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THE WHITE HOUSE
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
Date:
10-4-83
Number: 168796CA
Due By:
Subject:
Cabinet Council on Management and Administration,
Thursday, October 6, 1983 at 3:00 P.M.
TOPICS: See below.
Action
FYI
Action
FYI
ALL CABINET MEMBERS
CEA
CEQ
Vice President
OSTP
State
ACUS
Treasury
Defense
Attorney General
Interior
Agriculture
Baker
Commerce
Labor
A
Deaver
Clark
HHS
A
HUD
Darman (For WH Staffing)
Transportation
d
Harper
Jenkins.
Energy
Education
Counsellor
OMB
CIA
UN
USTR
CCCT/Gunn
GSA
CCEA/Porter
EPA
CCFA/
OPM
CCHR/Carleson
UA
CCLP/Uhimann
SBA
CCMA/Bledsoe
CCNRE/
REMARKS:
The Cabinet Council on Management and Administration will
meet Thursday, October 6, 1983 at 3:00 P.M. in the Roosevelt
Room.
Topics for review are Workspace Management, Consultant Services,
Employee Classification, and White Collar Pay.
An agenda and papers are attached.
RETURN TO:
Craig L. Fuller
Katherine Anderson
Don Clarey
Assistant to the President
Tom Gibson
Larry Herbolsheimer
for Cabinet Affairs
Associate Director
(456)2823
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR CABINET COUNCIL ON MANAGEMENT AND ADMINISTRATION
FROM:
RALPH BLEDSOE Ralph Blehroe
SUBJECT:
Agenda and Materials for CCMA Meeting
of October 6, 1983
DATE:
October 4, 1983
Attached are materials for the CCMA planning meeting now
scheduled for Thursday, October, 6, 1983, at 3:00 p.m. in the
Roosevelt Room.
The first agenda item will be a reminder that agency workspace
management plans are overdue, and a report that we stand to miss
our goal unless agency managers take more direct actions to
reduce workspace.
The issue paper on Consulting Services Controls was first
communicated for the meeting of September 23. Time did not
permit discussion at that meeting.
The paper on the Federal Employee Occupational Classification
System was prepared by Don Devine, and is based on interactions
between OPM and agency managers on standards for the contract and
procurement occupation.
The paper on Reform of Federal White Collar Pay includes options
for possibly preventing the annual difficulties in reaching
agreement on Federal pay.
9/21/83
CABINET COUNCIL ON MANAGEMENT AND ADMINISTRATION
CONSULTING SERVICES CONTROLS
Issue Paper
ISSUE
What steps should be taken to reduce and control the cost of
consulting and related services?
BACKGROUND
The Federal government spends about $1.5 billion annually on
consulting and related services, nearly two-thirds (or $1
billion) of it by the Department of Defense. (See table below.)
These services are often advisory in character and provide agency
leadership with views and opinions on problems or issues relating
to agency operations; or they might be special studies and
analyses of management and support services for R&D activities.
They are usually of a specialized professional or technical
nature. OMB Circular A-120 and a subsequent memorandum from the
Director of OMB provide agencies with basic guidelines and policy
on the use of consulting services, and identify certain controls
the agencies can use.
Consulting and Related Services
(Obligations, in Millions of Dollars)
FY 1982
FY 1983
FY 1984
Total
1,404.4
1,481.5
1,518.2
Department of Defense
902.4
933.1
980.8
(Defense as percent of total)
(66.4%)
(63.0%)
(64.6%)
While legitimate agency need exists for these services, abuses
have been referenced from time to time in congressional hearings,
GAO reports, news articles, and by some executive branch
managers. These offenses are said to include use of consultants
to perform policy-making or management work, sole source
selection when competitive procurement should have been used,
year-end "rush spending" on questionable consulting contracts,
"revolving-door" personnel arrangements, and conflict of interest
situations.
Senators DeConcini, Abdnor, and Mattingly have asked OMB Director
Stockman to devise stronger controls in this area. Senator
Mattingly has also asked Loren Smith, Chairman, Administrative
Conference of the United States (ACUS), to review the problem.
-2-
OMB ACTIONS
In January, 1982, OMB developed a "Model Control System for
Consulting and Related Services. " The system defined model
methods that agencies could adopt for controlling the use and
quality of consultant services. In an August, 1983 survey, OMB
found that of 13 agencies, 11 had not applied the model, one
(Veterans Administration) had adopted it satisfactorily, and
another (Commerce) had found mixed results. Most of the agencies
not using the model expressed an intent to do SO over the next
year.
ACUS PROPOSAL
In a letter to Edwin Meese, dated July 26, 1983, Loren Smith
suggested two basic controls, which can be used singly or in
combination:
1. Require agencies to obtain OMB approval for each contract in
excess of a specified level, e.g., $100,000; and, publish a
brief synopsis in the Commerce Business Daily along with the
names and phone numbers of the OMB approving officer and the
agency contracting officer.
