    Overseas Presence: State and USAID Should Adopt a Comprehensive
    Plan to Improve the Consolidation of Overseas Support Services
    (08-SEP-06, GAO-06-829).

    The Department of State (State) has embassies in about 180
    countries, and the U.S. Agency for International Development
    (USAID) maintains missions in about 90 of those countries. At
    many posts, State and USAID are located on separate compounds and
    maintain multiple support service operations, such as warehouses.
    However, the United States is in the process of building new
    embassy compounds that will collocate all agencies, creating
    opportunities for greater sharing of services. In September 2004,
    we recommended that State pursue the elimination of duplicative
    support structures at overseas facilities. We reviewed (1) the
    status of State and USAID's joint initiative to consolidate
    overseas services, and plans for advancing the initiative; and
    (2) the challenges State and USAID face in these efforts.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-829
        ACCNO:   A60484
      TITLE:     Overseas Presence: State and USAID Should Adopt a
    Comprehensive Plan to Improve the Consolidation of Overseas
    Support Services
         DATE:   09/08/2006
      SUBJECT:   Administrative costs
    	     Agency missions
    	     Cost analysis
    	     Cost control
    	     Embassies
    	     Federal employees
    	     Interagency relations
    	     Lessons learned
    	     Program evaluation
    	     Strategic planning
    	     Duplication of effort
    	     Pilot programs
    	     Support services
    	     Cairo (Egypt)
    	     Dar es Salaam (Tanzania)
    	     Dept. of State International Cooperative
    	     Administrative Support Services System

    	     Jakarta (Indonesia)
    	     Phnom Penh (Cambodia)

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    ******************************************************************
    GAO-06-829

         * GAO-06-829
              * Table of Contents
              * Letter
                   * Results in Brief
                        * Background
                        * State and USAID Have Consolidated Some Services and
                          Plan Add
                             * Pilot Projects Demonstrate Feasibility of
                               Consolidating Over
                             * Results Varied by Post
                                  * Phnom Penh
                                  * Dar es Salaam
                                  * Jakarta
                                  * Cairo
                             * State and USAID Learned Lessons from the Pilot
                               Projects
                             * State and USAID Are Expanding Their Efforts to
                               Consolidate S
                             * Some Additional Posts Have Begun to Plan New
                               Consolidation P
                                  * Phnom Penh
                                  * Jakarta
                                  * Nairobi
                                  * San Salvador
                                  * Managua
                                  * Kiev
                                  * Tegucigalpa, Pristina, and Cotonou
                        * State and USAID Face Challenges in Expanding
                          Consolidation o
                             * USAID's Concerns about Potential Cost Increases
                                  * Posts Lack Reliable Cost Data
                                  * Reluctance to Reduce Staff
                                  * Communication between Headquarters and Posts
                                  * Technical Differences Will Hamper Efforts to
                                    Consolidate Ser
                             * State and USAID Need a Comprehensive Plan
                        * Conclusion
                        * Recommendations for Executive Action
                        * Agency Comments and Our Evaluation
              * Appendix I: Posts Where State and USAID Are Currently Colloc
              * Appendix II: Posts Currently Planned for Construction During
              * Appendix III: Results of Workshop on Consolidating Support S
              * Appendix IV: Scope and Methodology
              * Appendix V: Comments from the Department of State
              * Appendix VI: Comments from USAID
              * Appendix VII: GAO Contact and Acknowledgments
                   * GAO Contact
                   * Staff Acknowledgments
                        * Order by Mail or Phone

                     United States Government Accountability Office

    Report to the Chairman, Subcommittee

    GAO

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

    September 2006

    OVERSEAS PRESENCE

     State and USAID Should Adopt a Comprehensive Plan to Improve the Consolidation
                              of Overseas Support Services

    GAO-06-829

    OVERSEAS PRESENCE

    State and USAID Should Adopt a Comprehensive Plan to Improve the
    Consolidation of Overseas Support Services

      What GAO Found

    State and USAID have demonstrated the feasibility of consolidating
    overseas support services and are seeking to expand their efforts. In June
    2004, State and USAID initiated pilot projects at four posts to
    demonstrate the feasibility of consolidating support services. The four
    posts that participated in the pilot successfully consolidated 12 of the
    16 support services, such as residential property maintenance, and
    reported operational efficiencies and costs avoided. For example, Dar es
    Salaam eliminated several positions and Phnom Penh improved motor pool and
    housing procedures. State and USAID learned valuable lessons from the
    pilot projects. They have directed posts to begin the process of
    identifying duplicative services and initiating consolidation efforts. As
    of July 2006, nine posts had responded, but only one had advanced beyond
    the planning stage.

    The two agencies face several challenges in consolidating services at
    posts. The challenges include the need for State and USAID in Washington
    and at posts to address concerns that USAID's costs may increase if
    services are consolidated, develop better cost and performance data,
    reduce the number of locally employed staff and reduce or replace U.S.
    direct hires with locally employed staff, communicate better, and resolve
    technical differences. During our work, State and USAID took steps to
    address some of these challenges. For instance, in June 2006, the two
    agencies produced a draft strategy that defines broad goals and sets forth
    a common vision-to combine at collocating posts all State and USAID
    services into a single administrative structure and reduce the number of
    U.S. direct hire personnel. This is a positive step. However, our analysis
    of the draft strategy shows that it does not include a plan that details
    milestones, specific goals, timelines, and performance measures or
    accountability mechanisms to demonstrate results.

    State and USAID Collocated Posts, Fiscal Years 2006-2011

    United States Government Accountability Office

    Contents

    Letter 1

    Results in Brief 3

    Background  4

    State and USAID Have Consolidated Some Services and Plan Additional
    Consolidations 8

    State and USAID Face Challenges in Expanding Consolidation of Support
    Services 19

    Conclusion 27

    Recommendations for Executive Action 27

    Agency Comments and Our Evaluation 27

    Appendix I Posts Where State and USAID Are Currently Collocated

    Appendix II Posts Currently Planned for Construction During

    Fiscal Years 2006-2011 Where State and USAID

    Will be Collocated

    Appendix III Results of Workshop on Consolidating Support Services

    Appendix IV Scope and Methodology

    Appendix V Comments from the Department of State

    Appendix VI Comments from USAID

    Appendix VII GAO Contact and Acknowledgments

     Table
            Table 1: Results of Pilot Services Consolidation Project, June 2004
            October 2005                                                     10
    Figures
            Figure 1: Posts Where State and USAID are Collocated or Will be
            Collocated Based on Current Construction and USAID
            Deployment Plans, Fiscal Years 2006-2011                         6
            Figure 2: The Location of State and USAID on the New Embassy
            Compound in Dar es Salaam                                        7

        Abbreviations

    ICASS International Cooperative Administrative Support Services
    OMB   Office of Management and Budget
    USAID U.S. Agency for International Development

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

    United States Government Accountability Office Washington, DC 20548

    September 8, 2006

    The Honorable Christopher Shays Chairman Subcommittee on National
    Security, Emerging Threats

    and International Relations Committee on Government Reform House of
    Representatives

    Dear Mr. Chairman:

    The Department of State (State) has embassies in about 180 countries, and
    the U.S. Agency for International Development (USAID) maintains missions
    in about 90 of these countries. At many overseas posts, State and USAID
    are located on separate compounds and maintain multiple warehouses, motor
    pools, and other support service operations. However, the United States is
    in the process of building new embassy compounds that will collocate all
    agencies, including State and USAID, under the authority of a chief of
    mission, creating opportunities for greater sharing of services. 1 In
    September 2004, we recommended that State aggressively pursue the
    elimination of duplicative support structures at overseas facilities with
    the goal of limiting each service to the one provider best able to provide
    a quality service at the lowest possible price. 2 Further, the President
    has emphasized the importance of safety, efficiency, and accountability in
    U.S. government staffing overseas by designating the achievement of a
    "rightsized" overseas presence as part of the President's Management
    Agenda. 3 One of the elements of rightsizing is to eliminate and
    consolidate duplicative services. State and USAID have initiated an

    1

    The Secure Embassy Construction and Counterterrorism Act of 1999, Pub. L.
    106-113, Appendix G, Div. A, Title VI, sec. 606(a)(2) generally requires
    all agencies under the authority of a chief of mission to be collocated on
    new embassy compounds.

    2GAO, Embassy Management: Actions Are Needed to Increase Efficiency and
    Improve Delivery of Administrative Support Services, GAO-04-511
    (Washington, D.C.: September 7, 2004).

    3

    Office of Management and Budget, President's Management Agenda, Fiscal
    Year 2002 (Washington, D.C.: August 2001). The President's Management
    Agenda is a set of management initiatives designed to make government more
    effective and efficient. Rightsizing is a concept that refers to having
    the right number of staff at overseas posts with the necessary resources
    and expertise to accomplish U.S. policy objectives.

    effort to eliminate and consolidate duplicative services at posts with
    both a State and USAID presence, starting with pilot projects at four
    posts.

