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CONTRACTING-OUT PROCEDURES

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WEDNESDAY, AUGUST 16, 1961

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES,
SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS,

Washington, D.C. The subcommittee met at 10:10 a.m., the Honorable F. Edward Hébert (chairman of the subcommittee) presiding.

Mr. COURTNEY. Mr. Chairman, if we may resolve ourselves into a continuation of another hearing on contracting out, we have a statement from the National Society of Professional Engineers, dated August 11, 1961, which I will ask to be included in the record as though read, as a matter of contracting out for services, relating to the employment of professional engineers.

Mr. HÉBERT. It may be inserted at this point as though having been read. (The letter above referred to is as follows:)

NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS,

Washington, D.C., August 11, 1961. Hon. F. EDWARD HÉBERT, Chairman, Subcommittee for Special Investigations, House Armed Services Committee, Washington, D.C.

DEAR MR. HÉBERT: In connection with the current hearings of the subcommittee on contracting-out procedures of the military departments, we should like to present for the record this letter of comment and some reference material which we hope will be of interest and value.

The National Society of Professional Engineers is composed of 55,000 members, all of whom are registered under the appropriate State engineering registration laws, through 53 affiliated State societies of professional engineers and approximately 400 local community chapters. Our membership includes professional engineers in all categories and fields of employment and professional activity, with substantial numbers in both governmental employment and private practice.

Within the society considerable attention has been given to the formulation of appropriate policies as a guide for determining the most suitable methods of administering engineering projects for various governmental bodies. Our functional sections for consulting engineers in private practice and engineers in Government practice have particularly collaborated in these studies. Quoted below is the policy statement developed by these two units of the society and approved by the society's board of directors. We would particularly like to emphasize that the major consideration should be for the planning and execution of engineering projects which will most effectively protect the public interest, health, and safety, and that all engineering projects undertaken by or for governmental agencies should be under the direct supervision of professional engineers.

NSPE policy No. 63, engineering services for Government projects, NSPE advocates and supports the practice of high quality engineering services in both Government and private practice, and maintains that engineering services should be under the direction of registered professional engineers. Professional engineers in Government employ should perform the highest quality engineering services for preliminary study, preplanning and budgeting, and essential supervisory management and control of governmentally funded activities. Governmental agencies should contract for engineering services with highly qualified private engineering consultants to the extent consistent with national security, proper continuity of governmental programs and the public interest. NSPE further reaffirms its traditionally stated position that engineers in Government and private practice recognize a need for engineering activities of a complementary nature.

With regard to the matter of costs for employment of consulting engineers on governmental projects, we enclose a copy of a comprehensive survey report by our functional section for consulting engineers in private practice, “The Role of the Consulting Engineer in Federal Public Works Projects." We believe that the factual information in this report will be pertinent to your study. If additional copies of this report are desired by the members of the subcommittee, or its staff, we would be happy to oblige. Very truly yours,

PAUL H. ROBBINS, P.E.,

Executive Director. Mr. COURTNEY. Additionally, Mr. Chairman, Mr. Lyle Jones, who represents the Society of Consulting Engineers, who has at many times requested to be heard and has been advised of this hearing.

I am sure that he is here this morning.

Mr. SANDWEG. Apparently his representative was unable to be here at this time.

Mr. HÉBERT. Well, we will accord Mr. Jones the privilege of filing his statement at this point in the record. (The statement referred to follows:)

CONSULTING ENGINEERS COUNCIL,

Springfield, Ill., August 15, 1961. Hon. F. EDWARD HÉBERT, Chairman, Subcommittee for Special Investigations, Committee on Armed Serv

ices, House Office Building, Washington, D.C. DEAR MR. CHAIRMAN: Inasmuch as it was not convenient for Mr. Harold P. King, president, Consulting Engineers Council to appear as a witness before your subcommittee on August 16, I am respectfully submitting his testimony for filing with the committee.

