General Services Administration: Factors Affecting the Construction and Operating Costs of Federal Buildings
Published: 2003-04-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The General Services Administration (GSA) has responsibility for more than 8,000 owned and leased buildings nationwide, together encompassing about 338 million square feet of space. Understanding construction and operating costs for these buildings is important, as the increased federal budget deficit has led to intensified competition for federal resources and recent events have highlighted security needs. GAO examined (1) factors that have affected GSA's construction, leasing, and operating costs and (2) our designation of federal real property as a high-risk area.
section_title: What GAO Found
paragraphs: Several factors have affected GSA's construction, leasing, and operating costs for federal buildings. For example, new security requirements for federal buildings developed after the 1995 bombing of a federal building in Oklahoma City and the September 11, 2001, terrorist attacks have led to increased costs for such measures as strengthening the ability of buildings to sustain a bomb blast and limiting building access. According to a GSA official, security costs for courthouses have increased from about $8 a square foot to about $24 a square foot. Another factor affecting costs is budget scorekeeping requirements meant to ensure full recognition of the government's financial commitments. The scorekeeping requirement that GSA must include in its budget the entire cost of constructing a building in the year the government commits the resources has led GSA to lease space rather than construct it, even though leasing often results in a higher overall cost to the taxpayer. For example, a GSA present value cost analysis estimated that the recently leased U.S. Patent and Trademark Office complex shown below, currently being constructed in Alexandria, Virginia, by a private company, cost taxpayers about $48 million more to lease over the 20-year lease period than it would have cost to purchase it. In January 2003, GAO designated federal real property as a high-risk area, in part because of such cost factors and also because many property assets are no longer effectively aligned with or responsive to agencies' changing missions and are no longer needed. Furthermore, many assets are in an alarming state of deterioration that may cost tens of billions of dollars to address. GAO believes there is a need for a comprehensive and integrated transformation strategy for federal real property.

section_title: Letter
paragraphs: The General Services  Administration (GSA) has  responsibility for more than 8,000  owned and leased buildings  nationwide, together encompassing  about 338 million square feet of  space. Understanding construction  and operating costs for these  buildings is important, as the  increased federal budget deficit has  led to intensified competition for  federal resources and recent events  have highlighted security needs.
GAO examined (1) factors that  have affected GSA’s construction,  leasing, and operating costs and   (2) our designation of federal real  property as a high-risk area.
Several factors have affected GSA’s construction, leasing, and operating  costs for federal buildings.  For example, new security requirements for  federal buildings developed after the 1995 bombing of a federal building in  Oklahoma City and the September 11, 2001, terrorist attacks have led to  increased costs for such measures as strengthening the ability of buildings to  sustain a bomb blast and limiting building access.  According to a GSA  official, security costs for courthouses have increased from about $8 a  square foot to about $24 a square foot.  Another factor affecting costs is  budget scorekeeping requirements meant to ensure full recognition of the  government’s financial commitments.  The scorekeeping requirement that  GSA must include in its budget the entire cost of constructing a building in  the year the government commits the resources has led GSA to lease space  rather than construct it, even though leasing often results in a higher overall  cost to the taxpayer.  For example, a GSA present value cost analysis  estimated that the recently leased U.S. Patent and Trademark Office  complex shown below, currently being constructed in Alexandria, Virginia,  by a private company, cost taxpayers about $48 million more to lease over  the 20-year lease period than it would have cost to purchase it.
In January 2003, GAO designated federal real property as a high-risk area, in  part because of such cost factors and also because many property assets are  no longer effectively aligned with or responsive to agencies’ changing  missions and are no longer needed.  Furthermore, many assets are in an  alarming state of deterioration that may cost tens of billions of dollars to  address. GAO believes there is a need for a comprehensive and integrated  transformation strategy for federal real property.
Www.gao.gov/cgi-bin/getrpt?GAO-03-609T.
To view the full testimony, including the scope  and methodology, click on the link above.  For more information, contact Bernard L.  Ungar at (202) 512-2834 or ungarb@gao.gov.
Mr. Chairman and Members of the Subcommittee:  We welcome the opportunity today to discuss factors affecting the costs of  constructing, leasing, and operating General Services Administration  (GSA) owned and leased buildings. Reports of rising costs in these areas  are of particular concern in today’s environment, as the increased federal  budget deficit has led to intensified competition for federal resources. At  the same time, one of the main cost factors facing GSA is security.  Physical security for federal office buildings has been a governmentwide  concern since the 1995 bombing of the Alfred P. Murrah Federal Building  in Oklahoma City, Oklahoma. This concern has become more compelling  in the wake of the terrorist attacks of September 11, 2001, and the anthrax  incidents that closely followed it. To assist GSA in determining how to  best prioritize security enhancements while also addressing other federal  building needs, we believe it is helpful to consider factors affecting the  costs of meeting these needs.
