Testimony 

Before the Subcommittee on 

Transportation, Treasury, and Related 

Agencies, Committee on Appropriations 

House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 10:00 a.m. EST 

Wednesday, April 2, 2003 GENERAL SERVICES 

ADMINISTRATION 

Factors Affecting the 

Construction and Operating 

Costs of Federal Buildings 

Statement of Bernard L. Ungar, Director, 

Physical Infrastructure Issues 

GAO-03-609T 
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Several factors have affected GSA’s construction, leasing, and operating 

costs for federal buildings. For example, new security requirements for 

federal buildings developed after the 1995 bombing of a federal building in 

Oklahoma City and the September 11, 2001, terrorist attacks have led to 

increased costs for such measures as strengthening the ability of buildings to 

sustain a bomb blast and limiting building access. According to a GSA 

official, security costs for courthouses have increased from about $8 a 

square foot to about $24 a square foot. Another factor affecting costs is 

budget scorekeeping requirements meant to ensure full recognition of the 

government’s financial commitments. The scorekeeping requirement that 

GSA must include in its budget the entire cost of constructing a building in 

the year the government commits the resources has led GSA to lease space 

rather than construct it, even though leasing often results in a higher overall 

cost to the taxpayer. For example, a GSA present value cost analysis 

estimated that the recently leased U.S. Patent and Trademark Office 

complex shown below, currently being constructed in Alexandria, Virginia, 

by a private company, cost taxpayers about $48 million more to lease over 

the 20-year lease period than it would have cost to purchase it. 

In January 2003, GAO designated federal real property as a high-risk area, in 

part because of such cost factors and also because many property assets are 

no longer effectively aligned with or responsive to agencies’ changing 

missions and are no longer needed. Furthermore, many assets are in an 

alarming state of deterioration that may cost tens of billions of dollars to 

address. GAO believes there is a need for a comprehensive and integrated 

transformation strategy for federal real property. 

The U.S. Patent and Trademark Office Complex in Alexandria, Virginia, February 2003 

The General Services 

Administration (GSA) has 

responsibility for more than 8,000 

owned and leased buildings 

nationwide, together encompassing 

about 338 million square feet of 

space. Understanding construction 

and operating costs for these 

buildings is important, as the 

increased federal budget deficit has 

led to intensified competition for 

federal resources and recent events 

have highlighted security needs. 

GAO examined (1) factors that 

have affected GSA’s construction, 

leasing, and operating costs and 

(2) our designation of federal real 

property as a high-risk area. 

Www.gao.gov/cgi-bin/getrpt?GAO-03-609T.

To view the full testimony, including the scope 

and methodology, click on the link above. 

For more information, contact Bernard L. 

Ungar at (202) 512-2834 or ungarb@gao.gov. 

Highlights of GAO-03-609T, a testimony 

for the Subcommittee on Transportation, 

Treasury, and Related Agencies, House 

Committee on Appropriations 

April 2003

GENERAL SERVICES ADMINISTRATION 

Factors Affecting the Construction and 

Operating Costs of Federal Buildings 
Page 1 GAO-03-609T 

Mr. Chairman and Members of the Subcommittee: 

We welcome the opportunity today to discuss factors affecting the costs of 

constructing, leasing, and operating General Services Administration 

(GSA) owned and leased buildings. Reports of rising costs in these areas 

are of particular concern in today’s environment, as the increased federal 

budget deficit has led to intensified competition for federal resources. At 

the same time, one of the main cost factors facing GSA is security. 

Physical security for federal office buildings has been a governmentwide 

concern since the 1995 bombing of the Alfred P. Murrah Federal Building 

in Oklahoma City, Oklahoma. This concern has become more compelling 

in the wake of the terrorist attacks of September 11, 2001, and the anthrax 

incidents that closely followed it. To assist GSA in determining how to 

best prioritize security enhancements while also addressing other federal 

building needs, we believe it is helpful to consider factors affecting the 

costs of meeting these needs. 

GSA has responsibility for more than 8,000 owned and leased buildings 

nationwide, together encompassing about 338 million square feet of space. 

GSA’s owned and leased space, which includes office buildings, 

courthouses, border stations, and other types of facilities, makes up about 

6 percent of all federally owned space worldwide and 39 percent of all 

federally leased space worldwide. Between fiscal year 1995 and fiscal year 

2002, GSA’s average rental rate for leased space increased 4.1 percent in 

constant dollars, to $20 per square foot, and GSA’s building operations 

obligations increased by 31.3 percent in constant dollars, to about $1.9 

billion. In fiscal year 2002, GSA had total estimated project costs of about 

$2.6 billion for new construction, about $690 million for major 

renovations, and more than $435 million for design of repair and 

alterations. It has obligated about $3.1 billion for the rental of space, which 

is a 24 percent increase in constant dollars since fiscal year 1995. Today, in 

this context of rising costs and limited funds, we would like to discuss (1) 

factors that have affected GSA’s construction, leasing, and operating costs 

and (2) our designation of federal real property as a high-risk area. 

