oversight

Embassy Construction: State Department Has Implemented Management Reforms, but Challenges Remain

Published by the Government Accountability Office on 2003-11-04.

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

                United States General Accounting Office

GAO             Report to the Chairman, Committee on
                Foreign Relations, U.S. Senate



November 2003
                EMBASSY
                CONSTRUCTION
                State Department Has
                Implemented
                Management Reforms,
                but Challenges
                Remain




GAO-04-100
                a
                                                November 2003


                                                EMBASSY CONSTRUCTION

                                                State Department Has Implemented
Highlights of GAO-04-100, a report to the       Management Reforms, but Challenges
Chairman, Committee on Foreign
Relations, U.S. Senate                          Remain



Since the 1998 bombings of two                  OBO in 2001 began instituting organizational and management reforms
U.S. embassies in Africa, the State             designed to cut costs, put in place standard designs and review processes,
Department has done much to                     and reduce the construction period for new embassies and consulates. OBO
improve physical security at                    now has mechanisms to more effectively manage the embassy construction
overseas posts. However, most                   program, including
overseas diplomatic office facilities
still do not meet the security                      • an annual Long-Range Overseas Buildings Plan to guide the planning
standards State developed to                            and execution of the program over a 6-year period;
protect these sites from terrorist                  • monthly project reviews at headquarters;
attacks and other dangers. To                       • an Industry Advisory Panel for input on current best practices in the
correct this problem, State in 1999                     construction industry;
embarked on an estimated $21                        • expanded outreach to contractors in an effort to increase the
billion embassy construction                            number of bidders;
program. The program’s key
                                                    • ongoing work to standardize and streamline the planning, design,
objective is to provide secure, safe,
and functional compounds for                            and construction processes, including initiation of design-build
employees overseas—in most                              contract delivery and a standard embassy design for most projects;
cases by building replacement                       • additional training for OBO headquarters and field staff; and
facilities. In 2001, State’s Bureau of              • advance identification and acquisition of sites.
Overseas Buildings Operations
(OBO)—which manages the                         State’s program to replace about 185 vulnerable embassies and consulates is
program—began instituting                       in its early stages, but the pace of initiating and completing new construction
reforms in its structure and                    projects has increased significantly over the past two fiscal years. As of
operations to meet the challenges
                                                September 30, 2003, State had started construction of 22 projects to replace
of the embassy construction
program. This report discusses                  facilities at risk of terrorist or other attacks. Overall, 16 projects have
(1) OBO’s mechanisms for more                   encountered challenges that have led or, if not overcome, could ultimately
effectively managing the embassy                lead to extensions in the completion date or cost increases in the
construction program and (2) the                construction contract. According to OBO, project delays have occurred
status of and challenges facing the             because of such factors as changes in project design and security
program.                                        requirements; difficulties hiring appropriate American and local labor with
                                                the necessary clearances and skills; differing site conditions; and unforeseen
We received comments from State,                events such as civil unrest. In addition, the U.S. government has had
which said that the report is a fair            problems coordinating funding for projects that include buildings for the
and accurate representation overall             U.S. Agency for International Development. None of the projects started
of the Department’s overseas
                                                since OBO instituted its reforms has been completed; thus GAO believes it is
construction process.
                                                too early to assess the effectiveness of the reforms in ensuring that new
                                                embassy and consulate compounds are built within the approved project
                                                budget and on time.




www.gao.gov/cgi-bin/getrpt?GAO-04-100.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Jess Ford at
(202) 512-4128 or fordj@gao.gov.
Contents



Letter                                                                                                 1
                             Results in Brief                                                          2
                             Background                                                                3
                             OBO Mechanisms to More Effectively Manage the Embassy
                               Construction Program                                                    7
                             Status of and Challenges Facing the Construction Program                 15
                             Conclusion                                                               26
                             Agency Comments and Our Evaluation                                       26


Appendixes
              Appendix I:    Scope and Methodology                                                    28
             Appendix II:    Information on Embassy Construction Projects’ Contractors
                             and Building Size                                                        31
             Appendix III:   Comments from the Department of State                                    33
                             GAO Comments                                                             38
             Appendix IV:    GAO Contact and Staff Acknowledgments                                    39
                             GAO Contact                                                              39
                             Staff Acknowledgments                                                    39


Tables                       Table 1: Cost and Schedule Performance of Projects Awarded
                                      before OBO’s Management Reforms (as of late
                                      July 2003)                                                      18
                             Table 2: Cost and Schedule Performance of Projects Awarded since
                                      OBO’s Management Reforms (as of late July 2003)                 20
                             Table 3: List of the 22 Post Replacement Projects Included in This
                                      Review                                                          29
                             Table 4: List of Post Replacement Projects Awarded in Late Fiscal
                                      Year 2003                                                       30
                             Table 5: List of Contractors for Ongoing Embassy and Consulate
                                      Replacement Projects                                            31
                             Table 6: Size of Embassy Construction Projects Using Standard
                                      Embassy Design                                                  32


Figures                      Figure 1: Appropriations for Upgrading and Replacing Diplomatic
                                       Posts, Fiscal Years 1998-2004                                   6
                             Figure 2: Standard Embassy Design                                        13
                             Figure 3: Initiated and Completed Projects, Fiscal Years
                                       1999-2003                                                      16



                             Page i                                       GAO-04-100 Embassy Construction
Contents




Figure 4: Status of State’s Program to Replace Embassies and
          Consulates, Fiscal Years 1999-2003                                           17
Figure 5: Site of Proposed, but Unfunded, USAID Building at the
          U.S. Embassy in Yerevan                                                      25




Abbreviations

OBO          Bureau of Overseas Buildings Operations
USAID        U.S. Agency for International Development


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Page ii                                                 GAO-04-100 Embassy Construction
A
United States General Accounting Office
Washington, D.C. 20548



                                    November 4, 2003                                                                           Leter




                                    The Honorable Richard Lugar
                                    Chairman, Committee on Foreign Relations
                                    United States Senate

                                    Dear Mr. Chairman:

                                    Since the 1998 bombings of two U.S. embassies in Africa,1 the State
                                    Department has done much to improve physical security at overseas posts,
                                    such as constructing perimeter walls and anti-ram barriers at many
                                    facilities. Despite these security upgrades, however, most overseas
                                    diplomatic office facilities do not meet security standards that State
                                    developed to protect them from terrorist attacks and other dangers. As a
                                    result, thousands of American and Foreign Service National U.S.
                                    government employees may be vulnerable to terrorist attacks. In March
                                    2003,2 we testified on these security deficiencies at overseas diplomatic
                                    facilities, reporting that many facilities are in poor condition, do not meet
                                    fire and safety standards, and are in need of major maintenance. To correct
                                    the security shortcomings at existing embassies and consulates, the State
                                    Department in 1999 embarked on an estimated $21 billion embassy
                                    construction program, the largest program of its kind in the department’s
                                    history. The program’s key objective is to provide secure, safe, and
                                    functional compounds for employees assigned to work at U.S. embassies
                                    and consulates around the world, in most cases by building replacement
                                    facilities. State’s Bureau of Overseas Buildings Operations (OBO) is
                                    responsible for planning and managing the program. Recognizing the
                                    challenges of managing State’s expanded overseas construction program,
                                    OBO in 2001 began to institute organizational and management reforms in
                                    its structure and operations.

                                    At your request, this report discusses (1) OBO’s mechanisms for more
                                    effectively managing State’s construction program to replace vulnerable
                                    embassies and consulates and (2) the status of and challenges facing the
                                    overall construction program.