    This report examines (1) the status of State and USAID's joint initiative
    to consolidate overseas services, and plans for advancing the initiative;
    and

    (2) the challenges that State and USAID face in consolidating services at
    posts. This report is one of three recent reports that address your
    interest in rightsizing the U.S. presence abroad. The other two reports
    discussed State's initiative to provide support services remotely 4 and
    the U.S. government's overall effort to rightsize its presence overseas. 5

    To address our objectives, we reviewed plans and studies describing
    State's and USAID's efforts to consolidate services. We also met with
    officials of several State and USAID regional and functional bureaus, as
    well as private and public sector organizations with knowledge of or
    firsthand experience consolidating and providing shared services. In
    January and February 2006, we conducted fieldwork at three posts that
    participated in the pilot projects-Cairo, Egypt; Dar es Salaam, Tanzania;
    and Phnom Penh, Cambodia-and held a teleconference with the fourth-
    Jakarta, Indonesia. We also conducted fieldwork in Nairobi, Kenya, a post
    that is planning to consolidate State and USAID services. We obtained and
    analyzed studies documenting the results of the pilot projects and lessons
    learned, as well as the challenges encountered by State and USAID. We also
    reviewed numerous studies documenting consolidation and shared services
    lessons learned and benefits, and we convened a workshop in May 2006
    consisting of State and USAID officials, as well as two experts on
    governance and shared services, to further discuss and analyze these
    lessons in the context of State's and USAID's initiative. This workshop
    not only provided participants with an opportunity to discuss and learn
    from similar private and public sector efforts to consolidate support
    services, but also provided us with the context for framing our
    recommendations. Appendix III contains the results of our workshop. We
    performed our work from November 2005 through July 2006 in accordance with
    generally accepted government auditing standards. (See app. IV for a more
    complete discussion of our scope and methodology).

    4GAO, Overseas Presence: Cost Analyses and Performance Measures are Needed
    to Demonstrate Full Potential of Providing Embassy Support Remotely,
    GAO-06-479 (Washington, D.C.: May 2, 2006).

    GAO, Overseas Staffing: Rightsizing Approaches Slowly Taking Hold but More
    Needs to Be Done, GAO-06-737 (Washington, D.C.: June 28, 2006).

          Page 2 GAO-06-829 Overseas Consolidation

      Results in Brief

    State and USAID have demonstrated the feasibility of consolidating
    overseas support services and are seeking to expand their efforts. In June
    2004, State and USAID initiated pilot projects at four posts to
    demonstrate the feasibility of consolidating support services. The four
    posts that participated in the pilot-Cairo, Egypt; Dar es Salaam,
    Tanzania; Phnom Penh, Cambodia; and Jakarta, Indonesia-successfully
    consolidated 12 of the 16 support services targeted, such as residential
    property maintenance, and reported operational efficiencies and costs
    avoided. For example, Phnom Penh used the consolidation as an opportunity
    to improve standard operating procedures for motor vehicle and housing
    services. Dar es Salaam eliminated several positions and replaced a U.S.
    direct hire position with an eligible family member position. 6 State and
    USAID learned valuable lessons from the pilot projects and are expanding
    their efforts to consolidate services at other posts. In December 2005,
    State and USAID directed posts to begin the process of identifying
    duplicative services and initiating consolidation efforts. As of July
    2006, nine posts had responded, but only one had advanced beyond the
    planning stage.

    State and USAID face several challenges in consolidating services at all
    posts. The challenges include the need for State and USAID in Washington
    and at posts to address concerns that USAID's costs may increase if
    services are consolidated, in part because of embassies' reliance on
    higher-cost U.S. direct hire staff, 7 even though overall U.S. government
    costs will decrease; develop better cost and performance data; reduce the
    number of locally employed staff and reduce or replace U.S. direct hire
    staff with locally employed staff who are less expensive to employ;
    communicate better; and resolve technical differences. During the course
    of our work, State and USAID have taken steps to address some of these
    challenges. For instance, in April 2006, State took steps to encourage the
    regional bureaus to replace U.S. direct hires with locally employed staff.
    In addition, in June 2006, the two agencies produced a draft strategy that
    defines broad goals and sets forth a common vision-to combine at
    collocating posts all common State and USAID services into a single
    administrative structure and reduce the number of U.S. direct hire

    6

    An eligible family member lives with a U.S. direct hire staff person at
    post. State uses eligible family members to fill a variety of positions.
    According to State officials, hiring an eligible family member often can
    result in savings because State does not have to pay for many of the costs
    associated with supporting the U.S. direct hire staff person, such as the
    cost of schooling for dependent children.

    7See GAO-04-511 for a fuller explanation of how costs for overseas posts'
    administrative services have increased.

    personnel. These are positive steps. However, our analysis of the draft
    strategy shows that it does not include a plan that details milestones,
    specific goals, timelines, and performance measures or accountability
    mechanisms to demonstrate results.

    We are recommending that the Secretary of State, in conjunction with the
    USAID Administrator, designate overseas services consolidation a priority
    and develop a comprehensive plan that provides a detailed picture of the
    desired end state and defines timelines, performance and accountability
    measures, and results-oriented criteria for success. We are also
    recommending that State and USAID set timelines for accomplishing the
    standardization of State's and USAID's policies, procedures, and systems.

    State and USAID agreed with the report and our recommendations and said
    that they are actively working to consolidate overseas support services.

    Background

    The operation of U.S. embassies requires basic support services for
    overseas personnel, such as motor pool, residential property leasing,
    warehousing, and others. Many non-State government agencies, including
    USAID, operate overseas under the authority of a chief of mission and
    require such services. Under a State Department-administered system known
    as the International Cooperative Administrative Support Services (ICASS)
    system, the costs of support services are divided among agencies that have
    personnel at post and representatives of participating agencies are part
    of a council that tracks and evaluates service provider performance. While
    many agencies participate in ICASS, it is for the most part a voluntary
    system; agencies can opt out of all but two services. 8 Reasons for doing
    so can include a desire to retain control over service providers, an
    agency's belief that costs can be minimized by providing the services
    itself, or because the agency is not located on the main embassy complex.
    For these and other reasons, at many overseas locations, agencies maintain
    multiple warehouses, motor pools, procurement operations, and other
    services. USAID, for example, provides its own services in many of the
    approximately 90 countries where it has a

    8

    These include services that can only be obtained by the embassy, such as
    securing diplomatic credentials from the host country and services
    provided by the post's Community Liaison Office, such as providing
    welcoming and orientation materials, and helping to enroll dependent
    children in education programs.

    Page 4 GAO-06-829 Overseas Consolidation

    presence. At some posts, USAID is the largest agency that maintains its
    own separate, sometimes duplicative, support services.

    State plans to construct 65 new embassies and consulates over the next 6
    fiscal years and State and USAID will be collocated at 37 of these
    locations, providing considerable opportunities for consolidating the
    agencies' services. 9 For instance, the new embassy office compound in
    Addis Ababa, Ethiopia, slated for construction in fiscal year 2007, will
    provide space for both State and USAID. Figure 1 shows the posts where
    State and USAID are collocated and will be collocated over the next 6
    years, based on current embassy construction plans and USAID deployment
    plans. Figure 2 shows the new embassy compound in Dar es Salaam, where
    State and USAID are now collocated. Appendix I provides a listing of the
    44 posts where State and USAID are currently collocated, and Appendix II
    provides a listing of the 37 posts planned for construction during fiscal
    years 2006-2011 where State and USAID will be collocated, based on current
    construction and USAID deployment plans.

    Total cost over the life of the program is estimated to be about $21
    billion. Under the program, State intends to replace approximately 200
    embassies and consulates. According to State officials, the program
    envisions spending approximately $1.4 billion per fiscal year for
    construction over the next 6 fiscal years.

    Page 5 GAO-06-829 Overseas Consolidation

    Figure 1: Posts Where State and USAID are Collocated or Will be Collocated
    Based on Current Construction and USAID Deployment Plans, Fiscal Years
    2006-2011

    Countries in which State and USAID are collocated

    Source: Department of State.

    Figure 2: The Location of State and USAID on the New Embassy Compound in
    Dar es Salaam

    Source: GAO.

    In accordance with the President's National Security Strategy 10 and the
    President's Management Agenda, State and USAID have begun to integrate
    their operations and management structures, producing for the first time a
    joint strategic plan in August 2003. 11 While mindful that the agencies
    remain two separate organizations with distinct legislative mandates and
    budgets, the goal of the plan is to reduce redundancies and costs where
    possible. As such, the plan states that, among other things, State and
    USAID will work with the Office of Management and Budget (OMB) and other
    U.S. government agencies to align the number and location of staff
    assigned overseas with foreign policy priorities, security, and other
    constraints. It also calls for State and USAID to jointly review

    10

    The National Security Strategy of the United States of America
    (Washington, D.C.: March 16, 2006). The strategy's goal of enhancing and
    transforming key institutions has three priorities, one of which is to
    promote State's reorientation toward transformational diplomacy by more
    fully aligning the foreign assistance provided by State and USAID.

    11

    Strategic Plan, Fiscal Years 2004-2009: U.S. Department of State and U.S.
    Agency for International Development (Washington, D.C.: August 2003).
    State and USAID are currently revising this strategic plan.

    their operations at overseas locations and implement pilot projects in
    which selected support operations would be combined to reduce costs,
    enhance the quality of services provided, or both. As part of a separate
    but related effort, State and USAID have begun to consolidate
    administrative services at headquarters, including information technology
    and financial systems services. In conjunction with rightsizing efforts,
    posts receiving a new embassy compound are required to prepare an analysis
    of duplicative services and identify opportunities for consolidation.

