United States General Accounting Office

GAO Report to Congressional Committees

July 1998 STATE DEPARTMENT

Options for Reducing

Overseas Housing and

Furniture Costs

GAO/NSIAD-98-128

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-279560 

July 31, 1998

Congressional Committees:

The Department of State and other U.S. government agencies operating

overseas spend over $200 million annually to provide leased housing and

furniture for their employees and their families. In light of the continuing

need to control the costs of overseas operations, we undertook a review to

determine if any practices of the private sector and other foreign

governments offer the potential to reduce costs and provide quality

services for State and other agencies. This work supports State’s efforts to

reengineer and improve its operations, and to develop innovative

approaches to reducing costs and providing quality services overseas.

Background State is authorized to provide leased housing to its employees and those of

other agencies overseas. Several thousand State and other U.S. agency

employees are assigned to new duty stations at more than 250 diplomatic

posts each year. The process is complicated. The majority of employee

housing overseas is provided by State through short-term lease

arrangements with local landlords. Other employees either receive

housing allowances and enter into private lease arrangements or occupy

government-owned housing. Most of State’s overseas posts are “furnished

posts,” meaning that government-owned residential furniture is provided

for State employees and those of other agencies participating in posts’

furniture programs. Furniture is typically procured in the United States

and shipped to overseas posts. However, at about 25 posts, employees’

household effects are shipped to meet most furniture requirements.

Employees are also authorized limited shipments of their household

effects to furnished posts.

The residential leased housing and furniture process is also costly. For

example, State’s direct costs include about $120 million annually for

residential leases and about $36 million annually to ship employees’

household effects. In addition, State and other agencies spent about

$12 million in fiscal year 1996 to purchase government residential

furniture and according to 1997 data, spent more than $10 million annually

to rent warehouses used to store residential furniture and other

government property. The support costs associated with the process are

more difficult to quantify, but according to State documents they total well

over $30 million annually for a variety of overseas support and

administrative functions. In addition, State and other agencies maintain

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more than 300 overseas warehouses to store furniture and other items, and

the value of State’s furniture inventory alone has been estimated to exceed

$100 million. While State is reengineering its logistics process to reduce

costs and eliminate inefficiencies, it has not initiated actions to streamline

its employee relocation process. However, State and other agencies

operating overseas are now implementing the new International

Cooperative Administrative Support Services (ICASS) system, which offers

for the first time the opportunity for agencies to document the total costs

of their current support processes and develop less costly and innovative

alternatives.

Many U.S. companies also have substantial investments in overseas

operations and spend considerable sums to support their overseas

expatriate employees. According to a study by a private consulting firm,

corporations have about 250,000 U.S.-based expatriate employees

overseas. Similar to State, these companies each share a common goal of

providing employees and their families with safe and suitable housing at a

reasonable price. To improve the efficiency of their operations and reduce

costs, U.S. corporations are focusing on core business processes and

increasingly contracting with outside service providers to help employees

find a residence and typically use one instead of many commercial

forwarders to ship employees’ household effects.

Results in Brief Our examination of practices in the private sector suggests that several

options may exist to reduce State’s overseas residential housing and

furniture costs. The adoption of one or more of these practices at a

number of State’s overseas posts could potentially save millions of dollars.

Specific practices that we found prevalent and that State should consider

adopting or expanding include

• using relocation companies and similar service providers to search for

housing and negotiate leases to reduce in-house support costs, and shift

some property preparation and related maintenance expenses to

landlords;

• providing employees with housing allowances to select their own homes

rather than managing and maintaining a housing pool of government

leases and preassigning residences; and

• shipping employees’ household effects and/or acquiring furniture overseas

as an alternative to operating an extensive government-buying and

inventory program.

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Our analysis of State’s processes shows that State has not based its

current approach to providing overseas residential housing and furniture

on a comparative cost analysis. Based on our analysis of selected posts,

State could potentially reduce its costs by adopting some or all of these

practices. For example, our analysis of practices in Brussels and London

showed that State’s internal housing support costs are several hundred

thousand dollars greater than the costs that would be incurred if

homefinding services were outsourced to a relocation company. Such

practices are potentially applicable for a large number of the annual

relocations that State and other agencies conduct. Over one-half of the

total U.S. direct hires living overseas are located in 24 posts serviced by at

least one relocation company. Expanding housing allowance programs

consistent with practices of the private sector could also result in

recurring savings, primarily by minimizing in-house support requirements.

Employees would also be given a greater choice in selecting their

residences.

Private sector practices indicate that two options should be considered for

reducing costs associated with residential furniture. First, State could ship

employees’ household effects as its primary means of furnishing

residences. Actual shipping data shows that State often ships nearly the

same amount of employees’ household effects to posts offering

government furniture as it does to its unfurnished posts. Thus, an

expansion in the number of unfurnished posts could occur with relatively

minor increases in shipping costs for household effects and avoid the

often significant procurement, storage, and handling costs associated with

the government-furniture program. The second option is to give overseas

posts the alternative of acquiring furniture on the local market. State

officials at several posts, including New Delhi, San Jose, Panama City, and

Bogota, believed that cost savings could be realized through local

purchases of furniture without sacrificing quality. Cost savings would

potentially result from lower furniture prices and reduced shipping, inland

transportation, and inventory costs.

State’s Processes Are

Cumbersome and

Inefficient

State’s leased housing and furniture processes are very cumbersome and

inefficient and result in unnecessarily high costs due to a combination of

factors. State performs most housing support functions in-house involving

several layers of management and oversight to monitor and enforce

compliance with housing standards and numerous regulations. The system

for furnishing housing is equally complicated and costly because of its

Page 3 GAO/NSIAD-98-128 State Department
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long-cycle times, several handoffs, substantial inventories, and large

numbers of in-house support staff requirements. State and other agencies

operate different housing and furniture program configurations, further

adding to the complexity of the process. These configurations include over

150 posts largely operating government short-term residential leasing and

furniture programs, about 28 posts having one or more State employees

under private leased arrangements, and about 25 unfurnished posts. In

addition, significant variations occur at the same post. For example, some

agencies elect not to provide government-owned furniture.

Residential Leasing

Requires Substantial

In-House Support

The key objective of State’s program for leasing overseas residences is to

provide safe and secure housing adequate to meet the personal and

professional needs of employees at a cost most advantageous to the U.S.

government. State’s approach to providing residential housing focuses on

performing nearly all management and support functions in-house and

minimizes the degree of responsibility placed on relocating employees for

finding a residence. It is costly, staff and time intensive, and we found that

employees are sometimes not satisfied with their residences.

Residential leasing is a multi-step process. Typically, in-house staff search

the rental market; negotiate and sign leases; and arrange for and provide

inspections, property preparation and maintenance, and minor repairs.

Each residence must meet State’s worldwide space standards, which are

based on the employee’s position and family size, and on location. Most

overseas posts also have an inter-agency housing board, comprised of

representatives from the different agencies at post. Housing boards are

chartered to control rental costs and ensure fair and equitable treatment of

employees in applying housing standards and in assigning housing to

employees. We found that boards meet regularly throughout the year to

assign housing, inspect and approve residential units, and address appeals

from dissatisfied employees. In addition, according to State Department

procedures, each post must receive the Office of Foreign Buildings

Operation’s (FBO) approval to lease any property that exceeds applicable

space standards or any property costing more than $25,000 annually in

rent, with few exceptions.1

 In fiscal year 1996, FBO processed more than

900 requests for cost waivers, approving most of them. The system

typically requires a separate telegram from the post for each waiver

request, a review of each request by FBO, and a telegram from FBO notifying

1

State Department requirements are more restrictive than the law, 22 U.S.C. section 301, which

requires high-level approval of leases in excess of $50,000 annually.