My statement today is based largely on our past work on constructing, 

operating, leasing, and securing federally owned or leased buildings. In 

certain instances, we obtained updated information and opinions from 
Page 2 GAO-03-609T 

GSA officials. We also reviewed a GSA contractor’s March 2002 report on 

courthouse construction costs. 1

Summary 

• Several factors have affected GSA’s construction, leasing, and operating 

costs for federal buildings. Two factors we recently reported on are 

increased security requirements and budget scorekeeping requirements 

meant to ensure full recognition in the budget of the government’s 

commitments.2

 First, new security requirements for federal buildings 

developed in the wake of the 1995 bombing of the Alfred P. Murrah 

Federal Building in Oklahoma City and the September 11, 2001, terrorist 

attacks have resulted in increased building costs for such measures as 

strengthening the ability of buildings to sustain a bomb blast and limiting 

access to parking and building areas through such means as increasing the 

number of guards. For example, according to a GSA official, security costs 

for courthouses have increased from about $8 a square foot to about $24 a 

square foot. Second, to ensure budget recognition of the government’s 

commitments, budget scorekeeping requires that GSA include in the 

budget the entire cost of constructing a building in the year that the 

government commits the resources. This has led GSA to sometimes use 

leasing over construction, even though leasing often results in a higher 

overall cost to the taxpayer. For example, a GSA present value cost 

analysis estimated that the recently leased U.S. Patent and Trademark 

Office complex, now under construction in Alexandria, Virginia, cost 

taxpayers about $48 million more to lease than it would have cost to 

construct it. The choice of geographic location has also affected GSA’s 

building costs, as have federal mandates that require measures such as the 

payment of specific minimum wages on government construction projects 

and energy conservation. Still other factors that have affected federal 

building costs include GSA’s failure to adequately maintain buildings, the 

choice of building finishes, contract modifications, and inflation. 

• In January 2003, we added federal real property to our high-risk list. We 

did this, in part, due to the issues affecting the cost of federal buildings 

discussed in this testimony, such as the challenges the federal government 

 1

 Kilpatrick Stockton, Studley, DPR, Gensler, US Courthouse Construction Cost 

Comparison Study (Mar. 12, 2002, revised). 

2

 U.S. General Accounting Office, Building Security: Security Responsibilities for 

Federally Owned and Leased Facilities, GAO-03-8 (Washington, D.C.: Oct. 31, 2002); 

Budget Scoring: Budget Scoring Affects Some Lease Terms, but Full Extent Is Uncertain, 

GAO-01-929 (Washington, D.C.: Aug. 31, 2001). 
Page 3 GAO-03-609T 

faces in protecting its property, employees, and those who visit or use 

federal facilities. In adding this issue to our high-risk list, we also 

recognized that the federal government owns much vacant or 

underutilized property that it must pay to maintain, operate, and/or secure. 

To the extent that the federal government can rationalize its inventory of 

real property and retain only what it needs, it can save money and focus its 

efforts and limited resources on operating, maintaining, and securing only 

those facilities that are truly needed by the government. Furthermore, 

many assets are in an alarming state of deterioration; agencies have 

estimated restoration and repair needs to be in the tens of billions of 

dollars. In our high-risk report issued in January 2003,3

 we stated that there 

is a need for a comprehensive and integrated transformation strategy for 

federal real property, and that an independent commission or 

governmentwide task force may be needed to develop this strategy. 

Realigning the government’s real property assets with agency missions and 

taking into account the requirements of the future federal role and 

workplace will be critical to improving the government’s performance and 

ensuring accountability within expected resource limits. 

In managing the costs of constructing, leasing, and operating federal 

buildings, GSA has faced pressures in a number of areas in recent years. 

Many factors driving costs, such as security requirements, have tended to 

increase costs for construction, leasing, and operations. In addition, 

budget scorekeeping requirements have resulted in pressure to lease 

rather than construct, when in many cases leasing is more expensive over 

the long term. Another factor—implementing a federal mandate 

encouraging environmentally sound construction and renovation 

techniques—may result in higher initial construction costs but lead to 

lower operating costs. 

As a result of the Oklahoma City bombing in 1995, President Clinton 

directed the Department of Justice to assess the vulnerability of federal 

office buildings to attack, which resulted in a 1995 report entitled 

Vulnerability Assessments of Federal Facilities. The study designated 

five levels of security needs into which federal office buildings could be 

categorized, depending on the number of federal employees housed in the 

facility and the responsibilities of the agency; identified minimum 

 3

 U.S. General Accounting Office, High-Risk Series: Federal Real Property, GAO-03-122

(Washington, D.C.: January 2003). 

Security, Budget 

Scorekeeping 

Requirements, and 

Other Factors Have 

Affected Federal 

Building Costs in 

Recent Years 

Security Requirements 

Have Raised Costs of 

Constructing, Leasing, and 

Operating Federal 

Buildings 
Page 4 GAO-03-609T 

standards for each of the five security levels; and recommended the 

establishment of the Interagency Security Committee (ISC) to provide a 

permanent body to address continuing governmentwide security concerns. 

In May 2001, ISC issued security design criteria for new federal office 

buildings and major modernization projects, and in 2002 issued draft 

security standards for leased space. 4

 Both of these take into consideration 

the five levels of security needs, recognizing that some federal facilities 

need more protection than others. Overall, ISC’s security design criteria 

and leasing security standards are designed to strengthen the ability of 

buildings to sustain a bomb blast or chemical attack as well as reduce the 

likelihood of such attacks through measures to better control access to 

parking and work areas. Construction measures in ISC’s design criteria 

include items such as providing glazing protection for windows, 

establishing distances that buildings should be set back from the street, 

controlling vehicular access to the buildings, and locating air intakes. ISC’s 

draft security standards for leased space require that GSA incorporate 

security operating standards into all future leases and in existing locations 

on a case-by case basis, and include similar measures as its construction 

standards, where relevant, such as controlling vehicular access to the 

building. We have not reviewed the implementation of the ISC security 

design criteria. 

