ments to support the Postal Public Building Program at an assumed (1) level of $200 million of annual work placement and (2) an in-house cost rate of 6% as compared to the total in-house costs and personnel requirements of these same elements:

Fiscal year 1971 estimated workload value of these 20 districts, $1.1 billion. An annual USPOD construction placement, $200 million.

When comparing in-house costs and personnel strengths with the respective sizes of programs, it is readily evident that the costs and personnel requirements on a program dollar basis of each echelon in support of the Postal Public Building Program are considerably less than those associated with the total programs of these same Corps elements.

Footnote. The in-house design, construction, and support cost rates, discussed in this paper were arrived at by relating the design, construction, and support costs to the related value of construction contracts. The construction contract value does not include the cost of the A-E design contracts. Thus, if one relates the in-house design, construction, and support costs to the value of construction contracts and A-E design contracts, the resulting cost rate will be less than the cost rates discussed in this paper.

Mr. CONSTANDY. Not to belabor the point, but I think there are some additional points that you could make with regard to this document, are there not? It was pointed out this morning that the brochure of February 12 stated that it comprises S. & R. and S. & I., and support costs for the fiscal year 1970 military construction program, and they were 8.51 percent.

Mr. AHART. That is correct. First of all, I think we need to clarify that the 8.51 percent is not fully comparable in terms of the way it is calculated to the 5.5 percent figure which is included in the March 11 agreement.

It would be approximately half a percent less due to the inclusion of the architect-engineer design costs in the base upon which this percentage was calculated.

So, in equivalent terms, I think it would be about 8 percent of past experience compared with the 5.5 percent ceiling included in the agreement.

Mr. WRIGHT. I think the testimony this morning indicated 8.5 percent in the fiscal 1970 operations.

Mr. AHART. That is correct, Mr. Chairman. What I am stating is that the two figures are not calculated on the same basis. If you calculated the 8.5 figure on the same basis as the 5.5 figure, you would reach a figure of approximately 8 percent even, so it is a 22 percent spread roughly, instead of the indicated 3 percent spread.

Mr. CONSTANDY. This is the brochure which produces the

Mr. AHART. The range of percentages that was mentioned this morning.

Mr. CONSTANDY. Yes, 5.5 to 6.98.

Mr. AHART. These are calculated on the same basis. In other words, 8.51 was calculated on the same basis as the range from 5.5 to 6.98 which was mentioned this morning. If you would like, I could give you a breakdown of that range of percentages by the types of costs which were involved.

Mr. CONSTANDY. Could you do that, please?

Mr. AHART. The S. & R. cost, which is supervision and review, of the design phase of the projects: The fiscal year 1970 experience was 1.03 percent, compared with the corps estimated range of .8 percent to .88 percent. For the cost of supervision and inspection of the construction costs, the fiscal year 1970 experience was 4.7 percent compared with a calculated range of 3 percent to 3.9 percent. For the support costs at the district level, the fiscal year 1970 percent was 1.38 compared with a calculated range of .9 to 1 percent. And for the support cost of at the division and Washington headquarters, the fiscal year 1970 experience was 1.4 percent compared with a calculated range of .8 to 1.2 percent, for total costs then of 1970 experience of 8.51 compared with calculated range of 5.5 to 6.98 percent.

In each case the calculated range cost is somewhat lower than the actual experience on the 1970 military construction program.

Mr. CONSTANDY. And those figures, or rather those items, are fairly well developed in this brochure, are they not?

Mr. AHART. They are, Mr. Constandy.

Mr. CONSTANDY. Maybe I am too gullible, but they took 22 pages to describe why they came to a range of 5.5 to 6.98 percent as the range within which they could perform the work. This relates to the discussion we had this morning, the perplexity of how they could enter into an agreement of 5.5 percent. You give him the other half percent, which suggests that their range perhaps is from, where would you take it off? Would you make it 5 or would you make it 6, the other half percent? You get my point.

Mr. AHART. It would be about 5.0 to 6.5 percent, if you were comparing it to the 1970 experience.

Mr. CONSTANDY. It is difficult to really understand why thereafter they entered into an agreement with a fixed 5.5 percent.

