Embassy Construction
State Has Made Progress Constructing New Embassies, but Better Planning Is Needed for Operations and Maintenance Requirements Gao ID: GAO-06-641 June 30, 2006In response to 2 bombings of U.S. embassies in Africa in 1998, the Department of State embarked on a $21 billion program to replace 201 insecure and dilapidated diplomatic facilities. In November 2004, GAO reported that State's Bureau of Overseas Buildings Operations (OBO), which manages the construction program, had implemented reforms to its planning, design, construction, and funding processes designed to expedite the construction process and prevent cost overruns that were common to previous State diplomatic construction programs. This report updates GAO's earlier report, by discussing OBO's completion rates and costs for embassy construction projects and the impact the reforms and other factors have on completion rates. It also discusses the changes in the costs for operating and maintaining these new facilities.
State has made significant progress constructing new embassy compounds (NEC). The average time to design and construct the 18 embassies and consulates completed from 1999 to 2005 is nearly 3 years faster than for embassies built during the 1980s and 1990s, despite these new facilities being significantly larger and more complex. Although only half of the 18 projects were completed according to planned schedules, 15 of the 18 NECs were opened ahead of, on, or within 1 month after their scheduled move-in dates, and approximately 8,700 U.S. government employees were relocated to these secure and modern facilities. Construction costs for 14 of the 18 completed projects were significantly lower than budget estimates OBO provided to Congress. Strategic and procedural reforms implemented by State, including elevating the former Foreign Buildings Office to bureau status, switching to the design-build contract delivery method, and developing a standard embassy design have had a cumulative positive effect on project cycle times; however, it is still difficult to quantify the effects of any single reform. GAO found that factors specific to individual projects affected OBO's ability to complete work on time and on budget, including the experience levels of OBO and contractors' projects teams, unforeseen conditions at construction sites, and weather conditions, among others. Due to increased size and complexity, annual operations and maintenance costs for NECs are significantly greater than the costs for previous locations; once all 201 NECs are completed, annual operations and maintenance costs could increase by at least $111 million, and possibly several times more. These costs include increases in utility usage; the need to hire highly qualified technical staff; new maintenance needs; and costly equipment, supplies, and spare parts. State does not clearly identify the projected operations and maintenance costs for NECs it builds. Thus, there is currently no mechanism that allows decision makers to determine whether NEC operations and maintenance needs are being adequately planned for and funded. A lack of a comprehensive long-term plan that clearly identifies the significant increases in resources that are likely to be needed as more NECs come online could increase the risk of earlier-than-expected deterioration of NECs.
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-06-641, Embassy Construction: State Has Made Progress Constructing New Embassies, but Better Planning Is Needed for Operations and Maintenance Requirements
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Report to the Chairman, Committee on Foreign Relations, U.S. Senate:
United States Government Accountability Office:
GAO:
June 2006:
Embassy Construction:
State Has Made Progress Constructing New Embassies, but Better Planning
Is Needed for Operations and Maintenance Requirements:
GAO-06-641:
GAO Highlights:
Highlights of GAO-06-641, a report to the Chairman, Committee on
Foreign Relations, U.S. Senate
Why GAO Did This Study:
In response to 2 bombings of U.S. embassies in Africa in 1998, the
Department of State embarked on a $21 billion program to replace 201
insecure and dilapidated diplomatic facilities. In November 2004, GAO
reported that State‘s Bureau of Overseas Buildings Operations (OBO),
which manages the construction program, had implemented reforms to its
planning, design, construction, and funding processes designed to
expedite the construction process and prevent cost overruns that were
common to previous State diplomatic construction programs. This report
updates GAO‘s earlier report, by discussing OBO‘s completion rates and
costs for embassy construction projects and the impact the reforms and
other factors have on completion rates. It also discusses the changes
in the costs for operating and maintaining these new facilities.
What GAO Found:
State has made significant progress constructing new embassy compounds
(NEC). The average time to design and construct the 18 embassies and
consulates completed from1999 to 2005 is nearly 3 years faster than for
embassies built during the 1980s and 1990s, despite these new
facilities being significantly larger and more complex. Although only
half of the 18 projects were completed according to planned schedules,
15 of the 18 NECs were opened ahead of, on, or within 1 month after
their scheduled move-in dates, and approximately 8,700 U.S. government
employees were relocated to these secure and modern facilities.
Construction costs for 14 of the 18 completed projects were
significantly lower than budget estimates OBO provided to Congress.
Strategic and procedural reforms implemented by State, including
elevating the former Foreign Buildings Office to bureau status,
switching to the design-build contract delivery method, and developing
a standard embassy design have had a cumulative positive effect on
project cycle times; however, it is still difficult to quantify the
effects of any single reform. GAO found that factors specific to
individual projects affected OBO‘s ability to complete work on time and
on budget, including the experience levels of OBO and contractors‘
projects teams, unforeseen conditions at construction sites, and
weather conditions, among others.
Due to increased size and complexity, annual operations and maintenance
costs for NECs are significantly greater than the costs for previous
locations; once all 201 NECs are completed, annual operations and
maintenance costs could increase by at least $111 million, and possibly
several times more. These costs include increases in utility usage; the
need to hire highly qualified technical staff; new maintenance needs;
and costly equipment, supplies, and spare parts. State does not clearly
identify the projected operations and maintenance costs for NECs it
builds. Thus, there is currently no mechanism that allows decision
makers to determine whether NEC operations and maintenance needs are
being adequately planned for and funded. A lack of a comprehensive long-
term plan that clearly identifies the significant increases in
resources that are likely to be needed as more NECs come online could
increase the risk of earlier-than-expected deterioration of NECs.
Figure: Previous and New Embassy in Zagreb, Croatia:
[See PDF for Image]
Source: U.S. Department of State.
[End of Figure]
What GAO Recommends:
GAO recommends that the Secretary of State develop an integrated and
comprehensive facilities plan that clearly specifies the immediate and
long-term resource needs for operating and maintaining new embassy
compounds.
We received comments from the Department of State, which generally
agreed with our findings and reported that it plans to implement our
recommendation. State‘s comments are reprinted in appendix III.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-641].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Jess T. Ford at (202) 512-
4128 or fordj@gao.gov or Terrell G. Dorn at (202) 512-6923 or
dornt@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
State Has Made Significant Progress in Completing New Embassy and
Consulate Compounds:
Planning for Operations and Maintenance Costs for New Embassy Compounds
Is Neither Comprehensive Nor Transparent:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Operations and Maintenance Funding Sources:
Appendix III: Comments from the Department of State:
GAO comments:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Estimated and Actual Total Project Costs for Completed NEC
Projects:
Table 2: Estimated Annual Operating Costs for Completed NECs:
Table 3: Major Costs and Funding Sources for Operations and Maintenance
of Overseas Government-owned and Long-term Lease Office Facilities:
Figures:
Figure 1: Features of a Notional NEC (without USAID annex):
Figure 2: Construction of the Standard-design New Embassy Compound in
Tbilisi, Georgia:
Figure 3: Comparison of Planned and Actual Contract Completion, and
Planned and Actual Occupation Dates of New Embassy Compounds:
Figure 4: Previous and New U.S. Embassy in Tunis, Tunisia:
Figure 5: Previous and New U.S. Consulate General in Istanbul, Turkey:
Abbreviations:
FBO: Office of Foreign Buildings Operations:
FEBR: Forced Entry and Ballistic Resistant:
ICASS: International Cooperative Administrative Support Services:
NEC: New Embassy (or Consulate) Compound:
OBO: Bureau of Overseas Buildings Operations:
USAID: U.S. Agency for International Development:
United States Government Accountability Office:
Washington, DC 20548:
June 30, 2006:
The Honorable Richard G. Lugar:
Chairman:
Committee on Foreign Relations:
United States Senate:
Dear Mr. Chairman:
In 1999, the Department of State (State) began the Capital Security
Construction Program, an unprecedented $21 billion, multiyear program
to construct 201 new embassies and consulates. This program was
developed in response to the 1998 embassy bombings in Kenya and
Tanzania that killed 220 people and injured thousands more. The
program's primary goal is to provide secure, safe, and functional
workplace facilities for all employees assigned to U.S. overseas posts.
This goal is designed to implement the Secure Embassy Construction and
Counterterrorism Act of 1999, which requires that new diplomatic
facilities abroad be sufficiently sized to ensure that all U.S.
government personnel at the post are located on-site unless security
conditions permit otherwise and it is within U.S. national interests to
locate personnel outside the new facility.[Footnote 1] State's Bureau
of Overseas Buildings Operations (OBO), which operates the program,
also intends that these new embassy and consulate compounds (NEC) are
efficient, state-of-the-art office buildings.
In the past, we have reported on the significant construction delays
and cost overruns associated with previous embassy construction
efforts. This report addresses (1) the progress OBO has made in
completing embassy and consulate construction projects according to
planned schedules and budgets and (2) whether posts are prepared to
operate and maintain the new facilities.
To complete our work, we reviewed the report of the Overseas Presence
Advisory Panel,[Footnote 2] previous GAO reports on State's embassy
construction programs, OBO's past five annual Long-Range Overseas
Buildings Plans, the files of 18 completed projects, and the monthly
program performance updates and documents of more than 20 ongoing
projects. To track OBO's performance in completing construction
projects on time and on budget, we developed and analyzed a database
containing planned and actual project schedule and cost data, which
were obtained from individual construction project files. We
interviewed key State officials in Washington on the planning for and
adequacy of NECs, and we met with contractors currently involved in
construction projects to discuss OBO's reforms to the planning and
construction processes. We also visited nine posts with either ongoing
or completed construction projects to observe the construction process,
solicit views of State and the contractors' field staff, and review
posts' plans for operating and maintaining the new facilities.[Footnote
3] We performed our work from January 2005 to June 2006 in accordance
with generally accepted government auditing standards. Appendix I
provides more information on our scope and methodology.
Results in Brief:
State has made significant progress in completing new embassy and
consulate compounds in a timely manner and according to planned costs.
From 1999 to the end of calendar year 2005, State completed
construction of 18 embassies and consulates at a cost of approximately
$1.3 billion. Despite the increased size and complexity of the modern
facilities it constructs, State has significantly reduced the time it
takes to complete construction of NECs over past programs. In addition,
although only one-half of State's construction projects were completed
according to the contractual schedules, all but three were sufficiently
completed to allow posts to occupy their respective facilities on,
ahead of, or within 1 month after the scheduled move-in date. As a
result, approximately 8,700 U.S. government employees now work in safe,
secure, and modern office buildings. Moreover, actual construction
costs for most completed projects were significantly lower than the
funding levels OBO reported as needed for those projects. Although it
is too early to fully assess schedule performance and costs of yet-to-
be-completed projects, we noted that six of the nine ongoing NEC
projects scheduled for completion in 2006 are currently behind schedule
and three of the nine projects are currently estimated to cost more
than originally intended. However, OBO reported that it has taken
actions to mitigate the impact of these delays, and, in the case of the
three projects estimated to exceed original cost estimates, that it has
notified Congress of the need to reprogram funds as a result of higher-
than-expected contractor costs for two projects and the need to pay
workforce remobilization costs to complete the third project. OBO and
contractors' staff reported that strategic and procedural reforms
implemented by State--including transforming the former Office of
Foreign Buildings Operations (FBO) to the Bureau of Overseas Buildings
Operations, switching to the design-build contract delivery
method,[Footnote 4] and developing a standard embassy design--have had
a cumulative positive effect on project cycle times; however, it is
difficult to quantify the effects of any single reform. We found that
other factors specific to individual projects also affected OBO's
ability to complete work on time and on budget, such as the timeliness
of procurement and delivery of materials; conditions at the project
site; political and social conditions in the host nation; staffing and
labor issues; and climatic and environmental conditions.
Operations and maintenance costs for newly constructed embassies and
consulates are significantly higher than the operations and maintenance
costs for facilities they replaced. We estimate that once all 201 NECs
are completed, these total annual operations and maintenance costs,
adjusted to 2006 constant dollars, could increase by $111 million over
those posts' previous facilities, and possibly by several times more.
According to analyses of data from the International Cooperative
Administrative Support Services (ICASS) system, OBO staff, and post
officials, these costs increases are driven in part by technical
security requirements that resulted in greater utility consumption, the
need for highly qualified technical staff, and new maintenance
requirements that posts did not have at their previous locations. State
initially did not recognize the magnitude of new costs for the day-to-
day functional requirements of NECs, but State subsequently developed
guidance for posts to help determine the notional staffing and
financial resources for individual NECs. However, State has not
developed a clear budgetary line item to project operations and
maintenance costs. Currently, these costs are intermingled with
domestic and other nonfacilities-related administrative costs among
several accounts, and no mechanism exists for determining how global
costs for operations and maintenance will increase in the long-term.
Thus, decision makers cannot determine whether NEC operations and
maintenance needs are being adequately planned for and funded. In the
past, GAO and others noted that inadequate funding for operations and
maintenance of overseas posts led to unsafe, insecure, and dilapidated
embassies. A lack of a comprehensive long-term plan that clearly
identifies the significant increases in resources that are likely to be
needed as more NECs come online could increase the risk of earlier-
than-expected deterioration of NECs.
To protect the $21 billion investment in these new facilities, this
report contains a recommendation that the Secretary of State develop an
integrated and comprehensive facilities plan that clearly specifies the
financial and human resources needed for meeting the immediate and long-
term operations and maintenance requirements for new embassy compounds.
We received written comments from the State, which are reprinted in
appendix III. The department generally agreed with our findings and
conclusions. Moreover, State reported that it supports and would take
the necessary steps to address our recommendation. State also provided
technical comments, which were incorporated throughout the report, as
appropriate.
Background:
In the wake of three bombings at U.S. facilities in Beirut, Lebanon--
the U.S. Embassy in April 1983, the Marine barracks in October 1983,
and the U.S. Embassy Annex in September 1984--then Secretary of State
George P. Schultz convened the Advisory Panel on Overseas Security to
review security issues at U.S. overseas facilities. Among the panel's
many suggestions for improving security for U.S. overseas missions and
employees, it recommended that the chanceries, consulates, and other
office buildings at 126 of the 262 overseas posts be replaced due to
security conditions and their locations. In 1987, State estimated that
under the resulting Diplomatic Security Construction Program--also
known as "the Inman Program" after the head of the Advisory Panel, Rear
Admiral Bobby Inman (Ret.)--it could complete construction of 57 new
office buildings and other capital projects for approximately $2.1
billion. In November 1991, however, we reported that the program was
characterized by funding shortfalls, construction delays, and cost
increases, and State ultimately completed only 24 of the 57 planned new
office buildings under the program.[Footnote 5] From 1994 to1998,
Congress appropriated $134 million for security-related capital
projects,[Footnote 6] although not all of this money was targeted to
the construction of new embassies or consulates.
