Federal Real Property
NIH Has Improved Its Leasing Process, but Needs to Provide Congress with Information on Some Leases Gao ID: GAO-06-918 September 8, 2006The National Institutes of Health (NIH) is the nation's primary medical and behavioral research agency. NIH's need for leased space has more than doubled since 1996 to about 3.9 million square feet in 2005. In 1996, General Services Administration (GSA) delegated leasing authority to NIH that includes performing budget scoring and prospectus analysis. In light of NIH's increased use of leased space, GAO was asked to address two issues: (1) Is NIH complying with budget scorekeeping guidelines and Office of Management and Budget's (OMB) requirements for implementing the guidelines to determine if a lease should be classified as operating or capital and ensure that no violations of the Antideficiency Act occur because of improper budget scorekeeping? and (2) Is NIH complying with the congressional prospectus process for both leases and alterations to leased buildings? To address these issues we interviewed leasing and financial officials, reviewed laws and reviewed budget scoring and prospectus analysis of 59 leases.
NIH has implemented a formal leasing process that, if carried out effectively, should comply with budget scorekeeping guidelines and OMB's requirements for classifying operating and capital leases. This process should ensure that no Antideficiency Act violations occur due to leasing. The agency's new leasing process addresses previous problems with inconsistent and informal implementation of the guidelines and requirements by properly identifying operating and capital leases and properly recording lease obligations for budget scoring purposes. In October 2005, the U. S. Department of Health and Human Services expressed the belief that the potential $565 million in unrecorded obligations from 50 active multiyear NIH leases were not Antideficiency Act violations. We agree that no Antideficiency Act violations exist because the GSA delegation of leasing authority included specific authority that directed NIH to obligate funds for multiyear leases, one year at a time, and that such actions were exempt from the Antideficiency Act. GSA is also modifying its guidance for delegated leasing authority, which would make it clear that agencies with delegated leasing authority can score operating leases in the same manner as GSA. The scoring process for capital leases would remain unchanged. As part of its leasing process, NIH has also established decision points for identifying any leases for which a prospectus should be submitted through GSA for congressional approval, under the Public Buildings Act of 1959, as amended. This process involves submitting leases and alterations to leased buildings for approval whose costs exceed a legislatively established threshold. In addition, NIH has designated the Office of Acquisitions, Office of Resource Facilities to review prospectus-level alterations to leased buildings to ensure that the contracting for alterations to leased buildings does not exceed the prospectus threshold for alterations to leased buildings. However, NIH has taken no action to address five prospectus-level leases that were not submitted to the appropriate congressional committees in past years. While there is no penalty provided in law for not submitting a prospectus, failure to do so hinders the ability of the appropriate congressional committees to fulfill their oversight responsibilities for all prospectus-level leases.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-918, Federal Real Property: NIH Has Improved Its Leasing Process, but Needs to Provide Congress with Information on Some Leases
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Report to the Chairman, Committee on Energy and Commerce, House of
Representatives:
United States Government Accountability Office:
GAO:
September 2006:
Federal Real Property:
NIH Has Improved Its Leasing Process, but Needs to Provide Congress
with Information on Some Leases:
Federal Real Property:
GAO-06-918:
GAO Highlights:
Highlights of GAO-06-918, a report to the Chairman, Committee on Energy
and Commerce, House of Representatives
Why GAO Did This Study:
The National Institutes of Health (NIH) is the nation‘s primary medical
and behavioral research agency. NIH‘s need for leased space has more
than doubled since 1996 to about 3.9 million square feet in 2005. In
1996, General Services Administration delegated leasing authority to
NIH that includes performing budget scoring and prospectus analysis. In
light of NIH‘s increased use of leased space, GAO was asked to address
two issues: (1) Is NIH complying with budget scorekeeping guidelines
and Office of Management and Budget‘s (OMB) requirements for
implementing the guidelines to determine if a lease should be
classified as operating or capital and ensure that no violations of the
Antideficiency Act occur because of improper budget scorekeeping? and
(2) Is NIH complying with the congressional prospectus process for both
leases and alterations to leased buildings? To address these issues we
interviewed leasing and financial officials, reviewed laws and reviewed
budget scoring and prospectus analysis of 59 leases.