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the post of its decision. Figure 1 illustrates State’s government leasing

process at a typical overseas post.

Page 5 GAO/NSIAD-98-128 State Department
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Figure 1: Typical Steps in State’s

Government Leasing Process

Post begins process of identifying potential 

housing using housing profile

Post notified of employee assignment

Existing short-term leases New housing is sought outside existing pool Government-owned properties

Identified housing viewed by 

housing office officials

Board member and/or agency 

representative inspects

Post negotiates and signs lease with landlord

Housing office selects unit and makes offer 

subject to housing board & FBO approval

Maintenance & security inspection by 

embassy staff or outsourced

If housing exceeds costs and/or space 

standards, embassy cables FBO

Employee arrives at post and

moves into residence

Government furniture obtained from

post warehouse or other residence

Employee's household effects

delivered to residence

Housing office reviews rental ads and/or contacts 

local realtors to identify potential housing

Make-ready repairs if necessary

Maintenance conducts final inspection

Contracted cleaners clean

No

No

Yes

Yes

FBO cables

post of its waiver 

decision

Housing board 

approves selection

Note: Embassy London is used as an example.

Page 6 GAO/NSIAD-98-128 State Department
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We estimate that hundreds of staff and related resources are dedicated to

this program both overseas and at State headquarters. At a substantial

portion of State’s posts, personnel spend varying amounts of their

workday managing and supporting the short-term lease program. These

personnel can include the embassy’s administrative officer, general

services officer,2

 assistant general services officer, housing specialists,

maintenance and work order personnel, procurement staff, and financial

management staff. In addition, most posts maintain housing boards with as

many as 13 voting members and other nonvoting members who often

spend several hours each month addressing housing issues. In posts that

provide government furniture for leased housing, additional support costs

for warehousing and inventory management services are incurred.

The support costs associated with this type of program can be very

significant at certain posts. For example, at the mission in Brussels and the

embassy in London, we obtained information on the number of people

who spent all or part of their time on residential short-term lease activities.

We multiplied the time each person spent by their compensation level to

arrive at the salary cost allocated to short-term lease activities. Post

reports in Brussels showed that 42 staff (10 housing and 32 maintenance)

spent a portion of their time managing or supporting 250 short-term leases

in fiscal year 1996. Salary expenses that were allocated for short-term

lease activities were estimated to be about $1.4 million, which averaged

about $5,400 per lease. In London, at least 13 staff (4 housing and 

9 maintenance) spent varying amounts of time on the embassy’s

short-term lease program; their salary expenses for these activities were

$375,000, or about $3,150 per lease for 119 units.3 FBO’s review and

approval of proposed leases exceeding cost ceilings and/or space

standards has resulted in additional indirect costs to the government.

These costs result from the staff requirements in FBO to review and

approve waiver requests and costs associated with cabling posts on waiver

decisions. In addition, the indirect costs of interagency housing boards

were also significant, amounting to more than $90,000 annually in

Brussels, $70,000 in London, and at least several thousand dollars in

Caracas. In addition to being costly, a recent audit report by State’s

2

For example, the General Services Officer in Caracas estimated that as much as 60 percent of his time

was spent supporting/managing the short-term lease program.

3

The total support costs can be much greater if other cost elements are considered. For example,

State’s new ICASS system identifies several additional costs that should be included in determining the

leasing and building expense support costs that should be shared by agencies at overseas posts. In

addition to salaries and compensation, such ICASS cost elements include motor vehicle charges,

electricity, and miscellaneous supplies. If all ICASS and property preparation costs are included, the

annual support budget for the short-term residential leasing program in London totals over $700,000

for fiscal year 1998.

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Inspector General found that interagency housing boards typically have

not been effective in controlling property rental costs. Housing boards did

not use comparative cost as a factor in selecting residences, as called for

in housing policy.

The interagency housing boards have also been criticized for frequently

not selecting housing that meets employees’ expectations. A cornerstone

of State’s program is its policy of preassignment, which states that to the

maximum extent possible, interagency housing boards should assign all

new employees to appropriate housing prior to their arrival at post. This is

intended to avoid temporary housing costs and employee morale problems

that foreign service officers often attribute to the inconvenience and

difficulties associated with finding suitable residences in foreign countries.

Despite State’s substantial investment in resources to locate suitable

housing, we identified instances in which the employees were not satisfied

with the housing selected for them. For example, at the post in Brussels,

employees have frequently been dissatisfied with the residences selected

for them by the interagency housing board. The board processed appeals

for almost one-fourth (54) of the new residences for employees from

January 1994 through December 1996. The reasons for the appeals varied

but most were approved. In some cases, where employees were

dissatisfied with their apartments, the housing board placed the employees

in other available housing units but continued to pay rent for the

unoccupied units. FBO officials believed that such actions represented poor

post management and did not necessarily reflect a weakness in the

short-term lease program. We note, however, that other posts have

encountered related difficulties, suggesting a broader-based problem in

the process. For example, the preassignment component of the process

has been linked to problems at other posts, including several Latin

American and Caribbean countries. A 1996 State document notes that

some posts in that region have allowed employees to search for housing

themselves and repeatedly appeal housing board decisions.

Living Quarters Allowance In a limited number of locations, State operates a Living Quarters

Allowance (LQA) program that allows employees to choose their residence.4

It provides an allowance to employees based on rank and family size, and

employees typically work with real estate agents to locate and select a

residence. The employee is also responsible for signing the lease. As a

result, posts having LQA programs often incur relatively minor support

4

LQA programs often need only one person for in-house support requirements—for example, the U.S.

mission in Geneva, Switzerland, which has about 70 employees under LQA, needs only one foreign

national employee to support the program.

Page 8 GAO/NSIAD-98-128 State Department
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costs for short-term residential leasing. For example, three posts currently

under LQA (Geneva, Guatemala City, and Quito) have a combined ICASS

budget of about $150,000 for leasing and short-term residential leasing

building operation expense support in fiscal year 1998, compared to the

over $1.5 million allocated for the post in Brussels.

State has substantially reduced its participation in the LQA program over

the years even though its own internal analysis has on occasion indicated

that allowance programs could have substantial benefits, including being

less costly than government leasing programs.5

 The reduction has

occurred due to several factors, including complaints from employees

about the adequacy of allowance rates and the inconveniences associated

with homefinding and temporary lodging in foreign countries. According

to 1996 data, State had one or more employees under LQA at 28 posts;

employees of other agencies, principally the Department of Defense, were

under LQA arrangements at a significantly larger number of posts.

Process for Providing

Residential Furniture Is

Cumbersome and Costly

State’s process for meeting residential furniture requirements is

cumbersome and costly because of its numerous handoffs and long-cycle

times. State meets most of its requirements by buying furniture in the

United States under a central contract and shipping and storing it overseas

until needed. Furniture for some posts is first shipped to a State facility in

Antwerp, Belgium, where it is distributed to the receiving posts. The value

of State’s inventory has been estimated to exceed $100 million. State and

other agencies also spend about $10 million annually to lease over 200

warehouses worldwide to store furniture and other property. In Brussels

alone, warehouse lease, utilities, and personnel costs for fiscal year 1996

totaled about $628,000, or $2,500 per furnished unit. In addition, State and

other agencies own 95 warehouses worldwide and have spent over

$35 million to purchase or build these warehouses. State also ships up to

7,200 pounds of employees’ household effects to supplement the furniture

provided by the government, or allows employees to ship up to 18,000

pounds to unfurnished posts.

