DoD Memorandum on Personnel Reform

THE DAILY FED

DoD Memorandum on
Personnel Reform

Office of the Assistant Secretary of Defense
4000 Defense Pentagon
Washington, DC 20301-4000

August 11, 1997

MEMORANDUM FOR DISTRIBUTION

SUBJECT: Title 10 Civilian Personnel Legislative Authority

By memorandum dated March 25, 1997, the Steering Group of the Quadrennial Defense Review directed the Under Secretary of Defense for Personnel and Readiness to prepare a legislative package placing the Department's civilian personnel system under separate legislative authority. That legislative package is attached.

As part of the package, we have prepared an information paper which provides justification for separate DoD personnel authority; the rationale for placing that authority under Title 10, U.S.C.; and a general outline of the makeup of the new system. The proposed legislative language is provided as an attachment to the information paper. You will note that the legislation provides a broad framework for a new DoD personnel system. The specifics of the new comprehensive system will be developed by a joint OSD/Component working group and approved by the Secretary.

We have scheduled an initial meeting of the working group for Friday, September 5, at 10:00 a.m. in Rm 3B-347, Pentagon. Please provide the name of your working group representative to Elaine Van Cise on 695-5348. The primary purpose of the meeting is to discuss the information paper and to solicit comments and recommendations for strengthening our argument for separate legislative authority. Once we have received concurrence from the Administration on the proposal, the working group will establish implementation milestones and begin development of the specific program elements. Of course, very early in the process, our labor partners will be invited to assist in framing the new system.

I look forward to working with you on this very exciting and challenging endeavor.

Diane M. Disney
Deputy Assistant Secretary
(Civilian Personnel Policy)

INFORMATION PAPER

Issue: Why does DoD need separate civilian personnel legislative authority?

Discussion: DoD's mission and the combination of a military and civilian workforce (as opposed to an all-civilian agency) present unique challenges for personnel management. Our civilian and military personnel management systems must be responsive to national defense strategy as defined by the President and the Congress. We operate in a worldwide setting where we employ approximately 732,000 U.S. citizens and approximately 58,000 foreign nationals in over 90 foreign countries. Even with a 28 percent reduction since FY1989, DoD still employs 790,000 civil servants.

DoD has been going through a period of unprecedented downsizing. It has been streamlining its operations and reducing its military force structure, associated infrastructure, and overall budget since the end of Fiscal Year 1987. The civil service contingent of today's Total Force numbers some 790,000, down from 1.11 million in 1989, and is programmed to fall another 73,000 through FY 2003. Further, there could be an additional reduction of 80,000 as a result of the Quadrennial Defense Review.

The DoD workforce currently costs the Department $41.5B annually. It is a well-qualified, motivated and diverse workforce; however, continued downsizing, coupled with new skill requirements generated by emerging technologies, presents special workforce challenges. These include an older, more senior workforce caused by limited accessions, multiple reductions-in-force and demographic forces; pipeline problems in certain occupations; continued reductions to DoD civilian personnel staff; and the complexities and minimal flexibility in current Federal personnel processes. The requirements and restrictions of title 5 have not allowed for the development and implementation of civilian personnel policies to address these challenges adequately.

DoD must posture for and be responsive to any mission impact resulting from changes in national defense strategy. To manage the fluctuations in workforce requirements generated by changing contingencies efficiently and effectively, DoD must have the flexibility to size its civilian workforce using simplified recruitment, classification, pay, sustainment and separation policies and procedures.

The requirements and restrictions of title 5 have impeded the development of a civilian personnel system responsive to the unique mission of the Department of Defense and the requirements of the Military Departments and Defense Agencies. The inflexibility of major provisions of title 5, U.S.C., particularly in the areas of classification and employment, has prompted the development of numerous demonstration projects that tend to splinter civilian personnel systems within the Department. Although the Report of the National Performance Review recommended a wide variety of proposals that would create a flexible and responsive hiring system, reform the general schedule classification system, and improve individual and organizational performance, statutory changes necessary to achieve these objectives have not been forthcoming. As a result, several major groups within the Defense Department have sought and gained authority to develop their own personnel systems.

• The Fiscal Year 1995 National Defense Authorization Act authorized the conduct of personnel demonstration projects at DoD's Science and Technology (S&T) Reinvention Laboratories. To date, 12 S&T reinvention labs are participating in these demonstration projects, covering nearly 40,000 employees. More S&T laboratory demonstration projects are being planned. Major interventions being tested are expedited hiring systems and policies, pay broadbanding, a contribution-based compensation system, and a streamlined removal process.
• The Fiscal Year 1996 National Defense Authorization Act encouraged DoD to establish a personnel demonstration project for DoD's Acquisition Workforce. The project will test various personnel management concepts to determine whether the effectiveness of the acquisition workforce can be enhanced by allowing greater direct managerial control over personnel functions and by creating a more responsive and flexible personnel system. Approximately 50,000 acquisition employees are potentially covered by this demonstration. The A&T participants are exclusive of those employees already covered by the S&T laboratory demonstration projects, who are precluded from participation in the acquisition demonstration project.
• DoD's Intelligence Community consists of a number of different entities: Defense Intelligence Agency, National Security Agency, National Imagery and Mapping Agency and the intelligence components of the Military Departments. Employees of these agencies fall under a separate civilian personnel system, the Defense Civilian Intelligence Personnel System, and under a common excepted service civilian personnel authority (10 U.S.C. 1601). Approximately 40,000 employees are covered under this system.
• Approximately 4,000 employees are covered by the Navy's "China Lake" Demonstration Project. The project was one of the initial demonstration projects under chapter 47 of title 5 U.S.C. Its five-year limit was extended and it was made permanent in the Fiscal Year 1995 DoD Authorization Act.
• On March 4, 1996, Vice President Gore announced six steps to reform Federal government operations, including the establishment of Performance-Based Organizations (PBOs). Conversion to PBOs will give organizations that deliver measurable services a greater degree of autonomy from government-wide rules in exchange for greater accountability for achieving results. Under the PBO concept, regulations that may restrict organizational efficiency may be waived or eliminated. The Defense Commissary Agency (DeCA), with 19,000 employees, was identified to be DoD's first PBO. DeCA has developed enabling legislation which includes, among other personnel interventions, broadbanding and expedited hiring and separation procedures.

