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51–017 PDF 2009

EVALUATING GSA’s FIRST EXPERIENCE 

WITH NATIONAL BROKER CONTRACTS 

(111–48) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND 

EMERGENCY MANAGEMENT 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

July 15, 2009 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ARCURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SOLOMON P. ORTIZ, Texas 

PHIL HARE, Illinois 

JOHN A. BOCCIERI, Ohio 

MARK H. SCHAUER, Michigan 

BETSY MARKEY, Colorado 

PARKER GRIFFITH, Alabama 

MICHAEL E. MCMAHON, New York 

THOMAS S. P. PERRIELLO, Virginia 

DINA TITUS, Nevada 

HARRY TEAGUE, New Mexico 

VACANCY 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

VERNON J. EHLERS, Michigan 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

CONNIE MACK, Florida 

LYNN A WESTMORELAND, Georgia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

ROBERT E. LATTA, Ohio 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

AARON SCHOCK, Illinois 

PETE OLSON, Texas 

(II) 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY

MANAGEMENT

ELEANOR HOLMES NORTON, District of Columbia, Chair 

BETSY MARKEY, Colorado 

MICHAEL H. MICHAUD, Maine 

HEATH SHULER, North Carolina 

PARKER GRIFFITH, Alabama 

RUSS CARNAHAN, Missouri 

TIMOTHY J. WALZ, Minnesota 

MICHAEL A. ARCURI, New York 

CHRISTOPHER P. CARNEY, Pennsylvania, 

Vice Chair 

DONNA F. EDWARDS, Maryland 

THOMAS S. P. PERRIELLO, Virginia 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

MARIO DIAZ-BALART, Florida 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

MARY FALLIN, Oklahoma 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

PETE OLSON, Texas 

(III) 

(V) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... vi 

TESTIMONY 

Goldstein, Mark L., Director, Physical Infrastructure Issues, U.S. Government 

Accountability Office ............................................................................................ 5 

Morris, III, Samuel ′′Chip,′′ Assistant Commissioner, Office of Real Estate 

Acquisition, U.S. General Services Administration, Public Buildings Service .......................................................................................................................... 22 

O’Brien, Regina, Principal Deputy Assistant Inspector General, U.S. General 

Services Administration ...................................................................................... 11 

Rayfield, Julie, Senior Managing Director, Studley, Inc. ..................................... 39 

Roth, Christopher, Regional Director, Jones Lang Lasalle, and Project Manager, National Broker Contract .......................................................................... 39 

Veltsistas, CB, Demetra ′′Debbie,′′ Richard Ellis National Broker Account 

Team Leader ......................................................................................................... 39 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Carnahan, Hon. Russ, of Pennsylvania ................................................................. 55 

Mica, Hon. John. L., of Florida ............................................................................... 56 

Norton, Hon. Eleanor Holmes, of the District of Columbia ................................. 61 

Oberstar, Hon. James L. of Minnesota .................................................................. 64 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Goldstein, Mark L. ................................................................................................... 66 

Morris, III, Samuel ′′Chip′′ ...................................................................................... 98 

O’Brien, Regina ........................................................................................................ 122 

Rayfield, Julie .......................................................................................................... 125 

Roth, Christopher .................................................................................................... 134 

Veltsistas, CB, Demetra ′′Debbie′′ .......................................................................... 140 

SUBMISSIONS FOR THE RECORD 

Morris, III, Samuel ′′Chip,′′ Assistant Commissioner, Office of Real Estate 

Acquisition, U.S. General Services Administration, Public Buildings Service, 

responses to questions from the Subcommittee ................................................. 105 

vi 


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vii 


Insert offset folio 2 here 51017.002
viii 


Insert offset folio 3 here 51017.003
ix 


Insert offset folio 4 here 51017.004
(1) 

HEARING ON EVALUATING GSA’S FIRST EXPERIENCE WITH NATIONAL BROKER CONTRACTS 

House of Representatives, 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS AND EMERGENCY MANAGEMENT, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, WASHINGTON, DC. 

The Subcommittee met, pursuant to call, at 10:09 a.m., in Room 

2167, Rayburn House Office Building, Hon. Eleanor Holmes Norton 

[Chair of the Subcommittee] presiding. 

Ms. NORTON. Good morning. This hearing is being conducted as 

one of several hearings to meet the oversight requirements under 

Clause 2(n), (o) and (p) of Rule XI of the Rules of the House of Representatives. 

Welcome to today’s hearing on the National Broker Contracts. 

Today, we will examine whether the National Broker Contract provides a tool to meet its statutory obligation to procure commercial 

service for Federal agencies and whether the contract has had benefit for the taxpayers. We also will hear suggestions for improving 

the contract. We begin with some background concerning GSA’s decision to include private brokers. 

Many of the services of the Public Buildings Service, or PBS, 

within GSA have private sector counterparts such as leasing, property management, and property maintenance. In response to President Reagan’s Reform 88, the Agency contracted out virtually all 

its property management operations. GSA has also contracted out 

its engineering and architectural requirements, as well as interior 

design and space planning services. 

During the mid-1990s, GSA engaged Arthur Andersen to conduct 

an exhaustive feasibility analysis of contracting out even the leasing function. The Agency did quite well in the comparative analysis 

with only a few administrative leasing functions identified as potential for further review for contracting. The Arthur Andersen report concluded, commercial broker is competitively priced; it will 

would be more costly to privatize and should be retained in house. 

However, concurrent with the contracting-out trend governmentwide, OMB reduced full-time equivalents, or FTEs, in all agencies. 

Consequently, as employees retired, OMB eliminated these FTE 

positions. 

During the late 1980s and early 1990s, PBS lost many of its veteran employees who had come into government in the 1960s, inspired by President Kennedy’s call to public service. Although there 

was no empirical evidence to support contracting out of leasing, the 

2 

Agency now found itself caught between a requirement to contract 

out a certain number of positions on the one hand and fewer inhouse personnel to conduct leasing activities on the other. Thus, in 

1997, the Agency signed a series of regional broker contracts to 

provide limited leasing services. These contracts were meant to assist the in-house leasing specialists, not to replace them. 

In December, 2002, the Office of Inspector General issued a review of PBS use of brokerage contracts for lease acquisition services. A special interest of the IG was the use of rebates and zerodollar task orders where payment for leasing service rendered was 

expected to come from landlord or property owners signing the 

lease and not from GSA-controlled funds. 

The IG’s report contained information from the GSA’s Office of 

General Counsel, which identified two serious issues: one, the obvious potential for a conflict of interest between the government’s interest in receiving the best value and the broker’s interest in receiving the highest compensation; and, two, the problem of possible 

illegal augmentation presented by allowing brokers to be compensated by anyone other than GSA for services provided. 

The GSA General Counsel requested an opinion from the General Accounting Office regarding the compensation issues. The 

GAO issued its opinion on August 25, 2003, and concluded, and I 

am quoting, ′′GSA may enter into proposed contracts with real estate brokers without augmenting its appropriation.′′ However, GAO 

acknowledged, again quoting, ′′GSA’s submission indicates a possible conflict of interest between the government’s getting the best 

value and the broker’s interest in getting the highest commission.′′ 

GSA proceeded to put together a National Broker Contract. 

Today, GSA leases 177.5 million rentable square feet of space 

and almost 7,100 leased properties, now slightly exceeding GSA’s 

own space. Thus, leasing, along with some Federal construction, is 

clearly a core function of GSA. 

Contracting out this activity through the National Broker Contract has brought about a profound change within the Agency and 

one of the most significant changes since it was established in 

1949. This approach raises concerns because the Agency has no 

fallback or reserve position of realty specialists, and limited recruitment and training funds today for these critical positions leaves 

the government with no alternative except to use these national 

contracts for a core function of the Public Buildings Service of the 

United States Government. For this reason, the Subcommittee has 

a special obligation to look closely at the existing experience with 

broker contracts to see if improvements are necessary. 

The National Broker Contract is a competitively bid contract that 

augments services provided by PBS and allows PBS to outsource 

broker services for leases for Federal agencies. In addition, the contract allows brokers to be paid the usual broker fee instead of being 

paid by appropriations. The GSA Office of General Counsel further 

determined that it is permissible for GSA to accept a rebate from 

the tenant brokers and to credit that amount to the lease. 

The original contract was awarded October 4, 2004, to four companies. The contracts were awarded as 1-year base contracts with 

an option of annual renewal for up to 5 years. The current contract 

will expire in March 31, 2010. The GSA is currently preparing the 

3 

solicitation for the reissue of this contract. Therefore, it is important that this Subcommittee conduct oversight and address the 

concerns initially presented by the National Broker Contract by the 

GSA Inspector General and the General Accounting Office. 

We must review the GSA’s rationale for the decision to place a 

core GSA Public Buildings Service function in the private sector. 

We need to determine if the financial and management systems are 

in place for GSA properly to administer the National Broker Contract. We must scrutinize the assumptions used to justify the Agency’s decision to contract out leasing service. We must understand 

how GSA has addressed conflicts of interest with brokers that both 

own and market buildings to Federal agencies. 

If GSA believes it is in the best interest of not only of the government but of taxpayers to have the private sector solely responsible 

for providing leased space for the government, GSA must explain 

and justify its own relationship to agency leasing. If GSA is anything more than a bureaucratic middleman between Federal agencies and brokers, why GSA be in the leasing process at all? 

There are a myriad of issues that need to be examined in the National Broker Contract process so that this Subcommittee can be 

confident that the contract properly shields taxpayers from waste 

and abuse and provides real value to taxpayers that would otherwise not be realized. 

I look forward to hearing from all concerned parties on this important issue and appreciate their testimony. 

I am pleased to ask our Ranking Member, Mr. Diaz-Balart, if he 

has any opening remarks. 

Mr. DIAZ-BALART. Thank you, Madam Chairwoman. Thank you 

for the opportunity. 

As you well stated, we are reviewing the National Broker Contract program, which adds value to GSA’s broad lease programs 

and generates savings to the taxpayers, which is always a welcome 

thing in the Federal Government. This program does meet critical 

needs for GSA and has shown that the commission-based contracts 

are saving hundreds of millions of dollars and that potential conflicts of interest can be managed effectively, which obviously is key. 

As the current contract is slated to expire next year, it will obviously be important to GSA’s leasing program to ensure that the 

National Broker Contracts are reviewed in a timely fashion. I also 

hope that we can examine potential areas of improvement. There 

are obviously always places where we can add value to contracts. 

Now, because of the significant amount of leased space that the 

Federal Government utilizes, it is critical that we ensure that the 

government secures the best lease rates possible. And as I think 

you stated, GSA began a contract for services to help carry out 

those leasing functions in 1997. 

Now, there have been some growing pains obviously, and because 

of that, in response to concerns raised about this early lease part 

of the program by the inspector general and others, GSA developed 

a National Brokers Contract program. That contract began in 2005 

with a 1-year renewable option up to 5 years, and that is the current situation. 

That current contract will expire next year. 

4 

The National Brokers Contract program meets the need of the 

GSA, and it has demonstrated that it creates savings to the taxpayers. There is just no debating that. The contracts are no-cost 

contracts for the government. How often do you hear of that? The 

firms are paid commission by the building owners and only if the 

lease is approved and signed by GSA. These firms also add value 

by providing post-award services like the management of tenant 

improvements, for example, and add no additional cost to either 

GSA or to the tenant agency. 

In addition, the leases negotiated by the brokers have resulted 

in leases nearly 11 percent below market rental rates. I think that 

bears repeating: 11 percent below market rental rates, which is exceeding the GSA’s original goal of 9.25. So that is direct savings to 

the taxpayers, which I think is obviously one of the key components we should always look for. 

And since the beginning of the contracts, the Federal Govern- ment has realized more than $155 million in rebates, actual rebates, from the brokers. And even in the Federal Government’s 

standards, I think $155 million is real money. 

With over half of the Federal workforce now in leased space—unfortunately, because we wish it wasn’t; and that’s something that 

the Chairwoman and I clearly have a frustration with, but that’s 

just a fact—the savings and rebates can again potentially save taxpayers hundreds of millions of dollars. 

As is the case in any contracting arrangement, oversight, proper 

oversight, and management are obviously necessary; and that is 

something that I know that our distinguished Chairwoman is—that 

is something that she is very concerned about. 

Now, the program does have significant safeguards to ensure accountability, and accountability is something that I have dedicated, 

frankly, in my life in public service towards trying to work for. The 

brokers must carry out their responsibilities in accordance with 48 

laws. Now, there is efficiency for you: 48 laws, regulations, executive orders, and procedures related to procuring leased space for 

government agencies. There is something we should probably look 

at for some efficiencies. 

Currently each task order is validated by GSA realty specialists 

at six milestones during the leasing process. In addition, the work 

of the national brokers is reviewed on a quarterly basis by the GSA 

at the regional and the central office level, and the brokers are required by contract to adhere to very strict fire walls and other requirements to ensure that there are no conflicts of interest or sharing of sensitive information, which obviously is something we 

should all be concerned about. But there are very, very strict fire 

walls in place. 

I do understand obviously that there are always areas, as I said 

before, that can be improved; and that is always good to look for. 

For example, I think one of the frustrations is GSA’s internal processes for initiating a lease acquisition and for final sign-off of a 

lease completed by a broker. That process is very slow and cumbersome, and frankly it creates bottlenecks at the beginning and 

end of the process; and we should look at ways to streamline that, 

if possible. Finding ways to accelerate this process would maximize 

the value added by these broker contracts. 

5 

Again, obviously, we should always look for ways to improve anything that government does, because government usually has a 

long way to go. But this program, I think it is pretty evident is a 

win-win, a win-win for everybody. 

Again, as I said, these contracts meet very important needs for 

the Federal Government, and the government benefits and the taxpayer benefits from the expertise and the experience of these firms. 

There are no up-front costs to GSA in the commission, and the 

commissions are only paid when a lease is signed. 

Again, these are things that, frankly, other government agencies 

should be looking at to try to emulate. 

The program has allowed GSA to better leverage its staff and its 

in-house personnel and has resulted in savings, real savings, including actual rebates to the government and to the taxpayers. 

So, again, I believe that this has been shown to be an effective 

program, and I look forward to the program continuing in the years 

to come. 

I want to particularly thank the witnesses for your time, for 

being here today. I look forward to hearing from you today about 

this important program. 

And with that, Madam Chair, I would yield the remaining of part 

of my time. 

Ms. NORTON. Thank you very much. 

I want to ask Mr. Cao if he has an opening statement of any 

kind. 

Mr. CAO. No, Madam Chairwoman. I don’t have any opening 

statements. Thank you very much. 

Ms. NORTON. Thank you, Mr. Cao. 

The first witness is Mark Goldstein, Director of Physical Infrastructure of the GAO, or General Accountability Office. 

You may proceed, Mr. Goldstein. 

TESTIMONY OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL 

INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. GOLDSTEIN. Thank you, Madam Chair and Members of the 

Subcommittee. I welcome the opportunity to provide this update in 

our recent work on issues that led us to designate Federal real 

property as a high-risk issue. 

In January, 2003, GAO designated Federal real property as a 

high-risk issue because of longstanding problems with excess in underutilized property, deteriorating facilities, unreliable real property data, over-reliance on costly leasing, and security challenges. 

In January, 2009, GAO found that agencies have taken some 

positive steps to address real property issues, but that some of the 

core problems that led to the designation of this area as high risk 

persist. 

This testimony focuses on, one, the progress made by major realproperty-holding agencies to strategically manage real property, ongoing problems GAO has identified in recent work regarding agencies’ efforts to address property issues, and underlying obstacles we 

have found through prior work that hamper agencies’s real property reform efforts government-wide. 

6 

To summarize, number one, OMB and real-property-holding 

agencies have made progress in strategically managing real property. In response to an administration reform initiative and related 

executive order, agencies have, among other things, established 

asset management plans, standardized data, and adopted performance measures. According to OMB, the Federal Government disposed of an excess of real property valued at $1 billion in fiscal 

year 2008, bringing the total of over $8 billion since fiscal year 

2004. 

OMB also reported success in developing a comprehensive database of Federal real property assets and implemented GAO recommendation to improve the reliability of the data in this database 

by developing a framework to validate these data. 

GAO also found that the Veterans Administration has made significant progress in reducing underutilized space. In another report 

GAO found that six agencies reviewed have processes in place to 

prioritize maintenance and repair items. 

The second point: While these actions represent positive steps, 

some of the longstanding problems that led GAO to designate this 

area as high risk persist. Although GAO’s work over the years has 

shown that building ownership often costs less than operating 

leases, especially for long-term space needs, in 2008 the General 

Services Administration, which acts as the government’s leasing 

agent, leased more property than it owned for the first time. 

Given GSA’s ongoing reliance on leasing, it is critical that GSA 

manage its leasing activities effectively. However, in January, 

2007, GAO identified numerous areas that warranted improvement 

in GSA’s implementation of four contracts for national broker services for its leasing program. 

GSA has implemented seven of GAO’s 11 recommendations to 

improve these contracting efforts. Although GAO is encouraged by 

GSA’s actions on these recommendations, we have not evaluated 

their impact. Moreover, in recent work, GAO has continued to find 

that the government’s real property data are not always reliable, 

and agencies continue to retain excess property and face challenges 

from repair and maintenance backlogs. 

