Embassy Construction: State Department Has Implemented Management Reforms, but Challenges Remain
Published: 2003-11-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since the 1998 bombings of two U.S. embassies in Africa, the State Department has done much to improve physical security at overseas posts. However, most overseas diplomatic office facilities still do not meet the security standards State developed to protect these sites from terrorist attacks and other dangers. To correct this problem, State in 1999 embarked on an estimated $21 billion embassy construction program. The program's key objective is to provide secure, safe, and functional compounds for employees overseas--in most cases by building replacement facilities. In 2001, State's Bureau of Overseas Buildings Operations (OBO)--which manages the program--began instituting reforms in its structure and operations to meet the challenges of the embassy construction program. This report discusses (1) OBO's mechanisms for more effectively managing the embassy construction program and (2) the status of and challenges facing the program. We received comments from State, which said that the report is a fair and accurate representation overall of the Department's overseas construction process.
section_title: What GAO Found
paragraphs: OBO in 2001 began instituting organizational and management reforms designed to cut costs, put in place standard designs and review processes, and reduce the construction period for new embassies and consulates. OBO now has mechanisms to more effectively manage the embassy construction program, including (1) an annual Long-Range Overseas Buildings Plan to guide the planning and execution of the program over a 6-year period; (2) monthly project reviews at headquarters; (3) an Industry Advisory Panel for input on current best practices in the construction industry; (4) expanded outreach to contractors in an effort to increase the number of bidders; (5) ongoing work to standardize and streamline the planning, design, and construction processes, including initiation of design-build contract delivery and a standard embassy design for most projects; (6) additional training for OBO headquarters and field staff; and (7) advance identification and acquisition of sites. State's program to replace about 185 vulnerable embassies and consulates is in its early stages, but the pace of initiating and completing new construction projects has increased significantly over the past two fiscal years. As of September 30, 2003, State had started construction of 22 projects to replace facilities at risk of terrorist or other attacks. Overall, 16 projects have encountered challenges that have led or, if not overcome, could ultimately lead to extensions in the completion date or cost increases in the construction contract. According to OBO, project delays have occurred because of such factors as changes in project design and security requirements; difficulties hiring appropriate American and local labor with the necessary clearances and skills; differing site conditions; and unforeseen events such as civil unrest. In addition, the U.S. government has had problems coordinating funding for projects that include buildings for the U.S. Agency for International Development. None of the projects started since OBO instituted its reforms has been completed; thus GAO believes it is too early to assess the effectiveness of the reforms in ensuring that new embassy and consulate compounds are built within the approved project budget and on time.

section_title: Letter
paragraphs: Since the 1998 bombings of two U.S. embassies in Africa, the State  Department has done much to improve physical security at overseas posts,  such as constructing perimeter walls and anti-ram barriers at many  facilities. Despite these security upgrades, however, most overseas  diplomatic office facilities do not meet security standards that State  developed to protect them from terrorist attacks and other dangers. As a  result, thousands of American and Foreign Service National U.S.  government employees may be vulnerable to terrorist attacks. In March  2003, we testified on these security deficiencies at overseas diplomatic  facilities, reporting that many facilities are in poor condition, do not meet  fire and safety standards, and are in need of major maintenance. To correct  the security shortcomings at existing embassies and consulates, the State  Department in 1999 embarked on an estimated $21 billion embassy  construction program, the largest program of its kind in the department’s  history. The program’s key objective is to provide secure, safe, and  functional compounds for employees assigned to work at U.S. embassies  and consulates around the world, in most cases by building replacement  facilities. State’s Bureau of Overseas Buildings Operations (OBO) is  responsible for planning and managing the program. Recognizing the  challenges of managing State’s expanded overseas construction program,  OBO in 2001 began to institute organizational and management reforms in  its structure and operations.
At your request, this report discusses (1) OBO’s mechanisms for more  effectively managing State’s construction program to replace vulnerable  embassies and consulates and (2) the status of and challenges facing the  overall construction program.
To address these objectives, we reviewed the report of the Overseas  Presence Advisory Panel, earlier GAO reports that outlined problems in  State’s embassy construction program, State’s Long-Range Overseas  Buildings Plans for the past 3 years, monthly project performance  documents, contract modifications, and other OBO documents. We also  interviewed key State Department officials and contractors currently  working on new embassy construction projects to determine the steps  OBO has taken to more effectively manage the construction program.  Further, we visited two field locations—in Sofia, Bulgaria, and Yerevan,  Armenia—where we observed the level of management and supervision at  the new embassy construction sites and the contractor’s performance on  the projects. Appendix I provides more information on our scope and  methodology.
subsections: section_title: Background
paragraphs: OBO was instituted on May 15, 2001, replacing State’s Office of Foreign  Buildings Operations. OBO manages the construction of new facilities that  can satisfy the State Department’s stringent security standards and provide  U.S. diplomatic personnel secure, safe, and functional office and residential  environments. Along with the input and support of other State Department  bureaus, foreign affairs agencies, and Congress, OBO sets worldwide  priorities for the design, construction, acquisition, maintenance, use, and  sale of real properties and the use of sales proceeds. OBO is composed of  five main offices: Planning and Development, Real Estate and Property  Management, Project Execution, Operations and Maintenance, and  Resource Management. The construction program is located primarily in  the Project Execution Office, specifically in the Construction and  Commissioning Division within that office.