What GAO Found:
NIH has implemented a formal leasing process that, if carried out
effectively, should comply with budget scorekeeping guidelines and
OMB‘s requirements for classifying operating and capital leases. This
process should ensure that no Antideficiency Act violations occur due
to leasing. The agency‘s new leasing process addresses previous
problems with inconsistent and informal implementation of the
guidelines and requirements by properly identifying operating and
capital leases and properly recording lease obligations for budget
scoring purposes. In October 2005, the U. S. Department of Health and
Human Services expressed the belief that the potential $565 million in
unrecorded obligations from 50 active multiyear NIH leases were not
Antideficiency Act violations. We agree that no Antideficiency Act
violations exist because the GSA delegation of leasing authority
included specific authority that directed NIH to obligate funds for
multiyear leases, one year at a time, and that such actions were exempt
from the Antideficiency Act. GSA is also modifying its guidance for
delegated leasing authority, which would make it clear that agencies
with delegated leasing authority can score operating leases in the same
manner as GSA. The scoring process for capital leases would remain
unchanged.
As part of its leasing process, NIH has also established decision
points for identifying any leases for which a prospectus should be
submitted through GSA for congressional approval, under the Public
Buildings Act of 1959, as amended. This process involves submitting
leases and alterations to leased buildings for approval whose costs
exceed a legislatively established threshold. In addition, NIH has
designated the Office of Acquisitions, Office of Resource Facilities to
review prospectus-level alterations to leased buildings to ensure that
the contracting for alterations to leased buildings does not exceed the
prospectus threshold for alterations to leased buildings. However, NIH
has taken no action to address five prospectus-level leases that were
not submitted to the appropriate congressional committees in past
years. While there is no penalty provided in law for not submitting a
prospectus, failure to do so hinders the ability of the appropriate
congressional committees to fulfill their oversight responsibilities
for all prospectus-level leases.
What GAO Recommends:
GAO recommends that the Director of NIH, using GSA as the proper
channel, report to the appropriate congressional committees five
previous NIH prospectus-level leases that did not follow the
congressional prospectus process. In commenting on our report NIH
concurred with our recommendation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-918].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark Goldstein at (202)
512-2834.
[End of Sections]
Contents:
Letter:
Results in Brief:
Background:
NIH Has Improved Its Lease Scoring Process and Believes that Its
Unrecorded Obligations for Operating Leases Do Not Violate the
Antideficiency Act:
NIH Corrected Weaknesses in Implementation of Prospectus Guidance, but
Some Past Prospectus-level Leases Remain Unreported:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Comments from the Department of Health and Human Services:
Appendix II: GAO Contact and Staff Acknowledgments:
Abbreviations:
GSA: General Services Administration:
HHS: U.S. Department of Health and Human Services:
LeMOP: Leasing Management and Oversight Program:
NIH: National Institutes of Health:
OBSF: Office of Business Systems and Finance:
OMB: Office of Management and Budget:
ORF: Office of Resource Facilities:
ORFDO: Office of Research Facilities Development and Operations:
Property Act: Federal Property and Administrative Services Act of 1949,
as amended:
United States Government Accountability Office:
Washington, DC 20548:
September 8, 2006:
The Honorable Joe Barton:
Chairman:
Committee on Energy and Commerce:
House of Representatives:
Dear Mr. Chairman:
The National Institutes of Health (NIH), a part of the U.S. Department
of Health and Human Services (HHS), is the nation's primary medical and
behavioral research agency. Composed of 27 institutes and centers, NIH
provides leadership and financial support to programs designed to
protect and improve the nation's health by conducting research in such
areas as the causes, diagnosis, prevention, and cure of human diseases;
the biological effects of environmental contaminants; and the
understanding of mental, addictive, and physical disorders. At the end
of September 2005, the agency owned or leased more than 17 million
square feet of space for research, administration, and other needs.
Since 1996, NIH's leased space has more than doubled--from about 1.4
million square feet in 1996 to about 3.9 million square feet in 2005.
In September 1996, the General Services Administration (GSA) delegated
authority to HHS to issue leases for a term of up to 20 years and to
perform all functions related to leasing, such as obtaining space in
accordance with all applicable laws and regulations, budget
scorekeeping[Footnote 1] guidelines, and the Office of Management and
Budget's (OMB) requirements for implementing the guidelines for leases.
Simply put, budget scorekeeping ensures that agencies comply with
budgetary laws. There are obligational requirements[Footnote 2] that
are meant to ensure compliance with fiscal statutes such as the
Antideficiency Act.[Footnote 3] The budget scorekeeping rules for
leases are consistent with the obligational requirements. Thus, failure
to comply with budget scorekeeping guidelines could cause an
Antideficiency Act violation. In addition to transferring this
scorekeeping responsibility to HHS, GSA's delegation provided that, for
each lease whose cost exceeds a legislatively established threshold,
the agency would work through GSA to secure an approved
prospectus[Footnote 4] from the appropriate congressional committees,
under the Public Buildings Act of 1959, as amended.[Footnote 5] In
December 1996, HHS redelegated its authority to its four lease-holding
agencies, which included NIH. Currently, NIH has 59 active leases
issued under its delegated leasing authority with a total value of
about $1.3 billion.
