SEPTEMBER 23, 1998

Mr. Chairman, I am Samuel R. Collins, an Engagement Partner with the certified public accounting firm of Deva & Associates, P.C. I am pleased to testify today before the Subcommittee on the activities of my firm relating to the space consolidation effort of the U.S. Patent and Trademark Office (PTO). Under contract with the PTO, Deva & Associates, P.C. published the report entitled "U.S. Patent and Trademark Office Business Case Analysis of Space and Facilities Management." Before I discuss the activities of Deva & Associates, P.C. in support of the PTO space consolidation effort, I want to provide you with a short background on my experiences and capabilities and those of my firm. [Under ordinary circumstances, such background information would not be necessary. However, the National Taxpayer Union (NTU), in their letter of August 14, 1998, to the PTO questioned the quality of work performed by myself and my firm and our commitment to deliver within schedule and within budget.]

I am a Certified Public Accountant with over 25 years of public accounting experience, 13 of which were with a Big Five accounting firm. I have provided accounting, auditing, and consulting services to Federal and local government agencies, to real estate developers and property managers, to the banking industry, and to major public companies including Fortune 500 companies. My real estate, banking, finance, and construction experience led to my selection as project leader for the PTO task on space consolidation.

Deva & Associates, P.C., certified public accountants and management consultants, offer a wide variety of audit and financial management services including cost accounting, cost analysis, cost-benefit analysis, and renovation, relocation and construction cost analysis. Arun K. Deva, CPA, the President and founder of the firm (and former partner of a Big Five firm where he spent 15 years), and most key personnel, have Big Five or other large firm/organization backgrounds with significant and relevant experience in serving large and complex clients. In addition to the PTO, other Federal clients include the Departments of Housing and Urban Development, Treasury, and Labor, the Office of Thrift Supervision, U.S. Trade Development Agency, Small Business Administration, Government Printing Office, and the US Postal Service. The key personnel from Deva & Associates, P.C. have also provided services to such large corporations as Sears, Roebuck and Company, United Parcel Service, Coca-Cola USA, GEICO Companies, Litton Industries, and First Virginia Bank. For Federal procurement purposes, Deva & Associates, P.C., is characterized as a "small and disadvantaged business" under section 8(a) of the Small Business Act (15 USC 637(a)). Deva & Associates, P.C., is listed as a qualified vendor on the GSA Federal Supply Schedules for Audit Services, Financial Management Services and Due Diligence Services for federal asset or loan sales.

The PTO sought an independent validation of its projected costs if it remained in its current, unconsolidated facility under existing terms and conditions, versus projected costs if it secured a consolidated site. Deva & Associates, P.C., was contracted on September 12, 1997, by the PTO to undertake a business cost analysis of space and facilities management. The resultant report was to be forwarded by the PTO to the Secretary of Commerce as part of the 1999 budget review and justification process. Specifically, the PTO directed Deva to undertake (1) a cost-benefit analysis comparing current space costs with the costs of PTO's consolidation scenario; (2) an analysis of the cost-effectiveness of the physical consolidation; and, (3) recommendations on potential cost savings from changes in existing space management practices and from changes in PTO plans for moving to a new facility or for preparing the new facility for occupancy. PTO subsequently amended the task order to add new deadlines for new requirements and new deliverables with, final amendments requiring Deva to prepare agreed-upon-procedures report in accordance with standards established by the American Institute of Certified Public Accountants. This latter amendment responded to a legislative directive to the Secretary of Commerce by the Senate Appropriations Subcommittee on Commerce, Justice, State, and the Judiciary, and related Agencies. The total cost of the contract increased from an initial estimate of $235,800 to $327,800.

The business case analysis had two objectives: (1) to present a cost analysis comparing the current unconsolidated scenario and attendant operating costs with equivalent costs under the consolidated scenario; and (2) to analyze the cost effectiveness of the consolidated scenario, when all attendant costs of consolidation (e.g., physical move costs, charges for Above Federal Property Management Regulations (FPMR) standard,' construction, replacement of data network, furniture purchases, etc.) were taken into account. The analysis would cover all costs that could be incurred over the 20-year lease period. In projecting costs for this business case analysis, PTO adhered to several governances, i.e.

