United Nations: Renovation Planning Follows Industry Practices, but Procurement and Oversight Could Present Challenges
Published: 2006-11-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United Nations (UN) estimated in 2005 that renovating its headquarters will cost up to $1.75 billion. As the UN's host country and largest contributor, the United States has a substantial interest in the project's success. In this report, we (1) determine whether the development of the Capital Master Plan (CMP) has been consistent with leading industry practices, (2) examine factors that led to changes in the cost estimate and determine whether the 2005 estimate was updated using industry practices, (3) review the status of financing of the renovation, (4) identify decisions needed for the renovation to proceed, and (5) review UN oversight and State monitoring efforts. To address these objectives, we reviewed UN design and planning documents, including the latest cost estimate, to compare them with industry standards. To assess oversight, we reviewed Office of Internal Oversight Services (OIOS) and UN Board of Auditors reports and met with UN officials.
section_title: What GAO Found
paragraphs: UN officials continue to use leading industry practices in developing the UN headquarters renovation project, but reliance on existing UN procurement practices could impact the effective implementation of the renovation in the future. Since the CMP office relies on current UN procurement practices, implementation of future CMP procurements could become vulnerable to numerous UN procurement weaknesses that GAO previously reported in April 2006 (GAO-06-577), such as the lack of guidance for construction procurement in the procurement manual. The estimated total cost of the CMP increased from about $1.19 billion to almost $1.75 billion between 2002 and 2005 to reflect inflation arising from a later start date, refinements to the design, and a change in the renovation approach. The UN continued to follow construction industry practices to develop the 2005 cost estimate and has included expected elements. However, the cost estimate is still preliminary and will likely change. While the UN has passed a resolution expressing a preference for cash assessments, it has yet to decide how to finance the remaining renovation costs. In June 2006, the General Assembly passed a resolution stating that a cash payment option would be the simplest and most cost-effective approach for funding the CMP. Under this approach, the UN would assess member states for the cost of the renovation through single- or multiyear payments. The amount the UN assessed member states would be likely based on each country's rate for its annual regular budget contributions. The General Assembly plans to revisit the financing issue by the end of 2006. Without certain General Assembly decisions by the end of 2006, the renovation's current schedule could be delayed and costs could increase. Specifically, a General Assembly decision on a financing arrangement for the total CMP budget would be needed to ensure that funds could be available by December 2007. Without these decisions, the CMP office cannot finalize a start date for the renovation. UN oversight entities have continued to oversee the CMP while the Department of State has monitored its progress. OIOS has conducted audits on CMP procurements and has issued several reports of its findings and recommendations. However, OIOS relies on funds from the CMP budget and must negotiate for those funds with the UN budget office, which may impair its ability to secure sufficient funds. The UN Board of Auditors has also conducted oversight of the CMP office by reviewing its financial records and internal controls and has found no material weaknesses in its review. Similarly, State's monitoring efforts have not identified any significant concerns, according to State officials.

section_title: Letter
paragraphs: The United Nations (UN) headquarters complex in New York City neither  conforms to current safety, fire, and building codes nor meets UN  technology or security requirements. To address these concerns, the UN  has developed the Capital Master Plan (CMP)—a comprehensive  renovation of the entire complex. Since we last reported on the CMP in  2003, the UN has moved forward with designing the renovation and  updating the cost estimate. In 2005, the CMP office’s cost estimate for the  entire project was approximately $1.75 billion. In 2006, the General  Assembly appropriated an additional $100.5 million to continue design  work and obtain space to temporarily relocate UN staff and activities  during the renovation. The CMP office currently plans to begin  preparations for the renovation in mid-2007 and begin the construction  work associated with renovating the existing buildings in early 2008. In  November 2006, the CMP office updated the cost estimate to $1.88 billion.
We have previously reviewed UN efforts to develop the CMP and prepare a  cost estimate. In June 2001 and May 2003, we reported that UN renovation  planning efforts had been reasonable and conformed to leading industry  practices. We also recommended that the Secretary of State encourage  the UN to provide its internal and external oversight offices with the  resources needed to conduct effective oversight. In June 2006, we testified  that effective implementation of the CMP is vulnerable due to weaknesses  in existing UN oversight and procurement practices. For example, we  found that the UN has yet to incorporate guidance for construction  procurement into its procurement manual.
As the UN’s host country and largest contributor, the United States  continues to have a significant interest in the success of the renovation. In  this report, we (1) determine whether the continued development of the  CMP has been consistent with leading industry practices, (2) examine  what factors contributed to the changes in the cost estimate from 2002 to  2005 and determine whether the cost estimate was updated using industry  practices, (3) review the status of financing of the planned renovation, (4)  identify decisions needed for the renovation to continue as planned, and  (5) review the UN’s efforts to oversee and the U.S. Department of State’s  (State) efforts to monitor the planned renovation.