5

For example, analysis by FBO in the late 1980s identified several pros and cons associated with

government leasing and allowances. However, the analysis noted that one statement could be made

with confidence—in terms of cost-effectiveness, LQA with minimal in-house support was

demonstrably cheaper than full service government leasing. Analysis by the U.S. embassy in Singapore

in 1994 concluded that LQA programs could save over $3,000 annually per rental unit at that post. Cost

reductions were projected to result primarily from reduced in-house staff requirements and

maintenance costs. More recently, post officers participating in State’s Bureau of Inter-American

Affair’s 1997 Administrative Officers’ Conference concluded that allowance programs could benefit the

Department by giving employees a choice in their residence and reducing staff time and costs

associated with maintenance.

Page 9 GAO/NSIAD-98-128 State Department
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Little attempt has been made to determine the total cost of the furniture

process or the cost-effectiveness of providing a furnished or unfurnished

post. In addition, furniture decisions at individual posts may not reflect all

cost considerations because funding responsibilities for program segments

are spread among various State bureaus.6

 State documents indicate that

decisions in the early 1990s concerning requests by certain posts to change

their designation from partial to full-shipment posts were based largely on

the availability of funds in one Bureau to fund shipping costs. Analysis by

State was insufficient to determine if such changes would result in overall

savings or additional costs for the Department.

Figure 2 illustrates State’s process for meeting overseas furniture

requirements.

6

For example, according to a State budget official, State’s regional bureaus allocate funds to the posts

for property preparation, procurement and shipping of residential furniture, and inland transportation

of furniture. On the other hand, funding of household effects shipments is the responsibility of the

Bureau of Personnel.

Page 10 GAO/NSIAD-98-128 State Department
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Figure 2: State’s Process for Providing

Residential Furniture at Posts

Post submits order to 

Office of Acquisitions

State contracts for each

segment of move

Household effects packed

and crated

Household effects trucked

to port

Effects consolidated with

other shipments

Shipment transported

to destination

Consolidated shipments

separated at port

Trucked to local

contractor for delivery

Acquisition sends order

to vendor

Vendor delivers order

to consolidator

Consolidator sends full

shipment to dispatcher

Furniture shipped

overseas

Shipment routed

to posts

Furniture stored in

State warehouse

Furniture and household

effects delivered to residence

Procurement process Shipment of household effects

3-6 months

30 days

90 days

5 days

Page 11 GAO/NSIAD-98-128 State Department
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Practices of Other

Organizations Could

Save Money and

Provide Quality

Service

We studied the practices of six major U.S. companies and three other

governments that have large international operations to learn how they

provided housing for their overseas employees and met residential

furniture requirements. We chose these organizations because they

operate in many of the same locations as State, support large numbers of

overseas employees, and have adopted various best practices to improve

expatriate management. For example, Ford Motor Company is represented

in 50 locations throughout Europe, Asia, the Middle East, Latin America,

and Africa and supports about 2,500 expatriate employees. Citibank

supports more than 1,000 expatriates, including 136 in London, its top

overseas destination, and 101 employees in Singapore. The majority of the

expatriates employed by most of these companies are professional,

mid-level employees.

We found that the prevalent private sector process for providing housing

and furniture includes contracting with a relocation company or other

service provider to identify available housing from which the employees

can make a choice, giving an allowance to the employee to pay for rent,

and using a contractor to ship employees’ household effects to furnish the

residence.7

 Another option the British government uses is acquiring

furniture overseas. The primary benefits of these practices, if applied to

State, include minimizing investments in support staff, reducing

administrative and warehousing requirements, giving employees a choice

in selecting their residence, and/or procuring furniture from sources

offering the best price and quickest delivery time. The potential

applicability of one or more of these practices to State is widespread and

would not diminish State’s ability to provide secure housing or high-quality

furniture.

Figure 3 shows the housing and furnishing processes typically used by the

private sector companies whose practices we reviewed.

7

Outsourcing is a practice that private sector companies are using with greater frequency. A study of

30 corporations by a private consulting firm noted that companies are basing the decisions to

outsource on a comparison of (1) the price of the outside service with the cost of developing the same

level of expertise and administering the program internally, (2) the level of service that can be

provided, and (3) the value that can be added by performing the service in-house versus through an

outside source.

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Figure 3: Typical Housing and

Furnishing Processes Used by Private

Sector Companies

Human resource representative 

contacts moving company 

regarding shipment of 

household effects

Moves into selected housing

using household effects or

temporary furnishings

Lives in temporary 

accommodations until household

effects arrive 

Human resource representative

contacts local relocation

company regarding new arrival

Employee arrives in country.

Relocation agent shows

prescreened unit

Freight forwarder handles

-- packing/crating

-- trucking

-- ocean/air transport

-- receiving

-- delivery and unpacking

Employee selects housing.

Relocation agent handles

administrative details (i.e., lease

negotiation, utility connections) Household effects arrive

at post

Housing Furnishing

Note: Some companies allow a homefinding visit prior to relocation. Private sector companies in

London were used as examples.

Outsourcing Homefinding

and Related Services

During our benchmarking exercise, we found that many leading U.S.

companies and at least one other government embassy have outsourced

homefinding and destination services to professional international

relocation companies. Relocation companies assist the employee in

finding suitable housing and handle all settling-in activities.8

 Our

benchmarking efforts indicate the private sector’s use of relocation

companies has provided quality services that meet employees’ needs for

secure, safe, suitable, and affordable housing. Our analysis at two posts

indicates that using a relocation company could result in potential savings

of several hundred thousand dollars annually. Further, the increasing

8

Relocation companies’ approach to finding suitable housing for employees include prescreening and

identifying viable units, escorting the employee to visit potential housing, negotiating/signing the lease,

connecting utilities, and ensuring maintenance needs are met. The relocation company works directly

with the employees to identify their specific housing needs and offers a number of choices within a

specified cost range established by the company.

Page 13 GAO/NSIAD-98-128 State Department
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availability of relocation services throughout the world makes outsourcing

homefinding services an option that State should consider.

Corporate officials cited two key benefits of outsourcing the homefinding

function—increased employee satisfaction and reduced in-house support

requirements. High levels of employee satisfaction were generally

attributed to (1) working with a local relocation specialist that handles all

aspects of finding and negotiating a lease and (2) being able to select a

residence that meets their needs. According to relocation officials in

Brussels and London, expatriate employees typically identify a suitable

residence during a 2 or 3 day home search. In addition, outsourcing allows

private sector firms to minimize the number of in-house personnel needed

to support operations. For example, in Brussels, Citibank needed only one

employee9

 working part-time to support the expatriate program for

approximately 80 employees, whereas State employed 42 staff to provide

housing and maintenance support for about 250 employees. In London, 

2 Texaco employees provided housing support for about 150 expatriate

employees, whereas State required 13 staff to provide housing and

maintenance support for about 119 employees. Also in London, the

Australian High Commission used a relocation company to locate housing

for its 55 foreign service employees, which reduced its in-house support

requirements to one person, part-time. Furthermore, most property

preparation and related maintenance expenses were typically handled by

landlords for leases signed either by individuals or by the corporation.

