U.S. Embassy, Moscow: Alternatives for Reconstruction and Their Costs

Published by the Government Accountability Office on 1990-12-28.

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

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GAO                                                                                               I’act, Sheet, f’or t,he Hmorable
                                                                                                  1hwck Adams, U.S. Senate

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                                                                                                  U.S. EMBASSY,
                                                                                                  Alternatives for
                                                                                                  Reconstruction and
                                                                                                  Their Costs

                                                                                         RESTRICTED --Not      to be released outside the
                                                                                         General Accounting Offlce unless specifically
                                                                                         approved by the Offlcq of Congressional

GAO/NSIAIM~I                                          -43FS
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                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division


                   December 28,lQQO

                   The Honorable Brock Adams
                   United States Senate
                   Dear Senator Adams:

                   As you requested, we reviewed the basis for the State Department’s pro-
                   posal to demolish the unfinished U.S. embassyoffice building in Moscow
                   and build a new one. Specifically, we examined (1) the basis for the cur-
                   rent cost estimate of $270 million for demolition and reconstruction and
                   (2) the alternatives considered by the State Department for a new
                   embassyin Moscow and their costs. This fact sheet is the unclassified
                   version of a classified fact sheet on the same subject.

                   Based on several agreementswith the Soviet Union, the United States
Background         began constructing a new eight-story embassybuilding in 1979. In
                   August 1985, the United States locked the Soviet construction workers
                   out of the site becauseof security concerns.Subsequentinspection of
                   the building indicated that it was permeated with Soviet eavesdropping
                   devices. The building is approximately 65 percent complete as it stands

                   Since 1987, the State Department has considered several options for
                   completing the embassyproject. In late 1989, the administration pro-
                   posed to demolish the current structure, with the exception of the foun-
                   dation and basement, and build a new eight-story building on the
                   current site. The State Department requested $270 million in its fiscal
                   year 1991 budget submission for this purpose.1

                   The State Department’s $270 million cost estimate is based on the esti-
Results in Brief   mated cost of reconstruction from a security engineering study prepared
                   by the BDM/M.K. Ferguson companiesand on the State Department’s
                   estimates of special security requirements and administrative costs.
                   Security-related items account for the majority of the $270 million. The
                   State Department considers Moscow to be one of the most technologi-
                   cally hostile intelligence-gathering locations, requiring the highest level
                   of security.

                   ‘The Congress did not fund the project for fiscal year 1991. The State Department plans to request
                   funding again for fiscal year 1992.

                   Page 1                            GAO/NSIAD-9143FS       Reconstruction   of U.S. Embassy, Moscow
The current $270 million cost estimate to demolish and rebuild the office
building may be understated because(1) an actual building design has
not been completed,(2) the milestonesfor completing design work and
reaching a construction agreementwith the Soviet government have
been exceeded,and (3) the projected inflation rates used for the
$270 million estimate are lower than current projected rates. We esti-
mate that the revised inflation forecasts and scheduledelays have
increasedreconstruction costs by about $13 million.2
Three other options, basedon engineeringconceptsand ranging in esti-
mated costs from $222 million to $336 million, were also consideredby
the State Department. These included (1) tearing the building down to
the fourth floor and reconstructing on the present site, (2) constructing
a new office building on a different site and converting the current
structure into apartments, and (3) constructing a secure eight-story
annex on a different site and completing the current structure for non-
secure purposes. These options were not favored by the State Depart-
ment becausethey did not fully meet security needs,were too costly, or
would take too long to complete. The cost estimates for these options
may also have been understated for the same reasonsas stated for the
selectedoption. Although the State Department would prefer to proceed
with its proposal to demolish the unfinished building with the exception
of the foundation and the basementand construct on the same location,
State has been directed by Congressto conduct further design work on
two of the four options.

Regardlessof which option is eventually funded, the construction of a
new embassyoffice building is linked to U.S. efforts to negotiate new
agreementswith the Soviet Union for facility and land use in Moscow.
Current negotiations involve construction agreementsfor the new office
building and other land and buildings in adjacent areas. State officials
noted that they believe an agreementcovering construction of the new
building on its current site could be negotiated separately from the other
property issues.However, another agreementcovering a number of
properties and issueswould be necessarybefore work on the two off-
site options could proceed. Further delays in concluding either agree-
ment might affect the cost and schedulein completing a new building. In
addition, State has not prepared cost estimates on the additional prop-
erty and facility needsfor the remaining Moscow complex.

21ncurrent dollars.

Page 2                   GAO/NSIAD-9142FS   Reconstruction   of U.S. Embassy, Moscow

              We interviewed officials and reviewed records at the Department of
Scope and     State and BDM Corporation. We also reviewed (1) cost data and assess-
Methodology   ments of construction alternatives prepared by BDM/M.K. Ferguson
              companiesand other independent consultants and (2) studies on the
              structural integrity of the current structure by the National Bureau of
              Standards and engineering firms. We did not visit the unfinished U.S.
              embassybuilding or the new embassycompound in Moscow. Also, we
              did not independently evaluate security requirements for the embassy
              site. Our review was conducted from April through September 1990 in
              accordancewith generally acceptedgovernment auditing standards.

              As requested, we did not obtain written agency comments.However, we
              discussedthe information in this fact sheet with responsible State
              Department officials and have included their comments as appropriate.

              Unless you publicly announcethe contents of this fact sheet earlier, we
              plan no further distribution until 30 days from the date of this fact
              sheet. At that time, we will send copies to the Secretary of State, appro-
              priate congressionalcommittees and members of the Congress,and
              other interested parties. Copies will also be made available to others on

              The information for this fact sheet was developed by Jess T. Ford,
              Assistant Director; Elena L. Boshier, Evaluator-in-Charge; and Beth A.
              Hoffman, Evaluator, Security and International Relations Issues.Please
              call me on (202) 275-4128 if you or your staff have any questions.
              Sincerely yours,

              Joseph E. Kelley
              Director, Security and International
                Relations Issues

(4625Bl5)     Page 3                   GAO/N&ID-91&F’S   Reconstruction   of U.S. Embassy, Moecow
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