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1 Functions. It is considered that the Postal Public Building Program will require the support of all elements of the district executive, administrative, and advisory staffs. While all functions will be exercised, it is thought the not all of them will be exercised as frequently as for other programs. This recognizes the fact that postal facilities tend to be large installations located near cities where many Corps district offices are located. The proximity of the district office means lower travel costs for district personnel. A large project involves lower costs associated with contract administration and finance and accounting than in the case of several small projects with an equivalent total cost. Because it is considered, at this time, that the projects of the Postal Public Building Program will require less support than other military programs, it is proposed to use the civil works weighted factors in calculating support costs for this program. As will be noted in page 14, these are the lower figures. These weights will be used until such time as sufficient experience is gained to establish a weighted factor solely for this program.

2 Estimated Range of Support Costs. Based on recent experience, District support costs have ranged from 1.0 to 1.38% for military projects. Based on use of the civil weighted support factors, it is estimated that the District support costs for this program will range from 0.9 to 1.0%.

(b) Division and Office, Chief of Engineers:

1. Division. It is considered that all elements of the Division executive, administrative, advisory, and technical staffs will be utilized in rendering support to the Districts in the execution of the Postal Public Building Program, though less intensively in some functions when compared to other programs. The only exception is those elements associated with the planning and program development functions of the Civil Works Program; these elements will not be associated with the Postal Public Building Program. With the central management office (CEPCSO) established in the Office of the Chief of Engineers and having a strong design orientation, the Divisions will not be as actively involved in the design process as is the normal practice. 2. Office, Chief of Engineers. With the interface between the Corps of Engineers and the Post Office Department occurring at the Washington level, OCE will be actively engaged in this program. As was indicated previously in paragraph 2b, a central management office (CEPCSO) has been established which is dedicated solely to the Postal Public Building Program. If this program develops as currently envisioned this office could reach a peak strength of 43 people. It is further estimated that as much effort as the equivalent of 20 man-years could be provided by the rest of the OCE staff in terms of executive, technical, advisory, and administrative support.

3. OCE and Division Support Costs. Based on the Corps experience for 1970, the OCE and Division support costs were 1.4%. In view of the downward trend of support costs in the Corps, the apparent nature of the Postal Public Building Program, the planned organization for providing OCE and Division support thereto, and the envisaged working relationships between the Corps and the Post Office Department, it is estimated that the support will range from 0.8 to 1.2%. The estimated distribution of this cost is as follows:

a. Division: 0.3-0.4%.

b. OCE: 0.5-0.8%.

(c) Total Support Costs. Based upon the above analysis, it is considered that total Corps support costs will lie in the range of 1.7 to 2.2% of total value of the construction contracts for the Postal Public Building Program.

(5) Estimated Rangs of Corps (In-House) Cost Rates. Based on the above analysis, it is considered that the program cost for Corps (in-house) design and construction services in support of the Postal Public Building Program will fall within the range of 5.5 to 6.98% of the total value of construction contracts. The Corps will aggressively manage its activities to ensure that costs remain within this range and will endeavor to achieve, if possible, a rate below this range. d. Real Estate Costs.

(1) Definitions. There are three kinds of costs associated with real estate activities envisaged for the Postal Public Building Program:

(a) Land Costs. This is the price paid for real property.

(b) Administrative Costs. Administrative costs include the costs incurred in contracting for title data, mapping, tract descriptions, procuring appraisals by staff and contract, negotiations and closings, filing condemna

tion cases to include costs of services furnished by the Department of Justice, maintenance of records, and preparation of reports.

(c) Support Costs. Support costs, which are the advisory and administrative staff costs, are related to the in-house costs of the Real Estate organization and average about 22% of those Real Estate in-house costs. Support costs are not calculated on the basis of value of land or contract payments. (2) Services and Associated Costs.

(a) Site Selection.

1. Functions. The Corps assists in developing comparative analyses to serve as a basis for site selection. After the customer has selected a site, a planning report is prepared which includes a description of the improvements, land use, location, land costs, contingencies, and administrative costs.

2. Costs. The average administrative cost for the preparation of a Real Estate Planning Report is $1,150.

(b) Site Acquisition.

1. Functions. Upon approval of the Real Estate Memorandum or Planning Report, the District Engineer acquires the land required for the project. This includes procurement of title data mapping and description of individual tracts, appraising, negotiating and, when required, condemnation.

