares that 
can be assigned for rating levels. An example of a possible rating 
methodology is provided by Table 2. This example illustrates a five-
level rating methodology with associated share ranges in which level 
five signifies the highest level of performance. The rater will prepare 
and recommend the rating, number of shares, and the distribution of the 
payout between basic pay increase and bonus, as applicable, for each 
employee. These recommendations will then be reviewed by the pay pool 
panel to ensure equitable rating criteria and methodology have been 
applied to all pay pool employees. The final determination of the 
rating, number of shares, and payout distribution will be a function of 
the pay pool panel process and will be approved by the pay pool 
manager. The criteria used to determine the number of shares to assign 
an employee may include assessment of the employee's contribution to 
the mission, the employee's type and level of work, consideration of 
specific achievements, or other job-related significant accomplishments 
or contributions.

                   Table 2.--Sample Rating Methodology
------------------------------------------------------------------------
               Rating level                         Share range
------------------------------------------------------------------------
5........................................  6-8
4........................................  3-6
3........................................  1-2
2........................................  0
1........................................  N/A
------------------------------------------------------------------------

    Performance Pay Pools: Performance pay pools will be established by 
combining organizational elements, functional groupings, or other 
categories of employees. Distinctions may also be made using criteria 
such as location or mission. Each pay pool will be managed by a pay 
pool manager in concert with appropriate management officials. The pay 
pool manager is the individual charged with the overall responsibility 
for rating determinations and distribution of the payout funds in a 
given pay pool. The funding of a performance pay pool consists of the 
money allocated for performance-based payouts for a defined group of 
employees. The amount of money available within a pay pool is normally 
based on the money that would have been available for within-grade 
increases, quality step increases, promotions between grades that have 
been banded in the NSPS pay system, and applicable across-the-board pay 
increases. Funds previously used for end-of-rating cycle performance 
awards or incentive awards may also be used to fund the pay pool. Note 
that the provisions of 5 U.S.C. chapter 45, ``Incentive Awards,'' 
remain in place and provide a valuable means to recognize employee 
achievements throughout the rating cycle.
    Performance Payout: The performance payout is composed of an 
increase to basic pay, a bonus, or a combination of these. A bonus is a 
one-time lump-sum payment that is not paid as basic pay. Subject to DoD 
guidelines, pay pool managers will have the discretion to determine the 
proportion of an employee's total performance payout paid as an 
increase to basic pay or as a bonus. Increases to basic pay may not 
cause the basic pay of an employee to exceed the maximum of his or her 
pay band. In such situations, the amount of the payout that exceeds the 
maximum of the pay band will be paid in the form of a bonus.
    Example: If the maximum of a pay band is $30,000, and an employee 
earning $28,750 is awarded a payout of $3,000, then the employee may 
receive an increase in basic pay of not more than $1,250 ($28,750 + 
$1,250 = $30,000) with the remainder (at least $1,750) paid as a bonus.
    In addition, the proposed regulations allow DoD to establish 
``control points'' or other mechanisms within a band, beyond which 
basic pay increases may be granted only for meeting criteria 
established by DoD. An example of such a control point is a requirement 
for the employee to have achieved the highest performance rating.
    Other Performance Payouts: Extraordinary pay increases (EPI), 
organizational achievement recognition, or other special payments may 
be paid to employees in accordance with implementing issuances. The 
amount of such payments may not cause the employee's basic pay to 
exceed the maximum rate of the employee's assigned pay band.
     Extraordinary Pay Increase: An extraordinary pay increase 
(EPI) is a basic pay increase to reward employees when the payout 
formula does not adequately compensate them for their extraordinary 
performance. It is to be used sparingly and only to reward 
exceptionally high-performing employees whose performance and 
contributions to the organization are of an exceedingly high value. The 
performance must be expected to continue at an extraordinarily high 
level in the future.
     Organizational Achievement Recognition: This type of 
recognition may take the form of additional compensation paid to 
employees of a team, unit, branch, or organization

[[Page 7561]]

whose performance and contributions have successfully and directly 
advanced organizational goal(s).
    Developmental Positions: Employees in developmental positions may 
receive pay adjustments as they acquire the competencies, skills, and 
knowledge necessary to advance to the full performance level.

Pay Administration

    The new DoD pay system provides the Department with an enhanced 
ability to establish and adjust overall pay levels in keeping with 
changes in national and local labor markets. It is designed to adjust 
individual pay levels based on the acquisition and assessment of 
competencies, skills, and knowledge and on the basis of performance or 
contributions to mission. The new system is capable of adapting to 
changing circumstances and mission requirements.
    Initial Conversion: Upon implementation of the new system, 
employees will be converted based on their official position of record. 
Initial entry into NSPS will ensure that each employee is placed in the 
appropriate pay band without loss of pay.
    New Appointments/Reinstatements: When an employee is newly 
appointed or reinstated to a position in NSPS, management may establish 
pay at any rate up to the maximum of the pay band in accordance with 
implementing issuances. The hiring official will determine starting pay 
based on available labor market considerations; specific qualification 
requirements; scarcity of qualified applicants; program needs; 
education or experience of the candidate; and other criteria as 
appropriate. When an employee moves to a pay band with a higher earning 
potential, pay will be set in accordance with implementing issuances.
    Temporary Promotion: Employees on temporary promotions will be 
returned to their official position of record prior to conversion. GS 
employees will be converted at their current rate of basic pay, 
including any locality payment, adjusted on a one-time, pro-rata basis, 
for the time spent towards their next within-grade increase.
    Career-ladder Positions: Employees in career-ladder positions below 
the full performance level will be placed in the appropriate career 
group, pay schedule, and entry or developmental band.
    Promotion: Promotion pay increases (from a lower band to a higher 
band in the same cluster or to a higher band in a different cluster) 
generally will be a fixed percent of the employee's rate of basic pay 
or the amount necessary to reach the minimum rate of the higher band, 
whichever is greater. This amount is roughly equivalent to the value of 
a promotion to a higher grade within the GS system.
    Reassignment: An employee who moves to a position in a comparable 
pay band will have pay set depending on whether the move is voluntary 
or involuntary as a result of unacceptable performance and/or conduct. 
If the move is voluntary or involuntary and not due to unacceptable 
performance and/or conduct, pay will generally be set at the existing 
rate of pay; however, pay may be set at a higher rate within 
limitations specified in DoD implementing issuances. If the move is 
involuntary due to unacceptable performance and/or conduct, there may 
be a reduction in basic pay of up to 10 percent as provided in these 
proposed regulations and in DoD implementing issuances. Pay may not be 
set lower than the minimum of the pay band level or exceed the maximum 
of the pay band level.
    Reduction in Band: When an employee moves to a lower pay band, pay 
will be set depending on whether the move is voluntary or involuntary. 
If the move is voluntary, pay may generally be set anywhere within the 
pay band within limits specified in the implementing issuances. If the 
move is involuntary due to an adverse action based on unacceptable 
performance and/or conduct, there may be a reduction in basic pay 
within the limits specified in these proposed regulations and in DoD 
implementing issuances (not to exceed 10 percent, unless a larger 
reduction is needed to place the employee at the maximum rate of the 
lower band). For other involuntary moves, any reduction in pay will be 
limited in accordance with DoD implementing issuances. Where pay 
retention is applicable (e.g., following a reduction in force), the 
employee's pay will be protected under conditions and parameters to be 
identified in the implementing issuances.

Premium Pay

    Section 9901.361 of the proposed regulations addresses DoD's 
authority to waive and replace the premium pay provisions in 5 U.S.C. 
chapter 55, subchapter V (except section 5545b), in whole or in part 
for employees in a category approved by the Secretary. DoD (in 
coordination with OPM) will establish any NSPS premium payments through 
implementing issuances.

Performance Management--Subpart D

    The current performance management system is burdensome because of 
its actual and/or perceived inflexibility and strict adherence to 
written elements and standards established at the beginning of a rating 
cycle. Supervisors feel restricted in making any mid-course corrections 
or modifications to a performance plan, resulting in a final assessment 
that does not meet their needs. These static standards make it 
difficult for managers to adjust performance requirements and 
expectations in response to the Department's rapidly changing work 
environment, hold individual employees accountable for those general 
and/or assignment-specific work requirements and expectations, and make 
meaningful distinctions in employee performance as they accomplish 
those assignments. The proposed regulations are designed to address 
these deficiencies.
    DoD has decided to waive the provisions of chapter 43 of title 5, 
U.S. Code, in order to design a performance management system that will 
complement and support the Department's proposed performance-based pay 
system described above. The proposed system will also ensure greater 
employee and supervisor accountability with respect to individual 
performance expectations, as well as organizational results.
    The proposed system builds in the flexibility to modify, amend, and 
change performance and behavioral expectations during the course of a 
performance year, subject to employees being advised of, and involved 
in to the maximum feasible extent, the adjusted expectations. For 
example, supervisors have the option of establishing and communicating 
performance expectations during the course of the appraisal period 
through specific work assignments or other means. These other means may 
include standard operating procedures, organizational directives, 
manuals, and other generally established job requirements that apply to 
employees in a particular occupation and/or unit.

Coverage

    Generally, DoD employees who are currently covered by chapter 43 of 
title 5, U.S. Code, are eligible for coverage under the new performance 
management provisions in subpart D of the proposed regulations. 
Employees who are currently excluded by chapter 43 of title 5, such as 
administrative law judges and presidential appointees, will not be 
eligible for coverage. Certain categories of employees are currently 
excluded from chapter 43 by OPM administrative action, as authorized by 
5 CFR 430.202(d). Such employees are eligible for coverage under the 
new DoD

[[Page 7562]]

performance management provisions. DoD will decide which of those 
categories of otherwise eligible employees are covered by the 
Department's new performance management system or systems. The proposed 
regulations also allow DoD to develop, implement, and administer 
systems tailored to specific organizations and/or categories of 
employees.

Performance and Behavior Accountability

    Typically, poor behavior or misconduct has been addressed only 
through the disciplinary process. Little attention has been paid to the 
impact of behavior, good or bad, on performance outcomes of the 
employee and the organization. DoD has determined that conduct and 
behavior affecting performance outcomes (actions, attitude, manner of 
completion, and/or conduct or professional demeanor) should be a 
tracked and measured aspect of an employee's performance. The NSPS 
regulations provide for consideration of employee behavior as a 
performance factor, element, or objective, such as ``teamwork/
cooperation.''
    When an employee's behavior enhances or impairs task/job 
accomplishment, it should affect the employee's performance appraisal. 
Behavior that significantly enhances the mission should also be noted. 
This does not change a supervisor's responsibility to take prompt 
corrective action in the event of actionable misconduct; it merely 
recognizes the fact that behavior can and does affect an employee's 
overall performance and should be recognized. For example, an employee 
may receive corrective action at the time of misconduct. The nature of 
that misconduct has an impact on the successful execution of duties and 
should therefore impact the employee's performance assessment at the 
conclusion of the performance rating period. The impact of misconduct 
on the employee's performance rating will depend on its seriousness, 
evidence of correction, and any other relevant factors.
    Though behavior must be addressed in the performance management 
system, it need not be a separate factor, element, or objective, if 
sufficiently covered by a more general factor, element, or objective, 
such as ``teamwork/cooperation.'' Whether constructed as a separate or 
combined factor, element, or as an objective, the behavioral 
expectations must be set by the supervisor at the beginning of an 
appraisal period, and as with other performance expectations, modified 
or reinforced throughout the appraisal cycle. These expectations 
normally would include the general behavioral expectations for all 
employees as stated in the Standards of Ethical Conduct for Employees 
in the Executive Branch and the DoD Joint Ethics Regulations, as well 
as any behavioral expectations specifically related to the local 
organization.
    By providing supervisors and managers realistic alternatives for 
setting employee expectations, and assessing behavior and performance 
against those expectations, DoD will be better able to hold its 
employees accountable and recognize and reward those who excel. As part 
of the performance management system, supervisors and employees should 
stay aware of the status of performance and behavior and be better able 
to anticipate and address difficulties. The performance management 
system is intended to assist in employee performance and behavior 
development, recognize and reward exemplary performance and behaviors, 
and identify and remedy shortfalls. Employees share the responsibility 
of identifying and communicating difficulties, whether due to problems 
in understanding, communication, or accomplishment of expectations.
    By the same token, supervisors and managers will be held 
accountable for clearly and effectively communicating expectations and 
providing timely feedback regarding behavior and performance. 
Supervisors and managers must make meaningful behavior and performance 
distinctions in support of DoD's new performance-based pay system, as 
well as identifying and addressing unacceptable performance and 
misconduct.
    Further, supervisors and managers will have a broad range of 
options for dealing with unacceptable performance. These include but 
are not limited to remedial training, an improvement period, a 
reassignment, an oral warning, a letter of counseling, a written 
reprimand, or adverse action defined in subpart G of these proposed 
regulations, including a reduction in rate of basic pay or pay band. 
Resolution of employment difficulties must utilize appropriate 
methodologies, using remedial and corrective actions, when appropriate, 
prior to consideration of taking an adverse action. The range of 
adverse actions will include the involuntary movement of an employee to 
a lower pay band, giving supervisors and managers another means of 
dealing with unacceptable performance.
    These proposed regulations lay the foundation for a performance 
management system that is fair, credible, and transparent, and that 
holds employees, supervisors, and managers accountable for results. 
However, a performance management system is only as effective as its 
implementation and administration. To that end, DoD is committed to 
providing its employees, supervisors, and managers with extensive 
training on the new performance management system and its relationship 
to other HR policies and programs.

Setting and Communicating Performance Expectations

    Supervisors and managers must establish performance expectations 
and communicate them to employees. Performance expectations must align 
with and support the DoD mission and goals. Performance expectations 
may take the form of goals or objectives that set general or specific 
performance targets at the individual, team, and/or organizational 
level, and may include observable or verifiable descriptions of manner, 
quality, quantity, timeliness, and cost effectiveness. Performance 
expectations will be communicated to the employee prior to holding the 
employee accountable and promptly adjusted as changes occur.
    Supervisors will involve employees in the planning process to the 
maximum extent practicable. In so doing employees will better 
understand the goals of the organization, what needs to be done, why it 
needs to be done, and how well it should be done. Final determinations 
in setting expectations, however, are within the authority of the 
supervisor.

Monitoring Performance and Providing Feedback

    One of the main objectives of the pay-for-performance system is to 
replace the culture of pay-for-longevity with pay-for-results-driven 
performance. Over time, there should be individual distinctions based 
on performance, and high performers should receive more pay than 
average or low performers. Performance-based pay requires improved 
communication of expectations and performance feedback on the part of 
supervisors, since employees must understand what they have to do in 
order to receive higher ratings and increased pay. To achieve that 
objective, the proposed regulations require ongoing feedback with at 
least one interim performance review during each appraisal period.

[[Page 7563]]

Performance Rating Challenges

    The NSPS performance management system, even with its greater 
emphasis on communication and clarity of purpose, will result in 
questions and challenges, at least in the beginning. To be effective 
and allow for appropriate and reasonable rating adjustments, a process 
needs to be established for challenge purposes. Such a process will 
allow for the timely determination of rating adjustments, so that final 
pay adjustment determinations can be made.
    As provided in subpart C of the proposed regulations, performance 
ratings of record will be used to make individual pay adjustments under 
the new DoD pay system. In recognition of this impact on pay, the 
regulations permit employees to request timely reconsideration of their 
ratings of record. Because of the unique nature of such challenges, the 
implementing issuances will prescribe a separate reconsideration 
process that will afford every employee an opportunity to seek 
appropriate redress.

Staffing and Employment--Subpart E

    In order to meet its critical mission requirements in a dynamic 
national security environment, the Department needs greater flexibility 
to attract, recruit, shape, and retain a high quality workforce. While 
preserving merit principles and veterans' preference requirements, 
subpart E of the proposed regulations provides DoD with an expanded set 
of flexible hiring tools to respond effectively to continuing mission 
changes and priorities. DoD managers will have greater flexibility in 
acquiring, advancing, and shaping a workforce tailored to the 
Department's needs. The new flexibilities provide DoD managers with a 
greater range of options to adapt their recruitment and hiring 
strategies to meet changing mission and organizational needs, including 
consideration of the nature and duration of work. The proposed 
regulations also address the need to compete for the best talent 
available by providing the Department with the ability to streamline 
and accelerate the recruitment process.

Definitions

    The proposed regulations simplify the categories of employment. 
Under NSPS, employees will be defined as either career or time-limited. 
Career employees serve without time limit in competitive or excepted 
service positions. Time-limited employees serve either for a specified 
duration (term) or for an unspecified, but limited duration 
(temporary). The proposed regulations eliminate the category of 
``career-conditional employment;'' under NSPS, those employees may be 
hired directly into the career service.
    The proposed regulations redefine the terms ``promotion'' and 
``reassignment'' to fit the NSPS pay banding environment. In addition, 
the regulations introduce a new term--``reduction in band''--that 
replaces ``change to lower grade.'' Under pay banding, the GS grade 
structure is collapsed into fewer, broader salary ranges. Employees 
progress through those ranges based primarily on performance and job 
duties. Under NSPS, employees can also receive increased pay as a 
result of a reassignment within a pay band or promotion to a higher pay 
band, as provided in subpart C of these proposed regulations.

Appointing Authorities

    Governmentwide Appointing Authorities. Under the proposed 
regulations, the Department will continue to use excepted and 
competitive appointing authorities and entitlements under chapters 31 
and 33 of title 5, U.S. Code, Governmentwide regulations, or Executive 
orders, as well as other statutes. Individuals hired under those 
authorities will be designated as career or time-limited employees, as 
appropriate.
    Additional NSPS Appointing Authorities. Under the proposed 
regulations, the Secretary and the Director may establish new excepted 
and competitive appointing authorities for positions covered by NSPS. 
For any appointing authority that may result in entry into the 
competitive service, including excepted appointments that may lead to a 
subsequent noncompetitive appointment to the competitive service, DoD 
and OPM will jointly publish advance notice in the Federal Register and 
provide for a public comment period prior to establishing the 
authority. However, where DoD determines that it has a critical mission 
requirement, the Department and OPM may establish such an authority, 
upon notice in the Federal Register but without a preceding comment 
period. In addition, DoD and OPM may establish excepted appointing 
authorities for positions that are not in the competitive service 
without specific notice in the Federal Register. The proposed 
regulations require DoD to publish annually a list of appointing 
authorities created under this authority and remain in effect. DoD will 
prescribe appropriate implementing issuances to administer a new 
authority.
    Direct Hire Authority. The proposed regulations authorize DoD to 
exercise direct hire authority, subject to existing legal and 
regulatory standards. DoD will prescribe implementing issuances to 
administer this authority, provide public notice in accordance with 5 
U.S.C. 3304(a)(3)(A), inform OPM of all determinations made with 
respect to the exercise of this authority, and maintain appropriate 
records and documentation.
    Time-limited Appointing Authorities. DoD may continue to use 
existing time-limited appointing authorities; however, the proposed 
regulations provide the Secretary (in coordination with OPM) with the 
authority to prescribe the duration of such appointments, advertising 
requirements, examining procedures, and the appropriate uses of time-
limited employees. The Secretary may also establish procedures under 
which a time-limited employee who competed for and is serving in a 
competitive service position may be converted without further 
competition to the career service, but under the conditions specified 
in the proposed regulations.

Recruitment and Competitive Examining

    In order to increase the efficiency of the recruiting and hiring 
process without compromising merit principles, the proposed regulations 
allow DoD to target its recruiting strategy. DoD will provide public 
notice for all vacancies in the career service and accept applications 
from all sources; however, applicants from the local commuting area and 
other targeted sources may be considered first. If there are 
insufficient qualified candidates in the local commuting area, DoD may 
consider applicants from outside that area. The proposed regulations 
also extend examining authority to DoD, to be exercised in accordance 
with chapters 31 and 33 of title 5, U.S. Code. To exercise this 
authority, DoD will develop and coordinate examining procedures which 
will remain subject to OPM oversight. Examining procedures will adhere 
to the merit system principles in 5 U.S.C. 2301 and veterans' 
preference requirements set forth in 5 U.S.C. 3309 through 3320, as 
applicable, and will be available in writing for applicants to review.

Probationary Periods

    NSPS is a performance-based system; therefore, a critical first 
step is the ability to assess employees' performance during their 
initial entry into the Federal service and as they move to positions 
requiring markedly new skill sets. Employees' performance during

[[Page 7564]]

this time period usually serves as a good indication of how well they 
will perform throughout their career or as a supervisor. During this 
period, supervisors should provide assistance to help new employees 
improve their performance and, at the same time, determine whether or 
not the employee is suited for the position.
    Under the proposed regulations, the Department may prescribe 
implementing issuances to establish probationary periods as deemed 
appropriate for certain categories of employees newly appointed to 
career service positions covered by NSPS. DoD will prescribe the 
conditions for such periods, including duration and creditable service, 
in implementing issuances. Employees who are separated during their 
initial probationary period receive limited appeal rights under subpart 
H of these proposed regulations; however, a preference eligible who has 
completed 1 year of creditable service has full appeal rights as 
provided by subparts G and H of these proposed regulations.
    DoD may also prescribe in-service probationary periods for current 
Federal career employees who move into certain categories of positions. 
An employee who fails to complete the in-service probationary period 
will be returned to a position and rate of pay comparable to the 
position and rate of pay he or she held before the probationary period.

Workforce Shaping--Subpart F

    Subpart F provides the Department with the authority to reduce, 
realign, and reorganize the Department's workforce in a manner 
consistent with a performance-based HR system. The proposed regulations 
retain existing veterans' preference protections in reduction in force 
(RIF). However, the proposed regulations do provide the Department with 
additional flexibilities to minimize disruption resulting from any 
reduction in force actions that take place.
    For example, under current regulations, the minimum RIF competitive 
area (i.e., the organizational and geographic boundaries in which 
employees compete for retention) is an organization with separate 
personnel administrative authority in a local commuting area. Under the 
proposed regulations the Department may establish a minimum RIF 
competitive area on the basis of one or more of the following factors: 
geographical location(s), line(s) of business, product line(s), 
organizational unit(s), and funding line(s). These factors provide the 
Department with additional flexibility to limit the impact of a 
reduction in force upon its employees (e.g., confining reduction in 
force actions only to positions directly impacted by a decision to 
realign the work of those positions to another facility). However, the 
proposed regulations prohibit the use of competitive areas to target an 
individual employee for RIF based on nonmerit factors.
    The proposed regulations also simplify the RIF process. The first 
step in determining employees' retention rights under that process is 
to place employees in the appropriate tenure group (i.e., a group of 
employees with a given appointment type). Current regulations provide 
for three tenure groups, including a tenure group comprised of 
employees serving on career-conditional appointments. The proposed 
regulations eliminate that tenure group and place all employees in one 
of two tenure groups: (1) career employees (including employees serving 
an initial probationary period) and (2) employees on term and 
comparable non-permanent appointments in a separate, lower tenure 
group.
    The regulations also provide for ``competitive groups'' as a way of 
identifying those employees who will compete against one another for 
retention in a RIF, based on their ranking on a retention list (similar 
to a ``retention register'' under the present reduction in force 
regulations). Consistent with current regulations, the Department will 
continue to establish separate competitive groups for employees (1) in 
the excepted and competitive service, (2) under different excepted 
service appointment authorities, and (3) with different work schedules. 
The proposed regulations provide the Department with the flexibility to 
further define competitive groups on the basis of career group, pay 
schedule, occupational series or specialty, pay band, and/or trainee 
status. This new flexibility provides the Department with additional 
options to minimize disruption if a reduction in force is necessary.
    Finally, the proposed regulations give greater emphasis to 
performance in RIF retention by placing performance ahead of length of 
service. Under current regulations performance is the least important 
factor. Under the proposed regulations, employees are placed on a 
competitive group's retention list in the following order: (1) Tenure 
group, (2) veterans' preference, (3) individual performance rating, and 
(4) length of service. As provided by current law, within each tenure 
group, the Department will list employees with a compensable service-
connected disability of 30 percent or more ahead of all other 
preference eligibles, and will list all other preference eligibles 
ahead of non-preference eligibles. Within a particular retention list, 
a qualified higher-standing employee may displace a lower-standing 
employee; when there are no lower-standing employees, the displaced 
employee may be released from the retention list and separated by 
reduction in force. Employees who are separated by reduction in force 
will continue to be eligible for the existing programs that provide 
hiring preferences and assistance for obtaining other employment.

Adverse Actions--Subpart G

    The regulations propose several revisions and additions to the 
current adverse actions system. These changes are directed at the 
cumbersome and restrictive requirements for addressing and resolving 
unacceptable performance and misconduct. The proposed changes 
streamline the rules and procedures for taking adverse actions, to 
better support the mission of the Department while ensuring that 
employees receive due process and fair treatment guaranteed by the law 
authorizing the establishment of NSPS.
    The following sections identify the major changes proposed by this 
subpart and briefly describe the purpose of each change.

1. Actions and Employees Covered

    Adverse actions include removals, suspensions of any length, 
furloughs of 30 days or less, reductions in pay, and reductions in pay 
band (or comparable reduction). Additionally, all actions currently 
excluded from coverage remain excluded. Subject to Sec.  
9901.102(b)(2), all DoD employees are eligible for coverage under 
subpart G, except where specifically excluded by law or regulation. 
Members of the National Security Labor Relations Board established in 
Sec.  9901.907 are also excluded from coverage.
    Employees who are serving a probationary period, as established 
under subpart E, are not covered by this subpart. However, employees 
who are removed during a probationary period are covered by the 
termination procedures found in 5 CFR 315.804 or 315.805. Preference 
eligible employees who are removed after completing 1 year of a 
probationary period are covered by the adverse action procedures of 
this subpart.