Capital Security Construction Program:
On August 7, 1998, terrorist bombings at the U.S. Embassies in Nairobi,
Kenya, and Dar es Salaam, Tanzania, killed more than 220 people and
injured 4,000 others. Among the dead were 12 American U.S. government
employees and family members, in addition to 32 Kenyan and 8 Tanzanian
nationals working at those embassies. In January 1999, the
Accountability Review Boards, formed to investigate the bombings,
reported that unless security vulnerabilities at U.S. embassies and
consulates were addressed, "U.S. government employees and the public in
many of our facilities abroad" would remain at risk from terrorist
bombings.[Footnote 7] The board also noted more than 200 attacks at
U.S. diplomatic facilities from 1987 to 1997. Also in 1999, the
Overseas Presence Advisory Panel reported on the unsafe, overcrowded,
deteriorating, and "shockingly shabby" conditions of U.S. embassies and
consulates. Both the board and the panel recommended that State embark
on a multiyear, multibillion dollar program to replace insecure and
aging diplomatic facilities worldwide. This new effort was named the
Capital Security Construction Program.
Annual Costs and Production:
In October 1998, Congress appropriated $627 million for reestablishing
embassies in Kenya and Tanzania, relocating other high-risk embassies
and consulates, and improving security at embassies and consulates
worldwide.[Footnote 8] From fiscal year 1999 to the end of calendar
year 2005, State:
* obligated a total of $3.1 billion for the construction of 40
NECs;[Footnote 9] and:
* completed 18 NEC projects through the end of calendar year 2005, at a
cost of approximately $1.3 billion.[Footnote 10]
As of year-end 2005, State had 22 ongoing NEC projects, 9 of which are
scheduled for completion by year-end 2006. From 2009 to 2018, State
expects an average annual funding level of approximately $1.4 billion
for NEC projects. In total, State plans to build 201 NECs under the
Capital Security Construction Program.
Compound Features and Requirements:
NECs generally consist of a chancery or consulate building, compound
access control buildings, utility buildings housing the mechanical and
electrical systems that operate the compound, Marine Security Guard
quarters (if a post has a Marine contingent), and an antiram/anticlimb
perimeter fence (see fig. 1). Depending on the site, the project
budget, and the needs of the post, a new compound could also include a
General Services support annex, a warehouse, maintenance shops,
recreation facilities, and employee and public parking areas. Some
compounds also include an annex building for USAID or other program or
agency functions that do not require access to secure areas. On rare
occasions, the new compounds may also include housing units for post
employees, although these units are generally only located in high
security-risk locations, such as Kabul, Afghanistan.
Figure 1: Features of a Notional NEC (without USAID annex):
[See PDF for image]
Source: GAO synthesis of OBO documents.
[End of figure]
NECs must comply with the physical security and collocation
requirements of the Secure Embassy Construction and Counterterrorism
Act of 1999.[Footnote 11] The act requires that, in site selection, the
Secretary of State shall ensure that all U.S. government personnel
under the authority of a chief of mission, including foreign national
employees, be colocated onto a single compound. In addition, all
buildings on NECs must meet stringent security standards for setback
and blast resistance. However, according to State officials and the
Foreign Affairs Handbook, only those buildings where U.S. government
personnel will be stationed are required to be on compound. Buildings
that do not contain desk space for employees or in which employees are
not permanently located, such as warehouses, need not be on the new
compound.
Reforms to the Construction Process:
In 1991, we reported that State was unable to complete as many projects
as originally planned under the Inman Program due to systemic
weaknesses in program management and funding limitations.[Footnote 12]
We also reported that this program suffered from delays and cost
increases due to poor program planning, difficulties acquiring sites,
changes in security requirements, and inadequate contractor
performance.
In November 2003, we reported on a number of organizational and
managerial reforms to State's current capital construction
process.[Footnote 13] These reforms, which were designed to reduce the
construction cycle times and costs, include the following:
* the transformation of the Office of Foreign Buildings Operations to
the Bureau of Overseas Buildings Operations with responsibility for all
capital construction and maintenance operations at U.S. diplomatic
facilities at home and abroad;
* the development of the Long-Range Overseas Buildings Plan, which
prioritizes and summarizes capital construction projects over a 6-year
cycle;
* efforts to standardize the planning, design, and construction
processes, including eliminating the use of design-bid-build contract
delivery in favor of design-build contract delivery--and the
development of a standardized design for most new embassy and consulate
compound projects (see fig. 2);
* monthly project status reviews in Washington, where senior OBO
managers meet to discuss ongoing projects and resolve issues that could
adversely impact construction schedules and costs;
* quarterly meetings of an Industry Advisory Panel, which advises OBO
on industry best practices in the construction sector;
* advance identification and acquisition of sites; and:
* additional training for OBO headquarters and field staff.
Figure 2: Construction of the Standard-design New Embassy Compond in
Tbilisi, Georgia:
[See PDF for image]
Source: U.S. Department of State.
[End of figure]
State Has Made Significant Progress in Completing New Embassy and
Consulate Compounds:
State has reduced the average project cycle time by approximately 2
years and 9 months, compared with that for embassies built during the
1980s and early 1990s. Though only 9 of the 18 recently constructed
compounds were completed according to contractual schedule
requirements, 15 of the 18 projects were sufficiently completed to
allow posts to occupy their respective facilities on, ahead of, or
within 1 month after the scheduled move-in date, and State reported
that, as of March 31, 2006, approximately 8,700 U.S. government
employees had been relocated to new, safe, and secure facilities.
Actual NEC construction costs were most often significantly less than
the estimates reported to Congress; however, in some cases, projects
were completed outside the official NEC project and, therefore, the
total cost was not captured. Although it is too early to fully assess
schedule performance and costs of yet-to-be-completed projects, we
noted that six of the nine NEC projects scheduled for completion in
2006 are currently behind schedule and that three of the nine projects
are currently estimated to cost more than originally intended. However,
OBO reported that it has taken actions to mitigate the impact of these
delays, and that it has notified Congress of the need to reprogram
funds as a result of higher-than-expected contractor bids for two
projects and the need to remobilize a workforce to complete a third
project. Strategic and procedural reforms implemented by State--
including the creation of OBO, the implementation of performance
management and strategic planning principles, and the use of the design-
build contract delivery method and a standard embassy design-- resulted
in reduced project cycle times and costs. However, due to the small
numbers of projects, it is difficult to quantify the specific effects
of any one reform. Many factors influence OBO's ability to complete
construction on time and on budget, such as the timeliness of
procurement and delivery of materials; conditions at the project site;
political and social conditions in the host nation; staffing and labor
issues; and climatic and environmental conditions.
Overall Project Cycle Time Was Greatly Reduced Compared with Past
Programs, but Performance Measured against Project Schedule
Requirements Is Mixed:
Depending on the benchmark used, OBO's performance varied in completing
NEC projects on schedule. We examined three performance indicators for
timeliness: (1) total project cycle time, which we defined as the
number of months from the start of the design phase to construction
completion; (2) whether construction was completed according to
contractual requirements; and (3) whether posts occupied the new
compounds by the planned occupancy date.
Average Construction Cycle Time Was Significantly Reduced:
We compared the cycle times for the 18 projects completed under the
current program with projects completed during the late 1980s and early
1990s. In November 1991, we reported that 11 of the projects then
ongoing had completion dates extended by 14 to 54 months. Moreover, OBO
reported, according to FBO records, that the average cycle time for 13
embassy construction projects completed from 1986 to 1991 was 69.4
months. In contrast, the average cycle time for the 18 completed
projects under the current program was 36.7 months, approximately 2
years and 9 months less than the average cycle time State reported for
the earlier projects. State officials stated that these reductions are
even more impressive, given that the scopes of work under the current
effort, consisting of multistructure compounds, are significantly
larger and more complex than facilities constructed during the Inman
program, which consisted of single buildings. Moreover, State intends
to reduce cycle times even further. In November 2003, we reported that
State established new performance targets for project cycle times based
on the size of the NEC. Although individual contract requirements may
result in slightly different authorized project durations, since fiscal
year 2003 State now targets design and construction cycle times to
average 15 months for small NECs, 24 months for medium-sized NECs, and
28 months for large NECs.[Footnote 14] Construction industry
representatives and contractors with whom we met stated they have
concerns over whether these shorter cycle times can be met. They
indicated that the new time frames increase performance risks for them,
which could expose them to financial losses and result in higher future
bids. However, no NECs built to the new time frames have yet been
completed. Thus, it is too early to determine the effect of the reduced
timeframes on contractor performance, or to assess the impact the new
timeframes may have on contract costs.
Performance Measured against Contractual Schedule Requirements Is
Mixed:
Based on the requirements set forth in the construction contracts,
however, State's record in completing construction projects according
to planned schedules was mixed, with some projects completed
significantly ahead of schedule and others delivered substantially
behind.[Footnote 15] Figure 3 shows that construction for 9 of the 18
completed NEC construction projects was finished on or before the
planned construction completion date.[Footnote 16] Of the remaining
nine projects, two were completed within 1 month after the planned
completion date, three within 1 to 3 months after the planned date, and
four within 3 to 6 months after the planned completion dates. State
officials said that when contractors are late the department assesses
liquated damages.[Footnote 17] As of April 2006, OBO had collected or
assessed approximately $2.4 million in liquidated damages.
Figure 3: Comparison of Planned and Actual Contract Completion, and
Planned and Actual Occupation Dates of New Embassy Compounds:
[See PDF for image]
Source: U.S. Department of State, Bureau of Overseas Buildings
Operations NEC project files.
[End of figure]
We also reviewed schedule performance for the nine ongoing projects
that OBO plans to complete during calendar year 2006, as presented in
OBO's April 2006 Program Performance Review meeting.[Footnote 18] At
the time of the meeting, six of the nine projects were already behind
schedule or exhibited signs of missing their scheduled completion
dates. Reasons for some of the delays were provided in the projects'
monthly summaries. For example, terminating the contractor for cause
shut down the Dushanbe, Tajikistan, NEC project for many months. As a
result, the project is currently expected to be more than 23 months
late. OBO recently awarded a construction contract to a new contractor
and expects to complete construction for post occupancy by July 2006.
OBO reported that, as of March 31, 2006, construction of the Astana,
Kazakhstan, NEC was 25 days past its scheduled completion date and that
the project would likely be more than 9 months late when completed. OBO
also reported that construction of the Kingston, Jamaica, NEC would
likely be delayed by more than 5 months and that the Bamako, Mali, and
Freetown, Sierra Leone, NEC projects would likely miss their scheduled
completion dates by approximately 1 month. Finally, OBO reported that
construction of the Conakry, Guinea, NEC was certified as substantially
complete on March 16, 2006, 31 days past its scheduled completion date.
OBO said it has taken actions to address delays with these projects,
including revising contract schedules; providing time extensions, where
warranted; withholding payments until projects are back on schedule;
assessing liquidated damages; accelerating work plans; and adding
personnel to the site. In addition, contractors for some of the NEC
projects requested contract modifications for time extensions. At the
time of the April 2006 meeting, no delays were considered likely or
foreseen for the NEC projects in Belmopan, Belize; Lome, Togo; and
Managua, Nicaragua.
Posts Occupied NECs on, ahead of, or within a Month of Schedule:
While it is important to consider performance against contractual
requirements, the purpose of the program is to move staff into safe,
secure, and functional facilities as quickly as possible; therefore, we
also compared the planned and actual building occupancy dates. State
officials reported that, between completion of construction and
occupancy, a 60-day facilities accreditation process must take place,
involving certification of the mechanical, electrical, and security
systems, and other requirements for the compound. Once all systems
within the compound are deemed functional, and the security, safety,
and construction requirements are met, posts may occupy the new
compound. Nine of the 18 completed NECs were certified for occupancy
ahead of schedule, and another 6 posts occupied their new compounds
within approximately 1 month past their expected occupation date. Only
three posts were occupied significantly later than planned. OBO
reported that, as of March 31, 2006, approximately 8,700 U.S.
government employees had been relocated to new, safe, secure, and
functional facilities, and it plans to relocate another 3,400 by the
end of this calendar year.
Most Projects Were Completed within Planned Funding Levels; However,
Work beyond Original Project Scopes Required Additional Funds:
Actual costs for all but 4 of 18 completed NEC projects were
significantly less than State's cost estimates. However, construction
outside the original NEC project scope adds to the total cost of
construction at the 18 NEC sites. In addition, as of April 2006, six of
the nine ongoing NEC projects were within OBO's budget parameter, while
three ongoing projects showed signs of cost growth.
Most Project Costs Lower than State's Estimates:
We compared the actual total project costs for State's 18 completed NEC
projects with the estimated total project funds that State told
Congress it would need to complete those projects,[Footnote 19] and we
found that actual costs for 14 of the 18 projects were significantly
less than State's cost estimates (see table 1). Actual obligations for
these 14 projects ranged from about 5 to 33 percent less than what
State had reported to Congress concerning the amount that would be
needed to complete construction. Reasons given for these lower-than-
expected costs varied, including the following:
* Contractors bundled proposals for multiple projects. OBO reported
that on five occasions it awarded contracts based on combined
proposals, including for Dar es Salaam and Nairobi; Yerevan, Armenia,
and Sofia, Bulgaria; Tunis, Tunisia, and Kampala, Uganda; Tbilisi,
Georgia, and Tashkent, Uzbekistan; and the ongoing projects in Lome,
Togo, and Accra, Ghana. These bundled proposals allowed the contractor
to create an economy of scale, thereby allowing State to award the
combined projects at a lower cost than the estimated sum of the
individual projects.
* Competition among contractors sometimes resulted in aggressive
proposals at less cost than the government estimated.
* OBO's policy to limit changes to project scopes resulted in fewer
cost increases.
* Removal of certain facilities or features from the project scopes
reduced overall costs; however, sometimes these costs reappeared in the
form of secondary construction projects outside the scope of the NEC
project.
In some cases, construction and fit-out of certain facilities outside
the scope of the NEC contract resulted in additional costs for
completing all facilities on the new compound. The need for additional
construction derived from multiple sources, including security
requirements established after construction of the NEC began,
nonconcurrent appropriations that funded USAID facility
construction,[Footnote 20] and certain items that were either removed
from the original scope of work or deferred for later construction.
Table 1: Estimated and Actual Total Project Costs for Completed NEC
Projects:
Dollars in millions.
Project: Dar es Salaam;
Project execution year (FY): 1999;
Congressional notification estimate: $51.2;
Actual costs[A]: $51.9;
Variance: $0.7;
Percent from estimated level: 1.3%.
Project: Kampala;
Project execution year (FY): 1999;
Congressional notification estimate: $32.5;
Actual costs[A]: $36.2;
Variance: $3.7;
Percent from estimated level: 11.3%.
Project: Nairobi;
Project execution year (FY): 1999;
Congressional notification estimate: $67.8;
Actual costs[A]: $60.4;
Variance: -$7.5;
Percent from estimated level: - 11.0%.
Project: Tunis;
Project execution year (FY): 1999;
Congressional notification estimate: $86.0;
Actual costs[A]: $59.5;
Variance: -$26.5;
Percent from estimated level: - 30.8%.
