U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

53–124 CC 1999

S. HRG. 105–919

PATENT AND TRADEMARK OFFICE BUILDING

CONSOLIDATION

HEARING

BEFORE THE

SUBCOMMITTEE ON

TRANSPORTATION AND INFRASTRUCTURE

OF THE

COMMITTEE ON

ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

ON

OVERSIGHT OF THE GENERAL SERVICES ADMINISTRATION PROPOSED

ACQUISITION OF FACILITITES TO HOUSE THE PATENT AND TRADEMARK OFFICE, U.S. DEPARTMENT OF COMMMERCE

SEPTEMBER 23, 1998

Printed for the use of the Committee on Environment and Public Works

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED FIFTH CONGRESS

JOHN H. CHAFEE, Rhode Island, Chairman

JOHN W. WARNER, Virginia

ROBERT SMITH, New Hampshire

DIRK KEMPTHORNE, Idaho

JAMES M. INHOFE, Oklahoma

CRAIG THOMAS, Wyoming

CHRISTOPHER S. BOND, Missouri

TIM HUTCHINSON, Arkansas

WAYNE ALLARD, Colorado

JEFF SESSIONS, Alabama

MAX BAUCUS, Montana

DANIEL PATRICK MOYNIHAN, New York

FRANK R. LAUTENBERG, New Jersey

HARRY REID, Nevada

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

JIMMIE POWELL, Staff Director

J. THOMAS SLITER, Minority Staff Director

SUBCOMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

JOHN W. WARNER, Virginia, Chairman

ROBERT SMITH, New Hampshire

DIRK KEMPTHORNE, Idaho

CHRISTOPHER S. BOND, Missouri

JAMES M. INHOFE, Oklahoma

CRAIG THOMAS, Wyoming

MAX BAUCUS, Montana

DANIEL PATRICK MOYNIHAN, New York

HARRY REID, Nevada

BOB GRAHAM, Florida

BARBARA BOXER, California

(II)
(iii)

C O N T E N T S

SEPTEMBER 23, 1998

Page

OPENING STATEMENTS

Chafee, Hon. John H., U.S. Senator from the State of Rhode Island ................. 1

Smith, Hon. Robert, U.S. Senator from the State of New Hampshire ................ 12

Warner, Hon. John W., U.S. Senator from the Commonwealth of Virginia ....... 59

WITNESSES

Burman, Allan V., president, Jefferson Solutions ................................................. 50

Prepared statement .......................................................................................... 108

Collins, Samuel R., engagement partner, Deva & Associates, P.C., Bethesda,

MD ......................................................................................................................... 47

Prepared statement .......................................................................................... 105

Frazier, Johnnie, Acting Inspector General, Department of Commerce ............. 45

Prepared statement .......................................................................................... 101

Kirk, Michael, executive director, American Intellectual Property Lawyers

Association, Arlington, VA .................................................................................. 23

Prepared statement .......................................................................................... 68

Lehman, Bruce A., Commissioner, Patent and Trademark Office, Department

of Commerce, Arlington, VA ................................................................................ 6

Prepared statement .......................................................................................... 65

Peck, Robert A., Commissioner, Public Buildings Service, General Services

Administration ..................................................................................................... 2

Prepared statement .......................................................................................... 60

Responses to additional questions from Senator Sessions ............................ 61

Sepp, Peter J., vice president for communications, National Taxpayers Union,

Alexandria, VA ..................................................................................................... 24

Letters, exchange between PTO and National Taxpayers Union ................. 36–41

Prepared statement .......................................................................................... 71

Report, Arthur Andersen ................................................................................. 75

Responses to request for additional information ........................................... 36

Williams, David, research director, Citizens Against Government Waste ......... 27

Prepared statement .......................................................................................... 110

ADDITIONAL MATERIAL

Articles:

Dow Jones Investor’s Business Daily .............................................................. 97

Houston (TX) Chronicle .................................................................................... 97

Indianapolis (IN) Tribune ................................................................................ 96

Patent Office Professional Association News ................................................. 100

Roll Call ............................................................................................................. 95

Tampa (FL) Tribune ......................................................................................... 96

Washington Business Journal ......................................................................... 94

Washington Times ............................................................................................ 95

Letters:

Alexandria, Virginia, Chamber of Commerce ................................................ 113

Brownback, Hon. Sam, U.S. Senator from the State of Kansas ................... 91

Charles E. Smith Commercial Realty ............................................................. 74

Citizens Against Government Waste .............................................................. 99

Davis, Hon. Thomas M., U.S. Representative from the Commonwealth

of Virginia ...................................................................................................... 92
Page

iv

Letters—Continued

Donley, Kerry, Mayor, Alexandria, VA ........................................................... 112

Duncan, Hon. John J., U.S. Representative from the State of Tennessee ... 92

Eisenhower Civic Association ..........................................................................88, 114

Eisenhower Partnership .................................................................................. 112

Forbes, Hon. Michael P., U.S. Representative from the State of New

York ................................................................................................................ 9

Istook, Hon. Ernest J., Jr., U.S. Representative from the State of Oklahoma ............................................................................................................... 90

National Taxpayers Union ............................................................................... 36–41

Patent Office Professional Association ........................................................... 87

Royce, Hon. Edward R., U.S. Representative from the State of California . 91

Seminary Association ....................................................................................... 116

Press releases, National Taxpayers Union ............................................................97, 101

Report, Economic Review of a Potential Relocation of PTO, Arthur Andersen .. 75

Statements:

Addison, Keith F., Oklahoma Inventors Congress ......................................... 89

Citizens Against Government Waste .............................................................. 99

Council for Citizens Against Government Waste .......................................... 100

Eisenhower Civic Association .......................................................................... 88

Hatch, Hon. Orrin, U.S. Senator from the State of Utah ............................. 18

International Trademark Association ............................................................. 117

McCain, Hon. John, U.S. Senator from the State of Arizona ....................... 20

Table, List of furniture expenditures ..................................................................... 98
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PATENT AND TRADEMARK OFFICE BUILDING

CONSOLIDATION

WEDNESDAY, SEPTEMBER 23, 1998

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, SUBCOMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, Washington, DC.

The subcommittee met, pursuant to notice, at 4 p.m. in room 406, Senate Dirksen Building, Hon. John Warner (chairman of the

subcommittee) presiding. Present: Senators Warner, Smith, Sessions, and Chafee [ex officio].

OPENING STATEMENT OF HON. JOHN H. CHAFEE,

U.S. SENATOR FROM THE STATE OF RHODE ISLAND

Senator CHAFEE [assuming the chair]. I want to welcome every- one here this afternoon. This is a hearing of the Senate Environment and Public Works Subcommittee on Transportation and Infrastructure. The hearing is on the Patent and Trademark Office

Consolidation.

Unfortunately, Senator Warner, who was going to preside over this, is late. He asked me if I would take over, and I’m glad to do

so. He should be here shortly. He asked that I get the hearing

started.

I want to express my appreciation to Senator Warner for holding

this hearing. It’s an important matter. The Patent and Trademark

Office is the Government agency that’s charged with the advancement and protection of intellectual property. It’s at the PTO that

inventors apply for patents and register their trademarks.

As time and technology have progressed, the number of patents

and trademarks have not only increased, but they’ve become more

complicated, as so many know.

To maintain and promote intellectual property protection, PTO’s

staff needs to operate effectively and efficiently. Toward that end,

GSA and PTO began discussions in the late 1980’s—mind you,

that’s 10 years ago—to determine how best to house this agency

and its employees. The goal was and still is to provide space in a

manner that maximizes efficiency for both the staff and user community, to the ultimate benefit of the taxpayer.

In 1995 this committee and the House Committee on Transportation and Infrastructure authorized GSA to proceed with procurement of a long-term operating lease. That procurement is well underway. Indeed, it is drawing to a close.
2

Throughout this lengthy process, concerns have arisen regularly

about the scope and projected cost of the consolidation, despite numerous comprehensive studies. A number of reports have been

aired, but these have sent mixed signals, which is disturbing.

The point of today’s hearing is to air the various concerns and

charges made about this project and determine their legitimacy.

We owe it to the PTO and its staff, the user community, and the

taxpayers to ensure that this project is worthwhile and merits our

continued support.

I’m confident that testimony we hear today will help answer the

questions. The script here says ‘‘for once and all.’’ I’m not that totally confident it will be for once and all. We’ll struggle to do our

best on that point.

We’re pleased to have Senator McCain, who I believe is going to

be here shortly. He’s a noted guardian of the taxpayer interest, and

obviously we look forward to hearing from him.

Now, while we’re waiting for Senator McCain, if Mr. Peck, who

is commissioner of Public Buildings Service, will come forward,

why don’t we get started with you. And Mr. Lehman, commissioner

of the Patent and Trademark Office—if Mr. Lehman would come

forward, too. Why don’t you each take seats. I will interrupt you

when Senator McCain comes so that we can move on with his testimony.

All right. Let’s go to it, Mr. Peck.

STATEMENT OF HON. ROBERT A. PECK, COMMISSIONER, PUBLIC BUILDINGS SERVICE, GENERAL SERVICES ADMINISTRATION, WASHINGTON, D.C.

Mr. PECK. Thank you, Mr. Chairman.

I have a statement which I would like to submit for the record,

and I will now summarize it.

We appreciate the opportunity to be here, too. I’m appearing, obviously, on behalf of the General Services Administration to report

on the Patent and Trademark Office consolidation proposed for

Northern Virginia.

We believe that by competitively procuring a 20-year operating

lease we will provide up-to-date, efficient, and cost-effective office

space to support PTO’s requirements. The project makes good business sense and is in the best interest of the Government.

I’m going to let Mr. Lehman talk to you more extensively about

the efficiencies that can be gained by consolidating. I’ll just note,

as he will, too, that PTO has offices in 18 different buildings. Many

of those buildings at the moment do not meet our fire, life, safety,

and handicapped accessibility guidelines and would need renovation to meet those guidelines.

Senator CHAFEE. That’s all leased space, right?

Mr. PECK. Yes, sir. They’ve been leased for quite some time.

And, of course, one of the possible outcomes of this is that we

would continue to lease where we are now in upgraded facilities,

because they are, in fact, obviously, one of the competitive sites.

I will also tell you that, given other priorities, the Administration

some time ago—in fact, in 1995—proposed a lease for this project

because it looked like there would be no funds available in the fore3

seeable future to build a facility for PTO, a Government-owned facility. There are also some flexibilities that having a lease gives us.

But, because we also agreed that we would keep this to what is

called an ‘‘operating lease’’ as opposed to a capital lease, which

means it meets the scoring rules requirement under the Budget

Enforcement Act for an operating lease, we are requiring in the

competition that the lease rate is a market rate, and a relatively

low on, particularly considering what we are about to acquire is essentially a Government headquarters building.

The Congressionally approved rent limit which we are adhering

to is roughly equivalent to rates that PTO is currently paying and

is equivalent to current market rates in Northern Virginia. In fact,

including escalations that are allowed by the time we award this,

there’s good reason to believe that the rental rate we are acquiring

will be below the market when we finally do sign the lease.

If the project is delayed, extending existing leases with fundamental building improvements to match market comparables—in

other words, to make it a modern, class A office building—would

cost us an additional $6.4 million annually, or $32 million over the

typical 5-year lease extension. I just mention that because extending the leases has been suggested as an option.

The technical specifications for the project are not lavish. I will

go into that in just a few minutes.

And, finally, ongoing Congressional oversight, an audit by the Inspector General of the Commerce Department, and a review by a

contractor commissioned by the Secretary of Commerce all support

the conclusion that we should continue with this space consolidation project.

I should just note that this goes back to 1989, this project, when

GSA and PTO began working on plans to consolidate and update

the PTO offices. The project was authorized by this committee on

October 24, 1995, and on November 16, 1995, by the House of Representatives. We’re going on 3 years since authorization.

This location has housed the PTO facility for 20 years. It is a set

of leased buildings in the Crystal City area. We have 33 separate

lease agreements at the moment in these 18 different buildings.

Clearly, one of the goals of this project is to consolidate PTO, because we find in most agencies, while not everyone needs to be

within hailing distance of each other, everyone does need to be

within reasonable proximity for meetings, and it is a fundamental

of modern corporate management that being able to reach out, even

in this age of technology, that being able to reach out to the people

you work with can create a lot of intellectual management synergy.

There have been questions about the competition under which we

have proceeded here, and I will just tell you that there are a couple

of interesting issues here.

Typically, as I think you know and we have testified before, Federal construction usually has a lower present value cost than leasing does at market rates; however, at the rental rate proposed in

the approved prospectus, the present value cost of leasing compares

relatively more favorably than does direct Federal construction. It

is not cheaper. I have to say it is not less on a present value basis,

but relatively closer to Federal construction than is normally the

case.
4

As authorized, the project will provide approximately 2.4 million

rentable square feet of office space at a maximum annual cost of

$57.2 million in fiscal year 1996 dollars. This amount can be escalated for inflation until the space is actually accepted.

Finally, I will note that we have issued the solicitation for offers

for this space, which was issued on June 26, 1996, under provision

of the Federal Acquisition Reform Act, which allows us to proceed

in a two-phase process. We identified 17 potential sites that could

meet the pre-approved zoning and master planning requirements

for this project.

Senator CHAFEE. When you’re looking for these sites, does that

mean 17 potential sites that would accommodate all of PTO? In

other words, you take the PTO offices in 18 buildings now and put

it into one?

Mr. PECK. Yes, sir. They had to be sites that were large

enough—that had planning approvals or at least would meet the

Arlington County or Alexandria planning guidelines. We knew also

that it had to be in northern Virginia, and we identified 17 sites

that we thought could meet the space and zoning and planning requirement.

We also required that there be reasonable proximity to public

transportation, because this is a large project and we wanted to

have the minimal impact on the road network in the area, as we

usually do in our solicitations in this area, and so we required

some proximity to Metro Rail.

The project specifications on construction are comparable to those

used for other recent Federal agency consolidations, including the

new IRS buildings in New Carrollton, Maryland, the Health Care

Financing Administration in Baltimore, which I would note again

is a leased project, and the NASA headquarters in Washington.

The construction standards included in our solicitation for offers

to not require or specify lavish finishes or amenities. They are intended to provide space and services in the most cost-effective manner over the term of occupancy.

For example, where the SFO requires the employment of highquality materials, which are durable and easily maintained, this is

just good building practice in a heavily trafficked public area.

There is an issue here of life cycle costing. You can buy cheap materials up front and pay to repair and replace them perennially

over the years, or you can buy good ones up front—good, but not

lavish.

The per-square-foot interior build-out cost is comparable to other

Government projects, with a base building in what is called in the

real estate industry a ‘‘cold, dark shell configuration,’’ and this becomes important because some of the numbers I’ve seen have compared interior build-out costs to buildings that are called a ‘‘warm,

lit shell.’’ This is all sort of silly sounding——

Senator CHAFEE. I must say a cold, dark shell sounds so forbidding.

[Laughter.]

Mr. PECK. And it is. It implies that you’re basically buying a

shell, a building shell, protection from the elements but hardly any

of the other things that go into building a building beyond that—

in other words, the heating, ventilating, and air conditioning sys5

tems and the lighting systems. In most commercial leases that we

do where we’re buying space in a building that someone already

owns, we’re buying, obviously, something in a warm, lit shell. It’s

a space you basically need to move your furniture into and plug in

the equipment.

Here, again, we started out with a base building cost, which

means just basically the perimeters, the elevators, those sorts of

base building costs.

We got six phase one offers. After evaluating them, four were

left. Again, that’s the way the phase two process works. You see

which ones meet your basic criteria. We had four offerers invited

to submit phase two, and three sites remain under consideration.

The fourth site was withdrawn by the offerors from competition

earlier this year.

So we expect to request what are known as ‘‘best and final offers’’

by the end of this month, and in the phase-two evaluation those

final offers, we say to people, ‘‘All right. We’ve talked back and

forth for some time. Give us your best and final cost and make sure

that you’re meeting the quality that we need.’’

Finally, I just note again this has been extensively reviewed. Not

only has this proposal been approved by the public works bodies in

both houses of Congress, it has been subject to an audit by the Inspector General of Commerce and reviewed by a contractor this

year commissioned by the Secretary of Commerce.

We, ourselves, this year, in response to a question about extending the existing leases, prepared a new market analysis of that option. The analysis, which was completed on July 31st of this year,

indicated that extending existing leases with fundamental building

improvements to match market comparables would cost an additional $6.4 million annually. In other words, in most of the renewal

options that we have in our leases right now, they don’t require

that the buildings be upgraded if we exercise the option.

What we are saying is if they were to be upgraded to meet market standards for buildings of that type, it would cost an additional

$6.4 million annually.

Senator CHAFEE. Over what you’re now paying?

Mr. PECK. Yes, sir. It would be an additional $32 million over the

average 5-year extension term.

Just one final point, Mr. Chairman. We are here, in part, as you

said, to clear up some of the questions about numbers. There are

legitimate questions about a project of this size. It is perfectly reasonable for people to ask about the basis on which we make our

estimates.

One perspective I would just say to you, as the Commissioner of

the Public Buildings Service and someone who has done private

sector real estate as well as public sector—one of the great things

about my job is we are one of the largest real estate organizations

in the United States. We have tremendous market power that we

can bring to bear when we negotiate leases and get terrific bargains for the American people. We operate our buildings at a cost

per square foot below what the private sector costs in comparable

buildings.

In lease negotiations, we have numbers that show that we negotiate leases, generally at about the market rate. And I’m concerned.
6

I have to tell you I’m concerned about that latter number. We

should be getting a better rate. One reason we don’t often is that

when you are in the private sector making an offer to the Government, one of the things you have to take into account is the

amount of time it can take the Government to conclude the lease

and the number of reviews that you have to go through. The longer

these processes take, the more money you have to spend on lawyers

and responding to questions and on keeping your team and your

financing going, and we all pay for that.

As you said, I worked on this committee staff for many years.

I’ve been here too long to hope that we can put it to rest this afternoon. It really is important for the Government in these types of

matters to analyze the issues carefully and then make decisions

that stick.

Thank you.

Senator CHAFEE. I think that’s a fair request, Mr. Peck.

Mr. Lehman?

STATEMENT OF HON. BRUCE A. LEHMAN, COMMISSIONER, U.S.

PATENT AND TRADEMARK OFFICE, ARLINGTON, VIRGINIA

Mr. LEHMAN. Thank you very much, Senator.

First, I’d like to say that I’m not a real estate expert. I wasn’t

appointed to my position by the President, nor confirmed by the

Senate to be a real estate expert. The statute under which I was

appointed requires that I know something about intellectual property. That’s my responsibility, and I supervise an organization that

now has 5,200 employees and will, over the course of the next several years, be going up to over 7,000 employees, and they are engaged in the process of securing the intellectual property rights of

probably the most important part of the U.S. economy—the people

that create the new technologies that are driving the United States

increasingly into a leadership position in the world.

We have currently over 2,000 scientists and engineers who are

our patent examiners. We will, after a period of time, after the next

couple of years, have over 4,000.

Why is that, that we’re increasing the size of our work force?

Well, it’s because business is booming, and that’s a good thing for

the American economy.

In the last 2 years, alone, we’ve had double digit increases in the

number of patent filings—double-digit increases. We’re the largest

patent and trademark office in the world, and U.S. technology is

pulling ahead of everyone else.

Our customers are the people who create these technologies. Getting a patent is absolutely critical to being able to get the financing

that you need to put a new product on the market and move the

whole economy forward. And when you get a new product, of

course, you need to assign a name to that product. Sometimes you

have a new company and you’re a new venture, you need to get a

new name for the company, and so you have to apply for a trademark, and we see that the trademark business is booming, just like

the patent business is booming, too.

Employees who perform these functions need to have a place to

work.
7

Now, we moved into our present facilities beginning in 1969. For

many years we were in the Commerce Department building downtown, but we outgrew that facility, and we moved at that time into

leased space across the river near National Airport in Crystal City.

We’ve been paying rent ever since that period of time. That was

not a decision I believe that the PTO made. That was made by others—the GSA, the Office of Management and Budget, our oversight

committees on Capitol Hill.

Leases, of course, expire. When I became the Commissioner of

Patents and Trademarks at the very beginning of this administration in 1993, one of the first things that I was informed of was that

our leases—the original leases that we had—would shortly begin

expiring. And so my predecessors—and going back, as was mentioned, earlier into the previous Administration—had been planning what we were going to do about that.

Now, there are really only two choices that we have. We could

either just re-up, keep the existing leases that we have—and get

new space, or we could do what I think is the American way of

doing things. We could say to any American who wants to supply

us with space, consistent with the conditions imposed upon us by

this body, by the Congress, ‘‘You can come and bid and see if you

can make us a better offer.’’

That’s exactly what we did. We put out, as Mr. Peck has just described to you, a competitive RFP. And, in fact, I don’t believe, Senator, that I even had a choice about that, because I think, under

the Federal Competition in Contracting Act, if I were to engage in

a sole source procurement, I would have had to have come back to

this committee and to the Congress and get permission to do that.

And so we are now at the point, after having engaged in quite

a lengthy process of putting out a request for proposal, where we

have three final bidders who are bidding on providing new space.

The important thing to understand about this procurement is

that a requirement in the RFP is that the space actually be cheaper than what our existing leases would be. And, in fact, the prospectus that we have put out in 1998 dollars requires that we pay

no more than $25.41—1998 dollars—for the next 20 years.

Now, currently, in our existing space, without even extending our

leases and having to deal on a sole source procurement—if we’ve

only got one person selling the space, you obviously aren’t going to

get as good a deal—right now we are paying $26.

So whatever information has been put out in public about this

matter as to what’s going to be cheaper or more expensive for the

people who pay the cost of running the U.S. Patent and Trademark

Office, the fact of the matter is that we are committed to paying

less money, not more, and we are confident that the American way,

that competitive procurement, not a sole source lease, is going to

result in a better deal. We already have good reason to believe that

that’s the case.

I’d like to make one final point about who does pay these costs.

There has been a lot of discussion about the taxpayers paying

this cost. We are a very unusual Federal agency—and let me say

it doesn’t make any difference whether we’re taxpayers or not taxpayers; we should have space which is very cost-efficient. There is

no question about that.
8

But in our particular case, taxpayers do not pay for the funding

of the USPTO. We are funded entirely by fees paid by applicants

for patents and trademarks. And I believe later on that Senator

Warner has scheduled at least one representative of that fee payer

group, the executive director of the American Intellectual Property

Law Association, which is the largest single representative of our

customers, and they can tell you what they think about this. I

haven’t seen their testimony, but I have a feeling that they’re going

to say that we have been responsive to their desire to try to put

out a competitive procurement in which we will get the lowest possible price and still be able to do our work.

Now, as Mr. Peck has said—again, I’m not an expert on real estate. He is. It’s largely the GSA which has developed the specifications for this particular building, and those specifications are going

to be pretty much the same as other Federal agencies.

But we do have special requirements. Keep in mind that we are

involved in a high-technology business. We have over 400 Ph.D.s

and scientists among our 2,000 patent examiners. We have probably the largest data base of technical information in our mainframe computers—now it is going to go up on the internet—in the

world, the USPTO. We are a highly automated agency. We probably have one of the most successful automation projects of any

Federal Government agency.

And, of course, when you have everybody hooked up to a computer and the internet you need fiber optic cable and you need special conditions for that. That all means that we have to have a little bit different kind of office space than even you would have to

have in a Congressional office.

When you want to examine a complicated recombinant DNA patent, you can’t even examine it until you’ve put the recombinant

DNA sequences through a data base in a mainframe computer that

may make thousands and thousands of computations.

These create special issues for us that, naturally, have to be reflected in our space procurement and issues that were not around

in 1969 when we leased our existing space, when we, in those days,

were literally examining patents by going to what we call ‘‘the

shoes’’—a series of files in dark, old hallways, and patent examiners were literally corresponding with their customers through

handwritten office actions. We’ve come a long way from that, and

our new space should recognize those differences.

The bottom line is that, even with those differences and those

upgrades, our request for proposals requires that the space be

cheaper than what we would be paying now.

Senator CHAFEE. Mr. Lehman, are you satisfied with what the

proposals are that Mr. Peck is considering?

Mr. LEHMAN. Yes, sir, I am. Keep in mind that both Mr. Peck

and I are restricted by requirements that are imposed upon us by

this body and by the Office of Management and Budget and so on

and so forth.

Senator CHAFEE. Now, you’re currently scattered among 18

buildings. What will this consolidation mean to you? Where will

this put you?

Mr. LEHMAN. Well, part of the RFP is that we be consolidated

so that our facilities are just more contiguous to one another. Just
9

to give you an example of that, because business in America is

building and all of the new entrepreneurs that are coming around

need more trademarks, our trademark office is expanding. We’ve

run out of space for the trademark examiners. So we’ve had to

move our public records office, where people can come in and

search trademark information, away from where the trademark examiners are. Now, if a customer wants to go to the public records

office, it’s almost a mile between the two places.

Senator CHAFEE. Well, what will this do for you? I mean, I’m not

sure whether you’re moving into one building or you’re moving into

a series of contiguous buildings.

Mr. LEHMAN. We’ll have a campus. It will be a campus-like setting, and I believe it is no more than eight buildings. We’ll have

eight buildings, and they’ll all be right next to one another, basically.

Senator CHAFEE. And, Mr. Peck, you have three options of different sets of eight buildings, or whatever number of buildings?

They vary, I presume, in the different options; is that right?

Mr. PECK. Mr. Chairman, the short answer is I don’t quite know

what we have in the offers, because we were prohibited by Federal

law, both Mr. Lehman and me, from knowing exactly what the offers are at this point. That’s information limited to our contracting

officers.

What we do know is that, because the three offers have made it

into phase two, they have met the conditions, which mean there

are no more than eight buildings.

Senator CHAFEE. And that they be contiguous?

Mr. PECK. Yes, sir. That they be, as we said, in a campus environment on one contiguous site.

Senator CHAFEE. I must say, any organization that is trying to

run a technical business scattered in 18 buildings strikes me as an

inefficient setup.

The whole system has been attacked. Indeed, there will be other

witnesses following you, as well as Senator McCain, with complaints about $100 wastebaskets, shower curtains in the locker

room costing $250 apiece. You want to answer that, Mr. Peck, or

do you want Mr. Lehman to answer?

Mr. PECK. No, I think we can both do that.

I’m not quite sure how those numbers got out, but I’d like to assure you and assure everyone else that we don’t manage these

numbers down to the wastebasket/shower curtain level. What we

do, however, is manage a build-out allowance.

I can just tell you that, as I understand it—and Mr. Lehman

may know more than I do—there was a study that showed, I think,

that on some purchasing schedules you could find items that cost

that much money.

The bottom line is that we have an allowance for build-out on

this building which limits us to a total dollar value of about $38.47

interior build-out cost from a cold, dark shell per rentable square

foot, and I can tell you that is fully commensurate with the kinds

of build-outs we have had on other similar projects. In fact, our

standard GSA pricing from a cold, dark shell, we allow agencies,

just as a general rule, not developed for this process, $38.50.
10

So what we’re telling you is that all of those costs per square foot

are going to be in line.

The bottom line, I will tell you this, is this is sort of the businesslike way to manage the Government. If PTO wanted to spend $100

on wastebaskets, they wouldn’t have enough money left to build

out the walls, so they would have a serious problem.

Mr. LEHMAN. Senator, we’re not going to spend $100 on a wastebasket. We’re going to buy our equipment such as that off the GSA

schedule. Mr. Peck can supply that schedule to you and you can see

exactly what they’ll cost, and if that is a problem, then that is a

Government-wide problem. We’re not buying anything special that

any other organization isn’t going to have.

Mr. PECK. Let me be clear. Nowhere in our discussions, to my

knowledge, at least none that I’ve been made aware of, has there

ever been a discussion with PTO in which they have even requested items costing that much money or even near it.

My point before was to say that we manage an overall budget

and we stay within it, which means that you have to spend reasonable market rate amounts for items like those that have been bandied about in the press.

Senator CHAFEE. What would you like to come out of this hearing, Mr. Peck? You’ve just said that one of the problems in the Government is that it takes so long for the Government to make up

its mind. By contrast, in private industry, somebody can make a

decision quickly. They don’t have to go after all kinds of bids and

specifications and all the laborious incidents that go with trying to

run a building or several buildings.

You’d like this thing to be settled, I presume? Is that your goal?

Mr. PECK. Yes, sir. In the best of all possible worlds, everyone

would go away from the hearing thinking that they had possibly

gotten some misinformation or the numbers had not been explained

on an apples-to-apples basis and that they were fully satisfied that

we were getting the best possible deal for the taxpayers on this

kind of a project and would then let us proceed, because I think

we, quite honestly, owe it to the Patent and Trademark Office and

to the people who have offered to us to be our vendors on this

project.

Senator CHAFEE. Now, concerning these bids for the project—neither you nor Mr. Lehman can look at the bids, apparently. Is that

correct? Who is going to make the decision?

Mr. PECK. There is a selection panel which goes through the offers to make sure that they meet our qualification standards, and

then we go to best and final offers. That committee looks at them,

prepares the quality of the proposals, and makes sure that they

meet the dollar limits that we have.

I want to assure you that, merely because the Procurement Integrity Act prohibits us from knowing exactly what the offers are,

we do know that the offers have to be within the prospectus limits

set by the committee. And, as Mr. Lehman notes, that is a rental

rate that is a bit lower than what we are paying today.

Senator CHAFEE. Senator Sessions?

Senator SESSIONS. Thank you, Mr. Chairman.

Mr. Lehman, on the fees that you charge, those are either set by

or you are given authority by Congress to set those fees?
11

Mr. LEHMAN. They’re set by the Congress, sir.

Senator SESSIONS. I’ve been through that in the State of Alabama, and there is a tendency among agencies to believe, if they’ve

got money from fees, it’s their money and they can spend it as they

want to. I know of agencies in the State that have super buildings

and high-paid employees and that sort of thing, because they feel

that’s their money. To me, it is a responsibility of Congress to

make sure that if fees, incomes go up dramatically, they be properly apportioned. That’s our responsibility.

Mr. LEHMAN. I couldn’t agree with you more, Senator. You’re exactly correct.

Senator SESSIONS. I consider it taxpayers’ money. Do you disagree with that?

Mr. LEHMAN. Well, I think these fees are not paid by the taxpayers, in general, but I completely agree with you 100 percent

that it is the responsibility of the Congress to oversee our organization. The Congress sets the fees, and it is the responsibility of the

Congress to see that the fees are spent in a prudent manner. Of

course, that’s what this hearing is all about.

Senator SESSIONS. That, to me, is a fundamental thing, and

sometimes departments and agencies feel like it is their money

when it comes to them through fees, and I think that is not correct.

Mr. Peck, you’ve mentioned several times that the legislation authorizing this requires the new buildings to be cheaper. Are you

prepared to personally guarantee that when we end up with this

building it is going to be cheaper? Or is that law just something

that floats in the air and can’t be enforced?

Mr. PECK. No, sir. Senator, I want to be clear. What we are talking about is the rental rate that we are going to procure this space

for, and the prospectus that you all approved only allows us to pay

a rent that is below the rent per square foot that we’re paying right

now.

Senator SESSIONS. One way to keep the law right would be to

have a cheaper structure and have more on the end payout by the

agency on the inside, would it not? You could hide the cost of the

building by shifting more to the build-out and away from the cost

of the structure?

Mr. PECK. Well, but the cost of any building that you build is

made up of those two components.

Senator SESSIONS. Are you saying that the two components together, that you understand the law cannot be more expensive

than the present thing for just the building rental?

Mr. PECK. No, sir. It would be impossible. All I can tell you, all

we can compare logically and realistically is the rental rate on the

building, itself.

Senator SESSIONS. Let’s be clear, then. So you’re not asserting—

the only thing you’re asserting is that the shell of a building, that

rate can’t exceed the lawful rate, but if the cost of build-out and

other costs go up, you can’t be responsible for those?

Mr. PECK. Well, in this case there is a large amount of the fitout that is included within the rent on this building. We are capitalizing some of the cost of build-out.

The SFO requires that the rent deliver habitable space, so that

there is an apples-to-apples comparison here.
12

Let me make one other point. I think what you’re trying to ask

is: is this building going to be more expensive on a build-out basis

than the existing facility? But it’s impossible——

Senator SESSIONS. Total cost to taxpayers when the dust settles?

Mr. PECK. It’s impossible to answer that question, in part because then you have to take quality into account. I mean, in the

existing building.

Senator SESSIONS. No. I mean, you just said the cost would not

go up, and we—and now you’re telling me it’s impossible to account

for the cost——

Mr. PECK. No, sir.

Senator SESSIONS.—because of these variations.

Mr. PECK. No. The rental rate, itself, will be lower than the rental rate we pay now. That’s what I said. That does include basic

building fit-out.

What I was trying to say is it is impossible to compare the quality of the two buildings, and if someone were to say, ‘‘You could duplicate the existing buildings’ inside,’’ I don’t even know that we

could, because we can’t build buildings any more that don’t meet

the life safety codes and the accessibility codes that we have today.

But there are a number of what are called ‘‘class C’’ buildings

that the PTO occupies. They are substandard. We wouldn’t lease

them today in that condition. If, in fact, they are competing for the

consolidation program, they’ll have to be seriously upgraded.

Senator SESSIONS. Well, let me ask this. You said that there will

be an $88 million build-out, but you’re aware, are you not, that the

PTO proposes another $29 million to that build-out, and that would

total $117 million and would come out with a total cost of $58 per

square foot, as opposed to the $36 per square foot that’s a GSA

standard; is that correct?

Mr. PECK. You know, Senator Sessions, it is true that we have

a base building cost that we allow any agency, and that is included

in what we deliver to them for a certain rent.

Senator SESSIONS. And you’re not concerned that Mr. Lehman

uses his fee money and puts another $29 million in there to make

it more palatial?

Mr. PECK. Senator, I mean, the characterization as ‘‘palatial’’

aside, and one with which we disagree, it is our standard practice

that agencies can upgrade beyond the standard, and agencies do

that for various reasons, including certain specific mission requirements that are beyond a standard build-out.

Senator SESSIONS. Could I ask one yes or no question?

Senator CHAFEE. All right.

Senator SESSIONS. The GSA standard that you mentioned, 36 or

30-some dollars, is that a ceiling or just a standard? It could go

above that, could it not?

Mr. PECK. It is a standard, but in this case that standard is included in the $88 million allowance, which we have total for interior construction, is included in this particular lease rate.

Senator CHAFEE. Senator Smith?

OPENING STATEMENT OF HON. ROBERT SMITH,

U.S. SENATOR FROM THE STATE OF NEW HAMPSHIRE

Senator SMITH. Thank you, Mr. Chairman.
13

The Inspector General, although they were supportive of your request for additional space, were critical about the PTO process, describing it as flawed because the lease development lacks a defined

cost ceiling.

Could you comment on each one of these items, just specifically

in that analysis by the Inspector General—the first one that PTO

needs to finalize its space requirements. What’s the problem with

that?

Mr. LEHMAN. There’s no problem with that. And, in fact, there’s

no problem with this Inspector General’s report, and one of the

good things about Inspector General’s report is that they capture

things that you should fix, and we have moved to fix those things

and to establish specific limitations and ceilings on what we will

spend.

And, indeed, not only are we doing that internally, but we are

perfectly happy with the amendment, which I believe was passed

in the appropriations process. There was an amendment by Senator

Inhofe, and it establishes just such a ceiling of the type recommended by the Inspector General. And, furthermore, the Commerce Department Inspector General is a witness at this hearing,

and I think he will be able to explain that more thoroughly.

I have absolutely no disagreements with their recommendations

and we will do everything we can to accept them.

Senator SMITH. Well, recommendations, in general, but there are

some criticisms out there. I just mentioned one. I’ll just mention a

couple of others.

PTO has not reached an agreement with its bargaining unit employees over working conditions related to those space requirements. That’s a criticism. PTO paid rent on vacant space for approximately 8 months from March to October, 1997. PTO had a

large inventory of vacant space that was rented and inappropriately set aside for reorganization. As a result, PTO carried more

than 73,000 occupiable square feet of vacant space. The total cost

of this error was almost $1.5 million, because PTO paid an average

of $30 per square foot to rent vacant space. That doesn’t sound like

a positive comment to me.

Mr. LEHMAN. Well, Senator, I think you should ask the Inspector

General, who is going to testify specifically about it.

Senator SMITH. But you said you agreed with everything in the

report. That’s why I’m asking you. You agree with that? Is that a

good thing?

Mr. LEHMAN. I’m not—you know, the reason we have an Inspector General is to identify areas where we need to make improvements, and we have worked with our Inspector General’s office to

do exactly that.

Now, when one talks about some of these specific things, I would

just say a word about the fact that we might have vacant space

over a period of time. Keep in mind that we are an organization

that is in 18 buildings that has over 5,000 employees.

In fact, one of the difficulties that we have, precisely because we

do not have a new campus and we’re a growing facility, is that

sometimes we have to go out in the market and get space when it

is available so that we will have it when we need it to meet our
14

needs, and that’s one of the reasons why we need to regularize this

entire process.

As you observed yourself, Senator, the bottom line of the Inspector General’s report, which was one of eight different evaluations

that was done by someone other than the PTO, itself, was that

pretty much everything that we’re doing is reasonable and on target. And where there are mistakes—and the mistakes have been

relatively minor—we are moving to correct them.

Senator SMITH. Well, I agree with you there are other analyses

that might differ, but the bottom line is it just seems to me that

you’re asking us to approve something that’s open ended.

Mr. LEHMAN. Senator, you’re just wrong about that. We’re

not——

Senator SMITH. Well, tell me what the final——

Mr. LEHMAN. First of all, we have a——

Senator SMITH. What is the final cost?

Mr. LEHMAN.——amendment which I believe has passed the Senate Appropriations Committee which very specifically sets a cap on

what we can expend, a specific cap on the build-out costs, and that

cap is consistent with the standard Federal build-out for agencies

such as ours.

Senator SMITH. But there are differences about that. That’s

where all those lists that Senator Chafee I think referred to, those

$250 shower curtains and so forth—basically, that means that if

you expend that up to the cap, you could spend that much for a

shower curtain, or whatever else was listed in that——

Mr. LEHMAN. Well, I suppose, Senator, that we could spend

$1,000 for a shower curtain and we could do all kinds of things, but

it’s almost impossible for me—and I’m sure that’s true of you, as

well—to respond to somebody who might suggest that you wish to

outfit your office with a $1,000 shower curtain when you have no

intention and never have had of doing so.

It’s very difficult for me——

Senator SMITH. Mr. Lehman——

Mr. LEHMAN.——to respond to that kind of——

Senator SMITH. Mr. Lehman, with all due respect, what that

means is they’re talking about the overall figure, and in the overall

figure and in the cost, if you were to spend that amount of money,

those are the kinds of costs that could be used to furnish the interior of your building.

Mr. LEHMAN. Well, Senator——

Senator SMITH. That’s the point.

Mr. LEHMAN.——I’m not under oath, but if I were—and I would

be willing—it still would be a violation of 18 USC 1001—I’m just

going to swear to you right now we are not going to spend that

kind of money for those kinds of amenities. Period.

Senator SMITH. I didn’t say that you were. But the point I’m trying to make is those figures on those individual items are coming

about because if, in fact, you were to spend the amount of money

that’s outlined within your cap, you could spend that much for

those kinds of things, which means you’re probably high on the

cap. That’s what I read from it.
15

Mr. LEHMAN. Senator, if you believe that we’re high on it, we’d

be happy to work with you, and I’m sure Mr. Peck would be, and

I’m sure the Appropriations Committee would be.

Senator SMITH. Well, you have to work with us.

Mr. LEHMAN. Yes, and——

Senator SMITH. That’s the problem. I get the attitude here that

maybe you don’t have to work with us, but you do have to work

with us——

Mr. LEHMAN. Well, Senator, I don’t think that’s what I’ve suggested.

Senator SMITH.——because we control the purse strings.

Mr. LEHMAN. I said that we’d be more than willing to do that.

In fact, we are going to have ongoing oversight by the Appropriations Committee of every dime that we spend in this build-out process, and we will work with them and we will work with your staff

to assure you, over the next 20 years of this lease, that we do not

spend any more money than——

Senator SMITH. But you’re asking——

Mr. LEHMAN.——would be standard for facilities of this type.

Senator SMITH. But you’re asking us to construct—you’re asking

us to lease rather than construct, at a cost that would be higher

than if we constructed. I’m not making the case one way or the

other whether we should be——

Mr. LEHMAN. Senator, that was not my decision. That was the

decision of the Congress that we should lease the building.

Senator SMITH. Well, if the building space would save PTO millions, what’s the justification for leasing?

Mr. LEHMAN. Senator, you’ll have to ask your colleagues in Congress on that.

Senator SMITH. What’s your answer? Do you agree with that or

not? Maybe the Congress——

Mr. LEHMAN. I can tell you what the justification is.

Senator SMITH. We’ve made mistakes before; maybe we made one

on that.

Mr. LEHMAN. The justification is that we are under Federal accounting procedures. Were we to acquire a building, that would

mean that the entire cost of acquisition would have to go to the

bottom line of the Federal budget for that given year, which would

probably be in the neighborhood of $700 million, and that would require either that the Federal budget would have to go up by $700

million for that year or there would have to be offsets in other Federal programs.

I think, if you’ll consult with your colleagues on the Appropriations Committees, they’ll inform you that most of them don’t want

to have to go through that process, and therefore they have ordered

and directed us to lease a building.

Senator SMITH. Just one final question. Senator McCain says—

I don’t want to preempt his statement here, but in his statement

he says that it is going to cost $117 million to finish the interior

of the building with extravagant amenities. Is that a correct or an

incorrect——

Mr. LEHMAN. That is an incorrect statement. If you want to know

specifically what kind of things we’re talking about, we’re talking

about mission-specific items, such as locks on doors.
16

And, by the way, I think it should be noted that patent applications are secret until they are issued, and so security is a very significant problem, and if you’re a high-technology company you don’t

exactly want to have a door that doesn’t have a lock on it. We have

to have power back up for our computer system. If our computers

go down, America’s high-technology companies which rely on us

will be very severely hampered.

Improved lighting for examination work—when you are a patent

examiner and you are looking at complex technological drawings,

you can’t have the kind of lighting that you would have in an ordinary office. Those are the kinds of things that we’re talking about.

The issues such as you’ve talked about, granite materials and so

on and so forth, those are included in the underlying lease agreement. They are not part of the build-out cost, and those are the

kinds of things that Mr. Peck was talking about where the RFP requires that we have durable materials.

Our extra build-out cost won’t have any of that kind of material

in them. It will be things like backups for our computer system,

locks on the doors, enhanced lighting, and that sort of thing.

Senator CHAFEE. Senator Sessions had a question.

Senator SESSIONS. Mr. Lehman, there are $88 million to build

out, and then there is above build-out of $29 million that you intend to expend. Is that agency money from fees?

Mr. LEHMAN. That is correct. And that’s the material that I was

just talking about.

Senator SESSIONS. Let me ask you, is it your opinion that you

don’t need authorization of Congress to spend that money?

Mr. LEHMAN. No, it’s not. I indicated to you before that that has

to go through the Appropriations Committee and it will be reviewed on an annual basis. If Congress disagrees with it, they will

have a chance to—with our request—keep in mind, this will be a

request that we will make, and it will be the appropriations committees and then the entire Congress that will determine when—

Senator SESSIONS. That’s right. It will be our neck on the line,

and so that’s why we’ve got to be responsible.

Mr. LEHMAN. And you are.

Senator SESSIONS. So we’re going to be responsible presumably,

but the IG——

Mr. LEHMAN. That’s why it is a very good thing to have these

hearings and answer these questions.

Senator SESSIONS. I just want to mention something. The Inspector General says that you need Congressional approval. It says, by

resolution adopted by Congress—I don’t know that that means the

Appropriations Committee. They’ve got a lot to do. I’m not sure

they micromanage a building in Virginia. So apparently Congress

has not approved that, and we’ve got to deal with that issue, and

that would bring the cost of build-out on a square footage basis to

$58, which I understand from GSA exceeds any other building ever

built. The National Oceanic and Atmospheric Administration was

at $45. You add the $29 billion, the build-out would be $58 per

square foot. That’s something——

Mr. LEHMAN. For the record, Senator, I believe that’s just factually untrue and Commissioner Peck could respond to that.
17

Mr. PECK. Senator, I would have to get you numbers on other

build-outs. But, again, we’re comparing apples and oranges here. It

is standard practice in commercial real estate that a landlord—and

GSA in this case is in the position of being a landlord to PTO—

offers a certain allowance within the rent for what is called ‘‘standard fit-out,’’ and then the tenant, whether it’s a law firm, which I’m

familiar with, or anybody else, then sometimes pays for above

standards for particular things.

Senator SESSIONS. I know, but we’ve got to figure out how much

this building costs, and you all are confusing us, and we’re trying

to get the total cost.

Mr. PECK. But, sir, we have given you specific dollar amounts.

Let me just suggest there are two ways in which you manage this

space so that you can do it efficiently, without having the hire another million Federal employees to dog every time someone spends

a dime, and that is this: you take an amount of money—in this

case $88 million—and you say that is the amount of money it

should cost to fit out two-point-something million square feet of

space, and you say that’s what you’ve got, and they add $29 million. That can be overseen by the appropriations folks. It’s about

another $13 or $14 a foot.

Senator SESSIONS. You’re not responsible for that?

Mr. PECK. No.

Senator SESSIONS. GSA doesn’t worry about that?

Mr. PECK. But I’m telling you, sir, that that is also, in the commercial sector, a fairly standard amount of money per square foot

for above-standard build-out.

And what you then say to people—and this has got to be the way

we manage this business—is to say, ‘‘That is a reasonable amount

of money per square foot.’’ If that is the limit under which they go,

they can make choices within it, but somehow they’ve got to get

within that money to workable office space.

And we have set that level. I can just tell you the $88 million

is a level at which someone cannot produce workable office space

with lavish finishes and outrageous amenities. It just can’t be done.

Senator SESSIONS. It’s going to be $117 million, not 88.

Mr. PECK. Yes, sir, but, like I said, you can use numbers that

amount to $58, and that is an amount of money which, if you’re

starting from a cold, dark shell, you will find will produce you a

standard headquarters quality office building in this town, or at

least in this town’s costs, and that’s what we are allowing them to

build.

Senator SESSIONS. Well, there are other costs, too, such as moving and furniture and all that, transportation. That will be added

to the total cost.

