GENERAL SERVICES ADMINISTRATION WASHINGTON, D.C. and COUNCIL 236 AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO

United States of America

 

BEFORE THE FEDERAL SERVICE IMPASSES PANEL

 

 

In the Matter of

GENERAL SERVICES ADMINISTRATION

WASHINGTON, D.C.

and

COUNCIL 236

AMERICAN FEDERATION OF

GOVERNMENT EMPLOYEES, AFL-CIO

 

Case No. 00 FSIP 120

 

DECISION AND ORDER

        General Services Administration, Washington, D.C. (GSA or Employer) and Council 236, American Federation of Government Employees, AFL-CIO (Council 236 or Union) jointly filed a request for assistance with the Federal Service Impasses Panel (Panel) on June 28, 2000, to consider a negotiation impasse under the Federal Service Labor-Management Relations Statute (Statute), 5 U.S.C. § 7119, concerning the Employer’s proposal to close two distribution centers located in Fort Worth, Texas, and Palmetto, Georgia, and four forward supply points, located in Auburn, Washington, Franconia, Virginia, Denver, Colorado, and Chicago, Illinois, by April 2001. The Panel asserted jurisdiction over the dispute on September 12, 2000, and directed the parties to appear at a factfinding hearing before Panel Member Mary E. Jacksteit. Under the procedure, Member Jacksteit would make recommendations for settlement.

        Pursuant to the Panel’s determination, the factfinding hearing was conducted on October 3 and 4, 2000. A stenographic record was made, testimony and argument were presented, and documentary evidence was received. On December 4, 2000, Member Jacksteit issued a Factfinder’s Report, which included recommendations to the parties for settlement of the dispute. The Factfinder’s Report is attached hereto. Thereafter, in accordance with the Panel’s regulations, the parties notified the Panel of their respective responses to the Factfinder’s Report. In this regard, on January 8, 2001, the Employer notified the Panel that it accepted the Factfinder’s recommendations. On the same date, the Union notified the Panel that it did not accept the Factfinder’s recommendations. Because the recommendations did not provide a basis for settling the dispute, the matter is now before the Panel for final action. The Panel has considered the entire record, including Member Jacksteit’s findings and recommendations.

ISSUE AT IMPASSE        

    The proposals and positions of the parties regarding the above-stated issue at impasse are set forth in the attached Facfinder’s Report.

THE PARTIES’ RESPONSES TO THE FACTFINDER’S RECOMMENDATIONS

1. The Union’s Position

        The Union rejects the Factfinder’s recommendations and requests that the case be referred to binding arbitration, chiefly for two reasons. First, the Union contends that the Employer failed to abide by the Panel’s regulations under which the parties are obligated to confer with each other regarding possible acceptance of the Factfinder’s recommendations following issuance of the Factfinder’s Report.(1)

        Secondly, the Union argues that the Factfinder failed to accord equal weight to various statements provided by an expert witness who testified at the factfinding hearing. Specifically, the Union asserts that little or no credence was given to the expert’s opinion that, if adopted, the Union’s proposal would result in cost-savings of $113 million over a 10-year period by eliminating 298 employees in the first year, and reducing current transportation and stock handling inefficiencies.(2) The Union contends that even though the expert’s written report indicated that substantial staff reductions could be achieved under the Union’s proposal, the Factfinder concluded that the Union failed to demonstrate that the elimination of 298 - mostly contract - employees in the first year of its plan was feasible. The Union also contends that although the expert stated that $113 million in transportation and stock handling efficiencies were recoverable under the Union’s proposal over a 10-year period, the Factfinder concluded that the Union had not proven that these cost-savings measures were achievable. In the Union’s view, therefore, the Factfinder’s conclusions are not credible. The Factfinder may not at once rely on the expert’s opinion to justify adoption of the Employer’s proposal, and conclude that cost-savings contemplated under the Union’s proposal, also based on the expert’s report, are not achievable. For this reason as well, the Union requests that the case be referred to binding arbitration.

2. The Employer’s Position

        The Employer notified the Panel that it accepted the Factfinder’s recommendations.(3) It proposes that the Panel adopt the Factfinder’s Report and recommendations. The Employer further states that Congress, in GSA’s Fiscal Year 2001 appropriations bill, approved an extension of the agency’s buyout authority until April 30, 2002.

        DICUSSION

      We address first the Union’s contention that the Employer failed to abide by the Panel’s regulations following the issuance of the Factfinder’s Report. The Panel’s regulations, 5 C.F.R. § 2471.10(a), require that "each party shall, after conferring with the other," notify the Panel that it accepts or rejects the Factfinder’s recommendations, or that the parties have reached a settlement of all unresolved issues. The regulation is intended to give the parties a final opportunity to resolve the dispute voluntarily in light of the Factfinder’s recommendations. The Union does not dispute that the parties discussed the Factfinder’s Report after it was issued, or that it advised the Employer that it essentially intended to reject the Factfinder’s recommendations at the same time as it learned that the Employer intended to accept them. Under these circumstances, we find that the Employer satisfied its obligation to confer with the Union under the Panel’s regulations.(4)

    Turning to the merits of the dispute, the Panel is mindful of the utmost seriousness of the matter at issue, which involves a major downsizing of the stock program’s physical plant and the probable reduction in force of nearly 200 employees. We have given full and careful consideration to the parties’ positions, as reflected in their pre- and post-hearing briefs, and their post-issuance notices of acceptance or rejection of the Factfinder’s Report. We have also analyzed in detail the Factfinder’s Report and recommendations, and considered the effect of the Employer’s representation that Congress recently extended its buy-out authority to April 30, 2002. Based on this review of the record, we conclude that adoption of a modified version of the Factfinder’s recommendations is in the best interest of the parties and the public. In this regard, we shall order that the closure of GSA’s facilities take place no sooner than October 1, 2001. This will provide affected employees with additional time to prepare for the closures and minimize the economic impact of buyouts by delaying the implementation of any reduction in force until the start of Fiscal Year 2002. Our decision should facilitate the parties’ joint efforts to "take measures to ameliorate the adverse impact" on affected employees, as recommended by the Factfinder, by ensuring that sufficient time is available to assist those who will bear the brunt of the closures.

