Real Property Leasing 

Procurement Process 

September 30, 2010 

Report No. 484 
Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

ii 

UNITED STATES

ECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20S49

S

Ol'"l'"'Cl!: 0..-

IN.~IlCTOft GI:NERAlMEMORANDUM

September 30, 2010

To: Sharon Sheehan, Associate Executive Director, Office of

Administrative Services (OAS)

From: H. David Kotz, Inspector General, Office of Inspector

Subject: Real Property Leasing Procurement Process, Report No. 484

GeneraIJ~~

This memorandum transmits the U.S. Securities and Exchange Commission,

Office of Inspector General's (DIG) final report detailing the results of our audit of

the Real Property Leasing Procurement Process. This audit was conducted as

part of our continuous effort to assess the management of the Commission's

programs and operations and as a part of our annual audit plan.

This report contains 14 recommendations that were developed to strengthen the

Commission's real property leasing procurement processes. OAS fully

concurred with all of the report's recommendations. Your written response to the

draft report is included in Appendix V.

Within the next 45 days, please provide the DIG with a written corrective action

plan that is designed to address the agreed-upon recommendations. The

corrective action plan should include information such as the responsible

official/point of contact, time frames for completing the required actions, and

milestones identifying how you will address the recommendations cited in the

report.

Should you have any questions regarding this report, please do not hesitate to

contact me. We appreciate the courtesy and cooperation that you and your staff

extended to our staff during this audit.

Attachment

cc: Kayla J. Gillan, Deputy Chief of Staff, Office of the Chairman

Diego Ruiz, Executive Director, Office of the Executive Director

David Becker, General Counsel, Office of General Counsel

John Branch, Assistant Director, Office of Administrative Services,

Real Property and Facilities Support
Real Property Leasing Procurement Process

Executive Summary 

Background. In 1990, Congress provided the Securities and Exchange 

Commission (SEC or Commission) with independent leasing authority and, at the 

same time, exempted the SEC from General Services Administration (GSA) 

space management’s regulations or directives. In doing so, Congress intended 

that the SEC would exercise this independent leasing authority vigorously in 

order to achieve cost savings and increase the SEC’s productivity and efficiency. 

Pursuant to its independent leasing authority, the SEC enters into commercial 

leases for all of the agency’s office space. The SEC does not own any of its 

facilities. 

The SEC’s real estate leasing function is managed primarily by the Real Property 

and Leasing Branch (Leasing Branch) of the Office of Administrative Services 

(OAS), which was established in April 2009. Leasing authority is centralized 

within OAS, and the SEC’s regional offices do not have any independent 

authority to enter into real property leases. 

Other OAS components that have responsibilities that impact the SEC’s real 

estate leasing program include OAS’s Security, Construction, Space 

Management, and Facilities Branches, as well as the Office of Acquisitions. 

Other SEC offices that have significant interaction with the leasing program are 

the Office of Information Technology (OIT) and the Office of Financial 

Management (OFM). The Associate Executive Director of OAS serves as the 

SEC’s Senior Procurement Executive (SPE). Under agency contracting policies, 

the SPE appoints a Realty Contracting Officer, who has delegated, express 

written authority for realty leasing on a contracting officer’s warrant. 

The SEC currently maintains 2,482,576 square feet of leasehold interests. 

These include leases for SEC headquarters facilities located in Washington, 

D.C., as well as leases for all of the SEC’s regional offices located throughout the 

United States. The SEC made total lease payments of approximately $83.8 

million in both Fiscal Years 2008 and 2009, representing approximately 9 percent 

of the SEC’s total budget authority for these years. It is anticipated that the 

SEC’s leasing program and leasing costs will increase over the next few years as 

the agency expands to meet new responsibilities. 

Objectives. The Office of Inspector General (OIG) conducted its audit to 

determine whether OAS had established real property leasing policies and 

procedures and to examine whether these policies and procedures were 

consistently followed and in compliance with applicable federal laws, rules, and 

regulations. Our audit was also performed to ascertain how the Leasing Branch 

maintains and tracks the SEC’s real property leases. Lastly, our audit sought to 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

iii 
identify the SEC’s current leases and assess whether the lease requirements 

were appropriate and to assess whether the SEC received the best value for its 

leasing investments. 

Results. Overall, our audit found that the SEC’s Leasing Branch does not have 

adequate policies in place and, until very recently, had no final leasing policies 

and procedures. Our audit also determined that the absence of adequate leasing 

policies and procedures led to certain situations in which the SEC was required 

to make lease payments that could have been avoided if appropriate policies and 

procedures had existed and been followed consistently. 

Significantly, our audit determined that the primary leasing policy document, 

Securities and Exchange Commission Regulation (SECR) 11-03, “SEC Leasing 

Program,” which was finalized months after our audit fieldwork was completed, is 

incomplete and inadequate. Further, the SEC’s Leasing Program Operating 

Procedures (OP 11-03), which supplements SECR 11-03, is also inadequate and 

remains in draft form. 

The audit noted the following specific deficiencies in the SEC’s leasing policies 

and procedures. First, SECR 11-03 is incomplete as it does not list or describe 

all of the legal requirements and guidelines relevant to real property leasing. The 

SECR also fails to enumerate the specific objectives of the SEC’s leasing 

program and provides no instructions or guidance to facilitate compliance with 

relevant authorities. While the SEC, by statute, is exempted from strict 

adherence to GSA space management regulations or directives, the SEC could 

benefit significantly by looking to the GSA regulations on leasing and 

management of real property as a guide, and evaluating, assessing and 

implementing these regulations, as deemed appropriate. 

Second, while the SEC’s Office of General Counsel (OGC) has indentified SECR 

11-03 as the SEC’s asset management plan required by Executive Order 13327, 

“Federal Real Property Asset Management,” the OIG’s review of SECR 11-03 

revealed that it falls well short of being an adequate asset management plan. 

The OIG found that SECR 11-03 was an insufficient asset management plan 

because it did not set forth any objectives for the real property leasing function, 

did not specify resource requirements to support real property leasing, and 

contained virtually no information pertinent to lease administration. Specifically, 

the audit noted that SECR 11-03 does not include the required components of an 

asset management plan that are set forth in guidance issued by the Federal Real 

Property Council (FRPC). 

Third, the audit found that OAS did not have sufficient procedures for how leases 

should be managed and tracked. While we found that the Leasing Branch had a 

document that described the rent payment process and that staff manually 

tracked monthly lease payments on a spreadsheet, the Leasing Branch does not 

separately track amounts paid for operating expenses, property taxes or repairs. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

iv 
The audit concluded that the lack of such detailed payment data hinders the 

SEC’s ability to monitor expenses incurred during the operational phase of a 

lease, and that such information would be useful in making future leasing 

decisions and formulating the annual budget for leased properties. 

Fourth, the audit found that although the SEC’s five-year draft strategic plan 

includes a strategic goal that encompasses enhancement of the Commission’s 

performance through the effective alignment and management of financial 

capital, the SEC has no specific goals or performance measures for real property 

leasing, even though the SEC expends approximately $83.8 million per year on 

real property leases. The audit noted that without such goals and performance 

measures, OAS is unable to employ a continuous monitoring and feedback 

mechanism, which is a required component of a sufficient asset management 

plan. 

As mentioned above, the OIG’s audit revealed certain specific instances in which 

the failure to have in place, and to adhere to, adequate leasing policies and 

procedures resulted in additional costs to the agency. 

One of these situations involved the planning for the competition or renewal of a 

building lease for the San Francisco Regional Office (SFRO) that was expiring at 

the end of October 2009. The OIG audit found that OAS changed its plan to 

negotiate a lease with the current landlord due to market information showing a 

dramatic drop in rental rates in the San Francisco office market. As a 

consequence, OAS decided to conduct a full and open competition and prepared 

a sole source justification for a one-year extension of the existing lease to allow 

sufficient time to negotiate a long-term solution. According to the sole source 

justification document, OAS expected to negotiate a price of approximately 

$42.24 per rentable square foot (rsf) for the one-year extension. The one-year 

extension was never executed; however, and, beginning on November 1, 2009, 

the SEC began paying rent at a higher holdover rate of over $60 per rsf. 

After conducting a competition, the SEC awarded a new 10-year lease to the 

current landlord. The new lease, which was signed on April 9, 2010, expanded 

the existing office space and provided for annual rent of $41 per rsf, increasing 

by $1 each year; however, the new rate does not commence until construction of 

the 25th floor is completed and accepted. The SEC continued to pay rent at the 

higher hold over rate for approximately six months until it signed the lease. At 

that time, the landlord, consistent with its previous offer, agreed to credit the 

difference between the holdover rate and the lease rate in effect as of October 

31, 2009, of $53.34 per rsf, and the SEC will continue to pay rent at this rate until 

the new lease becomes effective. 

The OIG found that the failure to extend the previous lease prior to its expiration, 

or to enter into a new one on a timely basis resulted in the SEC, during a time of 

declining market rental rates, paying rent at rates substantially higher than the 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

v 
rate it would have paid, had it executed the one-year lease extension 

contemplated by the sole source justification. Specifically, we calculated that 

even with the credit obtained after the new lease was signed, the SEC paid 

excess rent totaling $203,000 between November 2009 and March 2010. While 

OAS indicated that it performs acquisition planning, the OIG audit found that the 

SEC’s written leasing policies and procedures do not adequately address timely 

acquisition planning and do not require the preparation of adequate project plans. 

The OIG concluded that improved policies and procedures for lease planning 

would better enable OAS to anticipate and react to changed circumstances. 

In another situation involving the lease of office space in New York City, the OIG 

found that the SEC, for several past years and continuing into the future, was 

obligated to make simultaneous payments for two office properties, one of which 

it no longer occupies. Specifically, the OIG found that after asbestos was 

discovered in the office location it had leased since late September 2001, the 

SEC had a dispute with the landlord regarding how the situation should be 

handled, and discussions with regard to an expansion in the existing location 

came to an end. The SEC then decided to relocate its New York Regional Office 

(NYRO) and enter into a lease at another site. However, the SEC was still 

responsible for payments under the initial lease, as it believed it could not 

demonstrate that the landlord had breached the terms of the lease, which 

included a default clause, but not a termination for convenience clause. 

In April 2004, SEC officials executed and approved a justification for other than 

full and open competition to obtain a new NYRO lease on the basis of unusual 

and compelling urgency. The justification was conditioned on the provision that 

the successor landlord assume the SEC’s remaining obligations at the existing 

lease site. The SEC entered into a lease for a new NYRO office location in 

March 2005; however, the new landlord did not assume any of the SEC’s 

remaining obligation at the previous site (although the landlord did agree that the 

SEC would be responsible only for operating expenses during the first year of the 

lease). The SEC contacted GSA, which found a tenant for the SEC’s former 

office location. Also in March 2005, the SEC entered into a wrap around lease 

and surrender agreement, which terminated the SEC’s previous lease provided 

that the SEC made certain payments to the landlord, and the landlord and GSA 

executed a lease for the premises (which they did). 

As a consequence of the circumstances described above, the SEC has made 

since May 2005, and continues to make, simultaneous payments for office space 

at two locations in New York City. The OIG calculated that the SEC paid over 

$15 million between May 31, 2005 and March 31, 2010 for property that no SEC 

employees have occupied since June 2005. During this same time period, the 

SEC made payments of over $35 million to lease its current NYRO facility. 

Under the terms of its current lease and the wrap around lease and surrender 

agreement, the SEC will continue to make simultaneous payments until March 

2012. The OIG audit determined that the lack of SEC guidance for evaluating 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

vi 
options prior to vacating leased space, or for including a termination for 

convenience clause or a broader, more inclusive default clause in a lease, or 

using flexible lease terms, contributed to the SEC paying millions of dollars for 

space it did not occupy. 

A final situation where insufficient policies and procedures contributed to 

increased costs pertained to the evaluation of security requirements at a site in 

Alexandria, Virginia, where the SEC entered into a short-term lease for 

temporary office space, occupying a single floor of a four-floor building. While 

the audit found that the Leasing and Security Branches have been working to 

coordinate their efforts since the chiefs of those branches arrived at the SEC in 

2008, improved coordination between these branches is needed. Further, 

although the Security Branch has developed two documents to be used in 

connection with proposed SEC office locations – a Building Security Survey and 

a Security and Safety Assessment, the OIG identified additional important 

information that should be included in the Security and Safety Assessment. 

In addition, the OIG audit found that neither the Building Security Survey nor the 

Security and Safety Assessment were used in connection with the Alexandria, 

Virginia short-term lease. Because it was determined that the facility was located 

in a high crime area, the SEC explored options for appropriately securing the 

facility. OAS determined that the cost of developing computerized access for the 

building was too high. OAS decided that the most cost-effective option to place 

unarmed guards on the floor occupied by the SEC at the SEC’s expense and for 

the SEC to pay the landlord, pursuant to a lease amendment, to hire an off duty 

police officer to patrol the area at a cost of $200,000 per year. Thus, the SEC is 

paying for an armed off duty police officer at a facility where it occupies only one 

of four floors. Our audit found that if the appropriate security documents had 

been used in connection with this lease, the Leasing Branch would have been 

better equipped to negotiate for adequate security of the facility to be provided as 

part of the initial lease document. 

Summary of Recommendations. Our audit determined that several 

improvements in the real property leasing process are needed to ensure that the 

SEC exercises its independent leasing authority vigorously and achieves cost 

savings and increased productivity and efficiency, as Congress intended. 

Specifically, we recommend that OAS: 

(1) Revise SECR 11-03 and draft OP 11-03 to ensure that they 

are adequate and complete and include the information 

identified in this report, finalize OP 11-03 and the 

attachments thereto, and ensure that the revised documents 

are posted to the Commission’s Intranet site and circulated 

to all staff with leasing responsibilities; 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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(2) Amend SECR 11-03 to include a complete list of relevant 

authorities that apply to real property leasing and finalize detailed 

guidance to ensure compliance with those authorities; 

(3) Measure the SEC’s real property leasing policies and procedures 

against pertinent provisions of GSA regulations, including the GSA 

Acquisition Manual and Subpart C of the Federal Management 

Regulation, as appropriate; 

(4) Ensure that the Leasing Branch’s policies and procedures, 

including OP 11-03 and the attached checklists, provide 

comprehensive guidance for SEC leasing officials regarding the 

leasing process to assist in ensuring compliance with applicable 

policies, regulations and best practices; 

(5) Utilize the “Required Components” Section of the FRPC’s 

Guidance for Improved Asset Management to develop and finalize 

the SEC’s real property leasing asset management plan, as 

appropriate; 

(6) Amend its leasing policies and procedures to require the tracking 

and monitoring of all leasing expenses (i.e., rent, operating costs 

and taxes) for informational and budget formulation purposes; 

(7) Develop performance goals for the SEC’s real property leasing 

activities, including both lease acquisition and the monitoring and 

administration of existing leases, identify key external factors that 

could significantly affect the achievement of these goals, and 

periodically evaluate whether these goals are met; 

(8) Develop performance measures to assist in evaluating the 

effectiveness of the major functions of real property acquisitions 

and operations and periodically evaluate performance based on 

these measures; 

(9) Revise SECR 11-03 and draft OP 11-03 to include complete written 

policies for timely acquisition planning pertinent to real property 

leases, including the preparation of project plans and schedules 

with projected dates for achieving milestones well in advance of the 

scheduled commencement of a lease; 

(10) Adopt evaluation procedures that involve scoring and ranking 

various options prior to deciding to vacate leased premises or to 

terminate a lease, and develop a transparent methodology for 

formulating scores and rankings; 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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(11) In consultation with the OGC, ensure that the SEC’s real property 

leases provide appropriate protections in the event the SEC needs 

to terminate a lease before its expiration date; 

(12) Revise the Security and Safety Assessment document to include 

more specific information, such as the number of recent incidents in 

the vicinity, the likelihood that future incidents will occur or 

vulnerabilities will be exploited, recommended countermeasures 

and the cost estimates for such countermeasures; 

(13) Implement final policies and procedures to ensure that the Leasing 

Branch consistently includes the Building Security Survey 

document in all solicitations for leased space; and 

(14) Implement final policies and procedures to ensure the Security 

Branch performs a physical review of prospective building locations 

and determines the threat within the immediate area prior to 

entering into a lease for any facility. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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TABLE OF CONTENTS 

Executive Summary ..............................................................................................

