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The decision of the Authority follows:
43 FLRA No. 15
FEDERAL LABOR RELATIONS AUTHORITY
U.S. DEPARTMENT OF THE NAVY
PACIFIC MISSILE TEST CENTER
POINT MUGU, CALIFORNIA
NATIONAL ASSOCIATION OF GOVERNMENT EMPLOYEES
November 20, 1991
Before Chairman McKee and Members Talkin and Armendariz.
I. Statement of the Case
This matter is before the Authority on exceptions to an award of Arbitrator William Levin 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. The Union filed an opposition to the Agency's exceptions.
The Arbitrator sustained the grievance over the Agency's decision to contract out certain functions of the radar plots branch and ordered the Agency to undertake a reconstruction of the procurement action.
We conclude that the Agency fails to establish that the award is deficient. Accordingly, we will deny the exceptions.
II. Background and Arbitrator's Award
On June 13, 1989, the Agency's commander requested authority from the commander of the Naval Air Systems Command to directly convert to contract certain functions of the Agency's radar plots branch. In making the request, the Agency's commander certified that there were nine positions involved in the radar plots function. The request for direct conversion to contract was approved on June 28, 1989, and became effective September 1, 1989. As relevant to this case, the Union filed a grievance over the determination to contract out alleging that the Agency violated OMB Circular A-76. The grievance was not resolved and was submitted to arbitration.
Before the Arbitrator, the Union contended that the alleged violation of Circular A-76 was grievable and arbitrable under the Statute. On the merits, the Union argued that the Agency violated Circular A-76 by directly converting to contract without conducting a cost comparison study. The Union claimed that although Circular A-76 permits direct conversion when the function employs 10 or fewer civilian employees or full-time equivalents (FTEs), the radar plots branch had 11 FTEs and could not have been converted to contract without a cost comparison.
The Agency first argued to the Arbitrator that the alleged violation of Circular A-76 was not grievable or arbitrable. Alternatively, the Agency argued that it was not required to have conducted a cost comparison and that, therefore, it had not violated Circular A-76. The Agency claimed that there was no rational basis for the Union's contention that the radar plots branch involved more than 10 FTEs.
The Arbitrator determined that although the matter was "not without uncertainty," the grievance was grievable and arbitrable. Award at 14. On the merits, the Arbitrator acknowledged the limitations on his remedial authority set forth in 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) (Blytheville AFB). The Arbitrator stated that in accordance with Blytheville AFB, he could order the Agency to reconstruct the procurement action only if he found that the Agency had violated mandatory provisions of procurement laws or regulations and that the failure to comply with such provisions materially affected the final procurement decision and harmed unit employees. Applying Blytheville AFB, the Arbitrator determined that the Agency had violated Circular A-76 and that the violation harmed unit employees. The Arbitrator found that the radar plots branch employed 11 FTEs and that, therefore, the Agency was not excused from the requirement to have conducted a cost comparison before having contracted out. The Arbitrator further found that there was a reasonable basis for concluding that unit employees were harmed despite the Agency's contention that no harm occurred and that the unit employees were satisfied with the change. Accordingly, as the award, the Arbitrator ordered the Agency "to undertake a reconstruction of the Agency's procurement action of contracting-out certain functions of the radar plot branch." Id. at 16.
III. First Exception
A. Positions of the Parties
The Agency contends that the Arbitrator's ruling that the alleged violation of Circular A-76 was grievable and arbitrable is inconsistent with management's right under section 7106(a)(2)(B) of the Statute to make determinations with respect to contracting out. The Union contends that the award is not deficient in this respect because Circular A-76 constitutes an applicable law within the meaning of section 7106(a)(2) of the Statute.
B. Analysis and Conclusions
In National Treasury Employees Union and U.S. Department of the Treasury, Internal Revenue Service, 42 FLRA 377 (1991) (Treasury), we examined the scope of the term "applicable laws" in section 7106(a)(2) of the Statute and whether the term encompasses Circular A-76. For the reasons fully set forth in Treasury, we concluded that OMB Circular A-76 constituted an applicable law within the meaning of section 7106(a)(2) of the Statute. In view of this determination, we conclude that the Agency fails to establish that the Arbitrator's ruling that the alleged violation of Circular A-76 was grievable and arbitrable is deficient. As we stated in Treasury, grievances over compliance with Circular A-76 "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[.]'" 42 FLRA at 404. Accordingly, we will deny the Agency's exception.
IV. Second Exception
A. Positions of the Parties
The Agency contends that the Arbitrator exceeded his authority. The Agency argues that the Arbitrator failed to make the findings necessary under Blytheville AFB in order to direct the Agency to undertake a reconstruction of the procurement action. The Agency asserts that the Arbitrator failed to find that Circular A-76 constitutes a mandatory procurement regulation and that the conduct of a cost comparison is a nondiscretionary requirement under the Circular. The Agency also asserts that the Arbitrator failed to find that the Agency's failure to comply with any requirements materially affected the final procurement decision and that the decision harmed unit employees. The Agency maintains that the Arbitrator completely "evade[d]" the issue of harm to unit employees. Agency's Exceptions at 13. The Agency claims that, instead of providing findings, the Arbitrator merely postulated that the employees "had some reasonable basis for believing they were harmed." Agency's Exceptions at 13 (quoting the award). The Agency argues that its position is supported by the Authority's decision in Health Care Financing Administration and American Federation of Government Employees, AFL-CIO, Local 1923, 30 FLRA 1282 (1988) (HCFA), in which the Authority set aside an award under Blytheville AFB because the award contained no findings concerning whether the agency's improper failure to conduct a cost comparison study materially affected its final procurement decision and because the award provided no findings concerning the parties' competing arguments on whether unit employees were harmed.
