    Embassy Construction: State Has Made Progress Constructing New
    Embassies, but Better Planning Is Needed for Operations and
    Maintenance Requirements (30-JUN-06, GAO-06-641).

    In response to 2 bombings of U.S. embassies in Africa in 1998,
    the Department of State embarked on a $21 billion program to
    replace 201 insecure and dilapidated diplomatic facilities. In
    November 2004, GAO reported that State's Bureau of Overseas
    Buildings Operations (OBO), which manages the construction
    program, had implemented reforms to its planning, design,
    construction, and funding processes designed to expedite the
    construction process and prevent cost overruns that were common
    to previous State diplomatic construction programs. This report
    updates GAO's earlier report, by discussing OBO's completion
    rates and costs for embassy construction projects and the impact
    the reforms and other factors have on completion rates. It also
    discusses the changes in the costs for operating and maintaining
    these new facilities.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-641
        ACCNO:   A56204
      TITLE:     Embassy Construction: State Has Made Progress
    Constructing New Embassies, but Better Planning Is Needed for
    Operations and Maintenance Requirements
         DATE:   06/30/2006
      SUBJECT:   Construction costs
    	     Consulates
    	     Cost analysis
    	     Cost overruns
    	     Embassies
    	     Future budget projections
    	     Government facility construction
    	     Schedule slippages
    	     Strategic planning
    	     Cost estimates
    	     New embassy compound
    	     Operations and maintenance costs
    	     Capital Security Construction Program

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    GAO-06-641

         * Results in Brief
         * Background
              * Capital Security Construction Program
                   * Annual Costs and Production
                   * Compound Features and Requirements
                   * Reforms to the Construction Process
         * State Has Made Significant Progress in Completing New Embass
              * Overall Project Cycle Time Was Greatly Reduced Compared with
                   * Average Construction Cycle Time Was Significantly Reduced
                   * Performance Measured against Contractual Schedule Requiremen
                   * Posts Occupied NECs on, ahead of, or within a Month of Sched
              * Most Projects Were Completed within Planned Funding Levels;
                   * Most Project Costs Lower than State's Estimates
                   * Construction Outside the NEC Project Adds to Total Construct
                   * Three Ongoing Projects Show Signs of Cost Growth While Six A
              * State and Contractor Officials Attribute Reductions in Const
                   * Strategic Reforms
                   * Procedural Reforms
                   * Additional Reforms
                   * Effects of Reforms Cannot Be Quantified
              * Various Factors Affect Project Schedules and Costs
                   * Procurement and Material Delivery Can Affect Progress
                   * Understanding Site Conditions
                   * Use of Foreign-Manufactured Materials
                   * Political Conditions in the Host Nation
                   * Staffing and Labor Issues Can Delay Projects
                   * Climatic and Environmental Conditions Can Halt Work
         * Planning for Operations and Maintenance Costs for New Embass
              * Costs of Basic Operations and Maintenance Significantly Incr
              * Utility Costs Increased Significantly Due to New Systems and
              * Need for More and Better Trained Staff to Run and Maintain N
              * Posts Did Not Always Receive Initial Spare Parts
              * OBO and Others Have Developed Guidance for Individual Posts
                   * Assistance Provided Outside of OBO
              * Facilities Operations and Maintenance Planning Not Comprehen
              * Methodologies for Estimating Operations and Maintenance Need
         * Conclusions
         * Recommendation for Executive Action
         * Agency Comments
         * Appendix I: Scope and Methodology
         * Appendix II: Operations and Maintenance Funding Sources
         * Appendix III: Comments from the Department of State
              * GAO Comments
         * Appendix IV: GAO Contact and Staff Acknowledgments
              * GAO Contacts
              * Staff Acknowledgments
                   * Order by Mail or Phone

    Report to the Chairman, Committee on Foreign Relations, U.S. Senate

    United States Government Accountability Office

    GAO

    June 2006

    EMBASSY CONSTRUCTION

    State Has Made Progress Constructing New Embassies, but Better Planning Is
    Needed for Operations and Maintenance Requirements

    GAO-06-641

    Contents

    Letter 1

    Results in Brief 2
    Background 4
    State Has Made Significant Progress in Completing New Embassy and
    Consulate Compounds 9
    Planning for Operations and Maintenance Costs for New Embassy Compounds Is
    Neither Comprehensive Nor Transparent 27
    Conclusions 41
    Recommendation for Executive Action 42
    Agency Comments 42
    Appendix I Scope and Methodology 44
    Appendix II Operations and Maintenance Funding Sources 51
    Appendix III Comments from the Department of State 53
    GAO comments 60
    Appendix IV GAO Contact and Staff Acknowledgments 62

    Tables

    Table 1: Estimated and Actual Total Project Costs for Completed NEC
    Projects 15
    Table 2: Estimated Annual Operating Costs for Completed NECs 41
    Table 3: Major Costs and Funding Sources for Operations and Maintenance of
    Overseas Government-owned and Long-term Lease Office Facilities 51

    Figures

    Figure 1: Features of a Notional NEC (without USAID annex) 7
    Figure 2: Construction of the Standard-design New Embassy Compound in
    Tbilisi, Georgia 9
    Figure 3: Comparison of Planned and Actual Contract Completion, and
    Planned and Actual Occupation Dates of New Embassy Compounds 12
    Figure 4: Previous and New U.S. Embassy in Tunis, Tunisia 29
    Figure 5: Previous and New U.S. Consulate General in Istanbul, Turkey 33

    Abbreviations

    FBO Office of Foreign Buildings Operations

    FEBR Forced Entry and Ballistic Resistant

    ICASS International Cooperative Administrative Support Services

    NEC New Embassy (or Consulate) Compound

    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
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office

    Washington, DC 20548

    June 30, 2006

    The Honorable Richard G. Lugar Chairman

    Committee on Foreign Relations United States Senate

    Dear Mr. Chairman:

    In 1999, the Department of State (State) began the Capital Security
    Construction Program, an unprecedented $21 billion, multiyear program to
    construct 201 new embassies and consulates. This program was developed in
    response to the 1998 embassy bombings in Kenya and Tanzania that killed
    220 people and injured thousands more. The program's primary goal is to
    provide secure, safe, and functional workplace facilities for all
    employees assigned to U.S. overseas posts. This goal is designed to
    implement the Secure Embassy Construction and Counterterrorism Act of
    1999, which requires that new diplomatic facilities abroad be sufficiently
    sized to ensure that all U.S. government personnel at the post are located
    on-site unless security conditions permit otherwise and it is within U.S.
    national interests to locate personnel outside the new facility.1 State's
    Bureau of Overseas Buildings Operations (OBO), which operates the program,
    also intends that these new embassy and consulate compounds (NEC) are
    efficient, state-of-the-art office buildings.

    In the past, we have reported on the significant construction delays and
    cost overruns associated with previous embassy construction efforts. This
    report addresses (1) the progress OBO has made in completing embassy and
    consulate construction projects according to planned schedules and budgets
    and (2) whether posts are prepared to operate and maintain the new
    facilities.

    To complete our work, we reviewed the report of the Overseas Presence
    Advisory Panel,2 previous GAO reports on State's embassy construction
    programs, OBO's past five annual Long-Range Overseas Buildings Plans, the
    files of 18 completed projects, and the monthly program performance
    updates and documents of more than 20 ongoing projects. To track OBO's
    performance in completing construction projects on time and on budget, we
    developed and analyzed a database containing planned and actual project
    schedule and cost data, which were obtained from individual construction
    project files. We interviewed key State officials in Washington on the
    planning for and adequacy of NECs, and we met with contractors currently
    involved in construction projects to discuss OBO's reforms to the planning
    and construction processes. We also visited nine posts with either ongoing
    or completed construction projects to observe the construction process,
    solicit views of State and the contractors' field staff, and review posts'
    plans for operating and maintaining the new facilities.3 We performed our
    work from January 2005 to June 2006 in accordance with generally accepted
    government auditing standards. Appendix I provides more information on our
    scope and methodology.

    1See 22 U.S.C. S: 4865, "Security Requirements for United States
    Diplomatic Facilities."

    2Former Secretary of State, Madeleine Albright, established the Overseas
    Presence Advisory Panel following the 1998 embassy bombings in Africa.
    Department of State, America's Overseas Presence in the 21st Century, the
    Report of the Overseas Presence Advisory Panel (Washington, D.C.: November
    1999).

                                    Results in Brief

    State has made significant progress in completing new embassy and
    consulate compounds in a timely manner and according to planned costs.
    From 1999 to the end of calendar year 2005, State completed construction
    of 18 embassies and consulates at a cost of approximately $1.3 billion.
    Despite the increased size and complexity of the modern facilities it
    constructs, State has significantly reduced the time it takes to complete
    construction of NECs over past programs. In addition, although only
    one-half of State's construction projects were completed according to the
    contractual schedules, all but three were sufficiently completed to allow
    posts to occupy their respective facilities on, ahead of, or within 1
    month after the scheduled move-in date. As a result, approximately 8,700
    U.S. government employees now work in safe, secure, and modern office
    buildings. Moreover, actual construction costs for most completed projects
    were significantly lower than the funding levels OBO reported as needed
    for those projects. Although it is too early to fully assess schedule
    performance and costs of yet-to-be-completed projects, we noted that six
    of the nine ongoing NEC projects scheduled for completion in 2006 are
    currently behind schedule and three of the nine projects are currently
    estimated to cost more than originally intended. However, OBO reported
    that it has taken actions to mitigate the impact of these delays, and, in
    the case of the three projects estimated to exceed original cost
    estimates, that it has notified Congress of the need to reprogram funds as
    a result of higher-than-expected contractor costs for two projects and the
    need to pay workforce remobilization costs to complete the third project.
    OBO and contractors' staff reported that strategic and procedural reforms
    implemented by State-including transforming the former Office of Foreign
    Buildings Operations (FBO) to the Bureau of Overseas Buildings Operations,
    switching to the design-build contract delivery method,4 and developing a
    standard embassy design-have had a cumulative positive effect on project
    cycle times; however, it is difficult to quantify the effects of any
    single reform. We found that other factors specific to individual projects
    also affected OBO's ability to complete work on time and on budget, such
    as the timeliness of procurement and delivery of materials; conditions at
    the project site; political and social conditions in the host nation;
    staffing and labor issues; and climatic and environmental conditions.

    3The posts visited included U.S. embassies in Abuja, Nigeria; Bamako,
    Mali; Conakry, Guinea; Kingston, Jamaica; Luanda, Angola; Phnom Penh,
    Cambodia; Tbilisi, Georgia; and Tunis, Tunisia; and the U.S. consulate in
    Cape Town, South Africa. We also met with the OBO project director for the
    Tashkent, Uzbekistan NEC project.

    Operations and maintenance costs for newly constructed embassies and
    consulates are significantly higher than the operations and maintenance
    costs for facilities they replaced. We estimate that once all 201 NECs are
    completed, these total annual operations and maintenance costs, adjusted
    to 2006 constant dollars, could increase by $111 million over those posts'
    previous facilities, and possibly by several times more. According to
    analyses of data from the International Cooperative Administrative Support
    Services (ICASS) system, OBO staff, and post officials, these costs
    increases are driven in part by technical security requirements that
    resulted in greater utility consumption, the need for highly qualified
    technical staff, and new maintenance requirements that posts did not have
    at their previous locations. State initially did not recognize the
    magnitude of new costs for the day-to-day functional requirements of NECs,
    but State subsequently developed guidance for posts to help determine the
    notional staffing and financial resources for individual NECs. However,
    State has not developed a clear budgetary line item to project operations
    and maintenance costs. Currently, these costs are intermingled with
    domestic and other nonfacilities-related administrative costs among
    several accounts, and no mechanism exists for determining how global costs
    for operations and maintenance will increase in the long-term. Thus,
    decision makers cannot determine whether NEC operations and maintenance
    needs are being adequately planned for and funded. In the past, GAO and
    others noted that inadequate funding for operations and maintenance of
    overseas posts led to unsafe, insecure, and dilapidated embassies. A lack
    of a comprehensive long-term plan that clearly identifies the significant
    increases in resources that are likely to be needed as more NECs come
    online could increase the risk of earlier-than-expected deterioration of
    NECs.

    4The design-build contract delivery method reduces project cycle time by
    combining design and construction in a single contract award and allows
    contractors to begin construction before the building design is complete.

    To protect the $21 billion investment in these new facilities, this report
    contains a recommendation that the Secretary of State develop an
    integrated and comprehensive facilities plan that clearly specifies the
    financial and human resources needed for meeting the immediate and
    long-term operations and maintenance requirements for new embassy
    compounds.

    We received written comments from the State, which are reprinted in
    appendix III. The department generally agreed with our findings and
    conclusions. Moreover, State reported that it supports and would take the
    necessary steps to address our recommendation. State also provided
    technical comments, which were incorporated throughout the report, as
    appropriate.

                                       Background

    In the wake of three bombings at U.S. facilities in Beirut, Lebanon-the
    U.S. Embassy in April 1983, the Marine barracks in October 1983, and the
    U.S. Embassy Annex in September 1984-then Secretary of State George P.
    Schultz convened the Advisory Panel on Overseas Security to review
    security issues at U.S. overseas facilities. Among the panel's many
    suggestions for improving security for U.S. overseas missions and
    employees, it recommended that the chanceries, consulates, and other
    office buildings at 126 of the 262 overseas posts be replaced due to
    security conditions and their locations. In 1987, State estimated that
    under the resulting Diplomatic Security Construction Program-also known as
    "the Inman Program" after the head of the Advisory Panel, Rear Admiral
    Bobby Inman (Ret.)-it could complete construction of 57 new office
    buildings and other capital projects for approximately $2.1 billion. In
    November 1991, however, we reported that the program was characterized by
    funding shortfalls, construction delays, and cost increases, and State
    ultimately completed only 24 of the 57 planned new office buildings under
    the program.5 From 1994 to1998, Congress appropriated $134 million for
    security-related capital projects,6 although not all of this money was
    targeted to the construction of new embassies or consulates.