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Table of Contents ................................................................................................

Background and Objectives

Background ..............................................................................................

Objectives .................................................................................................

Findings and Recommendations

Finding 1: The SEC’s Leasing Policies and Procedures Are Inadequate 

and Incomplete..........................................................................................

Recommendation 1 ..............................................................

Recommendation 2 ..............................................................

Recommendation 3 ..............................................................

Recommendation 4 ..............................................................

Recommendation 5 ..............................................................

Recommendation 6 ..............................................................

Recommendation 7 ..............................................................

Recommendation 8 ..............................................................

Finding 2: The Lack of Adequate Policies and Procedures Relating to th

Renewal or Competition of Building Leases that Were Expiring 

Contributed to the Payment of Increased Rent for the San Francisco 

Regional Office Space ..............................................................................

Recommendation 9 ..............................................................

Finding 3: The SEC Has Made and Continues to Make Simultaneous 

Payments for Two Properties in New York, One of Which the SEC Has 

Not Occupied for Several Years ................................................................

Recommendation 10 ............................................................

Recommendation 11 ............................................................

Finding 4: Improved Coordination Is Needed Between the OAS Leasing

and Security Branches to Ensure the Necessary Security Information Is 

Obtained Prior to Entering into a Lease ....................................................

Recommendation 12 ............................................................

Recommendation 13 ............................................................

Recommendation 14 ............................................................

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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Appendices 

Appendix I: Acronyms. ..........................................................

Appendix II: Scope and Methodology ....................................

Appendix III: Criteria ..............................................................

Appendix IV: List of Recommendations ................................

Appendix V: Management’s Comments ................................

Appendix VI: OIG Response to Management’s Comments...

Appendix VII: Schedule of Questioned Costs ........................

Tables 

Table 1: SEC Lease Locations .............................................

Table 2: Questioned Costs Relating to Excessive Rent ........

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Background and Objectives 

Background 

Section 4(b)(3) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 

§ 78d(b)(3), gives the U.S. Securities and Exchange Commission (SEC or 

Commission) independent leasing authority and exempts it from General Services 

Administration (GSA) space management regulations or directives. Specifically, 

that section, which was added by Public Law 101-550, the Securities Acts 

Amendments of 1990, enacted on November 15, 1990, provides as follows: 

Leasing Authority. Notwithstanding any other provision of 

law, the Commission is authorized to enter directly into 

leases for real property for office, meeting, storage, and such 

other space as is necessary to carry out its functions, and 

shall be exempt from any General Services Administration 

space management regulations or directives. 

All SEC office facilities are housed in commercially leased space, and the SEC 

does not own any of its facilities. Currently, the real estate leasing function at the 

SEC is managed primarily by the Real Property and Leasing Branch (Leasing 

Branch) within the Office of Real Property Operations of the Office of 

Administrative Services (OAS).1

 Leasing authority is centralized within OAS, and 

the SEC’s regional offices have no independent authority to enter into real 

property leases. 

The Leasing Branch was established in April 2009 and includes eight positions: 

an SK-15 Branch Chief, three SK-14 Lead Realty Specialists (one of which is 

vacant), two SK-13 Realty Specialists, one SK-14 Business Finance Specialist, 

and one SK-7 Secretary (Administrative Support). The Branch Chief, who initially 

joined the SEC in July 2008, and other Branch staff members have previous 

GSA leasing experience. The Leasing Branch staff acquires leasehold interests 

in real property and performs budget execution activities for all leases. They also 

provide lease administration with respect to leases for which those 

responsibilities have not been delegated to the Space Management or Facilities 

Branches or the regional office Administrative Officers (AOs). 

Other components of OAS also have responsibilities that impact the SEC’s real 

estate leasing program. For example, the OAS Security Branch is responsible 

for determining the securities standards for SEC facilities and designates a 

security level for space requirements. The OAS Construction Branch is 

responsible for overseeing the design phase of the project, including tenant 

1

 The Chief of the Leasing Branch reports to the Assistant Director for the Office of Real Property 

Operations, who in turn reports to the Associate Executive Director, OAS. 

 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

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improvement pricing analysis and estimating, and the build-out of leased space. 

The OAS Office of Acquisitions is responsible for overseeing the acquisition of 

goods and services within the SEC.2

 

The Associate Executive Director of the OAS serves as the SEC’s Senior 

Procurement Executive (SPE).3

 The “SPE is responsible for the overall 

management of acquisition policy at [the] SEC, including establishing and 

implementing policy.”4

 The “SPE monitors the overall effectiveness and 

efficiency of the contracting functions; and establishes controls to assure 

compliance with laws, regulations, and procedures.”5 The SPE is appointed by 

the Executive Director, and this “appointment is for the duration of SPE’s 

employment as the Associate Executive Director of OAS.”6

The Realty Contracting Officer (RCO) is “an employee of OAS with express 

written authority for realty leasing delegated by [the] SPE on a contracting 

officer’s warrant.”7

 The RCO is appointed by the SPE, who “has the authority to 

select, appoint, alter and rescind a RCO warrant.”8 “A RCO appointment is 

made on a Certificate of Appointment, which is signed by the SPE, and whic

designate on its face any limits to the dollar amount of the appointment.”9 

Further, “RCO warrants are limited to Realty Leasing, and a RCO is not required 

to hold a” Federal Acquisition Certification for Contracting (FAC-C).10

The SEC OIG performed a previous audit of the SEC’s real estate leasing 

function and issued Real Property Leasing, Report No. 330, on May 31, 2001. 

The audit’s objective was to determine whether real property leasing procedures 

complied with applicable guidance and were efficient and effective. While the 

audit found that the SEC’s procedures for leasing generally complied with 

applicable guidance, it also included six recommendations for enhancing 

management of the leasing program. 

Report No. 484 

2 

Real Property Leasing Procurement Process September 30, 2010 

h will 

 

2

 The Assistant Director of the Office of Acquisitions reports directly to the Associate Executive Director of 

OAS, while the Chief of the Construction Branch reports to the Assistant Director for the Office of Real 

Property Operations, and the Chief of the Security Branch reports to the Assistant Director for Security, 

Publishing, and Mail Operations. 

3

 SEC Contracting Authorities and Appointments, SECR 10-02 (REV2), March 31, 2010, Section 1.4(A). 4 Id. 5 Id. 6 Id., Section 2(A). 7 Id., Section 1.4(H). 8 Id., Section 2(G). 9 Id.

10 Id. FAC-C is a certification program of the Federal Acquisition Institute (FAI) that “outlines the training, 

education and experience requirements necessary for contracting professionals to be certified.” See

http://www.fai.gov/certification/specialist.asp. 
The SEC maintains 2,482,576 square feet of leasehold interests in the following 

locations shown in Table 1: 

 Table 1: SEC Lease Locations 

Lease Locations: 

Atlanta New York 

Boston Philadelphia 

Chicago Salt Lake 

Denver San Francisco 

Fort Worth Alexandria, VA 

Los Angeles Washington, D.C. 

Miami 

 Source: OIG Generated 

The SEC made total lease payments in the amount of $83,793,456.20 in Fiscal 

Years (FY) 2008, and $83,829,952.76 in FY 2009. This represents 

approximately 9.2 percent and 8.6 percent of the SEC’s total budget authority for 

these FYs, respectively. The SEC’s leasing program is expected to grow, and 

leasing costs are expected to increase over the next few years as the agency 

expands in order to meet new responsibilities, including those arising under the 

Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No. 

111-203, enacted on July 21, 2010. 

Objectives 

The objectives of our audit were to determine whether OAS had established real 

property leasing policies and procedures and to examine whether these policies 

and procedures were consistently followed and in compliance with applicable 

federal laws, rules, and regulations. Our audit was also performed in order to 

ascertain how the Leasing Branch maintains and tracks the SEC’s real property 

leases. Lastly, our audit sought to identify the SEC’s current leases and assess 

whether the lease requirements were appropriate and the SEC received the best 

value for its leasing investments. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

3 
Findings and Recommendations 

Finding 1: The SEC’s Leasing Policies and 

Procedures Are Inadequate and Incomplete 

The policies and procedures governing the SEC’s real estate 

leasing program are inadequate and incomplete in significant 

respects, and the operating procedures and checklists are 

still in draft form. 

SEC Leasing Policies and Procedures. As discussed above, in giving the SEC 

independent leasing authority, Congress exempted the SEC from GSA space 

management regulations or directives. Our audit found that, while the SEC has 

had independent leasing authority since November 1990, approximately 20 years 

later, the SEC presently does not have adequate policies and procedures in 

place for the SEC’s real estate leasing program.11 It is critical that the SEC has 

adequate policies and procedures in place to ensure that leasing decisions are 

made properly and are in compliance with applicable laws, directives and best 

practices, and that the SEC receives the best value for its investment. In fact, 

Congress intended “that the authority granted the Commission to lease its own 

office space directly [would] be exercised vigorously by the Commission to 

achieve actual cost savings and to increase the Commission’s productivity and 

efficiency.”12 

On May 25, 2010, after we commenced our audit, OAS provided us with a draft 

Securities and Exchange Commission Regulation (SECR) 11-03, SEC Leasing 

Program, which was intended to prescribe the policies and procedures governing 

the SEC’s acquisition of leasehold interests in real property. OAS has informed 

us that SECR 11-03 was recently finalized and was approved by the Executive 

Director on August 31, 2010. The SECR 11-03, excluding the cover page, table 

of contents and attachments, is nine pages in total length and includes over three 

pages of definitions. The stated purpose of SECR 11-03 is to establish “uniform 

policies and procedures for the acquisition and administration of leasehold 

interests in real property for the [SEC].”13 The SECR also states that “[t]he SEC 

will adhere to executive orders and other legal requirements applicable to federal 

executive agencies acquiring interests in real property (e.g., National 

Environmental Policy Act, Randolph Shepherd Act, Federal Fire Safety Act of 

 

11 According to OAS, prior to the establishment of the Leasing Branch, written leasing policies were 

contained in former SECR 5-8, Space Management Program (August 18, 2005), but this document did not 

effectively address the leasing procurement process. 12 House Conference Report No. 101-924, 101st Cong., 2nd Sess. 1990 at p. 20, reprinted in 1990 

U.S.C.C.A.N 3929. 

13 SECR 11-03, Section 1, Purpose and Scope, at p. 1. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

4 
1992, etc.).”14 It further provides that “[t]o the extent certain Federal Acquisition 

Regulation (FAR) provisions are required by law or statute, the SEC will adhere 

to them to acquire and administer leasehold interests in real property.”15 SECR 

11-03 also contains very brief descriptions of the responsibilities of various 

Commission officials and offices for real property leasing; requires compliance 

with various requirements, including certain FAR provisions, Office of 

Management and Budget (OMB) notification requirements and the AntiDeficiency Act; and establishes the Rural Development Act16 requirements for 

the SEC. The SECR 11-03 has three attachments: a Leasing Acquisition Plan, 

a Notification of Lease Action Memorandum, and an OMB Lease Action 

Summary for Planning, Budgeting, Acquisition and Management of Capital 

Assets.17

OAS also provided us with a draft of the SEC Leasing Program Operating 

Procedures (OP 11-03), which is three pages long and includes draft 

attachments containing checklists and guidance for completing those checklists. 

Specifically, the draft attachments include a Lease Project Checklist, a Design 

and Construction Checklist, and a Lease Administration Checklist. For each 

checklist, there is a document providing short explanations for each item and 

including a hyperlink to regulations or template forms, if applicable. The draft OP 

11-03 indicated that the Leasing Branch planned to issue an internal leasing 

handbook by October 2010.18 However, OAS subsequently stated that OAS now 

intends to continue to refine its checklists guidance in lieu of issuing a handbook. 

As discussed below, our audit found that the policies and procedures for the SEC 

leasing program are inadequate and incomplete in significant respects and need 

to be enhanced. The OIG notes that after the OIG brought the deficiencies in 

OAS’s draft leasing policies and procedures to its attention, OAS nonetheless 

finalized SECR 11-03 on or about August 31, 2010, with minimal changes and 

without regard to correcting the deficiencies OIG identified. Overall, SECR 11-03 

does not list or describe all of the relevant legal requirements or guidelines, such 

as: Executive Order 12072, Federal Space Management; Executive Order 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

 

14 Id., Section 4. Policy, at p. 1. 15 Id. “The FAR is the primary regulation for use by all Federal Executive agencies in their acquisition of 

supplies and services with appropriated funds. It became effective on April 1, 1984, and is issued within 

applicable laws under the joint authorities of the Administrator of General Services, the Secretary of 

Defense, and the Administrator for the National Aeronautics and Space Administration, under the broad 

policy guidelines of the Administrator, Office of Federal Procurement Policy, Office of Management and 

Budget.” http://www.gsa.gov/portal/content/104647. “The FAR precludes agency acquisition regulations 

that unnecessarily repeat, paraphrase, or otherwise restate the FAR, limits agency acquisition regulations to 

those necessary to implement FAR policies and procedures within an agency, and provides for coordination, 

simplicity, and uniformity in the Federal acquisition process. It also provides for agency and public 

participation in developing the FAR and agency acquisition regulation.” Id. 16 Section 601 of the RDA, Public Law 92-419, enacted on August 30, 1972, required executive department 

and agencies to establish and maintain policies and procedures to give first priority to the location of new 

offices and facilities in rural areas. 

17 These attachments were not provided to the OIG during the course of the audit fieldwork; rather, the OIG 

obtained the attachments for the first time on September 8, 2010, at the time a copy of the final SECR 11-03 

was provided to the OIG. 

18 Draft SEC OP 11-03, SEC Leasing Program Operating Procedures, Section 3.3.
13006, Locating Federal Facilities on Historic Properties in Our Nation’s Central 

Cities; Executive Order 13327, Federal Real Property Asset Management; OMB 

Circular, A-11, Preparation, Submission, and Execution of the Budget, Part 2, 

Preparation and Submission of Budget Estimates, Section 33.1, Construction, 

Leases of Capital Assets, and Acquisition of Real Property; OMB Circular A-94, 

Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs; 

and Office of Federal Procurement Policy Letter 05-01 Subject: Developing and 

Managing the Acquisition Workforce. The last bullet of Section 7 of the SECR 

states that the requirements of executive orders and public laws that are 

applicable to lease acquisitions are too numerous to list in the SECR, are subject 

to change, and are further addressed in OP 11-03.19 In addition, OAS pointed 

out that legal authorities such as Executive Order 12072, Executive Order 13006, 

OMB Circular A-11 and budget submission requirements and disclosure rate 

calculations for present value analysis are included in the Leasing Operating 

Procedures checklists. Nonetheless, the OIG believes it is important that these 

documents also be referenced in the SECR, which is the controlling policy 

document. The references could be included in an Appendix to the SECR, which 

could easily be updated as changes occur. 

