[ v43 p791 ]
43:0791(64)AR
The decision of the Authority follows:
43 FLRA No. 64
FEDERAL LABOR RELATIONS AUTHORITY
WASHINGTON, D.C.
NATIONAL FEDERATION OF FEDERAL EMPLOYEES
LOCAL 1263
(Union)
and
U.S. DEPARTMENT OF DEFENSE
DEFENSE LANGUAGE INSTITUTE
MONTEREY, CALIFORNIA
(Agency)
0-AR-1922
DECISION
December 26, 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 Norman Brand 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 Agency contracted out the teaching of a number of languages. In making the determination to contract out, the Agency did not conduct a cost comparison pursuant to the procedures of OMB Circular A-76, as implemented by Army Regulation (AR) 5-20. As a result of the contracting out, 27 civilian employees of the Agency were separated by a reduction-in-force (RIF). The Union filed a grievance contesting the determination to contract out. The Arbitrator found that the grievance was grievable and arbitrable. On the merits, the Arbitrator found that the Agency violated mandatory procurement laws and regulations in determining to contract out without doing a cost comparison. The Arbitrator ordered the Agency to conduct a cost comparison study. The Arbitrator further ordered that if the study shows that the teaching of the languages should not have been contracted out, the employees who were subject to the RIF must be reinstated with backpay.
This case presents an opportunity for us to reexamine the Authority's approach to the authority of arbitrators in procurement cases as set forth 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). On reexamination, we conclude that the basis on which an arbitrator may sustain a grievance disputing an agency's decision to contract out agency work must be modified to conform to section 7106(a)(2) of the Statute. We also conclude that the restrictions placed by Blytheville AFB on the authority of arbitrators to remedy violations by agencies of applicable procurement law are not warranted, and we will now permit arbitrators to remedy violations of procurement law. We will modify the award in this case to conform with the approach we now adopt.
II. Background and Arbitrator's Award
Certain languages taught at the Agency have lower enrollment than others and are denominated low-density languages. In 1989, the Agency determined to contract out the teaching of 10 low-density languages by diverting future students to the Foreign Language Contract Training Program used by other Federal agencies. In making the determination to contract out, the Agency did not conduct a cost comparison between the cost of contract performance and in-house performance pursuant to the procedures of OMB Circular A-76, as implemented by AR 5-20. As a result of the contracting out, 27 civilian employees of the Agency were separated by a RIF. The Union filed a grievance on behalf of the 27 employees, contesting the determination to contract out. The grievance was not resolved and was submitted to arbitration.
The parties were unable to stipulate an issue, but they ultimately agreed to the Arbitrator's following understanding of the issues:
1. Is the grievance arbitrable?
2. Did the [Agency's] decision to eliminate 10 "low-density" languages and divert future students in those languages to existing contracts let by other agencies, under the Contract Foreign Language Training Program, violate the negotiated agreement, laws, rules, or regulations?
Award at 2. The Arbitrator first determined that the grievance was grievable and arbitrable. He ruled that because the grievance alleged a failure to follow mandatory, nondiscretionary provisions of procurement law and regulation, the grievance was not precluded by law under Authority case precedent. He found that Authority case precedent governed his decision, and, consequently, he declined to follow the decision of the court in Defense Language Institute v. FLRA, 767 F.2d 1398 (9th Cir. 1985). He also found that the Agency had failed to establish that this matter was not grievable under the parties' collective bargaining agreement.
On the merits, the Agency took the position before the Arbitrator that it had simply exercised its discretion to exclude the language training from coverage by Circular A-76 and AR 5-20 pursuant to an exemption for national defense purposes provided by both the Circular and AR 5-20. The Agency maintained that, therefore, it was not required to conduct a cost comparison under Circular A-76 and AR 5-20 before contracting out the language training. The Union argued, to the contrary, that the Agency was authorized for national defense purposes under the procurement regulations only to retain performance of language training in-house without a cost comparison. The Union maintained that the exemption for national defense purposes did not authorize the Agency to contract out language training without a cost comparison.
The Arbitrator concluded that it was impossible to reconcile the Agency's actions with the regulatory requirements. The Arbitrator found that the national defense exemption provides regulatory authority to perform commercial activities in-house and not authority to contract out without performing a cost comparison. The Arbitrator further found that the applicable procurement regulations do not permit a process in which the Agency first removes the activity from the commercial activity program under the exemption for national defense and then uses its absence from the program to contract out without conducting a cost comparison. The Arbitrator ruled that the Agency's position was untenable. He viewed the Agency's position as "nothing more than an attempt to cloak the operative decision in the mantle of 'discretion' in order to make it unreviewable." Id. at 18. In sum, the Arbitrator held that the exemption for national defense purposes can only be used to justify in-house performance of a commercial activity and cannot be used as a "subterfuge" to avoid the application of AR 5-20, "which implements Circular No. 76, DoD Directive 4100.15, and DoD Instruction 4100.33[.]" Id. at 17, 18.
