39 U.S.C. 501, which was in effect at the time the agreement was entered into, provides in part that the Postmaster General shall superintend the business of the Department. Since the Corps is performing services in connection with the acquisition of postal facilities for the Department (now the Postal Service) and since we have found no law to the contrary, it is our view that the Corps and the Department may agree that the proposed answers to any congressional inquiries regarding those services shall be the responsibility of the Department's Congressional Liaison Office.

We have not overlooked 5 U.S.C. 7102 which provides that

"The right of employees, individually or collectively, to petition Congress or a Member of Congress, or to furnish information to either House of Congress, or to a committee or Member thereof, may not be interfered with or denied." We do not view the quoted language of the March 11 agreement as precluding Corps employees, individually or collectively, from petitioning Congress or a Member of Congress, or from furnishing information to either House of Congress or to a committee or Member thereof. The agreement, as we would construe it, operates to retain control in the Post Office Department (now the Postal Service) of the congressional liaison relating to the postal construction program and the information and views which will be officially furnished in reply to specific congressional requests.

We know of no other agreement between Government agencies that contains a provision similar to that discussed herein.

Mr. WRIGHT. Thank you very much. You may proceed.

Mr. STAATS. Accordingly, the Corps' Postal Construction Support Office has been established within the Office of the Chief of Engineers to manage the real estate, design and construction services associated with the postal program. Construction responsibility for each project would be assigned to the division whose district is considered to be best able to accomplish the task "in the terms of location, capabilities, and so forth."

The brochure noted that only a few selected districts should be involved in the design program in view of the learning curve advantage that could be achieved. Accordingly, the Sacramento, Kansas City, Fort Worth, Savannah, Norfolk, and New York district offices were named to manage the architect-engineer design contracts for postal facilities. The number of district offices will be increased or decreased if experience so indicates.

There are three basic in-house costs that will be incurred by the corps in providing design and construction services for the postal building program. These costs are for supervision and review of contract design activities, supervision and inspection of construction activities, and district, division, and Washington headquarters support costs.

In its brochure of February 12, the corps stated that the costs for the fiscal year 1970 military construction program were 8.51 percent. In view of the fact that much information concerning the postal program was not available at the time the brochure was prepared such as the corps' experience in working with the Department, the composition and number of projects and their construction periods, the corps was of the opinion that the only practicable approach was to establish a range of values for its in-house costs to administer the postal program. Based on an analysis, the corps concluded that its program cost for providing design and construction services in support of the postal program would fall within a range of 5.5 to 6.98 percent of the total value of construction contracts.

The brochure also included statements about the legal aspects of the corps establishing a program percentage rate as a firm cost for

accomplishment of the postal programs. The corps concluded that it may not provide a predetermined unadjustable rate or amount for performing postal work because, if such rate or amount should prove to be less than actual costs, it had no appropriation or fund which could legally be charged with the deficit.

The March 11, 1971, agreement between the Department and corps provided that the corps would establish controls over its operations to insure that its costs for supervision of design, engineering, construction, and mechanization services will not exceed 5.5 percent of the total program payments to contractors for design, construction, and mechanization and for any corps in-house design. The agreement also provides for an annual review of the costs comprising the 5.5 percent rate with consideration given to the need for any adjustments.

Because the corps had, prior to the agreement, estimated that its inhouse costs would range between 5.5 and 6.98 percent of the construction contract, we asked the corps why the 5.5-percent rate was placed in the agreement. The corps, by memorandum dated May 5, 1971, presented the following explanation:

*** the Postmaster General insisted upon a ceiling figure. The 5.5 percent ceiling was arrived at based upon :

(1) Historical cost data ***.

(2) Considerations of the specific nature of the Postal Public Building Program to include the fact that these are large projects near District offices, the construction schedules are relatively short, etc., and

(3) The following assumptions contained in the 11 March 1971 Agreement signed by the Postmaster General and the Chief of Engineers:

(a) a continuing program of not less than $250 million annually and

(b) a schedule of projects at least six months in advance of dates on which services are required.

Mr. WRIGHT. We are beginning to get illumination on some of the questions we asked earlier. It becomes clear from your testimony here that the reason for the 5.5 ceiling was, first, the Postmaster General insisted upon this being a ceiling. That is correct, isn't it?

Mr. STAATS. Yes.

