United Nations
Early Renovation Planning Reasonable, but Additional Management Controls and Oversight Will Be Needed Gao ID: GAO-03-566 May 30, 2003The United Nations (U.N.) estimates that its planned renovation of the seven buildings on the Headquarters complex could cost almost $1.2 billion. As the host country and the largest contributor to the United Nations, the United States has a significant interest in this project. This report (1) assesses the reasonableness of the U.N. process to develop the renovation plans, (2) analyzes the potential cost to the United States, (3) identifies critical milestones before construction can begin, and (4) discusses efforts to monitor and oversee the project.
U.N. officials followed a reasonable process consistent with leading industry practices and recognized guidelines in developing the headquarters renovation plan--the first phase of a five-phase renovation process. As the project advances, changes in scope, schedule, and cost are to be expected. To finance the renovation, the Secretary-General anticipates a no-interest loan from the United States. However, U.S. and U.N. officials stated that neither the United States nor the United Nations have specified the nature of any financing commitment. GAO estimates that the financial impact of the renovation to the federal government, including providing a $1.2 billion no-interest loan and repaying a share as a U.N. member, would be over $700 million, depending on the loan terms and conditions. Several critical milestones must be met for construction to begin as planned, including securing a financing commitment and signing a lease for a building where U.N. staff and delegates would relocate during the renovation. As the renovation project progresses, additional management, oversight, and monitoring is needed. The United Nations plans to complete a project management plan, which would help the United Nations control cost and schedule. While the United Nations has approved initial funding for the Board of Auditors to conduct oversight of the renovation and the board is preparing its audit strategy, the Office of Internal Oversight Services does not have the resources or audit strategies needed to effectively conduct oversight of the renovation. The Department of State has assembled a task force to monitor the renovation, but the department will need to define the task force's mission and program goals. Doing so would allow the department to develop strategies for employing the appropriate skill mix needed to achieve a successful outcome for the task force.
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-03-566, United Nations: Early Renovation Planning Reasonable, but Additional Management Controls and Oversight Will Be Needed
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Report to the Honorable Michael Enzi, U.S. Senate:
May 2003:
United Nations:
Early Renovation Planning Reasonable, but Additional Management
Controls and Oversight Will Be Needed:
GAO-03-566:
GAO Highlights:
Highlights of GAO-03-566, a report to Honorable Michael Enzi, U.S.
Senate
Why GAO Did This Study:
The United Nations estimates that its planned renovation of the seven
buildings on the Headquarters complex could cost almost $1.2 billion.
As the host country and the largest contributor to the United Nations,
the United States has a significant interest in this project. This
report (1) assesses the reasonableness of the U.N. process to develop
the renovation plans, (2) analyzes the potential cost to the United
States, (3) identifies critical milestones before construction can
begin, and (4) discusses efforts to monitor and oversee the project.
What GAO Found:
U.N. officials followed a reasonable process consistent with leading
industry practices and recognized guidelines in developing the
headquarters renovation plan”the first phase of a five-phase
renovation process. As the project advances, changes in scope,
schedule, and cost are to be expected. To finance the renovation, the
Secretary-General anticipates a no-interest loan from the United
States. However, U.S. and U.N. officials stated that neither the
United States nor the United Nations have specified the nature of any
financing commitment. GAO estimates that the financial impact of the
renovation to the federal government, including providing a $1.2
billion no-interest loan and repaying a share as a U.N. member, would
be over $700 million, depending on the loan terms and conditions.
Several critical milestones must be met for construction to begin as
planned, including securing a financing commitment and signing a lease
for a building where U.N. staff and delegates would relocate during
the renovation (see diagram below). As the renovation project
progresses, additional management, oversight, and monitoring is
needed. The United Nations plans to complete a project management
plan, which would help the United Nations control cost and schedule.
While the United Nations has approved initial funding for the Board of
Auditors to conduct oversight of the renovation and the board is
preparing its audit strategy, the Office of Internal Oversight
Services does not have the resources or audit strategies needed to
effectively conduct oversight of the renovation. The Department of
State has assembled a task force to monitor the renovation, but the
department will need to define the task force‘s mission and program
goals. Doing so would allow the department to develop strategies for
employing the appropriate skill mix needed to achieve a successful
outcome for the task force.
What GAO Recommends:
GAO is recommending that the Secretary of State encourage the United
Nations to (1) complete and implement an effective project management
plan and (2) provide its oversight offices with sufficient resources
to conduct oversight throughout the renovation. GAO is also
recommending that the Secretary of State define the mission and
program goals of the task force currently monitoring the project and
ensure that it has the necessary resources for the duration of the
project.
The United Nations and Department of State agreed with our findings
and recommendations. The Board of Auditors provided updated
information on its budget and disagreed with our recommendation
calling for the United Nations to provide it with resources to conduct
oversight of the renovation.
www.gao.gov/cgi-bin/getrpt?GAO-03-566.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Joseph A. Christoff
at 202-512-8979 or christoffj@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Planning Process Is Reasonable but Still in an Early Phase:
Estimated Financial Impact of the Renovation to the United States:
Key Milestones in the Renovation Process:
Effective Project Management and Oversight Needed for the Renovation to
Be Successful:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Two Approaches to Renovating the U.N. Headquarters
Complex:
U.N. Secretary-General Offered Two Renovation Approaches:
Appendix III: U.N. Consultants and Subconsultants:
Appendix IV: Security Upgrades at the United Nations:
Completed and Planned Security Initiatives:
Appendix V: Comments from the United Nations:
Appendix VI: Comments from the Department of State:
Appendix VII: Comments from the Office of Internal Oversight Services:
Appendix VIII: Comments from the U.N. Board of Auditors:
GAO Comments:
Appendix IX: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Estimated Financial Impact to the Federal Government of
Financing $1.2 Billion U.N. Renovation under Various Loan Terms:
Table 2: Preliminary Cost Estimate of Approach 1:
Table 3: Preliminary Cost Estimate of Approach 2:
Table 4: Firms Involved in the Conceptual Planning Process:
Figures :
Figure 1: U.N. Headquarters Complex:
Figure 2: U.N. Headquarters Complex and Proposed Location of
Swing Space under Approach 1:
Figure 3: Five Phases of a Renovation Project:
Figure 4: Sequence and Estimated Time Frames for U.N. Headquarters
Renovation:
Figure 5: Proposed Swing Space Site:
Figure 6: U.N. Headquarters Complex and Proposed Location of
Swing Space under Approach 1:
Figure 7: United Nations Security Initiatives:
Letter May 30, 2003:
The Honorable Michael Enzi
United States Senate:
Dear Senator Enzi:
The United Nations (U.N.) Headquarters complex in New York City no
longer meets current safety standards and needs major renovation, which
U.N. officials estimate could cost almost $1.2 billion. Because the
United States is host country to the United Nations, the U.N.
Secretary-General anticipates that the United States will provide a no-
interest loan for the renovation, similar to the one the United States
provided when the U.N. complex was built between 1949 and 1952. The
U.N. General Assembly has not yet given its final approval for the
renovation project but has authorized its continued design. In June
2001, we reported that the U.N. early planning process had been
reasonable.[Footnote 1] Since that report, the United Nations has
further developed its plan, recommending an approach that would
renovate the entire complex; lease a new office building, or "swing
space," built adjacent to the complex; and temporarily move most U.N.
staff to that building.
You asked us to update our prior report by assessing the revised U.N.
renovation plan. In this report, we (1) assess the reasonableness of
the U.N. process to develop the renovation plan, including the cost
estimate and physical security components; (2) estimate the potential
financial impact to the federal government of the renovation; (3)
identify critical milestones before construction can begin; and (4)
discuss U.N. and Department of State efforts to manage, oversee, and
monitor the project as it proceeds.
To undertake our work, we reviewed the 2002 Capital Master Plan and
related reports prepared by the U.N. architect-engineering firm, cost
estimating subconsultant, and security subconsultant. We also reviewed
construction and security industry literature and U.N. and U.N.
Development Corporation[Footnote 2] project plans. To estimate the
financial impact of a no-interest loan, we analyzed the impact of the
United States foregoing future interest payments and assuming the risk
of a potential U.N. default on the loan. We discussed the Capital
Master Plan with U.N. officials, the consultants who developed the
designs, industry experts, and Department of State officials (see app.