Although we have not comprehensively evaluated how these changes in 

security requirements have affected GSA’s costs, we have gathered some 

examples of rising security costs in recent years. For example, according 

to a GSA official, security costs for courthouses have risen from about $8 a 

square foot to about $24 a square foot. Security requirements also have led 

GSA to look for larger sites for courthouses. According to a GSA official, 

in some cases, GSA is obtaining two separate but collocated urban sites on 

which to construct a courthouse and may need to close a street between 

the two sites to construct the building. In these circumstances, GSA may 

need to pay to move utilities that are in the street between the two sites. 

Both the increased size of the site and moving utilities located in the street 

will add to construction costs. A GSA official also stated that the estimate 

to renovate GSA’s headquarters has risen from about $80 million to $120 

 4

 Interagency Security Committee, ISC Security Design Criteria for New Federal Office 

Buildings and Major Modernization Projects (May 28, 2001). These criteria apply to new 

construction of general purpose office buildings and new or leased-construction of 

courthouses occupied by federal employees in the United States and not under the 

jurisdiction and/or control of the Department of Defense. 
Page 5 GAO-03-609T 

million, mostly due to meeting security needs. Similarly, in August 2001, 

we reported that the additional cost of security features for the Security 

and Exchange Commission’s (SEC) new building currently under 

construction in Washington, D.C., is expected to be $19 million.5

Enhancing blast protection for the Department of Transportation building 

in Washington, D.C., was estimated at about $8 million in 2001. 

Regarding the effects of ISC security leasing standards on costs, at one of 

four security roundtables that was held by an ISC team to discuss ISC’s 

proposed security leasing standards with the private sector, the potential 

cost of security improvements was estimated at $1.50 to $2.50 per square 

foot, excluding heating, ventilating, and air conditioning. In extreme cases 

in which there are an unusually high number of entrances to protect, it 

could be as high as $9 a square foot. Using the estimate of $1.50 per square 

foot and the estimated 155 million square feet of leased space GSA had as 

of fiscal year 2002, GSA leasing costs could increase by a minimum of $232 

million dollars a year because of security requirements, assuming none of 

the improvements have already been made. 

Building operations costs have also risen due to security requirements. 

GSA’s building operations obligations have increased by 31.3 percent in 

2002 constant dollars since fiscal year 1995. Forty-five percent of this 

increase is due to the increase in security obligations, which have risen by 

231 percent in 2002 constant dollars since fiscal year 1995 to about $397 

million in fiscal year 2002. 

One concern for which improving security is likely to affect construction, 

leasing, and operating costs is upgrading existing mailrooms in federal 

buildings. ISC guidelines addressing mailroom security were written prior 

to anthrax being sent through the mail to several federal buildings in the 

fall of 2001 and focused on securing mailrooms from bomb blasts rather 

than contamination. However, in the wake of the anthrax incidents, some 

agencies have begun screening and testing their incoming mail for 

hazardous material. Agencies have initiated a variety of efforts in this area, 

including, among other things, 

• retrofitting existing mailrooms with air handling and ventilation systems 

that are independent of the systems supporting the rest of the facility; 

• moving mailroom operations off-site; 

 5 GAO-03-8. 
Page 6 GAO-03-609T 

• contracting with private companies to screen, test, and process incoming 

mail; 

• training mailroom employees on the proper procedures for handling 

potentially hazardous mail and providing these employees with protective 

clothing and gear; 

• purchasing equipment to screen and test mail for hazardous material; and 

• modifying existing security contracts to require that security personnel 

X-ray incoming mail. 

These and other measures to safeguard the mail are adding to the cost of 

security for federal agencies in the Washington, D.C., metropolitan area. In 

addition, GSA issued mail management guidelines in June 2002, which 

brought into question whether some of the actions taken by federal 

agencies to safeguard their mail were necessary, particularly in light of the 

U.S. Postal Service’s efforts in this regard, which include irradiating 

certain mail destined for federal agencies located in the Washington 

metropolitan area. Because of the cost associated with safeguarding the 

mail and the uncertainty over the need for some of these safeguards, at the 

request of the Senate Committee on Governmental Affairs, we have 

initiated a review of agencies’ mail security efforts and associated costs. 

In October 2002, we issued a report that identified security-related costs 

being incurred by various agencies.6

 While this information gives a picture 

of the security costs, we did not determine what types of costs are 

included. Some examples of recent security costs that agencies reported 

to us include the following: 

• The Federal Protective Service (FPS) obligated approximately $1.3 billion 

for security for fiscal years 1996 through 2001. Its fiscal year 2002 budget 

was $362.1 million, of which about $207 million was for contract guard 

services. Additionally, in fiscal year 2002, GSA was slated to spend over 

$300 million more from its reimbursable program7

 for contract guard 

services, according to a FPS official. This total of over $500 million for 

contract guard services was to fund approximately 7,300 contract guards. 

