GSA Leasing: Improving Stakeholder Outreach and Lease Model Evaluation Could Enhance Competition

As the federal government's landlord, GSA works with lessors and real estate brokers to identify space for other federal agencies to use. As part of this process, GSA uses leases that include requirements not commonly used in the private sector. These requirements and GSA's lengthy and complex leasing process can affect federal leasing costs and competition for leases.

GAO was asked to review issues related to cost and competition for GSA leases with private sector lessors. This report examines: (1) lease requirements selected stakeholders identified as affecting cost and competition and steps GSA has taken to address stakeholders' concerns, and (2) how GSA has identified stakeholders' concerns and evaluated its simplified lease model. GAO reviewed pertinent federal statutes and regulations and GSA's contracting policy and leasing data from fiscal years 2016–2018. GAO conducted interviews with 20 GSA lessors selected from GSA's data to represent a range of location, and cost of the leases and the six real estate brokers that work with GSA.

Stakeholders, including 20 lessors (e.g., building owners) and the six real-estate brokers that negotiate federal government leases, identified several aspects of the General Services Administration's (GSA) leases that can affect cost and competition. For example, specific lease requirements such as early termination (see table) can lead lessors to increase their rent rates or decide not to bid on a lease—thereby increasing federal leasing costs or decreasing competition. According to GSA officials, many of these lease aspects reflect contracting policy rather than being required by law, regulation, or executive order. GSA has made some changes, such as lengthening the term of some leases, to address stakeholder concerns. Stakeholders also identified the time it takes to complete a lease and GSA's propensity for staying in a space beyond the term of a lease as increasing costs and making GSA leases less attractive to potential bidders.

Source: GAO analysis of stakeholder information. | GAO-20-181

GSA has undertaken initiatives to identify stakeholders' concerns to inform its reform efforts, but it lacks complete information to address concerns or evaluate its efforts. Specifically, GSA has not gathered information from a representative group of lessors because its recent outreach has involved two industry groups that focus primarily on organizations such as real estate brokers and investment trusts that are experts in GSA leasing. These organizations may not have the same concerns as smaller, less experienced, organizations. By obtaining information from a broad spectrum of stakeholders, GSA would be better positioned to know whether its leasing reforms are addressing stakeholders' concerns. Additionally, to expedite processing of lower-value leases, GSA developed a simplified lease model that excludes some requirements that stakeholders identified as challenging but may protect GSA, such as tenant substitution. GAO found that for fiscal years 2016 to 2018, GSA used the model for only about one-third of potentially eligible leases. GSA has proposed increasing use of the model, but it does not know whether the model as currently used is achieving the anticipated benefits, including reduced lease processing times, or the impact of financial or other risks from this model because GSA has not evaluated its use. Without such an assessment, GSA does not have the information needed to determine whether the simplified lease model is achieving its intended results, whether to make improvements, or how to mitigate any risks.

GAO is making three recommendations, including that GSA: (1) expand its outreach as appropriate to obtain feedback from lessors that are representative of its entire lease portfolio, and (2) evaluate whether the simplified lease model is achieving its intended results. GSA agreed with the recommendations and said it believes there are additional opportunities to expand its outreach efforts and evaluate the simplified lease model.

The General Services Administration (GSA) serves as the federal  government’s landlord and has the authority to lease properties for use by  other federal agencies. As of fiscal year 2019, GSA leased nearly 188  million square feet of space from private sector building owners—known  as “lessors”—for a total of $5.7 billion to accommodate the needs of  federal agencies. These leases come with requirements not commonly  used in the private sector, such as allowing for tenant substitution during  the term of the lease and requiring the responsible lessor to pay for  services such as utilities. These leases also involve lengthy  negotiations—at times longer than a year—to finalize the lease. While  lessors have traditionally valued GSA leases for the government’s reliable  credit and stable tenancy, stakeholders such as lessors and real estate  brokers have raised concerns that the additional requirements and a  lengthy process increase the lessors’ costs, which they then pass through  to the federal government. GSA has sought input from stakeholders to  identify areas where its lease requirements may be increasing costs or  affecting lessors’ willingness to compete for leases as well as to inform its  reform efforts. In response, GSA made some changes to its lease  requirements and developed a simplified lease model as a faster and  more efficient way to process lower value leases. However, questions still  remain as to whether its lease requirements are increasing costs or  affecting lessors’ willingness to compete for leases.

You asked us to review issues related to cost and competition for GSA  leases with private sector lessors. This report examines  lease requirements selected stakeholders identified as affecting cost  and competition and steps GSA has taken to address stakeholders’  concerns, and how GSA has identified stakeholders’ concerns and evaluated its  simplified lease model.

To address both objectives, we collected information from stakeholders  including current GSA lessors and real estate brokers to obtain their  perspectives on GSA leases and the GSA leasing process. We selected a  non-generalizable sample of 20 current GSA lessors by first obtaining  data from GSA on each of the leases it entered into during fiscal years  2016 to 2018, the most recent data available. We assessed the reliability  of this data by reviewing documentation, interviewing GSA officials,  electronically testing the data, and verifying data with GSA officials. We  concluded that the data were reliable for the purposes of our reporting  objectives. We used this data to group GSA’s leases into three categories  based on total annual rent and then selected leases randomly from each  group. To obtain a broader perspective on GSA’s leasing process, we  also interviewed the six real estate brokers who participate in GSA’s  Leasing Support Services program, and four other experts on the GSA  leasing process, such as professional organizations who represent  building owners. We used a semi-structured interview format with open- ended questions and conducted a content analysis of the lessors’  responses to identify recurring themes. The information gathered from our  interviews with these stakeholders is useful in illustrating a range of views  on the GSA leasing process but is not generalizable.

To identify the lease requirements these stakeholders identified as  affecting cost and competition and what GSA has done to address their  concerns, we selected the eight most commonly mentioned requirements  and the most commonly mentioned areas of GSA’s leasing process  based on responses from both the lessors and the brokers. We grouped  the lessors by those who told us they had experience with three or more  GSA leases—we called these “more experienced” lessors—and those  who told us they had experience with one or two leases—we called these  “less experienced” lessors. To identify the source of the GSA  requirements stakeholders identified, we interviewed GSA officials and  reviewed GSA documentation as well as laws, regulations, and executive  orders that governed GSA’s use of these requirements. To determine  how GSA and tenant agencies develop space requirements—one of the  requirements stakeholders identified as having effects on cost and  competition—we selected a non-generalizable sample of five executive  branch bureau-level and independent agencies to include those with the  greatest number of GSA leases entered into during fiscal years 2016– 2018. These agencies were (1) the Fish and Wildlife Service (FWS); (2)  the Internal Revenue Service (IRS); (3) the Federal Bureau of  Investigation (FBI); (4) the Social Security Administration (SSA); and (5)  Immigration and Customs Enforcement (ICE). We reviewed documents  and interviewed officials from each of these five agencies to learn about  how they develop space requirements, work with GSA to identify feasible  properties, participate in the development of the final space design and  construction, and plan for their future leased space needs.