    To develop priorities and implement strategies for the two agencies, and
    monitor progress toward the goals articulated in the strategic plan, State
    and USAID established a Joint Management Council, cochaired by State's
    Undersecretary for Management and USAID's Deputy Administrator. The
    council created eight joint State-USAID working groups, one of which was
    formed to identify parallel services performed by both State and USAID and
    examine the feasibility of consolidating services at selected posts, among
    other things. Within State, the congressionally mandated Office of
    Rightsizing 12 and the Office of Global Support Services and Innovation
    within the Bureau of Administration lead State's efforts to encourage
    posts to consolidate services by providing technical services and
    direction, including documenting and posting lessons learned on State's
    intranet Web site; at USAID, the Office of Overseas Management Support
    within the Bureau for Management plays the same role.

      State and USAID Have Consolidated Some Services and Plan Additional
      Consolidations

    In June 2004 State and USAID launched pilot projects at four posts to
    demonstrate the feasibility of consolidating services. Consolidation
    results varied from post to post but overall 12 of 16 targeted services
    achieved some level of consolidation. For example, Phnom Penh and Dar es
    Salaam merged four services-warehousing, motor pool, residential
    maintenance, and leasing. Cairo was the least successful, consolidating
    one service, warehouse operations. Jakarta consolidated motor pool,
    residential maintenance, and leasing operations, but did not initially
    consolidate warehousing. Posts reported some operational efficiencies and
    costs avoided, but because of differences in how each post calculated its

    12

    In fiscal year 2004, Congress mandated the establishment of an Office of
    Rightsizing the United States Government Overseas Presence to be
    established within the Department of State. The office was directed to
    lead the State Department's effort to develop internal and interagency
    mechanisms to better coordinate, rationalize, and manage the deployment of

    U.S. government personnel overseas, under Chief of Mission authority
    (Public Law 108-199, Div. B, Title IV ).

    Page 8 GAO-06-829 Overseas Consolidation

    benefits, the overall level of cost avoidance and savings was not fully
    developed.

    State and USAID learned important lessons from the pilot projects,
    including the need for posts to determine the scope and pace of
    consolidation efforts. State and USAID are expanding their efforts to
    consolidate services at other posts. As of July 2006, nine posts had begun
    consolidation projects. However, only one had advanced beyond the planning
    stage.

        Pilot Projects Demonstrate Feasibility of Consolidating Overseas Support
        Services

    Results Varied by Post

    With assistance from a private contractor, a joint State and USAID working
    group from Washington completed a study in May 2004 examining the
    feasibility of consolidating duplicative motor pool, warehouse,
    residential maintenance, and leasing services at four posts-Cairo, Egypt;
    Dar es Salaam, Tanzania; Phnom Penh, Cambodia; and Jakarta, Indonesia. 13
    The goal was to combine the best employees, equipment, and processes from
    existing operations to ensure that both agencies and all ICASS customers
    benefited from improved services at lower cost to the taxpayer. The study
    identified significant advantages to consolidating services, finding in
    every case that service levels could be improved and cost could be
    reduced. The study also recommended a set of pilot projects for each
    location and suggested which of the two service providers- State/ICASS or
    USAID-should be the lead service provider but left the final decision up
    to the individual posts. According to agency and post officials, the pilot
    projects began in June 2004.

    As a result of the pilot projects, State and USAID reported that the four
    posts had successfully consolidated in full or in part 12 of the 16
    services targeted, resulting in operational efficiencies and costs
    avoided. The final evaluation of the results of the pilot projects,
    completed in October 2005, was based on surveys submitted by the four
    pilot posts in June 2005 to the Joint Management Council. However,
    post-consolidation customer satisfaction surveys were conducted on only 5
    of the services, providing insufficient data to draw reasonable
    conclusions about changes in the quality of services provided. Examples of
    operational efficiencies identified include

    13

    In Cairo, State and USAID are located on separate compounds; in Dar es
    Salaam, Jakarta, and Phnom Penh, State and USAID are collocated or will
    soon be collocated on the same compound.

    Page 9 GAO-06-829 Overseas Consolidation

      * Re-engineered business processes and updated standard operating
        procedures. For example, Phnom Penh updated its housing handbook.
      * Better use of workspace. For example, combining the warehouses in Phnom
        Penh resulted in a 40 percent decrease in the amount of space used.
      * Improvements in the competitive position of the U.S. government. For
        example, posts reported that having just one U.S. government provider
        responsible for residential leasing eliminated the competition for
        residences in the local market.
      * Reduced unit costs of service. For example, the unit cost of providing
        residential maintenance in Jakarta-a measure of the cost of maintaining a
        residence or building-decreased from $1.54 a square foot before the pilot
        project to $1.33 per square foot after consolidation occurred.

    The pilot posts reported costs avoided of approximately $386,000 stemming
    from staff reductions, contract terminations, or other actions. Table 3
    summarizes what the pilot posts reported. Dar es Salaam later reported
    that as a result of consolidating services, it has decided to replace a
    U.S. direct hire position with a position for an eligible family member.
    By doing this, post officials in Dar es Salaam estimated that they saved
    an additional $300,000.

          Table 1: Results of Pilot Services Consolidation Project, June
          2004-October 2005

    Residential Annual cost Motor pool Warehouse Leasing maintenance avoidance

    Phnom Penh Consolidated Consolidated Consolidated Consolidated $ 49,000

    Dar es Salaam Consolidated Consolidated Consolidated Consolidated $ 42,000

    Jakarta Consolidated Not consolidated Consolidated Consolidated $114,885

    Total annual cost avoidance $385,885

    Source: October 2005 State and USAID evaluation.

    a

    According to post officials, Cairo decided not to consolidate leasing and
    residential maintenance services, in part because of a post analysis that
    indicated consolidating these services would not reduce costs. The motor
    pools were not merged because the post did not believe this could result
    in significant savings.

        Results Varied by Post

    Posts' efforts to consolidate services varied. Phnom Penh and Dar es
    Salaam were the most successful, consolidating all four services, and
    Jakarta consolidated three services. By contrast, Cairo, the largest of
    the four pilot posts and one of the largest posts in the world, was only
    able to consolidate one service.

    Phnom Penh

    Phnom Penh successfully merged all four target services and realized
    efficiency gains. State and USAID officials described Phnom Penh as the
    model project. The post reported that it had reviewed and consolidated all
    administrative instructions and standard operating procedures for motor
    vehicle services and housing services. In particular, the post updated its
    housing handbook, held customer service briefings, and updated its country
    clearance cable to ensure that all customers understood the changes in
    procedures. The post also reported that it had instituted USAID's best
    practice of providing vehicles to the maintenance staff, allowing its four
    maintenance teams to operate independently without additional workload for
    the motor pool or the need for additional drivers. Moreover, before
    consolidation, USAID and State motor pool drivers occupied two separate
    offices, but these were consolidated, making better use of existing space
    and decreasing utility costs. Additionally, the post reported that leasing
    services were improved by establishing a single point of contact for local
    landlords with multiple properties under lease to the
    U.S. government. Still further, the consolidation of maintenance services
    allowed USAID in Phnom Penh to terminate its maintenance shop lease, which
    led to savings in utilities and rent expenses. Finally, by consolidating
    warehouse operations, the post reported that it had realized gains in
    delivery times and a 40 percent decrease in the amount of space used.

    Dar es Salaam

    Dar es Salaam reported several operational efficiencies and costs avoided
    from the pilot project. In leasing, the post reported benefits from the
    establishment of a single leasing office and by eliminating in the process
    the competition between State and USAID. The post also reported that while
    State had lacked an adequate assistant maintenance supervisor before the
    consolidation of the residential maintenance function, the acquisition of
    a highly qualified supervisor from USAID made the combined section
    stronger.

    Dar es Salaam initially reported that it had avoided $42,000 in costs by
    reducing the number of locally employed staff. However, in our discussions
    with post officials we found that it has also replaced a U.S. direct hire
    position with an eligible family member position. State's Bureau of
    Resource Management has computed the average cost of each overseas
    position at $400,000 for fiscal year 2007, including salary, benefits, and
    support costs, plus a number of costs that apply only to officials
    overseas. It also includes costs for providing a secure building for
    officers to work in overseas. By replacing a U.S. direct hire position
    with an eligible family member position, post officials estimated that
    they saved approximately $300,000, chiefly by not having to pay additional
    support costs associated with a U.S. direct hire. For this reason, costs
    avoided amounted to approximately $342,000, the most of any pilot post. 14

    Jakarta

    Jakarta reported that it was able to consolidate three services,
    including leasing, and avoid costs of $114,000. However, post staff we
    spoke with in February 2006 indicated that in fact leasing had been only
    partially consolidated and that while residential leasing was taken over
    by USAID, nonresidential leasing had not been consolidated. Nonetheless,
    Jakarta reported gaining some efficiencies. For example, driver
    utilization-a measure of the amount of time a driver is in use-increased
    from below 50 percent before motor pool consolidation to 78 percent after
    consolidation. In addition, post staff indicated that dropping a $50,000
    residential maintenance contract contributed to cost avoidance.