• In fiscal years 1999 through 2001, the Federal Judiciary paid $71.6 million 

for security through its rent payments to GSA. The Federal Judiciary and 

the U.S. Marshals Service (USMS) also obligated about $577.1 million from 

 6 GAO-03-8. 

7

 The reimbursable program provides security funding from the rents paid by agencies 

assigned space in GSA owned or leased buildings; the rent includes a building-specific 

charge for contract guards. 
Page 7 GAO-03-609T 

the Court Security Appropriation. For fiscal year 2002, the Federal 

Judiciary expected to pay $36.7 million for security through its rent 

payments to GSA. Also, in fiscal year 2002, the Federal Judiciary received 

an appropriation and emergency supplemental for court security officers, 

court security inspectors, and security systems and equipment and 

transferred $280.5 million to USMS to administer the Judicial Security 

Facilities Program. Through its own appropriation, USMS also received 

$24.1 million in funding for construction; security, including guard 

contracts and security equipment; and furniture to handle serious security 

deficiencies in federal courthouses related to prisoner handling and the 

protection of judges, judicial employees, the public, and the Marshals. 

• For fiscal years 1996 through 2001, the Department of Education paid GSA 

approximately $7.7 million in security-related expenses. In fiscal year 2002, 

it expected to spend approximately $2.0 million in security-related 

expenses, of which about $1.9 million was for guard costs. 

The ISC security design criteria recommend that in order to control costs, 

security budgets should be the result of a project-specific risk assessment 

on which a budget can be based. ISC reasoned that if cost is not 

considered early on, mitigation of one security risk might consume a 

disproportionate amount of the budget while other security risks might 

remain insufficiently or not addressed. 

We also have supported the concept of risk assessment as a way to 

determine how best to use limited funds in the context of enhancing 

security. Specifically, we reported in a study focusing on homeland 

security and information systems security that applying risk management 

principles can provide a sound foundation for effective security whether 

the assets are information, operations, people, or federal facilities. 8 We 

identified the following five basic steps as being part of a risk management 

process to determine security priorities and implement appropriate 

solutions: (1) identify assets, (2) determine threats, (3) analyze 

vulnerabilities, (4) assess risks, and (5) apply countermeasures. According 

to GSA, the agency uses a risk management approach when considering 

security needs for its owned and leased properties. 

Our work has shown that budget scorekeeping requirements affect the 

government’s cost of acquiring space in two ways—by favoring operating 

leases over construction and by encouraging agencies to lease space for 

 8

 U.S. General Accounting Office, Homeland Security: A Risk Management Approach Can 

Guide Preparedness Efforts, GAO-02-208T (Washington, D.C.: Oct. 31, 2001). 

Budget Scorekeeping 
Page 8 GAO-03-609T 

shorter time periods.9 To ensure budget recognition of the government’s 

commitments when they are made, budget scorekeeping requires GSA to 

include the total cost of a building construction project in its budget in the 

year that the government commits the resources. This requirement for full 

up front funding promotes discipline by requiring that the full cost of 

decisions be accounted for upfront when the irrevocable decision to 

commit the resources is made. Requiring up front funding for all programs 

(including health, education, and human capital as well as real property) 

ensures that none of them are given a relative advantage, especially when 

there is no clear evidence that a shift in relative priorities would be 

appropriate. However, we have previously reported that scorekeeping 

requirements favor operating leases, the cost of which can be accounted 

for in the budget on a yearly basis, rather than accounting for the total cost 

upfront. This has led GSA to lease rather than construct space for some 

new acquisitions needs. This practice has resulted in increasing the cost of 

space to the government and taxpayers because the cost of leasing space 

for which the government has a long-term need is usually greater than the 

cost of purchasing that space through construction. 

In March 1999, we reported that our review of the economic analyses of 24 

lease and construction acquisitions by GSA for approval in the budget 

cycles for fiscal years 1994 through 1999 showed that, given certain 

assumptions, construction was estimated as less costly than leasing in all 

but one case.10 Analysis of 15 of these acquisitions showed that 

construction had a cost advantage over leasing in present value terms 

ranging from $2.9 million to $63 million. The present value analysis of the 

construction of a hypothetical 100,000 square foot building in 11 locations 

throughout the country showed that construction was consistently more 

cost-effective than leasing, with the differences ranging from $0.3 million 

to $14 million. The new Patent and Trademark Office complex currently 

under construction in Alexandria, Virginia, is one example of an 

acquisition that cost taxpayers more because GSA leased the property 

rather than constructing it. A GSA present value cost analysis estimated 

 9

 Budget scorekeeping is the process of estimating the budgetary effects of pending and 

enacted legislation and comparing them with limits set in the budget resolution or 

legislation. Scorekeeping tracks data such as budget authority, receipts, outlays, the 

surplus or deficit, and the public debt limit. 

10 U.S. General Accounting Office, General Services Administration: Comparison of Space 

Acquisition Alternatives—Leasing to Lease Purchase and Leasing to Construction, 

GAO/GGD-99-49R (Washington, D.C.: Mar. 12, 1999). 
Page 9 GAO-03-609T 

that the recently leased U.S. Patent and Trademark Office complex cost 

taxpayers about $48 million more to lease than construct. 

