Section 1 provides the bill's short title for the Performance-Based Organization (PBO). A PBO is a discrete unit of a department that commits to clear management objectives, measurable goals, customer service standards, and specific targets for improved performance. This unit remains within a department under the policy guidance and direction of the Secretary. It is still subject to governmentwide regulations, rules, policies, and procedures, unless specific waivers are granted. A PBO focuses on programmatic operations, not policy-making functions.

A PBO will have a Chief Operating Officer (COO) and greater managerial flexibilities in personnel, procurement and other specified areas which will enable the PBO to improve organizational performance. The COO will be selected for managerial experience, for a fixed term, and will sign an annual performance agreement with the Secretary and be accountable for meeting the organization's performance improvement goals.


Section 2 contains provisions governing the Chief Operating Officer (COO) of [name of PBO].

Subsection (a) of section 2 provides for the selection, reappointment, and removal of the Chief Operating Officer (COO). "The COO will be selected by the Secretary for a fixed-term appointment of [3 to 5] years. The COO position will not fall under existing career employee or political appointment systems. It will be selected from a pool of highly qualified and experienced managers from either the public or private sectors. The Secretary may reappoint the COO to subsequent terms, if he or she determines that performance has been satisfactory. The COO may be removed by the President at will, or the Secretary for misconduct or non-satisfactory performance under the performance agreement, described in subsection (b)."

Subsection (b) of section 2 requires the development and implementation of a performance agreement. The Secretary and the COO will enter into an annual performance agreement which shall set forth measurable organization and individual goals for the COO in key operational areas. The agreement will be subject to review by the Director of the Office of Management and Budget prior to execution. Once the performance agreement is signed, it will be available to the public from the department.

Subsection (c) of section 2 provides for the COO's compensation. The Secretary would be authorized to pay the COO a base salary up to the maximum rate of the basic pay of the Senior Executive Service, Level ES-6 with any applicable locality-based comparability payment. The incentive bonus of the COO could be up to 50 percent of the agreed-upon base salary. The COO's aggregate salary (base pay plus incentive bonus) for a calendar year cannot equal or exceed the amount of the President's salary.

Subsection (d) of section 2 requires the COO to prepare an annual management report. The COO will prepare an annual management report for the Secretary and Congress containing information prescribed by the Director of the Office of Management and Budget. This accountability report will include, at a minimum, the results of an independent financial audit; the financial and performance requirements of the Chief Financial Officers Act of 1990 and the Government Performance and Results Act of 1993; and information on the [name of the PBO]'s compensation systems, salary levels, bonuses and awards, as well as information regarding the comparability of compensation paid to employees of [name of PBO] relative to other organizations in the Federal Government that perform similar work. The department will make the report available to the public.



Section 3 sets forth general provisions governing the use of the personnel flexibilities provided in sections 4 through 6.

Subsection (a) of section 3 exempts [name of PBO] from any personnel ceilings relating to the number or grade of its employees.

Subsection (b) of section 3 emphasizes that the flexibilities authorized by sections 4 through 6 must conform to provisions of title 5, U.S. Code, governing merit system principles and prohibited personnel practices, veterans preference, the aggregate limitation on pay, and labor-management relations. This subsection highlights the continuing applicability of provisions which would apply to [name of PBO] even if they were not cited here. All provisions of title 5 continue to apply to [name of PBO] except as specifically provided otherwise in this bill or another statute.

Subsection (b) also provides that the exercise of any authorities under sections 4 through 6 shall be subject to oversight by the Office of Personnel Management (OPM) to the same extent as authorities delegated to agencies under 5 U.S.C. 1104(a)(2).

Subsection (c) of section 3 ensures that the use of the flexibilities provided in the bill will be treated like a demonstration project described in 5 U.S.C. 4703(a), insofar as labor-management relations are concerned. This means that [name of PBO] will not be able to implement any flexibility provided in sections 4 through 6 unless it has a written agreement, providing for the exercise of that flexibility, with the labor organization that is the exclusive representative of the affected employees.

If the use of a particular flexibility would affect employees in more than one bargaining unit affiliated with the same national union, [name of PBO] may exercise that flexibility according to the terms of an agreement between [name of PBO] and the national labor organization. Similarly, if employees in more than one bargaining unit affiliated with more than one national union would be affected by the use of a particular flexibility, [name of PBO] must have a written agreement with all of the national unions involved, or separate agreements with each local union representing employees in each affected bargaining unit, in order to use that flexibility.

