Embassy Construction: Achieving Concurrent Construction Would Help Reduce Costs and Meet Security Goals
Released: 2004-09-28T00:00:00

Letter

Background

In the wake of the 1998 bombings at the U.S. embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania, State has received increased funding for the construction of new, secure facilities overseas. Funding from fiscal year 1999 to 2004 totaled about $3.4 billion. In addition, Congress passed the Secure Embassy Construction and Counterterrorism Act of 1999. The act established a number of security requirements for diplomatic facilities overseas, one of which was that all U.S. government personnel (except those under the command of an area military commander) at any new U.S. diplomatic facility abroad must be located at the same site. State identified facilities at about 185 posts that would need to be replaced to meet the security standards.

To help manage this large-scale construction program, OBO developed the Long-Range Overseas Buildings Plan, first published in July 2001 and recently updated in March 2004. The plan is updated annually, adding new projects as scheduled projects’ construction contracts are awarded. The plan prioritizes posts based on security and operational considerations, including input from State’s regional bureaus and the Bureau of Diplomatic Security. The most recent version of the plan prioritizes 77 proposed security capital and regular capital projects from fiscal years 2004 through 2009, including 18 separate USAID annex buildings.

Until the late 1990s, the majority of USAID missions were not colocated with embassies but existed in separate commercial or freestanding buildings. Most of these facilities were rented; several were built with host country trust funds, and a small number were constructed with funds appropriated by the Foreign Operations Appropriations Acts.

Since the 1999 colocation requirement, State and USAID have not been fully successful in obtaining funding for construction of separate USAID annex buildings at locations where State was building a new embassy compound. In its fiscal year 2001 report on Commerce, Justice, and State funding, the House Committee on Appropriations wrote that it did not approve the use of the funds for the USAID annexes because appropriations requirements of USAID fall under the jurisdiction of the Foreign Operations, Export Financing, and Related Programs Subcommittee. In an effort to overcome funding problems, USAID requested that the Foreign Operations subcommittee fund a new account for fiscal year 2003, the Capital Investment Fund, to fund information technology enhancements and construction of colocated USAID facilities. Although the fund has been established, USAID has not obtained full funding to construct all of its buildings. In its report on the fiscal year 2003 Foreign Operations appropriation, the House Committee on Appropriations noted that buildings and space for all other government agencies overseas were appropriated through State’s account for overseas construction, and stated that therefore the committee had not funded all requests for USAID buildings on new embassy compounds. State’s fiscal year 2005 budget request, which has been approved by the House and is pending approval in the Senate, includes the construction of four USAID buildings anticipated to be funded from contributions through the Capital Security Cost-Sharing Program.

State Has Built Compounds in Stages

State has built new embassy compound facilities in separate stages to accommodate the lack of USAID funding, according to State and USAID officials. Only one of three new embassy compounds completed to date includes the planned annex for USAID. In addition, contracts have been awarded or construction is under way on several more compounds that do not include, but will eventually have, a separate annex for USAID. Under OBO’s current 6-year building plan, nonconcurrent construction will continue through at least fiscal year 2009.

State and USAID Attribute Nonconcurrent Construction to Lack of Funds

State initiated the Security Capital Construction Program to replace its most vulnerable posts. Under this program, OBO is constructing replacement facilities on embassy and consulate compounds that will contain the main office building, or chancery, all support buildings, and a separate annex building for USAID, where necessary. According to OBO, it has always preferred to construct all components of a new embassy compound concurrently, and its 2002 long-range plan included projects in which the USAID building would be built concurrently with rest of the compound. It was only after USAID did not receive funding for its annexes in fiscal year 2001 that OBO began to move to a nonconcurrent approach to construction, according to OBO officials.