Senator CHAFEE. Senator Smith, do you have any more questions?

Senator SMITH. No, I don’t, Mr. Chairman.

Senator CHAFEE. I have a Senate statement here from Senator

Hatch that I would like to put in the record.

[The prepared statement of Senator Hatch follows:]
18

STATEMENT OF HON. ORRIN HATCH, U.S. SENATOR FROM THE STATE OF UTAH

Mr. Chairman, in my capacity as Chairman of the Senate Judiciary Committee,

the Committee in Senate responsible for overseeing the management of the Patent

and Trademark Office (PTO), I respectfully submit this written statement for the

record. I appreciate having the opportunity to provide this brief statement to you,

Mr. Chairman, and the other members of on Environment and Public Works’ Subcommittee on Transportation and Infrastructure. The PTO consolidated space procurement is an important and necessary project, and I am taking this opportunity

to express my support for the project.

Today, the PTO has over 5,000 employees, many of whom are housed in sub?

standard office space that does not support state-of-the art-automation or barrierfree access. PTO operations are presently distributed among 17 buildings, some as

much as a mile apart. In order to meet the constantly increasing demand for intellectual property protection, the PTO will find it necessary to hire approximately

2000 patent examiners, trademark attorneys and support staff during the next several years. Recognizing that its present leases are expiring, that additional space

is required to continue serving its customers, and that its present distributed campus adds costs due to inefficiency, the PTO sought approval for procurement of a

new facility. In 1995, Congress authorized the PTO to begin competitive procurement of a long-term lease for consolidated space.

I am mindful that concerns have been raised about the scope, cost and management of this procurement. It is important to note that PTO has been extremely responsible in addressing concerns raised by reviews of the project. In addition, Congress has placed certain requirements on PTO to ensure that the project is well

managed. Initially, a decision was made that outright purchase of a facility to house

PTO was not feasible. Later, the Inhofe-Brownback amendment to the Commerce

Justice State Appropriation Bill placed a ceiling on project build-out and move.

The PTO’s operations are funded entirely by user fees. These users understand

the challenges PTO faces now and in the fixture, filings increase. PTO will find

itself increasingly reliant upon new technology and redesigned work processes to

meet the increasing demand for its services. PTO has conscientiously examined its

future requirements in developing its approach to the space consolidation. All of the

PTO’s major user groups fully support the new lease project because it will promote

efficiency and productivity at a lower cost.

Since this project began, opponents have raised many issues that mischaracterize

aspects of project. On result of the on-going debate has been confirmation of PTO’s

approach through a number of independent studies. Both the Commerce Inspector

general and Jefferson Solutions, an independent consulting firm, reached similar

conclusions—that the project is necessary, well managed, and likely to save money

for PTO and its fee-paying customers.

PTO’s current landlord has a strong interest in keeping PTO as an occupant.

Presently, PTO is paying over $40 million dollars a year for its space. Our concern

should be to insure that PTO’s future space is selected through a competitive process that ensures good value for the money paid, wherever PTO is located. Even considering extension of PTO’s present leases through a sole-source procurement raises

the question—is it likely the government will get the best value in a noncompetitive

environment? Our American system has taught us that competition gives us improved quality at a lower price.

I am, of course, concerned about the potential for cost over-runs and extravagance.

Nothing I have seen so far in PTO’s approach leads me to believe that they are

seeking a lavish, unreasonable facility. Although critics have taken certain information out of context to challenge the overall project, I am confident that PTO’s prospectus is similar in nature to other government and private industry facilities. I

am certain, also, that PTO has no intention of paying a premium for lavish grounds

or expensive furniture. Everything I have learned about the project leads me to the

conclusion that PTO and GSA have been committed to procuring space that provides

necessary employee and customer amenities in an efficient and cost-saving facility.

I am also confident that Congress will continue to monitor the progress of the

project to ensure that costs are reasonable and controlled.

I have every faith that the management at PTO and GSA will bring this project

to successful completion. We must not lose sight of the fact this project will result

in net savings of $72 million to PTO’s fee-paying customers.

Thank you for the opportunity to express my support. I request that my recent

remarks (S. 8737) in the Congressional Record from July 22, 1998, on this project

be included with this statement.
19

[From the Congressional Record, July 22, 1998, Pages 8735–39]

MCCAIN AMENDMENT NO. 3251

On page 62, strike ‘‘Provided further,’’ on line 3 and all that follows through

line 16 and insert the following: ‘‘Provided further, That none of the funds appropriated or otherwise made available under this Act or under any other provision

of law may be obligated or expended by the Secretary of Commerce, through the

Patent and Trademark Office, to plan for the design, construction, or lease of any

new facility for that office until the date that is 90 days after the date of submission to Congress by the Administrator of General Services of a report on the results of a cost-benefit analysis that analyzes the costs versus the benefits of relocating the Patent and Trademark Office to a new facility, and that includes an

analysis of the cost associated with leasing, in comparison with the cost of any

lease-purchase, Federal construction, or other alternative for new space for the

Patent and Trademark Office and a recommendation on the most cost-effective option for consolidating the Patent and Trademark Office: Provided further, That

the report submitted by the Administrator of General Services shall consider any

appropriate location or facility for the Patent and Trademark Office, and shall not

be limited to any geographic region: Provided further, That the Administrator of

General Services shall submit the report to Congress not later than May 1, 1999.’’.

* * * * * * *

Mr. HATCH. Mr. President, I rise in opposition to the amendment proposed by

the Senator from Arizona. If adopted, the McCain amendment would result in needless, costly delays in the user process to obtain better facilities for the Patent and

Trademark Office.

Look, we studied this thing to death. We know doggone well if this is delayed

again, you are only going to have one bidder instead of three, and there is the question of whether that one bidder will do anything to save any money.

In fact, the amendment of the distinguished Senator from Arizona would cost a

lot more money. Let me make my case.

The PTO procurement process has been studied to death. We don’t need another

study. Let me catalog for you the attention that has been paid to this procurement

process. The PTO procurement process has been the subject of two comprehensive

studies: one by the Inspector General of the Department of Commerce and another

by an independent consultant who reported to the Secretary of Commerce. The independent consultant was Jefferson Solutions, which is headed by the former director

of OMB’s Office of Procurement Policy in the Reagan and Carter administrations.

Both studies agreed that the competitive lease procurement should proceed so that

the PTO can obtain the benefits of competition. Let me emphasize that, from the

start, the PTO procurement process followed all the rules and complied with all the

safeguards in the Standard Federal Government Procurement Procedures.

These studies are in addition to the normal Government procedures. Of course,

they do provide for competitive bidding. Mr. President, Senator McCain’s amendment calls for a study of the benefits of leasing versus purchase, Federal construction, and other housing alternatives, such as lease purchase. This has already been

done.

The GSA, the Department of Commerce, and the OMB thoroughly evaluated the

options before submitting the lease prospectus for congressional approval. Both the

Senate Committee on Environment and Public Works and the House Committee on

Transportation and Infrastructure concurred, when the prospectus was authorized

in the fall of 1995, and in light of the limited funds available for capital investment

and operating lease of the PTO, that is in the best interest of the PTO’s fee-paying

customers, which the distinguished Senator from Virginia has raised.

Furthermore, in a colloquy between Senators Gregg and Warner conducted on the

Senate floor during the vote on H.R. 3579, Senator Gregg agreed that no funds

would be available in the foreseeable future to purchase or construct a facility to

house the PTO.

H.R. 3579, which became law, required the Secretary of Commerce to review the

project and submit a report to Congress by March of 1998. This is the Jefferson Solutions report that I referred to earlier.

The cost-benefit analysis that accompanied it, called the Deva report, showed the

PTO will save $72 million over the 20-year life of the lease by consolidating.

I don’t know about the shower curtains, but that is a lot of money to be saving

compared to what we would lose if we went ahead with the amendment of the Senator from Arizona. I know he is trying to save money, and I have no problem with

that.
20

The Jefferson Solutions report found that the consolidation of PTO space through a competitive lease would improve workflow efficiencies and improve the environment for employee retention, as well as reduce costs. In addition to these studies and reviews, the procurement process has been tested

judicially. A 1997 protest by the existing landlord alleging improprieties in the

terms and conditions of the procurement was dismissed. Similarly, an unfair labor

practice complaint filed by one of the PTO’s unions was dismissed earlier this year. Given these numerous studies, reviews, and court tests, why is it that we are here debating this issue yet once again? There appears to be a campaign to delay the

procurement process, and I have to ask who is behind it. I don’t think it is a matter

of $250 shower curtains.

I know that Senator McCain is not motivated by a desire to merely delay. I am sure he has real concerns based on facts as he views them. But the fact of the matter is, he is talking about peanuts compared to the millions and millions of dollars

that will be lost if we do another study rather than go ahead after all of this work

has been done, all the studies have been done. It is crazy. Nevertheless, there has

been an ongoing campaign to delay this. Who is behind it? Is it the parties who use the PTO services? No. The parties who

use the PTO are the patent applicants, patentees, and trademark registrants. They

oppose this amendment, and they want the procurement process to go ahead. But, Mr. President, the current landlord of the PTO makes over $40 million a

year from renting space to the PTO. Would 1 year’s additional rent be worth mounting a campaign of delay? That is $40 million plus the $72 million we are talking

about we lose by another study. I think you can buy a lot of shower curtains for

that.

It would be to the landlord’s benefit to delay it. That is why he has hired a major lobbying firm to kill this process. It is not the public demanding a delay, it is the

PTO’s current landlord. I can hardly blame him, because he will make $40 million

more. But I would blame us if we permitted that to go on just because of some shower curtains and a few other things that the distinguished Senator from Arizona has

mentioned.

I conclude, Mr. President, with an assurance that I am as concerned as anyone

with cost overruns and lavish spending in the procurement process. I am disturbed

by allegations of amphitheaters, exercise tracks, and high-priced furniture. I pledge

to work with anyone who has a concern about specific excesses in the procurement

prospectus. In fact, I intend to support the Inhofe-Brownback amendment that cuts

back on build-out appropriations and the ability of the PTO to get more money for

moving expenses. Congress should investigate these particular allegations and take

a surgical approach. Another comprehensive study, however, is not the answer.

Let me just say for the benefit of the distinguished Senator from Arizona, he may

have some points here, but they are very, very minor in comparison to the moneys

that will be saved by moving ahead rather than having another delay by losing $72

million on one side and $40 million on the other over a few shower curtains. It just

seems penny-wise and pound-foolish. I am against this amendment. I hope we defeat it.

Senator CHAFEE. Senator McCain has been delayed due to his

duties in managing the Federal Aviation Administration reauthorization bill, and sends his apologies that he couldn’t be here. He

has a statement which we’ll include within the record.

[The prepared statement of Senator McCain follows:]

STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM THE STATE OF ARIZONA

Mr. Chairman, and the distinguished ranking member, thank you for the opportunity to address the Transportation and Infrastructure Subcommittee on the relocation of the U.S. Patent and Trademark Office. I appreciate the generosity of the

Senate Environment and Public Works Committee in allowing me to speak on the

Patent and Trademark Office’s proposed relocation.

The proposed Patent and Trademark Office building complex is shamefully expensive and extravagant. In addition, in putting the proposal together, the Congress

limited the Patent and Trademark Office to considering only sites in Northern Virginia, which is certainly not an inexpensive area for construction and leasing of office space.

The PTO consolidation is estimated to cost the taxpayers approximately $1.6 billion. About $1.3 billion of this amount is to pay for a 20-year lease of a new, 2-million square-foot facility somewhere in northern Virginia. The additional $250 million

is what the Patent and Trademark Office proposes to spend to ‘‘improve’’ the build21

ing, to bring it up to the PTO’s standards—which appears to mean extravagant and

luxurious amenities that most of America’s businesses do not provide to even their

senior executives.

PTO plans to lease a 2-million square-foot building ‘‘shell’’ -which is essentially a structure with walls, ceilings, floors, and windows, but without electrical wiring,

computer and telecommunications lines, carpeting, furniture, and all the other necessary interior fixtures. PTO will not have to pay the costs of constructing the building ‘‘shell.’’ However, the PTO plans to spend an outrageous amount of taxpayer dollars to bring the building up to its ‘‘standards.’’ PTO is authorized to spend up to $88 million to ‘‘build-out’’ the shell. This includes such necessary items as carpeting, electrical and plumbing fixtures, as well

as some necessary environmental control upgrades to support the computer-intensive work of the office. Compared to the government’s ‘‘standard’’ rate for this type

of expenditure, ‘‘building out’’ the PTO building will cost 20 percent more than most

government buildings. And on top of that $88 million, the PTO also plans to spend another $29 million

for extravagant amenities, including extra elevators, granite and marble decor, jogging and walking trails, sculpture gardens, and outdoor amphitheaters. That’s a total of $117 million to finish the interior of the building with extrava- gant amenities. On a per-square foot basis, that’s $58 per square foot of occupiable

space—or 58 percent over the government’s standard. But that’s not all. The PTO also plans to spend another $135 million to move into

the building, install telecommunications equipment, and buy furniture. Almost half

of this money is for the purchase of new furniture and furnishings, including $250

shower curtains, $1,200 chairs, $1,000 coat racks, and $562 mail room stools.

Altogether, the PTO will pay $252 million to bring the building up to its ‘‘stand- ards’’—standards which far exceed the government’s norms and which can only be

called luxurious by any standard. After spending $252 million to spruce up the premises, the PTO is then proposing to pay $57 million per year for a 20-year lease—over and above the costs of the ‘‘improvements’’ listed above. That is approximately $1.3 billion in lease payments alone

over the next 20 years. The PTO project is expected to cost the taxpayers almost $1.6 billion—and we won’t even own the building at the end of 20 years. This deal will be worse than the Ronald Reagan building deal. Remember how the cost of the Ronald Reagan building skyrocketed? That building, which is three

million square feet, began as a $362 million building, and ended up costing $800

million. That’s a huge cost increase. Ironically, the new PTO building will be smaller than the Reagan building— 700,000 square feet smaller. And it is much more expensive. We spent $800 million

on the Reagan Building, but at least we own a building that is designed to last 200

years and that includes rentable space to offset its costs.

The original language contained in the Commerce State Justice Appropriations

bill did not impose a ceiling on the potential costs of the PTO consolidation. Fortunately, the Senate accepted an amendment which capped the standard build-out

cost at the $36.69 per occupiable square foot, limited moving cost to $135,000,000,

and capped above standard build-out cost at $29,000,000.

Even with these spending caps, I still have serious concerns regarding the PTO

consolidation. The Citizens Against Government Waste, the National Taxpayers

Union, the Patent Office Professional Association, and the Alliance for American Innovation also have serious concerns about the enormous cost of this project. In

short, just because we can squeeze these extravagancies under the newly imposed

spending caps, it does not justify doing so.

This project was destined to become a fiscal nightmare. Our first mistake was

that we did not allow ourselves to look at all possible locations to determine the

most cost-effective facility to house the new PTO complex. Instead, we only looked

at sites in northern Virginia.

I am aware that there are Federal regulations that would hold PTO responsible

for relocation expenses for employees if the agency moves more than 10 miles. This

alone should not restrict us to only consider PTO sites in Northern Virginia. Who

knows, the cost benefits of relocating to a non-Northern Virginia site may outweigh

the additional cost incurred by the relocation regulations. The problem is, we will

never know, because we never looked at sites outside of Northern Virginia.

The sheer excess in the PTO’s proposal for the building’s amenities is unbelievable—$250 shower curtains, $1000 coatracks, and miles of walking and jogging

paths. Tax dollars should be spent on processing patent applications, not extravagant surroundings. We should not be spending Americans hard-earned tax dollars

on extravagant perks. We should be spending tax dollars on processing taxpayers’
22

patent applications. And we should make sure we spend them in the most cost-effective manner possible by looking at all possible locations for government facilities,

not just one region.

I am not trying to kill this project. Maybe PTO does need to consolidate. However,

I think that we have a responsibility to act to insure that the cost of this project

is justified and kept in check. PTO states there are no funds in the foreseeable future to construct Federal buildings. If so, and a lease is our only alternative, then

we should enter into a sensible lease which does not waste taxpayers’ money on unnecessary extravagancies.

I ask my colleagues on the Senate Environment and Public Works Committee to

revisit the PTO consolidation without any geographic limitations, and to address the

runaway cost, contained in this consolidation plan.

Senator CHAFEE. It’s my understanding, Mr. Peck, that in 1996,

PTO’s current landlord, the Smith companies, testified that they

were pleased with the manner in which this solicitation had been

managed by the PTO and the GSA. Am I correct in that?

Mr. PECK. Yes, sir.

Senator CHAFEE. That was June 25, 1996, testimony before this

committee.

Mr. PECK. Yes, sir. In fact, I will note that at one point we

changed some of the terms of this solicitation in response to a request from them, a statement from them that some of the terms

they felt unfairly disadvantaged existing buildings. So I think that

we have been fair to them and to the other competitors.

Senator CHAFEE. All right. Thank you both very much.

Mr. LEHMAN AND MR. Peck, I wonder—we’ll go on to the next

panel. Senator Warner will be here. He had a couple of questions

he wanted to ask you. If you could wait, then we’ll call you back.

Mr. PECK. Yes, sir. We will. Thank you.

Senator CHAFEE. Why don’t you just wait and take a seat there.

Mr. LEHMAN. Thank you.

Senator CHAFEE. All right. Fine.

And the next panel will be Mr. Kirk, Executive Director, American Intellectual Property Lawyers Association; Mr. Sepp, Vice

President for Communications, National Taxpayers Union; and Mr.

Dave Williams of Citizens Against Government Waste.

If you gentlemen will please come forward, and if you’d limit

your testimony to 5 minutes each, we’ll move right along here.

Senator SMITH. Mr. Chairman, if I may just make a remark

while they’re getting seated there.

You know, we all try to do a job up here in terms of understanding numbers. We get the numbers, as I think Senator Sessions commented on, that are very confusing.

We want to do the right thing to try to save the taxpayers dollars, and I’m not saying that at some point in the discussions that

we, as Senators, don’t get a bit argumentative, but I resent the fact

that Federal employees come here before the committee and are argumentative and, frankly, bordering on disrespectful in terms of responding to the questions that we ask. I don’t think that’s good policy, certainly not good politics if you want your building, and, you

know, I think maybe a lesson or two could be learned in diplomacy

here. I mean, this just doesn’t make sense. We’re just trying to—

we have to answer ultimately to the taxpayers, and that’s the only

people I owe responsibility to.

You know, if there’s $1,000 in there that’s too much and we can

find it, we ought to get it out. And when somebody throws a sheet
23

of paper out here that says that shower curtains are $250—you

know, years ago we had the $800 hammer and all that. We took

a drilling for that. We have every right to ask these questions, even

if we’ve asked them before and even if you’ve answered them before.

And, you know, I don’t appreciate it. And I think—I find it distasteful. And, frankly, it encourages me not to support the project

for that very reason.

Senator CHAFEE. Well, your words I’m sure have been well listened to.

Now let’s go on to Mr. Kirk. Won’t you proceed please, Mr. Kirk?

STATEMENT OF MICHAEL KIRK, EXECUTIVE DIRECTOR,

AMERICAN INTELLECTUAL PROPERTY LAWYERS ASSOCIATION, ARLINGTON, VIRGINIA

Mr. KIRK. Thank you, Mr. Chairman. I appreciate the opportunity to appear here today to present the views of the American

Intellectual Property Law Association on the efforts of the PTO to

procure consolidated space for its operations.

The majority of the 10,000 members of AIPLA interact with patent examiners, trademark examiners, and their clerical support

staff on a continuing basis. They know from these contacts that

many of the employees are forced to work in cramped quarters with

inadequate furnishings and equipment to do their jobs.

To alleviate these problems, we believe——

Senator CHAFEE. Mr. Kirk, I just want to tell you that you’ve got

a nine-page statement here——

Mr. KIRK. And I’ll be through in 5 minutes.

Senator CHAFEE. All right. I’m sure you will be.

[Laughter.]

Mr. KIRK. All right.

We believe that the Office should acquire adequate space. What

we did was to consider what sorts of criteria we believe the Office

should adopt. Foremost, the facility should be competitively procured, taking price and quality into consideration. It should be convenient to Metro Rail. It should be automation ready. It should provide private offices for examiners, but reflect the private enterprise

trend for downsizing and standardizing office size. It should provide employees with reasonable amenities, compared to those in

the private sector, including parking, health facilities, day care,

and reasonably priced eating facilities. It should be compact and

inter-connected and, with the approval of Congress, it should have

such above-standard items as are customary in business—for example, uninterrupted power supplies for computer systems and the

like.

We believe that the SFO generally comports with these guidelines; therefore, we believe the solicitation should proceed under

the watchful eyes of Congress and the user community.

We are aware of a campaign over the last year and a half to convince Congress that the SFO is too extravagant. We obtained a

written list of concerns from the current landlord’s lobbyist and

asked the Office to respond. We invited representatives of Congressional staff and bar associations to evaluate the concerns and the

response.
24

When the allegations were illuminated with facts, the concerns

were not only unpersuasive, but frequently misleading.

We’ve heard this afternoon about the $88 million number to outfit the interior of the new facilities. It is our understanding that

the successful bidder must pay this, and it must come out of the

rent that he receives from the PTO, and this rent, as we’ve heard,

is going to be less than the current rent paid by the PTO to the

current landlord.

We’ve heard that the patent examiner’s union opposes the move

to the new complex; however, the opponents don’t mention the fact

that the trademark examiner’s union and the clerical employees

union support the move.

The day care facility, for example, would be especially beneficial

to trademark examiners and clerical employees, both of which

groups have high numbers of female employees who typically need

access to affordable health care and day care facilities in order to

be able to work outside the home.

Those opposed to the consolidation talk about the fact that it is

going to cost $1.3 billion to lease, not own, the facility. Let’s be

clear about this. If the PTO stays in its present decentralized,

aging facilities, it will spend at least $1.3 billion in lease charges

over the next 20 years.

Moreover, while the PTO is not going to own the building, as

Senator Warner and Senator Gregg in a colloquy on the Senate

floor commented, this is the only viable option, and we take them

at their word.

We heard earlier about the $250 shower curtains and the $4,000

desks, etc. We would agree that these estimates are unfortunate.

It is our understanding, however, that they were given as worstcase scenarios intended to provide an estimate of what it would

cost to move, not an intent to go out and buy.

More importantly, even with these unfortunately high estimates,

the Deva Report still projects that there will be a $72 million savings from this procurement.

Mr. Chairman, we would like very much for this procurement to

go ahead unabated, and we would strongly urge this subcommittee

to allow that to happen.

I have been authorized by the Intellectual Property Owners,

whose members obtain 30 percent of all U.S. patents, and the Intellectual Property Law Section of the American Bar Association to

state that they agree with this conclusion.

Thank you, sir.

Senator CHAFEE. Thank you very much, Mr. Kirk.

Mr. Sepp, vice president for communications, National Taxpayers

Union.

STATEMENT OF PETER J. SEPP, VICE PRESIDENT FOR COMMUNICATIONS, NATIONAL TAXPAYERS UNION, ALEXANDRIA,

VA

Mr. SEPP. Thank you.

On behalf of our 300,000 members, I am——

Senator CHAFEE. You have the same 5 minutes, Mr. Sepp, as Mr.

Kirk.

Mr. SEPP. Indeed.
25

Senator CHAFEE. Thank you.

Mr. SEPP. I am deeply grateful for the opportunity to testify

today. In holding these hearings, you’ve once again demonstrated

your interest in fiscally responsible procurement policies.

Since our founding in 1969, we’ve taken positions on numerous

public works projects. Our only interest in this debate is to protect

Federal dollars and taxpayers.

While we believe an upgrade of PTO’s present facilities is the

most desirable of the current alternatives, we are certainly not

wedded to that concept. We could also support additional options

at other sites or building rather than leasing should further study

prove any of these courses to be more cost effective.

Some have asked why my organization is involved in this issue.

No. 1, part of our mission is to represent the concerns of all taxpayers, whether they are families, businesses, or small inventors.

I’m sure we both recognize that ultimately every American is affected by the tax burden on his or her fellow citizens.

No. 2, small businesses and entrepreneurs provide the fuel that

keeps our economic engine running in the race for economic vitality. Even a minor increase in patent fees could obstruct the flow

of this fuel and leave us stranded. How many links in the chain

of minor discoveries that lead to major breakthroughs would be

broken? How much would our Nation’s economic growth rate decline? Only an economist can answer these questions, but I certainly would not place a bet on our economy’s future just to find

out how much the market of intellectual property will bear.

No. 3, we’ve been assured that PTO’s fee structure could accommodate the cost surrounding the new headquarters, but history has

a different tale to tell. Government financial experts assured us

that deposit insurance fees would more than cover the costs of any

problems incurred by savings and loans. In the end, tens of billions

of dollars came out of our wallets to bail out S&Ls.

Granted, the Senate’s recent decision to cap costs of the PTO

plan at $1.3 billion is well-intentioned, but the road to fiscal purgatory is paved with these intentions, and it is also littered with

these kinds of cost caps.

The Ronald Reagan building experienced cost overruns exceeding

200 percent. Before Congress terminated the project, the Super

Collider’s price had risen well over 50 percent. Just 2 days ago the

‘‘Washington Post’’ reported that NASA is seeking a $1.2 billion

bailout of the space station project due to Russia’s financial problems.

From roads to courthouses to scientific research, an all-too-familiar pattern has emerged. Congress is told that too much has been

spent to pull the plug now, and taxpayers are left to make up the

difference between projections and hard reality.

Finally, No. 4, the lessons learned or not learned from the PTO

project will have a tremendous impact on every subsequent initiative on Federal office space, many of which will involve general revenue spending. Each and every American taxpayer, therefore, has

a direct stake in ensuring that PTO’s relocation serves as fiscally

responsible.

Having explained our interest in the PTO relocation proposal, I’d

like to outline five of our specific concerns.
26

No. 1, costs. Items that could drive up costs include possible exercise facilities and trails, in-house cafeterias, and expensive outdoor decor. Now, the Commerce Department argues that many of

these amenities already exist at the present complex and others

won’t necessarily go forward. Absent from this explanation is

whether or not additional amenities should be built just because

they can be provided under the existing cap.

Now, I do not suggest that a U.S. Government building with such

an important mission should look like a Soviet-style block house,

but taxpayers and PTO customers—many of them, at least—seem

to believe that a more appropriate balance between form and function can apply here, as well.

No. 2, our reading of PTO’s blueprint suggests that earlier cost

analyses may have been biased toward a predetermined conclusion.

One report comparing relocation versus renovation assumes that

many features of the new buildings would have to be grafted onto

remodeled space. Perfectly functional restrooms and elevators in

the existing facilities would be rendered useless in order to comply

with the new specifications.

I would contend that any plan with such contortions is likely to

conclude that a new building is a better option. What it will not

determine is whether such needs were realistic to begin with.

In addition, a September 17 report by Arthur Andersen, which

we have provided to the committee today, echoes our contention

that the proposed move may not be the most cost-effective choice.

After due study, Arthur Andersen concluded that the Deva Report’s key assumptions significantly understate the cost of a PTO

relocation. Using prudent assumptions and accounting for some of

the risks they noted results in a $121 million reversal in the Diva

result, from a $72 million savings if PTO relocates to a cost increase of $48 million if PTO relocates.

Overall, ‘‘the proposed PTO relocation project encompasses significant risk and would result in higher occupancy costs for the

PTO.’’

Now, the Commerce and the Patent and Trademark Office have

spent a great deal of taxpayer money on the Jefferson Solutions

and Diva Report, so I’m sure they’ll try to say that the errors in

these reports are innocent mistakes that don’t really affect the conclusions, but the Andersen report makes clear the errors are fundamental and cannot be relied upon by the Federal Government as

justification for going forward with the lease and discarding other

options.

No. 3, PTO’s cost for relocating into the new headquarters could

run more than $130 million. I know much political hay has been

made over one consolidation scenario that could purchase these

$250 shower curtains and $1,000 coat racks. I’m also aware that

PTO recently told ABC News these plans were absurd and that

they’re not going to do that. Such assurances are comforting, but

taxpayers can be forgiven for remembering previously proposed

projects that were supposedly cost controlled.

Pennsylvania’s Delaware Water Gap National Recreation Area,

for example, recently came under scrutiny for an outhouse that

sported a $78-per-gallon paint job, a foundation with 29-inch-thick

walls, and a slate gabled roof. Government auditors, who repeat27

edly denounced our cost estimate for the project as too high, later

discovered that it was twice as high as we had estimated.

No. 4, just 6 months ago the Commerce Department’s Inspector

General issued a comprehensive report concluding that PTO’s

build-out process needlessly exposes the Government to increased

cost risk. But what is most ironic is that the IG report contains

only one major positive finding in page after page of problems: that

PTO’s planned procurement should continue because it is cheaper.

The basis of that finding? It’s the faulty data in the Jefferson Solutions report. In light of the new Andersen report, even this lone

finding is now in doubt.

Finally, a survey taken by the Patent Office Professional Association found that, by a three-to-one margin, its members opposed the

move. When workers of the single-largest PTO union, many of

PTO’s customers, and local residents around the proposed sites are

saying, ‘‘Stop the music,’’ maybe we should listen more closely.

Regrettably, representatives from the groups I just mentioned

were not able to testify at today’s hearing. I, therefore, ask that

their prepared statements that have been given to me be read into

the hearing record.

In conclusion, I would like to point out that media critics are already beginning to dub some Federal construction policies the ‘‘edifice complex.’’ But, unlike Nero’s Oedipus complex, Washington’s

edifice complex can be cured without costly therapy. All it takes is

a little dose of common sense.

Senator CHAFEE. Thank you very much, Mr. Sepp.

Mr. Williams, research director, Citizens Against Government

Waste.

STATEMENT OF DAVID WILLIAMS, RESEARCH DIRECTOR,

CITIZENS AGAINST GOVERNMENT WASTE, WASHINGTON, D.C.

Mr. WILLIAMS. Good afternoon, Mr. Chairman. Thank you for

this opportunity to testify today.

I represent the 600,000 members of Citizens Against Government Waste. One of our most famous publications is the ‘‘Pig

Book,’’ which I think a lot of people are familiar with.

CAGW is very pleased that this hearing is being held. First and

foremost, now more than ever, taxpayers are demanding accountability from their Government. Too often in the past multi-billiondollar construction projects have been undertaken without sufficient oversight and scrutiny, leading to the waste of tens of billions

of dollars.

Second, we are at a point in the discussions about PTO that a

difference can be made. Since GSA has executed lease agreements

that would extend the current lease until 2014, there is sufficient

time to make a reasoned decision which could save taxpayers a

great deal of money.

Any time the Federal Government undertakes a major construction project or renovation project, CAGW immediately becomes concerned because past projects show a pattern of abuse.

For example, the Boston Courthouse—this $218 million monstrosity is a quintessential symbol of excess. When complete, this

courthouse will contain a six-story atrium, 63 private bathrooms,

37 libraries, and 33 private kitchens. In addition, the courthouse
28

will contain more than $750,000 of art work, and a $1.5 million

dock.

Who asked for all these amenities? The judges. Well, of course,

they’re not the ones who are going to have to pay for it.

The Federal Government spent $13 million for the services of

world-renowned architect I.M. Paye to create this monument to

Government waste. Believe it or not, Paye commissioned an

$80,000 model of this courthouse made out of imported African

wood.

Case No. 2, the Foley Square Courthouse in New York cost taxpayers $300 million, or more than $400 per square foot. The General Services Administration’s Inspector General testified that

Foley Square incurred more than $120 million in change orders, including adding carpeting valued at $114 per square yard.

A little reminder, GSA-scheduled carpeting is only $20 per

square yard.

Doors and hardware which were originally estimated at $1,300

per set increased to $9,000 per door set because special woods and

hardware were used.

The latest example of excess, the proposed relocation of the PTO

complex, has become a pitched battle on and off Capitol Hill.

A report by Deva and Associates and Jefferson Solutions estimated that relocation would actually save money. A followup report

by the accounting firm of Arthur Andersen shows just the opposite.

Diva and Associates’ comparison between an unconsolidated scenario and a consolidated one shows a cost savings of $72 million.

CAGW doubts the accuracy of this figure because a number of

items slated for the new location, such as pantries and a child care

facility, are soon to be added to the current space if they don’t

move. These little extras add up to $17 million.

Another reason to question Diva and Associates is because of

their gross under-estimation in moving cost—$5 million—even

though Congress passed a cap of $135 million in such costs.

Diva and Associates estimates total furniture cost of $65 million,

and everyone has been talking about the furniture and the different amenities. Well, they talk about worst-case scenarios. This

is an Armageddon scenario when we talk about a $250 shower curtain. This is way beyond worst case.

A September, 1998, Arthur Andersen report rebuts the Jefferson

Solutions report on per square foot cost. In particular, the Arthur

Andersen audit states—and this is a direct quote—‘‘There is an

error in the Jefferson Solutions report. The report compares an estimate of the current blended lease rate of $27.89 per occupiable

square foot to the proposed lease rate of $25.41 per square foot.’’

Our analysis reveals that the $25 figure—it is on a rentable

square foot basis. Rentable square footage is always greater square

space than occupiable, thus bringing down their per square footage

cost.

According to Arthur Andersen, ‘‘Thus, Jefferson Solutions’ conclusion that the proposed relocation would result in lower direct lease

cost to PTO is incorrect.’’

Based on the data presented in the report, a PTO relocation from

its existing space to a consolidated facility would, in fact, result in
29

higher direct lease cost. This is your classic apples and oranges

comparison game.

In addition, Department of Commerce’s Inspector General is concerned about the construction because of inadequate space planning and the risk of an expensive build-out.

An analysis of the cost associated with construction of the new

PTO office space reveals that total construction and mortgage cost

for the 20-year lease are estimated at $1.6 billion. This is twice the

cost of the Ronald Reagan Building.

After 20 years, the Federal Government won’t even own the

building. What will taxpayers have to show for a $1.6 billion building? Absolutely nothing.

The most popular counter-argument advanced by proponents of

PTO relocation is that no tax dollars will be used for this cons.

Well, instead of requiring the American taxpayer to shell out the

money, large and small inventors will be made to pay more in fees

to construct the new complex.

Senator CHAFEE. Mr. Williams, you’re going to have to wind up

here.

Mr. WILLIAMS. OK.

CAGW recommends that legislation to privatize PTO has passed

the House and awaits action by the Senate, so let’s take a step

back. Let’s not put the cart before the horse.

Second, the Arthur Andersen report calls into question the entire

basis and rationale for moving to a new relocation, and this deserves greater scrutiny.

This concludes my testimony, and I’ll be glad to answer any

questions you may have.

Senator CHAFEE. Thank you, Mr. Williams.

Let me just say this about the move. Obviously, we have a duty

to look at expense factors. But running any organization that’s

scattered in 18 buildings seems to me to be a formula for disaster.

So I believe consolidation make sense. The expenses are important,

and they should be reviewed, but having people scattered in 18 locations for one organization seems to me not a good way to do business.

Now, both you and Mr. Sepp mentioned the Arthur Andersen

study. We’d like to get copies of that. Can you provide us with copies of that, Mr. Sepp?

Mr. SEPP. Yes.

Senator CHAFEE. Who’s got the copies?

Mr. SEPP. We both do.

Senator CHAFEE. OK. I’ll choose you, Mr. Sepp, if you could be

responsible for seeing——

Mr. SEPP. Sure.

Senator CHAFEE. When could we get those? Today?

Mr. SEPP. Yes.

Senator CHAFEE. All right. I would appreciate that.

Next, I’d just like to put one thing to rest, if I might.

To show you how we can stay on the high level, let’s concentrate

on the $250 shower curtain. It is my understanding that there is

a list of amenities or furnishings that GSA provides for an organization, and if the organization wants to spend all of it on shower
30

curtains at $250, that’s fine. The only thing is, there wouldn’t be

any money for chairs in the rooms. That’s the way I understand it.

I don’t think we ought to keep beating up on $250 shower curtains, because it all comes out of one pot. Each of us as Senators

are given X dollars to run our offices. Presumably we could spend

an exorbitant amount on sofas, but, if so, we wouldn’t have any

money left for paper or stamps or whatever it might be.

If you want to argue against that, Mr. Williams, you go ahead.

Mr. WILLIAMS. Well, with all due respect, Senator, the Foley

Square Courthouse in New York, as I mentioned, had $120 million

in change orders, and $60 million of those dollars were not accountable in a competitively bid process. So——

Senator CHAFEE. That’s a different subject from these furnishings for the project, though.

Mr. WILLIAMS. There are opportunities to spend more money

when it comes to the build-out and other costs.

Senator CHAFEE. Well, I think your points about the Foley

Square Courthouse—obviously, that must have been done before I

was chairman of this committee.

[Laughter.]

Senator CHAFEE. But I don’t dare look.

Senator Warner, what would you like to do? Why don’t you take

over. It’s your subcommittee.

I want to thank everybody for testifying. There’s one more panel

to come.

Senator WARNER [ASSUMING THE CHAIR]. Thank you, Mr. Chairman. I apologize for my absence. We had a death in the family, and

I was privileged to give the eulogy. And then, once on the plane,

the plane malfunctioned and returned to the airport. Everybody

has been through these experiences. But anyway, I’m here.

What I’d like to do, with the concurrence of my good friend and

colleague, is to bring panel one back and propound a series of questions which I hope can begin to right this listing ship a little bit,

so if Mr. Peck and Mr. Lehman will return, I thank them.

Now, Mr. Peck, in 1995 you, along with the existing landlord,

testified before this committee in support of the committee-passed

resolution. What, in your opinion, has changed since that time?

Mr. PECK. Just to correct the record, it wasn’t me in 1995, but

it was my predecessor. GSA did testify in favor.

Nothing has happened since that time to change our basic conclusion about the advisability of going ahead with this project in

this manner.

Senator WARNER. All right. And I note the following. The committee transcript, in which the Charles E. Smith Companies testified, says, ‘‘We should note that the Smith Company has been

pleased in the manner in which this solicitation has been managed

by both PTO and GSA.’’ That was said by their Group Senior Vice

President for the Charles E. Smith Companies, accompanied by Mr.

Cogood and one of the CEOs.

The second one, Mr. Peck. The Patent and Trademark consolidation has received criticism for providing day care centers, fitness

centers, and cafeteria space. Are these types of facilities included

in other ongoing Government procurements?
31

Mr. PECK. Yes, sir. I can report to you that GSA operates—or at

least houses in our buildings across the country—109 day care centers. I don’t know the numbers on cafeterias or fitness centers, but

I can tell you that they are, in large buildings, more the rule than

the exception.

Senator WARNER. Mr. Lehman, what assurances are you prepared to give this committee and the Congress that you are prepared to control the costs on this project?

Mr. LEHMAN. Mr. Chairman, the budget process will provide a

careful check on our spending. Any requests for funds will be reviewed by me, by the Secretary of Commerce, by the Office of Management and Budget, and by the Congress, of course.

Second, the memorandum of understanding between the General

Services Administration and the PTO incorporates a number of cost

control measures.

Also—and I referred to this earlier, in my earlier testimony—the

Inhofe-Brownback amendment to the appropriations bill, and we

support that amendment, places caps on build-out and moving

costs comparable to the amounts to be spent to build-out and move

other Federal agencies. We welcome that amendment, and we have

never intended, never intended at all, Mr. Chairman, to spend

more than our counterparts in other agencies. Hopefully, if anything, we’ll come out with a little less.

Senator WARNER. Thank you.

Have either you or Mr. Lehman or anyone in your respective organizations seen the Arthur Andersen report?

Mr. PECK. Senator Warner, I just saw it for the first time about

10 minutes ago, but I have not really had a chance to review it.

Mr. LEHMAN. No, sir, I haven’t seen it.

Senator WARNER. Now we’ll resume the questions to panel 2, and

I’ll defer to my colleagues, if you wish to initiate a question or two,

and then I’ll followup.

Senator SESSIONS. Let me ask the panelists, it seems to me—you

know, we’ve been accused of ‘‘living in spin’’ in this town, and everybody spins things a little; if they’re for something, they put the

best look to it. But it seems to me—and I’ll ask you if you agree

with this—that there has been a stated commitment to not increase the rent, but the rent is just for a shell building, and there

have been extraordinary additional expenditures on top of that.

You’ve got the $88 million, plus another $29 million, for interior.

And if you figure that, you’ve exceeded the GSA standard of $36

per square foot to $58 per square foot. I’m not sure they disagreed

with me, but I wasn’t sure.

Am I wrong about that? Would any of you like to comment on

it? Mr. Kirk?

Mr. KIRK. Thank you, Senator, I would.

The understanding that we have is that this cold, dark shell that

this SFO is calling for is going to be built out with this $88 million.

But this $88 million must come from the successful bidder. He

must pay for that out of the funds that he receives through the

rent. So whether the building is completed and he pays a given

amount of rent, or whether the building is not quite completed and

he pays a given amount of rent and provides the $88 million, the

rent won’t change.
32

As far as the above standard, AIPLA believe—at least our association believes—that this is something that the Patent and Trademark Office employees are entitled to. We do not wish to treat

them as second class citizens. We want to give them the sort of——

Senator SESSIONS. You want to give them a high standard. The

standard is $36, and you are prepared to go to $58, so the IG has

now made a decision on how palatial their offices should be.

Mr. KIRK. Well, as I said, we don’t agree with your figure of $58,

but we believe that these people should be entitled to the same

kind of facilities that the private sector has so that we can get the

best qualified patent and trademark examiners and retain them in

the Office. It is important——

Senator SESSIONS. Are they entitled to better standards of office

space than any other Government employee?

Mr. KIRK. I do not believe that they will have better quality office

space than any other Government employee with this prospectus,

sir.

Senator SESSIONS. And I believe the Inspector General’s Office

did conclude that the expenditure of an additional $29 million

would violate Federal law, without approval, and no approval has

been obtained.

Mr. KIRK. I would defer to the Inspector General to comment on

that, sir. That was not my understanding, though.

Senator SESSIONS. Let me ask Mr. Williams or Mr. Sepp if they

want to comment on any of that.

Mr. WILLIAMS. Well, in particular, Citizens Against Government

Waste is concerned about the domino effect of this building. We are

talking now about a new U.N. building; that’s probably going to

cost $500 per square foot. We need to put an end to this. The courthouses were bad enough; Boston was bad enough; Foley Square

was bad enough; the Ronald Reagan Building was bad enough. We

need to put a stop to the extravagance that the Federal Government is paying for. There is no surplus in Washington, and you

have to be more careful with the way you spend tax dollars or the

user fees that inventors pay.

Mr. SEPP. Senator, I also refer you to some testimony by Kenneth

Addison. He was not a witness for the committee today, but he

asked that his testimony be read into the record.

He said in his testimony, ‘‘While we have been told of the overwhelming requirement for additional space, some 200,000 square

feet of currently leased space remain unoccupied. As for the new

building’’—and I’m paraphrasing—‘‘the need for and justification of

amphitheaters cannot be credibly established, and would seem to

represent a poor investment. Conversely, meeting rooms and auditoriums capable of accommodating several thousand people are

readily commercially available across the street.’’

Now, obviously there is some doubt as to whether or not all of

these build-outs are necessary, and this is coming straight from

some of the users of the Patent Office.

Senator SESSIONS. Well, I understand that. We all have to do

sometimes with less than we would like. My wife had me look at

my son’s old car’s tires the other day. She wanted him to get a new

set, and I said, ‘‘I think you can get another quarter out of them
33

before we buy a new set.’’ Now maybe if he has a wreck, I’ll be in

trouble.

But you have to make decisions. We all do, and having things as

perfect as we would like is not possible.

But give it to me precisely, Mr. Kirk: the $29 million extra is

extra costs?

Mr. KIRK. Yes, sir.

Senator SESSIONS. And that would amount—if you added the $88

million and the $29 million together—it would amount to $58 per

square foot build-out, which would exceed GSA standard build-out

costs for a shell building?

Mr. KIRK. Senator, you can look at it from that perspective——

Senator SESSIONS. I mean, isn’t what I said correct?

Mr. KIRK. Well, approached from that direction, that is correct.

But you could also say, Senator, that if you didn’t have the buildout and you had the warm, finished shell so that you don’t need

the $88 million to finish the build-out, then you’d be back to the

basic $29 million. And as far as we are concerned, we believe that

this is something that is desirable.

Let me just say that I am somewhat troubled because it seems

to me that we are up here condemning the construction of the

Foley Square Courthouse, the Boston Courthouse, and some outhouse built by the Park Service. We’re not talking about that. Nobody is supporting that. Nobody is supporting a $500 per square

foot building.

I looked up the cost of the Pentagon. The Pentagon is 3.7 million

square feet, built for less than $90 million. We could say, well, everything is outrageous compared to that——

Senator SESSIONS. The year was 1939–1940.

Mr. KIRK. That’s correct.

So I think we need to put this into perspective, and we believe

that this is a reasonable basis. But the bottom line for our association, sir, is competition. Competition. Let us have competition and

let the best competitor get the bid.

Senator SESSIONS. Well, I am just trying to get at the right facts

and what the figures are, and it seems to me that we do have higher figures than are being represented. GSA figures are one thing,

but for the taxpayers and for the Government, it’s GSA figures plus

the extra money, and that’s where we have to evaluate whether or

not we’ve got a good cost.

And then, in addition to that, I think we could ask ourselves,

what about the Ronald Reagan Building, three blocks from the

White House? It came in, apparently, for less than this structure

would cost, certainly, over the life—about half of what this structure would cost over the life of the lease.

Have you figured that out, Mr. Sepp or Mr. Williams? Do you

have any numbers on that, what the total lease costs would be?

Mr. PECK. Yes, sir. I can tell you that the Ronald Reagan Building is financed through the Federal Financing Bank, so it enjoys

a much more favorable interest rate than could any private developer, and we’re going to take PTO through a private development

process. But we pay the Federal Financing Bank $65 million per

year for the Ronald Reagan Building over the course of 27 years.

Senator SESSIONS. What does that mean?
34

Mr. PECK. Well, it’s costing us more for the Ronald Reagan

Building, if that’s the answer. And it’s probably about the same

amount of usable square footage.

Senator SESSIONS. The numbers look almost exactly alike.

So it would cost you more. And what would be your annual payment on this building?

Mr. PECK. Our annual payment on this building is—today it is

approximately $57 million, but escalated to 2002, it will be about

$64 million. But again, the comparison with the Ronald Reagan

Building today would be $57 million.