Regarding security, GAO testified just last week that preliminary 

results showed that the ability of the Federal Protective Service, 

which provides security services for about 9,000 GSA facilities, to 

protect Federal facilities is hampered by weaknesses in its contract 

security guard program. Among other things, GAO investigators 

carrying the components for an improvised explosive device successfully passed undetected through security checkpoints monitored 

by FPS’s guards at 10 Federal facilities. 

Third, as GAO has reported in the past, real property management problems have been exacerbated by deep-rooted obstacles 

that include competing stakeholder interests, various budgetary 

and legal limitations, and weaknesses in agencies’ capital planning. 

While reforms, to date, are positive, the new administration and 

Congress will be challenged to sustain reform momentum and 

reach consensus on how such obstacles should be addressed. 

Madam Chair, this concludes my prepared statement. I would be 

happy to respond to questions that you and Members of the Subcommittee have. Thank you. 

7 

Ms. NORTON. I want to thank you, Mr. Goldstein, for your work, 

your consistent work with this Subcommittee. 

You mentioned in your testimony that real estate management 

has developed into a high-risk—real estate management has developed in a high-risk series. How has this happened? How and why 

has this happened? 

Mr. GOLDSTEIN. Madam Chair, in our work since 2003, and the 

reason why we put Federal property on the high-risk list, we found 

five major areas that required further scrutiny based on the work 

we were doing. 

First of all, we found that there were large amounts of excess 

and underutilized property, vacant property, underutilized property, millions upon millions of square feet of property that was not 

being effectively utilized and managed for the government. 

Ms. NORTON. This is in owned property? 

Mr. GOLDSTEIN. That is correct—across the government. And it 

costs a lot of money obviously to maintain and secure the space, 

particularly if it is not being used. 

Ms. NORTON. The GSA doesn’t manage the VA, does it? 

Mr. GOLDSTEIN. Well, GSA—most VA space is on its own. But 

just as one example: One VA report that we did recently showed 

that they were spending $145 million a year to maintain property 

that was underutilized. 

Ms. NORTON. But in office buildings that GSA owns? It is one 

thing—I wish we had, GSA had some of the authorities of the Veterans Administration. 

With owned property of the Federal Government that GSA manages, you find—— 

Mr. GOLDSTEIN. There is a considerable amount of underutilized 

and vacant space; that is correct. 

Ms. NORTON. You mean vacant space? 

Mr. GOLDSTEIN. Vacant space and a good deal of underutilized, 

that is correct. The amount of it has varied over the years. 

Ms. NORTON. Is that sufficient repairs and—— 

Mr. GOLDSTEIN. That is a separate issue that we categorize. 

Of the five issues, there is the underutilized vacant space, there 

is the growing backlog of maintenance and repairs, unreliable property data, reliance on expensive leasing, as you pointed out, and 

then the security challenges. Those are the five reasons. 

Ms. NORTON. All right. Reliance on expensive leasing may be 

something they can’t do anything about because they don’t have 

owned space. 

Mr. GOLDSTEIN. Maybe not in the capital in any 1 year, as you 

know, to deal with that. 

Ms. NORTON. Is there significant monitoring of the broker contract that is now essentially completely contracting out leased 

space? 

Mr. GOLDSTEIN. When we did our work on the brokers program 

initially, we issued our report in early 2007. We did our audit between the middle of 2004 and the middle of 2006. At that point in 

time, we found three major problems. We found problems regarding 

conflict of interest, problems regarding compliance with the Federal 

Information Security Management Act requirements, and problems 

regarding program implementation and evaluation. 

8 

Ms. NORTON. How do you do—explain to us the notion of a fire 

wall if the same company is the brokerage company and ceasing to 

lease to the Federal Government? Is there an effective fire wall—— 

Mr. GOLDSTEIN. There should be protections in place that would 

prevent—— 

Ms. NORTON. Such as? 

Mr. GOLDSTEIN. If you are going to have the same company, you 

need to have different individuals handling each side. 

Ms. NORTON. That is minimal. That almost is fraud if the same 

person is handling—— 

Mr. GOLDSTEIN. But that needs to be stated. You need to 

have—— 

Ms. NORTON. Are you found that, that it was the same person 

that was handling—— 

Mr. GOLDSTEIN. We did not. 

But, Madam Chairwoman, when we did our work, it was very 

early on in this contract, so there weren’t enough task orders that 

had been completed for us to really evaluate. 

Ms. NORTON. Were there any rules set up for how to avoid—— 

Mr. GOLDSTEIN. They did have conflict of interest rules set up. 

We asked them to put in some additional rules based on the contract, which they—they declined to add to the contract some additional rules, but they did put in some additional rules. We have not 

gone back to see if the additional rules have made a difference. 

Ms. NORTON. We have other witnesses who are in a better position to comment on that. 

Now, the Ranking Member makes the case that we save hundreds of millions of dollars—I am quoting you, Mr. Diaz-Balart. He 

doesn’t offer the evidence yet, but I think he is making a kind of 

commonsense notion that if you get somebody else to do it, you are 

not spending the money. 

We are spending hundreds of millions of dollars through the 

broker contract; is that correct. 

Mr. GOLDSTEIN. At the time of our audit, Madam Chair, the GSA 

was not in a position to quantify any of the savings. 

Ms. NORTON. I mean, somebody has got to be paid or it passes 

on to the Agency. 

Let me ask you, because GAO may be in a better position to do 

this: Could you say for the record what the difference between cost 

avoidance and true savings is. 

Mr. GOLDSTEIN. I mean, I think cost avoidance in this instance 

would be money that the government could save if they didn’t have 

to pay for these particular items. However—— 

Ms. NORTON. So the government includes not only GSA, but obviously the Agency. 

Mr. GOLDSTEIN. Sure. 

Ms. NORTON. Somebody is going to pay for it. I want to know 

how at the bottom line the government is saving money. It is one 

thing to say this is more efficient. It is one thing to say it should 

be done. But on this Committee and on the Oversight Committee, 

over and over again, we have heard notions never shown to be 

true—I must tell you, never shown to be true—that contracting out 

actually produced savings. 

9 

I am for anything that saves the government money in the state 

we are in. I am for that. And this would seem to be a perfect example, to try to show savings. And some say that there are savings. 

I have never understood the notion of savings. When the price— 

the reason that the airlines—let’s take an industry that is in particular trouble, hates it when we require them to do anything. It 

is not that they hate paying it. They know they are going to pass 

it on to me when I get on the airlines. I went to Martha’s Vineyard 

for the first time, and I had to pay 25 bucks for my bag. I didn’t 

have to pay last summer; I had to pay this summer. 

Now, the airlines aren’t bleeding for me. They want to make sure 

as many people take the airplane to go. So I have got to understand this notion that there is something at the bottom line called 

′′savings,′′ and I would like you to indicate whether, even theoretically, you can see that there would be savings and not costs simply 

passed on as perhaps they would be passed on if the government 

were doing the service. 

Mr. GOLDSTEIN. It is hard for me to say, ma’am. We did not look 

at the contracts from a perspective of—— 

Ms. NORTON. Do you think that could be figured out, that notion, 

that claim could be tested so that we would have some sense, when 

we contract out the government, whether there are savings or 

whether we are doing it for some other purpose? 

I don’t mind if we are doing it for some other purpose. I mind 

someone throwing it in my face that we are saving some money 

and not showing me the bottom line where the savings are. 

Mr. GOLDSTEIN. So, at the time of our work, they have not been 

able to quantify savings. 

Ms. NORTON. I think Mr. Diaz-Balart is anxious to quantify savings so—— 

Mr. DIAZ-BALART. Madam Chairwoman, I think you are, frankly, 

hitting a very important issue. 

I do have from GSA an update through May, 2009, which we 

have some notes on, so we have to clean it up, but we will submit 

it for the record later if that is something that you would want to 

pursue. 

Ms. NORTON. So ordered. 

Mr. DIAZ-BALART. Thank you. And if you would allow me to clean 

it up first and take away all the notes. 

But according to GSA, again, which has an update through 2009, 

in actual rent savings for 216 leases, there are—I guess in the 

pipeline there are over 2,000 leases that are potentially—we could 

continue to find savings on. But just 216 leases. And in actual annual rent savings, it is $10.4 million, but—— 

Ms. NORTON. Will the gentleman yield for a moment? 

Mr. DIAZ-BALART. Of course. I am sorry. 

Ms. NORTON. Annual rent savings, parenthesis, cost avoidance? 

Mr. DIAZ-BALART. Correct. 

Ms. NORTON. I was seeking to see the difference there, and 

maybe GSA can point that out, but that is the problem I have. 

Mr. DIAZ-BALART. Absolutely. No. And I agree with you. I think 

where you are going is key. I think GSA might be able to get us 

some more updated numbers because, according to their estimates 

10 

and numbers, then we actually have, I guess, cash in hand from 

rebates. Right now, there is, what, $58.5 million. 

And then the estimate—there is an estimate, credits for the 

1,225 active task orders could be $97 million. So the total estimate 

of commission credits for all those task orders are $155.6 million 

according to GSA. 

Now, these are questions we need to ask GSA to see if these 

numbers are accurate. But I like where you are going. I think the 

GSA might have some good numbers there. 

Ms. NORTON. Thank you very much because you point out a very 

significant document that we—you are right, we need to reconcile. 

Would you recommend the broker contract continue, Mr. Goldstein? Indeed, why did the GAO include the GSA real estate program? 

I believe you believe that it was—that an earlier report believed 

it was fair to do broker contracts; isn’t that the case? 

Mr. GOLDSTEIN. GAO has never taken a policy decision, a policy 

role, one way or another on a position—on whether this program 

ought to exist as a contracted program or inside the government. 

Our position for any of these kinds of programs tends to be that 

if they are well managed and executed—— 

Ms. NORTON. You mentioned that OMB is using GAO’s leasedversus-owned analysis to establish what you call a road map for future action. What are you referring to? 

Mr. GOLDSTEIN. What we are referring to there is, as you know, 

for many years GAO has been concerned about the cost of leased 

versus owned property and that owned property is usually a better 

deal for the government. 

So this isn’t specifically related to the broker program itself in 

its contracting out, but we have provided our analyses of leasedversus-owned considerations; and OMB is re-examining some of 

those issues and recognizes that the government, long term, could 

save money in most cases by reducing the amount of property that 

it leases. So it is taking a look at that and is hoping to come up 

with its own recommendations. 

Ms. NORTON. The government—and the President put in his 

budget—bought a building, the first time, I think, since I have been 

on this Subcommittee that the government plopped down some 

money, taking an advantage on an option to buy. 

Mr. GOLDSTEIN. For the last 20 years we have made recommendations with respect to leased versus owned, but the administrations have tended not to do very much in this area. We are 

hopeful that the new administration might. 

Ms. NORTON. Mr. Goldstein, looking again at your testimony on 

page 8, you mention that the GSA waived the prohibition against 

dual-agency broker firms in order to increase competition. 

Now, has GAO done any analysis to determine whether the waiver did increase competition? What is the theoretical basis for that 

waiver to increase competition? 

Mr. GOLDSTEIN. I think the point we were making was that in 

issuing the waiver, they allowed more firms to be able to participate than if they had not. We have not done any empirical analysis, but clearly, since so many firms are dual—you know, repVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
11 

resent more than one—it is clear that that has made it easier for 

many more players to be involved and, therefore, add competition. 

Ms. NORTON. In considering whether the waiver made sense, one 

would have to do some version of a cost-benefit analysis, that is to 

say, increase competition and also increase conflict of interest possibility or potential. 

Mr. GOLDSTEIN. That is right. You have to balance the increased 

competition against—— 

Ms. NORTON. You would have to make sure that your conflict of 

interest rules insured the government? 

Mr. GOLDSTEIN. Yes, ma’am. 

Ms. NORTON. Of course, we will have to see if that happened. 

I thank you very much, Mr. Goldstein, for your very helpful testimony, as always. 

Mr. GOLDSTEIN. Thank you, ma’am. 

Ms. NORTON. And I would like to call the next witness, Regina 

O’Brien, Principal Deputy Assistant Inspector General of the General Services Administration. 

TESTIMONY OF REGINA O’BRIEN, PRINCIPAL DEPUTY ASSISTANT INSPECTOR GENERAL, U.S. GENERAL SERVICES ADMINISTRATION 

Ms. O’BRIEN. Thank you, Madam Chair. I am pleased to appear 

here today to discuss the General Services Administration’s National Broker Contracts. We are currently working on an audit report in this area. 

In my testimony, I will briefly summarize our major observations 

to date. These focus on three areas: first, whether anticipated savings from using the brokers were realized; second, contract utilization; and third, issues that need to be addressed as GSA prepares 

to replace these contracts that expire March 31, 2010. 

Leasing is critical to GSA’s ability to satisfy tenant housing 

needs, and leased space now comprises 51 percent of GSA’s real 

property portfolio. From April, 2005, the start of the National 

Broker Contract, through the 40-month period ending July 31, the 

brokers have negotiated a total of 711 leases. 

In 2003, GSA presented a business case in support of commission-based National Broker Contracts. It argued that in addition to 

providing critical support to a thinly stretched in-house staff, the 

incentives created by commission-based compensation would actually lower the cost of acquiring leased space. This cost savings was 

to be accomplished through, first, an offset to rent as a result of 

the brokers turning over a portion of their commission to the government, referred to as commission credit; second, reduced rental 

rates attributable to the broker’s superior market knowledge and 

expertise; and third, lower overhead in the form of reduced administrative and personnel costs. 

The audit found that while some of the data for these areas are 

quantifiable, others are more ambiguous. First, the commission 

credits are quantifiable. Through July, 2008, commission contracts 

totaled $44 million, or approximately 1.3 percent of the value of the 

leases the brokers negotiated. 

Secondly, as to whether brokers obtained more favorable rental 

rates than in-house staff, the limited number of broker transactions 

12 

at the time of our audit and imprecise market data precluded a definitive answer. However, the audit did find that, at best, the data 

can support that the brokers are achieving results similar to GSA’s 

realty specialists. 

Lastly, as to lower administration and personnel costs, our analysis indicated that contract administration is resource intensive 

and that the number of realty specialists actually increased over 

the first 3 years of the contract by 11 percent. 

The GSA business case also envisioned movement towards an almost completely outsourced lease acquisition process. This is not 

occurring. GSA’s goal was to give 50 percent of the expiring lease 

workload to the brokers in the first year, culminating in 90 percent 

by the end of the contracts. GSA reports that it reached the 79 percent mark in fiscal year 2008; we found a significantly lower usage, 

closer to 33 percent. The point here is not the exact number, but 

why different views of the workload can occur and what this means 

for the future efforts. 

Over the course of the contracts, GSA changed the basis on 

which it measures utilization. It now excludes about half of its expiring leases from the universe of broker tasks because either the 

leases are not likely to yield a commission, are noncommissionable 

or otherwise not suitable as a broker task. Even if brokers were 

tasked with 100 percent of commissionable work, a substantial 

workload remains. 

I would also like to highlight four areas that GSA should consider as it moves forward to the next generation of broker contracts. First, there needs to be a clearer expectation of the work to 

be performed under the contract. The brokers expressed to us that 

the post-award exceeds usual and customary practices for commission-based commercial services. In further refining broker tasks, 

consideration should be given to what is expected in performing 

these post-award tasks. 

Second, while the contracts provide lease acquisition services, 

they also interject new risks to be managed. Foremost among these 

risks is improper disclosure of procurement-sensitive data. GSA 

has taken many steps to prevent such disclosure. A key control is 

that GSA requires both the broker company and individual broker 

employees to notify it in writing for each task order whether any 

conflicts of interest exist. The audit found that while the majority 

of organizational forms were provided to GSA are about 92 percent, 

only 65 percent of the individual forms were provided. 

Third, the broker performance evaluation process is complex and 

cannot provide results in time to facilitate performance-based 

tasking. While the projects are evaluated at different points in the 

acquisition process, key performance indicators are not available 

until the end of the procurement, which frequently takes over a 

year. The evaluation of the brokers’ negotiated rental rate, compliance with subcontracting plans and customer satisfaction are by 

necessity done at the end. 

Further, a sufficient pool of task orders is needed to compare performance among brokers, and this is not available until several 

years into the contract period. 

Finally the eLease system, GSA’s electronic leasing application, 

needs to better support workflow and analysis. A few of the critiVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
13 

cisms noted during the audit were that there were delays in getting 

the broker access to the system, report generation capabilities were 

not functional, and eLease does not interact with other GSA systems. 

GSA continues to make improvements to eLease, but what the 

audit found was that not all the information is put into the system 

and that the paper file is still the official file. 

Thank you for your attention, and I ask that my statement be 

made part of the record. I would be pleased to respond to any questions from the Subcommittee. 

Ms. NORTON. Thank you very much, Ms. O’Brien. 

Would you indicate what the IG’s criticism was, precisely, of the 

regional broker contracts that were used in the late 1990s? 

Ms. O’BRIEN. The report that we issued in 2002 dealt with the 

zonal contracts. There were four zonal contracts, and in addition to 

zonal contracts, there were regional contracts; and I think they 

numbered approximately—I don’t know—20 to 25. 

What we saw was a conglomeration of methodologies to award 

broker tasks, and we had some underlying concerns about the 

funding mechanisms and the potential for violation of appropriation law. 

Ms. NORTON. Was it the IG’s recommendation that the PBS enter 

into the national contract to solve these deficiencies in particular? 