Because of NIH's increased use of leased space, you asked us to review
certain parts of the agency's leasing process. In response, we
addressed the following issues:
* Is NIH complying with budget scorekeeping guidelines and OMB's
requirements for implementing the guidelines to determine if a lease
should be classified as operating or capital[Footnote 6] and ensure
that no violations of the Antideficiency Act occur because of improper
budget scorekeeping of leases?
* Is NIH complying with the congressional prospectus process for both
leases and alterations to leased buildings?
To address NIH's compliance with budget scorekeeping guidelines and
OMB's requirements, we reviewed (1) the laws and regulations relating
to leases; (2) budget scorekeeping guidelines and OMB's implementing
requirements; (3) the Antideficiency Act; (4) NIH's inventory of leased
properties, its revised budget scoring of the 58 leases[Footnote 7]
under its delegated authority in 2003, and its leasing guidance; and
(5) HHS's views on the Antideficiency Act. In addition, we interviewed
HHS's Deputy Assistant Secretary from the Office for Facilities
Management and Policy; NIH's Director of the Office of Acquisitions;
NIH's Acting Chief of the Budget Branch from the Office of Business and
Systems Finance, who performed the revised budget scoring; other
relevant NIH leasing and financial officials; and GSA officials. We
also wrote to OMB concerning agencies that are considered self-insuring
under budget scoring guidelines.
To address NIH's compliance with the congressional prospectus process,
we (1) reviewed the laws and regulations relating to leases; (2) GSA's
prospectus guidance and delegation of authority to lease; (3) NIH's
inventory of leased properties, its revised prospectus analysis of the
58 leases under its delegated authority in 2003, and its leasing
guidance. In addition, we interviewed HHS's Deputy Assistant Secretary
from the Office for Facilities Management and Policy; NIH's Director of
the Office of Acquisitions; NIH's Acting Chief of the Budget Branch
from the Office of Business and Systems Finance, who performed the
revised prospectus analysis; other relevant NIH leasing and financial
officials; and GSA officials. GSA informed us that no alterations to
leased buildings were submitted for prospectus approval between fiscal
years 1996 and 2005. For the purposes of our review, the information we
gathered was sufficiently reliable. We conducted our work between July
2005 and August 2006 in accordance with generally accepted government
auditing standards.
Results in Brief:
NIH has developed a formal leasing process that, if implemented
effectively, should comply with budget scorekeeping guidelines and
OMB's requirements for classifying operating and capital leases. NIH's
process should also ensure that no Antideficiency Act violations occur
due to leasing. NIH was prompted to formalize its leasing process after
it reviewed all its leases in 2003 and discovered problems with its
budget scoring and prospectus analysis. The agency's new multistep
leasing process, which was developed in 2003 and updated in 2005, now
addresses previous problems with inconsistent and informal
implementation of the guidelines and requirements by properly
identifying operating and capital leases, so the lease obligations may
be properly recorded for budget scoring purposes. Furthermore, to
address the improper classification of eight operating leases
identified in its 2003 review, NIH reclassified or renegotiated leases
to make them comply with the budget scoring rules. In October 2005, HHS
expressed its belief that the potential $565 million in unrecorded
obligations from 50 active multiyear NIH leases identified in the 2003
review were not considered to be Antideficiency Act violations. We
agree that no Antideficiency Act violations exist. According to a GSA
official, GSA is modifying its guidance for delegated leasing
authority, which would make it clear that agencies with delegated
leasing authority can score operating leases in the same manner as GSA.
The scoring process for capital leases would remain unchanged.
As part of its leasing process, NIH has also established decision
points for identifying any leases for which a prospectus should be
submitted for congressional approval under the Public Buildings Act of
1959, as amended. In addition, NIH's Office of Acquisitions, Office of
Resource Facilities (ORF) is now responsible for ensuring that the
contracting for alterations to leased buildings does not exceed the
prospectus threshold for alterations to leased buildings. To enforce
this threshold, a warranted real estate contracting officer from the
Office of Acquisitions begins reviewing an alteration to a leased
building project as early as the concept stage. However, there is an
unresolved issue involving some prior NIH prospectus-level leases. Five
leases from past years were not submitted to the appropriate
congressional committees for review and approval, as provided for in
the Public Buildings Act of 1959, as amended. While there is no penalty
provided in law for not submitting a prospectus, failure to do so
hinders the ability of the appropriate congressional committees to
fulfill their oversight responsibilities for all prospectus-level
leases. We are recommending that the Director of NIH, using GSA as the
proper channel, report to the appropriate congressional committees the
five previous NIH prospectus-level leases that did not follow the
congressional prospectus process. We provided a draft of this report to
NIH, HHS and GSA. HHS, responding for NIH and itself, concurred with
our findings and recommendation and provided some technical comments,
which we have incorporated where appropriate. HHS stated that, as a
matter of policy, it does not object to voluntarily complying with the
GSA prospectus requirements for the five leases dealt with in our draft
report. GSA informed us orally that it had no comments.
