United Nations: Renovation Planning Follows Industry Practices,  
but Procurement and Oversight Could Present Challenges		 
(16-NOV-06, GAO-07-31). 					 
                                                                 
The United Nations (UN) estimated in 2005 that renovating its	 
headquarters will cost up to $1.75 billion. As the UN's host	 
country and largest contributor, the United States has a	 
substantial interest in the project's success. In this report, we
(1) determine whether the development of the Capital Master Plan 
(CMP) has been consistent with leading industry practices, (2)	 
examine factors that led to changes in the cost estimate and	 
determine whether the 2005 estimate was updated using industry	 
practices, (3) review the status of financing of the renovation, 
(4) identify decisions needed for the renovation to proceed, and 
(5) review UN oversight and State monitoring efforts. To address 
these objectives, we reviewed UN design and planning documents,  
including the latest cost estimate, to compare them with industry
standards. To assess oversight, we reviewed Office of Internal	 
Oversight Services (OIOS) and UN Board of Auditors reports and	 
met with UN officials.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-31						        
    ACCNO:   A63447						        
  TITLE:     United Nations: Renovation Planning Follows Industry     
Practices, but Procurement and Oversight Could Present Challenges
     DATE:   11/16/2006 
  SUBJECT:   Best practices					 
	     Construction industry				 
	     Cost analysis					 
	     Facility repairs					 
	     Financial management				 
	     Internal controls					 
	     International organizations			 
	     International relations				 
	     Procurement planning				 
	     Procurement practices				 
	     Strategic planning 				 
	     Cost estimates					 
	     UN Capital Master Plan				 

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GAO-07-31

   

     * [1]Results in Brief
     * [2]Background

          * [3]History of the UN Headquarters Complex
          * [4]The Renovation Process

     * [5]Renovation Process Continues to Follow Leading Industry Prac

          * [6]Those Affected by the Project Involved in its Development
          * [7]Competitive Procurement Used but UN Procurement Process Has
          * [8]Experienced Team in Place to Review Renovation Design, but V

     * [9]Cost Estimate Increased; Industry Practices Followed but Est

          * [10]Cost Estimate Increased Due to Changes in Schedule, Refineme
          * [11]Cost Estimate Updated Following Industry Practices
          * [12]Cost Estimate Still Preliminary and Likely to Change

     * [13]The General Assembly Has Not Decided How to Finance Remainin

          * [14]The General Assembly Has Not Decided on a Financing Arrangem
          * [15]Member States Considering Cash Assessments to Finance Renova
          * [16]A Renewed U.S. Loan Offer Could Reduce Cost of UN Commercial

     * [17]Decisions Needed by December 2006 to Maintain the Current St
     * [18]UN Entities Have Continued Oversight of the CMP and State Ha

          * [19]OIOS Has Conducted Oversight of the CMP Office
          * [20]OIOS's Oversight Impaired by Its Funding Arrangement
          * [21]UN Board of Auditors has Conducted Oversight of CMP
          * [22]State Has Continued Its Monitoring Activities

     * [23]Conclusion
     * [24]Recommendations
     * [25]Agency Comments
     * [26]GAO Contact
     * [27]Staff Acknowledgments
     * [28]GAO's Mission
     * [29]Obtaining Copies of GAO Reports and Testimony

          * [30]Order by Mail or Phone

     * [31]To Report Fraud, Waste, and Abuse in Federal Programs
     * [32]Congressional Relations
     * [33]Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

November 2006

UNITED NATIONS

Renovation Planning Follows Industry Practices, but Procurement and
Oversight Could Present Challenges

GAO-07-31

Contents

Letter 1

Results in Brief 3
Background 5
Renovation Process Continues to Follow Leading Industry Practices but
Faces Challenges Going Forward 10
Cost Estimate Increased; Industry Practices Followed but Estimate Likely
to Change 12
The General Assembly Has Not Decided How to Finance Remaining Renovation
Project Costs 16
Decisions Needed by December 2006 to Maintain the Current Start Date and
Avoid Increased Costs 20
UN Entities Have Continued Oversight of the CMP and State Has Monitored
CMP Progress 21
Conclusion 24
Recommendations 25
Agency Comments 25
Appendix I Scope and Methodology 27
Appendix II Comments from the Department of State 29
Appendix III Comments from the United Nations 32
Appendix IV Comments from OIOS 34
Appendix V GAO Contact and Staff Acknowledgments 36

Tables

Table 1: Comparison of 2002 and 2005 Estimated Total Project Costs by Cost
Element 12
Table 2: UN Appropriations for Headquarters Renovation, 2000-2006 17
Table 3: Approximate Yearly Cost to Member States of Cash Assessments 18
Table 4: Approximate Yearly Cost to the United States of Cash Assessments
18

Figures

Figure 1: Site Plan of UN Headquarters 6
Figure 2: CMP Time-Frame 7
Figure 3: CMP Progress through the Five-Stage Renovation Project Since
December 2002 8

Abbreviations

CMP Capital Master Plan OBO Bureau of Overseas Buildings Operations OIOS
Office of Internal Oversight Services OPPBA UN Office of Program Planning,
Budget and Accounts UN United Nations UNDC United Nations Development
Corporation

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
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copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office

Washington, DC 20548

November 16, 2006

The Honorable Frank R. Wolf Chairman Subcommittee on Science, the
Departments of State, Justice, and Commerce, and Related Agencies
Committee on Appropriations House of Representatives

The Honorable Richard G. Lugar Chairman Committee on Foreign Relations
United States Senate

The Honorable Cliff Stearns House of Representatives

The United Nations (UN) headquarters complex in New York City neither
conforms to current safety, fire, and building codes nor meets UN
technology or security requirements. To address these concerns, the UN has
developed the Capital Master Plan (CMP)--a comprehensive renovation of the
entire complex. Since we last reported on the CMP in 2003, the UN has
moved forward with designing the renovation and updating the cost
estimate. In 2005, the CMP office's cost estimate for the entire project
was approximately $1.75 billion. In 2006, the General Assembly
appropriated an additional $100.5 million to continue design work and
obtain space to temporarily relocate UN staff and activities during the
renovation.^1 The CMP office currently plans to begin preparations for the
renovation in mid-2007 and begin the construction work associated with
renovating the existing buildings in early 2008. In November 2006, the CMP
office updated the cost estimate to $1.88 billion.

We have previously reviewed UN efforts to develop the CMP and prepare a
cost estimate. In June 2001 and May 2003, we reported that UN renovation
planning efforts had been reasonable and conformed to leading industry
practices.^2 We also recommended that the Secretary of State encourage the
UN to provide its internal and external oversight offices with the
resources needed to conduct effective oversight. In June 2006, we
testified that effective implementation of the CMP is vulnerable due to
weaknesses in existing UN oversight and procurement practices.^3 For
example, we found that the UN has yet to incorporate guidance for
construction procurement into its procurement manual.

^1United Nations General Assembly, Resolution Adopted by the General
Assembly, A/RES/60/256 (New York, N.Y.: May 8, 2006), and Resolution
Adopted by the General Assembly, A/RES/60/282 (New York, N.Y.: Jun. 30,
2006).