Ms. O’BRIEN. No. Our recommendation was that they go back 

and reevaluate how they administer these types of contracts. It is 

totally management’s decision as to whether they go out and acquire other contracts or not, but the collection of contracts that 

they had at the time were not well administered or managed. 

Ms. NORTON. We have found in some circumstances that there 

needed to be more work done from Washington, but that apparently was not the case with the regional contracts that were closer 

to the ground. 

Is it not true that the regional brokers got a better deal than the 

National Broker Contract? 

Ms. O’BRIEN. Are you referring to the rental rates? I am not 

quite sure what advantage you are addressing in your question. 

Ms. NORTON. I am referring to their own understanding of their 

regional market, of their familiarity with the tenants, with the 

area. I am trying to see what was the advantage of the National 

Broker Contract over the regional contract. 

Ms. O’BRIEN. The advantage of the National Broker Contract 

over the regional contracts was supposed to be that there would be 

better or more centralized administration of the contracts, that you 

wouldn’t have variation from region to region in your approach to 

the lease acquisition. 

And what GSA did when it went from the zonal and regional 

contracts to the national contracts is, they went through their lease 

acquisition process, and to the extent that they standardized it, 

they standardized it. 

They also standardized the administration of these contracts, 

which was not true in the prior generation of contracts. You could 

have the same company working under different contracts and approaching things differently. 

14 

Ms. NORTON. So there is not a proven advantage of one or the 

other? There may be a management value added? 

Ms. O’BRIEN. Right. 

Ms. NORTON. Let me ask you about something in your testimony 

about the audits. The audits did find that, at best, the data can 

support the brokers are keeping results similar to GSA’s realty specialists. I think this is your first page? 

Ms. O’BRIEN. Yes. 

Ms. NORTON. Lastly, as to lower administration and personnel 

costs, I am quoting your testimony, ′′Our analysis indicates that 

contract administration is resource intensive and that the number 

of realty specialists actually increased over the first 3 years of the 

contract by 11 percent.′′ 

So there is a tradeoff of realty specialists doing line leasing to, 

really, specialists doing now administrative contracting work and 

actually increasing the number, when we would have thought there 

would have been a decrease in the number, at least of those kinds 

of specialists. 

It looks like we made a new bureaucracy there of people with the 

expertise, with their administering contracts for others to do the 

work. 

Ms. O’BRIEN. Well, the administration of the broker contract is 

definitely resource intensive. We were not able to quantify that. 

Ms. NORTON. Would you explain what you mean by that. 

Ms. O’BRIEN. Okay. Initially, GSA had it set up so that there 

were about 17 different points at which, you know, GSA personnel 

would evaluate the brokers’ work. There are a lot of points where 

GSA has to review or prove milestones, negotiation objectives, you 

know, the summarization of the best offers. There are lots of different points that GSA has—— 

Ms. NORTON. Let me stop you there, because you also say, and 

I understand it, as you list your issues to be addressed, ′′The brokers expressed to us that the post-award work exceeds usual and 

customary practices for commission-based commercial services.′′ 

Darn right. It is the Federal Government, people, so—you know, 

I am very sympathetic to the private sector when they complain 

about overbureaucratization. I hate it. 

You just heard what I said earlier about the bottom line, somebody pays. Frankly, in our case it is the taxpayer. But it looks like 

we got the realty specialists there doing what they had better do, 

because if they don’t do it, then this Committee or the Oversight 

Committee will then say, Who is monitoring these great big contracts out here to make sure that there is no fraud, waste, and 

abuse; to make sure that at the bottom line we are not losing 

money? 

So you put it into the private sector; then you end up, according 

to your testimony, having to hire people, whose expertise is leasing, 

in greater numbers to monitor the contract. 

I am trying to find where the benefit to the government is here. 

Where is the benefit to the government, Ms. O’Brien? 

Ms. O’BRIEN. The benefit to the government that we saw would 

be in the commission credits. And at the current time I don’t believe that PBS is in a position to take this work fully in-house. 

Ms. NORTON. I am sorry. I didn’t hear that. Say it again. 

15 

Ms. O’BRIEN. I also believe that at this time PBS is not in a position to take this work fully back into—— 

Ms. NORTON. Oh, let’s start there. 

We understand that. That doesn’t mean that this Subcommittee 

doesn’t have an obligation to review what the government has 

done. I mean, that is like saying, You can’t do it, so I don’t care 

what happens out there. It can be all the conflicts of interest in the 

world. It can cost you all the money in the world. But there is nothing you can do about it because you don’t have the people. 

Well, you can get the people. 

Ms. O’BRIEN. I agree with you, Madam Chair. What I was pointing out was that some alternative ought to be found. 

Ms. NORTON. No. But we have got a contract out there. 

Ms. O’BRIEN. Yes. 

Ms. NORTON. And I am trying to find what benefit there is to the 

government, given the contract that is out there. 

I have posed you a rather hard hypothetical, I understand that, 

that they have got an increased number of realty specialists to 

what they had when they were doing leasing. How could that be, 

now that they don’t do leasing, that they give it to somebody else 

to do? 

We are not fools sitting up here. We have got to say, Well, wait 

a minute. Isn’t this what people complain that government does, 

that it just does paperwork and monitoring? 

But then GSA looks and says, Oh, but if we don’t do this monitoring and paperwork that the brokers complain about, that it is 

more than they are required to do when they do commercial; if we 

don’t do it, then the government rebounds back on us. 

We are trying to get out of this somehow because we are among 

those who complain when monitoring isn’t done. But when we see 

this figure about an increase in realty specialists, we are having 

trouble finding out what the benefit to the government was in making such a Herculean change as this, especially since it was supposed to save money, be more efficient. 

Well, the brokers say, That is not more efficient; we end up doing 

more work. Yes, you pass it on to the bottom line, but then you 

have got to give a kickback to the Agency so everybody remains 

happy. In the long run, the Agency, however, is the government, 

too; and we are paying their rent. 

So I am just trying to honestly find out. I am not suggesting that 

we may have an alternative. I am not suggesting that we are going 

to set up immediately any kind of in-house system. We don’t know 

what we are going to recommend. But we need to know what has 

been the value added to the government in making a cosmic change 

such that the leasing is—of a core function, the leasing which is a 

core function. 

No one would doubt that it is that. It is a core function of the 

Agency, isn’t it, Ms. O’Brien? 

Ms. O’BRIEN. Yes, it is. 

Ms. NORTON. It can’t even do it anymore. So the burden on us 

and on GSA is extremely strong, so strong that I would put to you 

the ultimate law school hypothetical: Who needs the GSA? Why 

shouldn’t the Agency go to these broker contracts and do their own 

16 

thing? They get the kickback; maybe they would have to do the 

monitoring or something. 

What role does GSA play? Why do you need GSA? 

Ms. O’BRIEN. The concept there is to ensure that the leverage of 

the Federal Government is used in the marketplace, that the rules 

are consistently applied, that these things are done in compliance 

with—— 

Ms. NORTON. So you think that we still get the economies of 

scale even though the—because there is a national contract? 

Ms. O’BRIEN. Well, I think you get the economies of scale from— 

we—when we looked at this, what we saw was approximately the 

same target was being achieved whether it was GSA personnel or 

whether it was—— 

Ms. NORTON. With more realty specialists not doing leasing, but 

monitoring people who were doing leasing, why was that value 

added for the government? An 11 percent increase in realty specialists? 

Ms. O’BRIEN. Yes. And the number of leases have also increased 

during that time. 

Ms. NORTON. Because we needed the space. 

Ms. O’BRIEN. Yes, I know. 

Ms. NORTON. That is not a matter of broker efficiency. It is because we don’t have anyplace to put workers as the Federal Government has grown. 

I really see us caught in a real bind here, that we have to monitor the contracts. Or if we, the Agency, doesn’t, it is going to get 

criticized, so it has got to hire a lot of people to do that as it contracts out more and more of its work. 

When you said there needs to be a clear expectation of the work 

to be performed under the contract, that puzzled me. You mean the 

National Broker Contract doesn’t make it perfectly clear what work 

is expected? 

Because you go on, honestly, to say ′′The brokers came back and 

expressed to us that the post-award work exceeds usual and customary practices. In further refining broker tasks, consideration 

should be given to what is expected in performing these post-award 

services.′′ RPTS REIDYDCMN ROSEN[11:10 a.m.] 

Ms. NORTON. Do you mean the brokerage didn’t understand that 

once you contract with the Federal Government, you are in a different ball game? 

Ms. O’BRIEN. Well, I am not sure that they didn’t understand 

that. I think there are aspects to the way the government does its 

post award that are somewhat unique. 

Ms. NORTON. And could be improved? You say, The performance 

evaluation process cannot provide results in time to facilitate performance-based tasking. Would you speak in English? I think that 

goes to your point. Explain that. 

Ms. O’BRIEN. That is a slightly different point. The point there 

is that if you were going to use the performance of the brokers to 

determine in, for example, the next year whether you give 50 percent of your work to the highest performing broker, what that point 

is that you are never going to have that information until almost 

the end of the contract if you have a 5-year contract. 

17 

So to think that you are going to start off and be able to award 

in year two and three based on how well the broker performed in 

year one, it is not accurate. You won’t be able to do that because 

you don’t have the information until years 3 or 4. 

Ms. NORTON. I see. Now, what does the GSA need to do so that 

the brokers aren’t apparently being surprised that there is a little 

more work to do when you do it for the government, because they 

are now responsible to the taxpayers of the United States of America? 

Ms. O’BRIEN. Well, in terms of the post award services, the biggest issue there is the level of worker detail that you have to go 

to. For example, oftentimes when you are building out space for 

tenants, which is part of the post award services, you will have a 

reimbursable work authorization, in other words, the tenant wants 

additional work done in that space. And that is not something that 

is necessarily part of what their business experience was in the private sector, so there is a little more involved in that area, in the 

government’s—— 

Ms. NORTON. Wait a minute. GSA doesn’t do any of that work? 

The broker now does that work, that post award? 

Ms. O’BRIEN. Post award services were part of the contract, yes. 

Ms. NORTON. Well, what is it that the brokers did not understand? Was this not written? Was it not written out clearly 

enough? Why didn’t the GSA’s performance contract make it clear 

that this is how the government has to do work, unlike what you 

may be used to, or whatever they may be used to? Would you recommend a more precise contract so that everyone is on the same 

page and you don’t have people complaining? 

Ms. O’BRIEN. Yes. That is the direction of our recommendation. 

Ms. NORTON. Is this, to your knowledge, occurring as they prepare for the new contract? 

Ms. O’BRIEN. We have talked to PBS about this area. They are 

cognizant that they have to look at that particular area, particularly as it deals with additional tenant requirements that are usually done through reimbursable work authorization. 

Ms. NORTON. Do you have any other recommendations as they 

prepare for this contract? 

Ms. O’BRIEN. Yes. In fact, we met not too long ago with PBS to 

discuss some recommendations. And they had some suggestions for 

the recommendations, things that they felt would be feasible or not 

feasible, so we did discuss those. 

Some of those recommendations would include some improvements that we felt needed to be made to the information systems 

that, again, the utilization of the contract to clarify that, as I said. 

What we are seeing is closer to 33 percent, what they are reporting 

is closer to 80 percent. The point there is that you are never going 

to have 100 percent contracting out. This is resource-intensive. 

There are a lot of aspects that are actually inherently governmental, so you are never going to be able to fully contract that out. 

Ms. NORTON. Now, how does the work of the realty specialist 

compare with the private sector workers and brokers? 

Ms. O’BRIEN. What we found, when we looked at the market 

rates that were achieved by both sets, is that statistically there 

was no difference. GSA has a performance measure called least 

18 

cost relative to market. And what that is, is they take basically a 

midpoint for that particular market, and then they target a certain 

percentage below that. So if the average in that area was $35 a 

square foot, they would want to get 9 percent less than $35 a 

square foot. And that would be their target. 

What we saw, when we looked at the data—and again, even 

though it was basically 2-1/2, 3 years into the contract, our data 

is still somewhat limited. What we saw was that there really 

wasn’t any statistically valid difference between the two in terms 

of their achievement of the rental rates. 

Ms. NORTON. Well, at least we have that information. The usual 

frustration in Committees is we don’t even know whether there is 

any cost savings. At least we know that after going through all of 

this hullabaloo, we haven’t saved the government a dime. And that 

is important to have on the record. But we haven’t cost them any 

more and we haven’t saved them anymore. And the reason, of 

course, should be clear. The assumption is that the government— 

because of course the government builds in inefficiency, what the 

government builds in is what we are now building into the broker 

contract, checks and balances so the taxpayers know how the 

money is being spent. 

So in the long run, it costs more for the government to perform 

this service, and guess what? It costs more for private sector to perform this service. At least here, unlike my experience in Oversight 

and Government Reform, where nobody has any sense of whether 

there is savings or not, you have made the appropriate comparisons, and we do have that understanding. 

Do you have any comparative analysis that might compare this 

service contract with GSA’s other contracts for services? 

Ms. O’BRIEN. You mean the prior broker services; is that what 

you are referring to? 

Ms. NORTON. No, not broker services, other services it contracts 

for. 

Ms. O’BRIEN. No. We did not look at that as part of this review, 

so I don’t have that information. 

Ms. NORTON. They have contracted for many architectural services, design services, other services. Some of this is understandable, 

but of course, as we look at what they are doing, we need to understand it and understand what the benefit or value added to the 

government. The most disturbing thing is that GSA has lost so 

much personnel, and yet it has increased realty specialists, necessarily so, to monitor these contract. 

Do you believe these realty specialists, in a pinch, could pick up 

the slack for broker contracts or any portion of them? 

Ms. O’BRIEN. Well, I think it is important to note that basically 

the realty specialists are still doing the bulk of the work. In terms 

of the number of leases that are being done, if you look at the expiring leases, the brokers are handling roughly 33 percent, in our 

view, and the government is handling the remaining amount. In 

addition to that, when a broker task is assigned, prior to that assignment it is the GSA people—— 

Ms. NORTON. Wait a minute. The broker specialists are doing the 

new leases? What is the difference between what the realty specialists are doing and what the broker contractors are doing? 

19 

Ms. O’BRIEN. The realty specialists actually have a few functions. 

First of all, they can negotiate and award the leases. And they are 

doing that work; it is not completely done by the brokers. And in 

addition to that, you have realty specialists who oversee the broker 

contract work. So they are actually performing—— 

Ms. NORTON. Just a moment. You have who oversee the broker 

contract work? 

Ms. O’BRIEN. You do have realty specialists who oversee the 

work of the brokers. 

Ms. NORTON. They are in the contract management business. 

Ms. O’BRIEN. Yes. Yes, they are. 

Ms. NORTON. What percentage of them are in the contract management business as opposed to those who are in the realty business? 

Ms. O’BRIEN. We were not able to obtain that number since PBS 

does not have a system where they identify how much time people 

put in on various tasks. 

Ms. NORTON. You mean, some of them do both? 

Ms. O’BRIEN. Yes. That is our understanding. 

Ms. NORTON. Thank you very much, Ms. O’Brien. This is very 

important testimony for the record. 

Wait a minute. Mr. Diaz-Balart has returned. Did you want to 

ask the witness, the IG any questions? 

Mr. DIAZ-BALART. Thank you, Madam Chairwoman. 

Ms. NORTON. I am very sorry. 

Mr. DIAZ-BALART. No, no, thank you very much. And again, I had 

to go and vote. I apologize for not being able to be here for the 

whole presentation. 

Ms. NORTON. I apologize for not being able to vote. 

Mr. DIAZ-BALART. And I apologize to the witness. 

In your testimony you said that the brokers are securing leases 

at the same rental rate as GSA is, roughly. 

Ms. O’BRIEN. What we are saying is, with the data that we had, 

the best assertion that we can make is that they are approximating 

with the GSA people. 

Mr. DIAZ-BALART. Right. Now, does GSA get rebates when they 

do leases? 

Ms. O’BRIEN. No, they do not. 

Mr. DIAZ-BALART. And the brokers do get rebates—— 

Ms. O’BRIEN. That’s correct. 

Mr. DIAZ-BALART. — that is passed on to the Federal Government? 

Ms. O’BRIEN. Yes. And that is pointed out in my testimony. 

Mr. DIAZ-BALART. So when you are talking about equivalent 

rates, you are not including the rebates, correct? 

Ms. O’BRIEN. No. That is included in a separate category. 

Mr. DIAZ-BALART. So there are savings to the taxpayer. 

Ms. O’BRIEN. Yes, and I pointed that out. 

Mr. DIAZ-BALART. Okay. And I apologize, since I was voting, so 

I just wanted to make... 

And how about overhead; is there a comparison about overhead 

that—obviously GSA has overhead, employees, space, et cetera, 

that all of a sudden we don’t incur from the brokers, correct? 

20 

Ms. O’BRIEN. Well, no. I wouldn’t go that far because to administer the contract takes a lot of time and effort by GSA personnel. 

I don’t think you could say that there is overhead on the GSA portion and there is no overhead on the broker portion. 

Mr. DIAZ-BALART. Do you have any way to know if there is more 

overhead, less overhead? 

Ms. O’BRIEN. No, I don’t, only because there wasn’t a system in 

place to identify that type of demand. 

Mr. DIAZ-BALART. Sure, I understand. But there is no denying 

that there are savings to the taxpayer because of the rebates. 

Ms. O’BRIEN. Yes. And I said that that was quantifiable. 

