oversight

United Nations: Early Renovation Planning Reasonable, but Additional Management Controls and Oversight Will Be Needed

Published by the Government Accountability Office on 2003-05-30.

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

             United States General Accounting Office

GAO          Report to the Honorable Michael Enzi,
             U.S. Senate



May 2003
             UNITED NATIONS
             Early Renovation
             Planning Reasonable,
             but Additional
             Management Controls
             and Oversight Will Be
             Needed




GAO-03-566
             a
                                                May 2003


                                                UNITED NATIONS

                                                Early Renovation Planning Reasonable,
Highlights of GAO-03-566, a report to           but Additional Management Controls and
Honorable Michael Enzi, U.S. Senate
                                                Oversight Will Be Needed



The United Nations estimates that               U.N. officials followed a reasonable process consistent with leading industry
its planned renovation of the seven             practices and recognized guidelines in developing the headquarters
buildings on the Headquarters                   renovation plan—the first phase of a five-phase renovation process. As the
complex could cost almost $1.2                  project advances, changes in scope, schedule, and cost are to be expected.
billion. As the host country and the            To finance the renovation, the Secretary-General anticipates a no-interest
largest contributor to the United
Nations, the United States has a
                                                loan from the United States. However, U.S. and U.N. officials stated that
significant interest in this project.           neither the United States nor the United Nations have specified the nature of
This report (1) assesses the                    any financing commitment. GAO estimates that the financial impact of the
reasonableness of the U.N. process              renovation to the federal government, including providing a $1.2 billion no-
to develop the renovation plans, (2)            interest loan and repaying a share as a U.N. member, would be over $700
analyzes the potential cost to the              million, depending on the loan terms and conditions.
United States, (3) identifies critical
milestones before construction can              Several critical milestones must be met for construction to begin as planned,
begin, and (4) discusses efforts to             including securing a financing commitment and signing a lease for a building
monitor and oversee the project.                where U.N. staff and delegates would relocate during the renovation (see
                                                diagram below). As the renovation project progresses, additional
                                                management, oversight, and monitoring is needed. The United Nations plans
GAO is recommending that the                    to complete a project management plan, which would help the United
Secretary of State encourage the                Nations control cost and schedule. While the United Nations has approved
United Nations to (1) complete and              initial funding for the Board of Auditors to conduct oversight of the
implement an effective project                  renovation and the board is preparing its audit strategy, the Office of Internal
management plan and (2) provide                 Oversight Services does not have the resources or audit strategies needed to
its oversight offices with sufficient           effectively conduct oversight of the renovation. The Department of State has
resources to conduct oversight                  assembled a task force to monitor the renovation, but the department will
throughout the renovation. GAO is
                                                need to define the task force’s mission and program goals. Doing so would
also recommending that the
Secretary of State define the                   allow the department to develop strategies for employing the appropriate
mission and program goals of the                skill mix needed to achieve a successful outcome for the task force.
task force currently monitoring the
project and ensure that it has the              Key Milestones for the U.N. Renovation
necessary resources for the
duration of the project.

The United Nations and
Department of State agreed with
our findings and recommendations.
The Board of Auditors provided
updated information on its budget
and disagreed with our
recommendation calling for the
United Nations to provide it with
resources to conduct oversight of
the renovation
www.gao.gov/cgi-bin/getrpt?GAO-03-566.

To view the full product, including the scope   a
                                                United Nations Development Corporation.
and methodology, click on the link above.
For more information, contact Joseph A.
Christoff at 202-512-8979 or
christoffj@gao.gov.
Contents



Letter                                                                                                  1
                              Results in Brief                                                          2
                              Background                                                                5
                              Planning Process Is Reasonable but Still in an Early Phase                8
                              Estimated Financial Impact of the Renovation to the United
                                States                                                                 14
                              Key Milestones in the Renovation Process                                 16
                              Effective Project Management and Oversight Needed for the
                                Renovation to Be Successful                                            21
                              Conclusions                                                              25
                              Recommendations for Executive Action                                     26
                              Agency Comments and Our Evaluation                                       26


Appendixes
               Appendix I:    Scope and Methodology                                                    28
               Appendix II:   Two Approaches to Renovating the U.N. Headquarters
                              Complex                                                                  30
                              U.N. Secretary-General Offered Two Renovation Approaches                 30
              Appendix III:   U.N. Consultants and Subconsultants                                      34
              Appendix IV:    Security Upgrades at the United Nations                                  35
                              Completed and Planned Security Initiatives                               35
               Appendix V:    Comments from the United Nations                                         37
              Appendix VI:    Comments from the Department of State                                    38
             Appendix VII:    Comments from the Office of Internal Oversight Services                  40
             Appendix VIII:   Comments from the U.N. Board of Auditors                                 42
                              GAO Comments                                                             44
              Appendix IX:    GAO Contacts and Staff Acknowledgments                                   45
                              GAO Contacts                                                             45
                              Staff Acknowledgments                                                    45


Tables                        Table 1: Estimated Financial Impact to the Federal Government of
                                       Financing $1.2 Billion U.N. Renovation under Various Loan
                                       Terms                                                           15
                              Table 2: Preliminary Cost Estimate of Approach 1                         31
                              Table 3: Preliminary Cost Estimate of Approach 2                         32
                              Table 4: Firms Involved in the Conceptual Planning Process               34




                              Page i                                            GAO-03-566 U.N. Renovation
          Contents




Figures   Figure 1: U.N. Headquarters Complex                                                        5
          Figure 2: U.N. Headquarters Complex and Proposed Location of
                    Swing Space under Approach 1                                                      7
          Figure 3: Five Phases of a Renovation Project                                              13
          Figure 4: Sequence and Estimated Time Frames for U.N.
                    Headquarters Renovation                                                          18
          Figure 5: Proposed Swing Space Site                                                        20
          Figure 6: U.N. Headquarters Complex and Proposed Location of
                    Swing Space under Approach 1                                                     30
          Figure 7: United Nations Security Initiatives                                              35




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          Page ii                                                       GAO-03-566 U.N. Renovation
A
United States General Accounting Office
Washington, D.C. 20548



                                    May 30, 2003                                                                            Lert




                                    The Honorable Michael Enzi
                                    United States Senate

                                    Dear Senator Enzi:

                                    The United Nations (U.N.) Headquarters complex in New York City no
                                    longer meets current safety standards and needs major renovation, which
                                    U.N. officials estimate could cost almost $1.2 billion. Because the United
                                    States is host country to the United Nations, the U.N. Secretary-General
                                    anticipates that the United States will provide a no-interest loan for the
                                    renovation, similar to the one the United States provided when the U.N.
                                    complex was built between 1949 and 1952. The U.N. General Assembly has
                                    not yet given its final approval for the renovation project but has authorized
                                    its continued design. In June 2001, we reported that the U.N. early planning
                                    process had been reasonable.1 Since that report, the United Nations has
                                    further developed its plan, recommending an approach that would
                                    renovate the entire complex; lease a new office building, or “swing space,”
                                    built adjacent to the complex; and temporarily move most U.N. staff to that
                                    building.

                                    You asked us to update our prior report by assessing the revised U.N.
                                    renovation plan. In this report, we (1) assess the reasonableness of the U.N.
                                    process to develop the renovation plan, including the cost estimate and
                                    physical security components; (2) estimate the potential financial impact to
                                    the federal government of the renovation; (3) identify critical milestones
                                    before construction can begin; and (4) discuss U.N. and Department of
                                    State efforts to manage, oversee, and monitor the project as it proceeds.

                                    To undertake our work, we reviewed the 2002 Capital Master Plan and
                                    related reports prepared by the U.N. architect-engineering firm, cost
                                    estimating subconsultant, and security subconsultant. We also reviewed
                                    construction and security industry literature and U.N. and U.N.
                                    Development Corporation2 project plans. To estimate the financial impact


                                    1
                                     U.S. General Accounting Office, United Nations: Planning for Headquarters Renovation
                                    Is Reasonable; United States Needs to Decide Whether to Support Work, GAO-01-788
                                    (Washington, D.C.: June 15, 2001).
                                    2
                                     The U.N. Development Corporation is a New York State nonprofit public benefit
                                    corporation tasked with constructing and leasing office space to the United Nations.




                                    Page 1                                                         GAO-03-566 U.N. Renovation
                   of a no-interest loan, we analyzed the impact of the United States foregoing
                   future interest payments and assuming the risk of a potential U.N. default
                   on the loan. We discussed the Capital Master Plan with U.N. officials, the
                   consultants who developed the designs, industry experts, and Department
                   of State officials (see app. I for more information on our scope and
                   methodology).



