undertake the real estate and construction responsibilities being performed by the regional headquarters. This resulted in a 20 May agreement between the Post Office Department and the Corps which assigns to the Corps responsibility for real estate and construction services associated with the small facilities program. To the best of my knowledge, this agreement was not submitted to OMB for review since it was considered to be in extension of the general principles of the 11 March agreements. The last significant actio ntook place on 28 June when an agreement was reached by which the Corps became responsible for the Postal Service's leasing and lease servicing program.

This completes the chronology of the principal events which have taken place leading-up to the Corps' becoming responsible for the real estate, design, and construction functions of the Post Office as they relate to both the large facilities program and the small facilities program.

REMARKS REGARDING CERTAIN SUBJECTS AND QUESTIONS

I shall now move on to the second part of my remarks: A discussion of specific questions and subjects relating to the Corps' role in support of the Postal Service.

It has been stated that one of the reasons the Postmaster General turned to the Corps of Engineers for real estate, design, and construction services was that he did not want to undertake a short-term, sharp build-up of Post Office Department personnel to accomplish the accelerated postal construction program and that the same would hold true for GSA, if that agency were assigned the task. The question follows: Would not the Corps of Engineers have the same problem?

Comment. The Corps would have the same kind of problem but not to the same degree, primarily because the Corps has a larger base upon which to operate. At the present time, the strength of the Corps is approximately 40,000 people. We estimate that, when the postal program is at its peak, the Corps will need an additional 1,000 civilian personnel. The Corps has demonstarted through its experience with the NASA and ICBM programs that it is able, because of its size and diversity of technical talents, to manage efficiently and effectively the build-up and phasedown of personnel associated with the execution of large, additional programs.

Attention has been drawn to the fact that many of the FY 1971 projects have a construction period of approximately 12 months irrespective of the size of the project. Questions have been raised: Is this realistic? What will be the effect on the project cost estimate if projects are completed within this time frame? Does a "crash" program cost more?

Comment. For certain of the FY 1971 projects, a 12-month construction period, considering that the size of the projects ranges from $2,500,000 to $8,000,000, is possible but would be more costly. Construction costs would increase in the order of 15% to 25%, if the 12-month schedules were adhered to. "Crash" programs will usually cost more with the increase in cost depending on the degree of urgency imposed. There is a point beyond which, however, wherein expediting construction serves no useful purpose. In fact, a site may become so saturated with men and equipment that the commitment of additional resources is counterproductive. I can say that the U.S. Postal Service has, in general, lengthened construction periods when we have called specific projects to its attention.

It has been indicated that serious slippage in completion dates has already occured in connection with fiscal year 1971 projects, and it is suggested that there will be the same experience with some of the FY 1972 projects. The questions raised include: To what extent has there been slippage in the completion dates? If there has been slippage, what has been the cause? What would be the effect on the Corps in efficiency, staffing, and overhead costs? How could slippage affect estimated project costs?

Comment. On the subject of slippage in completion dates and with regard to projects under design, there are several projects in the FY 71 program_on which the schedule has been extended by two to three months. Also, there has been rescheduling in the completion dates of several of the FY 71 projects under construction. And, it appears that this will be true for some of the FY 72 projects. Certain of the FY 1972 preferential facilities will slip up to four months with the bulk mail facility extension of completion dates averaging about six months.

Rescheduling has been due to two main causes; first, there has been the adoption of the new concept of having separate facilities for handling parcels and letters, i.e., the Bulk Mail Facilities Systems and the Preferential Mail Facilities System. This has meant that projects which were under design or construction have had to be changed to conform to the new concept. For example, the design of the Charlottesville and Roanoke projects was suspended. The St. Louis and Memphis projects which were under construction, and which were to provide for the highly mechanized processing of letters and parcels, had to be redesigned to accommodate only letter processing mechanization since Bulk Handling Facilities are to be constructed in the environs of each of these cities.

Secondly, development of the bulk mail facility concept was delayed at one stage due to revised planning approaches in order to secure the advantages of standardization with the resultant economies in design, construction, and operation and maintenance. This delay in concept development has affected the design and construction schedules for 19 of the 21 bulk facilities. However, it is still expected that the entire bulk mail system will be operational in FY 1975 as originally contemplated.