In response to terrorist threats, the State Department in 1986 began an  embassy construction program, known as the Inman program, to protect  U.S. personnel and facilities. In 1991, we reported that State was unable to  complete as many projects as originally planned due to systemic  weaknesses in program management, as well as subsequent funding  limitations. This construction program suffered from delays and cost  increases due to, among other things, poor program planning, difficulties  acquiring sites, changes in security requirements, and inadequate  contractor performance. Following the demise of the Inman program in the  early 1990s, the State Department initiated very few new construction  projects until the 1998 embassy bombings in Africa, which prompted  additional funding for security upgrades and the construction of secure  embassies and consulates.
Through State’s security upgrade program, the department has done much  since the 1998 bombings to upgrade physical security at existing overseas  posts without building new embassy or consulate compounds. These  security upgrades have included constructing perimeter walls, anti-ram  barriers, and access control facilities at many posts. However, even with  these improvements, most office facilities do not meet security standards  that State developed to protect overseas diplomatic office facilities from  terrorist attacks and other dangers. As of December 2002, the primary  office building at 232 posts lacked desired security because it did not meet  one or more of State’s five key security standards of (1) 100-foot setback  between office buildings and uncontrolled areas, (2) perimeter walls and/or  fencing, (3) anti-ram barriers, (4) blast-resistant construction techniques  and materials, and (5) controlled access at the perimeter of the compound.  Only 12 posts had a primary building that met all five standards. As a result,  thousands of U.S. and foreign national employees may be vulnerable to  terrorist attacks.
After the 1998 attacks, State identified facilities at about 185 posts that  would need to be replaced to meet security standards. OBO plans to  construct the replacement facilities on embassy and consulate compounds  that will contain the main office building, all support buildings and, where  necessary, a building for USAID. While State continues to fund some  security upgrades at embassies and consulates, it has shifted its resources  toward those capital projects that would replace existing facilities with  new, secure diplomatic compounds or substantially retrofit existing, newly  acquired, or leased buildings. As shown in figure 1, funding for State’s  capital projects has significantly increased since fiscal year 1998. State  received about $2.7 billion for its new construction program from fiscal  year 1999 through fiscal year 2003 and requested $890 million for fiscal year  2004. OBO in June 2003 estimated that beginning in fiscal year 2005 it  would cost about $17.5 billion to replace the remaining vulnerable posts.
As of September 30, 2003, State had started construction of 22 projects to  replace embassies and consulates that are at risk of terrorist or other  attacks. Toward the end of fiscal year 2003, State awarded contracts for an  additional 7 projects. The timeline for funding and completing the  remaining projects depends on the amount of funding State receives  annually for the construction program. At the proposed fiscal year 2004  rate of funding, it will take more than 20 years to fully fund and build  replacement facilities.
section_title: OBO Mechanisms to More Effectively Manage the Embassy Construction Program
paragraphs: Recognizing past problems managing State’s overseas construction  program, OBO in 2001 began to institute organizational and management  reforms in its structure and operations. OBO intended that these reforms— which are designed to cut costs, put in place standard designs and review  processes, and reduce the construction period for new embassies and  consulates—would bring rational and efficient management to OBO by  using a results-based approach to program management.
OBO has instituted the following seven key mechanisms over the past 3  years to better manage its expanded embassy construction program:    the Long-Range Overseas Buildings Plan, which prioritizes and  summarizes capital projects over 6 years;    monthly project reviews at headquarters, where senior management  officials review ongoing projects to identify and resolve current or  potential issues at all stages of the project;    an Industry Advisory Panel, which advises OBO on industry best  practices in the construction sector;    efforts to broaden the contractor pool through events such as Industry  Day, where interested contractors are invited to learn about OBO’s  construction program;  ongoing work to standardize and streamline the planning, design, and  construction processes, including the initiation of design-build contract  delivery and a standard embassy design for most projects;   additional training for OBO headquarters and field staff; and   advance identification and acquisition of sites.
