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tively small percentage of the corps' total overall construction budget, would it not?

Mr. AHART. I believe that is correct, Mr. Chairman.

Mr. WRIGHT. Let me ask this further question at this point-I don't want to get ahead of the story. You are developing it in such an orderly way. But you have recited here transactions and conversations and proposals that were discussed within the Administration as early 1969. You say in early 1969 the Postmaster General expressed the opinion that his Department didn't have the capability to do this. In March of 1969, the Department entered into conversations with the Corps of Army Engineers. In April 1969 the Administrator of General Services advised the Postmaster General that it could do the job more efficiently. All of this took place more than a year before the passage of the Postal Reorganization Act, did it not?

Mr. AHART. That is correct, Mr. Chairman. The early discussions on. it apparently took place in early 1969.

Mr. WRIGHT. Apparently the decision of the Post Office Department to utilize the services of the Army rather than those of the GSA came about in the early part of 1969, is that correct?

Mr. AHART. That is correct.

Mr. WRIGHT. Yet to the best of my ability, I have been unable to discover that the Congress or any committee of the Congress, particularly the Post Office and Civil Service Committee, which then was engaged in attempting to draft this legislation known as the Postal Reorganization Act, had been advised in any sense that the Postal Service would use the services of the Army to conduct its building.

Do you know of any instances in which representatives of the administration or of the Post Office Department advised the responsible congressional committees that this decision had been made?

Mr. STAATS. We are not aware of any information on this until, believe it was March 11, which will be referred to later on.

Mr. WRIGHT. March 11, 1971?

Mr. STAATS. That is right.

I

Mr. WRIGHT. This was approximately 2 years after the decision apparently had been made, is that correct?

Mr. STAATS. At least a tentative agreement had been made, right. Mr. WRIGHT. A tentative agreement had been made in the first or second quarter of 1969. The Congress enacted the Postal Reorganization Act in July or August-August, I believe, of 1970.

Mr. AHART. August 12, 1970, I believe was the date.

Mr. WRIGHT. Was that the date of the congressional action, or the date of the signing?

Mr. AHART. The date of the signing by the President.

Mr. WRIGHT. But it was in early August that Congress acted on it. So, we have here a situation in which a tentative decision had been made to farm out this work to the Army in the early part of 1969.

I know of no occasion in which responsible committees of the Congress were advised of that decision prior to the enactment of the Postal Reorganization Act. Do you know of any such occasion?

Mr. AHART. Mr. Chairman, we haven't made an exhaustive review of the legislative history of the Postal Reorganization Act to try to identify this. I think the best we can say to your point is that we did, as an office, follow the Postal Reorganization Act very closely as it

went through the Congress because of the relationship it would have with our office, and we as an office, as the Comptroller General has pointed out, weren't aware of this arrangement ourselves until it was announced on March 11.

Mr. WRIGHT. The General Accounting Office didn't know anything about this arrangement until it was publicly announced on March 11, 1971?

Mr. AHART. That is correct.

Mr. WRIGHT. This was some months after the enactment by Congress of the Postal Reorganization Act?

Mr. AHART. Yes.

Mr. WRIGHT. I believe it is 6 months after they actually started to utilize the services of the Army, is that not approximately correct? Mr. AHART. I believe that is correct, Mr. Chairman. We may have been aware-I would have to check with the staff- of some of the individual projects on which the Post Office Department, did request the assistance of the corps. I think the earliest of these was in late August 1970, when they requested some assistance in connection with their facility in Hawaii, and during the interim there were other arrangements made on a project by project basis.

Mr. WRIGHT. But you weren't aware of any broad agreement that had been reached between the Post Office and the Army?

Mr. AHART. That is correct.

Mr. WRIGHT. I think it is clearly accurate to say that the Congress was not aware of it either. I thank you for that elucidation. I believe we will be able to document these dates further in the hearings later on today or tomorrow.

Mr. GROVER. I might mention in checking the House report on the postal reorganization bill, we find that the initial introduction of this legislation, when it was then H.R. 4 in the 91st Congress, was January 3, 1969, so that the negotiations later in March of 1969 for this delegation of authority might have been possible in anticipation of successful passage of the bill. That doesn't take away from

Mr. WRIGHT. I think clearly they were undertaken in anticipation of successful passage of the bill. Otherwise, there would have been no occasion for a broad, sweeping arrangement between the Post Office and the corps.