Background:
In 1996, GSA began a program called "Can't Beat GSA Leasing" that
offered federal agencies the choice of (1) using GSA as their leasing
agent, (2) assuming responsibility for their own leasing, or (3) using
a combination of both options. The program was an outgrowth of GSA's
commitment to streamline its leasing operations, respond to the
government's changing needs, and address recommendations from client
agencies. GSA delegated leasing authority to HHS in September 1996, and
HHS redelegated this authority to NIH, one of its four lease-holding
agencies, in December 1996. GSA's original delegation consisted of six
conditions, which included the requirements that federal agencies
acquire and utilize leased space in accordance with all applicable laws
and regulations[Footnote 8] and --prior to finalizing lease contracts
and alterations to leased buildings that exceed a legislatively
established threshold--work through GSA to secure an approved
prospectus from the appropriate congressional committees. Since 1997,
NIH has elected to rely on GSA for some of its leasing needs, but it
has issued a majority of its leases on its own.
NIH Has Improved Its Lease Scoring Process and Believes that Its
Unrecorded Obligations for Operating Leases Do Not Violate the
Antideficiency Act:
In response to past problems identified in a 2003 internal review of
its leases, NIH developed a formal leasing process in 2003 that
includes decision points for budget scoring. The process was updated in
2005, and if implemented effectively, it should ensure that NIH leasing
complies with OMB's scorekeeping guidelines for classifying leases.
This new process should also ensure that no violations of the
Antideficiency Act occur due to improper scorekeeping.
The executive and legislative branches formulated the budget
scorekeeping rules in connection with the Budget Enforcement Act of
1990. The purpose of these rules is to ensure that scorekeepers adhere
to scorekeeping conventions and specific legal requirements when they
measure the effects of legislation. They are also used by OMB for
determining amounts to be recognized in the budget when an agency signs
a contract or enters into a lease. The rules are reviewed annually by
the scorekeepers and revised, as necessary, to achieve their
purpose.[Footnote 9] According to scorekeeping guidelines, a lease is
classified as either operating or capital, based on six
criteria.[Footnote 10] If a lease meets all six criteria, then it
qualifies as an operating lease; otherwise, it must be treated as a
capital lease for purposes of budget scoring. For operating leases for
agencies other than GSA, budget authority is required for the estimated
total payment that is expected to arise under the full term of the
contract or, if the contract includes a cancellation clause, for an
amount sufficient to cover the lease payments for the first fiscal year
plus an amount sufficient to cover the costs associated with
cancellation. For GSA operating leases, only the budget authority
needed to cover the annual lease payment is required.[Footnote 11] For
a capital lease, budget authority is required for the net present value
of the total cost of the lease and property taxes (but not for imputed
interest costs and identifiable annual operating expenses).
In 2003, NIH's Assistant Director for the Chief Financial Officer and
Central Services asked the Acting Director of the Office of Research
Facilities Development and Operations (ORFDO) to certify that all
leases were operating leases for the purposes of the annual NIH
financial statements, according to an NIH official. To address this
request, the ORFDO Acting Director conducted an internal risk
assessment. This resulted in a review of all NIH's leases, which
identified problems with implementing budget scorekeeping guidelines
and OMB requirements, as well as identifying prospectus leases. More
specifically, this review identified eight leases that had been
improperly classified as operating leases instead of capital leases and
potential unrecorded obligations from 50 active multiyear operating
leases that totaled $565 million, as of September 30, 2005. According
to the Director of the Office of Acquisitions, NIH's lease scoring
process had been inconsistent and informal from 1996 to 2003, which may
explain the improper lease classifications and unrecorded obligations
identified in the 2003 review. Due to staff changes at the agency in
past years, we were not able to determine why the budget scoring
process was inconsistent and informal from 1996 to 2003.
In 2003, NIH attempted to address its problems in complying with
scorekeeping guidelines by developing the Leasing Management and
Oversight Program (LeMOP), a new multistep leasing process that
includes budget scoring. LeMOP is a means for NIH to exercise stronger
oversight in the leasing process than it had done previously. The
process consists of a business case[Footnote 12] that goes through the
following five critical decision points:
1. Initial approval that there is a justifiable need,
2. Approval of a general strategy on how the need will be met,
3. Approval of a detailed strategy for meeting the need,
4. Signing of the lease and obligation of the funds, and:
5. Documentation that the agency has reviewed the action and the space
requirement is being met.