Since 1999, OBO has completed construction of new embassy compounds in Dar es Salaam, Nairobi, and Kampala, Uganda, which were planned to include a separate facility for USAID. So far, OBO has completed the annex for USAID only at the compound in Dar es Salaam. Initially, OBO awarded a construction contract that did not include the USAID annex, but USAID received $15 million in additional operating expense funds through the regular appropriation process to pay for new construction. In addition, $2.5 million from program funds were used with $25 million obtained from the Security Supplemental Account for security upgrades. The funding became available in time for OBO to modify the original construction contract and complete the USAID annex at the same time as the rest of the compound.

For Nairobi, OBO awarded a construction contract for a new embassy compound in September 1999 that did not include the USAID facility because there were no funds for this USAID annex. Subsequently, OBO and the contractor negotiated to include the USAID annex as a modification to the original contract, but sufficient funding did not become available in time. Construction of the chancery building was completed in 2003. USAID received funding for its annex in fiscal year 2003; construction began in June 2004 and is scheduled to end in June 2006, 3 years after the compound was completed and became operational (see fig. 1). In the meantime, USAID is leasing space at a cost of about $300,000 per year on the campus of a nongovernmental research facility.

A construction contract for the new embassy compound in Kampala was awarded in 1999 and construction was completed in fiscal year 2002, but USAID did not receive funding for its annex until fiscal year 2004. OBO expects to award a construction contract for the USAID annex sometime in 2004, according to an OBO official. USAID plans to remain in its interim location outside the new compound—an office converted from a residence in Kampala and leased for $144,000 per year—until its new facility is built in about 2006.

In addition, contracts have been awarded or construction is under way on the following seven compounds that do not include a separate building for USAID because the agency lacked funding for the construction: Yerevan, Armenia; Phnom Penh, Cambodia; Tbilisi, Georgia; Conakry, Guinea; Bamako, Mali; Kingston, Jamaica; and Abuja, Nigeria. At most of these posts, construction of the USAID facility will start between 2 to 4 years after OBO awarded the contract for the compound. For example, OBO awarded construction contracts for the new embassy compounds in Phnom Penh and Conakry in fiscal year 2002 and plans to solicit bids to construct the USAID annexes on these compounds during fiscal year 2004. In Yerevan, the U.S. Ambassador and OBO devised an alternative to waiting for funds to build a separate facility for USAID: OBO is adding a floor to a warehouse building under construction on the compound to house USAID. OBO can add a floor to the building for less money than it would cost to build a separate annex, although USAID will have less space, according to State and USAID officials. Table 1 shows the contract award dates for selected new embassy compounds and the award dates for the corresponding USAID annex. The Secretary of State has had to issue waivers of the colocation requirement for some of these locations to permit USAID to remain outside the compound pending construction of a facility on the compound.

Nonconcurrent Construction Will Continue for Years under Current Plan

In addition to the projects previously discussed, OBO’s current 6-year building plan includes 18 new embassy compounds that will include a separate facility for USAID, 9 of which are slated to be built nonconcurrently. For the remainder of fiscal year 2004, OBO will award construction contracts for 3 new embassy compounds without including the USAID annex: in Managua, Nicaragua; Kathmandu, Nepal; and Accra, Ghana. The current schedule also calls for awarding embassy construction contracts in 5 locations in fiscal year 2006 but not awarding the contracts for USAID annexes until fiscal year 2007; and awarding 1 embassy project in fiscal year 2008 but not awarding the USAID contract until at least fiscal year 2009. Table 2 lists new embassy compound construction projects through fiscal year 2009.

Concurrent Construction Could Decrease Costs, Improve Security

Nonconcurrent construction increases the overall cost to the government and raises concerns about security. We also found that, in some cases, constructing a separate annex building could cost more than building a larger chancery to accommodate USAID. OBO’s own analysis of 9 projects shows that the current schedule of nonconcurrent construction will add more than $35 million in costs. In addition, extrapolating from OBO’s data, we have projected an overall cost increase of as much as $78 million if all 18 future USAID annexes follow the historical pattern of nonconcurrent construction. This estimate does not include security enhancements and other costs that USAID will incur while its staff are in interim facilities pending completion of the USAID annex. This estimate also does not include potential cost savings from merging USAID space into chancery buildings in the future. Finally, nonconcurrent construction has security implications for USAID employees left behind in interim facilities and for the other U.S. government employees moved to more secure compounds.

