influences cost is the construction. It has not been and cannot be established at this time, because most of their facilities have not been designed.

Construction period over which the Government costs are incurred: Other items influencing construction. These are strikes, weather, criteria and design changes which in turn affect Government costs. Additionally, there is the fact that the corps has little experience yet in working with the Post Office Department. It is possible that administrative costs involved in furnishing reports, the handling of congressional inquiries, et cetera, may vary from those the corps has experienced in executing other programs.

That paragraph itself suggests that while they think they can do it within the range of 5.5 percent to 6.98 percent, they are hedging on it a little bit, because they point out a number of things which in fact your own work has already proven, have already come to pass. They make reference to the fact that the length of time that the project would be built is a determining factor and your own work has shown, at least in some instances, projects which have been forwarded to the district for completion within 12 months are unrealistic, and that the district is suggesting that if you attempt to maintain 12 months' schedule, you are really talking in terms of 16 months to 18 months and including additional increase in construction costs.

Now, that may work toward their benefit as far as it jacks up the price of the project. The other result may not be satisfactory to the Post Office, but there are a number of areas here in which there seems to be considerable hazard to even talk within the terms of the 5.5 to 6.98 percent figure.

On page 33 and page 34 we had a discussion this morning relative to the answer the corps gave you, which appears on page 34 of your detailed statement, explaining why the 5.5 percent rate was placed in the agreement. I think you have a document dated May 5, 1971, is that correct?

Mr. AHART. That is correct.

Mr. CONSTANDY. That is where that comes from for that material? Mr. AHART. Yes.

Mr. CONSTANDY. Is there anything further provided on section 2, considerations of the specific nature of the postal public building program to include the fact that these are large projects in your district offices, the construction schedules are relatively short, et cetera-is there anything further you can give us on that?

Mr. AHART. We do have some information, Mr. Constandy, concerning the location of these projects in relation to the district offices. I would like to have Mr. Zimmerman, if he would, provide that information.

Mr. ZIMMERMAN. As we mentioned earlier, there were 36 active postal projects, this is fiscal year 1971 projects-10 of which are located in cities where there are district offices. With respect to fiscal year 1972 projects, of which there now exist 31, 11 are located in cities where there are district offices.

Mr. CONSTANDY. That is roughly a third, then, that are so located in each case.

Mr. ZIMMERMAN. A third, yes; 30 percent.

Mr. CONSTANDY. Roughly; I think I used the figure this morning of 25 percent, so I am in error.

Mr. AHART. I think, Mr. Constandy, it is likely that the ones that are located in the cities with the district offices tend to be the larger of the projects, so possibly in terms of the amount of construction money involved, there would be a higher percentage.

Mr. CONSTANDY. If they are fortunate enough to be in a watershed, that is likely more true than not. If there is to be a large post office that is not blessed with also being in a river basin, it may be an exception.

Mr. ZIMMERMAN. I might add, there were five projects that were transferred to the corps prior to the March 11 agreement, of which three are located in cities where there are district offices.

Mr. CONSTANDY. The premise that this was accepted on and which they chose to elaborate on is not exactly so, is it? I think the corps. has other offices than the district offices, and it may well be that more of them will also be in those offices or the areas of those offices serviced by those suboffices to the district.

Mr. AHART. It could well be, either serviced by the suboffice or if there is a major project outside of the district office, that they would have to establish a resident office close by.

Mr. CONSTANDY. That is exactly the point. If it is not in the district office, we immediately are talking about trying to bring in people and incurring the additional costs of opening a new office to service that postal building.

Mr. AHART. That could well be.

Mr. CONSTANDY. Is there anything further on that that you have? Mr. AHART. I just might make reference to paragraph 4 of the May 5 document in which General Rebh explains the apparent inconsistency between the statement in the brochure that they could not use a predetermined rate because of legal implications and the fact that they are actually entered into an agreement with a 5.5-percent ceiling. I think you might want this read for the record. It says:

With regard to paragraph 3C(1) (a), page 17—

Mr. CONSTANDY. That is the thing I just read.