To identify the steps GSA has taken to identify stakeholder concerns and  evaluate its simplified lease model, we reviewed pertinent GSA  documents and interviewed GSA officials. We also obtained views of  lessors and brokers about GSA’s lease reform efforts, including whether  they were aware of the efforts, and what effects they had observed. We  determined how often GSA has used a simplified lease model that  contains fewer of the requirements that stakeholders identified as  concerns. We also assessed the characteristics of the leases for which  GSA used the simplified model, based on the GSA fiscal year 2016-2018  lease data described previously. We analyzed the data to obtain  information about the number of leases that had used each of GSA’s  lease models, and the average rent amounts, size, security levels, and  terms. We compared GSA’s efforts to identify and address stakeholder  concerns to Federal Standards for Internal Control related to external  communication, and its efforts to assess the simplified lease model to  criteria from our prior work on the use of performance information for  decision-making. For more information on our scope and methodology,  see appendix I.

We conducted this performance audit from October 2018 to December  2019 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

GSA serves as the federal government’s primary civilian real property  agent. When GSA does not have available federally owned space that  can meet the needs of federal agency tenants, it leases space for these  agencies in privately owned buildings. The Administrator of GSA  delegates leasing authority to GSA regional commissioners, who further  delegate authority to lease contracting officers.

For leases that GSA procures for tenant agencies, GSA serves as the  lessee and pays rent to the building owner, who serves as the lessor. The  tenant agency pays monthly rent to GSA, which includes a fee for GSA’s  services, and uses the leased space subject to the terms of an occupancy  agreement with GSA. This agreement typically specifies not only the rent  fee but also the amount the tenant agency must reimburse the lessor for  improvements to the leased space—such as changes to walls, electrical  outlets, telephone lines, and secure rooms—these are known as “tenant  Improvements.”

GSA leasing process. GSA uses different processes to carry out the  leasing process depending on the size, cost, and type of the lease. For all  of these processes, the leasing-planning process begins when GSA  receives a request for space from a tenant agency and determines that  fulfilling the request will require leasing space. According to the typical  process outlined in the GSA Public Buildings Service (PBS) PBS Desk  Leasing Guide, officials work with the tenant agency to define the  requirements for the leased space, including the geographic area in which  GSA will search for available properties. After this initial stage, GSA takes  additional steps to acquire a new lease, see figure 1.

For certain office space leases larger than 500 square feet, which  represent more than 90 percent of GSA’s leases as of the end of fiscal  year 2019, GSA can deviate from its typical leasing process and instead  use what it calls the Automated Advanced Acquisition Program (AAAP).  GSA began using a predecessor to this program in 1991 in the National  Capital Region only and rolled out the current version to all national  markets in 2015. In this program, instead of GSA’s first proposing  requirements to potential lessors, the lessors first submit offers to GSA for  pre-existing available space, including the space’s size, location, and  features, and the rent amounts the lessor is offering for different lease  durations. Once GSA develops a set of requirements with a tenant  agency, it evaluates these standing offers to eliminate those that would  not meet the space requirements, ranks the bids by present value, and  selects the lowest cost option, see figure 2.

GSA is required to take further steps for high value leases with a net  annual rent above the statutory “prospectus” threshold—adjusted by GSA  to $3.1 million in fiscal year 2019.

For these leases, GSA must submit a prospectus, or proposal, to the  House and Senate authorizing committees for their review and approval.  As of the end of fiscal year 2019, GSA managed 8,045 leases, of which  291, or about 4 percent, had current annual rents above the 2019  prospectus level. These leases, however, accounted for about 41 percent  of GSA’s total annual rent obligations.

GSA leases. GSA leases differ substantially from typical commercial  leases. For example, in a GSA lease, GSA—as the lessee—proposes the  lease requirements. In a typical commercial office space lease, however,  the lessor drafts the lease requirements and proposes them to the  prospective tenant. For additional examples of the differences between  GSA and typical commercial leases, see table 1.

GSA’s lease reform efforts. In 2011, GSA issued a lease-reform  implementation plan in response to comments from lessors and tenant  agencies. In this plan GSA recommended changes including developing  new lease models to better tailor its lease requirements to specific  circumstances, and improving elements of its leasing process. As part of  this and other initiatives since then, GSA developed leasing products and  tools that it can use in various situations. These include:

Simplified lease model: GSA developed this lease model for lower  value leases with a facility security level of I or II, and a net annual  rent—total rent minus operating expenses—of up to $150,000. GSA  designed this model as a faster and more efficient method of  processing lower value leases. As compared to GSA’s standard and  global lease models—which can be used on leases of any size—this  model contains fewer requirements and may not have certain more  complex elements such as annual operating-cost adjustments, real  estate tax adjustments, or an allowance for tenant substitution. In  addition, the model requires GSA and the tenant agency to finalize the  complete set of space requirements prior to GSA’s advertising the  lease, a requirement that eliminates negotiations on the tenant  improvements after GSA awards the lease.

Net-of-utilities leases: As discussed in table 1, in most GSA leases  the lessor is responsible for paying the utilities, and must estimate  future utility costs as part of its bid for the lease. In a net-of-utilities  lease, the tenant pays the utility costs for tenant space directly. A  2016 GSA study indicated that GSA could achieve savings through  net-of-utilities leases for a small number of leases with certain  characteristics including: the lease being over 50,000 square feet, a  single tenant agency occupying the entire space, the tenant agency  consuming large amounts of energy, and several other factors. GSA  estimates that around 360 of its more than 8,000 leases meet these  criteria.

Succeeding and superseding leases: In most cases, GSA is  required to conduct a full and open competition for leases. However,  in certain circumstances GSA instead pursues succeeding or  superseding leases. In circumstances where relocating to a new  leased property would result in substantial relocation or duplication  costs that GSA could not reasonably expect to recover through  competition, GSA is allowed to pursue a succeeding lease, and when  market conditions warrant renegotiation of an existing lease or when  the tenant agency needs to make substantial modifications to a space  before the expiration of a lease, GSA is allowed to pursue  superseding leases.

Selected Stakeholders Identified Several Aspects of GSA Leases That Affect Cost and Competition, and GSA Has Taken Some Steps to Address These Concerns

The GSA leasing stakeholders we spoke with identified some aspects of  GSA leasing that are attractive to potential lessors such as the  government’s good credit and GSA’s long average occupancy.  They  also identified a number of aspects of these leases that they said can  affect their costs and the number of lessors who are willing and able to  bid on a GSA lease. These areas were:

Structure: overall characteristics of a lease including the volume and  complexity of requirements, and how GSA structures rent payments,  reimbursements for tenant improvements, and provision of services;

Requirements: specific provisions in the lease such as early  termination, janitorial and maintenance, tenant substitution, and real  estate taxes; and

Process: the steps lessors must follow to complete a GSA lease,  such as the length of time and GSA’s ability to remain in a space after  the end of the lease.