Legislative authority to allow for the development of a standardized personnel system will enable the Department to achieve significant economies of scale, preclude unnecessary and dramatic costs in personnel and payroll systems design and training, and enhance the implementation of DoD human resource modernization and regionalization efforts. The new personnel system will also preclude futher splintering of civilian personnel systems and could serve as a platform for consolidating and standardizing many of the civilian personnel reinvention efforts currently underway.

The Quadrennial Defense Review: The primary focus of the Civilian Personnel Task Force under the Quadrennial Defense Review was to review civilian personnel management within the Department to identify those provisions in law and regulation that result in personnel practices that are excessively costly, are inefficient, or hinder management's ability to recruit and retain the best people. However, in view of the fragmentation that has occurred in the civilian personnel arena and the many changes that are needed to the current system to meet the unique needs of the Department, it became apparent early in the deliberations of the Task Force that the group should have as a major focus the feasibility of developing a new DoD civilian personnel system under the Department's own legislative authority rather than under the authority of title 5, U.S.C.

By memorandum dated March 25, 1997 (Tab A), the Quadrennial Defense Review Steering Group directed the USD(P&R) to prepare a legislative package placing the Department's civilian personnel system under its own legislative authority.

Title 10 Legislation: On April 15, CPP submitted a legislative proposal in the FY99 ULB that would allow the Secretary of Defense to develop a DoD civilian personnel system under title 10, U.S.C. (Tab B). Title 10 U.S.C. was selected because DoD civilians have a common involvement in the mission and deploy with military personnel, who fall under title 10. Also, a number of acquisition reform, education and related personnel matters are currently addressed in 10 U.S.C. Having both systems under title 10 would facilitate the unique relationship between military and civilian persoonnel; also, title 10 would provide the best avenue to address the unique requirements of the Military Departments and Defense agencies. A redesigned system under title 10 could not only facilitate redesign of civilian personnel processes but also provide opportunities, where it makes sense, to integrate military and civilian programs and processes. This effort could also preclude further splintering of Defense civilian personnel processes.

CPP has drafted prospective Title 10 legislation (Tab C). The legislative proposal provides a broad framework for a new DoD personnel system, the specifics of which will be developed by an OSD/Component working group, and approved by the Secretary. The Department would meet its labor and partnership obligations in framing the system. The proposed legislation:

• Authorizes the SecDef to establish one or more personnel systems for DoD employees without regard to other laws.
• Retains certain current policies (i.e., veterans' preference, labor relations, antidiscrimination, suitability and conduct, and unemployment compensation).
• Continues the current scope of bargaining.
• Provides that current laws remain in effect until replaced by provisions in the new personnel system.
• Provides that agencies such as the Merit Systems Protection Board would continue to have jurisdiction over certain matters subject to personnel management systems established under the new law.

Based on OSD and Component discussions during the Quadrennial Defense Review, the new DoD personnel management system will be built around the concept of a 3-tiered workforce. The provisions of the system will, to some extent, mirror employment and compensation practices in the private sector and will be designed for the Department's workforce of the future. This workforce would include:

• A cadre of permanent, career employees comprised of current CSRS and FERS employees and "permanent" employees hired under the "new" personnel system. This segment of the workforce would continue to perform major portions of workload and mission, not subject to surge, sized to represent a "minimum" or "constant" workload requirement, and in functions not considered candidates for outsourcing.
• The second "tier" or segment would be comprised of "non-permanent" employees, hired for up to five years, immediately eligible for health, life and TSP coverage, but with no immediate government contributions. This segment of the workforce would be used to respond to surge, cyclical or otherwise, could be converted to permanent status noncompetitively (and therefore could be used as a "recruitment pool" for permanent hires), could be released to avoid RIF to permanent workforce and would be much less costly (in average workyear costs).
• The third segment of the DoD workforce would be comprised of government contract employees performing work determined to be non-governmental in nature and more cost effective to outsource or privatize in place.

The new "DoD Personnel System" may include revised leave, health, life insurance and retirement plans. Those benefits could be more or less robust than the current Federal programs. Here the employees could exchange some benefits for increased "take-home" pay. The system would have as its anchors the 3-tiered workforce; broadbanding and simplified classification; some selected "integrated" military/civilian systems of benefits, allowances and development; phased retirement; and certain force-shaping programs such as expanded VERA/VSIP. Some of these initiatives would apply to all or portions of our current workforce, while other initiatives would be applicable only to future employees. Relief from Title 5 to design a DoD Personnel System would permit the Working Group to explore these and other flexibilities to enhance efficiency and productivity.