                                    1
                                     The 1998 terrorist bombings of the U.S. embassies in Nairobi, Kenya, and Dar Es Salaam,
                                    Tanzania, killed more than 220 people and injured 4,000.
                                    2
                                     U.S. General Accounting Office, Overseas Presence: Conditions of Overseas Diplomatic
                                    Facilities, GAO-03-557T (Washington, D.C.: Mar. 20, 2003).




                                    Page 1                                                  GAO-04-100 Embassy Construction
                   To address these objectives, we reviewed the report of the Overseas
                   Presence Advisory Panel,3 earlier GAO reports that outlined problems in
                   State’s embassy construction program, State’s Long-Range Overseas
                   Buildings Plans for the past 3 years, monthly project performance
                   documents, contract modifications, and other OBO documents. We also
                   interviewed key State Department officials and contractors currently
                   working on new embassy construction projects to determine the steps
                   OBO has taken to more effectively manage the construction program.
                   Further, we visited two field locations—in Sofia, Bulgaria, and Yerevan,
                   Armenia—where we observed the level of management and supervision at
                   the new embassy construction sites and the contractor’s performance on
                   the projects. Appendix I provides more information on our scope and
                   methodology.



Results in Brief   OBO in fiscal year 2001 began to institute a number of organizational and
                   management reforms in its structure and operations designed to cut costs,
                   put in place standard designs and review processes, and reduce the
                   construction period for new embassies and consulates. Thus, OBO now has
                   a number of mechanisms in place to more effectively manage the expanded
                   construction program. These mechanisms include the annual Long-Range
                   Overseas Buildings Plan, the first of which was developed in July 2001,
                   which guides the planning and execution of its overseas construction
                   program over a 6-year period, among other things. OBO in 2001 also
                   instituted monthly project reviews at headquarters and in 2002 established
                   a panel of industry advisors for input on current best practices in the
                   construction industry. In addition, OBO expanded its outreach to
                   contractors in an attempt to increase the number of contractors that bid on
                   construction projects, has put in place standard designs, and has
                   streamlined its project design delivery processes. Furthermore, OBO has
                   increased its efforts to train staff in a variety of positions and to acquire
                   sites well in advance of planned construction.




                   3
                    Secretary of State Albright established the Overseas Presence Advisory Panel following the
                   1998 embassy bombings in Africa. Department of State, America’s Overseas Presence in the
                   21st Century, The Report of the Overseas Presence Advisory Panel (Washington, D.C.:
                   November 1999).




                   Page 2                                                  GAO-04-100 Embassy Construction
             State’s program to replace about 185 vulnerable embassies and consulates
             is in its early stages, but the pace of initiating and completing new
             construction projects has increased significantly over the past three fiscal
             years. From fiscal years 1999 through 2003, State received approximately
             $2.7 billion for the construction program. As of September 30, 2003, State
             had started construction of 22 projects to replace embassies and
             consulates at risk of terrorist or other attacks.4 Eight of the 22 projects
             were started before OBO began to institute its recent management
             reforms—that is, before fiscal year 2001—and the remaining 14 were
             started since then. Overall, 16 projects—7 that were started before OBO’s
             reforms and 9 that were started after—have encountered challenges that
             have led or, if not overcome, ultimately could lead to extensions to the
             project completion date or cost increases in the construction contract,
             which represents the largest line item in project budgets. According to
             OBO reports, construction projects have been delayed due to such factors
             as changes in project design and security requirements, difficulties hiring
             appropriate American and local labor with the necessary clearances and
             skills, differing site conditions, and unforeseen events such as civil unrest.
             Moreover, the U.S. government has had difficulty in coordinating funding
             for projects that include buildings for the U.S. Agency for International
             Development (USAID), which can result in increased project costs and
             security risks to U.S. government personnel. None of the projects started
             since OBO’s management reforms has been completed; thus, we believe it
             is too early to assess the effectiveness of these reforms in addressing these
             challenges and in ensuring that new embassy and consulate compounds are
             built within the approved project budget and on time.

             We received written comments from the Department of State, which we
             have reprinted in appendix III. State said that the report is a fair and
             accurate representation overall of the department’s overseas construction
             process and properly cites all of OBO’s management reforms.



Background   OBO was instituted on May 15, 2001, replacing State’s Office of Foreign
             Buildings Operations. OBO manages the construction of new facilities that
             can satisfy the State Department’s stringent security standards and provide
             U.S. diplomatic personnel secure, safe, and functional office and residential
             environments. Along with the input and support of other State Department

             4
              OBO awarded contracts for seven additional projects toward the end of fiscal year 2003.
             These new projects were outside the scope of our review.




             Page 3                                                  GAO-04-100 Embassy Construction
bureaus, foreign affairs agencies, and Congress, OBO sets worldwide
priorities for the design, construction, acquisition, maintenance, use, and
sale of real properties and the use of sales proceeds. OBO is composed of
five main offices: Planning and Development, Real Estate and Property
Management, Project Execution, Operations and Maintenance, and
Resource Management. The construction program is located primarily in
the Project Execution Office, specifically in the Construction and
Commissioning Division within that office.

In response to terrorist threats, the State Department in 1986 began an
embassy construction program, known as the Inman program, to protect
U.S. personnel and facilities. In 1991, we reported that State was unable to
complete as many projects as originally planned due to systemic
weaknesses in program management, as well as subsequent funding
limitations.5 This construction program suffered from delays and cost
increases due to, among other things, poor program planning, difficulties
acquiring sites, changes in security requirements, and inadequate
contractor performance. Following the demise of the Inman program in the
early 1990s, the State Department initiated very few new construction
projects until the 1998 embassy bombings in Africa, which prompted
additional funding for security upgrades and the construction of secure
embassies and consulates.




5
 U.S. General Accounting Office, State Department: Management Weaknesses in the
Security Construction Program, GAO/NSIAD/92-2 (Washington, D.C.: November 1991).




Page 4                                             GAO-04-100 Embassy Construction
Through State’s security upgrade program, the department has done much
since the 1998 bombings to upgrade physical security at existing overseas
posts without building new embassy or consulate compounds. These
security upgrades have included constructing perimeter walls, anti-ram
barriers, and access control facilities at many posts. However, even with
these improvements, most office facilities do not meet security standards
that State developed to protect overseas diplomatic office facilities from
terrorist attacks and other dangers. As of December 2002, the primary
office building at 232 posts6 lacked desired security because it did not meet
one or more of State’s five key security standards7 of (1) 100-foot setback
between office buildings and uncontrolled areas, (2) perimeter walls and/or
fencing, (3) anti-ram barriers, (4) blast-resistant construction techniques
and materials, and (5) controlled access at the perimeter of the compound.
Only 12 posts had a primary building that met all five standards. As a result,
thousands of U.S. and foreign national employees may be vulnerable to
terrorist attacks.8

After the 1998 attacks, State identified facilities at about 185 posts that
would need to be replaced to meet security standards. OBO plans to
construct the replacement facilities on embassy and consulate compounds
that will contain the main office building, all support buildings and, where
necessary, a building for USAID. While State continues to fund some
security upgrades at embassies and consulates, it has shifted its resources
toward those capital projects that would replace existing facilities with
new, secure diplomatic compounds or substantially retrofit existing, newly
acquired, or leased buildings. As shown in figure 1, funding for State’s
capital projects has significantly increased since fiscal year 1998. State
received about $2.7 billion for its new construction program from fiscal
year 1999 through fiscal year 2003 and requested $890 million for fiscal year
2004. OBO in June 2003 estimated that beginning in fiscal year 2005 it
would cost about $17.5 billion to replace the remaining vulnerable posts.