Results in Brief   U.N. officials followed a reasonable process consistent with leading
                   practices and recognized guidelines to develop the 2002 Capital Master
                   Plan. Thus far, the United Nations has completed the first phase—
                   conceptual planning—of a five-phase renovation process. To develop the
                   conceptual plan, U.N. officials and the architect-engineering firm followed
                   leading facility acquisition practices, including obtaining detailed
                   assessments of the complex’s condition and involving U.N. managers in the
                   planning. To develop the $1.2 billion preliminary cost estimate, U.N.
                   officials and the cost estimating subconsultant followed the Construction
                   Industry Institute’s best practices, including ensuring that the estimate
                   included appropriate cost elements and hiring a firm to peer review the
                   estimate. U.N. officials and their security subconsultant also followed
                   recognized guidelines in developing the plan’s security upgrades, including
                   identifying threats to U.N. assets and prioritizing U.N. security needs.
                   Although the United Nations has followed a reasonable process thus far, it
                   is still early in the planning process and changes to the conceptual plan and
                   cost estimate are to be expected. For example, Construction Industry
                   Institute research indicates that the final cost of any project at this early
                   stage may vary from plus or minus 30 to 50 percent of the preliminary
                   estimate.

                   Should the United States agree to finance the renovation, we estimate the
                   financial impact to the federal government for the renovation would be
                   over $700 million.3 We estimate that the potential financial impact to the
                   federal government as a lender would be $591 million on a no-interest loan




                   3
                    We express all figures on the potential financial impact to the federal government in 2003
                   present value dollars.




                   Page 2                                                          GAO-03-566 U.N. Renovation
of almost $1.2 billion4—mostly in foregone interest.5 The Secretary-General
anticipates that the United States will provide a no-interest loan to finance
the renovation. However, the United States has not yet made a decision
whether to provide the United Nations a no-interest loan. In addition, we
estimate that the United States, as a member of the United Nations, would
repay $126 million of the loan principal. Another potential financial impact
to the federal government is the loss of federal tax revenue on bonds to
finance the proposed swing space building. The U.N. Development
Corporation is seeking congressional approval for a federal tax exemption
on the bonds it plans to issue to finance the construction. If this exemption
is granted, the federal government would not realize tax receipts over a 30-
year period of as much as $108 million in 2003 present value dollars.

Several critical milestones have to be met in 2003 for the planning process
to continue and construction to begin in 2005. First, and most importantly,
the United Nations is seeking a financing commitment for the renovation
by October 2003. However, neither the United States nor the United
Nations have specified the nature of a financing commitment, according to
U.S. and U.N. officials. If an acceptable commitment is secured, the
General Assembly must then vote whether to proceed with the renovation,
and the United Nations can sign a lease with the U.N. Development
Corporation for the proposed swing space. Without a lease agreement, the
corporation will not construct the swing space that the United Nations
would occupy during the renovation. Second, to begin construction on the
proposed swing space in 2004, the corporation must obtain New York state
and city approval to acquire the site for the proposed swing space and also
receive a tax exemption for borrowing. According to U.N. officials, without
a tax exemption, the annual lease cost to the United Nations could increase
substantially and could thereby make the lease economically unfeasible.

As the U.N. project progresses through the design phase, project
management, oversight, and monitoring mechanisms will be essential to
ensure cost and schedule control and accountability. In January 2002, the
United Nations hired a project management consultant to help develop a
broad framework for a project management plan. The United Nations does


4
 We estimate that this loan would equal approximately $1.07 billion in 2003 present value
dollars.
5
 The cost of a no-interest loan would depend on its terms and conditions, such as the length
of time the United Nations would have to repay the loan. For our analysis, we assumed the
United Nations would repay the loan over 25 years.




Page 3                                                         GAO-03-566 U.N. Renovation
not currently have sufficient staff to complete the project management plan
and effectively manage the project throughout the next phases, but it plans
to hire approximately 40 staff and/or contractors in addition to the 12
currently managing the project. The U.N. Board of Auditors and Office of
Internal Oversight Services are expected to oversee the renovation project.
While the United Nations has approved initial funding for the Board of
Auditors to conduct oversight of the renovation, the Office of Internal
Oversight Services does not have a dedicated budget or personnel with the
expertise in construction or capital projects to effectively oversee a large
construction project, according to U.N. officials. The Department of State
also plans to monitor the renovation process and coordinate the U.S.
response to the financing request. Since our last report, the department has
assigned staff on a part-time basis and a point-person at the U.S. Mission to
the United Nations to a task force that monitors the Capital Master Plan. In
addition, the department has tasked a senior official at the mission to
represent U.S. concerns on the renovation to the United Nations and other
member state representatives. However, the department has not formally
determined the task force’s mission or program goals or defined its
resources needs, including expertise.

In this report, we are recommending that the Secretary of State, in
consultation with the appropriate U.S. administration officials and other
U.N. member states, encourage the United Nations to complete and then
implement an effective project management plan and provide their internal
and external oversight offices with the resources needed to conduct
effective oversight throughout the renovation. In addition, we are
recommending that the Secretary of State formally define the mission and
program goals of its task force, determine the expertise needed, and
provide the resources necessary to support these efforts.

In commenting on a draft of this report, the United Nations and the
Department of State agreed with our conclusions and recommendations.
The Board of Auditors did not agree with our recommendation that the
United Nations provide it with the resources needed to conduct effective
oversight of the renovation project. A board official stated that the United
Nations recently provided the board with $35,000 for this purpose. We
modified our recommendation to acknowledge the board’s initial funding,
but continue to recommend funding for the board’s oversight function over
the course of the six-year renovation project.




Page 4                                               GAO-03-566 U.N. Renovation
Background   The original U.N. Headquarters complex, located in New York City, was
             considered among the most modern facilities when it was constructed
             between 1949 and 1952. The United States financed construction of the
             original complex—the General Assembly, Secretariat, and Conference
             Building—by providing the United Nations with a no-interest loan
             equivalent to about $420 million in 2003 dollars. The rest of the complex—
             the Dag Hammarskjöld Library, the underground North Lawn Extension,
             South Annex, and Unitar Building—was built between 1960 and 1982 and
             was funded through the U.N. regular budget or private donations (see fig.
             1). Currently, the complex accommodates the needs of 191 U.N. member
             countries and approximately 4,700 U.N. staff. However, the U.N. buildings
             do not conform to current safety, fire, and building codes and do not meet
             U.N. technology or security requirements. The United Nations estimates it
             would cost more than $2 billion over 25 years for repairs and system
             replacements in the absence of a major renovation.



             Figure 1: U.N. Headquarters Complex

                 FDR Drive                                                     East River

                                                                                                                South
                                                                                                                Annex FDR Drive
                                                                                            Conference
                                                                                             Building

                                                                                                      Secretariat
                                         North Lawn
                         48th Street




                                          Extension                   General
                                                                     Assembly

                                                                                                                    Library
                                                                                                                              42nd Street

                                                                First Avenue
                                                          Unitar
                                                         Building

                                                                    SITE PLAN
                          Core complex                    UNITED NATIONS HEADQUARTERS                           North
                          Subsequent buildings           LONG TERM CAPITAL MASTER PLAN
                                                      Buildings and Grounds Included in Renovation


              Sources: United Nations and GAO.



             In June 2001, we reported that the Secretary-General’s first Capital Master
             Plan had defined the need for renovation, established the Secretary-
             General’s expectations for the project, and provided options for a multiyear




             Page 5                                                                                  GAO-03-566 U.N. Renovation
effort to renovate the headquarters.6 The General Assembly reviewed the
plan and approved $8 million to further develop the conceptual designs and
associated cost estimates for the renovation. The General Assembly agreed
with the Secretary-General’s assumptions, which provided the framework
for the renovation planning. These assumptions included the following:

• The headquarters complex would remain at its current location in New
  York.

• The complex should be energy efficient, free of hazardous materials,
  and compliant with host city building, fire, and safety codes.

• The complex should meet all reasonable security requirements.

• Disruption to the work of the United Nations should be kept to a
  minimum.

In August 2002, the Secretary-General presented the General Assembly
with a more detailed Capital Master Plan and endorsed a renovation
approach that included the temporary relocation of most U.N. staff and
delegates to “swing space” in a proposed new building (see fig. 2 for the
swing space location and app. II for more information on the renovation
approach).7




6
 GAO-01-788 and United Nations, Capital Master Plan: Report of the Secretary-General,
A/55/117 (New York, N.Y.: United Nations, June 28, 2000).
7
United Nations, Capital Master Plan: Report of the Secretary-General, A/57/285 (New York,
N.Y.: United Nations, Aug. 8, 2002).