Project: Zagreb;
Project execution year (FY): 1999;
Congressional notification estimate: $66.9;
Actual costs[A]: $63.3;
Variance: -$3.6;
Percent from estimated level: - 5.4%.
Project: Abu Dhabi;
Project execution year (FY): 2000;
Congressional notification estimate: $93.0;
Actual costs[A]: $64.0;
Variance: -$29.0;
Percent from estimated level: -31.2%.
Project: Istanbul;
Project execution year (FY): 2000;
Congressional notification estimate: $83.2;
Actual costs[A]: $76.3;
Variance: -$6.9;
Percent from estimated level: -8.3%.
Project: Luanda;
Project execution year (FY): 2000;
Congressional notification estimate: $39.2;
Actual costs[A]: $51.7;
Variance: $12.5;
Percent from estimated level: 31.8%.
Project: Abidjan;
Project execution year (FY): 2001;
Congressional notification estimate: $108.6;
Actual costs[A]: $74.5;
Variance: -$34.1;
Percent from estimated level: -31.4%.
Project: Abuja;
Project execution year (FY): 2001;
Congressional notification estimate: $69.5;
Actual costs[A]: $63.6;
Variance: -$5.9;
Percent from estimated level: - 8.5%.
Project: Sofia;
Project execution year (FY): 2001;
Congressional notification estimate: $100.6;
Actual costs[A]: $72.0;
Variance: -$28.6;
Percent from estimated level: - 28.5%.
Project: Yerevan;
Project execution year (FY): 2001;
Congressional notification estimate: $79.6;
Actual costs[A]: $68.1;
Variance: -$11.5;
Percent from estimated level: - 14.5%.
Project: Cape Town;
Project execution year (FY): 2002;
Congressional notification estimate: $71.9;
Actual costs[A]: $48.1;
Variance: -$23.8;
Percent from estimated level: -33.1%.
Project: Kabul;
Project execution year (FY): 2002;
Congressional notification estimate: $120.5;
Actual costs[A]: $177.2;
Variance: $56.7;
Percent from estimated level: 47.1%.
Project: Phnom Penh;
Project execution year (FY): 2002;
Congressional notification estimate: $87.9;
Actual costs[A]: $71.5;
Variance: -$16.4;
Percent from estimated level: -18.6%.
Project: Tashkent;
Project execution year (FY): 2002;
Congressional notification estimate: $92.5;
Actual costs[A]: $73.7;
Variance: -$18.8;
Percent from estimated level: -20.3%.
Project: Tbilisi;
Project execution year (FY): 2002;
Congressional notification estimate: $87.2;
Actual costs[A]: $75.6;
Variance: -$11.6;
Percent from estimated level: - 13.3%.
Project: Yaounde;
Project execution year (FY): 2002;
Congressional notification estimate: $79.8;
Actual costs[A]: $65.0;
Variance: -$14.8;
Percent from estimated level: - 18.6%.
Project: Total;
Project execution year (FY): [Empty];
Congressional notification estimate: $1,418;
Actual costs[A]: $1,252;
Variance: -$165.5;
Percent from estimated level: -11.67%.
Source: Department of State.
Note: As of year-end 2005, Cape Town, Kabul, Luanda, Phnom Penh,
Tashkent, Tbilisi, and Yaounde had pending claims for contract
modifications that could change the value of actual obligations in the
table.
[A] The congressional notification estimates and the actual costs do
not include costs funded by other agencies. Reimbursements from other
agencies totaled approximately $22.7 million, which is primarily for
furniture and equipment.
[End of table]
Actual costs for four projects were greater than the expected costs
originally reported to Congress, with actual costs for three of them
(Kabul, Kampala, and Luanda) being significantly greater than their
expected costs. In the case of Kabul, OBO awarded a cost-plus-fixed-fee
contract to construct a new embassy compound in September 2002. By
February 2004, project costs had increased, and the schedule had
slipped in part because, as State's Inspector General reported, the
cost-plus-fixed-fee contract provided little incentive for the
contractor to contain costs or complete construction according to
schedule.[Footnote 21] As a result, in September 2004, OBO reprogrammed
$43.9 million previously allocated to construct a NEC in Surabaya,
Indonesia, to the Kabul NEC project to cover the costs for converting
the existing cost-plus-fixed-fee contract to a fixed-priced contract,
as well as for completing construction requirements. Costs for the
Luanda, Angola, project rose by approximately 32 percent due to a
higher-than-anticipated contract award and to security-driven design
changes. In Kampala, costs increased by more than 11 percent to resolve
defective designs for the building's windows and the heating and
ventilation system, as well as to compensate the contractor for
construction delays resulting from the redesign efforts.
Overall, OBO obligated a net $165.5 million less for these 18 projects
than the amount it had reported to Congress it would need. OBO
reprogrammed this net difference for alternative uses, including the
following:
* Acquiring sites and conducting planning for NEC projects in future
years.
* Providing additional funds for other projects. For example, in
December 2005, State notified Congress of its intent to reprogram more
than $48 million in unused funds from nine completed NEC projects to
enable the awarding of several fiscal year 2005 projects--NECs in
Khartoum, Sudan; Mumbai, India; Quito, Ecuador; and the new annex
building in Moscow, Russia--where winning proposals exceeded the
government estimates. In addition, OBO notified Congress that it would
reprogram $13 million to restart construction at another post--
Dushanbe, Tajikistan--where the previous contractor was terminated for
cause.
* Accelerating funding of future year projects. For example, State
reported that the new embassy compound in Freetown, Sierra Leone, was
funded with approximately $60 million in funds previously obligated,
but not needed, for other NEC projects.
Construction Outside the NEC Project Adds to Total Construction Costs:
OBO also obligated, or plans to obligate, additional funds for 9 of the
18 completed posts to construct facilities that were either not
originally intended as part of the NEC or were deferred to future
years. Some of these additional projects are USAID annexes for which
USAID did not receive funding in time for concurrent construction with
the rest of the NEC, and, as a result, deferred the projects to a later
date.[Footnote 22] Construction for one USAID annex--Dar es Salaam--was
conducted concurrent with, but under a different contract from, the NEC
project. In addition, prior to 2002, quarters for Marine Security
Guards were not required to be colocated on NECs, and the change in
security requirements of embassy compounds was applied retroactively to
newly constructed NECs. As a result, State was required to construct
housing for posts' Marine Security Guards at five of the completed
NECs, thus raising their costs.[Footnote 23] Finally, the additional
construction accounts for other facilities identified as needed, but
that were outside the original scope of the NEC project, such as a
cafeteria, recreation center, warehouse, and health unit for the Kabul
NEC; and an annex and the completion of the previously unfinished third
floor at the Abuja, Nigeria, NEC. Construction costs for these
additional projects is approximately $168 million to date, including
projects planned for fiscal year 2006, a 31 percent increase over the
NEC project costs at these posts. Once all construction is complete,
these additional projects increase the total cost of construction at
the 18 NEC sites from approximately $1.25 billion to approximately
$1.42 billion.
Three Ongoing Projects Show Signs of Cost Growth While Six Are Within
Budget Parameters:
We also compared the current budget for the nine ongoing NEC projects
with the budgets OBO had reported to Congress as being needed for these
projects.[Footnote 24] Three of the nine ongoing projects have thus far
experienced cost increases ranging from approximately 6.5 to 16 percent
over what OBO initially estimated it needed, while three projects were
on budget and the remaining three projects were under budget by 4 to
8.5 percent. In total, costs for these nine projects have thus far
increased by a net of approximately $9.2 million.[Footnote 25] The
Dushanbe project has experienced a $13 million increase attributable to
remobilizing a workforce to complete the portions of the NEC that were
unfinished when the original contractor was terminated in June 2005. In
addition, OBO reported that costs increases to the Belmopan and Conakry
NEC projects were due to higher-than-expected contractor bids, while
decreased costs for Astana, Lome, and Managua are due to lower-than-
expected contractor bids.
State and Contractor Officials Attribute Reductions in Construction
Cycle Time and Costs to Reforms, but Limited Data and Indeterminate
Factors Make It Difficult to Quantify the Effects of Specific Reforms:
Strategic reforms cited as having the greatest impact include the
elevation in status of the former Office of Foreign Buildings
Operations to the Bureau of Overseas Buildings Operations, the
implementation of performance-based management principles at the
strategic and project level, and the development of the Long-Range
Overseas Buildings Plan. Significant procedural reforms include the
switch to the design-build contract delivery method and the
establishment of a standard embassy design. In addition, State
continues to examine its procedures for additional reforms to improve
schedule performance and reduce costs of NEC projects. Other factors
affecting project schedules and costs make it difficult to determine
the effects of any one reform.
Strategic Reforms:
The elevation of the former Office of Foreign Buildings Operations to
the Bureau of Overseas Buildings Operations was one of the most
important reforms made by State related to reducing project cycle times
and limiting cost increases. Elevation to bureau status allowed OBO to
become the equal of the regional bureaus, and resulted in OBO and the
regional bureaus and overseas posts having more of a traditional client-
service provider type relationship. Prior to this reform FBO often
subordinated its own responsibilities to the needs and desires of
regional bureaus and posts. For example, many of the delays and cost
overruns during the Inman program occurred because FBO did not reject
change requests from regional bureaus and overseas posts. As a coequal,
however, OBO can and does enforce a more disciplined process that
discourages change orders that result in delays and cost increases. In
fact, OBO considers project budgets to be locked once project funds are
requested from Congress, and OBO will not request additional funds from
Congress for those projects.
The second strategic reform that contributed significantly to improved
performance was OBO's implementation of performance-based management
principles at both the strategic and project level. OBO established
specific and quantifiable strategic goals for the program that the
Office of Management and Budget reported "clearly represent meaningful
measurements of progress."[Footnote 26] Moreover, OBO now integrates
all affected parties into the strategic management of the program, as
well as throughout all facets of individual projects. OBO also conducts
monthly reviews of all ongoing capital projects, including those
outside the Capital Security Construction Program, which allows
management to monitor performance and provide early warnings of
potential problems.
A third strategic reform viewed as positively impacting the program was
the development of the Long-Range Overseas Buildings Plan, which was
first implemented in 2002 in response to our recommendations.[Footnote
27] The plan, which is updated annually to ensure that future
construction plans align with changing priorities and budget actions,
outlines, justifies, and provides likely cost estimates for all capital
projects over a 6-year time frame.[Footnote 28] Contractors stated that
the plan helps them develop long-term strategies for targeting projects
for bidding, determining staffing needs, finding reliable suppliers
that can meet OBO's standards, and developing relationships with
foreign and domestic subcontractors. The plan also better allows
regional bureaus to determine where to apply scarce resources for
capital maintenance and provides a baseline from which posts can begin
specific processes for prioritizing work and planning their staffing in
advance of the NEC process.
Procedural Reforms:
Contractors and OBO headquarters and project staff stated that the
switch to design-build contract delivery and the development of the
standard embassy design have had the greatest influence over cycle
times and project costs of all the procedural reforms implemented under
the current program. The design-build contract delivery method is
designed to reduce project cycle time in two ways. First, it reduces
the number of bidding and award cycles from two (one for design and one
for construction) to one for both design and construction. Second, it
allows the contractor to begin construction before the design is
complete. Sixteen of the 18 projects utilized this contract delivery
method. Contractors and OBO project directors believed the design-build
project delivery method likely reduced total cycle times for their
projects. However, contractors' field staff at some of the posts we
visited stated they were sometimes unable to start construction as soon
as they wanted. They said that construction, which was scheduled to
begin when the total design was approximately one-third finished, was
delayed until the Bureau of Diplomatic Security approved the full
design for the buildings. In addition, the project director from the
Phnom Penh project stated he could have reduced the project's cycle
time by as much as 4 months if he had issued a notice to proceed with
construction at the 35 percent design phase, the point at which designs
for foundations are generally completed, rather than at the 60 percent
design phase.
The standard embassy design is a tool that OBO reports better enables
it to plan, award, design, and construct NECs; simplifies its
construction process; and provides economically feasible facilities.
The standard embassy design consists of a series of documents
describing requirements for site selection, building plans and
specifications, design criteria, site adaptation, and contract
requirements. It also provides plans and requirements for all features
of NECs, including office buildings, compound access control and
utility buildings, housing for Marine security guards at posts with a
Marine contingent, and perimeter fences. OBO believes that standard
embassy designs help speed the planning, design, and construction of
NECs by reducing the amount of time it takes to issue requests for
proposals, prepare contract documents and issue awards, and complete
design reviews.
Additional Reforms:
State continues to examine its operations to discover ways to improve
cycle times and reduce costs. In particular, OBO recently developed new
ways to think toward achieving these goals, including proposed
additional changes to the construction process. Some of these proposed
additional process changes include the following:
* clarifying language in the Request for Proposal documents;
* ensuring, to the extent possible, that contractor and OBO project
directors have the technical and management skills required to complete
the projects on time and on budget;
* adapting the standard embassy design for NEC projects constructed
from 2006 and beyond to make NECs more energy efficient and sustainable
by applying a more rigorous value engineering process and adopting
industry best practices; and:
* providing guidance to posts on developing operations and maintenance
plans.
Effects of Reforms Cannot Be Quantified:
In November 2003, we reported that since no projects had been completed
under the reformed processes, it was too early to determine the impact
of the reforms.[Footnote 29] Taken as a whole, the reforms have greatly
reduced the overall cycle time for constructing NECs. However, we are
still unable to quantify with certainty the effects of specific reforms
due to the relatively small number of projects completed under each
reform. Although OBO has now completed eight standard-designed
embassies and eight nonstandard-designed embassies delivered under the
design-build contracting method, these totals are insufficient to
complete meaningful quantitative analysis because they each are
sensitive to statistical outliers. Moreover, accounting for factors
outside the control of the reformed OBO processes, including the size
and location of a new embassy, among others, requires that projects be
categorized into even smaller subgroups. As a result, comparison of
these differing categories becomes even more susceptible to the effects
of statistical outliers.
Various Factors Affect Project Schedules and Costs:
Many issues specific to individual NEC projects can affect project
costs and schedules. Some factors are controllable by OBO and the
contractors, while others may not be. Factors that we found affecting
our case study projects included the following:
* the timeliness of procurement and delivery of materials,
* site conditions,
* political and social conditions in the host nation,
* staffing and labor issues, and:
* climatic and environmental conditions.
Procurement and Material Delivery Can Affect Progress:
OBO and contractors both noted the difficulties with procuring and
ensuring timely delivery of materials to NEC work sites. OBO and
contractor project staff also stated that the contractors sometimes did
not appreciate the logistical difficulties associated with delivering
materials to remote locations. For example, the contractor for the
Bamako NEC said it originally estimated 1 month as the time it would
take to send materials from the supplier to the project site. In
reality, the first stage--shipping the material to Dakar, Senegal--took
approximately 1 month, but it took another month for the material to
travel approximately 650 miles overland by rail or roads to the project
site. Our site visits to Luanda and Cape Town also revealed that
materials frequently arrived late or in insufficient quantities,
forcing certain activities to be postponed.
