42:0377(31)NG - - NTEU and Treasury, IRS - - 1991 FLRAdec NG - - v42 p377



[ v42 p377 ]
42:0377(31)NG
The decision of the Authority follows:


42 FLRA No. 31

FEDERAL LABOR RELATIONS AUTHORITY

WASHINGTON, D.C.

NATIONAL TREASURY EMPLOYEES UNION

(Union)

and

U.S. DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

(Agency)

0-NG-1350

(27 FLRA 976 (1987))

DECISION AND ORDER ON REMAND

September 27, 1991

Before Chairman McKee and Members Talkin and Armendariz.

I. Statement of the Case

This case is before the Authority on remand from the United States Court of Appeals for the District of Columbia Circuit. Department of the Treasury, Internal Revenue Service v. FLRA, No. 87-1439 (D.C. Cir., May 11, 1990) (order). In its earlier decision in Department of the Treasury, Internal Revenue Service v. FLRA, 862 F.2d 880 (D.C. Cir. 1988) (Treasury v. FLRA), the court had affirmed the decision and order of the Authority in National Treasury Employees Union and Department of the Treasury, Internal Revenue Service, 27 FLRA 976 (1987) (NTEU and IRS). The Authority's order directed the Agency to bargain with the Union concerning a proposal providing that the parties' negotiated grievance procedure would constitute the internal appeals procedure specified by Office of Management and Budget (OMB) Circular A-76 to cover "contracting out" disputes.

The United States Supreme Court reversed the decision of the Court of Appeals for the District of Columbia Circuit in Treasury v. FLRA and remanded the case to that court. Department of the Treasury, Internal Revenue Service v. FLRA, 110 S. Ct. 1623 (1990) (IRS v. FLRA). Among other things, the Supreme Court stated that the scope of the term "applicable laws" in section 7106(a) of the Statute, and whether that term encompassed the OMB Circular, had not been decided either by the District of Columbia Circuit or by the Authority. Consequently, the Supreme Court remanded the case to the District of Columbia Circuit to consider that issue or "to await [the Authority's] specification, on remand, of the particular permissible interpretation of 'applicable laws' (if any) it believes embraces the Circular." Id. at 1630. The D.C. Circuit vacated its judgment and remanded the case to the Authority for further proceedings to determine whether the OMB Circular is an "applicable law" and for such other consideration consistent with the decision of the Supreme Court.

We have carefully considered the entire record before us, including the supplemental briefs of the parties, the arguments of the parties made at oral argument, and the submissions of the amici. For the reasons discussed below, we conclude on remand that the Union's proposal is negotiable.

II. History of the Case

A. Proposal

The Internal Appeals Procedure shall be the parties' grievance and arbitration provisions of the Master Agreements.

B. The Authority's Decision in 27 FLRA 976

The Authority found that the proposal would allow the Union to grieve matters arising out of the Agency's decision to contract out, where those matters concern an alleged failure to comply with applicable laws, regulations and established procedural processes. The Authority stated that "the Statute requires grievance procedures negotiated under section 7121 of the Statute to cover all matters that under the provisions of law could be submitted to the grievance procedure, unless the parties exclude them through bargaining." NTEU and IRS, 27 FLRA at 979 (citations omitted). According to the Authority, proposals that would allow the Union to grieve matters arising from the Agency's contracting-out determinations on the basis that those determinations did not comply with law and regulation would not change the statutorily prescribed scope and coverage of the parties' negotiated grievance procedure because disputes involving conditions of employment arising from the application of OMB Circular A-76 would be covered by the negotiated grievance procedure even in the absence of the contractual provision. In NTEU and IRS, the Authority stated that "such grievances require nothing that is not required by section 7106(a)(2) of the Statute itself, namely, that determinations as to contracting-out must be made 'in accordance with applicable laws[.]'" Id.

In reaching its conclusions, the Authority relied in part on American Federation of Government Employees, AFL-CIO, National Council of EEOC Locals and Equal Employment Opportunity Commission, 10 FLRA 3 (1982) (AFGE and EEOC) (Proposal 1), enforced sub nom. Equal Employment Opportunity Commission v. FLRA, 744 F.2d 842 (D.C. Cir. 1984) (EEOC v. FLRA), cert. dismissed, 476 U.S. 19 (1986) (per curiam), in which the Authority had addressed similar issues. In dismissing EEOC's petition for a writ of certiorari as having been improvidently granted, the Supreme Court held that because the EEOC had not asserted before the Authority or the Court of Appeals its contentions that OMB Circular A-76 was neither an "applicable law" nor a "law, rule or regulation," the Court would not consider EEOC's contentions. EEOC v. FLRA, 476 U.S. at 22-24.

C. The Decision of the U.S. Court of Appeals for the District of Columbia Circuit in Treasury v. FLRA

The Agency appealed the Authority's decision in NTEU and IRS to the United States Court of Appeals for the District of Columbia Circuit. In Treasury v. FLRA, the court (Judge D.H. Ginsburg concurring in part and dissenting in part) found that the case was controlled by its decision in EEOC v. FLRA. In EEOC v. FLRA, the court had affirmed the Authority's decision in AFGE and EEOC that a proposal similar to the one in dispute in this case would not impair management's right to contract out because the proposal "merely rendered the grievance procedure the mechanism by which union members could make their displeasure with a decision to [contract out] known and ask for relief." Treasury v. FLRA, 862 F.2d at 882. In Treasury v. FLRA, the court stated:

The EEOC court was assuming, however, without considering or deciding, that the Circular was either an 'applicable law,' with which all contracting-out decisions must, by statute, accord, 5 U.S.C. § 7106(a)(2)(B), or it was a 'law, rule or regulation' a failure to comply with which would . . . give rise to a grievance if it were to affect 'conditions of employment.'

Id. (citation omitted).

The court noted in Treasury v. FLRA that the Agency had presented the arguments that had not been made to the Authority or the court of appeals in EEOC v. FLRA. However, the court found that the new arguments presented no basis on which to distinguish EEOC v. FLRA from this case. The court found that the "essence of the controversy" in EEOC v. FLRA and Treasury v. FLRA was the same. Id. The court stated that "as to [that controversy,] EEOC [v. FLRA] has unequivocally held contracting-out decisions to be both grievable and, perforce, bargainable." Id. Finding that the doctrine of stare decisis required it to follow the court's earlier decision in EEOC v. FLRA, the court affirmed the Authority's decision and enforced the Authority's bargaining order as to that proposal.

D. The Supreme Court's Decision in IRS v. FLRA

The Supreme Court reversed and remanded the decision of the Court of Appeals for the District of Columbia Circuit. The Court stated that the Authority's position that section 7121 of the Statute empowers a union to negotiate and enforce procedures for resolving any grievance is "flatly contradicted by the language of § 7106(a)'s command that 'nothing in this chapter' . . . shall affect the authority of agency officials to make contracting-out determinations in accordance with applicable laws." IRS v. FLRA, 110 S. Ct. at 1627 (emphasis omitted). The Court interpreted section 7106(a) to mean that management is free to exercise its rights under section 7106(a) if it acts within the limits of external legal limitations--that is, laws outside the Statute. According to the Court, "there are no legal 'external limitations' on management's rights insofar as union powers under § 7106(a) are concerned, other than the limitations imposed by 'applicable laws.'" Id. at 1629 (emphasis in original).