GSA has responsibility for more than 8,000 owned and leased buildings  nationwide, together encompassing about 338 million square feet of space.  GSA’s owned and leased space, which includes office buildings,  courthouses, border stations, and other types of facilities, makes up about  6 percent of all federally owned space worldwide and 39 percent of all  federally leased space worldwide. Between fiscal year 1995 and fiscal year  2002, GSA’s average rental rate for leased space increased 4.1 percent in  constant dollars, to $20 per square foot, and GSA’s building operations  obligations increased by 31.3 percent in constant dollars, to about $1.9  billion. In fiscal year 2002, GSA had total estimated project costs of about  $2.6 billion for new construction, about $690 million for major  renovations, and more than $435 million for design of repair and  alterations. It has obligated about $3.1 billion for the rental of space, which  is a 24 percent increase in constant dollars since fiscal year 1995. Today, in  this context of rising costs and limited funds, we would like to discuss (1)  factors that have affected GSA’s construction, leasing, and operating costs  and (2) our designation of federal real property as a high-risk area.
My statement today is based largely on our past work on constructing,  operating, leasing, and securing federally owned or leased buildings. In  certain instances, we obtained updated information and opinions from  GSA officials. We also reviewed a GSA contractor’s March 2002 report on  courthouse construction costs.
Several factors have affected GSA’s construction, leasing, and operating  costs for federal buildings. Two factors we recently reported on are  increased security requirements and budget scorekeeping requirements  meant to ensure full recognition in the budget of the government’s  commitments. First, new security requirements for federal buildings  developed in the wake of the 1995 bombing of the Alfred P. Murrah  Federal Building in Oklahoma City and the September 11, 2001, terrorist  attacks have resulted in increased building costs for such measures as  strengthening the ability of buildings to sustain a bomb blast and limiting  access to parking and building areas through such means as increasing the  number of guards. For example, according to a GSA official, security costs  for courthouses have increased from about $8 a square foot to about $24 a  square foot. Second, to ensure budget recognition of the government’s  commitments, budget scorekeeping requires that GSA include in the  budget the entire cost of constructing a building in the year that the  government commits the resources. This has led GSA to sometimes use  leasing over construction, even though leasing often results in a higher  overall cost to the taxpayer. For example, a GSA present value cost  analysis estimated that the recently leased U.S. Patent and Trademark  Office complex, now under construction in Alexandria, Virginia, cost  taxpayers about $48 million more to lease than it would have cost to  construct it. The choice of geographic location has also affected GSA’s  building costs, as have federal mandates that require measures such as the  payment of specific minimum wages on government construction projects  and energy conservation. Still other factors that have affected federal  building costs include GSA’s failure to adequately maintain buildings, the  choice of building finishes, contract modifications, and inflation.
In January 2003, we added federal real property to our high-risk list. We  did this, in part, due to the issues affecting the cost of federal buildings  discussed in this testimony, such as the challenges the federal government  faces in protecting its property, employees, and those who visit or use  federal facilities. In adding this issue to our high-risk list, we also  recognized that the federal government owns much vacant or  underutilized property that it must pay to maintain, operate, and/or secure.  To the extent that the federal government can rationalize its inventory of  real property and retain only what it needs, it can save money and focus its  efforts and limited resources on operating, maintaining, and securing only  those facilities that are truly needed by the government. Furthermore,  many assets are in an alarming state of deterioration; agencies have  estimated restoration and repair needs to be in the tens of billions of  dollars. In our high-risk report issued in January 2003, we stated that there  is a need for a comprehensive and integrated transformation strategy for  federal real property, and that an independent commission or  governmentwide task force may be needed to develop this strategy.  Realigning the government’s real property assets with agency missions and  taking into account the requirements of the future federal role and  workplace will be critical to improving the government’s performance and  ensuring accountability within expected resource limits.