    Capital Security Construction Program

    On August 7, 1998, terrorist bombings at the U.S. Embassies in Nairobi,
    Kenya, and Dar es Salaam, Tanzania, killed more than 220 people and
    injured 4,000 others. Among the dead were 12 American U.S. government
    employees and family members, in addition to 32 Kenyan and 8 Tanzanian
    nationals working at those embassies. In January 1999, the Accountability
    Review Boards, formed to investigate the bombings, reported that unless
    security vulnerabilities at U.S. embassies and consulates were addressed,
    "U.S. government employees and the public in many of our facilities
    abroad" would remain at risk from terrorist bombings.7 The board also
    noted more than 200 attacks at U.S. diplomatic facilities from 1987 to
    1997. Also in 1999, the Overseas Presence Advisory Panel reported on the
    unsafe, overcrowded, deteriorating, and "shockingly shabby" conditions of
    U.S. embassies and consulates. Both the board and the panel recommended
    that State embark on a multiyear, multibillion dollar program to replace
    insecure and aging diplomatic facilities worldwide. This new effort was
    named the Capital Security Construction Program.

      Annual Costs and Production

    In October 1998, Congress appropriated $627 million for reestablishing
    embassies in Kenya and Tanzania, relocating other high-risk embassies and
    consulates, and improving security at embassies and consulates worldwide.8
    From fiscal year 1999 to the end of calendar year 2005, State

    5GAO, State Department: Management Weaknesses in the Security Construction
    Program, GAO/NSIAD-92-2 (Washington, D.C.: Nov. 29, 1991) and GAO, State
    Department, Status of the Diplomatic Security Construction Program,
    GAO/NSIAD-91-143BR (Washington, D.C.: Feb. 20, 1991).

    6Congressional Research Service, Embassy Security: Background, Funding,
    and the Budget, RL 30662 (Washington, D.C.: Oct. 4, 2001).

    7This board was appointed by former Secretary of State Madeleine Albright
    to investigate the facts and circumstances surrounding the 1998 embassy
    bombings. See Department of State, Report of the Accountability Review
    Boards on the Embassy Bombings in Nairobi, Kenya and Dar es Salaam,
    Tanzania on August 7, 1998 (Washington, D.C.: Jan. 1999), and Admiral
    William J. Crowe, Press Briefing on the Report of the Accountability
    Review Boards on the Embassy Bombings in Nairobi and Dar es Salaam
    (Washington, D.C.: Jan. 8, 1999).

               o  obligated a total of $3.1 billion for the construction of 40
               NECs;9 and
               o  completed 18 NEC projects through the end of calendar year
               2005, at a cost of approximately $1.3 billion.10

               As of year-end 2005, State had 22 ongoing NEC projects, 9 of which
               are scheduled for completion by year-end 2006. From 2009 to 2018,
               State expects an average annual funding level of approximately
               $1.4 billion for NEC projects. In total, State plans to build 201
               NECs under the Capital Security Construction Program.

               Compound Features and Requirements

    			  NECs generally consist of a chancery or consulate building,
               compound access control buildings, utility buildings housing the
               mechanical and electrical systems that operate the compound,
               Marine Security Guard quarters (if a post has a Marine
               contingent), and an antiram/anticlimb perimeter fence (see fig.
               1). Depending on the site, the project budget, and the needs of
               the post, a new compound could also include a General Services
               support annex, a warehouse, maintenance shops, recreation
               facilities, and employee and public parking areas. Some compounds
               also include an annex building for USAID or other program or
               agency functions that do not require access to secure areas. On
               rare occasions, the new compounds may also include housing units
               for post employees, although these units are generally only
               located in high security-risk locations, such as Kabul,
               Afghanistan.

      Compound Features and Requirements

    8Omnibus Consolidated and Emergency Supplemental Appropriations Act of
    1999, Pub. L. No. 105-277, 112 Stat. 2681 (1998).

    9Only NEC projects funded under the capital security construction fund
    were included in this total. The cited obligation does not include funds
    budgeted for Embassies Baghdad and Beijing, which combined are estimated
    at more than $1 billion. Since 1999, State has also constructed nine
    annexes on existing diplomatic compounds, four interim office buildings,
    four fit-outs of newly acquired buildings, several major rehabilitation
    projects, and $100 million in compound security projects.

    10Total costs for these NEC projects include the costs for site
    acquisition, design, construction, security equipment, furniture and
    furnishings, and project supervision. Reimbursements from other agencies
    are not included in the total costs.

    Figure 1: Features of a Notional NEC (without USAID annex)

    NECs must comply with the physical security and collocation requirements
    of the Secure Embassy Construction and Counterterrorism Act of 1999.11 The
    act requires that, in site selection, the Secretary of State shall ensure
    that all U.S. government personnel under the authority of a chief of
    mission, including foreign national employees, be colocated onto a single
    compound. In addition, all buildings on NECs must meet stringent security
    standards for setback and blast resistance. However, according to State
    officials and the Foreign Affairs Handbook, only those buildings where
    U.S. government personnel will be stationed are required to be on
    compound. Buildings that do not contain desk space for employees or in
    which employees are not permanently located, such as warehouses, need not
    be on the new compound.

    11Consolidated Appropriations Act of 2000, Pub. L. No. 106-113, Div. B,
    sec. 1000(a)(7), 113 Stat. 1536 (1999). State elaborates on these
    requirements in the U.S. Department of State Foreign Affairs Handbook, 12
    FAH-5.

      Reforms to the Construction Process

    In 1991, we reported that State was unable to complete as many projects as
    originally planned under the Inman Program due to systemic weaknesses in
    program management and funding limitations.12 We also reported that this
    program suffered from delays and cost increases due to poor program
    planning, difficulties acquiring sites, changes in security requirements,
    and inadequate contractor performance.

    In November 2003, we reported on a number of organizational and managerial
    reforms to State's current capital construction process.13 These reforms,
    which were designed to reduce the construction cycle times and costs,
    include the following:

               o  the transformation of the Office of Foreign Buildings
               Operations to the Bureau of Overseas Buildings Operations with
               responsibility for all capital construction and maintenance
               operations at U.S. diplomatic facilities at home and abroad;

               o  the development of the Long-Range Overseas Buildings Plan,
               which prioritizes and summarizes capital construction projects
               over a 6-year cycle;
               o  efforts to standardize the planning, design, and construction
               processes, including eliminating the use of design-bid-build
               contract delivery in favor of design-build contract delivery-and
               the development of a standardized design for most new embassy and
               consulate compound projects (see fig. 2);
               o  monthly project status reviews in Washington, where senior OBO
               managers meet to discuss ongoing projects and resolve issues that
               could adversely impact construction schedules and costs;
               o  quarterly meetings of an Industry Advisory Panel, which advises
               OBO on industry best practices in the construction sector;
               o  advance identification and acquisition of sites; and
               o  additional training for OBO headquarters and field staff.

               Figure 2: Construction of the Standard-design New Embassy Compond
               in Tbilisi, Georgia

               State Has Made Significant Progress in Completing New Embassy
    			  and Consulate Compounds

    			  State has reduced the average project cycle time by approximately
               2 years and 9 months, compared with that for embassies built
               during the 1980s and early 1990s. Though only 9 of the 18 recently
               constructed compounds were completed according to contractual
               schedule requirements, 15 of the 18 projects were sufficiently
               completed to allow posts to occupy their respective facilities on,
               ahead of, or within 1 month after the scheduled move-in date, and
               State reported that, as of March 31, 2006, approximately 8,700
               U.S. government employees had been relocated to new, safe, and
               secure facilities. Actual NEC construction costs were most often
               significantly less than the estimates reported to Congress;
               however, in some cases, projects were completed outside the
               official NEC project and, therefore, the total cost was not
               captured. Although it is too early to fully assess schedule
               performance and costs of yet-to-be-completed projects, we noted
               that six of the nine NEC projects scheduled for completion in 2006
               are currently behind schedule and that three of the nine projects
               are currently estimated to cost more than originally intended.
               However, OBO reported that it has taken actions to mitigate the
               impact of these delays, and that it has notified Congress of the
               need to reprogram funds as a result of higher-than-expected
               contractor bids for two projects and the need to remobilize a
               workforce to complete a third project. Strategic and procedural
               reforms implemented by State-including the creation of OBO, the
               implementation of performance management and strategic planning
               principles, and the use of the design-build contract delivery
               method and a standard embassy design-resulted in reduced project
               cycle times and costs. However, due to the small numbers of
               projects, it is difficult to quantify the specific effects of any
               one reform. Many factors influence OBO's ability to complete
               construction on time and on budget, such as the timeliness of
               procurement and delivery of materials; conditions at the project
               site; political and social conditions in the host nation; staffing
               and labor issues; and climatic and environmental conditions.

               Overall Project Cycle Time Was Greatly Reduced Compared with Past
    			  Programs, but Performance Measured against Project Schedule
    			  Requirements Is Mixed

    			  Depending on the benchmark used, OBO's performance varied in
               completing NEC projects on schedule. We examined three performance
               indicators for timeliness: (1) total project cycle time, which we
               defined as the number of months from the start of the design phase
               to construction completion; (2) whether construction was completed
               according to contractual requirements; and (3) whether posts
               occupied the new compounds by the planned occupancy date.

               Average Construction Cycle Time Was Significantly Reduced

    			  We compared the cycle times for the 18 projects completed under
               the current program with projects completed during the late 1980s
               and early 1990s. In November 1991, we reported that 11 of the
               projects then ongoing had completion dates extended by 14 to 54
               months. Moreover, OBO reported, according to FBO records, that the
               average cycle time for 13 embassy construction projects completed
               from 1986 to 1991 was 69.4 months. In contrast, the average cycle
               time for the 18 completed projects under the current program was
               36.7 months, approximately 2 years and 9 months less than the
               average cycle time State reported for the earlier projects. State
               officials stated that these reductions are even more impressive,
               given that the scopes of work under the current effort, consisting
               of multistructure compounds, are significantly larger and more
               complex than facilities constructed during the Inman program,
               which consisted of single buildings. Moreover, State intends to
               reduce cycle times even further. In November 2003, we reported
               that State established new performance targets for project cycle
               times based on the size of the NEC. Although individual contract
               requirements may result in slightly different authorized project
               durations, since fiscal year 2003 State now targets design and
               construction cycle times to average 15 months for small NECs, 24
               months for medium-sized NECs, and 28 months for large NECs.14
               Construction industry representatives and contractors with whom we
               met stated they have concerns over whether these shorter cycle
               times can be met. They indicated that the new time frames increase
               performance risks for them, which could expose them to financial
               losses and result in higher future bids. However, no NECs built to
               the new time frames have yet been completed. Thus, it is too early
               to determine the effect of the reduced timeframes on contractor
               performance, or to assess the impact the new timeframes may have
               on contract costs.

               Performance Measured against Contractual Schedule Requirements Is Mixed

    			  Based on the requirements set forth in the construction contracts,
               however, State's record in completing construction projects
               according to planned schedules was mixed, with some projects
               completed significantly ahead of schedule and others delivered
               substantially behind.15 Figure 3 shows that construction for 9 of
               the 18 completed NEC construction projects was finished on or
               before the planned construction completion date.16 Of the
               remaining nine projects, two were completed within 1 month after
               the planned completion date, three within 1 to 3 months after the
               planned date, and four within 3 to 6 months after the planned
               completion dates. State officials said that when contractors are
               late the department assesses liquated damages.17 As of April 2006,
               OBO had collected or assessed approximately $2.4 million in
               liquidated damages.

    12 GAO/NSIAD-92-2 .

    13GAO, Embassy Construction: State Department Has Implemented Management
    Reforms, but Challenges Remain GAO-04-100 , (Washington, D.C.: Nov. 4,
    2003).

      State Has Made Significant Progress in Completing New Embassy and Consulate
                                       Compounds

    Overall Project Cycle Time Was Greatly Reduced Compared with Past Programs, but
    Performance Measured against Project Schedule Requirements Is Mixed

      Average Construction Cycle Time Was Significantly Reduced

      Performance Measured against Contractual Schedule Requirements Is Mixed

    14The 18 completed NEC projects cited above began between 1999 to 2002,
    and thus were not held to the new average cycle time requirements.

    15The terms of each construction award specify the time frame that
    contractors have to complete the requirements of the contract.

    16For the contract completion date, we used the "substantial completion"
    date, which is the date that OBO certifies a contractor has met all
    requirements of the contract, although minor items may still need
    completion. For planned completion dates, we used the original dates set
    forth in the contract unless a contract modification resulted in a time
    extension.

    17Liquidated damages provisions essentially provide for a contractor to
    pay a specified amount (typically on a per-diem basis) for failing to
    perform some element of the contract. Such provisions are typically tied
    to maintaining contract schedule, with the contractor bearing a stipulated
    daily cost for failing to meet the schedule by reason of its inadequate
    performance.

    Figure 3: Comparison of Planned and Actual Contract Completion, and
    Planned and Actual Occupation Dates of New Embassy Compounds

    We also reviewed schedule performance for the nine ongoing projects that
    OBO plans to complete during calendar year 2006, as presented in OBO's
    April 2006 Program Performance Review meeting.18 At the time of the
    meeting, six of the nine projects were already behind schedule or
    exhibited signs of missing their scheduled completion dates. Reasons for
    some of the delays were provided in the projects' monthly summaries. For
    example, terminating the contractor for cause shut down the Dushanbe,
    Tajikistan, NEC project for many months. As a result, the project is
    currently expected to be more than 23 months late. OBO recently awarded a
    construction contract to a new contractor and expects to complete
    construction for post occupancy by July 2006. OBO reported that, as of
    March 31, 2006, construction of the Astana, Kazakhstan, NEC was 25 days
    past its scheduled completion date and that the project would likely be
    more than 9 months late when completed. OBO also reported that
    construction of the Kingston, Jamaica, NEC would likely be delayed by more
    than 5 months and that the Bamako, Mali, and Freetown, Sierra Leone, NEC
    projects would likely miss their scheduled completion dates by
    approximately 1 month. Finally, OBO reported that construction of the
    Conakry, Guinea, NEC was certified as substantially complete on March 16,
    2006, 31 days past its scheduled completion date. OBO said it has taken
    actions to address delays with these projects, including revising contract
    schedules; providing time extensions, where warranted; withholding
    payments until projects are back on schedule; assessing liquidated
    damages; accelerating work plans; and adding personnel to the site. In
    addition, contractors for some of the NEC projects requested contract
    modifications for time extensions. At the time of the April 2006 meeting,
    no delays were considered likely or foreseen for the NEC projects in
    Belmopan, Belize; Lome, Togo; and Managua, Nicaragua.

