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are comparable, in type, magnitude and complexity, to those they will construct for the Department, in accordance with the March 11, 1971, agreements. From this list we reviewed 12 projects and found overruns in construction time ranging from 30 to 542 days, and averaging 227 days. The overruns were due primarily to design changes and work stoppages caused by strikes and inclement weather.
Mr. Wright. Do you think this may be similar to the type of experience they may experience with the postal program?
Mr. STAATS. We think it is relevant to bring in this kind of experience because that is usually a fairly good indicator of possible problems. We are not saying it will happen. We are simply indicating this was the experience on 12 projects which they felt were comparable.
Mr. WRIGHT. Twelve projects in this instance?
Mr. WRIGHT. Would it be possible for you to provide for the committee a copy of the list of those projects and the specific time overrun that occurred on each of them?
Mr. STAATS. We will do that.
Mr. Wright. What we have here then is—we have a couple of questions, I think, arising from this examination of past experience.
First, the corps entered the agreement in the anticipation that it would receive notification and a schedule of projects at least 6 months in advance of the dates on which their services were required?
Mr. STAATS. Right.
Mr. Wright. That really hasn't been happening with regard to the current operation, has it!
? Mr. AHART. There has been some slippage in the Department in getting the requests for services to the corps when the corps expected them.
Mr. WRIGHT. So the corps now is in the position of not really receiving a schedule of projects in as timely a fashion as it thought it would have to have them in order to stay within this 51/2-percent ceiling?
Mr. AHART. I think that is correct.
Mr. WRIGHT. Secondly, the Postal Corporation was proceeding upon the assumption that there wouldn't be much time slippage, that the corps would be able to go out and move forward in a very expeditious manner in the completion of these buildings. That is part of the rationale for the agreement with the corps, is it not?
Mr. AHART. This is correct.
Mr. Wright. Yet we are discovering that in several of these projects in the past, the corps has had slippage from 30 to 542 days on their own projects. 542 days is what, a year and a half? 227 days being half a year-no, more than half a year—9 months. So, both these elements combined to cast some question upon the ability of the corps and Postal Service to carry out this crash building program within the time frame and within the anticipated overhead that the agreements encompassed; is that correct!
Mr. AHART. I think that is correct.
Mr. WRIGHT. And the cost of this one building in Jacksonville went up from $7 million to $9.6 million if construction were required within 12 months ?
Mr. STAATS. Correct.
Mr. STAATS. I will now return to page 20, to the legal aspects of arrangements between the Post Office Department and the corps.
Certain doubts have been expressed concerning the legality of the March 11 and May 20, 1971, agreements between the Department and the corps under which the corps performs certain real estate, design, and construction services in the acquisition of postal facilities as requested by the Department and its successor, the U.S. Postal Service.
Section 219, Public Law 89–298, authorizes the corps to perform work or services for other Government agencies, including the performance of such work or services by contract. We understand the corps considers that its authority permits it to increase its staff by outside hiring when needed to accomplish a specific project. We do not disagree with that view. The corps hired, by transfer, employees of the Department who apparently were to be separated because the Department was discontinuing design, construction and real estate functions. The corps traditionally performs such functions. Thus the hiring of the former postal employees and the undertaking of certain design, construction and real estate work for the Department was not, in our view, unauthorized.
Turning to the 5.5 percent rate of reimbursement authorized in the agreements for corps in-house design and construction costs, the record shows that it was predicated upon the conclusion by the corps that it will have no difficulty meeting such a cost limitation. While the wording of the agreements is not entirely clear that this limitation is an absolute one, the corps and the Department both appear to consider it to be.
With respect to the period before July 1, 1971, section 601 of the Economy Act, covering services between departments, provides for estimated costs to be adjusted "on the basis of the actual cost" as agreed upon between departments or agencies concerned. And 33 United States Code 576 authorizes the use of the corps revolving fund for furnishing services to other Government agencies as authorized by law. In construing the Economy Act, our office has held that the methods of ascertaining the amount of "actual cost" are primarily for determination between the agencies concerned. As long as the amount agreed upon results from a bona fide attempt to determine the actual cost and, in fact, reasonably approximates the actual cost, no objection to the amount agreed upon is made by us. That is, by us in our capacity as interpretor of the authority to spend appropriated funds. Also, we have recognized that when the “actual costs” may be determined in advance with a reasonable degree of certainty, section 601 would not preclude the submission of a firm bid by the performing agency.
