United Nations: Planning for Headquarters Renovation Is Reasonable; United States Needs to Decide Whether to Support Work
Published: 2001-06-15T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The United Nations' (U.N.) headquarters in New York clearly needs to be renovated, and the Secretary-General will ask member states to make key decisions in 2002 about the future of the renovation. As host country to U.N. headquarters, the United States needs to play a major role in making these decisions if the renovation is to proceed. However, the administration and the Department of State have not yet developed a comprehensive U.S. position on the renovation. Assuming the United States decides to support the renovation, it needs considerable lead time to examine the issues, including what scope of renovation meets U.N. and U.S. needs in the 21st century, what share of the renovation costs would the United States be willing to provide, and what process is needed to ensure that the construction is cost-effective and timely. One option for examining these issues would be to establish a team comprised of experts on construction management and U.N. issues, using appropriate administration resources from State, the National Academy of Sciences, and the General Services Administration.

section_title: Letter
paragraphs: The U.N. headquarters complex in New York City, built largely from 1949 to  1952, is a well-designed and well-constructed landmark that is now aging.  The buildings, particularly much of the original infrastructure, have  exceeded their economic life expectancy.  They are energy inefficient and  no longer conform to current safety, fire, and building codes or to U.N.  technologic or security requirements. U.N. officials have discussed  renovating the 50-year-old complex for about a decade. (See app. I for  information on the U.N. headquarters and construction project planning.)   In June 2000, the Secretary-General presented to the General Assembly a  Capital Master Plan, which provides options for a multiyear effort to  renovate the headquarters.  The Secretary-General’s preferred option was  estimated to take 6 years and cost about $1 billion. In December 2000, the  General Assembly approved $8 million for the Secretary-General to develop  design concepts and associated cost estimates for the renovation and  ensure that all viable renovation options had been considered.
Because the United States is the largest contributor to the U.N. system and  the host country for U.N. headquarters, the Congress is concerned about  the reasonableness of the planning for the proposed renovation and its  potential cost and financing.  To address these concerns, you asked that we  (1) assess the reasonableness of the United Nations’ renovation planning  efforts, including the initial cost estimate; (2) comment on the potential  cost to the U.S. government, including financing options and issues; and (3)  discuss the tentative time frames for key steps in the renovation process.   Because the Department of State, through the U.S. Mission to the United  Nations, is responsible for ensuring that U.S. interests at the United  Nations are met, we also inquired into what role State had played thus far  in the renovation.
subsections: section_title: Project Planning Has Been Reasonable
paragraphs: The U.N. headquarters complex clearly needs to be renovated.  For  example, the Capital Master Plan notes that  “users of the United Nations  Headquarters site...have a lower chance of survival during a fire than they  would at comparable modern buildings…” While still in its early stages, we  believe that the renovation planning efforts to date, including the cost  estimate, are reasonable.  Our opinion is based on the following actions  taken by U.N. officials, which are consistent with typical industry best  practices for this phase of project development—the conceptual planning  phase.
Defined the need for a renovation.  About a decade ago, U.N. officials  identified the need for a major renovation to provide member states a 21st  century headquarters.  To define the technical needs, they competitively  procured the services of a multidisciplinary team of consultants, who  assessed the existing conditions of each infrastructure component.  The  assessments were based on visual inspections and selective probes of the  buildings’ structure and their electrical, mechanical, plumbing, and other  systems.  The assessment reports formed the basis for the Capital Master  Plan conclusion that current building conditions render the headquarters  unacceptable for continued long-term use.
Defined U.N. project expectations. The Secretary-General defined the  project expectation as follows: “The United Nations facility should be safe,  free of hazardous materials, environmentally sound, fully accessible to all  persons and cost-efficient to operate.”  The Capital Master Plan presented a  framework of options that could meet this expectation and preliminary  cost estimates ranging from $875 million to $1.2 billion.  The estimates  were (1) developed using standard industry practices; (2) based on the  condition assessments; and (3) included costs for labor and materials,  project management, and contingencies—all adjusted for the New York  City market and for inflation over the project duration.  However, the  estimates excluded some costs, such as (1) U.N. staff other than for project  management; (2) furniture, fixtures, and equipment; or (3) additional  security measures.  Based on standard estimating literature and our work  looking at the planning efforts, it is our opinion that the preliminary cost  estimate has a margin of error of 20 to 30 percent.   The estimates will be  refined after the scope of the renovation is decided and further design work  is completed.
