Federal Construction: Army Corps of Engineers and GSA Need to Improve Data on Contract Changes

In fiscal year 2018, federal agencies spent more than $36 billion on construction contracts, with more than 45 percent going to small business. Typically, construction projects involve some degree of change as the project progresses. Some federal construction contractors have raised concerns that delays in processing contract changes and making payments creates challenges, particularly for small businesses. Section 855 of the National Defense Authorization Act for Fiscal Year 2019 requires agencies to report information related to how quickly they finalize contract changes.

GAO was asked to review federal construction contract change processes and timeframes. GAO (1) identified factors that affect the time it takes to finalize contract changes, and (2) assessed the extent to which selected agencies monitor time frames for finalizing contract changes. GAO reviewed relevant regulations and agency policies, analyzed available data, and interviewed officials from GSA's Public Buildings Service and USACE—two agencies with large amounts of obligations on construction—and two industry associations.

Multiple factors affect the time it takes to finalize a construction contract change. For example, preparing cost estimates can be time consuming, particularly for complex changes. Yet the time may be used to help ensure the government has adequate cost data to inform negotiations. In addition, according to agency officials, miscommunication during the contract change process—which can lead to problems such as unauthorized work undertaken by the contractor—can result in additional reviews and longer time frames. According to U.S. Army Corps of Engineers (USACE) data, most of its construction contract changes are finalized within 60 days. Some take much longer, however (see figure).

Agency officials and industry representatives agreed that perceptions differ about the length of the contract change process. For example, because a change can impact the contractor's cost and schedule immediately, the contractor typically perceives that the process starts earlier—and lasts longer—than the government does.

Neither GSA nor USACE regularly monitors how long it takes to finalize construction contract changes, limiting management's ability to identify and respond to problems. Internal controls require agencies to collect and use quality data for management purposes such as monitoring agency activities. GSA systems do not collect data that permit analysis of contract change timeframes at the headquarters level. USACE systems produce contract change data for its districts, but data consolidation and calculations must be done manually and are not done regularly. Neither agency has a strategy in place to address these issues. Without regular review of these timeframes, USACE and GSA contracting officials may be unaware of any existing or potential problems, such as long process times that may affect project schedules. In addition, these data system limitations are likely to create difficulties for agencies when providing the information required by new legislation.

GAO is making two recommendations: that GSA's Public Buildings Service and USACE each develop a strategy to routinely collect information on and monitor time frames for construction contract changes at the headquarters level. Both agencies concurred with our recommendation.

In fiscal year 2018, federal agencies spent more than $36 billion on  construction contracts, with more than 45 percent going to small  businesses. Typically, federal construction projects involve some degree  of change as the project progresses. Contract changes, made through  modifications to a contract, can occur for a variety of reasons, including  design errors, unforeseen site conditions, and changes in user  requirements. Some federal contractors have raised concerns that the  government’s process for managing construction contract changes  causes unnecessary delays in payments, creating cash flow issues and  other challenges that can be particularly difficult for small businesses to  manage. Recently, Congress took action that, when implemented, should  provide more information on certain contract changes to prospective  contractors. Section 855 of the National Defense Authorization Act for  Fiscal Year 2019 generally requires agencies to include information  related to the time frames to definitize – or finalize – some contract  changes in certain solicitations, beginning in August 2019.

You asked us to review federal construction contract change processes  and time frames. This report (1) identifies factors that affect the time it  takes to finalize contract changes at selected agencies and (2) assesses  the extent to which selected agencies monitor time frames for finalizing  contract changes.

To identify agencies for our review, we used federal procurement data to  determine defense and civilian agencies that had a high amount of  construction contract spending, with a significant portion going to small  business. Based on these factors, we selected the U.S. Army Corps of  Engineers (USACE) and the General Services Administration’s (GSA)  Public Buildings Service (PBS). To identify factors that affect the time it  takes to finalize contract changes, we reviewed federal and agency  acquisition regulations and agency policies. We also interviewed USACE  and PBS contracting officials, agency small business advocates, and  representatives from two associations that represent a variety of federal  construction contractors: the Associated General Contractors of America  and the National Association of Small Business Contractors.

To assess the extent to which selected agencies monitor time frames for  finalizing contract changes, we reviewed relevant statutes, regulations,  and policies, and interviewed agency officials, including officials from  GSA’s Office of Government-wide Policy, which is responsible for  acquisition policy across GSA. We requested data on contract changes  from USACE and PBS, but only USACE was able to provide data. We  reviewed USACE data and analysis on contract changes finalized  between January 2013 and August 2018—representing more than 62,000  changes primarily from the more than 40 USACE districts that execute  construction contracts—to determine the time it takes to process a  contract change. See appendix I for more information on our scope and  methodology and the types of contract modifications included in our  review.

We conducted this performance audit from August 2018 to July 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 based  on our audit objectives.

Throughout the course of a construction project, small and large contract  changes can be expected after the contract is awarded. These changes  are made through modifications to a contract. There are two types of  contract changes discussed in this report: bilateral and unilateral.

Bilateral change. A bilateral change (also called a supplemental  agreement) is a contract modification that is signed by the contractor  and the contracting officer. In these cases, the contractor and  contracting officer come to an agreement on the price of a contract  change prior to the execution of work.

Unilateral change. The contracting officer may direct a unilateral  change, executed through a change order, without the contractor’s  agreement on the terms and conditions of the change. A unilateral  contract modification is signed only by the contracting officer. The  contractor is generally required to perform the related work. When  change orders do not include an agreed-upon price for the work, they  may also be referred to as an unpriced change.

If a contract change causes an increase or decrease to the cost of  performing the work or the scheduled time for performing the work, the  contractor will communicate these price and schedule changes to the  contracting officer. For there to be an adjustment to the contract’s price,  the contractor must submit a specific request or proposal seeking  reimbursement for the change. If the contract change has been ordered  unilaterally by the government, the contractor may submit a request for  equitable adjustment (REA) that reflects these cost and schedule  changes and requests reimbursement. In other circumstances, the  contractor may submit a proposal in response to a request by the agency  that similarly reflects the contractor’s estimate for that increased or  decreased cost and the schedule changes.

Bilateral and unilateral contract changes typically begin with a similar set  of activities, but then the processes diverge once the bilateral or unilateral  determination is made. Initial process steps include:  identifying the need for a change; determining that the change is within the scope of the existing  receiving a cost estimate; and  verifying that funds are available for the change.

It is generally after this point that the contracting officer determines the  type of change—unilateral or bilateral—required. See figure 1 for a  notional representation of a change process. Individual contract changes  may involve circumstances and process steps that are not outlined below.

Agency regulations and policies provide additional direction for managing  the construction contract change process (see table 1).

Prior GAO Work, Industry Concerns, and Recent Congressional Action

In prior work at the Department of Veterans Affairs (VA), we identified  challenges and made several recommendations related to the time  required for the construction contract modification process.

In 2013, we found that VA had not developed guidance to ensure that  change orders were approved in a prompt manner, and  recommended that officials implement guidance on streamlining the  change-order process. VA agreed with our recommendations and  has implemented them.

In 2017, we found that VA did not collect sufficient information to  determine if new guidelines intended to ensure the timely processing  of change orders were being followed. We also found that it did not  have a mechanism in place to evaluate data on time frames to  process change orders. Without such a mechanism, VA could not  determine how processing time frames and design changes affect  costs and schedules, and thus was at risk for unexpected cost  increases and schedule delays. We recommended that VA establish a  mechanism to monitor the extent that major facilities projects were  following guidelines on change orders’ time frames and design  changes. VA has also addressed this recommendation.