Lessors Said GSA Leases Are Attractive because of Lower Financial Risk and Stability

The stakeholders we spoke with identified a number of benefits of GSA  leasing that are attractive to potential lessors, including the government’s  credit worthiness, long average tenancy in a space, and positive  relationships with GSA and tenant agencies. Eighteen of the 20 lessors  we spoke with identified the government’s credit worthiness as a benefit.  This credit, lessors said, is better than many private sector tenants and  presents lower risks, and some of the more experienced lessors said that  GSA leases are an important part of their overall lease portfolios. For  example lessors said that GSA leases represent a reliable revenue  stream and that they are confident they will be paid on time for the full  term of the lease, while for commercial leases—even for large  companies—there is an increased risk of a rent default. Eight of the 20  lessors said that GSA and tenant agencies are relatively easy tenants to  work with once the lease is in place. For example, lessors said the tenant  agencies are very professional, and some of them said that they generally  do not receive many requests for service from the occupying staff. In  addition, seven lessors mentioned GSA’s long average tenancy in a  space, which they said helps with a lessor’s long-term financial stability.  One lessor said that commercial tenants stay on average three to five  years, while their GSA tenants have lease lengths of 10 or 15 years.  According to GSA, agencies occupy spaces leased through GSA for an  average of around 22 years.

Lessor Perspective on GSA Leases  “The government is a Grade A tenant.”

Stakeholders Identified Structural Aspects of GSA Leases That Can Affect Cost and Competition

The lessors and real estate brokers we spoke with told us that the way  GSA structures aspects of its leases can affect cost and competition.  These aspects include the volume and complexity of requirements in the  leases, the way GSA structures rent payments, how GSA defines and  reimburses costs for tenant improvements, and the full service nature of  GSA leases. Many lessors told us that they increase their bid prices in  response to these aspects of GSA leases. GSA officials said that each of  these aspects reflects GSA’s contracting policy, and it is not required to  structure its leases this way by law, regulation, or executive order;  however, they use these requirements to provide additional flexibility in  managing their lease portfolio and reduce risk to the government.

About three-fourths of lessors we interviewed said the volume and  complexity of GSA lease requirements make these leases less attractive  to potential bidders and can result in fewer bidders competing for a  lease. These lessors further stated that GSA’s leases, in contrast to  many private sector leases, can be quite lengthy—up to 85 pages—and  contain many references to other documents that are not included in the  lease text such as a seismic certification, a small business subcontracting  plan, a Department of Labor wage determination, and a foreign ownership  and financing certification.

Lessor Perspective on GSA Leases  “GSA’s lease is three-fourths of an inch thick, has many cross- references, takes weeks to read, and requires an attorney to  understand.”

Lessors must look up these other documents to fully understand the lease  requirements, and some of the lessors we spoke to said that it can be  difficult for them to quickly find the most important information. Lessors  also noted that—in response to the volume and complexity of  requirements—they may increase their bid prices. To account for risks  inherent in these complex contracts lessors may also use the services of  legal counsel or other experts, which could also increase costs. GSA  officials told us that in the past several years they have made efforts to  streamline their leases, including by eliminating duplicative or  unnecessary provisions. One lessor told us that GSA has improved its  leases by making them more intuitive and easier to read, a development  that could be helpful for new potential lessors.

About half of the stakeholders we spoke with, including 10 of the 12 more  experienced lessors, said the way GSA structures its rent payments  makes it difficult for these lessors to predict what actual operating costs  will be in the future. Lessors said that because the shell rent (i.e. the  building structure and systems) portion is typically flat over the firm term  of a lease, and the operating expenses only increase at the consumer  price index’s rate, the rental payments they receive are generally not  sufficient to cover their actual increases in expenses. In addition, these  lessors said that in a GSA lease, the lessor is typically responsible for  providing utility services and that lessors pass these costs through to  GSA as part of the operating cost portion of the rent. In a private sector  lease, these costs are typically the tenant’s responsibility. To account for  these issues, 11 lessors told us that they increase their bid prices to  ensure that they will cover their costs, and two lessors told us that they  would not bid on another GSA lease unless there were additional cost  increases built into the lease. GSA officials told us that structuring rent  payments this way provides GSA with a standardized method for  addressing inflation and budgeting for future rental costs.

Lessor Perspective on GSA Leases  “The way GSA accounts for base rent and operating expenses is  different than in a private sector lease. In our leases, the base rent is  frozen throughout the term of the lease and only the operating  expenses are allowed to increase based on inflation. Because of this,  when preparing a bid we have to estimate operating expenses years  into the future, which can be difficult, and if we guess too low we can  end up losing money on the lease.”

About one-third of the stakeholders we spoke with said the way GSA  structures reimbursement for tenant improvements is a challenge, and  three lessors said GSA’s requirements for construction standards and  space designs can be difficult to meet. Stakeholders said that GSA’s  requirement that lessors fund construction costs for tenant improvements  upfront can put financial stress on lessors. For example, stakeholders  said that lessors often must take on substantial debt in order to finance  the construction of the tenant improvements. GSA reimburses lessors for  tenant improvement costs over the firm term of the lease, but lessors told  us that these payments do not begin until after the space is occupied,  which can be delayed by the tenant agency’s changing its requirements.  In prior work we found that this process of paying tenant improvements  over the firm term of a lease increases the overall cost to the federal  government of leasing space, primarily due to interest costs passed  through by the lessors. In addition, half of the lessors we spoke with  identified challenges with the process of developing and finalizing agency  requirements for leased space, including frequent changes to space  requirements and the need to develop detailed construction information  before bidding on a lease.

Lessor Perspective on GSA Leases  “At the beginning I had to agree to a certain dollar amount for the  tenant improvements, even though I did not know when the  construction would happen, or how I would get paid back. You can get  paid back in a lump sum, or the tenant improvements can be amortized  over the lease term, but you do not know which it will be at the start of  the process. This makes financing difficult.”

Six lessors told us that they increase the cost of their bids in part due to  GSA often over-estimating the cost of tenant improvements. This situation  can require a lessor to take out a larger loan than necessary, which adds  financing costs to the project. Lessors said that this situation can also  prevent some potential lessors from bidding if they cannot obtain the  amount of financing GSA requires. Additionally, lessors cited some tenant  agencies’ space requirements which can call for expensive materials or  difficult to construct items. For example, they described leases where  they had to construct multiple restrooms or heating and cooling systems  for small offices that typically house fewer than five employees.

