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Title: Management of Overseas Real Property
Subtitle:
Report No.: GAO/HR-93-15 Date: December 1992
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Author: United States General Accounting Office
Addressee: High-Risk Series
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Overview
- The Problem
- The Causes
- GAO's Suggestions for Improvement
Managing Real Estate Overseas
Management of Real Estate Overseas Has Been Ineffective
- Oversight Has Been Limited
- Information Systems Have Not Provided Necessary Data
- Facilities Are Deteriorating
- Real Estate Program Has Not Been Well Planned
Delays in Construction Programs Persist
- Inadequate Planning and Coordination Led to Delays and Cost Increase
s
- State Has Not Assessed Contractor Performance Adequately
- Staffing Levels to Manage Construction Are Low
- Other Factors Adversely Affect Construction Program
Planned Reforms Will Take Years to Implement
Conclusions and Action Needed
Related GAO Products
High-Risk Series
- Lending and Insuring Issues
- Contracting Issues
- Accountability Issues
Office of the Comptroller General
Washington, DC 20548
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the Departments of Defense
and Housing and Urban Development, the General Accounting Office began a
special effort to review and report on federal government program areas that
we considered "high risk."
After consulting with congressional leaders, GAO sought, first, to identify
areas that are especially vulnerable to waste, fraud, abuse, and
mismanagement. We then began work to see whether we could find the fundament
al
causes of problems in these high-risk areas and recommend solutions to the
Congress and executive branch administrators.
We identified 17 federal program areas as the focus of our project. These
program areas were selected because they had weaknesses in internal controls
(procedures necessary to guard against fraud and abuse) or in financial
management systems (which are essential to promoting good management,
preventing waste, and ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring their efficient and
effective use on behalf of the American taxpayer.
This report is one of the high-risk series reports, which summarize our
findings and recommendations. It describes our concerns over the Department
of
State's management of the government's overseas real estate programs. It
focuses on the need for better oversight of the government's facilities abro
ad
to avoid mismanagement and waste of funds.
Copies of this report are being sent to the President-elect, the Democratic
and Republican leadership of the Congress, congressional committee and
subcommittee chairs and ranking minority members, the Director-designate of
the Office of Management and Budget, and the Secretary-designate of State.
The State Department, through its Office of Foreign Buildings Operations
(FBO), manages overseas properties of the U.S. government. These include 8,3
00
leased properties and 1,750 government-owned properties at nearly 300
locations worldwide. The properties, which include embassies, consulate offi
ce
buildings, residences, warehouses, garages, and construction sites, are wort
h
approximately $8 billion to
10 billion.
FBO oversees acquisition, construction, sales, operations, and maintenance.
It
establishes standards and procedures for overseas posts, which conduct routi
ne
maintenance and implement housing programs for U.S. government employees
overseas. FBO also manages a $2.1 billion Diplomatic Security Construction
Program to build secure facilities at overseas sites that face threats of
terrorism and violence.
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THE PROBLEM
The State Department's program of overseas real estate and construction has
long been susceptible to waste and mismanagement. Overseas posts have built
facilities and made other questionable expenditures without FBO's approval.
Some have provided over-standard housing for U.S. employees living overseas,
at increased cost to the government. Maintenance has been postponed or
ignored, while many buildings continue to deteriorate to the point of being
unsafe. Further, decisions on the acquisition and disposal of overseas
property have not always reflected the best long-term interest of the U.S.
government.
The security construction program has experienced significant delays and cos
t
increases, and the State Department does not know whether the objectives of
the program will be achieved. In the meantime, U.S. government employees and
facilities overseas remain vulnerable to acts of violence and breaches of
security.
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THE CAUSES
FBO's management has demonstrated four areas of weakness:
-- Lax oversight. FBO's mechanisms for oversight have not ensured that
overseas posts are complying with established policies and procedures. Ar
ea
managers responsible for monitoring post activities have not given this
task a high priority, and FBO has not monitored posts' compliance with
housing standards.
-- Inadequate information systems. FBO does not maintain the financial data
that managers need to track costs for specific buildings, to budget for
future costs, or to assess management efficiency. The data FBO does colle
ct
has traditionally been inaccurate and incomplete.
