TITLE: B-305484, National Mediation Board--Compensating Neutral Arbitrators Appointed to Grievance Adjustment Boards Under the Railway Labor Act, June 2, 2006
BNUMBER: B-305484
DATE: June 2, 2006
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B-305484, National Mediation Board--Compensating Neutral Arbitrators Appointed to Grievance Adjustment Boards Under the Railway Labor Act, June 2, 2006

   Decision

   Matter of: National Mediation Board--Compensating Neutral Arbitrators
   Appointed to Grievance Adjustment Boards Under the Railway Labor Act

   File: B-305484

   Date:  June 2, 2006

   DIGESTS

   (1) The National Mediation Board (NMB) incurs an obligation when it
   appoints a neutral arbitrator to a grievance adjustment board to hear a
   specific case or a specified group of related cases. To comply with the
   Antideficiency Act, NMB must have an appropriation available to cover the
   estimated costs of the arbitrator at the time it incurs the obligation. 31
   U.S.C. sect. 1341(a). Because NMB does not control the number of days an
   arbitrator will work before submitting an award, NMB should record an
   obligation based on its best estimate of the costs of paying the
   arbitrator and adjust the obligation up or down as more information
   becomes available. NMB should liquidate the obligation from the
   appropriation current at the time NMB incurs the obligation,
   notwithstanding that the arbitrator's performance may extend into the next
   fiscal year. To the extent we indicated in two prior decisions, B-217475,
   Dec. 24, 1986, and B-217475, May 5, 1986, that NMB may record obligations
   monthly based on the anticipated expenditures it approves in monthly
   compensation requests, they are overruled.

   (2) An availability of funds clause is not sufficient to protect NMB from
   violating the Antideficiency Act. The obligation to pay an arbitrator
   arises at the time of appointment in the full amount of the liability
   incurred, and NMB must have an appropriation available at that time to pay
   the full cost.

   (3) Pending cases to which NMB has not yet appointed an arbitrator
   constitute a contingent liability of NMB. Contingent liabilities are not
   recordable as obligations until the contingency actually materializes.

   (4) NMB will violate the Antideficiency Act if it appoints an arbitrator
   to a new or existing board and incurs an obligation in excess of its
   apportionment or any other subdivision of funds as specified in its
   administrative fund control regulations. If NMB does not have an
   administrative fund control system, it should work with the Office of
   Management and Budget to establish one.

   (5) NMB does not incur an obligation to pay a neutral arbitrator when the
   parties to a grievance enter into an agreement to form a Special Board of
   Adjustment or Public Law Board. NMB may anticipate eventually appointing
   an arbitrator to hear these cases, but it is the appointment of the
   arbitrator by an authorized NMB official, not the organization of the
   Special Board of Adjustment or Public Law Board, that is the obligating
   event for NMB.

   (6) When NMB appoints an arbitrator to a Special Board of Adjustment or a
   Public Law Board, the appointment does not constitute an open-ended
   contract to pay the arbitrator for cases referred to the Special Board of
   Adjustment or the Public Law Board subsequent to the appointment. The
   addition of a new case constitutes a new arbitrator appointment and a new
   obligation.

   DECISION

   Pursuant to 31 U.S.C. sect. 3529, the National Mediation Board (NMB)
   requested our views regarding when it incurs an obligation to pay neutral
   arbitrators it appoints to hear cases on a grievance adjustment board, and
   in what amount. We conclude that NMB incurs an obligation when it appoints
   a neutral arbitrator to a grievance adjustment board. The Antideficiency
   Act requires that NMB have an appropriation available to cover the
   estimated costs of the arbitrator at the time it incurs the obligation. 31
   U.S.C. sect. 1341(a). Because NMB does not control the number of days an
   arbitrator will work before submitting an award, NMB should record an
   obligation based on its best estimate of the costs of paying the
   arbitrator and adjust the obligation up or down as more information
   becomes available. NMB should liquidate the obligation from the
   appropriation current at the time NMB incurs the obligation,
   notwithstanding that the arbitrator's performance may extend into the next
   fiscal year. NMB also asked our views regarding five related questions,
   which we address below.

   BACKGROUND

   The National Mediation Board, established by the 1934 amendments to the
   Railway Labor Act, 45 U.S.C. sections 151--188, is an independent agency
   that facilitates labor management relations within the railroad and
   airline industries.[1] Railroad and airline carriers and their employees
   are required to "settle all disputes, . . . in order to avoid any
   interruption to commerce or to the operation of any carrier growing out of
   any dispute between the carrier and the employees thereof." 45 U.S.C.
   sect. 152.

