Alternative Methods for Delivering Facilities at The U.S. Postal Service

Rudy Umscheid

U.S. Postal Service

Having now been at the U.S. Postal Service for more than three years, and having worked for Mr. Marvin Runyon, the Postmaster General, I have learned several things. First of all, Mr. Runyon understands the facilities business and the importance of our having a state-of-the-art infrastructure in place to create the proper work environment for our employees. His mandate to me when I joined the Postal Service in 1994 was to develop a facilities strategy that combined the best attributes of the private sector to ensure consistent building standards, improved delivery systems, and better utilization of our people to put the right facility in the right place at the right price at the right time.

I have now had an opportunity to compare my 30 years of commercial experience with what we are doing today in the Postal Service. My assessment today is that the Postal Service is on the "cutting edge" of providing professional facility management services to the organization, and we are prepared to continue to change our strategies to be more responsive to our internal customers, the operating organizations that process and deliver mail day in and day out. What I would like to share with you today is an overview of the Postal Service and its facilities organization. In addition, I will review some alternative methods we have used to produce facilities, to ensure quality, and to improve performance. Finally, I will tell you something about the rationale behind our methods.



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--> Alternative Methods for Delivering Facilities at The U.S. Postal Service Rudy Umscheid U.S. Postal Service Having now been at the U.S. Postal Service for more than three years, and having worked for Mr. Marvin Runyon, the Postmaster General, I have learned several things. First of all, Mr. Runyon understands the facilities business and the importance of our having a state-of-the-art infrastructure in place to create the proper work environment for our employees. His mandate to me when I joined the Postal Service in 1994 was to develop a facilities strategy that combined the best attributes of the private sector to ensure consistent building standards, improved delivery systems, and better utilization of our people to put the right facility in the right place at the right price at the right time. I have now had an opportunity to compare my 30 years of commercial experience with what we are doing today in the Postal Service. My assessment today is that the Postal Service is on the "cutting edge" of providing professional facility management services to the organization, and we are prepared to continue to change our strategies to be more responsive to our internal customers, the operating organizations that process and deliver mail day in and day out. What I would like to share with you today is an overview of the Postal Service and its facilities organization. In addition, I will review some alternative methods we have used to produce facilities, to ensure quality, and to improve performance. Finally, I will tell you something about the rationale behind our methods.

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--> The U.S. Postal Service and Its Facilities Organization The Postal Service is an independent agency of the U.S. government. Its revenue (about $58 billion per year) is drawn entirely from the sale of stamps and other products and services. Last year, the Postal Service had a net income of $1.8 billion, which was a record for the corporation. We have over 800,000 employees, which, I have been told, makes us the third largest employer in the world, after the Chinese Army and the Indian National Railroad. My job is to create the building infrastructure that allows our employees to work efficiently in a comfortable and environmentally safe place to best serve the performance objectives of the Postal Service. We maintain almost 40,000 facilities nationwide, in addition to building new ones as mail volume increases and population centers expand. The Postal Service is not subject to the Federal Acquisition Regulations (FAR), although it complies voluntarily with many federal requirements, such as the Brooks Architect-Engineer Act and the Buy American and Prompt Payment acts. Our policies are established by the Postal Service Procurement Manual. Like federal agencies, we are moving in the direction of responsible competition and simplification. We do have our design and construction handbooks and our real estate handbooks, but they are changing dramatically as we move toward commercial practices. The Postal Service has a capital budget of $1.2 billion for fiscal year 1996, and we will spend every cent of it. Since 1992, when we incurred a 40 percent staff reduction in facilities, we have had to rethink our entire process for delivering new facilities, knowing that adding staff back was not an option. Today I am convinced that we have the capacity to meet our ever expanding program and achieve far more aggressive performance goals than we ever expected. Simplified procurement policies and other techniques from the commercial world have clearly paid off in high-priority projects. In Atlanta, the Postal Service spent more than $22 million in less than 12 months to put the right face on its facilities in time for the Olympics. The project manager was initially skeptical, but I maintained that if funding were available and the organization had the tolerance and commitment to make timely decisions to support our design and construction activities, we could make it happen with an extraordinary effort. I am pleased to say that

