Federal Government if the General Services Administration were to provide the type of services covered by the agreement. Your views would also be appreciated on the ability of GSA to meet the schedule and requirements of the Postal Service. Since we hope to complete our review of the matter as expeditiously as possible, an early response to this letter would be helpful. A copy of our letter to the Secretary of Defense and the Postmaster General is enclosed. Sincerely, GEORGE P. SHULTZ, Director. EXHIBIT 28 THE SECRETARY OF DEFENSE, Hon. GEORGE PRATT SHULTZ, Director, Office of Management and Budget, DEAR GEORGE: This letter responds to yours of 27 March 1971 regarding the agreement between the Department of the Army and the Post Office Department whereby the U.S. Army Corps of Engineers will serve as the construction agency for the Post Office Department. When we first began looking at this possible program, Red Blount described to me the new concept for handling mail, the kinds of facilities required to be designed and constructed, the accelerated schedule he had in mind for the system to be operational, and his desire to use the Army Corps of Engineers as the construction agency for the Post Office. I thought his proposal served the best interests of the country, the Postal Service and the Department of Defense. The Corps, with its nationwide organization and demonstrated competence in managing large scale, complex construction programs, such as the ICBM systems and NASA, has an existing capability to complete this system of sophisticated mail handling facilities on the kind of schedule Red seeks and at acceptable costs. Accordingly, I asked Stan Resor to work out an agreement with Red Blount for the Corps to provide the requested real estate, design, and construction services on a reimbursable basis. They did so, and publicly signed the agreement on 11 March 1971. From a national security standpoint, there are several benefits to be derived from this course of action. Currently, the Corps is responsible for the design and construction of industrial plants and arsenals included in the military production base. These facilities are highly automated, involving principles and techniques similar to those of the facilities included in Red's new concept for the rapid processing of letters and parcels. Under this new concept postal facilities will tend to be light industrial, one story structures located on the fringe of metropolitan areas near airports and dual highways, in marked contrast to the kind of facilities traditionally constructed for the Post Office Department. In order to reduce mailing costs, the new bulk handling facilities will be highly automated with sophisticated material handling equipment controlled by computers. The Post Office Department is devoting considerable effort toward advancing the state of the art in automated and computerized materials handling equipment. The Corps' participation in this new postal construction program will equip them 'to take advantage of these advances in modernizing existing plants and arsenals, and in improving our logistics system, particularly depot operations, utilizing material handling equipment. Its involvement in the postal construction program, will also bring the Corps into closer association with architect-engineer firms engaged in industrial design and with the principal mechanization, computer, and electronic manufacturers and contractors in this country. These associations will be beneficial in peacetime military and other construction programs. They will be invaluable in the event of a rapid mobilization in providing needed military and industrial facilities. One of the great strengths of this country, during emergencies in the past, has been the rapid mobilization of its construction industry. No small share of this success has been due to the working relationships and mutual confidence and respect developed over the years between the Corps of Engineers and the many architect-engineer and general contracting firms throughout the nation. (68-528-71-21 From an economic view point, both the Department of the Army and the Post Office Department will benefit from economies of scale. A larger total program for the Corps will reduce costs in a relative sense, particularly overhead costs. This reduction will be reflected in all construction programs of the Corps, including military construction. I do not believe that the Post Office construction program will involve a major change in the Corps' role and mission. The Corps, through the years, has accepted requests for real estate, design, and construction services from Federal agencies pursuant to authorities such as Section 219 of Public Law 89-298. The Federal agencies, other than the Department of Defense, for which the Corps has provided, and in many cases is still providing, these services include: the Departments of State, Transportation, Health, Education, and Welfare, and Interior; the General Services Administration; and NASA. Since 1967, the State Department program alone has amounted to $9.3 million. Since 1966, the Corps has assisted GSA by providing supervision and inspection services for renovation and construction of 17 facilities (including 13 post offices); with a total construction cost of $37 million. Since 1964, the HEW program has totalled $7.5 million. The NASA program has, to date, amounted to $1.3 billion. Thus, the Corps has performed and is performing for other Federal agencies the kinds of services requested by the Post Office Department. We do not believe that the size of the Post Office construction program will adversely affect the Corps' other programs. The Corps, in recent years, has managed a combined civil works and military construction programs averaging annually on the order of two billion dollars. Red Blount has indicated that his program will vary from a low of $250 million to a high of $500 million in a given year. Hence, at its peak, the Post Office workload would constitute no more than 20% of the Corps' total program. Organizationally, the Corps is capable of accomplishing this program utilizing civil procedures without undergoing any basic structural change. It has an existing field organization which is already distributed on a nationwide basis and it has demonstrated design and construction competence in the kinds of facilities involved. The principal change required will be the addition of a small office in the Office of the Chief of Engineers to coordinate