The general effect of schedule extensions on the Corps will be to increase support costs along with less efficient utilization of personnel at all levels. However to date, the magnitude of schedule changes has not been so great as to have an effect on Corps costs.

The impact of schedule slippages on project costs will be generally to increase these costs because of the seemingly never-ending escalation of construction costs. It has been said that awarding construction contracts in the fall of the year in the northern sections of the country would seem to be impractical. Has USPOD assigned projects to the Corps for construction in these areas with schedules to commence in the winter? What is the result on completion dates?

Comment. Several of the projects located in the northern part of the country, which are now assigned to the Corps, have design completion scheduled for this fall with construction award scheduled for late fall or early winter. Under this kind of scheduling, little effective work on the initial phases of construction such as earthwork, general site work and foundation excavation, and concrete placement can take place under unfavorable weather or seasonal conditions. These initial construction operations should be accomplished when weather and soil conditions permit, such as, during the spring, summer, and early fall. Completion dates for FY 71 projects, located in the northern sections of the country and scheduled to start in late fall or early winder, will have to be extended to allow for adverse weather and soil conditions during that part of the year, if allowances have not been made.

It has been said that there were five FY 1972 projects which were to be assigned to the Corps for the start of design during May and June 1971. Has the request to the Corps been delayed on four of them requiring design services due to the inability of USPS to furnish functional specifications?

Comment. It is true that the functional design specifications for these four projects were not delivered to the Corps as originally scheduled. It is understood that the delay was due to the loss of personnel through retirements as well as to the adjustments in organization resulting from the establishment of the Postal Service but more importantly due to the changed criteria of these facilities resulting from the new postal facilities concept based on the separate bulk mail system. The development of a modern mailing system, especially one which strives to take advantage of modern technology, has to be a dynamic program and, as such, changes in functional design specifications are to be expected and, hence, the resultant impact on scheduling until such time as concepts are finalized and adjustments made.

The question has been asked: To what extent will standard plans be utilized in the design of the FY 1972 bulk facility?

Comment. One must be careful to differentiate between standard plans and standardization. Standard plans involve repetitive, carbon copies; items are identical, such as, the same model of an automibile. Because each of the bulk mail facilities must satisfy a different set of requirements in terms of volume of mail to be processed, the number of destinations involved during the sorting of the mail at a given facility, etc.. these bulk facilities cannot be made from the same mold. They will differ in building configuration and amount of mechanization. Although size and layouts vary, the possibility exists of standardizing the build

i

ing system and certain aspects of mail flow. The basic studies developing a mechanization standardization concept were undertaken by the Post Office Department. This concept has been established by the Post Office Department and forms the basis for the design of the bulk facilities which is currently underway. Standardization will apply not only to the 1972 bulk facilities but also to those which are in the 1971 program, except for the New York and Chicago bulk facilities. Thus, standardization is to apply to 19 of the 21 bulk facilities.

Questions have been raised concerning the Corps' experience in designing and constructing facilities of the nature comprising the postal construction program. For these same kinds of facilities, what has been the Corps' cost experience in providing the same types of service to be performed for the Postal Service (exclusive of site selection and acquisition)? For work of the same nature of work done for other agencies, what has been the Corps costs charged to those other agencies? What changes in elements included in Corps costs have been made, i.e., has the Corps assigned some items of cost to construction that had formerly been accounted for as support costs?

Comment. During FY 72, the total Civil Works workload will be $1,715,000,000 of which $1.1 billion is construction. The total FY 72 Military workload will be $1,009,000,000. The total for both programs is approximately $2.7 billion. These programs provide for all types of construction ranging from dams, powerhouses, ammunition plants, barracks, roads, bridges, academic and administrative buildings, airfields to hospitals. These facilities range from simple structures to the most complex. It is difficult to be precise as to the proportion of projects of these programs which could be called similar-type facilities because the postal buildings themselves range from very simple to very complex facilities. A fair estimate would be that 10% of the Civil Works program, which is equivalent to $110 million, and 90% of the Military Construction program, which is equivalent to $900 million, involve projects comparable to those in the total postal construction program. As you probably know, the Corps constructs all postal facilities for Army posts and Air Force bases and has, upon the request of GSA, provided supervision and inspection services for the renovation and construction of civilian post offices.