The Court rejected the Authority's position that the term "applicable laws" in section 7106(a) "is coextensive with the phrase 'any law, rule, or regulation,' [in section 7103(a)(9)(C)(ii) of the Statute]" and, therefore, that any claimed violation of the Circular would, by definition, constitute a grievance within the meaning of section 7103(a)(9)(C)(ii). Id. The Court stated that "[i]t cannot be true . . . that all actions not in accordance with a 'law, rule, or regulation' under § 7103(a)(9) are, by definition, also actions not 'in accordance with applicable laws' in § 7106(a)." Id. (emphasis in original). However, the Court found that the Authority's decision could be sustained under a "permissible (though not an inevitable) construction of the [S]tatute that the term 'applicable laws' in § 7106(a) extends to some, but not all, rules and regulations[.]" Id. (footnote omitted).

As noted above, because the issue of the scope of the term "applicable laws" in section 7106(a) had not been decided either by the District of Columbia Circuit or the Authority, the Court remanded the decision to the District of Columbia Circuit to consider the issue "or await [the Authority's] specification, on remand, of the particular permissible interpretation of 'applicable laws' (if any) it believes embraces the Circular." Id. at 1630.

E. Remand from the District of Columbia Circuit

By order of May 11, 1990, the District of Columbia Circuit vacated its judgment and remanded the case to the Authority for further proceedings to determine whether the OMB Circular is an "applicable law" and for such other consideration consistent with the decision of the Supreme Court. The court stated that the Supreme Court had "remanded the decision to this court on the ground that the disputed bargaining proposal might be negotiable if a violation of the OMB Circular would constitute a violation of 'applicable laws.' That determination, must be performed in the first instance by the [Authority.]" Order at 2. The court stated that it was "poorly situated to evaluate the interpretations of 'applicable laws' that the [Authority] might permissibly adopt, and whether such interpretations might encompass the OMB Circular, until the [Authority] has formulated a concrete construction of [5 U.S.C. §] 7106(a)(2)(B)." Id.

F. Federal Register Notice

By notice in the Federal Register on July 16, 1990, the Authority provided an opportunity for all interested agencies, labor organizations and other interested parties to file amicus briefs in this and other cases. 55 Fed. Reg. 28,936 (1990). The Authority requested argument on the following questions:

1. What is the scope of the term "applicable laws" in § 7106(a)(2) of the Statute? Specifically, should the Authority adopt an interpretation of the term that encompasses rules and regulations having the force and effect of law?

2. Is OMB Circular No. A-76 an "applicable law" within the meaning of § 7106(a)(2) of the Statute?

The Department of Health and Human Services filed an amicus brief. The Office of Personnel Management (OPM) also filed an amicus submission which stated that OPM agreed with the position of the Agency in this case.

G. Oral Argument Before the Authority

The Union filed a request for permission to present oral argument before the Authority in this case because of the importance of the issues raised. The Agency did not respond to the Union's request.

The Authority determined that a hearing for the purpose of oral argument was appropriate in this case because of the nature and significance of the issues presented. Therefore, the Union's request for permission to present oral argument was granted. A hearing before the Authority was held on June 4, 1991. Both parties were represented by counsel and presented oral argument in support of their respective positions.

III. Union's Position

The Union contends that the phrase "applicable laws" in section 7106(a) encompasses not only regulations that are enforceable in court under the Administrative Procedure Act (APA), but also all regulations which bind agency managers, including Government-wide directives issued by appropriate authorities and published internal agency policies and rules. The Union contends that its interpretation of the phrase "applicable laws" is consistent with the legislative history of the Statute, which "strongly indicates that the phrase 'applicable laws and regulations,' which was used in [Executive Order No. 11491], was changed to the statutory phrase 'applicable laws,' merely as an evolutionary by-product of the [S]tatute's complex development." Union's Brief at 10.

According to the Union, the phrase "applicable laws" may not be interpreted to free management of the constraints of binding rules and policies even if they do not have the force and effect of law. The Union contends that the Agency's construction of the phrase "applicable laws" as including only statutes and regulations having the force and effect of law has no support in the legislative history of the Statute and would improperly "insulate from arbitral review numerous managerial decisions that violate rules which--though lacking the 'force and effect of law['] when measure[d] by the standards of the Administrative Procedure Act--are nonetheless binding upon agency managers." Id. at 28. The Union contends that, under its definition, OMB Circular A-76 clearly is an "applicable law" because it establishes detailed rules and standards that agency managers are required to follow when making contracting out determinations.

The Union asserts that its interpretation of the phrase "applicable laws" "is entirely consistent with the Supreme Court's observation that the phrase 'applicable laws' could include some regulations, although it could not be coextensive with the phrase 'any law, rule, or regulation' as set forth in section 7103(a)(9)." Id. at 33. The Union contends that, unlike the term "applicable laws" in section 7106(a)(2), the phrase "any law, rule, or regulation" in section 7103(a)(9) includes rules established below the agency level and unpublished policies.

The Union states further that, "[a]t an absolute minimum, the phrase 'applicable laws' includes, all parties agree, not only statutes, but also regulations which have the 'force of law.'" Id. at 35. The Union asserts that the OMB Circular is "a regulation with the force and effect of law; it may be ruled an 'applicable law' on that basis alone." Id. at 36. According to the Union, the Circular is clearly within that category because it was issued pursuant to statutory authority, was required to be published for notice and comment, and prescribes mandatory standards by which Federal agencies will make decisions that have a substantial effect on private rights and interests.

Finally, the Union contends that even if the Authority concludes that the Circular is not an "applicable law" within the meaning of section 7106(a)(2) of the Statute, it should nonetheless hold that the proposal is negotiable under section 7106(b)(3) of the Statute as an "appropriate arrangement" for Agency employees who lose their jobs or suffer other displacement as the result of the Agency's exercise of its right to make contracting out determinations.  With regard to whether this issue should be considered by the Authority at this stage of the case, the Union asserts that "the Authority certainly has the power to decide the appropriate arrangements issue, whether or not it is technically within the scope of the remand order." Transcript of oral argument (Tr.) at 50.

The Union contends that, under the Authority's test set forth in National Association of Government Employees, Local R14-87 and Kansas Army National Guard, 21 FLRA 24 (1986) (Kansas Army National Guard), the proposal does not excessively interfere with management's authority to contract out. The Union asserts, in this regard, that contracting out has a serious impact upon unit employees because it subjects them to loss of employment as a result of circumstances that are completely beyond the employees' control. According to the Union, the proposal does not significantly affect management's authority to make contracting out determinations because the proposal: (1) "would only permit arbitrators to review an agency's contracting out determinations to detect violations of mandatory and non-discretionary provisions of the Circular and its Supplement '[which] contain sufficiently specific standards to objectively analyze and review the agency's actions[;]'" and (2) "would not delay contracting out decisions or upset decisions that have already been made, because the Authority has held that an arbitrator may not invalidate the contract, but can only order the agency to reconstruct the cost comparison." Union's Brief at 44, citing Headquarters, 97th Combat Support Group (SAC), Blytheville Air Force Base, Arkansas and American Federation of Government Employees, AFL-CIO, Local 2840, 22 FLRA 656, 661 (1986). The Union also asserts that the proposal would enhance effective and efficient Government operations because it would encourage Agency compliance with a directive that is designed to protect the public budget.(1)

IV. Agency's Position

The Agency contends that by using the phrase "applicable laws" in section 7106(a) of the Statute, Congress clearly did not intend to include executive orders like OMB Circular A-76. Noting that the term "applicable laws" is not specifically defined in the Statute or its legislative history, the Agency contends that the most natural reading of the term is that Congress intended it to be narrowly construed and more limited in scope than the phrase "laws, rules and regulations" used in other sections of the Statute and the phrase "applicable law, rule or regulation" used in section 7114(c)(3). The Agency asserts that Congress "intended that specified areas be reserved to the President and heads of agencies [as management rights], and not be subject to the collective bargaining process." Agency's Brief at 9. According to the Agency, Congress could not have intended that management's rights "in § 7106(a)(1) [sic] be emasculated by every statement, rule or regulation generated by any part of [G]overnment." Id.