Further, as noted below in the discussion of asset management plan 

components, beyond stating that the SEC will adhere to legal requirements, the 

SECR does not enumerate any specific objectives the SEC hopes to achieve 

with its leasing program. Also, the SECR does not provide instructions or stepby-step guidance necessary to facilitate compliance with relevant authorities. For 

example, while the SECR states that the Leasing Branch will “[p]romote the 

competition requirements of FAR Part 6,”20 the document provides no further 

guidance for ensuring compliance with this lengthy and complex part of the FAR 

that contains multiple subparts. 

Although the SEC, by statute, is not strictly required to abide by GSA space 

management regulations or directives, the SEC could significantly benefit from 

performing an evaluation of GSA policies and procedures and assessing which 

provisions could be adopted to improve the SEC’s leasing program by 

establishing some basic guidance or standards to be utilized in the real property 

leasing process. The GSA has issued extensive regulations on leasing and 

management of real property, including the General Service Administration 

Acquisition Manual (GSAM)21 and Subchapter C of the Federal Management 

Regulation (FMR).22 These documents provide procedures for, among other 

things, efficient contracting, including soliciting and evaluating competitive offers 

(GSAM Subpart 570.3), safeguarding against improper business practices and 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

 

19 SECR 11-03, Section 7, at p. 8. 20 SECR 11-03, Section 7, at p. 6. 21 “The GSAM incorporates the General Services Administration Acquisition Regulation (GSAR) as well as 

internal agency acquisition policy.” http://www.gsa.gov/portal/content/101180. 22 “The FMR is the successor regulation to the Federal Property Management Regulation (FPMR). It 

contains updated regulatory policies originally found in the FPMR.” 

http://www.gsa.gov/portal/content/104792. Subchapter C of the FMR pertains to Real Property. 
personal conflicts of interest (GSAM Part 503), and energy conservation (FMR 

§§ 102-74.155 through 102.74.200). While OAS stated the SEC has assessed 

GSA’s Lease File Checklist and associated guidance, the OIG notes that the 

referenced document is over five-years old (it is dated June 28, 2005), and is 

limited in subject matter scope to the requirements for lease files. 

Report No. 484 

7 

Real Property Leasing Procurement Process September 30, 2010 

orts of 

 

Asset Management Plan Required by Executive Order 13327. Executive 

Order 13327 (February 4, 2004), entitled, “Federal Real Property Asset 

Management,” imposes various requirements on federal agencies “in order to 

promote the efficient and economical use of Federal real property resources in 

accordance with their value as national assets and in the best interest of the 

Nation.”23 While certain Executive Order’s requirements do not apply to the 

SEC, the SEC does fall under the purview of Section 6 of the Executive Order, 

which provides that the “Director of the Office of Management and Budget shall 

review, through the management and budget review processes, the eff

departments and agencies in implementing their asset management plans and 

achieving the Government-wide property management polices established 

pursuant to this order.”24 

The SEC’s Office of General Counsel (OGC) has indicated that SECR 11-03 

accomplishes the requirement that the SEC have an asset management plan. 

However, our review of the SECR 11-03 revealed that this document is not an 

adequate asset management plan. Most fundamentally, the SECR does not set 

forth any of the SEC’s objectives for the real property leasing function. Further, 

the SECR does not specify resource requirements to support real property 

leasing at the SEC. Nothing in the SECR refers to the number of employees or 

the amount of funding that will need to be directed toward the real estate leasing 

program. While OAS noted that resource requirements are not appropriate 

information to include in an SECR, the OIG believes that this is important 

information to have in an asset management plan. 

 

In addition, although the stated purpose and scope of SECR 11-03 is to establish 

“uniform policies and procedures for the acquisition and administration of 

leasehold interests in real property” for the SEC,25 the SECR pertains almost 

entirely to acquisition and includes almost no material related to lease 

administration. Specifically, SECR 11-03 does not provide for periodic evaluation 

of the SEC’s real property assets. While it contains some guidelines for entering 

into leases and alterations in existing leased space, the SECR does not provide 

for continuous monitoring or feedback during the life of the lease. 

In fact, the SECR 11-03 contains virtually no guidance for managing a lease 

throughout the lease term. The leases for the SEC’s regional offices are 

managed by the Realty Specialists located in Leasing Branch at Headquarters, 

23 Executive Order 13327, Federal Real Property Asset Management (Feb. 4, 2004), § 1. 24 Id., § 6(a). 25 SECR 11-03, Section 1, Purpose and Scope, at p. 1 (emphasis supplied). 
with the assistance of AOs employed by the regional offices. However, SECR 

11-03 does not address the AOs’ roles and responsibilities for the day-to-day 

management of leases. OAS staff indicated during the audit that there is no 

uniform management plan concerning leases at different sites. OAS staff 

explained that the problems that may occur differ greatly depending on the 

location, so it would be impractical to implement a uniform method of 

management. Instead, an informal best practices approach is used to manage 

the leasing process. 

Although the SEC is not an agency that must designate a Senior Real Property 

Office pursuant to Section 3 of Executive Order 13327 and is, therefore, not 

represented on the Federal Real Property Council (FRPC), Section 4 of the 

Executive Order states that the Council is established within OMB “for 

administrative purposes, to develop guidance for, and facilitate the success of 

each agency’s asset management plan.”26 The FRPC, pursuant to Executive 

Order 13327, has issued detailed guidance that specifies the following required 

components of an agency asset management plan: 

1. Integrated Guiding Principles 

2. Agency-Specific Owner’s Objectives 

3. Periodic Evaluation of All Assets 

4. Prioritized Operations and Maintenance and Capital Plans 

5. Identified Resource Requirements to Support Plans 

6. “Building Block” Asset Business Plans in Agency Portfolio Context 

7. Continuous Monitoring and Feedback Mechanism 

8. Consideration of Socio-Economic-Environmental Responsibilities 

9. Adequate Human Capital Support of Asset Management 

Organization 

10. Common Government-wide Terminology27 

In order to ensure that the SEC has an adequate asset management plan, OAS 

should carefully review these required components and make certain that the 

SEC’s asset management plan addresses each of these elements. 

Lack of Procedures for Tracking Costs Associated with Leases. Our audit 

found that OAS does not have sufficient written procedures that address how 

leases should be managed and tracked. OAS’s policies and procedures do not 

address what information related to its lease operating expenses should be 

tracked and monitored. The Leasing Branch did provide a document titled, 

“Current Rent Payment Process,” which describes the steps to be taken in 

connection with rent payments. This document states that prior to processing 

rent vouchers for payment, lease rent schedules, rent invoices, or other 

correspondence that might affect the lease payment are reviewed to determine 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

 

26 Executive Order 13327, § 4. 27 Federal Real Property Council, Guidance for Improved Asset Management, December 22, 2004, Section 

III. Asset Management Plan – Required Components. 
the appropriate amount of the rent payment. The document also addresses the 

verification of funding availability, what steps should be taken if funds are not 

sufficient to cover the monthly expenditure, and submitting vouchers and 

supporting documentation to the Office of Financial Management (OFM) for 

payment. However, the tracking of monthly lease payments, as well as other 

related payments, is not addressed in this document. 

During our audit, we learned that OAS Leasing Branch staff manually track on a 

spreadsheet the monthly lease payments, unliquidated obligations, and 

unliquidated balances. Other payments, such as operating expenses, property 

taxes or repairs, are also reflected in the spreadsheet, but are only tracked as a 

lump-sum amount, rather than individually. The lack of detailed payment data 

adversely affects the SEC’s ability to monitor expenses incurred during the 

operational phase of the lease. By separately tracking costs, the SEC will know 

whether, and by how much, these costs have varied from year to year. Such 

information is valuable to management in making future leasing decisions and 

can also be used to facilitate the annual budget formulation for leased properties. 

OAS’s current method of tracking costs does not contribute to a sound analysis 

of financial performance and operating efficiency. 

Performance Measures Are Needed. The SEC has published for comment a 

draft strategic plan for FYs 2010-2015, which sets forth performance goals and 

measures.28 Strategic Goal 4 of the draft plan states, “Enhance the 

Commission’s Performance through Effective Alignment and Management of 

Human, Information and Financial Capital.”29 The draft plan provides that “[t]he 

SEC also is extremely mindful of its responsibility to optimize the use of its 

resources because it is a government agency entrusted with taxpayer funds.”30 

The draft plan further states that “the SEC must continually direct its financial 

resources to their highest and best use, always subject to strong internal 

controls.”31 However, the draft plan does not include performance measures that 

address real property leasing, even though the SEC leases approximately 2.5 

million square feet of space at an average cost of approximately $83.8 million per 

year. 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

 

OAS staff informed us during the audit that the Leasing Branch is not required to 

have independent goals apart from OAS’s general goals and does not produce 

performance reports regarding individual leases. According to OAS, with respect 

to regional office leases, the day-to-day performance monitoring is usually 

handled by the regional office AOs, which are designated as official Contracting 

Officer’s Representatives for lease oversight. According to OAS, the AOs are the 

first line of response to problems in tenant space and can directly access the 

building property manager for resolution of the types of issues that frequently 

28 U.S. Securities and Exchange Commission, Strategic Plan for Fiscal Years 2010-2015, Draft for 

Comment, http://www.sec.gov/about/secstratplan1015.pdf. 

29 Id. at 41. 30 Id. 31 Id.
arise, such as problems with utilities and maintenance. OAS stated that, if such 

issues are not resolved, the Leasing Branch becomes involved for any further or 

more stringent lease actions, such as rent deductions, under the default 

provisions of the leases. OAS staff maintains overall authority concerning these 

issues and communicates directly with the regional AOs that are responsible for 

the day-to-day monitoring. The OAS Leasing Branch Chief generally tracks 

problems that occur at lease sites by maintaining email records containing 

information about complaints, but indicated that there are generally few major 

problems with leases and that these problems are tracked by the landlord. 

Our audit found, therefore, that OAS has no written performance goals for its real 

property leasing activities (operational processes, skills and technology, human 

capital, information, and other required resources) and, as a consequence, no 

written performance measures to evaluate the goals and assure that goals are 

achieved. Without established performance goals and measures, OAS will not 

be able to employ a continuous monitoring and feedback mechanism which is a 

required component of an asset management plan (see page 8 above). 

Recommendation 1: 

The Office of Administrative Services (OAS) should revise Securities and 

Exchange Commission (SEC) Regulation 11-03 and draft Operating 

Procedure 11-03 (OP 11-03) to ensure that they are adequate and 

complete and include the information identified in the audit report, and 

should finalize OP 11-03 and the attachments thereto. OAS should 

ensure that the revised documents are posted to the Commission’s 

Intranet site and that copies are circulated to all staff within the SEC’s 

Real Property Leasing Branch, as well as other SEC staff with leasingrelated responsibilities. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 2: 

The Office of Administrative Services should amend Securities and 

Exchange Commission (SEC) Regulation 11-03 to include a complete list 

of relevant authorities (federal statutes, regulations, executive orders, 

Office of Management and Budget circulars, and internal SEC policies) 

that apply to real property leasing and should finalize detailed guidance to 

ensure compliance with those authorities. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

10 
Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 3: 

The Office of Administrative Services should measure the Securities and 

Exchange Commission’s real property leasing policies and procedures 

against pertinent provisions of General Services Administration (GSA) 

regulations, including the GSA Acquisition Manual and Subchapter C of 

the Federal Management Regulation, as appropriate. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 4: 

The Office of Administrative Services should ensure that the Leasing 

Branch’s policies and procedures, including Operating Procedure 11-03 

and the attached checklists, provide comprehensive guidance for 

Securities and Exchange Commission (SEC) leasing officials regarding 

the leasing process that will assist in ensuring compliance with the 

applicable policies, regulations and best practices. These materials 

should detail the regulations and policies that should be followed at the 

various stages of the leasing process and should include pertinent forms 

and examples. Once finalized, these materials should be distributed to all 

staff in the SEC’s Real Property Leasing Branch and other SEC staff with 

leasing-related responsibilities. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 5: 

The Office of Administrative Services (OAS) should utilize the “Required 

Components” section of the Federal Real Property Council’s (FRPC) 

Guidance for Improved Asset Management to develop and finalize the 

Security and Exchange Commission’s (SEC) real property leasing asset 

management plan, as appropriate. If there are any required components 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

11 
in the FRPC Guidance that OAS determines should not apply to the SEC, 

the plan should include an explanation as to why the SEC’s unique 

circumstances render those components unnecessary. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 6: 

The Office of Administrative Services should amend its leasing policies 

and procedures to require the tracking and monitoring of all leasing 

expenses (i.e., rent, operating costs and taxes) for informational and 

budget formulation purposes. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 7:

The Office of Administrative Services (OAS) should develop performance 

goals for the Securities and Exchange Commission’s real property leasing 

activities, including both lease acquisition and the monitoring and 

administration of existing leases; identify key factors external to OAS that 

could significantly affect the achievement of its performance goals; and 

periodically evaluate whether these goals are met. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 8: 

The Office of Administrative Services (OAS) should develop performance 

measures to assist in evaluating the effectiveness of the major functions of 

real property acquisitions and operations, and periodically evaluate 

performance based on these measures. The performance measures 

should include metrics for all of the OAS Branches that have a role in real 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

12 
property leasing, including the Real Property Leasing, Construction and 

Security Branches. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Finding 2: The Lack of Adequate Policies and 

Procedures Relating to the Renewal or 

Competition of Building Leases that Were 

Expiring Contributed to the Payment of 

Increased Rent for the San Francisco 

Regional Office Space 

The lack of adequate policies and procedures contributed to 

the SEC incurring excess costs in connection with the 

leasing of space for the SEC’s San Francisco Regional 

Office (SFRO). 

As discussed in Finding 1 above, the SEC’s policies and procedures for its 

leasing program are inadequate and incomplete. Our audit found that the failure 

to have adequate policies and procedures in place, specifically with respect to 

the planning for the competition or renewal of building leases that are due to 

expire, contributed to the SEC incurring significant increased costs in connection 

with its SFRO building lease. 

The existing lease for the SFRO space at 44 Montgomery Street, San Francisco, 

under which the SEC paid rent at a rate of $48.49 per rentable square foot (rsf), 

was due to expire on October 31, 2009.32 According to OAS, planning for a 

replacement lease began in July 2007, and an initial pre-solicitation notice 

published in December 10, 2007, yielded no expression of interest. 

Subsequently, OAS decided to negotiate a lease with the current landlord. OAS 

planned to extend the lease for 10 years and had “prepared a sole source 

justification for a succeeding lease, which was approved.”33 

OAS stated, however, that between February and May 2009, the Leasing Branch 

was advised by its local broker and local occupants of dramatically falling rental 

Report No. 484 

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Real Property Leasing Procurement Process September 30, 2010 

 

32 Justification for Other than Full and Open Competition, San Francisco, CA (SF Justification), signed on 

June 15, 2009 and approved on June 17, 2009, at p. 2. 33 Id. at p. 1. According to OAS, the original justification for the succeeding lease was approved in March 

2009, and contemplated a 10-year succeeding lease for $49.46 per rsf. 
rates in the San Francisco office market. On April 22, 2009, a Lead Realty 

Specialist within the Leasing Branch sent an email to OAS, SFRO and OGC 

colleagues, noting that a full and open competition should be conducted, instead 

of entering into a sole-source lease extension at 44 Montgomery Street.34 Her 

email stated that OAS had “received more market information indicating a 

dramatic drop in rental rates in several high class office buildings.”35 On April 24, 

2009, OAS posted a presolicitation notice to the Federal Business Opportunities 

(FedBizOpps) website36 for office space in San Francisco’s financial district. On 

May 12-14, 2009, OAS compiled a market survey of eight office properties in San 

Francisco. According to OAS, the SEC determined to pursue a full and open 

competition and several responses were received reflecting competitive 

opportunities. 