It is my understanding that it will be printed in the official records of the hearings on the subject of contracting out. Very truly yours,

LYLE W. JONES, Washington Representative, Consulting Engineers Council.

CONSULTING ENGINEERS COUNCIL-CONGRESSIONAL STATEMENT TO THE SUBCOMMITTEE FOR SPECIAL INVESTIGATION OF THE HOUSE COMMITTEE ON ARMED SERVICES

Consulting Engineers Council, Springfield, Ill., July 1961 Mr. Chairman and members of the subcommittee, I wish to express the appreciation of the Consulting Engineers Council for the opportunity of appearing before you today.

My name is Harold P. King, a consulting engineer of Sherman Oaks, Calif., and I am speaking in my official position as president of the Consulting Engineers Council. The council is a national organization consisting of 33 State or area associations, and thereby represents some 1,300 engineering firms in private practice. The firms vary in size from individuals to some with hundreds of employees.

The consulting engineers of our Nation firmly believe that we have a real responsibility to our Government and our citizens for the planning and design of Government projects involving engineering skills and techniques. We are ready and willing to accept this responsibility and feel that established consulting engineer firms with proper qualifications and proven ability have demonstrated this acceptance in the past and can do so in the future. It is also our conviction that, in accepting this responsibility, we can serve our Nation further by direct reduction of the cost of engineering services that are now being furnished by Government agencies. Gentlemen, all of this depends upon private enterprise and its judicious application.

It is our understanding that your committee is interested in the so-called contracting out practices of the Armed Forces. To us, this means the retaining of consulting engineers or architects, or both, to provide qualified professional planning and design services for specific Armed Forces projects.

We believe that there are distinct advantages to our Government and therefore the public in the use of services provided by engineers in private practice by Government agencies. Briefly, these advantages may be listed as follows: (1) Affirmation of the principle of private enterprise, (2) greater national security, (3) opportunities for selecting specialists, (4) greater alertness to effective prosecution of the work, (5) a deterrent to overexpansion of governmental staffs, (6) true and complete records of engineering costs, and (7) economy. Each of these items is discussed in some detail in the remainder of this presentation.

1. Affirmation of the principles of private enterprise which are implicit in the concepts of sound economy under a democratic form of government: From time to time we must all reaffirm our belief in the principle of private enterprise. Our democratic form of government is based upon this premise and a sound economy depends upon it. We are very much concerned that if the philosophy of using engineers in private practice is eliminated by Government agencies, it will lead to a complete destruction of an important segment of the private enterprise system. Remember, when Government competes with private business, it foreshadows the eventual denial of the right of its citizens to engage in business. We do not wish to infer that this principle applies to engineers only, but that it should be the guide for our Government in the procurement of all services and goods. Please refer to appendix A, below, entitled “Statement of Consulting Engineers Council Policy Regarding Private or Public Engineering." Your particular attention is directed to Bulletin 60-2, issued by the Director of the Bureau of the Budget, which states :

"2. Policy.-It is the general policy of the administration that the Federal Government will not start or carry on any commercial-industrial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through ordinary business channels.”

The council subscribes wholeheartedly to this philosophy and recommends its adoption by the present administration.

2. Greater national security through buildup and strengthening of a pool of highly qualified specialists whose services are available in times of emergency: The use of private practicing engineers by our Government can provide a very important reservoir of engineering talent. The Armed Forces can become acquainted with the particular qualifications of various firms and thereby have ready an engineering force to call upon at a time of a major emergency. This has been necessary twice in the last two decades. During World War II and the Korean conflict, the engineering profession has provided the know-how in both the military and civilian fields. This facet can be a very important part of our national defense. We believe strongly that if this reservoir of scientific and engineering talent is destroyed by the nonuse of the private practicing engineer and architect for Armed Forces projects the Nation will be the ultimate loser. The established Government staffs have never been and never will be of sufficient size to cope with major emergencies unless the "state" is substituted for private enterprise. This we are sure is not your desire or ours.

