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82–952 PDF 2003

STATUS OF CONSTRUCTION OF THE CONVENTION

CENTER

HEARING

BEFORE THE

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JANUARY 18, 2002

Serial No. 107–136

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA

CONSTANCE A. MORELLA, Maryland, Chairman

TODD RUSSELL PLATTS, Pennsylvania

THOMAS M. DAVIS, Virginia,

——— ———

ELEANOR HOLMES NORTON, Washington,

DC

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

RUSSELL SMITH, Staff Director

MATTHEW BATT, Clerk

JON BOUKER, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on Janaury 18, 2002 ......................................................................... 1

Statement of:

Franzel, Jeanette M., Acting Director, Financial Management Assurance

Team, GAO; Harold Brazil, chairman, Committee on Economic Development, Council of the District of Columbia; Eric Price, deputy mayor,

planning and economic development, District of Columbia Government;

Lewis H. Dawley III, general manager/CEO, Washington Convention

Center Authority; and Dr. Natwar Gandhi, chief financial officer, District of Columbia ........................................................................................... 7

Letters, statements, etc., submitted for the record by:

Brazil, Harold, chairman, Committee on Economic Development, Council

of the District of Columbia, prepared statement of ................................... 21

Dawley, Lewis H., III, general manager/CEO, Washington Convention

Center Authority, prepared statement of ................................................... 28

Franzel, Jeanette M., Acting Director, Financial Management Assurance

Team, GAO, prepared statement of ............................................................. 10

Gandhi, Dr. Natwar, chief financial officer, District of Columbia, prepared

statement of ................................................................................................... 39

Norton, Hon. Eleanor Holmes, a Delegate in Congress from the District

of Columbia, prepared statement of ............................................................ 5

Price, Eric, deputy mayor, planning and economic development, District

of Columbia Government, prepared statement of ...................................... 49

(1)

STATUS OF CONSTRUCTION OF THE

CONVENTION CENTER

FRIDAY, JANUARY 18, 2002

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE DISTRICT OF COLUMBIA, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 9:10 a.m., in room

2154, Rayburn House Office Building, Hon. Constance A. Morella

(chairwoman of the subcommittee) presiding.

Present: Representatives Morella and Norton.

Staff present: Russell Smith, staff director; Heea Vazirani-Fales,

counsel; Robert White, communications director; Matthew Batt,

legislative assistant/clerk; Shalley Kim, staff assistant; Jon Bouker,

minority counsel; and Jean Gosa, minority clerk.

Mrs. MORELLA. Good morning. I am ready now to convene the

District of Columbia Subcommittee hearing, and this morning we

are going to look at the status of construction of the convention

center.

You know, just a few blocks from here where we are gathered,

the most important public works projects in the District of Columbia is nearing completion. When it is finished, the new District of

Columbia Convention Center will consist of 2.3 million square feet

of space, a third of which is dedicated for exhibits. It will be the

second largest building in Washington, behind only the Ronald

Reagan International Trade Center.

But, more importantly, the new convention center will be one of

the sixth largest convention centers in the country, once again giving the District the ability to attract major exhibitions as well as

the tourism dollars that follow them.

There is no more vital project now underway in the District than

the convention center. This has become even more evident in the

aftermath of September 11th, when the importance of business and

tourism travel to the economic health of the city became painfully

clear to all of us. That is why, immediately after receiving the General Accounting Office’s status report on the convention center

project, I figured that we needed to hold this hearing.

Some of the findings in the GAO report were quite worrisome to

me. I feared some of the controls put in place to protect this project

are not being fulfilled. For instance, although utility relocation and

excavation work began back in 1998, with construction of the building beginning a year later, the GAO reported that there still is no

revised guaranteed maximum price or the GMP for the project. The

GMP is supposed to ensure that project’s costs are contained. How

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are you supposed to control costs when you don’t have a final budget to work with?

At the time of the GAO report, there was a $135 million difference between the total cost estimates of the construction manager, Clark/Smoot, and the Washington Convention Center Authority. This difference stemmed from change orders in the project that

were submitted but not yet approved. These changes were not reflected in the Authority’s projected total cost of $778 million dollars. Since then, I understand the Authority has adjusted its estimate to $799 million.

But, you know, cost is not the only disputed figure. As the GAO

reported, the builder and the Authority also differed greatly in

their projected completion dates, with the Authority contending it

will be finished on schedule next spring, and the construction manager saying it could take up to a year later.

Now, I understand there is a feeling that the convention center

will be ready to open by next March, although some work will continue past that date. So that is why we are holding this hearing.

There are too many unanswered questions, too many differences at

this late stage in the game for us to have a high level of comfort

with the progress of the project.

I hope Mr. Dawley and our other guests can shed some more

light on the budget, funding, and timing of this vital project. And

I sincerely hope that Mr. Dawley will tell us that the GMP is on

the verge of being signed by all parties. We have heard such promises before. But I want to state for the record that I strongly encourage the principals to get the GMP signed within 30 days or

they can expect to be back before the subcommittee for another

hearing.

In closing, let me read something from the Temple Group which

has been providing status reports on the convention center to the

city council, ‘‘an updated construction schedule which incorporates

status of the work in the field, production and manufacture, and

labor availability for all trades is a critical priority as a planning

tool to assure meeting the project objectives, timing and goals.’’

This was written in October. The report then suggested if the

new schedule and budget cannot be finalized within a few weeks,

an independent assessment of the project might be in order. I trust

that in the intervening weeks, the parties have been working diligently to rectify these problems, and I look forward to hearing

about that progress today.

I am now pleased to recognize the distinguished ranking member

of this Subcommittee on the District of Columbia, Congresswoman

Eleanor Holmes Norton.

Ms. NORTON. Thank you very much, Mrs. Morella.

I appreciate that our Chair, Connie Morella, has scheduled this

hearing to examine the findings of the recent GAO report on the

District of Columbia Convention Center now under construction,

and to hear responses from those most familiar with the project.

It is difficult to overestimate the importance of the success of the

new convention center to the District. The convention center is a

rare example in this country of a convention center to be largely

paid for by the private sector, our hospitality industry. At the

depth of the fiscal crisis, the restaurant and hotel industry, on its

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own, stepped forward and volunteered to tax itself to build a larger

convention center. However, congressional approval for the project

was necessary to allow preconstruction activities and bonding. I

was not able to get agreement in the 103d Congress on the necessary bill, because the city was in such deep fiscal crisis. In the

104th Congress, however, I sponsored H.R. 2108 to allow

preconstruction to proceed. In the 105th Congress, I sponsored H.R.

4237 to allow bonding for construction to move forward.

This project is a vital key to the development of the new downtown. However, the convention center also is important to the D.C.

economy itself. Although the city is perhaps the preeminent tourist

destination in the country, it has been unable to attract the largest

conventions because of lack of capacity. As a result, the losses to

the city have been vast, surely totaling billions of dollars over the

years.

The convention center is a home rule matter for the District of

Columbia. Congressional involvement stems from the approvals

that were required here. Congressional concern arises because of

the importance of convention center receipts to the city’s economy.

The expectation has been that a convention center would for the

first time draw the largest conventions such as the ABA and the

AMA, and that the increased revenue would enable the hotel and

restaurant industry to pay off the bonds because of their increased

receipts. An additional benefit, of course, would be increased tax receipts to the D.C. government. This is a marvelous example of a

win-win for the city and the industry, and a departure from taxpayer-built arenas and convention centers that are the rule nationwide.

No one could have anticipated September 11th, the anthrax

scares, and the barricades that have created a foreboding atmosphere to the city. My concern therefore goes not only to the important issues raised in the GAO report: the estimated guaranteed

maximum price, the estimated full cost of the project, and the extent to which these costs have been in line with the original 1998

estimates; the extent to which the contingency account will cover

increased costs; whether the estimated financing sources will be

sufficient to cover the total costs of the project; and whether the

project will be completed on time.

To these root issues have been added branches that may significantly affect the viability of the center once it is up. For example,

I am particularly concerned about whether the hospitality industry,

which has assumed the primary responsibility for construction

costs, will be able to meet these costs in light of the slowdown in

much of the industry since September 11th. We need to understand

whether continuing shortfalls in receipts to the hospitality industry

will result in shortfalls in the ability of the Convention Center Authority to meet its bond obligations, and what happens in that

event. All of this, of course, in turn will affect city revenues which

already are in trouble in the wake of September 11th, the shutdown and slow startup of National Airport, anthrax scares, the recession, and other effects on tourism. In addition, we need to determine if advanced convention and organization reservations for the

new center have been affected by September 11th, and whether

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plans for the new center are sufficient to meet increased security

concerns.

The convention center is not a gamble. Conventions have long

been waiting in line for a new convention center here with the capacity to accommodate them. The uniqueness of the Nation’s Capital makes virtually inevitable that this same market is there. Our

task today is to make sure that we understand all of the contingencies so that we can both urge and help see that the city is able

to meet them.

I welcome today’s witnesses, and am pleased to receive their testimony.