One set of materials that contractors frequently had problems obtaining
were Forced Entry and Ballistic Resistant (FEBR) doors and windows.
Because of the long manufacturing and delivery lead times for these
doors and windows, contractors must order these materials well in
advance of when they would actually be installed. These lead times are
the result of a limited supplier base for FEBR doors and windows.
However, as the construction program matured, demand increases for FEBR
materials made it increasingly difficult for contractors to obtain FEBR
doors and windows in a timely manner. As a result, beginning in 2005,
OBO began providing them as government furnished materials on its NEC
contracts. As such, OBO is now responsible for ensuring the procurement
and delivery of the FEBR doors and windows to meet the contractors'
production schedules.
NEC construction is also affected by the contractor's ability to clear
materials through customs in a timely manner. Since the volume of
shipments and materials can overwhelm post capabilities, OBO sometimes
provides a shipping clerk responsible for working with the host
nations' customs officials to clear materials for use at the site. A
host nation's lack of responsiveness, however, can lead to delays. For
example, project staff for the Conakry and Luanda NECs cited frequent
month-long delays in clearing items through customs. In Conakry, the
contractor considered hiring local legal assistance to expedite the
release of materials. In Luanda, embassy personnel reported numerous
instances of the Government of Angola delaying the customs clearance
process. Delays in each of these countries often required official
involvement by high-level U.S. diplomats, including the respective
ambassadors, to release the construction materials.
Understanding Site Conditions:
In developing the requirements for an NEC, OBO provides geotechnical
information, such as the type of soil and the depth to bedrock, derived
from a limited number of soil borings on the NEC site. In some past
instances, this information did not always provide an accurate picture
of the true soil conditions on the site, which resulted in subsequent
change orders that increased costs and extended project schedules. For
example, in Conakry, Guinea, deep formations of soft soil and large
voids were discovered only after construction began, which necessitated
a change from deep pilings to a mat foundation. As a result, the
original project schedule was delayed by 141 days and costs increased
by $750,000. More recently, OBO was forced to adjust the scope of the
Skopje, Macedonia, NEC project because the steepness of the grade
required more funding to prepare the site than OBO had allocated. Other
NEC projects cited by contractors as having different site conditions
than expected include Abu Dhabi, United Arab Emirates; Astana;
Freetown; and Abuja. OBO has recognized the difficulties contractors
have faced in developing proposals based on limited information, and
has indicated that it will conduct more extensive site investigations
and provide more detailed information when issuing future requests for
proposals.
Use of Foreign-Manufactured Materials:
OBO and contractor officials stated that contract requirements call for
contractors to use either American materials or those that meet
American standards. However, to reduce the costs associated with
procurement and shipping of American-made materials, it is sometimes in
the contractors' interests to use foreign-manufactured materials.
Contractor officials stated that to use comparable-quality foreign-
manufactured materials, OBO requires them to show that the substitute
materials meet U.S. standards, and are substantially equivalent to the
materials to be replaced. In certain instances, OBO has allowed
contractors to use materials from foreign suppliers if the contractor
could demonstrate that the material met American standards. For
example, in Cape Town, South Africa, the contractor successfully
demonstrated that a local steel company could provide rebar that met
U.S. standards. In doing so, the contractor reduced the time and costs
associated with shipping rebar from the United States to South Africa.
However, contractors noted that on other projects OBO project directors
did not consistently approve the use of materials even after their
compliance with U.S. standards was demonstrated. For example, most
embassy designs require the use of Indiana limestone for the building
facades, and shipping this material overseas is expensive. One
contractor for multiple projects in Africa reported that it had
demonstrated that stone from Portugal met the American standards for
stonework, and the contractor received approval to use it in 1
location. The OBO project director for another project, however, would
not approve the use of this stone. To address this issue, OBO is
developing a list of foreign made materials that have already been
demonstrated as meeting American standards and that have been approved
for use on some construction projects. This list will enable expedited
and more consistent decisions regarding the use of foreign materials.
Political Conditions in the Host Nation:
Changing political and social conditions and relations between the
United States and the host nation can impact NEC schedules and costs.
In addition, they can affect the capacity and usage of the NEC. For
example, a civil war in Cote d'Ivoire disrupted construction of the
Abidjan NEC, delaying its completion by 3 months and increasing costs
by approximately $1 million, as a result of the delay. Moreover, during
the civil war, many agencies moved operations from Abidjan to other
nearby U.S. embassies but did not return once the country stabilized.
As a result, the new compound currently operates at about one-half its
capacity. OBO staff in Washington reported that canceling the project
as a result of the war would have resulted in tens of millions of
dollars in contract termination costs; therefore, the decision was made
to continue as planned.
U.S. relations with host nations can also affect construction time
frames and costs. In Tashkent, the Uzbek government required that the
U.S. government vacate an Uzbek airbase, which was being used, among
other things, as a logistical center for the Tashkent NEC construction
project. As a result, construction materials were airlifted to Almaty,
Kazakhstan, and then hauled more than 400 miles to Tashkent. In
addition, the NEC project in Algiers was temporarily delayed due to a
diplomatic dispute between the United States and the host government.
Building permits for the NEC project were delayed by a dispute over
back rent that the Government of Algeria said the United States owed
for use of an access road and a parking lot near the current embassy.
Staffing and Labor Issues Can Delay Projects:
The extent to which the local workforce can be used to work on NEC
projects varies across posts. Contractors said that in much of the
developing world, they generally do not have problems finding a
sufficient number of people willing to work, because, in most places,
the NEC project provides some of the highest salaries in the country.
However, contractor and OBO project staff stated that in many
locations, particularly in developing countries, the number of skilled
construction workers is low. As a result, contractors say they must
train most of the workers in the basics of construction, which takes
time and may result in rework. Contractor and OBO staff noted that if
local labor is nonexistent or not sufficiently skilled, the contractor
may need to hire third-country nationals, who are more expensive to
hire, to complete the work.
We observed that an insufficient or inconsistent number of laborers at
Bamako, Cape Town, and Luanda contributed to construction delays. For
example, OBO project staff said that approximately 480 staff were
actually needed for the Bamako NEC project. However, at the time of our
visit, the project employed 356 construction workers, most of whom were
Malian, but some of whom were direct hires of the Turkish subcontractor
in charge of construction. In Cape Town, the contractor and OBO staff
stated that the booming South African construction industry made
employment at the NEC less attractive because salaries and benefits
were less than what workers could receive on other construction jobs.
As a result, the project did not attract the number of workers it
needed and, ultimately, the contractor had to hire and transport to the
site about 25 noncleared American workers to complete work normally
done by local hires. In Luanda, the general contractor fired the
subcontractor responsible for the actual construction of the NEC,
assumed control over actual construction, and directly hired about 170
experienced construction personnel from the Philippines to complete the
work because locally hired employees would have required time-consuming
training. The contractor said the Government of Angola delayed issuance
of many work visas for the Philippine workers because it preferred that
Angolans be hired.
Contractors and OBO staff reported that another problematic issue was
ensuring that enough American workers and guards with security
clearances are present on construction sites. State requires that
construction of classified areas be completed or supervised by American
employees with security clearances, and OBO and contractor staff
reported difficulties retaining American personnel with clearances due
to the high demand for their services. Nonetheless, at only one of the
nine construction projects we reviewed was a shortage of cleared
American staff cited as a reason for schedule delays. OBO and
contractor staff noted that security conditions specific to Angola
prevented locally hired employees from entering classified areas of the
NEC; thus, more cleared American workers were required than would
normally be needed for other projects. However, the contractor was
never able to achieve the full complement it needed to complete
construction on schedule.
Climatic and Environmental Conditions Can Halt Work:
To the extent that historical weather patterns are known, contractors
should plan construction activities around expected weather conditions.
For example, OBO officials reported that in regions with very cold
winters, such as in Astana, Kazakhstan, it tries to complete
construction of the chancery building's shell before the onset of
winter so that construction work within the building could continue
through the winter months. In addition, one contractor for multiple
projects in West Africa indicated that efforts to get materials to the
construction site on time could be impeded during the rainy season.
However, uncontrollable weather events may also affect projects. For
example, Hurricane Ivan flooded the Kingston NEC site, shutting down
construction for 3 weeks in the summer of 2004.
Planning for Operations and Maintenance Costs for New Embassy Compounds
Is Neither Comprehensive Nor Transparent:
Operations and maintenance costs for newly constructed embassies and
consulates are significantly higher than the operations and maintenance
costs for facilities they replaced. We estimate that once all 201 new
embassy and consulate compounds are completed, these total annual
operations and maintenance costs, adjusted to 2006 constant dollars,
could increase by $111 million over those posts' previous facilities,
and possibly by several times more. According to analyses of data from
the International Cooperative Administrative Support Services (ICASS)
system,[Footnote 30] OBO staff, and post officials, these costs
increases are driven in part by technical security requirements that
resulted in greater utility consumption, the need for highly qualified
technical staff, and new maintenance requirements that posts did not
have at their previous locations. State initially did not recognize the
magnitude of new costs for the day-to-day functional requirements of
NECs. As a result, some embassies' ability to prepare for operating and
maintaining their new facilities was impaired. OBO, Embassy Tunis, and
State's Office of Global Support Services and Innovation ultimately
developed guidance for posts to help determine the notional staffing
and financial resources for individual NECs. However, State has not
developed a clear budgetary line-item to project operations and
maintenance costs. Currently, these costs are intermingled with
domestic and other nonfacilities-related administrative costs among
several accounts, and no mechanism exists for determining how global
costs for operations and maintenance will increase in the long-term.
Thus, decision makers cannot determine whether NEC operations and
maintenance needs are being adequately planned for and funded. In the
past, GAO and others noted that inadequate funding for operations and
maintenance of overseas posts led to unsafe, insecure, and dilapidated
embassies. A lack of a comprehensive long-term plan that clearly
identifies the significant increases in resources that are likely to be
needed as more and more NECs come on line could increase the risk of
earlier-than-expected deterioration of NECs.
Costs of Basic Operations and Maintenance Significantly Increased for
NECs:
As NECs began to open, posts quickly learned that the cost to operate
and maintain their new facilities would be far greater than the cost to
run previous ones. Based on interviews with post and regional bureau
staff, reviews of analyses conducted by one post and the ICASS Service
Center, and budget projections by regional bureaus, we estimate that
once all 201 new embassy and consulate compounds are completed, the
total annual budget requirements for day-to-day operations and
maintenance of overseas posts, adjusted to 2006 constant dollars, would
likely increase by at least $111 million over those posts' previous
facilities, and this figure could be several times more.
We discussed posts' experiences in planning for and operating NECs with
post managers from 9 of the 10 NEC projects we reviewed, as well as
with each of State's six regional bureaus.[Footnote 31] Post and bureau
officials reported that the costs needed to operate and maintain the
new compound on a day-to-day basis were significantly greater than for
the previous facilities posts occupied. Embassy Tunis, which opened one
of the first NECs in November 2002 (see fig. 4), prepared a
comprehensive analysis of the recurring and nonrecurring cost increases
associated with running and maintaining its NEC. This analysis revealed
that annual recurring costs increased by $591,000. Other posts we
visited also expected the new compound to be significantly more costly
to run and maintain once operations commenced, but at the times of our
visits, they were unable to provide solid estimates. Officials from
State's Bureau of European and Eurasian Affairs reported that
operations and maintenance costs for posts in that bureau would
increase annually, on average, by $500,000 per post.
Figure 4: Previous and New U.S. Embassy in Tunis, Tunisia:
[See PDF for image]
Source: U.S. Department of State.
[End of figure]
We reviewed actual operations and maintenance costs for seven posts,
using data originating from those posts' ICASS Building Operations
expenses.[Footnote 32] In our analysis, we compared these costs for the
year prior to moving into the NEC with the costs for fiscal year 2006.
We found cost increases for each post, ranging from approximately
$94,000 to $2.7 million, and averaging approximately $894,000 per post
per year. We also reviewed projected operations and maintenance costs
for eight additional posts provided by State's Bureaus of East Asian
and Pacific Affairs and Western Hemisphere Affairs and found increases
for each ranging from approximately $400,000 to $5.7 million, and
averaging approximately $1.9 million per post per year.[Footnote 33]
Based on these analyses, we estimate that once all 201 NECs are opened,
annual post-funded operations and maintenance costs would likely
increase by a minimum of $71 million over their previous values, and
they could increase by several times more.[Footnote 34]
In addition, OBO intends to staff each NEC with a full-time facility
manager. These positions are funded solely by OBO and their costs are
in addition to those within the ICASS structure. To achieve the goal of
placing a facility manager in each new embassy compound, OBO reported
it would need a minimum of 100 additional positions. Based on per
capita costs for maintaining American personnel at overseas posts
developed by State's Office of Rightsizing the U.S. Overseas Presence,
the annual cost for locating an additional 100 facility managers in
overseas Foreign Service positions is approximately $40
million.[Footnote 35] Adding this figure to the estimates provided
above results in a minimum total annual funding increase of $111
million.
Posts also require significant nonrecurring costs associated with the
startup of NECs. For example, post managers at Embassy Phnom Penh
reported spending about $1 million for one-time start-up supplies and
equipment, including $50,000 on a mechanical lift that it uses to
change light bulbs on the ceiling of the three-story atrium. Early NEC
posts, including Tunis, had to get additional, unbudgeted funding from
their regional bureaus to cover these immediate shortfalls, requiring
the bureaus to request additional funding from the department or to
reallocate money from other posts' funds. Posts also receive funds from
OBO to help defray the cost of equipment needed to operate the NECs.
Utility Costs Increased Significantly Due to New Systems and Expanded
Space:
One of the primary factors driving the cost increases for operations
and maintenance was increased utility consumption, primarily due to the
higher electricity and water needs for heating and cooling, and
irrigating the large landscaped areas that many posts did not
previously have. Posts experienced particularly large increases for
utility costs, primarily because NECs need much more electricity than
did the older, less modern facilities', and electricity is sometimes
more expensive to obtain in the more rural locations where some new
compounds are located. NECs need more electricity to run, for example,
new heating, ventilation, and air conditioning systems--which also
require routine replacement of expensive air filters--to heat and cool
much larger areas than did old embassies that generally had window air
conditioning units, if any at all. Some NECs may also have considerably
higher water bills due to landscaping requirements of the new
compounds.[Footnote 36] The Tunis analysis listed increases in annual
utility costs as the second biggest increase after the cost to hire and
train new maintenance staff.
NECs were designed to be modern, energy-efficient buildings.
Nonetheless, numerous posts reported significant cost increases for
electricity, some by well more than 100 percent. Management officials
in Phnom Penh stated the post's electricity costs rose from about
$17,000 per month to about $95,000 per month for the first 3 months of
2006. Based on this rate, annual electricity costs would increase
nearly sixfold, from approximately $200,000 for the old embassy to at
least $1.14 million per year for the NEC. In addition, Embassy Tunis'
cost analysis stated that electricity was 127 percent higher for the
NEC than the combined costs of the three office buildings the post
previously occupied. In our review of ICASS data, we found that
electricity costs for Embassy Yerevan more than doubled from $107,000
in fiscal year 2004 to $254,000 in 2005, while Embassy Luanda increased
its budget for electricity from $41,000 in 2005 to $80,000 in 2006.
