    GSA Leasing: Initial Implementation of the National Broker
    Services Contracts Demonstrates Need for Improvements (31-JAN-07,
    GAO-07-17).

    The General Services Administration (GSA) provides leased space
    to over 55 percent of federal employees at an annual cost of $3.6
    billion. In 2004, GSA awarded four contracts for national broker
    services (NBS). Performance of the contracts began on April 1,
    2005. This report focuses on GSA's administration of the leasing
    contracts for the first contract year, ending March 31, 2006, and
    addresses, among other matters, (1) how GSA is attempting to
    prevent conflicts of interest in the NBS leasing program and to
    safeguard its information; (2) what, if any, savings have accrued
    to the government; and (3) how GSA is distributing its leasing
    workload among the brokers. To address these matters, GAO, among
    other actions, analyzed the contracts; GSA's contract
    administration guide; and GSA's policies, procedures, and
    controls related to these matters.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-17
        ACCNO:   A65430
      TITLE:     GSA Leasing: Initial Implementation of the National
    Broker Services Contracts Demonstrates Need for Improvements
         DATE:   01/31/2007
      SUBJECT:   Brokerage industry
    	     Conflict of interests
    	     Contract administration
    	     Evaluation criteria
    	     Financial analysis
    	     Internal controls
    	     Performance measures
    	     Real estate leases
    	     Safeguards
    	     Policies and procedures

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    GAO-07-17

         * [1]Contents

              * [2]Results in Brief
              * [3]Background
              * [4]Controls Have Not Fully Mitigated Potential Conflicts of
                Interest or Federal Information Security Concerns

                   * [5]Dual-Agency Practices Create Potential Conflicts of
                     Interest
                   * [6]GSA Waived the FAR's Conflict-of-Interest Requirements to
                     Increase Competition
                   * [7]GSA Developed Numerous Controls to Help Ensure the
                     Impartiality of Brokers When Handling Its Leasing
                     Transactions

                        * [8]GSA Required All of the NBS Brokers to Inform GSA of
                          Potential Conflicts
                        * [9]GSA Imposed Additional Controls for Dual-Agency
                          Firms
                        * [10]GSA Established Other Dual- Agency Controls, Three
                          of Which Are Also Applicable to the Tenant-Only Brokers

                   * [11]GSA Confirmed the Existence of the Dual- Agencies'
                     Conflict Walls, but Had Not Assessed Their Adequacy
                   * [12]GSA Had Not Assessed Whether NBS Program Controls
                     Satisfy Federal Requirements for Safeguarding Information
                     and Information Systems

              * [13]Brokers Will Be Compensated through Commissions Paid by
                Building Owners, but Controls for Minimizing the Government's
                Rental Costs Are Insufficient

                   * [14]GSA's Compensation Approach Is Typical in the Commercial
                     Real Estate Industry
                   * [15]GSA's Compensation Approach Evolved over Time
                   * [16]GSA Requires Commissions Payments in Certain
                     Circumstances
                   * [17]Too Few Task Orders Have Been Completed to Determine the
                     Extent of Unpaid Commissions, but the Risk Appears to Be
                     Limited
                   * [18]GSA Has Controls That May Help, but Are Not Sufficient,
                     to Prevent Brokers from Favoring Building Owners Who Offer
                     Excessive Commissions
                   * [19]Other Entities Generally Did Not Require or Pay
                     Commissions and Had Controls on Commission Rates, but Some
                     Variation Existed

              * [20]GSA Does Not Know What, If Any, Savings Have Resulted Largely
                Because It Has Not Developed Processes for Quantifying Most of
                the Anticipated Savings

                   * [21]GSA Expected Reductions in Rent from Commission Credits
                   * [22]GSA Has Processes in Place to Quantify and Verify
                     Savings from Commission Credits, but Data on These Savings
                     Are Limited
                   * [23]GSA Also Anticipated Rent Reductions from the Brokers'
                     Greater Knowledge of Commercial Real Estate Markets, but Has
                     Not Developed Processes for Quantifying These Savings
                   * [24]GSA Anticipated Further Savings from Reductions in
                     Agency Costs, but Also Has Not Developed Processes for
                     Quantifying the Expected Savings

              * [25]GSA Distributed Its Initial Workload Fairly Equally, but
                Several Factors Have Slowed Its Transition to Performance-Based
                Allocations

                   * [26]Workload Is to Be Distributed as Equally as Possible
                     until a Record of the Brokers' Performance Is Available
                   * [27]GSA Plans to Develop Guidance and Procedures for
                     Performance-Based Distributions before Altering Its Current
                     Distribution Approach
                   * [28]GSA's Process for Distributing Its Leasing Workload
                   * [29]Data Reliability Issues Delayed Issuance of GSA's First
                     Year-end Report for the NBS Program
                   * [30]GSA's Agencywide Distributions among the Brokers Were
                     Fairly Equal for the First Contract Year
                   * [31]Regions' Workload Distributions for the First Contract
                     Year Varied
                   * [32]Several Distribution-Related Matters Warrant Additional
                     Management Attention

              * [33]GSA Implemented a New Organizational Structure and Numerous
                Management Tools to Help Ensure Consistent Oversight of the NBS
                Brokers

                   * [34]Inspector General Identified and GSA Acknowledged
                     Problems with GSA's Administration of Prior Contracts
                   * [35]GSA Implemented a New Organizational Structure to Help
                     Ensure Consistent Oversight of the NBS Brokers
                   * [36]Management Tools Are Designed to Address Problems with
                     Prior Contracts and Result in More Consistent Contract
                     Administration