As the UN's host country and largest contributor, the United States
continues to have a significant interest in the success of the renovation.
In this report, we (1) determine whether the continued development of the
CMP has been consistent with leading industry practices, (2) examine what
factors contributed to the changes in the cost estimate from 2002 to 2005
and determine whether the cost estimate was updated using industry
practices, (3) review the status of financing of the planned renovation,
(4) identify decisions needed for the renovation to continue as planned,
and (5) review the UN's efforts to oversee and the U.S. Department of
State's (State) efforts to monitor the planned renovation.

To address these objectives, we reviewed pertinent UN design and planning
documents, including the 2002 and 2005 cost estimates, and compared them
with industry standards. We also interviewed UN officials and the CMP
office's program management consultant. We did not assess the cost
estimate included in the Secretary-General's 2006 progress report on the
CMP.^4 To assess oversight and monitoring activities, we interviewed
officials from the Office of Internal Oversight Services (OIOS), the UN
Board of Auditors, and State. We conducted our work at the UN in New York
City and at State in Washington, D.C., from August 2005 to October 2006 in
accordance with generally accepted government auditing standards. Appendix
I provides detailed information on our methodology.

^2GAO, United Nations: Planning for Headquarters Renovation is Reasonable:
United States Needs to Decide Whether to Support Work, [34]GAO-01-788
(Washington, D.C.: Jun. 15, 2001); and GAO, United Nations: Early
Renovation Planning Reasonable, but Additional Management Controls and
Oversight Will Be Needed, [35]GAO-03-566 (Washington, D.C.: May 30, 2003).

^3GAO, United Nations: Weaknesses in Internal Oversight and Procurement
Could Affect the Effective Implementation of the Planned Renovation,
[36]GAO-06-877T (Washington, D.C.: Jun. 20, 2006).

^4As our report was going to press, the UN released the
Secretary-General's Fourth Annual Progress Report on the Implementation of
the Capital Master Plan, A/61/549.

Results in Brief

UN officials continue to follow leading industry practices in the
development of the UN headquarters renovation project, but the CMP
office's reliance on existing UN procurement practices could impact the
effective implementation of the renovation in the future. We found that UN
officials continued to follow leading construction industry practices such
as involving stakeholders in the design of the project and having a team
review the ongoing design work. We also found that since the CMP office
relies on current UN procurement practices, implementation of future CMP
procurements could become vulnerable to numerous UN procurement weaknesses
that we reported on in April 2006.^5 For example, the UN has yet to
incorporate guidance for construction procurement into its procurement
manual, and the chairman of the UN procurement contract review committee
has stated that his committee did not have the resources to keep up with
its expanding workload. In addition, the UN had not established an
independent process to consider vendor protests that could alert senior UN
officials of failures by procurement staff to comply with stated
procedures.

The estimated total cost of the CMP increased from about $1.19 billion to
almost $1.75 billion--an almost $560 million increase--between 2002 and
2005 to reflect inflation arising from a later start date, refinements to
the design, and a change in the renovation approach. The UN changed its
renovation approach because of difficulties in securing low-cost off-site
space to temporarily relocate most UN staff and activities. The UN has
continued to follow construction industry practices to develop and update
the 2005 cost estimate and has included expected elements such as
construction, management, and contingency costs. However, the cost
estimate is still preliminary and will likely change to reflect completed
design work and estimates of future market conditions.

While the General Assembly has passed a resolution expressing a preference
for cash assessments, it has yet to decide how to finance the remaining
renovation costs. In June 2006, the General Assembly passed a resolution
stating that a cash payment option would be the simplest and most
cost-effective approach for funding the CMP. Under this approach, the UN
would assess member states for the cost of the renovation through single-
or multiyear payments. The amount the UN assessed member states would be
likely based on each country's rate for its annual regular budget
contributions. For example, if the General Assembly were to decide on
multiyear payments, the U.S. would be assessed a total of $302 million
over 5 years, based on the UN's 2005 cost estimate. Since the UN likely
will not have all of the funds required for the renovation before
construction work begins, the UN may secure a commercial letter of credit
to assure its construction contractors that it can pay them for their
work. This letter of credit may also act as a source of short-term
external borrowing in the event of temporary cash shortfalls. If the
General Assembly decides to finance the renovation using cash assessments,
the United States could explore the viability of renewing a prior loan
offer to the UN to act as a line of credit, which could decrease the cost
of any commercial borrowing. The General Assembly plans to revisit the
issue of financing the CMP by the end of 2006.

^5GAO, United Nations: Procurement Internal Controls Are Weak,
[37]GAO-06-577 (Washington, D.C.: Apr. 25, 2006).

Without certain General Assembly decisions by the end of 2006, the
renovation's current schedule could be delayed and costs could increase.
Specifically, a General Assembly decision would be needed on a financing
arrangement and the total CMP budget to ensure that funds could be
available by December 2007. Without these decisions, the CMP office cannot
finalize a start date, which may complicate the process of leasing
off-site space to temporarily relocate some UN staff and activities. In
addition, the CMP office will be unable to proceed with renovation work on
the complex. A delay in the beginning of renovation work could result in
increases to the project's cost.

UN oversight entities have continued to oversee the CMP while State has
monitored CMP progress. The Office of Internal Oversight Services (OIOS),
an internal UN oversight entity, has conducted audits on CMP procurements
and has issued several reports of its findings and recommendations. OIOS
found that the standard procurement documents needed to be modified to
reflect the project's complexity and size but that the process for
procuring consultants for the CMP had been fair. OIOS also concluded that
the CMP office had generally used its resources in accordance with UN
financial rules and regulations. However, OIOS relies on funds from the
CMP budget to conduct effective oversight of the CMP, which may impair its
ability to secure sufficient funds. In addition, UN rules and regulations
severely limit OIOS's ability to reallocate resources from different
sources and apply them to high-risk areas as they arise. The UN Board of
Auditors, an external oversight entity, has also conducted oversight of
the CMP office by reviewing its financial records, compliance with UN
regulations and rules, and internal controls and has found no material
weaknesses in its review. State has continued to monitor the CMP by
reviewing the UN's security enhancements and financing arrangements and
the quality of the renovation planning and cost estimating process.
State's monitoring efforts have not identified any significant concerns,
according to State officials.

In this report, we make recommendations to the Secretary of State and the
U.S. Permanent Representative to the United Nations to work with other
member states to (1) identify a procurement strategy for the CMP to
mitigate the impact of weaknesses in the UN procurement processes and (2)
to ensure that OIOS receives sufficient funding for its oversight of the
CMP.

The Department of State, the UN, and OIOS provided written comments on a
draft of this report, which are reproduced in appendixes II through IV.
They generally concurred with our findings and recommendations. State and
the UN also provided us with a number of technical suggestions and
clarifications that we have addressed in this report, as appropriate.

Background

History of the UN Headquarters Complex

The original UN headquarters complex in New York City was considered among
the most modern facilities when construction was completed in 1952;
however, it no longer conforms to current safety, fire, and building codes
and does not meet UN technology or security requirements. Although
originally designed to hold 70 member states, the complex currently
accommodates the needs of 192 member states and approximately 4,700 UN
staff and also hosts nearly 1 million visitors per year from around the
world. The United States financed construction of the original
complex--the General Assembly, Secretariat, and Conference Building--by
providing the UN with a no-interest loan. The rest of the present-day
complex--the Dag Hammarskjoeld Library, the underground North Lawn
Extension, South Annex, and Unitar Building--was built between 1960 and
1982 and was funded through the UN regular budget or private donations.