I for more information on our scope and methodology).
Results in Brief:
U.N. officials followed a reasonable process consistent with leading
practices and recognized guidelines to develop the 2002 Capital Master
Plan. Thus far, the United Nations has completed the first phase--
conceptual planning--of a five-phase renovation process. To develop the
conceptual plan, U.N. officials and the architect-engineering firm
followed leading facility acquisition practices, including obtaining
detailed assessments of the complex's condition and involving U.N.
managers in the planning. To develop the $1.2 billion preliminary cost
estimate, U.N. officials and the cost estimating subconsultant followed
the Construction Industry Institute's best practices, including
ensuring that the estimate included appropriate cost elements and
hiring a firm to peer review the estimate. U.N. officials and their
security subconsultant also followed recognized guidelines in
developing the plan's security upgrades, including identifying threats
to U.N. assets and prioritizing U.N. security needs. Although the
United Nations has followed a reasonable process thus far, it is still
early in the planning process and changes to the conceptual plan and
cost estimate are to be expected. For example, Construction Industry
Institute research indicates that the final cost of any project at this
early stage may vary from plus or minus 30 to 50 percent of the
preliminary estimate.
Should the United States agree to finance the renovation, we estimate
the financial impact to the federal government for the renovation would
be over $700 million.[Footnote 3] We estimate that the potential
financial impact to the federal government as a lender would be $591
million on a no-interest loan
of almost $1.2 billion[Footnote 4]--mostly in foregone
interest.[Footnote 5] The Secretary-General anticipates that the United
States will provide a no-interest loan to finance the renovation.
However, the United States has not yet made a decision whether to
provide the United Nations a no-interest loan. In addition, we estimate
that the United States, as a member of the United Nations, would repay
$126 million of the loan principal. Another potential financial impact
to the federal government is the loss of federal tax revenue on bonds
to finance the proposed swing space building. The U.N. Development
Corporation is seeking congressional approval for a federal tax
exemption on the bonds it plans to issue to finance the construction.
If this exemption is granted, the federal government would not realize
tax receipts over a 30-year period of as much as $108 million in 2003
present value dollars.
Several critical milestones have to be met in 2003 for the planning
process to continue and construction to begin in 2005. First, and most
importantly, the United Nations is seeking a financing commitment for
the renovation by October 2003. However, neither the United States nor
the United Nations have specified the nature of a financing commitment,
according to U.S. and U.N. officials. If an acceptable commitment is
secured, the General Assembly must then vote whether to proceed with
the renovation, and the United Nations can sign a lease with the U.N.
Development Corporation for the proposed swing space. Without a lease
agreement, the corporation will not construct the swing space that the
United Nations would occupy during the renovation. Second, to begin
construction on the proposed swing space in 2004, the corporation must
obtain New York state and city approval to acquire the site for the
proposed swing space and also receive a tax exemption for borrowing.
According to U.N. officials, without a tax exemption, the annual lease
cost to the United Nations could increase substantially and could
thereby make the lease economically unfeasible.
As the U.N. project progresses through the design phase, project
management, oversight, and monitoring mechanisms will be essential to
ensure cost and schedule control and accountability. In January 2002,
the United Nations hired a project management consultant to help
develop a broad framework for a project management plan. The United
Nations does not currently have sufficient staff to complete the
project management plan and effectively manage the project throughout
the next phases, but it plans to hire approximately 40 staff and/or
contractors in addition to the 12 currently managing the project. The
U.N. Board of Auditors and Office of Internal Oversight Services are
expected to oversee the renovation project. While the United Nations
has approved initial funding for the Board of Auditors to conduct
oversight of the renovation, the Office of Internal Oversight Services
does not have a dedicated budget or personnel with the expertise in
construction or capital projects to effectively oversee a large
construction project, according to U.N. officials. The Department of
State also plans to monitor the renovation process and coordinate the
U.S. response to the financing request. Since our last report, the
department has assigned staff on a part-time basis and a point-person
at the U.S. Mission to the United Nations to a task force that monitors
the Capital Master Plan. In addition, the department has tasked a
senior official at the mission to represent U.S. concerns on the
renovation to the United Nations and other member state
representatives. However, the department has not formally determined
the task force's mission or program goals or defined its resources
needs, including expertise.
In this report, we are recommending that the Secretary of State, in
consultation with the appropriate U.S. administration officials and
other U.N. member states, encourage the United Nations to complete and
then implement an effective project management plan and provide their
internal and external oversight offices with the resources needed to
conduct effective oversight throughout the renovation. In addition, we
are recommending that the Secretary of State formally define the
mission and program goals of its task force, determine the expertise
needed, and provide the resources necessary to support these efforts.
In commenting on a draft of this report, the United Nations and the
Department of State agreed with our conclusions and recommendations.
The Board of Auditors did not agree with our recommendation that the
United Nations provide it with the resources needed to conduct
effective oversight of the renovation project. A board official stated
that the United Nations recently provided the board with $35,000 for
this purpose. We modified our recommendation to acknowledge the board's
initial funding, but continue to recommend funding for the board's
oversight function over the course of the six-year renovation project.
Background:
The original U.N. Headquarters complex, located in New York City, was
considered among the most modern facilities when it was constructed
between 1949 and 1952. The United States financed construction of the
original complex--the General Assembly, Secretariat, and Conference
Building--by providing the United Nations with a no-interest loan
equivalent to about $420 million in 2003 dollars. The rest of the
complex--the Dag Hammarskjöld Library, the underground North Lawn
Extension, South Annex, and Unitar Building--was built between 1960 and
1982 and was funded through the U.N. regular budget or private
donations (see fig. 1). Currently, the complex accommodates the needs
of 191 U.N. member countries and approximately 4,700 U.N. staff.
However, the U.N. buildings do not conform to current safety, fire, and
building codes and do not meet U.N. technology or security
requirements. The United Nations estimates it would cost more than $2
billion over 25 years for repairs and system replacements in the
absence of a major renovation.
Figure 1: U.N. Headquarters Complex:
[See PDF for image]
[End of figure]
In June 2001, we reported that the Secretary-General's first Capital
Master Plan had defined the need for renovation, established the
Secretary-General's expectations for the project, and provided options
for a multiyear
effort to renovate the headquarters.[Footnote 6] The General Assembly
reviewed the plan and approved $8 million to further develop the
conceptual designs and associated cost estimates for the renovation.
The General Assembly agreed with the Secretary-General's assumptions,
which provided the framework for the renovation planning. These
assumptions included the following:
* The headquarters complex would remain at its current location in New
York.
* The complex should be energy efficient, free of hazardous materials,
and compliant with host city building, fire, and safety codes.
* The complex should meet all reasonable security requirements.
* Disruption to the work of the United Nations should be kept to a
minimum.
In August 2002, the Secretary-General presented the General Assembly
with a more detailed Capital Master Plan and endorsed a renovation
approach that included the temporary relocation of most U.N. staff and
delegates to "swing space" in a proposed new building (see fig. 2 for
the swing space location and app. II for more information on the
renovation approach).[Footnote 7]
Figure 2: U.N. Headquarters Complex and Proposed Location of Swing
Space under Approach 1:
[See PDF for image]
[End of figure]
In December 2002, the General Assembly adopted a resolution endorsing
the renovation approach and approved $25.5 million for detailed designs
and cost estimates to be developed in 2003. The General Assembly also
approved $26 million to complete the design process in 2004-
2005.[Footnote 8] The General Assembly does not plan to make a final
decision on whether to proceed with the renovation until financing is
secured.
Planning Process Is Reasonable but Still in an Early Phase:
In developing the renovation conceptual plan and cost estimate, U.N.
officials, their architect-engineering firm, and subconsultants
followed a reasonable planning process that was consistent with leading
practices. In addition, U.N. officials and their security subconsultant
followed a process consistent with recognized guidelines to develop
plans for improving security at the U.N. complex. The United Nations is
still in the early planning stages of the project--the first phase of a
five-phase process. For this reason, changes to the scope and cost of
the proposed renovation are to be expected.
