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
[email protected].

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. ***