Figure 1: Site Plan of UN Headquarters

Under the CMP, the UN intends to renovate the complex to make it conform
to current safety, fire, and building codes and meet UN technology and
security requirements (see fig. 1). This process will involve upgrading or
replacing all major building systems, including electrical, plumbing, fire
suppression, heating and air conditioning, as well as reinforcing
structural integrity and removing asbestos from the entire complex. As
shown in figure 2, the General Assembly first proposed a comprehensive
renovation in June 2000. Under the current schedule, work associated with
the renovation will begin in early 2007 with an estimated completion date
of 2014.

Figure 2: CMP Time-Frame

The Renovation Process

In June 2001 and May 2003, we reported that the UN's early renovation
planning was reasonable and consistent with leading industry practices.^6
By 2003, the UN had completed the first stage of a five-stage renovation
process--conceptual planning. In December 2002, the General Assembly
authorized the Secretary-General to proceed with the second stage, design.
According to CMP officials, as of July 2006, the project was about 60
percent through this stage (see fig. 3).

^6 [38]GAO-01-788 and [39]GAO-03-566 .

Figure 3: CMP Progress through the Five-Stage Renovation Project Since
December 2002

The five stages of a renovation project are summarized as follows:

Stage 1: Conceptual Planning--Feasibility studies are conducted to
determine scope of work and alternative design solutions incorporating
requirements for performance, quality, cost, and schedule. Several
alternative design solutions are identified, and one approach is generally
selected.

Stage 2: Design--The preferred design solution is further developed,
culminating in the development of final construction documents from which
construction services can be solicited.

Stage 3: Procurement--Owner procures construction services and long
lead-time equipment, such as unique or large electrical or mechanical
equipment.

Stage 4: Construction--Contractors and consultants are employed to execute
the renovation based on the construction documents.

Stage 5: Start-up--Building is occupied and tests are conducted on
individual and systems components to ensure that they are operating
correctly.

In its December 2002 authorization, the General Assembly decided to
implement the CMP and execute the design phase. In developing design
documents for the renovation, the General Assembly instructed the CMP
office to include options that the General Assembly has not yet decided
whether to include in the renovation. The options were divided into three
categories: security, system redundancies, and sustainability and include
additional blast protection, backup equipment for building communications
systems, increased coverage and reliability for emergency power, higher
efficiency equipment, and on-site alternative energy sources. These
options could enhance operational and working conditions but were not
considered integral to the project at the time.

Because of difficulties in securing off-site space to temporarily relocate
UN staff and activities, the UN has changed its renovation approach. In
May 2003, we reported that the UN had decided on a single-phased approach
to the renovation, in which most UN staff and activities would be
temporarily relocated so that the buildings could be renovated
concurrently.^7 The U.N. Development Corporation^8 would have built a new
building, referred to as UNDC-5, adjacent to the UN headquarters where UN
activities could continue during the renovation. However, the UN
determined that this option was no longer viable when the corporation
could not secure approval for the new building from the New York State
legislature in time for the beginning of construction. In June 2006, the
General Assembly approved proceeding with the renovation project using a
multiphased approach. This approach consists of renovating the Secretariat
building, 10 floors at a time, and moving UN staff and functions displaced
by the renovation to rented commercial office space and a temporary
building to be constructed on the North Lawn above the existing North Lawn
extension. The CMP office has modified its design documents to reflect
this multiphased renovation approach and moved forward with completing the
required design details. This information will be used in the procurement
process to solicit construction services.

^7 [40]GAO-03-566 .

^8The U.N. Development Corporation is a New York State nonprofit public
benefit corporation tasked with constructing and leasing office space to
the UN.

Renovation Process Continues to Follow Leading Industry Practices but Faces
Challenges Going Forward

Consistent with our 2001 and 2003 reviews of the early planning for the
renovations, we found that UN officials continue to follow leading
industry practices in the development of the UN headquarters renovation
project. These include involving those impacted by the project, using a
competitive procurement process, and using a team to review the design.
However, reliance on existing procurement processes and the vacancy of the
leadership post could create challenges as the project proceeds.

Those Affected by the Project Involved in its Development

The CMP office has continued to consult with UN managers and other
affected entities, such as the city of New York, in the various aspects of
planning and designing the renovation to help ensure that the project
meets their needs. The CMP office has solicited input from officials in
various UN departments during the design review process. In addition,
while not required, it is UN policy to follow city and state codes. To
facilitate the implementation of the project, the CMP office continues to
coordinate and meet with the city and state of New York to discuss the
UN's renovation plans. The CMP office has also taken steps to ensure that
information about the renovation is readily available to stakeholders and
the public. It has established a Web site, [41]www.un.org/cmp , which
explains the renovation project and provides related UN documents and
opportunities to direct comments to the CMP office.

Competitive Procurement Used but UN Procurement Process Has Weaknesses

The CMP office has continued to use a competitive process to procure
program management, planning, and design services for the renovation
project. Competition among multiple firms is important for obtaining a
quality product at a reasonable price. As part of the competitive process,
the CMP office and UN officials issued requests for proposals, obtained
proposals from multiple firms, evaluated the proposals based on
established criteria, and selected firms to perform the work. OIOS
reviewed the CMP procurements and reported that the process was fair and
transparent. To increase visibility of the procurements related to the
CMP, the procurement division has created a page on its Web site,
[42]www.un.org/depts/ptd/ , for CMP awards that lists information such as
the contractor, subject of the contract, and award amount. The CMP office
is also exploring the possibility of posting copies of the awarded
contracts on this Web site.

Although the CMP office has used a competitive process to date, we
reported in April 2006 that the UN's procurement process has numerous
weaknesses.^9 For example, the UN has yet to incorporate guidance for
construction procurement into its procurement manual, and the chairman of
the UN procurement contract review committee has stated that his committee
did not have the resources to keep up with its expanding workload. In
addition, the UN had not established an independent process to consider
vendor protests that could alert senior UN officials of procurement
staff's failures to comply with stated procedures. The UN is currently in
the process of hiring a construction manager to oversee the day-to-day
project activities and the subcontractors performing the construction
work. CMP officials stated that as the project progresses, the CMP office
will continue to be responsible for the daily oversight and administration
of the CMP contracts. In addition, according to a UN procurement official
the UN procurement division will be involved in processing contract
amendments and ensuring compliance with UN procurement rules and
procedures. According to CMP officials, to address resource shortfalls in
the UN procurement division, funding has been made available from the CMP
budget to hire three new staff with construction-related experience.

Experienced Team in Place to Review Renovation Design, but Vacancy in Leadership
Post Exists

Within the UN, the CMP office manages the development and execution of the
renovation project, including the review of the ongoing renovation design.
The CMP office has supplemented its in-house staff with a consultant to
assist with design review and cost estimate development. While the UN was
considering different renovation approaches, the CMP office instructed its
contractors to incorporate flexibility in the design so it could be
tailored to work with any of the approaches being considered. This ensured
that when the UN selected a multiphased approach in August 2006, there was
little need for redesign.

