Update on the United Nations' Capital Master Plan (15-FEB-07,	 
GAO-07-414R).							 
                                                                 
Since 2000, the United Nations (UN) has been developing a Capital
Master Plan (CMP) to renovate its headquarters complex in New	 
York City to bring it into compliance with current life safety	 
and building codes. The planned renovation will also enable the  
UN to address technology and security needs. Since 2001, we have 
reported on the UN's efforts to develop the CMP. As we finalized 
our most recent report in November 2006, the UN Secretary-General
released the latest progress report on the CMP and recommended	 
that the UN General Assembly approve a scope, schedule, budget,  
and funding mechanism for the CMP. The Secretary-General's report
also included an updated cost estimate of $1.88 billion for the  
project. This estimate for the CMP is about $128 million higher  
than the previous estimate, which was released in 2005. As the	 
host country and largest contributor to the UN, the United States
continues to have a significant interest in the success of the	 
renovation. In this report, we (1) analyze the changes in the	 
latest cost estimate and (2) describe the latest decisions the UN
General Assembly made in regard to the CMP and the resulting cost
to the United States to fund the project.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-414R					        
    ACCNO:   A65984						        
  TITLE:     Update on the United Nations' Capital Master Plan	      
     DATE:   02/15/2007 
  SUBJECT:   Construction costs 				 
	     Cost analysis					 
	     Cost overruns					 
	     Facility repairs					 
	     Future budget projections				 
	     Inflation						 
	     International organizations			 
	     Schedule slippages 				 
	     UN Capital Master Plan				 

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GAO-07-414R

   

     * [1]PDF6-Ordering Information.pdf

          * [2]Order by Mail or Phone

     * [3]page10.pdf

          * [4]Results in Brief
          * [5]Background

               * [6]Escalation increased by $71.5 million. Escalation
                 increased
               * [7]Scope options cost increased by $69.4 million. The
                 initial c
               * [8]Swing space costs increased by $50.2 million. Swing space
                 i
               * [9]Professional fees and management costs increased by $22.4
                 mi

          * [10]General Assembly Approves Project Scope, Budget, Schedule, a
          * [11]Agency Comments

United States Government Accountability Office Washington, DC 20548

February 15, 2007

The Honorable Richard G. Lugar
Ranking Minority Member
Committee on Foreign Relations
United States Senate

Subject: Update on the United Nations' Capital Master Plan

Dear Senator Lugar:

Since 2000, the United Nations (UN) has been developing a Capital Master
Plan (CMP) to renovate its headquarters complex in New York City to bring
it into compliance with current life safety and building codes. The
planned renovation will also enable the UN to address technology and
security needs. Since 2001, we have reported on the UN's efforts to
develop the CMP. ^1 As we finalized our most recent report in November
2006, the UN Secretary-General released the latest progress report on the
CMP and recommended that the UN General Assembly approve a scope,
schedule, budget, and funding mechanism for the CMP. The
Secretary-General's report also included an updated cost estimate of $1.88
billion for the project.^2 This estimate for the CMP is about $128 million
higher than the previous estimate, which was released in 2005.

As the host country and largest contributor to the UN, the United States
continues to have a significant interest in the success of the renovation.
In this report, we (1) analyze the changes in the latest cost estimate and
(2) describe the latest decisions the UN General Assembly made in regard
to the CMP and the resulting cost to the United States to fund the
project.

To analyze the changes in the latest cost estimate, we reviewed pertinent
UN documents, including the Secretary-General's third and fourth annual
progress reports for the CMP.^3 We also examined construction cost
inflation projections from the Department of Defense, Global Insight, and
Means Construction Cost Indexes to assess the inflation assumptions used
in the
CMP cost estimate and interviewed UN officials and the CMP office's
program management consultant, who developed the estimate. To report on
the latest General Assembly decisions regarding the CMP and the resulting
cost to the United States, we interviewed Department of State (State) and
UN officials and reviewed pertinent UN documents, including General
Assembly resolutions, U.S. budget submission documents, and applicable
laws.^4 We conducted our work at the UN in New York City and at the
Department of State in Washington, D.C., from December 2006 to January
2007 in accordance with generally accepted government auditing standards.