2. Mandatory Removal Offenses

    This subpart permits the Secretary to identify offenses that have a 
direct and

[[Page 7565]]

substantial adverse impact on the Department's national security 
mission. These offenses would carry a mandatory penalty of removal from 
Federal service. This proposed change allows management to act swiftly 
to address and resolve misconduct or unacceptable performance that 
would be most harmful to the Department's critical mission. These 
proposed mandatory removal offenses would be identified in advance and 
made known to all employees. Employees alleged to have committed these 
offenses will have the same MSPB appeal rights as provided other 
employees against whom appealable adverse actions are taken. However, 
only the Secretary may mitigate the penalty for committing a mandatory 
removal offense (MRO). The proposed MRO procedures include a 
requirement that a proposed notice of mandatory removal be issued only 
after approval by the Secretary. DoD has not yet identified a proposed 
list of such offenses. However, it is important to preserve the 
Secretary's flexibility to carefully and narrowly determine the 
offenses that will fall into this category and to make changes over 
time. The absence of this flexibility has been problematic at the 
Internal Revenue Service (IRS), where the IRS Restructuring Act 
codified mandatory disciplinary offenses in law and limited the 
agency's ability to make needed changes. The Department will identify 
and publish mandatory removal offenses through implementing issuances 
in advance of their application.

3. Adverse Action Procedures

    This subpart retains an employee's right to representation and a 
written decision but provides shorter advance notice periods and reply 
periods than are currently required for appealable adverse actions. 
Employees are entitled to a minimum of 15 days advance notice and a 
minimum of 10 days to reply, which run concurrently. However, if there 
is a reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the Department will 
provide a minimum 5 days advance notice and opportunity to reply, which 
will run concurrently. These proposed changes facilitate timely 
resolution of adverse actions while preserving employee rights.

4. Single Process and Standard for Action for Unacceptable Performance 
and Misconduct

    This subpart establishes a single system for taking adverse actions 
based on misconduct and/or unacceptable performance. This proposed 
change represents a return to a simplified approach that existed prior 
to the 1978 passage of the Civil Service Reform Act and chapter 43 of 
title 5, U.S. Code.
    Congress enacted chapter 43 in part to create a simple, dedicated 
process for agencies to use in taking adverse actions based on 
unacceptable performance. Since that time, however, chapter 43 has not 
worked as Congress intended. In particular, interpretations of chapter 
43 have made it difficult for agencies to take actions against poor 
performers and to have those actions upheld. As a result, agencies have 
consistently preferred to use the procedures available under chapter 75 
of title 5 rather than chapter 43 when taking actions for unacceptable 
performance.
    The proposed regulations eliminate the requirement for a formal, 
set period for an employee to improve performance before management may 
take an adverse action. Management selects employees for their 
positions because the employees are well qualified. As set forth in 
proposed subpart D, management must explain to employees what is 
expected of them when it comes to performance. If an employee fails to 
perform at an acceptable level, management may use a variety of 
measures, including training, regular feedback, counseling and, at 
management's discretion, an improvement period, to address and resolve 
performance deficiencies. If an employee is still unable or unwilling 
to perform as expected, it is reasonable for management to take an 
action against the employee.
    The proposed standard for taking an adverse action remains ``for 
such cause as will promote efficiency of the service'' as currently in 
title 5, U.S. Code.

Appeals--Subpart H

    Subpart H of part 9901 covers employee appeals of certain adverse 
actions taken under subpart G. Appealable actions include removals, 
suspensions for more than 14 days, furloughs, reductions in pay, or 
reductions in pay band (or comparable reduction). Suspensions of 14 
days or less and other lesser disciplinary measures are not appealable 
to MSPB, but may be grieved through a negotiated grievance procedure or 
an administrative grievance procedure, whichever is applicable. Also, 
actions taken under DoD placement programs are not appealable to MSPB. 
Furthermore, employees who are removed during a probationary period are 
provided the appeal rights found in 5 CFR 315.806. Preference eligible 
employees who are removed after completing 1 year of a probationary 
period are provided the appeal rights of this subpart.
    Section 9902 of title 5, U.S. Code, requires that these appeal 
regulations provide DoD employees fair treatment, and are afforded the 
protections of due process. It provides employees the right to petition 
the full Merit Systems Protection Board for review of the record of a 
final Department decision. The law also provides that current legal 
standards and precedents applied by MSPB under 5 U.S.C., chapter 77, 
continue to apply, unless such standards and precedents are 
inconsistent with legal standards established under this subpart. These 
regulations state that in applying existing legal standards and 
precedents, MSPB is bound by the legal standard set forth in Sec.  
9901.107(a)(2), which provides that these regulations must be 
interpreted in a way that recognizes the critical national security 
mission of the Department, and each provision must be construed to 
promote the swift, flexible, effective day-to-day accomplishment of 
this mission as defined by the Secretary.
    This subpart establishes procedures and timeframes for filing 
appeals with MSPB and modifies rules that MSPB will use to process 
appeals from DoD employees. These regulations are intended to ensure 
appropriate deference to the adverse actions taken by DoD and to 
streamline the way MSPB cases are handled while continuing to preserve 
and safeguard employee due process protections. In addition, they 
provide for an internal DoD review process of initial decisions issued 
by MSPB administrative judges.
    The Secretary and the Director will conduct an ongoing evaluation 
of the DoD HR system to ensure that it is achieving its intended 
purposes. As part of this evaluation, the Department and OPM will pay 
particular attention to the adverse action and appeal procedures 
established by these regulations. As noted (and discussed in more 
detail below), those procedures continue to permit employees to appeal 
most adverse actions to MSPB, despite the fact that DoD and OPM could 
have established a separate appellate body for the initial review of 
all such actions, particularly ``mandatory removal offenses.''
    In proposing these appellate procedures, the Secretary and the 
Director were especially mindful of 5 U.S.C. 9902(h)(1), which requires 
that the Secretary consult with MSPB on changes to chapter 77 of title 
5. This requirement was met through consultations between members and

[[Page 7566]]

staffs of MSPB, DoD, and OPM. During those consultations, DoD and OPM 
officials described specific concerns with existing procedures and 
discussed the range of appellate options and alternatives that were 
under consideration. For their part, MSPB officials were particularly 
constructive in responding to those concerns, offering numerous 
suggestions to address them, including several modifications to their 
own rules and regulations, and expressing the intention to issue 
conforming regulations.
    The appellate procedures below reflect many of those suggestions, 
as well as the constructive dialogue that gave rise to them. Indeed, 
the proposal to retain MSPB administrative judges was predicated on the 
results of that dialogue. However, the cumulative effect of these 
changes can be assessed only as they are actually implemented and 
administered by MSPB. Such an assessment will be undertaken by DoD and 
OPM after the Department has accumulated sufficient experience under 
NSPS.

1. Appeals to MSPB

    These regulations retain MSPB administrative judges as the initial 
adjudicators of employee appeals of adverse actions. At the same time, 
these regulations propose new substantive standards that MSPB will 
apply to DoD cases to improve the appeals process and accommodate and 
support the agency's critical national security mission. These 
regulations also propose new case-handling procedures that MSPB will 
apply to facilitate the efficient and expeditious resolution of 
appeals.
    We gave serious consideration to establishing a DoD internal 
appeals board to replace MSPB administrative judges. However, we 
concluded that the potential advantages of creating an internal DoD 
appeals board--greater efficiency of decision-making and deference to 
agency mission and operations, among them--could be achieved if MSPB 
administrative judges were retained as the initial adjudicators for 
adverse actions but with substantive and significant procedural 
modifications. In accordance with 5 U.S.C., section 9902, employees 
retain the right to petition the full Merit Systems Protection Board 
for review of the record of a final Department decision.

2. Department Review of Initial MSPB Administrative Judge Decisions

    This subpart authorizes the Department to review initial decisions 
of MSPB administrative judges (AJ). The authority provides that DoD may 
reconsider and affirm, remand, modify, or reverse an initial MSPB AJ 
decision for which a request for review (RFR) has been filed by either 
party concurrently with the full MSPB and the Department. DoD will 
promulgate implementing issuances that establish procedures for the 
submission of an RFR and review of an initial decision. The 
Department's review authority includes:
     Affirming an initial MSPB AJ decision where the Department 
determines that such decision shall serve as precedent.
     Remanding an initial MSPB AJ decision to the assigned AJ 
for further adjudication where the Department believes that there has 
been a material error of fact, or that there is new evidence material 
to the case.
     Modifying or reversing an initial MSPB AJ decision or an 
MSPB AJ decision on remand where the Department determines that (1) the 
decision has a direct and substantial adverse impact on the 
Department's national security mission, (2) the decision is based on an 
erroneous interpretation of law, this subpart, or Governmentwide rule 
or regulation, (3) the decision is based on a material error of fact, 
or (4) there is new evidence material to the case.
    Either party who wishes to file a request for review (RFR) must 
file the RFR with the Department (and concurrently with the full MSPB) 
no later than 30 days after issuance of an initial MSPB AJ decision. If 
the Department intends to review an initial MSPB AJ decision, the 
Department must provide notice of its intent no later than 30 days 
after receipt of a timely filed RFR.
    Any initial MSPB AJ decision for which an RFR has been filed (or 
any remand decision) that DoD affirms, modifies, or reverses will 
become the final Department decision. In such cases, the final 
Department decision is precedential unless otherwise determined by the 
Department or reversed or modified by the full MSPB. An employee or OPM 
may file a petition for review (PFR) to the full MSPB, and must file 
such petition within 30 days after issuance of the final Department 
decision.
    Any initial MSPB AJ decision for which an RFR has been filed that 
DoD does not affirm, remand, modify, or reverse shall become the final 
Department decision. In such cases, the final Department decision is 
not precedential. The RFR will be processed as a PFR by the full MSPB.
    Any initial MSPB AJ decision for which no RFR has been filed shall 
become the final Department decision. That decision is not precedential 
and may not be appealed to the full MSPB.
    In authorizing establishment of a human resources management system 
under the National Security Personnel System Act (NSPS), Congress 
specifically required that the full MSPB may order corrective action as 
it considers appropriate only if MSPB determines that the final 
Department decision was: (a) Arbitrary, capricious, an abuse of 
discretion, or otherwise not in accordance with law; (b) obtained 
without procedures required by law, rule, or regulation having been 
followed; or (c) unsupported by substantial evidence. These standards 
are an adoption of the standards for judicial review of a final MSPB 
decision currently provided under 5 U.S.C. 7703. Although these 
standards are appropriate for judicial review, we believe they are too 
high for an administrative review of adverse actions. That is, such 
standards would significantly weaken the opportunity to correct an 
erroneous MSPB AJ decision, whether the employee or the Department 
petitions the correction. These regulations provide that the Department 
may review an initial MSPB AJ decision, and correct such decision as 
appropriate by applying a standard that provides for meaningful 
corrective action and preserves statutory requirements of fairness and 
due process.
    The Department needs the authority to review initial MSPB AJ 
decisions to ensure that MSPB interprets NSPS and these regulations in 
a way that recognizes the critical mission of the Department; and to 
ensure that MSPB gives proper deference to such interpretation.
    Notwithstanding the Department's need for review authority, that 
authority should not be unlimited. Therefore, as previously described, 
these regulations limit the Department's review to those initial MSPB 
AJ decisions for which either party has timely filed a request for 
review, and the authority to issue a final Department decision that 
modifies or reverses an initial MSPB AJ decision is limited by specific 
criteria set forth in these regulations.

3. Appeals of Mandatory Removal Offenses

    An employee will be able to appeal a removal action to MSPB based 
on an MRO in substantially the same manner he or she will be able to 
appeal an adverse action, including removal, based on a non-MRO.

[[Page 7567]]

4. MSPB Appellate Procedure Improvements

    MSPB will have the authority to review and adjudicate actions 
covered by this subpart as prescribed in 5 U.S.C. 9902. These 
regulations propose to modify certain case processing rules, legal 
standards, and precedents. Current title 5 provisions and MSPB 
regulations will govern the initial review and adjudication of adverse 
action appeals, unless inconsistent with the modifications identified 
in this section. The modifications being made to current MSPB 
requirements will further the mission of DoD without impairing fair 
treatment and due process protections. Key procedural modifications 
include the following:
     When some or all material facts are not in genuine 
dispute, the AJ may limit the scope of the hearing, or issue a decision 
without a hearing.
     The appeal filing deadline, including the deadline for 
class appeals, is decreased from 30 days to 20 days.
     The administrative judge's initial decision must be made 
no later than 90 days after the date on which the appeal is filed.
     If the full MSPB reviews a final Department decision, 
either through an employee's petition for review or OPM intervention, 
the full MSPB must render its final decision no later than 90 days 
after the close of record. If OPM seeks reconsideration of a final MSPB 
decision or order, MSPB must render its decision no later than 60 days 
after receipt of the opposition to OPM's petition in support of such 
reconsideration.
     Currently, the parties to an appeal may submit unilateral 
requests for additional time to pursue discovery or settlement. The 
ability of the parties to unilaterally submit a request for case 
suspension is eliminated.
     The parties may seek discovery regarding any matter that 
is relevant to any of their claims or defenses. However, by motion to 
MSPB, either party can seek to limit any discovery being sought because 
it is privileged; not relevant; unreasonably cumulative or duplicative; 
or can be secured from some other source that is more convenient, less 
burdensome, or less expensive. Discovery can also be limited through 
such a motion if the burden or expense of providing a response 
outweighs its benefit. Prior to filing such a motion with MSPB, the 
parties must confer and attempt to resolve any pending objections. When 
engaging in discovery, either party can submit only one set of 
interrogatories, requests for production, and requests for admissions. 
The number of interrogatories or requests for production or admissions 
may not exceed 25 per pleading, including subparts, and neither party 
may conduct/compel more than 2 depositions. However, either party may 
file a motion requesting additional discovery. Such a motion will be 
granted only if MSPB determines that necessity and good cause has been 
shown to justify additional discovery.
     An administrative judge may not grant interim relief or 
grant a stay of an action taken against an employee. Only the full MSPB 
may order interim relief or stay an adverse action following the final 
Department decision regarding the adverse action.
     Any response to a petition for review or a cross petition 
for review must be filed within 30 days after the date of service of 
the petition or cross petition.
    All of these modifications will expedite and streamline the appeals 
process so that both employees and the Department will be able to 
resolve appeals more quickly and efficiently than is possible today. 
These regulations also retain due process protections--notice, an 
opportunity to respond, and a third-party review, either in person or 
on the record--for removal actions. These regulations provide the same 
procedural protections for all actions covered in subpart G. These 
regulations retain the statutory requirement that the appealability of 
a removal be unaffected by the individual's status under any retirement 
system.
    Section 7701 of title 5, U.S. Code, currently authorizes the 
Director of OPM to intervene in an MSPB proceeding or to petition MSPB 
for review of a decision if the Director believes that an erroneous 
decision will have a substantial impact on a civil service law, rule, 
or regulation under OPM's jurisdiction. Given OPM's responsibility for 
Governmentwide personnel management, these regulations authorize OPM to 
intervene in such situations regardless of whether the law, rule or 
regulation is one that falls under OPM jurisdiction. These regulations 
provide that the Director may exercise this intervention authority 
after consultation with the Secretary.

5. Standard of Proof

    Currently, actions taken under chapter 75 are sustained if 
supported by a preponderance of the evidence, and performance actions 
taken under chapter 43 are sustained if supported by substantial 
evidence, a lower standard of proof than preponderance. In all cases 
arising under this subpart, dealing either with performance or conduct, 
the Department's decision will be sustained if it is supported by a 
preponderance of the evidence. Changing the standard of proof to the 
single, higher standard regardless of the nature of the action 
simplifies the appeal process, and assures consistency without 
compromising fairness.

6. Affirmative Defenses

    Consistent with current law, the Department's action will not be 
sustained if MSPB determines that (1) a harmful procedural error 
occurred; (2) the decision was based on any prohibited personnel 
practice; or (3) the decision was not otherwise in accordance with law.
    These regulations require the Department to prove by a 
preponderance of the evidence that an action taken against an employee 
promotes the efficiency of the service, but these regulations do not 
permit MSPB to reverse the action based on the way in which the charge 
is labeled or the misconduct is characterized. This will eliminate 
excessively technical pleading requirements in adverse action 
proceedings imposed by MSPB and the U.S. Court of Appeals for the 
Federal Circuit in King v. Nazelrod, 43 F.3d 663, and similar cases. As 
long as the employee is on notice of the facts sufficient to respond to 
the factual allegations of a charge, the Department will have complied 
with the notice and due process requirements of these regulations.
    Moreover, MSPB may not reverse the Department's action based on the 
way a performance expectation is expressed, as long as the expectation 
would be clear to a reasonable person.

7. Penalty Review

    In cases involving a mandatory removal offense, the penalty 
selected by the Department may not be reduced or otherwise modified by 
MSPB. Only the Secretary may mitigate the penalty under these 
regulations.
    In all other cases arising under this subpart, MSPB (as well as 
arbitrators) may mitigate penalties, but only under very limited 
circumstances. Because the Department bears full accountability for 
national security, it is in the best position to determine the most 
appropriate adverse action for unacceptable performance or misconduct. 
The Department's judgment in regard to penalty should be given 
deference. These regulations preclude mitigation of the penalty 
selected by DoD except where, after granting deference to the 
Department, a determination is made that the penalty

[[Page 7568]]

is so disproportionate to the basis for the action as to be wholly 
without justification.
    This authority is significantly more limited than MSPB's current 
mitigation authority under the standard first enunciated in Douglas v. 
Veterans Administration (5 M.S.P.R. 280 (1981)). Under that decision, 
MSPB stated that it would evaluate agency penalties to determine not 
only whether they were too harsh or otherwise arbitrary but also 
whether they were unreasonable under all the circumstances. In 
practice, this has meant that MSPB has exercised considerable latitude 
in modifying agency penalties.
    With this new, substantially more limited standard for MSPB 
mitigation of penalties selected by DoD, the intent is to explicitly 
restrict the authority of MSPB to modify those penalties to situations 
where there is simply no justification for the penalty. MSPB may not 
modify the penalty imposed by the Department unless such penalty is so 
disproportionate to the basis for the action as to be wholly without 
justification. In cases of multiple charges, MSPB or an arbitrator may 
mitigate a penalty where not all of the charges are sustained. The 
third party's judgment is based on the justification for the penalty as 
it relates to the sustained charge(s). These regulations are intended 
to ensure that when a penalty is mitigated, the maximum justifiable 
penalty must be applied.
    Nothing in these regulations would limit the Secretary's sole and 
exclusive authority to mitigate any penalty imposed on, or rescind any 
action taken against a DoD employee pursuant to subpart G.

8. Attorney Fees

    OPM and DoD have modified the current standard for recovering 
attorney fees. Under the current standard, the Department may be 
required to pay attorney fees based on facts that were not known to 
management when the action was taken. This is an unreasonable standard 
that can deter the Department from taking action in appropriate cases 
and has a chilling effect on the Department's ability to carry out its 
mission. Accordingly, the proposed regulations provide that a 
prevailing appellant may recover attorney fees if the Department's 
action was clearly without merit based upon facts known to management 
when the action was taken. The proposed regulations also continue to 
require attorney fees if a prohibited personnel practice was committed 
by the Department.

9. Alternative Dispute Resolution

    These regulations encourage the use of alternative dispute 
resolution (ADR) procedures and provide that ADR will be subject to 
collective bargaining to the extent permitted by subpart I, Labor-
Management Relations. However, because ADR and settlement efforts are 
most successful when voluntary, these regulations prohibit MSPB from 
requiring ADR or settlement in connection with any action taken under 
this subpart. Once either party decides that settlement is not 
desirable, the matter will proceed to adjudication. Eliminating 
settlement efforts that are contrary to the expressed wishes of one or 
both of the parties will speed up the adjudication process and 
strengthen management decisionmaking authority.
    Where the parties agree to engage in settlement discussions, the 
case will be assigned to an official specifically designated for that 
sole purpose, rather than the official responsible for adjudication. 
This is necessary to avoid actual or perceived conflicts of interest on 
the part of MSPB adjudicating officials.

10. Discrimination Allegations

    The proposed regulations do not alter the substance of existing law 
regarding actions involving discrimination. They preserve the rights of 
employees to obtain review of their discrimination claims by EEOC in 
``mixed cases,'' i.e., cases that are appealable to MSPB involving 
allegations of discrimination, and they also preserve judicial review 
in such cases.

11. Judicial Review

    Decisions of MSPB are subject to review by the U.S. Court of 
Appeals for the Federal Circuit based on the same standard currently 
provided for in 5 U.S.C. 7703. As provided by 5 U.S.C. 9902(h)(6), the 
Secretary, after notifying the Director, may obtain judicial review of 
any final order or decision of the full MSPB under the same terms and 
conditions as provided an employee. Before seeking judicial review, the 
Secretary may seek reconsideration of a final MSPB decision.

12. Savings Provision

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

Labor-Management Relations--Subpart I

    Congress recognized DoD's need for enhanced flexibilities to ensure 
mission accomplishment when it passed the National Defense 
Authorization Act providing for the creation of the National Security 
Personnel System (NSPS). Such a system must be ``flexible'' and 
``contemporary,'' enabling a swift response to ever-changing national 
security threats. The labor-management relations regulations in this 
part are designed to meet these compelling concerns.

1. Purpose

    DoD's ability to carry out its mission swiftly and authoritatively 
is of paramount importance to national security. The DoD civilian 
workforce plays a critical role in the successful accomplishment of 
that mission. In authorizing the creation of the NSPS, Congress 
recognized that maintaining the status quo with respect to labor-
management relations would not provide DoD with a workforce that is 
sufficiently agile and flexible to execute the current and future 
national security mission. Thus, it authorized the Secretary of Defense 
and the Director of the Office of Personnel Management to establish a 
labor-management relations system that addresses the unique role that 
the Department's civilian workforce has in supporting the Department's 
national security mission. See 5 U.S.C. 9902(m).
    These regulations modify the provisions of 5 U.S.C. 7101 through 
7135, unless noted otherwise in this subpart, and define the purpose of 
the labor-management relations system. They implement the requirements 
of 5 U.S.C. 9902 by ensuring the right of employees to organize, 
bargain collectively, and participate through labor organizations of 
their own choosing in decisions which affect them, subject to the 
provisions of chapter 99 and any exclusion from coverage or limitation 
on negotiability established pursuant to law, rule, DoD issuance and 
any other legal authority, including the authority granted to DoD and 
OPM to promulgate these regulations.

2. Definitions

    These regulations keep intact a number of definitions provided for 
in chapter 71 of title 5, but those definitions have been edited where 
applicable to reflect references to the proposed regulations. For 
example, as a general matter, the term ``agency,'' which is used 
throughout the definition section of chapter 71, has been replaced by 
the term ``Department'' and refers to the Department of Defense. The 
regulations adopt the following terms and their associated definitions 
from that chapter and apply them to DoD:

[[Page 7569]]

``Authority,'' ``dues,'' ``person,'' and ``professional employee.'' To 
better fit the Department's labor-management relations system, the 
regulations make substantive modifications to the following terms:
     Collective bargaining is modified to specifically identify 
the Department instead of the term agency in chapter 71 and to remove 
the term ``consult'' because consultation, under the proposed 
regulations, as well as under chapter 71, does not require that the 
parties reach an agreement;
     Conditions of employment is modified to exclude 
determinations regarding pay and pay adjustments, in addition to 
classification determinations;
     Confidential employee is modified to include those 
employees providing confidential support to an individual who 
formulates or effectuates management policies, not just those employees 
providing support to an individual who formulates or effectuates labor-
management relations policies;
     Grievance is modified to limit grievances solely to those 
issues defined as conditions of employment. Grievances regarding the 
application of laws, rules, regulations, and DoD issuances are limited 
to those issued for the purpose of affecting the working conditions of 
employees--not those that may do so indirectly or incidentally. To this 
extent, DoD and OPM adopt the D.C. Circuit's interpretation in U.S. 
Dep't of Treasury, U.S. Customs Service v. FLRA, 43 F.3d 682 (1994), of 
what constitutes a ``grievance;''
     Management official is modified to include individuals who 
have the authority to recommend actions, if the exercise of the 
authority is not merely routine or clerical in nature; and
     Supervisor is modified to include employees who supervise 
military members of the armed services.
    The following terms have been added because of their significance 
to the NSPS system:
     Board refers to the newly established National Security 
Labor Relations Board (NSLRB);
     Component was added to clarify that the Secretary 
determines which organizations within DoD are considered components for 
purposes of this subpart;
     Consult was added as a distinct and separate method for 
considering the interests, opinions, and recommendations of a 
recognized labor organization. Consultation can be accomplished in 
face-to-face meetings or through other means such as teleconferencing 
or written communications;
     DoD issuance or issuances identifies the types of 
documents that are considered issuances; and
     Grade is defined to clarify its usage under various job 
grading and position classification systems.

3. Coverage

    Employees, who would otherwise be covered by chapter 71, except as 
modified by this subpart, are covered under the NSPS labor-management 
relations system.

