Embassy Construction: Achieving Concurrent Construction Would	 
Help Reduce Costs and Meet Security Goals (28-SEP-04,		 
GAO-04-952).							 
                                                                 
After the 1998 bombings of two U.S. embassies in Africa, the	 
State Department embarked on a multibillion-dollar, multiyear	 
program to build new, secure facilities on compounds at posts	 
around the world. The Secure Embassy Construction and		 
Counterterrorism Act of 1999 generally requires that all U.S.	 
agencies, including the U.S. Agency for International Development
(USAID), colocate offices within the newly constructed compounds.
This report discusses how State is incorporating office space for
USAID into the construction of new embassy compounds and the cost
and security implications of its approach.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-952 					        
    ACCNO:   A12792						        
  TITLE:     Embassy Construction: Achieving Concurrent Construction  
Would Help Reduce Costs and Meet Security Goals 		 
     DATE:   09/28/2004 
  SUBJECT:   Construction costs 				 
	     Contractors					 
	     Facility security					 
	     Counterterrorism					 
	     Taxpayers						 
	     Africa						 

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GAO-04-952

United States Government Accountability Office

GAO	Report to the Chairman, Subcommittee on National Security, Emerging Threats,
     and International Relations, Committee on Government Reform, House of
                                Representatives

September 2004

EMBASSY CONSTRUCTION

  Achieving Concurrent Construction Would Help Reduce Costs and Meet Security
                                     Goals

                                       a

GAO-04-952

[IMG]

September 2004

EMBASSY CONSTRUCTION

Achieving Concurrent Construction Would Help Reduce Costs and Meet Security
Goals

  What GAO Found

State has built new embassy compounds in separate stages--scheduling
construction of the USAID annex after work has begun (or in many cases
after work has been completed) on the rest of the compound. State and
USAID attributed this practice to a lack of full simultaneous funding for
construction at nine locations through fiscal year 2004. Concurrent
construction of USAID annexes could help decrease overall costs to the
government and help achieve security goals.

Concurrent construction would eliminate the second expensive mobilization
of contractor staff and equipment and added supervision, security, and
procurement support expenses that result from nonconcurrent construction.
State has estimated that if nine future USAID annexes scheduled for
nonconcurrent construction are built concurrently, it could save taxpayers
$35 million. Extrapolating from data provided by State, GAO estimated a
total cost savings of around $68 million to $78 million if all 18 future
USAID projects are built concurrently. GAO also found that designing
additional space for USAID within the main office building, or chancery,
may cost less than erecting a separate annex, depending on a number of
factors, including the size and configuration of the planned buildings. In
addition to cost considerations, concurrent construction could help State
and USAID comply with the colocation requirement and decrease the security
risks associated with staff remaining outside of the embassy compound. For
example, USAID staff who remain in a temporary USAID facility after other
U.S. government personnel move into a new embassy compound may be more
vulnerable to terrorist attack because the temporary facility does not
meet security standards for new buildings and may be perceived to be a
"softer" target relative to the new, more secure embassy compound. State's
current plans call for continued nonconcurrent construction through fiscal
year 2009.

State acknowledged that there are substantial advantages to concurrent
construction and has indicated that it may revise its building schedule to
allow for more concurrent construction if a new cost-sharing proposal to
fund new embassies by allocating construction costs among all agencies
having an overseas presence is implemented in fiscal year 2005. However,
even if cost sharing is not implemented, there are still opportunities for
building some USAID facilities concurrently with the overall construction
of the embassy compound if State, with congressional consent, revised its
plan and rescheduled some projects.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
State Has Built Compounds in Stages
Concurrent Construction Could Decrease Costs, Improve

Security Opportunities Exist for More Concurrent Construction Conclusion
Matter for Congressional Consideration Recommendations for Executive
Action Agency Comments and Our Evaluation

1 2 4 6

11 17 17 18 18 18

Appendixes

Appendix I:

Appendix II:

Appendix III:

Appendix IV:

Scope and Methodology
Comments from the Department of State

GAO Comments

Comments from the U.S. Agency for International Development

GAO Comment

GAO Contact and Staff Acknowledgments

GAO Contact
Staff Acknowledgments

                                       20

                                     22 25

                                     26 30

31 31 31

Tables      Table 1: Contract Award Dates for New Embassy Compound      
                          Projects That Are Completed, Under Way, or Under 
                           Contract, and Dates of Award for USAID Contract  9 
               Table 2: New Embassy Compound Construction Projects, Fiscal 
                               Years 1999 through 2009                     10 
Figures       Figure 1: Diagram of U.S. Embassy Adjacent to USAID          
                                    Construction                            8
             Figure 2: Estimated Concurrent and Nonconcurrent Construction 
                             Costs for 18 USAID Annexes                    13 
                Figure 3: Hardened Access Facility at New Embassy Compound 
                              Compared with USAID-Guarded Entrance in Same 
                                        City                               15 

Contents

Abbreviations

OBO Bureau of Overseas Buildings Operations USAID U.S. Agency for
International Development

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States Government Accountability Office Washington, D.C. 20548

September 28, 2004

The Honorable Christopher Shays

Chairman, Subcommittee on National Security, Emerging Threats, and
International Relations Committee on Government Reform House of
Representatives

