General Services Administration
Factors Affecting the Construction and Operating Costs of Federal Buildings Gao ID: GAO-03-609T April 2, 2003The General Services Administration (GSA) has responsibility for more than 8,000 owned and leased buildings nationwide, together encompassing about 338 million square feet of space. Understanding construction and operating costs for these buildings is important, as the increased federal budget deficit has led to intensified competition for federal resources and recent events have highlighted security needs. GAO examined (1) factors that have affected GSA's construction, leasing, and operating costs and (2) our designation of federal real property as a high-risk area.
Several factors have affected GSA's construction, leasing, and operating costs for federal buildings. For example, new security requirements for federal buildings developed after the 1995 bombing of a federal building in Oklahoma City and the September 11, 2001, terrorist attacks have led to increased costs for such measures as strengthening the ability of buildings to sustain a bomb blast and limiting building access. According to a GSA official, security costs for courthouses have increased from about $8 a square foot to about $24 a square foot. Another factor affecting costs is budget scorekeeping requirements meant to ensure full recognition of the government's financial commitments. The scorekeeping requirement that GSA must include in its budget the entire cost of constructing a building in the year the government commits the resources has led GSA to lease space rather than construct it, even though leasing often results in a higher overall cost to the taxpayer. For example, a GSA present value cost analysis estimated that the recently leased U.S. Patent and Trademark Office complex shown below, currently being constructed in Alexandria, Virginia, by a private company, cost taxpayers about $48 million more to lease over the 20-year lease period than it would have cost to purchase it. In January 2003, GAO designated federal real property as a high-risk area, in part because of such cost factors and also because many property assets are no longer effectively aligned with or responsive to agencies' changing missions and are no longer needed. Furthermore, many assets are in an alarming state of deterioration that may cost tens of billions of dollars to address. GAO believes there is a need for a comprehensive and integrated transformation strategy for federal real property.
GAO-03-609T, General Services Administration: Factors Affecting the Construction and Operating Costs of Federal Buildings
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Testimony:
Before the Subcommittee on Transportation, Treasury, and Related
Agencies, Committee on Appropriations House of Representatives:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Wednesday, April 2, 2003:
General Services Administration:
Factors Affecting the Construction and Operating Costs of Federal
Buildings:
Statement of Bernard L. Ungar, Director,
Physical Infrastructure Issues:
GAO-03-609T:
GAO Highlights:
Highlights of GAO-03-609T, a testimony for the Subcommittee on
Transportation, Treasury, and Related Agencies, House Committee on
Appropriations
Why GAO Did This Study:
The General Services Administration (GSA) has responsibility for more
than 8,000 owned and leased buildings nationwide, together encompassing
about 338 million square feet of space. Understanding construction and
operating costs for these buildings is important, as the increased
federal budget deficit has led to intensified competition for federal
resources and recent events have highlighted security needs.
GAO examined (1) factors that have affected GSA‘s construction,
leasing, and operating costs and (2) our designation of federal real
property as a high-risk area.
What GAO Found:
Several factors have affected GSA‘s construction, leasing, and
operating costs for federal buildings. For example, new security
requirements for federal buildings developed after the 1995 bombing of
a federal building in Oklahoma City and the September 11, 2001,
terrorist attacks have led to increased costs for such measures as
strengthening the ability of buildings to sustain a bomb blast and
limiting building access. According to a GSA official, security costs
for courthouses have increased from about $8 a square foot to about $24
a square foot. Another factor affecting costs is budget scorekeeping
requirements meant to ensure full recognition of the government‘s
financial commitments. The scorekeeping requirement that GSA must
include in its budget the entire cost of constructing a building in the
year the government commits the resources has led GSA to lease space
rather than construct it, even though leasing often results in a higher
overall cost to the taxpayer. For example, a GSA present value cost
analysis estimated that the recently leased U.S. Patent and Trademark
Office complex shown below, currently being constructed in Alexandria,
Virginia, by a private company, cost taxpayers about $48 million more
to lease over the 20-year lease period than it would have cost to
purchase it.
In January 2003, GAO designated federal real property as a high-risk
area, in part because of such cost factors and also because many
property assets are no longer effectively aligned with or responsive to
agencies‘ changing missions and are no longer needed. Furthermore, many
assets are in an alarming state of deterioration that may cost tens of
billions of dollars to address. GAO believes there is a need for a
comprehensive and integrated transformation strategy for federal real
property.
Www.gao.gov/cgi-bin/getrpt?GAO-03-609T.
To view the full testimony, including the scope and methodology, click
on the link above. For more information, contact Bernard L. Ungar at
(202) 512-2834 or ungarb@gao.gov.
Mr. Chairman and Members of the Subcommittee:
We welcome the opportunity today to discuss factors affecting the costs
of constructing, leasing, and operating General Services Administration
(GSA) owned and leased buildings. Reports of rising costs in these
areas are of particular concern in today‘s environment, as the
increased federal budget deficit has led to intensified competition for
federal resources. At the same time, one of the main cost factors
facing GSA is security. Physical security for federal office buildings
has been a governmentwide concern since the 1995 bombing of the Alfred
P. Murrah Federal Building in Oklahoma City, Oklahoma. This concern has
become more compelling in the wake of the terrorist attacks of
September 11, 2001, and the anthrax incidents that closely followed it.