Accordingly, consistent with the Authority's decision in Blytheville AFB, the Arbitrator found that the Agency violated mandatory procurement laws and regulations "[i]n deciding to contract out without doing a cost comparison in accordance with the provisions of AR 5-20, which implements OMB Circular No. 76 and DoD procurement regulations[.]" Id. at 19. In accordance with Blytheville AFB, the Arbitrator further found that the failure to comply with AR 5-20 and DoD regulations materially affected the decision to contract out because it permitted the Agency to make the decision without the cost comparison on which the decision must be based. Also, in accordance with Blytheville AFB, the Arbitrator found that the failure to comply with AR 5-20 and DoD regulations materially harmed unit employees because the determination to contract out had caused the separation by RIF of 27 employees.
As a remedy, the Arbitrator ordered the Agency, in accordance with AR 5-20, to conduct a commercial activity study of the languages that were contracted out. The Arbitrator directed that "[i]f the study shows that federal employee performance is cost effective and the languages should not be contracted out, the RIFed employees must be rehired with back pay, minus interim earnings attributable to their being RIFed." Id. at 21.
III. First Exception
A. Positions of the Parties
The Agency contends that the Arbitrator's award is deficient because the Arbitrator found that the issue of the Agency's compliance with Circular A-76 and AR 5-20 was a grievable and arbitrable matter. The Agency notes that the U.S. Supreme Court stated in IRS v. FLRA, 110 S. Ct. 1623, 1629 (1990), that only external limitations constituting applicable laws may be enforced by unions and arbitrators as limits on management's right to contract out. The Agency argues that Circular A-76 and AR 5-20 do not constitute applicable laws within the meaning of section 7106(a)(2) of the Statute and that, consequently, the matter of the Agency's compliance with Circular A-76 and AR 5-20 was not grievable and arbitrable.
The Agency alternatively argues that the award is deficient as contrary to the Circular. The Agency notes that the Circular expressly precludes coverage by a negotiated grievance procedure of commercial activity proceedings. Thus, the Agency claims that, if the Authority finds that Circular A-76 constitutes a Government-wide regulation, the Arbitrator's award is deficient because the Arbitrator found that the grievance was grievable and arbitrable in violation of the Circular's prohibition.
The Union contends that the exception must be denied. The Union notes that in its grievance in support of its position that the Agency was required to have conducted a cost comparison, it relied on 10 U.S.C. § 2462; DoD Directive 4100.15, 32 C.F.R. part 169; DoD Instruction 4100.33, 5 C.F.R. part 169a; and Federal Acquisition Regulations, 48 C.F.R. part 7.3, in addition to Circular A-76 and AR 5-20. The Union asserts that these other provisions relied on constitute applicable laws and independently support the Arbitrator's ruling that the grievance was grievable and arbitrable. Therefore, the Union states that the Authority need not address whether Circular A-76 and AR 5-20 constitute applicable laws under section 7106(a)(2) of the Statute. Alternatively, the Union argues that both Circular A-76 and AR 5-20 constitute applicable laws and, therefore, support the Arbitrator's ruling.
The Union also disputes the Agency's contention that Circular A-76 can legitimately preclude coverage by a negotiated grievance procedure of commercial activity proceedings. The Union asserts that a Government-wide regulation cannot supersede the grievance procedure prescribed by the Statute covering alleged violations of procurement law. The Union further asserts that, in any event, the Circular's exclusive jurisdiction to resolve cost comparison disputes does not apply to preclude the grievance in this case because the Agency failed to conduct a cost comparison.
B. Analysis and Conclusions
In National Treasury Employees Union and U.S. Department of the Treasury, Internal Revenue Service, 42 FLRA 377 (1991), petition for review filed sub nom. Department of the Treasury, Internal Revenue Service v. FLRA, No. 91-1573 (D.C. Cir. Nov. 25, 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 constitutes an applicable law within the meaning of section 7106(a)(2) of the Statute. 42 FLRA at 391. We also concluded that the Circular's provision for an agency-established administrative appeal procedure does not preclude grievances over compliance with Circular A-76. We held that OMB cannot preclude grievances enforcing the Circular by issuing regulations that limit the scope of the statutory grievance procedure. Id. at 404.
