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COMPARISON OF LEASE CONSTRUCTION PROCEDURES

At June 30, 1970, the Department, one of the Government's largest users of space, occupied about 146 million square feet of space in 30,773 buildings of which about 83 million square feet, or 57 percent, was leased in 27,722 buildings. The Department used lease construction to acquire most of its new facilities.

At June 30, 1970, GSA managed about 217 million square feet of space (exclusive of Department space) in about 9,550 buildings of which about 54 million square feet, or 25 percent, was leased in about 6,950 buildings. In contrast to the Department's lease construction program, GSA leased almost all its space in existing buildings or in buildings that it classified as being under construction when leases are awarded.

The major differences between the GSA and Department lease construction procedures were:

1. GSA had authority under the law to lease facilities

up to 20 years whereas the Department under certain

conditions could lease facilities up to 30 years. 2. GSA was required by law to submit a prospectus for

lease construction involving an expenditure in excess of $200,000, to the Public Works Committees for approval prior to entering into lease agreements. The Department did not have to obtain prospectus approval, but had to submit a report, 30 days prior to entering into a lease for space, having an area in excess of 20,000 square feet, to the Senate Committee on Public Works and the House Committee on Post Office and Civil Service.

3. The Department had the authority to obtain control of

a building site prior to advertising for lease con

struction bids. GSA did not have such authority. 4. GSA leased buildings designed and constructed by

private developers. The Department designed its own facilities or used the services of a private architectengineer and included building plans and specifications

in bid packages furnished to potential bidders.
5. Under the Economy Act annual rentals paid by GSA were

limited to not more than 15 percent of the appraised
fair market value of leased property. The limitation
did not apply to Department leases. In addition, GSA
procedures generally limited the overall net return
on investment to 9 percent. Department procedures
did not limit the lessor's return on investment to a

fixed amount.

6. To comply with the 15 percent rental limitation, GSA

appraised the fair market value and rental for buildings to be constructed and leased to the Government. All GSA appraisals were reviewed independently by personnel not concerned with leasing transactions. Most Department appraisals were made by staff real estate officers, who, in some instances, also negotiated purchase options and/or made lease arrangements. Appraisals made for the Department by contract appraisers were reviewed and recommendations were made by the Department real estate officers who also may

have been responsible for the leasing action.

We have not reviewed the application of the foregoing procedures to evaluate their effectiveness.

Mr. WRIGHT. Mr. Staats, the committee would be derelict if it didn't express its very deep and abiding gratitude to you and your able associates for a truly monumental job performed in a very short period of time.

Mr. Staats. Thank you very much.

Mr. Wright. In addition to this very concise, though at the same time comprehenisve summary that you have just given to the committee this morning, the thorough documentation which you have provided as a concomitant has been extremely useful to the committee and will be useful to the committee in any decisions that it may reach.

I am advised that representatives of the General Accounting Office, in preparation of this data at the request of the committee, worked nights over the July 4 weekend in order to have it available to us, and we certainly want you to have our expression of appreciation and gratitude for a thoroughly professional, workmanlike job on a highly complicated subject. And we appreciate your being here with us this morning

Mr. STAATS. Thank you very much.
Mr. WRIGHT. The committee stands in recess until 2 p.m.

(Whereupon, at 12:20 p.m., the hearing was recessed, to reconvene at 2 p.m., this same day.)

AFTERNOON SESSION

Mr. WRIGHT. The subcommittee will be in order.

We resume hearings on the impact of the postal building programs on Federal agencies.

This morning we had very detailed testimony from Elmer B. Staats, Comptroller General of the United States, and from Mr. Milton Socolar, the Deputy General Counsel for the General Accounting Office.

At our request, Mr. Gregory Ahart and Mr. Michael Zimmerman have remained over for the afternoon in order that we might direct additional questions to them.

Gentlemen, you both have been already sworn and a preliminary statement has been made. I think we will just proceed with any questions the committee might desire to propose to the two of you.

Mr. Constandy, I believe you had some questions.

Mr. CONSTANDY. Yes, Mr. Chairman. What we propose to do now is refer to the detailed statement, which will be included in the record, that has been referred to and take the section that pertains to the Department-Corps of Engineers agreements for acquisition of postal facilities and develop section by section additional detail that was the basis for Mr. Staats' summary testimony and perhaps amplify some of the problems, some of the material that was developed by GAO, and provide for the record the complete documentation of the material.

Mr. Ahart, there is reference made to the March 1969 letter from the corps accompanying a brochure, and the letter suggests this is in response to a query put to them by the Post Office Department as to whether they would be able to provide capability to the Post Office Department for the acquisition, design and construction of real estate services in the postal building program.

The letter is dated March 27, 1969 and it is signed by General Clarke, Acting Chief of Engineers. It was addressed to Mr. Blount as Postmaster General.

Without reading the letter, Mr. Chairman, I think it simply sets forth the conclusions from the brochure which describes the Corps of Engineers structure and capabilities in broad, general terms. The significance of it is that by March 27, 1969 the Corps was already prepared to respond to a request by the Postmaster General on the general subject of the corps undertaking the building program and related activities.