GSA officials told us that they structure the tenant improvements  requirements in this way in order to establish expectations for the lessor.  They said that they rely on tenant agencies to develop initial requirements  for leased spaces, and they work with those agencies on the final designs  and construction standards. We examined space requirements of the five  federal agencies we reviewed that lease large amounts of space through  GSA, and each of these agencies uses standardized guidance such as a  handbook or design guide. These documents included information on  developing specific requirements for leased space such as identifying the  size of space needed, the types of workspaces used, and sample layouts  for different types of facilities. Officials from these agencies told us that  they use these handbooks as their primary reference when setting  requirements for leased spaces and approving the final designs, and to  develop these handbooks they use agency mission needs, government- wide security standards, and requirements from laws, regulations, and  executive orders. They said that they generally rely on GSA to provide  them with local market information such as the availability of suitable  existing buildings, market rents, and other factors.

About one-third of stakeholders we spoke with identified the full service  nature of GSA’s leases as difficult, time consuming, and expensive— requiring them to estimate highly variable costs far into the future. For  example, one lessor spoke of being required to provide all services— janitorial, maintenance and utilities—which can include simple things like  replacing light bulbs. Further, the lessor has to work around the tenant  agency’s operating hours to provide these services. Five lessors told us  that they raise their bid prices to cover the costs of full service leases  because they are cost and labor intensive. One lessor said that lessors  estimate on the high end of the range to make sure they make a profit.

Lessor Perspective on GSA Leases  “The biggest issue for a potential lessor to consider is how hands-on  they want to be—GSA leases are full service leases requiring lots of  attention.”

GSA officials told us that they structure leases this way because full  service leases are generally less expensive to the government—avoiding  the administrative burden of having to establish and maintain a contract  for each service and avoiding the risk of higher than expected utility  costs. In 2017, GSA issued guidance to its lease contracting officers on  using net-of-utilities leases—those structured so that the tenant agency  pays the utilities. GSA officials and stakeholders we spoke with told us  that having a tenant agency pay utilities directly gives agencies an  incentive to cut down on energy use and could result in lower costs.  According to GSA, structuring leases as net-of-utilities leases requires  substantial resources to manage and monitor. Therefore, GSA’s current  policy is to use this structure for only certain large, energy-intensive  leases. GSA officials told us they plan to continue using net-of-utilities  leases but do not have plans to expand the program further.

Stakeholders Cited Specific GSA Lease Requirements That Can Affect Cost and Competition

Stakeholders identified a number of specific GSA lease requirements that  they said can affect cost and competition. These requirements include  early termination options, GSA’s unilateral ability to substitute the tenant  agency, provisions for reimbursing real estate taxes, and ongoing  janitorial and maintenance requirements. Most of these requirements are  GSA contracting policy, but the janitorial and tenant substitution  requirements have some elements that GSA says it uses in response to  either a law, a regulation, an executive order, or a combination of these  and other sources.

About two-thirds of stakeholders, including all 12 more experienced  lessors, identified GSA’s including early termination options in leases as  affecting the cost of the leases. GSA leases typically have a date after  which GSA can terminate the lease with as little as 90 days’ notice, and  since many GSA leases require significant initial capital for construction of  the tenant improvements, some lessors told us they need to take out a  loan using GSA’s future rent payments as the source of repayment.  However, stakeholders and other experts told us that many loan  underwriters will not consider any payments after GSA’s termination right  date due to the risk that the GSA will leave the space, a factor that they  said makes the loans more expensive and difficult to obtain. Nine of the  lessors and two of the other experts we spoke with also said that it was  unlikely GSA would ever exercise its termination options. Four lessors  told us that they increase their bid prices to reflect the increased risk and  expense that the early termination clauses provide, and four lessors and  one broker told us that lessors may not bid on a lease at all if GSA  includes an early termination option.

Lessor Perspective on GSA Leases  “The market, and lenders, look at the firm term as the length of the  lease, and don’t take the soft term into account as GSA does… soft  terms are the biggest structural obstacle in GSA lease requirements. If  GSA included soft terms in leases just for emergencies, rather than as a  matter of practice, the soft terms would not be as much of a problem.”

GSA officials told us that these options allow them to maintain flexibility  and use space efficiently despite changing tenant agency missions and  space needs. In response to data GSA has collected from AAAP bids  showing that GSA receives lower bids for longer firm-term leases, GSA  has begun lengthening the firm term of its new leases. Specifically, GSA’s  analysis of AAAP bids data showed that for lease offers in fiscal years  2017 and 2018, lessors bid a lower rent amount for a 10-year firm term as  opposed to a 5-year term 96 percent of the time with an average savings  of around 10 percent. GSA officials told us that they have been using  more 10- and 15-year firm terms as opposed to the previous standard  practice of five years. For example, according to GSA, in fiscal year 2014,  19 percent of GSA’s leased inventory had a firm term of 10 years or  more, and in fiscal year 2017, this figure had risen to 26 percent. In  addition, GSA has implemented a lease-term-setting tool, which officials  said will help them lengthen the firm terms of leases where appropriate.

About one-third of the stakeholders we spoke with identified janitorial and  maintenance services as a challenge, and two lessors said that costs for  janitorial and maintenance services can be difficult to estimate. For  example, one lessor told us that it is difficult to estimate these costs two  years into the future, let alone for the 10 or more years of a GSA lease,  because of changes to local job market conditions and labor laws. In  addition, stakeholders said that GSA leases require more frequent or  comprehensive janitorial and maintenance services than do private sector  leases. For example, lessors said that some cleaning and paint and  carpet replacement intervals were more frequent than the industry  standard. Four lessors told us that they include the additional costs for  these services into the cost of their bids, and some lessors told us that  they include up to 125 percent of their estimated true costs in their bids.  According to GSA, it developed some of these requirements, particularly  those related to specific cleaning products that lessors must use, in  response to a combination of several laws, executive orders, and agency  initiatives or recommendations. Some of the other requirements, such  as the intervals for carpet and paint replacement, are GSA’s contracting  policy, and officials told us that they have remained relatively static since  the 1990’s.

Lessor Perspective on GSA Leases  “In one lease, we found that janitorial services for GSA cost  approximately twice as much as normal cost for a non-GSA lease.”

About one-third of the stakeholders we spoke with said that lessors— particularly lessors with multi-tenant buildings—are concerned about  GSA’s ability to substitute one tenant agency for another, a requirement  that can affect competition for leases. One concern cited was the  possibility of substituting a law enforcement agency (e.g., ICE or FBI) that  may have armed officers into a building previously occupied by an  administrative tenant agency. Another was that increased traffic may  result from substituting a busy public-facing agency (e.g., SSA or IRS)  into a formerly quiet building environment. Stakeholders and other  experts we spoke with said that scenarios like these can affect other  tenants’ willingness to renew leases in a building; however, as we found  in 2016, they also told us that GSA rarely exercises this option. Two  stakeholders and another expert told us that lessors take specific actions  in response to this requirement, including negotiating with GSA over  modifying this clause, which one said they have been successful in doing.