To address these objectives, we reviewed pertinent UN design and  planning documents, including the 2002 and 2005 cost estimates, and  compared them with industry standards. We also interviewed UN officials  and the CMP office’s program management consultant. We did not assess  the cost estimate included in the Secretary-General’s 2006 progress report  on the CMP. To assess oversight and monitoring activities, we interviewed  officials from the Office of Internal Oversight Services (OIOS), the UN  Board of Auditors, and State. We conducted our work at the UN in New  York City and at State in Washington, D.C., from August 2005 to October  2006 in accordance with generally accepted government auditing  standards. Appendix I provides detailed information on our methodology.
subsections: section_title: Background
subsections: section_title: History of the UN Headquarters Complex
paragraphs: The original UN headquarters complex in New York City was considered  among the most modern facilities when construction was completed in  1952; however, it no longer conforms to current safety, fire, and building  codes and does not meet UN technology or security requirements.  Although originally designed to hold 70 member states, the complex  currently accommodates the needs of 192 member states and  approximately 4,700 UN staff and also hosts nearly 1 million visitors per  year from around the world. The United States financed construction of  the original complex—the General Assembly, Secretariat, and Conference  Building—by providing the UN with a no-interest loan. The rest of the  present-day complex—the Dag Hammarskjöld Library, the underground  North Lawn Extension, South Annex, and Unitar Building—was built  between 1960 and 1982 and was funded through the UN regular budget or  private donations.
Under the CMP, the UN intends to renovate the complex to make it  conform to current safety, fire, and building codes and meet UN  technology and security requirements (see fig. 1). This process will involve  upgrading or replacing all major building systems, including electrical,  plumbing, fire suppression, heating and air conditioning, as well as  reinforcing structural integrity and removing asbestos from the entire  complex. As shown in figure 2, the General Assembly first proposed a  comprehensive renovation in June 2000. Under the current schedule, work  associated with the renovation will begin in early 2007 with an estimated  completion date of 2014.
section_title: The Renovation Process
paragraphs: In June 2001 and May 2003, we reported that the UN’s early renovation  planning was reasonable and consistent with leading industry practices.  By 2003, the UN had completed the first stage of a five-stage renovation  process—conceptual planning. In December 2002, the General Assembly  authorized the Secretary-General to proceed with the second stage, design.  According to CMP officials, as of July 2006, the project was about 60  percent through this stage (see fig. 3).
The five stages of a renovation project are summarized as follows:  Stage 1: Conceptual Planning—Feasibility studies are conducted to  determine scope of work and alternative design solutions incorporating  requirements for performance, quality, cost, and schedule. Several  alternative design solutions are identified, and one approach is generally  selected.
Stage 2: Design—The preferred design solution is further developed,  culminating in the development of final construction documents from  which construction services can be solicited.
Stage 3: Procurement—Owner procures construction services and long  lead-time equipment, such as unique or large electrical or mechanical  equipment.
Stage 4: Construction—Contractors and consultants are employed to  execute the renovation based on the construction documents.
Stage 5: Start-up—Building is occupied and tests are conducted on  individual and systems components to ensure that they are operating  correctly.
In its December 2002 authorization, the General Assembly decided to  implement the CMP and execute the design phase. In developing design  documents for the renovation, the General Assembly instructed the CMP  office to include options that the General Assembly has not yet decided  whether to include in the renovation. The options were divided into three  categories: security, system redundancies, and sustainability and include  additional blast protection, backup equipment for building  communications systems, increased coverage and reliability for  emergency power, higher efficiency equipment, and on-site alternative  energy sources. These options could enhance operational and working  conditions but were not considered integral to the project at the time.
Because of difficulties in securing off-site space to temporarily relocate  UN staff and activities, the UN has changed its renovation approach. In  May 2003, we reported that the UN had decided on a single-phased  approach to the renovation, in which most UN staff and activities would  be temporarily relocated so that the buildings could be renovated  concurrently. The U.N. Development Corporation would have built a new  building, referred to as UNDC-5, adjacent to the UN headquarters where  UN activities could continue during the renovation. However, the UN  determined that this option was no longer viable when the corporation  could not secure approval for the new building from the New York State  legislature in time for the beginning of construction. In June 2006, the  General Assembly approved proceeding with the renovation project using  a multiphased approach. This approach consists of renovating the  Secretariat building, 10 floors at a time, and moving UN staff and functions  displaced by the renovation to rented commercial office space and a  temporary building to be constructed on the North Lawn above the  existing North Lawn extension. The CMP office has modified its design  documents to reflect this multiphased renovation approach and moved  forward with completing the required design details. This information will  be used in the procurement process to solicit construction services.