2. Require agency program employees to prepare an internal
evaluation of the impact of each completed contract on
program efficiency and effectiveness.
OMB opposes the ACUS proposals on the grounds that OMB approval
and additional agency evaluation would be administratively
impractical and burdensome, both for OMB and for the agencies.
OMB does not and should not have a staff sufficiently large to
control such a process in the detail implied.
OMB PROPOSAL
OMB believes that primary responsibility and accountability for
managing agencies must stay with the agency heads. It prefers
that agencies adopt a set of controls baed on the Model Control
System. The model system provides for an agency post-evaluation
of each consulting contract, as well as several other control
features. Alternatively or simultaneously, reviews of the use of
consultant services can be made (or required) as part of the
Financial Integrity Act internal control reviews.
CCMA INTEREST
Opportunities exist for cutting waste and abuse in this area.
Savings could be very substantial, a chronically difficult
management problem could be corrected, and the Administration
could take credit for eliminating another abuse of appropriated
funds.
-3-
CCMA OPTIONS
1. Develop further the ACUS concepts of OMB approval and/or
agency program evaluation of contracts.
2. Proceed with the OMB approach of urging adoption of the Model
Control System, or its equivalent. Request larger agencies
to adopt a consultant services control system based on the
OMB model and/or require review of the use of consultant
services as part of the mandatory annual internal control
reviews.
3. Further examine these and additional alternatives in a quick
60-day study, conducted by a small CCMA working group.
UNITED STATES
OFFICE OF PERSONNEL MANAGEMENT
WASHINGTON, D.C. 20415
Office of the Director
August 15, 1983
MEMORANDUM FOR THE CABINET COUNCIL ON MANAGEMENT AND ADMINISTRATION
FROM: Donald J. Devine
nS
Director
SUBJECT: Federal Employee Occupational Classification System
I. BACKGROUND
The overwhelming proportion of Federal Government occupations are
organized under a classification system. In general, there is a 15
grade system, ranging from the least demanding jobs at GS-1 to the most
demanding jobs at GS-15. Four major elements make up the full
classification system: (1) Primary Occupational Standards are derived
from statute into primary guidelines by the Office of Personnel
Management (OPM), to set generic policies for establishing each
occupational series, for setting qualifications for these occupations,
and for assigning factor evaluations scores to broad skill levels;
(2) Specific Occupational Standards are developed by OPM from the
primary standards, and are evaluated against data gathered from a field
study of how work actually is done in these occupations in the
Government; (3) Job Classification is then performed by agencies to
classify specific jobs under the occupational standards set by OPM; and
(4) Classification Audits are done by OPM to assess how well agencies
have classified under OPM standards, with compliance actions being
ordered by OPM where misclassification is identified.
II. CURRENT STATUS
OPM estimates that agency overclassification under present
standards costs the government $680 million per year. OMB estimates
there is an additional poor position management expense, beyond the
formal classification system, of $8 billion per year. Historical data
indicate that the major distortion of the classification system took
place between 1950 and 1970, with only a gradual escalation since
then. Average grade rose from 5.4 in 1950 to 7.8 in 1970, and then to
8.1 in 1980. OPM estimates that a maximum of 50 percent of this growth
in grade can be attributed to technological change, suggesting that the
remainder is solely due to poor classification; i.e. Federal employees
are rated at least one and a half grades too high on the average. We
estimate that 14 percent of occupations are overgraded governmentwide,
17 percent in civilian agencies and 9 percent in DoD, and 30 percent of
all positions in the Washington, D.C. area.
2
The basic structure of the classification system has not changed
since 1975. Since then, OPM has not questioned the primary standards,
but simply has produced specific new occupational standards and has
done audits of agency classifications. Every occupational standard
issue which has had even the potential of downgrading an occupation has
become very controversial. The controversy often becomes widespread
because private occupational associations, as well as all levels of
government, often follow OPM standards. In most cases, audits have
revealed significant overgrading, with agencies reluctantly complying
with the comparatively few audits OPM was able to perform nationwide.
III. ACTION FORCING EVENT
Two particularly controversial occupational standards were ready
for issue in late 1982, after substantial field analysis by OPM: the
contract and procurement standard, and the librarian standard. The
contract and procurement standard issue was brought to the CCMA on
December 8, 1982. OPM was tasked to review the standards with an
interagency committee. The committee has now met and resolved the
issues that were outstanding. All the major agencies are now satisfied
with the changes. OPM intends to proceed to issue the revised standard
for the contract and procurement occupation.
IV. ANALYSIS
As a result of the intensive analysis of the contract and
procurement standard, as well as experience gained with other standards
issued over the past two years, OPM has come to the following
conclusions. First, all three primary standards need to be reviewed.