   One option NMB offers for resolving disputes is arbitration. Disputes that
   arise out of the interpretation of contracts or application of existing
   contractual rights are considered minor disputes or grievances.
   Brotherhood of Railroad Trainmen v. Chicago River & Indiana Railroad, 353
   U.S. 30, 33 (1957). Minor grievances initially are dealt with through the
   carrier's internal dispute resolution procedures. The Railway Labor Act
   forbids strikes over minor grievances. Brotherhood of Railroad Trainmen,
   353 U.S. at 34. See also htpp://www.fra.dot.gov/us/content/955 (last
   visited May 17, 2006). If a minor grievance is not settled through these
   internal procedures, either party may refer the grievance for arbitration
   to a grievance adjustment board composed of union and management
   representatives. 45 U.S.C. sect. 153. See also
   http://www.fra.dot.gov/us/content/955 (last visited May 17, 2006).
   Arbitration decisions under the Railway Labor Act are final and binding
   with very limited grounds for judicial review. Railway Labor Executives
   Ass'n v. National Mediation Board, 785 F. Supp. 167, 168 (D.C. Cir. 1991).

   NMB asked us to address obligation issues relating to appointment of a
   neutral arbitrator to grievance adjustment boards functioning under
   section 3 of the Railway Labor Act, codified at 45 U.S.C. sect. 153.
   Letter to David M. Walker, Comptroller General of the United States, from
   June D. King, Director of Administration, NMB, May 17, 2005 (King Letter).
   Section 3 pertains to minor grievances that arise in the railroad
   industry. See 45 U.S.C. sect. 153. These grievances are resolved through
   the use of three grievance adjustment boards: the National Railroad
   Adjustment Board, Special Boards of Adjustment, and Public Law Boards. Id.
   See also http://www.nmb.gov/arbitration/afaq.html (last visited May 17,
   2006). While the three grievance adjustment boards differ in origin,
   organization, and basic authorities, these differences are generally not
   significant from an appropriations law perspective and we will
   collectively refer to them as grievance adjustment boards.

   NMB currently appoints an arbitrator by issuing a certificate of
   appointment (Certificate of Appointment or Certificate) to the arbitrator
   to hear a specific case or a specified group of related cases. King Letter
   at 2. NMB also issues a letter (Compensation Letter) to the arbitrator
   that provides the daily rate of compensation, the per diem rate (lodging,
   meals, and incidental expenses) and travel costs. The Compensation Letter
   states that arbitrators serve as independent contractors and not as
   employees of the federal government. See NMB Letter of Compensation. The
   Certificate of Appointment and the Compensation Letter do not have a
   termination date. King Letter at 2.

   Pursuant to NMB procedures, an arbitrator may not participate in a hearing
   on the case until NMB appoints the arbitrator and the arbitrator submits
   and NMB approves the expense and compensation request. See Form NMB-6:
   Official Travel/Referee Compensation Authorization Form. Because
   arbitrators may hear multiple cases at one time, NMB approves expenses and
   compensation for multiple cases submitted as part of one expense and
   compensation request. Id. NMB only approves an arbitrator's anticipated
   compensation and expenses on a month-to-month basis. The arbitrator must
   submit the request for expense and compensation at least 10 days prior to
   the month covered by the request when compensable services and travel are
   to be performed, and the arbitrator must submit a new form each month his
   or her work continues. The arbitrator may not begin work and may not
   travel until NMB approves the submitted form. NMB Compensation Letter. NMB
   will not pay an arbitrator for more than 20 days worked per month.[2]
   Letter from Roland Watkins, Director, Arbitration Services, NMB, to Tom
   Armstrong, Assistant General Counsel for Appropriations Law, GAO, Aug. 9,
   2005 (Watkins/Armstrong letter). At the end of each month, the arbitrator
   must submit a detailed voucher showing actual expenses for time spent
   traveling, participating in a hearing, and writing a decision, and for
   travel and per diem expenditures. See, e.g., NMB Form-8, and Standard Form
   1012.

   NMB compensates the arbitrator, inter alia, for time spent traveling and
   participating in a hearing, and also pays him for per diem and travel
   expenditures, on a month-to-month basis after the arbitrator submits a
   voucher showing actual expenses. Charges for time spent writing the
   decision, however, are payable only after the arbitrator submits an award,
   even if the arbitrator's work continues for more than 1 month. Memorandum
   from Roland Watkins, Director, Arbitration Services, NMB, to Railroad
   Neutrals, Timing of Payments for Personal Services (Revised), Dec. 17,
   2004.

   ANALYSIS

   To ensure compliance with the Antideficiency Act and other fiscal laws,
   the federal government accounts for its use of federal funds on the basis
   of obligations it has incurred. 31 U.S.C. sect. 1341(a); B-300480, Apr. 9,
   2003; B-237135, Dec. 21, 1989. Understanding the concept of an obligation
   and properly recording obligations, therefore, is critical. When an agency
   takes some action that creates a legal liability, the agency "obligates"
   the United States government to make a payment. The actual disbursement of
   money typically follows at some later time. B-265901, Oct. 14, 1997;
   B-116795, June 18, 1954.

   A legal liability is a claim that may be legally enforced against the
   government. Collins v. United States, 15 Ct. Cl. 22 (1879). An agency may
   incur a legal liability in a variety of ways, such as when an agency signs
   a contract, grant or cooperative agreement, or by operation of law. Id.
   Generally an obligation is "a definite commitment which creates a legal
   liability on behalf of the government to pay appropriated funds for goods
   and services ordered or received." B-265901, Oct. 14, 1997; B-116795, June
   18, 1954.

