oversight

Implementation of the Bulk Mail Facility Concept, Pittsburgh, Pennsylvania

Published by the Government Accountability Office on 1971-09-07.

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

lJn ited States Postal Sew ,ice




                                      AL
                                  s
                         COMPTROLLER     GENERAL     OF      THE   UNITED   STATES
                                       WASHINGTON.    D.C.     20548




    B-171594



                Cl +“k
    Dear Clr. Gloss:
            Your letter    dated February      4, 1971,                     requested      us to
    examine into certain         aspects   of the postal                        building _~ .-project
    in Pittsburgh,       Pennsylvania.       On March- 8,                     1971, we furnished
    you with an interim        report    on the accuracy                        of some of the
    financial     and other information        contained                      in your letter.
    This report      adds to or clarifies       the data                      previously        fur-
    nished to you and completes           our reporting                       on this matter.

\          The Postal    Service   has incurred      costs of at least              ya
    $881,000 for the development          of,sneral       specifications        for
    the Pittsburgh     facility,    for specific      designs      for the lay-
    out of machinery      to process     mail,   and for a building          to
    accommodate the machinery.           We believe     that this work will
    be of limited     benefit    to the Postal      Service     because of
    changed concepts      for processing       mail and because design con-
    tracts   were awarded before       the general      specifications--which
    serve as the basis for the design work--were                  developed     for
    a r\ationwide   network of bulk mail facilities.
            ,%bout $240,000 was spent under a contract              for the de-
    sign of a building      in which letter        mail and bulk mail were
    to be processed.       The contract    was terminated         when the Pos-
    tal Service     changed its concepts      for processing         mail and
    implemented     the bulk mail facilities          program--a      system
    whereby packages and other bulk mail,              such as advertising
    circulars,     would be handled     in facilities        separate     from
    those in which letter      mail was processed.
             Costs of about $24,000 were incurred           in developing        gen-
    eral specifications        for a separate      bulk mail facility         on the
    basis that the facility           would serve the immediate         Pittsburgh
    area,       The Postal   Service,     however,  determined     that     a larger
    facility      was needed when it decided        to incorporate       the
    Pittsburgh      facility   into a nationwide       network   of bulk mail
    facilities.




                                50TH ANNIVERSARY 192T-1971
       .

B-171594


        The remaining       $617,000 was expended under contracts                for
developing      general     specifications         for the Pittsburgh      bulk
mail facility,       for equipment         layout,     and for building     design
which would be used in the nationwide                   network.      In an effort
to make the Pittsburgh            bulk mail facility         operational    as
soon as possible,         the Postal       Service     awarded these contracts
without    waiting     for the results         of a study undertaken        to
develop    the size and interrelationship                of a nationwide
network    of bulk mail facilities.
        The study report     indicated      that the facility       at
Pittsburgh      would have to be about 75 percent            larger     than
the one that was being considered              and for which design con-
tracts     had been awarded.       Therefore     work under the contracts
was stopped but not before           costs of $617,000 had been in-
curred--    $11,000 for the development          of general     specifications
for the facility,       $493,000 for the equipment           layout     design,
and $113,000      for the building       design.
         Statements     made by the Assistant         Postmaster      General,
Department        of Research and Engineering,            indicated     that the
Postal      Service    was aware that awarding          these contracts,
prior     to receiving       the results    of the nationwide         bulk mail
facility      study,    carried     with it some risk.          We believe     that
the risk taken by the Postal             Service     seems to have involved
a trade-off        between the possibility         of expediting        the com-
pletion      of the facility        (and the accompanying          annual savings)
and the possibility            that money would be spent with limited
benefit      accruing    to the Postal      Service.
       In April    1971 the equipment       layout  design for the ex-
panded Pittsburgh       bulk mail facility       was being prepared.
Postal   Service    records  indicate     that the contract    for the
design of the facility,        which has been suspended temporarily,
will   be renegotiated.