subsections: section_title: Development of the Long- Range Overseas Buildings Plan
paragraphs: To help manage State’s expanding large-scale construction program, OBO  developed the Long-Range Overseas Buildings Plan, first published in July  2001 and most recently updated in March 2003. The latest version of the  plan prioritizes proposed capital projects over 6 years, from fiscal years  2003 through 2008, based on input from State’s Bureau of Diplomatic  Security, regional bureaus, and agencies with overseas presence. It  describes and provides a justification for the foreign affairs community’s  global and regional capital project requirements. According to OBO, it also  provides the basis for proceeding in a logical and focused fashion to  improve the security, safety, and functionality of facilities overseas. Each  year the plan is updated to capture changes resulting from budget actions  and requirements of posts overseas. According to the latest version of the  plan, State plans to start replacing facilities at 75 vulnerable posts from  fiscal year 2003 to fiscal year 2008 at an estimated cost of $7.4 billion.
As described in the March 2003 plan and by OBO officials, State followed a  multistep process in developing its phased site acquisition, design, and  construction schedule for its security capital projects:   The Bureau of Diplomatic Security completed its annual security  evaluation of all the U.S. overseas posts, taking into account many  factors affecting a post’s overall security level. The evaluation listed  vulnerable posts and ranked them in terms of security issues. Because  the terrorist threat is global and because the buildings have fundamental  security problems, Diplomatic Security and OBO officials believe that  there are a great many posts that are very vulnerable and in need of  replacement, and that the differences in vulnerability do not make posts  at the lower end of the list substantially safer than those at the top of the  list. By congressional mandate, these posts are listed and ranked in  bands of 20, through a process discussed in the following paragraphs.
Congress directed that State spend its security capital funds, which are  funded within the Embassy Security, Construction and Maintenance  account, on the top 80 posts only.
Working with the security-prioritized list, each regional bureau annually  ranked all posts within its region that were in the top 80 replacement list  based on such factors as threat, survivability, staffing trends, regional  interests, and functionality. OBO officials told us this effort resulted in a  prioritized list for State’s security capital projects for each of the six  regional bureaus, which responds to the global nature of the  transnational terrorism threat. Each year, as new posts are added, these  posts usually go to the end of a bureau’s priority list.
Finally, OBO combined the prioritized lists from the different regions  into one master list, which, as mentioned above, OBO updates annually.  The first six posts on the list were the top ranked post from each region.  Posts 7 through 12 on the list were the second-ranked posts from each  region, and so on. With the help of its Planning and Real Estate Offices,  OBO then determined if a site already existed to build a new facility and,  if not, when new sites could actually be acquired. When necessary, OBO  rescheduled the list based on the likely available capital security funding  in each year covered in the Long-Range Overseas Buildings Plan,  opportunities or problems in acquiring a site, and constraints on the  ability of construction companies to work in a particular country at the  planned time. This prioritized and scheduled listing of projects then  becomes the security capital portion of the Long-Range Overseas  Buildings Plan.
State also requests funds for regular capital projects to replace posts not in  the top 80 that have compelling operational or other requirements that  must be addressed. The Long-Range Overseas Buildings Plan includes  descriptions of these regular capital projects.
OBO’s development of the plan was a major advancement in ensuring the  embassy construction program would be better managed. According to  the OBO director, while the current plan is not a budget document, it is an  important tool that provides information for the budget decision-making  process. It presents OBO’s best understanding of the U.S. government’s  most urgent diplomatic and consular facility requirements through 2008  and provides all stakeholders, especially other U.S. government agencies  that rely on State for their overseas facilities, a road map of where the  department is headed.
section_title: Monthly Project Reviews at Headquarters
paragraphs: As part of OBO’s ongoing efforts to improve accountability and  performance, OBO in June 2001 began holding monthly project  performance reviews at headquarters for senior OBO officials and project  executives. At these meetings, senior managers convene to discuss  developments in their areas of responsibility and their plan of action to  address current or potential issues. According to OBO documents and our  observations of five monthly meetings, the monthly project performance  reviews covered the following topics:  real estate and property management, including acquisitions and   project planning and development, including project evaluation and   project execution, including the status of both construction projects by  region and security upgrade projects; interiors and furnishings; design  and engineering issues, such as design management, standard embassy  designs, value engineering, and energy and seismic concerns; and  security management of ongoing projects;  information management, including issues related to information   other management concerns, including management support, human  resources and financial management, and operations and maintenance.
