[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





    EVALUATING GSA's FIRST EXPERIENCE WITH NATIONAL BROKER CONTRACTS

=======================================================================

                                (111-48)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
    ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             July 15, 2009

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure







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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             VERNON J. EHLERS, Michigan
JERROLD NADLER, New York             FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida               JERRY MORAN, Kansas
BOB FILNER, California               GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas         HENRY E. BROWN, Jr., South 
GENE TAYLOR, Mississippi             Carolina
ELIJAH E. CUMMINGS, Maryland         TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa             TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania             SAM GRAVES, Missouri
BRIAN BAIRD, Washington              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts    SHELLEY MOORE CAPITO, West 
TIMOTHY H. BISHOP, New York          Virginia
MICHAEL H. MICHAUD, Maine            JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota           CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York          VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona           ROBERT E. LATTA, Ohio
CHRISTOPHER P. CARNEY, Pennsylvania  BRETT GUTHRIE, Kentucky
JOHN J. HALL, New York               ANH ``JOSEPH'' CAO, Louisiana
STEVE KAGEN, Wisconsin               AARON SCHOCK, Illinois
STEVE COHEN, Tennessee               PETE OLSON, Texas
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
PARKER GRIFFITH, Alabama
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
VACANCY

                                  (ii)

  


 Subcommittee on Economic Development, Public Buildings, and Emergency 
                               Management

           ELEANOR HOLMES NORTON, District of Columbia, Chair

BETSY MARKEY, Colorado               MARIO DIAZ-BALART, Florida
MICHAEL H. MICHAUD, Maine            TIMOTHY V. JOHNSON, Illinois
HEATH SHULER, North Carolina         SAM GRAVES, Missouri
PARKER GRIFFITH, Alabama             SHELLEY MOORE CAPITO, West 
RUSS CARNAHAN, Missouri              Virginia
TIMOTHY J. WALZ, Minnesota           MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York          BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY,               ANH ``JOSEPH'' CAO, Louisiana
Pennsylvania, Vice Chair             PETE OLSON, Texas
DONNA F. EDWARDS, Maryland
THOMAS S. P. PERRIELLO, Virginia
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Goldstein, Mark L., Director, Physical Infrastructure Issues, 
  U.S. Government Accountability Office..........................     5
Morris, III, Samuel "Chip," Assistant Commissioner, Office of 
  Real Estate Acquisition, U.S. General Services Administration, 
  Public Buildings Service.......................................    22
O'Brien, Regina, Principal Deputy Assistant Inspector General, 
  U.S. General Services Administration...........................    11
Rayfield, Julie, Senior Managing Director, Studley, Inc..........    39
Roth, Christopher, Regional Director, Jones Lang Lasalle, and 
  Project Manager, National Broker Contract......................    39
Veltsistas, CB, Demetra "Debbie," Richard Ellis National Broker 
  Account Team Leader............................................    39

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Carnahan, Hon. Russ, of Pennsylvania.............................    55
Mica, Hon. John. L., of Florida..................................    56
Norton, Hon. Eleanor Holmes, of the District of Columbia.........    61
Oberstar, Hon. James L. of Minnesota.............................    64

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Goldstein, Mark L................................................    66
Morris, III, Samuel "Chip".......................................    98
O'Brien, Regina..................................................   122
Rayfield, Julie..................................................   125
Roth, Christopher................................................   134
Veltsistas, CB, Demetra "Debbie".................................   140

                       SUBMISSIONS FOR THE RECORD

Morris, III, Samuel "Chip," Assistant Commissioner, Office of 
  Real Estate Acquisition, U.S. General Services Administration, 
  Public Buildings Service, responses to questions from the 
  Subcommittee...................................................   105

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 
   HEARING ON EVALUATING GSA'S FIRST EXPERIENCE WITH NATIONAL BROKER 
                               CONTRACTS

                              ----------                              We
dnesday, July 15, 2009


                       House of Representatives,

     Subcommittee on Economic Development, 
 Public Buildings and Emergency Management,
    Committee on Transportation and Infrastructure,
                                            Washington, DC.
    The Subcommittee met, pursuant to call, at 10:09 a.m., in 
Room 2167, Rayburn House Office Building, Hon. Eleanor Holmes 
Norton [Chair of the Subcommittee] presiding.
    Ms. Norton. Good morning. This hearing is being conducted 
as one of several hearings to meet the oversight requirements 
under Clause 2(n), (o) and (p) of Rule XI of the Rules of the 
House of Representatives.
    Welcome to today's hearing on the National Broker 
Contracts. Today, we will examine whether the National Broker 
Contract provides a tool to meet its statutory obligation to 
procure commercial service for Federal agencies and whether the 
contract has had benefit for the taxpayers. We also will hear 
suggestions for improving the contract. We begin with some 
background concerning GSA's decision to include private 
brokers.
    Many of the services of the Public Buildings Service, or 
PBS, within GSA have private sector counterparts such as 
leasing, property management, and property maintenance. In 
response to President Reagan's Reform 88, the Agency contracted 
out virtually all its property management operations. GSA has 
also contracted out its engineering and architectural 
requirements, as well as interior design and space planning 
services.
    During the mid-1990s, GSA engaged Arthur Andersen to 
conduct an exhaustive feasibility analysis of contracting out 
even the leasing function. The Agency did quite well in the 
comparative analysis with only a few administrative leasing 
functions identified as potential for further review for 
contracting. The Arthur Andersen report concluded, commercial 
broker is competitively priced; it will would be more costly to 
privatize and should be retained in house. However, concurrent 
with the contracting-out trend government-wide, OMB reduced 
full-time equivalents, or FTEs, in all agencies. Consequently, 
as employees retired, OMB eliminated these FTE positions.
    During the late 1980s and early 1990s, PBS lost many of its 
veteran employees who had come into government in the 1960s, 
inspired by President Kennedy's call to public service. 
Although there was no empirical evidence to support contracting 
out of leasing, the Agency now found itself caught between a 
requirement to contract out a certain number of positions on 
the one hand and fewer in-house personnel to conduct leasing 
activities on the other. Thus, in 1997, the Agency signed a 
series of regional broker contracts to provide limited leasing 
services. These contracts were meant to assist the in-house 
leasing specialists, not to replace them.
    In December, 2002, the Office of Inspector General issued a 
review of PBS use of brokerage contracts for lease acquisition 
services. A special interest of the IG was the use of rebates 
and zero-dollar task orders where payment for leasing service 
rendered was expected to come from landlord or property owners 
signing the lease and not from GSA-controlled funds.
    The IG's report contained information from the GSA's Office 
of General Counsel, which identified two serious issues: one, 
the obvious potential for a conflict of interest between the 
government's interest in receiving the best value and the 
broker's interest in receiving the highest compensation; and, 
two, the problem of possible illegal augmentation presented by 
allowing brokers to be compensated by anyone other than GSA for 
services provided.
    The GSA General Counsel requested an opinion from the 
General Accounting Office regarding the compensation issues. 
The GAO issued its opinion on August 25, 2003, and concluded, 
and I am quoting, "GSA may enter into proposed contracts with 
real estate brokers without augmenting its appropriation." 
However, GAO acknowledged, again quoting, "GSA's submission 
indicates a possible conflict of interest between the 
government's getting the best value and the broker's interest 
in getting the highest commission." GSA proceeded to put 
together a National Broker Contract.
    Today, GSA leases 177.5 million rentable square feet of 
space and almost 7,100 leased properties, now slightly 
exceeding GSA's own space. Thus, leasing, along with some 
Federal construction, is clearly a core function of GSA.
    Contracting out this activity through the National Broker 
Contract has brought about a profound change within the Agency 
and one of the most significant changes since it was 
established in 1949. This approach raises concerns because the 
Agency has no fallback or reserve position of realty 
specialists, and limited recruitment and training funds today 
for these critical positions leaves the government with no 
alternative except to use these national contracts for a core 
function of the Public Buildings Service of the United States 
Government. For this reason, the Subcommittee has a special 
obligation to look closely at the existing experience with 
broker contracts to see if improvements are necessary.
    The National Broker Contract is a competitively bid 
contract that augments services provided by PBS and allows PBS 
to outsource broker services for leases for Federal agencies. 
In addition, the contract allows brokers to be paid the usual 
broker fee instead of being paid by appropriations. The GSA 
Office of General Counsel further determined that it is 
permissible for GSA to accept a rebate from the tenant brokers 
and to credit that amount to the lease.
    The original contract was awarded October 4, 2004, to four 
companies. The contracts were awarded as 1-year base contracts 
with an option of annual renewal for up to 5 years. The current 
contract will expire in March 31, 2010. The GSA is currently 
preparing the solicitation for the reissue of this contract. 
Therefore, it is important that this Subcommittee conduct 
oversight and address the concerns initially presented by the 
National Broker Contract by the GSA Inspector General and the 
General Accounting Office.
    We must review the GSA's rationale for the decision to 
place a core GSA Public Buildings Service function in the 
private sector. We need to determine if the financial and 
management systems are in place for GSA properly to administer 
the National Broker Contract. We must scrutinize the 
assumptions used to justify the Agency's decision to contract 
out leasing service. We must understand how GSA has addressed 
conflicts of interest with brokers that both own and market 
buildings to Federal agencies.
    If GSA believes it is in the best interest of not only of 
the government but of taxpayers to have the private sector 
solely responsible for providing leased space for the 
government, GSA must explain and justify its own relationship 
to agency leasing. If GSA is anything more than a bureaucratic 
middleman between Federal agencies and brokers, why GSA be in 
the leasing process at all?
    There are a myriad of issues that need to be examined in 
the National Broker Contract process so that this Subcommittee 
can be confident that the contract properly shields taxpayers 
from waste and abuse and provides real value to taxpayers that 
would otherwise not be realized.
    I look forward to hearing from all concerned parties on 
this important issue and appreciate their testimony.
    I am pleased to ask our Ranking Member, Mr. Diaz-Balart, if 
he has any opening remarks.
    Mr. Diaz-Balart. Thank you, Madam Chairwoman. Thank you for 
the opportunity.
    As you well stated, we are reviewing the National Broker 
Contract program, which adds value to GSA's broad lease 
programs and generates savings to the taxpayers, which is 
always a welcome thing in the Federal Government. This program 
does meet critical needs for GSA and has shown that the 
commission-based contracts are saving hundreds of millions of 
dollars and that potential conflicts of interest can be managed 
effectively, which obviously is key.
    As the current contract is slated to expire next year, it 
will obviously be important to GSA's leasing program to ensure 
that the National Broker Contracts are reviewed in a timely 
fashion. I also hope that we can examine potential areas of 
improvement. There are obviously always places where we can add 
value to contracts.
    Now, because of the significant amount of leased space that 
the Federal Government utilizes, it is critical that we ensure 
that the government secures the best lease rates possible. And 
as I think you stated, GSA began a contract for services to 
help carry out those leasing functions in 1997.
    Now, there have been some growing pains obviously, and 
because of that, in response to concerns raised about this 
early lease part of the program by the inspector general and 
others, GSA developed a National Brokers Contract program. That 
contract began in 2005 with a 1-year renewable option up to 5 
years, and that is the current situation.
    That current contract will expire next year.
    The National Brokers Contract program meets the need of the 
GSA, and it has demonstrated that it creates savings to the 
taxpayers. There is just no debating that. The contracts are 
no-cost contracts for the government. How often do you hear of 
that? The firms are paid commission by the building owners and 
only if the lease is approved and signed by GSA. These firms 
also add value by providing post-award services like the 
management of tenant improvements, for example, and add no 
additional cost to either GSA or to the tenant agency.
    In addition, the leases negotiated by the brokers have 
resulted in leases nearly 11 percent below market rental rates. 
I think that bears repeating: 11 percent below market rental 
rates, which is exceeding the GSA's original goal of 9.25. So 
that is direct savings to the taxpayers, which I think is 
obviously one of the key components we should always look for.
    And since the beginning of the contracts, the Federal 
Government has realized more than $155 million in rebates, 
actual rebates, from the brokers. And even in the Federal 
Government's standards, I think $155 million is real money.
    With over half of the Federal workforce now in leased 
space--unfortunately, because we wish it wasn't; and that's 
something that the Chairwoman and I clearly have a frustration 
with, but that's just a fact--the savings and rebates can again 
potentially save taxpayers hundreds of millions of dollars.
    As is the case in any contracting arrangement, oversight, 
proper oversight, and management are obviously necessary; and 
that is something that I know that our distinguished Chairwoman 
is--that is something that she is very concerned about.
    Now, the program does have significant safeguards to ensure 
accountability, and accountability is something that I have 
dedicated, frankly, in my life in public service towards trying 
to work for. The brokers must carry out their responsibilities 
in accordance with 48 laws. Now, there is efficiency for you: 
48 laws, regulations, executive orders, and procedures related 
to procuring leased space for government agencies. There is 
something we should probably look at for some efficiencies.
    Currently each task order is validated by GSA realty 
specialists at six milestones during the leasing process. In 
addition, the work of the national brokers is reviewed on a 
quarterly basis by the GSA at the regional and the central 
office level, and the brokers are required by contract to 
adhere to very strict fire walls and other requirements to 
ensure that there are no conflicts of interest or sharing of 
sensitive information, which obviously is something we should 
all be concerned about. But there are very, very strict fire 
walls in place.
    I do understand obviously that there are always areas, as I 
said before, that can be improved; and that is always good to 
look for. For example, I think one of the frustrations is GSA's 
internal processes for initiating a lease acquisition and for 
final sign-off of a lease completed by a broker. That process 
is very slow and cumbersome, and frankly it creates bottlenecks 
at the beginning and end of the process; and we should look at 
ways to streamline that, if possible. Finding ways to 
accelerate this process would maximize the value added by these 
broker contracts.
    Again, obviously, we should always look for ways to improve 
anything that government does, because government usually has a 
long way to go. But this program, I think it is pretty evident 
is a win-win, a win-win for everybody.
    Again, as I said, these contracts meet very important needs 
for the Federal Government, and the government benefits and the 
taxpayer benefits from the expertise and the experience of 
these firms. There are no up-front costs to GSA in the 
commission, and the commissions are only paid when a lease is 
signed.
    Again, these are things that, frankly, other government 
agencies should be looking at to try to emulate.
    The program has allowed GSA to better leverage its staff 
and its in-house personnel and has resulted in savings, real 
savings, including actual rebates to the government and to the 
taxpayers.
    So, again, I believe that this has been shown to be an 
effective program, and I look forward to the program continuing 
in the years to come.
    I want to particularly thank the witnesses for your time, 
for being here today. I look forward to hearing from you today 
about this important program.
    And with that, Madam Chair, I would yield the remaining of 
part of my time.
    Ms. Norton. Thank you very much.
    I want to ask Mr. Cao if he has an opening statement of any 
kind.
    Mr. Cao. No, Madam Chairwoman. I don't have any opening 
statements. Thank you very much.
    Ms. Norton. Thank you, Mr. Cao.
    The first witness is Mark Goldstein, Director of Physical 
Infrastructure of the GAO, or General Accountability Office.
    You may proceed, Mr. Goldstein.