Mr. DIAZ-BALART. Right. Great. Thank you so much. 

Thank you, Madam Chairman. 

Ms. NORTON. Mrs. Capito. 

Mrs. CAPITO. Thank you, Madam Chair. I would like to thank 

the witness. 

I would like to ask a question. If the GSA were to allow this contract to expire this year, what would be the repercussions, do you 

believe, to the GSA leasing program? 

Ms. O’BRIEN. You would have a significant portion of lease work 

without a corresponding workforce to handle it. So I would assume 

that what you would have is additional holdover leases, you would 

have lease extensions. 

Mrs. CAPITO. And when you have holdover leases and lease extensions, you incur probably some penalties or some kind of—from 

obviously the owner of the property if they can’t secure a contract, 

I would assume that they could assess a penalty to the GSA because of the lack of the contract in a holdover nature because there 

is not staff in place of this program, would you say that is an accurate statement? 

Ms. O’BRIEN. I would say that, rather than that, that the leverage that the government has to acquire a fair and reasonable rental rate would be reduced. 

Mrs. CAPITO. Reduced. And the reason is because there is not 

enough in-house—what did you call them? Realty specialists to be 

able to handle this work, correct? Because this program has been 

in effect for 4 years, and obviously the brokers have taken over a 

lot of that work. 

Ms. O’BRIEN. When we talked to the people in the regions, we 

went to four regions and we spoke with the realty specialists and 

the management there, the message that we received was that they 

needed additional support, that they were not at the point where 

they could handle all of this work without some sort of additional 

assistance. 

Mrs. CAPITO. Maybe this is a subjective question, but when you 

talked to the realty specialists in the different regions, how did you 

find their relationships with the brokers in this contract, the National Brokers Contract program in terms of communication, in 

terms of quality of service? 

Ms. O’BRIEN. We didn’t note any particular issues or problems in 

that area. 

Mrs. CAPITO. So if there were problems, they probably would 

have mentioned it, I imagine. 

Ms. O’BRIEN. Yes. 

21 

Mrs. CAPITO. I notice in one of your recommendations that you 

talk about the elease system. 

Ms. O’BRIEN. Yes. 

Mrs. CAPITO. That is the electronic leasing system through the 

GSA? 

Ms. O’BRIEN. Yes. 

Mrs. CAPITO. And I guess if you have a comment on that, I would 

like to hear it. I mean, obviously it needs better support, work flow 

and analysis. How do you think that is achievable? It is astounding 

to me. And GSA is not the only government agency that has this 

issue that, in this day and age of technology, we still have these 

gaps or miscommunications between systems where it seems to me 

something like a leasing program is a lay-up for a great e-leasing 

or an electronic leasing program. Can you make a comment about 

that, and what would solve that problem? Besides a bunch of 

money, probably. 

Ms. O’BRIEN. Well, actually, we have been talking to PBS. They 

have instituted some changes while we were doing the audit. We 

also suggested some additional changes to them during the course 

of the review. 

One of the things is that all the information should be there, and 

there should be more templates for various types of things that are 

done. So those would be two aspects of changes to elease. For example, they have required certain documents that the brokers put 

into the system, but there are other documents that have not been 

required, and yet they are very important, and they are mandatory 

to the leasing process acquisition plan, for example, is one. 

Mrs. CAPITO. Well, I appreciate the recommendations. 

I guess my comment would be that, if this contract is due to expire on March 31, 2010, the bottom line what I hear you saying is 

that GSA is not equipped through the property specialists to be 

able to handle the bulk of the work, which could result in holdovers 

and other kinds of penalties through the lease. 

You have mentioned, and the Ranking Member mentioned, some 

of the savings that have occurred, and the Chairwoman has mentioned some of the issues in terms of, is the work getting done and 

the unexpected—you mention in your report, the unexpected workload that some of the brokers found as they were moving through 

this. But it seems to me, you know, we are 6 months out here, and 

this isn’t something that can turn on a dime. So I would recommend that we look at this, make some of these improvements, 

and make sure that we do the best cost-benefit analysis to the taxpayer, which to me looks like has resulted in some pretty significant savings for the taxpayer, with the GSA property specialists 

working together with the private sector in what sounds to me to 

be a true public-private partnership. 

So, thank you. 

Ms. NORTON. I would like to clarify the rebate notion. Rebates 

are very common. Do you mean that GSA, when it handled this 

work in-house, could not get free rent for a month or two for people? Don’t they negotiate like everybody else in the market? 

Ms. O’BRIEN. The commission credits are somewhat different 

than the free rent. Realty specialists have, on occasion, depending 

22 

on the market, negotiated free rent as part of the rental agreement. 

What we are talking about, there is the piece in the rental rate, 

whatever that dollar portion turns out to be, that is normally paid 

to the brokers, and the perception was that that money was being 

left on the table when GSA negotiates because GSA could not collect that commission, that the licensed brokers could collect that 

money. And then under the first iteration of contracts, it was given 

back to GSA as a rebate in some instances, and now with the new 

version of the contracts, the National Broker Contracts, it is a commission credit. 

Ms. NORTON. Are there any other questions? 

Thank you very much, Ms. O’Brien. 

And I would like to call the next witness, Samuel Morris, III, Assistant Commissioner Office of Real Estate Acquisition, GSA Public 

Building Service. 

TESTIMONY OF SAMUEL ′′CHIP′′ MORRIS, III, ASSISTANT COMMISSIONER, OFFICE OF REAL ESTATE ACQUISITION, U.S. 

GENERAL SERVICES ADMINISTRATION, PUBLIC BUILDINGS 

SERVICE 

Mr. MORRIS. Good morning, Chairman Norton, Ranking Member 

Diaz-Balart, and Members of the Subcommittee. 

My name is Chip Morris. I am the Assistant Commissioner for 

the Office of Real Estate Acquisition in the Public Buildings Service at the General Services Administration. Thank you for inviting 

me here today to discuss GSA’s leasing program and how we contract for brokerage services through our National Broker Contracts. 

Although the current National Broker Contracts represent a 

major change in how we contract for broker services, GSA has a 

long history of retaining real estate brokers. Historically, we had 

individual regional contracts on a fee-for-service basis from a menu 

of available services. 

Our first attempt to provide a national contract for broker services was in 1997, when we awarded eight national real estate contracts covering four zones. In response to audits by the Inspector 

General, GSA decided to centralize broker services into a national 

program. A number of factors drove our decision to enter into National Broker Contracts, including increasing our capacity to deliver leases consistently and leveraging our market share to reduce 

space cost. 

Constrained budgets, limited staff, and the limited availability of 

new federally owned space continue to drive an increased need for 

leased space to meet agencies’ requirements. As a result, GSA determined that our reliance on brokers was essential at that time. 

Based on market research, we proceeded with a commissionbased pricing contract, as is customary in the industry, in order to 

save public funds. Before proceeding with the solicitation, we requested an opinion from the Government Accountability Office on 

our decision to pursue a commission-based contract. In August, 

2004, GAO determined that GSA would not be illegally augmenting 

its appropriations or asking contractors to perform voluntary services under the proposed contract. 

23 

After a full and open competition, four contracts were awarded 

on October 2004 to Jones Lang LaSalle Americas; the Staubach 

Company, Northeast; Julian J. Studley, Inc.; and the Trammell 

Crow company. The notices to proceed were delayed until April 1 

of 2005 because of protests filed with GAO after the award. 

Since the award, C.B. Richard Ellis Real Estate Services purchased Trammell Crow, and the Staubach Company merged with 

Jones Lang LaSalle, leaving us with three contractors at present: 

Jones Lang LaSalle Americas; C.B. Richard Ellis; and Julian J. 

Studley. While there have been challenges, we believe that over the 

last 4 years, the contracts have proven their value. 

As of April 2009, 942 leased transactions for over 15.5 million 

square feet have been awarded using these broker services. Of 

these, 839 were for full lease acquisitions, totaling 13.5 million 

square feet; 89 were extensions for 1.8 million square feet; and another 14 were expansions of 313,000 square feet. These transactions resulted in 55.5 million in commission rent credits applied 

directly to reduce our rental obligations, which are also passed 

through to our customer agencies. 

The total net commissions paid to broker firms through April 2009 has been $78.7 million, with the average commission per 

project at $83,500, and the average project size at 16,500 square 

feet. 

Our change to commission-based pricing has not increased our 

lease-cost-relative-to-market averages. With 216 brokered leases for 

over 3 million square feet completed through the second quarter of 

fiscal year 2009, our average rental rates are 10.56 percent below 

the midpoint of the market compared to the GSA goal of 9.25 percent below market. 

Sixty-nine percent of the brokered leases are in the new and succeeding lease categories and have average rental rates at 11.12 percent, and 11.32 percent below the midpoint of the market, respectively. This results in a cost avoidance of $10.4 million annually. 

The annual savings will continue for the life of each lease, which 

in some cases is 10 years or more. 

There have also been challenges in this contract and its administration that we are continuing to address. Our brokers have had 

to learn government contracting principles that do not apply in the 

commercial real estate market. Our lease contracting is regulated 

by over 48 different laws, regulations, and executive orders that 

make acquisitions process-driven and document-intensive. Documentation is necessary to avoid costly protests and litigation, to 

comply with internal controls, and to achieve clean audits. 

GSA’s use of brokers is designed to add leverage to an in-house 

staff. Some of our leasing specialists are focusing to a greater degree on project management while others are focused on oversight 

of the brokers, including the evaluation of the broker performance, 

something left typically to contracting officers, and a new experience for leasing specialists. 

Normal attrition, including retirement, has reduced staffing levels below thresholds necessary to perform in-house work and supervise the brokers. We continue succession planning for leasing specialists and lease contracting officers. In some instances, it can 

take up to 5 years to train a leasing specialist to become a seaVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
24 

soned lease contracting officer. As a result, we must rely on the 

brokers to supplement our workforce. 

We have begun planning for the follow-on to these contracts by 

conducting industry conferences in Washington, D.C., and Los Angeles, California, and have posted the transcripts of those conferences of the Fed Biz Ops Web site. We have also conducted lessons-learned sessions with our previous procurement team, the Office of the General Counsel, our current brokers, and our regional 

program officials. 

A team is currently developing the Statement of Work that will 

best support our needs for the next 5 years. Though not intended 

to replace our staff, it is necessary for GSA to continue to utilize 

brokers to supplement our in-house capacities to meet our program 

responsibilities and deliver space as efficiently as possible. 

We need to capitalize on what has worked with these contracts 

and make improvements that will make them more efficient and 

user friendly. GSA also needs to better predict workload projections 

for the brokers and address continuing problems with extensions 

and holdovers. 

While we believe that contracts have proven successful and bring 

savings to the government, we can improve their effectiveness in 

providing additional resources to assist our leasing specialists in 

meeting program demands. 

This concludes my testimony. And I will be happy to answer any 

questions that you have. 

Ms. NORTON. Thank you very much, Mr. Morris. 

You say in your testimony, I think quite candidly, ′′These contracts are not intended to replace staff, rather to supplement the 

resources we have as we plan the most efficient space delivery program possible.′′ That makes sense to me. Everybody in the government uses contracts. 

Let me ask you what percentage of your work is done by the brokers and what percentage is done by staff, especially considering 

the 11 percent increase prior testimony revealed in realty specialists since you began to engage broker contracts? 

Mr. MORRIS. We have heard from the IG earlier, their estimate 

is about 33 percent overall. I am guessing it is higher than that. 

I would like to clarify a little bit because I think the IG witness 

really made a good point on how you interpret how that workload 

is divvied up. We have had successive increases in targets that we 

have worked on over the course of this contract. Beginning in 2005, 

we had a 50 percent of expiring leases target that increased 10 percent each year up until last year when we got to 80 percent. This 

year was supposed to be 90 percent; we kept it at 80 percent. But 

the important thing, Madam Chairman—— 

Ms. NORTON. You kept what at 80 percent? 

Mr. MORRIS. The utilization rate for tasking brokers with our expiring lease workload. And it is important to really understand and 

drill down and see what that number means. 

All of the work has not been going to the brokers. What we have 

been trying to do really and truly is to come up with a target each 

year—— 

25 

Ms. NORTON. That is really my question; how much work should 

be given to the contract brokers and how much work should be 

kept inside? What is the goal? What is the target? 

Mr. MORRIS. The target has been expressed as a percentage of 

expiring leases. 

Ms. NORTON. Well, now, weren’t the brokers originally supposed 

to address extensions and holdovers, and now they are doing more 

and more new leases? 

Mr. MORRIS. Well, it wasn’t that they were being assigned extensions and holdovers, but they were supposed to be helping us relieve that problem. So what we do each year is we look out about 

18 to 24 months and see, in our leased inventory, what leases are 

expiring over the next 18 to 24 months. So that number, if you will, 

forms the denominator in calculating a percentage. So you take a 

number of 1,800 leases expiring in a particular year, and then you 

look to see, well, what do we need to give to the broker? And if our 

target—— 

Ms. NORTON. All right. You can continue that math. Based on 

the number expiring, what percentage should be given to the 

broker? You know how many realty specialists you have. 

Mr. MORRIS. Right. Well, the target is that 50, 60, 70, 80, 90 percent that we have been using each year, increasing each year over 

the last—this is the 5th year. 

Ms. NORTON. Wait a minute. You have a disproportionate number of leases expiring some years; is that what you are saying? 

Mr. MORRIS. Yes. Actually, we have talked about this in one of 

our earlier hearings. If there are 1,800 leases expiring this year, for 

example, and we don’t get all those leases either replaced in some 

form or fashion, say we only do half of them—I am just picking a 

number out of the air, say we only get to do 900, well, 900 leases 

that are left over, something happens to them. Some of them may 

go away, but those that we don’t get to, we end up extending. And 

so next year—— 

Ms. NORTON. But you must know—you know right now when 

leases are going to expire, and that is why we have been into the 

holdover business and why I have given the agency 45 days to 

come back with a plan on early leasing and holdovers. Well, you 

know when a lease is going to expire the moment the lease is 

signed. So all this planning could be done up front, and you could 

know right now, as you sign a lease, how many brokers you are 

going to need in 10 years or 15 years. 

Mr. MORRIS. Well, it is not just expiring leases. What is not calculated in there, Madam Chair, is what new requirements come 

back. We forecast every 6 months for the purpose of the broker contract what kind of workload projections we expect to assign to them 

from that expiring lease workload. But we haven’t been doing a 

very good job on of this. 

Ms. NORTON. What kind of what? I am sorry. 

Mr. MORRIS. We project each month for the brokers what sort of 

workload we expect to be coming down the pike. The regions turn 

into us to say, here is the workload projection from the expiring 

leases. Well, all expiring leases aren’t tasked to the brokers. They 

get all kinds of work. It is not just expiring leases. They would get 

new requirements that come in—— 

26 

Ms. NORTON. But you are not making those on a monthly basis, 

surely. What kind of business is this? You must know all of this 

in advance, so you ought to be able to tell me next year. 

Mr. MORRIS. I can tell you right now, in a snapshot, what will 

be expiring next year. But at the end of this year, we may not have 

addressed all of the leases that have expired this year, and so by 

the end—a snapshot taken at the end of September will be a different set of—— 

Ms. NORTON. And why, by the way, would you have not—this 

gets back to my holdover question. If you did early leasing, if you 

were internally more efficient, some of those problems, some of 

those doubts, with completely good planning, would be erased, 

wouldn’t even be there because you would know, if it were the 

broker who was supposed to do the early leasing, well, he would 

do it. If the realty specialist was to do it, she would do it. Why isn’t 

that kind of planning being done at the agency since it is at your 

beckon call? You have the leases. 

Mr. MORRIS. We actually are doing that kind of planning now 

with a lot of impetus from your letter recently. We have talked 

about that in the past. We are doing a portfolio analysis now we 

hope to bring to you when the due date—— 

Ms. NORTON. That is so important. I mean, it is the only way for 

the brokers, it seems to me, they have got a contract. Doesn’t the 

contract even tell them what to expect in the number of contracts 

or leases that will come up? 

Mr. MORRIS. The contract did set, as 50 percent of the expiring 

lease workload, targets for them at the very beginning. So that is 

accurate. But I guess the point that I was trying to make was, in 

determining what gets tasked to the brokers, each year we look at 

and every 6 months we update what the projections are for expiring leases. They get tasked some of those. They also get tasked new 

requirements. And at the same time, and I think it is very important to point out, there is a large number of that same workload 

that is being performed by in-house personnel. 

Ms. NORTON. And that is important to know the percentage. But 

what I am getting at, Mr. Morris, with the prior letter you just referred to, is how all of this seems to me to be wonderfully predictable, that is to say there are many areas in government where we 

can’t predict—money is one of them. But guess what? A lease, 

when it expires and therefore who ought to be attending to the 

lease is contract law. 

Mr. MORRIS. I agree with you 100 percent on that. 

Ms. NORTON. And it is that kind of planning I want to see in the 

agency. I am sure the brokers would appreciate it, and the realty 

specialists—I don’t understand why anybody would need to do a 

monthly analysis or a 6-monthly analysis when they know day one 

when the lease is going to expire. If there is an advantage to being 

the big foot in the marketplace, it is information, and using it as 

early as you can—the big foot is the Federal Government. I am determined that the Federal Government is going to reap more from 

the fact that it plays such an increasingly important role in the 

leasing marketplace. 