To assist GSA in determining how to best prioritize security
enhancements while also addressing other federal building needs, we
believe it is helpful to consider factors affecting the costs of
meeting these needs.
GSA has responsibility for more than 8,000 owned and leased buildings
nationwide, together encompassing about 338 million square feet of
space. GSA‘s owned and leased space, which includes office buildings,
courthouses, border stations, and other types of facilities, makes up
about 6 percent of all federally owned space worldwide and 39 percent
of all federally leased space worldwide. Between fiscal year 1995 and
fiscal year 2002, GSA‘s average rental rate for leased space increased
4.1 percent in constant dollars, to $20 per square foot, and GSA‘s
building operations obligations increased by 31.3 percent in constant
dollars, to about $1.9 billion. In fiscal year 2002, GSA had total
estimated project costs of about $2.6 billion for new construction,
about $690 million for major renovations, and more than $435 million
for design of repair and alterations. It has obligated about $3.1
billion for the rental of space, which is a 24 percent increase in
constant dollars since fiscal year 1995. Today, in this context of
rising costs and limited funds, we would like to discuss (1) factors
that have affected GSA‘s construction, leasing, and operating costs and
(2) our designation of federal real property as a high-risk area.
My statement today is based largely on our past work on constructing,
operating, leasing, and securing federally owned or leased buildings.
In certain instances, we obtained updated information and opinions from
GSA officials. We also reviewed a GSA contractor‘s March 2002 report on
courthouse construction costs. [Footnote 1]
Summary:
* Several factors have affected GSA‘s construction, leasing, and
operating costs for federal buildings. Two factors we recently reported
on are increased security requirements and budget scorekeeping
requirements meant to ensure full recognition in the budget of the
government‘s commitments.[Footnote 2] First, new security requirements
for federal buildings developed in the wake of the 1995 bombing of the
Alfred P. Murrah Federal Building in Oklahoma City and the September
11, 2001, terrorist attacks have resulted in increased building costs
for such measures as strengthening the ability of buildings to sustain
a bomb blast and limiting access to parking and building areas through
such means as increasing the number of guards. For example, according
to a GSA official, security costs for courthouses have increased from
about $8 a square foot to about $24 a square foot. Second, to ensure
budget recognition of the government‘s commitments, budget scorekeeping
requires that GSA include in the budget the entire cost of constructing
a building in the year that the government commits the resources. This
has led GSA to sometimes use leasing over construction, even though
leasing often results in a higher overall cost to the taxpayer. For
example, a GSA present value cost analysis estimated that the recently
leased U.S. Patent and Trademark Office complex, now under construction
in Alexandria, Virginia, cost taxpayers about $48 million more to lease
than it would have cost to construct it. The choice of geographic
location has also affected GSA‘s building costs, as have federal
mandates that require measures such as the payment of specific minimum
wages on government construction projects and energy conservation.
Still other factors that have affected federal building costs include
GSA‘s failure to adequately maintain buildings, the choice of building
finishes, contract modifications, and inflation.
* In January 2003, we added federal real property to our high-risk
list. We did this, in part, due to the issues affecting the cost of
federal buildings discussed in this testimony, such as the challenges
the federal government faces in protecting its property, employees, and
those who visit or use federal facilities. In adding this issue to our
high-risk list, we also recognized that the federal government owns
much vacant or underutilized property that it must pay to maintain,
operate, and/or secure. To the extent that the federal government can
rationalize its inventory of real property and retain only what it
needs, it can save money and focus its efforts and limited resources on
operating, maintaining, and securing only those facilities that are
truly needed by the government. Furthermore, many assets are in an
alarming state of deterioration; agencies have estimated restoration
and repair needs to be in the tens of billions of dollars. In our high-
risk report issued in January 2003,[Footnote 3] we stated that there is
a need for a comprehensive and integrated transformation strategy for
federal real property, and that an independent commission or
governmentwide task force may be needed to develop this strategy.
Realigning the government‘s real property assets with agency missions
and taking into account the requirements of the future federal role and
workplace will be critical to improving the government‘s performance
and ensuring accountability within expected resource limits.
Security, Budget Scorekeeping Requirements, and Other Factors Have
Affected Federal Building Costs in Recent Years:
In managing the costs of constructing, leasing, and operating federal
buildings, GSA has faced pressures in a number of areas in recent
years. Many factors driving costs, such as security requirements, have
tended to increase costs for construction, leasing, and operations. In
addition, budget scorekeeping requirements have resulted in pressure to
lease rather than construct, when in many cases leasing is more
expensive over the long term. Another factor--implementing a federal
mandate encouraging environmentally sound construction and renovation
techniques--may result in higher initial construction costs but lead to
lower operating costs.
Security Requirements Have Raised Costs of Constructing, Leasing, and
Operating Federal Buildings:
As a result of the Oklahoma City bombing in 1995, President Clinton
directed the Department of Justice to assess the vulnerability of
federal office buildings to attack, which resulted in a 1995 report
entitled Vulnerability Assessments of Federal Facilities. The study
designated five levels of security needs into which federal office
buildings could be categorized, depending on the number of federal
employees housed in the facility and the responsibilities of the
agency; identified minimum standards for each of the five security
levels; and recommended the establishment of the Interagency Security
Committee (ISC) to provide a permanent body to address continuing
governmentwide security concerns.