Recognized the value of a project management plan to guide  decisionmaking. U.N. project officials acknowledged the value of a project  management plan that could include (1) a statement of project goals and  objectives; (2) options for management of the project; (3) project  implementation schedules; (4) details about how the renovation would  affect day-to-day U.N. operations; and (5) observations about how U.N.  stakeholders, including member states, employees, the city of New York,  and others, would be involved in the process.  As part of conceptual  planning, U.N. officials are developing a new project management plan that  updates the Capital Master Plan.
Recognized a need to augment management capability.  U.N. project staff  recognize that while the Secretariat does have project management  capability, it does not have the capability to manage a project as large and  complex as the proposed renovation.  While a decision regarding project  management has not been reached, U.N. officials have identified options  that could be implemented when funding is approved. These options range  from directly hiring individuals with the requisite skills to contracting for  such services.   (See app. II for more detail about U.N. planning efforts,  including the building assessments and the cost estimate.)
section_title: Financing Issues Will Be Explored Further
paragraphs: Since the renovation planning is at a very early stage, it is too soon to  determine the potential cost to the U.S. government.  The cost will depend  on the design and scope of work selected and the decisions member states,  New York City, and New York State make about how to finance and share in  the cost of the renovation. The Capital Master Plan suggested that some  voluntary and private contributions might be available but that the  following three financing options are the most likely alternatives.  A  financial advisory group will be established to explore further these three  and all other possible options.
Cash payments by member states.  While this is the most straightforward  option, it would require member states to pay for the entire cost of the  renovation during the construction period.  Moreover, members would  have to agree on individual assessment rates for every member.
Negotiations over the assessment rates have been contentious in recent  years.
Interest-free loans provided by members.  Representatives from several  member states said that their governments might consider providing an  interest-free loan but the United States needs to take the lead in furthering  such a proposal.  According to Office of Management and Budget officials,  the Congress would have to appropriate the U.S. share of an interest-free  loan in full, and the funds would be obligated with outlays during the  renovation period.
Bond financing in the capital markets.  According to the United Nations’  financial consultant, the United Nations could raise funds in the  commercial capital markets and could expect to receive a credit rating  between AA (very high grade) and A (upper medium grade) for a  commercial bond offering.  A representative from at least one member  state said his government would be opposed to such a proposal because  some member states have a higher credit rating and could borrow the funds  at a lower cost.  Also, according to the financial consultant, the bond might  have to be secured by the United Nations’ regular operating budget, which  could restrict the use of the regular budget funds for day-to-day activities.   (See app. III for more detail about the financing options and financial and  policy implications for members.)
Some member states believe that the United States, New York State, and  New York City derive net economic benefits from the presence of the U.N.  headquarters in New York. Therefore, they say that these three entities  should pay a larger share of the renovation costs than the U.S. share of the  regular U.N. budget (22 percent as of January 2001).  Both New York City  and State have made contributions to the United Nations since its inception  and incur annual costs associated with the U.N.’s presence and the  diplomatic community.  In turn, New York City realizes economic benefits  from being the host city to the United Nations, generating $3.3 billion in  economic activity as a result of the United Nations’ presence, according to  a 1994 study.  (See app. III for more detail on New York’s contributions to  the United Nations and benefits to New York City due to the United  Nations’ presence.)