      TESTIMONY OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL 
  INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Goldstein. Thank you, Madam Chair and Members of the 
Subcommittee. I welcome the opportunity to provide this update 
in our recent work on issues that led us to designate Federal 
real property as a high-risk issue.
    In January, 2003, GAO designated Federal real property as a 
high-risk issue because of longstanding problems with excess in 
underutilized property, deteriorating facilities, unreliable 
real property data, over-reliance on costly leasing, and 
security challenges.
    In January, 2009, GAO found that agencies have taken some 
positive steps to address real property issues, but that some 
of the core problems that led to the designation of this area 
as high risk persist.
    This testimony focuses on, one, the progress made by major 
real-property-holding agencies to strategically manage real 
property, ongoing problems GAO has identified in recent work 
regarding agencies' efforts to address property issues, and 
underlying obstacles we have found through prior work that 
hamper agencies's real property reform efforts government-wide.
    To summarize, number one, OMB and real-property-holding 
agencies have made progress in strategically managing real 
property. In response to an administration reform initiative 
and related executive order, agencies have, among other things, 
established asset management plans, standardized data, and 
adopted performance measures. According to OMB, the Federal 
Government disposed of an excess of real property valued at $1 
billion in fiscal year 2008, bringing the total of over $8 
billion since fiscal year 2004.
    OMB also reported success in developing a comprehensive 
database of Federal real property assets and implemented GAO 
recommendation to improve the reliability of the data in this 
database by developing a framework to validate these data.
    GAO also found that the Veterans Administration has made 
significant progress in reducing underutilized space. In 
another report GAO found that six agencies reviewed have 
processes in place to prioritize maintenance and repair items.
    The second point: While these actions represent positive 
steps, some of the longstanding problems that led GAO to 
designate this area as high risk persist. Although GAO's work 
over the years has shown that building ownership often costs 
less than operating leases, especially for long-term space 
needs, in 2008 the General Services Administration, which acts 
as the government's leasing agent, leased more property than it 
owned for the first time.
    Given GSA's ongoing reliance on leasing, it is critical 
that GSA manage its leasing activities effectively. However, in 
January, 2007, GAO identified numerous areas that warranted 
improvement in GSA's implementation of four contracts for 
national broker services for its leasing program.
    GSA has implemented seven of GAO's 11 recommendations to 
improve these contracting efforts. Although GAO is encouraged 
by GSA's actions on these recommendations, we have not 
evaluated their impact. Moreover, in recent work, GAO has 
continued to find that the government's real property data are 
not always reliable, and agencies continue to retain excess 
property and face challenges from repair and maintenance 
backlogs.
    Regarding security, GAO testified just last week that 
preliminary results showed that the ability of the Federal 
Protective Service, which provides security services for about 
9,000 GSA facilities, to protect Federal facilities is hampered 
by weaknesses in its contract security guard program. Among 
other things, GAO investigators carrying the components for an 
improvised explosive device successfully passed undetected 
through security checkpoints monitored by FPS's guards at 10 
Federal facilities.
    Third, as GAO has reported in the past, real property 
management problems have been exacerbated by deep-rooted 
obstacles that include competing stakeholder interests, various 
budgetary and legal limitations, and weaknesses in agencies' 
capital planning. While reforms, to date, are positive, the new 
administration and Congress will be challenged to sustain 
reform momentum and reach consensus on how such obstacles 
should be addressed.
    Madam Chair, this concludes my prepared statement. I would 
be happy to respond to questions that you and Members of the 
Subcommittee have. Thank you.
    Ms. Norton. I want to thank you, Mr. Goldstein, for your 
work, your consistent work with this Subcommittee.
    You mentioned in your testimony that real estate management 
has developed into a high-risk--real estate management has 
developed in a high-risk series. How has this happened? How and 
why has this happened?
    Mr. Goldstein. Madam Chair, in our work since 2003, and the 
reason why we put Federal property on the high-risk list, we 
found five major areas that required further scrutiny based on 
the work we were doing.
    First of all, we found that there were large amounts of 
excess and underutilized property, vacant property, 
underutilized property, millions upon millions of square feet 
of property that was not being effectively utilized and managed 
for the government.
    Ms. Norton. This is in owned property?
    Mr. Goldstein. That is correct--across the government. And 
it costs a lot of money obviously to maintain and secure the 
space, particularly if it is not being used.
    Ms. Norton. The GSA doesn't manage the VA, does it?
    Mr. Goldstein. Well, GSA--most VA space is on its own. But 
just as one example: One VA report that we did recently showed 
that they were spending $145 million a year to maintain 
property that was underutilized.
    Ms. Norton. But in office buildings that GSA owns? It is 
one thing--I wish we had, GSA had some of the authorities of 
the Veterans Administration.
    With owned property of the Federal Government that GSA 
manages, you find----
    Mr. Goldstein. There is a considerable amount of 
underutilized and vacant space; that is correct.
    Ms. Norton. You mean vacant space?
    Mr. Goldstein. Vacant space and a good deal of 
underutilized, that is correct. The amount of it has varied 
over the years.
    Ms. Norton. Is that sufficient repairs and----
    Mr. Goldstein. That is a separate issue that we categorize.
    Of the five issues, there is the underutilized vacant 
space, there is the growing backlog of maintenance and repairs, 
unreliable property data, reliance on expensive leasing, as you 
pointed out, and then the security challenges. Those are the 
five reasons.
    Ms. Norton. All right. Reliance on expensive leasing may be 
something they can't do anything about because they don't have 
owned space.
    Mr. Goldstein. Maybe not in the capital in any 1 year, as 
you know, to deal with that.
    Ms. Norton. Is there significant monitoring of the broker 
contract that is now essentially completely contracting out 
leased space?
    Mr. Goldstein. When we did our work on the brokers program 
initially, we issued our report in early 2007. We did our audit 
between the middle of 2004 and the middle of 2006. At that 
point in time, we found three major problems. We found problems 
regarding conflict of interest, problems regarding compliance 
with the Federal Information Security Management Act 
requirements, and problems regarding program implementation and 
evaluation.
    Ms. Norton. How do you do--explain to us the notion of a 
fire wall if the same company is the brokerage company and 
ceasing to lease to the Federal Government? Is there an 
effective fire wall----
    Mr. Goldstein. There should be protections in place that 
would prevent----
    Ms. Norton. Such as?
    Mr. Goldstein. If you are going to have the same company, 
you need to have different individuals handling each side.
    Ms. Norton. That is minimal. That almost is fraud if the 
same person is handling----
    Mr. Goldstein. But that needs to be stated. You need to 
have----
    Ms. Norton. Are you found that, that it was the same person 
that was handling----
    Mr. Goldstein. We did not.
    But, Madam Chairwoman, when we did our work, it was very 
early on in this contract, so there weren't enough task orders 
that had been completed for us to really evaluate.
    Ms. Norton. Were there any rules set up for how to avoid--
--
    Mr. Goldstein. They did have conflict of interest rules set 
up.
    We asked them to put in some additional rules based on the 
contract, which they--they declined to add to the contract some 
additional rules, but they did put in some additional rules. We 
have not gone back to see if the additional rules have made a 
difference.
    Ms. Norton. We have other witnesses who are in a better 
position to comment on that.
    Now, the Ranking Member makes the case that we save 
hundreds of millions of dollars--I am quoting you, Mr. Diaz-
Balart. He doesn't offer the evidence yet, but I think he is 
making a kind of commonsense notion that if you get somebody 
else to do it, you are not spending the money.
    We are spending hundreds of millions of dollars through the 
broker contract; is that correct.
    Mr. Goldstein. At the time of our audit, Madam Chair, the 
GSA was not in a position to quantify any of the savings.
    Ms. Norton. I mean, somebody has got to be paid or it 
passes on to the Agency.
    Let me ask you, because GAO may be in a better position to 
do this: Could you say for the record what the difference 
between cost avoidance and true savings is.
    Mr. Goldstein. I mean, I think cost avoidance in this 
instance would be money that the government could save if they 
didn't have to pay for these particular items. However----
    Ms. Norton. So the government includes not only GSA, but 
obviously the Agency.
    Mr. Goldstein. Sure.
    Ms. Norton. Somebody is going to pay for it. I want to know 
how at the bottom line the government is saving money. It is 
one thing to say this is more efficient. It is one thing to say 
it should be done. But on this Committee and on the Oversight 
Committee, over and over again, we have heard notions never 
shown to be true--I must tell you, never shown to be true--that 
contracting out actually produced savings.
    I am for anything that saves the government money in the 
state we are in. I am for that. And this would seem to be a 
perfect example, to try to show savings. And some say that 
there are savings.
    I have never understood the notion of savings. When the 
price--the reason that the airlines--let's take an industry 
that is in particular trouble, hates it when we require them to 
do anything. It is not that they hate paying it. They know they 
are going to pass it on to me when I get on the airlines. I 
went to Martha's Vineyard for the first time, and I had to pay 
25 bucks for my bag. I didn't have to pay last summer; I had to 
pay this summer.
    Now, the airlines aren't bleeding for me. They want to make 
sure as many people take the airplane to go. So I have got to 
understand this notion that there is something at the bottom 
line called "savings," and I would like you to indicate 
whether, even theoretically, you can see that there would be 
savings and not costs simply passed on as perhaps they would be 
passed on if the government were doing the service.
    Mr. Goldstein. It is hard for me to say, ma'am. We did not 
look at the contracts from a perspective of----
    Ms. Norton. Do you think that could be figured out, that 
notion, that claim could be tested so that we would have some 
sense, when we contract out the government, whether there are 
savings or whether we are doing it for some other purpose?
    I don't mind if we are doing it for some other purpose. I 
mind someone throwing it in my face that we are saving some 
money and not showing me the bottom line where the savings are.
    Mr. Goldstein. So, at the time of our work, they have not 
been able to quantify savings.
    Ms. Norton. I think Mr. Diaz-Balart is anxious to quantify 
savings so----
    Mr. Diaz-Balart. Madam Chairwoman, I think you are, 
frankly, hitting a very important issue.
    I do have from GSA an update through May, 2009, which we 
have some notes on, so we have to clean it up, but we will 
submit it for the record later if that is something that you 
would want to pursue.
    Ms. Norton. So ordered.
    Mr. Diaz-Balart. Thank you. And if you would allow me to 
clean it up first and take away all the notes.
    But according to GSA, again, which has an update through 
2009, in actual rent savings for 216 leases, there are--I guess 
in the pipeline there are over 2,000 leases that are 
potentially--we could continue to find savings on. But just 216 
leases. And in actual annual rent savings, it is $10.4 million, 
but----
    Ms. Norton. Will the gentleman yield for a moment?
    Mr. Diaz-Balart. Of course. I am sorry.
    Ms. Norton. Annual rent savings, parenthesis, cost 
avoidance?
    Mr. Diaz-Balart. Correct.
    Ms. Norton. I was seeking to see the difference there, and 
maybe GSA can point that out, but that is the problem I have.
    Mr. Diaz-Balart. Absolutely. No. And I agree with you. I 
think where you are going is key. I think GSA might be able to 
get us some more updated numbers because, according to their 
estimates and numbers, then we actually have, I guess, cash in 
hand from rebates. Right now, there is, what, $58.5 million.
    And then the estimate--there is an estimate, credits for 
the 1,225 active task orders could be $97 million. So the total 
estimate of commission credits for all those task orders are 
$155.6 million according to GSA.
    Now, these are questions we need to ask GSA to see if these 
numbers are accurate. But I like where you are going. I think 
the GSA might have some good numbers there.
    Ms. Norton. Thank you very much because you point out a 
very significant document that we--you are right, we need to 
reconcile.
    Would you recommend the broker contract continue, Mr. 
Goldstein? Indeed, why did the GAO include the GSA real estate 
program?
    I believe you believe that it was--that an earlier report 
believed it was fair to do broker contracts; isn't that the 
case?
    Mr. Goldstein. GAO has never taken a policy decision, a 
policy role, one way or another on a position--on whether this 
program ought to exist as a contracted program or inside the 
government. Our position for any of these kinds of programs 
tends to be that if they are well managed and executed----
    Ms. Norton. You mentioned that OMB is using GAO's leased-
versus-owned analysis to establish what you call a road map for 
future action. What are you referring to?
    Mr. Goldstein. What we are referring to there is, as you 
know, for many years GAO has been concerned about the cost of 
leased versus owned property and that owned property is usually 
a better deal for the government.
    So this isn't specifically related to the broker program 
itself in its contracting out, but we have provided our 
analyses of leased-versus-owned considerations; and OMB is re-
examining some of those issues and recognizes that the 
government, long term, could save money in most cases by 
reducing the amount of property that it leases. So it is taking 
a look at that and is hoping to come up with its own 
recommendations.
    Ms. Norton. The government--and the President put in his 
budget--bought a building, the first time, I think, since I 
have been on this Subcommittee that the government plopped down 
some money, taking an advantage on an option to buy.
    Mr. Goldstein. For the last 20 years we have made 
recommendations with respect to leased versus owned, but the 
administrations have tended not to do very much in this area. 
We are hopeful that the new administration might.
    Ms. Norton. Mr. Goldstein, looking again at your testimony 
on page 8, you mention that the GSA waived the prohibition 
against dual-agency broker firms in order to increase 
competition.
    Now, has GAO done any analysis to determine whether the 
waiver did increase competition? What is the theoretical basis 
for that waiver to increase competition?
    Mr. Goldstein. I think the point we were making was that in 
issuing the waiver, they allowed more firms to be able to 
participate than if they had not. We have not done any 
empirical analysis, but clearly, since so many firms are dual--
you know, represent more than one--it is clear that that has 
made it easier for many more players to be involved and, 
therefore, add competition.
    Ms. Norton. In considering whether the waiver made sense, 
one would have to do some version of a cost-benefit analysis, 
that is to say, increase competition and also increase conflict 
of interest possibility or potential.
    Mr. Goldstein. That is right. You have to balance the 
increased competition against----
    Ms. Norton. You would have to make sure that your conflict 
of interest rules insured the government?
    Mr. Goldstein. Yes, ma'am.
    Ms. Norton. Of course, we will have to see if that 
happened.
    I thank you very much, Mr. Goldstein, for your very helpful 
testimony, as always.
    Mr. Goldstein. Thank you, ma'am.
    Ms. Norton. And I would like to call the next witness, 
Regina O'Brien, Principal Deputy Assistant Inspector General of 
the General Services Administration.

