[ v30 p1282 ]
The decision of the Authority follows:
30 FLRA NO. 140 30 FLRA 1282 29 JAN 1988 HEALTH CARE FINANCING ADMINISTRATION Agency and AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES, AFL-CIO, LOCAL 1923 Union Case No. 0-AR-1346 DECISION I. Statement of the Case This matter is before the Authority on an exception to the award of Arbitrator Elmer C. Flounders. The Arbitrator concluded that the Agency erred when it contracted out certain functions without having conducted a comparative cost study, as required by the Office of Management and Budget (OMB) Circular A-76. The Arbitrator ordered the Agency to reconstruct the requisite study and to provide the Union with information necessary to ascertain any harm that the affected employees may have suffered. The exception was filed by the Agency under section 7122 (a) of the Federal Service Labor - Management Relations Statute (the Statute) and part 2425 of the Authority's Rules and Regulations. For the reasons discussed below, we find that the Arbitrator did not make all of the findings necessary to support his award. Therefore, the award is deficient and must be set aside. II. Background The dispute arose on March 23, 1983, when the Agency announced that it had decided to contract out certain functions performed by the Agency's Office of Direct Reimbursement (ODR) within the Medicare Program. At that time, the work was being performed by approximately 230 ODR employees. On March 31, 1983, the Union filed a grievance concerning the Agency's contracting out decision. The Agency denied the grievance on the ground that the issue was not grievable or arbitrable. The Union referred the grievance to arbitration in accordance with the parties' negotiated grievance procedure. However, the Agency refused to participate in the arbitration proceeding. The Union then filed an unfair labor practice charge against the Agency. A complaint was issued alleging that the Agency violated section 7116(a)(1) and (8) of the Statute by refusing to participate in arbitration of the grievance. On July 9, 1986, the Authority decided that the Agency had violated the Statute as alleged. Health Care Financing Administration, 22 FLRA 437 (1986). As a remedy for the Agency's unfair labor practice, the Authority ordered the Agency, among other things, to proceed to arbitration of the union's grievance. III. Arbitrator's Award The grievance which was submitted to arbitration alleged that the Agency's decision to contract out the ODR functions was arbitrary, capricious and contrary to Federal procurement law and regulations, including OMB Circular A-76. The central issue was whether the Circular required the Agency to conduct a cost comparison study when it contracted out the work of the ODR. The Agency argued that it was not required to conduct such a cost comparison. In support of this argument, the Agency asserted that under section 8 of the Circular, a cost comparison study was required only if the Agency decided to continue performing the work of the ODR "in house." 1 The Agency further asserted that a study was not required if it decided to contract the work out to the private sector. The Agency presented testimony and evidence that procurement officials of the Department of Health and Human Services (HHS) and OMB had agreed with its interpretation. The Agency also argued that the determination whether or not to conduct a cost study was within the scope of its right to contract out under section 7106(a)(2)(B) of the Statute. The Agency asserted that since it had an "uncontestable" right under the Statute to contract out, it also had a right to decide whether or not to conduct a cost comparison under OMB Circular A-76. The Agency also maintained that it had done everything possible to ensure that the decision to contract out the work of the ODR would not have a harmful impact on the employees involved. The Agency argued that its position was supported by the fact that only 2 of the 230 employees involved testified that they were disadvantaged as a result of the decision and that those 2 employees voluntarily selected lower-graded positions. The Arbitrator noted that it was undisputed that the Agency did not make a cost comparison study in accordance with the provisions of OMB Circular A-76. Award at 6-7. He rejected the Agency's assertions that it was not required to do so. He found that the Agency had ignored or was unaware of a requirement in section 9d of the Circular that an existing in-house activity will not be converted to contract performance on the basis of economy unless it will result in savings of at least 10 percent of the estimated Government personnel cost for the period of the comparative analysis. 2 Award at 7. The Arbitrator also found that the Agency misinterpreted and erroneously paraphrased section 8 of the Circular. Award at 7. He determined that under the Circular, a cost comparison was required. Award at 7-9. The Arbitrator concluded that the Agency erred when it contracted out the work of the ODR without an A-76 comparative cost study. Award at 8 and 10. The Arbitrator also expressed concern over the impact of the Agency's action on unit employees, noting the Union's position that at least eight former ODR employees were working at lower pay grades than they were prior to the Agency's decision to contract out. Award at 9. The Arbitrator, therefore, sustained the grievance. As a remedy, the Arbitrator ordered the Agency to "reconstruct a cost study to compare the cost of performing the functions of the ODR by contracting