with the Post Office Department and to provide central management for the program. Though no change in basic organization is required, there will of course be a need for some additional staffing to accommodate the increased workload, although some of the staffing will be provided by retaining military construction personnel who would otherwise be laid off in this period of reduced military construction programs. In your letter, you indicate that, with the Corps as the Postal construction agency, there may be a significant impact on the organization and management of the executive branch. Since the program requires no basic change in the Corps organization, I do not see the suggested impact. In particular, I see noimpact on the reorganization proposed by the President, for two reasons: (1) even in the civil works side of the Corps program, the functions involved in the postal program-engineering design, construction, contract supervision-would be retained by the Corps; and (2) in any event, the postal program is, as noted above, more closely akin to the military program in terms of the skills involved. As to how "the Department views its responsibilities, vis-a-vis that of the General Services Administration, for construction of buildings to house the civilian agencies of the Federal Governnment," our view is this: we have no desire to infringe upon GSA's responsibilities in this area. At the same time we consider carefully any Federal agency requests for the services of the Corps since the Corps is authorized by law to undertake such work. Normally, these requests are not for the typical large office buildings used in housing civilian agencies of the Federal Government although, in the past, GSA has occasionally utilized the Corps' assistance for supervision and inspection even for these structures. In the case of the Postal construction program, I see no conflict with GSA's responsibilities because, under the new concept, the preferential mail facilities and the bulk mail facilities are light industrial, one story structures: housing complicated mechanical equipment rather than the usual sort of office building. It seems to me that there is a solid, logical basis for the Postal building program agreed to by the Army and the Postal Service. The agreement was worked out with a lot of careful negotiation, and has already been signed. As Red Blount's letter to you points out, the program is already under way and some significant contracts will be coming up for action shortly. Given Red's strong views on the subject, my own strong views that the arrangement is beneficial to the Department of Defense, and in the absence of any demonstrable significant impact on Executive Branch organization, I believe you should promptly indicate that you have no objection to the program proceeding. Sincerely, MEL Hon. GEORGE P. SHULTZ, APRIL 15, 1971. Director, Office of Management and Budget, Executive Office of the President, Washington, D.C. DEAR MR. SHULTZ: We are pleased to have the opportunity to furnish our views concerning the proposed agreement between the Post Office Department and the Department of the Army under which the Corps of Engineers would assume responsibility for supervising the construction of postal facilities. We strongly feel that the role of the General Services Administration in the construction of buildings to house civilian agencies of the Federal Government would be seriously weakened if this agreement is implemented. Some considerations and consequencies are: 1. Implementation of the agreement would further proliferate authority to construct public buildings within the Executive Branch contrary to the intent and purpose of the Public Buildings Act of 1959. In addition, during the hear ings, the President's Commission on Government Procurement has expressed concern over the erosion of the single centralized service agency concept. Senator John L. McClellan, Chairman of the Senate Committee on Government Operations, has recently expressed the concern of his Committee over possible duplication of GSA construction services and functions by the Department of Health, Education and Welfare. Other Members of Congress have expressed similar concerns. 2. Involvement by the Corps of Engineers would contribute to further confusion on GSA's role in planning, building and managing public buildings, including the acquisition and management of leased space. The Corps of Engineers would not be in a position to consider overall Government space needs with the result that two or even three buildings might be constructed where only one was justified. Unquestionably, such a situation would result in increased costs to the Federal Government. 3. Involvement by the Corps of Engineers in the Postal construction program would add further confusion to an already confusing Federal activity in the eyes of the public. The Corps of Engineers, on behalf of the Postal Service, would be involved in the selection and acquisition of sites and the design, construction and management of public buildings with the same architects and construction contractors with whom GSA would deal. Intergovernmental cooperation, interagency liaison and coordination, and interface with the private sector (real estate, architecture, engineering, and construction) would become diffused and cumbersome. You requested our views as to the ability of GSA to meet the schedule and requirements of the Postal Service. While we do not have specific information concerning the Postal Service's complete program, it is our understanding that a construction program of approximately $300 million is anticipated in Fiscal Year 1972. We feel that we would have no difficulty in meeting the Postal Service's requirements for a program of this magnitude. In making this statement, we recognize that GSA's performance in the past undoubtedly has left something to be desired from the Post Office Department viewpoint. Although some of the performance and delivery problems in the past were due to budget restraints and Congressional approvals (which will no longer inhibit program execution in view of the Postal Service's broad authority to plan and commit resources for capital improvements), Administrator Kunzig identified as his number one priority, shortly after his appointment in March 1969, the need for vastly improved management and direction of our construction programs. As a consequence, massive changes have been made, both in organization and personnel, to strengthen the Public