In 2018, we found that the Veterans Health Administration, a  component of the VA, had not established time frames for processing  contract changes, and did not have a way to monitor the length of  time or the reason contract changes occur. We recommended that  officials collect information on contract modifications, establish target  time frames that trigger a higher-level review of contract modifications,  and centrally establish a mechanism to monitor and review certain  contract modifications that were taking longer than the established  target time frame. To date, the Veterans Health Administration has  not yet fully implemented the recommendations.

At a May 2017 congressional hearing before two subcommittees of the  House Committee on Small Business, witnesses from the construction  industry identified the contract change process as a challenge. They  stated that the change process negatively affects cash flows, increases  administrative and legal costs, and creates a risk of not receiving  reimbursement for completed work. Industry representatives we spoke  with reiterated these concerns. Industry representatives also explained  that while contract changes were a challenge for businesses of all sizes,  small business were likely to be more susceptible to challenges due to  their having fewer financial and administrative resources. One resource  for small businesses is an agency’s Office of Small and Disadvantaged  Business Utilization or Office of Small Business Programs. These offices  are responsible for working with agency officials to facilitate participation  of small businesses in procurement. However, the small business  advocates at GSA and USACE told us that their offices had a limited role  in the construction contract change process. According to small business  advocates at GSA, for example, their office may get involved in a limited  manner when a small business contractor is having difficulty receiving  payment by providing guidance on how to make a claim.

Congress recently took action that will prompt agencies to gather  information on the time it takes to make certain contract changes. Section  855 of the Fiscal Year 2019 National Defense Authorization Act includes  a provision that requires agencies to make available information about the  agency’s past performance in finalizing, or “definitizing,” REAs with  certain construction solicitations. The provision also requires agencies  to provide information about its policies and practices associated with  how the agencies comply with Federal Acquisition Regulation  requirements to definitize REAs in a timely manner. Agencies must start  including this information no later than August 13, 2019.

Multiple Factors Affect Time Frames for Finalizing Contract Changes

A variety of factors affect how long it takes to process a contract change.  The factors include the time needed for making a change determination,  creating a cost estimate, identifying funds, negotiating with the contractor,  completing reviews, and processing the change. According to agency  officials, some of these steps play a role in protecting the government’s  best interests. For example, creating robust cost estimates helps provide  the government with information to inform negotiations with the  contractor. Unauthorized work—resulting from unauthorized direction or  miscommunication—is another factor that can affect the change process  timelines. When the contractor performs unauthorized work, the agency  must then take additional steps, such as reviewing the work to determine  if it should be reimbursed. Data we reviewed from USACE indicate that a  majority of contract changes made from January 2013 through August  2018 were finalized in fewer than 60 days, and a little more than 3  percent took more than 1 year. Contractors and the government  sometimes have different perceptions about when the contract change  process begins—and therefore how long it takes—based on when the  change begins to impact the work.

Contract Change Steps Add Time to the Process

The construction contract change process includes a number of steps  that can factor into the time frames for finalizing a contract change,  depending on the facts and circumstances surrounding an individual  change. For example, USACE officials stated that obtaining a complete  proposal from the contractor—with sufficient information on cost and  schedule changes to begin negotiations—is a significant factor affecting  contract change time frames. Figure 2 illustrates where these factors fall  in a notional change process and describes how they may affect time  frames.

Agency contracting officials at both PBS and USACE note that some of  these procedural steps are necessary to protect the government’s  interests—which includes negotiating a fair and reasonable price for the  work related to the change.

According to USACE and PBS contracting officials, any unauthorized  work undertaken by the contractor is another factor that can extend  contract change process timelines. When unauthorized work is done, the  government must take steps such as determining (1) if the work was  required; (2) if the work constituted a change to the existing contract; and  (3) if so, a fair and reasonable price for the work. Unauthorized work may  occur, for example, when the contractor receives direction from a person  who is not authorized to direct work, like a project manager. An  authorized individual, such as the contracting officer, must provide such  direction. Agency officials explained that unauthorized work can be the  result of miscommunication between a government project official and the  contractor. The contractor may interpret instructions from the  unauthorized official as a formal direction to proceed with a change. In  other cases, the contractor may begin work in anticipation of a contract  change, before receiving any direction at all. One contractor  representative told us that, at times, contractors feel pressured to start  work without authorized direction to avoid disruption to the overall project  that may result in negative performance reviews from the agency.

USACE Data Show That More than Half of Construction Contract Changes Are Finalized Within 60 Days, but Some Take Much Longer

According to USACE contracting officials, the agency compiles and  reviews data on construction contract changes on an ad hoc basis to gain  insight into time frames for the contract change process within that  agency. The data and analysis show that the majority of changes from  2013 through 2018 at that agency were finalized within 60 days; however,  a smaller percentage took substantially longer. Approximately 45  percent of the completed contract changes took more than 60 days to  finalize, and a little more than 3 percent took more than 1 year. See figure  3 for information on USACE contract changes by the number of days  taken to finalize the change.

Agency Officials and Industry Representatives Report Differing Perceptions of When the Process Begins

Contracting officials at USACE, as well as industry representatives, told  us that government officials and contractors often have different  perspectives on when the contract change process begins and, therefore,  the time needed to complete it. For example, one industry representative  said that the process begins for some contractors when the need for a  contract change is identified. The representative explained that this is the  point that the project work can change and the contractor begins to  experience an impact on cost and schedule. Another industry  representative said that some businesses think that the process begins  when they submit their request for equitable adjustment, but that the  government may not start measuring the process until a government  official actively begins to address the request.

Meanwhile, USACE contracting officials stated that process time should  be measured from when they receive a complete proposal from the  contractor, with no missing information. USACE officials told us that the  data collected in its contract information system do not always reflect this  metric, however. USACE contracting officials told us that, when recording  the proposal receipt date that it uses as the start date for the contract  change process, some contracting officers enter the date that the initial  proposal was received, and others enter the date that a complete  proposal was received. USACE contracting officials stated that they plan  to address this issue in the future as part of a larger system upgrade.

An industry representative explained that these varying viewpoints  between government contracting officials and contractors are  exacerbated by the contractors’ lack of understanding about the contract  change process. The representative also stated that contractors find that  the process is not transparent and implementation of the process varies  by agency and even by district within the same agency, increasing  confusion.

Selected Agencies Do Not Regularly Monitor Contract Change Time Frames

While the amount of information on contract changes varies between  USACE and PBS, neither agency regularly monitors contract change time  frames. In addition to agency guidance that establishes time frames for  certain contract change order actions, federal standards for internal  control state that an organization should obtain quality information to  achieve management objectives and establish monitoring activities.  Neither GSA nor USACE has fully established such controls over the  contract change process at the headquarters level, limiting management’s  ability to identify and respond to problems.

USACE information systems have data on contract changes for its  more than 40 districts that are sufficient to calculate time frames for  finalizing contract changes, but the agency does not regularly  aggregate or monitor the information. Officials explained that this was  in part due to the manual process required to compile the data  centrally and perform calculations. A user must pull data for each  USACE district from its contract information system and then  manually manipulate the data to determine the time frames. As a  result, the data are not reviewed by officials at headquarters on a  routine basis. The contracting officials we spoke with said that  contract change time frames are reviewed at the local level,  specifically by project teams, typically on a weekly basis. Contracting  officials also stated that contract change time frames are a factor in  performance reviews for contracting personnel. There is currently no  agency guidance or documentation for how often contract changes  should be reviewed at either the project or district levels, the officials  said. USACE contracting officials noted that they are in the early  stages of planning for a system upgrade that they hope will automate  the process of compiling and analyzing construction contract change  data. However, these plans are preliminary. USACE has not yet  determined which systems will be involved, nor has it documented  these planning efforts to date.

PBS contracting officials cannot track time frames for contract  changes. While GSA’s contract information system does track and  centrally compile data on all contract modifications, PBS contracting  officials said there was no efficient way to separate the types of  contract changes that we included in our review from other  modifications, such as administrative changes or the exercise of  options, preventing the calculation of time frames for contract  changes. Our review of the GSA data confirmed that the data cannot  be used to distinguish between the various types of contract changes.  According to PBS contracting officials, to identify a contract change  type, a reviewer would have to seek information at the local level by  going into the individual contract file and reviewing the modification.