Dear Mr. Chairman:

After the 1998 bombings of two U.S. embassies in Africa, the State
Department embarked on a multibillion-dollar, multiyear program to build
new, secure facilities on compounds at posts around the world. The Secure
Embassy Construction and Counterterrorism Act of 19991 requires that all
U.S. agencies, including the U.S. Agency for International Development
(USAID), colocate offices within the newly constructed compounds. USAID
had historically provided its own office space for larger missions, and
according to the State Department's Bureau of Overseas Buildings
Operations (OBO) and USAID, the agencies had unofficially agreed to
largely continue this practice. Under this agreement, according to State
and USAID officials, OBO would provide office space within State-funded
facilities for USAID missions with fewer than 50 staff, but USAID would
fund its own annex buildings within embassy compounds for larger missions.

At your request, this report examines (1) how State is incorporating
office space for USAID into the construction of new embassy compounds, and
(2) the cost and security implications of State's efforts to build USAID
office space into compounds.

To accomplish these objectives, we reviewed planning and construction
documents at OBO; interviewed State Department and USAID officials
regarding construction program plans, implementation, and funding; and
analyzed OBO estimates of the cost differentials between concurrent and
nonconcurrent construction of USAID annexes. We also interviewed officials
from four firms hired to build new embassy projects. Further, we visited
two field locations-in Nairobi, Kenya, and Kampala, Uganda- where we
discussed the implications of construction sequencing for the embassies
and USAID. We conducted our review from December 2003 to

1Pub. L. 106-113, div. B, Sec. 1000(a)(7)(div. A, title VI, sec. 606).

July 2004 in accordance with generally accepted government auditing
standards. Appendix I provides more information on our scope and
methodology.

Results in Brief	State has built new embassy compound facilities in
separate stages-first constructing the compound and then scheduling
construction of a USAID annex building at a later date. State and USAID
officials said that, because they were not able to obtain funding for
construction of USAID annex buildings at nine locations through fiscal
year 2004, OBO commenced construction of these compounds without the USAID
annex. In contrast, USAID did obtain funds to permit concurrent
construction of one new embassy compound that included the USAID annex.
According to OBO officials, OBO has always preferred to construct all
components of a new embassy compound concurrently and noted that its
Long-Range Overseas Buildings Plan covering fiscal year 2002 through
fiscal year 2007 showed all USAID annexes being constructed at the same
time as the rest of the compound. OBO's current building plan through
fiscal year 2009 calls for nonconcurrent construction of USAID annexes at
an additional nine locations. According to OBO, its plan to continue
nonconcurrent construction is a result of the funding issue.

Concurrent construction of USAID annexes could help reduce overall costs
to the government and achieve security goals. Concurrent construction
would eliminate the second expensive mobilization of contractor staff and
equipment, as well as additional supervision, security, and procurement
support expenses that result from nonconcurrent construction. OBO has
estimated that if nine future USAID annexes scheduled for nonconcurrent
construction are built concurrently, it could save taxpayers $35 million.2
OBO's cost estimates indicate that annex construction costs increase by an
average of about 24 percent to 31 percent when USAID facilities are built
nonconcurrently. Applying these average cost differentials to OBO's data,
we estimated a total cost savings of around $68 million to $78 million if
all 18 future USAID projects are built concurrently, compared with current
plans to build some of the compounds nonconcurrently. These amounts,
however, do not include other ongoing operational, security enhancement,
and lease costs that USAID could save when staff move to the new
compounds. We also found designing additional space for USAID within

2Estimates calculated in present value (fiscal year 2004) dollars.

the main office building, or chancery, may cost less than erecting a
separate annex. For instance, OBO has estimated that, in two African
locations where new nonconcurrent embassy construction is scheduled for
2006, housing USAID in the chancery would cost at least $6.5 million per
site less than building a separate USAID annex. In addition to cost
considerations, concurrent construction could help State and USAID comply
with the colocation requirement and decrease the security risks associated
with remaining outside of the embassy compound. For example, according to
State and USAID security officials, USAID staff who remain in an interim
USAID facility after other U.S. government personnel move into a new
embassy compound may be more vulnerable to terrorist attack because the
interim facility does not meet security standards for new buildings and
might be perceived to be a "softer" target relative to the new, more
secure embassy compound. Under nonconcurrent construction, some U.S.
personnel remain temporarily at risk, even after OBO has completed
construction of a new chancery within a secure compound.

OBO acknowledged that there are substantial advantages to concurrent
construction and indicated that it may revise its building schedule to
allow for more concurrent construction if the new Capital Security
Cost-Sharing Program to fund new embassy buildings is implemented in
fiscal year 2005.3 However, even if cost sharing is not implemented, there
are still opportunities for building more USAID facilities concurrently
with construction of the overall compound if OBO revises, with
congressional consent, its construction schedule.

In order to minimize costs and further improve security associated with
building new embassy compounds, Congress may wish to consider alternative
funding approaches to support concurrent construction of new embassy
compounds if the Capital Security Cost-Sharing Program is not implemented
in fiscal year 2005.