In view of these determinations, we conclude that the Agency fails to establish that the Arbitrator's ruling that the grievance 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[.]'" Id.; accord U.S. Department of the Navy, Pacific Missile Test Center, Point Mugu, California and National Association of Government Employees, Local R 12-33, 43 FLRA 157 (1991).
Furthermore, in our view, the Arbitrator's findings and references to AR 5-20 and DoD regulations do not render the award deficient. Clearly, Circular A-76 was the source and the authority of the Arbitrator's findings. The violations he found were based on the requirements of Circular A-76 and not DoD regulations or AR 5-20. As specifically recognized by the Arbitrator, AR 5-20 merely implements the requirements of Circular A-76 in the Agency. Likewise, DoD Directive 4100.15 and DoD Instruction 4100.33 implement the requirements of Circular A-76 throughout the Department of Defense. 32 C.F.R. § 169.1; 32 C.F.R. § 169a.1(a). AR 5-20 is simply the formal means by which the requirements of the Circular are applied in the Agency. AR 5-20, promulgated in response to Circular A-76, sets out Agency guidelines that both reiterate and incorporate the requirements of Circular A-76. As the summary of AR 5-20 states, the regulation "implements Office of Management and Budget Circular A-76, DOD Directive 4100.15, and DOD Instruction 4100.33 [and] . . . provides guidance for managing and carrying out the Commercial Activities (CA) Program." Consequently, we view the Arbitrator's findings with respect to AR 5-20 and DoD regulations simply to constitute the Arbitrator's references to the means by which the requirements of Circular A-76 are applied within the Agency. The Arbitrator's mere referencing of AR 5-20 and DoD regulations does not establish that he required anything more than is required by Circular A-76.
Accordingly, we will deny the exception.
IV. Second Exception
A. Position of the Parties
The Agency contends that the award is contrary to management's right under section 7106(a)(2)(B) of the Statute to make determinations with respect to contracting out because it orders the Agency to rehire the employees separated by the RIF if a cost comparison favors in-house performance. The Agency argues that under the Authority's decision in Blytheville AFB, it is the agency, and not the arbitrator, that determines what action to take as a result of the reconstruction of the procurement process. The Agency notes that in Blytheville AFB, the Authority held that if the decision to contract out can no longer be justified, the agency must determine whether considerations of cost, performance, and disruption override cancelling the procurement action and must take whatever action is appropriate on the basis of that determination. The Agency argues that by prescribing the remedy if the decision to contract out can no longer be justified, the award is deficient because it precludes management from determining what "action is appropriate on the basis of that determination" and prevents management from exercising "its discretion to fashion other remedies appropriate to the circumstances." Exceptions at 7 (quoting Blytheville AFB, 22 FLRA at 662).
The Union concedes that the Arbitrator exceeded his authority under current Authority case precedent by ordering the employees separated by the RIF reinstated with backpay if the decision to contract out could not be justified. However, the Union requests that we reconsider Blytheville AFB and hold that an arbitrator has authority to award employees reinstatement and other compensation for injuries suffered as a result of an agency's violation of procurement laws.
The Union argues that the limits on an arbitrator's authority set forth in Blytheville AFB are inconsistent with the Back Pay Act, 5 U.S.C. § 5596, and are inconsistent with the authority granted arbitrators in other areas. The Union maintains that under the Back Pay Act, an employee who is affected by an unjustified or unwarranted personnel action is entitled on correction of the action to the pay, allowances, or differentials that the employee would have received if the action had not occurred. The Union asserts that in order to conform to the Back Pay Act, the Authority must permit arbitrators to order reinstatement with backpay when a reconstructed commercial activity study determines that in-house performance is more cost effective than conversion to contract. The Union also asserts that procurement laws should be no less enforceable by arbitrators than other laws, such as the laws governing performance appraisals. The Union claims that it is inconsistent for an arbitrator to have authority to remedy agency violations of laws governing performance appraisals, but not to have the authority to remedy violations of procurement law. In the Union's view, in either case, employees are entitled to be made whole by the arbitrator.
B. Analysis and Conclusions
This case presents us with the opportunity to reexamine the Authority's approach, as set forth in Blytheville AFB, to the role of arbitrators in resolving grievances disputing determinations by agencies to contract out agency work.