Senator if I might, on this question——

Senator WARNER. On the question of comparisons, if you would

yield for a moment——

Senator SESSIONS. Yes, sir, I sure would.

Senator WARNER.——what if the PTO stays where they are?

What is going to be the cost to the taxpayer?

Mr. PECK. Well, the point is that per square foot, we are paying

the same amount for PTO in the existing location per rentable

square foot as we will in the other location. And the point that I

keep trying to make is that that rentable square foot dollar includes the cost of the $88 million fit-out. That’s the way the private

sector real estate market works. It’s included in that cost. The only

thing that is above that is the $29 million.

What I want to emphasize is that in the private sector, in the

real estate market, we are operating in the Government like the

private sector does. This is good news, and it is common—it is

usual—in the private sector that the landlord gives what is called

a ‘‘standard fit-out,’’ which most of us who have ever leased from

private landlords consider less than adequate, but nonetheless they

call it standard, and then you pay for what is called ‘‘above standard.’’ Maybe the terminology is unfortunate, but nonetheless, it is

quite common for people to pay ‘‘above standard’’ to get what they

believe is the minimally adequate build-out for their purposes.

Senator WARNER. Well, my only point to you, Mr. Peck, is that

when you represent that the cost of the fit-out is $36, and not

count the $29 million extra, you’re not accurately representing the

cost of this building. When you add both together it comes out at

$58, and that exceeds the GSA standard.

Let me ask you this, though. With regard to the Ronald Reagan

Building, which was supposed to last 200 years and be owned by

the Government, the cost per year is the same, virtually, as this

building will be, and after 20 years we will not have anything.

Mr. PECK. As Commissioner Lehman noted, we may have an option to purchase the building at some point, but the Government

made a decision to build this as a leased structure some time ago.

Senator WARNER. I may have been here, but I’ve been denying

responsibility for a lot of decisions since I haven’t had 2 years here

yet.

[Laughter.]

Senator WARNER. I understand. There was a lot of decisionmaking went into that. But as Senator Smith said, maybe we ought

to think about that and learn from this process. If we can buy a

building for the same cost that it takes to rent one, then maybe we

need to rethink how we do business.
35

Mr. Chairman, thank you for your leadership on all these issues.

I’ve got to get back on the bridge of this ship and get it going

again. I’m in favor of this project, and I’ll get it going here in a moment.

But let me bring to your attention the following. In the testimony, Mr. Peck, I quote, ‘‘If the project is delayed, extending existing leases with fundamental building improvements to match market comparables will cost an additional $6.4 million annually, $32

million over the typical 5-year lease extension.’’

So there are some savings to the taxpayers associated with this

move, in your judgment?

Mr. PECK. Yes, sir. As we noted, it would cost the landlord

money, which would be passed on to us, to bring these buildings

up to the same standard.

Senator WARNER. Sure.

I want to first ask Mr. Kirk, you are one of the usual organizations that you represent. Is there any truth to the rumor that the

inventor community somehow is not in favor of this project?

Mr. KIRK. Clearly there are certain inventors that have expressed opposition to this, Senator Warner, but the members of

AIPLA who represent private and corporate inventors before the

Patent and Trademark Office have not seen that. We believe that,

given the information that the cost to the Patent and Trademark

Office, which is passed along in user fees, is going to be less under

this new procurement than the office would otherwise be paying

today. When this information is placed before any person—be it an

inventor or a person in the street—‘‘Would you rather pay less than

more?’’ And they say, ‘‘Less.’’

So we believe that with information, there will be a lot of support

for this going forward.

Senator WARNER. All right. Thank you very much.

This record will remain open. If some of those groups want to

submit testimony, I invite them. The purpose of this hearing is to

bring as much daylight as I can possibly shed on this project.

That’s the sole reason for doing it, because this project is going forward as of now. There is no further action required, but I felt obligated, since one of my colleagues had gone to the Floor and

brought to the attention of the Senate a very distressing set of

facts, and I gave him the opportunity—he’s otherwise engaged,

Senator McCain; he may yet come—but the point is to bring daylight and to invite all to submit their views on this project. So I’m

inviting that.

Now, Mr. Sepp, I’ve had a long relationship with your organization. Have you checked the archives?

Mr. SEPP. Oh, yes. You’ve won our ‘‘Taxpayer Friend’’ award a

number of times.

Senator WARNER. So I try to do the best I can.

[Laughter.]

Mr. SEPP. We appreciate it.

Senator WARNER. I had to drag that out of you, but you’re getting

there.

You know, it’s interesting. We cannot be unmindful of what’s

going on in our city today. And there’s an accusation that’s going

around that’s called ‘‘fairness.’’ My question to you, have you
36

availed yourself of an opportunity to sit down and talk to either the

PTO or the GSA allow them to speak to some of the very dramatic

points that you’ve raised here today, and elsewhere?

Mr. SEPP. Well, as I am not responsible for the Government Relations portion of our campaign, I personally have not met with any

representatives of GSA or PTO. However, I believe there is an ongoing dialog between my colleague, Al Cors, our Vice President for

Government Affairs, and GSA and PTO. I would be happy to furnish you with additional information on that once I get into contact

with Mr. Cors.

Senator WARNER. Well, it’s interesting. We invited Mr. Cors to

testify today and he declined. You’re aware of that?

Mr. SEPP. Yes.

Senator WARNER. So the most you can say is that you believe,

you just have no——

Mr. SEPP. Well, part of the problem is, of course, that we were

contacted about this hearing with, unfortunately, very short notice,

and Mr. Cors had a previous engagement——

Senator WARNER. I accept that.

Mr. SEPP.——that he simply could not break out of. But to my

knowledge, there is an ongoing dialog——

Senator WARNER. Well, would you provide for the record his response to this question at your earliest opportunity?

Mr. SEPP. Yes. Certainly.

[Information to be supplied follows:]

RESPONSE OF AL CORS, JR., VICE PRESIDENT FOR GOVERNMENT AFFAIRS NATIONAL

TAXPAYERS UNION

As Vice President for Government Affairs at National Taxpayers Union, I have

made a substantial effort to seek out information from the U.S. Patent and Trademark Office (PTO) regarding their proposed relocation.

Mr. Sepp is correct that I have been engaged in a written dialog with PTO. Upon

receiving a request from PTO for a face-to-face meeting, I suggested that such a

meeting might be more productive if I were to provide a written framework of concerns and questions beforehand. On August 14, I submitted a six-page letter to Mr.

Q. Todd Dickinson, Deputy Assistant Secretary of Commerce and Deputy Commissioner of Patents and Trademarks, containing detailed and specific questions ranging from the lease proposal’s usage of ‘‘occupiable’’ and ‘‘rentable’’ square feet, to the

methodology of the Deva and Associates report.

Despite having contacted Mr. Dickinson on August 27 regarding the status of my

letter, I did not receive a reply until September 16. Mr. Dickinson’s 21⁄4 page letter,

dated September 11, ignored most of my specific questions. In fact, much of the language in the letter reads as if it were taken from stock paragraphs in PTO’s promotional literature on behalf of the lease proposal.

My letter to Mr. Dickinson concluded that ‘‘Your answers to the preceding questions will help us to prepare for the meeting you have proposed.’’ PTO’s anemic response indicates to me that the Government’s motives for seeking a face-to-face

meeting are grounded not in the desire to have a mutually beneficial dialog, but

rather to script a public relations event. Nonetheless, I remain ready and willing

to meet with any PTO or other Government officials, should more complete answers

to my questions be forthcoming.

In response to your request for full disclosure, I ask that my attached letter to

Q. Todd Dickinson, as well as Mr. Dickinson’s reply, be read into the hearing record.

ASSISTANT SECRETARY AND COMMISSIONER OF PATENTS AND TRADEMARKS,

PATENT AND TRADEMARK OFFICE,

U.S. DEPARTMENT OF COMMERCE,

Washington, DC 20231, September 11, 1998.

MR. AL CORS, JR.,
37

Vice President for Government Affairs,

National Taxpayers Union,

108 North Alfred Street,

Alexandria, VA 22314.

DEAR MR. CORS: This is in response to issues raised in your August 14 letter re- garding the Patent and Trademark Office’s (PTO) proposed long-term lease of space.

While no taxpayer dollars are involved in this project, we recognize the Union’s long

history as a guardian of the public’s pocketbook, and assure you that we are equally

committed to the cost-conscious management of our customers’ fees. The PTO presently occupies space in 17 buildings in Crystal City, with varying lease terms. The majority of our space is occupied under leases that expire or are

cancelable between 2001 and 2004. With these dates fast approaching, we believe

it makes good business sense for the PTO to proceed with a competitive procurement to obtain space for our operations in the future. Our need for space exists

whether or not legislation is passed that changes the structure of the PTO. Given the Union’s commitment to cost-conscious government management, we hope that you would support our goal—using competitive procedures to select a developer for a facility that offers the greatest value to the Government at the best

lease rate. While some would prefer that we limit our space negotiations to a single

source, our great American system of open and free business competition has historically produced proven benefits in value and cost savings. We believe the PTO’s

open competitive procurement will allow us to leverage those benefits to the advantage of our customers and the American people. This plan for procuring space is

predicated on our commitment to wise and efficient use of our customers’ fees.

As you may know, a number of studies have been commissioned to review this procurement. All of them have found that the procurement has proceeded in a completely open and fair manner and that proceeding in this fashion would be the most

cost-effective solution to our long-term need for space. For example, the Business Case Analysis developed for the PTO by Deva and As- sociates, P.C. concluded that ‘‘. . . PTO should proceed with the competitive procurement of a consolidated lease because the agency will incur, over the 20-year

lease period, $72,395,278 less in costs in the consolidated scenario than in the unconsolidated scenario.’’

A review by Jefferson Solutions also found that PTO should continue our consoli- dation effort. In their report of May 15, 1998, they concluded that our methodology

is sound, and should produce an economic benefit for the agency. They note, for example, that our present average rental rate is well above the market price for comparable space.

Our approach has also been verified in an independent review by the Office of the Inspector General of the Department of Commerce. The IG also found that our

strategy is reasonable, and that our approach should result in long-term cost savings. In its report, the IG confirmed the analysis that our current leased space is

more expensive than the target amount that has been authorized by Congress. With regard to your question concerning waiting until the adjournment of the 105th Congress, it is our understanding that its planned adjournment is sometime

in early October. If the project proceeds, GSA will not award the lease consolidation

contract until sometime after that date.

With regard to furniture and other items which you have addressed, the dollar figures associated with those items were developed in response to the broader question of the maximum that the entire project might cost and whether there would

still be an overall cost savings. Even in such a ‘‘worst case scenario’’, we would still

realize a minimum savings of $72,000,000 for our customers over our current lease

over the lease term.

However, as I discussed personally with you and wish to reiterate, the PTO is not going to purchase ‘‘$250 shower curtains, $870 waste receptacles, $750 cribs, $309

ash cans or $1000 coat racks.’’

Your questions also indicate a concern with certain physical features of the SFO. Our analysis is that such facilities are cost-effective and have become standard in

both private and public sector business development. Such facilities are commonly

included in newly consolidated Federal facilities and are often added to existing

buildings. Especially in the current economy, we face a challenge in recruiting and

retaining the employees that we need to serve our customer base. These amenities

not only promote employees’ physical and mental fitness; they become part of a

package that allows the PTO to attract and retain the best.

You question some of the costs associated with specific features for public areas.

The SFO requires that lobbies ‘‘shall employ high-quality materials which are durable and easily maintained’’, which is good building practice in heavily trafficked public areas. The materials listed are similar to finishes in many of the PTO’s existing
38

buildings. In addition, the SFO does not require trails, fountains, sculptures, or amphitheaters; such features are merely listed in the SFO as examples of superior site

design elements in an overall landscape plan and can, incidentally, be found at

PTO’s existing Crystal City location. The developer can choose to include them or

not, at its own discretion.

As I have indicated to you, I feel that many of the concerns raised by your ques- tions can be best addressed through an open discussion, and wish to reiterate our

invitation to meet with us. The PTO believes strongly that we have developed a reasonable and cost-effective approach to solving our long-term space needs, an approach that is mindful of our responsibility to those who pay the fees that support

our organization—our customers.

Sincerely,

Q. TODD DICKINSON,

Deputy Assistant Secretary of Commerce

and Deputy Commissioner of Patents and Trademarks.

NATIONAL TAXPAYERS UNION,

Alexandria, VA, August 14, 1998.

MR. Q. TODD DICKINSON, Deputy Assistant Secretary of Commerce and Deputy Commissioner of Patents and Trademarks, U.S. Department of Commerce,

Patent and Trademark Office,

Washington, DC 20231.

DEAR MR. DICKINSON: Thank you for your recent letter and for your offer to an- swer more detailed questions regarding the Patent and Trademark Office (PTO) procurement of new facilities. In the interests of continuing our dialog, I have enclosed

a series of questions related to our concerns. Your candor and specificity would be

appreciated. Regarding:

Reorganization

PTO may be entirely reorganized if the PTO privatization legislation currently pending before Congress becomes law. If the legislation passes, how will it impact

your staffing levels and space needs? Will PTO need more or less space? How much?

Please provide a detailed list of your staffing and space assumptions if the legislation passes.

It would be implausible to imagine that passage of the legislation would have no impact on space. Why haven’t you submitted two space plans to GSA, one if the legislation passes, and one if it does not?

Why would it not be more prudent to wait until the conclusion of the 105th Con- gress, to see if Congress has either passed the legislation or not, and then submit

a revised plan of space needs to GSA? Couldn’t PTO simply remain in their current

buildings for the period of this brief delay?

IG Report

The Inspector General of the Department of Commerce issued a report on the

PTO headquarters consolidation that listed 11 specific recommendations. Please answer the following questions in response to each specific recommendation (i.e., 11

separate answers to these questions): A) Do you agree with the recommendation? If you disagree, please state your rea- sons. B) Do you intend to implement the recommendation?

C) What is the status of implementing the recommendation?

D) If the recommendation has not been implemented, since it has now been 5

months since the IG Report was submitted, in detailed fashion, why have you not

implemented the recommendation? E) If the recommendation is not implemented, when do you anticipate that it will be implemented?

Extravagant space items

Why does the SFO list outdoor amphitheaters? Did you ask GSA to include this item? What is the justification for it? Is this a wish or a genuine need; in other

words, could you accept space without it? Why does the SFO list jogging trails? Did you ask GSA to include this item? What is the justification for it? Is this a wish or a genuine need; in other words, could

you accept space without it?
39

Why does the SFO list fountains? Did you ask GSA to include this item? What

is the justification for it? Is this a wish or a genuine need; in other words, could

you accept space without it?

Why does the SFO list sculptures? Did you ask GSA to include this item? What

is the justification for it? Is this a wish or a genuine need; in other words, could

you accept space without it?

Furniture and Deva Report

Did the purchase prices for the furniture listed in the Deva Report come from the

standard GSA office supply schedule? If not, how were the prices calculated? What

assumptions were used? Please provide written back-up material detailing the specifications for each item listed in the report.

We understand that PTO now takes the position that it may not necessarily intend to spend all the money on all the furniture items listed in the Deva Report.

Is that true? If so, why did PTO send that report to Congress without that qualification?

If the report was submitted to Congress without the qualification, what does that

imply about PTO’s commitment to cost control?

We understand that PTO views the costs for the furniture items listed as ‘‘worst

case scenario’’ figures. Is this true? If so, how were these ‘‘worst case’’ figures determined? Were they based on actual costs from some type of catalogue, supply schedule or other source? If so, please provide copies of the support materials detailing

the costs.

If the furniture section of the Deva Report lists costs that you do not necessarily

intend to follow, does that mean that there are other sections of the report that PTO

does not necessarily intend to follow?

If so, what are these sections and why does PTO not intend to follow them?

If not, what language in the report indicates to the reader that PTO does not necessarily intend to follow the cost figures listed for furniture, and what language indicates that the other sections of the report are valid and accurate, will be followed,

and should be taken at face value?

If PTO’s position is that they are not necessarily bound by the costs in the furniture section of the Deva Report, does that not call into question the validity of

the entire Deva Report?

PTO has stated on a number of occasions that it feels it is less expensive to move

to a location rather than to stay in its current location. PTO commissioned the Deva

Report to justify that decision. Yet PTO has an office of space planning to perform

this very type of analysis. Why did PTO need to retain an outside consultant to perform the same work?

Specifically what are the areas of inadequacy within PTO’s office of space planning that needed to be supplemented by outside counsel?

The Deva Report was originally supposed to cost $235,000. Is this figure accurate?

Why was such an expensive report commissioned?

The Deva Report eventually came in well over budget and well over deadline. We

understand that the cost escalated almost 40 percent to $327,000. Is this the final

cost? What was the justification for the cost overrun?

We understand that the Deva Report was originally intended to take 4 months

to complete. Is this accurate? We understand that PTO gave Deva and Associates

six separate time extensions. Is this accurate? What was the justification for the

delays?

When was the final report sent to PTO? How many months over the original

deadline was the report sent to PTO?

Since the Deva Report was well over budget and well over deadline, what does

that imply about the quality of work produced by Deva and Associates and about

their own commitment to cost control, let alone evaluating the cost control of the

PTO headquarters consolidation?

Deva and Associates wrote to PTO stating, ‘‘we do not express an opinion on

whether the ‘Business Case Analysis of Space and Facilities Management’ is presented in conformity with the American Institute of Certified Public Accountants

presentation guidelines or on whether the underlying assumptions provide a reasonable basis for the presentation. Had we performed additional procedures, other matters might have come to our attention and would have been reported to you.’’ How

could PTO spend $327,000 for a report and not make sure that standard accounting

rules were followed?

How could PTO spend $327,000 for a report that did not have Deva and Associates provide their professional opinion on the adequacy or inadequacy of the assumptions that underlie the entire report and its ultimate conclusions?
40

Since Deva and Associates did not certify that standard accounting rules were followed and since they took PTO’s assumptions at face value, without critical comment on their adequacy, don’t these factors call into question the entire reliability

and value of the report?

Please provide a list of each office in Congress to which PTO sent the report.

Please provide the dates for transmittal of each report that was sent.

Please provide a list of each person who received the report outside of Congress.

Please provide the dates for transmittal of each report that was sent.

Please provide a copy of the transmittal letter, and/or any other written or e-mail

materials that were sent to Deva and Associates, starting with the first contact PTO

made with Deva concerning this study, up to the present date.

Deva and Associates separated their work assignment into various subtasks. One

of them was to ‘‘identify external sources for project inputs.’’ Besides materials received from PTO and GSA, please provide a list of the people Deva and Associates

interviewed outside of government to produce their report. Please also provide a list

of the documents Deva and Associates reviewed from non-governmental sources.

Why does PTO need 175 projection screens? Couldn’t PTO make due with a small

number of mobile screens at each building, kept in a central storage location, and

used as needed? If so, how many?

Why does PTO need 18 showers? Couldn’t PTO make do with less? If so, how

many?

Why does PTO need 19 beds? Couldn’t PTO make do with less? If so, how many?

Jefferson Solutions Report

Please provide a copy of the transmittal letter, and/or any other written or e-mail

materials that were sent to Jefferson Solutions, starting with the first contact the

Department of Commerce made with Jefferson Solutions concerning this study, up

to the present date.

How much did the report cost?

The Department has space planning professionals who perform the very type of

analysis required under P.L. 105–174. Why did the Department need to retain an

outside consultant to perform the same work?

Specifically what are the areas of adequacy within the Department’s space planning professional staff that needed to be supplemented by outside counsel?

Please provide a list of each office in Congress to which the Department sent the

report. Please provide the dates for transmittal of each report that was sent.

Please provide a list of each person who received the report outside of Congress.

Please provide the dates for transmittal of each report that was sent.

Page A–7 of the report states, ‘‘PTO currently has 31 leases, averaging $27.89 per

occupiable square foot . . . The proposed lease as outlined in the Prospectus will

reduce this cost to $25.41 per square foot, expressed in 1998 dollars.’’ This statement is the key evidence cited to justify the bottom line conclusion of the report—

that it is more expensive to stay in the current location than to move. Interestingly,

the first figure cited is expressed in terms of ‘‘occupiable square feet,’’ while the second figure is expressed as simply ‘‘square feet.’’ Is the $25.41 figure cited occupiable

square feet, rentable square feet, or some other type of measurement of square feet?

It appears that figure may be actually ‘‘rentable’’ square feet. If this is true, then

Jefferson Solutions has used two entirely different standards to calculate costs and

determine whether moving or staying is less expensive. This would, of course, make

the comparison invalid. Here is why it appears that the $25.41 figure is ‘‘rentable’’

square feet. $24 per ‘‘rentable’’ square foot is the prospectus rent target. That figure

was in 1996 dollars. 2.9 percent is the inflation escalator that has been used all

along on this procurement. If the $24 figure from 1996 is multiplied by the inflation

escalator, it equals the exact same figure in the Jefferson Solutions Report—‘‘$25.41

per square foot, expressed in 1998 dollars.’’ Is this indeed how Jefferson Solutions

arrived at this figure?

If so, does that not mean that Jefferson Solutions has used two different standards (‘‘rentable’’ vs. ‘‘occupiable’’ square feet) to compare the cost of moving vs. staying?

If so, does that not invalidate the conclusion of the report—that it is less expensive to move, than to stay?

If so, shouldn’t the same standards be used to accurately compare the costs of

moving vs. staying (i.e., either occupiable vs. occupiable or rentable vs. rentable)?

What is PTO’s calculation of the cost of moving vs. staying, comparing occupiable

square feet to occupiable square feet?

What is PTO’s calculation of the cost of moving vs. staying comparing rentable

square feet to rentable square feet?
41

Above standard build-out

Please provide a detailed breakdown of the $29 million cited for above standard

build-out, listing each item covered within this figure. Provide a detailed specification for each item.

Are above standard build-out costs in addition to the furniture and other movein needs in the Deva Report?

Please provide a chart that shows the total build-out costs for the entire procurement, broken down for the categories of general office space, special use space,

multi-use space, and other space, along with whatever subcategories apply to these

general categories. In doing so, indicate the cost per occupiable square foot for: special use space, multi-use space, and other space; in other words for any space that

does not fall within the category of general office space whose costs would be $36.69

per occupiable square foot.

Fitness Center, Day Care, and Cafeteria

PTO has requested that its office space include a cafeteria. Is this a wish or a

genuine need; in other words, could you accept space without a cafeteria if you had

to? Do you have any data to show the lack of restaurants within the general vicinity

of the three sites that are now up for bid?

PTO has requested that its office space include a fitness center. Is this a wish

or a genuine need; in other words, could you accept space without a fitness center

if you had to? Do you have any data to show the lack of private fitness centers within the general vicinity of the three sites that are now up for bid?

PTO has requested that its office space include a day care center. Is this a wish

or a genuine need; in other words, could you accept space without a day care center

if you had to? Do you have any data to show the lack of private day care centers

within the general vicinity of the three sites that are now up for bid?

Instead of PTO operating a cafeteria, fitness center, and day care center, could

the space plan simply provide for vacant commercial space, and then encourage private sector bids to open a privately run cafeteria, fitness center, and day care center?

Could you support that alternative?

If that alternative we—chosen, wouldn’t that save the costs of such items as interior build-out and furniture?

Your answers to the preceding questions will help us to prepare for the meeting

you have proposed. We may have additional questions, but this should be a good

start.

Thank you again for your cooperation. We look forward to your answers.

Sincerely,

AL CORS, JR., Vice President for Government Affairs,

National Taxpayers Union.

Senator WARNER. Can either Mr. Peck or Mr. Lehman corroborate the fact that the organization which Mr. Sepp is representing

today did or did not at any level in your organizations make contact for the purpose of exchanging facts?

Mr. LEHMAN. Mr. Chairman, we on several occasions attempted

to contact the organization that you referred to, and in fact we

have written a letter—two separate letters—requesting that they

come and get a complete briefing on what we’re doing. And we

have yet to receive any response to that, other than ‘‘no.’’ There

have been some telephone conversations——

Senator WARNER. Did they give you a written response that said

no?

Mr. LEHMAN. No, I don’t believe we received any—we received

some questions from them, but they declined to meet with us and

receive a briefing on the matter.

Senator WARNER. Mr. Peck?

Mr. PECK. Mr. Chairman, our staff here, including a couple of

people who are intimately involved with this project, tell me that

they have not met with NTU, nor had a request to meet with them

from NTU. But I can’t speak for the entire organization, obviously.
42

Senator WARNER. You have a lot of very important factual information, Mr. Sepp, which you have included in your testimony, and

indeed used in your public—and you have a perfectly legitimate

right; I’m not contesting that. Are you at liberty to tell us the

sources of those facts?

Mr. SEPP. Well, we have been contacted by a number of organizations due to our work on things like the Reagan Building, for example. We appeared in the press, speaking out on Federal public

works projects. I know that——

Senator WARNER. We’ll let you stick to this particular project.

Are you at liberty to tell us from whence you got a lot of the information?

Mr. SEPP. Well, as a result of our public presence on this issue

we’ve been contacted by groups, such as Patent Office Professional

Organization. I know that Citizens Against Government Waste, as

well, with its involvement in this issue, has certainly shared information.

Senator WARNER. I’m reading from an article in the Fairfax Journal, which is a very large newspaper in Northern Virginia, and it

is Friday, September 18, 1998.

Mr. SEPP. Oh, yes. I’m aware of that.

Senator WARNER. And they make the following allegation: ‘‘The

group’’—referring to you—‘‘a nonpartisan independent research

group, working for lower taxes, admitted using materials supplied

by Smith’’—that’s Charles E. Smith—‘‘and the press releases issued

by Smith, and the group’s Vice President for Government Relations, Mr. Cors, met with the Patton-Boggs staffers to discuss the

PTO.’’

Do you have any means to verify the accuracy of that statement?

Mr. SEPP. Oh, yes. We have received information from the Smith

Company, along with many other organizations.

Senator WARNER. They have a perfect right to do that. Mr. Cors

met with them, but I am somewhat taken aback that he did not

take the initiative to meet with either of the sources of a different

side of facts.

Mr. SEPP. Well, of course, as the gentleman pointed out, there is

apparently some written dialog between Mr. Cors and the Government.

Senator WARNER. Well, that concludes my questioning of this

panel—one other question here, to Mr. Sepp, please.

The Senate Environment and Public Works Committee conducted

three individual hearings on the subject of the PTO. This committee has also placed an extremely low rent cap on what GSA can

pay to lease space for the PTO in the committee’s resolution.

Is it your opinion that the Government should not attempt,

through competition, to obtain the best quality facility it can use

for these rent dollars?

Mr. SEPP. I certainly believe that competition belongs in Government procurement policies, as well as a fair and level playing field.

It is the position of my organization that the lease option needs

further examination and ought to be compared with buying a building outright, locating at another site, or renovating existing facilities. We do not have a particular guiding preference, except that

at this point, among the current alternatives, we think that ren43

ovating existing space would be preferable to leasing. That does not

rule out other options.

Senator WARNER. I can understand that, and you have a perfect

right to make that assumption. But do you think it has been a level

playing field?

Mr. SEPP. At this point, no. As my testimony indicates, and I

would invite you to review it——

Senator WARNER. I have looked it over, yes.

Mr. SEPP.——there is at least one differing opinion from an Arthur Andersen study that the lease option is not necessarily the

most cost-effective one.

Senator WARNER. And we, the committee, now have in our possession as of today, together with the other two witnesses, the Arthur Andersen report.

Mr. Sepp, in your testimony you state that you are convinced

that an upgrade of the PTO’s current facilities is the most ‘‘responsible’’ approach for the taxpayer.

Is it your position, then, that the responsible action in this matter would be to negotiate a sole source lease with the PTO’s existing landlord, without competition, to serve as a check on the fairness of the current landlord’s offer?

Mr. SEPP. Not at all, Senator. As the second portion of my quote

in the testimony indicates, we could also support additional options

in other States, as well as the choice of building rather than leasing, should further study prove any of these courses to be more

cost-effective.

Senator WARNER. All right. That concludes all my questions.

Senator do you have any followup?

Senator SESSIONS. With regard to the $88 million build-out, Mr.

Peck, is that figure a ceiling or not? Can it be exceeded?

Mr. PECK. It cannot be exceeded for the very reason that it is embedded in the rent, which we are going to pay to whoever wins this

competition.

Senator SESSIONS. Could you agree to pay a higher rent if that

figure went up?

Mr. PECK. Would we?

Senator SESSIONS. Is there anything in the contract that would

allow you to avoid that?

Mr. PECK. No, sir.

Senator SESSIONS. With regard to the $88 million, it is your testimony that there is a ceiling on that? That’s all I was asking.

Mr. PECK. Yes, sir, there is a ceiling in our solicitation.

Senator SESSIONS. A ceiling in what?

Mr. PECK. In our solicitation, yes, sir.

Senator SESSIONS. Are those the kind of ceilings that can be

raised by mutual agreement of the parties?

Mr. PECK. No, sir, because we are bound by the action of this

committee and the House committee on a maximum rent that we

can pay to the offerors.

Senator SESSIONS. Well, we have this habit, you know, of building buildings; Ronald Reagan started it at $382 million and ended

up at $800 million. Are you prepared to tell us that you will not

come back and ask for a higher rent because of unexpected costs?
44

Mr. PECK. Senator, I would never say never, but it is important

to point out that the Ronald Reagan Building was built under a

completely different kind of financing scheme, as were some of the

other projects noted by some of the members of the panel.

Senator SESSIONS. Well, I guess the truth is, then, that there is

no legal prohibition that would prohibit—that would guarantee the

taxpayers today that they wouldn’t be faced with a negotiated increase in some of these costs?

Mr. PECK. Well, Senator, let me be clear. Assuming we issue the

go-ahead on this, we award the lease, it will only be awarded at

the maximum amount allowed us by the prospectus. In other

words, I am telling you right now that when we complete this procurement process, we will award within the limit that Congress

made, which is to say to you, I am not coming back here to ask

you for more money on this lease.

Senator SESSIONS. And with regard to the $29 million, that’s a

matter that would be handled by the Patent Office, and not your

business?

Mr. PECK. Yes, sir, but under the oversight of their Appropriations Subcommittee and Committee, obviously.

Senator SESSIONS. Well, there has been oversight on all these

buildings where we’ve had cost overruns. I mean, the idea that

there is a firm ceiling in law is not fully accurate, I would say.

Thank you, Mr. Chairman.

Senator WARNER. I’m going to get around to reading my opening

statement after all panels have testified. But on page 2, Senator,

I say the following, ‘‘The approval resolution,’’ which I authored,

‘‘establishes a rental cap of $24 per square foot. In 1998 dollars,

that is $25.41 for a rental square foot, which is less than the current lease rate for PTO’s existing leases. These leases average $26

per rentable square foot.’’

Is that an accurate statement, Mr. Peck?

Mr. PECK. Yes, sir.

Senator WARNER. Mr. Peck, the structured bidding for this put

a 10-mile radius around your existing location, is that correct?

Mr. PECK. Yes, sir—well, it’s not 10 miles It’s—if we move more

than 10 miles, we have to pay relocation costs.

Senator WARNER. And I want to get those relocation costs out.

Can you give us an estimate, if this thing breaks down and we

have to go beyond the 10 miles—to another State, for instance, to

Maryland, the District, whatever—does anybody have an estimate

of those costs?

Mr. PECK. It can be a very substantial amount. It depends on

where the employees live. It’s about $35,000 to $40,000 per employee, the estimate of what it would cost to pay for the relocation.

Senator WARNER. Let’s provide the committee with your best estimate as to the associated costs connected with that very important right which Government employees have, to be compensated

under that moving 10 miles. All right?

Mr. PECK. Yes, sir, we will.

Senator WARNER. And they are significant.

All right, that concludes our questions of this panel. I thank each

of you very much. I again apologize for my earlier absence.
45

We will now take Panel III. We have Mr. Frazier, Acting Inspector General, U.S. Department of Commerce; Mr. Allan Burman,

President, Jefferson Solutions; and Mr. Sam Collins, Engagement

Partner, Deva & Associates.

Mr. Frazier, thank you very much for responding to the committee’s invitation. We are anxious to receive your testimony.

STATEMENT OF JOHNNIE FRAZIER, ACTING INSPECTOR GENERAL, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

Mr. FRAZIER. Thank you, sir. Good afternoon, Mr. Chairman and

members of the committee. I am pleased to appear before you today

to discuss our review of the Patent and Trademark Office’s plan to

consolidate its facilities and operations and to accommodate its future space requirements.

We in the Office of the Inspector General have a longstanding

tradition of reviewing many of Commerce’s major real estate activities and working to promote the efficient management of the Department’s facilities. Hence, we share the committee’s interest in

ensuring that PTO is housed in facilities that meet its needs in the

most cost-effective manner. To this end, we welcome the opportunity to discuss the findings of our review.

Given the size and importance of this project, our office conducted a review to determine, first, whether it was justified, and

second, whether PTO was effectively managing the critical acquisition phase of the project. We examined PTO’s acquisition planning

and procurement strategies, as well as its current working environment. We also examined the respective roles and responsibilities of

the Department, PTO, and the General Services Administration.

Our analysis did not cover the acquisition of new furniture or moving costs for the consolidated facility; that cost information was not

available before we issued our report.

The results of our review were mixed. PTO was doing a number

of important things well. Conversely, we identified areas of concern

that warranted the attention of the Department and PTO managers. Let me briefly summarize for you our basic findings and recommendations, as outlined in our March, 1998 report. I will also

update you as to what actions PTO and the Department have

taken in response to our report.

First and foremost, we determined then—and continue to believe—that PTO has justified its need for more modern, contiguous

space that is, one, more efficient and less expensive than its current facilities, and two, compliant with the Americans With Disabilities Act and various local health and safety codes. We therefore recommended that the project continue.

At the same time, we have been very vocal in highlighting a

number of concerns and problems that we believe must be addressed to best minimize risk, improve efficiency, and keep the

costs in check.

We reported that PTO had not completed its space planning, primarily because it had not reached an agreement with all of its employee unions over space-related issues. We also noted that PTO

had not considered the full beneficial effect of its systems re-engineering efforts. As systems and processes become more automated

and more efficient, less paper and fewer employees will probably be
46

needed. While PTO has reduced its space requirements by eliminating the patent examiners’ paper search files, PTO believes that

greater benefits from automation and reengineering will not be realized until it is moved into the consolidated facilities.

In addition, we were concerned over the build-out strategy that

PTO was pursuing. Our main concern was the lack of a ceiling on

the $29 million cost for the above standard build-out.

Another of our concerns was the lack of a written agreement between PTO and GSA. We were primarily concerned that without

such an agreement, the rights and obligations of each agency would

not be defined, including PTO’s right to relinquish unneeded space

to GSA.

We also noted that GSA’s fees were not defined, and that this

could actually act as a disincentive for sound management practices.

Finally, we recommended that GSA continue in its role as the

lease development manager.

PTO, the Department, and GSA all responded to our draft report.

They have agreed with most of our recommendations. Not surprisingly, they agreed that the project should proceed. But I am also

pleased to tell you that the Department and PTO have taken a

number of steps to address our concerns. PTO has accelerated its

space planning and is reportedly prepared to proceed with the contract award, using its draft space plan, even if it has not reached

an agreement with all of its unions. Admittedly, this is management’s dilemma. This approach is not ideal and increases the risk

of schedule delay and the possibility of higher costs.

However, in our opinion, delaying the project will likely result in

greater risk and higher costs.

As we recommended, PTO and GSA concluded a memorandum of

understanding on September 4th, 1998. This written agreement addresses our concerns regarding GSA’s fees, PTO’s right to turn

back unneeded space, and GSA’s role as the construction manager.

Although we have not yet had an opportunity to examine the fee

structure in detail, the MOU appears to allocate risks between

PTO and GSA and define the rights and responsibilities of each

agency.

There was, however, one area of strong disagreement. PTO did

not agree that a contractual ceiling for the build-out was necessary

to reduce the risk of cost growth. PTO suggested that the annual

budget process would ensure that the Government resources were

not wasted. Here also there has been progress, though. Our concern that PTO did not have a firm ceiling on its $29 million buildout is being addressed, by the Congress, primarily, and PTO and

GSA also, with legislation pending in both the Senate and the

House. There seems to be growing Congressional support for the

$29 million ceiling.

In addition, PTO and GSA have agreed to manage the build-out

effort to this ceiling. As an added safeguard, we would like to see

this ceiling expressed in the contract itself.

In closing, I would like to reiterate my belief that PTO needs to

continue to move forward with its competitive space consolidation

project because it is in the best interest of the Department and the

inventing public. We believe that the greater risk lies in delaying
47

this project. At the same time, I cannot overemphasize the importance of carefully managing this project to contain costs as it continues.

This concludes my statement. I will gladly answer any questions.

Senator WARNER. Mr. Collins?

STATEMENT OF SAMUEL R. COLLINS, ENGAGEMENT

PARTNER, DEVA & ASSOCIATES, P.C., BETHESDA, MARYLAND

Mr. COLLINS. Mr. Chairman, I am Sam Collins. I’m the Engagement Partner for the Certified Public Accounting firm of Deva &

Associates. I am pleased to testify today before the subcommittee

on the activities of my firm relating to the space consolidation effort of the U.S. Patent and Trademark Office.

Under contract with PTO, Deva & Associates published a report

entitled, ‘‘U.S. Patent and Trademark Office Business Case Analysis of Space and Facilities Management.’’ Before I discuss the activities of Deva with respect to this particular project, I would like

to give you a little bit of background information on myself and the

firm, since the National Taxpayers Union and others have taken a

few shots at our credibility.

I am a Certified Public Accountant with over 25 years of public

accounting experience, 13 of which were with the firm of Ernst &

Young. I have provided accounting, auditing, and consulting services to Federal and local agencies, to real estate developers, to

property managers, to the banking industry, and to major public

companies, including Fortune 500 companies.

My real estate, banking, and finance background were primarily

the reason I was selected to be the project leader for this process.

My firm is a firm of certified public accountants and management consultants. We offer a wide variety of audit and financial

consulting services, including cost accounting, cost analysis, cost

benefit, renovation, relocation, construction. My partner, Arun

Deva, is also a former partner of a Big Five firm, and he was there

for over 15 years. Our key personnel mostly have big firm experience, and we all have experience serving large and complex clients.

In addition to the PTO, our other Federal clients include HUD,

Treasury, Labor, the Office of Thrift Supervision, U.S. Trade Development Agency, Small Business Administration——

Senator WARNER. Mr. Collins, we accept your credentials.

Mr. COLLINS. OK. Thank you, sir.

Senator WARNER. We’re not here to debate that.

Mr. COLLINS. Our effort on this project started, of course, when

the PTO requested an independent validation of the projected costs.

The first phase of our project was for an internal evaluation that

was used for the 1999 budget review. Subsequent to completing

that process, there was additional input from outside sources. The

project was changed, to do an agreed-upon procedures report.

One thing was consistent throughout the process, everything that

my firm did for PTO was on time and within budget, which has

been another criticism out there.

The business case analysis, which was the final product under

discussion now, had two objectives: to present a cost analysis comparing the current and consolidated scenario and attendant operating costs, with equivalent costs under a consolidated scenario. We
48

analyzed the cost effectiveness of the consolidated scenario. In all

cases, we tried to get an apple-to-apple comparison of the physical

move costs, including the above standard costs associated with

managing such a project. The study itself was to cover the initial

20-year period of the proposed lease with consideration of the

project costs from both sides of the picture as fairly and as thoroughly as possible.

There were some constraints. There was reliance on documented

evidence, where it existed. Where there wasn’t documented evidence, we tried to be very conservative in our approach. A lot of

the considerations were to make, like I said, the apples-to-apples

comparison. The application of cost escalators was used from the

Congressional Budget Office so that everything would be stated in

today’s dollars.

Now, the basic line for the process—we have every lease analyzed in the report. The report is a rather voluminous process. The

conclusion was that PTO would incur, on a present dollar basis,

under an unconsolidated basis—which is basically a continuation of

where they are today—$1.031 billion. The costs on a consolidated

basis would be $958 million and would result in a savings of $72.4

million.

The process went through a detailed review. Then, just to make

sure that the process was fair, it was then scrubbed by PTO, the

Department of Commerce, the Office of Management and Budget.

They all went through the process, and then Jefferson and BTG

also reviewed the basic approach.

I did want to point out that most of the information was generated by sources other than my firm. We did not create the data,

but it was provided for us to review and determine its reasonableness.

The final report was issued. I was very pleased with the product.

I was also pleased to hear that the subcommittee expressed their

approval. In essence, they said on June 26th, 1998, that they had

reviewed the report and presented a very positive—I thought—impression of the report.

Now, before concluding, I would like to address just a few of the

issues that have been the hot topics today, what I call the ‘‘shower

curtain flap.’’

Senator WARNER. It is important to do that, but have you adequately told us where you got the worst case numbers?

Mr. COLLINS. In this situation within the report?

Senator WARNER. Yes. I have the report——

Mr. COLLINS. I have my own copy here.

Yes, sir. With respect to the furniture, what we had was the best

estimate available—what we were trying to come after was a best

estimate of what it would take to furnish the new facility. And

there was a study existing that everyone agreed was a reasonable

approach to what the furnishings should be.

Now, in trying to be straightforward with the whole process, the

entire summary copy of that report was included in here, so that

the source was readily identified.

This report was pulled together primarily off of construction

mean schedules, which are based on commercially available information with respect to what those costs would be. A lot of the fur49

niture and fixtures in the consolidated scenario are going to be

built in, so you have construction costs associated with those.

So you have to review that every item in this furniture section

as not only the cost of the furniture itself, it is also the cost of installing it in the project. The shower curtain itself is not just a

shower curtain. It is summarized, it says, ‘‘a curtain’’—but this is

not the chenille curtain that you find at Macy’s or wherever ABC

went during their review. Basically what we have here is a shower

closure, OK? It includes all the hardware associated with that and

installation of it.

Senator WARNER. Well, you have to be a little more careful in

your articulation of things.

Mr. COLLINS. Right. Unfortunately what I had here was—I took

an existing document and brought it forward into this report. We

did not rewrite the document. This is the document that has existed, that was created by the contractor who did the study. What

we did was, we looked at the prices and got explanations when we

saw a few of the items. The $1,000 coat rack is a closet. The $309

urn is a smoking area that includes a table and four chairs. You

know, there’s something behind most of the suspects that is more

than the sound bytes that’s making them newsworthy.

Now, what I did do——

Senator WARNER. Well, welcome to the Nation’s Capital, which

runs on sound bytes.

[Laughter.]

Mr. COLLINS. That’s right.

Senator WARNER. But the tragedy is that this thing went all over

the airwaves of America, and it looked like—it made us all look

like fools——

Mr. COLLINS. Yes, sir.

Senator WARNER.——this committee, the Patent Office, and everyone else. And then, of course, once there is blood in the streets,

you are off and going. And that’s what I’m here today for, to try

to bring light on this thing.

So you confess error in the terminology and the manner in which

you described these particular items?

Mr. COLLINS. Well, sir, I won’t take exception to the fact that I

didn’t make the description, but I did include the description in the

report, so I am responsible in that light.

There was some discussion of this issue, and it was decided at

the time that full disclosure was better than no disclosure. If we

put numbers out there for furniture and didn’t show the backup,

then it would be worse—hindsight is always little more accurate.

Anyway, the process that we’re talking about on the unusual

costs that have drawn all the attention—they are still only about

1.2 percent for the furniture costs, or about $760,000. While, I’m

not saying that’s something to sneeze at; we’re talking about a

project much bigger than that, and we’re talking about savings of

$72 million, which I still view as being very viable.

That concludes my statement and I would welcome any questions

you might have.

Senator WARNER. Let me go to my next witness, Mr. Burman,

and then I may return with further questions here.
50

STATEMENT OF ALLAN V. BURMAN, PRESIDENT, JEFFERSON

SOLUTIONS, WASHINGTON, D.C.

Mr. BURMAN. Mr. Chairman, I am Allan Burman, President of

Jefferson Solutions. I appreciate the opportunity to review with you

the findings of our May, 1998 report on the Patent and Trademark

Office, prepared for the Secretary of Commerce. I do have a lengthy

statement; if you will, I would like to submit it for the record and

briefly summarize my remarks. A little bit of background on solutions. We provide management consulting and training services to the Federal Government, and

our focus has been on acquisition and change management matters.

I am a former Administrator for Federal Procurement Policy. I

served in that position in an acting capacity under President

Reagan; I was confirmed by the Senate under President Bush, and

President Clinton asked me to stay on in that post, so I served in

that position for a lengthy period of time. Our firm won a competitive award in March to provide an independent multidisciplinary review of PTO’s 7-year consolidation and

space acquisition process. In that effort we teamed with BTG, Inc.,

and Economic Research Associates. Together with us, we had skills

in acquisition, real estate valuation, engineering, architecture, and

cost estimation.

Now, the task that we set out to do was to independently vali- date the process in four major areas: the need for new space; the

type and amount of space; PTO’s management of the process; and

PTO’s response to the Inspector General’s concerns.

Now, in my prepared statement I list many of the findings, con- clusions, concerns, and recommendations on this project. I don’t

want to go through all of those here, but our bottom line conclusion, Mr. Chairman and Senator Sessions, is very straightforward.

We felt that Commerce and PTO should proceed with the procurement. We reviewed all of the studies, going back to the very beginning efforts in this process, back to the Leo Daley study that was

completed in February 1992. We reviewed the solicitation in great

detail. We met with key officials at Commerce and GSA. We analyzed the space needs. We examined the Deva study—this was a

major effort, an extensive effort, with many people involved in that

process. Our view was that PTO has done a good job with carrying

out the project.

In our view, Mr. Chairman, there is really a basic question here

that needs to be answered. I think everyone here has recognized

that PTO foresees increasing workload over the next few years, and

we know that their current space is inadequate and substandard.

So the question is, what should PTO do?

The way we see it, Mr. Chairman, there are two options. They

can either cut a sole source deal with the current landlord, or let

competitive procurement tell them what is the best result. And particularly, do a competitive procurement when their current landlord is one of the bidders in this process.

Our recommendation was very straightforward. In our view, the

answer is very clear-cut, that we should have PTO and GSA and

Commerce follow Congress’ own mandates of the Competition in

Contracting Act, go through this procurement process, get all the

information available that they can get about the offers and the op51

portunities that might be available to them, and then make the

best decision for themselves and the taxpayer.

Mr. Chairman, that concludes my remarks. I will be happy to

take any questions you might have.