It is almost a decade since they have received a comprehensive
analysis. OPM intends to study each of these to be sure these
essential elements of the system are sound. This is especially so for
the qualification standards, since our preliminary analysis suggests
that they mandate more credentials than are necessary, both under the
law (5 U.S.C. 3308), and under the free market philosophy of reducing
barriers to entry in occupations.
Second, OPM intends to institutionalize the review process
initiated for the contract and procurement occupational study, whenever
a significant controversy arises over an occupational standard. That
is, an interagency committee recruited from the Governmentwide
Personnel Policy Group will be recruited to review these standards and
make recommendations to the Director of OPM.
Third, it is clear that classification has been over-delegated to
agencies, resulting in significant overgrading and expense. As already
noted in the Budget, OPM will be presenting a comprehensive plan to
manage "grade creep", especially the "bulge" identified by the Grace
Commission report for the GS-11 to GS-15 grade levels. This plan will
be submitted to CCMA within the next month.
3
Fourth, it is clear that OPM audit evaluations study too small a
sample of Federal occupations. This is a result of its desk audit and
case study methodology. OPM intends to shift to a statistical, rather
than a case, evaluation method. This will allow central government
executives to more properly evaluate classification governmentwide, and
to control overgrading in the future.
V. DECISION
Approve OPM Approach
Disapprove OPM Approach
UNITED STATES
OFFICE OF PERSONNEL MANAGEMENT
WASHINGTON, D.C. 20415
Office of the Director
September 28, 1983
MEMORANDUM
TO:
Cabinet Council on Management and Administration
FROM:
Donald I Devine
Director
SUBJECT: Approaches to the Reform of Federal White Collar Pay
I. BACKGROUND
For the sixth consecutive year, a president has submitted an
"alternative plan" rather than adopting the rate of pay for government
employees reported in the President's Pay Agent salary survey. By law,
the Pay Agent (consisting of the Director of OPM, Director of OMB and
Secretary of Labor.) devises a methodology to measure pay comparability
with the private sector, in consultation with the Federal Employees Pay
Council (consisting of employee union representatives). As a result of
past concessions made to the unions, the present pay methodology is
completely unsupportable from a technical standpoint. This year the
methodology reported that Federal employees need a pay increase of 21.5
percent to be comparable to the private sector. No one believes this,
and this is why alternative plans have been supported by presidents
rather than the "comparability" expected to be paid under the statute.
The same lack of faith in its methodology has also led Congress to vote
lower pay increases than comparability in the last two budgets.
II. CURRENT STATUS
The 1982 Pay Agent report to the president promised a review of
legislative and administrative approaches to improve the measurement of
comparability. Several meetings were held with the Federal Employees
Pay Council (FEPC) to exchange views and consider possible reforms. In
December 1982, the Office of Personnel Management released a comprehen-
sive study of different approaches to reforming Federal pay. After
further exchange, on February 17, 1983, the FEPC informed the Pay Agent
that further meetings would be "fruitless". One of the "approaches"
reviewed before the breakdown of communication, which would not neces-
sitate a change in law, was a reweighting of the comparability survey
to make it more representative. Since it was already discussed with
the FEPC, it could have been presented as the official report of the
2
Pay Agent this year. OPM favored reporting this new methodology this
year as the Pay Agent recommendation but finally the old methodology
was used to show that Federal employees were entitled to a 21.5 percent
pay raise. Since this was clearly unacceptable, the President
submitted an alternative pay plan proposing a 3.5 percent pay increase,
delayed to January 1, 1984.
III. ACTION FORCING EVENT
Congress is expected to include a 4 percent pay raise, payable in
January, in a reconciliation bill. The Directors of OMB and OPM met
with Congressional leaders in early August and found them rather
adamant. The Director of OMB expects that he will be able to move
Congress towards the alternative of 3.5 percent. Everyone recognizes,
however, that this kind of bargaining over pay represents a less than
desirable process to determine employee salary. The unpredictability
of the processes is further enhanced due to the Chadha decision, which
questions the legitimacy of the Congressional veto of the alternative
plan, and perhaps of the alternative plan itself. So both Congress and
the Executive Branch are considering new alternatives.
IV. OPTIONS
Option 1: Maintain the present methodology. The present
methodology is technically unsupportable. Among its more glaring
failures, it severely underepresents small firms, the survey is not
representative of the occupational mix either of the private sector or
the Federal Government, and it compares average salaries rather than
the more critical entry rates. There are also other problems, which
would require a change in the law, such as the fact that the survey
does not take into account local wage rates, nor is it allowed to use
the most comparable occupations, i.e., in state and local government
employment. There is one benefit to keeping the present system,
however. The pay increases generated by the survey are so
unrealistically large and the methodology so poor that there is very
little chance Congress will take the pay results of the survey
seriously. This makes Congress very reluctant to override an
alternative plan, although this has become more clouded with the Chadha
decision, and Congress' more frequent recent use of the reconciliation
process to set its own pay rate independent both of "comparability" and
the alternative plan.
