oversight

Policies and Practices Followed by the Postal Service in Leasing and Constructing Facilities

Published by the Government Accountability Office on 1971-07-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                   United          States General Accounting                                         Office
                                                    Washington,  D.C. 20548



                                                                                                                                     FOR RELEASE ON DELIVERY
                                                                                                                                     Expected at 10 a.m. EST
                                                                                                                                     Wednesday, July 14, 1971


                                            STATEMENTOF
                     ELMER B. STAATS, COMPTROLLERGENERAL OF THE UNITED STATES                                                                       ".
                                             BEFORE THE
                            SUBCOMMITTEEON INVESTIGATIONS AND OVERSIGHT
                    cp                         OF THE
                        COMMITTEE ON PUBLIC WORKS--HOUSE OF REPRESENTATIVES
                                                 ON
                       POLICIES AND PRACTICES FOLLOWED BY THE POSTAL SERVICE
                               IN LEASING AND CONSTRUCTING FACILITIES 3



          Mr. Chairman         and Members of the Subcommittee:

                    We are    pleased            to be here,        at your                 request,                  to discuss          the policies

          and practices           followed          by the Postal           Service                            in    leasing         and constructing               !iu
\
          facilities.          The specific               points     raised                 in your                  letters         to me of April             6

          and June 2, 1971, Mr. Chairman,                           refer             to,           among other                things,      the

          development         of the Post            Office        Department                           (now the Postal                Service)

          (Department)         facility            acquisition        authority;                               events        leading      to the         1966

    sdelegation              of authority            by the General                    Services                      Administration             (GSA) to            r7

          the Postmaster          General           for    the design                 and construction                              of postal      facilities;

          certain       aspects     of the management of the leasing                                                  and construction              of postal

          facilities;         the recent            agreements        entered                           into        by the Department              and the

          Corps of Engineers               (Corps)         concerning                 postal                   facilities;            the effect         of      Jok

          the agreements          on GSA; and a comparison                                  of              land acquisition             and lease

          construction         procedures            followed        by the Department,                                      Corps,     and GSA.
          We understand,             however,        that       of primary       interest          to the Subcommittee

this      morning      is     information         on certain          issues      relating          to relationships

between        the Department               and the GSA, and between                   the Department               and the

corps.         With    this       understanding,               Mr. Chairman,       my statement              this      morning

will      concentrate          on certain         aspects         of t,he delegation               of authority             from

.GSA to the Department                  to construct             buildings,       and on certain              aspects         of

the agreements              between         the Department           and the Corps whereby                   certain

responsibilities               for    the Department’s               facility      acquisition           program           were

transferred           to the Corps.

          On the other            matters       referred         to in your       letters,          Mr. Chairman,

we have prepared               rather        detailed          comments.        With   your        permission          we

will      submit      them at        this     time      for     the record.        I will,          however,         comment

briefly        on some of the issues                    regarding         the administration             of     the

Department’s           facility         acquisition             program.

          Since     1962 we have issued                  several      reports      which      have dealt            with

the    issue       of leasing         versus      Government          ownership        of postal         facilities.

In these        reports       we pointed          out         the economies       achievable           through

Government          ownership         of facilities              and recommended            that     the Department

determine          on an individual              facility         basis     whether      to acquire           postal

space by leasing              or through          Government          ownership,        rather        than      follow

a general          policy     of     leasing.




                                                                                                                            -2-
         The Department               agreed         with      us some years                  ago that           it      was

advantageous              to construct              major      postal         facilities            for         Government

ownership.               For smaller          facilities,              however,            the Department                   stated

that     if     construction             funds       were available                   and it      was not              required          to

construct          postal       facilities             to GSA’s design                  and construction                       standards,

decisions          to construct              or lease          would         be based on economic                          evaluations

of individual              facilities.               Because the Postal                       Reorganization                   Act vests

the Postal          Service         with      broad         real      property          acquisition               and financing

authority,          it     is now practicable                      for .the      Service           to make these                    evaluations.

We believe          that      decisions             made on that               basis       will     result              in a better

managed facility                acquisition             program.