Mr. AHART. It was indicated that the corps may not provide a predetermined unadjustable rate or amount for performing Post Office work because, if such rate 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. And, in subparagraph (b) on the same page, reasons were indicated as to why it is difficult to determine a program cost. One might claim that the corps has violated this position by accepting the 5.5-percent ceiling. Actually, there is no inconsistency. It is still true that the corps has no other source of funds to cover actual costs, if these costs should exceed reimbursements. However, the corps will have no difficulty in meeting the 5.5-percent limitation because of the three factors discussed in paragraph 3(a) above. Plus the fact that many of the unknowns discussed in subparagraph (b) on page 17 of the brochure, have, since the writing of the brochure, become susceptible to reasonable estimating.

This was General Rebh's explanation of the apparent inconsistency between the positions taken in the brochure and the position taken in the agreement itself.

Mr. CONSTANDY. Well, the material that he refers to in paragraph 3(a) above is what is referred to on page 34.

Mr. AHART. That is correct.

Mr. CONSTANDY. We have seen that section 2 of that is not exactly so, and to the extent that it is not, his answer is not susceptible to logical reasoning; that is, not to me.

And discovering some of the unknowns that existed less than 2 months before the balance of your work suggests that there are in addition other unknowns which perhaps moved back the other way.

Mr. AHART. I think certain of the unknowns also which were cited in the brochure, as making it difficult to estimate the total program costs, certainly are not at this time being overcome, such as lack of experience in dealing with the Post Office.

We are still in the very early stages of this program, and I would doubt by the fifth of May, when this was written, that they had had enough experience in operating in this context to be able to overcome that particular uncertainty. And other aspects of it, such as inclement weather and construction periods and whatnot, I do not think you can overcome these even in a longer time frame.

Mr. CONSTANDY. Section 3 of that pertains to two basic assumptions, and is it not true that at least for fiscal 1971, neither one of them have been met; have they? Had the Post Office within fiscal 1971-by the time of the end of it-turned over $250 million worth of work actually?

Mr. AHART. Well, this is $250 million annually. Of course the agreement was entered into in March, and we are now in July, so I am not sure that you could annualize what has happened so far.

Mr. CONSTANDY. There is another point there that we do keep in mind, that this is a new program, and it is a big program, and it is not going to get off in the same way that it will be functioning after it has had some experience, so we had not mentioned that before, but I think it has been explicit in our look at the thing.

Subsection 3 refers to scheduling the projects at least 6 months in advance. That has not happened either from your testimony?

Mr. AHART. Well, it is my understanding that there has not been a first 6-month schedule. In other words, they have not gotten this off the ground as yet. The different offices within the corps, the district offices, have been advised as to what they might expect. As we mentioned this morning, in certain of the districts, two of the three that we went to, they have not received all of them that they expected to get and apparently were greaed up to handle.

Mr. CONSTANDY. Perhaps that will improve as their operations go further along.

Mr. AHART. I would suspect there would be some improvement in this.

Mr. CONSTANDY. Just for the record, as of the date of the March 11 agreement, the corps had been requested by the Post Office Department to perform services of a construction nature on six projects, and the earliest one, the first project turned over to the corps was on October 13, 1970, Kearney, N.J. Well, that is a peculiar rationale, to say the least, in my own opinion, of page 2 of the May 5 memo. If we could, Mr. Chairman, I would like to make that exhibit No. 22. Mr. WRIGHT. Without objection, this document will be included in the record as exhibit No. 22.

(Exhibit No. 22 was marked for identification, and follows:)

EXHIBIT 22

MAY 5, 1971. Subject: Corps of Engineer Support for the Postal Public Building Program 1. Purpose. The purpose of this paper is to provide background information to the writing of subject brochure so as to provide a better understanding of the contents considering the context of present and changed circumstances.

2. The brochure, dated 12 February 1971, was written at the request of the Post Office Department to answer the two questions indicated in the preface, namely:

(a) To indicate the organizational arrangement by which the Corps of Engineers will accomplish the Postal Public Building Program, and

(b) To indicate the Corps of Engineers estimated in-house costs associated with the execution of this program.

3. There are two important points to be made in terms of placing one section of the brochure in proper perspective, and this is the section dealing with the second question indicated above.

(a) Target versus Ceiling Figures.-When the brochure was written, the discussions with the USPOD were in terms of a range of estimated Corps inhouse costs and a target figure. Subsequent to the writing of the brochure, the Postmaster General insisted upon a ceiling figure. The 5.5% ceiling was arrived at based upon :

(1) Historical cost data contained in the brochure,

(2) Considerations of the specific nature of the Postal Public Building Pro gram 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."