section_title: Renovation Process Continues to Follow Leading Industry Practices but Faces Challenges Going Forward
paragraphs: Consistent with our 2001 and 2003 reviews of the early planning for the  renovations, we found that UN officials continue to follow leading industry  practices in the development of the UN headquarters renovation project.  These include involving those impacted by the project, using a competitive  procurement process, and using a team to review the design. However,  reliance on existing procurement processes and the vacancy of the  leadership post could create challenges as the project proceeds.
subsections: section_title: Those Affected by the Project Involved in its Development
paragraphs: The CMP office has continued to consult with UN managers and other  affected entities, such as the city of New York, in the various aspects of  planning and designing the renovation to help ensure that the project  meets their needs. The CMP office has solicited input from officials in  various UN departments during the design review process. In addition,  while not required, it is UN policy to follow city and state codes. To  facilitate the implementation of the project, the CMP office continues to  coordinate and meet with the city and state of New York to discuss the  UN’s renovation plans. The CMP office has also taken steps to ensure that  information about the renovation is readily available to stakeholders and  the public. It has established a Web site, www.un.org/cmp, which explains  the renovation project and provides related UN documents and  opportunities to direct comments to the CMP office.
section_title: Competitive Procurement Used but UN Procurement Process Has Weaknesses
paragraphs: The CMP office has continued to use a competitive process to procure  program management, planning, and design services for the renovation  project. Competition among multiple firms is important for obtaining a  quality product at a reasonable price. As part of the competitive process,  the CMP office and UN officials issued requests for proposals, obtained  proposals from multiple firms, evaluated the proposals based on  established criteria, and selected firms to perform the work. OIOS  reviewed the CMP procurements and reported that the process was fair  and transparent. To increase visibility of the procurements related to the  CMP, the procurement division has created a page on its Web site,  www.un.org/depts/ptd/, for CMP awards that lists information such as the  contractor, subject of the contract, and award amount. The CMP office is  also exploring the possibility of posting copies of the awarded contracts  on this Web site.
Although the CMP office has used a competitive process to date, we  reported in April 2006 that the UN’s procurement process has numerous  weaknesses. For example, the UN has yet to incorporate guidance for  construction procurement into its procurement manual, and the chairman  of the UN procurement contract review committee has stated that his  committee did not have the resources to keep up with its expanding  workload. In addition, the UN had not established an independent process  to consider vendor protests that could alert senior UN officials of  procurement staff’s failures to comply with stated procedures. The UN is  currently in the process of hiring a construction manager to oversee the  day-to-day project activities and the subcontractors performing the  construction work. CMP officials stated that as the project progresses, the  CMP office will continue to be responsible for the daily oversight and  administration of the CMP contracts. In addition, according to a UN  procurement official the UN procurement division will be involved in  processing contract amendments and ensuring compliance with UN  procurement rules and procedures. According to CMP officials, to address  resource shortfalls in the UN procurement division, funding has been  made available from the CMP budget to hire three new staff with  construction-related experience.
section_title: Experienced Team in Place to Review Renovation Design, but Vacancy in Leadership Post Exists
paragraphs: Within the UN, the CMP office manages the development and execution of  the renovation project, including the review of the ongoing renovation  design. The CMP office has supplemented its in-house staff with a  consultant to assist with design review and cost estimate development.  While the UN was considering different renovation approaches, the CMP  office instructed its contractors to incorporate flexibility in the design so it  could be tailored to work with any of the approaches being considered.  This ensured that when the UN selected a multiphased approach in August  2006, there was little need for redesign.
Although the CMP office has continued moving the renovation project  forward, it has often lacked an executive director. The executive director  provides leadership, support, and direction to the project, and acts as the  primary representative of the CMP to the General Assembly and UN  stakeholders. In February 2003, the Secretary-General appointed the first  executive director for the CMP, but he left after about a year. The position  remained vacant until September 2005 when the UN hired a CMP  executive director with experience working on large construction and  renovation projects in New York City. However, he left in June 2006 and  the position is currently vacant. The current staff are now performing the  executive director’s duties as well as their own. UN officials have stated  that they recognize the importance of having a CMP executive director and  are working to fill the position.
section_title: Cost Estimate Increased; Industry Practices Followed but Estimate Likely to Change
paragraphs: The estimated total cost of the CMP increased from about $1.19 billion to  almost $1.75 billion—an almost $560 million increase—between 2002 and  2005 to reflect inflation arising from a later start date, refinements to the  design, and a multiphased renovation approach. In developing the 2005  estimate, the CMP office followed industry practices such as defining the  work required and reviewing the estimate. In November 2006, the  Secretary-General released a progress report on the CMP that included an  updated cost estimate of $1.88 billion. This estimate was developed before  the design phase was completed; therefore, it is still preliminary and likely  to change.
subsections: section_title: Cost Estimate Increased Due to Changes in Schedule, Refinements to the Design Project, and Approach
paragraphs: As shown in table 1, the estimated total cost of the CMP including the  scope options increased from about $1.19 billion to about $1.75 billion  between 2002 and 2005.
