[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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