19, 1977 for the supervision of the interior construction and finishing of the new building. Apparently there was no competition on $1.5 million of the contract value contrary to the requirements of the Federal Procurement Regulations. Can you give us some idea as to why this contract was not let competitively and tell us what steps you have since taken to avoid a repetition of this procedure?

Answer: The contract was competed through negotiation process. Five (5) companies submitted proposals, were evaluated, and notified of the Tate selection. Procedures are in place for competition and are followed.

Question: A cost-plus-a-percentage-of-cost contracting system seems to have been used in drawing up the Tate contract. Of course this provides the contractor with an incentive to maximize costs and again is a deviation from normal federal contracting procedures. Can you tell us why the contract was drafted on this basis and indicate whether or not you are continuing to allow this sort of a provision in your contracts?

Answer: This contract was negotiated under the Authority of 12 USC 1438 and 41 CFR 1-3.215, on the advice of General Counsel. In addition, each of the offerors proposed a fee based on cost, we believe common for the industry. The above were the reasons for such contract in view of the exemption under 41 CFR 1-3.215 (otherwise authorized by law).

We are not continuing to allow this sort of provision in our contracts, and are aware of such prohibition of this type under normal contracting activity.

SPLITTING PURCHASE ORDERS TO AVOID CHAIRMAN'S APPROVAL

Question: The GAO investigators also found that the Board had split purchase orders to avoid a requirement that the Chairman of the Board approve all purchases over $30,000. For example on October 13th and 14th, 1977, the Board apparently processed five purchase orders, totaling $44,187, for chairs and sofas with all five purchase orders being issued to the same firm. Do you currently have any controls to prevent a repetition of this sort of purchase order splitting to avoid required reviews?

Answer: We have not knowingly split purchase orders to avoid the required reviews. Whenever the same services or supplies are requested by user offices, it is out policy to combine those requests into one purchase.

Controls are in place to prevent splitting of purchase orders, should such become apparent.

REQUISITION OBTAINED AFTER CONTRACT WAS SIGNED

Question: Another contracting irregularity involved a multiyear contract with Allied Maintenance Corporation. Apparently the contract was entered into 36 days before the requisition to obtain the services was prepared. Furthermore four of the seven subcontracts entered into under the terms of the contract were negotiated on a sole-source basis without formal justification. Have steps been

taken to avoid a repetition of this sort of abuse?

Answer: The FHLBB procurement policy is that all proposed contract work must first be authorized by approval of FHLBB Form 812 Requisition. This policy is being followed. Investigation showed that the four Allied Maintenance subcontracts referred to which were entered into on a sole-source basis were actually justifiable although formal documentation was not present in the files reviewed. Allied Maintenance has a Subcontracting Plan dated July 17, 1980, which has been approved by the Bank Board's Contracting Officer. This plan states that "Allied will seek competitive pricing for..... services from qualified subcontractors." The Subcontracting Plan gives guidelines for achieving maximum competition for all of Allied's subcontracts. In cases where competition cannot be realized, Allied's files will be documented to explain the circumstances and justify the selection of a contractor.

Question: I understand that janitorial services were added to the original Allied Maintenance Corporation contract without publicizing the procurement. Although two companies seem to have submitted proposals the GAO found no evidence that negotiations were held with both firms. Can you go back and competitively let the janitorial services contract?

Answer: There was competition for the janitorial contract between General Maintenance Corporation and Allied Maintenance Service Corporation. It was awarded based on price and other factors. General Maintenance and Allied Maintenance Service Corporation received the same specifications. Both companies submitted estimates. Allied proposed a cost of $249,986.81, General Maintenance a cost of $324,262.00--a difference of $74,275.19. The contract was awarded to the lowest bidder. Therefore, we feel the award was competitive.

CODE VIOLATION

Question: I asked the General Accounting Office to determine whether or not the interior design and construction work was inspected to make sure that there were not code violations. The GAO was unable to document whether such inspections took place and whether deficiencies were corrected as required by GSA building codes standards. Apparently Board officials indicated that they did not have sufficient documentation to assure them the necessary inspections were made. Do you plan to require building inspections in those cases where insufficient evidence exists to show that the Building has been inspected and complies with GSA building codes?

Answer: We have provided to GAO documentation to show all major construction/ repair projects undertaken by Allied were inspected by licensed engineers and/or architects. Punch lists are available for all major projects. The architect or engineer reviews all work after punch list deficiencies are corrected and certifies on the final billing that all such corrections did take place. As to other work which is less complex and less costly, inspections are made by the Building Manager, Assistant Building Manager, Chief Engineer or Electrician. In these cases, punch lists are delivered orally and payment withheld until corrections are made.

MOTOR VEHICLES - TELEPHONES

Question: I understand that you currently lease four vehicles, three from an automobile dealer and one from the General Services Administration. Apparently each of these automobiles has two telephones and the cost of these telephones from September 1979 to Sept. 1980 was $5,457. Can you tell the Committee why you find it necessary to have two telephones in each car?

Answer: It is not necessary to have two phones in each car. Chairman Dalton questioned the necessity for the second phone in each of the three sedans (the station wagon only had one), and the second phones were removed in March 1981. This will save $756/year.

Question: Couldn't we eliminate all but one telephone in one car and save approximately $4,500 a year?

Answer: We will eliminate the single telephone in the station wagon, since it is only used as a backup for the Chairman and Board Members' cars. This will save an additional $1,216/year, added to the total second phone savings of $756/year for a total of $1,972/ year phone savings. Going beyond that, to take out the remaining phones in the sedans, would deprive Board Members from calling forward en route to offices being visited; calling back to Board staff for additional data, to announce plans changes, transact other business, etc. It also would leave Board Members out of touch with their office, so that changes of plans, high priority messages, etc. could not reach them without considerable delay.