The budget scorekeeping requirements for leases can also affect the cost 

of leasing federal properties by encouraging GSA or other agencies to 

lease space for shorter time periods. Budget scorekeeping requirements 

treat different types of leases differently. The Office of Management and 

Budget has established six criteria for defining an operating lease.11 A 

capital lease is any lease other than a lease-purchase that does not meet 

the criteria of an operating lease. Budget scorekeeping requires that for a 

capital lease, the net present value of the entire cost of the lease be 

included in the budget for the year the lease is approved, while for an 

operating lease, only each year’s cost must be included in that year’s 

budget. We reported on this issue in August 2001.12 We found that at least 

13 leases or lease project13 terms—the length of the lease—were affected 

by budget scoring, and that others may have been similarly affected. For 

example, the term of the lease for the SEC building was reduced from 20 

years to 14 years, and the lease for the new Department of Transportation 

headquarters building was reduced from 20 years to 15 years; the changes 

in terms changed the leases from capital leases to operating leases. 

Although we could not determine the overall monetary impact of the 

budget scoring requirements for leases on lease terms, GSA officials 

agreed that a 20-year lease usually has a lower annual cost than a 10- or 15-

year lease. Furthermore, in the report, we cited a private-industry official 

who had testified before Congress that a 20-year lease term could have 

annual rates as much as 33 percent less expensive than a 10-year lease and 

13 percent less expensive than a 15-year lease. We found that the lease 

 11 The Office of Management and Budget defines capital and operating leases in CircularNo. A-11, appendix B. A capital lease means any lease other than a lease-purchase that does 

not meet the criteria of an operating lease. An operating lease must meet six criteria: 1) 

ownership of the asset remains with the lessor during the term of the lease and is not 

transferred to the government at or shortly after the end of the lease term; 2) the lease does 

not contain a bargain-price purchase option; 3) the term does not exceed 75 percent of the 

estimated economic life of the asset; 4) the present value of the minimum lease payments 

over the life of the lease does not exceed 90 percent of the fair market value of the asset at 

the beginning of the lease term; 5) the asset is a general purpose asset rather than being for 

a special purpose of the Government and is not built to the unique specification of the 

Government as lessee; and 6) there is a private sector market for the asset. 

12 GAO-01-929. 

13 A lease project is a project on which GSA is trying to obtain a lease. 
Page 10 GAO-03-609T 

terms on these 13 cases were shortened because of the budget 

scorekeeping requirements for leases. 

Decision-makers have struggled with this matter since the scoring 

requirements were established and the tendency for agencies to choose 

operating leases instead of ownership became apparent. We have 

suggested the alternative of scoring all operating leases up front on the 

basis of the underlying time requirement for the space so that all options 

are treated equally.14 Although this could be viable, there would be 

implementation challenges if this were pursued, including the need to 

evaluate the validity of agencies’ stated space requirements. Another 

option, which was recommended by the President’s Commission to Study 

Capital Budgeting in 1999 and discussed by us,15 would be to allow 

agencies to establish capital acquisition funds to pursue ownership where 

it is advantageous from an economic perspective. Budget scorekeeping 

and its effects on the acquisition of space is a complex issue that will not 

be easy to effectively resolve. Nonetheless, as we reported in January 

2003, it has a significant unintended effect on costs and needs to be 

addressed.16

Three aspects of where a building is located can affect its costs. The first 

aspect is the part of the United States in which the building is located. For 

example, in a 1999 report, we reported that, at that time, to build a 

hypothetical 100,000 square foot building would cost a high of $63.2 

million in New York City, New York; $37.9 million in Boston, 

Massachusetts; and a low of $32.7 million in Denver, Colorado. 17 The 

second aspect of location that can affect building costs is whether the 

building site is in a central business area or a rural or noncentral business 

area. Currently, the Rural Development Act directs federal agencies to give 

first priority to the location of new offices and other facilities in rural 

areas, and Executive Order 12072 specifies that when the agency mission 

 14 U.S. General Accounting Office, Supporting Congressional Oversight: Budgetary 

Implications of Selected GAO Work for Fiscal Year 2003, GAO-02-576 (Washington, D.C.: 

Apr. 26, 2002). 

15 U.S. General Accounting Office, Accrual Budgeting: Experiences of Other Nations and 

Implications for the United States, GAO/AIMD-00-57 (Washington, D.C.: Feb 18, 2000). 

16 GAO-03-122. 

17 GAO/GGD-99-49R. 

Geographic Location of 

Buildings 
Page 11 GAO-03-609T 

and program requirements call for facilities to be located in urban areas, 

agencies must give first consideration to locating in central business areas. 

In a July 2001 report, we noted that federal agencies subject to the Rural 

Development Act continue to locate for the most part in higher cost urban 

areas. 18 Most of the agencies included in our review said that they located 

their facilities on the basis of mission needs, although agencies did have 

flexibility in some cases. We reported that 8 of the 13 cabinet agencies we 

surveyed had no formal Rural Development Act siting policy, and there 

was little evidence that agencies considered the act’s requirement when 

siting new federal facilities. In contrast, we reported that private-sector 

companies chose rural areas to take advantage of such factors as lower 

real estate and labor costs. We did find that rural locations can result in 

higher costs in some cases even though the cost of the land itself can be 

cheaper. For example, according to a GSA official, rural sites for border 

stations can result in increased construction costs because GSA may have 

to bring in construction workers from long distances and pay them for 

travel or pay for or provide local housing for the workers. 

We also found that locating a building in a central business area can result 

in higher lease costs than siting it in a noncentral business area; 

specifically, the average cost of leasing for 11 cities was $4.03 more 

expensive per square foot in the central business area than in noncentral 

business areas. For example, locating in the central business area of San 

Francisco can be $11.40 a square foot more expensive than locating in the 

noncentral business area of that same city. However, out of the 11 cities 

we reviewed, 3 had higher lease rates in their noncentral business areas. 