In May 2001, ISC issued security design criteria for new federal office
buildings and major modernization projects, and in 2002 issued draft
security standards for leased space. [Footnote 4] Both of these take
into consideration the five levels of security needs, recognizing that
some federal facilities need more protection than others. Overall,
ISC‘s security design criteria and leasing security standards are
designed to strengthen the ability of buildings to sustain a bomb blast
or chemical attack as well as reduce the likelihood of such attacks
through measures to better control access to parking and work areas.
Construction measures in ISC‘s design criteria include items such as
providing glazing protection for windows, establishing distances that
buildings should be set back from the street, controlling vehicular
access to the buildings, and locating air intakes. ISC‘s draft security
standards for leased space require that GSA incorporate security
operating standards into all future leases and in existing locations on
a case-by case basis, and include similar measures as its construction
standards, where relevant, such as controlling vehicular access to the
building. We have not reviewed the implementation of the ISC security
design criteria.
Although we have not comprehensively evaluated how these changes in
security requirements have affected GSA‘s costs, we have gathered some
examples of rising security costs in recent years. For example,
according to a GSA official, security costs for courthouses have risen
from about $8 a square foot to about $24 a square foot. Security
requirements also have led GSA to look for larger sites for
courthouses. According to a GSA official, in some cases, GSA is
obtaining two separate but collocated urban sites on which to construct
a courthouse and may need to close a street between the two sites to
construct the building. In these circumstances, GSA may need to pay to
move utilities that are in the street between the two sites. Both the
increased size of the site and moving utilities located in the street
will add to construction costs. A GSA official also stated that the
estimate to renovate GSA‘s headquarters has risen from about $80
million to $120 million, mostly due to meeting security needs.
Similarly, in August 2001, we reported that the additional cost of
security features for the Security and Exchange Commission‘s (SEC) new
building currently under construction in Washington, D.C., is expected
to be $19 million.[Footnote 5] Enhancing blast protection for the
Department of Transportation building in Washington, D.C., was
estimated at about $8 million in 2001.
Regarding the effects of ISC security leasing standards on costs, at
one of four security roundtables that was held by an ISC team to
discuss ISC‘s proposed security leasing standards with the private
sector, the potential cost of security improvements was estimated at
$1.50 to $2.50 per square foot, excluding heating, ventilating, and air
conditioning. In extreme cases in which there are an unusually high
number of entrances to protect, it could be as high as $9 a square
foot. Using the estimate of $1.50 per square foot and the estimated 155
million square feet of leased space GSA had as of fiscal year 2002, GSA
leasing costs could increase by a minimum of $232 million dollars a
year because of security requirements, assuming none of the
improvements have already been made.
Building operations costs have also risen due to security requirements.
GSA‘s building operations obligations have increased by 31.3 percent in
2002 constant dollars since fiscal year 1995. Forty-five percent of
this increase is due to the increase in security obligations, which
have risen by 231 percent in 2002 constant dollars since fiscal year
1995 to about $397 million in fiscal year 2002.
One concern for which improving security is likely to affect
construction, leasing, and operating costs is upgrading existing
mailrooms in federal buildings. ISC guidelines addressing mailroom
security were written prior to anthrax being sent through the mail to
several federal buildings in the fall of 2001 and focused on securing
mailrooms from bomb blasts rather than contamination. However, in the
wake of the anthrax incidents, some agencies have begun screening and
testing their incoming mail for hazardous material. Agencies have
initiated a variety of efforts in this area, including, among other
things,
* retrofitting existing mailrooms with air handling and ventilation
systems that are independent of the systems supporting the rest of the
facility;
* moving mailroom operations off-site;
* contracting with private companies to screen, test, and process
incoming mail;
* training mailroom employees on the proper procedures for handling
potentially hazardous mail and providing these employees with
protective clothing and gear;
* purchasing equipment to screen and test mail for hazardous material;
and:
* modifying existing security contracts to require that security
personnel
X-ray incoming mail.
These and other measures to safeguard the mail are adding to the cost
of security for federal agencies in the Washington, D.C., metropolitan
area. In addition, GSA issued mail management guidelines in June 2002,
which brought into question whether some of the actions taken by
federal agencies to safeguard their mail were necessary, particularly
in light of the U.S. Postal Service‘s efforts in this regard, which
include irradiating certain mail destined for federal agencies located
in the Washington metropolitan area. Because of the cost associated
with safeguarding the mail and the uncertainty over the need for some
of these safeguards, at the request of the Senate Committee on
Governmental Affairs, we have initiated a review of agencies‘ mail
security efforts and associated costs.
In October 2002, we issued a report that identified security-related
costs being incurred by various agencies.[Footnote 6] While this
information gives a picture of the security costs, we did not determine
what types of costs are included. Some examples of recent security
costs that agencies reported to us include the following:
* The Federal Protective Service (FPS) obligated approximately $1.3
billion for security for fiscal years 1996 through 2001. Its fiscal
year 2002 budget was $362.1 million, of which about $207 million was
for contract guard services. Additionally, in fiscal year 2002, GSA was
slated to spend over $300 million more from its reimbursable
program[Footnote 7] for contract guard services, according to a FPS
official. This total of over $500 million for contract guard services
was to fund approximately 7,300 contract guards.