Report No. 484 

14 

Real Property Leasing Procurement Process September 30, 2010 

nt 

n 

ad “begun 

ment lease.”

 

On June 15, 2009, OAS completed a second justification for other than full and 

open competition document to extend the 44 Montgomery Street lease for only 

one year, or until October 31, 2010. In this justification, OAS stated that the oneyear extension “will allow sufficient time to negotiate a long term solution.”37 

OAS indicated that the one-year extension was also intended to allow time to 

address security issues that had just been brought to OAS’s attention by the 

SFRO. The new justification stated that OAS expected to negotiate a price of 

approximately $42.24 per rsf for the one-year extension.38 Without the 

extension, the SEC would have to pay “holdover” rent of $60.61 per rsf (125 

percent of the current rent rate) if it occupied the 44 Montgomery Street site

beyond October 31, 2009.39 According to the justification, because the curre

lessor was under consideration for the succeeding lease, OAS believed the 

lessor would “be motivated to negotiate more favorable terms for the one[-]year 

extension.”40 On July 13, 2009, the Lead Realty Specialist cancelled the 

previous sole source long-term lease procurement “[b]ased on new informatio

regarding security concerns about unauthorized after-hours access and 

information that indicates the San Francisco market is declining by over 25% 

over last year . . . .”41 The Lead Realty Specialist indicated that OAS h

a full and open competition for a replace 42

Almost three months later, on October 6, 2009, during the month in which the 

existing lease was due to expire, the SEC issued solicitations for offers (SFO) to 

four potential lessors.43 By November 13, 2009, the SEC had received offers 

34 Email from Contracting Officer, re: SFRO lease procurement strategy, dated April 22, 2009. 35 Id. 36 https://www.fbo.gov. 37 SF Justification, at p. 1. 38 Id. 39 Id. at p. 2. 40 Id. 41 Memorandum for the File from Contracting Officer, Subject: Cancellation of Sole Source Procurement, 

dated July 13, 2009. 

42 Id. 43 According to OAS, in August 2009, the Leasing Branch received information from management about 

unanticipated staff increases and it became apparent that amount of space advertised and planned would 
from 44 Montgomery Street (the existing home of SFRO) and two other offerors. 

The offers were then evaluated by a Source Selection Evaluation Board (SSEB), 

which consisted of three voting members (all SEC employees, two from OAS and 

one from SFRO) and seven technical advisors (with representatives from SFRO, 

OAS, the Office of General Counsel, an architectural firm, and a real estate 

broker). After reviewing the offers, the SSEB sent letters to all three offerors 

describing the strengths and weaknesses of their proposals. On February 1, 

2010, the SSEB sent letters to the offerors requesting final proposals by 

February 12, 2010, which were received. On March 10, 2010, the SSEB issued 

a source selection report recommending an award to 44 Montgomery Street. On 

April 9, 2010, the SEC signed a new 10-year lease at 44 Montgomery Street with 

annual rent of $41 per rsf, increasing by $1 each year and providing for 

expansion of the existing office space. According to OAS staff, this lower rent 

rate does not commence until after construction of the 25th floor. 

Meanwhile, the SEC’s existing lease at 44 Montgomery Street had expired on 

October 31, 2009, and OAS had not executed the one-year lease extension to 

allow for more time until a new lease could be executed. OAS stated that while 

the SEC, through its broker, requested a one-year lease extension, the lessor 

demanded a three-year lease extension, and the SEC decided to allow the lease 

to go into holdover while pursuing competition for a long-term lease at a time 

when rates were low. As a consequence, as of November 1, 2009, the SEC 

began to pay holdover rent on 43,892 square feet of space,44 rather than the 

$42.24 per rsf the SEC expected to get in a one-year extension and the $41 per 

rsf the SEC ultimately agreed to for the lease extension at 44 Montgomery 

Street. The SEC continued to pay rent at the higher holdover rate for 

approximately six months until it signed the new lease with 44 Montgomery 

Street on April 9, 2010. At that time, the SEC also entered into a Supplemental 

Lease Agreement with 44 Montgomery Street that modified the previous lease to 

extend the term and reduce the rental rate of the lease to the existing lease rate 

of $53.34 per rsf, effective as of November 1, 2009.45 The SEC is continuing to 

pay rent of $53.34 per rsf until the new lower rent rate commences upon 

completion and acceptance of construction of the 25th floor. As a consequence, 

the failure to extend the previous lease prior to its expiration or to enter into a 

new one on a timely basis resulted in the SEC paying rent at rates higher than it 

would have paid had it executed the one-year lease extension contemplated by 

the second justification, during a downturn in the real estate market. We 

calculated that even with the credit obtained from 44 Montgomery Street, the 

SEC paid higher rent in the amount of approximately $40,600 per month, or 

Report No. 484 

15 

Real Property Leasing Procurement Process September 30, 2010 

 no longer fully provide for the SEC’s long-term needs, and a revised FedBiz Opps notice was published with 

no new eligible properties responding. 

44 While the second justification indicated that the holdover rent rate was $60.61 per rsf, OAS staff indicated 

that holdover rent was paid at a rate of $66.67 per rsf. 

45 As part of its February 12, 2010 offer for the new lease, 44 Montgomery Street had offered “to credit back 

the difference between the Holdover Rent amount and the new term lease rate at the commencement date.” 

Proposal to Lease Space, SEC-SFRO-2010, dated February 12, 2010.
$203,000 between November 1, 2009 and March 31, 2010. Thus, the OIG 

identified $203,000 in questioned costs, as shown in Table 2, in Appendix VII. 

Report No. 484 

16 

Real Property Leasing Procurement Process September 30, 2010 

, 

o 

ct 

ssary.” 

 

According to OAS, “the lease procurement process can take anywhere from 18 

to 24 months for approximately 30,000 to 60,000 square feet including the 

competition and build-out.”46 With the SFRO lease, however, it appears that no 

efforts to recomplete the lease were begun until approximately six months before 

the existing lease was due to expire and it then took almost six months to issue 

the SFOs. Although OAS indicated that it performs acquisition planning47 and 

SECR 11-03 and draft OP 11-03 require compliance with FAR § 7.104(c),48

these documents do not adequately address acquisition planning. Significantly

the documents include no policies or procedures designed to ensure that 

appropriate planning occurs on a timely basis with respect to the SEC’s leases t

avoid the types of delays and changes in approaches that occurred with respe

to the SFRO lease. The documents contain no reference to FAR § 7.104(a), 

which provides that “[a]cquisition planning should begin as soon as the agency 

need is identified, preferably well in advance of the fiscal year in which contract 

award or order placement is nece

Further, OAS’s policies and procedures include no requirement that Realty 

Specialists will seek the best value for the SEC in the planning, acquisition, and 

execution of real property lease agreements. Moreover, during our audit, we 

found that the Leasing Branch staff were not required to prepare project plans 

and did not, in fact, prepare them. An appropriate project plan would include 

various tasks necessary to complete the project, including obtaining timely lease 

extensions. The project plan could also include the estimated human resources 

and costs associated with each task.49 The OIG notes that Attachment 1 to 

SECR 11-03 is a Leasing Acquisition Plan, which was first provided to the OIG 

on September 8, 2010. OAS should ensure that this document includes all the 

elements of an appropriate project plan and that a plan is required to be 

completed for each lease. 

In summary, there were no sufficient policies or procedures in place to guide 

OAS staff to conduct appropriate acquisition planning, and inadequate planning 

contributed to increased costs on the part of the Commission. While OAS 

pointed out that changes in market conditions and agency requirements resulted 

in altered strategies, the OIG believes that improved policies and procedures for 

lease planning would better enable OAS to anticipate and react to potential 

changes in conditions or circumstances. 

46 Office of Administrative Services Update, Vol. 2: September 2009. 47 “‘Acquisition planning’ means the process by which the efforts of all personnel responsible for an 

acquisition are coordinated and integrated through a comprehensive plan for fulfilling the agency need in a 

timely manner and at a reasonable cost. It includes developing the overall strategy for managing the 

acquisition.” FAR § 2.101. 

48 FAR § 7.104(c) requires the planner “coordinate with and secure the concurrence of the contracting officer 

in all acquisition planning. If the plan proposes using other than full and open competition when awarding a 

contract, the plan shall also be coordinated with the cognizant competition advocate.” 49 FAR § 7.105 contains requirements for the contents of written acquisition plans. 
Recommendation 9: 

The Office of Administrative Services should revise Securities and 

Exchange Commission Regulation 11-03 and draft Operating Procedure 

11-03 to include complete written policies and procedures for timely 

acquisition planning pertinent to real property leases. The revised policies 

and procedures should require the preparation of a project plan and 

schedule with projected dates for achieving various milestones well in 

advance of the scheduled commencement of a lease. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

 

Finding 3: The SEC Has Made and Continues to 

Make Simultaneous Payments for Two Properties 

in New York, One of Which the SEC Has Not 

Occupied for Several Years 

The SEC entered into a “Wrap Around Lease and Surrender 

Agreement,” dated March 29, 2005, in order to terminate a 

lease for its New York Regional Office (NYRO) facility, which 

has resulted in the SEC making over $15 million in payments 

for a property it no longer occupied. The SEC also entered 

into a second lease for its NYRO site and has been making 

simultaneous payments for the two facilities since May 2005, 

and will continue to do so until March 2012. 

We reviewed a series of documents relating to two leases the SEC entered into 

for space for the NYRO to determine if the SEC’s lease requirements were 

appropriate and the agency was receiving the best value for its investment. 

These two leases included (1) A 10-year lease with 233 Broadway Owners LLC 

(the Woolworth Building) on September 27, 2001; and (2) A 15-year lease with 

Brookfield Financial Properties on March 25, 2005. Our audit showed that the 

following circumstances led to SEC simultaneously making payments for two 

buildings in New York City, only one of which was occupied by SEC staff. 

Initial New York Lease – 233 Broadway Owners LLC. On September 27, 

2001, the SEC entered into a lease with 233 Broadway Owners LLC (the 

Woolworth Building) on to serve as its NYRO location.50 The SEC entered into 

Report No. 484 

17 

Real Property Leasing Procurement Process September 30, 2010 

 

50 Lease No. NYC-SEC-2001, dated September 27, 2001. At the time, the NYRO was referred to as the 

Northeast Regional Office. 
this lease after its previous office space located at the World Trade Center was 

destroyed as a result of the September 11, 2001 terrorist attacks. According to 

OAS, the SEC acted very quickly to find new office space and, at the time, there 

was an unprecedented demand for office space in the New York City market. 

Under the September 27, 2001 lease, the rentable area of the premises was 

140,490 square feet, which included the entire eleventh, thirteenth, fourteenth, 

fifteenth, and sixteenth floors.51 The lease expiration date was 10 years and 

three months after the base rent commencement date (which was three months 

after the lease commencement date), subject to extension provisions.52 On April 

9, 2002, the SEC elected to lease additional space, including the entire sixth floor 

of the building.53 At that time, the expiration date of the lease was changed to 

March 31, 2012, subject to extension.54 Under the terms of its lease and the 

amendments thereto, the SEC had the right to lease additional space in the 

building under certain circumstances. 

Subsequently, however, the SEC discovered asbestos in the Woolworth Building 

and had a dispute with the landlord as to how the issue should be handled.55 As 

a result of the dispute with the landlord, the SEC halted renovation work in its 

current space, and any serious discussions regarding expansion in the 

Woolworth building came to an end.56 As noted below, the SEC decided to 

relocate its NYRO – a decision that, according to OAS, was made by senior 

agency management at a higher level than the leasing staff. 

The lease included a clause on “Environmental Matters,” which defined asbestos 

as a hazardous material.57 This clause further stated that the landlord shall 

indemnify, defend and hold the tenant harmless from any costs and expenses 

that arose at any time during or after the term of the lease as a result of or in 

connection with any hazardous materials present or occurring in the premises as 

a result of the activities or omissions of the landlord, its agents, employees or onsite contractors, including costs associated with the cleanup or removal of such 

hazardous materials.58 The clause also required the landlord to “promptly take 

all actions, at its sole expense,” necessary to return the premises to their 

condition prior to the introduction of hazardous materials, with first obtaining the 

approval of the tenant (except in emergency situations).59 If it was impossible to 

return the premises to such condition, the landlord could substitute an alternative 

Report No. 484 

18 

Real Property Leasing Procurement Process September 30, 2010 

 

51 Id. at p. 7. 52 Id. at p. 12. 53 First Amendment to Lease No. NYC-SEC-2001, dated April 9, 2002, at p. 1. 54 Id. at p. 3. 55 Justification and Approval for Other than Full and Open Competition Lease NYC-SEC-2004 (NYC Lease 

Justification), at p. 2. 

56 Id. 57 Lease No. NYC-SEC-2001 at pp. 58-60. 58 Id. at p. 59. 59 Id. at p. 60. 
action, if such alternative was acceptable to the tenant in its reasonable 

discretion.60 

Further, the lease included a clause that addressed default by the lessor. This 

clause provided that if the tenant could not reasonably conduct its business 

within the premises and actually ceased conducting business within the premises 

because the landlord failed to make any repair required under the lease, and this 

situation continued for more than five consecutive business days, all rent shall 

abate until the tenant re-entered the premises, or one day following the landlord’s 

completion of the particular repair.61 However, the lease included no termination 

for convenience clause pursuant to FAR Part 49, which “establishes policies and 

procedures relating to the complete or partial termination of contracts for the 

convenience of the Government or for default” and “prescribes contract clauses 

relating to termination and excusable delay and includes instructions for using 

termination and settlement forms.”62

According to OGC staff, after the allegations of asbestos arose, asbestos tests 

were performed on the Woolworth Building. These tests revealed no asbestos 

dust in the air, but some asbestos in the wallboard. OGC staff indicated that the 

asbestos levels were not sufficient to warrant special procedures or to 

demonstrate that the landlord was in breach of contract. 

 

Justification for and Entry into Second NYRO Lease (Brookfield Financial 

Properties). On April 28, 2004, SEC officials signed a “Justification and 

Approval for Other than Full and Open Competition” to obtain a new NYRO 

lease, “provided that the successor landlord assumes all the SEC’s remaining 

obligations at the Woolworth Building, thus ending the SEC tenancy and all 

Government obligations there.”63 The justification indicated that the nature of the 

acquisition required use of the authority under FAR § 6.302-2, Unusual and 

Compelling Urgency,64 and cited “two related components of such urgency and 

harm.”65 The first component was that the SEC did not have adequate space to 

accomplish its mission, given that operational workload had substantially 

increased and Congress had directed the SEC to hire additional staff (increasing 

NYRO staff from 311 to 395).66 The second component was that the health and 

morale of SEC employees was negatively impacted by the above-mentioned 

discovery of asbestos that led to the dispute with the landlord and delays in any 

expansion of the work space.67 The justification further asserted that the dispute 

Report No. 484 

19 

 

60 Id. 61 Id. at p. 68. 62 FAR § 49.000. 63 NYC Lease Justification, at p. 1. 64 Under FAR § 6.302-2(a)(2), an agency may contract without providing for full and open competition 

“[w]hen the agency’s need for the supplies or services is of such an unusual and compelling urgency that the 

Government would be seriously injured unless the agency is permitted to limit the number or sources from 

which it solicits bids or proposals . . . .” 