section_title: Key Steps in the Renovation Planning Process
paragraphs: As of June 2000, the United Nations was finalizing the selection of an  architect and engineering firm to develop concept designs and ensure that  all viable renovation options had been considered.  In the spring of 2002,  the Secretary-General plans to present the results of the design effort to  member states.  At that point, member states would consider the  renovation options, the initial design concepts, and revised estimates of  project costs.  By the end of 2002, the Secretary-General anticipates  member states would make key decisions determining the future of the  renovation, including deciding on (1) a project scope of work, (2) the  appropriate funds for the final design (estimated to cost about $37 million),  and (3) the financing arrangements. (Fig. 1 depicts key steps in the process,  app. IV describes key efforts for the renovation in 2001 and 2002, and app. I  describes general phases the renovation will go through after 2002.)
section_title: Role of the Department of State in the Renovation
paragraphs: According to its mission statement, the Department of State is the lead U.S.  foreign affairs agency and is responsible for developing and implementing  the policies of the U.S. government within the United Nations.  To date,  State has primarily been in a listening mode with regard to U.N. renovation  proposals, according to State and Office of Management and Budget  officials.  State has been following the renovation issues, according to the  Assistant Secretary of State for International Organization Affairs;  however, a comprehensive U.S. position on the U.N. renovation has not yet  been developed.  According to the Assistant Secretary, developing a  comprehensive position would involve addressing questions, such as  support for the renovation, what scope of work should be undertaken, and  how much should the United States provide for the project.  Moreover, no  mechanism has yet been set up that could lead to the establishment of a  team comprised of staff from State, and possibly other executive branch  offices, with the necessary expertise in construction management and U.N.  issues to ensure that U.S. interests are met in a project of this magnitude.   Representatives of other member states said that the United States, as the  host country, must soon play a major role in the process if the renovation is  to proceed and if decisions are to be made on a timely basis.  New York City  and New York State officials also said that the U.S. government needs to  state whether it is committed to retaining U.N. headquarters in New York  before New York officials or entities  commit resources to the project. (See  app. V for a discussion of State’s role in the process and U.N. member  states’ and New York City’s and New York State’s expectations.)
section_title: Conclusions
paragraphs: The U.N. headquarters complex clearly needs to be renovated, and the  Secretary-General will ask member states to make key decisions in 2002  about the future of the renovation.  As host country to U.N. headquarters,  the United States needs to play a major role in making these decisions if the  renovation is to proceed.  However, the administration and State have not  yet developed a comprehensive U.S. position on the renovation. Assuming  the United States decides to support the renovation, it needs considerable  lead time to examine the issues, including what scope of renovation meets  U.N. and U.S. needs in the 21st century, what share of the renovation costs  would the United States be willing to provide, and what process is needed  to ensure that the construction is cost-effective and timely. One option for  examining these issues would be to establish a team comprised of experts  on construction management and U.N. issues, using appropriate  administration resources from State, the National Academy of Sciences,  and the General Services Administration.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Secretary of State, in consultation with  appropriate officials in the administration, take the steps necessary to  develop a comprehensive U.S. position on matters pertaining to the  renovation. Assuming the U.S. position is to support the renovation, the  Secretary of State and appropriate administration officials should consider  what mechanisms would be needed to obtain the necessary expertise in  construction management, financing, and U.N. issues.
section_title: Agency Comments
paragraphs: We received written comments on this report from the United Nations and  the Department of State. The United Nations and the Department of State  have agreed with the information presented, and their comments are  reprinted in appendixes VI and VII, respectively. In addition to their written  comments, State and U.N. officials provided technical and clarifying  comments, which we incorporated where appropriate.
section_title: Scope and Methodology
paragraphs: To assess the reasonableness of the United Nations’ planning and project  development efforts, we reviewed U.N. records, including the original site  acquisition documents; a sample of original and modification-related  drawings and reports; and each of the building condition (needs)  assessment reports.  We also went on a site tour of the buildings and  viewed the infrastructure and areas that are proposed for renovation,  including the basement and interior structures.  We discussed various  aspects of the project with U.N. Secretariat and project staff and  contractors, including the process by which the Capital Master Plan was  developed, considered, and approved; the preparation of the condition  (needs) assessment reports, including the cost estimate; the sequence and  schedule of future project activities, including further design and  construction efforts; and the United Nations’ procurement process.  To  assess the reasonableness of the cost estimates, we looked at the  assumptions supporting the preliminary cost estimates, as well as the  methods used in constructing certain cost estimates.  Specifically, we  discussed with the estimator the basis for costs associated with the types  of equipment and materials, the unit quantities, the unit prices, and other  items of cost included in the estimate, as well as costs assigned to  contingency, project management, and temporary space to house U.N. staff  during renovation.  We compared the United Nations’ project planning  efforts with best industry practices, as identified by the Federal Facilities  Council.