* In fiscal years 1999 through 2001, the Federal Judiciary paid $71.6
million for security through its rent payments to GSA. The Federal
Judiciary and the U.S. Marshals Service (USMS) also obligated about
$577.1 million from the Court Security Appropriation. For fiscal year
2002, the Federal Judiciary expected to pay $36.7 million for security
through its rent payments to GSA. Also, in fiscal year 2002, the
Federal Judiciary received an appropriation and emergency supplemental
for court security officers, court security inspectors, and security
systems and equipment and transferred $280.5 million to USMS to
administer the Judicial Security Facilities Program. Through its own
appropriation, USMS also received $24.1 million in funding for
construction; security, including guard contracts and security
equipment; and furniture to handle serious security deficiencies in
federal courthouses related to prisoner handling and the protection of
judges, judicial employees, the public, and the Marshals.
* For fiscal years 1996 through 2001, the Department of Education paid
GSA approximately $7.7 million in security-related expenses. In fiscal
year 2002, it expected to spend approximately $2.0 million in security-
related expenses, of which about $1.9 million was for guard costs.
The ISC security design criteria recommend that in order to control
costs, security budgets should be the result of a project-specific risk
assessment on which a budget can be based. ISC reasoned that if cost is
not considered early on, mitigation of one security risk might consume
a disproportionate amount of the budget while other security risks
might remain insufficiently or not addressed.
We also have supported the concept of risk assessment as a way to
determine how best to use limited funds in the context of enhancing
security. Specifically, we reported in a study focusing on homeland
security and information systems security that applying risk management
principles can provide a sound foundation for effective security
whether the assets are information, operations, people, or federal
facilities. [Footnote 8] We identified the following five basic steps
as being part of a risk management process to determine security
priorities and implement appropriate solutions: (1) identify assets,
(2) determine threats, (3) analyze vulnerabilities, (4) assess risks,
and (5) apply countermeasures. According to GSA, the agency uses a risk
management approach when considering security needs for its owned and
leased properties.
Budget Scorekeeping:
Our work has shown that budget scorekeeping requirements affect the
government‘s cost of acquiring space in two ways--by favoring operating
leases over construction and by encouraging agencies to lease space for
shorter time periods.[Footnote 9] To ensure budget recognition of the
government‘s commitments when they are made, budget scorekeeping
requires GSA to include the total cost of a building construction
project in its budget in the year that the government commits the
resources. This requirement for full up front funding promotes
discipline by requiring that the full cost of decisions be accounted
for upfront when the irrevocable decision to commit the resources is
made. Requiring up front funding for all programs (including health,
education, and human capital as well as real property) ensures that
none of them are given a relative advantage, especially when there is
no clear evidence that a shift in relative priorities would be
appropriate. However, we have previously reported that scorekeeping
requirements favor operating leases, the cost of which can be accounted
for in the budget on a yearly basis, rather than accounting for the
total cost upfront. This has led GSA to lease rather than construct
space for some new acquisitions needs. This practice has resulted in
increasing the cost of space to the government and taxpayers because
the cost of leasing space for which the government has a long-term need
is usually greater than the cost of purchasing that space through
construction.
In March 1999, we reported that our review of the economic analyses of
24 lease and construction acquisitions by GSA for approval in the
budget cycles for fiscal years 1994 through 1999 showed that, given
certain assumptions, construction was estimated as less costly than
leasing in all but one case.[Footnote 10] Analysis of 15 of these
acquisitions showed that construction had a cost advantage over leasing
in present value terms ranging from $2.9 million to $63 million. The
present value analysis of the construction of a hypothetical 100,000
square foot building in 11 locations throughout the country showed that
construction was consistently more cost-effective than leasing, with
the differences ranging from $0.3 million to $14 million. The new
Patent and Trademark Office complex currently under construction in
Alexandria, Virginia, is one example of an acquisition that cost
taxpayers more because GSA leased the property rather than constructing
it. A GSA present value cost analysis estimated that the recently
leased U.S. Patent and Trademark Office complex cost taxpayers about
$48 million more to lease than construct.
The budget scorekeeping requirements for leases can also affect the
cost of leasing federal properties by encouraging GSA or other agencies
to lease space for shorter time periods. Budget scorekeeping
requirements treat different types of leases differently. The Office of
Management and Budget has established six criteria for defining an
operating lease.[Footnote 11] A capital lease is any lease other than a
lease-purchase that does not meet the criteria of an operating lease.
Budget scorekeeping requires that for a capital lease, the net present
value of the entire cost of the lease be included in the budget for the
year the lease is approved, while for an operating lease, only each
year‘s cost must be included in that year‘s budget. We reported on this
issue in August 2001.[Footnote 12] We found that at least 13 leases or
lease project[Footnote 13] terms--the length of the lease--were
affected by budget scoring, and that others may have been similarly
affected. For example, the term of the lease for the SEC building was
reduced from 20 years to 14 years, and the lease for the new Department
of Transportation headquarters building was reduced from 20 years to 15
years; the changes in terms changed the leases from capital leases to
operating leases. Although we could not determine the overall monetary
impact of the budget scoring requirements for leases on lease terms,
GSA officials agreed that a 20-year lease usually has a lower annual
cost than a 10-or 15-year lease. Furthermore, in the report, we cited a
private-industry official who had testified before Congress that a 20-
year lease term could have annual rates as much as 33 percent less
expensive than a 10-year lease and 13 percent less expensive than a 15-
year lease. We found that the lease terms on these 13 cases were
shortened because of the budget scorekeeping requirements for leases.