In Blytheville AFB, the Authority noted that, in recognition of the substantial discretion accorded agency officials under procurement law and regulation, and the many decisions made as a part of the procurement process that necessarily involve judgment and managerial choices, the scope of review of procurement actions by courts and administrative bodies has been narrow and limited. 22 FLRA at 659. The Authority recognized that courts generally hold that a procurement decision may not be overturned unless it is demonstrated that there is no rational basis for the agency's decision and that no public interest considerations override cancelling the procurement. Id. at 660. The Authority held that in view of the substantial discretion vested in agency procurement officials, the paramount public interest in the efficient procurement of goods and services, and the avoidance of excessive costs, arbitrators are "without authority to order cancellation of a procurement action or to review an agency decision in the procurement process concerning a matter of agency judgment or discretion." Id. at 661. The Authority concluded that arbitrators "are authorized to consider only grievances challenging a decision to contract out on the basis that the agency failed to comply with mandatory and nondiscretionary provisions of applicable procurement law or regulation" and that "[t]hese provisions must be sufficiently specific to permit the arbitrator to adjudicate whether there has been compliance with such provisions." Id.
The Authority advised that when an arbitrator is presented with such a grievance, the arbitrator may sustain the grievance if the arbitrator finds that the agency failed to comply with such provisions of procurement laws or regulation. However, the Authority ruled that in sustaining the grievance, the arbitrator is limited to ordering the agency to reconstruct the procurement action. Id. at 661-62. Under Blytheville AFB, the agency must determine on reconstruction whether the decision to contract out is in accordance with law and regulation and, if the decision to contract out cannot be justified, "the agency must determine whether considerations of cost, performance, and disruption override cancelling the procurement action and take whatever action is appropriate on the basis of that determination." Id. at 662.
On reexamination, we conclude that the basis on which an arbitrator may sustain a grievance directly challenging an agency's decision to contract out agency work must be modified to conform to section 7106(a)(2) of the Statute, as discussed in Treasury. On reexamination, we further conclude that the restrictions on the authority of arbitrators to remedy violations by agencies of applicable procurement law are not warranted, and we will now permit arbitrators to remedy violations of procurement law in conformity with the remedial authority of Federal courts in such matters.
In IRS v. FLRA, the U.S. Supreme Court reversed the Authority's holding that compliance with OMB Circular A-76 could be enforced through a negotiated grievance procedure because the Circular constituted a law, rule, or regulation within the meaning of section 7103(a)(9) of the Statute. The Court stated that the Authority's holding was "flatly contradicted by . . . § 7106(a)'s command that nothing in this chapter . . . shall affect the authority of agency officials to make contracting-out determinations in accordance with applicable laws." 110 S. Ct. at 1627 (emphasis in original). The Court stated that "there are no 'external limitations' on management rights, insofar as union powers under § 7106(a) are concerned, other than the limitations imposed by 'applicable laws.'" Id. at 1629 (emphasis in original).
The Court also held that the term "applicable laws" in section 7106(a)(2) is not synonymous with the phrase "any law, rule, or regulation" in section 7103(a)(9) of the Statute. The Court stated that "[i]t cannot be true . . . that all actions not in accordance with a 'law, rule, or regulation' under § 7103(a)(9) are, by definition, also actions not 'in accordance with applicable laws' in § 7106(a)." Id. (emphasis in original). However, the Court stated that it is a "permissible (though not an inevitable) construction of the [S]tatute that the term 'applicable laws' in § 7106(a) extends to some, but not all, rules and regulations . . . ." Id. (footnote omitted). Because the scope of the term "applicable laws" in section 7106(a)(2) was not considered by the U.S. Court of Appeals for the D.C. Circuit, the Supreme Court remanded the case to the D.C. Circuit to consider that issue or "await [the Authority's] specification, on remand, of the particular permissible interpretation of 'applicable laws' (if any) it believes embraces the Circular." Id. at 1630.
The D.C. Circuit subsequently remanded the case to the Authority. IRS v. FLRA, No. 87-1439 (D.C. Cir. May 11, 1990) (order). Following the remand, we examined the scope of the term "applicable laws" in Treasury. In Treasury, we held that, insofar as management rights under section 7106(a)(2) are concerned, proposals that require compliance with applicable laws do not directly interfere with the exercise of such rights. We also held that the term "applicable laws" in section 7106(a)(2) includes, among other things, provisions of the U.S. Code and provisions of rules and regulations having "the force and effect of law." 42 FLRA at 390-91. We concluded that in order for a regulation to have the force and effect of law, so as to constitute an applicable law, the regulation, among other things, must have substantive characteristics affecting individual rights and obligations. Id. at 391.