Process Used in Early Planning Phase Followed Leading Practices:
The overall U.N. process to develop a conceptual plan followed leading
facility acquisition practices.[Footnote 9]
* Competitively procured an architect-engineering firm. U.N. renovation
officials used a competitive process to procure the services of an
architect-engineering firm (see app. III for the names of the firms
involved). The United Nations received 15 responses to its request for
proposals from firms representing six different countries. In 2001, the
United Nations selected and hired an architect-engineering firm to
prepare a comprehensive renovation design concept and cost analysis.
The architect-engineering firm used subconsultants with recognized
expertise in construction disciplines such as cost estimation,
security, and structural engineering.
* Obtained assessments of the complex's condition. The architect-
engineering firm and subconsultants reviewed condition assessments
conducted in 1998 and performed additional inspections and assessments
of the complex's condition as needed. For example, they completed a new
assessment of the Secretariat Building's deteriorating window
structure. U.N. officials subsequently concluded that it was more cost
effective to replace the window structure than to renovate it, as had
been previously planned.
* Retained firm to review the renovation conceptual plan. U.N.
officials retained the services of a consulting engineer to assist them
in reviewing the conceptual planning reports and recommendations.
* Involved U.N. managers in the planning. U.N. officials involved
facility managers, such as those responsible for building and program
management, security, and information technology, in the planning
process to ensure that the renovation would meet their needs. The
managers were asked to verify the conditions and problems identified by
the architect-engineering firm and subconsultants and comment on
whether the proposals would address their needs.
Process to Develop Preliminary Cost Estimate Followed Best Practices:
To develop a preliminary cost estimate, U.N. officials and the cost
estimating subconsultant followed industry best practices established
by the Construction Industry Institute.[Footnote 10]
* Defined the scope of the project and work plan, including
responsibilities, schedule, and project budget. U.N. officials
identified the building improvements that were to be included in the
project scope: replacing heating, air conditioning, and electrical
systems; refurbishing the window structure on the Secretariat Building;
enhancing security measures; and modernizing communication and
technology capabilities. The U.N. contract with the architect-
engineering firm established the schedule for the cost estimating
subconsultant to submit three cost estimates for approval. To compare
the renovation approach budgets, U.N. officials also instructed the
cost estimating subconsultant to develop one renovation approach within
the budget parameters of the 2000 Capital Master Plan.
* Standardized the cost estimate format. U.N. officials used a
standardized cost estimate format, including elements such as
professional fees, labor and material costs, design and construction
contingencies, and escalation costs to account for inflation. The
standardized format enables U.N. officials to compare current and
future cost estimates as the project progresses through the design
process.
* Reviewed and checked cost estimate. U.N. officials reviewed the cost
estimate to ensure that the conceptual planning estimates were within
acceptable cost parameters. For the final review, U.N. officials hired
a cost estimating consultant to peer review the cost estimate. While
the peer reviewer's assumptions were more conservative than the
subconsultant's assumptions, the peer reviewer's cost estimate was
within 5 percent of the subconsultant's cost estimate. Based on the
peer review, U.N. officials adjusted the cost estimate.
* Documented and reported the final cost estimate and range of
accuracy. The cost estimating subconsultant delivered the final cost
estimate, including contingencies that are meant to reflect the
accuracy of the estimate, to U.N. renovation officials for the 2002
Capital Master Plan in August 2002. Consistent with industry practices,
the subconsultant added a design contingency to allow for changes that
typically occur during the design process. The subconsultant also added
a construction contingency to allow for unforeseen or unknown costs.
For example, structural conditions hidden by current construction may
conflict with planned renovations and require contract changes.
Process to Develop Preliminary Plans for Security Upgrades Followed
Recognized Guidelines:
After the terrorist attacks of September 11, 2001, the United Nations
enhanced security at the U.N. complex and added security measures to
the Capital Master Plan (see app. IV for further information). U.N.
officials and the U.N. security subconsultant identified the additional
security measures through a process consistent with recognized security
risk management guidelines. We have previously reported on these
guidelines, which members of the U.S. intelligence and defense
community follow and can provide a sound foundation for effective
security.[Footnote 11]
* Identified the assets to be protected and the impact of their
potential loss. The security subconsultant identified assets at the
United Nations to be protected, such as the buildings and the
perimeter. The United Nations also evaluated the importance of each
asset, the potential impact of its loss, and the methods to maintain
operations if the assets were lost or damaged.
* Identified threats to those assets. U.N. security officials consulted
with relevant federal and local U.S. officials to assess changing
threats to the United Nations. According to U.N. officials and the
security subconsultant, they designed the security initiative in the
Capital Master Plan to address these threat levels.
* Identified vulnerabilities. The security subconsultant reviewed five
previous vulnerability assessments and conducted their own assessment
of the entire complex to verify vulnerabilities and identify needed
security upgrades.
* Assessed risks (potential for loss or damage) and determined
priorities. Following security guidelines from the U.S. Interagency
Security Committee,[Footnote 12] the security subconsultant developed a
risk assessment that reflected its analysis of the threats to the U.N.
complex and its vulnerabilities. Based on the risk assessment, U.N.
officials then prioritized the security needs of the complex. According
to an expert from the Interagency Security Committee, the risk
assessment process used to develop the planned security upgrades was
reasonable based on the consultant's report to the United Nations.
* Identified countermeasures that mitigate risks. The security
subconsultant used the risk assessment to identify and recommend more
than 100 security measures for the Capital Master Plan. U.N. officials
organized these security upgrades into two components--those in the
baseline scope of the Capital Master Plan and those in a package of
options.
The security risk management guidelines are not a rigid set of
procedures, but rather recognized steps to ensure that critical issues
are considered when designing a security program. Additionally, U.N.
security officials sought peer review input from other U.N. departments
and public and private sector security experts when designing the
security program. According to security officials from the Departments
of State, Defense, and Energy and the General Services Administration,
the U.N. process for developing the security initiatives in the Capital
Master Plan was reasonable.
Renovation Planning Is in the Early Phases and Changes Are to Be
Expected:
U.N. officials have completed only the first phase of the renovation
process by developing a conceptual plan for the proposed renovation.
While U.N. planning efforts for the renovation have been reasonable so
far, many decisions that can affect the project scope, schedule, and
cost have yet to be made. For example, the General Assembly must decide
whether it wants to include certain options that were proposed in the
2002 Capital Master Plan, such as installing extra back-up generators
beyond those required by current building codes. Events outside U.N.
officials' influence, such as the availability of construction
materials and labor, may also change the scope, schedule, and cost. In
addition, the preliminary cost estimate is likely to change as the
design phase progresses and decisions affecting the project's scope are
made. Construction Industry Institute research suggests that the final
cost of a project may vary by plus or minus 30 to 50 percent of the
estimated cost at this early phase of a project.[Footnote 13]
While the United Nations has completed the conceptual planning phase,
there are four remaining phases that renovation projects undergo, based
on typical best practices in the design and construction industry (see
fig. 3).
Figure 3: Five Phases of a Renovation Project:
[See PDF for image]
[End of figure]
* Conceptual Planning--Various feasibility studies are typically
conducted to define the scope of work based on owner expectations for
performance, quality, cost, and schedule. The need for temporary space
and the options for meeting this need are identified. Several
alternative design solutions are identified, and one approach is
selected.
* Design--The design matures into final construction documents
comprising the drawings and specifications from which bids can be
solicited. Estimated cost and schedule issues receive increasingly
intense oversight as this phase proceeds. The project scope defined at
this phase will greatly determine the cost of the project. In addition,
the cost of scope changes made after the design phase are higher.
* Procurement--This phase refers to owner procurement of long lead-time
equipment, such as unique or large electrical or mechanical equipment.
Delays in the delivery of this equipment could affect the phasing and
sequence of construction work and potentially cause delays.
* Construction--To execute the design, the services of a competitively
procured construction contractor and specialty contractors and
consultants are employed. The biggest challenge is the management of
changes from the owner, design problems, or unknown conditions on the
site. Construction is considered complete when the owner accepts
occupancy of the building; however, work may continue for some time to
identify and correct deficiencies in the construction work.
* Start-up--Start-up begins with occupancy of the building and entails
the testing of individual and systems components to measure and compare
their performance against the original design criteria.