Paragraph (3) of subsection (c) clarifies that the agreements referred to in the preceding paragraphs are voluntary agreements and not decisions of the Federal Services Impasses Panel, which are sometimes called "ordered agreements." In other words, either labor and management will enter voluntarily into a written agreement regarding the implementation of a flexibility, or the flexibility will not be used. A disagreement between labor and management regarding the use of a flexibility authorized by sections 4 through 6 cannot be taken to the Impasses Panel for a resolution.

Subsection (d) of section 3 identifies which flexibilities may be used without prior approval by OPM and which flexibilities require a specific plan to be submitted to OPM for approval. [Name of PBO] may exercise the following authorities without OPM's prior approval:

(1) grant larger cash awards than other agencies;

(2) shorten the notice period preceding a performance-based action under chapter 43 or an adverse action under chapter 75 of title 5;

(3) establish a broad-banded system under section 5(a) covering employees who otherwise would be classified and paid under the General Schedule;

(4) with respect to employees remaining under the General Schedule, eliminate the ten steps of the General Schedule;

(5) convert certain term appointees to permanent appointments using internal merit promotion procedures;

(6) establish category rating systems for evaluating job applicants instead of assigning numerical ratings to individual applicants;

(7) detail employees among its offices for unlimited periods; and

(8) establish probationary periods of 1-3 years for certain positions.

The following authorities may be used only after [name of PBO] submits a plan to OPM and obtains OPM's approval (the plan should explain how the use of each requested authority will contribute to the fulfillment of the goals set forth in the COO's performance agreement, as well as how the impact of the authority on the achievement of those performance goals will be assessed):

(1) establish one or more alternative job evaluation systems as described in section 5(c);

(2) provide for variations from grade and pay retention for certain employees; and

(3) provide for variations from title 5 provisions governing recruitment and relocation bonuses and retention allowances.

Subsection (e) of section 3 makes clear that [name of PBO] would retain the authority to initiate a demonstration project under chapter 47 of title 5, even if it used any or all of the flexibilities provided by sections 4 through 6 of the bill. The demonstration project authority would still be available to test any other variations from title 5 that are not specifically authorized by the bill. These variations could include dispute resolution procedures, alternative reduction-in-force procedures (provided they were consistent with veterans preference), ways to reorganize and move employees within organizations, methods of reducing disruption during restructuring or downsizing, and new leave systems.

The demonstration project authority would be enhanced by lifting, with respect to [name of PBO] only, certain restrictions currently in chapter 47. Specifically, the following provisions of chapter 47 will not apply to a demonstration project proposed by [name of PBO]:

(1) section 4701(a)(1)(A), which excludes Government corporations from proposing demonstration projects;

(2) section 4703(b)(1), which describes the components of a demonstration project plan (with respect to [name of PBO], the plan description is simplified);

(3) section 4703(b)(3), which requires a public hearing on the project plan;

(4) section 4703(b)(4), which requires 180-day advance notification of Congress and affected employees (the notice requirement is changed to 30 days with respect to [name of PBO]);

(5) section 4703(b)(6), which requires the final version of the plan to be provided to Congress at least 90 days in advance of the project's effective date ([name of PBO] simply would have to provide Congress with the final version of the plan);

(6) section 4703(c)(1), which bars waiver of any provisions concerning leave, retirement, or insurance benefits for a demonstration project ([name of PBO] could conduct a demonstration project affecting leave, except the provisions of the Family and Medical Leave Act; retirement and other benefits remain off-limits); and

(7) section 4703(d), which limits the number of employees participating in a demonstration project, as well as the number of projects in effect at the same time, and limits the duration of a demonstration project to 5 years.


Section 4 concerns performance management and provides certain flexibilities that are useful when linking pay to performance.

Subsection (a) of section 4 requires [name of PBO] to establish a performance management system which both maintains individual accountability and strengthens [name of PBO]'s effectiveness in certain specified ways. This system must maintain individual accountability by--

(1) establishing one or more retention standards for each employee which are expressed in terms of individual performance, are related to the employee's work, and must be met for the employee's performance to be acceptable;

(2) communicating the retention standards to employees;

(3) periodically determining whether each employee meets his or her retention standards; and

(4) taking certain actions to address unacceptable performance (i.e., performance that fails to meet retention standards).

