Federal Real Property: GSA Should Clarify Savings Goals for the National Broker Contract Program
Published: 2013-10-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: For fiscal year 2013, GSA expected to lease approximately 197 million square feet at a cost of about $5.2 billion. Since 2005, GSA has acquired some leased space using its NBC program to enlist commercial real estate brokerage firms to negotiate with building owners on behalf of the government. In 2012, GSA relied on this contract to replace approximately 33 percent of its expiring leases.
GAO was asked to review GSA's NBC program. This report examines (1) NBC's program goals and the extent to which they are being realized and (2) the changes GSA has made to the program and what challenges and suggestions for improvement, if any, key stakeholders identified. GAO reviewed NBC contract documentation, agency documents, relevant legislation and regulations, and available data on leasing tasks assigned to brokers. GAO interviewed officials from GSA headquarters, all 11 GSA regions, and representatives of all 4 brokers currently participating in the program.
section_title: What GAO Found
paragraphs: While the General Services Administration (GSA) has used the National Broker Contract (NBC) program to assist with the agency's lease portfolio, it is unclear whether the program has resulted in the rental rate cost savings that GSA anticipated when proposing the program. GSA officials have stated that brokers should be able to obtain lower rental rates than in-house staff because brokers have greater market expertise and in addition are able to credit a portion of the broker's commission to the rental rate. In 2012, when GSA attempted to compare rental rates negotiated by brokers with those negotiated by in-house staff, the agency not only found little difference between the two, but also stated that the data were insufficient to conduct a meaningful comparison. In April 2013, GSA began requiring the use of a different market rent data report --"Bullseye"-- which includes market information, analysis, and insight regarding the local submarket. Officials said this new data would improve their ability to compare rental rates negotiated by brokers to market rental rates, but will likely not allow officials to determine whether brokers are negotiating better deals than in-house staff. Beginning in fiscal year 2013, GSA also deemphasized previous annual goals for broker use and began identifying and assigning leases to brokers based on where agency officials believe the brokers provide the greatest value.
GSA's goals and metrics for evaluating the NBC program have not been linked to the anticipated cost savings in rental rates. As a result, GSA has no means of evaluating and reporting on this aspect of the program and the value of the NBC program in terms of cost savings continues to be unclear. Clarifying goals and linking them to cost savings would also serve as a way to be transparent with Congress and other stakeholders about the program's purpose and how GSA plans to monitor and achieve its objectives. Clear, linked goals are especially important given that GSA is planning to seek a third generation of broker contracts in 2015.
Officials from all 11 GSA regional offices and representatives from all 4 broker firms identified challenges and made suggestions to improve the program. Two areas frequently cited are: the broker evaluation process and greater flexibility using brokers.
Broker evaluation process : Both GSA regional officials and brokers expressed dissatisfaction with the current broker performance evaluation system and brokers suggested additional guidance and training would help. Both groups also suggested that GSA officials be allowed to use region-specific performance evaluation data to award tasks.
Greater flexibility using brokers : Regional officials suggested that greater flexibility in applying the NBC program would allow them to make better use of brokers. Regional officials described a preferred "menu of services" that would allow them to use the brokers more selectively for the specific tasks where GSA wants assistance as opposed to working with the broker throughout the entire lease procurement.
GSA has begun identifying potential changes to the structure and administration of the NBC program as the agency develops a strategy for the third generation of NBCs. For example, officials told GAO they are examining alternatives to the current commission and rent structure.
section_title: What GAO Recommends
paragraphs: GAO recommends that GSA ensure the program's goals are linked to cost savings achieved through the use of NBC brokers, and develop and implement a means of evaluating and reporting results. GSA concurred with the recommendation.

section_title: Letter
paragraphs: As the federal government’s principal landlord, the General Services  Administration (GSA) is responsible for acquiring and managing a  significant amount of leased space for federal agency customers. GSA  reports that for fiscal year 2013, the agency expected to lease  approximately 197-million square feet at an annual cost of about $5.2  billion. In some cases, GSA uses its National Broker Contract (NBC) to  enlist commercial real-estate brokerage firms (i.e., brokers) to negotiate  with building owners on behalf of the federal government and acquire  leased space. In 2012, it relied on this contract to acquire approximately  33 percent of its expiring leases.
The NBC program began in 2004, when GSA awarded contracts to four  private broker firms that have a nationwide presence, and GSA began  enlisting these firms to negotiate with building owners on behalf of the  federal government in 2005. The agency expected to realize a range of  benefits that would lower costs. The initial contracts expired in 2010, at  which point GSA awarded four more contracts. Contracts were awarded  for one year with four one-year extension options. This program is  different from many service contracts held by the government because  GSA does not directly pay for broker services. Instead, brokers are  compensated by commission—a percentage of the cost of the lease— paid by building owners. Thus, Congress does not appropriate funds for  the work conducted by brokers. Members of Congress have raised  questions about why GSA chose to use contractors to acquire leases for  GSA, rather than performing this service itself, the extent to which the  program has resulted in benefits, and whether the brokers are providing  the best value for the government. Furthermore, there are concerns that  these brokers—whose commission is a percentage of the lease price— may have an inherent conflict of interest in negotiating the best deal for  the government. GSA intends to continue using private sector brokers  and is currently developing the next generation of broker contracts with  the intent to award the next round of contracts in fiscal year 2015. You  asked us to review GSA’s NBC program. This report examines (1) NBC  program goals and the extent to which they are being realized, and (2)  the changes GSA has made to the program and what challenges and  suggestions for improvement, if any, key stakeholders identified.