Given these limitations, USACE and PBS cannot centrally identify  emerging problems with contract change time frames or monitor  compliance with existing Department of Defense (DOD) and GSA  requirements. As noted above, DOD and GSA have established time  frames for certain contract changes. USACE contracting officials said that  they would likely establish additional, broad goals for finalizing contract  changes in future policy revisions because more targeted goals were  often not practical due to the unique circumstances that may affect  process times. PBS contracting officials said that compliance with those  time frames should be monitored by local staff, such as the contracting  officer assigned to the project; however, there is no regular monitoring of  that data or systematic way for contracting officers to track this  information at the local level. There is currently no effort under way to  develop a strategy to address data limitations at the local and  headquarters level via information technology system upgrades,  according to GSA officials.

Further, USACE and GSA anticipate, and our analysis of available data  confirms, that system limitations at both agencies are likely to make  implementing section 855 of the Fiscal Year 2019 National Defense  Authorization Act more difficult. This provision generally requires  agencies to include information on recent time frames for definitizing  REAs with any construction solicitations anticipated to be awarded to  small businesses no later than August 2019. For example, GSA officials  stated that to implement this provision would require substantial changes  to their contract information system, which they must plan for 2 years in  advance. USACE officials said that staff level discussions were ongoing  on potential ways to comply with the requirement. They added, however,  that in the absence of a system change making the data readily available,  they would likely compile data manually, similar to what was provided to  us, as an ad hoc substitute.

In addition, both agencies said that they had questions about what  information they would include in solicitations. Specifically, while section  855 refers to REAs, a USACE contracting official stated that REA could  be interpreted differently by the government and industry. Similarly, GSA  contracting officials said that the statutory language potentially covers a  broad category of information, making it difficult to decide what data to  capture and report. USACE officials stated that they will wait for DOD and  the Department of the Army to provide direction before changing their  system. GSA officials stated that they were not going to take action until  further information is provided. One potential source of additional  direction is Federal Acquisition Regulation (FAR) case 2018-020, which is  developing a proposed FAR rule to implement section 855. The proposed  rule is anticipated to be released in the first quarter of fiscal year 2020.

Routine, central data collection on the construction contract change  process can help agencies understand the scope of any problems  encountered. While USACE can compile and review construction contract  change information on an ad hoc basis, the agency does not conduct  regular monitoring at the headquarters level and must manually  manipulate data to review this information. GSA lacks information on the  contract change process and its time frames at the headquarters,  regional, and local levels. Without regular collection and review of  information on the contract change process, contracting officials may be  unable to spot potential problems—such as long process times that may  affect project schedules—as they occur and respond accordingly. In  addition to needing data for management purposes, agencies must also  implement new legislative requirements when issuing certain construction  solicitations starting in August 2019. While the proposed FAR rule, when  issued, should provide agencies with more information on how to  implement the new requirements, GSA and USACE could immediately  begin to develop strategies to support routine collection and monitoring of  time frames. Pursuing preliminary strategies on basic issues—such as  what systems may need to be updated and what groups or individuals  should be involved—would help these agencies better position  themselves to comply with the requirement in a timely manner, and more  quickly expand the data available for management purposes.

We are making the following two recommendations:  The Administrator of General Services should ensure that the  Commissioner of the Public Buildings Service develops a strategy that  outlines the steps needed to routinely collect information on and monitor  the time frames for finalizing construction contract changes at the  headquarters level. The strategy could address issues such as the types  of construction contract changes that should be included, when the  measurement of the contract change process should begin, and the  information systems that will be affected. (Recommendation 1)

The Secretary of the Army should direct the Chief of Engineers and  Commanding General of the U.S. Army Corps of Engineers to develop a  strategy to expand on existing data and systems to routinely collect  information on and monitor the time frames for finalizing construction  contract changes at the headquarters level. (Recommendation 2)

We provided a draft of this product to DOD, GSA, and OMB for comment.  DOD and GSA provided written comments, reproduced in appendixes II  and III, respectively. DOD concurred with our recommendation and  provided a technical comment, which we incorporated as appropriate.  GSA also concurred with our recommendation, and noted that the agency  is developing a plan to address it. OMB provided technical comments,  which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Director of the Office of Management and Budget, the  Acting Secretary of Defense, and the Administrator of General Services.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or woodsw@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 were Tatiana Winger (Assistant Director); Betsy Gregory-Hosler  (Analyst-in-Charge); Michael Dworman; Gail-Lynn Michel; Peter  Anderson; George Depaoli; Lorraine Ettaro; Lori Fields; Gina Hoover;  Sam Portnow; Bill Shear; and Anne Louise Taylor.

Appendix I: Objectives, Scope, and Methodology

This report (1) identifies factors that affect the time it takes to finalize  contract changes at selected agencies, and (2) assesses the extent to  which selected agencies monitor time frames for finalizing contract  changes.

In this report we examined the process for managing unilateral and  bilateral contract changes, but exclude certain types of contract  modifications to focus on the issues of payments and cash flow  challenges. Specifically, we excluded (1) administrative modifications  because they do not entail changes to contract costs or time frames; (2)  contract changes that go beyond the scope of the existing contract,  referred to as cardinal changes; (3) contract options because exercising  an existing priced option does not entail the same type of negotiations  that unilateral and bilateral changes require; (4) contract disputes and  claims because they follow a separate and distinct process; (5) the  payment process after a contract change has been finalized because that  process is directed by the Prompt Payment Act; and (6) any processes  taking place between a prime contractor and its subcontractors because  that is outside the focus of this review.

To identify agencies for our review, we analyzed Federal Procurement  Data System – Next Generation (FPDS-NG) data on construction contract  obligations for fiscal year 2017, the most recent data available at the time.  This allowed us to identify defense and civilian agencies that had large  amounts of construction contract obligations and a relatively significant  portion of those obligations going to small business. The data that we  used assigned the contract obligations to the agency that managed the  construction project rather than the funding agency. We found that the  Department of the Army’s U.S. Army Corps of Engineers (USACE)  obligated approximately $10.5 billion for construction contracts, with  approximately $3.9 billion going to small business concerns. This  obligated amount is more than any other federal agency or service within  the Department of Defense. We found that the General Services  Administration’s (GSA) Public Buildings Service (PBS) obligated  approximately $1.9 billion for construction contracts, with approximately  $870 million going to small business concerns. To assess the reliability of  the FPDS-NG data we used, we (1) performed electronic testing of  selected data elements, and (2) reviewed existing information about the  FPDS-NG system and the data it produces. Specifically, we reviewed the  data dictionary, data validation rules, and other documentation. Based on  these steps, we determined the data were sufficiently reliable for the  purposes of this report.

To identify federal construction industry representatives for this  engagement, we collected information on potential associations from  various sources including previous congressional testimony and our prior  work. From this list of options, we sought organizations that were focused  on federal construction contracting, included a small business focus,  represented a large number of contractors, and had performed previous  advocacy work on the issues of under review in this engagement. Based  on these criteria, we selected two organizations to interview: the  Associated General Contractors of America and the National Association  of Small Business Contractors. The Associated General Contractors of  America, which sent a representative to a congressional hearing on the  contract change process, represents 26,000 member firms and includes a  division dedicated to federal construction as well as a small business  committee. The National Association of Small Business Contractors  specializes in small business contractors working with the federal  government, and is affiliated with the American Small Business Chamber  of Commerce. We interviewed representatives from these associations to  confirm background information about how the change process impacts  industry and further discuss the factors that affect process time frames.

