September 23, 1998

Mr. Chairman, Members of the Subcommittee, Ladies and Gentlemen: Thank you for inviting me to appear before you today to discuss the ongoing project to consolidate the Patent and Trademark Office in leased space.

Unfortunately, there are many misconceptions about our competitive procurement for space, including a few that may stem from imprecise information we provided the public. Therefore, I am very pleased that you provided us with the opportunity to dispel these misconceptions, address Congressional concerns, and to build a constructive approach to proceeding with this important procurement.

The Patent and Trademark Office (PTO) began working with the General Services Administration (GSA) in 1989 to address our long-term housing needs. Our partnership with GSA is driven by three overriding goals: (1) improving the PTO's housing situation; (2) complying with all Federal procurement laws and regulations; and (3) getting the best economic value for the PTO's fee-paying customers.

I am happy to report that our two agencies recently executed the Memorandum of Understanding that sets forth our respective responsibilities for project execution and project costs. Completion of this Agreement satisfies one of the key items that the Department of Commerce's Inspector General recommended for effective project management and cost control.

Improving PTO's Housing Situation

For over 25 years, PTO operations have been housed in buildings that the General Services Administration leases for us in Crystal City, Arlington, Virginia. We now occupy approximately 1.7 million occupiable square feet of space in 17 different buildings. Later this year, we will accept expansion space in yet another building, bringing our total leased inventory to about 1.88 million occupiable square feet scattered throughout 18 buildings. This is only 120,000 square feet -- about six percent -- less than the approximately 2 million occupiable square feet we are seeking in a consolidated facility.

The distance from the northernmost to the southernmost of our existing buildings is over one mile. The entries and rest rooms in a significant portion of the buildings are not accessible by the disabled. Wheel-chair bound employees and customers cannot use the above-ground, climate~ controlled passage that links the Crystal Park and Crystal Plaza buildings and crosses traffic~ ridden Crystal Drive. The oldest buildings, which comprise about 604,000 square feet, are not equipped with sprinklers. Further, these buildings are not readily adaptable to the automation age. To free up electrical capacity required for our automated systems, for example, we recently had to replace lighting fixtures with more electrically efficient devices. This replacement cost us $8 1 0,000.

The separation of PTO operations throughout many non-contiguous buildings generates inefficiencies and increased costs. Our trademark operations are located at the south end of Crystal City, over a mile from the information dissemination operations. When we move our fastest growing patent industry sector -- the group with the largest proportion of new examiners - - to Crystal Park 5 later this year, the group will be located over one half mile from the Patent Academy training facilities. As a result of our dispersion, we must provide a shuttle bus service between buildings.

America's prosperity has generated significant increases in our workload. Between 1991 and 1997, trademark applications increased, on the average, 11 percent annually, and patent filings had a double-digit increase in the last two-year period.

The natural consequence of our growth is a need for larger, more efficient space in an environment that is equipped to accommodate the sophisticated technology that our employees need to do their jobs well. I was pleased to see that both the Department of Commerce Inspector General and Jefferson Solutions, the independent contractor that the Secretary of Commerce selected to review our space project, agree with me on this issue. The Inspector General, in his March, 1998 report on the project, stated that the "PTO has supported the basic requirements for and benefits of the new development based upon its need for modern, contiguous space." He noted that the new facility should allow us to meet our future staffing requirements better, improve access for employees and customers, and improve compliance with laws governing fire, safety and accessibility for the disabled. Also, Jefferson Solutions concluded that consolidation will result in greater flexibility; compliance with accessibility standards, life safety and building codes; and support for our reengineering efforts.

The Solicitation for Offers that the General Services Administration issued on our behalf is a performance specification that is designed to deliver a facility comparable to those provided to other recently consolidated federal agencies. The bulk of the technical requirements restate the very provisions that GSA has published in its nationwide construction guidelines or included in solicitations for other headquarters consolidations. Unfortunately, some believe that the requirements or standards are lavish. For example, they apparently believe that use of granite and marble surface materials is grandiose, when, in reality, they are merely examples of surfaces for lobbies that are durable and easily cleaned. They also appear to question the desirability of standard features in large, modern suburban office complexes. The trails would contribute to the physical well-being of our employees and their morale. Furthermore, attractive quarters including landscaping promote morale and retention of our employees. Such amenities are present on our current site. None of these features, however, would add to our costs as they would be supplied within the fixed lease rental rates. Similarly, the child care center, the cafeteria, and the fitness center that some have questioned are also facilities that are provided in equivalent Federal and large private sector projects. Despite numerous statements by the General Services Administration and a private independent reviewer - Jefferson Solutions - to the contrary, the incorrect perceptions of excess remain.

Compliance with Procurement Laws and Regulations

Competition lies at the heart of the Federal procurement system. The Competition in Contracting Act of 1984, 41 U.S.C. 253, mandates "procurement through full and open competitive procedures" unless an agency can demonstrate that it falls within the scope of one of seven stated exceptions. Not one of these exceptions to competition applies in PTO's case. Therefore, the prospectus that the Administration submitted and that Congress authorized states the General Services Administration's intent to conduct a competitive, "best value" procurement to acquire a long-term lease to house the PTO. To allow time for GSA to complete the competitive process, the prospectus also authorizes GSA to "make an interim lease(s) for the tenant agency, if necessary, prior to the execution of a new lease." GSA informs me that it has made 33 such interim leases for PTO, with varying terms and provisions.