In addition, we recommend that the Director of the Bureau of Overseas
Buildings Operations (1) update the Long-Range Overseas Buildings Plan to

3The executive branch recently developed the Capital Security Cost-Sharing
Program, under which all agencies having an overseas presence will pay a
share of the projects undertaken to replace embassies at vulnerable posts.
Planned to begin in fiscal year 2005, the program will be phased in
through fiscal year 2009. Legislation to fund this program was included in
HR 4754, which was passed by the House of Representatives on July 8, 2004,
and referred to the Senate; and S-2809, which was approved by the Senate
Committee on Appropriations on September 15, 2004.

achieve the concurrent construction of USAID facilities to the maximum
extent possible; and (2) in coordination with USAID, consider
incorporating USAID space into single office buildings in future
compounds, where appropriate.

In comments on a draft of this report, the State Department characterized
the report as a fair and accurate representation of the issue and said it
welcomed our recommendations. In its comments, USAID said the report
successfully attempts to address the rationale as well as many of the
difficulties in achieving concurrent construction and agreed with the
recommendations.

Background	In the wake of the 1998 bombings at the U.S. embassies in
Nairobi, Kenya, and Dar es Salaam, Tanzania, State has received increased
funding for the construction of new, secure facilities overseas. Funding
from fiscal year 1999 to 2004 totaled about $3.4 billion. In addition,
Congress passed the Secure Embassy Construction and Counterterrorism Act
of 1999. The act established a number of security requirements for
diplomatic facilities overseas, one of which was that all U.S. government
personnel (except those under the command of an area military commander)
at any new U.S. diplomatic facility abroad must be located at the same
site.4 State identified facilities at about 185 posts that would need to
be replaced to meet the security standards.

To help manage this large-scale construction program, OBO developed the
Long-Range Overseas Buildings Plan,5 first published in July 2001 and
recently updated in March 2004. The plan is updated annually, adding new
projects as scheduled projects' construction contracts are awarded. The
plan prioritizes posts based on security and operational considerations,
including input from State's regional bureaus and the Bureau of Diplomatic
Security. The most recent version of the plan prioritizes 77 proposed

4The Secretary of State may waive the colocation requirement if the
Secretary, together with the head of each agency employing personnel who
would not be located at site, determines that security considerations
permit separate sites and it is in the national interest of the United
States. 22 U.S.C. 4865(a)(2)(B).

5See Bureau of Overseas Building Operations, U.S. Department of State,
Long-Range Overseas Buildings Plan: FY 2004-FY 2009 (Washington, D.C.,
January 2004) for the latest version of the plan.

security capital and regular capital projects6 from fiscal years 2004
through 2009, including 18 separate USAID annex buildings.

Until the late 1990s, the majority of USAID missions were not colocated
with embassies but existed in separate commercial or freestanding
buildings. Most of these facilities were rented; several were built with
host country trust funds, and a small number were constructed with funds
appropriated by the Foreign Operations Appropriations Acts.

Since the 1999 colocation requirement, State and USAID have not been fully
successful in obtaining funding for construction of separate USAID annex
buildings at locations where State was building a new embassy compound. In
its fiscal year 2001 report on Commerce, Justice, and State funding, the
House Committee on Appropriations wrote that it did not approve the use of
the funds for the USAID annexes because appropriations requirements of
USAID fall under the jurisdiction of the Foreign Operations, Export
Financing, and Related Programs Subcommittee.7 In an effort to overcome
funding problems, USAID requested that the Foreign Operations subcommittee
fund a new account for fiscal year 2003, the Capital Investment Fund, to
fund information technology enhancements and construction of colocated
USAID facilities. Although the fund has been established, USAID has not
obtained full funding to construct all of its buildings. In its report on
the fiscal year 2003 Foreign Operations appropriation, the House Committee
on Appropriations noted that buildings and space for all other government
agencies overseas were appropriated through State's account for overseas
construction, and stated that therefore the committee had not funded all
requests for USAID buildings on new embassy compounds.8 State's fiscal
year 2005 budget request, which has been approved by the House and is
pending approval in the Senate, includes the construction of four USAID

6The plan includes a number of posts where facilities must be replaced
because of compelling operational or other requirements.

7House of Representatives, Departments of Commerce, Justice, and State,
the Judiciary, and Related Agencies Appropriations Bill, Fiscal Year 2001,
Report 106-680, p. 106 (Washington, D.C., June 19, 2000).

8House of Representatives, Foreign Operations, Export Financing, and
Related Programs Appropriations Bill, 2003, Report 107-663 (Washington,
D.C., Sept. 19, 2002).

buildings anticipated to be funded from contributions through the Capital
Security Cost-Sharing Program.9

State Has Built Compounds in Stages

State has built new embassy compound facilities in separate stages to
accommodate the lack of USAID funding, according to State and USAID
officials. Only one of three new embassy compounds completed to date
includes the planned annex for USAID. In addition, contracts have been
awarded or construction is under way on several more compounds that do not
include, but will eventually have, a separate annex for USAID. Under OBO's
current 6-year building plan, nonconcurrent construction will continue
through at least fiscal year 2009.