         We have also              reported          on improvements                   that       were needed in the

Department’s              practices          for     acquiring              control        of sites             for      leased        facili-

ties,         and in the course               of our work at the Department                                     in recent            years,

we have observed                other        areas      in which             management of                its         facilities

acquisition              program      could         be improved.

Delegation  of construction     authority
to the Post Office    Department

         Section          2 of the Public               Buildings             Act of          1959, as amended,                      provides

that     no Government-owned                       public      building          shall         be constructed                      except        by

the Administrator                of General             Services.               Under section                   13 of the act,

public         buildings        include        Federal             office       buildings,           post             offices,        and

customhouses,              but exclude              specific          projects,            such as projects                        on military




                                                                                                                                                      -3-
reservations           and hospitals.                 Section          15 provides      that        the Administrator,

with     certain       exceptions,            is authorized              to delegate          the authority          vested

in him by the act               to an executive                 agency when the Administrator                       determines

that     such delegation              will     promote          efficiency         and economy.

         The act       provides        also         that      no appropriation          shall        be made to con-

struct       any Government-owned                    public      building         involving         an expenditure

in excess          of $100,000         or to alter              any such building               involving      an expendi-

ture     in excess           of $200,000         unless         a prospectus         has been approved               by the

Public      Works Committees                 of the Congress.

         In December 1964,               the Postmaster                 General     presented         to the President

a proposal          that      would    have given              the Department          direct        construction

authority          primarily       because           the characteristics               of the buildings              needed

by the Department               differed            significantly            from those         of the office             build-

ings     needed by other              civilian             agencies.         A committee         of business         executives,

appointed          by the President                 to advise          the Postmaster           General     in this         area,

recommended           that     the Department                 have permanent         authority          to acquire,

construct,          and own buildings                  for     postal     purposes      in addition           to its        authority

to lease       such facilities.

         GSA did       not concur            with      the recommendation              on the premise              that      it

had the experience               and competency                 to design         and construct           postal     facilities

and that       such work was foreign                         to the basic         mission       of the Department,                  i.e.,

receiving,          handling,         processing,              and distributing             mail.




                                                                                                                                   -4-
        In April          1966, a bill         (S. 3256)         was introduced             in the Senate            which

would      have authorized            the Postmaster             General      to construct             postal      buildings.

The.Administrator             of General          Services        by letter         dated     April       18, 1966,            to

the Postmaster             General     stated         that     the proposed         legislation          was unneces-

sary    and ill-advised.               Hearings          on the bill         were held,         but it      was not

enacted.

        During         the summer of 1966,               GSA, at the suggestion                 of the Bureau                 of

the Budget         (now the Office             of Management and Budget)                     proposed       to delegate

to the Postmaster             General         the authority             to design      and construct             postal

facilities.             In November 1966 the Postmaster                       General        agreed      to the

delegation        of authority,              subject         to working      out specific             language       of the

delegation.

        On December 1, 1966,                  the Administrator              of General         Services         delegated

to the Postmaster             General,         with      authority        to redelegate,              the authority

to acquire        sites,      design,         construct,         and alter      public        buildings          to be

devoted       primarily       to postal         purposes.              The delegation         of authority

required        that     prospectuses          be submitted             by the Department              to GSA for

submission        to the Office              of Management and Budget                  and the Congress,                 and

that    funds     for      the approved         projects         be obtained          from    the Department’s

appropriations.

        Although         the delegation           required        that     the facility           design,        construc-

tion,     and alteration             conform      with       GSA standards,           GSA recognized             that         in

view of the trend             toward         mechanized         mail     processing         plants,      modification

of the GSA standards                 might     be necessary             when applied         to postal          facilities.




                                                                                                                        -5-
       As of April           30,    1971, 77 postal               projects         to be constructed            under

the delegation         of authority             at an estimated               cost     of about         $1.2   billion

had been approved             by the Committees                  on Public         Works.         Based on data

supplied       by the Department,               we identified               38 of these           projects,     valued

at about       $468 million          (Government-ownedj’that                       had either         been completed

or were in various             phases of completion.