In view of these determinations, the basis on which an arbitrator may sustain a grievance claiming that an agency decision to contract out agency work failed to comply with applicable procurement regulations must be modified to conform to section 7106(a)(2) of the Statute. In accordance with IRS v. FLRA and Treasury, we now hold that an arbitrator may sustain a grievance disputing an agency's determination to contract out on the basis of a procurement regulation only if that regulation constitutes an applicable law within the meaning of section 7106(a)(2) of the Statute. However, a regulation must have certain substantive characteristics to have the force and effect of law, and, as noted in Blytheville AFB, 22 FLRA at 660, the courts have stressed that the procurement regulations alleged to have been violated must contain discernible requirements and meaningful criteria against which the determination to contract out may be analyzed and reviewed. Therefore, we will continue to adhere to that portion of Blytheville AFB, id. at 661, holding that the applicable provision must be mandatory and nondiscretionary and must contain sufficiently specific standards against which an arbitrator can objectively analyze and review the agency's actions to determine whether the agency failed to comply with the requirements.
As we have noted, in addition to limiting the basis on which an arbitrator was permitted to sustain a grievance, Blytheville AFB also concluded that "arbitrators are not authorized to cancel a procurement action." Id. That conclusion was reached without any discussion as to the relief granted by courts in procurement cases. On review of the type of relief granted by the Federal courts in procurement cases, we cannot justify the restrictions of Blytheville AFB on the authority of arbitrators to remedy grievances disputing determinations to contract out.
In Choctaw Manufacturing Co. Inc., v. United States, 761 F.2d 609 (11th Cir. 1985) (Choctaw Mfg.), the court held that "[t]here is no question that a district court may '[e]njoin the performance of a [government] contract if the award was the result of procedures not comporting with the law . . . .'" 761 F.2d at 619 (quoting Sea-Land Service, Inc. v. Brown, 600 F.2d 429, 433 (3d Cir. 1979). In Ulstein Maritime, Ltd. v. U.S., 833 F.2d 1052 (1st Cir. 1987) (Ulstein Maritime), the court held that disappointed bidders for Federal government contracts may seek judicial review and that when the actions of contracting officers violate applicable procurement laws or regulations, "the award may be set aside." 833 F.2d at 1057. The court also noted that Congress in enacting 28 U.S.C. § 1491(a)(3) explicitly endorsed the authority of Federal district courts to grant equitable relief from illegalities in the Federal procurement process. The court explained that in enlarging the powers of the U.S. Claims Court under 28 U.S.C. § 1491(a)(3), Congress recognized and did not alter the preexisting powers of the district court to award injunctive relief in procurement cases. Id. at 1057-58.
In Delta Data Systems Corp. v. Webster, 744 F.2d 197 (D.C. Cir. 1984) (Delta Data), in an opinion by then Judge (now Justice) Scalia, the court stated that the court's role in reviewing agency procurement decisions is limited to determining whether the agency acted in accord with applicable standards and regulations and had a rational basis for its decision. 744 F.2d at 204. Although observing that the "ultimate grant of a government contract must be left to the discretion of the government agency," the court held that a district court may order that a contract be awarded when "it is clear that, but for the illegal behavior of the agency, the contract would have been awarded to the party asking the court to order the award." Id.; accord Ulstein Maritime, 833 F.2d at 1058; Choctaw Mfg., 761 F.2d at 619. The court explained that "the main objective of our effort at framing a remedy is to assure that the government obtains the most advantageous contracts by complying with the procedures which Congress and applicable regulations have provided. Putting the disappointed bidder in the economic position it would have occupied but for the error is normally the best approach to this result." Id. at 206-07. The court cautioned, however, that "[w]here that is impractical . . . or can only be achieved at a cost to the government that will greatly exceed the benefits derived from requiring observance of the proper procedures in [a] particular case, we must seek a more reasonable alternative." Id. at 207.
Similarly, the court in Choctaw Mfg. held that a district court, in determining whether to exercise the authority to award a contract to an unsuccessful bidder, "must consider several equitable factors, among them: whether the contract has already been awarded to another party and, if so, is being performed; the extent an order awarding the contract to the unsuccessful bidder is necessary to vindicate the interest of the public, and competing bidders, in the agency's adherence to the law; and the cost to the government, and hence to the taxpayers, of substituting an unsuccessful bidder for the successful bidder whose price may have been considerably lower." 761 F.2d at 619. Because these cases frequently involve the Department of Defense, courts have also been careful to consider the possible detriment to the national interest before granting an injunction in a procurement case. For example, Diebold v. U.S., No. 90-5373 (6th Cir. Oct. 15, 1991), slip op. at 17 (Diebold).