We conducted a cost analysis of the U.S. mission’s housing office in

Brussels and the embassy in London to determine if relocation company

services could be a cost-attractive option for posts having large housing

support components. Our analysis indicated that using a relocation

company could potentially yield significant savings at those posts. For

example, in fiscal year 1996, the mission in Brussels employed 10 staff, full

or part-time, to provide short-term lease housing support for about 30 new

or lease renewals annually.10 Based on cost data provided by the post, the

annual salary expenses attributable to short-term leasing for these staff

were estimated to total about $700,000. If property preparation and other

9

Neither of the two private sector companies we visited in Brussels or London provided property

preparation staff but instead relied on the landlord to make minor repairs or contracted with local

vendors for services as needed.

10State officials said the 250 government leases are awarded for 9 years in Brussels; thus, the housing

office must negotiate or renew approximately 30 leases annually.

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support costs11 are included, the embassy’s direct and indirect support

costs for short-term residential leases exceed $1.5 million annually. In

contrast, a private sector company outsourcing its homefinding function

would incur salary expenses and the relocation company’s fees, which we

estimate would total between $207,000 and $277,000 depending on the mix

of new leases and renewals.12 Thus, if all costs are weighed, outsourcing

homefinding services could result in a substantial savings, particularly if

outsourcing resulted in leased properties having lower rents and reduced

property preparation and maintenance-related costs.

In London, the U.S. embassy identified four persons having full or

part-time responsibility for the short-term residential leasing program.

According to the post, their estimated salary costs for short-term leased

duties totaled about $200,000 annually, and if all ICASS support costs and

property preparation costs are considered, the total costs for London’s

residential short-term lease support are a little over $700,000 annually. The

embassy is responsible for placing about 40 new employees in short-term

residences each year. Using a relocation company to find new properties

or assist employees to move into existing leases would cost between

$118,000 and $151,000. If the embassy continued its current policy of

preassigning employee housing selected from a pool of properties

identified by a relocation company, data provided by the post indicated

that the embassy could potentially save money, depending on the prices it

negotiates and the services that would be included.

In weighing the pros and cons of using relocation companies, State noted

that there are costs that probably would not be reduced by outsourcing.

These include, for example, the costs of security surveys and security

upgrades. Additional costs could also be generated by outsourcing,

including temporary living costs for employees waiting to move into their

residences. For example, post officials in London estimated that

temporary living costs could increase by as much as $264,000 annually, if

employees were allowed to choose their residences instead of having them

preassigned. Even if such costs were incurred, the outsourcing option

could still be attractive because of the large indirect support and property

preparation/maintenance costs incurred in the current embassy program.

Further, several options exist to reduce temporary living costs, including

the use of temporary apartments or homefinding visits prior to relocating.

11State’s new ICASS system includes property preparation and related maintenance costs in the costs

of short-term residential leases.

12According to officials of one relocation company, their firm could provide several services for about

$2,250 per unit, including housing search, lease negotiation, and supervision of legal requirements.

Page 15 GAO/NSIAD-98-128 State Department
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We also note from our benchmarking that the relocation industry is

growing and becoming more competitive, offering a wide range of services

at increasingly competitive prices. Industry data shows that relocation

companies have operations in most developed and many developing

countries, especially throughout Europe. Some companies are affiliated

with U.S.-based firms that are used domestically by U.S. government

agencies including the General Services Administration, the Department of

Defense, and the Federal Bureau of Investigation. One relocation

company, together with its affiliates, operates in 250 cities worldwide. At

least one relocation company is located in 24 of the 25 countries having

the largest U.S. overseas presence—comprising over 50 percent of total

overseas State and other agency assignments. Officials at most of the

companies we visited overseas said that multiple relocation companies are

available in their respective cities offering quality services at competitive

prices.

Housing Allowances Greater use of housing allowances is another private sector practice that

could substantially reduce State’s overseas in-house support requirements

and maintenance costs, and give employees a choice in selecting their

residences. Private sector employees are provided a housing allowance to

cover rental costs based on local market conditions, family size, and

position. Allowances permit companies to manage and control costs with

minimal oversight. Other governments sometimes use allowances—for

example, the Australian High Commission’s employees received housing

allowances in London. State also has the LQA program that provides

participating employees a set amount based on rank and family size, lets

employees choose their residence, and operates with minimal in-house

support requirements. As previously mentioned, State has chosen to

substantially reduce its participation in the LQA program over the years due

to employees’ complaints about the inconveniences of finding a residence

in foreign countries and temporarily staying in hotels, and the difficulties

encountered in finding suitable residences within LQA rates. State officials

said that it is hard to put a price tag on the costs associated with the

inconvenience factor but believed that it could be substantial.

We believe that the private sector practices we identified could help

mitigate some of the problems that employees of State and other

government agencies have with the LQA program and encourage State to

expand it as a cost-effective option to government leasing at certain posts.

Specifically, using relocation companies (a process not used in the LQA

program) to help employees find housing and negotiate leases could ease

Page 16 GAO/NSIAD-98-128 State Department
B-279560 

the burden associated with negotiating leases in foreign countries and also

offer employees a greater choice in selecting their residence. As already

noted, use of relocation companies can be less costly to the government at

posts having large in-house support structures. Also, providing rental or

government-owned furniture until the employee’s household effects arrive

would allow employees to move directly into their residences upon arrival.

We were told that the U.S. embassy in Madrid provides State’s employees

with furniture welcome kits enabling them to move quickly into their

residences. In London, Texaco provided rental furniture enabling

employees to move into their residences almost immediately upon arrival,

which has resulted in improved employee morale, improved productivity,

and has also reduced or eliminated expensive temporary living costs.

According to a Texaco official, about one-third of incoming employees

move directly into their residence shortly after their arrival. In cases where

household effects have not arrived, rental furniture or company-owned

“temporary packages” of basic furniture and accessories are provided. The

official noted that the $2,200 rental cost of furnishing a two-bedroom

apartment for 1 month is still less expensive than temporary living

expenses that could easily exceed $9,000 for a month.

In addition, a furniture rental company in the United Kingdom with a client

base of over 250 companies told us that temporary rentals have become

more popular and that many U. S. companies are utilizing this service to

reduce temporary living expenses. We also found that one of the major

U.S. companies operating in Caracas provided employees the option of

temporarily using company furniture in their residences until their

household effects arrived. According to a company official, this furniture

was procured locally in Caracas and stored/managed by the same local

firm used to handle household effects shipments upon arrival in Caracas.

In addition, this company also has two apartments that it uses for

temporary employee housing.

It is difficult to determine the validity of concerns expressed by State’s

employees that its housing allowances are frequently insufficient to cover

the costs of suitable housing at overseas posts. If allowances are

insufficient to cover the costs of suitable housing, expansion of LQA

programs based on any model could be problematic for State. We note

State’s documents indicate that LQA rates are insensitive to local market

conditions and are intended to ensure that 80 percent of all employees in

the program are fully covered for LQA expenses.13 Furthermore, State

13LQA rates are intended to substantially cover expenditures for rent, electricity, fuel, water, certain

taxes levied by the local government, and agents’ fees required by law to be paid to the landlord.

Page 17 GAO/NSIAD-98-128 State Department
B-279560 

employees complain that they frequently must pay out-of-pocket for items

under LQA because the system has a “lag problem” 14and that the system’s

paperwork requirements are time-consuming and cumbersome. In

comparison, State’s government leased housing program places little

administrative burden on the employee and pays all rental costs. With

these factors in mind, it seems obvious that posts would choose a system

that pays 100 percent of housing costs (government leasing) instead of a

system that pays only 80 percent (LQA).