subsections: section_title: Security, Budget Scorekeeping Requirements, and Other Factors Have Affected Federal Building Costs in Recent Years
paragraphs: In managing the costs of constructing, leasing, and operating federal  buildings, GSA has faced pressures in a number of areas in recent years.  Many factors driving costs, such as security requirements, have tended to  increase costs for construction, leasing, and operations. In addition,  budget scorekeeping requirements have resulted in pressure to lease  rather than construct, when in many cases leasing is more expensive over  the long term. Another factor—implementing a federal mandate  encouraging environmentally sound construction and renovation  techniques—may result in higher initial construction costs but lead to  lower operating costs.
subsections: section_title: Security Requirements Have Raised Costs of Constructing, Leasing, and Operating Federal Buildings
paragraphs: As a result of the Oklahoma City bombing in 1995, President Clinton  directed the Department of Justice to assess the vulnerability of federal  office buildings to attack, which resulted in a 1995 report entitled  Vulnerability Assessments of Federal Facilities. The study designated  five levels of security needs into which federal office buildings could be  categorized, depending on the number of federal employees housed in the  facility and the responsibilities of the agency; identified minimum  standards for each of the five security levels; and recommended the  establishment of the Interagency Security Committee (ISC) to provide a  permanent body to address continuing governmentwide security concerns.
In May 2001, ISC issued security design criteria for new federal office  buildings and major modernization projects, and in 2002 issued draft  security standards for leased space.  Both of these take into consideration  the five levels of security needs, recognizing that some federal facilities  need more protection than others. Overall, ISC’s security design criteria  and leasing security standards are designed to strengthen the ability of  buildings to sustain a bomb blast or chemical attack as well as reduce the  likelihood of such attacks through measures to better control access to  parking and work areas. Construction measures in ISC’s design criteria  include items such as providing glazing protection for windows,  establishing distances that buildings should be set back from the street,  controlling vehicular access to the buildings, and locating air intakes. ISC’s  draft security standards for leased space require that GSA incorporate  security operating standards into all future leases and in existing locations  on a case-by case basis, and include similar measures as its construction  standards, where relevant, such as controlling vehicular access to the  building. We have not reviewed the implementation of the ISC security  design criteria.
Although we have not comprehensively evaluated how these changes in  security requirements have affected GSA’s costs, we have gathered some  examples of rising security costs in recent years. For example, according  to a GSA official, security costs for courthouses have risen from about $8 a  square foot to about $24 a square foot. Security requirements also have led  GSA to look for larger sites for courthouses. According to a GSA official,  in some cases, GSA is obtaining two separate but collocated urban sites on  which to construct a courthouse and may need to close a street between  the two sites to construct the building. In these circumstances, GSA may  need to pay to move utilities that are in the street between the two sites.  Both the increased size of the site and moving utilities located in the street  will add to construction costs. A GSA official also stated that the estimate  to renovate GSA’s headquarters has risen from about $80 million to $120  million, mostly due to meeting security needs. Similarly, in August 2001,  we reported that the additional cost of security features for the Security  and Exchange Commission’s (SEC) new building currently under  construction in Washington, D.C., is expected to be $19 million.  Enhancing blast protection for the Department of Transportation building  in Washington, D.C., was estimated at about $8 million in 2001.
Regarding the effects of ISC security leasing standards on costs, at one of  four security roundtables that was held by an ISC team to discuss ISC’s  proposed security leasing standards with the private sector, the potential  cost of security improvements was estimated at $1.50 to $2.50 per square  foot, excluding heating, ventilating, and air conditioning. In extreme cases  in which there are an unusually high number of entrances to protect, it  could be as high as $9 a square foot. Using the estimate of $1.50 per square  foot and the estimated 155 million square feet of leased space GSA had as  of fiscal year 2002, GSA leasing costs could increase by a minimum of $232  million dollars a year because of security requirements, assuming none of  the improvements have already been made.
Building operations costs have also risen due to security requirements.  GSA’s building operations obligations have increased by 31.3 percent in  2002 constant dollars since fiscal year 1995. Forty-five percent of this  increase is due to the increase in security obligations, which have risen by  231 percent in 2002 constant dollars since fiscal year 1995 to about $397  million in fiscal year 2002.
One concern for which improving security is likely to affect construction,  leasing, and operating costs is upgrading existing mailrooms in federal  buildings. ISC guidelines addressing mailroom security were written prior  to anthrax being sent through the mail to several federal buildings in the  fall of 2001 and focused on securing mailrooms from bomb blasts rather  than contamination. However, in the wake of the anthrax incidents, some  agencies have begun screening and testing their incoming mail for  hazardous material. Agencies have initiated a variety of efforts in this area,  including, among other things,  retrofitting existing mailrooms with air handling and ventilation systems  that are independent of the systems supporting the rest of the facility;     moving mailroom operations off-site;     contracting with private companies to screen, test, and process incoming  mail;   training mailroom employees on the proper procedures for handling  potentially hazardous mail and providing these employees with protective  clothing and gear;     purchasing equipment to screen and test mail for hazardous material; and    modifying existing security contracts to require that security personnel   X-ray incoming mail.
