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

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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 [email protected] , or Terrell G. Dorn
on (202) 512-6923, e-mail [email protected] . 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 [email protected] , and Terrell G. Dorn, Director,
 Physical Infrastructure, (202) 512-6923, e-mail [email protected] .				

                             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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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.

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