   The Antideficiency Act prohibits an officer of the United States from
   incurring obligations in excess or advance of an appropriation. 31 U.S.C.
   sect. 1341(a). To track obligations for purposes of the Antideficiency
   Act, an agency official must determine both when the agency incurs the
   obligation and in what amount. 31 U.S.C. sect. 1514(a). See also
   B-300480.2, June 6, 2003; B-300480, Apr. 9, 2003.

   NMB, for various factual circumstances, questions when it incurs an
   obligation and in what amount. Underlying NMB's questions, as discussed
   below, is who controls NMB's obligations to pay neutral arbitrators.

   When Does NMB Incur an Obligation and in What Amount?

   NMB's first question is whether NMB's financial liability arises with the
   issuance of the Certificate of Appointment and the Compensation Letter,
   and if so, must NMB ensure that it has sufficient appropriations to cover
   the costs of the arbitrator at the time it issues the Certificate of
   Appointment and the Letter of Compensation to the arbitrator.

   Under the Railway Labor Act, NMB is required to appoint an arbitrator only
   when a grievance adjustment board cannot reach a resolution on a
   grievance. 45 U.S.C. sect. 153, First (l), 45 U.S.C. sect. 153, Second.[3]
   In practice, the parties use the services of a neutral arbitrator for
   every case that these grievance adjustment boards hear. Telephone
   conversation between Roland Watkins, Director, Office of Arbitration
   Services, NMB, and Hannah Laufe, Senior Attorney, GAO, Nov. 29, 2005
   (Watkins/Laufe Conversation, Nov. 29, 2005). Consequently, when NMB
   appoints an arbitrator at the beginning of a case, NMB is appointing the
   arbitrator to hear a case, and not merely to stand by in the event that
   the partisan members of the board are unable to resolve a grievance.

   NMB appoints an arbitrator to a case or specified group of related cases
   by issuing a Certificate of Appointment. The Certificate of Appointment is
   the "employment contract." Watkins/Armstrong Letter. The Certificate,
   signed by both parties, commits NMB to pay the arbitrator to render an
   award for the case or group of cases and commits the arbitrator to hear
   the case or groups of cases. The Certificate used to appoint an arbitrator
   to the Railroad Adjustment Board, for example, provides that "This
   certificate is issued [to the arbitrator] for the purpose of sitting with
   the [First Division of the Railroad Adjustment Board] as a member to make
   awards on six (6) cases listed in the Division letter . . ." The six cases
   are then listed in the Certificate of Appointment.

   At the same time that NMB issues the Certificate of Appointment to the
   arbitrator, NMB provides a Compensation Letter setting out what costs NMB
   will cover. NMB approves an arbitrator's anticipated compensation and
   expenses on a month-to-month basis, and the arbitrator may not begin work
   and may not travel until NMB approves the request. While NMB appoints an
   arbitrator to a case by issuing a Certificate of Appointment, NMB
   currently records an obligation on a month-to-month basis at the time it
   approves the arbitrator's compensation request. The amount of the
   obligation NMB records is based on the anticipated expenditures NMB
   approves in the monthly compensation request. See Form NMB-6: Arbitration
   Services--Office Travel/Referee Authorization.

   We disagree with NMB's current practice for recording obligations for
   arbitration services on a month-to-month basis. When NMB appoints an
   arbitrator by issuing a Certificate of Appointment, NMB incurs and should
   record an obligation based on the estimated cost of paying the arbitrator
   to submit an award.

   The arbitrator's services are in the nature of nonseverable services; that
   is, NMB only receives value when NMB receives the end product, i.e., the
   award. Nonseverable services are services that represent a single
   undertaking and provide value only when the entire project is complete.
   See B-287619, July 5, 2001; B-277165, Jan. 10, 2000. An agency must
   obligate the full amount of the nonseverable service at the time it incurs
   the obligation, even if performance continues into the subsequent fiscal
   year, or vouchers for reimbursement are submitted in a subsequent fiscal
   year. See B-287619, July 5, 2001; B-277165, Jan. 10, 2000. Consequently,
   NMB incurs an obligation for the cost of obtaining the award--which
   includes time the arbitrator spends in travel and on travel-related
   expenditures, time the arbitrator spends preparing for and participating
   in a hearing, and time the arbitrator spends writing a decision--when NMB
   appoints the arbitrator to hear specific cases.[4] The NMB appointment of
   the arbitrator to a grievance board is the obligating event in accordance
   with 31 U.S.C. sect. 1501(a).[5]

   NMB should modify its practices in order to record an obligation at the
   time it appoints an arbitrator to a board. Under the recording statute,
   for an amount to be recorded as an obligation it must be supported by
   documentary evidence of a binding agreement that is in writing and is for
   specific goods or services to be provided. 31 U.S.C. sect. 1501(a). NMB
   should modify the Certificate of Appointment to make it clear that the
   specific service to be provided is a submitted award and that the
   Certificate of Appointment commits NMB to pay the arbitrator for a
   submitted award for the case or group of cases before the board at the
   time NMB appoints the arbitrator.