    TESTIMONY OF REGINA O'BRIEN, PRINCIPAL DEPUTY ASSISTANT 
    INSPECTOR GENERAL, U.S. GENERAL SERVICES ADMINISTRATION

    Ms. O'Brien. Thank you, Madam Chair. I am pleased to appear 
here today to discuss the General Services Administration's 
National Broker Contracts. We are currently working on an audit 
report in this area.
    In my testimony, I will briefly summarize our major 
observations to date. These focus on three areas: first, 
whether anticipated savings from using the brokers were 
realized; second, contract utilization; and third, issues that 
need to be addressed as GSA prepares to replace these contracts 
that expire March 31, 2010.
    Leasing is critical to GSA's ability to satisfy tenant 
housing needs, and leased space now comprises 51 percent of 
GSA's real property portfolio. From April, 2005, the start of 
the National Broker Contract, through the 40-month period 
ending July 31, the brokers have negotiated a total of 711 
leases.
    In 2003, GSA presented a business case in support of 
commission-based National Broker Contracts. It argued that in 
addition to providing critical support to a thinly stretched 
in-house staff, the incentives created by commission-based 
compensation would actually lower the cost of acquiring leased 
space. This cost savings was to be accomplished through, first, 
an offset to rent as a result of the brokers turning over a 
portion of their commission to the government, referred to as 
commission credit; second, reduced rental rates attributable to 
the broker's superior market knowledge and expertise; and 
third, lower overhead in the form of reduced administrative and 
personnel costs.
    The audit found that while some of the data for these areas 
are quantifiable, others are more ambiguous. First, the 
commission credits are quantifiable. Through July, 2008, 
commission contracts totaled $44 million, or approximately 1.3 
percent of the value of the leases the brokers negotiated.
    Secondly, as to whether brokers obtained more favorable 
rental rates than in-house staff, the limited number of broker 
transactions at the time of our audit and imprecise market data 
precluded a definitive answer. However, the audit did find 
that, at best, the data can support that the brokers are 
achieving results similar to GSA's realty specialists.
    Lastly, as to lower administration and personnel costs, our 
analysis indicated that contract administration is resource 
intensive and that the number of realty specialists actually 
increased over the first 3 years of the contract by 11 percent.
    The GSA business case also envisioned movement towards an 
almost completely outsourced lease acquisition process. This is 
not occurring. GSA's goal was to give 50 percent of the 
expiring lease workload to the brokers in the first year, 
culminating in 90 percent by the end of the contracts. GSA 
reports that it reached the 79 percent mark in fiscal year 
2008; we found a significantly lower usage, closer to 33 
percent. The point here is not the exact number, but why 
different views of the workload can occur and what this means 
for the future efforts.
    Over the course of the contracts, GSA changed the basis on 
which it measures utilization. It now excludes about half of 
its expiring leases from the universe of broker tasks because 
either the leases are not likely to yield a commission, are 
noncommissionable or otherwise not suitable as a broker task. 
Even if brokers were tasked with 100 percent of commissionable 
work, a substantial workload remains.
    I would also like to highlight four areas that GSA should 
consider as it moves forward to the next generation of broker 
contracts. First, there needs to be a clearer expectation of 
the work to be performed under the contract. The brokers 
expressed to us that the post-award exceeds usual and customary 
practices for commission-based commercial services. In further 
refining broker tasks, consideration should be given to what is 
expected in performing these post-award tasks.
    Second, while the contracts provide lease acquisition 
services, they also interject new risks to be managed. Foremost 
among these risks is improper disclosure of procurement-
sensitive data. GSA has taken many steps to prevent such 
disclosure. A key control is that GSA requires both the broker 
company and individual broker employees to notify it in writing 
for each task order whether any conflicts of interest exist. 
The audit found that while the majority of organizational forms 
were provided to GSA are about 92 percent, only 65 percent of 
the individual forms were provided.
    Third, the broker performance evaluation process is complex 
and cannot provide results in time to facilitate performance-
based tasking. While the projects are evaluated at different 
points in the acquisition process, key performance indicators 
are not available until the end of the procurement, which 
frequently takes over a year. The evaluation of the brokers' 
negotiated rental rate, compliance with subcontracting plans 
and customer satisfaction are by necessity done at the end.
    Further, a sufficient pool of task orders is needed to 
compare performance among brokers, and this is not available 
until several years into the contract period.
    Finally the eLease system, GSA's electronic leasing 
application, needs to better support workflow and analysis. A 
few of the criticisms noted during the audit were that there 
were delays in getting the broker access to the system, report 
generation capabilities were not functional, and eLease does 
not interact with other GSA systems.
    GSA continues to make improvements to eLease, but what the 
audit found was that not all the information is put into the 
system and that the paper file is still the official file.
    Thank you for your attention, and I ask that my statement 
be made part of the record. I would be pleased to respond to 
any questions from the Subcommittee.
    Ms. Norton. Thank you very much, Ms. O'Brien.
    Would you indicate what the IG's criticism was, precisely, 
of the regional broker contracts that were used in the late 
1990s?
    Ms. O'Brien. The report that we issued in 2002 dealt with 
the zonal contracts. There were four zonal contracts, and in 
addition to zonal contracts, there were regional contracts; and 
I think they numbered approximately--I don't know--20 to 25.
    What we saw was a conglomeration of methodologies to award 
broker tasks, and we had some underlying concerns about the 
funding mechanisms and the potential for violation of 
appropriation law.
    Ms. Norton. Was it the IG's recommendation that the PBS 
enter into the national contract to solve these deficiencies in 
particular?
    Ms. O'Brien. No. Our recommendation was that they go back 
and reevaluate how they administer these types of contracts. It 
is totally management's decision as to whether they go out and 
acquire other contracts or not, but the collection of contracts 
that they had at the time were not well administered or 
managed.
    Ms. Norton. We have found in some circumstances that there 
needed to be more work done from Washington, but that 
apparently was not the case with the regional contracts that 
were closer to the ground.
    Is it not true that the regional brokers got a better deal 
than the National Broker Contract?
    Ms. O'Brien. Are you referring to the rental rates? I am 
not quite sure what advantage you are addressing in your 
question.
    Ms. Norton. I am referring to their own understanding of 
their regional market, of their familiarity with the tenants, 
with the area. I am trying to see what was the advantage of the 
National Broker Contract over the regional contract.
    Ms. O'Brien. The advantage of the National Broker Contract 
over the regional contracts was supposed to be that there would 
be better or more centralized administration of the contracts, 
that you wouldn't have variation from region to region in your 
approach to the lease acquisition.
    And what GSA did when it went from the zonal and regional 
contracts to the national contracts is, they went through their 
lease acquisition process, and to the extent that they 
standardized it, they standardized it.
    They also standardized the administration of these 
contracts, which was not true in the prior generation of 
contracts. You could have the same company working under 
different contracts and approaching things differently.
    Ms. Norton. So there is not a proven advantage of one or 
the other? There may be a management value added?
    Ms. O'Brien. Right.
    Ms. Norton. Let me ask you about something in your 
testimony about the audits. The audits did find that, at best, 
the data can support the brokers are keeping results similar to 
GSA's realty specialists. I think this is your first page?
    Ms. O'Brien. Yes.
    Ms. Norton. Lastly, as to lower administration and 
personnel costs, I am quoting your testimony, "Our analysis 
indicates that contract administration is resource intensive 
and that the number of realty specialists actually increased 
over the first 3 years of the contract by 11 percent."
    So there is a tradeoff of realty specialists doing line 
leasing to, really, specialists doing now administrative 
contracting work and actually increasing the number, when we 
would have thought there would have been a decrease in the 
number, at least of those kinds of specialists.
    It looks like we made a new bureaucracy there of people 
with the expertise, with their administering contracts for 
others to do the work.
    Ms. O'Brien. Well, the administration of the broker 
contract is definitely resource intensive. We were not able to 
quantify that.
    Ms. Norton. Would you explain what you mean by that.
    Ms. O'Brien. Okay. Initially, GSA had it set up so that 
there were about 17 different points at which, you know, GSA 
personnel would evaluate the brokers' work. There are a lot of 
points where GSA has to review or prove milestones, negotiation 
objectives, you know, the summarization of the best offers. 
There are lots of different points that GSA has----
    Ms. Norton. Let me stop you there, because you also say, 
and I understand it, as you list your issues to be addressed, 
"The brokers expressed to us that the post-award work exceeds 
usual and customary practices for commission-based commercial 
services."
    Darn right. It is the Federal Government, people, so--you 
know, I am very sympathetic to the private sector when they 
complain about overbureaucratization. I hate it.
    You just heard what I said earlier about the bottom line, 
somebody pays. Frankly, in our case it is the taxpayer. But it 
looks like we got the realty specialists there doing what they 
had better do, because if they don't do it, then this Committee 
or the Oversight Committee will then say, Who is monitoring 
these great big contracts out here to make sure that there is 
no fraud, waste, and abuse; to make sure that at the bottom 
line we are not losing money?
    So you put it into the private sector; then you end up, 
according to your testimony, having to hire people, whose 
expertise is leasing, in greater numbers to monitor the 
contract.
    I am trying to find where the benefit to the government is 
here. Where is the benefit to the government, Ms. O'Brien?
    Ms. O'Brien. The benefit to the government that we saw 
would be in the commission credits. And at the current time I 
don't believe that PBS is in a position to take this work fully 
in-house.
    Ms. Norton. I am sorry. I didn't hear that. Say it again.
    Ms. O'Brien. I also believe that at this time PBS is not in 
a position to take this work fully back into----
    Ms. Norton. Oh, let's start there.
    We understand that. That doesn't mean that this 
Subcommittee doesn't have an obligation to review what the 
government has done. I mean, that is like saying, You can't do 
it, so I don't care what happens out there. It can be all the 
conflicts of interest in the world. It can cost you all the 
money in the world. But there is nothing you can do about it 
because you don't have the people.
    Well, you can get the people.
    Ms. O'Brien. I agree with you, Madam Chair. What I was 
pointing out was that some alternative ought to be found.
    Ms. Norton. No. But we have got a contract out there.
    Ms. O'Brien. Yes.
    Ms. Norton. And I am trying to find what benefit there is 
to the government, given the contract that is out there.
    I have posed you a rather hard hypothetical, I understand 
that, that they have got an increased number of realty 
specialists to what they had when they were doing leasing. How 
could that be, now that they don't do leasing, that they give 
it to somebody else to do?
    We are not fools sitting up here. We have got to say, Well, 
wait a minute. Isn't this what people complain that government 
does, that it just does paperwork and monitoring?
    But then GSA looks and says, Oh, but if we don't do this 
monitoring and paperwork that the brokers complain about, that 
it is more than they are required to do when they do 
commercial; if we don't do it, then the government rebounds 
back on us.
    We are trying to get out of this somehow because we are 
among those who complain when monitoring isn't done. But when 
we see this figure about an increase in realty specialists, we 
are having trouble finding out what the benefit to the 
government was in making such a Herculean change as this, 
especially since it was supposed to save money, be more 
efficient.
    Well, the brokers say, That is not more efficient; we end 
up doing more work. Yes, you pass it on to the bottom line, but 
then you have got to give a kickback to the Agency so everybody 
remains happy. In the long run, the Agency, however, is the 
government, too; and we are paying their rent.
    So I am just trying to honestly find out. I am not 
suggesting that we may have an alternative. I am not suggesting 
that we are going to set up immediately any kind of in-house 
system. We don't know what we are going to recommend. But we 
need to know what has been the value added to the government in 
making a cosmic change such that the leasing is--of a core 
function, the leasing which is a core function.
    No one would doubt that it is that. It is a core function 
of the Agency, isn't it, Ms. O'Brien?
    Ms. O'Brien. Yes, it is.
    Ms. Norton. It can't even do it anymore. So the burden on 
us and on GSA is extremely strong, so strong that I would put 
to you the ultimate law school hypothetical: Who needs the GSA? 
Why shouldn't the Agency go to these broker contracts and do 
their own thing? They get the kickback; maybe they would have 
to do the monitoring or something.
    What role does GSA play? Why do you need GSA?
    Ms. O'Brien. The concept there is to ensure that the 
leverage of the Federal Government is used in the marketplace, 
that the rules are consistently applied, that these things are 
done in compliance with----
    Ms. Norton. So you think that we still get the economies of 
scale even though the--because there is a national contract?
    Ms. O'Brien. Well, I think you get the economies of scale 
from--we--when we looked at this, what we saw was approximately 
the same target was being achieved whether it was GSA personnel 
or whether it was----
    Ms. Norton. With more realty specialists not doing leasing, 
but monitoring people who were doing leasing, why was that 
value added for the government? An 11 percent increase in 
realty specialists?
    Ms. O'Brien. Yes. And the number of leases have also 
increased during that time.
    Ms. Norton. Because we needed the space.
    Ms. O'Brien. Yes, I know.
    Ms. Norton. That is not a matter of broker efficiency. It 
is because we don't have anyplace to put workers as the Federal 
Government has grown.
    I really see us caught in a real bind here, that we have to 
monitor the contracts. Or if we, the Agency, doesn't, it is 
going to get criticized, so it has got to hire a lot of people 
to do that as it contracts out more and more of its work.
    When you said there needs to be a clear expectation of the 
work to be performed under the contract, that puzzled me. You 
mean the National Broker Contract doesn't make it perfectly 
clear what work is expected?
    Because you go on, honestly, to say "The brokers came back 
and expressed to us that the post-award work exceeds usual and 
customary practices. In further refining broker tasks, 
consideration should be given to what is expected in performing 
these post-award services." RPTS REIDYDCMN ROSEN[11:10 a.m.]
    Ms. Norton. Do you mean the brokerage didn't understand 
that once you contract with the Federal Government, you are in 
a different ball game?
    Ms. O'Brien. Well, I am not sure that they didn't 