4. Impact on Existing Agreements

    In order to ensure consistent application of DoD issuances, as well 
as this part and its implementing issuances, provisions of collective 
bargaining agreements that conflict with this part and/or such 
issuances are unenforceable as of the effective date of this part or 
such issuances. If the union believes that management has 
inappropriately found contract provisions unenforceable, it may appeal 
such decisions to the National Security Labor Relations Board. While as 
a general matter, contract provisions that conflict with the provisions 
of these regulations and their implementing issuances are 
unenforceable, the Secretary may allow for the continuance of all or 
part of such provisions. Where contract provisions conflict with these 
regulations or their implementing issuances, the parties, upon request 
by the exclusive representative, will have 60 days to bring the 
remaining negotiable terms directly affected by the regulations into 
conformance.

5. Employee Rights

    This section of the regulations parallels the provisions contained 
in 5 U.S.C. 7102. Covered employees, as defined in the regulations, 
will have the right to form, join, or assist any labor organization, or 
to refrain from such activity. Each employee will be protected in the 
exercise of any rights under the regulations through procedures 
established in this subpart.

6. National Security Labor Relations Board

    The Department will create a National Security Labor Relations 
Board (NSLRB) composed of at least three members appointed to fixed 
terms. The Secretary will appoint the members, with one member 
appointed from a list developed in consultation with the Director of 
OPM. Members will be independent, distinguished citizens known for 
their integrity, impartiality and expertise in labor relations and/or 
the DoD mission, and/or relevant national security matters. The NSLRB 
must interpret the regulations in subpart I and related decisions and 
policies in a way that recognizes the critical mission of the 
Department and the need for flexibility.
    The NSLRB's decisions are subject to limited review by the 
Authority, and subsequent judicial review under the rules established 
in 5 U.S.C. 7123. Excluded from NSLRB review are arbitration exceptions 
involving adverse actions appealable under subpart H of this part or 5 
U.S.C. chapters 43 and 75. While the Department may issue interim rules 
for the NSLRB, the NSLRB will ultimately prescribe its own rules and 
publish them in the Federal Register.
    In evaluating the merits of a separate National Security Labor 
Relations Board that would largely replace FLRA, with its 
Governmentwide responsibilities, DoD and OPM put a high premium on the 
opportunity to establish an NSLRB whose members would have a deep 
understanding of and appreciation for the unique challenges the 
Department faces in carrying out its national security mission. To 
ensure independence and impartiality, the DoD NSLRB members will be 
appointed to fixed terms and be subject to the same criteria for 
removing members of the Authority and MSPB, i.e., inefficiency, neglect 
of duty, or malfeasance.
    DoD and OPM considered splitting jurisdiction for adjudicating 
certain labor disputes between FLRA and the NSLRB. The proposed 
regulations give the NSLRB jurisdiction for all such disputes, except 
those involving questions of representation, to ensure consistent 
application of the NSPS labor relations system as well as to minimize 
various forums for addressing matters stemming from a single incident. 
Thus, the NSLRB will issue decisions on unfair labor practices, to 
include scope of bargaining, duty to bargain in good faith, and 
information requests; certain arbitration exceptions; negotiation 
impasses; and questions regarding national consultation rights. 
However, DoD and OPM specifically solicit comments on other 
alternatives, such as requiring (or entering into a service level 
agreement with) FLRA or some other organization to provide 
investigative and other services, subject to these regulations.
    Both the NSLRB and FLRA must interpret the regulations in subpart I 
in a way that promotes the swift, flexible and effective, day-to-day 
accomplishment of the Department's mission as defined by the Secretary. 
The NSLRB is authorized to issue advisory opinions on important issues 
of law that are binding on the parties. These opinions will help both 
labor and management understand how key

[[Page 7570]]

provisions of the regulations will be interpreted without the time and 
expense of years of litigation.
    Matters that come before the NSLRB may be reviewed de novo, which 
means that the NSLRB will have the discretion to reevaluate the 
evidence presented by the record and reach its own independent 
conclusions with respect to the matters at issue. Under chapter 71, 
FLRA reviews issues of law de novo. The Board will have the same 
authority, but it may also employ a de novo review to factual findings 
and contract interpretation. Given the inherently executive branch 
nature of decisions relating to national security and the Department's 
unique responsibilities in this area, the Board is authorized to 
conduct a thorough review of all matters, including factual 
determinations by its adjudicators or arbitrators, to safeguard the 
Department's national security mission.

7. Management Rights

    To carry out its national security mission, the Department must 
have the authority to take actions quickly when circumstances demand; 
it must be able to develop and rapidly deploy resources to confront 
threats in an ever-changing national security environment; and it must 
be able to act without unnecessary delay.
    Actions such as these involve the exercise of management's reserved 
rights and lie at the very core of how DoD carries out its mission. 
Under chapter 71 of title 5, the obligation to notify the union well 
ahead of any changes in the workplace and complete all negotiations 
before making any changes can seriously impede the Department's ability 
to meet mission demands. To ensure that the Department has the 
flexibility it needs, the Department and OPM propose to revise the 
management rights provisions of chapter 71. Expanding the list of 
nonnegotiable subjects in section 7106 to include what are now 
permissive subjects of bargaining--the numbers, types, and grades of 
employees and the technology, methods, and means of performing work--is 
proposed. The proposed regulations prohibit bargaining over the 
exercise of these rights and over other rights enumerated in chapter 
71, including the right to determine mission, budget, organization, and 
internal security practices, and the right to hire, assign and direct 
employees, and contract out.
    In addition, the proposed regulations prohibit bargaining over the 
procedures management will follow in the exercise of certain of its 
rights--to determine the mission, budget, organization, number of 
employees, and internal security practices of the Department; to hire, 
assign, and direct employees in the Department; to assign work, make 
determinations with respect to contracting out, and to determine the 
personnel by which Departmental operations may be conducted; to 
determine the numbers, types, pay schedules, pay bands and grades of 
employees or positions assigned to any organizational subdivision, work 
project or tour of duty, and the technology, methods, and means of 
performing work; to assign employees to meet any operational demand; 
and to take whatever other actions may be necessary to carry out the 
Department's mission. The Department can take action in any of these 
areas without advance notice to the union.
    The Department will bargain over procedures and appropriate 
arrangements management will follow in the exercise of certain other 
rights--to lay off and retain employees, or to suspend; remove; reduce 
in pay, pay band, or grade; or take other disciplinary action against 
such employees or, with respect to filling positions, to make 
selections for appointments from properly ranked and certified 
candidates for promotion or from any other appropriate source--as 
provided for in these regulations. This bargaining may be prospective, 
that is, after management has exercised such right. Where management is 
not required to negotiate over procedures stemming from the exercise of 
its rights, the proposed regulations provide a mechanism for obtaining 
an exclusive representative's views and recommendations regarding such 
procedures.

8. Exclusive Recognition of Labor Organizations

    Election procedures for determining exclusive representatives have 
not changed from the requirements of chapter 71.

9. Determination of Appropriate Units for Labor Organization 
Representation

    In determining appropriate bargaining units, FLRA will continue to 
apply the same factors set forth under chapter 71. However, in applying 
these criteria, the proposed regulations require FLRA to apply them 
consistent with the Department's mission, organizational structure, and 
the requirements of Sec.  9901.107(a). Using this standard will help 
align the Department's bargaining units as closely as possible with the 
agency's mission and organizational structure.
    Besides requiring consideration of the Department's mission and 
organizational structure in determining appropriate units, the proposed 
regulations exclude additional categories of employees from coverage. 
Supervisors of military members of the armed services are excluded from 
coverage because they engage in supervisory functions and their 
inclusion in bargaining units creates a conflict of interest. The tasks 
associated with supervision do not change based on the type of person 
supervised. Employees engaged in all types of personnel work are also 
excluded from the unit. This is a change from the current law, which 
allows employees engaged in personnel work of a purely clerical 
capacity to be included in a bargaining unit. The regionalization of 
DoD's personnel functions has made the clerical nature of personnel 
work a false distinction for bargaining unit membership. Those 
individuals are now, and will continue to be, frequently called upon to 
provide advice and guidance to management officials on personnel 
functions. Additionally, these individuals have direct access to all 
confidential personnel records and discussions. By including these 
individuals in bargaining units, a conflict of interest exists such 
that management officials risk compromising confidential management 
information when seeking or accepting guidance from personnelists 
within the personnel office. Further, inclusion of clerical 
personnelists in the bargaining unit prohibits the personnel officer 
from using his or her full staff in areas that are vital to the 
efficient accomplishment of the mission. The removal of these positions 
will eliminate unnecessary administrative disputes. Finally, this 
section removes attorney positions from bargaining unit coverage. 
Supervisors and managers must be assured that communications with 
attorneys are confidential and unbiased. These communications often go 
to the heart of the managerial function and thus inclusion of attorneys 
in the bargaining unit creates at a minimum the perception of a 
conflict of interest.

10. National Consultation

    The Department and Components will conduct national consultation 
over substantive changes in conditions of employment generated by the 
Department or the Component with those unions holding national 
consultation rights. National consultation is not required where 
national level bargaining has occurred or where the continuing 
collaboration procedures of 9901.105 apply. Nothing

[[Page 7571]]

in this section precludes management from seeking the views of other 
labor organizations not holding national consultation rights, nor does 
the conduct of national consultation eliminate any local labor 
relations obligations.

11. Representation Rights and Duties

    As in chapter 71, these proposed regulations provide that 
recognized unions are the exclusive representatives of the employees in 
the unit and act for and negotiate on their behalf, consistent with law 
and regulation.
    Under current law, a union has the right to send a representative 
to a formal discussion (``formal meetings'') called by management to 
discuss general working conditions with employees. Determining what is 
and is not a formal discussion, as FLRA and courts have interpreted 
that term, requires managers to balance numerous factors concerning the 
relative formality of the meeting and the precise subject matter 
discussed. Because of the complicated and confusing criteria, front-
line managers and supervisors are often reluctant to hold discussions 
with employees concerning everyday workplace issues, which can affect 
work unit effectiveness and efficiency and inhibit communication and 
problem solving.
    The proposed language redefines formal discussions as discussions 
or announcements of new or substantially changed personnel policies, 
practices, or working conditions. It specifically excludes discussions 
on operational matters where discussions do not involve the 
establishment of new policies or practices.
    An exclusive representative is entitled to attend discussions 
regarding grievances filed under its negotiated grievance procedure. 
Moreover, these proposed regulations resolve any uncertainty resulting 
from litigation about whether unions have an institutional right to be 
present during EEO proceedings, to include mediation efforts, after a 
formal EEO complaint has been filed or other matters appealed by 
employees. Under these proposed regulations, unions do not have such a 
right unless the complainant raises the matter in the negotiated 
grievance procedures.
    Where an employee elects to use a procedure outside the negotiated 
grievance procedure (such as EEO), the employee has the choice of 
personal representatives (including, at the employee's option, a union 
official acting as personal representative). However, the union has no 
institutional right to represent the employee or attend meetings 
related to the resolution of the employee's issues. Where a resolution 
impacts the bargaining unit as a whole, the union will be fully advised 
and afforded the opportunity to exercise applicable rights. This change 
strikes an appropriate balance between the union's institutional rights 
and employee privacy and, with regard to complaint processes other than 
negotiated grievance procedures.
    The proposed regulations also preserve what has come to be known as 
the ``Weingarten'' right, which permits union representation at the 
employee's request when management examines an employee during an 
investigation and the employee reasonably believes that discipline will 
follow. However, the proposed regulations exclude investigations 
conducted by the Offices of the Inspectors General and other 
independent Department or Component investigatory organizations, such 
as U.S. Army Criminal Investigation Command and the Air Force Office of 
Special Investigations; ``Weingarten'' representation rights do not 
apply in such investigations. These exclusions were identified to 
ensure that independent bodies can conduct truly independent 
investigations. Further, this change ensures that investigations 
involving criminal matters are not affected by unnecessary delay, harm 
to the integrity of the investigation, or issues of confidentiality.
    Under these regulations, the Department will hold employee 
representatives to the same conduct requirements as any other DoD 
employees. The proposed regulations clarify that the Department may 
address the misconduct of any employee, including employees acting as 
union representatives, as long as the agency does not treat employees 
more severely because they are engaging in union activity. The 
Department will no longer be bound by FLRA's ``flagrant misconduct'' 
standard or any other test developed through case decisions which may 
immunize union representatives engaged in otherwise actionable 
misconduct. However, the proposed regulation is not intended to target 
the content of ideas.
    This section also retains the requirement that the parties are to 
negotiate in good faith and approach negotiations with a sincere 
resolve to reach a collective bargaining agreement. Such agreements 
will be subject to agency head review as currently provided in chapter 
71.
    Under chapter 71, a union has the right to information maintained 
by the agency if the information is necessary and relevant to the 
union's representational responsibilities. This right is maintained 
with some modifications in these regulations. Under these regulations, 
disclosure of information is not required if adequate alternative means 
exist for obtaining the requested information, or if proper discussion, 
understanding, or negotiation of a particular subject within the scope 
of collective bargaining is possible without recourse to the 
information. This change also relieves management of the unnecessary 
administrative burden of producing information that can readily be 
obtained some other way and recognizes technological advances in 
information access and sharing. The proposed regulations further 
provide that information may not be disclosed if an authorized official 
determines that disclosure would compromise the Department's mission, 
security, or employee safety.
    The regulations specify that sensitive information such as personal 
addresses, personal telephone numbers, personal e-mail addresses, or 
any other information not related to an employee's work, may not be 
disclosed. While this is not a change in existing statutory 
interpretation, it is necessary to specify these limitations in the 
proposed regulations, given the extremely sensitive nature of the 
Department's mission and the serious consequences if such information 
were deliberately or inadvertently disclosed to an inappropriate 
source.
    In recognition of the foregoing duties of the union, the 
regulations preserve the official time provisions in chapter 71. In so 
doing, we have clarified that, consistent with current law, official 
time is not permitted for representational duties outside the exclusive 
representative's bargaining unit. However, we have provided an 
exception for multi-unit bargaining and bargaining above the level of 
exclusive recognition, subject to mutual agreement of the parties. 
Current chapter 71 authorizations and requirements concerning 
allotments also are retained in this section.

12. Unfair Labor Practices

    Management's unfair labor practices (ULPs) remain almost identical 
to those contained in chapter 71. One major difference is the 
elimination of 7116(a)(7), which provided that it is a ULP to enforce a 
rule or regulation, which is in conflict with a collective bargaining 
agreement if the agreement was in effect prior to the issuance of the 
rule or regulation. Such action is no longer a ULP because the proposed 
regulations provide that law, Governmentwide rules and regulations,

[[Page 7572]]

Presidential issuances, and DoD issuances will supersede current 
collective bargaining agreements where the terms conflict. This 
includes Department issuances in existence prior to the effective date 
of these regulations. There is no significant change to the union ULPs 
contained in chapter 71.

13. Duty To Bargain and Consult

    In order to ensure a consistent approach to managing the Department 
within a multi-union, multi-bargaining unit environment, the proposed 
regulations specify that there is no duty to bargain over DoD issuances 
(which includes Component issuances). In addition, management has no 
obligation to bargain over changes to conditions of employment unless 
the change is foreseeable, substantial, and significant in terms of 
both impact and duration on the bargaining unit, or on those employees 
in that part of the bargaining unit affected by the change. Typically, 
where a change in conditions of employment is of duration shorter than 
the bargaining process associated with that change, or where it affects 
a minimal number of employees, there is no bargaining obligation 
associated with that change. This regulatory change will focus 
bargaining on those matters that are of significant concern and impact 
and relieve the parties of potentially lengthy negotiations over 
matters that are limited in scope and effect.
    If parties bargain over an initial term agreement or its successor 
and do not reach agreement within 90 days, the parties may agree to 
continue bargaining after the 90-day period or either party may refer 
the matter to the NSLRB for impasse resolution. Mid-term bargaining 
over proposed changes in conditions of employment must be completed 
within 30 days or management will be able to implement the change after 
notifying the union. Either party may refer the matter to the NSLRB for 
impasse resolution after the 30-day period. The obligation to bargain, 
however, does not prevent management from exercising its management 
rights identified in Sec.  9901.910.

14. Multi-Unit Bargaining

    A number of installations and organizations within the Department 
of Defense have multiple bargaining units. When a change is needed 
affecting the entire installation, management must engage in as many 
negotiations as there are units. This is unnecessarily time consuming 
and frequently results in numerous variations to a single policy. In 
order to expedite negotiations and ensure consistent application of the 
policy, management may require multi-unit bargaining over particular 
issues. Such negotiations will be binding on all parties requested to 
participate in the negotiations and supersede any conflicting 
provisions in current negotiated agreements or past practices. Such 
agreements will not be subject to ratification as such efforts 
contradict the basis for such negotiations: Timely, uniform application 
of policies. These negotiations are subject to the impasse resolution 
procedures of the NSLRB. Additional instructions and requirements 
associated with multi-unit bargaining will be issued in Department 
implementing issuances. Unions may request to negotiate multi-unit 
agreements; however, the Department has sole and exclusive authority to 
grant the labor organizations' requests.

15. Collective Bargaining Above the Level of Recognition

    This section describes procedures associated with negotiations 
above the level of exclusive recognition. The decision to negotiate at 
this level rests with the Secretary and is not subject to review or 
statutory third-party dispute resolution procedures. Such negotiations 
are subject to impasse resolution by the NSLRB and any agreement 
reached will be binding on all subordinate bargaining units and 
Components of the Department. Such agreements supersede conflicting 
provisions of existing collective bargaining agreements. Any agreement 
reached will not be subject to ratification as this unnecessarily 
delays implementation. Representatives participating in these 
negotiations are expected to come to the table with authority to bind 
their respective parties. These agreements, however, are subject to 
agency head review to ensure compliance with applicable law, rule, and 
regulation. Unions may request to negotiate at a level above 
recognition; however, the Department has sole and exclusive discretion 
to grant the labor organizations' requests.
    Negotiations above the level of recognition will not apply to the 
National Guard Bureau and the Army and Air Force National Guard. Where 
these organizations are impacted by an agreement negotiated above the 
level of recognition, they may negotiate at the level of recognition, 
as provided in this subchapter.

16. Grievance Procedures

    As a result of the decision of the Federal Circuit Court of Appeals 
in Mudge v. U.S., 308 F.3d 1220 (Fed. Cir. 2002), DoD and OPM propose 
to modify 5 U.S.C. 7121(a)(1) by removing the term ``administrative'' 
from the second sentence of that subsection. In so doing, the proposed 
regulations make it clear that the negotiated grievance procedure is 
the only authorized procedure for resolving issues under its exclusive 
coverage. This modification is consistent with the Federal Circuit's 
decision in Carter v. Gibbs, 909 F.2d 1452 (Fed. Cir. 1990), 
interpreting 5 U.S.C. 7121(a)(1) prior to its amendment in 1994. Under 
the regulations, matters excluded from the grievance procedure under 5 
U.S.C. 7121(c) will remain excluded from coverage. The regulations 
codify the well-established interpretation that classification 
determinations are excluded from coverage. In addition, given the 
changes to the HR system, the proposed regulations exclude three 
additional matters from the negotiated grievance procedure--pay, 
ratings of record issued under subpart D of these regulations, and 
mandatory removal actions.
    The Department recognizes that employees covered by subpart D 
should have a way to challenge ratings of record to ensure such ratings 
are accurate reflections of employees' performance and the performance 
management system is credible and transparent. Therefore, in subpart D 
of these proposed regulations, the Department and OPM have provided for 
the development of a formal process whereby employees covered by 
subpart D may seek reconsideration of their ratings of record issued 
under this system. Similarly, subpart H provides a procedure for 
seeking redress of removals based on mandatory removal offenses for 
employees covered by that subpart.
    The proposed regulations continue to provide for arbitration of 
adverse actions that are otherwise appealable to MSPB. However, where a 
party covered by subpart H seeks review of an arbitrator's award 
involving an appealable matter, the arbitrator's award will be treated 
in the same manner as an initial decision by an MSPB AJ under 
procedures provided in that subpart; this allows an arbitrator's 
decision to be appealed to the full MSPB for review, rather than to the 
Federal Circuit directly.

17. Exceptions to Arbitration Awards

    Exceptions to arbitrators' awards, except those involving 
appealable actions under subpart G, are filed with the NSLRB. As noted, 
exceptions involving appealable actions are filed either with the 
Federal Circuit or MSPB, as applicable, according to coverage under 
subpart H. In addition to bases contained in 5 U.S.C. 7122, exceptions 
may also be filed based on the

[[Page 7573]]

arbitrator's failure to properly consider the Department's national 
security mission or to comply with applicable NSPS regulations and DoD 
issuances. In reviewing exceptions, the NSLRB may determine its own 
jurisdiction without regard to whether any party has raised a 
jurisdictional issue.

18. Savings Provisions

    Where a grievance or other administrative proceeding was already 
pending on the date of coverage of this subpart, the grievance or 
proceeding will continue to be processed in accordance with the rules 
under which it was initially filed. However, any remedy issued must be 
in compliance with the applicable provisions of this part.

Next Steps

    The National Defense Authorization Act for Fiscal Year 2004 
provides that the development and implementation of a new HR system for 
DoD will be carried out with the participation of, and in collaboration 
with, employee representatives. The Secretary and the Director must 
provide employee representatives with a written description of the 
proposed new or modified HR system. The description contained in this 
Federal Register notice satisfies this requirement. The Act further 
provides that employee representatives must be given 30 calendar days 
to review and make recommendations regarding the proposal. Any 
recommendations must be given full and fair consideration. If the 
Secretary and Director do not accept one or more recommendations, they 
must notify Congress of the disagreement and then meet and confer with 
employee representatives for at least 30 calendar days in an effort to 
reach agreement. The Federal Mediation and Conciliation Service may 
provide assistance at the Secretary's option, or if requested by a 
majority of employee representatives who have made recommendations.
    If there is no objection to or recommendation on a proposal, it may 
be implemented immediately. Similarly, when the Secretary and the 
Director accept any recommendation from employee representatives, the 
revised proposal may be implemented immediately. If the Secretary and 
the Director do not fully accept a recommendation, the Secretary may 
implement the proposal (including any modifications made in response to 
the recommendations) at any time after 30 calendar days have elapsed 
since the initiation of congressional notification, consultation, and 
mediation procedures. To proceed with implementation in this 
circumstance, the Secretary must determine (in his/her sole and 
unreviewable discretion) that further consultation and mediation are 
unlikely to produce agreement. The Secretary must notify Congress 
promptly of the implementation of any such contested proposal.
    The Secretary and the Director must develop a method under which 
each employee representative may participate in any further planning or 
development in connection with implementation of a proposal. Also, the 
Secretary and the Director must give each employee or representative 
adequate access to information to make that participation productive.
    DoD plans to make the new labor relations provisions effective 30 
days after the issuance of final regulations, and notification to 
Congress as required by the law. At this time, DoD intends to implement 
the new HR system in phases, or spirals. The tentative schedule for 
implementing the spirals is outlined as follows:
     In the first spiral, up to 300,000 General Schedule (GS 
and GM), Acquisition Demonstration Project, and certain alternative 
personnel system employees will be brought into the system through 
incremental deployments.
     After the assessment cycle and certification of the 
performance management system are completed, the second spiral will be 
deployed.
     Spiral two will consist of Federal Wage System employees, 
overseas employees, and all other eligible employees.

E.O. 12866, Regulatory Review

    DoD and OPM have determined that this action is a significant 
regulatory action within the meaning of Executive Order 12866 because 
there is a significant public interest in revisions of the Federal 
employment system. DoD and OPM have analyzed the expected costs and 
benefits of the proposed HR system to be adopted for DoD, and that 
analysis is presented below.
    Among the NSPS design requirements is to build a system that is 
competitive, cost effective, and fiscally sound, while also being 
flexible, credible, and trusted. NSPS will bring many flexibilities and 
modern HR practices, including a movement towards market sensitive pay, 
pay increases based on performance rather than the passage of time, and 
the flexibility to offer competitive salaries. This requires striking a 
balance among the values of pay flexibility, valuing high performance, 
fiscal constraint, and credibility. While these flexibilities will 
improve DoD's ability to attract and retain a high-performing 
workforce, it is expected that actual payroll costs under this system 
will be constrained by the amount budgeted for overall DoD payroll 
expenditures, as is the case with the present GS pay system. DoD 
anticipates that accessions, separations, and promotions will net out 
and, as with the present system, not add to the overall cost of 
administering the system.
    The implementation of NSPS will, however, result in some initial 
implementation costs, which can be expressed in two basic categories: 
(1) Program implementation costs and (2) NSLRB startup costs. The 
program implementation category refers to the costs associated with 
designing and implementing the system. This includes establishing and 
funding the operations of the Program Executive Office, executing the 
system design process, developing and delivering new training 
specifically for NSPS, conducting outreach to employees and other 
parties, engaging in collaboration activities with employee 
representatives, and modifying automated human resources information 
systems, including personnel and payroll transaction processing 
systems. In the areas of training and HR automated systems, the costs 
associated with implementing NSPS will not be extensive, since DoD has 
significant training and IT infrastructures in place for current 
operations. DoD will not have to build new systems or delivery 
mechanisms, but rather will modify existing systems and approaches to 
accommodate changes brought about by NSPS. The other cost category 
refers to the cost to establish the proposed National Security Labor 
Relations Board. This includes typical organizational stand-up costs, 
as well as staffing the NSLRB with members and a professional staff. It 
is expected that the NSLRB will develop streamlined processes and 
procedures and leverage existing infrastructures and technology to 
minimize startup and sustainment costs.
    As has been the practice with implementing other alternative 
personnel systems, DoD expects to incur an initial payroll cost related 
to the conversion of employees to the pay banding system. This is often 
referred to as a within-grade increase (WGI) ``buyout,'' in which an 
employee's basic pay, upon conversion, is adjusted by the amount of the 
WGI earned to date. While this increase is paid earlier than scheduled, 
it represents a cost that would have been incurred under the current 
system at some point. However, under the NSPS proposed regulations,

[[Page 7574]]

WGIs no longer exist; once under NSPS, such pay increases will be based 
on performance. Accordingly, the total cost of the accelerated WGI 
``buyout'' should not be treated as a ``new'' cost attributed to 
implementation of NSPS, since it is a cost that DoD would bear under 
the current HR system in the absence of NSPS authority and implementing 
regulations. The portion of the WGI buyout cost attributable to NSPS 
implementation is the marginal difference between paying out the earned 
portion of a WGI upon conversion and the cost of paying the same WGI 
according to the current schedule. In the absence of NSPS, WGIs would 
be spread out over time instead of being paid ``up front.'' The 
marginal cost of the accelerated payment of earned WGIs is difficult to 
estimate, but is not a significant factor in the benefit cost analysis 
for regulatory review purposes.
    DoD estimates the overall costs associated with implementing the 
new DoD HR system--including the development and implementation of a 
new human resources management system and the creation of the NSLRB--
will be approximately $158M through FY 2008. Less than $100 million 
will be spent in any 12-month period.
    The primary benefit to the public of this new system resides in the 
HR flexibilities that will enable DoD to attract, build, and retain a 
high-performing workforce focused on effective and efficient mission 
accomplishment. A performance-based pay system that rewards excellent 
performance will result in a more qualified and proficient workforce 
and will generate a greater return on investment in terms of 
productivity and effectiveness. It is also expected that new 
flexibilities and improved processes in labor management relations, 
adverse actions, and appeals will result in more efficient and faster 
resolution of workplace and labor disputes, timelier and less costly 
bargaining processes, and quicker implementation of workplace changes 
needed to carry out the national security mission of the Department, 
while preserving basic employee rights. Taken as a whole, the changes 
included in these proposed regulations will result in a contemporary, 
merit-based HR system that focuses on performance, generates respect 
and trust, and supports the primary mission of DoD.