Decision-makers have struggled with this matter since the scoring
requirements were established and the tendency for agencies to choose
operating leases instead of ownership became apparent. We have
suggested the alternative of scoring all operating leases up front on
the basis of the underlying time requirement for the space so that all
options are treated equally.[Footnote 14] Although this could be
viable, there would be implementation challenges if this were pursued,
including the need to evaluate the validity of agencies‘ stated space
requirements. Another option, which was recommended by the President‘s
Commission to Study Capital Budgeting in 1999 and discussed by
us,[Footnote 15] would be to allow agencies to establish capital
acquisition funds to pursue ownership where it is advantageous from an
economic perspective. Budget scorekeeping and its effects on the
acquisition of space is a complex issue that will not be easy to
effectively resolve. Nonetheless, as we reported in January 2003, it
has a significant unintended effect on costs and needs to be
addressed.[Footnote 16]
Geographic Location of Buildings:
Three aspects of where a building is located can affect its costs. The
first aspect is the part of the United States in which the building is
located. For example, in a 1999 report, we reported that, at that time,
to build a hypothetical 100,000 square foot building would cost a high
of $63.2 million in New York City, New York; $37.9 million in Boston,
Massachusetts; and a low of $32.7 million in Denver, Colorado.
[Footnote 17] The second aspect of location that can affect building
costs is whether the building site is in a central business area or a
rural or noncentral business area. Currently, the Rural Development Act
directs federal agencies to give first priority to the location of new
offices and other facilities in rural areas, and Executive Order 12072
specifies that when the agency mission and program requirements call
for facilities to be located in urban areas, agencies must give first
consideration to locating in central business areas.
In a July 2001 report, we noted that federal agencies subject to the
Rural Development Act continue to locate for the most part in higher
cost urban areas. [Footnote 18] Most of the agencies included in our
review said that they located their facilities on the basis of mission
needs, although agencies did have flexibility in some cases. We
reported that 8 of the 13 cabinet agencies we surveyed had no formal
Rural Development Act siting policy, and there was little evidence that
agencies considered the act‘s requirement when siting new federal
facilities. In contrast, we reported that private-sector companies
chose rural areas to take advantage of such factors as lower real
estate and labor costs. We did find that rural locations can result in
higher costs in some cases even though the cost of the land itself can
be cheaper. For example, according to a GSA official, rural sites for
border stations can result in increased construction costs because GSA
may have to bring in construction workers from long distances and pay
them for travel or pay for or provide local housing for the workers.
We also found that locating a building in a central business area can
result in higher lease costs than siting it in a noncentral business
area; specifically, the average cost of leasing for 11 cities was $4.03
more expensive per square foot in the central business area than in
noncentral business areas. For example, locating in the central
business area of San Francisco can be $11.40 a square foot more
expensive than locating in the noncentral business area of that same
city. However, out of the 11 cities we reviewed, 3 had higher lease
rates in their noncentral business areas.
The third aspect of location that can have a substantial effect on
construction costs is the specific site selected. In November 1995, we
testified that certain features of sites that had been selected for the
construction of federal courthouses had resulted in additional
construction-related costs that would not necessarily have been
incurred had another site been selected.[Footnote 19] For example:
* a waterfront site required that the building include extensive
waterproofing and wind bracing and a $1.6 million pier and floating
dock to accommodate the Costal Zone Management Act;
* an urban site, which was a small and oddly shaped parcel of land, did
not allow for an efficient design configuration and had contaminated
soil that cost $3.2 million to remove; and:
* another urban site, which sloped, allowed only a high-rise building,
which is more costly to build, and required a more costly ’split-level“
lobby.
:
Federal Mandates:
Federal mandates, such as laws and executive orders, have affected the
construction, leasing, and operating costs of federal buildings. GSA‘s
General Reference Guide for Real Property Policy lists the laws and
executive orders that impact GSA‘s roles, including many that affect
design, construction, and leasing. In October 1999, we issued a report
that listed 29 federal statutes and 7 executive orders applicable to
leasing.[Footnote 20] Examples of laws that affect construction and/or
leasing and operations include the following:
* The Architectural Barriers Act of 1968 (42 U.S.C. §4151-4156)
establishes standards for the accessibility of federal buildings to
physically disabled persons.
* The Davis-Bacon Act (40 U.S.C. §3142) requires the payment of minimum
wages for laborers and mechanics employed on government construction
projects. The wages are established by the Department of Labor and are
based on prevailing wage rates in a locality.
* The Small Business Act (15 U.S.C. §631 et seq.) requires federal
agencies to utilize small and small disadvantaged businesses and to
ensure that such businesses have the maximum practical opportunity to
participate as subcontractors in the performance of federal contracts.
* The Energy Policy and Conservation Act (42 U.S.C. §6201 et seq.)
requires federal agencies to implement programs that reduce energy
consumption in federal facilities. This includes federal leased space.
Examples of executive orders that may affect federal building costs
include the following:
* Executive Order 11990--Protection of Wetlands--requires federal
agencies to avoid causing wetlands to be filled unless there is no
practical alternative to doing so.
* Executive Order 12072--Federal Space Management--requires federal
agencies to give first consideration to a centralized community
business area when locating federal facilities.
* Executive Order 12770--Metric Usage in Federal Programs--requires,
with certain exceptions, that the metric system of measurement be
implemented in all new federal design and construction projects.