Senator WARNER. Mr. Frazier, there are charges made that it is

a better investment for the taxpayer to stay in the current location.

Have you reviewed whether it is cheaper for the PTO to stay in its

existing buildings? Have you run an analysis of that?

Mr. FRAZIER. We didn’t run a separate analysis per se. However,

we received a complaint and a concern about our report at one

point in time, suggesting that that might be the case. So, I had the

individuals who had worked on that project look at those complaints, and in the process what we were able to determine that

if things stayed as they currently were, then PTO still would not

be able to have the kind of contiguous space that it felt was necessary. It would not be able to accommodate the growth in the patent process, the increasing number of employees. It would not be

able to be in compliance with local laws. It would not be able to

be in compliance with the Americans With Disabilities Act.

We believe very clearly now that it’s in the Government’s best interest for the project to move forward. Keep in mind that if nothing

happens, we still are going to incur significant costs. I think that

there sometimes is confusion that we’re talking about an additional

$1 billion. Keep in mind, over the next 20 years, if we retain the

status quo, we’re going to incur at least that amount of cost, and

still not get the kinds of improvements that everyone has agreed

are clearly needed.

Senator WARNER. You recall when this matter was before the

Senate, I joined Senators Brownback and Inhofe on an amendment.

Are you familiar with that amendment?

Mr. FRAZIER. Yes, I am.

Senator WARNER. Was that effort done such that it addressed the

kind of concerns that you have identified in your report?

Mr. FRAZIER. Very much so. In fact, we think that the Congress

is going to be a key player here. I think that it is an accepted fact

now, that there is a cap in place. The $29 million build-out for the

above standard cost was one of our primary concerns. So the proposed amendment actually gave us an additional level of comfort.

We are recommending that PTO go a little further than that,

where they would incorporate that same ceiling or cap in the agreement, ‘‘not to exceed.’’ God forbid that it came in at $28 million or

$14 million; that would be fine with us, but we think that that cap

should also be included in the contract. That adds an additional

safeguard.

Senator WARNER. Mr. Burman, in your testimony, you say, ‘‘The

proposed project produces an economic benefit to the PTO in excess

of the current market conditions.’’

Could you expand on that?

Mr. BURMAN. Yes, sir. Economic Research Associates took a look

at what the current market was like here in the Northern Virginia

area, the kinds of costs for rental space, and what we are finding

is—of course, this process has been underway for some time—there

is a very limited amount of space available. One doesn’t know how

much opportunity would exist if there were some delay in the pro52

curement, if the bidders lost that land, or something else happened

to them. I believe in the Tysons Corner area, which isn’t precisely

the same area they’re talking about, there are 2 percent vacancy

rates. Rents are going up at 12 to 25 percent a year.

We believe that taking advantage of this procurement and doing

it now makes great sense for the taxpayer.

Senator WARNER. That’s very helpful.

Let me assure you, Mr. Frazier, that I and hopefully other colleagues will see that that cap goes into any continuing resolution

so that it eventually becomes law.

Mr. FRAZIER. Let me assure you that we in the IG’s Office plan

to monitor this process until it is complete, whatever the outcome

is.

Senator WARNER. I thank you for that.

Mr. Sessions?

Senator SESSIONS. Thank you, Mr. Chairman.

Mr. Frazier, you noted something, and I think it was wise for you

to do so, almost a disincentive on behalf of GSA if it is acting in

its self-interest, which I assume it’s not, and not in the public interest. But the self-interest would be to allow the cost to go up because they get a percentage of the cost, and the bigger the cost of

the project, the more money goes to GSA.

Do you see that as something that Congress ought to concern

itself with?

Mr. FRAZIER. Well, at the time we issued our draft report, that

was a major concern. There was no agreement between GSA and

the Patent Office, and that in fact could well have happened. There

was discussion that the fees would range between 3 and 9 percent.

We thought that they should come in under 6 percent.

In the MOU which was signed on September 4th, that issue has

been addressed, because what you would have——

Senator SESSION. What kind of percentage did they settle on?

Mr. FRAZIER. It’s going to be slightly under 6 percent, as I recall,

slightly.

Senator SESSIONS. But if it goes up, they get more?

Mr. FRAZIER. I’m being told that it’s capped by the prospectus,

that they should not get any more.

Senator SESSIONS. Would they get a percentage of the $29 million extra?

Mr. FRAZIER. No, they should not get any of that.

Senator SESSIONS. Their percentage would only be up to the $88

million?

Mr. FRAZIER. To the $88 million.

Senator SESSIONS. So that would not be their part of the project?

Mr. FRAZIER. That’s right.

Senator SESSIONS. You did not compare occupiable square foot to

occupiable square foot to make any representations to this committee that this building will come in less than the other building,

did you?

Mr. FRAZIER. What we have done is look at the figures that PTO

has been relying on, and confirmed those figures. So we did not do

the——
53

Senator SESSIONS. So you have confirmed them, but have you

analyzed what is hallway space and what is not occupiable and

that sort of thing?

Mr. FRAZIER. During the course of our review, we were very critical of PTO in the early part of this process. I think that over time,

PTO made many adjustments to deal with our issues. We raised

lots of questions as to how they were classifying space in the hall

and the square footage, and a number of issues. They became very

responsive to dealing with those issues. The people that we had

working on it spent a lot of time at PTO; I mean, they lived at

PTO——

Senator SESSIONS. Well, I mean, that’s their job, when they ask

for a $1.3 billion building.

Did you factor the relocation costs—first of all, is it your testimony that, from looking at the numbers, you believe that this new

option would come in less than the current option?

Mr. FRAZIER. It will come in either less than or very close to

what the current options are.

Senator SESSIONS. You would not agree with the $74 million savings that Mr. Collins mentioned?

Mr. FRAZIER. I have not looked at those savings. The Deva studies and others were completed after our work, and we have not

looked at that study.

Senator SESSIONS. But you’re not prepared to guarantee that to

us?

Mr. FRAZIER. No, but as I mentioned, we are prepared to surely

stay on top of this. Cognizant of the fact that you are very much

interested in these issues, it is wise of us to stay on top of them.

Senator SESSIONS. When you figured the cost, did you figure the

$29 million in what the cost would be, or the $88 million build-out?

Mr. FRAZIER. When we issued our report, we were particularly

concerned because there was not a cap; I mean, we went to battle

with PTO over the $29 million to get a good understanding of it

because we wanted to make sure, like you, that it was not for extravagant kinds of things.

As it turned out, when we looked at that, there were upgrades

for the air conditioning——

Senator SESSIONS. I don’t have a lot of time and I know it’s late,

but I guess I was just trying to ask, when you figured your cost

comparison, did you figure it as GSA apparently did, on that $88

million build-out, or did you figure it on the $117 million?

Mr. FRAZIER. We primarily were looking at the $88 million. The

$88 million is factored in——

Senator SESSIONS. So your analysis that shows it would be less

costly is based on the $88 million and not the $117 million buildout?

Mr. FRAZIER. We were looking at the $88 million. The $29 million—again, above standard—is a one-time fee that will be paid by

PTO. It will be paid by PTO. The $88 million is included in the

lease payments. So the $29 million is a one-time fee, and once we

got a cap on that and once we feel that that’s incorporated in, then

that still should not raise the cost of the project more than we are

currently paying.

Senator SESSIONS. But have you made that analysis?
54

Mr. FRAZIER. No, we have not gone into detail on that.

Senator SESSIONS. All right.

Mr. Collins, is that the way you figured it? Did you figure the

$117 million? You also say it will come in at $74 million less?

Mr. COLLINS. At $72.4 million.

Senator SESSIONS. At $72.4 million. Do you stand by that number?

Mr. COLLINS. Yes, sir, I do.

Senator SESSIONS. Are you sure that Arthur Andersen is not correct in saying that there would be a $47 million increase?

Mr. COLLINS. Well, I got the Arthur Andersen report about the

same time that it was available to the committee. It was passed

out at the back of the room. I did peruse it, and I can say right

now that I will still stand by my numbers.

Senator SESSIONS. All right.

And are you sure that when you worked the numbers, you compared occupiable space to occupiable space?

Mr. COLLINS. Yes, sir. Absolutely.

Senator SESSIONS. So you’re comparing apples to oranges—apples

to apples with regard to these numbers?

Mr. COLLINS. Apples to apples.

The quote there within the other process is unfortunate, but our

study is totally built on occupiable square footage, and the comparison is apples to apples all the way.

Senator SESSIONS. Mr. Burman, are you aware that there has

been some challenge to your mathematics in figuring the office

space?

Mr. BURMAN. Right. We did not do an evaluation of consolidated

versus unconsolidated. That was done by the Deva folks, and we

reviewed that.

In our study we did identify occupiable space and rentable space

in our summary in looking at the rental rates for each. In one of

the tables there was a transposition of the numbers, but the table

was meant to describe what are the current market rates for Government-type buildings that have been built over the last few

years, and private sector buildings, to get some feel for whether

this looks to be in the general area of what other people are paying.

We stand by our study in terms of making that judgment, that

it does satisfy those conditions, Senator Sessions.

Senator SESSIONS. Well, you have an unusually stable client in

PTO.

Mr. Collins, another Senator asked about whether or not the National Taxpayers Union had talked to the owners of the current

building. I would assume they have; that’s a good source of information. They’ve been living with these numbers, it’s important to

them.

Likewise I would note for the record that you have been hired

by PTO. You are their employee, to give them their numbers, and

I know you know that they want very much for this building

project to go through. I’m not questioning your integrity, but I

would suggest that you didn’t err against them intentionally, for

sure.

Mr. CHAIRMAN——
55

Senator Warner. Senator, you didn’t know that they were asked

by the appropriators to do this report?

Senator SESSIONS. No, I didn’t know that. But you were hired by

PTO.

Mr. COLLINS. That’s right. But a Certified Public Accountant is

always a hired gun.

Senator SESSIONS. Well, I know. Like MIA; you know what that

means. I used to do real estate law.

Mr. COLLINS. But one thing for certain, I don’t put my independence at one particular——

Senator SESSIONS. I understand, but in complicated matters like

this it does come down to some question of judgment. Sometimes

you put it on one side of the line, or not.

Mr. COLLINS. I would say, in most cases, this one went the other

way. This was more conservative than I would have taken it if I

was playing an advocate role.

Senator SESSIONS. Well, I will just say this, Mr. Chairman, I am

going to be really surprised if this building comes in for less than

the other one. I know it was sold on that basis, and I have serious

doubts that it will. But this has been a very helpful hearing. You

have provided a full forum. You have let everyone that has had an

objection come forth and have their say. You have been very patient and courteous with me at this late hour, and thank you very

much.

Senator WARNER. Well, thank you, colleague, and we’ll work further on this.

I have before me this famous report, the Arthur Andersen report.

It’s dated September 17. This committee asked for it shortly thereafter and were denied it, and it didn’t get here until just before the

hearing started. So I don’t know why—if we had had it a little

ahead of time, it would have been helpful to the committee, but it’s

just another example of our struggle to get information in a timely

way so that we could have prepared our hearing in such a way as

to have this evaluation. But we will evaluate it. The committee has

a perfect right to get it; I mean, the competitors—there is fierce

competition.

Give me 1 minute. I want to explore something, and you were

out of the room.

Senator SESSIONS. OK.

Senator SESSIONS. Would you expedite a copy of this transcript

for us? We do have a hearing next week.

Senator WARNER. We will do that.

Senator SESSIONS. Thank you, sir.

Senator WARNER. Let’s go to the famous ‘‘shower curtain’’ page.

This is page 6 of 6. You know where it is; you can find it, right?

[Laughter.]

Mr. COLLINS. Which chart are we talking about?

Senator WARNER. Well, 24.2 Joint Use Space, General Use.

Mr. Peck, if you would be kind enough to return to the witness

table, please.

Item No. 7, Training Facility, Locker Room, Curtain, Shower, 6,

$250 a copy.

Mr. COLLINS. Yes, sir.

Senator WARNER. You got it?
56

Mr. COLLINS. Yes, sir.

Senator WARNER. Now, that’s fair game. It was thrown into the

public domain, and anybody that wants to criticize that could do

so. But I’ve listened very carefully to the testimony, and you admit

that this is, let’s say, an insufficient description of that particular

item.

My question to both you and Mr. Peck is this. Had an objective

person wanted to know what was behind the $250, to where would

they have gone to get the backup material to explain, No. 1, that

it’s far more than a shower curtain, and that there was a basis in

fact for the $250?

Mr. PECK. Let me answer it first for GSA. Anyone could have

called our project team in our National Capital Region and gotten

an explanation of the backup.

Senator WARNER. Well, where physically is the backup material?

Mr. COLLINS. I believe it’s with the Space Acquisition Group at

PTO.

Senator WARNER. Any PTO folks left? Yes—could you kindly help

us, if you would come forward and identify yourself?

Ms. BARNARD. I am Jo-Anne Barnard. I am the project manager

for PTO, and there is backup material resident with my staff.

These estimates were prepared by ICF Kaiser Engineers, who is an

integrated occupancy services contractor that is working for me

under a competitive procurement that GSA conducted for us.

Senator WARNER. Can you provide the committee with the

backup material on this particular item that is under question?

Ms. BARNARD. Yes. We’d be glad to do that.

Senator WARNER. And you don’t have it with you today?

Ms. BARNARD. No.

Senator WARNER. Can you sort of describe what the backup says,

from memory?

Ms. BARNARD. Well, basically it’s my understanding that what

ICF Kaiser did, at the time that we asked them to do this, we

asked them to develop an order of magnitude estimate of what we

might pay for furniture. They basically, based on their experience

with other Federal projects, with private sector projects, with calls

to the private sector—for example, in this instance I asked the gentleman who developed the estimates, and he said that he had

called a number of equipment manufacturers for fitness centers

and gotten bids on what a heavy duty rod installed on already-inplace tile with a mildew-resistant fixture in a fitness center would

cost. We have obviously had numerous discussions about ‘‘Why did

you describe it as a shower curtain.’’

Senator WARNER. Well, that’s fine.

Let’s once again detail everything that comes with this $250

item. What are the pieces? What is it?

Ms. BARNARD. Basically what it is, is a heavy-duty rod that has

to be installed on tile after the tile is installed———

Senator WARNER. Does the $250 cover the cost of installation?

Ms. BARNARD. Yes, it includes installation.

Senator WARNER. So it’s a heavy-duty rod, to begin with. It covers cost of installation. There is some type of fabric that is draped

from the rod, is that correct?

Ms. BARNARD. Right, and it’s protected so that——
57

Senator WARNER. What’s protected?

Ms. BARNARD. It’s constructed so that if somebody hangs on it in

a fitness center, if somebody hangs onto it, it’s going to stand up.

I mean, it’s not a lightweight shower curtain like you might install

in your home. It’s going to be in a public facility—in a heavy-use

facility.

Senator WARNER. All right. But is that added strength, from the

combination of the rod and the material used—is that something

that is specified by the Government today? I mean, this is the hand

grenade that rolled out into the public domain and has been all

over the airwaves, and I’m struggling now to figure out what you

get for $250. And I have to believe that persons that wanted to

criticize this project, on seeing that, either knew one of two things:

that it wasn’t a curtain, or that it was a lot more than a curtain.

And if you took a little initiative, I expect they could get to your

office or Mr. Peck’s office and find out what other component parts

would add up to $250.

Am I correct in that?

Ms. BARNARD. Yes.

Senator WARNER. OK. Help us. What do you get for $250? And

is it something that is specially required now in Government contracting?

Mr. PECK. No, sir.

Senator WARNER. Then who came up with the idea that you

would want to chin yourself on the handlebar of the shower curtain?

[Laughter.]

Mr. PECK. Let me be clear. We have some specifications for Government construction, and we have specifications in our lease solicitation for what needs to be in the building. This is at a level of

detail that is not covered by Government specifications. It is something that, as people go to try to estimate costs—I mean, it’s that

microlevel at which people try to come up with cost estimates on

things that are far below the level at which we ask for specifications. We say that we’re going to have a fitness center, and it’s

going to meet commercial equivalent standards. That’s the general

way we say it.

Senator WARNER. OK. I think you have satisfied my question. It

is not required by the Government. Someone made this decision.

Does anybody have any idea who might have done it?

Ms. BARNARD. Basically, as I said, it was an order of magnitude

estimate that was developed very early in the process of what

might be the total that we would spend on furniture. Right now my

office is in the process of developing detailed cost estimates which

will serve as the basis for future budget requests. Obviously, we’re

not going to be going forward and requesting authorization to purchase any $250 shower curtains.

Senator WARNER. But to the public, it’s here. I mean, I’m not

here to criticize. We can make a mistake, but you’ve tried to clarify

it—Mr. Collins did—and I listened very carefully, and he said

there’s some backup data, and that this wasn’t simply a curtain,

but it was component parts.
58

So let’s once again—for $250 you get a very strong rod, a very

strong fabric, both of which I presume cost more than comparable

things in every home in America.

Now, what else was incorporated for the $250, if there was something else?

Ms. BARNARD. Well, it’s my understanding it’s a heavy-duty, mildew-resistant fixture, installed on tile. The biggest expense is the

installation because it’s installed after the facility is already

constructed——

Senator WARNER. Which means you have to go in and tear out

something and put it back?

Ms. BARNARD. Well, I mean, you have to go in and install it after

the facility has already been built, so it’s the installation cost that

is the biggest part of that estimate. Plus it’s an estimate that is

escalated out to the time of construction, which is in fiscal year

2001 and 2002.

Senator WARNER. A factor for inflation, is that it?

Ms. BARNARD. Yes.

Senator WARNER. Well, I guess I understand. But I saw you

shake your head. You know, I started out in civil engineering, except that I determined that it was too darned hard to earn a living

at it, and I went into politics.

[Laughter.]

Senator WARNER. So I’m going back to my rudimentary civil engineering. As I understand it, you build this shower and then go

back and have to integrate this. Could it not have been integrated

as the shower was being put together? I mean, the facility, the

locker? Wrong, Mr. Peck?

Mr. PECK. Senator, I didn’t do so well in Junior High School

Shop, so I’m the wrong person to ask, too. But I will tell you that

I don’t know how they actually fabricate these things.

The point I would like to make is that in estimating on a building project, at some point you go in and ask people what are the

costs of doing various things. This happens to us all the time on

our projects—which, by the way, some of the contingents here notwithstanding, I will just note again as I said last week, we brought

in seven courthouses this year on budget. So we can manage these

things.

But at some point in managing all of these projects you do get

estimates for all kinds of things, which you look at and you say,

I’m not paying for that; that’s too much money. And what we got

caught in here—and I have to say, I think it was disingenuous on

the part of some people to repeat it without asking whether there

was a decision made to pay for this—was that someone put out

that we were prepared to go spend this on a shower curtain—No.

1, we weren’t saying that we were going to buy it in the first place,

and second, not knowing that it was more than a shower curtain.

But I will tell you on behalf of the Government, it’s our fault if we

let that kind of mischaracterization of an item get out.

Let me make one other point. We are not talking about a $600

hammer——

Senator WARNER. Given the magnitude of this thing—I mean, accidents and mistakes can be made. I think I’m talking about two

things. The Government has to do the best they can to eliminate
59

these types of errors. But we’re all human, and errors are made.

But it seems to me that if I wanted to do an objective criticism of

this project and I saw that item, before I went on ABC network

news I would have simply called around and found some idea of

what was behind it, and second, are you seriously considering

spending this amount? Now, I think you have answered both questions, that there was a source of information that could have explained that it’s not only

a simple curtain, but a rod and associated construction costs, and

that it would never be the intention of PTO to acquire this. Now,

both of those answers were available if someone had sought them.

Mr. PECK. Yes, sir. That’s correct.

Senator WARNER. All right. Well, I think that I’ve covered this

as best I can.

Our Senate is now meeting at something at which I have to attend, but I thank all witnesses, all participants, and I’ll spare you

my opening statement; but let me tell you, it’s worth reading. It

will be in the record.

[Laughter.]

[The prepared statement of Senator Warner follows:]

STATEMENT OF HON JOHN W. WARNER, U.S. SENATOR FROM THE COMMONWEALTH

OF VIRGINIA

I would like to thank you for testifying today on the Patent and Trademark Office

consolidation.

As the chairman of the Subcommittee on Transportation and Infrastructure, we

have heard and approved the prospectus for the PTO consolidation. I am convinced

that the prospectus presented to us in 1995 represented an excellent, cost-effective

approach to accommodating the needs of this rapidly growing agency of the Federal

Government.

PTO’s mission is one that cannot be neglected as we move ahead in a high-tech

global economy.

Similarly, PTO’s ability to perform that mission cannot afford to be compromised

by forcing the agency to conduct business in outdated space that is not configured

to meet its operational needs.

The approval resolution, which I authored, established a rental cap of $24 per

square foot. In 1998 dollars, that is $25.41 per rental square foot which is less than

the current lease rate for PTO’s existing leases. These leases average $26 per rentable square foot.

In my book, getting new and renovated consolidated space for less than we now

pay for older space is good for the taxpayer.

In my opinion, every member of this committee, that supported this resolution is

an excellent ‘‘friend of the taxpayer.’’

Since the Committee took its action, there have been criticisms expressed about

this project. To my knowledge, each and every one of these has been looked into,

either by Congress, the Commerce Department Inspector General or the Secretary

of Commerce, including engaging outside analytic services.

Each report has concluded that the competitive procurement should proceed.

Still, questions persist...

The purpose of this hearing is determine which of these concerns are valid and

which have been raised by an offeror seeking to gain some competitive advantage,

or to undermine competition altogether.

To the extent that any of these concerns are validated, it is Congress’ job to make

sure that there are strong mechanisms and containment measures in place to control these costs.

Where there are not adequate controls, we must provide them.

I look forward to the testimony from today’s witnesses.

Senator WARNER. The hearing is concluded.

[Whereupon, at 6:45 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

[Additional statements submitted for the record follow:]
60

STATEMENT OF ROBERT PECK, COMMISSIONER, PUBLIC BUILDINGS SERVICE, GENERAL

SERVICES ADMINISTRATION

Introduction

Good afternoon, Mr. Chairman, and Members of the Committee. My name is Bob

Peck, and I am the Commissioner of the Public Buildings Service (PBS). I am

pleased to appear before you today to report on our assistance to the Patent and

Trademark Office (PTO) as they consolidate their complex of offices Northern Virginia. By competitively procuring a 20-year operating lease, we are providing upto-date, efficient, and cost-effective office space that will support PTO’s requirements. This is a project that makes good business sense and that is in the best interest of the government. PTO now has offices in 18 different buildings. Many need alterations to meet fire,

life-safety, and handicapped accessibility guidelines. Given other priorities; for example, the courthouse construction program, there

likely will be no funds available in the foreseeable future to build a facility for PTO.

The Committee authorized a 20-year operating lease because its present value cost

compares favorably with that of construction. The Congressionally approved rent limit is roughly equivalent to rates that PTO

is currently paying and is equivalent to current market rates in Northern Virginia. If the project is delayed, extending existing leases with fundamental building improvements to match market comparables would cost an additional $6.4 million annually—$32 million over the typical 5-year lease extension. The technical specifications for the project are not lavish. The specifications are

not unique to the Government and they are comparable to other consolidated headquarters facilities. Ongoing Congressional oversight, an audit by the Inspector General of the Department of Commerce, and a review by a contractor commissioned by the Secretary

of Commerce—all support the conclusion that we should continue with this space

consolidation project. The justification and the process for this procurement are

valid. It is the right thing to do.

Background

I would like to give you some background. The General Services Administration

(GSA) and PTO have been working together since 1989 on plans to consolidate and

update the PTO offices. On October 24, 1995, this Committee authorized an operating lease for a complex on a site in Northern Virginia. On November 16, 1995,

the House Transportation and Infrastructure Committee also authorized this

project. The PTO has been located in leased facilities in the Crystal City area of Northern

Virginia for more than 20 years. Incremental procurement of space over these 20

years has resulted in PTO currently occupying space under 33 separate lease agreements in 18 different buildings. Interaction and cross research among the various

PTO patent technology groups is an integral part of the patent and trademark examining process. Because of this requirement, physical proximity is essential to efficient operations.

Alternatives Analysis

Many different alternatives were investigated prior to the proposal of an operating lease procurement in the prospectus submitted to the Congress on July 18,

1995. Since it is not clear that PTO’s current space requirements will be needed

over the long term (beyond 20 years), leasing was deemed to provide the needed

flexibility in dealing with the impact of emerging technologies on PTO’s operations

and the amount of space required to house them. Also, options such as direct Federal construction, purchase, and lease-purchase would have required GSA to obtain

full budget authority for the project prior to its inception. Competing demands on

the Federal Buildings Fund made the attempt to fund any of these options unrealistic.

Typically in major metropolitan markets, Federal construction has a lower present

value cost than leasing at market rates. However, at the rental rate specified in the

approved prospectus, the present value cost of leasing compares favorably with that

of direct Federal construction. This is because the rental rate was established in the

prospectus to qualify the lease as an operating lease.

Evaluation Methodology in the SFO

The project specifications are comparable to those used for other recent Federal

agency consolidations—IRS, New Carrollton;Health Care Financing Administration,

Baltimore; NASA, Washington. Construction standards included in the SFO do not require or specify lavish finishes or amenities. They are intended to provide space and services in the most costeffective manner over the term of occupancy. For example, the SFO requires that
61

lobbies ‘‘shall employ high-quality materials which are durable and easily maintained.’’ This is just good building practice in a heavily trafficked public area. The

per-square-foot interior build-out cost is comparable to other government projects

with a base building in a ‘‘cold, dark shell’’ configuration. On December 23, 1996, six (6) Phase One offers were submitted. After evaluating

these offers in accordance with the Phase One evaluation criteria stated in the solicitation (qualifications of sites and development teams), four (4) offerors were invited

to submit Phase Two offers. Phase Two proposals were received on October 27,

1997. GSA has been engaged in active evaluation of these proposals and discussions

with offerors since this date. Three (3) sites remain under consideration. A fourth

site was withdrawn from competition earlier this year.

GSA expects to request, by the end of this month, that the remaining offerors submit their best and final offers (BAFOs) in response to the solicitation. These BAFOs

will be evaluated in accordance with the Phase Two evaluation criteria stated in the

solicitation (proposed facility design, willingness and ability to mitigate environmental impacts, and qualifications of the interior architect and maintenance firm).

Following this evaluation, GSA will identify for award the offeror whose proposal

represents the greatest overall value to the Government, price and the above referenced evaluation factors considered. We expect to be in a position to identify the

winning offeror prior to the end of this calendar year.

Procurement Review

This procurement and the procurement process itself have been extensively reviewed. An audit by the Inspector General of the Department of Commerce (Report

No. IPE-9724, March 26, 1998) and a review by a contractor commissioned by the

Secretary of Commerce support the conclusion that we should continue with this

space consolidation effort.

There have also been questions about extending the existing leases, where such

options are in place, versus leasing other space at market comparable rates. We contracted with Spaulding and Slye to prepare a market analysis. The analysis, which

was completed on July 31, 1998, indicated that extending existing leases with fundamental building improvements to match market comparables would cost an additional $6,410,000 annually. The government would pay an additional $32,070,000

over the typical 5-year extension term.

Conclusion

Mr. Chairman, I appreciate this opportunity to update this Committee on our

progress and to assure you that we will continue to act in the best interest of the

government in providing PTO the consolidated space that they require. I would be

pleased to answer any questions the Committee may have.

RESPONSES BY ROBERT PECK TO ADDITIONAL QUESTIONS FROM SENATOR SESSIONS

Question 1. The Inspector General made 11 recommendations in its March 1998

final report on the PTO space consolidation effort. Please specify whether or not the

Patent and Trademark Office and/or the General Services Administration has fully

complied with each of the recommendations made by the Inspector General:

Recommendation No. 1: PTO should continue with its lease development project.

We understand that PTO is continuing with its lease development project. When

will the lease be awarded?

Recommendation No. 2: PTO should finalize its analysis of its space requirements.

Has the PTO finalized its space requirement analysis? If yes, how? If no, why not?

If no, when?

Recommendation No. 3: PTO should work to conclude its agreements with employee unions. Has the PTO completed all of its agreements with employee unions?

If yes, how? If no, why not? If no, when?

Recommendation No. 4: PTO should assess the impact of PTO’s re-engineering initiatives on PTO’s space needs. Has the PTO complied? If yes, how? If no, why not?

If no, when?

Recommendation No. 5: PTO should prepare a discrete build-out budget (including

an absolute limit of the government’s liability for build-out in the SFO) before lease

development award so that PTO can incorporate it into its negotiations with developers. Has the PTO complied? If yes, how? If no, why not? If no, when?

Recommendation No. 6: PTO should not appoint a PTO representative to serve

as the contracting officers representative until construction is complete and lease

payments begin for the new facility. Has a PTO representative been appointed as

the contracting officer’s representative? If not, does PTO intend not to appoint a
62

PTO representative to serve as the contracting officer’s representative until construction is complete and lease payments begin for the new facility? If no, why not?

Recommendation No. 7: PTO should specify that the developer/lessor must accumulate costs at the lowest individual task level before lease development award, in

order to control and monitor costs during the build-out phase. Has the PTO complied? If yes, how? If no, why not? If no, when?

Recommendation No. 8: PTO should execute a written interagency agreement

with GSA to record the terms and conditions of the agencies’ oral understandings.

It is my understanding that this has been done. What are the essential terms of

this arrangement?

Recommendation No. 9: PTO should not agree to any arrangement with GSA in

which the GSA fee to be paid is set as a percentage of costs which are not capped.

Have PTO and GSA complied? If yes, how? If no, why not? If no, when?

Recommendation No. 10: PTO’s Chief Financial Officer and Assistant Secretary

of Administration should provide oversight, assistance, and guidance to ensure that

PTO completes its POR space requirements in time to avoid delaying the lease

award. Is PTO’s Chief Financial Officer and Assistant Secretary of Administration

providing oversight, assistance, and guidance? If yes, how? If no, why not? If no,

when? Will PTO complete its POR space requirements in time to avoid delaying the

lease award? If yes, how? If no, why not? If no, when?

Recommendation No. 11: PTO’s Chief Financial Officer and Assistant Secretary

of Administration should establish effective oversight policies and procedures. Is the

PTO complying? If yes, how? If no, why not? If no, when?

Response: Since this series of questions is generally within the purview of PTO,

they are answering in their response to a similar October 1, 1998, letter from you

to Commissioner Lehman.

Question 2. Several times in your oral testimony you stated that the cost per

square foot under the proposed procurement would be less than the cost per square

foot under the current lease. I have several questions relating to this: a) Is it true?

b) What is the blended cost per occupiable square foot under the proposed procurement? c) What is the blended cost per rentable square foot under the proposed procurement? d) What is the blended cost per occupiable square foot under the current

lease? e) What is the blended cost per rentable square foot under the current lease?

Response: It is true that the rent under the proposed procurement will be less

than the rent under the current lease. In fiscal year 1998 dollars, the Congressional

authorized limit of rent for the PTO Consolidation procurement is $28.29 per occupiable square foot or $25.41 per rentable square foot. Contrast this to the current average rent payments of $28.57 per occupiable square foot or $25.66 per rentable

square foot. Further, the authorized rent for fiscal year 1999 under the consolidation

would be $29.12 per occupiable square foot or $26.15 per rentable square foot. Currently, a private sector developer is constructing space which the Government has

recently space in Crystal Park 5 and, as a result, the average fiscal year 1999 rent

payments will be $29.35 per occupiable square foot or $26.36 per rentable square

foot. Therefore, it is indeed true that the cost per square foot under the consolidation will be less than the cost per square foot under the current lease.

The above is a direct comparison of fully serviced lease rates. The efficiency of

the currently leased space was used as the most equitable efficiency assumption for

the proposed space (rentable = 1.114 x occupiable). The Congressionally authorized

(prospectus) rent will be the maximum rate that GSA will pay. Procurement competition should drive the actual proposed rent at a consolidated facility, lower than

this maximum amount.

Question 3. In your written testimony you stated that the Spaulding and Slye

analysis concluded that if the existing leases are extended, it would cost an additional $6.4 million per year, due to ‘‘fundamental building improvements.’’ I have

several questions.

a) Are there any other factors other than fundamental building improvements

that account for this $6.4 million figure? If so, what are they and what is the cost

factor for each item?

b) What are the specific fundamental building improvements? For each one, provide a description of the item and cost? c) by the procurement was delayed for only

1 year, so leases had to be extended for 1 year, which of the fundamental building

improvements would have to be made in that year? d) by the answer is that none

of the improvements would have to be made for only a 1-year extension, does that

mean that there would, in fact, not he additional costs to extend the lease for 1

year?

Response: In order to answer your question succinctly, let us first explain the derivation of the $6.4 million difference in cost between exercising the extension op63

tions and leasing space at a market comparable rate. Please refer to section four

of the Spaulding and Slye report that explains what was included in the analysis

of the redevelopment costs. GSA removed the costs of advertising, leasing costs, rent

up deficit, and contingency from the $/rentable square foot column of each of the

three itemization sheets between page 30 and page 31 of the report. When the corresponding new rates are multiplied by the space for which GSA has extension options within each of the classifications, the resulting upgrade cost is $71,281,000.

The existing lease options include $16,438,000 in upgrades, so only the $54,840,000

difference was capitalized at 9 percent to yield the $6,410,000 per year. The three pages of the Spaulding and Slye report between page 30 and page 31 list the fundamental building improvements while their descriptions are in the preceding section four. The only modifications made to these sheets for the GSA calculation are the removal of the costs listed in the paragraph above. The modifications were made because the Spaulding and Slye report was focused on the market

(opportunity) costs to re-lease space, and GSA wished to focus on the lessor’s direct

costs to bring the space to market comparable condition. You will note that the report indicates that some of the existing space can never be remodeled to Class ‘‘A’’

condition.

It would be uneconomic, as well as foolhardy, for either the Government or the current landlord to expend the money for even the basic life safety and Americans

with Disabilities Act requirements if any of the current leases were extended for

only 1 year. The Spaulding and Slye study indicates that rent rates within Crystal

City exceed rent rates for comparable space outside of Crystal City. Therefore, if the

procurement were delayed for a year, the Government would be paying more in rent

for the current leases than the largely Class ‘‘C’’ space warrants. In addition, GSA

would not be getting life safety improvements or handicapped accessible space.

Question 4. Interior build-out costs were the focus of much discussion at the hearing. Unfortunately, many of the answers were confusing. To set the record straight,

I ask the following questions: a) What is the total cost of the build-out from all sources? Please identify the sources, and the cost per source. b) Is it $117 million ($88 million from GSA plus $29 million in above standard build-out from PTO)

c) Is the total cost figure you cited in the answer to the previous question an abso- lute ceiling? Could it go higher? d) Using all sources, what is the total cost of the build-out per occupiable square foot?

e) What is the cost per occupiable square foot for build-out according to the GSA standard in the GSA Advanced Acquisition Program? f) What is the cost per rentable square foot for build-out according to the GSA standard in the GSA Advanced Acquisition Program? Response: The SFO is structured such that the lessor must construct a ‘‘cold dark

shell’’ and then must provide a fit-out allowance of up to $88 million for construction

of the interior improvements. The source of this funding is the lessor, as reflected

in the rental payments made by GSA on behalf of PTO. In the event that the lessor

is able to construct the space for less than $88 million, the Government is entitled

to either a lump sum payment from the lessor or a rental credit equal to the unused

balance. In addition, PTO has indicated that it may provide a lump sum payment

of up to $29 million for certain additional improvements to support its particular

mission.

The $117 million total one time cost figure is an absolute ceiling as agreed in the Memorandum of Understanding between GSA and PTO. In addition, the $88 million

is limited by the terms of the SFO which state that this allowance must be included

within the rent, which is limited by the Congressional authorization. The actual

total cost will not be known until after completion of the project, but it will not exceed the $1 17 million.

The total cost of the build-out will range from less than $44.24 per occupiable square foot (in the event that the Government does not use all of the $88 million

allowance) to a maximum of $58.82 per occupiable square foot when the $29 million

in lump sum payments by the PTO are included. This equates to a range from less

than $39.71 per rentable square foot to a maximum of $52.80 per rentable square

foot. This calculation assumes the 11.4 percent conversion factor from the current

space (see Answer 2). This factor will undoubtedly change for the actual consolidation space.

Lump sum payments by agencies are not ordinarily included in the reporting of

the Advanced Acquisition Program (AAP) build-out costs. The comparable costs per

square foot range from $30.96 per occupiable square foot for office space without any

special use spaces (including build-out from a ‘‘cold dark shell,’’ typical fit-out allow64

ance, design/lessor fees and construction cost escalation—but not including any

lump sum payments) to over $85 per occupiable square foot for special use space

such as judicial chambers. The highest portion of the range happens only on rare

occasions. This equates to a range from $26.92 per rentable square foot to over

$73.00 per rentable square foot. This calculation assumes a 15 percent increase in

space to convert from occupiable to rentable.

Question 5. I also note that your answers to questions about the Reagan building

were confusing. Please answer the following questions:

a) What was the total, estimated cost of the Reagan building authorized in the

prospectus?

b) What was the total actual cost of the Reagan building now that the building

has been built and all the cost figures are now known?

c) What is the total occupiable square footage of the government space in the

Reagan building?

d) What is the total rentable square footage of the government space in the

Reagan building?

e) What is the annual payment for the Ronald Reagan building?

f) Mr. Peck mentioned a favorable financing rate for the Ronald Reagan building

Please provide details about how the building was financed including the financing

rate and the process by which the favorable rate was obtained.

g) What is the anticipated annual financing rate for the Patent and Trademark

Office building? If this rate is different for the PTO complex, why is it different?

Response: The Congress directly authorized the Pennsylvania Avenue Development Corporation to construct the Ronald Reagan Building through specific legislation (Public Law 100–113, the Federal Triangle Development Act). Accordingly, the

project was not subject to the prospectus approval process that other GSA projects

go through, and the law did not include an estimated cost.

While the building has been substantially completed, a limited amount of construction is still ongoing and there are still several construction claims that are yet

to be settled. The estimated cost of the Reagan Building continues to be $738 million.

The total amount of occupiable space in the building is 1.83 million square feet.

Of this total, the International Trade Center occupies 0.50 million square feet and

Federal agencies occupy 1.33 million square feet. The total amount of rentable

square footage in the building is 2.16 million square feet. Of this total, the International Trade Center occupies 0.59 million square feet and Federal agencies occupy

1.57 million square feet. CAUTION: Dividing the cost of $73 8 million by any of the

area numbers from this paragraph will not yield a rate that is in any manner comparable to the PTO project maximum rent rate or proposed build-out cost per square

foot. First, a true comparison between constructing a facility and leasing the same

facility can only be made by including the time value of money. Second, the rates

that have been stated for the PTO include all utilities and maintenance while the

figures for the Ronald Reagan Building do not.

The expected annual payment for debt service on the Ronald Reagan Building is

$65 million. This does not include utilities and maintenance. Approximately 97 percent of the scheduled borrowing from the Federal Finance Bank has already occurred. The estimated cost of the additional 3 percent is included in this expected

annual payment.

The Ronald Reagan Building is being financed through Federal Finance Bank

debt issues. On a periodic basis, construction costs are certified and a corresponding

amount of principle is borrowed. Each time this occurs, the Federal Finance Bank

issues a separate note to GSA. Over 70 individual notes, with interest rates ranging

from 5.874 percent to 8.380 percent have been issued to date. This total encompasses approximately 97 percent of the total project borrowing and reflects the

change in interest rates over the past 6 years. The weighted average financing rate

for these notes is approximately 6.8 percent. The utilization of Government debt

sourcing and positive changes in the capital markets has provided the opportunity

for these favorable rates.

The anticipated annual financing rate for the Patent and Trademark Office building(s) is unknown at this time since it will be dependent on market interest rates

at the time of financing. GSA will play little or no part in the determination of the

interest rate. It will be the result of a business decision between the offeror and his

lender influenced by market conditions and tenant credit. The Government is in the

process of modifying the lease structure to the extent permitted within the definition of an operating lease in order to secure the most favorable interest rate in consideration of the Government’s credit strength.
65

Question 6. I have several questions relating to the Arthur Andersen report: a)

Page 16 of the report states that the Jefferson Solutions Report confused occupiable

and rentable square foot in one of its key calculations. Is Arthur Andersen correct?

b) The bottom line conclusion of the Jefferson Solutions Report is that the cost per

square foot under the proposed procurement would be less expensive than the cost

of staying in the current location. Arthur Andersen is correct, and if the true numbers are inserted into the calculations, does this not reverse the conclusion? In other

words, with accurate numbers, would not the Jefferson Solutions Report show that

the relocation to a new facility would result in higher direct lease costs?

Response: The Deva study and the Jefferson Solutions report which the Arthur

Andersen report addresses were commissioned by the PTO and Department of Commerce respectively. PTO will provide the answer to this question.

STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY OF COMMERCE AND

COMMISSIONER OF PATENTS AND TRADEMARKS

Mr. Chairman, Members of the Subcommittee, Ladies and Gentlemen: Thank you

for inviting me to appear before you today to discuss the ongoing project to consolidate the Patent and Trademark Office in leased space.

Unfortunately, there are many misconceptions about our competitive procurement

for space, including a few that may stem from imprecise information we provided

the public. Therefore, I am very pleased that you provided us with the opportunity

to dispel these misconceptions, address Congressional concerns, and to build a constructive approach to proceeding with this important procurement.

The Patent and Trademark Office (PTO) began working with the General Services

Administration (GSA) in 1989 to address our long-term housing needs. Our partnership with GSA is driven by three overriding goals: (1) improving the PTO’s housing

situation; (2) complying with all Federal procurement laws and regulations; and (3)

getting the best economic value for the PTO’s fee-paying customers.

I am happy to report that our two agencies recently executed the Memorandum

of Understanding that sets forth our respective responsibilities for project execution

and project costs. Completion of this Agreement satisfies one of the key items that

the Department of Commerce’s Inspector General recommended for effective project

management and cost control.

Improving PTO’s Housing Situation

For over 25 years, PTO operations have been housed in buildings that the General

Services Administration leases for us in Crystal City, Arlington, Virginia. We now

occupy approximately 1.7 million occupiable square feet of space in 17 different

buildings. Later this year, we will accept expansion space in yet another building,

bringing our total leased inventory to about 1.88 million occupiable square feet scattered throughout 18 buildings. This is only 120,000 square feet—about 6 percent—

less than the approximately 2 million occupiable square feet we are seeking in a

consolidated facility.

The distance from the northernmost to the southernmost of our existing buildings

is over one mile. The entries and rest rooms in a significant portion of the buildings

are not accessible by the disabled. Wheel-chair bound employees and customers cannot use the above-ground, climate? controlled passage that links the Crystal Park

and Crystal Plaza buildings and crosses traffic? ridden Crystal Drive. The oldest

buildings, which comprise about 604,000 square feet, are not equipped with sprinklers. Further, these buildings are not readily adaptable to the automation age. To

free up electrical capacity required for our automated systems, for example, we recently had to replace lighting fixtures with more electrically efficient devices. This

replacement cost us $8 1 0,000.

The separation of PTO operations throughout many non-contiguous buildings generates inefficiencies and increased costs. Our trademark operations are located at

the south end of Crystal City, over a mile from the information dissemination operations. When we move our fastest growing patent industry sector—the group with

the largest proportion of new examiners—to Crystal Park 5 later this year, the

group will be located over one half mile from the Patent Academy training facilities.

As a result of our dispersion, we must provide a shuttle bus service between buildings.

America’s prosperity has generated significant increases in our workload. Between

1991 and 1997, trademark applications increased, on the average, 11 percent annually, and patent filings had a double-digit increase in the last two-year period.

The natural consequence of our growth is a need for larger, more efficient space

in an environment that is equipped to accommodate the sophisticated technology
66

that our employees need to do their jobs well. I was pleased to see that both the

Department of Commerce Inspector General and Jefferson Solutions, the independent contractor that the Secretary of Commerce selected to review our space

project, agree with me on this issue. The Inspector General, in his March, 1998 report on the project, stated that the ‘‘PTO has supported the basic requirements for

and benefits of the new development based upon its need for modern, contiguous

space.’’ He noted that the new facility should allow us to meet our future staffing

requirements better, improve access for employees and customers, and improve compliance with laws governing fire, safety and accessibility for the disabled. Also, Jefferson Solutions concluded that consolidation will result in greater flexibility; compliance with accessibility standards, life safety and building codes; and support for

our reengineering efforts. The Solicitation for Offers that the General Services Administration issued on our

behalf is a performance specification that is designed to deliver a facility comparable

to those provided to other recently consolidated Federal agencies. The bulk of the

technical requirements restate the very provisions that GSA has published in its nationwide construction guidelines or included in solicitations for other headquarters

consolidations. Unfortunately, some believe that the requirements or standards are

lavish. For example, they apparently believe that use of granite and marble surface

materials is grandiose, when, in reality, they are merely examples of surfaces for

lobbies that are durable and easily cleaned. They also appear to question the desirability of standard features in large, modern suburban office complexes. The trails

would contribute to the physical well-being of our employees and their morale. Furthermore, attractive quarters including landscaping promote morale and retention

of our employees. Such amenities are present on our current site. None of these features, however, would add to our costs as they would be supplied within the fixed

lease rental rates. Similarly, the child care center, the cafeteria, and the fitness center that some have questioned are also facilities that are provided in equivalent

Federal and large private sector projects. Despite numerous statements by the General Services Administration and a private independent reviewer—Jefferson Solutions—to the contrary, the incorrect perceptions of excess remain.

Compliance with Procurement Laws and Regulations

Competition lies at the heart of the Federal procurement system. The Competition

in Contracting Act of 1984, 41 U.S.C. 253, mandates ‘‘procurement through full and

open competitive procedures’’ unless an agency can demonstrate that it falls within

the scope of one of seven stated exceptions. Not one of these exceptions to competition applies in PTO’s case. Therefore, the prospectus that the Administration submitted and that Congress authorized states the General Services Administration’s

intent to conduct a competitive, ‘‘best value’’ procurement to acquire a long-term

lease to house the PTO. To allow time for GSA to complete the competitive process,

the prospectus also authorizes GSA to ‘‘make an interim lease(s) for the tenant

agency, if necessary, prior to the execution of a new lease.’’ GSA informs me that

it has made 33 such interim leases for PTO, with varying terms and provisions.