As part of the third decision point, the Office of Business Systems and
Finance (OBSF) uses the budget scoring process for leases that it
developed during NIH's 2003 review to conduct an independent test of
the planned lease contract against OMB's budget scorekeeping
requirements. The test is based on estimates of the lease rate, the
lease term, and other factors. As part of the fourth decision point,
OBSF tests the final lease price against OMB scoring requirements to
determine if the proposal conforms to applicable rules for budget
scoring. In effect, the process establishes a specific requirement that
ensures that NIH leases undergo budget scoring.
In addition to implementing LeMOP, NIH corrected its improper
classification of the eight operating leases identified in the 2003
review. Two of these leases were reclassified as capital leases, and
the remaining six were renegotiated by eliminating the option-to-renew
clauses from the lease so that they could properly qualify as operating
leases. By deleting the option-to-renew clauses, NIH reduced the terms
of the leases, which impacted budget scoring. This allowed the leases
to meet the scoring criteria for an operating lease--that the present
value of the minimum lease payments over the life of the lease not
exceed 90 percent of the fair market value of the asset at the
beginning of the lease term. Leases exceeding this 90 percent level are
to be identified as capital leases.
As a final measure in response to the 2003 review, NIH sought HHS's
advice on whether it had $565 million in unrecorded obligations that
violated the Antideficiency Act. The unrecorded obligations occurred
because NIH scored its operating leases without cancellation clauses
similar to GSA--that is, it scored only the budget authority that was
needed to cover the annual lease payment.[Footnote 13] This was done
instead of following scorekeeping guidance for an operating lease for
agencies other than GSA--that is, budget authority is required for the
estimated total payment expected to arise under the full term of the
contract or, if the contract includes a cancellation clause, for an
amount sufficient to cover the lease payments for the first year plus
an amount sufficient to cover the costs associated with the
cancellation clause.
NIH asked HHS whether it thought that the $565 million in unrecorded
obligations was an Antideficiency Act violation. This act states that
an officer or employee of the United States is prohibited from making
expenditures or incurring obligations in advance of available
appropriations unless otherwise authorized by law. HHS stated that it
did not believe the potential $565 million in unrecorded obligations
from scoring operating leases to be Antideficiency Act violations.
We concluded that no Antideficiency Act violation exists. Under the
Federal Property and Administrative Services Act of 1949, as amended
(Property Act), GSA is authorized to enter into a lease agreement for a
term of up to 20 years to accommodate the federal government.[Footnote
14] In addition, GSA is authorized under the Property Act to delegate
to the head of another federal agency most of its authorities, which
includes leasing authority.[Footnote 15] When GSA delegated its leasing
authority to the Secretary of HHS, who then redelegated this authority
to NIH, the GSA leasing delegation signed by the Administrator
specifically stated, "I hereby delegate authority to the heads of all
federal agencies to perform all functions related to the leasing of
general purpose space for a term of up to 20 years regardless of
geographic location."
GSA has specific statutory authority to obligate funds in advance of
available appropriations. This authority provides that, when entering
into multiyear leases, "the obligation of the amount for a lease is
limited to the current fiscal year for which payments are due without
regard to the Antideficiency Act."[Footnote 16] Accordingly, GSA is
directed by law to obligate funds for multiyear leases one year at a
time, and it is exempt from the general prohibition in the
Antideficiency Act against obligating the government in advance of
appropriations for GSA leases. Since GSA delegated all of its leasing
authorities through HHS to NIH, the provision in the Property Act
relating to the obligation of multiyear leases also applies to NIH.
This delegation authorizes NIH to enter into multiyear leases without
recording the entire amount of the lease in the first year. Therefore,
the fact that NIH entered into multiyear leases without having an
appropriation for the entire amount of each lease did not constitute a
violation of the Antideficiency Act.
GSA is drafting a modification to its guidance for delegated leasing
authority which, according to a GSA official, will clarify that
agencies with delegated leasing authority can score operating leases in
the same manner as GSA does. GSA and agencies with delegated leasing
authority are expected to continue to score capital leases according to
OMB's requirements.
NIH Corrected Weaknesses in Implementation of Prospectus Guidance, but
Some Past Prospectus-level Leases Remain Unreported:
As part of its leasing process, NIH has established decision points for
identifying leases whose costs exceed a legislatively established
threshold and for which a prospectus should be submitted for
congressional review and approval prior to finalizing contracts. In
addition, all alterations to leased buildings are reviewed by an NIH
leasing official. These changes should ensure that NIH identifies
leases that need to be submitted for review. However, five prior leases
that should have been submitted for review still remain unreported.