understand that. I think there are aspects to the way the 
government does its post award that are somewhat unique.
    Ms. Norton. And could be improved? You say, The performance 
evaluation process cannot provide results in time to facilitate 
performance-based tasking. Would you speak in English? I think 
that goes to your point. Explain that.
    Ms. O'Brien. That is a slightly different point. The point 
there is that if you were going to use the performance of the 
brokers to determine in, for example, the next year whether you 
give 50 percent of your work to the highest performing broker, 
what that point is that you are never going to have that 
information until almost the end of the contract if you have a 
5-year contract.
    So to think that you are going to start off and be able to 
award in year two and three based on how well the broker 
performed in year one, it is not accurate. You won't be able to 
do that because you don't have the information until years 3 or 
4.
    Ms. Norton. I see. Now, what does the GSA need to do so 
that the brokers aren't apparently being surprised that there 
is a little more work to do when you do it for the government, 
because they are now responsible to the taxpayers of the United 
States of America?
    Ms. O'Brien. Well, in terms of the post award services, the 
biggest issue there is the level of worker detail that you have 
to go to. For example, oftentimes when you are building out 
space for tenants, which is part of the post award services, 
you will have a reimbursable work authorization, in other 
words, the tenant wants additional work done in that space. And 
that is not something that is necessarily part of what their 
business experience was in the private sector, so there is a 
little more involved in that area, in the government's----
    Ms. Norton. Wait a minute. GSA doesn't do any of that work? 
The broker now does that work, that post award?
    Ms. O'Brien. Post award services were part of the contract, 
yes.
    Ms. Norton. Well, what is it that the brokers did not 
understand? Was this not written? Was it not written out 
clearly enough? Why didn't the GSA's performance contract make 
it clear that this is how the government has to do work, unlike 
what you may be used to, or whatever they may be used to? Would 
you recommend a more precise contract so that everyone is on 
the same page and you don't have people complaining?
    Ms. O'Brien. Yes. That is the direction of our 
recommendation.
    Ms. Norton. Is this, to your knowledge, occurring as they 
prepare for the new contract?
    Ms. O'Brien. We have talked to PBS about this area. They 
are cognizant that they have to look at that particular area, 
particularly as it deals with additional tenant requirements 
that are usually done through reimbursable work authorization.
    Ms. Norton. Do you have any other recommendations as they 
prepare for this contract?
    Ms. O'Brien. Yes. In fact, we met not too long ago with PBS 
to discuss some recommendations. And they had some suggestions 
for the recommendations, things that they felt would be 
feasible or not feasible, so we did discuss those.
    Some of those recommendations would include some 
improvements that we felt needed to be made to the information 
systems that, again, the utilization of the contract to clarify 
that, as I said. What we are seeing is closer to 33 percent, 
what they are reporting is closer to 80 percent. The point 
there is that you are never going to have 100 percent 
contracting out. This is resource-intensive. There are a lot of 
aspects that are actually inherently governmental, so you are 
never going to be able to fully contract that out.
    Ms. Norton. Now, how does the work of the realty specialist 
compare with the private sector workers and brokers?
    Ms. O'Brien. What we found, when we looked at the market 
rates that were achieved by both sets, is that statistically 
there was no difference. GSA has a performance measure called 
least cost relative to market. And what that is, is they take 
basically a midpoint for that particular market, and then they 
target a certain percentage below that. So if the average in 
that area was $35 a square foot, they would want to get 9 
percent less than $35 a square foot. And that would be their 
target.
    What we saw, when we looked at the data--and again, even 
though it was basically 2-1/2, 3 years into the contract, our 
data is still somewhat limited. What we saw was that there 
really wasn't any statistically valid difference between the 
two in terms of their achievement of the rental rates.
    Ms. Norton. Well, at least we have that information. The 
usual frustration in Committees is we don't even know whether 
there is any cost savings. At least we know that after going 
through all of this hullabaloo, we haven't saved the government 
a dime. And that is important to have on the record. But we 
haven't cost them any more and we haven't saved them anymore. 
And the reason, of course, should be clear. The assumption is 
that the government--because of course the government builds in 
inefficiency, what the government builds in is what we are now 
building into the broker contract, checks and balances so the 
taxpayers know how the money is being spent.
    So in the long run, it costs more for the government to 
perform this service, and guess what? It costs more for private 
sector to perform this service. At least here, unlike my 
experience in Oversight and Government Reform, where nobody has 
any sense of whether there is savings or not, you have made the 
appropriate comparisons, and we do have that understanding.
    Do you have any comparative analysis that might compare 
this service contract with GSA's other contracts for services?
    Ms. O'Brien. You mean the prior broker services; is that 
what you are referring to?
    Ms. Norton. No, not broker services, other services it 
contracts for.
    Ms. O'Brien. No. We did not look at that as part of this 
review, so I don't have that information.
    Ms. Norton. They have contracted for many architectural 
services, design services, other services. Some of this is 
understandable, but of course, as we look at what they are 
doing, we need to understand it and understand what the benefit 
or value added to the government. The most disturbing thing is 
that GSA has lost so much personnel, and yet it has increased 
realty specialists, necessarily so, to monitor these contract.
    Do you believe these realty specialists, in a pinch, could 
pick up the slack for broker contracts or any portion of them?
    Ms. O'Brien. Well, I think it is important to note that 
basically the realty specialists are still doing the bulk of 
the work. In terms of the number of leases that are being done, 
if you look at the expiring leases, the brokers are handling 
roughly 33 percent, in our view, and the government is handling 
the remaining amount. In addition to that, when a broker task 
is assigned, prior to that assignment it is the GSA people----
    Ms. Norton. Wait a minute. The broker specialists are doing 
the new leases? What is the difference between what the realty 
specialists are doing and what the broker contractors are 
doing?
    Ms. O'Brien. The realty specialists actually have a few 
functions. First of all, they can negotiate and award the 
leases. And they are doing that work; it is not completely done 
by the brokers. And in addition to that, you have realty 
specialists who oversee the broker contract work. So they are 
actually performing----
    Ms. Norton. Just a moment. You have who oversee the broker 
contract work?
    Ms. O'Brien. You do have realty specialists who oversee the 
work of the brokers.
    Ms. Norton. They are in the contract management business.
    Ms. O'Brien. Yes. Yes, they are.
    Ms. Norton. What percentage of them are in the contract 
management business as opposed to those who are in the realty 
business?
    Ms. O'Brien. We were not able to obtain that number since 
PBS does not have a system where they identify how much time 
people put in on various tasks.
    Ms. Norton. You mean, some of them do both?
    Ms. O'Brien. Yes. That is our understanding.
    Ms. Norton. Thank you very much, Ms. O'Brien. This is very 
important testimony for the record.
    Wait a minute. Mr. Diaz-Balart has returned. Did you want 
to ask the witness, the IG any questions?
    Mr. Diaz-Balart. Thank you, Madam Chairwoman.
    Ms. Norton. I am very sorry.
    Mr. Diaz-Balart. No, no, thank you very much. And again, I 
had to go and vote. I apologize for not being able to be here 
for the whole presentation.
    Ms. Norton. I apologize for not being able to vote.
    Mr. Diaz-Balart. And I apologize to the witness.
    In your testimony you said that the brokers are securing 
leases at the same rental rate as GSA is, roughly.
    Ms. O'Brien. What we are saying is, with the data that we 
had, the best assertion that we can make is that they are 
approximating with the GSA people.
    Mr. Diaz-Balart. Right. Now, does GSA get rebates when they 
do leases?
    Ms. O'Brien. No, they do not.
    Mr. Diaz-Balart. And the brokers do get rebates----
    Ms. O'Brien. That's correct.
    Mr. Diaz-Balart. -- that is passed on to the Federal 
Government?
    Ms. O'Brien. Yes. And that is pointed out in my testimony.
    Mr. Diaz-Balart. So when you are talking about equivalent 
rates, you are not including the rebates, correct?
    Ms. O'Brien. No. That is included in a separate category.
    Mr. Diaz-Balart. So there are savings to the taxpayer.
    Ms. O'Brien. Yes, and I pointed that out.
    Mr. Diaz-Balart. Okay. And I apologize, since I was voting, 
so I just wanted to make...
    And how about overhead; is there a comparison about 
overhead that--obviously GSA has overhead, employees, space, et 
cetera, that all of a sudden we don't incur from the brokers, 
correct?
    Ms. O'Brien. Well, no. I wouldn't go that far because to 
administer the contract takes a lot of time and effort by GSA 
personnel. I don't think you could say that there is overhead 
on the GSA portion and there is no overhead on the broker 
portion.
    Mr. Diaz-Balart. Do you have any way to know if there is 
more overhead, less overhead?
    Ms. O'Brien. No, I don't, only because there wasn't a 
system in place to identify that type of demand.
    Mr. Diaz-Balart. Sure, I understand. But there is no 
denying that there are savings to the taxpayer because of the 
rebates.
    Ms. O'Brien. Yes. And I said that that was quantifiable.
    Mr. Diaz-Balart. Right. Great. Thank you so much.
    Thank you, Madam Chairman.
    Ms. Norton. Mrs. Capito.
    Mrs. Capito. Thank you, Madam Chair. I would like to thank 
the witness.
    I would like to ask a question. If the GSA were to allow 
this contract to expire this year, what would be the 
repercussions, do you believe, to the GSA leasing program?
    Ms. O'Brien. You would have a significant portion of lease 
work without a corresponding workforce to handle it. So I would 
assume that what you would have is additional holdover leases, 
you would have lease extensions.
    Mrs. Capito. And when you have holdover leases and lease 
extensions, you incur probably some penalties or some kind of--
from obviously the owner of the property if they can't secure a 
contract, I would assume that they could assess a penalty to 
the GSA because of the lack of the contract in a holdover 
nature because there is not staff in place of this program, 
would you say that is an accurate statement?
    Ms. O'Brien. I would say that, rather than that, that the 
leverage that the government has to acquire a fair and 
reasonable rental rate would be reduced.
    Mrs. Capito. Reduced. And the reason is because there is 
not enough in-house--what did you call them? Realty specialists 
to be able to handle this work, correct? Because this program 
has been in effect for 4 years, and obviously the brokers have 
taken over a lot of that work.
    Ms. O'Brien. When we talked to the people in the regions, 
we went to four regions and we spoke with the realty 
specialists and the management there, the message that we 
received was that they needed additional support, that they 
were not at the point where they could handle all of this work 
without some sort of additional assistance.
    Mrs. Capito. Maybe this is a subjective question, but when 
you talked to the realty specialists in the different regions, 
how did you find their relationships with the brokers in this 
contract, the National Brokers Contract program in terms of 
communication, in terms of quality of service?
    Ms. O'Brien. We didn't note any particular issues or 
problems in that area.
    Mrs. Capito. So if there were problems, they probably would 
have mentioned it, I imagine.
    Ms. O'Brien. Yes.
    Mrs. Capito. I notice in one of your recommendations that 
you talk about the elease system.
    Ms. O'Brien. Yes.
    Mrs. Capito. That is the electronic leasing system through 
the GSA?
    Ms. O'Brien. Yes.
    Mrs. Capito. And I guess if you have a comment on that, I 
would like to hear it. I mean, obviously it needs better 
support, work flow and analysis. How do you think that is 
achievable? It is astounding to me. And GSA is not the only 
government agency that has this issue that, in this day and age 
of technology, we still have these gaps or miscommunications 
between systems where it seems to me something like a leasing 
program is a lay-up for a great e-leasing or an electronic 
leasing program. Can you make a comment about that, and what 
would solve that problem? Besides a bunch of money, probably.
    Ms. O'Brien. Well, actually, we have been talking to PBS. 
They have instituted some changes while we were doing the 
audit. We also suggested some additional changes to them during 
the course of the review.
    One of the things is that all the information should be 
there, and there should be more templates for various types of 
things that are done. So those would be two aspects of changes 
to elease. For example, they have required certain documents 
that the brokers put into the system, but there are other 
documents that have not been required, and yet they are very 
important, and they are mandatory to the leasing process 
acquisition plan, for example, is one.
    Mrs. Capito. Well, I appreciate the recommendations.
    I guess my comment would be that, if this contract is due 
to expire on March 31, 2010, the bottom line what I hear you 
saying is that GSA is not equipped through the property 
specialists to be able to handle the bulk of the work, which 
could result in holdovers and other kinds of penalties through 
the lease.
    You have mentioned, and the Ranking Member mentioned, some 
of the savings that have occurred, and the Chairwoman has 
mentioned some of the issues in terms of, is the work getting 
done and the unexpected--you mention in your report, the 
unexpected workload that some of the brokers found as they were 
moving through this. But it seems to me, you know, we are 6 
months out here, and this isn't something that can turn on a 
dime. So I would recommend that we look at this, make some of 
these improvements, and make sure that we do the best cost-
benefit analysis to the taxpayer, which to me looks like has 
resulted in some pretty significant savings for the taxpayer, 
with the GSA property specialists working together with the 
private sector in what sounds to me to be a true public-private 
partnership.
    So, thank you.
    Ms. Norton. I would like to clarify the rebate notion. 
Rebates are very common. Do you mean that GSA, when it handled 
this work in-house, could not get free rent for a month or two 
for people? Don't they negotiate like everybody else in the 
market?
    Ms. O'Brien. The commission credits are somewhat different 
than the free rent. Realty specialists have, on occasion, 
depending on the market, negotiated free rent as part of the 
rental agreement.
    What we are talking about, there is the piece in the rental 
rate, whatever that dollar portion turns out to be, that is 
normally paid to the brokers, and the perception was that that 
money was being left on the table when GSA negotiates because 
GSA could not collect that commission, that the licensed 
brokers could collect that money. And then under the first 
iteration of contracts, it was given back to GSA as a rebate in 
some instances, and now with the new version of the contracts, 
the National Broker Contracts, it is a commission credit.
    Ms. Norton. Are there any other questions?
    Thank you very much, Ms. O'Brien.
    And I would like to call the next witness, Samuel Morris, 
III, Assistant Commissioner Office of Real Estate Acquisition, 
GSA Public Building Service.