     Given our decision, it follows that we are not persuaded that a further procedure involving another evidentiary hearing is warranted. The Panel accepts the Factfinder’s recommendations, as modified, for the reasons which were provided in the discussion section of the attached Factfinder’s Report. In our view, the record created by the parties clearly establishes the merit of the Employer’s proposal to reduce the stock program’s infrastructure, and the costs associated therewith, over the Union’s proposal to delay for at least another year such painful, but necessary, organizational changes.

    In closing, we note our discomfort at having been put into the position of resolving this dispute.(5) The Panel is not in the business of managing a multi-million dollar, national warehouse stock distribution system with over 1,200 employees, and should not reasonably be expected to possess the expertise, after a 1½-day factfinding hearing, to make such substantive decisions without feeling some reservations. Under the Statute, however, the Panel is obligated to bring finality to the collective bargaining process. Accordingly, we shall order the adoption of a modified version of the recommendations of the Factfinder, as reflected in the Order below. We also realize that our discomfort is nothing compared to the disruption the closing of the warehouses will cause to the lives of the Federal employees who are affected.

ORDER

        Pursuant to the authority vested in it by the Federal Service Labor-Management Statute, 5 U.S.C. § 7119, and because of the failure of the parties to resolve their dispute during the course of proceedings instituted under the Panel’s regulations, 5 C.F.R. § 2471.6(a)(2), the Federal Service Impasses Panel under § 2471.11(a) of its regulations hereby orders the adoption of the following:

The Employer may proceed to close distribution centers in Palmetto, Georgia, and Fort Worth, Texas, and the four forward supply points consistent with any collective bargaining agreements between the parties so that the closures occur no sooner than October 1, 2001.

The Union and Employer will take measures to ameliorate the adverse impact on employees in those facilities, consistent with the parties’ Master Agreement, utilizing the framework of their partnership agreement and within the scope of the Employer’s duty to bargain under the parties’ collective bargaining agreements and the Statute. This recommendation is not intended to expand the existing rights and obligations of the parties, but to encourage cooperation to the end of assisting employees to the fullest possible extent.

By direction of the Panel.

H. Joseph Schimansky

Executive Director

February 20, 2001

Washington, D.C.

1. The Union bases its contention on the Employer’s alleged failure to respond to a December 29, 2000, e-mail request to meet and discuss “the stock program” after the Factfinder’s Report was issued. The e-mail relied upon by the Union was apparently transmitted to a high level GSA official who had not been involved in the negotiations or the factfinding proceeding, and made no specific reference to the Factfinder’s Report.

2. The Union argues that, by comparison, the Employer’s proposal to shut down six facilities by April 2001 will achieve cost-savings of only $63 million more over the same time period.

3. Regarding the Union’s contention that the Employer failed to “confer” with it in accordance with applicable Panel regulations, one of the Employer’s representatives of record in the case asserts that on December 7, 2000, well before the Union’s December 29, 2000, e-mail message, he discussed the Factfinder’s recommendations with the Union’s chief negotiator, who advised him that the Union planned to “appeal” the Factfinder’s Report. The Employer representative indicated that he told the Union representative that GSA intended to “accept” the Factfinder’s Report and recommendations. According to the Employer’s representative, during this conversation he also stated his belief that further discussions with the Union regarding a possible settlement of the dispute would not be fruitful.

4. Moreover, even if the record supported the Union’s contention that the Employer’s actions were inconsistent with the Panel’s regulatory requirements, it does not appear that under the circumstances presented such a failure would warrant referring the parties’ dispute to binding arbitration.

5. The Employer initially contended that the Union’s most significant proposals interfered with management’s right to determine its organization, under section 7106(a)(1) of the Statute and, therefore, were outside its duty to bargain. The Employer later changed its position, however, and indicated that “the matter should be submitted to the Panel for resolution.”

 

United States of America

 

BEFORE THE FEDERAL SERVICE IMPASSES PANEL

 

 

In the Matter of

 

GENERAL SERVICES ADMINISTRATION

WASHINGTON, D.C.

and

 

COUNCIL 236, AMERICAN FEDERATION OF

GOVERNMENT EMPLOYEES, AFL-CIO

 

Case No. 00 FSIP 120

Factfinder's Report 

    General Services Administration (GSA or Employer) and Council 236, American Federation of Government Employees, AFL-CIO (Council 236 or Union) jointly filed a request for assistance with the Federal Service Impasses Panel (Panel) to consider a negotiation impasse under the Federal Service Labor-Management Relations Statute (Statute), 5 U.S.C. § 7119. The undersigned was appointed by the Panel to conduct a factfinding hearing and make recommendations for settlement on the issue of the Employer’s proposal to close two distribution centers located in Fort Worth, Texas, and Palmetto, Georgia, and four forward supply points, located in Auburn, Washington, Franconia, Virginia, Denver, Colorado, and Chicago, Illinois, by April 2001. The hearing was held on October 3 and 4, 2000. A stenographic record was made, testimony and argument were presented, and documentary evidence was received. The parties also filed pre-hearing and post-hearing briefs in support of their respective positions. The undersigned has considered the entire record in preparing this Report.

BACKGROUND

Stock Supply Business

    The Employer establishes policy for and provides economical and efficient management of Government property and records, including construction and operation of buildings; procurement and distribution of supplies; utilization and disposal of real and personal property; transportation, traffic, and communications management; and management of the Government-wide automatic data processing resources program. Its functions are carried out at three levels of organization: the central office, regional offices, and field activities.(1) It has a workforce of 14,500 employees. The Union represents a bargaining unit of 4,850 General Schedule and Wage Grade employees.(2) The parties executed a master collective bargaining agreement (MCBA) in October 1999 which is effective for 3 years. The parties have a partnership dating to 1993.

   This dispute involves the stock program within the Supply and Procurement business line of GSA’s Federal Supply Service (FSS).(3) The stock program is one of three programs through which Supply and Procurement provides commercial products and services to government agencies. The other two are the multiple awards schedules (MAS) program, and the special order program.