[The prepared statement of Hon. Eleanor Holmes Norton follows:]

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Mrs. MORELLA. Thank you, Ms. Norton.

This is the first subcommittee hearing of the second session of

the 107th Congress. As you know, the catalyst was the GAO report

and, of course, the importance of the convention center.

I want to welcome the people who are going to be on this panel

and who will be testifying. Thank you for being with us. It is the

policy of the subcommittee and the full committee to swear in those

people who will be testifying, so if you would stand and raise your

right hands.

[Witnesses sworn.]

Mrs. MORELLA. Everybody affirmatively responded and the

record will so show it. And again, confine your statements to about

5 minutes in duration, we will then have a chance to ask questions

and kind of expedite this hearing.

Your full testimony, of course, will be in the record in its entirety.

So we will start off, then, with Ms. Franzel, the acting Director

of Financial Management Assurance Team of the GAO, I mentioned is the catalyst for this hearing.

Harold Brazil is the chairman of the Committee on Economic Development of the Council of the District of Columbia. And I saw

you on television last night, eating away and talking about some

of the other incentives we can utilize in the District of Columbia.

Eric Price hasn’t joined us yet, but I will swear him in as soon

as he gets here.

Lewis H. Dawley III, who is the general manager, CEO, Washington Convention Center Authority. You are important to this

hearing, obviously.

And Dr. Natwar Gandhi, the chief financial officer of the District

of Columbia who is no stranger to this subcommittee. So we will

now proceed then.

Ms. Franzel, if you would lead us off.

STATEMENTS OF JEANETTE M. FRANZEL, ACTING DIRECTOR,

FINANCIAL MANAGEMENT ASSURANCE TEAM, GAO; HAROLD

BRAZIL, CHAIRMAN, COMMITTEE ON ECONOMIC DEVELOPMENT, COUNCIL OF THE DISTRICT OF COLUMBIA; ERIC

PRICE, DEPUTY MAYOR, PLANNING AND ECONOMIC DEVELOPMENT, DISTRICT OF COLUMBIA GOVERNMENT; LEWIS H.

DAWLEY, III, GENERAL MANAGER/CEO, WASHINGTON CONVENTION CENTER AUTHORITY; AND DR. NATWAR GANDHI,

CHIEF FINANCIAL OFFICER, DISTRICT OF COLUMBIA

Ms. FRANZEL. Thank you. Good morning, Madam Chairwoman

and Ranking Member Norton. I am pleased to be here today to discuss our recent report on the status of the District’s new convention center. My remarks today will also include updated information on progress made by the Washington Convention Center Authority since our report was issued on November 30, 2001.

As agreed with the subcommittee, my comments today will cover

the following three areas: the status of the guaranteed maximum

price negotiations between WCCA and its contract manager; the estimated timeframes for completion of construction; and estimated

cost projections and financing.

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First, WCCA and its contract manager have made significant

progress in their negotiations to arrive at a guaranteed maximum

price [GMP], for the construction portion of the project. WCCA and

the contract manager have agreed on a GMP amount of $591 million. This agreement includes resolution of the $135 million in

pending change orders that we reported were outstanding in November.

The next step is a review of the proposed GMP agreement by

WCCA’s board of directors, followed by formal ratification of the

agreement by both parties. The agreed-upon GMP amount represents a $71 million increase over the estimated GMP that we

cited in our November report. WCCA attributes the majority of the

increase to the inclusion of costs that were previously considered

outside of the GMP agreement, such as work related to soil contamination, metro station, as well as other costs. So, in other

words, costs have been transferred into the GMP from line items

that were previously considered outside of the GMP.

Second, WCCA and its contract manager have reached agreement on completion dates for the new convention center. In our November report, we noted that WCCA and the contract manager had

significant differences in their estimated completion dates. WCCA

and the contract manager have agreed on March 31, 2003, as the

substantial completion date for convention-ready areas, which

would include the areas of the facility that can be used for actual

convention activities. The substantially complete status will include

having certificates of occupancy for those convention areas.

In addition, WCCA and the contract manager have agreed on October 31, 2003, as the final completion date for all cross-examination activities.

Finally, in our November 30th report, we noted that the estimated total cost of the new convention center was at $778 million,

with an estimated $815 million in financing available to cover

those costs.

Since our November report, the total estimated cost for the new

convention center has increased by $21 million, to $799 million.

While estimated total costs have increased, the financing available

has remained the same at $815 million.

Based on these figures, an estimated $16 million surplus currently remains available to the project. WCCA issued revenue

bonds, backed by dedicated taxes, to finance the construction costs

of the project. Dedicated taxes were also used as part of the financing for the project. Currently, all of the dedicated taxes used to finance the construction of the convention center have been received.

All future dedicated taxes are pledged as security for WCCA’s debt

service.

In summary, significant progress has been made in the negotiations between WCCA and its contract manager. WCCA and the

contract manager have agreed on a GMP amount of $591 million;

a date of March 31, 2003, as the substantial completion date for

convention areas; and October 31, 2003, as the final completion

date for construction.

Although the total estimated costs of the project have increased,

an estimated $16 million surplus remains available for the project.

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Madam Chairwoman, that concludes my statement. I would be

happy to answer any questions that you might have.

Mrs. MORELLA. Thank you very much, Ms. Franzel. Sounds like

a lot of progress has been made since the report was issued.

[The prepared statement of Ms. Franzel follows:]

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Mrs. MORELLA. Mr. Brazil, very happy to have you with us, sir.

Mr. BRAZIL. Thank you very much. I am pleased to be before the

Congress, and particularly before you, Congresswoman Morella,

and before my very own, if you will, and the District’s representative, Congresswoman Norton.

I learned a very important lesson last night: that there is a lot

of meat to Washington, and certainly it is something you can sink

your teeth into.

I come to you today really from that perspective; that is, from the

economic development perspective. And it is our job in the Council,

and the Mayor and the others, to make sure that there is productivity, there is vibrance. And this project, the Washington Convention Center, is a part of that, and certainly we are going to make

sure, along with you, that our goal of bringing in the project on

time and under budget is achieved. It is very achievable and will

be.

We are also concerned with the benefits that will flow to the

community to ensure that the community grant program is—becomes a realty, and that local small businesses and citizens participate in this in terms of jobs and prosperity.

The Council really shares with the Congress, particularly this

subcommittee in its oversight role, and we take it very seriously.

I have had just numerous contacts and interaction with Mr.

Dawley, his staff, and others on this project, so that we don’t have

to wait until 3 months from now, 4 months from now to get a report; we sort of understand it as we go along.

We have at least two public hearings, major hearings on the

project every year, and have scheduled the second one for February

or March of this year so that we can get into some of the nitty-gritty of the issues and air them publicly to discharge our oversight

function. In our oversight capacity, we have retained a construction

monitor, if you will, so that we can get into the very technical aspects of this project, and understand them and make sure that everything is according to Hoyle.

We have the Millennium Group that has now replaced the Temple Group. Also there is a Convention Center Authority Advisory

Committee that is made up of citizens and Council appointees.

They meet monthly, again to ensure that everything is going along

appropriately.

So I guess I am really here to assure you from the Council’s perspective that our eyes are open and we are doing everything that

we can to ensure that this project does come in on time and within

budget, and I am convinced that it will.

And I thank you for the opportunity to come before you this

morning.

Mrs. MORELLA. Thank you, Mr. Brazil.

You can answer a question at greater length, since you didn’t

even get to your 5 minutes. I appreciate the work that the committee has been doing, the advisory committee, in your other meetings.

[The prepared statement of Mr. Brazil follows:]

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Mrs. MORELLA. Now we look forward to hearing from Mr.

Dawley. Thank you for being with us.

Mr. DAWLEY. Good morning, Chairwoman Morella, Congresswoman Norton, and members of the subcommittee. Good morning.

Thank you for the invitation to update the subcommittee on the

status of the new convention center. I would like to thank the subcommittee for its efforts to assist the District of Columbia through

the difficult aftermath of the tragic events of September 11th.

For the record, I am Lewis Dawley, general manager and CEO

of the Convention Center Authority. As you know, the new convention center is the fourth facility in which I have participated in either expansion or new construction. But the Authority is doing

what no other organization in our industry has ever done: We are

managing the full operation of an extremely busy convention center

while also overseeing the construction of the new facility. The past

year and a half has demonstrated that the Authority has assembled a quality team with the necessary experience and expertise to

handle both operations.

The new convention center project, in addition to being one of the

largest in the country, is also the most complex development of its

kind, and we have tightly managed what has been a massive undertaking. It has been difficult, but we are getting the job done.

The Authority has accepted this difficult task because the existing and new convention centers are vital to maintaining and invigorating the District’s tourism industry. More importantly, the new

facility is a prime catalyst for the economic renewal of Washington,

DC and the entire metropolitan area. But now more than ever, the

importance of our task is clear. I can say on behalf of our Board

of Directors’ management staff, we are resolute in our determination to be successful.

In many respects, all Americans can claim the new Washington

Convention Center, located in the very heart of our capital, as their

own. We anticipate and expect that this magnificent facility will

quickly come to be known as the Nation’s meeting place.