Federal regulation requires GSA to include this clause in leases with  annual rents above the simplified acquisition threshold unless the lease  contracting officer determines that it would not be appropriate. This  regulation, however, stems from a general GSA statutory authority  regarding federal property. GSA’s leasing regulations do not require  GSA to use this requirement in leases with net annual rents under the  simplified lease acquisition threshold, but GSA officials told us that as a  matter of practice they also include it in these smaller leases. GSA  officials told us that GSA, as the lessee, is ultimately responsible for a  lease’s financial obligation, and the ability to substitute tenant agencies  helps GSA mitigate the costs of vacant leased space in the event a tenant  agency chooses to leave a leased property.

Lessor Perspective on GSA Leases  “The substitution of tenant requirement is especially an issue in multi- tenant buildings, and lenders can have trouble with it as well, but GSA  almost never uses it. Our organization tries to get GSA to modify these  clauses, and we are successful about 50 percent of the time, but this  varies by GSA region.”

About one-third of the stakeholders we spoke with said GSA’s  requirements for real estate tax reimbursement may lead lessors to  increase their bid prices to account for real estate tax uncertainty. GSA  reimburses lessors for increases in real estate taxes above a base year— the first full year after GSA certifies the leased space as fit for occupancy.  Lessors told us that since the date of occupancy is dependent on the  completion of the design and construction process, the duration of which  is difficult to estimate, when setting bids they have to estimate taxes  without knowing the base year. Two lessors told us that when bidding on  a lease they estimate on the high side to make sure they cover their  costs, and another other lessor said that their organization might not bid  on a GSA lease because of issues with the real estate tax requirements.  GSA officials told us that they use these requirements because they allow  GSA to establish the real estate tax base and the portion that GSA will  reimburse. Officials also told us that lessors have told them that their  current approach to tax adjustment places a risk on lessors that may  ultimately get passed on to GSA in the form of higher rent, and at a May  2018 GSA industry event, lessors discussed difficulties with setting the  base year. GSA officials told us that they are developing new  requirements for lease construction that would allow for real estate taxes  to be directly passed through by the lessor to GSA.

Lessor Perspective on GSA Leases  “The base year is often not clearly stated in the lease and is sometimes  mentioned informally (e.g., in emails)…the lessor has no recourse to  negotiate over the tax base year with GSA. It poses one of the biggest  risks and has caused us to walk away from some bids after not being  able to get a clear lease amendment specifying the tax base year.”

Stakeholders Identified the GSA Leasing Process as Affecting Cost and Competition

The lessors and real estate brokers we spoke with also identified a  number of general areas of GSA’s leasing process that they said can  increase costs or reduce the number of bidders. These areas included the  length of time it can take to finalize a GSA lease, GSA’s ability to occupy  a space after lease expiration generally without penalty or the payment of  damages beyond continuing rent payments—referred to as a “holdover”— and GSA’s propensity for entering into short-term extensions for current  leases while negotiating new leases.

About two-thirds of the lessors we spoke with mentioned frustration with  the length of time it takes to finalize a GSA lease. Lessors told us that  after GSA awards a lease, it can take more than a year of additional  negotiations with the lessor, GSA, and the federal tenant agency to  finalize the design requirements and construct the space. In 2016 we  reported that the total length of GSA’s leasing process could be up to six  to eight years. Because GSA does not generally begin to pay rent until  after the space is fit for occupancy, lessors said that the length of time it  takes to complete the lease award, design and construction processes  can create financial stress on a lessor. For example, one lessor said that  GSA’s overall leasing process was challenging, and the largest issue,  rather than any particular requirement, was agreeing on the design after  lease award. This length of time was because the tenant agency was  slow to make decisions about the space design, and while GSA tried to  coordinate by setting up weekly meetings about this design among GSA,  the tenant agency and the lessor, there were also several layers of time- consuming GSA review. About one-third of the lessors we spoke with also  identified challenges communicating with GSA and the tenant agency  during the lease negotiation process, including challenges identifying  points of contact and resolving disputes. Three lessors said that they or  other lessors might not bid on additional GSA leases specifically because  of the lengthy and complex process to finalize a lease. GSA officials told  us that they rely on space requirements from the tenant agency and that  the faster they receive those requirements, the faster the bid award can  be completed and design process finalized.

Lessor Perspective on GSA Leases  “If it were up to me, I wouldn’t bid on any more GSA leases because  they are too time intensive not only for management at our organization,  but also for our accounting, engineering, construction and property  management teams.”

GSA officials told us that they have been using a number of initiatives to  speed up their leasing process. For example, they said that in response  to these time pressures they have begun requesting requirements as  much as 48 months in advance of when a new lease will be needed.  Officials from three of the five tenant agencies we spoke with told us that  it can be difficult to estimate their space needs so far in advance because  their missions and space needs can change. In addition, since 2015 GSA  has been using the AAAP—in which potential lessors submit standing  bids for vacant space that GSA then matches to requirements for new  and continuing leases—in all of its national real estate markets. Four of  the more experienced lessors we spoke with told us that they had noticed  positive changes as a result of the AAAP. These changes included faster  lease processing times and an overall simpler leasing process with less  negotiating. One lessor told us that they only bid on new GSA leases that  are part of this program.

One-quarter of the lessors we spoke with identified drawbacks associated  with GSA lease holdovers and short-term extensions, and at least three of  the lessors we spoke with had experienced a holdover for one of their  leases. Lessors said that the possibility of GSA’s holding over in a  space or signing a short-term extension can affect their ability to finance a  building and their time frame for finding a new tenant if GSA exits a  property. Lessors also noted communications difficulties with GSA, for  example some said that they had reached out to GSA to negotiate a  lease well in advance of an incumbent lease’s going into holdover, but  this action did not help them get a new lease on time. Lessors told us that  they bid much higher rates for short-term extensions than they do for  leases awarded through the normal process. In 2015 we reported that a  significant number of GSA leases experience a holdover or short-term  extension and that these can cause uncertainty for tenant agencies and  lessors, increase GSA’s workload, and delay the completion of building  maintenance and other tenant improvements.

Lessor Perspective on GSA Leases  “Holdovers and short-term extensions diminish lessors’ opinions of  GSA.”

Reducing holdovers and short-term extensions is one of the key tenets of  GSA’s 2018–2023 Lease Cost Avoidance Plan. One method GSA uses to  more quickly process leases for tenant agencies remaining in their current  space is the superseding and/or succeeding lease. In 2018 GSA  developed a revised tool to help its officials more quickly estimate  whether GSA would likely achieve lower costs using a succeeding lease  as opposed to performing a full and open competition for a new lease.  Lease contracting officers can use this tool to identify leases that would  be likely candidates for a succeeding or superseding lease earlier in the  process. We analyzed the leases GSA entered into during fiscal years  2016 through 2018 and found about 29 percent of them were succeeding  or superseding leases. GSA officials told us that they have tried to  increase awareness of the new tool and appropriate use of succeeding  and superseding leases through training programs.