       A chronology      of pertinent     events      relating     to the pos-
tal   building   project    in Pittsburgh       is    presented      in enclosure
I.    Detailed   comments follow.
COMBINED BULK AND LETTER MAIL FACILITY
        A study by the Postal     Service    in 1967 disclosed   that
the mail-processing     operations      in the main post office     in
Pittsburgh,     which is located    in a congested     downtown busi-
ness area, were hampered by inadequate           space which pre-
cluded the utilization      of major mechanized       equipment.

                                           2
B-171594



         The study          indicated        that     an increasing             volume         of mail
was being        processed          in various          leased     facilities              in the
Pittsburgh         area and that,              although       the leased            facilities
provided       a temporary            solution        for handling            the increasing
mail     volume,       the facilities              did not provide              for     an efficient
mail-processing               operation.           Also    shuttle        service         between
the various          facilities          was expensive.

         As a solution          the Postal     Service     proposed     the con-
struction          of a consolidated       facility       capable   of handling
future      volume      and located      to accommodate         the changing
transportation           patterns.       In Xay 1968 the house            and Senate
Committees           on Public     Works approved       the construction       of the
postal      facility       in the Pittsburgh         area.

         The Postal            Service     solicited          89 architect-engineering
firms      in August           1968 for proposals               to design          the facility;
20 firms         responded.            Of these        firms,      the firm          of Deeter,
Sitchey,         Sippel        I$ Associates,          and Michael           Baker,       Jr.,    Inc.
(a joint         venture),         was selected.              In January           1969 the Postal
Service        negotiated           a fixed-price            contract        with      the firm       in
the amount           of $1,535,600            for    the design,           within        a construction
cost     limitation            of $35,113,000,             of a post         office       and vehicle
maintenance            facility.          The amount          of the contract               included
$410,600         for     supervision          and services            during       construction
of the facility.

         The Postal      Service        suspended    work    on the design          contract
in August        1969 and terminated            the contract       in I.lay 1970.         The
Postal      Service     decided,        on the basis      of various       studies,
that     it would     be economically           advantageous       to process        bulk
mail     in a separate        facility.         The Postal      Service      paid     the
contractor        $240,000       for work performed          under    the design
contract.

SEPARATE        BULK MAIL         FACILITY

         The Postal            Service’s        bulk   mail     facilities        program--a
system       whereby         packages         and other     bulk       mail,   such as adver-
tising       circulars,            will     be handled      in facilities           other    than
those      in which          letter        mail   is processed--is           to consist        of
21 major         facilities             (one of which       is to be located              in the
Pittsburgh          area)        and 12 satellite           facilities         and is esti-
mated      to cost          about       $950 million      to implement.




                                                       3
B-171594


        The Postal    Service  expects that the system will    be
fully    implemented    by June 1975 and will  result    in an annual
reduction     in operating    costs of about $300 million.     A map
showing the planned bulk mail facilities         network   is presented
in enclosure      II.
       The bulk mail facility         to be constructed         in the Pitts-
burgh area will       have a satellite        facility     in Buffalo,      New
York.     These facilities      will    serve areas in Pennsylvania,
New York, Ohio, and West Virginia.                  The Postal    Service's
estimated     cost of constructing         the Pittsburgh       facility     is
$17,986,000      and of acquiring       the equipment        is $39,559,000.
The Postal     Service     has made a commitment         for $750,000 to
purchase    land for the site of the facility.                 As of June 8,
1971, an estimate        of the site preparation           costs was not
made.
Feasibility      and general      specification        studies
        In July 1969 the Postal       Service    contracted  with Drake
  Sheahan/Stewart     Dougall,  Inc.,    to study the Pittsburgh      area
  to determine    whether work on the combined letter         and bulk
 mail facility     should be continued.         The firm had previously
 made a study of mail flow in the New York City area and had
 recommended that a separate         bulk mail facility     be considered
  for that area.      In August 1969 the firm made a similar
.recommendation     for the Pittsburgh       area.
        The Postal        Service     then requested        the firm to prepare
general     specifications           which would serve as the basis for
the design of the equipment                 layout     and the separate       bulk
mail facility.            In November 1969 the firm submitted                  its
specifications          report     for a single        bulk mail facility
serving      the immediate         Pittsburgh      area.      costs of about
$24,000,       including       a $2,000 fee, were incurred           under the
contract.         Under the nationwide            bulk mail network        concept
which was subsequently               developed,      the Pittsburgh      facility
was to serve an expanded area and thus had to be designed
to different         specifications.