Actually, when one raises the question of "comparable structures" or the "same kinds of facilities" one should be really focusing on the complexity of design, the complexity of construction, and the complexity of management involved in the program since the projects of no two programs are completely identical. The really important thing is having the capability-the reservoir of technical, managerial, and support talent-that is able to handle complex design, construction, and managerial problems. It is considered that the facilities of the postal program do not approach the complexity of those which the Corps constructed for the Atomic bomb project, the ICBM program, the NASA program, and the Safeguard program. In fact, these programs were "pioneering programs" in the sense that projects of this scale and complexity had never been attempted before in this country. Shortly after the detonation of the Atomic bomb over Hiroshima, the work of the Manhattan District of the Corps of Engineers was hailed as one of mankind's greatest engineering achievements. The District had been responsible for the design and construction of the facilities which produced the fissionable material as well as the research and development which lead to the first atomic weapon. The atomic program was followed in the late fifties by the "crash" program to construct the highly complex and extensive intercontinental ballistic missile system. In the early sixties, the Corps was called upon to design and construct facilities for NASA to include the Vehicle Assembly Building at Cape Kennedy which was, at the time of construction, the world's largest building in terms of volume. In the late sixties, the Corps was charged with the task of designing and constructing the Sentinel-now the Safeguard-facilities. These are unique structures in that they are the first free-standing facilities designed to withstand the effects of a nuclear explosion to include ground shock, air blast, nuclear electro-magnetic pulse, nuclear radiation, and thermal radiation. These facilities involve many "firsts" in design and construction.

Additionally, it is to be stated that many of the industrial plants and arsenals, which constitute the military production base and for which the Corps is the Department of Defense responsible agent, are highly automated involving sophisticated material handling equipment, electronic controls, and computers, the principles of which are applicable to the kinds of facilities the Corps will

be designing and constructing for the rapid processing of parcels and letters. Accordingly, the Corps sees no real difficulty in bringing into being the sophisticated facilities embraced by the new concept for handling parcels and letters, since it has the technical and managerial talents necessary for the successful execution of this program.

On the subject of Corps cost experience in designing and constructing facilities comparable to those to be constructed for the Postal Service, such information does not exist at this time. Corps costs are kept by programs, individual projects and Corps districts and divisions. We do not aggregate costs by categories of facilities, such as, airfields, barracks, dams, powerhouses, hospitals, etc. Cost data by categories of facilities could be developed but would take considreable time and effort since the data would have to be developed at the District level through an analysis of each of its projects.

Regarding Corps costs charged to other agencies, the costs are charged on a program basis; there is no break-out of costs on the basis of categories of facilities.

This discussion of Corps costs leads to the subject of the 5.5 percentage factor which constitutes a ceiling to which the Corps is committed for the large facility postal construction program. I would like to discuss two aspects of this matter: (1) How the 5.5 factor was arrived at, and (2) What is means. With regard to its derivation, the subject of Corps costs was discussed at great length during the negotiations leading up to the 11 March agreements. The Corps' approach was to develop a target rather than a ceiling. There were two reasons for favoring a target figure. Representatives of the Corps did not think it was possible to establish a realistic ceiling because too little information was known about the postal program. The Corps had had little experience working with the Post Office Department to known exactly the nature, number, and scope of its demands. Too little was known about the nature of the facilities to be designed, the number of projects in the program, the composition of the program in terms of number of preferential and bulk facilities to include their location and scheduling for design and construction. All of these factors, it seemed, militated against the development of a realistic ceiling figure. Also, statutes appeared to preclude such an approach. For example, 31 USC 686 provides that an agency may be required to pay estimated costs of work performed by another, but that proper adjustments must be made on the basis of actual costs. Also, 31 USC 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." Then too, 33 USC 576 provides that the Corps revolving fund may furnish services for other agencies, as authorized by law, and receive reimbursement for costs of services furnished. These statues seemed to indicate that the Corps was precluded from establishing a predetermined unadjustable rate or amount because, if such rate or amount should prove to be less than actual costs, the Corps has no appropriation of funds which could legally be charged with the deficit. Accordingly, the Corps took the position that it could not operate with a ceiling but only with a target.