* Executive Order 12902--Energy Efficiency and Water Conservation at
Federal Facilities--requires that appropriate consideration be given to
building efficiencies in the design and construction process.
In a March 2002 study prepared for GSA by a contractor concerning
courthouse construction costs, 28 federal mandates were identified that
had to be considered on every federal courthouse construction
project.[Footnote 21] In comparing state and federal courthouse
construction costs, the study estimated that these mandates added an
average $4.04 per square foot to the cost of a federal courthouse. A
specific example of the impact of a mandate is the executive order on
metric use. The study showed that using the metric system added an
estimated $0.57 per square foot to federal government construction
costs for the projects covered in the study. The study points out that
pipe suppliers stock standard U.S. Customary System sizes of pipe and
have to special order corresponding metric pipe sizes, which usually
represents an increased cost to the supplier that is passed on to the
federal government.
In a March 2003 testimony we discussed federal mandates relative to
building construction that address conservation and environmental
protection, steps GSA and other federal organizations have taken to
implement these mandates, and obstacles agencies have faced in
attempting to implement them.[Footnote 22] We said that GSA encourages
agencies to use sustainable design approaches in federal construction
and renovation projects. Sustainable designs are intended to result in
energy efficiency and minimal impact on the environment. The objectives
of this type of design are to:
* reduce consumption of nonrenewable resources,
* minimize waste and impact on the environment,
* optimize site potential,
* minimize nonrenewable energy consumption,
* use environmentally preferable products,
* protect and conserve water,
* enhance indoor environmental quality, and:
* optimize operation and maintenance practices.
By improving energy efficiency, federal agencies may also reduce
operating costs. Federal organizations have made progress in
implementing these efforts. GSA and other agencies have begun using the
Leadership in Energy and Environmental Design Rating (LEED) system. By
using LEED, agencies can gauge the impact of design decisions on energy
efficiency and other sustainable factors. In a similar vein, the White
House reduced its operating costs by about $300,000 annually using
sustainable design. As part of the Pentagon renovation, sustainable
design principles are being implemented with the hope of reducing
operating costs by $4 million to $5 million each year.
Although up-front investments in sustainable design features can save
building operating costs and help protect the environment, agencies
have faced obstacles in implementing this concept. For example, initial
costs of sustainable design features can be more costly than other
approaches. GSA estimated that obtaining the second from the highest
LEED rating for the construction of the Department of Transportation
headquarters building would cost about $10 a gross square foot.
Agencies have faced difficulty in securing the funding needed for this
approach.
Inadequate Maintenance, Construction Finishes, Contract Modifications,
and Inflation:
Failure to adequately maintain buildings may also affect operating
costs. In 2001, we reported that 44 buildings in GSA‘s inventory each
had $20 million or more in repair and alteration backlogs.[Footnote 23]
Many of the repair and alteration needs in these buildings had a direct
impact on the energy efficiency of the buildings, including aging and
inefficient plumbing, heating ventilation, and air conditioning
systems. For example, the Dwight D. Eisenhower building in Washington,
D.C., had a repair and alteration backlog of $216 million, which
included the need to address the building‘s antiquated air conditioning
system. GSA officials said that this system, which uses about 250
individual window units, is outdated and not efficient in cooling the
building or conserving energy. In July 2000, we reported estimates that
the Government Printing Office could save over $400,000 a year in
energy and maintenance costs by replacing its aged air conditioning
chillers with new, more energy efficient ones and could save $800,000
annually by upgrading its energy inefficient lighting at an estimated
cost of $1.6 million.[Footnote 24] The Government Printing Office
expects to have its air conditioning chillers and its lighting projects
completed in April and May 2003, respectively. Greening the Building
and the Bottom Line, a report from the Rocky Mountain Institute in
cooperation with the Department of Energy (DOE), documents the case of
a lighting retrofit that resulted in a 540 percent return on
investment.
In 1995, we testified that interior construction costs, which include
interior finishes, ranged from $19 to $68 a square foot for eight
courthouse construction projects we studied.[Footnote 25] For example,
we noted that for one courthouse, using wood veneer paneling from
floor-to-ceiling increased costs by $5 million versus using wood
wainscot paneling. Also, the choice of exterior finish can increase
cost. For example, using granite versus precast concrete or brick will
increase the construction costs. GSA and the Administrative Office of
the United States Courts established the Independent Courts Building
Program Panel to evaluate the program.
Contract modifications after the initial contract is issued also can
affect costs. In June 1994, we reported that, for GSA‘s 100 new
construction contracts and 337 repair and alteration contracts that
were substantially completed between fiscal year 1988 and the first
half of fiscal year 1993, over 50 percent had cost growth that exceeded
the 5 percent and 7 percent, respectively, that GSA provided as
contingencies for contract modifications.[Footnote 26] Our detailed
case studies of 12 construction contracts for 7 major projects showed
that contract changes to overcome design and planning problems were a
major contributor to contract cost growth. As part of GSA‘s current
strategic goals, a long-range performance goal has been established to
reduce the cost escalation rate for new construction projects to 1
percent. GSA reported that cost escalation on construction projects was
2.3 percent in fiscal year 2002. Finally, inflation is a factor in
construction cost growth. A GSA contractor asked to report on inflation
rates indicated that from 1999 to 2000 the construction inflation rate
in the Washington, D.C., area was 7 percent due to significant labor
shortages in concrete, masonry, and especially drywall.