    Under the stock program, orders are taken from customers for shipment from inventories maintained at four distribution centers (warehouses in Palmetto, Georgia, Fort Worth, Texas, Burlington, New Jersey, and Stockton, California), and the four forward supply points indicated above. In the other two programs, commercial vendors ship directly to agency customers.(4) The stock program warehouses are approximately 1 million square feet each. The forward supply points are smaller facilities used to position specific high-demand products in a local area.

    In FY 1999, there were approximately 3,400 employees in FSS, 1,279 of whom worked in the stock program (Un. Exh. 2). Approximately 800 employees work in the distribution centers; and 500 in support activities, including the four forward supply points (Tr. 23).

    FSS operates under a General Supply Fund, and has average annual sales of $20 billion (Tr. 13; Un. Exh. 2). Funding for the stock program, as most other FSS programs, is "revolving". Under a 1988 law FSS must fund its operations through the prices it charges customers (Tr. 14). Ideally, prices are set (through mark-ups) to allow FSS to "break even" (Id.), though concern about customer response may lead to prices being set lower than the break-even point.(5) Because revenue in excess of operating expenses must be returned to the Department of the Treasury, FSS does not help itself by turning a profit (Id.). FSS Commissioner Bennett testified that while losses are allowed in a specific program in a given year, they are not permitted for prolonged periods of time (Tr. 15).

    From 1992 to 1999, annual sales in the stock program decreased from $1.134 billion to $781 million (U. Exh. 2 at 8). This occurred while the overall trend in GSA sales was upward, driven primarily by increases in MAS sales (Tr. 16).(6) A 1999 stock program analysis revealed that the stock program suffered losses of $32 million in the 3-year period preceding October 1999; projected losses in FY 2000 were $29 million (Un. Exh. 2).

    The decline in stock program sales can be attributed to several factors. At one time, FSS was a mandatory source of supply for Federal agencies, operating 21 warehouses throughout the country (Factfinder’s Exh. 1(n)). In the early 1990s, Congress enacted the Federal Acquisition Streamlining Act (FASA), Pub. L. No. 103-355, authorizing Federal agencies to purchase products directly from commercial suppliers as well as those on the Internet (Factfinder’s Exh. 1(n)). Institution of the GSA SmartPay Card facilitated such purchasing (Id.). New, large suppliers such as Staples and Office Depot entered the market having the ability to satisfy agency supply needs, posing a new source of competition to FSS (Tr. 22).

    Another factor in the stock program decline is that in 1992, the Clinton Administration launched the "re-invention of Government" initiative under which many agencies, including GSA’s largest customer, the Department of Defense, and other customers, began downsizing. As a result, customer demand for large amounts of FSS-inventoried product declined considerably (Id.); (Tr. 21-23).

    During the last decade, FSS made efforts to staunch losses in the stock program by "altering the mix of products" and increasing marketing efforts, but sales continued to decline (Tr. 24-25).(7)

Management's Response

    The decline in stock program sales led the Agency to form a steering committee in January 1999 to address the stock program. The Union had representation on this committee. Through a series of meetings, the committee examined two options: The first was to phase out the stock program in 2 to 5 years; the second was to eliminate the stock program immediately.(8) No consensus was reached. In July 1999, the GSA Administrator announced that the stock program would be completely eliminated.(9) This decision was rescinded after a Union grievance was sustained in September 1999 on the basis that the Agency was obligated to bargain with the Union concerning the closures (Factfinder’s Exh. 1(g)). In October the parties returned to discussions of the stock program within a partnership framework.

LMI Study 

      In December 1999, following discussion with AFGE, GSA retained an independent expert, Logistics Management Inc. (LMI), to analyze the stock program. LMI, a non-profit organization that specializes in public sector improvement through research and analysis, has extensive experience analyzing the supply chain management of Federal agencies, including, among others, the Department of Defense, the Federal Aviation Administration, and the Defense Logistics Agency (Tr. 128; Emp. Exh. 3). According to Mr. John Olio, the LMI expert who testified at the hearing, LMI "stakes its reputation on objective, unbiased analytical content" (Tr. 126). At the Union’s request, two experts affiliated with the Harvard Business School were retained to consult with LMI during the course of the study.

    LMI conducted a study of the FSS stock program "to determine the most efficient and effective supply chains that meet customer response time-requirements for items currently managed by the agency.(10)" According to Mr. Olio, Federal agencies have begun to "outsource" material management in order to reduce costs (Tr. 130).(11) He testified that this trend has "significantly reduced the requirement to hold large scale inventories" (Tr. 134).(12)

    LMI established four alternative options for the stock program to be evaluated on the basis of five criteria,(13) projected over a 10-year period. In Alternative 1, labeled the "most efficient status quo," the current distribution infrastructure would be retained, but with improvements in efficiency (Tr. 153; Emp. Exh. 1). Under Alternative 2, labeled "right-sized organic," the distribution infrastructure would be downsized to the "right size" (two distribution centers and all forward supply points would be closed) to reduce costs, and transportation inefficiencies would be minimized by maintaining distribution depots on each coast (in New Jersey and California). Alternative 3, labeled "organic/outsource mix," would rely on a mix of Government-owned warehouses and outsourcing (direct vendor support). Finally, under Alternative 4, labeled "totally outsourced," the warehouse and distribution system would be completely closed, and customers would rely exclusively on private sector vendors (Tr. 153-54; Emp. Exh. 1).

    In its study, LMI found there was a "major trend" in the stock distribution program: Stock sales dropped dramatically for the period 1995 through 1999 (from $1.07 billion in 1995 to $793 million in 1999).(14) Over the same period sales for small items through customer service centers, which are similar to retail operations, dramatically increased (Tr. 158; Emp. Exh. 1 at 10, 14). LMI concluded that not only was the stock program’s customer base diminishing, customer purchasing was shifting from large wholesale orders to smaller orders. LMI predicted that the trend likely would continue, and would result in a further decline in stock program sales of approximately 28 percent during the period 2000 to 2005 (Emp. Exh. 1 at 15).

