REPORT BY THE Comptroller General OF THE UNITED STATES General Services Administration's The House Committee on Government Operations asked GAO to review alterations made to buildings leased by the General Services Administration. In fiscal year 1977, obligations for such alterations were in excess of $36 million. GAO found various deficiencies in General Services' contracting practices--sole-source contracting; not adhering to sound contracting procedures and practices; failure to consider purchase or construction prior to major alterations; and performing major alterations before lease expiration without attempting to renegotiate the lease period or rent. In the agency's rush to obligate funds, several yearend obligations may be invalid or misclassified. GAO also found that the Economy Act limitation is not effective in limiting and controlling alterations to leased buildings. UNITED GENERAL STATES OFFICE LCD-78-338 This report is in response to your February 28, 1978, request that we review alterations made to buildings leased by the General Services Administration. At your request, we did not take the additional time needed to obtain written agency comments on the matters discussed in this report. As arranged with your office, we are sending copies of this report to Representative Berkley Bedell. Unless you publicly announce its contents earlier, no further distribution of this report will be made until 10 days from the date of the report. Comptroller General COMPTROLLER GENERAL'S GOVERNMENT OPERATIONS DIGEST GENERAL SERVICES ADMINISTRATION'S PRACTICES FOR ALTERING LEASED BUILDINGS This report concerns various deficiencies found --Excessive use of sole-source contracting --Not preparing independent Government esti- --A single organizational unit responsible for --Performing major alterations before lease --Failure to adequately consider purchase or --Paying rent while space was not available --Failure to document inspections of alteration Tear Sheet. Upon removal, the report LCD-78-338 General Services justified sole-source contracting on the basis that it would be impractical for it to contract for work which affects building systems (heating, air-conditioning, etc.) and continue to hold the building owner responsible for the maintenance of these systems. General Services should avoid contracting for alterations on a sole-source basis with building owners. Alteration contracts should, if possible, be awarded on an advertised competitive basis or the owners should be required to obtain bids from contractors and subcontractors. Then the owners could contract with the lowest responsible bidder acceptable to General Services. When GAO completed its fieldwork in June 1978 General Services had underway various reviews and investigations of procurement functions and allegations of fraud. According to the agency these reviews and investigations indicated a need to strengthen procedures for accomplishing alteration projects in leased buildings. The Administrator of General Services issued a policy memorandum on June 29, 1978, which requires the agency to award contracts and make sales only as a result of formal advertising or competitive negotiations. Also GSA issued new procedures for inspecting alteration work. If the revised policy on contracting and new procedures for inspections are properly implemented, they will correct many of the deficiencies cited in this report. (See pp. 15 to 17.) The Economy Act of 1932 limits the amount that may be expended on alterations in a leased building to 25 percent of the first year's rent. This amount may be exceeded if justified by the agency. The Economy Act limitation on alterations to leased buildings should be repealed because it is not an effective mechanism for limiting and controlling the amount expended for building alterations. The limitation is easy to exceed and sizable amounts are spent on alterations. For example, the 25-percent limitation was exceeded and extensive alterations were made to a leased building at a cost of $2.15 million to convert it to a laboratory facility. The alterations required almost 2 years to complete during which time the building was unoccupied and General Services paid rent of about $407,800. The total cost of the alterations, including rent paid while the building was vacant, was about $2.55 million or about $61 a square foot, which exceeded the appraised value of the building when leased of $1.57 million, or $37.50 a square foot. Requiring specific congressional authorization of alterations to leased buildings would be more effective and consistent with the law which requires congressional approval of alterations to Government-owned buildings in excess of $500,000. Alterations to a leased building requires closer scrutiny because they (1) may increase the value of the leased building which the Government does not own and (2) weaken the agency's negotiating position for follow-on leases. (See pp. 19 to 22 and pp. 30 to 34.) General Services had too much flexibility in funding alteration work in leased buildings in fiscal year 1977. In addition to funds made available by tenant agencies, several Federal Buildings Fund accounts were used. Greater emphasis seems to have been placed on obligating available funds balances by the end of fiscal year 1977 than on adhering to sound contracting practices and effective budgetary controls. Several yearend obligations may be invalid or misclassified. In April 1977 the Commissioner of the Public Buildings Service notified the regions that he was concerned about large unobligated balances in three accounts. The regions were urged to obligate available funds before the end of the fiscal year. The regions responded to the push and the level of obligations increased significantly in September, the last month of the fiscal year. For example, in Region 3, obligations for alterations and major repair funds increased from a monthly average of $4.4 million for 11 months to $9.3 million in September, an increase of 111 percent. For another account, iii |