As the federal government’s principal real estate agent, the General Services Administration (GSA) controls the largest office space portfolio in the United States. More than 1 million federal employees work in 276 million square feet of space that GSA controls in about 7,800 buildings nationwide. GSA has a virtual monopoly over the federal government’s acquisition and management of general purpose office space that is owned or leased to support federal agencies’ missions. Our earlier work has shown that federal agencies have generally long been dissatisfied with GSA’s monopoly as well as the quality, condition, and costs of their office space and the amount of time GSA takes to deliver it. Our key reports and testimonies over the past 5 years on GSA’s monopoly and various public buildings issues are identified at the end of this report. Once federal agencies report their office space requirements to GSA, it decides whether those requirements will be met through government owned or leased space. Of the 276 million square feet of space nationwide that GSA controls, almost one-half—133 million square feet—in over 6,000 buildings is leased. The rest—143 million square feet—is in about 1,700 federally owned buildings. In recent years, GSA has become increasingly dependent on leased office space. Between 1975 and 1994, the amount of space GSA leased increased by 37 percent, and the overall ratio of leased to owned space rose from 40 percent to 48 percent. In fiscal year 1994, GSA expected to pay $2.1 billion for leased space, and these costs represented almost 30 percent of its total estimated $7.3 billion public buildings budget. GSA projects that the costs of leased space will rise to $3 billion annually by 2002 unless the ratio of federally owned to leased space is increased. GSA’s costs of providing office space and related mission-support services to federal agencies, in federally owned as well as leased buildings, are financed by the Federal Buildings Fund (FBF). GSA charges federal agencies rent for the space they occupy, which is supposed to be comparable to local commercial rents; deposits these rent receipts in the FBF; and uses them, subject to congressional limitations in annual appropriation acts, to pay building capital and operating expenses, including the costs of leased space. GSA’s lease acquisition process involves five major phases: (1) refining agencies’ identified office space size, configuration, and location requirements; (2) preparing a solicitation for offers detailing the government’s space requirements, describing the award criteria to be used, and soliciting offers from prospective landlords; (3) analyzing landlords’ offers in accordance with the specified award criteria and selecting the winning landlord; (4) preparing, reviewing, and approving the formal lease agreement; and (5) preparing space layouts and architectural plans and customizing the space to meet the federal tenant agency’s specific needs. In leasing office space, GSA is to follow procedures prescribed in the General Services Acquisition Regulation (GSAR). GSA’s procedures apply many of the procurement principles in the Federal Acquisition Regulation (FAR), the primary federal procurement regulation governing the acquisition of supplies and services, to its leasing process. GSA also incorporated into GSAR, requirements contained in the Competition in Contracting Act of 1984 (CICA) that seek to achieve full and open competition for federal contracts. In addition, GSA’s leasing process is used to further national policies and to enforce various federal socioeconomic mandates. For example, GSA’s lease award criteria incorporate Executive Order 12072, which promotes the economic development of the central business districts of cities, and various Equal Employment Opportunity requirements. Finally, GSA’s leasing procedures incorporate the principles of various other procurement laws, executive orders, decisions of the federal courts and the Boards of Contract Appeals, and the regulations of various agencies, such as the Environmental Protection Agency or the Architectural and Transportation Barriers Compliance Board. Congress created GSA in 1949 to centralize, in a single agency, responsibilities for the housekeeping functions of the executive branch—procurement, management of real and personal property, records management, etc. The Federal Property and Administrative Services Act of 1949 gave the Administrator of GSA broad authority over the management of real property, including authority to (1) prescribe regulations governing real property management and leasing, (2) lease real property, and (3) delegate lease authority back to the head of any federal agency. As emphasized in our December 1992 Transition Report on General Services Issues (GAO/OCG-93-28TR), GSA, since its establishment in 1949, has been torn between (1) an internal dynamic that emphasizes a centralized approach to the direct provision and operation of office space and other support services to federal client agencies and (2) a largely external expectation that its primary role should be to set governmentwide policy, provide effective and comprehensive oversight of decentralized operations within the departments and agencies, and directly operate activities only