       The Department’s              latest          estimates       for     13 of the 3% projects

exceeded       the estimates          shown on the approved                       prospectuses         by about

$38 million.         The estimates              for     seven      of the 13 exceeded                 the amounts

in the related         prospectuses             by more than               10 percent,        the point        at which

a revised       prospectus          would have to be submitted                        to the Committees,

Department       officials          informed          us that      they      advised        the Appropriation

Committees       of the revised               cost     estimates;          and,      therefore,        in their

opinion,     submission            of revised          prospectuses           to the Public            Works

Committees       was not required.

       The Postal        Reorganization                Act approved           August      12, 1970--the

provisions       of which          became fully          effective           on July        1, 1971--established

the Postal       Service       and authorized              it     to construct,           operate,        lease,    and

maintain     buildings         and facilities              without          regard     to the Public           Buildings

Act   of 1959.




                                                                                                                    -6-
AGREEMENTSBETWEENTHE-DEPARTMENT
AND THE CORPS

          In early           1969, the Postmaster                 General      began to evaluate              the

problems           facing         the Department           and concluded          that      a fairly       substantial,

investment           in new plant              and equipment            was needed.          The Postmaster

General       was of the opinion                    that       the Department         did not have an organiza-

tion      capable       of completing,               within       a reasonable           span of time,            the large

scale       modernization               program      needed.           Accordingly,         he began discussing

his      problem       with         the Corps and GSA.

          In March 1969,                   the Corps       furnished        the Department          a brochure            out-

lining       its     capability              to provide         design,      construction        and real           estate

services,            The brochure              referred         to the Corps'         past     experience           in provid-

ing services               to other          agencies       in the execution             of large      construction

programs,           such as its              work for       the National         Aeronautics           and Space Admin-

istration           and its          design     and construction              of hospitals          for    the Veterans

Administration.                     In transmitting             the brochure,         the Acting          Chief      of

Engineers           stated          that,     subject       to the approval           of the Secretary               of the

Army,       the Corps would be pleased                          to support       the Department's             requirements

for      construction               and the related             services      to whatever         extent      its      future

programs           might         demand.

          In April               1969, the Administrator                  of GSA advised        the Postmaster

General        that         it     might     be easier         and cheaper       to use GSA but that                 since

it     was felt        the Corps would                  best    be able      to handle        specialized           new post

office       construction,                  there   was nothing            to stop    the Department              from using

the Corps at oncep



                                                                                                                                 -7-
         The Department’s              decision         not to use GSA was made on the basis

that     it    did not have the size                   or experience         .to manage the postal                         facility

construction            program.        The Postmaster             General         was of. the opinion                     that        a

postal        construction         program of $250 to $500 million                             a year         could        be better

handled        by the Corps,           which      had a construction                 program averaging                     about

$2 billion         a,year,        rather       than by GSA which had a program                               averaging            about

$115 million            a year with         a projected           fiscal      year      1972 workload                 of about

$180 million,              In addition,           the Postmaster             General      noted             that     the highly

mechanized             special       purpose      facilities         needed for          postal             use bore         little

resemblance            to the facilities               GSA builds--a          factor          that     led to the 1966

delegation         of authority             from GSA to the Postmaster                    General.

         The Postmaster            General        believed        that      the Corps had the size                         and

geographical            distribution           of work .force,             and expertise              in constructing

complex        buildings         needed to manage the construction                             of postal             facilities.

         The Postmaster              General      decided        to de,fer         entering          into      a formal           agree-

ment with         the Corps until              after      passage of the Postal                      Reorganization                   Act,

         On September            26, 1970, after               passage of the Postal                   Reorganization

Act,      the Postmaster             General      formally        requested           the Secretary                 of Defense

to authorize            the Corps to provide                   support      in connection              with         an accel-

erated        postal      building         program.        At that         time,     he anticipated                  utilizing

the Corps for             a $750 miliion               program over         a. 2-l/2      to s-year                period,            On

October         8,, 1970,        the Secretary           of Defense         informed          the Postmaster                 General

that      he was authorizing                the Secretary           of the Army to proceed                          with     the

negotiation            of a definite           agreement         covering          the services              which         the

Department          desired.

