By Brittany R. Ballenstedt bballenstedt@govexec.com September 26, 2008

The Defense Department on Friday issued final regulations to modify portions of its controversial pay-for-performance system, but federal labor unions said some provisions limit the scope of collective bargaining, an issue that could bring the system back to the courts.

The regulations, published in the Federal Register, modify the National Security Personnel System as mandated by the fiscal 2008 Defense Authorization Act. Defense originally proposed the changes in May.

Specifically, the regulations are designed to bring NSPS in compliance with federal rules covering such subjects as labor relations, adverse actions and employee appeals. Congress mandated the changes after years of litigation by federal labor unions against the Pentagon's proposed rules for NSPS.

But in a conference call with reporters on Friday, the American Federation of Government Employees said the final regulations do not fully follow federal labor law, largely because provisions governing employees' rates of pay are far too specific and therefore narrow the scope of bargaining.

Traditional federal labor law would enable unions to bargain over policies such as management rights and the design of employee performance appraisal systems, AFGE President John Gage said. But this would not be case under Defense's new regulations, which "basically say all these things are off the table," he said.

AFGE General Counsel Mark Roth said the union is weighing whether to file a lawsuit against the new regulations, a decision that will depend largely on whether the next president pushes quickly for a repeal of NSPS. Beth Moten, the union's legislative director, said AFGE also is mapping out a plan to address the issue legislatively.

Gage added that AFGE represents about 300 employees who formed a bargaining unit after converting to the system. This would allow AFGE to help that small group using standard grievance procedures, he said.

Defense added some provisions to the final regulations that were not in the draft. The new version requires individual agencies to share aggregate pay pool results -- including average ratings, ratings distribution, share value and average payout -- with NSPS employees. The final regulations also give employees on the student pay schedule the opportunity for accelerated compensation, and extend within-grade increases to Federal Wage System employees who move to positions covered by NSPS.

But Matt Biggs, legislative director for the International Federation of Professional and Technical Engineers, said Defense did little to address union concerns with the draft regulations.

"How painfully obvious can it be that the DoD has circumvented congressional intent yet again on this issue?" Biggs said. "How much more taxpayer money are we going to throw at this failed system? It really would be nice to force a yes or no vote from lawmakers on finally repealing all of NSPS."

Some who commented on the draft regulations charged that certain portions were too general. Defense stated that it revised parts to be more specific, largely to ensure a uniform and consistent application of NSPS across the department.

The "language does not and cannot take away collective bargaining rights regarding 'procedure and appropriate arrangements,'" the regulations stated, "and DoD is committed to fulfilling its obligation to bargain in good faith on these NSPS regulations consistent with governmentwide labor relations rules."

Biggs said the minor changes in the final version leave the pay-for-performance system vulnerable to personal biases and favoritism, and lack of communication between supervisors and employees. "Under this system, two people can get the very same rating, but not the same number of shares and not the same pay," he said. "That's a major flaw."

The regulations take effect in November.

Defense has added more than 181,500 employees to NSPS since 2006 and plans to bring an additional 20,000 into the system this fall. With wage grade employees exempted, it is unlikely the department will meet its goal of converting more than 700,000 employees to the system.