3. Opportunities for selecting specialists whose unusual skills, knowledge, and experience would not otherwise be available to public agencies : Consulting engineers in private practice can be selected whose qualifications are particularly suited to that required for a specific project. The present method in use by the Armed Forces for obtaining professional services by interview and negotiations provides an opportunity for the selection of a properly qualified firm. Consulting engineers approve of this method and believe that it is in the public interest for it provides the best possible results for the least cost. Engineering staffs of private practicing engineers are easily adjusted to meet the demand to properly handle specific problems and can augment the talent either by direct employment of experts or by joint venture with other firms. An engineering staff tends to reflect the ability and ingenuity of the men who are at its head. Private engineering firms can stay in business only if they are receptive to new ideas and more economical methods of providing quality service. However, it seems that, in general, the competitive challenge to adopt new concepts does not exist in many Government engineering staffs. The consulting engineer practices his profession over a wide and varied field, and will thereby apply new ideas, innovations, and techniques to projects he designs.

As you well know, sudden adjustments in civil service staffs to obtain particular skills, knowledge, or experience for a specific project is neither practicable nor probable.

4. Greater alertness to effective prosecution of the work in compliance with time schedules: Consulting engineers in private practice are accustomed to executing work under pressure and thereby comply with time schedules as specified in contracts. Seldom do planning and design projects run beyond time limits as long as the scope of the project is not materially changed. Government staffs may often have projects delayed by other projects assigned a higher priority. Often this predicament cannot be avoided and, if the staff is already working to capacity, a serious delay may result. The consulting engineer works under a very rigid contract, prepared by the Government, which stipulates, very definitely, the time limit. Therefore, the retaining of consulting engineers reduces the possibility of unwarranted delay to the minimum.

5. A deterrent to overexpansion of Governmental departments, thus minimizing “empire building”: There is a growing and continuing tendency for Government agencies to increase their engineering staffs. Much of this is the result of sudden expansion to handle specific problems or temporary peak demands. The services of engineers in private practice can be utilized to great advantage in these instances, and the judicious use of consulting engineers will be a deterrent to overexpansion of Government staffs. This is sometimes referred to as “empire building," and must be discouraged in the interest of economy in Government.

6. True and complete records of engineering costs allocable to specific projects in an improved accounting system that would serve the interests of sound administrative procedures : Often engineers in private practice are called upon to prove that the cost of consulting engineering services is more economical than the same services provided by Government forces. We know the cost of our services is less, but we find ourselves at a great disadvantage to prove it conclusively because of the unrealistic accounting system of our Government. It is deplorable that our Government insists that private business maintain financial records for tax purposes from which we can submit an accurate and realistic cost for doing business, but it does not have an accounting system which indicates the true and complete cost of providing its engineering services. It is questioned, in published data by Government agencies regarding cost of engineering services, whether nonproductive time or items paid out of unallocated funds are included, such as cost and maintenance of buildings and utilities. These are certainly overhead costs and, to make a true and honesť comparison with private business, must be included since they are a cost to the taxpayer. Government cost information, in its entirety, is not available to us, but it is to you gentlemen, and we recommend that you investigate this matter to assure yourselves that all costs for services are included before making a comparison with fees paid to consulting engineers. We believe that the cost accounting system of the Government should be revised so that it will be a fully reliable basis for examining costs of engineering work performed by Government staffs. We believe further that the private practice of engineering, or any other private enterprise, should not be subject to price competition by Government activity.

We wish to refer you to appendix C, below, entitled “Consulting Engineering Services by Private Firms Versus Public Agencies.' This important resolution was adopted by the American Institute of Consulting Engineers on May 4, 1960. It vividly expresses the fallacy of comparing engineering costs without a reliable basis for doing so and urges that Government agencies establish proper systems of accounting to provide a reliable basis for comparison.