Mr. WRIGHT. Now, you have testified that for fiscal year 1970, in its military construction program, the corps had experienced about 812 percent overhead cost.

Mr. STAATS. That is overall, right.

Mr. WRIGHT. Overall. Now, the corps assumed that it might perform these services within a range of 52 to 6.98 or 52 to 7 percent, let's say, for round figures. Then it signed an agreement to hold to a 512-percent ceiling so that the 52-percent ceiling is 3 percentage points below its history on military construction contracts for fiscal 1970.

Mr. AHART. I might interject

Mr. WRIGHT. Not at the moment, if you will permit me.

It is 112 percentage points, approximately, below the high range that it estimated that it might perform, and do we not also discover that the corps assumed it would be able to do it for this low figure upon several considerations, one of them being that the postal public building program would consist of large projects near district offices? That was one of the primary considerations in assuming he could do it within 512 percent, was it not?

Mr. STAATS. That is correct. This is a direct quote from their state

ment to us.

Mr. WRIGHT. Yet earlier in your summary, you have pointed out that this is not necessarily going to be the case, is that not correct? Mr. STAATS. That is correct.

Mr. WRIGHT. So that the corps appears now to be in trouble possibly in its attempts to perform within this agreed range, because it apparently didn't understand at the time that it was going to have to construct a great many projects scattered over a wide geographical area, and many of them in smaller communities, is that not correct? Mr. STAATS. I believe that is correct.

Mr. WRIGHT. Additionally, Mr. Staats, I am very interested in the comment that appears in the middle of page 16 of your comments where you report that the corps concluded that it may not provide a predetermined unadjustable rate or amount for performing postal work because it had no appropriation or fund which could legally be charged with the deficit.

Does that condition still apply, or does it now have an appropriation or fund which could be charged with the deficit as a result of the independence of the Postal Service?

Mr. SOCOLAR. I think the authority in section 411 of the Postal Reorganization Act would provide that authority.

Mr. WRIGHT. So, it has legal authority now whereas it didn't have it before; but it doesn't have any funds unless it comes to Congress and gets those funds, does it?

Mr. SOCOLAR. That is correct, but the authority in section 411 specifically provides that other agencies of the Federal Government may render services for the Post Office and the Post Office for other Government agencies under terms that the heads of the agencies will agree to, including matters of reimbursability.

Mr. WRIGHT. But Congress has been given no control over any of these agreements, has it, aside from its rather nebulous control of the purse strings, to pay for the overage that may have already occurred, or the overage that may be anticipated in the same fiscal period? Mr. SOCOLAR. I would assume that those matters would be brought to the attention of the Congress in the appropriation process. Mr. WRIGHT. Yes, somewhat after the fact, is that correct? Mr. SOCOLAR. Well, not necessarily after the fact, but perhaps after the fact.

Mr. WRIGHT. Or in anticipation of the future fact based upon the past fact. Now, Congress is put in a very strange position here because this committee exercises legislative oversight with regard to the Corps of Army Engineers, and initiates authorization for the civil works functions of the Corps of Army Engineers. If perforce the Corps of Army Engineers should encounter an experience similar to its past experience and have overhead costs overruns, only one of two things could occur, it seems to me. One is that it would have to dip into its operating expenses for its other projects, particularly its civil works projects, and diminish them in order to make up the overage. Or it would have to come to Congress and get more taxpayers' money with which to perform its function. Now, those would be the only two alternatives, would they not?

Mr. SOCOLAR. Yes, and I am not even sure the first alternative would be an appropriate one. That would depend on the nature of the appropriations that the corps was dealing with.

Mr. WRIGHT. I would think it would be a highly inappropriate one, but if it had no other recourse and if the appropriations processes of the Congress refused to give it sufficient moneys to make up for these overruns, then perforce it would have no other choice than to reduce its other congressionally sanctioned and directed activities so as to make up the deficit. Does that not make sense?

Mr. SOCOLAR. Yes. The point that I wanted to make earlier though, was that in terms of the appropriations that the corps gets, if those appropriations were specificaly made for particular purposes and could not be used for any other purpose, there would be a question in my mind as to whether they could dip into funds to make up this cost overrun. However, if the appropriation is on a lump-sum basis without any specific details, that might be the case.