These and other measures to safeguard the mail are adding to the cost of  security for federal agencies in the Washington, D.C., metropolitan area. In  addition, GSA issued mail management guidelines in June 2002, which  brought into question whether some of the actions taken by federal  agencies to safeguard their mail were necessary, particularly in light of the  U.S. Postal Service’s efforts in this regard, which include irradiating  certain mail destined for federal agencies located in the Washington  metropolitan area. Because of the cost associated with safeguarding the  mail and the uncertainty over the need for some of these safeguards, at the  request of the Senate Committee on Governmental Affairs, we have  initiated a review of agencies’ mail security efforts and associated costs.
In October 2002, we issued a report that identified security-related costs  being incurred by various agencies. While this information gives a picture  of the security costs, we did not determine what types of costs are  included. Some examples of recent security costs that agencies reported  to us include the following:    The Federal Protective Service (FPS) obligated approximately $1.3 billion  for security for fiscal years 1996 through 2001. Its fiscal year 2002 budget  was $362.1 million, of which about $207 million was for contract guard  services. Additionally, in fiscal year 2002, GSA was slated to spend over  $300 million more from its reimbursable program for contract guard  services, according to a FPS official. This total of over $500 million for  contract guard services was to fund approximately 7,300 contract guards.  In fiscal years 1999 through 2001, the Federal Judiciary paid $71.6 million  for security through its rent payments to GSA. The Federal Judiciary and  the U.S. Marshals Service (USMS) also obligated about $577.1 million from  the Court Security Appropriation. For fiscal year 2002, the Federal  Judiciary expected to pay $36.7 million for security through its rent  payments to GSA. Also, in fiscal year 2002, the Federal Judiciary received  an appropriation and emergency supplemental for court security officers,  court security inspectors, and security systems and equipment and  transferred $280.5 million to USMS to administer the Judicial Security  Facilities Program. Through its own appropriation, USMS also received  $24.1 million in funding for construction; security, including guard  contracts and security equipment; and furniture to handle serious security  deficiencies in federal courthouses related to prisoner handling and the  protection of judges, judicial employees, the public, and the Marshals.
For fiscal years 1996 through 2001, the Department of Education paid GSA  approximately $7.7 million in security-related expenses. In fiscal year 2002,  it expected to spend approximately $2.0 million in security-related  expenses, of which about $1.9 million was for guard costs.
The ISC security design criteria recommend that in order to control costs,  security budgets should be the result of a project-specific risk assessment  on which a budget can be based. ISC reasoned that if cost is not  considered early on, mitigation of one security risk might consume a  disproportionate amount of the budget while other security risks might  remain insufficiently or not addressed.
We also have supported the concept of risk assessment as a way to  determine how best to use limited funds in the context of enhancing  security. Specifically, we reported in a study focusing on homeland  security and information systems security that applying risk management  principles can provide a sound foundation for effective security whether  the assets are information, operations, people, or federal facilities.  We  identified the following five basic steps as being part of a risk management  process to determine security priorities and implement appropriate  solutions: (1) identify assets, (2) determine threats, (3) analyze  vulnerabilities, (4) assess risks, and (5) apply countermeasures. According  to GSA, the agency uses a risk management approach when considering  security needs for its owned and leased properties.
section_title: Budget Scorekeeping
paragraphs: Our work has shown that budget scorekeeping requirements affect the  government’s cost of acquiring space in two ways—by favoring operating  leases over construction and by encouraging agencies to lease space for  shorter time periods. To ensure budget recognition of the government’s  commitments when they are made, budget scorekeeping requires GSA to  include the total cost of a building construction project in its budget in the  year that the government commits the resources. This requirement for full  up front funding promotes discipline by requiring that the full cost of  decisions be accounted for upfront when the irrevocable decision to  commit the resources is made. Requiring up front funding for all programs  (including health, education, and human capital as well as real property)  ensures that none of them are given a relative advantage, especially when  there is no clear evidence that a shift in relative priorities would be  appropriate. However, we have previously reported that scorekeeping  requirements favor operating leases, the cost of which can be accounted  for in the budget on a yearly basis, rather than accounting for the total cost  upfront. This has led GSA to lease rather than construct space for some  new acquisitions needs. This practice has resulted in increasing the cost of  space to the government and taxpayers because the cost of leasing space  for which the government has a long-term need is usually greater than the  cost of purchasing that space through construction.