65 NYC Lease Justification at p. 2. 66 Id. 67 Id. 

Real Property Leasing Procurement Process September 30, 2010 
and delays “has led to significant reduction in NYRO staff morale, has hurt 

recruitment of new and additional staff, and has resulted in significant financial 

costs to protect SEC employees from potential asbestos excursions.”68 The 

justification also asserted that the SEC and its NYRO employees were not 

confident that the asbestos problem could ever be fully resolved.69 

According to the justification, the SEC faced financial exposure of approximately 

$63,205,000, flowing from its Woolworth Building lease obligations through April 

2012.70 The justification specifically included a requirement that “the successor 

landlord will assume all the SEC’s remaining obligation at the Woolworth 

Building.”71 The justification also noted that “even if the remaining costs of the 

current lease are not completely mitigated, or are only partially mitigated, the 

agency considers the costs appropriate to resolve the overcrowding, morale and 

intractable landlord reasons set forth above.”72

On March 25, 2005, the SEC entered into a lease with Brookfield Financial 

Properties for 235,102 rsf. The lease did not require Brookfield Financial 

Properties to assume the SEC’s remaining obligation at the Woolworth Building, 

as the justification for the sole source award of this lease had indicated. 

However, under the terms of the lease, the payment of rent did not commence 

until approximately one-year later on April 1, 2006.73 As a consequence, the 

SEC was responsible for paying operating expenses only during the first year of 

this lease. In addition, according to OAS, Brookfield Financial Properties offered 

rates that were lower than the rates remaining for the Woolworth Building lease. 

Wrap Around Lease and Surrender Agreement. The SEC also contacted 

GSA, which found a tenant to move into the building. Accordingly, a “Wrap 

Around Lease and Surrender Agreement” was entered into with the Woolworth 

Building landlord (233 Broadway Owners LLC) on March 29, 2005.74 Under the 

terms of this Agreement, the landlord agreed that the SEC’s previous lease 

would terminate, provided that the SEC made certain payments to the landlord, 

and the landlord and GSA executed a lease for the premises (the GSA Lease).75 

The Agreement also provided that the SEC would surrender a portion of the 

Report No. 484 

20 

 

68 Id. 69 Id. 70 Id. at p. 3. 71 Id. 72 Id. 73 Lease No. SEC-NY-2005, dated March 25, 2005, at p.4. 74 A “wrap around” lease is similar to a sublease. “In commercial real estate, a sublease is a lease (rental 

agreement) between a tenant who already holds a lease to a commercial space or property and someone 

(the sublessee) who wants to use part or all of the tenant's space. In a sublease, the tenant assigns certain 

rights that they already hold to the leased property, to the sublessee.” 

http://womeninbusiness.about.com/od/commercialleasing terms/g/sublease.htm. “Sublessees pay rent 

directly to the rightful tenant (sublessor) to either share the space with the sublessor or take over the entire 

space from the sublessor.” Id. “A sub-lessor cannot legally assign rights in a sub-lessee that the sub-lessor 

does not also have rights to in their own lease. Additionally, a sublessor cannot sublease unless they are 

permitted to do so in their own lease.” Id. 75 Wrap Around Lease and Surrender Agreement, dated March 29, 2005, at p. 1. 

Real Property Leasing Procurement Process September 30, 2010 
premises on May 31, 2005 (the “First Surrender Date”), and the remainder of the 

premises on June 30, 2005 (the “Second Surrender Date”).76 

In addition, the Wrap Around Lease and Surrender Agreement set forth in detail 

the amount of payments the SEC would make to the landlord under various 

scenarios, i.e., if the GSA Lease was executed by the landlord and GSA; if the 

GSA Lease was renewed by GSA beyond the five-year lease term; and if the 

GSA Lease was extended beyond its original expiration date but expired or 

terminated prior to March 31, 2012, for any reason other than the Landlord’s 

default.77 The Agreement also required the SEC, in addition to the foregoing 

payments, to pay “Work Contribution” of approximately $5 million to be applied to 

tenant improvement expenses incurred by the landlord or GSA in connection with 

the GSA Lease.78

Simultaneous Lease Payments. The SEC has made simultaneous payments 

related to New York leases since May 2005. Under the Wrap Around Lease and 

Surrender Agreement, the SEC has paid $15,235,994.37 toward the Woolworth 

Building lease, even though no SEC employees have occupied that building 

since June 30, 2005. This amount was calculated based upon information 

provided by OFM for the period from the First Surrender Date of the Wrap 

Around Lease and Surrender Agreement (May 31, 2005) through the end of the 

period within our audit scope (March 31, 2010). During the same time period, 

according to the information provided by OFM, the SEC made payments to 

Brookfield Financial of $35, 837,125.92 under the second lease. The SEC will 

continue to make partial payments toward the Woolworth Building lease until 

March 31, 2012. 

The lack of SEC guidance for (1) evaluating options prior to vacating leased 

space or terminating a lease; and (2) including a termination for convenience 

clause or a broader, more inclusive default clause in a lease, or using flexiblelease terms, contributed to the SEC paying millions of dollars for space that it did 

not occupy. A more structured process for evaluating options prior to terminating 

lease may have led to another solution of the problems with the Woolworth 

Building lease that would have avoided duplicate lease payments. Additionally, 

the inclusion of a termination for convenience clause or a broader, more inclusive 

default clause in the lease, or the use of a shorter or flexible-term lease, would 

have provided the SEC with more options that would not have resulted in 

simultaneous lease payments being made for two office locations. 

Report No. 484 

21 

 

76 Id. 77 Id. at p. 2. GSA did execute a lease with the landlord. Subsequently, GSA exercised the lease renewal 

option at the Woolworth Building in July 2009, extending the lease through October 31, 2015, and no portion 

of the lease can be terminated earlier than in 2012. Email to SEC Contracting Officer from GSA Region 2 

Special Projects Manager, Subject: GSA Lease GS-02B-23401, dated November 4, 2009. 78 Id. at pp. 2-3. 

Real Property Leasing Procurement Process September 30, 2010 
Recommendation 10: 

The Office of Administrative Services (OAS) should adopt evaluation 

procedures that involve scoring and ranking various options prior to 

deciding to vacate leased premises or to terminate a lease. OAS should 

develop a transparent methodology for how it formulates its scores and 

rankings, including an explanation of any numerical scores used to rank 

various options. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 11: 

The Office of Administrative Services, in consultation with the Office of 

General Counsel, should ensure that the Securities and Exchange 

Commission’s (SEC) real property leases provide appropriate protections 

in the event the SEC needs to terminate a lease before the expiration 

date, such as, for example, the use of a termination for convenience 

clause under Part 49 of the Federal Acquisition Regulation, another 

appropriate clause, or a flexible-term lease. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Finding 4: Improved Coordination Is Needed 

Between the OAS Leasing and Security Branches 

to Ensure the Necessary Security Information Is 

Obtained Prior to Entering into a Lease 

The Security and Safety Assessment document developed 

by the Security Branch requires improvement. Moreover, 

the failures to include a Building Security Survey with the 

solicitation for short-term lease in Alexandria, Virginia or to 

complete a Security and Safety Assessment resulted in the 

incurrence of additional costs to secure the facility. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

22 
The Interagency Security Committee (ISC)79 releases security standards for 

government leased space. ISC standards are issued by the Department of 

Homeland Security and provide for four levels of security standards that are 

based on the number of government personnel occupying the space or the 

square footage leased. The OAS Security Branch provides advice to the Leasing 

Branch on safety, security, and emergency management for leased facilities. 

The final security requirements are negotiated by the Leasing Branch and the 

building owner. The specific security terms become a part of the lease and 

execution/completion of the terms are verified by the Security Branch prior to 

SEC employees occupying a building. 

The Leasing Branch Chief and Security Branch Chief are relatively new OAS 

employees, both arriving in 2008. Our audit found that since that time, the two 

branches have been working hard to coordinate their efforts by developing 

security-related documents to be used in the real property leasing process. Two 

recently-developed documents currently in use by the two branches are the 

“Building Security Survey” and “Security and Safety Assessment.” 

The Building Security Survey and Physical Security Review of Proposed 

Locations. For each real property lease, the Security Branch provides to the 

Leasing Branch a Building Security Survey, which becomes a part of the SFO. 

An offeror’s responses to Building Security Survey provide details on the current 

security posture of the proposed buildings. In addition, the survey presents the 

offeror the opportunity to include any proposed security improvements or 

enhancements. 

After the offers have been received, the Leasing Branch sends the Security 

Branch a list of the buildings that are being considered for lease. The Security 

Branch then determines the threats located within 1,000 meters of the 

prospective locations. To determine the potential threats, the Security Branch 

staff works with national, state and local officials, including both civil and law 

enforcement components, to obtain information on the neighborhoods in which 

the prospective building sites are located. After the potential threats are 

determined, the Security Branch staff decides what countermeasures can be put 

into place to lessen the threats. Security Branch staff perform a physical review 

of each site, develop a report (the Security and Safety Assessment, see below), 

and provide a recommendation to the Leasing Branch as to what security 

measures should be implemented at the site. 

The Security and Safety Assessment. The Security and Safety Assessment is 

a six-part document developed by the Security Branch. This document is 

Report No. 484 

23 

 

79 “The ISC’s mandate is to enhance the quality and effectiveness of physical security in, and the protection 

of buildings and civilian federal facilities in the United States. The ISC standards apply to all civilian federal 

facilities in the United States—whether government-owned, leased or managed; to be constructed or 

modernized; or to be purchased.” http://www.dhs.gov/files/committees/gc_1194539370126.shtm. 

Real Property Leasing Procurement Process September 30, 2010 
designed to evaluate and, if warranted offer options to improve, the security 

posture of the facility. 

Although the Security and Safety Assessment document includes some valuable 

information, our audit found that it could be improved. Parts 3 through 6 of the 

survey discuss the Security Branch’s assessment of the potential lease site. Part 

3 is an evaluation of threats and impact of loss based upon the Security Branch 

staff’s interviews of law enforcement officials and review of crime databases to 

determine the threats to the local area surrounding the building. This section of 

the survey could be improved to include the number of recent incidents in the 

area and the likelihood that future incidents will occur. Part 4 is an evaluation of 

countermeasures and vulnerabilities. In the vulnerabilities section, the Security 

staff should include their best estimate of the likelihood that the identified 

vulnerabilities will be exploited. Part 5 pertains to risk management and 

discusses the recommendations to reduce identified risks. This section could be 

improved to include a recommendation for countermeasures based on the 

likelihood of occurrence of the identified vulnerabilities. Part 6 states the 

conclusions reached by the Security staff. This section should include a cost 

estimate for the security measures that will be required and could be developed 

by contacting agencies in the area with similar security measures. The Security 

Branch could also base its cost estimates on the actual security costs incurred 

for currently-occupied, similarly-sized SEC facilities. These additions to the 

survey will provide additional information that will be very helpful in conducting 

lease negotiations.80 

Extra Security Costs Incurred at Temporary Facility in Alexandria, Virginia. 

On January 28, 2010, the SEC entered into a short-term lease81 with CaffertyShawnee L.L.C., for temporary space on the fourth floor of a building located in 

Alexandria, Virginia, to commence on March 1, 2010. According to OAS, the 

additional space was required because the SEC’s existing Operations Center 

facility was at capacity. As far as building security was concerned, the lease 

agreement required the lessor to provide a guard station, which included a 

podium and two high chairs.82 The lease, however, did not require an armed 

guard to be stationed at the facility.83 We also found that no Building Security 

Report No. 484 

24 

 

80 The OIG acknowledges that some of the information to be included in the Security and Safety 

Assessment will be sensitive in nature, such that OAS may wish to ensure that the document is 

appropriately marked and stored to avoid any compromise of the SEC’s security posture. 

81 The lease was for a term of three years, with 18 months firm, beginning on March 1, 2010. Letter to the 

landlord from SEC Contracting Officer, dated January 28, 2010. 82 Lease No. SEC-AUXOPC-2010, dated January 28, 2010, at p. 2. 83 A provision that the “[l]essor will be responsible for providing at the expense of the SEC and upon 

submission of proper invoice, an off duty armed police officer or Deputy Sheriff authority to carry a firearm 

and have the ability and equipment needed to react to an emergency security incident for a period of 12 

hours per day,” listed under “UNIQUE REQUIREMENTS,” was crossed-out and initialed by the lessor and 

the government. Id. Similar provisions, some of which referred to the SEC bearing this expense, were 

crossed-out and initialed by the lessor and the government on SFO SEC-AUXOPC-2010, and Amendments 

1 and 2 thereto. OAS explained that these provisions were crossed out because, at the time of the 

expedited lease action, the landlord was having difficulty obtaining confirmation from local authorities of the 

ability to obtain the services of an off duty police officer for the lease. Hence, according to OAS, the 

Real Property Leasing Procurement Process September 30, 2010 
Survey was included with the SFO for this lease and no Security and Safety 

Assessment was completed for this location. OAS indicated, however, that 

members of the OAS Security Branch participated in visits to the four potential 

sites identified by a pre-lease survey conducted on January 13, 2010. 

OAS further stated that the SEC validated that there was a high crime threat in 

the area in which the leased temporary space was located. As a consequence, 

the SEC explored options for appropriately securing the SEC’s leased space. It 

was determined that developing computerized access for this building would cost 

between $300,000 and $500,000, and that this would not be a cost-effective 

measure, given that the SEC had entered into a short-term lease. OAS decided 

that the most cost-effective-option was to pay to have the landlord hire an off 

duty police officer (with permission from the local Chief of Police) at a cost of 

$200,000 per year and to place unarmed guards on the floor occupied by the 

SEC at the SEC’s expense. As a consequence, the SEC is currently paying for 

the full cost of an armed police officer at a facility where it is only occupying one 

of four floors. OAS noted that the other tenant in the building already has a 

security solution (i.e., an electronic access system) in place. 

OAS acknowledged that the Building Security Survey and the Security and 

Safety Assessment were not completed for the temporary space lease, noting 

that the finalized Building Security Checklist document and SFO paragraphs 

were agreed to and finalized by the Security and Leasing Branches in May 2010 

(after the negotiation of the lease in question).84 While OAS maintains that it is 

not clear that use of the forms would have resulted in cost savings, if the 

appropriate security documents had been utilized in connection with this lease, 

the Leasing Branch would have been better equipped to negotiate for adequate 

security of the facility to be provided as part of the initial lease document, 

rendering it unnecessary for the SEC to enter into a lease amendment requiring it 

to pay an additional amount for security at this location. 

Recommendation 12: 

The Office of Administrative Services should revise the Security and 

Safety Survey document to include more specific information, i.e., the 

number of recent incidents in the vicinity and the likelihood of future 

incidents to occur, a best estimate of the likelihood of the indentified 

vulnerabilities to be exploited, recommended countermeasures based on 

the likelihood of the identified events to occur, and cost estimates for 

recommended countermeasures. 

Report No. 484 

25 

 requirement was eliminated from the lease until the details could be worked out between the SEC and the 

landlord. Pursuant to Supplemental Lease Agreement No. 2, dated March 30, 2010, the lessor agreed to 

provide an off duty armed police officer for 12 hours from Monday through Friday at an annual cost of 

$200,000, to be paid monthly by the SEC. 

84 OAS further noted that in late April or early May 2010, the Security and Leasing Branches reached an 

agreement regarding how the branches would coordinate security-related activities in the leasing program, 

although it indicated that the two branches coordinated security prior to that time, e.g., in February 2009. 