The performance management system strengthens [name of PBO]'s effectiveness by--

(1) establishing, in addition to the retention standards described above, goals or objectives for individual, group, and/or organizational performance;

(2) communicating these goals or objectives to employees;

(3) using these goals or objectives to make distinctions among the performance of individuals and groups; and

(4) using assessments of performance--relative to retention standards and goals or objectives--as a basis for granting awards, adjusting pay, and other appropriate personnel actions.

Subsection (b) of section 4 requires [name of PBO] to establish an awards program to recognize organizational, group, and individual achievements. It also allows [name of PBO] to grant a cash award of up to $25,000 with the approval of the COO.

Subsection (c) of section 4 provides certain flexibilities for addressing poor performance. Paragraph (1) permits [name of PBO] to shorten the notice period for performance-based actions under 5 U.S.C. 4303 and adverse actions under 5 U.S.C. 7513 from 30 days to 15 days. Paragraph (2) bars an employee who has been denied a periodic step increase under 5 U.S.C. 5335 from appealing the denial to the Merit Systems Protection Board.


Section 5 provides flexibilities relating to classification and pay.

Subsection (a) of section 5 allows [name of PBO] to establish, subject to criteria to be prescribed by OPM, one or more broad-banded systems covering employees who would otherwise be under the General Schedule.

Subsection (b) of section 5 permits [name of PBO], to pay its employees who remain subject to the General Schedule (instead of being placed under a broad-banded system) without regard to the 10-step structure of the General Schedule. OPM will establish criteria for setting the pay of employees covered by this "stepless" General Schedule. Performance-contingent increases, equivalent to one-ninth of the difference between the maximum and minimum rates for the employee's grade, may be granted in conformance with OPM criteria.

Subsection (c) of section 5 allows [name of PBO], with advance approval of OPM, to establish one or more alternative job evaluation systems that include employees in one or more of the following groups:

(1) employees who, if not placed in the alternative system authorized by subsection (c), would be subject to the General Schedule;

(2) employees who, if not placed in the alternative system, would be subject to the Federal Wage System (FWS); and

(3) employees who, if not placed in the alternative system, would be paid under 5 U.S.C. 5376, relating to senior-level positions.

Alternative job evaluation systems could include skill-based pay systems or any other alternative pay system not authorized by subsection (a), (b), (d), or (e).

Under an alternative job evaluation system that includes one or more employees who would otherwise be paid under the General Schedule or the FWS, an individual's rate of basic pay would be capped at the rate for grade 15, step 10, of the General Schedule. Under an alternative job evaluation system that includes employees who would otherwise be paid under 5 U.S.C. 5376, an individual's rate of basic pay would be capped at the rate of basic pay of the COO.

Subsection (d) of section 5 allows [name of PBO], with the advance approval of OPM, to provide for variations from the provisions of title 5, U.S. Code, governing grade and pay retention, with respect to employees covered by a broad-banded system or an alternative job evaluation system.

Subsection (e) of section 5 allows [name of PBO], with OPM's approval, to provide for variations from the provisions of 5 U.S.C. 5753 and 5754, concerning recruitment and relocation bonuses and retention allowances, respectively.


Section 6 provides certain flexibilities relating to staffing.

Subsection (a) of section 6 allows certain term employees in [name of PBO] to be converted to permanent appointments using internal merit promotion procedures. To be eligible for conversion, the individual must have completed 2 years of current continuous service under one or more term appointments made under competitive procedures. The employee's performance under the term appointment or appointments must have been satisfactory, and the vacancy announcement for the term appointment from which the employee is converted must have stated that there was a potential for subsequent conversion to a permanent appointment. Finally, the conversion must be to a position in the same line of work as a position in which the employee served under a term appointment.

Subsection (b) of section 6 permits [name of PBO] to establish category rating systems for evaluating job applicants instead of assigning numerical ratings to individual applicants. Qualified candidates would be divided among two or more quality categories, based on an evaluation of their knowledge, skills, and abilities relative to those required for the job. Preference eligibles would be listed ahead of other applicants, within each quality category. Preference eligibles with a compensable service-connected disability of 10 percent or more would be listed in the highest quality category, except for scientific and professional positions at GS-9 or higher. Any applicant from the highest quality category could be selected, except that a preference eligible in the same or higher quality category could not be passed over unless permitted under current criteria in title 5.

Subsection (c) of section 6 exempts [name of PBO] from the 120-day limit on details.

Subsection (d) of section 6 permits [name of PBO] to establish a probationary period of up to 3 years for any position if it determines that, because of the nature of the work, a shorter period is insufficient to demonstrate complete proficiency.