To identify the factors which affect the time it takes to finalize contract  changes at selected agencies, we reviewed relevant legislation such as  the John S. McCain National Defense Authorization Act for Fiscal Year  2019, regulations including the Federal Acquisition Regulation (FAR), the  Defense Federal Acquisition Regulation Supplement, GSA Acquisition  Regulation, and the GSA Acquisition Manual and relevant agency policies  and guidance. We interviewed staff from the Office of Management and  Budget’s Office of Federal Procurement Policy—the Administrator of  which serves as the Chair of the FAR Council—and contracting officials  from the PBS and USACE. In addition, we interviewed officials from  GSA’s Office of Small Business Utilization and USACE’s Office of Small  Business Programs to discuss their role in the change process and their  perspective on possible impacts to small business concerns.

To assess the extent to which selected agencies monitor time frames for  finalizing contract changes, we collected and reviewed available GSA  data on contract modifications. We also collected available data and  analysis from USACE on construction contract changes from January 1,  2013 to August 17, 2018—representing more than 62,000 changes from  the more than 40 USACE districts and one office that execute  construction contracts—obtained from the USACE’s Resident  Management System. We reviewed USACE analysis of those data that  calculated time frames for the contract changes by measuring the time  elapsed from the date a proposal is received to when the contract change  is finalized by the signature of Standard Form 30, which officially modifies  the contract. We also reviewed system documentation on the  requirements for users to enter data into the systems. We interviewed  PBS and USACE officials at the headquarters level to discuss the time  frames for contract changes, including on how long officials believe the  process takes, what data are available, and who reviews any data  collected on the contract change process. We discussed the provided  USACE data with knowledgeable USACE officials who performed the  calculations to understand their process, assumptions, and methodology.  We determined the data were sufficiently reliable for the purposes of  describing what is known about the time frames for finalizing construction  contract changes. We also interviewed an official in GSA’s Office of  Government-wide policy, to discuss any GSA-wide plans for system  changes.

Appendix II: Comments from the Department of Defense

Appendix III: Comments from the General Services Administration

The government spends billions annually on construction projects. Contract changes, common on such projects, can delay payments and create challenges for contractors, particularly small businesses.

We looked at construction contract changes at two agencies with large construction budgets: the U.S. Army Corps of Engineers and the General Services Administration. We found neither agency regularly tracks how long it takes to process contract changes, which makes it more difficult for them to identify and respond to problems.

We recommended these agencies each develop a strategy to monitor how long construction contract changes take.


Federal Leasing: Quality Information and Metrics Would Allow GSA to Better Assess the Value of Its Broker Program

As the leasing agent for the federal government, GSA acquires space for federal agencies and currently manages over 8,000 leases. To help negotiate leases, GSA contracts with commercial real-estate brokerage firms. In previous reviews, GAO reported that GSA was unable to demonstrate cost savings and results from its use of brokers, and GAO made related recommendations.

A statute included a provision for GAO to review GSA's broker program. This report examines: (1) how GSA's broker program has changed over time and (2) GSA's goals for the broker program and how GSA measures the program's results. GAO reviewed documentation from GSA's broker program and GSA's available data on leases assigned to brokers from October 2005 to July 2019. GAO interviewed officials from GSA headquarters, selected GSA regional offices that work with brokers, as well as other stakeholders, including representatives from the six brokers currently participating in the program.

The General Services Administration (GSA) contracts with commercial real estate brokers to perform a variety of services needed to acquire and complete leases. GSA uses brokers to negotiate leases meeting certain thresholds in urban areas (see figure). GSA has made several changes to its broker program since 2015, including:

changing how brokers can be assigned to leases, i.e., using brokers for specific geographical zones rather than on a nationwide basis;

allowing greater flexibility in when and how brokers can be used during the leasing process; and

changing the name from the National Broker Contract program to the GSA Leasing Support Services program.

Statistics for General Services Administration's (GSA) Leases That Involve Brokers Compared

For the broker program, GSA's goals include saving money and supplementing its leasing workforce; however, potentially inaccurate data and limited outcome-based metrics could affect GSA's ability to assess whether it is meeting these goals. According to GSA, in the last 3 years, brokers have negotiated 303 leases, 60 percent of which were below the market rate (17.8 percent below the market rate, on average), an outcome that, GSA says helped it avoid $676 million in costs. However, selected GSA regional officials and brokers expressed concerns about the accuracy of the market reports used to calculate these cost savings. Additionally, while GSA has identified various outcome-based metrics related to its leasing program, these metrics do not indicate whether using brokers to supplement its leasing workforce has enabled GSA to complete leasing work it would have otherwise been unable to complete. For example, GSA sets targets for and tracks the number of leases assigned to brokers each year, but this measure is not an indicator of the effectiveness of using brokers. Quality information, along with additional reliable outcome-based measures, is important for GSA to define success for its 2020 broker program which creates new contracts and expands services performed by brokers.

GAO is making two recommendations that GSA should: (1) assess and address the reliability of the information used to calculate reported cost savings and (2) develop outcome-based metrics to evaluate the effectiveness of using brokers to supplement the GSA leasing workforce. GSA concurred with the first recommendation but did not concur with the second. GAO continues to believe that GSA needs metrics to assess the brokers' role as a workforce supplement.

Federal agencies spend over $5.7 billion annually in rental payments for  over 8,000 leases for a variety of properties, ranging from office space to  laboratories. As the main landlord and leasing agent for the federal  government, the General Services Administration (GSA) is responsible for  acquiring space from private buildings’ owners for federal tenant  agencies. For more than a decade, GSA has used a program for  commercial real-estate brokerage firms (i.e., brokers) to assist its staff  with the leasing process. This program, originally the National Broker  Contract, is now the GSA Leasing Support Services (GLS) program. GSA  developed the program to complement its leasing workforce and provide  support services to the GSA’s regional offices. Congress has raised  questions about the role of brokers in the federal leasing process, and we  and others have identified challenges that GSA has faced in  demonstrating program results.

The John S. McCain National Defense Authorization Act for Fiscal Year  2019 included a provision for us to review GSA’s broker program. This  report examines: how GSA’s broker program has changed over time and how GSA

GSA’s goals for the broker program and how the agency measures  the program’s results.

To address these objectives, we collected and analyzed GSA documents,  policies, and other internal documentation involving the GLS program. We  interviewed the six brokers currently participating in GLS to understand  their perspectives on the program. We interviewed GSA headquarters  officials responsible for the program’s management and oversight to  understand the agency’s role in providing oversight to GLS brokers and  the broker’s role in the lease procurement process. We also interviewed  officials in six GSA regional offices that work directly with brokers when  negotiating leases to understand the offices’ oversight role and their  views of the program. We selected these offices to provide a diversity of  location and lease activity, value, and size procured by the office, among  other factors.

To determine how GSA uses brokers, we analyzed selected GSA leasing  data from October 2005 through July 2019 to assess the characteristics  of leases that involved brokers versus those leases that did not (i.e.,  leases involving only GSA staff). Key data we analyzed included the  number of leases, annual and monthly rent, square footage, total lease  cost, and other data variables. We obtained these data from GSA’s Real  Estate Across the United States (REXUS)—GSA’s database to track and  manage the government’s real property assets, including leases. To  determine if the REXUS data were reliable, we looked for outliers and  incomplete data and interviewed GSA officials about their processes for  reviewing the data and ensuring their accuracy. We concluded that the  REXUS data were sufficiently reliable for the purposes of reporting the  median amount of rented square footage, annual and monthly rent per  lease, and the number of leases completed by GSA and brokers.

