It would facilitate our review if the Post Office Department would furnish information setting forth circumstances leading to the agreement and the rationale supporting it, including such factors as alternatives considered and the reasons for their rejection, and the cost and efficiency of accomplishing Post Office construction by this alternative compared to other possible alternatives. We would also appreciate receiving the views of the Department of Defense with respect to the anticipated effect on current programs of the Corps of Engineers as well as the desirability of extending the role and mission of the Corps to the area of postal construction, including particularly the way the Department views its responsibilities, vis-a-vis that of the General Services Administration, for the construction of buildings to house the civilian agencies of the Federal Government. For your information, the views of the General Services Administration also are being requested. A letter identical to this one has also been sent to the Secretary of Defense. Wtih your cooperation, we shall try to complete our review as expeditiously as possible. Sincerely, (Signed) GEORGE P. SHULTZ, Director. HONORABLE GEORGE P. SHULTZ, Director, Office of Management and Budget, THE POSTMASTER GENERAL, DEAR GEORGE: This is in response to your letter of March 27, concerning a review by your Office of the recently announced agreement under which the Corps of Engineers will serve as a construction agency for the Post Office Department. I. Let me deal with your request for information on the circumstances leading up to the agreement. Some years ago, as you may be aware, the post offices that we acquired under our postal public building program were not constructed by the Post Office Department, but by the General Services Administration. (This has never been true with respect to facilities acquired under our lease-construction program; that program has always been administered solely by the Post Office Department.) During the last decade, as mail transportation patterns underwent dramatic changes and suburban areas mushroomed, it became apparent that we could not possibly cope with the steadily growing volume of mail unless the emphasis of our construction program were shifted away from multi-storied buildings located in downtown areas, and toward special purpose industrial-type facilities located in areas with convenient access to airports and interstate highways. Most competent observers recognized that the characteristics of the special purpose buildings needed by the Post Office Department differed significantly from those of the office buildings that house many of the civilian agencies of the Federal Government. In recognition of those differences, I understand that as early as 1964 the Bureau of the Budget raised the possibility that insofar as postal buildings were concerned, the construction authority vested in GSA under the Public Buildings Act of 1959 might be delegated to the Post Office Department. President Johnson thought that it would be worthwhile to have the matter considered by a committee of businessmen with construction backgrounds, and this committee unanimously supported the independent construction approach. (Although it was finally stricken from the report. several members of the committee favored a positive statement that GSA should have absolutely no part in post office construction.) I believe that the report of the businessmen's committee was submitted to the Bureau of the Budget in July of 1965. In 1966, the Administrator of GSA delegated to the Postmaster General authority to "acquire, design, construct, and alter public buildings to be devoted primarily to postal purposes." Under this authority-which was expressly made "with authority to redelegate"-the Post Office Department has been constructing postal public buildings ever since. Soon after I became Postmaster General and began to dig into the problems facing this Department, I concluded that if we are ever to do the job that our customers are expecting of us, we are going to have to make a fairly substantial investment in new plant and equipment. Our mail volume will soon be approaching 100 billion pieces per year. What we need to move that mail efficiently is a network of light industrial one-story buildings, located in the right places and equipped with modern materials-handling machinery. No such network exists today. It was obvious to me that the Post Office Department did not have a construction organization capable of completing, within a reasonable span of time, the kind of facilities network that we needed. Accordingly, in the Spring of 1969 I began discussing our problem with the Corps of Engineers and GSA, among others. Under date of March 27, 1969, General Clarke, who was then the Acting Chief of Engineers, sent me a brief description of the specific capabilities that the Corps could bring to the task of providing design, construction and real estate services to the Post Office Department. A copy of that material is attached at Tab A. Bob Kunzig, the Administrator of GSA, was thoroughly familiar with our problem and was extremely cooperative in helping us think our way through to a solution that would best serve the public interest. In a memorandum dated April 17, 1969, Bob told Peter Flanigan, at the White House, that "Since the White House and Red Blount feel the Corps of Engineers for many reasons will be best able to