Today the subcommittee has heard about the most notable aspects of the project’s schedule and budget from GAO. You have also

heard from Council Member Brazil about how the convention center project is monitored locally and the impact the project will have

on neighborhood revitalization and economic development.

What I will do now is provide more detail on where the project

is currently, review how we got there, and advise you how we plan

to complete construction on time and within our funding estimates.

As you may recall when the Authority appeared before the subcommittee in 1998 to seek final approval for the project, several

goals were outlined, including opening the facility in March 2003;

building within the means of a strong financial plan; increasing

contracting opportunities for local businesses; and providing employment for District residents. Despite the predictable and the

customary challenges for a project of this size and complexity,

these goals and objectives remain unchanged and they will be

achieved. I would like to tell you where we are today.

The design is 99 percent complete. Over 98 percent of all trades

have been contracted, and construction is approximately 55 percent

complete. In getting to this point, the following milestones, among

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others, were achieved. We have excavated over 2 million tons of

soil. We completed installation of a totally new utility infrastructure around the site that will also benefit the community that surrounds the convention center: The Shaw, Blagden Alley, and Mount

Vernon Square Communities.

We have completed erection of a 44,000-ton super steel structure.

The mechanical, electrical, and plumbing systems are being installed as we speak. And in the next new months, the interior enclosure of the building will be completed. The interior work has recently begun and will accelerate toward completion in a little more

than a year from now. We have selected an art consultant for implementation of our $4

million art program to work in conjunction with the D.C. Commission on Arts and Humanities. As part of that, we established an

executive committee with representatives from the Smithsonian

and Corcoran Museums as well as the Federal Commission for Fine

Arts. We have also put together an advisory committee that consists of nearly 30 local artists. The project has achieved a 50 percent contracting percentage with local, small, and disadvantaged

businesses, surpassing our goal of 35 percent. And nearly 600 D.C.

residents have been hired to work on the project, including 67 who

have entered a program that we call the Step-Up Apprenticeship

Program that I am extremely proud of.

I would like to thank Congresswoman Norton for assisting us in

helping that program become a reality. Because of the Convention

Center Authority’s Shaw Comprehensive Job Training Academy,

nearly 1,000 D.C. residents have received job readiness counseling

and training in a variety of career skills, and nearly 500 have

earned employment through the program.

In addition to these accomplishments, we have met and exceeded

all of the construction impact mitigation measures requested as a

condition of the project’s approval. I am proud to report that because of our Business Impact Grant Program, grants totaling nearly $250,000 have been awarded to sustain impacted businesses

around the construction, and not one has closed.

As you can see, the project has come a long way from where we

started. When the project was approved in 1998, we established it

as a ‘‘fast track’’ project.

I guess I am running out of time here.

Mrs. MORELLA. Go ahead.

Mr. DAWLEY. What that means is, in a fast track project on a

convention center, it must be ready to host shows to begin in April

2003 when our first conventions are scheduled. Therefore, the

schedule was compressed so certain phases of construction could

proceed on a design as it was being finished.

The realty of simultaneous designing and constructing a facility

of this size during what has been a very competitive construction

environment, as we have read in the news media, has been very

challenging. We have had to deal with the removal of over a half

million tons of hazardous soil, partial collapse of a small portion of

the roof system, and some difficulties in contracting with trades.

These challenges have been met by our development team. The

culmination of this—let me back up here a little bit. We have taken

some effort to make sure that we were able to meet this design

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schedule that has come to fruition with this reset GMP that we

have established with our construction manager.

As we mentioned, that agreement with Clark resolves the vast

majority of outstanding issues that were related to design cost and

schedule that was in the GAO report. In particular, the agreement

eliminates $109 million of the $135 million of accumulated claims.

The $26 million balance of these claims will be covered by reserves

and allowances within the GMP.

The amendment also calls for the facility to be ready to host con- ventions in March 2003. The final GMP number will be $799.5 million, which is just 12 percent above the originally approved budget.

In addition to providing a sense of certainty to the projected substantial completion date, keeps costs, which is significantly important for us, within our estimated available funds, as you have

heard this morning.

The total source of our funds—and I am kind of jumping ahead

so I won’t take as much time—the estimated—the total source of

our funds for completion of the project is approximately $815 million. The Authority has secured 97 percent, $790 million. And just

this week our board of directors approved a food service contract

that will provide additional outsource funds that we reported to

you in 1998, and in fact the amount of that is $10 million.

Also there is—let me say this about the industry and where we

are. And I would like to take a second and expressly thank Congresswoman Norton, because what you said in the beginning, about

the importance of this after September 11th, is very accurate.

Congresswoman Norton, through her efforts, was able to help us

maintain the Congressional Black Caucus meeting, which was important for us, because as you might expect, there were a number

of conventions that were planning to come to the city recently, after

September 11th, that had concerns about that. That effort allowed

us to not lose one convention during this period after September

11th. So I would like to thank her for that.

Finally, I would like to thank the Mayor, the chief financial officer, Dr. Gandhi, who sits on our board, and Councilman Brazil for

all of the support that they have given to this project.

I will be happy to answer any specific questions you might have.

Mrs. MORELLA. Thank you very much, Mr. Dawley. And I know

there was a section of your testimony that you submitted, you

didn’t have a chance to mention. But it will be in the record in its

entirety.

[The prepared statement of Mr. Dawley follows:]

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Mrs. MORELLA. Now I am now pleased to recognize Dr. Gandhi,

our CFO.

Mr. GANDHI. Thank you, Madam Chair, Congresswoman Norton,

and members of the subcommittee. For the record, I am Natwar

Gandhi, chief financial officer for the District of Columbia.

I am here today to testify on the status of the construction of the

new Washington Convention Center. The recent GAO report on the

subject raises a number of concerns, especially with regard to the

guaranteed maximum price and the timeliness of the completion.

Overall, I do believe this report is a very good heads-up about this

important project, and deserves serious attention.

While disagreement on these kinds of issues may be common in

the construction industry, particularly on large projects, we all

have an interest in bringing this project to a successful and timely

completion.

There is one major connection between my office and this project,

and that is the likely sufficiency of the sales taxes dedicated to

cover the debt service. I believe that the dedicated stream of taxes

will be sufficient to cover the debt service and that no additional

revenue will be required. The revised fiscal year 2002 budget for

the District estimates dedicated taxes for the new convention center at $60.53 million. However, we now believe that because of the

recession and aftermath of the tragic events of September 11th,

that amount will likely reduce to about $60 million, a reduction of

about $5 million. We will have a more precise estimate of this

number by March of this year.

This reduction in revenues should not affect the construction of

the new convention center. The Convention Center Authority has

completed a study on this issue, which concluded that even if the

dedicated taxes were to decline, say, by $26 million, to a total of

about $39 million, they could continue to operate the existing convention center and complete the new convention center as planned,

with minimal impact to their reserve funds.

I believe my oversight authority over the convention center is

quite adequate. I serve on its board, and in that capacity vote on

all matters that come before the board for approval.

I also have to approve the convention center’s annual operating

budget. On matters relating to the issuing of bonds and adopting

budgets and financial plans, the chief financial officer has a de

facto veto authority. Additionally, the chief financial officer of the

convention center reports to the general manager of the convention

center and to me.

Whether or not the latter relationship will continue in the future

depends on the authorities given to the District’s chief financial officer by the Congress.

Madam Chairwoman, that concludes my testimony. I will be

pleased to answer any question you may have. Thank you.

Mrs. MORELLA. Thank you, Dr. Gandhi.

[The prepared statement of Mr. Gandhi follows:]

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Mrs. MORELLA. I thank the entire panel for their opening statements.

I know that Mr. Price is on his way. He has already submitted

a status of the construction of the convention center to us. And so

when he arrives, we will allow him to make any comments that he

would like.

I think I will start off, then, with GAO. The projected cost of the

project, as you have mentioned, is now $799 million. I just wondered if you could explain to us, what are the reasons for the increased cost of the project, and then if you would go into what adequate controls are in place to ensure that the project will not exceed that $799 million estimate or statement?

Ms. FRANZEL. The cost increases, the increase up to $799 million,

is due to several factors. A couple of the largest factors are the hazardous material/soil contamination issues. That accounted for

about $12 million of the increase.

Increased design fees were another very large line item that increased, and that increased by approximately $17 million. And

then numerous other line items had some smaller increases; line

items such as program management, legal, consulting, inspections,

public works, and equipment. So all of those had some smaller increases. And together these increases then account for the new

costs.

Regarding controls in place, the concept of the GMP is to really

put a cap on the total price and also to allocate responsibilities for

costs between the contract manager and WCCA so that future increases in costs would then be the responsibility of the party that

has been allocated those costs. So that, once ratified, should also

help put in place a control over the costs.

I believe that there intended to be some cost savings incentives

and provisions in the final GMP amendment—I am not aware of

all of the details—but that would also provide some controls over

costs. Again, this is not finalized or ratified, but getting the GMP

finalized will help tremendously. I believe there is also a contingency factor built into the current $799 million of around $112 million.