To provide context on the effect of brokers on leases and incentives for  brokers, we interviewed three economists who are faculty members at  U.S. research universities. To identify these experts, we conducted a  literature search in June and July 2019 for peer-reviewed articles on real  estate brokers using the following research databases: Scopus, EBSCO,  ProQuest, Dialog, and NBER. We selected these experts to interview  based on their prominence in the field, the depth of their knowledge on  brokers, and relevance of their research to our objectives. We also  interviewed property owners (lessors) to learn about their experiences  working with brokers in the federal-leasing process, including the  negotiations over broker commissions. To understand how the program  has changed, we reviewed our prior reports on this program and GSA’s  policies, manuals, and reports spanning the various versions of the broker  program.

To determine how GSA sets goals and measures to demonstrate results  for the broker program, we identified and reviewed the GLS program’s  goals and measures, as reported in GSA’s strategic plans, policies, and  guidance. We compared GSA’s efforts to leading practices based on the  Government Performance and Results Act of 1993 (GPRA), as amended  by the GPRA Modernization Act of 2010 (GPRAMA), which create a  framework of goal setting and performance management for federal  agencies. In addition, we compared leading practices examined in our  prior work that focused on goals and outcome measures. We also  compared GSA’s efforts to the Standards for Internal Control in the  Federal Government, in particular, the importance of management using  quality information to achieve goals. We analyzed data from Signet  Log—GSA’s database to track task orders for broker services—to identify  the number of leases assigned to brokers. To determine if the Signet Log  data were reliable, we looked for outliers and incomplete data, and  interviewed GSA officials about their processes for reviewing the data and  ensuring their accuracy. We concluded that the Signet Log data were  sufficiently reliable for the purposes of reporting lease projects assigned  to brokers.

We conducted this performance audit from January 2019 to March 2020  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.

The federal government’s civilian real-property holdings include  thousands of leased office buildings and warehouses across the country  that cost billions of dollars annually to rent, operate, and maintain. GSA’s  Public Building Service acquires space on behalf of the federal  government through new construction and leasing and acts as a  caretaker for federal properties across the country. The type and amount  of space for each lease varies based on a particular agency’s need, and  GSA categorizes leases by value depending on factors such as square- footage and location. As of fiscal year 2018, the Public Building Service  held or leased space in 8,681 buildings or other assets and maintained an  inventory of more than 370-million square feet of workspace for 1.1  million federal employees, plus support contractors.

The federal-leasing process contains several stages, and brokers can be  involved in many parts of this process (see fig. 1) as a way to supplement  the work of GSA’s leasing staff. For example, in the “requirements  development” phase, GSA can task brokers with drafting project  milestones and working with federal agencies that are seeking building  space to provide a complete requirements package. In the “lease  acquisition” phase, brokers can conduct market research on rental rates,  negotiate rates and terms of the lease, and prepare final contract forms.  For such work, brokers can earn a commission based on a percentage of  the aggregate lease value.

However, pursuant to the Federal Acquisition Regulation, brokers are not  allowed to complete some activities, as contractors cannot be used for  the performance of inherently government functions. Brokers are not  allowed to complete all required leasing tasks to execute a federal  government lease. For example, according to GSA officials, a broker  cannot sign a lease contract on behalf of the federal government with a  property owner since that action is considered an inherently governmental  function. The broker may prepare the final lease contract, but GSA’s  contracting officials are responsible for signing the lease. Even when a  broker is involved in the leasing process, GSA officials oversee and  approve the broker activities.

Prior to 2015, GSA had implemented various changes to how it used  brokers to assist with its leasing program.

Before 1997, GSA’s in-house staff completed all leasing acquisition  work, but starting in the late 1990s, downsizing initiatives at GSA  reduced the number of staff and therefore its in-house capacity to  acquire leases.

In 1997, GSA began to increase its use of brokers by signing regional  contracts for broker services and paying brokers by using  appropriated funds. By 2003, brokers were completing approximately  20 percent of GSA’s leasing work.

In 2003, GSA analyzed the advantages, disadvantages, and costs of  different types of contracting options for using the brokers, including  having them negotiate leases on a nationwide basis, as compared to  designated geographic zones or local areas. Based on that analysis,  GSA concluded that contracting for brokers to negotiate leases  nationally represented the best option available and formalized the  program as the National Broker Contract program. In 2004, under this  program, GSA awarded nationwide contracts to four commercial real- estate brokerage firms, moving from a regional to a national  approach.

In 2010, GSA established the second iteration of the broker program  (called the National Broker Contract 2), which maintained a similar  nationwide structure with four national contracts to brokers.

We have previously found that GSA has been unable to demonstrate cost  savings with its broker program. For example, in 2007, we found that  GSA was unable to quantify savings from the program and recommended  that GSA develop processes for doing so. In response to our  recommendation, GSA conducted a comparative analysis of prior agency  contracts and broker contracts; this analysis demonstrated program cost  savings. However, GSA’s subsequent efforts to demonstrate continued  cost savings were less conclusive. For example, in 2012, when GSA  attempted to compare rental rates negotiated by brokers with those  negotiated by in-house staff, the agency found little difference between  the two and noted that the data were insufficient to conduct a meaningful  comparison. In 2013, we found that GSA had not linked its goals and  metrics for evaluating the broker program to the anticipated cost savings  in rental rates. As a result, GSA had no means of evaluating and  reporting on this aspect of the program, and the value of the broker  program in terms of cost savings continued to be unclear. We  recommended that GSA link program goals to anticipated cost savings  and develop and implement a means of evaluating and reporting program  results. In response, GSA developed a metric for measuring the efficacy  of utilizing brokers to assist with lease workloads and a performance  report that included information on financial savings and productivity,  among other things. We found limitations; however, with these efforts, as  discussed in the second section of this report.

GSA Has Changed Its Broker Program to Allow Greater Flexibility and Has Prioritized Using Brokers for High Value Leases

GSA Has Increased the Number of Brokers and the Flexibility for Using Them

GSA has made changes to the broker program to allow more brokers to  participate and to increase GSA’s flexibility in its use of brokers. In 2015,  GSA changed the program’s name to the GSA Leasing Support Services  program (GLS). Under this version of the program, GSA moved from  using four brokers on a nationwide basis to designating brokers within  four geographical zones. GSA awarded contracts to two or three brokers  for each zone (see table 1). Thus, each GLS contract covers a zone  rather than the entire country, as was previously done under the National  Broker Contract. Currently, there are six GLS brokers, and each broker  can serve up to two zones. Of the six GLS brokers, five participated in  the National Broker Contract programs.

According to GSA officials, modifying the program to operate by zone  provided a greater opportunity to involve more brokers, increase  competition and local market specialization, and strengthen relations  among brokers and GSA regional offices. In addition, awarding contracts  by zones rather than the entire country has allowed small businesses to  participate as brokers, and GSA selected two small-business brokers as  prime contractors: Carpenter Robbins Commercial Real Estate, Inc., and  Public Properties LLC. Multiple GSA regional offices oversee and  monitor brokers within each zone, except for the National Capital region,  which is its own zone. In early 2020, GSA plans to announce the brokers  that will be involved in the fourth iteration of the program. In this iteration,  called GLS Plus, the zones and number of brokers within each zone will  remain the same.

In addition to establishing the zones, GSA has also allowed its regional  staff to have more flexibility in deciding how to use brokers. During the  past two iterations of the National Broker Contract, brokers had to be involved during the entire leasing process. In the GLS program, regional  GSA officials choose broker services for specific parts of the leasing  process based on the needs of the region. For example, several regional  officials said they could now request brokers to perform market research  or negotiate a lease, while GSA staff performs other tasks to complete a  lease. Officials in three of the six regional offices we interviewed said  this change provided additional flexibility in how GSA involves the brokers  in the leasing process and helped balance the workload of GSA staff. In  GLS Plus, GSA will request that brokers provide additional post-award  services such as evaluating pricing for proposed renovations and  monitoring on-site construction progress for the leased facility.