At these monthly meetings, senior OBO staff present information on  internal and external operations. For instance, in reviewing internal  operations, the Project Execution Office presents information about  personnel vacancies, number of training events attended per month,  performance indicators, and travel budget. The Project Execution Office’s  Construction and Commissioning Division reports on construction-related  issues, including the number of outstanding claims, contract modifications,  and the status of each construction project. For each construction project,  the division notes the completion of major milestones, such as  congressional notification, site acquisition, contract award, and notice to  proceed. It also assigns a color-coded rating—green, yellow, or red—to  each project. This rating reflects the project executives’ assessment of  current or future issues that could affect either the project’s cost or  scheduled completion date, with green indicating the project is generally  on track and red indicating a major issue.
section_title: Establishment of the Industry Advisory Panel
paragraphs: In February 2002, OBO held the first quarterly meeting of the Industry  Advisory Panel, whose function is to keep OBO apprised of the private  sector’s best practices in the construction and maintenance of facilities.  The panel consists of volunteer industry representatives who meet  quarterly to discuss issues related to OBO’s construction program and  advise OBO management on the industry’s views on the most efficient  processes, optimal solutions, and best new technologies. OBO prepares  new topics of discussion for each meeting, and the experts respond based  on their experience dealing with similar issues.
At the meeting held on May 20, 2003, we observed that the panel and senior  OBO officials discussed the following:   how to more effectively apply Value Engineering—a method that looks  for the best value to the government at each phase of the design process,  to what extent private U.S. companies build to U.S. standards overseas  and how much they rely on local materials and equipment,  the best approach for estimating project costs and budgets, and   criteria used to determine if direct-hire staff should fill an organization’s  gap in required skills or specialized contractors.
OBO takes minutes of each Industry Advisory Panel meeting and posts  them on its Web site where they are available to the public. According to  OBO officials, the panel has been very active in providing invaluable  strategic industry insights into a variety of issues. They touch upon the  latest innovations in the commercial world combining best practices,  streamlined processes, and proven cost-effective methods. According to a  recent General Services Administration survey of about 470 federal  advisory groups, OBO's Industry Advisory Panel demonstrated superior  results on the “people,” “process,” and “outcome” indices of the survey.
section_title: Efforts to Broaden Contractor Pool
paragraphs: OBO has expanded its efforts to increase competition for bids on its new  embassy and consulate compound projects through outreach to potential  contractors. For example, OBO has held two annual Industry Days where  interested parties can attend presentations and information sessions about  doing business with OBO. According to OBO, Industry Day 2002 attracted  more than 350 representatives, with slightly more than half from small  firms. Industry Day 2003 had about 450 participants. As a result of these  efforts, OBO has increased the number of contractors prequalified to bid  on OBO contracts from 5 to 14. OBO believes that increasing the number  of prequalified contractors will likely increase the number of bids on a  project—thus allowing OBO to select the best value for its money—and  will be important to the expanding construction program.
section_title: Standardizing and Streamlining the Design Process
paragraphs: OBO has initiated two major efforts to standardize and streamline the  design process for new embassy and consulate compounds. First, it  developed a standard embassy design for three different sizes of  compounds, with a standard design for a small, medium, or large main  office building (see fig. 2). For each project, the contractor adapts the  standard design to meet site- and post-specific requirements. OBO believes  that standard designs will give it the ability to contract for shortened design  and construction periods, control costs through standardization, and assist  with State’s initiative to rightsize its overseas posts.
Second, OBO uses design-build as a contract delivery method, instead of  design-bid-build, for most of its new projects. According to the latest Long- Range Overseas Buildings Plan, OBO plans to award design-build contracts  for 56 compound projects between fiscal years 2003 and 2008. State’s  design-build process saves time by (1) avoiding the time needed to award  separate design and construction contracts and (2) allowing construction  to proceed before design is completed. Under this process, a compound  could be one-third of the way through construction before the final design  is completed. In Sofia, Bulgaria, for instance, the project was 30 percent  complete before the contractor delivered the final design package. To  minimize any cost and schedule risks associated with design-build  contracts, building requirements must be fully and precisely identified  early in the process.
section_title: Training
paragraphs: According to OBO officials, OBO has instituted additional training  requirements for all OBO staff involved in the contracting process and for  all field staff. To enhance their knowledge of contracting, headquarters and  field staff take courses in areas such as acquisition procedures, principles  of contract pricing, and government contract law.  Staff can take classes  offered by the Defense Acquisition University and other private institutions  to meet their training requirements. Staff in the Construction and  Commissioning Division enroll in additional courses that enhance their  skills in such areas as computerized project planning, leadership and  management, cost control, language training, and security and safety.  These courses are designed to increase their effectiveness as project  supervisors.