1GAO, United Nations: Planning for Headquarters Renovation Is Reasonable:
United States Needs to Decide whether to Support Work, [12]GAO-01-788
(Washington, D.C.: June 15, 2001); United Nations: Early Renovation
Planning Reasonable, but Additional Management Controls and Oversight Will
Be Needed, [13]GAO-03-566 (Washington, D.C.: May 30, 2003); United
Nations: Weaknesses in Internal Oversight and Procurement Could Affect the
Effective Implementation of the Planned Renovation, [14]GAO-06-877T
(Washington, D.C.: June 20, 2006); and United Nations: Renovation Planning
Follows Industry Practices, but Procurement and Oversight Could Present
Challenges, [15]GAO- 07-31 (Washington, D.C.: Nov. 16, 2006).

2The Secretary-General reported the estimated total project cost for the
CMP to be $1,876.7 million. For this report, we have rounded the estimate
to $1.88 billion.

3United Nations Secretary-General, Third Annual Progress Report on the
Implementation of the Capital Master Plan, A/60/550 (New York, 2005), and
Fourth Annual Progress Report on the Implementation of the Capital Master
Plan, A/61/549 (New York, 2006).

                                Results in Brief

A total of $214 million in cost increases and $86 million in cost
decreases were identified in the latest cost estimate, for a net cost
increase of $128 million. Most of the cost categories in the 2006 CMP cost
estimate increased, but others decreased from the previous estimate. The
increase in the cost categories largely resulted from higher rates of
projected future inflation, further definition of the scope of work to be
done, and a delay in the start of the project. Reductions were made to
some cost categories because the design had progressed (reducing the
uncertainty in the project), and areas were identified where the
construction costs could be cut without affecting the quality or
functionality of the project.

In December 2006, the General Assembly approved a budget for the CMP of
$1.88 billion, the final project scope, and a project schedule with a
completion date of 2014. To fund the CMP, the General Assembly decided to
allow member states the option of either making a onetime payment or equal
payments over 5 years. Assessments are based upon each member state's
regular budget rate of assessment. In addition, the General Assembly
approved a $45 million working capital reserve to cover temporary project
cash flow deficits that might occur. Payment for the single or first
assessment and the working capital reserve is due around May 1, 2007.
According to a State official, the United States is expected to pay its
assessment of $377.7 million over 5 years, for a total of $75.5 million
per year. Also, the United States has been assessed about $9.9 million for
its share of the working capital reserve. The President's Fiscal Year 2008
Budget request includes about $85 million to pay the U.S. assessments.

                                   Background

Although the original UN headquarters complex in New York City was
considered among the most modern facilities when construction was
completed in 1952, it does not conform to current life safety and building
codes and does not meet UN technology or security requirements. The UN
Secretary-General first proposed a comprehensive renovation of the
complex, known as the CMP, in June 2000. Under the CMP, the UN intends to
renovate the complex to make it conform to current codes and meet
technology and security requirements. This process will involve upgrading
or replacing all major building systems, including the electrical,
plumbing, fire suppression, and heating and air conditioning systems, as
well as reinforcing the complex's structural integrity and removing all
asbestos.

With approval from the General Assembly, the CMP office has worked on
planning and designing the renovation, including work considered to be
optional. The CMP has continued to evolve and the Secretary-General has
reported on its progress--including updating the estimated cost of the
project--in 2002, 2005, and 2006. In 2005, the CMP office's cost estimate
for the project was
approximately $1.75 billion, including the optional work. Between 2000 and
2006, the UN appropriated $160 million to plan and design the CMP and to
obtain space to temporarily relocate UN staff and activities during the
renovation.

4United Nations General Assembly, Resolution Adopted by the General
Assembly, A/RES/61/251 (New York, Dec. 22, 2006).

We have previously reviewed UN efforts to develop the CMP and prepare cost
estimates. In June 2001 and May 2003, we reported that UN renovation
planning efforts had been reasonable and conformed to leading industry
practices. In our most recent report, in November 2006, we noted that UN
officials continued to use leading industry practices to develop the UN
headquarters renovation project, but since the CMP office relies on
existing UN procurement practices, implementation of the renovation in the
future could become vulnerable to the numerous UN procurement weaknesses
that GAO has previously reported.^5 In our reports, we also noted that the
cost estimates have been preliminary and should be expected to change and
that without decisions from the UN General Assembly on the budget and
funding for the CMP, costs could increase as a result of delays in the
project schedule.