Option 2: Legislative change. Legislative proposals to overhaul
the current pay system were sent to Congress by the Carter
administration in 1979, and by this administration in 1981. The thrust
of both approaches was to move from salary comparability to total
compensation comparability (i.e. including retirement, health and other
benefits in the survey in addition to pay). These proposals were
vigorously opposed in Congress, leading to the formal withdrawal of the
legislation by this administration in 1982. The Pay Agent accepted the
recommendation of the Advisory Committee on Federal Pay that benefits
should be separated from pay, and reforms concentrated in each area
separately.
3
Although a legislative solution on pay would be the most rational
solution, it can be expected to be very difficult to pass through
Congress. The Congressional proposal on pay-for-performance to allow
bargaining over pay, has whetted the unions appetite for a legislative
solution involving collective bargaining. The administration would
presumably support legislation which would more accurately compare the
two systems, perhaps shifting to more marked-related solutions (such as
comparing employees rather than jobs, or by measuring demand for
Federal employment rather than wages directly). With the administra-
tion and the Congress on such radically different courses, it is
unlikely that legislation acceptable to the administration could be
passed, especially in time for next year's pay decision.
Option 3: Reweighting of the present comparability methodology.
OPM's "Study of Approaches to Federal Pay" presented a methodology to
more accurately weight the present survey, within the present
constraints of the law. Had that methodology been applied in 1982, the
recommended pay adjustment would have been 2.53 percent, instead of
18.5 percent. For 1983, the adjustment would have been 3.89 percent,
instead of 21.5 percent.
The weighting methodology had the following four components: (1)
weighting the survey to account for as much as 60 percent of the
private nonfarm workforce presently excluded in small firms, (2)
comparing entry rates instead of average salaries to account for the
Government worker's faster movement through the step-rate range, (3)
adjusting current salary data to account for the approximately 93
percent of Federal administrative workers for whom no private sector
counterparts are included in this survey, and (4) eliminating the
extremes of the private sector salary averages to achieve an improved
statistical comparison.
This option can be adopted merely by including it in next year's
Pay Agent report. Congress might resent the process being reformed by
administrative action rather than by statute, but they obviously could
overrule the decision legislatively if they really wanted. The fact
that the new weighting formula is reasonable and results in a more
realistic pay increase, having the face validity of being very close to
both the 4 percent reported by Congress and the 3.5 percent reported in
the alternative plan, gives it great legitimacy to Congress. For two
years it would have resulted in reasonable pay increases, compared to
the unrealistic results of the present process.
In addition, the present process results in an extremely serious
morale problem among Federal employees. The present process allows
employees to refer to an official report of the President's Pay Agent
to support their belief that they are being denied pay actually due
them. If the present process is modified and replaced by a credible
alternative, this serious morale problem can be attenuated.
4
Option 4: Legislative Strategy with Reweighting Adjustment As
Fall-Back. Although legislation acceptable to the Administration is
unlikely, it is possible. This option would set a strategy to try for a
comprehensive legislative solution but to make adjustments to the pay
computation process if legislation is not feasible. This option would:
1) first seek a comprehensive legislative solution which would be modeled
along past Carter and Reagan comprehensive reforms of pay computation,
but also would use objective measures of private sector pay movement,
such as a modified Employment Cost Index to eliminate "carry-over"
increase and to eliminate "rate to rate" comparisons, while at the same
time giving the President greater flexibility in distributing pay by
grade, occupation and locality. (2) If the former is too comprehensive
to be legislatively viable, make the following less comprehensive, but
still important legislative changes: include state and local governments
in the comparison, include special pay systems for selected occupations
with recruiting and retention problems, and allow the Pay Agent to use
methodology other than job-to-job comparisons. (3) If acceptable
legislation cannot be passed, improve the current process by having BLS
fully survey smaller establishments and excluded industries, increase job
representativeness by using indirect matching methods, and make
comparisons at the entry rates to compensate for faster Federal
government through the rate range. (4) If BLS cannot make acceptable
changes for next year's Pay Agent report, adopt the new methodology
developed by OPM for use in the 1985 report, and modify it later by the
BLS methodology (Same as Option 3).
V. RECOMMENDATION
I recommend the adoption of Option 3. The present methodology is
unsupportable, and it is a serious drain on employee morale. No
conceivable legislation which could pass Congress could result in a pay
adjustment more reasonable than one weighted by the Pay Agent. If the
comparability figure is reasonable, there is no necessity for an
alternative plan. This approach would regularize the process and give it
legitimacy. It is critical that this decision be made early to remove it
from the politics of an election year. Option 3 is the most reasonable
and rational, and should not be colored by politics.