Unfortunately, there are a number of popularly held misconceptions about these interim leases and the costs involved in the procurement. For example, in its May 1998 Wastewatcher dispatch, Citizens Against Government Waste states that ". . .PTO has secure term leases in place and has options to remain in its current location until the year 2014." What this organization fails to appreciate is that these are sole source leases. Any options contained in these leases can only be exercised if there is a sole source justification for doing so. There is none. Furthermore, it is our understanding that neither this Committee nor its counterpart in the House of Representatives gave GSA a prospectus authorization to provide for the PTO's long-term housing by means of sole source lease extensions. Thus, the prospectus authorized in October 1995 was, in accordance with the Competition in Contracting Act, an authorization to conduct a competitive lease acquisition. It is my understanding that securing a new sole source long-term lease on our current space could require approval from this committee.

Similarly, the Smith Companies urged that the Inspector General of the Department of Commerce reconsider his conclusion that consolidation of the PTO pursuant to the Congressionally-approved prospectus will be cheaper than PTO's remaining in our current space. The Inspector General responded that, after carefully reviewing the information that the Smith Companies had provided, he is "satisfied that our report conclusions and recommendations are accurate."

The conclusion that consolidation, consistent with the terms of the prospectus should proceed, is bolstered by the findings of Jefferson Solutions. One finding is that the rates PTO are now paying for much of its space are "well above the market price for space that can be defined as depreciated (nearing obsolescence), Class B space." Jefferson Solutions also concludes that, as a result, consolidation pursuant to the terms of the prospectus "produces an economic benefit to PTO in excess of current market conditions." GSA informs me that similar conclusions were reported recently by Spaulding and Slye, a nationally recognized real estate firm. Their report was prepared for GSA in response to questions that GSA had received from the House Subcommittee on Public Buildings and Economic Development of the Committee on Transportation and Infrastructure regarding the market value of the PTO lease extensions. Spaulding and Slye found that, to justify the rates that are being sought under the PTO's lease extension options, the PTO's landlords would have to make improvements to these existing structures. These improvements would cost several tens of millions of dollars more than the landlords are offering under the terms and conditions of the existing PTO extension contracts.

Regardless of their terms, these extension options are for 18 separate, non-contiguous buildings that do not serve the PTO's needs. We believe that we should proceed without delay in accord with applicable law, with a competitive space procurement when there is such abundant evidence that our customers will save money by going forward with the procurement.

The Economics

Since 1991, the PTO has been fully user fee funded. All of our operations are paid from appropriations of the fees paid by our national and international customers - patent and trademark applicants and those who use our other services. No general taxpayer funds support our operations. Therefore, no general taxpayer funds will be expended to make the lease payments under the consolidated lease.

Taxpayer groups charge that although PTO's proposed 20-year lease results in $1.3 billion in lease payments, the Government will not own the facility at the end of the lease term. The General Services Administration, the Department of Commerce and the Office of Management and Budget thoroughly evaluated the benefits of leasing versus purchase, Federal construction and other housing alternatives (such as lease purchase), before submitting the lease prospectus for Congressional approval. A long-term lease also makes sense because of our efforts to reduce paper and adopt technologies that reduce our space requirements in the long term. Given the limited Government funds available for capital investment at the time, it was recommended that the "leasing" option was the best method available to serve our customers' interests. As you know, this Committee and the House Committee on Transportation and Infrastructure concurred.

Furthermore, we understand that Members of the Senate Committee on Appropriations also believed that no funds would be available in the foreseeable future to purchase or construct a facility to house the PTO. In plain English, purchase was simply not a feasible option.

A business case analysis prepared for the PTO by the certified public accounting firm of Deva & Associates, however, shows that even after the potential costs of consolidation are considered, consolidation will save $72,395,278 (in 1997 dollars) over the 20-year period. These consolidation costs, which we expect could be nearly $135 million, include such items as furniture and telecommunications purchases, costs for the physical move, lost production during the move, and any double rent payments that may be necessary. Whether we consolidate or not, we will spend in the range of $1.3 billion in rent. However, delaying the procurement delays our ability to enjoy the benefits of this $72 million cost savings to our fee-paying customers.

Also, much has been said about the furniture estimates that are contained in the Deva Report. These estimates, prepared by my staff, were intended to represent the "order of magnitude" of the total purchase price of new furniture for the consolidated facility. Deva & Associates used these cost estimates to compute the maximum amount that the PTO might spend on new furniture and included this amount in their computation of the consolidation costs.

These estimates are not furniture purchase plans and they are not furniture budgets. We have no intention of purchasing $250 shower curtains or $ 1,000 coat racks. We are now in the process of developing a furniture purchase plan that will include standardization, use of GSA schedules, and competitive acquisitions with the goal of generating significant quantity discounts.

Moreover, the nature of the items that were listed in the estimate has been misconstrued. We will purchase beds - for a health unit; and cribs - for the child care center. The "shower curtains" that have drawn so much attention will be installed in the fitness center, and will consist of either an installed shower enclosure or a heavy duty, mildew resistant fixture installed over tile that is already in place. The "coat rack" will actually be a coatroom in a training facility. Our use of unfortunately cryptic descriptors for estimated furniture costs certainly should not delay a project that will save PTO's customers more than $72 million.

Finally, some have alleged that the solicitation that GSA issued on our behalf favors new buildings, and, as a result, discriminates against some potential vendors. In fact, GSA has, in several instances, adjusted the solicitation specifications to accommodate those with existing buildings.


The Inspector General of the Department of Commerce, an independent consultant, and many of our user groups reviewed the facts and determined that the competition should proceed. It is time to move forward and start realizing that $72 million in savings.

Thank you.