Subsection (e) of section 6 makes clear that no provision of section 6 relieves [name of PBO] from any obligations under Presidentially-directed priority placement programs for surplus and displaced employees, or from any obligations under court orders relating to its employment practices.



Section 7 addresses the procurement authorities of the PBO.

Subsection (a) of section 7 requires that the PBO abide by all applicable federal procurement laws and regulations when procuring property and services, many of which have been significantly streamlined by the Federal Acquisition Streamlining Act and the Clinger-Cohen Act of 1996 (the latter previously referred to as the Federal Acquisition Reform Act and the Information Technology Management Reform Act). However, the PBO could take full advantage of the additional authorities specified in subsection (b) in order to procure property and services in an even more efficient and effective manner. At the same time, no agency would be permitted to purchase property or services under contracts entered into by the PBO using any of the authorities in subsection (b) unless the purchase was approved in advance by the senior procurement official responsible for purchasing by the ordering agency.

Subsection (b) of section 7. In implementing the authorities in subsection (b), the head of the PBO would be required to consult with the Administrator for Federal Procurement Policy. As part of the consultation, the Administrator would be required to provide guidance to the PBO to help ensure, to the maximum extent practicable, consistent implementation of the subsection (b) authorities by other PBOs with the same authorities.

Sec. 7 (b) (1) Two-phase Selection Procedures.

While the Competition in Contracting Act did much to instill the concept of openness in the procurement process, it has proven too rigid in certain respects to provide contracting officers with the tools to take advantage of this openness in an efficient manner. For instance, contracting officers are effectively precluded from seeking information short of a "proposal" once an open competition begins and may not exclude offerors without fully evaluating their offers in terms of the significant factors and subfactors identified in the solicitation in accordance with 41 U.S.C. 253a and 253b and 10 U.S.C. 2305.

Subsection (b)(1) would provide broad authority for contracting officers to conduct a "two-phase" selection where competition is initiated with a streamlined process that avoids the submission of formal proposals detailing an offered solution ("phase I") and from which a limited number of sources would be selected to submit formal offers as part of a further competition ("phase II").

General authorization to conduct two-phase selection would be a central tool for combining competition and efficiency for larger procurements. It would allow the PBO to initiate competitions without the submission of formal proposals and to efficiently make "downselect" decisions based on less detailed vendor submissions. This would save firms the cost of unnecessarily preparing detailed proposals and save the government the time spent evaluating them, when a simpler submission could effectively permit the government to select those sources that are likely to submit the most competitive offers. It would also allow firms to understand their weaknesses earlier in the process, thus giving them more time to strengthen their position as they prepare to compete for future procurement opportunities.

The process would begin with the contracting officer publishing widespread notice giving a general description of the scope or purpose of the acquisition, a description of the basis on which sources will be selected to submit offers in the second phase, and any additional information determined to be appropriate. Any interested source would be given a full opportunity to compete in the first phase of competition, but would not necessarily be asked to submit a "proposal." Rather than going through the time and expense of conceiving a detailed solution to meet the government's needs, they would be asked to focus on how their capabilities might fit with what the government is generally looking for. Past performance information, including past performance on pricing or cost control, would generally also be sought at this phase. Proposals with formal offers would be sought only in the second phase from those sources that were selected based on information provided in the first phase.

Before submitting proposals, the offerors selected in the first phase could be invited to participate in an open communications process in which vendors examine the problem to be solved in depth and develop specific competing solutions. The second phase of competition would be conducted in accordance with the procedural requirements set forth in 303A and 303B of the Federal Property and Administrative Services Act or, alternatively, 2305 of title 10, if applicable.

The section would also authorize the PBO to establish, from a phase-one selection, a verified list of vendors who would compete for multiple procurements within the general scope of the initial competition based on business practices, product or service quality, and past performance (including past performance on price or cost). Provided lists were opened periodically to add or substitute sources, this authority would enable a PBO to utilize the competitive process much more effectively.

Sec.7 (b) (2) Application of Simplified Procedures to Commercial Items.

The Clinger-Cohen Act authorizes the establishment of special simplified procedures on a three-year test period for the acquisition of commercial items between $100,000 and $5,000,000 where the contracting officer expects commercial items to be offered. Subsection (b)(2) would remove the caveats placed on use of this authority and permit the PBO to use this authority without regard to any dollar limitations or expiration date. The broadest use of these flexibilities would give the PBO a further incentive to take advantage of the economies and innovations offered by the commercial marketplace. Vested with this additional procedural discretion, contracting officers would be able to reduce proposal costs for offerors and administrative costs for the government.