Mr. Wright. May I ask a question? It may seem picayune. Is the newly created Postal Corporation a Government agency?
Mr. Staats. Yes.
Mr. STAATS. We understand that both the corps and the Department construed their agreements as providing for reimbursement of corps in-house design and construction costs to a maximum of 5.5 percent of total program payments. We are inclined to agree that such construction of the terms of the agreements is a reasonable one. However, in light of legal requirements and problems which would arise should the corps costs exceed the 5.5-percent limitation, we believe that another interpretation to which the agreements are susceptible would be preferable; namely, that the Department was responsible for reimbursement of all costs, recognizing that the corps is obligated to utilize its best efforts to hold such costs to the 5.5 percent stipulated.
Mr. WRIGHT. Now, you are recommending that another agreement be entered into, legitimatizing the interpretation to which Mr. Socolar has said the existing agreement may be subject. Sort of a cost-plus operation. But you have concluded that it is clear that the corps and the Department—in this case, now the Service—both consider this to be an absolute ceiling.
Mr. STAATS. That is correct.
Mr. WRIGHT. So, if both parties to the contract construe it to be an absolute ceiling, it is in effect an absolute ceiling, is it not?
Did you not say earlier, Mr. Socolar, that the interpretation of the meaning of the contract would depend upon the intent of the parties to the contract?
Mr. SOCOLAR. Yes.
Mr. WRIGHT. And Mr. Staats, you have concluded that the corps and the Department apparently regard this to be an absolute ceiling. Therefore, if we conclude that both parties considered it an absolute ceiling, does that not cast some light upon the present contractual agreement between the two?
Mr. SOCOLAR. It casts an element of doubt. However, in terms of the ultimate legality of the agreement, in this regard, I don't think that we could take the position of assuming or perhaps guessing that the 5.5 percent will, in fact, be exceeded as long as
Mr. WRIGHT. No. Of course, we hope it isn't exceeded.
Mr. WRIGHT. But I think the General Accounting Office as well as this congressional committee have some question in their minds that it may be exceeded. Else there would be no occasion for all this conversation.
Mr. SOCOLAR. I think that here again I would like to interject the point that what we are saying here relates to the period before July 1, rather than after.
Mr. WRIGHT. Yes. Well, now, we are in a period after July 1, and I think primarily what the committee would be basically interested in is what happens now. Thank you.
Mr. STAATS. If I may say so, there will be a problem certainly from the standpoint of our responsibilities with respect to the agreements entered into prior to July 1.
Mr. WRIGHT. A legal problem. Mr. STAATS. A legal problem which we will have to be concerned with, and which will require close observation by our office.
Mr. WRIGHT. Thank you.
Mr. STAATS. So long as the corps stays within the 5.5 percent, there would of course be no problem under either interpretation. However, should the corps cost significantly exceed the 5.5-percent figure, it
will be faced with the situation of having improperly used its appropriations for Postal purposes. However, we are not inclined to attempt to forecast such a result or to hold that such a possibility renders use of the 5.5 percentage rate, even as a ceiling, as being contrary to law.
Mr. CONSTANDY. I have been very troubled over this. We had a number of conversations. Yesterday I suggested I was in agreement with this. Since I said that to Mr. Ahart yesterday, I have still been troubled over it. I have to say for myself on the record that I don't agree with you. I recognize what you are saying, but it strikes me—where I have difficulty in accepting what you said—the first rationale is predicated on the reasonableness of the figure, isn't it, on the 5.5 percent?
Mr. SOCOLAR. Yes.
Mr. CONSTANDY. The material which has preceded this in the record suggests it may not be a reasonable figure.
Mr. SOCOLAR. Yes. All that I think we are suggesting here is that while it may not be a reasonable figure, without our being able to establish at this point what the reasonable figure is, we really cannot attack the bona fides of that figure until perhaps such time as the facts prove it unreasonable.