During our visits to two new embassy construction sites in Sofia, Bulgaria,  and Yerevan, Armenia, we observed that the OBO project directors and the  contract project managers closely managed and supervised the projects.  Project directors maintained oversight with the help of experienced and  knowledgeable American and Foreign Service National staff. Project  directors made daily visits to the construction site to observe worker  performance and held weekly progress meetings with OBO and contractor  staff. During the weekly meetings, OBO staff asked about the activity  schedule, identified potential problems, and came to a consensus on  solutions.
We observed the OBO project management team in Sofia, which consists of  seven engineers and assistants, interacting closely with the contractor staff  to identify possible delays and oversee construction. For instance, the  project director questioned the pace at which the contractor was laying  concrete slab on one of the floors. The project director was able to  convince the contractor to pour concrete slab on one of the floors a day or  two ahead of schedule.
section_title: Site Acquisition
paragraphs: To address potential issues in site acquisition, OBO has used its Long- Range Overseas Buildings Plan to guide its contingency planning and give it  the flexibility to continue the overall program if an individual site is not  available in the planned year. Rather than hold up the appropriated funds  for a given project, State will, with congressional support, shift funding to  another project where a site is available. For example, OBO deferred the  planned compound in Asmara, Eritrea, from fiscal year 2004 to fiscal year  2005 due to difficulties obtaining a site. The new embassy compound in  Lome, Togo, which had been planned for fiscal year 2004, took the place of  Asmara. For projects planned for construction from fiscal years 2005  through 2007, State has a supply of seven U.S. government-owned sites and  five sites under contract in its regular and security capital programs. These  12 sites will offer some flexibility to State as it moves forward with its  Long-Range Overseas Buildings Plan. OBO officials told us that they plan to  continue acquiring sites ahead of time to provide the program with this  type of scheduling flexibility over the foreseeable future.
These management initiatives show promise for improving the cost and  schedule performance of embassy and consulate construction projects.  However, as discussed in the following section, it is still too early in the  new program’s implementation to assess their effectiveness in achieving  these goals.
section_title: Status of and Challenges Facing the Construction Program
paragraphs: As of September 30, 2003, State had started construction of 22 projects to  replace embassies and consulates at risk of terrorist or other attacks. Eight  of the 22 projects were started before OBO began to institute its recent  management reforms, and the remaining 14 were started since then. None  of the projects started after the reforms were implemented has yet been  completed; only one is more than 50 percent complete. Over half of the 22  projects have faced challenges that have led or, if not overcome, could lead  to extensions to or cost increases in the construction contract. OBO  reports attribute project delays to such factors as changes in project design  and security requirements, difficulties hiring appropriate labor, differing  site conditions, and civil unrest. The U.S. government also has had  difficulty coordinating funding for projects that include buildings for  USAID, which could lead to increased costs and security risks.
From fiscal years 1999 through 2003, State received approximately $2.7  billion for its new embassy construction program. As of September 30,  2003, State was still in the initial phase of the overall program, having  awarded the contracts for 11 of its 22 projects in fiscal year 2002. In  addition, the contracts for another 7 projects were awarded in late fiscal  year 2003 (see figs. 3 and 4). Of the seven completed projects, six were new  embassy compounds and one was a newly acquired building that was  retrofitted to meet the required security standards.
subsections: section_title: Status of Projects Awarded before OBO Instituted Management Reforms
paragraphs: As shown in table 1, seven of the eight projects that started before OBO’s  management reforms were implemented have been completed. All eight  projects experienced cost increases in the construction contract, which  typically accounts for 60 to 70 percent of the total project budget; however,  none of the seven completed projects exceeded its approved budget, and  the budget for one was lower than originally planned.
In addition, six projects were extended 30 days or more beyond the project  completion date. The primary reasons for the delays included contract  modifications and security-related disruptions.
OBO has attempted to manage project resources and keep its projects  within their approved budgets by using funds from the projects’  contingency line items or, in some cases, a management reserve line item.  The use of contingency and management reserve line items is an industry  practice. In Istanbul, for instance, the cost of the construction contract  increased by about $8.5 million. OBO covered this cost increase by using  funds from the project’s contingency line item, which OBO includes in  project budgets for this purpose. In some cases where OBO has awarded  contracts at a much lower value than the original independent government  estimate, it has established a management reserve to hold these extra funds  to insure against potential cost increases later in the construction. The  OBO director must approve the use of funds for that project from the  management reserve. We did not review how OBO established its project  budgets, how it determined the contingency and management reserve line  item amounts, or how it used the funds from those line items.