The Agency contends that OMB Circular A-76 is, in essence, the method that the President has used to provide agency management with guidance on how it should go about exercising the reserved right to make contracting out determinations. As such, the Agency contends that the Circular "is binding only in the sense that compliance is directed as a matter of internal Executive Branch policy. Ultimately, compliance with OMB Circular A-76 is satisfactory only if and to the extent that the President says it is." Id. at 10. See also Tr. at 6-7.

The Agency asserts that Congress intended that the reserved management rights be exercised in compliance with a "few" applicable laws; that is, "statutes and government-wide regulations which reflect statutory pronouncements and which have the force and effect of law." Id. at 12. According to the Agency, "[a] more expansive reading of the phrase 'applicable laws' to include internal regulations, agency rules and executive orders not issued pursuant to statutory mandate or a delegation from Congress of lawmaking authority would serve only to negate the clearly stated intent of Congress to reserve to management those rights set forth in 5 U.S.C. § 7106." Id. at 13 (footnote omitted). The Agency contends this would be especially egregious in the area of contracting out because management's right to contract out is different from other management rights under the Statute. See Tr. at 11.

The Agency asserts that regardless of how the Authority ultimately defines "applicable laws," OMB Circular A-76 would not come within the definition of that term because the Circular imposes no external limitations on management's contracting out discretion within the meaning of section 7106(a)(2). The Agency argues that the Circular is designed solely as a management tool to establish executive branch policies and to provide guidelines to agencies for their implementation. The Agency asserts that the Circular is not an "applicable law" because its implementation entails the exercise of agency judgment and discretion. According to the Agency, inasmuch as "unions and employees cannot go to court to challenge an executive decision made under OMB Circular A-76, and since OMB Circular A-76 does not create any enforceable substantive right, . . . unions [should] not be allowed to employ labor arbitration to effect such challenges." Agency's Brief at 20.

The Agency also argues that although a Presidential order may have the force and effect of law, such is only the case where the order is issued pursuant to a statutory mandate or Congressional delegation of lawmaking authority. The Agency asserts that OMB did not issue Circular A-76 pursuant to such authority, but rather pursuant to the executive branch's budget and managerial authority. In sum, the Agency concludes that the Circular places "no legally cognizable or enforceable constraints upon management's reserved authority" and "cannot reasonably be construed to be one of the 'applicable laws' to which [section 7106] refers." Id. at 21-22.

The Agency next contends that "even if OMB Circular A-76 were found [to] be a law, rule, or regulation, it would be a [G]overnment-wide rule or regulation. Since the Union's proposal is clearly inconsistent with OMB Circular A-76, under § 7117 [of the Statute], the Authority should find the proposal non-negotiable." Id. at 26. In this regard, the Agency states that the proposal is inconsistent with the Circular because, under the terms of the Circular, only cost comparison decisions may be challenged and any such challenges must be processed through an agency-established administrative appeals mechanism, not through a negotiated grievance procedure.

Finally, the Agency contends that the proposal does not constitute an appropriate arrangement, within the meaning of section 7106(b)(3) of the Statute, for employees adversely affected by the exercise of management's right to make determinations with respect to contracting out. Noting that the Union's argument in this regard was not raised previously in this litigation, the Agency states that it "considers such argument beyond the scope of the Supreme Court remand in this case," but will nonetheless address the argument. Agency's Response to Union's Brief at 6. See also Tr. at 43.

The Agency asserts that the proposal is not an "arrangement" because the Union has not shown how employees are adversely affected by using the appeals procedure stated in the Circular as opposed to the negotiated grievance procedure. According to the Agency, "[u]sing one appeals procedure instead of another would do nothing to ameliorate" the adverse effect of possible "'loss of livelihood' should jobs be contracted out . . . ." Id. at 6-7. The Agency further contends that the proposal is not "appropriate" because the arbitral review that would result from implementation of the proposal "could substitute the arbitrator's decision for that of management, thereby totally obliterating management's right to contract out without interference. The degree of interference inherent in such action is clearly excessive." Id. at 7 (emphasis omitted).

V. Amici

A. Office of Personnel Management

The Office of Personnel Management states that the Agency's brief "accurately reflects OPM's views on the questions presented by the Authority in its Federal Register notice of July 19, 1990, and is in accord with the litigating position of the Executive Branch in cases involving these issues." OPM's Amicus Submission at 1. OPM notes that the Supreme Court "suggested" in IRS v. FLRA that the term "applicable laws" could include those regulations that carry the force and effect of law. Id. OPM argues that "[s]hould the Authority adopt this standard, . . . any determination of whether a particular regulation has the force and effect of law would depend heavily upon the intent of the issuing agency." Id. OPM states that the Authority should "not hesitate" to use its authority under 5 U.S.C. § 7105(i) to request from OPM an advisory opinion concerning the proper interpretation of rules, regulations, or policy directives issued by OPM. Id.

B. Department of Health and Human Services

The Department of Health and Human Services (HHS) states that "[i]ts position is that the term 'applicable laws' in section 7106(a)(2) can . . . be construed to encompass 'applicable rules and regulations having the force and effect of law.'" Amicus Brief of the Department of Health and Human Services (HHS Amicus Brief) at 2. However, HHS maintains that in determining whether a law should be construed as an "applicable law" under section 7106(a)(2), "consideration should first be given to explicit congressional guidance that such law circumscribe a section 7106(a)(2) management right in a particular fashion." Id. HHS maintains further that "[w]here there is no explicit congressional guidance, as in the area of the right to contract out, the Authority should be wary to find a law to be 'applicable law' under section 7106(a)(2)." Id. HHS states that in determining whether a law is an "applicable law," the Authority should use the analytical framework provided in cases construing whether certain agency action can be considered committed to agency discretion by law within the meaning of the Administrative Procedure Act.

HHS argues that, considered under that analytical framework, OMB Circular A-76 is not an "applicable law" within the meaning of section 7106(a)(2), because, as an internal management directive, it does not have the force and effect of law. The Agency asserts that "[t]he Circular and its internal procedure to provide appeals of cost comparison assessment are also not 'applicable laws' because there would be 'no law to apply' by the forum reviewing an agency decision . . . ." Id. at 3.

VI. Analysis and Conclusions

Section 7106(a)(2) of the Statute states that, subject to section 7106(b), nothing in the Statute shall affect the authority of any management official of any agency, "in accordance with applicable laws," to take certain actions, including making determinations with respect to contracting out. The Supreme Court has held that the Statute does not empower unions to enforce all external limitations on management rights, but only limitations contained in "applicable laws," and that "the term 'applicable laws' refers to laws outside the [Statute]." IRS v. FLRA, 110 S. Ct. at 1628 (emphasis in original). In this case, we must determine whether OMB Circular A-76 is an "applicable law" within the meaning of section 7106(a)(2) that may be enforced by a union as an "external limitation" on the exercise of management's rights under section 7106(a)(2) of the Statute.