To comment on the potential cost to the U.S. government and other  financial and policy issues related to the implementation of the Capital  Master Plan, we analyzed the proposed financing options and funding  sources.  In addition, we interviewed officials to obtain their views on the  financing options and the potential policy issues that may confront member  states.  Specifically, we spoke with the J.P. Morgan financial consultant  regarding the financing concept paper, which presents various financing  options, including financing the renovation with a bond offering in the  capital markets. We also discussed the financial aspects of the project with  officials of New York City and State; the U.N. Development Corporation,  which helps finance and construct facilities for the United Nations and the  diplomatic community; and UNDC’s bond underwriter, Goldman, Sachs &  Company.  To gain an understanding of the proposed funding sources, we  reviewed U.N. historical documents, recent audited financial reports, and  budget documents and spoke with knowledgeable staff in various U.N.  offices.  In addition, to address the policy implications of the financing  options, we reviewed the United Nations’ Charter, Financial Regulations  and Rules, as well as applicable U.S. legislation pertaining to the United  Nations.  We also spoke with several representatives of member states who  would participate in U.N. financing decisions.
To discuss the tentative time frames for key steps in the renovation  process, we reviewed U.N. reports, such as the Capital Master Plan, and  focused on the essential steps in the project planning and development  process.  We subsequently spoke with U.N. officials to determine their  current plans and time frames for developing and implementing a project  management plan, preparing the initial design and design report, and  establishing a financial advisory group to explore further the financing  issues. We also met with officials of the State Department, the U.S. Mission  to the United Nations, and the Office of Management and Budget to discuss  administration efforts in monitoring the renovation planning.  We similarly  discussed these issues with several member state representatives.
We conducted our review between January and May, 2001, in accordance  with generally accepted government auditing standards.
We are providing copies of this report to the Secretary of State; the Acting  U.S. Ambassador to the U.S. Mission to the United Nations; the Director,  U.S. Office of Management and Budget; the U.N. Secretary-General; and  interested congressional committees. We will also make copies available to  others on request.
Please contact Mr. Johnson at (202) 512-3540 or Mr. Ungar at (202) 512-8387  if you have  any questions concerning this report.  Other GAO contacts and  staff acknowledgments are listed in appendix VIII.
section_title: Background
section_title: U.N. Planning Process
subsections: section_title: U.N. Building Condition Assessment
paragraphs: In the early 1990s, U.N. officials recognized that despite the normal  maintenance program, the buildings and other facilities continued to  deteriorate due to age and extended use.  Most of the building systems had  passed their economic life expectancy.  For example, the plumbing in the  General Assembly building was installed in 1952—49 years ago—and the  typical life expectancy for chilled and hot water systems is 25 to 30 years.   The electrical systems in the Secretariat building were mostly installed in  1949—over 50 years ago; the life expectancy for electrical systems is 15 to  25 years.  The Capital Master Plan states that “The current condition of the  Headquarters complex renders it unacceptable for continued use over the  long term.”  Further, the plan states that U.N. structures “no longer conform  to current safety, fire and building codes.” As such, “users of the United  Nations Headquarters site, such as delegates, staff members and visitors,  have a lower chance of survival during a fire, than they would at  comparable modern buildings in New York City or other major cities in the  world.”   The following photographs present examples of the types of  deficiencies identified in the assessment of the U.N. buildings.
Figure 6 shows a northeast cornerstone alignment problem, a potential  safety hazard, on the north facade of the library.  The consultant report  noted that the facade exhibits signs of water penetration, with a possible  indication of serious deterioration of the anchorage system due to  uncontrolled water infiltration.  The report recommended that high priority  be given to the marble on the east facade, since some of the stones show  signs of failing anchorage as exhibited in the shifting of some stones.   Further, the report said that a program of stone removal should commence  and, that if the anchorage is deteriorated, it be replaced with stainless steel.