TESTIMONY OF SAMUEL "CHIP" MORRIS, III, ASSISTANT COMMISSIONER, 
   OFFICE OF REAL ESTATE ACQUISITION, U.S. GENERAL SERVICES 
            ADMINISTRATION, PUBLIC BUILDINGS SERVICE

    Mr. Morris. Good morning, Chairman Norton, Ranking Member 
Diaz-Balart, and Members of the Subcommittee.
    My name is Chip Morris. I am the Assistant Commissioner for 
the Office of Real Estate Acquisition in the Public Buildings 
Service at the General Services Administration. Thank you for 
inviting me here today to discuss GSA's leasing program and how 
we contract for brokerage services through our National Broker 
Contracts.
    Although the current National Broker Contracts represent a 
major change in how we contract for broker services, GSA has a 
long history of retaining real estate brokers. Historically, we 
had individual regional contracts on a fee-for-service basis 
from a menu of available services.
    Our first attempt to provide a national contract for broker 
services was in 1997, when we awarded eight national real 
estate contracts covering four zones. In response to audits by 
the Inspector General, GSA decided to centralize broker 
services into a national program. A number of factors drove our 
decision to enter into National Broker Contracts, including 
increasing our capacity to deliver leases consistently and 
leveraging our market share to reduce space cost.
    Constrained budgets, limited staff, and the limited 
availability of new federally owned space continue to drive an 
increased need for leased space to meet agencies' requirements. 
As a result, GSA determined that our reliance on brokers was 
essential at that time.
    Based on market research, we proceeded with a commission-
based pricing contract, as is customary in the industry, in 
order to save public funds. Before proceeding with the 
solicitation, we requested an opinion from the Government 
Accountability Office on our decision to pursue a commission-
based contract. In August, 2004, GAO determined that GSA would 
not be illegally augmenting its appropriations or asking 
contractors to perform voluntary services under the proposed 
contract.
    After a full and open competition, four contracts were 
awarded on October 2004 to Jones Lang LaSalle Americas; the 
Staubach Company, Northeast; Julian J. Studley, Inc.; and the 
Trammell Crow company. The notices to proceed were delayed 
until April 1 of 2005 because of protests filed with GAO after 
the award.
    Since the award, C.B. Richard Ellis Real Estate Services 
purchased Trammell Crow, and the Staubach Company merged with 
Jones Lang LaSalle, leaving us with three contractors at 
present: Jones Lang LaSalle Americas; C.B. Richard Ellis; and 
Julian J. Studley. While there have been challenges, we believe 
that over the last 4 years, the contracts have proven their 
value.
    As of April 2009, 942 leased transactions for over 15.5 
million square feet have been awarded using these broker 
services. Of these, 839 were for full lease acquisitions, 
totaling 13.5 million square feet; 89 were extensions for 1.8 
million square feet; and another 14 were expansions of 313,000 
square feet. These transactions resulted in 55.5 million in 
commission rent credits applied directly to reduce our rental 
obligations, which are also passed through to our customer 
agencies.
    The total net commissions paid to broker firms through 
April 2009 has been $78.7 million, with the average commission 
per project at $83,500, and the average project size at 16,500 
square feet.
    Our change to commission-based pricing has not increased 
our lease-cost-relative-to-market averages. With 216 brokered 
leases for over 3 million square feet completed through the 
second quarter of fiscal year 2009, our average rental rates 
are 10.56 percent below the midpoint of the market compared to 
the GSA goal of 9.25 percent below market.
    Sixty-nine percent of the brokered leases are in the new 
and succeeding lease categories and have average rental rates 
at 11.12 percent, and 11.32 percent below the midpoint of the 
market, respectively. This results in a cost avoidance of $10.4 
million annually. The annual savings will continue for the life 
of each lease, which in some cases is 10 years or more.
    There have also been challenges in this contract and its 
administration that we are continuing to address. Our brokers 
have had to learn government contracting principles that do not 
apply in the commercial real estate market. Our lease 
contracting is regulated by over 48 different laws, 
regulations, and executive orders that make acquisitions 
process-driven and document-intensive. Documentation is 
necessary to avoid costly protests and litigation, to comply 
with internal controls, and to achieve clean audits.
    GSA's use of brokers is designed to add leverage to an in-
house staff. Some of our leasing specialists are focusing to a 
greater degree on project management while others are focused 
on oversight of the brokers, including the evaluation of the 
broker performance, something left typically to contracting 
officers, and a new experience for leasing specialists.
    Normal attrition, including retirement, has reduced 
staffing levels below thresholds necessary to perform in-house 
work and supervise the brokers. We continue succession planning 
for leasing specialists and lease contracting officers. In some 
instances, it can take up to 5 years to train a leasing 
specialist to become a seasoned lease contracting officer. As a 
result, we must rely on the brokers to supplement our 
workforce.
    We have begun planning for the follow-on to these contracts 
by conducting industry conferences in Washington, D.C., and Los 
Angeles, California, and have posted the transcripts of those 
conferences of the Fed Biz Ops Web site. We have also conducted 
lessons-learned sessions with our previous procurement team, 
the Office of the General Counsel, our current brokers, and our 
regional program officials.
    A team is currently developing the Statement of Work that 
will best support our needs for the next 5 years. Though not 
intended to replace our staff, it is necessary for GSA to 
continue to utilize brokers to supplement our in-house 
capacities to meet our program responsibilities and deliver 
space as efficiently as possible.
    We need to capitalize on what has worked with these 
contracts and make improvements that will make them more 
efficient and user friendly. GSA also needs to better predict 
workload projections for the brokers and address continuing 
problems with extensions and holdovers.
    While we believe that contracts have proven successful and 
bring savings to the government, we can improve their 
effectiveness in providing additional resources to assist our 
leasing specialists in meeting program demands.
    This concludes my testimony. And I will be happy to answer 
any questions that you have.
    Ms. Norton. Thank you very much, Mr. Morris.
    You say in your testimony, I think quite candidly, "These 
contracts are not intended to replace staff, rather to 
supplement the resources we have as we plan the most efficient 
space delivery program possible." That makes sense to me. 
Everybody in the government uses contracts.
    Let me ask you what percentage of your work is done by the 
brokers and what percentage is done by staff, especially 
considering the 11 percent increase prior testimony revealed in 
realty specialists since you began to engage broker contracts?
    Mr. Morris. We have heard from the IG earlier, their 
estimate is about 33 percent overall. I am guessing it is 
higher than that.
    I would like to clarify a little bit because I think the IG 
witness really made a good point on how you interpret how that 
workload is divvied up. We have had successive increases in 
targets that we have worked on over the course of this 
contract. Beginning in 2005, we had a 50 percent of expiring 
leases target that increased 10 percent each year up until last 
year when we got to 80 percent. This year was supposed to be 90 
percent; we kept it at 80 percent. But the important thing, 
Madam Chairman----
    Ms. Norton. You kept what at 80 percent?
    Mr. Morris. The utilization rate for tasking brokers with 
our expiring lease workload. And it is important to really 
understand and drill down and see what that number means.
    All of the work has not been going to the brokers. What we 
have been trying to do really and truly is to come up with a 
target each year----
    Ms. Norton. That is really my question; how much work 
should be given to the contract brokers and how much work 
should be kept inside? What is the goal? What is the target?
    Mr. Morris. The target has been expressed as a percentage 
of expiring leases.
    Ms. Norton. Well, now, weren't the brokers originally 
supposed to address extensions and holdovers, and now they are 
doing more and more new leases?
    Mr. Morris. Well, it wasn't that they were being assigned 
extensions and holdovers, but they were supposed to be helping 
us relieve that problem. So what we do each year is we look out 
about 18 to 24 months and see, in our leased inventory, what 
leases are expiring over the next 18 to 24 months. So that 
number, if you will, forms the denominator in calculating a 
percentage. So you take a number of 1,800 leases expiring in a 
particular year, and then you look to see, well, what do we 
need to give to the broker? And if our target----
    Ms. Norton. All right. You can continue that math. Based on 
the number expiring, what percentage should be given to the 
broker? You know how many realty specialists you have.
    Mr. Morris. Right. Well, the target is that 50, 60, 70, 80, 
90 percent that we have been using each year, increasing each 
year over the last--this is the 5th year.
    Ms. Norton. Wait a minute. You have a disproportionate 
number of leases expiring some years; is that what you are 
saying?
    Mr. Morris. Yes. Actually, we have talked about this in one 
of our earlier hearings. If there are 1,800 leases expiring 
this year, for example, and we don't get all those leases 
either replaced in some form or fashion, say we only do half of 
them--I am just picking a number out of the air, say we only 
get to do 900, well, 900 leases that are left over, something 
happens to them. Some of them may go away, but those that we 
don't get to, we end up extending. And so next year----
    Ms. Norton. But you must know--you know right now when 
leases are going to expire, and that is why we have been into 
the holdover business and why I have given the agency 45 days 
to come back with a plan on early leasing and holdovers. Well, 
you know when a lease is going to expire the moment the lease 
is signed. So all this planning could be done up front, and you 
could know right now, as you sign a lease, how many brokers you 
are going to need in 10 years or 15 years.
    Mr. Morris. Well, it is not just expiring leases. What is 
not calculated in there, Madam Chair, is what new requirements 
come back. We forecast every 6 months for the purpose of the 
broker contract what kind of workload projections we expect to 
assign to them from that expiring lease workload. But we 
haven't been doing a very good job on of this.
    Ms. Norton. What kind of what? I am sorry.
    Mr. Morris. We project each month for the brokers what sort 
of workload we expect to be coming down the pike. The regions 
turn into us to say, here is the workload projection from the 
expiring leases. Well, all expiring leases aren't tasked to the 
brokers. They get all kinds of work. It is not just expiring 
leases. They would get new requirements that come in----
    Ms. Norton. But you are not making those on a monthly 
basis, surely. What kind of business is this? You must know all 
of this in advance, so you ought to be able to tell me next 
year.
    Mr. Morris. I can tell you right now, in a snapshot, what 
will be expiring next year. But at the end of this year, we may 
not have addressed all of the leases that have expired this 
year, and so by the end--a snapshot taken at the end of 
September will be a different set of----
    Ms. Norton. And why, by the way, would you have not--this 
gets back to my holdover question. If you did early leasing, if 
you were internally more efficient, some of those problems, 
some of those doubts, with completely good planning, would be 
erased, wouldn't even be there because you would know, if it 
were the broker who was supposed to do the early leasing, well, 
he would do it. If the realty specialist was to do it, she 
would do it. Why isn't that kind of planning being done at the 
agency since it is at your beckon call? You have the leases.
    Mr. Morris. We actually are doing that kind of planning now 
with a lot of impetus from your letter recently. We have talked 
about that in the past. We are doing a portfolio analysis now 
we hope to bring to you when the due date----
    Ms. Norton. That is so important. I mean, it is the only 
way for the brokers, it seems to me, they have got a contract. 
Doesn't the contract even tell them what to expect in the 
number of contracts or leases that will come up?
    Mr. Morris. The contract did set, as 50 percent of the 
expiring lease workload, targets for them at the very 
beginning. So that is accurate. But I guess the point that I 
was trying to make was, in determining what gets tasked to the 
brokers, each year we look at and every 6 months we update what 
the projections are for expiring leases. They get tasked some 
of those. They also get tasked new requirements. And at the 
same time, and I think it is very important to point out, there 
is a large number of that same workload that is being performed 
by in-house personnel.
    Ms. Norton. And that is important to know the percentage. 
But what I am getting at, Mr. Morris, with the prior letter you 
just referred to, is how all of this seems to me to be 
wonderfully predictable, that is to say there are many areas in 
government where we can't predict--money is one of them. But 
guess what? A lease, when it expires and therefore who ought to 
be attending to the lease is contract law.
    Mr. Morris. I agree with you 100 percent on that.
    Ms. Norton. And it is that kind of planning I want to see 
in the agency. I am sure the brokers would appreciate it, and 
the realty specialists--I don't understand why anybody would 
need to do a monthly analysis or a 6-monthly analysis when they 
know day one when the lease is going to expire. If there is an 
advantage to being the big foot in the marketplace, it is 
information, and using it as early as you can--the big foot is 
the Federal Government. I am determined that the Federal 
Government is going to reap more from the fact that it plays 
such an increasingly important role in the leasing marketplace.
    In particular, I am determined, Mr. Morris, not only 
because I see savings for the government and greater use of its 
economic power, I believe that power ought to be used right now 
to stimulate this economy. The President did it when he bought 
a building somewhere here in Washington. And early leasing 
would do it if the banks sought that 6 months ahead of time or 
3 months ahead of time. And in this market, one might want to 
do particularly early leasing if you look at the forecast and 
you look at reports for what is happening to commercial real 
estate with due dates on their loans, you are in a perfect 
position, you are in a position that nobody in the commercial 
sector is in to take advantage of a very bad situation. It is a 
bad situation for anybody who is in the business; it is a good 
situation for the government if we use it to our advantage.
    Before I go further, I would like to ask the Ranking Member 
if he has any questions.
    Mr. Diaz-Balart. Thank you very much, Madam Chairwoman.
    Would it seem to make sense that the leases where we could 
get rebates are the ones that should probably be not done in-
house; and the other ones, where we can't get savings, maybe 
should be done in-house?
    Mr. Morris. How do I answer that question?
    Mr. Diaz-Balart. The issue should be, in my view, as 
opposed to a fixed percentage of how much is done in-house 
versus how much is done through brokers, it should be how much 
we are saving.
    Mr. Morris. And the rent credits are really a function of 
an industry practice of commission-based pricing. It is 
separate and apart from whether one is cheaper than the other. 
There are rent credits that are achieved through that 
commission-based pricing that the brokers bring to the table. 
So that is an important savings to the government.
    To clarify that, what we have experienced and what we had 
understood for a number of years is that the government was 
leaving money on the table because landlords and developers 
build into their business plans when they offer space to the 
government an element of that business plan that includes 
commissions. They typically have realtors representing them in 
leasing up their buildings. And under their listing agreements, 
they agree to pay those realtors a certain percentage on a 
transaction.
    And just as in a residential home sale, if you list your 
home with a realtor for 6 percent, that realtor is going to get 
6 percent when the home sells. If another broker, a cooperating 
broker brings a buyer, those brokers split that commission. And 
it is that split that the government was theoretically leaving 
on the table.
    So we had, in an earlier iteration of the contracts, tried 
to, when we were paying fees for services, instructing the 
brokers under those earlier contracts, because they are 
licensed to take that commission, either negotiate it out of 
the deal or capture that commission and rebate it to the 
government. When we switched to this contract, we switched to 
the commission-based pricing where we--and it was an 
experiment, let's go out, you are getting your fee based upon 
that opportunity to split under a dual-agency transaction. If 
the broker wasn't there and we had no broker and we were just 
using in-house staff, those developers and landlords still 
retain realtors to represent them, and they build into their 
business plan when they are offering to the government an 
element to pay commissions. And so it is that commission 
splitting that we hope to capture to pay for their services on 
our behalf under this contract.
    Mr. Diaz-Balart. You just answered two of my questions. And 
let me tell you, I think you need to be commended. GSA needs to 
be commended for, as you said, for doing an experiment--which 
seems to be working, frankly. And it might be interesting, if 
there is a way to better quantify those results of the 
experiment.
    Mr. Morris. And the primary way that we have tried to see 
whether or not it is costing us more is in our rental rates 
that we are getting under these leases, are the rental rates, 
how do they compare to market rates? We do that anyway. We have 
to report to OMB, and we report to Congress each year on what 
kind of rental rates we are getting in our leases. And we use 
the lease cost relative to market as our measure for that. And 
that is a combination of a science and an art.
    I mean, we rely on market data, submarket data that is 
published out there in the market, and we look at our rates and 
compare those to the rates in that market. And we found that, 
generally speaking, these leases that have been procured 
through the brokers based upon how many have gone through the 
whole process now, are exceeding our targets.
    The IG made the point that there is a small universe that 
you have actually finished the projects on, and that is true. 
Out of over 2,000 tasks outstanding, we have about 10 percent, 
216 leases, that we are actually comparing those rates on now. 
And they are exceeding our targets. When you compare those to 
our overall performance, they are comparable to what we are 
doing as an agency, which includes not only the brokered but 
our in-house deals.
    Mr. Diaz-Balart. Something that I mentioned in the 
beginning was that I understand that there are some delays, at 
either the front end or the back end, when a lease acquisition 
process is initiated, and again, at the end, when a lease goes 
through and there is a final approval process, there is some, I 
guess, bottleneck there. Are there any steps that GSA could 
take the streamline that internal process? And furthermore, is 
there any legislation, any authorization or legislation that 
you think would help you in that process?
    Mr. Morris. Yes, sir. I will answer the last question 
first, if I may.
    We are still working through these issues, but there are a 
number of our leases, hundreds of our leases are small leases 
in tertiary markets in rural areas--small towns, rural areas, 
small cities. The simplified lease acquisition threshold was 
last updated in 1996. Basically, under a simplified lease 
acquisition, you can do it faster and quicker on smaller 
leases, smaller dollar volumes, than when we do lease 
procurements that are above that simplified acquisition 
threshold. Right now it is $100,000 a year in rent. So if you 
are expecting to pay rent at $100,000 or less, then you can use 
this--I don't want to call it fast track; I will call it a 
faster track. It is a little bit more efficient. And because we 
have it updated, that is a statutory threshold, and it is not 
tied to any kind of inflation index. It could be helpful to us 
if that threshold were in increased now so it would capture 
more of those smaller leases and allow us to do more in that 
faster method.
    Mr. Diaz-Balart. Because that number has been static; that 
hasn't changed?
    Mr. Morris. It hasn't changed in 10 years. So instead of 
$100,000 a year, if it were--I will pick a number, $1 million a 
year, that would capture a lot more of that anticipated work--
--
    Mr. Diaz-Balart. That and maybe a way to index it or attach 
it to inflation or something.
    Mr. Morris. Yes, sir.
    Mr. Diaz-Balart. That would make a lot of sense. You know, 
it is interesting how those of us in Congress will criticize 
government agencies for not thinking outside the box, and then 
when you think outside the box, we criticize you for thinking 
outside the box. I feel the need to tell you that this is 
precisely the kind of approach that I think the American people 
demand. So I think you need to be commended for it, you really 
do. And is it a little bit risky to think outside the box and 
experiment with things that could save the taxpayer money? Yes, 
it is a lot easier to not do that.
    But you have done so, and I think you have shown some 
pretty impressive results that we can continue to look at 
improving, but I think that you need to be commended for it. 
Som at least from this Member of Congress, I hope you take that 
as a slap on the back as a job well done, and we can always 
continue to improve, and you just mentioned some things that we 
should look at. So again, I thank you for your work.
    Mr. Morris. Thank you, sir.
    Ms. Norton. I am very interested in the money that the 
government--I understand it was being left on the table and the 
commission. Did GSA ever come to the government to ask for 
authority to retain that fee themselves so the government could 
have profited or benefited from that?
    Mr. Morris. Do you mean to turn it back over to the 
Treasury versus applying it to the lease?
    Ms. Norton. GSA be able to collect it, as far as I am 
concerned, in any case.
    Mr. Morris. We felt like the cleanest thing to do was to 
apply the rent credits directly to the leases to reduce the 
rent. There has been a lot of push from some of our customers--
--
    Ms. Norton. So you never asked for it. The reason it occurs 
to me is because you had to, indeed--the general counsel had to 
get into the whole question of augmentation. So this is just 
another sliver of augmentation, yet it is not included. 
Somebody didn't want the government to get into the mind the 
private sector getting. I am trying to make sure the government 
at least gets what the private sector gets.
    Let me ask you this umbrella question: In light of this 
goal--first let me find out if it is in fact a goal, that the 
GSA has a goal of contracting out 80 percent of its work. What 
work? Why 80 percent?
    Mr. Morris. Well, that is where the confusion comes in a 
little bit. It is not 80 percent of all of our work, no. 
Leasing is a critical core function----
    Ms. Norton. Yeah. Is it 80 percent of that core function?
    Mr. Morris. The target of 80 percent is with regards to an 
expiring lease load in a 24-month period that is developed each 
year. So there are a number of other lease actions that are 
being done in-house.
    Ms. Norton. So what percentage of work would be done in-
house then of the leasing core function?
    Mr. Morris. I am guessing it is about 50/50. The IG 
believes it is about 33 percent. There are a number of 
functions that don't have opportunities for commissions to be 
paid. So we don't task the brokers for work where there are not 
opportunities for commissions to be paid. That is a chunk of 
it. Then there are other, whether or not we----
    Ms. Norton. Such as, for example?
    Mr. Morris. Well, antenna leases, TSA leases on airports, 
parking lots. Some extensions are tasked to the brokers if we 
expect them to get the follow-on, long-term space solution. 
Short-term extensions where we are doing those in-house, they 
don't get. A lot of expansions they don't get. Some 
consolidations they don't get. And then a lot of the core 
function work of expiring leases is divvied up between the 
brokers and the in-house staff. So there is a lot of work that 
realty specialists do in-house that never go to the broker.
    Ms. Norton. I am looking at my opening statement where I 
detailed--I want to be accurate about what has been contracted 
out; contracted out virtually all property maintenance, 
operations, engineering and architectural requirements, 
interior design and space planning services, now core function 
leasing.
