United Nations: Early Renovation Planning Reasonable, but Additional Management Controls and Oversight Will Be Needed
Published: 2003-05-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United Nations (U.N.) estimates that its planned renovation of the seven buildings on the Headquarters complex could cost almost $1.2 billion. As the host country and the largest contributor to the United Nations, the United States has a significant interest in this project. This report (1) assesses the reasonableness of the U.N. process to develop the renovation plans, (2) analyzes the potential cost to the United States, (3) identifies critical milestones before construction can begin, and (4) discusses efforts to monitor and oversee the project.
section_title: What GAO Found
paragraphs: U.N. officials followed a reasonable process consistent with leading industry practices and recognized guidelines in developing the headquarters renovation plan--the first phase of a five-phase renovation process. As the project advances, changes in scope, schedule, and cost are to be expected. To finance the renovation, the Secretary-General anticipates a no-interest loan from the United States. However, U.S. and U.N. officials stated that neither the United States nor the United Nations have specified the nature of any financing commitment. GAO estimates that the financial impact of the renovation to the federal government, including providing a $1.2 billion no-interest loan and repaying a share as a U.N. member, would be over $700 million, depending on the loan terms and conditions. Several critical milestones must be met for construction to begin as planned, including securing a financing commitment and signing a lease for a building where U.N. staff and delegates would relocate during the renovation. As the renovation project progresses, additional management, oversight, and monitoring is needed. The United Nations plans to complete a project management plan, which would help the United Nations control cost and schedule. While the United Nations has approved initial funding for the Board of Auditors to conduct oversight of the renovation and the board is preparing its audit strategy, the Office of Internal Oversight Services does not have the resources or audit strategies needed to effectively conduct oversight of the renovation. The Department of State has assembled a task force to monitor the renovation, but the department will need to define the task force's mission and program goals. Doing so would allow the department to develop strategies for employing the appropriate skill mix needed to achieve a successful outcome for the task force.

section_title: Letter
paragraphs: The United Nations (U.N.) Headquarters complex in New York City no  longer meets current safety standards and needs major renovation, which  U.N. officials estimate could cost almost $1.2 billion. Because the United  States is host country to the United Nations, the U.N. Secretary-General  anticipates that the United States will provide a no-interest loan for the  renovation, similar to the one the United States provided when the U.N.  complex was built between 1949 and 1952. The U.N. General Assembly has  not yet given its final approval for the renovation project but has authorized  its continued design. In June 2001, we reported that the U.N. early planning  process had been reasonable. Since that report, the United Nations has  further developed its plan, recommending an approach that would  renovate the entire complex; lease a new office building, or “swing space,”  built adjacent to the complex; and temporarily move most U.N. staff to that  building.
You asked us to update our prior report by assessing the revised U.N.  renovation plan. In this report, we (1) assess the reasonableness of the U.N.  process to develop the renovation plan, including the cost estimate and  physical security components; (2) estimate the potential financial impact to  the federal government of the renovation; (3) identify critical milestones  before construction can begin; and (4) discuss U.N. and Department of  State efforts to manage, oversee, and monitor the project as it proceeds.
To undertake our work, we reviewed the 2002 Capital Master Plan and  related reports prepared by the U.N. architect-engineering firm, cost  estimating subconsultant, and security subconsultant. We also reviewed  construction and security industry literature and U.N. and U.N.  Development Corporation project plans. To estimate the financial impact  of a no-interest loan, we analyzed the impact of the United States foregoing  future interest payments and assuming the risk of a potential U.N. default  on the loan. We discussed the Capital Master Plan with U.N. officials, the  consultants who developed the designs, industry experts, and Department  of State officials (see app. I for more information on our scope and  methodology).
subsections: section_title: Background
paragraphs: The original U.N. Headquarters complex, located in New York City, was  considered among the most modern facilities when it was constructed  between 1949 and 1952. The United States financed construction of the  original complex—the General Assembly, Secretariat, and Conference  Building—by providing the United Nations with a no-interest loan  equivalent to about $420 million in 2003 dollars. The rest of the 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 U.N. regular budget or private donations (see fig.  1). Currently, the complex accommodates the needs of 191 U.N. member  countries and approximately 4,700 U.N. staff. However, the U.N. buildings  do not conform to current safety, fire, and building codes and do not meet  U.N. technology or security requirements. The United Nations estimates it  would cost more than $2 billion over 25 years for repairs and system  replacements in the absence of a major renovation.
In June 2001, we reported that the Secretary-General’s first Capital Master  Plan had defined the need for renovation, established the Secretary- General’s expectations for the project, and provided options for a multiyear  effort to renovate the headquarters. The General Assembly reviewed the  plan and approved $8 million to further develop the conceptual designs and  associated cost estimates for the renovation. The General Assembly agreed  with the Secretary-General’s assumptions, which provided the framework  for the renovation planning. These assumptions included the following:  The headquarters complex would remain at its current location in New  York.
The complex should be energy efficient, free of hazardous materials,  and compliant with host city building, fire, and safety codes.
The complex should meet all reasonable security requirements.
Disruption to the work of the United Nations should be kept to a  minimum.
In August 2002, the Secretary-General presented the General Assembly  with a more detailed Capital Master Plan and endorsed a renovation  approach that included the temporary relocation of most U.N. staff and  delegates to “swing space” in a proposed new building (see fig. 2 for the  swing space location and app. II for more information on the renovation  approach).