--reliance upon documented evidence;

--conservative projections when documented evidence did not extend through

fiscal year 2021;

--comparison of "apples to apples" as much as possible; and

--application of cost escalators to account for inflation, and discounting, in order to assess the costs of alternatives in "today's dollars."

The overall approach and methodology of the business case analysis was developed by the Government Space Acquisition Team, which was comprised of representatives from the Department of Commerce, the PTO, and the General Services Administration. Deva & Associates, P.C., performed agreed-upon-procedures to evaluate the team's approach and methodology, and to provide support services, which included collection of data and compilation of the final analysis and report.

The business case analysis concluded that, over the 20 year term of the lease (i.e., fiscal years 2002-2021) the PTO would incur $1,031,124,196 in costs for the unconsolidated scenario versus $958,728,918 for the consolidated scenario. The PTO would incur $72.4 million less in costs if it proceeded with and completed the solicitation to secure a new consolidated facility among its three existing bidders at sites in Crystal City, Eisenhower Valley, and Carlyle as opposed to remaining in its current unconsolidated site, under current terms and conditions.

Before releasing the final version of the business case analysis, the report was thoroughly reviewed and `'scrubbed', by the PTO, the Department of Commerce, and the Office of Management and Budget. In addition, the Secretary of Commerce procured the services of Jefferson Solutions, a consulting firm, and BTG, an engineering firm, to perform a final review and approval of the report. The report was formally released on May 22, 1998.

We at Deva are very pleased with the final report on the business case analysis. It was especially reassuring to learn that the report, when submitted to Senate Committee on Appropriations, Subcommittee on Commerce, Justice, State, and the Judiciary, elicited the following response (June 26, 1998, S. 2260, FY1999 Commerce, Justice, State Appropriations Bill, Senate Committee report):

The Committee has reviewed the reports submitted by the Secretary, and does not object to the Secretary's direction that the competitive procurement process should continue. The Committee has also reviewed the business case analysis, which compares the total costs to be incurred by the PTO over the 20-year lease should the PTO stay in its current location versus a consolidated site in Virginia per the solicitation. While the Committee was impressed with the scope and thoroughness of this analysis, the Committee wants assurances that build-out and moving costs will be controlled. ,,

Before concluding, however, I want to briefly rebut recent sound-bytes in the media on a very narrow portion of the business case analysis. I am referring, of course, to the "shower curtain flap." In tab 24 of the business case analysis, the PTO calculated furniture costs for the consolidated facility. One entry, for the locker rooms of the proposed fitness center, includes six "shower curtains," at a cost of $250.00 each. The descriptor, unfortunately, was misleading. This is not your average chenille shower curtain that one can purchase at your local discount or department store. It is the worst- case scenario for the cost of heavy duty, gym quality shower curtain, including equipment and installation on tile. But such an analogy does make for juicy, but inaccurate, news accounts.

There are other entries in the furniture estimate section that have been taken out of context, including cribs for a child care center, beds for a sick bay in a health center and the child care center, coat racks which are really entire cloak rooms, and trash baskets which seem to be stated at high cost but are really modular components that would be incorporated into the furniture system. As such, the costs are within industry standards. But let's keep these costs in perspective. They are estimates for a business case analysis. The business case analysis itself is a weighty and comprehensive analysis containing 85 pages of narrative, 231 pages of schedules and calculations, and more than 21,000 separate entries. Within the furniture estimate tab, there are 4,664 individual entries totalling $59.8 million in furniture costs. For those items attracting media attention, there are just 144 entries totaling nearly $760,000 or 1.27 percent of the total furniture estimate. While I do not want to dismiss estimates of $760,000 as being inconsequential, I do find it vexing that $760,000, or even more outrageous, that six shower curtains at a total cost of $1,500, raises more eyebrows than the conclusions of an exhaustive study that predicts a $72 million savings for a consolidated site. Any reduction in the estimated furniture costs would only increase the estimated savings.

Mr. Chairman, this concludes my statement. I will be happy to answer any questions.