Page 6                                                       GAO-03-566 U.N. Renovation
Figure 2: U.N. Headquarters Complex and Proposed Location of Swing Space under
Approach 1




    Proposed location
    of swing space




Source: United Nations.



In December 2002, the General Assembly adopted a resolution endorsing
the renovation approach and approved $25.5 million for detailed designs
and cost estimates to be developed in 2003. The General Assembly also
approved $26 million to complete the design process in 2004–2005.8 The
General Assembly does not plan to make a final decision on whether to
proceed with the renovation until financing is secured.




8
 United Nations General Assembly, Resolution Adopted by the General Assembly,
A/RES/57/292 (New York, N.Y.: United Nations, Feb. 13, 2003).




Page 7                                                     GAO-03-566 U.N. Renovation
Planning Process Is       In developing the renovation conceptual plan and cost estimate, U.N.
                          officials, their architect-engineering firm, and subconsultants followed a
Reasonable but Still in   reasonable planning process that was consistent with leading practices. In
an Early Phase            addition, U.N. officials and their security subconsultant followed a process
                          consistent with recognized guidelines to develop plans for improving
                          security at the U.N. complex. The United Nations is still in the early
                          planning stages of the project—the first phase of a five-phase process. For
                          this reason, changes to the scope and cost of the proposed renovation are
                          to be expected.



Process Used in Early     The overall U.N. process to develop a conceptual plan followed leading
Planning Phase Followed   facility acquisition practices.9
Leading Practices         • Competitively procured an architect-engineering firm. U.N.
                            renovation officials used a competitive process to procure the services
                            of an architect-engineering firm (see app. III for the names of the firms
                            involved). The United Nations received 15 responses to its request for
                            proposals from firms representing six different countries. In 2001, the
                            United Nations selected and hired an architect-engineering firm to
                            prepare a comprehensive renovation design concept and cost analysis.
                            The architect-engineering firm used subconsultants with recognized
                            expertise in construction disciplines such as cost estimation, security,
                            and structural engineering.

                          • Obtained assessments of the complex’s condition. The architect-
                            engineering firm and subconsultants reviewed condition assessments
                            conducted in 1998 and performed additional inspections and
                            assessments of the complex’s condition as needed. For example, they
                            completed a new assessment of the Secretariat Building’s deteriorating
                            window structure. U.N. officials subsequently concluded that it was
                            more cost effective to replace the window structure than to renovate it,
                            as had been previously planned.




                          9
                           Ralph S. Spillinger, in conjunction with the Federal Facilities Council’s Standing Committee
                          on Organizational Performance and Metrics, Adding Value to the Facility Acquisition
                          Process: Best Practices for Reviewing Facility Designs, Federal Facilities Council
                          Technical Report #139 (Washington, D.C.: National Academy Press, n.d.).




                          Page 8                                                          GAO-03-566 U.N. Renovation
                            • Retained firm to review the renovation conceptual plan. U.N. officials
                              retained the services of a consulting engineer to assist them in reviewing
                              the conceptual planning reports and recommendations.

                            • Involved U.N. managers in the planning. U.N. officials involved facility
                              managers, such as those responsible for building and program
                              management, security, and information technology, in the planning
                              process to ensure that the renovation would meet their needs. The
                              managers were asked to verify the conditions and problems identified
                              by the architect-engineering firm and subconsultants and comment on
                              whether the proposals would address their needs.



Process to Develop          To develop a preliminary cost estimate, U.N. officials and the cost
Preliminary Cost Estimate   estimating subconsultant followed industry best practices established by
                            the Construction Industry Institute.10
Followed Best Practices
                            • Defined the scope of the project and work plan, including
                              responsibilities, schedule, and project budget. U.N. officials identified
                              the building improvements that were to be included in the project scope:
                              replacing heating, air conditioning, and electrical systems; refurbishing
                              the window structure on the Secretariat Building; enhancing security
                              measures; and modernizing communication and technology capabilities.
                              The U.N. contract with the architect-engineering firm established the
                              schedule for the cost estimating subconsultant to submit three cost
                              estimates for approval. To compare the renovation approach budgets,
                              U.N. officials also instructed the cost estimating subconsultant to
                              develop one renovation approach within the budget parameters of the
                              2000 Capital Master Plan.

                            • Standardized the cost estimate format. U.N. officials used a
                              standardized cost estimate format, including elements such as
                              professional fees, labor and material costs, design and construction
                              contingencies, and escalation costs to account for inflation. The
                              standardized format enables U.N. officials to compare current and
                              future cost estimates as the project progresses through the design
                              process.


                            10
                             The Construction Industry Institute is a research organization composed of construction
                            contractors and owners that seeks to improve the construction and capital investment
                            process.




                            Page 9                                                       GAO-03-566 U.N. Renovation
                             • Reviewed and checked cost estimate. U.N. officials reviewed the cost
                               estimate to ensure that the conceptual planning estimates were within
                               acceptable cost parameters. For the final review, U.N. officials hired a
                               cost estimating consultant to peer review the cost estimate. While the
                               peer reviewer’s assumptions were more conservative than the
                               subconsultant’s assumptions, the peer reviewer’s cost estimate was
                               within 5 percent of the subconsultant’s cost estimate. Based on the peer
                               review, U.N. officials adjusted the cost estimate.

                             • Documented and reported the final cost estimate and range of
                               accuracy. The cost estimating subconsultant delivered the final cost
                               estimate, including contingencies that are meant to reflect the accuracy
                               of the estimate, to U.N. renovation officials for the 2002 Capital Master
                               Plan in August 2002. Consistent with industry practices, the
                               subconsultant added a design contingency to allow for changes that
                               typically occur during the design process. The subconsultant also added
                               a construction contingency to allow for unforeseen or unknown costs.
                               For example, structural conditions hidden by current construction may
                               conflict with planned renovations and require contract changes.



Process to Develop           After the terrorist attacks of September 11, 2001, the United Nations
Preliminary Plans for        enhanced security at the U.N. complex and added security measures to the
                             Capital Master Plan (see app. IV for further information). U.N. officials and
Security Upgrades Followed
                             the U.N. security subconsultant identified the additional security measures
Recognized Guidelines        through a process consistent with recognized security risk management
                             guidelines. We have previously reported on these guidelines, which
                             members of the U.S. intelligence and defense community follow and can
                             provide a sound foundation for effective security.11

                             • Identified the assets to be protected and the impact of their potential
                               loss. The security subconsultant identified assets at the United Nations
                               to be protected, such as the buildings and the perimeter. The United
                               Nations also evaluated the importance of each asset, the potential
                               impact of its loss, and the methods to maintain operations if the assets
                               were lost or damaged.




                             11
                              U.S. General Accounting Office, National Preparedness: Technologies to Secure Federal
                             Buildings, GAO-02-687T (Washington, D.C.: Apr. 25, 2002).




                             Page 10                                                     GAO-03-566 U.N. Renovation
• Identified threats to those assets. U.N. security officials consulted with
  relevant federal and local U.S. officials to assess changing threats to the
  United Nations. According to U.N. officials and the security
  subconsultant, they designed the security initiative in the Capital Master
  Plan to address these threat levels.

• Identified vulnerabilities. The security subconsultant reviewed five
  previous vulnerability assessments and conducted their own
  assessment of the entire complex to verify vulnerabilities and identify
  needed security upgrades.

• Assessed risks (potential for loss or damage) and determined
  priorities. Following security guidelines from the U.S. Interagency
  Security Committee,12 the security subconsultant developed a risk
  assessment that reflected its analysis of the threats to the U.N. complex
  and its vulnerabilities. Based on the risk assessment, U.N. officials then
  prioritized the security needs of the complex. According to an expert
  from the Interagency Security Committee, the risk assessment process
  used to develop the planned security upgrades was reasonable based on
  the consultant’s report to the United Nations.

• Identified countermeasures that mitigate risks. The security
  subconsultant used the risk assessment to identify and recommend
  more than 100 security measures for the Capital Master Plan. U.N.
  officials organized these security upgrades into two components—those
  in the baseline scope of the Capital Master Plan and those in a package
  of options.

The security risk management guidelines are not a rigid set of procedures,
but rather recognized steps to ensure that critical issues are considered
when designing a security program. Additionally, U.N. security officials
sought peer review input from other U.N. departments and public and
private sector security experts when designing the security program.
According to security officials from the Departments of State, Defense, and
Energy and the General Services Administration, the U.N. process for
developing the security initiatives in the Capital Master Plan was
reasonable.