Although the CMP office has continued moving the renovation project
forward, it has often lacked an executive director. The executive director
provides leadership, support, and direction to the project, and acts as
the primary representative of the CMP to the General Assembly and UN
stakeholders. In February 2003, the Secretary-General appointed the first
executive director for the CMP, but he left after about a year. The
position remained vacant until September 2005 when the UN hired a CMP
executive director with experience working on large construction and
renovation projects in New York City. However, he left in June 2006 and
the position is currently vacant. The current staff are now performing the
executive director's duties as well as their own. UN officials have stated
that they recognize the importance of having a CMP executive director and
are working to fill the position.

^9 [43]GAO-06-577 .

Cost Estimate Increased; Industry Practices Followed but Estimate Likely to
Change

The estimated total cost of the CMP increased from about $1.19 billion to
almost $1.75 billion--an almost $560 million increase--between 2002 and
2005 to reflect inflation arising from a later start date, refinements to
the design, and a multiphased renovation approach. In developing the 2005
estimate, the CMP office followed industry practices such as defining the
work required and reviewing the estimate. In November 2006, the
Secretary-General released a progress report on the CMP that included an
updated cost estimate of $1.88 billion. This estimate was developed before
the design phase was completed; therefore, it is still preliminary and
likely to change.

Cost Estimate Increased Due to Changes in Schedule, Refinements to the Design
Project, and Approach

As shown in table 1, the estimated total cost of the CMP including the
scope options increased from about $1.19 billion to about $1.75 billion
between 2002 and 2005.

Table 1: Comparison of 2002 and 2005 Estimated Total Project Costs by Cost
Element

Dollars in                                              
millions                                                
                                                     Increase in estimate
                          2002       2005        Inflation     Design Project 
Cost element       estimate estimate^a        2002-2004 refinement phasing 
Construction^b       $537.4     $734.6  $59.1     $55.8      $82.6         
Professional fees                                                          
and management^c       97.6      144.3   10.8       9.5       26.0         
Contingency^d         143.0      184.4   15.7      14.8       10.9         
Swing space^e          96.0      164.3    N/A       N/A       68.3         
Scope options^f       144.0      161.0   17.0       N/A        N/A         
Subtotal           $1,018.0   $1,388.6 $102.6     $80.1     $187.8         
Escalation^g          175.0      360.0                                     
Total              $1,193.0 $1,748.6^h                                     

Source: UN CMP Office.

Note: N/A = not applicable.

aEstimate is current as of early 2005 and thus does not include 2005
inflation.

bConstruction--cost of the labor and materials for the specific renovation
work.

cProfessional fees and management--costs for CMP office staff and
overhead, including leasing of office space; all UN staff support
including procurement and legal services; project management consultant
services that enhance the CMP office's capabilities; planning and design
services; and project management fees.

dContingency--cost to account for unforeseen conditions and other changes
that might arise during the renovation project.

eSwing space--cost of relocating staff and operational functions displaced
by the renovation into temporary space. The swing space approach varied
significantly from 2002 to 2005.

fScope options--cost of optional work being considered by the UN for
inclusion in the renovation.

gEscalation--cost to account for the effect of inflation over the life of
the project, on the price of materials and labor. Escalation in the 2005
estimate covers the period 2005 to 2014.

hIn the third annual progress report on the CMP, A/60/550, the
Secretary-General reports the revised project cost estimate to be $1,587.8
million. However, this estimate does not include the scope options.

The change in the scheduled start date and project duration increased
estimated costs due to inflation. In August 2002, the CMP office projected
that the renovation project would begin in 2005 and be completed in less
than 5 years. By December 2005, the CMP office had adjusted the schedule
to a 7-year multiphased approach. The CMP office's cost estimator
determined that the New York City construction industry for projects
similar to the UN renovation experienced about 11 percent inflation
between 2002 and 2004, which accounts for almost $103 million of the
estimated cost increase. In addition, the escalation costs in the estimate
increased by $185 million to account for the expected inflation over the
duration of the project, including the additional 2 years that were added
to the project schedule for the multiphased approach. Any future changes
that extend the start date or duration of the renovation would be expected
to further increase the cost of the project.

We have previously reported that changes in the cost estimate should be
expected as the design progresses and more project details become
known.^10 The 2002 estimate is based on a broad conceptual design, whereas
the 2005 estimate was based on a more detailed project design. For
example, the 2005 estimate was based on the actual number and size of the
systems needed, rather than an overall cost estimate for the heating and
air conditioning systems, as in the 2002 estimate. These types of design
refinements increased the cost estimate by about $80 million. The
Secretary-General's third annual progress report on the CMP noted that the
process of controlling the scope and cost of the CMP would continue to be
part of the project management process during design development and
contract document preparation. According to CMP officials, efforts are
under way to reduce the construction cost through value engineering and
detailed scope review.^11

10 [44]GAO-01-788 and [45]GAO-03-566 .

The change to using a multiphased renovation approach, in which parts of
the buildings will be renovated while other parts remain in operation,
increased the project's complexity and required the CMP office to make
numerous adjustments to the estimate. For example, 20 percent was added to
the expected cost of replacing the window structure on the outside of the
Secretariat building because it will have to be done in more than one
stage and additional waterproofing will be required. There was also a cost
associated with isolating those floors being renovated from those that
will be occupied by UN staff during the renovation. In addition, the
source of temporary space needed for UN complex occupants during the
renovation changed after the 2002 estimate was completed. In the 2002
estimate, the UN had expected to lease about 800,000 square feet of office
and conference space in the new UNDC-5 building at below market rates.
Since the proposed UNDC-5 building will not be built and the rental rates
in New York City have increased considerably, the 2005 estimate reflects
the UN's revised plan to (1) lease about 228,000 square feet of office
space and 80,000 square feet of library space at market rates for
displaced staff and functions and (2) construct a 100,000 square foot
temporary building on the UN complex to meet the conference needs of the
UN during the renovation.^12 While the projected amount of necessary
office space has decreased since the last estimate, it will be needed for
a longer period of time, and the projected rental rates have increased
substantially. The CMP office estimated that the change to a multiphased
renovation approach added about $188 million to the 2005 estimated CMP
cost.

In November 2006, the Secretary-General's fourth annual progress report on
the CMP updated the total project cost estimate from about $1.75 billion
to about $1.88 billion, an increase of approximately $128 million.^13
According to the report, this increase is due primarily to increases in
the cost of swing space ($50 million) and further development of the scope
options ($69 million). The report also identifies some areas where the
project cost is at risk of increasing further. For example, the UN would
need to add a visitor screening area to the renovation project, if the
proposed visitors' center, which includes a visitor screening area, is not
constructed.^14

11Value engineering is the process of identifying opportunities to remove
unnecessary costs while assuring the quality, reliability, and performance
of the project.

^12At the completion of the renovation, this temporary building is
expected to be removed.

Cost Estimate Updated Following Industry Practices

The CMP office continues to follow leading industry practices in updating
the project cost estimate. In 2003, we reported that the UN had defined
the work to be done, developed a standardized format for the cost
estimate, had the estimate reviewed, and reported the estimate including
its range of accuracy. Using the same leading industry practices, the CMP
office updated the previous cost estimate to reflect the multiphased
approach. The 2005 cost estimate includes relevant cost elements such as
design, construction, overhead, management, contingency and escalation.

Although the cost of new furniture and equipment is not included in the
cost estimate for the CMP, the UN plans to purchase them for the renovated
space through its regular budget. The CMP office is working with the
various UN departments to estimate these costs for inclusion in the
departments' future budget submittals.