The change in the scheduled start date and project duration increased  estimated costs due to inflation. In August 2002, the CMP office projected  that the renovation project would begin in 2005 and be completed in less  than 5 years. By December 2005, the CMP office had adjusted the schedule  to a 7-year multiphased approach. The CMP office’s cost estimator  determined that the New York City construction industry for projects  similar to the UN renovation experienced about 11 percent inflation  between 2002 and 2004, which accounts for almost $103 million of the  estimated cost increase. In addition, the escalation costs in the estimate  increased by $185 million to account for the expected inflation over the  duration of the project, including the additional 2 years that were added to  the project schedule for the multiphased approach. Any future changes  that extend the start date or duration of the renovation would be expected  to further increase the cost of the project.
We have previously reported that changes in the cost estimate should be  expected as the design progresses and more project details become  known. The 2002 estimate is based on a broad conceptual design,  whereas the 2005 estimate was based on a more detailed project design.  For example, the 2005 estimate was based on the actual number and size  of the systems needed, rather than an overall cost estimate for the heating  and air conditioning systems, as in the 2002 estimate. These types of  design refinements increased the cost estimate by about $80 million. The  Secretary-General’s third annual progress report on the CMP noted that  the process of controlling the scope and cost of the CMP would continue  to be part of the project management process during design development  and contract document preparation. According to CMP officials, efforts  are under way to reduce the construction cost through value engineering  and detailed scope review.
The change to using a multiphased renovation approach, in which parts of  the buildings will be renovated while other parts remain in operation,  increased the project’s complexity and required the CMP office to make  numerous adjustments to the estimate. For example, 20 percent was added  to the expected cost of replacing the window structure on the outside of  the Secretariat building because it will have to be done in more than one  stage and additional waterproofing will be required. There was also a cost  associated with isolating those floors being renovated from those that will  be occupied by UN staff during the renovation. In addition, the source of  temporary space needed for UN complex occupants during the renovation  changed after the 2002 estimate was completed. In the 2002 estimate, the  UN had expected to lease about 800,000 square feet of office and  conference space in the new UNDC-5 building at below market rates.  Since the proposed UNDC-5 building will not be built and the rental rates  in New York City have increased considerably, the 2005 estimate reflects  the UN’s revised plan to (1) lease about 228,000 square feet of office space  and 80,000 square feet of library space at market rates for displaced staff  and functions and (2) construct a 100,000 square foot temporary building  on the UN complex to meet the conference needs of the UN during the  renovation. While the projected amount of necessary office space has  decreased since the last estimate, it will be needed for a longer period of  time, and the projected rental rates have increased substantially. The CMP  office estimated that the change to a multiphased renovation approach  added about $188 million to the 2005 estimated CMP cost.
In November 2006, the Secretary-General’s fourth annual progress report  on the CMP updated the total project cost estimate from about $1.75  billion to about $1.88 billion, an increase of approximately $128 million.  According to the report, this increase is due primarily to increases in the  cost of swing space ($50 million) and further development of the scope  options ($69 million). The report also identifies some areas where the  project cost is at risk of increasing further. For example, the UN would  need to add a visitor screening area to the renovation project, if the  proposed visitors’ center, which includes a visitor screening area, is not  constructed.
section_title: Cost Estimate Updated Following Industry Practices
paragraphs: The CMP office continues to follow leading industry practices in updating  the project cost estimate. In 2003, we reported that the UN had defined the  work to be done, developed a standardized format for the cost estimate,  had the estimate reviewed, and reported the estimate including its range of  accuracy. Using the same leading industry practices, the CMP office  updated the previous cost estimate to reflect the multiphased approach.  The 2005 cost estimate includes relevant cost elements such as design,  construction, overhead, management, contingency and escalation.