Review of the past three months' bills for vehicle phones indicates that two of the three phones were used beyond the standard allowance for "time use" of the phone. (The base monthly charge pays for 75 minutes of use monthly, and a $1.00 per ten minutes overcharge is made beyond the 75-minute unit.)

Question: The Federal Property Management Regulations administered by the General Services Administration required a fleet average fuel economy of 22 miles per gallon in 1979. However in that year your fleet of four cars averaged less than 13 miles per gallon. Why not lease more fuel efficient cars, thus meeting the GSA standard and cutting gasoline costs in the process?

Answer: Existing FHLBB vehicles do meet the 1979 GSA standards and GSA approved their procurement in 1979 on that basis.

Cited MPG fleet mileage ratings are rarely if ever attained on the road. The reported 13 MPG for 1979 is probably good performance for short-haul inner-city driving, when drivers must idle in traffic, wait for traffic lights, warm up engines in winter and cool the car for use during summer driving, etc. The existing vehicles were leased for three years in 1979 in order to afford substantial savings in lease costs over one-year lease rates. Cancelling the leases of these vehicles (to lease lower MPG vehicles) would require payment of penalties approaching $12,000, in order to save a few dollars in reduced gasoline costs. The Board will automatically, under GSA stan

dards, lease lower MPG vehicles upon termination of existing leases.

The leased vehicles were road tested by Board officials and the 13-14 MPG performance was verified for inner-city driving.

Question: The Federal Property Management Regulations set forth certain usage objectives. The average usage objectives for passenger-carrying vehicles is a minimum of 3,000 miles per quarter or 12,000 miles per year. However your automobiles average about 5,000 miles each on an annual basis. Why not cut your fleet back from four cars to two cars, use those cars more efficiently, and thus meet the yearly standard set forth in the usage regulations?

Answer: One of the four FHLBB cars is a GSA-leased 1974 Ford station wagon (costing $100/month + $.12/mile). This is the Bank Board's "pickup truck" for frequent mail, bulky materials, equipment and other messenger-type inner-city trips.

The other vehicles are two Ford Fairmonts (24 MPG) and a Buick LeSabre (19 MPG). These are used primarily for Chairman and Board Member purposes, with secondary availability to other senior officials when not otherwise committed.

The diverse responsibilities and functions of our three Board Members require that a car be available to each member at all times. The cost ($7,300 annually) of these vehicles justifies their retention when compared against any savings that might be obtained through use of taxis or public transportation. Of course, these vehicles are used for other agency use when not required for use by a Board Member.

STATE EXAMINER TRAINING TRAVEL

Question: Last year the Congress provided $250,000 for travel expenses of individuals participating in the State Examiner Training Program. I understand that these funds may be shifted to some other activity, which would pretty much close down the State Examiner Training Program. Will these funds be spent for the purpose intended or will they be diverted to some other program?

Answer: The state examiner training program is an important one to the Bank Board. It is a essential element of our drive toward greater productivity in the examination process.

The program called for by the Congress envisioned a training program funded at $400,000 a year. We have every intention of fully funding the program at that level.

In keeping with the administration's limitations on travel and the Congress' intent expressed in PL96-346 to absorb costs resulting from increased per diem and mileage rates, OMB reduced the Bank Board's supplemental request for travel. Consequently, it may become necessary to shift funds from travel to training, but the Bank Board is committed to an effective program. We also intend to reduce travel costs by relying on decentralized training and the use of some videotype training available locally.

DEPARTMENT OF THE TREASURY

OFFICE OF REVENUE SHARING

STATEMENT OF JOSE PEPE LUCERO, DIRECTOR, OFFICE OF REVENUE SHARING

ACCOMPANIED BY:

ROBERT W. RAFUSE, JR., DEPUTY ASSISTANT SECRETARY (STATE AND LOCAL FINANCE)

KENT A. PETERSON, DEPUTY DIRECTOR FOR ADMINISTRATION AND OPERATIONS, OFFICE OF REVENUE SHARING

JUDITH A. DENNY, DEPUTY DIRECTOR FOR POLICY AND COMPLIANCE, OFFICE OF REVENUE SHARING

WANDA STINESS, ASSISTANT DIRECTOR (FINANCIAL MANAGEMENT)

OPENING COMMENT

Senator GARN. We are happy to welcome you to the subcommittee today.

The budget justification we have before us includes a request for $7,186,000 for salaries and expenses; $4,569,949,000 for payments to the State and local government fiscal assistance trust fund; $1,044,000 for administrative expenses for the New York City loan guarantee program. Title I of the State and Local Fiscal Assistance Act, as amended, provides for the distribution not to exceed $4.62 billion in fiscal year 1981 to approximately 39,000 units of local governments and authorizes the distribution of $6.9 billion to States and local governments during fiscal years 1982 and 1983. However, $2.3 billion of the authorization designated for payments to State governments in fiscal years 1982 and 1983 is not included in the request now before us and if the funds were to be appropriated, the outlays could be made only to States that return an equal amount in categorical grant funding.

The revenue sharing program was passed in 1972 as a means of using the Federal tax system to: Redistribute funds to State and local governments and reduce redtape in the expenditure of Federal aid. These funds are available to virtually every unit of general government below the State level. The allocation to local governments are based primarily on populations, per capita income, and tax effort.

The New York City loan guarantee program consists of two basic elements. New York City seasonal financing of 1975 was passed in response to the needs of the city to obtain short-term Federal loans. The New York City Loan Guarantee Act of 1978 authorized the Secretary of the Treasury, in the 4 years ending June 30, 1982, to guarantee up to $1.65 billion of city debt for a period of time not to exceed 15 years.