Further, OBO has also reevaluated its budget plans for ongoing and  planned projects and has identified significant savings to be applied either  to a project whose contract bid had come in above the approved budget or  to new projects. For example, in the March 2003 project performance  review, OBO identified anticipated savings of about $63.6 million for six  projects. OBO used these funds to sign a contract for a new construction  project in Freetown, Sierra Leone, during fiscal year 2003. In the fiscal year  2002 appropriations conference report, Congress commended State for  identifying such budget savings and urged the department to use them to  significantly exceed the level of activity described in the budget request.  OBO officials told us that the amount of such savings would decrease over  time as the bureau improves its cost estimates.
section_title: Status of and Challenges Encountered by Projects Awarded since OBO Instituted Management Reforms
paragraphs: From fiscal year 2001, when OBO began to institute its management  reforms, through the end of fiscal year 2003, State had started construction  of 14 projects to replace vulnerable embassies and consulates.  As shown  in table 2, as of July 2003, OBO expected 13 of these 14 projects to come in  at or under their approved budgets and 1 project—Conakry, Guinea---to  come in 6 percent over the approved budget. Six of these projects have had  increases in their construction contract costs ranging from 2 percent to 11  percent above their original contract value.  In addition, the project in Sao  Paulo, Brazil, added 48 contract modification days to its original project  completion date. This project, a major renovation initiated at the end of  August 2002, missed its scheduled completion date of August 28, 2003, and  was completed on October 15, 2003.  Table 2 provides more information on  challenges that have affected or may affect the cost and schedule of the  projects that were initiated after OBO made reforms to its management  practices.
Once a contract has been awarded, any subsequent changes to the design  of the building are likely to have cost and schedule implications. In State’s  design-build process, design and construction sometimes occur  simultaneously. Any changes to the design can require changes in the  construction schedule.
A key component of the planning process for new embassy construction  projects is the development of staffing projections. Staffing projections  present the number of staff likely to work in the facility and the type of  work they will perform. These are the two primary drivers of the size and  cost of new facilities. Changes to staffing projections after Congress has  appropriated money for a construction project may result in redesign and  could lead to lengthy delays and additional costs, according to an OBO  official. There is little room for flexibility after the budget is submitted  given budgetary and construction time frames.
Officials from Diplomatic Security, the State Department bureau that  initiates changes for security reasons, make every effort to have security  requirements finalized before a contract is awarded, but changes in  technologies or new analyses sometimes make design modifications  necessary. Although the bureau does not insist that previously awarded  contracts be modified to reflect these kinds of changes, OBO makes a  decision about what is most prudent for security reasons in determining  whether to modify the contract.
At both embassy construction projects that we visited, State added security  or other requirements that increased costs and led to an extension in the  contract completion date. At the U.S. embassy in Sofia, State added  security requirements late in the design phase that increased the cost of the  $50 million project by about $2 million and led to a 2-month extension to  the original contract completion date. As in Sofia, Yerevan has had to adapt  recent security modifications to include, among others, the addition of a  generator and changes to the mail screening room.
subsections: section_title: Finding Appropriate U.S. and Local Labor
paragraphs: Contractors on at least two projects have had difficulty finding appropriate  workers at the right time. For example, one project—a major retrofit of  existing buildings in Sao Paulo, Brazil—was completed in about 14 months  rather than 12 months due in part to a lack of skilled labor. In March 2003,  OBO reported delays in executing this project because the contractor had  not yet hired critical craftsmen, particularly U.S. and Brazilian certified  welders. At the project we visited in Yerevan, which OBO considers to be  on track, the contractor had not hired enough local laborers because of a  shortage of qualified construction workers in Armenia. OBO officials said  that the contractor hired skilled workers from neighboring countries and  made up the lost time on the project.
In addition, each project requires U.S. supervisors and laborers with  security clearances to work in certain areas. However, contractor  representatives told us that as State’s overall construction program  accelerates and the demand for U.S. workers with security clearances  escalates, this form of labor could command a premium. Some contractor  officials stated that there could be a shortage of these workers in the near  term, which could result in delays that could potentially affect the duration  and cost of the overall program. Others said the workers will be available  but will demand a higher price for their labor, which would increase  contract costs.
section_title: Differing Site Conditions
paragraphs: In four ongoing projects where OBO had raised concerns about the  projects’ progress, contractors had reported site conditions that differed  from what they had originally anticipated. According to OBO documents,  this difference could affect the projects’ cost or schedule because it could  require the contractor to construct a different type of foundation for the  buildings. At the construction site we visited in Yerevan, a project OBO  considered on track as of July 2003, the contractor determined that it had  not thoroughly analyzed the soil conditions at the site and would need to  blast away about 9 feet of rock from the site to make room for the  foundation. This blasting process caused about a 6-week delay, time that  the contractor made up as the project progressed.