To meet these objectives, we analyzed GSA’s NBC contract  documentation and reviewed available data on leasing tasks assigned to  brokers. These data were available beginning in 2005, the first year after  the contract was signed, through 2013. We analyzed GSA’s in-house and  broker-negotiated rental rates, and discussed with GSA headquarters  officials the methodology used and the limitations of their analysis and  findings. In consultation with an economist and social science analyst at  GAO, we determined that performing our own analysis would be limited  by the same factors identified by GSA. We reviewed internal and external  reports on the NBC program, which provided information about program  outcomes. In addition, we obtained data from GSA on the NBC program  including information on commissions and credits and on use of brokers.  To determine the reliability of this data, we reviewed relevant  documentation including internally published reports, and we interviewed  agency officials about their processes for reviewing the data and ensuring  their accuracy. We found the broker-related leasing data generally  reliable for the purposes of this report. We interviewed GSA headquarters  officials, officials from all 11 GSA regions concerning the NBC program,  and individuals representing all four brokers currently part of NBC. We  asked officials to identify challenges and suggestions that could help  improve the program. Therefore, we could not always determine whether  these challenges or suggestions were applicable in other regions or with  other broker firms unless other officials brought them to our attention. We  reviewed relevant legislation, regulations, prior GAO work, GSA  guidance, and industry reports. We also identified GAO guidance on  standards for internal controls—plans, methods, and procedures used to  meet missions, goals, and objectives—that are key to helping agencies  better achieve their missions and desired program results and assessed  GSA’s efforts to set goals and objectives to achieve the desired results of  the NBC program. We conducted this performance audit from October  2012 to October 2013 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. For more  information on our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: GSA increased its use of brokers in the years prior to beginning the NBC.  Before 1997, all leasing acquisition work was performed in-house.  However, downsizing initiatives in the 1990s reduced GSA’s in-house  capacity to acquire leases, and in 1997 GSA began to sign contracts with  private broker firms to assist with its leasing portfolio. From 1997 to 2003,  GSA had multiple, separate regional contracts for broker services, and  GSA paid brokers a fee from appropriated funds in exchange for a variety  of lease acquisition and other services. By 2003, approximately 20  percent of the leasing work was being performed by brokers under the  regional contracts, although the regional contracts were found to be  administratively burdensome and inconsistent, because of variations in  the contracts’ terms, conditions, and pricing structures. In 2003, GSA  conducted a business analysis comparing the advantages,  disadvantages, and costs of different types of contracting options on a  national, zonal and local level.
Based on this analysis, GSA concluded that the national contracts  through the NBC program represented the best option available, and  GSA awarded four contracts in October 2004, and contract performance  began on April 1, 2005. GSA identified three expected savings from the  NBC program: reduced rental rates, reduced administrative expenses and  fees, and reduced personnel expenses. GSA officials believed that rental  rates would be reduced as a result of a broker’s expert knowledge of the  commercial real estate market, which would assist in negotiating lower  rental rates. In addition, brokers agreed to forgo a portion of the  commission they received—in the form of a commission credit reducing   the government’s initial rental cost. GSA officials also stated that the  national contract would reduce its administrative expenses because the  previous regional contracts had differing terms, conditions, and pricing  structures. In 2007, we recommended, among other things, that GSA  quantify savings associated with reduced fees and administration  expenses using the NBC. In response to our recommendation, GSA  reported that it had identified cost savings as a result of moving from  regional contracts to the NBC. Finally, GSA anticipated achieving further  savings by hiring fewer realty specialists—the position responsible for  handling leasing transactions—over time. GSA stated that, as a result of  government downsizing, the number of in-house realty specialist staff had  decreased from 811 in 1995 to 450 in 2003. GSA estimated that  approximately 140 realty specialists were eligible to retire by the end of  2005, and that the agency would need to hire approximately 300  additional staff to handle the leasing workload. In our 2007 report, we  found that, after implementing the NBC program, officials subsequently  determined that there were additional tasks for realty specialist staff and  no longer viewed the NBC program as a way to avoid hiring additional  staff. According to GSA officials, in October 2012 they employed  approximately 476 realty specialists.