Cost Estimate Still Preliminary and Likely to Change

Following leading industry practices, the CMP office is continuing to
update the total project cost estimate at major milestones in the project.
According to the Construction Industry Institute, the final cost of any
project at this stage of design may vary from plus or minus 20 to 30
percent of the estimate. The CMP office recently updated the project cost
estimate on the basis of the ongoing design work. In accordance with
industry practice, the CMP office will again update the cost estimate
after the completion of the construction documents. This estimate will be
based on actual quantities of materials that have been identified and the
range of accuracy of this estimate is expected to increase to plus or
minus 15 to 20 percent. In addition, CMP officials stated that they are
planning to have this estimate independently reviewed.

^13The UN provided us with a copy of this detailed report as our report
was going to press; therefore, we did not have sufficient time to analyze
the new information. See UN Doc. A/61/549.

^14The proposed new visitors' center was offered as a donation to the UN
and is separate from the proposed renovation.

Several uncertainties outside the UN or CMP office's control could also
have a significant impact on the final cost of the project. The decreased
availability of office space in mid-town Manhattan has driven up rental
rates, which could make it difficult to procure the space necessary to
relocate staff during the renovation at the 2005 estimated cost. In
addition, construction costs could increase if the impending redevelopment
of the World Trade Center site limits construction resources.

The General Assembly Has Not Decided How to Finance Remaining Renovation Project
Costs

While the General Assembly has passed a resolution expressing a preference
for cash assessments, it has yet to decide how to finance the bulk of the
renovation. Under the cash assessment approach, each member state would
likely be assessed the cost of the renovation based on the rate of its
annual regular budget contributions to the UN. In addition, to assure the
UN's contractors that it can pay them for their work, the UN may obtain a
commercial letter of credit. If the General Assembly decides to finance
the renovation using direct assessments, the United States could explore
the viability of renewing a prior loan offer to the UN to act as a line of
credit, which could decrease the cost of any commercial borrowing. The
General Assembly plans to revisit the issue of financing the CMP by the
end of 2006.

The General Assembly Has Not Decided on a Financing Arrangement for Its
Remaining Renovation Project Costs

While the General Assembly has passed a resolution stating that cash
assessments would be the simplest and most cost-effective approach for
funding the CMP, it has yet to decide how to finance the remaining $1.43
billion, which excludes scope options. The UN has already assessed member
states for $152 million of the estimated renovation cost and obtained $8
million from the UN regular budget. In June 2006, the General Assembly
decided to defer the issue of funding the CMP to the 61^st General
Assembly session, which began in September 2006.

The UN appropriated a total of $160 million between 2000 and 2006 for
various prerenovation activities (see table 2).^15

Table 2: UN Appropriations for Headquarters Renovation, 2000-2006

Dollars in millions
Year  Purpose                                         Appropriation amount 
2000  Design concepts and cost analysis                               $8^a 
2003  Continued design, project management and                      25.5^b 
         preconstruction services                                             
2005  Continued design, project management and                      17.8^b 
         preconstruction services                                             
2005  Continued design, project management and                       8.2^b 
         preconstruction services                                             
2006  Design, preconstruction and swing space                       23.5^b 
2006  Construction and fit-out of North Lawn                          77^b 
         building; lease, design and fit-out of off-site                      
         library and office space                                             
Total                                                                 $160 

Source: UN.

aFunded through an allotment from the regular UN budget.

bFunded through cash assessments on member states specifically for the
CMP.

Member States Considering Cash Assessments to Finance Renovation

In June 2006, the General Assembly passed a resolution stating that a cash
payment option, based on single- or multiyear assessments, would be the
simplest and most cost-effective approach to funding the CMP. Under this
approach, member states would pay their portion of the renovation in
single- or multiyear payments. According to the CMP office, this could
lower member states' total assessments because the UN could invest these
funds and earn interest on them, if received in advance of use.^16 For
example, member states would need to pay the UN $1.24 billion in 2007 to
fund the remaining $1.43 billion renovation cost if the project was funded
with one lump-sum assessment. As table 3 shows, the total amount member
states would be assessed increases as the number of assessment periods
increases, since there is less time for interest to accrue and offset
costs.

^15These assessments were based on the rate of their annual dues to the
UN. The United States currently contributes 22 percent of the UN's annual
operating budget. The President's fiscal year 2007 budget allocated $22
million to fund the U.S. portion of the $100.5 million that the UN
appropriated in calendar year 2006; however, the fiscal year 2007 budget
has not yet been approved.

^16To calculate the payment rate, the UN assumed annual interest income of
3.5 percent on invested contributions.

Table 3: Approximate Yearly Cost to Member States of Cash Assessments

Dollars in millions
Years of                                  Total        Estimated     Total 
assessments   2007 2008 2009 2010 2011 assessed  interest income available 
1 year      $1,243    0    0    0    0   $1,243             $184    $1,428 
4 years        357  357  357  279    0    1,350               78     1,428 
5 years        286  286  286  286  231    1,373               55     1,428 

Source: GAO analysis and United Nations A/60/550, Third Annual Progress
Report on the Implementation of the Capital Master Plan, November 11,
2005.

Note: Numbers do not include cost of scope options and may not add up due
to rounding.

If the United States paid for its portion of the renovation in one lump
sum, Table 4 shows that it would owe the UN approximately $274 million in
2007 under the 2005 cost estimate. If the United States paid over five
years, it would pay a total of $302 million.

Table 4: Approximate Yearly Cost to the United States of Cash Assessments

Dollars in millions                                          
Years of assessments 2007 2008 2009 2010 2011 Total assessed 
1 year               $274    0    0    0    0           $274 
4 year                 79   79   79   61    0            297 
5 year                 63   63   63   63   51            302 

Source: GAO analysis of United Nations A/60/550, Third Annual Progress
Report on the Implementation of the Capital Master Plan, November 11,
2005.

Note: Calculations are based on the United States paying 22 percent of the
renovation's cost. Numbers may not add up due to rounding.

If the General Assembly decides to finance the renovation through
multiyear assessments, the UN may use a commercial letter of credit to
demonstrate to its construction contractors that it has funding available
for the project before construction begins and to meet short-term
financing needs.^17 Consistent with U.S. industry practice, construction
contractors are not expected to agree to begin work without proof that the
UN can pay the entire cost of the renovation work. To purchase a letter of
credit, the UN would pay a fee based on the total amount of the letter of
credit and the degree of risk the lender estimates the UN represents as a
borrower. According to UN officials, the transaction fee associated with a
letter of credit could range from $3 to $21 million, depending on whether
or not a member state loan is available to back up the letter of credit.
The cost of these fees has not been included in the UN's cost estimate for
the renovation. If the UN decides to purchase a letter of credit, these
fees would represent an additional yearly cost to the member states.
According to the CMP office, the fees would decrease over time as the UN
pays for portions of the project, thus decreasing the amount it would need
to have covered by a letter of credit.

In addition, the Secretary-General has noted that the UN would need a
working capital reserve if the General Assembly agreed to multiyear
assessments. In the event of delays in member state payments, the UN
periodically may not have sufficient funds to pay contractors. A working
capital reserve of $45 million could be used to cover temporary cash flow
shortages. Subsequently, the letter of credit could also supplement
short-term cash flow needs in the event of delays in member state
payments. Under such circumstances, the UN could rely on the commercial
letter of credit as a source of short-term borrowing to pay its
contractors and then repay the lender with interest when member states pay
their assessments.