    LMI also found that from 1995 to 1999, a period when the stock program’s sales were declining, distribution and transportation costs (as a percentage of the total cost of goods sold) increased by 30 percent and 22 percent, respectively (Emp. Exh. 1 at 16). While the tons shipped during the period 1995 to 1999 decreased from 279,476 to 147,491, the cost per ton of shipped product increased from $544 to $943 (Tr. 169; Emp. Exh. 1 at 39). LMI found significant transportation inefficiencies in goods being cross-shipped ("inter-warehouse transfers") between distribution centers unnecessarily, or shipped from beyond the proper zone, a situation it believes can be rectified (Tr. 179).

    LMI also found the stock program was much less efficient in the area of "inventory turns" than commercial vendors, i.e., a low turn rate means that its inventory "sits on the shelf" longer. According to Mr. Olio, a high inventory turn rate indicates an ability to satisfy customer demands with less inventory, which reduces the need for large warehouse space, thereby lowering costs. These reduced costs can be passed on to customers in the form of lower priced goods (Tr. 171-72).

    Another finding related to costs was that, while sales have declined, there has been no corresponding reduction in total personnel employed in the stock program. There has, however, been a significant realignment in the type of personnel, with a major decrease in the number of Civil Service employees and a corresponding increase in contract employees.(15) Commissioner Bennett attributed the inability to reduce personnel levels to a shift "away from wholesale to basically a retail model that is more labor intensive" (Tr. 68-69). The shift from Civil Service to contract employees she justified by a need for greater flexibility to adjust to changes in workload and "continuing uncertainty about this business" (Id.).

    During questioning, Commissioner Bennett testified that the Agency’s proposal envisions hiring new contract employees to handle the increase in business that foreseeably will occur in the two large facilities it proposes to retain (Tr. 46). She indicated this was LMI’s recommendation, a fact confirmed by Mr. Olio in his testimony. Though she denied that FSS has actually said it would not consider transferring civilian service employees from the facilities slated to be closed to perform that work (Tr. 49), such an intention is a reasonable inference from the totality of the testimony.

    Mr. Olio testified that, for all of the above reasons, the stock program has had to increase its mark-up(16) (from 33.6 percent in 1995 to 40.3 percent in 1999) in order to break even (Tr. 162; Emp. Exh. 1 at 23).(17)

    Using a net present value analysis,(18) LMI evaluated the four alternatives over a 10-year period and determined the total cost to the customers and total savings.(19) LMI concluded that implementation of Alternative 1 would result in a total savings of $113 million over 10 years. It projected that, tracking a continued decline in sales, under Alternative 1, in the first year, 298 positions would be eliminated; 57 civilian service personnel and 241 contract personnel (Un. Exh. 1). Alternative 2 would result in a total savings of $176 million over 10 years(20), with 407 civilian service personnel and 35 contract personnel positions being eliminated. Of those civilian service personnel, Mr. Olio’s projection was that only 194 would actually be subject to a RIF (Tr. 188-89; See U. Ex. 1). The remaining positions would be eliminated through buyouts, early outs, and transfer to other positions within GSA.(21) In its analysis of both Alternatives 1 and 2, LMI assumed significant cost savings from improving transportation efficiencies and increased inventory turns.

    LMI’s rationale for Alternative 2 was that the current system has excess capacity; through economies of scale, two warehouse depots would be more efficient than multiple small facilities (even though there would be an increase in transportation costs of approximately $49 million over the 10-year period). Retaining a distribution depot on each coast would place the facilities in high customer concentration areas and accommodate overseas shipments. Reduction of infrastructure (e.g., warehouse space) alone would result in savings of $123 million, notwithstanding closure costs, expenses associated with a reduction in force of Federal personnel, and the cost of adding contract personnel at the two retained facilities. Mr. Olio acknowledged that there would be "a front-end cost" of closing the facilities in the first year under Alternative 2, but stressed that the savings would be recouped in ensuing years.(22)

     LMI also rated the four Alternatives against the criteria of Cost to Customer (Cost Recovery); Order Fulfillment; Ease of Implementation; Customer Appeal; and Flexibility. Alternative 1 rated "Poor" in the Cost to Customer (Cost Recovery) criteria, "Excellent" in the Ease of Implementation criteria, and "Good" in the other three criteria. Alternative 2 rated "Good" in all five criteria (Emp. Exh. 1 at 99).

    Though LMI was not asked to make a recommendation in its report, as an expert witness Mr. Olio testified that, in his professional opinion, GSA should implement a plan in the "Alternative 3 range" (Tr. 242). He explained that to be both effective and efficient, and "competitive with private sector capability," he would take immediate steps to "get that infrastructure down to the leanest [he could] possibly make it," and perhaps go even further by outsourcing (Id.). As reported by Mr. Olio, the two Harvard consultants involved at the Union’s request came to the same conclusion. Neither were called to testify at the hearing.

    On or about February 4, 2000, LMI conducted a briefing with the parties and discussed its report. The Union requested that LMI consider the impact of a new "Stock Business Line," which the Union had proposed during the course of the parties’ negotiations. LMI did subsequently include this as what it called Alternative 1A, but no analysis of this alternative was conducted.(23) (Tr. 196; Emp. Exh. 1 at 84). LMI issued its final report on February 10, 2000 (Emp. Exh 1).

Subsequent Negotiations and MOU 

      In June 2000, following another arbitration award ordering the Agency to the bargaining table,(24) the Employer offered its plan to close the depots in Palmetto and Fort Worth and all four forward supply points, a position roughly equivalent to LMI’s Alternative 2.(25)

          The Union’s initial counter-proposal aligned with Alternative 1A. After negotiations, on June 21, 2000, the parties executed a Memorandum of Understanding which by its terms resolved several issues within the Union’s proposal. (Jt. Exh. 1). At the same time the Agency established a new Supply Business Line. In the MOU, the parties agreed to establish a labor-management "working group" to "identify the appropriate organizational components and functions of [FSS’s] new Supply Business Line" (Jt. Exh. 1).

     According to Commissioner Bennett, the Supply Business Line has been created to assume overall responsibility of the stock program from the Regional Administrators and other FSS elements,(26) to "focus on the full service customer" (Tr. 16-17), and to "figure out what the right support is for the continuing stock program" (Tr. 46). Chief Union negotiator Bruce Williams testified to his view that the Supply Business Line’s role is to "determine how many Forward supply points it [will] need and how many distribution centers[,] based on what the new business line will [be]" (Tr. 271-2). He expressed the view that, "The Agency adopted the concept of the [Alternative] 1-A with the Union . . . that would commit us . . . together to work out . . . a business line" (Tr. 272).    

