Study of the Office-Leasing Practices of the General Services Administration

Published by the Government Accountability Office on 1971-09-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             COMPTROLLER      GEFlEaAl      OF   THE
                                           WASHIlG3TOF-J.    D.C.

         B-118623                                                          J P "I

         Dear Mr. Chairman:
                 Your letter    of July 6, 1971, requested that we provide
         you with reports or other information        on our study of the
         office-leasing      practices  of the General Services Administra-
       1 tEiii (GSA). This is an interim report on our findings                                           /7
         on the review that we had in process at the time of your
         request.      We plan to send you a copy of our report to the
         Congress on the final results        of our review.
                GSA is responsible    for effectively    and efficiently  ac-
         quiring,   by purchase or leasep buildings       to meet Federal
         agency spactz needs.      At June 30, 1970, GSA was responsible
         for the management of about 217 million         square feet of space,
         of which 54 million     square feet,     or 25 percent, were leased
         at an annual rental of about $184 million.
                GSA's policy provides for constructing          or purchasing   a
         building,   whenever possible.      The policy provides       also for
         leasing a building     when requirements     in a particular      com-
         munity are insufficient      to warrant the construction         of a public
         building,   or the completion of a new building          cannot be
         assured within a reasonable period of time,             Because of
         budgetary restrictions      on Federal   construction,     the expan-
         sion of the Federal work force, and the demolition             of
         temporary buildings,     GSA increased its leased space by
         about 9.5 million     square feet in the past 5 years, most of
         which was in new buildings      in the Washington, D.Ci,         area.
                GSA is authorized     by law to enter into a lease agreement
          for a period up to 20 years for a building            in existence        or to
          be erected by a lessor,         Since fiscal     year 1963, GSA's
          annual appropriation      acts have contained a provision            limit-
          ing GSA's leasing activities         involving    new construction.
          The acts have provided that no funds be used for the payment
          of rent for a building       "to be erected'* by the lessor for such
          Federal agencies at a construction           cost in excess of $200,000
          unless a prospectus     for lease construction        has been approved
          by the House and Senate Committees on Public Works.
c ;/   t/                                                                  /H"i22

                                     50Tf-l ANNIVERSARY                1921- 1971
     B-118623                                                                  :

             As of June 30, 1971, 14 of the 21 lease construction
     prospectuses    submitted by GSA, in compliance with this pro-
     vision,    had been approved by both the House and Senate Com-
     mittees on Public Works.
           In June 1969 the House Committee on Appropriations   ex-
N    pressed its belief   that it was false economy to continue to
     defer construction   of needed public buildings  and urged GSA
     to resume a reasonable construction    program.  The Committee
     stated that:
                    "***it   is wasteful   for the Government to
                    continue to delay construction      of needed
                    public buildings     in the face of higher
                    construction,    labor and material   costs in
                    the future,   and the continuing    necessity
                    of leasing substantial     space."
             In   October 1969      the Senate Committee on Public Works
     informed      GSA that it      would not consider any more lease con-
     struction      prospectuses,       except in dire emergency, until  50
     percent      of the public      building  projects authorized by the
     Congress      were funded      for construction.
cc          In November 1969 the Senate Committee on Appropriations     $3Q6
     stated its concurrence with its counterpart     in the House and
     endorsed the action taken by the Senate Committee on Public
     Works.    The Senate Committee expressed concern about the
     growing practice    of leasing and urged the Administrator    of
     General Services to support the construction      of needed public
     buildings   as the most economical way of providing    housing for
     Federal agencies.
           Both Government-owned and Government-leased   space under
     GSA control have increased during recent years.     Government-
     owned space increased from 149.8 million    square feet in fiscal
     year 1966 to 163.2 million  square feet in fiscal   year 1970.
     During the same period leased space increased from 44.6 million
     square feet to 54.1 million  square feet.    Most of the increase
     in leased space was in the Washington metropolitan     area.
           One of the major reasons for increased     leasing of space
     has been the budgetary restrictions      on GSA's construction
     program.   The President   of the United States, in his January
     1968 budget message to the Congress, stated that, to hold
     budget totals   to a minimum, a determined effort     was being
     made to slow the pace of federally     financed construction