In accordwance with this line of reasoning, the Corps developed, based on historical analysis, the range of Corps costs which it had most recently experienced on similar programs. Cost figures were developed for the FY 70 military construction execution program, the first half FY 71 military construction execution program, and the NASA program. Based on this analysis, the Corps informed the Post Office Department that it could expect Corps costs to fall within a range of 5.5 to 6.98% of the total value of construction contracts. After the Post Office Department studied this data, we were informed that the Postmaster General strongly desired a ceiling figure. The proposition put forth by the Post Office Department was that a ceiling figure of 5.5 should be established and would be represented by a ratio wherein the Corps costs for supervision and review of design, supervision and inspection of construction, and the support costs of the districts, divisions, and Office, Chief of Engineers would appear in the numerator and the value of architect-engineer fees, construction contracts, and mechanization contracts would appear in the denominator. After considerable study, which included gaining additional information about the Post Office program, and thinking through in great detail the execution of the program along with establishing certain conditions, the Chief of Engineers agreed to the 5.5%

ceiling. This means that the Postal Service is to be charged actual costs not to exceed the 5.5% except as may be subject to negotiation. The reasons, for concluding that the 5.5 figure is reasonable, were:

(a) From an analytical standpoint. 5.5 had considerable empirical validity, since it was based on recent cost experience.

(b) There has been, through the years, a gradual decline in the Corps' military construction supervision and administration rate charged by its Districts. Since its development in January 1963, when it was set at 7.5%, this rate has been reduced six times to its present level of 5.6%. It is expected, because of constant command emphasis, that this trend will continue for at least the life of the postal construction program.

(c) The most important consideration was the nature of the major postal program:

First, from a program standpoint, this one is unique in that all facilities are to cost in excess of $2 million. This is in contrast to Army, Air Force, and other programs where, in terms of number of projects, the great majority of projects are below this $2 million project cost figure. It is the small projects which drive-up the Corps costs for a program.

Secondly, many of the projects are in the large cities or near large cities where we have district offices. In the case of the bulk system, 15 of the 21 facilities are located in the same metropolitan area as corps district offices. This proximity of project and district office will mean reduced Corps costs in contrast to the case where a construction project is supervised by an on-site Corps project office located 100-200 miles from the district office. Savings occur in two important ways: (1) the period during which full-time personnel are assigned to a project will be reduced. With the district office near the project, personnel from the district construction division can accomplish the inspections during the early stages of a project on an "as needed basis" when the full-time presence of inspectors is not required on-site; this will be particularly true of electrical and mechanical inspectors. In the case of a project located distant from the district office, inspectors must be resident considerably earlier to insure that the contractor is fulfilling the requirements of the technical specifications in the contract; thus, the inspectors will be on-site though their technical capabilities are not required for the entire day, each day. And (2) it is more economical to render support from the district office to a project nearby than to one at a distance primarily because of the lost time travelling to and from the project. Additionally, we have project offices, as distinct from District offices, in many cities. The postal program will simply involve an augmentation of these existing offices. Thirdly, with each project involving several million dollars, there will be fewer contracts to administer for this program than for a program having the same program value but consisting of much smaller projects. The fewer the contracts, the lower the administrative costs.

The fourth factor favoring low Corps costs is the relatively short construction period for these postal facilities. This shorter construction period results in a reduced requirement, time wise, for the existence of a project office.

A fifth factor, and this is especially true of the bulk facilities, is the fact that approximately one-half of the project contract cost is in terms of mechanizaion. Experience shows that the Corps cost associated with the procurement and installation of equipment is considerably less than the cost of supervising and inspecting construction.

Another most important factor is that this is essentially a one product program: only postal facilities are involved with the inherent advantages of repetitive application of lessons learned at an early stage and of specialization of effort which promotes greater efficiency and hence lower personnel costs. Once a person has participated in the design review of a preferential or bulk mail facility or has been through the construction phase, less effort will be required of him on the next project to accomplish his duties; this will lead to lower Corps costs.

Finally, it was considered that in order for the 5.5 factor to be met, it would be necessary for the Post Office to commit itself to a minimum program sufficiently scheduled in advance to enable the Corps to manage its resources in an efficient, effective, and economical manner. Thus, the March 11 agreement signed by the Postmaster General and the Chief of Engineers contains an assumption outlining two conditions bearing on the 5.5 ceiling: "This rate is based on the assumption of a continuing program of not less than $250 million annually and