-- Insufficient maintenance. The poor condition of many buildings overseas i
s
a direct result of a lack of professional maintenance capabilities at the
posts, a lack of programs for systematic rehabilitation, and inadequate
funding for maintenance. Also, FBO has neglected to assess the condition
of
its properties, leading to costly repairs that might have been avoided by
preventive maintenance.
-- Poor planning. Although FBO needs to develop facilities plans at key post
s
to link the Department's foreign policy and security objectives, to this
date FBO has not established milestones to develop such plans.
In the $2.1 billion security construction program, inadequate planning and
coordination have contributed to delays and cost increases. Since 1986, FBO
has completed only 8 of the 57 projects under this program. In addition, FBO
has not adequately assessed contractors' performance and has lacked sufficie
nt
staff to manage construction.
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GAO'S SUGGESTIONS FOR IMPROVEMENT
FBO has begun to correct some of its chronic problems in accordance with man
y
of our previous audits and recommendations. It intends, for example, to
establish priorities for construction projects based on specific criteria, t
o
better evaluate contractors' performance, to hire additional qualified staff
,to survey the maintenance conditions of posts worldwide, to require yearly
maintenance inspections, to streamline and update housing standards, and to
improve information systems.
We believe that these reforms show promise. But some key improvements are
still in the initial stages and will take years to implement. It is importan
t
to continue these efforts to make long-lasting improvements especially in
consideration of the increased work load and the demand for resources
associated with opening new posts in the former Soviet Union.
MANAGING REAL ESTATE OVERSEAS
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The Foreign Service Buildings Act of 1926, as amended, directs the State
Department to manage overseas properties of the U.S. government. The
Department has delegated responsibility for overseas real estate operations
to
FBO. These operations include acquiring, constructing, selling, operating, a
nd
maintaining U.S. government-owned and leased property at several hundred
locations abroad.
To manage the maintenance of overseas real property, FBO establishes policie
s,
standards, and procedures and provides technical guidance to posts on real
estate matters. Posts are responsible for implementing overseas housing
programs for U.S. government employees and for conducting routine maintenanc
e,
repairs, and minor improvements in accordance with FBO's policies, standards
,
and procedures.
FBO also manages overseas construction projects. In 1986, the Department
initiated a $2.1 billion Diplomatic Security Construction Program in respons
e
to the need to build secure new facilities at posts facing threats of
terrorism and other acts of violence. FBO estimated that 57 projects could b
e
completed under the program. To date, FBO has completed only eight projects,
and funds appropriated for the program total about $1.2 billion.
MANAGEMENT OF REAL ESTATE OVERSEAS HAS BEEN INEFFECTIVE
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For the past three decades, ineffective management practices have caused
overseas posts to make questionable expenditures without FBO's approval and
have perpetuated problems in the maintenance of real estate property oversea
s.
In addition, State's information systems to track funds and resources have
proved inadequate, and ineffective planning has led to decisions that were n
ot
in the best interest of the U.S. government. Persistent problems with the
Department's maintenance of real property have led the Department to identif
y
it as an area that carries a heightened risk for waste or mismanagement.
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OVERSIGHT HAS BEEN LIMITED
FBO's mechanisms for the oversight of overseas post activities have not
ensured that posts were complying with established policies and procedures.
In
the absence of sufficient oversight, some posts have acted unwisely in takin
g
real estate actions without the knowledge or approval of FBO. For example, a
past GAO audit uncovered improper expenditures at one post for the
construction of buildings to house racquetball and squash courts without FBO
's
approval. Another post executed an unnecessary $8.5 million extension on a
lease without FBO's knowledge or approval. Another audit revealed that posts
were not complying with FBO's standards for leased residential housing
provided to Department employees living overseas and, as a result, many
employees resided in houses that exceeded FBO's standards, at greater cost t
o
the U.S. government.
FBO's primary mechanisms for oversight of overseas post activities are (1)
monitoring by FBO area managers and other officials and
2) automated information systems that provide data on posts' real property
inventory and expenditures of resources. In the past, monitoring of posts'
activities has not been a high priority in FBO. Although area managers seeme
d
to be aware of their responsibilities, they had not made monitoring a priori
ty
because (1) they did not want to give the impression that they did not trust
post managers and (2) they had not been trained to perform monitoring
activities.