    At the time the parties entered into the MOU the Agency’s closure proposal and the remaining portions of the Union’s proposal remained on the table. One week after the MOU was signed, the parties jointly requested Panel assistance, declaring themselves to be at impasse.(27)

Issue At Impasse

    The parties disagree over GSA’s proposed plan to close two distribution centers, in Fort Worth, Texas, and Palmetto, Georgia, in April 2001 and four forward supply depots, in Auburn, Washington, Franconia, Virginia, Denver, Colorado, and Chicago, Illinois, by April 2001. This plan was presented to the Union by letter of June 2, 2000, which also indicated Management’s intention to establish a new Office of Supply.

The Union’s proposal, submitted with the Request for Assistance to the Panel, is:

The following procedure will apply to implement the proposed changes in the FSS Supply Distribution Program.

1. The Agency will not implement its plans to close the FSS Distribution Centers in Palmetto, GA and Fort Worth, TX, and the Forward Supply Points located in Auburn, WA and Denver CO until it has given the regional management and employees and their representatives one (1) year to substantially improve their distribution centers and forward supply point operations without any business restraints imposed by FSS Central Office.

2. The Agency agrees to adopt and implement to the maximum extent feasible, within 30 days, the alternative I proposed by the LMI study dated February 2, 2000 in all the Distribution Centers.

3. The Agency agrees to provide appropriate arrangements for AFGE bargaining unit employees adversely affected due to the closure at the forward supply point located in Franconia, VA in accordance with Article 31, Section 4,5 and 6 of the National Agreement.

4.  At the end of the one (1) year performance period on the other distribution centers and the two forward supply points scheduled for closure, the Agency agrees to review the FSS Supply program operations at the National level with the Union to determine the outcome. The Agency will base any decisions concerning closure on objective information concerning the performance of those distribution Center and forward supply points.

5.  If there is a need to close any facility, the Agency will do so in accordance with Article 4, Section 1 of the National Agreement and the Labor Statute.

6.  Management agrees not to make any decision(s) after the establishment of the two new organizations(28) that will destroy or kill the Supply Program. All decisions will be based on sound business practices and need driven by the Supply Program.

7.      After a decision has been reached concerning the completion of this negotiated agreement, the Agency agrees to notify all of the employees and management within AFGE’s bargaining unit on what was agreed upon.

1.  The Employer’s Position

      The Employer’s proposal to close the two distribution centers and the four forward supply points is necessary because it immediately addresses the stock program’s most significant problem, excess capacity. The current stock distribution system is no longer an economically viable way of fulfilling the Employer’s mission. The market has evolved towards direct agency purchasing and away from large-scale purchases from GSA. Customers have begun to purchase in small retail-type quantities on an as-needed basis. There is no longer the same need for large inventory and large warehouse capacity. This trend has caused a significant decline in sales for the stock program and consequent losses, and the evidence shows there is every reason to believe the trend will continue. In its study, LMI concluded that the stock program has excess infrastructure - employees and facilities - in the face of declining sales, and that a reduction of that infrastructure now would result in substantial savings and support future viability of the program.

    The Employer proposal would reduce infrastructure and reallocate stock distribution work to two large distribution centers in Burlington, New Jersey, and Stockton, California, which are capable of handling current sales volume. The bi-coastal operation would allow GSA to optimize fixed and variable costs, and continue to provide support to special needs customers such as the Department of Defense overseas operations and the FEMA.

    The Employer acknowledges that closing the warehouses and having to conduct a RIF will be difficult and costly. However, it contends that the time to implement is now while GSA has the buy-out and early-out authority to assist affected employees. The Employer asserts that its proposal is crucial to saving any part of the stock distribution program.

    The Employer argues that the Union’s proposal to maintain a more efficient status quo fails to address the fundamental problem of excess capacity. It asserts that the Union’s proposal is "destined for failure" given the undeniable business trends identified by GSA and LMI. The forecast is that these trends will continue and, consequently, stock program sales will continue to decline over the next 5 years. It is simply not a sound business practice to continue to mark-up product in order for the stock program to attempt to "break even." Reflecting this, the LMI study rated Alternative 2 as a "good" overall alternative, while ranking Alternative 1 "poor" for cost recovery.

    The Employer believes that the Union’s proposal is based on a desire to delay any decision about the stock program for as long as possible, and at minimum, 1 year. The Union’s proposal that implementation be delayed until a Union/Employer working group has had an opportunity to assess the stock program only sets the stage for further negotiations and impasse at that time.

2. The Union’s Position

    The Union acknowledges that FSS’s stock program "is in serious trouble, and strong measures must be taken if it is to be preserved" (U. Posthearing Br. at 2). It also agrees that the stock program "has excess capacity in employment, space, and inventory, and that several aspects of the program are being inefficiently handled" (Id.). It makes three basic arguments against the Agency’s proposal and in favor of it own.

    First, it asserts that the new Supply Business Line is the entity "competent to decide what facilities to close" after further assessment (U. Posthearing Br. at 2), and that the MOU between the parties is undermined by the Agency’s plan for immediate partial closure of the program. The Union maintains that "[t]he only dispute between the parties is what to do immediately, while the new organization is getting itself together and determining the future of the supply program" (U. Posthearing Br. at 1). Its proposal for all facilities to remain open for 1 year is to allow the facilities to substantially improve the efficiency of their operations in line with LMI’s analysis, and to give the Supply Business Line and the labor-management process created by the MOU the opportunity to complete a more thorough study of how to structure the stock program.