12
 The U.S. Interagency Security Committee was created in 1995 under Executive Order
12977 to establish building security standards among federal facilities. The committee
consists of a chair—the Secretary of Homeland Security—and 17 other federal agencies.




Page 11                                                      GAO-03-566 U.N. Renovation
Renovation Planning Is in    U.N. officials have completed only the first phase of the renovation process
the Early Phases and         by developing a conceptual plan for the proposed renovation. While U.N.
                             planning efforts for the renovation have been reasonable so far, many
Changes Are to Be Expected   decisions that can affect the project scope, schedule, and cost have yet to
                             be made. For example, the General Assembly must decide whether it wants
                             to include certain options that were proposed in the 2002 Capital Master
                             Plan, such as installing extra back-up generators beyond those required by
                             current building codes. Events outside U.N. officials’ influence, such as the
                             availability of construction materials and labor, may also change the scope,
                             schedule, and cost. In addition, the preliminary cost estimate is likely to
                             change as the design phase progresses and decisions affecting the project’s
                             scope are made. Construction Industry Institute research suggests that the
                             final cost of a project may vary by plus or minus 30 to 50 percent of the
                             estimated cost at this early phase of a project.13

                             While the United Nations has completed the conceptual planning phase,
                             there are four remaining phases that renovation projects undergo, based on
                             typical best practices in the design and construction industry (see fig. 3).




                             13
                                  This range applies to the estimated cost without design and construction contingencies.




                             Page 12                                                           GAO-03-566 U.N. Renovation
Figure 3: Five Phases of a Renovation Project


                                                                               Start-up




                                                                Construction


          U.N. renovation
                                          Procurement



                     Design


 Conceptual
 planning




Sources: Federal Facilities Council Technical Report #139 and GAO.



• Conceptual Planning—Various feasibility studies are typically
  conducted to define the scope of work based on owner expectations for
  performance, quality, cost, and schedule. The need for temporary space
  and the options for meeting this need are identified. Several alternative
  design solutions are identified, and one approach is selected.

• Design—The design matures into final construction documents
  comprising the drawings and specifications from which bids can be
  solicited. Estimated cost and schedule issues receive increasingly
  intense oversight as this phase proceeds. The project scope defined at
  this phase will greatly determine the cost of the project. In addition, the
  cost of scope changes made after the design phase are higher.

• Procurement—This phase refers to owner procurement of long lead-
  time equipment, such as unique or large electrical or mechanical
  equipment. Delays in the delivery of this equipment could affect the
  phasing and sequence of construction work and potentially cause
  delays.




Page 13                                                                         GAO-03-566 U.N. Renovation
                            • Construction—To execute the design, the services of a competitively
                              procured construction contractor and specialty contractors and
                              consultants are employed. The biggest challenge is the management of
                              changes from the owner, design problems, or unknown conditions on
                              the site. Construction is considered complete when the owner accepts
                              occupancy of the building; however, work may continue for some time
                              to identify and correct deficiencies in the construction work.

                            • Start-up—Start-up begins with occupancy of the building and entails the
                              testing of individual and systems components to measure and compare
                              their performance against the original design criteria.



Estimated Financial         The Secretary-General has indicated that the United Nations anticipates
                            that the United States would provide a no-interest loan to finance the U.N.
Impact of the               renovation. Should the United States agree to finance the renovation in this
Renovation to the           manner, we estimate that the financial impact of the renovation to the
                            federal government would be over $700 million.14 This amount would vary
United States               depending on the terms and conditions of the financing arrangement. In
                            addition, we estimate that over a 30-year period, the federal government
                            would not realize tax receipts of as much as $108 million (2003 present
                            value dollars) on the federally tax-exempt bonds that would finance
                            construction of the proposed swing space. The U.N. Development
                            Corporation is seeking federal tax exempt status for the bonds it plans to
                            issue to finance the swing space building.



Financial Impact of the     We estimate the potential financial impact to the federal government as
Renovation to the Federal   both lender to United Nations and member state would be over $700
                            million for a $1.2 billion no-interest loan. As a lender of a subsidized loan to
Government Is over $700     the United Nations, the federal government would forego future interest
Million                     payments and assume the risk of a potential U.N. default on the loan. The
                            estimated financial impact to the federal government of a no-interest loan
                            for $1,193 million (repayable over 25 years) would be about $563 million for
                            the interest subsidy to cover foregone interest payments and $28 million for
                            the default subsidy that covers the risk of a potential U.N. default (see table



                            14
                             We did not estimate the financial impact to the United States if the United Nations sought
                            other financing for the renovation or did not undertake the renovation.




                            Page 14                                                        GAO-03-566 U.N. Renovation
1).15 If the United States provided a subsidized loan with interest rates of 1
percent or 2 percent, the federal government would provide an interest
subsidy of $443 million and $322 million, respectively. If the United States
agrees to finance the renovation, Congress would be asked to appropriate
the interest and default subsidies before the loan is made, as provided for
under U.S. credit reform law.16 As a member of the United Nations, the
United States may also be assessed an additional amount to repay the loan
principal. We estimate that the net present value of the U.S. assessment for
the principal repayments made over a 25-year period would be $126
million.17 These repayments would need to be appropriated yearly.



Table 1: Estimated Financial Impact to the Federal Government of Financing $1.2
Billion U.N. Renovation under Various Loan Terms

(In millions of 2003 present value dollars)
                                                                          1 percent     2 percent
                                                       No-interest          interest      interest
Interest subsidy                                              $563            $443           $322
Default subsidy                                                   28             31             34
U.S. portion of principal repayment                            126              126            126
Financial impact to federal governmenta                       $718            $600           $482
Impact as a percentage of renovation cost                     60%              50%            40%
Source: GAO analysis of U.N. data.

Note: Figures estimated using the Office of Management and Budget Credit Subsidy Calculator and
interest rate assumptions from the FY2004 President’s Budget. Figures do not add due to rounding.
a
We excluded any administrative costs, fees, or recoveries.


In estimating the financial impact to the federal government, we made
several assumptions. We assumed that the federal government would
disburse funds to the United Nations as a line of credit rather than a lump-
sum payment. The federal government would disburse the funds each year


15
     We excluded any administrative costs, fees, or recoveries.
16
  Federal Credit Reform Act of 1990 (codified at 2 U.S.C. 661). If the United States provides a
loan to the United Nations, the Office of Management and Budget and the Congressional
Budget Office would calculate the interest and default subsidies that would need to be
appropriated based on the actual terms of the loan document.
17
 We estimate that the yearly nominal assessment for the principal repayments would be
$10.5 million.




Page 15                                                                GAO-03-566 U.N. Renovation
                          over a 5-year construction period. To model the size of the disbursements,
                          we used the latest U.N. estimates of the funds it would need each year to
                          pay its contractors during the renovation. We assumed that the United
                          Nations would repay the loan over the subsequent 25 years in equal
                          semiannual payments based on an additional assessment of member states.
                          Since the United States is assessed 22 percent of U.N. operating costs, we
                          assumed the federal government would repay 22 percent of the loan
                          principal. However, because the United States does not currently allow its
                          U.N. assessments to go toward interest payments on U.N. external
                          borrowing, we assumed that the federal government would not repay any
                          of the interest on a 1 percent or 2 percent loan.18 Finally, we used the U.N.
                          preliminary cost estimate of $1,193 million from the 2002 Capital Master
                          Plan for the renovation, which includes scope options that the United
                          Nations has yet to decide on.



Loss of Federal Revenue   The federal government would also not realize tax receipts if the U.N.
from Swing Space Bonds    Development Corporation is granted tax exempt status for its construction
                          bonds. We estimate that the unrealized tax receipts over 30 years could be
                          as high as $108 million in 2003 present value dollars. This estimate assumes
                          that the U.N. Development Corporation would issue bonds for $350
                          million—the estimated construction cost for the swing space. We also
                          assumed that without the tax exemption, the bonds would earn 6.4 percent
                          interest and the average marginal tax rate would be 31 percent.

                          According to corporation officials, the corporation would pay a higher
                          interest rate on the bonds if it could not secure a tax exemption. The higher
                          interest rate would raise the cost of financing the construction, which the
                          corporation would then pass on to the United Nations in higher lease costs.
                          Corporation officials stated that the United Nations could not afford the
                          lease under its current operating budget without the tax exemption.



Key Milestones in the     To continue the planning process, key efforts must be pursued and critical
                          milestones met. Given the General Assembly’s decision in December 2002
Renovation Process        to proceed with design, the United Nations is seeking a financing
                          commitment from the United States for the renovation. Neither the United


                          18
                            This is an annual appropriation restriction that may not be made applicable in this
                          situation.