   The amount of the obligation should be based on an estimate of the number
   of days the arbitrator will work before submitting an award or awards.
   According to the Director of NMB's Office of Arbitration Services, on
   average an arbitrator spends 3 days working on a case. However, at the
   time NMB appoints the arbitrator, NMB does not know the precise number of
   days it will take the arbitrator to submit an award.[6] To ensure that NMB
   has adequate amounts available to cover its legal liability, that is, the
   cost of paying the arbitrator to participate in a hearing, to write a
   decision, and for travel-related expenses, NMB, at the time it appoints
   the arbitrator, should record an obligation in the amount of its best
   estimate of its legal liability. When NMB appoints an arbitrator, it is
   the amount of the commitment, not the commitment itself, that is
   uncertain. See B-300480, Apr. 9, 2003; 64 Comp. Gen. 45, 48 (1984); 55
   Comp. Gen. 812, 824 (1976); 50 Comp. Gen. 589, 91 (1971). As stated above,
   the Antideficiency Act requires an agency to have an adequate
   appropriation at the time it incurs the obligation to liquidate its
   obligation. 31 U.S.C. sect. 1341(a). See also, B-300480, Apr. 9, 2003; 64
   Comp. Gen. 45, 48 (1984); 55 Comp. Gen. 812, 824 (1976). As more
   information becomes known during the fiscal year, NMB should adjust its
   obligations, that is, deobligate funds or increase the obligational level,
   as needed. B-300480, Apr. 9, 2003.

   We have recognized that where the amount of a liability is indefinite, an
   agency may cap its Antideficiency Act exposure by putting a limit on the
   extent of its liability. For example, agencies may cap indemnity clauses
   that subject the United States to an indefinite or potentially unlimited
   contingent liability. B-242146, Sept. 16, 1991. We understand NMB's
   concern that boards do not always resolve cases within a defined period.
   NMB could address this as a practical matter by capping its liability at
   the time of obligation, based on its best estimate of its legal liability.
   As more information becomes known during the fiscal year, NMB could adjust
   the cap upwards if it has available unobligated balances. If NMB chooses
   to cap its liability, it should provide specific language in the
   Certification and Compensation Letters stating the amount at which NMB's
   liability is capped.

   NMB should continue to request and approve a compensation request in
   advance of each month that the arbitrator works. This is an important
   practice, as NMB will need to adjust the amount of its obligation as it
   definitizes costs. Approval of monthly expenditures, however, is not an
   obligating event; it is merely a way for NMB to monitor arbitrator
   activity and to control and track NMB obligations and expenditures on a
   month-to-month basis.

   In response to NMB's first question, NMB incurs a legal liability at the
   time it appoints the arbitrator to a specific case or a specified group of
   related cases, and it should obligate an amount based on the estimated
   time it will take the arbitrator to submit an award for the case or cases
   to which he or she has been appointed.

   Does the Availability of Funds Clause in the Compensation Letter Protect
   NMB From Violating the Antideficiency Act?

   NMB's Compensation Letter states "such compensation is subject to the
   availability of government funds." NMB's second question is whether this
   language is sufficient to cover any potential liability as it relates to
   the Antideficiency Act.

   The language in the Compensation Letter, "such compensation is subject to
   the availability of government funds," which is also known as "a subject
   to availability clause," is not sufficient to protect NMB from violating
   the Antideficiency Act. It is the proper recording of the obligation that
   protects NMB from violating the Antideficiency Act. "Properly recording"
   an obligation means recognizing the liability at the time it is incurred
   in an appropriate amount.

   As we discussed above, NMB incurs an obligation to pay the arbitrator when
   it issues a Certificate of Appointment, and NMB must have sufficient
   budget authority at that point in time to cover the expected costs in
   order to avoid violating the Antideficiency Act.[7] For example, if NMB,
   when it appoints an arbitrator to a case, estimates that it will take 6
   days for the arbitrator to submit an award, NMB, at the time of
   appointment, must have an appropriation available at least for that amount
   and purpose and must record an obligation in that amount. It is
   conceivable, given NMB's current practice of recording obligations on a
   month-to-month basis, that if the arbitrator works 4 days in one month and
   2 days in a subsequent month, NMB may not have funds available to pay the
   arbitrator for the subsequent month.[8] The "availability of appropriated
   funds" clause in the Compensation Letter will not protect NMB from an
   Antideficiency Act violation in such circumstances because the obligation
   arises at the time of appointment in the full amount of the liability
   incurred.