The NBC program differed from the previous regional contracts in three  major ways. First, the contracts are national contracts, which means that  while the program is implemented and used at the regional level by GSA  regional officials, all regions are subject to the same contract language  and rules. Second, unlike the previous contracts, wherein brokers were  paid for providing a variety of lease acquisition and other services to  support GSA in acquiring leases, under the NBC program brokers are to  perform the full lease acquisition, described in figure 1, as well as lease  expansion or extension and market data collection. Third, under the  NBC program, brokers are compensated through commissions paid by  the lessor (the entity leasing space to GSA), and no payments are made  directly by the government as was the case with the regional contracts.  Although commission payments are factored by lessors into rental rates,  these contracts for the NBC program were referred to by GSA as “no  cost” contracts.
GSA’s stated goals for the program are to provide consistent, high-quality  service nationwide to federal agencies that rely on GSA for lease  acquisition services, as well as leverage the expertise of private-sector  brokers. GSA set two more specific goals that the agency uses to  determine the effectiveness of the NBC program. First, GSA determined  that brokers should be accountable for achieving rental rates in line with  the overall GSA goal. For example, in 2012 the overall goal for the  leasing portfolio was to have rental rates at 9.5 percent below market  average. Secondly, GSA set yearly goals for using brokers to acquire  leased space. For example in 2012, GSA set the goal of 55 percent of  expiring leases to be handled by brokers and 45 percent handled by GSA  in-house.
section_title: Achievement of Goals Is Mixed, and Cost Savings from the NBC Program Are Unclear
subsections: section_title: Rental Rate Goals Met, but Unclear If Cost Savings Result from NBC Program
paragraphs: GSA officials report that they are meeting their overall rental rate goals for  the entire lease portfolio. As mentioned previously, GSA sets a yearly  goal that overall rental rates for space leased from the private sector fall a  certain percentage below the average industry-market rental rate. These  rental rate goals do not differentiate between broker-negotiated leases  and those done in-house. In fiscal year 2012, the goal was for rental rates  to be 9.5 percent below market; GSA reported that its overall portfolio,  which includes leases negotiated by both brokers and GSA staff, was on  average 11.45 percent below market. From 2006 to date, GSA has, to  varying degrees, reported that it exceeded its targets for paying lower  than average rental rates. See figure 2 below. GSA headquarters officials  have used this data as an indication of the NBC program’s success,  because they say the data show that the use of brokers has not driven up  the rental rates. The officials also noted that they consider this an  indication that brokers are not driving up lease rates to obtain higher  commissions.
GSA is reportedly meeting its overall rental goals, but it is not clear that  the NBC program results in rental rates lower than those negotiated by in- house staff. In 2012, GSA officials attempted to determine if brokers  negotiated lower rental rates than in-house staff using data from fiscal  years 2011 and 2012. GSA’s own analysis did not show that brokers were  negotiating significantly lower rental rates, and in fact overall it showed  that brokers were negotiating rental rates that were similar to in-house  staff. Furthermore, GSA officials cautioned us that they found this  available data insufficient to determine if brokers were negotiating lower  rental rates than in-house staff. Officials stated that the market rate data  they were using were not specific enough to provide the level of detail  necessary to discern the potential difference between the rates. They said  that the current market data do not take into account the unique  circumstances for each individual lease, and how these circumstances  affect the rental rate. For example, a lease for a law enforcement agency,  with higher security requirements and unique types of space (e.g., a  shooting range), may have to be negotiated in the higher end of the  market rate. However, the market rate data GSA has does not consider  these requirements, and therefore may underestimate the value of the  rental rate negotiated. The converse is also true, and it is possible that  the market rate data can overstate a rental rate negotiated for an office  space with few special requirements. The officials said that this makes  comparison of negotiated rental rates difficult because even if both of the  example leases were in the same market, one rate may be overvalued  while the other is undervalued based on its unique requirements. This  limitation notwithstanding, officials told us they still believe it is probable  that brokers are negotiating lower rates.
In April 2013, GSA began requiring regional officials to use different  market rental-rate data, which they expect will allow them to better  compare the rental rates achieved by brokers to market rates in the  future. For all broker projects greater than 10,000 square feet, regional  officials are to obtain an in-house research report at the beginning of the  leasing process referred to as “Bullseye.” A Bullseye report is  specifically tailored for each lease transaction and includes market  information, analysis, and insight regarding the local submarket. The  officials stated that the new reports would provide more specific data to  gauge the effectiveness of the broker program by comparing negotiated  rental rates to the average for the submarket rate at the time of lease  award. According to GSA officials, this new reporting will improve their  comparison of rental rates negotiated by brokers to market rental rates  but will probably still not allow them to definitively determine whether  brokers are negotiating better deals than in-house staff. Because this  effort is relatively new, data were not available at the time of our review to  conduct further analysis. GSA headquarters officials noted the only way  to ideally compare one lease to another is to acquire space for similar  agencies, in the same market at the same time. In previous attempts by  GSA to perform comparison analysis, GSA determined there were not  enough data points with these characteristics to draw a meaningful  conclusion.