A Renewed U.S. Loan Offer Could Reduce Cost of UN Commercial Borrowing

If the UN decides to finance the renovation using cash assessments, the
United States could explore the viability of renewing a prior loan offer
to the UN, which could decrease the cost of a commercial letter of credit
or short-term borrowing. In March 2005, the U.S. offered the UN a $1.2
billion loan at 5.54 percent interest that could act as a line of credit
or a loan guarantee.^18 The UN had anticipated receiving a
noninterest-bearing loan from the United States, and the General Assembly
did not accept the U.S. offer. Although member states are no longer
considering a U.S. loan to finance the renovation, if the UN were to
accept a renewed loan offer, the UN could use it to reduce the cost of
commercial borrowing needed under a multiyear cash assessment plan. The UN
would represent a lower credit risk, and commercial lenders would likely
charge the UN less to purchase a letter of credit. In addition, the UN
would likely pay less to arrange short-term borrowing if it needed to
borrow funds to pay its construction contractors.

^17Construction contractors would be able to draw on the letter of credit
if the UN is unable to pay them on time and in full.

^18While the original U.S. loan offer to the UN was authorized for $1.2
billion, subsequent legislation stipulated that the Secretary of State
must notify Congress of the 2005 cost of the renovation and any cost
containment measures if a U.S. loan to the UN exceeds $600 million for the
renovation. The Senate also passed a nonbinding "sense of the Senate"
resolution stating that the amount of any loan for the UN renovation
should not exceed $600 million. Sec. 412, Pub. L. 109-108, Science, State,
Justice, Commerce and Related Agencies Appropriations Act, 2006.

The United States could explore renewing its loan offer because Congress
appropriated $6 million to cover the cost of the loan and directed that
the funds remain available until spent.^19 However, under current U.S.
law, U.S. assessments cannot go toward interest payments on UN external
borrowing, including a loan from the United States. While Congress passed
a statute for fiscal year 2005 specifically exempting U.S. assessments for
the renovation from this provision, State Department officials stated that
this is an annual provision that was not renewed for fiscal year 2006.

Decisions Needed by December 2006 to Maintain the Current Start Date and Avoid
Increased Costs

The CMP's current schedule could be delayed and costs could increase if
the General Assembly does not make certain decisions by the end of 2006.
Specifically, the UN would need a decision by the General Assembly on a
financing arrangement and a total CMP budget to ensure that funds could be
available by December 2007 so that the UN can procure construction
services.^20

Without a General Assembly decision on a financing arrangement and
approval of a total CMP budget by the end of 2006, the CMP office may not
be able to determine a start date for renovation work. The CMP office
plans to temporarily move UN staff and activities to off-site office space
during the renovation. However, without a start date, it may be more
difficult for the CMP office to lease and prepare this space in an
efficient and timely manner, which could delay the start date and increase
project costs. According to the current CMP schedule, the UN would sign
leases for temporary space by the end of 2006, begin preparing that space
in early 2007, and relocate no later than early 2008.

^19This amount was appropriated to cover the cost of a U.S. loan to the
UN, including the risk of the borrower defaulting. To offer a loan
guarantee to the UN, the State Department and the Office of Management and
Budget would need to (1) establish the terms of the loan guarantee,
including the amount guaranteed, interest rate, maturity, repayment
schedule, and default risk profile of the borrower and (2) compute the net
present value cost of the offer in accordance with the Federal Credit
Reform Act of 1990.

^20The CMP office is also awaiting the General Assembly's decision on
whether to include the scope options in the renovation. Inclusion of these
options would increase the total cost of the renovation.

The start of renovation work could also be delayed if the General Assembly
does not decide on a financing arrangement that ensures funds are
available for the CMP by December 2007. To remain on the current schedule,
the CMP office would need the first assessment paid by the end of 2007. A
delay in the beginning of renovation work is likely to increase the
project's cost due to future inflation and overhead costs. As previously
discussed, a significant portion of the increase in the 2005 cost estimate
was due to moving the start date of the renovation from 2005 to 2008. The
UN's most 2005 cost estimate applies an inflation rate of 4 percent for
2007.

UN Entities Have Continued Oversight of the CMP and State Has Monitored CMP
Progress

OIOS and the UN Board of Auditors have continued their oversight of the
CMP since 2003. However, the extent to which OIOS must negotiate with the
UN Office of Program Planning, Budget, and Accounts (OPPBA) for future
funding could affect OIOS's ability to conduct effective oversight of the
CMP. In addition, State has continued to monitor the CMP and inform U.S.
policy on the renovation.

OIOS Has Conducted Oversight of the CMP Office

OIOS has been conducting oversight of the CMP office since 2003 and has
not found any material weaknesses in its work.^21 Specifically, OIOS has
reviewed draft procurement documents and participated in regular meetings
with CMP, UN Procurement Services, and Office of Legal Affairs officials
concerning the contracting of design and consulting services. OIOS found
that the draft procurement documents needed to be modified to reflect the
project's complexity and size. OIOS also found that the CMP office's
process for procuring consulting services, such as a real estate broker to
find temporary space for UN activities, was fair. Further, OIOS concluded
that the CMP office had generally used its resources in accordance with UN
financial rules. Currently, OIOS is developing an audit plan to guide its
oversight during the construction phase, according to OIOS officials. OIOS
will need additional staff with expertise in construction oversight as the
work becomes more technical and complex and is considering hiring an
outside consulting firm to assist with its oversight responsibilities as
the renovation proceeds.

^21OIOS conducts oversight of UN activities that are under the authority
of the Secretary-General through monitoring, inspection, and evaluation.
OIOS submits its reports to the Secretary-General; they are also available
to member states upon request.

OIOS's Oversight Impaired by Its Funding Arrangement

OIOS relies on funds from the CMP budget to conduct effective oversight of
the CMP, which may impair its ability to secure sufficient funds.
Generally, OIOS derives its funding through its regular budget and through
extrabudgetary resources that come from the budgets for a variety of
specific projects and activities, including the CMP office. To oversee the
CMP, OIOS submitted work plans to the OPPBA and requested extrabudgetary
funds from the CMP budget. OIOS noted in October 2004^22 and August
2005^23 that it required two full-time auditors to provide adequate audit
coverage of the CMP. However, OPPBA determined that only one auditor was
needed to complete the oversight activities that OIOS proposed, given the
early stage of the CMP, according to an OPPBA official.

We previously reported that OIOS's reliance on extrabudgetary funds and
limitations on how OIOS may spend its funds constrains its ability to
conduct effective oversight.^24 When relying on extrabudgetary funds, OIOS
must obtain permission to perform audits or investigations from the
managers of funds and programs, and negotiate the terms and funds for its
oversight work. In addition, UN rules and regulations severely limit
OIOS's ability to reallocate resources from different sources. Therefore,
OIOS cannot always direct resources to oversight of high-risk areas as
they arise. The extent to which OIOS must negotiate for future funding
during the construction phase of the renovation will affect OIOS's ability
to conduct effective oversight. Indeed, in a June 2006 resolution, the
General Assembly noted that the CMP office will provide OIOS with
resources to conduct an appropriate construction audit of the CMP.^25

22United Nations General Assembly, Report of the Office of Internal
Oversight Services on the United Nations Capital Master Plan for the
Period from August 2003 to July 2004, A/59/420.