Regulatory Flexibility Act

    DoD and OPM have determined that these regulations would not have a 
significant economic impact on a substantial number of small entities 
because they would apply only to Federal agencies and employees.

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

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

E.O. 12988, Civil Justice Reform

    This proposed regulation is consistent with the requirements of 
E.O. 12988. The regulation clearly specifies the effects on existing 
Federal law or regulation; provides clear legal standards; has no 
retroactive effects; specifies procedures for administrative and court 
actions; defines key terms; and is drafted clearly.

E.O. 13132, Federalism

    DoD and OPM have determined these proposed regulations would not 
have federalism implications because they would apply only to Federal 
agencies and employees. The proposed regulations would not have 
financial or other effects on States, the relationship between the 
Federal Government and the States, or the distribution of power and 
responsibilities among the various levels of government.

Unfunded Mandates

    These proposed regulations would not result in the expenditure by 
State, local, or tribal governments of more than $100 million annually. 
Thus, no written assessment of unfunded mandates is required.

List of Subjects in 5 CFR Part 9901

    Administrative practice and procedure, Government employees, Labor 
management relations, Labor unions, Reporting and recordkeeping 
requirements, Wages.

Department of Defense.
Donald Rumsfeld,
Secretary.
Office of Personnel Management.
Kay Coles James,
Director.
    Accordingly, under the authority of section 9902 of title 5, United 
States Code, the Department of Defense and the Office of Personnel 
Management are proposing to amend title 5, Code of Federal Regulations, 
by establishing chapter XCIX consisting of part 9901 as follows:

CHAPTER XCIX--DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM 
(DEPARTMENT OF DEFENSE--OFFICE OF PERSONNEL MANAGEMENT)

PART 9901--DEPARTMENT OF DEFENSE NATIONAL SECURITY PERSONNEL SYSTEM

Subpart A--General Provisions
Sec.
9901.101 Purpose.
9901.102 Eligibility and coverage.
9901.103 Definitions.
9901.104 Scope of authority.
9901.105 Coordination with OPM.
9901.106 Continuing collaboration.
9901.107 Relationship to other provisions.
9901.108 Program evaluation.
Subpart B--Classification

General

9901.201 Purpose.
9901.202 Coverage.
9901.203 Waivers.
9901.204 Definitions.

Classification Structure

9901.211 Career groups.
9901.212 Pay schedules and pay bands.

Classification Process

9901.221 Classification requirements.
9901.222 Reconsideration of classification decisions.

Transitional Provisions

9901.231 Conversion of positions and employees to the NSPS 
classification system.
Subpart C--Pay and Pay Administration

General

9901.301 Purpose.
9901.302 Coverage.
9901.303 Waivers.
9901.304 Definitions.

Overview of Pay System

9901.311 Major features.
9901.312 Maximum rates.
9901.313 National security compensation comparability.

Setting and Adjusting Rate Ranges

9901.321 Structure.
9901.322 Setting and adjusting rate ranges.
9901.323 Eligibility for pay increase associated with a rate range 
adjustment.

Local Market Supplements

9901.331 General.
9901.332 Local market supplements.
9901.333 Setting and adjusting local market supplements.
9901.334 Eligibility for pay increase associated with a supplement 
adjustment.

Performance-Based Pay

9901.341 General.
9901.342 Performance payouts.
9901.343 Pay reduction based on unacceptable performance and/or 
conduct.

[[Page 7575]]

9901.344 Other performance payments.
9901.345 Treatment of developmental positions.

Pay Administration

9901.351 Setting an employee's starting pay.
9901.352 Setting pay upon reassignment.
9901.353 Setting pay upon promotion.
9901.354 Setting pay upon reduction in band.
9901.355 Pay retention.
9901.356 Miscellaneous.

Premium Pay

9901.361 General.

Conversion Provisions

9901.371 General.
9901.372 Creating initial pay ranges.
9901.373 Conversion of employees to the NSPS pay system.
Subpart D--Performance Management
9901.401 Purpose.
9901.402 Coverage.
9901.403 Waivers.
9901.404 Definitions.
9901.405 Performance management system requirements.
9901.406 Setting and communicating performance expectations.
9901.407 Monitoring performance and providing feedback.
9901.408 Developing performance and addressing poor performance.
9901.409 Rating and rewarding performance.
Subpart E--Staffing and Employment

General

9901.501 Purpose.
9901.502 Scope of authority.
9901.503 Coverage.
9901.504 Definitions.

External Recruitment and Internal Placement

9901.511 Appointing authorities.
9901.512 Probationary periods.
9901.513 Qualification standards.
9901.514 Non-citizen hiring.
9901.515 Competitive examining procedures.
9901.516 Internal placement.
Subpart F--Workforce Shaping
9901.601 Purpose and applicability.
9901.602 Scope of authority.
9901.603 Definitions.
9901.604 Coverage.
9901.605 Competitive area.
9901.606 Competitive group.
9901.607 Retention standing.
9901.608 Displacement, release, and position offers.
9901.609 Reduction in force notices.
9901.610 Voluntary separation.
9901.611 Reduction in force appeals.
Subpart G--Adverse Actions

General

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

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

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

Savings Provision

9901.721 Savings provision.
Subpart H--Appeals
9901.801 Purpose.
9901.802 Applicable legal standards and precedents.
9901.803 Waivers.
9901.804 Definitions.
9901.805 Coverage.
9901.806 Alternative dispute resolution.
9901.807 Appellate procedures.
9901.808 Appeals of mandatory removal actions.
9901.809 Actions involving discrimination.
9901.810 Savings provision.
Subpart I--Labor-Management Relations
9901.901 Purpose.
9901.902 Scope of authority.
9901.903 Definitions.
9901.904 Coverage.
9901.905 Impact on existing agreements.
9901.906 Employee rights.
9901.907 National Security Labor Relations Board.
9901.908 Powers and duties of the Board.
9901.909 Powers and duties of the Federal Labor Relations Authority.
9901.910 Management rights.
9901.911 Exclusive recognition of labor organizations.
9901.912 Determination of appropriate units for labor organization 
representation.
9901.913 National consultation.
9901.914 Representation rights and duties.
9901.915 Allotments to representatives.
9901.916 Unfair labor practices.
9901.917 Duty to bargain and consult.
9901.918 Multi-unit bargaining.
9901.919 Collective bargaining above the level of recognition.
9901.920 Negotiation impasses.
9901.921 Standards of conduct for labor organizations.
9901.922 Grievance procedures.
9901.923 Exceptions to arbitration awards.
9901.924 Official time.
9901.925 Compilation and publication of data.
9901.926 Regulations of the Board.
9901.927 Continuation of existing laws, recognitions, agreements, 
and procedures.
9901.928 Savings provisions.

    Authority: 5 U.S.C. 9902.

Subpart A--General Provisions


Sec.  9901.101  Purpose.

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


Sec.  9901.102  Eligibility and coverage.

    (a) Pursuant to the provisions of 5 U.S.C. 9902, all civilian 
employees of DoD are eligible for coverage under one or more of 
subparts B through I of this part, except to the extent specifically 
prohibited by law.
    (b) At his or her sole and exclusive discretion, the Secretary may, 
subject to Sec.  9901.105(b)--
    (1) Establish the effective date for applying subpart I of this 
part to all eligible employees in accordance with 5 U.S.C. 9902(m); and

[[Page 7576]]

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


Sec.  9901.103  Definitions.

    In this part:
    Band means pay band.
    Basic pay means an employee's rate of pay before any deductions and 
exclusive of additional pay of any kind, except as expressly provided 
by law or regulation. For the specific purposes prescribed in Sec.  
9901.332(c), basic pay includes any local market supplement.
    Career group means a grouping of one or more associated or related 
occupations. A career group may include one or more pay schedules.
    Competencies means the measurable or observable knowledge, skills, 
abilities, behaviors, and other characteristics that an individual 
needs to perform a particular job or job function successfully.
    Contribution means a work product, service, output, or result 
provided or produced by an employee or group of employees that supports 
the Departmental or organizational mission, goals, or objectives.
    Day means a calendar day.
    Department or DoD means the Department of Defense.
    Director means the Director of the Office of Personnel Management.
    Employee means an employee within the meaning of that term in 5 
U.S.C. 2105.
    Furlough means the placement of an employee in a temporary status 
without duties and pay because of lack of work or funds or other non-
disciplinary reasons.
    General Schedule or GS means the General Schedule classification 
and pay system established under chapter 51 and subchapter III of 
chapter 53 of title 5, U.S. Code.
    Implementing issuances means documents issued at the Departmental 
level by the Secretary to carry out any policy or procedure established 
in accordance with this part. These issuances may apply Department-wide 
or to any part of DoD as determined by the Secretary at his or her sole 
and exclusive discretion.
    Mandatory removal offense (MRO) means an offense that the Secretary 
determines in his or her sole, exclusive, and unreviewable discretion 
has a direct and substantial adverse impact on the Department's 
national security mission.
    National Security Personnel System (NSPS) means the human resources 
management system authorized by 5 U.S.C. 9902(a). It may also refer to 
the labor relations system authorized by 5 U.S.C. 9902(m).
    Occupational series means a group or family of positions performing 
similar types of work. Occupational series are assigned a number for 
workforce information purposes (for example: 0110, Economist Series; 
1410, Librarian Series).
    OPM means the Office of Personnel Management.
    Pay band or band means a work level and associated pay range within 
a pay schedule.
    Pay schedule means a set of related pay bands for a specified 
category of employees within a career group.
    Performance means accomplishment of work assignments or 
responsibilities and contribution to achieving organizational goals, 
including an employee's behavior and professional demeanor (actions, 
attitude, and manner of performance), as demonstrated by his or her 
approach to completing work assignments.
    Promotion means the movement of an employee from one pay band to a 
higher pay band under DoD implementing issuances. This includes 
movement of an employee currently covered by a non-NSPS Federal 
personnel system to a position determined to be at a higher level of 
work in NSPS.
    Rating of record means a performance appraisal prepared--
    (1) At the end of an appraisal period covering an employee's 
performance of assigned duties against performance expectations over 
the applicable period; or
    (2) As needed to reflect a substantial and sustained change in the 
employee's performance since the last rating of record as provided in 
DoD implementing issuances.
    Reassignment means the movement of an employee from his or her 
position of record to a different position or set of duties in the same 
or a comparable pay band under DoD implementing issuances on a 
permanent or temporary/time-limited basis. This includes the movement 
of an employee between

[[Page 7577]]

positions at a comparable level of work in NSPS and a non-NSPS Federal 
personnel system.
    Reduction in band means the voluntary or involuntary movement of an 
employee from one pay band to a lower pay band under DoD implementing 
issuances. This includes movement of an employee currently covered by a 
non-NSPS Federal personnel system to a position determined to be at a 
lower level of work in NSPS.
    Secretary means the Secretary of Defense.
    SES means the Senior Executive Service established under 5 U.S.C. 
chapter 31, subchapter II.
    SL/ST refers to an employee serving in a senior-level position paid 
under 5 U.S.C. 5376. The term ``SL'' identifies a senior-level employee 
covered by 5 U.S.C. 3324 and 5108. The term ``ST'' identifies an 
employee who is appointed under the special authority in 5 U.S.C. 3325 
to a scientific or professional position established under 5 U.S.C. 
3104.
    Unacceptable performance means the failure to meet one or more 
performance expectations.


Sec.  9901.104  Scope of authority.

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


Sec.  9901.105  Coordination with OPM.

    (a) As specified in paragraphs (b) through (e) of this section, the 
Secretary will advise and/or coordinate with OPM in advance, as 
applicable, regarding the proposed promulgation of certain DoD 
implementing issuances and certain other actions related to the ongoing 
operation of the NSPS where such actions could have a significant 
impact on other Federal agencies and the Federal civil service as a 
whole. Such pre-decisional coordination is intended as an internal DoD/
OPM matter to recognize the Secretary's special authority to direct the 
operations of the Department of Defense pursuant to title 10, U.S. 
Code, as well as the Director's institutional responsibility to oversee 
the Federal civil service system pursuant to 5 U.S.C. chapter 11.
    (b) DoD will advise OPM in advance regarding the extension of 
specific subparts of this part to specific categories of DoD employees 
under Sec.  9901.102(b).
    (c) Subpart B of this part authorizes DoD to establish and 
administer a position classification system and classify positions 
covered by the NSPS; in so doing, DoD will coordinate with OPM prior 
to--
    (1) Establishing or substantially revising career groups, 
occupational pay schedules, and pay bands under Sec. Sec.  9901.211 and 
9901.212(a);
    (2) Establishing alternative or additional qualification standards 
for a particular occupational series, career group, occupational pay 
schedule, and/or pay band under Sec.  9901.212(d) or 9901.513 that 
significantly differ from Governmentwide standards;
    (3) Establishing alternative or additional occupational series for 
a particular career group or occupation under Sec.  9901.221(b)(1) that 
differ from Governmentwide series and/or standards;
    (4) Establishing alternative or additional classification standards 
for a particular career group or occupation under Sec.  9901.221(b)(1) 
that differ from Governmentwide classification standards; and
    (5) Establishing the process by which DoD employees may request 
reconsideration of DoD classification decisions by the Department under 
Sec.  9901.222, to ensure compatibility between DoD and OPM procedures.
    (d) Subpart C of this part authorizes DoD to establish and 
administer a compensation system for employees of the Department 
covered by the NSPS; in so doing, DoD will coordinate with OPM prior 
to--
    (1) Establishing maximum rates of basic pay and aggregate pay under 
Sec.  9901.312 that exceed those established under 5 U.S.C. chapter 53;
    (2) Establishing and adjusting pay ranges for occupational pay 
schedules and pay bands under Sec. Sec.  9901.321(a), 9901.322(a) and 
(b), and 9901.372;
    (3) Establishing and adjusting local market supplements under 
Sec. Sec.  9901.332(a) and 9901.333;
    (4) Establishing alternative or additional local market areas under 
Sec.  9901.332(b) that differ from those established for General 
Schedule employees under 5 CFR 531.603;
    (5) Establishing policies regarding starting rates of pay for newly 
appointed or transferred employees under Sec. Sec.  9901.351 through 
9901.354 and pay retention under Sec.  9901.355;
    (6) Establishing policies regarding premium pay under Sec.  
9901.361 that differ from those that exist in Governmentwide 
regulations; and
    (7) Establishing policies regarding the student loan repayment 
program under Sec.  9901.303(c) that differ from Governmentwide 
policies with respect to repayment amounts, service commitments, and 
reimbursement.
    (e) Subpart E of this part authorizes DoD to establish and 
administer authorities for the examination and appointment of employees 
to certain organizational elements of the Department covered by the 
NSPS; in so doing, DoD will coordinate with OPM prior to establishing 
alternative or additional examining procedures under Sec.  9901.515 
that differ from those applicable to the examination of applicants for 
appointment to the competitive and excepted service under 5 U.S.C. 
chapters 31 and 33, except as otherwise provided by subpart E of this 
part.
    (f) When a matter requiring OPM coordination is submitted to the 
Secretary for decision, the Director will be provided an opportunity, 
as part of the Department's normal coordination process, to review and 
comment on the recommendations and officially concur or nonconcur with 
all or part of them. The Secretary will take the Director's comments 
and concurrence/nonconcurrence into account, advise the Director of his 
or her determination, and provide the Director with reasonable advance 
notice of its effective date. Thereafter, the Secretary and the 
Director may take such action(s) as they deem appropriate, consistent 
with their respective statutory authorities and responsibilities.
    (g) The Secretary and the Director fully expect their staffs to 
work closely together on the matters specified in this section, before 
such matters are submitted for official OPM coordination and DoD 
decision, so as to maximize the opportunity for consensus and agreement 
before an issue is so submitted.

[[Page 7578]]

Sec.  9901.106  Continuing collaboration.

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


Sec.  9901.107  Relationship to other provisions.

    (a)(1) The provisions of title 5, U.S. Code, are waived, modified, 
or replaced to the extent authorized by 5 U.S.C. 9902 to conform to the 
provisions of this part.
    (2) This part must be interpreted in a way that recognizes the 
critical national security mission of the Department. Each provision of 
this part must be construed to promote the swift, flexible, effective 
day-to-day accomplishment of this mission, as defined by the Secretary. 
The interpretation of the regulations in this part by DoD and OPM must 
be accorded great deference.
    (b) For the purpose of applying other provisions of law or 
Governmentwide regulations that reference provisions under chapters 31, 
33, 35, 43, 51, 53, 55 (subchapter V only), 71, 75, and 77 of title 5, 
U.S. Code, the referenced provisions are not waived but are modified 
consistent with the corresponding regulations in this part, except as 
otherwise provided in this part (including paragraph (c) of this 
section) or in DoD implementing issuances. Applications of this rule 
include, but are not limited to, the following:
    (1) If another provision of law or Governmentwide regulations 
requires coverage under one of the chapters modified or waived under 
this part (i.e., chapters 31, 33, 35, 43, 51, 53, 55 (subchapter V 
only), 71, 75, and 77 of title 5, U.S. Code), DoD employees are deemed 
to be covered by the applicable chapter notwithstanding coverage under 
a system established under this part. Selected examples of provisions 
that continue to apply to any DoD employees (notwithstanding coverage 
under subparts B through I of this part) include, but are not limited 
to, the following:
    (i) Foreign language awards for law enforcement officers under 5 
U.S.C. 4521 through 4523;
    (ii) Pay for firefighters under 5 U.S.C. 5545b;
    (iii) Recruitment, relocation, and retention payments under 5 
U.S.C. 5753 through 5754; and
    (iv) Physicians' comparability allowances under 5 U.S.C. 5948.
    (2) In applying the back pay law in 5 U.S.C. 5596 to DoD employees 
covered by subpart H of this part (dealing with appeals), the reference 
in section 5596(b)(1)(A)(ii) to 5 U.S.C. 7701(g) (dealing with attorney 
fees) is considered to be a reference to a modified section 7701(g) 
that is consistent with Sec.  9901.807(h).
    (3) In applying the back pay law in 5 U.S.C. 5596 to DoD employees 
covered by subpart I of this part (dealing with labor relations), the 
reference in section 5596(b)(5) to section 7116 (dealing with unfair 
labor practices) is considered to be a reference to a modified section 
7116 that is consistent with Sec.  9901.916.
    (c) Law enforcement officer special rates and geographic 
adjustments under sections 403 and 404 of the Federal Employees Pay 
Comparability Act of 1990 (section 529 of Pub. L. 101-509) do not apply 
to employees who are covered by an NSPS classification and pay system 
established under subparts B and C of this part.
    (d) Nothing in this part waives, modifies or otherwise affects the 
employment discrimination laws that the Equal Employment Opportunity 
Commission (EEOC) enforces under 42 U.S.C. 2000e et seq., 29 U.S.C. 621 
et seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 206(d). Employees and 
applicants for employment in DoD will continue to be covered by EEOC's 
Federal sector regulations found at 29 CFR part 1614.


Sec.  9901.108  Program evaluation.

    (a) DoD will establish procedures for evaluating the regulations in 
this part and their implementation. DoD will provide designated 
employee representatives with an opportunity to be briefed and a 
specified timeframe to provide comments on the design and results of 
program evaluations.
    (b) Involvement in the evaluation process does not waive the rights 
of any party under applicable law or regulations.

Subpart B--Classification

General


Sec.  9901.201  Purpose.

    (a) This subpart contains regulations establishing a classification 
structure and rules for covered DoD employees and positions to replace 
the classification structure and rules in 5 U.S.C. chapter 51 and the 
job grading system in 5 U.S.C. chapter 53, subchapter IV, in accordance 
with the merit principle that equal pay should be provided for work of 
equal value, with appropriate consideration of both national and local 
rates paid by employers in the private sector, and

[[Page 7579]]

appropriate incentives and recognition should be provided for 
excellence in performance.
    (b) Any classification system prescribed under this subpart will be 
established in conjunction with the pay system described in subpart C 
of this part.


Sec.  9901.202  Coverage.

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


Sec.  9901.203  Waivers.

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


Sec.  9901.204  Definitions.

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

Classification Structure


Sec.  9901.211  Career groups.

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


Sec.  9901.212  Pay schedules and pay bands.

    (a) For purposes of identifying relative levels of work and 
corresponding pay ranges, DoD may establish one or more pay schedules 
within each career group.
    (b) Each pay schedule may include two or more pay bands.
    (c) DoD will document in implementing issuances the definitions for 
each pay band which specify the type and range of difficulty and 
responsibility; qualifications or competencies; or other 
characteristics of the work encompassed by the pay band.
    (d) DoD will designate qualification standards and requirements for 
each career group, occupational series, pay schedule, and/or pay band, 
as provided in Sec.  9901.514.

Classification Process


Sec.  9901.221  Classification requirements.

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


Sec.  9901.222  Reconsideration of classification decisions.

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

Transitional Provisions


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

    (a) This section describes the transitional provisions that apply 
when DoD positions and employees are converted to a classification 
system established under this subpart. Affected positions and employees 
may convert from the GS system, a prevailing rate system, the SL/ST 
system, the SES system, or such other DoD systems as may be designated 
by the Secretary, as provided in Sec.  9901.202. For the purpose

[[Page 7580]]

of this section, the terms ``convert,'' ``converted,'' ``converting,'' 
and ``conversion'' refer to positions and employees that become covered 
by the NSPS classification system as a result of a coverage 
determination made under Sec.  9901.102(b)(2) and exclude employees who 
are reassigned or transferred from a noncovered position to a position 
already covered by the DoD system.
    (b) DoD will issue implementing issuances prescribing policies and 
procedures for converting DoD employees to a pay band upon initial 
implementation of the NSPS classification system. Such procedures will 
include provisions for converting an employee who is retaining a grade 
under 5 U.S.C. chapter 53, subchapter VI, immediately prior to 
conversion. As provided in Sec.  9901.373, DoD will convert employees 
to the system without a reduction in their rate of pay (including basic 
pay and any applicable locality payment under 5 U.S.C. 5304, special 
rate under 5 U.S.C. 5305, or local market supplement under Sec.  
9901.332).

Subpart C--Pay and Pay Administration

General


Sec.  9901.301  Purpose.

    (a) This subpart contains regulations establishing pay structures 
and pay administration rules for covered DoD employees to replace the 
pay structures and pay administration rules established under 5 U.S.C. 
chapter 53 and 5 U.S.C. chapter 55, subchapter V, as authorized by 5 
U.S.C. 9902. Various features that link pay to employees' performance 
ratings are designed to promote a high-performance culture within DoD.
    (b) Any pay system prescribed under this subpart will be 
established in conjunction with the classification system described in 
subpart B of this part.
    (c) Any pay system prescribed under this subpart will be 
established in conjunction with the performance management system 
described in subpart D of this part.


Sec.  9901.302  Coverage.

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


Sec.  9901.303  Waivers.

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


Sec.  9901.304  Definitions.