    programs as much as possible,    consistent    with orderly govern-
    ment and sound practices.     No funds were requested for GSA's
    construction  program in fiscal   year 1969, and $143 million
    of previously  funded GSA construction      was deferred.
          GSA construction     was deferred     further    in September 1969
    when the President     directed    a 75-percent     reduction   in new
    construction   to accommodate, without undue inflationary            pres-
    sure on the construction       industry,    those projects     having the
    highest social priority.         This directive     was rescinded in
    April 1971.
           GSA proposed a construction        budget of $12.8 million       for
    fiscal   year 1970,    but  the   Congress   appropriated  $26.5   million.
    For fiscal    year 1971, GSA p&posed a substantially           increased
    construction    budget of $101.7 million.          The Congress, however,
    appropriated     $133.6 million.       At the beginning of fiscal       year
    1971, GSA had a backlog of about 80 authorized            projects    that
    would have required       construction    funding of about $870 million.
            Our review of- 25 of 31 leases entered into by GSA in
    two of its regions during fiscal          years 1967 through 1971
    showed that GSA did not obtain congressional            approval of
    prospectuses      for the private    construction   and leasing to the
    Government of 11 buildings.          In each case construction     costs
    exceeded $200,000.        The buildings    had an appraised value of
    about $134 million       and were leased for long terms at an annual
    rental of about $19 million.          Although the buildings     were
    constructed     to meet GSA's space reguirements,        they were not
    identifie'd    by GSA as buildings      to be erected,   which, in
    accordance with the annual appropriation           acts, must be
    approved individually       by the Congress.
          GSA considers that the to-be-erected         provision     in the
    annual appropriation      acts is not applicable      to a building       that
    GSA classifies    as under construction      on the date of issuance
    of the lease solicitation.        Although physical      construction       of
    a building,    such  as site  preparation,    excavation,     and    founda-
    tion workp may not have been started,         GSA classifies       the build-
    ing "under construction"      if five conditions      specified      in its
    regulations    are met.    These  conditions   are:
          1.   Title to the site is vested in the bidder or
               the bidder possesses such control      over the
               site to enable starting  construction.



      2.   Design is complete.        (GSA considers the design
           to be complete when it is possible        for the
           offeror    to obtain a building    permit for the
           entire structure     and to enter into a firm
           construction    contract.)
      3.   Construction      financing    is fully    committed.
      4.   Building    permit    has been issued.
      5.   Construction contract         has been entered      into
           or actual construction         is in process.
       GSA,- through discussions        and letters,     made known its
space requirements      to developers      interested      in constructing
buildings    for leasing to the Government.            When GSA first       con-
tacted the developers who eventually             were awarded the 11
leases, none of them had buildings            under construction       or had
building   permits and six of them did not own or control                 the'
land for the building        sites.     GSA required the developers          to
furnish preliminary       information     about their plans to con-
struct buildings     and their tentative         rental rates and to
submit documents and plans before issuance of solicita-
tions for lease of buildings          to determine whether the
buildings    could be classified        as being under construction
in accordance with the five conditions              specified   in its re-
       GSA determined,    before the award of the leases, that the
provision   in the annual appropriation      acts, requiring     con-
gressional    approval of lease construction      prospectuses,    was
not applicable     because the buildings    were classified     as being
under construction,      although physical   construction    had not
started on nine of the 11 buildings        until  after the leases
were awarded.
      This practice    of making advance arrangements with de-'
velopers has limited participation        in bidding because the
lease solicitations,     in effect,  limited bids from developers
that had met GSA's five conditions        or had buildings  under
construction.      As a result eight of the preselected     develo-
pers were awarded leases on the basis of single bids.

           Leases for three of the four buildings        cited in your
    letter    of July 6, 1931, were included in our review.         The
    lease for Office Building       Number 1 located at Friendship
    International    Airport   in Maryland was not one of the 11 leases
    we reviewed.      This building    was under construction    by the
    lessor prior to GSA's lease solicitation        and was not leased
    under the five-point      program.
          We have also received a request from Senator William
C6 Proxnire for a report on GSA's leasing practices,   and we are
   furnishing   him with a similar report.
          We plan to make no further  distribution    of this report
    unless copies are specifically   requested,    and then we shall
    make distribution  only after your agreement has been obtained
    or public announcement has been made by you concerning       the
    contents of the report.
                                     Sincerely   yours,

                                     Comptroller  General
                                     of the United States

    The Honorable Chet Wolifield
    Chairman, Committee on
      Government Operations      1% 15ad
    House of Representatives