Estimated Financial Impact of the Renovation to the United States:
The Secretary-General has indicated that the United Nations anticipates
that the United States would provide a no-interest loan to finance the
U.N. renovation. Should the United States agree to finance the
renovation in this manner, we estimate that the financial impact of the
renovation to the federal government would be over $700
million.[Footnote 14] This amount would vary depending on the terms and
conditions of the financing arrangement. In addition, we estimate that
over a 30-year period, the federal government would not realize tax
receipts of as much as $108 million (2003 present value dollars) on the
federally tax-exempt bonds that would finance construction of the
proposed swing space. The U.N. Development Corporation is seeking
federal tax exempt status for the bonds it plans to issue to finance
the swing space building.
Financial Impact of the Renovation to the Federal Government Is over
$700 Million:
We estimate the potential financial impact to the federal government as
both lender to United Nations and member state would be over $700
million for a $1.2 billion no-interest loan. As a lender of a
subsidized loan to the United Nations, the federal government would
forego future interest payments and assume the risk of a potential U.N.
default on the loan. The estimated financial impact to the federal
government of a no-interest loan for $1,193 million (repayable over 25
years) would be about $563 million for the interest subsidy to cover
foregone interest payments and $28 million for the default subsidy that
covers the risk of a potential U.N. default (see table
1).[Footnote 15] If the United States provided a subsidized loan with
interest rates of 1 percent or 2 percent, the federal government would
provide an interest subsidy of $443 million and $322 million,
respectively. If the United States agrees to finance the renovation,
Congress would be asked to appropriate the interest and default
subsidies before the loan is made, as provided for under U.S. credit
reform law.[Footnote 16] As a member of the United Nations, the United
States may also be assessed an additional amount to repay the loan
principal. We estimate that the net present value of the U.S.
assessment for the principal repayments made over a 25-year period
would be $126 million.[Footnote 17] These repayments would need to be
appropriated yearly.
Table 1: Estimated Financial Impact to the Federal Government of
Financing $1.2 Billion U.N. Renovation under Various Loan Terms:
(In millions of 2003 present value dollars):
Interest subsidy: No-interest: $563: 1 percent interest: $443:
2 percent interest: $322.
Default subsidy: No-interest: 28: 1 percent interest: 31: 2 percent
interest: 34.
U.S. portion of principal repayment: No-interest: 126; 1 percent
interest: 126; 2 percent interest: 126.
Financial impact to federal government[A]: No-interest: $718: 1
percent interest: $600; 2 percent interest: $482.
Impact as a percentage of renovation cost: No-interest: 60%; 1 percent
interest: 50%; 2 percent interest: 40%.
Source: GAO analysis of U.N. data.
Note: Figures estimated using the Office of Management and Budget
Credit Subsidy Calculator and interest rate assumptions from the FY2004
President's Budget. Figures do not add due to rounding.
[A] We excluded any administrative costs, fees, or recoveries.
[End of table]
In estimating the financial impact to the federal government, we made
several assumptions. We assumed that the federal government would
disburse funds to the United Nations as a line of credit rather than a
lump-sum payment. The federal government would disburse the funds each
year over a 5-year construction period. To model the size of the
disbursements, we used the latest U.N. estimates of the funds it would
need each year to pay its contractors during the renovation. We assumed
that the United Nations would repay the loan over the subsequent 25
years in equal semiannual payments based on an additional assessment of
member states. Since the United States is assessed 22 percent of U.N.
operating costs, we assumed the federal government would repay 22
percent of the loan principal. However, because the United States does
not currently allow its U.N. assessments to go toward interest payments
on U.N. external borrowing, we assumed that the federal government
would not repay any of the interest on a 1 percent or 2 percent
loan.[Footnote 18] Finally, we used the U.N. preliminary cost estimate
of $1,193 million from the 2002 Capital Master Plan for the renovation,
which includes scope options that the United Nations has yet to decide
on.
Loss of Federal Revenue from Swing Space Bonds:
The federal government would also not realize tax receipts if the U.N.
Development Corporation is granted tax exempt status for its
construction bonds. We estimate that the unrealized tax receipts over
30 years could be as high as $108 million in 2003 present value
dollars. This estimate assumes that the U.N. Development Corporation
would issue bonds for $350 million--the estimated construction cost for
the swing space. We also assumed that without the tax exemption, the
bonds would earn 6.4 percent interest and the average marginal tax rate
would be 31 percent.
According to corporation officials, the corporation would pay a higher
interest rate on the bonds if it could not secure a tax exemption. The
higher interest rate would raise the cost of financing the
construction, which the corporation would then pass on to the United
Nations in higher lease costs. Corporation officials stated that the
United Nations could not afford the lease under its current operating
budget without the tax exemption.
Key Milestones in the Renovation Process:
To continue the planning process, key efforts must be pursued and
critical milestones met. Given the General Assembly's decision in
December 2002 to proceed with design, the United Nations is seeking a
financing commitment from the United States for the renovation. Neither
the United States nor the United Nations have specified the nature of a
financing commitment, according to U.S. and U.N. officials. Once an
acceptable commitment is secured, the General Assembly will decide
whether to proceed with the renovation, and the United Nations will be
able to sign a lease with the U.N. Development Corporation. The
corporation is also working to resolve a number of issues before it can
begin construction on the swing space building in 2004.
United Nations Is Seeking a Financing Commitment:
Figure 4 shows that securing a financing commitment is the next
milestone in the renovation process. The Secretary-General anticipates
that the United States will offer a no-interest loan to finance the
renovation. For the United Nations to remain on its current renovation
schedule, the United States would have to make a commitment to finance
the renovation by October 2003. However, U.S. and U.N. officials stated
that neither the United States nor the United Nations have specified
the nature of a financing commitment. According to U.N. officials, the
General Assembly will not make a decision to move forward with the
renovation or sign a lease for the proposed swing space building
without a financing commitment. According to U.N. Development
Corporation officials, they will not begin construction on the proposed
swing space building until the United Nations signs a lease. The
corporation needs a signed lease before it can issue bonds to finance
the construction of the swing space building. For the renovation
project to stay on schedule, the proposed swing space building would
have to be available for occupancy in early 2006.
Figure 4: Sequence and Estimated Time Frames for U.N. Headquarters
Renovation:
[See PDF for image]
[A] United Nations Development Corporation.
[End of figure]
The U.N. Development Corporation Must Address Several Issues to Begin
Swing Space Construction:
The U.N. Development Corporation must resolve two key issues in 2003
for the swing space to be available to the United Nations in 2006.
First, the U.N. Development Corporation is seeking to obtain state and
city approval to secure ownership of the proposed swing space site by
the end of 2003 (see fig. 5). According to corporation officials, New
York state approval is necessary because the site is currently part of
a city park and lies outside of the corporation's development zone.
Corporation officials also said they are currently working to obtain
support within the local community, which has expressed concerns about
the loss of the park space. To compensate the community, the
corporation proposes to build a bike path along the East River and the
U.N. complex. However, according to corporation officials, as of April
2003, no agreement had been reached. Once the issues with the community
group are resolved, the corporation must seek New York state
legislation by June 2003 to add the proposed construction site to its
development district, according to corporation officials. The
corporation will then seek New York City approval of its plans for the
site. City officials have expressed support for the swing space
construction.
Figure 5: Proposed Swing Space Site:
[See PDF for image]
[End of figure]
Second, the corporation is seeking a federal tax exemption for the
bonds it would issue to finance the swing space construction in early
2004. According to corporation officials, without a tax exemption, the
annual lease cost to the United Nations could increase substantially,
thereby making the project economically unfeasible. Under the 1986 Tax
Reform Act, the U.N. Development Corporation and similar organizations
lost the ability to issue bonds that are exempt from federal taxes.
Corporation officials stated that they are working with members of
Congress to introduce legislation that would restore a tax exemption
for the swing space construction.
Effective Project Management and Oversight Needed for the Renovation to
Be Successful:
As the project moves into the critical design phase, the United Nations
has begun the process to hire a consultant who will manage and oversee
the final design and eventual renovation of the U.N. complex. These
initial efforts are important as they lay the foundation for the
project management plan to ensure that the project's scope, schedule,
and costs are effectively controlled. In addition, U.N. oversight
bodies anticipate additional resources and are developing audit plans
to conduct oversight of the renovation project. The Department of State
and the U.S. Mission to the United Nations have also initiated efforts
to monitor the project. The United States has a substantial interest in
monitoring the project, particularly if the United States agrees to
finance it.