For the following reasons, we find that the term "applicable laws" in section 7106(a)(2) of the Statute includes rules, regulations and other agency pronouncements having the force and effect of law and that OMB Circular A-76 is a regulation that has the force and effect of law.(2) We conclude that the proposal before us does not interfere with management's right to make contracting out determinations under section 7106(a)(2)(B) of the Statute and is, therefore, negotiable.

A. The Term "Applicable Laws" in Section 7106(a)(2) of the Statute Encompasses Rules and Regulations
     Having the Force and Effect of Law

In section 7106(a)(2) of the Statute, Congress required management officials to exercise certain authorities "in accordance with applicable laws." The term "applicable laws" is not defined in the Statute or its legislative history. None of the parties or the amici contends that the term used by Congress is intended to be read so narrowly as to require that, in the exercise of their section 7106(a)(2) rights, agency officials are bound only by relevant provisions of the United States Code or other lawfully enacted statutes. We are not aware of any indication in the Statute or its legislative history that Congress intended the term to be read in such a narrow manner. Accordingly, in the absence of any such Congressional intent or contention before us, we conclude as an initial matter that the term "applicable laws" in section 7106(a)(2) includes, but is not limited to, relevant provisions of the United States Code or other lawfully enacted statutes. We next turn to the question of what pronouncements, including pronouncements of Federal agencies, are within the scope of the term "applicable laws" in section 7106(a)(2).

In our view, in enacting section 7106(a)(2) of the Statute, Congress intended to require management officials to exercise their enumerated rights in a manner that complies with law in its generic sense; that is, "the rules of action or conduct duly prescribed by controlling authority, and having binding legal effect." United States Fidelity and Guaranty Co. v. Guenther, 231 U.S. 34 (1930). It is commonly recognized that statutes are not the only form of binding law. For example, it is clear that the United States Constitution is law that controls Government action. See National Federation of Federal Employees v. Cheney, 884 F.2d 603, 608 (D.C. Cir. 1989) (citing Skinner v. Railway Labor Executives' Association, 109 S. Ct. 1402 (1989) and National Treasury Employees Union v. Von Raab, 109 S. Ct. 1384 (1989)). It also is commonly recognized that controlling judicial decisions, judgments, and decrees constitute binding law. West v. American Telephone and Telegraph Co., 311 U.S. 223 (1946). Further, Presidential executive orders that are issued pursuant to express statutory authorization may constitute relevant federal law. Old Dominion Branch No. 496, National Association of Letter Carriers, AFL-CIO v. Austin, 418 U.S. 264, 273 (1974).

Consistent with this view, we believe that the term "applicable laws" in section 7106(a)(2) of the Statute includes rules and regulations having the force and effect of law. Such a construction recognizes that the terms "applicable laws" in section 7106(a)(2) and "any law, rule or regulation" in section 7103(a)(9) are not synonymous, and thus gives independent meaning to these statutory provisions. See IRS v. FLRA, 110 S. Ct. at 1629. Moreover, as the Supreme Court has stated, a "construction of the [S]tatute that the term 'applicable laws' in § 7106(a) extends to some, but not all, rules and regulations" is a "permissible" one. Id. (footnote omitted).

Finally, our construction of section 7106(a)(2) reflects the difference between the text of that section and the text of a similar, superseded provision in Executive Order 11491, as amended. Under the Executive Order, management officials retained the right, "in accordance with applicable laws and regulations," to take certain enumerated actions. Exec. Order 11491, as amended, section 12(b). Congress deleted the words "and regulations" when it enacted section 7106(a)(2) of the Statute. Deletion of the words "and regulations" in section 7106(a)(2) indicates to us that Congress did not intend the phrase "applicable laws" in section 7106(a)(2) to be interpreted to include all regulations and supports our belief that only the limited class of regulations accorded the force and effect of law are "applicable laws" within the meaning of section 7106(a)(2) of the Statute.

The Union argues that the scope of the term "applicable laws" in section 7106(a)(2) of the Statute is no different from that of the term "applicable laws and regulations" in section 12(b) of the Executive Order because Congress changed the term from the Executive Order "merely as an evolutionary by-product of the [S]tatute's complex development." Union's Brief at 10. We reject the Union's argument. In this regard, as the Supreme Court stated in IRS v. FLRA: "A statute that in one section refers to 'law, rule or regulation,' and in another section to only 'laws' cannot, unless we abandon all pretense at precise communication, be deemed to mean the same thing in both places." 110 S. Ct. at 1629.

Accordingly, we conclude that the term "applicable laws" in section 7106(a)(2) of the Statute includes, at a minimum and among other things, rules and regulations having the force and effect of law. Rules or regulations accorded the force and effect of law are binding law governing the agency's decisions which must be followed. See, for example, Center for Auto Safety v. Dole, 828 F.2d 799, 803 (D.C. Cir. 1987) (Center for Auto Safety) (agency's own regulation requiring it to make factual judgment about chances that a safety-related product defect exists was "binding law governing the agency's decisions"); Flores v. Bowen, 790 F.2d 740 (9th Cir. 1986) (properly enacted regulations have the force of law and are binding on the Government until properly repealed). See also Service v. Dulles, 354 U.S. 365 (1957) (Secretary of State's discharge of employee was in violation of applicable regulations and, therefore, illegal).

B. OMB Circular A-76 Has the Force and Effect of Law and Is an Applicable Law Within the
    Meaning of Section 7106(a)(2) of the Statute

For the following reasons, we conclude that OMB Circular A-76 has the force and effect of law and is, therefore, an applicable law within the meaning of section 7106(a)(2) of the Statute.

1. Factors Used to Determine Whether a Regulation Has the Force and Effect of Law

In determining whether a Government-wide regulation or agency regulation has the force and effect of law, consideration must be given to several factors. The Supreme Court has stated that "[i]t has been established in a variety of contexts that properly promulgated, substantive agency regulations have the 'force and effect of law.'" Chrysler Corp. v. Brown, 441 U.S. 281, 295 (1979) (Chrysler Corp.) (footnote omitted). "In order for a regulation to have the 'force and effect of law,' it must have certain substantive characteristics and be the product of certain procedural requisites." Id. at 301.

A regulation with substantive characteristics "'affect[s] individual rights and obligations.'" Id. at 302, quoting Morton v. Ruiz, 415 U.S. 199, 232 (1974). "This characteristic is an important touchstone for distinguishing those rules that may be 'binding' or have the "'force of law.'" Id., quoting Morton v. Ruiz, 415 U.S. at 235, 236. See also Dyer v. Secretary of Health and Human Services, 889 F.2d 682 (6th Cir. 1989) (to determine whether a particular agency pronouncement is a binding rule or a general, nonbinding policy statement, courts must examine both the language of the statement and the purpose it serves; a statement is likely to be a substantive rule if it implements a statute by enacting a legislative-type rule affecting individual rights and obligations or if it narrowly circumscribes administrative discretion in all future cases and finally and conclusively determines the issues to which it relates); Batterton v. Marshall, 648 F.2d 694, 701-02 (D.C. Cir. 1980) (legislative rules implement congressional intent and effectuate statutory purposes; in so doing, they grant rights, impose obligations, or produce other significant effects on private interests, narrowly constrict discretion of agency officials by largely determining the issue addressed, and have substantive legal effect).

