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.