Brokers Are Used Primarily for High-Value Leases

In the GLS program, about 64 percent of the brokers’ workload were high- value leases. GSA officials told us they typically task brokers to negotiate  these high-to-moderate value leases because brokers are paid through  commissions as a percentage of the lease’s value. Since they earn more  money with high value leases, they have a greater incentive to participate  in the program. Consistent with what GSA officials said, the agency’s  leasing data showed that leases involving brokers tended to have large  square-footage and higher rents than the rents for leases that did not  involve brokers, as shown in table 2. According to GSA’s leasing data  from October 2005 to July 2019, the agency used brokers in about 37  percent of all leases.

Available data did not clearly demonstrate the extent to which brokers  negotiated lower lease rates than GSA’s in-house staff for similar types of  properties. Although there are differences in rental rates and other  outcomes of leases involving brokers compared to those that do not, it is  difficult to determine whether these differences are due to having brokers  involved in the process as opposed to the characteristics of the leases  themselves. Various factors affect rental rates in federal leases, such as  local market areas, type of facility, square footage, and unique  requirements, among other issues. According to the Public Buildings  Service’s Commissioner, brokers are more successful at negotiating  lower lease rates relative to the market than GSA in-house staff and using  brokers provides savings to the government. GSA officials said they  believe this result is in part because brokers negotiate what are called  “commission credits”—a percentage of the total commission that goes  back to the federal tenant agency in the form of a reduction in rent— which can result in lower costs for federal tenant agencies. In contrast,  several lessors (property owners) said that when GSA uses brokers to  negotiate leases, broker commissions have to be paid by the lessor and  that this cost is ultimately passed on to GSA’s federal-agency-tenant  clients. Furthermore, three real estate economists we interviewed  indicated that real-estate sale prices and rental rates are driven primarily  by competitive market forces and thus would not be heavily influenced by  broker negotiation. These economists were not aware of any research  indicating that brokers could affect commercial real estate rental rates.

Broker Leases Include Commissions to the Broker and Credits to Tenant Agencies

As previously noted, GSA typically tasks brokers to negotiate high-to- moderate value leases. A broker-negotiated GSA lease includes a total  commission negotiated between the lessor and the broker that represents  a percentage of the aggregate lease value. This total commission is  comprised of the standard commission paid to the broker and commission  credits given back to the federal tenant agency. In the GLS program, the  total commission sometimes includes a “best value” commission that a  broker may earn on top of the standard commission. This total  commission includes the following three components:  Standard Commissions. The standard commission a broker earns is  normally a percentage of the total lease value. Our analysis showed that  brokers earned about $390 million in standard commissions since fiscal  year 2006 (see table 3). For the GLS program, brokers had earned just  over $35 million as of July 2019. At the time of our review, the program  was ongoing, and brokers were still completing leases.

Best Value Commission. Under the GLS, in addition to the standard  commission that a broker always earns, the broker can be paid an  additional commission, called the “best value commission,” by negotiating  a lease rate below an established market rate target and earning high  evaluation ratings from GSA. Specifically, the best value commission was  expected to incentivize brokers to negotiate lower rental rates. This best  value commission is paid out of the commission credit the tenant agency  would otherwise receive and does not increase the total cost of the  commission. As of July 2019, brokers had collected about $3.5 million in  best value commissions during the GLS program. GSA plans to eliminate  the best value commission in the new iteration of its broker program, GLS  Plus. Officials said determining whether brokers met the best value  criteria was burdensome for regional officials and that brokers prefer a  steady volume of future government leases as an incentive. Similarly, two  real estate economists we interviewed said that the best value  commission was unnecessary to incentivize brokers to seek the best  rates for their GSA client, and that the prospect of additional future  business negotiating government leases was a sufficient incentive.

Commission credits. The commission credit is a percentage of the total  commission that goes back to the federal tenant agency in the form of a  reduction in rent. As part of the total commission, brokers have negotiated  over $340 million in commission credits. GSA estimates that its future  GLS Plus program will generate $129 million in commission credits  throughout the duration of the program.

Lessors and real estate economists we interviewed highlighted various  issues about GSA’s commission structure, including commissions paid to  the broker and commission credits paid back to the tenant agency. The  interviewees had different perspectives on whether GSA’s broker  program and the current commission structure are beneficial to the  federal government.

Some questioned whether the use of brokers saves the federal  government money. As previously noted, according to GSA officials,  lessors, through the commission, pay the brokers, which is customary  in commercial real estate. Although GSA does incur some costs from  appropriated funds because GSA officials oversee the work of  brokers, GSA officials noted that GSA does not currently use its own  appropriated funds to compensate brokers for services performed as  a part of the broker program. However, four lessors that we  interviewed said that broker commission costs are passed through to  federal tenants in their leases. These lessors questioned the benefits  of using brokers for federal leases.

In contrast, two real estate economists we interviewed said that GSA  could potentially be missing cost-saving opportunities when brokers  are not used because rental rates are generally set by competitive  market forces, also GSA’s in-house staff may not negotiate  commission credits. GSA officials, however, disagreed with this  statement, saying in-house staff generally seek to receive credit or  concessions for leases they negotiate since there is no commission to  be paid to a broker.

Another real estate economist we interviewed indicated that paying  brokers based on a fixed price basis, versus a commission basis,  could result in lower costs to the government because this type of  payment structure could involve GSA brokers’ bidding for lease  acquisition assignments in fixed-price terms only. This real estate  economist also said that this approach could potentially address past  concerns involving GSA’s commission structure.

GSA Faces Limits in Assessing Value of Its Broker Program

GSA Has Established Various Goals for Its Broker Program

Over the years and with different iterations of the program, GSA has  established various goals for the broker program; most of these goals  pertain to cost savings. During our review, GSA officials also said that the  main purpose of the program is to serve as a workforce multiplier for the  regional offices—providing needed personnel to complete leases that  GSA does not have enough staff to complete on its own. Our review of  GSA documents and interviews with GSA staff identified various program  goals as shown in table 4.

For GLS Plus, the fourth iteration of the broker program, which GSA plans  to start in mid-2020, the proposed goals include achieving taxpayer  savings, improving the customer experience, and leveraging broker  expertise. GSA officials also said that maximized productivity would be a  goal of the program.

GSA Relies on Data to Measure Cost Savings That Some Stakeholders Said Is Inaccurate

As previously discussed, one of the main goals of the broker program is  to avoid costs and save the taxpayer money. In November 2019, GSA  headquarters officials said that they demonstrate cost savings of the  broker program through its Lease Cost Avoidance Plan, which  aggregates cost-savings from several efforts, including negotiating leases  below market rates, reducing rented square footage, and leasing vacant  space.

A metric within the Lease Cost Avoidance Plan that seeks to show  whether leases are negotiated below market rates is called Lease Cost  Relative to Market, which is a comparison of the negotiated rental rate to  the target market rate. According to this metric, as reported by GSA, over  the last 3 years, brokers have negotiated 303 leasing deals, 60 percent of  which were below the market rate (17.8 percent below the market rate, on  average), which helped GSA avoid $676 million in costs. In addition, GSA  found that brokers negotiated better rental rates than GSA in-house staff,  on average. For example, GSA reported that in fiscal year 2018, 56  percent of leases negotiated by brokers were below the market rate  compared to 38 percent of leases negotiated by GSA in-house staff. As  discussed previously, however, there are various factors, including the  type of lease that may account for these differences.

This metric is calculated primarily using market lease rates that GSA  determines using a tool it developed called the “Bullseye” report. To  develop the report, GSA gathers available market data from commercial  real estate databases and compiles these data to identify local  information, analysis, and insight regarding the local real estate  submarket. According to GSA guidance, the success of the GLS  program is dependent on the brokers’ negotiating competitive lease rates  through full utilization of the Bullseye report and standardized negotiation  objectives. The guidance further states that the Bullseye report should  be utilized by GSA regional offices as a tool to make informed leasing  decisions on behalf of the U.S. government and can provide the  necessary backup documentation to aid leasing personnel in their  negotiation with an offeror.