State allowance office officials agreed that LQA’s limited coverage policy

has encouraged posts to adopt government leasing programs even though

State’s additional support costs are substantial. However, they believed

that the Department of Defense, which has the largest number of overseas

civilian employees under the LQA system, would not support 100 percent

coverage of rental costs due to the additional costs that would be incurred

by the Department of Defense. They acknowledged that State and the

Department of Defense have not (1) examined all costs involved in

overseas housing or attempted to determine if an increase in the coverage

of LQA rates would be advantageous or disadvantageous to the government

as a whole or (2) determined if State should ensure its government lease

ceilings are consistent with LQA rates to control costs and ensure equity

among all civilian government employees at overseas posts. FBO officials

expressed concern about pegging government lease ceilings to current LQA

rates, stating that the quality of overseas embassy housing could suffer.

FBO officials were supportive of an allowance option that allowed rates to

be set by a monthly survey or mechanism such as that used by the private

sector.

According to the officials at some of the companies we used as

benchmarks, they have often purchased their housing allowance rates

from private sources15 that reflect local living conditions and rental costs.

According to one of the commercial vendors providing these rates, data on

housing costs is currently available quarterly for more than 150 countries,

including State’s largest 25 posts, as well as, many remote African and East

Asian countries. State may want to determine if using the rates available

from these commercial sources would enable it to have rates more

sensitive to local market conditions. The purchase of these rates could

also possibly help State address some of the deficiencies it has identified

14According to FBO officials, State’s current allowances tend to lag behind real costs because of

administrative delays in processing changes in allowance rates.

15Allowance rates are developed by human resource staff in country or procured from commercial

sources.

Page 18 GAO/NSIAD-98-128 State Department
B-279560 

in the current LQA system. According to State documents, these

inefficiencies include labor intensive reconciliation requirements.

Use of Employees’

Household Effects

Private sector companies typically expect their employees to furnish their

overseas residences with their own household effects. Employees’

furniture is typically shipped door-to-door16 by contractors directly from

the United States to the overseas residence at the company’s expense. The

advantages of this process include minimal in-house support requirements

and little or no investments in warehouses and furniture inventories. State

maintains, however, that expanding the use of household effects to furnish

residences would often result in unacceptable increases in its

transportation and temporary living costs. Our analysis shows that

shipping costs would not increase as much as State officials estimate and

that there are opportunities to offset or reduce temporary living expenses.

If these factors are considered, the expanded use of employees’ household

effects may be an efficient and cost-effective alternative to State’s practice

of buying, storing, and managing large inventories of residential furniture

supplemented by making additional shipments of employee-owned

furniture.

We reviewed transportation documents and other information provided by

State to determine if there were significant differences between furnished

and unfurnished posts in the amount of household effects shipped. Our

analysis showed that the average weight of household effects shipped

overseas is often about the same regardless of whether the post provides

furniture or not. A State transportation document listing shipments to

more than 50 posts in 1996 showed relatively small differences between

partial and full-shipment posts in the average amounts of household

effects shipped. For example, the average weight of shipments of

household effects to Brussels (a furnished post) was about 4,800 pounds

compared with an average weight of about 5,100 pounds for Rome (an

unfurnished post). For those posts included in the document, a

comparison of seven furnished and unfurnished posts having the largest

number of shipments showed that the average weight of shipments varied

by only about 1,100 pounds.

16In our October 1997 report on State’s transfer process State Department: Using Best Practices to

Relocate Employees Could Reduce Costs and Improve Services (GAO/NSIAD-98-19), we concluded

that the Department could operate much more efficiently and save money by adopting the

door-to-door method for shipping overseas that is used by the private sector. Unlike State’s current

process for shipping household effects that involves substantial personnel and other indirect support

costs, the door-to-door approach used by the private sector entails contracting with only one

commercial freight forwarder for all transportation and related services to relocate an employee’s

household effects.

Page 19 GAO/NSIAD-98-128 State Department
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We also identified options, such as providing temporary furniture or using

rental furniture until an employees’ household effects arrive, that may

offset or reduce temporary living costs. For example, the embassy in Paris,

a mostly unfurnished post, was able to accommodate about 80 incoming

employees in 1997 by using temporary furniture in their assigned quarters

or by using government-owned and furnished transient quarters, according

to the general services officer. He said that the post did not pay any

temporary quarters allowances in fiscal year 1997. In addition,

representatives of a furniture rental company in London told us their

company offers a basic set of temporary furniture and private sector

companies are taking advantage of this option.

Local Procurement of

Furniture

If State decides to continue to procure furniture, purchasing furniture

locally or regionally may be a cost-effective option at certain locations.

Local or regional procurement would be consistent with the practices of

some of the organizations we studied and with State’s own reengineering

efforts. Moreover, officials at a number of posts told us they can purchase

comparable furniture from local and regional sources and save money on

transportation and warehousing costs.

Some foreign governments and private sector companies purchase

residential furniture either locally or regionally. For example, according to

British officials, the British government operates four central procurement

units to purchase residential furniture. The unit in Washington, D.C.,

purchases furniture from local markets for British posts in the Americas;

the Hong Kong unit, for posts in Australia and Asia; New Delhi, for that

region; and London, for all other locations. British officials stated that in

the past, their government had purchased furniture in the United Kingdom

for distribution worldwide. However, about 10 years ago, the British

government initiated a study of procurement options to develop ways to

increase efficiency and established regional procurement units as a result.

Other governments purchasing furniture locally include the Australian

High Commission in New Delhi and the Canadians in Canberra, according

to U.S. officials at those locations. In addition, officials of Proctor &

Gamble in Caracas and Texaco in London told us their companies

purchase furniture locally for use in company-owned temporary quarters.

In 1995, State established a Logistics Reengineering Project team to study

how State procured its goods and services and to recommend

improvements. The team, which met with a number of private sector

companies to identify “best practices” applicable to State, concluded that

Page 20 GAO/NSIAD-98-128 State Department
B-279560 

State’s procurement system was characterized by long-cycle times, high

overhead costs, redundancy, and substantial inventory. To address these

inefficiencies, the team designed a new system offering customers more

efficient alternatives for obtaining goods and services. Direct local

purchase, where feasible, was a key option identified by the team.

However, residential furniture purchases were not included in the team’s

study because State’s residential furniture contract requires that, with few

exceptions, all furniture be procured under the contract.

We previously raised the issue of central procurement of furniture with

State in June 1997.17 State responded that the program had served it well

for decades, was efficient, and was supported by “Buy America” Act

principles. State officials have defended the domestically procured

furniture as important in helping the Department meet its representational

responsibilities. However, State did not cite any studies or analyses to

support its conclusion that the furniture program is cost-effective or

necessary for representational purposes. In addition, a State procurement

official told us the Buy America Act does not generally apply to the

purchase of furniture for use outside the United States.

Officials at a number of State’s overseas posts told us that purchasing

residential furniture locally or regionally would result in significant

savings in direct procurement, transportation, and warehouse costs. For

example, post officials in Costa Rica told us that they have explored the

feasibility of local procurement, largely because of the long lead-time

associated with contract purchases (typically 5 months or longer) and the

significant number of missing items in recent shipments. They found that

high-quality U.S. furniture can be purchased locally from a company

operating furniture showrooms in San Jose. According to the officials, the

company could deliver and set up furniture in a residence within 6 weeks.