In March 1999, we reported that our review of the economic analyses of 24  lease and construction acquisitions by GSA for approval in the budget  cycles for fiscal years 1994 through 1999 showed that, given certain  assumptions, construction was estimated as less costly than leasing in all  but one case. Analysis of 15 of these acquisitions showed that  construction had a cost advantage over leasing in present value terms  ranging from $2.9 million to $63 million. The present value analysis of the  construction of a hypothetical 100,000 square foot building in 11 locations  throughout the country showed that construction was consistently more  cost-effective than leasing, with the differences ranging from $0.3 million  to $14 million. The new Patent and Trademark Office complex currently  under construction in Alexandria, Virginia, is one example of an  acquisition that cost taxpayers more because GSA leased the property  rather than constructing it. A GSA present value cost analysis estimated  that the recently leased U.S. Patent and Trademark Office complex cost  taxpayers about $48 million more to lease than construct.
The budget scorekeeping requirements for leases can also affect the cost  of leasing federal properties by encouraging GSA or other agencies to  lease space for shorter time periods. Budget scorekeeping requirements  treat different types of leases differently. The Office of Management and  Budget has established six criteria for defining an operating lease. A  capital lease is any lease other than a lease-purchase that does not meet  the criteria of an operating lease. Budget scorekeeping requires that for a  capital lease, the net present value of the entire cost of the lease be  included in the budget for the year the lease is approved, while for an  operating lease, only each year’s cost must be included in that year’s  budget. We reported on this issue in August 2001. We found that at least  13 leases or lease project terms—the length of the lease—were affected  by budget scoring, and that others may have been similarly affected. For  example, the term of the lease for the SEC building was reduced from 20  years to 14 years, and the lease for the new Department of Transportation  headquarters building was reduced from 20 years to 15 years; the changes  in terms changed the leases from capital leases to operating leases.  Although we could not determine the overall monetary impact of the  budget scoring requirements for leases on lease terms, GSA officials  agreed that a 20-year lease usually has a lower annual cost than a 10- or 15- year lease. Furthermore, in the report, we cited a private-industry official  who had testified before Congress that a 20-year lease term could have  annual rates as much as 33 percent less expensive than a 10-year lease and  13 percent less expensive than a 15-year lease. We found that the lease  terms on these 13 cases were shortened because of the budget  scorekeeping requirements for leases.
Decision-makers have struggled with this matter since the scoring  requirements were established and the tendency for agencies to choose  operating leases instead of ownership became apparent. We have  suggested the alternative of scoring all operating leases up front on the  basis of the underlying time requirement for the space so that all options  are treated equally. Although this could be viable, there would be  implementation challenges if this were pursued, including the need to  evaluate the validity of agencies’ stated space requirements. Another  option, which was recommended by the President’s Commission to Study  Capital Budgeting in 1999 and discussed by us, would be to allow  agencies to establish capital acquisition funds to pursue ownership where  it is advantageous from an economic perspective. Budget scorekeeping  and its effects on the acquisition of space is a complex issue that will not  be easy to effectively resolve. Nonetheless, as we reported in January  2003, it has a significant unintended effect on costs and needs to be  addressed.
section_title: Geographic Location of Buildings
paragraphs: Three aspects of where a building is located can affect its costs. The first  aspect is the part of the United States in which the building is located. For  example, in a 1999 report, we reported that, at that time, to build a  hypothetical 100,000 square foot building would cost a high of $63.2  million in New York City, New York; $37.9 million in Boston,  Massachusetts; and a low of $32.7 million in Denver, Colorado.  The  second aspect of location that can affect building costs is whether the  building site is in a central business area or a rural or noncentral business  area. Currently, the Rural Development Act directs federal agencies to give  first priority to the location of new offices and other facilities in rural  areas, and Executive Order 12072 specifies that when the agency mission  and program requirements call for facilities to be located in urban areas,  agencies must give first consideration to locating in central business areas.