State and USAID Attribute Nonconcurrent Construction to Lack of Funds

State initiated the Security Capital Construction Program to replace its
most vulnerable posts. Under this program, OBO is constructing replacement
facilities on embassy and consulate compounds that will contain the main
office building, or chancery, all support buildings, and a separate annex
building for USAID, where necessary. According to OBO, it has always
preferred to construct all components of a new embassy compound
concurrently, and its 2002 long-range plan included projects in which the
USAID building would be built concurrently with rest of the compound. It
was only after USAID did not receive funding for its annexes in fiscal
year 2001 that OBO began to move to a nonconcurrent approach to
construction, according to OBO officials.

Since 1999, OBO has completed construction of new embassy compounds in Dar
es Salaam, Nairobi, and Kampala, Uganda, which were planned to include a
separate facility for USAID. So far, OBO has completed the annex for USAID
only at the compound in Dar es Salaam. Initially, OBO awarded a
construction contract that did not include the USAID annex, but USAID
received $15 million in additional operating expense funds through the
regular appropriation process to pay for new construction. In addition,
$2.5 million from program funds were used with $25 million obtained from
the Security Supplemental Account for security upgrades. The funding
became available in time for OBO to modify the original construction
contract and complete the USAID annex at the same time as the rest of the
compound.

9See Department of State and U.S. Agency for International Development
fiscal year 2005 budget justifications.

For Nairobi, OBO awarded a construction contract for a new embassy
compound in September 1999 that did not include the USAID facility because
there were no funds for this USAID annex. Subsequently, OBO and the
contractor negotiated to include the USAID annex as a modification to the
original contract, but sufficient funding did not become available in
time. Construction of the chancery building was completed in 2003. USAID
received funding for its annex in fiscal year 2003; construction began in
June 2004 and is scheduled to end in June 2006, 3 years after the compound
was completed and became operational (see fig. 1). In the meantime, USAID
is leasing space at a cost of about $300,000 per year on the campus of a
nongovernmental research facility.

Figure 1: Diagram of U.S. Embassy Adjacent to USAID Construction

Source: Department of State.

A construction contract for the new embassy compound in Kampala was
awarded in 1999 and construction was completed in fiscal year 2002, but
USAID did not receive funding for its annex until fiscal year 2004. OBO
expects to award a construction contract for the USAID annex sometime in
2004, according to an OBO official. USAID plans to remain in its interim
location outside the new compound-an office converted from a residence in
Kampala and leased for $144,000 per year-until its new facility is built
in about 2006.

In addition, contracts have been awarded or construction is under way on
the following seven compounds that do not include a separate building for
USAID because the agency lacked funding for the construction: Yerevan,
Armenia; Phnom Penh, Cambodia; Tbilisi, Georgia; Conakry, Guinea; Bamako,
Mali; Kingston, Jamaica; and Abuja, Nigeria. At most of these posts,
construction of the USAID facility will start between 2 to 4 years after
OBO awarded the contract for the compound. For example, OBO awarded
construction contracts for the new embassy compounds in Phnom Penh and
Conakry in fiscal year 2002 and plans to solicit bids to construct the
USAID annexes on these compounds during fiscal year 2004. In Yerevan, the
U.S. Ambassador and OBO devised an alternative to waiting for funds to
build a separate facility for USAID: OBO is adding a floor to a warehouse
building under construction on the compound to house USAID. OBO can add a
floor to the building for less money than it would cost to build a
separate annex, although USAID will have less space, according to State
and USAID officials. Table 1 shows the contract award dates for selected
new embassy compounds and the award dates for the corresponding USAID
annex. The Secretary of State has had to issue waivers of the colocation
requirement for some of these locations to permit USAID to remain outside
the compound pending construction of a facility on the compound.

Table 1: Contract Award Dates for New Embassy Compound Projects That Are
Completed, Under Way, or Under Contract, and Dates of Award for USAID
Contract

                                      Embassy contract         USAID contract 
                                               award date          award date 
                              Post          (fiscal year)       (fiscal year) 
                   Kampala, Uganda                   1999                2004 
                    Nairobi, Kenya                   1999                2003 
                  Yerevan, Armenia                   2001                N/Aa 
                    Abuja, Nigeria                   2002                2006 
                   Conakry, Guinea                   2002                2004 
              Phnom Penh, Cambodia                   2002                2004 
                  Tbilisi, Georgia                   2002                2006 
                      Bamako, Mali                   2003                2005 
                 Kingston, Jamaica                   2003                2006 

Source: GAO analysis of State Department data.

aPost is incorporating USAID office space into a warehouse building under
construction on the compound.

Nonconcurrent Construction Will Continue for Years under Current Plan

In addition to the projects previously discussed, OBO's current 6-year
building plan includes 18 new embassy compounds that will include a
separate facility for USAID, 9 of which are slated to be built
nonconcurrently. For the remainder of fiscal year 2004, OBO will award
construction contracts for 3 new embassy compounds without including the
USAID annex: in Managua, Nicaragua; Kathmandu, Nepal; and Accra, Ghana.
The current schedule also calls for awarding embassy construction
contracts in 5 locations in fiscal year 2006 but not awarding the
contracts for USAID annexes until fiscal year 2007; and awarding 1 embassy
project in fiscal year 2008 but not awarding the USAID contract until at
least fiscal year 2009.10 Table 2 lists new embassy compound construction
projects through fiscal year 2009.