                        * [37]Agencywide Management Tools
                        * [38]Management Tools Uniquely Applicable to the NBS
                          Contracts

              * [39]GSA Has Numerous Measures for Evaluating the Brokers'
                Performance, but Issues Could Result in Inconsistent and
                Inefficient Evaluations

                   * [40]GSA Has Numerous Measures for Evaluating the NBS
                     Brokers' Performance
                   * [41]Applicability of the Performance Evaluation Criteria
                     Depends on the Stage at Which the Evaluation Occurs
                   * [42]Issues with GSA's Contracts, Guidance, and e-Lease
                     Related to the Brokers' Performance Could Hamper Consistent
                     Contract Administration

              * [43]Conclusions
              * [44]Recommendations for Executive Action
              * [45]Agency Comments

         * [46]Objectives, Scope, and Methodology

              * [47]Scope and Methodology for Assessing Our Reporting Objectives
              * [48]Methodology for Selecting Other Entities for Interviews

                   * [49]Selection of Entities That Contract for Leasing Services
                   * [50]Selection of Industry Representatives
                   * [51]Selection of Local Real Estate Regulators

         * [52]Potential Conflicts Identified and GSA's Resolution of the
           Potential Conflicts, as of March 31, 2006
         * [53]Applicable Performance Evaluation Criteria by Stage of Evaluation,
           as Specified by Various Sources
         * [54]Comments from the General Services Administration
         * [55]GAO Contact and Staff Acknowledgments

    www.gao.gov/cgi-bin/getrpt?GAO-07-17 .

    To view the full product, including the scope
    and methodology, click on the link above.

    For more information, contact Mark Goldstein at (202) 512-6670 or
    goldsteinm@gao.gov.

    Highlights of [57]GAO-07-17, a report to congressional requesters

    January 2007

    GSA LEASING

    Initial Implementation of the National Broker Services Contracts
    Demonstrates Need for Improvements

    The General Services Administration (GSA) provides leased space to over 55
    percent of federal employees at an annual cost of $3.6 billion. In 2004,
    GSA awarded four contracts for national broker services (NBS). Performance
    of the contracts began on April 1, 2005. This report focuses on GSA's
    administration of the leasing contracts for the first contract year,
    ending March 31, 2006, and addresses, among other matters, (1) how GSA is
    attempting to prevent conflicts of interest in the NBS leasing program and
    to safeguard its information; (2) what, if any, savings have accrued to
    the government; and (3) how GSA is distributing its leasing workload among
    the brokers. To address these matters, GAO, among other actions, analyzed
    the contracts; GSA's contract administration guide; and GSA's policies,
    procedures, and controls related to these matters.

    [58]What GAO Recommends

    GAO is making numerous recommendations. For example, GAO recommends that
    GSA perform a risk assessment of the NBS program; modify the contracts to
    include additional controls; test, as needed, the adequacy of the brokers'
    controls; improve controls over broker commissions; develop procedures for
    quantifying savings; and define the factors needed to establish a record
    of the brokers' performance. GSA agreed to implement the recommendations.

    GSA has developed controls to help prevent conflicts of interest in the
    NBS leasing program, but has not fully mitigated potential conflicts of
    interest or federal information security concerns related to safeguarding
    information and systems used by the brokers on GSA's behalf. For example,
    while GSA appears to have resolved the 20 conflicts identified by the
    brokers during the first contract year, it has not modified the contracts
    to ensure that each contains all of the requirements applicable to the
    brokers' disclosure of potential or actual conflicts of interest. Further,
    GSA has not assessed the risk and magnitude of harm that could arise from
    the brokers' unauthorized access to, or disclosure of, GSA's proprietary
    information. Until GSA conducts a risk assessment, it cannot (1) modify
    the brokers' contracts to include additional controls, as appropriate, or
    (2) test, as needed, the brokers' controls to ensure that they are
    adequate to safeguard GSA's information. GSA also has not adequately
    mitigated, as required, the inherent conflict created by allowing the
    brokers to represent the government while negotiating their commission
    payment with building owners. Commissions are factored into the cost of
    the government's rental payments. Absent additional controls, GSA has
    insufficient assurance  that the brokers will not accept excessive
    commissions; thereby increasing the government's costs. At the end of
    GAO's review, GSA had not taken action on these issues.

    GSA expected the contracts to result in various savings. It anticipated
    reductions in (1) rent from the brokers' expert knowledge of the
    commercial real estate market and (2) administrative expenses from
    reductions in its costs for previous contract fees, administration, and
    personnel. However, more than 2 years after the contract awards, GSA does
    not know what, if any, savings have resulted, largely because it has not
    developed procedures for quantifying most of its expected savings.

    GSA distributed its initial leasing workload fairly equally among the
    brokers during the first year, as required, but program delays,
    insufficient data, and a lack of procedures have slowed the transition to
    performance-based distributions. Once a record of performance is
    available, GSA is to distribute work among the brokers on the basis of
    their performance. GSA planned to begin performance-based distributions
    after the first contract year, anticipating that the brokers would have
    completed a sufficient number and variety of task orders to establish a
    record of their performance. However, as of March 31, 2006, the brokers
    had completed only 11 of the 479 task orders issued to them  and eligible
    for a commission payment. GSA now expects to begin performance-based
    distributions by April 1, 2007--the start of the third contract year--but
    has not defined how many and what types of task orders are needed to
    establish a record of performance. Without this information, GSA cannot
    demonstrate that it has established a record of performance and is ready
    to move to performance-based distributions.  GSA also has not developed
    needed guidance and procedures, but plans to do so before moving to
    performance-based distributions.

    *** End of document. ***