Furthermore, the purchase price of the furniture available through this

company is typically lower than that offered under the contract. For

example, according to post officials, a living room set would have cost

$4,296 under the contract compared with $2,850 if purchased locally,

representing a potential cost savings of 30 percent or more. In addition,

their analyses showed that the post could buy four sets of furniture for the

price it pays for three sets under the General Services Administration

contract. They believed that the savings in containerization and shipping

costs make the local purchase option even more attractive to the post in

San Jose. Additional savings would also accrue from reduced inventories

17State Department: Provision of Residential Furniture Inconsistent With Best Practices

(GAO/NSIAD-97-173R, June 10, 1997).

Page 21 GAO/NSIAD-98-128 State Department
B-279560 

of furniture in the embassy warehouse. Post officials also noted that the

U.S. furniture distributor operating in San Jose has similar showrooms in

other countries. We contacted the company’s headquarters and confirmed

that similar operations exist in Guatemala, Colombia, Honduras,

Venezuela, and Turkey. Other examples include the following:

• Officials at posts in Bogota and Panama City said significant opportunities

exist to procure furniture locally or regionally and that such procurement

would result in significant savings and better service.

• A post official in New Delhi estimated that he could save about $13,000 on

a complete set of furniture for a three-bedroom house with living room if

purchased locally.

• Officials at the embassy in London told us they are exploring alternatives

to the furniture contract and they are interested in pilot-testing options

including local purchase.

Some posts already purchase residential furniture locally or regionally,

further demonstrating the feasibility of expanding this option. For

example, posts purchase items that are not provided under the contract or

because contract items are unsuitable. The U.S. embassy in Hong Kong

purchases furniture locally because furniture built to U.S. specifications is

too large for Hong Kong residences. Because of the high costs associated

with moving furniture inland from the port of destination to the embassy,

and the availability of good quality/comparably priced local furniture, the

Drug Enforcement Administration in Bogota recently decided to purchase

five households of furniture from a local manufacturer for approximately

$55,000. According to Drug Enforcement Administration officials, they

could purchase only three or four households of furniture for that price

under State’s contract, once inland transportation charges were added.

Conclusions State’s residential leasing and furniture processes are costly and, in some

cases, do not result in a high level of customer satisfaction. Unlike the

private sector companies we analyzed, State has not systematically

weighed the potential cost advantages of using services available from

private sector relocation companies or developing a sound housing

allowance program. It also has not conducted valid, systematic analysis of

its furniture program and its costs. We believe that State could save money

and provide quality services to its employees and those of other agencies

by adopting the practices we identified in the private sector.

Page 22 GAO/NSIAD-98-128 State Department
B-279560 

Savings could be realized several ways. Using relocation and other service

providers could reduce overall costs at posts having substantial in-house

support costs. The data provided by the U.S. mission in Brussels and the

U.S. embassy in London showed that the posts’ internal

compensation-related housing support costs for short-term leases were

higher than the estimated costs of services available from relocation

companies. If other support costs typically shared among agencies

operating overseas are included in the posts’ cost calculations, these two

posts alone could potentially save several hundred thousand dollars

annually by outsourcing relocation services instead of performing them

in-house. Other posts having costly in-house support infrastructures could

potentially do the same.

Expanding the use of housing allowances could eliminate most in-house

support requirements at individual posts, reduce or eliminate maintenance

costs, and produce overall savings. For example, it was projected in 1994

that a housing allowance program in Singapore could reduce annual

housing costs to the U.S. government by as much as $3,000 per lease

compared to government short-term leases. Considering that State and

other agencies have over 8,000 short-term leases worldwide, and shared

property preparation and maintenance-related support costs of about

$30 million annually, the potential savings through the use of allowances

are significant. Shipping employees’ household effects as an alternative to

providing government furniture could produce significant savings at posts

having large furniture inventories, substantial staff resources devoted to

support warehouse operations, and large warehouse rents. Although the

savings are difficult to quantify, the potential appears large because State

spends millions annually to purchase, store, and maintain residential

furniture. Buying residential furniture locally could save up to 30 percent

or more of the purchase, shipping, and packing price of government

furniture at some posts. Furniture inventories, which have been estimated

to exceed $100 million, could also be reduced.

Clearly, some practices may have applicability only at certain posts, due to

regional or country conditions. Thus, pilot projects should be used to

establish the applicability of the practices at a broad selection of

appropriate posts. In addition, each practice would have off-setting costs

that would have to be carefully considered in the pilots before decisions

are made. For example, the expanded use of housing allowances would

have to consider how to minimize temporary housing costs, through the

use of temporary furniture, rental furniture, or other means.

Page 23 GAO/NSIAD-98-128 State Department
B-279560 

Recommendation We recommend that the Secretary of State direct the Under Secretary for

Management to establish a pilot program for testing the practices we

identified for leasing and furnishing of overseas residences. The pilot

should be coordinated through the ICASS framework at the pilot posts,

which provides a mechanism to fully document direct and indirect costs of

alternatives and involve all key agencies operating at posts. Options that

should be in the pilot include outsourcing homefinding, expanding the use

of housing allowances, increasing the use of employees’ household effects,

and procuring furniture locally. The Under Secretary should designate

specific posts for the pilot. We believe the pilot should initially focus on

6-8 posts. We believe good candidates include Brussels, London, Paris, the

Hague, Singapore, Bangkok, San Jose, Nassau and Mexico City. If the pilot

tests confirm the cost advantages of one or more of the practices, the

Under Secretary should also establish an implementation plan for a larger

roll-out of these practices.

Agency Comments

and Our Evaluation

In written comments on a draft of this report, State noted our report raised

legitimate questions about possible savings in its housing program and that

it plans to establish a task force to study whether modifications to the

housing program are warranted. State did not agree with our conclusion

that expanding shipments of employee-owned furniture or purchasing

residential furniture locally are potential alternatives to the current

system. State cautioned that its housing program is not a “one size fits all”

activity and believed that the results of the pilot program would be

prejudiced because the posts we suggested for consideration in the pilot

are in well-developed countries. State said that its test would include a

greater variety of posts from countries at other levels of the economic

scale and geographic diversity. It also noted its test would include other

costs and benefits of suggested alternatives. State identified several cost

elements that it believed would not be reduced by outsourcing, such as

market analyses and staff time and expenses related to participation in the

housing boards, or would lead to additional costs, such as the overhead

associated with private relocation services and the additional costs for

shipping employees’ household effects. State also said that changing to

private relocation firms would not reduce the overhead State incurs in

managing congressionally-mandated housing standards and regulations

without a change in statute.

We are encouraged that State plans to establish a task force to study its

housing practices. However, we are concerned that this proposed effort, if

undertaken as described in State’s comments, will preclude a full

Page 24 GAO/NSIAD-98-128 State Department
B-279560 

examination of the merits of applying proven business practices to key

operations. Specifically, State does not plan to review its furniture

program, and its comments regarding the proposed housing study suggest

that State (1) may select test locations that will not afford reasonable

opportunities to explore the options, (2) has predetermined that some cost

elements cannot be reduced and that other costs will be incurred, and

(3) does not plan to explore options other than outsourcing that we

believe offer cost savings potential. Our analysis clearly shows that

opportunities exist to maximize efficiencies and cost savings in both the

housing and furniture programs through the application of outsourcing

and other business practices. Therefore, we urge State to expand the

scope of its study to include the review of all the practices we

recommended for pilot testing in both the housing and furniture programs.

