phia, through the big cities, and police it. A helicopter would have to be used to insure that the people aren't cutting through the fence because then you don't have a fence when you tear it down. We can see what happens.

I think it is probably unnecessary at this point to fence the entire right-of-way. That was originally the plan.

Mr. PALUMBO. But it has been reduced since then?

Mr. REISTRUP. Yes.

The only foreign country that I know of that has established proper barriers is Japan. The other railways do not.

Mr. LAWSON. The Italians do the same thing on their new lines. Ms. HALTERMAN. Mr. Reistrup, there seems to be two conflicting statements. I asked you earlier if there was congressional activity of any kind when there was the debate between Amtrak and DOT on ownership. You had said there was an argument, and yet you stated a few minutes ago that the Senate held a hearing on that subject. Did I misunderstand?

Mr. REISTRUP. I did not hear you ask-it was sort of a long question.

Ms. HALTERMAN. They held hearings on the subject of the money being withheld?

Mr. REISTRUP. I did not hear that. There was a withholding of funds testimony. There was a hearing.

Ms. HALTERMAN. Was that instrumental in getting the agreement?

Mr. REISTRUP. I would say it was because we really, in effect, were told by the chairman, Senator Bayh, to get our heads together and not bash them but to work something out and we did.

Ms. HALTERMAN. Going back to the Bechtel audit, you in effect criticized them for their operating procedures in that they did not say what they were doing; is that correct?

Mr. REISTRUP. My personal comment went to my understanding of what it was. I don't think it was much of an audit. Mr. Lyons commented about it.

Ms. HALTERMAN. I thought you said you were not aware it was an audit.

Mr. REISTRUP. I didn't even know they were there. That is very strange. I always know when auditors are on the scene.

Ms. HALTERMAN. Would that not be something sufficiently significant for your staff to bring to your attention?

Mr. REISTRUP. Yes. You know, looking back on it-and I can't reconstruct it-probably the reason was that it wasn't handled through our finance and accounting department, which is the proper channel. This is the first time I have ever seen it handled this way. We really ought to have some sort of early warning system, I guess.

We are not afraid of auditors. In fact, we welcome them. But there is a way to go about it. Have everyone in a room so that we understand what is being audited and where the records are.

We have even said-when GAO made an audit on passenger car maintenance, we told them about all the hardware, and then there is a debriefing when they are finished. This wasn't handled that

way.

Ms. HALTERMAN. Would you say it was considered insignificant because it wasn't handled properly?

Mr. REISTRUP. No, I can't explain the disconnect, actually.

I guess we just didn't know what was going on. Mr. Lyons could answer that better.

I don't know why he didn't tell me.

Mr. LYONS. Our procedure is that all audits are cleared through our vice president of finance. This being an audit, I assumed he had concurred in the same fashion. We feel he would have known about it and have passed it along as he normally does to Mr. Reistrup.

Ms. HALTERMAN. That is all, Mr. Chairman.

Mr. BURTON. Thank you very much.

Mr. REISTRUP. Thank you, Mr. Chairman. We will provide any further responses to requests for the record.

Mr. BURTON. There is one more question.

Mr. ROMNEY. Mr. Lyons, would you please summarize the provisions in your contract with FRA concerning insurance and other protections for tort liability or other loss?

Mr. LYONS. I will read from the contract:

Section 8.40 Insurance. (a) Amtrak shall provide and maintain all necessary liability insurance with respect to Amtrak's performance under this contract, including, without limitation, comprehensive general (including FELA) liability and comprehensive automobile liability insurance (bodily injury and property damage), and such other insurance as the Contracting Officer may from time to time require. (i) All insurance carried by Amtrak pursuant to this Section 8.40 shall be in such form, in such amounts, and for such periods of time as the Contracting Officer may from time to time require or approve and shall be with insurers approved by the Contracting Officer.

(ii) With the approval of the Contracting Officer, Amtrak may maintain a program of self-insurance.

(iii) Until notified otherwise by the Contracting Officer, Amtrak's current comprehensive general liability program of self-insurance for the first $2,000,000 of each occurrence and catastrophic coverage for the next $38,000,000 for each occurrence is acceptable to the Government.

(iv) Until notified otherwise by the Contracting Officer, Amtrak's current rolling stock and fixed properties program of self-insurance for the first $1 million rolling stock and $100,000 fixed properties of each occurrence and catastrophic coverage for the next $10 million rolling stock and $10,900,000 fixed properties, for each occurrence is acceptable to the government.

(b) Amtrak agrees that, if Amtrak seeks reimbursement under this contract for the costs of any insurance, Amtrak shall submit such policies of insurance to the Contracting Officer for approval.