Posts and bureau staff stated the cost increases were due primarily to
the increased energy requirements for heating and cooling significantly
larger facilities than those the posts previously occupied.[Footnote
37]
High electricity costs at some posts derive from multiple factors. Some
posts do not have adequate access to the local power grid, and
therefore must generate their own power. For example, the NEC in
Conakry, Guinea, is located in a suburb that is a considerable distance
from the city center. In this location, the power grid does not operate
during the daytime. As a result, the new compound will rely on two
diesel generators, operating 24 hours a day, to supply the post with
electricity. Post managers expect costs for fueling these generators to
be approximately $1 million per year, while operating these generators
24 hours a day will require extensive maintenance and, at some point,
replacement, creating additional costs. However, management officers in
Phnom Penh reported that their high electricity costs derive from the
high rates charged for using the local grid. As a result, post staff
there are studying the feasibility of either supplementing or switching
entirely to post-generated electricity. Still other posts reported
that, despite electricity from the grid being affordable, the power
supply was unreliable and their posts required diesel generators as
backup sources.
Water costs have also increased primarily due to landscaping needs.
NECs are generally located on 10 or more acre sites, which are heavily
landscaped with grass, gardens, shrubbery, and trees (see fig 5. as
example of new landscaping areas). Maintaining these landscaped areas
requires significant amounts of water. This often represents a new or
substantially increased cost, as many of the NECs replace facilities
that were located in city centers and thus had little or no landscaping
requirements. For example, Embassy Tunis reported that water
consumption costs increased more than 3 times, from $5,200 in fiscal
year 2002 to $17,700 in 2004. The new Tunis compound has more than 700
trees and significant acreage of grass. Moreover, the post operates its
own water treatment plant. ICASS data for Embassy Yerevan showed that
costs for water consumption was estimated at $250 per year for the
previous location and increased to an estimated $12,500 per year at the
NEC.[Footnote 38]
Figure 5: Previous and New U.S. Consulate General in Istanbul, Turkey:
[See PDF for image]
Source: U.S. Department of State.
[End of figure]
Need for More and Better Trained Staff to Run and Maintain New
Facilities Increased the Cost of Operating the New Compounds:
Another primary factor driving the cost increases for operations and
maintenance was the need to hire additional staff, some with advanced
degrees or certificates, to maintain the new, state-of-the-art office
buildings. Some of these staff must come from other countries because
local labor markets cannot always supply the skills required by the
posts. In preparing to take over the new compounds, posts often found
they did not have staff capable of operating and maintaining the new
facilities, which include sophisticated equipment--for electrical
generation, climate control, fire suppression, and water and air
purification. Therefore, many posts were required to hire new, highly
qualified staff with advanced technical training, contributing to the
increased costs beyond what OBO first envisioned. Management officers
at three of the posts we contacted stated that they have already or
would need to hire 2 to 10 staff to fill gaps in the posts' technical
expertise. For example, Embassy Tunis concluded that none of its
existing locally hired maintenance employees were qualified to service
the new equipment. These employees were therefore reassigned to
residential maintenance duties, and post management created 10 new
positions to perform NEC maintenance, including three engineers and
seven maintenance mechanics, adding $147,000 in salaries to the post's
payroll.[Footnote 39] Consulate Cape Town reported it would hire an
electrician and an air conditioning technician for a combined annual
cost increase of $32,610, while Embassy Phnom Penh hired two engineers
and two technical specialists for its maintenance operations. All other
posts we contacted reported the need to hire additional technical
staff, but most had not yet classified the positions nor calculated the
costs as of our site visits.
Regional bureaus and some posts reported having difficulties finding
people who have been or can be trained in the technical skills required
to operate the new compounds. Moreover, existing post maintenance
employees often were not considered capable for filling these new
operational needs, even with specific technical training. For example,
Africa bureau officials said that in many West African countries--
citing posts in Abuja and Conakry, in particular--there are few people
who can operate this equipment or be trained to do it. U.S. officials
in Conakry added that the post's current work force is not capable of
working on the new systems, and they were doubtful whether they could
hire or contract with Guineans with the appropriate expertise. At the
time of our visit, the post was studying hiring third-country national
employees, noting that doing so would be more costly and would also
entail a more lengthy process for classifying, advertising, and hiring
for the positions. In Luanda, officials said they assigned three people
from their existing maintenance staff to work with the construction
contractor on installation and start-up of NEC equipment to help them
gain experience running and maintaining this equipment, while also
hiring third country nationals to fill the skill gap the Angolan market
could not fill. OBO officials have said that hiring third-country
nationals should be done as a last resort because it is the most
expensive alternative. However, OBO acknowledged that it may be the
only way to obtain capable staff in some countries.
By not having advanced knowledge of the technical qualifications needed
to operate the systems, posts were often unable to initiate the
recruiting process, which can take 6 months or more, in time to have
all required trained staff available at the time of move in. For
example, a former Tunis official who helped prepare that post's
analysis of start-up and recurring operations and maintenance costs
stated that the post could not get information regarding needed
technical qualifications for maintenance staff in advance of the move.
He said he spent the 6 months prior to the move trying to obtain this
information from OBO with little success. As a result, the post was not
able to determine its maintenance staffing needs or begin hiring new
maintenance staff until after construction was completed. He added that
it took the post 12 to 18 months to fully resolve this situation.
In addition, posts also found that many new maintenance needs arose
once the NEC opened, and were thus required to either hire additional
staff or contract for maintenance services. For example, many posts
were previously in locations with few or no landscaping needs. Upon
moving to new compounds, however, posts had to either hire gardeners or
contract with local landscaping firms. Embassy Tunis reported that
gardening expenses increased by $35,000 annually,[Footnote 40] while
another post awarded a $45,000 contract for landscaping services when
it moved into its new facility. In addition, the size of the new
compounds often required posts to expand their janitorial staff. For
example, Tunis reported that it doubled the size of its cleaning crew,
at an additional $60,000 per year, to maintain the interior of their
new facilities. Cape Town reported the need to hire a cleared American
escort for approximately $29,000 per year to supervise the cleanup of
the controlled access areas.
Posts Did Not Always Receive Initial Spare Parts:
Prior to the completion of construction, NEC contractors are required
to provide a list of all spare parts, as well as a short-term supply of
critical spare parts. However, posts and regional bureau officials
reported that the posts did not always receive the lists or actual
parts in a timely manner. Officials in Phnom Penh noted that they did
not receive all the spare parts and supplies the contractor was
supposed to provide, including some critical items that are needed to
keep the embassy operating should the current parts fail. Among the
spare parts the post still needed were some with a 3-month or more
delivery lead time. Moreover, posts reported not receiving the list of
spare parts and supplies until after moving into the NEC, although
officials noted that the contractor was obligated to provide the list
prior to completion of construction. As a result, these posts did not
have enough lead time to order these critical parts to ensure they
arrived before the NEC began operations. Officials in Phnom Penh, as
well as officials at other posts and the regional bureaus, stated that
receiving the list of spare parts and supplies 6 months to 1 year
before the NEC opened would have allowed them to understand which parts
would be supplied and which were to be provided by the posts, as well
as ensure that critical supplies and parts were on site when the new
compounds opened.
Knowing the NEC's maintenance needs in advance also would help posts
and regional bureaus plan for recurring costs sooner. The Bureau of
European and Eurasian Affairs reported that Embassy Yerevan discovered,
a few weeks before it moved to the NEC, that it needed about $50,000
worth of salt each year to make its water purification system work
properly, an expense it had not planned for. Similarly, Embassy Tunis
reported replacing over 600 light bulbs in the first 30 months of
operation and estimated the annual cost of bulbs alone to be $14,000.
The post also stated that the NEC requires several dozen types of light
bulbs and fluorescent tubes, virtually all of which must be purchased
in the United States. Moreover, posts and regional bureaus alike cited
the high costs of specialized air filters for the heating, ventilation,
and air conditioning systems. Officials in the Bureau of European and
Eurasian Affairs stated that Embassy Yerevan used $80,000 worth of
filters in its first year, and that a complete set of replacement
filters can cost as much as $300,000, although some of the individual
filters are changed less frequently than are others. During our
fieldwork in Luanda, one official noted that this already-opened NEC
had not yet received the list of system requirements and spare parts
from the contractor, and he was concerned that the lack of parts,
particularly the filters for the air conditioning units, would delay
maintenance and affect the warranties.
OBO and Others Have Developed Guidance for Individual Posts:
According to regional bureau and post officials, in the early stages of
the program, OBO told them that operations and maintenance costs of the
new facilities would not cost much more than those of the replaced
facilities. Some regional bureau officials said they were skeptical of
this claim from the beginning. When developing the first NECs, OBO
believed that, due to their more efficient mechanical and electrical
systems, compared with what posts previously had, operational costs
would increase little, if at all. However, posts and regional bureaus
reported having great difficulty obtaining projections and estimates
from OBO on what operations and maintenance requirements the NECs would
entail, as well as how costs would change with the new compound. This
lack of information prevented posts and regional bureaus from
adequately preparing for the staffing and funding resources needed to
transition post operations from the previous facilities to the NECs.
Regional bureau officials said that although it took several years,
they eventually convinced OBO to include consideration of operations
and maintenance costs earlier in the NEC design and construction
process. In 2004, OBO began providing posts with estimates of likely
operations and maintenance costs about 2 years prior to the onset of
construction. However, these are only notional estimates based on
generic small, medium, and large NECs, and they may not reflect the
actual costs a post may expect. Nonetheless, these estimates provide
posts with a template they can apply to their local circumstances. In
addition, approximately 6 months before handing NECs over to posts, OBO
provides each post with a Workload Analysis and Staffing
Recommendations study that compares an NEC's operations and maintenance
needs with the post's current filled and unfilled maintenance
positions; assesses whether existing staff meet or can be trained to
meet the NEC's operations and maintenance requirements; outlines
additional staffing and/or service contractors the post would need to
provide newly-required services such as gardening; and details
availability of manpower or services from the local labor pool. These
studies do not provide cost estimates for new positions or service
contracts.
Assistance Provided Outside of OBO:
Officials at some posts with more recently completed NECs said the
large increase in operations and maintenance costs was not as much of a
shock to the post as it could have been, because these increases had
become well documented by posts by the time their NECs opened and were
even becoming known when these posts started budgeting 2 years earlier.
Moreover, information regarding cost and staffing needs for NECs has
become increasingly shared as more NECs come online. Tunis was one of
the first posts to raise the issue concerning greatly increased
operations and maintenance costs, and its work became the basis for
many posts' NEC planning. Tunis placed guidance for other posts on its
Intranet site that highlights actions posts should take beginning 2
years prior to the NEC opening. The site also provides hints for
executing the move itself and operating and maintaining the NEC for the
first year after it opens. Officials from numerous posts, including
Conakry, Cape Town, and Phnom Penh, among others, have consulted with
Tunis officials or visited the post to discuss issues such as
operations and maintenance, staffing, training, and funding
requirements to operate the NEC.
In addition, State's Office of Global Support Services and Innovation
maintains an Intranet site that contains information and guidance on
planning and executing moves from old facilities to new embassy
compounds, likely operations and maintenance needs, and ways for posts
with upcoming NECs to communicate with posts with already opened NECs.
The site also contains documents addressing NEC procurement advance
planning, the commissioning and decommissioning processes for new and
old facilities, NEC lessons learned from posts that already have moved
into their new facilities, and other related topics. Nearly all the
material on this site derives from overseas staff experienced in
planning posts' moves to new facilities and preparing posts for the new
operations and maintenance requirements. One post manager with whom we
talked said that this information was very useful and has been
disseminated widely.
Facilities Operations and Maintenance Planning Not Comprehensive or
Transparent:
In November 1999, the Overseas Presence Advisory Panel noted the
"shockingly shabby and antiquated building conditions" at U.S.
embassies and consulates throughout the world. The panel stated that
these conditions were due to overseas property being managed for
decades "without a workable plan or funding adequate to provide upkeep
and the long-term capital needs of overseas facilities." In March 2003,
we reported that many posts had maintenance concerns common to old and
deteriorating buildings, including sinking foundations, crumbling
walls, bursting pipes, and electrical overloads.[Footnote 41] We also
reported that at 133 overseas posts, the primary office building had
fire and safety deficiencies. These problems, we concluded, were due to
essential maintenance and repair requirements that had long been
unfunded. We noted that in May 2002, State reported a backlog in
capital maintenance of approximately $736 million and that this figure
was likely to increase because of the age of the existing facilities.
In its Long-Range Overseas Buildings Plan, which was first issued in
2002 in response to our recommendations,[Footnote 42] OBO establishes
requirements and estimates costs of long-term capital repair and
equipment replacement programs, such as roof repairs, elevator
replacement, and generator refurbishment. Not included in OBO's plan
are the basic, day-to-day operations and maintenance requirements
funded by State's regional bureaus and the tenant agencies at overseas
posts, such as utility costs, maintenance staff salaries, janitorial
services, and spare parts and supplies, among others (see app. II).
Rather, these functions are funded through the ICASS system or are
directly paid for by State or tenant agencies.
Funding requirements for basic operations and maintenance needs are
assessed only on an annual and incremental basis and, according to
State's Bureau of Resource Management, there is no specific line-item
appropriation for these activities. Annual funding requests originate
at the post level, are aggregated by State's regional bureaus, and then
are further aggregated and submitted to the Office of Management and
Budget and Congress by the Bureau of Resource Management. The resulting
budget request intermingles funding needs for posts' basic operations
and maintenance with numerous other costs, such as for domestic
administrative needs, nonfacilities-related embassy support functions,
and personnel compensation, among others. In addition, agencies with
staff in overseas diplomatic facilities help fund operations and
maintenance costs--either through the ICASS system or directly for
costs they specifically generate--and must request the necessary funds
through budget development and appropriations processes independent of
State's. There is no source that clearly and solely identifies the
specific resource needs for basic operations and maintenance activities
at U.S. overseas diplomatic facilities, either on an annual and
worldwide basis or on a long-term basis, like that produced by OBO for
capital maintenance projects. Thus, there is currently no mechanism
that allows decision makers to determine whether NEC operations and
maintenance needs are being adequately planned for and funded. A lack
of a comprehensive long-term plan that clearly identifies the
significant increases in resources that are likely to be needed as more
NECs come online could increase the risk of earlier-than-expected
deterioration of NECs.
Methodologies for Estimating Operations and Maintenance Needs:
Budget officers from two of State's regional bureaus and the Bureau of
Resource Management indicated that they cannot accurately predict long-
term costs increases because they do not know the types of systems to
be installed, the new staffing and service contract needs, maintenance
schedules, and likely utility consumption rates, most of which they do
not learn until about 1 to 2 years prior to an NEC opening. They said
that due to the unpredictability of operating in overseas environments
and actual construction schedules, they cannot plan with accuracy their
resource needs beyond 2 years into the future. However, as we
previously demonstrated, enough NECs have opened to project at least
notional levels of changes to operations and maintenance costs for
posts with NECs. In addition, methodologies exist for developing
operations and maintenance budgets.