Some Elements of CMP Cost Estimate Increased, while Others Decreased, Resulting
                in a $128 Million Increase in Total Project Cost

Some of the cost categories in the 2006 CMP cost estimate increased, while
others decreased, resulting in an increase of $128 million for a total
project cost of $1.88 billion. Most of the cost categories in the estimate
increased, largely as a result of higher rates of projected future
inflation and changes in the definition of the work to be done. Reductions
were made to some cost categories because the design had progressed
(reducing the uncertainty in the project), and areas were identified where
the construction costs could be cut without affecting the quality or
functionality of the project. A total of $214 million in cost increases
and $86 million in cost decreases were identified for a net cost increase
of $128 million (see fig. 1). The CMP is still being designed and the CMP
office will update the project cost estimate annually. While the cost
estimate can be expected to change, the UN General Assembly has clearly
set the expectation for the Secretary-General to make every effort to
maintain the current overall estimate of $1.88 billion.

^[16]5GAO-07-31.

  Figure 1: Cost Increases and Decreases in the CMP Estimate from 2005 to 2006

aProfessional 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 capabilities; planning and design services;
and project management fees.

bSwing space--cost of relocating staff and operational functions displaced
by the renovation into temporary space, including the cost of leases and
construction of a temporary building. This line item includes
contingencies, professional fees, management costs, and escalation
specific to the swing space.

cScope options--cost of work originally considered to be optional by the UN
for inclusion in the renovation. This line item includes contingencies,
professional fees, management costs, and escalation specific to the scope
options. Scope options contain recommended work in three areas: (1)
security, (2) redundancy to improve the reliability of building systems,
and (3) sustainability to mitigate the environmental impact of the
buildings.

^dEscalation--reserve to account for the effect of inflation over the
remaining life of the project on the price of materials and labor.
Escalation in the 2006 estimate covers the period 2006 to 2014 for the
construction, some professional fees and management, and contingency line
items.

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

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

o Escalation increased by $71.5 million. Escalation increased because the
assumptions for inflation changed and the start of the project was
delayed. The CMP office's cost estimator revised the assumptions for
inflation used in the 2006 estimate upward by 1 percent in 2006 and 0.5
percent in 2007 to reflect changes in the New York City construction
market. Many factors affect future inflation rates so they are difficult
to estimate. Our review of projected inflation rates for the construction
industry showed the rates used in the CMP estimate to be in line with
these projections. The increase in escalation also reflects the effect of
inflation on the project because of a later starting date. The start of
the project was delayed by about a
year when the General Assembly did not provide final approval for the
project and its financing in 2005.

Escalation may increase in future estimates if the assumptions for
inflation prove to be too low or the project schedule is delayed.

     o Scope options cost increased by $69.4 million. The initial concept for
       the scope options was developed in 2002 and contained recommended work
       in three areas: (1) security, (2) redundancy to improve the
       reliability of systems, and (3) sustainability to mitigate the
       environmental impact of the buildings. The 2006 cost estimate includes
       the same areas of work for the scope options, but the work recommended
       under each area is different than the work previously anticipated and
       resulted in cost increases. In the 2006 estimate, the costs for
       enhancing security increased over the cost in the 2005 estimate by
       $132.5 million, while the cost for both redundancy and sustainability
       decreased by $47.5 million and $15.6 million, respectively. The
       enhanced security work would provide additional blast protection for
       the structures in the UN complex. The estimate for scope options also
       increased because of higher projected rates of inflation and delays in
       the project schedule.
     o Swing space costs increased by $50.2 million. Swing space includes
       three components:

(1) temporary lease of office space for displaced staff, (2) temporary
lease of library space, and (3) a temporary conference building to be
constructed on the north lawn of the UN complex. The cost for each of
these components increased in the 2006 estimate. The CMP office has been
working with a real estate broker to identify suitable office space in
midtown Manhattan. The midtown Manhattan office building vacancy rate has
decreased over the last year, and the rental rates and estimated costs for
preparing the space to meet the UN's needs have increased. Costs have also
increased for the space available to relocate much of the library during
the renovation, and all of the sites identified would require the UN to
install a new ventilation and cooling system to protect the library
materials. The cost for the temporary building increased as a result of
concerns identified with subsurface water that may affect the cost of
constructing the building. The cost of the temporary building also
increased because of higher projected rates of inflation and delays in the
project schedule.