We Have Designated Federal Real Property as High-Risk:
In January 2003, we designated federal real property as a high-risk
area.[Footnote 27] As you know, our high-risk update is provided at the
start of each new Congress in conjunction with a special series we have
issued biennially since January 1999, entitled the Performance and
Accountability Series: Major Management Challenges and Program Risks.
This effort is intended to help the new Congress focus its attention on
the most important issues and challenges facing the federal government.
In designating this area high-risk, we reported that the federal real
property portfolio reflects an infrastructure that is based on the
business model and technological environment of the 1950s. Many assets
are no longer effectively aligned with or responsive to agencies‘
changing missions and are therefore no longer needed. Furthermore, many
assets are in an alarming state of deterioration; agencies have
estimated restoration and repair needs to be in the tens of billions of
dollars. Compounding these problems are the lack of reliable
governmentwide data for strategic asset management, a heavy reliance on
costly leasing instead of ownership to meet new space needs, and the
cost and challenge of protecting these assets against potential
terrorism. The persistence of these problems--many of which have been
discussed earlier in this testimony--and various obstacles that have
impeded progress in resolving them led to the high-risk designation.
The problems the government faces in this area have multibillion-dollar
cost implications. The cost implications are particularly evident
regarding excess and underutilized property and the need for the
government to realign these assets. For example, underutilized or
excess property is costly to maintain. The Department of Defense
estimates that it is spending $3 billion to $4 billion each year
maintaining facilities that are not needed. In July 1999, we reported
that vacant Department of Veteran Affairs (VA) space was costing as
much as $35 million to maintain each year.[Footnote 28] Costs
associated with excess DOE facilities, primarily for security and
maintenance, exceed $70 million annually.[Footnote 29] It is likely
that other agencies that continue to hold excess or underutilized
property are also incurring significant costs for staff time spent
managing the properties and for maintenance, utilities, security, and
other building needs. Furthermore, in addition to day-to-day
operational costs, the government is needlessly incurring unknown
opportunity costs, because these buildings and land could be put to
more cost-beneficial uses, exchanged for other needed property, or sold
to generate revenue for the government. For example, in 1998, we
reported that VA could reduce expenditures by an estimated $200 million
over the next 10 years by consolidating hospital services into three
locations in Chicago, Illinois, rather than continuing to operate four
underutilized locations.[Footnote 30]
GSA also has vacant and underutilized property. In August 2002, we
reported on a recent GSA initiative to deal with its under performing
properties.[Footnote 31] GSA had identified over 500 of its owned
properties that were not generating sufficient income to cover their
expenses and meet other financial performance criteria. GSA was
developing and beginning to implement strategies for disposing of these
properties, renting space to nonfederal tenants, or taking other
actions to address the problem.
The problem of repair backlogs in federal facilities also has major
cost implications. In addition to the multibillion-dollar backlog in
needed work that is currently identified, we have reported that the
ultimate cost of completing delayed repairs and alterations may
escalate because of inflation and increases in the severity of the
problems caused by the delays. The overall cost of needed repairs could
also be affected by government realignment. That is, to the extent that
unneeded property is also in need of repair, disposing of such unneeded
property could reduce the repair backlog. And finally, the cost of
securing unneeded assets against the threat of terrorism, in addition
to being significant, will use funds that likely could have been
directed to realignment and repair efforts for properties that the
government determines it should retain.
As discussed in our high-risk report, resolving these long-standing
problems will require high-level attention and effective leadership by
Congress and the administration. Also, because of the breadth and
complexity of the issues involved, the long-standing nature of the
problems, and the intense debate that will likely ensue regarding
potential solutions, current structures and processes may not be
adequate to address these problems. Given this situation, we concluded
in our high-risk report that there is a need for a comprehensive and
integrated transformation strategy for federal real property, and an
independent commission or governmentwide task force may be needed to
develop this strategy. Such a strategy could be based on input from
agencies, the private sector, and other interested groups. The strategy
also should reflect the lessons learned and leading practices of public
and private organizations that have attempted to reform their real
property practices. These organizations have recognized that real
property, like capital, people, technology, and information, is a
valuable resource that, if managed well, can support the accomplishment
of their missions and the achievement of their business objectives. In
addition, as these organizations are recognizing, the workplace of the
future will differ from today‘s work environment.
For the federal government, technological advancements, electronic
government, flexible workplace arrangements, changing public needs,
opportunities for resource sharing, and security concerns will call for
a new way of thinking about the federal workplace and the government‘s
real property needs. Realigning the government‘s real property assets
with agency missions and taking into account the requirements of the
future federal role and workplace will be critical to improving the
government‘s performance and ensuring accountability within expected
resource limits. If actions resulting from the transformation strategy
comprehensively address the problems and are effectively implemented,
agencies will be better positioned to recover asset values, reduce
operating and space acquisition costs, improve facility conditions,
enhance safety and security, and achieve mission effectiveness.
Contact:
For questions regarding this testimony, please contact Bernard L. Ungar
at (202) 512-2834 or at ungarb@gao.gov.
FOOTNOTES
[1] Kilpatrick Stockton, Studley, DPR, Gensler, US Courthouse
Construction Cost Comparison Study (Mar. 12, 2002, revised).