The fact "[t]hat an agency regulation is 'substantive,' however, does not by itself give it the 'force and effect of law.' The legislative power of the United States is vested in the Congress, and the exercise of quasi-legislative authority by governmental departments and agencies must be rooted in a grant of such power by the Congress and subject to limitation which that body imposes." Chrysler Corp., 441 U.S. at 302. Thus, "it is necessary to establish a nexus between the regulations and some delegation of the requisite legislative authority by Congress." Id. at 304. See Arkansas State Bank Commissioner v. Resolution Trust Corp., 911 F.2d 161, 165-66 (8th Cir. 1990) (quoting Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843-44 (1984)) (The power of an administrative agency to administer a congressionally created program necessarily requires the formulation of policy and the making of rules to fill gaps left implicitly or explicitly by Congress. If Congress has explicitly left a gap for an agency to fill, there is express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. "Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute." Id. Where the legislative delegation to an agency is implicit rather than explicit, a court may not substitute its construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.) Therefore, to have the force and effect of law, a substantive regulation must be promulgated pursuant to an explicit or implicit delegation of legislative authority by Congress.

Moreover, in order to have the force and effect of law, substantive regulations must be promulgated in "conform[ance] with any procedural requirements imposed by Congress." Id. at 303, citing Morton v. Ruiz, 415 U.S. at 232. "For agency discretion is limited not only by substantive, statutory grants of authority, but also by the procedural requirements which 'assure fairness and mature consideration of rules of general application.'" Id. (quoting NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764 (1969)). Generally, the applicable procedural requirements are those set forth in the APA. Section 4 of the APA, 5 U.S.C. § 553, requires that an agency afford interested persons general notice of proposed rulemaking and an opportunity to comment before a substantive rule is promulgated. The fact that an agency promulgates regulations in accordance with the procedural requirements of the APA is a factor supporting the conclusion that the regulations are substantive and, thus, are to be accorded the force and effect of law. See Cosby v. Ward, 843 F.2d 967, 980 (7th Cir. 1988) (citing 5 U.S.C. §§ 552(a)(1)(D) and 553(b)); Flores v. Bowen, 790 F.2d 740 (9th Cir. 1986); United States v. Millsap, 208 F. Supp. 511, 516 (D. Wyo. 1962) (citing Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947)).

In sum, at a minimum, properly promulgated agency regulations that are issued pursuant to statutory authority and affect individual rights and obligations have the "force and effect of law" and are "applicable laws" within the meaning of section 7106(a)(2) of the Statute. Those regulations are enforceable "external limitations" on the exercise of an agency's rights under section 7106(a)(2) of the Statute.

2. OMB Circular A-76 Has the Force and Effect of Law

In determining whether OMB Circular A-76 has the force and effect of law, we first review how the current Circular (the 1983 Circular) was developed and promulgated and how it differs from its predecessors. After having done so, and applying the factors set forth above, we conclude that the current OMB Circular A-76 has the force and effect of law and is, therefore, an applicable law within the meaning of section 7106(a)(2) of the Statute.

a. History of OMB Circular A-76

OMB Circular No. A-76 was originally issued "pursuant to the President's memorandum of March 3, 1966, to the heads of departments and agencies[,]" and became effective on March 31, 1966. OMB Circular No. A-76 (March 3, 1966) (1966 Circular), para. 1. The original version of the Circular replaced the statement of policy which was set forth in the Budget Bulletin No. 60-2 (September 21, 1959) and "restate[d] the guidelines and procedures to be applied by executive agencies in determining whether commercial and industrial products and services used by the Government are to be provided by private suppliers or by the Government itself." Id.

By its terms, the 1966 version of the Circular was applicable to commercial and industrial products and services used by executive agencies. The Circular provided, among other things, that it "[w]ill not be used . . . to justify departure from any law or regulation, including regulations of the Civil Service Commission or other appropriate authority[.]" 1966 Circular, para. 4.a. Each agency was required to "mak[e] the provisions of this Circular effective by issuing appropriate implementing instructions and by providing adequate management support and procedures for review and follow-up to assure the instructions are placed in effect." Id., para. 8.

On August 30, 1967, OMB issued a revised version of OMB Circular A-76. The revised Circular included substantive changes that were designed to "clarify some provisions of the earlier Circular and to lessen the burden of work by the agencies in implementing its provisions." Circular No. A-76 (Revised) Transmittal Memorandum No. 1 (TM No. 1), at 1. When OMB issued the 1967 revised Circular it stated that "[t]here is no change in the Government's general policy of relying upon the private enterprise[.]" TM No. 1, at 1.

The revised Circular was supplemented on October 18, 1976, when OMB issued Circular No. A-76 (Revised), Transmittal Memorandum No. 2 (TM No. 2). The Memorandum provided "supplemental guidance" to assist agencies "in determining whether a cost study should be undertaken" "to support a decision in compliance with the policy preference for reliance on commercial sources." TM No. 2, para. 3. The Memorandum also provided "[f]or the convenience of Federal agencies making cost studies, the . . . percentages of base pay [to] be used in computing the costs of civilian personnel services[.]" TM No. 2, para. 4.

On June 13, 1977, OMB issued Circular No. A-76 (Revised) Transmittal Memorandum No. 3 (TM No. 3) which "amend[ed] Transmittal Memorandum No. 2, dated October 18, 1976, to revise, pending further review, the cost factor for computing retirement of civilian personnel services[.]" TM No. 3, at 1. The change in the retirement cost factor was made as an interim measure, pending completion of OMB's "complete review of OMB Circular No. A-76." Id.

Under the Office of Federal Procurement Policy Act, Pub. L. No. 93-400, 88 Stat. 796 (1974) (codified as amended at 41 U.S.C. § 401 et seq.), the Office of Federal Procurement Policy (OFPP) was established in OMB. Under that law, the OFPP was given statutory responsibility for the Government's contracting-out policy. Id. at § 6 (codified as amended at 41 U.S.C. § 405). On June 13, 1977, the OFPP initiated a program to improve agency compliance with Circular A-76. 42 Fed. Reg. 59,814 (Nov. 21, 1977). It solicited "[c]omments and recommendations, to be considered in the review [of OMB Circular A-76,] . . . from executive agencies, Congress, the General Accounting Office, other interested parties and the public at large[.]" Id. OMB received over a hundred responses to the request for comments. Analysis and evaluation of the comments received in response to OFFP's request resulted in proposed changes to OMB Circular A-76 which were published "for review and comment by all interested parties" in the Federal Register. 42 Fed. Reg. at 59,814. OMB's proposal included substantial changes to the Circular.

After considering the responses received from its November 21, 1977, request for comments, OMB revised the Circular. The draft of the revised Circular was published in the Federal Register and OMB again invited public comment on the draft. See 43 Fed. Reg. 37,410 (August 22, 1978). OMB stated that the revised Circular provided "[m]ore definitive guidelines . . . to insure greater consistency and equity to all parties in the implementation of the Circular." Id. The final revised version of the Circular was issued on March 29, 1979 (1979 Circular) and was published in the Federal Register on April 5, 1979. See 44 Fed. Reg. 20,556. "The revision replace[d] OMB Circular A-76 . . ., dated August 30, 1967, and supplements dated October 18, 1976 and June 13, 1977." Id. A comprehensive Cost Comparison Handbook also was provided with the new Circular.