While the estimate for swing space is based on identified sites for office
and library space, the UN is vulnerable to further changes in the market
until it signs contracts for the leases.

     o Professional fees and management costs increased by $22.4 million. The
       estimated cost of professional fees and management increased for
       several reasons. First, the CMP program manager determined that the
       cost for a construction manager would likely be higher because of
       changes in market conditions. Second, the CMP budget now includes
       costs for temporarily relocating some UN staff within the UN complex
       that had previously been expected to be paid from the UN's regular
       budget. Last, the estimate was increased to cover potential additional
       expert consultant services, testing costs, and legal and other project
       expenses.
     o Contingency reserve decreased by $31.3 million. During the design and
       implementation of a project, it is expected that conditions or issues
       will arise that could not be anticipated. It is industry practice to
       add contingency, as a percentage of the design and construction costs,
       to a project to account for these unforeseen conditions. As the
       project moves through the design process, there are fewer
       opportunities for unforeseen conditions to arise and, thus, the
       contingency may be reduced. Given the progression of the project
       design, the
contingency was reduced because there is now less uncertainty about
conditions that may affect the design.

The CMP office plans to develop a risk assessment for the CMP starting in
February 2007.

This process should help it better identify risks to the project and
develop plans to minimize
these risks. It may also help the CMP office determine if the project's
contingency reserve needs further adjustments.

o Construction costs decreased by $54.3 million. The current construction
estimate is based on revised design development documents and has
undergone a detailed scope review and value engineering to identify
opportunities for reducing the construction cost.^6 Changes made as a
result of value engineering are intended to save money without changing
the functionality of the space. Some of the larger dollar saving changes
that were made include:

     o deleting a large number of private offices and moving to a more open
       floor plan ($11.5 million),
     o using a wireless local area network (LAN) in conference rooms instead
       of hard-wiring them ($2.9 million),
     o reducing the audiovisual allowance for the Secretariat building
       because some of the equipment already exists and is reusable ($2.8
       million),
     o reducing the scope of the basement renovation ($2.3 million), and
     o eliminating the dedicated electrical receptacles from each delegate's
       desk and providing power strips instead ($1.9 million).

If it is later determined that these changes cannot be made without
changing the functionality of the space, we would expect the cost to be
added back into the estimate. CMP officials noted that value engineering
is an ongoing process and they will continue to look for opportunities to
reduce project costs.

In addition to being updated to reflect changes in the specific cost
categories as discussed above, the 2006 estimate reflects the impact of
inflation on the cost categories through 2005. Since escalation is a
reserve used to account for inflation over the life of the project, each
year the cost estimate will be updated and the cost of inflation over the
year will be moved from escalation to the appropriate cost categories.
Transfers from escalation will not have a net effect on the overall cost
estimate, but they will result in changes to individual cost categories,
as shown in table 1.

Table 1: Comparison of 2005 and 2006 Estimated Total CMP Cost by Cost Category

Dollars in millions

                                            Transfers/changes to 2005 estimate                                            
Cost category      2005 Transfers from          Changes                                                      Net     2006 
               estimate escalation a                                                                changes      estimate 
Construction    $ 734.6 $ 58.8                  -$ 54.3                                                    $ 4.5  $ 739.1 
                        2005 inflation          Value engineering -32.2                                                   
                                                Design refinement -22.1                                                   
Professional      144.3 40.2                    22.4                                                        62.6    206.9 
fees and                                                                                                                  
management              2005 inflation 11.5     Additional money for construction                                         
                        Future inflation 28.7   manager 6.4                                                               
                                                Additional experts/studies 9.0                                            
                                                Additional cost for on-site relocation 7.0                                
Contingency       184.4 14.8 2005 inflation     -31.3 Reduced risk as design has progressed                -16.5    167.9 
Escalation        360.2 -113.8 2005 inflation   71.5 Changes in projected inflation/schedule               -42.3    317.9 
Swing space       164.3                         50.2                                                        50.2    214.5 
                                                Office space rental rates 23.5 Office space fit-out                       
                                                9.1 Library space rental rates 2.5 Library space                          
                                                fit-out 3.7 Temporary building fit-out and water                          
                                                issues 11.4                                                               
Scope options     161.0                         69.4                                                        69.4    230.4 
Security           33.5 ....................... ................................................... ............      ... 
                                                                                                                    166.0 
  Redundancy       84.0 ....................... ................................................... ............     .... 
                                                                                                                     36.5 
Sustainability     43.5 ....................... ................................................... ............  .....   
                                                                                                                   27.9   
                                                Project escalation 24.5                                                   
                                                Scope development 44.9                                                    
Total          $1,748.8 0                                                                                 $127.9 $1,876.7 

Source: GAO analysis of UN documents.

aAmounts were moved from the escalation line item to account for actual
inflation experienced in 2005 and for future inflation rates written into
contracts awarded for professional fees and management.