In December 2002, the General Assembly adopted a resolution endorsing  the renovation approach and approved $25.5 million for detailed designs  and cost estimates to be developed in 2003. The General Assembly also  approved $26 million to complete the design process in 2004–2005. The  General Assembly does not plan to make a final decision on whether to  proceed with the renovation until financing is secured.
section_title: Planning Process Is Reasonable but Still in an Early Phase
paragraphs: In developing the renovation conceptual plan and cost estimate, U.N.  officials, their architect-engineering firm, and subconsultants followed a  reasonable planning process that was consistent with leading practices. In  addition, U.N. officials and their security subconsultant followed a process  consistent with recognized guidelines to develop plans for improving  security at the U.N. complex. The United Nations is still in the early  planning stages of the project—the first phase of a five-phase process. For  this reason, changes to the scope and cost of the proposed renovation are  to be expected.
subsections: section_title: Process Used in Early Planning Phase Followed Leading Practices
paragraphs: The overall U.N. process to develop a conceptual plan followed leading  facility acquisition practices.
Competitively procured an architect-engineering firm. U.N.  renovation officials used a competitive process to procure the services  of an architect-engineering firm (see app. III for the names of the firms  involved). The United Nations received 15 responses to its request for  proposals from firms representing six different countries. In 2001, the  United Nations selected and hired an architect-engineering firm to  prepare a comprehensive renovation design concept and cost analysis.  The architect-engineering firm used subconsultants with recognized  expertise in construction disciplines such as cost estimation, security,  and structural engineering.
Obtained assessments of the complex’s condition. The architect- engineering firm and subconsultants reviewed condition assessments  conducted in 1998 and performed additional inspections and  assessments of the complex’s condition as needed. For example, they  completed a new assessment of the Secretariat Building’s deteriorating  window structure. U.N. officials subsequently concluded that it was  more cost effective to replace the window structure than to renovate it,  as had been previously planned.
Retained firm to review the renovation conceptual plan. U.N. officials  retained the services of a consulting engineer to assist them in reviewing  the conceptual planning reports and recommendations.
Involved U.N. managers in the planning. U.N. officials involved facility  managers, such as those responsible for building and program  management, security, and information technology, in the planning  process to ensure that the renovation would meet their needs. The  managers were asked to verify the conditions and problems identified  by the architect-engineering firm and subconsultants and comment on  whether the proposals would address their needs.
section_title: Process to Develop Preliminary Cost Estimate Followed Best Practices
paragraphs: To develop a preliminary cost estimate, U.N. officials and the cost  estimating subconsultant followed industry best practices established by  the Construction Industry Institute.
Defined the scope of the project and work plan, including  responsibilities, schedule, and project budget. U.N. officials identified  the building improvements that were to be included in the project scope:  replacing heating, air conditioning, and electrical systems; refurbishing  the window structure on the Secretariat Building; enhancing security  measures; and modernizing communication and technology capabilities.  The U.N. contract with the architect-engineering firm established the  schedule for the cost estimating subconsultant to submit three cost  estimates for approval. To compare the renovation approach budgets,  U.N. officials also instructed the cost estimating subconsultant to  develop one renovation approach within the budget parameters of the  2000 Capital Master Plan.
Standardized the cost estimate format. U.N. officials used a  standardized cost estimate format, including elements such as  professional fees, labor and material costs, design and construction  contingencies, and escalation costs to account for inflation. The  standardized format enables U.N. officials to compare current and  future cost estimates as the project progresses through the design  process.
Reviewed and checked cost estimate. U.N. officials reviewed the cost  estimate to ensure that the conceptual planning estimates were within  acceptable cost parameters. For the final review, U.N. officials hired a  cost estimating consultant to peer review the cost estimate. While the  peer reviewer’s assumptions were more conservative than the  subconsultant’s assumptions, the peer reviewer’s cost estimate was  within 5 percent of the subconsultant’s cost estimate. Based on the peer  review, U.N. officials adjusted the cost estimate.
Documented and reported the final cost estimate and range of  accuracy. The cost estimating subconsultant delivered the final cost  estimate, including contingencies that are meant to reflect the accuracy  of the estimate, to U.N. renovation officials for the 2002 Capital Master  Plan in August 2002. Consistent with industry practices, the  subconsultant added a design contingency to allow for changes that  typically occur during the design process. The subconsultant also added  a construction contingency to allow for unforeseen or unknown costs.  For example, structural conditions hidden by current construction may  conflict with planned renovations and require contract changes.
section_title: Process to Develop Preliminary Plans for Security Upgrades Followed Recognized Guidelines
paragraphs: After the terrorist attacks of September 11, 2001, the United Nations  enhanced security at the U.N. complex and added security measures to the  Capital Master Plan (see app. IV for further information). U.N. officials and  the U.N. security subconsultant identified the additional security measures  through a process consistent with recognized security risk management  guidelines. We have previously reported on these guidelines, which  members of the U.S. intelligence and defense community follow and can  provide a sound foundation for effective security.
Identified the assets to be protected and the impact of their potential  loss. The security subconsultant identified assets at the United Nations  to be protected, such as the buildings and the perimeter. The United  Nations also evaluated the importance of each asset, the potential  impact of its loss, and the methods to maintain operations if the assets  were lost or damaged.
Identified threats to those assets. U.N. security officials consulted with  relevant federal and local U.S. officials to assess changing threats to the  United Nations. According to U.N. officials and the security  subconsultant, they designed the security initiative in the Capital Master  Plan to address these threat levels.