Although the courts have acknowledged the availability of equitable relief, they nevertheless have clearly recognized that the granting of such relief should be extraordinary. "They have looked carefully at the interests to be affected by equitable relief, fully aware that the Government and the public may be harmed when courts interfere with agencies' procurement decisions." B.K. Instrument, Inc. v. U.S., 715 F.2d 713, 730 (2d Cir. 1983). In many cases, despite finding merit in the claims of disappointed bidders, "they have struck the balance of equities in favor of the government's interests in the smooth and efficient functioning of the procurement process at the expense of the interests of the unsuccessful bidder in the integrity of the bidding process and equal access to the procurement dollar (and of the public in fairness and competitive bidding)." Gull Airborne Instruments, Inc. v. Weinberger, 694 F.2d 838, 846 n.9 (D.C. Cir. 1982). Moreover, Congress in expanding the equitable powers of the U.S. Claims Court "affirmed this judicial reluctance to enjoin contract awards, recognizing that 'courts ordinarily refrain from interference with the procurement process by declining to enjoin the Government from awarding a contract.'" Diebold, slip op. at 17 (quoting S. Rep. No. 275, 97th Cong., 2d Sess. at 23).
Clearly, the circumstances warranting the grant of injunctive relief do not reduce to an objective delineation. However, the court in Choctaw Mfg. offers some guidance in the balancing of equities to determine whether to award a contract by contrasting the situations in Superior Oil Co. v. Udall, 409 F.2d 1115 (D.C. Cir. 1969) (Superior Oil) and Delta Data. The court explained that in Superior Oil the district court was presented with a clear violation of law that required the cancellation of the contract. In addition, the court noted that, but for the violation, the unsuccessful bidder, Superior Oil, would have received the contract. In the judgment of the court in Choctaw Mfg., the district court in Superior Oil "had the authority to order that the contract be awarded to [Superior Oil] and the relevant equities counseled that it exercise that authority." 761 F.2d at 620. The court in Choctaw Mfg. concluded that the equities warranted award of the contract because the challenged bidder and the government had not materially changed their respective positions and no significant expense or disruption of a governmental function would have attended the substitution of Superior Oil for the successful bidder. The court additionally concluded that "'the need to promote the integrity of the bidding process' outweighed the fact that such substitution would cost the government 'approximately two million dollars more in immediate revenue . . . .'" Id.
In contrast, the court in Choctaw Mfg. noted that in Delta Data no award was found to be appropriate because in Delta Data there was no showing that, but for the agency's failure to comply with regulations, Delta Data would have been awarded the contract. Following the example of Superior Oil, the court in Choctaw Mfg. ordered award of the contract to Choctaw, an unsuccessful bidder. The court was persuaded to exercise its discretion because, but for the violations of procurement regulations, Choctaw would have received the contracts; the successful bidder had not commenced performance of the contracts; the substitution of Choctaw would cause only an insignificant disruption of the procurements; and the interest to the public, and those who bid for the agency's work, outweighed the higher price the Government would have to pay for the procurements. Id. at 621.
Other courts have also recognized when there may be "sound reasons" for granting equitable relief. Motor Coach Industries Inc., v. Dole, 725 F.2d 958, 968 (4th Cir. 1984) (MCI). In MCI, the court was persuaded that injunctive relief was necessary because the agency's actions did not constitute only a "technical violation" of procurement law: "Rather, the agency completely ignored the [Federal Property and Administrative Services] Act's substantive and procedural requirements . . . ." Id. at 968. In the court's view, "[a]llowing the purchase contract to stand in such circumstances would soon make the procurement statutes little more than 'dead letters on a page.'" Id.
On the basis of our review of the remedial authority of Federal courts in procurement cases, we now hold, contrary to Blytheville AFB, that an arbitrator may order a procurement contract terminated and performance of the activity converted to in-house.(1)
We recognize that these cases have involved Federal court review, rather than arbitration awards, and unsuccessful or disappointed bidders, rather than employees or unions representing employees. The reason that these cases have not involved employees or unions is that the courts have denied employees and unions standing to bring an action alleging that an agency wrongfully converted to contract an activity previously performed in-house by agency personnel. For example, NFFE v. Cheney, 883 F.2d 1038 (D.C. Cir. 1989). However, in cases like the one before us, we are not constrained by a lack of standing. The lack of standing in court of unions and employees cannot limit the extent of relief available in arbitration under the Statute where they undeniably have standing. Indeed, in Treasury, we determined that the inability of unions or employees to challenge procurement decisions in court was not dispositive of whether OMB Circular A-76 constituted an applicable law under the Statute. In view of our decision that Circular A-76 is an applicable law, and the statutory right of employees and unions to resolve issues concerning conditions of employment through a negotiated grievance procedure, it is clear to us that arbitrators must have the authority to make employees whole in cases where in-house performance of an activity was converted to contract in violation of Circular A-76 or any other applicable procurement law or procurement regulation having the force and effect of law.