Mr. CONSTANDY. OK. I can accept that. What troubles me is that maybe I believe the corps more than you do. I accept it when they say their past experience, as their own documentation of this shows, is better than 8 percent. I think Mr. Ahart was going to bring out another factor that perhaps we should consider, an even 8 percent rather than 8.51. But I would accept their past experience was that. I will even accept the fact that that includes projects of a different nature perhaps. That may cause it to be somewhat in excess.
But in the February 12 brochure, they address themselves purely to the types of things they would be doing for the Post Office and produced a range of 5.5 to 6.98. Again, there may be the subsequent adjustment and provision for the design work being done in-house, which would add another half percent, but we are then looking at the lower end of the spectrum in any case, and on their best rationale of what they think they can do it for, during the negotiations proceding the March 11 agreement, they were strong for considering that simply a target rather than a ceiling.
All of that taken together suggests to me, without even considering some of the difficulties they are already running into, that they will have an exceptionally difficult time meeting the 5.5 percent.
Now, connected with one other thing which I think relates to the consideration of it after July 1, the impression I had of the Economy Act was to prevent situations like this from developing by providing for the agency that would be doing the work to be reimbursed on an actual cost basis. Now, part of your rationale is really an attempt to avoid getting picayune. You consume more money in auditing than you do in the program at some point. But doesn't this construction of the Economy Act induce a reduction in the services to the detriment of the work? In other words, if staying within the 5.5 percent becomes a critical factor and the corps recognizes that there will be no source of funds beyond the 5.5 percent, and if they accept the fact that they are precluded from dipping into other funds to make up the difference, it seems logical to me that their behavior thereafter will be reasonable if they begin to diminish services that they are performing.
I think that gets to the essence of the Economy Act, to preclude an organization like the corps to do less than
Mr. SOCOLAR. I agree with everything you said in terms of the wisdom of this procedure, or the rationale for going into it. However, in terms of coming up with an absolute determination that this agreement is legally unauthorized in the face of the corps' expressed commitment and statement to the effect that it will not exceed 5.5 percent, and not being in a position to state—at least from the information that I have reviewed—that I know it will exceed 5.5 percent, I simply don't feel I can come to the conclusion that stating the 5.5 percent as a ceiling is illegal. There will be problems if they exceed it.
Mr. CONSTANDY. I am not so troubled with your explanation, but may I read something from General Rebh who commands the unit that will be performing the work, in a memo dated March 19, 1971, this being addressed to his subordinates in the field who will be accomplishing the work. He begins by addressing the fact under part 4:
Differentiating Features of this Program. There are several features which differentiate this program from other major Corps programs.
He speaks under section (a) of the single interface. While I hate to take the time, I think it does
Mr. SOCOLAR. I am familiar with it.
Mr. CONSTANDY. I would like it reflected in the record. Under section (b), he says:
U.S. Post Office Department is Profit and Loss Oriented.
I don't think that can be excluded or stressed sufficiently either, in the course of our hearing.
When the U.S. Post Office Department becomes the U.S. Postal Service on 1 July 1971, it will be a Government corporation operating on self-produced revenues. Bonds sold on the open market will provide for long term financing needs, including construction. The acceptance of these bonds in the open market will depend largely upon the Post Office Department's "profit and loss” status. Timely and high quality design and construction at reasonable prices will be essential to both the technical and financial success of the expanded modernization program. This profit and loss approach has at least two principal impacts on the Corps' operations.
He then gives one which we can ignore for the moment and two which gets to be pertinent here:
Adherence to established schedules will also be a matter of continuing concern to the U.S. Post Office Department. Because of the significant savings generated by the substitution of modern, large facilities for less efficient ones, time is money. As a result, the Post Office Department wants to be consulted, to a degree in excess of what is normal for the Corps and its other programs, at important milestones, and when project costs and schedule changes are in the offing.
I hope I read that right.
As a rule, the U.S. Post Office wants to be consulted to a degree in excess of what is normal for the Corps and its other programs at important milestones and when project costs and schedule changes are in the offing.