      Posts Occupied NECs on, ahead of, or within a Month of Schedule

    While it is important to consider performance against contractual
    requirements, the purpose of the program is to move staff into safe,
    secure, and functional facilities as quickly as possible; therefore, we
    also compared the planned and actual building occupancy dates. State
    officials reported that, between completion of construction and occupancy,
    a 60-day facilities accreditation process must take place, involving
    certification of the mechanical, electrical, and security systems, and
    other requirements for the compound. Once all systems within the compound
    are deemed functional, and the security, safety, and construction
    requirements are met, posts may occupy the new compound. Nine of the 18
    completed NECs were certified for occupancy ahead of schedule, and another
    6 posts occupied their new compounds within approximately 1 month past
    their expected occupation date. Only three posts were occupied
    significantly later than planned. OBO reported that, as of March 31, 2006,
    approximately 8,700 U.S. government employees had been relocated to new,
    safe, secure, and functional facilities, and it plans to relocate another
    3,400 by the end of this calendar year.

    18This Program Performance Review Meeting was held from April 25 to 26,
    2006, and reviewed project data, as of March 31, 2006.

    Most Projects Were Completed within Planned Funding Levels; However, Work beyond
    Original Project Scopes Required Additional Funds

    Actual costs for all but 4 of 18 completed NEC projects were significantly
    less than State's cost estimates. However, construction outside the
    original NEC project scope adds to the total cost of construction at the
    18 NEC sites. In addition, as of April 2006, six of the nine ongoing NEC
    projects were within OBO's budget parameter, while three ongoing projects
    showed signs of cost growth.

      Most Project Costs Lower than State's Estimates

    We compared the actual total project costs for State's 18 completed NEC
    projects with the estimated total project funds that State told Congress
    it would need to complete those projects,19 and we found that actual costs
    for 14 of the 18 projects were significantly less than State's cost
    estimates (see table 1). Actual obligations for these 14 projects ranged
    from about 5 to 33 percent less than what State had reported to Congress
    concerning the amount that would be needed to complete construction.
    Reasons given for these lower-than-expected costs varied, including the
    following:

               o  Contractors bundled proposals for multiple projects. OBO
               reported that on five occasions it awarded contracts based on
               combined proposals, including for Dar es Salaam and Nairobi;
               Yerevan, Armenia, and Sofia, Bulgaria; Tunis, Tunisia, and
               Kampala, Uganda; Tbilisi, Georgia, and Tashkent, Uzbekistan; and
               the ongoing projects in Lome, Togo, and Accra, Ghana. These
               bundled proposals allowed the contractor to create an economy of
               scale, thereby allowing State to award the combined projects at a
               lower cost than the estimated sum of the individual projects.
               o  Competition among contractors sometimes resulted in aggressive
               proposals at less cost than the government estimated.
               o  OBO's policy to limit changes to project scopes resulted in
               fewer cost increases.
               o  Removal of certain facilities or features from the project
               scopes reduced overall costs; however, sometimes these costs
               reappeared in the form of secondary construction projects outside
               the scope of the NEC project.

               In some cases, construction and fit-out of certain facilities
               outside the scope of the NEC contract resulted in additional costs
               for completing all facilities on the new compound. The need for
               additional construction derived from multiple sources, including
               security requirements established after construction of the NEC
               began, nonconcurrent appropriations that funded USAID facility
               construction,20 and certain items that were either removed from
               the original scope of work or deferred for later construction.

               Table 1: Estimated and Actual Total Project Costs for Completed
               NEC Projects

               Source: Department of State.

               Note: As of year-end 2005, Cape Town, Kabul, Luanda, Phnom Penh,
               Tashkent, Tbilisi, and Yaounde had pending claims for contract
               modifications that could change the value of actual obligations in
               the table.

               aThe congressional notification estimates and the actual costs do
               not include costs funded by other agencies. Reimbursements from
               other agencies totaled approximately $22.7 million, which is
               primarily for furniture and equipment.

               Actual costs for four projects were greater than the expected
               costs originally reported to Congress, with actual costs for three
               of them (Kabul, Kampala, and Luanda) being significantly greater
               than their expected costs. In the case of Kabul, OBO awarded a
               cost-plus-fixed-fee contract to construct a new embassy compound
               in September 2002. By February 2004, project costs had increased,
               and the schedule had slipped in part because, as State's Inspector
               General reported, the cost-plus-fixed-fee contract provided little
               incentive for the contractor to contain costs or complete
               construction according to schedule.21 As a result, in September
               2004, OBO reprogrammed $43.9 million previously allocated to
               construct a NEC in Surabaya, Indonesia, to the Kabul NEC project
               to cover the costs for converting the existing cost-plus-fixed-fee
               contract to a fixed-priced contract, as well as for completing
               construction requirements. Costs for the Luanda, Angola, project
               rose by approximately 32 percent due to a higher-than-anticipated
               contract award and to security-driven design changes. In Kampala,
               costs increased by more than 11 percent to resolve defective
               designs for the building's windows and the heating and ventilation
               system, as well as to compensate the contractor for construction
               delays resulting from the redesign efforts.

               Overall, OBO obligated a net $165.5 million less for these 18
               projects than the amount it had reported to Congress it would
               need. OBO reprogrammed this net difference for alternative uses,
               including the following:

               o  Acquiring sites and conducting planning for NEC projects in
               future years.
               o  Providing additional funds for other projects. For example, in
               December 2005, State notified Congress of its intent to reprogram
               more than $48 million in unused funds from nine completed NEC
               projects to enable the awarding of several fiscal year 2005
               projects-NECs in Khartoum, Sudan; Mumbai, India; Quito, Ecuador;
               and the new annex building in Moscow, Russia-where winning
               proposals exceeded the government estimates. In addition, OBO
               notified Congress that it would reprogram $13 million to restart
               construction at another post-Dushanbe, Tajikistan-where the
               previous contractor was terminated for cause.
               o  Accelerating funding of future year projects. For example,
               State reported that the new embassy compound in Freetown, Sierra
               Leone, was funded with approximately $60 million in funds
               previously obligated, but not needed, for other NEC projects.

               Construction Outside the NEC Project Adds to Total Construction Costs

    			  OBO also obligated, or plans to obligate, additional funds for 9
               of the 18 completed posts to construct facilities that were either
               not originally intended as part of the NEC or were deferred to
               future years. Some of these additional projects are USAID annexes
               for which USAID did not receive funding in time for concurrent
               construction with the rest of the NEC, and, as a result, deferred
               the projects to a later date.22 Construction for one USAID
               annex-Dar es Salaam-was conducted concurrent with, but under a
               different contract from, the NEC project. In addition, prior to
               2002, quarters for Marine Security Guards were not required to be
               colocated on NECs, and the change in security requirements of
               embassy compounds was applied retroactively to newly constructed
               NECs. As a result, State was required to construct housing for
               posts' Marine Security Guards at five of the completed NECs, thus
               raising their costs.23 Finally, the additional construction
               accounts for other facilities identified as needed, but that were
               outside the original scope of the NEC project, such as a
               cafeteria, recreation center, warehouse, and health unit for the
               Kabul NEC; and an annex and the completion of the previously
               unfinished third floor at the Abuja, Nigeria, NEC. Construction
               costs for these additional projects is approximately $168 million
               to date, including projects planned for fiscal year 2006, a 31
               percent increase over the NEC project costs at these posts. Once
               all construction is complete, these additional projects increase
               the total cost of construction at the 18 NEC sites from
               approximately $1.25 billion to approximately $1.42 billion.

               Three Ongoing Projects Show Signs of Cost Growth While Six Are
    			  Within Budget Parameters

    			  We also compared the current budget for the nine ongoing NEC
               projects with the budgets OBO had reported to Congress as being
               needed for these projects.24 Three of the nine ongoing projects
               have thus far experienced cost increases ranging from
               approximately 6.5 to 16 percent over what OBO initially estimated
               it needed, while three projects were on budget and the remaining
               three projects were under budget by 4 to 8.5 percent. In total,
               costs for these nine projects have thus far increased by a net of
               approximately $9.2 million.25 The Dushanbe project has experienced
               a $13 million increase attributable to remobilizing a workforce to
               complete the portions of the NEC that were unfinished when the
               original contractor was terminated in June 2005. In addition, OBO
               reported that costs increases to the Belmopan and Conakry NEC
               projects were due to higher-than-expected contractor bids, while
               decreased costs for Astana, Lome, and Managua are due to
               lower-than-expected contractor bids.

               State and Contractor Officials Attribute Reductions in Construction
    			  Cycle Time and Costs to Reforms, but Limited Data and Indeterminate
    			  Factors Make It Difficult to Quantify the Effects of Specific Reforms

    			  Strategic reforms cited as having the greatest impact include the
               elevation in status of the former Office of Foreign Buildings
               Operations to the Bureau of Overseas Buildings Operations, the
               implementation of performance-based management principles at the
               strategic and project level, and the development of the Long-Range
               Overseas Buildings Plan. Significant procedural reforms include
               the switch to the design-build contract delivery method and the
               establishment of a standard embassy design. In addition, State
               continues to examine its procedures for additional reforms to
               improve schedule performance and reduce costs of NEC projects.
               Other factors affecting project schedules and costs make it
               difficult to determine the effects of any one reform.

               TStrategic Reforms

    			  he elevation of the former Office of Foreign Buildings Operations
               to the Bureau of Overseas Buildings Operations was one of the most
               important reforms made by State related to reducing project cycle
               times and limiting cost increases. Elevation to bureau status
               allowed OBO to become the equal of the regional bureaus, and
               resulted in OBO and the regional bureaus and overseas posts having
               more of a traditional client-service provider type relationship.
               Prior to this reform FBO often subordinated its own
               responsibilities to the needs and desires of regional bureaus and
               posts. For example, many of the delays and cost overruns during
               the Inman program occurred because FBO did not reject change
               requests from regional bureaus and overseas posts. As a coequal,
               however, OBO can and does enforce a more disciplined process that
               discourages change orders that result in delays and cost
               increases. In fact, OBO considers project budgets to be locked
               once project funds are requested from Congress, and OBO will not
               request additional funds from Congress for those projects.

               The second strategic reform that contributed significantly to
               improved performance was OBO's implementation of performance-based
               management principles at both the strategic and project level. OBO
               established specific and quantifiable strategic goals for the
               program that the Office of Management and Budget reported "clearly
               represent meaningful measurements of progress."26 Moreover, OBO
               now integrates all affected parties into the strategic management
               of the program, as well as throughout all facets of individual
               projects. OBO also conducts monthly reviews of all ongoing capital
               projects, including those outside the Capital Security
               Construction Program, which allows management to monitor
               performance and provide early warnings of potential problems.

               A third strategic reform viewed as positively impacting the
               program was the development of the Long-Range Overseas Buildings
               Plan, which was first implemented in 2002 in response to our
               recommendations.27 The plan, which is updated annually to ensure
               that future construction plans align with changing priorities and
               budget actions, outlines, justifies, and provides likely cost
               estimates for all capital projects over a 6-year time frame.28
               Contractors stated that the plan helps them develop long-term
               strategies for targeting projects for bidding, determining
               staffing needs, finding reliable suppliers that can meet OBO's
               standards, and developing relationships with foreign and domestic
               subcontractors. The plan also better allows regional bureaus to
               determine where to apply scarce resources for capital maintenance
               and provides a baseline from which posts can begin specific
               processes for prioritizing work and planning their staffing in
               advance of the NEC process.

               Procedural Reforms

    			  Contractors and OBO headquarters and project staff stated that the
               switch to design-build contract delivery and the development of
               the standard embassy design have had the greatest influence over
               cycle times and project costs of all the procedural reforms
               implemented under the current program. The design-build contract
               delivery method is designed to reduce project cycle time in two
               ways. First, it reduces the number of bidding and award cycles
               from two (one for design and one for construction) to one for both
               design and construction. Second, it allows the contractor to begin
               construction before the design is complete. Sixteen of the 18
               projects utilized this contract delivery method. Contractors and
               OBO project directors believed the design-build project delivery
               method likely reduced total cycle times for their projects.
               However, contractors' field staff at some of the posts we visited
               stated they were sometimes unable to start construction as soon as
               they wanted. They said that construction, which was scheduled to
               begin when the total design was approximately one-third finished,
               was delayed until the Bureau of Diplomatic Security approved the
               full design for the buildings. In addition, the project director
               from the Phnom Penh project stated he could have reduced the
               project's cycle time by as much as 4 months if he had issued a
               notice to proceed with construction at the 35 percent design
               phase, the point at which designs for foundations are generally
               completed, rather than at the 60 percent design phase.

               The standard embassy design is a tool that OBO reports better
               enables it to plan, award, design, and construct NECs; simplifies
               its construction process; and provides economically feasible
               facilities. The standard embassy design consists of a series of
               documents describing requirements for site selection, building
               plans and specifications, design criteria, site adaptation, and
               contract requirements. It also provides plans and requirements for
               all features of NECs, including office buildings, compound access
               control and utility buildings, housing for Marine security guards
               at posts with a Marine contingent, and perimeter fences. OBO
               believes that standard embassy designs help speed the planning,
               design, and construction of NECs by reducing the amount of time it
               takes to issue requests for proposals, prepare contract documents
               and issue awards, and complete design reviews.

               Additional Reforms

    			  State continues to examine its operations to discover ways to
               improve cycle times and reduce costs. In particular, OBO recently
               developed new ways to think toward achieving these goals,
               including proposed additional changes to the construction process.
               Some of these proposed additional process changes include the
               following:

               o  clarifying language in the Request for Proposal documents;
               o  ensuring, to the extent possible, that contractor and OBO
               project directors have the technical and management skills
               required to complete the projects on time and on budget;
               o  adapting the standard embassy design for NEC projects
               constructed from 2006 and beyond to make NECs more energy
               efficient and sustainable by applying a more rigorous value
               engineering process and adopting industry best practices; and
               o  providing guidance to posts on developing operations and
               maintenance plans.