We find no basis in procurement law or regulation or in the Statute or its legislative history for continuing to hold that this relief that is granted by the courts cannot be granted on the same grounds by arbitrators. We also agree with the Union that the Back Pay Act, 5 U.S.C. § 5596, provides arbitrators with the authority to reinstate with backpay employees subjected to a RIF. The Authority has repeatedly held that the Back Pay Act authorizes arbitrators to make employees whole for pay, allowances, or differentials lost as a result of an unjustified or unwarranted personnel action. For example, American Federation of Government Employees, Local 31 and U.S. Department of Veterans Affairs Medical Center, Cleveland, Ohio, 41 FLRA 514, 517 (1991). The Authority has advised that, in order to award backpay, the arbitrator must find that: (1) the aggrieved employee was affected by an unjustified or unwarranted personnel action; (2) the personnel action directly resulted in the withdrawal or reduction of the employee's pay, allowances or differentials; and (3) but for such action, the employee would not otherwise have suffered the withdrawal or reduction. Id. at 517. Furthermore, an "unjustified or unwarranted personnel action" is specifically defined to include an action found to have been unjustified or unwarranted under applicable law. 5 C.F.R. § 550.803. In our view, the Back Pay Act clearly encompasses a conversion to contract in violation of Circular A-76, or any other applicable procurement law or regulation having the force and effect of law, as a result of which employees are separated by RIF. Moreover, the findings necessary to support an award of backpay under the Back Pay Act are no different from the findings necessary to award a contract. In both, a "but for" or causal connection finding is necessary and in both the aggrieved party is placed in the position the party would otherwise have achieved if the violation had not occurred.
Based on our review of the law, we conclude that we should not permit agencies to maintain unreviewable discretion to "take whatever action is appropriate[.]" Blytheville AFB, 22 FLRA at 662. Consequently, we will no longer deprive arbitrators of the power and responsibility under the Statute to appropriately remedy unlawful actions taken with respect to contracting out. In resolving such cases under the authority we have now prescribed, arbitrators will not be exercising any additional authority beyond that which they generally exercise in resolving other grievances, including those that involve the exercise of other management rights under the Statute. See Social Security Administration and American Federation of Government Employees, AFL-CIO, 30 FLRA 1156 (1988); Newark Air Force Station and American Federation of Government Employees, Local 616, 30 FLRA 616 (1987). Arbitrators will simply be examining an action by management to determine whether that action was lawful and, if they determine that the action was not lawful, to make employees whole who were aggrieved as a result of the action. In our view, this is precisely one of the functions that arbitrators perform, and that Congress intended arbitrators to perform, under the Statute.
As noted by the court in Diebold, "[t]hese wrongful privatization cases under procurement statutes and regulations like Circular A-76 are basically accounting cases. Courts have long dealt with disputes that required an accounting of one party or the other. Otherwise the cases are like other administrative review cases. The delay, judicial expertise, and floodgates arguments are no more persuasive here than other cases. Congress made a policy decision that agency action should be reviewable." Slip op. at 22. We would reiterate the court's conclusion in terms of the authority of arbitrators to remedy these grievances under the Statute. In our view, in requiring parties to negotiate grievance procedures that result in binding arbitration, and in broadly defining what grievances could encompass, Congress fully expected arbitrators to review and, when necessary, to appropriately remedy a wide variety of actions taken by management, including determinations to contract out. Accordingly, we conclude that the permissible remedies available to arbitrators include termination of the contract and reconversion to in-house performance of the disputed activity as well as the authority to order make-whole relief to employees affected by the wrongful conversion to contract.
We believe our approach accommodates the deference afforded the procurement process by the courts. An arbitrator may sustain a grievance on the basis of procurement law or regulation only if the arbitrator finds a violation of a mandatory and nondiscretionary provision. We will continue to adhere to that portion of Blytheville AFB holding that the provisions must contain sufficiently specific standards to objectively analyze and review the agency's actions and permit an objective conclusion that the agency failed to comply with the requirements. This approach protects from interference matters of agency judgment or discretion. In our view, this assures that the arbitration process does not "improperly intrud[e] into the agency's decision making process[.]" Delta Data, 744 F.2d at 203 (quoting Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519, 525 (1978)).