(b) The meaning of 5.5%.

(1) In the brochure, 5.5% is the ratio of the total Corps in-house costs to the total value of the construction contracts and the mechanization contracts; i.e.

5.5%=

Corps in-house costs

Construction contracts+mechanization contracts.

(2) However, in the Agreement of 11 March 1971, between the Postmaster General and the Chief of Engineers, the 5.5% has a different meaning which is the following:

5.5%=

Corps in-house costs

A-E contracts+construction contracts+mechanization contracts. (c) The difference is that architect-engineer (A-E) contract costs are included in subparagraph (2) above but not in subparagraph (1) above (if the Corps does the design in-house, rather than having the design done by A-E, these direct costs would be in the denominator). The net effect is that, if the same construction and mechanization costs and the same Corps in-house costs, which give a percentage of 5.5% in subparagraph (1) are applied to subparagraph (2), the percentage will be less than 5.5% because the denominator in subparagraph (2) is larger than the denominator in subparagraph (1) by the amount of the A-E contracts. The difference will depend upon the total value of the A-E contracts.

(d) This difference in meaning is touched-upon via the footnote on page 22. 4. With regard to paragraph 3c(1)(a), page 17, it was indicated that the Corps "may not provide a predetermined unadjustable rate or amount for performing Post Office work because, if such rate or amount should prove to be less than actual costs, the Corps has nq appropriation or fund which could legally be charged with the deficit." And, in subparagraph (b) in the same page, reasons were indicated as to why it is difficult to determine a program cost. One might claim that the Corps has violated this position by accepting the 5.5% ceiling. Actually, there is no inconsistency. It is still true that the Corps has no other source of funds to cover actual costs, if these costs should exceed reimbursements. However, the Corps will have no difficulty in meeting the 5.5% limitation because of the three factors discussed in paragraph 3a

68-528 0- -71

above plus the fact that many of the unknowns discussed in subparagraph (b) on page 17 of the brochure have, since the writing of the brochure, became susceptible to reasonable estimating.

GEORGE A. REBH,
Brigadier General, USA,

Assistant to the Chief of Engineers for Postal Construction Support.

Mr. CONSTANDY. There is reference to the effort that would be made to stay within the 5.5 percent. In that connection, this morning I read the pertinent portion of General Rebh's March 19 memorandum. We do not have to do that again. But there is the use of the term performance of work. I will read the paragraph:

Further, the district officials stated that as a means of controlling costs, they expected 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.

What does that mean?

Mr. AHART. As I understand the term, it refers to a clause which was incorporated in all contracts subsequent to July 6, 1970. Basically, the intent of the clause included in the (A-E) contract is to require— well it might be better just to read what the clause provides.

Mr. CONSTANDY. May I clarify something. You say from that date. That is not restricted to post office work?

Mr. AHART. No. This is Corps of Engineers. This document I am reading from is identified as ER 1180-1-1 change 2, dated July 6, 1970. And the basic part of it is as follows:

The following clause shall be included in all lump sum architect-engineer contracts: Where the services involved are primarily associated with the production of designs and specifications in the design of construction.

There is a heading, "Responsibility for Work," paragraph (a). Notwithstanding, any review, approval, acceptance, or payment by the Government, the architect-engineer shall be responsible for the professional and technical accuracy of all designs, drawings, specifications, and other work or materials furnished under this contract, and shall, without additional cost or fee, correct or revise any errors or deficiencies in his performance.

Paragraph (b).

Mr. CONSTANDY. Excuse me. Before you get paragraph (b), I want to ask this. Have they not always expected people to do that?

Mr. AHART. I might ask Mr. Zimmerman to comment more fully. It is my understanding that in some cases in the past, the corps has taken the product of architect-engineers in-house and revised it and corrected it and whatnot to some extent with their own personnel. Mr. CONSTANDY. They incur that cost.

Mr. AHART. That would be cost incurred by them.

Mr. ZIMMERMAN. This was the information presented to us in a discussion with the corps district offices, that in the past they have done a lot of corrective work to A-E designs, which they now propose not to do on postal work. They expect the A-E design work for the postal work to be completed to a better degree than what they had in the past achieved on the military construction work.

Mr. CONSTANDY. Did they tell you what they based that on?