We examined two methodologies for estimating long-term costs for
operating and maintaining facilities developed by the National Research
Council of the National Academies. First, the council developed a
method for estimating the total life-cycle costs of buildings.[Footnote
43] The council determined that operations and maintenance costs
constitute 60 to 85 percent of a facility's life-cycle costs, with
construction costs comprising 5 to 10 percent of the total life-cycle
costs, and the remainder deriving from land acquisition, programming,
conceptual planning, major capital renewal projects, and disposal. The
council also stated that when public sector organizations face choices
on where to invest limited resources, facilities investments,
particularly investments in maintenance and repairs, are often the
first to be deferred or cut altogether. It estimated that each dollar
in deferred maintenance results in a long-term capital liability of $4
to $5, concluding that "an accumulation of deferred investments over
the long term may be significantly greater than the short-term savings
that public-sector decision makers were initially seeking."[Footnote
44]
The council also developed a methodology for estimating recurring
maintenance requirements on the basis of an index of the ratio of
annual maintenance costs to the current replacement value of a
facility.[Footnote 45] According to the Building Research Board of the
National Research Council, an index value of 2 to 4 percent--meaning
annual maintenance expenditures between 2 and 4 percent of a facility's
replacement value--is recommended. Applying that recommendation to the
current replacement value of the 18 NECs, which is approximately $1.26
billion, suggests that between $25 and $50 million should be expended
on annual maintenance (see table 2). Total annual maintenance
requirements once all projects are completed would range from $420 to
$840 million, or approximately $2.1 to $4.2 million per NEC.[Footnote
46] It should also be noted that these costs only apply to routine
maintenance needs. Other operational expenses, such as those for
utilities, and major capital renewal projects managed by OBO, such as
replacing elevators, are not included.
Table 2: Estimated Annual Operating Costs for Completed NECs:
Dollars in millions.
Project[A]: Abidjan;
Estimated annual maintenance cost: Current replacement value: $74.5;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.5;
Estimated annual maintenance cost: Current replacement value index
(4%): $3.0.
Project[A]: Abu Dhabi;
Estimated annual maintenance cost: Current replacement value: $64.0;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.3;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.6.
Project[A]: Abuja;
Estimated annual maintenance cost: Current replacement value: $63.6;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.3;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.5.
Project[A]: Cape Town;
Estimated annual maintenance cost: Current replacement value: $48.1;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.0;
Estimated annual maintenance cost: Current replacement value index
(4%): $1.9.
Project[A]: Dar es Salaam;
Estimated annual maintenance cost: Current replacement value: $51.9;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.0;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.1.
Project[A]: Istanbul;
Estimated annual maintenance cost: Current replacement value: $76.3;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.5;
Estimated annual maintenance cost: Current replacement value index
(4%): $3.0.
Project[A]: Kabul;
Estimated annual maintenance cost: Current replacement value: $177.2;
Estimated annual maintenance cost: Current replacement value index
(2%): $3.5;
Estimated annual maintenance cost: Current replacement value index
(4%): $7.1.
Project[A]: Kampala;
Estimated annual maintenance cost: Current replacement value: $36.2;
Estimated annual maintenance cost: Current replacement value index
(2%): $0.7; Estimated annual maintenance cost: $1.4.
Project[A]: Luanda;
Estimated annual maintenance cost: Current replacement value: $51.7;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.0;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.1.
Project[A]: Nairobi;
Estimated annual maintenance cost: Current replacement value: $60.4;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.2;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.4.
Project[A]: Phnom Penh;
Estimated annual maintenance cost: Current replacement value: $71.5;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.4;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.9.
Project[A]: Sofia;
Estimated annual maintenance cost: Current replacement value: $72.0;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.4;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.9.
Project[A]: Tashkent;
Estimated annual maintenance cost: Current replacement value: $73.7;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.5;
Estimated annual maintenance cost: Current replacement value index
(4%): $3.0.
Project[A]: Tbilisi;
Estimated annual maintenance cost: Current replacement value: $75.6;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.5;
Estimated annual maintenance cost: Current replacement value index
(4%): $3.0.
Project[A]: Tunis;
Estimated annual maintenance cost: Current replacement value: $59.5;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.2;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.4.
Project[A]: Yaounde;
Estimated annual maintenance cost: Current replacement value: $65.0;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.3;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.6.
Project[A]: Yerevan;
Estimated annual maintenance cost: Current replacement value: $68.1;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.4;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.7.
Project[A]: Zagreb;
Estimated annual maintenance cost: Current replacement value: $63.3;
Estimated annual maintenance cost: Current replacement value index
(2%): $1.3;
Estimated annual maintenance cost: Current replacement value index
(4%): $2.5.
Project[A]: Total;
Estimated annual maintenance cost: Current replacement value: $1,252.6;
Estimated annual maintenance cost: Current replacement value index
(2%): $25.0;
Estimated annual maintenance cost: Current replacement value index
(4%): $50.1.
Sources: Department of State and International Facilities Management
Association.
[A] Excludes facilities constructed outside of the official NEC
project.
[End of table]
Conclusions:
In the past, the Overseas Presence Advisory Panel, State, and GAO
reported that inadequate capital maintenance funding for embassies and
consulates resulted in decrepit, unsafe, and dysfunctional facilities.
In addition, the panel concluded that these decrepit facilities and a
"lack of fiscal tools" could contribute to a crippling of American
foreign policy. These findings ultimately led to the unprecedented
effort to move 201 overseas posts into new, safe, secure, and
functional facilities, and State has made significant progress in
constructing NECs in a timely manner. However, due to increased
utilities consumption, the need to hire highly qualified technical
staff, new maintenance requirements, and expensive spare parts and
supplies, annual operations and maintenance costs of NECs are
significantly greater than the costs associated with the facilities
they replaced. State was slow to recognize the increased funding needed
to operate and maintain these new facilities. Moreover, State has not
developed a comprehensive plan that details long-term resource
requirements necessary for ensuring that the investments made achieve
their expected life cycles. Failure to provide posts with adequate
financial and staffing resources and a sufficient and timely supply of
spare parts (1) could affect posts' operational effectiveness and (2)
lead to more costly replacement of capital equipment or the buildings
themselves long before the end of their projected life cycles. A long-
range plan that clearly identifies the resource needs for basic, day-
to-day operations and maintenance at overseas posts, similar to OBO's
plan for capital construction and maintenance, would reduce the risk
that operations and maintenance needs for NECs are not met and help
these new buildings achieve their expected life cycles.
Recommendation for Executive Action:
To protect the $21 billion capital investment in 201 new embassy and
consulate compounds, we recommend that the Secretary of State develop
an integrated and comprehensive facilities plan that clearly specifies
the financial and human resources for meeting the immediate and long-
term operations and maintenance requirements for new embassy compounds.
Agency Comments:
We received written and oral comments on a draft of this report from
the Department of State. State said that it agreed with our principle
findings and conclusions. In addition, State wrote that it supported
our recommendation to develop an integrated and comprehensive
facilities plan that clearly specifies the financial and human
resources needed for meeting the immediate and long-term operations and
maintenance needs for new embassy compounds, and that it will initiate
actions that implement this recommendation. State provided additional
clarifying and technical comments on a number of points, which we have
incorporated throughout the report, as appropriate. State's comments,
along with our responses to specific points, are reprinted in app. II.
We are sending copies of this report to interested congressional
committees. We are also sending copies of this report to the Secretary
of State. Copies will be made available to others upon request. In
addition, this report will be available at no charge on the GAO Web
site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact Jess T. Ford on (202) 512-4128, e-mail fordj@gao.gov, or
Terrell G. Dorn on (202) 512-6923, e-mail dornt@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Other GAO contact and staff
acknowledgments are listed in appendix III.
Sincerely yours,
Signed by:
Jess T. Ford:
Director, International Affairs and Trade:
Signed by:
Terrell G. Dorn, PE:
Director, Physical Infrastructure:
[End of section]
Appendix I: Scope and Methodology:
To complete our work, we reviewed the report of the Overseas Presence
Advisory Panel, previous GAO reports on the Department of State's
(State) embassy construction programs, Bureau of Overseas Buildings
Operations' (OBO) past 5 annual Long-Range Overseas Buildings Plans,
the files of 18 new embassy (and consulate) compound (NEC) projects,
and the monthly Program Performance Review updates and documents of 9
ongoing projects scheduled for completion by December 31, 2006, and 22
ongoing projects scheduled for completion in 2007 to 2008. We did not
assess the quality of construction.
Projects within our review were limited to construction under the
Capital Security Construction Program, and did not include construction
of new embassies funded under the Strategic Capital Program, or major
rehabilitations or security upgrades of existing embassies and
consulates. In addition, our review focused on construction projects
designated by OBO as NECs, which in the early years of the program were
called New Office Buildings. In general, we did not consider other
types of OBO construction projects, such as renovation of newly
acquired buildings, as in Bridgetown, Barbados; individual annexes
either for general use, as in Bogota, Colombia, or those dedicated to
USAID operations, as in Lima, Peru; or other types of individual
projects. However, we did examine costs involving construction of
certain facilities at NEC sites that were completed or will be
completed outside the scope of the NEC project, such as in cases where
USAID annexes were delayed due to funding issues, Marine Security Guard
quarters were added after completion of the NEC project, and
construction of facilities in the original NEC scope of work was
deferred to future years, as well as when concurrent construction
projects occurred outside the scope of the NEC project, such as in
Kabul, Afghanistan.
To track OBO's performance in completing construction projects on time
and on budget, we developed and analyzed a database containing planned
and actual project schedule and cost data, which were obtained from the
files of 18 embassy and consulate construction projects. Each of the
projects was started after the August 1998 bombings in Dar es Salaam,
Tanzania, and Nairobi, Kenya, and was declared substantially completed
on or before December 31, 2005. Projects started prior to August 1998,
such as the new embassy building in Doha, Qatar, were excluded from the
analysis.
Data for project schedules included the dates for contract award and
notice to proceed with construction, the original construction
completion date, the number of additional days approved in contract
modifications; the actual completion date certified by OBO (also known
as substantial completion), and the actual occupancy date certified by
OBO. In addition, planned dates for project milestones were computed by
adding the number of allowable days for specific actions to a baseline
date. For example, the planned occupation date was determined by adding
60 days--the amount of time to complete commissioning and accreditation
activities at the new facility--to the planned substantial completion
date. Data for project costs included the budget estimates for each
project provided to Congress and the actual costs of the projects. We
also collected information characterizing the site conditions,
including building and compound sizes; all contract proposals submitted
to OBO; whether the building was a standard design embassy or
consulate; the contract delivery method used (design-bid-build or
design-build), and the type of contract awarded (firm-fixed-price or
cost-reimbursable); and the amount of desk space and the number of
personnel to occupy the NEC.
Data used to analyze project schedules was derived primarily from
project design packages and requests for proposals; contract awards and
modification logs; and memorandums and letters certifying substantial
completion of construction, stating that security requirements have
been met and that a new facility is ready for occupation. Data for
project costs derived from two sources. Budget estimates provided to
Congress derive from letters sent by the Department of State to
congressional appropriators notifying the Congress of State's intent to
fund construction of certain projects. These notifications provided the
amount of funding OBO intended to allocate in a given year, and they
sometimes included the total funding OBO estimated for the entire
project, including site acquisitions. However, since these are
notifications for State's obligations, they do not include costs
associated with contributions from other agencies. Actual costs for
each project were provided by OBO's Financial Management Division.
Project descriptions derive from multiple sources. Building and
compound sizes and the amount of desk and nondesk space derive from
Project Authorization Documents, which are used to track changes in
project scopes and budgetary requirements throughout the course of NEC
projects. Contract documents identified the contractor, the contract
type, the award amount, the contract delivery method, and the contract
performance period, while a summary of cost and schedule data for
nonwinning proposals was provided by OBO.
We also reviewed schedule and cost performance data for the nine NEC
projects scheduled for completion by December 31, 2006, including
Astana, Kazakhstan; Bamako, Mali; Belmopan, Belize; Conakry, Guinea;
Dushanbe, Tajikistan; Freetown, Sierra Leone; Kingston, Jamaica; Lome,
Togo; and Managua, Nicaragua. Data for our analysis derived from the
April 2006 Program Performance Review, a meeting OBO holds on a monthly
basis to review the progress of all construction projects, in addition
to general management issues within OBO. Data we analyzed derived from
project information that is reported to OBO Washington from project
directors in the field and is then placed into a standard format for
presentation at the meeting. Information we gathered from these
presentations include the contract award and notice to proceed dates,
the original and modified planned substantial completion dates, the
current budget for the project, and planned and actual amount of work
completed. In addition, the presentations provide narrative information
specific to the project, which may include project scope and reports of
critical information, such as potential delays. Progress for 13
additional ongoing NEC projects scheduled for completion beyond year-
end 2006 was not sufficient for us to analyze the pace of construction
or changes to cost estimates.
We examined the processes by which data are incorporated into the
Project Authorization Documents and the presentations for the monthly
Program Performance Review meetings. Assessment of these processes
included the purpose of the systems, the primary users and their access
to the data, how and where the data are collected, what the data
describe, the procedures for ensuring the proper data are collected,
the currency of the data, and how frequently data are entered. We found
the schedule, cost, and project characteristics data to be sufficiently
reliable for our purposes. However, we did not conduct a financial
audit of the cost data and are not expressing an opinion on them.
To determine the effects of State's strategic and procedural reforms
and the factors that affect construction schedules and costs, we
interviewed key officials from State's regional bureaus and OBO on the
planning for and construction of NECs, and we met with corporate staff
for three contractors currently involved in construction. We also
visited six posts with either ongoing or completed construction
projects to observe the construction process, solicit the views of
State and the contractors' field staff, and collect and review project
documents.[Footnote 47] Additionally, we visited Abuja, Nigeria, to
review issues surrounding the impact of incomplete and deferred
construction on staff location and security. Finally, we interviewed
the project directors for the Phnom Penh, Cambodia, and Tashkent,
Uzbekistan, NEC projects--while each was briefly in Washington--and
conducted telephone interviews with post managers in Phnom Penh. We
also discussed reforms with staff from each of State's regional
bureaus.
To determine how total annual operations and maintenance costs would
increase once all NECs were completed, we analyzed cost data from four
sources, which include the following:
* actual building operations expense budgets for 13 posts with NECs
worldwide, as reported through the ICASS system;
* budgeted cost increases for 5 posts, as reported by the Bureau of
East Asias and Pacific Affairs;
* budget costs for 3 posts, as reported by the Bureau of Western
Hemisphere Affairs; and:
* discussions on cost increases for operations and maintenance
activities with managers at overseas posts and at State's four other
regional bureaus.