While GSA headquarters officials noted that this tool is adequate for this  use, other GSA officials and brokers had concerns about whether the  Bullseye report accurately reflects market rates and conditions. GSA  regional officials we interviewed had mixed views on the accuracy of the  Bullseye report. For example, several officials questioned the accuracy or  noted limitations to the Bullseye report. In addition, four of the six brokers  found the Bullseye report to be rarely or only sometimes accurate. As a  result, brokers told us that they found it difficult to negotiate a rental rate  at or below the target Bullseye rate. In addition, two lessors we  interviewed agreed that the gap between the Bullseye report and local  market rates potentially affected negotiations with GSA. Furthermore,  brokers publicly questioned the accuracy of Bullseye reports in written  responses to GSA’s draft solicitation for the 2020 GLS Plus program.  They also suggested that the new broker program should include an  adjudication process for revisiting Bullseye target rates.

Selected GSA regional officials and brokers in our review identified  several factors that may affect the accuracy of the Bullseye reports:  Geography. According to GSA officials, the Bullseye report includes  market rates from over 85 major markets in the U.S. However, GSA  regional officials and brokers we interviewed said that the Bullseye report  provides limited submarket rental rates for specific areas or  neighborhoods within large metropolitan areas. This can be problematic  because there can be significant rental differences among different areas  within a given market. For example, in response to GSA’s draft solicitation  for the new broker program, brokers stated that they found the Bullseye  target rates to be an obstacle in the rapidly moving West Coast urban  markets, and there can be significant discrepancies between Bullseye  rates and actual market rates. One selected GSA regional office in our  review provided examples of the Bullseye target rate being below the  market rate in several instances. For example, the average asking rent for  office space in San Diego, CA, was 36 percent higher than the Bullseye  rate.

Federal requirements. According to GSA regional officials and to  brokers, the Bullseye report does not take into account the unique  building requirements for federal leases. For example, GSA officials and  brokers reported that the Bullseye report develops a target rental rate  based on certain classes of buildings (A, B, and C). Although the  government generally accepts A and B class buildings, C buildings are  generally unacceptable for federal leases. Brokers we interviewed said  including these C building rates could lower the market rates identified by  the Bullseye market report for certain areas. GSA officials said they are  not able to remove the C building rates from the Bullseye report because  the data are purchased from a private-sector data source that includes  various building rates from a local area. In addition, brokers said the  Bullseye report does not take into account the unique requirements of  federal buildings. For example, federal law enforcement agencies require  certain security measures, such as special entrances. Brokers reported  that landlords may increase their pricing to account for these factors.  Brokers also identified these issues in the draft solicitation for the new  broker contract, noting that the Bullseye does not use comparable  buildings that take into account the uniqueness of a specific space  requirement.

Lag time. Several brokers and GSA officials told us that federal leases  generally take significantly longer than commercial leases due to the  federal leasing acquisition process. As a result, GSA officials and brokers  found that by the time a lease was awarded, which could be years later,  the initial target market rate provided by the Bullseye report was outdated.  GSA headquarters officials told us if the Bullseye report is over a year old,  then an updated report should be requested, although it’s not mentioned  by the 2016 Bullseye guidance memo. Officials from selected GSA  regional offices varied on whether those updates occurred or not.  Furthermore, several brokers in our review told us that they found that the  Bullseye report is not always updated after a year. One broker told us that  there have been several instances when a lease is about to be  awarded—which can be 1 to 2 years after the initial Bullseye report was  generated—and the tenant agency is not willing to accept the rental rates  negotiated in the lease. Or GSA’s leasing staff is hesitant to execute the  lease due to differences between the Bullseye rate and the actual lease  contract rate. This can cause significant delays or result in the project  being canceled all together.

Concerns about the reliability of the Bullseye report call into question  whether the Lease Cost Relative to Market metric can accurately  demonstrate how brokers’ efforts lead to cost savings, either through  achieving rental rates below market or better rates than GSA in-house  staff. Even though GSA provided us cost-savings data in November 2019  based on this metric, at other times during our review, GSA officials  described limitations and questioned the efficacy of using this metric.  Specifically, in April 2019, GSA headquarters officials told us that GSA  had stopped using this metric because GSA found it unreliable. For  example, GSA found the comparison was not indicative of broker  effectiveness or ability to negotiate low rental rates. At that time, GSA  officials cautioned against using the Lease Cost Relative to Market data  for comparative purposes, such as comparing broker performance to in- house GSA staff performance. The officials said it is impossible to assess  the financial information of a lease transaction and evaluate a specific  procurement method—using brokers or not—without talking directly to the  GSA in-house staff responsible for overseeing the procurement.  Furthermore, GSA officials told us in April 2019, that leases negotiated by  brokers were not comparable to leases negotiated by in-house staff  because they work on different types of leases. In December 2019,  however, GSA officials told us that GSA does still track this metric, uses it  for GSA’s Lease Cost Avoidance Plan, and that the agency believes  brokers can achieve better deals for the government than in-house staff.

Nonetheless, GSA officials told us that they have not assessed the  reliability of or made any changes to how they calculate the Bullseye  report. According to Standards for Internal Control in the Federal  Government, management should use quality information to achieve the  entity’s objectives and to inform decision-making. Until GSA assesses  the reliability of the information used to calculate reported cost savings for  the broker program, it is hindered in its ability to fully assess the  effectiveness of the program.

GSA Lacks Measures of Brokers’ Effectiveness As a Workforce Multiplier

As noted above, throughout the various iterations of the program, GSA  has identified various goals for the broker program. During this review, a  key goal consistently stated by GSA officials we interviewed was the use  of the broker program as a workforce multiplier—providing additional  people that enable GSA to complete leasing work it would otherwise be  unable to complete. The effectiveness of the broker as a workforce  multiplier is significant to GSA because leasing staff has decreased by  over 50 percent since the late 1990s, from over 800 personnel to less  than 400 in 2019. Consequently, GSA staff rely on brokers to deliver  leased space to federal agencies. GSA officials told us that a broker may  not accomplish a lease faster or cheaper than GSA staff but that the  agency does not currently have the personnel to complete its leasing  work. GSA’s Strategic Plan 2018-2022 also states that GSA will use  brokers where appropriate to improve efficiency in awarding leases.

Although GSA has set target goals for utilizing brokers and tracks the  number of leases regional officials assign to brokers, we found that GSA  had limited ability to track how using brokers to augment the GSA’s  leasing workforce achieves results for GSA’s leasing efforts. For example,  GSA has increased its broker utilization targets in recent years, as  described in figure 2, requiring regional offices to award more lease  projects to brokers. Moreover, GSA tracks performance relative to these  targets, and regional officials in our review told us that they are evaluated  based on the number of leases they task to brokers.

Additionally, in April 2019, GSA developed a model to project, on  average, the number of hours a broker saves the GSA’s lease-contracting  officer and project manager. The project estimated the broker saved  roughly 175 to 125 hours, respectively, per project over a 3-year period.  GSA then multiplied the hourly salary of GSA leasing personnel by the  potential number of hours saved to generate their reported personnel  savings of $3 million per year.

However, tracking these outputs alone does not provide GSA with a  means to measure the effectiveness of the broker program as a  workforce multiplier. An output measure tracks the direct product or  activity delivered by a program, while an outcome measure tracks the  progress the program is making toward achieving its goal. Tracking the  number of hours a broker saves for GSA officials provides limited  information to help GSA understand the overall benefits of the broker  program as a workforce multiplier. For example, this goal does not  demonstrate if brokers are more productive than in-house staff or if they  are completing leases more efficiently, such as brokers completing an  additional number of leases on an annual basis.