Real Property Leasing Procurement Process September 30, 2010 
Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

26 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 13: 

The Office of Administrative Services should implement final policies and 

procedures to ensure that the Real Property Leasing Branch consistently 

includes the Building Security Survey document in all solicitations for 

officers for leased building space. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 

Recommendation 14: 

The Office of Administrative Services should implement final policies and 

procedures to ensure that the Security Branch performs a physical review 

of prospective building locations and determines the threat within the 

immediate area prior to entering into a lease for any facility. 

Management Comments. OAS concurred with this recommendation. 

See Appendix V for management’s full comments. 

OIG Analysis. We are pleased that OAS concurred with this 

recommendation. 
Appendix I 

Acronyms

AOs Administrative Officers 

FAC-C Federal Acquisition Certification for Contracting 

FAR Federal Acquisition Regulation 

FedBizOpps Federal Business Opportunities 

FY Fiscal Year 

FRPC Federal Real Property Council 

GSA General Services Administration 

GSAM General Service Administration Acquisition Manual 

ISC Interagency Security Committee 

NYRO New York Regional Office 

OAS Office of Administrative Services 

OFM Office of Financial Management 

OGC Office of the General Counsel 

OIG Office of Inspector General 

OIT Office of Information Technology 

OMB Office of Management and Budget 

OP Operating Procedures 

RCO Realty Contracting Officer 

rsf Rentable Square Foot 

SEC or Commission U.S. Securities and Exchange Commission 

SECR Securities and Exchange Commission Regulation 

SFO Solicitation for Offer 

SFRO San Francisco Regional Office 

SLA Supplemental Lease Agreement 

SPE Senior Procurement Executive 

SRPO Senior Real Property Officer 

SSEB Source Selection Evaluation Board 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

27 
Appendix II 

 Scope and Methodology 

We conducted this performance audit in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. 

We determined that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Scope. The scope of the audit covered the period from January 2008 through 

March 2010, and included a review of any internal written policies and 

procedures for real property leasing and the relevant procurement documents. 

Methodology. To determine if OAS established real property leasing policies 

and procedures and to determine if these policies and procedures were in 

compliance with applicable federal guidance and were consistently followed, the 

OIG obtained copies of all real property leasing policies and operating 

procedures (including drafts) from OAS, as well as copies of applicable federal 

laws, rules, and regulations that apply to real property leasing. We reviewed and 

compared the SEC’s draft policies and procedures to the applicable federal 

guidance. In addition, for each new real property lease, we obtained copies of all 

documents used or developed during the procurement process, and analyzed 

and compared the documents received to documents listed in OAS’s real 

property leasing draft policies and operating procedures. Further, we conducted 

interviews with SEC staff that have real property leasing responsibilities. 

To ascertain how OAS maintains and tracks the SEC’s real property leases, we 

identified the universe of the SEC’s real property leases and inquired about the 

leasing staff’s methods for managing, tracking, and maintaining oversight of 

leased properties. We also compared the staff’s method of lease management 

to governing precedence. 

To assess the lease requirements and determine if the SEC was receiving the 

best value for its investment, we utilized the universe of the SEC’s real property 

leases noted above, selected a sample of leases to assess and obtained copies 

of all related, pertinent lease documents. We further interviewed the Leasing 

Branch Chief to determine if OAS had real property leasing performance 

measures to assess lease operations. We also interviewed the Security Branch 

Chief, obtained copies of the Security Branch’s safety requirements, and 

determined the analysis performed by the Security Branch to develop the safety 

requirements recommended to the Leasing Branch. 

Internal Controls. We assessed the internal controls and their significance in 

the context of our audit objectives by considering the following components: 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

28 
Appendix II 

• Identifying designated internal control officials for the entity subject to 

the audit, and determining their participation in the internal control 

program and their support for internal control objectives; 

• Determining whether the audit area was included in a self-evaluation 

process; 

• If management evaluated its performance regarding internal controls, 

using that evaluation as the basis for evaluating the adequacy of the 

self-evaluation process; and 

• Determining the adequacy of management’s self-evaluation. 

The Internal Control Officer for OAS is the Associate Executive Director of OAS, 

who is responsible for ensuring that sound, economical and efficient internal 

controls are in place. 

The OIG’s review of internal controls determined that, at the time of the audit 

fieldwork, the SEC did not have any final internal policies and procedures 

governing its real property leasing procurement. SECR 11-03, SEC Leasing 

Program, which prescribes the policies and procedures governing the acquisition 

of leasehold interest in real property for the SEC was finalized and approved on 

or about August 31, 2010, after our audit fieldwork was conducted. 

During our audit, we reviewed the draft internal policies and procedures 

pertaining to real property leasing that OAS provided and evaluated the 

adequacy and completeness of these documents. We found that OAS has not 

established performance measures to track lease performance, and there is no a 

uniform system/document for tracking leases. 

Further, per Executive Order 13327, OAS should have an asset management 

plan. The OGC believes that SECR 11-03 satisfies this requirement. However, 

SECR 11-03 is missing many of the required components for an asset 

management plan set forth by the FRPC. 

During an interview with OAS staff, it was determined that OAS does not have 

any leasing performance measures. OAS does not produce performance reports 

regarding individual leases. According to OAS, day-to-day performance 

monitoring is usually handled by regional office staff (AOs) because they are the 

first line of response to problems in tenant space and can directly access the 

building property manager for resolution of the types of issues that occur more 

frequently, such as with problems with utilities and maintenance. In addition, 

OAS staff indicated that there is no uniform collective management plan 

concerning the various leases. 

During the audit entrance conference, OAS management was asked to provide 

copies of internal reports or assessments that were issued regarding real 

property leasing. OAS management responded that assessments were 

performed, but that they were not reflected in writing. Because any internal 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

29 
Appendix II 

control evaluations performed by management were not in writing, we were 

unable to determine the adequacy of any self-evaluation. 

 

Use of Computer-Processed Data. We determined that the computergenerated data from the SEC’s Momentum financial system could be relied on 

for the purposes of this audit. 

Momentum is the one major system affecting real property leasing. Momentum 

serves as the SEC's financial accounting system and is used to track the 

agency's budget, obligations, expenditures and balances. The system owner is 

OFM. 

 

The General Accountability Office (GAO) performs an annual audit of the SEC’s 

financial statements. In the financial statement audit for Fiscal Years 2009 and 

2008, GAO identified six significant deficiencies that collectively represented a 

material weakness in the effectiveness of internal controls over financial 

reporting. 

To determine if the financial data from Momentum could be relied on, we 

performed an analysis of the amounts of lease payments authorized by OAS and 

the amounts actually recorded in Momentum. To perform the analysis, we 

obtained a computer-generated report from Momentum showing all monthly 

lease payments made from March 2008 through March 2010. From the report, 

we chose a sample of payments to verify. For the sample items selected, we 

obtained copies of the “Monthly Rental Voucher” (signed by the OAS COTR) and 

compared the amount authorized by OAS to the amount listed on the report. We 

did not identify any discrepancies between the amounts recorded in Momentum 

and the amounts authorized for payment by OAS. 

Prior Audit Coverage. We reviewed SEC OIG and GAO reports relating to real 

property leasing to identify issues and risk areas. While all of the 

recommendations from the prior OIG Audit Report, No. 330, dated May 31, 2001, 

had been closed, we found that management had not, in fact, fully implemented 

the OIG’s Recommendations B and E. 

 

Recommendation B. “OGC should document its review of real 

property leases by including a memorandum in the leasing file.” 

OAS stated that OGC reviews all lease actions and that the reviews 

are typically documented by email comments and approvals that 

are placed in the lease files. The OIG believes that, consistent with 

the prior recommendation, all lease files should contain 

documentation reflecting OGC review of the lease. 

Recommendation E. “OAPM [now OAS] should provide the field 

offices with additional guidance and training on follow-up 

procedures for building maintenance services.” OAS stated that 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

30 
Appendix II 

regional office AOs are issued delegation of Contracting Officer’s 

Representative authority letters that spell out their responsibilities. 

However, OAS stated that it did not believe any further training was 

required for regional office leasing programs. The OIG believes 

that, consistent with the prior recommendation, OAS should explore 

possible training for regional office staff who have leasing 

responsibilities. 

The OIG previously issued Report No. 471, Audit of the Office of Acquisitions’ 

Procurement and Contract Management Functions, on September 25, 2009. 

Although this audit did not specifically concern real property leasing, the audit 

assessed the SEC’s procurement and contract management processes and 

functions, which do impact leasing. Also, the same SEC office, OAS, oversees 

the agency’s procurement and contracting and real estate leasing functions. 

Therefore, we reviewed the findings of audit report No. 471 and designed our 

audit objectives and audit steps to test for similar issues or risk areas in the area 

of real property leasing. 

GAO’s report on Federal Real Property – Strategy Needed to Address Agencies 

Long-standing Reliance on Costly Leasing, GAO-08-197 was issued in January 

2008. To evaluate federal leasing trends and challenges, GAO analyzed data 

obtained from the Federal Real Property Council (FRPC) and OMB. GAO also 

examined ten federal leases (none of which were SEC leases) to determine the 

estimated cost of leasing versus the cost of new construction. In addition, GAO 

analyzed administrative and agency efforts to address long-standing problems in 

real property. Also in this report, GAO noted that, in January 2003, it had 

designated federal real property leasing as a high-risk area, citing the 

government’s overreliance on costly leasing as one of the major reasons for this 

designation. 

Although the GAO’s report did not specifically address the SEC’s leases or those 

of any other financial regulatory agency, we reviewed the GAO’s findings and 

designed our audit objectives and audit steps to test for similar issues. The 

GAO’s findings that we determined might be issues or risk areas at the SEC 

were: 

1. Data quality remains a challenge. 

2. Decisions to lease selected properties are not always driven by costeffectiveness considerations. 

Based on our analysis of the above listed SEC OIG and GAO reports, the 

following objectives were developed: 

• Ascertain how the Real Property Leasing Branch maintains and tracks the 

SEC’s real property leases. 

• Identify current leases and assess whether the SEC lease requirements 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

31 
Appendix II 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

32 

are appropriate, and whether the SEC receives the best value for its 

investment. 

Assessment of Audit Risk and Materiality. We assessed the audit risk and 

significance in the context of the audit objectives considering the following: 

• Nature and profile of the program and the needs of users of the audit 

report. 

• Internal controls as they relate to the specific audit objectives and scope of 

the audit. 

• Legal and regulatory environment, and potential waste, fraud, and abuse 

in the context of the audit objectives. 

Overall, our assessment concluded that the audit risk is high due to SEC’s 

significant investment of funds in leased facilities and the lack of established real 

property leasing policies and procedures. At the time we performed our audit 

fieldwork, all of OAS’s leasing policies and procedures were in draft form, and 

there were no final policies and procedures in place. 
Appendix III 

Criteria

Section 4(b)(3) of the Securities Exchange Act of 1934, 15 U.S.C. § 

78d(b)(3). Gives the SEC independent leasing authority and exempts it from 

GSA space management regulations or directives. Enacted by Public Law 101-

550 on November 15, 1990. 

House Conference Report No. 101-924, 101st Cong., 2nd Sess. (Oct. 23, 

1990), reprinted in 1990 U.S.C.C.A.N. 3929. Contains the legislative history for 

Public Law 101-550, which provided the SEC with independent leasing authority. 

Limitations on Expending and Obligating Amounts (Anti-Deficiency Act), 31 

U.S.C. § 1341. Prohibits incurring commitments, obligations or expenditures in 

excess of amounts available for such purposes. 

Section 601 of the Rural Development Act of 1972. Requires executive 

department and agencies to establish and maintain policies and procedures to 

give first priority to the location of new offices and facilities in rural areas. 

Enacted by Public Law 92-419 on August 30, 1972. 

Federal Managers Financial Integrity Act of 1982. Requires ongoing 

evaluations and reports of the adequacy of the systems of internal accounting 

and administrative control of each executive agency. Provides that the internal 

accounting and administrative controls of each executive agency should provide 

reasonable assurance that (1) obligations and cost comply with applicable law; 

(2) funds, property and other assets are safeguarded against waste, loss, 

unauthorized use or misappropriation; and (3) revenues and expenditures are 

properly accounted for and recorded. Enacted by Public Law 97-255 on 

September 8, 1982. 

Executive Order 13327, Federal Real Property Asset Management. Contains 

guidance to promote the efficient and economical use of Federal real property 

resources, and requires that departments and agencies have asset management 

plans. Issued on February 4, 2004. 

Executive Order 13006, Locating Federal Facilities on Historic Properties in 

Our Nation’s Central Cities. Directs agencies, when operationally appropriate 

and economically prudent, to give first consideration to historic properties within 

historic districts when locating federal facilities. Issued on May 21, 1996. 

Executive Order 12072, Federal Space Management. Provides that, except 

where otherwise prohibited, the process for meeting Federal space needs in 

urban areas shall give first consideration to centralized community business 

areas or adjacent areas of similar character. Issued on August 16, 1978. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

33 
Appendix III 

Federal Acquisition Regulation (FAR), Title 48 of the Code of Federal 

Regulations. Contains the primary regulation for use by all Federal Executive 

agencies in their acquisition of supplies and services with appropriated funds. 

Became effective on April 1, 1984, and was issued within applicable laws under 

the joint authorities of the Administrator of General Services, the Secretary of 

Defense, and the Administrator for the National Aeronautics and Space 

Administration, under the broad policy guidelines of the Administrator, Office of 

Federal Procurement Policy, OMB. 

FAR Part 6 – Competition Requirements. Prescribes policies and procedures 

to promote full and open competition in the federal acquisition process, and 

provides for full and open competition, full and open competition after exclusion 

of sources, other than full and open competition, and competition advocates. 

FAR Part 7 – Acquisition Planning. Prescribes policies and procedures for 

developing acquisition plans, among other things. 

FAR Part 49 – Termination of Contracts. Establishes policies and procedures 

relating to the termination of contracts for the convenience of the government or 

for default. Prescribes contract clauses relating to termination and excusable 

delay. 

OMB Circular A-11, Preparation, Submission, and Execution of the Budget, 

Part 2, Preparation and Submission of Budget Estimates. Sets forth the 

requirement for submitting budget estimates for all federal agencies. Section 

33.1 of Part 2 pertains to estimates for construction, leases of capital assets and 

acquisition of real property. Issued in July 2010. 

OMB Circular A-11, Preparation, Submission and Execution of the Budget, 

Part 8, Appendices, Appendix A, Scorekeeping Guidelines. Contains 

scorekeeping guidelines that are used by the House and Senate Budget 

Committees, the Congressional Budget Office, and OMB to measure compliance 

with pertinent statutes. Issued in July 2010. 

OMB Circular A-11, Preparation, Submission and Execution of the Budget, 

Part 8, Appendices, Appendix B, Budgetary Treatment of Lease-Purchases 

and Leases of Capital Assets. Provides instructions on the budgetary 

treatment of lease-purchases and capital assets leases consistent with the 

scorekeeping rule developed by the executive and legislative branches in 

connection with the Budget Enforcement Act of 1990, as revised. Issued in July 

2010. 

OMB Circular A-94, Guidelines and Discount Rates for Benefit-Cost 

Analysis of Federal Programs. Aims to promote efficient resource allocation 

through well-informed decision-making by the federal government. Provides 

general guidance for conducting benefit-cost and cost-effectiveness analyses, 

and specific guidance on discount rates to be used in evaluating federal 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

34 
Appendix III 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

35 

programs whose benefits and costs are distributed over time. Revised on 

October 29, 1992. 

