[ v22 p656 ]
22:0656(72)AR
The decision of the Authority follows:
22 FLRA No. 72
HEADQUARTERS, 97th COMBAT SUPPORT
GROUP (SAC), BLYTHEVILLE AIR FORCE
BASE, ARKANSAS
Activity
and
AMERICAN FEDERATION OF GOVERNMENT
EMPLOYEES, AFL-CIO, LOCAL 2840
Union
Case No. 0-AR-435
DECISION
I. STATEMENT OF THE CASE
This matter is before the Authority on exceptions to the award of
Arbitrator Preston J. Moore filed by the Department of the Air Force
(the Agency) under section 7122(a) of the Federal Service
Labor-Management Relations Statute and part 2425 of the Authority's
Rules and Regulations. /1/
II. BACKGROUND AND ARBITRATOR'S AWARD
The dispute before the Arbitrator concerned the Activity's
determination to contract out certain aircraft maintenance functions.
The grievance alleged that the decision to contract out was not made in
accordance with applicable law and regulation governing determinations
to contract out commercial and industrial activities in the Department
of Defense. Compliance with such law and regulation was required by the
parties' collective bargaining agreement. The Arbitrator first ruled
that the grievance was arbitrable. On the merits of the grievance, the
Arbitrator ruled that the Activity's procurement action was not in
accordance with the procedures and standards provided by law and
regulation in a number of respects. Consequently, the Arbitrator
sustained the grievance and directed the procurement action be
cancelled.
III. FIRST EXCEPTION
A. Contentions
In its first exception the Agency contends that by finding the
grievance arbitrable, the award is contrary to management's right
pursuant to section 7106(a)(2)(B) of the Statute to make determinations
with respect to contracting out.
B. Analysis and Conclusions
The Authority has previously addressed the grievability and
arbitrability of a grievance claiming that a procurement action failed
to comply with applicable law and regulation pertaining to contracting
out as required by the parties' collective bargaining agreement. The
Authority specifically held that such a grievance was not contrary to
section 7106(a)(2)(B) of the Statute and was grievable and arbitrable.
American Federation of Government Employees, Local 1904, AFL-CIO and
United States Army Communications and Electronics Materiel Readiness
Command, 16 FLRA 358 (1984). Similarly, the Authority has held that
even in the absence of a specific negotiated contract provision, a
grievance over whether a procurement action complies with OMB Circular
A-76 is within the broad scope grievance procedure prescribed by the
Statute and is not precluded by management's right under section
7106(a)(2)(B) to make determinations with respect to contracting out.
American Federation of Government Employees, AFL-CIO, National Council
of EEOC Locals and Equal Employment Opportunity Commission, 10 FLRA 3
(1982) (proposal 1), enforced sub nom. EEOC v. FLRA, 744 F.2d 842 (D.C.
Cir. 1984), cert. dismissed, 106 S. Ct. 1678 (1986) (per curiam). /2/
Consequently, the Authority concludes that the Arbitrator's ruling on
the arbitrability of the grievance is not contrary to section
7106(a)(2)(B) of the Statute, and therefore this exception is denied.
IV. SECOND EXCEPTION
A. Contentions
In its second exception the Agency contends that the Arbitrator's
cancellation of the procurement action is contrary to law. In support
of this exception, the Agency argues that the procurement action could
not be cancelled by the Arbitrator absent a finding that but for the
alleged errors by management in the procurement process, the decision to
contract out could not have properly been made.
B. Analysis and Conclusions
This exception provides the Authority with an opportunity to address
for the first time the remedial authority of an arbitrator in resolving
grievances disputing determinations by agencies to contract out agency
work.
General laws and regulations governing contracting out, and specific
laws and regulations governing contracting out of commercial and
industrial activities in the Department of Defense, evidence a clear
intent that their application result in the most cost-effective
performance of commercial and industrial activities. Pub. L. No.
96-342, Section 502(a)(2)(B), 10 U.S.C. Section 2304 note (1982); OMB
Circular A-76 (Revised August 1983), para. 5. The longstanding policy
of the Federal Government has been to rely on private enterprise to
supply commercially available products and services it needs except when
comparative cost analysis indicates that procurement from a private
source is not as cost effective as in-house performance. AFGE Local
2017 v. Brown, 680 F.2d 722, 724 (11th Cir. 1982), cert. denied, 459
U.S. 1104 (1983). This policy is designed to achieve economy and
enhance productivity through competition between in-house and commercial
sources for performance of commercial activities. OMB Circular A-76,
para. 5. The procurement process established to effectuate this policy
accords to agency officials substantial discretion in "the application
of technical, and often esoteric, regulations to the complicated
circumstances of individual procurements." M. Steinthal & Co. v.
Seamens, 455 F.2d 1289, 1301 (D.C. Cir. 1971); see Local 2855, AFGE v.
U.S., 602 F.2d 574, 580-83 (3d Cir. 1979).