       Because mail flow studies        in New York and Pittsburgh
had indicated     the feasibility      of separate    bulk mail facil-
ities,   the Postal     Service   in October    1969 solicited     pro-
posals   for a study to (1) determine         the feasibility      and
 (2) if warranted,      to develop   the size and interrelationship
of a nationwide      bulk mail facilities       network.      The Postal


                                            4
B-171594


Service  accepted   the proposal    submitted    by the International
Business  Machines Corporation      (IBM) and awarded a contract
to IBM on March 20, 1970.        It was anticipated    that the
study would require    about 9 months to complete.
        In view of the anticipated              duration     of the nationwide
study,     the Postal      Service    contracted       with Drake Sheahan/
Stewart      Dougall,    Inc.,    to make a quick study to evaluate
the feasibility        of and to develop           a reasonable       configura-
tion for a national           bulk mail system.           Also the firm was to
determine      whether     a national     facility       should be located       at
Pittsburgh      and, if so, to develop             general    specifications       for
the facility       so that its completion             could be expedited.
      The firm reported       that a national         bulk mail system
would be economically       justifiable        and recommended that a
bulk mail facility      be constructed         in Pittsburgh.        The firm
also prepared     general   specifications         for the facility.         The
work was performed      between January          1970 and April      1970 at
an estimated    cost of $34,000,         including     a $3,000 fee.
        Of the estimated     costs of $34,000,         about $11,000 was
for the development      of general    specifications        which were of
limited    benefit  because the subsequent           IBM study resulted   in
the development      of different    specifications.
      The IBM study was completed               in December 1970 and set
forth  the size,  interrelationship,               and general   specifications
for a nationwide    network     of bulk         mail facilities.
Equipment     layout     design
      To obtain   an operational    bulk mail facility         at Pittsburgh
as soon as possible,     the Postal    Service,    in April     1970, awarded
a contract   to Lester   B. Knight   6 Associates,       Inc.,   in the
amount of $100,000     to begin work on the design of the equip-
ment layout    on the basis of the general       specifications        pre-
pared by Drake Sheahan/Stewart       Dougall,    Inc.
          In November 1970 a cost-plus-fixed-fee               contract    was
awarded to Lester         B. Knight    6 Associates,        Inc.,    at an esti-
mated cost of $642,000,          including    a fee of $57,000,           to complete
the equipment       layout   design work.       The Postal        Service     awarded
these contracts        even though it was aware that the IBM study
might have some effect         on the general        specifications         for the
facility.

                                            5
B-171594


       The Assistant      Postmaster   General,     Department    of Research
and Engineering,       said during    a meeting     of Postal   officials       in
April    1970 that this course of action          carried   with it some
risk that the project,         as planned,   might have to undergo some
redesign     to conform substantially      with findings       by IBM.       He
said he was prepared        to take this risk in order not to delay
construction     of the bulk facilities         pending   completion      of
the IBM study.
        The IBM study was completed          in December 1970.        In
January    1971, or about 8 months after            work began under the
equipment     layout      design contract,     the Postal   Service     in-
structed    the contractor         to stop work under the contract          be-
cause the IBM study had indicated              that the size of the
Pittsburgh      facility      would have to be increased      due to mail
volume density          and its relationship      to other bulk mail facil-
ities.     The study indicated          also that the increase      in the
size of the facility           would require     a major change in the
equipment     layout      design for the facility.
        The Postal  Service  paid Lester     B. Knight  & Associates,
Inc.,    $493,000 for work performed      which,  because of the major
changes required      in the design of the facility,      would be of
limited    benefit  to the Postal   Service.
Building     design
        The design of the Pittsburgh         bulk mail facility            was de-
pendent upon the design of the equipment              layout.          By Septem-
ber 1970 Lester      B. Knight    & Associates,     Inc.,     had      prepared
sufficient    equipment    layout   designs     to permit     the      Postal
Service    to negotiate    a contract     for the design of            the faci-
lity.
         In November 1970, 1 month before            the IBM study was com-
pleted,     the Postal      Service    awarded a negotiated         fixed-price
contract      in the amount of $693,000           to Deeter,     Ritchey,      Sippel
& Associates,        and Michael      Baker, Jr.,    Inc.,   for the design,
within     a cost limitation        of $11,220,000,       of the Pittsburgh
bulk mail facility.            The contract      amount included        $195,000
for supervision        and service      during    the construction        of the
facility--      implementation      of this part of the contract              being
at the option        of the Postal      Service.