(c) Amtrak shall be reimbursed by the Government for the portion allocable to this contract of: (i) the cost of insurance as required or approved pursuant to the provisions of this Section 8.40;

(ii) subject to compliance by Amtrak with the requirements of subsection (d) of this Section 8.40, the cost of self-insurance pursuant to subsection (a)(iii) of this Section 8.40; the costs of self-insurance, as used in this subsection (c)(ii), shall mean the amounts of liabilities to or claims by third persons (including employees of Amtrak) paid directly by Amtrak under the deductible provisions of the insurance policies carried under subsection (a) (iii) of this Section 8.40 and legal and investigative expenses (arising from use of attorneys or investigators not members of Amtrak's staff) incident thereto.

(iii) subject to provision by Amtrak to the Contracting Officer of proper documentation of loss or damage in form satisfactory to the Contracting Officer; the costs of self-insurance pursuant to subsection (a)(iv) of this Section 8.40; the costs of selfinsurance, as used in this subsection (c)(iii), shall mean the losses suffered by Amtrak within the deductible amounts provided in, or in excess of the limits of, or excluded from the coverage of the insurance policies carried under subsection (a)(iv) of this Section 8.40, including identifiable costs incident thereto;

(iv) the cost of claims or liabilities to third persons for loss of or damage to property (other than property (A) owned, occupied or used by Amtrak or rented to Amtrak of (B) in the care, custody, or control of Amtrak) or for death or bodily injury, not compensated by insurance or otherwise, arising out of and during the performance of this contract, whether or not caused by the negligence of Amtrak, its agents, servants, or employees; provided, that such liabilities are represented by final judgments or settlements approved in writing by the Government and expenses incidental to such liabilities; provided further, that this subsection (c)(iv) of this Section 8.40 shall not apply to liabilities (A) for which Amtrak is otherwise responsible under the terms of this contract, or (B) with respect to which Amtrak has failed to insure as required or to maintain insurance as approved by the contracting officer, or (C) which results from willful misconduct or lack of good faith on the part of any of Amtrak's directors or officers or on the part of any of its managers, superintendents, or other equivalent representatives who have supervision or direction of (1) all or substantially all of Amtrak's business or (2) all or substantially all of Amtrak's operations in the NEC, or (3) a major portion of Amtrak's work under this contract.

(d) Amtrak shall notify the contracting officer in writing immediately upon the filing of any suit or action or upon the making of any claims against Amtrak arising out of the performance of this contract, the cost and expense of which may be reimbursable to Amtrak under this contract, and the risk of which is then selfinsured or the amount of which exceeds the amount of coverage. Amtrak shall furnish immediately to the government copies of all pertinent papers received by Amtrak. If the amount of such suit or claims is less than or equal to $40,000 Amtrak is authorized to settle, defend, or otherwise compromise such suit or claim. If the suit or claim exceeds $40,000 Amtrak shall authorize representatives of the government to collaborate with Amtrak's counsel and counsel for the insurance carrier, if any, in settling or defending such claim.

Mr. ROMNEY. I had asked, if possible, you could summarize it. What I would like for you to do is provide the text of that for the record and then answer this question: Did your existing insurance change in premium coverage with respect to the assignment you accepted from FRA to be the construction agent for the Northeast corridor improvement project?

Mr. LYONS. I will have to check this.

Mr. ROMNEY. The second one is, what protection is available when provision is made in this contract, or what other provisions exist to provide protection against liability against a catastrophic accident where the claims might exceed $38 million per occurrence?

Mr. REISTRUP. We will provide that for the record. None of us is qualified in the insurance field.

[The information follows:]

(a) Inasmuch as the corporation could not assume any liability for the NECIP out of its regular operating funds, Section 8.40 of the contract provides Amtrak with an indemnity for NECIP-related losses, utilizing the work package concept for insurance premiums and uninsured losses. On an item-by-item basis, Section 8.40 provides that:

(a) Amtrak will maintain all necessary liability insurance as required or approved by the contracting officer; Amtrak may maintain a program of self-insurance with the approval of the contracting officer; Amtrak's current insurance program for comprehensive general liability and property damage is approved

(b) If Amtrak seeks reimbursement for any premiums, the contracting officer must approve the insurance policy (if he has not done so already) (c) Amtrak will be reimbursed for:

(i) the cost of insurance premiums required or approved

(ii) the cost of Amtrak's general liability self-insurance ($2,000,000 per occurrence) (iii) the cost of Amtrak's property self-insurance ($1,000,000 per occurrence for rolling stock; $100,000 per occurrence for fixed properties; all uninsured items such as track, tunnels, bridges, etc.; all losses over $10,000,000 per occurrence)

(iv) the cost of all other claims or loss not compensated by insurance or otherwise arising out of the performance of the contract except for willful misconduct or lack

of good faith on the part of Amtrak's directors, officers, managers, superintendents, or other equivalent representatives

(d) Amtrak shall notify the contracting officer of any suit or claim; Amtrak may settle loss up to $40,000 without approval; over $40,000 must have governmental collaboration and/or approval.