where it makes sense and is cost effective to have a central agency involved. The latter view is generally supported by the agencies, the Office of Management and Budget (OMB), the Vice President’s 1993 National Performance Review (NPR), and by us. Over the years, a shift away from direct delivery of services has resulted in a sharp reduction in GSA’s employment levels. GSA’s Public Buildings Service decreased from over 18,000 employees in 1978 to about 9,000 employees in 1994. Historically, GSA generally has been unwilling to delegate to other agencies its authority to lease general purpose office space within urban areas and has opposed agencies’ efforts to obtain independent public buildings authority. However, GSA has delegated day-to-day buildings management and lease administration responsibilities to federal agencies for about 2,000 of its 7,800 buildings. These agencies are now handling (or contracting) functions previously handled by GSA. However, GSA is responsible for providing governmentwide guidance and overseeing these functions. Over the years, we have generally supported decentralized real property operations, GSA’s delegations of authority to tenant agencies, and taken the position that GSA should make greater use of delegated authority. To date, GSA has delegated lease acquisition authority to some federal agencies. For the most part, however, these delegations are for special-purpose space, such as military recruiting offices, medical clinics or treatment centers, and storage facilities or for general purpose office space in locations outside major urban areas or areas where GSA controls less than 250,000 square feet of space. Several federal agencies, boards, and commissions have independent statutory leasing authority. Most of the agencies having such authority are self-supporting, and their activities are not financed by congressional appropriations. In many cases, this statutory leasing authority is only for specific geographic areas or special-purpose space. However, some agencies, such as the Securities and Exchange Commission (SEC) have broad statutory leasing authority. SEC received its statutory authority in 1990. At the request of the Chairman, Senate Committee on Governmental Affairs, we reported in November 1992 on SEC’s independent statutory leasing authority. Given the small number of SEC leases and the difficulty of finding comparable GSA leases, we were unable to determine conclusively whether SEC’s lease rates were higher or lower than GSA’s. Due primarily to GSA’s long-standing monopoly and historical focus on day-to-day real property operations at the expense of needed governmentwide leadership and oversight, NPR concluded, as we did in our December 1992 Transition Report on General Services Issues, that GSA’s long-standing methods of doing business should be replaced with new methods that are based on entrepreneurial and competitive principles. NPR recommended (1) ending GSA’s office space monopoly; (2) allowing federal agencies the choice of obtaining office space and related mission-support services from GSA, other federal entities, or the private sector; and (3) changing the way GSA does business. Concerning office space leasing, NPR recommended simplifying the procedures for acquiring leased office space of less than 10,000 square feet and renewing existing leases. NPR’s September 7, 1993, report also concluded that the overall federal procurement process had become “too complex, absurdly slow, and frequently ineffective” and that “elaborate safeguards often cost more money than they save.” According to NPR, federal procurement needs to be reshaped by decentralizing authority to line managers letting them buy much of what they need, simplifying procurement regulations and processes, and empowering the system’s customers by ending most government service monopolies, including those of GSA. Besides recommending the revision of federal procurement regulations, NPR made several other recommendations aimed at reforming federal procurement policies, procedures, and practices. After we completed our work and prepared a draft of this report, Congress enacted procurement reform legislation. The Federal Acquisition Streamlining Act of 1994 (P.L. 103-355), enacted on October 13, 1994, seeks to enhance the federal acquisition process through certain streamlining improvements and a wide-ranging set of performance-based management goals and incentives. The act’s leasing provisions are highlighted at the end of chapter 4. Expressing concern about escalating federal lease costs and the continued efficacy of GSA’s leasing process, the former Chairman of the Subcommittee on Water Resources, Transportation, Public Buildings and Economic Development, Senate Committee on Environment and Public Works, asked us to examine the efficiency and effectiveness of GSA’s policies, procedures, and practices for leasing office space and how they compare with those of private industry. To respond to these concerns, we identified and examined GSA’s leasing policies, procedures, and practices. We discussed their efficiency and effectiveness with responsible GSA headquarters and regional management officials and realty specialists and their legal basis with representatives of GSA’s Office of General Counsel.