   The United States Supreme Court addressed a "subject to availability
   clause" in Leiter v. United States, 271 U.S. 204 (1926). In that case, an
   agency with a fiscal year appropriation entered into a multiyear lease for
   office space. The lease specifically provided that payment for periods
   after the first year was contingent on the availability of future
   appropriations. The Court found that the terms of the contract that
   extended beyond the fiscal year were in violation of the Antideficiency
   Act and created no binding obligations against the United States after the
   first year. Id. at 206-07. See also Cherokee Nation of Oklahoma v.
   Leavitt, 543 U.S. 631, 643 (2005) (the Court rejected the government's
   argument that because a contract contained a subject to availability
   clause, the government could adjust its contractual obligations to the
   amount available). GAO has similarly stressed that an "availability of
   funds" provision does not save a contract from the Antideficiency Act
   prohibition against binding the government in excess or in advance of
   appropriations. 67 Comp. Gen. 190 (1988); 42 Comp. Gen. 272 (1962); 36
   Comp. Gen. 683 (1957).

   Does NMB Incur a Liability for a Pending Case to Which It Has Not Yet
   Appointed an Arbitrator?

   NMB's third question is whether it must have funds available in its annual
   appropriation to cover the expenses (daily compensation, per diem, and
   travel) of all pending cases, or only for those cases to which it has
   appointed an arbitrator. NMB asks further, if it is the latter, do the
   remaining cases constitute a contingent liability. King Letter at 2.

   Approximately 5,221 cases are pending before the three grievance
   adjustment boards. King Letter at 2. A pending case is a case that the
   parties have referred to a grievance adjustment board but which has not
   yet been resolved. Pending cases include cases to which NMB has not yet
   appointed an arbitrator; cases to which NMB has already appointed an
   arbitrator, but the case has not yet been heard; or the case has been
   heard, and the arbitrator has not yet submitted an award.
   Watkins/Laufe Telephone Conversation, Sept. 14, 2005.

   NMB only is required to have funds available in its annual appropriation
   to cover the amount of the obligations it incurs during the fiscal year
   for arbitrators it has appointed to specific cases before a board. The
   pending cases to which NMB has not yet appointed an arbitrator constitute
   a contingent liability of NMB. As a general matter, contingent liabilities
   may take different forms depending on the circumstances. However, whatever
   form it takes, a contingent liability by definition lacks the certainty
   that is essential to the establishment of an obligation. Thus, GAO defines
   a "contingent liability" generally as "[a]n existing condition, situation,
   or set of circumstances that poses the possibility of a loss to an agency
   that will ultimately be resolved when one or more events occur or fail to
   occur." GAO, A Glossary of Terms Used in the Federal Budget Process,
   GAO-05-734SP (Washington, D.C.: September 2005), at 35 (emphasis
   added).[9]

   Contingent liabilities are not recordable as obligations under section
   1501 of title 31, United States Code ("the recording statute"), because
   they are not yet liabilities; that is, the agency has taken no action
   making a definite commitment, nor has the agency permitted some other
   entity to take an action that could mature into a legally enforceable
   claim against the United States. Rather, a contingent liability ripens
   into a recordable obligation for purposes of section 1501 only if and when
   the contingency materializes. E.g., 62 Comp. Gen. 143, 145--46 (1983); 37
   Comp. Gen. 691--92 (1958).

   Until NMB takes an action by issuing a Certificate of Appointment to an
   arbitrator, NMB does not incur an obligation to pay the arbitrator. NMB
   will appoint an arbitrator to the pending case or cases at some future
   time, and NMB's obligation for the arbitrator's costs is contingent on
   appointment. This contingency does not ripen into a recordable obligation
   until NMB appoints an arbitrator to hear that specific case or a specified
   group of related cases.

   Accordingly, in response to NMB's third question, NMB is only required to
   have funds available in its annual appropriation to cover the amount of
   the obligations it incurs during the fiscal year to pay arbitrators it
   appoints to specific cases before a board. NMB incurs an obligation when
   it appoints an arbitrator to a grievance adjustment board to hear a
   specific case or a specified group of related cases. The pending cases to
   which NMB has not yet appointed an arbitrator constitute a contingent
   liability of NMB. Contingent liabilities are not recordable as obligations
   until the contingency actually materializes.

   Once NMB has Obligated All Of Its Funding for Neutral Arbitrators, Will it
   Violate the Antideficiency Act If It Appoints Arbitrators to New or
   Previously Established Boards?

   The fourth question NMB asked is once NMB has obligated all of its annual
   appropriation that is available for neutral arbitrators, will it violate
   the Antideficiency Act if incurs a new obligation by appointing an
   arbitrator to a new or previously established board.

   Under the Antideficiency Act, the President is required to apportion funds
   to executive branch agencies. 31 U.S.C. sections 1512, 1513(b)(1). The
   President delegated this authority to the Bureau of the Budget, and it now
   reposes in the Office of Management and Budget (OMB). Exec. Order No.
   6166, sect. 16 (June 10, 1933). An agency may not obligate or expend funds
   exceeding an apportionment or any other subdivision of funds as specified
   in an agency's regulations. 31 U.S.C. sect. 1517(a). The apportionment
   process is intended to prevent the obligation of amounts available within
   an appropriation in a manner that would require a deficiency or
   supplemental appropriation or a drastic curtailment of the activity for
   which the appropriation was made. OMB Circular No. A-11, sect. 120.2 (Nov.
   2, 2005). Apportionments control the rate of spending during the year by
   limiting the amount of funds that can be obligated--typically by time
   periods, activities, projects, objects, or a combination thereof. Id.
   sect. 120.8.