According to GSA officials, the principal way they measure broker  program outcomes is through its Lease Cost Avoidance Plan, which, as  we previously discussed, aggregates cost savings from a number of GSA  leasing efforts, including the broker program. The plan identifies realized  cost avoidance through various metrics such as leases negotiated below  market costs and reductions in rental square footage and vacant space.  However, aside from the negotiated rental rates, GSA does not currently  have specific metrics that allow it to distinguish the particular role brokers  play in achieving those results. For example, GSA officials said that the  more leases that can be replaced by using brokers, the more GSA can  tackle its expiring lease inventory and right size leases with rental square  foot reductions. Specifically, GSA officials said that brokers contributed to  a 2.5 percentage square footage reduction in fiscal years 2018 and 2019.  However, since this metric applies to the leasing program in general and  is not specific to the brokers, GSA is unable to demonstrate the extent to  which such reduction is attributable to the use of brokers.

GSA officials also told us that using brokers allows GSA to replace more  leases on time and thus avoid extending leases, which is more costly and  can lead to agencies renting space under less favorable terms. GSA  measures this through its lease replacement rate, which tracks the  percentage of expiring leases that are replaced in a timely manner. For  example, GSA reported that in fiscal year 2019, it replaced 61 percent of  its lease inventory, which represented $481 million of its $791 million  lease inventory. However, while GSA tracks the number of lease  extensions brokers have worked on, GSA is unable to demonstrate the  extent to which the use of brokers helps GSA avoid lease extensions and  holdovers. Furthermore, similar to the Lease Cost Avoidance Plan, this  metric applies to the leasing program in general and is not specific to the  brokers. As a result, GSA has limited information on the extent to which  brokers contributed to leasing program outcomes.

GPRA, as amended, creates a framework for articulating unified goals  and outcome measures that can provide federal agencies with a clear  direction for successful implementation of program activities and improve  the efficiency and accountability of agencies’ efforts. We have  previously reported that the GPRA framework can serve as a leading  practice at other organizational levels, such as component agencies,  offices, programs, and projects. GPRA calls for outcome-based metrics  that are linked to goals, which allow a program to track the progress an  organization is making toward achieving its intended outcome. Because  GSA lacks outcome-based metrics that demonstrate the broker’s role in  achieving the program’s goal for being a workforce multiplier, GSA is  hindered in its ability to distinguish the role brokers played in its reported  program results. Furthermore, having such a metric could help GSA make  better decisions about the balance of brokers versus in-house leasing  staff since GSA received $34 million dollars for fiscal year 2020 to hire an  additional 34 GSA lease-contracting officers and specialists. GSA officials  said they plan to complete this hiring in 2020.

GSA has developed a program that allows the agency to utilize expertise  and personnel from leading commercial real-estate brokers to help it  complete thousands of federal leases. GSA has stated cost savings and  workforce goals for the broker program but lacks the information  necessary to assess if the program is achieving its intended results. If  GSA envisions that the use of brokers is to save money, then having  quality, reliable data and information is critical to demonstrating this  result. If using brokers to augment GSA’s workforce were also a goal,  then having outcome-based metrics would allow GSA to show whether it  is achieving that goal. This information is especially critical as the  program has changed over time and could provide GSA insight on what  has been successful in the past. This information would also inform  GSA’s decision-making as it launches another version of its broker  program and uses millions of dollars in appropriated funds to increase the  agency’s leasing personnel.

We are making the following two recommendations to the Administrator of  GSA:  GSA should assess and address the reliability of the information used to  calculate reported cost savings for the broker program. (Recommendation  1)

GSA should develop outcome-based metrics to evaluate the  effectiveness of using brokers to supplement the GSA’s leasing  workforce. (Recommendation 2)

We provided a draft of this product to GSA for review and comment. GSA  provided written comments, which are summarized below and reproduced  in appendix I. GSA said it did not agree with our main conclusions and  findings because it believed our report did not acknowledge brokers’  demonstrated benefits. We noted throughout the report that brokers play  an important role in helping GSA achieve various leasing-related goals.  Our position is that the lack of quality data and outcome-based metrics  inhibit GSA’s ability to demonstrate the brokers’ specific effect in  achieving GSA’s goals as compared to other factors.

With regard to the first recommendation about data used to calculate  reported cost savings from the broker program, GSA said it concurred  with the recommendation and is making changes to its data systems that  it believes will improve its data on brokers.

GSA said it did not agree with the second recommendation as it was  originally worded about having outcome-based measures to evaluate the  effectiveness of using brokers. In providing technical comments on our  report, GSA officials raised concerns that this recommendation gave the  impression that GSA had no metrics to assess the brokers. The agency  said that it has several outcome-based metrics in place that it believes  can be correlated with the value of the brokers, including achieving cost  savings, replacing leases on time, and reducing the need to hire more  GSA staff. In GSA’s letter, it referenced these statistics, several of which  we had included in our report as well. For example, our report discusses  GSA’s Lease Cost Relative to Market measure, which is a comparison of  the negotiated rental rate to a target market rate. We also noted,  however, that this metric is calculated primarily using data, that GSA staff  and other stakeholders we interviewed expressed concerns about as  unreliable. These concerns resulted in our first recommendation.

Further, other metrics, such as reducing square footage and replacing  leases, that GSA pointed to relate to GSA’s leasing efforts in general and  are not designed in a way to distinguish the brokers’ contributions  specifically. Specifically, GSA officials said that brokers contributed to a  2.5 percentage square footage reduction in fiscal years 2018 and 2019.  This metric, however, applies to the overall leasing program, and GSA is  unable to demonstrate the extent to which such reduction is attributable to  the use of brokers.  In addition, GSA does not have a means to measure  the effectiveness of the broker program in supplementing its workforce to  achieve these goals, a result that GSA staff in headquarters and regional  offices consistently told us was the primary reason GSA uses brokers.  Tracking the number of hours a broker saves for GSA officials provides  limited information to help GSA understand the overall benefits of the  broker program. Such information does not demonstrate if brokers are  more productive or efficient than in-house staff, such as whether brokers  are completing an additional number of leases on an annual basis, for  example. Additional metrics focused on evaluating the outcomes of  GSA’s use of brokers would benefit the agency because it has lost over  50 percent of its leasing personnel since the 1990s. Furthermore, GSA  received $34 million to hire additional agency lease-contracting officers  and specialists in 2020. Consequently, it is imperative that it has  information and data that could inform the right mix of brokers and GSA  leasing personnel as the agency moves forward with its leasing work.

In response to GSA’s concerns and to make our recommendation more  specific, we clarified the recommendation. Specifically, we focused it  more narrowly on the need to evaluate the effectiveness of using brokers  to supplement the GSA leasing workforce. We also made some additional  changes to the draft to include more information about the metrics GSA  uses and that it believes can be correlated to the use of brokers.

We are sending copies of this report to the appropriate congressional  committees, the Administrator of the General Services Administration,  and other interested parties. In addition, the report is available at no  charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about 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 II.

Appendix I: Comments from the U.S. General Services Administration

Appendix II: GAO Contact and Staff Acknowledgments

Lori Rectanus, (202) 512-2834 or RectanusL@gao.gov.

In addition to the individual named above, other key contributors to this  report were: Andrew Huddleston (Assistant Director), Nelsie Alcoser,  (Analyst-in-Charge), Caitlin Cusati, Josh Ormond, Colleen Taylor, Jack  Wang, Michelle Weathers, Crystal Wesco, and William Woods.

The General Services Administration is the leasing agent for the federal government, managing over 8,000 leases costing about $5.7 billion annually. To save money and supplement its leasing staff, GSA contracts with commercial real estate brokers to help negotiate leases.

GSA uses market reports to determine whether the contract brokers help it save money. But those reports may have outdated or inaccurate information. In addition, though GSA says that brokers are essential to its leasing work, it doesn’t have a specific way to measure the value of supplementing its workforce with brokers.

Our 2 recommendations address these issues.