Mr. STAATS. Yes, there would have been very little point in it, except on the assumption that a bill of that general type would be enacted. Mr. WRIGHT. My point is this, Mr. Grover, that it seems to me that the Department owed to the congressional committee the courtesy and consideration of explaining what arrangements it anticipated, assuming the passage of the bill. I cannot find any instance in which that information was given to the Congress.

Mr. AHART. One comment here might be helpful. The Postmaster General's formal request to the Secretary of Defense to furnish services on this broad basis was made on September 26, 1970, the month following the approval by the President of the Postal Reorganization Act. This was when he formalized the request to the Defense Department for this kind of help.

Mr. WRIGHT. Yes, but a tentative agreement already had been reached approximately 12 years earlier.

Mr. AHART. That is correct.

Mr. WRIGHT. Proceed, if you desire.

Mr. STAATS. The point in the statement is the last sentence in the first paragraph on page 8.

In addition, the Postmaster General noted that the highly mechanized special purpose facilities needed for postal use bore little resemblance to the facilities GSA builds a factor that led to the 1966 delegation of authority from GSA to the Postmaster General.

The Postmaster General believed that the corps had the size and geographical distribution of work force, and expertise in constructing complex buildings needed to manage the construction of postal facilities.

Mr. GROVER. In this letter, General Clark pointed out that they, the corps, would require of Mr. Blount's Department the provision of manpower spaces as current personnel ceilings are restricted to programs presently assigned. How do we link that with this belief that they had the size work force to do the job?

Mr. AHART. I can't speak for the Chief of Engineers, but I think probably what he referred to was the fact that they do have a large organization which is geographically dispersed which had a great deal of engineering capability, but at the same time admitting that if they undertook a sizable program for the Post Office Department they would require some augmentation of their total staffing.

Mr. STAATS. In fact, as pointed out, a large number of employees have been transferred over to the Corps of Engineers, approximately 600.

Mr. AHART. I heard various figures, 600 is one.

Mr. WRIGHT. Those employees, formerly employees of the Post Office Department, now are employees of the Army Corps of Engineers, is that correct?

Mr. STAATS. That is correct

Mr. WRIGHT. Their pay is coming out of appropriated funds, taxpayer's money, is that correct?

Mr. STAATS. Well, presumably they will be financed by the transfer of funds from the postal service to the Corps of Engineers under this agreement.

Mr. WRIGHT. This is a point on which I was not clear-under the agreement, the Post Office Department promises to pay to the Corps of Army Engineers an amount sufficient to compensate for the wages of these approximately 600 people, is that correct?

Mr. STAATS. No. There is a 512-percent allowance to cover overhead, the administrative costs of the architects and engineers, and the cost of supervision and inspection of the construction.

So, what I was referring to is not a reimbursement for these employees as such, but a reimbursement to the corps of 512 percent of the total cost of construction involved.

Mr. WRIGHT. Now, two questions. The employees are on the public payroll of the Corps of Army Engineers?

Mr. STAATS. Yes.

Mr. WRIGHT. So, initially their pay is out of appropriated funds and supplied by the taxpayers of the United States?

Mr. STAATS. Yes; that is correct.

Mr. WRIGHT. Now, presumably under the agreement all overhead costs, including design, employees, administration, and all of this, will

be absorbed within not more than 52 percent overage above the actual cost of constructing the building, is that correct?

Mr. STAATS. Yes. The 52 percent is a percentage factor against the total cost of design and construction of these facilities.

Mr. WRIGHT. Ünder this new agreement, the Postal Corporation agrees to pay up to 52 percent for this overhead management and the related services, is that correct?

Mr. STAATS. That is correct. If I may, we develop this point later on in our statement.

Mr. WRIGHT. All right. But at this point let me simply adduce, if I may, a general conclusion from you.

Has the history of the Corps of Army Engineers indicated that by the accounting procedures that would be employed under the new agreement it has, in fact, been able to construct facilities of this character within a 512-percent overhead?

Mr. STAATS. We don't have detailed information on this point, but the 52-percent figure was arrived at, as I understand it, generally in line with what the corps submitted their costs had been for the NASA construction work.