   The Antideficiency Act also requires all agencies to prescribe by
   regulation a system of administrative control of funds. 31 U.S.C. sect.
   1514(a). The purpose of this fund control system is to ensure that the
   agency keeps within the bounds of each apportionment or reapportionment
   and to "enable the official or the head of the executive agency to fix
   responsibility for an obligation or expenditure exceeding an apportionment
   or reapportionment." 31 U.S.C. sect. 1514(a)(2).

   OMB apportions funds to NMB on a quarterly basis. Telephone conversation
   between Roland Watkins, Director, Office of Arbitration Services, NMB,
   June King, Director, Office of Administration, NMB, and Hannah Laufe,
   Senior Attorney, GAO, Nov. 29, 2005. It is clear that NMB may not obligate
   funds in excess of its apportionment from OMB. NMB, however, was unable to
   provide us with any information about its administrative fund control
   system or whether its fund control regulations subdivide funds below the
   apportionment level.

   If NMB does not have a fund control system in place, we suggest that NMB
   work with OMB to establish such a system. Agency fund control regulations
   must be approved by OMB, and OMB issues guidance regarding at what level
   of administrative subdivision an agency should impose Antideficiency Act
   control. OMB Cir. No. A-11, sect. 145.2. For more information about
   administrative control of funds and the apportionment process, see GAO,
   Principles of Federal Appropriations Law, 3^rd ed., vol. II, ch. 6, sect.
   C.4, GAO-06-382SP (Washington, D.C.: Mar. 2006), and OMB Cir. No. A-11,
   sections 145, 150, and App. H.

   In response to NMB's fourth question, NMB will violate the Antideficiency
   Act if it appoints an arbitrator to a new or existing board and incurs an
   obligation in excess of its apportionment or any other subdivision of
   funds as specified in its administrative fund control regulations. If NMB
   does not have an administrative fund control system, it should work with
   OMB to establish one.

   Who Can Obligate NMB's Appropriations?

   NMB's last two questions pertain to only two of the grievance adjustment
   boards: Special Boards of Adjustment (SBA) and Public Law Boards (PLB).
   SBAs and PLBs are temporary grievance boards established by management and
   labor to decide a specific set of grievances.[10] When the parties form an
   SBA or PLB, the agreement establishing the board identifies the specific
   cases the board will hear.

   NMB's fifth question is whether NMB incurs an obligation to pay a neutral
   arbitrator when the parties to a grievance enter into an agreement to form
   an SBA or PLB. In other words, is the point at which the parties enter
   into an agreement to form an SBA or PLB an obligating event for purposes
   of NMB discharging its statutory responsibility to name and pay a neutral
   arbitrator?

   NMB incurs an obligation when an authorized NMB official appoints an
   arbitrator to a specific case or a specified group of related cases. The
   parties' agreement to establish an SBA or PLB is not an obligating event.
   As explained above, when an agency takes some action that creates a legal
   liability, the agency "obligates" the United States government to make a
   payment. Collins v. United States, 15 Ct. Cl. 22 (1879).

   As a general matter, the Antideficiency Act and the so-called purpose
   statute prohibit NMB from incurring an obligation to pay an arbitrator
   unless Congress has appropriated funds in a sufficient amount to NMB for
   that purpose. 31 U.S.C. sect. 1341(a); 31 U.S.C. sect. 1301. The
   Antideficiency Act, however, recognizes that Congress can and may
   authorize exceptions. 31 U.S.C. sect. 1341(a). One such exception is where
   an obligation arises by operation of law, i.e., by virtue of a law
   requiring such obligations. B-287619, July 5, 2001; 39 Comp. Gen. 422
   (1959).

   While section 153 of the Railway Labor Act states that NMB "shall"
   compensate an arbitrator it appoints to a board, the Railway Labor Act
   also provides in part that:

     "The Mediation Board [NMB] may . . . make such expenditures (including .
     . . expenditures for salaries and compensation, necessary traveling
     expenses and expenses actually incurred for subsistence, and other
     necessary expenses of the Mediation Board, Adjustment Board, Regional
     Adjustment Boards . . . ) as may be necessary for the execution of the
     functions vested in the Board, in the Adjustment Board and in the boards
     of arbitration, and as may be provided for by the Congress from time to
     time."

   45 U.S.C. sect. 154, Third (emphasis added).

   This provision requires that Congress provide NMB with funds before NMB
   may incur an obligation. Accordingly, section 153 of the Railway Labor Act
   does not automatically give rise to an obligation. Before NMB can incur an
   obligation, Congress must provide NMB with funds to do so, and NMB must
   take some action incurring the commitment.