^23United Nations General Assembly, Report of the Office of Internal
Oversight Services on the Capital Master Plan for the Period from August
2004 to July 2005, A/60/288.

^24GAO, United Nations: Funding Arrangements Impede Independence of
Internal Auditors, [46]GAO-06-575 (Washington, D.C.: Apr. 25, 2006).

UN Board of Auditors has Conducted Oversight of CMP

The UN Board of Auditors, an external oversight entity that reports to the
General Assembly, has conducted yearly audits of the CMP financial
statements since 2003.^26 The board's four objectives have been to

           o evaluate the CMP office's project accounting, payment and
           reporting systems;
           o ascertain the CMP office's compliance with UN regulations and
           rules on procurement and contracting;
           o determine whether CMP contractors have adhered to the terms of
           contract, such as deliverables, time, and materials provisions;
           and
           o review the CMP office's controls and processes established to
           properly manage the project.

           In reports on the CMP office released in September 2004 and August
           2005,^27 the board found that delays in the planning process had
           impacted the schedule for the completion of design development.
           The board also found that an advisory board for the
           Secretary-General had not been formed. The board did not note any
           instances of fraud or presumptive fraud within the CMP office.

           As the renovation proceeds with construction, the UN Board of
           Auditors will develop a new audit plan. The board will likely
           consider the CMP office's new cost system for tracking funds and
           expenditures an important issue to address when the construction
           phase begins, according to board officials. The board will conduct
           a risk assessment of the CMP office's general controls and
           accounting system in fall 2006. Based on the audit plan and risk
           assessment, the board will determine the financial resources it
           will need to conduct future audits of the CMP office.
			  
			  State Has Continued Its Monitoring Activities

           Since 2003, State has maintained a working group to monitor the
           CMP planning process and inform U.S. policy on the CMP. This task
           force is composed of officials from multiple departments within
           State and the Office of Management and Budget that meet at least
           once every 3 months. State has also engaged a part-time consultant
           with building construction and security experience to review
           security enhancements and advise the task force. The task force
           mission includes coordinating all U.S. government participation in
           the CMP process, evaluating the feasibility of the renovation
           project, and performing technical reviews. For example, officials
           from State's Bureau of Overseas Buildings Operations (OBO)
           reviewed design documents and the 2005 cost estimate and found
           that they were developed in a manner consistent with industry
           practices. OBO's assessment was included in a decision memorandum
           encouraging U.S. support for a decision to go forward with the
           renovation in June 2006. Based on its monitoring work, State has
           not identified any significant concerns with the renovation
           planning process, according to State officials.

			  Conclusion

           Since 2000, the UN has been developing its CMP, a comprehensive
           renovation of its headquarters complex. Because the complex does
           not meet current fire, life safety, and other building codes and
           does not meet UN technology or security requirements, it is a
           potentially hazardous environment for UN employees and visitors.
           Much of the design work has been done and the UN has funded
           completion of design and leasing of temporary space to relocate UN
           staff and activities for the duration of the renovation. The UN
           has also begun the process of procuring a construction management
           firm to undertake the renovation work. The UN could spend more
           than an additional $1.4 billion to complete the renovation. These
           funds could be at risk if the UN does not ensure that CMP
           procurements are protected from weaknesses in the current
           procurement system. In addition, OIOS will need sufficient funds
           to oversee compliance with UN financial rules and regulations, as
           applied to the CMP project.
			  
			  Recommendations

           We recommend that the Secretary of State and the U.S. Permanent
           Representative to the United Nations work with other member states
           to

           o ensure that the Secretariat identifies a procurement strategy
           for the CMP to mitigate the impact of weaknesses in UN procurement
           processes and
           o ensure that OIOS receives sufficient funding for its oversight
           of the CMP.
			  
			  Agency Comments

           The Department of State, the UN, and OIOS provided written
           comments on a draft of this report, which are reproduced in
           appendixes II through IV. State agreed with our conclusions and
           endorsed our recommendations, stating that they were consistent
           with State's policy goals for CMP procurement and OIOS funding.
           The UN found our report to be a valuable and accurate assessment
           of the current state of planning for the UN renovation project and
           generally concurred with our findings and recommendations.
           Furthermore, in response to our recommendation concerning CMP
           procurement, the UN noted that an independent bid protest
           mechanism has been designed for a major CMP procurement. The UN
           also noted that the Secretary-General's fourth annual progress
           report on the CMP has been prepared and contains updated
           information on the CMP.^28 OIOS also agreed with our conclusions
           and recommendations and noted that OIOS's current resources do not
           allow it to provide adequate audit coverage. State and the UN also
           provided us with a number of technical suggestions and
           clarifications that we have addressed in this report, as
           appropriate.

           As agreed with your offices, we will make copies of this report
           available to interested members of Congress, the Secretary of
           State, and the U.S. Permanent Representative to the United
           Nations. We will also make copies available to others upon
           request. In addition, the report will be available at no charge on
           the GAO Web site at [47]http://www.gao.gov .

           If you or your staff have any questions about this report, please
           contact Thomas Melito at (202) 512-9601 or [48][email protected] or
           Terrell Dorn at (202) 512-6923 or [49][email protected] . Contact
           points for our Office of Congressional Relations and Public
           Affairs may be found on the last page of this report. GAO staff
           who made major contributions to this report are listed in appendix
           V.

           Thomas Melito
			  Director, International Affairs and Trade

           Terrell Dorn
			  Director, Physical Infrastructure Issues
			  
			  Appendix I: Scope and Methodology

           To determine whether the continued development of the UN's
           renovation project was consistent with leading industry practices,
           we reviewed UN records, including reports and designs developed by
           the architect-engineering firms. We also researched industry
           practices related to construction project planning, development,
           and design. We compared the Secretariat's efforts in project
           planning and design with industry practices, as identified by the
           Federal Facilities Council and the Construction Industry
           Institute. We discussed various aspects of the project, including
           management and the design process for the Capital Master Plan
           (CMP) with UN renovation project staff and consultants.

           To examine the factors that contributed to the increase in the
           2005 cost estimate and determine whether the cost estimate was
           updated using industry practices, we researched industry practices
           related to construction project cost estimating. We compared the
           Secretariat's efforts in cost estimating with industry practices,
           as identified by the Construction Industry Institute. We also
           reviewed the 2005 cost estimate and identified the factors that
           were used to update the cost estimate. To assess the reliability
           of the UN's cost estimate data, we interviewed UN officials
           responsible for compiling the estimate and reviewed how the cost
           estimate was complied but we did not verify the accuracy of the
           figures. We determined that the data were sufficiently reliable
           for the purposes of our report. We received the
           Secretary-General's fourth annual progress report on the CMP with
           an updated cost estimate as our report was going to press.
           Although we did not have sufficient time to analyze the cost
           estimate, we included information from the Secretary-General's
           report to the extent possible.^1

           To describe the financing options being discussed, we reviewed UN
           data concerning the yearly cash assessments under consideration.
           To report on the total amount of a 1-year assessment, we
           calculated the net present value of the total funds needed for the
           renovation. To calculate the estimated interest income, we
           subtracted the total assessments from the total amount of funds
           needed for the renovation. To determine the U.S. share of cash
           assessments, we calculated 22 percent of the total cash
           assessments. To assess the reliability of the UN data, we
           interviewed UN officials to determine how the data was derived and
           determined that the data were sufficiently reliable for the
           purposes of our report.