The Public Buildings Act of 1959, as amended, provides for GSA to
submit a prospectus for review by the appropriate Senate and House
authorizing committees when the cost of a proposed construction, lease,
or alteration project exceeds the legislatively established dollar
threshold for leases or alterations to leased buildings, which is
indexed and revised each year. For an agency with delegated leasing
authority, GSA, working in consultation with the agency, prepares a
prospectus for any lease involving a net annual rental--excluding
services and utilities--in excess of the prospectus threshold. For
alterations to leased buildings, the prospectus threshold is one-half
of the lease prospectus threshold. After the prospectus is prepared,
GSA submits it for approval to the appropriate congressional
committees.
To address previous problems with inconsistent and informal
implementation of prospectus guidance, NIH has incorporated into its
leasing process several decision points for identifying any leases for
which a congressionally approved prospectus should be submitted. As
part of the third decision point of LeMOP--approval of a detailed
strategy for meeting the need--OBSF will use the prospectus analysis
formula, which it developed during NIH's 2003 review of all leases, to
conduct an independent test of the planned lease contract against the
annual prospectus threshold. NIH plans to have GSA issue any lease that
exceeds the prospectus limit, with NIH providing the appropriate
information and support. As part of the fourth decision point--signing
of the lease and obligation of the funds, OBSF will test the final
lease price against prospectus thresholds to determine if the proposal
conforms to applicable rules for the prospectus process. This prevents
the agency from issuing a prospectus-level lease without a
congressionally approved prospectus, even though the lease was
initially identified as nonprospectus as part of the third decision
point.
Furthermore, according to NIH's Office of Acquisitions, ORF, it is now
responsible for ensuring that the contracting for alterations to leased
buildings does not exceed that prospectus threshold. To prevent any
delay in the process, reviews of an alteration project in a leased
building begin as early as the concept stage to determine whether a
prospectus is required. The Office of Acquisitions also takes into
account all other approved alterations to the leased building for the
given year to ensure that the total cost of all alterations to that
leased building does not exceed the prospectus threshold.
As part of the 2003 review of all its leases, NIH identified five
leases that had not been sent to the appropriate congressional
committees for approval, under the Public Buildings Act of 1959, as
amended.[Footnote 17] GSA is to provide a lease prospectus to the
appropriate congressional committees for approval prior to signing a
lease. This process involves agencies with delegated leasing authority,
which must identify prospectus level leases to GSA for submission.
According to the Director of the Office of Acquisitions, NIH had not
established a formal prospectus analysis for leases or alterations to
leased buildings from 1996 to 2003. As a result, NIH did not notify GSA
of the five prior prospectus-level leases that should have been
submitted to the committees. While there is no legal penalty for not
following the congressional prospectus process, failure to do so
hinders the ability of the appropriate congressional committees to
fulfill their oversight responsibilities for all prospectus-level
leases. Although these five leases have been in effect for several
years, GSA officials told us that it would still be appropriate for NIH
to work with GSA to notify the committees of their existence. The
officials noted, for example, a past instance where GSA reported, after
the fact, a prospectus level lease that was issued without approval of
the appropriate committees. NIH officials stated that they want to
clear up any unresolved issues concerning their prospectus and budget
scoring problems.
Conclusions:
NIH has taken actions to formalize its processes of lease scoring and
prospectus analysis by developing and implementing LeMOP, its new
leasing process. The specific decision points in this process should
address the problems NIH had with consistently complying with OMB's
scorekeeping guidelines and the congressional prospectus process.
Because only one lease has been issued under the new process, it is too
early to assess the effectiveness of NIH's implementation of LeMOP.
An issue remains with five prior leases that were not submitted to the
appropriate congressional committees for review under the Public
Buildings Act of 1959, as amended. Although these leases have been in
effect for several years, it is nonetheless important that information
on them be submitted to the appropriate committees in order to maintain
NIH's accountability to Congress in this area and allow the committees
to exercise their oversight responsibilities. NIH has expressed its
desire to resolve any remaining issues concerning its prospectus and
budget scoring processes.
Recommendation for Executive Action:
We are recommending that the Director of NIH, using GSA as the proper
channel, report to the appropriate congressional committees the five
previous NIH prospectus-level leases that did not follow the
congressional prospectus process.