Although the cost of new furniture and equipment is not included in the  cost estimate for the CMP, the UN plans to purchase them for the  renovated space through its regular budget. The CMP office is working  with the various UN departments to estimate these costs for inclusion in  the departments’ future budget submittals.
section_title: Cost Estimate Still Preliminary and Likely to Change
paragraphs: Following leading industry practices, the CMP office is continuing to  update the total project cost estimate at major milestones in the project.  According to the Construction Industry Institute, the final cost of any  project at this stage of design may vary from plus or minus 20 to 30  percent of the estimate. The CMP office recently updated the project cost  estimate on the basis of the ongoing design work. In accordance with  industry practice, the CMP office will again update the cost estimate after  the completion of the construction documents. This estimate will be based  on actual quantities of materials that have been identified and the range of  accuracy of this estimate is expected to increase to plus or minus 15 to 20  percent. In addition, CMP officials stated that they are planning to have  this estimate independently reviewed.
Several uncertainties outside the UN or CMP office’s control could also  have a significant impact on the final cost of the project. The decreased  availability of office space in mid-town Manhattan has driven up rental  rates, which could make it difficult to procure the space necessary to  relocate staff during the renovation at the 2005 estimated cost. In addition,  construction costs could increase if the impending redevelopment of the  World Trade Center site limits construction resources.
section_title: The General Assembly Has Not Decided How to Finance Remaining Renovation Project Costs
paragraphs: While the General Assembly has passed a resolution expressing a  preference for cash assessments, it has yet to decide how to finance the  bulk of the renovation. Under the cash assessment approach, each  member state would likely be assessed the cost of the renovation based on  the rate of its annual regular budget contributions to the UN. In addition,  to assure the UN’s contractors that it can pay them for their work, the UN  may obtain a commercial letter of credit. If the General Assembly decides  to finance the renovation using direct assessments, the United States  could explore the viability of renewing a prior loan offer to the UN to act  as a line of credit, which could decrease the cost of any commercial  borrowing. The General Assembly plans to revisit the issue of financing  the CMP by the end of 2006.
subsections: section_title: The General Assembly Has Not Decided on a Financing Arrangement for Its Remaining Renovation Project Costs
paragraphs: While the General Assembly has passed a resolution stating that cash  assessments would be the simplest and most cost-effective approach for  funding the CMP, it has yet to decide how to finance the remaining $1.43  billion, which excludes scope options. The UN has already assessed  member states for $152 million of the estimated renovation cost and  obtained $8 million from the UN regular budget. In June 2006, the General  Assembly decided to defer the issue of funding the CMP to the 61st General  Assembly session, which began in September 2006.
The UN appropriated a total of $160 million between 2000 and 2006 for  various prerenovation activities (see table 2).
section_title: Member States Considering Cash Assessments to Finance Renovation
paragraphs: In June 2006, the General Assembly passed a resolution stating that a cash  payment option, based on single- or multiyear assessments, would be the  simplest and most cost-effective approach to funding the CMP. Under this  approach, member states would pay their portion of the renovation in  single- or multiyear payments. According to the CMP office, this could  lower member states’ total assessments because the UN could invest these  funds and earn interest on them, if received in advance of use. For  example, member states would need to pay the UN $1.24 billion in 2007 to  fund the remaining $1.43 billion renovation cost if the project was funded  with one lump-sum assessment. As table 3 shows, the total amount  member states would be assessed increases as the number of assessment  periods increases, since there is less time for interest to accrue and offset  costs.
If the United States paid for its portion of the renovation in one lump sum,  Table 4 shows that it would owe the UN approximately $274 million in  2007 under the 2005 cost estimate. If the United States paid over five years,  it would pay a total of $302 million.
If the General Assembly decides to finance the renovation through  multiyear assessments, the UN may use a commercial letter of credit to  demonstrate to its construction contractors that it has funding available  for the project before construction begins and to meet short-term  financing needs. Consistent with U.S. industry practice, construction  contractors are not expected to agree to begin work without proof that the  UN can pay the entire cost of the renovation work. To purchase a letter of  credit, the UN would pay a fee based on the total amount of the letter of  credit and the degree of risk the lender estimates the UN represents as a  borrower. According to UN officials, the transaction fee associated with a  letter of credit could range from $3 to $21 million, depending on whether  or not a member state loan is available to back up the letter of credit. The  cost of these fees has not been included in the UN’s cost estimate for the  renovation. If the UN decides to purchase a letter of credit, these fees  would represent an additional yearly cost to the member states. According  to the CMP office, the fees would decrease over time as the UN pays for  portions of the project, thus decreasing the amount it would need to have  covered by a letter of credit.