               Effects of Reforms Cannot Be Quantified

    			  In November 2003, we reported that since no projects had been
               completed under the reformed processes, it was too early to
               determine the impact of the reforms.29 Taken as a whole, the
               reforms have greatly reduced the overall cycle time for
               constructing NECs. However, we are still unable to quantify with
               certainty the effects of specific reforms due to the relatively
               small number of projects completed under each reform. Although OBO
               has now completed eight standard-designed embassies and eight
               nonstandard-designed embassies delivered under the design-build
               contracting method, these totals are insufficient to complete
               meaningful quantitative analysis because they each are sensitive
               to statistical outliers. Moreover, accounting for factors outside
               the control of the reformed OBO processes, including the size and
               location of a new embassy, among others, requires that projects be
               categorized into even smaller subgroups. As a result, comparison
               of these differing categories becomes even more susceptible to the
               effects of statistical outliers.

               Various Factors Affect Project Schedules and Costs

    			  Many issues specific to individual NEC projects can affect project
               costs and schedules. Some factors are controllable by OBO and the
               contractors, while others may not be. Factors that we found
               affecting our case study projects included the following:

               o  the timeliness of procurement and delivery of materials,
               o  site conditions,
               o  political and social conditions in the host nation,
               o  staffing and labor issues, and
               o  climatic and environmental conditions.

               Various Factors Affect Project Schedules and Costs

    			  OBO and contractors both noted the difficulties with procuring and
               ensuring timely delivery of materials to NEC work sites. OBO and
               contractor project staff also stated that the contractors
               sometimes did not appreciate the logistical difficulties
               associated with delivering materials to remote locations. For
               example, the contractor for the Bamako NEC said it originally
               estimated 1 month as the time it would take to send materials from
               the supplier to the project site. In reality, the first
               stage-shipping the material to Dakar, Senegal-took approximately 1
               month, but it took another month for the material to travel
               approximately 650 miles overland by rail or roads to the project
               site. Our site visits to Luanda and Cape Town also revealed that
               materials frequently arrived late or in insufficient quantities,
               forcing certain activities to be postponed.

               One set of materials that contractors frequently had problems
               obtaining were Forced Entry and Ballistic Resistant (FEBR) doors
               and windows. Because of the long manufacturing and delivery lead
               times for these doors and windows, contractors must order these
               materials well in advance of when they would actually be
               installed. These lead times are the result of a limited supplier
               base for FEBR doors and windows. However, as the construction
               program matured, demand increases for FEBR materials made it
               increasingly difficult for contractors to obtain FEBR doors and
               windows in a timely manner. As a result, beginning in 2005, OBO
               began providing them as government furnished materials on its NEC
               contracts. As such, OBO is now responsible for ensuring the
               procurement and delivery of the FEBR doors and windows to meet the
               contractors' production schedules.

               NEC construction is also affected by the contractor's ability to
               clear materials through customs in a timely manner. Since the
               volume of shipments and materials can overwhelm post capabilities,
               OBO sometimes provides a shipping clerk responsible for working
               with the host nations' customs officials to clear materials for
               use at the site. A host nation's lack of responsiveness, however,
               can lead to delays. For example, project staff for the Conakry and
               Luanda NECs cited frequent month-long delays in clearing items
               through customs. In Conakry, the contractor considered hiring
               local legal assistance to expedite the release of materials. In
               Luanda, embassy personnel reported numerous instances of the
               Government of Angola delaying the customs clearance process.
               Delays in each of these countries often required official
               involvement by high-level U.S. diplomats, including the respective
               ambassadors, to release the construction materials.

               Understanding Site Conditions

    			  In developing the requirements for an NEC, OBO provides
               geotechnical information, such as the type of soil and the depth
               to bedrock, derived from a limited number of soil borings on the
               NEC site. In some past instances, this information did not always
               provide an accurate picture of the true soil conditions on the
               site, which resulted in subsequent change orders that increased
               costs and extended project schedules. For example, in Conakry,
               Guinea, deep formations of soft soil and large voids were
               discovered only after construction began, which necessitated a
               change from deep pilings to a mat foundation. As a result, the
               original project schedule was delayed by 141 days and costs
               increased by $750,000. More recently, OBO was forced to adjust the
               scope of the Skopje, Macedonia, NEC project because the steepness
               of the grade required more funding to prepare the site than OBO
               had allocated. Other NEC projects cited by contractors as having
               different site conditions than expected include Abu Dhabi, United
               Arab Emirates; Astana; Freetown; and Abuja. OBO has recognized the
               difficulties contractors have faced in developing proposals based
               on limited information, and has indicated that it will conduct
               more extensive site investigations and provide more detailed
               information when issuing future requests for proposals.

               Use of Foreign-Manufactured Materials

    			  OBO and contractor officials stated that contract requirements
               call for contractors to use either American materials or those
               that meet American standards. However, to reduce the costs
               associated with procurement and shipping of American-made
               materials, it is sometimes in the contractors' interests to use
               foreign-manufactured materials. Contractor officials stated that
               to use comparable-quality foreign-manufactured materials, OBO
               requires them to show that the substitute materials meet U.S.
               standards, and are substantially equivalent to the materials to be
               replaced. In certain instances, OBO has allowed contractors to use
               materials from foreign suppliers if the contractor could
               demonstrate that the material met American standards. For example,
               in Cape Town, South Africa, the contractor successfully
               demonstrated that a local steel company could provide rebar that
               met U.S. standards. In doing so, the contractor reduced the time
               and costs associated with shipping rebar from the United States to
               South Africa. However, contractors noted that on other projects
               OBO project directors did not consistently approve the use of
               materials even after their compliance with U.S. standards was
               demonstrated. For example, most embassy designs require the use of
               Indiana limestone for the building facades, and shipping this
               material overseas is expensive. One contractor for multiple
               projects in Africa reported that it had demonstrated that stone
               from Portugal met the American standards for stonework, and the
               contractor received approval to use it in 1 location. The OBO
               project director for another project, however, would not approve
               the use of this stone. To address this issue, OBO is developing a
               list of foreign made materials that have already been demonstrated
               as meeting American standards and that have been approved for use
               on some construction projects. This list will enable expedited and
               more consistent decisions regarding the use of foreign materials.

               Political Conditions in the Host Nation

    			  Changing political and social conditions and relations between the
               United States and the host nation can impact NEC schedules and
               costs. In addition, they can affect the capacity and usage of the
               NEC. For example, a civil war in Cote d'Ivoire disrupted
               construction of the Abidjan NEC, delaying its completion by 3
               months and increasing costs by approximately $1 million, as a
               result of the delay. Moreover, during the civil war, many agencies
               moved operations from Abidjan to other nearby U.S. embassies but
               did not return once the country stabilized. As a result, the new
               compound currently operates at about one-half its capacity. OBO
               staff in Washington reported that canceling the project as a
               result of the war would have resulted in tens of millions of
               dollars in contract termination costs; therefore, the decision was
               made to continue as planned.

               U.S. relations with host nations can also affect construction time
               frames and costs. In Tashkent, the Uzbek government required that
               the U.S. government vacate an Uzbek airbase, which was being used,
               among other things, as a logistical center for the Tashkent NEC
               construction project. As a result, construction materials were
               airlifted to Almaty, Kazakhstan, and then hauled more than 400
               miles to Tashkent. In addition, the NEC project in Algiers was
               temporarily delayed due to a diplomatic dispute between the United
               States and the host government. Building permits for the NEC
               project were delayed by a dispute over back rent that the
               Government of Algeria said the United States owed for use of an
               access road and a parking lot near the current embassy.

               Staffing and Labor Issues Can Delay Projects

    			  The extent to which the local workforce can be used to work on NEC
               projects varies across posts. Contractors said that in much of the
               developing world, they generally do not have problems finding a
               sufficient number of people willing to work, because, in most
               places, the NEC project provides some of the highest salaries in
               the country. However, contractor and OBO project staff stated that
               in many locations, particularly in developing countries, the
               number of skilled construction workers is low. As a result,
               contractors say they must train most of the workers in the basics
               of construction, which takes time and may result in rework.
               Contractor and OBO staff noted that if local labor is nonexistent
               or not sufficiently skilled, the contractor may need to hire
               third-country nationals, who are more expensive to hire, to
               complete the work.

               We observed that an insufficient or inconsistent number of
               laborers at Bamako, Cape Town, and Luanda contributed to
               construction delays. For example, OBO project staff said that
               approximately 480 staff were actually needed for the Bamako NEC
               project. However, at the time of our visit, the project employed
               356 construction workers, most of whom were Malian, but some of
               whom were direct hires of the Turkish subcontractor in charge of
               construction. In Cape Town, the contractor and OBO staff stated
               that the booming South African construction industry made
               employment at the NEC less attractive because salaries and
               benefits were less than what workers could receive on other
               construction jobs. As a result, the project did not attract the
               number of workers it needed and, ultimately, the contractor had to
               hire and transport to the site about 25 noncleared American
               workers to complete work normally done by local hires. In Luanda,
               the general contractor fired the subcontractor responsible for the
               actual construction of the NEC, assumed control over actual
               construction, and directly hired about 170 experienced
               construction personnel from the Philippines to complete the work
               because locally hired employees would have required time-consuming
               training. The contractor said the Government of Angola delayed
               issuance of many work visas for the Philippine workers because it
               preferred that Angolans be hired.

               Contractors and OBO staff reported that another problematic issue
               was ensuring that enough American workers and guards with security
               clearances are present on construction sites. State requires that
               construction of classified areas be completed or supervised by
               American employees with security clearances, and OBO and
               contractor staff reported difficulties retaining American
               personnel with clearances due to the high demand for their
               services. Nonetheless, at only one of the nine construction
               projects we reviewed was a shortage of cleared American staff
               cited as a reason for schedule delays. OBO and contractor staff
               noted that security conditions specific to Angola prevented
               locally hired employees from entering classified areas of the NEC;
               thus, more cleared American workers were required than would
               normally be needed for other projects. However, the contractor was
               never able to achieve the full complement it needed to complete
               construction on schedule.

               Climatic and Environmental Conditions Can Halt Work

    			  To the extent that historical weather patterns are known,
               contractors should plan construction activities around expected
               weather conditions. For example, OBO officials reported that in
               regions with very cold winters, such as in Astana, Kazakhstan, it
               tries to complete construction of the chancery building's shell
               before the onset of winter so that construction work within the
               building could continue through the winter months. In addition,
               one contractor for multiple projects in West Africa indicated that
               efforts to get materials to the construction site on time could be
               impeded during the rainy season. However, uncontrollable weather
               events may also affect projects. For example, Hurricane Ivan
               flooded the Kingston NEC site, shutting down construction for 3
               weeks in the summer of 2004.

               Planning for Operations and Maintenance Costs for New Embassy
    			  Compounds Is Neither Comprehensive Nor Transparent

    			  Operations and maintenance costs for newly constructed embassies
               and consulates are significantly higher than the operations and
               maintenance costs for facilities they replaced. We estimate that
               once all 201 new embassy and consulate compounds are completed,
               these total annual operations and maintenance costs, adjusted to
               2006 constant dollars, could increase by $111 million over those
               posts' previous facilities, and possibly by several times more.
               According to analyses of data from the International Cooperative
               Administrative Support Services (ICASS) system,30 OBO staff, and
               post officials, these costs increases are driven in part by
               technical security requirements that resulted in greater utility
               consumption, the need for highly qualified technical staff, and
               new maintenance requirements that posts did not have at their
               previous locations. State initially did not recognize the
               magnitude of new costs for the day-to-day functional requirements
               of NECs. As a result, some embassies' ability to prepare for
               operating and maintaining their new facilities was impaired. OBO,
               Embassy Tunis, and State's Office of Global Support Services and
               Innovation ultimately developed guidance for posts to help
               determine the notional staffing and financial resources for
               individual NECs. However, State has not developed a clear
               budgetary line-item to project operations and maintenance costs.
               Currently, these costs are intermingled with domestic and other
               nonfacilities-related administrative costs among several accounts,
               and no mechanism exists for determining how global costs for
               operations and maintenance will increase in the long-term. Thus,
               decision makers cannot determine whether NEC operations and
               maintenance needs are being adequately planned for and funded. In
               the past, GAO and others noted that inadequate funding for
               operations and maintenance of overseas posts led to unsafe,
               insecure, and dilapidated embassies. A lack of a comprehensive
               long-term plan that clearly identifies the significant increases
               in resources that are likely to be needed as more and more NECs
               come on line could increase the risk of earlier-than-expected
               deterioration of NECs.

               Costs of Basic Operations and Maintenance Significantly Increased
    			  for NECs

    			  As NECs began to open, posts quickly learned that the cost to
               operate and maintain their new facilities would be far greater
               than the cost to run previous ones. Based on interviews with post
               and regional bureau staff, reviews of analyses conducted by one
               post and the ICASS Service Center, and budget projections by
               regional bureaus, we estimate that once all 201 new embassy and
               consulate compounds are completed, the total annual budget
               requirements for day-to-day operations and maintenance of overseas
               posts, adjusted to 2006 constant dollars, would likely increase by
               at least $111 million over those posts' previous facilities, and
               this figure could be several times more.

               We discussed posts' experiences in planning for and operating NECs
               with post managers from 9 of the 10 NEC projects we reviewed, as
               well as with each of State's six regional bureaus.31 Post and
               bureau officials reported that the costs needed to operate and
               maintain the new compound on a day-to-day basis were significantly
               greater than for the previous facilities posts occupied. Embassy
               Tunis, which opened one of the first NECs in November 2002 (see
               fig. 4), prepared a comprehensive analysis of the recurring and
               nonrecurring cost increases associated with running and
               maintaining its NEC. This analysis revealed that annual recurring
               costs increased by $591,000. Other posts we visited also expected
               the new compound to be significantly more costly to run and
               maintain once operations commenced, but at the times of our
               visits, they were unable to provide solid estimates. Officials
               from State's Bureau of European and Eurasian Affairs reported that
               operations and maintenance costs for posts in that bureau would
               increase annually, on average, by $500,000 per post.

    19Data for estimated total project costs derive from notifications to
    Congress of State's intent to obligate funds for embassy and consulate
    construction. These notifications were addressed to the Chairmen of the
    Subcommittee on Commerce, Justice, State, the Judiciary, and Related
    Agencies, Committee on Appropriations, House of Representatives.