    Cairo

    Cairo reported that it avoided $180,000 in costs mainly by
    terminating the USAID warehouse contract. State/ICASS took over the
    management of both warehouses, increasing its inventory by 50 percent but
    leaving the number of staff the same. Because the USAID and State
    warehouse buildings are adjacent to one another, placing them under a
    single management structure was a priority. However, although State/ICASS
    now oversees warehouse activities for both agencies, operations are not
    fully integrated. USAID still has a separate building and post officials
    maintained that the separate building is necessary for keeping track of
    its inventory, some of which legally must be used only to support
    development activities in Egypt and therefore cannot be merged with
    State's inventory. State officials contend that effective monitoring would
    address the issue and that further efficiencies could be gained by
    combining warehouse space.

    Cairo did not consolidate the other targeted services for two main
    reasons. First, the two agencies are in separate, very distant compounds.
    While the embassy is located in central Cairo, USAID's building is in a
    suburb of the

    14

    OMB's estimate of the average cost across all agencies of having one U.S.
    direct hire overseas for 2007 is $491,000, including direct and indirect
    personnel costs.

    Page 12 GAO-06-829 Overseas Consolidation

    city. Second, the post reported that merging leasing, residential
    maintenance, and motor pool services would not result in benefits. Cairo's
    ICASS Council, which includes management officers and support services
    personnel from both agencies, analyzed these services as candidates for
    consolidation. It found no evidence that cost avoidance, improvement in
    service, or change in staffing levels could be achieved, and therefore
    recommended they remain separate. However, post officials also cautioned
    that their data was imprecise and was derived from proxies or rough
    extrapolations. In addition, State officials questioned the post's
    conclusion that consolidating services would not reduce costs or result in
    operational efficiencies, suggesting that the post had not explored the
    full potential. Moreover, State officials suggested that other services
    might be candidates for consolidation, including travel services and human
    resource services for locally employed staff.

                       Page 13 GAO-06-829 Overseas Consolidation

    State and USAID Learned Lessons from the Pilot Projects

    State and USAID have learned some important lessons from the pilot
    projects. These lessons were partially detailed in the October 2005 Joint
    Management Council evaluation, which included a number of recommendations
    to improve the initiative, some of which have been implemented. They included
    the following:

                            o Posts, not Washington, should decide whether to
                              consolidate services
                              sequentially or simultaneously. During the pilot
                              program, Washington
                              made many of the key decisions, according to post
                              officials in Jakarta,
                              Cairo, and Dar es Salaam. In addition, posts
                              reported that it was much
                              easier to consolidate services sequentially. More
                              recently, many of the key
                              decisions about consolidating services, including
                              whether or not to
                              consolidate services sequentially or
                              simultaneously, have been left to post
                              officials. Nairobi, for example, has chosen to
                              consolidate services
                              sequentially.
                            o To realize operational efficiencies and eliminate
                              the potential for
                              increased duplication and operational confusion,
                              certain services, such as
                              residential leasing and maintenance, should be
                              paired and operated by a
                              single service provider. During the original pilot
                              projects, these services
                              were not paired. According to officials in Jakarta,
                              this resulted in some
                              operational inefficiencies and missed costs
                              avoided. For example,
                              according to one official in Jakarta, Washington
                              chose to consolidate only
                              residential leasing, though consolidating all
                              leasing services would have
                              been more logical. In addition, while State and
                              USAID decided to
                              consolidate property management, they did not
                              include supply
                              management, which is closely related. More
                              recently, Nairobi and San

    Salvador decided to pair residential leasing and maintenance, among other
    services.

         * Posts that have consolidated support services should be encouraged to
           expand the number of services consolidated. Phnom Penh, for example,
           consolidated vehicle maintenance along with motor pool operations and
           currently is exploring other possibilities.
         * In addition, in our discussions with agency and post officials, they
           also identified other lessons, including the following:
      * The need for chiefs of mission to take a strong and active role in
        consolidating services. State and USAID officials attributed Phnom Penh's
        positive results in part to the chief of mission's strong commitment.
      * The need for the agencies, particularly State, to make better use of
        locally employed staff consistent with security and accountability
        requirements in order to reduce the cost of support services overseas.

    In July 2006, the State Department Inspector General issued a report that
    addressed, in part, the consolidation of duplicative administrative
    services. It found that State had done a good job of consolidating
    services at posts receiving new embassy compounds, but had not been as
    successful in combining services at posts not scheduled to receive a new
    embassy compound. The report also found that despite the Joint Management
    Council's guidance to eliminate duplicative State and USAID support
    services, State and USAID had duplicative services in 22 of the 27 posts
    that it inspected in fiscal years 2005 and 2006.

        State and USAID Are Expanding Their Efforts to Consolidate Services

    State and USAID are expanding their efforts to consolidate services,
    relying on posts to identify and eliminate duplicative services and
    designate a lead service provider. The approach was defined in a December
    2005 message from State and USAID that provided a status report on the
    consolidation initiative, including lessons learned from the pilot
    project; recommended collocating posts adopt a model merging State and
    USAID services into a streamlined, unified operation; and defined the
    services that could be provided by State's Office of Global Support
    Services and Innovation. The message also directed chiefs of mission and
    USAID mission directors involved in the process of developing a mission
    performance plan to lead the effort to consolidate services at their
    posts, including the development of short and long-term consolidation
    plans. However, according to State and USAID officials, the message did
    not go far enough. For example, it did not define in detail the services
    that posts
    could and could not consolidate. In addition, no detailed guidance was
    available for posts, particularly USAID missions, to quickly identify the
    functions and their associated costs that should be included in the
    operational baseline analysis needed to determine the lead service
    provider-a process that USAID mission officials in Jakarta told us was
    time and labor intensive because of differences in State's and USAID's
    accounting and financial systems and the inclusion of certain
    administrative costs within USAID's program functions. 15

    Recognizing that additional guidance was needed, in March 2006, State and
    USAID developed a template to enable posts to quickly identify and
    document the items that should be included as part of the operational
    baseline analysis of costs and services. In addition, in April 2006, State
    and USAID sent a second message to posts that updated and clarified the
    December 2005 guidance. This message defined in detail the services that
    posts could and could not consider for consolidation. Services identified
    for consolidation included administrative support functions, such as
    warehouse management, expendable supplies, and motor pool services;
    financial management functions, such as cashiering and locally employed
    staff payroll processing; human resource functions, such as recruitment,
    and language training at post for Americans; and joint information
    technology systems. Services identified as not subject to consolidation
    included USAID technical and program management functions and
    nonadministrative staff and management activities that support these
    functions, and USAID legal advisory functions. The April 2006 message
    assumes that collocating posts will consolidate all administrative
    functions provided by State/ICASS, leaving to posts the decision about
    which agency will serve as the lead service provider.

        Some Additional Posts Have Begun to Plan New Consolidation Projects

    Certain posts have begun to plan new consolidation projects. Officials in
    Phnom Penh told us that they intend to consolidate additional services,
    and eight other posts-- Jakarta, Indonesia; Nairobi, Kenya; San Salvador,
    El Salvador; Managua, Nicaragua; Kiev, Ukraine; Tegucigalpa, Honduras;
    Pristina, Kosovo; and Cotonou, Benin-have also begun to plan consolidation
    projects. However, only one of these posts has advanced beyond the
    planning stages, and Nairobi, which started first and had a timetable
    calling for State and USAID to consolidate services before

    15

    Examples of administrative costs included in USAID's programming include,
    for instance, the costs associated with budget analysis.

    Page 15 GAO-06-829 Overseas Consolidation

    USAID's scheduled September 2006 move into the new embassy compound, now
    does not plan to begin consolidating services until after the move occurs.

    Phnom Penh

    Post officials in Phnom Penh told us in February 2006 that they plan to
    eventually consolidate all State and USAID services, but they have not
    announced any specific plans, deferring any actions to consolidate
    additional services until after USAID's move into the new embassy
    compound, scheduled for September 2006. Post officials underlined three
    main reasons for consolidating all State and USAID services: their desire
    to become a model post, an interest in greater efficiencies, and cost
    savings.

    Jakarta

    In May 2006, the post announced that it had consolidated one additional
    service, was in the process of consolidating a second, and planned to
    consolidate two other services by November 2006. As of May 2006, USAID had
    taken over nonresidential leasing and had begun the process of taking over
    warehousing functions. USAID plans to complete its takeover of warehouse
    functions by October 2006. However, post officials reported that one
    issue, if not resolved, could erase any cost savings resulting from this
    effort-the need to reconcile State's personal property regulations, which
    require posts to track and account for all items valued at more than $500
    with USAID's much more rigorous regulations, requiring missions to track
    and account for all items valued at more than $100. 16 The post has asked
    State and USAID to waive USAID's regulations on personal property
    management.

    In addition, the post plans to consolidate procurement and human resource
    services for locally employed staff under the leadership of State/ICASS by
    November 2006. State/ICASS plans to take over USAID's administrative
    procurement function. However, this will not affect USAID's
    program-related procurements. In addition, State/ICASS plans to take over
    all of USAID human resource functions involving locally employed staff,
    such as payroll services.

    Nairobi

    In preparation for USAID's move to the new embassy complex, expected in
    September 2006, Nairobi plans to consolidate seven services. The post's
    original timetable called for State and USAID to consolidate services

    16

    Personal property includes such items as vehicles, furniture, equipment,
    supplies, and machinery.