                          Page 16                                                         GAO-03-566 U.N. Renovation
                              States nor the United Nations have specified the nature of a financing
                              commitment, according to U.S. and U.N. officials. Once an acceptable
                              commitment is secured, the General Assembly will decide whether to
                              proceed with the renovation, and the United Nations will be able to sign a
                              lease with the U.N. Development Corporation. The corporation is also
                              working to resolve a number of issues before it can begin construction on
                              the swing space building in 2004.



United Nations Is Seeking a   Figure 4 shows that securing a financing commitment is the next milestone
Financing Commitment          in the renovation process. The Secretary-General anticipates that the
                              United States will offer a no-interest loan to finance the renovation. For the
                              United Nations to remain on its current renovation schedule, the United
                              States would have to make a commitment to finance the renovation by
                              October 2003. However, U.S. and U.N. officials stated that neither the
                              United States nor the United Nations have specified the nature of a
                              financing commitment. According to U.N. officials, the General Assembly
                              will not make a decision to move forward with the renovation or sign a
                              lease for the proposed swing space building without a financing
                              commitment. According to U.N. Development Corporation officials, they
                              will not begin construction on the proposed swing space building until the
                              United Nations signs a lease. The corporation needs a signed lease before it
                              can issue bonds to finance the construction of the swing space building.
                              For the renovation project to stay on schedule, the proposed swing space
                              building would have to be available for occupancy in early 2006.




                              Page 17                                               GAO-03-566 U.N. Renovation
Figure 4: Sequence and Estimated Time Frames for U.N. Headquarters Renovation




a
United Nations Development Corporation.




                                          Page 18                               GAO-03-566 U.N. Renovation
The U.N. Development       The U.N. Development Corporation must resolve two key issues in 2003 for
Corporation Must Address   the swing space to be available to the United Nations in 2006. First, the U.N.
                           Development Corporation is seeking to obtain state and city approval to
Several Issues to Begin
                           secure ownership of the proposed swing space site by the end of 2003 (see
Swing Space Construction   fig. 5). According to corporation officials, New York state approval is
                           necessary because the site is currently part of a city park and lies outside of
                           the corporation’s development zone. Corporation officials also said they
                           are currently working to obtain support within the local community, which
                           has expressed concerns about the loss of the park space. To compensate
                           the community, the corporation proposes to build a bike path along the
                           East River and the U.N. complex. However, according to corporation
                           officials, as of April 2003, no agreement had been reached. Once the issues
                           with the community group are resolved, the corporation must seek New
                           York state legislation by June 2003 to add the proposed construction site to
                           its development district, according to corporation officials. The




                           Page 19                                               GAO-03-566 U.N. Renovation
corporation will then seek New York City approval of its plans for the site.
City officials have expressed support for the swing space construction.



Figure 5: Proposed Swing Space Site




Source: GAO.



Second, the corporation is seeking a federal tax exemption for the bonds it
would issue to finance the swing space construction in early 2004.
According to corporation officials, without a tax exemption, the annual
lease cost to the United Nations could increase substantially, thereby
making the project economically unfeasible. Under the 1986 Tax Reform
Act, the U.N. Development Corporation and similar organizations lost the
ability to issue bonds that are exempt from federal taxes. Corporation
officials stated that they are working with members of Congress to
introduce legislation that would restore a tax exemption for the swing
space construction.




Page 20                                              GAO-03-566 U.N. Renovation
Effective Project           As the project moves into the critical design phase, the United Nations has
                            begun the process to hire a consultant who will manage and oversee the
Management and              final design and eventual renovation of the U.N. complex. These initial
Oversight Needed for        efforts are important as they lay the foundation for the project management
                            plan to ensure that the project’s scope, schedule, and costs are effectively
the Renovation to Be        controlled. In addition, U.N. oversight bodies anticipate additional
Successful                  resources and are developing audit plans to conduct oversight of the
                            renovation project. The Department of State and the U.S. Mission to the
                            United Nations have also initiated efforts to monitor the project. The
                            United States has a substantial interest in monitoring the project,
                            particularly if the United States agrees to finance it.



Effective Project           A well-defined project management plan and adequate project management
Management Needed to        staff will be essential for the United Nations to successfully complete the
                            renovation on time and within budget. U.N. officials recognize the need and
Control Cost and Schedule
                            importance of a project management plan and adequate staff to implement
                            the plan. In January 2002, the United Nations hired a project management
                            consultant to help develop a broad framework for a project management
                            plan. The consultant noted that once the United Nations establishes a
                            project management team, it will need to develop its project management
                            plan with detailed procedures. The consultant provided best practices
                            recommendations for creating a project management plan to control costs
                            and effectively implement the renovation. As of January 2003, the United
                            Nations had started the process to hire a consultant to provide project
                            management services, including developing the project management plan
                            and then supporting the United Nations in managing the project through
                            the design phase.

                            Based on the U.N. project management consultant’s report and
                            Construction Industry Institute research,19 an effective project
                            management plan will help the United Nations control costs and schedule.
                            An effective project management plan includes three key elements. First, a
                            clearly defined scope of work that remains relatively stable will provide the
                            basis for project decisions. The scope should clearly define the project
                            content and parameters, schedules, milestones for execution, budgets, and
                            expected project outcomes. Second, policies and procedures that


                            19
                               Construction Industry Institute, Project Change Management, Special Publication 43-l
                            (Austin, Tex.: November 1994).




                            Page 21                                                        GAO-03-566 U.N. Renovation
                               effectively manage scope and construction changes are important. These
                               policies and procedures should provide a means for analyzing and
                               documenting the reasons for changes and the implications of changes on
                               cost, schedule, and quality. Third, timely and accurate progress reports on
                               scope, cost, and schedule are important as a means of informing all
                               relevant parties and coordinating changes. Regular reporting would
                               identify key project issues that require discussion and impending issues
                               that require resolution. While the United Nations recognizes the
                               significance of developing a project management plan, it is important that
                               the United Nations continues to incorporate best practices to ensure the
                               plan’s effectiveness.

                               Project management staff are essential to controlling schedule and cost
                               changes because they will guide decision making and coordinate resources
                               throughout the project. Project management staff would represent the
                               United Nations as the owner of the project and facilitate coordination and
                               communication between the design firms and construction contractors.
                               The United Nations does not currently have sufficient staff to manage the
                               project effectively but, according to U.N. officials, plans to hire additional
                               staff and/or contractors. The United Nations added seven staff to its Capital
                               Master Plan team during the conceptual planning phase, including two
                               security officials, and plans to augment its management capability during
                               design. In February 2003, the United Nations appointed an Assistant
                               Secretary-General as the full-time executive director of the Capital Master
                               Plan management project. As of March 2003, the United Nations had 12
                               people on the renovation project management staff. The United Nations is
                               evaluating options for acquiring additional expertise and anticipates having
                               a management team of 20 staff and contractors during the design phase and
                               a team of about 40 staff at the peak of construction.



Office of Internal Oversight   In a February 2003 resolution, the General Assembly stressed the
Services and the Board of      importance of oversight in implementing the Capital Master Plan and
                               requested the Board of Auditors and all relevant oversight bodies, such as
Auditors Plan to Conduct
                               the Office of Internal Oversight Services, to initiate immediate oversight
Oversight of the Renovation    activities.20 In our last report, we noted that the Office of Internal
Project


                               20
                                United Nations General Assembly, Resolution Adopted by the General Assembly,
                               A/RES/57/292.




                               Page 22                                                    GAO-03-566 U.N. Renovation
                          Oversight Services21 did not have the expertise to perform an oversight
                          role, but the office had agreed to assume such responsibility by hiring
                          people with the necessary skills. Since then, the office has assigned one
                          staff member to begin researching the Capital Master Plan on a part-time
                          basis. However, the office has not developed a plan detailing the oversight
                          functions it plans to pursue or hired additional staff. Officials from the
                          oversight office stated that it has requested funding so that it can hire
                          contractors to help evaluate the Capital Master Plan, the project
                          management plan, and the security upgrades. The officials anticipate that
                          these contractors would have architectural and construction skills and
                          knowledge of New York City building codes.

                          The Board of Auditors had not yet conducted oversight of the Capital
                          Master Plan but plans to complete an audit strategy by June 2003.22 The
                          board has decided to review financial accounts, compliance with U.N.
                          procurement regulations, and the effectiveness of Capital Master Plan
                          management. After the board completes its audit strategy, it plans to
                          determine the additional resources and expertise it needs to conduct
                          oversight of the renovation. According to a board official, the United
                          Nations approved initial funding of $35,000 in April 2003 to cover the audit
                          of Capital Master Plan activities during 2003. However, the board will
                          require additional resources for oversight as the renovation progresses.