section_title: GSA Recently Changed Goals for Use of Brokers
paragraphs: GSA initially set goals under NBC to have brokers conduct a high  percentage of its leases, but beginning in fiscal year 2013 began  deemphasizing the importance of annual percentage goals for broker  usage. GSA set yearly goals based on the number of leases in the  portfolio they determined could be handled by brokers and originally  anticipated that 80 percent of the leasing workload would be assigned to  brokers by fiscal year 2009. GSA lowered its broker usage goals for fiscal  years 2011 and 2012 from 80 percent to 55 percent, and reported that in  fiscal year 2012 it used brokers for 33 percent, or 220, of its expiring  leases. GSA officials told us that they began lowering usage goals after  2010 because more leases needed to be handled in-house for training  purposes.
GSA officials told us they did not meet their broker usage goal for a  variety of reasons. First, there are some leases with sensitivities such as  internal conflict within an agency or the space is for a high-profile public  official that they prefer to handle in-house. Second, some work is  purposefully kept in-house for training purposes and to maintain staff  expertise. (This was also a reason the officials gave for why they began  lowering usage goals in 2011.) Third, some GSA regional officials have  not always found it advantageous to send leases to brokers because it  can be time consuming. Specifically, officials from 6 of the 11 regions  expressed concern that the NBC program is administratively burdensome  and adds time to leasing procurement. Officials in one region stated that  they essentially run “shadow procurements” for all NBC leases. That is,  even though the broker is doing a significant amount of paperwork and  finding lessors, the work completed by brokers must be closely monitored  and reviewed to ensure that the process is in accordance with  government standards. In addition, GSA officials are required to conduct  performance evaluations at multiple points throughout the process, which  officials told us is more time consuming than the evaluation process for  in-house personnel.
In 2010, the GSA Office of the Inspector General (IG) reported that due  to a number of steps unique to NBC projects, there was an average of 1.6  months added to the total time for the leasing process for the data in its  sample. Representatives from one broker firm we spoke with told us that  NBC leases can take longer because GSA personnel can be less  responsive on a broker-negotiated lease than leases they are personally  negotiating. They noted that there are many approval points that the  broker cannot pass without approval from a GSA official and that  significant time can elapse before GSA officials review the paperwork.
In fiscal year 2013, GSA deemphasized the importance of annual  percentage goals for broker usage. Instead, GSA headquarters officials  told us they reviewed each regional portfolio for fiscal year 2013 through  fiscal year 2015 procurements and developed a list of leases that they  determined should be sent to brokers. The list consists of leases that are  viewed by the officials as having a “high to moderate value” and having  the greatest potential for brokers to negotiate lower rental rates than in- house personnel. GSA officials stated that they believe NBC provides  the greatest value with large complex leases in large metropolitan areas,  where brokers have a strong commission incentive. According to GSA  headquarters officials, these areas have the highest potential for cost  savings if brokers are able to negotiate lower rental rates as a result of  private-sector market knowledge and negotiation skills. The officials told  us that, after they compiled the list, regional officials were given an  opportunity to comment, resulting in some changes, and that the resulting  list of leases is what GSA plans to have brokers handle. For example,  regional officials said that they removed some of the leases on the list  because they had already been sent to a broker or begun in-house, or as  stated previously, officials wanted to keep some larger projects in-house  for training and maintaining in-house expertise. According to GSA  headquarters officials, they plan to move forward with these new goals.  They noted that the focus is now on managing the workload and not on  meeting a specified utilization number. GSA headquarters officials told us  that they believe they are now using the NBC program for its intended  purpose, i.e., workload management and driving savings by using broker  expertise in more difficult markets and working the more complex, high- to-moderate value leases.
section_title: Cost Savings from Using the NBC Program Are Unclear
paragraphs: The two goals GSA uses to evaluate the NBC program are not closely  linked to the anticipated cost savings used to justify the program. GSA  headquarters officials told us that when they attempted to determine if  brokers were negotiating lower rates than in-house staff, they found that  the data they had were insufficient for this purpose. The program has  evolved over the years, and reduced rental rates from using brokers are  the only expected savings that remain. However, GSA lacks data on  whether using brokers results in cost savings. Furthermore, GSA officials  stated that they do not believe the Bullseye data will necessarily allow for  comparison of broker- and in-house-negotiated rental rates. Without data  on the cost benefits of using brokers relative to using in-house staff, the  value of the NBC program will continue to be unclear. Federal internal  control standards state that a key factor in helping agencies achieve their  missions better and program results is the use of appropriate internal  controls. Among other things, agencies need to compare actual  performance to planned or expected results, monitor performance  measures, and collect operational and financial data to ensure that  agencies are meeting their goals for effective and efficient use of  resources. This is particularly important because as programs change,  as the NBC program has, and agencies strive to improve operational  processes, agencies would be better equipped to assess results by  continually assessing and evaluating whether the control activities being  used are effective and updated when necessary. By not having adequate  data, GSA cannot assess the effectiveness of activities conducted under  the NBC program or know if adjustments are needed to the program.
section_title: GSA Has Made Changes to the NBC Program, and Stakeholders Have Suggested Additional Actions That Can Improve the Program
subsections: section_title: GSA’s Changes to the NBC Program Implementation
paragraphs: According to GSA officials, they have made changes to the NBC program  since the first contracts were signed in 2004. Based on experiences with  the first contracts (NBC1), GSA made changes to the current contracts  (NBC2) in three key areas, as described below.