Mr. AHART. As was brought out in testimony this morning, as related to us by the corps, there was a ceiling insisted upon by the Postmaster General.

Mr. CONSTANDY. I think that has been demonstrated in the documents.

Mr. AHART. As to precisely how they got the 5.5 percent as the ceiling figure-we have no background on it at all.

Mr. CONSTANDY. They are in effect, in this brochure, saying they cannot do it for 5.5?

Mr. AHART. I agree with you—that the judgment would have to be that when this brochure was put together that this was the best judgment that the Corps of Engineers could make, and they came up with the range of 5.5 to 6.98 percent, as their estimated costs in performing these functions. It is not clear on the record as to how they got from that to the agreed upon ceiling. But I think the concern that suggests itself, and which you alluded to this morning, and I think that Mr. Socolar did, too, is that if you have to live within the

5.5 percent, you do that, and this was implied or implicit in the memorandum from General Rebh, which you read from this morning. Mr. CONSTANDY. The March 19 memorandum.

Mr. AHART. Yes. By reducing the services which really should be performed in connection with these projects, you are running somewhat of a risk. In other words, if the services should be performed, they should be performed.

I think from the work we have done in various construction programs over the years, and I know this committee has been involved in over the years, the corps offered the investment in a good inspection and supervision function, with respect to major construction projects, is a pretty good investment.

Mr. CONSTANDY. Yes, I would say so. That point is on page 17 of this brochure, which has been entitled subsection C, Design and Construction Costs, for Postal Public Building program, and subsection 1 of that, Conceptual Approach. It has been suggested that the corps establish a program percentage rate as a firm cost for the accomplishment of the Postal Public Building program, subsection (a), Impact of the Law: Statutory references which preclude this approach are as follows: 1,31 U.S.C. 686 provides that an agency may be required to pay estimated costs of work performed by another, but that proper judgments must be paid on the basis of actual costs; paragraphs 2, 31 U.S.C. 628 provides except as otherwise provided by law sums appropriated for the various branches of expenditure in the public service shall be applied solely to the objects for which they are respectively made, and for no other.

3, 33 U.S.C. 576 provides that the CE revolving fund may furnish services for other agencies as authorized by law and receive reimbursement for costs of services furnished.

I am quoting this from their document.

Based on the above, the corps may not provide a predetermined unadjustable rate or amount for performing Post Office work because, if such a range or amount should prove to be less than actual costs, the corps has no appropriation or fund which could legally be charged with the deficit. That is where we ended up this morning in our discussion. And the irony of it is that they entered into the agreement to provide the precise thing that just shortly before entering into the agreement, they found themselves to be not legally permitted to do it. Subsection (b) maybe points out even more the risk, keeping in mind the fact that they are undertaking a new program which will have factors in it that they could not anticipate. It is entitled "Difficulties in Estimating Program Percentage Cost."

The corps accounting system provides for costing for support services provided by the corps for each program in the appropriate billing thereto, in any program, the numerous factors which contribute to the cost of providing corps design and construction services are subject to variants throughout the life of the program.

These include precise estimation of their magnitude. Additionally, regarding the postal public building program, while general information is available, many details required for estimating purposes are lacking. For example, the number of projects in the entire program is not known. Likewise, composition of the program is not known; that is, number of preferential versus bulk facilities. Another item that

influences cost is the construction. It has not been and cannot be established at this time, because most of their facilities have not been designed.

Construction period over which the Government costs are incurred: Other items influencing construction. These are strikes, weather, criteria and design changes which in turn affect Government costs. Additionally, there is the fact that the corps has little experience yet in working with the Post Office Department. It is possible that administrative costs involved in furnishing reports, the handling of congressional inquiries, et cetera, may vary from those the corps has experienced in executing other programs.

That paragraph itself suggests that while they think they can do it within the range of 5.5 percent to 6.98 percent, they are hedging on it a little bit, because they point out a number of things which in fact your own work has already proven, have already come to pass. They make reference to the fact that the length of time that the project would be built is a determining factor and your own work has shown, at least in some instances, projects which have been forwarded to the district for completion within 12 months are unrealistic, and that the district is suggesting that if you attempt to maintain 12 months' schedule, you are really talking in terms of 16 months to 18 months and including additional increase in construction costs.

