General ALBRO. Mr. Chairman, one of the questions that comes up frequently, how do we take into account differing costs throughout the United States? It's obviously more expensive to build in New York than perhaps in other parts of the country. [The following information was received for the record:] AREA COST FACTORS (LOCATION ADJUSTMENT FACTORS) Normalized to Washington, D.C. (Index=1.00). One factor per each of 50 States, territory or foreign country-factor is average of three principal cities. Factors also for military installations-factor is based on county data. Price factors based on: 20 key materials (min. 2 quotes). Davis-Bacon wage rates w/fringe (Dept. of Labor) 10 key trades. Hanscomb Associates, Inc., Atlanta, Ga. is A/E for CONUS. Data Resources, Inc. D.C., is A/E for OCONUS Materials and labor are weighted. Composite index reflects 45% labor and 55% materials. We do this by a series of area cost factors. We're in the process right now of revising-updating-these area cost factors. We go out to each of the 50 States. When I say, "We do," we hire an architect engineer or survey firm to actually do the data collection and computations for us. We go out and develop the data for a cost factor for each of the 50 United States, each of our territories or foreign countries in which we likely would have any military construction. Generally, and this is true within the United States, the factor is based upon an average of data for three principal cities in the State, if it has three principal cities. In addition, we also develop a cost factor for particular major military installations. So if you went to North Carolina, we would have a cost factor for the State of North Carolina based on three principal cities. We would also have a cost factor for Fort Bragg in North Carolina. For that military installation, the cost data is based on the cost in the county in which the facility is located, and of course, if you're in two different counties, they pick the major one. The data we collect are data on the cost of labor and cost of materials, 20 key materials. The people who collect this data get at least 2 price quotes for each of the 20 types of materials. Wage rates are based on the Davis-Bacon rates in effect at that location, and of course, we get those numbers from the Department of Labor. The two architect-engineers who are currently updating our area cost factor series are Hanscomb Associates, who are doing the Continental United States, and Data Resources, Inc., who are doing the U.S. overseas territories and foreign countries. Their current status: Hanscomb's final report is due in November 1; and Data Resources' final report is due in November 9. Once they develop the basic data for materials and labor, they develop a weighted materials cost and a weighted labor cost based on a hypothetical administrative building. Then they project from that to other types of facilities. Also, the composite index cost index for a particular location is based on a 45-percent weight for labor and a 55-percent weight for materials. So, in quick summary, for each location, we develop a factor that's based on survey data of labor and materials in the local area. It's a weighted factor that's 45 percent labor, 55 percent materials. Now you get a number for each of these locations. We then normalize back to Washington, D.C. The Washington, D.C. area is given a factor of 1.00, and the other locations would be either above or below that in accordance with the relative weights of their prices that are surveyed out in the countryside. People ask, "Why Washington?" Well, that's a good question. Why Washington? It was a consensus location arrived at several years ago. Of course, just by a simple mathematical transformation, you can normalize the factor to any location in the country. Mr. Chairman, are there any questions on the area of cost factor? Mr. DELLUMS. Gentlemen, we'd like to thank you for your presentation and we Mr. SISISKY. Can I just ask him a question? Mr. DELLUMS. What the Chair was planning to do, since my distinguished colleague from Virginia was very forceful in seeing to it that we had these hearings, I was going to recognize the gentleman for such time as he may consume. You can have that with all the witnesses. Mr. SISISKY. I'd like to ask a question on that. Mr. DELLUMS. The gentleman is recognized. General ALBRO. Yes, sir. Mr. SISISKY. How about economy of scale, the size of the project, General? I don't see any factor in that. I'll tell you why I ask the question. I picked out of the budget for 1984 family housing. There was one in the United Kingdom with the factor of 1.6. There was another one in the Netherlands with a factor of 1.5 or reversed. I forget which one. As I divided the number of housing into the total amount of money, I came up with the same amount per unit. In other words, the