OMB Policy Letter 05-01. Establishes the government-wide framework for 

creating a federal acquisition workforce with the requisite skills. Defines the 

acquisition workforce to include individuals who perform various acquisition 

functions to support the accomplishment of the agency’s mission. Prescribes the 

training requirements for members of the acquisition workforce. 

Federal Real Property Council (FRPC) Guidance for Improved Asset 

Management. Addresses the FRPC guiding principles, required components for 

an agency asset management plan, property inventory data elements, and 

government-wide performance measures. Issued on December 22, 2004. 

SECR 11-03, SEC Leasing Program. Prescribes the policies and procedures 

governing the acquisition of real property leasehold interests for the SEC. 

Provides that the SEC will adhere to all Executive Orders and legal requirement 

applicable to federal executive agencies acquiring leasehold interest in real 

property. Issued in August 2010. 

SECR 10-02 (REV 2), SEC Contracting Authorities and Appointments. 

Establishes uniform policies and procedures for the acquisition of products and 

services for the SEC. Issued on March 31, 2010. 

OP 11-03, SEC Leasing Program Operating Procedures (Draft). Provides 

guidance supplementing SECR 11-03, and details activities for acquisition and 

administration of leasehold interest in real property. Attaches lease checklists 

and guidance containing information and instructions the various tasks required 

during lease acquisition, design and construction phase and lease administration. 
Appendix IV 

List of Recommendations 

Recommendation 1: 

The Office of Administrative Services (OAS) should revise Securities and 

Exchange Commission (SEC) Regulation 11-03 and draft Operating Procedure 

11-03 (OP 11-03) to ensure that they are adequate and complete and include the 

information identified in the audit report, and should finalize OP 11-03 and the 

attachments thereto. OAS should ensure that the revised documents are posted 

to the Commission’s Intranet site and that copies are circulated to all staff within 

the SEC’s Real Property Leasing Branch, as well as other SEC staff with leasingrelated responsibilities. 

Recommendation 2: 

The Office of Administrative Services should amend Securities and Exchange 

Commission (SEC) Regulation 11-03 to include a complete list of relevant 

authorities (federal statutes, regulations, executive orders, Office of Management 

and Budget circulars, and internal SEC policies) that apply to real property 

leasing and should finalize detailed guidance to ensure compliance with those 

authorities. 

Recommendation 3: 

The Office of Administrative Services should measure the Securities and 

Exchange Commission’s real property leasing policies and procedures against 

pertinent provisions of General Services Administration (GSA) regulations, 

including the GSA Acquisition Manual and Subchapter C of the Federal 

Management Regulation, as appropriate. 

Recommendation 4: 

The Office of Administrative Services should ensure that the Leasing Branch’s 

policies and procedures, including Operating Procedure 11-03 and the attached 

checklists, provide comprehensive guidance for Securities and Exchange 

Commission (SEC) leasing officials regarding the leasing process that will assist 

in ensuring compliance with the applicable policies, regulations and best 

practices. These materials should detail the regulations and policies that should 

be followed at the various stages of the leasing process and should include 

pertinent forms and examples. Once finalized, these materials should be 

distributed to all staff in the SEC’s Real Property Leasing Branch and other SEC 

staff with leasing-related responsibilities. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

36 
Appendix IV 

Recommendation 5: 

The Office of Administrative Services (OAS) should utilize the “Required 

Components” section of the Federal Real Property Council’s (FRPC) Guidance 

for Improved Asset Management to develop and finalize the Security and 

Exchange Commission’s (SEC) real property leasing asset management plan, as 

appropriate. If there are any required components in the FRPC Guidance that 

OAS determines should not apply to the SEC, the plan should include an 

explanation as to why the SEC’s unique circumstances render those components 

unnecessary. 

Recommendation 6: 

The Office of Administrative Services should amend its leasing policies and 

procedures to require the tracking and monitoring of all leasing expenses (i.e.,

rent, operating costs and taxes) for informational and budget formulation 

purposes. 

Recommendation 7:

The Office of Administrative Services (OAS) should develop performance goals 

for the Securities and Exchange Commission’s real property leasing activities, 

including both lease acquisition and the monitoring and administration of existing 

leases; identify key factors external to OAS that could significantly affect the 

achievement of its performance goals; and periodically evaluate whether these 

goals are met. 

Recommendation 8: 

The Office of Administrative Services (OAS) should develop performance 

measures to assist in evaluating the effectiveness of the major functions of real 

property acquisitions and operations, and periodically evaluate performance 

based on these measures. The performance measures should include metrics 

for all of the OAS Branches that have a role in real property leasing, including the 

Real Property Leasing, Construction and Security Branches. 

Recommendation 9: 

The Office of Administrative Services should revise Securities and Exchange 

Commission Regulation 11-03 and draft Operating Procedure 11-03 to include 

complete written policies and procedures for timely acquisition planning pertinent 

to real property leases. The revised policies and procedures should require the 

preparation of a project plan and schedule with projected dates for achieving 

various milestones well in advance of the scheduled commencement of a lease. 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

37 
Appendix IV 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

38 

Recommendation 10: 

The Office of Administrative Services (OAS) should adopt evaluation procedures 

that involve scoring and ranking various options prior to deciding to vacate 

leased premises or to terminate a lease. OAS should develop a transparent 

methodology for how it formulates its scores and rankings, including an 

explanation of any numerical scores used to rank various options. 

Recommendation 11: 

The Office of Administrative Services, in consultation with the Office of General 

Counsel, should ensure that the Securities and Exchange Commission’s (SEC) 

real property leases provide appropriate protections in the event the SEC needs 

to terminate a lease before the expiration date, such as, for example, the use of a 

termination for convenience clause under Part 49 of the Federal Acquisition 

Regulation, another appropriate clause, or a flexible-term lease. 

Recommendation 12: 

The Office of Administrative Services should revise the Security and Safety 

Survey document to include more specific information, i.e., the number of recent 

incidents in the vicinity and the likelihood of future incidents to occur, a best 

estimate of the likelihood of the indentified vulnerabilities to be exploited, 

recommended countermeasures based on the likelihood of the identified events 

to occur, and cost estimates for recommended countermeasures. 

Recommendation 13: 

The Office of Administrative Services should implement final policies and 

procedures to ensure that the Real Property Leasing Branch consistently 

includes the Building Security Survey document in all solicitations for officers for 

leased building space. 

Recommendation 14: 

The Office of Administrative Services should implement final policies and 

procedures to ensure that the Security Branch performs a physical review of 

prospective building locations and determines the threat within the immediate 

area prior to entering into a lease for any facility. 
Appendix V 

Management’s Comments 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

 Page 39 

MEMORANDUM

September 28, 2010

TO: H. David Kotz

Inspector General

FROM: Sharon Sheehan

.

,Jl.4J.,

Associate Executive Director

Office ofAdministrative Services

SUBJECf: OAS Management Response to Draft Report No. 484, Real Property ~jng

Procureme!Jt Process

This memorandwn is in response to the Office ofInspector General's Draft Report No. 484, Real

Property Leasing Procurement Process. Thank you for the opportunity to review and respond to

this report.

Cc: KaylaJ. Gillan, Deputy ChiefofStaff; Office ofthe Chairman

Diego Ruiz, Executive Director, Office ofExecutive Director .

David Becker, General Counse~ Office ofGeneral Counsel

George Brown, Assistant Counse~ Office ofGeneral Counsel

John Branch, Assistant Director, Office ofAdministrative Services

Linda Sudhott; Senior Program Analyst, Office ofAdministrative Services
Appendix V 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

40 

Introduction

The Draft Audit Report (Report) reviews the SEC's leasing prowam I believe the SEC's

Iessing program has beee vecy suca:ssful I appreciate the input from)'>ur audit staff; and look

i>rward to further improvements to the lossing program with)'>ur Report in mind.

ODe ofthe main QOmments oftbe Report is that leasing policies and procedures cnukt be

improved. We agree that policies and ~uressboukt always be improved. We will work to

ensure that its policies and proc:cdun:s properly document goals and requirements.

The Report also includes a focus on the SEC's New York Regional Office lease. As)'Ou

Imow, the terrorist attaclcs ofSeptember II, 2001 destroyod the SEC's New York office, which

was located as part ofthe World Trade Center complex. We are extremely proud that,

three weeks ofthe tragic events ofSeptember II, the SEC was able to reopen for business in

lower Manhattan. The SEC was the first Federal agency to reopen in that area. and in so doing

sent an important signal to the public and the investment oommunit:y ofthe SEC's oontinuing

regulatory presenCe and our commitment to this business ceoter. As time passed after the move,

it became apparent that problematic materials used to co_this old« building wss

troublesome to staffmorale., and that the space: would not be able to accommodate future growth

ofthe New York office. Thus. the SEC moved its opentions to a larger 1o(:ation nearby and, in

cormection with GSA, transferred the ok! space to a diffcn::nt govc:mme:nt tenant. The paymeri:s

the SEC made to effect this move were, in our view. appropriate.

Another portion oftbe Report fi>cuses on the leasing program's effOrts to povide a

succeeding lease in the SEC's San Francisco Regional Office. We believe that oW" effurts

relIeded appropriate management flCX1bility in n:sponse to c:hanaing market coodmos and

obtaining significant cost saVings i>r the taxpayen<.

Other findings in the Report address the importance ofcommunication and coordination

between the Leasing Branch and the Security Branch. We agree on the importance ofeffective

coordination between these two branches. I believe improvements have been made, and we are

committed to continuing to work to ensure their effective interaction.

The remainder ofthis memorandum. addresses the specific findings and reoonunendations

in the Report. Our leasing staffhas also shared its more specific views with yoUI' office, and I

will 00' repeat that infur=tion here.

FiDdiag 1: The SEC'. I...easmC Policies ucI Proeeclara Are lDadequte ud Incomplete.

The Report expresses concerns about the SEC's policies and procedun:s goVC<Oing the

SEC's real estate leasing program. As noted above, we agrc:e that policies and procedures shoukt

always be improved, and will worlc to eosure that leasing policies and prooedun:s properly
Appendix V 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

41 

_ goals and w. tlUnk the leumg program ovenll has been a notable

sua:ess.

TIle 0fBce ofAclmbUItntive Serrica ailould revile Sccaritielud ETch.age Com.aaiIdo-.

(SEC) Repla_II-3 aad dnft 0p0n1lDx Prvcodure 11-03 (OP 11-03) 10 ....... 1IIa1 they

are adequate ad complete ud iadll.de tM lafonDatio. ido.tifted bathe audit Report, aDd

lhoaJd fIIlalIze or 11-03 aDd the .ttackmaltJ tberdo. OAS should tDAlR that these

nviIed doeullleD.b aft: posted to the CommlgioD'. Iatn..et dte ud tII.t copt. are

cirtuJated to aII,tatrwl*'bl the SEC's Real Property LeaslaC Brwach. 8' wen a. other SEC

Itaffwith Itulal'"nlated respoD.fbUttles.

We concur. The SEC finaJizcd the SEeR 11-03 and it is posted on the Intranet. Work is

ongoing on the companion Leasing Pro:gr8m OP 11-03 and incorporated cbcck.lists. with plans to

finalize and"issue them in the near future. We will continue to work 10 improve SECR and

operating cbecklists oonsistcnt with governing autrorities and responsible policies.

1'be 0fBee ofAdmlalstndve

(SEC) Repla_ 11-3 to

rep.llldoaI, eucadve orden,

_d. Servitel .....Id UMDCl Seeuritielaad EId.aap Coaunisliona complote lilt of..lev... authoritla (fed.nll........

Officeo_of M........t ud IRd&d cirtu.n, ad latemal

SEC poUdea) lllat apply to naI property leadaa ..d ••ooJd fIaaItze detailed cuJdaaee ....... comp '0

W. C:OIlCUr. OAS _ with the OIG that allrelevaot authorities and guidaoee should

be included in SECR 11-03, OP 11-03, and incorporated and referenced guidance and checklists.

We specifically ootethat OP t 1-03, which is cited in SECR 11-03. cites a detailed list ofrelevant

autlmrities including those specified in the Report. We agree with the DIG on the benefit and

utility ofcheclclists and detailed guidance fur usc by leasmg personne~ and belicve that such

checlclists and detailed guidaoee an best listed in operational desk guidance, where they can he

c:outiu..usly updated as ueeded, rathot than iu a fbrmal SEC administntive regulatiou (SECR),

whioh is nol wended to he amended frequently. The dnftmg ofOP 11-03 hegon w~h the

c:om:spoudmg GSA Lease Fil. Checklist operational dooumeut, whioh GSA updates frequen.ly.

We are DOW working to fmalize OP 11-03, which is currently a working docwneot.

ReeoJiuDeDda_ 3:

The 0fIice ofAdmiDiltrative Servieel ....oakl meuu.re tJae Securities ad Ex....•..

o-minioa'. real property Ieuiac poIidn ud proeedura apiDst pert:i.aalt provisiou of

GeMnl Senica AduIiIaIstn_ (GSA) ......110... tndodlua the GSA AcqllilJtlou

M..uI ...d S.bpart C of the Fedmd Maaapmeat RepJatioa, as appropriate.
Appendix V 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

42 

We concur. OAS agrees that GSA, as the leading Federal leasing activity, provides a

significant precedent for any government leasing work. We agree that GSA practices frequently

provide useful guidance for leasing decisions and the SEC routinely considers GSA practices,

where appropriate, when undertaking leasing actions and developing regulations. Further, the

Leasing Branch staffcontains a strong cadre ofexperienced GSA professionals who bring that

agency's institutional expertise to the SEC's independent authority. At the same time, as the

OIG report acknowledges, the SEC has independent leasing authority, and is exempt from GSA

space management regulations. The SEC was granted independent leasing authority so that,

where necessary or appropriate, it could be different from GSA, and that the SEC would be able

to exercise independent judgment on how best to achieve leasing value. While we cannot,

therefore, promise that the SEC's own space management regulations will exactly track to GSA

standards, we can assure you that we will continue to carefully assess alI relevant GSA standards

and guidance in order to incorporate those that are applicable and appropriate to the SEC's

particular mission and authority.

Recommendation 4:

The OffIce ofAdministrative Services should ensure that the Leasing Branch's poUeies and

procedures, inchuling Operating Procedure 11-03 and the attached checldists, provide

comprehensive guidance for Securities and Exchange Commission (SEC) leasing officials

regarding the leasing process that wiD assist in ensuring compUance with the appUeabl~

poUcies, regulations and best practices. These materials should detaD the regulations and

poUcies that should be foUowed at the various stages ofthe leasing process and should

include pertinent forms and examples. Once finalized, these materials should be distributed

to all staffin the SEC's Real Property Leasing Branch and other SEC staffwith leasingrelated responsibilities.

We concur. As discussed above in reference to Recommendation 2, OAS has and will

continue to ensure that the OP 11-03 contains sufficient details, forms, examples to execute the

leasing program. The SEC is finalizing the existing working draft OP 11-03 and its incorporated

checklists. The Leasing Branch staffare fumiliar with the GSA checklist and routinely consider

these lists during their work. Additionally, the Leasing Branch posts common Solicitations for

Offers (SFO) docwnents on the OAS shared drive so branch members have access to templates

and forms as revised for SEC acquisitions.