    I am going to ask you a question that I am going to have to 
answer. Who needs GSA? I raised that question in my opening 
statement. Increasingly, your reality specialists are used to 
monitor contract brokers. Why shouldn't the agency deal with 
the brokers? Eighty percent of your work is--at least leases of 
a certain kind should go to brokers. What would be the function 
of GSA in the leasing business, and how will you justify any 
appropriation from the Federal Government?
    Mr. Morris. Madam Chairman, leasing is and remains a key 
core function of GSA and the Public Building Service. And it is 
critically important that we have an adequately staffed, 
experienced core lease contracting group of lease contracting 
officers.
    Ms. Norton. Did you request any additional FTEs in your 
2010 budget request for these critical people you have just 
described?
    Mr. Morris. I don't think we have asked for that in 2010. 
We are in the process of recruiting and training and filling 
vacancies that currently exist in the organization, and we are 
working very hard about doing that. One of the things that----
    Ms. Norton. How many specialists are dedicated solely to 
leasing activities today? How many 5 years ago? How many 10 
years ago?
    Mr. Morris. We have today totally dedicated--and these are 
rough numbers--approximately 500. And we have about 627 that 
are either totally or in part working on leasing projects.
    Ms. Norton. How does that compare?
    Mr. Morris. The numbers that I have for 5 years ago is the 
umbrella group, not just totally dedicated to leasing. So, for 
example, in 2004, we had 495 realty specialists. There would 
have been a smaller number that would have been dedicated to 
leasing. I am going to estimate probably 400.
    The next year, 2005, we dropped to 400, 1170 realty 
specialists. There would have been probably slightly over 300--
for estimating purposes, 325 in leasing. We have, as the IG 
noted, grown. When the contract was let--notice to proceed in 
2005; it was awarded in October 2004; we have consistently been 
increasing our number of realty specialists. They have not been 
solely dedicated to monitoring the broker contracts.
    We are trying to rebuild a cadre, a core of competent 
leasing people that can assume some of that government work 
that we are contracting to the brokers for. I don't see us ever 
actually giving up brokers, but we have fallen below a critical 
threshold to be able to carry on that work.
    Ms. Norton. What is a competent core? Since it is a core 
function, and no one doubts that, what is a competent core of 
in-house specialists?
    Mr. Morris. I think we need more. And let me just elaborate 
a little bit. We just finished a regional review in Atlanta, 
region four, the southeast region, biggest region in terms of 
geography in the country with a huge, huge amount of leasing 
that is currently ongoing and projected for the future. Some of 
the leasing specialists--we interviewed seasoned leasing 
specialists, contracting officers, they are staffing up now. 
And they have about--let me look at my notes here--they have 
about 54. They can easily use another 20 to 25 percent.
    Ms. Norton. Mr. Morris, these are very highly trained, 
specialized personnel. Why do you have leasing specialists 
doing project management work when you don't have enough realty 
specialists, as you just testified? Why don't you have 
contracting specialists doing contract management work?
    Mr. Morris. Well, the lease transaction--we really approach 
lease transactions, lease acquisitions under the concept of 
project management. So there is the acquisition piece of that, 
but there is a lot more to procuring a lease for the government 
than just that pure acquisition part.
    We approach it from a project management standpoint because 
we are really trying to bring in all parts of the organization 
to be a part of a team, to think like they are trying to be--to 
work on a transaction. One of the biggest things they have got 
to work on is requirements development. Requirements 
development with our customers is a huge part of the work that 
we have to do. And so we want those leasing specialists to be 
assigned tasks where their skills are best suited. You have 
people that are really skilled in that government contracting 
part of the transaction, of the project, if you will, and you 
have people that are better suited, really, for interfacing 
with our customers and consulting with them to develop their 
requirements so that we can establish that relationship.
    Likewise--and we have actually talked about this, Madam 
Chair, in some of our earlier meetings with you in an earlier 
hearing--we want those people that are working in the backroom 
operations, the people that handle rent bill management to the 
commerce, the people that handle whether or not those leases 
are scoring or not, the people that look at their work from 
that kind of internal control standpoint on a onesy and twosy 
basis, we want them to know that they are part of a project 
team. And that team has a goal to procure a lease for the 
government and put a customer in there. And they need to be 
prepared to further that transaction. And they have got to play 
early on, and they have got to play their part whenever it is 
their time to fulfill their role.
    So project management is a concept on how we go about doing 
our work. I would like to try and clarify that it is not about 
pulling competent people away from leasing and putting them 
somewhere else; it is how they are doing their work in trying 
to procure that lease. And that is the important notion there.
    Ms. Norton. You know, Mr. Morris, I have been trying to get 
at cost notions, and we have ascertained that there is 
apparently no cost difference. But you do use the word "no-cost 
contracts." You know, of course, you have been in this 
business, that everything costs, nobody gets free lunch and 
nobody gets a break, least of all the government.
    Commissions, of course, are always built into a lease rate 
and passed on to the customer--in this case, the client agency. 
So what do you mean by no cost contracts, page two of our 
testimony?
    Mr. Morris. No appropriations. Maybe I should say it is no 
additional cost.
    You are right, the commission is built into the rent. So we 
pay rent. Our customers pay us rent that we pass on to the 
landlords. And the point is that the developers and the 
landlords build in a commission into their offers. So you are 
absolutely right; it is not that there is no cost. It is that 
there is no additional cost to the government by utilizing 
these brokers under a commission-based structure.
    Ms. Norton. In fact, it is about the same cost, according 
to the IG, nobody has been able to find any value added in 
terms of money, have they?
    Mr. Morris. Well, the measurement on whether or not there 
is an increase in cost, we have been relying on our lease-cost 
relative to market. Our rental rates are still meeting those--
--
    Ms. Norton. Let me just ask you, you use a figure of $10.4 
million annually--what you call savings. Are you suggesting 
that that figure in your testimony is strictly due to the 
broker contract? What about market conditions? I mean, it is 
the same broker representing the Federal Government's--economy 
of scale, the Federal Government the same as the realty 
specialists represent.
    Mr. Morris. You are right there. I see where you are 
headed. That is more of a cost avoidance. The calculation that 
you are looking at there on the 10.5 percent below market, that 
is a cost-avoidance savings. And that----
    Ms. Norton. And explain that cost avoidance. In other 
words, you are saying GSA is saving----
    Mr. Morris. Our rental rates are below market. That is the 
only thing that is saying.
    Ms. Norton. Right. But your rates have always been below 
market.
    Mr. Morris. Right. And so the comparable there is, if you 
are trying to say if they are bringing in more savings than if 
a government person was just doing that without a broker?
    Ms. Norton. Right.
    Mr. Morris. There is little distinction right now because 
the Government is meeting that goal as well. So there is a 
cost-avoidance there. If you are trying to ask me, is that an 
additional benefit? It is something that the brokers are 
bringing to the table, but so are in-house people on the----
    Ms. Norton. What is it that you say the brokers are 
bringing to the table that the in-house people are not?
    Mr. Morris. Well, the big thing there is the rental credits 
that they bring back from their pricing for us that goes back 
to reduce rent. That is a huge savings.
    Ms. Norton. Although you never asked for the government 
to--you got augmentation that had never been done before, but 
you never asked for this augmentation. Because this whole thing 
is augmentation of the appropriation.
    Mr. Morris. Yes. That is why we want GAR----
    Ms. Norton. So this augmentation as well. I mean, as long 
as you are talking augmentation, and the government is saving 
money by allowing the private sector here, it is a little 
puzzling that the government would not--for example, you say 
that you are contracting out to the broker those leases where 
that fee could be collected. Are you able to contract every 
single lease to the broker where that thing can be collected so 
at least the agency would get the benefit?
    Mr. Morris. No.
    Ms. Norton. That would be a target. Hey, that would be a 
target. If you are telling me that that money comes back to the 
government because of free rent, that would be a target.
    Mr. Morris. No. We don't send every commissionable type to 
the broker.
    Ms. Norton. Why not? You say that there is advantage 
because an agency may get--we understand it isn't consistent, 
obviously that is negotiable, that has to do with market 
conditions. But look, if they can get the agency 2 months free 
rent and your realty specialist can't, and you don't have any 
authority from the government and never asked for any authority 
from the government to give them equal authority, then why 
wouldn't you want to get a couple of months free rent in every 
instance where you could? I mean, you have to follow the logic 
of your own rationale.
    Mr. Morris. I think the most effective way to try and 
approach that is, what is the right mix? How do we maintain our 
core competencies with an experienced, in-house leasing staff 
to handle that core competency? It is very important that the 
government be able to perform, and that we have that ability to 
do that in-house.
    Ms. Norton. So what are you saying is important for the 
record. There is some cost to the government that it simply has 
to assume in maintaining a core function.
    Mr. Morris. Absolutely.
    Ms. Norton. What is the status of the current broker 
contract and what are the plans for a new contract?
    Mr. Morris. The current contract does expire March 31, 
2010. And we are in the process now of planning for follow-on 
contracts. RPTS HUGILLDCMN SECKMAN
    Mr. Morris. As I mentioned in my opening statement----
    Ms. Norton. Would you tell us, without divulging contract-
sensitive information, what kinds of changes you are trying to 
make based on experience that the brokers know about, that the 
public knows about, that we know about? What kinds of changes 
do you think are necessary in the broker contract?
    Mr. Morris. I think, well, for example, we are trying to 
determine to what extent and how to price the new contract. I 
think commission-based pricing will be a new element of the new 
contract.
    Ms. Norton. Say that again.
    Mr. Morris. I think the commission-based pricing will be an 
element of the follow-on contract. What kind of mix, for 
example, what kind of role that will play is still under 
discussions. There have been, for example, in the past some 
requests from the regions that we, in addition to the full 
acquisition services that we call for under this contract, that 
we allow for a menu of other services that would be on a fee 
basis, and we have not decided that. That is under 
consideration.
    Ms. Norton. A menu of other services, like what?
    Mr. Morris. Market surveys. I am trying to think of some 
other things, other types of services that they might provide.
    Ms. Norton. Like financial analysis, those kinds of 
services?
    Mr. Morris. Yes.
    Ms. Norton. Why not open that up for competition? They are 
not pure broker services.
    Mr. Morris. Well, the reason we didn't do this here and the 
resistance to doing it in this one is we really wanted to 
target that lease acquisition function. If we have a need for 
those kinds of services, there are a number of those kind of 
contracts that the Federal Acquisition Service, our sister 
business line at GSA, already has on schedule. And so we have 
really encouraged the regions in the past when they needed that 
kind of work to go to the schedule contracts to get that 
because it is quicker and easier.
    Ms. Norton. I see. How do you know that the broker fee 
being charged in any particular transaction is reasonable? How 
does GSA know it?
    Mr. Morris. We have--when we assign the brokers a task, we 
have an orientation meeting where GSA sits down with a broker 
to review what that task order is going to consist of and what 
a market range would be, an appropriate market range in that 
market, for commission, in that market and for that work. And 
that can be tailored to that particular type of deal and that 
particular market.
    And so when the broker leaves that orientation meeting, 
they are supposed to have basically a sign-off from the 
contracting specialist that, this is the range that they can 
seek, and it would be within that local market range. The 
follow-up to that--let me just propound to that. When the 
broker brings offers back to the government, that is one of our 
important internal controls. We require all offers brought back 
to the government to disclose all commissions being paid, not 
only to our broker but to their broker, and whether or not 
there are any offers that aren't paying any commissions. So we 
see when the broker brings those offers back to the government 
for an evaluation what----
    Ms. Norton. I would think that a higher--there would be a 
higher commission for a large lease over a small renewal, but 
the commission is, as I understand it, the same in both cases.
    Mr. Morris. The commission may vary depending on what the 
deal is, depending on what the task is.
    Ms. Norton. So the commission is not the same in both 
cases. What is the difference--well, let me put it this way, 
why wouldn't be there be for renewals and extensions, which 
involves a lot less work, let's say, something more in the 
nature of a flat fee structure because not as much work is 
necessary if there are to be extensions or renewals?
    Mr. Morris. Well, there may be--there would theoretically 
be a smaller percentage, but when you say a flat fee, to me, I 
interpret that to mean that we are paying them a fee to do that 
and this is really a commission-based structure----
    Ms. Norton. Flat fee. Commission is never flat.
    Mr. Morris. Right.
    Ms. Norton. So I am saying, if a renewal and extension 
requires considerably less work and you know what that work is, 
should that be done on the same kind of commission basis that 
new business would be done?
    Mr. Morris. Well, it really depends. They are not supposed 
to be getting extensions in a routine fashion unless they are 
getting the follow-on work.
    Ms. Norton. Of course, there is follow-on work.
    Mr. Morris. No, I mean the follow-on solution. If it is a 
1-year extension that should be going to the broker if they are 
going to get that follow-on task to provide a permanent lease--
--
    Ms. Norton. How about renewals?
    Mr. Morris. Renewals really aren't tasked to the broker. 
That is really just exercising an option to renew. We do those 
in-house.
    Ms. Norton. So the brokers don't do those?
    Mr. Morris. I wouldn't say we never do one.
    Ms. Norton. This is what we are going to expect from the 
agency. It ought not be what do we do today, what do we do 
tomorrow? This is the kind of work that is most appropriate for 
the broker; this is the kind of work that is most appropriate 
for in-house. We know the moment the lease is signed, therefore 
we have a way to plan our work. That is what the Subcommittee 
is looking for.
    Mr. Morris. Right.
    Ms. Norton. There have been--I asked the IG about the 
criticism about the regional contracts. How does the national 
contract address those criticisms?
    Mr. Morris. We really wanted to centralize the delivery of 
the contracting for brokerage services because we had a whole 
lot of different contracts going in a whole lot of different 
directions and doing a whole lot of different things. And the 
IG recognized that and their findings in their audit--I mean, 
the witness was right. They didn't recommend this as the 
solution, but we came up with this as a solution based upon 
some of the findings that they made.
    Ms. Norton. Have you found that the problems that they 
found were corrected but through use of a national broker----
    Mr. Morris. I think so, yes. I think so. And the other 
thing that we have been able to do is really put in place the 
accounting system to track the money. And that was another 
thing that they thought that we just didn't have a good handle 
on because, especially in that iteration, right before the 
National Broker Contract when we were trying to capture those 
rebates, we did a good job of capturing the rebates, but trying 
to handle that money and account for it, we were not doing--it 
was all over the place, and we have improved that by doing 
this.
    Ms. Norton. Finally, let me ask you about the problem that 
really concerned everyone, even those who thought this was the 
only way to go, and that is the conflict of interest. There 
were two recommendations. I want to ask about them. One was to 
modify the two dual-agency contracts to ensure that GSA could 
enforce the recommendation resulting from the conflict wall 
inspections, and the other was to establish additional controls 
to mitigate the internal conflicts of interest created by 
allowing brokers to represent the government while negotiating 
commissions with building owners. Now, the GAO testimony leaves 
the impression that GSA did not implement either of these 
recommendations.
    Mr. Morris. We take the recommendations of the GAO very 
seriously, and they look at this pretty thoroughly, and they 
did make those recommendations, Madam Chair, and we went back-- 
we didn't ignore those recommendations. We went back, and 
looked very closely at what we had put in place at the time, 
and the bottom line was, we found what we had in place 
sufficient, we believe----
    Ms. Norton. Why? What is preventing conflict of interest? 
This is in your face, people in the same firm. We have got to 
be able to justify that.
    Mr. Morris. I don't disagree with you there. I will tell 
you some of the things that we have in place. And we were 
driven to this in part, and the GAO witness, Mark Goldstein, 
mentioned this, because generally speaking the real estate 
brokerage market has consolidated and has continued to 
consolidate over the life of this contract, so there are fewer 
and fewer tenant-only reps, and to increase competition, we 
wanted to get out to the big national firms who have depth and 
experience nationwide to provide these services.
    So these brokerage firms are regulated, you know, by every 
State in the Union. They have State licensing requirements. 
They have ethical responsibilities. They have conflicts of 
interest that they have to identify for all their clients, not 
just the government. But as the government, we had to go above 
and beyond what the private sector requires. We have built into 
our system prohibitions against conflicts of interest. So we 
could not move forward without being very----
    Ms. Norton. Give me an example. First, how would you know--
how would the Subcommittee know if there were conflicts of 
interest going on in a particular transaction? How can we know 
it? I will tell you one thing. I don't want to find out about 
it in the newspaper, because then they will say, why didn't 
they do something about it?
    Mr. Morris. Here is what is in place. They are required to 
have their firewalls within each of the organizations so that 
they keep our government information, our work, separate and 
apart from their landlord, the other side of the house, if you 
will, the landlord/lessor side of the house. The personnel 
cannot switch sides. If they switch sides, they are prohibited 
from coming back and doing government work for at least 6 
months in that particular market. So we have a dedicated team 
from these dual-agency brokers who are doing only government 
work, only tenant rep work. Their systems and the information 
are kept separate and distinct. So these are the kinds of 
firewall things that we have in place.
    Ms. Norton. Completely separate computers?
    Mr. Morris. Yes, the systems are separate. The personnel 
may be in the same building, but they are separated, and their 
systems are separated. And it is my understanding that, to some 
expense, they had to go to that to meet those kind of 
government requirements. But besides that, whenever they are--
--
    Ms. Norton. What monitoring, what inspection is done if 
there is ever some--this is only a precautionary question. I 
have no evidence whatsoever, no reason to believe that people 
are not complying with the firewall. But if--you can imagine 
what kind of terrible scandal it would look like if such a 
terrible problem were occurring. So now that you have a broker 
contract, now you have another burden. They have got a separate 
system. You just indicated how they operate. How do you know 
that?
    Mr. Morris. We go out and inspect.
    Ms. Norton. Tell me about that. How often----
    Mr. Morris. Over the life of this contract, we have been 
out twice. We went out at the beginning when we set the 
contract up, and we even went back as part of the followup 
after this GAO recommendation and said, we found that the 
firewalls are in place.
    Ms. Norton. So you didn't agree with the GAO that you 
should modify the dual-agency contracts. Did they want you not 
to have dual-agency contracts?
    Mr. Morris. No. Their recommendation was, we think you 
ought to go out--we think you ought to make sure you have got 
adequate controls in place and modify the contracts to increase 
those controls if necessary. We went out. We did the 
inspections. We thought that what we had in place was 
sufficient, and so we chose not to modify the contracts to do 
anything else. So it was not like they told you, you should go 
make these particular changes----
    Ms. Norton. Well, they said you should institute additional 
controls----
    Mr. Morris. Without being specific. They didn't say which 
controls. So we went out and looked and felt like we had 
sufficient controls in place.
    Ms. Norton. So far, so good. At least we haven't learned 
anything different. But I would caution you in these hard 
times, this is the way you get slippage. People are in trouble.
    Mr. Morris. And I want to point out that that is not the 
only thing we have in place.
    When a broker is tasked with an assignment, they have to--
they are going to do a lease in a particular delineated area in 
a market around the country, they have to look at what they 
already have, who they already have contracts with in that 
market and report back to us before they start work. They have 
got a finite time to come back and say, we represent the 
following office building owners in this delineated market and 
the--that was part of the way we got our waiver was we had to 
make sure that we were neutralizing or mitigating these 
potential conflicts. So the government had to make a decision 
as to whether or not in the face of these potential conflicts 
that they have, whether it was in our best interest to pull 
that task order and reassign it to another broker or to bring 
it in-house.
    Ms. Norton. Did they have to certify as they sign a lease 
that they have abided by--does somebody have to sign on a 
dotted line that the conflict of interest controls have been 
enforced in this----
    Mr. Morris. Yes. And we have gone out and audited that. The 
IG has found that the vast majority of our organizational 
conflicts where the brokerage houses are already representing 
people, they are in the files. Those disclosures are in the 
files----
    Ms. Norton. That is already--I am saying at the end of the 
transaction, where both functions were in the same entity, does 
somebody have to certify that there has been no breach of the 
conflict of interest wall?
    Mr. Morris. You mean like a follow-up----
    Ms. Norton. A rule----
    Mr. Morris. Clearance----
    Ms. Norton. Somebody, for example, the person who is the 
broker who has carried out the lease. Does the head of the 
company have to certify that there has been no breach----
    Mr. Morris. I don't think I think there is a follow-on 
certification at the end of each transaction.
    Ms. Norton. For your own safety, you need to have someone 
certify that that breach--given the fact--you can only do so 
much monitoring. You go out twice a year. Somebody has to take 
responsibility for it. When people have to take responsibility, 
they get to be very honest.
    Mr. Morris. Right. I hear what you are saying.
    Ms. Norton. And whoever is the appropriate person ought to 
take responsibility for certifying that the conflict of 
interest regulations--obviously, we want to look at them in 
connection with--or guidance in connection with the new 
contract as well, have indeed been observed with no breach, 
signed John Jones, who takes responsibility for it. That means 
somebody on the inside understands that, at the top of the 
agency, he is accountable. That is very necessary to do.
    Thank you very much, Mr. Morris.
    Mr. Morris. Yes, ma'am. Thank you.