Identified vulnerabilities. The security subconsultant reviewed five  previous vulnerability assessments and conducted their own  assessment of the entire complex to verify vulnerabilities and identify  needed security upgrades.
Assessed risks (potential for loss or damage) and determined  priorities. Following security guidelines from the U.S. Interagency  Security Committee, the security subconsultant developed a risk  assessment that reflected its analysis of the threats to the U.N. complex  and its vulnerabilities. Based on the risk assessment, U.N. officials then  prioritized the security needs of the complex. According to an expert  from the Interagency Security Committee, the risk assessment process  used to develop the planned security upgrades was reasonable based on  the consultant’s report to the United Nations.
Identified countermeasures that mitigate risks. The security  subconsultant used the risk assessment to identify and recommend  more than 100 security measures for the Capital Master Plan. U.N.  officials organized these security upgrades into two components—those  in the baseline scope of the Capital Master Plan and those in a package  of options.
The security risk management guidelines are not a rigid set of procedures,  but rather recognized steps to ensure that critical issues are considered  when designing a security program. Additionally, U.N. security officials  sought peer review input from other U.N. departments and public and  private sector security experts when designing the security program.  According to security officials from the Departments of State, Defense, and  Energy and the General Services Administration, the U.N. process for  developing the security initiatives in the Capital Master Plan was  reasonable.
section_title: Renovation Planning Is in the Early Phases and Changes Are to Be Expected
paragraphs: U.N. officials have completed only the first phase of the renovation process  by developing a conceptual plan for the proposed renovation. While U.N.  planning efforts for the renovation have been reasonable so far, many  decisions that can affect the project scope, schedule, and cost have yet to  be made. For example, the General Assembly must decide whether it wants  to include certain options that were proposed in the 2002 Capital Master  Plan, such as installing extra back-up generators beyond those required by  current building codes. Events outside U.N. officials’ influence, such as the  availability of construction materials and labor, may also change the scope,  schedule, and cost. In addition, the preliminary cost estimate is likely to  change as the design phase progresses and decisions affecting the project’s  scope are made. Construction Industry Institute research suggests that the  final cost of a project may vary by plus or minus 30 to 50 percent of the  estimated cost at this early phase of a project.
While the United Nations has completed the conceptual planning phase,  there are four remaining phases that renovation projects undergo, based on  typical best practices in the design and construction industry (see fig. 3).
Conceptual Planning—Various feasibility studies are typically  conducted to define the scope of work based on owner expectations for  performance, quality, cost, and schedule. The need for temporary space  and the options for meeting this need are identified. Several alternative  design solutions are identified, and one approach is selected.
Design—The design matures into final construction documents  comprising the drawings and specifications from which bids can be  solicited. Estimated cost and schedule issues receive increasingly  intense oversight as this phase proceeds. The project scope defined at  this phase will greatly determine the cost of the project. In addition, the  cost of scope changes made after the design phase are higher.
Procurement—This phase refers to owner procurement of long lead- time equipment, such as unique or large electrical or mechanical  equipment. Delays in the delivery of this equipment could affect the  phasing and sequence of construction work and potentially cause  delays.
Construction—To execute the design, the services of a competitively  procured construction contractor and specialty contractors and  consultants are employed. The biggest challenge is the management of  changes from the owner, design problems, or unknown conditions on  the site. Construction is considered complete when the owner accepts  occupancy of the building; however, work may continue for some time  to identify and correct deficiencies in the construction work.
Start-up—Start-up begins with occupancy of the building and entails the  testing of individual and systems components to measure and compare  their performance against the original design criteria.
section_title: Estimated Financial Impact of the Renovation to the United States
paragraphs: The Secretary-General has indicated that the United Nations anticipates  that the United States would provide a no-interest loan to finance the U.N.  renovation. Should the United States agree to finance the renovation in this  manner, we estimate that the financial impact of the renovation to the  federal government would be over $700 million. This amount would vary  depending on the terms and conditions of the financing arrangement. In  addition, we estimate that over a 30-year period, the federal government  would not realize tax receipts of as much as $108 million (2003 present  value dollars) on the federally tax-exempt bonds that would finance  construction of the proposed swing space. The U.N. Development  Corporation is seeking federal tax exempt status for the bonds it plans to  issue to finance the swing space building.
subsections: section_title: Financial Impact of the Renovation to the Federal Government Is over $700 Million
paragraphs: We estimate the potential financial impact to the federal government as  both lender to United Nations and member state would be over $700  million for a $1.2 billion no-interest loan. As a lender of a subsidized loan to  the United Nations, the federal government would forego future interest  payments and assume the risk of a potential U.N. default on the loan. The  estimated financial impact to the federal government of a no-interest loan  for $1,193 million (repayable over 25 years) would be about $563 million for  the interest subsidy to cover foregone interest payments and $28 million for  the default subsidy that covers the risk of a potential U.N. default (see table  1). If the United States provided a subsidized loan with interest rates of 1  percent or 2 percent, the federal government would provide an interest  subsidy of $443 million and $322 million, respectively. If the United States  agrees to finance the renovation, Congress would be asked to appropriate  the interest and default subsidies before the loan is made, as provided for  under U.S. credit reform law. As a member of the United Nations, the  United States may also be assessed an additional amount to repay the loan  principal. We estimate that the net present value of the U.S. assessment for  the principal repayments made over a 25-year period would be $126  million. These repayments would need to be appropriated yearly.