Implementation of Commission Cap: According to GSA officials, NBC2  brokers were required to submit caps on the amount of commission they  would retain for any given transaction. Under NBC1, brokers were  required to submit the percentage of any commission they received that  they would give back to GSA in the form of a rent credit. In our 2007  report we found that allowing brokers to represent the government while  negotiating their commissions creates an inherent conflict of interest  between the brokers’ interest in promoting and negotiating higher  commissions and their responsibility to effectively represent GSA’s  interest in selecting properties that best meet the government’s needs,  including its cost needs. Under NBC2, GSA believes this issue has been  addressed, because the brokers have committed to a cap on the amount  of commission the brokers retain. Using commissions paid by building  owners to compensate brokers is typical in the commercial real estate  industry. However, brokers could still have an incentive to seek  government approval of a higher rent in order to increase the overall  amount of their commission.
Changes in Broker Performance Evaluations: According to GSA officials,  GSA made two major changes to broker performance evaluations for  NBC2. First, under NBC2, GSA reduced the number of mandatory broker  performance evaluations from seven to four for each lease. In addition to  receiving a final overall evaluation, brokers are now evaluated at the  market-survey, lease-award, and post-award-services steps. GSA  officials stated these changes were made to streamline the process and  decrease the administrative burden on the in-house staff overseeing the  brokers. Second, under NBC2, GSA awards tasks to brokers based on  price and performance data. For NBC1 task orders were based on  equitable distribution—i.e., brokers received equitable square-footage  distributions in each of GSA’s 11 regions. Under both contracts, brokers  are evaluated and scored on a scale from 1 to 5 on document quality,  timeliness, cost control, business relations, and personnel technical  quality. These evaluations are used to derive a score for each task that  is compiled into a report and sent to GSA headquarters officials on a  quarterly basis. GSA officials use these scores to determine a national- level rating for each broker. For NBC2, GSA regional officials determine  which factors (document quality, timeliness, cost control, business  relations, and personnel technical quality) are the most important for a  lease and then use the national-level performance rating, along with cost,  to determine which broker will be awarded a task order.
Earlier Broker Involvement: According to GSA officials, under NBC2 GSA   included the option of bringing brokers into the process earlier, at the  requirements development process. “Requirements development” is the  process by which GSA works with an agency to obtain the specific  requirements for a lease—such as the amount of space needed and the  preferred location—at the beginning of the leasing process. Under NBC1,  the contract allowed for the broker to assist with requirements  development, but GSA policy was to have in-house staff assist the  agency. GSA officials stated that brokers could add value by being  involved in requirements development because they can bring in market  data information and other expertise, which can better inform GSA on  how much space might be needed and options for where it can be  located.
GSA officials told us that they are considering additional changes as they  plan for the third generation of contracts. According to the officials, they  are reconsidering the structure and administration of the NBC program  with the goal of improving its effectiveness. At the time of our review, we  were told GSA was assessing potential changes using a range of tools,  including those below:
Collecting lessons learned, such as using brokers for new leases,  which may provide better value, and working projects with short  timelines in-house to allow for greater control over project timelines.
Incorporating new approaches and strategies, such as examining  alternatives to the current commission and rent structure and  developing new methods for evaluating broker performance.
Creating and gathering input via a dedicated members only  discussion group for real estate stakeholders on the LinkedIn  networking website.
Exploring the feasibility of conducting a pilot program prior to full  contract launch.
Using the previously mentioned contractor review of the NBC  program’s effectiveness and changes the officials and industry  stakeholders thought would improve the program.
GSA plans to issue a request for proposals in 2014, and to award new  contracts in fiscal year 2015.
section_title: All Brokers and Several GSA Regions Report That Changes to Performance Evaluation Are Needed
paragraphs: Officials in 7 of the 11 GSA regions expressed dissatisfaction with the  current broker performance-evaluation system. As mentioned previously,  past performance is one of the factors regional officials use to select a  broker. However, GSA regional officials noted some challenges  associated with the process for evaluating broker performance. For  example, GSA regional officials told us that under the current system, the  same level and quality of work can receive very different ratings across  regions. The officials noted that the ratings are largely at the discretion of  regional officials and that the standards for scores are not necessarily  applied uniformly. Regional officials suggested additional training or  guidance for officials who do the ratings could help address these  problems. GSA headquarters officials indicated that in addition to training,  the changes to the internal structure used to support the contract that are  being considered under NBC3 will help address these concerns.  However, officials in four regions told us the broker performance- evaluation process worked well and allowed them to accurately represent  each brokers’ performance. GSA headquarters officials said they are  looking at ways to make the performance evaluation process more  consistent. They noted that in a performance-based contract, they are  required to evaluate the contractors’ performance and need regional  support to ensure this practice is enforced. According to the headquarters  officials, in some instances, milestones are evaluated months or up to a  year after the completion date and that evaluations deemed “untimely”  are discarded. Officials emphasized that in order to accurately reflect a  contractor’s performance, the evaluations must be completed once all  tasks associated with that milestone are completed.