In addition, the Secretary-General has noted that the UN would need a  working capital reserve if the General Assembly agreed to multiyear  assessments. In the event of delays in member state payments, the UN  periodically may not have sufficient funds to pay contractors. A working  capital reserve of $45 million could be used to cover temporary cash flow  shortages. Subsequently, the letter of credit could also supplement short- term cash flow needs in the event of delays in member state payments.  Under such circumstances, the UN could rely on the commercial letter of  credit as a source of short-term borrowing to pay its contractors and then  repay the lender with interest when member states pay their assessments.
section_title: A Renewed U.S. Loan Offer Could Reduce Cost of UN Commercial Borrowing
paragraphs: If the UN decides to finance the renovation using cash assessments, the  United States could explore the viability of renewing a prior loan offer to  the UN, which could decrease the cost of a commercial letter of credit or  short-term borrowing. In March 2005, the U.S. offered the UN a $1.2 billion  loan at 5.54 percent interest that could act as a line of credit or a loan  guarantee. The UN had anticipated receiving a noninterest-bearing loan  from the United States, and the General Assembly did not accept the U.S.  offer. Although member states are no longer considering a U.S. loan to  finance the renovation, if the UN were to accept a renewed loan offer, the  UN could use it to reduce the cost of commercial borrowing needed under  a multiyear cash assessment plan. The UN would represent a lower credit  risk, and commercial lenders would likely charge the UN less to purchase  a letter of credit. In addition, the UN would likely pay less to arrange  short-term borrowing if it needed to borrow funds to pay its construction  contractors.
The United States could explore renewing its loan offer because Congress  appropriated $6 million to cover the cost of the loan and directed that the  funds remain available until spent. However, under current U.S. law, U.S.  assessments cannot go toward interest payments on UN external  borrowing, including a loan from the United States. While Congress passed  a statute for fiscal year 2005 specifically exempting U.S. assessments for  the renovation from this provision, State Department officials stated that  this is an annual provision that was not renewed for fiscal year 2006.
section_title: Decisions Needed by December 2006 to Maintain the Current Start Date and Avoid Increased Costs
paragraphs: The CMP’s current schedule could be delayed and costs could increase if  the General Assembly does not make certain decisions by the end of 2006.  Specifically, the UN would need a decision by the General Assembly on a  financing arrangement and a total CMP budget to ensure that funds could  be available by December 2007 so that the UN can procure construction  services.
Without a General Assembly decision on a financing arrangement and  approval of a total CMP budget by the end of 2006, the CMP office may not  be able to determine a start date for renovation work. The CMP office  plans to temporarily move UN staff and activities to off-site office space  during the renovation. However, without a start date, it may be more  difficult for the CMP office to lease and prepare this space in an efficient  and timely manner, which could delay the start date and increase project  costs. According to the current CMP schedule, the UN would sign leases  for temporary space by the end of 2006, begin preparing that space in early  2007, and relocate no later than early 2008.
The start of renovation work could also be delayed if the General  Assembly does not decide on a financing arrangement that ensures funds  are available for the CMP by December 2007. To remain on the current  schedule, the CMP office would need the first assessment paid by the end  of 2007. A delay in the beginning of renovation work is likely to increase  the project’s cost due to future inflation and overhead costs. As previously  discussed, a significant portion of the increase in the 2005 cost estimate  was due to moving the start date of the renovation from 2005 to 2008. The  UN’s most 2005 cost estimate applies an inflation rate of 4 percent for  2007.
section_title: UN Entities Have Continued Oversight of the CMP and State Has Monitored CMP Progress
paragraphs: OIOS and the UN Board of Auditors have continued their oversight of the  CMP since 2003. However, the extent to which OIOS must negotiate with  the UN Office of Program Planning, Budget, and Accounts (OPPBA) for  future funding could affect OIOS’s ability to conduct effective oversight of  the CMP. In addition, State has continued to monitor the CMP and inform  U.S. policy on the renovation.
subsections: section_title: OIOS Has Conducted Oversight of the CMP Office
paragraphs: OIOS has been conducting oversight of the CMP office since 2003 and has  not found any material weaknesses in its work. Specifically, OIOS has  reviewed draft procurement documents and participated in regular  meetings with CMP, UN Procurement Services, and Office of Legal Affairs  officials concerning the contracting of design and consulting services.  OIOS found that the draft procurement documents needed to be modified  to reflect the project’s complexity and size. OIOS also found that the CMP  office’s process for procuring consulting services, such as a real estate  broker to find temporary space for UN activities, was fair. Further, OIOS  concluded that the CMP office had generally used its resources in  accordance with UN financial rules. Currently, OIOS is developing an audit  plan to guide its oversight during the construction phase, according to  OIOS officials. OIOS will need additional staff with expertise in  construction oversight as the work becomes more technical and complex  and is considering hiring an outside consulting firm to assist with its  oversight responsibilities as the renovation proceeds.