In estimating the financial impact to the federal government, we made  several assumptions. We assumed that the federal government would  disburse funds to the United Nations as a line of credit rather than a lump- sum payment. The federal government would disburse the funds each year  over a 5-year construction period. To model the size of the disbursements,  we used the latest U.N. estimates of the funds it would need each year to  pay its contractors during the renovation. We assumed that the United  Nations would repay the loan over the subsequent 25 years in equal  semiannual payments based on an additional assessment of member states.  Since the United States is assessed 22 percent of U.N. operating costs, we  assumed the federal government would repay 22 percent of the loan  principal. However, because the United States does not currently allow its  U.N. assessments to go toward interest payments on U.N. external  borrowing, we assumed that the federal government would not repay any  of the interest on a 1 percent or 2 percent loan. Finally, we used the U.N.  preliminary cost estimate of $1,193 million from the 2002 Capital Master  Plan for the renovation, which includes scope options that the United  Nations has yet to decide on.
section_title: Loss of Federal Revenue from Swing Space Bonds
paragraphs: The federal government would also not realize tax receipts if the U.N.  Development Corporation is granted tax exempt status for its construction  bonds. We estimate that the unrealized tax receipts over 30 years could be  as high as $108 million in 2003 present value dollars. This estimate assumes  that the U.N. Development Corporation would issue bonds for $350  million—the estimated construction cost for the swing space. We also  assumed that without the tax exemption, the bonds would earn 6.4 percent  interest and the average marginal tax rate would be 31 percent.
According to corporation officials, the corporation would pay a higher  interest rate on the bonds if it could not secure a tax exemption. The higher  interest rate would raise the cost of financing the construction, which the  corporation would then pass on to the United Nations in higher lease costs.  Corporation officials stated that the United Nations could not afford the  lease under its current operating budget without the tax exemption.
section_title: Key Milestones in the Renovation Process
paragraphs: To continue the planning process, key efforts must be pursued and critical  milestones met. Given the General Assembly’s decision in December 2002  to proceed with design, the United Nations is seeking a financing  commitment from the United States for the renovation. Neither the United  States nor the United Nations have specified the nature of a financing  commitment, according to U.S. and U.N. officials. Once an acceptable  commitment is secured, the General Assembly will decide whether to  proceed with the renovation, and the United Nations will be able to sign a  lease with the U.N. Development Corporation. The corporation is also  working to resolve a number of issues before it can begin construction on  the swing space building in 2004.
subsections: section_title: United Nations Is Seeking a Financing Commitment
paragraphs: Figure 4 shows that securing a financing commitment is the next milestone  in the renovation process. The Secretary-General anticipates that the  United States will offer a no-interest loan to finance the renovation. For the  United Nations to remain on its current renovation schedule, the United  States would have to make a commitment to finance the renovation by  October 2003. However, U.S. and U.N. officials stated that neither the  United States nor the United Nations have specified the nature of a  financing commitment. According to U.N. officials, the General Assembly  will not make a decision to move forward with the renovation or sign a  lease for the proposed swing space building without a financing  commitment. According to U.N. Development Corporation officials, they  will not begin construction on the proposed swing space building until the  United Nations signs a lease. The corporation needs a signed lease before it  can issue bonds to finance the construction of the swing space building.  For the renovation project to stay on schedule, the proposed swing space  building would have to be available for occupancy in early 2006.
section_title: The U.N. Development Corporation Must Address Several Issues to Begin Swing Space Construction
paragraphs: The U.N. Development Corporation must resolve two key issues in 2003 for  the swing space to be available to the United Nations in 2006. First, the U.N.  Development Corporation is seeking to obtain state and city approval to  secure ownership of the proposed swing space site by the end of 2003 (see  fig. 5). According to corporation officials, New York state approval is  necessary because the site is currently part of a city park and lies outside of  the corporation’s development zone. Corporation officials also said they  are currently working to obtain support within the local community, which  has expressed concerns about the loss of the park space. To compensate  the community, the corporation proposes to build a bike path along the  East River and the U.N. complex. However, according to corporation  officials, as of April 2003, no agreement had been reached. Once the issues  with the community group are resolved, the corporation must seek New  York state legislation by June 2003 to add the proposed construction site to  its development district, according to corporation officials. The  corporation will then seek New York City approval of its plans for the site.  City officials have expressed support for the swing space construction.
Second, the corporation is seeking a federal tax exemption for the bonds it  would issue to finance the swing space construction in early 2004.  According to corporation officials, without a tax exemption, the annual  lease cost to the United Nations could increase substantially, thereby  making the project economically unfeasible. Under the 1986 Tax Reform  Act, the U.N. Development Corporation and similar organizations lost the  ability to issue bonds that are exempt from federal taxes. Corporation  officials stated that they are working with members of Congress to  introduce legislation that would restore a tax exemption for the swing  space construction.
section_title: Effective Project Management and Oversight Needed for the Renovation to Be Successful
paragraphs: As the project moves into the critical design phase, the United Nations has  begun the process to hire a consultant who will manage and oversee the  final design and eventual renovation of the U.N. complex. These initial  efforts are important as they lay the foundation for the project management  plan to ensure that the project’s scope, schedule, and costs are effectively  controlled. In addition, U.N. oversight bodies anticipate additional  resources and are developing audit plans to conduct oversight of the  renovation project. The Department of State and the U.S. Mission to the  United Nations have also initiated efforts to monitor the project. The  United States has a substantial interest in monitoring the project,  particularly if the United States agrees to finance it.
subsections: section_title: Effective Project Management Needed to Control Cost and Schedule
paragraphs: A well-defined project management plan and adequate project management  staff will be essential for the United Nations to successfully complete the  renovation on time and within budget. U.N. officials recognize the need and  importance of a project management plan and adequate staff to implement  the plan. In January 2002, the United Nations hired a project management  consultant to help develop a broad framework for a project management  plan. The consultant noted that once the United Nations establishes a  project management team, it will need to develop its project management  plan with detailed procedures. The consultant provided best practices  recommendations for creating a project management plan to control costs  and effectively implement the renovation. As of January 2003, the United  Nations had started the process to hire a consultant to provide project  management services, including developing the project management plan  and then supporting the United Nations in managing the project through  the design phase.