                                                                                                                                           -8-
March 11, 1971, agreements

         On March 11, 1971,                 the Department             executed              two agreements           with       the

Department          of the Army to continue                       in effect          for      a %-year          period.        One

agreement          was a “broad            umbrella       type”      between              the Postmaster            General        and

the Secretary             of the Army covering                    basic ‘principles                  and policies.             The

other      agreement ,, signed              by the Postmaster                 General             and the Chief           of

Engineers,          was more specific              and established                   the responsibilities,                      terms,

and conditions             under which           the Corps would               furnish              the services          required,

         The latter             agreement      also      provided       that         the Corps would establish

controls         over     its     operations          to ensure        that         its      costs       would not exceed

5.5 percent          of the total             design,       cons true tion,                and mechanization               costs .

This     rate      was based on the assumption                        of a continuing                    program     of not

less     than $250 million                 annually       and the scheduling                        of postal       projects

at least         6 months         in advance of dates                 on which             services        are required.

         On March 19, 1971,                 the Corps advised                 its         field      offices       of the new

mission         to provide         support       to the Department                   and pointed               out that        they

would be assigned                 those major          postal       projects              over      $2 million       or 50,000

square      feet        and that      projects          falling       below         this      criteria          would generally

be managed by the Department’s                           regional       offices.

Information          furnished House Post Office
and Civil          Service Committee

         On March 11, 1971, the Postmaster                             General             briefed        the House Post

Office      and Civil            Service      Committee           on his      facility              construction          plans.

In presenting             his     rationale       for using           the Corps,                  the Postmaster          General

stated      that     he anticipated              a construction               program of two to three                          times



                                                                                                                                       -9-
that     previously         experienced            and that        this     level         of effort       would                  last        for

only     a few years.             It     was estimated          that      an approximately                   100 percent

temporary       staff       expansion           would be required                 for     the Department                    if      the

needed facilities                were to be placed              in operation               within      any reasonable

period     of time.             Rather        than undertaking             this         temporary      staff           build-up

within     the Department                he decided         to use the services                     of the Corps.                       The
                                                                   .
Postmaster       General            further       informed      the Committee                that     the agreement

would necessitate                transfer        of personnel             from the Department                   to the Corps

but the details             had yet           to be worked out.

Effect     of agreements                on GSA

         On March 27, 1971,                   the Director,           Office       of Management and Budget

wrote     to the Secretary                 of Defense         and the Postmaster                    General           requesting

that     they   suspend all              activities         pursuant           to the agreement                until              his

office     completed            a review        of the desirability                     of using      the Corps                   for

this     purpose.         The Director             stated      that       in view of the size                   and nature

of the Department's                    construction         program,           the agreement           would result                          in

a major     change in the role                   and mission           of the Corps;                and that           it         had

implications            effecting          the role       of GSA as the primary                      agent       for             the

construction            of buildings            to house the civilian                     agencies       of the Federal

Government.           To facilitate              his     review,       the Director               requested            the three

agencies        to comment on the agreement.

         In response            to the Director's              request,           the Postmaster               General                  by

letter     dated        April       2, 1971, outlined              the options             that      were available

to him at the time he signed                           the agreement.              He stated          that       it         would




                                                                                                                                                  -   ‘0   -
be wasteful,          inefficient,            and time consuming                to try     to develop         the

necessary         construction         capability          in-house        and that        basically,         the Corps

already         had precisely         the kind       of work force              needed.

        On April        12, 1971, the Secretary                  of Defense          responded          to the Director’s

request         describing       the several         benefits          from a national          security            stand-

point      to be derived          from this         course      of action.          For example,           he pointed

out that         the Department             is devoting       considerable           effort      toward       advancing

the state         of the art         in automated          and computerized               materials       handling

equipment.           The Corps’        participation            in this         program will          equip    it     to

take advantage           of these           advances      in modernizing           existing       plants       and

arsenals.

        On April        15, 1971, the Acting                 Administrator           of GSA commented on the

agreement         and stated         that     ‘IWe strongly        feel     that     the role         of the General

Services         Administration             in the construction             of buildings          to house civil-

ian agencies          of the Federal             Government        would        be seriously          weakened if

this    agreement        is implemented.”                 Some of the reasons’ he gave were:

        (1)       Implementation             of the agreement             would     further      proliferate

authority          to construct         public      buildings          within      the Executive          Branch con-

trary       to the intent         and purpose          of the Public             Buildings       Act of 1959.