And as we heard, the current GMP does have some reserves built

in for those pending change orders that hadn’t been resolved, so

there is some cushion, and the GMP should provide some controls.

But ongoing monitoring and oversight will continue to be very important.

Mrs. MORELLA. You heard Mr. Brazil’s comments about the oversight and the advisory meetings. Do you think that is going to enhance this control mechanism?

Ms. FRANZEL. Very definitely. We have been coordinating with

the results of Mr. Brazil’s studies.

Mrs. MORELLA. I would like to direct that very same question to

Mr. Dawley, obviously.

Mr. DAWLEY. Well, Madam Chair, I can answer that. But I think

that it is important that I have just a moment here to just explain,

you know, what this project is about and how we got into this and

why this is important. It all ties into the things that are related

to the costs.

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You know, there are—from our perspective, there are four elements of this project that make it a very special and dynamic

project. One is quality. You know, it is important that we never

sacrifice the quality. As you know, the convention center meetings

and convention industry is a very competitive industry. And it was

important to us that when this project is finished, that it would be

what I feel will be one of the finest convention centers in the world

and a truly world-class convention center. So, you know, we have

endeavored to not sacrifice that quality in how we have made decisions to move forward.

The second element of that is that we have always been conscious of our costs relative to our sources of funds, so that we managed those costs with the interest in making sure that we had

available funds.

The third is the schedule. You know, you have mentioned the

schedule this morning and why the schedule is important. We

made a conscious decision in 1997 to start booking conventions in

the convention center. There are two avenues that you can go down

when you make a decision to do that. You can wait, as some convention centers in some cities have done, and a couple of years out

you get a sense of where you are in terms of the schedule, and you

start to book business. But then there is a price you pay: Your convention center sits there for maybe 2 or 3 years and doesn’t give

the full benefit back to the community that you expected.

So that was a decision that we made to start booking conventions; in fact, in April 2003, two of our first conventions that would

not be coming to Washington if it wasn’t for the new convention

center. So that is important, because the schedule has always been

something that we have focused on.

And the fourth is that there were responsibilities that were given

to this organization in terms of benefit to the community. And as

I mentioned and Councilman Brazil mentioned, that was related to

business opportunities for businesses in the District and job opportunities. So all of that is important to this, because it does have

some impact on how we have made decisions in terms of how we

have managed the costs of this project.

But when you take into consideration where we are today, you

can see there is light at the end of the tunnel. The three largest

and most complicated parts of the construction are behind us,

which was obviously digging the hole, which was the excavation.

On any project when you start to do that, you never know what is

down there. You can do all of the testing that you want. We found

that there was some—apparently, years ago, there had been some

gas stations and things like that on that site, and we had some soil

remediation efforts that we had to make. So that is behind us.

The second largest part of this project has been the site—the

utility relocation and the concrete work. On a project of this size,

that is massive. That is now behind us.

And then the third, what I consider to be—if you have driven

there, if you have gone past there, you have seen that is an enormous steel structure there.

Now that the steel is behind us, and as part of resetting the

GMP and these costs and closing out that part of the construction,

that is important because now we are basically on what I consider

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to be the finish line of this. We are currently closing out and trying

to wrap up the mechanical, electrical, and plumbing; then we start

to get into just interior things, which is carpet and wallpaper.

Mrs. MORELLA. I would like to just interrupt you. Tell me just

briefly, are you offering financial incentives for completion on time,

and then are you offering penalties for noncompletion?

Mr. DAWLEY. There is a financial incentive. If you want specifics

about that, I should probably have Alan Lew, our managing director of development come up, and he can tell you specifically what

those incentives are. But we do have some incentives in the GMP

to finish this in March 2003. There is a liquidated damages that

goes into effect, and that goes into effect, I believe, on June 1, 2003.

So, yes, there is.

Mrs. MORELLA. We may pursue that later. I see Mr. Price is

here. I know the difficulty of scheduling and transportation. So, if

you would, I am going to let you give an opening statement. But

before you do, would you stand and raise your right hand. I will

just swear you in briefly.

[Witness sworn.]

Mrs. MORELLA. Thank you. So if you have caught your breath,

you may proceed.

Mr. PRICE. I do apologize.

Mrs. MORELLA. We do have a copy of your testimony that you

submitted.

Mr. PRICE. Good morning, Chairwoman Morella, Congresswoman

Norton, and members of the subcommittee. Thank you for the invitation to discuss the state of tourism in the District of Columbia

as well as provide the administration’s perspective on the development of the new Washington Convention Center.

I would like to take this time, this opportunity, to thank the subcommittee, particularly Chairwoman Morella and Congresswoman

Norton and Congressman Davis, for your assistance in dealing with

the aftermath of the terrorist attacks in New York City and the

Pentagon. Especially I would like to thank you for reopening the

Capitol to visitors, as well as your work with the Mayor and regional leaders to resume air service at Reagan National Airport.

Both of these actions have sent a strong message out to the world

that Washington, DC, is safe and open for business.

My name is Eric Price, and I am the deputy mayor for planning

and economic development for the District of Columbia, and it is

my honor to represent Mayor Williams here today.

I will begin by speaking about the District’s recovery from the attacks and then follow with remarks about the new Washington

Convention Center.

Prior to September 11th, the District was weathering well the financial downturn that had impacted the Nation. The District was

outperforming the national economy on a range of economic indicators.

Tourism was up. The city’s hotel occupancy rate surpassed New

York City in August. At less than 5 percent vacancy rate, the District’s office market was identified by the real estate industry as

one of the top markets in the United States. Unemployment was

down, and the city continued to create new jobs, 4,900 more jobs

than the same time last year.

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Investment city-wide was up, pumping $10 billion into our economy from ward 1 to ward 8; Freddie Mac reported that the District’s 29 percent rise in home values was the highest in the Nation

for the third quarter of 2001, and the median price of a single-family home was at $217,000.

Four months later, we are relieved to report that our dire economic forecasts have not materialized. Although the District, its

business and residents have suffered economically—although the

District and its businesses have suffered economically somewhat,

greater Washington’s hospitality industry lost an estimated $1.25

billion in revenues in 2001 as a result of the attacks. Student tours

of the Nation’s Capital are almost nonexistent, including field trips

from our neighboring jurisdictions.

However, since late fall, the hospitality industry is showing signs

of rebounding. Hotel occupancy returned to a high of 74 percent in

December from a post-September 11th low of 26 percent. The convention center lost no bookings as a result of the September 11th

or subsequent anthrax incidents, and convention attendance is

climbing back to normal. Restaurants are also experiencing a

steady return to their previous levels of business, and seasonally

adjusted unemployment dropped from 6.6 percent in September to

6.3 percent in October.

The city, the Convention Center Authority, the Washington Convention and Tourism Corp. and the business, civic, arts and cultural communities have collaborated and worked aggressively on a

campaign to rebuild our tourism economy. There have been successful promotions. We’ve had two Restaurant Weeks; we’re going

into our second. We just started Holiday Homecoming, D.C. Sales

Tax Holiday, Metro Free Weekend to bring regional visitors and

revenue into the city. The cast of NBC’s West Wing and Warner

Brothers volunteered to produce four promotional advertisements

of the city that will be seen by regional and national audiences beginning January 21st.

Our other new partners in the recovery include the Smithsonian

Institution, which participated in Holiday Homecoming and is providing February’s Smithsonian magazine wrapper, which has a circulation of 2.6 million people, to promote Washington, DC, to its

readers. Also companies such as New Balance shoes, who sponsored Washington Walks, will be featured in Conde Nast Traveler

magazine, which has a circulation of 800,000 people.

There has been a strong, solid effort to promote a resurgence of

the city’s hospitality industry that will ensure that hotel occupancy

and the levels of revenues generated meet and surpass pre-September 11th levels. I am confident that this effort will continue and

that it will result in a strong flow of dedicated revenue to support

the new Washington Convention Center.

The new convention center is projected to have a substantial

positive impact on the District and the region. According to an economic impact study conducted by Coopers and Lybrand, when fully

operational, the center is projected to have an annual total economy impact of $1.4 billion, $656 million of this on the District and

$776 million on the metropolitan region. Additionally, the center

will produce over 17,000 jobs, 7,800 for D.C. residents and 9,700 for

the metropolitan region.

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In anticipation of the new convention center, 16 new hotels have

been completed or will be completed by 2004, adding 7,500 rooms

that will be added to the city’s inventory of 26,000 rooms. The recent awarding of the neighboring Wax Museum site will add additional vibrancy to the neighborhood and retail opportunities for

convention center attendees.

By District statute, the Mayor or his designee and the chief financial officer are ex-officio members of the Washington Convention Center Authority Board which oversees the operation of the

current convention center and development of the new convention

center. I have served as the Mayor’s designee to the Board since

my appointment as Deputy Mayor over 2 years ago. I attend

monthly meetings of the Board and serve on the Board’s Operation

Committee.