Based on the U.N. project management consultant’s report and  Construction Industry Institute research, an effective project  management plan will help the United Nations control costs and schedule.  An effective project management plan includes three key elements. First, a  clearly defined scope of work that remains relatively stable will provide the  basis for project decisions. The scope should clearly define the project  content and parameters, schedules, milestones for execution, budgets, and  expected project outcomes. Second, policies and procedures that  effectively manage scope and construction changes are important. These  policies and procedures should provide a means for analyzing and  documenting the reasons for changes and the implications of changes on  cost, schedule, and quality. Third, timely and accurate progress reports on  scope, cost, and schedule are important as a means of informing all  relevant parties and coordinating changes. Regular reporting would  identify key project issues that require discussion and impending issues  that require resolution. While the United Nations recognizes the  significance of developing a project management plan, it is important that  the United Nations continues to incorporate best practices to ensure the  plan’s effectiveness.
Project management staff are essential to controlling schedule and cost  changes because they will guide decision making and coordinate resources  throughout the project. Project management staff would represent the  United Nations as the owner of the project and facilitate coordination and  communication between the design firms and construction contractors.  The United Nations does not currently have sufficient staff to manage the  project effectively but, according to U.N. officials, plans to hire additional  staff and/or contractors. The United Nations added seven staff to its Capital  Master Plan team during the conceptual planning phase, including two  security officials, and plans to augment its management capability during  design. In February 2003, the United Nations appointed an Assistant  Secretary-General as the full-time executive director of the Capital Master  Plan management project. As of March 2003, the United Nations had 12  people on the renovation project management staff. The United Nations is  evaluating options for acquiring additional expertise and anticipates having  a management team of 20 staff and contractors during the design phase and  a team of about 40 staff at the peak of construction.
section_title: Office of Internal Oversight Services and the Board of Auditors Plan to Conduct Oversight of the Renovation Project
paragraphs: In a February 2003 resolution, the General Assembly stressed the  importance of oversight in implementing the Capital Master Plan and  requested the Board of Auditors and all relevant oversight bodies, such as  the Office of Internal Oversight Services, to initiate immediate oversight  activities. In our last report, we noted that the Office of Internal  Oversight Services did not have the expertise to perform an oversight  role, but the office had agreed to assume such responsibility by hiring  people with the necessary skills. Since then, the office has assigned one  staff member to begin researching the Capital Master Plan on a part-time  basis. However, the office has not developed a plan detailing the oversight  functions it plans to pursue or hired additional staff. Officials from the  oversight office stated that it has requested funding so that it can hire  contractors to help evaluate the Capital Master Plan, the project  management plan, and the security upgrades. The officials anticipate that  these contractors would have architectural and construction skills and  knowledge of New York City building codes.
The Board of Auditors had not yet conducted oversight of the Capital  Master Plan but plans to complete an audit strategy by June 2003. The  board has decided to review financial accounts, compliance with U.N.  procurement regulations, and the effectiveness of Capital Master Plan  management. After the board completes its audit strategy, it plans to  determine the additional resources and expertise it needs to conduct  oversight of the renovation. According to a board official, the United  Nations approved initial funding of $35,000 in April 2003 to cover the audit  of Capital Master Plan activities during 2003. However, the board will  require additional resources for oversight as the renovation progresses.
section_title: Department of State Has Begun Monitoring Renovation Planning
paragraphs: The United States has a substantial interest in the renovation project and  its costs, particularly since the Secretary-General anticipates U.S.  financing. As the project goes forward, the United States will decide  whether to finance the renovation and will take part in other key decisions.  The Department of State, the lead foreign affairs agency responsible for  developing and implementing U.S. policy toward the United Nations, has  assembled a task force to monitor U.N. implementation of the Capital  Master Plan. While Department of State officials have consulted with other  U.S. government officials concerning the renovation project, they have not  yet created a formal framework that defines the task force’s mission and  program goals. In addition, a department official stated that they do not  have the expertise to undertake effective monitoring of the project as it  progresses.
In our June 2001 report, we recommended that the Department of State  develop a comprehensive U.S. position on matters pertaining to the  renovation. We further recommended that if the United States were to take  a position in support of the renovation, the department should consider  obtaining expertise in construction management and financing. In June  2001, the department took a position in support of renovating the U.N.  headquarters complex and created an interagency task force to monitor the  renovation project in August 2002. The task force consists of six officials  from the department and the Office of Management and Budget who work  part-time on task force activities and a point-person at the U.S. Mission to  the United Nations who monitors U.N. renovation planning efforts. In  addition, a senior official at the Ambassador level represents U.S. concerns  on the renovation project to the United Nations and other member state  representatives. To assist the task force, the department has also retained a  part-time consultant with building construction and security experience.