out to the private sector with the cost of performing the functions in-house," as required by section 9d of OMB Circular A-76. The Arbitrator also ordered the Agency to make the cost study available to the Union for study and review. The Arbitrator further directed the Agency to cooperate with the Union and provide it with all records and information necessary to enable the Union to ascertain whether any employees of ODR suffered any loss of grade or pay as a result of the Agency's decision. IV. Agency Exception A. Contentions The Agency contends that in sustaining the grievance the Arbitrator exceeded his authority on two grounds. The Agency first contends that the Arbitrator exceeded his authority in ordering it to conduct an OMB A-76 cost comparison study. In support of this contention, the Agency makes a number of arguments. The Agency argues that the Arbitrator ignored the testimony of the Agency's A-76 expert and instead was influenced by subjective impressions of the meaning and intent of sections 8 and 9 of OMB Circular A-76. The Agency states that its witness testified that he had communicated by telephone with procurement officials at HHS and OMB who agreed with his opinion that the decision to contract out could be made without a comparative cost study. The Agency indicates that it also presented a memorandum from HHS which supported the Agency's position. The Agency also claims that there was no evidence submitted by the Union to establish that the contracting out decision was contrary to procurement law or regulation. The Agency further asserts that the Arbitrator exceeded his authority because sections 8 and 9 of OMB Circular A-76 did not provide the Arbitrator with sufficiently specific criteria to enable him to objectively determine whether the Agency complied with the intent of the Circular. The Agency argues that by evaluating the Agency's interpretation of the Circular, the Arbitrator substituted his judgment for that of the Agency in the exercise of a management right. The Agency concludes that the Arbitrator's award is inconsistent with the Authority's decision in Headquarters, 97th Combat Support Group (SAC), Blytheville Air Force Base, Arkansas and American Federation of Government Employees, AFL - CIO, Local 2840, 22 FLRA 656 (1986), and section 7106(a)(2)(B) of the Statute. Second, the Agency contends that the Arbitrator exceeded his authority by ordering the Agency to provide the Union with the records and information necessary to enable it to ascertain whether any employees of the ODR suffered any loss of grade or pay as a result of the Agency's decision to contract out. The Agency argues that the Arbitrator's order improperly transforms the grievance into a class action and extends a remedy to former ODR employees who are similarly situated to the grievant and the employees who testified at the arbitration hearing. The Agency also argues that: (1) the Arbitrator ignored the evidence presented at the hearing; (2) the only harm to unit employees was speculative; and (3) those employees who were reduced in grade were reduced voluntarily in order to get into new career fields with the possibility of advancement to higher grade levels. B. Analysis and Conclusion We find that the Arbitrator's award is deficient and must be set aside. In Blytheville Air Force Base, the Authority held that an arbitrator may sustain a grievance challenging a contracting out decision only on the basis that the agency failed to comply with mandatory and nondiscretionary provisions of applicable procurement law or regulation. With regard to the remedial authority of an arbitrator, the Authority held that while an arbitrator is not authorized to cancel a procurement action, the arbitrator may order a reconstruction of the action if the arbitrator finds that an agency's noncompliance materially affected the final procurement decision and harmed bargaining unit employees. We conclude that while the Arbitrator established that the Agency failed to comply with a mandatory and nondiscretionary provision of the applicable procurement regulation, he failed to find that the Agency's noncompliance materially affected the final procurement decision and harmed unit employees. The Arbitrator sustained the Union's grievance on the ground that the Agency failed to comply with OMB Circular A-76. The Arbitrator specifically found that section 9d of the Circular set forth a requirement that an existing function will not be converted to contract performance for reasons of economy unless the conversion will result in the requisite savings of the estimated Government personnel costs "for the period of the comparative analysis." The Arbitrator's conclusion that section 9d required the Agency to conduct a cost comparison study in deciding whether to contract out the ODR functions is supported by the plain language of the provision. The Agency fails to establish otherwise. Section 9d clearly applies to decisions whether to contract out existing Agency functions. Under that provision, the Agency could not make the necessary determination as to any savings in Government personnel costs without a comparative cost analysis. The Agency's argument that it was required to conduct a cost comparison only if it decided to continue to perform the ODR function "in house" is not supported by the plain language of the Circular. To read the Circular as requiring a cost comparison study after a decision is made and then only if the decision is to perform the particular work within the Agency is inconsistent