Recommendation 5:

The Office of Administrative Services (OAS) should utilize the "Required Components"

section ofthe Federal Real Property CouncD's (FRPC's) Guidance for Improved Asset

Management to develop and finaUze the Security and Exchange Commission's (SEC's) real

property leasing asset management plan, as appropriate. H there are any required

components in the FRPC Guidance that OAS determines should not apply to the SEC, the
Appendix V 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

43 

pin '''011'' iDet-de aD. elp....tioa u to ",by tbe SEC'.lUlique drcumltaDeeI reDder those

COlllpOllellts UlllM'Ct'Ary.

Weroncur. OAS agrees with the OIGoo tbeimportance ofcnswing that asset

evaluation, planning, and management is appropriatdy addressed in SECR 11-1)3, OP 11-1)3, and

incorporated guidance and checklists. We also agree that there are elements ofthe FRPC's

gu.iiaooc that may be relevant and appropriate mr the SEC to adopt. At the same time, we: note

that there: may be 1imi1aI:iom on the usefulness or Ipplicabilityofthis guidance to the SEC. First,

the FRPC', guidance diredive applies only to Ia!gc cabinet-level agencies (~ed "eFO Art

agc:ocies"), and not to .mallet agc:ocies like the SEC. so the guidaooe is not geoerally tailored to

the cIlal1cllgcs fiIciog a small" agency such as the SEC. Finally, as a gcncnl matt", the SEC is

DOt authorized to assume lega.l obligat:i:ms that have DOt bem imposed on it. NotwXbsta:nding

tbc:sc DOtable Ijrn,atioos on the applicability ofthe FRPC guidance to the SEC, we have mund

the FR.PC gumncc's template mr an agcucy's asset n:umagement plan to be valuable. The

LcasingBrancb roWocly amaid... this as part ofitsrcguIar dutics to plan ilr, ""lWrc, and

manage the SEC's assets, m:l we will rontinue to ensure that asset evaluation, planning. and

management uc appropriately addressed in applicable SEC rogulatio", and guidaocc.

The otIIee of AdmialItnltive Suvica .boa" amead Its IeuiJIc poIideI aud proud.res to

l'U(uire the tracldag ud moaltoriDg of aD leui.ug apeasa (Leo, mit, open.tiDg costs and

taus) for iDformatioul aud lMIeIget fOl'lllu..tioa purpoas..

We roDCW'. We are pleased that the OIG did not ideotify any inappropriate payments or

budget funllllation problc:ms relating to the leasing program, which offers evidence ofthc:

effectiveness ofthe Leasing Branch's ef'furts to accurately track expenses. Leasing costs in fully

serviced leases (ie., taxes, utilities, etc.) uc generally bond1ed together in the SEC-adopted

standud GSA Form. 1217, and these costs are routinely rompared and monitored during

acquisition, negotiation and administratioo against industry norms. The: Leasing Branch has

worted with OFM to develop new budget object class (BOCs) codes for Momentumll and to

furth« refine additional components ofrent. The: new BOCs will enhance the Leasing Branch's

ability to track: rost components and to imnulate future budgets.

Rec:omm.endatiou 7:

De 0fIl" of AdmbliItrative Senic:a (OAS) should develop performaac:e goals for tbe

Securities and Exc:hauge Commlsdoa'. ruI property IeallDe activtttes. btcludlDg both lease

acq._.....a. _riDg..d admlaloIratioa of_gIeuct, a.d ld..tIfy key

fKton eJtenla;1 to OAS that cou"lig:Dlfka.tIy affect the .chleve.at ofIts performance

pall, ad IbouId paiod.lc:aDy tv....te ",..ettaer tbese Coals are met
Appendix V 

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Report No. 484 

44 

We concur. OAS plans to develop appropriate performance goals for the real property

leasing program. As a general matter, we note that OAS has established general performance

goals and measures, which are evaluated throughout the year, for instance through OAS's annual

submittals to the SEC's Performance and Accountability Report and its management assurance

on internal controls statements.

Recommendation 8:

The Office ofAdministrative Services (OAS) should develop performance measures to

assist in·evaluating the effectiveness ofthe major functions of real property acquisitions

and operations, and should periodically evaluate performance based on these measures.

The performance measures should include metries for aU ofthe OAS Branches that have a

role in real property leasing, including the Real Property Leasing, Construction and

Security Branches.

We concur. OAS plans to develop appropriate performance metrics for the real property

leasing program. As a general matter, we note that OAS has established general performance

goals and measures, which are evaluated throughout the year, for instance through OAS's annual

submittals to the SEC's Performance and Accountability Report and its management assurance

on internal controls statements.

Finding 2: The Lackof Adequate PoUcies and Procedures Relating to the Renewal or

Competition ofBuilding Leases that Were Expiring Coutributed to the Payment of

Increased Rent for the San Francisco Regional Office Space.

We appreciate having the opportunity to comment on this portion ofthe Report, which

focused on the leasing ofspace for the SEC's San Francisco Regional Office (SFRO).

Overal~ we believe that the SFRO lease delivered significant benefits for the agency.

The significant decline in commercial office space rental rates in San Francisco created a cost

savings opportunity. As circumstances changed, the leasing program adjusted and abandoned its

current extension plans in favor ofcompetition. We did attempt to negotiate a short-term

extension at a more affurdable rate, but the landlord did not accept our proposals. As a result,

the agency was forced to make a businessjudgment to carry the lease into holdover while we

conducted a full and open competition.

The results ofthat competition are now complete, and we strongly believe that we

achieved good value and terms for the SEC. Specifically, the agency moved from an expiring

lease rate of$53/per rentable square foot (prst) rate to a ten-year average rate of$45.50/prsfwith

more tenant improvement (TI) allowance, tenant credits and zero per cent amortization. We also

negotiated a rental rate that was more than $1.8 million less than the next low offeror, a

significant savings to taxpayers. While we acknowledge that there were costs associated with
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45 

continuing the existing rental rate to provide time for the benefits ofcompetition to be realized,

these costs were, on the whole, modest and will be fully recovered through the succeeding lease.

Rec\)mmendation 9:

The Office ofAdministrative Services should revise Securities and Exchange Commission

Regul8tion 11-3 and draft Operating Procedure 11-03 to include complete written poDcies

and procedures for timely acquisition planning pertinent to real property leases. The

revised ,oDeles and procedures should require the preparation of a project plan and

schedule with projected dates for achieving various mllestones weD in advance ofthe

scheduled commencement ofthe lease.

We concur. These policies and procedures are substantially in place and we will continue

to improve them with the audit recommendation in mind.

Finding 3: The SEC Has Made and Continues to Make Simultaneous Lease Payments for

Two Properties in New York, One ofWhich the SEC Has Not Occupied for Several Yean.

As noted above, the SEC is proud that after the tragic events ofSepternber 11lb, which

destroyed its New York: offices, the SEC was able within three weeks to reopen for business in

lower Manhattan. It subsequently became apparent that problematic materials used to construct

this older building was troublesome to staffmorale, and that the space would not be able to

accommodate future growth ofthe New York office. Thus, the SEC moved its operations to a

larger location nearby and, in connection with GSA, transferred the old space to a different

government tenant. The payments the SEC made to effect this move were, in our view,

appropriate. The cost ofthe old space is shared by two federal agencies, the SEC and GSA, at no

additional cost to the taxpayer.

Recommendation 10:

The Office ofAdministrative Services (OAS) should adopt evaluation procedures that

involve scoring and ranking various options prior to deciding to vacate leased premises or

to terminate a lease. OAS should develop a transparent methodology for how it formulates

Its scores and ranklngs, including an explanation of any numericalscores used to rank

various options.

We concur. Given the special circumstances that resulted from the 9/11 terrorist attacks,

both senior management and Congressional staffwere briefed by the leasing program on the

potential cost ofmoving the NYRO space and other pros and cons befure the decision was taken.

While our experience-and hop~is that it will be extremely rare fur a federal agency to leave a

lease priorto its expiration or firm tenn, OAS recognizes the importance ofa good planning
Appendix V 

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46 

process to help mitigate such risks. We will consider as recommended the use ofrankings and

scores ofvarious options should such scenarios arise in the future.

Recommendation 11:

The Office ofAdministrative Services, in consultation with the Office ofGeneral Counsel,

should ensure that the Securities and Exchange Commission's (SEq real property leases

provide appropriate protections in the event the SEC needs to terminate a lease before the

expiration date, such as, for example, the use of a termination for convenience clause under

Part 49 ofthe Fedenl Acquisition Regulation, or another appropriate clause, or a flexibleterm lease.

We concur. As noted in the response to Recommendation 10, it is extremely rare for a

federal agency to leave a lease priorto its expiration or firm term. We will work with OGC to

ensure that as favorable clauses as possible are included in SEC leases, and to consider GSA

practices and clauses on termination and default. We note that the SEC has sought and obtained

fleXIbility over lease terms through substitution of agency clauses that are in several SEC leases,

and that the headquarters lease provides that the SEC can assign certain amounts ofspace to a

high quality government associated tenant and be relieved ofits lease obligations for that

assigned space.

We will also continue to explore other options, including whether termination for

convenience clauses would be appropriate for leases. As a general matter, GSA and private

sector practice does not include oonvenience termination and other early no-fault termination

clauses in office space leases. This is because leases, unlike other contracts, can last for many

years, frequently 10 to 15 years, an~ often require significant construction and renovation of

buildings, which in tum requires financing. Because a termination for convenience clause in

effect.oonverts a Iong-tenn lease into a lease that can be terminated at wil~ we are not aware of

lenders who will provide financing for a building where a tenant can terminate for convenience,

as such a termination would interrupt the repayment oftheir loan.

Finding 4: Improved Coordination Is Needed Between the OAS Leasing and Security

Branches to Ensure the Necessary Security Information Is Obtained Prior to Entering into

a Lease.

We appreciate having the opportunity to comment on this portion ofthe Report, which

focused on the leasing ofa temporary facility in Alexandria, Virginia to acconunodate growth .

that could not be accommodated at the SEC's nearby Operations Center (OPC). Members ofthe

Leasing, Construction, and Security Branches and the Office ofInfonnation Technology (OIT),

as well as senior OAS management, participated in the visits to all viable sites.

As the Report notes, the physical security ofthis temporary facility was a key area of

focus fur the agency. The agency ultimately decided that the most cost-effective solution,
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47 

especially given the temporary nature ofthe lc:asc, was to provide unarmed guards and one offduty armed police officer (ODPO) instead ofinstalling and maintaining an electronic access

system At the SEC, the security and safety ofour employees and contractors arc paramount

concerns. Because the Leasing Branch does not make security decisions tOr a leased location,

and must work with the Security Branch for the incorporation ofthc appropriate security

countermeasures fur that locationlbuilding, GAS agrees on the importance ofensuring timely

and effective communicati:m and coordination between these two branches particularly with

respect to urgc:nt acquisitions.

Recommendatioa 12:

The omce ofAdmlDJltrlth'e Services should revise the Sec:urity aud Safety Survey

doeument to iadade lOOn specific iDformatloa, Le., the number of reeent incidents in the

vicinity and rite UkeUhood offuture incidents to occur, a best estimate of the likelihood of

the lndentifltd valaerabillties to be exploited, recommended countermeasures based on the

HkeUhood ofthe IdeDdfted events to oeeur, ad eost estimates for recommended

eoa.ntermeasures.

We concur. We will ensure that this Safety and Security Assessment document, which

often reveals sources and methods, is marked and stored appropriately to prevent the content

. from entering the public domain, thus ensuring that our security posture is not compromised.

Copies will not be shared outside appropriate Government entities or contractors.

ReeommeDdatioD 13:

The Office ofAcl.ministntive Sentees should implement final poIieies ud procedures to

ensure that the Real Property Laslag BraDch eo.slatently.iad.des the Bulldiag Security

Survey document In aD solkttadoDS for onken for leased building space.

We concur. OAS plans to take action shortly to issue final policies and procedures. In the

meantime, we wish to reassure you that the Leasing Branch has been utilizing all functions ofthe

draft procedures in their day-to-day leasing program responsibilities.

RecommendadoD 14:

The 0fIice of Administrative Semees llauald implement final polic:ies and procedures to

ensure that the Security Branch performs a physkal review of the prospeet:ive building

location and determlaes the threat within the immediate area prior to eDtering lato • lease

for auy facility.

We concur. Using the finalized Building Security Survey document and SFO paragraphs

agreed to and finalized by the Security and Leasing Bnmcbcs in May 2010. the draft OP II-OJ

will be updated to reftect the timing and perfurmance ofthe related security and lease acquisition

tasks.
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48 

AppendixD.

The Report also suggested several actions that could be taken to strengthen previous SEC

actions taken in response to a 2001 DIG audit report (Report #330, May 31,2001).

Recommendation B: OGC should document its review ofreal property leases by

including a memorandum in the leasingme. The OIG beUeves that all lease files should

contain doeumentation reflecting OGC review ofthe lease.

. We concur. OGC reviews all lease actions, and reviews numerous stages ofthe leasing

process, as fuund in the Lease File Checklist and associated guidance, to include advertisements,

SFOs, SSEB decisions, etc. The reviews are typically documented via emailed comments and

approvals and the records are placed in the lease files. To address the recommendation, OAS

Leasing Branch will add to its checklist a request from OGC at the time oflease award to note its

review by email to the leasing specialist who will put the email in the official file.

Recommendation E: OAPM [now OASI should provide the field offices with additional

guidanee and training on follow-up procedures for buDding maintenance services.

We concur. While the Report does not identify any specific instances ofproblems

existing in the regional offices, OAS will provide additional training fur the leasing program in

the regions. In the regional offices, Administrative Contacts are issued delegation-of~CORauthority letters by the Lease Contracting Officer, which spells out their responsibilities. They

are not pennitted to make leasing decisions, but instead are directed to report building

management issues to the building Property Managers and bring any leasing issues to the

attention ofthe Contracting Officer. To address the recommendation, OAS will provide training

at the annual Administrative Contacts conferences, where leasing issues and best practices are

among topics disCussed, and will consider other training opportunities, as appropriate, for the

regional Administrative Contacts, as well as maintain open communication with them during site

visits and daily interactions.
Appendix VI 

OIG Response to Management’s Comments 

The Office of Inspector General is pleased that the OAS has concurred with all of 

the report’s 14 recommendations. We appreciate OAS’s commitment to 

improving the policies, procedures and processes pertaining to real property 

leasing. We believe that the implementation of the OIG’s recommendations will 

result in significant improvements to the SEC’s real property leasing program and 

will ensure, consistent with the intent of Congress in providing the SEC with 

independent leasing authority, that the SEC exercises that authority vigorously to 

achieve cost savings and increase the Commission’s productivity and efficiency.

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

49 
Appendix VII 

Schedule of Questioned Costs 

 Table 2. Questioned Costs Relating to 

 Excess Rent

Questioned Costs 

Excess rent paid for 44 Montgomery $203,000*

Street (* $40,600 x 5 months)

Total $203,000

 Source: OIG Generated 

Real Property Leasing Procurement Process September 30, 2010 

Report No. 484 

50 
Audit Requests and Ideas 

The Office of Inspector General welcomes your input. If you would like to 

request an audit in the future or have an audit idea, please contact us at: 

U.S. Securities and Exchange Commission 

Office of Inspector General 

Attn: Assistant Inspector General, Audits (Audit Requests/Ideas) 

100 F Street, N.E. 

Washington D.C. 20549-2736 

Tel. #: 202-551-6061 

Fax #: 202-772-9265 

Email: oig@sec.gov 

Hotline 

To report fraud, waste, abuse, and mismanagement at SEC, 

contact the Office of Inspector General at: 

Phone: 877.442.0854 

Web-Based Hotline Complaint Form: 

www.reportlineweb.com/sec_oig