Although the Department of State has organized the task force, it has yet to  develop an interagency framework that sets forth the task force’s mission  or program goals. To monitor the project and coordinate the U.S. decision  on whether to finance the renovation, the department will undertake  diplomatic, federal financing and budgeting, and construction activities  that will require participation from numerous government officials and  organizations with the necessary expertise. A framework that describes the  task force’s mission, program goals, and coordinating mechanisms will help  ensure that each organization has a clear understanding of its role,  responsibilities, and expectations. The development of this framework is  important because the task force’s monitoring role is likely to continue  through the four remaining phases of the renovation project.
Furthermore, with established mission and program goals, the department  could specify resource needs, including appropriate skills needed to  achieve a successful outcome of the project. As the renovation proceeds  and the management of the project increases in magnitude and complexity,  the department can identify and obtain the critical skills that will be needed  to monitor the project. Department officials have stated that they lacked  the needed expertise to monitor a renovation project of this magnitude.
It is also important that the task force is staffed appropriately because the  Department of State will have a number of key questions and issues to  address over the life of the project, particularly if the United States agrees  to finance the renovation. Some key questions and issues to be addressed  include the following:  If the United States offers to finance the renovation, how would it  structure a loan to the United Nations? What should be the loan’s terms  and conditions? Would the United States provide a loan that fully funds  the renovation project? If there are cost increases during the renovation,  would the United States provide additional financing and, if so, under  what terms and conditions?
Does the United Nations have internal controls in place to effectively  manage changes in costs, scope, and schedule throughout the design  and construction of the project?
To what extent are U.N. officials coordinating the renovation design and  construction with that of the proposed new visitors center?
What types of incentives will the United Nations include in its contracts  with design and construction firms to ensure that their work meets U.N.  expectations?
Since the design phase provides the greatest opportunity to make  decisions that could minimize future building maintenance and  operating costs, to what extent are these future costs being considered  during the design phase?
How will U.N. officials ensure that value-engineering principles—a  formal technique used by contractors or independent teams to identify  methods of constructing projects more economically—are applied  during the design and construction phases?
The department’s position on each of these issues and the level of  monitoring it will undertake will drive its resource and expertise needs.
section_title: Conclusions
paragraphs: The United Nations has used a reasonable process thus far to develop its  renovation plans, but it is still early in the project and changes in the  schedule and cost estimates are to be expected. While the General  Assembly has funded the project’s design, a commitment to finance the  renovation will be needed by October 2003 for the United Nations to  remain on its current schedule and sign a lease for the swing space. If the  planned swing space is not available, the United Nations will have to  reconsider its renovation approach, potentially leading to delays in the  renovation process. The United States, however, has not yet taken a  position on whether or how to finance the renovation. In addition, careful  management and oversight of a project of this magnitude and complexity  will be necessary to minimize schedule and scope changes. The  renovation’s completion, final cost, and quality could be adversely affected  if the United Nations does not provide adequate staff to manage the  renovation and establish careful controls to limit scope changes. Continued  monitoring by the Department of State will be critical as the project  progresses and various issues arise, particularly if the United States  finances the renovation.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of State, in consultation with  appropriate administration officials and other U.N. members, direct the  U.S. representative to the United Nations to  encourage the United Nations to complete and implement an effective  project management plan that will guide decision making and  coordination throughout the renovation project, and   encourage the United Nations to provide the Office of Internal Oversight  and the Board of Auditors with the resources needed to conduct  effective oversight of the Capital Master Plan as the project progresses.
In addition, to ensure that U.S. interests are effectively represented as the  United Nations proceeds through the design phase, we recommend that the  Secretary of State define the mission and program goals of the task force  currently monitoring U.S. participation in the Capital Master Plan. We  further recommend that the Secretary determine the expertise the task  force needs to fulfill its role and ensure that it has the resources necessary  to monitor the project over its duration.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, the United Nations and  Department of State agreed with our findings and recommendations.  However, the Board of Auditors disagreed with our recommendation  calling for resources for the board to conduct oversight. A board official  stated in April 2003 that the United Nations approved $35,000 for the board  to conduct oversight of the $1.2 billion renovation project. We modified our  recommendation to acknowledge the board’s initial funding, but we  continue to recommend funding for the board’s oversight function over the  course of the 6-year renovation project. Ensuring that the board has the  necessary resources to conduct oversight will be important throughout the  renovation. The board also provided technical comments to our report,  which we incorporated as appropriate. Written comments from the United  Nations, Department of State, Office of Internal Oversight Services, and  Board of Auditors, along with our response, are in appendixes V through  VIII. We provided the Office of Management and Budget with a draft of our  report, but the office did not provide any comments.
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 of this report to the Secretary  of State; the U.S. Ambassador to the United Nations; the Director, U.S.  Office of Management and Budget; the U.N. Secretary-General; and  interested congressional committees. We also will make copies available to  others on 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 me  at (202) 512-8979. Additional GAO contacts and staff acknowledgments are  listed in Appendix IX.
section_title: Scope and Methodology
paragraphs: To assess the reasonableness of the process used by the Secretariat for  project planning and development, including the cost estimate and security  plans, we reviewed U.N. records, including reports developed by the  architect-engineering firm and security assessments prepared for the  United Nations. We also researched industry practices related to  construction project planning and development, cost estimating, and  security plan development. We compared the Secretariat’s efforts in project  planning and cost estimating with industry practices as identified by the  Federal Facilities Council and the Construction Industry Institute. We also  reviewed the assumptions supporting the cost estimates, including  contingencies and swing space costs. In assessing the process the  Secretariat used to develop its security plan, we used industry-recognized  guidelines as criteria. We also obtained input from U.S. federal agency  security experts on the process used to develop the United Nations’  security plan. In addition, we reviewed other recently implemented or  planned security initiatives and their interface with the security  components of the Capital Master Plan. We discussed various aspects of  the project, including the process by which the Capital Master Plan was  developed, with U.N. renovation project staff and consultants.
