Statement of Allan V. Burman, President, Jefferson Solutions
Before the Subcommittee on Transportation and Infrastructure
Committee on Environment and Public Works
United States Senate
September 23, 1998

Mr. Chairman, and members of the Subcommittee: I appreciate the opportunity to review with you this afternoon the principal findings and recommendations from Jefferson Solutions' May 1998 Patent and Trademark Office Report prepared for the Secretary of Commerce.

I am the President of Jefferson Solutions (Solutions), a Limited Liability

Company that provides management consulting and training services to the

Federal government. I am a former Administrator for Federal Procurement

Policy. I served in that position in an acting capacity under President Reagan, was subsequently confirmed by the Senate under President Bush and was held on in that post under President Clinton. Solutions provides support to a number of Federal agencies on a variety of matters relating to acquisition and change management.

On March 15, 1998, the U.S. Department of Commerce contracted with the Solutions' team through the competitive Quick Reaction Task Order process to provide an independent, multi-disciplinary review and evaluation of the Patent and Trademark Office's seven-year consolidation and space acquisition process. For this review, Solutions teamed with BTG, Inc. and Economic Research Associates to offer the acquisition, real estate valuation, engineering, architectural and cost estimating skills necessary to this important task. The Secretary asked the Solutions team to validate the process in four major areas:

--The need for new space

--The type and amount of space

--PTO's management of the process

PTO's response to the Inspector General's concerns regarding space planning, build-out risk, and the GSA agreement.

As a result of our effort, Solutions concluded in a May 1998 report to the

Secretary that PTO had appropriately determined its need for space, that their

Solicitation for Offers (SFO) for the consolidated space to meet this need was

well formulated, and that a consolidated location could produce a better more functional space than the current location at a lower cost. Therefore, we recommended that the PTO, working with the Department of Commerce, settle on requirements for the project, clarify the SFO as needed, and proceed expeditiously with the procurement.

Our recommendation to proceed was based in large part on the well established principle that competition produces the best value for the government, and in part on the need to act quickly to ensure that competition be maintained.

The final decision regarding PTO's facilities options should be based on a careful evaluation of the responses to the SFO. In our view, this competition among alternatives will produce the best value for the government, whether a move is required to produce that value or not.

The following sections provide greater detail on the team's findings, conclusions, concerns and recommendations.

Findings and Conclusions

--The Patent and Trademark Office (PTO) should continue with the consolidation effort.

--PTO currently leases space in 16 buildings under 31 leases, with a blended average annual rental rate of $27.89 per occupiable square foot.

Under current conditions, this rental rate is well above the market price for space that can be defined as depreciated (nearing obsolescence), Class B space.

With the SFO requirements for new/improved space at a starting rental rate of $25.41 per square foot (1998 escalated dollars), including an $88 million (approximately $40.00 per square foot) tenant improvement package and substantial amenities, the proposed project produces an economic benefit to PTO in excess of current market conditions.

These figures were derived in the analysis prepared by Deva and Associates; the assumptions and methodologies used in this analysis were reasonable and well formulated.

A sound process was used in determining PTO's long-term need for space in the consolidation of its offices.

The implementation of technology in support of reengineering efforts is constrained by statutory requirements and existing building limitations. Some dual system requirements (paper and electronic) may delay space/staff reduction achievement goals.

The projected 1.989 million square feet of occupiable space appears to be the appropriate amount needed by PTO for current and future needs.

The proposed PTO amenity package is not "gold plated" and is consistent with other recent federal and private sector office projects.

Amenities included are child care facilities, fitness rooms, and a

cafeteria.

The management process being employed for site selection is appropriate for

the magnitude of the project.

The SFO process appears sound and structured for a fair assessment of

the submitted offers.

PTO agreed with most elements of the Inspector General (IG) report

dated March 1998 and is in the process of addressing those issues.

During the review and evaluation process, the Jefferson Solutions team identified a number of issues and concerns that the team felt warranted additional care and attention on the part of PTO, either at the time of the report's submission or during future acquisition steps. These issues and concerns are addressed in the following section. Subsequent to our submitting our report, the Memorandum of Understanding with GSA was completed.

Issues and Concerns

The introduction of new design requirements into the ongoing procurement process must be done as soon as possible, so as not to trigger change orders.

The General Services Administration (GSA) and the PTO had not yet as of the time of the report's submission finalized a Memorandum of Understanding (MOU). The MOU is required to:

1. Define standard and above-standard build-out cost allocations

2. Define the timing and quantity of returned space

3. Specify caps on construction costs.

Lack of clarity in fit out creates uncertainty between funding sources.

The $29 million build-out allowance poses a risk for cost overruns.

Costly lease extensions may be needed if the procurement is delayed.

Technology, telecommunications, and security system design issues require resolution.

Parking may be inadequate for the number of employees programmed to occupy the building(s).

The Patent Officials Professional Association (POPA) and PTO have not yet resolved their dispute on office size.

The Program of Requirements (POR) remains incomplete.

Recommendations

As a result of the independent validation process under this task order, the team compiled a list of recommendations for the Department of Commerce and its Patent and Trademark Office to consider, as part of the final stages of

the Solicitation for Offers approach. The Department has taken steps to follow through on a number of them. The list is as follows:

Proceed with the current SFO on its current schedule without delays that could impact the schedule and costs.

Complete one additional amendment prior to Best and Final Offers (BAFO) to reduce risk issues.

Meet with the offerors prior to the BAFO phase and engage them in direct discussion regarding specific deficiencies in their submissions.

Ensure that the needs for the project are accurately and effectively conveyed to all stakeholders.

Continue to aggressively pursue resolution with the Patent Office Professional Association (POPA) and develop a contingency plan to avoid delay of award.

Develop a plan for accurately budgeting and monitoring the apportionment of the build-out allowances during the design development phases of each 250,000-square-foot phase of the tenant build-out.

Create a formal mechanism for ensuring design coordination among the architectural, interior design and construction members of the development team.

Utilize independent cost validation services to ensure full value for the expenditures made, the identification and allocation of costs between PTO and GSA, and the apportionment of the allowance(s) throughout the course of construction.

Check the draft and final POR documents to validate that the classification of spaces is consistent and that spaces are not duplicated.

Provide a copy of the tenant build-out POR to the shell building architects at the time of lease award to enable them to understand the impacts of design on their work.

Conclusions

In summary, in our May report, the Solutions team concluded that the Patent and Trademark Office had used a sound methodology and valid reasoning in defining its need for new space, in researching its current and future functional needs, and in managing its consolidation and space acquisition process. Based on the strong leadership of the project team, the process was working successfully.

However, the report identified issues that still needed to be resolved to avoid severely impacting or delaying the project. Many of these, although not all, were within the control of the project team. They included the negotiation and execution of a well-defined Memorandum of Understanding, which has since been completed, the finalization of the Program of Requirements, the

resolution of the POPA dispute, and the incorporation of the technology, telecommunications, and security system design and installation into the build-out contract.

Our report's major conclusion, however, was that it would be in the Department's and the government's best interests to proceed with the competition and carefully evaluate all offers. The Department could, then, at that time, make a fully informed decision on how best to proceed. That remains our conclusion today.

Mr. Chairman, thank you very much for offering me the opportunity to report to the Subcommittee on the Solutions' study of this important project. I will be glad to answer any questions you might have.