State and USAID Officials and Contractors Agree That Nonconcurrent Construction Is the More Costly Approach

All government officials and private construction contractors with whom we spoke agreed that the practice of nonconcurrent construction significantly adds to the overall expense of building USAID office space. Building nonconcurrently can result in a second expensive mobilization of contractor staff and equipment, additional work to procure building materials, and added construction management oversight. According to contractors experienced in building embassy compounds overseas, such remobilization and duplication of support activities can add 20 percent to 25 percent to what a concurrent construction contract would have cost, depending on the location. They said that when the U.S. government does not receive funds for the USAID annex until after the contractor has finished building the embassy, there is no chance of maximizing economies of scale that result from contractor staff and equipment already on site. In Nairobi, for example, according to one of the contractors we met with, OBO could have built the USAID annex for $19 million using the same contractor building the embassy chancery, but OBO awarded a contract for almost $30 million to a different builder since funding was not available until 4 years later. OBO officials have also said that in addition to contractor mobilization costs, nonconcurrent expenses must include OBO’s added supervision and site security costs for a second project. For instance, in Nairobi, OBO’s project supervision and construction security cost estimates for the USAID annex rose from $683,000 for concurrent building to $2.9 million for nonconcurrent building.

Nonconcurrent construction also increases security enhancement expenses. Until secure office space is built, USAID must either remain in or move to interim facilities. The interim site may require significant security upgrades to obtain some minimum level of protection for staff, including the leasing of surrounding property to create setbacks from roads, as well as the addition of perimeter fencing and installation of anti-ram barriers. Security, supervision, and maintenance personnel costs would continue to accrue until the new USAID facility were completed. For instance, in Kampala, Uganda, USAID will likely spend $3.2 million for operational and security expenses from the time the new chancery opened in 2002 until the annex in the new embassy compound is finished in 2006.

Concurrent Construction of Future USAID Annexes Could Save Millions of Dollars

OBO estimates that future USAID annex projects now scheduled for nonconcurrent construction will increase costs to taxpayers by $35 million. Extrapolating from these data, we project that annex construction costs could rise between $68 million to $78 million if all 18 future annexes were delayed. These expenses do not include the $27 million to $30 million cost increase that, based on OBO’s data, we inferred was generated by nonconcurrent construction of annexes for embassy compounds awarded before 2004. There are no opportunities to significantly reduce this expense because these compounds are already built or under construction without USAID annexes. Estimates from OBO calculate the cost increase for building the 9 USAID annexes now scheduled for nonconcurrent construction over the next 5 budget years at $43 million (or $35 million at present value) above the cost for building at the same time. We further extrapolated from these and other OBO cost estimates, an average cost differential increase for a USAID annex of about 24 percent to 31 percent for nonconcurrent construction. Using OBO’s cost data, we calculated the range of the potential cost increase of nonconcurrent construction for all future annex projects to be between $88 million to $101 million over the next five budget years (or $68 million to $78 million at present value). Figure 2 compares concurrent and nonconcurrent construction costs for 18 projects to be built after fiscal year 2004.

Further, our estimates do not include the costs of additional operations and lease expenses or increased security and personnel costs, for which we did not have comprehensive data but which could be substantial. For example, OBO has estimated that in one European location, USAID will have to pay an additional $690,000 for rent because of a 1-year delay in awarding the construction contract. In two African locations, USAID officials estimate they will have to pay an additional $5.5 million for 3 or more years of rent and continuing security expenses until their new facilities are built.