Unfortunately, there are a number of popularly held misconceptions about these

interim leases and the costs involved in the procurement. For example, in its May

1998 Wastewatcher dispatch, Citizens Against Government Waste states that ‘‘. .

.PTO has secure term leases in place and has options to remain in its current location until the year 2014.’’ What this organization fails to appreciate is that these

are sole source leases. Any options contained in these leases can only be exercised

if there is a sole source justification for doing so. There is none. Furthermore, it is

our understanding that neither this Committee nor its counterpart in the House of

Representatives gave GSA a prospectus authorization to provide for the PTO’s longterm housing by means of sole source lease extensions. Thus, the prospectus authorized in October 1995 was, in accordance with the Competition in Contracting Act,

an authorization to conduct a competitive lease acquisition. It is my understanding

that securing a new sole source long-term lease on our current space could require

approval from this committee.

Similarly, the Smith Companies urged that the Inspector General of the Department of Commerce reconsider his conclusion that consolidation of the PTO pursuant

to the Congressionally-approved prospectus will be cheaper than PTO’s remaining

in our current space. The Inspector General responded that, after carefully reviewing the information that the Smith Companies had provided, he is ‘‘satisfied that

our report conclusions and recommendations are accurate.’’

The conclusion that consolidation, consistent with the terms of the prospectus

should proceed, is bolstered by the findings of Jefferson Solutions. One finding is

that the rates PTO are now paying for much of its space are ‘‘well above the market

price for space that can be defined as depreciated (nearing obsolescence), Class B
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space.’’ Jefferson Solutions also concludes that, as a result, consolidation pursuant

to the terms of the prospectus ‘‘produces an economic benefit to PTO in excess of

current market conditions.’’ GSA informs me that similar conclusions were reported

recently by Spaulding and Slye, a nationally recognized real estate firm. Their report was prepared for GSA in response to questions that GSA had received from

the House Subcommittee on Public Buildings and Economic Development of the

Committee on Transportation and Infrastructure regarding the market value of the

PTO lease extensions. Spaulding and Slye found that, to justify the rates that are

being sought under the PTO’s lease extension options, the PTO’s landlords would

have to make improvements to these existing structures. These improvements would

cost several tens of millions of dollars more than the landlords are offering under

the terms and conditions of the existing PTO extension contracts. Regardless of their terms, these extension options are for 18 separate, non-contig- uous buildings that do not serve the PTO’s needs. We believe that we should proceed without delay in accord with applicable law, with a competitive space procurement when there is such abundant evidence that our customers will save money by

going forward with the procurement.

The Economics

Since 1991, the PTO has been fully user fee funded. All of our operations are paid from appropriations of the fees paid by our national and international customers—

patent and trademark applicants and those who use our other services. No general

taxpayer funds support our operations. Therefore, no general taxpayer funds will be

expended to make the lease payments under the consolidated lease.

Taxpayer groups charge that although PTO’s proposed 20-year lease results in

$1.3 billion in lease payments, the Government will not own the facility at the end

of the lease term. The General Services Administration, the Department of Commerce and the Office of Management and Budget thoroughly evaluated the benefits

of leasing versus purchase, Federal construction and other housing alternatives

(such as lease purchase), before submitting the lease prospectus for Congressional

approval. A long-term lease also makes sense because of our efforts to reduce paper

and adopt technologies that reduce our space requirements in the long term. Given

the limited Government funds available for capital investment at the time, it was

recommended that the ‘‘leasing’’ option was the best method available to serve our

customers’ interests. As you know, this Committee and the House Committee on

Transportation and Infrastructure concurred.

Furthermore, we understand that Members of the Senate Committee on Appropriations also believed that no funds would be available in the foreseeable future

to purchase or construct a facility to house the PTO. In plain English, purchase was

simply not a feasible option.

A business case analysis prepared for the PTO by the certified public accounting

firm of Deva & Associates, however, shows that even after the potential costs of consolidation are considered, consolidation will save $72,395,278 (in 1997 dollars) over

the 20-year period. These consolidation costs, which we expect could be nearly $135

million, include such items as furniture and telecommunications purchases, costs for

the physical move, lost production during the move, and any double rent payments

that may be necessary. Whether we consolidate or not, we will spend in the range

of $1.3 billion in rent. However, delaying the procurement delays our ability to enjoy

the benefits of this $72 million cost savings to our fee-paying customers.

Also, much has been said about the furniture estimates that are contained in the

Deva Report. These estimates, prepared by my staff, were intended to represent the

‘‘order of magnitude’’ of the total purchase price of new furniture for the consolidated facility. Deva & Associates used these cost estimates to compute the maximum amount that the PTO might spend on new furniture and included this

amount in their computation of the consolidation costs.

These estimates are not furniture purchase plans and they are not furniture

budgets. We have no intention of purchasing $250 shower curtains or $ 1,000 coat

racks. We are now in the process of developing a furniture purchase plan that will

include standardization, use of GSA schedules, and competitive acquisitions with

the goal of generating significant quantity discounts.

Moreover, the nature of the items that were listed in the estimate has been misconstrued. We will purchase beds—for a health unit; and cribs—for the child care

center. The ‘‘shower curtains’’ that have drawn so much attention will be installed

in the fitness center, and will consist of either an installed shower enclosure or a

heavy duty, mildew resistant fixture installed over tile that is already in place. The

‘‘coat rack’’ will actually be a coatroom in a training facility. Our use of unfortunately cryptic descriptors for estimated furniture costs certainly should not delay a

project that will save PTO’s customers more than $72 million.
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Finally, some have alleged that the solicitation that GSA issued on our behalf favors new buildings, and, as a result, discriminates against some potential vendors.

In fact, GSA has, in several instances, adjusted the solicitation specifications to accommodate those with existing buildings.

Conclusion

The Inspector General of the Department of Commerce, an independent consultant, and many of our user groups reviewed the facts and determined that the competition should proceed. It is time to move forward and start realizing that $72 million in savings.

Thank you.

STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL

PROPERTY LAW ASSOCIATION

Mr. Chairman: I appreciate the opportunity to present the views of the American

Intellectual Property Law Association (AIPLA) on the efforts of the United States

Patent and Trademark Office (USPTO) to procure consolidated space for its operations.

The AIPLA is a national bar association whose nearly 10,000 members are primarily lawyers in private and corporate practice, in government service, and in the

academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent and trademark law, as well as other fields of law affecting intellectual property.

AIPLA members interact with patent examiners, trademark examiners, and their

clerical support staff on a daily basis. They know from these contacts that many of

the USPTO employees are forced to work in cramped quarters with inadequate furnishings and equipment. Many examiners, now forced to share rooms, are denied

the privacy they need to efficiently search and examine patent and trademark applications and to consult with applicants regarding prosecution issues.

The USPTO is currently housed in 17 buildings located in the Crystal City complex in Arlington, Virginia. These buildings range in age from the late 1960s, when

the USPTO first moved to Crystal City, to the mid 1980s. Few of these buildings

were constructed for modern electronic communication networks that will facilitate

the electronic search systems that examiners will increasingly use. In addition, the

buildings, far from being contiguous, stretch out through a nearly one-mile-long corridor in Crystal City, creating considerable lost productivity as the employees traverse between and among the various buildings. To alleviate the problems which the

USPTO employees and their customers must endure because of these cramped and

outdated facilities, AIPLA believes that the Office should acquire adequate space.

At the same time, since we, the users of the patent and trademark systems, will

pay through our fees for the cost of the facilities leased by the USPTO, we believe

the acquisition of space by the Office should be evaluated against appropriate criteria. To that end, we developed the following guidelines:

• any facility should be competitively procured, taking price and quality into consideration

• any facility should be convenient to MetroRail to provide convenient access by

employees and users

• any facility should be ‘‘automation-ready’’ to house modern electronic communications networks

• any facility should provide private offices for examiners, but reflect the private

enterprise trend toward downsizing and standardizing office size

• any facility should provide employees reasonable amenities, comparable to

those in the private sector, including sufficient parking, health facilities, day care,

and reasonably-priced eating facilities

• any facility should be sufficiently compact and interconnected to promote efficiency of operations

• any facility should, with the approval of Congress, have such ‘‘above-standard’’

items as are customary in businesses (e.g., uninterrupted power supplies for computer systems).

To alleviate its cramped conditions, the USPTO and the General Services Administration (GSA) began working on alternative approaches to meet the USPTO’s longrange requirements in 1989. After considerable study and negotiation, the Of lice

of Management and Budget authorized GSA in 1995 to send a prospectus to the

House and Senate requesting permission to acquire a competitively-procured, twenty-year operating lease for the USPTO’s space needs. The prospectus was approved

by the Senate Committee on Environment and Public Works on October 24, 1995
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and by the House Committee on Transportation and Infrastructure on November 16,

1995.

AIPLA believes that the Solicitation For Offers (SFO), published by GSA on behalf of the USPTO following the approval by Congress of the prospectus, generally comports with the guidelines adopted by AIPLA. Accordingly, we believe that the solicitation should proceed under the watchful eyes of Congress and the user community. We are aware of a campaign over the last 15 months to convince Congress that the SFO is too extravagant. At his request, I met with a Mr. Edward Newberry of

Patton Boggs, L.L.P. in July, 1997. Mr. Newberry had indicated in a telephone conversation that the USPTO was seeking a grandiose and elaborate headquarters facility and that the USPTO could satisfy its space needs in a much more modest facility. I understood that Mr. Newberry represented one of the then four bidders on

the SFO, the Charles E. Smith Company, which is also the principal landlord for

the USPTO in its current space in Crystal City. Nonetheless, in light of the allegations made, I concluded that it was important to learn more and to investigate the

merits of Mr. Newberry’s claims. I asked Mr. Newberry to put his concerns in writing, which he did. The material was then made available to the USPTO with the

request that they respond to the allegations. We invited representatives from the

House and Senate Judiciary Committees, the Intellectual Property Owners Association, the American Bar Association, and the International Trademark Association to

join us in an effort to separate fact from fiction. At the meeting with USPTO of finials, we discovered that, when the allegations contained in Mr. Newberry’s letter were placed in perspective with factual information which was omitted, the allegations were not only unpersuasive, but frequently

misleading. For example, it was stated that the USPTO plans to spend $88 million

to outfit and furnish the interior of their new facilities and that, if the USPTO were

to accept a standard, high-quality building typical of government agencies, some $48

million would be saved. What the correspondence neglected to mention however was

that the SFO requests an unfinished shell, and that the $88 million would be used

to complete the building according to the USPTO’s operational needs. More importantly, no mention was made of the fact that this $88 million must be paid by the

successful bidder who could charge the government no more than the Congressionally-imposed limit of(in FY 1998 dollars) $25.41 per rentable square foot. The cost

of Crystal City space utilized by the USPTO today averages $26 per rentable square

foot, and recent space provided to accommodate the expansion of the trademark examining operation costs approximately $27 per square foot. Thus, the successful bidder for the consolidated USPTO space must charge less than the current average

per square foot rent paid by the USPTO and provide the $88 million for build-out. The USPTO has indicated that the standard in their build-out for individual office

sizes for examiners will be 120 square feet—20 percent smaller than the room sizes

in the current facility and consistent with the guidelines adopted by AIPLA. On this

point, it is not surprising that one of the USPTO’s three unions opposes the consolidation plan. Even though each examiner will have a private office and even though

120 square feet will provide ample room for examiners to conduct their search and

examination responsibilities, particularly in the electronic environment in which examiners currently work, this union has opted to argue for retaining their current

larger rooms and forcing the users to pay the additional lease costs. It is telling,

in our opinion, that the other two of the three unions have approved the SFO in

light of the operational efficiencies it will bring about.

Earlier this year, the National Taxpayers Union (NTU) and Citizens Against Government Waste entered the fray, referring to the USPTO space consolidation as a

‘‘Taxpayer Ripoff.’’ The same litany of alleged problems that Mr. Newberry had previously raised were set forth, such as, ‘‘high-priced programmable lighting systems’’

and the curious statement that many users oppose the new building because it could

lead to massive increases in patent fees. First, it should be noted that programmable lighting systems are commonly used in modern buildings today because of

their savings in energy costs. Secondly, I have not run across any users of the

USPTO who fear that paying less for space will lead to massive increases in patent

fees.

More recently, the NTU has argued that the USPTO will spend $1.3 billion to

lease—not own—this facility and that the environmental clean up costs could be as

high as $194 million. Again, if the USPTO stays in its present, decentralized, aging

facilities, it will spend at least $1.3 billion in lease charges over the next 20 years

and actually more than it will pay under the SFO. While it is true that the USPTO

will not own the building at the end of this period, there is no practical option under

which that could be the case. Both the Office of Management and Budget, which

controls the USPTO’s requests for funds, and the Congressional Appropriations

Committees, which approves those requests, have agreed that a competitive lease
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of the type the USPTO is seeking is the only viable option available to the USPTO.

There is no reserve of user fees nor any available taxpayer funds to actually construct such a building. In this regard, we note that, in a colloquy between you, Mr.

Chairman, and Senator Gregg during the Senate debate on the Fiscal Year 1998

Supplemental Appropriations Bill, Senator Gregg agreed that no funds would be

available in the foreseeable future to purchase or construct a facility to house the

USPTO. With respect to the alleged environmental clean-up costs, the SFO places

the burden of environmental clean-up, if any, solely on the successful bidder—not

the USPTO. The Federal Government recently built a Federal courthouse on a portion of one of the two sites where a bidder is proposing to construct USPTO facilities, and the Department of Defense has been housed on a portion of the other site

for over 25 years.

Finally, NTU has stated that the costs for moving the USPTO could be as high

as $130 million. In a review mandated by P.L. 105–174, Deva and Associates, PC,

concluded that for the USPTO to stay in its present quarters, total costs over the

20-year life of the lease would be $72 million greater than if it proceeds with the

competitive procurement, after factoring in all the costs for moving, furniture, etc.

The Deva study was reviewed by the USPTO, GSA, the Commerce Department Inspector General, the Commerce-Justice branch of the Office of Management and

Budget, and, for the Office of the Secretary of Commerce, Jefferson Solutions, LLC,

and their subcontractor, BTG, Inc. It is particularly worth noting that Jefferson Solutions and BTG found that the consolidation of USPTO space through a competitive lease would improve workflow efficiencies, improve the environment for employee retention, and most importantly, reduce lease costs. In short, they recommended proceeding with the current procurement without delays that would impact the schedule and costs.

The most recent attack criticizes the USPTO’s space consolidation effort on the

basis of estimates of the cost of furniture which were contained in the Deva report.

The appendix to the Deva report contained an extensive listing of the estimated cost

of the furniture which would be needed for the new USPTO facility. Those preparing

this estimate chose to err on the high side to ensure that their estimate of the total

cost of the move and furniture purchase would not understate the actual cost. Unfortunately, the report lists such easily-criticizable items as $250 shower curtains

and $4,000 desks. While we understand that these estimates were intended to be

worst-case scenarios and do not reflect the anticipated savings which would be realized through competitive volume discounts, nonetheless, we would agree that a

number of these estimates are much too high even for worst-case scenarios.

It must be kept in mind, however, that even with these unfortunately high and

questionable estimates, the Deva report still projects an overall savings of $72 million if the procurement proceeds—a projection which no one has challenged. Moreover, recognizing that the furniture purchases associated with the move will be subject to intense Congressional oversight, it is certain that the actual furniture costs

will be much less than the worst-case estimates in the Deva report. This Committee,

the Appropriations Committee and the Judiciary Committee will have ample opportunity to ensure that, when the USPTO requests approval to purchase the furniture,

the expenditures will be prudent and responsible. Delaying the procurement for yet

another study will only serve to delay and diminish the benefits which the users

of the USPTO will receive. On the other hand, proceeding with the procurement and

applying a sharp pencil to the purchase of furniture in the future will serve to significantly enhance these benefits.

Finally, we note that the recent amendment offered by Senator McCain to the Departments of Commerce, Justice, and State, the Judiciary and related Agencies Appropriations Act, S. 2260, would have denied any funds for the planning or lease

of a new facility until 90 days after the submission to Congress of yet another study

on the results of a cost-benefit analysis of relocating the USPTO to a new facility.

The study would have required an analysis of the cost associated with leasing in

comparison with the cost of any lease-purchase, Federal construction, or other alternative for new space for the USPTO and to consider any appropriate location or facility not limited by geographic region. In addition to the fact noted earlier that

lease-to-purchase or construction are not available options, relocating the USPTO

outside of a 10-mile radius from its current location could have serious adverse consequences for the USPTO. If the Office were to be moved to a distant location, many

of its current employees would not be able to stay with the Office. In addition, the

USPTO would be required to pay the relocation costs for those of its 5,000 employees who chose to continue working for the USPTO. Clearly, the operational and financial consequences of such a move would reduce if not exceed the $72 million savings identified in the Deva report.
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One of the four final bidders on the SFO has already withdrawn. Additional significant delays of the type that would be experienced as a result of requiring additional studies would cause additional bidders to withdraw from the process. In the

end, the USPTO would be forced to stay with its current landlord—in a sole-source

situation—where there would be little, if any, incentive to restrain lease costs to the

USPTO.

AIPLA strongly urges this Subcommittee, Mr. Chairman, to take all steps possible

to allow this procurement to proceed as expeditiously as possible to its conclusion

without further delay. In addition, I have been authorized by the Intellectual Property Owners Association and the Intellectual Property Law Section of the American

Bar Association to express their agreement that the procurement should continue

to conclusion without further delay for additional studies.

STATEMENT OF PETER SEPP, VICE PRESIDENT FOR COMMUNICATIONS, NATIONAL

TAXPAYERS UNION

Mr. Chairman, on behalf of the 300,000 members of the National Taxpayers

Union, I am deeply grateful for the opportunity you given my organization to testify

before the Committee today on our concerns surrounding the proposed Patent and

Trademark Office (PTO) relocation. By holding these hearings, you have once again

demonstrated your interest in seeing Federal funds expended in the most fiscally

responsible matter possible. Taxpayers across the country are most appreciative

that you, Mr. Chairman, and the Members of this Committee have taken the time

to give this issue additional exploration.

Introduction

Because of the tendency of policy to become mired in polemics, I am compelled

to make one statement from the very beginning. National Taxpayers Union comes

here today without any financial ties to any party with a direct interest in the PTO

relocation.

While we are convinced that a reasonable upgrade of PTO’s present leased facilities in Crystal City would be the most frugal and responsible of the current alternatives, we could also support additional options in other states, as well as the

choice of building rather than leasing—should further study prove any of these

courses to be more cost-effective.

Our only interest in this debate is to ensure the wise expenditure of Federal dollars, and that the long-term interests of taxpayers are protected. Since its founding

in 1969, National Taxpayers Union has analyzed and opposed numerous Federal

public works projects, including the Tennessee-Tombigbee Waterway, the Westway

Highway, the Ronald Reagan International Trade Center, as well as wasteful courthouse spending.

In deciding to oppose the current PTO relocation plan, members of our staff were

(ironically) reminded of Ronald Reagan’s stirring plea, ‘‘If not us, who? If not now,

when?’’ Although some in the Administration have claimed that PTO’s plans will not

affect taxpayers at large, and that the reasoning behind the plan is fiscally sound,

we have come to a far different conclusion.

Why PTO Concerns Every Taxpayer—and National Taxpayers Union

Throughout this debate, PTO officials have insisted that the entire $1.3 billion

lease and relocation will be ‘‘paid for by patent fees rather than general revenues

from the taxpaying general public. This argument falls short in a number of respects.

1) PTO customers are indeed taxpayers.

Part of our organization’s mission is to represent the concerns of all taxpayers,

whether they are families, businesses, or small inventors. Our philosophy is grounded in the simple fact that every American is affected by the tax burden on his or

her fellow citizens. Higher corporation income taxes, for example, are often passed

along to the consumer in the form of higher prices on goods and services. Economists recognize that ultimately it is the worker who bears the ‘‘employer’s share’’

of the payroll tax, in the form of lost wages the employer could have paid without

the tax-induced overhead.

2) While we support government ‘‘user fees’’ to cover the cost of specific services provided to certain customers, this concept, taken to its extreme, can inflict the same sort

of damage that taxes often do.

Patent fees, if levied to excess, could become a confiscatory ‘‘tax on innovation’’

that could very well discourage some of our nation’s most important assets—small

inventors—from fully contributing towards our robust private sector.
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It is no secret that small businesses and entrepreneurs provide the fuel that keeps

our economic engine running faster and better than most other nations in the race

for economic vitality. Any policy that obstructs the flow of this fuel, however minor,

can have a major impact elsewhere. If patent fees were to increase by even several

hundred dollars, how many inventors would think twice about bringing their creations to market? How many links in the chain of minor discoveries that lead to

major technological breakthroughs would be broken? How much would our nation’s

economic growth rate decline due to chances that could have been taken but

weren’t, opportunity costs? Since I am not an economist by profession, I freely admit that I am not qualified to make such an estimate. But is it truly worth the risk to our economy to find out

how much the fragile market of intellectual property will bear in government intrusion, after the damage has already been done? We would argue that such a risk is

too great to justify a relocation that is ill-considered in the first place. 3) The Federal Government’s historical financial management problems have fre- quently confounded the best-laid plans. The Savings and Loan Industry, for example, poured billions of dollars in fees to the Federal Government’s regulatory coffers. In the end, however, those fees did not

come close to the tens of billions in general revenue spending that were required

to bail out S&Ls in the 1980s and 1990s. The government’s own pension system,

designed to share costs through significant employee contributions to the plan, continues to rack up an unfunded taxpayer liability that has exceeded $1 trillion.

What are the chances that PTO’s fee structure could go similarly awry, and leave

taxpayers with a significant liability? As each day passes in this Congress, such a

threat grows nearer. Legislative language authorizing new PTO fee increases is buried in a controversial bill providing for the Office’s eventual privatization. If this bill

fails, PTO’s planned funding stream could be jeopardized, leaving lawmakers to siphon money from general revenue sources.

Moreover, PTO’s existing fee structure reportedly contributes over $100 million

per year towards reducing the Federal deficit. If this structure is renewed and these

revenues are simply shifted to pay for the PTO relocation, the Federal budget surplus available to cut taxes will shrink, thus reducing potential tax relief for all

Americans.

On the spending side, Federal public works projects have long run into fiscal pitfalls that ensnare taxpayers. The recently christened Ronald Reagan Building experienced cost overruns exceeding 200 percent. Before Congress terminated the

project, the Superconducting Super Collider’s price tag had risen by a well over 50

percent. From roads to courthouses to scientific research facilities, an all-too-familiar pattern has emerged. Optimistic spending projections give way to spiraling price

tags as the projects are constructed. leaving Members of Congress with the flimsy

excuse to their constituents that ‘‘too much has been spent to pull the plug now.’’

Congress throws good money after bad, leaving taxpayers to make up the difference

between fiscal fantasy and hard reality.

4) Even more important than past history are the future consequences that PTO’s

plan may have on other Federal projects.

The PTO relocation has been properly billed as one of the largest Federal construction undertakings of this century. The lessons learned, or not learned, from

this project will have a tremendous impact on every subsequent initiative that addresses Federal office space. To name just one agency, the Department of Transportation is currently considering its future office needs and options. Such a facility,

whether remodeled or relocated, leased or owned, will without a doubt be paid for

largely through general revenues. Each and every American taxpayer will therefore

have a direct stake in ensuring that PTO’s relocation serves as a fiscally responsible

model for the Federal Government to follow in all of its future blueprints.

Specific Problems with PTO’s Plan

Having explained National Taxpayers Union’s significant interest in the PTO relocation proposal, I shall now expand upon our greatest areas of concern. These points

are based on our observation of Federal building and procurement policies from the

taxpayer’s perspective, rather than the technical viewpoint of a civil engineer or administrator.

1) The PTO buildings could set new records for extravagance.

‘‘Interior build-out costs’’—the price we pay for making the empty new building

into a usable office—could, on a square foot basis, be more than double the standard

rate for the rest of the Federal Government. It’s not hard to see why, given the

project’s lavish granite, hardwood and marble surfacing materials. Other amenities

include exercise facilities and trails, in-house cafeterias, expensive decor such as

fountains and sculptures, and open-air amphitheaters.
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The Commerce Department argues that many of these amenities, including ‘‘park?

like settings,’’ already exist at its present complex. Absent from this explanation is

whether or not additional amenities should be built just because they can be provided under the existing cap. No one would suggest that a U.S. government building

with an important mission should look like a Soviet-style blockhouse. But is a ‘‘Taj

Mahal’’ the only alternative? Taxpayers and PTO customers seem to believe that a

more appropriate balance between form and function, often found in many private

sector buildings, can apply here.

2) The Federal Government would spend at least $1.3 billion to lease, not own, this

facility.

Members of the Committee will no doubt recall the Ronald Reagan Building, the

over-budget, behind schedule facility that made embarrassing headlines throughout

the eighties and nineties as a ‘‘White Elephant.’’ Even this palatial pachyderm cost

about half as much to build for the same amount of space as the PTO complex—

and it’s built to last for 200 years, not just for a proposed 20-year lease.

PTO has long argued that a leasing option is more cost-efficient than renovating

existing space. But this argument is becoming less and less compelling.

A detailed examination of PTO’s blueprint seems to suggest that earlier cost analyses were biased towards a predetermined conclusion—that a new facility was the

goal of top PTO officials in the first place. For example, the Deva & Associates report comparing relocation versus renovation assumes that many features of the new

buildings would have to be grafted onto a remodeled space. This methodology reduces many issues to absurdity. Perfectly functional restrooms in the existing facilities are assumed to be physically uprooted in order to comply with new specifications that offices must be within 200 feet of a restroom. Elevators may be retrofitted in a similar fashion.

I would contend that any plan with such contortions is likely to conclude that a

new building is a better option. What it will not determine is whether such needs

were realistic to begin with. In the Deva study, add-on cafeterias and pantries (the

present site is within one mile of dozens of restaurants), day care centers, state-ofthe-art fitness centers, and health care facilities have all been ‘‘deemed essential’’

by PTO. Their costs are added on to the present site for comparison purposes. Taxpayers and customers may have a different idea of what is ‘‘essential’’ for PTO facilities to serve their functions.

In addition, the September 17, 1998 Economic Review of a Potential Relocation

of the Patent and Trademark Office, prepared by Arthur Andersen, strongly supports our contention that the proposed move may not be the most cost-effective

choice. After study of both the Jefferson Solutions and the Deva & Associates reports, Arthur Andersen concluded:

Deva’s key assumptions significantly understate the costs of a PTO relocation.

Using prudent assumptions and accounting for some of the risks noted ... results

in a $121 million reversal in the Deva result, from a $72.4 million savings if PTO

relocates to a cost increase of $47.7 million if PTO relocates.

Overall, the proposed PTO relocation project encompasses significant risk and

would result in higher occupancy costs for the PTO.

The $1.6 billion PTO relocation would be one of the most expensive and complex

Federal programs ever—the Ronald Reagan Building and Portals projects demonstrate the adverse impact that unforeseen events can have on the cost and timing

of huge Federal projects.

The risks associated with remaining in and improving existing facilities are considerably less.

Thus, Jefferson Solutions’ conclusion that the proposed relocation would result in

lower direct lease costs to PTO is incorrect.

Based on the data presented in the report, a PTO relocation from its existing

space to a consolidated facility would, in fact, result in higher direct lease costs.

3) The price of moving PTO ought to be able to buy a whole new building.

PTO’s costs just for relocating into the new headquarters could run more than

$130 million. One proposed moving plan would purchase $65 million in brand new

furniture, with price tags often higher than those found in the poshest Beverly Hills

boutiques: $250 shower curtains, $750 cribs, $309 ash cans, $562 stools, and $1,000

coat racks. Such outrageous proposals are perfect grist for radio talk show hosts.

PTO Commissioner Bruce Lehman recently told ABC news that these plans were

‘‘absurd’’ and ‘‘we’re not going to do that.’’ Such assurances are somewhat comforting, but taxpayers may be forgiven for remembering previous spending boondoggles on other projects that were supposedly cost-controlled:

Taxpayers shelled out $218 million for a courthouse in Boston, MA, including $1.5

million for a Marina and $100,000 for a spiral staircase for judges and their staffs.
74

This was in addition to a $370,000 elevator system already reserved for judges connecting the same floors.

After agreeing to pay some $6 million to construct and lease Louisiana’s George

Arceneaux courthouse, the Federal Government held only two trials in the facility

during its first 3 years of operation.

Pennsylvania’s Delaware Water Gap National Recreation Area recently came

under scrutiny for an outhouse that sported a $78 per-gallon paint job, a foundation

with 29-inch thick walls, and a slate-gabled roof. After government auditors decried

media reports that the project cost some $445,000, their own subsequent investigation discovered that the price tag was nearly twice as high.

Furthermore, PTO’s explanation that the costs represented a ‘‘worst-case scenario’’ from a ‘‘consultant’s study’’ are puzzling. If such costs appeared in an official

proposal prepared for a private-sector firm seeking to relocate, would they not also

raise eyebrows among accountants—and shareholders—concerned with the bottom

line? Would they not raise questions about the judgment of those who would retain

such a consultant and publish such a report? Business leaders may have their

perks, but good public relations dictate limits to these practices.

4) The government’s own waste-watchers are waving red flags over PTO.

Just 6 months ago, the Commerce Department’s own Inspector General issued a

comprehensive 44-page report concluding that the PTO plan is ‘‘flawed because the

lease development project lacks a defined cost ceiling.’’ The IG ominously warned,

‘‘PTO’s build-out process needlessly exposes the government to increased cost risk.’’

If the past is prologue the risk is real indeed. For 8 months in 1997, PTO mistakenly paid $1.5 million to rent 73,000 square feet of space that was later determined

to be vacant.

Furthermore, analysis of the General Services Administration’s Draft Impact

Statement shows that environmental clean-up costs of possible PTO relocation sites

could be as high as $194 million—some may contain carcinogens or even unexploded

ordnance. And these costs are based only on limited investigations of the sites. Who

knows what else could be lurking beneath the soil?

5) Many employees and customers oppose the move.

An impartial survey taken by the Patent Office Professional Association found

that by a 3 to 1 margin, PTO employees represented by the association oppose the

move to a new complex. Meanwhile, even high-profile inventors like Ross Perot are

calling on Congress to stop the tax on innovation that this costly building will cause.

When both the workers and the customers are saying ’No to PTO,’ lawmakers

should listen more carefully.

Conclusion

Recently, the Senate narrowly voted down an amendment to the Commerce/State/

Justice Appropriations Bill from Sen. John McCain (R-AZ) that would have prompted serious reexamination of the PTO project. Although an amendment sponsored by

Sen. Sam Brownback (R-KS) and Jim Inhofe (R-OK) to establish tighter cost controls on the PTO proposal did prevail, a wholesale reconsideration of the flawed

project is still in order.

All too often, wasteful or low-priority spending projects are completed because

Congress lacks either sufficient notice or the political will to stop the wheels of bureaucracy before they grind up our wallets. In the case of the new PTO facilities,

however, Congress has adequate warning before any serious fiscal damage has been

done. Unlike Nero’s ‘‘Oedipus complex,’’ Washington’s ‘‘edifice complex’’ can be cured

without costly therapy. All it takes is a little dose of common sense.

Once again, I thank you, Mr. Chairman, and the Committee for your generous

and thoughtful deliberation of this critical policy matter.

CHARLES E. SMITH COMMERCIAL REALTY.

TO: National Taxpayers Union, Citizens Against Government Waste, Patent Office Professionals Association, Alliance for American Innovation, selected Members

of Congress

FROM: Kenneth L. McVearry, Executive Vice President

DATE: September 17, 1998

SUBJECT: Arthur Andersen Study

The Charles E. Smith Companies has submitted a bid to the General Services Administration, (GSA), for the proposed space consolidation of the Patent and Trademark Office, (PTO). In the course of our discussions with GSA and PTO, we have

become concerned that their calculations for the cost of this project may be error.

Accordingly, we commissioned Arthur Andersen to study and review this project, so
75

that this respected third part could analyze the data and render an independent

judgment of GSA and PTO’s methodology and conclusions. We know that you expressed an interest in this project. We hope that you will find the attached Arthur

Andersen study informative.

ARTHUR ANDERSEN

ECONOMIC REVIEW OF A POTENTIAL RELOCATION OF THE PATENT AND TRADEMARK

OFFICE, SEPTEMBER 17, 1998

INTRODUCTION

Arthur Andersen reviewed two reports commissioned by the Patent and Trademark Office (PTO) and the Department of Commerce on the financial impacts of a

potential PTO relocation from its existing office and related facilities in Crystal City

to a ‘‘hypothetical’’ consolidated location in Northern Virginia. These reports are:

• ‘‘Business Case Analysis of Space and Facilities Management’’ prepared by

Deva and Associates, P.C., dated May 22,1998 (‘‘Deva report’’); and

• ‘‘Facility Space Analysis for the Patent and Trademark Office’’ prepared by Jefferson Solutions, BTG, Inc., and Economics Research Associates, dated May 15,1998

(‘‘Jefferson Solutions’’ report).

The purpose of this review was to assess the reasonableness and validity of the

methodologies, major assumptions and key findings of these reports, focusing on the

cost and financial impacts.

• The Jefferson Solution’s report addressed several aspects of PTO’s procurement

process, one of which was a cost assessment of a PTO relocation. This assessment

was a ‘‘high-level’’ overview that compared direct lease costs on a per square foot

basis; the report did not present detailed calculations, nor did it consider other related costs. We reviewed this analysis and our observations are presented herein.

The Deva report was a much more thorough analysis of the cost implications of

a PTO relocation from its existing facilities to a hypothetical consolidated location

complying with the terms of the GSA Solicitation for Offers. The Deva report compared two scenarios: 1) the costs of staying in PTO’s existing facilities, but improving them at considerable expense to meet PTO’s needs for the next 20 years; and

2) the costs of relocating to a hypothetical consolidated site in Northern Virginia.

We reviewed the Deva report and the economic analysis upon which its conclusions

were based. Our review of the report included its methodologies, assumptions and

findings. Our review was limited to the Deva report, including the narrative and

the description of the economic model, including summary tables.

We also reviewed and relied on certain information in other documents to prepare

our analysis. A list of these documents is located at the end of the report.

The conclusions and findings outlined in this report are based on information

available to us as of the date of this report. Subsequent events with respect to the

Solicitation, developer bids, market conditions, etc. have not been considered in this

report and could have a material impact on our analysis and findings.

The remainder of the report consists of:

• Summary of Major Findings;

• Executive Summary that provides a more expansive overview of our analysis

and conclusions;

• Detailed review of the Deva and Jefferson Solutions reports; and

• Bibliography.

SUMMARY OF MAJOR FINDINGS

Arthur Andersen reviewed two reports commissioned by the PTO and the Department of Commerce on the financial impacts of a PTO relocation from current facilities in Crystal City to a hypothetical consolidated location in Northern Virginia.

These reports are ‘‘Business Case Analysis of Space and Facilities Management’’

by Deva and Associates, P.C. (May 22, 1998) and ‘‘Facility Space Analysis for the

Patent and Trademark Office’’ by Jefferson Solutions, BTG, Inc., and Economics Research Associates (May 15,1998).

These reports concluded that a relocation of the PTO to a consolidated facility

would result in lower occupancy costs over a 20-year period.
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OUR REVIEW OF THESE REPORTS IDENTIFIED SIGNIFICANT ISSUES REGARDING KEY

ASSUMPTIONS THAT WE BELIEVE RESULT IN INACCURATE CONCLUSIONS.

• Our review concludes that a relocation of the PTO from its existing facilities

under the terms of the SFO would result in higher PTO occupancy costs over a 20-

year period.

THE RESULTS OF THE DEVA REPORT DO NOT JUSTIFY A PTO RELOCATION.

• Deva estimated that a move to a consolidated site would result in Government

cost savings of $72.4 million, but these savings are marginal when measured

against private sector requirements for embarking on a risky, billion dollar, multiyear project.

• Deva did not adequately address or discuss the significant risks of a PTO relocation. These risks include possible construction budget overruns, financing complications, higher operating costs, environmental issues, traffic congestion, disrupted

employee commuting patterns, and costs to other government agencies.

• The $1.6 billion PTO relocation would be one of the most expensive and complex Federal programs ever—The Ronald Reagan Building and Portals projects demonstrate the adverse impact that unforeseen events can have on the cost and timing

of large Federal projects.

THE DEVA REPORT SIGNIFICANTLY UNDERSTATES THE COSTS OF A PTO RELOCATION.

• Using prudent assumptions and accounting for some of the risks noted above

results in a $121 million reversal in the Deva result,from a $72.4 million savings

if PTO relocates to a cost increase of $47.7 million if PTO relocates. The Arthur Andersen adjustments to the Deva analysis are as follows:

Adjustments NPV $1

Original Deva Conclusion: Government Savings of ........................................................................ ($72.4)

Modification No. 1 (Effective Lease Commencement Date) ........................................................... $19.2 ($53.2)

Modification No. 2 (‘‘Staff Additions’’ Rental Rates) ..................................................................... $4.2 ($49.0)

Modification No. 3 (Dual Rent Calculations) .................................................................................. $7.7 ($41.3)

Modification No. 4 (Non-Productive Campus Travel Time) ............................................................. $28.3 ($13.0)

Modification No. 5 (Program Management Fees) ........................................................................... $7.0 ($6.0)

Modification No. 6 (Base Year Building Rental Rate) .................................................................... $53.7 $47.7

Revised Conclusion: Government Cost Increase of ....................................................... $47.7

1 Net Present Value impact. The parenthesis ( ) indicate cost savings; no parentheses indicates cost increases.

OVERALL, THE PROPOSED PTO RELOCATION PROJECT ENCOMPASSES SIGNIFICANT RISK

AND WOULD RESULT IN HIGHER OCCUPANCY COSTS FOR THE PTO.

• The risks associated with remaining in and improving PTO’s existing facilities

are minimal. These facilities can be upgraded to meet the PTO’s needs as disclosed

to Deva, which will Accommodate future growth and provide better workplace conditions for PTO employees, all at less cost to the PTO than relocating.

EXECUTIVE SUMMARY

Arthur Andersen has reviewed two reports commissioned by the PTO and the Department of Commerce on the financial impacts of a potential PTO relocation from

its existing facilities in Crystal City to a ‘‘hypothetical’’ consolidated location in

Northern Virginia. These reports are:

• ‘‘Business Case Analysis of Space and Facilities Management’’ prepared by

Deva and Associates, P.C., dated May 22,1998 (‘‘Deva report’’); and

• ‘‘Facility Space Analysis For the Patent and Trademark Office’’ prepared by

Jefferson Solutions, BTG, Inc., and Economics Research Associates, dated May 15,

1998 (‘‘Jefferson Solutions report’’).

The purpose of this review was to assess the reasonableness and validity of the

methodologies, major assumptions and key findings of these reports, focusing on the

cost and financial impacts.

The Deva report compared costs for PTO to relocate to a hypothetical consolidated

site versus the costs to remain in and significantly upgrade its existing facilities.

The focus of the Deva report indicates that the PTO was indifferent between the

two scenarios except for matters of cost. The Deva study projected a government

cost savings of $72.4 million if the PTO relocated.
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OUR REVIEW OF THESE REPORTS IDENTIFIED SIGNIFICANT ISSUES REGARDING KEY

ASSUMPTIONS THAT WE BELIEVE RESULT IN INACCURATE CONCLUSIONS

• Our review concludes that a relocation of the PTO from its existing facilities would result in higher PTO occupancy costs over a 20-year period.

THE COST SAVINGS PROJECTED BY DEVA AND ASSOCIATES DO NOT JUSTIFY A PTO

RELOCATION

The Deva-estimated cost savings are marginal when viewed from the perspective of private sector investment criteria and the potential risks involved.

The Deva savings estimate of $72.4 million represents only a 7.0 percent reduc- tion in costs when compared with staying in its existing facilities and upgrading

them to provide a better workplace environment and accommodate future PTO

space requirements.

On a current dollar basis, the Deva-estimated savings represent an average an- nual 12 percent reduction in costs over the 20-year period. In contrast, private sector corporations typically target recurring cost savings twice as high, in the range

of 20–25 percent, before embarking on billion dollar, multi-year relocation and/or

workplace redesign projects. This is particularly true when there is no overriding

strategic reason for the relocation.

A PTO RELOCATION WOULD BE ONE OF THE LARGEST, MOST COMPLEX AND MOST

EXPENSIVE FEDERAL CONSTRUCTION PROJECTS EVER

• A PTO relocation would represent a significant endeavor in terms of cost and impact on PTO’s business operations and employees. • Total costs to plan, design, construct and fit-out a new consolidated facility is estimated at up to $500 million and total costs over a 20-year period are estimated

by Deva at $1.6 billion in current dollars.

BECAUSE OF ITS SIZE AND COMPLEXITY, THERE ARE SIGNIFICANT RISKS ASSOCIATED

WITH A PTO RELOCATION THAT ARE NOT ADEQUATELY ADDRESSED IN THE DEVA

ANALYSIS

• Construction Risk—increases in construction costs above initial estimates resulting from changing space requirements, change orders, government delays, etc.,

would be passed through to the PTO. In addition, if space requirements are changed

or not finalized in a timely manner, or other factors prolong key approval dates, etc.,

completion of the facility could be delayed which would further increase costs. Cost

overruns and delays on Federal Government construction projects are most recently

demonstrated by the Ronald Reagan building, where the ultimate cost of completion

was approximately double the original estimates, and the Portals project, which was

delayed by a myriad of political and economic factors. • Financing Risk—possible environmental factors associated with several of the

potential sites for the consolidated facility could greatly complicate and raise the

cost of financing. Also, there are several factors inherent in the proposed lease structure that could complicate and/or delay financing. • Operating Cost Risks—Deva estimates that a consolidated facility would incur approximately $317 million in operating costs over a 20-year period. The PTO will

face higher costs if Deva’s estimate of operating expenses is less than actual costs

and/or Deva’s inflation projections understate actual inflation. • Environmental Risks—a report prepared by an independent engineer found that ‘‘environmental concerns have been identified for several consolidated sites that

could result in significant cost and schedule impacts.’’ This would delay delivery of

the consolidated facility, possibly increase PTO’s overall costs and significantly complicate PTO’s use and possible ownership of the property. • Traffic and Employee Commuting Patterns—according to a report prepared by

an independent transportation consultant, the relocation of the PTO and its 7,108

employees to several of the consolidated sites would require traffic improvements totaling tens of millions of dollars (funding sources are not in place) and negatively

impact traffic flows in the vicinity of the sites. These factors will disrupt PTO employee and visitor commuting patterns, worsen air quality, and possibly increase the

costs of a PTO relocation.

THE RISKS ASSOCIATED WITH REMAINING IN AND IMPROVING EXISTING FACILITIES ARE

CONSIDERABLY LESS

• The existing PTO facilities require minimal new construction as shown by

Deva, and have a demonstrated history of operating costs, minimal environmental

issues, and well-known traffic and employee commuting patterns.
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DEVA’S KEY ASSUMPTIONS AND CONCLUSION UNDERSTATE THE COSTS OF A PTO

RELOCATION

We reviewed the 34 cost categories identified and analyzed by Deva. Most of these

assumptions appeared reasonable, based on the information available.

Several key Deva assumptions, however, understate the ultimate costs of a PTO

relocation. The Department of Commerce and others have characterized these assumptions as a ‘‘worst case’’ scenario, i.e., the projected savings estimated by Deva

are conservative.

• We reviewed these key assumptions and found certain of them to be ‘‘best

case’’ scenarios, i.e., several key assumptions are not realistic and they minimize the

potential cost to the government of a PTO relocation.

In addition, we also considered the fact that the Federal Government is subject

to a wide range of cost exposure (i.e., risk) with respect to several aspects of a PTO

relocation, specifically the delivery date of the consolidated facility and the annual

rent PTO will pay for the consolidated facility.

• For the Deva assumptions relating to these factors, we reflected a more prudent view of the Federal Government’s cost exposure for the project.

REVIEW OF DEVA AND ASSOCIATES REPORT

Summary of Deva and Associates Report

The methodologies and key findings of the Deva and Associates report are summarized below:

• The Deva report consisted of a comparative cost analysis of two PTO location

scenarios:

1. Unconsolidated Scenario—PTO stays in its existing facilities in Crystal City,

which comprises 18 non-contiguous buildings.

2. Consolidated Scenario—PTO relocates to a newly built, consolidated campus facility in Northern Virginia, consisting of eight or fewer contiguous buildings. This

is considered to be a hypothetical scenario because it is based on the terms of the

SFO and not an actual project.

• The Deva ‘‘unconsolidated scenario’’ assumes that approximately $75 million

would be expended over a 20-year period to upgrade the existing facilities to meet

PTO’s minimum needs, as defined bv PTO, and to comply with various regulatory

requirements, improve the workplace environment, and accommodate projected

growth in PTO personnel. Thus, the unconsolidated scenario as modeled bv Deva

represents upgraded facilities that PTO was willing to accept and that will be more

in line with future PTO space and workplace requirements.

The focus of the Deva report indicates that the PTO was indifferent between the

two scenarios except for matters of cost.

Deva identified, estimated and compared 34 cost categories for each location scenario and calculated these costs on an annual basis for a defined 20-year period,

FY2002-FY2023. The start of this 20-year period was based on Deva’s estimate of

the effective lease commencement date for the consolidated facility. Specifically,

Deva estimated that if a contract was awarded in October 1998, the effective lease

commencement date would be October 1, 2001, or the start of FY2002.

Deva then calculated the net present value (NPV) of these costs as of FY2002.

Deva estimated that there would be a $72.4 million NPV cost benefit if the PTO

relocated to a consolidated facility, rather that staying in upgraded existing facilities.

The Deva report focused primarily on comparing the costs for each scenario; it did

not specifically address the risks associated with a PTO relocation project or whether a PTO relocation made business sense, given the estimated benefits, costs and

risks inherent in such a project.