6
 The United States maintains more than 250 diplomatic posts—embassies, consulates, and
other diplomatic missions—around the world. More than 60,000 U.S. and Foreign Service
National personnel work at these locations. About 50 government agencies and subagencies
operate overseas, including the Departments of State, Defense, and Justice; and USAID.
7
 These standards apply to the construction of new buildings. Existing buildings are required
to meet the setback standard to the “maximum extent feasible.”
8
GAO-03-557T.




Page 5                                                   GAO-04-100 Embassy Construction
Figure 1: Appropriations for Upgrading and Replacing Diplomatic Posts, Fiscal
Years 1998-2004




Note: Fiscal year 2002 includes $200.5 million in emergency spending provided by the 2002
Supplemental Appropriations Act for Further Recovery From and Response to Terrorist Attacks on the
United States (Pub. L. No. 107-206).


As of September 30, 2003, State had started construction of 22 projects to
replace embassies and consulates that are at risk of terrorist or other
attacks. Toward the end of fiscal year 2003, State awarded contracts for an
additional 7 projects. The timeline for funding and completing the
remaining projects depends on the amount of funding State receives
annually for the construction program. At the proposed fiscal year 2004
rate of funding, it will take more than 20 years to fully fund and build
replacement facilities.9




9
GAO-03-557T.




Page 6                                                       GAO-04-100 Embassy Construction
OBO Mechanisms to      Recognizing past problems managing State’s overseas construction
                       program, OBO in 2001 began to institute organizational and management
More Effectively       reforms in its structure and operations. OBO intended that these reforms—
Manage the Embassy     which are designed to cut costs, put in place standard designs and review
                       processes, and reduce the construction period for new embassies and
Construction Program   consulates—would bring rational and efficient management to OBO by
                       using a results-based approach to program management.

                       OBO has instituted the following seven key mechanisms over the past 3
                       years to better manage its expanded embassy construction program:

                       • the Long-Range Overseas Buildings Plan,10 which prioritizes and
                         summarizes capital projects over 6 years;

                       • monthly project reviews at headquarters, where senior management
                         officials review ongoing projects to identify and resolve current or
                         potential issues at all stages of the project;

                       • an Industry Advisory Panel, which advises OBO on industry best
                         practices in the construction sector;

                       • efforts to broaden the contractor pool through events such as Industry
                         Day, where interested contractors are invited to learn about OBO’s
                         construction program;

                       • ongoing work to standardize and streamline the planning, design, and
                         construction processes, including the initiation of design-build contract
                         delivery and a standard embassy design for most projects;

                       • additional training for OBO headquarters and field staff; and

                       • advance identification and acquisition of sites.




                       10
                          See Bureau of Overseas Buildings Operations, U.S. Department of State, Long-Range
                       Overseas Buildings Plan: FY 2003-FY 2008 (Washington, D.C.: March 2003) for the latest
                       version of the plan.




                       Page 7                                                GAO-04-100 Embassy Construction
Development of the Long-   To help manage State’s expanding large-scale construction program, OBO
Range Overseas Buildings   developed the Long-Range Overseas Buildings Plan, first published in July
                           2001 and most recently updated in March 2003. The latest version of the
Plan                       plan prioritizes proposed capital projects over 6 years, from fiscal years
                           2003 through 2008, based on input from State’s Bureau of Diplomatic
                           Security, regional bureaus, and agencies with overseas presence. It
                           describes and provides a justification for the foreign affairs community’s
                           global and regional capital project requirements. According to OBO, it also
                           provides the basis for proceeding in a logical and focused fashion to
                           improve the security, safety, and functionality of facilities overseas. Each
                           year the plan is updated to capture changes resulting from budget actions
                           and requirements of posts overseas. According to the latest version of the
                           plan, State plans to start replacing facilities at 75 vulnerable posts from
                           fiscal year 2003 to fiscal year 2008 at an estimated cost of $7.4 billion.

                           As described in the March 2003 plan and by OBO officials, State followed a
                           multistep process in developing its phased site acquisition, design, and
                           construction schedule for its security capital projects:

                           • The Bureau of Diplomatic Security completed its annual security
                             evaluation of all the U.S. overseas posts, taking into account many
                             factors affecting a post’s overall security level. The evaluation listed
                             vulnerable posts and ranked them in terms of security issues. Because
                             the terrorist threat is global and because the buildings have fundamental
                             security problems, Diplomatic Security and OBO officials believe that
                             there are a great many posts that are very vulnerable and in need of
                             replacement, and that the differences in vulnerability do not make posts
                             at the lower end of the list substantially safer than those at the top of the
                             list. By congressional mandate,11 these posts are listed and ranked in
                             bands of 20, through a process discussed in the following paragraphs.12


                           11
                            Pub. L. No. 106-113, div. B, Sec. 1000(a)(7) (div. A, title VI, Sec. 605) codified as a note to 22
                           U.S.C. 4865.
                           12
                              This replacement list is updated annually. According to OBO officials, posts that have
                           received full funding and have begun construction on their new facilities are removed from
                           the list each year and moved to a “funded/under construction/completed” column for record
                           purposes. Senior State Department management, considering the Diplomatic Security
                           vulnerability list and such factors as the number of U.S. government employees at a post,
                           nominates new posts to move into the top 80 replacement list. These nominations are
                           forwarded to the Under Secretary for Management and the Secretary for their approval and
                           inclusion in the replacement list. This list is then provided to Congress.




                           Page 8                                                       GAO-04-100 Embassy Construction
     Congress directed that State spend its security capital funds, which are
     funded within the Embassy Security, Construction and Maintenance
     account, on the top 80 posts only.

• Working with the security-prioritized list, each regional bureau annually
  ranked all posts within its region that were in the top 80 replacement list
  based on such factors as threat, survivability, staffing trends, regional
  interests, and functionality. OBO officials told us this effort resulted in a
  prioritized list for State’s security capital projects for each of the six
  regional bureaus, which responds to the global nature of the
  transnational terrorism threat. Each year, as new posts are added, these
  posts usually go to the end of a bureau’s priority list.

• Finally, OBO combined the prioritized lists from the different regions
  into one master list, which, as mentioned above, OBO updates annually.
  The first six posts on the list were the top ranked post from each region.
  Posts 7 through 12 on the list were the second-ranked posts from each
  region, and so on. With the help of its Planning and Real Estate Offices,
  OBO then determined if a site already existed to build a new facility and,
  if not, when new sites could actually be acquired. When necessary, OBO
  rescheduled the list based on the likely available capital security funding
  in each year covered in the Long-Range Overseas Buildings Plan,
  opportunities or problems in acquiring a site, and constraints on the
  ability of construction companies to work in a particular country at the
  planned time. This prioritized and scheduled listing of projects then
  becomes the security capital portion of the Long-Range Overseas
  Buildings Plan.

State also requests funds for regular capital projects to replace posts not in
the top 80 that have compelling operational or other requirements that
must be addressed. The Long-Range Overseas Buildings Plan includes
descriptions of these regular capital projects.

OBO’s development of the plan was a major advancement in ensuring the
embassy construction program would be better managed.13 According to
the OBO director, while the current plan is not a budget document, it is an

13
  In January 2001, we recommended that OBO develop such a plan because it was an
industry best practice that has helped leading organizations establish project priorities, plan
for resource use, control costs, and provide decision makers a rationale for allocating
funding. Several months later, OBO’s new management accepted this recommendation and
agreed that it is an important tool for the budget process.




Page 9                                                     GAO-04-100 Embassy Construction
                             important tool that provides information for the budget decision-making
                             process. It presents OBO’s best understanding of the U.S. government’s
                             most urgent diplomatic and consular facility requirements through 2008
                             and provides all stakeholders, especially other U.S. government agencies
                             that rely on State for their overseas facilities, a road map of where the
                             department is headed.