   It is also important to note that only an authorized officer of the United
   States government can enter into a contract or other binding commitment on
   behalf of the government. White v. United States Department of Interior,
   639 F. Supp. 82 (1986), aff'd, 815 F.2d 697 (3^rd Cir. 1987); B-230382,
   Dec. 22, 1989. Consequently, if someone other than an authorized officer
   attempts to sign a contract or other agreement committing the government
   to some action, the commitment is not binding on the government. P.R.
   Burke Corp. v. United States, 277 F.3d 1346, 1355 (Fed Cir. 2002).

   At the time the parties form an SBA or PLB, which is composed of specific
   cases, NMB may anticipate eventually appointing an arbitrator to hear
   these cases; however, it is the appointment of the arbitrator by an
   authorized NMB official, not the organization of the SBA or PLB, that is
   the obligating event for NMB.

   Does NMB Incur an Open-Ended Liability When it Appoints an Arbitrator to a
   Special Board of Adjustment or a Public Law Board?

   NMB's last question is whether NMB incurs an open-ended liability for an
   arbitrator's costs when it appoints an arbitrator to a Special Board of
   Adjustment or a Public Law Board. When NMB appoints an arbitrator to an
   SBA or PLB, it appoints the arbitrator to the specific number of cases on
   the SBA or PLB at the time of appointment. The agreement between the
   parties establishing an SBA or PLB has no termination date and there is no
   limit on the number of cases that the parties can add to an already
   established board to which NMB has already appointed an arbitrator.
   However, the parties may not add a new case to a board without NMB's
   approval.

   Absent specific statutory authority, an agency may not enter into an
   agreement that is open-ended. Hercules, Inc. v. United States, 516 U.S.
   417, 426--428 (1996); B-242146, Aug. 16, 1991. An agency may not enter
   into an agreement that is open-ended because at the time it incurs a
   liability, it does not know the amount of that liability, so it has no way
   of ensuring that appropriations will be available to cover the legal
   liability it incurs upon entering into the agreement. This could result in
   the agency incurring a legal liability in excess of its appropriation in
   violation of the Antideficiency Act, 31 U.S.C. sect. 1341(a). Hercules,
   516 U.S. at 426--28; B-242146, Aug. 16, 1991.

   We do not find NMB's commitment to pay an arbitrator for all of the cases
   before an SPB or PLB at the time of a board's creation to be open-ended.
   NMB generally appoints an arbitrator to a PLB or SBA at the time the
   parties submit an agreement to NMB in which they have agreed to the
   establishment of a board. The parties submit the agreement to NMB for
   administrative purposes. King Letter at 2. When NMB appoints an
   arbitrator, the arbitrator becomes a member of the board, and as such, the
   arbitrator commits to hearing all of the cases currently on the board.
   See, e.g., Public Law Board Agreement Between Delaware and Hudson Railway,
   Inc. and United Transportation Union, GO 300, Feb. 11, 2004. Consequently,
   when NMB appoints an arbitrator to a PLB or SBA, it appoints the
   arbitrator to hear all of the cases currently before the board.

   Because NMB appoints an arbitrator to an SBA or PLB to hear the cases on
   the board at the time NMB appoints the arbitrator to the board, it only
   incurs an obligation to cover the arbitrator's costs to hear those cases.
   NMB must approve any new cases that the parties wish to add to an already
   established board. Watkins/Laufe Telephone Conversation, Nov. 29, 2005.
   See, e.g., Public Law Board Agreement Between Delaware and Hudson Railway,
   Inc. and United Transportation Union, GO 300, Feb. 11, 2004. If an SBA or
   PLB wish to add a new case, and if NMB approves the addition, NMB is
   creating a new obligation and must obligate additional funds to pay the
   arbitrator to hear the additional case or cases. In addition, NMB must
   provide a new Certification Letter to the arbitrator that specifies the
   additional cases the arbitrator will hear and the arbitrator's estimated
   payment. As explained in the response to the previous question, the
   parties establishing a board cannot obligate NMB's appropriation; only NMB
   can do that and NMB does that by taking the action of approving the
   addition of new case to the board. Because NMB's appointment of the
   arbitrator to the new case is a new obligation, NMB must charge the
   obligation against the fiscal year in which it appoints the arbitrator to
   these new cases.

   In a 1977 decision, we concluded that the appointment of a commissioner to
   a continuing land commission by itself did not obligate the Department of
   Justice (Department) to pay the salary of the land commissioner. 56 Comp.
   Gen. 414 (1977). Rather, the Department incurred an obligation when a
   court had both appointed a land commissioner to the continuing land
   commission and referred a specific case to the commission. Id. Our
   discussion here is consistent with the land commission decision. As with a
   land commission, the continued existence of a grievance board does not by
   itself create an obligation. For obligational purposes, the liability
   arises when NMB appoints the arbitrator to the additional case. It is at
   this point that NMB incurs a new obligation and is required to charge the
   payment to the fiscal year in which it incurs the new obligation. Id.
   Conversely, if NMB does not have an appropriation available for that
   purpose, it cannot approve the addition of the case.