Arthur Andersen Analysis

Our review of the Deva report consisted of two components:

I. An assessment of the costs and risks associated with a PTO relocation, accepting the Deva assumptions and conclusions; and

II. An assessment of the costs and risks associated with a PTO relocation, based

on revisions to certain key Deva assumptions.
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I. ASSESSMENT OF THE COSTS AND RISKS ASSOCIATED WITH A PTO RELOCATION, ACCEPTING THE DEVA ASSUMPTIONS AND CONCLUSIONS

A. Deva Report Focused on Costs, Not Risks

To review a PTO relocation from a financial and business perspective, an assessment of the costs and risks of each of the two scenarios is required. Deva identified

34 cost categories associated with the unconsolidated and consolidated scenarios. The Deva report did not focus specifically on risks associated with a PTO reloca- tion project, but these risks are relevant considerations that should be weighed carefully when evaluating scenarios. The Federal Government, however, typically focuses more on a comparison of the costs associated with real estate options and this

is reflected in the Deva report, which estimates and compares detailed costs for each

scenario over a 20-year period. The Deva report estimated that there would be a $72.4 million cost savings on a net present value basis if the PTO relocated to a hypothetical consolidated facility,

rather than staying in its upgraded existing facilities. The table below summarizes the Deva estimated costs of each PTO scenario over

a 20-year period, on a present value and current dollar basis:

Deva and Associates PTO Location Scenarios

Comparison of Costs over a Midyear Period (millions of dollars)

Unconsolidated Scenario

Consolidated

Scenario Difference ($) Difference (%)

Total Costs—Present Value Basis ................................................ $1,031 $959 ($72) (7%)

Total Costs—Current Dollar Basis ................................................ $1,783 $1,573 ($210) (12%)

Thus, Deva estimates that a PTO relocation to a consolidated facility would produce only a 7 percent cost savings on a net present value basis. On a-current dollar basis, the Deva-estimated savings represent an average an- nual 12 percent reduction in costs over the 20-year period. To generate these savings, however, would require upfront costs of up to $500 million to plan, design, construct and fit out the consolidated facility. While the government is not funding

these costs upfront—it is paying for it through rental payments over the 20-year

term of the lease—it will, nonetheless, bear part of the risk associated with a development project of this size and complexity.

In contrast to Deva’s estimate of an average annual 12 percent cost reduction, private sector corporations typically target recurring cost savings twice as high, in the

range of 2-25 percent, before embarking on major relocation and/or workplace redesign projects.

Based on private sector criteria, therefore, it is difficult to justify that a PTO relocation is a good ‘‘investment’’ of government funds.

As discussed in section II below, changes to several key assumptions will have a

dramatic impact on Deva’s conclusions. Before we address this, however, there

needs to be a discussion of the risks associated with a potential PTO relocation.

B. PTO Relocation Poses Major Government Risk

A PTO relocation would represent a significant endeavor in terms of cost and impact on PTO’s business operations and employees.

• The total cost to plan, design, construct and fit-out a new consolidated facility

is estimated at up to $500 million, making it one of the largest and most expensive

Federal construction projects;

• Total development and occupancy costs for the consolidated facility are estimated by Deva to be approximately $1.6 billion over a 20-year period in current dollars; and

• The time to construct and deliver the consolidated facility is estimated by Deva

to take up to 4 years, including a 1-year period to transition employees to the new

facility once it is completed.

As with all projects of this magnitude, significant risk factors exist. Certain of the

risks could remain with the developer of the project, but others will fall either directly or indirectly on the PTO. These risks were not considered in the Deva report.

Broadly, these risks focus on:

• Construction risk

• Financing risk

• Operating Cost risk

• Environmental risk
80

• Traffic and Employee Commuting risk

Each of the risks described below could act alone or in combination to increase

the costs of the consolidated facility above Deva’s estimates. In section II, we quantify some of these risks and estimate their impact on Deva’s conclusions.

Construction Risk

As cited above, total development costs of the consolidated facility have been esti- mated at up to $500 million. The risks associated with construction of the consolidated facility focus on the potential for cost overruns and delayed construction/delivery of the new facility: • Cost Overruns.—According to the SFO, the private sector bidders are required to reflect the cost of constructing the consolidated facility in the annual rent they

propose to charge the PTO. Increases in construction costs could be passed through,

in whole or in part, to the PTO in the form of higher rental payments than assumed

by Deva. There are numerous factors that could increase construction costs above

initial estimates. These include changing space requirements, change orders, government delays, and changing market conditions. Cost overruns on Federal Government construction projects have occurred in the past, as most recently demonstrated

by the Ronald Reagan building where the ultimate cost of completion was approximately double original estimates. • Timing Delays.—The timing of construction is also a risk. If space require- ments are changed or not finalized in a timely manner, or other factors prolong key

approval dates, etc., completion of the facility could be delayed which would, in turn,

increase costs. Once again, the construction of the Ronald Reagan building is an example of a Federal building project, which was completed well behind schedule. The

Portals building is another example of a project that was delayed by a myriad of

political and economic factors. In addition to increased costs, delays would further

disrupt PTO business operations and prolong the transition period. As we will discuss in section II, we believe that the Deva assumptions with respect to the timing

of the delivery of the consolidated facility are optimistic and understate the ultimate

cost to the PTO.

Financing Risk

According to the SFO, the successful bidder on the consolidated project is required to secure private sector financing to construct the facility and to cover other costs

associated with delivering the space to the government. The cost of this financing

is to be passed through to the PTO in the form of rental payments. There are several risks that could complicate, delay or increase the cost of financing: • As discussed below, there could be environmental factors associated with several of the potential sites for the consolidated facility. Any environmental remediation issues would complicate, delay and raise the cost of financing; • There are several factors inherent in the proposed lease structure that could

complicate the financing. Raising $500 million for a single project is a substantial

effort, particularly with the recent turmoil in the worldwide capital markets. The

proposed lease with the government is not a ‘‘date certain’’ lease (i.e., there is no

guaranteed date on which the government will start to pay rent), resulting in increased risk to the developer and lender. There is no straight pass-through of operating expenses to PTO, increasing the risk to the developer and the lender. and The

proposed lease with the government will be an operating lease, therefore, there will

likely be an unamortized portion of the loan at the end of the lease term. This increases lender and developer risk, unless insurance is obtained, but this would increase the cost of financing.

Operating Expense Risk

The Deva analysis estimates that over the 20-year period, a total of $1.6 billion will be spent on the consolidated facility, consisting of rental payments, operating

expenses, capital expenditures and others costs. Of this amount, approximately $1.0

billion would be spent on base rent and $317 million on operating expenses. According to the SFO, the base rent is constant over the 20-year term, but the Government

will pay additional rent to cover increased costs for operating expenses based on a

defined CPI factor. There is the risk that Deva’s estimate of operating expenses

underestimates actual operating costs and that Deva’s inflation projections understate actual inflation.

Environmental Risk

A May 1998 report by SCS Engineers outlined current environmental conditions

and concerns with regard to several of the sites for a consolidated facility (Carlyle

and Eisenhower Avenue). SCS Engineers reviewed the Draft Environmental impact

Statement and concluded that it ‘‘provided a poor interpretation of the potential im81

pacts of the many environmental concerns identified for the Carlyle and Eisenhower

Avenue sites.’’

Further, the report states that ‘‘environmental concerns have been identified for

both sites that could result in significant cost and schedule impacts’’ and that available information indicates that both sites have the potential for significant subsurface contamination problems.

The report further states that the presence of contaminated materials would result in significant additional expenses and delays associated with waste characterization and waste disposal. The potential cost for these activities—if the soils and

fill to be excavated at the sites require management as a hazardous or toxic waste—

could be up to $194 million for the Eisenhower Avenue site and up to $60 million

for the Carlyle site.

Clearly, these potential environmental concerns can greatly complicate financing

of the consolidated project Further, the cost of environmental remediation could, in

part, be passed on to the PTO in the form of higher rent payments than assumed

by Deva. Finally, there is also the risk of ‘‘failure to perform’’ on the part of the

developer. If this happened, it would significantly complicate PTO’s use and possible

ownership of the property.

Traffic and Employee Commuting Risk

A May 1998 report by Callow Transportation Consulting evaluated traffic impacts

for several of the possible consolidated sites. Among the report’s conclusions were:

• The relocation of the PTO and its 7,108 employees to either the Carlyle or Eisenhower Avenue sites will require traffic improvements in the immediate vicinity

totaling tens of millions of dollars.

• The overall effect of a PTO relocation to either the Carlyle or Eisenhower Avenue sites will be a significant negative impact on the traffic situation in the immediate vicinity of these sites, as well as in the surrounding areas.

• The planned Woodrow Wilson Bridge project, an estimated 10-year project, will

significantly disrupt traffic patterns on the I–495 Beltway and increase traffic congestion and access to these proposed consolidated sites.

• The I–395/I–495 ‘‘Mixing Bowl’’ project, also a planned 10-year project, will

also have a major impact on the I–495 Beltway and increase congestion in the vicinity of these proposed consolidation sites.

These factors could impact the cost of a PTO relocation, disrupt PTO employee

and visitor commuting patterns, and adversely impact air quality:

• A portion of the cost of the transportation improvements cited above could be

borne by the developer (as well as other local and state governments) which could,

in turn, pass through some of these costs to the PTO in the form of higher rental

payments than assumed by Deva.

• Because of the traffic congestion described above, PTO employees who drive to

work will face more difficult and lengthy commutes to new locations for the consolidated site. This will also apply to PTO’s visitors, such as customers, patent attorneys and others.

• The SCS Engineers report cited above states that relocation of the PTO to either the Carlyle or Eisenhower Avenue sites ‘‘will exacerbate an already unacceptable air quality condition.’’

C. Risks of Staying in Improved Existing Facilities are Much Less

The risks associated with remaining in existing facilities are considerably less

than those of a PTO relocation:

The scope of construction work needed to renovate/upgrade the existing facilities

to the minimums set in the Deva study is significantly less than required to plan,

design, construct and fit-out a 2 million osf facility; thus, construction risk for the

unconsolidated scenario is far more manageable.

Financing risk is also significantly less because of the more limited scope of construction;

The existing facilities have a demonstrated operating cost history;

Environmental issues associated with the existing facilities are minimal; and

Traffic and PTO employee commuting patterns are well known in the existing facilities; as described previously, the traffic and employee commuting issues are far

more complex for two of the potential sites for the consolidated scenario.

In summary, the financial benefits of a PTO relocation as estimated by Deva are

marginal when viewed from the perspective of private sector investment criteria and

the potential risks involved.

As discussed in the next section, several of the Deva assumptions, in fact, understate the ultimate cost to the PTO of a relocation from its existing facilities. If this
82

is considered and the risks identified above are quantified, the Deva-estimated cost

savings of a PTO relocation is transformed into a cost increase.

II. ASSESSMENT OF THE COSTS AND RISKS ASSOCIATED WITH A PTO RELOCATION, BASED

ON REVISIONS TO CERTAIN DEVA KEY ASSUMPTIONS

A. Deva Study is a ‘‘Best Case’’ Scenario in Key Areas

The Department of Commerce and others have characterized Deva’s study as a

‘‘worst case’’ scenario, i.e., it incorporates assumptions which tend to maximize the

potential cost to the Federal Government of a PTO relocation and result in conservative estimates of cost savings.

Our review of the key assumptions underlying Deva’s conclusions found several

of them to be ‘‘best case’’ scenarios, i.e., they minimized the potential cost to the

Federal Government of a PTO relocation.

B. Realistic Assumptions Reveal Potential $47.7 Million Net Cost to Relocate

Based upon our review of the Deva report and other documents referenced in the

bibliography, we substituted several key Veva assumptions with those that we considered to be significantly more realistic. In doing so, we also considered the fact

that based on the SFO, the Federal Government is subject to a wide range of cost

exposure (i.e., risk) with respect to certain critical Deva assumptions, specifically the

delivery date of the consolidated facility and the annual rent PTO will pay for the

consolidated facility. For these assumptions, we reflect a more prudent view of the

Federal Government’s cost exposure for the project, based on the terms of the SFO.

The table below summarizes the financial impacts of the Arthur Andersen modifications made to the Deva model (millions of NPV $):

Adjustments NPV $1

Original Deva Conclusion: Government Savings of ........................................................................ ($72.4) ($72.4)

Modification No. 1 ( Effective Lease Commencement Date) .......................................................... $19.2 ($53.2)

Modification No. 2 (‘‘Staff Additions’’ Rental Rates) ..................................................................... $4.2 ($49.0)

Modification No. 3 (Dual Rent Calculations) .................................................................................. $7.7 ($41.3)

Modification No. 4 (Non-Productive Campus Travel Time) ............................................................. $28.3 ($13.0)

Modification No. 5 (Program Management Fees) ........................................................................... $7.0 ($6.0)

Modification No. 6 (Base Year Building Rental Rate) .................................................................... $53.7 $47.7

Revised Conclusion: Government Cost Increase of ....................................................... $47.7

1Net Present Value impact. The parenthesis ( ) indicate cost savings; no parenthesis indicates cost increases.

Our changes to each of the Deva assumptions are described in detail below.

Modification No. 1—Effective Lease Commencement Date

A key assumption underlying the Deva findings is that the effective lease commencement date for the consolidated facility would be October 1, 2001, or the start

of FY2002. The effective lease commencement date is defined in the SFO as the

weighted average acceptance date of all of the individual phases of space delivered

to the PTO. Thus, the Deva assumption implies that more than one-half of the new

space would need to be constructed, fit-out, delivered and accepted by the Federal

Government before October 1, 2001, or all 1.989 million osf would be delivered on

October 1, 2001.

We believe that this is an aggressive assumption by Deva. The SFO states that

the Federal Government is under no obligation to accept any space (other than the

computer centers) prior to October 1, 2001. Further, the SFO allows the successful

offeror 4 years after lease award, estimated to be October 1998, to deliver Block 1

(1.3 million osf), or until about October 1, 2002, and an additional 18 months after

this date to deliver Block 2 (689,116 osf), or until about April 1, 2004.

Further, it is unclear what incentive the developer will have to deliver space as

quickly as possible. The developer may, in fact, have an incentive to delay delivery

of space to the government. According to the SFO, the base rental rate target of $24

per rentable square foot in FY1996 dollars can be escalated at 2.9 percent annually

until the delivery of the space. At this point, the base rental rate locks in for the

entire 20-year lease term. Thus, the longer the delivery of space is delayed, the

higher the base rental rate that will accrue to the developer over the 20-year lease

period.

Based on these factors, our analysis assumes that the effective lease commencement date is pushed back 2 years to October 1, 2003, or the start of FY2004. The
83

overall financial impact of this change reduces the Deva NPV cost savings estimate

from $72.4 million to $53.2 million.

Modification No. 2—‘‘Staff Additions’’ Rental Rates

The Deva analysis assumes that under the unconsolidated scenario, additional space would be needed to accommodate projected PTO personnel growth to a total

of 7,108 employees. Deva estimated the rent to be charged for this expansion space

based on ‘‘the last five leases which contain renewal options that GSA has negotiated for PTO in Crystal City.’’ Subsequent to the date of the Deva report, GSA

signed a lease for an additional 170,924 osf for PTO and is in the process of finalizing a lease for another 36,165 osf. The rents reflected in these deals are lower

than the rents assumed by Deva, which were based on the best information available at the time.

Based on this, our analysis replaces the Deva rent assumptions with the rents and step increases reflected in these recent leases. The overall financial impact of

this change reduces the revised cost savings estimate frown $53.2 million to $49.0

million.

Modification No. 3—Dual Rent Calculations

The Deva analysis assumed that the PTO would move its employees from existing space to the consolidated facility over a 52-week period. During this period, PTO

would have to pay ‘‘dual rent,’’ that is, rent for both the existing space and the new,

consolidated space. This situation arises because of the need to transition employees

over a period of time (i.e., all 7,108 PTO employees cannot be moved overnight or

over a weekend) and the staggered lease expiration dates for the PTO’s existing

space. In other words, the leases for PTO’s existing space do not terminate in sync

with the timing of the PTO move to the new facility, as estimated by Deva. Thus,

there will be overlap during which PTO will have to pay rent for both its existing

space and its new space.

There are two key assumptions underlying Deva’s dual rent analysis:

• Each week, PTO moves employees housed in blocks of space of 40,000—77,000 osf from its existing buildings to the new consolidated facility; and • Within 3 weeks, PTO ‘‘gives back’’ the vacated space to GSA, at which point its obligation to pay rent on the existing space ends. We believe that the 3-week turnaround time is optimistic; thus our analysis as- sumes a 4-week turnaround time. The overall financial impact of this change reduces the revised cost savings estimate from $49.0 million to $48.3 million. There is another component to dual rent, which was ignored in the Deva analysis. Under its agreements with GSA, PTO essentially has the right to give space back

to GSA with 120 days notice. For example, if PTO is halfway through a 2-year lease

and wants to vacate the space, it gives 120 days notice to GSA of its intention to

do so. After the 120-day period, PTO is no longer required to pay GSA rent for the

vacated space. GSA, however, is liable for paying rent to the building landlord for

the remaining term of the lease unless it has another arrangement with the landlord.

When Deva assumed that PTO would give back existing space to GSA as it moved into the consolidated facility, it did not consider any rental obligations to the building landlord that GSA would incur for vacated space which had remaining lease

terms. We believe that this potential cost to GSA should be included in the calculation of dual rent because it is a cost that would be incurred by the Federal Government as part of the PTO’s relocation to a consolidated facility. To calculate this cost, we reviewed information on expiration dates and renewal

terms of each lease associated with PTO’s existing occupancy. Then we reviewed

Deva’s assumption regarding the transition of PTO from its existing space to the

new consolidated facility, attempting to identify those leases that would have remaining lease terms subsequent to PTO vacating the space. Based on these factors,

we estimate the potential rent liability of GSA at $7.0 million. This cost could be

significantly higher, however, if the timing of the PTO transition period is prolonged

or the transition cannot be coordinated in an efficient manner.

The overall financial impact of this change reduces the revised cost savings esti- mate from $48.3 million to $41.3 million.

Modification No. 4—Non-Productive Campus Travel Time/Consolidation Move

The Deva report also examined the issue of employee travel time between buildings, which is considered to be ‘‘non-productive.’’ The Deva analysis assumed that

there would be a decrease in campus travel time if PTO relocated from its existing

buildings to a consolidated facility.

Specifically, Deva assumed that the average PTO employee loses one-half hour

per month of productive work time in its existing space because of travel time
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among the 18 buildings. Deva further assumed that by moving to the consolidated

facility, non-productive campus travel time would decrease to 15 minutes per month

per employee.

To calculate the value of non-productive campus travel time, Deva segmented

PTO employees into two groups—Patent Examiners and ‘‘PTO Staff’’.

For PTO’s 3,413 Patent Examiners, Deva assumed that the value of 1 hour of

non-productive campus travel time would be equal to the average hourly revenue

rate of each examiner, or $161.55 in FY2002 dollars. Thus, Deva created a schedule

which calculated the total dollar value of non-productive campus travel time for all

PTO Patent Examiners, assuming one-half hour of travel time per month per Examiner at a ‘‘cost’’ of $161.55 per hour. The second group of PTO employees cited by Deva was ‘‘PTO staff’’, which Deva

calculated at 6,597. For these employees, Deva assumed that the value of 1 hour

of non-productive campus travel time would be equal to the average hourly rate of

each staff, or $36.65 in FY2002 dollars. Deva then created a schedule which calculated the total dollar value of non-productive campus travel time for all PTO

Staff, assuming one-half hour of travel time per month per Staff at a ‘‘cost’’ of

$161.55 per hour. We have identified two issues with the Deva analysis described above:

• We believe that the 15-minute ‘‘gap’’ cited by Deva between the existing complex and a new consolidated facility may be overstated. A close examination of the

existing complex reveals that except for several outlying buildings at the north and

south ends of the complex, which house only a small portion of PTO staff, the remaining buildings are in close proximity and their layout would resemble the layout

of the consolidated facility. In addition, there is a shuttle system that runs throughout the existing complex. This shuttle minimizes non-productive travel time and the

annual operating cost of the shuttle is separately considered by Deva as a cost applicable to the unconsolidated scenario. Based on these factors, our analysis applies the

15-minute ‘‘gap’’ only to those employees located in the outlying buildings. • We believe that Deva has double-counted the value of non-productive travel

time for the PTO’s 3,413 Patent Examiners. In our description of the Deva methodology cited above, it states that Deva calculated the cost of non-productive travel

time for PTO’s 3,413 Examiners in one schedule and then calculated the cost of nonproductive travel time for 6,597 ‘‘PTO Staff’’ in another schedule. The total PTO

Staff of 6,597, however, includes Patent Examiners. Thus, the cost for the Examiners was counted twice by Deva. Additionally, the Deva report considered the cost attributable to non-productive

time associated with the consolidation move. In its analysis of moving to a consolidated facility, Deva assumed that each PTO employee would incur 6 hours of nonproductive time. Deva’s calculations were based on the same hourly revenue rate

and hourly staff rate described above for Patent Examiners and PTO staff. We believe that the 6-hour assumption of non-productive time for each employee

is a highly conservative estimate. While this time may accurately reflect physical

move time, there are other factors which require consideration, including: 1) time

associated with purging of materials prior to the move; 2) box distribution, packaging, and labeling, 3) downtime of computer and telecommunications equipment

prior to and subsequent to the move; 4) limited availability of elevators and loading

docks; and 5) time associated with becoming familiar with new space and support

services. Upon consideration of these factors, we believe a more reasonable estimate

of non-productive time associated with the consolidation move is 12 hours per employee.

The overall financial impact of these changes reduces the revised cost savings estimate from $41.3 million to $13.0 million.

Modification No. 5—Program Management Fees

In its analysis, Deva assumed that PTO would pay a program management fee

to GSA for its work in managing the development of the new consolidated facility.

The Deva analysis estimated this cost at $7.0 million (FY2002 dollars), based on estimated levels of effort on the part of GSA employees and average labor costs per

hour. We believe that Deva may have underestimated this fee. In our review of several documents on the PTO potential relocation, it appears

that the program management fee has yet to be negotiated between PTO and GSA.

Further, it appears that this fee will be calculated as a percentage of the total development costs of the new consolidated facility. In several documents, GSA has stated

that this percentage will be ‘‘less than 6.0 percent.’’ Further, in a document detailing

questions posed by Congress on the PTO project, total development costs of the consolidated facility were estimated at $500 million. Given that GSA has stated that the fee will be less than 6.0 percent, the fee could

be between $0 (0 percent fee) and $30 million (6.0 percent fee). For our analysis,
85

we assume a fee in the midpoint of the range, or 3.0 percent, resulting in a total

program management fee of $15 million. The overall financial impact of this change reduces the revised cost savings estimate from $13.0 million to $6.0 million.

Modification No. 6—Base Year Building Rental Rate

The Committee Resolution that authorized PTO to proceed with a possible relocation to a consolidated facility outlined the cost parameters of a potential transaction

with a developer. In essence, the ‘‘maximum annual cost’’ that could be incurred by

the PTO under its lease for the new consolidated facility is $57.3 million in FY1996

dollars. Thus, this amount is the Federal Government’s maximum cost exposure for

the building rent portion of the project expressed in FY1996 dollars.

To calculate the building rent of the consolidated facility, Deva assumed a FY1996

base rent of $24.00 per rentable square foot (excluding additional rent due to CPI

increases to cover higher operating expenses). This assumption is taken from the

SFO, which was based, in part, on the Committee Resolution.

Based on assumptions with respect to the space efficiency of the consolidated facility, Deva estimated the total building rent to be $53.0 million in fiscal year 1996

dollars. This amount is $4.3 million less than the government’s maximum cost exposure.

Of course, the consolidated facility was not in place as of FY1996, so the amounts

cited above are considered to be beginning points that are allowed to be escalated

annually until the consolidated facility is delivered to the PTO. Specifically, the

Committee Resolution states that the $57.3 million can increase by 2.9 percent per

year until the initial delivery of the consolidated facility.

Likewise, the Deva estimate of building rent of $53.0 million in FY1996 dollars

can be escalated by the same amount. The table below compares Deva’s annual

building rent with the maximum annual cost authorized by the Committee Resolution through FY2002, the year in which Deva assumes that the consolidated facility

will be delivered to the PTO:

Fiscal Year Annual Building Rent Estimated by Deva

Maximum Annual Cost Authorized by Committee Reso- lution

FY1996 ..................................................................................................... $53.0 M $57.3 M

FY1997 ..................................................................................................... $54.5 M $59.0 M

FY1998 ..................................................................................................... $56.1 M $60.7 M

FY1999 ..................................................................................................... $57.7 M $62.4 M

FY2000 ..................................................................................................... $59.4 M $64.2 M

FY2001 ..................................................................................................... $61.1 M $66.1 M

FY2002 ..................................................................................................... $62.9 M $68.0 M

As the table demonstrates, Deva’s estimated annual building rent in FY2002 is

lower than the government’s maximum cost liability. In other words, if certain Deva

assumptions prove to be inaccurate, the actual rent paid for the consolidated facility

could be above the Deva estimate. As a result, the Deva assumptions represent a

‘‘best case’’ scenario, not a ‘‘worst case’’ scenario.

There are numerous factors that could produce higher annual rent payments than

projected by Deva:

• The efficiency of the buildings in the consolidated scenario is less than Deva’s

estimate;

• There are construction cost overruns because of changing space requirements,

change orders, approval delays, etc.;

• Some portion of the cost of possible environmental remediation at two of the

possible consolidated sites are borne by the developer and passed through, in whole

or in part, to the PTO in the form of higher rental payments;

• Some portion of the cost of traffic improvements required to accommodate two

of the possible consolidated sites are borne by the developer and are passed through,

in whole or in part, to the PTO in the form of higher rental payments;

• PTO’s recent request for two computer centers instead of one would increase

costs; and

• The Northern Virginia real estate market has improved significantly since fiscal year 1996, increasing land values and rents for suburban office buildings. Higher

land values and rental rates would be reflected in developer bids on the consolidated

facility.
86

Because of these uncertainties, as well as the future timing of delivery of the new

space, it is prudent to determine the impact on Deva’s findings if the government

had to pay the ‘‘maximum annual cost’’ for the new consolidated facility as outlined

in the Committee Resolution ($57.3 million in fiscal year 1996 dollars), rather than

using the ‘‘best case’’ assumptions made by Deva.

The overall financial impact of this change reduces the revised cost savings estimate from $6.0 million to a cost increase of $47.7 million.

C. Modifications Reveal Government will Spend More to Relocate

The table below summarizes the financial impacts of the modifications made to

the Deva model (millions of NPV $):

Adjustments NPV $1

Original Deva Conclusion: Government Savings of ........................................................................ ($72.4)

Modification No. 1 ( Effective Lease Commencement Date) .......................................................... $19.2 ($53.2)

Modification No. 2 (‘‘Staff Additions’’ Rental Rates) ..................................................................... $4.2 ($49.0)

Modification No. 3 (Dual Rent Calculations) .................................................................................. $7.7 ($41.3)

Modification No. 4 (Non-Productive Campus Travel Time) ............................................................. $28.3 ($13.0)

Modification No. 5 (Program Management Fees) ........................................................................... $7.0 ($6.0)

Modification No. 6 (Base Year Building Rental Rate) .................................................................... $53.7 $47.7

Revised Conclusion: Government Cost Increase of ....................................................... $47.7

1 Net Present Value impact. The parenthesis ( ) indicate cost savings; no parenthesis indicates cost increases.

D. Reliance on Deva Study To Justify Consolidation Effort is Misplaced

The above ‘‘sensitivity analysis’’ clearly demonstrates that there is a significant

impact on the Deva conclusion if only a handful of its 34 cost assumptions turn out

to be inaccurate and the government is required to bear higher costs.

This means that the proposed PTO relocation project encompasses significant risk,

while at the same time the cost savings are marginal if you accept the Deva results,

and they are non-existent if you utilize more prudent assumptions.

In contrast, the costs of remaining in PTO’s existing facilities—with upgrades

which PTO has itself assumed would meet its needs for the next 20 years and expansion to accommodate future personnel growth—are less than the costs of relocating. Moreover, the identifiable risks of staying in existing facilities are minimal.

REVIEW OF JEFFERSON SOLUTIONS REPORT

Summary of Jefferson Solutions Report

On March 15, 1998, the team of Jefferson Solutions, BTG, Inc., and Economics

Research Associates was contracted by the U.S. Department of Commerce to review

and evaluate the PTO’s consolidation and space acquisition process. The report

(‘‘Jefferson Solutions’’ report) examined several aspects of a PTO relocation, including the need for new space; the type and amount of new space; PTO’s management

of the process; and PTO’s response to the Inspector General’s concerns regarding

space planning, build-out risk, and the GSA agreement.

With respect to the cost impact of a relocation, the analysis in the Jefferson Solutions report relied primarily on a report prepared by Deva and Associates and it focused on a comparison of the rent cost per square foot to the PTO of staying in its

current location(s) versus moving to a newly developed, consolidated, campus-type

facility.

The Jefferson Solutions report concluded that relocating to a consolidated facility

would reduce the rent cost per square foot to the PTO. No dollar estimates of annual occupancy costs, however, were presented in the report. The report presented

as evidence for its conclusion the fact that PTO is currently paying an average of

$27.89 per occupiable square foot, compared with a cost of ‘‘$25.41 per square foot’’

if it relocated to a consolidated facility.

Specifically, the Jefferson Solutions report states on page A–7 that

‘‘PTO currently has 31 leases, averaging $27.89 per occupiable square foot

(‘‘osp’’) . . . The proposed lease as outlined in the Prospectus will reduce this cost

to $25.41 per square foot, expressed in 1998 dollars . . . The competitive aspect

of this consolidation project has improved the efficiency factor and reduced the

cost per square foot.’’
87

Arthur Andersen Analysis

There is an error in the Jefferson Solutions report. The report compares its estimate of the current blended lease rate of $27.89 per occupiable square foot to the

proposed lease rate of $25.41 per square foot. The report does not specify whether

the $25.41 is on an occupiable or rentable square foot basis.

Our analysis reveals that the $25.41 figure it is on a rentable square foot basis

and was clearly calculated by taking the Prospectus rent target of $24 per rentable

square foot (‘‘rsp’’) in fiscal year 1996 dollars and escalating it by 2.9 percent annually, the SFO-allowed escalation factor, for 2 years to arrive at $25.41 in fiscal year

1998.

Thus the lease rates cited by the Jefferson Solutions report are not comparable.

The report should have used an occupiable square foot basis for comparison purposes.

If the Jefferson Solutions report had used Deva and Associates core factor assumption of 11.00 percent to convert the consolidated least rate expressed in dollars

per rentable square foot to dollars per occupiable square foot, the relevant lease rate

would be $28.21 per osf under the consolidated scenario. This is higher than Jefferson Solutions calculation of PTO’s current blended lease rate of $27.89 per osf. The

excess cost of the consolidated rent will be even higher if the consolidated site has

a core factor of greater than 11 percent.

Thus, Jefferson Solutions’ conclusion that the proposed relocation would result in

lower direct lease costs to PTO is incorrect.

Based on the data presented in the report, a PTO relocation from its existing

space to a consolidated facility would, in fact, result in higher direct lease costs.

BIBLIOGRAPHY

The documents reviewed by Arthur Andersen in preparation of this report include, but are not limited to, the following:

• Deva and Associates, P.C. ‘‘Business Case Analysis of Space and Facilities

Management.’’ (May 22, 1998)

• Deva and Associates, P.C. ‘‘U.S. Department of Commerce Patent and Trademark Office: Agreed Upon Procedures Report.’’ (May 22, 1998)

• Jefferson Solutions, BTG, Inc., and Economics Research Associates. ‘‘Facility

Space Analysis for the Patent and Trademark Office.’’ (May 15, 1998)

• General Services Administration. ‘‘United States Patent and Trademark Office

Space Consolidation Project, Solicitation For Offers (SFO No. 96.004).’’ (June 18,

1996)

• U.S. Department of Commerce Office of Inspector General. ‘‘Patent and Trademark Office: PTO Needs to Refine Its Space Consolidation Planning.’’ (March 1998)

• General Services Administration. ‘‘Draft Environmental Impact Study for the

U.S. Patent and Trademark Office Consolidation.’’ (April 1998)

• Smale, James R., Contracting Officer Realty Services Division. ‘‘Questions Submitted For The Record By Congressman Istook.’’

• Callow Transportation Consulting. ‘‘Traffic Impacts from PTO at Sites in Alexandria.’’ (July 1, 1998)

SCS Engineers. ‘‘Environmental Review Comments, Draft EIS for the Carlyle and

Eisenhower Avenue Sites.’’ (May 20, 1998)

Lehman, Bruce A. ‘‘Congressional Record—Senate: Patent and Trademark Office’s

Lease Procurement.’’ (July 30, 1998)

PATENT OFFICE PROFESSIONAL ASSOCIATION,

Arlington, VA, September 21, 1998.

SEN. JOHN WARNER, Chairman,

Subcommittee on Transportation and Infrastructure,

Committee on Environment and Public Works,

Washington, DC 20510–4601.

DEAR SENATOR WARNER: The Patent Office Professional Association represents

over 2500 Lawyers, scientists and engineers who work at the U.S. Patent and

Trademark Office. More than half of these individuals reside in the Commonwealth

of Virginia.

We were impressed that you announced that the hearing scheduled for September

23, 1998 for the U. S. Patent and Trademark Office building procurement would be

open to all interested parties to testify at. We are disappointed that your staff

turned down our request to testify. If that decision stands, the views of our members as either employees of the USPTO or as residents of Virginia will not be heard.
88

We hope that you are interested in hearing why 75 percent of our members are

against this building procurement.

Sincerely,

RONALD J. STERN, President.

STATEMENT OF KIRK S. LIPPOLD, EISENHOWER CIVIC ASSOCIATION

Mr. Chairman, Members of the Subcommittee, and Fellow Americans: As of the

Executive Committee of the Eisenhower Civic Association (ECA), it is indeed an

honor and a privilege to stand before you today.

The ECA represents the citizens of Alexandria who live and operate businesses

within the Eisenhower Corridor. ECA was activated by residents of the Carlyle Towers Condominium (CTC), a luxury complex of 525 homes at Carlyle, in Old Town,

Alexandria. These homes will be woefully affected by the proposed relocation of the

U S. Patent and Trademark Office (PTO) at Carlyle. We have serious concerns

about this proposal, with respect to both the Carlyle Community and Old Town, Alexandria.

1. The 1992 Master Plan

The 1992 Master Plan, which culminated in an agreement between many civic associations and the City of Alexandria, envisioned for Carlyle a tastefully mixed residential, cultural, and urban development in an environment consistent with that of

Old Town Prior to 1992, Norfolk Southern Railroad owner of the 76.0-acre Carlyle

property, prepared the 1990 Car/Norfolk Southern Concept Development Plan

(Carlyle Plan). The ECA finds both plans to be wholly consistent. Both plans emphasized vibrant mixed use and integration of business with community life. This encompassed theaters, gardens, multiple residential developments. commercial offices

and a design concept with a quality of life enticing to potential buyers.

Carlyle residents relied upon the 1992 Master Plan and the 1990 Carlyle Plan

when selecting Alexandria for their home. Many of Carlisle residents are senior Citizens who chose be make the Carlyle community their retirement home because they

believed that it would be a lovely mixed use development. The beautiful mixed use

concept for Carlyle is now jeopardized by the proposal to replace it with the PTO.

If the PTO comes to Carlyle, the community will be transformed into another

Rosslyn. The PTO, as we know it, will consist of six city blocks with five huge office

buildings, two eight-story open garages, and, as its center structure, a skyscraper

of 288 feet. There will be 7,000 plus PTO employees, parking spaces for 3,500 PTO

cars, approximately 1,000 PTO visitors per day, a substantial number of PTO support contractor employees, and innumerable daily couriers.

The Draft Environmental Impact Statement (EIS) states that LCOR’s PTO design

is incompatible with the Carlyle Development Plan. The Draft states that the only

possible mitigation factors are (1) change the PTO design or 2) change the Carlyle

Development Plan. EAC does not want tine 1990 Carlyle Development Plan changed

to accommodate the PTO design.

2. Traffic

We do not believe the Draft EIS and LCOR’s proposal adequately address the obvious problem of traffic. For example, to access the Carlyle site, many employees

and those individuals doing business with the PTO would need to travel through

Duke Street, a principal thoroughfare in Old Town. as well as other parts of Alexandria. Duke Street currently experiences substantial backups during rush hour. If the

Carlyle site is selected, this backup will more than double, causing distraught motorists to spill over into other Old Town streets. LCOR Incorporated, the developer

offering the Carlyle site in the General Services Administration (GSA) PTO competition, advises that the traffic study conducted in support of its proposal is based upon

convention. Does the convention utilized by LCOR take into consideration historic

narrow two-lane streets?

Our advisors indicate that, without substantial transportation improvements, the

PTO at Carlyle would have a major negative impact upon 17 intersections along

Duke and King Streets in Old Town, only seven of which were addressed by the

Draft EIS. Of those seven, all will fail without improvement, GSA assumes that

there will be funds available to improve those seven, but zero dollars are available

and no planning has been done. Even if the required funds are spent, GSA recognizes that four of the seven improved intersections will fail.

The Draft does not consider the impact of the proposed decade of construction for

the Woodrow Wilson Bridge which the PTO will use to provide access to an unknown but substantial number of vehicles bringing employees and visitors over the
89

bridge’s exit ramps to the PTO. Nor does the Draft address the—I–495/95/395

Springfield interchange for which construction is also expected to take 10 years. I am not a traffic expert. However it does not take an expert to know that more

than 5 minutes is too long to cross Duke Street by foot during rush hour. What will

it be with 7,000 PTO employees, 3,500 PTO cars, and 1,000 PTO visitors?

3. No Public Hearings

LCOR has had ample time to submit its proposed zoning changes and PTO appli- cation to the Alexandria City Planning Commission and City Council for public comment and due process. LCOR has deferred public hearings by the City since submission of its initial application in February 1998. We have heard that LCOR plans to

continue deferral until after GSA makes contractor selection.

We ask the City of Alexandria to adhere to established procedures for notification and public hearings before GSA makes its decision. Bypassing these specified events

would be an injustice to concerned citizens and should not be allowed. The GSA Solicitation for Offers does not require that LCOR’s PTO design have Alexandria City Planning Commission and City Council approval before contractor

selection occurs. It contractor selection takes place in advance of those hearings, the

Federal Government, with full knowledge of the Alexandria City Government, will

have aided LCOR in obstructing the voice of the local community.

4. The Voices of Alexandria

I am attaching to this statement a copy of a collective letter signed by the presi- dents of nine civic associations and the pillars of the Alexandria community—Ellen

Pickering and Lillea Finklea These civic associations represent literally thousands

of Alexandria citizens.

Mr. Chairman, Members of the Subcommittee, and Fellow Americans—ECA believes the citizens of Alexandria do not want Carlyle to be ruined. I thank you for your time.

KIRK S. LIPPOLD, Chairman,

Executive Committee.

STATEMENT OF KEITH F. ADDISON, PTE., PRESIDENT EMERITUS, OKLAHOMA

INVENTORS CONGRESS

Had I been allowed to testify, this is what I would have said: Good afternoon Mr. Chairman, Members of the Committee, Ladies and Gentleman:

I am to have the opportunity to appear this afternoon as the representative of the creators of America’s technology, who are the principle users, and I might add, the

principle financial supporters of the U.S. Patent and Trademark Office. Please understand that we are not such by choice, but at there is no Ajax Patent Company,

from which we may obtain protection for our intellectual property, it’s the only game

in town. Unlike the users of the postal service, who have the choice of a number

of alternative private suppliers for mail delivery, we have only one Patent Office but

we like it as it is, and where it is. We are therefore adamantly, no vehemently, opposed to any plan to relocate the Patent Office to a ‘‘campus-like’’ setting in suburban or rural Virginia. The reasons are many, and include the following: First—Location: Situated as it is in the very heart of Crystal City, the patent of- fice is less than 5 minutes by Metro, or perhaps 10 by taxi, from Washington National Airport. Even in inclement weather, the walk from the metro station to the

office is not unpleasant, as it can be made entirely through the Crystal Underground. It should be remembered that most of the patrons who come to the Patent

Office are either inventors, who come from all over America, or Attorneys, agents,

or researchers who are officed nearby, who come to the patent office to avail themselves of the Public Search Room facilities or to consult with members of the patent

examining corps. The very idea of moving the existing and fully operational Patent

Office from its current location to a nearby site in the Virginia suburbs is ludicrous,

and the cost to do so is prohibitive. Not only would the cost to the inventive community be prohibitive but consideration must also be given to the appurtenant facilities, hotels, restaurants, shopping etc. that currently surround and support the patent office in which hundreds of millions of private dollars have been invested. Are

these service businesses to be abandoned, because a couple of people don’t like the

current location? Consider also the ancillary services provided by the hundreds of

law firms, which practice, adjacent thereto. These firms also have leases, which they

must honor, or dishonor, at tremendous costs. All of these services will eventually

come to exist around a relocated patent office, but at what cost?

We have heard of the incredibly high cost of real estate and construction in the

District of Columbia and surrounding areas and feel compelled to inquire why the

patent office should be situated there.
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The U.S. Patent and Trademark Office has no requirement to be adjacent to the Nations Capitol. In fact, the inventive public who pays for the operation of the Patent Office would probably be better served were the office to be located elsewhere.

We would respectfully suggest that real estate and construction costs, are far cheaper in other areas. We are certain that the zeal of the proponents of a new office

(and of the Commissioner), would diminish considerably were plans to call for the

office to be relocated to Kansas City or Tulsa. We are certain that we could provide

an attractive and cost effective construction package for either of these two locations.

Second—Need. There is no compelling need to relocate the office and despite the rhetoric and posturing of the proponents of the move. While we have been told of

the overwhelming requirement for additional space, some two hundred thousand

square feet of currently leased space remain unoccupied. Under the proposed space

allocation planned for the new facility many of the facilities and services of the of

floe will no longer be available to the public or to the Examining Corps. We are

speaking of the Public Search Room and of the paper files, which would be eliminated in the new facility. Examiners offices which currently comprise approximately

one hundred and fifty square feet would be reduced to one hundred and 20 to accommodate the large conference areas envisioned under the new space allocation.

The need for and justification of amphitheaters cannot be credibly established and

would seem to represent a poor investment, as once constructed they become a long

term, little used, liability as they must be paid for whether in use or not. Conversely

meeting rooms and auditoriums capable of accommodating several thousand people

are readily commercially available literally across the street and payment therefore

is not required except when the facilities are used.

Third—Personnel: It would appear that no serious consideration and/or inquiry has been made into the needs and wants of the personnel who actually perform the

work of the patent of rice. Approximately 85 percent of the employees of the office

reside in the area of Northern Virginia, and of that number 75 percent are content

to remain where they are and are generally satisfied with the present location of

the office and have no desire to see changes made. Many of these employees have

sited their homes with particular attention being given to proximity to either the

patent office or to public transportation (Metro). Relocation would be extremely disruptive of their lifestyles and life plans. In conclusion, it would appear that the motivations for relocation of the patent

office are not purely altruistic and all possible alternatives have not been fully explored. While the commissioner professes to desire only a more efficient office there

is the obvious question of aesthetic over-kill and wasted space. Others may profess

other desires for the office but it is feared that their reasons are self-serving. The

vast majority of the independent users of the services of the Patent Office are content with the location, and can find no compelling reason to expend this vast sum

of money to create yet another White Elephant. If a business, or an individual, desires to lease a vehicle or a warehouse, good business practice, or just common sense

suggests that following the lease, acquisition of ownership is possible for a pre-lease,

agreed-upon amount. If we must lease a Patent Office, why would we not lease-toown, so that someday, after years of paying ridiculous sums for rental, we would

at least have something to show for it?

KENNEITH F. ADDISON, JR., PTE.

President Emeritus, Oklahoma Inventors Congress.

Director, United Inventors Association of the USA,

Spokesperson, Alliance for American Innovation.

OFFICE OF HON. ERNEST J. ISTOOK, JR.,

U.S. House of Representatives, May 26, 1998.

THE HONORABLE WILLIAM DALEY,

Secretary of Commerce,

U.S. Department of Commerce,

Washington, DC 20230.

DEAR MR. SECRETARY: As you know, the recently passed supplemental appropriations bill directs you to conduct a review of the merits of the proposed procurement

of new headquarters space for the Patent and Trademark Office (PTO) and to submit a report to the Appropriations Committees before any appropriated funds can

be spent.

As you conduct your review, I wanted to share my thoughts on the project with

you. In all candor, I must tell you I have serious reservations about this project.

I have reviewed reports on PTO’s planned expansion and consolidation produced by
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both the National Taxpayer’s Union and the Inspector General (IG) of the Commerce Department. These reports describe a procurement of tremendous magnitude

and expense that threatens to have skyrocketing costs as a result of poor planning

and management. Further, the IG’s report has uncovered new information that documents $29 million in additional costs for extravagant upgrades that were hidden from Congress.

PTO testified that the project included $88 million in build-out costs, i.e. the cost

of constructing and finishing the interior space with rugs, wall coverings, fixtures,

etc. This build-out cost is an astonishing $44 per square foot, more that twice as

much as a typical, high quality government facility. On top of that figure, I now learn from the IG that PTO plans to spend another $29 million for ‘‘above standard build-out additions.’’ So, the true cost on the buildout is not $88 million, but rather $117 million, a remarkable $58 per square foot.

Moreover, this additional $29 million has not been authorized by Congress, calling

unto question whether PTO has the authority to legally go forward with this project

at all.

In light of the information I have reviewed to date, it is my view that this project should not go forward. Unless your report brings forth new information that I have not seen, I will at- tempt to use the Treasury, Postal Service and General Government Appropriations

bill, which funds General Services Administration, or a similar vehicle, to put an

end to this wasteful and unnecessary project. If your report reaches the same conclusion that this is a wasteful project, I encourage you to do everything in your

power to terminate PTO’s planned procurement.

Thank you for your attention to this matter.

Very truly yours,

ERNEST J. ISTOOK, JR.,

Member of Congress.

COMMITTEE ON GOVERNMENTAL AFFAIRS,

U.S. SENATE,

Washington, DC 20510–6250, May 20, 1998.

THE HONORABLE WILLIAM DALEY, Secretary of Commerce,

U.S. Department of Commerce,

Washington, DC 20230.

DEAR SECRETARY DALEY: I am pleased that you are currently reviewing the ex- pansion and consolidation of the headquarters of the Patent and Trademark Office

(PTO). Due to the alleged extravagance of the project, I believe it warrants your

close attention and scrutiny.

Many issues have been raised relating to the cost-effectiveness of a possible move

by PTO to a new complex. In particular I am concerned that PTO does not have

a final budget for the build-out and that the Solicitation for Offers does not: set a

ceiling amount. The Commerce Department’s own Inspector General has expressed

concern that because GSA will be the manager of the the build-out, they ‘‘. . . will

have little to no incentive to minimize PTO’s costs since the higher the total build

out cost, the higher GSA’s fees.’’ This alone could result in significant costs. In addition, it is also important that possible moving costs are considered and appropriately

monitored.