Monthly Project Reviews at   As part of OBO’s ongoing efforts to improve accountability and
Headquarters                 performance, OBO in June 2001 began holding monthly project
                             performance reviews at headquarters for senior OBO officials and project
                             executives. At these meetings, senior managers convene to discuss
                             developments in their areas of responsibility and their plan of action to
                             address current or potential issues. According to OBO documents and our
                             observations of five monthly meetings, the monthly project performance
                             reviews covered the following topics:

                             • real estate and property management, including acquisitions and
                               disposals and evaluations;

                             • project planning and development, including project evaluation and
                               analysis;

                             • project execution, including the status of both construction projects by
                               region and security upgrade projects; interiors and furnishings; design
                               and engineering issues, such as design management, standard embassy
                               designs, value engineering, and energy and seismic concerns; and
                               security management of ongoing projects;

                             • information management, including issues related to information
                               technology; and

                             • other management concerns, including management support, human
                               resources and financial management, and operations and maintenance.

                             At these monthly meetings, senior OBO staff present information on
                             internal and external operations. For instance, in reviewing internal
                             operations, the Project Execution Office presents information about
                             personnel vacancies, number of training events attended per month,
                             performance indicators, and travel budget. The Project Execution Office’s
                             Construction and Commissioning Division reports on construction-related
                             issues, including the number of outstanding claims, contract modifications,



                             Page 10                                       GAO-04-100 Embassy Construction
                          and the status of each construction project. For each construction project,
                          the division notes the completion of major milestones, such as
                          congressional notification, site acquisition, contract award, and notice to
                          proceed. It also assigns a color-coded rating—green, yellow, or red—to
                          each project. This rating reflects the project executives’ assessment of
                          current or future issues that could affect either the project’s cost or
                          scheduled completion date, with green indicating the project is generally
                          on track and red indicating a major issue.



Establishment of the      In February 2002, OBO held the first quarterly meeting of the Industry
Industry Advisory Panel   Advisory Panel, whose function is to keep OBO apprised of the private
                          sector’s best practices in the construction and maintenance of facilities.
                          The panel consists of volunteer industry representatives who meet
                          quarterly to discuss issues related to OBO’s construction program and
                          advise OBO management on the industry’s views on the most efficient
                          processes, optimal solutions, and best new technologies. OBO prepares
                          new topics of discussion for each meeting, and the experts respond based
                          on their experience dealing with similar issues.

                          At the meeting held on May 20, 2003, we observed that the panel and senior
                          OBO officials discussed the following:

                          • how to more effectively apply Value Engineering—a method that looks
                            for the best value to the government at each phase of the design process,

                          • to what extent private U.S. companies build to U.S. standards overseas
                            and how much they rely on local materials and equipment,

                          • the best approach for estimating project costs and budgets, and

                          • criteria used to determine if direct-hire staff should fill an organization’s
                            gap in required skills or specialized contractors.

                          OBO takes minutes of each Industry Advisory Panel meeting and posts
                          them on its Web site where they are available to the public. According to
                          OBO officials, the panel has been very active in providing invaluable
                          strategic industry insights into a variety of issues. They touch upon the
                          latest innovations in the commercial world combining best practices,
                          streamlined processes, and proven cost-effective methods. According to a
                          recent General Services Administration survey of about 470 federal




                          Page 11                                          GAO-04-100 Embassy Construction
                          advisory groups, OBO's Industry Advisory Panel demonstrated superior
                          results on the “people,” “process,” and “outcome” indices of the survey.



Efforts to Broaden        OBO has expanded its efforts to increase competition for bids on its new
Contractor Pool           embassy and consulate compound projects through outreach to potential
                          contractors. For example, OBO has held two annual Industry Days where
                          interested parties can attend presentations and information sessions about
                          doing business with OBO. According to OBO, Industry Day 2002 attracted
                          more than 350 representatives, with slightly more than half from small
                          firms. Industry Day 2003 had about 450 participants. As a result of these
                          efforts, OBO has increased the number of contractors prequalified to bid
                          on OBO contracts from 5 to 14.14 OBO believes that increasing the number
                          of prequalified contractors will likely increase the number of bids on a
                          project—thus allowing OBO to select the best value for its money—and
                          will be important to the expanding construction program.



Standardizing and         OBO has initiated two major efforts to standardize and streamline the
Streamlining the Design   design process for new embassy and consulate compounds. First, it
                          developed a standard embassy design for three different sizes of
Process
                          compounds, with a standard design for a small, medium, or large main
                          office building (see fig. 2). For each project, the contractor adapts the
                          standard design to meet site- and post-specific requirements. OBO believes
                          that standard designs will give it the ability to contract for shortened design
                          and construction periods, control costs through standardization, and assist
                          with State’s initiative to rightsize its overseas posts.




                          14
                           On September 25, 2003, the contractor for 7 of the 22 ongoing embassy and consulate
                          construction projects declared bankruptcy. OBO and contractor officials told us that the
                          bankruptcy has had and will have no effect on the contractor’s ability to complete the
                          projects.




                          Page 12                                                 GAO-04-100 Embassy Construction
Figure 2: Standard Embassy Design




Second, OBO uses design-build as a contract delivery method, instead of
design-bid-build, for most of its new projects. According to the latest Long-
Range Overseas Buildings Plan, OBO plans to award design-build contracts
for 56 compound projects between fiscal years 2003 and 2008. State’s
design-build process saves time by (1) avoiding the time needed to award
separate design and construction contracts and (2) allowing construction
to proceed before design is completed. Under this process, a compound


Page 13                                         GAO-04-100 Embassy Construction
           could be one-third of the way through construction before the final design
           is completed. In Sofia, Bulgaria, for instance, the project was 30 percent
           complete before the contractor delivered the final design package. To
           minimize any cost and schedule risks associated with design-build
           contracts, building requirements must be fully and precisely identified
           early in the process.



Training   According to OBO officials, OBO has instituted additional training
           requirements for all OBO staff involved in the contracting process and for
           all field staff. To enhance their knowledge of contracting, headquarters and
           field staff take courses in areas such as acquisition procedures, principles
           of contract pricing, and government contract law. Staff can take classes
           offered by the Defense Acquisition University and other private institutions
           to meet their training requirements. Staff in the Construction and
           Commissioning Division enroll in additional courses that enhance their
           skills in such areas as computerized project planning, leadership and
           management, cost control, language training, and security and safety.
           These courses are designed to increase their effectiveness as project
           supervisors.

           During our visits to two new embassy construction sites in Sofia, Bulgaria,
           and Yerevan, Armenia, we observed that the OBO project directors and the
           contract project managers closely managed and supervised the projects.
           Project directors maintained oversight with the help of experienced and
           knowledgeable American and Foreign Service National staff. Project
           directors made daily visits to the construction site to observe worker
           performance and held weekly progress meetings with OBO and contractor
           staff. During the weekly meetings, OBO staff asked about the activity
           schedule, identified potential problems, and came to a consensus on
           solutions.

           We observed the OBO project management team in Sofia, which consists of
           seven engineers and assistants, interacting closely with the contractor staff
           to identify possible delays and oversee construction. For instance, the
           project director questioned the pace at which the contractor was laying
           concrete slab on one of the floors. The project director was able to
           convince the contractor to pour concrete slab on one of the floors a day or
           two ahead of schedule.