handle specified new Post Office construction, we have agreed that the delegation will continue and there is nothing to stop POD from using the Corps of Engineers at once." A copy of Bob's memorandum is attached at Tab B. We all recognized that the use of the Corps might conceivably ruffle a few feathers on Capitol Hill. This caused me some concern, because the President had asked me to give top priority to the task of securing passage of the postal reform bill. As you will recall, the AFL-CIO and all of the postal unions were presenting a united front in opposition to the bill, and as a result, the reform proposal met with a somewhat chilly reception in Congress. Because the construction freeze imposed by the President during that period made it necessary to defer a major expansion of our postal construction program, and because I was confident that we could get the reform legislation through Congress within a reasonable period of time if we did not try to fight too many battles simultaneously, I put the Corps of Engineers projection on the back burner pending passage of the bill. I did, however, make arrangements for the Corps to take over supervision of several construction projects that we had under way, and I must say that we found the Corps' performance on these projects quite satisfactroy. The form act was, as you know, signed into law last August. After informal discussions with Mel Laird, I sent him a letter on September 26, 1970, confirming our desire to utilize the capabilities of the Corps, now that we were in a position to go forward with an expedited construction program. Copies of that letter and Mel's reply are set forth at TABS C and D. Over the next few months we worked out definitive agreements with Secretary of the Army Stan Resor and General Clarke, which agreements, as specified in my letter of September 26, provided for "strict control of the costs to be incurred in carrying out our program." Copies of these agreements, as signed at a public ceremony on March 11, 1971, are attached at TABS E and F. II. Turning now to your request for information on the rationale supporting our agreement with the Corps, including such factors as the alternatives considered, the reasons for their rejection, and the relative cost and efficiency of the various possible alternatives, it seemed to me, when I began considering this problem, that the following options were open to us: (1) We could try to create an organization within the Post Office Department capable of undertaking a construction program of the magnitude required. (2) We could request GSA to try to build up the necessary capability. (3) We could turn the work over to the Corps of Engineers. (4) We could utilize the services of other professional construction agencies within the Government, such as the Naval Facilities Engineering Command and the Bureau of Reclamation. (5) We could contract the work out to private industry. With regard to the first option, I was convinced, as one with some experience in the field, that it would be wasteful, inefficient and time consuming to try to develop the necessary construction capability in-house. The job facing us is just too big. A significant part of that job consists of building a network of 33 geographically dispersed bulk mail handling facilities that will cost a little under one billion dollars. When completed in fiscal year 1975, this bulk mail network will enablę us to perform our work at a level of expenditures estimated, on the basis of 1971 costs, at about $310 million a year below the level of expenditures that would be incurred without the network. The new facilities will not only permit us to achieve a very significant avoidance of costs, moreover, but will also result in substantial improvements in the quality of our service. In addition to the bulk mail network, we expect that within a year we shall be in a position to make a final decision on construction of a preferential mail network that could well have an even more dramatic impact upon the efficiency of our operations. If we decide to proceed with the preferential mail program-which would entail the construction of some 200 to 300 separate facilities at a cost substantially higher than that of the bulk mail program-the necessary construction will, again, have to be completed within a relatively short time span. Over the next few years our construction program could easily exceed $500 million a year. By way of contrast, our highest level of construction during my tenure in office has been less than $120 million a year. For the Post Office Department to build, almost from scratch, the kind of organization needed to execute a construction program of these proportions, would, in my judgment, be a serious mistake. Professional construction organizations of that kind are not put together overnight, and although I am sure that we could develop such an organization, given enough time and money, we would not need it on a continuing basis. These will be a sharp drop in our construction activities once the programs I have described are finished, and unless the Postal Service is expected to serve as a major construction agency for other units of Government, it would make little sense for us to develop in-house the kind of field organization that this work requires. To a greater or lesser degree, many of these same considerations militated strongly against a decision to dump the Post Office problem in GSA's lap. For