    Page 16 GAO-06-829 Overseas Consolidation

    before USAID's scheduled move into the new embassy compound. As of June
    2006, the post had not begun to consolidate any services.

    Nairobi began the process of consolidating support services in April 2005.
    In August and September 2005, a combined State and USAID team from
    Washington, with assistance from a private consultant, conducted an
    assessment of services. The team's report, submitted in September, 2005,
    recommended consolidating six services-motor pool, vehicle maintenance,
    non-expendable property, warehousing, expendable property and
    administrative supply, residential maintenance, leasing, shipping, and
    customs. It also recommended combining all administrative services and
    staff into a single organization under the leadership of State/ICASS, but
    with a strong role for USAID. As an alternative, the team's report
    recommended consolidating the six services under the leadership of either
    State/ICASS or USAID.

    Post officials decided to consolidate the six services, but not to combine
    the services into a single organization in the short term. Five reasons
    were given for not adopting this model: differences between the two
    agencies on where the savings should be achieved, with USAID arguing that
    consolidation should not result in any additional costs for the agency;
    the need for Washington to harmonize systems before certain services could
    be consolidated at post; ambiguity in lines of authority; uncertainty over
    personnel assignments; and skepticism that meaningful cost savings could
    be achieved with this combined structure. Instead, the post decided to
    adopt the same model used by the pilot projects involving the provision of
    services by one of the two service providers. However, three factors-
    budget constraints, conflicting interests of the two agencies, and a lack
    of effective communication between Washington and posts-continued to slow
    the progress of this effort.

    More recently, in June 2006, the post reported that it had decided to
    consolidate a seventh service-reproduction services. As of June 2006, it
    had not begun to consolidate any service.

    San Salvador

    In April 2006, a team from State and USAID in Washington traveled to San
    Salvador to assist the post's efforts to consolidate State and USAID
    support services, including determining the lead service provider. A total
    of nine services were identified for consolidation, including
    administrative supplies, motor pool, vehicle maintenance, nonexpendable
    property management and warehousing, leasing, residential maintenance,
    reception and switchboard, copy services, and mail and messenger services.
    The State and USAID team suggested that San Salvador take several steps to
    move the initiative forward, including developing a timeline and an
    overall plan for implementation. The post has indicated that it plans to
    consolidate reception and switchboard, copy, and mail and messenger
    services by October 1, 2006. The post plans to consolidate the other
    services beginning on April 1, 2007.

    Managua

    In May 2006, a Washington team visited Managua to facilitate the post's
    consolidation efforts. The team examined motor pool, administrative
    supplies, warehouse, residential maintenance, leasing, shipping, travel,
    reproduction, reception services, and human resource services for locally
    employed staff. Their report recommended that the post develop an
    overarching communication plan and form a working group to manage
    implementation activities, including conducting a cost analysis, reviewing
    service quality, standardizing processes, outlining a plan, and creating a
    timeline. The report also stated that if cost savings cannot be reached
    within 3 to 6 months, the post should identify a plan to achieve cost
    savings over the next 1 to 2 years.

      Kiev

    USAID is reducing the size of its mission in Ukraine and is looking to
    State to take over some of its administrative services. In addition, the
    post is in the process of planning for a new embassy compound. For these
    reasons, the post has announced plans to consolidate a number of State and
    USAID support services. The services that will be consolidated are travel
    services, shipping and customs, warehousing, and human resource services
    for locally employed staff. In addition, the post plans to consolidate
    motor pool, and residential maintenance and leasing services. For this
    purpose, the post has developed and sent a communications strategy to post
    personnel and is currently at work on an implementation strategy and
    timeline.

    Tegucigalpa, Pristina, and Cotonou

    Tegucigalpa plans to consolidate State's and USAID's warehouses in the
    summer of 2006. It recently created a task force to examine the provision
    of other support services and recommend consolidation where practicable
    and plans to consolidate additional support services next year. However,
    as of June 2006, the post had not identified the other support services
    that it plans to consolidate. In addition, Pristina has stated that it
    plans to implement a consolidation project in the next 2 years, starting
    with motor pool services. Finally, Cotonou, Benin, has announced plans to
    consolidate warehouse, motor pool, and maintenance services beginning in
    October 2006.

      State and USAID Face Challenges in Expanding Consolidation of Support Services

    State and USAID face challenges in expanding the consolidation of support
    services. The challenges include the need for State and USAID in
    Washington and at posts to address concerns that USAID's costs may
    increase if services are consolidated due in part to State/ICASS's
    reliance on higher-cost U.S. direct hire staff even though overall U.S.
    government costs will decrease; develop better cost and performance data,
    reduce or replace U.S. direct hire and locally employed staff, communicate
    better, and resolve technical differences. During the course of our work,
    State and USAID have taken steps to address some of these challenges. For
    instance, in April 2006, State took steps to encourage the regional
    bureaus to identify and replace U.S. direct hires with locally employed
    staff. In addition, in June 2006, the two agencies produced a draft
    strategy that defines broad goals and sets forth a common vision-to
    combine at collocating posts all State and USAID services into a single
    administrative structure and reduce the number of U.S. direct hire
    personnel. The steps taken by State and USAID are a positive development.
    However, their full impact has yet to be determined. In addition, the
    draft strategy is not sufficiently comprehensive, since it does not
    include a plan that contains key elements including specific timelines,
    accountability mechanisms, specific goals, and performance measures to
    show results.

    USAID's Concerns about Potential Cost Increases

    USAID officials have expressed concerns that because State/ICASS relies
    more heavily on higher-cost U.S. direct hire staff, its costs could
    increase if services are consolidated. However, State officials have
    argued that by consolidating services, USAID will save a significant
    amount of the cost imposed by the Capital Security Cost Sharing Program,
    which requires agencies with staff assigned to overseas missions to pay a
    portion of the construction costs of new embassy compounds based on the
    number of agency staff at all overseas locations and the type of office
    space. 17 USAID acknowledges that in some cases, it will save money by
    consolidating services under State/ICASS. However, USAID officials also
    cautioned that they have not determined the full budget impact of support
    service consolidation, taking into consideration the Capital Security Cost
    Sharing Program.

    An October 2005 memo issued by the post in Nairobi, repeated again in a
    message to Washington in June 2006, stated that while the proposed unified
    administrative structure had great potential for overall cost savings

    17

    P. L. 108-447, Div. B, Title IV, sec. 629. Congress authorized the Capital
    Security Cost Sharing Program in fiscal year 2005.

    Page 19 GAO-06-829 Overseas Consolidation

    to the U.S. government, it would likely result in increased costs for
    USAID. It also stated that the probable increased cost to USAID of ICASS
    services was a key obstacle that had to be surmounted before the project
    could move forward-an assessment that post officials in Nairobi during our
    visit in January 2006 agreed was slowing the progress of the project
    considerably. In particular, USAID officials have expressed concern about
    the effects that increased costs as a result of service consolidation
    could have on its operating expense budget. USAID officials in Washington
    stated that while USAID's program budget worldwide has increased since
    fiscal year 2001, its operating expense budget, adjusted for inflation,
    has remained essentially flat. In addition, USAID has opened missions in
    Afghanistan and Iraq, which have placed additional strains on its
    operating expense budget. Our analysis of the data shows that USAID's
    operating budget from fiscal year 2001 to fiscal year 2006 increased
    annually on average by 2.5 percent.

    In addition, while USAID officials recognize that consolidating support
    services overseas could result in reduced costs for the U.S. government as
    a whole, they have expressed skepticism about State/ICASS's ability to
    control or reduce the cost of services. Specifically, these officials
    stated that State/ICASS relies more heavily than USAID on more expensive
    U.S. direct hire personnel and has in the past experienced difficulties
    controlling costs. In September 2004, we found that State/ICASS costs rose
    almost 30 percent from 2001 to 2003 because of State's increased hiring of

    U.S. direct hire personnel, rising security costs, and other factors. 18
    We also reported that 21 out of 23 customer agencies had chosen to reduce
    their participation in ICASS during the same period. More recently, OMB
    rated ICASS's performance only as "adequate" in part because of the
    program's inability to control costs, which according to OMB, have
    increased an average of 7.5 percent since fiscal year 2001. 19

    However, State officials have argued that by consolidating services under
    State/ICASS, USAID could save a significant amount of the cost imposed by
    the Capital Security Cost Sharing program as they would likely have fewer
    staff assigned to embassies. Under the Capital Security Cost Sharing

    18See GAO-04-511.

    Office of Management and Budget, Program Assessment Rating Tool. OMB
    developed the Program Assessment Rating Tool to assess and improve program
    performance. Using the tool, OMB places each program into one of five
    categories: "Effective," "Moderately Effective," "Adequate,"
    "Ineffective," and "Results Not Demonstrated."

    Page 20 GAO-06-829 Overseas Consolidation

    Program, agencies with staff assigned to overseas missions pay a portion
    of new embassy compound construction costs based on the number of agency
    staff at all overseas locations and the type of office space. The
    agencies' share of embassy construction costs is phased in over a 5-year
    period, beginning in fiscal year 2005.