           Page 14                                         GAO-04-100 Embassy Construction
Site Acquisition        To address potential issues in site acquisition, OBO has used its Long-
                        Range Overseas Buildings Plan to guide its contingency planning and give it
                        the flexibility to continue the overall program if an individual site is not
                        available in the planned year. Rather than hold up the appropriated funds
                        for a given project, State will, with congressional support, shift funding to
                        another project where a site is available. For example, OBO deferred the
                        planned compound in Asmara, Eritrea, from fiscal year 2004 to fiscal year
                        2005 due to difficulties obtaining a site. The new embassy compound in
                        Lome, Togo, which had been planned for fiscal year 2004, took the place of
                        Asmara. For projects planned for construction from fiscal years 2005
                        through 2007, State has a supply of seven U.S. government-owned sites and
                        five sites under contract in its regular and security capital programs. These
                        12 sites will offer some flexibility to State as it moves forward with its
                        Long-Range Overseas Buildings Plan. OBO officials told us that they plan to
                        continue acquiring sites ahead of time to provide the program with this
                        type of scheduling flexibility over the foreseeable future.

                        These management initiatives show promise for improving the cost and
                        schedule performance of embassy and consulate construction projects.
                        However, as discussed in the following section, it is still too early in the
                        new program’s implementation to assess their effectiveness in achieving
                        these goals.



Status of and           As of September 30, 2003, State had started construction of 22 projects to
                        replace embassies and consulates at risk of terrorist or other attacks. Eight
Challenges Facing the   of the 22 projects were started before OBO began to institute its recent
Construction Program    management reforms, and the remaining 14 were started since then. None
                        of the projects started after the reforms were implemented has yet been
                        completed; only one is more than 50 percent complete. Over half of the 22
                        projects have faced challenges that have led or, if not overcome, could lead
                        to extensions to or cost increases in the construction contract. OBO
                        reports attribute project delays to such factors as changes in project design
                        and security requirements, difficulties hiring appropriate labor, differing
                        site conditions, and civil unrest. The U.S. government also has had
                        difficulty coordinating funding for projects that include buildings for
                        USAID, which could lead to increased costs and security risks.

                        From fiscal years 1999 through 2003, State received approximately $2.7
                        billion for its new embassy construction program. As of September 30,
                        2003, State was still in the initial phase of the overall program, having



                        Page 15                                          GAO-04-100 Embassy Construction
                                           awarded the contracts for 11 of its 22 projects in fiscal year 2002. In
                                           addition, the contracts for another 7 projects were awarded in late fiscal
                                           year 2003 (see figs. 3 and 4). Of the seven completed projects, six were new
                                           embassy compounds and one was a newly acquired building that was
                                           retrofitted to meet the required security standards.



Figure 3: Initiated and Completed Projects, Fiscal Years 1999-2003




                                           Note: The contracts for seven new projects were awarded in the last quarter of fiscal year 2003.




                                           Page 16                                                       GAO-04-100 Embassy Construction
                             Figure 4: Status of State’s Program to Replace Embassies and Consulates, Fiscal
                             Years 1999-2003




                             Note: For each fiscal year, ongoing projects equals ongoing projects from the prior fiscal year plus
                             new starts minus completed projects.




Status of Projects Awarded   As shown in table 1, seven of the eight projects that started before OBO’s
before OBO Instituted        management reforms were implemented have been completed. All eight
                             projects experienced cost increases in the construction contract, which
Management Reforms           typically accounts for 60 to 70 percent of the total project budget; however,
                             none of the seven completed projects exceeded its approved budget, and
                             the budget for one was lower than originally planned.




                             Page 17                                                         GAO-04-100 Embassy Construction
                                                         In addition, six projects were extended 30 days or more beyond the project
                                                         completion date. The primary reasons for the delays included contract
                                                         modifications and security-related disruptions.



Table 1: Cost and Schedule Performance of Projects Awarded before OBO’s Management Reforms (as of late July 2003)

                                               Number of days                                            Percentage over
                                                 over original                                           original contract       Change from original
Region/location                                     end date        Primary reason for delay                        value        project budget
Africa
Dar Es Salaam, Tanzaniaa                                        2   Delay not significant                                  9     8% under budget
                          a
Kampala, Uganda                                               90    Contractor dispute                                    29     On budget
Nairobi, Kenyaa                                               80    Contract modifications                                12     On budget
Europe
Istanbul, Turkeya                                             74    Mitigation of security problem                        28     On budget
                      a
Zagreb, Croatia                                                 1   Delay not significant                                 18     On budget
Near East
Abu Dhabi, United Arab                                    154c      Material delivery did not arrive                      11     10% under budget
Emiratesb                                                           as scheduled; contractor
                                                                    reported differing soil conditions
Doha, Qatara                                                  30    Security threat                                       41     On budget
                  a
Tunis, Tunisia                                               127    Change in project scope                               20     On budget
Source: GAO analysis of OBO data as of September 2003.

                                                         Note: This table includes projects whose contracts were awarded from fiscal years 1999 through
                                                         2001.
                                                         a
                                                             Completed project.
                                                         b
                                                             Ongoing project.
                                                         c
                                                          This number represents contract modification days as this project had not yet been completed.


                                                         OBO has attempted to manage project resources and keep its projects
                                                         within their approved budgets by using funds from the projects’
                                                         contingency line items or, in some cases, a management reserve line item.
                                                         The use of contingency and management reserve line items is an industry
                                                         practice. In Istanbul, for instance, the cost of the construction contract
                                                         increased by about $8.5 million. OBO covered this cost increase by using
                                                         funds from the project’s contingency line item, which OBO includes in
                                                         project budgets for this purpose. In some cases where OBO has awarded
                                                         contracts at a much lower value than the original independent government
                                                         estimate, it has established a management reserve to hold these extra funds
                                                         to insure against potential cost increases later in the construction. The




                                                         Page 18                                                       GAO-04-100 Embassy Construction
                           OBO director must approve the use of funds for that project from the
                           management reserve. We did not review how OBO established its project
                           budgets, how it determined the contingency and management reserve line
                           item amounts, or how it used the funds from those line items.

                           Further, OBO has also reevaluated its budget plans for ongoing and
                           planned projects and has identified significant savings to be applied either
                           to a project whose contract bid had come in above the approved budget or
                           to new projects. For example, in the March 2003 project performance
                           review, OBO identified anticipated savings of about $63.6 million for six
                           projects. OBO used these funds to sign a contract for a new construction
                           project in Freetown, Sierra Leone, during fiscal year 2003. In the fiscal year
                           2002 appropriations conference report, Congress commended State for
                           identifying such budget savings and urged the department to use them to
                           significantly exceed the level of activity described in the budget request.
                           OBO officials told us that the amount of such savings would decrease over
                           time as the bureau improves its cost estimates.



Status of and Challenges   From fiscal year 2001, when OBO began to institute its management
Encountered by Projects    reforms, through the end of fiscal year 2003, State had started construction
                           of 14 projects to replace vulnerable embassies and consulates.15 As shown
Awarded since OBO
                           in table 2, as of July 2003, OBO expected 13 of these 14 projects to come in
Instituted Management      at or under their approved budgets and 1 project—Conakry, Guinea---to
Reforms                    come in 6 percent over the approved budget. Six of these projects have had
                           increases in their construction contract costs ranging from 2 percent to 11
                           percent above their original contract value. In addition, the project in Sao
                           Paulo, Brazil, added 48 contract modification days to its original project
                           completion date. This project, a major renovation initiated at the end of
                           August 2002, missed its scheduled completion date of August 28, 2003, and
                           was completed on October 15, 2003. Table 2 provides more information on
                           challenges that have affected or may affect the cost and schedule of the
                           projects that were initiated after OBO made reforms to its management
                           practices.




                           15
                                Toward the end of fiscal year 2003, State awarded contracts for an additional 7 projects.