Effective Project Management Needed to Control Cost and Schedule:
A well-defined project management plan and adequate project management
staff will be essential for the United Nations to successfully complete
the renovation on time and within budget. U.N. officials recognize the
need and importance of a project management plan and adequate staff to
implement the plan. In January 2002, the United Nations hired a project
management consultant to help develop a broad framework for a project
management plan. The consultant noted that once the United Nations
establishes a project management team, it will need to develop its
project management plan with detailed procedures. The consultant
provided best practices recommendations for creating a project
management plan to control costs and effectively implement the
renovation. As of January 2003, the United Nations had started the
process to hire a consultant to provide project management services,
including developing the project management plan and then supporting
the United Nations in managing the project through the design phase.
Based on the U.N. project management consultant's report and
Construction Industry Institute research,[Footnote 19] an effective
project management plan will help the United Nations control costs and
schedule. An effective project management plan includes three key
elements. First, a clearly defined scope of work that remains
relatively stable will provide the basis for project decisions. The
scope should clearly define the project content and parameters,
schedules, milestones for execution, budgets, and expected project
outcomes. Second, policies and procedures that effectively manage scope
and construction changes are important. These policies and procedures
should provide a means for analyzing and documenting the reasons for
changes and the implications of changes on cost, schedule, and quality.
Third, timely and accurate progress reports on scope, cost, and
schedule are important as a means of informing all relevant parties and
coordinating changes. Regular reporting would identify key project
issues that require discussion and impending issues that require
resolution. While the United Nations recognizes the significance of
developing a project management plan, it is important that the United
Nations continues to incorporate best practices to ensure the plan's
effectiveness.
Project management staff are essential to controlling schedule and cost
changes because they will guide decision making and coordinate
resources throughout the project. Project management staff would
represent the United Nations as the owner of the project and facilitate
coordination and communication between the design firms and
construction contractors. The United Nations does not currently have
sufficient staff to manage the project effectively but, according to
U.N. officials, plans to hire additional staff and/or contractors. The
United Nations added seven staff to its Capital Master Plan team during
the conceptual planning phase, including two security officials, and
plans to augment its management capability during design. In February
2003, the United Nations appointed an Assistant Secretary-General as
the full-time executive director of the Capital Master Plan management
project. As of March 2003, the United Nations had 12 people on the
renovation project management staff. The United Nations is evaluating
options for acquiring additional expertise and anticipates having a
management team of 20 staff and contractors during the design phase and
a team of about 40 staff at the peak of construction.
Office of Internal Oversight Services and the Board of Auditors Plan to
Conduct Oversight of the Renovation Project:
In a February 2003 resolution, the General Assembly stressed the
importance of oversight in implementing the Capital Master Plan and
requested the Board of Auditors and all relevant oversight bodies, such
as the Office of Internal Oversight Services, to initiate immediate
oversight activities.[Footnote 20] In our last report, we noted that
the Office of Internal:
Oversight Services[Footnote 21] did not have the expertise to perform
an oversight role, but the office had agreed to assume such
responsibility by hiring people with the necessary skills. Since then,
the office has assigned one staff member to begin researching the
Capital Master Plan on a part-time basis. However, the office has not
developed a plan detailing the oversight functions it plans to pursue
or hired additional staff. Officials from the oversight office stated
that it has requested funding so that it can hire contractors to help
evaluate the Capital Master Plan, the project management plan, and the
security upgrades. The officials anticipate that these contractors
would have architectural and construction skills and knowledge of New
York City building codes.
The Board of Auditors had not yet conducted oversight of the Capital
Master Plan but plans to complete an audit strategy by June
2003.[Footnote 22] The board has decided to review financial accounts,
compliance with U.N. procurement regulations, and the effectiveness of
Capital Master Plan management. After the board completes its audit
strategy, it plans to determine the additional resources and expertise
it needs to conduct oversight of the renovation. According to a board
official, the United Nations approved initial funding of $35,000 in
April 2003 to cover the audit of Capital Master Plan activities during
2003. However, the board will require additional resources for
oversight as the renovation progresses.
Department of State Has Begun Monitoring Renovation Planning:
The United States has a substantial interest in the renovation project
and its costs, particularly since the Secretary-General anticipates
U.S. financing. As the project goes forward, the United States will
decide whether to finance the renovation and will take part in other
key decisions. The Department of State, the lead foreign affairs agency
responsible for developing and implementing U.S. policy toward the
United Nations, has assembled a task force to monitor U.N.
implementation of the Capital Master Plan. While Department of State
officials have consulted with other U.S. government officials
concerning the renovation project, they have not yet created a formal
framework that defines the task force's mission and program goals. In
addition, a department official stated that they do not have the
expertise to undertake effective monitoring of the project as it
progresses.
In our June 2001 report, we recommended that the Department of State
develop a comprehensive U.S. position on matters pertaining to the
renovation. We further recommended that if the United States were to
take a position in support of the renovation, the department should
consider obtaining expertise in construction management and financing.
In June 2001, the department took a position in support of renovating
the U.N. headquarters complex and created an interagency task force to
monitor the renovation project in August 2002. The task force consists
of six officials from the department and the Office of Management and
Budget who work part-time on task force activities and a point-person
at the U.S. Mission to the United Nations who monitors U.N. renovation
planning efforts. In addition, a senior official at the Ambassador
level represents U.S. concerns on the renovation project to the United
Nations and other member state representatives. To assist the task
force, the department has also retained a part-time consultant with
building construction and security experience.
Although the Department of State has organized the task force, it has
yet to develop an interagency framework that sets forth the task
force's mission or program goals. To monitor the project and coordinate
the U.S. decision on whether to finance the renovation, the department
will undertake diplomatic, federal financing and budgeting, and
construction activities that will require participation from numerous
government officials and organizations with the necessary expertise. A
framework that describes the task force's mission, program goals, and
coordinating mechanisms will help ensure that each organization has a
clear understanding of its role, responsibilities, and expectations.
The development of this framework is important because the task force's
monitoring role is likely to continue through the four remaining phases
of the renovation project.
Furthermore, with established mission and program goals, the department
could specify resource needs, including appropriate skills needed to
achieve a successful outcome of the project. As the renovation proceeds
and the management of the project increases in magnitude and
complexity, the department can identify and obtain the critical skills
that will be needed to monitor the project. Department officials have
stated that they lacked the needed expertise to monitor a renovation
project of this magnitude.
It is also important that the task force is staffed appropriately
because the Department of State will have a number of key questions and
issues to address over the life of the project, particularly if the
United States agrees to finance the renovation. Some key questions and
issues to be addressed include the following:
* If the United States offers to finance the renovation, how would it
structure a loan to the United Nations? What should be the loan's terms
and conditions? Would the United States provide a loan that fully funds
the renovation project? If there are cost increases during the
renovation, would the United States provide additional financing and,
if so, under what terms and conditions?
* Does the United Nations have internal controls in place to
effectively manage changes in costs, scope, and schedule throughout the
design and construction of the project?
* To what extent are U.N. officials coordinating the renovation design
and construction with that of the proposed new visitors center?
* What types of incentives will the United Nations include in its
contracts with design and construction firms to ensure that their work
meets U.N. expectations?
* Since the design phase provides the greatest opportunity to make
decisions that could minimize future building maintenance and operating
costs, to what extent are these future costs being considered during
the design phase?
* How will U.N. officials ensure that value-engineering principles--a
formal technique used by contractors or independent teams to identify
methods of constructing projects more economically--are applied during
the design and construction phases?
The department's position on each of these issues and the level of
monitoring it will undertake will drive its resource and expertise
needs.
Conclusions:
The United Nations has used a reasonable process thus far to develop
its renovation plans, but it is still early in the project and changes
in the schedule and cost estimates are to be expected. While the
General Assembly has funded the project's design, a commitment to
finance the renovation will be needed by October 2003 for the United
Nations to remain on its current schedule and sign a lease for the
swing space. If the planned swing space is not available, the United
Nations will have to reconsider its renovation approach, potentially
leading to delays in the renovation process. The United States,
however, has not yet taken a position on whether or how to finance the
renovation. In addition, careful management and oversight of a project
of this magnitude and complexity will be necessary to minimize schedule
and scope changes. The renovation's completion, final cost, and quality
could be adversely affected if the United Nations does not provide
adequate staff to manage the renovation and establish careful controls
to limit scope changes. Continued monitoring by the Department of State
will be critical as the project progresses and various issues arise,
particularly if the United States finances the renovation.
