United Nations: Planning for Headquarters Renovation Is Reasonable; United States Needs to Decide Whether to Support Work
Released: 2001-06-15T00:00:00

Letter

Project Planning Has Been Reasonable

The U.N. headquarters complex clearly needs to be renovated. For example, the Capital Master Plan notes that “users of the United Nations Headquarters site...have a lower chance of survival during a fire than they would at comparable modern buildings…” While still in its early stages, we believe that the renovation planning efforts to date, including the cost estimate, are reasonable. Our opinion is based on the following actions taken by U.N. officials, which are consistent with typical industry best practices for this phase of project development—the conceptual planning phase.

Defined the need for a renovation. About a decade ago, U.N. officials identified the need for a major renovation to provide member states a 21st century headquarters. To define the technical needs, they competitively procured the services of a multidisciplinary team of consultants, who assessed the existing conditions of each infrastructure component. The assessments were based on visual inspections and selective probes of the buildings’ structure and their electrical, mechanical, plumbing, and other systems. The assessment reports formed the basis for the Capital Master Plan conclusion that current building conditions render the headquarters unacceptable for continued long-term use.

Defined U.N. project expectations. The Secretary-General defined the project expectation as follows: “The United Nations facility should be safe, free of hazardous materials, environmentally sound, fully accessible to all persons and cost-efficient to operate.” The Capital Master Plan presented a framework of options that could meet this expectation and preliminary cost estimates ranging from $875 million to $1.2 billion. The estimates were (1) developed using standard industry practices; (2) based on the condition assessments; and (3) included costs for labor and materials, project management, and contingencies—all adjusted for the New York City market and for inflation over the project duration. However, the estimates excluded some costs, such as (1) U.N. staff other than for project management; (2) furniture, fixtures, and equipment; or (3) additional security measures. Based on standard estimating literature and our work looking at the planning efforts, it is our opinion that the preliminary cost estimate has a margin of error of 20 to 30 percent. The estimates will be refined after the scope of the renovation is decided and further design work is completed.

Recognized the value of a project management plan to guide decisionmaking. U.N. project officials acknowledged the value of a project management plan that could include (1) a statement of project goals and objectives; (2) options for management of the project; (3) project implementation schedules; (4) details about how the renovation would affect day-to-day U.N. operations; and (5) observations about how U.N. stakeholders, including member states, employees, the city of New York, and others, would be involved in the process. As part of conceptual planning, U.N. officials are developing a new project management plan that updates the Capital Master Plan.

Recognized a need to augment management capability. U.N. project staff recognize that while the Secretariat does have project management capability, it does not have the capability to manage a project as large and complex as the proposed renovation. While a decision regarding project management has not been reached, U.N. officials have identified options that could be implemented when funding is approved. These options range from directly hiring individuals with the requisite skills to contracting for such services. (See app. II for more detail about U.N. planning efforts, including the building assessments and the cost estimate.)

Financing Issues Will Be Explored Further

Since the renovation planning is at a very early stage, it is too soon to determine the potential cost to the U.S. government. The cost will depend on the design and scope of work selected and the decisions member states, New York City, and New York State make about how to finance and share in the cost of the renovation. The Capital Master Plan suggested that some voluntary and private contributions might be available but that the following three financing options are the most likely alternatives. A financial advisory group will be established to explore further these three and all other possible options.

Cash payments by member states. While this is the most straightforward option, it would require member states to pay for the entire cost of the renovation during the construction period. Moreover, members would have to agree on individual assessment rates for every member.

Negotiations over the assessment rates have been contentious in recent years.

Interest-free loans provided by members. Representatives from several member states said that their governments might consider providing an interest-free loan but the United States needs to take the lead in furthering such a proposal. According to Office of Management and Budget officials, the Congress would have to appropriate the U.S. share of an interest-free loan in full, and the funds would be obligated with outlays during the renovation period.

Bond financing in the capital markets. According to the United Nations’ financial consultant, the United Nations could raise funds in the commercial capital markets and could expect to receive a credit rating between AA (very high grade) and A (upper medium grade) for a commercial bond offering. A representative from at least one member state said his government would be opposed to such a proposal because some member states have a higher credit rating and could borrow the funds at a lower cost. Also, according to the financial consultant, the bond might have to be secured by the United Nations’ regular operating budget, which could restrict the use of the regular budget funds for day-to-day activities. (See app. III for more detail about the financing options and financial and policy implications for members.)