To analyze the ICASS data, we first compared the operations budget for
the year prior to the post taking possession of the NEC with the budget
for fiscal year 2006. We also compared the operations costs for the
years before and after the move. In doing these comparisons, we removed
several of the posts from the analysis for different reasons. U.S.
Consulates Istanbul, Turkey, and Sao Paulo, Brazil, were removed
because as constituent posts, their costs are combined with the
respective embassies that oversee their operations (Embassies Ankara,
Turkey, and Brasilia, Brazil), and we could not disaggregate these
costs from the parent posts. Thus changes in their operations costs may
actually be unrelated to the opening of NEC. We also removed Embassies
Dar es Salaam, Tanzania; Nairobi, Kenya; and Kampala, Uganda, from the
analysis because some agencies at these posts, notably USAID, continued
to occupy locations outside the NEC for multiple years after the NEC
opened. In addition, when USAID or other agencies own an overseas
facility, the support costs for activities in that facility are outside
the ICASS system. Thus, for our analyses, we could not determine
whether the ICASS costs represented all operations costs for these
posts or whether costs were generated outside the ICASS system.
Finally, we removed Embassy Abidjan, Cote d'Ivoire, from the analyses
because the post went through a significant downsizing of program and
support personnel after the start of construction. As a result, the new
facility operates at only half capacity. The seven posts included in
the ICASS analysis were the U.S. Embassies in Abu Dhabi, United Arab
Emirates; Doha, Qatar; Luanda, Angola; Sofia, Bulgaria; Tunis, Tunisia;
Yerevan, Armenia; and Zagreb, Croatia.[Footnote 48]
The data provided by the Bureaus of East Asian and Pacific Affairs and
Western Hemisphere Affairs included its estimates for the total
operations and maintenance cost increases for eight NECs, as well as
cost increases associated with those posts' utilities, personnel, and
maintenance. The five East Asian posts included estimates for Embassy
Phnom Penh, Cambodia, in fiscal year 2006; Embassies Beijing, China,
and Rangoon, Burma, and Consulate General Surabaya, Indonesia, for
fiscal year 2008; and for Embassy Suva, Fiji, in fiscal year 2009. The
three western posts included operations and maintenance budgets for
fiscal years 2006 and 2007 for Embassies Belmopan, Belize; Kingston,
Jamaica; and Panama City, Panama.
To provide an indication of the possible total minimum annual cost
increases for operations and maintenance, we examined all the available
data on cost increases including actual costs from eight posts and
estimated costs for seven posts. In addition, we considered State's
estimate of average costs rising by $500,000 for posts in Europe and
the various factors that are driving the observed and estimated cost
estimates. We removed one outlier from the 15 posts (Embassy Sofia),
and used the actual costs from the next lowest post, Luanda, of
$351,000, which we applied to all 201 NECs, resulting in an estimated
cost increase of $71 million per year. Our analysis of Luanda suggested
that it can serve as a reasonable proxy for the low end of the range
because it is small, has only one building, and all staff are colocated
on the new compound. While this exercise represents our best attempt to
quantify the minimum potential costs, it can only provide a rough
indication of what the minimum might be. It assumes that the actual
costs for future posts will generally fall within the range we have
observed. It also assumes that the costs for medium and larger posts
will be considerably greater than $351,000. Based on the data we have
for the remaining 10 posts, some of which have costs that are many
times greater than those for Luanda, we suspect that actual annual cost
estimates could be several times greater than that which we provided.
To this minimum cost, we added the costs of adding 100 new OBO-funded
facilities managers. State's Office of Rightsizing the U.S. Overseas
Presence estimates the total per capita cost of placing American
government employees in overseas positions at approximately $400,000
per year. Based on this figure, the cost of placing Americans in new
facility manager positions at 100 NECs would cost approximately $40
million. Thus, overall operations and maintenance costs will likely
increase by a minimum of $111 million.
All costs for these analyses were converted to 2006 constant dollars
using the U.S. Gross Domestic Product Deflator.
We also visited the U.S. embassy in Tunis, Tunisia, and met with former
Tunis management staff to discuss how its operations and maintenance
needs and costs changed after moving into its new embassy compound;
reviewed the worldwide cable it developed to document its cost
increases and additional staffing needs; and discussed the assistance
the post provides other U.S. embassies and consulates, as they prepare
to occupy their own NECs. In addition, we interviewed management and
facilities maintenance personnel at eight posts with either ongoing or
recently completed construction projects to discuss preparations each
made or are making for hiring additional and training current staff,
awarding service contracts, developing maintenance plans, ensuring the
posts have adequate supplies and spare parts for the initial year of
operations, and working with regional bureaus and agency clients to
ensure operations and maintenance are properly funded.[Footnote 49]
We also interviewed key officials from State's regional bureaus, OBO,
and the Bureau of Resource Management on (1) the planning for the
operational requirements of NECs and (2) the staffing and funding
resources required to ensure they function properly. We also reviewed
processes developed by OBO's Facilities Management Office to provide
early-on assistance to posts on the types of systems that are to be
installed at the NECs, the maintenance needs of the mechanical systems,
and the skill requirements and numbers of staff needed to operate and
maintain the various systems in the new compounds. Finally, we reviewed
assistance provided to posts by State's Office of Global Support
Services and Innovation.
We performed our work from January 2005 to June 2006 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: Operations and Maintenance Funding Sources:
Operations and maintenance costs are funded through five primary
sources, including OBO, ICASS, State's regional bureaus and Bureau of
Diplomatic Security, and other agencies, as needed (see table 3).
According to the Foreign Affairs Manual, basic building and compound
operations, such as custodial services, fuel, utilities, supplies,
trash collection, and grounds care, among others, are planned for by
individual posts and are funded through the ICASS system, from the
Diplomatic and Consular Programs fund overseen by State's regional
bureaus, and from other agencies' operating budgets. OBO is responsible
for funding general maintenance and repair projects at overseas posts,
including routine services and materials for items of a recurring
nature, such as painting, weather stripping, termite control, and small
repairs, among others. OBO is also responsible for special maintenance
and improvement projects that cost more and are more technical in
nature. For example, OBO manages projects for repairs such as those for
air conditioning systems, elevators, and fire suppression systems, and
also manages emergency repairs caused by unforeseen events. OBO also
funds major and minor upgrades for the physical security of embassies
and consulates, while costs for technical security equipment are funded
by the Bureau of Diplomatic Security.
Table 3: Major Costs and Funding Sources for Operations and Maintenance
of Overseas Government-owned and Long-term Lease Office Facilities:
Cost center: Lease costs;
Funding source: OBO.
Cost center: Building operating expenses;
Funding source: ICASS;
Diplomatic and Consular Programs[A];
Other agencies[B].
Cost center: Physical security upgrade;
Funding source: OBO.
Cost center: Technical security equipment;
Funding source: Bureau of Diplomatic Security.
Cost center: Maintenance and repair improvements;
Funding source: OBO (government-owned buildings);
Leaseholder and OBO (long-term lease buildings).
Cost center: Program alteration;
Funding source: Other agencies.
Cost center: Grounds care;
Funding source: ICASS Diplomatic and Consular Programs Other agencies.
Cost center: Fire equipment;
Funding source: OBO.
Cost center: Furniture;
Funding source: Initial;
OBO Other agencies; Replacement;
ICASS Diplomatic and Consular programs;
Other agencies.
Cost center: Air conditioning units;
Funding source: OBO[C];
ICASS;
Diplomatic and Consular programs;
Other agencies.
Cost center: Emergency generators (including overhauls);
Funding source: OBO.
Cost center: Generator service contract;
Funding source: Diplomatic and Consular programs;
Other agencies.
Source: U.S. Department of State, Foreign Affairs Manual (15 FAM-120,
160, and 630).
[A] Post-held funds allotted by State's regional bureaus.
[B] The ICASS system permits service providers to directly charge any
agency, including State, for using a service that can be easily
identified as benefiting that specific agency.
[C] On air conditioning units greater than 36,000 BTUs.
[End of table]
[End of section]
Appendix III: Comments from the Department of State:
United States Department of State:
Assistant Secretary for Resource Management and Chief Financial
Officer:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N. W.
Washington, D.C. 20548-0001:
JUN 19, 2006:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "Embassy
Construction: State Has Made Progress in Constructing New Embassies,
But Better Planning Is Needed for New Operations and Maintenance
Requirements," GAO Job Code 320332.
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
Stefan Lupp, Branch Chief, Bureau of Overseas Buildings Operations, at
(703) 875-5766.
Sincerely,
Signed by:
Bradford R. Higgins:
cc:
GAO - Jess Ford:
OBO - Charles Williams:
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report:
Embassy Construction: State Has Made Progress In Constructing New
Embassies, But Better Planning Is Needed for New Operations and
Maintenance Requirements, (GAO-06-641, GAO Code 320332):
Introduction:
The Department of State appreciates the opportunity to review and
comment on the GAO Draft Report, Embassy Construction: State Has Made
Progress In Constructing New Embassies, But Better Planning Is Needed
for New Operations and Maintenance Requirements. Throughout the course
of the GAO review, the Bureau of Overseas Buildings Operations (OBO)
and other bureaus have been forthcoming in providing information,
access to all of their records, making their staffs available to answer
questions, and providing briefings. OBO has also invited the GAO staff
members to participate in its monthly Program Performance Review
meetings. The GAO staff has been professional in its endeavor and has
been receptive to our opinions and explanations.
Significant Progress:
The Department is pleased that in this extensive study the GAO has
concluded, "State has made significant progress in completing new
embassy and consulate compounds." As the report notes "State has
reduced the average project cycle time by approximately 2 years and 9
months." The report further states that as of March 31, 2006
approximately 8,700 U.S. Government employees have been relocated to
new, safe, and secure facilities." This is the clear message of the
report, and it should be so noted in the title of the report.
The report correctly cites various OBO management reforms that are in
part responsible for the Department's significant progress. In
particular the report cites the enhanced status of OBO as a bureau
within the Department, the implementation of performance-based
management principles at the strategic and project level, and the
development of the Long-Range Overseas Buildings Plan, the design-build
contract delivery method, the establishment of a standard embassy
design, and OBO's continued examination of its procedures to identify
potential additional reforms to improve schedule performance and reduce
costs.
Other Comments:
While the report acknowledges the Department's significant progress in
constructing new embassy and consulate compounds, there are certain
areas of the report that require clarification: (1) the omission of
other capital construction projects; (2) the omission of the Value
Engineering Program; (3) the lack of a performance period benchmark;
(4) the impact of routine OBO personnel turnover; (5) the reasons for
higher operations and maintenance costs; and (6) the significance of
the absence of historical data.
(1) Omission of other Major Construction Projects:
The Department understands that this massive GAO review had to be
limited in scope. However, by only referring to the construction of new
embassy and consulate compounds (NECs), the report masks the true
magnitude of OBO's construction program. It should be acknowledged in
the report that numerous other projects have been completed during the
time period covered by this review, such as 9 annexes, 4 interim office
buildings, 4 fit-outs of existing buildings, several major
rehabilitation projects, and $100 Million in compound security
projects.
(2) Omission of the Value Engineering Program:
The report fails to mention the continuous improvement process used to
make the Standard Embassy Design (SED) easier to operate and maintain.
In fact, the Value Engineering Program has always been focused on life
cycle cost containment and long-term building performance. Higher
quality, durable materials were added wherever a favorable business
case could be made. Energy conservation features were also embedded in
the SED in compliance with all Federal mandates. Indeed, the Department
will be challenged with the long-term maintenance of our new buildings,
but the situation has been significantly improved due to the SED
upgrades, resulting from a robust Value Engineering Program.
(3) Lack of a performance period benchmark:
The report lacks any benchmark with industry or other government
agencies engaged in similar overseas work with regard to performance
periods. It simply compares previous OBO performance with current and
past projects. Specifically, the projects where contractors encountered
performance problems seem to have little analysis or consideration for
the work environment. OBO obviously needs some latitude to adjust
schedules for extreme risk factors revolving around the effects of
remote locations, shipping, staffing, local labor strikes, civil
unrest, customs clearance problems, significant weather events, etc.
Despite these unknowns, OBO, remarkably, still managed to reduce
delivery time. This salient point seems to be lacking from the report.
Again, in light of the difficulties faced by OBO in the overseas
environment it would seem fair to acknowledge in the title of the
report that "significant" progress that has been made.
(4) Impact of routine OBO personnel turnover:
The following statements in the section entitled "Experienced and
Qualified Project Staff" require clarification:
a) ". . . because of inexperienced OBO project staff at one NEC
construction site, it took nearly twice the normal amount of time to
receive responses to work-related requests for information."
This is an inaccurate statement. The procedures and the response time
for the Requests for Information (RFI) are set by the contract. So it
is not clear what is meant by "twice the normal amount of time". OBO
personnel in the field meet the contract requirement and timeline.
b) ". . . in Cape Town we observed that although both contractor and
OBO staff were experienced construction professionals, only 3 of OBO's
7 engineers and none of the contractor's personnel had previously
worked on OBO projects. Moreover, since 4 of the OBO staff were South
Africans, they could not enter the classified areas of the chancery."
This was the first time that this contractor worked for OBO. However,
the contractor had been pre-qualified and had an excellent and well-
established record. As the contractor pool has been enlarged, allowing
for greater competition, contactors who have not previously worked for
OBO will, of course, be involved in the program. The statement
concerning the 4 OBO engineers who could not enter the classified areas
is misleading, because it implies that somehow all 7 were required to
work on this area. Yet, in order to keep costs down, the cleared-
American workforce is of necessity quite limited, consistent with the
limited scale of classified areas that need to be constructed.
c) "We found that reassignments, terminations, retirements, and
resignations among top-level OBO and contractor project staff disrupted
work continuity."
Any contractor's personnel turnover might disrupt work continuity, but
it is either due to normal personnel action (retirement, resignations
etc.) or as an effort on the prime contractor to improve performance
(in the case of poor performance). As for OBO personnel turnover,
resignations and retirement are part of the natural process of
management. People decide to resign and/or retire on a daily basis in
any kind of business.
In general, OBO strives to staff their projects with an experienced
Project Director and either an experienced Construction Manager or a
newly hired Construction Manager (that might not have direct experience
with OBO projects, but all of them would be experienced engineers,
either with government or the private sector). In the case cited in
Luanda, the replacement construction manager replaced the retired
Project Director and did an excellent job in managing the project to
completion. Also, if OBO feels that the second-in-command does not have
the necessary know-how in the event the Project Director retires or
resigns, OBO will cover the vacancy from the Washington-based pool of
highly experienced Senior Project Executives until a replacement is
assigned.
Also, while a contractor may feel that their poor performance can be
attributed to occasional OBO staff turnover, the contractor is in full
control of the project performance. Without specific examples
supporting this assertion by contractors, it is hard to support any
correlation between the status of OBO site staffing and the
contractor's performance of their work.
(5) The reasons for higher operations and maintenance costs:
The draft report states, "annual operations and maintenance costs for
NECs are significantly greater than the costs for previous locations."