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--> our mission was an outstanding success and a tremendous learning experience. Similarly, in Albuquerque we implemented a total market intervention retail conversion program, which was accomplished within 6 months. We again evaluated every post office in the city to insure that we were best located and designed to attract and serve our customers. The delivery strategy involved a fast-track decision-making program and indefinite-quantity contracts with experienced, retail-oriented contractors who were accustomed to working on projects where operations could not be suspended and where it was necessary to work during very limited, off-business hours. Again, the project team delivered a high-quality product within a very accelerated schedule to the delight of our in-house customer. Can the Postal Service continue to undertake such high-intensity, rapid deployment programs? It is my assessment that we cannot without simply "burning out" our professional staff and eventually taking on more risk for errors and other problems than I think is prudent for the organization. Our capital budget for the next five years is more than $6.6 billion. Actual spending may in fact be even greater if our business grows as expected. This is forcing us to continue to plan for change, simplify our delivery systems, and provide additional training to our staff as our expectations for more accountability increase. The Postal Service's facilities organization has 10 facility service offices around the country building or leasing new post offices. We have one major facility in Memphis, Tennessee, to build our processing plants and other specialized facilities. The offices are organized under cross-functional teams that assume responsibility for defined geographic areas. The partnership involves architects, real estate specialists, environmental specialists, and support staff who become very knowledgeable about the market area, the service providers, and the needs of our customer (Operations), as we continue to improve our real estate assets. We have been very pleased with the cross-functional team concept and the level of accountability our employees have assumed. Clearly, we think this approach breaks down the pure functional alignment issues of the past. Now we are all committed to the same goals. The facilities staff, including headquarters, includes 654 positions. Only 130 are design architect-engineer (AE) professionals, so each person is responsible for spending on average nearly $10 million per year. During my initial two years with the Postal Service, I have focused on how to

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--> improve individual productivity. Why can one person manage 130 to 150 leases each year while someone else can manage only 40? Why can one project manager be responsible for 10 to 15 small new construction-leased facilities, 6 new construction-owned facilities, and another 6 repair and alteration projects, while someone else only handles a fraction of that? Finding the right combination of leadership, training, goal-setting, and individual motivation continues to be my challenge. If our results are an indicator, I think that I am making progress. Alternative Methods The Postal Service facilities organization has developed alternative methods in human systems, design, construction, and real estate to meet the ever-increasing challenge, methods that I would like to share with you. Human Systems. The people in an organization are its most valuable resource. We devote an extraordinary amount of time and training to developing our employees' professional skills and productivity. I am proud to say that the program is recognized by the American Institute of Architects (AIA) for continuing education. Training combined with a supportive environment where we take some prudent risks, recognizing that mistakes will occur, is how we grow as an organization. The goal is to develop strong project managers who assume ownership and are held accountable for their projects. We need to be moving further toward better serving our customers, the public, and a shared vision for the future of the Postal Service. In developing the curriculum for project managers, we confronted the issue of accountability repeatedly. Accountability is the answer to the questions: "How do we control quality?" "How do we control schedules?" "How do we control budgets?" For example, I note that certain project managers are quite proud of underrunning budgets by 15 percent; I view the underrun as a lost opportunity to have initiated another project from the savings. A 15 percent underrun for a $50 million budget is enough to build four new post offices. One challenge is to have our people budget to within 5 percent of final costs. Internal communications are vital. We recently held, for the first time in many years, an "AE expo" for all of our professionals. We brought in people from private industry, in everything including better brand

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--> management (where and how to place our signs and national logo), obtaining better construction management services, and developing better criteria to support our design-build delivery system. Having people who are on the daily firing line explain their best practices provides a real opportunity for continued improvement. For example, we could have one design-build firm do 8 or 10 similar projects, or have developers help us identify facility sites and have them build and maintain them—say, 6 to 10 buildings in return for a 20-year lease, which would allow the developers to secure financing. I honestly believe we will develop more ideas using the bottom-up rather than the top-down approach with our professional staff. We have begun giving people developmental assignments: taking them out of their positions and assigning them for six months as an acting manager, manager of design and construction, manager of real estate, team leader, or even acting manager of the Facilities Service Office. This strategy allows us to see how people perform. It allows the individual to develop a much broader perspective on being a manager and understanding the dynamics of the organization. Communication with industry is important. We have active liaison relationships with a wide variety of organizations, including American Institute of Architects, Associated General Contractors, and International Institute of Building. Our people work with those organizations as a way of benchmarking our practices. We also continue to look to recruit new talent, because we have a large percentage of our staff approaching retirement in the next five years. Design. Standardization of design is an absolute necessity as we look to expand our program and establish a national image. Developing our standard designs, particularly for our post offices, is an especially challenging task due to the geographic distribution, differing operating situations, differing climatic conditions, and other factors. We have made significant strides toward producing building formats that are gaining acceptance with our customers, both internal and the general public. We are benchmarking our product with private organizations, such as McDonald's, Wal-Mart, and others, to compare costs, life-cycle, building acceptance, and other measures. I forecast that it will take two to four years to fully implement standard products and to begin to obtain reliable post-occupancy data to evaluate our designs.

