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The U.S. Post Office Department will be operating on a marginal cost-marginal revenue concept. Therefore, on occasion time extensions and design and construction schedule considerations will be overridden by the requirement of the Post Office Department to bring the facility "on-stream" by a certain date. Operational dates, once established for facilities, will be tantamount to fixed dates because of the extensive coordination required on a nationwide basis throughout the entire Postal system to achieve redirection of the mail to the new facility.

Now, we have to go over to page 5. This is titled under subsection (1) of E, “Ceilings on Corps In-House Design and Construction Costs."

I quote again: Throughout the negotiations of the Post Office Corps agreement, the Postmaster General was firm in his desire to ensure that the Corps' in-house costs are controlled. The Agreement provides for a Corps in-house cost ceiling of 5.5 percent of the aggregate of contract awards for design, and construction, and mechanization on a program basis. While this percentage may be exceeded for a single project, it may not be exceeded on a program basis, since there are no other funds available to cover the costs which exceed this rate, and the Post Office Department will not fund costs above this rate. Accordingly, costs will have to be managed closely. In some respects, this is a new approach to Corps' costs.

That is kind of a strange sentence by itself. They will have to manage the cost carefully and "In some respects this is a new approach to corps' costs."

Heretofore, we have always provided every service to the degree we felt neecssary and accepted the resulting cost, concentrating our management on improving the efficiency and cost-effectiveness in the provision of those services. The agreement with the Post Office Department adds a new dimension to the cost problem, now, we must also insure that the quality, the quantity and degree of services do not exceed the allowable cost, while, at the same time, insuring that there is no decrease in quality of engineering and construction or responsiveness to Post Office Department requests. This will pose a new challenge to all of us. General Clarke considered that this commitment could be made based on Corps historical experience, the downward trend in Corps in-house costs, the fact that we can control the services to be provided, and the U.S. Post Office Department com'mitinent of a minimal annual program of $250 million and the furnishing of projected schedules 6 months in advance of the requirement for the Corps services.

Now, as far as “E” under it, there will be no money above the 5.5 percent, I think it is fair to say, and he was implicit in that statement the suggestion that they are only going to get 5.5 percent worth of services.

Now, if you begin with the fact that certain services are required in the performance of their work and there is a limit to how much money they are going to spend to get them, as he suggests, they will control services in order to stay within the costs, which brings me back to where I started, that this interpretation of the Economy Act seems to me to induce a reduction in the services to the possible detriment of the work. Either the services are needed, or they are not. If they are not needed, they shouldn't be providing them. If they are, there is nothing left to control.

That is my own impression of it. With that, I conclude.

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Mr. Staats. You are speaking to the problem that would arise should the five and a half percent have to be exceeded in order to provide the services,

Mr. CONSTANDY. I am really speaking to the advisability of permitting them to begin the venture with a fixed ceiling.

Mr. Staats. But the question is whether it is a policy or legal question.

Mr. CONSTANDY. You have me there. I can't make the distinction.

Mr. SOCOLAR. There is another aspect. I agree with the general import of the point that you are making. However, in the course of constructing these projects, it is also reasonable, I think, to interpret what is being said there as moving ahead on these projects with perhaps some different trade-offs than

the corps is traditionally accustomed to making. For example, as you go forward with a particular project, you are also making trade-offs. You have to decide whether any delay that you incur in terms of the benefit that you are going to receive for that delay are worth the delay, and I think that perhaps what is being said there is the cost of these things is going to have to be more closely adhered to than we might have done in the past.

Mr. CONSTANDY. I couldn't myself afford to take the view that on the balance of the billion-six that they are doing in civil work that they are not addressing themselves to the conservation of costs anyhow, leaving out the military end of it. They have been in business since 1804. I don't think that they are viewing this in such a way that it took them until 1971 to do the postal work that they are now going to address themselves to the conservation of funds. I would assume they have attempted to develop the best services as are required in each project and for minimal costs.

The other suggestion is that they are kind of free-wheeling when it comes to programs other than the Post Office, and I couldn't accept that.