Including USAID Space within a Larger Chancery Rather Than Constructing a Separate USAID Annex May Decrease Costs

Depending on a number of factors, building a separate annex for USAID increases costs over designing additional space for USAID within the chancery. Two of the contractors we met with stated that constructing one building could be more cost effective than constructing two. OBO has estimated that in two African locations where new embassy construction is scheduled for 2006, building a separate USAID annex would cost at least $6.5 million per site more than housing USAID in the chancery, assuming nonconcurrent construction. OBO officials have said that, except for very large USAID missions, there may be little reason to build a separate USAID annex other than the ease of allocating construction costs to USAID. Further, OBO has recently re-evaluated the office space parameters for new overseas missions, significantly reducing the sizes of proposed USAID annexes. Assuming these revised space allocations are adequate, an additional five to eight proposed USAID annexes would be similar in size (2,500 gross square meters or less) to those at the two African locations OBO analyzed. The cost differentials between a separate annex versus locating USAID within the chancery in those locations could be similar if other key factors, such as building configuration and site conditions, were also comparable.

However, there are factors other than costs that should be considered when determining whether to build a separate annex or include space for USAID in the chancery, according to USAID. Such factors include geographic location, the type of work USAID is engaged in, and the security profiles of the country. Moreover, a separate unclassified USAID annex may allow greater access for local staff and visitors.

Nonconcurrent Construction Poses Security Risks

In addition to cost considerations, nonconcurrent construction of the USAID annexes raises a number of security concerns, according to State Diplomatic Security and embassy officials as well as USAID security officials. For example, some officials expressed concern about the safety of USAID employees who remain in interim facilities after other U.S. government personnel have moved to the new embassy compounds. State is building the compounds to provide safe, secure facilities because U.S. facilities and personnel have faced continued threats from terrorist and other attacks since the Kenya and Tanzania embassy bombings. For example, from 1998 through 2002, there were 30 terrorist attacks against overseas posts, personnel, and diplomatic residences. During that same period, overseas posts were forced to evacuate personnel or suspend operations 83 times in response to direct threats or unstable security situations in the host country.

Terrorists continue to look for targets, according to the security officials, and an interim USAID facility might be perceived to be a “softer” target than a new, more secure embassy, thus making USAID employees more vulnerable to attack. For example, figure 3 shows a new embassy compound main gate with an anti-vehicle delta barrier, anti-ram perimeter wall, and blast-resistant guardhouse containing bomb detection equipment, compared with an interim USAID facility entrance with temporary barriers that are removed after work hours.

State, USAID, and embassy officials described a number of actions taken to mitigate the risks for USAID employees who are not colocated in new embassy compounds. For example, a post may construct special jersey barriers and fences, dig trenches, close streets adjacent to a USAID facility to create a setback around the building during the day, and lease properties adjacent to its facilities to create a buffer. A post may also use contract guard services, deploy surveillance detection teams and mobile response teams, and use the services of local police.

Despite actions to mitigate the security risks of nonconcurrent construction, State and USAID officials remain concerned because interim facilities do not meet the security standards established by the Overseas Security Policy Board. In addition to the Secure Embassy Construction and Counterrorism Act of 1999, which requires a 100-foot setback and colocation of all U.S. government employees at a new site, the security standards for new office buildings include anti-ram perimeter walls and barriers, construction to meet blast protection, forced entry/ballistic resistant protection for doors and windows, and controlled access points. A USAID security official stated that, despite measures to reduce security risks, facilities are vulnerable when they are not controlled by the U.S. government. For example, the official said that posts using temporary jersey barriers eliminate the setback each evening when the barriers are removed and the streets are reopened to normal traffic. Further, a State security official stated that the Bureau of Diplomatic Security was an early advocate of colocating all U.S. personnel when the new embassy compound is built. He said that the bureau is concerned from a threat perspective and that the threat to U.S. personnel remains high. He said that when USAID cannot be colocated, the bureau tries to find ways to mitigate the risk but there is no perfect solution. However, he said the bureau does not recommend delaying the construction of a compound until funding for the USAID annex is available because that would leave a greater number of staff vulnerable.