          (2)     Involvement         by the Corps would contribute                        to further         confusion

on GSA’s role           in planning,           building       and managing           public      buildings,            includ-

ing the acquisition               and management of leased                      space.

          (3)     ‘GSA’s work force            would have to be curtailed                     substantially             if

the Corps undertook               construction            activities        which        GSA heretofore             performed,



                                                                                                                                 - 11 -
         On May 4, 1971,             the Postmaster            General           and the Deputy              Secretary           of

Defense       sent a joint           letter       to the Director,                   Office      of Management and

Budget      stating        that     Y3ince      we have received                 no further            questions          from

you concerning            our replies           to your       letter          of March 27, we assume that

you have no problem                 with      our proceeding             to implement             the March 11 agree-
                                                                         .
ment whereunder             the Corps of Engineers                     will      serve         as a construction             agency

for     the Post Office             Department.            Accordingly,               we are moving            forward       under

that     agreement .‘I

         On May 5, 1971, Office                   of Management and Budget                          informed       the Depart-

ment 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,        Office          of Management and Budget--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.

Mav 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 construc-

tion,       to the Corps           for     an indefinite         period.               In addition,            the agree-

ment 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,

did not have an in-house                      capability        to acquire               facilities.


                                                                                                                                  - 12 -
         Although        we understand               that     all     details        pertaining        to the agreement

have not yet          been worked             out,     it     is quite          possible       that    the Corps’         organiza-

tion     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 design        and construction

work under        the May 20 agreement,                       the Co&            may have difficulty              in staying

within     the rate        inasmuch           as it         was predicated             upon facility         projects          of

major     size.

         A further        agreement           between         the Department                and Corps,     effective           as

of June 28, 1971,               assigns        specific             responsibilities            and establishes             fund-

ing 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          9

alterations          and repairs.




                                                                                                                            - 13 -
:
                                                                                        m
    IMPLEMENTATION OF AGREEMENTS
    BY THE CORPS

             The Corps has an existing                   nationwide        organization               of over     42,800

    employees        experienced             in planning        and executing          large      scale     and diver-

    sif ied 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        loiated       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.

    Organization            of the Corps

             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 was administering,                  is that     there     is

    a single        interface         with      the customer , and this               interface         occurs      at the

    Washington         level.         Accordingly,            the Corps i 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.          Construction        responsibility              for     each project




                                                                                                                             - A4 -
would      be assigned           to the division                whose district                  is considered             to     be

best     able     to accomplish              the task          “in         terms of      location,            capabilities,

etc.”

         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 indicates.

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 con-

tract      design        activities,            supervision            and inspection                 of construction

activities,             and district,            division,            and Washington                headquarters               support

costs.

         In its         brochure        of February            12, the Corps                 stated         that     the 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,                    the composi-

tion     and number of projects                        and their            construction            periods,          the Corps




                                                                                                                                      - 15 -
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 an 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.            L

         The brochure                  also         included             statements          about         the legal              aspects          of

the Corps establishing                              a program             percentage              rate     as a firm              cost     for

accomplishment                  of the postal                     program.            The Corps concluded                         that      it     may

not provide             a predetermined                          unadjustable              rate     or amount for                  performing

postal         work because,                  if         such rate         or amount              should     prove          to be less                 than

actual         costs,      it         had no appropriation                       or fund which                    could       legally             be

charged         with      the deficit.

         The March 11, 1971,                              agreement           between         the Department                 and Corps

provided         that      the Corps would                          establish           controls           over      its     operations

to ensure          that         its     costs             for     supervision              of design,         engineering,                       con-

struction          and mechanization                             services       will        not exceed             5.5 percent                   of the

total     program          payments                  to contractors               for       design,         construction                  and

mechanization              and for                 any Corps in-house                      design.          The agreement                  also

provides         for      an annual                 review          of the costs             comprising              the 5.5 percent

rate     with      consideration                         given      to the need for                 any adjustments.