In a July 2001 report, we noted that federal agencies subject to the Rural  Development Act continue to locate for the most part in higher cost urban  areas.  Most of the agencies included in our review said that they located  their facilities on the basis of mission needs, although agencies did have  flexibility in some cases. We reported that 8 of the 13 cabinet agencies we  surveyed had no formal Rural Development Act siting policy, and there  was little evidence that agencies considered the act’s requirement when  siting new federal facilities. In contrast, we reported that private-sector  companies chose rural areas to take advantage of such factors as lower  real estate and labor costs. We did find that rural locations can result in  higher costs in some cases even though the cost of the land itself can be  cheaper. For example, according to a GSA official, rural sites for border  stations can result in increased construction costs because GSA may have  to bring in construction workers from long distances and pay them for  travel or pay for or provide local housing for the workers.
We also found that locating a building in a central business area can result  in higher lease costs than siting it in a noncentral business area;  specifically, the average cost of leasing for 11 cities was $4.03 more  expensive per square foot in the central business area than in noncentral  business areas. For example, locating in the central business area of San  Francisco can be $11.40 a square foot more expensive than locating in the  noncentral business area of that same city. However, out of the 11 cities  we reviewed, 3 had higher lease rates in their noncentral business areas.
The third aspect of location that can have a substantial effect on  construction costs is the specific site selected. In November 1995, we  testified that certain features of sites that had been selected for the  construction of federal courthouses had resulted in additional  construction-related costs that would not necessarily have been incurred  had another site been selected. For example:    a waterfront site required that the building include extensive  waterproofing and wind bracing and a $1.6 million pier and floating dock  to accommodate the Costal Zone Management Act;    an urban site, which was a small and oddly shaped parcel of land, did not  allow for an efficient design configuration and had contaminated soil that  cost $3.2 million to remove; and    another urban site, which sloped, allowed only a high-rise building, which  is more costly to build, and required a more costly “split-level” lobby.
section_title: Federal Mandates
paragraphs: Federal mandates, such as laws and executive orders, have affected the  construction, leasing, and operating costs of federal buildings. GSA’s  General Reference Guide for Real Property Policy lists the laws and  executive orders that impact GSA’s roles, including many that affect  design, construction, and leasing. In October 1999, we issued a report that  listed 29 federal statutes and 7 executive orders applicable to leasing.  Examples of laws that affect construction and/or leasing and operations  include the following:    The Architectural Barriers Act of 1968 (42 U.S.C. §4151-4156) establishes  standards for the accessibility of federal buildings to physically disabled  persons.
The Davis-Bacon Act (40 U.S.C. §3142) requires the payment of minimum  wages for laborers and mechanics employed on government construction  projects. The wages are established by the Department of Labor and are  based on prevailing wage rates in a locality.
The Small Business Act (15 U.S.C. §631 et seq.) requires federal agencies  to utilize small and small disadvantaged businesses and to ensure that  such businesses have the maximum practical opportunity to participate as  subcontractors in the performance of federal contracts.
The Energy Policy and Conservation Act (42 U.S.C. §6201 et seq.) requires  federal agencies to implement programs that reduce energy consumption  in federal facilities. This includes federal leased space.
Examples of executive orders that may affect federal building costs  include the following:    Executive Order 11990—Protection of Wetlands—requires federal  agencies to avoid causing wetlands to be filled unless there is no practical  alternative to doing so.
Executive Order 12072—Federal Space Management—requires federal  agencies to give first consideration to a centralized community business  area when locating federal facilities.
Executive Order 12770—Metric Usage in Federal Programs—requires,  with certain exceptions, that the metric system of measurement be  implemented in all new federal design and construction projects.
Executive Order 12902—Energy Efficiency and Water Conservation at  Federal Facilities—requires that appropriate consideration be given to  building efficiencies in the design and construction process.
In a March 2002 study prepared for GSA by a contractor concerning  courthouse construction costs, 28 federal mandates were identified that  had to be considered on every federal courthouse construction project. In  comparing state and federal courthouse construction costs, the study  estimated that these mandates added an average $4.04 per square foot to  the cost of a federal courthouse. A specific example of the impact of a  mandate is the executive order on metric use. The study showed that using  the metric system added an estimated $0.57 per square foot to federal  government construction costs for the projects covered in the study. The  study points out that pipe suppliers stock standard U.S. Customary System  sizes of pipe and have to special order corresponding metric pipe sizes,  which usually represents an increased cost to the supplier that is passed  on to the federal government.