Now, that may work toward their benefit as far as it jacks up the price of the project. The other result may not be satisfactory to the Post Office, but there are a number of areas here in which there seems to be considerable hazard to even talk within the terms of the 5.5 to 6.98 percent figure.

On page 33 and page 34 we had a discussion this morning relative to the answer the corps gave you, which appears on page 34 of your detailed statement, explaining why the 5.5 percent rate was placed in the agreement. I think you have a document dated May 5, 1971, is that correct?

Mr. AHART. That is correct.

Mr. CONSTANDY. That is where that comes from for that material? Mr. AHART. Yes.

Mr. CONSTANDY. Is there anything further provided on section 2, considerations of the specific nature of the postal public building program to include the fact that these are large projects in your district offices, the construction schedules are relatively short, et cetera-is there anything further you can give us on that?

Mr. AHART. We do have some information, Mr. Constandy, concerning the location of these projects in relation to the district offices. I would like to have Mr. Zimmerman, if he would, provide that information.

Mr. ZIMMERMAN. As we mentioned earlier, there were 36 active postal projects, this is fiscal year 1971 projects-10 of which are located in cities where there are district offices. With respect to fiscal year 1972 projects, of which there now exist 31, 11 are located in cities where there are district offices.

Mr. CONSTANDY. That is roughly a third, then, that are so located in each case.

Mr. ZIMMERMAN. A third, yes; 30 percent.

Mr. CONSTANDY. Roughly; I think I used the figure this morning of 25 percent, so I am in error.

Mr. AHART. I think, Mr. Constandy, it is likely that the ones that are located in the cities with the district offices tend to be the larger of the projects, so possibly in terms of the amount of construction money involved, there would be a higher percentage.

Mr. CONSTANDY. If they are fortunate enough to be in a watershed, that is likely more true than not. If there is to be a large post office that is not blessed with also being in a river basin, it may be an exception.

Mr. ZIMMERMAN. I might add, there were five projects that were transferred to the corps prior to the March 11 agreement, of which three are located in cities where there are district offices.

Mr. CONSTANDY. The premise that this was accepted on and which they chose to elaborate on is not exactly so, is it? I think the corps has other offices than the district offices, and it may well be that more of them will also be in those offices or the areas of those offices serviced by those suboffices to the district.

Mr. AHART. It could well be, either serviced by the suboffice or if there is a major project outside of the district office, that they would have to establish a resident office close by.

Mr. CONSTANDY. That is exactly the point. If it is not in the district office, we immediately are talking about trying to bring in people and incurring the additional costs of opening a new office to service that postal building.

Mr. AHART. That could well be.

Mr. CONSTANDY. Is there anything further on that that you have? Mr. AHART. I just might make reference to paragraph 4 of the May 5 document in which General Rebh explains the apparent inconsistency between the statement in the brochure that they could not use a predetermined rate because of legal implications and the fact that they are actually entered into an agreement with a 5.5-percent ceiling. I think you might want this read for the record. It says:

With regard to paragraph 3C (1) (a), page 17

Mr. CONSTANDY. That is the thing I just read.

Mr. AHART. It was indicated that the corps may not provide a predetermined unadjustable rate or amount for performing Post Office work because, if such rate or amount should prove to be less than actual costs, the corps has no appropriation or fund which could legally be charged with the deficit. And, in subparagraph (b) on the same page, reasons were indicated as to why it is difficult to determine a program cost. One might claim that the corps has violated this position by accepting the 5.5-percent ceiling. Actually, there is no inconsistency. It is still true that the corps has no other source of funds to cover actual costs, if these costs should exceed reimbursements. However, the corps will have no difficulty in meeting the 5.5-percent limitation because of the three factors discussed in paragraph 3(a) above. Plus the fact that many of the unknowns discussed in subparagraph (b) on page 17 of the brochure, have, since the writing of the brochure, become susceptible to reasonable estimating.

This was General Rebh's explanation of the apparent inconsistency between the positions taken in the brochure and the position taken in the agreement itself.

Mr. CONSTANDY. Well, the material that he refers to in paragraph 3(a) above is what is referred to on page 34.