 Table 2: New Embassy Compound Construction Projects, Fiscal Years 1999 through
                                      2009

          New compounds New compounds with USAID annexes planned or completed
       planned or completed (fiscal years 1999-2009) (fiscal years 1999-2004)

Locations with USAID staff 54

Locations without
USAID staff 47

Locations with USAID annexes 28

Locations without USAID annexes 73

Annexes built concurrently with chancery

Chancery completed, nonconcurrent construction of annex under way

Chanceries under construction, nonconcurrent
construction of annexes planned 8a

Nonconcurrent construction of annexes planned

Concurrent construction of annexes planned

                                  Total 101 28

Source: GAO analysis of State Department data.

aThis number includes one compound where the chancery has been completed,
but the annex contract has not yet been awarded.

10The next long-range plan will be published in fiscal year 2005.
According to OBO officials, construction scheduling may be revised in this
plan to build the last nonconcurrent USAID annex in fiscal year 2007.

Concurrent Construction Could Decrease Costs, Improve Security

Nonconcurrent construction increases the overall cost to the government
and raises concerns about security. We also found that, in some cases,
constructing a separate annex building could cost more than building a
larger chancery to accommodate USAID. OBO's own analysis of 9 projects
shows that the current schedule of nonconcurrent construction will add
more than $35 million in costs.11 In addition, extrapolating from OBO's
data, we have projected an overall cost increase of as much as $78 million
if all 18 future USAID annexes follow the historical pattern of
nonconcurrent construction. This estimate does not include security
enhancements and other costs that USAID will incur while its staff are in
interim facilities pending completion of the USAID annex. This estimate
also does not include potential cost savings from merging USAID space into
chancery buildings in the future. Finally, nonconcurrent construction has
security implications for USAID employees left behind in interim
facilities and for the other U.S. government employees moved to more
secure compounds.

State and USAID Officials and Contractors Agree That Nonconcurrent
Construction Is the More Costly Approach

All government officials and private construction contractors with whom we
spoke agreed that the practice of nonconcurrent construction significantly
adds to the overall expense of building USAID office space. Building
nonconcurrently can result in a second expensive mobilization of
contractor staff and equipment, additional work to procure building
materials, and added construction management oversight. According to
contractors experienced in building embassy compounds overseas, such
remobilization and duplication of support activities can add 20 percent to
25 percent to what a concurrent construction contract would have cost,
depending on the location. They said that when the U.S. government does
not receive funds for the USAID annex until after the contractor has
finished building the embassy, there is no chance of maximizing economies
of scale that result from contractor staff and equipment already on site.
In Nairobi, for example, according to one of the contractors we met with,
OBO could have built the USAID annex for $19 million using the same
contractor building the embassy chancery, but OBO awarded a contract for
almost $30 million to a different builder since funding was not available
until 4 years later. OBO officials have also said that in addition to
contractor mobilization costs, nonconcurrent expenses must include OBO's
added supervision and site security costs for a second project. For
instance, in Nairobi, OBO's project supervision and construction security

11Estimates calculated in present value (fiscal year 2004) dollars.

cost estimates for the USAID annex rose from $683,000 for concurrent
building to $2.9 million for nonconcurrent building.

Nonconcurrent construction also increases security enhancement expenses.
Until secure office space is built, USAID must either remain in or move to
interim facilities. The interim site may require significant security
upgrades to obtain some minimum level of protection for staff, including
the leasing of surrounding property to create setbacks from roads, as well
as the addition of perimeter fencing and installation of anti-ram
barriers. Security, supervision, and maintenance personnel costs would
continue to accrue until the new USAID facility were completed. For
instance, in Kampala, Uganda, USAID will likely spend $3.2 million for
operational and security expenses from the time the new chancery opened in
2002 until the annex in the new embassy compound is finished in 2006.

Concurrent Construction of Future USAID Annexes Could Save Millions of
Dollars

OBO estimates that future USAID annex projects now scheduled for
nonconcurrent construction will increase costs to taxpayers by $35
million. Extrapolating from these data, we project that annex construction
costs could rise between $68 million to $78 million if all 18 future
annexes were delayed. These expenses do not include the $27 million to $30
million12 cost increase that, based on OBO's data, we inferred was
generated by nonconcurrent construction of annexes for embassy compounds
awarded before 2004. There are no opportunities to significantly reduce
this expense because these compounds are already built or under
construction without USAID annexes. Estimates from OBO calculate the cost
increase for building the 9 USAID annexes now scheduled for nonconcurrent
construction over the next 5 budget years at $43 million (or $35 million
at present value) above the cost for building at the same time.13 We
further extrapolated from these and other OBO cost estimates, an average
cost differential increase for a USAID annex of about 24 percent to 31
percent for nonconcurrent construction. Using OBO's cost data, we
calculated the

12The $27 million to $30 million cost increase is calculated using the
present value (fiscal year 2004) of an estimated $40 million to $44
million (in budget dollars) increase for awarding USAID annex contracts
during fiscal years 2003 to 2006 for eight compounds already being
constructed without annexes before fiscal year 2004. See appendix I for a
more detailed description of the methodology we used.