2. Costs.

a. Administrative Costs. Over the past three years, it has cost on the average of $1,105 to acquire one tract (ownership) of land. This included tracts of varying sizes, a wide range in values, fee title, and lesser interests, large projects with several hundreds of tracts and isolated single tracts. The extent of the variation in costs is not available as the records for projects do not break down in this way. Some of the variables in the administrative costs are higher appraisal fees on large high value or urban tracts, extended negotiations due to multiple ownerships, and title requirements which are time consuming and costly to satisfy. In summary, the total Government and contract effort represented in the administrative costs can vary widely depending on the cooperativeness of the owners and conditions of titles.

b. Support Costs. We estimate that support costs average about $240.00 for each tract acquired. Our experience data are not of sufficient detail to permit calculation of this cost factor. Contractual fluctuations in administrative costs will not affect the support costs.

e. Real Estate Costs for Postal Public Building Program.

(1) Concept. No element of administrative cost except title insurance premiums bears any relation to value of the tract. Complexity of negotiations is a function of the owner rather than of the land. On a percentage basis, the administrative cost of acquiring a tract of land cannot be associated with either the value of the tract or the value of construction placed thereon. Realistic estimates cannot be based on such values; the expense of acquiring a $100,000 tract could be about the same as to acquire a $10,000 tract, depending on location, improvements, etc.

(2) Cost of Site Selection. Based on the planned location of the sites, it is estimated that the cost to the Post Office Department will average approximately $3,500 per location. This includes salaries, transportation costs, per diem, and secretarial services for an average of 10/15 days per project.

(3) Site Acquisition. It is anticipated that most appraisals will be acquired by contract and that a second appraisal will be required in a substantial number of cases, particularly those in which condemnation is required. Relatively high value tracts will be involved and the appraisal fees and title costs will be well above average. Negotiations also will probably not be routine and may require participation at the Division and OCE levels. Considering the type of properties involved, it is estimated that the average administrative cost will be $3,500 per tract. Additional benefits in addition to the fair market value, which will be provided by Public Law 91-646, will be considered as part of land costs rather than administrative costs. It is estimated that the support costs will remain at an average of $240.00 per tract. These costs are more or less fixed and would not increase due to greater contract costs.

f. A Perspective. As a final matter. it might be well to place the Postal Public Building Program in perspective with relation to the total efforts of the Corps elements which will be involved in the Postal Public Building Program. Below is a table showing the estimated total in-house costs and total personnel require

ments to support the Postal Public Building Program at an assumed (1) level of $200 million of annual work placement and (2) an in-house cost rate of 6% as compared to the total in-house costs and personnel requirements of these same elements:

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Fiscal year 1971 estimated workload value of these 20 districts, $1.1 billion. An annual USPOD construction placement, $200 million.

When comparing in-house costs and personnel strengths with the respective sizes of programs, it is readily evident that the costs and personnel requirements on a program dollar basis of each echelon in support of the Postal Public Building Program are considerably less than those associated with the total programs of these same Corps elements.

Footnote. The in-house design, construction, and support cost rates, discussed in this paper were arrived at by relating the design, construction, and support costs to the related value of construction contracts. The construction contract value does not include the cost of the A-E design contracts. Thus, if one relates the in-house design, construction, and support costs to the value of construction contracts and A-E design contracts, the resulting cost rate will be less than the cost rates discussed in this paper.

Mr. CONSTANDY. Not to belabor the point, but I think there are some additional points that you could make with regard to this document, are there not? It was pointed out this morning that the brochure of February 12 stated that it comprises S. & R. and S. & I., and support costs for the fiscal year 1970 military construction program, and they were 8.51 percent.

Mr. AHART. That is correct. First of all, I think we need to clarify that the 8.51 percent is not fully comparable in terms of the way it is calculated to the 5.5 percent figure which is included in the March 11 agreement.

It would be approximately half a percent less due to the inclusion of the architect-engineer design costs in the base upon which this percentage was calculated.

So, in equivalent terms, I think it would be about 8 percent of past experience compared with the 5.5 percent ceiling included in the agreement.

Mr. WRIGHT. I think the testimony this morning indicated 8.5 percent in the fiscal 1970 operations.

Mr. AHART. That is correct, Mr. Chairman. What I am stating is that the two figures are not calculated on the same basis. If you calculated the 8.5 figure on the same basis as the 5.5 figure, you would reach a figure of approximately 8 percent even, so it is a 212 percent spread roughly, instead of the indicated 3 percent spread.

Mr. CONSTANDY. This is the brochure which produces the

Mr. AHART. The range of percentages that was mentioned this morning.

Mr. CONSTANDY. Yes, 5.5 to 6.98.

Mr. AHART. These are calculated on the same basis. In other words, 8.51 was calculated on the same basis as the range from 5.5 to 6.98 which was mentioned this morning. If you would like, I could give you a breakdown of that range of percentages by the types of costs which were involved.

Mr. CONSTANDY. Could you do that, please?