In particular, I am determined, Mr. Morris, not only because I 

see savings for the government and greater use of its economic 

27 

power, I believe that power ought to be used right now to stimulate 

this economy. The President did it when he bought a building 

somewhere here in Washington. And early leasing would do it if 

the banks sought that 6 months ahead of time or 3 months ahead 

of time. And in this market, one might want to do particularly 

early leasing if you look at the forecast and you look at reports for 

what is happening to commercial real estate with due dates on 

their loans, you are in a perfect position, you are in a position that 

nobody in the commercial sector is in to take advantage of a very 

bad situation. It is a bad situation for anybody who is in the business; it is a good situation for the government if we use it to our 

advantage. 

Before I go further, I would like to ask the Ranking Member if 

he has any questions. 

Mr. DIAZ-BALART. Thank you very much, Madam Chairwoman. 

Would it seem to make sense that the leases where we could get 

rebates are the ones that should probably be not done in-house; 

and the other ones, where we can’t get savings, maybe should be 

done in-house? 

Mr. MORRIS. How do I answer that question? 

Mr. DIAZ-BALART. The issue should be, in my view, as opposed 

to a fixed percentage of how much is done in-house versus how 

much is done through brokers, it should be how much we are saving. 

Mr. MORRIS. And the rent credits are really a function of an industry practice of commission-based pricing. It is separate and 

apart from whether one is cheaper than the other. There are rent 

credits that are achieved through that commission-based pricing 

that the brokers bring to the table. So that is an important savings 

to the government. 

To clarify that, what we have experienced and what we had understood for a number of years is that the government was leaving 

money on the table because landlords and developers build into 

their business plans when they offer space to the government an 

element of that business plan that includes commissions. They 

typically have realtors representing them in leasing up their buildings. And under their listing agreements, they agree to pay those 

realtors a certain percentage on a transaction. 

And just as in a residential home sale, if you list your home with 

a realtor for 6 percent, that realtor is going to get 6 percent when 

the home sells. If another broker, a cooperating broker brings a 

buyer, those brokers split that commission. And it is that split that 

the government was theoretically leaving on the table. 

So we had, in an earlier iteration of the contracts, tried to, when 

we were paying fees for services, instructing the brokers under 

those earlier contracts, because they are licensed to take that commission, either negotiate it out of the deal or capture that commission and rebate it to the government. When we switched to this 

contract, we switched to the commission-based pricing where we— 

and it was an experiment, let’s go out, you are getting your fee 

based upon that opportunity to split under a dual-agency transaction. If the broker wasn’t there and we had no broker and we 

were just using in-house staff, those developers and landlords still 

retain realtors to represent them, and they build into their busiVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
28 

ness plan when they are offering to the government an element to 

pay commissions. And so it is that commission splitting that we 

hope to capture to pay for their services on our behalf under this 

contract. 

Mr. DIAZ-BALART. You just answered two of my questions. And 

let me tell you, I think you need to be commended. GSA needs to 

be commended for, as you said, for doing an experiment—which 

seems to be working, frankly. And it might be interesting, if there 

is a way to better quantify those results of the experiment. 

Mr. MORRIS. And the primary way that we have tried to see 

whether or not it is costing us more is in our rental rates that we 

are getting under these leases, are the rental rates, how do they 

compare to market rates? We do that anyway. We have to report 

to OMB, and we report to Congress each year on what kind of rental rates we are getting in our leases. And we use the lease cost relative to market as our measure for that. And that is a combination 

of a science and an art. 

I mean, we rely on market data, submarket data that is published out there in the market, and we look at our rates and compare those to the rates in that market. And we found that, generally speaking, these leases that have been procured through the 

brokers based upon how many have gone through the whole process now, are exceeding our targets. 

The IG made the point that there is a small universe that you 

have actually finished the projects on, and that is true. Out of over 

2,000 tasks outstanding, we have about 10 percent, 216 leases, that 

we are actually comparing those rates on now. And they are exceeding our targets. When you compare those to our overall performance, they are comparable to what we are doing as an agency, 

which includes not only the brokered but our in-house deals. 

Mr. DIAZ-BALART. Something that I mentioned in the beginning 

was that I understand that there are some delays, at either the 

front end or the back end, when a lease acquisition process is initiated, and again, at the end, when a lease goes through and there 

is a final approval process, there is some, I guess, bottleneck there. 

Are there any steps that GSA could take the streamline that internal process? And furthermore, is there any legislation, any authorization or legislation that you think would help you in that process? 

Mr. MORRIS. Yes, sir. I will answer the last question first, if I 

may. 

We are still working through these issues, but there are a number of our leases, hundreds of our leases are small leases in tertiary markets in rural areas—small towns, rural areas, small cities. The simplified lease acquisition threshold was last updated in 

1996. Basically, under a simplified lease acquisition, you can do it 

faster and quicker on smaller leases, smaller dollar volumes, than 

when we do lease procurements that are above that simplified acquisition threshold. Right now it is $100,000 a year in rent. So if 

you are expecting to pay rent at $100,000 or less, then you can use 

this—I don’t want to call it fast track; I will call it a faster track. 

It is a little bit more efficient. And because we have it updated, 

that is a statutory threshold, and it is not tied to any kind of inflation index. It could be helpful to us if that threshold were in inVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
29 

creased now so it would capture more of those smaller leases and 

allow us to do more in that faster method. 

Mr. DIAZ-BALART. Because that number has been static; that 

hasn’t changed? 

Mr. MORRIS. It hasn’t changed in 10 years. So instead of $100,000 a year, if it were—I will pick a number, $1 million a year, 

that would capture a lot more of that anticipated work—— 

Mr. DIAZ-BALART. That and maybe a way to index it or attach 

it to inflation or something. 

Mr. MORRIS. Yes, sir. 

Mr. DIAZ-BALART. That would make a lot of sense. You know, it 

is interesting how those of us in Congress will criticize government 

agencies for not thinking outside the box, and then when you think 

outside the box, we criticize you for thinking outside the box. I feel 

the need to tell you that this is precisely the kind of approach that 

I think the American people demand. So I think you need to be 

commended for it, you really do. And is it a little bit risky to think 

outside the box and experiment with things that could save the 

taxpayer money? Yes, it is a lot easier to not do that. 

But you have done so, and I think you have shown some pretty 

impressive results that we can continue to look at improving, but 

I think that you need to be commended for it. Som at least from 

this Member of Congress, I hope you take that as a slap on the 

back as a job well done, and we can always continue to improve, 

and you just mentioned some things that we should look at. So 

again, I thank you for your work. 

Mr. MORRIS. Thank you, sir. 

Ms. NORTON. I am very interested in the money that the government—I understand it was being left on the table and the commission. Did GSA ever come to the government to ask for authority to 

retain that fee themselves so the government could have profited 

or benefited from that? 

Mr. MORRIS. Do you mean to turn it back over to the Treasury 

versus applying it to the lease? 

Ms. NORTON. GSA be able to collect it, as far as I am concerned, 

in any case. 

Mr. MORRIS. We felt like the cleanest thing to do was to apply 

the rent credits directly to the leases to reduce the rent. There has 

been a lot of push from some of our customers—— 

Ms. NORTON. So you never asked for it. The reason it occurs to 

me is because you had to, indeed—the general counsel had to get 

into the whole question of augmentation. So this is just another 

sliver of augmentation, yet it is not included. Somebody didn’t want 

the government to get into the mind the private sector getting. I 

am trying to make sure the government at least gets what the private sector gets. 

Let me ask you this umbrella question: In light of this goal—first 

let me find out if it is in fact a goal, that the GSA has a goal of 

contracting out 80 percent of its work. What work? Why 80 percent? 

Mr. MORRIS. Well, that is where the confusion comes in a little 

bit. It is not 80 percent of all of our work, no. Leasing is a critical 

core function—— 

Ms. NORTON. Yeah. Is it 80 percent of that core function? 

30 

Mr. MORRIS. The target of 80 percent is with regards to an expiring lease load in a 24-month period that is developed each year. So 

there are a number of other lease actions that are being done inhouse. 

Ms. NORTON. So what percentage of work would be done in-house 

then of the leasing core function? 

Mr. MORRIS. I am guessing it is about 50/50. The IG believes it 

is about 33 percent. There are a number of functions that don’t 

have opportunities for commissions to be paid. So we don’t task the 

brokers for work where there are not opportunities for commissions 

to be paid. That is a chunk of it. Then there are other, whether or 

not we—— 

Ms. NORTON. Such as, for example? 

Mr. MORRIS. Well, antenna leases, TSA leases on airports, parking lots. Some extensions are tasked to the brokers if we expect 

them to get the follow-on, long-term space solution. Short-term extensions where we are doing those in-house, they don’t get. A lot 

of expansions they don’t get. Some consolidations they don’t get. 

And then a lot of the core function work of expiring leases is 

divvied up between the brokers and the in-house staff. So there is 

a lot of work that realty specialists do in-house that never go to the 

broker. 

Ms. NORTON. I am looking at my opening statement where I detailed—I want to be accurate about what has been contracted out; 

contracted out virtually all property maintenance, operations, engineering and architectural requirements, interior design and space 

planning services, now core function leasing. 

I am going to ask you a question that I am going to have to answer. Who needs GSA? I raised that question in my opening statement. Increasingly, your reality specialists are used to monitor contract brokers. Why shouldn’t the agency deal with the brokers? 

Eighty percent of your work is—at least leases of a certain kind 

should go to brokers. What would be the function of GSA in the 

leasing business, and how will you justify any appropriation from 

the Federal Government? 

Mr. MORRIS. Madam Chairman, leasing is and remains a key 

core function of GSA and the Public Building Service. And it is 

critically important that we have an adequately staffed, experienced core lease contracting group of lease contracting officers. 

Ms. NORTON. Did you request any additional FTEs in your 2010 

budget request for these critical people you have just described? 

Mr. MORRIS. I don’t think we have asked for that in 2010. We 

are in the process of recruiting and training and filling vacancies 

that currently exist in the organization, and we are working very 

hard about doing that. One of the things that—— 

Ms. NORTON. How many specialists are dedicated solely to leasing activities today? How many 5 years ago? How many 10 years 

ago? 

Mr. MORRIS. We have today totally dedicated—and these are 

rough numbers—approximately 500. And we have about 627 that 

are either totally or in part working on leasing projects. 

Ms. NORTON. How does that compare? 

Mr. MORRIS. The numbers that I have for 5 years ago is the umbrella group, not just totally dedicated to leasing. So, for example, 

31 

in 2004, we had 495 realty specialists. There would have been a 

smaller number that would have been dedicated to leasing. I am 

going to estimate probably 400. 

The next year, 2005, we dropped to 400, 1170 realty specialists. 

There would have been probably slightly over 300—for estimating 

purposes, 325 in leasing. We have, as the IG noted, grown. When 

the contract was let—notice to proceed in 2005; it was awarded in 

October 2004; we have consistently been increasing our number of 

realty specialists. They have not been solely dedicated to monitoring the broker contracts. 

We are trying to rebuild a cadre, a core of competent leasing people that can assume some of that government work that we are 

contracting to the brokers for. I don’t see us ever actually giving 

up brokers, but we have fallen below a critical threshold to be able 

to carry on that work. 

Ms. NORTON. What is a competent core? Since it is a core function, and no one doubts that, what is a competent core of in-house 

specialists? 

Mr. MORRIS. I think we need more. And let me just elaborate a 

little bit. We just finished a regional review in Atlanta, region four, 

the southeast region, biggest region in terms of geography in the 

country with a huge, huge amount of leasing that is currently ongoing and projected for the future. Some of the leasing specialists— 

we interviewed seasoned leasing specialists, contracting officers, 

they are staffing up now. And they have about—let me look at my 

notes here—they have about 54. They can easily use another 20 to 

25 percent. 

Ms. NORTON. Mr. Morris, these are very highly trained, specialized personnel. Why do you have leasing specialists doing project 

management work when you don’t have enough realty specialists, 

as you just testified? Why don’t you have contracting specialists 

doing contract management work? 

Mr. MORRIS. Well, the lease transaction—we really approach 

lease transactions, lease acquisitions under the concept of project 

management. So there is the acquisition piece of that, but there is 

a lot more to procuring a lease for the government than just that 

pure acquisition part. 

We approach it from a project management standpoint because 

we are really trying to bring in all parts of the organization to be 

a part of a team, to think like they are trying to be—to work on 

a transaction. One of the biggest things they have got to work on 

is requirements development. Requirements development with our 

customers is a huge part of the work that we have to do. And so 

we want those leasing specialists to be assigned tasks where their 

skills are best suited. You have people that are really skilled in 

that government contracting part of the transaction, of the project, 

if you will, and you have people that are better suited, really, for 

interfacing with our customers and consulting with them to develop 

their requirements so that we can establish that relationship. 

Likewise—and we have actually talked about this, Madam Chair, 

in some of our earlier meetings with you in an earlier hearing— 

we want those people that are working in the backroom operations, 

the people that handle rent bill management to the commerce, the 

people that handle whether or not those leases are scoring or not, 

32 

the people that look at their work from that kind of internal control 

standpoint on a onesy and twosy basis, we want them to know that 

they are part of a project team. And that team has a goal to procure a lease for the government and put a customer in there. And 

they need to be prepared to further that transaction. And they 

have got to play early on, and they have got to play their part 

whenever it is their time to fulfill their role. 

So project management is a concept on how we go about doing 

our work. I would like to try and clarify that it is not about pulling 

competent people away from leasing and putting them somewhere 

else; it is how they are doing their work in trying to procure that 

lease. And that is the important notion there. 

Ms. NORTON. You know, Mr. Morris, I have been trying to get at 

cost notions, and we have ascertained that there is apparently no 

cost difference. But you do use the word ′′no-cost contracts.′′ You 

know, of course, you have been in this business, that everything 

costs, nobody gets free lunch and nobody gets a break, least of all 

the government. 

Commissions, of course, are always built into a lease rate and 

passed on to the customer—in this case, the client agency. So what 

do you mean by no cost contracts, page two of our testimony? 

Mr. MORRIS. No appropriations. Maybe I should say it is no additional cost. 

You are right, the commission is built into the rent. So we pay 

rent. Our customers pay us rent that we pass on to the landlords. 

And the point is that the developers and the landlords build in a 

commission into their offers. So you are absolutely right; it is not 

that there is no cost. It is that there is no additional cost to the 

government by utilizing these brokers under a commission-based 

structure. 

Ms. NORTON. In fact, it is about the same cost, according to the 

IG, nobody has been able to find any value added in terms of 

money, have they? 

Mr. MORRIS. Well, the measurement on whether or not there is 

an increase in cost, we have been relying on our lease-cost relative 

to market. Our rental rates are still meeting those—— 

Ms. NORTON. Let me just ask you, you use a figure of $10.4 million annually—what you call savings. Are you suggesting that that 

figure in your testimony is strictly due to the broker contract? 

What about market conditions? I mean, it is the same broker representing the Federal Government’s—economy of scale, the Federal 

Government the same as the realty specialists represent. 

Mr. MORRIS. You are right there. I see where you are headed. 

That is more of a cost avoidance. The calculation that you are looking at there on the 10.5 percent below market, that is a cost-avoidance savings. And that—— 

Ms. NORTON. And explain that cost avoidance. In other words, 

you are saying GSA is saving—— 

Mr. MORRIS. Our rental rates are below market. That is the only 

thing that is saying. 

Ms. NORTON. Right. But your rates have always been below market. 

33 

Mr. MORRIS. Right. And so the comparable there is, if you are 

trying to say if they are bringing in more savings than if a government person was just doing that without a broker? 

Ms. NORTON. Right. 

Mr. MORRIS. There is little distinction right now because the 

Government is meeting that goal as well. So there is a cost-avoidance there. If you are trying to ask me, is that an additional benefit? It is something that the brokers are bringing to the table, but 

so are in-house people on the—— 

Ms. NORTON. What is it that you say the brokers are bringing 

to the table that the in-house people are not? 

Mr. MORRIS. Well, the big thing there is the rental credits that 

they bring back from their pricing for us that goes back to reduce 

rent. That is a huge savings. 

Ms. NORTON. Although you never asked for the government to— 

you got augmentation that had never been done before, but you 

never asked for this augmentation. Because this whole thing is 

augmentation of the appropriation. 

Mr. MORRIS. Yes. That is why we want GAR—— 

Ms. NORTON. So this augmentation as well. I mean, as long as 

you are talking augmentation, and the government is saving money 

by allowing the private sector here, it is a little puzzling that the 

government would not—for example, you say that you are contracting out to the broker those leases where that fee could be collected. Are you able to contract every single lease to the broker 

where that thing can be collected so at least the agency would get 

the benefit? 

Mr. MORRIS. No. 

Ms. NORTON. That would be a target. Hey, that would be a target. If you are telling me that that money comes back to the government because of free rent, that would be a target. 

Mr. MORRIS. No. We don’t send every commissionable type to the 

broker. 

Ms. NORTON. Why not? You say that there is advantage because 

an agency may get—we understand it isn’t consistent, obviously 

that is negotiable, that has to do with market conditions. But look, 

if they can get the agency 2 months free rent and your realty specialist can’t, and you don’t have any authority from the government 

and never asked for any authority from the government to give 

them equal authority, then why wouldn’t you want to get a couple 

of months free rent in every instance where you could? I mean, you 

have to follow the logic of your own rationale. 