We fully recognize that a “one size fits all” program is not practical, given

the varying conditions in individual countries and cities. We also recognize

that alternative service providers may not be available at some locations.

The posts we identified for pilot testing were chosen because our analysis

indicated that those posts had the potential to adopt some or all of the

practices we identified and reduce costs. Our post selection profile

included large and high-support cost operations, the existence of a

relatively sophisticated business and diplomatic community, post

receptivity to options and problems with existing programs, and the

availability of alternative service providers. In selecting posts for its tests,

State needs to consider these factors while ensuring that the location,

scope, and cost of post operations warrant consideration for change.

We agree that State should consider all relevant cost elements in testing

alternatives but it needs to ensure that cost analyses are not geared to

maintaining the status quo. For example, it is premature to assume that

outsourcing would not reduce costs associated with State’s market

analysis programs, management of housing profiles, and housing board

operations. State needs to determine if part or all of these support

functions could be handled by a relocation company to lower costs and/or

free up post staff to do higher priority work. Further, fees charged by

outside service providers are negotiable, offering opportunities for posts

to exercise their leverage in obtaining prices. The cost elements discussed

in our report represent the major costs that must be considered in

examining the merits of specific options. For example, in Brussels and

London, the prices typically charged by relocation companies for housing

services were significantly less than the direct and indirect costs incurred

by those posts for short-term lease support.

Page 25 GAO/NSIAD-98-128 State Department
B-279560 

Outsourcing, however, is not the only option that State should consider.

Our analysis of the furniture program and State’s own data demonstrate

that local procurement could save substantial amounts of money and

reduce delivery time at a number of posts. In addition, our report indicates

that State employees at more than 50 posts are shipping almost the same

amount of household effects regardless of whether the post is furnished or

unfurnished. Therefore, the additional shipping costs incurred in shipping

employees’ household effects would likely be minimal, resulting in little or

no need for a government-furniture program at some locations.

State is also incorrect in its assertion that statutory change is needed to

reduce the management overhead associated with the housing program.

According to State’s regulations, the Congress mandated the development

of an interagency housing policy in 1979 to ensure uniformity and equity in

the program. Although there is general language in the conference report

accompanying the 1979 Foreign Assistance Appropriations Act indicating

that real property should be acquired under a consolidated master plan

through a single government agency, that language does not legally require

any particular housing policy. Therefore, State can address inefficiencies

in its housing process without statutory change.

State needs a management commitment to cost-based decision-making

and a willingness to change. Cost-based decisions can help State improve

its operations, reduce support requirements, and free up resources to

focus on core diplomatic programs and activities. The options we

proposed are based on modern business practices that strive to achieve

these objectives. Therefore, we believe that our recommendation for State

to fully consider all of our identified options in the process of conducting

its tests remain valid. Lastly, State expressed concern that our

recommendation presupposed the outcome of any test by calling for a

proposed implementation schedule for a larger rollout of the suggested

practices. We clarified the recommendation to reflect that a schedule

should be prepared if the test confirms the advantages of the suggested

practices. State’s comments and our analyses are detailed in appendix I.

Scope and

Methodology

In recognition of the need for cost-effectiveness in undertaking foreign

affairs activities, we identified potential efficiencies and cost savings in

State’s residential leasing and furniture processes. To map State’s

processes, we met with State officials and reviewed pertinent documents.

We conducted fieldwork at embassies/missions in Brussels, Belgium;

London, England; and Caracas, Venezuela—these cities each have

Page 26 GAO/NSIAD-98-128 State Department
B-279560 

substantial embassy/mission operations and large numbers of expatriates

employed by U.S. firms. We also contacted embassy officials at several

additional posts and interviewed officials at State’s headquarters in

Washington, D.C., including key officials responsible for benchmarking

with private and public sector organizations and designing State’s new

logistics system. We developed flow charts of generic housing and

furniture processes and developed related cost data to the extent

practical.

To identify best practices in the private sector and other organizations, we

researched literature and consulted with various experts in the area,

including representatives of the Employee Relocation Council—a

professional organization of several thousand corporations and other

organizations concerned with issues affecting the relocation of employees

and their families overseas. To compare private sector and State

processes, we visited six companies in the United States and three field

offices for those companies in Brussels and London, and one company in

Caracas to develop detailed information on these processes. We selected

these companies based on the number of employees transferred overseas,

the typical time frames for an overseas assignment, and actions taken to

control costs of international operations. We also met with several

international destination service and furniture rental companies to

document the scope of their services and costs.

We visited the embassies of the United Kingdom and Canada in

Washington, D.C., and met with the British Foreign and Commonwealth

Office, London Procurement Group; and the Office of the Australian High

Commission in London to obtain an understanding of how other national

governments provide housing and furniture for their employees at

overseas locations. In addition, we developed information on the U.S.

Agency for International Development’s housing and furniture processes.

We did not independently verify any cost savings or performance benefits

data provided by the companies and other organizations we visited or

those identified in other studies.

We conducted our review from May 1997 to March 1998 in accordance

with generally accepted government auditing standards.

We are sending copies of this report to the Administrator, U.S. Agency for

International Development; the Director of the U.S. Information Agency;

the Director, Office of Management and Budget; and interested

Page 27 GAO/NSIAD-98-128 State Department
B-279560 

congressional committees. We will also make copies available to others

upon request.

Please contact me at (202) 512-4128 if you or any of your staff have any

questions concerning this report. The major contributors to this report are

listed in appendix II.

Benjamin F. Nelson, Director

International Relations and Trade Issues

Page 28 GAO/NSIAD-98-128 State Department
B-279560 

List of Congressional Committees

The Honorable Jesse A. Helms

Chairman

The Honorable Joseph R. Biden, Jr.

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Judd Gregg

Chairman

The Honorable Ernest F. Hollings

Ranking Minority Member

Subcommittee on Commerce, Justice, State,

 the Judiciary and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Benjamin A. Gilman

Chairman

The Honorable Lee H. Hamilton

Ranking Minority Member

Committee on International Relations

House of Representatives

The Honorable Harold Rogers

Chairman

The Honorable Alan B. Mollohan

Ranking Minority Member

Subcommittee on Commerce, Justice, State,

 and the Judiciary

Committee on Appropriations

House of Representatives

Page 29 GAO/NSIAD-98-128 State Department
Contents

Letter 1

Appendix I 

Comments From the

Department of State

32

Appendix II 

Major Contributors to

This Report

45

Figures Figure 1: Typical Steps in State’s Government Leasing Process 6

Figure 2: State’s Process for Providing Residential Furniture at

Posts

11

Figure 3: Typical Housing and Furnishing Processes Used by

Private Sector Companies

13

Abbreviations

FBO Office of Foreign Buildings Operations

ICASS International Cooperative Administrative Support Services

LQA Living Quarters Allowance

Page 30 GAO/NSIAD-98-128 State Department
Page 31 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 32 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

Page 33 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

Page 34 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

Page 35 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

Page 36 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

See comment 1.

Now on p. 2.

See comment 2.

Now on p. 3.

See comment 3.

Now on pp. 3-5.

See comment 2.

Now on p. 6.

See comment 4.

Now on p. 7.

See comment 5.

Now on p. 7.

Page 37 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

See comment 5.

Now on p. 7.

See comment 5.

Now on p. 8.

See comment 6.

Now on p. 8.

See comment 5.

Now on p. 12.

Page 38 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

See comment 5.

Now on p. 13.

See comment 7.