    The Union denies that this approach fails to address over-capacity asserting that it is entirely foreseeable that GSA, with the Union’s full concurrence, will decide that one or more of the facilities will need to be closed after the 1-year period.(29)

    The Union’s assumption is that the Supply Business Line is now responsible for implementing the inventory-handling and transportation planning reforms recommended by LMI (U. Posthearing Br. at 3). The purpose of the Union’s language that during the "performance year" facility management must be able to operate "without any restraints imposed by FSS Central Office" is to prevent FSS top management from interfering with local efforts to implement these efficiencies. The Union believes that these reforms could lead to a conclusion that retaining some or all of the four forward supply points is cost-effective. The Union argues that its proposal provides the flexibility needed to adapt to such a potential eventuality, while the Agency’s plan for immediate closures does not, possibly requiring future reestablishment of distribution facilities at high cost and harm to employees.

    The Union’s second argument challenges LMI’s conclusion, and the Agency position based on it, that Alternative 2 will result in substantial savings compared with Alternative 1. It asserts that the $63 million difference over a 10-year period, cited by LMI, is insubstantial and "within the margin of error of the financial calculations" (U. Posthearing Br. at 6). It further points out that LMI’s projections are based on sales forecasts developed by GSA, which it says may not be accurate. The Union contends, by way of example, that the erosion of the stock program’s customer base caused by government downsizing in the 1990s is, for the most part, complete, particularly in the Department of Defense, a major GSA customer, so that further decline in sales for that reason is unlikely. The Union also maintains that LMI failed to account for savings from personnel reductions in analyzing and costing Alternative 1, making its conclusions suspect.

    Last, the Union argues that its proposal should be adopted because of its more responsible and fair approach to reducing personnel costs. In its view, the Employer’s proposal unnecessarily eliminates 33 percent of the existing civilian service positions in the first year (requiring a costly RIF), while adding new contract employees, thereby off-setting any labor cost savings and causing a severe adverse effect on morale. In contrast, under its proposal, while there is a significant net reduction in total personnel in the first year (241 positions), the bulk of this reduction is contract employees. Reductions in civilian service personnel are achieved through attrition and employee reassignments to expanding GSA areas, not RIF.

Dicussion 

    The need for major changes in the stock program has been fully established and is not contested by the Union. With a drastically decreased market and only 6 percent of overall supply sales, the program still holds one-third of FSS personnel and a large, and costly physical infrastructure. The personnel and other infrastructure costs are largely fixed. They have actually increased as sales have plummeted. Given the hearing record, and the program’s experience, even LMI’s fairly modest projections of personnel reductions are questionable, in the Factfinder’s view, particularly in the total absence of evidence to support how they might actually, feasibly take place. This is notable since the Union makes so much of these reductions to support the strength of its proposal.

    This illustrates the Factfinder’s dilemma in considering the Union’s proposal. The advisability of that proposal depends on variables that remain unpredictable because of the absence of factual evidence indicating that their occurrence is likely or even probable.

    First, as indicated already, the Factfinder views the Union’s claim of major first year savings from a sizeable reduction in contract employees as shaky, given the source of its numbers and Employer testimony concerning the labor-intensive nature of the program’s remaining business. In other words, the Union did not prove that 298 positions are in fact dispensable, at all, or within its one-year time frame.

    Second, the feasibility of major reforms in transportation and stock turns (that the Union wants the Factfinder in essence to mandate) was supported only by Mr. Olio’s opinion, not any evidence offered by the Union, though its prehearing brief promised testimony from managers and employees about the potential for increased efficiencies. But Mr. Olio’s opinion was based simply on his general experience, not a detailed analysis of the FSS stock program’s operation (a fact strenuously stressed in other contexts by the Union). Thus, while like the Union the Factfinder perceived the Agency’s resistance to the idea that such efficiencies are possible or meaningful, she has no way of evaluating whether this skepticism is warranted. Mr. Williams, himself a long-term supply employee, acknowledged that it would be difficult to improve stock turns in the way LMI described and within the performance year the Union proposes.(30) This is quite troubling since the Union’s scenario is that in one year the parties will have the experience data needed to make decisions about the stock program.

    Indeed, considering Mr. Olio’s statements about the difficulty of achieving these efficiencies and the high level of organizational commitment needed (Tr. 204-206), a question remains as to whether Alternative 1 is a realistic or advisable one-year "interim" status, as it would appear is the Union’s intent.(31) If not, the parties will find themselves embroiled in controversy over the ramifications of "insufficient data" at the end of one year.

    Third, the Union’s suggestion that further declines in sales will abate because government down-sizing has ended is tenuous given that whole agencies have ended purchasing through the stock program for reasons unrelated to downsizing (the Treasury Department and Postal Service are examples) and there is nothing to indicate others might not follow suit. The Factfinder does not read LMI’s sales projections as assuming further downsizing. The growth of the MAS program reflects a massive market shift unrelated to the size of government.

    Fourth, the entire premise of the one-year delay is that Labor and Management will be working together to design the supply program, including its scope and infrastructure, and will together reach a conclusion. This is premised on the Union’s interpretation of the MOU. No agreement about the import of that agreement was evidenced here. The Employer’s position is that the Supply Business line will be deciding on the support structure for whatever program is in place. Interpretation of the MOU is outside the appropriate jurisdiction of the Factfinder.(32) Thus, the Factfinder is in the posture of being asked to delay a closure decision in deference to a process the scope and purpose of which cannot be known at this time.

    Another set of difficulties is created by the fact that aspects of the "procedures" proposed by the Union are overreaching, lacking explanation or likely unenforceable. Little or nothing was said about them at the hearing. Ignoring any potential legal issues, the Factfinder would be taking over the role of agency management by acting on the basis of this record to: order FSS management to refrain from directing activities of their subordinates; prohibit "any decisions . . . that will kill or destroy the supply program;" and establish the criteria for future closure decisions as "objective information concerning the performance of [the] distribution centers and forward supply points" and "sound business practices and need driven by the Supply Program." In the absence of any explanation of the meaning of these terms, a natural reading of this language would exclude from management’s consideration possible significant factors and circumstances other than efficiency, e.g., policy decisions, Presidential initiatives, further market changes (like a stated intention of another large agency to drop purchasing through the supply program) and so forth.

    This brings the Factfinder to the conclusion that the only sure result of adopting the Union’s proposal is a one year delay. In considering whether this delay can be justified, the Factfinder notes that the Employer has been looking at revamping (or eliminating) the stock program for almost two years (at least in this round) with the Union in and out of the process with both the partnership and traditional bargaining processes attempted. The present situation is as close as the parties have come to agreeing on an approach.(33) Meanwhile, the experts the Union brought into the LMI evaluation process favor an immediate reduction in the warehousing infrastructure and were not cited to support any aspect of the Union’s case.