                                           6
B-171594


       The Postal  Service records    indicated     that the firm was
awarded the design contract      primarily     because the Postal
Service   was pleased with the firm's       work under the contract
for the design of the combined bulk and letter           mail facility.
         As noted previously,    the IBM study resulted              in major
changes in the equipment       layout     design for the facility.               In
January      1971 the Postal  Service     suspended work under the con-
tract     for the design of the facility,           pending     the availability
of new equipment       layout designs.       The Postal       Service      paid the
firm $113,000 for the facility           design work.         In an intra-
departmental       memorandum a postal     official      stated      that the
majority      of the design effort     did not coincide           with the new-
facility      concept and would have to be redone and that such
work could not commence until          the revised       equipment       layout
had been developed.
       The award of the facility     design contract   1 month                  before
the IBM study was completed       is questionable,   It seems                   rea-
sonable   that the Postal   Service   should have been aware                    of the
imminent    release of a study which could have an effect                       on the
design of the facility.
         The IBM study was conducted          under the supervision         of the
Department     of Research and Engineering,             and the facility      desig
contract     was under the supervision           of the Department       of
Facilities.       According      to an official      of the Department       of
Facilities,     there was a need for better             coordination     between
the two Departments         particularly      regarding     the impact of the
IBM study on the design of the bulk mail facilities.
Status     as of Anril      1971
          As of April      1971 A. T. Kearney 4 Company, Inc.,                under
a negotiated         contract       awarded by the Postal         Service    on
March 25, 1971, was preparing,                   on the basis of the IBM
study,      an equipment        layout      design for various      bulk mail
facilities,        including        the one at Pittsburgh.          Postal    Service
records      indicate      that,      when the general       equipment    layout    is
determined,        the Postal         Service     intends  to renegotiate       the
contract       with Deeter,         Ritchey,     Sippel   6 Associates,      and
Michael      Baker, Jr.,         Inc.,    for design of the Pittsburgh
facility.
  B-171594


          The facility      is to be located    on 75 acres in the 665-
  acre Thorn Hill        Industrial  Park about 15 miles northwest            of
  Pittsburgh.         The park is owned by the Commonwealth of Pennsyl-
  vania and is managed by the Regional             Industrial     Development
  Corporation       of Southwestern    Pennsylvania,       a nonprofit   organi-
  zation.
           In November 1970 the Postal                Service   entered   into an
  agreement,         to be consumated by November 1971, with the de-
  velopment         corporation       for the purchase        of the site at a
  negotiated         price     of $750,000,       a reduction     of $150,000   from
  the asking price             and $75,000 less than the appraised             value
  for the site.           Although      the agreement       to purchase   the site
  was entered          into before        the completion      of the IBM study,
  postal      officials        informed      us that the study did not result          in
  significantly           changing      the land needs.


          We have not requested       the Postal    Service  or the con-
  tractors    to review or formally         comment on the information
  contained     in this report.       We plan to make no further       distri-
  bution    of this report     unless copies are specifically        requested,
  and then we shall       make distribution      only after   your agreement
  has been obtained       or public     announcement    has been made by
  you concerning       the contents     of the report.