Mr. AHART. The S. & R. cost, which is supervision and review, of the design phase of the projects: The fiscal year 1970 experience was 1.03 percent, compared with the corps estimated range of .8 percent to .88 percent. For the cost of supervision and inspection of the construction costs, the fiscal year 1970 experience was 4.7 percent compared with a calculated range of 3 percent to 3.9 percent. For the support costs at the district level, the fiscal year 1970 percent was 1.38 compared with a calculated range of .9 to 1 percent. And for the support cost of at the division and Washington headquarters, the fiscal year 1970 experience was 1.4 percent compared with a calculated range of .8 to 1.2 percent, for total costs then of 1970 experience of 8.51 compared with calculated range of 5.5 to 6.98 percent.

In each case the calculated range cost is somewhat lower than the actual experience on the 1970 military construction program.

Mr. CONSTANDY. And those figures, or rather those items, are fairly well developed in this brochure, are they not?

Mr. AHART. They are, Mr. Constandy.

Mr. CONSTANDY. Maybe I am too gullible, but they took 22 pages to describe why they came to a range of 5.5 to 6.98 percent as the range. within which they could perform the work. This relates to the discussion we had this morning, the perplexity of how they could enter into an agreement of 5.5 percent. You give him the other half percent, which suggests that their range perhaps is from, where would you take it off? Would you make it 5 or would you make it 6, the other half percent? You get my point.

Mr. AHART. It would be about 5.0 to 6.5 percent, if you were comparing it to the 1970 experience.

Mr. CONSTANDY. It is difficult to really understand why thereafter they entered into an agreement with a fixed 5.5 percent.

Mr. AHART. As was brought out in testimony this morning, as related to us by the corps, there was a ceiling insisted upon by the Postmaster General.

Mr. CONSTANDY. I think that has been demonstrated in the documents.

Mr. AHART. As to precisely how they got the 5.5 percent as the ceiling figure-we have no background on it at all.

Mr. CONSTANDY. They are in effect, in this brochure, saying they cannot do it for 5.5?

Mr. AHART. I agree with you that the judgment would have to be that when this brochure was put together that this was the best judgment that the Corps of Engineers could make, and they came up with the range of 5.5 to 6.98 percent, as their estimated costs in performing these functions. It is not clear on the record as to how they got from that to the agreed upon ceiling. But I think the concern that suggests itself, and which you alluded to this morning, and I think that Mr. Socolar did, too, is that if you have to live within the

5.5 percent, you do that, and this was implied or implicit in the memorandum from General Rebh, which you read from this morning. Mr. CONSTANDY. The March 19 memorandum.

Mr. AHART. Yes. By reducing the services which really should be performed in connection with these projects, you are running somewhat of a risk. In other words, if the services should be performed, they should be performed.

I think from the work we have done in various construction programs over the years, and I know this committee has been involved in over the years, the corps offered the investment in a good inspection and supervision function, with respect to major construction projects, is a pretty good investment.

Mr. CONSTANDY. Yes, I would say so. That point is on page 17 of this brochure, which has been entitled subsection C, Design and Construction Costs, for Postal Public Building program, and subsection 1 of that, Conceptual Approach. It has been suggested that the corps establish a program percentage rate as a firm cost for the accomplishment of the Postal Public Building program, subsection (a), Impact of the Law: Statutory references which preclude this approach are as follows: 1,31 U.S.C. 686 provides that an agency may be required to pay estimated costs of work performed by another, but that proper judgments must be paid on the basis of actual costs; paragraphs 2, 31 U.S.C. 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.

3, 33 U.S.C. 576 provides that the CE revolving fund may furnish services for other agencies as authorized by law and receive reimbursement for costs of services furnished.

I am quoting this from their document.

Based on the above, the corps may not provide a predetermined unadjustable rate or amount for performing Post Office work because, if such a range or amount should prove to be less than actual costs, the corps has no appropriation or fund which could legally be charged with the deficit. That is where we ended up this morning in our discussion. And the irony of it is that they entered into the agreement to provide the precise thing that just shortly before entering into the agreement, they found themselves to be not legally permitted to do it. Subsection (b) maybe points out even more the risk, keeping in mind the fact that they are undertaking a new program which will have factors in it that they could not anticipate. It is entitled "Difficulties in Estimating Program Percentage Cost."

The corps accounting system provides for costing for support services provided by the corps for each program in the appropriate billing thereto, in any program, the numerous factors which contribute to the cost of providing corps design and construction services are subject to variants throughout the life of the program.

These include precise estimation of their magnitude. Additionally, regarding the postal public building program, while general information is available, many details required for estimating purposes are lacking. For example, the number of projects in the entire program is not known. Likewise, composition of the program is not known; that is, number of preferential versus bulk facilities. Another item that

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