As you proceed with the review of this project, I urge you to take every possible

step to arrive at the most cost-effective option for PTO.

Sincerely,

SAM BROWNBACK, Chairman,

Subcommittee on Oversight of Government Management,

Restructuring, and the District of Columbia.

OFFICE OF HON. EDWARD R. ROYCE,

U.S. House of Representatives, May 21, 1998.

THE HONORABLE WILLIAM DALEY, Secretary,

Department of Commerce,

Washington, DC 20230

DEAR SECRETARY DALEY: I am pleased that you are reviewing the proposed new

headquarters complex for the Patent and Trademark Office (PTO). I am closely

monitoring the developments and costs associated with this expansion.
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I have been informed that the PTO is pressing for the construction of new and

expanded facilities at a cost of $1.3 billion despite the fact that 200,000 square feet

of their current 1.3 million square foot complex is unoccupied. Further, I understand

that the PTO enjoys a secure lease at what appears to be favorable rates with extension options that will not expire until 2014. Serious questions have also been raised

regarding what are seemingly extravagant and unnecessary aspects of the proposed

facility.

I appreciate your personal attention to this project and I hope that every cost effective alternative is considered.

Sincerely,

EDWARD R. ROYCE,

Member of Congress.

OFFICE OF HON. JOHN J. DUNCAN, JR.,

U.S House of Representatives, June 11, 1998.

MR. WILLIAM DALEY,

Secretary of Commerce,

Department of Commerce,

Washington, DC 20230.

DEAR MR. DALEY: I am writing regarding the proposed Patent and Trademark Office (PTO) plan to expand its headquarters.

I have had information brought to my attention that makes the question this proposal.

I am a member of the Subcommittee on Public Buildings and Economic Development. During my service on this Subcommittee I have worked very hard to ensure

that Federal construction projects are necessary and that they are completed in the

moot economical manner.

However, I do not believe that the proposal for a new headquarters for the PTO

is necessary or that it can be carried out in an economical manner.

It is my understanding that the PTO has lease options in place that would allow

it to remain at its current location until 2014. According to the National Taxpayers

Union (NTU), it could cost taxpayers $100 to $200 million more to rent the new facility. In addition, the NTU has estimated that it could cost $120 million just to

move.

Furthermore, I believe a 20-year lease for $1.3 billion is excessive given that this

is nearly twice the cost of constructing the Ronald Reagan Building, which was the

most expensive Federal building in history.

It is also not clear why the PTO would request a 2.3 million square-foot complex

when it already has 200,000 square feet that is not being utilized at its current facility.

Finally, I am told that this proposal includes some excessive and lavish features

such as plazas, sculptures, decorative fountains, jogging trails, amphitheaters and

fitness centers.

This new project is opposed by the National Taxpayers Union, the Citizens

Against Government Waste, and even more significantly, the inventors who are the

clients of the PTO and the employees of the agency itself. For these reasons and

others, I hope you will save the taxpayers a great amount of money by stopping this

very wasteful proposal before it goes any further,

Thank you for your time and consideration. If you have any questions please feel

free to give me a call.

With best wishes and personal regards, I am

Yours truly,

JOHN J. DUNCAN, JR.,

Member of Congress.

OFFICE OF HON. THOMAS M. DAVIS,

U.S. House of Representatives, October 7, 1997.

THE HONORABLE DAVID J. BARRAM, Administrator,

General Services Administration,

Washington, DC 20405

DEAR MR. BARRAM: I am writing in reference to the General Services Administration (GSA) Solicitation No. 96.004, the project to consolidate the offices of the Patent

and Trademark Office (PTO) in northern Virginia via long-term leases. I am specifi93

cally concerned as to the amount of space to be leased and the cost of the ‘‘tenant

fit-out.’’

As the solicitation is currently written, the PTO seeks to lease up to 2,386,940

rentable square feet of office space. The solicitation also requires each offeror to propose a building ‘‘ shell’’ and then provide GSA with an $88 million fit-out allowance.

I would appreciate your response to the following two concerns. First, please confirm that the 2,386,940 rentable square feet remains as the PTO’s long term (20-

year) requirement for space and that there are no plans or discussions underway,

in GSA or PTO, or between GSA and PTO, to increase that amount. If there are

any plans or discussions regarding either increasing or decreasing PTO’s space requirement, I would appreciate knowing the specific nature of those plans or discussions and receiving any documents or records relating to the contemplated changes.

I assume that any change in the PTO’s long term space requirements will require

an amended prospectus to be submitted to the Transportation and Infrastructure

Committee.

Second, I understand that the Solicitation for Offers (SFO) requires offerors to

provide an $88 million Fit-Out Allowance to complete the PTO facility. This allowance, has not yet been made part of the Prospectus review process. I would therefore

appreciate an explanation as to the amount of and use of the Fit-Out Allowance

being required of offerors.

Given the current status of the PTO solicitation, I would appreciate your answer

to these questions no later than October 24, 1997. Thank you in advance for your

prompt attention to this matter.

Sincerely,

TOM DAVIS,

Member of Congress.

OFFICE OF HON. MICHAEL P. FORBES,

U.S. House of Representatives, May 5, 1998.

THE HONORABLE WILLIAM M. DALEY, Secretary,

Department of Commerce,

Washington, DC 20036.

DEAR SECRETARY DALEY: I am concerned about the Patent and Trademark Office’s

(PTO) proposed plan to expand and consolidate its headquarters space. Information

from the PTO about the intended space expansion project and the costs associated

with it appears to be inaccurate and possibly misleading. PTO Commissioner Bruce

Lehman’s testimony last month before one of the subcommittees I serve on, the

House Appropriations Subcommittee on Commerce, Justice, State and the Judiciary,

included apparently inaccurate statements.

Specifically, Commissioner Lehman testified that the PTO’s current average rent

per square foot of space is higher than the level approved in PTO’s proposed expansion. The attached analysis appears to demonstrate that the Commissioner’s statement is inaccurate and that the proposed PTO expansion/consolidation is far more

expensive than existing options. The Commissioner also testified that the PTO is

seeking new space because its current leases have expired, when the attached analysis demonstrates that the PTO has secure term leases in place and has options to

remain in place until the year 2014 at what appear to be favorable rental rates.

These apparent inaccuracies should be closely scrutinized and corrected. I share

your interest in ensuring that the PTO’s space needs are met. However, if the PTO

has options on the space it needs for 16 years into the future at favorable rental

rates, why is the agency proposing to spend $1.3 billion over 20 years for a new

lease?

I understand that you are currently conducting your own review of the proposed

PTO consolidation and you may be evaluating concerns highlighted in the December

1997 draft report, ‘‘Insufficient Planning is Jeopardizing PTO’s Space Consolidation

Project,’’ issued by the Commerce Department’s Office of Inspector General. In your

review of the PTO’s space plans, I urge you to pay close attention to the concerns

set forth and the analysis provided in the attached letter. If there is a more sensible, cost effective alternative, perhaps the current plan should be rethought.

Thank you for your careful attention to these concerns.

Sincerely,

MICHAEL P. FORBES,

Member of Congress.
94

[From the Washington Business Journal, September 18–24, 1998]

CRITICS OF PTO RELOCATION GET HEARING FROM SENATE

A Senate panel plans to take another look at the proposed relocation of the Patent

and Trademark Office.

A subcommittee chaired by Sen. John Warner, R-VA, has scheduled a Sept. 23

hearing to discuss the controversial PTO project.

‘‘What the Senator wants to do with a hearing is to bring everybody to the table—

everybody in favor of it, everybody against it—and he wants all the arguments in

front of people,’’ said a spokesman in Warner’s office.

The hearing before the Environment and Public Works Subcommittee will be held

at 2:30 pm. in room 406 of the Dirksen Senate Office Building.

The move comes as the National Taxpayer Union intensifies its attacks on the

project and residents living near one of the sites under consideration rally against

it.

At issue is the proposed relocation of the PTO from 1.9 million square feet in 16

leased buildings in Crystal City. The General Services Administration, which oversees Federal office space, wants to sign a new 20-year lease for 2.2 million to 2.4

million square feet in eight buildings near a Metro station. The cost of the lease

has been authorized at $1.3 billion over its term.

The GSA has narrowed the search to three Northern Virginia sites and plans to

request final proposals from the finalists by the end of September. GSA spokesman

Jim Williams said. The agency expects to award the lease in January.

Two finalists in Alexandria are: Bethesda-based LCOR Inc., which would develop

the complex at Alexandria’s Carlyle development, owned by Norfolk Southern Co.;

and Alexandria-based Hoffman Management Inc., which would build on a vacant

site at the Eisenhower Avenue Metro station.

Arlington-based Charles E. Smith Cos., the PTO’s current landlord, is the other

finalist. Smith has lobbied hard to keep the PTO from moving, but it would have

to do major renovations of its 1960-era Crystal City buildings if it succeeds.

The project has drawn national attention, with several of the parties involved hiring lobbying firms and the National Taxpayers Union also getting into the act.

The Alexandria-based organization wants Congress to stop the move, saying it

would worsen traffic through Alexandria and Arlington. The group also called the

project ‘‘extravagant’’ citing a plan listing the purchase of $250 shower curtains and

$1,000 coat racks.

But the PTO said those examples and others cited by the taxpayers union came

from a consultant’s hypothetical study on worst-case estimates.

Furniture purchases will based on competitive bids or the GSA schedule, and the

complex’s interior build-out will be capped at the Federal Government’s maximum

of $36.69 a square foot. The PTO also said its leases are funded by patent fees.

This month another controversy surrounding the project erupted. A group of Alexandria residents, many of whom live in Carlyle Towers in the Carlyle development,

do not like changes proposed to the Carlyle plan that would accommodate the PTO.

One of the development’s streets would be cut short and another eliminated. The

proposal also calls for the tallest building to increase from 220 feet to 288 feet. In

addition, many of the buildings at the center of Carlyle would be changed from residential to office.

‘‘It makes the center a dense office complex,’’ said Carlyle Towers resident Alan

Rudd. ‘‘It really changes the image of the community as it was originally proposed.’’

Rudd and other citizens from nine civic groups plan to lobby Alexandria officials

to steer the PTO toward the other Alexandria site.

But Mayor Kerry Donley said the city is committed to getting the PTO and

doesn’t favor one site over the other.

He said the city, developer and residents should be able to overcome their differences should the Carlyle site be chosen.

‘‘I’m hopeful that the city will stick to its priority—the pursuit of the Patent and

Trademark Office,’’ Donley said.
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[From the Washington Times, September 8, 1998]

NEW OFFICES TERMED PATENTLY GRANDIOSE: COALITION SLAMS PLAN FOR PTO

MOVE

(By Joyce Howard Price)

Anti-tax groups, some GOP senators and former Presidential candidate Ross Perot

are denouncing Federal plans to spend up to $1.3 billion to lease opulent new digs

for the Patent and Trademark Office.

Critics say the offices feature lavish plazas, fountains and furnishings that include $13,000 tables, $240 shower curtains and $562 stools.

The 300,000-member National Taxpayers Union and the 600,000-member Citizens

Against Government Waste are pressing Congress for a ‘‘wholesale re-examination’’

of what they are variously describing as the ‘‘government building boondoggle’’ and

the ‘‘PTO palace.’’

What’s more, a new poll by the Patent Office Professional Association, a union

representing patent examiners with the Patent and Trademark Office, found its

members opposed the move to a new PTO complex by a margin of 3 to 1, said NTU

spokesman Pete Sepp.

‘‘We want to avoid the danger of appearing to create the next Ronald Reagan

Building, with its high cost overruns and grandiose public spaces,’’ the union, POPA,

said in its newsletter, POPA News.

The Ronald Reagan International Trade Center, which began as a $362 million

project, ended up costing more than $800 million.

Critics of the proposed PTO move portray the Reagan building as a bargain, compared with the ‘‘campus’’ proposed for PTO, whose 5,200 employees are currently

spread out over 18 buildings and a one-mile radius in Crystal City.

Mr. Sepp points out that the Federal Government would pay twice as much as

what it spent for the Reagan building to ‘‘lease, not own,’’ the new PTO headquarters. The Reagan trade center was ‘‘built to last for 200 years, not just for a

20-year lease,’’ he said.

Brigid Quinn, spokeswoman for PTO, said that in 1995 The General Services Administration, in concert with Congress, determined PTO needed more space and upto-date space,’’ and that ‘‘consolidation would make operations more efficient.’’

By year’s end, she said, the GSA is expected to select from one of three alternatives to PTO’s current location arrangements. One option, she said, would be a

‘‘reconfiguration’’ of the space where PTO is now. The others would be to build allnew facilities on other property in Arlington or Alexandria.

In a recent editorial, Investor’s Business Daily took a swipe at PTO Commissioner

Bruce Lehman’s proposed ‘‘palace.’’

It would feature costly surfaces of granite, marble and hardwoods, There would

be plazas, fountains, jogging trails, and high-tech lighting. The art crowd should be

pleased with the sculptures and open-air amphitheater’’ the newspaper said.

In July, Sen. John McCain, Arizona Republican and chairman of the Commerce

Committee, raised concerns about the ‘‘enormous cost of the project,’’ then estimated

at $1.6 billion. That total would have included $1.3 billion for the 20-year lease and

an additional $250 million to ‘‘improve’’ the new headquarters building and bring

it up to PTO standards.

The Senate narrowly debated an amendment Mr. McCain made to the Commerce

appropriations bill that would have shut down the proposed relocation.

But it passed an amendment sponsored by Sen. Sam Brownback, Kansas Republican,and Sen. James M. Inhofe, Oklahoma Republican, that put a $13 billion ceiling

on the lease payment and a $135 million cap on what could be spent for moving

costs, improvements and new furnishings.

NTU says it believes those costs are excessive and will continue to press Congress

for more relief. ‘‘There will be hearings, hopefully, later this month,’’ said Mr. Sepp.

[From Roll Call newspaper, July 23, 1998]

PATENTLY OVERPRICED

GOP Sen. John McCain (Ariz.) and John Warner (Va.) are battling over a proposed move by the U.S. Patent and Trademark Office that could reportedly save the

taxpayer hundreds of millions of dollars in unnecessary spending.

McCain has introduced an amendment to the fiscal 1999 Commerce, Justice, State

and the Judiciary appropriations bill that would allow the agency which wants to
96

relocate, to consider moving to DC or Maryland if it helps reduce the cost of the

agency’s upcoming move. But Warner is only interested in having the PTO move anywhere inside the state of Virginia—just so that his home state keeps the agency’s roughly 5,300 employees.

Warner pushed through language back in 1995 preventing the PTO from fleeing the

Old Dominion.

Warner has also had to deal with Sen. Sam Brownback (R-Kan.) and Rep. David McIntyre (R-Ind.), who are critical of the PTO’s handling of the proposed relocation.

More fireworks are possible on this controversial move soon.

[From the Tampa (FL) Tribune, September 22, 1998]

HINT: THIS PALACE IS NOT IN XANADU

Now for a game of guess who.

Guess who is buying 18 shower curtains at $250 each.

Who is buying 52 stools at $562 each, 88 chairs at $1,025 each, 192 chairs at $1,200 each and 16 really nice chairs at $1500 each. Who is buying nine coat racks at $1,000 each, 96 desks at $3,000 each, seven desks at $4,000 each and one really nice desk at $5,000. Who is buying three cubical curtains at $600 each, 71 ash urns at $309 each, 8,280 waste receptacles (trash cans) at $133 each, 300 waste receptacles at $100

each, and 20 really nice waste receptacles at $870 each. Guess who is lavishly furnishing in office building at a cost of $9,000 per em- ployee. Here a a clue. The voices screaming about these prices come from the National

Taxpayers Union. The costly furniture is to go into the ornate new headquarters of the U.S. Patent and Trademark Office paid for by you-know-who—us. The structure in northern Virginia will have fancy fountains, plazas, sculptures and an open-air amphitheater. It

is projected to cost the government $1.3 billion, and that’s to lease the palace, not

own it.

To put that sum in local perspective consider that Hillsborough County paid $30 million for its upscale 2-story office tower. The patent office wants to spend 43 times

as much for a building with about six times as much square footage. And the patent

office could cost more because there is no set cost ceiling, The taxpayers group is

right to demand that Congress reconsider this extravagance. Patent officers do vital work and they deserve a solid desk and a comfortable chair. But if Members of Congress think a clerk’s coat requires a $1,000 rack or a

patent officer’s trash needs a $870 can, they’re overdue for a visit home.

[From the Indianapolis Star/News, September 10, 1998]

FEDS’ PATENT ON WASTEFULNESS

The Federal Government’s spending habits just don’t seem to improve.

As part of a recent proposal to move the national Patent and Trademark Office (PTO) into a new facility, the government was prepared to pay $250 for each shower

curtain. $1,025 (and higher) for each chair and $1,000 for each coat rack. The total proposed cost for furniture at the new site, under this proposal, was $60

million. Consider: That’s just one of a long list of Federal agencies. That’s not even the worst of it.

The PTO planned to spared an incredible $1.3 billion to lease the new building for only 20 years. As a basis of comparison, the new Reagan Building cost the Federal Government about half that amount for the same amount of space—and it was

purchased, not leased.

It is expected to serve the Federal Government for perhaps 200 years. not just

20.

PTO Commissioner Bruce Lehman wanted the new site to feature marble surfaces, plazas, fountains and jogging trails.

One of the first entities to raise concerns about the PTO’s planned project was

a watchdog group opposed to high taxes and government waste, the National Taxpayers Union. Since it publicized the matter, it has attracted allies to the cause of

canceling the PTO’s fancy plans.

Inspecting the building proposal, Sen. John McCain, R-Ariz., said the PTO’s

standards amounted to ‘‘extravagant and luxurious amenities that most of America’s

businesses do not provide even to their most senior executives.’’
97

We agree. For far too long, Federal officials have followed blueprints for wasting taxpayers’ money. This time, Congress had better take a wrecking ball to the PTO’s

proposed palace before any money is spent.

[From the Houston Chronicle, September 14, 1998]

‘‘Remember the armed forces’ $600 hammers, coffee pots and toilet seats They’re back, after a fashion. This time, it’s the U.S. Patent and Trademark Office, which

proposes to lease a new building and equip it with $250 shower curtains, $5,000

desks, $1,000 coat racks and $100 trash cans (some would run as high as $870).

Perhaps those prices are to be expected. According to the National Taxpayers Union,

the 20-year lease of the building would cost taxpayers $1.3 billion. The trash cans

would come at additional cost.’’

[From Dow Jones Investor’s Business Daily, July 1, 1998]

Throughout history, kings and dictators have built plush palaces in their own honor. Have we come this far in United States history only to have a bureaucrat

do the same at taxpayer expense. One Washington group says we have. According to Citizens Against Government Waste, Patent and Trademark Office Commissioner Bruce Lehman ‘‘wants to build

a billion-dollar palace for the greatest patent and trademark commissioner in history—himself.’’

Actually, the new headquarters proposed by Lehman would cost at least $1.3 billion. And that’s a low-ball figure. The Ronald Reagan International Trade Center,

Washington’s most recent example of grandiose excess, was projected to cost $362

million.

It cost $818 million. If Lehman’s palace follows the typical government process,

the new PTO headquarters would make the Reagan Center seem like a shack. Citizens Against Government Waste estimates the new PTO building would nearly double the Reagan Center’s price tag—though it would be about 30 percent smaller.

What Lehman proposes is far more than a practical government structure. It

would feature costly surfaces of granite, marble and hardwoods. There would be plazas, fountains, jogging trails and high-tech lighting. The art crowd should be pleased

with the sculptures and open-air amphitheater.

In a city of extravagant buildings and ornate architecture, more opulence is not

necessary.

Fountains, jogging trails and a museum ambience are not needed for the staff to

examine patent and trademark applications. Employees would rather the money be

spent on training and on search rooms, where examiners sift through the vast

records of the Patent Office.

Search rooms have been cut from building plans, though, and training now is virtually nonexistent. So much for employees’ noble wish, as their union says, ‘‘to do

the real work of the PTO.’’

Understandably, inventors are also concerned. They fear they will be stuck with

higher fees to pay for the huge construction costs. Their additional expenses would

eventually be passed on to consumers.

The PTO has listed four reasons it needs a new building. According to the union

for PTO workers, though, all but one of those needs—space for more staff—have

been met.

That need can be taken care of by renting more space, the union says.

None of this is to say the PTO shouldn’t build—or move into—a new office. Ownership is often preferable to long-run renting, especially when taxpayers are footing

a $57 million-a-year rent bill for the Patent Office.

Functional office space can be built—or bought—for much less than $13 billion.

Washington doesn’t need another monolith.

[Press Release from the National Taxpayers Union, August 6, 1998]

TAXPAYER GROUP’S CRUSADE AGAINST BUILDING BOONDOGGLE GAINS IMPORTANT

NATIONAL SUPPORTER ROSS PEROT

(Washington, DC)—The 300,000-member National Taxpayers Union (NTU) hailed

former Presidential Candidate Ross Perot’s declaration of opposition today to a massive proposed $1.3 billion headquarters for the Patent and Trademark Office (PTO)

as ‘‘a clear sign that common sense is gaining ground on big government.’’
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‘‘Taxpayers welcome Ross Perot’s decision to speak out against the PTO Palace,’’

said NTU Vice President for Government Affairs Al Cors, Jr., who has organized

the group’s opposition to the building complex. ‘‘As one of America’s best known entrepreneurs, Ross Perot lends a strong voice to those of over inventors who resent

this monument to bureaucratic extravagance.’’

In the course of its opposition to the new PTO headquarters, to be located in

Northern Virginia, NTU researchers have uncovered a member of fiscal pitfalls that

could trap taxpayers:

The Federal Government would spend at least $1.3 billion to lease, not own this

facility. By contrast the Reagan Building cost about half as much to build for the

same amount of space for the PTO complex—and it’s built to last for 200 years, not

just for a 20-year lease.

Interior build-out costs per square foot in the proposed PTO building could be

more than double the standard rate for the rest of the Federal Government.

PTO’s costs just for moving into the new headquarters could run more than $130

million. One proposed moving plan would purchase $65 million in brand new furniture, including $250 shower curtains, $750 cribs, $309 ash cans, and $1,000 coat

racks.

The environmental cleanup costs of possible PTO relocation sites could be as high

as $194 million—some may contain carcinogens or even unexploded ordnance.

The Commerce Department’s own Inspector General wrote that the PTO plan is

‘‘flawed because the lease development project lacks a defined cost ceiling.’’

Recent, the Senate narrowly voted down an amendment to the Commerce/State/

Justice Appropriations Bill from Sen. John McCain (R-AZ) that would have prompted serious examination of the PTO project. However, an amendment sponsored by

Sen. Sam Brownback (R-KS) and Jim Inhofe (R-OK) to establish tighter cost controls on the PTO proposal did prevail. NTU has vowed to press Congress for a

wholesale reconsideration of the plan.

‘‘By a 3 to 1 margin, PTO employees represented by the Patent Office Professional

Association oppose the move to a new complex,’’ Cors concluded. ‘‘Meanwhile, inventors like Ross Perot are calling on Congress to stop the tax on innovation that this

costly building will cause. When both the workers and the customers are saying ‘‘No

to PTO,’’ lawmakers should listen more carefully.’’

HIGHLIGHTS OF ITEMIZED FURNITURE EXPENDITURES FROM THE DEVA REPORT

PREPARED FOR THE PTO

Overall Furniture Costs—$65 Million—Over $9,000 per Employee

Item Quantity Unit Price Total Cost

Waste Receptacle .................................................................................................... 300 $100 $30,000

Waste Receptacle .................................................................................................... 8,280 $83 $687,240

Waste Receptacle w/tray ........................................................................................ 20 $870 $17,400

Projection Screen .................................................................................................... 175 $3,000 $525,000

Ash Urn ................................................................................................................... 71 $309 $21,939

Chair ....................................................................................................................... 16 $1,500 $24,000

Chair ....................................................................................................................... 192 $ 1,200 $230,000

Chair ....................................................................................................................... 88 $1,025 $90,200

Desk ........................................................................................................................ 1 $5,000 $5,000

Desk ........................................................................................................................ 7 $4,000 $28,000

Desk ........................................................................................................................ 96 $3,000 $288,000

Sofa ......................................................................................................................... 1 $2,500 $2,500

Stool ........................................................................................................................ 52 $562 $29,224

Shower Curtain ....................................................................................................... 18 $250 $4,500

Bed .......................................................................................................................... 19 $1,000 $19,000

Bedding ................................................................................................................... 19 $500 $9,500

Bedding ................................................................................................................... 4 $375 $1,500

Crib ......................................................................................................................... 4 $750 $3,000

Cubical curtain ....................................................................................................... 3 $600 $1,800

ModularTable ........................................................................................................... 4 $13,298 $53,192

Table ....................................................................................................................... 1 $2,893 $2,893

Table ....................................................................................................................... 1 $1,001 $1,001

Lecturn .................................................................................................................... 3 $1,000 $3,000

Mobile Cart ............................................................................................................. 3 $1,276 $3,828

Coat rack ................................................................................................................ 9 $1,000 $9,000

Carrel ...................................................................................................................... 300 $1,500 $450,000
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Overall Furniture Costs—$65 Million—Over $9,000 per Employee—Continued

Item Quantity Unit Price Total Cost

TOTAL .................................................................................................... .................... .................... $2,541,117

CITIZENS AGAINST GOVERNMENT WASTE,

Washington, DC, May 18, 1998.

Dear Members of Congress: The Commissioner of Patents and Trademarks, Bruce Lehman, is attempting to build a memorial to himself with taxpayer dollars. Under

the guise of consolidating space, Commissioner Lehman is soliciting bids to construct a new PTO facility—but not just any facility. At a cost of $1.3 billion, the

PTO facility will dwarf the price tag of the $800 million Ronald Reagan building

and have 700,000 less square feet.

The PTO is asking for 2.3 million square feet although 200,000 square feet of

their current 1.2 million square-foot complex is unoccupied. The Department of

Commerce Inspector General has produced a report, ‘‘Insufficient Planning is Jeopardizing PTO’s Space Consolidation Project,’’ which casts some doubt on the appropriateness of this project.

In testimony before the Appropriations Committee, Commissioner Lehman stated

the PTO is seeking new space because its current leases have expired. However the

PTO has secure term leases in place and has options to remain in their current location until the year 2014.

It is our understanding that Commerce Secretary William Daley is currently conducting his own review of the alleged PTO consolidation. On behalf of the 600,000

members of the Council for Citizens Against Government Waste, we urge you to

write Secretary Daley and impress upon him the importance of not proceeding with

this project. Further, we ask that you use the appropriation and/or authorization

process to terminate this attempt to loot the taxpayers.

Sincerely,

COUNCIL NEDD II,

Director of Government Affairs.

STATEMENT OF THE COUNCIL FOR CITIZENS AGAINST GOVERNMENT WASTE

THE NEW PATENT AND TRADEMARK OFFICE COMPLEX ANOTHER GOVERNMENT

BOONDOGGLE WAITING TO HAPPEN

Whether it’s the lavish Federal courthouses, the $800 million Ronald Reagan

Building boondoggle, or the $750,000 Taj Mahal of toilets in Delaware Water Gap

National Park, the Federal Government can’t resist wasting money on glitzy new

buildings. Next up: construction of a new complex for the Patent and Trademark

Office (PTO) in Northern Virginia.

• House approval on April 23 of the 21st Century Patent System Improvement

Act (H.R. 400) clears the way for a sparkling new PTO facility at an estimated cost

of $1.3 billion. If anyone in Congress thinks this estimate is accurate, they need look

no further than the recently christened Ronald Reagan Building which began as a

$362 million project and wound up as an $800 million taxpayer nightmare.

• Not only will the PTO complex wind up costing nearly double what the Reagan

Building cost, it will actually be smaller. The Reagan building takes up 3 million

square feet of space compared with PTO’s proposed 2.3 million.

• Why will the new PTO complex cost so much? One word: Extravagance. Included in the plans are electrical, lighting, cooling, telecommunications, and elevator

facilities far above top industry standards. The complex will also have plazas, sculptures, decorative fountains, walking and jogging trails, open-air amphitheaters and

state-of-the-art fitness facilities— expenditures hardly necessary for the simple processing of patents and trademarks.

• PTO is asking for a 2.3 million square-foot complex even though 200,000

square feet of the current 1.2 million square-foot facility is unoccupied. In addition,

PTO employees say they are happy where they are and have no desire to move to

a new locale.

• Inventors and entrepreneurs will be forced to pick up the bill for the PTO palace in the form of higher surcharge fees for PTO services. Our most creative minds,

whose inventions make life easier for all Americans, should not be forced to subsidize this boondoggle.
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Behind this effort is Patent and-Trademarks Commissioner Bruce A. Lehman. His

willingness to ‘‘tax’’ inventors is a product of his attitude toward them. An Invention

Digest story quotes him referring to these innovators as ‘‘week-end hobbyists, and

that anyone who disagrees with his proposals is a Member of the lunatic fringe in

the Timothy McVeigh category.’’

[From POPA News, Patent Office Professional Association, January 1998]

IS A NEW CAMPUS JUSTIFIED WITHOUT SEARCH ROOMS?

The PTO has eliminated the search rooms in its plans for the new PTO campus,

but having personnel closer to each other so that they could visit search rooms more

easily was one of the main reasons the PTO cited in its request to Congress to approve the building of a new campus. The PTO called the need to have employees

near to each other ‘‘collocation.’’ In its Prospectus on the new campus, submitted to

Congress it said ‘‘Collocation is vital to the PTO mission and is a continuing agency

need because interaction and cross research among technology groups is an integral

part of the Patent and Trademark Examining process.’’

The vast majority of trips made by examiners are for searching, and if there are

no examiner search moms. the need for consolidation pretty much evaporates.

PTO’s Reasons

The PTO has publicly acknowledged four reasons for a new campus: to make travel easier among employees by consolidating the PTO into closer quarters; to better

accommodate automation systems: to update the buildings to meet current fire, safety, and accessibility standards and to accommodate more staff.

Our increased use of automated systems requires increased electrical usage and

air conditioning loads and capacity. But these are problems we’ve already solved.

The PTO already has installed new, functioning equipment on every examiner’s

desktop. When management envisioned dual screen computers for every examiner.

there may have been some need for more capacity than our current system can bear,

but problems of capacity appear to be pretty much resolved now.

Updating the building to meet current safety and accessibility standards would

cost some money, but nothing like building a new campus would cost.

That leaves the expansion of staff as a reason for a new campus. With the last

expansion of our current offices to Crystal Park 2, we now occupy more than 1.7

million square feet of usable office space. which is about 400,000 square feet under

the amount of usable office space called for in the specs for the new building.

However, our Crystal City location offers us one advantage that a new campus

might not have: the option of renting more space in the future if we need it. The

advantages of this expansion capability should not be treated lightly. If the PTO

builds a campus at another location. it may not be able to get additional space when

it’s needed. Also, clearly it’s cheaper to rent additional space where we are than to

build a new campus.

In our recent employee survey, the majority of patent examiners didn’t believe

moving was a good idea The current facilities are better situated for most employees. They provide good access to shops and restaurants, are accessible by public

transportation, and are just off numerous main thoroughfares That isn’t true of

some of the other sites considered.

Is the PTO merely interested in building a monument to patents? Many people

don’t realize that GSA has already negotiated long-term lease options far our current space at rates that are more reasonable than new space will be. We want to

avoid the danger of appearing to create the next Ronald Reagan Building, with its

high cost overruns and grandiose public spaces.

A December 17 story in The Washington Post quoted a Navy officer who had to

move out of the Pentagon temporarily while it was being renovated into offices in

Crystal City. He and his colleagues did not want to move back to the Pentagon because Crystal City was more convenient.

Perhaps we should reevaluate the advantages of staying where we are. Then we

could use the money allocated for the new campus to do the real work of the PTO,

the examination of patent and trademark applications.

POPA Thrown Off Site Selection Advisory Board

POPA has been told it may no longer attend Source Selection Advisory Board

meetings, the meetings at which many of the issues regarding the selection of new

space for the PTO campus are being discussed. The action is the direct result of an

article in the November POPA News in which we reported on Charles E Smith’s
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difficulty in getting the PTO to consider amending its specifications to make Charles

E. Smith a viable bidder.

A letter from Sharon Jenkins Source Selection Authority, General Services Administration, National Capital Region, says the POPA News article calls into question POPA’s ability to ‘‘fairly, objectively, and impartially evaluate Smith’s and the

other offerors’ proposals’’.

It Was Public Record

We argued in the article that the PTO should listen to Charles E. Smith’s requests to modify the specs so the company could compete fairly. But the information

we had did not come from our participation upon the Source Selection Advisory

Board; it was a matter of public record and available in public documents.

The purpose of the union is to be an advocate for our members’ best interests We

have not abused our position on the Board by using any of the information discussed

in any meetings; we have given our Board representative information about what

would be best for our membership so that it can be conveyed to the Board. The flow

of information has gone one way toward the Board, not out from the Board.

Our participation on the Board is understood to be a way for us to present the

views of our membership to site selection decisionmakers Our role is to represent

the best interests of our bargaining unit members and it is in the interests of our

membership to have Charles E. Smith be a viable competitor in this bidding because

the Crystal City location offers advantages that other sites do not. Our error. apparently, was in announcing our position publicly. But we have always felt it is better

to be open and above board about our position on issues that affect our membership

so dramatically.

[Press Release from the National Taxpayers Union, September 23, 1998]

NTU TO TESTIFY AT SENATE HEARING ON PATENT AND TRADEMARK OFFICE

BOONDOGGLE

NEW STUDY SHOWS COST OF $1.6 BILLION TO TAXPAYERS

Washington, DC—The National Taxpayers Union, along with numerous other

groups, will testify before the Senate’s Environment and Public Works Subcommittee today that the proposed relocation of the Patent and Trademark Office

is yet one more glaring example of government waste.

The proposed relocation, which would bring all of the PTO offices together on one

‘‘campus,’’ would cost the Federal Government $1.6 billion dollars to lease—not own.

The Ronald Reagan Building, which made headlines throughout the eighties and

nineties as a ‘‘White Elephant,’’ cost half as much as the proposed PTO plan—and

it was built to last 200 years. For double the cost the PTO will have a lease on their

new facility for a mere 20 years.

A September 17, 1998, study of the proposed relocation prepared by Arthur Andersen, to be released at the hearing, states:

‘‘Overall, the proposed PTO relocation project encompasses significant risk and

would result in higher occupancy costs for the PTO. The risks associated with remaining in and improving existing facilities are considerably less. Based on the

data presented in the report, a PTO relocation from its existing space to a consolidated facility would, in fact, result in higher direct lease costs.’’

The study also shows that instead of the $72 million dollars the PTO claims the

relocation will save, there will actually be an additional cost of $47.7 million.

Peter J. Sepp, vice president for communications for NTU, will testify that ‘‘the

price of moving the PTO ought to be able to buy a whole new building.’’

‘‘One proposed moving plan would purchase $65 million in brand new furniture,

with price tags often higher than those found in the poshest Beverly Hills boutiques:

$250 shower curtains, $750 cribs, $309 ash cans, $562 stools and $1,000 coatracks.’’

STATEMENT OF JOHNNIE E. FRAZIER, ACTING INSPECTOR GENERAL, DEPARTMENT OF

COMMERCE

Mr. Chairman and members of the Committee, I am pleased to appear before you

today to discuss our review of the Patent and Trademark Office’s plan to consolidate
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1PTO Needs to Refine Its Space Consolidation Planning, IPE-9724, March 1998. Commerce

Department Inspector General reports are available on-line at http://www.oig.doc.gov/reports/. 2 The Congress authorized 2.4 million rentable square feet, which GSA translated to 1.989

million square feet of occupiable space. Rentable space includes areas for which the government

will pay rent, but are not useful as office space, such as lobbies, stairwells, rest rooms, and

equipment rooms. 3 PTO is in the process of expanding into a seventeenth and an eighteenth building and a

33rd lease yielding an estimated total of 1.88 million occupiable square feet. PTO has not yet

accepted this additional space because it requires extensive fit-out before it can be occupied.

its facilities and operations and accommodate its future space requirements.1 PTO’s

space consolidation project is expected to be one of the largest real estate ventures

that the Department of Commerce, or the Federal Government, will undertake in

the next decade. We have had a long-standing commitment to promoting the efficient management of the Department’s facilities. Hence, we share the Committee’s

interest in ensuring that PTO is housed in facilities that meet its needs in the most

cost-effective manner. To this end. we welcome the opportunity to discuss the findings of our review. As you are aware, planning for the PTO space consolidation effort began in 1989. In October 1995, this committee approved the prospectus for the project, which calls

for the acquisition of a new or rehabilitated facility of up to 2.4 million rentable

square feet2 located in Northern Virginia. The approved prospectus specified that the facility should have a maximum annual rent of $57 million for 20 years, for a

total of $1.1 billion, before allowing for inflation. In accordance with that prospectus,

and in conjunction with the General Services Administration, PTO plans to award

a contract to a private developer to (1) construct a new facility, or renovate an existing facility, and (2) lease it to PTO for a period of at least 20 years. PTO will also

have a 10-year lease extension option at year 20 of the lease and purchase options

at the 20 and 30-year marks. The solicitation for offers calls for the construction

of the building shell and its ‘‘build-out’’ upon completion of the interior design. It

is now anticipated that the lease development contract will be awarded in December

1998 or January 1999, with occupancy to begin in November 2001. When we issued our final report in March 1998, PTO occupied all or parts of 16

buildings in the Crystal City area of Arlington, Virginia, under 32 separate leases

yielding 1.7 million occupiable square feet of space, of which approximately 1.4 million is office space.3

Scope of Our Review

Given the size and importance of the proposed PTO consolidation project, our of- fice conducted a review to determine whether (1) the project was justified, and (2)

PTO was effectively managing the critical acquisition phase of the project. We examined PTO’s acquisition planning and procurement strategies, as well as its current

working environment, comprised of 16 current facilities. We also examined PTO’s

space planning methodology, including the variables used by the agency to generate

its space requirements. In addition, we studied the bureau’s management of risks

associated with the build-out of the building shell. Finally, we examined the respective roles and relationships of the Department, PTO, and the General Services Administration. GSA has a critical role because of its position as the lease development

manager of this project. In addition, the Department has an oversight role. Our

analysis did not cover the acquisition of new furniture or moving costs for the consolidated facility because that cost information was not available before we issued

our report. We also have not analyzed specific Environmental Impact Statements

because that process is still ongoing. Our field work lasted from June to December

1997. Our final report was issued in March 1998.

Our Findings

The results of our inspection were mixed. We found a number of things that PTO

was doing well, and we identified areas of concern that warranted the attention of

the Department’s and PTO’s managers. Let me summarize for you our basic findings and recommendations, as outlined in our March 1998 report, and update you

as to what actions PTO, and the Department, have taken in response to our report.

The PTO consolidation project should continue. First and foremost, we determined

that PTO had justified its need for modern, contiguous office space and that the

space consolidation project should continue. PTO’s justifications for this project focus

on future savings and efficiencies from which the government will benefit. We found

that PTO has managed many aspects of the lease development procurement well.

The PTO/GSA procurement strategy and the execution of that strategy have generally been successful. PTO has documented the basic requirements and benefits for

the new lease development based upon its need for modern, contiguous space that
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4 The $24 per square foot number was expressed in 1995 dollars, the year the prospectus was

approved by the Congress. 5 A cost-type, sole-source task order construction contract can create a situation where the

contractor has little incentive to control costs.

(1) is more efficient and less expensive than its current facilities, and (2) is compliant with the Americans with Disabilities Act and municipal health and safety codes.

More specifically: • Long-term cost savings should be realized because the current leased PTO space is more expensive than the $24 per square foot target authorized by the approved prospectus and specified in the solicitation.4

• Significant growth in the number of patent and trademark applications has in- creased PTO’s workload, and improved facilities should allow PTO to better meet

its future staffing and space requirements. • Current leased facilities in Crystal City, Virginia, are in need of alterations to comply with fire, safety, and handicapped accessibility laws. • Access for PTO and its customers, both to the facility itself and to public search areas, should be improved with the new consolidated facility. As previously noted, although PTO has generally justified its need for a new facil- ity and has been doing a good job in managing the procurement, our report highlighted a number of concerns and problems that warranted management’s attention. PTO had not finalized its space planning. We found that as of March 1998, PTO had not completed its space planning or issued its space requirements to the offerors

with only—at that time—seven months remaining before contract award. Reportedly, PTO had not finalized its space requirements because it had not reached an

agreement with its bargaining unit employees over space-related working conditions. In the absence of such an agreement, PTO is not in the best position to prepare its detailed space plans and Program of Requirements for the ‘‘build-out’’ of the

new facility. We have been very concerned that the Program of Requirements will

not be defined by the scheduled lease award—now anticipated in December 1998 or

January 1999. Since the Program of Requirements must be issued upon award of

the lease development contract, its delay could cause a major disruption in the

award schedule and would likely increase project costs. Likewise, if it is issued on

time—but must be changed later—the government could potentially be exposed to

change orders that could further delay the project and increase costs. We also noted in our report that PTO had not fully considered the potential bene- ficial effects of its information systems reengineering in defining its space requirements. For years, PTO has invested heavily in systems reengineering and automation initiatives. Many of these initiatives were reportedly designed to achieve greater efficiencies and increase productivity by reducing PTO’s staff and paper files.

This should, in turn, reduce the facilities space requirements. PTO has factored only

some of these initiatives, specifically the reduction in paper patent search files, into

its planning for the new facility, based on its assumption that the benefits of reengineering and automation initiatives will not be realized until after occupancy of

the new facility. We disagreed, suggesting that even partial success and implementation of PTO’s reengineering initiatives should result in some benefit and potentially reduce its space requirements. PTO’s build-out strategy exposes the government to cost overruns and program delays. Another of our concerns regarding the PTO consolidation project was that PTO’s build-out strategy exposes the government to cost overruns and program

delays. PTO’s build-out strategy calls for a pool of $88 million to be set aside for

completion or buildout of the basic building shell. The $88 million build-out allowance will be funded through the lease with the developer. Further, PTO is planning

to spend an additional $29 million for upgraded building systems and interiors. We

were critical of the above standard build-out process because it lacked a defined cost

ceiling and is, in some ways, similar to a cost-type, sole-source task order construction project.5 Our specific concerns included the following:

• PTO did not have a final budget for the build-out, and there was no ceiling

amount specified in the Solicitation for Offers to limit the government’s financial exposure.

• The absence of a defined ceiling for the build-out may, in our opinion, act as

an incentive for the developers to ‘‘buy-in’’ with low initial offers in the hope of recouping the difference on inevitable change orders to the baseline work.

• Without build-out specifications, the offerors are subject to performance risk,

which may be incorporated into their offers as cost contingencies, increasing the cost

to the government.

• The lack of build-out specifications increases the likelihood of change orders to

correct incomplete specifications or correct deficient ones.
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The respective roles and responsibilities of PTO and GSA had not been defined in

a memorandum of understanding. A third area of concern was that PTO and GSA

had not completed a memorandum of understanding outlining their respective roles.

Further, the fee structure between the agencies had not been defined. At the time

of our report, discussions between PTO and GSA for GSA’s build-out management

fee included the possibility of a cost-based fee of between three and 9 percent of incurred costs. We identified two problems with this possibility:

• The budgetary ceiling for the build-out had not been defined and GSA was expecting to receive a percentage of the costs expended. This equates to a cost-pluspercentage-of-cost fee arrangement—a practice that would be prohibited in Federal

contracts. Although such an arrangement is not clearly prohibited in conjunction

with interagency agreements, we are nonetheless concerned that it may act as a disincentive to use sound management practices and thus drive up costs.

• In the event GSA received any fee above 6 percent, it would be receiving a fee

in excess of the statutory ceiling for a Federal cost-type construction or architectengineering contract. While not prohibited per se in interagency agreements, a fee

of such magnitude would appear to be excessive.

In addition, we found that the two agencies had not determined whether, or under

what terms, PTO might subsequently turn back unneeded space to GSA. As the primary lease holder for the Federal Government, GSA has traditionally had a generous policy of accepting unneeded space from its agency customers. Hence, PTO’s

right to turn back unneeded office space is a critical element in PTO’s facilities management strategy. Given the possibility that systems reengineering could eventually

reduce PTO’s space requirements, PTO wants to have the future option of relinquishing unneeded space to GSA. However, GSA’s policy of accepting such office

space is potentially strained by the sheer magnitude of this lease development, the

expiration of the Federal Property Management Regulations, and evolving GSA policies regarding the acceptance of relinquished leased property.

Lastly, we were concerned that GSA’s continuing role as construction manager

had not been defined. This was important since (1) the Public Buildings Act specifies that only GSA may construct or manage the construction of buildings designated for Federal Government use, and (2) GSA is the Federal Government expert

in construction and construction management. We felt that GSA should have a continuing role in the completion of the new PTO project.

The Department of Commerce needed to improve its real estate management oversight of the PTO project. In our March report, we also emphasized that the Department needed to improve its real estate management oversight of the PTO consolidation project. We noted that the Department’s real estate staff had not adequately

monitored the progress of the PTO lease development project, one of the largest Federal construction or lease projects in the Washington metropolitan area. As a result,

the real estate staff did not foresee PTO’s late start and slow progress in its union

discussions.

Our Recommendations

In our March 1998 report and in subsequent discussions with senior PTO and

Commerce managers, we made specific recommendations aimed at improving the

PTO space consolidation project. Specifically, we recommended that:

• PTO and the Department continue with the lease development project.

• PTO finalize its space requirements to include—hopefully—an agreement with

its employee unions, giving added consideration to the potential systems reengineering savings in its space model, and completing its Program of Requirements.

• PTO conclude a memorandum of understanding with GSA detailing the rights

and responsibilities of each agency and defining GSA’s fee arrangement. Further,

the GSA fee should not be based on a percentage of costs expended, an arrangement

that could act as a disincentive for sound management practices.

• The Department’s real estate management staff should take a greater role in

planning and oversight of the consolidation project.

The Response to our Review and What’s Happened Since

PTO, the Department, and GSA all responded to our report and agreed to most

of our recommendations. Not surprisingly, they agreed that the project should proceed. There were, however, some areas of strong disagreement. For instance, PTO

did not agree that a contractual ceiling for the build-out was necessary to reduce

the risk of cost growth. PTO suggested that the annual budget process would ensure

that government resources were not wasted.