The U.S. government provides free housing for its personnel assigned to
overseas posts. To determine the appropriate size of a housing unit for an
employee, the Department of State developed standards based on (1) comparabl
e
housing available in the metropolitan Washington, D.C., area; (2) family siz
e;
and (3) the employee's position at the overseas post. In 1989, a GAO review
of
Department posts in seven countries showed substantial use of leased
residential housing that was over-standard. Specifically, one of every three
of the housing units in these countries was over-standard. A recent review o
f
one overseas post showed that only 19 percent of the families were provided
housing in accordance with FBO's standards. Our reviews indicate that posts
are not following FBO procedures, post officials are not adequately
controlling housing costs, and FBO has not monitored posts' compliance with
housing standards.
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INFORMATION SYSTEMS HAVE NOT PROVIDED NECESSARY DATA
The Department's property managers do not have relevant and useful financial
information on the government's investment in or the cost to maintain the
extensive inventory of buildings and real estate holdings overseas. Financia
l
information of this nature is necessary to assess the value of the
Department's assets and the manner in which it maintains stewardship over
them.
FBO relies on two information systems--the Real Estate Management System and
the Central Financial Management System--to monitor real estate programs at
overseas posts. The Real Estate Management System does not fully support the
Department's property managers in managing foreign buildings because it does
not provide historical cost information on government-owned and leased
property or maintenance and repair cost information for each building
overseas. Consequently, FBO cannot (1) track costs for each building,
2) determine the total costs of operating properties and the feasibility of
retaining them, (3) budget for future building costs, and (4) develop
performance measures to assess the efficiency and effectiveness of the
management of overseas property. Without this information, it is difficult f
or
the Department to adequately predict funding for FBO operations. The system
also relies on data reported by the posts, and this data has traditionally
been inaccurate and incomplete.
The Real Estate Management System also does not include information on chang
es
in the value of buildings and real estate, the current service life and
replacement cost of property, changes in the condition of property, backlogs
of deferred maintenance, exposure to possible loss, and programs to safeguar
d
assets. This information would assist property managers in their work.
Financial data categorized by functional program and project would also be
helpful to property managers. Currently, however, FBO cannot provide such
information for many overseas transactions. Further, the Department's Bureau
of Finance and Management Policy, which operates the Central Financial
Management System, has postponed indefinitely a system modification that wou
ld
support FBO's needs for project cost accounting.
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FACILITIES ARE DETERIORATING
With an average age of 37 years, the support systems in many of the building
s
overseas are approaching the end of their useful
lives. [ Footnote 1: Support systems in buildings include heating,
ventilation, electrical, and other systems. ] The deterioration of the
Department's aging inventory is a direct result of the lack of (1)
professional maintenance capabilities at the post level, (2) programs for
systematic maintenance and rehabilitation, and
(3) adequate funding for maintenance and repair of facilities. These
deteriorating facilities create health, safety, and environmental hazards fo
r
employees of the Department and other federal agencies overseas and impede t
he
operations of embassies and consulates abroad.
The poor condition of many buildings overseas is a direct result of FBO's pa
st
neglect in assessing the condition of its properties. In 1990, we found that
a
number of overseas buildings and building systems had deteriorated to the
point that rehabilitating them would cost a significant amount. For example,
the ambassador's residence at one post required rehabilitation and maintenan
ce
at a cost of $10 million. According to FBO officials, many of the repairs an
d
costs could have been avoided if routine and preventive maintenance had been
done.
Persistent management problems with the Department's maintenance of real
property overseas have led the Department to identify it as an area that
carries a heightened risk for waste or mismanagement.
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REAL ESTATE PROGRAM HAS NOT BEEN WELL PLANNED
FBO established a policy in 1990 requiring a master facilities plan for each
overseas post. The plan is to match each post's requirements for the short a
nd
long term with current assets to develop cost-effective alternatives. FBO ha
s
made very limited progress in preparing master plans and has not developed
master plans for posts where multimillion-dollar construction programs are
planned. For example, FBO undertook an $80 million construction and renovati
on
project at one post without a master plan.
FBO officials are considering modifying this policy because they do not thin
k
all posts require the same detailed level of planning. Instead, FBO would li
ke
to develop abbreviated plans at posts where such plans can materially affect
the decision-making and budgeting process. These plans would be developed
based on criteria such as security and foreign policy considerations. To dat
e,
FBO has not established milestones to develop the abbreviated and full maste
r
plans. At the very minimum, FBO will need to establish milestones for the
development of both types of plans to link the Department's foreign policy a
nd
security objectives, among others, to FBO's operations.