GSA Does Not Have Complete Information to Address Stakeholder Concerns and Assess Its Simplified Lease Model

GSA began reform efforts in 2011 by conducting outreach, introducing  new lease models, and adjusting some leasing provisions in response to  stakeholder concerns. While GSA has continued its industry outreach, its  more recent outreach efforts have not gathered information from a  representative group of lessors. Further, GSA has not analyzed the  information it does collect and therefore does not know if its reform efforts  are adequately addressing stakeholder concerns. Also, GSA has not  assessed whether one of its reform efforts—the simplified lease model— is achieving its intended benefits or how it could affect risk.

GSA’s Recent Stakeholder Outreach Efforts Are Limited, and GSA Lacks Information on Lessor Concerns

Since fiscal year 2018, GSA has conducted informal industry outreach to  certain lessors and other stakeholders about the leasing process. These  efforts have included attending and making presentations at industry  conferences, facilitating industry meetings with regional commissioners,  and hosting feedback sessions. For example, in May 2019 GSA gave a  presentation to a large industry organization on the current status of its  efforts to reduce lease costs, and in May 2018 staff participated in a  training event organized by GSA’s Office of Government-wide Policy  where officials from industry shared their experiences with the leasing  process.

GSA officials told us that they gather information primarily from two  industry groups, both of which have reached out to GSA, have a large  number of members that are GSA lessors, and have a significant amount  of knowledge of the GSA leasing process. GSA officials told us that they  have used information mainly from these two groups to inform reform  efforts, including creating net-of-utilities leases and longer firm-term  leases. However, these two groups are focused primarily on  organizations such as real estate brokers and investment trusts that are  experts in the GSA leasing process. These organizations are not  representative of GSA’s total population of lessors, which also includes  many smaller organizations that have less experience with the GSA  leasing process. By focusing its efforts on these larger groups, GSA is  missing the perspective of smaller lessors, whose representatives may  not attend industry meetings.

These smaller lessors may have different types of concerns that GSA is  not capturing. For example, in our sample of 20 lessors we identified  areas where the perspectives of organizations with varying levels of  experience with GSA leases differed. More than half of the less  experienced organizations identified experiencing communication  challenges with GSA and the tenant agency, while only two of the more  experienced organizations identified this concern. Concerns about early  termination clauses in GSA leases were cited by less than half of the less  experienced organizations, but all of the more experienced organizations  mentioned this clause as affecting their willingness to do business with  GSA. Also, one of the brokers we spoke with said that smaller lessors  tend to have different concerns about leasing requirements than larger  lessors, but also have less ability to react to those concerns by, for  example, raising their bid prices. In addition to limiting outreach to two  groups that do not represent all types of GSA lessors, GSA has not  maintained official records of the information it receives from these  efforts. Further, it has not analyzed the information that it collects from  lessors and other stakeholders for use in revising the leasing process.  These omissions hinder GSA’s ability to identify the full range of lessor  concerns.

GSA’s recent approach to outreach differs from earlier approaches where  GSA conducted more formal outreach to lessors. For example, in 2011  GSA performed formal outreach in order to inform decisions about  significant changes to its leasing process. Officials told us that they  selected a wide variety of lessors and held formal outreach sessions  where GSA took minutes and maintained a record of all of the comments.  GSA then analyzed the comments and used the results of its analysis to  inform the initiatives it was conducting at that time, including the  development of the simplified lease model. In addition, in 2017 GSA  established the Office of Leasing Industry Outreach Program, which was  a formal program to allow industry representatives to discuss various  leasing issues with GSA officials through conference calls, webinars, and  in-person sessions. GSA conducted nine monthly sessions with this  program in 2017 and kept a formal record of only the first four sessions.  Officials told us that they have since shifted their approach to conduct  outreach more like that conducted by the Office of Government-wide  Policy discussed above.

Federal internal control standards call for agencies to communicate with,  and obtain quality information from, external parties such as stakeholders  that can help the agency achieve its objectives. While GSA has in the  past collected and analyzed information from a wide variety of  stakeholders to the leasing process, the real estate market is constantly  changing. By obtaining current information from a broad spectrum of  stakeholders and documenting and analyzing the information collected,  GSA would be better positioned to know whether its lease reforms are  addressing stakeholder concerns and how its lease requirements affect  cost and competition.

GSA Does Not Know Whether Its Simplified Lease Model Is Achieving Anticipated Benefits

As previously noted, GSA developed its simplified lease model in 2011 to  simplify the acquisition of smaller value leases with the intent of making  the leasing process more efficient and cost-effective. GSA officials told us  that using this model is also intended to help them achieve other lease  reform goals including reducing holdovers and short-term extensions by  speeding up the leasing process and making GSA leases more attractive  to a wider spectrum of potential lessors. In addition, officials said that they  believe greater use of the simplified lease model would increase  competition for leases, particularly in real estate markets with high  demand for office space. Since initial implementation, GSA has  undertaken initiatives to increase the use of this model, including by  raising the eligibility threshold from $150,000 to $250,000, and GSA  officials told us that they have proposed raising the threshold to $500,000,  a move that would cover more than 70 percent of GSA’s leases.  However, GSA has not performed any analysis on the number of leases  that were eligible for, but did not use, this model.

Using available data, we analyzed the leases GSA entered into during  fiscal years 2016 through 2018 that were potentially eligible for the  simplified lease model and compared those that used the model to those  that used GSA’s global and standard lease models. We found that the  group of leases where GSA had used the simplified lease model had  achieved lower rents both overall and per square foot than the group of  potentially eligible leases where GSA had used its standard or global  models (see table 2). These leases had lower average costs even though they had shorter average total terms and firm terms. This finding  is notable because, according to GSA, longer leases typically have lower  costs than shorter ones. However, our analysis of available data also  found that GSA only used the simplified lease model on 124 of the 406  leases that were potentially eligible, or about 31 percent (see table 2).

GSA officials told us that they face two primary challenges in increasing  adoption of the simplified lease model. First, lease contracting officers  must choose to use the simplified model as opposed to GSA’s standard  lease model. While GSA’s leasing policy states that lease contracting  officers should use the simplified lease model to the maximum practical  extent, the lease contracting officers generally have wide discretion in  selecting the type of lease to use for a particular acquisition. GSA officials  told us that they believe some lease contracting officers may be hesitant  to use the model because it is less familiar to them. GSA officials also told  us that they have provided training for lease contracting officers on the  appropriate use of the simplified lease model and have encouraged them  to use it.