Nonconcurrent construction also has security implications for the employees who move into the newly constructed compound. Subsequent construction of the USAID annex on the compound results in more workers, vehicles, and equipment on site, which may increase the vulnerability of the overall embassy compound and its personnel by giving terrorists the opportunity to conduct surveillance or attack the embassy, according to State and USAID officials. To address this issue, OBO and regional security officers in Nairobi, Kenya, and Kampala, Uganda, described a number actions required to control the access of construction personnel and equipment to the compound. For example, the regional security officers told us that they need to hire additional security guards to inspect trucks bringing building materials to the compound. The regional security officer in Nairobi said he would need about 14 additional guards to perform these inspections. For some sites, destruction of part of the perimeter wall to add an entrance for the construction vehicles and equipment has been discussed as a way of allowing contractor access to the compound. Construction workers need to undergo background checks and receive identification cards, according to regional security officers; these requirements could place a significant burden on their time and workload unless State hires a site security manager.

Opportunities Exist for More Concurrent Construction

OBO acknowledged that it would be advantageous to the U.S. government to build embassy compounds concurrently. OBO said it may revise its schedule to allow for more concurrent construction and consider on a case-by-case basis whether USAID should have a separate annex if the Capital Security Cost-Sharing Program is funded. However, even without cost sharing, there are opportunities for more concurrent and efficient construction. By delaying one project slated for fiscal year 2006 and estimated to cost more than $100 million, State would have sufficient funds to eliminate the backlog of USAID projects. Moreover, it is not unprecedented for projects in successive annual plans to be moved from one year to another. For example, over the last three planning cycles, several planned projects have had to be moved from one year to another due to factors such as a failure to acquire land in a timely manner or a change in executive branch priorities. Therefore, if OBO could reschedule planned projects it could make headway in minimizing nonconcurrent construction. OBO emphasized that it would need congressional support to do this.

Conclusion

OBO’s multibillion-dollar program to build new, secure embassies and consulates around the world was designed to colocate all U.S. employees stationed overseas within a secure compound, as required by law. However, by building the compounds in stages, some employees must temporarily remain in less secure space outside the compound. Concurrent construction will help State and USAID comply with the colocation requirement. Our analysis also shows that concurrent construction likely results in cost savings for the taxpayer and that incorporating all office space into the main chancery building rather than building a separate annex may be, in some cases, a more efficient approach. According to State, lack of funding and restrictions on the use of funds has required OBO to phase construction of new embassy compounds that have a USAID annex component. However, State said it will consider revising its construction schedule to achieve more concurrent construction if the Capital Security Cost-Sharing Program is implemented in fiscal year 2005.

However, even if the plan is not implemented, opportunities exist to schedule the construction of more projects concurrently.

Matter for Congressional Consideration

In order to minimize costs and further improve security associated with building new embassy compounds, if the Capital Security Cost-Sharing Program is not implemented in fiscal year 2005, Congress may wish to consider alternative funding approaches to support concurrent construction of new embassy compounds.

Recommendations for Executive Action

We recommend that the Director of State’s Bureau of Overseas Buildings Operations (1) update the Long-Range Overseas Buildings Pan to achieve the concurrent construction of USAID facilities to the maximum extent possible; and (2) in coordination with USAID, consider incorporating USAID space into single office buildings in future compounds, where appropriate.

Agency Comments and Our Evaluation

The State Department and the U.S. Agency for International Development provided written comments on a draft of this report (see app. II and app. III). State also provided technical comments, which we have incorporated into the report as appropriate.

In its comments, State said that the report is a fair and accurate representation of the issue and welcomed our recommendations. State said it would update the Long-Range Overseas Buildings Plan to achieve concurrent construction to the maximum extent and coordinate with USAID to consider incorporating USAID space into single office buildings in future compounds where appropriate if the Capital Security Cost- Sharing Program is implemented. However, our recommendations and matter for consideration are designed to bring about concurrent construction to the maximum extent regardless of the implementation of the Capital Security Cost-Sharing Program.

In its comments, USAID said the report successfully attempts to address the rationale as well as many of the difficulties in achieving the goal of concurrent construction of new embassy compounds and facilities to be occupied by USAID employees on those compounds. USAID said it agreed with both our recommendations and provided information to support the recommendations and explain its requirements.