  TESTIMONY OF DEMETRA "DEBBIE" VELTSISTAS, CB RICHARD ELLIS 
  NATIONAL BROKER ACCOUNT TEAM LEADER; JULIE RAYFIELD, SENIOR 
    MANAGING DIRECTOR, STUDLEY, INC.; AND CHRISTOPHER ROTH, 
  REGIONAL DIRECTOR, JONES LANG LASALLE, AND PROJECT MANAGER, 
                    NATIONAL BROKER CONTRACT

    Ms. Norton. The next panel is important for us to hear 
from. Private sector panel, Julie Rayfield, senior managing 
director of Studley; Christopher Roth, project manager, Jones 
Lang LaSalle Americas; Demetra Veltsistas, account executive, 
CB Richard Ellis Real Estate Services.
    You may go in any order you choose.
    Why don't you start? Is it Ms. Veltsistas?
    Ms. Veltsistas. Yes, ma'am. Good afternoon, Madam Chair, 
Congressman Diaz-Balart, and distinguished Members of the 
Subcommittee.
    My name is Debbie Veltsistas, and I am the National Broker 
Contract account leader for CB Richard Ellis. Thank you for 
inviting me to appear before you today to discuss our 
experience with the GSA National Broker Contract. We are proud 
of our excellent working relationship with the GSA's Public 
Buildings Service in support of their mission of providing a 
superior workplace for the Federal worker and the best value 
for the American taxpayer.
    This morning I will talk about the National Broker Contract 
from CB Richard Ellis's perspective. The National Broker 
Contract benefits the GSA, its employees, the agencies it 
supports and the U.S. taxpayers in many ways. Among the 
principal benefits are the following: using industry knowledge 
and practices to assist GSA to achieve the most advantageous 
economic outcome for the taxpayer; enhancing the GSA's 
capability to manage its large annual volume of lease 
transactions; and ensuring that Federal employees are equipped 
in a timely manner with a modern, efficient workplace. We 
believe that each of these benefits have already been realized 
during the current term of the National Broker Contract and 
that the GSA will even see more benefits as time goes on.
    CB Richard Ellis is actively involved in transactions and 
related post-award construction management services in all 11 
GSA regions. We support the GSA with a core team of dedicated 
professionals located in McLean, Virginia. Our work begins when 
we receive a task order for the lease-related services from the 
GSA. We promptly conduct a rigorous conflict-of-interest review 
and assemble a task-appropriate team of commercial real estate 
experts.
    That team guides the transaction from the task order 
assignment through occupancy. We have a network of field 
brokers across all 11 GSA regions who provide local market 
expertise.
    Both the GSA and CB Richard Ellis are committed to the 
effective use of small businesses. In furtherance of that 
commitment, we partner with qualified small businesses 
throughout the country to assist in the implementation of GSA 
assignments. Throughout the process, we align our execution to 
support the GSA's goal of fair and open competition for all 
procurement opportunities. We report monthly to the regional 
GSA offices on the status of our assignments. In addition, we 
participate in quarterly meetings with GSA representatives at 
which we review the quality of our work on each transaction.
    The GSA provides strong oversight on every aspect of our 
account management as well as each transaction. Their quality 
control is applied regionally and nationally. They exercise 
prudent supervision of all of our work. Everything that we do 
to support the NBC is fully transparent to the GSA.
    The value of the National Broker Contract to the American 
taxpayer is realized through achieving below-market rental 
rates and lowering the overall costs of the tenant 
improvements. In addition, the National Broker Contract allows 
for the GSA to spend more time focusing on the requirements of 
the client agencies. These significant value achievements for 
the American taxpayer are a direct result of the National 
Broker Contract's purpose, which calls for the GSA to partner 
with national, private sector, and small business commercial 
real estate firms who are uniquely qualified to provide 
consistent cost-effective and high-quality leasing and real 
estate post-award construction management services to GSA and 
its client agencies in a fully accountable and transparent 
manner.
    The National Broker Contract enables the GSA to partner 
with private third-party commercial real estate firms in order 
to realize proven economic savings for the American taxpayer 
and significant efficiencies for the GSA and the agencies it 
supports. For organizations such as the GSA that have large and 
often complex commercial real estate needs, the type of 
partnering that the National Broker Contract provides is not 
only prudent but increasingly the industry standard. CB Richard 
Ellis' experience as an industry specialist in such 
partnerships is that the benefits that the GSA and the American 
taxpayers will realize as a result of the National Broker 
Contract will only increase as the partnership continues to 
evolve.
    We are honored to be a partner with the GSA and stand ready 
to continue to support the GSA's mission.
    This concludes my formal statement. I am pleased to answer 
to the best of my abilities any questions that the Subcommittee 
may have with regard to the contract. Thank you.
    Ms. Norton. Thank you, Ms. Veltsistas.
    Mr. Roth.
    Mr. Roth. Good afternoon, Madam Chair, Ranking Member Diaz-
Balart, and Members of the Subcommittee.
    My name is Chris Roth, and I am a regional director of 
Jones Lang LaSalle and the project manager for our National 
Broker Contract. I have been in this role for the past 2 years, 
bringing to it my 18 years of experience in the real estate and 
construction industries, 5 of which were focused on Federal 
Government contracts notably in support of the military housing 
privatization initiative for the Department of Defense.
    Jones Lang LaSalle is not solely a tenant representation 
brokerage firm, though having merged with the Staubach Company 
in July of 2008, our GSA National Broker Contract volume has 
doubled.
    I am pleased to appear before you to discuss Jones Lang 
LaSalle's experience with the GSA's first National Broker 
Contract. You may know well a few of our successes on the 
contracts: 144,000-square foot lease for the U.S. Equal 
Employment Opportunity Commission now in NoMa, having moved 
from the CBD; a 49,000-square foot lease for the Broadcasting 
Board of Governors in Miami, Florida; a 71,000-square foot 
lease for the Consumer Product Safety Commission in Montgomery 
County.
    How would we evaluate GSA's first experience? We would look 
to some of the GSA's own objectives. One objective was to 
obtain better pricing for the GSA's customers and the 
taxpayers. A component of pricing, as we see it, is the GSA's 
direct compensation to brokers. This amount can be quantified 
as zero. Jones Lang LaSalle has received no direct compensation 
from the GSA for its services nor reimbursement for any 
expenses.
    The contracts have required us to hire specialized 
personnel, construct office space, augment our information 
technology controls, and travel extensively in order to 
perform. As is customary in commercial practice, we are 
permitted by the contracts to negotiate a market commission to 
be paid by the landlords.
    A second component of pricing is the rent paid by the GSA's 
clients agencies. According to the GSA's independent metric, we 
are negotiating rents more than 11 percent below market rent 
midpoints, exceeding the government's expectation set at 9.25 
percent.
    A third component of pricing that should be taken into 
consideration is the rebate of market commissions, dollar for 
dollar, that goes directly toward GSA's client agencies' 
initial months of rent. By our calculations, this rebate has 
accumulated over $16 million in direct rent savings to 
government agencies.
    Another objective was to increase flexibility in contract 
administration. We are able to respond quickly, and we work 
nights and weekends to find space when the GSA agency customers 
have an urgent and compelling need. For example, in August of 
2007, we were engaged to secure multiple trailer pads for FEMA 
to house tornado victims and their families in northeast 
Minnesota. In July of 2008, we were engaged to find space for 
several agencies, DHS, IRS, U.S. Marshals, probate and 
bankruptcy courts, two senatorial offices, and the GSA's own 
field office in Cedar Rapids, Iowa, due to flooding. We 
finished seven leases in 30 days in this non-FEMA task. Most 
urgent and compelling assignments have been for a single lease 
and are awarded in 7 to 10 days.
    Another objective was to provide more consistent service 
for GSA's agency customers. With a team of 24 professionals 
dedicated to the contract and a flexible workforce of more than 
100, we have built institutional knowledge about specific 
agency requirements and tendencies. I see this knowledge shared 
almost daily across our team.
    Without regional barriers, our dedicated team provides 
better and more consistent services to the GSA's agency 
customers. While a handful of larger high-profile leases in 
major Metropolitan markets may steal the show in the media, 
such leases misrepresent the true nature of our typical 
transactions. More than half are less than 7,125 square feet.
    Geographically, we work from Nome, Alaska, to Guaynabo, 
Puerto Rico; from Pago Pago in American Samoa to Auburn, Maine. 
The volume of transactions we are handling for the government 
is steadily increasing every consecutive year. Of the 1, 275 
task orders we have been assigned under the contracts, we are 
proud to have assisted the GSA in awarding 610 assigned leases 
to private-sector landlords.
    Jones Lang LaSalle is pleased to participate in the 
contracts to date. Yes, they took longer to perform well than 
both we and the GSA anticipated, and we have offered to the GSA 
a thorough perspective on lessons we have learned. We do 
however believe the contracts work to benefit the GSA, us as 
contractors, the landlords, and the American taxpayer. We have 
learned to work together with our GSA counterparts to get 
better pricing for GSA's customers and the taxpayers, provide 
procurement flexibility, and deliver more consistent services 
to the GSA's agency customers.
    I would be happy to answer any questions that the Committee 
may have.
    Ms. Norton. Thank you, Mr. Roth.
    Ms. Rayfield.
    Ms. Rayfield. Good afternoon, Madam Chair, Ranking Member 
Diaz-Balart, and Members of the Subcommittee.
    I am Julie Rayfield, a senior managing director of Studley, 
Inc., a privately held employee-owned commercial real estate 
services firm dedicated solely to representing tenants or users 
of real estate.
    As one of the three National Broker Contracts on the 
contract since its inception, Studley maintains a team of over 
40 professionals dedicated to working on this contract, 
including several small, disadvantaged commercial real estate 
firms with whom we have partnered for the life of the contract.
    To date, Studley has been assigned 691 task orders totaling 
13.2 million square feet throughout the U.S. and its 
territories. These transactions range in size from under 200 
square feet to over 500,000 square feet with 60 percent of 
these assignments under 10,000 square feet.
    Regardless of transaction size or location, though, GSA 
demands of us, and we deliver the same high level of attention 
and quality of service on each of these requirements. GSA works 
closely with each broker contractor and monitors our work on 
every transaction, evaluating us at six distinct project 
milestones based on five individual evaluation factors. We are 
also rated overall on the financial terms of the transaction 
measured against the market. Studley has negotiated rental 
rates that are 13 percent below market, well below GSA's goal 
of 9 percent below market.
    One example I would like to use to highlight this point is 
the significant GSA lease award for the Department of Justice 
at 145 N. Street Northeast in Washington, D.C., which will 
consolidate elements of the DOJ at this NoMa location. This 
lease has awarded $40 million net present value dollars below 
the prospectus level rent for a 15-year term and was a catalyst 
for the development in an emerging area of Washington, D.C., 
where prior lease actions met with resistance by client 
agencies.
    The National Broker Contract, as you have heard already 
today, is defined as a no-cost contract. There are no Federal 
Government funds expended for the National Broker Contract 
services. We are compensated by successful offerers who pay 
market commissions to the broker teams upon lease award. We 
receive market commissions and cannot accept an above-market 
commission, and I would like to emphasize that we do not make 
the decision as to which landlord ultimately receives the 
award. We work at risk and receive no compensation until and 
unless the lease is fully executed. We are also responsible for 
expenses, all expenses related to the execution of each 
transaction. All overhead, compensation and expenses related to 
a transaction are paid for by the broker teams.
    The mechanism for the broker team compensation allows the 
government to secure the value of leasing commissions that are 
already embedded in market rental rates and which would 
otherwise accrue solely to the benefit of the lessor.
    Each broker team credits a portion of the commissions 
earned back to the government in the form of free rent which is 
reflected in the lease in the form of commission credits. 
Studley, Inc., credits 51.5 percent of its commissions to the 
government. To date, Studley has earned $31 million in 
commissions nationwide, which includes the money paid out to 
our subcontractors, and we have credited $33 million to the 
government. This is over a period of 4 years.
    Of the previously referenced 691 task orders assigned to 
Studley, as I said, 60 percent of which are below 10,000 feet, 
the commissions on those completed leases average $20,000 per 
lease, and the cost of executing these transactions in terms of 
time and expense far exceeds this commission amount.
    The National Broker Contract provides a number of 
additional benefits. Post-award services delivered to GSA is 
one such example.
    In summary, the partnership between GSA and the broker 
teams has resulted in the successful melding of Federal 
Government procedures and private-sector-oriented results. The 
broker contract provides GSA with access to valuable broker 
services, substantial rent abatement at no additional cost to 
the Federal Government.
    The National Broker Contract also allows GSA to leverage 
its national position, taking advantage of the best financial 
terms offered and providing consistent service nationwide to 
its client agencies. While the broker teams focus on 
transactions and using their expertise to secure space at the 
most reasonable rates, GSA is able to focus on customer 
service, strategic planning, portfolio management, and policy 
guidance to agencies and their entire team. The broker 
contractors do not make inherently government decisions.
    Madam Chair, Ranking Member Diaz-Balart, this concludes my 
prepared statement. I am pleased to answer questions that you 
or other Members of the Subcommittee may have about my company, 
Studley, and its role in supporting GSA's National Broker 
Contract.
    Ms. Norton. Well, I particularly want to thank each of you 
for your testimony because you are the folks that we have been 
talking about. We always like to talk to folks rather than 
about them because you have the real experience.
    In our oversight, we ask tough questions, not because we 
doubt the value of your services but because that is our job, 
particularly with GSA, which, in our experience, does not bring 
to the table the rigor that we sometimes find at least in the 
private sector and that we would like to see in the agency and 
indeed in the handling of these contracts.
    Now, I do want to say to each of you, because each of you 
have talked about meeting targets for government savings in 
leasing below--or actually that you have been below the 
targets, but we have had no testimony here, and you have heard 
the testimony, to indicate that there was a difference between 
the realty specialists and the contractors. And we think that 
that has a lot to do with--we think that has less to do with 
either the realty specialist or, if you will forgive me, you. 
It has to do with who your client, the Federal Government.
    And our problem with the Federal Government, in this case 
GSA and PBS, is, we want to see more of taking advantage of its 
role in the market. But I do not know how these claims can be 
made due to personnel when no one has offered any evidence to 
us that these claims are not attributable to at least a dozen 
factors I could name, such as the market and the government's 
position in the market. So I accept what you say, but I don't 
accept that that is what the broker contracts are brought to 
the table, unless you are prepared now to indicate that there 
is something specific to broker contracts apart from factors 
such as those I have named given the evidence that the in-house 
folks and broker contractors perform approximately the same.
    Do you have any evidence to the contrary? I mean, I am not 
questioning the value of the broker contracts or trying to 
reestablish a whole new section of GSA. I just want to answer 
any questions that are put to me, especially since I am on 
another Committee which has not experienced the benefit, for 
example, that the government has experienced from your at least 
being able to rebate to the agency some of what the government 
in its wisdom has not acquired for itself. I mean, there I see 
a real benefit. But I will be darned if I can see a naked 
benefit other than that.
    And that I am not even sure was not correctable, and even 
if it was correctable or is correctable, you would still have 
broker contracts because, as you have heard, the goal is not to 
contract out everything in the first place yet acknowledges it 
as a core function. So unless you are able to show something 
that, I have to tell you, that in my experience in Oversight 
and Government Reform, most people in contracts are not able to 
show.
    Most people in contracts are not able to even tell us what 
the difference is, whether they are below or above. They simply 
assert it. Here with the IG documenting what you have done, 
what the realty specialists have done, I accept that you are 
more than meeting your target. We are going to require GSA to 
have the same kind of targets. I am not sure we even asked 
that, the same targets for the in-house people. I would think 
that the private sector, who has to compete with these 
contracts, wants to get the best deal because they want the 
contract to be renewed. Well, I think that they should be 
setting the mark for the in-house folks. Hey, you have got to 
do at least as well, perhaps better, but at least as well as 
the broker contractors.
    Do you know anything about how well they do compare to your 
own performance?
    Ms. Rayfield. Madam Chair, I can state that we are not 
familiar directly with the way in which GSA evaluates its 
internal personnel. We are only able to communicate to you the 
information that we receive----
    Ms. Norton. Yes, I am aware of that. You don't have any way 
to know that----
    Ms. Rayfield. They do not share that information----
    Ms. Norton. And their IG tells us there is not any 
difference. I am simply using you to say, hey, they can do it; 
why can't you do it? And I congratulate you on doing it.
    How much of what you are doing today--you have been in the 
business when it was much better than it is today. Are you able 
to reap any benefits from--with the government from the down 
market that the government now operates as a part of, any of 
you, as you----
    Ms. Rayfield. If I could, Madam Chair, just say that my 
business and my team's business is both oriented in the private 
sector as well as working with the government. What we do 
believe that we are able to bring to the table is a significant 
expertise as it relates to private-sector practices in 
commercial real estate and bring that information and that 
knowledge and that expertise to bear on our work with the 
Federal Government, which I do believe was originally one of 
the objectives that GSA had in bringing broker contractors on 
board, was to be able to tap that private sector knowledge base 
and expertise.
    Ms. Norton. But we have not seen any difference in the 
performance. I don't think you should underestimate people who 
every day have to deal with the private sector the way you do. 
You are no different from them except that they happen to work 
for the Federal Government. They have got to understand the 
market. They have got to be able to negotiate the same way you 
do, so I don't see that--if they don't have the skills, the 
exact same skills that you do, they shouldn't be working for 
the GSA, as far as I am concerned.
    Ms. Rayfield. Well, we do have the opportunity, Madam 
Chair, to work with institutions and with real estate 
organizations in the private sector that provide us with very 
good insight on critical issues that relate to our ability to 
effectively advise GSA and work with them on their 
transactions, everything from financial structuring to 
understanding the financial markets that are in play at any 
given time, you know, with real estate transactions, and we do 
bring that type of expertise to bear because we are doing it on 
a regular basis and working also directly in these markets.
    One of the things that I heard said earlier today related 
to working in local geographic markets, and I think it was 
stated by some of my co-panelists here that we actually do 
utilize our brokers who are in local markets. We don't just 
work out of Washington, D.C. We have experts who are out in the 
markets working in their markets of expertise throughout the 
country.
    Mr. Roth. Madam Chair, if I could comment, not only are we 
not privy to the information on the performance of the GSA's 
employees, but not even to each other's, so what----
    Ms. Norton. Especially not to each other's.
    Mr. Roth. Especially not to each other's, other than what 
has been said in this testimony. So we focus on our own 
performance. We are pleased to be exceeding the measures, 
certainly, and though I would agree with you that----
    Ms. Norton. I have asked whether--and we should have asked 
GSA whether or not they are using the same measures this year 
that they were using 2 years ago, for God's sake. If you are 
the government looking for leasing, you are a rare bird in the 
market today. Are you finding that there are any advantages to 
representing the government in this market?
    I asked that question before, Ms. Rayfield, and didn't get 
an answer. I would like to know, are we taking--that is one of 
my driving goals, to not have the big kahuna sitting up here 
acting as though it was a small business realtor.
    Mr. Roth. I can tell you absolutely. The driving force 
between below-market rents is the full faith and credit of the 
U.S. Government----
    Ms. Norton. Surely it is. Surely it is.
    Mr. Roth. That is more powerful than the negotiation 
ability of a broker. I am not saying that the negotiation 
ability in the tens of years of experience in major markets 
doesn't benefit the government in all of our work 
incrementally.
    Ms. Norton. No, I am sure you don't. It is just that it is 