Department of State Has   The United States has a substantial interest in the renovation project and
Begun Monitoring          its costs, particularly since the Secretary-General anticipates U.S.
                          financing. As the project goes forward, the United States will decide
Renovation Planning
                          whether to finance the renovation and will take part in other key decisions.
                          The Department of State, the lead foreign affairs agency responsible for
                          developing and implementing U.S. policy toward the United Nations, has
                          assembled a task force to monitor U.N. implementation of the Capital
                          Master Plan. While Department of State officials have consulted with other
                          U.S. government officials concerning the renovation project, they have not
                          yet created a formal framework that defines the task force’s mission and
                          program goals. In addition, a department official stated that they do not


                          21
                           The U.N. Office of Internal Oversight Services conducts internal oversight of U.N. activities
                          through monitoring, inspection, and evaluation. The office reports to the Secretary-General.
                          22
                           The U.N. Board of Auditors is an external audit agency that audits U.N. accounts, funds,
                          and programs. The board reports to the General Assembly.




                          Page 23                                                         GAO-03-566 U.N. Renovation
have the expertise to undertake effective monitoring of the project as it
progresses.

In our June 2001 report, we recommended that the Department of State
develop a comprehensive U.S. position on matters pertaining to the
renovation. We further recommended that if the United States were to take
a position in support of the renovation, the department should consider
obtaining expertise in construction management and financing. In June
2001, the department took a position in support of renovating the U.N.
headquarters complex and created an interagency task force to monitor the
renovation project in August 2002. The task force consists of six officials
from the department and the Office of Management and Budget who work
part-time on task force activities and a point-person at the U.S. Mission to
the United Nations who monitors U.N. renovation planning efforts. In
addition, a senior official at the Ambassador level represents U.S. concerns
on the renovation project to the United Nations and other member state
representatives. To assist the task force, the department has also retained a
part-time consultant with building construction and security experience.

Although the Department of State has organized the task force, it has yet to
develop an interagency framework that sets forth the task force’s mission
or program goals. To monitor the project and coordinate the U.S. decision
on whether to finance the renovation, the department will undertake
diplomatic, federal financing and budgeting, and construction activities
that will require participation from numerous government officials and
organizations with the necessary expertise. A framework that describes the
task force’s mission, program goals, and coordinating mechanisms will help
ensure that each organization has a clear understanding of its role,
responsibilities, and expectations. The development of this framework is
important because the task force’s monitoring role is likely to continue
through the four remaining phases of the renovation project.

Furthermore, with established mission and program goals, the department
could specify resource needs, including appropriate skills needed to
achieve a successful outcome of the project. As the renovation proceeds
and the management of the project increases in magnitude and complexity,
the department can identify and obtain the critical skills that will be needed
to monitor the project. Department officials have stated that they lacked
the needed expertise to monitor a renovation project of this magnitude.

It is also important that the task force is staffed appropriately because the
Department of State will have a number of key questions and issues to



Page 24                                               GAO-03-566 U.N. Renovation
              address over the life of the project, particularly if the United States agrees
              to finance the renovation. Some key questions and issues to be addressed
              include the following:

              • If the United States offers to finance the renovation, how would it
                structure a loan to the United Nations? What should be the loan’s terms
                and conditions? Would the United States provide a loan that fully funds
                the renovation project? If there are cost increases during the renovation,
                would the United States provide additional financing and, if so, under
                what terms and conditions?

              • Does the United Nations have internal controls in place to effectively
                manage changes in costs, scope, and schedule throughout the design
                and construction of the project?

              • To what extent are U.N. officials coordinating the renovation design and
                construction with that of the proposed new visitors center?

              • What types of incentives will the United Nations include in its contracts
                with design and construction firms to ensure that their work meets U.N.
                expectations?

              • Since the design phase provides the greatest opportunity to make
                decisions that could minimize future building maintenance and
                operating costs, to what extent are these future costs being considered
                during the design phase?

              • How will U.N. officials ensure that value-engineering principles—a
                formal technique used by contractors or independent teams to identify
                methods of constructing projects more economically—are applied
                during the design and construction phases?

              The department’s position on each of these issues and the level of
              monitoring it will undertake will drive its resource and expertise needs.



Conclusions   The United Nations has used a reasonable process thus far to develop its
              renovation plans, but it is still early in the project and changes in the
              schedule and cost estimates are to be expected. While the General
              Assembly has funded the project’s design, a commitment to finance the
              renovation will be needed by October 2003 for the United Nations to
              remain on its current schedule and sign a lease for the swing space. If the



              Page 25                                               GAO-03-566 U.N. Renovation
                      planned swing space is not available, the United Nations will have to
                      reconsider its renovation approach, potentially leading to delays in the
                      renovation process. The United States, however, has not yet taken a
                      position on whether or how to finance the renovation. In addition, careful
                      management and oversight of a project of this magnitude and complexity
                      will be necessary to minimize schedule and scope changes. The
                      renovation’s completion, final cost, and quality could be adversely affected
                      if the United Nations does not provide adequate staff to manage the
                      renovation and establish careful controls to limit scope changes. Continued
                      monitoring by the Department of State will be critical as the project
                      progresses and various issues arise, particularly if the United States
                      finances the renovation.



Recommendations for   We recommend that the Secretary of State, in consultation with
                      appropriate administration officials and other U.N. members, direct the
Executive Action      U.S. representative to the United Nations to

                      • encourage the United Nations to complete and implement an effective
                        project management plan that will guide decision making and
                        coordination throughout the renovation project, and

                      • encourage the United Nations to provide the Office of Internal Oversight
                        and the Board of Auditors with the resources needed to conduct
                        effective oversight of the Capital Master Plan as the project progresses.

                      In addition, to ensure that U.S. interests are effectively represented as the
                      United Nations proceeds through the design phase, we recommend that the
                      Secretary of State define the mission and program goals of the task force
                      currently monitoring U.S. participation in the Capital Master Plan. We
                      further recommend that the Secretary determine the expertise the task
                      force needs to fulfill its role and ensure that it has the resources necessary
                      to monitor the project over its duration.



Agency Comments and   In commenting on a draft of this report, the United Nations and
                      Department of State agreed with our findings and recommendations.
Our Evaluation        However, the Board of Auditors disagreed with our recommendation
                      calling for resources for the board to conduct oversight. A board official
                      stated in April 2003 that the United Nations approved $35,000 for the board
                      to conduct oversight of the $1.2 billion renovation project. We modified our



                      Page 26                                               GAO-03-566 U.N. Renovation
recommendation to acknowledge the board’s initial funding, but we
continue to recommend funding for the board’s oversight function over the
course of the 6-year renovation project. Ensuring that the board has the
necessary resources to conduct oversight will be important throughout the
renovation. The board also provided technical comments to our report,
which we incorporated as appropriate. Written comments from the United
Nations, Department of State, Office of Internal Oversight Services, and
Board of Auditors, along with our response, are in appendixes V through
VIII. We provided the Office of Management and Budget with a draft of our
report, but the office did not provide any comments.


As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies of this report to the Secretary
of State; the U.S. Ambassador to the United Nations; the Director, U.S.
Office of Management and Budget; the U.N. Secretary-General; and
interested congressional committees. We also will make copies available to
others on request. In addition, the report will be available at no charge on
the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me
at (202) 512-8979. Additional GAO contacts and staff acknowledgments are
listed in Appendix IX.

Sincerely yours,




Joseph A. Christoff, Director
International Affairs and Trade




Bernard L. Ungar, Director
Physical Infrastructure Issues




Page 27                                               GAO-03-566 U.N. Renovation
Appendix I

Scope and Methodology                                                                                     A
                                                                                                          A
                                                                                                          ppep
                                                                                                             nen
                                                                                                               d
                                                                                                               xIeis




              To assess the reasonableness of the process used by the Secretariat for
              project planning and development, including the cost estimate and security
              plans, we reviewed U.N. records, including reports developed by the
              architect-engineering firm and security assessments prepared for the
              United Nations. We also researched industry practices related to
              construction project planning and development, cost estimating, and
              security plan development. We compared the Secretariat’s efforts in project
              planning and cost estimating with industry practices as identified by the
              Federal Facilities Council and the Construction Industry Institute. We also
              reviewed the assumptions supporting the cost estimates, including
              contingencies and swing space costs. In assessing the process the
              Secretariat used to develop its security plan, we used industry-recognized
              guidelines as criteria. We also obtained input from U.S. federal agency
              security experts on the process used to develop the United Nations’
              security plan. In addition, we reviewed other recently implemented or
              planned security initiatives and their interface with the security
              components of the Capital Master Plan. We discussed various aspects of
              the project, including the process by which the Capital Master Plan was
              developed, with U.N. renovation project staff and consultants.