In conjunction with the provisions of procurement law and regulation,
section 7106(a)(2)(B) of the Statute expressly reserves to management
officials the right, in accordance with applicable laws, to make
determinations with respect to contracting out. The Authority has
repeatedly recognized that the plain language of section 7106(a) of the
Statute provides that "nothing" in the Statute, including an award of an
arbitrator, shall "affect the authority" of an agency to exercise the
rights enumerated in that section. American Federation of Government
Employees, Local 3258 and U.S. Department of Housing and Urban
Development, 21 FLRA No. 56 (1986). More specifically, the Authority
has recognized that management's right under section 7106(a)(2)(B)
encompasses not only the right to act, but also the right to deliberate
concerning the relevant factors on which a determination to contract out
will be made. National Federation of Federal Employees, Local 1167 and
Department of the Air Force, Headquarters, 31st Combat Support Group
(TAC), Homestead Air Force Base, Florida, 6 FLRA 574, 578 (1981),
enforced sub nom. NFFE Local 1167 v. FLRA, 681 F.2d 886 (D.C. Cir.
1982). In addition, with the strong public interest in a Federal
Government procurement process which is efficient and economical and
which proceeds without disruption, the Authority must be mindful of
Congress' admonition in section 7101 of the Statute that the provisions
of the Statute "should be interpreted in a manner consistent with the
requirement of an effective and efficient Government." See Sea-Land
Service, Inc. v. Brown, 600 F.2d 429 (3d Cir. 1979).
In recognition of the substantial discretion accorded agency
officials under procurement law and regulation and the many decisions
made as a part of the procurement process that necessarily are a matter
of judgment and managerial choices, the scope of review of procurement
actions by courts and administrative bodies has been narrow and limited.
See Local 2855, AFGE v. U.S., 602 F.2d 574 (3d Cir. 1979).
In the administrative review of disputed procurement actions, the
Comptroller General will review an action only to determine whether it
conforms to mandatory provisions of procurement laws and regulations and
will not review matters reserved to agency discretion. Thus, the
protester must establish that the disputed action violated requirements
of law or regulation and that the violation materially affected the
result of the procurement action. Matter of: Video Visions, Inc.,
Decision of the Comptroller General B-210010.2, June 26, 1984.
Judicial review of disputed procurement actions is also narrow and
limited. The most common articulation by the courts of the standard of
review of a procurement action is that of a rational or reasonable
basis. See Sea-Land Service, Inc. v. Brown; Kinnett Dairies v. Farrow,
580 F.2d 1260 (5th Cir. 1978); M. Steinthal & Co. v. Seamens; Robert
E. Derecktor of Rhode Island v. Goldschmidt, 516 F. Supp. 1085 (D.R.I.
1981). As indicated above, the courts also recognize that there must be
respect for public interest considerations in the efficient procurement
of goods and services and the avoidance of excessive procurement costs.
Sea-Land Service, Inc. v. Brown, 600 F.2d at 434. In short, the courts
generally hold that a procurement decision may not be overturned unless
it is demonstrated that there is no rational basis for the agency's
decision and that no public interest considerations override cancelling
the procurement. M. Steinthal & Co. v. Seamens, 455 F.2d at 1301. It
has been held that the absence of a rational basis may be established by
a demonstration that the procurement process involved a clear and
prejudicial violation of mandatory provisions of applicable procurement
laws or regulations. Kentron Hawaii v. Warner, 480 F.2d 1166, 1169
(D.C. Cir. 1973). However, courts have stressed that the provisions
alleged to have been violated must contain discernible requirements and
meaningful criteria against which the determination to contract out may
be analyzed and reviewed. In other words, there must be rules or
specifications that permit adjudication of disagreements and amply
specific standards against which agency conduct can be measured. See
AFGE Local 2017 v. Brown, 680 F.2d at 726; Local 2855, AFGE v. U.S.,
602 F.2d at 582-83. Courts will not review matters within an agency's
judgment and discretion because the courts stress that there must be
respect for the substantial discretion permitted by, and the judgment to
be exercised under, procurement laws and regulations on the part of
procurement officials. Kinnett Dairies v. Farrow, 580 F.2d at 1272; M.
Steinthal & Co. v. Seamens, 455 F.2d at 1298-99. Courts therefore will
not cancel a procurement action just because it seems ill-advised or a
less desirable alternative than performing the work in-house. It is
regularly stated that the courts must be diligent not to substitute
their judgment for that of responsible agency officials in the
administration and application of procurement statutes and regulations.
See International Association of Firefighters, Local F-100 v. Department
of the Navy, 536 F. Supp. 1254 (D.R.I. 1982).
The Authority believes that these analytical approaches provide sound
guidance for arbitral review of procurement actions. In view of the
substantial discretion vested in agency procurement officials, the
paramount public interest in the efficient procurement of goods and
services, and the avoidance of excessive costs recognized by both the
courts and the Comptroller General, the Authority has determined that an
arbitrator may not substitute his or her judgment for that of an agency
with respect to the agency's ultimate decision whether to contract out.
Similarly, any intermediate decision in the procurement process
concerning a matter reserved to agency judgment and discretion also may
not be set aside. Thus, the Authority holds that an arbitrator is
without authority to order cancellation of a procurement action or to
review an agency decision in the procurement process concerning a matter
of agency judgment or discretion.