Amendments to the 1979 Circular were issued by OMB on September 26, 1980 (Transmittal Memorandum No. 5, revising certain paragraphs relating to cost comparisons and the Cost Comparison Handbook) and on January 26, 1982 (Transmittal Memorandum No. 6, amending Transmittal Memorandum No. 5, certain provisions of the Circular, and the Cost comparison Handbook).

On January 12, 1983, OMB, Office of Federal Procurement Policy published in the Federal Register notice of proposed revisions to OMB Circular A-76 and invited public review and comments. See 48 Fed. Reg. 1,376. The notice provided that "[t]he proposed revision, when issued in final, will replace OMB Circular No. A-76 (revised), dated March 29, 1979, Transmittal Memoranda Nos. 1 through 7, and Supplement No. 1, Cost Comparison Handbook, dated March 1979." Id. The draft revision of the Circular, for the first time, cited The Budget and Accounting Act of 1921, 31 U.S.C. §§ 1 et seq. and The Office of Federal Procurement Policy Act Amendments of 1979, 41 U.S.C. §§ 401 et seq. as the authority for OMB Circular A-76. OMB received comments from more than 120 individuals and organizations. Also, public hearings were held on March 3, 1983.

The final version of the revised Circular was issued on August 4, 1983 (1983 Circular) and was published in the Federal Register on August 16, 1983. See 48 Fed. Reg. 37,110. OMB also issued a revised version of the Cost Comparison Handbook. The section of the Handbook captioned "Introduction," included the statement: "This Supplement is an integral part of the Circular, and compliance with all parts of the Supplement is mandatory." OMB Circular A-76, Cost Comparison Handbook (August 1983), at i.

Since 1983, OMB has issued several Transmittal Memoranda revising and amending the 1983 Circular. OMB published notice of those revisions and, where appropriate, requested and received public comment before issuing the final revisions. See, for example, 56 Fed. Reg. 11,796 (March 20, 1991) (notice concerning issuance of Transmittal Memorandum No. 10, amending OMB Circular A-76 by updating the Federal pay raise assumptions and inflation factors used for computing the Government's in-house personnel and non-pay cost increases for Fiscal Years 1991 through 1996); 53 Fed. Reg. 32,128 (August 23, 1988) (request for comments on proposed revision of OMB Circular A-76 to update the retirement cost factors and other fringe benefits cost factors for Federal employees); 52 Fed. Reg. 8,589 (March 19, 1987) (notice concerning the temporary implementation of Transmittal Memorandum No. 4, which revised OMB Circular A-76 procedures for calculation and comparison of retirement costs); 50 Fed. Reg. 32,812 (August 14, 1985) (notice concerning final issuance of and discussing comments received concerning Transmittal Memorandum No. 1, which amended OMB Circular A-76 by updating the cost factors applied in A-76 cost studies).

b. The Circular Was Issued Pursuant to Express Statutory Authority

We find that OMB Circular A-76 was issued pursuant to express statutory authorization from Congress. The Office of Management and Budget promulgated the current OMB Circular A-76 under the authority of two statutes: (1) the then-current Budget and Accounting Act of 1921 (current version codified at 31 U.S.C. §§ 101 et seq.); and (2) the Office of Federal Procurement Policy Act Amendments of 1979, 41 U.S.C. §§ 401 et seq. See OMB Circular A-76, para. 3. The Budget and Accounting Act establishes the Office of Federal Procurement Policy within the Office of Management and Budget. 31 U.S.C. § 504. Under the Office of Federal Procurement Policy Act, Congress delegated to the Administrator of the Office of Federal Procurement Policy the responsibility to provide overall direction of procurement policy and leadership in the development of procurement systems of the executive agencies and, with due regard for applicable laws and the program activities of the executive agencies, the authority to prescribe Government-wide procurement policy regulations which shall be followed by executive agencies. 41 U.S.C. § 405.

The Circular "establishes Federal policy regarding the performance of commercial activities." OMB Circular A-76, para. 1. The Circular is "promulgated pursuant to congressional authority . . . ." National Federation of Federal Employees v. Cheney, 883 F.2d 1038, 1043 (D.C. Cir.), reh'g denied, 892 F.2d 98 (D.C. Cir. 1989), cert. denied, 110 S. Ct. 3214 (1990) (Cheney).(3)

Further, inasmuch as the Circular establishes Government-wide procurement policy, we find that there is a nexus between OMB Circular A-76 and the delegation of authority by Congress to OMB, under the Budget and Accounting Act of 1921 and the Office of Federal Policy Act Amendments of 1979, to establish Government-wide budget and procurement policy. Accordingly, we find that the Circular was promulgated pursuant to express statutory authority. See Cheney, 883 F.2d at 1038.

c. The Circular Is a Substantive Regulation

Additionally, we find that OMB Circular A-76 affects individual rights and obligations. By its terms, agencies' compliance with OMB Circular A-76 is mandatory. OMB Circular A-76, Supp. Intro, and I-14, I-15 (revised Aug. 8, 1983)). See also 48 C.F.R. § 7.302 (1990) (providing that Federal agencies shall follow "the overall policies and detailed procedures required of all agencies" prescribed in the Circular and the Supplement when it contracts out). The Circular establishes agencies' obligations regarding the performance of commercial activities and addresses the rights of parties, including Federal employees, affected by agency decisions to contract out certain commercial activities. See 44 Fed. Reg. 20556, 20557 (1979 revision of OMB Circular A-76) (discussing the "key provisions . . . added to protect [Federal] workers" from contracting out policies that had "worked to abruptly and inconsistently threaten the jobs and financial security of the workers affected").

Accordingly, we find that OMB Circular A-76 affects individual rights and obligations and that OMB Circular A-76 is a substantive regulation within the meaning of the APA. See American Federation of Government Employees, Local 225, AFL-CIO and Department of the Army, U.S. Army Armament Research and Development Command, Dover, New Jersey, 17 FLRA 417 (1985) (OMB Circular A-76 and its Supplement establish official policy which is binding on agencies and officials in the executive branch of the Federal Government).

d. The Circular Was Promulgated Consistent with the Procedural Requirements of the APA

Finally, the Circular was promulgated consistent with the procedural requirements of the APA and there is nothing to indicate that Congress established any other procedural requirements that apply to the promulgation of the Circular. As described in detail above, the Circular was promulgated as a formal regulation with notice published in the Federal Register and public comment invited. See 44 Fed. Reg. 20556 (1979), as amended, 48 Fed. Reg. 37110 (1983), 50 Fed. Reg. 32812 (1985). Moreover, the Circular is explicitly referenced in the Federal Acquisition Regulation, 48 C.F.R. subpart 7.3, and the Circular's requirements are restated therein. See id.