    The Factfinder’s conclusion is that the Union’s proposal is not workable for all the reasons discussed, leaving the only practical alternative adoption of the Employer’s position. Anything else would have the Factfinder designing the supply program, a task for which it has neither expertise nor a factual record.

    The Factfinder is of the view that permitting the closure plan does not predetermine the most difficult equity issue, that is, the fate of Civil Service employees in the facilities to be closed. The Employer proposal is not Alternative 2 in its entirety. The entire Employer plan is as follows: "[T]o close the Palmetto, Georgia and Fort Worth, Texas, distribution centers in April 2001 and close the four forward supply points [locations omitted] by April 2001." There is no question that these closures put at least 194 Civil Servants in the path of a RIF and that LMI’s approach and the Commissioner’s current desire is to not allow RIF’d employees to follow their work to the remaining distribution centers but to cover a need for more personnel in those facilities with new contract employees. But there is nothing in the Factfinder’s action that dictates or approves of that approach. The Factfinder’s view is that, especially given the likely limited number of employees who will want to make transcontinental moves to Burlington and Stockton, there is little justification for excluding the possibility of such reassignments. Indeed, the Chief People Officer of GSA testified that reassignments to the remaining depots would "definitely [be] put on the table" in efforts to place employees impacted by a RIF (Tr. at 268).

    The timetable of the closures and RIFs has been tied by the Employer to the terms of its current buy-out authority but due to this litigation, that creates a timetable so short as to prejudice efforts to ameliorate the RIF’s impact. There are no financial reasons compelling the April dates, the Commissioner having testified that GSA is already prepared to operate the stock program at a loss in 2001. The Factfinder does not assume that this buy-out authority is not open to an extension, having seen this action in other RIF cases and believes the Employer should be required to seek an extension to the buy-out authority. This would provide employees with the fullest opportunity for utilizing this option, lessen the number of terminations required, and permit the closures to take place on a schedule allowing pre-RIF assistance to impacted employees to be maximized. Ideally, the closure date should be pushed forward to summer.

Recommendation 

    The undersigned makes the following recommendation for settlement:

The Employer may proceed with a plan to close distribution centers in Palmetto, Georgia, and Fort Worth, Texas, and the four forward supply points.

The Employer will immediately seek an extension to its buy-out authority for at least an additional 3 months (through July), or seek new buy-out authority, to provide employees with the fullest opportunity for utilizing this option and to permit the closures to take place at a time allowing pre-RIF assistance to impacted employees to be maximized. The Employer will seek a buy-out period extending to at least July 31.

If after a concerted and good faith effort, the Employer is unable to obtain an extension of its buy-out authority, or new authority, the closures may go forward as indicated in the Employer’s plan (in or by April 2001) in order to preserve this opportunity for reducing the number of employees subject to RIF.

The Union and Employer will take other measures to ameliorate the adverse impact on employees in those facilities, consistent with the parties’ Master Agreement, utilizing the framework of their partnership agreement and within the scope of the Employer’s duty to bargain under the parties’ collective bargaining agreements and the Statute. This recommendation is not intended to expand the existing rights and obligations of the parties, but to encourage cooperation to the end of assisting employees to the fullest possible extent.

Respectfully submitted,

Mary Jacksteit

Factfinder

December 4, 2000

Takoma Park, Maryland

 

1. GSA was established in 1949 by the Federal Property and Administrative Services Act (the Act) to provide space and services to other Federal agencies (Factfinder’s Exh. 1). Under the Act, the GSA Administrator is charged with providing an economical and efficient source of supply for the Federal government.

2. The National Federation of Federal Employees also represents employees affected by the Employer’s proposal, but is not a party to this proceeding.

3. FSS has three other business lines, Property Management, Travel and Transportation, and Vehicle Acquisition and Leasing, which are not involved in the dispute.

4. Under the MAS program GSA negotiates approximately 7,000 contracts with commercial partners under which customers directly purchase products from vendors at pre-determined prices. The special order program receives orders from customers and issues delivery orders to vendors for direct shipment to customers (Tr. 15, 144). FSS also provides services to special customers such as the Federal Emergency Management Agency (FEMA).

5. The stock program has a higher markup than commercial vendors (Factfinder’s Exh. 1(k) at 24) so that pricing to break even may be counterproductive in terms of competitiveness.

6. In 1999 with stock program employees comprising over one-third of FSS personnel, only 6% of sales were in the stock program. Sales in the MAS program accounted for 82% of sales and over $ll billion. An online program called GSA Advantage has seen a growth in sales over the last year from $80 million to $125 million.

7. As early as 1992 the General Accounting Office recommended that GSA look at ending the stock program in favor of direct vendor delivery approaches.

8. Closing all of the facilities would have affected approximately 1,300 FSS employees and 100 administrative support personnel (Tr. 43).

9. For its FY 2000 appropriation GSA requested and received Congressional authority to offer voluntary separation incentive payments (buyouts) to assist with the closing of the distribution centers, forward supply points and associated programs (Factfinder’s Exh. 1(n), citing Pub. L. No. 106-58, § 411). This current buyout authority expires on April 30, 2001.

10. Mr. Olio acknowledged that GSA gave LMI only 30 days in which to conduct its study and, because of this time constraint, its analysis was more “rough order of magnitude” than a detailed accounting-type analysis (Tr. 137-39). LMI was not asked by GSA to make a recommendation based on its analysis of the stock program (Tr. 240).

11. He explained that “outsourcing” is part of a movement to fully integrate supply-chain management which is traceable to the “just in time” inventory concept initially developed in Japan and later borrowed by U.S. auto manufacturers. The “just in time” inventory concept rests on the principle that large quantities of unused inventory are both unnecessary and costly, and actually mask inefficiencies in the production process.

12. Mr. Olio pointed out that between 1989 and 2000, the Department of Defense reduced its inventory by $42 billion, thereby significantly reducing its warehouse costs; and the Department of Veterans Affairs nearly eliminated its warehousing costs by using prime vendors to supply required medical material (Tr. 134).