The third aspect of location that can have a substantial effect on 

construction costs is the specific site selected. In November 1995, we 

testified that certain features of sites that had been selected for the 

construction of federal courthouses had resulted in additional 

construction-related costs that would not necessarily have been incurred 

had another site been selected.19 For example: 

 18 U.S. General Accounting Office, Facility Location: Agencies Should Pay More Attention 

to Costs and Rural Development Act, GAO-01-805 (Washington, D.C.: July 31, 2001). 

19 U.S. General Accounting Office, Federal Courthouse Construction: More Disciplined 

Approach Would Reduce Costs and Provide for Better Decisionmaking, GAO/T-GGD-96-19

(Washington, D.C.: Nov. 8, 1995). 
Page 12 GAO-03-609T 

• a waterfront site required that the building include extensive 

waterproofing and wind bracing and a $1.6 million pier and floating dock 

to accommodate the Costal Zone Management Act; 

• an urban site, which was a small and oddly shaped parcel of land, did not 

allow for an efficient design configuration and had contaminated soil that 

cost $3.2 million to remove; and 

• another urban site, which sloped, allowed only a high-rise building, which 

is more costly to build, and required a more costly “split-level” lobby. 

Federal mandates, such as laws and executive orders, have affected the 

construction, leasing, and operating costs of federal buildings. GSA’s 

General Reference Guide for Real Property Policy lists the laws and 

executive orders that impact GSA’s roles, including many that affect 

design, construction, and leasing. In October 1999, we issued a report that 

listed 29 federal statutes and 7 executive orders applicable to leasing.20

Examples of laws that affect construction and/or leasing and operations 

include the following: 

• The Architectural Barriers Act of 1968 (42 U.S.C. §4151-4156) establishes 

standards for the accessibility of federal buildings to physically disabled 

persons. 

• The Davis-Bacon Act (40 U.S.C. §3142) requires the payment of minimum 

wages for laborers and mechanics employed on government construction 

projects. The wages are established by the Department of Labor and are 

based on prevailing wage rates in a locality. 

• The Small Business Act (15 U.S.C. §631 et seq.) requires federal agencies 

to utilize small and small disadvantaged businesses and to ensure that 

such businesses have the maximum practical opportunity to participate as 

subcontractors in the performance of federal contracts. 

• The Energy Policy and Conservation Act (42 U.S.C. §6201 et seq.) requires 

federal agencies to implement programs that reduce energy consumption 

in federal facilities. This includes federal leased space. 

Examples of executive orders that may affect federal building costs 

include the following: 

 20 U.S. General Accounting Office, Federal Statutes and Executive Orders Applicable to the 

Public Buildings Service’s Leasing Program, GAO/GGD-00-27R (Washington, D.C.: Oct. 

18, 1999) 

Federal Mandates 
Page 13 GAO-03-609T 

• Executive Order 11990—Protection of Wetlands—requires federal 

agencies to avoid causing wetlands to be filled unless there is no practical 

alternative to doing so. 

• Executive Order 12072—Federal Space Management—requires federal 

agencies to give first consideration to a centralized community business 

area when locating federal facilities. 

• Executive Order 12770—Metric Usage in Federal Programs—requires, 

with certain exceptions, that the metric system of measurement be 

implemented in all new federal design and construction projects. 

• Executive Order 12902—Energy Efficiency and Water Conservation at 

Federal Facilities—requires that appropriate consideration be given to 

building efficiencies in the design and construction process. 

In a March 2002 study prepared for GSA by a contractor concerning 

courthouse construction costs, 28 federal mandates were identified that 

had to be considered on every federal courthouse construction project.21 In 

comparing state and federal courthouse construction costs, the study 

estimated that these mandates added an average $4.04 per square foot to 

the cost of a federal courthouse. A specific example of the impact of a 

mandate is the executive order on metric use. The study showed that using 

the metric system added an estimated $0.57 per square foot to federal 

government construction costs for the projects covered in the study. The 

study points out that pipe suppliers stock standard U.S. Customary System 

sizes of pipe and have to special order corresponding metric pipe sizes, 

which usually represents an increased cost to the supplier that is passed 

on to the federal government. 

In a March 2003 testimony we discussed federal mandates relative to 

building construction that address conservation and environmental 

protection, steps GSA and other federal organizations have taken to 

implement these mandates, and obstacles agencies have faced in 

attempting to implement them.22 We said that GSA encourages agencies to 

use sustainable design approaches in federal construction and renovation 

projects. Sustainable designs are intended to result in energy efficiency 

and minimal impact on the environment. The objectives of this type of 

design are to 

 21 US Courthouse Construction Cost Comparison Study (Mar. 12, 2002, revised). 

22 U.S. General Accounting Office, Federal Energy Management: Facility and Vehicle 

Energy Efficiency Issues, GAO-03-545T (Washington, D.C.: Mar. 12, 2003). 
Page 14 GAO-03-609T 

• reduce consumption of nonrenewable resources, 

• minimize waste and impact on the environment, 

• optimize site potential, 

• minimize nonrenewable energy consumption, 

• use environmentally preferable products, 

• protect and conserve water, 

• enhance indoor environmental quality, and 

• optimize operation and maintenance practices. 