Mr. STAATS. It is complicated by the fact that the 512 percent is an average concept, rather than applying to each individual project also.

Mr. CONSTANDY. You mean against the program rather than the project ?

Mr. STAATS. Yes.

Mr. CONSTANDY. Even taking that, that rationale was developed in connection with the March 11 agreement. The March 11 agreement confined itself only to major facilities over 50,000 square feet, and they were placing very heavy reliance on the fact that on major buildings overhead costs are lower. This has to be interpreted in the light of the May 20 agreement which provides for their undertaking not just the medium-sized projects in addition, not just the smallsized projects in addition, but anything.

Until they have made some other provision for overhead costs, and I assume in some of these other services they will be reimbursed for actual costs—they would have to be—but I am not sure the inclusion

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of the minor facilities within this 5.5 doesn't attack their rationale from the beginning.

There was another matter that you people have material on that we will get into this afternoon, which was predicated on the projects being within the cities of the district offices. Yet a comparison of the 1971 fiscal year projects, if you will forgive me being premature in the disclosure of your testimony, but as I understand it only 25 percent of them are. General Rebh pointed out to me that this conserves overhead costs because he doesn't have to transfer people to some city in which they don't have an office, maintain them there and provide the construction inspection services.

Yet 75 percent of the projects will be at best in offices where, even if they have one there, it will not be the same kind of office that can perform the services that they have in a district office. While they may have a facility there, they will still have to transfer the people for this specific undertaking. High overhead costs.

Mr. Wright. If the gentleman will yield, apparently there were only six district offices—Sacramento, Kansas City, Fort Worth, Savannah, Norfolk, and New York, which were designated to manage the architect-engineering design contracts for the postal facilities. Obviously, a very small percentage of the required post offices would fall within those six cities.

Mr. Staats. Your point is a very good one, we think.

Mr. CONSTANDY. Forgive me I can't say I changed my mind. I gave up the attitude I had last night and I just can't help myself. I can't read it the same way.

Mr. WRIGHT. I think the distinction that occurs between your interpretation, Mr. Constandy, and that expressed by Mr. Staats when he said it would depend upon whether it was a legal decision or a policy decision lies simply in the fact that a given act, while perhaps not illegal, might be very imprudent and wholly unwarranted.

Mr. STAATS. That is the point I was making.

Mr. SOCOLAR. I would still have to comment one more time with respect to the rationale that you just gave us, that the kind of economy act consideration through your rationale really doesn't apply after July 1, simply because the

Mr. CONSTANDY. 411 makes provision to do each other's work. It says, "The furnishing of property and services under this section shall be under such terms and conditions including reimbursability as the Postal Service and head of the agency concerned deem appropriate." That falls short of suggesting where they will get the money. This says that assuming other things being appropriate, like having money to spend for it, then go ahead under section 411, help each other out. But it doesn't provide any funding. Neither does it say that this can be to the detriment of the Treasury in contrast to the Postal Service funds.

Mr. SOCOLAR. That is very true, but again getting back to the legal consequences of failing to live within the five and a half percent, or in

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terms of how the agreeing agency heads are going to carry out this kind of assistance. I again

have difficulty in concluding that the kinds of problems that we have been discussing give rise to a basis for saying that the agreement is illegal.

Mr. CONSTANDY. You are more familiar with these things than I. I bow to your better knowledge of them. I simply wanted the record to reflect the thing that was troubling me on the other side.

Mr. WRIGHT. Will you proceed, Mr. Staats?

Mr. STAATS. We found that the Department was relying in executing the agreements of March 11 and May 20 upon the redelegation of authority given to the Postmaster General in the 1966 delegation to him from GSA to design and construct public buildings devoted primarily to postal purposes. We understand that the Department's proposed to have the corps perform these services was, at least informally, cleared with GSA.

Mr. WRIGHT. You understand it was cleared at least informally with the GSA. Yet as recently as last April 15, GSA was very strongly protesting to the Office of Management and Budget that it didn't approve of this arrangement. Do you have some information to the effect that GSA has changed its mind?