Recommendations for Executive Action:
We recommend that the Secretary of State, in consultation with
appropriate administration officials and other U.N. members, direct the
U.S. representative to the United Nations to:
* encourage the United Nations to complete and implement an effective
project management plan that will guide decision making and
coordination throughout the renovation project, and:
* encourage the United Nations to provide the Office of Internal
Oversight and the Board of Auditors with the resources needed to
conduct effective oversight of the Capital Master Plan as the project
progresses.
In addition, to ensure that U.S. interests are effectively represented
as the United Nations proceeds through the design phase, we recommend
that the Secretary of State define the mission and program goals of the
task force currently monitoring U.S. participation in the Capital
Master Plan. We further recommend that the Secretary determine the
expertise the task force needs to fulfill its role and ensure that it
has the resources necessary to monitor the project over its duration.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, the United Nations and
Department of State agreed with our findings and recommendations.
However, the Board of Auditors disagreed with our recommendation
calling for resources for the board to conduct oversight. A board
official stated in April 2003 that the United Nations approved $35,000
for the board to conduct oversight of the $1.2 billion renovation
project. We modified our recommendation to acknowledge the board's
initial funding, but we continue to recommend funding for the board's
oversight function over the course of the 6-year renovation project.
Ensuring that the board has the necessary resources to conduct
oversight will be important throughout the renovation. The board also
provided technical comments to our report, which we incorporated as
appropriate. Written comments from the United Nations, Department of
State, Office of Internal Oversight Services, and Board of Auditors,
along with our response, are in appendixes V through VIII. We provided
the Office of Management and Budget with a draft of our report, but the
office did not provide any comments.
:
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the Secretary of State; the U.S. Ambassador to the United Nations;
the Director, U.S. Office of Management and Budget; the U.N. Secretary-
General; and interested congressional committees. We also will make
copies available to others on request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-8979. Additional GAO contacts and staff
acknowledgments are listed in Appendix IX.
Sincerely yours,
Joseph A. Christoff, Director International Affairs and Trade:
Bernard L. Ungar, Director Physical Infrastructure Issues:
Signed by Joseph A. Christoff and Bernard L. Ungar:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To assess the reasonableness of the process used by the Secretariat for
project planning and development, including the cost estimate and
security plans, we reviewed U.N. records, including reports developed
by the architect-engineering firm and security assessments prepared for
the United Nations. We also researched industry practices related to
construction project planning and development, cost estimating, and
security plan development. We compared the Secretariat's efforts in
project planning and cost estimating with industry practices as
identified by the Federal Facilities Council and the Construction
Industry Institute. We also reviewed the assumptions supporting the
cost estimates, including contingencies and swing space costs. In
assessing the process the Secretariat used to develop its security
plan, we used industry-recognized guidelines as criteria. We also
obtained input from U.S. federal agency security experts on the process
used to develop the United Nations' security plan. In addition, we
reviewed other recently implemented or planned security initiatives and
their interface with the security components of the Capital Master
Plan. We discussed various aspects of the project, including the
process by which the Capital Master Plan was developed, with U.N.
renovation project staff and consultants.
To assess the potential financial impact to the federal government of
the renovation, we modeled the financial impact of a no-interest, 1
percent, and 2 percent loan to the United Nations. We did not assess
the financial impact to the federal government of the renovation if the
United Nations sought other financing options, or if the United Nations
did not undertake the renovation and repaired or replaced major
building systems as they failed. We reviewed the most current
renovation cost estimates, the renovation cash flow statement, the U.N.
Development Corporation cost estimate for swing space, interest rates
for corporate and tax-exempt bonds, interest rate assumptions in the
President's budget for fiscal year 2004[Footnote 23] and the Economic
Report of the President (1999), and the 1948 loan agreement between the
United Nations and the United States. We used the Office of Management
and Budget's Credit Subsidy Calculator to estimate the interest and
default subsidies for interest-subsidized loans under various terms. In
doing so, we made several key assumptions including the interest rate,
the U.S. disbursal of funds, and a repayment plan. We then discussed
our assumptions with Department of State, Congressional Budget Office,
and Office of Management Budget officials.
To analyze the critical milestones remaining in the renovation project,
we reviewed the critical paths and the estimated schedules for the U.N.
renovation and the U.N. Development Corporation's proposed swing space
building. We compared these critical paths and linked them to
illustrate the necessary milestones and their sequence. We then
clarified the sequence and duration of these milestones in interviews
with Capital Master Plan staff at the United Nations, officials at the
U.N. Development Corporation, and officials at the Department of State.
In addition, we consulted with construction industry experts and legal
counsel within GAO to evaluate and comment on the validity of the
milestones' sequence.
To assess U.N. and Department of State efforts to monitor and oversee
the renovation, we reviewed U.N. documents such as the Capital Master
Plan, the U.N. renovation project management plan, the U.N. resolution
pertaining to oversight of the Capital Master Plan, and the mission
statements of the Office of Internal Oversight Services and the Board
of Auditors. We subsequently spoke with U.N. and Department of State
officials to determine their past and anticipated oversight roles and
responsibilities in the U.N. renovation. In addition, we discussed the
personnel required to adequately oversee the renovation, the funding
received and requested for renovation monitoring, and the procedures in
place for decision making and oversight.
In conducting our review, we received the full cooperation of the
United Nations, U.N. Development Corporation, U.S. Mission to the
United Nations, and the Department of State. We conducted our review
between June 2002 and April 2003, in accordance with generally accepted
government auditing standards.
[End of section]
Appendix II: Two Approaches to Renovating the U.N. Headquarters Complex:
U.N. Secretary-General Offered Two Renovation Approaches:
In the August 2002 Capital Master Plan, the U.N. Secretary-General
presented two approaches to renovating the U.N. headquarters complex.
According to the Capital Master Plan, the unique conference room needs
of the United Nations were a driving factor in the Secretary-General's
development of these approaches. The two approaches include:
* temporarily relocating most U.N. activities during much of the
construction work to swing space in a proposed new building near the
U.N. complex (see fig. 6), or:
* rotating U.N. staff through more limited swing space in a new four-
story building constructed on the U.N. headquarters complex where the
South Annex is currently located.
The Secretary-General endorsed the first approach, and the General
Assembly approved the development of renovation designs based on that
approach.
Figure 6: U.N. Headquarters Complex and Proposed Location of Swing
Space under Approach 1:
[See PDF for image]
[End of figure]
Approach 1:
Under the first approach, most U.N. staff and activities would
temporarily relocate to swing space in a proposed new office building
near the U.N. complex during much of the renovation. U.N. consultants
estimated that the renovation would take less than 5 years to complete
and cost about $1.2 billion. As shown in table 2, the cost estimate
includes a baseline scope--removing asbestos; replacing the electrical,
plumbing, and climate control systems; and installing an upgraded fire
suppression system. The cost estimate also includes leasing swing space
for 4 years from the U.N. Development Corporation, a New York State
nonprofit public benefit corporation tasked with constructing and
leasing office space to the United Nations. Additional cost factors
include the replacement of the Secretariat Building's window structure
and additional scope options that the General Assembly has not yet
decided to include in the renovation. These options include additional
safety and security measures, emergency backup provisions, and
sustainability measures to address environmental goals. The cost
estimate excludes construction of an additional conference room on the
complex[Footnote 24] and security upgrades that the United Nations will
complete before the renovation begins.
Table 2: Preliminary Cost Estimate of Approach 1:
Renovation component: Baseline scope; Estimated cost (in millions):
$991.
Renovation component: Swing space leasing; Estimated cost (in
millions): 96.
Renovation component: Secretariat building window structure; Estimated
cost (in millions): 36.
Renovation component: Exclusion of conference room; Estimated cost (in
millions): -57.
Renovation component: Completed security upgrades; Estimated cost (in
millions): -17.
Renovation component: Subtotal; Estimated cost (in millions): $1,049.
Renovation component: Scope options; Estimated cost (in millions): 144.
Renovation component: Total; Estimated cost (in millions): $1,193.
Source: GAO analysis of U.N. data.