Representatives from all four national broker firms participating in the  NBC program expressed dissatisfaction or concern with the broker  performance-evaluation system. Representatives from one broker firm  told us they believed the evaluations are subjective because the  standards for numerical performance evaluation scores are ambiguous.  For example, the same work could receive a rating of 3 in one region and  a rating of 5 in another region, presenting a challenge when attempting to  determine the better value to the government. Brokers from another firm  said there needs to be greater consistency between regions on how they  conduct broker evaluations. All four brokers also suggested that providing  more detailed guidance for GSA officials who do the rating would make  the ratings less subjective and more consistent across regions.
GSA regional officials and brokers also suggested using region-specific  broker performance-evaluation data to award tasks. Officials from 10 of  11 GSA regions told us that this change would help them award the task  order to the broker that performed the best in the region. As officials in  one region explained, the brokers’ national scores—which combine the  scores from all regions—are not helpful, because these scores do not  always reflect the performance of a specific broker that works well in a  region. The officials in this region told us that, with 11 regions, the  combined national score loses effectiveness, because brokers have  different strengths and weaknesses in various markets. For illustrative  purposes, in figure 3, we present actual data from a 2012 quarterly  performance report to show how using national scores may result in  assigning a task to a broker that does not perform as well in a specific  region as the broker firm’s overall national performance score. In this  region, officials conducted two evaluations and rated this broker firm as  “marginal” in every category, while the overall national scores for the  same broker firm are primarily “very good” and “exceptional,” except for  cost control.
In the example shown in figure 3, if officials in this region identified  “Timeliness” as the most important factor when awarding a task order,  under the current contract, they would have to use the national scores to  determine the broker with the best performance in timeliness. Thus, the  task order could be awarded to this broker whose past performance was  rated as marginal by regional officials. According to GSA headquarters  officials, they are considering using regional past performance for task  order selection. They noted that they would make this decision after they  are confident that GSA staff are adequately trained and have a clear  understanding of the contract requirements. Additionally, they said that  they place a priority on making sure the contract is administered fairly and  properly before they begin using regional past performance.
Of the 10 regions where officials suggested using region-specific broker  performance evaluation data to award tasks, officials in 3 regions  suggested developing a hybrid approach for performance evaluation data,  wherein they could have the option of combining national scores with  region-specific scores and using the combined score to choose a broker.  Officials in one region told us this would allow for assignments to be  made based on work completed in that region which would help the  officials make better decisions. Similarly, officials in another region told us  they would prefer to use a combination of both the regional and national  level scores because each region has different needs, and brokers have  different strengths and weaknesses. GSA headquarters officials told us  they are considering using regional performance evaluation scores, but  want to determine if the performance evaluation processes are working  properly before they make a change. These officials also stated that there  is concern that if regions with less attractive portfolios (fewer and less  valuable leases) are not factored into a national score used to determine  assignments, brokers may have less incentive to perform well in smaller  markets.
Representatives from two broker firms suggested using region-specific  broker-performance- evaluation data to award tasks. For example, one  broker told us that since work is being distributed using the national  average performance-evaluation scores, this overlooks the benefit that  some regions may have developed strong working relationships not  captured under a national score. They also noted that the way work is  assigned does not seem to take into account “logical follow-on” or unique  experience.
section_title: All Brokers and Some GSA Regions Report Challenges with the Commission Structure
paragraphs: GSA officials in three regions expressed concerns about the current  commission structure and made suggestions for improvement. These  regional officials were generally concerned that the commission-based  system did not guarantee that brokers had an incentive to negotiate a  lower rental rate for the government. Officials in one region told us that  under the current system, brokers benefit from higher rental rates  because their commission is a percentage of the total rental rate. They  suggested that if commission rates were a specified amount instead of a  variable percentage, GSA would be better assured that the broker was  not trying to get a larger commission than is appropriate in that market.  GSA headquarters officials told us that they are reexamining the  commissions and are actively looking at alternatives to the current  commission and rent structure.
