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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."

On May 5, 1971, OMB informed the Department that its review of the agreement was completed, and there was no objection to it becoming operative.

We noted that during the period of suspension requested by the Director, OMB--March 27 to May 5, 1971--the Corps field offices which were performing postal work were not notified of the suspension and seven new postal projects were assigned to the Corps for services.

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May 20, and June 28, 1971, agreements

On May 20, 1971, a third agreement between the Department and the Corps transferred the responsibility for the total postal facilities acquisition, design and construction program, including lease construction, to the Corps for an indefinite period. In addition, the agreement also provided for the transfer by July 1, 1971, of approximately 600 postal headquarters and regional personnel to the Corps. As a result of this agreement, the Department, for all practical purposes, does not have an in-house capability to acquire facilities.

Although we understand that all details pertaining to the agreement have not yet been worked out, it is quite possible that the Corps' organization and staffing for the postal work will be significantly affected by the new agreement, Also, if the 5.5 percent rate contained in the March 11, 1971, agreement is to be applied to the May 20 agreement, the Corps may have difficulty in staying within the rate inasmuch as it was predicated upon serving facilities of major size.

A further agreement between the Department and Corps, effective as of June 28, 1971, assigns specific responsibilities and establishes funding procedures for the leasing and lease servicing functions involved in the execution of the Department's facilities program transferred to the Corps by the May 20, 1971, agreement. The agreement provides that the Department will fund the costs incurred by the Corps in executing the Department's leasing program, to include costs for leasehold improvements, alterations and repairs.

Some of the activities the Corps will undertake include the maintenance of lease records; the renewal of leases and the execution of purchase options, after obtaining

determinations from the Department as to whether to renew or purchase; and representing the Department in all negotiations and discussions with lessors concerning leaseholds and the terms and provisions of leases. Officials of the Corps' Norfolk District office stated that they will assume management responsibility for all leased postal facilities in the State of Virginia which are estimated to exceed 700 in number. These activities were in the past principally handled by the Department's regional offices.

IMPLEMENTATION OF AGREEMENTS
BY THE CORPS

Organization of the Corps

The Corps has an existing nation-wide organization of over 42,800 employees experienced in planning and executing large scale and diversified engineering, construction and real estate operations. To carry out its mission, the Corps is organized into three basic components:

the Office of the Chief of Engineers located in Washington, D.C.; 13 division offices, two of which are located overseas; and 40 district offices, three of which are located overseas. The district offices comprise the primary or operational center of the Corps organization.

The Corps' organization has been developed and refined over a period of years to discharge the construction and real estate missions charged to the Chief of Engineers, which in brief are to provide:

(a) Planning, engineering, construction and real estate services in support of the Army, the Air Force and other agencies of the Defense Department, and, upon request, other agencies of the Federal Government.

(b) Investigation, planning, design, construction, operation, maintenance, and real estate services necessary for the improvement of rivers, harbors, and waterways for navigation, flood control, and related purposes, including shore protection. This mission is generally referred to as the Civil Works Program of the Chief of Engineers.

The Corps prepared a brochure, dated February 12, 1971, to answer the questions raised by the Department concerning

(1) the organizational arrangement by which the Corps would accomplish the postal building program and (2) the estimated in-house cost of the Corps to execute the program.

With respect to organization, the Corps stated that the one feature which distinguishes the postal program from all other major programs, which the Corps has administered or is administering, is that there is a single interface with the customer, and this interface occurs at the Washington level. 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. Since the Corps' operating construction and real estate capabilities exist at the district level, it was the Corps' view that it was not necessary to establish a separate system of field offices to accomplish these services solely for the postal program. Construction responsibility for each project will be assigned to the division whose district is considered to be best able to accomplish the task "in terms of location, capabilities, etc."

With respect to design responsibilities, 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 indi

cates.

Corps in-house cost

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 (S&R), supervision and inspection of construction activities (S&I), and district, division, and Washington headquarters support

costs.

In its brochure of February 12 the Corps stated that its costs comprising S&R, S&I, and support 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 and 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 its 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 value of construction contracts was subsequently expanded to include the cost of architect-engineer design contracts.)

The following chart compares the estimated range of Corps' in-house costs for the postal program to the Corps' experience in the fiscal year 1970 military construction pro

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