                           Page 19                                                      GAO-04-100 Embassy Construction
Table 2: Cost and Schedule Performance of Projects Awarded since OBO’s Management Reforms (as of late July 2003)

                                                     Change from                  Number of
                         Percentage Percentage over original project                contract   Project challenges
Location                   complete   contract value budget                modification days   identified by OBO
Sao Paulo, Brazil                60               (2) On budget                          48    Contractor delays in
                                                                                               procuring materials and
                                                                                               labor
Abidjan, Cote D’Ivoire           33                0 2% under budget                      0    Ordered departure of
                                                                                               personnel caused by the
                                                                                               political situation will have
                                                                                               an impact on cost and
                                                                                               schedule
Sofia, Bulgaria                  31                3 19% under budget                     0    None reported
Yerevan, Armenia                 31                2 4% under budget                      0    USAID building unfunded
Luanda, Angola                   27                5 On budget                           14    Design revisions for
                                                                                               mitigation of security
                                                                                               concerns include a cost
                                                                                               increase and time
                                                                                               extension
Abuja, Nigeria                   23                0 On budget                            0    Contractor has claimed that
                                                                                               rock excavation due to
                                                                                               differing site conditions will
                                                                                               have an impact on
                                                                                               schedule. OBO is
                                                                                               evaluating

                                                                                               USAID building unfunded
Cape Town, South                 15                0 28% under budget                     0    None reported
Africa
Conakry, Guinea                  15                2 6% over budget                       0    Contract will need
                                                                                               additional time and will cost
                                                                                               more due to the design and
                                                                                               construction of a new type
                                                                                               of foundation because of
                                                                                               site conditions that differ
                                                                                               from those originally
                                                                                               anticipated

                                                                                               USAID building unfunded
Dushanbe, Tajikistan             14                2 3% under budget                      0    None reported
Yaounde, Cameroon                14                0 9% under budget                      0    Contractor claims differing
                                                                                               soil conditions will affect
                                                                                               the soil’s capacity for a
                                                                                               foundation
Tbilisi, Georgia                 13                0 12% under budget                     0    USAID building unfunded
Kabul, Afghanistan               11                0 On budget                            0    None reported




                                        Page 20                                           GAO-04-100 Embassy Construction
(Continued From Previous Page)
                                                                     Change from                                      Number of
                                         Percentage Percentage over original project                                    contract        Project challenges
Location                                   complete   contract value budget                                    modification days        identified by OBO
Phnom Penh,                                            11                            0 12% under budget                            0    Diplomatic Security
Cambodia                                                                                                                                certification is holding up
                                                                                                                                        construction

                                                                                                                                        USAID building unfunded
Tashkent, Uzbekistan                                   11                            0 18% under budget                            0    None reported
Sources: GAO analysis of July 2003 Project Performance Review data, OBO officials.

                                                                  Note: This table includes projects whose contracts were awarded in fiscal year 2001 or 2002. All 14
                                                                  projects are using a design-build contract delivery method. Six projects that began in fiscal year 2002
                                                                  employ a standard embassy design.


Integrating All Requirements                                      Once a contract has been awarded, any subsequent changes to the design
Early in the Design Process                                       of the building are likely to have cost and schedule implications. In State’s
                                                                  design-build process, design and construction sometimes occur
                                                                  simultaneously. Any changes to the design can require changes in the
                                                                  construction schedule.

                                                                  A key component of the planning process for new embassy construction
                                                                  projects is the development of staffing projections. Staffing projections
                                                                  present the number of staff likely to work in the facility and the type of
                                                                  work they will perform. These are the two primary drivers of the size and
                                                                  cost of new facilities. Changes to staffing projections after Congress has
                                                                  appropriated money for a construction project may result in redesign and
                                                                  could lead to lengthy delays and additional costs, according to an OBO
                                                                  official. There is little room for flexibility after the budget is submitted
                                                                  given budgetary and construction time frames.

                                                                  Officials from Diplomatic Security, the State Department bureau that
                                                                  initiates changes for security reasons, make every effort to have security
                                                                  requirements finalized before a contract is awarded, but changes in
                                                                  technologies or new analyses sometimes make design modifications
                                                                  necessary. Although the bureau does not insist that previously awarded
                                                                  contracts be modified to reflect these kinds of changes, OBO makes a
                                                                  decision about what is most prudent for security reasons in determining
                                                                  whether to modify the contract.

                                                                  At both embassy construction projects that we visited, State added security
                                                                  or other requirements that increased costs and led to an extension in the
                                                                  contract completion date. At the U.S. embassy in Sofia, State added
                                                                  security requirements late in the design phase that increased the cost of the



                                                                  Page 21                                                         GAO-04-100 Embassy Construction
                               $50 million project by about $2 million and led to a 2-month extension to
                               the original contract completion date. As in Sofia, Yerevan has had to adapt
                               recent security modifications to include, among others, the addition of a
                               generator and changes to the mail screening room.

Finding Appropriate U.S. and   Contractors on at least two projects have had difficulty finding appropriate
Local Labor                    workers at the right time. For example, one project—a major retrofit of
                               existing buildings in Sao Paulo, Brazil—was completed in about 14 months
                               rather than 12 months due in part to a lack of skilled labor. In March 2003,
                               OBO reported delays in executing this project because the contractor had
                               not yet hired critical craftsmen, particularly U.S. and Brazilian certified
                               welders. At the project we visited in Yerevan, which OBO considers to be
                               on track, the contractor had not hired enough local laborers because of a
                               shortage of qualified construction workers in Armenia. OBO officials said
                               that the contractor hired skilled workers from neighboring countries and
                               made up the lost time on the project.

                               In addition, each project requires U.S. supervisors and laborers with
                               security clearances to work in certain areas. However, contractor
                               representatives told us that as State’s overall construction program
                               accelerates and the demand for U.S. workers with security clearances
                               escalates, this form of labor could command a premium. Some contractor
                               officials stated that there could be a shortage of these workers in the near
                               term, which could result in delays that could potentially affect the duration
                               and cost of the overall program. Others said the workers will be available
                               but will demand a higher price for their labor, which would increase
                               contract costs.

Differing Site Conditions      In four ongoing projects16 where OBO had raised concerns about the
                               projects’ progress, contractors had reported site conditions that differed
                               from what they had originally anticipated. According to OBO documents,
                               this difference could affect the projects’ cost or schedule because it could
                               require the contractor to construct a different type of foundation for the
                               buildings. At the construction site we visited in Yerevan, a project OBO
                               considered on track as of July 2003, the contractor determined that it had
                               not thoroughly analyzed the soil conditions at the site and would need to
                               blast away about 9 feet of rock from the site to make room for the


                               16
                                  Abuja, Nigeria; Conakry, Guinea; Yaounde, Cameroon; and Abu Dhabi, United Arab
                               Emirates.




                               Page 22                                               GAO-04-100 Embassy Construction
                                foundation. This blasting process caused about a 6-week delay, time that
                                the contractor made up as the project progressed.