         Because the Corps had,                                  prior      to the agreement,                     estimated              that      its

in-house         costs          would         range             between       5.5 and 6.98               percent           of the con-

struction          contract,                 we asked             the Corps why the 5.5 percent                                   rate




                                                                                                                                                         - 16 -
was placed          in the agreement.                        The Corps,      by memorandum dated             May 5,

1971,       presented         the following                  explanation:

           “***the  Postmaster   General                         insisted     upon a ceiling           figure.
           The 5.5% ceiling   was arrived                          atbased     upon:

                  II(l)       Historical              cost     data   * * Jr.

                  II (2)     Considerations          of the specific   nature of the
                             Postal Public Building            Program to include   the
                             fact that these are large projects             near Dis-
                             trict    offices,        the construction   schedules are
                             relatively        short,    etc.,   and

                  “(3)       The following  assumptions contained in the
                             11 March 1971 Agreement signed by the Post-
                             master General and the Chief of Engineers:

                              l’(a)       a continuing   program of not less
                                          than $250 million    annually and

                             ‘l(b)        a schedule of projects   at least
                                          six months in advance of dates on
                                          which services are required.”

The memorandum also                    noted         that     inclusion      in the agreement           of the architect-

engineering              design       cost     as a part          of the total        program     cost     would        result

in a decrease              in the percentage                   of such costs         that    would     be needed to

recover        the Corps in-house                     costs.

           Corps district              officials             stated   that    they    believe     the Corps can

serve       the Department              and stay             within   the 5.5 percent           rate    on the total

major       facilities            program,           as contemplated          by the March 11, 1971,                   agree-

ment.        They predicted                  that     costs      on small    projects        would     be higher         and

on larger         projects            lower         than     the 5.5 percent         rate.      Further,         the

district         officials            stated         that     as a means of controlling                costs,      they




                                                                                                                             - 17 -
expect       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.

          I will       comment further                  on the 5.5 percent               rate        in a moment.

Slippage           in fiscal         year      1971 postal                   L
buildinp           program

          A Department              monthly       summary report                 as of May 28, 1971,               shows that

its      fiscal      year         1971 major       postal       facilities            construction           program           con-

sists       of 36 active             projects           and that         the Department             has been unable

to meet many of its                    target      objectives.                For example,            the Department

planned           to start         construction           on 33 projects              by May 28, 1971; however,

only      four      projects         were under           construction             by that       date.       The information

available           to us did not              show all       reasons            contributing          to delays;

however,           information          on recent          critical          developments            which     have affected

the      schedules          for     nine     postal       projects           showed that         the reasons           stated

for      changing       the schedules              were generally                 of a nature          which      required

resolution           by the Department                   and involved             such matters           as need for

further           economic        analysis        and changes             in operational              concepts.

          As of May 28, 1971,                   20 of the 36 fiscal                   year      1971 projects           and two

fiscal       year      1972 projects              had been transferred                   to the Corps for                services.

Corps officials                at two of the three                    design       offices       informed         us that        all

fiscal       year      1971 projects              for     which       they       had anticipated             to perform

services           had not been received.                     Corps officials                 also     advised       us that           the

construction            period         assigned          to the projects              received         were optimistic.




                                                                                                                                       - 18 -
        Many of the fiscal                   year     1971 projects              have estimated             construction

periods      of 12 months.                  In this     regard,          the Jacksonville                District          of the

Corps made an evaluation                      concerning          the 12-month             construction              period

required      for    the Jacksonville                  postal         facility        estimated          to cost          $7 million

and concluded         that      if     construction              was completed             in 12 months              it    would

cost    an additional           $2.6 million.                  The di?trict            recommended a construc-

tion    period      of 18 months.                  At the      time      of our       review,      an agreement                con-

cerning      the construction                 time     for     the Jacksonville               facility         had not been

reached.         Similar      situations              have also          developed         on the Fort              Lauderdale,

Florida,      and Roanoke,             Virginia,             postal      projects.

Corps construction              time         on
comparable projects

        One of the reasons                   the Department              approached          the Corps to undertake

the major        construction               program     was the belief                the Corps could                deliver        the

completed        projects       on schedule.                  In order           to obtain       some insight              as to

the Corps performance                  in completing              projects           in a timely          manner,          we

obtained      from    the Corps ’ Washington                      office          a list     of projects             the Corps

had constructed             during          the past         5 years       that      are comparable,                in type,

magnitude        and complexity,                  to those       they will           construct       for      the Depart-

ment,      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.