Agency Comments:
We provided a draft of this report to NIH, HHS and GSA for comment. In
response, HHS provided written comments for itself and NIH. HHS
concurred with our findings and recommendation and offered some
technical comments that we have incorporated in this report. HHS stated
that, as a matter of policy, it does not object to voluntarily
complying with the GSA prospectus requirements for the five leases
dealt with in the draft report. A letter from HHS commenting on our
report is included as appendix I. GSA informed us orally that they had
no comments.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this letter. At that time, we will send copies of
this report to the appropriate congressional committees, the Director
of the National Institutes of Health, the Secretary of Health and Human
Services, the Administrator of the General Services Administration and
the Director of the Office of Management and Budget. We will make
copies available to others upon request. In addition, this report will
be available at no cost on the GAO Web site at [Hyperlink,
http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-2834 or goldsteinm@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix II.
Sincerely yours,
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Comments from the Department of Health and Human Services:
Department Of Health & Human Services:
Office of Inspector General:
Washington, D.C. 20201:
AUG 14 2006:
Mr. Mark Goldstein:
Director, Physical Infrastructure Issues:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Goldstein:
Enclosed are the Department's comments on the U.S. Government
Accountability Office's (GAO) draft report entitled, "Federal Real
Property: NIH Has Improved Its Leasing Process, but Needs to Provide
Congress with Information on Some Leases" (GAO-06-918), before its
publication. These comments represent the tentative position of the
Department and are subject to reevaluation when the final version of
this report is received.
The Department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Signed by:
Daniel R. Levinson:
Inspector General:
Enclosure:
The Office of Inspector General (OIG) is transmitting the Department's
response to this draft report in our capacity as the Department's
designated focal point and coordinator for U.S. Government
Accountability Office reports. OIG has not conducted an independent
assessment of these comments and therefore expresses no' opinion on
them.
Comments Of The Department Of Health And Human Services On The U.S.
Government Accountability Office's (GAO) Draft Report "Federal Real
Property: NIH Has Improved It's Process, But Needs To Provide Congress
With Information On Some Leases" GAO 06-918:
A significant issue addressed in the draft GAO report is whether NIH
must provide Congress with certain information regarding five existing
but not specifically identified leases, pursuant to the General
Services Administration (GSA) prospectus submittal requirements
applicable to leases and alterations of leased buildings established by
40 U.S.C. 3307. GAO frames that issue as follows, "Is NIH complying
with the congressional prospectus process for both leases and
alterations to leased buildings?" With regard to that issue, the draft
GAO report states on page 2 that, "GSA's delegation (of its long-term
leasing authority) provided that, for each lease whose cost exceeds a
legislatively established threshold, the agency would work through GSA
to secure an approved prospectus from the appropriate congressional
committees, so as to be in compliance with the Public Buildings Act of
1959, as amended." (The GSA prospectus requirements now found at 40
U.S.C. 3307 originated in section 7 of the Public Buildings Act of
1959). The draft GAO report found that, "NIH has taken no action to
address five prospectus-level leases that were not submitted to the
appropriate congressional committees in past years." Based on that
finding, the draft GAO report recommends "that the Director of NIH,
using GSA as the proper channel, report to the appropriate
congressional committees five previous NIH prospectus-level leases that
did not comply with the congressional prospectus process."
While, as a matter of policy HHS does not object to voluntarily
complying with the GSA prospectus requirements for the five leases
dealt with in the draft GAO report, HHS maintains that as a matter of
law the GSA prospectus requirements that are generally applicable to
alterations of leased space would not be applicable to instances in
which HHS intends to finance such alterations with funds previously
appropriated to HHS.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mark L. Goldstein (202) 512-2834 or goldsteinm@gao.gov:
Staff Acknowledgments:
In addition to those named above, John Finedore, Tom Keightley, Susan
Michal-Smith, Chris Bonham and Tamera Dorland made key contributions to
this report.
FOOTNOTES
[1] Budget scorekeeping, of which lease scoring is a part, is the
process of estimating the budgetary effects of pending and enacted
legislation and comparing these effects with limits set in the budget
resolution or legislation. Scorekeeping tracks such data as budget
authority, receipts, outlays, the surplus or deficit, and the public
debt limit. Scorekeeping guidelines for leases require that an agency
first determine if a lease is an operating or capital lease; OMB
requirements describe how to calculate the budget authority that is
required to cover the government's legal obligations and how outlays
are to be recorded in agency budgets. In addition, OMB interprets the
scorekeeping guidelines to determine the cost that should be recognized
and recorded as an obligation at the time an agency signs a contract or
enters into a lease. The scorekeepers are the House and Senate Budget
Committees, the Congressional Budget Office, and OMB. The budget
scorekeepers determine the rules, and OMB issues guidance to the
agencies on implementing them.