Accordingly, because we find that OMB Circular A-76 is a properly promulgated agency regulation that was issued pursuant to statutory authority and affects individual rights and obligations, we conclude that it is a substantive regulation having the force and effect of law and, thus, that it is an applicable law within the meaning of section 7106(a)(2) of the Statute.(4)

e. The Agency's Remaining Arguments

We reject the Agency's argument that the Circular merely provides guidance and does not contain standards that could be applied by arbitrators in determining whether agencies have complied with the Circular. In our view, the Circular contains numerous mandatory procedures and standards. For example, the Circular mandates that each agency designate an official to have responsibility for implementation of the Circular. 1983 Circular, para. 9.a. The 1983 Supplement to OMB Circular A-76 provides that "[e]ach agency shall first evaluate all agency activities and functions to determine which are Governmental functions . . . and which are commercial activities." 1983 Supplement, Part I, Chapter 1, Section B.1. The 1983 Supplement also provides that "[a]ctivities exceeding 10 [Full Time Equivalents (FTEs)] shall undergo cost comparisons to determine whether in-house performance should be continued or performance converted to contract[.]" 1983 Supplement, Part I, Chapter 2, Section A.2. "In no case shall any commercial activity exceeding 10 FTEs be modified, reorganized, divided or in any way changed for the sole purpose of circumventing the requirement of [Part I, Chapter 2, Section A of the 1983 Supplement]." 1983 Supplement, Part I, Chapter 2, Section A.3.

With respect to the cost comparisons mandated by the 1983 Circular, the 1983 Supplement provides: "A cost comparison conducted pursuant to OMB Circular A-76 "shall include all significant costs of both Government and contract performance." 1983 Supplement, Part I, Chapter 2, Section D. "The contract cost shall be based on a firm bid or proposal competitively obtained in accordance with applicable procurement regulations." 1983 Supplement, Part I, Chapter 2, Section F.1. "All cost comparisons must be reviewed by a qualified person from an impartial activity which is organizationally independent of the commercial activity being studied and the activity preparing the cost comparison. 1983 Supplement, Part I, Chapter 2, Section H.1. Further, "[e]ach agency shall establish an administrative appeals procedure to resolve questions from directly affected parties relating to (1) determinations resulting from cost comparisons . . . and (2) justifications to convert to contract without a cost comparison[.]" 1983 Supplement, Part I, Chapter 2, Section I.1.

In accordance with the provisions of law cited in Part I, Chapter 3, Section B.1., "[a]gencies shall not retain, create or expand capacity for the purpose of providing commercially available products or services to other agencies, foreign governments, or private organizations." 1983 Supplement, Part I, Chapter 3, Section B.1.b. Also, "[a]gencies shall notify affected employees as soon as possible of an impending cost comparison study and periodically keep them informed of it progress." 1983 Supplement, Part I, Chapter 3, Section D.3.

The provisions cited above demonstrate that OMB Circular A-76 and its Supplement contain procedures and standards that agencies must comply with in determining whether to contract out services. Moreover, our conclusion in this regard is supported by the decision in CC Distributors, Inc. v. U.S., 883 F.2d 146 (D.C. Cir. 1989). In that case, contractors sought to enjoin the Department of Defense (DOD) from converting civil engineer supply stores from contractor to in-house operations. The court stated that the applicable DOD regulations provided standards suitable for judicial review. The court noted that, "[n]otwithstanding the lack of judicially manageable standards in the underlying statute, 'regulations promulgated by an administrative agency in carrying out its statutory mandate can provide standards for judicial review of agency action.'" Id. at 154, quoting Center for Auto Safety, 846 F.2d at 1534.

The court found that the regulations, at 32 C.F.R. § 169.4, 54 Fed. Reg. 13375, "do seem to incorporate standards susceptible to judicial review: Is a 'satisfactory' commercial source 'available'? Was a cost comparison done? Is the commercial source 'more economical' than in-house provision?" Id. The court concluded that "DOD's Part 169 regulations provide standards for judicial review" of the Air Force's decision to convert civil engineer supply stores into an in-house operation. Id. at 156. Compare American Federation of Government Employees, Local 2017 v. Brown, 680 F.2d 722 (11th Cir. 1982), cert. denied, 459 U.S. 1104 (1983) (because the 1979 version of OMB Circular A-76 failed to provide meaningful criteria against which a court may analyze the agency's decision to contract out, that decision was committed to agency discretion and was not subject to judicial review).

In our view, the standards set forth in DOD's Part 169 regulations are substantially similar to those set forth in OMB Circular A-76. In fact, Part 169 is intended to assign responsibilities as required by OMB Circular A-76 and requires procurement actions consistent with the provisions of the Circular. See 32 C.F.R. §§ 169.1, 169.5(c)(5)(ii) and (iii), 169a.1(a), and 169a.10 (1990). For this reason, we reject the Agency's argument that OMB Circular A-76 does not create any substantive standards which agencies are required to follow. Also, for the foregoing reasons, we reject the Agency's argument that because the Circular imposes no external limitations on the exercise of management's contracting out discretion under the Circular, unions and employees cannot employ labor arbitration to effect challenges to an agency decision made under OMB Circular A-76. Further, we deem irrelevant the Agency's argument that unions and employees cannot go to court to challenge decisions made under the Circular and, therefore, should not be able to use labor arbitration to challenge such decisions. Even if the premise of the Agency's argument is correct, an issue which we need not and do not address, the ability of unions or employees to challenge in court decisions made under the Circular or other regulations is not dispositive as to whether such regulations constitute applicable laws under the Statute or whether a party may grieve a matter concerning compliance with those regulations under a collective bargaining agreement pursuant to the Statute.

In concluding that the Circular is an applicable law, we respectfully disagree with the decision of the 4th Circuit in U.S. Department of Health and Human Services v. FLRA, 844 F.2d 1087 (4th Cir. 1988) (en banc) to the contrary. The court found that although "a Presidential order may have the force and effect of law when it is issued pursuant to statutory mandate or a delegation from Congress of lawmaking authority. . . . Circular A-76 was issued pursuant to no such authority." Id. at 1096. The court also held that the Circular "provides no 'law' to apply." Id. For the reasons set forth above, we find that the Circular was issued pursuant to statutory authority and that the Circular provides law to apply.

Further, we do not believe that Defense Language Institute, Presidio of Monterey, California v. FLRA, 767 F.2d 1398 (9th Cir. 1985) (DLI), warrants a contrary conclusion. In that case, the court noted that in EEOC v. FLRA, the District of Columbia Circuit had "[i]n effect . . . construed the phrase 'applicable law' to include the [Statute's] grievance provisions." Id. at 1402 n.7. The court in DLI disagreed with this construction. See id. Inasmuch as the Supreme Court held in IRS v. FLRA that "[i]t is clear that the term 'applicable laws' refers to laws outside the [Statute,]" the court in DLI correctly rejected the view that the Statute's grievance provisions constituted "applicable laws" under section 7106(a)(2). 110 S. Ct. at 1628 (emphasis in original). However, the DLI court did not set forth its view as to the scope of the term "applicable laws" in section 7106(a)(2). Accordingly, the decision in DLI does not set forth a construction of the term "applicable laws."

In addition, we reject the Agency's contention that the Circular is not an applicable law because the Circular is different from other executive pronouncements, and contracting out is different from other management rights under the Statute. See Tr. at 6-7, 11. We are not aware of any basis in the Statute or its legislative history that indicates an intent by Congress to treat contracting out in any different manner from other rights reserved to management in section 7106(a)(2) of the Statute. Accordingly, we reject the Agency's argument that the Circular does not constitute an applicable law because contracting out is different from the other management rights in the Statute. Moreover, we have already rejected the Agency's argument that OMB Circular A-76 is merely internal guidance to the executive branch which imposes no mandatory requirement on executive branch agencies.