    In this part:
    Band means pay band.
    Band rate range means the range of rates of basic pay (excluding 
any local market supplements) applicable to employees in a particular 
pay band, as described in Sec.  9901.321. Each band rate range is 
defined by a minimum and maximum rate.
    Basic pay has the meaning given that term in Sec.  9901.103.
    Bonus means an element of the performance payout that consists of a 
one-time lump-sum payment made to employees. It is not part of basic 
pay.
    Career group has the meaning given that term in Sec.  9901.103.
    Competencies has the meaning given that term in Sec.  9901.103.
    Contribution has the meaning given that term in Sec.  9901.103.
    Contribution assessment means the determination made by the pay 
pool manager as to the impact, extent, and scope of contribution that 
the employee's performance made to the accomplishment of the 
organization's mission and goals.
    CONUS or Continental United States means the States of the United 
States, excluding Alaska and Hawaii, but including the District of 
Columbia.
    Extraordinary pay increase or EPI means a discretionary basic pay 
increase to reward an employee at the highest performance level who has 
been assigned the maximum number of shares available under the rating 
and contribution scheme when the payout formula does not adequately 
compensate them for the employee's extraordinary performance and 
contribution, as described in Sec.  9901.344(b).
    Local market supplement means a geographic- and occupation-based 
supplement to basic pay, as described in Sec.  9901.332.
    Modal rating means the rating of record that occurs most frequently 
in a particular pay pool level.
    Pay band or band has the meaning given that term in Sec.  9901.103.
    Pay pool means the organizational elements/units or other 
categories of employees that are combined for the purpose of 
determining performance payouts. Each employee is in only one pay pool 
at a time. Pay pool also means the dollar value of the funds set aside

[[Page 7581]]

for performance payouts for employees covered by a pay pool.
    Pay schedule has the meaning given that term in Sec.  9901.103.
    Performance has the meaning given that term in Sec.  9901.103.
    Performance payout means the total monetary value of performance 
pay increase and bonus resulting from the performance appraisal process 
and contribution assessment.
    Performance share means a unit of performance payout awarded to an 
employee based on performance. Performance shares may be awarded in 
multiples commensurate with the employee's performance and contribution 
rating level.
    Performance share value means a calculated value for each 
performance share based on pay pool funds available and the 
distribution of performance shares across employees within a pay pool, 
expressed as a percentage or fixed dollar amount.
    Promotion has the meaning given that term in Sec.  9901.103.
    Rating of record has the meaning given that term in Sec.  9901.103.
    Reassignment has the meaning given that term in Sec.  9901.103.
    Reduction in band has the meaning given that term in Sec.  
9901.103.
    Unacceptable performance has the meaning given that term in Sec.  
9901.103.

Overview of Pay System


Sec.  9901.311  Major features.

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


Sec.  9901.312  Maximum rates.

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


Sec.  9901.313  National security compensation comparability.

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

Setting and Adjusting Rate Ranges


Sec.  9901.321  Structure.

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


Sec.  9901.322  Setting and adjusting rate ranges.

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


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

    (a) Except for employees receiving a retained rate under Sec.  
9901.355, employees with a current rating of record above 
``unacceptable'' will receive a percentage increase in basic pay equal 
to the percentage by which the minimum of their rate range is 
increased.
    (b) Employees with a current rating of record of ``unacceptable'' 
will not receive a pay increase under this section.
    (c) For employees who do not have a current rating of record, DoD 
will determine the amount of any pay increase associated with a rate 
range adjustment in accordance with implementing issuances.

Local Market Supplements


Sec.  9901.331  General.

    The basic pay ranges established under Sec. Sec.  9901.321 through 
9901.323 may be supplemented in appropriate circumstances by local 
market supplements, as described in Sec. Sec.  9901.332, 9901.333, and 
9901.334. These supplements are expressed as a percentage of basic pay 
and are set and adjusted as described in Sec.  9901.333. As authorized 
by Sec.  9901.355, DoD implementing issuances will determine the extent 
to which Sec. Sec.  9901.332 through 9901.334 apply to employees 
receiving a retained rate.

[[Page 7582]]

Sec.  9901.332  Local market supplements.

    (a) For each band rate range, DoD may establish local market 
supplements that apply in specified local market areas. Local market 
supplements apply to employees whose official duty station is located 
in the given area. DoD may provide different local market supplements 
for different career groups or for different occupations and/or pay 
bands within the same career group in the same local market area.
    (b) For the purpose of establishing and modifying local market 
areas, 5 U.S.C. 5304 is not waived. A DoD decision to use the local 
market area boundaries based on locality pay rates established under 5 
U.S.C. 5304 does not require separate DoD regulations. DoD may, in 
accordance with 5 U.S.C. 553, issue regulations that establish and 
adjust different local market areas within CONUS or establish and 
adjust new local market areas outside CONUS. As provided by 5 U.S.C. 
5304(f)(2)(B), judicial review of any DoD regulation regarding the 
establishment or adjustment of local market areas is limited to whether 
or not the regulation was promulgated in accordance with 5 U.S.C. 553.
    (c) Local market supplements are considered basic pay for only the 
following purposes:
    (1) Retirement under 5 U.S.C. chapter 83 or 84;
    (2) Life insurance under 5 U.S.C. chapter 87;
    (3) Premium pay under 5 U.S.C. chapter 55, subchapter V, or similar 
payments under other legal authority, including this subpart;
    (4) Severance pay under 5 U.S.C. 5595;
    (5) Cost-of-living allowances and post differentials under 5 U.S.C. 
5941;
    (6) Overseas allowances and differentials under 5 U.S.C. chapter 
59, subchapter III, to the extent authorized by the Department of 
State;
    (7) Other payments and adjustments authorized under this subpart as 
specified by DoD implementing issuances;
    (8) Other payments and adjustments under other statutory or 
regulatory authority that are basic pay for the purpose of locality-
based comparability payments under 5 U.S.C. 5304;
    (9) Determining the rate of basic pay upon conversion to the NSPS 
pay system as provided in Sec.  9901.373(b); and
    (10) Any provisions for which DoD local market supplements are 
treated as basic pay by law.


Sec.  9901.333  Setting and adjusting local market supplements.

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


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

    (a) When a local market supplement is adjusted under Sec.  
9901.333, employees to whom the supplement applies with a current 
rating of record above ``unacceptable'' will receive any pay increase 
resulting from that adjustment.
    (b) Employees with a current rating of record of ``unacceptable'' 
will not receive a pay increase under this section.
    (c) For employees who do not have a current rating of record, DoD 
will determine the amount of any pay increase under this section in 
accordance with implementing issuances.

Performance-Based Pay


Sec.  9901.341  General.

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


Sec.  9901.342  Performance payouts.

    (a) Overview. (1) The NSPS pay system will be a pay-for-performance 
system and, when implemented, will result in a distribution of 
available performance pay funds based upon individual performance, 
individual contribution, organizational performance, or a combination 
of those elements. The NSPS pay system will use a pay pool concept to 
manage, control, and distribute performance-based pay increases and 
bonuses. The performance payout is a function of the amount of money in 
the performance pay pool and the number of shares assigned to 
individual employees.
    (2) The rating of record used as the basis for a performance pay 
increase is the one assigned for the most recently completed appraisal 
period, except that if an appropriate rating official determines that 
an employee's current performance is inconsistent with that rating, 
that rating official may prepare a more current rating of record, 
consistent with Sec.  9901.409(b). Unless otherwise provided in 
implementing issuances, if an employee is not eligible to have a rating 
of record for the current rating cycle for reasons other than those 
identified in paragraphs (f) and (g), such employee will not be 
eligible for a pay increase or bonus payment under this part.
    (b) Performance pay pools. (1) DoD will issue implementing 
issuances for the establishment and management of pay pools for 
performance payouts.
    (2) DoD may determine a percentage of pay to be included in pay 
pools and paid out in accordance with accompanying DoD implementing 
issuances as--
    (i) A performance-based pay increase;
    (ii) A performance-based bonus; or
    (iii) A combination of a performance-based pay increase and a 
performance-based bonus.
    (c) Performance shares. (1) DoD will issue implementing issuances 
regarding the assignment of a number or range of shares for each rating 
of record level, subject to paragraph (c)(2) of this section. 
Performance shares will be used to determine performance pay increases 
and/or bonuses.
    (2) Employees with unacceptable ratings of record will be assigned 
zero shares.
    (d) Performance payout. (1) DoD will establish a methodology that 
authorized officials will use to determine the value of a performance 
share. A performance share may be expressed as a percentage of an 
employee's rate of basic pay (exclusive of local market supplements 
under Sec.  9901.332) or as a fixed dollar amount, or both.
    (2) To determine an individual employee's performance payout, DoD 
will multiply the share value determined under paragraph (d)(1) of this 
section by the number of performance shares assigned to the employee.
    (3) DoD may provide for the establishment of control points within 
a band that limit increases in the rate of basic pay. DoD may require 
that certain criteria be met for increases above a control point.
    (4) A performance payout may be an increase in basic pay, a bonus, 
or a

[[Page 7583]]

combination of the two. However, an increase in basic pay may not cause 
the employee's rate of basic pay to exceed the maximum rate or 
applicable control point of the employee's band rate range. 
Implementing issuances will provide guidance for determining the payout 
amount and the appropriate distribution between basic pay and bonus.
    (5) DoD will determine the effective date(s) of increases in basic 
pay made under this section.
    (6) Notwithstanding any other provision of this section, DoD will 
issue implementing issuances to address the circumstances under which 
an employee receiving a retained rate under Sec.  9901.355 may receive 
a lump-sum performance payout.
    (e) Proration of performance payouts. DoD will issue implementing 
issuances regarding the proration of performance payouts for employees 
who, during the period between performance payouts, are--
    (1) Hired, transferred, reassigned, or promoted;
    (2) In a leave-without-pay status (except as provided in paragraphs 
(f) and (g) of this section); or
    (3) In other circumstances where proration is considered 
appropriate.
    (f) Adjustments for employees returning after performing honorable 
service in the uniformed services. DoD will issue implementing 
issuances regarding how it sets the rate of basic pay prospectively for 
an employee who leaves a DoD position to perform service in the 
uniformed services (in accordance with 38 U.S.C. 4303 and 5 CFR 
353.102) and returns through the exercise of a reemployment right 
provided by law, Executive order, or regulation under which accrual of 
service for seniority-related benefits is protected (e.g., 38 U.S.C. 
4316). DoD will credit the employee with increases under Sec.  9901.323 
and increases to basic pay under this section based on the employee's 
last DoD rating of record or the average percentage basic pay increases 
granted to employees in the same pay pool, pay schedule, and pay band 
who received the modal rating, whichever is most advantageous to the 
employee. For employees who have no such rating of record, DoD will use 
the modal rating received by other employees in the same pay pool, pay 
schedule, and pay band during the most recent rating cycle.
    (g) Adjustments for employees returning to duty after being in 
workers' compensation status. DoD will issue implementing issuances 
regarding how it sets the rate of basic pay prospectively for an 
employee who returns to duty after a period of receiving injury 
compensation under 5 U.S.C. chapter 81, subchapter I (in a leave-
without-pay status or as a separated employee). For the intervening 
period, DoD will credit the employee with increases under Sec.  
9901.323 and increases to basic pay under this section based on the 
employee's last DoD rating of record or the average percentage basic 
pay increases granted to employees in the same pay pool, pay schedule, 
and pay band who received the modal rating, whichever is most 
advantageous to the employee. For employees who have no such rating of 
record, DoD will use the modal rating received by other employees 
covered by the same pay pool, pay schedule, and pay band during the 
most recent rating cycle.


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

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


Sec.  9901.344  Other performance payments.

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


Sec.  9901.345  Treatment of developmental positions.

    DoD may issue implementing issuances regarding pay increases for 
developmental positions. These issuances may require employees to meet 
certain standardized assessment or certification points as part of a 
formal training/developmental program.

Pay Administration


Sec.  9901.351  Setting an employee's starting pay.

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


Sec.  9901.352  Setting pay upon reassignment.

    (a) Subject to paragraph (b) of this section, DoD may set pay 
anywhere within the assigned pay band when an employee is reassigned, 
either voluntarily or involuntarily, to a position in a comparable pay 
band.
    (b) Subject to the adverse action procedures set forth in subpart G 
of this part and implementing issuances, DoD may reduce an employee's 
rate of basic pay within a pay band for unacceptable performance and/or 
conduct. A reduction in pay under this section may not be more than 10 
percent or cause an employee's rate of basic pay to fall below the 
minimum rate of the employee's pay band. Such a reduction may be made 
effective at any time.


Sec.  9901.353  Setting pay upon promotion.

    Subject to DoD implementing issuances, DoD may set pay anywhere 
within the assigned pay band when an employee is promoted to a position 
in a higher pay band.


Sec.  9901.354  Setting pay upon reduction in band.

    (a) Subject to paragraph (b) of this section, DoD may set pay 
anywhere within the assigned pay band when an employee is reduced in 
band, either voluntarily or involuntarily. As applicable, pay retention 
provisions established under Sec.  9901.355 will apply.
    (b) Subject to the adverse action procedures set forth in subpart G 
of this part, DoD may assign an employee involuntarily to a position in 
a lower pay band for unacceptable performance and/or conduct, and may 
simultaneously reduce the employee's rate of basic pay. A reduction in 
basic pay under this section may not cause an employee's rate of basic 
pay to fall below the minimum rate of the employee's new pay band, or 
be more than 10 percent unless a larger reduction is needed to place 
the employee at the maximum rate of the lower band.
    (c) If an employee is reduced in band involuntarily, but not 
through adverse action procedures (e.g., termination of a temporary 
promotion or failure to successfully complete a supervisory 
probationary period), DoD will limit any reduction in pay in accordance 
with implementing issuances.


Sec.  9901.355  Pay retention.

    (a) Subject to the requirements of this section, DoD will issue 
implementing

[[Page 7584]]

issuances regarding pay retention. Pay retention prevents a reduction 
in basic pay that would otherwise occur by preserving the former rate 
of basic pay within the employee's new pay band or by establishing a 
retained rate that exceeds the maximum rate of the new pay band.
    (b) Pay retention will be based on the employee's rate of basic pay 
in effect immediately before the action that would otherwise reduce the 
employee's rate. A retained rate will be compared to the range of rates 
of basic pay applicable to the employee's position.


Sec.  9901.356  Miscellaneous.

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

Premium Pay


Sec.  9901.361  General.

    (a) This section applies to eligible DoD employees and positions 
which would otherwise be covered by 5 U.S.C. chapter 55, subchapter V, 
subject to a determination by the Secretary under Sec.  9901.102(b)(2). 
In making such a determination, the Secretary may waive the provisions 
of 5 U.S.C. chapter 55, subchapter V (except section 5545b), in whole 
or in part with respect to any category of employees approved for 
coverage.
    (b) DoD will issue implementing issuances regarding additional 
payments which include, but are not limited to:
    (1) Overtime pay (excluding overtime pay under the Fair Labor 
Standards Act);
    (2) Compensatory time off;
    (3) Sunday, holiday, and night pay;
    (4) Annual premium pay for standby duty and administratively 
uncontrollable overtime;
    (5) Criminal investigator availability pay; and
    (6) Hazardous duty differentials.
    (c) DoD will determine the conditions of eligibility for the 
amounts of and limitations on payments made under the authority of this 
section.

Conversion Provisions


Sec.  9901.371  General.

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


Sec.  9901.372  Creating initial pay ranges.

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


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

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

Subpart D--Performance Management


Sec.  9901.401  Purpose.

    (a) This subpart provides for the establishment in DoD of a 
performance management system as authorized by 5 U.S.C. 9902.
    (b) The performance management system established under this 
subpart is designed to promote and sustain a high-performance culture 
by incorporating the following elements:
    (1) Adherence to merit principles set forth in 5 U.S.C. 2301;
    (2) A fair, credible, and transparent employee performance 
appraisal system;
    (3) A link between the performance management system and DoD's 
strategic plan;
    (4) A means for ensuring employee involvement in the design and 
implementation of the system;
    (5) Adequate training and retraining for supervisors, managers, and

[[Page 7585]]

employees in the implementation and operation of the performance 
management system;
    (6) A process for ensuring ongoing performance feedback and 
dialogue among supervisors, managers, and employees throughout the 
appraisal period, and setting timetables for review;
    (7) Effective safeguards to ensure that the management of the 
system is fair and equitable and based on employee performance;
    (8) A means for ensuring that adequate agency resources are 
allocated for the design, implementation, and administration of the 
performance management system; and
    (9) A pay-for-performance evaluation system to better link 
individual pay to performance, and provide an equitable method for 
appraising and compensating employees.


Sec.  9901.402  Coverage.

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


Sec.  9901.403  Waivers.

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


Sec.  9901.404  Definitions.

    In this subpart--
    Appraisal means the review and evaluation of an employee's 
performance.
    Appraisal period means the period of time established under a 
performance management system for reviewing employee performance.
    Competencies has the meaning given that term in Sec.  9901.103.
    Contribution has the meaning given that term in Sec.  9901.103.
    Minimum period means the period of time established by DoD during 
which an employee will perform under applicable performance 
expectations before receiving a rating of record.
    Pay-for-performance evaluation system means the performance 
management system established under this subpart to link individual pay 
to performance and provide an equitable method for appraising and 
compensating employees.
    Performance has the meaning given that term in Sec.  9901.103.
    Performance expectations means that which an employee is required 
to do, as described in Sec.  9901.406, and may include observable or 
verifiable descriptions of manner, quality, quantity, timeliness, and 
cost effectiveness.
    Performance management means applying the integrated processes of 
setting and communicating performance expectations, monitoring 
performance and providing feedback, developing performance and 
addressing poor performance, and rating and rewarding performance in 
support of the organization's goals and objectives.
    Performance management system means the policies and requirements 
established under this subpart, as supplemented by DoD implementing 
issuances, for setting and communicating employee performance 
expectations, monitoring performance and providing feedback, developing 
performance and addressing poor performance, and rating and rewarding 
performance. It incorporates the elements set forth in Sec.  
9901.401(b).
    Rating of record has the meaning given that term in Sec.  9901.103.
    Unacceptable performance has the meaning given that term in Sec.  
9901.103.


Sec.  9901.405  Performance management system requirements.

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


Sec.  9901.406  Setting and communicating performance expectations.

    (a) Performance expectations will support and align with the DoD 
mission and its strategic goals, organizational program and policy 
objectives, annual performance plans, and other measures of 
performance.
    (b) Supervisors and managers will communicate performance 
expectations, including those that may affect an employee's retention 
in the job. Performance expectations will be communicated to the 
employee prior to holding the employee accountable for them. However, 
notwithstanding this requirement, employees are always accountable for 
demonstrating professionalism and standards of appropriate conduct and 
behavior, such as civility and respect for others.
    (c) Performance expectations for supervisors and managers will 
include assessment and measurement of how well supervisors and managers 
plan, monitor, develop, correct, and assess subordinate employees' 
performance.
    (d) Performance expectations may take the form of--
    (1) Goals or objectives that set general or specific performance 
targets at the individual, team, and/or organizational level;

[[Page 7586]]

    (2) Organizational, occupational, or other work requirements, such 
as standard operating procedures, operating instructions, manuals, 
internal rules and directives, and/or other instructions that are 
generally applicable and available to the employee;
    (3) A particular work assignment, including expectations regarding 
the quality, quantity, accuracy, timeliness, and/or other expected 
characteristics of the completed assignment;
    (4) Competencies an employee is expected to demonstrate on the job, 
and/or the contributions an employee is expected to make; or
    (5) Any other means, provided that the expectation would be clear 
to a reasonable person.
    (e) Supervisors will involve employees, insofar as practicable, in 
the development of their performance expectations. However, final 
decisions regarding performance expectations are within the sole and 
exclusive discretion of management.


Sec.  9901.407  Monitoring performance and providing feedback.

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


Sec.  9901.408  Developing performance and addressing poor performance.

    (a) DoD implementing issuances will prescribe procedures that 
supervisors will use to develop employee performance and to address 
poor performance.
    (b) If during the appraisal period a supervisor determines that an 
employee's performance is unacceptable, the supervisor will--
    (1) Consider the range of options available to address the 
performance deficiency, which include, but are not limited to, remedial 
training, an improvement period, a reassignment, an oral warning, a 
letter of counseling, a written reprimand, or adverse action defined in 
subpart G of this part, including a reduction in rate of basic pay or 
pay band; and
    (2) Take appropriate action to address the deficiency, taking into 
account the circumstances, including the nature and gravity of the 
unacceptable performance and its consequences.
    (c) As specified in subpart H of this part, employees may appeal 
adverse actions (e.g., suspensions of more than 14 days, reductions in 
pay and pay band, and removal) based on unacceptable performance.


Sec.  9901.409  Rating and rewarding performance.

    (a) The NSPS performance management system will establish a multi-
level rating system as described in the DoD implementing issuances.
    (b) An appropriate rating official will prepare and issue a rating 
of record after the completion of the appraisal period. An additional 
rating of record may be issued to reflect a substantial and sustained 
change in the employee's performance since the last rating of record. A 
rating of record will be used as a basis for--
    (1) A pay determination under any applicable pay rules;
    (2) Determining reduction-in-force retention standing; and
    (3) Such other action that DoD considers appropriate, as specified 
in DoD implementing issuances.
    (c) A rating of record will assess an employee's performance with 
respect to his or her performance expectations and/or relative 
contributions and is considered final when issued to the employee with 
all appropriate reviews and signatures.
    (d) An appropriate rating official will communicate the rating of 
record and number of shares to the employee prior to payout.
    (e) A rating of record issued under this subpart is an official 
rating of record for the purpose of any provision of title 5, Code of 
Federal Regulations, for which an official rating of record is 
required. DoD will transfer ratings of record between subordinate 
organizations and to other Federal departments or agencies in 
accordance with DoD implementing issuances.
    (f) DoD may not lower the rating of record of an employee on an 
approved absence from work, including the absence of a disabled veteran 
to seek medical treatment, as provided in Executive Order 5396.
    (g) A rating of record may be challenged by an employee only 
through a reconsideration procedure as provided in DoD implementing 
issuances. This procedure will be the sole and exclusive method for all 
employees to challenge a rating of record. A payout determination will 
not be subject to reconsideration procedures.
    (h) A supervisor or other rating official may prepare an additional 
performance appraisal for the purposes specified in the applicable 
performance management system (e.g., transfers and details) at any time 
after the completion of the minimum period. Such an appraisal is not a 
rating of record.
    (i) DoD implementing issuances will establish policies and 
procedures for crediting performance in a reduction in force in 
accordance with subpart F of this part.

Subpart E--Staffing and Employment

General


Sec.  9901.501  Purpose.

    (a) This subpart sets forth policies and procedures for the 
establishment of qualification requirements; recruitment for, and 
appointment to, positions; and assignment, reassignment, detail, 
transfer, or promotion of employees, consistent with 5 U.S.C. 9902(a) 
and (k).
    (b) DoD will comply with merit principles set forth in 5 U.S.C. 
2301 and with 5 U.S.C. 2302 (dealing with prohibited personnel 
practices).
    (c) DoD will adhere to veterans' preference principles set forth in 
5 U.S.C. 2302(b)(11), consistent with 5 U.S.C. 9902(a) and (k).


Sec.  9901.502  Scope of authority.

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


Sec.  9901.503  Coverage.

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


Sec.  9901.504  Definitions.

    In this subpart--
    Career employee means an individual appointed without time limit to 
a

[[Page 7587]]

competitive or excepted service position in the Federal career service.
    Promotion has the meaning given that term in Sec.  9901.103.
    Reassignment has the meaning given that term in Sec.  9901.103.
    Reduction in band has the meaning given that term in Sec.  
9901.103.
    Temporary employee means an individual not on a career appointment 
who is employed for a limited but unspecified period of time, up to a 
maximum established by implementing issuances, to perform the work of a 
position that does not require an additional permanent employee.
    Term employee means an individual not on a career appointment who 
is employed for a specified period of time up to a maximum established 
by implementing issuances, to perform the work of a temporary or 
permanent position.
    Time-limited employee means an individual appointed to a position 
for a period of limited duration, either specified or unspecified 
(e.g., term or temporary) in either the competitive or excepted 
service.

External Recruitment and Internal Placement


Sec.  9901.511  Appointing authorities.

    (a) Competitive and excepted appointing authorities. DoD may 
continue to use excepted and competitive appointing authorities and 
entitlements under chapters 31 and 33 of title 5, U.S. Code, 
Governmentwide regulations, or Executive orders, as well as other 
statutes, and those individuals will be given career or time-limited 
appointments, as appropriate.
    (b) Additional appointing authorities. (1) The Secretary and the 
Director may enter into written agreements providing for new excepted 
and competitive appointing authorities for positions covered by the 
National Security Personnel System, including noncompetitive 
appointments, and excepted appointments that may lead to a subsequent 
noncompetitive appointment to the competitive service.
    (2)(i) DoD and OPM will jointly publish a notice in the Federal 
Register when establishing a new competitive appointing authority or a 
new excepted appointing authority that may lead to a subsequent 
noncompetitive appointment to a competitive position in the career 
service. DoD and OPM will issue a notice with a public comment period 
before establishing such authority, except as provided in paragraph 
(b)(2)(ii) of this section.
    (ii) If DoD determines that a critical mission requirement exists, 
DoD and OPM may establish a new appointing authority as described in 
paragraph (b)(2)(i) of this section effective upon publication of a 
Federal Register notice without a preceding comment period. However, 
the notice will invite public comments, and DoD and OPM will issue 
another notice if the authority is revised based on those comments.
    (3) DoD will prescribe appropriate implementing issuances to 
administer a new appointing authority established under paragraph (b) 
of this section.
    (4) At least annually, DoD will publish in the Federal Register a 
consolidated list of all appointing authorities established under this 
section and currently in effect.
    (c) Severe shortage/critical need hiring authority. (1) DoD may 
determine that there is a severe shortage of candidates or a critical 
hiring need, as defined in 5 U.S.C. 3304(a)(3) and 5 CFR part 337, 
subpart B, for particular occupations, pay bands, career groups, and/or 
geographic locations, and establish a specific authority to make 
appointments without regard to Sec.  9901.515. Public notice will be 
provided in accordance with 5 U.S.C. 3304(a)(3)(A).
    (2) For each specific authority, DoD will document the basis for 
the severe shortage or critical hiring need, consistent with 5 CFR 
337.204(b) or 337.205(b), as applicable.
    (3) DoD will terminate or modify a specific authority to make 
appointments under paragraph (a) of this section when it determines 
that the severe shortage or critical need upon which the authority was 
based no longer exists.
    (4) DoD will prescribe appropriate implementing issuances to 
administer this authority and will notify OPM of determinations made 
under this section.
    (d) Time-limited appointing authorities. (1) The Secretary may 
prescribe the procedures for appointing employees, the duration of such 
appointments, and the appropriate uses of time-limited employees.
    (2) The Secretary will prescribe implementing issuances 
establishing the procedures under which a time-limited employee (e.g., 
an individual employed on a temporary or term basis) serving in a 
competitive service position may be converted without further 
competition to the career service if--
    (i) The vacancy announcement met the requirements of Sec.  
9901.515(a) and included the possibility of noncompetitive conversion 
to a competitive position in the career service at a later date;
    (ii) The individual was appointed using the competitive examining 
procedures set forth in Sec.  9901.515(b) and (c); and
    (iii) The employee completed at least 2 years of continuous service 
at the fully successful level of performance or better.