The Union contends that the Arbitrator made the necessary findings. The Union asserts that the Arbitrator supported his finding of a violation of the Circular and that the Arbitrator's understanding of the ramifications of the failure to conduct the cost comparison is clear. The Union also asserts that the Arbitrator made a finding of harm to unit employees and did not evade the issue as claimed by the Agency.
B. Analysis and Conclusions
We conclude that the Agency fails to establish that the Arbitrator exceeded his authority.
The Authority held in Blytheville AFB that under the Statute and procurement law and regulation, arbitrators are authorized to direct an agency to reconstruct a procurement action only on the basis that the agency failed to comply with mandatory and nondiscretionary provisions of applicable procurement law or regulation and that the noncompliance materially affected the final procurement decision and harmed unit employees. The Agency contends that the Arbitrator's award does not satisfy the requirements of Blytheville AFB and, therefore, is deficient. We disagree.
Contrary to the contention of the Agency, we conclude that the Arbitrator found that the requirement to conduct a cost comparison is mandatory and nondiscretionary for functions involving more than 10 FTEs. Moreover, the Arbitrator also found that the requirement applied, based on his finding that the radar plots branch involved more than 10 FTEs, and that the Agency had violated the Circular by failing to conduct the required cost comparison.
We also conclude, contrary to the contention of the Agency, that the Arbitrator found that unit employees were harmed by the Agency's violation of the Circular. The Arbitrator rejected "the Agency's assumption that no 'harm' occurred." Award at 14. He ruled that the employees were not "bound by the Agency's evaluation so long as their point of view had some legitimacy." Id. He found that their removal from their work activity satisfied him that "they felt they had some reasonable basis for believing they were harmed." Id. Although the Arbitrator could have been clearer in his expression of his findings, in our view, the Arbitrator agreed with the employees that they had been harmed.
Finally, nothing in Blytheville AFB precluded the Arbitrator from directing that the Agency reconstruct the procurement action if it were evident that the Agency's violation of Circular A-76 materially affected the procurement decision. After examining the statutory and regulatory scheme for the Federal Government's commercial activities program, particularly in the Department of Defense, we find that it is evident that the Agency's failure to conduct the mandated cost comparison materially affected the procurement decision within the meaning of Blytheville AFB.
In certain circumstances under Circular A-76, an agency must continue to perform commercial activities in-house with Government personnel unless a cost comparison establishes a cost advantage to the Government by conversion to contract of at least 10 percent of the in-house personnel-related costs. The specified circumstances are: (1) there is no noneconomic basis for converting to contract; (2) the commercial activity employs more than 10 civilian employees or FTEs; and (3) the requirement for a cost comparison has not been waived. Circular A-76 Supplement, Part I, Chapter 2. In this case, no authorized noneconomic basis for conversion to contract or waiver of the requirement for a cost comparison were established, or even asserted by the Agency. Therefore, with the Arbitrator finding that the radar plots branches employed more than 10 FTEs, a cost comparison justifying the conversion to contract was a mandatory prerequisite to the Agency's determination to contract out. As the 6th Circuit noted in Diebold v. U.S., No. 90-5373 (6th Cir. Oct. 15, 1991), commercial activities in the Department of Defense cannot be contracted out as a matter of discretion and the decision cannot rest on whether the agency deems the contract or the in-house service to cost less. The court stated that, instead, procurement laws and regulations require "measurable, objective comparison of costs." Slip op. at 10. The court held that
[f]aulty cost comparisons, whether favoring bidders or in-house estimates, are contrary to the legislation governing procurement decisions. Both contribute to growing government cost. The procurement statutes are not "blank checks drawn to the credit of some administrative officer or board." They are instead directives which protect "the American people [who] deserve and expect the most economical performance" in the provision of goods and services to the Government.
Id. at 22 (citations omitted).
In our view, no less can be said of a determination to contract out without the required justification of a cost comparison. The Agency did not commit a mere minor violation of the Circular. The cost comparsion is central to the achievement of the statutory directives of pursuing economy and efficiency and of contracting out commercial activities if contracting out will cost less than in-house performance. Therefore, we find that the failure to conduct the required cost comparsion tainted the procurement procedure so as to warrant the reconstruction of the procurement action. See Solon Automated Services v. U.S., 658 F. Supp. 28, 34 (D.D.C. 1987) (the Government's acceptance of a materially unbalanced bid was not a mere minor violation of procurement regulations, but was an action that "so tainted" the procurement procedure so as to warrant a resolicitation of the contract). Consequently, we conclude that it is evident that the Agency's failure to conduct a cost comparison materially affected the procurement decision and that, therefore, the requirement of Blytheville AFB was satisfied. Therefore, to the extent that HCFA holds otherwise, it will no longer be followed. Accordingly, we will deny the Agency's exception.(*)
The Agency's exceptions are denied.
(If blank, the decision does not have footnotes.)
*/ Because the Arbitrator fashioned a remedy that is not inconsistent with Blytheville AFB, we need not address whether the limitations set forth in Blytheville AFB continue to be warranted.