the most part, GSA's construction experience has been confined to the erection of facilities which are basically office buildings. Its whole construction operation is oriented toward these kinds of buildings; and, as I have already noted, the facilities required by the Post Office Department are of quite a different kind. I have no reason to suppose that GSA is any better equipped to organize itself to do this kind of job than is the Post Office Department. Like the Post Office Department, GSA maintains no significant field force to supervise and inspect construction; instead, it contracts such work out to private architect-engineer firms. Based on my own construction experience and on that of the Post Office Department, I consider this an unsatisfactory modus operandi for the kind of work we are talking about. To an increasing degree, moreover, GSA has tbeen using the "construction manager" concept in carrying out its construction work. This concept, in my opinion, is not one that would help us get the type of facilities we need, at the lowest possible cost, and on time. Timely completion of the construction projects for which GSA is responsible may not be terribly important to many of the agencies that utilize GSA's services, because the work performed by those agencies is not commercial in nature. The function of the Post Office Department, by way of contrast, is indistinguishable from that of any other revenue-producing public utility; and we simply cannot afford the cost that would be entailed by significant delays in our construction program. The merit of the third option that was open to me-i.e., to utilize the Corps of Engineers—must, I think be self-evident to anyone who is familiar with Government construction work. The Corps of Engineers is the largest professional construction agency-military or civilian-in the world. It has a wider range of design and construction experience than any other agency. Unlike GSA or the Post Office Department, it has division and district construction offices located throughout the country. The men who staff these offices-many of whom I know personnally-are, by and large, competent specialists in the construction field, fully capable of providing the kind of intelligent and aggressive management and inspection services that we must have if we are to get the tools we need to do our job. The fourth option-i.e., utilizing the services of other construction agencies, such as the Naval Facilities Engineering Command and the Bureau of Reclamation-is one that did not particularly commend itself to me because of the size and geographical dispersion of our projected construction program. The fifth option-i.e., turning to the private sector-is one to which I gave serious thought. Several members of the House Post Office Committee have suggested that this option may have merit, and I am not unsympathetic to their point of view. It is a fact, however, that no private organization comparable to the Corps of Engineers is in existence today, and while private enterprise could undoubtedly put together the kind of construction team we need faster than either the Postal Service or GSA could, it would take time and it would not be inexpensive. The Corps, to be sure, will need to augment its strength somewhat in order to fulfill the mission we have given it, but basically the Corps already has precisely the kind of work force we need, located where we need it, in-being and ready to go to work for us right now. The Corps has been winding up its work for NASA-work that entailed the construction of highly complex facilities that cost around $1.3 billion-and is thus in a position to make available to us, at relatively low cost, the services of a construction team that has few peers in terms of quality, and is unequaled in terms of size and geographic distribution. Our agreement with the Corps imposes a relatively low ceiling on the Corps' in-house costs; assuming a Post Office program in the range of $250 to $500 million annually, the Corps is under a firm commitment to see that its overhead and inspection costs will not exceed 5.5 percent of the total program payments to contractors for design, construction, and mechanization, plus any in-house Corps design costs. General Clarke has promised me, moreover, that the Corps will utilize aggressive management techniques aimed at carrying out the program at a figure below the 5.5% ceiling. The Corps' construction program has been running at a level of about $2 billion per year, split roughly 50-50 between the civil works and military programs. Since 1959, GSA's construction budget has averaged around $115 million a year, and I think the figure is about $180 million for FY 1972. As between the Corps and GSA, therefore, and bearing in mind the broad geographical coverage of the Corps' organization, there can be no question as to which agency is in a better position to assimilate an additional construction burden of $250 to $500 million per year. III. Some of the assumptions underlying your review of our agreement with the Corps may merit discussion at this point. I am not sure it is true, for example, that "this agreement would result in a major change in the role and mission of the Corps of Engineers." Mel Laird can speak for himself on this point, but my belief is that the type of job that we have assigned to the Corps of Engineers is in no way foreign to the Corps' role and mission. The Chief of Engineers, under the