section_title: Political and Civil Unrest or Other Unforeseen Events
paragraphs: Many ongoing and planned projects are located in developing countries  with the potential for political and civil unrest and thus pose unpredictable  challenges to State in its embassy construction work. For example, civil  unrest delayed the start of the project in Abidjan, Cote D’Ivoire, in 2002,  leading to delays in the project schedule and potential cost increases.  Further, political upheaval in Zimbabwe forced OBO to postpone  construction of the new embassy in Harare from fiscal year 2002 until at  least fiscal year 2005, according to OBO’s most recent Long-Range  Overseas Buildings Plan. On the other hand, State decided to replace the  embassy in Kabul, Afghanistan, and brought the construction project to the  front of the 2002 schedule following the U.S. and allied military action there  that responded to the September 11 terrorist attacks.
section_title: Site Acquisition
paragraphs: Although OBO has developed a flexible approach to deal with problems in  acquiring sites for new embassy compounds, the issue of site acquisition  could become more important as OBO increases the number of projects it  undertakes each year. In the short term, the shifting of projects across  fiscal years, as discussed earlier, keeps the overall program on track;  however, in the long term, the number of difficult site acquisitions per year  may increase. If the less complicated site acquisitions continue to be pulled  to the front of the line, and more complicated ones pushed back, State may  have increasing difficulty obtaining sites for its annual program.
section_title: Coordinating Funding for Construction of Compounds with USAID Buildings
paragraphs: As mentioned earlier in this report, OBO attempts to build embassy and  consulate compounds that contain the main office building, all support  buildings, and, where necessary, a building for USAID. In several cases,  however, OBO has started to build compounds without the proposed  USAID building because funding for the USAID building was not available.
In compounds where USAID is likely to require desk space for more than  50 employees, USAID and OBO informally agreed that USAID would secure  funding in its appropriations for a separate building on the compound. If  USAID does not secure funding for its building at the same time as the new  embassy compound, the compound is constructed as scheduled, but the  USAID building may be built either after the rest of the compound, later in  the construction process, or not at all. If a USAID building is constructed  after the rest of the compound, the overall costs to the government would  likely be higher because the contractor must remobilize the construction  staff. The delay could also pose a security risk and inconvenience to post  operations, as construction personnel and equipment would be coming into  and out of the site on a regular basis. OBO officials told us that five projects  were awaiting funding for the construction of the proposed USAID building  on the compounds.
At the U.S. embassy in Yerevan, funding for the compound’s USAID  building was not available when the compound construction contract was  awarded. Therefore, USAID staff will not move to the new site concurrent  with the rest of the embassy’s staff. Rather, USAID may be forced to remain  at the current, insecure facility at an additional cost until completion of its  annex unless alternative arrangements can be made. The Ambassador told  us that USAID was one of the most important missions at the embassy and  that not having it colocated on the compound would create a major  inconvenience to the embassy’s operations and decrease mission  effectiveness. Figure 5 shows the central location of the proposed USAID  building within the new U.S. embassy compound in Yerevan.
As of September 2003, one completed project and five ongoing  construction projects—including Yerevan—had to delay or postpone  building the USAID annex due to a lack of USAID funding at the start of  construction for the rest of the compound. Other locations included the  recently completed project at Nairobi, Kenya; as well as the ongoing  projects in Tbilisi, Georgia; Conakry, Guinea; Abuja, Nigeria; and Phnom  Penh, Cambodia. In addition, according to an OBO official, two projects  that will receive security capital funding this year—Bamako, Mali, and  Kingston, Jamaica—may not have funding for the planned USAID buildings  at the time of construction, although funding may become available  sometime during construction.
The U.S. government has had mixed success in dealing with this problem of  coordinating funding. For example, for the new compound in Nairobi—the  location of one of the 1998 embassy bombings—State awarded a  construction contract for the USAID building in September 2003, 7 months  after the rest of the compound had been completed. In another case, Dar Es  Salaam, funding became available in time for OBO to modify the  construction contract and complete the USAID building at the same time as  the rest of the compound.
We plan to do additional work in the near future on the issue of  coordinating USAID funding with funding for new embassy and consulate  compounds.
section_title: Conclusion
paragraphs: Providing secure and safe office facilities at U.S. embassies and consulates  is a critical task that will require sustained funding and management  attention over many years. To sustain support for this program, the State  Department must demonstrate that it is exerting effective management,  resulting in projects that are on time and within approved budgets. We  believe that State has put in place a number of mechanisms that together  represent a positive management approach with the potential to achieve  favorable program results. However, it is too early to assess whether these  new mechanisms will ensure that State can consistently achieve cost and  schedule targets on individual construction projects over the course of the  program.
section_title: Agency Comments and Our Evaluation
paragraphs: The Department of State provided written comments on a draft of this  report (see app. III). In the comments, State said that the report is a fair and  accurate representation overall of the department’s overseas construction  process and provided additional information on (1) how State prioritizes  and plans for its construction projects, (2) the problems in funding USAID  building projects, and (3) other capital construction projects being  implemented by OBO.  We revised the text of the report to include  information on how Diplomatic Security and OBO view the relative  vulnerability of facilities at overseas posts. State also provided technical  comments, which we incorporated in the report where appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 10 days from the  report date. At that time, we will send copies of this report to other  interested members of Congress. We will also provide copies of this report  to the Secretary of State and the Director of the Office of Management and  Budget. We also will make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www. gao.gov.