                                                                                                                                 - 19 -
LEGAL ASPECTS OF ARRANGEMENTSBETWEEN
THE POST OFFLCE DEPARTMENTAND
THE CORPS OF ENGINEERS
Legality         of agreements

         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 United           States      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 percentage                    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




                                                                                                                                      - 20 -
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,                 31 U.S.C.           686, 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.

33 U.S.C.        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 l’actual                    cost”    are primarily                 for     determination

between       the agencies              concerned.             As long as the amount agreed                         upon results

from a bona
       -1   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.                  Also,         we have recognized                    that     when the

“actual       cost”     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.

          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



                                                                                                                            - 21 -
to which          the agreements               are     susceptible           would          be preferable,            namel.y.

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.

         So long as the Corps                        stays      within      the 5.5 percent                there      would         of

course      be no problem                  under      either      interpretation.                  However,          should

Corps      costs      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.

         We found          that      the Department               was relying               in executing            the agreements

of March 11 and May 20 upon the redelegation                                           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                  proposal          to have the Corps perform                         these

services          was, at          least     informally,            cleared          with     GSA.        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     specifi-

cally      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.




                                                                                                                                         - 22 -
         We note      in that        regard       that     under      the Public            Building       Act of         1959,

GSA could         have delegated           such construction                 authority          direct       to the Corps.

GSA seems to have accomplished                           the same result,              though        indirectly,           by

giving      a liberal         interpretation              to the redelegation                 authority            in the

1966 agreement.

         In any event,             irrespective           of    the delegation              and/or       redelegation

issue,      the agreements             in question             are within          the purview           of the Economy

Act   discussed           above.

         With     regard      to the period              following       July       1, 1971,         section          411 of

the new title             39, United       States         Code,      provides        that      executive           agencies

are authorized             to furnish         personal          and nonpersonal              services        to the

Postal      Service        under     such terms           and conditions,              including          reimbursability,

as the Postal             Service      and the head of the agency                        concerned         shall         deem

appropriate.              Also,     section       401 of the new title                   39 authorizes                the Postal

Service         to construct,          operate,          lease     and maintain             buildings       and facilities

on property          owned or controlled                  by it.        In view       of such authority                   our

opinion         is that      the Corps may continue                   to render          services         to the Postal

Service         in the construction               of postal          facilities          as generally              set    out     in

the agreements.

Contracts         in name of the United                   States

         A question         has been raised               regarding         the authority              of the Postal

Service      or the Corps as agent                   of the Postal                Service      to enter         into      con-

struction         contracts         in the name of the United                       States.          Regarding           this

matter      section        401 of the new title                  39, U.S.          Code,      provides         that      the




                                                                                                                                       - 23 -
‘:



     Postal      Service         may sue and be sued in its                            official        name and may enter

     into     and perform              contracts          and determine                the nature          of its     expenditures.

     However , it            should       be noted         that         section        201 provides          that     “There      is

     established             as an independent                   establishment            of the executive              branch         of

     the Government              of      the United          States         the United            States     Postal     Service.”

              The contract               authority         of the Postal                Service       does not specifically

     require      such contracts                  to be entered                 into    in the name of the Postal

     Service.          It     has been held               that      where an agent                of the United         States

     under      an act        of Congress            might        sue and be sued such provision                          does not

     strip      from        the United           States         the right          to sue in its            own name.          The

     United      States         itself       is      the real           party      in interest         in suits        involving

     contracts         and property               of its         wholly         owned instrumentalities                 and it         is

     not necessary              that      such agency             bring         suit    in its      own name.

              Also,         section       6(l)       of the Postal               Reorganization             Act     provides      that

     judgments         against           the United             States      arising        out of activities              of the

     United      States        Postal        Service            shall      be paid       by the Postal              Service     out

     of any funds             available           to it.

              Considering              the above,          it     cannot          be clearly        said     that     contracts

     by the Postal             Service           or the Corps as agent                     for     the Postal         Service        may

     not be in the name of the United                                   States.




                                                                                                                                     - 24 -