7. Economies in the handling of engineering in Federal programs, particularly for increased workloads occasioned by programs of an emergency nature, and projects of unusual character or magnitude: It is the council's contention that definite economies can be realized in the engineering design of Government projects by consulting engineers. Particularly those where it is deemed necessary to suddenly augment Government staffs to care for increased workloads occasioned by emergency programs of unusual nature or size. Reduction of Civil Service staffs seldom occurs, if ever. Staffs not kept busy to maximum efficiency are very costly and should be avoided. We believe that every owner or client is entitled to the highest possible return on money spent for engineering services. On Government work the taxpayer is the owner and, in essence, the client, and therefore he should be accorded the same consideration.

We believe that properly manned Government engineering staffs must be maintained at a level to provide certain services. The recommendation (No. 19) in the report to the task force to the second Hoover Commission expresses our idea on tbis point very well :

“That the Federal design and construction organizations (a) retain in their own organizaions only the personnel required for preliminary study, preplanning and budgeting, and essential supervisory management and control, and (6) contract to private architect-engineer and construction firms design and supervision of construction to the maximum extent consistent with national security.”

This task force report also brings out the very interesting fact that when the architect-engineer costs of three of the more important Government agencies are compared, the results are as follows:

Atomic Energy Commission: Almost exclusive use of consultants A. & E. cost is 5.23 percent of construction cost.

Navy, Bureau of Yards and Docks: Considerable use of consultantsA. & E. cost is 8.17 percent of construction cost.

Corps of Engineers, Army: Approximately 60,000 on staff. Some use of consultants-A. & E. cost is 12.15 percent of construction cost. Please refer to appendixes D and E, below, for examples of cost comparisons for private and public engineering services on highway projects.

Appendix D is data compiled from the 1959 annual report of the California Division of Highways. The data is self-explanatory and brings out the glaring fact that the item “Preliminary engineering" as an average for 6 years equaled 13.2 percent of the volume of construction. It should be noted that none of these figures include the cost of administration, offices, utilities, or other apparent overhead items. It should also be noted this includes (1) preliminary route location and reconnaisance survey, (2) final route survey, and (3) preparation of construction plans. We believe the first item of the three should be a function of the State agency, but the last two items could well be done by consulting engineers at a savings in cost.

Appendix E is data compiled from official reports of toll highway agencies and is illustrative of engineering costs where engineering services were provided to a large extent by private consulting engineers. The engineering costs for these projects include both preliminary and construction engineering and the percentage figures are comparable to the last column of figures on the right of appendix D. The engineering costs of these highways vary from 7.2 to 10.09 percent of the construction cost and average 8.7 percent. This is approximately one-third of the cost of the State designed highways in California.

The above is an excellent example of the savings that can be realized on highway design when the services of consulting engineers are judiciously utilized. We believe that similar facts would be forthcoming if honest comparisons of cost were made on Armed Forces projects.

The Consulting Engineers Council and the National Society of Professional Engineers have both made extensive surveys of costs of engineering services performed on Armed Forces and other Federal public works projects.

We wish to direct your attention to the report submitted by the fees and contracts committee to the Consulting Engineers Council, dated October 20, 1958, a copy of which is attached to this presentation. The report is a compilation of Armed Forces projects upon which the architect-engineer services were furnished by private consulting firms.

This report breaks the projects into nine categories or types and indicates that the fee averages 2.4 percent of construction cost. A detailed study of the individual projects listed brings out the fact that the fees received by the architect-engineer resulted in a very reasonable average. There is no method of direct comparison of these fees with the cost that may have been incurred by Government staffs furnishing the same services, but it can be compared with the overall average mentioned above for a few of the agencies as determined by the task force of the Second Hoover Commission. There is no question that private enterprise is more economical.

Soon after the Consulting Engineers Council assembled the data on consulting fees for Armed Forces projects the National Society of Professional Engineers accomplished a similar task for a variety of Federal works projects. The results of the efforts of the NSPE task force on Government contract relations was published in a booklet entitled “The Role of the Consulting Engineer in

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