Some member states believe that the United States, New York State, and New York City derive net economic benefits from the presence of the U.N. headquarters in New York. Therefore, they say that these three entities should pay a larger share of the renovation costs than the U.S. share of the regular U.N. budget (22 percent as of January 2001). Both New York City and State have made contributions to the United Nations since its inception and incur annual costs associated with the U.N.’s presence and the diplomatic community. In turn, New York City realizes economic benefits from being the host city to the United Nations, generating $3.3 billion in economic activity as a result of the United Nations’ presence, according to a 1994 study. (See app. III for more detail on New York’s contributions to the United Nations and benefits to New York City due to the United Nations’ presence.)

Key Steps in the Renovation Planning Process

As of June 2000, the United Nations was finalizing the selection of an architect and engineering firm to develop concept designs and ensure that all viable renovation options had been considered. In the spring of 2002, the Secretary-General plans to present the results of the design effort to member states. At that point, member states would consider the renovation options, the initial design concepts, and revised estimates of project costs. By the end of 2002, the Secretary-General anticipates member states would make key decisions determining the future of the renovation, including deciding on (1) a project scope of work, (2) the appropriate funds for the final design (estimated to cost about $37 million), and (3) the financing arrangements. (Fig. 1 depicts key steps in the process, app. IV describes key efforts for the renovation in 2001 and 2002, and app. I describes general phases the renovation will go through after 2002.)

Role of the Department of State in the Renovation

According to its mission statement, the Department of State is the lead U.S. foreign affairs agency and is responsible for developing and implementing the policies of the U.S. government within the United Nations. To date, State has primarily been in a listening mode with regard to U.N. renovation proposals, according to State and Office of Management and Budget officials. State has been following the renovation issues, according to the Assistant Secretary of State for International Organization Affairs; however, a comprehensive U.S. position on the U.N. renovation has not yet been developed. According to the Assistant Secretary, developing a comprehensive position would involve addressing questions, such as support for the renovation, what scope of work should be undertaken, and how much should the United States provide for the project. Moreover, no mechanism has yet been set up that could lead to the establishment of a team comprised of staff from State, and possibly other executive branch offices, with the necessary expertise in construction management and U.N. issues to ensure that U.S. interests are met in a project of this magnitude. Representatives of other member states said that the United States, as the host country, must soon play a major role in the process if the renovation is to proceed and if decisions are to be made on a timely basis. New York City and New York State officials also said that the U.S. government needs to state whether it is committed to retaining U.N. headquarters in New York before New York officials or entities commit resources to the project. (See app. V for a discussion of State’s role in the process and U.N. member states’ and New York City’s and New York State’s expectations.)

Conclusions

The U.N. headquarters complex clearly needs to be renovated, and the Secretary-General will ask member states to make key decisions in 2002 about the future of the renovation. As host country to U.N. headquarters, the United States needs to play a major role in making these decisions if the renovation is to proceed. However, the administration and State have not yet developed a comprehensive U.S. position on the renovation. Assuming the United States decides to support the renovation, it needs considerable lead time to examine the issues, including what scope of renovation meets U.N. and U.S. needs in the 21st century, what share of the renovation costs would the United States be willing to provide, and what process is needed to ensure that the construction is cost-effective and timely. One option for examining these issues would be to establish a team comprised of experts on construction management and U.N. issues, using appropriate administration resources from State, the National Academy of Sciences, and the General Services Administration.

Recommendation for Executive Action

We recommend that the Secretary of State, in consultation with appropriate officials in the administration, take the steps necessary to develop a comprehensive U.S. position on matters pertaining to the renovation. Assuming the U.S. position is to support the renovation, the Secretary of State and appropriate administration officials should consider what mechanisms would be needed to obtain the necessary expertise in construction management, financing, and U.N. issues.

Agency Comments

We received written comments on this report from the United Nations and the Department of State. The United Nations and the Department of State have agreed with the information presented, and their comments are reprinted in appendixes VI and VII, respectively. In addition to their written comments, State and U.N. officials provided technical and clarifying comments, which we incorporated where appropriate.