United Kingdom was 250 units; the Netherlands was 50 units. It seemed that the economy of scale was not being involved, using the factor that you related to. What I'm really saying is, how do you gear into that the largeness of the project? Isn't it cheaper-I mean, commonsense would dictate that it should be a lot cheaper-whether it's 10 percent, 20 percent, or 30 percent, to lay out 250 houses versus 50. But yet, when I looked into the budget, I came out with a figure of $100,000 per unit. It didn't make any difference whether it was in the Netherlands or the United Kingdom. General ALBRO. I can't give you a precise answer on that, Mr. Sisisky. The break on economies of scale for family housing, I believe, is at the 100-unit level, and you were talking about 50 versus 250. I would have thought there'd be a difference. Mr. Carton, would you have anything to add to that? Mr. CARTON [Deputy Assistant Chief of Engineers]. Sir, on both military construction and family housing projects, we recognize the economy of scale. I think they're in the development of cost in our regulation on costing military construction projects. We provide an economy of scale running from a very small project up to a- Mr. TSOMPANAS. Mr. Carton, excuse me, our reporter's going to have a difficult time recording you if you don't come to a microphone. Mr. CARTON. In the family housing area in the 1984 budget, it is my understanding that in some cases, the economy of scale was not utilized. I do not know on the specific project you mentioned because it was not an Army project. I do know that on Army projects, most of our projects were clustered about the same size, and that they, therefore, would not have been a visible economy-of-scale item. I do believe that the Office of the Secretary of Defense has now issued instructions on the economy of scale on family housing projects so that they will appear in all future budgets. General ALBRO. That's correct, sir. Mr. SISISKY. I appreciate that very much. Thank you. General ALBRO. It would not be in here in any case. This is just for the area cost factor. When we go back to the issue of cost estimating, one of the adjustment factors is location, which is the area cost factor. Others are size, which would have the economy of scale, and of course, technology-if it's a high technology versus low technology, and an escalation factor. So these adjustments would be applied to the base estimate cost which is derived from the historical series; and the area location factor would only be one of the correction factors; the economy of scale would be another. Mr. DELLUMS. Thank you very much for your presentation, General. The Chair recognizes the gentleman from Virginia, Mr. Sisisky, for such time as he may consume. Mr. SISISKY. I've asked enough questions already, Mr. Chairman. Let me get back to the schools a moment-dependents schools. When the presentation was made to the committee on the dependent schools, I had asked a question that it just seemed very high. The amount of money was very high for the dependent schools. I was not against dependent schools; I thought we really needed it overseas. Now all these cost estimates are great. All I did was walk into the anteroom and call the State Department of Education in Virginia and ask what does it cost per student to build a school on a geographical module, so to speak, across the whole State of Virginia, using Northern Virginia, Richmond, Tidewater area, and western Virginia. They came up with a figure-because I had seen those figures before in my responsibility in the State legislature-of some $4,100 and some. As I divided the number of students into the schools that were going to be built on these GLCM bases, I came up with a figure of some $8,500. I wasn't an expert in building schools, and I want you to know that the schools in Virginia were with fixed furniture also. How does this happen? You explain part of it with the 35 percent, the change and everything, but how does that happen? When we went to Europe, we did discover that they were overestimated and that's our concern here. How much of this is happening? How much can we catch? I don't know the price of a concrete hangar underground, but I do know the cost of a few things. Commodore FORT. One of major things that happened with the European program, two things really, I know in Germany, and I believe in Italy, too, the construction economies are perhaps even harder up for business than we are, certainly in Germany. The strength of the dollar versus the European currencies has caused a great deal of fluctuation and has created a larger appearing budget than-when you show it versus the dollar-than we really have. Plus, the budgets were made 2 years in advance and factors affecting the economy occurred in Europe in the intervening time. That's one of the big problems. We recognize