We are sending copies of this report to interested congressional committees, the Secretary of State, and the Administrator of USAID. We will also make copies available to others upon request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-4128. Another GAO contact and staff acknowledgments are listed in appendix IV.

Scope and Methodology

To examine State’s efforts to incorporate office space for the U.S. Agency for International Development (USAID) into the construction of new embassy compounds and to assess the cost and security implications of its approach, we reviewed the State Department’s Bureau of Overseas Buildings Operations (OBO) construction documents and the Long-Range Overseas Buildings Plans for fiscal years 2002 to 2007, years 2003 to 2008, and 2004 to 2009; interviewed State Department and USAID officials regarding completed, ongoing, and planned new embassy compound projects that include a separate annex for USAID, including operational, cost, and security issues arising from nonconcurrent construction and the issues involved in housing USAID in separate buildings; interviewed officials from several U.S. construction firms experienced in building new embassy projects regarding the costs of OBO construction scheduling practices; and analyzed OBO estimates of the cost differentials between concurrent and nonconcurrent construction.

Further, we visited two field locations—in Nairobi, Kenya, and Kampala, Uganda—where we discussed with State and USAID officers at each post the implications of construction sequencing to the embassies and USAID.

To analyze the cost impacts of different USAID annex construction scheduling, we developed a cost model enabling us to extrapolate from State data the aggregate and annual costs for both concurrent or nonconcurrent construction projects for USAID annexes. Our model is based on cost estimate data provided by OBO for 26 projects. (Estimates for Yerevan, Armenia, were not used because OBO no longer plans to build a separate annex for USAID.) For some projects, we had estimates of fiscal year contract award and midpoint construction costs in nominal dollars for concurrent and nonconcurrent construction. Using such data from 13 projects, we estimated the average percentage cost differential per project to build a nonconcurrent annex as a range of 30.75 percent and 23.83 percent. The higher end of the range results from excluding data for 3 of the 13 locations (Kampala, Uganda; Harare, Zimbabwe; and Kingston, Jamaica) where OBO indicated that site-specific factors accounted for major deviations from the mean. Both average percentage differentials are used to project base-year costs for concurrent construction for Abuja, Nigeria, and for nonconcurrent construction on 11 projects for which we had incomplete data. We also had data on an additional project (Tbilisi, Georgia) but used it only to represent the costs of that project, not to estimate the average cost differential because the data for the project reflected building sizes for concurrent and nonconcurrent construction costs that were substantially different. Assumptions included the length of construction period (24 months for concurrent and 15 months for nonconcurrent), the 1-year lag between proposed award year for concurrent construction and nonconcurrent construction, cost distribution over the construction period, and average dollar cost escalation of 3 percent per year.

These assumptions for each of the 26 projects enabled us to estimate total budget dollar costs, and present value costs in fiscal year 2004 dollars.

We did not verify the accuracy of OBO’s cost estimates or its methodology for estimating costs. However, we did meet with OBO officials responsible for the cost estimates to discuss their methodology and underlying assumptions. The cost differentials between concurrent and nonconcurrent construction that OBO estimated were consistent with those estimated by two of the contractors we met with.

We conducted our work from December 2003 to July 2004 in accordance with generally accepted government auditing standards.

Comments from the Department of State

The following are GAO’s comments on the State Department letter dated September 14, 2004.

GAO Comments

1. Our recommendations and matter for consideration are designed to bring about concurrent construction to the maximum extent regardless of the implementation of the Capital Security Cost-Sharing Program. 2. We have revised our statement accordingly.

Comments from the U.S. Agency for International Development

The following is GAO’s comment on the U.S. Agency for International Development letter dated September 10, 2004.

GAO Comment

We agree with the U.S. Agency for International Development that many factors should be considered to determine whether housing USAID in a separate building or within the chancery building is beneficial to the U.S. government. We have added a brief description of some of these factors.

GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Omar Beyah, Janey Cohen, David Hudson, Bruce Kutnick, and La Verne Tharpes made key contributions to this report.

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