All four brokers participating in the NBC program told us that the change  to the commission structure GSA implemented in 2011 has decreased  commissions and potentially could reduce the quality and quantity of  brokers’ staff. In 2011, GSA modified the contracts to incorporate  changes to the Federal Acquisition Regulation (FAR) as a result of the  Duncan Hunter National Defense Authorization Act for Fiscal Year 2009  (Duncan Hunter Act). As explained by GSA, these changes require that  every task order or group of task orders estimated to yield a commission  in excess of $150,000 be sent to all brokers, who then have an  opportunity to be awarded the task order. Brokers were unanimous in  their concern that this requirement, which they call “re-bidding” or “re- competing,” would ultimately result in lower value for the government.  They told us that their commissions or initial contract pricing were based  on the assumption that the profitability of the larger leases (including  those with commissions in excess of $150,000) would help offset the  potential losses on smaller leases, which they say are generally not  profitable to the brokers. The brokers also told us that although this may  result in short-term savings for the government by encouraging broker  bidding and reducing commissions, ultimately it is not financially  sustainable for them. Two brokers provided examples in which decreased  revenue negatively affected staffing. For example, one broker told us  these requirements were forcing commissions lower and that they would  eventually have to compensate by laying-off staff or hiring staff with less  experience; and another broker told us that decreased revenues resulted  in a loss of employees and difficulty replacing them.   Representatives  from 3 of the 4 broker firms stated the changes to the FAR did not require  contract modifications. These brokers stated that in their opinion, the  changes to the FAR do not apply to the NBC program and recommended  that changes be made that reflect this.
section_title: Most GSA Regions Suggested More Flexibility in Using Brokers
paragraphs: Officials in the majority of regional offices (8 of the 11) suggested that  greater flexibility in applying the NBC program would allow them to make  better use of the brokers. Currently, when a broker is awarded a task  order, as we described previously, it is a full service lease acquisition,  which means the broker handles the majority of the work for a task.  Regional officials described a preferred “menu of services” that would  allow them to use the brokers more selectively for the specific tasks  where GSA wants assistance as opposed to working with the broker  throughout the entire lease procurement. For example, regional officials  told us this would allow officials to involve brokers at crucial points—such  as by conducting market analysis—and then allow GSA to handle the  other parts of the procurement process in-house. The officials said that  this would benefit GSA, because it would allow GSA to harness the  brokers’ market expertise, which, in their opinion, is how brokers add the  most value. According to GSA headquarters officials, they are reviewing  the contract on an on-going basis and making the changes that will offer  greater flexibility. They said that they have enhanced the requirements  development, allowing the broker to perform most of the duties  associated with requirements development process and are removing  unnecessary requirements that delay task-order issuance.
section_title: Brokers Suggested Earlier Involvement and Increased Access
paragraphs: The current NBC program allows for brokers to have only a limited role in  working with the agency requesting space during the earliest part of a  leasing procurement—the requirements development phase —but  according to both GSA regional officials and brokers early broker  involvement seldom occurs. In some cases, it does not occur because a  region has a group dedicated to the requirements development phase, so  the region uses in-house expertise. However, all four brokers suggested  that earlier involvement in the procurement process would improve the  program’s effectiveness by allowing the brokers to assist in determining  space needs or identifying other means of cost savings. Brokers from one  firm noted that they have considerable experience in reducing costs for  private sector clients by helping them plan and implement space-saving  arrangements, and that they could provide added benefit to GSA if they  were involved earlier in the process. Brokers from another firm said that  GSA and the agency requesting space will sometimes develop  requirements that will result in higher costs, but that changes could result  in significant savings. They said that they would like to start with a blank  slate and help determine how to save money for multiple sets of  circumstances, including broader space planning for a single agency,  planning across agencies, multiple leases in the same area, or  negotiating multiple leases at the same time in the same building.
In addition to earlier involvement in the leasing process, all four brokers  participating in the NBC program suggested that allowing them increased  access to agencies requesting space would expedite the process.  Brokers indicated that the procurement process generally slows down  when they have limited direct interaction with tenant agencies because  the extra layer of communication can cause miscommunications. This  situation can result in the broker’s trying to secure a lease with bad  information, which can delay the process until the broker determines  exactly what the agency wanted. Two brokers said that if they had more  access to the agencies, the process would move more quickly and they  would have better information on which to make decisions.
section_title: Conclusion
paragraphs: GSA’s goals and metrics for evaluating the NBC program have not been  linked to the cost savings in rental rates GSA anticipated when proposing  the program. As a result, GSA does not have a means of evaluating and  reporting on this aspect of the program and the value of the NBC program  in terms of cost savings continue to be unclear. While GSA has taken  steps to better assess how its rental rates compare to market rates, these  changes will not necessarily be sufficient for determining the overall costs  and benefits of the NBC program. Accordingly, GSA will continue to lack  the data needed to assess whether the use of brokers’ results in the  expected cost savings through overall rental rate reduction. Clarifying its  goals for the program and linking them to cost savings would also serve  as a way to be transparent to the Congress and other stakeholders about  the purpose of the program and how GSA plans to monitor and achieve  the program’s goals. Such transparency is especially important given that  GSA is planning to seek a third generation of broker contracts in fiscal  year 2015.
section_title: Recommendation for Executive Action
paragraphs: To promote transparency and fully reflect the expectations GSA used to  justify the NBC program, we recommend that the Administrator of GSA  ensure the program’s goals are linked to cost savings achieved through  the use of NBC brokers and develop and implement a means of  evaluating and reporting results.
section_title: Agency Comments
paragraphs: We provided a draft of this report for review and comment to GSA. GSA  concurred with the report’s recommendation and provided technical  clarifications, which we incorporated as appropriate. GSA’s comments are  discussed in more detail below. GSA’s letter is reprinted in appendix II.
