	Preliminary Observations on the Proposed DOD National Security Personnel System Regulations

DOD and OPM’s proposed NSPS regulations would establish a new human  resources management system within DOD that governs basic pay, staffing,  classification, performance management, labor relations, adverse actions,  and employee appeals. We believe that many of the basic principles  underlying the proposed DOD regulations are generally consistent with  proven approaches to strategic human capital management. However, the  experiences of high-performing organizations suggest that DOD should  require the use of core competencies as a central feature of its performance  management effort. Providing Adequate Safeguards to Ensure Fairness and Guard Against Abuse

Although DOD’s proposed regulations provide for some safeguards to  ensure fairness and guard against abuse, additional safeguards should be  developed. For an endeavor as critical as DOD’s new human  resources management system, such a leadership position would serve to  elevate attention to overcome an organization’s natural resistance to  change, marshal the resources needed to implement change, and build  and maintain the organizationwide commitment to new ways of doing  business;  integrate various management responsibilities into the new system so  they are no longer “stove-piped” and fit into other organizational  transformation efforts in a comprehensive, ongoing, and integrated  manner; and  institutionalize accountability for the system so that the implementation  of this critical human capital initiative can be sustained. DOD acknowledges that a comprehensive  outreach and communications strategy is essential for designing and  implementing its new human resources management system, but the  proposed regulations do not identify a process for the continuing  involvement of employees in the planning, development, and  implementation of NSPS. However, DOD’s proposed regulations do  provide for continuing collaboration with employee representatives. According to DOD, almost two-thirds of its 700,000 civilian employees are  represented by 41 different labor unions, including over 1,500 separate  bargaining units. Similar to DHS’s final  regulations, DOD’s proposed regulations about the collaboration process,  among other things, would permit the Secretary of Defense to determine  (1) the number of employee representatives allowed to engage in the  collaboration process, and (2) the extent to which employee  representatives are given an opportunity to discuss their views with and  submit written comments to DOD officials. The active involvement of employees and employee representatives will be  critical to the success of NSPS. GAO strongly supports the need for government transformation and the  concept of modernizing federal human capital policies both within DOD  and for the federal government at large. The human capital  authorities being considered for DOD have far-reaching implications for  the way DOD is managed as well as significant precedent-setting  implications for the rest of the federal government. This testimony provides GAO’s  observations on DOD human  capital reform proposals and the  need for governmentwide reform. In GAO’s view, the relevant sections of the House’s version of  the National Defense Authorization Act for Fiscal Year 2004 and the  proposal that is being considered as part of this hearing contain a  number of important improvements over the initial DOD legislative  proposal. Moving forward, GAO believes it would be preferable to employ a  governmentwide approach to address human capital issues and the need  for certain flexibilities that have broad-based application and serious  potential implications for the civil service system, in general, and the  Office of Personnel Management, in particular. More than 50 percent of the workforce  will be eligible to retire by 2005. This could also serve to  severely set back the legitimate need to move to a more performance- and  results-based system for the federal government as a whole. Do  DOD and other agencies have the institutional infrastructure in place to make  effective use of any new authorities? This institutional infrastructure includes,  at a minimum, a human capital planning process that integrates the agency’s  human capital policies, strategies, and programs with its program goals and  mission, and desired outcomes; the capabilities to effectively develop and  implement a new human capital system; and, importantly, a set of adequate  safeguards, including reasonable transparency and appropriate accountability  mechanisms to ensure the fair, effective, and credible implementation of a new  system.
Why GAO Did This Study

The Department of Defense's (DOD) new human resources management system--the National Security Personnel System (NSPS)--will have far-reaching implications for the management of the department and for civil service reform across the federal government. The National Defense Authorization Act for Fiscal Year 2004 gave DOD significant authorities to redesign the rules, regulations, and processes that govern the way that more than 700,000 defense civilian employees are hired, compensated, promoted, and disciplined. In addition, NSPS could serve as a model for governmentwide transformation in human capital management. However, if not properly designed and effectively implemented, it could severely impede progress toward a more performance- and results-based system for the federal government as a whole. On February 14, 2005, the Secretary of Defense and Acting Director of the Office of Personnel Management (OPM) released for public comment the proposed NSPS regulations. This testimony (1) provides GAO's preliminary observations on selected provisions of the proposed regulations, (2) discusses the challenges DOD faces in implementing the new system, and (3) suggests a governmentwide framework to advance human capital reform.

What GAO Found

Given DOD's massive size and its geographically and culturally diverse workforce, NSPS represents a huge undertaking for DOD. DOD's initial process to design NSPS was problematic; however, after a strategic reassessment, DOD adjusted its approach to reflect a more cautious, deliberate process that involved more stakeholders, including OPM. Many of the principles underlying the proposed NSPS regulations are generally consistent with proven approaches to strategic human capital management. For instance, the proposed regulations provide for (1) elements of a flexible and contemporary human resources management system--such as pay bands and pay for performance; (2) DOD to rightsize its workforce when implementing reduction-in-force orders by giving greater priority to employee performance in its retention decisions; and (3) continuing collaboration with employee representatives. (It should be noted that 10 federal labor unions have filed suit alleging that DOD failed to abide by the statutory requirements to include employee representatives in the development of DOD's new labor relations system authorized as part of NSPS.) GAO has three primary areas of concern: the proposed regulations do not (1) define the details of the implementation of the system, including such issues as adequate safeguards to help ensure fairness and guard against abuse; (2) require, as GAO believes they should, the use of core competencies to communicate to employees what is expected of them on the job; and (3) identify a process for the continuing involvement of employees in the planning, development, and implementation of NSPS. Going forward, GAO believes that (1) the development of the position of Deputy Secretary of Defense for Management, who would act as DOD's Chief Management Officer, is essential to elevate, integrate, and institutionalize responsibility for the success of DOD's overall business transformation efforts, including its new human resources management system; (2) DOD would benefit if it develops a comprehensive communications strategy that provides for ongoing, meaningful two-way communication that creates shared expectations among employees, employee representatives, and stakeholders; and (3) DOD must ensure that it has the institutional infrastructure in place to make effective use of its new authorities before they are operationalized. GAO strongly supports the concept of modernizing federal human capital policies, including providing reasonable flexibility. There is general recognition that the federal government needs a framework to guide human capital reform. Such a framework would consist of a set of values, principles, processes, and safeguards that would provide consistency across the federal government but be adaptable to agencies' diverse missions, cultures, and workforces.