[End of table]
The U.N. Development Corporation has offered to construct the swing
space building. The new office building would be built on a park next
to the U.N. Headquarters complex and connected to the existing complex
by a tunnel. The United Nations currently plans to sign a long-term
lease for the building with the U.N. Development Corporation. The
building would be used as swing space during the 4 years of the
renovation. Afterwards, the United Nations would relocate most of its
New York City staff that currently work in office space outside the
Headquarters complex to the swing space building. This would include
relocating staff out of office space in two buildings currently leased
from the U.N. Development Corporation. According to corporation
officials, the corporation could then be able sell these two buildings
and provide the proceeds to New York City.
Approach 2:
Under the second approach, the United Nations would replace the South
Annex, a two-story building on the U.N. Headquarters complex, with a
four-story building to use as swing space. The United Nations would
lease additional office space as needed for swing space. The renovation
work would occur in stages with five to ten floors of the U.N.
Headquarters renovated while staff rotate through the swing space. To
avoid excessive disruption, the meeting rooms would be renovated at
night and on weekends. Under this approach, the renovation would take 6
years and cost more than $1.3 billion (see table 3).
Table 3: Preliminary Cost Estimate of Approach 2:
Renovation component: Baseline scope; Estimated cost (in millions):
$1,094.
Renovation component: Swing space construction and leasing; Estimated
cost (in millions): 66.
Renovation component: Secretariat building window structure; Estimated
cost (in millions): 36.
Renovation component: Completed security upgrades; Estimated cost (in
millions): -17.
Renovation component: Subtotal; Estimated cost (in millions): $1,179.
Renovation component: Scope options; Estimated cost (in millions): 144.
Renovation component: Total; Estimated cost (in millions): $1,323.
Source: GAO analysis of U.N. data.
[End of table]
The total cost estimate is higher under Approach 2 because the
renovation work would occur in stages since the limited swing space
could not house all U.N. headquarters staff. Also, the United Nations
would construct an additional conference room on the Headquarters
complex. Under this approach, the swing space cost--replacing the South
Annex and additional commercial leasing--would be less than leasing a
swing space building from the U.N. Development Corporation. As with
Approach 1, this cost estimate includes replacement of the Secretariat
Building's window structure and various scope options that the General
Assembly has not yet decided to include. This cost estimate also
excludes the security upgrades that the United Nations will complete
before renovation begins. Although Approach 2 would cause the least
disruption because meeting chambers would be renovated when the rooms
were not in use, the risk of cost overruns, delays, and disturbance,
and the perceived risk of exposure to asbestos is higher.
[End of section]
Appendix III: U.N. Consultants and Subconsultants:
Table 4 presents the firms that were involved in the conceptual
planning process and noted in this report as consultants to the United
Nations or subconsultants to the U.N. architect-engineering firm.
Table 4: Firms Involved in the Conceptual Planning Process:
Type of consultant/subconsultant: Architect-engineering firm; Name of
firm: Renato Sarno Group.
Type of consultant/subconsultant: Consulting engineer; Name of firm:
Ove Arup & Partners/Hanscomb[A].
Type of consultant/subconsultant: Cost estimating subconsultant; Name
of firm: Turner Construction.
Type of consultant/subconsultant: Cost estimating consultant; Name of
firm: Hill International.
Type of consultant/subconsultant: Security subconsultant; Name of firm:
Ducibella Venter & Santore.
Type of consultant/subconsultant: Project management consultant; Name
of firm: Atkins, Hanscomb, Faithful, and Gould.
Source: United Nations.
[A] This consultant was the architect-engineering firm involved in
developing the 2000 Capital Master Plan.
[End of table]
[End of section]
Appendix IV: Security Upgrades at the United Nations:
Completed and Planned Security Initiatives:
In response to the terrorist attacks of September 11, 2001, the United
Nations implemented emergency security measures and also accelerated
its plans to implement some of the security measures that had been
originally planned for the renovation. The United Nations also worked
with its consultants to enhance the security component of the revised
Capital Master Plan. According to U.N. officials, to more effectively
coordinate the interface between the upgrades made after September 11,
2001, and the security measures in the Capital Master Plan, the United
Nations has hired the same consultant to work on both packages,
assigned some internal staff to oversee both projects, and calculated
the cost of any overlap in security upgrade initiatives.
As shown in figure 7, the recent and planned security measures for the
U.N. Headquarters complex comprise four initiatives.
Figure 7: United Nations Security Initiatives:
[See PDF for image]
[End of figure]
Emergency Upgrades:
This emergency initiative was introduced in December 2001 in response
to the September 11, 2001 terrorist attacks. In late 2001, the United
Nations organized a Senior Emergency Management Group to deal with
major emergency situations at the U.N. Headquarters. The Secretary-
General identified the most immediate, short-term security needs and
requested additional funding. These measures, estimated to cost $3.7
million, included enhancements to the perimeter security and upgrades
to the emergency response system on the complex and were largely
implemented by March 2002.
Strengthening Security:
The strengthening security initiative also came as a result of the
assessments the United Nations conducted after September 11, 2001. This
initiative includes more long-term upgrades relative to the urgent
measures implemented under the previous initiative. Some of the
upgrades in this initiative (worth approximately $17 million) were part
of the Capital Master Plan and their implementation was accelerated
because of heightened security concerns. This initiative includes an
upgraded access control system for the entire complex and renovations
to the existing security control room. As of April 2003, the United
Nations is designing these upgrades; U.N. officials expect them to be
in place in 2004 at a total cost of $26 million.
Security Upgrades in the Capital Master Plan Baseline Scope:
The U.N. security design consultant made 114 recommendations for the
2002 Capital Master Plan. The U.N. security staff, along with the
consultant, prioritized those recommendations, creating a list of
"highest priority" upgrades. These upgrades, totaling $77 million, were
included as part of the baseline scope for the 2002 Capital Master
Plan. The upgrades encompass additional visitor access control and
blast resistance materials in certain areas on the complex.
Capital Master Plan Security Scope Option:
This initiative includes the U.N. security consultant's remaining
recommendations that were either (1) not the highest priority or (2)
required coordination with New York City. Totaling $30 million, these
upgrades include strengthening the building structure and installing
vehicle barriers on some roads adjacent to the complex.
[End of section]
Appendix V: Comments from the United Nations:
United Nations:
Nations Unies:
HEADQUARTERS * SIEGE
NEW YORK, NY 10017 TEL.: 1 (212) 963.1234
* FAX: 1 (212) 963.4879:
REFERENCE:
12 May 2003:
Dear Mr. Christoff,
Thank you for sharing with us the draft GAO Report entitled "United
Nations: Early Renovation Planning Reasonable, but Additional
Management Controls and Oversight Will Be Needed.":
We have reviewed the draft Report, and are in agreement with the
findings, recommendations and conclusions contained therein.
We appreciate the professionalism and thoroughness with which this
second review was conducted. The report provides a comprehensive,
insightful and constructive assessment of the planning and work
undertaken thus far. We will take GAO's observations into account as we
move forward with the capital master plan.
Yours sincerely,
Catherine Bertini
Under-Secretary-General for Management:
Signed by Catherine Bertini:
Mr. Joseph A. Christoff
Director:
International Affairs and Trade
U.S. General Accounting Office 441 G St. N.W.
Washington, D.C. 20548:
[End of section]
Appendix VI Comments from the Department of State:
United States Department of State Washington, D. C. 20520:
MAY 19 2003:
Dear Ms. Westin:
We appreciate the opportunity to review your draft report, "UNITED
NATIONS: Early Renovation Planning Reasonable, but Additional
Management Controls and Oversight Will Be Needed," GAO-03-566, GAO Job
Code 320133.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
George Abrahams, Bureau of International Organizations, at (202) 647-
8270.
Sincerely,
Christopher B. Burnham
Assistant Secretary and Chief Financial Officer:
Signed by Christopher B. Burnham:
Enclosure:
As stated.
cc: GAO/IAT - Phyllis Anderson State/OIG - Luther Atkins State/IO -
Jackie Sanders:
Ms. Susan S. Westin, Managing Director, International Affairs and
Trade, U.S. General Accounting Office.