Mr. STAATS. No, sir.
Mr. WRIGHT. I see.

Mr. Staats. The 1966 agreement seems to us to authorize a redelegation by the Postmaster General only within his Department. However, since it does not by its terms specifically so limit it, and GSA apparently concurred in an interpretation permitting a redelegation to the corps, we would not be warranted as a matter of law in requiring the more restrictive view.

Mr. WRIGHT. I don't want to become picayune or nitpicking on this question-we have gone over it, I think, adequately—but why do you assume that the GSA apparently concurred in this interpretation? Simply because there is no record of its disagreement? Yet it did object to it on April 15 in its communication to the Office of Management and Budget, objected quite strongly.

Mr. STAATS. We have a communication of April 17, 1969, in the form of a memorandum from the Administrator of the General Seryices Administration to the assistant to the President, in which he refers to a conversation he had with the Postmaster General, a meeting that they had had that day, and he ends up by saying that since the White House and “Red” feel the Corps of Engineers, for many reasons, will be best able to handle specialized new post office construction, “we have agreed that the delegation will continue, and there is nothing to stop the Post Office Department from using the Corps of Engineers at once.” He is not suggesting that he agrees.

Mr. WRIGHT. I recognize that. I am looking at a copy of this memo

May I ask counsel if he sees anything to prevent the inclusion of the memorandum at this point in the record ?

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Mr. CONSTANDY. None at all. I received a copy of it from the GSA. It bears on two things. We have some additional material pertaining, as you know, to the delegation of authority. I think in this case I agree with you. It was my conclusion that that delegation of authority from Mr. Lawson Knott to Larry O'Brien was intended to be a vertical delegation of authority. Both of them concurred in a letter which we will introduce into the record. However, it didn't, as you pointed out, preclude their interpretation of it later as being-since it wasn't excluded, they are permitted to do it, too.

I think the part of the letter which becomes pertinent is the other part of it that pertains to the recognition that the scheme, if you will, between the Post Office Department and the Corps of Engineers was again discussed on April 17, 1969,

and there is implicit in the discussion the suggestion that this

may I read it in the record ? Mr. WRIGHT. I think it is worth reading into the record. Without objection, the text of the communication of April 17, 1969, to Peter Flanigan from Robert L. Kunzig will appear in the record at this point.

(The document referred to, later designated “Exhibit 11,” follows:)

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EXHIBIT 11

GENERAL SERVICES ADMINISTRATION,

Washington, D.C., April 17, 1969. Memorandum to : Honorable Peter M. Flanigan, Assistant to the President. Subject: GSA-Delegation of Post Office Construction Authority.

This is a brief memorandum to report to you on the present status of the above subject. Red Blount and I met this morning with the following results:

1. I raised the points that it might be "easier" to deal through GSA; it might be "cheaper" through GSA; and there could be conceivably Congressional problems if the Corps of Engineers is used.

2. We solved all major legal problems. I may delegate and the Post Office may legally use the Corps of Engineers. Smaller, technical legal problems in the phraseology of actual delegations will be worked out quietly in the future between our appropriate legal staffs.

3. Since the White House and Red Blount feel the Corps of Engineers for many reasons will be best able to handle specialized 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.

Red Blount seemed quite pleased with the agreement we reached. He recognizes there may be Congressional problems and he and his staff will give careful attention to this situation as time progresses. If there is anything further you wish me to do in this matter, just let me know.

ROBERT L. KUNZIG,

Administrator. Mr. WRIGHT. I think it is significant that subsequent to that date by some 2. years, on April 17 of 1971, the same Administrator Kunzig was objecting to the use of the corps. At this point, in 1969, apparently it already had been agreed upon 18 months before the congressional enactment of the Postal Reorganization Act, and Mr. Kunzig is almost as direct as Mr. Blount, and he says since the White House and Mr. Blount feel the Corps of Engineers will be best, et cetera,

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