This implies an apples-for-apples comparison, which does not mirror
reality. Several important differences are glossed over in the report:
a) The number one purpose of the capital security program is to provide
more secure facilities. This required incorporating new chem-bio
features, enhanced physical and technical security features, and more
security lighting, for example, with the accompanying higher energy
costs; it also requires greater setback necessitating maintenance of
the larger green space, etc. These compounds can not be strictly
compared to the existing buildings that they replaced.
b) Maintenance of the previously used facilities was not adequately
funded. While this is stated in the report, it is not clearly connected
to the increased costs. Therefore, it does not show the true picture. A
more accurate approach would be to compare what operations and
maintenance should have been to what it is now.
c) The previously-used facilities were in most cases considerably
overcrowded, poorly designed for current needs, and inadequately
maintained. Previous facilities were not maintained to industry
standards, which mean that historical expenses are understated because
they did not include the full maintenance requirements. In nearly all
cases, from previous facilities, there has been (i) an increase in the
complexity and amount of equipment that needs to be serviced and
maintained, (ii) an increase in the total personnel count that use the
facilities, (iii) an increase in the size of the facility, and (iv) an
increase in security requirements.
(6) The significance of the absence of historical data:
When the GAO report justifies its recommendation, it points out that
enough NECs have now been built to provide data to make predictions of
future operations and maintenance costs. However, the earlier absence
of considerable relevant historical data is not mentioned to help
explain why the Department was unable to accurately foresee the
increased costs.
The Department's Response to the Recommendation:
The Department supports the GAO recommendation to develop an integrated
and comprehensive facilities plan that clearly specifies the financial
and human resources for meeting the immediate and long-term operations
and maintenance requirements for new embassy compounds (NECs).
Accordingly the Department will take the necessary steps to address
this recommendation.
The following are GAO's comments on the State Department's letter dated
June 19, 2006.
GAO Comments:
1. We modified the text of the report to address this concern.
2. We did not complete a full analysis of OBO's value engineering
process. We note that value engineering was integral to OBO's
reformatted standard embassy design that will be used beginning with
fiscal year 2006 projects. However, until these NECs come on line, it
is unclear how the changes will impact operations and maintenance costs
for those posts.
3. The first of the two objectives of our review was to assess State's
performance in completing NEC projects on time and within cost
parameters, and to examine the factors that affect construction
projects. As such, the scope of our work, in part, required that we
compare State's performance under the current construction program with
its past efforts. However, an assessment of OBO's program performance
relative to the efforts of other agencies or the private sector was not
within the scope of our work.
4. We deleted the statements from our final report.
5. Our review and findings were to demonstrate that (1) the costs for
operating and maintaining new embassy compounds are significantly
higher than those costs associated with the facilities they replaced
and (2) that no mechanism exists that clearly explains the resources
needed for operating and maintaining NECs on a day-to-day basis. We
neither state nor imply an "apples-to-apples comparison" between the
resource requirements for operating NECs and those for the older
facilities. To the contrary, we state that NECs are significantly
larger, are more complex, and have significantly more demands than the
facilities they replace. We attribute these factors, in part, to
increased security needs, though we purposefully avoided discussion of
specific equipment and functions that could be deemed sensitive. We
also acknowledge that increased staffing needs could impact the size of
NECs, which in turn, could affect operations and maintenance costs.
Finally, in our report we acknowledged that operations and maintenance
at U.S. diplomatic facilities had long been underfunded, and we stated
how we and others concluded that this led to dilapidated conditions at
many overseas posts. The relevant points for decision makers are that
costs to operate and maintain the new facilities are significantly
greater than the costs of the facilities they replace, and that failure
to provide adequate funding could repeat the cycle of deterioration
previously seen at overseas diplomatic facilities. We believe that the
first step toward ensuring that operations and maintenance activities
are properly funded and staffed is to provide a clear and accurate
representation of the necessary resources to those who make funding and
human capital decisions.
6. During the course of our work, State officials said there was no way
for them to predict how costs for operating and maintaining overseas
posts changed when new embassies came online. We disagree with this
contention. NECs under the current construction program are larger,
tend to have more buildings, and are more complex than embassies and
consulates constructed under the Inman program. However, Inman program
embassies and others built during the 1990s, such as in Bogota,
Colombia, and Lima, Peru, were required to meet many of the same
security requirements and were significantly larger than the facilities
they replaced. A comparison of actual operations and maintenance
expenditures for these facilities may have highlighted the increased
costs in a more timely manner.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Jess T. Ford, Director, International Affairs and Trade, (202) 512-
4128, e-mail fordj@gao.gov, and Terrell G. Dorn, Director, Physical
Infrastructure, (202) 512-6923, e-mail dornt@gao.gov.
Staff Acknowledgments:
In addition to the individuals named above, Michael Courts, Assistant
Director; Michael Armes; Sam Bernet; Joseph Carney; Erika Carter; and
Edward Kennedy made key contributions to this report.
FOOTNOTES
[1] See 22 U.S.C. § 4865, "Security Requirements for United States
Diplomatic Facilities."
[2] Former Secretary of State, Madeleine Albright, established the
Overseas Presence Advisory Panel following the 1998 embassy bombings in
Africa. Department of State, America's Overseas Presence in the 21st
Century, the Report of the Overseas Presence Advisory Panel
(Washington, D.C.: November 1999).
[3] The posts visited included U.S. embassies in Abuja, Nigeria;
Bamako, Mali; Conakry, Guinea; Kingston, Jamaica; Luanda, Angola; Phnom
Penh, Cambodia; Tbilisi, Georgia; and Tunis, Tunisia; and the U.S.
consulate in Cape Town, South Africa. We also met with the OBO project
director for the Tashkent, Uzbekistan NEC project.
[4] The design-build contract delivery method reduces project cycle
time by combining design and construction in a single contract award
and allows contractors to begin construction before the building design
is complete.
[5] GAO, State Department: Management Weaknesses in the Security
Construction Program, GAO/NSIAD-92-2 (Washington, D.C.: Nov. 29, 1991)
and GAO, State Department, Status of the Diplomatic Security
Construction Program, GAO/NSIAD-91-143BR (Washington, D.C.: Feb. 20,
1991).
[6] Congressional Research Service, Embassy Security: Background,
Funding, and the Budget, RL 30662 (Washington, D.C.: Oct. 4, 2001).
[7] This board was appointed by former Secretary of State Madeleine
Albright to investigate the facts and circumstances surrounding the
1998 embassy bombings. See Department of State, Report of the
Accountability Review Boards on the Embassy Bombings in Nairobi, Kenya
and Dar es Salaam, Tanzania on August 7, 1998 (Washington, D.C.: Jan.
1999), and Admiral William J. Crowe, Press Briefing on the Report of
the Accountability Review Boards on the Embassy Bombings in Nairobi and
Dar es Salaam (Washington, D.C.: Jan. 8, 1999).
[8] Omnibus Consolidated and Emergency Supplemental Appropriations Act
of 1999, Pub. L. No. 105-277, 112 Stat. 2681 (1998).
[9] Only NEC projects funded under the capital security construction
fund were included in this total. The cited obligation does not include
funds budgeted for Embassies Baghdad and Beijing, which combined are
estimated at more than $1 billion. Since 1999, State has also
constructed nine annexes on existing diplomatic compounds, four interim
office buildings, four fit-outs of newly acquired buildings, several
major rehabilitation projects, and $100 million in compound security
projects.
[10] Total costs for these NEC projects include the costs for site
acquisition, design, construction, security equipment, furniture and
furnishings, and project supervision. Reimbursements from other
agencies are not included in the total costs.
[11] Consolidated Appropriations Act of 2000, Pub. L. No. 106-113, Div.
B, sec. 1000(a)(7), 113 Stat. 1536 (1999). State elaborates on these
requirements in the U.S. Department of State Foreign Affairs Handbook,
12 FAH-5.
[12] GAO/NSIAD-92-2.
[13] GAO, Embassy Construction: State Department Has Implemented
Management Reforms, but Challenges Remain GAO-04-100, (Washington,
D.C.: Nov. 4, 2003).
[14] The 18 completed NEC projects cited above began between 1999 to
2002, and thus were not held to the new average cycle time
requirements.
[15] The terms of each construction award specify the time frame that
contractors have to complete the requirements of the contract.
[16] For the contract completion date, we used the "substantial
completion" date, which is the date that OBO certifies a contractor has
met all requirements of the contract, although minor items may still
need completion. For planned completion dates, we used the original
dates set forth in the contract unless a contract modification resulted
in a time extension.
[17] Liquidated damages provisions essentially provide for a contractor
to pay a specified amount (typically on a per-diem basis) for failing
to perform some element of the contract. Such provisions are typically
tied to maintaining contract schedule, with the contractor bearing a
stipulated daily cost for failing to meet the schedule by reason of its
inadequate performance.
[18] This Program Performance Review Meeting was held from April 25 to
26, 2006, and reviewed project data, as of March 31, 2006.
[19] Data for estimated total project costs derive from notifications
to Congress of State's intent to obligate funds for embassy and
consulate construction. These notifications were addressed to the
Chairmen of the Subcommittee on Commerce, Justice, State, the
Judiciary, and Related Agencies, Committee on Appropriations, House of
Representatives.
[20] At posts where USAID required more than 50 desks in the NEC, a
USAID-funded annex was included in project scope. See GAO, Embassy
Construction: Achieving Concurrent Construction Would Help Reduce Costs
and Meet Security Goals, GAO-04-952 (Washington, D.C.: Sept. 28, 2004).
[21] U.S. Department of State and the Broadcasting Board of Governors,
Office of Inspector General, Report of Audit: Evaluation and Analysis
of Cost/Schedule Data, Kabul Embassy Compound Project, Report Number
AUD/CG-04-34 (Washington, D.C.: July 2004).
[22] OBO reports that, in the future, USAID annexes will be funded
through the Capital Security Cost Sharing Program.
[23] The five posts were Dar es Salaam, Tanzania; Istanbul, Turkey;
Kampala, Uganda; Nairobi, Kenya; and Zagreb, Croatia. The $13.2 million
costs for these Marine houses include funding for Marine quarters at
the U.S. Embassy in Doha, Qatar, which we could not disaggregate from
the five NECs in our analysis.
[24] Current budget, as reported at the April 2006 Program Performance
Review Meeting.
[25] OBO notified Congress of the need to reprogram funds for each of
the three projects with higher-than-expected costs.
[26] Office of Management and Budget, Program Assessment: Capital
Security Construction Program, [Hyperlink,
http://www.whitehouse.gov/omb/expectmore/detail.10000378.2005.html],
(Washington, D.C.: 2004).
[27] GAO, Embassy Construction: Better Long-term Planning Will Enhance
Program Decision-making, GAO-01-11 (Washington, D.C.: Jan. 22, 2001).
[28] In addition to projects for the Capital Security Construction
Program, the Long-Range Overseas Buildings Plan contains information on
other types of capital construction projects, including major
rehabilitations of existing facilities and strategic capital projects,
such as the construction of a new facility in Taipei, Taiwan.
[29] GAO-04-100.
[30] The ICASS system shares the costs of common administrative support
items, such as mail, telephones, and building operations, among the
agencies that use overseas diplomatic facilities. See GAO, Embassy
Management: Actions Are Needed to Increase Efficiency and Improve
Delivery of Administrative Support Services, GAO-04-511 (Washington,
D.C.: Sept. 7, 2004).
[31] Only four of the NECs--Abuja, Luanda, Phnom Penh, and Tunis--were
opened prior to our review of their operations. Embassies Tbilisi and
Conakry and Consulate General Cape Town opened after our site
inspections, and NEC projects are still ongoing for embassies Bamako,,
and Kingston. We did not discuss operations and maintenance costs with
Embassy Tashkent.
[32] These posts include the U.S. embassies in Abu Dhabi, UAE; Doha,
Qatar; Luanda, Angola; Sofia, Bulgaria; Tunis, Tunisia; Yerevan,
Armenia; and Zagreb, Croatia. Costs were converted to 2006 constant
dollars.
[33] For East Asia and the Pacific, we analyzed cost estimates for
Embassy Phnom Penh for fiscal year 2006, and projected operations and
maintenance increases for the U.S. embassies in Beijing, China;
Rangoon, Burma; and the Consulate General in Surabaya, Indonesia, for
fiscal year 2008, and for the U.S. embassy in Suva, Fiji, for fiscal
year 2009. For Western Hemisphere posts, we analyzed fiscal year 2006
to 2007 operations and maintenance budgets for U.S. embassies in
Belmopan, Belize; Kingston, Jamaica; and Panama City, Panama. All costs
were converted to 2006 constant dollars.
[34] For a description of how operations and maintenance costs
increases were determined, see appendix I.
[35] The Office of Rightsizing the U.S. Government Overseas Presence
estimates that the average total cost for maintaining American direct
hire staff at overseas locations to be approximately $400,000 per year.
Total costs include salaries, salary differentials for hardship and
danger pay, personal benefits, and support costs, such as for housing.
[36] A key legal requirement of the Capital Security Construction
Program is that new embassy and consulate buildings have a 100-foot
setback from the exterior wall of the building to the perimeter wall or
fence, primarily to provide blast protection. To achieve this setback,
OBO seeks to locate NECs on sites of approximately 10 acres.
[37] These year-to-year increases in electrical costs were not adjusted
for year-to-year weather variations.
[38] The ICASS Service Center reported that water bills were not
tracked independently and that billing by the local water company is
sporadic and possibly inaccurate. At that same post, the old facility
had no natural gas usage but costs for natural gas at the new compound
are estimated at $18,350 for fiscal year 2006, the first full year
after move-in.
[39] In September 2004, we reported on numerous disincentives for posts
to consider efforts to streamline administrative functions. See GAO-04-
511.
[40] This cost is in addition to the increased water costs associated
with landscaping needs previously discussed.
[41] See GAO, Overseas Presence: Conditions of Overseas Diplomatic
Facilities, GAO-03-557T (Washington, D.C: Mar. 20, 2003).
[42] See GAO-01-11.
[43] National Research Council of the National Academies, "Investments
in Federal Facilities: Asset Management Strategies for the 21st
Century" (Washington, D.C.: 2004).
[44] Ibid.
[45] Cited in International Facility Management Association,
"Operations and Maintenance Benchmarks," Research Report #26, 2005.
Current replacement value is the total expenditure in current dollars
required to replace any facility inclusive of construction costs,
design costs, project management costs, and project administrative
costs. The value of property/land is excluded.
[46] These costs are in addition to the maintenance needs for the
approximately 60 posts worldwide that are not expected to have new
facilities constructed under State's current capital replacement
program.
[47] The posts visited included U.S. embassies in Bamako, Mali;
Conakry, Guinea; Kingston, Jamaica; Luanda, Angola; Tbilisi, Georgia;
and the U.S. consulate in Cape Town, South Africa.
[48] Although we did not test the reliability of these specific data,
in the past, we have conducted general assessments of ICASS data and
found the data reliable. See GAO-04-511.
[49] The eight posts include those cited above with the exception of
Tashkent, Uzbekistan.
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