very easy, and I don't blame you, frankly, for spending your 
own expertise. I suppose I take umbrage that the Federal worker 
is deprecated. I happen to have the highest regard for GSA 
personnel and lament how they have had a terrible brain drain, 
but I know that it is not even them. It is exactly what you 
say. It is whom they represent. If they are halfway competent, 
they ought to be able to get a good deal.
    I continue to ask, were you representing the government in 
any contracts 2 years ago, any and all of you? Is there any 
difference today in the deal you can get for the Federal 
Government?
    Ms. Rayfield. Madam Chair, absolutely. We are definitely 
seeing very aggressive deal structures that we are able to 
obtain at this point in the market----
    Ms. Norton. Lower rent leasing rates for the government----
    Ms. Rayfield. Absolutely. We are about to complete a 
leasing action here in D.C., resulting in a lease in the 
ballpark area, and they are extremely--I can't at this moment 
divulge it. It is just closing. But it is extremely aggressive 
rental rates and overall structure that is setting a new low in 
the marketplace, absolutely, yes, ma'am.
    Ms. Norton. I mean, the buyers' market does not--does not 
characterize what your advantage should be. We deal in 
construction with the top people in this industry. We deal with 
all the owners. We know. We can see no signs of even people at 
the very top who could always get financing who can't get it 
and are completely in pain and hurting, and we are going to 
have to see from GSA's bottom line that GSA is taking advantage 
of that. We are going to have to see it over at--in the 
contracts that it is negotiating with the Department of 
Homeland Security. Imagine getting that kind of work in this 
economy. Well, we are concerned that increasingly these folks 
are in the leasing business, and they have got to learn to deal 
with--and, of course, they have. At least that is the evidence 
according to the IG. As the economy rolls up or down, it needs 
to reflect the expertise you bring and that we expect them to 
bring.
    Now, we understand that the Studley Company agreed to 
credit--our figure is, and I think you may have offered a 
different figure, 51.5 percent of its commission to the Federal 
Government in the form of the free rent that we discussed with 
a prior witness. What percentage did CB Richard Ellis commit? 
What percentage did Jones Lang LaSalle commit?
    Ms. Veltsistas. Madam Chair, for CB Richard Ellis, we had 
37 percent of our commissions on the 1st and 2nd year; 38 
percent on the 3rd year; 39 percent on the 4th year; and 40 
percent on the 5th year. Thank you.
    Mr. Roth. I am overseeing two contracts. The Staubach 
contract is at 31 percent, and the JLL contract escalated year 
by year. It began at 26 and is now at 34 percent. That 
information was in the GAO's first report as well, I believe.
    Ms. Norton. In securing a contract, any big contract, the 
GSA has factors. It grades. There are significant differences 
among you. It is my information that GSA does not compete the 
amount of this give-back, rebate, commission, call it by any 
polite name you will, that it is not a factor in the 
competition. Is that your understanding?
    Ms. Rayfield. Madam Chair, the commission credit back to 
GSA was competed as a part of the original contract. We all had 
to submit information related to our technical qualifications 
as well as our pricing, so that was initially a part of the 
competition. And it is not further competed on individual task 
orders but was competed on the contract overall.
    Ms. Norton. That must mean that, among other factors, you 
all must have been the top three in those factors. Why is there 
a difference between--why is Jones Lang agreeing to 51.5 
percent and go down from there to the other two?
    Ms. Rayfield. Madam Chair, Studley is the broker contractor 
that gets 51.5----
    Ms. Norton. I am sorry. The other two. I am just using 
something as a marker. Why not the same for the other two 
contracts and----
    Mr. Roth. I was not around at the time this was bid, but I 
do price contracts for JLL with the Federal Government, and 
what we do is price to win, and what we think is the most 
competitive without any information about what our competitors 
are going to price at. We escalate it over the years, assuming 
that there would be a learning curve and that we would learn 
more about the contract and therefore have less overhead, less 
expenses, and that is why our rebate increases over time.
    Ms. Veltsistas. Madam Chair, similarly to JLL's comments, 
we price it to win. And we also escalate it over the course of 
the contract to where we are today at 40 percent.
    Ms. Norton. Your companies are all about the same size or 
not?
    Ms. Veltsistas. I can't really speak for JLL, but I would 
say we are similar in size, but I believe that, as far as 
staffing, we have 30,000 folks on the CB Richard Ellis team. We 
have 158 offices in the U.S., and we offer over 300-plus global 
corporate services, corporate clients that we manage as part of 
the CB Richard Ellis team.
    Mr. Roth. We have around 13,000 employees in the Americas.
    Ms. Norton. How many did you have? How many employees?
    Ms. Veltsistas. 30,000.
    Ms. Norton. And you have?
    Mr. Roth. I am saying 13,000 in the United States.
    Ms. Norton. You are talking about the United States.
    Ms. Veltsistas. No, globally.
    Mr. Roth. I do not know the number globally.
    Ms. Rayfield. And Madam Chair, Studley has approximately 
350 brokers and 200 staff members in the firm and 20 offices 
across the country.
    Ms. Norton. Well, GSA, I am sure, will have a reason for 
why it accepted the differences. We will find out what those 
reasons were.
    Small business plan, that is of great interest to this 
Subcommittee. Would you each explain what your small business 
plans are, how you monitor those plans, what small businesses 
you have, what number, any information you can give us to 
document your small business plan?
    Ms. Veltsistas. Madam Chair, the detail of the small 
business plan, I don't have the specifics available this 
afternoon, but I can certainly follow up with those.
    But our goal with GSA was 25 percent. We are currently 
exceeding that goal; we are at 31.9 percent. We have given $5.9 
million to our small business firms in support of the GSA 
contract.
    Ms. Norton. Would you submit for the record here your small 
business plan and who have gotten those contracts?
    Ms. Veltsistas. Who have gotten the contracts?
    Ms. Norton. Small businesses.
    Ms. Veltsistas. The Names of the small businesses?
    Ms. Norton. That you have had to deal with. So whatever 
that percentage you just said, 39, or whatever percentage that 
is.
    Ms. Veltsistas. Right. Our small business firms that work 
with us?
    Ms. Norton. Yes.
    Ms. Veltsistas. The names?
    Ms. Norton. I would like you to submit that for the record. 
I would like all of you to do it.
    Mr. Roth.
    Mr. Roth. Sure. Our small business goals are 25 percent of 
subcontracted dollars. Since the inception of the contract, we 
have used predominantly a single, disabled-veteran-owned 
business here in Washington, DC.
    Ms. Norton. Why is that?
    Mr. Roth. Because, initially, we found them to be the most 
suitable partner, able to do both the post-award services and 
the lease-acquisition components. Though we still retain them, 
we have now gone in some areas to other small businesses or 
small brokers that can help us out.
    Ms. Norton. How many, Ms. Veltsistas, how many small 
businesses do you deal with in your small business plan? One 
does not sound to us like a small business plan. It sounds 
like, to us, that you find--this is what contractors do. There 
is some risk in hiring small businesses. The Federal Government 
says we want and demand small business outreach. And the 
contractors who simply go to a small business may or may not be 
meeting that requirement. It doesn't sound to me as though one 
does or gives many opportunities for small businesses in this 
business.
    Ms. Veltsistas. Madam Chair, C.B. Richard Ellis currently 
has eight small business firms, and we are in the process of 
signing up two more. We have firms that do specifically just 
the front-end brokerage fees. We also have firms that do the 
whole procurement from start to finish. We also have some firms 
that do the post-award services for us.
    Ms. Norton. You are going to have to break it up to do 
anything with small businesses. And guess what? They will come 
to me, and they will complain that we can't get any small 
business real estate business from the GSA. And no, you are not 
going to be able to get the same kind of business you do, Mr. 
Roth, from a small business. Sure, that is the easiest way to 
do it; I got one I signed on the bottom line, that is all I 
need to get.
    We are trying to increase small business use within the 
Federal Government and certainly within the GSA. So we really 
do need to see that there is some outreach; otherwise we 
believe only the letter, not the spirit--indeed, I would argue 
that even the letter isn't being--it could be somebody's 
brother, you know, that is really not what we mean, Mr. Roth. 
And I don't want to have them on my doorstep. I am going to 
send them right to you. So I suggest you look for more small 
businesses than one.
    Ms. Rayfield.
    Ms. Rayfield. Thank you, Madam Chair.
    We took an approach under this contract when we were 
organizing ourselves to respond to GSA's RFP, which was to 
reach out to small business concerns around the country in the 
different GSA regions and find professionals who had very 
solid, strong experience working with GSA in the past and 
understood how to handle GSA lease procurements, and who had a 
very good strong record of performance with GSA.
    In essence, what we have done with these firms is we have 
partnered with them for the life of the contract. They are 
absolutely integral to our team and the execution of our work. 
They signed on with us at the beginning of our contract, and 
they have all been with us through the duration.
    Ms. Norton. How many?
    Ms. Rayfield. We have a woman-owned small business that 
handles region 10. We have a small service-disabled veteran-
owned firm who handles all of region nine for us. We have two 
woman-owned small businesses who support us in region four. And 
we have a small disadvantaged woman-owned 8A business who does 
all of our post-award work for us in regions one, two, three, 
and some of our work here in NCR. And we are increasing the 
scope of her work as she is able to bring on additional staff 
members.
    Ms. Norton. So you have five?
    You see why you need more, Mr. Roth?
    Did you say you did a--who did the RFP?
    Ms. Rayfield. We did not issue an RFP, but when the GSA 
issued their request for broker contractors to submit 
proposals, at that time, they had requested we submit 
information on our team structures. It was at that point, 
before we even ever were awarded the contract, that we reached 
out and developed partnerships with these small business 
concerns.
    And Madam Chair, if I could just emphasize that these 
aren't professionals who work with us on one-off transactional 
basis; they handle all of our work with us in close 
coordination with us in these regions. They have substantial 
integral roles as partners with us on this broker contract.
    Ms. Norton. This notion of partnering with small businesses 
is really important. That is why, Mr. Roth--who comes from 
Jones LaSalle--yes, you will not find full-service, small 
business real estate people as easily. I must say, I endorse 
the notion of partnering. We want them to learn as much of the 
business as we can. We don't insist on any particular form it 
takes, but we know what our goal is. And we know that if you 
are just looking for someone who is the easiest person to find, 
you really aren't reaching, particularly when you consider how 
large this firm and business in D.C., the notion of not 
partnering--if you don't partner, you might not be able to do 
it. And you won't be able to meet our goal, which is to spread 
the expertise that only larger firms have to smaller 
businesses. I have got to get out of here soon.
    I do need to know, have you found any of your broker deals 
falling through?
    Mr. Roth. By falling through, I will assume, due to the 
economy, is that----
    Ms. Norton. Due to the economy, or any other reason.
    Mr. Roth. We haven't had any fall through. We have had many 
that we are concerned about, primarily due to developers in 
lease construct task orders, finding their construction 
financing. And in addition, often permitting issues and those 
sorts of things are slow to come to fruition.
    Ms. Norton. Ms. Veltsistas, you talked about your rigorous 
conflict-of-interest review.
    And I am sure that all of you are aware, would any of you 
see any problem with having the firms certify that the 
conflict-of-interest guidance has been fully met when you do a 
transaction with GSA?
    Ms. Veltsistas. We would have no issue with that at C.B. 
Richard Ellis.
    Ms. Norton. And there may be something I don't see. I am 
just trying to do what all of us have to do. You can believe I 
police my people because I can't say only LA did it, I have to 
take personal responsibility. And we are not in there looking 
over your shoulder, and shouldn't be, nor do we doubt your 
integrity. We believe in your complete integrity. But somebody 
has to feel responsible. That is why certification occurs to us 
as an additional safeguard. If there is something about the 
industry that I don't know that would make it difficult, then 
speak up or forever hold your peace.
    There were complaints from--and we can understand it, where 
the first contracts complain about things the government makes 
you do that you didn't otherwise do. You understand that now. 
Are there any recommendations that you have for GSA regarding 
the new contract?
    Ms. Rayfield. Madam Chair, if I could speak specifically to 
the question that was raised earlier and you just alluded to 
regarding post-award services. We worked very closely with GSA, 
all of the broker contractors did at the onset of the contract 
to bring clarity to that area of service that is required under 
the contract.
    And I think the comments that have been made refer to the 
fact that the scope is perhaps very general. And we worked very 
closely together over the course of the first 2 years of the 
contract to make it clearer and to remove any gray areas so 
that we could deliver the value to GSA that we anticipated 
delivering under this contract. And I think once that occurred, 
that it was an entirely different story.
    So the concern from the brokers related to just making sure 
we were all clear about the specific services that we were 
providing to GSA because post-award services can range from 
here to here.
    Ms. Norton. But did they direct you, you need more clarity 
in the upcoming contract? Do you need that?
    Ms. Rayfield. I was going to say yes.
    The only other thing that we would hope for in the 
reprocurement is, again, that it is clearly defined, and that 
perhaps GSA reaches out, you know, for some input from the 
industry on that scope of services because it is a really 
slightly different area than leasing services, particularly 
project management.
    Ms. Norton. Oh, I want staff to make this clear; I want GSA 
to sit down--now I have to avoid conflict of interest with the 
people. I understand there have been two industry forums. GSA 
had a lot to learn about what it had to do in order to make 
clear what it desired or required, so we want to make sure that 
all that is learned in the 5-year contract in fact is 
incorporated into the new one.
    The Ranking Member is back.
    Mr. Diaz-Balart. Thank you, Madam Chair.
    Thank you again.
    I don't have to apologize to the Chairwoman because she 
knows where I have been, but I do want to apologize to the 
distinguished panel. I was on the floor voting, so, again, I 
apologize for not being here at the beginning of your 
testimony.
    I do want to make a couple of observations and then maybe a 
couple of questions, if I may, Madam Chairwoman.
    Staff was trying to get from GSA the real numbers as to 
what the potential savings were based on their lease-cost-
relative-to-market measure. And we know from the conversations 
and we finally got some, I think, really good numbers. 
Obviously the goal was 9.25 below--market rates I guess is what 
it would be. They also gave us the fact that the brokers are 
10.56 below; so that is, you all are exceeding the goal, but we 
also finally got from GSA their numbers. And these are not 
estimates, these are on the 216 leases. And that is 9.5. So GSA 
is meeting, and frankly exceeding, their goal slightly, but the 
brokers seem to be exceeding that goal, which is obviously a 
very good thing, by substantially more than that. So I think 
that is just, again, that is why I commended GSA for----
    Ms. Norton. Would the gentleman yield?
    Mr. Diaz-Balart. Of course, Madam Chair.
    Ms. Norton. I commend you for getting those numbers because 
I asked if anyone knew what realty specialists were doing 
compared to their 10.4. We don't have that number. But I have 
announced here that that has got to be the goal for the realty 
specialists in-house. If they are driving greater efficiency 
and more savings; they supposedly have the same expertise in 
this new contract. They have to put the same goals on their in-
house people. Thank you.
    Mr. Diaz-Balart. Absolutely, Madam Chair. And you and I are 
on the same page on that as well.
    A couple questions that I guess really kind of just adding 
to what the Chairwoman asked a little while ago, which is, 
there is a bottleneck, and the process takes a long time. Do 
you all have any recommendations how to accelerate the pace of 
the lease acquisitions so that, particularly now, by the way, 
the government can take advantage of the current conditions? So 
anything we can do to speed that up. If you have some 
recommendations now, or if you would have some recommendations 
at a future time, I think it would be very helpful.
    Does anybody want to take a crack at it now?
    Mr. Roth. I will just put one out there. I have provided 
several to the GSA, but one that I think would help the process 
move quicker really throughout are the evaluations. As you have 
heard, we do monthly evaluation meetings in the regions, and 
quarterly evaluations at the national level. We are reviewed on 
every task order at six points across five metrics, and a 
final.
    What we find in the private sector is that our clients can 
still be very diligent if they evaluate us at a few key 
milestones among some number of metrics so that the number of 
evaluations seems to be extraordinary at this time, and it 
seems to be occupying a lot of the government employees' time.
    Mr. Diaz-Balart. Great.
    Madam Chairwoman, you have heard me talk about this issue 
time and time again, and I apologize one more time, and I think 
you and I also share the fact that we both believe that, 
whenever possible, the government should own as opposed to 
lease. So it is kind of a little bit off the subject, but I do 
want to ask, just because we have such great knowledge right 
here in this panel, would there be now, in this market, good 
purchase opportunities for the government where we have long-
term space needs? I have been talking about it, and I don't 
want to put words in her mouth, but I think we all have 
concerns about the fact that if we could be purchasing, it 
would be a better deal for the taxpayer. Would this not be a 
good time for the government to purchase as opposed to lease, 
if possible? I am actually kind of asking about the market; 
what is out there? And know it is a little bit off topic, so--
--
    Ms. Rayfield. Congressman, absolutely. We think this would 
be an excellent time for GSA to take advantage of the current 
market conditions. There are multiple situations here in this 
market and certainly in other markets around the country where 
there are landlords who are in distress, and there are 
opportunities for GSA to be able to step in, through a number 
of different transactional structures, and would be able to 
take advantage of those excellent opportunities right now. They 
exist, and now is the time to move on them, absolutely, sir.
    Mr. Diaz-Balart. Thank you.
    Thank you, Madam Chairwoman.
    Ms. Rayfield. Madam Chair, may I respond to a question that 
you had asked earlier that I just wanted to make a comment on?
    You had asked if we had had any deals fall through. And I 
just wanted to identify, there were three in particular that 
come to mind under this contract that have fallen through for 
us. One would be the VA deal in Washington, D.C. This is not 
immediate or recent; it was 2005, which was a transaction just 
over 200,000 square feet that we worked on for well over a year 
before it was canceled.
    Ms. Norton. You are talking about up at Soldier's Home?
    Ms. Rayfield. This was to be the Lafayette swing space in 
2005. And ultimately, I believe that it related to funding for 
the renovation, and we were tasked with the swing space 
requirements. We worked on that for a little over a year, and 
then that was canceled.
    We also worked on the Department of Commerce that same 
year. It was the same scenario. It was the renovation of the 
Department of Commerce. We were tasked with finding the swing 
space. That was 324,000 square feet. That was also canceled 
close to a year into the procurement.
    And then the third example I would use is actually out in 
region 10 at the U.S. Attorney General's Office, which was a 
70,000 square foot requirement that we actually worked on for 3 
years before it was canceled. So I just wanted to respond to 
that.
    Ms. Norton. GSA never got the money in the first place, as 
I recall, on those deals.
    Ms. Rayfield. Yes. Understandably on the swing space, it 
was the renovation dollars for the Federal buildings. But on 
the region 10 U.S. Attorney's Office, I believe there were 
other circumstances involved that weren't related to funding. 
But thank you for the opportunity to answer the question you 
posed before.
    Ms. Norton. And all of those were because GSA didn't get 
government funds, which when we are talking about swing space--
these were all swing space?
    Ms. Rayfield. Two of those three were the leased swing 
space requirement.
    Ms. Norton. That is very, very bad, very, very bad, and 
something we are going to have to look into. When you send 
people to work and don't have any idea if you are going to be 
able to go through with it, what is the point?
    I do want to say to the Ranking Member that last week GSA 
did say it was going to ask for funds to purchase in this 
market. It is so rare that the government does it. I don't 
know, with this deficit, but there was that fat $100 million 
one-time payment in there. But it was such an irresistible deal 
for the government that had virtually no choice but to continue 
renting that building and poured millions of dollars into it; 
you wouldn't have thought it would have taken them this long.
    I want to thank each and every one of you. This panel would 
have had a huge hole in it, in terms of what we do in 
proceeding with oversight of the broker contract, without your 
testimony, which has been indispensable and very helpful, and 
we very much thank you for that.
    Thank you. The hearing is adjourned.
    [Whereupon, at 1:27 p.m., the Subcommittee was adjourned.]

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