13. The criteria employed are as follows: (1) total cost to the customer; (2) order fulfillment performance; (3) ease of implementation and maintenance; (4) customer appeal; and (5) flexibility of option in responding to changing and emerging requirements. The five criteria were accepted by the parties (Tr. 156).

14. An unexplained $12 million discrepancy exists in GSA’s financial documents regarding FY 1999 stock program sales. The FSS General Supply Fund Financial Data (Un. Exh. 2), reflects FY 1999 sales of $781 million; LMI’s Report, which assertedly is based on “GSA FY 1995-1999 Commodity Income Statements,” reflects FY 1999 stock program sales of $793 million (Emp. Exh. 1 at 10).

15. Specifically, there were 1,256 employees in the stock program in FY 1999. The FSS General Supply Fund Financial Data Report, (U. Exh. 2), indicates that in 1992, the stock program employed 1,166 civilian service personnel and 80 contract personnel. In 1999, the stock program employed 779 civilian service personnel and 429 contract personnel.

16. Commissioner Bennett defined mark-up as “the dollars of operating cost, as a percent of the cost of goods” (Tr. 20-21).

17. LMI also analyzed price differences in some 1,123 products available to FSS customers through multiple sources, including private sector vendors and the stock program, and found that the cost of 1,008 of those products was, on average, 16 percent cheaper if purchased from private sector sources rather than through GSA’s stock program (Tr. 165).

18. LMI used the current Office of Management and Budget 4.9 percent discount rate for the analysis. Mr. Olio testified that “net present value” is obtained by “taking streams of both revenues and costs that spread over a long period of time and bring them back to a single year, in this case, 2000" (Tr. 174).

19. LMI made several assumptions to reach a baseline, as follows: Facility productivity and costs would be measured using FY 1999 figures; sales would continue to decline in a linear fashion; rent would remain fixed; and other costs would vary with the cost of goods sold.

20. LMI concluded that Alternatives 3 and 4 would result in even further cost savings of $354 million and $394 million, respectively, over the next 10 years.

21. Commissioner Bennett testified that, based on LMI’s historical experience with closures, FSS anticipates that approximately 60 percent of the employees would be subject to a RIF, and the remaining employees would either secure other jobs and or would be transferred to other positions within GSA (Tr. 46-47).

22. The Employer acknowledges that, under its plan (which approximates Alternative 2), its transportation costs will increase $49 million per year (Tr. 86; Emp. Exh. 1 at 88). It further acknowledges that it has a 20-year lease for the Palmetto, Georgia, warehouse that is higher than the fair market rate, and that it therefore will incur losses in subletting the space after closure (Tr. 87-88).

23. As described in the LMI report, the new “Stock Business Line” would consolidate acquisition, inventory and commodity management functions for stock items to support a program with a limited number of products in 4 large distribution centers, 3 forward supply points and 12 walk-in GSA Express Stores (Emp. Exh.1)

24. (Factfinder’s Exh. 1(j)).

25. The Union elicited testimony from FSS Assistant Regional Administrator, Atlanta, Georgia, Ralph Wagoner, who manages the Palmetto, Georgia, depot. Mr. Wagoner testified that he was not part of the Employer team that decided to adopt Alternative 2 and that he did not know whether GSA considered all of the relevant factors in its deliberations (Tr. 295). The facility’s lease cost was, in his view, the most significant factor in making such a decision. He testified that he might have taken more time (than the 30 days allotted to LMI) to study which facilities should be closed, but stressed that “our business is dwindling quite rapidly . . . Something must be done or we’re going to run into a situation where we can’t pay salaries” (Tr. 298).

26. Historically, the stock program facilities have been administered by Assistant Regional Administrators, with operations coordinated by a headquarters Office of Distribution (Tr. 17) and purchasing for the warehouses, as well as revenue accounting, performed by several commodity centers (Id.).

27. During the initial investigation of the dispute by the Panel, the Employer contended, in a jurisdictional statement of position, that most of the Union’s proposals were outside the duty to bargain because they interfered with management’s right under § 7106(a)(1) of the Statute to determine its organization by dictating how GSA will be structured and where, geographically, it would provide services. It also asserted that none of the Union’s proposals were negotiable procedures under § 7106(b)(2), or appropriate arrangements under § 7106(b)(3), because each directly, or excessively, interferes with the substantive exercise of a management right. However, on August 25, 2000, the Employer withdrew its challenge to the Panel’s jurisdiction stating: “The agency has decided that this matter should be submitted to the Panel for resolution” (Factfinder’s Exh. 1(l)).

28. This apparently refers to the new Office of Supply (“Business Line”) and Office of Enterprise Planning referred to in the Employer’s letter of June 2, 2000.

29. The Union has taken inconsistent positions about future closures. Mr. Williams testified that the Union’s proposal is to allow the Auburn, Washington, and Denver, Colorado, forward supply points to remain open, and close the Chicago, Illinois, and Franconia, Virginia, forward supply points (Tr. 271-75). This is consistent with paragraph 1 of the Union’s June 26 written proposal. On the other hand, paragraph 2 of that proposal calls for adoption of Alternative 1, which keeps all facilities open. And Alternative 1A (formulated by the Union) provides that three forward supply points remain open (See Emp. Ex. 1 at 84). It is noted that Council 236 does not represent any employees in the Chicago, Illinois, facility, and represents only a portion of the employees at the Franconia, Virginia, facility (Id. at 275).

30. “Q. One of the things I think there was testimony yesterday was that stock turns should be increased. . . . A. [Williams] Well, being the supply person, that’s why I propose it to the maximum extent feasible, like we had said because some of the things might cannot be implemented just to the letter of the way they [LMI] recommended. And as a supply person, I recognize that some of those things you won’t be able to implement before then” (Tr. 286).

31. Any other reading of the proposal creates an inherent contradiction between maintaining a more efficient status quo for the indefinite future and preparing for a decision in one year that the Union predicts will include closures.

32. Apart from the Factfinder’s appropriate purview, it should be noted that the parties did not make a record concerning the meaning of the MOU that would s