with section 9d. We also note that one of the policies of the Circular, set forth at section 4c, is: Aim for Economy; Cost comparisons. When private performance is feasible and no overriding factors require in-house performance, the American people deserve and expect the most economical performance and, therefore, rigorous comparison of contract costs versus in-house costs should be used, when appropriate, to decide how the work will be done. We conclude that the Arbitrator established that the Agency failed to comply with a mandatory and nondiscretionary provision of the applicable procurement regulation, namely, section 9d of OMB Circular A-76. We find that the Agency's assertion that the Arbitrator exceeded his authority by rejecting the opinions of the HHS and OMB procurement officials who had agreed with the Agency's interpretation of OMB Circular A-76 is without merit. It is well established that such advisory opinions do not constitute rules or regulations; they are entitled to consideration, but are not binding on agencies or arbitrators. See, for example, American Federation of Government Employees, Local 1568 and U.S. Department of Housing and Urban Development, 21 FLRA 781, 783-84 (1986). We further find, contrary to the Agency's assertions, that sections 8 and 9 are sufficiently specific to enable the Arbitrator to objectively determine whether the Agency complied with the provisions. We note, in agreement with the Union, that there was no provision of OMB Circular A-76 in effect at the time of the Agency's decision to contract out the functions of the ODR which would allow it to seek a waiver from the requirement to conduct a cost comparison. See OMB Circular A-76, paragraph 9, effective May 1, 1979. A waiver provision was included in the August 1983 revision of the Circular. The revision provides that a waiver may be granted by the assistant secretary or his designee after a determination is made that effective price competition is available and the reasons why the in-house performance would not prevail. See Supplement to OMB Circular A-76, Part 1, Chapter 2, subpart A, effective August 1983. However, even if the waiver provision had been in effect at the time of the Agency's decision to contract out the functions of the ODR, it does not appear that the Agency would have qualified for a waiver under the revision. As previously indicated, if an arbitrator finds that an agency failed to comply with a mandatory and nondiscretionary provision of applicable procurement law or regulation, the arbitrator may order the defective procurement action reconstructed only if the arbitrator also finds that the Agency's noncompliance materially affected the final procurement decision and harmed unit employees. In this case, the Arbitrator did not find that the Agency's failure to comply with the terms of OMB Circular A-76 materially affected its final procurement decision. Rather, the Arbitrator, without any such finding, simply concluded that the Agency had erred when it converted the functions of the ODR based on economy without conducting an A-76 comparative cost study. Award at 8-9. Such a conclusion does not satisfy the requirement established in Blytheville Air Force Base that an arbitrator must find that the agency's noncompliance materially affected its final procurement decision. Moreover, the Arbitrator did not find that the Agency's failure to comply with the terms of OMB Circular A-76 harmed unit employees. The Arbitrator noted both the Union's argument that eight employees were adversely affected by the defective procurement action in that they were working at lower pay grades than they were prior to the Agency's decision to contract out and the Agency's argument that employees voluntarily chose lower-graded positions. Award at 9. He ordered the Agency to provide the Union with the records and pay grades of all former ODR employees "to determine if they have improperly suffered any loss of pay or grade as a result of the Agency's action." Award at 9-10. The Arbitrator's findings are susceptible to differing interpretations. It is clear that he did not find that the Agency's noncompliance with the terms of OMB Circular A-76 harmed unit employees as required by the Authority's decision in Blytheville Air Force Base. We conclude, therefore, that the Arbitrator's award is deficient under the standards enunciated in Blytheville Air Force Base. In finding the award deficient, we note that the Arbitrator's order that the Agency furnish the Union with information concerning the affected employees is so closely related to his findings concerning the cost comparison study and his deficient order directing reconstruction of the study, that this portion of his remedy also must be set aside. There is no indication in the record before us that the Agency denied a Union request for information and there was no such allegation in the grievance ruled on by the Arbitrator. Therefore, we do not decide whether the Union might be entitled to such information under the parties' agreement or section 7114(b)(4) of the Statute. V. Decision For the above reasons, the Arbitrator's award is set aside. Issued, Washington, D.C., January 29, 1988. Jerry, L. Calhoun, Chairman Jean McKee, Member FEDERAL LABOR RELATIONS AUTHORITY FOOTNOTES Footnote 1 Section 8 of OMB Circular A-76, dated March 29, 1979, is quoted, in pertinent part, in the Appendix to this decision. Footnote 2 Section 9 of OMB Circular A-76, dated March 29, 1979, is quoted, in pertinent part, in the Appendix to this decision.