[2] U.S. General Accounting Office, Building Security: Security
Responsibilities for Federally Owned and Leased Facilities, GAO-03-8
(Washington, D.C.: Oct. 31, 2002); Budget Scoring: Budget Scoring
Affects Some Lease Terms, but Full Extent Is Uncertain, GAO-01-929
(Washington, D.C.: Aug. 31, 2001).
[3] U.S. General Accounting Office, High-Risk Series: Federal Real
Property, GAO-03-122 (Washington, D.C.: January 2003).
[4] Interagency Security Committee, ISC Security Design Criteria for
New Federal Office Buildings and Major Modernization Projects (May 28,
2001). These criteria apply to new construction of general purpose
office buildings and new or leased-construction of courthouses occupied
by federal employees in the United States and not under the
jurisdiction and/or control of the Department of Defense.
[5] GAO-03-8.
[6] GAO-03-8.
[7] The reimbursable program provides security funding from the rents
paid by agencies assigned space in GSA owned or leased buildings; the
rent includes a building-specific charge for contract guards.
[8] U.S. General Accounting Office, Homeland Security: A Risk
Management Approach Can Guide Preparedness Efforts, GAO-02-208T
(Washington, D.C.: Oct. 31, 2001).
[9] Budget scorekeeping is the process of estimating the budgetary
effects of pending and enacted legislation and comparing them with
limits set in the budget resolution or legislation. Scorekeeping tracks
data such as budget authority, receipts, outlays, the surplus or
deficit, and the public debt limit.
[10] U.S. General Accounting Office, General Services Administration:
Comparison of Space Acquisition Alternatives--Leasing to Lease Purchase
and Leasing to Construction, GAO/GGD-99-49R (Washington, D.C.: Mar. 12,
1999).
[11] The Office of Management and Budget defines capital and operating
leases in Circular-No. A-11, appendix B. A capital lease means any
lease other than a lease-purchase that does not meet the criteria of an
operating lease. An operating lease must meet six criteria: 1)
ownership of the asset remains with the lessor during the term of the
lease and is not transferred to the government at or shortly after the
end of the lease term; 2) the lease does not contain a bargain-price
purchase option; 3) the term does not exceed 75 percent of the
estimated economic life of the asset; 4) the present value of the
minimum lease payments over the life of the lease does not exceed 90
percent of the fair market value of the asset at the beginning of the
lease term; 5) the asset is a general purpose asset rather than being
for a special purpose of the Government and is not built to the unique
specification of the Government as lessee; and 6) there is a private
sector market for the asset.
[12] GAO-01-929.
[13] A lease project is a project on which GSA is trying to obtain a
lease.
[14] U.S. General Accounting Office, Supporting Congressional
Oversight: Budgetary Implications of Selected GAO Work for Fiscal Year
2003, GAO-02-576 (Washington, D.C.: Apr. 26, 2002).
[15] U.S. General Accounting Office, Accrual Budgeting: Experiences of
Other Nations and Implications for the United States, GAO/AIMD-00-57
(Washington, D.C.: Feb 18, 2000).
[16] GAO-03-122.
[17] GAO/GGD-99-49R.
[18] U.S. General Accounting Office, Facility Location: Agencies Should
Pay More Attention to Costs and Rural Development Act, GAO-01-805
(Washington, D.C.: July 31, 2001).
[19] U.S. General Accounting Office, Federal Courthouse Construction:
More Disciplined Approach Would Reduce Costs and Provide for Better
Decisionmaking, GAO/T-GGD-96-19 (Washington, D.C.: Nov. 8, 1995).
[20] U.S. General Accounting Office, Federal Statutes and Executive
Orders Applicable to the Public Buildings Service‘s Leasing Program,
GAO/GGD-00-27R (Washington, D.C.: Oct. 18, 1999)
[21] US Courthouse Construction Cost Comparison Study (Mar. 12, 2002,
revised).
[22] U.S. General Accounting Office, Federal Energy Management:
Facility and Vehicle Energy Efficiency Issues, GAO-03-545T (Washington,
D.C.: Mar. 12, 2003).
[23] U.S. General Accounting Office, Federal Buildings: Funding Repairs
and Alterations Has Been a Challenge--Expanded Financing Tools Needed,
GAO-01-452 (Washington, D.C.: Apr. 12, 2001).
[24] U.S. General Accounting Office, Government Printing Office: Space
Utilization and Potential Opportunities for Saving on Facilities,
unnumbered correspondence (Washington, D.C.: July 24, 2000).
[25] GAO/T-GGD-96-19.
[26] U.S. General Accounting Office, General Services Administration:
Better Data and Oversight Needed to Improve Construction Management,
GAO/GGD-94-145 (Washington, D.C.: June. 27, 1994).
[27] GAO-03-122.
[28] U.S. General Accounting Office, VA Health Care: Challenges Facing
VA in Developing an Asset Realignment Process, GAO/T-HEHS-99-173
(Washington, D.C.: July 22, 1999).
[29] DOE Office of the Inspector General, Disposition of the
Department‘s Excess Facilities, DOE/IG-0550 (Washington, D.C.: Apr. 3,
2002)
[30] U.S. General Accounting Office, VA Health Care: Closing A Chicago
Hospital Would Save Millions and Enhance Access to Services, GAO/
HEHS-98-64 (Washington, D.C.: Apr. 16, 1998).
[31] U.S. General Accounting Office, Financial Condition of Federal
Buildings Owned by the General Services Administration, unnumbered
correspondence (Washington, D.C.: Aug. 8, 2002).