While development of detailed specifications and formal evaluations may be needed under certain circumstances, they are largely unnecessary in commercial item buys in any amount. The rigors of the commercial market already help to ensure that vendors offer proven products. The use of streamlined procedures would enable contracting officers to avoid many of the burdensome formalities of the current process. Examples of flexibilities include issuing a solicitation without subfactors or identifying the relative weights of factors; foregoing a competitive range determination; having discussions on an "as needed" basis only with those offerors where communication would be beneficial to the government; conducting functional product testing without a formal test plan; evaluating offerors informally without establishing specific schemes for specific factors; and conducting comparative evaluation of offers. Use of these simplified procedures can save agencies the time and expense of designing detailed evaluation schemes to analyze lengthy proposals, and can save vendors the cost of describing in a detailed proposal what can be effectively communicated through customary commercial marketing tools (e.g., existing product literature and samples).

Sec. 7 (b) (3) Flexible Wait Periods and Deadlines for Submission of Offers.

Subsection b(3) would provide relief from statutorily specified wait periods when acquiring property or services that do not meet the definition of commercial item in section 4(12) of the Office of Federal Procurement Policy Act (41 U.S.C. 4(12)). It would permit the establishment of a wait period shorter than the currently required 15-day waiting period between the date a synopsis is published by the Secretary of Commerce and the date the solicitation is issued. It would also allow for the establishment of a deadline requiring the submission of offers less than 30 days after the solicitation was issued.

The Federal Acquisition Streamlining Act and the Clinger-Cohen Act provided similar relief from these inflexible time periods with respect to the acquisition of commercial items. Elimination of these mandatory periods would streamline the procurement process when mission needs could not be met with commercial items and allow the PBO to be more cost effective in the conduct of its procurement programs. It would be expected that established solicitation response times would afford potential offerors a reasonable opportunity to respond. It would also be expected that response times would be consistent with international agreements.

Sec.7 (b) (4) Modular Contracting.

A modular buying approach may be an effective strategy for ensuring that major acquisitions are better managed and streamlined. Breaking large procurements into smaller more manageable pieces has many advantages, including:

Subsection (b)(4) would greatly enhance the utility of modular contracting by giving contracting officers several options for acquiring additional modules after award of the initial module. Provided that modules are not dependent on the completion of any subsequent module (i.e., that each module is useful in itself with other completed modules without the completion of subsequent modules), contracting officers could, among other things, subject to certain conditions, award a subsequent module by conducting a limited competition or directing award to a successful provider or providers of a previous module. In addition, simplified source selection procedures could be used for the acquisition of modules, other than the initial module, that were not to be acquired on a sole source basis.

Sec. 7 (b) (5) Streamlined Acquisition of Services from Small Businesses.

Subsection (b)(5) would provide the PBO with additional flexibility in the acquisition of services up to $1 million that do not meet the definition of commercial item set forth in section 4(12) of the Office of Federal Procurement Policy Act, when such procurements are conducted as small business set-asides and if supply items are expected to constitute less than 20 percent of the total value of the contract. It would authorize the PBO to use the special simplified procedures applicable to procurements below the simplified acquisition threshold as set forth in the Federal Acquisition Regulation. A large pool of highly qualified small business service contractors exists that can compete for service requirements in this dollar range. The combination of simplified procedures (where, among other things, the conduct of discussions, formal evaluation plans and scoring are not required) and spirited competition among small businesses (whose low overhead and favorable wage structures can enable them to offer competitive bids) can result in lower costs to the government and reduce acquisition lead times. This authority would also provide the PBO with a viable alternative to aggregating services into large single award task order contracts simply to avoid the burdensome procedures for competing individual requirements. This authority would not apply to the acquisition of construction.

Sec. 7 (c) requires the head of the PBO, in consultation with the Administrator for Federal Procurement Policy, to issue implementing guidance for the additional authorities in subsection (b) of section 7.

Sec. 7 (d) limits contracting by the [name of PBO] for other agencies unless it is approved in advance by the senior procurement official responsible for contracting by the ordering agency.

Sec. 7 (e) states the additional authorities do not waive civil rights or labor standards laws applicable to federal contracts.


This would have the unique provisions of each PBO.



Title VI would require a report by the Secretary of _____, within five years, including any legislative recommendations, on the operation, effectiveness, and costs of the Act.

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