Sec.  9901.512  Probationary periods.

    The Secretary may establish probationary periods as deemed 
appropriate for employees appointed to positions in the competitive and 
excepted service covered by the National Security Personnel System. DoD 
will prescribe the conditions for such periods, including creditable 
service, in implementing issuances. A preference eligible who has 
completed 1 year of a probationary period is covered by subparts G and 
H of this part. An employee who fails to complete an in-service 
probationary period established under Sec.  9901.516 will be returned 
to a position and rate of pay comparable to the position and rate of 
pay he or she held before the probationary period.


Sec.  9901.513  Qualification standards.

    DoD may continue to use qualification standards established or 
approved by OPM. DoD also may establish qualification standards for 
positions covered by the National Security Personnel System.


Sec.  9901.514  Non-citizen hiring.

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


Sec.  9901.515  Competitive examining procedures.

    (a) In recruiting applicants for competitive appointments to 
competitive service positions in NSPS, DoD will provide public notice 
for all vacancies in the career service in accordance with 5 CFR part 
330 and--
    (1) Will accept applications for the vacant position from all 
sources;
    (2) Will, at a minimum, consider applicants from the local 
commuting area;
    (3) May concurrently consider applicants from other targeted 
recruitment areas, as specified in the vacancy announcement, in 
addition to those applicants from the minimum area of consideration; 
and
    (4) May consider applicants from outside that minimum area(s) of 
consideration as necessary to provide sufficient qualified candidates.

[[Page 7588]]

    (b) DoD may establish procedures for the examination of applicants 
for entry into competitive and excepted service positions in the 
National Security Personnel System. Such procedures will adhere to the 
merit system principles in 5 U.S.C. 2301 and veterans' preference 
requirements as set forth in 5 U.S.C. 3309 through 3320, as applicable, 
and will be available in writing for applicant review. These procedures 
will also include provisions for employees entitled to priority 
consideration as defined in 5 U.S.C. 1302(c) or 8151.
    (c) In establishing examining procedures for appointing employees 
in the competitive service under paragraph (b) of this section, DoD may 
use traditional numerical rating and ranking or alternative ranking and 
selection procedures (category rating) in accordance with 5 U.S.C. 
3319(b) and (c).
    (d) DoD will apply the requirements of paragraphs (a), (b), and (c) 
of this section to the recruitment of applicants for time-limited 
positions in the competitive service in order to qualify an appointee 
for noncompetitive conversion to a competitive position in the career 
service, in accordance with Sec.  9901.511.


Sec.  9901.516  Internal placement.

    DoD may prescribe implementing issuances regarding the assignment, 
reassignment, reinstatement, detail, transfer, and promotion of 
individuals or employees into or within NSPS. These issuances may also 
establish in-service probationary periods and prescribe the conditions 
under which employees will complete such periods. Such issuances will 
be made available to applicants and employees. Internal placement 
actions may be made on a permanent or temporary basis using competitive 
and noncompetitive procedures. Those exceptions to competitive 
procedures set forth in 5 CFR part 335 apply to NSPS.

Subpart F--Workforce Shaping


Sec.  9901.601  Purpose and applicability.

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


Sec.  9901.602  Scope of authority.

    When a specified category of employees is covered by the system 
established under this subpart, the provisions of 5 U.S.C. 3501 and 
3502 (except with respect to veterans' preference), and 3503 are 
modified and replaced with respect to that category, except as 
otherwise specified in this subpart. In accordance with Sec.  9901.105, 
DoD will prescribe implementing issuances to carry out the provisions 
of this subpart.


Sec.  9901.603  Definitions.

    In this subpart:
    Competing employee means a career employee (including an employee 
serving an initial probationary period), an employee serving on a term 
appointment, and other employees as identified in DoD implementing 
issuances.
    Competitive area means the boundaries within which employees 
compete for retention under this subpart, based on factors described in 
Sec.  9901.605(a).
    Competitive group means employees within a competitive area who are 
on a common retention list for the purpose of exercising displacement 
rights.
    Displacement right means the right of an employee who is displaced 
from his or her present position because of position abolishment, or 
because of displacement resulting from the abolishment of a higher-
standing employee on the retention list, to displace a lower-standing 
employee on the list on the basis of the retention factors.
    Notice means a written communication from the Department to an 
individual employee stating that the employee will be displaced from 
his or her position as a result of a reduction in force action under 
this subpart.
    Rating of record has the meaning given that term in Sec.  9901.103.
    Retention factors means performance, veterans' preference, tenure 
of employment, length of service, and such other factors as the 
Secretary considers necessary and appropriate to rank employees within 
a particular retention list.
    Retention list means a list of all competing employees occupying 
positions in the competitive area, who are grouped in the same 
competitive group on the basis of retention factors. While all 
positions in the competitive group are listed, only competing employees 
have retention standing.
    Tenure group means a group of employees with a given appointment 
type. In a reduction in force, employees are first placed in a tenure 
group and then ranked within that group according to retention factors.
    Undue interruption means a degree of interruption that would 
prevent the completion of required work by an employee within 90 days 
after the employee has been placed in a different position.


Sec.  9901.604  Coverage.

    (a) Employees covered. The following employees and positions in DoD 
organizational and functional units are eligible for coverage under 
this subpart:
    (1) Employees and positions who would otherwise be covered by 5 
U.S.C. chapter 35 (excluding members of the Senior Executive Service 
and employees who are excluded from coverage by other statutory 
authority); and
    (2) Such others designated by the Secretary as DoD may be 
authorized to include under 5 U.S.C. 9902.
    (b) Actions covered. (1) Reduction in force. The Department will 
apply this subpart when releasing a competing employee from a retention 
list by separation, reduction in band, or assignment involving 
displacement, and the release results from an action described in Sec.  
9901.601.
    (2) Transfer of function. The Department will apply 5 CFR part 351, 
subpart C, when a function transfers from one competitive area to a 
different competitive area, except as otherwise provided in this 
subpart.
    (3) Furlough. The Department will apply the provisions in 5 CFR 
351.604 when furloughing a competing employee for more than 30 
consecutive days, except as otherwise provided in this subpart.
    (c) Actions excluded. This subpart does not apply to--
    (1) The termination of a temporary promotion or temporary 
reassignment and the subsequent return of an employee to the position 
held before the temporary promotion or temporary reassignment (or to a 
position with comparable pay band, pay, status, and tenure);
    (2) A reduction in band based on the reclassification of an 
employee's position due to the application of new classification 
standards or the correction of a classification error;
    (3) Placement of an employee serving on a seasonal basis in a 
nonpay, nonduty status in accordance with conditions established at 
time of appointment;

[[Page 7589]]

    (4) A change in an employee's work schedule from other-than-full-
time to full-time;
    (5) A change in an employee's mixed tour work schedule in 
accordance with conditions established at time of appointment;
    (6) A change in the scheduled tour of duty of an other-than-full-
time schedule;
    (7) A reduction in band based on the reclassification of an 
employee's position due to erosion of duties, except that this 
exclusion does not apply to such reclassification actions that will 
take effect after an agency has formally announced a reduction in force 
in the employee's competitive area and when the reduction in force will 
take effect within 180 days; or
    (8) Any other personnel action not covered by paragraph (b) of this 
section.


Sec.  9901.605  Competitive area.

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


Sec.  9901.606  Competitive group.

    (a) The Department will establish separate competitive groups for 
employees--
    (1) In the excepted and competitive service;
    (2) Under different excepted service appointment authorities; and
    (3) With different work schedules (e.g., full-time, part-time, 
seasonal, intermittent).
    (b) The Department may further define competitive groups on the 
basis of one or more of the following considerations:
    (1) Career group;
    (2) Pay schedule;
    (3) Occupational series or specialty;
    (4) Pay band; or
    (5) Trainee status.
    (c) An employee is placed into a competitive group based on the 
employee's official position of record. The Department may supplement 
an employee's official position description by using other applicable 
records that document the employee's actual duties and 
responsibilities.
    (d) The competitive group includes the official positions of 
employees on a detail or other nonpermanent assignment to a different 
position from the competitive group.


Sec.  9901.607  Retention standing.

    (a) Retention list. Within each competitive group, the Department 
will establish a retention list of competing employees in descending 
order based on the following:
    (1) Tenure, with career employees (including employees serving an 
initial probationary period) listed first, followed by other employees 
on term appointments and other employees as identified in DoD 
implementing issuances.
    (2) Veterans' preference, in accordance with the preference 
requirements in 5 CFR 351.504(c) and (d), including the preference 
restrictions found in 5 U.S.C. 3501(a);
    (3) The rating of record, in accordance with DoD implementing 
issuances; and
    (4) Creditable civilian and/or uniformed service in accordance with 
5 CFR 351.503 and 5 U.S.C. 3502(a)(A) and (B). The Department may 
establish tie-breaking procedures when two or more employees have the 
same retention standing.
    (b) Active armed forces member not on list. The retention list does 
not include the name of an employee who, on the effective date of the 
reduction in force, is on active duty in the armed forces with a 
restoration right under 5 CFR part 353.
    (c) Access to retention list. Both an employee who received a 
specific reduction in force notice, and the employee's representative, 
have access to the applicable retention list in accordance with 5 CFR 
351.505.


Sec.  9901.608  Displacement, release, and position offers.

    (a) Displacement to other positions on the retention list. (1) An 
employee who is displaced because of position abolishment, or because 
of displacement resulting from the abolishment of the position of a 
higher-standing employee on the retention list, may displace a lower-
standing employee on the list if--
    (i) The higher-standing employee is qualified for the position, 
consistent with 5 CFR 351.702; and
    (ii) No undue interruption would result from the displacement.
    (2) A displacing employee retains his or her status and tenure.
    (b) Release from the retention list. (1) The Department selects 
employees for release from the list on the basis of the ascending order 
of retention standing set forth in Sec.  9901.607(a).
    (2) The Department may not release a competing employee from a 
retention list that contains a position held by a temporary employee 
(e.g., a competitive service temporary position).
    (3) The Department may temporarily postpone the release of an 
employee from the retention list when appropriate under 5 CFR 351.506, 
351.606, 351.607, and 351.608.
    (c) Placement in vacant positions. At the Department's option, the 
Department may offer an employee released from a retention list a 
vacant position within the competitive area in lieu of reduction in 
force, based on relative retention standing as specified in Sec.  
9901.607(a).
    (d) Actions for employees with no offer. If a released employee 
does not receive an offer of another position under paragraph (c) of 
this section to a position on a different retention list, the 
Department may--
    (1) Separate the employee by reduction in force; or
    (2) Furlough the employee under applicable procedures, including 
the provisions in 5 CFR 351.604.


Sec.  9901.609  Reduction in force notices.

    The Department will provide a specific written notice to each 
employee reached for an action in reduction in force competition at 
least 60 days before the reduction in force becomes effective. DoD will 
prescribe the content of the notice in implementing issuances.


Sec.  9901.610  Voluntary separation.

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

[[Page 7590]]

be treated as an involuntary separation due to a reduction in force.


Sec.  9901.611  Reduction in force appeals.

    (a) An employee who believes the Department did not properly apply 
the provisions of this subpart may appeal the reduction in force action 
to the Merit Systems Protection Board as provided for in 5 CFR 351.901 
if the employee was released from the retention list and was--
    (1) Separated by reduction in force;
    (2) Reduced in band by reduction in force; or
    (3) Furloughed by reduction in force for more than 30 consecutive 
days.
    (b) Paragraph (a) of this section does not apply to actions taken 
under internal DoD placement programs, including the DoD Priority 
Placement Program.

Subpart G--Adverse Actions

General


Sec.  9901.701  Purpose.

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


Sec.  9901.702  Waivers.

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


Sec.  9901.703  Definitions.

    In this subpart:
    Adverse action means a removal, suspension, furlough for 30 days or 
less, reduction in pay, or reduction in pay band (or comparable 
reduction).
    Furlough has the meaning given that term in Sec.  9901.103.
    Indefinite suspension means the placement of an employee in a 
temporary status without duties and pay pending investigation, inquiry, 
or further Department action. An indefinite suspension continues for an 
indeterminate period of time and ends with the occurrence of pending 
conditions set forth in notice of actions which may include the 
completion of any subsequent administrative action.
    Mandatory removal offense (MRO) has the meaning given that term in 
Sec.  9901.103.
    Pay means the rate of basic pay fixed by law or administrative 
action for the position held by an employee before any deductions and 
exclusive of additional pay of any kind. For the purpose of this 
subpart, pay does not include locality-based comparability payments 
under 5 U.S.C. 5304, local market supplements under subpart C of this 
part, or other similar payments.
    Probationary period means that period established pursuant to Sec.  
9901.512.
    Removal means the involuntary separation of an employee from the 
Federal service.
    Suspension means the temporary placement of an employee, for 
disciplinary reasons, in a nonduty/ nonpay status.


Sec.  9901.704  Coverage.

    (a) Actions covered. This subpart covers removals, suspensions, 
furloughs of 30 days or less, reductions in pay, or reductions in band 
(or comparable reductions).
    (b) Actions excluded. This subpart does not cover--
    (1) An action taken against an employee during a probationary 
period (excluding an in-service or supervisory probationary period);
    (2) A reduction in pay or pay band of a supervisor or manager who 
has not completed a supervisory probationary period, if the supervisory 
or manager is returned to the pay or pay band held immediately before 
becoming a supervisor or manager.
    (3) A reduction in pay or pay band of an employee who does not 
satisfactorily complete an in-service probationary period under Sec.  
9901.512.
    (4) An action that terminates a temporary or term promotion and 
returns the employee to the position from which temporarily promoted, 
or to a different position in a comparable pay band, if the Department 
informed the employee that the promotion was to be of limited duration;
    (5) A reduction-in-force action under subpart F of this part;
    (6) An action imposed by the Merit Systems Protection Board under 5 
U.S.C. 1215;
    (7) A voluntary action by an employee;
    (8) An action taken or directed by OPM based on suitability under 5 
CFR part 731;
    (9)(i) Termination of appointment on the expiration date specified 
as a basic condition of employment at the time the appointment was 
made;
    (ii) Termination of appointment before the expiration date 
specified as a basic condition of employment at the time the 
appointment was made, except when the termination is taken against--
    (A) A preference eligible employee who has completed 1 year under a 
time-limited appointment; or
    (B) An employee who has completed a probationary period under a 
term appointment;
    (10) Cancellation of a promotion to a position not classified prior 
to the promotion;
    (11) Placement of an employee serving on an intermittent or 
seasonal basis in a temporary non-duty, non-pay status in accordance 
with conditions established at the time of appointment;
    (12) Reduction of an employee's rate of basic pay from a rate that 
is contrary to law or regulation;
    (13) An action taken under a provision of statute, other than one 
codified in title 5, U.S. Code, which excludes the action from 5 U.S.C. 
chapter 75 or this subpart;
    (14) A classification determination, including a classification 
determination under subpart B of this part;
    (15) Suspension or removal under 5 U.S.C. 7532;
    (16) An action to terminate grade retention upon conversion to the 
NSPS pay system established under subpart C of this part; and
    (c) Employees covered. Subject to a determination by the Secretary 
under Sec.  9901.102(b)(2), this subpart applies to DoD employees, 
except as excluded by paragraph (d) of this section.
    (d) Employees excluded. This subpart does not apply to--
    (1) An employee who is serving a probationary period, except when 
the employee is a preference eligible who has completed 1 year of that 
probationary period;
    (2) A member of the Senior Executive Service;
    (3) An employee who is terminated in accordance with terms 
specified as conditions of employment at the time the appointment was 
made;
    (4) An employee whose appointment is made by and with the advice 
and consent of the Senate;
    (5) An employee whose position has been determined to be of a 
confidential, policy-determining, policy-making, or policy-advocating 
character by--
    (i) The President, for a position that the President has excepted 
from the competitive service;
    (ii) OPM, for a position that OPM has excepted from the competitive 
service; or
    (iii) The President or the Secretary for a position excepted from 
the competitive service by statute;
    (6) An employee whose appointment is made by the President;
    (7) A reemployed annuitant who is receiving an annuity from the 
Civil

[[Page 7591]]

Service Retirement and Disability Fund or the Foreign Service 
Retirement and Disability Fund;
    (8) An employee who is an alien or non-citizen occupying a position 
outside the United States, as described in 5 U.S.C. 5102(c)(11);
    (9) A member of the National Security Labor Relations Board;
    (10) A non-appropriated fund employee;
    (11) A National Guard technician who is employed under 32 U.S.C. 
709; and
    (12) An employee against whom an adverse personnel action is taken 
or imposed under any statute or regulation other than this subpart.

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


Sec.  9901.711  Standard for action.

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


Sec.  9901.712  Mandatory removal offenses.

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


Sec.  9901.713  Procedures.

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


Sec.  9901.714  Proposal notice.

    (a) Notice period. The Department will provide at least 15 days 
advance written notice of a proposed adverse action. However, if there 
is reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the Department will 
provide at least 5 days advance written notice.
    (b) Contents of notice. (1) The proposal notice will inform the 
employee of the factual basis for the proposed action in sufficient 
detail to permit the employee to reply to the notice, and inform the 
employee of his or her right to review the Department's evidence 
supporting the proposed action. The Department may not use evidence 
that cannot be disclosed to the employee, his or her representative, or 
designated physician pursuant to 5 CFR 297.204.
    (2) When some but not all employees in a given category and/or 
organizational unit are being furloughed, the proposal notice will 
state the basis for selecting a particular employee for furlough, as 
well as the reasons for the furlough. The notice is not necessary for 
furlough without pay due to unforeseeable circumstances, such as sudden 
breakdowns in equipment, acts of God, or sudden emergencies requiring 
immediate curtailment of activities.
    (c) Duty status during notice period. An employee will remain in a 
duty status in his or her regular position during the notice period. 
However, when the Department determines that the employee's continued 
presence in the workplace during the notice period may pose a threat to 
the employee or others, result in loss of or damage to Government 
property, adversely impact the Department's mission, or otherwise 
jeopardize legitimate Government interests, the Department may elect 
one or a combination of the following alternatives:
    (1) Assign the employee to duties where the Department determines 
the employee is no longer a threat to the employee or others, the 
Department's mission, or Government property or interests;
    (2) Allow the employee to take leave, or place him or her in an 
appropriate leave status (annual leave, sick leave, or leave without 
pay) or absence without leave if the employee has absented himself or 
herself from the worksite without approved leave; or
    (3) Place the employee in a paid, non-duty status for such time as 
is necessary to effect the action.


Sec.  9901.715  Opportunity to reply.

    (a) The Department will provide employees at least 10 days, which 
will run concurrently with the notice period, to reply orally and/or in 
writing to a notice of proposed adverse action. However, if there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the Department will 
provide the employee at least 5 days, which will run concurrently with 
the notice period, to reply orally and/or in writing.
    (b) The opportunity to reply orally does not include the right to a 
formal hearing with examination of witnesses.
    (c) During the opportunity to reply period, the Department will 
provide the employee a reasonable amount of official time to review the 
Department's supporting evidence, and to furnish affidavits and other 
documentary evidence, if the employee is otherwise in an active duty 
status.
    (d) The Department will designate an official to receive the 
employee's written and/or oral response. The official will have 
authority to make or recommend a final decision on the proposed adverse 
action.
    (e) The employee may be represented by an attorney or other 
representative of the employee's choice and at the employee's expense, 
subject to paragraph (f) of this section. The employee will provide the 
Department with a written designation of his or her representative.
    (f) The Department may disallow as an employee's representative--
    (1) An individual whose activities as representative would cause a 
conflict between the interest or position of the representative and 
that of the Department,
    (2) An employee of the Department whose release from his or her 
official position would give rise to unreasonable costs or whose work 
assignments preclude his or her release; or
    (3) An individual whose activities as representative could 
compromise security.
    (g)(1) An employee who wishes the Department to consider any 
medical condition that may be relevant to the proposed adverse action 
will provide medical documentation, as that term is defined at 5 CFR 
339.104, during the opportunity to reply, whenever possible.
    (2) When considering an employee's medical documentation, the 
Department may require or offer a medical examination pursuant to 5 CFR 
part 339, subpart C.
    (3) When considering an employee's medical condition, the 
Department is not required to withdraw or delay a proposed adverse 
action. However, the Department will--

[[Page 7592]]

    (i) Allow the employee to provide medical documentation during the 
opportunity to reply;
    (ii) Comply with 29 CFR 1614.203 and relevant Equal Employment 
Opportunity Commission rules; and
    (iii) Comply with 5 CFR 831.1205 or 844.202, as applicable, when 
issuing a decision to remove.


Sec.  9901.716  Decision notice.

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


Sec.  9901.717  Departmental record.

    (a) Document retention. The Department will keep a record of all 
relevant documentation concerning the action for a period of time 
pursuant to the General Records Schedule and the Guide to Personnel 
Recordkeeping. The record will include the following:
    (1) A copy of the proposal notice;
    (2) The employee's written response, if any, to the proposal;
    (3) A summary of the employee's oral response, if any;
    (4) A copy of the decision notice; and
    (5) Any supporting material that is directly relevant and on which 
the action was substantially based.
    (b) Access to the record. The Department will make the record 
available for review by the employee and furnish a copy of the record 
upon the employee's request or the request of the Merit Systems 
Protection Board (MSPB).

Savings Provision


Sec.  9901.721  Savings provision.

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

Subpart H--Appeals


Sec.  9901.801  Purpose.

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


Sec.  9901.802  Applicable legal standards and precedents.

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


Sec.  9901.803  Waivers.

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


Sec.  9901.804  Definitions.

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


Sec.  9901.805  Coverage.

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


Sec.  9901.806  Alternative dispute resolution.

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


Sec.  9901.807  Appellate procedures.