    Dollars in millions
                  Project                                            Percent from
                  execution           Congressional  Actual             estimated
    Project    year (FY)   notification estimate  costsa Variance        level
    Dar es     1999                        $51.2   $51.9     $0.7         1.3%
    Salaam
    Kampala    1999                        $32.5   $36.2     $3.7        11.3%
    Nairobi    1999                        $67.8   $60.4    -$7.5       -11.0%
    Tunis      1999                        $86.0   $59.5   -$26.5       -30.8%
    Zagreb     1999                        $66.9   $63.3    -$3.6        -5.4%
    Abu Dhabi  2000                        $93.0   $64.0   -$29.0       -31.2%
    Istanbul   2000                        $83.2   $76.3    -$6.9        -8.3%
    Luanda     2000                        $39.2   $51.7    $12.5        31.8%
    Abidjan    2001                       $108.6   $74.5   -$34.1       -31.4%
    Abuja      2001                        $69.5   $63.6    -$5.9        -8.5%
    Sofia      2001                       $100.6   $72.0   -$28.6       -28.5%
    Yerevan    2001                        $79.6   $68.1   -$11.5       -14.5%
    Cape Town  2002                        $71.9   $48.1   -$23.8       -33.1%
    Kabul      2002                       $120.5  $177.2    $56.7        47.1%
    Phnom Penh 2002                        $87.9   $71.5   -$16.4       -18.6%
    Tashkent   2002                        $92.5   $73.7   -$18.8       -20.3%
    Tbilisi    2002                        $87.2   $75.6   -$11.6       -13.3%
    Yaounde    2002                        $79.8   $65.0   -$14.8       -18.6%
    Total                                 $1,418  $1,252  -$165.5      -11.67%

    20At posts where USAID required more than 50 desks in the NEC, a
    USAID-funded annex was included in project scope. See GAO, Embassy
    Construction: Achieving Concurrent Construction Would Help Reduce Costs
    and Meet Security Goals, GAO-04-952 (Washington, D.C.: Sept. 28, 2004).

    21U.S. Department of State and the Broadcasting Board of Governors, Office
    of Inspector General, Report of Audit: Evaluation and Analysis of
    Cost/Schedule Data, Kabul Embassy Compound Project, Report Number
    AUD/CG-04-34 (Washington, D.C.: July 2004).

      Construction Outside the NEC Project Adds to Total Construction Costs

    22OBO reports that, in the future, USAID annexes will be funded through
    the Capital Security Cost Sharing Program.

      Three Ongoing Projects Show Signs of Cost Growth While Six Are Within Budget
      Parameters

    23The five posts were Dar es Salaam, Tanzania; Istanbul, Turkey; Kampala,
    Uganda; Nairobi, Kenya; and Zagreb, Croatia. The $13.2 million costs for
    these Marine houses include funding for Marine quarters at the U.S.
    Embassy in Doha, Qatar, which we could not disaggregate from the five NECs
    in our analysis.

    24Current budget, as reported at the April 2006 Program Performance Review
    Meeting.

    25OBO notified Congress of the need to reprogram funds for each of the
    three projects with higher-than-expected costs.

    State and Contractor Officials Attribute Reductions in Construction Cycle Time
    and Costs to Reforms, but Limited Data and Indeterminate Factors Make It
    Difficult to Quantify the Effects of Specific Reforms

      Strategic Reforms

    26Office of Management and Budget, Program Assessment: Capital Security
    Construction Program,
    http://www.whitehouse.gov/omb/expectmore/detail.10000378.2005.html ,
    (Washington, D.C.: 2004).

      Procedural Reforms

    27GAO, Embassy Construction: Better Long-term Planning Will Enhance
    Program Decision-making, GAO-01-11 (Washington, D.C.: Jan. 22, 2001).

    28In addition to projects for the Capital Security Construction Program,
    the Long-Range Overseas Buildings Plan contains information on other types
    of capital construction projects, including major rehabilitations of
    existing facilities and strategic capital projects, such as the
    construction of a new facility in Taipei, Taiwan.

      Additional Reforms

      Effects of Reforms Cannot Be Quantified

    Various Factors Affect Project Schedules and Costs

      Procurement and Material Delivery Can Affect Progress

    29 GAO-04-100 .

      Understanding Site Conditions

      Use of Foreign-Manufactured Materials

      Political Conditions in the Host Nation

      Staffing and Labor Issues Can Delay Projects

      Climatic and Environmental Conditions Can Halt Work

    Planning for Operations and Maintenance Costs for New Embassy Compounds Is
                         Neither Comprehensive Nor Transparent

    30The ICASS system shares the costs of common administrative support
    items, such as mail, telephones, and building operations, among the
    agencies that use overseas diplomatic facilities. See GAO, Embassy
    Management: Actions Are Needed to Increase Efficiency and Improve Delivery
    of Administrative Support Services, GAO-04-511 (Washington, D.C.: Sept. 7,
    2004).

    Costs of Basic Operations and Maintenance Significantly Increased for NECs

    31Only four of the NECs-Abuja, Luanda, Phnom Penh, and Tunis-were opened
    prior to our review of their operations. Embassies Tbilisi and Conakry and
    Consulate General Cape Town opened after our site inspections, and NEC
    projects are still ongoing for embassies Bamako,, and Kingston. We did not
    discuss operations and maintenance costs with Embassy Tashkent.

    Figure 4: Previous and New U.S. Embassy in Tunis, Tunisia

    We reviewed actual operations and maintenance costs for seven posts, using
    data originating from those posts' ICASS Building Operations expenses.32
    In our analysis, we compared these costs for the year prior to moving into
    the NEC with the costs for fiscal year 2006. We found cost increases for
    each post, ranging from approximately $94,000 to $2.7 million, and
    averaging approximately $894,000 per post per year. We also reviewed
    projected operations and maintenance costs for eight additional posts
    provided by State's Bureaus of East Asian and Pacific Affairs and Western
    Hemisphere Affairs and found increases for each ranging from approximately
    $400,000 to $5.7 million, and averaging approximately $1.9 million per
    post per year.33 Based on these analyses, we estimate that once all 201
    NECs are opened, annual post-funded operations and maintenance costs would
    likely increase by a minimum of $71 million over their previous values,
    and they could increase by several times more.34

    32These posts include the U.S. embassies in Abu Dhabi, UAE; Doha, Qatar;
    Luanda, Angola; Sofia, Bulgaria; Tunis, Tunisia; Yerevan, Armenia; and
    Zagreb, Croatia. Costs were converted to 2006 constant dollars.

    33For East Asia and the Pacific, we analyzed cost estimates for Embassy
    Phnom Penh for fiscal year 2006, and projected operations and maintenance
    increases for the U.S. embassies in Beijing, China; Rangoon, Burma; and
    the Consulate General in Surabaya, Indonesia, for fiscal year 2008, and
    for the U.S. embassy in Suva, Fiji, for fiscal year 2009. For Western
    Hemisphere posts, we analyzed fiscal year 2006 to 2007 operations and
    maintenance budgets for U.S. embassies in Belmopan, Belize; Kingston,
    Jamaica; and Panama City, Panama. All costs were converted to 2006
    constant dollars.

    In addition, OBO intends to staff each NEC with a full-time facility
    manager. These positions are funded solely by OBO and their costs are in
    addition to those within the ICASS structure. To achieve the goal of
    placing a facility manager in each new embassy compound, OBO reported it
    would need a minimum of 100 additional positions. Based on per capita
    costs for maintaining American personnel at overseas posts developed by
    State's Office of Rightsizing the U.S. Overseas Presence, the annual cost
    for locating an additional 100 facility managers in overseas Foreign
    Service positions is approximately $40 million.35 Adding this figure to
    the estimates provided above results in a minimum total annual funding
    increase of $111 million.

    Posts also require significant nonrecurring costs associated with the
    startup of NECs. For example, post managers at Embassy Phnom Penh reported
    spending about $1 million for one-time start-up supplies and equipment,
    including $50,000 on a mechanical lift that it uses to change light bulbs
    on the ceiling of the three-story atrium. Early NEC posts, including
    Tunis, had to get additional, unbudgeted funding from their regional
    bureaus to cover these immediate shortfalls, requiring the bureaus to
    request additional funding from the department or to reallocate money from
    other posts' funds. Posts also receive funds from OBO to help defray the
    cost of equipment needed to operate the NECs.

    Utility Costs Increased Significantly Due to New Systems and Expanded Space

    One of the primary factors driving the cost increases for operations and
    maintenance was increased utility consumption, primarily due to the higher
    electricity and water needs for heating and cooling, and irrigating the
    large landscaped areas that many posts did not previously have. Posts
    experienced particularly large increases for utility costs, primarily
    because NECs need much more electricity than did the older, less modern
    facilities', and electricity is sometimes more expensive to obtain in the
    more rural locations where some new compounds are located. NECs need more
    electricity to run, for example, new heating, ventilation, and air
    conditioning systems-which also require routine replacement of expensive
    air filters-to heat and cool much larger areas than did old embassies that
    generally had window air conditioning units, if any at all. Some NECs may
    also have considerably higher water bills due to landscaping requirements
    of the new compounds.36 The Tunis analysis listed increases in annual
    utility costs as the second biggest increase after the cost to hire and
    train new maintenance staff.

    34For a description of how operations and maintenance costs increases were
    determined, see appendix I.

    35The Office of Rightsizing the U.S. Government Overseas Presence
    estimates that the average total cost for maintaining American direct hire
    staff at overseas locations to be approximately $400,000 per year. Total
    costs include salaries, salary differentials for hardship and danger pay,
    personal benefits, and support costs, such as for housing.

    NECs were designed to be modern, energy-efficient buildings. Nonetheless,
    numerous posts reported significant cost increases for electricity, some
    by well more than 100 percent. Management officials in Phnom Penh stated
    the post's electricity costs rose from about $17,000 per month to about
    $95,000 per month for the first 3 months of 2006. Based on this rate,
    annual electricity costs would increase nearly sixfold, from approximately
    $200,000 for the old embassy to at least $1.14 million per year for the
    NEC. In addition, Embassy Tunis' cost analysis stated that electricity was
    127 percent higher for the NEC than the combined costs of the three office
    buildings the post previously occupied. In our review of ICASS data, we
    found that electricity costs for Embassy Yerevan more than doubled from
    $107,000 in fiscal year 2004 to $254,000 in 2005, while Embassy Luanda
    increased its budget for electricity from $41,000 in 2005 to $80,000 in
    2006. Posts and bureau staff stated the cost increases were due primarily
    to the increased energy requirements for heating and cooling significantly
    larger facilities than those the posts previously occupied.37

    High electricity costs at some posts derive from multiple factors. Some
    posts do not have adequate access to the local power grid, and therefore
    must generate their own power. For example, the NEC in Conakry, Guinea, is
    located in a suburb that is a considerable distance from the city center.
    In this location, the power grid does not operate during the daytime. As a
    result, the new compound will rely on two diesel generators, operating 24
    hours a day, to supply the post with electricity. Post managers expect
    costs for fueling these generators to be approximately $1 million per
    year, while operating these generators 24 hours a day will require
    extensive maintenance and, at some point, replacement, creating additional
    costs. However, management officers in Phnom Penh reported that their high
    electricity costs derive from the high rates charged for using the local
    grid. As a result, post staff there are studying the feasibility of either
    supplementing or switching entirely to post-generated electricity. Still
    other posts reported that, despite electricity from the grid being
    affordable, the power supply was unreliable and their posts required
    diesel generators as backup sources.

    36A key legal requirement of the Capital Security Construction Program is
    that new embassy and consulate buildings have a 100-foot setback from the
    exterior wall of the building to the perimeter wall or fence, primarily to
    provide blast protection. To achieve this setback, OBO seeks to locate
    NECs on sites of approximately 10 acres.

    37These year-to-year increases in electrical costs were not adjusted for
    year-to-year weather variations.

    Water costs have also increased primarily due to landscaping needs. NECs
    are generally located on 10 or more acre sites, which are heavily
    landscaped with grass, gardens, shrubbery, and trees (see fig 5. as
    example of new landscaping areas). Maintaining these landscaped areas
    requires significant amounts of water. This often represents a new or
    substantially increased cost, as many of the NECs replace facilities that
    were located in city centers and thus had little or no landscaping
    requirements. For example, Embassy Tunis reported that water consumption
    costs increased more than 3 times, from $5,200 in fiscal year 2002 to
    $17,700 in 2004. The new Tunis compound has more than 700 trees and
    significant acreage of grass. Moreover, the post operates its own water
    treatment plant. ICASS data for Embassy Yerevan showed that costs for
    water consumption was estimated at $250 per year for the previous location
    and increased to an estimated $12,500 per year at the NEC.38

    38The ICASS Service Center reported that water bills were not tracked
    independently and that billing by the local water company is sporadic and
    possibly inaccurate. At that same post, the old facility had no natural
    gas usage but costs for natural gas at the new compound are estimated at
    $18,350 for fiscal year 2006, the first full year after move-in.

    Figure 5: Previous and New U.S. Consulate General in Istanbul, Turkey

    Need for More and Better Trained Staff to Run and Maintain New Facilities
    Increased the Cost of Operating the New Compounds

    Another primary factor driving the cost increases for operations and
    maintenance was the need to hire additional staff, some with advanced
    degrees or certificates, to maintain the new, state-of-the-art office
    buildings. Some of these staff must come from other countries because
    local labor markets cannot always supply the skills required by the posts.
    In preparing to take over the new compounds, posts often found they did
    not have staff capable of operating and maintaining the new facilities,
    which include sophisticated equipment-for electrical generation, climate
    control, fire suppression, and water and air purification. Therefore, many
    posts were required to hire new, highly qualified staff with advanced
    technical training, contributing to the increased costs beyond what OBO
    first envisioned. Management officers at three of the posts we contacted
    stated that they have already or would need to hire 2 to 10 staff to fill
    gaps in the posts' technical expertise. For example, Embassy Tunis
    concluded that none of its existing locally hired maintenance employees
    were qualified to service the new equipment. These employees were
    therefore reassigned to residential maintenance duties, and post
    management created 10 new positions to perform NEC maintenance, including
    three engineers and seven maintenance mechanics, adding $147,000 in
    salaries to the post's payroll.39 Consulate Cape Town reported it would
    hire an electrician and an air conditioning technician for a combined
    annual cost increase of $32,610, while Embassy Phnom Penh hired two
    engineers and two technical specialists for its maintenance operations.
    All other posts we contacted reported the need to hire additional
    technical staff, but most had not yet classified the positions nor
    calculated the costs as of our site visits.