              To assess the potential financial impact to the federal government of the
              renovation, we modeled the financial impact of a no-interest, 1 percent, and
              2 percent loan to the United Nations. We did not assess the financial impact
              to the federal government of the renovation if the United Nations sought
              other financing options, or if the United Nations did not undertake the
              renovation and repaired or replaced major building systems as they failed.
              We reviewed the most current renovation cost estimates, the renovation
              cash flow statement, the U.N. Development Corporation cost estimate for
              swing space, interest rates for corporate and tax-exempt bonds, interest
              rate assumptions in the President’s budget for fiscal year 20041 and the
              Economic Report of the President (1999), and the 1948 loan agreement
              between the United Nations and the United States. We used the Office of
              Management and Budget’s Credit Subsidy Calculator to estimate the
              interest and default subsidies for interest-subsidized loans under various
              terms. In doing so, we made several key assumptions including the interest
              rate, the U.S. disbursal of funds, and a repayment plan. We then discussed



              1
               Office of Management and Budget, Analytical Perspectives, Budget of the United States
              Government, Fiscal Year 2004 (Washington, D.C.: U.S. Government Printing Office, March 6,
              2003).




              Page 28                                                         GAO-03-566 U.N. Renovation
Appendix I
Scope and Methodology




our assumptions with Department of State, Congressional Budget Office,
and Office of Management Budget officials.

To analyze the critical milestones remaining in the renovation project, we
reviewed the critical paths and the estimated schedules for the U.N.
renovation and the U.N. Development Corporation’s proposed swing space
building. We compared these critical paths and linked them to illustrate the
necessary milestones and their sequence. We then clarified the sequence
and duration of these milestones in interviews with Capital Master Plan
staff at the United Nations, officials at the U.N. Development Corporation,
and officials at the Department of State. In addition, we consulted with
construction industry experts and legal counsel within GAO to evaluate
and comment on the validity of the milestones’ sequence.

To assess U.N. and Department of State efforts to monitor and oversee the
renovation, we reviewed U.N. documents such as the Capital Master Plan,
the U.N. renovation project management plan, the U.N. resolution
pertaining to oversight of the Capital Master Plan, and the mission
statements of the Office of Internal Oversight Services and the Board of
Auditors. We subsequently spoke with U.N. and Department of State
officials to determine their past and anticipated oversight roles and
responsibilities in the U.N. renovation. In addition, we discussed the
personnel required to adequately oversee the renovation, the funding
received and requested for renovation monitoring, and the procedures in
place for decision making and oversight.

In conducting our review, we received the full cooperation of the United
Nations, U.N. Development Corporation, U.S. Mission to the United
Nations, and the Department of State. We conducted our review between
June 2002 and April 2003, in accordance with generally accepted
government auditing standards.




Page 29                                             GAO-03-566 U.N. Renovation
Appendix II

Two Approaches to Renovating the U.N.
Headquarters Complex                                                                                                                                            AppenIx
                                                                                                                                                                      di




U.N. Secretary-General   In the August 2002 Capital Master Plan, the U.N. Secretary-General
                         presented two approaches to renovating the U.N. headquarters complex.
Offered Two              According to the Capital Master Plan, the unique conference room needs of
Renovation               the United Nations were a driving factor in the Secretary-General’s
                         development of these approaches. The two approaches include
Approaches
                         • temporarily relocating most U.N. activities during much of the
                           construction work to swing space in a proposed new building near the
                           U.N. complex (see fig. 6), or

                         • rotating U.N. staff through more limited swing space in a new four-story
                           building constructed on the U.N. headquarters complex where the South
                           Annex is currently located.

                         The Secretary-General endorsed the first approach, and the General
                         Assembly approved the development of renovation designs based on that
                         approach.



                         Figure 6: U.N. Headquarters Complex and Proposed Location of Swing Space under
                         Approach 1

                             FDR Drive                                                     East River

                                                                                                                            South
                                                                                                                            Annex FDR Drive
                                                                                                        Conference
                                                                                                         Building

                                                                                                                  Secretariat
                                                     North Lawn
                                     48th Street




                                                      Extension                   General
                                                                                 Assembly
                                                                                                                                Library




                                                                                                                                                        Swing
                                                                                                                                                        space
                                                                                                                                          42nd Street




                                                                            First Avenue
                                                                      Unitar
                                                                     Building

                                                                                SITE PLAN
                                      Core complex                    UNITED NATIONS HEADQUARTERS                           North
                                      Subsequent buildings           LONG TERM CAPITAL MASTER PLAN
                                      Swing space                 Buildings and Grounds Included in Renovation


                          Sources: United Nations and GAO.




                         Page 30                                                                                 GAO-03-566 U.N. Renovation
             Appendix II
             Two Approaches to Renovating the U.N.
             Headquarters Complex




Approach 1   Under the first approach, most U.N. staff and activities would temporarily
             relocate to swing space in a proposed new office building near the U.N.
             complex during much of the renovation. U.N. consultants estimated that
             the renovation would take less than 5 years to complete and cost about $1.2
             billion. As shown in table 2, the cost estimate includes a baseline scope—
             removing asbestos; replacing the electrical, plumbing, and climate control
             systems; and installing an upgraded fire suppression system. The cost
             estimate also includes leasing swing space for 4 years from the U.N.
             Development Corporation, a New York State nonprofit public benefit
             corporation tasked with constructing and leasing office space to the United
             Nations. Additional cost factors include the replacement of the Secretariat
             Building’s window structure and additional scope options that the General
             Assembly has not yet decided to include in the renovation. These options
             include additional safety and security measures, emergency backup
             provisions, and sustainability measures to address environmental goals.
             The cost estimate excludes construction of an additional conference room
             on the complex1 and security upgrades that the United Nations will
             complete before the renovation begins.



             Table 2: Preliminary Cost Estimate of Approach 1

             Renovation component                                        Estimated cost (in millions)
             Baseline scope                                                                      $991
             Swing space leasing                                                                   96
             Secretariat building window structure                                                 36
             Exclusion of conference room                                                          -57
             Completed security upgrades                                                           -17
             Subtotal                                                                          $1,049
             Scope options                                                                        144
             Total                                                                             $1,193
             Source: GAO analysis of U.N. data.


             The U.N. Development Corporation has offered to construct the swing
             space building. The new office building would be built on a park next to the
             U.N. Headquarters complex and connected to the existing complex by a


             1
              Under this approach, the United Nations would have the additional conference room within
             the swing space building.




             Page 31                                                      GAO-03-566 U.N. Renovation
             Appendix II
             Two Approaches to Renovating the U.N.
             Headquarters Complex




             tunnel. The United Nations currently plans to sign a long-term lease for the
             building with the U.N. Development Corporation. The building would be
             used as swing space during the 4 years of the renovation. Afterwards, the
             United Nations would relocate most of its New York City staff that
             currently work in office space outside the Headquarters complex to the
             swing space building. This would include relocating staff out of office
             space in two buildings currently leased from the U.N. Development
             Corporation. According to corporation officials, the corporation could then
             be able sell these two buildings and provide the proceeds to New York City.



Approach 2   Under the second approach, the United Nations would replace the South
             Annex, a two-story building on the U.N. Headquarters complex, with a four-
             story building to use as swing space. The United Nations would lease
             additional office space as needed for swing space. The renovation work
             would occur in stages with five to ten floors of the U.N. Headquarters
             renovated while staff rotate through the swing space. To avoid excessive
             disruption, the meeting rooms would be renovated at night and on
             weekends. Under this approach, the renovation would take 6 years and
             cost more than $1.3 billion (see table 3).



             Table 3: Preliminary Cost Estimate of Approach 2

             Renovation component                               Estimated cost (in millions)
             Baseline scope                                                          $1,094
             Swing space construction and leasing                                        66
             Secretariat building window structure                                       36
             Completed security upgrades                                                -17
             Subtotal                                                                $1,179
             Scope options                                                              144
             Total                                                                   $1,323
             Source: GAO analysis of U.N. data.