[2] 31 U.S.C. § 1501.
[3] The Antideficiency Act prohibits an officer or employee of the
United States from making expenditures or incurring obligations before
appropriations become available, unless otherwise authorized by law. 31
U.S.C. § 1341.
[4] A prospectus is a justification for a proposed construction, lease,
or alteration project (which includes an alteration to a leased
building). A prospectus for a proposed lease is submitted when the cost
exceeds a legislatively established threshold, which is $2.41 million
for fiscal year 2006, and includes information on the project's size,
cost, location, and other features. For alterations to leased
buildings, the prospectus threshold is one half the prospectus
threshold for a lease. An agency with delegated leasing authority
analyzes each lease to determine whether it needs a prospectus. GSA
then prepares a prospectus in consultation with the agency and submits
the prospectus to the appropriate House and Senate authorizing
committees.
[5] 40 U.S.C. § 3307.
[6] An operating lease is a lease that meets the six criteria listed in
the scorekeeping guidelines in OMB Circular A-11 appendix A. A capital
lease is any lease other than a lease purchase that does not meet all
six criteria.
[7] One of the 59 leases was issued in January 2006, this report
discusses the remaining 58 leases that were in NIH's 2003 review of all
its leases; therefore, we refer to only 58 leases in this report. In
addition, NIH has 16 active leases that were contracted for through
GSA.
[8] The conditions included, but were not limited to, the Competition
in Contracting Act, Executive Order 12072, Executive Order 13006, Davis
Bacon Act, the GSA Acquisition Regulations, and GSA Federal Property
Management Regulations (FPMR). When the delegation was issued to NIH in
1996, the FPMR stated that delegated leasing authority shall be
exercised in accordance with the Budget Enforcement Act of 1990 and OMB
Bulletin 91-02, Part B (41 C.F.R. § 101.18.104-1). In 2003, GSA revised
its regulations to provide that all agencies are required to follow the
budget scorekeeping guidelines and OMB's requirements for leases,
capital leases, and lease purchases identified in appendixes A and B of
OMB Circular A-11. (41 C.F.R. § 102-73.130).
[9] We previously reported that the budget scorekeeping rules favor
leasing and that one option for scorekeeping would be to recognize that
many operating leases are used for long-term needs and should be
treated on the same basis as purchases. This would entail scoring up
front the present value of lease payments covering the same time period
used to analyze ownership options. Applying the principle of up-front
full recognition of long-term costs to all options for satisfying long-
term space needs--purchases, lease purchases, or operating leases--is
more likely to result in selecting a more cost-effective alternative
than using the current scoring rules. GAO, Budget Scoring: Budget
Scoring Affects Some Lease Terms but Full Extent Is Uncertain, GAO-01-
929 (Washington D.C.: Aug. 31, 2001).
[10] The six criteria are (1) ownership of the asset remains with the
lessor during the term of the lease and is not transferred to the
government at or shortly after the end of the lease term; (2) the lease
does not contain a bargain-price purchase option; (3) the lease term
does not exceed 75 percent of the estimated economic life of the asset;
(4) the asset is a general purpose asset, it is not for a special
purpose of the government, and it is not built to unique specifications
of the government lessee; (5) there is a private sector market for the
asset; and (6) the present value of the minimum lease payments over the
life of the lease does not exceed 90 percent of the fair market value
of the asset at the beginning of the lease term.
[11] According to scorekeeping guidelines, for funds that are self-
insuring under existing authority, only the amount of budget authority
needed to cover the annual lease payment is required to be scored. In
November 2005, OMB clarified its requirements by stating that the only
funds that are considered self-insuring are certain revolving funds in
GSA.
[12] The business case consists of the need for the lease action, the
reason it cannot be met within current space, the Space Justification
Document, and a general estimate of the range of life-cycle costs.
[13] As previously noted, GSA is considered by OMB to be self-insuring
and, as such, is required to score only the amount of budget authority
needed to cover annual lease payments for an operating lease.
[14] 40 U.S.C. § 585.
[15] 40 U.S.C. § 121 provides that the GSA Administrator may delegate
authority under the act except for the (1) authority to prescribe
regulations on matters of policy applying to executive agencies, (2)
the authority to transfer functions and reallocated amounts from one
component of GSA to another under certain situations; and (3) other
authority for which delegation is prohibited under the act. The
Property Act does not prohibit the delegation of leasing authority.
[16] 40 U.S.C. § 585.
[17] GSA informed us that several prospectus level leases were
submitted to the appropriate committees and were approved and issued by
GSA for NIH space between 1996 and 2005. NIH's 2003 review of all
leases did not include reviewing alterations to leased buildings.
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