    (a) A covered Department employee may appeal to MSPB an adverse 
action listed in Sec.  9901.805(a). Such an

[[Page 7593]]

employee has a right to be represented by an attorney or other 
representative of his or her own choosing. However, separate procedures 
apply when the action is taken under the special national security 
provisions established by 5 U.S.C. 7532.
    (b)(1) This section modifies MSPB's appellate procedures with 
respect to appeals under this subpart, as applicable.
    (2) MSPB will refer appeals to an AJ for adjudication. The AJ must 
make a decision at the close of the review and provide a copy of the 
decision to each party to the appeal and to OPM.
    (c) Pursuant to 5 U.S.C. 9902(h)(4), employees will not be granted 
interim relief, nor will an action taken against an employee be stayed, 
unless specifically ordered by the full MSPB following final decision 
by the Department.
    (1) If the interim relief ordered by the full MSPB provides that 
the employee will return or be present at the place of employment 
pending the outcome of any petition for review, and the Department 
determines, in its sole, exclusive, and unreviewable discretion, that 
the employee's return to the workplace is impracticable or the presence 
of the employee is unduly disruptive to the work environment, the 
employee may be placed in an alternative position, or may be placed on 
excused absence pending final disposition of the employee's appeal.
    (2) Nothing in paragraph (c) of this section may be construed to 
require that any award of back pay or attorney fees be paid before an 
award becomes final.
    (d)(1) An adverse action taken against an employee will be 
sustained by the MSPB AJ if it is supported by a preponderance of the 
evidence, unless the employee shows by a preponderance of the 
evidence--
    (i) That there was harmful error in the application of Department 
procedures in arriving at the decision;
    (ii) That the decision was based on any prohibited personnel 
practice described in 5 U.S.C. 2302(b); or
    (iii) That the decision was not in accordance with law.
    (2) Neither the MSPB AJ, nor the full MSPB, may reverse the 
Department action based on the way in which the charge is labeled or 
the conduct characterized, provided the employee is on notice of the 
facts sufficient to respond to the factual allegations of the charge.
    (3) Neither the MSPB AJ nor the full MSPB may reverse the 
Department's action based on the way a performance expectation is 
expressed, provided that the expectation would be clear to a reasonable 
person.
    (e) The Director of OPM may, as a matter of right at any time in 
the proceeding, intervene or otherwise participate in any proceeding 
under this section in any case in which the Director believes that an 
erroneous decision will have a substantial impact on a civil service 
law, rule, regulation, or policy directive.
    (f) Except as provided in 5 U.S.C. 7702, as modified by Sec.  
9901.809, any decision under paragraph (b) of this section is final 
unless a party to the appeal or the Director of OPM petitions the full 
MSPB for review within 30 days. The Director, after consultation with 
the Secretary, may petition the full MSPB for review if the Director 
believes the decision is erroneous and will have a substantial impact 
on a civil service law, rule, regulation, or policy directive. MSPB, 
for good cause shown, may extend the filing period.
    (g) If the AJ is of the opinion that an appeal could be processed 
more expeditiously without adversely affecting any party, the AJ may--
    (1) Consolidate appeals filed by two or more appellants; or
    (2) Join two or more appeals filed by the same appellant and hear 
and decide them concurrently.
    (h)(1) Except as provided in paragraph (h)(2) of this section or as 
otherwise provided by law, the AJ may require payment by the Department 
of reasonable attorney fees incurred by an employee if the employee is 
the prevailing party and the AJ determines that payment by the 
Department is warranted in the interest of justice. For the purpose of 
this subpart, such fees are warranted in the interest of justice only 
when the Department engaged in a prohibited personnel practice or the 
Department's action was clearly without merit based upon facts known to 
management when the action was taken.
    (2) If the employee is the prevailing party and the decision is 
based on a finding of discrimination prohibited under 5 U.S.C. 
2302(b)(1), the payment of reasonable attorney fees must be in 
accordance with the standards prescribed in Sec.  706(k) of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e-5(k)).
    (i)(1) An MSPB AJ may not require any party to engage in settlement 
discussions in connection with any action appealed under this section. 
If either party decides that settlement discussions are not 
appropriate, the matter will proceed to adjudication.
    (2) Where the parties agree to engage in formal settlement 
discussions, these discussions will be conducted by an official other 
than the AJ assigned to adjudicate the case. Nothing prohibits the 
parties from engaging in settlement discussions on their own.
    (j) If an employee has been removed under subpart G of this part, 
neither the employee's status under any retirement system established 
by Federal statute nor any election made by the employee under any such 
system will affect the employee's appeal rights.
    (k)(1) All appeals, including class appeals, will be filed no later 
than 20 days after the effective date of the action being appealed, or 
no later than 20 days after the date of service of the Department's 
decision, whichever is later.
    (2) Either party may file a motion to disqualify a party's 
representative at any time during the proceedings.
    (3) The parties may seek discovery regarding any matter that is 
relevant to any of their claims or defenses. However, by motion, either 
party may seek to limit such discovery because the burden or expense of 
providing the material outweighs its benefit, or because the material 
sought is privileged, not relevant, unreasonably cumulative or 
duplicative, or can be secured from some other source that is more 
convenient, less burdensome, or less expensive.
    (i) Prior to filing a motion to limit discovery, the parties must 
confer and attempt to resolve any pending objection(s).
    (ii) Neither party may submit more than one set of interrogatories, 
one set of requests for production, and one set of requests for 
admissions. The number of interrogatories or requests for production or 
admissions may not exceed 25 per pleading, including subparts; in 
addition, neither party may conduct/compel more than 2 depositions.
    (iii) Either party may file a motion requesting additional 
discovery. Such motion may be granted only if the party has shown 
necessity and good cause to warrant such additional discovery.
    (4) Requests for case suspensions must be submitted jointly.
    (5) If the AJ determines upon his or her own initiative or upon 
request by either party that some or all facts are not in genuine 
dispute, he or she may, after giving notice to the parties and 
providing them an opportunity to respond in writing within 15 calendar 
days, issue an order limiting the scope of the hearing or issue a 
decision without holding a hearing.
    (6) The Department's determination regarding the penalty imposed 
will be given great deference. An arbitrator, AJ, or the full MSPB may 
not modify the penalty imposed by the Department

[[Page 7594]]

unless such penalty is so disproportionate to the basis for the action 
as to be wholly without justification. In cases of multiple charges, 
the third party's determination in this regard is based on the 
justification for the penalty as it relates to the sustained charge(s). 
When a penalty is mitigated, the maximum justifiable penalty must be 
applied. The maximum justifiable penalty is the severest penalty that 
is not so disproportionate to the basis for the action as to be wholly 
without justification. If the adverse action is based on an MRO, the 
penalty may only be mitigated as prescribed in Sec.  9901.808.
    (7) An initial decision must be made by an AJ no later than 90 days 
after the date on which the appeal is filed.
    (8)(i) The initial AJ decision will become the Department's final 
decision 30 days after its issuance, unless either party files an RFR 
with MSPB and the Department concurrently (with service on the other 
party, as specified by DoD implementing issuances) within that 30-day 
period in accordance with 5 U.S.C. 9902(h), MSPB's regulations, and 
this subpart.
    (ii) Thirty days after the timely filing of an RFR of an initial AJ 
decision, that initial AJ decision will become the Department's final 
decision, and that decision is nonprecedential. MSPB will docket and 
process a party's RFR as a petition for full MSPB review in accordance 
with 5 U.S.C. 9902(h), MSPB's regulations, and this subpart, unless the 
Department serves notice on the parties and MSPB within that 30-day 
period that it will act on the RFR and review the initial AJ decision. 
Any decision issued by the Department after reviewing an initial AJ 
decision is precedential unless--
    (A) The Department determines that the DoD decision is not 
precedential; or
    (B) The final DoD decision is reversed or modified by the full 
MSPB.
    (iii) Upon notice that it will reconsider the initial AJ decision, 
the Department will provide the other party to the case 15 days to 
respond to the RFR. After receipt of a timely response to the RFR, the 
Department may--
    (A) Where it believes that there has been a material error of fact, 
or that there is new and material evidence available that, despite due 
diligence, was not available when the record closed, remand the matter 
to the assigned AJ for further adjudication or issue a final DoD 
decision modifying or reversing that initial decision or decision after 
remand. An AJ decision after remand must be made no later than 30 days 
after the date of receipt of the remand;
    (B) Where the Department determines that the initial AJ decision 
has a direct and substantial adverse impact on the Department's 
national security mission, or is based on an erroneous interpretation 
of law, Governmentwide rule or regulation, or this part, issue a final 
DoD decision modifying or reversing that initial decision; or
    (C) Where the Department determines that the initial AJ decision 
should serve as precedent, issue a final DoD decision affirming that 
initial decision for such purposes.
    (9) Upon receipt of a final DoD decision issued under paragraph 
(k)(8)(iii) of this section, an employee or OPM may file a PFR with the 
full MSPB within 30 days in accordance with 5 U.S.C. 9902(h), MSPB's 
regulations, and this subpart.
    (10) Upon receipt of a petition for full MSPB review or an RFR that 
becomes a PFR as a result of the expiration of the Department's 
reconsideration period in accordance with paragraph (k)(8)(iii) of this 
section, the other party to the case and/or OPM, as applicable, will 
have 30 days to file a response to the petition. The full MSPB will act 
on a PFR within 90 days after receipt of a timely response, or the 
expiration of the response period, as applicable, in accordance with 5 
U.S.C. 9902(h), MSPB's regulations, and this subpart.
    (11) The Director of OPM, after consultation with the Secretary, 
may seek reconsideration by MSPB of a final MSPB decision in accordance 
with 5 U.S.C. 7703(d), which is modified for this purpose. If the 
Director seeks such reconsideration, the full MSPB must render its 
decision no later than 60 days after receipt of a response to OPM's 
petition in support of such reconsideration. The full MSPB must state 
the reasons for its decision.
    (l) Failure of MSPB to meet the deadlines imposed by paragraphs 
(k)(7), (10), and (11) of this section in a case will not prejudice any 
party to the case and will not form the basis for any legal action by 
any party. If the AJ or full MSPB fails to meet the above time limits, 
the full MSPB will inform the Secretary in writing of the cause of the 
delay and will recommend future actions to remedy the problem.
    (m) The Secretary or an employee adversely affected by a final 
order or decision of MSPB may seek judicial review under 5 U.S.C. 
9902(h)(6). Before seeking judicial review, the Secretary may seek 
reconsideration by MSPB of a final MSPB decision.


Sec.  9901.808  Appeals of mandatory removal actions.

    (a) Procedures for appeals of adverse actions to MSPB based on MROs 
will be the same as for other offenses except as otherwise provided by 
this section.
    (b) If one or more MROs are sustained, neither the MSPB AJ nor the 
full MSPB may mitigate the penalty.
    (c) Only the Secretary may mitigate the penalty.
    (d) If the MSPB AJ or the full MSPB sustains an employee's appeal 
based on a finding that the employee did not commit an MRO, the 
Department is not precluded from subsequently proposing an adverse 
action (other than an MRO) based in whole or in part on the same or 
similar evidence.


Sec.  9901.809  Actions involving discrimination.

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


Sec.  9901.810  Savings provision.

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

Subpart I--Labor-Management Relations


Sec.  9901.901  Purpose.

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


Sec.  9901.902  Scope of authority.

    When a specified category of employees is covered by the labor-

[[Page 7595]]

management relations system established under this subpart, the 
provisions of 5 U.S.C. 7101 through 7135 are modified and replaced by 
the provisions in this subpart with respect to that category, except as 
otherwise specified in this subpart. DoD may prescribe implementing 
issuances to carry out the provisions of this subpart.


Sec.  9901.903  Definitions.

    In this subpart:
    Authority means the Federal Labor Relations Authority described in 
5 U.S.C. 7104(a).
    Board means the National Security Labor Relations Board established 
by this subpart.
    Collective bargaining means the performance of the mutual 
obligation of a management representative of the Department and an 
exclusive representative of employees in an appropriate unit in the 
Department to meet at reasonable times and to bargain in a good faith 
effort to reach agreement with respect to the conditions of employment 
affecting such employees and to execute, if requested by either party, 
a written document incorporating any collective bargaining agreement 
reached, but the obligation referred to in this paragraph does not 
compel either party to agree to a proposal or to make a concession.
    Collective bargaining agreement means an agreement entered into as 
a result of collective bargaining pursuant to the provisions of this 
subpart.
    Component means an organizational unit so prescribed and designated 
by the Secretary in his or her sole and exclusive discretion, such as, 
for example, the Office of the Secretary of Defense; the Military 
Departments, or the Defense Logistics Agency.
    Conditions of employment means personnel policies, practices, and 
matters affecting working conditions--whether established by rule, 
regulation, or otherwise--except that such term does not include 
policies, practices, and matters relating to--
    (1) Political activities prohibited under 5 U.S.C. chapter 73, 
subchapter III;
    (2) The classification of any position, including any 
classification determinations under subpart B of this part;
    (3) The pay of any employee or for any position, including any 
determinations regarding pay or adjustments thereto under subpart C of 
this part; or
    (4) Any matters specifically provided for by Federal statute.
    Confidential employee means an employee who acts in a confidential 
capacity with respect to an individual who formulates or effectuates 
management policies.
    Consult means to consider the interests, opinions, and 
recommendations of a recognized labor organization in rendering 
decisions. This can be accomplished in face-to-face meetings or through 
other means, e.g., teleconferencing, e-mail, and written 
communications.
    DoD issuance or issuances means a document issued at the DoD or DoD 
Component level to carry out a policy or procedure of the Department 
including those issuances implementing this part.
    Dues means dues, fees, and assessments.
    Exclusive representative means any labor organization which is 
recognized as the exclusive representative of employees in an 
appropriate unit consistent with the Department's organizational 
structure, pursuant to 5 U.S.C. 7111 or as otherwise provided by Sec.  
9901.911.
    FMCS means Federal Mediation and Conciliation Service.
    Grade means a level of work under a position classification or job 
grading system.
    Grievance means any complaint--
    (1) By any employee concerning any matter relating to the 
conditions of employment of the employee;
    (2) By any labor organization concerning any matter relating to the 
conditions of employment of any employee; or
    (3) By any employee, labor organization, or the Department 
concerning--
    (i) The effect or interpretation, or a claim of breach, of a 
collective bargaining agreement; or
    (ii) Any claimed violation, misinterpretation, or misapplication of 
any law, rule, regulation, or DoD issuance issued for the purpose of 
affecting conditions of employment.
    Labor organization means an organization composed in whole or in 
part of employees, in which employees participate and pay dues, and 
which has as a purpose the dealing with the Department concerning 
grievances and conditions of employment, but does not include--
    (1) An organization which, by its constitution, bylaws, tacit 
agreement among its members, or otherwise, denies membership because of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (2) An organization which advocates the overthrow of the 
constitutional form of government of the United States;
    (3) An organization sponsored by the Department; or
    (4) An organization which participates in the conduct of a strike 
against the Government or any agency thereof or imposes a duty or 
obligation to conduct, assist, or participate in such a strike.
    Management official means an individual employed by the Department 
in a position the duties and responsibilities of which require or 
authorize the individual to formulate, determine, or influence the 
policies of the Department or who has the authority to recommend such 
action, if the exercise of the authority is not merely routine or 
clerical in nature, but requires the consistent exercise of independent 
judgment.
    Person has the meaning given that term in 5 U.S.C. 7103(a)(1).
    Professional employee has the meaning given that term in 5 U.S.C. 
7103(a)(15).
    Supervisor means an individual employed by the Department having 
authority in the interest of the Department to hire, direct, assign, 
promote, reward, transfer, furlough, layoff, recall, suspend, 
discipline, or remove employees; to adjust their grievances; or to 
effectively recommend such action, if the exercise of the authority is 
not merely routine or clerical in nature but requires the consistent 
exercise of independent judgment. It also means an individual employed 
by the Department who exercises supervisory authority over military 
members of the armed services, such as directing or assigning work or 
evaluating or recommending evaluations.


Sec.  9901.904  Coverage.

    (a) Employees covered. This subpart applies to eligible DoD 
employees, subject to a determination by the Secretary under Sec.  
9901.102(b)(1), except as provided in paragraph (b) of this section. 
DoD employees who would otherwise be eligible for bargaining unit 
membership under 5 U.S.C. chapter 71, as modified by Sec.  9901.912, 
are eligible for bargaining unit membership under this subpart. In 
addition, this subpart applies to an employee whose employment in the 
Department has ceased because of any unfair labor practice under Sec.  
9901.916 of this subpart and who has not obtained any other regular and 
substantially equivalent employment.
    (b) Employees excluded. This subpart does not apply to--

[[Page 7596]]

    (1) An alien or noncitizen of the United States who occupies a 
position outside the United States;
    (2) A military member of the armed services;
    (3) A supervisor or a management official;
    (4) Any person who participates in a strike in violation of 5 
U.S.C. 7311; or
    (5) Any employee excluded pursuant to Sec.  9901.912 or any other 
legal authority.


Sec.  9901.905  Impact on existing agreements.

    (a) Any provision of a collective bargaining agreement that is 
inconsistent with this part and/or DoD implementing issuances is 
unenforceable on the effective date of the applicable subpart(s) or 
such issuances. The exclusive representative may appeal the 
Department's determination that a provision is unenforceable to the 
National Security Labor Relations Board in accordance with the 
procedures and time limits pursuant to Sec.  9901.908. However, the 
Secretary, in his or her sole and exclusive discretion, may continue 
all or part of a particular provision(s) with respect to a specific 
category or categories of employees and may cancel such continuation at 
any time; such determinations are not precedential.
    (b) Upon request by an exclusive representative, the parties will 
have 60 days after the effective date of coverage under the applicable 
subpart and/or implementing issuance to bring into conformance those 
remaining negotiable terms directly affected by the terms rendered 
unenforceable by the applicable subpart and/or implementing issuance. 
If the parties fail to reach agreement by that date, they may utilize 
the negotiation impasse provisions of Sec.  9901.920 to resolve the 
matter.


Sec.  9901.906  Employee rights.

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


Sec.  9901.907  National Security Labor Relations Board.

    (a)(1) The National Security Labor Relations Board is composed of 
at least three members who are appointed by the Secretary for terms of 
3 years, except that the appointments of the initial Board members will 
be for terms of 1, 2, and 3 years, respectively. The Secretary may 
extend the term of any member beyond 3 years when necessary to provide 
for an orderly transition and/or appoint the member for up to two 
additional 1-year terms. The Secretary, in his or her sole and 
exclusive discretion, may appoint additional members to the Board; in 
so doing, he or she will make such appointments to ensure that the 
Board consists of an odd number of members.
    (2) Members of the Board will be independent, distinguished 
citizens of the United States who are well known for their integrity, 
impartiality, and expertise in labor relations, and/or the DoD mission 
and/or other related national security matters, and will be able to 
acquire and maintain an appropriate security clearance. Members may be 
removed by the Secretary only for inefficiency, neglect of duty, or 
malfeasance in office.
    (3) An individual chosen to fill a vacancy on the Board will be 
appointed for the unexpired term of the member who is replaced and, at 
the Secretary's option, an additional term or terms.
    (b) The Secretary will appoint two members, with one appointed as 
Chair of the Board. The third member of the Board will be appointed by 
the Secretary from a list of three to five nominees developed in 
consultation with the Director of OPM. The Secretary may appoint 
additional members as long as the total membership of the Board is an 
odd number.
    (c) A Board vacancy will be filled according to the procedure used 
to appoint the member whose position was vacated.
    (d)(1) The Board will establish procedures for the fair, impartial, 
and expeditious assignment and disposition of cases. To the extent 
practicable, the Board will use a single, integrated process to address 
all matters associated with a negotiations dispute, including unfair 
labor practices, negotiability disputes, and bargaining impasses. The 
Board may, pursuant to its regulations, use a combination of mediation, 
factfinding, and any other appropriate dispute resolution methods to 
resolve all such disputes at the earliest practicable time and with a 
minimum administrative burden.
    (2) A vote of the majority of the Board (or a three-person panel of 
the Board) will be final. A vacancy on the Board does not impair the 
right of the remaining members to exercise all of the powers of the 
Board. The vote of the Chair will be dispositive in the event of a tie.
    (e) Decisions of the Board are final and binding.
    (f)(1) Subject to Sec.  9901.909(c), in order to obtain judicial 
review of a Board decision, except those involving appealable actions 
taken under subpart G of this part or 5 U.S.C. chapters 43 or 75, a 
party will request a review of the record of a Board decision by the 
Authority by filing such a request in writing within 15 days after the 
issuance of the decision. A copy of the request will be served on all 
parties. Within 15 days after service of the request, any response will 
be filed. The Authority will establish, in conjunction with the Board, 
standards for the sufficiency of the record and other procedures, 
including notice to the parties. The Authority will accept the findings 
of fact and interpretations of this part made by the Board and sustain 
the Board's decision unless the requesting party shows that the Board's 
decision was--
    (i) Arbitrary, capricious, an abuse of discretion, or otherwise not 
in accordance with law;
    (ii) Caused by harmful error in the application of the Board's 
procedures in arriving at such decision; or
    (iii) Unsupported by substantial evidence.
    (2) The Authority will complete its review of the record and issue 
a final decision within 30 days after receiving the party's response to 
such request for review. If the Authority does not issue a final 
decision within the mandatory time limit established by paragraph (f) 
of this section, the Authority will be considered to have denied the 
request for review of the Board's decision, which will constitute a 
final decision of the Authority and is subject to judicial review in 
accordance with 5 U.S.C. 7123.


Sec.  9901.908  Powers and duties of the Board.

    (a) The Board may to the extent provided in this subpart and in 
accordance with regulations prescribed by the Board--
    (1) Conduct hearings and resolve complaints of unfair labor 
practices, including complaints concerning strikes, work stoppages, 
slowdowns, and picketing, or condoning such

[[Page 7597]]

activity by failing to take action to prevent or stop such activity;
    (2) Resolve issues relating to the scope of bargaining and the duty 
to bargain in good faith under Sec.  9901.917;
    (3) Resolve disputes concerning requests for information under 
Sec.  9901.914(b)(5) and (c);
    (4) Resolve exceptions to arbitration awards. In doing so, the 
Board will conduct any review of an arbitral award in accordance with 
the same standards set forth in 5 U.S.C. 7122(a) as modified in Sec.  
9901.923;
    (5) Resolve negotiation impasses in accordance with Sec.  9901.920;
    (6) Conduct de novo review involving all matters within the Board's 
jurisdiction;
    (7) Have discretion to evaluate the evidence presented in the 
record and reach its own independent conclusions with respect to the 
matters at issue, but in no case may the Board issue status quo ante 
remedies, where such remedies are not intended to cure egregious 
violations of this subpart or where such an award would impose an 
economic hardship or interfere with the efficiency or effectiveness of 
the Department's mission or impact national security; and
    (8) Resolve disputes regarding the granting of national 
consultation rights.
    (b) Upon the request of a DoD Component or a labor organization 
concerned, the Board may issue binding Department-wide opinions for 
matters within its jurisdiction, which may be appealed as if they were 
decisions of the Board in accordance with Sec.  9901.907(f).
    (c) The Board's decisions will be written and published.


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

    (a) To the extent provided in this subpart (pursuant to the 
authority in 5 U.S.C. 9902), the Federal Labor Relations Authority, in 
accordance with conforming regulations prescribed by the Authority, 
may--
    (1) Determine the appropriateness of bargaining units pursuant to 
the provisions of Sec.  9901.912; and
    (2) Supervise or conduct elections to determine whether a labor 
organization has been selected as an exclusive representative by a 
majority of the employees in an appropriate unit and otherwise 
administer 5 U.S.C. 7111 (relating to the according of exclusive 
recognition to labor organizations), which is not waived for the 
purpose of this subpart.
    (b) In any matter filed with the Authority, if the responding party 
believes that the Authority lacks jurisdiction, that party will timely 
raise the issue with the Authority and simultaneously file a copy of 
its response with the Board in accordance with regulations established 
by the Authority. The Authority will promptly transfer the case to the 
Board, which will determine whether the matter is within the Board's 
jurisdiction. If the Board determines that the matter is not within its 
jurisdiction, the Board will return the matter to the Authority for a 
decision on the merits of the case. The Board's determination with 
regard to its jurisdiction in a particular matter is final and not 
subject to review by the Authority. The Authority will promptly decide 
those cases that the Board has determined are within the jurisdiction 
of the Authority.
    (c) Judicial review of any Authority decision is as prescribed in 5 
U.S.C. 7123(a), which is not modified.


Sec.  9901.910  Management rights.

    (a) Subject to paragraphs (b), (c), and (d) of this section, 
nothing in this subpart may affect the authority of any management 
official or supervisor of the Department--
    (1) To determine the mission, budget, organization, number of 
employees, and internal security practices of the Department;
    (2) To hire, assign, and direct employees in the Department; to 
assign work, make determinations with respect to contracting out, and 
to determine the personnel by which Departmental operations may be 
conducted; to determine the numbers, types, pay schedules, pay bands 
and/or grades of employees or positions assigned to any organizational 
subdivision, work project or tour of duty, and the technology, methods, 
and means of performing work; to assign employees to meet any 
operational demand; and to take whatever other actions may be necessary 
to carry out the Department's mission; and
    (3) To lay off and retain employees, or to suspend; remove; reduce 
in pay, pay band, or grade; or take other disciplinary action against 
such employees or, with respect to filling positions, to make 
selections for appointments from properly ranked and certified 
candidates for promotion or from any other appropriate source.
    (b) Management is prohibited from bargaining over the exercise of 
any authority under paragraph (a) of this section or the procedures 
that it will observe in exercising the authorities set forth in 
paragraphs (a)(1) and (2) of this section.
    (c) Notwithstanding paragraph (b) of this section and at the 
request of an exclusive representative, management will consult as 
required under Sec.  9901.917 over the procedures it will observe in 
exercising the authorities set forth in paragraphs (a)(1) and (2) of 
this section. Consultation does not require that the parties reach 
agreement on any covered matter. The parties may, upon mutual 
agreement, provide for FMCS or another third party to assist in this 
process. Neither the Board nor the Authority may intervene in this 
process.
    (d) If an obligation exists under Sec.  9901.917 to bargain or 
consult regarding any authority under paragraph (a) of this section, 
management will provide notice to the exclusive representative 
concurrently with the exercise of that authority. However, at its sole, 
exclusive, and unreviewable discretion, management may provide notice 
to an exclusive representative of its intention to exercise an 
authority under paragraph (a) of this section as far in advance as 
practicable. Further, nothing in paragraph (d) of this section 
establishes an independent right to bargain or consult.
    (e) When an obligation exists under Sec.  9901.913, management will 
provide the exclusive representative an opportunity to present its 
views and recommendations regarding the exercise of an authority under 
paragraph (a) of this section, and the parties will bargain at the 
level of recognition (unless otherwise delegated below that level, at 
their mutual agreement) over otherwise negotiable--
    (1) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraph (a)(3) of this section 
and procedures which management officials and supervisors will observe 
in exercising any authority under paragraph (a)(3) of this section; and
    (2)(i) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraphs (a)(1) and (2) of this 
section, provided that the effects of such exercise is foreseeable, 
substantial, and significant in terms of both impact and duration on 
the bargaining unit, or on those employees in that part of the 
bargaining unit affected by the change. Appropriate arrangements within 
the duty to bargain include proposals on matters such as personal 
hardships and safety measures.
    (ii) Appropriate arrangements within the duty to bargain do not 
include proposals on matters such as--
    (A) The routine assignment to specific duties, shifts, or work on a 
regular or overtime basis; and
    (B) Pay or credit for work not actually performed.
    (f) Where a proposal falls within the coverage of both paragraph 
(a)(1) and

[[Page 7598]]

(a)(3) of this section or paragraph (a)(2) and (a)(3) of this section, 
the matter will be determined to be covered by paragraph (a)(1) or 
(a)(2) of this section for the purpose of collective bargaining.
    (g) Nothing in this section will delay or prevent the Department 
from exercising its authority. Any agreements reached with respect to 
paragraph (e)(2) of this section will not be precedential or binding on 
subsequent acts, or retroactively applied, except at the Department's 
sole, exclusive, and unreviewable discretion.
    (h) Nothing in the process established under this section or in 
Sec.  9901.917, will delay the exercise of a management right under 
Sec.  9901.910(a)(1), (2) or (3).
    (i) Management retains the sole, exclusive, and unreviewable 
discretion to determine the procedures that it will observe in 
exercising the authorities set forth in Sec.  9901.910(a)(1) and (2) 
and to deviate from such procedures, as necessary.