Second, in order for GSA to use the simplified lease model, tenant  agencies must provide a complete set of space requirements that GSA  can use in a lease solicitation—what GSA calls biddable requirements— prior to GSA’s advertising the lease. According to GSA officials, tenant  agencies do not always provide these requirements on time. By having  biddable requirements in place before receiving bids, GSA can avoid  negotiating these requirements after the lease is awarded. GSA officials  and lessors told us that not having these requirements in place is a major  source of project delays. GSA tracks both when it receives initial  requirements from the tenant agencies and when the more fully  developed requirements that GSA uses in its standard lease model  solicitations are in place. In order to use the simplified lease model, GSA  and the tenant agency then develop biddable requirements that need  additional detail.

An Example of challenges agencies face in providing lease  requirements to the General Services Administration (GSA):  Officials from three of the five tenant agencies we spoke with told us   that it can be difficult for them to provide GSA with requirements two or  more years in advance because agency missions and space needs  change. For example, Internal Revenue Service officials told us that  providing requirements 36 months in advance of a lease’s expiring is  difficult for them because they may not know what their agency budget  and personnel will be that far in advance. Officials from the Federal  Bureau of Investigation said that lead times greater than three years   are challenging because their agency missions change frequently,   which leads to changing space needs.

GSA has taken some steps to increase use of the simplified lease model.  For example, several GSA regions have begun to work with SSA on a  pilot program to reduce the time it takes for GSA to complete leases with  that agency, including by increasing the availability of the simplified lease  model. This program is in the early stages and, according to the charter,  developed in August 2019, its objectives are to reduce the total time it  takes to complete leases, increase up-front knowledge of project costs,  and minimize the number of changes needed to leases all while  maintaining or reducing the average costs for these projects. GSA and  SSA plan to accomplish these objectives by identifying the areas of the  leasing process most prone to delays, developing strategies for more  quickly finalizing the complete requirements needed to use the simplified  lease model, and testing the improvements in both large and small real  estate markets. GSA plans to begin testing the changes developed by  this program during the first half of 2020. SSA officials told us that they  typically begin planning approximately 42 months prior to lease expiration  with the goal of providing initial requirements to GSA by 36 months prior.

GSA lacks comprehensive information on the benefits and challenges of  using the simplified lease model because it has not evaluated the results  it has obtained from using it. For example, officials told us that they have  not analyzed the lease processing times or rental rates they have  achieved using the model. Officials also said that they already collect the  data they would need to study the model and they have used this data to  analyze related issues such as lease holdovers and short-term  extensions. Officials also told us that they do not consider use of the  simplified lease model to pose any financial risks provided that lease  contracting officers follow GSA’s existing policies. However, they told us  that GSA has not reviewed financial and other risks that may arise from  using the model. These factors include risks due to the model’s not  containing certain provisions that may protect GSA, such as tenant  substitution. We have reported that agencies can use information about  the performance of programs to identify problems or weaknesses, to try to  identify factors causing the problems, and to modify programs to address  them. Program assessment helps to establish a program’s  effectiveness. Without conducting such an assessment, GSA does not  have the information needed to determine whether the simplified lease  model is achieving intended results, whether to make improvements, or  how to mitigate any risks.

The federal government spends nearly $6 billion annually on leasing  space from private entities, and GSA has taken steps to encourage  private sector competition for government leases. GSA’s efforts to  address stakeholder concerns with lease requirements have had some  success. Specifically, GSA’s 2011 formal stakeholder outreach and  subsequent development of new lease models and other process  changes have given GSA some options to reduce leases’ complexity and  better tailor leases to the needs of individual projects. However, because  GSA’s recent outreach has not included a representative group of its  lessors, and it has not documented and analyzed the information  collected from this outreach, GSA may not have the information it needs  to fully address lessors’ concerns.

Further, the simplified lease model—which GSA developed to address  some of these stakeholder concerns and more effectively use its  resources—has been in use for several years. Given that GSA has  proposed further expanding the use of the model to higher value leases, it  is important to know the results GSA has obtained from using the model,  such as the characteristics of leases for which it achieves the greatest  savings in costs and time, and the extent to which it bears financial or  other risks from its use. Such information would help inform GSA’s future  decision-making on the use of the simplified lease model.

We are making the following three recommendations to GSA:

The Administrator of the General Services Administration should  expand its outreach as appropriate to obtain feedback from lessors  that are representative of its entire lease portfolio.   (Recommendation 1)

The Administrator of the General Services Administration should, for  future outreach efforts, document and assess lessors’ feedback about  the leasing process. (Recommendation 2)

The Administrator of the General Services Administration should  evaluate whether the simplified lease model is achieving its intended  results. (Recommendation 3)

We provided a draft of this report for review to the General Services  Administration, the Social Security Administration, and the Departments  of Homeland Security, the Interior, Justice, and the Treasury.

The General Services Administration concurred with our  recommendations in its written comments, which are reproduced in  appendix II. The General Services Administration and the Department of  the Interior provided technical comments, which we incorporated as  appropriate. The Departments of Homeland Security, Justice, and the  Treasury, and the Social Security Administration had no comments on the  draft report.

As agreed with your offices, unless you publically announce the contents  of this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees; the Administrator of the General Services  Administration; the Secretaries of the Departments of Homeland Security,  the Interior, and the Treasury; the Commissioner of the Social Security  Administration; the Attorney General; and other interested parties. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-2834 or rectanusl@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) lease requirements selected stakeholders  identified as affecting cost and competition and steps GSA has taken to  address their concerns, and (2) how GSA has identified stakeholder  concerns and evaluated its simplified lease model.

To obtain information for both objectives, we reviewed laws, regulations,  and executive orders covering GSA leases and GSA’s leasing process.  We also obtained data from GSA on each of the 1,618 leases it entered  into between the beginning of fiscal year 2016 and the end of fiscal year  2018, the most recent data available. This data included fields for the  current annual rent, the size of the lease in rentable square feet, the lease  model GSA used, the facility security level, the occupying agency, and  the lease’s effective and expiration dates, among others. We assessed  the reliability of this data by reviewing documentation; interviewing GSA  officials; electronically testing the data by, for example, examining missing  values and outliers; and verifying the accuracy of potentially erroneous  data with GSA officials. We concluded that the data were reliable for the  purposes of selecting a sample of GSA lessors and reporting on GSA’s  portfolio of leases and the general characteristics of the groups of leases  that used different lease models.

In addition, to address both objectives, we collected information from and  interviewed a non-generalizable sample of 20 GSA lessors to obtain their  perspectives on GSA leases and GSA’s leasing process. To select these  lessors, we used the fiscal year 2016–2018 lease data that GSA provided  and selected leases using the annual rent amount as the primary  selection criteria. We excluded leases that used models designed for  specific lease products, such as leases for parking structures or leases on  airport properties, and we also excluded leases that were successions or  supersessions of leases that had already been established under different  models. To make the selections, we first split the data into three groups  based on annual rent, the first group of leases with annual rents under  $150,000; the second group with annual rents between $150,000 and  below $500,000; and the last group with annual rents above $500,000.  We then randomly ordered the leases within each of the three groups,  and selected 53 total leases in that order from the three groups. We  checked this grouping to ensure that the selected leases had similar  characteristics to GSA’s general population in other important lease  characteristics such as lease model used and GSA region. We then  randomly ordered the selected leases and contacted the lessors for those  leases in that order.