    USAID officials acknowledge that the costs imposed by the Capital Security
    Cost Sharing Program could mean that for certain missions it may make
    sense to consolidate services under State/ICASS. For example, according to
    USAID, a June 2006 examination of support services provided by USAID in
    Gaborone, Botswana, determined that by consolidating services under
    State/ICASS, the post could save approximately $78,000 per year, chiefly
    by reducing the number of locally employed staff and terminating the lease
    on a warehouse. However, USAID officials also cautioned that the Capital
    Security Cost Sharing Program is relatively new and its full effect is
    uncertain.

    Posts Lack Reliable Cost Data

    In its October 2005 evaluation of the pilot project, State and USAID
    reported that consolidating services at the pilot posts resulted in costs
    avoided estimated at approximately $386,000. However, agency officials
    indicated that this estimate is imprecise and based on figures provided by
    posts, which themselves stem in part from extrapolations or proxies. Post
    officials stated that because certain performance and cost data was
    lacking, data often was not available to make valid before-and-after
    comparisons, forcing them to use rough approximations.

    Several factors complicated posts' efforts to estimate cost avoidance.
    First, State and USAID use different budgeting and accounting methods, and
    did not follow the same methodology for developing cost information. For
    example, State and USAID's motor pool logs do not capture the same
    information and therefore cannot be used to make direct comparisons. In
    addition, some USAID staff manage multiple services but do not closely
    monitor time spent on each, making it difficult to disaggregate the cost
    of a service. Further, during the pilot project, posts did not have good
    guidance for reconciling different accounting rules for transferring
    assets, such as building space and vehicles. This caused uncertainty in
    valuations and raised questions about how to calculate one time costs.

    Reluctance to Reduce Staff

    To achieve cost benefits from consolidation, State and USAID need to
    reduce or replace U.S. direct hire staff where appropriate or better
    utilize locally employed staff. According to the October 2005 Joint
    Management Council evaluation, significant savings from consolidation of
    services can only occur if there is a reduction in the number of U.S.
    direct hire staff overseas. Although officials from both agencies in
    Washington and in the field recognize this fact, only one of the pilot
    posts-Dar es Salaam-was able to achieve such an outcome. 20 Dar es Salaam
    decided to replace a U.S. direct hire position-a State Department
    assistant general services officer-with an eligible family member. 21

    Post officials we spoke with in Phnom Penh and Dar es Salaam said that
    they were reluctant to implement reductions in force, in part because of a
    lack of consistent guidance from State and USAID, choosing to combine the
    two workforces and transfer the cost of personnel from one agency to
    another, or rely on slow attrition to achieve this reduction. According to
    agency and post officials, the failure to implement reductions in force of
    locally employed staff has reduced the overall impact of consolidating
    services. The October 2005 evaluation stated that Washington needed to
    provide detailed guidance to posts on both U.S. and locally employed
    position reductions resulting from service consolidation. Post officials
    also attributed their reluctance to reducing the number of locally
    employed staff to other factors. For example, post officials in Nairobi
    and Dar es Salaam told us that their reluctance to reduce the number of
    locally employed staff also stemmed from loyalty to their staff, many of
    whom have worked for the United States for many years and were present
    during the 1998 embassy bombings. In addition, post officials cited
    concerns about diminishing morale.

    State has demonstrated potential cost avoidance from reducing staff
    positions overseas. For example, State reported that a rightsizing
    initiative in Addis Ababa, Ethiopia, avoided approximately $14.2 million
    in construction costs for the new embassy compound. According to State,
    the initiative avoided construction costs by reducing the number of
    projected staff positions by 79-including 36 U.S. direct hire staff.
    However, we have not validated State's reported cost avoidance.

    USAID has argued that one way State can reduce the cost of providing
    support services is by replacing U.S. direct hire personnel, particularly
    State Department general service officers, with locally employed staff.
    State has estimated the average cost of employing a locally employed staff

    20

    Nairobi has also taken steps to eliminate two U.S. direct hire positions.
    However, as of June 2006, Nairobi had not begun to consolidate support
    services.

    21

    General services officers provide leasing, housing and contracting
    services for State and other agencies.

    Page 22 GAO-06-829 Overseas Consolidation

    member, including salaries and benefits, at approximately $24,000. 22
    USAID tends to use locally employed staff extensively, and these staff
    often play a key role in the mission's operations and programming.
    However, State tends to use locally employed staff to a lesser degree
    because of requirements involving entry into secure parts of the chancery
    and other factors. In June 2006, the post in Nairobi asked State and USAID
    in Washington to clarify the extent to which locally employed staff can
    substitute for State Department direct hire general service officers.

    In April 2006, State's Undersecretary for Management took steps to reduce
    the number of U.S. direct hire staff overseas, requiring State regional
    executive directors to submit by June 1, 2006, a list of U.S. direct hire
    positions for conversion to locally employed staff. Moreover, in June
    2006, State and USAID developed a draft strategy that states, among other
    things, that posts rightsizing and consolidating services need to conduct
    reductions in force of locally employed staff in a transparent fashion
    and, where appropriate, to establish plans for this purpose. However, as
    of July 2006, the April 2006 message had resulted in the identification of
    only 21

    U.S. direct hire positions for conversion. State officials told us in July
    2006 that they expect that the bureaus will identify additional positions.
    In addition, a recent survey of posts by the Bureau of Human Resources
    disclosed that as of June 2006, 61 embassies had not prepared reduction in
    force plans for locally employed staff, and another 30 have plans that are
    over 10 years old.

    Communication between Headquarters and Posts

    State, USAID, and post officials told us that consistent and effective
    communication between Washington and the posts has not always been
    forthcoming, hampering posts' efforts to develop and implement
    consolidation projects. For example, in February 2005 USAID instructed
    posts to demonstrate that consolidating services would not result in
    increased costs to the agency. The directive showed that there was a basic
    philosophical difference between State and USAID about where savings
    should be achieved. State/ICASS has argued that saving money for the U.S.
    government is the overall goal, and USAID has argued that any
    consolidation be cost-neutral for USAID. According to post officials in
    Nairobi, the effect of the USAID directive was to cause confusion about

    22

    According to State, this estimate was derived by adding the salaries of
    all locally employed staff worldwide, including locally employed staff
    employed by other agencies, and dividing this by the number of staff
    employed. While we have not validated State's methodology for producing
    this estimate, our analysis indicates that the salary costs of locally
    employed staff overseas are considerably lower than those for U.S. direct
    hires.

    Page 23 GAO-06-829 Overseas Consolidation

    the purpose of consolidating services, slowing the process, and causing it
    to be more contentious, since a time-consuming cost analysis is needed to
    demonstrate that consolidating services would not result in increased
    costs to USAID. According to USAID officials, as of April 2006, this
    conflicting guidance remained in effect. However, State and USAID
    officials said in June 2006 that they are trying to address the difference
    by collaborating on the creation of a new shared strategic vision for
    consolidating services.

    Technical Differences Will Hamper Efforts to Consolidate Services

    State's and USAID's efforts to consolidate support services face
    challenges stemming from having different technical systems, such as
    different accounting, financial, and information technology systems and
    software. In addition, State and USAID have different regulatory
    requirements with respect to accounting for and tracking property. While
    State and USAID have recommended that collocating posts adopt a model
    merging State and USAID services into a streamlined, unified operation,
    Nairobi's experience suggests that State and USAID will not achieve this
    goal until these technical challenges are resolved.

    State and USAID have incompatible budgeting, accounting, and information
    technology systems. As a result, posts have found it difficult and
    contentious to determine the most cost-effective service provider. In
    addition, the different systems have complicated efforts to merge
    operations, such as warehousing. State and USAID have tried to address
    these issues by creating a cost analysis template and a specialized
    version of their standard costing software application. However, while
    posts acknowledge that these tools have helped, they also stated that the
    tools have not entirely resolved the problems caused by incompatible
    systems.

    To identify the most cost-effective service provider, posts must identify
    the appropriate functions that must be included in the analysis and their
    associated costs. In addition, they must conduct a side-by-side comparison
    of the two service providers' cost and quality of services, and produce a
    "what if" analysis using a different mix of inputs, such as vehicles and
    drivers. This is done to determine the per unit cost of enlarging the
    scope of a service, for example, the cost of transferring vehicles and
    drivers from one agency's motor pool to another. To facilitate valid cost
    comparison, State and USAID have agreed to use the State/ICASS system to
    examine costs and created a special software tool for alternate service
    providers, such as USAID, to use. However, posts still face three key
    problems.

    First, the process of putting a value on certain inputs can to a certain
    degree be subjective and is based on past performance, not future
    requirements. For example, calculating a hypothetical cost for USAID to
    provide motor pool services involves placing a value on staff time spent
    supervising or operating the vehicle fleet. According to State and USAID
    officials, this value can vary substantially among posts and between
    agencies because of a lack of standardized rules and procedures. Oversight
    of most support services also varies. In addition, forecasting new
    requirements on the basis of past performance can lead to misjudging costs
    substantially.

    Second, most USAID missions do not have experience using the alternate
    service provider software. According to State and USAID officials, the
    recent development of a template in March 2006 to gather and translate
    data related to specific cost centers has reduced the amount of time and
    effort required to gather the needed data and create the baseline analyses
    needed to compare the two service providers' cost and quality. In
    addition, according to State officials, State/ICASS is developing a new
    version of the alternate service provider software. According to State and
    USAID officials, this software will make it easier for posts, particularly
    USAID missions, to identify the appropriate costs that must be included
    and produce "what if" analyses. However, State, USAID and post officials
    also cautioned that the template will not eliminate the subjective quality
    of the cost comparison, and as a result, quantifying costs will remain a
    problem. In addition, as of April 2006, State and USAID officials did not
    know when the new version of the alternate service provider software would
    be released.