The Mayor and the Council of the District of Columbia appoint

the remaining members of the Convention Center Authority Board,

and since taking office, Mayor Williams has only made two appointments to the Board. Recognizing the importance of the Board’s

role and oversight of the construction of the project, the D.C. Council recently approved legislation over the current—holding over the

current board until the completion of the new convention center.

Greg Fazakerley, who is the chairman and CEO of CG Investments, serves as chair of the Development Committee, and Mr.

Fazakerley has over 20 years of development experience. He also

has worked closely with the Authority’s construction manager and

development team and provided the Board thorough updates on the

construction and all issues that have arisen, including providing

the Board oversight of the recently negotiated guaranteed maximum price, which resolved the majority of outstanding issues related to design, cost and schedules.

The Authority’s financial team and auditors have assured the

Board and the Mayor that the approximately $100 million of available reserves is more than sufficient to meet the debt service requirements and that the Authority will not need any additional

District or Federal funding or taxes. I am confident that under

Lewis Dawley’s strong leadership, the Authority will open in March

2003 on time and on budget.

There are two other major projects related to the convention center that you should be aware of, the development of a convention

center headquarters hotel and the redevelopment of the existing

convention center site. Since last fall, my office, the chief financial

officer’s office and the Office of Planning have been in negotiations

with the two development teams who are judged to be best qualified on their responses to our request for proposal to provide a

1,000-plus room convention center hotel. The terrorist attacks of

September 11th have definitely had a negative impact on the already challenged hospitality capital markets, and as a result, my

staff and our advisors, Strategic Advisory Group, have taken some

additional time to see if the financing proposals will hold up in the

current marketplace.

With the recent completion of the final stage’s selection process,

the CFO and I will likely make a selection in the next few weeks.

When completed, we project that the headquarters hotel will generate an estimated $10 million in net new District tax revenues.

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In addition, last year my office and the Office of Planning issued

a phase one plan, which proposed a set of uses and a general process for the redevelopment of our old convention center or the existing convention center site. Late last year, we selected a consultant,

Hamilton Rabinowitz and Alschuler to advise us in the structuring

of the redevelopment process and development of the developer solicitation.

After examining the experience of other cities and other threshold issues, the Office of Planning and HR&A have begun the process of creating a development solicitation and engaging with groups

like the Federal City Council and the Martin Luther King Library

who have an interest in the site. Over the next 3 months, we will

finalize the process and offering documents, and we expect to formally engage the Council and other stakeholders later this spring.

I want to thank you for this opportunity to speak on these two

critical elements of the District of Columbia’s economy, and I am

available to answer your questions. Thank you.

[The prepared statement of Mr. Price follows:]

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Mrs. MORELLA. Thank you very much, Mr. Price. I’m now going

to recognize the distinguished ranking member, Congresswoman

Norton, for her questioning.

Ms. NORTON. Thank you. I thank you very much, Congresswoman Morella.

Dr. Gandhi in his testimony indicated that of course many of the

increases and unanticipated costs are what you see in large

projects, and I’m sure that’s true. I am having a very hard time;

this is in part because the GAO report is focused so specifically on

D.C. I can never judge anything except compared to what—the District of Columbia, for example, is always judged on what is happening—on its own terms.

So that—for example, I remember when the Control Board was

here and there was the big problem with the schools, and we were

told that the District of Columbia schools were the worst in the

country. That wasn’t even true. That wasn’t even true. And people

were comparing the District of Columbia with States, and it just

wasn’t true that the District of Columbia schools were worse than

New York City, you know, or Birmingham, AL.

And so, you know, the academic in me wants to say, how can I

judge this; and obviously I want to ask questions and insist upon

holding the District to a high standard, but none of us up here are

construction experts. Therefore, it is hard for me, I will say to Ms.

Franzel, to judge what—when we are talking about the largest

building in this city since the Ronald Reagan Building—and the

Ronald Reagan Building is the largest building that the Federal

Government has ever built, and there’s no building of its size, anywhere near its size, in the entire region, and it’s hard to find a

building anywhere in the country as big as that. So at least that

gives me one standard by which to judge.

So here this is second, in this city, only to the Ronald Reagan

Building. I’ll tell you one thing. I’m on the committee that had jurisdiction over the Ronald Reagan Building, and we had to go

through a version of hell to make sure that building not only went

up because of its size, but it was used for the purposes that it was

intended. It was quite an ordeal.

So I cannot help but begin by asking Ms. Franzel whether the

GMP increases, whether the delays we’ve seen, how they—those

issues that concern us. Estimated costs are compared to—actual

costs compared to estimated costs, how that compares to the standard in the industry, or else I just don’t know anything to say, except do better, and that is not a very scientific way to go about

judging a project.

Ms. FRANZEL. Sure. The focus of our work was really to look at

the estimated costs in relation to financing available, because although certain norms might be occurring out there in the construction industry for such projects like this, I think our real concern

was whether the current estimated costs were still within the

available financing for this particular project. So we did not attempt to compare, you know, the levels of increase on this project

with levels of increase on other projects around the United States.

Our chief concern was whether the current financing available

would still be sufficient to cover the current estimated costs.

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Ms. NORTON. All right. Well, let me—again, to judge that, though

one has to know whether or not when costs increase this way,

whether that—obviously there can be great surprises. Well, let me

go at it this way.

I look at the original amount for unforeseen costs. That was

$30.5 million. That’s where we started in September 1998. Then I

look in May of this past year, and the fact is that they’d used up

most of it by then; $28.3 million is what’s been used. So that in

July—in June, rather, right after most of it—it became clear that

most of it was being used, the contingency was increased, and they

increased it by $50.7 million.

So that—as I look at these amounts, the estimated financing

sources now exceed the estimate, the Convention Center

Authority’s estimated costs by about $16 million as of July. So the

question then becomes, seeing what has happened over that time

line and seeing that the cost of the building started at $799.5 and

is now $815.7, let me ask you, given that time line then for this

project, do you believe that they will continue to have enough

money in the contingency to cover remaining unforeseen costs, or

will they have to seek further financing?

Ms. FRANZEL. That is really the key matter here. Because these

new figures have just come out, we have not specifically studied

the feasibility of completing the project within those estimates. We

did, however, want to present a status of the current estimates,

and perhaps WCCA can explain further some of the reserves and

contingencies that have been put in place with this current budget

to help ensure that it can be met within the current estimates.

There is a contingency, and I believe there are reserves built into

the figures which we’ve not had a chance to analyze because we

just received those numbers last week, but currently there are

some reserves and contingencies built into that estimated cost of

$799 million; and that would be, then, in addition to the $16 million that is still out there that’s available for the project.

Ms. NORTON. Well, that’s important, and perhaps Mr. Dawley

could explain that, that particularly, in addition to the $16 million

that’s available, according to Ms. Franzel, there are reserves that

could perhaps be drawn upon to make sure that the project was

completed.

Mr. DAWLEY. We are replenishing what you referred to as the

contingency. As part of resetting the GMP, we have approximately

a $30 million contingency that is included within the GMP and

about $10 million outside of the GMP, and I believe we consider

that the owner’s account. So we do have—we are replenishing the

contingencies, and as I mentioned earlier, we feel that when you

look at where we are in terms of the construction and what we’re

doing, there’s a reason why we reset the GMP at this point.

As I said in the beginning, we’ve bought over—you know, 98 percent of the job is bought where we are on construction. So we feel

confident that these levels of reserves and contingencies that we

have are going to be sufficient to complete the project at this time.

Mr. GANDHI. And if I may add a word, Ms. Norton, you know,

in addition there are the debt services fund, revenue stabilization

fund, operating and marketing fund. So at each of these levels, we

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have reached the minimum, and in many cases exceeded far beyond that.

Ms. NORTON. This is very reassuring. Have you looked at the

risk factors that could keep you from completing—let me note that

you’re to complete in March, and you have your first—— Mr. DAWLEY. We have our first convention in April.

Ms. NORTON. In April. There’s no wiggle room there.

Mr. DAWLEY. Right.

Ms. NORTON. I’m glad there’s no wiggle room. Let’s get on with

it. Let’s get it on once it’s completed.

But it does put a premium on completing the project. Does that

mean that in April we’d have a large convention?

Mr. DAWLEY. We actually—at the beginning of April, we have

our first convention; and then we have two large conventions in

April, and we’re busy in the new convention center all the way up

until December. In my testimony, I don’t know if I mentioned that

we have I believe 20-something conventions already scheduled in

that first year, so—— Ms. NORTON. So this looks like a guarantee that the convention

center will be finished on time?

Mr. DAWLEY. Yes. And we’re working very closely with our construction manager, Clark Construction, and we’ve come up with a

plan for what we’re calling ‘‘convention ready,’’ which is going to

get us ready. And as you would expect, you know, the initial report

where GAO was reporting what was in the initial report before we

had an opportunity to resolve those issues with Clark, caused some

concern among our clients; and we’ve met with those clients that

are scheduled to come in in April, and we’ve reassured them that

the convention center is going to be ready. So we’re working closely

with Clark. We have a plan for that.

Just as an example, there’s a huge amount of carpet that is going

into this building, and what we’ve decided is to expedite that.