             The total cost estimate is higher under Approach 2 because the renovation
             work would occur in stages since the limited swing space could not house
             all U.N. headquarters staff. Also, the United Nations would construct an
             additional conference room on the Headquarters complex. Under this
             approach, the swing space cost—replacing the South Annex and additional
             commercial leasing—would be less than leasing a swing space building
             from the U.N. Development Corporation. As with Approach 1, this cost


             Page 32                                             GAO-03-566 U.N. Renovation
Appendix II
Two Approaches to Renovating the U.N.
Headquarters Complex




estimate includes replacement of the Secretariat Building’s window
structure and various scope options that the General Assembly has not yet
decided to include. This cost estimate also excludes the security upgrades
that the United Nations will complete before renovation begins. Although
Approach 2 would cause the least disruption because meeting chambers
would be renovated when the rooms were not in use, the risk of cost
overruns, delays, and disturbance, and the perceived risk of exposure to
asbestos is higher.




Page 33                                            GAO-03-566 U.N. Renovation
Appendix III

U.N. Consultants and Subconsultants                                                                                 Appen
                                                                                                                        Ix
                                                                                                                         di




                Table 4 presents the firms that were involved in the conceptual planning
                process and noted in this report as consultants to the United Nations or
                subconsultants to the U.N. architect-engineering firm.



                Table 4: Firms Involved in the Conceptual Planning Process

                Type of consultant/subconsultant                 Name of firm
                Architect-engineering firm                       Renato Sarno Group
                Consulting engineer                              Ove Arup & Partners/Hanscomba
                Cost estimating subconsultant                    Turner Construction
                Cost estimating consultant                       Hill International
                Security subconsultant                           Ducibella Venter & Santore
                Project management consultant                    Atkins, Hanscomb, Faithful, and Gould
                Source: United Nations.
                a
                This consultant was the architect-engineering firm involved in developing the 2000 Capital Master
                Plan.




                Page 34                                                               GAO-03-566 U.N. Renovation
Appendix IV

Security Upgrades at the United Nations                                                                                                       Appen
                                                                                                                                                  V
                                                                                                                                                  Id
                                                                                                                                                   xi




Completed and Planned   In response to the terrorist attacks of September 11, 2001, the United
                        Nations implemented emergency security measures and also accelerated
Security Initiatives    its plans to implement some of the security measures that had been
                        originally planned for the renovation. The United Nations also worked with
                        its consultants to enhance the security component of the revised Capital
                        Master Plan. According to U.N. officials, to more effectively coordinate the
                        interface between the upgrades made after September 11, 2001, and the
                        security measures in the Capital Master Plan, the United Nations has hired
                        the same consultant to work on both packages, assigned some internal
                        staff to oversee both projects, and calculated the cost of any overlap in
                        security upgrade initiatives.

                        As shown in figure 7, the recent and planned security measures for the U.N.
                        Headquarters complex comprise four initiatives.



                        Figure 7: United Nations Security Initiatives


                                          Post 9/11 upgrades                                         Capital Master Plan upgrades
                               Emergency                   "Strengthening                    Capital Master Plan      Capital Master Plan
                                upgrades                      security"                        baseline scope               options
                                $3.7 million                  $26 million                           $77 million            $30 million

                          Largely implemented             To be completed                       Highest priority       Not highest priority
                          in 2001:                        by 2004:                              security upgrades:     or upgrades to be
                                                                                                                       coordinated with
                          • Perimeter security            • Access control                      • Additional access    N.Y. City:
                            upgrades                        upgrades                              control
                                                                                                                       • Strengthening
                          • Evacuation route              • Renovate security                   • Blast-resistance       building structure
                            upgrades                        control room
                                                                                                                       • Barriers on First
                                                                                                                         Avenue


                                                                       $17 million accelerated


                         Sources: GAO analysis of Capital Master Plan and related U.N. documents.




Emergency Upgrades      This emergency initiative was introduced in December 2001 in response to
                        the September 11, 2001 terrorist attacks. In late 2001, the United Nations
                        organized a Senior Emergency Management Group to deal with major
                        emergency situations at the U.N. Headquarters. The Secretary-General
                        identified the most immediate, short-term security needs and requested



                        Page 35                                                                               GAO-03-566 U.N. Renovation
                               Appendix IV
                               Security Upgrades at the United Nations




                               additional funding. These measures, estimated to cost $3.7 million,
                               included enhancements to the perimeter security and upgrades to the
                               emergency response system on the complex and were largely implemented
                               by March 2002.



Strengthening Security         The strengthening security initiative also came as a result of the
                               assessments the United Nations conducted after September 11, 2001. This
                               initiative includes more long-term upgrades relative to the urgent measures
                               implemented under the previous initiative. Some of the upgrades in this
                               initiative (worth approximately $17 million) were part of the Capital Master
                               Plan and their implementation was accelerated because of heightened
                               security concerns. This initiative includes an upgraded access control
                               system for the entire complex and renovations to the existing security
                               control room. As of April 2003, the United Nations is designing these
                               upgrades; U.N. officials expect them to be in place in 2004 at a total cost of
                               $26 million.



Security Upgrades in the       The U.N. security design consultant made 114 recommendations for the
Capital Master Plan Baseline   2002 Capital Master Plan. The U.N. security staff, along with the consultant,
                               prioritized those recommendations, creating a list of “highest priority”
Scope                          upgrades. These upgrades, totaling $77 million, were included as part of the
                               baseline scope for the 2002 Capital Master Plan. The upgrades encompass
                               additional visitor access control and blast resistance materials in certain
                               areas on the complex.



Capital Master Plan Security   This initiative includes the U.N. security consultant’s remaining
Scope Option                   recommendations that were either (1) not the highest priority or (2)
                               required coordination with New York City. Totaling $30 million, these
                               upgrades include strengthening the building structure and installing vehicle
                               barriers on some roads adjacent to the complex.




                               Page 36                                               GAO-03-566 U.N. Renovation
Appendix V

Comments from the United Nations                            Appen
                                                                V
                                                                di
                                                                x




               Page 37             GAO-03-566 U.N. Renovation
Appendix VI

Comments from the Department of State                        AppenV
                                                                  d
                                                                  xiI




               Page 38              GAO-03-566 U.N. Renovation
Appendix VI
Comments from the Department of State




Page 39                                 GAO-03-566 U.N. Renovation
Appendix VII

Comments from the Office of Internal Oversight
Services                                                       AppenV
                                                                    d
                                                                    xiI




                Page 40               GAO-03-566 U.N. Renovation
Appendix VII
Comments from the Office of Internal
Oversight Services




Page 41                                GAO-03-566 U.N. Renovation
Appendix VIII

Comments from the U.N. Board of Auditors                    AppenV
                                                                 diI
                                                                 x




Note: GAO comments
supplementing those in
the report text appear
at the end of this
appendix.




    See comment 1.




    See comment 2.




     See comment 3.




     See comment 4.




                         Page 42   GAO-03-566 U.N. Renovation
                  Appendix VIII
                  Comments from the U.N. Board of Auditors




See comment 5.




See comment 6.




See comment 7.




 See comment 8.




                  Page 43                                    GAO-03-566 U.N. Renovation
               Appendix VIII
               Comments from the U.N. Board of Auditors




               The following are GAO’s comments on the letter from the U. N. Board of
               Auditors dated May 9, 2003.



GAO Comments   1. The board stated that the United Nations had approved funds for the
                  audit of the Capital Master Plan. A board official stated that
                  approximately $35,000 was approved in April 2003 to conduct oversight
                  of the renovation. We have included this information in the report. We
                  modified our recommendation to acknowledge the board’s initial
                  funding, but continue to recommend funding for the board’s oversight
                  function over the course of the six-year renovation project.

               2. We modified the report to reflect the board’s comment.

               3. We modified the report to reflect the board’s comment.

               4. See comment 1.

               5. We modified the report to reflect the board’s comment.

               6. We modified the report to reflect the board’s comment.

               7. No change made. The comment does not provide additional clarity to
                  the report.

               8. See comment 1. Since the renovation is likely to continue for a number
                  of years, ensuring that the board has the necessary resources to
                  conduct oversight throughout the project will be critical. Accordingly,
                  we have modified our recommendation to clarify our position.




               Page 44                                            GAO-03-566 U.N. Renovation
Appendix IX

GAO Contacts and Staff Acknowledgments                                                                 Appen
                                                                                                           X
                                                                                                           Id
                                                                                                            xi




GAO Contacts            Phyllis Anderson (202) 512-7364
                        Terrell Dorn (202) 512-6923



Staff Acknowledgments   In addition to the individuals named above, Bruce Kutnick, Ronald King,
                        Valérie L. Nowak, Maria Edelstein, Jeffrey T. Larson, Julia A. Roberts, Lynn
                        Cothern, Jonathan Rose, and Barbara Shields made significant
                        contributions to this report.




(320133)                Page 45                                             GAO-03-566 U.N. Renovation
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