13Although the current building schedule indicates "concurrent execution"
of the annex at Harare, Zimbabwe, OBO provided estimates for the costs of
nonconcurrent construction at that location.

range of the potential cost increase of nonconcurrent construction for all
future annex projects to be between $88 million to $101 million over the
next five budget years (or $68 million to $78 million at present value).14
Figure 2 compares concurrent and nonconcurrent construction costs for 18
projects to be built after fiscal year 2004.

Figure 2: Estimated Concurrent and Nonconcurrent Construction Costs for 18
USAID Annexes

                              Dollars in millions

                                      402

Concurrent Nonconcurrent Added cost

Budget dollars

Present value (fiscal year 2004) dollars Source: GAO analysis of State
Department data.

aThis amount reflects the lower end of the estimated range based on a
24-percent average cost increase. Total costs could rise to $101 million
in budget dollars and about $78 million at present value for fiscal year
2004, if the higher average of 31 percent is used. See appendix 1 for a
more detailed description of the methodology we used.

14The cost increase is calculated for nonconcurrent construction of 18
planned USAID annexes to be awarded in or after 2004. See appendix I for a
more detailed description of the methodology we used.

Further, our estimates do not include the costs of additional operations
and lease expenses or increased security and personnel costs, for which we
did not have comprehensive data but which could be substantial. For
example, OBO has estimated that in one European location, USAID will have
to pay an additional $690,000 for rent because of a 1-year delay in
awarding the construction contract. In two African locations, USAID
officials estimate they will have to pay an additional $5.5 million for 3
or more years of rent and continuing security expenses until their new
facilities are built.

Including USAID Space within a Depending on a number of factors, building
a separate annex for USAID

Larger Chancery Rather Than increases costs over designing additional
space for USAID within the

Constructing a Separate USAID chancery. Two of the contractors we met with
stated that constructing one

Annex May Decrease Costs	building could be more cost effective than
constructing two. OBO has estimated that in two African locations where
new embassy construction is scheduled for 2006, building a separate USAID
annex would cost at least $6.5 million per site more than housing USAID in
the chancery, assuming nonconcurrent construction. OBO officials have said
that, except for very large USAID missions, there may be little reason to
build a separate USAID annex other than the ease of allocating
construction costs to USAID. Further, OBO has recently re-evaluated the
office space parameters for new overseas missions, significantly reducing
the sizes of proposed USAID annexes. Assuming these revised space
allocations are adequate, an additional five to eight proposed USAID
annexes would be similar in size (2,500 gross square meters or less) to
those at the two African locations OBO analyzed. The cost differentials
between a separate annex versus locating USAID within the chancery in
those locations could be similar if other key factors, such as building
configuration and site conditions, were also comparable.

However, there are factors other than costs that should be considered when
determining whether to build a separate annex or include space for USAID
in the chancery, according to USAID. Such factors include geographic
location, the type of work USAID is engaged in, and the security profiles
of the country. Moreover, a separate unclassified USAID annex may allow
greater access for local staff and visitors.

Nonconcurrent In addition to cost considerations, nonconcurrent
construction of the Construction Poses Security USAID annexes raises a
number of security concerns, according to State Risks Diplomatic Security
and embassy officials as well as USAID security

officials. For example, some officials expressed concern about the safety
of

USAID employees who remain in interim facilities after other U.S.

government personnel have moved to the new embassy compounds. State is
building the compounds to provide safe, secure facilities because U.S.
facilities and personnel have faced continued threats from terrorist and
other attacks since the Kenya and Tanzania embassy bombings. For example,
from 1998 through 2002, there were 30 terrorist attacks against overseas
posts, personnel, and diplomatic residences. During that same period,
overseas posts were forced to evacuate personnel or suspend operations 83
times in response to direct threats or unstable security situations in the
host country.

Terrorists continue to look for targets, according to the security
officials, and an interim USAID facility might be perceived to be a
"softer" target than a new, more secure embassy, thus making USAID
employees more vulnerable to attack. For example, figure 3 shows a new
embassy compound main gate with an anti-vehicle delta barrier, anti-ram
perimeter wall, and blast-resistant guardhouse containing bomb detection
equipment, compared with an interim USAID facility entrance with temporary
barriers that are removed after work hours.

Figure 3: Hardened Access Facility at New Embassy Compound (left) Compared
with USAID-Guarded Entrance in Same City

Source: GAO.

State, USAID, and embassy officials described a number of actions taken to
mitigate the risks for USAID employees who are not colocated in new
embassy compounds. For example, a post may construct special jersey
barriers and fences, dig trenches, close streets adjacent to a USAID
facility to create a setback around the building during the day, and lease
properties adjacent to its facilities to create a buffer. A post may also
use contract

guard services, deploy surveillance detection teams and mobile response
teams, and use the services of local police.