To assess the potential financial impact to the federal government of the  renovation, we modeled the financial impact of a no-interest, 1 percent, and  2 percent loan to the United Nations. We did not assess the financial impact  to the federal government of the renovation if the United Nations sought  other financing options, or if the United Nations did not undertake the  renovation and repaired or replaced major building systems as they failed.  We reviewed the most current renovation cost estimates, the renovation  cash flow statement, the U.N. Development Corporation cost estimate for  swing space, interest rates for corporate and tax-exempt bonds, interest  rate assumptions in the President’s budget for fiscal year 2004 and the  Economic Report of the President (1999), and the 1948 loan agreement  between the United Nations and the United States. We used the Office of  Management and Budget’s Credit Subsidy Calculator to estimate the  interest and default subsidies for interest-subsidized loans under various  terms. In doing so, we made several key assumptions including the interest  rate, the U.S. disbursal of funds, and a repayment plan. We then discussed  our assumptions with Department of State, Congressional Budget Office,  and Office of Management Budget officials.
To analyze the critical milestones remaining in the renovation project, we  reviewed the critical paths and the estimated schedules for the U.N.  renovation and the U.N. Development Corporation’s proposed swing space  building. We compared these critical paths and linked them to illustrate the  necessary milestones and their sequence. We then clarified the sequence  and duration of these milestones in interviews with Capital Master Plan  staff at the United Nations, officials at the U.N. Development Corporation,  and officials at the Department of State. In addition, we consulted with  construction industry experts and legal counsel within GAO to evaluate  and comment on the validity of the milestones’ sequence.
To assess U.N. and Department of State efforts to monitor and oversee the  renovation, we reviewed U.N. documents such as the Capital Master Plan,  the U.N. renovation project management plan, the U.N. resolution  pertaining to oversight of the Capital Master Plan, and the mission  statements of the Office of Internal Oversight Services and the Board of  Auditors. We subsequently spoke with U.N. and Department of State  officials to determine their past and anticipated oversight roles and  responsibilities in the U.N. renovation. In addition, we discussed the  personnel required to adequately oversee the renovation, the funding  received and requested for renovation monitoring, and the procedures in  place for decision making and oversight.
In conducting our review, we received the full cooperation of the United  Nations, U.N. Development Corporation, U.S. Mission to the United  Nations, and the Department of State. We conducted our review between  June 2002 and April 2003, in accordance with generally accepted  government auditing standards.
subsections: section_title: Two Approaches to Renovating the U.N. Headquarters Complex
subsections: section_title: U.N. Secretary-General Offered Two Renovation Approaches
paragraphs: In the August 2002 Capital Master Plan, the U.N. Secretary-General  presented two approaches to renovating the U.N. headquarters complex.  According to the Capital Master Plan, the unique conference room needs of  the United Nations were a driving factor in the Secretary-General’s  development of these approaches. The two approaches include   temporarily relocating most U.N. activities during much of the  construction work to swing space in a proposed new building near the  U.N. complex (see fig. 6), or  rotating U.N. staff through more limited swing space in a new four-story  building constructed on the U.N. headquarters complex where the South  Annex is currently located.
The Secretary-General endorsed the first approach, and the General  Assembly approved the development of renovation designs based on that  approach.
subsections: section_title: Approach 1
paragraphs: Under the first approach, most U.N. staff and activities would temporarily  relocate to swing space in a proposed new office building near the U.N.  complex during much of the renovation. U.N. consultants estimated that  the renovation would take less than 5 years to complete and cost about $1.2  billion. As shown in table 2, the cost estimate includes a baseline scope— removing asbestos; replacing the electrical, plumbing, and climate control  systems; and installing an upgraded fire suppression system. The cost  estimate also includes leasing swing space for 4 years from the U.N.  Development Corporation, a New York State nonprofit public benefit  corporation tasked with constructing and leasing office space to the United  Nations. Additional cost factors include the replacement of the Secretariat  Building’s window structure and additional scope options that the General  Assembly has not yet decided to include in the renovation. These options  include additional safety and security measures, emergency backup  provisions, and sustainability measures to address environmental goals.  The cost estimate excludes construction of an additional conference room  on the complex and security upgrades that the United Nations will  complete before the renovation begins.
The U.N. Development Corporation has offered to construct the swing  space building. The new office building would be built on a park next to the  U.N. Headquarters complex and connected to the existing complex by a  tunnel. The United Nations currently plans to sign a long-term lease for the  building with the U.N. Development Corporation. The building would be  used as swing space during the 4 years of the renovation. Afterwards, the  United Nations would relocate most of its New York City staff that  currently work in office space outside the Headquarters complex to the  swing space building. This would include relocating staff out of office  space in two buildings currently leased from the U.N. Development  Corporation. According to corporation officials, the corporation could then  be able sell these two buildings and provide the proceeds to New York City.
section_title: Approach 2
paragraphs: Under the second approach, the United Nations would replace the South  Annex, a two-story building on the U.N. Headquarters complex, with a four- story building to use as swing space. The United Nations would lease  additional office space as needed for swing space. The renovation work  would occur in stages with five to ten floors of the U.N. Headquarters  renovated while staff rotate through the swing space. To avoid excessive  disruption, the meeting rooms would be renovated at night and on  weekends. Under this approach, the renovation would take 6 years and  cost more than $1.3 billion (see table 3).