GSA stated that it will take action to implement the recommendation as  well as address the challenges and suggested improvements noted in the  report. GSA stated, with respect to the use of “shadow procurements”  reported, that this practice was an extraordinary and unnecessary  scrutiny of broker work that was limited to one GSA region and is not  reflective of the NBC program in its totality. This point raised by GSA is  reflected in the report, and the report does not imply that this was  indicative of the program as a whole.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Director of the Office  of Management and Budget and the Administrator of General Services. In  addition, the report will be available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staff have any questions, please contact me at (202) 512- 2834 or wised@gao.gov. Contact points for our Offices of Congressional   Relations and Public Affairs may be found on the last page of this report.  GAO staff who made key contributions to this report are listed in appendix  III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) the General Services Administration’s  (GSA) National Broker Contract (NBC) program goals and the extent to  which they are being realized; and (2) the changes GSA has made to the  program and what challenges and suggestions for improvement, if any,  key stakeholders identified.
To identify the goals of the NBC program, we reviewed GSA’s 2003  analysis used to recommend the program as well as the subsequent  goals and policies used to implement the program. From these sources  and interviewing GSA officials, we identified expected savings and goals  for the NBC program. The expected savings of the program include  reducing rental rates for GSA leases of private sector space and lower  administrative expenses as compared to the previous, mainly regionally  based, contracts with private brokers. The goals that we identified for the  project are for brokers to negotiate rental rates in line with overall GSA  lease portfolio goals, and a yearly goal for using the broker program. We  also conducted interviews with GSA headquarters officials managing the  NBC program concerning the expected savings and goals of the program.  To examine the extent to which benefits and goals have been realized we  reviewed available GSA data and data analysis, GSA internal reports,  GSA Office of Inspector General reports, and prior GAO work. We  reviewed GSA broker data from the first year of the contract in 2005  through 2013. We analyzed GSA’s in-house and broker-negotiated rental  rates, and discussed with GSA headquarters officials the methodology  used and the limitations of their analysis and findings. In consultation with  an economist and social science analyst at GAO, we determined that  performing our own analysis would be limited by the same factors  identified by GSA. We reviewed internal and external reports on the NBC  program, which provided information about program outcomes. In  addition, we obtained data from GSA on the NBC program including  information on commissions and credits and on use of brokers. To  determine the reliability of this data we reviewed relevant documentation  including internally published reports, and we interviewed agency officials  about their processes for reviewing the data and ensuring their accuracy.  We found the broker-related leasing data generally reliable for the  purposes of this report. We interviewed officials from all 11 GSA regions  and representatives from all four broker firms currently on contract about  the use and perceived benefits of the program. We asked officials to  identify challenges and suggestions that could help improve the program.  Therefore, we could not always determine whether these challenges or  suggestions were applicable in other regions or with other broker firms  unless other officials brought them to our attention. We also identified  federal guidance on standards for internal controls—plans, methods, and  procedures used to meet missions, goals, and objectives—that are key to  helping agencies better achieve their missions and desired program  results.
To identify stakeholder suggestions for improving the NBC program we  conducted interviews with the major stakeholders of the program  including: GSA headquarters officials, all 11 GSA regional office officials,  and representatives from all four broker firms. Each of the stakeholders  was asked to speak about the changes between the first and second  broker contract, and whether they felt that benefits had resulted because  of these changes, and what further improvements, if any, they would  suggest for the program. We reviewed modifications GSA made to the  contract in response to the Duncan Hunter National Defense  Authorization Act for Fiscal Year 2009  and to the Federal Acquisition  Regulation.  We compared the first and second signed national broker- contract documentation, and analyzed the reasons for the changes  between the two contracts. We reviewed the project plan for reviewing the  NBC program and spoke with officials concerning their plans for making  changes for the next generation of contracts. We also identified federal  guidance on standards for internal controls—plans, methods, and  procedures used to meet missions, goals, and objectives—that are key to  helping agencies better achieve their missions and desired program  results and assessed GSA’s efforts to set goals and objectives to achieve  the desired results of the NBC program.
We conducted this performance audit from September 2012 to October  2013 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from General Services Administration
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, the following individuals made  important contributions to this report: David Sausville (Assistant Director),  Kenneth Bombara, Lorraine Ettaro, Bert Japikse, Aaron Kaminsky, Josh  Ormond, Amy Rosewarne, and Jade Winfree.