section_title: OIOS’s Oversight Impaired by Its Funding Arrangement
paragraphs: OIOS relies on funds from the CMP budget to conduct effective oversight  of the CMP, which may impair its ability to secure sufficient funds.  Generally, OIOS derives its funding through its regular budget and through  extrabudgetary resources that come from the budgets for a variety of  specific projects and activities, including the CMP office. To oversee the  CMP, OIOS submitted work plans to the OPPBA and requested  extrabudgetary funds from the CMP budget. OIOS noted in October 2004  and August 2005 that it required two full-time auditors to provide  adequate audit coverage of the CMP. However, OPPBA determined that  only one auditor was needed to complete the oversight activities that OIOS  proposed, given the early stage of the CMP, according to an OPPBA  official.
We previously reported that OIOS’s reliance on extrabudgetary funds and  limitations on how OIOS may spend its funds constrains its ability to  conduct effective oversight. When relying on extrabudgetary funds, OIOS  must obtain permission to perform audits or investigations from the  managers of funds and programs, and negotiate the terms and funds for its  oversight work. In addition, UN rules and regulations severely limit OIOS’s  ability to reallocate resources from different sources. Therefore, OIOS  cannot always direct resources to oversight of high-risk areas as they  arise. The extent to which OIOS must negotiate for future funding during  the construction phase of the renovation will affect OIOS’s ability to  conduct effective oversight. Indeed, in a June 2006 resolution, the General  Assembly noted that the CMP office will provide OIOS with resources to  conduct an appropriate construction audit of the CMP.
section_title: UN Board of Auditors has Conducted Oversight of CMP
paragraphs: The UN Board of Auditors, an external oversight entity that reports to the  General Assembly, has conducted yearly audits of the CMP financial  statements since 2003. The board’s four objectives have been to    evaluate the CMP office’s project accounting, payment and reporting    ascertain the CMP office’s compliance with UN regulations and rules on    determine whether CMP contractors have adhered to the terms of  contract, such as deliverables, time, and materials provisions; and review the CMP office’s controls and processes established to properly  manage the project.
In reports on the CMP office released in September 2004 and August  2005, the board found that delays in the planning process had impacted  the schedule for the completion of design development. The board also  found that an advisory board for the Secretary-General had not been  formed. The board did not note any instances of fraud or presumptive  fraud within the CMP office.
As the renovation proceeds with construction, the UN Board of Auditors  will develop a new audit plan. The board will likely consider the CMP  office’s new cost system for tracking funds and expenditures an important  issue to address when the construction phase begins, according to board  officials. The board will conduct a risk assessment of the CMP office’s  general controls and accounting system in fall 2006. Based on the audit  plan and risk assessment, the board will determine the financial resources  it will need to conduct future audits of the CMP office.
section_title: State Has Continued Its Monitoring Activities
paragraphs: Since 2003, State has maintained a working group to monitor the CMP  planning process and inform U.S. policy on the CMP. This task force is  composed of officials from multiple departments within State and the  Office of Management and Budget that meet at least once every 3 months.  State has also engaged a part-time consultant with building construction  and security experience to review security enhancements and advise the  task force. The task force mission includes coordinating all U.S.  government participation in the CMP process, evaluating the feasibility of  the renovation project, and performing technical reviews. For example,  officials from State’s Bureau of Overseas Buildings Operations (OBO)  reviewed design documents and the 2005 cost estimate and found that  they were developed in a manner consistent with industry practices.  OBO’s assessment was included in a decision memorandum encouraging  U.S. support for a decision to go forward with the renovation in June 2006.  Based on its monitoring work, State has not identified any significant  concerns with the renovation planning process, according to State  officials.
section_title: Conclusion
paragraphs: Since 2000, the UN has been developing its CMP, a comprehensive  renovation of its headquarters complex. Because the complex does not  meet current fire, life safety, and other building codes and does not meet  UN technology or security requirements, it is a potentially hazardous  environment for UN employees and visitors. Much of the design work has  been done and the UN has funded completion of design and leasing of  temporary space to relocate UN staff and activities for the duration of the  renovation. The UN has also begun the process of procuring a  construction management firm to undertake the renovation work. The UN  could spend more than an additional $1.4 billion to complete the  renovation. These funds could be at risk if the UN does not ensure that  CMP procurements are protected from weaknesses in the current  procurement system. In addition, OIOS will need sufficient funds to  oversee compliance with UN financial rules and regulations, as applied to  the CMP project.
section_title: Recommendations
paragraphs: We recommend that the Secretary of State and the U.S. Permanent  Representative to the United Nations work with other member states to    ensure that the Secretariat identifies a procurement strategy for the CMP  to mitigate the impact of weaknesses in UN procurement processes and   ensure that OIOS receives sufficient funding for its oversight of the CMP.