    Third, State and USAID use different information technology systems to
    track and account for property items in their warehouses, manage and
    monitor payroll and human resource activities, and communicate internally
    and externally, among other things. For instance, State uses a property
    tracking system that is different from that of USAID. To fully integrate
    their warehousing services, State and USAID will need to adopt one system.
    In May 2006, the post in Jakarta asked State and USAID to allow it to use
    State's system for tracking property to track all items in the warehouse,
    including those of USAID. However, as of June 2006, post officials
    indicated that State and USAID had not responded to Jakarta's request.
    Post officials also told us that as an interim measure, they have
    determined that whichever agency is serving as the service provider will
    be utilizing its own guidelines in providing the services, as is
    consistent with State/ICASS guidelines for alternate service providers.

    In July 2006, State officials told us that the Joint Management Council
    was in the process of developing plans for harmonizing the two agencies'
    systems and procedures. However, these plans were not completed in time
    for us to analyze them.

        State and USAID Need a Comprehensive Plan

    In June 2006, State and USAID developed a draft strategy that defines
    broad goals and sets forth a common vision. Among other things, the draft
    strategy sets as an immediate goal one of consolidating all State and
    USAID services into a combined or single mission administrative operation
    for those posts moving into new embassy compounds. It also sets as a goal
    the reduction of U.S. direct hire personnel and their replacement, where
    appropriate, with locally employed staff. The draft strategy is a step
    forward, but our experience shows that the strategy must be coupled with a
    more comprehensive, detailed implementation plan that includes milestones,
    specific timelines, accountability mechanisms, more detailed goals, and
    performance measures to show results. State officials told us in early
    July 2006 that the Joint Management Council is in the process of
    developing a plan. However, it was not completed in time for us to analyze
    the results.

    The Government Performance and Results Act of 1993 requires federal
    agencies to develop plans and measures to assess progress in achieving
    their goals. In particular, it requires agencies to set multiyear
    strategic goals in their strategic plans and corresponding annual goals in
    their performance plans, measure performance toward the achievement of
    those goals, and report on their progress.

    The draft strategy outlined by State and USAID in June 2006, while a step
    in the right direction, does not provide a detailed map of actions to
    take, and for this reason, State and USAID need to define a more
    comprehensive plan. For example, the strategy does not identify the
    actions that need to be taken to establish a single, joint administrative
    structure. Such a structure was recommended for Nairobi in September 2005,
    but the post decided not to adopt this structure in the short term, in
    part because of skepticism that meaningful cost savings could be achieved
    with this structure and the need for harmonization of State and USAID
    systems and procedures. In addition, the strategy does not address the
    fundamental problem that in some cases adequate performance measures to
    fully demonstrate the extent of cost and operational efficiencies do not
    exist.

    The set of challenges faced by State and USAID as they consolidate
    overseas support services are similar to those faced by other
    organizations. In May 2006, we convened a workshop with State and USAID
    officials as well as outside experts to discuss the most important issues.
    The experience of other organizations generally supports our analysis of
    the key challenges and highlights the need for strong leadership, a clear
    direction, consistent communication, and agreement on a standard set of
    procedures and systems. For more detailed information on outcomes from the
    workshop, see appendix III.

      Conclusion

    State and USAID have taken important steps toward the consolidation of
    support services. During the course of our work, relations between State
    and USAID improved. State and USAID have begun to integrate certain
    operations and management structures and are currently revising their
    joint strategic plan. This provides an opportunity to move the
    consolidation process forward by addressing the challenges that have
    limited the progress of the consolidation effort. If State and USAID can
    overcome these challenges, they may have the potential to realize
    significant savings and efficiencies. To do so, State and USAID need to
    develop a more comprehensive plan that establishes clear goals,
    performance targets, and accountability mechanisms.

      Recommendations for Executive Action

    We recommend that the Secretary of State, in conjunction with the USAID
    Administrator,

      * designate overseas services consolidation a priority joint State/USAID
        objective;
      * define a comprehensive plan that provides a detailed picture of the
        desired end state; addresses cost and incentive differences between
        agencies; enables clear and consistent communications from headquarters
        to post; demonstrates the overall cost benefits of consolidation; defines
        timelines, metrics, and results-oriented criteria for success; and
        outlines, where appropriate, options for leveraging more locally employed
        staff; and
      * set timelines for accomplishing the standardization of State and USAID
        policies, procedures, and systems.

    Agency Comments and Our Evaluation

    We provided a draft of this report to the Department of State and USAID
    for comment. State's and USAID's comments can be found in appendixes V and
    Our Evaluation and VI. We also received technical comments from both State
    and USAID,
    which have been incorporated into the report as appropriate.

    Page 27 GAO-06-829 Overseas Consolidation

    State fully agreed with our recommendations. State said that it is
    actively working with USAID to address the policy, procedural, and
    technical issues identified in our report. State believes that elimination
    of duplicative administrative support platforms will result in overall
    savings to both State and USAID.

    USAID also agreed with the basic findings of our report. USAID said that
    it is clear that by consolidating duplicative administrative operations
    and eliminating staff, the U.S. government will save considerable sums of
    money. USAID said that it and the State Department are in the process of
    developing a comprehensive plan to improve the manner in which support
    services are managed.

    As agreed with your office, unless you publicly announce the contents of
    this report earlier, we plan no further distribution until 30 days from
    the date of this letter. At that time, we will send copies of this report
    to other interested members of Congress, the Library of Congress, and the
    Secretary of State. We will also make copies 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
    me at (202) 512-4128. Other GAO contacts and staff acknowledgments are
    listed in appendix VII.

    Sincerely yours,

    Jess T. Ford Director, International Affairs and Trade

    Appendix I: Posts Where State and USAID Are Currently Collocated

    Alexandria, Egypt
    Amman, Jordan
    Baku, Azerbaijan
    Basrah, Iraq
    Beirut, Lebanon
    Belgrade, Serbia
    Bishkek, Kyrgyzstan
    Bogota, Colombia
    Brasilia, Brazil
    Bridgetown, Barbados
    Brussels, Belguim
    Bujumbura, Burundi
    Colombo, Sri Lanka
    Dar es Salaam, Tanzania
    Dhaka, Bangladesh
    Djibouti, Djibouti
    Dushanbe, Tajikistan
    Freetown, Sierra Leone
    Geneva, Switzerland
    Georgetown, Guyana
    Hillah, Iraq
    Islamabad, Pakistan
    Jakarta, Indonesia
    Jerusalem, Israel
    Kabul, Afghanistan
    Lima, Peru
    Luanda, Angola
    Mexico City, Mexico
    Minsk, Belarus
    Monrovia, Liberia
    Moscow, Russia New Delhi,
    India Nicosia, Cyprus
    Phnom Penh, Cambodia
    Podgorica, Montenegro
    San Salvador, El Salvador
    Istanbul, Turkey
    Sanaa, Yemen
    Sofia, Bulgaria
    Tashkent, Uzbekistan
    Tirana, Albania

    Appendix I: Posts Where State and USAID Are Currently Collocated

    Ulaanbaatar, Mongolia
    Yerevan, Armenia
    Zagreb, Croatia

    Appendix II: Posts Currently Planned for Construction During Fiscal Years
    2006-2011 Where State and USAID Will be Collocated

    Abuja, Nigeria
    Accra, Ghana
    Addis Ababa, Ethiopia
    Almaty, Kazakhstan
    Antananarivo, Madagascar
    Astana, Kazakhstan
    Asuncion, Paraguay
    Baghdad, Iraq
    Bamako, Mali
    Conakry, Guinea
    Cotonou, Benin
    Dili, East Timor
    Harare, Zimbabwe
    Istanbul, Turkey
    Juba, Sudan
    Kampala, Uganda
    Kathmandu, Nepal
    Khartoum, Sudan
    Kiev, Ukraine
    Kigali, Rwanda
    Kingston, Jamaica
    Kinshasa, Congo
    Lusaka, Zambia
    Managua, Nicaragua
    Manila, Philippines
    Mbabane, Swaziland
    Nairobi, Kenya
    Ouagadougou, Burkina Faso
    Panama City, Panama
    Peshawar, Pakistan
    Port-au-Prince, Haiti
    Pristina, Kosovo
    Quito, Ecuador
    Santo Domingo, Dominican Republic
    Sarajevo, Bosnia
    Skopje, Macedonia
    Tbilisi, Georgia

    Appendix III: Results of Workshop on Consolidating Support Services

    In May 2006, we convened a workshop with State and U.S. Agency for
    International Development officials as well as two outside experts to
    discuss the most important issues related to State and USAID efforts to
    consolidate overseas support services.

    The experience of other organizations suggests that creating shared
    service centers and consolidating support services can achieve significant
    cost avoidance and efficiencies. Moreover, experts suggest four elements
    are critical for achieving success in such efforts: defining an
    overarching vision, communicating clearly and consistently, demonstrating
    the cost benefits, and developing metrics.