In a March 2003 testimony we discussed federal mandates relative to  building construction that address conservation and environmental  protection, steps GSA and other federal organizations have taken to  implement these mandates, and obstacles agencies have faced in  attempting to implement them. We said that GSA encourages agencies to  use sustainable design approaches in federal construction and renovation  projects. Sustainable designs are intended to result in energy efficiency  and minimal impact on the environment. The objectives of this type of  design are to  reduce consumption of nonrenewable resources,    minimize waste and impact on the environment,    optimize site potential,    minimize nonrenewable energy consumption,    use environmentally preferable products,    protect and conserve water,    enhance indoor environmental quality, and    optimize operation and maintenance practices.
By improving energy efficiency, federal agencies may also reduce  operating costs. Federal organizations have made progress in  implementing these efforts. GSA and other agencies have begun using the  Leadership in Energy and Environmental Design Rating (LEED) system.  By using LEED, agencies can gauge the impact of design decisions on  energy efficiency and other sustainable factors. In a similar vein, the White  House reduced its operating costs by about $300,000 annually using  sustainable design. As part of the Pentagon renovation, sustainable design  principles are being implemented with the hope of reducing operating  costs by $4 million to $5 million each year.
Although up-front investments in sustainable design features can save  building operating costs and help protect the environment, agencies have  faced obstacles in implementing this concept. For example, initial costs of  sustainable design features can be more costly than other approaches.  GSA estimated that obtaining the second from the highest LEED rating for  the construction of the Department of Transportation headquarters  building would cost about $10 a gross square foot. Agencies have faced  difficulty in securing the funding needed for this approach.
section_title: Inadequate Maintenance, Construction Finishes, Contract Modifications, and Inflation
paragraphs: Failure to adequately maintain buildings may also affect operating costs.  In 2001, we reported that 44 buildings in GSA’s inventory each had $20  million or more in repair and alteration backlogs. Many of the repair and  alteration needs in these buildings had a direct impact on the energy  efficiency of the buildings, including aging and inefficient plumbing,  heating ventilation, and air conditioning systems. For example, the Dwight  D. Eisenhower building in Washington, D.C., had a repair and alteration  backlog of $216 million, which included the need to address the building’s  antiquated air conditioning system. GSA officials said that this system,  which uses about 250 individual window units, is outdated and not  efficient in cooling the building or conserving energy. In July 2000, we  reported estimates that the Government Printing Office could save over  $400,000 a year in energy and maintenance costs by replacing its aged air  conditioning chillers with new, more energy efficient ones and could save  $800,000 annually by upgrading its energy inefficient lighting at an  estimated cost of $1.6 million. The Government Printing Office expects to  have its air conditioning chillers and its lighting projects completed in  April and May 2003, respectively. Greening the Building and the Bottom  Line, a report from the Rocky Mountain Institute in cooperation with the  Department of Energy (DOE), documents the case of a lighting retrofit  that resulted in a 540 percent return on investment.
In 1995, we testified that interior construction costs, which include  interior finishes, ranged from $19 to $68 a square foot for eight courthouse  construction projects we studied. For example, we noted that for one  courthouse, using wood veneer paneling from floor-to-ceiling increased  costs by $5 million versus using wood wainscot paneling. Also, the choice  of exterior finish can increase cost. For example, using granite versus  precast concrete or brick will increase the construction costs. GSA and  the Administrative Office of the United States Courts established the  Independent Courts Building Program Panel to evaluate the program.
Contract modifications after the initial contract is issued also can affect  costs. In June 1994, we reported that, for GSA’s 100 new construction  contracts and 337 repair and alteration contracts that were substantially  completed between fiscal year 1988 and the first half of fiscal year 1993,  over 50 percent had cost growth that exceeded the 5 percent and 7  percent, respectively, that GSA provided as contingencies for contract  modifications. Our detailed case studies of 12 construction contracts for  7 major projects showed that contract changes to overcome design and  planning problems were a major contributor to contract cost growth. As  part of GSA’s current strategic goals, a long-range performance goal has  been established to reduce the cost escalation rate for new construction  projects to 1 percent. GSA reported that cost escalation on construction  projects was 2.3 percent in fiscal year 2002. Finally, inflation is a factor in  construction cost growth. A GSA contractor asked to report on inflation  rates indicated that from 1999 to 2000 the construction inflation rate in the  Washington, D.C., area was 7 percent due to significant labor shortages in  concrete, masonry, and especially drywall.