Now on pp. 19-20.

See comment 8.

Page 39 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

See comment 9.

Now on p. 21.

See comment 10.

Now on p. 21.

See comment 11.

Now on p. 21.

See comment 12.

Now on p. 23.

See comment 13.

Now on p. 22.

See comment 14.

Now on p. 23.

Page 40 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

The following are GAO’s comments on the Department of State’s letter

dated June 1, 1998.

GAO Comments 1. The estimate that millions of dollars could be saved is based on our

analyses of several cost indicators. As noted in the report, one indicator is

the large numbers of American and foreign national personnel directly

involved in managing and supporting posts’ residential housing and

furniture programs. The costs to support one American direct hire

overseas have been estimated to exceed $200,000 annually, and the costs

of foreign nationals average at least $18,500. Very few positions worldwide

would have to be eliminated or assigned to higher priority tasks to achieve

substantial savings and/or efficiencies. Another example is the potential

use of LQA—as noted in our report, data generated by the post in Singapore

indicated that savings of as $3,000 per lease could result from using LQA in

place of government leasing. Considering that State and other agencies

have over 8,000 short-term leases worldwide, the potential for significant

cost savings is apparent.

2. We do not agree that a statutory change is needed to reduce the

overhead associated with the State’s housing program. With the exception

of the current legislative requirement for approval of leases in excess of

$50,000 per year, inefficiencies in State’s overseas processes can be

addressed without changes in statutory requirements, primarily by looking

for ways to minimize posts’ in-house support requirements. State’s housing

allowance programs already demonstrate that posts’ support requirements

can be minimized while still complying with housing standards. Another

alternative is to contract with relocation companies to measure properties

for compliance with space standards, conduct market surveys, and visit

potential properties to determine the compatibility with State’s policies.

According to State’s regulations, Congress mandated the development of

an interagency housing policy in 1979 to ensure uniformity and equity in

the program. Although there is general language in the conference report

accompanying the 1979 Foreign Assistance Appropriations Act indicating

that real property should be acquired under a consolidated master plan

through a single government agency, the language does not legally require

any particular housing policy.

3. We believe that high cost operations that include substantial overhead

and numerous administrative steps deserve special attention for

reengineering and consideration of alternative practices. For example, we

noted in our draft report that the internal support budget for the

Page 41 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

short-term leasing program in Brussels totaled more than $1.5 million in

fiscal year 1998, compared to about $150,000 in total for leasing and

short-term residential leasing building operation expense support at three

posts currently under LQA (Geneva, Guatemala City, and Quito).

4. The staff, compensation, and time data were supplied by the posts in

London and Brussels based on their budget and personnel records.

5. We recognize that the current process may offer several benefits. We

note that the options we presented may also offer benefits, including some

of the same benefits that currently exist. For example, it is our

understanding that relocation companies can negotiate the same favorable

lease terms on behalf of the U.S. government as State currently receives.

As stated in our report, we reviewed whether any private sector practices

offer the potential to reduce costs and provide quality services overseas to

State. Since we identified several practices with such potential, we would

expect that State, in its study of the housing program, would examine and

compare specific costs and benefits of the practices we identified and its

current process. Until State performs this analysis, it is difficult to project

the cost-effectiveness of State’s current system.

6. We found that State has little comprehensive cost data to support its

decisions concerning whether to use government short-term leasing or LQA

for housing programs. However, ICASS data shows that government leasing

programs often have substantially higher support costs compared to LQA

programs—an important issue to be considered. Because the support cost

differences are potentially so great, State should include an examination of

housing allowance options in its housing studies. If State determines that

the costs of other factors—such as the need for employees to stay home

for maintenance and look for residences—outweigh the advantages of

reduced in-house administrative support costs, then these costs should be

fully documented as part of the decision-making process.

7. We agree various shipping cost factors need to be considered in a

comparative analysis. However, State appears to miss the point by making

the comment that to compare shipping household effects with contract

furniture, the cost of shipping contract furniture under current practices

should be added to the costs of household effects. This would skew the

results of any analyses designed to determine if it is more cost-effective to

ship employee household effects or provide government furniture.

Analyses must first be based on State’s actual shipping data, which we

found to show that employees often ship the same weight of household

Page 42 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

effects whether a post is furnished or unfurnished. For example, State

provided us actual shipping data for over 50 posts in 1996. Our comparison

of seven furnished and unfurnished posts having the largest number of

shipments showed that the average weight of shipments varied by only

about 1,100 pounds, or about 6 percent of the maximum amount

authorized for shipment to unfurnished posts. This data suggests that the

significant sums of money spent on operating a government-furniture

program may be excessive and unneeded. In addition, State’s comments

did not consider the potential cost savings that could be derived by using

household effects in place of government furniture. For example, the post

in Singapore estimated that its annual warehousing costs alone could be

reduced about $180,000 by using household effects instead of government

furniture.

8. Clearly, country-unique factors would have to be considered in making

decisions. Assuming State’s assertion is correct, in countries such as Brazil

it may not make sense to consider the use of employees’ household effects

as an option to government furniture. Other options may exist, however,

such as purchasing furniture locally or even working with the host

government to eliminate rules/customs that contribute to inefficiencies in

diplomatic missions.

9. We clarified the text to state that the estimate of potential savings

resulting from local procurement could be as much as 30 percent or more

of the purchase, shipping, and packing costs of the contract furniture. This

conclusion was based on data provided by State’s overseas posts. For

example, post officials in San Jose told us that they could purchase a living

room set locally for about $2,850, compared to the contract cost of

approximately $4,296.

10. The information was provided by post officials in San Jose. We did not

verify the data on local costs and availability, but post officials told us that

high-quality furniture is available locally often with purchase prices below

the government-furniture contract price. In addition, they note that the

lead time for local delivery would be about 6 weeks, compared to

5-months or longer under the contract.

11. We recognize the importance of purchasing quality products and

expect that State would consider this factor in examining the local

purchasing option. We found that a few posts now purchase furniture

locally, and based on our overseas visits, we are unaware of any concerns

Page 43 GAO/NSIAD-98-128 State Department
Appendix I 

Comments From the Department of State

about safety or fulfilling representational responsibilities associated with

these purchases.

12. State’s comments assume that its current furniture contract would be

continued and that prices would increase if quantities were decreased.

However, until State explores the various options identified in this report,

it is difficult to project how the current contract might be affected,

including whether it should be continued or renegotiated. We again

encourage State to include its furniture program in its study plans.

13. We modified the text in response to this data.

14. The lack of a worldwide property inventory system in State makes it

difficult to verify State’s claim that most of the residential furniture is in

use. Although this seems to be a logical assumption, at two of the posts we

visited large inventories of residential furniture were in storage at that

time. For example, in London, the majority of the items in the warehouse

were residential furniture, including hundreds of dining chairs. Overall,

our analysis shows that local procurement can substantially reduce the

time for delivery of goods and services; thus, reductions in overall

inventory and storage requirements could be expected. This view is

consistent with State’s own efforts to reengineer its logistics system.

According to State, the benefits associated with simpler and cheaper

supply channels are expected to total millions of dollars in savings,

partially resulting from reduced inventory costs and consolidated

warehousing.

Page 44 GAO/NSIAD-98-128 State Department
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Diana M. Glod

Lynn B. Moore

Jodi M. Prosser

LaVerne G. Tharpes

Office of the General

Counsel

Richard Seldin

(711259) Page 45 GAO/NSIAD-98-128 State Department
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