There are, nevertheless, certain permissible remedies available to an
arbitrator in resolving a grievance concerning an agency's determination
whether to contract out. In particular, with respect to the disputed
procurement action, we hold that an arbitrator may, in certain
circumstances, direct an agency to reconstruct the procurement action.
In order for an arbitrator to direct an agency to undertake such a
reconstruction, the arbitrator must find the following:
(1) The arbitrator must expressly find that in determining to
contract out, the agency violated mandatory provisions of
applicable procurement laws or regulations. Furthermore, these
provisions must contain sufficiently specific standards to
objectively analyze and review the agency's actions and permit an
objective conclusion that the agency failed to comply with the
requirements; and
(2) The arbitrator must find that the agency's failure to
comply with those requirements materially affected the final
procurement decision and harmed unit employees. The Authority
cautions that arbitrators must distinguish between permissible
challenges based on material defects in aspects of the procurement
process specifically prescribed by law or regulation and improper
challenges attacking the exercise of managerial discretion.
In sum, arbitrators are not authorized to cancel a procurement action
and are authorized to consider only grievances challenging a decision to
contract out on the basis that the agency failed to comply with
mandatory and nondiscretionary provisions of applicable procurement law
or regulation. These provisions must be sufficiently specific to permit
the arbitrator to adjudicate whether there has been compliance with such
provisions. When presented with such a grievance, an arbitrator on
finding a failure to comply may sustain the grievance. In sustaining
the grievance, the arbitrator as a remedy may properly order a
reconstruction of the procurement action when the arbitrator finds that
an agency's noncompliance materially affected the final procurement
decision and harmed unit employees. An agency in taking the action
required by such an award must reconstruct the procurement process in
accordance with the provisions which were previously not complied with
and must determine on reconstruction whether the decision to contract
out is now in accordance with law and regulation. If the decision to
contract out can no longer be justified, the agency must determine
whether considerations of cost, performance, and disruption override
cancelling the procurement action and take whatever action is
appropriate on the basis of that determination. For example, an agency
could determine that immediate cancellation is warranted, or an agency
could determine that cancellation is not warranted, but that an
improperly granted contract should not be renewed. Additionally, an
agency may use its discretion to fashion other remedies appropriate to
the circumstances.
In applying that test in this case, the Authority concludes that the
Arbitrator's award insofar as it directed the Activity to cancel the
procurement action involved is deficient and must be set aside. We
note, however, that the Arbitrator expressly found that the Activity
violated certain specific requirements of applicable law and regulation
in the development and comparison of costs in reaching its decision.
The Arbitrator specifically found that the methodology used in
estimating in-house labor costs violated the requirements of Department
of Defense Directive 4100.33-H, which provides procedures and standards
to assist and guide agencies in cost comparisons. The Arbitrator ruled
that the estimate used an incorrect wage inflation factor and improperly
accounted for the grade of a temporary position. The Arbitrator also
found that contrary to OMB Circular A-76, the Activity failed to account
for the costs of obtaining security clearances for contractor employees.
We also note that the Arbitrator based his award on the conclusion that
the defective procurement action would displace employees and that the
violations of procurement law and regulation all favored the decision to
contract out. In these circumstances, we conclude that the Arbitrator
effectively found that the Activity's violations harmed the employees
involved and that the violations materially affected the Activity's
final decision. Thus, the Arbitrator established a sufficient basis for
directing the Activity to reconstruct the procurement action.
C. Reconstruction
The Agency asserts in its exceptions that a cost analysis revised in
accordance with the Arbitrator's findings shows that contracting out is
still more economical than in-house performance. In support of this
assertion, the Agency offers only wage rate schedules and other
computation worksheets which have been revised in part. The Agency does
not explain how these attachments demonstrate that reconstruction favors
contracting out. In these circumstances, we believe application of the
approaches set forth in this decision requires that such a
reconstruction be specifically conducted pursuant to the order of the
Authority and in accordance with the guidance which has now been
provided.
V. DECISION
Accordingly, for the above reasons, the Arbitrator's award is
modified to direct the Activity to reconstruct the disputed procurement
action in accordance with the requirements of applicable law and
regulation and to make a determination and take appropriate action based
upon the results of such reconstruction.
Issued, Washington, D.C., July 23, 1986.
/s/ Jerry L. Calhoun, Chairman
/s/ Henry B. Frazier III, Member
FEDERAL LABOR RELATIONS AUTHORITY
--------------- FOOTNOTES$ ---------------
(1) The National Federation of Federal Employees filed a brief as an
amicus curiae.
(2) Although this determination was affirmed by the U.S. Court of
Appeals for the D.C. Circuit, with the U.S. Supreme Court dismissing the
agency's subsequent appeal, this same approach was rejected by the U.S.
Court of Appeals for the Ninth Circuit in Defense Language Institute,
Presidio of Monterey, California v. FLRA, 767 F.2d 1398 (9th Cir. 1985),
denying enforcement of National Federation of Federal Employees, Local
1263 and Defense Language Institute, Presidio of Monterey, California,
14 FLRA 761 (1984).