    39In September 2004, we reported on numerous disincentives for posts to
    consider efforts to streamline administrative functions. See GAO-04-511 .

    Regional bureaus and some posts reported having difficulties finding
    people who have been or can be trained in the technical skills required to
    operate the new compounds. Moreover, existing post maintenance employees
    often were not considered capable for filling these new operational needs,
    even with specific technical training. For example, Africa bureau
    officials said that in many West African countries-citing posts in Abuja
    and Conakry, in particular-there are few people who can operate this
    equipment or be trained to do it. U.S. officials in Conakry added that the
    post's current work force is not capable of working on the new systems,
    and they were doubtful whether they could hire or contract with Guineans
    with the appropriate expertise. At the time of our visit, the post was
    studying hiring third-country national employees, noting that doing so
    would be more costly and would also entail a more lengthy process for
    classifying, advertising, and hiring for the positions. In Luanda,
    officials said they assigned three people from their existing maintenance
    staff to work with the construction contractor on installation and
    start-up of NEC equipment to help them gain experience running and
    maintaining this equipment, while also hiring third country nationals to
    fill the skill gap the Angolan market could not fill. OBO officials have
    said that hiring third-country nationals should be done as a last resort
    because it is the most expensive alternative. However, OBO acknowledged
    that it may be the only way to obtain capable staff in some countries.

    By not having advanced knowledge of the technical qualifications needed to
    operate the systems, posts were often unable to initiate the recruiting
    process, which can take 6 months or more, in time to have all required
    trained staff available at the time of move in. For example, a former
    Tunis official who helped prepare that post's analysis of start-up and
    recurring operations and maintenance costs stated that the post could not
    get information regarding needed technical qualifications for maintenance
    staff in advance of the move. He said he spent the 6 months prior to the
    move trying to obtain this information from OBO with little success. As a
    result, the post was not able to determine its maintenance staffing needs
    or begin hiring new maintenance staff until after construction was
    completed. He added that it took the post 12 to 18 months to fully resolve
    this situation.

    In addition, posts also found that many new maintenance needs arose once
    the NEC opened, and were thus required to either hire additional staff or
    contract for maintenance services. For example, many posts were previously
    in locations with few or no landscaping needs. Upon moving to new
    compounds, however, posts had to either hire gardeners or contract with
    local landscaping firms. Embassy Tunis reported that gardening expenses
    increased by $35,000 annually,40 while another post awarded a $45,000
    contract for landscaping services when it moved into its new facility. In
    addition, the size of the new compounds often required posts to expand
    their janitorial staff. For example, Tunis reported that it doubled the
    size of its cleaning crew, at an additional $60,000 per year, to maintain
    the interior of their new facilities. Cape Town reported the need to hire
    a cleared American escort for approximately $29,000 per year to supervise
    the cleanup of the controlled access areas.

    Posts Did Not Always Receive Initial Spare Parts

    Prior to the completion of construction, NEC contractors are required to
    provide a list of all spare parts, as well as a short-term supply of
    critical spare parts. However, posts and regional bureau officials
    reported that the posts did not always receive the lists or actual parts
    in a timely manner. Officials in Phnom Penh noted that they did not
    receive all the spare parts and supplies the contractor was supposed to
    provide, including some critical items that are needed to keep the embassy
    operating should the current parts fail. Among the spare parts the post
    still needed were some with a 3-month or more delivery lead time.
    Moreover, posts reported not receiving the list of spare parts and
    supplies until after moving into the NEC, although officials noted that
    the contractor was obligated to provide the list prior to completion of
    construction. As a result, these posts did not have enough lead time to
    order these critical parts to ensure they arrived before the NEC began
    operations. Officials in Phnom Penh, as well as officials at other posts
    and the regional bureaus, stated that receiving the list of spare parts
    and supplies 6 months to 1 year before the NEC opened would have allowed
    them to understand which parts would be supplied and which were to be
    provided by the posts, as well as ensure that critical supplies and parts
    were on site when the new compounds opened.

    Knowing the NEC's maintenance needs in advance also would help posts and
    regional bureaus plan for recurring costs sooner. The Bureau of European
    and Eurasian Affairs reported that Embassy Yerevan discovered, a few weeks
    before it moved to the NEC, that it needed about $50,000 worth of salt
    each year to make its water purification system work properly, an expense
    it had not planned for. Similarly, Embassy Tunis reported replacing over
    600 light bulbs in the first 30 months of operation and estimated the
    annual cost of bulbs alone to be $14,000. The post also stated that the
    NEC requires several dozen types of light bulbs and fluorescent tubes,
    virtually all of which must be purchased in the United States. Moreover,
    posts and regional bureaus alike cited the high costs of specialized air
    filters for the heating, ventilation, and air conditioning systems.
    Officials in the Bureau of European and Eurasian Affairs stated that
    Embassy Yerevan used $80,000 worth of filters in its first year, and that
    a complete set of replacement filters can cost as much as $300,000,
    although some of the individual filters are changed less frequently than
    are others. During our fieldwork in Luanda, one official noted that this
    already-opened NEC had not yet received the list of system requirements
    and spare parts from the contractor, and he was concerned that the lack of
    parts, particularly the filters for the air conditioning units, would
    delay maintenance and affect the warranties.

    40This cost is in addition to the increased water costs associated with
    landscaping needs previously discussed.

    OBO and Others Have Developed Guidance for Individual Posts

    According to regional bureau and post officials, in the early stages of
    the program, OBO told them that operations and maintenance costs of the
    new facilities would not cost much more than those of the replaced
    facilities. Some regional bureau officials said they were skeptical of
    this claim from the beginning. When developing the first NECs, OBO
    believed that, due to their more efficient mechanical and electrical
    systems, compared with what posts previously had, operational costs would
    increase little, if at all. However, posts and regional bureaus reported
    having great difficulty obtaining projections and estimates from OBO on
    what operations and maintenance requirements the NECs would entail, as
    well as how costs would change with the new compound. This lack of
    information prevented posts and regional bureaus from adequately preparing
    for the staffing and funding resources needed to transition post
    operations from the previous facilities to the NECs.

    Regional bureau officials said that although it took several years, they
    eventually convinced OBO to include consideration of operations and
    maintenance costs earlier in the NEC design and construction process. In
    2004, OBO began providing posts with estimates of likely operations and
    maintenance costs about 2 years prior to the onset of construction.
    However, these are only notional estimates based on generic small, medium,
    and large NECs, and they may not reflect the actual costs a post may
    expect. Nonetheless, these estimates provide posts with a template they
    can apply to their local circumstances. In addition, approximately 6
    months before handing NECs over to posts, OBO provides each post with a
    Workload Analysis and Staffing Recommendations study that compares an
    NEC's operations and maintenance needs with the post's current filled and
    unfilled maintenance positions; assesses whether existing staff meet or
    can be trained to meet the NEC's operations and maintenance requirements;
    outlines additional staffing and/or service contractors the post would
    need to provide newly-required services such as gardening; and details
    availability of manpower or services from the local labor pool. These
    studies do not provide cost estimates for new positions or service
    contracts.

      Assistance Provided Outside of OBO

    Officials at some posts with more recently completed NECs said the large
    increase in operations and maintenance costs was not as much of a shock to
    the post as it could have been, because these increases had become well
    documented by posts by the time their NECs opened and were even becoming
    known when these posts started budgeting 2 years earlier. Moreover,
    information regarding cost and staffing needs for NECs has become
    increasingly shared as more NECs come online. Tunis was one of the first
    posts to raise the issue concerning greatly increased operations and
    maintenance costs, and its work became the basis for many posts' NEC
    planning. Tunis placed guidance for other posts on its Intranet site that
    highlights actions posts should take beginning 2 years prior to the NEC
    opening. The site also provides hints for executing the move itself and
    operating and maintaining the NEC for the first year after it opens.
    Officials from numerous posts, including Conakry, Cape Town, and Phnom
    Penh, among others, have consulted with Tunis officials or visited the
    post to discuss issues such as operations and maintenance, staffing,
    training, and funding requirements to operate the NEC.

    In addition, State's Office of Global Support Services and Innovation
    maintains an Intranet site that contains information and guidance on
    planning and executing moves from old facilities to new embassy compounds,
    likely operations and maintenance needs, and ways for posts with upcoming
    NECs to communicate with posts with already opened NECs. The site also
    contains documents addressing NEC procurement advance planning, the
    commissioning and decommissioning processes for new and old facilities,
    NEC lessons learned from posts that already have moved into their new
    facilities, and other related topics. Nearly all the material on this site
    derives from overseas staff experienced in planning posts' moves to new
    facilities and preparing posts for the new operations and maintenance
    requirements. One post manager with whom we talked said that this
    information was very useful and has been disseminated widely.

    Facilities Operations and Maintenance Planning Not Comprehensive or Transparent

    In November 1999, the Overseas Presence Advisory Panel noted the
    "shockingly shabby and antiquated building conditions" at U.S. embassies
    and consulates throughout the world. The panel stated that these
    conditions were due to overseas property being managed for decades
    "without a workable plan or funding adequate to provide upkeep and the
    long-term capital needs of overseas facilities." In March 2003, we
    reported that many posts had maintenance concerns common to old and
    deteriorating buildings, including sinking foundations, crumbling walls,
    bursting pipes, and electrical overloads.41 We also reported that at 133
    overseas posts, the primary office building had fire and safety
    deficiencies. These problems, we concluded, were due to essential
    maintenance and repair requirements that had long been unfunded. We noted
    that in May 2002, State reported a backlog in capital maintenance of
    approximately $736 million and that this figure was likely to increase
    because of the age of the existing facilities.

    In its Long-Range Overseas Buildings Plan, which was first issued in 2002
    in response to our recommendations,42 OBO establishes requirements and
    estimates costs of long-term capital repair and equipment replacement
    programs, such as roof repairs, elevator replacement, and generator
    refurbishment. Not included in OBO's plan are the basic, day-to-day
    operations and maintenance requirements funded by State's regional bureaus
    and the tenant agencies at overseas posts, such as utility costs,
    maintenance staff salaries, janitorial services, and spare parts and
    supplies, among others (see app. II). Rather, these functions are funded
    through the ICASS system or are directly paid for by State or tenant
    agencies.

    Funding requirements for basic operations and maintenance needs are
    assessed only on an annual and incremental basis and, according to State's
    Bureau of Resource Management, there is no specific line-item
    appropriation for these activities. Annual funding requests originate at
    the post level, are aggregated by State's regional bureaus, and then are
    further aggregated and submitted to the Office of Management and Budget
    and Congress by the Bureau of Resource Management. The resulting budget
    request intermingles funding needs for posts' basic operations and
    maintenance with numerous other costs, such as for domestic administrative
    needs, nonfacilities-related embassy support functions, and personnel
    compensation, among others. In addition, agencies with staff in overseas
    diplomatic facilities help fund operations and maintenance costs-either
    through the ICASS system or directly for costs they specifically
    generate-and must request the necessary funds through budget development
    and appropriations processes independent of State's. There is no source
    that clearly and solely identifies the specific resource needs for basic
    operations and maintenance activities at U.S. overseas diplomatic
    facilities, either on an annual and worldwide basis or on a long-term
    basis, like that produced by OBO for capital maintenance projects. Thus,
    there is currently no mechanism that allows decision makers to determine
    whether NEC operations and maintenance needs are being adequately planned
    for and funded. A lack of a comprehensive long-term plan that clearly
    identifies the significant increases in resources that are likely to be
    needed as more NECs come online could increase the risk of
    earlier-than-expected deterioration of NECs.

    41See GAO, Overseas Presence: Conditions of Overseas Diplomatic
    Facilities, GAO-03-557T (Washington, D.C: Mar. 20, 2003).

    42See GAO-01-11 .

    Methodologies for Estimating Operations and Maintenance Needs

    Budget officers from two of State's regional bureaus and the Bureau of
    Resource Management indicated that they cannot accurately predict
    long-term costs increases because they do not know the types of systems to
    be installed, the new staffing and service contract needs, maintenance
    schedules, and likely utility consumption rates, most of which they do not
    learn until about 1 to 2 years prior to an NEC opening. They said that due
    to the unpredictability of operating in overseas environments and actual
    construction schedules, they cannot plan with accuracy their resource
    needs beyond 2 years into the future. However, as we previously
    demonstrated, enough NECs have opened to project at least notional levels
    of changes to operations and maintenance costs for posts with NECs. In
    addition, methodologies exist for developing operations and maintenance
    budgets.

    We examined two methodologies for estimating long-term costs for operating
    and maintaining facilities developed by the National Research Council of
    the National Academies. First, the council developed a method for
    estimating the total life-cycle costs of buildings.43 The council
    determined that operations and maintenance costs constitute 60 to 85
    percent of a facility's life-cycle costs, with construction costs
    comprising 5 to 10 percent of the total life-cycle costs, and the
    remainder deriving from land acquisition, programming, conceptual
    planning, major capital renewal projects, and disposal. The council also
    stated that when public sector organizations face choices on where to
    invest limited resources, facilities investments, particularly investments
    in maintenance and repairs, are often the first to be deferred or cut
    altogether. It estimated that each dollar in deferred maintenance results
    in a long-term capital liability of $4 to $5, concluding that "an
    accumulation of deferred investments over the long term may be
    significantly greater than the short-term savings that public-sector
    decision makers were initially seeking."44

    43National Research Council of the National Academies, "Investments in
    Federal Facilities: Asset Management Strategies for the 21st Century"
    (Washington, D.C.: 2004).