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--> We are now well along in design standardization for smaller facilities (generally under 6,500 square feet), and are working toward standardization of medium-sized buildings (up to about 60,000 square feet). One of our more successful programs will be our modular post offices, typically under 1,000 square feet, which are factory-built for over-the-road delivery to remote rural areas where conventional on-site construction is difficult to procure. I was recently in Peerless, Montana, a farming community of 800 people in need of a new postal facility. Here we produced a quality factory-built unit, complete with furnishings, ready to occupy within four months, including site preparation, drilling a well, adding a septic field, and placing the foundations. The total cost was in the $80,000 range, which may not represent a significant savings in building costs, but reduced our delivery time and overhead costs to manage an on-site building program. We are working with modular manufacturers who can produce four or five units per month and want to identify suppliers across the country to serve a significant percentage of our rural districts. Our goal is to reduce the price to $60,000 or $70,000 for a unit of about 1,000 square feet—$60 to $70 per square foot for a completely built-out, ready-for-business facility that should last 40 years. In addition, these units will have a distinct postal image and a very customer friendly appearance. While we are pleased with this program, we continue to strive for further improvements. Standardization does not mean identical buildings. We will not construct the same building in New England as we do in New Mexico. While we are becoming more retail-oriented, we also recognize the importance of a post office to a community, including its historical significance and heritage. This is where we differ from the retail chains we see across the country; we have 250 years of tradition. There are various alternative schemes, but in general new postal stores are more customer-focused. Our design standards will utilize the latest electronic concepts for transmitting data, updating standards, and Internet access, just to name a few, as we look to roll out the program on a national scale. Construction. There are many alternative contracting strategies that work. The challenge for the Postal Service is controlling the process from the initial site acquisition through design and construction. There are quite a few projects, particularly in growing communities and urban areas, where it takes years to secure a site acceptable to all constituencies. The major

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--> challenge is to improve our advance planning process, which establishes a five-year priority plan and allows us sufficient time to position ourselves correctly in a particular market. This planning has now begun; in several instances we have prioritized lists of projects two years in advance of when construction is scheduled. The construction contracting technique we use depends on the type of facility. If it is one of our standardized buildings, we use a competitive design-build strategy based on a guaranteed maximum price (GMP) contract from a prequalified list of contractors. For a sophisticated special-purpose facility, such as the $60 million data-processing center in Minneapolis, we adopted the design-build strategy with a negotiated GMP, because we needed the talents of the design and construction experts to support the process. We are moving away from conventional design-bid-build contracts to a design-build strategy where we look for the best value, not necessarily the lowest bid. I want our project managers to be part of the evaluation team because there are qualitative as well as quantitative considerations and, most importantly, we want them to take ownership of the project from the very start. Real Estate. The Postal Service is also beginning to use a variety of innovative real estate techniques. It is using land banking, for example, in addition to advanced site acquisition programs. Both offer protection against rising land prices in places such as Las Vegas, where real estate prices are growing 14 percent annually. Land banking involves positioning the Postal Service in the local market well in advance of anticipated need. Advanced site acquisition is the shorter term acquisition of land for facilities that are already in the five-year plan. We are participating in more joint ventures in the disposition of Postal Service properties. For example, we are considering taking limited partnership positions in properties we want to redevelop, particularly those in excellent markets on sites that have high potential for commercial use. We are willing to take some modest risks in this respect, at least to present such proposals for consideration to the Board of Governors, identifying the risks and rewards. We are looking at our inventory as a portfolio. We recently completed a $150 million acquisition of properties in a joint venture with a major grain company. The Postal Service and our partner each

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--> contributed $75 million for the properties, which had an assessed value in excess of $240 million. Some of our properties in this portfolio will be disposed of; others will be retained, refurbished, or recycled. We think such investments offer a tremendous opportunity to add value to the organization. Conclusion The Facilities Organization today generates about $150 million in revenue each year; it is self-supporting and contributes to the Postal Service's overhead. Notwithstanding our success, the Facilities Organization continues to face the challenges of being more competitive and reallocating our resources to meet customers' needs. However, the real challenge for the Postal Service is to hold rates at the same level through the year 2000, without degrading service.