Despite actions to mitigate the security risks of nonconcurrent
construction, State and USAID officials remain concerned because interim
facilities do not meet the security standards established by the Overseas
Security Policy Board. In addition to the Secure Embassy Construction and
Counterrorism Act of 1999, which requires a 100-foot setback and
colocation of all U.S. government employees at a new site, the security
standards for new office buildings include anti-ram perimeter walls and
barriers, construction to meet blast protection, forced entry/ballistic
resistant protection for doors and windows, and controlled access points.
A USAID security official stated that, despite measures to reduce security
risks, facilities are vulnerable when they are not controlled by the U.S.
government. For example, the official said that posts using temporary
jersey barriers eliminate the setback each evening when the barriers are
removed and the streets are reopened to normal traffic. Further, a State
security official stated that the Bureau of Diplomatic Security was an
early advocate of colocating all U.S. personnel when the new embassy
compound is built. He said that the bureau is concerned from a threat
perspective and that the threat to U.S. personnel remains high. He said
that when USAID cannot be colocated, the bureau tries to find ways to
mitigate the risk but there is no perfect solution. However, he said the
bureau does not recommend delaying the construction of a compound until
funding for the USAID annex is available because that would leave a
greater number of staff vulnerable.

Nonconcurrent construction also has security implications for the
employees who move into the newly constructed compound. Subsequent
construction of the USAID annex on the compound results in more workers,
vehicles, and equipment on site, which may increase the vulnerability of
the overall embassy compound and its personnel by giving terrorists the
opportunity to conduct surveillance or attack the embassy, according to
State and USAID officials. To address this issue, OBO and regional
security officers in Nairobi, Kenya, and Kampala, Uganda, described a
number actions required to control the access of construction personnel
and equipment to the compound. For example, the regional security officers
told us that they need to hire additional security guards to inspect
trucks bringing building materials to the compound. The regional security
officer in Nairobi said he would need about 14 additional guards to
perform these inspections. For some sites, destruction of part of the
perimeter wall to add an entrance for the construction vehicles and

equipment has been discussed as a way of allowing contractor access to the
compound. Construction workers need to undergo background checks and
receive identification cards, according to regional security officers;
these requirements could place a significant burden on their time and
workload unless State hires a site security manager.

Opportunities Exist for More Concurrent Construction

OBO acknowledged that it would be advantageous to the U.S. government to
build embassy compounds concurrently. OBO said it may revise its schedule
to allow for more concurrent construction and consider on a case-by-case
basis whether USAID should have a separate annex if the Capital Security
Cost-Sharing Program is funded. However, even without cost sharing, there
are opportunities for more concurrent and efficient construction. By
delaying one project slated for fiscal year 2006 and estimated to cost
more than $100 million, State would have sufficient funds to eliminate the
backlog of USAID projects. Moreover, it is not unprecedented for projects
in successive annual plans to be moved from one year to another. For
example, over the last three planning cycles, several planned projects
have had to be moved from one year to another due to factors such as a
failure to acquire land in a timely manner or a change in executive branch
priorities. Therefore, if OBO could reschedule planned projects it could
make headway in minimizing nonconcurrent construction. OBO emphasized that
it would need congressional support to do this.

Conclusion	OBO's multibillion-dollar program to build new, secure
embassies and consulates around the world was designed to colocate all
U.S. employees stationed overseas within a secure compound, as required by
law. However, by building the compounds in stages, some employees must
temporarily remain in less secure space outside the compound. Concurrent
construction will help State and USAID comply with the colocation
requirement. Our analysis also shows that concurrent construction likely
results in cost savings for the taxpayer and that incorporating all office
space into the main chancery building rather than building a separate
annex may be, in some cases, a more efficient approach. According to
State, lack of funding and restrictions on the use of funds has required
OBO to phase construction of new embassy compounds that have a USAID annex
component. However, State said it will consider revising its construction
schedule to achieve more concurrent construction if the Capital Security
Cost-Sharing Program is implemented in fiscal year 2005.

However, even if the plan is not implemented, opportunities exist to
schedule the construction of more projects concurrently.

Matter for In order to minimize costs and further improve security
associated with

building new embassy compounds, if the Capital Security
Cost-SharingCongressional Program is not implemented in fiscal year 2005,
Congress may wish to Consideration consider alternative funding approaches
to support concurrent

construction of new embassy compounds.

Recommendations for 	We recommend that the Director of State's Bureau of
Overseas Buildings Operations (1) update the Long-Range Overseas Buildings
Pan to achieve

Executive Action	the concurrent construction of USAID facilities to the
maximum extent possible; and (2) in coordination with USAID, consider
incorporating USAID space into single office buildings in future
compounds, where appropriate.

Agency Comments and Our Evaluation

The State Department and the U.S. Agency for International Development
provided written comments on a draft of this report (see app. II and app.
III). State also provided technical comments, which we have incorporated
into the report as appropriate.

In its comments, State said that the report is a fair and accurate
representation of the issue and welcomed our recommendations. State said
it would update the Long-Range Overseas Buildings Plan to achieve
concurrent construction to the maximum extent and coordinate with USAID to
consider incorporating USAID space into single office buildings in future
compounds where appropriate if the Capital Security Cost-Sharing Program
is implemented. However, our recommendations and matter for consideration
are designed to bring about concurrent construction to the maximum extent
regardless of the implementation of the Capital Security Cost-Sharing
Program.

In its comments, USAID said the report successfully attempts to address
the rationale as well as many of the difficulties in achieving the goal of
concurrent construction of new embassy compounds and facilities to be
occupied by USAID employees on those compounds. USAID said it agreed with
both our recommendations and provided information to support the
recommendations and explain its requirements.