Although the circumstances warranting the granting of equitable relief cannot be fully prescribed, we note the following authority of arbitrators in procurement cases. When an arbitrator finds that an agency has violated a mandatory and nondiscretionary provision of applicable procurement law or procurement regulation having the force and effect of law, the arbitrator may sustain the grievance over the disputed procurement. We emphasize that the provision of law or regulation must be sufficiently specific to permit the arbitrator to adjudicate whether there has been compliance with such provision. In sustaining the grievance, the arbitrator as a preliminary remedy may properly order reconstruction of the procurement action when the agency's noncompliance materially affected the final procurement decision. We note that this would likely be the remedy in cases such as this case where a required cost comparison was never conducted.
An agency in taking the action required by such an award must reconstruct the procurement process in accordance with the provisions that were previously not complied with and must determine on reconstruction whether the decision to convert to contract is justifiable based on applicable law and regulation. If, after reconstruction, the decision to contract out cannot be justified and it is established that, but for the violation(s) of procurement law or regulation, the activity would not have been converted to contract, the arbitrator must determine whether consideration of the various factors that have been recognized by the courts in procurement cases warrants an order directing that the agency terminate the contract, reconvert the activity to in-house performance, and make employees adversely affected by the conversion to contract whole for their losses resulting from the unjustified conversion to contract. In this respect, we reiterate the guidance of the court in Delta Data: the objective in framing a remedy is to assure that the Government obtains the most advantageous contracts by complying with the requirements of applicable law. 744 F.2d at 206-07.
In determining whether to grant the conversion of the contract, the arbitrator must set forth in a fully articulated and reasoned decision the basis for determining whether or not to grant such relief. We caution arbitrators that the granting of such relief is extraordinary and that courts ordinarily refrain from interference with procurement decisions. Thus, an arbitrator initially must determine whether it is clear that, but for the illegal actions of the agency, the performance of the work would have remained in-house. The arbitrator should also examine whether the contract has already been awarded to another party and, if so, the extent to which it has been performed, and whether the cost to the Government of the contemplated remedy will greatly exceed the benefits that would be derived from observing the proper procedures. The arbitrator should also take into consideration any possible detriment to the national interest. On the filing of exceptions, we will review the award to decide whether the arbitrator's determination of remedy is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
In sum, if, in sustaining a grievance, an arbitrator is able to determine on the basis of the record presented that the decision to contract out cannot be justified and that, but for the violations of procurement law or regulation, the activity would not have been converted to contract, the arbitrator need not order a reconstruction. Instead, the arbitrator may directly determine whether the circumstances warrant reconversion to in-house performance.
Because we have modified the remedial authority of arbitrators in contracting out cases, we will modify the Arbitrator's award to permit the application of the principles we have announced in this case. We conclude that the Arbitrator's award must be modified to provide for consideration by the Arbitrator, if necessary, of the various factors that need to be examined before reconversion to in-house performance and a make-whole remedy for affected employees can be ordered.(2) The Arbitrator may use whatever means he considers appropriate to assess these factors and to make his determination. Consequently, we will modify the award accordingly.
V. Decision
The Arbitrator's remedy set forth in paragraph 2 of the "AWARD" is modified to provide as follows:
2. DLI must perform a commercial activity study of the language instruction contracted out, in accordance with applicable procurement law and regulation. If the study shows that the decision to contract out cannot be justified in accordance with law and regulation and it is established that, but for the violations of OMB Circular A-76, as implemented by the Agency, the languages would not have been contracted out, I will determine, after consideration of all relevant circumstances, the appropriate action to be taken.
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1. For a discussion of the difference between a cancellation or rescission of a contract and an order to terminate the contract under the contract's termination-for-the-convenience-of-the-government clause, see United States v. Amdahl Corp., 786 F.2d 387, 394-95 (Fed. Cir. 1986) (Amdahl Corp.). In accordance with Amdahl Corp., when the contractor was not the cause of the illegality and was not aware of the illegality, the appropriate order would be to direct the termination of the contract and not to order the contract cancelled or rescinded.
2. We need not, and do not, decide here whether backpay can be ordered under the Back Pay Act in a case where an arbitrator finds that an agency has violated a mandatory and nondiscretionary provision of applicable procurement law or procurement regulation having the force and effect of law but does not order a conversion of the contract after applying the standards set forth above.