Political and Civil Unrest or   Many ongoing and planned projects are located in developing countries
Other Unforeseen Events         with the potential for political and civil unrest and thus pose unpredictable
                                challenges to State in its embassy construction work. For example, civil
                                unrest delayed the start of the project in Abidjan, Cote D’Ivoire, in 2002,
                                leading to delays in the project schedule and potential cost increases.
                                Further, political upheaval in Zimbabwe forced OBO to postpone
                                construction of the new embassy in Harare from fiscal year 2002 until at
                                least fiscal year 2005, according to OBO’s most recent Long-Range
                                Overseas Buildings Plan. On the other hand, State decided to replace the
                                embassy in Kabul, Afghanistan, and brought the construction project to the
                                front of the 2002 schedule following the U.S. and allied military action there
                                that responded to the September 11 terrorist attacks.17

Site Acquisition                Although OBO has developed a flexible approach to deal with problems in
                                acquiring sites for new embassy compounds, the issue of site acquisition
                                could become more important as OBO increases the number of projects it
                                undertakes each year. In the short term, the shifting of projects across
                                fiscal years, as discussed earlier, keeps the overall program on track;
                                however, in the long term, the number of difficult site acquisitions per year
                                may increase. If the less complicated site acquisitions continue to be pulled
                                to the front of the line, and more complicated ones pushed back, State may
                                have increasing difficulty obtaining sites for its annual program.

Coordinating Funding for        As mentioned earlier in this report, OBO attempts to build embassy and
Construction of Compounds       consulate compounds that contain the main office building, all support
with USAID Buildings            buildings, and, where necessary, a building for USAID. In several cases,
                                however, OBO has started to build compounds without the proposed
                                USAID building because funding for the USAID building was not available.




                                17
                                   The U.S. embassy in Kabul, which had been closed in January 1989 for security reasons,
                                officially reopened as an embassy on January 17, 2002.




                                Page 23                                                  GAO-04-100 Embassy Construction
In compounds where USAID is likely to require desk space for more than
50 employees, USAID and OBO informally agreed that USAID would secure
funding in its appropriations for a separate building on the compound.18 If
USAID does not secure funding for its building at the same time as the new
embassy compound, the compound is constructed as scheduled, but the
USAID building may be built either after the rest of the compound, later in
the construction process, or not at all. If a USAID building is constructed
after the rest of the compound, the overall costs to the government would
likely be higher because the contractor must remobilize the construction
staff. The delay could also pose a security risk and inconvenience to post
operations, as construction personnel and equipment would be coming into
and out of the site on a regular basis. OBO officials told us that five projects
were awaiting funding for the construction of the proposed USAID building
on the compounds.

At the U.S. embassy in Yerevan, funding for the compound’s USAID
building was not available when the compound construction contract was
awarded. Therefore, USAID staff will not move to the new site concurrent
with the rest of the embassy’s staff. Rather, USAID may be forced to remain
at the current, insecure facility at an additional cost until completion of its
annex unless alternative arrangements can be made. The Ambassador told
us that USAID was one of the most important missions at the embassy and
that not having it colocated on the compound would create a major
inconvenience to the embassy’s operations and decrease mission
effectiveness. Figure 5 shows the central location of the proposed USAID
building within the new U.S. embassy compound in Yerevan.




18
 U.S. General Accounting Office, Embassy Construction: Process for Determining
Staffing Requirements Needs Improvement, GAO-03-411 (Washington, D.C.: April 2003).




Page 24                                              GAO-04-100 Embassy Construction
Figure 5: Site of Proposed, but Unfunded, USAID Building at the U.S. Embassy in Yerevan




                                          As of September 2003, one completed project and five ongoing
                                          construction projects—including Yerevan—had to delay or postpone
                                          building the USAID annex due to a lack of USAID funding at the start of
                                          construction for the rest of the compound. Other locations included the
                                          recently completed project at Nairobi, Kenya; as well as the ongoing
                                          projects in Tbilisi, Georgia; Conakry, Guinea; Abuja, Nigeria; and Phnom
                                          Penh, Cambodia. In addition, according to an OBO official, two projects
                                          that will receive security capital funding this year—Bamako, Mali, and
                                          Kingston, Jamaica—may not have funding for the planned USAID buildings
                                          at the time of construction, although funding may become available
                                          sometime during construction.

                                          The U.S. government has had mixed success in dealing with this problem of
                                          coordinating funding. For example, for the new compound in Nairobi—the



                                          Page 25                                         GAO-04-100 Embassy Construction
                      location of one of the 1998 embassy bombings—State awarded a
                      construction contract for the USAID building in September 2003, 7 months
                      after the rest of the compound had been completed. In another case, Dar Es
                      Salaam, funding became available in time for OBO to modify the
                      construction contract and complete the USAID building at the same time as
                      the rest of the compound.

                      We plan to do additional work in the near future on the issue of
                      coordinating USAID funding with funding for new embassy and consulate
                      compounds.



Conclusion            Providing secure and safe office facilities at U.S. embassies and consulates
                      is a critical task that will require sustained funding and management
                      attention over many years. To sustain support for this program, the State
                      Department must demonstrate that it is exerting effective management,
                      resulting in projects that are on time and within approved budgets. We
                      believe that State has put in place a number of mechanisms that together
                      represent a positive management approach with the potential to achieve
                      favorable program results. However, it is too early to assess whether these
                      new mechanisms will ensure that State can consistently achieve cost and
                      schedule targets on individual construction projects over the course of the
                      program.



Agency Comments and   The Department of State provided written comments on a draft of this
                      report (see app. III). In the comments, State said that the report is a fair and
Our Evaluation        accurate representation overall of the department’s overseas construction
                      process and provided additional information on (1) how State prioritizes
                      and plans for its construction projects, (2) the problems in funding USAID
                      building projects, and (3) other capital construction projects being
                      implemented by OBO. We revised the text of the report to include
                      information on how Diplomatic Security and OBO view the relative
                      vulnerability of facilities at overseas posts. State also provided technical
                      comments, which we incorporated in the report where appropriate.


                      As agreed with your office, unless you publicly announce the contents of
                      this report earlier, we plan no further distribution until 10 days from the
                      report date. At that time, we will send copies of this report to other
                      interested members of Congress. We will also provide copies of this report



                      Page 26                                           GAO-04-100 Embassy Construction
to the Secretary of State and the Director of the Office of Management and
Budget. We also will make copies available to others upon 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 has any questions about this report, please call me at
(202) 512-4128. Another contact and staff acknowledgments are listed in
appendix IV.

Sincerely yours,




Jess T. Ford, Director
International Affairs and Trade




Page 27                                         GAO-04-100 Embassy Construction
Appendix I

Scope and Methodology                                                                      AA
                                                                                            ppp
                                                                                              ep
                                                                                               ned
                                                                                                 n
                                                                                                 x
                                                                                                 id
                                                                                                  e
                                                                                                  x
                                                                                                  Iis




             To determine whether the Bureau of Overseas Buildings Operations (OBO)
             has mechanisms in place to more effectively manage State’s construction
             program to replace vulnerable embassies and consulates, we (1) reviewed
             the report of the Overseas Presence Advisory Panel and earlier GAO
             reports that outlined problems in embassy security and State’s embassy
             construction program and (2) interviewed OBO and contractor officials
             about specific steps OBO has taken to improve program management,
             including the usefulness of and rationale behind both the standard embassy
             design for new embassy and consulate compounds and the design-build
             contract delivery method. We also attended quarterly meetings of the
             Industry Advisory Panel where industry representatives provided advice
             and information on industry best practices to senior OBO management
             officials, as well as monthly project performance reviews where senior
             OBO officials addressed issues related to embassy construction projects.
             Further, we visited two field locations—in Sofia, Bulgaria, and Yerevan,
             Armenia—where we observed the level of management and supervision at
             the new embassy construction sites and the contractor’s performance on
             the projects.

             To determine the status of the overall construction program, as well as its
             current and potential challenges, we reviewed capital projects—whether a
             completely new embassy or consulate compound, a new building, or a
             major retrofit of an existing building—that would bring the post up to
             current security standards. Table 3 provides the list of projects included in
             this review: 7 completed projects and 15 ongoing projects whose contracts
             were awarded from fiscal years 1999 through 2002. We excluded the Dili,
             East Timor, project from the scope of our review because it was an interim
             office building.