    External studies and the results of our May 2006 workshop show that
    private and public sector organizations that consolidate support services
    and create shared service centers can achieve major cost avoidance and
    efficiencies. For example, in the private sector, British Petroleum, one
    of the world's largest energy companies, has achieved savings of 20
    percent to 50 percent since adopting a consolidated services model in
    1995. In the public sector, the U.S. Postal Service reported that
    consolidating and creating shared accounting service centers enabled it to
    achieve economies of scale by closing 80 district accounting offices.
    According to one study, the average organization may realize net cost
    decreases of approximately 25 to 55 percent through efforts to consolidate
    services and create shared service centers, depending on the function. For
    instance, consolidating and creating shared service centers for purchasing
    typically results in a 25 percent cost reduction for that function; while
    consolidating and creating shared service centers for general accounting
    functions can result in a 55 percent cost reduction.

    A number of private sector corporations in the United States and
    throughout the world have adopted a consolidated or shared service model.
    For example, British Petroleum's program involves the consolidation of
    finance and accounting functions, including internal and external
    financial reporting, and budgeting and forecasting functions, as well as
    the creation of shared service centers. According to one private sector
    consulting company, as a result of these actions, British Petroleum's
    finance and accounting transactional unit costs have steadily declined,
    and working capital improvements measured in the tens of millions of
    dollars have already been achieved, with more on the way.

    In addition, public sector organizations in the United States and
    throughout the world have also adopted shared services models. These
    include the U.S. Postal Service, which as part of an initiative in 2003 to

    Appendix III: Results of Workshop on Consolidating Support Services

    consolidate its finance function reported that consolidating and creating
    shared accounting service centers enabled it to achieve economies of scale
    by closing 80 district accounting offices. The Postal Service's Strategic
    Transformation Plan: 2006-2010 also outlines a human resources shared
    services initiative that will centralize certain transactional human
    resource functions and other noncore support functions as well, such as
    information technology and purchasing functions. 1

    While examples of public and private sector successes in consolidating
    services are numerous, it is important to note that cost savings and
    operational efficiencies can vary. State and USAID may not be able to
    achieve similar levels of success because of differences in the nature and
    scope of their efforts. Nonetheless, the fact that large companies and
    organizations have achieved positive results clearly demonstrates that the
    potential for savings exists and suggests that their lessons learned may
    be applicable to State and USAID's efforts.

    The challenges faced by State and USAID as they consolidate overseas
    support services are similar to those faced by other organizations. The
    experiences of these organizations highlight the need for strong
    leadership, a clear direction, consistent communication, and agreement on
    a standard set of procedures and systems. For example:

         * Defining an overarching vision: Experts suggest that a strategic
           framework is critical to the success of a consolidation effort. Such a
           framework should provide a detailed picture of the desired end state,
           define resultsoriented criteria for success, and outline key
           milestones. In addition, it should address concerns about staff
           reductions and career implications. Most importantly, the plan should
           state that leadership commitment, from the executives of both
           agencies, is strong and unified.
         * Communicating clearly and consistently: Experts suggest that
           communication should be consistent and clear, with detailed direction
           on how to implement the consolidation effort at post. Agency officials
           indicated that posts have received mixed messages from headquarters in
           the past.
         * Demonstrating the cost benefits: Experts suggest demonstrating a
           compelling rationale for undertaking the consolidation effort is
           critical.

    1United States Postal Service, Strategic Transformation Plan: 2006-2010,
    (Washington, D.C.: September 2005).

    Page 33 GAO-06-829 Overseas Consolidation Appendix III: Results of
    Workshop on Consolidating Support Services

    However, State and USAID do not have the data or a method for accurately
    determining and comparing the cost and quality of services provided by
    each agency, making it difficult to accurately demonstrate the benefits of
    consolidating services and achieve consensus on which is the most
    efficient service provider.

    o  Developing metrics: Experts suggest that the adoption of performance
    measures is critical to evaluating operational efficiencies. Although
    State and USAID have developed some metrics, key performance metrics are
    lacking. For example, the May 2005 study that recommended consolidating
    services at the four pilot posts noted that for both State/ICASS and
    USAID, motor pool trip logs are not used for an analysis of driver/vehicle
    utilization, peak volume/time determination, or capacity requirements.
    Moreover, warehouse capacity use and inventory turnover are not tracked to
    determine the need for warehouse space or to highlight opportunities for
    disposal of unused items. The lack of performance measures has also
    complicated posts' efforts to quantify and document cost avoidance.

    Appendix IV: Scope and Methodology

    To address what State and USAID have accomplished and learned from their
    initiative to consolidate overseas support services, we obtained and
    reviewed a number of State and USAID documents, including the State and
    USAID joint strategic plan for fiscal years 2004 through 2009, the May
    2004 study that led to the original pilot project, and the October 2005
    evaluation of lessons learned as a result of the pilot project. We also
    met with State and USAID officials in the functional and regional bureaus,
    as well as private sector consultants knowledgeable about the initiative.
    We conducted fieldwork at three of the four original pilot posts-Cairo,
    Egypt; Dar es Salaam, Tanzania; and Phnom Penh, Cambodia and conducted a
    teleconference with officials of the fourth-Jakarta, Indonesia. We also
    conducted fieldwork at a post that is planning to consolidate support
    services-Nairobi, Kenya. At each post, we met with the principal officers,
    including the chief of mission and the deputy chief of mission, as well as
    the State management officer and the USAID executive officer. At many
    posts, the State management officer and the USAID executive officer are
    responsible for managing the day-to-day operations of their respective
    agencies, and in most cases, these officials were given the responsibility
    of working out the details of consolidating support services. To assess
    the reliability of the cost and operational efficiency data that posts
    provided, we (1) reviewed pertinent documents provided by State, USAID,
    and the posts, such as the May 2004 study that detailed problems with
    obtaining reliable cost and performance data, and (2) discussed data
    reliability with agency and post officials knowledgeable about the data.
    We noted limitations in the data that result from State and USAID
    collecting data through different systems and managers sometimes failing
    to record accurately the times allocated to different tasks. However, we
    determined the data to be sufficiently reliable for the purposes of this
    report.

    To address the challenges that State and USAID have encountered in
    implementing this program, we obtained and analyzed a number of documents,
    among them the May 2004 study that led to the original pilot project, the
    February 2005 directive from USAID directing missions to demonstrate that
    consolidating services would not result in any additional costs to the
    agency before agreeing to consolidate a support service, the October 2005
    evaluation of lessons learned, and the December 2005 and April 2006
    directives from State and USAID to the missions that, among other things,
    established the services that can and cannot be consolidated. We also
    reviewed a copy of State and USAID's June 2006 draft strategy. In
    addition, we met with knowledgeable agency and post officials, including
    State/ICASS officials and USAID contractors knowledgeable about the ICASS
    alternate service provider software and its use. Moreover, we reviewed
    certain State/ICASS and USAID policies and procedures that

    Appendix IV: Scope and Methodology

    outline the requirements for managing property at post. These are spelled
    out in USAID's Automated Directives System, and in State's Foreign Affairs
    Manual.

    To learn what private and public sector lessons learned can be applied to
    this initiative, which we used to help frame our recommendations, we
    reviewed a number of studies that examined how private and public sector
    organizations have implemented efforts to consolidate and share support
    services. Many of these studies detail shared service best practices and
    lessons learned. We also met with private and public sector officials
    knowledgeable about or responsible for implementing shared services.
    Finally, in May 2006 we convened an informal roundtable discussion
    featuring two respected experts on governance and shared services. The two
    experts were Jonathan Breul, of the IBM Center for the Business of
    Government, a research center dedicated to improving government services;
    and Brad Gladstone, of Accenture, a global management consulting and
    technology services company. Breul, a Senior Fellow with the IBM Center,
    previously served as a Senior Advisor to the Deputy Director for
    Management in the Office of Management and Budget, and has provided his
    insights to a number of government agencies and initiatives, including the
    State Department, and the President's Management Agenda. Gladstone, a
    Senior Executive in Accenture's Federal Client Group, leads their finance
    and performance management practice. He has provided his expertise on
    consolidation and shared services to a wide range of customers in both the
    public and private sectors, including the Departments of Interior and
    Agriculture. State, USAID, and other agency officials participated in this
    informal roundtable. We prepared a summary of lessons learned based on the
    roundtable discussion and shared this with State and USAID officials.

    We performed our work from November 2005 through July 2006 in accordance
    with generally accepted government auditing standards.

    Appendix V: Comments from the Department of State

    Page 38 GAO-06-829 Overseas Consolidation

    Page 39 GAO-06-829 Overseas Consolidation

    Page 40 GAO-06-829 Overseas Consolidation

    Page 41 GAO-06-829 Overseas Consolidation

    Appendix VI: Comments from USAID

    Appendix VII: GAO Contact and Acknowledgments

      GAO Contact

    Jess Ford, (202) 512-4128

    In addition to the person named above, John Brummett, Assistant

      Staff

    Director; Kevin Bailey; Joseph Brown; Joseph Carney; Virginia Chanley;
    Acknowledgments Marc Castellano; Martin De Alteriis; Edward Kennedy; Jose
    M. Pena, III; and Wrenn Yennie made key contributions to this report.

    (320380)

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