We are sending copies of this report to interested congressional
committees, the Secretary of State, and the Administrator of USAID. We
will also make copies available to others upon request. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me
at (202) 512-4128. Another GAO contact and staff acknowledgments are
listed in appendix IV.

Sincerely yours,

Jess T. Ford
Director, International Affairs and Trade

Appendix I

Scope and Methodology

To examine State's efforts to incorporate office space for the U.S. Agency
for International Development (USAID) into the construction of new embassy
compounds and to assess the cost and security implications of its
approach, we

o 	reviewed the State Department's Bureau of Overseas Buildings Operations
(OBO) construction documents and the Long-Range Overseas Buildings Plans
for fiscal years 2002 to 2007, years 2003 to 2008, and 2004 to 2009;

o 	interviewed State Department and USAID officials regarding completed,
ongoing, and planned new embassy compound projects that include a separate
annex for USAID, including operational, cost, and security issues arising
from nonconcurrent construction and the issues involved in housing USAID
in separate buildings;

o 	interviewed officials from several U.S. construction firms experienced
in building new embassy projects regarding the costs of OBO construction
scheduling practices; and

o 	analyzed OBO estimates of the cost differentials between concurrent and
nonconcurrent construction.

Further, we visited two field locations-in Nairobi, Kenya, and Kampala,
Uganda-where we discussed with State and USAID officers at each post the
implications of construction sequencing to the embassies and USAID.

To analyze the cost impacts of different USAID annex construction
scheduling, we developed a cost model enabling us to extrapolate from
State data the aggregate and annual costs for both concurrent or
nonconcurrent construction projects for USAID annexes. Our model is based
on cost estimate data provided by OBO for 26 projects. (Estimates for
Yerevan, Armenia, were not used because OBO no longer plans to build a
separate annex for USAID.) For some projects, we had estimates of fiscal
year contract award and midpoint construction costs in nominal dollars for
concurrent and nonconcurrent construction. Using such data from 13
projects, we estimated the average percentage cost differential per
project1 to build a nonconcurrent annex as a range of 30.75 percent and
23.83 percent. The higher end of the range results from excluding data for
3 of

1Calculated in fiscal year 2003 dollars.

Appendix I Scope and Methodology

the 13 locations (Kampala, Uganda; Harare, Zimbabwe; and Kingston,
Jamaica) where OBO indicated that site-specific factors accounted for
major deviations from the mean. Both average percentage differentials are
used to project base-year costs for concurrent construction for Abuja,
Nigeria, and for nonconcurrent construction on 11 projects for which we
had incomplete data. We also had data on an additional project (Tbilisi,
Georgia) but used it only to represent the costs of that project, not to
estimate the average cost differential because the data for the project
reflected building sizes for concurrent and nonconcurrent construction
costs that were substantially different. Assumptions included

o 	the length of construction period (24 months for concurrent and 15
months for nonconcurrent),

o 	the 1-year lag between proposed award year for concurrent construction
and nonconcurrent construction,

o  cost distribution over the construction period, and

o  average dollar cost escalation of 3 percent per year.

These assumptions for each of the 26 projects enabled us to estimate

o  annual construction costs,

o  total budget dollar costs, and

o  present value costs in fiscal year 2004 dollars.

We did not verify the accuracy of OBO's cost estimates or its methodology
for estimating costs. However, we did meet with OBO officials responsible
for the cost estimates to discuss their methodology and underlying
assumptions. The cost differentials between concurrent and nonconcurrent
construction that OBO estimated were consistent with those estimated by
two of the contractors we met with.

We conducted our work from December 2003 to July 2004 in accordance with
generally accepted government auditing standards.

                                  Appendix II

                     Comments from the Department of State

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix II
Comments from the Department of State

                                 See comment 1.

Appendix II
Comments from the Department of State

                                 See comment 1.

                                 See comment 2.

                                  Appendix II
                     Comments from the Department of State

The following are GAO's comments on the State Department letter dated
September 14, 2004.

GAO Comments 1.	Our recommendations and matter for consideration are
designed to bring about concurrent construction to the maximum extent
regardless of the implementation of the Capital Security Cost-Sharing
Program.

2. We have revised our statement accordingly.

Appendix III

Comments from the U.S. Agency for International Development

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix III
Comments from the U.S. Agency for
International Development

Appendix III
Comments from the U.S. Agency for
International Development

                                  See comment.

Appendix III
Comments from the U.S. Agency for
International Development

                                  Appendix III
                       Comments from the U.S. Agency for
                           International Development

The following is GAO's comment on the U.S. Agency for International
Development letter dated September 10, 2004.

GAO Comment	We agree with the U.S. Agency for International Development
that many factors should be considered to determine whether housing USAID
in a separate building or within the chancery building is beneficial to
the U.S. government. We have added a brief description of some of these
factors.

Appendix IV

                     GAO Contact and Staff Acknowledgments

GAO Contact John Brummet, (202) 512-5260

Staff 	In addition to the individual named above, Omar Beyah, Janey Cohen,
David Hudson, Bruce Kutnick, and La Verne Tharpes made key

Acknowledgments contributions to this report.

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