Mr. MORRIS. I think the most effective way to try and approach 

that is, what is the right mix? How do we maintain our core competencies with an experienced, in-house leasing staff to handle that 

core competency? It is very important that the government be able 

to perform, and that we have that ability to do that in-house. 

Ms. NORTON. So what are you saying is important for the record. 

There is some cost to the government that it simply has to assume 

in maintaining a core function. 

Mr. MORRIS. Absolutely. 

Ms. NORTON. What is the status of the current broker contract 

and what are the plans for a new contract? 

34 

Mr. MORRIS. The current contract does expire March 31, 2010. 

And we are in the process now of planning for follow-on contracts. 

RPTS HUGILLDCMN SECKMAN 

Mr. MORRIS. As I mentioned in my opening statement—— 

Ms. NORTON. Would you tell us, without divulging contract-sensitive information, what kinds of changes you are trying to make 

based on experience that the brokers know about, that the public 

knows about, that we know about? What kinds of changes do you 

think are necessary in the broker contract? 

Mr. MORRIS. I think, well, for example, we are trying to determine to what extent and how to price the new contract. I think 

commission-based pricing will be a new element of the new contract. 

Ms. NORTON. Say that again. 

Mr. MORRIS. I think the commission-based pricing will be an element of the follow-on contract. What kind of mix, for example, 

what kind of role that will play is still under discussions. There 

have been, for example, in the past some requests from the regions 

that we, in addition to the full acquisition services that we call for 

under this contract, that we allow for a menu of other services that 

would be on a fee basis, and we have not decided that. That is 

under consideration. 

Ms. NORTON. A menu of other services, like what? 

Mr. MORRIS. Market surveys. I am trying to think of some other 

things, other types of services that they might provide. 

Ms. NORTON. Like financial analysis, those kinds of services? 

Mr. MORRIS. Yes. 

Ms. NORTON. Why not open that up for competition? They are 

not pure broker services. 

Mr. MORRIS. Well, the reason we didn’t do this here and the resistance to doing it in this one is we really wanted to target that 

lease acquisition function. If we have a need for those kinds of 

services, there are a number of those kind of contracts that the 

Federal Acquisition Service, our sister business line at GSA, already has on schedule. And so we have really encouraged the regions in the past when they needed that kind of work to go to the 

schedule contracts to get that because it is quicker and easier. 

Ms. NORTON. I see. How do you know that the broker fee being 

charged in any particular transaction is reasonable? How does GSA 

know it? 

Mr. MORRIS. We have—when we assign the brokers a task, we 

have an orientation meeting where GSA sits down with a broker 

to review what that task order is going to consist of and what a 

market range would be, an appropriate market range in that market, for commission, in that market and for that work. And that 

can be tailored to that particular type of deal and that particular 

market. 

And so when the broker leaves that orientation meeting, they are 

supposed to have basically a sign-off from the contracting specialist 

that, this is the range that they can seek, and it would be within 

that local market range. The follow-up to that—let me just propound to that. When the broker brings offers back to the government, that is one of our important internal controls. We require all 

offers brought back to the government to disclose all commissions 

35 

being paid, not only to our broker but to their broker, and whether 

or not there are any offers that aren’t paying any commissions. So 

we see when the broker brings those offers back to the government 

for an evaluation what—— 

Ms. NORTON. I would think that a higher—there would be a 

higher commission for a large lease over a small renewal, but the 

commission is, as I understand it, the same in both cases. 

Mr. MORRIS. The commission may vary depending on what the 

deal is, depending on what the task is. 

Ms. NORTON. So the commission is not the same in both cases. 

What is the difference—well, let me put it this way, why wouldn’t 

be there be for renewals and extensions, which involves a lot less 

work, let’s say, something more in the nature of a flat fee structure 

because not as much work is necessary if there are to be extensions 

or renewals? 

Mr. MORRIS. Well, there may be—there would theoretically be a 

smaller percentage, but when you say a flat fee, to me, I interpret 

that to mean that we are paying them a fee to do that and this 

is really a commission-based structure—— 

Ms. NORTON. Flat fee. Commission is never flat. 

Mr. MORRIS. Right. 

Ms. NORTON. So I am saying, if a renewal and extension requires 

considerably less work and you know what that work is, should 

that be done on the same kind of commission basis that new business would be done? 

Mr. MORRIS. Well, it really depends. They are not supposed to be 

getting extensions in a routine fashion unless they are getting the 

follow-on work. 

Ms. NORTON. Of course, there is follow-on work. 

Mr. MORRIS. No, I mean the follow-on solution. If it is a 1-year 

extension that should be going to the broker if they are going to 

get that follow-on task to provide a permanent lease—— 

Ms. NORTON. How about renewals? 

Mr. MORRIS. Renewals really aren’t tasked to the broker. That is 

really just exercising an option to renew. We do those in-house. 

Ms. NORTON. So the brokers don’t do those? 

Mr. MORRIS. I wouldn’t say we never do one. 

Ms. NORTON. This is what we are going to expect from the agency. It ought not be what do we do today, what do we do tomorrow? 

This is the kind of work that is most appropriate for the broker; 

this is the kind of work that is most appropriate for in-house. We 

know the moment the lease is signed, therefore we have a way to 

plan our work. That is what the Subcommittee is looking for. 

Mr. MORRIS. Right. 

Ms. NORTON. There have been—I asked the IG about the criticism about the regional contracts. How does the national contract 

address those criticisms? 

Mr. MORRIS. We really wanted to centralize the delivery of the 

contracting for brokerage services because we had a whole lot of 

different contracts going in a whole lot of different directions and 

doing a whole lot of different things. And the IG recognized that 

and their findings in their audit—I mean, the witness was right. 

They didn’t recommend this as the solution, but we came up with 

this as a solution based upon some of the findings that they made. 

36 

Ms. NORTON. Have you found that the problems that they found 

were corrected but through use of a national broker—— 

Mr. MORRIS. I think so, yes. I think so. And the other thing that 

we have been able to do is really put in place the accounting system to track the money. And that was another thing that they 

thought that we just didn’t have a good handle on because, especially in that iteration, right before the National Broker Contract 

when we were trying to capture those rebates, we did a good job 

of capturing the rebates, but trying to handle that money and account for it, we were not doing—it was all over the place, and we 

have improved that by doing this. 

Ms. NORTON. Finally, let me ask you about the problem that 

really concerned everyone, even those who thought this was the 

only way to go, and that is the conflict of interest. There were two 

recommendations. I want to ask about them. One was to modify 

the two dual-agency contracts to ensure that GSA could enforce the 

recommendation resulting from the conflict wall inspections, and 

the other was to establish additional controls to mitigate the internal conflicts of interest created by allowing brokers to represent the 

government while negotiating commissions with building owners. 

Now, the GAO testimony leaves the impression that GSA did not 

implement either of these recommendations. 

Mr. MORRIS. We take the recommendations of the GAO very seriously, and they look at this pretty thoroughly, and they did make 

those recommendations, Madam Chair, and we went back— we 

didn’t ignore those recommendations. We went back, and looked 

very closely at what we had put in place at the time, and the bottom line was, we found what we had in place sufficient, we believe—— 

Ms. NORTON. Why? What is preventing conflict of interest? This 

is in your face, people in the same firm. We have got to be able 

to justify that. 

Mr. MORRIS. I don’t disagree with you there. I will tell you some 

of the things that we have in place. And we were driven to this in 

part, and the GAO witness, Mark Goldstein, mentioned this, because generally speaking the real estate brokerage market has consolidated and has continued to consolidate over the life of this contract, so there are fewer and fewer tenant-only reps, and to increase competition, we wanted to get out to the big national firms 

who have depth and experience nationwide to provide these services. 

So these brokerage firms are regulated, you know, by every State 

in the Union. They have State licensing requirements. They have 

ethical responsibilities. They have conflicts of interest that they 

have to identify for all their clients, not just the government. But 

as the government, we had to go above and beyond what the private sector requires. We have built into our system prohibitions 

against conflicts of interest. So we could not move forward without 

being very—— 

Ms. NORTON. Give me an example. First, how would you know— 

how would the Subcommittee know if there were conflicts of interest going on in a particular transaction? How can we know it? I 

will tell you one thing. I don’t want to find out about it in the 

37 

newspaper, because then they will say, why didn’t they do something about it? 

Mr. MORRIS. Here is what is in place. They are required to have 

their firewalls within each of the organizations so that they keep 

our government information, our work, separate and apart from 

their landlord, the other side of the house, if you will, the landlord/ 

lessor side of the house. The personnel cannot switch sides. If they 

switch sides, they are prohibited from coming back and doing government work for at least 6 months in that particular market. So 

we have a dedicated team from these dual-agency brokers who are 

doing only government work, only tenant rep work. Their systems 

and the information are kept separate and distinct. So these are 

the kinds of firewall things that we have in place. 

Ms. NORTON. Completely separate computers? 

Mr. MORRIS. Yes, the systems are separate. The personnel may 

be in the same building, but they are separated, and their systems 

are separated. And it is my understanding that, to some expense, 

they had to go to that to meet those kind of government requirements. But besides that, whenever they are—— 

Ms. NORTON. What monitoring, what inspection is done if there 

is ever some—this is only a precautionary question. I have no evidence whatsoever, no reason to believe that people are not complying with the firewall. But if—you can imagine what kind of terrible scandal it would look like if such a terrible problem were occurring. So now that you have a broker contract, now you have another burden. They have got a separate system. You just indicated 

how they operate. How do you know that? 

Mr. MORRIS. We go out and inspect. 

Ms. NORTON. Tell me about that. How often—— 

Mr. MORRIS. Over the life of this contract, we have been out 

twice. We went out at the beginning when we set the contract up, 

and we even went back as part of the followup after this GAO recommendation and said, we found that the firewalls are in place. 

Ms. NORTON. So you didn’t agree with the GAO that you should 

modify the dual-agency contracts. Did they want you not to have 

dual-agency contracts? 

Mr. MORRIS. No. Their recommendation was, we think you ought 

to go out—we think you ought to make sure you have got adequate 

controls in place and modify the contracts to increase those controls 

if necessary. We went out. We did the inspections. We thought that 

what we had in place was sufficient, and so we chose not to modify 

the contracts to do anything else. So it was not like they told you, 

you should go make these particular changes—— 

Ms. NORTON. Well, they said you should institute additional controls—— 

Mr. MORRIS. Without being specific. They didn’t say which controls. So we went out and looked and felt like we had sufficient 

controls in place. 

Ms. NORTON. So far, so good. At least we haven’t learned anything different. But I would caution you in these hard times, this 

is the way you get slippage. People are in trouble. 

Mr. MORRIS. And I want to point out that that is not the only 

thing we have in place. 

38 

When a broker is tasked with an assignment, they have to—they 

are going to do a lease in a particular delineated area in a market 

around the country, they have to look at what they already have, 

who they already have contracts with in that market and report 

back to us before they start work. They have got a finite time to 

come back and say, we represent the following office building owners in this delineated market and the—that was part of the way 

we got our waiver was we had to make sure that we were neutralizing or mitigating these potential conflicts. So the government had 

to make a decision as to whether or not in the face of these potential conflicts that they have, whether it was in our best interest to 

pull that task order and reassign it to another broker or to bring 

it in-house. 

Ms. NORTON. Did they have to certify as they sign a lease that 

they have abided by—does somebody have to sign on a dotted line 

that the conflict of interest controls have been enforced in this—— 

Mr. MORRIS. Yes. And we have gone out and audited that. The 

IG has found that the vast majority of our organizational conflicts 

where the brokerage houses are already representing people, they 

are in the files. Those disclosures are in the files—— 

Ms. NORTON. That is already—I am saying at the end of the 

transaction, where both functions were in the same entity, does 

somebody have to certify that there has been no breach of the conflict of interest wall? 

Mr. MORRIS. You mean like a follow-up—— 

Ms. NORTON. A rule—— 

Mr. MORRIS. Clearance—— 

Ms. NORTON. Somebody, for example, the person who is the 

broker who has carried out the lease. Does the head of the company have to certify that there has been no breach—— 

Mr. MORRIS. I don’t think I think there is a follow-on certification 

at the end of each transaction. 

Ms. NORTON. For your own safety, you need to have someone certify that that breach—given the fact—you can only do so much 

monitoring. You go out twice a year. Somebody has to take responsibility for it. When people have to take responsibility, they get to 

be very honest. 

Mr. MORRIS. Right. I hear what you are saying. 

Ms. NORTON. And whoever is the appropriate person ought to 

take responsibility for certifying that the conflict of interest regulations—obviously, we want to look at them in connection with—or 

guidance in connection with the new contract as well, have indeed 

been observed with no breach, signed John Jones, who takes responsibility for it. That means somebody on the inside understands 

that, at the top of the agency, he is accountable. That is very necessary to do. 

Thank you very much, Mr. Morris. 

Mr. MORRIS. Yes, ma’am. Thank you. 

39 

TESTIMONY OF DEMETRA ′′DEBBIE′′ VELTSISTAS, CB RICHARD 

ELLIS NATIONAL BROKER ACCOUNT TEAM LEADER; JULIE 

RAYFIELD, SENIOR MANAGING DIRECTOR, STUDLEY, INC.; 

AND CHRISTOPHER ROTH, REGIONAL DIRECTOR, JONES 

LANG LASALLE, AND PROJECT MANAGER, NATIONAL 

BROKER CONTRACT 

Ms. NORTON. The next panel is important for us to hear from. 

Private sector panel, Julie Rayfield, senior managing director of 

Studley; Christopher Roth, project manager, Jones Lang LaSalle 

Americas; Demetra Veltsistas, account executive, CB Richard Ellis 

Real Estate Services. 

You may go in any order you choose. 

Why don’t you start? Is it Ms. Veltsistas? 

Ms. VELTSISTAS. Yes, ma’am. Good afternoon, Madam Chair, 

Congressman Diaz-Balart, and distinguished Members of the Subcommittee. 

My name is Debbie Veltsistas, and I am the National Broker 

Contract account leader for CB Richard Ellis. Thank you for inviting me to appear before you today to discuss our experience with 

the GSA National Broker Contract. We are proud of our excellent 

working relationship with the GSA’s Public Buildings Service in 

support of their mission of providing a superior workplace for the 

Federal worker and the best value for the American taxpayer. 

This morning I will talk about the National Broker Contract 

from CB Richard Ellis’s perspective. The National Broker Contract 

benefits the GSA, its employees, the agencies it supports and the 

U.S. taxpayers in many ways. Among the principal benefits are the 

following: using industry knowledge and practices to assist GSA to 

achieve the most advantageous economic outcome for the taxpayer; 

enhancing the GSA’s capability to manage its large annual volume 

of lease transactions; and ensuring that Federal employees are 

equipped in a timely manner with a modern, efficient workplace. 

We believe that each of these benefits have already been realized 

during the current term of the National Broker Contract and that 

the GSA will even see more benefits as time goes on. 

CB Richard Ellis is actively involved in transactions and related 

post-award construction management services in all 11 GSA regions. We support the GSA with a core team of dedicated professionals located in McLean, Virginia. Our work begins when we receive a task order for the lease-related services from the GSA. We 

promptly conduct a rigorous conflict-of-interest review and assemble a task-appropriate team of commercial real estate experts. 

That team guides the transaction from the task order assignment 

through occupancy. We have a network of field brokers across all 

11 GSA regions who provide local market expertise. 

Both the GSA and CB Richard Ellis are committed to the effective use of small businesses. In furtherance of that commitment, 

we partner with qualified small businesses throughout the country 

to assist in the implementation of GSA assignments. Throughout 

the process, we align our execution to support the GSA’s goal of 

fair and open competition for all procurement opportunities. We report monthly to the regional GSA offices on the status of our assignments. In addition, we participate in quarterly meetings with 

40 

GSA representatives at which we review the quality of our work on 

each transaction. 

The GSA provides strong oversight on every aspect of our account management as well as each transaction. Their quality control is applied regionally and nationally. They exercise prudent supervision of all of our work. Everything that we do to support the 

NBC is fully transparent to the GSA. 

The value of the National Broker Contract to the American taxpayer is realized through achieving below-market rental rates and 

lowering the overall costs of the tenant improvements. In addition, 

the National Broker Contract allows for the GSA to spend more 

time focusing on the requirements of the client agencies. These significant value achievements for the American taxpayer are a direct 

result of the National Broker Contract’s purpose, which calls for 

the GSA to partner with national, private sector, and small business commercial real estate firms who are uniquely qualified to 

provide consistent cost-effective and high-quality leasing and real 

estate post-award construction management services to GSA and 

its client agencies in a fully accountable and transparent manner. 

The National Broker Contract enables the GSA to partner with 

private third-party commercial real estate firms in order to realize 

proven economic savings for the American taxpayer and significant 

efficiencies for the GSA and the agencies it supports. For organizations such as the GSA that have large and often complex commercial real estate needs, the type of partnering that the National 

Broker Contract provides is not only prudent but increasingly the 

industry standard. CB Richard Ellis’ experience as an industry specialist in such partnerships is that the benefits that the GSA and 

the American taxpayers will realize as a result of the National 

Broker Contract will only increase as the partnership continues to 

evolve. 

We are honored to be a partner with the GSA and stand ready 

to continue to support the GSA’s mission. 

This concludes my formal statement. I am pleased to answer to 

the best of my abilities any questions that the Subcommittee may 

have with regard to the contract. Thank you. 