By improving energy efficiency, federal agencies may also reduce 

operating costs. Federal organizations have made progress in 

implementing these efforts. GSA and other agencies have begun using the 

Leadership in Energy and Environmental Design Rating (LEED) system. 

By using LEED, agencies can gauge the impact of design decisions on 

energy efficiency and other sustainable factors. In a similar vein, the White 

House reduced its operating costs by about $300,000 annually using 

sustainable design. As part of the Pentagon renovation, sustainable design 

principles are being implemented with the hope of reducing operating 

costs by $4 million to $5 million each year. 

Although up-front investments in sustainable design features can save 

building operating costs and help protect the environment, agencies have 

faced obstacles in implementing this concept. For example, initial costs of 

sustainable design features can be more costly than other approaches. 

GSA estimated that obtaining the second from the highest LEED rating for 

the construction of the Department of Transportation headquarters 

building would cost about $10 a gross square foot. Agencies have faced 

difficulty in securing the funding needed for this approach. 

Failure to adequately maintain buildings may also affect operating costs. 

In 2001, we reported that 44 buildings in GSA’s inventory each had $20 

million or more in repair and alteration backlogs.23 Many of the repair and 

alteration needs in these buildings had a direct impact on the energy 

efficiency of the buildings, including aging and inefficient plumbing, 

heating ventilation, and air conditioning systems. For example, the Dwight 

D. Eisenhower building in Washington, D.C., had a repair and alteration 

backlog of $216 million, which included the need to address the building’s 

 23 U.S. General Accounting Office, Federal Buildings: Funding Repairs and Alterations 

Has Been a Challenge—Expanded Financing Tools Needed, GAO-01-452 (Washington, 

D.C.: Apr. 12, 2001). 

Inadequate Maintenance, 

Construction Finishes, 

Contract Modifications, 

and Inflation 
Page 15 GAO-03-609T 

antiquated air conditioning system. GSA officials said that this system, 

which uses about 250 individual window units, is outdated and not 

efficient in cooling the building or conserving energy. In July 2000, we 

reported estimates that the Government Printing Office could save over 

$400,000 a year in energy and maintenance costs by replacing its aged air 

conditioning chillers with new, more energy efficient ones and could save 

$800,000 annually by upgrading its energy inefficient lighting at an 

estimated cost of $1.6 million.24 The Government Printing Office expects to 

have its air conditioning chillers and its lighting projects completed in 

April and May 2003, respectively. Greening the Building and the Bottom 

Line, a report from the Rocky Mountain Institute in cooperation with the 

Department of Energy (DOE), documents the case of a lighting retrofit 

that resulted in a 540 percent return on investment. 

In 1995, we testified that interior construction costs, which include 

interior finishes, ranged from $19 to $68 a square foot for eight courthouse 

construction projects we studied.25 For example, we noted that for one 

courthouse, using wood veneer paneling from floor-to-ceiling increased 

costs by $5 million versus using wood wainscot paneling. Also, the choice 

of exterior finish can increase cost. For example, using granite versus 

precast concrete or brick will increase the construction costs. GSA and 

the Administrative Office of the United States Courts established the 

Independent Courts Building Program Panel to evaluate the program. 

Contract modifications after the initial contract is issued also can affect 

costs. In June 1994, we reported that, for GSA’s 100 new construction 

contracts and 337 repair and alteration contracts that were substantially 

completed between fiscal year 1988 and the first half of fiscal year 1993, 

over 50 percent had cost growth that exceeded the 5 percent and 7 

percent, respectively, that GSA provided as contingencies for contract 

modifications.26 Our detailed case studies of 12 construction contracts for 

7 major projects showed that contract changes to overcome design and 

planning problems were a major contributor to contract cost growth. As 

 24 U.S. General Accounting Office, Government Printing Office: Space Utilization and 

Potential Opportunities for Saving on Facilities, unnumbered correspondence 

(Washington, D.C.: July 24, 2000). 

25 GAO/T-GGD-96-19. 

26 U.S. General Accounting Office, General Services Administration: Better Data and 

Oversight Needed to Improve Construction Management, GAO/GGD-94-145 (Washington, 

D.C.: June. 27, 1994). 
Page 16 GAO-03-609T 

part of GSA’s current strategic goals, a long-range performance goal has 

been established to reduce the cost escalation rate for new construction 

projects to 1 percent. GSA reported that cost escalation on construction 

projects was 2.3 percent in fiscal year 2002. Finally, inflation is a factor in 

construction cost growth. A GSA contractor asked to report on inflation 

rates indicated that from 1999 to 2000 the construction inflation rate in the 

Washington, D.C., area was 7 percent due to significant labor shortages in 

concrete, masonry, and especially drywall. 

In January 2003, we designated federal real property as a high-risk area.27

As you know, our high-risk update is provided at the start of each new 

Congress in conjunction with a special series we have issued biennially 

since January 1999, entitled the Performance and Accountability Series: 

Major Management Challenges and Program Risks. This effort is 

intended to help the new Congress focus its attention on the most 

important issues and challenges facing the federal government. In 

designating this area high-risk, we reported that the federal real property 

portfolio reflects an infrastructure that is based on the business model and 

technological environment of the 1950s. Many assets are no longer 

effectively aligned with or responsive to agencies’ changing missions and 

are therefore no longer needed. Furthermore, many assets are in an 

alarming state of deterioration; agencies have estimated restoration and 

repair needs to be in the tens of billions of dollars. Compounding these 

problems are the lack of reliable governmentwide data for strategic asset 

management, a heavy reliance on costly leasing instead of ownership to 

meet new space needs, and the cost and challenge of protecting these 

assets against potential terrorism. The persistence of these problems—

many of which have been discussed earlier in this testimony—and various 

obstacles that have impeded progress in resolving them led to the high-risk 

designation. 