Scope and Methodology

To assess the reasonableness of the United Nations’ planning and project development efforts, we reviewed U.N. records, including the original site acquisition documents; a sample of original and modification-related drawings and reports; and each of the building condition (needs) assessment reports. We also went on a site tour of the buildings and viewed the infrastructure and areas that are proposed for renovation, including the basement and interior structures. We discussed various aspects of the project with U.N. Secretariat and project staff and contractors, including the process by which the Capital Master Plan was developed, considered, and approved; the preparation of the condition (needs) assessment reports, including the cost estimate; the sequence and schedule of future project activities, including further design and construction efforts; and the United Nations’ procurement process. To assess the reasonableness of the cost estimates, we looked at the assumptions supporting the preliminary cost estimates, as well as the methods used in constructing certain cost estimates. Specifically, we discussed with the estimator the basis for costs associated with the types of equipment and materials, the unit quantities, the unit prices, and other items of cost included in the estimate, as well as costs assigned to contingency, project management, and temporary space to house U.N. staff during renovation. We compared the United Nations’ project planning efforts with best industry practices, as identified by the Federal Facilities Council.

To comment on the potential cost to the U.S. government and other financial and policy issues related to the implementation of the Capital Master Plan, we analyzed the proposed financing options and funding sources. In addition, we interviewed officials to obtain their views on the financing options and the potential policy issues that may confront member states. Specifically, we spoke with the J.P. Morgan financial consultant regarding the financing concept paper, which presents various financing options, including financing the renovation with a bond offering in the capital markets. We also discussed the financial aspects of the project with officials of New York City and State; the U.N. Development Corporation, which helps finance and construct facilities for the United Nations and the diplomatic community; and UNDC’s bond underwriter, Goldman, Sachs & Company. To gain an understanding of the proposed funding sources, we reviewed U.N. historical documents, recent audited financial reports, and budget documents and spoke with knowledgeable staff in various U.N. offices. In addition, to address the policy implications of the financing options, we reviewed the United Nations’ Charter, Financial Regulations and Rules, as well as applicable U.S. legislation pertaining to the United Nations. We also spoke with several representatives of member states who would participate in U.N. financing decisions.

To discuss the tentative time frames for key steps in the renovation process, we reviewed U.N. reports, such as the Capital Master Plan, and focused on the essential steps in the project planning and development process. We subsequently spoke with U.N. officials to determine their current plans and time frames for developing and implementing a project management plan, preparing the initial design and design report, and establishing a financial advisory group to explore further the financing issues. We also met with officials of the State Department, the U.S. Mission to the United Nations, and the Office of Management and Budget to discuss administration efforts in monitoring the renovation planning. We similarly discussed these issues with several member state representatives.

We conducted our review between January and May, 2001, in accordance with generally accepted government auditing standards.

We are providing copies of this report to the Secretary of State; the Acting U.S. Ambassador to the U.S. Mission to the United Nations; the Director, U.S. Office of Management and Budget; the U.N. Secretary-General; and interested congressional committees. We will also make copies available to others on request.

Please contact Mr. Johnson at (202) 512-3540 or Mr. Ungar at (202) 512-8387 if you have any questions concerning this report. Other GAO contacts and staff acknowledgments are listed in appendix VIII.

Background

U.N. Planning Process

U.N. Building Condition Assessment

In the early 1990s, U.N. officials recognized that despite the normal maintenance program, the buildings and other facilities continued to deteriorate due to age and extended use. Most of the building systems had passed their economic life expectancy. For example, the plumbing in the General Assembly building was installed in 1952—49 years ago—and the typical life expectancy for chilled and hot water systems is 25 to 30 years. The electrical systems in the Secretariat building were mostly installed in 1949—over 50 years ago; the life expectancy for electrical systems is 15 to 25 years. The Capital Master Plan states that “The current condition of the Headquarters complex renders it unacceptable for continued use over the long term.” Further, the plan states that U.N. structures “no longer conform to current safety, fire and building codes.” As such, “users of the United Nations Headquarters site, such as delegates, staff members and visitors, have a lower chance of survival during a fire, than they would at comparable modern buildings in New York City or other major cities in the world.” The following photographs present examples of the types of deficiencies identified in the assessment of the U.N. buildings.