We’re actually ordering the carpet now. We’re going to store it. So

we have a plan for how we’re going to be there in April 2003.

Ms. NORTON. Yeah. Well, I certainly—when you say ‘‘clients,’’ you

mean people who were considering coming?

Mr. DAWLEY. Were already booked.

Ms. NORTON. I hope people don’t misunderstand what GAO reports mean in Washington, and we certainly want to help to clarify

that, that they’re routinely ordered, because that’s the only way

Congress can get independent information. So if an—if some explanation is needed, I’d be pleased to help provide that. It’s just part

of our oversight; it doesn’t indicate that we had difficulty with—or

saw any difficulty with how the convention center was proceeding.

I have more questions, but I’d defer to the Chair and come back

later.

Mrs. MORELLA. Thank you. Actually, GAO reports sometimes

also inspire and motivate actions, too.

Mr. DAWLEY. Well, our competitors out there around the country

took advantage of that opportunity.

Mrs. MORELLA. Well, but I also think——

Mr. DAWLEY. It’s the nature of the business. I understand.

Mrs. MORELLA. I also feel very comforted that you have a lot

more in order, in terms of reaching——

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Mr. DAWLEY. Absolutely.

Mrs. MORELLA [continuing]. The final destination of total completion. But I have a little question about some of the terminology.

You know, I’ve often felt that they say around Washington to tell

the truth, the whole truth and nothing but the truth means three

different things. Now, that’s not the case here at all, but let me ask

you to define ‘‘readiness,’’ ‘‘substantial’’ and ‘‘final completion’’ just

so that I have it clear in my own mind.

Mr. DAWLEY. Right.

Well, frankly I’m kind of new at this concept we’ve developed on

convention readiness, but what we had discussions with Clark

about, you know, this building is so big, it’s being built in three

phases. You know, there’s the north phase, the middle phase, as we

call it, and the south phase; and a decision was made to kind of

build each one independently.

So how we pull those phases together and prepare for our clients

that are coming in—because obviously they want all of the things

that a convention center expects, all of the food service and the

technology and all of those things—so our plan and what we’re focused on is ensuring that we have a certificate of occupancy

which—you can’t get a certificate of occupancy until March 2003.

We have to have that to be able to operate the building. That

means all life safety systems and those things will be in place.

So that’s kind of what we’re—when we say ‘‘convention ready,’’ we mean having a certificate of occupancy and having the building

ready.

Substantial completion means that, you know, there are things

that you’re still maybe finishing, which is—this is, like—there may

be sections in the back of the house. There may be some warehouse

storage areas, things like that, that you decided to kind of delay

while you focus on these convention-ready areas, but they don’t

really impact our ability to operate and function as a convention

center. ‘‘Final completion’’ is when everything is done, you know, you’ve

walked the building, and you’ve done all of the punch lists, and

you’ve looked at those things. Although sometimes you agree to extend punch lists out because in a building this size, those things

could take months. But ‘‘final completion’’ is that you’ve closed out

all of the contracts. Everybody is gone. The subcontractors are

gone. They’ve all been paid, and you’ve actually finished the

project.

Mrs. MORELLA. So, therefore, it will be—readiness will be March

31st?

Mr. DAWLEY. Right.

Mrs. MORELLA. And the final completion will be October——

Mr. DAWLEY. Right.

Mrs. MORELLA. 31st? It will, however—from March 31st on, it

will not impede——

Mr. DAWLEY. No.

Mrs. MORELLA [continuing]. The use of the new convention center?

Mr. DAWLEY. Right.

Mrs. MORELLA. And you say you already have some people or

entities——

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Mr. DAWLEY. We have a lot.

Mrs. MORELLA [continuing]. That have already signed up for

April, and you’re not going to have any problem with handling

that?

Mr. DAWLEY. I believe I sent you a copy of my schedule—of our

schedule of the convention center in my testimony.

Mrs. MORELLA. Yes. And then you also indicated in answer to a

question that I posed that you do have some financial

incentives—— Mr. DAWLEY. Right.

Mrs. MORELLA [continuing]. For the construction manager to

meet those construction dates. And within that, financial incentives, would be penalties, too, the carrot and the stick, both of

those; and you feel pretty sure and Dr. Gandhi and Mr. Price and

Mr. Brazil are all cognizant of that and feel that these are pretty

good safeguards. That’s correct?

Dr. Gandhi, do you agree with that?

Mr. GANDHI. Yes, ma’am.

Mrs. MORELLA. Let me jump to the current convention center.

Did I hear you say, Mr. Price—maybe you want to elaborate on

this. Do you have plans in mind? Are you just asking people to submit their various proposals—— Mr. PRICE. Right.

Mrs. MORELLA [continuing]. For using that?

Mr. PRICE. What we’ve done so far for the first step we had to

take was where would a convention center hotel go, and so we put

out an RFP with the CFO’s office to solicit proposals for a new convention center hotel, because we had to rule out the possibility— or rule it in one way or the other, would it go on the existing convention center site. And then, once determining that, we can move

forward with what would be our plans for the existing convention

center.

So we did get your proposals for the new convention center hotel.

They are not on the site itself, and we’ll make that decision. In the

meantime, we are now—we’ve hired consultants to really look at

some design planning issues, and all we’ve done so far is, the

Mayor put together a task force with several stakeholders last

year, and we came out with basically what kind of uses would you

want to see on that particular site, and things that came out of

that were, like, housing, boutique hotel. People wanted it to be a

people-puller kind of cultural entertainment, a great public space.

Those were the kind of ideas that came out of that. So what

we’re doing now is taking all of that information, using consultants

throughout the country to help us come up with a framework from

which we can then in about 3 months issue an RFP for development of the site.

Mrs. MORELLA. Thank you. I’m now going to defer back to Ms.

Norton for any other questions.

Ms. NORTON. Thank you very much, Mrs. Morella.

Mr. Gandhi, among the most reassuring parts of your testimony

concerned the capacity of the dedicated tax, because you testified

that well beyond the kind of drop in sales tax we’re now seeing— and this, of course, is a drop after an unprecedented event of a

monumental sort—there would be enough to cover. Does that mean

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that there’s a cushion in the reserves and how to dedicate it—and

how much money the dedicated tax brings in in the first place?

Mr. GANDHI. Even in the first place, there is a lot of cushion, that even if the taxes were to decline, say by $26 million, you

would still have a lot of money left over to take care of the debt

services. As Eric Price pointed out earlier, things do not look now

as bad as they looked immediately after September 11th.

So we are quite encouraged about the movement of the economy;

and I think, Ms. Norton, if I—just to belabor for a moment, I think

the District’s fundamentals are quite strong. As you have stated so

many times, for the first time in a long time, our population has

stabilized. Now, that is a sea change in the case of American cities,

and when that raises our tax base, we will have people here living

with us and people with a lot of income. So I’m quite confident that

the dedicated taxes are more than enough to take care of this.

Ms. NORTON. So we don’t subsidize this convention center now at

all, and we’ve never subsidized a convention center, and we won’t

subsidize a convention center?

Mr. GANDHI. Well, we do have dedicated taxes to take care of the

convention centers for construction.

Ms. NORTON. But we’ve never had to subsidize it out of general

revenues?

Mr. GANDHI. Well, if you—— Ms. NORTON. The dedicated tax is to build the convention center,

of course. I understand. I’m asking the Convention Center Authority, which operates the convention center now—— Mr. DAWLEY. I can answer that.

Ms. NORTON. Yes.

Mr. DAWLEY. After the act of 1994, the subsidy to the convention

center from the District at that point was eliminated, and our operating expenses and the construction debt service is paid for from

the hotel tax, the dedicated hotel and restaurant tax.

Ms. NORTON. I have a question for Mr. Brazil and, I suppose, Mr.

Price. This, of course, is to be the sixth largest center. By the way,

could I ask Mr. Dawley, is it still going to be the sixth?

Mr. DAWLEY. As of today, yes.

Ms. NORTON. I never have been able to figure out how D.C. built

a convention center that couldn’t let the ABA come in the door in

the first place. So I have to ask. Why build—they’ve already built

a convention center once. Leave aside that over time your center

will be—will have others to get larger, but I thought you measure

by whether or not your—did these conventions get larger and that’s

why D.C. couldn’t accommodate them?

Mr. DAWLEY. Well, there’s—and I’ll try to answer this as simply

as I can. As you know, you hear about convention centers like

McCormick Place in Chicago—and I think you’ll recall we talked

about this in 1998—or Las Vegas. Those tend to be trade show destinations that have, you know, industrial-type mechanical trade

shows which occupy a lot of floor space. Our market is the association market, which is—requires meeting space. The exhibit space

tends to just support the meeting. So it’s like comparing apples to

oranges.

Ms. NORTON. No. But I’m talking about the ABA, the AMA. I’m

talking about the associations. I’m not talking about the——

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Mr. DAWLEY. We can accommodate—— Ms. NORTON. But we apparently can’t accommodate them now.

At least they don’t come now, because—— Mr. DAWLEY. In the existing center, you mean?

Ms. NORTON. Yeah.