             Page 28                                         GAO-04-100 Embassy Construction
Appendix I
Scope and Methodology




Table 3: List of the 22 Post Replacement Projects Included in This Review

Project statusa                          Project location
Completed                                Dar Es Salaam, Tanzania
                                         Kampala, Uganda
                                         Nairobi, Kenya
                                         Istanbul, Turkey
                                         Zagreb, Croatia
                                         Doha, Qatar
                                         Tunis, Tunisia
Not completed                            Abidjan, Cote D’Ivoire
                                         Abuja, Nigeria
                                         Yaounde, Cameroon
                                         Cape Town, South Africa
                                         Conakry, Guinea
                                         Luanda, Angola
                                         Dushanbe, Tajikistan
                                         Kabul, Afghanistan
                                         Sofia, Bulgaria
                                         Tashkent, Uzbekistan
                                         Tbilisi, Georgia
                                         Yerevan, Armenia
                                         Phnom Penh, Cambodia
                                         Abu Dhabi, United Arab Emirates
                                         Sao Paulo, Brazil
Source: OBO.
a
As of September 30, 2003.


Table 4 shows the seven projects whose contracts were awarded in late
fiscal year 2003 that are outside the scope of our review. This table does not
include the recently started projects in Athens, Moscow, or Beijing because
OBO is utilizing the design-bid-build process for these three projects and
has yet to award their construction contracts.




Page 29                                              GAO-04-100 Embassy Construction
Appendix I
Scope and Methodology




Table 4: List of Post Replacement Projects Awarded in Late Fiscal Year 2003

Project location
Freetown, Sierra Leone
Bamako, Mali
Astana, Kazakhstan
Frankfurt, Germany
Bridgetown, Barbados
Kingston, Jamaica
Tirana, Albania
Source: OBO.


We also reviewed the State Department’s Long-Range Overseas Buildings
Plan, monthly project performance documents, contract modifications, and
other OBO documents. We interviewed key State Department officials from
OBO and Diplomatic Security and contractor officials currently working on
new embassy construction projects. We visited the ongoing projects in
Sofia and Yerevan to determine the types of problems that could affect cost
and schedule and what OBO and the contractor are doing to overcome
these problems. Contracts for the design and construction of these projects
were awarded in September and August 2001, respectively. The contractor
broke ground around September 2002. When we visited the sites in July
2003, the contractor was pouring concrete slabs for the floors. We did not
verify data provided by OBO.

We conducted our work between October 2002 and September 2003 in
accordance with generally accepted government auditing standards.




Page 30                                            GAO-04-100 Embassy Construction
Appendix II

Information on Embassy Construction
Projects’ Contractors and Building Size                                                          Appendx
                                                                                                       Ii




               This appendix provides information on the contractors responsible for
               each of the 22 ongoing embassy or consulate construction projects. It also
               indicates which projects are using standard embassy design and the
               respective sizes of these projects. Table 5 is a list of contractors currently
               working on a new embassy or consulate construction project or compound
               renovation. Company locations are provided to show the geographic
               dispersion of the companies to which State awards its contracts.



               Table 5: List of Contractors for Ongoing Embassy and Consulate Replacement
               Projects

               Contractor name and location      Projects
               ABB SUSA                          Luanda, Angola
               North Brunswick, New Jersey
               Alutiiq-Fluor Joint Venture       Sao Paulo, Brazil
               Rosslyn, Virginia
               B.L. Harbert International        Abuja, Nigeria
               Birmingham, Alabama
               Brown & Root Services             Kabul, Afghanistan
               Rosslyn, Virginia
               Caddell Construction              Yaounde, Cameroon
               Montgomery, Alabama               Conakry, Guinea
                                                 Freetown, Sierra Leone
                                                 Bamako, Mali
               Caribbean Consultants, Ltd.       Bridgetown, Barbados
               Bridgetown, Barbados
               Hensel Phelps Construction        Cape Town, South Africa
               Aurora, Colorado
               HITT                              Tirana, Albania
               Fairfax, Virginia
               J.A. Jones Construction           Abidjan, Cote D’Ivoire
               Charlotte, North Carolina         Sofia, Bulgaria
                                                 Yerevan, Armenia
                                                 Tashkent, Uzbekistan
                                                 Tbilisi, Georgia
                                                 Abu Dhabi, United Arab Emirates
                                                 Frankfurt, Germany
               Kullman Industries, Inc.          Dushanbe, Tajikistan
               Lebanon, New Jersey
               Fluor International, Inc.         Astana, Kazakhstan
               Greenville, South Carolina        Kingston, Jamaica
               H.B. Zachry Construction          Phnom Penh, Cambodia
               San Antonio, Texas
               Source: OBO.




               Page 31                                             GAO-04-100 Embassy Construction
Appendix II
Information on Embassy Construction
Projects’ Contractors and Building Size




Table 6 is a list of the projects employing a standard embassy design and
their size. Standard embassy designs were not used until fiscal year 2002.
OBO plans to use the standard design for most future projects, unless the
embassy involves a large degree of complexity or has special significance
to the United States, such as Beijing.



Table 6: Size of Embassy Construction Projects Using Standard Embassy Design

Location                                       Size of embassy
Freetown, Sierra Leone                         Small
Yaounde, Cameroon                              Medium
Conakry, Guinea                                Medium
Cape Town, South Africa                        Medium
Bamako, Mali                                   Medium
Kingston, Jamaica                              Large
Astana, Kazakhstan                             Large
Phnom Penh, Cambodia                           Large
Tbilisi, Georgia                               Large
Tashkent, Uzbekistan                           Large
Source: OBO.




Page 32                                         GAO-04-100 Embassy Construction
Appendix III

Comments from the Department of State                            Appendx
                                                                       iI




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




                         Page 33   GAO-04-100 Embassy Construction
Appendix III
Comments from the Department of State




Page 34                                 GAO-04-100 Embassy Construction
                      Appendix III
                      Comments from the Department of State




Now on pp. 8 and 9.




See comment 1.




                      Page 35                                 GAO-04-100 Embassy Construction
                       Appendix III
                       Comments from the Department of State




See comment 2.
Now on pp. 3 and 23.




                       Page 36                                 GAO-04-100 Embassy Construction
                 Appendix III
                 Comments from the Department of State




See comment 3.




                 Page 37                                 GAO-04-100 Embassy Construction
               Appendix III
               Comments from the Department of State




               The following are GAO’s comments on the Department of State letter dated
               October 27, 2003.



GAO Comments   1. We relied primarily on information from the March 2003 Long-Range
                  Overseas Buildings Plan and discussions with OBO officials in drafting
                  this section of the report. We revised the text to include information on
                  how Diplomatic Security and OBO officials view the relative
                  vulnerability of facilities at overseas posts.

               2. We plan to do additional work in the near future on the issue of the U.S.
                  government’s efforts to coordinate USAID funding with funding for new
                  embassy and consulate compounds.

               3. Our work focused on the replacement of vulnerable embassies and
                  consulates through construction projects that would bring the post up
                  to current security standards. As a result, our report does not discuss
                  these projects.




               Page 38                                        GAO-04-100 Embassy Construction
Appendix IV

GAO Contact and Staff Acknowledgments                                                        Appendx
                                                                                                   iIV




GAO Contact       John Brummet (202) 512-5260



Staff             In addition to the individual named above, Janey Cohen, Jessica Lundberg,
                  Judy McCloskey, Nanette Ryen, and Michael Simon made key contributions
Acknowledgments   to this report.




(320163)          Page 39                                      GAO-04-100 Embassy Construction
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