Figure 6 shows a northeast cornerstone alignment problem, a potential safety hazard, on the north facade of the library. The consultant report noted that the facade exhibits signs of water penetration, with a possible indication of serious deterioration of the anchorage system due to uncontrolled water infiltration. The report recommended that high priority be given to the marble on the east facade, since some of the stones show signs of failing anchorage as exhibited in the shifting of some stones. Further, the report said that a program of stone removal should commence and, that if the anchorage is deteriorated, it be replaced with stainless steel.

The consultant report noted that a large part of the electrical system in the basement consists of equipment that was originally installed in 1949, as illustrated in the type of fuses shown in figure 7. In this regard, the report noted that the vast majority of the electrical distribution system should be replaced, since it is no longer manufactured or is in a state of disrepair.

Figure 8 shows asbestos that was used on the interior surface of the walls below the windows in the U.N. Secretariat building. The original specifications, as cited in the consultant’s report, required that a sprayed- on asbestos fiber coating be applied over an asphalt primer coat to provide insulation between the induction units and the outer facade. The report noted that this material is a health hazard to both maintenance staff and the building’s occupants.

Figure 9 shows a photograph of a restroom in the Secretariat building that is inaccessible to the handicapped. This situation is typical of restrooms in the Secretariat building. The existing U.N. buildings and site, as originally designed in the late 1940s, made no specific accommodations for handicapped access because there were no code or legal requirements at that time. The report noted that despite the United Nations’ efforts to correct deficiencies, additional accessibility compliance work is still needed.

The United Nations’ Capital Master Plan Renovation Options

The Capital Master Plan identified three renovation possibilities—3-year, 6- year, or 12-year plans—along with a reactive approach and demolition option. (Fig. 10 illustrates the cost estimates for these options.)

While the Secretary-General stated a preference for the 6-year plan, each option has advantages and disadvantages in terms of the costs and impact on operations of the headquarters. The planning decision considerations in the three options were as follows: minimize the total time spent in construction, control disruption and relocation, and cost less than other approaches. The Capital Master Plan noted that while the 3-year option would be the least costly, at an estimated $875 million, it would also be the most disruptive, with current planning envisioning about 50 percent of the headquarters facility and staff affected by construction at the same time. In contrast, while the 12-year option would be more expensive, at an estimated $1,054 million, it would be the least disruptive, with current planning envisioning about 10 percent of the headquarters facility and staff affected by construction at the same time. In considering the 6-year option, the Secretary-General stated his opinion that it was the most practical and desirable approach, considering the estimated cost of $964 million, and that current planning envisions 33 percent of the headquarters facility and staff would be affected by construction at the same time.

The Capital Master Plan also discussed two other options: (1) a reactive approach of continuing to maintain the buildings and facilities as needed and (2) a demolition and rebuild approach, which is an approach that may not be practical since the structures are landmarks. The report noted that there are serious disadvantages to the reactive approach. Foremost is that after $1,154 million in costs are incurred over 25 years, the organization will still have the same deficient buildings and facilities because the facilities would not be modernized or improved in any meaningful way. Further, the United Nations’ energy costs would continue to rise because the major alterations required to reduce energy consumption would occur incrementally. Finally, many of the hazardous conditions would continue to exist despite the costs incurred. The Capital Master Plan report estimated the cost of the demolition option at $992 million. However, additional costs would be incurred for (1) relocating the entire Secretariat staff for a period of up to 5 years, estimated at $218 million; and (2) convening all meetings away from U.N. headquarters, at a substantial additional cost that has not yet been determined.

Financing Options for U.N. Renovation

Three key financing options for the U.N. renovation were proposed in the Capital Master Plan as follows: cash payments by member states, interest- free loans by member states, and a commercial bond offering. Table 2 summarizes these options and the associated financial and policy implications.

Comments From the United Nations

Comments From the Department of State

GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

In addition to the names above, Barbara Shields, Thomas Johnson, Maria Edelstein, Lisa Wright-Solomon, Carolyn Black-Bagdoyan, Mark Speight, Lynn Cothern, and Rona Mendelsohn made key contributions to this report.

Ordering Information

The first copy of each GAO report is free. Additional copies of reports are $2 each. A check or money order should be made out to the Superintendent of Documents. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address are discounted 25 percent.

Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

To Report Fraud, Waste, or Abuse in Federal Programs

Web site: http://www.gao.gov/fraudnet/fraudnet.htm e-mail: fraudnet@gao.gov 1-800-424-5454 (automated answering system)