   In response to NMB's sixth question, NMB does not enter into an open-ended
   contract to pay an arbitrator when it appoints an arbitrator to an SBA or
   a PLB. The parties to a grievance may not add a new case to a board
   without NMB's approval, and NMB must appoint the arbitrator to hear the
   new cases. The appointment to a new case constitutes a new obligation.

   CONCLUSION

   NMB incurs an obligation when it appoints a neutral arbitrator to a
   grievance adjustment board to hear a specific case or a specified group of
   related cases. The Antideficiency Act requires that NMB have an
   appropriation available to cover the estimated costs of the arbitrator at
   the time it incurs the obligation. 31 U.S.C. sect. 1341(a). To protect
   itself from violating the Antideficiency Act, NMB could cap its liability
   at the time of obligation based on its best estimate of its legal
   liability. As more information becomes known during the fiscal year, NMB
   could adjust the cap upwards if it has available unobligated balances.

   Anthony H. Gamboa

   General Counsel

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

   [1] Among the purposes of the Railway Labor Act are:

     " (4) to provide for the prompt and orderly settlement of all disputes
     concerning rates of pay, rules, or working conditions; (5) to provide
     for the prompt and orderly settlement of all disputes growing out of
     grievances or out of the interpretation or application of agreements
     covering rates of pay, rules, or working conditions."

   45 U.S.C. sect. 151a.

   [2] On average, an arbitrator spends approximately 3 days working on a
   case. Telephone conversation between Roland Watkins, Director, Arbitration
   Services, NMB, and Hannah Laufe, Senior Attorney, GAO, Sept. 14, 2005
   (Watkins/Laufe Telephone Conversation, Sept. 14, 2005). However, in some
   circumstances, a case may remain unresolved for up to 2 years. In response
   to a 2004 notice of proposed rulemaking regarding facilitating the more
   timely resolution of grievances, some commenters stated that a lack of
   funding precluded the timely resolution of some cases. Others stated that
   the lack of an established time frame regarding when an arbitrator must
   submit an award contributed to a delay in the resolution of cases. See
   Administration of Arbitration Programs, 69 Fed. Reg. 48177, 48178 (Aug. 9,
   2004).

   [3] The Railway Labor Act uses the headings First, Second, Third, etc., to
   subdivide sections within the act. For example, section 3 of the Railway
   Labor Act, now codified at 45 U.S.C. sect. 153, is divided into 45 U.S.C.
   sect. 153, First, which applies to the National Railroad Adjustment Board,
   and 45 U.S.C. sect. 153, Second, which applies to Special Boards of
   Adjustment and Public Law Boards.

   [4] When a federal employee is on travel, the federal government does not
   incur an obligation until the travel is actually performed or until a
   ticket is purchased, provided in the latter case the travel is to be
   performed in the same fiscal year the ticket is purchased. 35 Comp. Gen.
   183, 185 (1955). However, neutral arbitrators are contractors, not federal
   employees. At the time the government enters into a contract for
   arbitrator services, the cost for travel is part of the costs of the
   contract.

   [5] In two prior decisions, we looked at NMB's compensation of neutral
   arbitrators. In B-217475, Dec. 24, 1986, and B-217475, May 5, 1986, we
   concluded that NMB did not need to "obligate estimated amounts due to
   neutral [arbitrators] for services he may perform in the future unless the
   [arbitrator] submits the proper forms and estimates of compensation and
   expenses for advance approval, as required by NMB's . . . regulations."
   These 1986 decisions, however, did not address whether NMB incurs an
   obligation when NMB appoints the arbitrator or when NMB approves the
   request for compensation and expenses. To the extent that we indicated in
   these prior decisions that NMB may record obligations monthly based on the
   anticipated expenditures it approves in the monthly compensation requests,
   they are overruled.

   [6] NMB cannot control the number of days an arbitrator will work before
   submitting an award. NMB, however, states in its compensation letter that
   an arbitrator will not be able to hear additional cases if he or she does
   not submit an award within 6 months of the date of hearing a case. NMB
   Letter of Compensation.

   [7] See the response to question one for a discussion of nonseverable
   services.

   [8] As discussed in the response to question one, NMB could protect itself
   from an Antideficiency Act violation by capping its liability at the time
   of obligation based on a good faith estimate of its maximum legal
   liability.

   [9] For a discussion of contingent liabilities, see GAO, Principles of
   Federal Appropriations Law, 3^rd ed., vol. II, ch. 7, sect. C,
   GAO-06-382SP (Washington, D.C.: Mar. 2006).

   [10] The National Railroad Adjustment Board (NRAB) is a permanent board
   composed of labor and management representatives whose job is to resolve
   grievances referred by either labor or management. 45 U.S.C. sect. 153,
   First. As the parties refer a case or group of cases to NRAB, NMB appoints
   an arbitrator to hear the case or group of cases.