Sec.  9901.911  Exclusive recognition of labor organizations.

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


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

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


Sec.  9901.913  National consultation.

    (a) If, in connection with the Department or Component, no labor 
organization has been accorded exclusive recognition on a Department or 
Component basis, a labor organization that is the exclusive 
representative of a substantial number of the employees of the 
Department or Component, as determined in accordance with criteria 
prescribed by the Board, will be granted national consultation rights 
by the Department or Component. National consultation rights will 
terminate when the labor organization no longer meets the criteria 
prescribed by the Board. Any issue relating to any labor organization's 
eligibility for or continuation of, national consultation rights will 
be subject to determination by the Board.
    (b)(1) Any labor organization having national consultation rights 
in connection with any Department or Component under subsection (a) of 
this section will--
    (i) Be informed of any substantive change in conditions of 
employment proposed by the Department or Component; and
    (ii) Be permitted reasonable time to present its views and 
recommendations regarding the changes.
    (2) If any views or recommendations are presented under paragraph 
(b)(1) of this subsection to the Department or Component by any labor 
organization--
    (i) The Department or Component will consider the views or 
recommendations before taking final action on any matter with respect 
to which the views or recommendations are presented; and
    (ii) The Department or Component will provide the labor 
organization a written statement of the reasons for taking the final 
action.
    (c) Section 9901.913(b) does not apply where the proposed change is 
bargained at the national level or where continuing collaboration 
procedures under Sec.  9901.106 apply.
    (d) Nothing in this section precludes the Department or the 
Component from seeking views and recommendations from labor 
organizations having exclusive representation within the Department or 
Component which do not have national consultation rights.
    (e) Nothing in this section will be construed to limit the right of 
the agency or exclusive representative to engage in collective 
bargaining.


Sec.  9901.914  Representation rights and duties.

    (a)(1) A labor organization which has been accorded exclusive 
recognition is the exclusive representative of the employees in the 
unit it represents and is entitled to act for, and negotiate collective 
bargaining agreements covering, all employees in the unit. An exclusive 
representative is responsible for representing the interests of all 
employees in the unit it represents without discrimination and without 
regard to labor organization membership.
    (2) An exclusive representative of an appropriate unit will be 
given the opportunity to be represented at--
    (i) Any formal discussion between a Department management 
official(s) and bargaining unit employees, the purpose of which is to 
discuss and/or announce new or substantially changed personnel 
policies, practices, or working conditions. This right does not apply 
to meetings between a management official(s) and bargaining unit

[[Page 7599]]

employees for the purpose of discussing operational matters where any 
discussion of personnel policies, practices or working conditions--
    (A) Constitutes a reiteration or application of existing personnel 
policies, practices, or working conditions;
    (B) Is incidental or otherwise peripheral to the announced purpose 
of the meeting; or
    (C) Does not result in an announcement of a change to, or a promise 
to change, an existing personnel policy(s), practice(s), or working 
condition(s);
    (ii) Any discussion between one or more Department representatives 
and one or more bargaining unit employees concerning any grievance 
filed under the negotiated grievance procedure; or
    (iii) Any examination of a bargaining unit employee by a 
representative of the Department in connection with an investigation if 
the employee reasonably believes that the examination may result in 
disciplinary action against the employee and the employee requests such 
representation. Such right will not apply to investigations conducted 
by the Offices of the Inspectors General and other independent 
Department or Component organizations whose mission includes the 
conduct of criminal investigations, such as the Defense Criminal 
Investigative Service, the U.S. Army Criminal Investigation Command, 
the Naval Criminal Investigative Service, and the Air Force Office of 
Special Investigations.
    (3) The Department will annually inform its employees of their 
rights under paragraph (a)(2)(iii) of this section.
    (4) Employee representatives employed by the Department are subject 
to the same expectations regarding conduct as any other employee, 
whether they are serving in their representative capacity or not.
    (5) Except in the case of grievance procedures negotiated under 
this subpart, the rights of an exclusive representative under this 
section may not be construed to preclude an employee from--
    (i) Being represented by an attorney or other representative of the 
employee's own choosing, other than the exclusive representative, in 
any grievance or appeal action; or
    (ii) Exercising grievance or appellate rights established by law, 
rule, or regulation.
    (b) The duty of the Department or appropriate Component(s) of the 
Department and an exclusive representative to negotiate in good faith 
under paragraph (a) of this section includes the obligation--
    (1) To approach the negotiations with a sincere resolve to reach a 
collective bargaining agreement;
    (2) To be represented at the negotiations by duly authorized 
representatives prepared to discuss and negotiate on any condition of 
employment;
    (3) To meet at reasonable times and convenient places as frequently 
as may be necessary, and to avoid unnecessary delays;
    (4) If agreement is reached, to execute on the request of any party 
to the negotiation, a written document embodying the agreed terms, and 
to take such steps as are necessary to implement such agreement; and
    (5) In the case of the Department or appropriate Component(s) of 
the Department, to furnish information to an exclusive representative, 
or its authorized representative, when--
    (i) Such information exists, is normally maintained in the regular 
course of business, and is reasonably available;
    (ii) The exclusive representative has requested such information 
and demonstrated a particularized need for the information in order to 
perform its representational functions in grievance or appeal 
proceedings, or in negotiations; and
    (iii) Disclosure is not prohibited by law.
    (c) Disclosure of information in paragraph (b)(5) of this section 
does not include the following:
    (1) Disclosure prohibited by law or regulations, including, but not 
limited to, the regulations in this part, Governmentwide rules and 
regulations, Departmental implementing issuances and other policies and 
regulations, and Executive orders;
    (2) Disclosure of information if adequate alternative means exist 
for obtaining the requested information, or if proper discussion, 
understanding, or negotiation of a particular subject within the scope 
of collective bargaining is possible without recourse to the 
information;
    (3) Internal Departmental guidance, counsel, advice, or training 
for managers and supervisors relating to collective bargaining;
    (4) Any disclosures where an authorized official has determined 
that disclosure would compromise the Department's mission, security, or 
employee safety; and
    (5) Personal addresses, personal telephone numbers, personal email 
addresses, or any other information not related to an employee's work.
    (d)(1) An agreement between the Department or appropriate 
Component(s) of the Department and the exclusive representative is 
subject to approval by the Secretary.
    (2) The Secretary will approve the agreement within 30 days after 
the date the agreement is executed if the agreement is in accordance 
with the provisions of these regulations and any other applicable law, 
rule, regulation or similar Department or Component issuance.
    (3) If the Secretary does not approve or disapprove the agreement 
within the 30-day period specified in paragraph (d)(2) of this section, 
the agreement will take effect and is binding on the Department or 
Component(s), as appropriate, and the exclusive representative, but 
only to the extent it is consistent with Federal law, Presidential 
issuance (e.g., Executive order), Governmentwide regulations, DoD 
issuances (including implementing issuances and Component issuances), 
or the regulations in this part.
    (4) A local agreement subject to a national or other controlling 
agreement at a higher level may be approved under the procedures of the 
controlling agreement or, if none, under Departmental regulations. 
Bargaining will be at the level of recognition except where delegated.
    (5) Provisions in existing collective bargaining agreements are 
unenforceable if an authorized official determines that they are 
contrary to Federal law, Presidential issuance (e.g. Executive order), 
Governmentwide regulations, DoD issuances (including implementing 
issuances and Component issuances), or the regulations in this part.


Sec.  9901.915  Allotments to representatives.

    (a) If the Department has received from an employee in an 
appropriate unit a properly executed written or electronic assignment 
which authorizes the Department to deduct from the pay of the employee 
amounts for the payment of regular and periodic dues and other 
financial assessments of the exclusive representative of the unit, the 
Department will honor the assignment and make an appropriate allotment 
pursuant to the assignment. Any such allotment will be made at no cost 
to the exclusive representative or the employee. Except as provided 
under paragraph (b) of this section, any such assignment may not be 
revoked for a period of 1 year.
    (b) An allotment under paragraph (a) of this section for the 
deduction of dues with respect to any employee terminates when--

[[Page 7600]]

    (1) The agreement between the Department or Department Component 
and the exclusive representative involved ceases to be applicable to 
the employee; or
    (2) The employee is suspended or expelled from membership by the 
exclusive representative.
    (c)(1) Subject to paragraph (c)(2) of this section, if a petition 
has been filed with the Authority by a labor organization alleging that 
10 percent of the employees in an appropriate unit in the Department 
have membership in the labor organization, the Authority will 
investigate the petition to determine its validity. Upon certification 
by the Authority of the validity of the petition, the Department has a 
duty to negotiate with the labor organization solely concerning the 
deduction of dues of the labor organization from the pay of the members 
of the labor organization who are employees in the unit and who make a 
voluntary allotment for such purpose.
    (2)(i) The provisions of paragraph (c)(1) of this section do not 
apply in the case of any appropriate unit for which there is an 
exclusive representative.
    (ii) Any agreement under paragraph (c)(1) of this section between a 
labor organization and the Department or Department Component with 
respect to an appropriate unit becomes null and void upon the 
certification of an exclusive representative of the unit.


Sec.  9901.916  Unfair labor practices.

    (a) For the purpose of this subpart, it is an unfair labor practice 
for the Department--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To encourage or discourage membership in any labor organization 
by discrimination in connection with hiring, tenure, promotion, or 
other conditions of employment;
    (3) To sponsor, control, or otherwise assist any labor 
organization, other than to furnish, upon request, customary and 
routine services and facilities on an impartial basis to other labor 
organizations having equivalent status;
    (4) To discipline or otherwise discriminate against an employee 
because the employee has filed a complaint or petition, or has given 
any information or testimony under this subpart;
    (5) To refuse, as determined by the Board, to negotiate in good 
faith or to consult with a labor organization, as required by this 
subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions, as required by this subpart; 
or
    (7) To fail or refuse otherwise to comply with any provision of 
this subpart.
    (b) For the purpose of this subpart, it is an unfair labor practice 
for a labor organization--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To cause or attempt to cause the Department to discriminate 
against any employee in the exercise by the employee of any right under 
this subpart;
    (3) To coerce, discipline, fine, or attempt to coerce a member of 
the labor organization as punishment, reprisal, or for the purpose of 
hindering or impeding the member's work performance or productivity as 
an employee or the discharge of the member's duties as an employee;
    (4) To discriminate against an employee with regard to the terms 
and conditions of membership in the labor organization on the basis of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (5) To refuse, as determined by the Board, to negotiate in good 
faith or to consult with the Department as required by this subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions as required by this subpart;
    (7)(i) To call, or participate in, a strike, work stoppage, or 
slowdown, or picketing of the Department in a labor-management dispute 
if such picketing interferes with an agency's operations; or
    (ii) To condone any activity described in paragraph (b)(7)(i) of 
this section by failing to take action to prevent or stop such 
activity; or
    (8) To otherwise fail or refuse to comply with any provision of 
this subpart.
    (c) Notwithstanding paragraph (b)(7) of this section, informational 
picketing which does not interfere with the Department's operations 
will not be considered an unfair labor practice.
    (d) For the purpose of this subpart, it is an unfair labor practice 
for an exclusive representative to deny membership to any employee in 
the appropriate unit represented by the labor organization, except for 
failure to meet reasonable occupational standards uniformly required 
for admission or to tender dues uniformly required as a condition of 
acquiring and retaining membership. This does not preclude any labor 
organization from enforcing discipline in accordance with procedures 
under its constitution or bylaws to the extent consistent with the 
provisions of this subpart.
    (e) The Board will not consider any unfair labor practice charge 
filed more than 90 days after the alleged unfair labor practice 
occurred, unless the Board determines, pursuant to its regulations, 
that there is good cause for the late filing.
    (f) Unfair labor practice issues which can properly be raised under 
an appeals procedure may not be raised as unfair labor practices 
prohibited under this section. Except where an employee has an option 
of using the negotiated grievance procedure or an appeals procedure in 
connection with an adverse action, issues which can be raised under a 
grievance procedure may, in the discretion of the aggrieved party, be 
raised under the grievance procedure or as an unfair labor practice 
under this section, but not under both procedures.
    (g) The expression of any personal view, argument, opinion, or the 
making of any statement which publicizes the fact of a representational 
election and encourages employees to exercise their right to vote in 
such an election, corrects the record with respect to any false or 
misleading statement made by any person, or informs employees of the 
Government's policy relating to labor-management relations and 
representation, will not, if the expression contains no threat of 
reprisal or force or promise of benefit or was not made under coercive 
conditions--
    (1) Constitute an unfair labor practice under any provision of this 
subpart; or
    (2) Constitute grounds for the setting aside of any election 
conducted under any provision of this subpart.


Sec.  9901.917  Duty to bargain and consult.

    (a) The Department or appropriate Component(s) of the Department 
and any exclusive representative in any appropriate unit in the 
Department, through appropriate representatives, will meet and 
negotiate in good faith as provided by this subpart for the purpose of 
arriving at a collective bargaining agreement. In addition, the 
Department or appropriate Component(s) of the Department and the 
exclusive representative may determine appropriate techniques, 
consistent with the operational rules of the Board, to assist in any 
negotiation.
    (b) If bargaining over an initial collective bargaining agreement 
or any successor agreement is not completed within 90 days after such 
bargaining

[[Page 7601]]

begins, the parties may mutually agree to continue bargaining, or 
either party may refer the matter to the Board for resolution in 
accordance with procedures established by the Board. At any time prior 
to going to the Board, either party may refer the matter to FMCS for 
assistance.
    (c) If the parties bargain during the term of an existing 
collective bargaining agreement, or in the absence of a collective 
bargaining agreement, over a proposed change affecting bargaining unit 
employees' conditions of employment, and no agreement is reached within 
30 days after such bargaining begins, either party may refer the matter 
to the Board for resolution in accordance with procedures established 
by the Board. Either party may refer the matter to FMCS for assistance 
at any time.
    (d)(1) Management may not bargain over any matters that are 
inconsistent with law or the regulations in this part, Governmentwide 
rules and regulations, Departmental implementing issuances and other 
Department or Component policies, regulations or similar issuances, or 
Executive orders.
    (2) Except as otherwise provided in Sec.  9901.910(c), management 
has no obligation to bargain or consult over a change to a condition of 
employment unless the change is otherwise negotiable pursuant to these 
regulations and is foreseeable, substantial, and significant in terms 
of both impact and duration on the bargaining unit, or on those 
employees in that part of the bargaining unit affected by the change.
    (3) Nothing in paragraphs (b) or (c) of this section prevents 
management from exercising the rights enumerated in Sec.  9901.910.
    (e) If a management official involved in collective bargaining with 
an exclusive representative alleges that the duty to bargain in good 
faith does not extend to any matter, the exclusive representative may 
appeal the allegation to the Board in accordance with procedures 
established by the Board.


Sec.  9901.918  Multi-unit bargaining.

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


Sec.  9901.919  Collective bargaining above the level of recognition.

    (a) Negotiations can occur at the DoD or Component level with labor 
organization(s) at an organizational level above the level of exclusive 
recognition. The decision to negotiate at a level above the level of 
recognition as well as the unions involved, is within the sole and 
exclusive discretion of the Secretary to determine and will not be 
subject to review.
    (b) Any such agreement reached in these negotiations will--
    (1) Be binding on all subordinate bargaining units of the labor 
organization(s) afforded the opportunity to bargain at the level of 
recognition and their exclusive representatives, and DoD and its 
Components, without regard to levels of recognition;
    (2) Supersede all conflicting provisions of other collective 
bargaining agreements of the labor organization(s), including 
collective bargaining agreements negotiated with an exclusive 
representative at the level of recognition, except as otherwise 
determined by the Secretary;
    (3) Not be subject to further negotiations with the labor 
organizations for any purpose, including bargaining at the level of 
recognition, except as the Secretary may decide, in his or her sole and 
exclusive discretion;
    (4) Be subject to review by the Board only to the extent provided 
by this subpart;
    (5) Not be subject to ratification;
    (6) Be subject to impasse resolution by the Board under procedures 
prescribed by the Board. In resolving impasses, the Board will ensure 
that agreement provisions are consistent with regard to all similarly 
situated employees. The determination as to which organizations are 
covered under national level bargaining is not subject to review by the 
Board;
    (7) The National Guard Bureau and the Army and Air Force National 
Guard are excluded from coverage under this section. Where National 
Guard employees are impacted, negotiations at the level of recognition 
are authorized; and
    (8) Labor organizations may request bargaining above the level of 
recognition, as appropriate. The Secretary has sole and exclusive 
authority to grant the labor organizations' request.


Sec.  9901.920  Negotiation impasses.

    (a) If the Department and exclusive representative are unable to 
reach an agreement under Sec. Sec.  9901.914, 9901.917, 9901.918, or 
9901.919, either party may submit the disputed issues to the Board for 
resolution.
    (b) The Board may take whatever action is necessary and not 
inconsistent with this subpart to resolve the impasse, to include use 
of settlement efforts.
    (c) Pursuant to Sec. Sec.  9901.907 and 9901.926, the Board's 
regulations will provide for a single, integrated process to address 
all matters associated with a negotiations dispute, including unfair 
labor practices, negotiability disputes, and bargaining impasses.
    (d) Notice of any final action of the Board under this section will 
be promptly served upon the parties. The action will be binding on such 
parties during the term of the agreement, unless the parties agree 
otherwise. Nothing in this section precludes judicial review of any 
portion of a decision addressing a negotiability dispute or unfair 
labor practice charge.


Sec.  9901.921  Standards of conduct for labor organizations.

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


Sec.  9901.922  Grievance procedures.

    (a)(1) Except as provided in paragraph (a)(2) of this section, any 
collective bargaining agreement will provide procedures for the 
settlement of grievances, including questions of arbitrability. Except 
as provided in paragraphs (d) and (f) of this section, the procedures 
will be the exclusive procedures for grievances which fall within its 
coverage.
    (2) Any collective bargaining agreement may exclude any matter from 
the application of the grievance procedures which are provided for in 
the agreement.

[[Page 7602]]

    (b)(1) Any negotiated grievance procedure referred to in paragraph 
(a) of this section will be fair and simple, provide for expeditious 
processing, and include procedures that--
    (i) Assure an exclusive representative the right, in its own behalf 
or on behalf of any employee in the unit represented by the exclusive 
representative, to present and process grievances;
    (ii) Assure such an employee the right to present a grievance on 
the employee's own behalf, and assure the exclusive representative the 
right to be present during the grievance proceeding; and
    (iii) Provide that any grievance not satisfactorily settled under 
the negotiated grievance procedure is subject to binding arbitration, 
which may be invoked by either the exclusive representative or the 
Department.
    (2) The provisions of a negotiated grievance procedure providing 
for binding arbitration in accordance with paragraph (b)(1)(iii) of 
this section will, to the extent that an alleged prohibited personnel 
practice is involved, allow the arbitrator to order a stay of any 
personnel action in a manner similar to the manner described in 5 
U.S.C. 1221(c) with respect to the Merit Systems Protection Board and 
order the Department to take any disciplinary action identified under 5 
U.S.C. 1215(a)(3) that is otherwise within the authority of the 
Department to take.
    (3) Any employee who is the subject of any disciplinary action 
ordered under paragraph (b)(2) of this section may appeal such action 
to the same extent and in the same manner as if the Department had 
taken the disciplinary action absent arbitration.
    (c) The preceding paragraphs of this section do not apply with 
respect to any matter concerning--
    (1) Any claimed violation of 5 U.S.C. chapter 73, subchapter III 
(relating to prohibited political activities);
    (2) Retirement, life insurance, or health insurance;
    (3) Any examination, certification, or appointment;
    (4) A rating of record issued under subpart D of this part;
    (5) A removal taken under mandatory removal authority as defined in 
Sec.  9901.717;
    (6) Any subject not within the definition of grievance in Sec.  
9901.903 (e.g., the classification or pay of any position), except for 
an adverse action under applicable authority, including subpart G of 
this part, which is not otherwise excluded by paragraph (c) of this 
section; or
    (7) A suspension or removal taken under 5 U.S.C. 7532.
    (d) To the extent not already excluded by existing collective 
bargaining agreements, the exclusions contained in paragraph (c) of 
this section apply upon the effective date of this subpart, as 
determined under Sec.  9901.102(b)(1).
    (e)(1) An aggrieved employee affected by a prohibited personnel 
practice under 5 U.S.C. 2302(b)(1) which also falls under the coverage 
of the negotiated grievance procedure may raise the matter under the 
applicable statutory procedures, or the negotiated procedure, but not 
both.
    (2) An employee is deemed to have exercised his or her option under 
paragraph (e)(1) of this section to raise the matter under the 
applicable statutory procedures, or the negotiated procedure, at such 
time as the employee timely initiates an action under the applicable 
statutory or regulatory procedure or timely files a grievance in 
writing in accordance with the provisions of the parties' negotiated 
grievance procedure, whichever event occurs first.
    (f)(1) For appealable matters, except for mandatory removal 
offenses under Sec.  9901.717, an aggrieved employee may raise the 
matter under an applicable appellate procedure or under the negotiated 
grievance procedure, but not both. An employee will be deemed to have 
exercised his or her option under this section when the employee timely 
files an appeal under the applicable appellate procedures or a 
grievance in accordance with the provisions of the parties' negotiated 
grievance procedure, whichever occurs first.
    (2) An arbitrator hearing a matter appealable under subpart H of 
this part is bound by the applicable provisions of this part.
    (g)(1) This paragraph applies with respect to a prohibited 
personnel practice other than a prohibited personnel practice to which 
paragraph (e) of this section applies.
    (2) An aggrieved employee affected by a prohibited personnel 
practice described in paragraph (g)(1) of this section may elect not 
more than one of the procedures described in paragraph (g)(3) of this 
section with respect thereto. A determination as to whether a 
particular procedure for seeking a remedy has been elected will be made 
as set forth under paragraph (g)(4) of this section.
    (3) The procedures for seeking remedies described in this paragraph 
are as follows:
    (i) An appeal under subpart H of this part;
    (ii) A negotiated grievance under this section; and
    (iii) Corrective action under 5 U.S.C. chapter 12, subchapters II 
and III.
    (4) For the purpose of this paragraph, an employee is considered to 
have elected one of the following, whichever election occurs first:
    (i) The procedure described in paragraph (g)(3)(i) of this section 
if such employee has timely filed a notice of appeal under the 
applicable appellate procedures;
    (ii) The procedure described in paragraph (g)(3)(ii) of this 
section if such employee has timely filed a grievance in writing in 
accordance with the provisions of the parties' negotiated procedure; or
    (iii) The procedure described in paragraph (g)(3)(iii) of this 
section if such employee has sought corrective action from the Office 
of Special Counsel by making an allegation under 5 U.S.C. 1214(a)(1).
    (h) An arbitrator hearing a matter under this subpart is bound by 
all applicable laws, rules, regulations, and DoD issuances, including 
applicable provisions of this part.


Sec.  9901.923  Exceptions to arbitration awards.

    (a) Either party to arbitration under this subpart may file with 
the Board an exception to any arbitrator's award, except an award 
issued in connection with an appealable matter under Sec.  9901.922(f) 
or matters similar to those covered under 5 U.S.C. 4303 and 7512 
arising under other personnel systems, which will be adjudicated under 
procedures described in Sec.  9901.807(k)(8) through (10). Such 
procedures are adopted in this subpart for these purposes.
    (b) In addition to the bases contained in 5 U.S.C. 7122, exceptions 
may also be filed by the parties based on the arbitrator's failure to 
properly consider the Department's national security mission or to 
comply with applicable NSPS regulations and DoD issuances. The Board 
may take such action concerning the award as is consistent with this 
subpart.
    (c) If no exception to an arbitrator's award is filed under 
paragraph (a) of this section during the 30-day period beginning on the 
date of such award, the award is final and binding. Either party will 
take the actions required by an arbitrator's final award. The award may 
include the payment of back pay (as provided under 5 U.S.C. 5596 and 5 
CFR part 550, subpart H).
    (d) Nothing in this section prevents the Board from determining its 
own jurisdiction without regard to whether any party has raised a 
jurisdictional issue.

[[Page 7603]]

Sec.  9901.924  Official time.

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


Sec.  9901.925  Compilation and publication of data.

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


Sec.  9901.926  Regulations of the Board.

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


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

    (a) Except as otherwise provided by Sec. Sec.  9901.905 or 
9901.912, nothing contained in this subpart precludes the renewal or 
continuation of an exclusive recognition, certification of an exclusive 
representative, or an agreement that is otherwise consistent with law, 
the regulations in this part and DoD or Component issuances between the 
Department or a Component thereof and an exclusive representative of 
its employees, which is entered into before the effective date of this 
subpart, as determined under Sec.  9901.102(b)(1).
    (b) Policies, regulations, and procedures established under and 
decisions issued under Executive Orders 11491, 11616, 11636, 11787, and 
11838 or any other Executive order, in effect on the effective date of 
this subpart (as determined under Sec.  9901.102(b)(1)), will remain in 
full force and effect until revised or revoked by the President, or 
unless superseded by specific provisions of this subpart or by 
implementing issuances or decisions issued pursuant to this subpart.


Sec.  9901.928  Savings provisions.

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

[FR Doc. 05-2582 Filed 2-11-05; 8:45 am]
BILLING CODE 6325-39-P; 5001-06-P