                                             Comptroller   General
                                             of the United   States
    Enclosure
      it
c\ A
 ,,*The Honorable  H. R. Gross
    House of Representatives
                                                                  ENCLOSURE I


                       PERTINENT EVENTS RELATING TO THE
                          PITTSBURGH BULK MAIL FACILITY

January     1969       Contract   was awarded to Deeter,    Ritchey,       Sippel
                       & Associates,   and Michael   Baker, Jr.,     Inc.,     in
                       the amount of $1,535,600    for the design of a
                       combined letter   and bulk mail facility.
July     1969          Contract  was awarded to Drake Sheahan/Stewart
                       Dougall,  Inc., to determine   whether work on
                       the combined facility   should be continued.
August     1969        Drake Sheahan/Stewart      Dougall,   Inc.,      recom-
                       mended a separate     bulk mail facility         for the
                       Pittsburgh    area.   The firm subsequently          was
                       requested  to prepare     general   specifications
                       for the facility,
August     1969        Contract  for design        of the     combined     facility
                       was suspended.
October     1969       Postal    Service  began to solicit       proposals            to
                       determine     the feasibility       of a nationwide
                       bulk mail facilities          network.
November        1969   Drake Sheahan/Stewart           Dougall,     Inc.,    developed
                       general     specifications       for a separate        bulk
                       mail facility        at Pittsburgh       but not on the
                       basis of a concept          that the facility        would
                       be part of a nationwide            network of bulk mail
                       facilities.         (Cost to the Postal         Service     was
                       $24,000.)
January     to
  April     1970       Drake Sheahan/Stewart         Dougall,     Inc.,     worked
                       on a study to (1) evaluate             the feasibility
                       of a nationwide         bulk mail facilities          network,
                        (2)     determine    whether  a facility        should be
                       located      at Pittsburgh,    and (3)       develop       spec-
                       ifications        for such a facility.         (Cost     to  the
                       Postal      Service   was $34,000.)




                                             9
ENCLOSURE I



March     1970      IBM was awarded a contract            to determine    the
                    size,    interrelationship,        and general
                    specifications         for a nationwide     network   of
                    bulk mail facilities.
April     1970      Contract    was awarded to Lester       B. Knight &
                    Associates,     Inc.,    for $100,000 to begin design
                    of equipment      layout    on the basis of the Drake
                    Sheahan/Stewart       Dougall,    Inc., study.
May 1970            Contract   for design of the combined facility,
                    which was suspended in August 1969, was ter-
                    minated.     (Cost to the Postal Service was
                    $240,000.)
November     1970   Contract    awarded to Lester      B. Knight   & Asso-
                    ciates,   Inc.,   for $642,000 for completion        of
                    the equipment     layout  design work.       (Super-
                    seded the April      1970 contract    with Lester    B.
                    Knight   & Associates,    Inc.)
November     1970   Contract    awarded to Deeter,    Ritchey,   Sippel       &
                    Associates,     and Michael Baker, Jr.,    Inc.,      for
                    $693,000 for design of the bulk mail         facility
                    on the basis of the Lester      B. Knight    & Associates'
                    equipment    layout  design work.
December     1970   IBM completed      its   study.
January     1971    Lester   B. Knight   & Associates,      Inc.,   was in-
                    structed   to stop work on the equipment          layout
                    design because the IBM study had indicated              the
                    need for a larger      facility    at Pittsburgh.      (Cost
                    to the Postal    Service      was $493,000.)
January     1971    Contract    with Deeter,   Ritchey,     Sippel      & Asso-
                    ciates,    and Michael   Baker,   Jr.,    Inc.,    for design
                    of the bulk mail facility       was suspended pend-
                    ing availability     of new equipment        layout    de-
                    signs.     (Cost to the Postal      Service     was
                    $113,000.)
April     1971      As of April    1971 A. T. Kearney & Company, Inc.,
                    on the basis of the IBM study,            was preparing  an
                    equipment   layout     design    for various   bulk mail
                    facilities,    including      the one at Pittsburgh.


                                      10
    ENCLOSUREII
.