the schools were overpriced and school cost estimates will be normalized or brought down within the proper range for the 1985 program, based on our experience. If the dollar swings again, we'll be in trouble, Mr. Sisisky. Mr. SISISKY. There was another thing that bothered me also in the budget-a hospital in Minot, N. Dak. As this committee looked at the budget estimates, there was an estimate, and correct me if the figures are wrong, it was $38 million. As my colleague, Mr. Spratt, and I looked at that project, we found it contained 48 beds and 24 dental clinics. Now, I tried through the hospital association, and I must admit it is a difficult thing to find out what it costs to build a hospital. I've tried to find out and even the hospital association doesn't know. I've got a whole bunch of material here and I can't figure it out, but there has got to be somewhere, some sound reasoning on how we can figure these projects. As you know, this committee did not allow that hospital to go forward. In the strange phenomena that happened, and I don't understand it to this day, nobody ever said anything-neither that you ought to include it in there nor that you ought not include it in there. Nobody said anything; it just died. Now, I don't know whether the Senate included it, I haven't looked at it-I don't believe they did, but I don't know what happened there. If it was important enough to build, what in the world happened during the interim of the estimate of $38 million for 48 beds and 24 dental clinics? General Wright, maybe you can explain it. General WRIGHT. I'll try. I don't know whether I'll be able to. If I may be very frank, sir, as that program came to the Congress, it came under a lot of fire from various interest groups in the State of North Dakota for any number of reasons. It surfaced as being overpriced and the Air Force was asked to look at it. We did. We kept being accused of not really value-engineering the project—that is, taking a look at the specific details. We had it assessed and reviewed by the corps and we were very satisfied with what was done. For reasons unknown to me, it was deleted in the Senate. At the same time, we told the Congress that we, the Air Force, were going to go back and ask for a formal value-engineering study—that is, the complete re-review of that program, to either show that the Air Force was right in its program estimate or wrong, and if we're wrong, we'll accept that and learn a lesson. But I believe that we are closer to being right on that estimate than we are wrong, given the standards to which we want to build that hospital. It's not a gold-plated hospital, as we were accused of designing. That value-engineering study is going on now and we fully intend to resubmit that project in 1985. Mr. SISISKY. At that price? General WRIGHT. At whatever price we feel is correct. Mr. SISISKY. While we are on hospitals, and I don't General WRIGHT. The current estimate is $34 million at this point. Mr. SISISKY. And it's still 48 beds and 24 dental clinics? Mr. SPRATT. Will the gentleman yield or do you have some questions Mr. SISISKY. No, I―― General WRIGHT. Mr. Sisisky, if I may— Mr. SPRATT. Go ahead, certainly. General WRIGHT. It's interesting that you should note that you were not able to find a good figure in the private sector for the cost of hospitals. That's a very interesting thing. We've tried to do the same thing. There are a number of different people building hospitals in the country, various corporations. I think one may be called Hospital Corp. of America. If you look at the standards that are being used, you'll find, by and large, that they are not the same standards that we like to use to build hospitals. I simply believe that that's a matter of the marketplace, that people who are investing money in hospital construction are doing it for a purpose, for a profit, and they are looking at a depreciation, a time to depreciate that investment, whereas we are looking for something that will stay in place over a longer period of time and reduce the cost of maintenance and upkeep of that building. I believe that's what you'll find to really be the key factor that separates what you might find a hospital being built for downtown today as opposed to one that we would construct on a military installation. Mr. SISISKY. I'll yield to my colleague. Mr. SPRATT. General Wright, I've had just a little experience building hospitals, not a lot. I was chairman of a board of a hospital that built a 52-bed hospital, comparable in the number of beds. We built it for $3.5 million. Granted it was not a sophisticated urban hospital; it was a community facility. We took an existing facility and renovated it and added 52 brandnew beds for $32 million. I've had some experience in that case with Hospital Building & Equipment Co. of St. Louis and they are excellent at making firm |