supervision of the Secretary of the Army, is authorized by statute "to accept orders from other Federal departments and agencies for work or services . (Section 219 of P. L. 89-298, Title II, 79 Stat. 1089.) In recent years the Corps of Engineers has performed specialized construction services the same kind of specialized construction services that we need-for such agencies as the State Department, USIA, AID, DOT, Interior, HEW, and NASA. Since January of 1967, I understand that the Corps has completed some 17 construction and modernization projects, totaling $37 million in cost, for GSA. In addition, the Corps has, of course, provided construction services for various constituent agencies of the Department of Defense, and, since the Fall of 1968, has built postal facilities on various Army and Air Force installations at a total cost of about $4 million. I am somewhat puzzled, similarly, by your reference to the implications of our agreement with the Corps with regard to "the role of the General Services Administration as the primary agent for the construction of buildings to house the civilian agencies of the Federal Government." I had supposed that GSA's primary role involved construction of the kind of general purpose buildings in which nonrevenue producing agencies of the Federal Government are customarily housed. As noted above, the highly mechanized special purpose facilities needed by the Post Office Department bear little resemblance to the facilities that GSA builds-and that is one of the major reasons why it was agreed years ago that GSA should get out of the postal construction business. IV. I deeply appreciate your expression of willingness to try to complete your review as expeditiously as possible. On April 28 the Corps will receive bids on the highly important New York bulk and foreign mail facility. (Bids on this project were originally solicited by the Post Office Department, and we had to reject all bids because of the fact that the lowest bid-which exceeded $100 million-was far in excess of the amount available under our appropriation.) The Corps has half a dozen other postal projects under actual construction and about 13 additional postal projects under design right now. The Corps is planning to issue an invitation for bids on a preferential mail facility at Tuscon, Arizona, on April 7, and there are a number of other projects throughout the country that I am anxious to assign to the Corps as soon as practicable. In his message to the Congress of April 16, 1970, the President stressed that the new Postal Service should be "insulated from direct control by the President, the Bureau of the Budget and the Congress." As to Congress, I think it is fair to say that most of the Members are not unaware of the enthusiasm with which we have embraced the proposition that the Postal Service must be free of direct Congressional control. Congress is probably somewhat sensitive about this subject right now, indeed, and because of that fact I suspect there are some on Capitol Hill who would not be averse to trying to make political capital out of any action that might conceivably be constructed as a failure on the part of your Office to honor the President's commitment that the New Postal Service will be a truly independent establishment. I fully appreciate the fact that you have no intention of compromising our independence, and I know that you have very important responsibilities insofar as the Corps and the Department of Defense are concerned. My experience has been that important details can sometimes get lost in the heat of Congressional debate, however, and it could well be that a hold up in the Corps' agreement would be greeted with charges that the President's postal reform bill has a simply transferred the Postal Service out of the frying pan of Congressional politics and into the fire of executive branch politics. Such charges could only be damaging to the cause that all of us are trying to serve. If the services of the Corps are not to be available to us, we shall, of course, have to reconsider our position as to going to the private sector or developing our own geographically dispersed construction force. Either course would be costly in terms of both money and time. As I read the temper of our customers, the time available for making good on our promises of better mail service is precariously short. Any delay in the implementation of our construction program would be damaging, and I hope that your review can be completed very promptly indeed. Sincerely, WINTON M. BLOUNT. EXECUTIVE OFFICE OF THE PRESIDENT, Hon. ROBERT L. KUNZIG, General Services Administration, DEAR MR. KUNZIG: The Post Office Department and the Department of the Army have entered into an agreement under which the Corps of Engineers will assume responsibility for supervising the construction of postal facilities. I have asked both parties to suspend any action under the agreement until this Office has completed a review of the effect this agreement may have on the mission of the Corps of Engineers and on the organization and management of the functions of the executive branch. I would appreciate receiving your views with respect to this agreement, particularly as they pertain to the role of your agency vis-a-vis that of the Corps of Engineers in the construction of buildings to house civilian agencies of the Federal Government. It would also be helpful to have data with respect to the cost to the |