    The council also developed a methodology for estimating recurring
    maintenance requirements on the basis of an index of the ratio of annual
    maintenance costs to the current replacement value of a facility.45
    According to the Building Research Board of the National Research Council,
    an index value of 2 to 4 percent-meaning annual maintenance expenditures
    between 2 and 4 percent of a facility's replacement value-is recommended.
    Applying that recommendation to the current replacement value of the 18
    NECs, which is approximately $1.26 billion, suggests that between $25 and
    $50 million should be expended on annual maintenance (see table 2). Total
    annual maintenance requirements once all projects are completed would
    range from $420 to $840 million, or approximately $2.1 to $4.2 million per
    NEC.46 It should also be noted that these costs only apply to routine
    maintenance needs. Other operational expenses, such as those for
    utilities, and major capital renewal projects managed by OBO, such as
    replacing elevators, are not included.

    44Ibid.

    45Cited in International Facility Management Association, "Operations and
    Maintenance Benchmarks," Research Report #26, 2005. Current replacement
    value is the total expenditure in current dollars required to replace any
    facility inclusive of construction costs, design costs, project management
    costs, and project administrative costs. The value of property/land is
    excluded.

    46These costs are in addition to the maintenance needs for the
    approximately 60 posts worldwide that are not expected to have new
    facilities constructed under State's current capital replacement program.

    Table 2: Estimated Annual Operating Costs for Completed NECs

    Dollars in millions
                                            Estimated annual maintenance cost
                               Current    Current replacement Current replacement
    Projecta      replacement value       value index (2%)    value index (4%)
    Abidjan                   $74.5                   $1.5                $3.0
    Abu Dhabi                 $64.0                   $1.3                $2.6
    Abuja                     $63.6                   $1.3                $2.5
    Cape Town                 $48.1                   $1.0                $1.9
    Dar es Salaam             $51.9                   $1.0                $2.1
    Istanbul                  $76.3                   $1.5                $3.0
    Kabul                    $177.2                   $3.5                $7.1
    Kampala                   $36.2                   $0.7                $1.4
    Luanda                    $51.7                   $1.0                $2.1
    Nairobi                   $60.4                   $1.2                $2.4
    Phnom Penh                $71.5                   $1.4                $2.9
    Sofia                     $72.0                   $1.4                $2.9
    Tashkent                  $73.7                   $1.5                $3.0
    Tbilisi                   $75.6                   $1.5                $3.0
    Tunis                     $59.5                   $1.2                $2.4
    Yaounde                   $65.0                   $1.3                $2.6
    Yerevan                   $68.1                   $1.4                $2.7
    Zagreb                    $63.3                   $1.3                $2.5
    Total                  $1,252.6                  $25.0               $50.1

    Sources: Department of State and International Facilities Management
    Association.

    aExcludes facilities constructed outside of the official NEC project.

                                      Conclusions

    In the past, the Overseas Presence Advisory Panel, State, and GAO reported
    that inadequate capital maintenance funding for embassies and consulates
    resulted in decrepit, unsafe, and dysfunctional facilities. In addition,
    the panel concluded that these decrepit facilities and a "lack of fiscal
    tools" could contribute to a crippling of American foreign policy. These
    findings ultimately led to the unprecedented effort to move 201 overseas
    posts into new, safe, secure, and functional facilities, and State has
    made significant progress in constructing NECs in a timely manner.
    However, due to increased utilities consumption, the need to hire highly
    qualified technical staff, new maintenance requirements, and expensive
    spare parts and supplies, annual operations and maintenance costs of NECs
    are significantly greater than the costs associated with the facilities
    they replaced. State was slow to recognize the increased funding needed to
    operate and maintain these new facilities. Moreover, State has not
    developed a comprehensive plan that details long-term resource
    requirements necessary for ensuring that the investments made achieve
    their expected life cycles. Failure to provide posts with adequate
    financial and staffing resources and a sufficient and timely supply of
    spare parts (1) could affect posts' operational effectiveness and (2) lead
    to more costly replacement of capital equipment or the buildings
    themselves long before the end of their projected life cycles. A
    long-range plan that clearly identifies the resource needs for basic,
    day-to-day operations and maintenance at overseas posts, similar to OBO's
    plan for capital construction and maintenance, would reduce the risk that
    operations and maintenance needs for NECs are not met and help these new
    buildings achieve their expected life cycles.

                          Recommendation for Executive Action

    To protect the $21 billion capital investment in 201 new embassy and
    consulate compounds, we recommend that the Secretary of State develop an
    integrated and comprehensive facilities plan that clearly specifies the
    financial and human resources for meeting the immediate and long-term
    operations and maintenance requirements for new embassy compounds.

                                    Agency Comments

    We received written and oral comments on a draft of this report from the
    Department of State. State said that it agreed with our principle findings
    and conclusions. In addition, State wrote that it supported our
    recommendation to develop an integrated and comprehensive facilities plan
    that clearly specifies the financial and human resources needed for
    meeting the immediate and long-term operations and maintenance needs for
    new embassy compounds, and that it will initiate actions that implement
    this recommendation. State provided additional clarifying and technical
    comments on a number of points, which we have incorporated throughout the
    report, as appropriate. State's comments, along with our responses to
    specific points, are reprinted in app. II.

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

    If you or your staff have any questions about this report, please contact
    Jess T. Ford on (202) 512-4128, e-mail fordj@gao.gov , or Terrell G. Dorn
    on (202) 512-6923, e-mail dornt@gao.gov . Contact points for our Offices
    of Congressional Relations and Public Affairs may be found on the last
    page of this report. Other GAO contact and staff acknowledgments are
    listed in appendix III.

    Sincerely yours,

    Jess T. Ford Director, International Affairs and Trade

    Terrell G. Dorn, PE Director, Physical Infrastructure

    Appendix I: Scope and Methodology Appendix

    To complete our work, we reviewed the report of the Overseas Presence
    Advisory Panel, previous GAO reports on the Department of State's (State)
    embassy construction programs, Bureau of Overseas Buildings Operations'
    (OBO) past 5 annual Long-Range Overseas Buildings Plans, the files of 18
    new embassy (and consulate) compound (NEC) projects, and the monthly
    Program Performance Review updates and documents of 9 ongoing projects
    scheduled for completion by December 31, 2006, and 22 ongoing projects
    scheduled for completion in 2007 to 2008. We did not assess the quality of
    construction.

    Projects within our review were limited to construction under the Capital
    Security Construction Program, and did not include construction of new
    embassies funded under the Strategic Capital Program, or major
    rehabilitations or security upgrades of existing embassies and consulates.
    In addition, our review focused on construction projects designated by OBO
    as NECs, which in the early years of the program were called New Office
    Buildings. In general, we did not consider other types of OBO construction
    projects, such as renovation of newly acquired buildings, as in
    Bridgetown, Barbados; individual annexes either for general use, as in
    Bogota, Colombia, or those dedicated to USAID operations, as in Lima,
    Peru; or other types of individual projects. However, we did examine costs
    involving construction of certain facilities at NEC sites that were
    completed or will be completed outside the scope of the NEC project, such
    as in cases where USAID annexes were delayed due to funding issues, Marine
    Security Guard quarters were added after completion of the NEC project,
    and construction of facilities in the original NEC scope of work was
    deferred to future years, as well as when concurrent construction projects
    occurred outside the scope of the NEC project, such as in Kabul,
    Afghanistan.

    To track OBO's performance in completing construction projects on time and
    on budget, we developed and analyzed a database containing planned and
    actual project schedule and cost data, which were obtained from the files
    of 18 embassy and consulate construction projects. Each of the projects
    was started after the August 1998 bombings in Dar es Salaam, Tanzania, and
    Nairobi, Kenya, and was declared substantially completed on or before
    December 31, 2005. Projects started prior to August 1998, such as the new
    embassy building in Doha, Qatar, were excluded from the analysis.

    Data for project schedules included the dates for contract award and
    notice to proceed with construction, the original construction completion
    date, the number of additional days approved in contract modifications;
    the actual completion date certified by OBO (also known as substantial
    completion), and the actual occupancy date certified by OBO. In addition,
    planned dates for project milestones were computed by adding the number of
    allowable days for specific actions to a baseline date. For example, the
    planned occupation date was determined by adding 60 days-the amount of
    time to complete commissioning and accreditation activities at the new
    facility-to the planned substantial completion date. Data for project
    costs included the budget estimates for each project provided to Congress
    and the actual costs of the projects. We also collected information
    characterizing the site conditions, including building and compound sizes;
    all contract proposals submitted to OBO; whether the building was a
    standard design embassy or consulate; the contract delivery method used
    (design-bid-build or design-build), and the type of contract awarded
    (firm-fixed-price or cost-reimbursable); and the amount of desk space and
    the number of personnel to occupy the NEC.

    Data used to analyze project schedules was derived primarily from project
    design packages and requests for proposals; contract awards and
    modification logs; and memorandums and letters certifying substantial
    completion of construction, stating that security requirements have been
    met and that a new facility is ready for occupation. Data for project
    costs derived from two sources. Budget estimates provided to Congress
    derive from letters sent by the Department of State to congressional
    appropriators notifying the Congress of State's intent to fund
    construction of certain projects. These notifications provided the amount
    of funding OBO intended to allocate in a given year, and they sometimes
    included the total funding OBO estimated for the entire project, including
    site acquisitions. However, since these are notifications for State's
    obligations, they do not include costs associated with contributions from
    other agencies. Actual costs for each project were provided by OBO's
    Financial Management Division. Project descriptions derive from multiple
    sources. Building and compound sizes and the amount of desk and nondesk
    space derive from Project Authorization Documents, which are used to track
    changes in project scopes and budgetary requirements throughout the course
    of NEC projects. Contract documents identified the contractor, the
    contract type, the award amount, the contract delivery method, and the
    contract performance period, while a summary of cost and schedule data for
    nonwinning proposals was provided by OBO.

    We also reviewed schedule and cost performance data for the nine NEC
    projects scheduled for completion by December 31, 2006, including Astana,
    Kazakhstan; Bamako, Mali; Belmopan, Belize; Conakry, Guinea; Dushanbe,
    Tajikistan; Freetown, Sierra Leone; Kingston, Jamaica; Lome, Togo; and
    Managua, Nicaragua. Data for our analysis derived from the April 2006
    Program Performance Review, a meeting OBO holds on a monthly basis to
    review the progress of all construction projects, in addition to general
    management issues within OBO. Data we analyzed derived from project
    information that is reported to OBO Washington from project directors in
    the field and is then placed into a standard format for presentation at
    the meeting. Information we gathered from these presentations include the
    contract award and notice to proceed dates, the original and modified
    planned substantial completion dates, the current budget for the project,
    and planned and actual amount of work completed. In addition, the
    presentations provide narrative information specific to the project, which
    may include project scope and reports of critical information, such as
    potential delays. Progress for 13 additional ongoing NEC projects
    scheduled for completion beyond year-end 2006 was not sufficient for us to
    analyze the pace of construction or changes to cost estimates.

    We examined the processes by which data are incorporated into the Project
    Authorization Documents and the presentations for the monthly Program
    Performance Review meetings. Assessment of these processes included the
    purpose of the systems, the primary users and their access to the data,
    how and where the data are collected, what the data describe, the
    procedures for ensuring the proper data are collected, the currency of the
    data, and how frequently data are entered. We found the schedule, cost,
    and project characteristics data to be sufficiently reliable for our
    purposes. However, we did not conduct a financial audit of the cost data
    and are not expressing an opinion on them.

    To determine the effects of State's strategic and procedural reforms and
    the factors that affect construction schedules and costs, we interviewed
    key officials from State's regional bureaus and OBO on the planning for
    and construction of NECs, and we met with corporate staff for three
    contractors currently involved in construction. We also visited six posts
    with either ongoing or completed construction projects to observe the
    construction process, solicit the views of State and the contractors'
    field staff, and collect and review project documents.1 Additionally, we
    visited Abuja, Nigeria, to review issues surrounding the impact of
    incomplete and deferred construction on staff location and security.
    Finally, we interviewed the project directors for the Phnom Penh,
    Cambodia, and Tashkent, Uzbekistan, NEC projects-while each was briefly in
    Washington-and conducted telephone interviews with post managers in Phnom
    Penh. We also discussed reforms with staff from each of State's regional
    bureaus.

    1The posts visited included U.S. embassies in Bamako, Mali; Conakry,
    Guinea; Kingston, Jamaica; Luanda, Angola; Tbilisi, Georgia; and the U.S.
    consulate in Cape Town, South Africa.

    To determine how total annual operations and maintenance costs would
    increase once all NECs were completed, we analyzed cost data from four
    sources, which include the following:

               o  actual building operations expense budgets for 13 posts with
               NECs worldwide, as reported through the ICASS system;
               o  budgeted cost increases for 5 posts, as reported by the Bureau
               of East Asias and Pacific Affairs;
               o  budget costs for 3 posts, as reported by the Bureau of Western
               Hemisphere Affairs; and
               o  discussions on cost increases for operations and maintenance
               activities with managers at overseas posts and at State's four
               other regional bureaus.

               To analyze the ICASS data, we first compared the operations budget
               for the year prior to the post taking possession of the NEC with
               the budget for fiscal year 2006. We also compared the operations
               costs for the years before and after the move. In doing these
               comparisons, we removed several of the posts from the analysis for
               different reasons. U.S. Consulates Istanbul, Turkey, and Sao
               Paulo, Brazil, were removed because as constituent posts, their
               costs are combined with the respective embassies that oversee
               their operations (Embassies Ankara, Turkey, and Brasilia, Brazil),
               and we could not disaggregate these costs from the parent posts.
               Thus changes in their operations costs may actually be unrelated
               to the opening of NEC. We also removed Embassies Dar es Salaam,
               Tanzania; Nairobi, Kenya; and Kampala, Uganda, from the analysis
               because some agencies at these posts, notably USAID, continued to
               occupy locations outside the NEC for multiple years after the NEC
               opened. In addition, when USAID or other agencies own an overseas
               facility, the support costs for activities in that facility are
               outside the ICASS system. Thus, for our analyses, we could not
               determine whether the ICASS costs represented all operations costs
               for these posts or whether costs were generated outside the ICASS
               system. Finally, we removed Embassy Abidjan, Cote d'Ivoire, from
               the analyses because the post went through a significant
               downsizing of program and support personnel after the start of
               construction. As a result, the new facility operates at only half
               capacity. The seven posts included in the ICASS analysis were the
               U.S. Embassies in Abu Dhabi, United Arab Emirates; Doha, Qatar;
               Luanda, Angola; Sofia, Bulgaria; Tunis, Tunisia; Yerevan, Armenia;
               and Zagreb, Croatia.2

               The data provided by the Bureaus of East Asian and Pacific Affairs
               and Western Hemisphere Affairs included its estimates for the
               total operations and maintenance cost increases for eight NECs, as
               well as cost increases associated with those posts' utilities,
               personnel, and maintenance. The five East Asian posts included
               estimates for Embassy Phnom Penh, Cambodia, in fiscal year 2006;
               Embassies Beijing, China, and Rangoon, Burma, and Consulate
               General Surabaya, Indonesia, for fiscal year 2008; and for Embassy
               Suva, Fiji, in fiscal year 2009. The three western posts included
               operations and maintenance budgets for fiscal years 2006 and 2007
               for Embassies Belmopan, Belize; Kingston, Jamaica; and Panama
               City, Panama.