The total cost estimate is higher under Approach 2 because the renovation  work would occur in stages since the limited swing space could not house  all U.N. headquarters staff. Also, the United Nations would construct an  additional conference room on the Headquarters complex. Under this  approach, the swing space cost—replacing the South Annex and additional  commercial leasing—would be less than leasing a swing space building  from the U.N. Development Corporation. As with Approach 1, this cost  estimate includes replacement of the Secretariat Building’s window  structure and various scope options that the General Assembly has not yet  decided to include. This cost estimate also excludes the security upgrades  that the United Nations will complete before renovation begins. Although  Approach 2 would cause the least disruption because meeting chambers  would be renovated when the rooms were not in use, the risk of cost  overruns, delays, and disturbance, and the perceived risk of exposure to  asbestos is higher.
section_title: U.N. Consultants and Subconsultants
paragraphs: Table 4 presents the firms that were involved in the conceptual planning  process and noted in this report as consultants to the United Nations or  subconsultants to the U.N. architect-engineering firm.
section_title: Security Upgrades at the United Nations
subsections: section_title: Completed and Planned Security Initiatives
paragraphs: In response to the terrorist attacks of September 11, 2001, the United  Nations implemented emergency security measures and also accelerated  its plans to implement some of the security measures that had been  originally planned for the renovation. The United Nations also worked with  its consultants to enhance the security component of the revised Capital  Master Plan. According to U.N. officials, to more effectively coordinate the  interface between the upgrades made after September 11, 2001, and the  security measures in the Capital Master Plan, the United Nations has hired  the same consultant to work on both packages, assigned some internal  staff to oversee both projects, and calculated the cost of any overlap in  security upgrade initiatives.
As shown in figure 7, the recent and planned security measures for the U.N.  Headquarters complex comprise four initiatives.
subsections: section_title: Emergency Upgrades
paragraphs: This emergency initiative was introduced in December 2001 in response to  the September 11, 2001 terrorist attacks. In late 2001, the United Nations  organized a Senior Emergency Management Group to deal with major  emergency situations at the U.N. Headquarters. The Secretary-General  identified the most immediate, short-term security needs and requested  additional funding. These measures, estimated to cost $3.7 million,  included enhancements to the perimeter security and upgrades to the  emergency response system on the complex and were largely implemented  by March 2002.
section_title: Strengthening Security
paragraphs: The strengthening security initiative also came as a result of the  assessments the United Nations conducted after September 11, 2001. This  initiative includes more long-term upgrades relative to the urgent measures  implemented under the previous initiative. Some of the upgrades in this  initiative (worth approximately $17 million) were part of the Capital Master  Plan and their implementation was accelerated because of heightened  security concerns. This initiative includes an upgraded access control  system for the entire complex and renovations to the existing security  control room. As of April 2003, the United Nations is designing these  upgrades; U.N. officials expect them to be in place in 2004 at a total cost of  $26 million.
section_title: Security Upgrades in the Capital Master Plan Baseline Scope
paragraphs: The U.N. security design consultant made 114 recommendations for the  2002 Capital Master Plan. The U.N. security staff, along with the consultant,  prioritized those recommendations, creating a list of “highest priority”  upgrades. These upgrades, totaling $77 million, were included as part of the  baseline scope for the 2002 Capital Master Plan. The upgrades encompass  additional visitor access control and blast resistance materials in certain  areas on the complex.
section_title: Capital Master Plan Security Scope Option
paragraphs: This initiative includes the U.N. security consultant’s remaining  recommendations that were either (1) not the highest priority or (2)  required coordination with New York City. Totaling $30 million, these  upgrades include strengthening the building structure and installing vehicle  barriers on some roads adjacent to the complex.
section_title: Comments from the United Nations
section_title: Comments from the Department of State
section_title: Comments from the Office of Internal Oversight Services
subsections: section_title: Comments from the U.N. Board of Auditors
paragraphs: The following are GAO’s comments on the letter from the U. N. Board of  Auditors dated May 9, 2003.
subsections: section_title: GAO Comments
paragraphs: 1. The board stated that the United Nations had approved funds for the  audit of the Capital Master Plan. A board official stated that  approximately $35,000 was approved in April 2003 to conduct oversight  of the renovation. We have included this information in the report. We  modified our recommendation to acknowledge the board’s initial  funding, but continue to recommend funding for the board’s oversight  function over the course of the six-year renovation project. 2. We modified the report to reflect the board’s comment.  3. We modified the report to reflect the board’s comment.  4. See comment 1. 5. We modified the report to reflect the board’s comment. 6. We modified the report to reflect the board’s comment.  7. No change made. The comment does not provide additional clarity to  the report. 8. See comment 1. Since the renovation is likely to continue for a number  of years, ensuring that the board has the necessary resources to  conduct oversight throughout the project will be critical. Accordingly,  we have modified our recommendation to clarify our position.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Bruce Kutnick, Ronald King,  Valérie L. Nowak, Maria Edelstein, Jeffrey T. Larson, Julia A. Roberts, Lynn  Cothern, Jonathan Rose, and Barbara Shields made significant  contributions to this report.
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subsections: section_title: Order by Mail or Phone
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