However, PTO did take various steps to address specific concerns. For example,

as a result of our review, PTO accelerated its space planning efforts and issued draft
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6 PTO prepared its draft Space Allocation Plan on October 1, 1997, and released it in response

to our draft report dated December 23, 1997. 7 The universal grid concept is a space planning and functional work plan that allocates the

same size offices to all employees. In this case, PTO anticipates allocating 120-square-foot offices

to virtually all PTO employees, including most managers.

space planning documents.6 Based upon our analysis of these draft plans, we were able to determine that PTO had justified its need for 1,989, 116 occupiable square

feet for its consolidated facility. In addition, these draft plans—if necessary—can be

quickly finalized for use as the Program of Requirements to guide the consolidation

project buildout.

It is our understanding that PTO’s space planning has not been completed because the bureau has not reached an agreement with all of its employee unions over

space-related working conditions. PTO management has informed us that if they

have not executed such agreements with the employee unions by the time the lease

is awarded, they plan to proceed with the draft space plans and incorporate them

as the final Program of Requirements. Clearly, this is not ideal and increases the

risk of schedule delays and the possibility of higher costs. For example, a lengthy

delay may cause one or more of the offerors to drop out of the competition due to

a loss in financing or other development plans for their sites.

In to our review, PTO stated that it had accounted for the space savings associated with the ‘‘universal grid concept’’7 and some portions of reengineering, such as

the elimination of paper search files for patent examination. Further, PTO argues

that the most important reengineering initiative, electronic patent filing, will not be

available until 5 years after occupancy of the new facility. PTO has stated that the

ability to relinquish unneeded space back to GSA reduces the risk that PTO may

lease too much space, if reengineering does, in fact, reduce the bureau’s space requirements. We continue to believe that PTO can eventually reap additional space

savings through the reengineering of its patent and trademark processes. PTO managers should continue to pursue such initiatives and actively work to implement

them as soon as possible.

PTO and GSA have executed a memorandum of understanding, as we recommended. On September 4, 1998, PTO and GSA concluded a memorandum of understanding that reportedly addresses our concerns regarding GSA’s fees, PTO’s

right to turn back unneeded space, and GSA’s role as the construction manager. Although we have not yet had an opportunity to examine the fee structure in detail,

the define the rights and responsibilities of each agency.

It should be noted that there has also been some progress in mitigating PTO’s

build-out risk. Our concern that PTO did not have a firm ceiling on its $29 million

build-out has been addressed by the Congress, PTO, and GSA. With legislation

pending in both the Senate and the House, there seems to be growing Congressional

support for a ceiling on PTO’s build-out. Pending legislation would place a $29 million ceiling on PTO’s ‘‘above standard’’ build-out costs. In addition, PTO and GSA

have agreed to manage the build-out effort to a $29 million ceiling. As an added

safeguard, we would like to see a $29 million build-out ceiling also expressed in the

contract award itself.

In response to our recommendation that the Department provide oversight, assistance, and guidance to the PTO space project, the Department has clearly established and is maintaining a higher level of involvement in the project. The Department has, for example, assigned both real property and procurement personnel to

coordinate ongoing planning activities and assist in the source selection process.

Moreover, the Department has contracted with procurement and commercial real estate consultants and other experts to examine other aspects of the PTO project.

In closing, we believe that PTO needs to continue to move forward with its competitive space consolidation project. We believe greater risk lies in delaying the

project. PTO has made progress in its discussions with its unions, and we encourage

them to press on. We believe that it is in the interest of the Department and the

inventing public to proceed with this lease development while at the same time paying close attention to containing costs as the project continues.

This concludes my statement, Mr. Chairman. I would be pleased to answer any

questions you or the other Members of the Committee may have.

STATEMENT OF SAMUEL R. COLLINS, CPA, DEVA & ASSOCIATES, P.C.

Mr. Chairman, I am Samuel R. Collins, an Engagement Partner with the certified

public accounting firm of Deva & Associates, P.C. I am pleased to testify today before the Subcommittee on the activities of my firm relating to the space consolida106

tion effort of the U.S. Patent and Trademark Office (PTO). Under contract with the

PTO, Deva & Associates, P.C. published the report entitled ‘‘U.S. Patent and Trademark Office Business Case Analysis of Space and Facilities Management.’’ Before

I discuss the activities of Deva & Associates, P.C. in support of the PTO space consolidation effort, I want to provide you with a short background on my experiences

and capabilities and those of my firm. [Under ordinary circumstances, such background information would not be necessary. However, the National Taxpayer Union

(NTU), in their letter of August 14, 1998, to the PTO questioned the quality of work

performed by myself and my firm and our commitment to deliver within schedule

and within budget.]

I am a Certified Public Accountant with over 25 years of public accounting experience, 13 of which were with a Big Five accounting firm. I have provided accounting,

auditing, and consulting services to Federal and local government agencies, to real

estate developers and property managers, to the banking industry, and to major

public companies including Fortune 500 companies. My real estate, banking, finance, and construction experience led to my selection as project leader for the PTO

task on space consolidation.

Deva & Associates, P.C., certified public accountants and management consultants, offer a wide variety of audit and financial management services including cost

accounting, cost analysis, cost-benefit analysis, and renovation, relocation and construction cost analysis. Arun K. Deva, CPA, the President and founder of the firm

(and former partner of a Big Five firm where he spent 15 years), and most key personnel, have Big Five or other large firm/organization backgrounds with significant

and relevant experience in serving large and complex clients. In addition to the

PTO, other Federal clients include the Departments of Housing and Urban Development, Treasury, and Labor, the Office of Thrift Supervision, U.S. Trade Development Agency, Small Business Administration, Government Printing Office, and the

US Postal Service. The key personnel from Deva & Associates, P.C. have also provided services to such large corporations as Sears, Roebuck and Company, United

Parcel Service, Coca-Cola USA, GEICO Companies, Litton Industries, and First Virginia Bank. For Federal procurement purposes, Deva & Associates, P.C., is characterized as a ‘‘small and disadvantaged business’’ under section 8(a) of the Small

Business Act (15 USC 637(a)). Deva & Associates, P.C., is listed as a qualified vendor on the GSA Federal Supply Schedules for Audit Services, Financial Management Services and Due Diligence Services for Federal asset or loan sales.

The PTO sought an independent validation of its projected costs if it remained in

its current, unconsolidated facility under existing terms and conditions, versus projected costs if it secured a consolidated site. Deva & Associates, P.C., was contracted

on September 12, 1997, by the PTO to undertake a business cost analysis of space

and facilities management. The resultant report was to be forwarded by the PTO

to the Secretary of Commerce as part of the 1999 budget review and justification

process. Specifically, the PTO directed Deva to undertake (1) a cost-benefit analysis

comparing current space costs with the costs of PTO’s consolidation scenario; (2) an

analysis of the cost-effectiveness of the physical consolidation; and, (3) recommendations on potential cost savings from changes in existing space management practices

and from changes in PTO plans for moving to a new facility or for preparing the

new facility for occupancy. PTO subsequently amended the task order to add new

deadlines for new requirements and new deliverables with, final amendments requiring Deva to prepare agreed-upon-procedures report in accordance with standards established by the American Institute of Certified Public Accountants. This latter amendment responded to a legislative directive to the Secretary of Commerce

by the Senate Appropriations Subcommittee on Commerce, Justice, State, and the

Judiciary, and related Agencies. The total cost of the contract increased from an initial estimate of $235,800 to $327,800.

The business case analysis had two objectives: (1) to present a cost analysis comparing the current unconsolidated scenario and attendant operating costs with

equivalent costs under the consolidated scenario; and (2) to analyze the cost effectiveness of the consolidated scenario, when all attendant costs of consolidation (e.g.,

physical move costs, charges for Above Federal Property Management Regulations

(FPMR) standard,’ construction, replacement of data network, furniture purchases,

etc.) were taken into account. The analysis would cover all costs that could be incurred over the 20-year lease period. In projecting costs for this business case analysis, PTO adhered to several governances, i.e.

• reliance upon documented evidence;

• conservative projections when documented evidence did not extend through fiscal year 2021;

• comparison of ‘‘apples to apples’’ as much as possible; and
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• application of cost escalators to account for inflation, and discounting, in order

to assess the costs of alternatives in ‘‘today’s dollars.’’

The overall approach and methodology of the business case analysis was developed by the Government Space Acquisition Team, which was comprised of representatives from the Department of Commerce, the PTO, and the General Services

Administration. Deva & Associates, P.C., performed agreed-upon-procedures to

evaluate the team’s approach and methodology, and to provide support services,

which included collection of data and compilation of the final analysis and report.

The business case analysis concluded that, over the 20 year term of the lease (i.e.,

fiscal years 2002–2021) the PTO would incur $1,031,124,196 in costs for the unconsolidated scenario versus $958,728,918 for the consolidated scenario. The PTO would

incur $72.4 million less in costs if it proceeded with and completed the solicitation

to secure a new consolidated facility among its three existing bidders at sites in

Crystal City, Eisenhower Valley, and Carlyle as opposed to remaining in its current

unconsolidated site, under current terms and conditions.

Before releasing the final version of the business case analysis, the report was

thoroughly reviewed and ‘’scrubbed’, by the PTO, the Department of Commerce, and

the Office of Management and Budget. In addition, the Secretary of Commerce procured the services of Jefferson Solutions, a consulting firm, and BTG, an engineering firm, to perform a final review and approval of the report. The report was formally released on May 22, 1998.

We at Deva are very pleased with the final report on the business case analysis.

It was especially reassuring to learn that the report, when submitted to Senate

Committee on Appropriations, Subcommittee on Commerce, Justice, State, and the

Judiciary, elicited the following response (June 26, 1998, S. 2260, FY1999 Commerce, Justice, State Appropriations Bill, Senate Committee report):

The Committee has reviewed the reports submitted by the Secretary, and does not

object to the Secretary’s direction that the competitive procurement process should

continue. The Committee has also reviewed the business case analysis, which compares the total costs to be incurred by the PTO over the 20-year lease should the

PTO stay in its current location versus a consolidated site in Virginia per the solicitation. While the Committee was impressed with the scope and thoroughness of this

analysis, the Committee wants assurances that build-out and moving costs will be

controlled. ,

Before concluding, however, I want to briefly rebut recent sound-bytes in the

media on a very narrow portion of the business case analysis. I am referring, of

course, to the ‘‘shower curtain flap.’’ In tab 24 of the business case analysis, the PTO

calculated furniture costs for the consolidated facility. One entry, for the locker

rooms of the proposed fitness center, includes six ‘‘shower curtains,’’ at a cost of

$250.00 each. The descriptor, unfortunately, was misleading. This is not your average chenille shower curtain that one can purchase at your local discount or department store. It is the worst-case scenario for the cost of heavy duty, gym quality

shower curtain, including equipment and installation on tile. But such an analogy

does make for juicy, but inaccurate, news accounts.

There are other entries in the furniture estimate section that have been taken out

of context, including cribs for a child care center, beds for a sick bay in a health

center and the child care center, coat racks which are really entire cloak rooms, and

trash baskets which seem to be stated at high cost but are really modular components that would be incorporated into the furniture system. As such, the costs are

within industry standards. But let’s keep these costs in perspective. They are estimates for a business case analysis. The business case analysis itself is a weighty

and comprehensive analysis containing 85 pages of narrative, 231 pages of schedules and calculations, and more than 21,000 separate entries. Within the furniture

estimate tab, there are 4,664 individual entries totaling $59.8 million in furniture

costs. For those items attracting media attention, there are just 144 entries totaling

nearly $760,000 or 1.27 percent of the total furniture estimate. While I do not want

to dismiss estimates of $760,000 as being inconsequential, I do find it vexing that

$760,000, or even more outrageous, that six shower curtains at a total cost of

$1,500, raises more eyebrows than the conclusions of an exhaustive study that predicts a $72 million savings for a consolidated site. Any reduction in the estimated

furniture costs would only increase the estimated savings.

Mr. Chairman, this concludes my statement. I will be happy to answer any questions.
108

STATEMENT OF ALLAN V. BURMAN, PRESIDENT, JEFFERSON SOLUTIONS

Mr. Chairman, and members of the Subcommittee: I appreciate the opportunity

to review with you this afternoon the principal findings and recommendations from

Jefferson Solutions’ May 1998 Patent and Trademark Office Report prepared for the

Secretary of Commerce.

I am the President of Jefferson Solutions (Solutions), a Limited Liability Company

that provides management consulting and training services to the Federal Government. I am a former Administrator for Federal Procurement Policy. I served in that

position in an acting capacity under President Reagan, was subsequently confirmed

by the Senate under President Bush and was held on in that post under President

Clinton. Solutions provides support to a number of Federal agencies on a variety

of matters relating to acquisition and change management.

On March 15, 1998, the U.S. Department of Commerce contracted with the Solutions’ team through the competitive Quick Reaction Task Order process to provide

an independent, multi-disciplinary review and evaluation of the Patent and Trademark Office’s seven-year consolidation and space acquisition process. For this review, Solutions teamed with BTG, Inc. and Economic Research Associates to offer

the acquisition, real estate valuation, engineering, architectural and cost estimating

skills necessary to this important task. The Secretary asked the Solutions team to

validate the process in four major areas:

• The need for new space

• The type and amount of space

• PTO’s management of the process

PTO’s response to the Inspector General’s concerns regarding space planning,

build-out risk, and the GSA agreement.

As a result of our effort, Solutions concluded in a May 1998 report to the Secretary that PTO had appropriately determined its need for space, that their Solicitation for Offers (SFO) for the consolidated space to meet this need was well formulated, and that a consolidated location could produce a better more functional space

than the current location at a lower cost. Therefore, we recommended that the PTO,

working with the Department of Commerce, settle on requirements for the project,

clarify the SFO as needed, and proceed expeditiously with the procurement.

Our recommendation to proceed was based in large part on the well established

principle that competition produces the best value for the government, and in part

on the need to act quickly to ensure that competition be maintained.

The final decision regarding PTO’s facilities options should be based on a careful

evaluation of the responses to the SFO. In our view, this competition among alternatives will produce the best value for the government, whether a move is required

to produce that value or not.

The following sections provide greater detail on the team’s findings, conclusions,

concerns and recommendations.

Findings and Conclusions

• The Patent and Trademark Office (PTO) should continue with the consolidation effort.

• PTO currently leases space in 16 buildings under 31 leases, with a blended average annual rental rate of $27.89 per occupiable square foot.

Under current conditions, this rental rate is well above the market price for space

that can be defined as depreciated (nearing obsolescence), Class B space.

With the SFO requirements for new/improved space at a starting rental rate of

$25.41 per square foot (1998 escalated dollars), including an $88 million (approximately $40.00 per square foot) tenant improvement package and substantial amenities, the proposed project produces an economic benefit to PTO in excess of current

market conditions.

These figures were derived in the analysis prepared by Deva and Associates; the

assumptions and methodologies used in this analysis were reasonable and well formulated.

A sound process was used in determining PTO’s long-term need for space in the

consolidation of its offices.

The implementation of technology in support of reengineering efforts is constrained by statutory requirements and existing building limitations. Some dual system requirements (paper and electronic) may delay space/staff reduction achievement goals.

The projected 1.989 million square feet of occupiable space appears to be the appropriate amount needed by PTO for current and future needs.

The proposed PTO amenity package is not ‘‘gold plated’’ and is consistent with

other recent Federal and private sector office projects.
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Amenities included are child care facilities, fitness rooms, and a cafeteria.

The management process being employed for site selection is appropriate for the

magnitude of the project.

The SFO process appears sound and structured for a fair assessment of the submitted offers.

PTO agreed with most elements of the Inspector General (IG) report dated March

1998 and is in the process of addressing those issues.

During the review and evaluation process, the Jefferson Solutions team identified

a number of issues and concerns that the team felt warranted additional care and

attention on the part of PTO, either at the time of the report’s submission or during

future acquisition steps. These issues and concerns are addressed in the following

section. Subsequent to our submitting our report, the Memorandum of Understanding with GSA was completed.

Issues and Concerns

The introduction of new design requirements into the ongoing procurement process must be done as soon as possible, so as not to trigger change orders.

The General Services Administration (GSA) and the PTO had not yet as of the

time of the report’s submission finalized a Memorandum of Understanding (MOU).

The MOU is required to:

1. Define standard and above-standard build-out cost allocations

2. Define the timing and quantity of returned space

3. Specify caps on construction costs.

Lack of clarity in fit out creates uncertainty between funding sources.

The $29 million build-out allowance poses a risk for cost overruns.

Costly lease extensions may be needed if the procurement is delayed.

Technology, telecommunications, and security system design issues require resolution.

Parking may be inadequate for the number of employees programmed to occupy

the building(s).

The Patent Officials Professional Association (POPA) and PTO have not yet resolved their dispute on office size.

The Program of Requirements (POR) remains incomplete.

Recommendations

As a result of the independent validation process under this task order, the team

compiled a list of recommendations for the Department of Commerce and its Patent

and Trademark Office to consider, as part of the final stages of

the Solicitation for Offers approach. The Department has taken steps to follow

through on a number of them. The list is as follows:

Proceed with the current SFO on its current schedule without delays that could

impact the schedule and costs.

Complete one additional amendment prior to Best and Final Offers (BAFO) to reduce risk issues.

Meet with the offerors prior to the BAFO phase and engage them in direct discussion regarding specific deficiencies in their submissions.

Ensure that the needs for the project are accurately and effectively conveyed to

all stakeholders.

Continue to aggressively pursue resolution with the Patent Office Professional Association (POPA) and develop a contingency plan to avoid delay of award.

Develop a plan for accurately budgeting and monitoring the apportionment of the

build-out allowances during the design development phases of each 250,000-squarefoot phase of the tenant build-out.

Create a formal mechanism for ensuring design coordination among the architectural, interior design and construction members of the development team.

Utilize independent cost validation services to ensure full value for the expenditures made, the identification and allocation of costs between PTO and GSA, and

the apportionment of the allowance(s) throughout the course of construction.

Check the draft and final POR documents to validate that the classification of

spaces is consistent and that spaces are not duplicated.

Provide a copy of the tenant build-out POR to the shell building architects at the

time of lease award to enable them to understand the impacts of design on their

work.

Conclusions

In summary, in our May report, the Solutions team concluded that the Patent and

Trademark Office had used a sound methodology and valid reasoning in defining its

need for new space, in researching its current and future functional needs, and in
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managing its consolidation and space acquisition process. Based on the strong leadership of the project team, the process was working successfully.

However, the report identified issues that still needed to be resolved to avoid severely impacting or delaying the project. Many of these, although not all, were within the control of the project team. They included the negotiation and execution of

a well-defined Memorandum of Understanding, which has since been completed, the

finalization of the Program of Requirements, the

resolution of the POPA dispute, and the incorporation of the technology, telecommunications, and security system design and installation into the build-out contract.

Our report’s major conclusion, however, was that it would be in the Department’s

and the government’s best interests to proceed with the competition and carefully

evaluate all offers. The Department could, then, at that time, make a fully informed

decision on how best to proceed. That remains our conclusion today.

Mr. Chairman, thank you very much for offering me the opportunity to report to

the Subcommittee on the Solutions’ study of this important project. I will be glad

to answer any questions you might have.

STATEMENT OF DAVID E. WILLIAMS, RESEARCH DIRECTOR, CITIZENS AGAINST

GOVERNMENT WASTE

Good morning, Mr. Chairman. Thank you for the opportunity to testify today before the Subcommittee on Transportation and Infrastructure. My name is David

Williams and I represent the 600.000 members of Citizens Against Government

Waste CAGW).

CAGW was created 14 years ago after the late Peter Grace presented to President

Ronald Reagan the 2,478 findings and recommendations of the Grace Commission

(formally known as the President’s Private Sector Survey on Cost Control). These

recommendations provided a blueprint for a more efficient. effective, less wasteful,

and smaller government.

Since 1984, the implementation of Grace Commission and CAGW recommendations have helped save taxpayers more than $596 billion. With a national debt of

$5.5 trillion, our work is far from done.

CAGW is very pleased that this hearing is being held. Now more than ever. taxpayers are demanding accountability from their government. Too often in the past.

multi-billion dollar construction projects have been undertaken without sufficient

oversight and scrutiny, leading to the waste of tens of billions of dollars.

Any time the Federal Government undertakes a major construction or renovation

projects CAGW immediately becomes concerned because past projects show a pattern of excess. These include:

1. The Boston Courthouse—This $218 million monstrosity is the quintessential

symbol of excess. When complete. this courthouse will contain a six-story atrium.

63 private bathrooms. 37 libraries and 33 private kitchens. In addition. the courthouse will contain more than $750.000 worth of art work. as well as a $1.5 million

dock. Who asked for all these amenities? The judges. Of course. they weren’t the

ones who had to pay for it. The Federal Government spent $13 million for the services of world-renowned architect I.M. Pei to create this monument to government

waste. Believe it or not. Pei commissioned an $80,000 model of the courthouse made

Out of imported African wood.

2. The Foley Square Courthouse in New York cost taxpayers $300 million. or more

than $400 per square foot. The General Service Administration’s (GSA) Inspector

General testified that Foley Square incurred more than $ 120 million in change orders, including adding carpeting valued at $114 per square yard (GSA schedule carpeting is $20 per square yard); doors and hardware which were originally estimated

at $1.300 per set but increased to $9.000 per door set because special woods and

hardware were used. and a $5.500 bronze fire hose cabinet.

3. The Ronald Reagan International Trade Center. This $800 million ‘‘tribute’’ to

Ronald Reagan is a classic example of largess and overruns. hardly the appropriate

legacy for the former President. This 3-million square foot behemoth contains 42,000

slabs of limestone and enough concrete for a two-lane, 106-mile highway. The building was supposed to be completed by the end of 1993 but only officially opened in

July 1998. Some of the extra costs incurred because of the delay included:

• $8.000.000 for limestone fabrication

• $5.000 000 for excavation

• $4,000,000 for a retaining wall

• $51,000 for storing the Straus Fountain
111

The latest example of excess, the proposed relocation of the PTO complex, has become a pitched battle on and off Capitol Hill. A report by Deva and Associates and

Jefferson Solutions estimated that relocation would actually save money. A followup report by the accounting firm of Arthur Andersen shows just the opposite. Deva and Associates’ comparison between an unconsolidated scenario and a consolidated one shows a cost savings of $72 million. CAGW doubts the accuracy of this

figure because a number of items slated for the new location such as pantries and

a child care facility. are assumed to be added to the current space. if they don t

move. These little extras add up to $ 17 million. Another reason to question Deva

and Associates is because of their gross underestimation of moving costs ($5 million), even though Congress passed a cap of $135 million in such costs. Deva and Associates estimates total furniture costs of $65 million, including:

• 300 waste receptacles priced at $100 each • 20 waste receptacles with trays priced at $870 each • 71 ash urns priced at $309 each • 18 shower curtains priced at $250 each.

Shower curtains this expensive are not very easy to find. ABC News had to go to New York and find one imported from Germany at this price. A September 1998 Arthur Andersen report rebuts a Jefferson Solutions report on

per square foot costs. In particular, the Arthur Andersen audit states, ‘‘There is an

error in the Jefferson Solutions report. The report compares its estimate of the current blended lease rate of $27.89 per occupiable square foot to the proposed lease

rate of $25.41 per square foot...Our analysis reveals that the $25.41 figure it (sic.)

is on a rentable square foot basis... ’ Rentable square footage is always greater space

than occupiable. thus bringing down the per square footage cost. According to Arthur Andersen. Thus Jefferson Solutions conclusion that the proposed relocation

would result in lower direct lease costs to PTO is incorrect. Based on the data presented in the report. a PTO relocation from its existing space to a consolidated facility would. in fact. result in higher direct lease costs.’’ This is a classic apples and

oranges comparison game. In addition, the Department of Commerce’s Inspector General is concerned about

the construction because of inadequate space planning and the risk of an expensive

build-out.

An analysis of the costs associated with construction of the new PTO office space reveals that total construction and mortgage costs for the 20-vear lease are estimated at $1.6 billion—twice the cost of the Ronald Reagan building. After 20 years,

the Federal Government won’t even own the building. What will taxpayers have to

show for a $1.6 billion building? Absolutely nothing. The new PTO complex will occupy 2.4 million square feet. In comparison, the Em- pire State Building occupies 2.1 million square feet and the Chicago Sears Tower

occupies 3.1 million square feet.

PTO construction plans call for extras such as: lighting, cooling, telecommunications, and elevator facilities far above industry standards; lavish granite, hardwood, and marble surfacing materials: plazas, sculptures, and decorative fountains;

walking and jogging trails; and an open air amphitheater.

The most popular counter argument advanced by proponents of PTO relocation is

that no tax dollars will be used for this construction. Instead of requiring the American taxpayer to shell out the money, large and small inventors will be made to pay

more in fees to construct the new complex. Not all inventors are rich and once a

patent is approved, inventors can and do pass along the extra costs to the consumer

by charging more for their products—a hidden tax. The Omnibus Reconciliation Act

of 1990 called for all excess patent fees to go toward deficit reduction. This scenario

to build a Taj Mahal for the PTO is typical of the irresistible impulse in Washington

to spend rather than save any fiscal surplus.

This construction will also cause a domino effect where other agencies will request

new buildings that are above the standard GSA per square-foot allowance.

CAGW recommends that this subcommittee take a step back and completely reevaluate the PTO construction on two fronts:

1. Legislation to privatize PTO has passed the House and awaits action by the

Senate. This could change the whole landscape of the agency. Agreeing to the construction of a new expensive building before deciding the future of the PTO puts

the cart before the horse.

2. The Arthur Andersen report calls into question the entire basis and rationale

for moving to a new location and deserves greater scrutiny.

CAGW recommends that the subcommittee halt plans for construction until the

full committee and its House counterpart can thoroughly evaluate the Andersen report. In addition, plans for relocation should be delayed until the subcommittee and

full committee determine whether the PTO will be privatized. Since GSA has exe112

cuted lease agreements that would extend the current lease until 2014. there is sufficient time to make a reasoned decision. which could save taxpayers a great deal

of money. This concludes my testimony. I’ll be glad to answer any questions you may have.

OFFICE OF THE MAYOR,

Alexandria, VA, September 22, 1998.

THE HONORABLE JOHN WARNER, U.S. Senate,

Senate Office Building,

Washington, DC 20510

DEAR SENATOR WARNER: I am submitting my written comments regarding the September 23, 1998 Environment and Public Works Committee hearing on the proposed consolidation and relocation of the U.S. Patent and Trademark Office (PTO).

Once again, I commend you on your successful efforts in stopping the attempts to derail the PTO process. Although the attempts to delay the process have been

ongoing and unsuccessful, critics of the PTO consolidation and relocation continue

emphasizing several issues. These issues inaccurately portray a burden to taxpayers

through excessive project spending, and transportation challenges any jurisdiction

must address with such a large planned project.

As you are aware, the PTO is not funded by taxpayer dollars. The work the PTO

performs is dictated by the U.S. Constitution, the laws and the treaties of the

United States. The amount of work is determined by the number of applications for

patents and trademarks filed worldwide. Taxpayers dollars are not in question because the PTO is supported entirely by fees paid by its customers, hence, it is selfsufficient. Additionally, the PTO will be facing lease payments at any location, and

the final analysis should focus on which site can improve their operational efficiency

and serve the employees of PTO. The rules and regulations the PTO is required to

adhere to, along with its inability to react to an enormous increase in its workload,

has caused the PTO to petition Congress to become a Federal corporation. The bill

permitting this change of status is still pending and moving closer to enactment.

Access to the Alexandria sites provide the best scenario for the PTO and for overall traffic mitigation. Both Alexandria sites offer immediate access to the interstate

highway system. The PTO employees and visitors can access either site directly

from the Beltway and will have little use of local streets. Additionally, there is evidence to support that a large number of the PTO employees and visitors will travel

to the PTO Campus via Virginia Railway Express (VRE) or Metro Rail—both of

which are immediately accessible. Access to the Alexandria sites is exceptional given

the immediate proximity to I–95/I–495, the regional road network, and public transit options such as VRE, Metro Rail and DASH service. We are confident that an

Alexandria location can encourage more transit usage by PTO employees, above

their already high levels.

The two Alexandria sites offer the best opportunity for the consolidation and relocation of the PTO and improve their overall efficiency as an organization. Alexandria’s sites offer the opportunity to build a modern and high visibility PTO campus

with state-of-the-art buildings and easy access for employees and customers. The

Carlyle and Hoffman sites will be built to the standards of the PTO, whether it is

their parking specifications or the design of the buildings, to accommodate today’s

high technology infrastructure. Alexandria offers the best alternative for the PTO

and meets the objectives of the PTO relocation. It is the City’s hope that the PTO

will become Alexandria’s newest and premier employer.

Again, thank you for your efforts to keep the PTO process moving.

Sincerely,

KERRY J. DONLEY, Mayor.

EISENHOWER PARTNERSHIP,

Alexandria, VA, September 22, 1998

THE HONORABLE JOHN WARNER,

U.S. Senate,

Washington, DC 20510.

Re: Hearing on the Proposed Consolidation and Relocation of the US Patent and

Trademark Office (PTO)

DEAR SENATOR WARNER: The Eisenhower Avenue Public Private Partnership enthusiastically supports the relocation of the PTO to the Eisenhower Avenue corridor
113

in Alexandria. Our members studied the Hoffman and Carlyle sites and concluded

that both can provide the PTO with a superior location for its offices at a cost-effective price.

Eisenhower Avenue has 4.5 miles of Beltway frontage and superior access both

by mass transit and by private automobile. We have three interchanges to the Capital Beltway, including Telegraph Road adjacent to the two proposed sites and the

Eisenhower Interchange, a little further but providing an uncongested and direct access to Eisenhower Avenue, a four lane divided throughway. To accommodate the

PTO, a portion of Eisenhower Avenue east of Telegraph Road would be widened to

six lanes. The Eisenhower Avenue corridor also has three Metro stations, of which

two are in close proximity to the two proposed sites. Alexandria’s DASH bus provides shuttle service to Eisenhower Avenue for VRE commuters. DASH and the

Fairfax Connector provide additional service between Eisenhower Avenue and Old

Town or the west end. The City of Alexandria’s transportation studies of the Eisenhower Avenue corridor demonstrate that the corridor has sufficient transportation

capacity to accommodate the 20 million square feet of additional development for

which the corridor is zoned.

The Eisenhower Partnership works to facilitate development along Eisenhower

Avenue. It is a membership organization with 73 members who are corporate tenants, small businesses, residents, landowners, and developers. We have been strong

supporters of a PTO relocation along Eisenhower Avenue since the beginning of the

procurement process. We are standing by to welcome the PTO and its employees

and to assist with their relocation. Thank you for considering our comments, and

for your efforts to keep the PTO procurement on track.

Sincerely yours,

AGNES PALMER ARTEMEL,

Executive Director.

ALEXANDRIA CHAMBER OF COMMERCE,

Alexandria, VA, September 23, 1998

THE HONORABLE JOHN WARNER,

U.S. Senate,

Washington, DC 20510.

DEAR SENATOR WARNER: Please accept this letter as written testimony for the

hearing before the Environment and Public Works Subcommittee regarding the consolidation and relocation of the Patent and Trademark Office. On behalf of the 1,100

members of the Chamber of Commerce and the Alexandria business community, I

would like to express our strong interest in and commitment to bringing the U.S.

Patent and Trade Office (PTO) to Alexandria, VA.

Thank you for providing a forum where the Senate subcommittee can objectively

examine the facts regarding the proposed relocation of the PTO. Although there

have been efforts by several parties to stop the move of the PTO, we believe that

once the subcommittee reviews the facts, the committee will strongly recommend

that the project continue to move forward as scheduled.

Opponents of the move have argued that it would be a huge burden on the taxpayer and worsen traffic through Alexandria and Arlington. I would like to address

both of those false charges in my comments.

First, the PTO is a self-sufficient entity and is not funded by taxpayer dollars,

It is totally funded by user fees and/or funds collected by the issuance of patents

and trademarks. In fact, the relocation to Alexandria would actually bring an estimated $6,2 million in new property tax revenue to the City if it relocates to either

Alexandria site. In addition, the project would generate 4,200 new full-time equivalent construction jobs and increase indirect employment opportunities for area residents.

Both sites in Alexandria are easily accessible by our interstate highway system

and by Metro. Alexandria remains strategically located as the best site because of

the Carlyle and Hoffman sites immediate proximity to I–95/495. Because of this direct highway link, there will be little use of local streets by PTO employees and visitors. There are also convenient metro and Virginia Rail Express (VRE) connections.

Many employees and visitors will take advantage of the VRE, Metro and DASH bus

service options.

Bringing PTO to Alexandria has been among the top priorities of the Alexandria

business community and city officials. We recognize the PTO as a high quality development project that would provide enormous benefits to the Alexandria community. Alexandria is a City that prides itself in mix-used development. Relocating the
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PTO to Alexandria would provide the City the opportunity to continue to expand

its commercial tax base.

Alexandria is truly the ideal location for the PTO. We look forward to continuing

to be a part of the process. Thank you for your continuing interest and commitment

to moving the process forward.

Sincerely,

KATHLEEN T. SNYDER,

President and CEO.

EISENHOWER CIVIC ASSOCIATION,

2121 JAMIESON AVENUE, SUITE 1801,

Alexandria, Virginia 22314, September 22, 1998.

MR. WILLIAM HURD, Chairman,

City of Alexandria Planning Commission

301 King Street, Room 301

Alexandria, VA 22314.

DEAR MR. CHAIRMAN: The Eisenhower Civic Association (ECA) represents the citizens of Alexandria who live and operate businesses within the Eisenhower Corridor.

We have joined with other civic associations of Alexandria to express collectively

several very serious concerns which we share with respect to the community of

Carlyle.

1. U. S. Patent and Trademark Office (PTO)

The 1992 Master Plan, which culminated in an agreement between our civic associations and the City of Alexandria, envisioned for Carlyle a tastefully mixed residential, cultural, and urban development in an environment consistent with that of

Old Town. Prior to 1992, Norfolk Southern Railroad, owner of the 76.0-acre Carlyle

property, prepared the 1990 Carr/Norfolk Southern Concept Development Plan.

(CNS Plan). The Eisenhower Civic Association finds both plans to be wholly consistent. Both plans emphasized mixed use and integration of business with community life.

Norfolk Southern has contracted with a second developer, LCOR, to build the PTO

at Carlyle. LCOR’s design contains features dramatically different from the original

concept which we believe are to the detriment of Old Town and Alexandria’s citizens. These variances include (1) building heights substantially exceeding those set

forth in the 1992 Master Plan, including a 288 foot skyscraper and (2) drastic reduction in the proportion of residential space with a concomitant increase in office

space, including two huge eight-story buildings with open air garages for 3,500 cars.

In order to accommodate the PTO at Carlyle, a substantial amount of space originally reserved for residential use would be moved to less desirable areas of Carlyle

or eliminated altogether. The PTO complex would erase major portions of several

planned streets from Carlyle’s map and literally destroy the previously planned aesthetic integration of business with community life.

The Federal Courthouse was the first building to be constructed at Carlyle. Shortly thereafter came Carlyle Towers, a three-tower condominium complex. When sales

of Carlyle Towers began, both the 1992 Master Plan and CNS Plan provided for a

vibrant mixed use community. This encompassed theaters, gardens, multiple residential developments, and a design concept with a quality of life enticing to potential buyers. Since then, the erosion of plans for retail, cultural, and recreational facilities, combined with the proposed substantial decrease in residential space and

migration of that remaining to the margins of Carlyle, leaves in substantial question

any semblance of cohesive plans for development in accordance with the original

concept.

The 1992 Master Plan brings to Carlyle the vitality of Old Town’s tourism and

night life, while preserving, for Carlyle, Old Town’s history and culture. Rather than

incorporate Carlyle within Old Town, LCOR proposes to incorporate Rosslyn and

Crystal City within Old Town, together with its traffic jams, parking problems, and

after-hours ghost town atmosphere.

2. 1992 Master Plan No Longer Valid

Should the Planning Commission and City Council approve the pending Norfolk

Southern/ LCOR Special Use Permit (SUP) application, the City of Alexandria will

have broken the promises it made to its citizens when ordaining the 1992 Master

Plan for Carlyle. The residents of the City of Alexandria must be able to rely upon
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accurate city plans to assist in planning their lives and personal futures. Carlyle

residents relied upon the 1992 Master Plan when selecting Alexandria for their

home. Many of Carlyle Towers’ residents are senior citizens who chose to make the

Carlyle community their retirement home because they believed that it would be a

lovely mixed use development. What appears to be a drastic reversal of the initial

mixed use concept for Carlyle should be redefined in terms of currently employed

design guidelines. This must be done and additional public comment must be required, if the PTO Carlyle site is endorsed by City officials and selected by GSA,

because the original guidelines clearly will no longer be valid due to innumerable

piecemeal revisions.

3. Exclusion of Carlyle Citizens from the Development Process

(a) We have learned that LCOR may submit changes to its PTO proposal (contained in the Norfolk Southern/LCOR SUP application) now on file at the Commission. To ensure that citizens residing within Carlyle and others interested throughout the city have an opportunity to review those changes as well as your staff analysis and report of the LCOR proposal, whether or not changed, we request that the

Commission provide us with a copy of your analysis thereof 30 days prior to its formal consideration by the Planning Commission.

(b) Section 1 of Ordinance No. 3974, approved January 24, 1998, amends Section

12-600 of the Zoning Code to provide that an applicant for an amendment to a CO

planned residential/commercial development obtain the consent of the SUP permitted if such SUP permittee is in control of the development. In the case of

Carlyle, the SUP permittee is the Carlyle Development Corporation, a wholly-owned

subsidiary of Norfolk Southern. The Carlyle Development Corporation shares such

proposed amendments with Carlyle’s commercial landowners but not with Carlyle’s

resident landowners. To ensure that the citizens of Carlyle are apprised of future

developments, we request that the Eisenhower Civic Association be provided a copy

of proposed amendments to the current Carlyle SUP or of any proposed new SUP

affecting Carlyle, together with your staff analysts, at least 2 weeks before any

hearing by the Commission.

(c) The analysis supporting this Ordinance provides that the Planning Staff has

clear authority to approve minor amendments. We are concerned that this precept

is not specifically stated in the Ordinance and note that the term ‘‘minor amendment’’ has not been fully defined. Therefore, we request that the Eisenhower Civic

Association be provided advance notification of all changes. We further request that

such notification, together with supporting analyses, be furnished so as to be received at least 2 weeks prior to action.

Please address any questions or written correspondence concerning our requests

to Kirk Lippold, Chairperson of the Eisenhower Civic Association Executive Committee, or to Pat Rudd, his special assistant.

On behalf of the following civic associations, we thank you for your kind consideration.

KIRK LIPPOLD, Chairperson,

Executive Committee, Eisenhower Civic Association.

POUL HERTEL, President,

Northeast Civic Association.

JUDY MCVAY, President,

Old Town Civic Association.

RON ULLRICH, President,

Inner City Civic Association.

LILLIE FINKLEA, Vice President,

South West Quadrant Civic Association.

MAITLAND BOTTOMS, President,

Taylor Run Civic Association.

JUDY MILLER, President,
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Rosemont Civic Association.

ASHLEY SPENCER, President,

Upper King Street Neighborhood Association,

MCINNIS LYLES, President,

South West Quadrant Civic Association.

JOSEPH V. FISCHER, President,

Seminary Hills Civic Association.

ELLEN PICKERING,

Taylor Run Civic Association Association.

SEMINARY ASSOCIATION, INC.

Alexandria, VA, September 16, 1998.

MR. WILLIAM B. HURD,

The Planning Commission,

City Hall,

Alexandria, VA 22313.

SUBJECT: THE SEMINARY HILL ASSOCIATION’S POSITION ON THE EISENHOWER CIVIC

ASSOCIATION’S POSITION PAPER ON THE PATENT & TRADE OFFICE IN THE CARLYLE

COMMUNITY

DEAR MR. HURD: At our regular monthly meeting last week, September 10, the

Seminary Hill Association (SHA), Inc. listened to an excellent presentation made by

the Eisenhower Civic Association (ECA) regarding their association’s position to oppose the placement of the Patent & Trade Office (PTO) in the 76 acre Carlyle Community. The arguments they made were well constructed and had significant appeal

to many of the members of our association. As you know, SHA has many members

that have had a long history in assisting your Office and City Council in protecting

the livability index of Alexandra that we cherish as our own community.

In our discussion that evening, we heard from some of those that fought in 1992

against the development that was finally approved for the Eisenhower Valley. The

question was succinctly put that the development that was finally approved that

SHA was unsuccessful in defeating then was bad then and still is . But that war

was lost and there was no sense now in fighting that battle again. We could understand some of the concerns that were expressed by the residences of the Carlyle

Towers community and we empathized with their position that if they had known

when they bought their homes what Hey know today, they would have possibly reconsidered selecting Carlyle as their home.

We also recognize the importance that the City Council has placed in securing an

agency of the PTO stature for Alexandria. We are sensible to how this will have

a positive affect on He tax base and employment situation in Alexandria and at the

same time recognize the concomitant possible traffic issues, etc. that may come to

the city.

After further discussion and comments, and since we could not agree on everything expressed in the ECA position paper, the Board requested that I write to you

and adnse that we had the unanimously agreed on the following:

1. SHA requests that the City considers the Hoffman property as the primary

‘‘home’’ for the PTO. We believe the access to the Metro and existing and proposed

development at the Hoffman site will better serve the development of the PTO and

appears to be more buildable wig minimal impact on existing residences and services.

2. SHA is opposed to any structure exceeding those set forth in the 1992 Master

Plan.

3. The SHA is opposed to vacation of Dulany Street and Emerson Avenue in the

Carlyle Community.
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Thank you for your consideration of this reader.

Respectfully submitted,

JOSEPH V. FISCHER, President.

STATEMENT OF THE INTERNATIONAL TRADEMARK ASSOCIATION

Chairman Warner, Ranking Member Baucus, and Members of the Subcommittee on Transportation and Infrastructure: The International Trademark Association

(INTA) is pleased to submit a statement in connection with this Subcommittee’s investigation of the development of a campus for the United States Patent and Trademark Office (USPTO). Since we are an organization devoted to the protection of

trademarks, we have chosen to focus our comments on the space facilities and maintenance of the Trademark Office, the office within the USPTO charged with the

processing and examination of trademark applications and maintenance of the

trademark register. In our opinion, the time has come for the Trademark Office to receive additional,

modern quarters in Northern Virginia which meet its own business needs, as well

as those of its customers—the trademark owners. As we will explain in more detail

later, business at the Trademark Office is growing at an incredible rate. Additional

personnel are expected to come on board in the near future and need adequate space

in which to work. There are plans for new electronic systems that will help increase

the efficiency of examining the increased number of trademark applications. These

innovative systems will require modern wiring which current space does not afford.

In short, the Trademark Office must be prepared to enter the 21st Century.

About INTA

INTA is a 121-year-old not-for-profit membership organization. Since its founding in 1878, membership has grown from 12 New York-based manufacturers to more

than 3,600 members that are drawn from across the United States and from 119

additional countries. Membership in INTA is open to trademark owners and those

who serve trademark owners. Its members are corporations, advertising agencies,

professional and trade associations, and law firms practicing trademark law. All of

INTA’s members, regardless of their size or location, share an interest in trademarks and a recognition of the importance of trademarks to their owners, to the

general public, and to the economy of the United States and the global marketplace.

The Trademark Office Today

The Trademark Office, just like the patent side of the USPTO, is totally user-fee

funded. Contrary to recent media reports, not one penny of taxpayer money is used

to operate or manage the agency. When an applicant pays $245 per class filing fee

for each trademark application, for example, it is that money and only that money

which is used to process and then examine the application. There are no funds

taken from the public coffers. The funds needed to maintain the physical aspects

of the Trademark Office are also taken from these and other user-fees. Everything

from a new light bulb to new computers is paid for by trademark owners.

It is also significant to note that trademark owners, over a significant period of

time, have turned increasingly to the Trademark Office to register their trademarks

so that they can receive the maximum degree of protection permitted by law. For

example, between FY 1975 and FY 1995, the number of trademark applications filed

per year rose from 34,900 to 175,307. In FY 1997, the number of applications filed

was 224,355.

The Future and the Need for Additional Personnel

The increase in trademark applications is a trend that shows no evidence of slowing in the future. The Administration estimates that there will be 250,000 trademark applications filed during FY 1998, and an increase to 275,000 in FY 1999. As

a result of these anticipated filings, the Trademark Office is expected to have 375

examining attorneys in place by January,1999, an increase of 75 from today. In recent months, in anticipation of these new hires, the Trademark Office has been

forced to scour existing space in Crystal City, often disrupting operations in the

process. It should also be noted that there is a lack of space to train the new examiners. The Office must now rent hotel conference rooms in order to conduct training

classes.

Trademark Office officials report that they have actually been granted the authority to hire an additional 25 examining attorneys above the 375 number we quoted

just a moment ago. However, because there is no longer any space in Crystal City

for these attorneys, the Office has been forced to put an ‘‘artificial’’ hiring freeze in

place.
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The Need for Additional and Modern Space

How can the Trademark Office limit disruption, while at the same time ensure

customer satisfaction? The answer, in our opinion, is modern facilities. INTA believes that the proposed USPTO campus will provide these benefits. The campus

will contain up-to-date technology, will be contiguous (as opposed to the 17 non-contiguous buildings which the Agency now occupies), and contain sufficient room for

personnel.

However, as it is our user-fees, and not taxpayer dollars as some have charged,

which would go towards the leasing of this space, we strongly urge Congress to conduct effective oversight of the project. We are clearly concerned about cost, eliminating any excess or inappropriate expenses, and accurate estimates concerning the

relationship between the number of applications and the rate of new personnel. The

USPTO must exercise fiscal responsibility and incorporate sound business practices.

We also request that Congress help to ensure that the Trademark Office is given

its fair share of the facilities and that it is not preempted by the needs of the patent

operations, as has so often been the case in the past.

Conclusion

INTA hopes that this statement will help to persuade the Subcommittee, and for

that matter the Congress, that there is a need to secure additional, modern space

for the Trademark Office. The USPTO, more specifically the Trademark Office, is

just like a private sector business. It is funded by its customers. Its needs are driven

by its customers. Simple business practice dictates that when volume is high, as it

is at the Trademark Office today, you must expand and modernize to meet customer

needs.

We urge the Congress to look carefully at the needs of the Trademark Office and

its customers when making a decision regarding the USPTO campus.

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