In 1989, FBO developed a 5-year plan for its real estate program for fiscal
years 1992 through 1996. This plan, which outlines FBO's budgetary and
staffing needs for the 5-year period, represents a major step in FBO's
planning efforts. However, this plan does not include the potential proceeds
from sales of properties that FBO reviews periodically in its asset manageme
nt
studies. The proceeds from the sale of high-valued properties could
substantially offset FBO's costs in other areas, such as the capital
construction program. Linking the asset management studies with the 5-year
plan would provide options for the use of proceeds from sales of property.
DELAYS IN CONSTRUCTION PROGRAMS PERSIST
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In 1986, the Department of State initiated a $2.1 billion Diplomatic Securit
y
Construction Program to build secure new diplomatic facilities at high-threa
t
and serious risk posts around the world. The Department began this program i
n
response to (1) the increased risk from terrorist attacks and other acts of
violence posed to U.S. diplomatic personnel overseas beginning in the late
1970s and
2) the placement of sophisticated Soviet listening devices in the structural
shell of a new U.S. embassy office building in Moscow in 1985.
As revealed in audits since the 1960s, the Department of State has encounter
ed
significant problems in managing its overseas construction programs. These
problems have resulted in delays and cost increases in the Department's
security construction program. Due to continuing delays in construction, U.S
facilities and personnel stationed overseas still remain vulnerable to acts
of
violence. The Department has identified the security of U.S. facilities and
personnel abroad as a material internal control weakness.
The Department has made limited progress in implementing its $2.1 billion
security construction program and cannot be assured that program objectives
re being met. FBO has completed an average of less than two projects per yea
r
since the program began in 1986. Specifically, FBO has completed only 8 of t
he
57 projects under the construction program, and costs continue to escalate.
At
the current pace, at least 20 years would be required to complete all the
projects.
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INADEQUATE PLANNING AND COORDINATION LED TO DELAYS AND COST INCREASES
The Department has planned the security construction program inadequately fr
om
the beginning. The program has experienced delays and cost increases as a
result.
The program's initial estimated costs in the 1986 budget request were
inaccurate. As shown in an internal 1988 review, one of the major causes of
cost overruns was the lack of coordinated planning of post requirements prio
r
to project programming and budgeting. As noted in our 1991 review, building
size and cost requirements for specific projects were poorly defined in many
instances. Inadequate planning resulted in cost increases of $47 million for
three projects. For example, the lack of coordination between FBO and the
Department in establishing requirements for the size of a new building at th
e
post in Pretoria, South Africa, led to a 4-year delay in the award of the
construction contract and subsequent cost increases of $17 million.
FBO officials believe that the division of responsibility between FBO and th
e
Bureau of Diplomatic Security for the security-related aspects of constructi
on
management has led to delays in both construction design and certification o
f
security procedures. In 1990, State transferred the responsibility for
construction security management to FBO, a decision FBO officials believe wi
ll
lead to better management of overseas projects.
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===
STATE HAS NOT ASSESSED CONTRACTOR PERFORMANCE ADEQUATELY
The Department relies on contractors to implement its security construction
program at specific overseas sites. These contractors can affect the program
positively or negatively based on their performance. Although State
acknowledged that the performance of contractors significantly affects
construction, in the past it did not adequately assess their performance.
Some contractors have failed to perform as expected, and as a result, projec
ts
have been delayed, and costs have increased. For example, all 26 projects
under one contract had been delayed. In spite of these delays, FBO had not
assessed the contractor's performance. Due to the delays, this contract had
to
be extended, and the cost increased by $20 million. In addition, for one
project alone, FBO faced additional costs of
3 million--an increase of 8 percent of the total cost for the project--due t
o
contractor performance problems.
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STAFFING LEVELS TO MANAGE CONSTRUCTION ARE LOW
FBO has encountered difficulties in filling authorized staff positions to
manage increasingly complex construction projects. Reasons cited by FBO
include its reorganization in 1987, the need to develop position
classifications when the security construction program started, and the time
it takes to obtain security clearances for new employees. Staff shortages in
critical areas like program planning, project management, construction
monitoring, and cost estimation have directly contributed to program delays
and cost increases. According to FBO, shortages of direct-hire employees in
the construction area can create the undesirable condition of too small a
ratio of direct-hire to contract employees.