Mr. DAWLEY. Yeah. No, we can’t.

Ms. NORTON. I was simply trying to find out how we built a convention center, since we’re association-oriented in the first place,

that couldn’t accommodate the largest associations; and I’m just

hoping that this time we got it right.

Mr. DAWLEY. Well, that’s why I said quality, and what I believe

is going to be the finest convention center in the world has been

one of our missions and our goals that we not cut corners.

Ms. NORTON. Mr. Brazil, you may recall that when the convention center bill was before the Congress and before the Council,

there were some who tried to torpedo the bill on the basis that it

was not going to be large enough. You know, all kinds of things

were done, but an important point was raised, and that was that

it didn’t have any place to grow, and that was the—kind of the

last—the last way in which they did—those who didn’t want a convention center did a ‘‘gotcha,’’ you know, it’s not going to be able

to grow.

At that time, you may recall that a plan came forward for an extension underground if an extension was needed, and this plan

called for the extension to be paid for by the building of what I

now—what I believe now, but I must ask, would be this convention

hotel; that is to say, it would not be paid for—we probably are running out of ways to pay for it.

We’ve already got the industry paying for this. You know that

D.C. can’t pay for it, so it was to be paid for.

Nobody has even mentioned this underground extension, and it

makes me very nervous. I hear a lot about this hotel, but nobody

mentions whether or not these plans for extending the convention

center, as is inevitable, if it outgrows its present space, are still the

plans for the city—for the center.

Mr. BRAZIL. Well, I would like to address that, but I think Mr.

Dawley and Mr. Price would probably give you more accurate information.

Mr. PRICE. I would like to take an attempt at that, because it’s

tied to the convention center hotel. You’re exactly correct, as well

as what happens at the existing convention center site; so all of the

work we’re doing right now, that is an issue, and in terms of choosing who will get the—who will win the new convention center

hotel, that’s been part of those discussions. And I’d be glad to even

off-line talk more about it, but it is part of the negotiations—— Ms. NORTON. But it was very specific. It wasn’t just that you’re

going to have a hotel where the revenues will end up in the general

revenue. It was, you know, D.C. gets used to the revenues from

this hotel being a part of the general revenue, it will be very difficult to do anything but say that D.C. is paying for the extension.

What I want to know is, in the process, all this fancy stuff that— sure, people are going to come and say they want to build a convention hotel, even in a city that is full of hotels. The location of this

hotel would make it a prime location for a hotel.

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I want to know if the link between the revenues generated and

extension for the convention center remains.

Mr. PRICE. Right now, and what I was going to finish up with

is that if the—a new space or additional exhibit space that the convention center hotel needs is not part of the new convention center,

then Lew has—is ready to begin a process of siting where that

would go, and one of the places would be——

Ms. NORTON. I’m sorry. Could you say that again?

Mr. PRICE. Lew has started or will start—Lew Dawley, I’m

sorry—looking at the siting issue of where that space would be,

and one of those options is the existing convention center site. Paying for it, we haven’t really gotten there yet. It could be tied to the

new convention center hotel, part of the public-private partnership

or a full public partnership that pays for it. It could be we come

back to the convention center and look at the taxes that are being

raised now for the new convention center, but we just don’t have

the answer to that, I think, at this time.

Mr. DAWLEY. We actually have started the process of developing

a feasibility study, which I recommend, and as you know, all convention centers kind of do that today when they’re built on future

expansion and what the options would be. And as Mr. Price said,

you know, we haven’t gotten far enough along yet to really look at

the financing issues.

Ms. NORTON. Well, I have a feeling this project would have had

a much harder time getting through the Council and the Congress

if we had not been assured——

Mr. DAWLEY. Right.

Ms. NORTON [continuing]. That the city had a way to expand it.

And the reason was that the city’s first convention center was obsolete as soon as it went up, and that’s often not the fault of the jurisdiction.

So my only concern here is that if no real discussions continue

to go on in the city, what will happen is that revenue will be dedicated to the District of Columbia, which like any government, can

always spend it on very worthy issues. And I urge that the planning include the probability that this center is going to have to be

extended. And while you might use the revenues in the meantime

for something, and, yes, our populations have been stabilized, is

one of the great—Mr. Gandhi’s point here—is one of the great and

important gains in the District of Columbia, making it almost

unique.

But the fact is, we need 100,000 more people, as the Control

Board has said, to even support what we’ve got. So it seems to me

that this planning is going to be very important.

Madam Chair, I have only one question. I just want to congratulate the convention center for the way in which it has not only

agreed to the step-up program, but used it. The reason this was so

important—and I had the entire industry and all of the unions, all

of those involved, in before this project began—is because the Federal Government in 1980 stopped doing joint apprenticeship programs with management and with developers and contractors; and

what that has done is to leave us with a generation of young men

and women in the inner cities who have not been trained to work

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in sheet metals, to be electricians, to do much of the work. So cities

are being built by people who live in suburbs.

That is an abomination. It’s the fault of the Federal Government,

because the fact is, it was that agreement, 1980, the first thing the

Reagan administration did was to abolish this program, and it really condemned particularly a generation of young black men who

were the most ready pool, condemned them to—you know, to doing

what they did. They went into the streets. There was no money to

train them.

So the step-up program is a way to try to get around that, and

the convention center is one of the few examples in the city—— Mr. DAWLEY. In the country.

Ms. NORTON [continuing]. Of it having worked successfully.

Now, Mr. Brazil, the city itself—this is Mr. Brazil—it’s really Mr.

Price, but because the Council passed its own bill that said you

couldn’t come in here and build and use revenue bonds and the

rest, and continued to recruit labor the way you always did; and

there has been a lot of consternation that the city has not in fact

met its promise, except at the convention center.

So I’ve got to ask what the—whether the Step-Up—my—and just

let me indicate that the clout to do so really comes only from enforcement and the notion that you’re going to monitor it to make

it happen. I have—the largest projects coming in the District are

Federal projects that have come through my committees—DOT, the

Southeast Federal Center, the AFT, the SEC. I have insisted that

each and every one of those projects have a Step-Up program, and

each and every one of them is going to have one; and the GSA cooperates with me, because I just keep on them.

Now, if the city government does not keep on them, whatever the

Council passes is not going to mean anything; and I have been very

chagrined that there have been picket lines in the city. It should

be an embarrassment to all of us. There have been picket lines in

the city about how D.C., doing so much better, has not enforced its

own laws.

I guess I should ask Mr. Price where you are on enforcing these

agreements in places like George Washington University, which

come to you to get revenue bonds, make you a promise. Then

there’s the picket line. I know whatever happens after that—and

I understand this is continuing around the city; and I’d like to

know what you’re doing to enforce the law that was passed. I said,

I’m not going to continue to bring jobs into this city for the suburbs. They already get a free ride, subsidized by the District of Columbia with no commuter tax.

So I should think you would be up in arms that all these jobs

are being filled by people who don’t live here. But unless somebody

is willing to get on them to do what the convention center did, this

is the way it always happens. So I’ve got to ask you about that,

since it has bothered me no end to see all of these cranes—some

of them are because of my own D.C.-only tax breaks for businesses,

a big reason you see so many cranes.

Well, it breaks my heart, unless some of these young men and

women from the District of Columbia are at least being trained

through apprenticeship programs as this money flows from the

Federal Government.

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Mr. PRICE. Well, I don’t disagree that it—not enough is being

done to ensure that these jobs do go to District residents. And

you’re right. I think Lou has pointed out that the Step-Up program

is one of the few in the country, and it’s one of the few, because

it is so difficult to do. And I agree with you, and he—— Ms. NORTON. Why were you successful, Mr. Dawley, in doing

this, and the District of Columbia has had such difficulty? What’s

the difference? What does it take?

Mr. DAWLEY. Well, I think one of the things that made this successful was that we had the building trades participate and

commit—— Ms. NORTON. But they’ve got the building trades. They’re building things subsidized by the District of Columbia, tax breaks from

the District of Columbia. Same building trades—— Mr. DAWLEY. And Clark Construction’s were—— Ms. NORTON. You mean these were union trades and the others

are not? I mean, is that the—— Mr. DAWLEY. In some cases, maybe.

Ms. NORTON. The Federal Government does not require that

unions build, and yet we’re going to have a Step-Up program.

What made your program so—— Mr. PRICE. Do you want me to respond to that?

Ms. NORTON. Yeah. I don’t understand, and I really would like

to, because if I understand that, I know what we have to do to

make sure it succeeds, and my own projects that are coming online; and it would help the District if you would carry that over so

that the District can use that.

The District wants this to work. Here it has this big project

that’s made it work. Why has it worked here, but didn’t work at

George Washington University, didn’t work at these other places

that——

Mr. PRICE. One difference between George Washington—I’ll just

give you one and, again, I don’t want to make any excuses because

I agree with you that not enough is being done, but one difference

is, in the convention center, the District is in a way the owner of

the project, and that has a big thing to do with the enforcement

of it and the follow-through. On the revenue bond programs, the

District is—— Ms. NORTON. Well, let me ask Mr. Brazil, does the statute that

the Council passed, does it make it easier for a city-owned building? Because if it does, and it’s not a city-owned building, then of

course I think we need to have the law revised, because almost

nothing that’s being put up is city-owned.