We interviewed the first 20 lessors from our selected leases who agreed  to be interviewed. When contacting the lessors we found that in most  cases the lessor named in GSA’s data was a subsidiary to another  organization. In those cases, we interviewed the organization that self- identified as being responsible for the selected lease, or their  representative. We conducted these interviews between March 2019 and  June 2019 and used a semi-structured interview format with open-ended  questions for those interviews. During these interviews, we asked for  lessors views on the requirements in GSA’s leases that can affect their  willingness to bid on GSA leases and the prices they can offer, actions  they take in response to those requirements, other areas of GSA’s  leasing process that can be difficult for them, the benefits to leasing to  GSA, and their perspectives on GSA’s recent lease reform efforts. To  obtain a broader perspective on GSA’s leasing process, we also  conducted semi-structured interviews on the same topics with six real  estate brokers who are participating in the GSA Leasing Support Services  contract. We asked the brokers to provide their experiences on which  areas of GSA leases result in the greatest number of cost and  competition issues from lessors, and what the lessors do about those  areas. We also interviewed four other experts on GSA leasing including  professional organizations and attorneys who represent building owners,  and former GSA officials. Although the results of these stakeholder  interviews are not generalizable to the entire population of GSA lessors,  they provide illustrative examples of lessors’ experiences with GSA  leases and the leasing process.

After conducting these semi-structured interviews with lessors and  brokers, we conducted a content analysis of the interview data. To  conduct this analysis, we organized the responses by topic area, and  then one GAO analyst reviewed all of the interview responses and  identified recurring themes. Using the identified themes, the analyst then  developed categories for coding the interview responses and  independently coded the responses for each question. To ensure  accuracy, a second GAO analyst reviewed the first analyst’s coding of the  interview responses, and then the two analysts reconciled any  discrepancies.

To identify the lease requirements that stakeholders we spoke with  identified as affecting cost and competition, we synthesized information  from our content analysis of interview responses to identify the most  commonly mentioned requirements. We selected the eight most  commonly mentioned requirements by summing the total number of  responses from both the lessors and the brokers. As part of this analysis  we also selected the four areas stakeholders most often mentioned as  challenges that were related to GSA’s leasing process, as opposed to a  specific requirement, but that stakeholders nonetheless identified as  having effects on cost and competition. To assess how the responses  from lessors may have differed based on how much experience a lessor  has with GSA, we grouped the lessors we spoke with into two categories.  The first category was those lessors who had told us that they had  experience with three or more GSA leases, we referred to these lessors  as “more experienced,” and the second category was those lessors who  had experience with one or two GSA leases, we referred to those lessors  as “less experienced.” To identify the source of the GSA requirements  stakeholders identified, we reviewed GSA documents and interviewed  officials to learn about each of the requirements. In addition, we reviewed  laws, regulations and executive orders that governed GSA’s use of these  requirements.

To determine how GSA and tenant agencies develop requirements for  leased space—one of the requirements stakeholders identified—we  selected five bureau-level and independent agencies to review how they  develop initial requirements for leased space and how they work with  GSA and the lessor to finalize those requirements. We selected these  agencies by the number of GSA leases they had entered into during fiscal  years 2016-2018, using the lease data for that time period provided by  GSA. We selected the agencies that had entered into the greatest  number of leases, and in order to ensure that we had a diversity of  experiences from across the federal government, and we limited our  selection to executive branch independent agencies and one-bureau-level  entity from each cabinet department. Based on these factors, we  selected (1) Department of the Interior Fish and Wildlife Service (FWS);  (2) Department of the Treasury Internal Revenue Service (IRS); (3)  Department of Justice Federal Bureau of Investigation (FBI); (4) Social  Security Administration (SSA); and (5) Department of Homeland Security  Immigration and Customs Enforcement (ICE). While the views of these  agencies are not representative of all executive branch agencies, they  provide a range of examples and experiences with leasing space through  GSA. We reviewed documents and interviewed officials from each of  these five agencies to learn about how they develop requirements for  leased space, how they work with GSA to identify feasible properties, how  they participate in the development of the final space design and  construction, and how they plan for their future leased space needs.

To identify the steps GSA has taken to identify stakeholder concerns and  evaluate its simplified lease model, we reviewed pertinent GSA  documents and interviewed GSA officials on recent lease reform efforts,  including how GSA has defined them, what information GSA used to  develop them, how GSA has implemented them, and how GSA has  assessed their performance. In addition, we obtained information from our  interviews with lessors and real estate brokers about their impressions of  GSA’s lease reform efforts, including whether they were aware of the  efforts, and what effects they had observed. We compared GSA’s efforts  to identify and address stakeholder concerns to Federal Standards for  Internal Control related to external communication.

To identify how often GSA has used its simplified lease model and the  characteristics of the leases for which GSA used the model, we used the  GSA fiscal year 2016–2018 lease data described previously. We  analyzed the data to obtain information about the number of leases that  had used each of GSA’s lease models, and the average rent amounts,  size, and terms. Even though the facility security level is an additional  eligibility requirement for the model, we could not include it in this analysis  because GSA does not have security level information for many of the  leases in this dataset. However, we determined that omitting this data field did not substantially change the results of this analysis because only  a small number of leases with costs below $150,000 also had a facility  security level of III or above. We were not able to assess the extent to  which the lower rental costs might be attributable to the use of the  simplified lease model because there are other factors that that contribute  to its use that are not included in GSA’s data. For example, in order for  GSA to use the simplified lease model, tenant agencies must provide fully  developments prior to GSA advertising the lease. The data do not include  the date GSA received these requirements. We compared GSA’s efforts  to evaluate its simplified lease model to criteria from our prior work on the  use of performance information for decision-making.

Appendix II: Comments from the General Services Administration

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Amelia Bates Shachoy, Assistant  Director; Alex Fedell, Analyst-in-Charge; James Duke; Cynthia Grant;  Geoffrey Hamilton; Gina Hoover; Terence Lam; Malika Rice; Kelly Rubin;  Jim Russell; Patrick Tierney; and Amelia Michelle Weathers made key  contributions to this report.

The General Services Administration (GSA) leases space for federal agencies. GSA leases are stable, but they come with requirements and processes that are uncommon in private-sector leases. These can lead to extra costs, which lessors pass through to GSA.

We spoke to some lessors and real estate brokers who work with GSA about their concerns with these leases. For example, lengthy negotiations can increase costs and make federal leases less attractive to lessors. GSA has simplified some of its less-expensive leases to start addressing these concerns.

We recommended that GSA study whether the simplified lease has reduced costs or saved time.