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OTHER FACTORS ADVERSELY AFFECT CONSTRUCTION PROGRAM
Several problems encountered in the implementation of the security
construction program have been beyond FBO's control. These problems include
the difficulty encountered in getting construction sites and changing securi
ty
requirements within the Department.
In its initial planning, FBO believed that site selection and acquisition fo
r
most posts would be completed within 6 months after funds were authorized.
However, the process often took much longer than expected, often years inste
ad
of months. In some cases, the lack of coordination within the Department
delayed the process; in other cases, factors beyond FBO's control made
acquisition difficult, if not impossible. These delays have contributed to
cost increases of over $37 million. Changing security requirements also led
to
delays and increased construction costs by approximately $5 million in some
projects.
PLANNED REFORMS WILL TAKE YEARS TO IMPLEMENT
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After many years of neglect, the Department has recognized the urgency of
improving its chronic mismanagement of overseas real estate programs and is
taking action to correct past problems. Many of the actions will take time t
o
fully implement because they are still in the planning stages or early stage
s
of implementation. Consequently, it may take years before expected
improvements are fully realized.
To improve the management of the security construction program, the Departme
nt
and FBO are instituting the following reforms:
-- The establishment of priorities for construction projects based on securi
ty
standards, threat categories, budgetary realities, potential for successf
ul
execution, and other criteria.
-- A value engineering program to identify potential savings in initial
construction plans. This program resulted in $6 million in savings in 199
1.
-- A configuration management system to control unnecessary design changes f
or
projects costing more than $5 million.
-- A system to periodically evaluate the performance of contractors and a
directive requiring FBO officials to consider FBO's previous experience
with contractors before executing contracts exceeding $25,000.
-- A method to fund security construction projects on a yearly basis to enab
le
FBO officials to more precisely estimate project costs. In the past, enti
re
projects were funded at their beginning.
-- An effort to hire a sufficient number of qualified staff to manage the
security construction program. Of 163 positions authorized for direct-hir
e
employees in fiscal year 1992, 74 employees (45 percent) are either on du
ty
or awaiting imminent entry,
6 candidates (16 percent) are awaiting security clearances, 26 positions
(16 percent) are in the recruitment process, and 37 positions (23 percent
)
are awaiting classification within the Department's personnel structure.
FBO has also initiated many actions to improve its management of real estate
property overseas. These initiatives include the following:
-- Determining the maintenance conditions of posts worldwide through
engineering surveys. FBO expects to complete surveys at all posts worldwi
de
toward the end of 1994.
-- Enhancing maintenance assistance to posts through the establishment of tw
o
maintenance assistance centers in Europe and Washington, D.C. Both center
s
are fully staffed.
-- Requiring post officials to conduct yearly maintenance inspections and
provide inspection reports to FBO.
-- Establishing new streamlined housing standards that realistically reflect
the types of housing available to Department employees in the Washington,
D.C., area and requiring posts to submit a list of the types of housing
provided to employees for FBO's review and approval.
-- Creating a facilities maintenance skill group within the Foreign Service
and hiring experienced building professionals to handle the technical
requirements of maintaining posts. FBO has hired 48 facilities maintenanc
e
specialists and expects to have 130 at posts by the end of fiscal year
1996.
-- Installing an enhanced version of the Real Estate Management System at ma
ny
posts worldwide to better support post management and improve the data
reported by posts. FBO has installed this enhanced system at 66 posts and
expects to install it at 156 posts by the end of 1996. According to FBO
officials, this system is easier for post officials to use than the
previous version, and FBO has already seen a great improvement in the dat
a
that posts provide.
-- Conducting financial audits of the administration and use of FBO program
funds at overseas posts with significant FBO resources.
CONCLUSIONS AND ACTION NEEDED
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For many years, we have reported long-standing problems with the Department'
s
overseas real estate programs. It is important that Department and FBO
officials continue their commitment to management reform and oversight of po
st
activities if these problems are to cease. While FBO has recently initiated
many corrective actions within a short time, FBO may face obstacles in fully
implementing these actions. Likely challenges include overcoming uncertainty
over the availability of funding and responding to shifts in foreign policy
objectives due to changing political circumstances. For example, the added
work load and costs associated with opening new posts in the former Soviet
Union are the kinds of changes that without continued commitment could defle
ct
FBO's attention from correcting its problems with overall real estate
management.