Ms. NORTON. Thank you, Ms. Veltsistas. 

Mr. Roth. 

Mr. ROTH. Good afternoon, Madam Chair, Ranking Member 

Diaz-Balart, and Members of the Subcommittee. 

My name is Chris Roth, and I am a regional director of Jones 

Lang LaSalle and the project manager for our National Broker 

Contract. I have been in this role for the past 2 years, bringing to 

it my 18 years of experience in the real estate and construction industries, 5 of which were focused on Federal Government contracts 

notably in support of the military housing privatization initiative 

for the Department of Defense. 

Jones Lang LaSalle is not solely a tenant representation brokerage firm, though having merged with the Staubach Company in 

July of 2008, our GSA National Broker Contract volume has doubled. 

I am pleased to appear before you to discuss Jones Lang 

LaSalle’s experience with the GSA’s first National Broker Contract. 

You may know well a few of our successes on the contracts: 

41 

144,000-square foot lease for the U.S. Equal Employment Opportunity Commission now in NoMa, having moved from the CBD; a 

49,000-square foot lease for the Broadcasting Board of Governors 

in Miami, Florida; a 71,000-square foot lease for the Consumer 

Product Safety Commission in Montgomery County. 

How would we evaluate GSA’s first experience? We would look 

to some of the GSA’s own objectives. One objective was to obtain 

better pricing for the GSA’s customers and the taxpayers. A component of pricing, as we see it, is the GSA’s direct compensation to 

brokers. This amount can be quantified as zero. Jones Lang LaSalle has received no direct compensation from the GSA for its 

services nor reimbursement for any expenses. 

The contracts have required us to hire specialized personnel, construct office space, augment our information technology controls, 

and travel extensively in order to perform. As is customary in commercial practice, we are permitted by the contracts to negotiate a 

market commission to be paid by the landlords. 

A second component of pricing is the rent paid by the GSA’s clients agencies. According to the GSA’s independent metric, we are 

negotiating rents more than 11 percent below market rent 

midpoints, exceeding the government’s expectation set at 9.25 percent. 

A third component of pricing that should be taken into consideration is the rebate of market commissions, dollar for dollar, that 

goes directly toward GSA’s client agencies’ initial months of rent. 

By our calculations, this rebate has accumulated over $16 million 

in direct rent savings to government agencies. 

Another objective was to increase flexibility in contract administration. We are able to respond quickly, and we work nights and 

weekends to find space when the GSA agency customers have an 

urgent and compelling need. For example, in August of 2007, we 

were engaged to secure multiple trailer pads for FEMA to house 

tornado victims and their families in northeast Minnesota. In July 

of 2008, we were engaged to find space for several agencies, DHS, 

IRS, U.S. Marshals, probate and bankruptcy courts, two senatorial 

offices, and the GSA’s own field office in Cedar Rapids, Iowa, due 

to flooding. We finished seven leases in 30 days in this non-FEMA 

task. Most urgent and compelling assignments have been for a single lease and are awarded in 7 to 10 days. 

Another objective was to provide more consistent service for 

GSA’s agency customers. With a team of 24 professionals dedicated 

to the contract and a flexible workforce of more than 100, we have 

built institutional knowledge about specific agency requirements 

and tendencies. I see this knowledge shared almost daily across our 

team. 

Without regional barriers, our dedicated team provides better 

and more consistent services to the GSA’s agency customers. While 

a handful of larger high-profile leases in major Metropolitan markets may steal the show in the media, such leases misrepresent the 

true nature of our typical transactions. More than half are less 

than 7,125 square feet. 

Geographically, we work from Nome, Alaska, to Guaynabo, Puerto Rico; from Pago Pago in American Samoa to Auburn, Maine. The 

volume of transactions we are handling for the government is 

42 

steadily increasing every consecutive year. Of the 1, 275 task orders we have been assigned under the contracts, we are proud to 

have assisted the GSA in awarding 610 assigned leases to privatesector landlords. 

Jones Lang LaSalle is pleased to participate in the contracts to 

date. Yes, they took longer to perform well than both we and the 

GSA anticipated, and we have offered to the GSA a thorough perspective on lessons we have learned. We do however believe the 

contracts work to benefit the GSA, us as contractors, the landlords, 

and the American taxpayer. We have learned to work together with 

our GSA counterparts to get better pricing for GSA’s customers and 

the taxpayers, provide procurement flexibility, and deliver more 

consistent services to the GSA’s agency customers. 

I would be happy to answer any questions that the Committee 

may have. 

Ms. NORTON. Thank you, Mr. Roth. 

Ms. Rayfield. 

Ms. RAYFIELD. Good afternoon, Madam Chair, Ranking Member 

Diaz-Balart, and Members of the Subcommittee. 

I am Julie Rayfield, a senior managing director of Studley, Inc., 

a privately held employee-owned commercial real estate services 

firm dedicated solely to representing tenants or users of real estate. 

As one of the three National Broker Contracts on the contract 

since its inception, Studley maintains a team of over 40 professionals dedicated to working on this contract, including several 

small, disadvantaged commercial real estate firms with whom we 

have partnered for the life of the contract. 

To date, Studley has been assigned 691 task orders totaling 13.2 

million square feet throughout the U.S. and its territories. These 

transactions range in size from under 200 square feet to over 

500,000 square feet with 60 percent of these assignments under 

10,000 square feet. 

Regardless of transaction size or location, though, GSA demands 

of us, and we deliver the same high level of attention and quality 

of service on each of these requirements. GSA works closely with 

each broker contractor and monitors our work on every transaction, 

evaluating us at six distinct project milestones based on five individual evaluation factors. We are also rated overall on the financial 

terms of the transaction measured against the market. Studley has 

negotiated rental rates that are 13 percent below market, well 

below GSA’s goal of 9 percent below market. 

One example I would like to use to highlight this point is the significant GSA lease award for the Department of Justice at 145 N. 

Street Northeast in Washington, D.C., which will consolidate elements of the DOJ at this NoMa location. This lease has awarded 

$40 million net present value dollars below the prospectus level 

rent for a 15-year term and was a catalyst for the development in 

an emerging area of Washington, D.C., where prior lease actions 

met with resistance by client agencies. 

The National Broker Contract, as you have heard already today, 

is defined as a no-cost contract. There are no Federal Government 

funds expended for the National Broker Contract services. We are 

compensated by successful offerers who pay market commissions to 

the broker teams upon lease award. We receive market commisVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
43 

sions and cannot accept an above-market commission, and I would 

like to emphasize that we do not make the decision as to which 

landlord ultimately receives the award. We work at risk and receive no compensation until and unless the lease is fully executed. 

We are also responsible for expenses, all expenses related to the 

execution of each transaction. All overhead, compensation and expenses related to a transaction are paid for by the broker teams. 

The mechanism for the broker team compensation allows the 

government to secure the value of leasing commissions that are already embedded in market rental rates and which would otherwise 

accrue solely to the benefit of the lessor. 

Each broker team credits a portion of the commissions earned 

back to the government in the form of free rent which is reflected 

in the lease in the form of commission credits. Studley, Inc., credits 

51.5 percent of its commissions to the government. To date, Studley 

has earned $31 million in commissions nationwide, which includes 

the money paid out to our subcontractors, and we have credited 

$33 million to the government. This is over a period of 4 years. 

Of the previously referenced 691 task orders assigned to Studley, 

as I said, 60 percent of which are below 10,000 feet, the commissions on those completed leases average $20,000 per lease, and the 

cost of executing these transactions in terms of time and expense 

far exceeds this commission amount. 

The National Broker Contract provides a number of additional 

benefits. Post-award services delivered to GSA is one such example. 

In summary, the partnership between GSA and the broker teams 

has resulted in the successful melding of Federal Government procedures and private-sector-oriented results. The broker contract 

provides GSA with access to valuable broker services, substantial 

rent abatement at no additional cost to the Federal Government. 

The National Broker Contract also allows GSA to leverage its national position, taking advantage of the best financial terms offered 

and providing consistent service nationwide to its client agencies. 

While the broker teams focus on transactions and using their expertise to secure space at the most reasonable rates, GSA is able 

to focus on customer service, strategic planning, portfolio management, and policy guidance to agencies and their entire team. The 

broker contractors do not make inherently government decisions. 

Madam Chair, Ranking Member Diaz-Balart, this concludes my 

prepared statement. I am pleased to answer questions that you or 

other Members of the Subcommittee may have about my company, 

Studley, and its role in supporting GSA’s National Broker Contract. 

Ms. NORTON. Well, I particularly want to thank each of you for 

your testimony because you are the folks that we have been talking 

about. We always like to talk to folks rather than about them because you have the real experience. 

In our oversight, we ask tough questions, not because we doubt 

the value of your services but because that is our job, particularly 

with GSA, which, in our experience, does not bring to the table the 

rigor that we sometimes find at least in the private sector and that 

we would like to see in the agency and indeed in the handling of 

these contracts. 

Now, I do want to say to each of you, because each of you have 

talked about meeting targets for government savings in leasing 

44 

below—or actually that you have been below the targets, but we 

have had no testimony here, and you have heard the testimony, to 

indicate that there was a difference between the realty specialists 

and the contractors. And we think that that has a lot to do with— 

we think that has less to do with either the realty specialist or, if 

you will forgive me, you. It has to do with who your client, the Federal Government. 

And our problem with the Federal Government, in this case GSA 

and PBS, is, we want to see more of taking advantage of its role 

in the market. But I do not know how these claims can be made 

due to personnel when no one has offered any evidence to us that 

these claims are not attributable to at least a dozen factors I could 

name, such as the market and the government’s position in the 

market. So I accept what you say, but I don’t accept that that is 

what the broker contracts are brought to the table, unless you are 

prepared now to indicate that there is something specific to broker 

contracts apart from factors such as those I have named given the 

evidence that the in-house folks and broker contractors perform approximately the same. 

Do you have any evidence to the contrary? I mean, I am not 

questioning the value of the broker contracts or trying to reestablish a whole new section of GSA. I just want to answer any questions that are put to me, especially since I am on another Committee which has not experienced the benefit, for example, that the 

government has experienced from your at least being able to rebate 

to the agency some of what the government in its wisdom has not 

acquired for itself. I mean, there I see a real benefit. But I will be 

darned if I can see a naked benefit other than that. 

And that I am not even sure was not correctable, and even if it 

was correctable or is correctable, you would still have broker contracts because, as you have heard, the goal is not to contract out 

everything in the first place yet acknowledges it as a core function. 

So unless you are able to show something that, I have to tell you, 

that in my experience in Oversight and Government Reform, most 

people in contracts are not able to show. 

Most people in contracts are not able to even tell us what the difference is, whether they are below or above. They simply assert it. 

Here with the IG documenting what you have done, what the realty specialists have done, I accept that you are more than meeting 

your target. We are going to require GSA to have the same kind 

of targets. I am not sure we even asked that, the same targets for 

the in-house people. I would think that the private sector, who has 

to compete with these contracts, wants to get the best deal because 

they want the contract to be renewed. Well, I think that they 

should be setting the mark for the in-house folks. Hey, you have 

got to do at least as well, perhaps better, but at least as well as 

the broker contractors. 

Do you know anything about how well they do compare to your 

own performance? 

Ms. RAYFIELD. Madam Chair, I can state that we are not familiar 

directly with the way in which GSA evaluates its internal personnel. We are only able to communicate to you the information 

that we receive—— 

45 

Ms. NORTON. Yes, I am aware of that. You don’t have any way 

to know that—— 

Ms. RAYFIELD. They do not share that information—— 

Ms. NORTON. And their IG tells us there is not any difference. 

I am simply using you to say, hey, they can do it; why can’t you 

do it? And I congratulate you on doing it. 

How much of what you are doing today—you have been in the 

business when it was much better than it is today. Are you able 

to reap any benefits from—with the government from the down 

market that the government now operates as a part of, any of you, 

as you—— 

Ms. RAYFIELD. If I could, Madam Chair, just say that my business and my team’s business is both oriented in the private sector 

as well as working with the government. What we do believe that 

we are able to bring to the table is a significant expertise as it relates to private-sector practices in commercial real estate and bring 

that information and that knowledge and that expertise to bear on 

our work with the Federal Government, which I do believe was 

originally one of the objectives that GSA had in bringing broker 

contractors on board, was to be able to tap that private sector 

knowledge base and expertise. 

Ms. NORTON. But we have not seen any difference in the performance. I don’t think you should underestimate people who every 

day have to deal with the private sector the way you do. You are 

no different from them except that they happen to work for the 

Federal Government. They have got to understand the market. 

They have got to be able to negotiate the same way you do, so I 

don’t see that—if they don’t have the skills, the exact same skills 

that you do, they shouldn’t be working for the GSA, as far as I am 

concerned. 

Ms. RAYFIELD. Well, we do have the opportunity, Madam Chair, 

to work with institutions and with real estate organizations in the 

private sector that provide us with very good insight on critical 

issues that relate to our ability to effectively advise GSA and work 

with them on their transactions, everything from financial structuring to understanding the financial markets that are in play at 

any given time, you know, with real estate transactions, and we do 

bring that type of expertise to bear because we are doing it on a 

regular basis and working also directly in these markets. 

One of the things that I heard said earlier today related to working in local geographic markets, and I think it was stated by some 

of my co-panelists here that we actually do utilize our brokers who 

are in local markets. We don’t just work out of Washington, D.C. 

We have experts who are out in the markets working in their markets of expertise throughout the country. 

Mr. ROTH. Madam Chair, if I could comment, not only are we not 

privy to the information on the performance of the GSA’s employees, but not even to each other’s, so what—— 

Ms. NORTON. Especially not to each other’s. 

Mr. ROTH. Especially not to each other’s, other than what has 

been said in this testimony. So we focus on our own performance. 

We are pleased to be exceeding the measures, certainly, and 

though I would agree with you that—— 

46 

Ms. NORTON. I have asked whether—and we should have asked 

GSA whether or not they are using the same measures this year 

that they were using 2 years ago, for God’s sake. If you are the government looking for leasing, you are a rare bird in the market 

today. Are you finding that there are any advantages to representing the government in this market? 

I asked that question before, Ms. Rayfield, and didn’t get an answer. I would like to know, are we taking—that is one of my driving goals, to not have the big kahuna sitting up here acting as 

though it was a small business realtor. 

Mr. ROTH. I can tell you absolutely. The driving force between 

below-market rents is the full faith and credit of the U.S. Government—— 

Ms. NORTON. Surely it is. Surely it is. 

Mr. ROTH. That is more powerful than the negotiation ability of 

a broker. I am not saying that the negotiation ability in the tens 

of years of experience in major markets doesn’t benefit the government in all of our work incrementally. 

Ms. NORTON. No, I am sure you don’t. It is just that it is very 

easy, and I don’t blame you, frankly, for spending your own expertise. I suppose I take umbrage that the Federal worker is deprecated. I happen to have the highest regard for GSA personnel 

and lament how they have had a terrible brain drain, but I know 

that it is not even them. It is exactly what you say. It is whom they 

represent. If they are halfway competent, they ought to be able to 

get a good deal. 

I continue to ask, were you representing the government in any 

contracts 2 years ago, any and all of you? Is there any difference 

today in the deal you can get for the Federal Government? 

Ms. RAYFIELD. Madam Chair, absolutely. We are definitely seeing very aggressive deal structures that we are able to obtain at 

this point in the market—— 

Ms. NORTON. Lower rent leasing rates for the government—— 

Ms. RAYFIELD. Absolutely. We are about to complete a leasing action here in D.C., resulting in a lease in the ballpark area, and 

they are extremely—I can’t at this moment divulge it. It is just 

closing. But it is extremely aggressive rental rates and overall 

structure that is setting a new low in the marketplace, absolutely, 

yes, ma’am. 

Ms. NORTON. I mean, the buyers’ market does not—does not 

characterize what your advantage should be. We deal in construction with the top people in this industry. We deal with all the owners. We know. We can see no signs of even people at the very top 

who could always get financing who can’t get it and are completely 

in pain and hurting, and we are going to have to see from GSA’s 

bottom line that GSA is taking advantage of that. We are going to 

have to see it over at—in the contracts that it is negotiating with 

the Department of Homeland Security. Imagine getting that kind 

of work in this economy. Well, we are concerned that increasingly 

these folks are in the leasing business, and they have got to learn 

to deal with—and, of course, they have. At least that is the evidence according to the IG. As the economy rolls up or down, it 

needs to reflect the expertise you bring and that we expect them 

to bring. 

47 

Now, we understand that the Studley Company agreed to credit—our figure is, and I think you may have offered a different figure, 51.5 percent of its commission to the Federal Government in 

the form of the free rent that we discussed with a prior witness. 

What percentage did CB Richard Ellis commit? What percentage 

did Jones Lang LaSalle commit? 

Ms. Veltsistas. Madam Chair, for CB Richard Ellis, we had 37 

percent of our commissions on the 1st and 2nd year; 38 percent on 

the 3rd year; 39 percent on the 4th year; and 40 percent on the 5th 

year. Thank you. 

Mr. ROTH. I am overseeing two contracts. The Staubach contract 

is at 31 percent, and the JLL contract escalated year by year. It 

began at 26 and is now at 34 percent. That information was in the 

GAO’s first report as well, I believe. 

Ms. NORTON. In securing a contract, any big contract, the GSA 

has factors. It grades. There are significant differences among you. 