If you or your staff has any questions about this report, please call me at  (202) 512-4128. Another contact and staff acknowledgments are listed in  appendix IV.
section_title: Scope and Methodology
paragraphs: To determine whether the Bureau of Overseas Buildings Operations (OBO)  has mechanisms in place to more effectively manage State’s construction  program to replace vulnerable embassies and consulates, we (1) reviewed  the report of the Overseas Presence Advisory Panel and earlier GAO  reports that outlined problems in embassy security and State’s embassy  construction program and (2) interviewed OBO and contractor officials  about specific steps OBO has taken to improve program management,  including the usefulness of and rationale behind both the standard embassy  design for new embassy and consulate compounds and the design-build  contract delivery method. We also attended quarterly meetings of the  Industry Advisory Panel where industry representatives provided advice  and information on industry best practices to senior OBO management  officials, as well as monthly project performance reviews where senior  OBO officials addressed issues related to embassy construction projects.  Further, we visited two field locations—in Sofia, Bulgaria, and Yerevan,  Armenia—where we observed the level of management and supervision at  the new embassy construction sites and the contractor’s performance on  the projects.
To determine the status of the overall construction program, as well as its  current and potential challenges, we reviewed capital projects—whether a  completely new embassy or consulate compound, a new building, or a  major retrofit of an existing building—that would bring the post up to  current security standards. Table 3 provides the list of projects included in  this review: 7 completed projects and 15 ongoing projects whose contracts  were awarded from fiscal years 1999 through 2002. We excluded the Dili,  East Timor, project from the scope of our review because it was an interim  office building.
Table 4 shows the seven projects whose contracts were awarded in late  fiscal year 2003 that are outside the scope of our review. This table does not  include the recently started projects in Athens, Moscow, or Beijing because  OBO is utilizing the design-bid-build process for these three projects and  has yet to award their construction contracts.
We also reviewed the State Department’s Long-Range Overseas Buildings  Plan, monthly project performance documents, contract modifications, and  other OBO documents. We interviewed key State Department officials from  OBO and Diplomatic Security and contractor officials currently working on  new embassy construction projects. We visited the ongoing projects in  Sofia and Yerevan to determine the types of problems that could affect cost  and schedule and what OBO and the contractor are doing to overcome  these problems. Contracts for the design and construction of these projects  were awarded in September and August 2001, respectively. The contractor  broke ground around September 2002. When we visited the sites in July  2003, the contractor was pouring concrete slabs for the floors.  We did not  verify data provided by OBO.
We conducted our work between October 2002 and September 2003 in  accordance with generally accepted government auditing standards.
section_title: Information on Embassy Construction Projects’ Contractors and Building Size
paragraphs: This appendix provides information on the contractors responsible for  each of the 22 ongoing embassy or consulate construction projects. It also  indicates which projects are using standard embassy design and the  respective sizes of these projects. Table 5 is a list of contractors currently  working on a new embassy or consulate construction project or compound  renovation. Company locations are provided to show the geographic  dispersion of the companies to which State awards its contracts.
Table 6 is a list of the projects employing a standard embassy design and  their size. Standard embassy designs were not used until fiscal year 2002.  OBO plans to use the standard design for most future projects, unless the  embassy involves a large degree of complexity or has special significance  to the United States, such as Beijing.
section_title: Comments from the Department of State
paragraphs: The following are GAO’s comments on the Department of State letter dated  October 27, 2003.
subsections: section_title: GAO Comments
paragraphs: 1. We relied primarily on information from the March 2003 Long-Range  Overseas Buildings Plan and discussions with OBO officials in drafting  this section of the report. We revised the text to include information on  how Diplomatic Security and OBO officials view the relative  vulnerability of facilities at overseas posts.  2. We plan to do additional work in the near future on the issue of the U.S.  government’s efforts to coordinate USAID funding with funding for new  embassy and consulate compounds. 3. Our work focused on the replacement of vulnerable embassies and  consulates through construction projects that would bring the post up  to current security standards. As a result, our report does not discuss  these projects.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Janey Cohen, Jessica Lundberg,  Judy McCloskey, Nanette Ryen, and Michael Simon made key contributions  to this report.
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