section_title: We Have Designated Federal Real Property as High-Risk
paragraphs: In January 2003, we designated federal real property as a high-risk area.  As you know, our high-risk update is provided at the start of each new  Congress in conjunction with a special series we have issued biennially  since January 1999, entitled the Performance and Accountability Series:  Major Management Challenges and Program Risks. This effort is  intended to help the new Congress focus its attention on the most  important issues and challenges facing the federal government. In  designating this area high-risk, we reported that the federal real property  portfolio reflects an infrastructure that is based on the business model and  technological environment of the 1950s. Many assets are no longer  effectively aligned with or responsive to agencies’ changing missions and  are therefore no longer needed. Furthermore, many assets are in an  alarming state of deterioration; agencies have estimated restoration and  repair needs to be in the tens of billions of dollars. Compounding these  problems are the lack of reliable governmentwide data for strategic asset  management, a heavy reliance on costly leasing instead of ownership to  meet new space needs, and the cost and challenge of protecting these  assets against potential terrorism. The persistence of these problems— many of which have been discussed earlier in this testimony—and various  obstacles that have impeded progress in resolving them led to the high-risk  designation.
The problems the government faces in this area have multibillion-dollar  cost implications. The cost implications are particularly evident regarding  excess and underutilized property and the need for the government to  realign these assets. For example, underutilized or excess property is  costly to maintain. The Department of Defense estimates that it is  spending $3 billion to $4 billion each year maintaining facilities that are  not needed. In July 1999, we reported that vacant Department of Veteran  Affairs (VA) space was costing as much as $35 million to maintain each  year. Costs associated with excess DOE facilities, primarily for security  and maintenance, exceed $70 million annually. It is likely that other  agencies that continue to hold excess or underutilized property are also  incurring significant costs for staff time spent managing the properties and  for maintenance, utilities, security, and other building needs. Furthermore,  in addition to day-to-day operational costs, the government is needlessly  incurring unknown opportunity costs, because these buildings and land  could be put to more cost-beneficial uses, exchanged for other needed  property, or sold to generate revenue for the government. For example, in  1998, we reported that VA could reduce expenditures by an estimated $200  million over the next 10 years by consolidating hospital services into three  locations in Chicago, Illinois, rather than continuing to operate four  underutilized locations.
GSA also has vacant and underutilized property. In August 2002, we  reported on a recent GSA initiative to deal with its under performing  properties. GSA had identified over 500 of its owned properties that were  not generating sufficient income to cover their expenses and meet other  financial performance criteria. GSA was developing and beginning to  implement strategies for disposing of these properties, renting space to  nonfederal tenants, or taking other actions to address the problem.
The problem of repair backlogs in federal facilities also has major cost  implications. In addition to the multibillion-dollar backlog in needed work  that is currently identified, we have reported that the ultimate cost of  completing delayed repairs and alterations may escalate because of  inflation and increases in the severity of the problems caused by the  delays. The overall cost of needed repairs could also be affected by  government realignment. That is, to the extent that unneeded property is  also in need of repair, disposing of such unneeded property could reduce  the repair backlog. And finally, the cost of securing unneeded assets  against the threat of terrorism, in addition to being significant, will use  funds that likely could have been directed to realignment and repair  efforts for properties that the government determines it should retain.
As discussed in our high-risk report, resolving these long-standing  problems will require high-level attention and effective leadership by  Congress and the administration. Also, because of the breadth and  complexity of the issues involved, the long-standing nature of the  problems, and the intense debate that will likely ensue regarding potential  solutions, current structures and processes may not be adequate to  address these problems. Given this situation, we concluded in our high- risk report that there is a need for a comprehensive and integrated  transformation strategy for federal real property, and an independent  commission or governmentwide task force may be needed to develop this  strategy. Such a strategy could be based on input from agencies, the  private sector, and other interested groups. The strategy also should  reflect the lessons learned and leading practices of public and private  organizations that have attempted to reform their real property practices.  These organizations have recognized that real property, like capital,  people, technology, and information, is a valuable resource that, if  managed well, can support the accomplishment of their missions and the  achievement of their business objectives. In addition, as these  organizations are recognizing, the workplace of the future will differ from  today’s work environment.
For the federal government, technological advancements, electronic  government, flexible workplace arrangements, changing public needs,  opportunities for resource sharing, and security concerns will call for a  new way of thinking about the federal workplace and the government’s  real property needs. Realigning the government’s real property assets with  agency missions and taking into account the requirements of the future  federal role and workplace will be critical to improving the government’s  performance and ensuring accountability within expected resource limits.  If actions resulting from the transformation strategy comprehensively  address the problems and are effectively implemented, agencies will be  better positioned to recover asset values, reduce operating and space  acquisition costs, improve facility conditions, enhance safety and security,  and achieve mission effectiveness.