Do you want to add to that?

Mr. AHART. I think it is a little bit difficult to answer you very specifically, Mr. Chairman. As I understand it, the experience which the corps had on the military construction program, which would include the work for NASA and the other agencies, was about 8 percent. That was historically, if you calculated it on the same basis as the 5.5 percent which is incorporated in the agreement.

Now, the corps, in agreeing to the 5.5 percent, as I understand it, tried to visualize what differences there would be between the work they were doing in the past on their other programs and the work which they would be doing for the Postal Service. Apparently they reached a conclusion they could get by for quite a bit less. At the same time, I think they recognized it was going to be a cost control problem to stay within that, particularly since the limitation is on a total program basis, and of course they incur their costs on an individual project basis.

Presumably, they will try to do on each one of these projects what is necessary to protect the interests of the Government to make sure the design is right and the construction is performed properly and

so on.

Mr. WRIGHT. Yes, we would assume that. But you declare in the past, to the best of your ability to gage it, the overhead when measured by the accounting standards that will be required under the new arrangement for corps projects, has been closer to 8 percent than to 51/2 percent?

Mr. AHART. It would be about 8 percent, yes, sir.

Mr. WRIGHT. Now, if the corps should be unable to manage this project within a substantially lesser amount such as 52 percent, and if indeed the overage should run to approximately 8 percent, who pays for the difference? Is it the Postal Corporation or is it the corps out of appropriated funds?

Mr. SOCOLAR. I think the problem you suggest in your question has a different answer, depending on whether you are looking at the situation before July 1 when the Post Service began functioning or after.

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I think under the situation before July 1, if the corps weren't able to stay substantially within the 512 percent, I think that they would run afoul of the prohibitions against using their appropriations for a purpose other than that for which they were provided.

After July 1, however, I think that the authority in section 411 of the Postal Reorganization Act is so broad that I would find it difficult to conclude that there would be any illegality.

Mr. WRIGHT. I wasn't asking a question of legality.

Mr. SOCOLAR. I think it would be the corps that would pay under the terms of the agreement.

Mr. WRIGHT. It would pay out of appropriated funds and the taxpayers ultimately would pay; is that correct?

Mr. SOCOLAR. That would be my interpretation; yes.

Mr. WRIGHT. Thank you.

Mr. STAATS. I think it should be emphasized with respect to the situation on any construction initiated under the Postal Reorganization Act, that it would be possible for the Postal Service to make a further adjustment in the 512 percent.

Mr. WRIGHT. If they desired to do so?

Mr. STAATS. Right.

Mr. WRIGHT. But they are under no obligation to do so, are they? Mr. SOCOLAR. On that point, I think the agreement itself is perhaps subject to varying interpretations. From the background of the agreement, as I construe the intention of the parties to the agreement, it was intended as a 52 percent ceiling. However, from the wording of the agreement itself, there is another reasonable interpretation that could be given-that the Postal Service was to pay costs with the corps making its best effort to keep those costs below 52 percent.

Mr. WRIGHT. Well now, we are talking about two different things, aren't we? If I contract with John Constandy to build a house for me, and the contract says he will build it within 52-percent overhead above the actual cost of construction, I think I would want to understand and I think he would want to understand-before we entered into the agreement what it meant. I don't think it would be an acceptable agreement if I were under the impression that he had promised to build it within 51/2-percent overhead cost and that that was all I was obligated to pay him, and if he were under the impression that it just meant he would try to build it within 51/2-percent cost, but I was obligated to pay whatever it did cost. That latter is not really a contract, is it?

Mr. SOCOLAR. What I am saying is, without the background of the intention of the parties as to this 512 percent being a ceiling, as I look at the agreement itself, it is susceptible of an interpretation that the Post Office Department would pay.

Mr. CONSTANDY. May I interject? There will be additional testimony from the documents which fairly clearly sets out the intentions. As we reviewed this, the original objective of the corps is that they would have a target of 5.5 percent. In the rationale of the brochure of February 12, they stress the fact that it would be illegal for them to charge 5.5 percent. They develop how they arrived at the spread they would be shooting for, which at that time was 5.5 to 6.98 percent, and they came to the conclusion as a result of that brochure, which you have to

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