               To provide an indication of the possible total minimum annual cost
               increases for operations and maintenance, we examined all the
               available data on cost increases including actual costs from eight
               posts and estimated costs for seven posts. In addition, we
               considered State's estimate of average costs rising by $500,000
               for posts in Europe and the various factors that are driving the
               observed and estimated cost estimates. We removed one outlier from
               the 15 posts (Embassy Sofia), and used the actual costs from the
               next lowest post, Luanda, of $351,000, which we applied to all 201
               NECs, resulting in an estimated cost increase of $71 million per
               year. Our analysis of Luanda suggested that it can serve as a
               reasonable proxy for the low end of the range because it is small,
               has only one building, and all staff are colocated on the new
               compound. While this exercise represents our best attempt to
               quantify the minimum potential costs, it can only provide a rough
               indication of what the minimum might be. It assumes that the
               actual costs for future posts will generally fall within the range
               we have observed. It also assumes that the costs for medium and
               larger posts will be considerably greater than $351,000. Based on
               the data we have for the remaining 10 posts, some of which have
               costs that are many times greater than those for Luanda, we
               suspect that actual annual cost estimates could be several times
               greater than that which we provided.

               To this minimum cost, we added the costs of adding 100 new
               OBO-funded facilities managers. State's Office of Rightsizing the
               U.S. Overseas Presence estimates the total per capita cost of
               placing American government employees in overseas positions at
               approximately $400,000 per year. Based on this figure, the cost of
               placing Americans in new facility manager positions at 100 NECs
               would cost approximately $40 million. Thus, overall operations and
               maintenance costs will likely increase by a minimum of $111
               million.

               All costs for these analyses were converted to 2006 constant
               dollars using the U.S. Gross Domestic Product Deflator.

               We also visited the U.S. embassy in Tunis, Tunisia, and met with
               former Tunis management staff to discuss how its operations and
               maintenance needs and costs changed after moving into its new
               embassy compound; reviewed the worldwide cable it developed to
               document its cost increases and additional staffing needs; and
               discussed the assistance the post provides other U.S. embassies
               and consulates, as they prepare to occupy their own NECs. In
               addition, we interviewed management and facilities maintenance
               personnel at eight posts with either ongoing or recently completed
               construction projects to discuss preparations each made or are
               making for hiring additional and training current staff, awarding
               service contracts, developing maintenance plans, ensuring the
               posts have adequate supplies and spare parts for the initial year
               of operations, and working with regional bureaus and agency
               clients to ensure operations and maintenance are properly funded.3

               We also interviewed key officials from State's regional bureaus,
               OBO, and the Bureau of Resource Management on (1) the planning for
               the operational requirements of NECs and (2) the staffing and
               funding resources required to ensure they function properly. We
               also reviewed processes developed by OBO's Facilities Management
               Office to provide early-on assistance to posts on the types of
               systems that are to be installed at the NECs, the maintenance
               needs of the mechanical systems, and the skill requirements and
               numbers of staff needed to operate and maintain the various
               systems in the new compounds. Finally, we reviewed assistance
               provided to posts by State's Office of Global Support Services and
               Innovation.

               We performed our work from January 2005 to June 2006 in accordance
               with generally accepted government auditing standards.

               Operations and maintenance costs are funded through five primary
               sources, including OBO, ICASS, State's regional bureaus and Bureau
               of Diplomatic Security, and other agencies, as needed (see table
               3). According to the Foreign Affairs Manual, basic building and
               compound operations, such as custodial services, fuel, utilities,
               supplies, trash collection, and grounds care, among others, are
               planned for by individual posts and are funded through the ICASS
               system, from the Diplomatic and Consular Programs fund overseen by
               State's regional bureaus, and from other agencies' operating
               budgets. OBO is responsible for funding general maintenance and
               repair projects at overseas posts, including routine services and
               materials for items of a recurring nature, such as painting,
               weather stripping, termite control, and small repairs, among
               others. OBO is also responsible for special maintenance and
               improvement projects that cost more and are more technical in
               nature. For example, OBO manages projects for repairs such as
               those for air conditioning systems, elevators, and fire
               suppression systems, and also manages emergency repairs caused by
               unforeseen events. OBO also funds major and minor upgrades for the
               physical security of embassies and consulates, while costs for
               technical security equipment are funded by the Bureau of
               Diplomatic Security.

               The following are GAO's comments on the State Department's letter
               dated June 19, 2006.

    2Although we did not test the reliability of these specific data, in the
    past, we have conducted general assessments of ICASS data and found the
    data reliable. See GAO-04-511 .

    3The eight posts include those cited above with the exception of Tashkent,
    Uzbekistan.

    Appendix II: Operations and Maintenance Funding Sources

    Table 3: Major Costs and Funding Sources for Operations and
               Maintenance of Overseas Government-owned and Long-term Lease
               Office Facilities

    Cost center                     Funding source
    Lease costs                     OBO
    Building operating expenses     ICASS

                                       Diplomatic and Consular Programsa

                                       Other agenciesb
    Physical security upgrade       OBO
    Technical security equipment    Bureau of Diplomatic Security
    Maintenance and repair          OBO (government-owned buildings)
    improvements
                                       Leaseholder and OBO (long-term lease
                                       buildings)
    Program alteration              Other agencies
    Grounds care                    ICASS Diplomatic and Consular Programs
                                       Other agencies
    Fire equipment                  OBO
    Furniture                          o  Initial

                                       OBO Other agencies

                                          o  Replacement

                                       ICASS Diplomatic and Consular programs

                                       Other agencies
    Air conditioning units          OBOc

                                       ICASS

                                       Diplomatic and Consular programs

                                       Other agencies
    Emergency generators (including OBO
    overhauls)
    Generator service contract      Diplomatic and Consular programs

               Source: U.S. Department of State, Foreign Affairs Manual (15
               FAM-120, 160, and 630).

               aPost-held funds allotted by State's regional bureaus.

               bThe ICASS system permits service providers to directly charge any
               agency, including State, for using a service that can be easily
               identified as benefiting that specific agency.

               cOn air conditioning units greater than 36,000 BTUs.

                                       Other agencies

    Appendix III: Comments from the Department of State

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

    See comment 2.

    See comment 1.

    See comment 4.

    See comment 3.

    See comment 5.

    See comment 6.

                                      GAO Comments

      1. We modified the text of the report to address this
                            concern.
                            2. We did not complete a full analysis of OBO's value
                            engineering process. We note that value engineering
                            was integral to OBO's reformatted standard embassy
                            design that will be used beginning with fiscal year
                            2006 projects. However, until these NECs come on
                            line, it is unclear how the changes will impact
                            operations and maintenance costs for those posts.
                            3. The first of the two objectives of our review was
                            to assess State's performance in completing NEC
                            projects on time and within cost parameters, and to
                            examine the factors that affect construction
                            projects. As such, the scope of our work, in part,
                            required that we compare State's performance under
                            the current construction program with its past
                            efforts. However, an assessment of OBO's program
                            performance relative to the efforts of other agencies
                            or the private sector was not within the scope of our
                            work.
                            4. We deleted the statements from our final report.
                            5. Our review and findings were to demonstrate that
                            (1) the costs for operating and maintaining new
                            embassy compounds are significantly higher than those
                            costs associated with the facilities they replaced
                            and (2) that no mechanism exists that clearly
                            explains the resources needed for operating and
                            maintaining NECs on a day-to-day basis. We neither
                            state nor imply an "apples-to-apples comparison"
                            between the resource requirements for operating NECs
                            and those for the older facilities. To the contrary,
                            we state that NECs are significantly larger, are more
                            complex, and have significantly more demands than the
                            facilities they replace. We attribute these factors,
                            in part, to increased security needs, though we
                            purposefully avoided discussion of specific equipment
                            and functions that could be deemed sensitive. We also
                            acknowledge that increased staffing needs could
                            impact the size of NECs, which in turn, could affect
                            operations and maintenance costs. Finally, in our
                            report we acknowledged that operations and
                            maintenance at U.S. diplomatic facilities had long
                            been underfunded, and we stated how we and others
                            concluded that this led to dilapidated conditions at
                            many overseas posts. The relevant points for decision
                            makers are that costs to operate and maintain the new
                            facilities are significantly greater than the costs
                            of the facilities they replace, and that failure to
                            provide adequate funding could repeat the cycle of
                            deterioration previously seen at overseas diplomatic
                            facilities. We believe that the first step toward
                            ensuring that operations and maintenance activities
                            are properly funded and staffed is to provide a clear
                            and accurate representation of the necessary
                            resources to those who make funding and human capital
                            decisions.
                            6. During the course of our work, State officials
                            said there was no way for them to predict how costs
                            for operating and maintaining overseas posts changed
                            when new embassies came online. We disagree with this
                            contention. NECs under the current construction
                            program are larger, tend to have more buildings, and
                            are more complex than embassies and consulates
                            constructed under the Inman program. However, Inman
                            program embassies and others built during the 1990s,
                            such as in Bogota, Colombia, and Lima, Peru, were
                            required to meet many of the same security
                            requirements and were significantly larger than the
                            facilities they replaced. A comparison of actual
                            operations and maintenance expenditures for these
                            facilities may have highlighted the increased costs
                            in a more timely manner.

    Appendix IV: GAO Contacts and Staff Acknowledgments

                                      GAO Contacts

     Jess T. Ford, Director, International Affairs and Trade, (202)
     512-4128, e-mail fordj@gao.gov , and Terrell G. Dorn, Director,
     Physical Infrastructure, (202) 512-6923, e-mail dornt@gao.gov .

                                 Staff Acknowledgments

    In addition to the individuals named above, Michael Courts,
    Assistant Director; Michael Armes; Sam Bernet; Joseph Carney;
    Erika Carter; and Edward Kennedy made key contributions to this
    report.

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    (320332)

    www.gao.gov/cgi-bin/getrpt? GAO-06-641 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact Jess T. Ford at (202) 512-4128 or
    fordj@gao.gov or Terrell G. Dorn at (202) 512-6923 or dornt@gao.gov.

    Highlights of GAO-06-641 , a report to the Chairman, Committee on Foreign
    Relations, U.S. Senate

    June 2006

    EMBASSY CONSTRUCTION

    State Has Made Progress Constructing New Embassies, but Better Planning Is
    Needed for Operations and Maintenance Requirements

    In response to 2 bombings of U.S. embassies in Africa in 1998, the
    Department of State embarked on a $21 billion program to replace 201
    insecure and dilapidated diplomatic facilities. In November 2004, GAO
    reported that State's Bureau of Overseas Buildings Operations (OBO), which
    manages the construction program, had implemented reforms to its planning,
    design, construction, and funding processes designed to expedite the
    construction process and prevent cost overruns that were common to
    previous State diplomatic construction programs. This report updates GAO's
    earlier report, by discussing OBO's completion rates and costs for embassy
    construction projects and the impact the reforms and other factors have on
    completion rates. It also discusses the changes in the costs for operating
    and maintaining these new facilities.

    What GAO Recommends

    GAO recommends that the Secretary of State develop an integrated and
    comprehensive facilities plan that clearly specifies the immediate and
    long-term resource needs for operating and maintaining new embassy
    compounds.

    We received comments from the Department of State, which generally agreed
    with our findings and reported that it plans to implement our
    recommendation. State's comments are reprinted in appendix III.

    State has made significant progress constructing new embassy compounds
    (NEC). The average time to design and construct the 18 embassies and
    consulates completed from1999 to 2005 is nearly 3 years faster than for
    embassies built during the 1980s and 1990s, despite these new facilities
    being significantly larger and more complex. Although only half of the 18
    projects were completed according to planned schedules, 15 of the 18 NECs
    were opened ahead of, on, or within 1 month after their scheduled move-in
    dates, and approximately 8,700 U.S. government employees were relocated to
    these secure and modern facilities. Construction costs for 14 of the 18
    completed projects were significantly lower than budget estimates OBO
    provided to Congress. Strategic and procedural reforms implemented by
    State, including elevating the former Foreign Buildings Office to bureau
    status, switching to the design-build contract delivery method, and
    developing a standard embassy design have had a cumulative positive effect
    on project cycle times; however, it is still difficult to quantify the
    effects of any single reform. GAO found that factors specific to
    individual projects affected OBO's ability to complete work on time and on
    budget, including the experience levels of OBO and contractors' projects
    teams, unforeseen conditions at construction sites, and weather
    conditions, among others.

    Due to increased size and complexity, annual operations and maintenance
    costs for NECs are significantly greater than the costs for previous
    locations; once all 201 NECs are completed, annual operations and
    maintenance costs could increase by at least $111 million, and possibly
    several times more. These costs include increases in utility usage; the
    need to hire highly qualified technical staff; new maintenance needs; and
    costly equipment, supplies, and spare parts. State does not clearly
    identify the projected operations and maintenance costs for NECs it
    builds. Thus, there is currently no mechanism that allows decision makers
    to determine whether NEC operations and maintenance needs are being
    adequately planned for and funded. A lack of a comprehensive long-term
    plan that clearly identifies the significant increases in resources that
    are likely to be needed as more NECs come online could increase the risk
    of earlier-than-expected deterioration of NECs.

    Previous and New U.S. Embassy in Zagreb, Croatia
    *** End of document. ***