It is my information that GSA does not compete the amount of this 

give-back, rebate, commission, call it by any polite name you will, 

that it is not a factor in the competition. Is that your understanding? 

Ms. RAYFIELD. Madam Chair, the commission credit back to GSA 

was competed as a part of the original contract. We all had to submit information related to our technical qualifications as well as 

our pricing, so that was initially a part of the competition. And it 

is not further competed on individual task orders but was competed 

on the contract overall. 

Ms. NORTON. That must mean that, among other factors, you all 

must have been the top three in those factors. Why is there a difference between—why is Jones Lang agreeing to 51.5 percent and 

go down from there to the other two? 

Ms. RAYFIELD. Madam Chair, Studley is the broker contractor 

that gets 51.5—— 

Ms. NORTON. I am sorry. The other two. I am just using something as a marker. Why not the same for the other two contracts 

and—— 

Mr. ROTH. I was not around at the time this was bid, but I do 

price contracts for JLL with the Federal Government, and what we 

do is price to win, and what we think is the most competitive without any information about what our competitors are going to price 

at. We escalate it over the years, assuming that there would be a 

learning curve and that we would learn more about the contract 

and therefore have less overhead, less expenses, and that is why 

our rebate increases over time. 

Ms. Veltsistas. Madam Chair, similarly to JLL’s comments, we 

price it to win. And we also escalate it over the course of the contract to where we are today at 40 percent. 

Ms. NORTON. Your companies are all about the same size or not? 

Ms. Veltsistas. I can’t really speak for JLL, but I would say we 

are similar in size, but I believe that, as far as staffing, we have 

30,000 folks on the CB Richard Ellis team. We have 158 offices in 

the U.S., and we offer over 300-plus global corporate services, corporate clients that we manage as part of the CB Richard Ellis 

team. 

Mr. ROTH. We have around 13,000 employees in the Americas. 

48 

Ms. NORTON. How many did you have? How many employees? 

Ms. VELTSISTAS. 30,000. 

Ms. NORTON. And you have? 

Mr. ROTH. I am saying 13,000 in the United States. 

Ms. NORTON. You are talking about the United States. 

Ms. VELTSISTAS. No, globally. 

Mr. ROTH. I do not know the number globally. 

Ms. RAYFIELD. And Madam Chair, Studley has approximately 

350 brokers and 200 staff members in the firm and 20 offices 

across the country. 

Ms. NORTON. Well, GSA, I am sure, will have a reason for why 

it accepted the differences. We will find out what those reasons 

were. 

Small business plan, that is of great interest to this Subcommittee. Would you each explain what your small business plans 

are, how you monitor those plans, what small businesses you have, 

what number, any information you can give us to document your 

small business plan? 

Ms. VELTSISTAS. Madam Chair, the detail of the small business 

plan, I don’t have the specifics available this afternoon, but I can 

certainly follow up with those. 

But our goal with GSA was 25 percent. We are currently exceeding that goal; we are at 31.9 percent. We have given $5.9 million 

to our small business firms in support of the GSA contract. 

Ms. NORTON. Would you submit for the record here your small 

business plan and who have gotten those contracts? 

Ms. VELTSISTAS. Who have gotten the contracts? 

Ms. NORTON. Small businesses. 

Ms. VELTSISTAS. The Names of the small businesses? 

Ms. NORTON. That you have had to deal with. So whatever that 

percentage you just said, 39, or whatever percentage that is. 

Ms. VELTSISTAS. Right. Our small business firms that work with 

us? 

Ms. NORTON. Yes. 

Ms. VELTSISTAS. The names? 

Ms. NORTON. I would like you to submit that for the record. I 

would like all of you to do it. 

Mr. Roth. 

Mr. ROTH. Sure. Our small business goals are 25 percent of subcontracted dollars. Since the inception of the contract, we have 

used predominantly a single, disabled-veteran-owned business here 

in Washington, DC. 

Ms. NORTON. Why is that? 

Mr. ROTH. Because, initially, we found them to be the most suitable partner, able to do both the post-award services and the leaseacquisition components. Though we still retain them, we have now 

gone in some areas to other small businesses or small brokers that 

can help us out. 

Ms. NORTON. How many, Ms. Veltsistas, how many small businesses do you deal with in your small business plan? One does not 

sound to us like a small business plan. It sounds like, to us, that 

you find—this is what contractors do. There is some risk in hiring 

small businesses. The Federal Government says we want and demand small business outreach. And the contractors who simply go 

49 

to a small business may or may not be meeting that requirement. 

It doesn’t sound to me as though one does or gives many opportunities for small businesses in this business. 

Ms. VELTSISTAS. Madam Chair, C.B. Richard Ellis currently has 

eight small business firms, and we are in the process of signing up 

two more. We have firms that do specifically just the front-end brokerage fees. We also have firms that do the whole procurement 

from start to finish. We also have some firms that do the postaward services for us. 

Ms. NORTON. You are going to have to break it up to do anything 

with small businesses. And guess what? They will come to me, and 

they will complain that we can’t get any small business real estate 

business from the GSA. And no, you are not going to be able to get 

the same kind of business you do, Mr. Roth, from a small business. 

Sure, that is the easiest way to do it; I got one I signed on the bottom line, that is all I need to get. 

We are trying to increase small business use within the Federal 

Government and certainly within the GSA. So we really do need 

to see that there is some outreach; otherwise we believe only the 

letter, not the spirit—indeed, I would argue that even the letter 

isn’t being—it could be somebody’s brother, you know, that is really 

not what we mean, Mr. Roth. And I don’t want to have them on 

my doorstep. I am going to send them right to you. So I suggest 

you look for more small businesses than one. 

Ms. Rayfield. 

Ms. RAYFIELD. Thank you, Madam Chair. 

We took an approach under this contract when we were organizing ourselves to respond to GSA’s RFP, which was to reach out 

to small business concerns around the country in the different GSA 

regions and find professionals who had very solid, strong experience working with GSA in the past and understood how to handle 

GSA lease procurements, and who had a very good strong record 

of performance with GSA. 

In essence, what we have done with these firms is we have 

partnered with them for the life of the contract. They are absolutely integral to our team and the execution of our work. They 

signed on with us at the beginning of our contract, and they have 

all been with us through the duration. 

Ms. NORTON. How many? 

Ms. RAYFIELD. We have a woman-owned small business that 

handles region 10. We have a small service-disabled veteran-owned 

firm who handles all of region nine for us. We have two womanowned small businesses who support us in region four. And we 

have a small disadvantaged woman-owned 8A business who does 

all of our post-award work for us in regions one, two, three, and 

some of our work here in NCR. And we are increasing the scope 

of her work as she is able to bring on additional staff members. 

Ms. NORTON. So you have five? 

You see why you need more, Mr. Roth? 

Did you say you did a—who did the RFP? 

Ms. RAYFIELD. We did not issue an RFP, but when the GSA 

issued their request for broker contractors to submit proposals, at 

that time, they had requested we submit information on our team 

structures. It was at that point, before we even ever were awarded 

50 

the contract, that we reached out and developed partnerships with 

these small business concerns. 

And Madam Chair, if I could just emphasize that these aren’t 

professionals who work with us on one-off transactional basis; they 

handle all of our work with us in close coordination with us in 

these regions. They have substantial integral roles as partners with 

us on this broker contract. 

Ms. NORTON. This notion of partnering with small businesses is 

really important. That is why, Mr. Roth—who comes from Jones 

LaSalle—yes, you will not find full-service, small business real estate people as easily. I must say, I endorse the notion of 

partnering. We want them to learn as much of the business as we 

can. We don’t insist on any particular form it takes, but we know 

what our goal is. And we know that if you are just looking for 

someone who is the easiest person to find, you really aren’t reaching, particularly when you consider how large this firm and business in D.C., the notion of not partnering—if you don’t partner, you 

might not be able to do it. And you won’t be able to meet our goal, 

which is to spread the expertise that only larger firms have to 

smaller businesses. I have got to get out of here soon. 

I do need to know, have you found any of your broker deals falling through? 

Mr. ROTH. By falling through, I will assume, due to the economy, 

is that—— 

Ms. NORTON. Due to the economy, or any other reason. 

Mr. ROTH. We haven’t had any fall through. We have had many 

that we are concerned about, primarily due to developers in lease 

construct task orders, finding their construction financing. And in 

addition, often permitting issues and those sorts of things are slow 

to come to fruition. 

Ms. NORTON. Ms. Veltsistas, you talked about your rigorous conflict-of-interest review. 

And I am sure that all of you are aware, would any of you see 

any problem with having the firms certify that the conflict-of-interest guidance has been fully met when you do a transaction with 

GSA? 

Ms. VELTSISTAS. We would have no issue with that at C.B. Richard Ellis. 

Ms. NORTON. And there may be something I don’t see. I am just 

trying to do what all of us have to do. You can believe I police my 

people because I can’t say only LA did it, I have to take personal 

responsibility. And we are not in there looking over your shoulder, 

and shouldn’t be, nor do we doubt your integrity. We believe in 

your complete integrity. But somebody has to feel responsible. That 

is why certification occurs to us as an additional safeguard. If there 

is something about the industry that I don’t know that would make 

it difficult, then speak up or forever hold your peace. 

There were complaints from—and we can understand it, where 

the first contracts complain about things the government makes 

you do that you didn’t otherwise do. You understand that now. Are 

there any recommendations that you have for GSA regarding the 

new contract? 

Ms. RAYFIELD. Madam Chair, if I could speak specifically to the 

question that was raised earlier and you just alluded to regarding 

51 

post-award services. We worked very closely with GSA, all of the 

broker contractors did at the onset of the contract to bring clarity 

to that area of service that is required under the contract. 

And I think the comments that have been made refer to the fact 

that the scope is perhaps very general. And we worked very closely 

together over the course of the first 2 years of the contract to make 

it clearer and to remove any gray areas so that we could deliver 

the value to GSA that we anticipated delivering under this contract. And I think once that occurred, that it was an entirely different story. 

So the concern from the brokers related to just making sure we 

were all clear about the specific services that we were providing to 

GSA because post-award services can range from here to here. 

Ms. NORTON. But did they direct you, you need more clarity in 

the upcoming contract? Do you need that? 

Ms. RAYFIELD. I was going to say yes. 

The only other thing that we would hope for in the reprocurement is, again, that it is clearly defined, and that perhaps GSA 

reaches out, you know, for some input from the industry on that 

scope of services because it is a really slightly different area than 

leasing services, particularly project management. 

Ms. NORTON. Oh, I want staff to make this clear; I want GSA 

to sit down—now I have to avoid conflict of interest with the people. I understand there have been two industry forums. GSA had 

a lot to learn about what it had to do in order to make clear what 

it desired or required, so we want to make sure that all that is 

learned in the 5-year contract in fact is incorporated into the new 

one. 

The Ranking Member is back. 

Mr. DIAZ-BALART. Thank you, Madam Chair. 

Thank you again. 

I don’t have to apologize to the Chairwoman because she knows 

where I have been, but I do want to apologize to the distinguished 

panel. I was on the floor voting, so, again, I apologize for not being 

here at the beginning of your testimony. 

I do want to make a couple of observations and then maybe a 

couple of questions, if I may, Madam Chairwoman. 

Staff was trying to get from GSA the real numbers as to what 

the potential savings were based on their lease-cost-relative-tomarket measure. And we know from the conversations and we finally got some, I think, really good numbers. Obviously the goal 

was 9.25 below—market rates I guess is what it would be. They 

also gave us the fact that the brokers are 10.56 below; so that is, 

you all are exceeding the goal, but we also finally got from GSA 

their numbers. And these are not estimates, these are on the 216 

leases. And that is 9.5. So GSA is meeting, and frankly exceeding, 

their goal slightly, but the brokers seem to be exceeding that goal, 

which is obviously a very good thing, by substantially more than 

that. So I think that is just, again, that is why I commended GSA 

for—— 

Ms. NORTON. Would the gentleman yield? 

Mr. DIAZ-BALART. Of course, Madam Chair. 

Ms. NORTON. I commend you for getting those numbers because 

I asked if anyone knew what realty specialists were doing comVerDate Aug 31 2005 14:23 Oct 13, 2009 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 P:\DOCS\51017 JASON
52 

pared to their 10.4. We don’t have that number. But I have announced here that that has got to be the goal for the realty specialists in-house. If they are driving greater efficiency and more savings; they supposedly have the same expertise in this new contract. 

They have to put the same goals on their in-house people. Thank 

you. 

Mr. DIAZ-BALART. Absolutely, Madam Chair. And you and I are 

on the same page on that as well. 

A couple questions that I guess really kind of just adding to what 

the Chairwoman asked a little while ago, which is, there is a bottleneck, and the process takes a long time. Do you all have any recommendations how to accelerate the pace of the lease acquisitions 

so that, particularly now, by the way, the government can take advantage of the current conditions? So anything we can do to speed 

that up. If you have some recommendations now, or if you would 

have some recommendations at a future time, I think it would be 

very helpful. 

Does anybody want to take a crack at it now? 

Mr. ROTH. I will just put one out there. I have provided several 

to the GSA, but one that I think would help the process move 

quicker really throughout are the evaluations. As you have heard, 

we do monthly evaluation meetings in the regions, and quarterly 

evaluations at the national level. We are reviewed on every task 

order at six points across five metrics, and a final. 

What we find in the private sector is that our clients can still be 

very diligent if they evaluate us at a few key milestones among 

some number of metrics so that the number of evaluations seems 

to be extraordinary at this time, and it seems to be occupying a lot 

of the government employees’ time. 

Mr. DIAZ-BALART. Great. 

Madam Chairwoman, you have heard me talk about this issue 

time and time again, and I apologize one more time, and I think 

you and I also share the fact that we both believe that, whenever 

possible, the government should own as opposed to lease. So it is 

kind of a little bit off the subject, but I do want to ask, just because 

we have such great knowledge right here in this panel, would there 

be now, in this market, good purchase opportunities for the government where we have long-term space needs? I have been talking 

about it, and I don’t want to put words in her mouth, but I think 

we all have concerns about the fact that if we could be purchasing, 

it would be a better deal for the taxpayer. Would this not be a good 

time for the government to purchase as opposed to lease, if possible? I am actually kind of asking about the market; what is out 

there? And know it is a little bit off topic, so—— 

Ms. RAYFIELD. Congressman, absolutely. We think this would be 

an excellent time for GSA to take advantage of the current market 

conditions. There are multiple situations here in this market and 

certainly in other markets around the country where there are 

landlords who are in distress, and there are opportunities for GSA 

to be able to step in, through a number of different transactional 

structures, and would be able to take advantage of those excellent 

opportunities right now. They exist, and now is the time to move 

on them, absolutely, sir. 

Mr. DIAZ-BALART. Thank you. 

53 

Thank you, Madam Chairwoman. 

Ms. RAYFIELD. Madam Chair, may I respond to a question that 

you had asked earlier that I just wanted to make a comment on? 

You had asked if we had had any deals fall through. And I just 

wanted to identify, there were three in particular that come to 

mind under this contract that have fallen through for us. One 

would be the VA deal in Washington, D.C. This is not immediate 

or recent; it was 2005, which was a transaction just over 200,000 

square feet that we worked on for well over a year before it was 

canceled. 

Ms. NORTON. You are talking about up at Soldier’s Home? 

Ms. RAYFIELD. This was to be the Lafayette swing space in 2005. 

And ultimately, I believe that it related to funding for the renovation, and we were tasked with the swing space requirements. We 

worked on that for a little over a year, and then that was canceled. 

We also worked on the Department of Commerce that same year. 

It was the same scenario. It was the renovation of the Department 

of Commerce. We were tasked with finding the swing space. That 

was 324,000 square feet. That was also canceled close to a year 

into the procurement. 

And then the third example I would use is actually out in region 

10 at the U.S. Attorney General’s Office, which was a 70,000 

square foot requirement that we actually worked on for 3 years before it was canceled. So I just wanted to respond to that. 

Ms. NORTON. GSA never got the money in the first place, as I 

recall, on those deals. 

Ms. RAYFIELD. Yes. Understandably on the swing space, it was 

the renovation dollars for the Federal buildings. But on the region 

10 U.S. Attorney’s Office, I believe there were other circumstances 

involved that weren’t related to funding. But thank you for the opportunity to answer the question you posed before. 

Ms. NORTON. And all of those were because GSA didn’t get government funds, which when we are talking about swing space— 

these were all swing space? 

Ms. RAYFIELD. Two of those three were the leased swing space 

requirement. 

Ms. NORTON. That is very, very bad, very, very bad, and something we are going to have to look into. When you send people to 

work and don’t have any idea if you are going to be able to go 

through with it, what is the point? 

I do want to say to the Ranking Member that last week GSA did 

say it was going to ask for funds to purchase in this market. It is 

so rare that the government does it. I don’t know, with this deficit, 

but there was that fat $100 million one-time payment in there. But 

it was such an irresistible deal for the government that had virtually no choice but to continue renting that building and poured 

millions of dollars into it; you wouldn’t have thought it would have 

taken them this long. 

I want to thank each and every one of you. This panel would 

have had a huge hole in it, in terms of what we do in proceeding 

with oversight of the broker contract, without your testimony, 

which has been indispensable and very helpful, and we very much 

thank you for that. 

Thank you. The hearing is adjourned. 

54 

[Whereupon, at 1:27 p.m., the Subcommittee was adjourned.] 

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