Mr. WRIGHT. In this particular area, I think we are engaging in a speculative field, because there heretofore has been no experience with regard to what appropriation subcommittee and in what appropriation bill this particular amount of money would be included. Obviously, it would not be included in an appropriation to the Post Office Department. It would have to be included in an appropriation to the Army, either in its civil works appropriation under public works appropriation bill, or in a military appropriation from which the Army derives some money, or conceivably in some other appropriation bill, so we don't know. But assuming that this money were to be requested within the public works appropriation bill, for example

Mr. SOCOLAR. Excuse me. Are you speaking of the overage above the 5.5 percent?

Mr. WRIGHT. I am speaking of an anticipated overage.

Mr. SOCOLAR. Right.

Mr. WRIGHT. Then it would be up to those drafting the future legislation as to whether this were included as a specific line item in the appropriation bill or as part of a lump-sum appropriation?

Mr. SOCOLAR. Yes.

Mr. WRIGHT. So, we don't know, do we?

Mr. SOCOLAR. I would agree with that.

Mr. WRIGHT. Thank you.

Mr. STAATS. The memorandum also noted that inclusion in the agreement of the architect-engineering design cost as a part of the total program cost would result in a decrease in the percentage of such costs that would be needed to recover the corps in-house costs. Corps district officials stated that they believe the corps can serve the Department and stay within the 5.5 percent rate on the total major facilities program, as contemplated by the March 11, 1971, agreement. They predicted that costs on small projects would be higher and on larger projects lower than the 5.5 percent rate. Further, the district officials stated that as a means of controlling costs, they expect to place greater reliance on the "performance of work" clause in architect-engineering contracts for the design of postal facilities and provide less technical review of the design than furnished past projects in military construction.

I will comment further on the 5.5 percent rate in a moment.

A Department monthly summary report as of May 28, 1971, shows that its fiscal year 1971 major postal facilities construction program

consists of 36 active projects and that the Department has been unable to meet many of its target objectives. For example, the Department planned to start construction on 33 projects by May 28, 1971; however, only four projects were under construction by that date.

Mr. WRIGHT. Is this with the assistance of the Army? Are these projects being constructed with the assistance of the Army?

Mr. STAATS. Twenty of these.

Mr. WRIGHT. Twenty of these are?

Mr. STAATS. Yes.

Mr. WRIGHT. I see.

Mr. STAATS. The information available to us did not show all reasons contributing to delays; however, information on recent critical developments which have affected the schedules for nine postal projects showed that the reasons stated for changing the schedules were generally of a nature which required resolution by the Department and involved such matters as need for further economic analysis and changes in operational concepts.

As of May 28, 1971, 20 of the 36 fiscal year 1971 projects and two fiscal year 1972 projects had been transferred to the corps for services. Corps officials at two of the three design offices informed us that all fiscal year 1971 projects for which they had anticipated to perform services had not been received. Corps officials also advised us that the construction period assigned to the projects received were optimistic.

Many of the fiscal year 1971 projects have estimated construction periods of 12 months. In this regard, the Jacksonville district of the corps made an evaluation concerning the 12-month construction period required for the Jacksonville postal facility, estimated to cost $7 million, and concluded that if construction were completed in 12 months it would cost an additional $2.6 million. The district recommended a construction period of 18 months. At the time of our review, an agreement concerning the construction time for the Jacksonville facility had not been reached. Similar situations have also developed on the Fort Lauderdale, Fla. and Roanoke, Va., postal projects.

Mr. WRIGHT. At that point, may I inquire, did we not have information to the effect that the corps was anticipating a schedule of projects 6 months in advance of the time when they would be needed? Do I misunderstand that?

Mr. STAATS. I believe that was 6 months in advance of the time when they would need services.

Mr. WRIGHT. When would they need to begin construction?

Mr. STAATS. They would need to begin design, at least. It would be the design, but not actual construction.

Mr. WRIGHT. All right, Mr. Staats. So, this is not a

Mr. STAATS. They would need construction services. That would be the more precise term.

Mr. WRIGHT. All right. Thank you.

Mr. STAATS. One of the reasons the Department approached the corps to undertake the major construction program was the belief the corps could deliver the completed projects on schedule. In order to obtain some insight as to the corps performance in completing projects in a timely manner, we obtained from the corps' Washington office a list of projects the corps had constructed during the past 5 years that