Finally, we find no merit in the Agency's argument that finding the Circular to constitute an applicable law would improperly allow arbitrators to substitute their judgment for that of agency officials in making contracting-out determinations. The Authority has held that an agency's "concern that an arbitrator's judgment may be substituted for its own is not a basis for precluding negotiation" over a proposal. American Federation of Government Employees, Local 1923 and U.S. Department of Health and Human Services, Health Care Financing Administration, Baltimore, Maryland, 39 FLRA 1197, 1200 (1991) (citing Newark Air Force Station and American Federation of Government Employees, Local 2221, 30 FLRA 616, 635 (1987)).

In sum, we conclude that, as revised and referenced in the Code of Federal Regulations, the Circular constitutes applicable law and that agencies must exercise their authority under section 7106(a)(2) of the Statute to make determinations with respect to contracting out in accordance with the Circular.

C. The Proposal Is Negotiable

We have determined that OMB Circular A-76 is a regulation accorded the force and effect of law and, therefore, is an applicable law within the meaning of section 7016(a)(2) of the Statute. As set forth earlier, the proposal in this case states:

The Internal Appeals Procedure shall be the parties' grievance and arbitration provisions of the Master Agreements.

There is no dispute that the effect of the proposal is to allow unit employees to use the parties' grievance and arbitration provisions to challenge alleged failures by the Agency to comply with OMB Circular A-76.(5) A grievance to require the Agency to comply with OMB Circular A-76 when it makes contracting out decisions would require nothing more than that which is already required by section 7106(a)(2) of the Statute itself, namely, that determinations as to contracting out must be made 'in accordance with applicable laws[.]'" As noted earlier, section 7106(a)(2) of the Statute empowers unions to enforce "external limitations" on management rights contained in "applicable laws." See IRS v. FLRA, 110 S. Ct. at 1628. Accordingly, having found that OMB Circular A-76 is an applicable law within the meaning of section 7106(a)(2), we find that the proposal does not interfere with the Agency's right to make determinations relating to contracting out under section 7106(a)(2)(B) of the Statute.

Further, the Agency's contention that the proposal is inconsistent with the appeal procedures in OMB Circular A-76, a Government-wide regulation, does not provide a basis for finding the proposal nonnegotiable. Because the Circular is an "applicable law" within the meaning of section 7106(a)(2), grievances enforcing the Circular are within the scope of the negotiated grievance procedure under section 7103(a)(9) of the Statute. OMB cannot preclude grievances enforcing the Circular by issuing regulations that limit the scope of the statutory grievance procedure. See Office of Personnel Management v. FLRA, 864 F.2d 165 (D.C. Cir. 1988) (OPM cannot prevent bargaining over appropriate arrangements by issuing regulations restating the rights provided management in section 7106(a) of the Statute. "To prevent bargaining over section 7106(b)(3) arrangements due to a regulation that is the substantive equivalent of section 7106(a) is to grant to management protection that it was unable to secure from Congress.").

In light of our conclusions set forth above, we need not address the Union's contention that the proposal is negotiable under section 7106(b)(3) of the Statute as an appropriate arrangement for employees adversely affected by the exercise of the Agency's right to make determinations relating to contracting out. Compare National Association of Government Employees, SEIU, AFL-CIO and Veterans Administration Medical Center, Department of Memorial Affairs, 40 FLRA 657, 680-82 (1991) (provision requiring the agency to grant sick leave in accordance with applicable Government-wide regulations constitutes an appropriate arrangement); American Federation of Government Employees, Department of Education Council of AFGE Locals and U.S. Department of Education, Washington, D.C., 38 FLRA 1068, 1076-77 (1990), decision on reconsideration 39 FLRA 1241, 1244-46 (1991) (proposal requiring management to exercise its rights under section 7106(a)(2) in accordance with "applicable laws" is an appropriate arrangement), petition for review filed sub nom. United States Department of Education v. FLRA, No. 91-1219 (D.C. Cir. May 10, 1991).

We conclude that the Union's proposal is negotiable.

VII. Order

The Agency shall, upon request, or as otherwise agreed to by the parties, bargain on the proposal.(6)




FOOTNOTES:
(If blank, the decision does not have footnotes.)
 

1. With respect to the Agency's argument that the proposal is nonnegotiable on the ground that the proposal is inconsistent with a Government-wide regulation (the Circular), the Union notes that the Supreme Court did not address that argument because it was not raised before the court of appeals. The Union states that it does not address that argument here because the Authority previously rejected it in this case. In this regard, the Union also cites AFSCME Local 3097 and Department of Justice, Justice Management Division, 31 FLRA 322, 346 (1988).

2. Agencies issue pronouncements in many forms, including regulations, circulars, manuals, etc. "The label attached to an agency pronouncement is not dispositive." Chasse v. Chasen, 595 F.2d 59, 62 (1st Cir. 1979). For purposes of this decision, we will use the term "regulations" to include agency pronouncements issued in such varied forms.

3. The Agency relies on Cheney to support its position that the Circular is not an applicable law. In our view, that reliance is misplaced. In Cheney, the court held that a union lacked standing to bring an action alleging, among other things, that an agency, in making its contracting out decision, violated the cost comparison procedures in OMB Circular A-76. Because the court determined that the union lacked standing to bring the action, the court found that it was unnecessary to address the reviewability of contracting out decisions. Accordingly, inasmuch as Cheney was decided based on the principle of standing, we find that it does not control our disposition of the issues in this case.

4. Determinations as to whether particular agency issuances have the force and effect of law must necessarily be made on a case-by-case basis. At oral argument, both parties discussed whether provisions of the Federal Personnel Manual (FPM) would constitute applicable laws within the meaning of section 7106(a)(2) of the Statute. See Tr. at 8, 23 and 49. As that issue is not before us, we specifically do not address the extent to which provisions in the FPM have the force and effect of law. See Horner v. Jeffrey, 823 F.2d 1521, 1529 (Fed. Cir. 1987) ("Whether the FPM provisions themselves are to be treated as rules and regulations binding on governmental agencies and the public has been considered open to much doubt and has never been authoritatively decided."); American Federation of Government Employees, Local 2782 v. FLRA, 803 F.2d 737, 742 n.2 (D.C. Cir. 1986) ("A document comprehensive in scope, the FPM obviously partakes of the nature of both policy guidance and binding regulation."). Compare National Treasury Employees Union v. Reagan, 685 F. Supp. 1346 (E.D. La. 1988) (FPM Letter 792-16 (currently 792-19), which implemented executive order requiring agencies to establish drug testing programs, contained mandatory instructions above and beyond mandatory instruction in the executive order and, therefore, was a "substantive or legislative rule" which must be promulgated in accordance with APA procedural requirements) with Zumerling v. Devine, 769 F.2d 745, 750-51 (Fed. Cir. 1985) (FPM Letter 551 (currently 551-5) constitutes "interpretive guidelines" for the application of Title V of the U.S. Code and the overtime provision of the Fair Labor Standards Act).

5. The proposal is only intended to establish the negotiated grievance procedure as the appeals process for unit employees, not other individuals or entities. The Union states, without contradiction, that the parties have always interpreted the proposal to mean that "employees can use the negotiated grievance procedure instead of the internal appeals procedure to challenge the same kinds of decisions that you could challenge under the internal appeals procedure." Tr. at 36. We construe the proposal as not affecting bidders and offerers, who would continue to use the internal appeals procedure established by the Agency under OMB Circular A-76. Id.

6.