Does your statute, so far as you know, draw any—make any differences between city-owned and city-subsidized projects?

Mr. BRAZIL. I’m not sure that it does. I think Mr. Price was just

alluding to the fact that if you own the building—I mean, just as

a practical matter—you can exercise more control.

In talking about the revenue bond program in general, we—our

committee, my committee, oversees that, and one of the things—I

think we have a—the executive branch has a good office that they

screen the applications, etc. But one of the things that I insist on

is to understand not only have you certified that you’re going to

meet the various requirements, be that sometimes apprenticeship

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programs, but mostly hiring of D.C. residents and the small business program requirements, not only have you certified that you’re

going to do it, but how are you going to do it? Tell me your plan

so that I can see you, from today just before you get this $30 million, or as much as $300 million between that time and the completion of the project, how are you going to get there?

And I have to—I think it’s a work in progress. You know, some

of the bond recipients are just very forthright, and they are very

interested in meeting these requirements. Others, it’s, you know, I

don’t want to have to do this, and I think we should gather—both

branches of the government in Washington need to work harder,

ask harder questions, monitor more.

One of the things I’m going to urge upon Mr. Price and the

Mayor is to put a little bit extra muscle, some more people in their

LSDBE program, so that they can really go through these projects

and monitor them—not after they’re all finished and gone, but as

they’re going, are you meeting these requirements?

And I think that the apprenticeship programs have sort of their

own unique set of problems, but you’re exactly right. If we don’t

make it happen, if we don’t antagonize and be pests or however we

do it, it’s not going to happen and—— Ms. NORTON. Well, let me make a recommendation then, given

what you’ve just said, Mr. Brazil.

The city tries to say a certain number of residents from the city,

a certain number—and of course that’s the important point. The

Step-Up program, the reason that the apprenticeship program may

be the key here as opposed to saying go out and hire some residents, is that people who live in cities have not had the training

to work on these jobs. So in a sense you—the city is giving the developer or the construction manager an order that he cannot make.

If he’s supposed to go out and find himself some carpenters and

some sheet metal folks who live in the District, I mean, good luck.

I just said you had a generation in which nobody is being trained.

So may I ask this. We’ve been able to get people to work on Federal projects by saying you must have—negotiate with them, the

Step-Up program. One way to do it is, instead of using these numbers, which are almost impossible to be met, to require that there

be a Step-Up program on every project, because all that means is

that they’re going to have to train people. And it concedes what it

seems to me is fair to them, that if you tell me, I’ve got to be from

D.C. and I’ve got to fill these positions, then you’ve got to help me

find a way to fill them.

It seems to me the Step-Up program is an offer they can’t refuse

because it tells them there is a way to get people to train to be

electricians, to train in sheet metal work, to train to do wire work;

and we insist that you do that, and we’ll help you do that. So I

would ask that you—that—I would ask that you consider that as

an approach to alleviating some of the tensions that has arisen in

the city when people see that construction is going on all over the

place but they are sure the D.C. residents, in fact, have not been

hired and therefore the promise has not been kept. There’s a reason the promise has not been kept, and I think the Step-Up program helps you to keep that promise.

Thank you very much, Madam Chair.

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Mrs. MORELLA. Thank you, Congresswoman Norton. Are there

any provisions that would not allow for some of the apprenticeship

programs, those Step-Up programs? That’s been something I’ve

been concerned about.

Mr. PRICE. The current legislation that we have for first source—

our first source agreements, that the 51 percent hire and 35 percent procurements have to go to LSDBEs, doesn’t have a lot of

teeth in it. Quite frankly, there’s not a lot of remedy if they don’t.

Just to give you an example, George Washington, who Ms. Norton

mentioned, they had a requirement for them to be registered in the

apprenticeship program. GW had 22 of their 23 registered; 1

wasn’t. We looked at how do we go about enforcing it. The only enforcement mechanism that was there was to that one subcontractor

who did not agree to this program. If any other group came in and

wanted IRB and wanted to include them as a sub, we could deny

the IRB that way, but we couldn’t stop the project, for example,

which is what people wanted. As Councilmember Brazil said, there

is a work in progress to see how we can put teeth in that legislation legally and do that.

Mrs. MORELLA. I think——

Mr. BRAZIL. Part of the problem with that particular contractor

is I don’t think there’s another contractor in the region that can

pour and work with the concrete the way this one can. So they’re

kind of giving you some reverse muscle, but we’re working on

them.

Mrs. MORELLA. I also—I appreciate the fact that you are working

on it, because I do think it’s an important opportunity with regard

to utilizing our human capital in the District of Columbia.

Let me ask you about the heating and cooling system, because

my understanding is that—those systems are going to be done by

Trigen and Pepco Energy Services, and I’m wondering about how

is it proceeding? How much is it going to cost?

Going further, will they be able to sell services outside of clients

for the—of the convention center other than the convention center

as its big client, and has WCCA had to incur any of the costs with

regard to constructing those systems?

Mr. DAWLEY. Madam Chair, the Trigen-Pepco relationship, if you

recall in 1998, we came and said we were proposing to do this to

outsource that. It’s gone extremely well. I don’t know if you had an

opportunity recently to see the large helicopters that were lifting

the cooling towers for the convention center on the roof. It was

quite a media event, a couple weeks ago.

That has gone along very well. I think at this point it’s my understanding it’s pretty much within budget. As you know, they

have a huge part of the responsibility to do this, and they absorbed

the responsibility and the costs for installing this; and, yes, this

will allow some opportunity for them to sell energy. In fact, as part

of the discussion that Eric and I have had about these other properties around the convention center, that may be—one of the incentives to help with that is that they can provide that cooling and

heating actually from the plant, the central plant at the convention

center. So it’s gone very well.

Mrs. MORELLA. And has the WCCA had to put any money in?

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Mr. DAWLEY. We haven’t put any in. It’s all their money at this

point.

Mrs. MORELLA. They’ve done it. So it’s proceeding along according to schedule?

Mr. DAWLEY. Yes.

Mrs. MORELLA. You’ve got that all worked out.

Let me ask another question with regard to the Metro that’s

being planned. Does it appear that the $25 million that the Federal

Government will contribute for the funding of the Metro station,

plus interest earned on the funds to date, will cover the estimated

costs of the Metro station?

Mr. BRAZIL. I feel like I should just say no to that because I

know the costs will go higher. So I don’t know exactly the answer

to that question yet. I had heard there did look like there were

some cost overages, a little bit, and that they were working to

bring them back down within budget; but I don’t have the answer

to that today.

Mrs. MORELLA. Will you keep us apprised of that?

Mr. BRAZIL. I will.

Mrs. MORELLA. And of how it’s proceeding and if there are any

additional costs, what they would be?

Well, as I look to the hearing that we’ve had and the GAO report

that motivated it, it appears as though you have said that the costs

will be $799 million. There is—you’ll be able to handle it. There’s

a $6 million surplus that’s available. You estimate the dedicated

taxes at $65.3 million, but even if it goes down, it won’t go down

any lower, you say, to $60 million.

Now let me ask you about, when are you going to sign the GMP?

Mr. DAWLEY. There is a board meeting scheduled for next Friday.

We had—my board of directors had an in-depth discussion at the

Board meeting last Thursday on the GMP, and this was literally

worked on right up to the morning of our Board meeting. So we

explained all of the details of it in our Board meeting on the 25th

to make a vote on. Clark has agreed to the reset GMP, and our

board of directors will officially approve it on January 25th.

Mrs. MORELLA. January. And so the decision will be made then,

and we may have—the big signing take place at that particular

point.

Well, I hope you know that this subcommittee will continue to

monitor very closely, because we feel, as you do, that the convention center is critically important. We want it to proceed on schedule. We don’t want the cost overruns. We want to know that you’ve

got your accountability all in order and all of the exigencies also

considered. So I have no other questions, unless—first of all, do any

of you want to make any final comments?

Mr. DAWLEY. I just want to thank you for this opportunity to

come and brief you on where we are; and as I said, if you look at

where we’ve been and where we’re going, we’re confident that we’re

going to get there.

Mrs. MORELLA. Uh-huh. It seems that way.

Ms. Norton, any final questions?

Well, I want to thank you all for being here, and, again, I think

it’s—we have made some great progress, from what we have seen,

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from our point of view. We congratulate you on that. GAO, keep

watching, and we will all keep watching too.

So my thanks to all of you for being here, and just before I adjourn, I want to recognize my staff who are here. On the majority

side, Russell Smith as staff director; Robert White, communications

director; Matt Batt, legislative assistant and clerk; Shalley Kim,

staff assistant; Heea Vazirani-Fales, counsel/deputy director.

On the minority side, John Bouker, who is the counsel; Jean

Gosa, the minority clerk.

Thanks, all of you. The meeting is now adjourned.

[Whereupon, at 10:45 a.m., the subcommittee was adjourned.]

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