I would like to make that exhibit 10. Mr. Wright. Without objection, this letter will become exhibit 10. (The letter follows:)

EXHIBIT 10

MARCH 27, 1969. Hon. WINTON M. BLOUNT, Postmaster General, Washington, D.C.

DEAR MR. PosTMASTER GENERAL: In response to your query, we have summarized in the attached brochure the specific capabilities of the Corps of Engineers to provide design, construction and real estate services to the Post Office Department.

Subject to the approval of the Secretary of the Army, we would be pleased to support your requirements for construction and related services to whatever extent your future programs may demand. In this connection, other agencies have called on the Corps many times in the past for the execution of large construction programs. The most recent example is the work begun for the National Aeronautics and Space Administration in 1960, which is still being carried on under a formal agreement initiated at that time. The agreement between the Corps and NASA is inclosed in the brochure to illustrate the details of mutual support in that particular instance. The provisions of agreements with other agencies vary considerably, depending on the circumstances in each case.

Large programs, such as the construction of NASA and ICBM facilities in the early 1960's, and the current SENTINEL program, led to the establishment of special organizations in the field and small specialized staffs in the Office, Chief of Engineers. These arrangements were necessary because of the urgency, magnitude and specialized nature of those programs. In most instances, however, the existing organization of the Corps has been fully capable of discharging large increases in construction workload without significant changes in the organization or location of existing field offices.

Based on criteria established by your Department, the Corps could provide all design, construction and real estate services, including project cost estimates ; site acquisition and leasing; preparation, award and complete administration of design, construction, and supply contracts and modifications thereto; supervision and inspection of contract construction; legal services, including requirements resulting from contractor claims and appeals, and labor disputes ; disbursing and accounting for funds; and reporting on the status of all construction and related activities.

The assignment to the Corps of responsibilities for the types of services enumerated above would require the support of your Department in the provision of manpower spaces, as current personnel ceilings are restricted to programs presently assigned. Funding for all services assigned could be arranged either by transfer of funds at departmental level, or by reimbursement on a periodic basis. Charges for real estate and engineering and design services would be based on actual costs. Reimbursement for costs incurred by the Corps in supervising and administering the program could be based on actual costs for individual projects, or charged at a single, predetermined rate for all projects. The predetermined rate would be subject to periodic adjustment.

Your expressed interest in the Corps of Engineers construction capabilities is deeply appreciated. I trust that the contents of the enclosed brochure will provide information of additional interest to you. We welcome this opportunity to be of service to you. Sincerely yours,

F. J. CLARKE,
Major General, USA,
Acting Chief of Engineers.

Mr. CONSTANDY. Mr. Ahart, also there was reference made this morning to a letter from Mr. Kunzig to the Hon. Peter M. Flanigan, Assistant to the President, dated April 17, 1969. I received this from the GSA and I will read it into the record, and we perhaps could make that exhibit 11.

Mr. WRIGHT. Without objection, this will become exhibit 11. (Document previously printed on page 147.)

Mr. CONSTANDY. The subject is GSA delegation of post office construction authority. It reads:

This is a brief memorandum to report to you on the present status of the above subject. Red Blount and I met this morning with the following results :

1. I raised the point that it might be “easier” to deal through the GSA. It might be "cheaper" through GSA and there could be conceivably Congressional problems if the Corps of Engineers is used.

2. We solved all major legal problems. I may delegate—and the Post Office may legally use—the Corps of Engineers. Smaller technical legal problems in the phraseology of actual delegations will be worked out quietly in the future between our appropriate legal staffs.

3. Since the White House and Red Blount feel the Corps of Engineers, for many reasons, will best be able to handle specialized new post office construction, we have agreed that the delegation will continue and there is nothing to stop the Post Office Department from using the Corps of Engineers at once.

Red Blount seemed quite pleased with the agreement we reached. He recognizes there may be congressional problems and he and his staff will give careful attention to this situation as time progresses. If there is anything further you wish me to do in this matter, just let me know. This is signed, “Robert L. Kunzig, Administrator."

Mr. Chairman, in this letter we want to point out the fact that paragraph 2 is referenced to solving all major legal problems. At the moment, we do not know what they are. Apparently they relate to the use of the delegation for such a purpose.

There are two references to the necessity of being delicate in the handling of this in regards to Congress.

Mr. WRIGHT. I think it is significant that two references in the communication acknowledge the possibility of difficulty with Congress and one reference acknowledges an agreement that these problems will be worked out quietly.

It might be unfair to assume unwarranted conclusions as this time in the absence of questioning Mr. Kunzig as to exactly what was meant but it does seem to the Chair significant that there are two references to the possibility of problems with Congress and one reference to working out these matters quietly. I think perhaps we would want to question Mr. Kunzig or representatives of the GSA with respect to those matters in the future.

Mr. CONSTANDY. I would like to point out, too, in fairness to Mr. Kunzig, he not being present, that his staff advised me that letter was entered into shortly after his arrival within GSA as the Administrator and that his reaction was more predicated on problems that were

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