The consultant report noted that a large part of the electrical system in the  basement consists of equipment that was originally installed in 1949, as  illustrated in the type of fuses shown in figure 7.  In this regard, the report  noted that the vast majority of the electrical distribution system should be  replaced, since it is no longer manufactured or is in a state of disrepair.
Figure 8 shows asbestos that was used on the interior surface of the walls  below the windows in the U.N. Secretariat building.  The original  specifications, as cited in the consultant’s report, required that a sprayed- on asbestos fiber coating be applied over an asphalt primer coat to provide  insulation between the induction units and the outer facade.  The report  noted that this material is a health hazard to both maintenance staff and the  building’s occupants.
Figure 9 shows a photograph of a restroom in the Secretariat building that  is inaccessible to the handicapped.  This situation is typical of restrooms in  the Secretariat building.  The existing U.N. buildings and site, as originally  designed in the late 1940s, made no specific accommodations for  handicapped access because there were no code or legal requirements at  that time.  The report noted that despite the United Nations’ efforts to  correct deficiencies, additional accessibility compliance work is still  needed.
section_title: The United Nations’ Capital Master Plan Renovation Options
paragraphs: The Capital Master Plan identified three renovation possibilities—3-year, 6- year, or 12-year plans—along with a reactive approach and demolition  option.  (Fig. 10 illustrates the cost estimates for these options.)
While the Secretary-General stated a preference for the 6-year plan, each  option has advantages and disadvantages in terms of the costs and impact  on operations of the headquarters. The planning decision considerations in  the three options were as follows: minimize the total time spent in  construction, control disruption and relocation, and cost less than other  approaches.  The Capital Master Plan noted that while the 3-year option  would be the least costly, at an estimated $875 million, it would also be the  most disruptive, with current planning envisioning about 50 percent of the  headquarters facility and staff affected by construction at the same time.  In  contrast, while the 12-year option would be more expensive, at an  estimated $1,054 million, it would be the least disruptive, with current  planning envisioning about 10 percent of the headquarters facility and staff  affected by construction at the same time.  In considering the 6-year option,  the Secretary-General stated his opinion that it was the most practical and  desirable approach, considering the estimated cost of $964 million, and that  current planning envisions 33 percent of the headquarters facility and staff  would be affected by construction at the same time.
The Capital Master Plan also discussed two other options: (1) a reactive  approach of continuing to maintain the buildings and facilities as needed  and (2) a demolition and rebuild approach, which is an approach that may  not be practical since the structures are landmarks.  The report noted that  there are serious disadvantages to the reactive approach. Foremost is that  after $1,154 million in costs are incurred over 25 years, the organization will  still have the same deficient buildings and facilities because the facilities  would not be modernized or improved in any meaningful way.  Further, the  United Nations’ energy costs would continue to rise because the major  alterations required to reduce energy consumption would occur  incrementally. Finally, many of the hazardous conditions would continue to  exist despite the costs incurred. The Capital Master Plan report estimated  the cost of the demolition option at $992 million.  However, additional costs  would be incurred for (1) relocating the entire Secretariat staff for a period  of up to 5 years, estimated at $218 million; and (2) convening all meetings  away from U.N. headquarters, at a substantial additional cost that has not  yet been determined.
section_title: Financing Options for U.N. Renovation
paragraphs: Three key financing options for the U.N. renovation were proposed in the  Capital Master Plan as follows: cash payments by member states, interest- free loans by member states, and a commercial bond offering.  Table 2  summarizes these options and the associated financial and policy  implications.
section_title: Comments From the United Nations
section_title: Comments From the Department of State
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the names above, Barbara Shields, Thomas Johnson, Maria  Edelstein, Lisa Wright-Solomon, Carolyn Black-Bagdoyan, Mark Speight,  Lynn Cothern, and Rona Mendelsohn made key contributions to this report.
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