Buildings Service in this most critical and demanding area of GSA's mission. There is another factor that should be considered. We began negotiations with the Postal Service about five months ago to plan the transition between GSA and the Postal Service. During the negotiations we have repeatedly stated that GSA has a competent technical staff in place to service Postal needs. Moreover, we have stated that we would establish organizational components in our Central Office and our ten regions whose sole responsibility will be servicing of Postal needs, both for new construction and repair and improvements projects. We would designate project managers for special postal projects who would have the delegated authority to make decisions quickly in order to expedite projects. If the proposed agreement is implemented, GSA's existing technical staff would have to be duplicated by the Corps of Engineers. Moreover, GSA's workforce would have to be curtailed substantially if the Corps of Engineers undertook construction activities which GSA has heretofore performed. You also asked for our comment concerning the cost to the Federal Government if GSA were to provide the type of services covered by the agreement. Based on experience during the three-year period, 1966 through 1969, for new construction projects similar in size and scope to the proposed major postal facilities under consideration, the cost of GSA services would be approximately 8 to 9 percent of the total project costs. This would include costs for all services related to site selection and acquisition, design, administration, and construction supervision. We feel that GSA is in a superior position to provide the services desired by the Postal Service in a timely manner and at a lower cost than could the Corps of Engineers. To briefly summarize, we are firmly convinced that GSA can effectively and economically construct Postal Service facilities. We recognize the urgent and priority need of the Postal Service for modern, sophisticated mail handling facilities. We feel that, if implemented, the agreement between the Postal Service and the Corps of Engineers will result in a serious proliferation of construction authority for public buildings and that this will be both economically unsound and unnecessarily duplicative of existing capabilities in the Executive Branch of the Government. We appreciate the opportunity to comment on this matter and will be pleased to meet with you or members of your staff at any time to discuss the matter further. Sincerely, ROD KREGER, Acting Administrator. NOTE.-Final version of this letter based upon coordination of draft reply with Messrs. Kreger, Norton, Johnson and Barth and reflect comments and suggests from these officials. THE POSTMASTER GENERAL, Hon. GEORGE P. SHULTZ, Director, Office of Management and Budget, DEAR GEORGE: The Corps of Engineers opened bids last Wednesday, April 28, 1971, on contracts for the remaining work on a major bulk and foreign mail facility in the metropolitan New York area. As you known, the Post Office Department solicited bids on this project some time ago, and asked the Corps to readvertise the work because the lowest bid was far in excess of the amount available under the Department's appropriation. The bids received by the Corps are about $20 million below the lowest bid obtained in the earlier competition. This looks like about the best the Government can do, from a price standpoint, and both the Post Office Department and the Corps are anxious to place the work under contract promptly. Since we have received no further questions from you concerning our replies to your letter of March 27, we assume that you have no problem with our proceeding to implement the March 11 agreement whereunder the Corps of Engineers will serve as a construction agency for the Post Office Department. Accordingly, we are moving forward under that agreement. Sincerely, WINTON M. BLOUNT. DAVID PACKARD. EXECUTIVE OFFICE OF THE PRESIDENT, Hon. WINTON M. BLOUNT, DEAR MR. POSTMASTER GENERAL: I appreciate your prompt reply to my letter of March 27, 1971, providing information concerning the agreement between the Department of the Army and the Post Office Department pursuant to which the Corps of Engineers is to serve as a construction agency for the Post Office Department. Our review of the agreement has been completed, and there is no objection to it becoming operative. Accordingly, the suspension of the agreement which I requested is hereby terminated. Sincerely, (Signed) GEORGE P. SHULTZ, Director. MAY 5, 1971. Hon. MELVIN R. LAIRD, DEAR MR. SECRETARY: I appreciate your prompt reply to my letter of March 27, 1971, providing information concerning the agreement between the Department of the Army and the Post Office Department pursuant to which the Corps of Engineers is to serve as a construction agency for the Post Office Department. Our review of the agreement has been completed, and there is no objection to it becoming operative. Accordingly, the suspension of the agreement which I requested is hereby terminated. Sincerely, (Signed) GEORGE P. SHULTZ, Director. Identical letter has been sent to the Postmaster General. EXECUTIVE OFFICE OF THE PRESIDENT, Hon. ROBERT L. KUNZIG, General Services Administration, Dear Mr. KUNZIG: I appreciate your prompt reply to my letter of March 27, 1971, transmitting your views concerning the agreement between the Post Office Department and the Department of the Army which provides for the Corps of Engineers to serve as a construction agency for the Post Office Department. Enclosed is a copy of our letter to the Postmaster General informing him of the results of our review of the agreement. An identical letter has also been sent to the Secretary of Defense. Sincerely, GEORGE P. SHULTZ, Director. Mr. WRIGHT. The subcommittee, when it adjourns today, will adjourn to meet at 10 o'clock on Tuesday next. The committee would express its appreciation to Mr. Nathan and Mr. Benton for having spent this much of the morning with us. Perhaps if it had seemed at times that our questions were hostile, both of you gentlemen will understand that this was not a personal adversary relationship, but that it stemmed essentially from the frustration of Congress in discovering after the fact that negotiations had proceeded in an atmosphere of high secrecy within the executive branch between two agencies of the Government, at least for a long time prior to the enactment of the Postal Reorganization Act. |