(b) Although Amtrak has experienced an increase in liability premiums of approximately $400,000 from 1976-1978, no actual breakdown of premium increases is available. Part is due to inflation, part to increases in number of passengers and employees, and part is due to NECIP. Therefore, the only insurance premiums charged to Work Package AM-013/INDEMNIFICATION to date are those associated with automobile liability for NECIP vehicles.

(c) Although the contract (subsection (c) (iv), Section 8.40) makes provision for the indemnification of Amtrak for all NECIP claims "* not compensated by insurance or otherwise it is Work Package AM-013 that provides the funds for payment. Currently, AM-013 has a maximum limit of $4,000,000 from April 1, 1976, through March 31, 1979, but has provisions (paragraph 2.0) for testing the sufficiency of funds at various times during the year. However, other than the "good faith" of the FRA, Amtrak has no "real" protection against an accident in excess of $38 million in claims.

Mr. MAGUIRE. Thank you very much, gentlemen.

The next witness is John M. Sullivan, Administrator, Federal Railroad Administration, accompanied by Mr. David Gedney, Associate Director for Engineering and Louis Thompson, Project Director.

STATEMENT OF JOHN M. SULLIVAN, ADMINISTRATOR, FEDERAL RAILROAD ADMINISTRATION; ACCOMPANIED BY LOUIS S. THOMPSON, DIRECTOR, NORTHEAST CORRIDOR IMPROVEMENT PROJECT; AND DAVID GEDNEY, ASSOCIATE DIRECTOR, NORTHEAST CORRIDOR IMPROVEMENT PROJECT, OFFICE OF ENGINEERING

Mr. SULLIVAN. Mr. Chairman, I appreciate the opportunity to report on the status of the Northeast corridor improvement project and to acquaint you with the progress and problems of the program.

I have with me Mr. Louis S. Thompson who was recently appointed Director of the project, and Mr. David Gedney, the project's Associate Director, Office of Engineering, who served as the Acting Director before Mr. Thompson's appointment. They will assist me in responding to any questions you may have later.

The Federal Railroad Administration was charged by the Secretary of Transportation with carrying out a program to improve rail service in the Northeast, which has received considerable congressional and executive branch attention since 1962 and has been specifically addressed in two recent acts, the Regional Rail Reorganization Act of 1973, the 3-R Act, and the Railroad Revitalization and Regulatory Reform Act of 1976, the 4-R Act. The current program received its primary guidance and funding authorization in the latter act.

The 4-R Act requires the Secretary to implement the improvement program. For this purpose a Northeast corridor project office was established within FRA dedicated exclusively to carrying out the improvement project.

This office is composed of a small group of Federal employees who direct the efforts of a larger number of contractor and Amtrak employees.

The magnitude and complexity of the engineering and construction effort required of this project cannot be overemphasized. All the work must be undertaken on an operating railroad-one of the world's busiest-with a minimum impact on the thousands of passengers and shippers who use the Northeast corridor daily.

The program envisoned by both the Congress and the Department is far more than a track maintenance activity. Extensive design efforts are required for new and upgraded electrification, bridge replacement, station refurbishment, communications and signalling and so forth. In order to carry out the task without building a large staff of Federal employees, FRA engaged the services of an architect and engineering team consisting of the joint resources of De Leuw, Cather and Ralph M. Parsons Co., to provide critically needed engineering, design and program management support.

This was done in 1976 through standard Federal procurement procedures for hiring A. & E. contractors.

Another principal NECIP contractor is the primary NEC owner, Amtrak. Amtrak assists in planning improvements-since they will operate the improved system-and has a major construction role, carried out by its force account labor and by subcontractors.

Relationships with Amtrak and the delineation of Amtrak's responsibilities have been established by a contract designed to protect the public interest and investment in the improved transportation system.

A program of this magnitude and complexity would normally be the subject of years of engineering planning and design effort before the start of construction. Although many years of intermittent study had occurred previously, the extremely tight deadlines of the 4-R Act-only 60 months from enactment to achievement of service goals-caused the planning and organization to be telescoped into about 1 year.

This short period of time was devoted to establishing contracting relationships, placing initial engineering and design contracts, rapid ordering of materials and equipment, and assessing the environmental impacts of the project. In many instances, planning, design, purchasing, and construction were required to proceed at almost the same time.

On April 1, 1977, only 13 months after the 4-R Act became law, the first full season of trackwork began. As the work progressed, difficulties emerged: The lead times for equipment and materials were longer than expected; personnel shortages were experienced by Amtrak; newly hired workers had to be trained; supervisors were inexperienced; and productivity did not meet forecasts.

The strain on Amtrak can be better understood when we realize that Amtrak virtually doubled its personnel overnight and had to assume greatly expanded functions related to construction and maintenance of the fixed plant. Nevertheless, we have made significant achievements.

Through the end of last month, $51 million of engineering and design and $162 million of construction and materials subcontracts had been awarded and $204 million more of work was in the process of being let as subcontracts or was being performed by our major contractors, Amtrak and DCP. Of approximately 3,000 per