The problems the government faces in this area have multibillion-dollar 

cost implications. The cost implications are particularly evident regarding 

excess and underutilized property and the need for the government to 

realign these assets. For example, underutilized or excess property is 

costly to maintain. The Department of Defense estimates that it is 

spending $3 billion to $4 billion each year maintaining facilities that are 

not needed. In July 1999, we reported that vacant Department of Veteran 

 27 GAO-03-122. 

We Have Designated 

Federal Real Property 

as High-Risk 
Page 17 GAO-03-609T 

Affairs (VA) space was costing as much as $35 million to maintain each 

year.28 Costs associated with excess DOE facilities, primarily for security 

and maintenance, exceed $70 million annually.29 It is likely that other 

agencies that continue to hold excess or underutilized property are also 

incurring significant costs for staff time spent managing the properties and 

for maintenance, utilities, security, and other building needs. Furthermore, 

in addition to day-to-day operational costs, the government is needlessly 

incurring unknown opportunity costs, because these buildings and land 

could be put to more cost-beneficial uses, exchanged for other needed 

property, or sold to generate revenue for the government. For example, in 

1998, we reported that VA could reduce expenditures by an estimated $200 

million over the next 10 years by consolidating hospital services into three 

locations in Chicago, Illinois, rather than continuing to operate four 

underutilized locations.30

GSA also has vacant and underutilized property. In August 2002, we 

reported on a recent GSA initiative to deal with its under performing 

properties.31 GSA had identified over 500 of its owned properties that were 

not generating sufficient income to cover their expenses and meet other 

financial performance criteria. GSA was developing and beginning to 

implement strategies for disposing of these properties, renting space to 

nonfederal tenants, or taking other actions to address the problem. 

The problem of repair backlogs in federal facilities also has major cost 

implications. In addition to the multibillion-dollar backlog in needed work 

that is currently identified, we have reported that the ultimate cost of 

completing delayed repairs and alterations may escalate because of 

inflation and increases in the severity of the problems caused by the 

delays. The overall cost of needed repairs could also be affected by 

government realignment. That is, to the extent that unneeded property is 

 28 U.S. General Accounting Office, VA Health Care: Challenges Facing VA in Developing 

an Asset Realignment Process, GAO/T-HEHS-99-173 (Washington, D.C.: July 22, 1999). 

29 DOE Office of the Inspector General, Disposition of the Department’s Excess Facilities, 

DOE/IG-0550 (Washington, D.C.: Apr. 3, 2002) 

30 U.S. General Accounting Office, VA Health Care: Closing A Chicago Hospital Would 

Save Millions and Enhance Access to Services, GAO/HEHS-98-64 (Washington, D.C.: Apr. 

16, 1998). 

31 U.S. General Accounting Office, Financial Condition of Federal Buildings Owned by 

the General Services Administration, unnumbered correspondence (Washington, D.C.: 

Aug. 8, 2002). 
Page 18 GAO-03-609T 

also in need of repair, disposing of such unneeded property could reduce 

the repair backlog. And finally, the cost of securing unneeded assets 

against the threat of terrorism, in addition to being significant, will use 

funds that likely could have been directed to realignment and repair 

efforts for properties that the government determines it should retain. 

As discussed in our high-risk report, resolving these long-standing 

problems will require high-level attention and effective leadership by 

Congress and the administration. Also, because of the breadth and 

complexity of the issues involved, the long-standing nature of the 

problems, and the intense debate that will likely ensue regarding potential 

solutions, current structures and processes may not be adequate to 

address these problems. Given this situation, we concluded in our highrisk report that there is a need for a comprehensive and integrated 

transformation strategy for federal real property, and an independent 

commission or governmentwide task force may be needed to develop this 

strategy. Such a strategy could be based on input from agencies, the 

private sector, and other interested groups. The strategy also should 

reflect the lessons learned and leading practices of public and private 

organizations that have attempted to reform their real property practices. 

These organizations have recognized that real property, like capital, 

people, technology, and information, is a valuable resource that, if 

managed well, can support the accomplishment of their missions and the 

achievement of their business objectives. In addition, as these 

organizations are recognizing, the workplace of the future will differ from 

today’s work environment. 

For the federal government, technological advancements, electronic 

government, flexible workplace arrangements, changing public needs, 

opportunities for resource sharing, and security concerns will call for a 

new way of thinking about the federal workplace and the government’s 

real property needs. Realigning the government’s real property assets with 

agency missions and taking into account the requirements of the future 

federal role and workplace will be critical to improving the government’s 

performance and ensuring accountability within expected resource limits. 

If actions resulting from the transformation strategy comprehensively 

address the problems and are effectively implemented, agencies will be 

better positioned to recover asset values, reduce operating and space 

acquisition costs, improve facility conditions, enhance safety and security, 

and achieve mission effectiveness. 
Page 19 GAO-03-609T 

For questions regarding this testimony, please contact Bernard L. Ungar at 

(202) 512-2834 or at ungarb@gao.gov. Contact 

(543055)