section_title: Agency Comments
paragraphs: The Department of State, the UN, and OIOS provided written comments  on a draft of this report, which are reproduced in appendixes II through IV.  State agreed with our conclusions and endorsed our recommendations,  stating that they were consistent with State’s policy goals for CMP  procurement and OIOS funding. The UN found our report to be a valuable  and accurate assessment of the current state of planning for the UN  renovation project and generally concurred with our findings and  recommendations. Furthermore, in response to our recommendation  concerning CMP procurement, the UN noted that an independent bid  protest mechanism has been designed for a major CMP procurement. The  UN also noted that the Secretary-General’s fourth annual progress report  on the CMP has been prepared and contains updated information on the  CMP. OIOS also agreed with our conclusions and recommendations and  noted that OIOS’s current resources do not allow it to provide adequate  audit coverage. State and the UN also provided us with a number of  technical suggestions and clarifications that we have addressed in this  report, as appropriate.
As agreed with your offices, we will make copies of this report available to  interested members of Congress, the Secretary of State, and the U.S.  Permanent Representative to the United Nations. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Thomas Melito at (202) 512-9601 or melitot@gao.gov or Terrell Dorn at  (202) 512-6923 or dornt@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine whether the continued development of the UN’s renovation  project was consistent with leading industry practices, we reviewed UN  records, including reports and designs developed by the architect- engineering firms. We also researched industry practices related to  construction project planning, development, and design. We compared the  Secretariat’s efforts in project planning and design with industry practices,  as identified by the Federal Facilities Council and the Construction  Industry Institute. We discussed various aspects of the project, including  management and the design process for the Capital Master Plan (CMP)  with UN renovation project staff and consultants.
To examine the factors that contributed to the increase in the 2005 cost  estimate and determine whether the cost estimate was updated using  industry practices, we researched industry practices related to  construction project cost estimating. We compared the Secretariat’s  efforts in cost estimating with industry practices, as identified by the  Construction Industry Institute. We also reviewed the 2005 cost estimate  and identified the factors that were used to update the cost estimate. To  assess the reliability of the UN’s cost estimate data, we interviewed UN  officials responsible for compiling the estimate and reviewed how the cost  estimate was complied but we did not verify the accuracy of the figures.  We determined that the data were sufficiently reliable for the purposes of  our report. We received the Secretary-General’s fourth annual progress  report on the CMP with an updated cost estimate as our report was going  to press. Although we did not have sufficient time to analyze the cost  estimate, we included information from the Secretary-General’s report to  the extent possible.
To describe the financing options being discussed, we reviewed UN data  concerning the yearly cash assessments under consideration. To report on  the total amount of a 1-year assessment, we calculated the net present  value of the total funds needed for the renovation. To calculate the  estimated interest income, we subtracted the total assessments from the  total amount of funds needed for the renovation. To determine the U.S.  share of cash assessments, we calculated 22 percent of the total cash  assessments. To assess the reliability of the UN data, we interviewed UN  officials to determine how the data was derived and determined that the  data were sufficiently reliable for the purposes of our report.
To identify key decisions to be made and their impact, we reviewed the  CMP office’s estimated schedules for leasing swing space, hiring a  construction management firm, and the beginning of renovation work. We  identified remaining decisions that require General Assembly approval and  that are needed for the renovation to proceed. We then reviewed the  schedules to determine if the timing of these decisions could substantially  impact the beginning of the renovation.
To review UN oversight efforts and State monitoring activities, we  reviewed UN documents such as the Office of Internal Oversight Services  (OIOS) and Board of Auditor reports submitted to the General Assembly,  OIOS management letters to the CMP office, UN resolutions pertaining to  the oversight of the CMP, and the mission statements of OIOS, the Board  of Auditors, and State’s working group on the CMP. We also interviewed  officials from OIOS, the Board of Auditors, and the Department of State to  clarify information in these documents.
In conducting our review, we received full cooperation from the UN and  the Department of State. We conducted our work at the UN in New York  City and at State in Washington, D.C., from August 2005 to September 2006  in accordance with generally accepted government auditing standards.
section_title: Appendix II: Comments from the Department of State
section_title: Appendix III: Comments from the United Nations
section_title: Appendix IV: Comments from OIOS
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the persons named above, Phyllis Anderson and Maria  Edelstein, Assistant Directors; Michaela Brown; Debbie J. Chung; Bruce  Kutnick; Valérie L. Nowak; and J.J. Marzullo made key contributions to this  report. Mark Dowling provided technical assistance.