           To identify key decisions to be made and their impact, we reviewed
           the CMP office's estimated schedules for leasing swing space,
           hiring a construction management firm, and the beginning of
           renovation work. We identified remaining decisions that require
           General Assembly approval and that are needed for the renovation
           to proceed. We then reviewed the schedules to determine if the
           timing of these decisions could substantially impact the beginning
           of the renovation.

           To review UN oversight efforts and State monitoring activities, we
           reviewed UN documents such as the Office of Internal Oversight
           Services (OIOS) and Board of Auditor reports submitted to the
           General Assembly, OIOS management letters to the CMP office, UN
           resolutions pertaining to the oversight of the CMP, and the
           mission statements of OIOS, the Board of Auditors, and State's
           working group on the CMP. We also interviewed officials from OIOS,
           the Board of Auditors, and the Department of State to clarify
           information in these documents.

           In conducting our review, we received full cooperation from the UN
           and the Department of State. We conducted our work at the UN in
           New York City and at State in Washington, D.C., from August 2005
           to September 2006 in accordance with generally accepted government
           auditing standards.
			  
			  ^1General Assembly, Fourth Annual Progress Report on the Implementation of
the Capital Master Plan, A/61/549.
			  
			  Appendix II: Comments from the Department of State
			  
			  Appendix III: Comments from the United Nations
			  
			  Appendix IV: Comments from OIOS
			  
			  Appendix V: GAO Contact and Staff Acknowledgments
			  
			  GAO Contact

           Thomas Melito, (202) 512-9601 or [email protected]

           Terrell Dorn, (202) 512-6923 or [email protected]
			  
			  Staff Acknowledgments

           In addition to the persons named above, Phyllis Anderson and Maria
           Edelstein, Assistant Directors; Michaela Brown; Debbie J. Chung;
           Bruce Kutnick; Valerie L. Nowak; and J.J. Marzullo made key
           contributions to this report. Mark Dowling provided technical
           assistance.
			  
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^25United Nations General Assembly, Resolution Adopted by the General
Assembly A/RES/60/282, June 30, 2006.

^26The UN Board of Auditors audits the financial statements of the UN
Secretariat and UN funds and programs.

^27United Nations General Assembly, Report of the Board of Auditors on the
Capital Master Plan for the Biennium Ended 31 December 2003, A/59/161 and
Report of the Board of Auditors for the Year Ended 31 December 2004,
A/60/5 (Vol. V).

^28Secretary-General's Fourth Annual Progress Report on the Implementation
of the Capital Master Plan, A/61/549.

(320378)

www.gao.gov/cgi-bin/getrpt?GAO-07-31 .

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

For more information, contact Thomas Melito at (202) 512-9601 or
[email protected] or Terrell Dorn at (202) 512-6923.

Highlights of [59]GAO-07-31 , a report to congressional requesters

November 2006

UNITED NATIONS

Renovation Planning Follows Industry Practices, but Procurement and
Oversight Could Present Challenges

The United Nations (UN) estimated in 2005 that renovating its headquarters
will cost up to $1.75 billion. As the UN's host country and largest
contributor, the United States has a substantial interest in the project's
success. In this report, we (1) determine whether the development of the
Capital Master Plan (CMP) has been consistent with leading industry
practices, (2) examine factors that led to changes in the cost estimate
and determine whether the 2005 estimate was updated using industry
practices, (3) review the status of financing of the renovation, (4)
identify decisions needed for the renovation to proceed, and (5) review UN
oversight and State monitoring efforts.

To address these objectives, we reviewed UN design and planning documents,
including the latest cost estimate, to compare them with industry
standards. To assess oversight, we reviewed OIOS and UN Board of Auditors
reports and met with UN officials.

[60]What GAO Recommends

GAO recommends that the Secretary of State and U.S. Permanent
Representative to the UN work with other member states to (1) identify a
CMP procurement strategy to mitigate weaknesses in UN procurement
processes and (2) ensure that OIOS receives sufficient funding for its
oversight of the CMP. State and the UN agreed with our recommendations.

UN officials continue to use leading industry practices in developing the
UN headquarters renovation project, but reliance on existing UN
procurement practices could impact the effective implementation of the
renovation in the future. Since the CMP office relies on current UN
procurement practices, implementation of future CMP procurements could
become vulnerable to numerous UN procurement weaknesses that GAO
previously reported in April 2006 (GAO-06-577), such as the lack of
guidance for construction procurement in the procurement manual.

The estimated total cost of the CMP increased from about $1.19 billion to
almost $1.75 billion between 2002 and 2005 to reflect inflation arising
from a later start date, refinements to the design, and a change in the
renovation approach. The UN continued to follow construction industry
practices to develop the 2005 cost estimate and has included expected
elements. However, the cost estimate is still preliminary and will likely
change.

While the UN has passed a resolution expressing a preference for cash
assessments, it has yet to decide how to finance the remaining renovation
costs. In June 2006, the General Assembly passed a resolution stating that
a cash payment option would be the simplest and most cost-effective
approach for funding the CMP. Under this approach, the UN would assess
member states for the cost of the renovation through single- or multiyear
payments. The amount the UN assessed member states would be likely based
on each country's rate for its annual regular budget contributions. The
General Assembly plans to revisit the financing issue by the end of 2006.

Without certain General Assembly decisions by the end of 2006, the
renovation's current schedule could be delayed and costs could increase.
Specifically, a General Assembly decision on a financing arrangement for
the total CMP budget would be needed to ensure that funds could be
available by December 2007. Without these decisions, the CMP office cannot
finalize a start date for the renovation.

UN oversight entities have continued to oversee the CMP while the
Department of State has monitored its progress. The Office of Internal
Oversight Services (OIOS) has conducted audits on CMP procurements and has
issued several reports of its findings and recommendations. However, OIOS
relies on funds from the CMP budget and must negotiate for those funds
with the UN budget office, which may impair its ability to secure
sufficient funds. The UN Board of Auditors has also conducted oversight of
the CMP office by reviewing its financial records and internal controls
and has found no material weaknesses in its review. Similarly, State's
monitoring efforts have not identified any significant concerns, according
to State officials.

References

Visible links
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-01-788
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-03-566
  36. http://www.gao.gov/cgi-bin/getrpt?GAO-06-877T
  37. http://www.gao.gov/cgi-bin/getrpt?GAO-06-577
  38. http://www.gao.gov/cgi-bin/getrpt?GAO-01-788
  39. http://www.gao.gov/cgi-bin/getrpt?GAO-03-566
  40. http://www.gao.gov/cgi-bin/getrpt?GAO-03-566
  41. http://www.un.org/cmp
  42. http://www.un.org/depts/ptd/
  43. http://www.gao.gov/cgi-bin/getrpt?GAO-06-577
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-01-788
  45. http://www.gao.gov/cgi-bin/getrpt?GAO-03-566
  46. http://www.gao.gov/cgi-bin/getrpt?GAO-06-575
  47. http://www.gao.gov/
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