Department of State Comments on GAO Draft Report:
UNITED NATIONS:
Early Renovation Planning Reasonable,
but Additional Management Controls and Oversight Will Be Needed (GAO-
03-566, Job Code 320133):
The Department greatly appreciates GAO efforts in reviewing again the
UN headquarters renovation plans. Officials within the Department
(including our mission in New York) and in the United Nations
secretariat once more worked closely with the:
GAO team, and we continue to feel strongly that GAO's analysis has been
of significant benefit to the U.S. Government and also to the UN.
The Department concurs with GAO's recommendation on the need for the
establishment of an effective project management plan and to encourage
the UN to provide sufficient resources to its oversight bodies to
effectively oversee the Capital Master Plan (CMP). In fact, in our
ongoing discussions with UN officials, they have already expressed
their support for these measures. We feel that it is critical to build
upon the solid foundation already established by the UN's CMP team-
which, as you have noted, is built on the adherence to a number of
"best practices"--in order to maximize the confidence placed in this
major project by officials throughout the U.S. government, other UN
members, and the U.S. taxpayer.
We also concur with the recommendation that the Department's CMP task
force should have well-defined mission and program goals. Since last
year, the task force has been coordinating USG policy and oversight of
the CMP. This includes not only coordination among various officials
and other experts in Washington, but active engagement by the U.S.
Ambassador for Management and Reform at our mission in New York, who
has on board a full-time staff member to serve as the mission's UN CMP
liaison. Regarding the expertise and resources needed by the task
force, we will be constantly assessing these requirements and will
adjust them as appropriate over the life of the project.
We would look forward to and welcome GAO's continued participation as
the UN moves into the critical design phase of this project and as we
continue to address the challenging decisions which still lie ahead.
[End of section]
Appendix VII: Comments from the Office of Internal Oversight Services:
United Nations Nations Unies
DILEEP NAIR:
UNDER-SECRETARY-GENERAL FOR INTERNAL OVERSIGHT SERVICES:
Reference: 21088/03 30 April 2003:
Dear Mr. Christoff,
Thank you for your e-letter dated 25 April 2003, enclosing an e-copy of
the General Accounting Office's draft report entitled "United Nations:
Early Renovation Planning Reasonable, but Additional Management
Controls and Oversight Will be Needed (GAO-03-566)." We have reviewed
the draft report and, in particular, the report sections concerning the
role of the United Nations Office of Internal Oversight Services (OIOS)
and Board of Auditors in overseeing the project.
We are in agreement with the report's findings and recommendations and
wish to reiterate that we have already taken all necessary actions to
comply with General Assembly resolution 57/292 which, inter alia,
"stresses the importance of oversight with respect to the development
and implementation of the capital master plan, and requests all other
relevant oversight bodies to initiate immediate oversight activities
and to report annually thereon to the General Assembly." We are
currently in the process of identifying and interviewing candidates
possessing suitable architectural and construction project oversight
expertise, within the constraints on the level and duration of funding
that has so far been allocated to us. A comprehensive audit plan will
be developed for each phase of the capital master plan, as well as for
each step of the implementation process, as soon as the necessary
funding decisions have been made by the General Assembly.
We very much appreciate the constructive assessment of the current
situation and the recognition of the need for effective oversight in
the implementation of the capital master plan, and wish to thank the
United States General Accounting Office for the spirit of cooperation
demonstrated in providing an opportunity to comment on the draft
report.
Yours sincerely,
Dileep Nair:
Under-Secretary-General for Internal Oversight Services:
Signed by Dileep Nair:
[End of section]
Appendix VIII: Comments from the U.N. Board of Auditors:
[See PDF for image]
[End of figure]
The following are GAO's comments on the letter from the U. N. Board of
Auditors dated May 9, 2003.
GAO Comments:
1. The board stated that the United Nations had approved funds for the
audit of the Capital Master Plan. A board official stated that
approximately $35,000 was approved in April 2003 to conduct oversight
of the renovation. We have included this information in the report. We
modified our recommendation to acknowledge the board's initial funding,
but continue to recommend funding for the board's oversight function
over the course of the six-year renovation project.
2. We modified the report to reflect the board's comment.
3. We modified the report to reflect the board's comment.
4. See comment 1.
5. We modified the report to reflect the board's comment.
6. We modified the report to reflect the board's comment.
7. No change made. The comment does not provide additional clarity to
the report.
8. See comment 1. Since the renovation is likely to continue for a
number of years, ensuring that the board has the necessary resources to
conduct oversight throughout the project will be critical. Accordingly,
we have modified our recommendation to clarify our position.
[End of section]
Appendix IX GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Phyllis Anderson (202) 512-7364 Terrell Dorn (202) 512-6923:
Staff Acknowledgments:
In addition to the individuals named above, Bruce Kutnick, Ronald King,
Valérie L. Nowak, Maria Edelstein, Jeffrey T. Larson, Julia A. Roberts,
Lynn Cothern, Jonathan Rose, and Barbara Shields made significant
contributions to this report.
:
(320133):
FOOTNOTES
[1] U.S. General Accounting Office, United Nations: Planning for
Headquarters Renovation Is Reasonable; United States Needs to Decide
Whether to Support Work, GAO-01-788 (Washington, D.C.: June 15, 2001).
[2] The U.N. Development Corporation is a New York State nonprofit
public benefit corporation tasked with constructing and leasing office
space to the United Nations.
[3] We express all figures on the potential financial impact to the
federal government in 2003 present value dollars.
[4] We estimate that this loan would equal approximately $1.07 billion
in 2003 present value dollars.
[5] The cost of a no-interest loan would depend on its terms and
conditions, such as the length of time the United Nations would have to
repay the loan. For our analysis, we assumed the United Nations would
repay the loan over 25 years.
[6] GAO-01-788 and United Nations, Capital Master Plan: Report of the
Secretary-General, A/55/117 (New York, N.Y.: United Nations, June 28,
2000).
[7] United Nations, Capital Master Plan: Report of the Secretary-
General, A/57/285 (New York, N.Y.: United Nations, Aug. 8, 2002).
[8] United Nations General Assembly, Resolution Adopted by the General
Assembly, A/RES/57/292 (New York, N.Y.: United Nations, Feb. 13, 2003).
[9] Ralph S. Spillinger, in conjunction with the Federal Facilities
Council's Standing Committee on Organizational Performance and Metrics,
Adding Value to the Facility Acquisition Process: Best Practices for
Reviewing Facility Designs, Federal Facilities Council Technical Report
#139 (Washington, D.C.: National Academy Press, n.d.).
[10] The Construction Industry Institute is a research organization
composed of construction contractors and owners that seeks to improve
the construction and capital investment process.
[11] U.S. General Accounting Office, National Preparedness:
Technologies to Secure Federal Buildings, GAO-02-687T (Washington,
D.C.: Apr. 25, 2002).
[12] The U.S. Interagency Security Committee was created in 1995 under
Executive Order 12977 to establish building security standards among
federal facilities. The committee consists of a chair--the Secretary of
Homeland Security--and 17 other federal agencies.
[13] This range applies to the estimated cost without design and
construction contingencies.
[14] We did not estimate the financial impact to the United States if
the United Nations sought other financing for the renovation or did not
undertake the renovation.
[15] We excluded any administrative costs, fees, or recoveries.
[16] Federal Credit Reform Act of 1990 (codified at 2 U.S.C. 661). If
the United States provides a loan to the United Nations, the Office of
Management and Budget and the Congressional Budget Office would
calculate the interest and default subsidies that would need to be
appropriated based on the actual terms of the loan document.
[17] We estimate that the yearly nominal assessment for the principal
repayments would be $10.5 million.
[18] This is an annual appropriation restriction that may not be made
applicable in this situation.
[19] Construction Industry Institute, Project Change Management,
Special Publication 43-l (Austin, Tex.: November 1994).
[20] United Nations General Assembly, Resolution Adopted by the General
Assembly, A/RES/57/292.
[21] The U.N. Office of Internal Oversight Services conducts internal
oversight of U.N. activities through monitoring, inspection, and
evaluation. The office reports to the Secretary-General.
[22] The U.N. Board of Auditors is an external audit agency that audits
U.N. accounts, funds, and programs. The board reports to the General
Assembly.
[23] Office of Management and Budget, Analytical Perspectives, Budget
of the United States Government, Fiscal Year 2004 (Washington, D.C.:
U.S. Government Printing Office, March 6, 2003).
[24] Under this approach, the United Nations would have the additional
conference room within the swing space building.
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