     General Assembly Approves Project Scope, Budget, Schedule, and Funding

In December 2006, the UN General Assembly approved the scope, schedule,
and budget for the renovation. In addition, the General Assembly decided
to fund the project through either a single or 5-year assessment on member
states and to establish a working capital reserve and a letter of credit
for the CMP. In approving the project, the General Assembly also agreed to
the recommended scope options, which were previously discussed, and a
total revised budget for the renovation at a cost not to exceed $1.88
billion. The General Assembly approved the renovation schedule as shown in
table 2 with a projected completion date of 2014.

Table 2: Anticipated Schedule for the CMP

Activity                                       Start date  Completion date 
Swing space                                    Early 2007  Late 2008       
o Prepare leased office space for occupancy    Early 2007a Late 2007       
o Prepare leased library space for occupancy   Mid-2007a   Late 2007       
o Early-action work (renovate existing North   Early 2008b Late 2008       
Lawn building, add centralized technology                                  
center)                                                                    
o Construction of temporary conference         Mid-2007    Mid-2008        
building                                                                   
Renovation of United Nations headquarters      Early 2008  Mid-2014        
o Basements/infrastructure                     Mid-2008    Early 2011      
o General Assembly building                    Mid-2008c   Early 2011      
o Conference building                          Early 2011  Late 2013       
o Secretariat building                         Early 2008d Late 2013       
o South Annex building                         Late 2013   Early 2014      
o Library building                             Late 2012   Late 2013       
o Site/landscaping                             Late 2012   Early 2014      
o Disassembly of temporary conference building Late 2013   Late 2013       

Source: UN.

aDepends on lease negotiation.

bIf authorized as early work.

cDepends on completion of temporary conference building.

dDepends on completion of preparation of leased office space.

In January 2007, the UN assessed each member state, on the basis of each
member state's regular budget rate of assessment, the remaining cost of
the renovation, which totaled about $1.72 billion. ^7 To fund the CMP, the
General Assembly resolved that each member state has the option of making
either a onetime payment in 2007 or equal multiyear payments over 5 years
from 2007 through 2011.^8 In December 2006, the General Assembly approved
the scale of assessments for the regular budget for all member states for
2007 through 2009, and the United States' assessment remained at 22
percent. According to a State official, the United States plans to
exercise the option to pay its assessment of $377.7 million in five
payments of $75.5 million per year (see table 2).

The General Assembly also approved a $45 million working capital reserve
to cover temporary cash flow deficits. Accordingly, each member state is
expected to make advances to the working capital reserve based on its
regular budget rate of assessment. The United States has been assessed
$9.9 million (22 percent) for its share of the working capital reserve.^9
The President's
fiscal year 2008 budget request includes  $85 million to pay the U.S.  CMP
and working capital reserve assessments.^10

7In 2000, the General Assembly appropriated $8 million for the CMP, which
was funded through an allotment from the regular UN budget. In 2003 to
2006, the General Assembly appropriated another $152 million for the CMP,
which was funded through cash assessments on member states. The remaining
cost of the CMP is $1.716 billion. For this report, we round this to $1.72
billion.

8The General Assembly also decided that in the unlikely event of cost
escalations beyond the approved budget of $1.8767 billion, all member
states will be subject to further assessment to meet the revised financial
requirements approved by the General Assembly.

9According to the Secretary-General's fourth annual report on the CMP, the
working capital reserve would be phased out at the end of construction and
the related contributions credited back to member states.

Table 3: Annual Assessments to the United States Related to the CMP

Dollars in millions

U.S. assessment             2007     2008    2009    2010    2011  Total   
CMP                        $75.5    $75.5   $75.5   $75.5   $75.5   $377.7 
Working capital reserve     $9.9                                      $9.9 
Total                      $85.4    $75.5   $75.5   $75.5   $75.5   $387.6 

Source: UN.

Note: Numbers may not add to total because of rounding.

Payments for the single or first multiyear assessment and working capital
reserve are due 120 days from the first week in January, or around May 1,
2007. With the mix of single and multiyear assessments, the UN may not
have the financial resources by May 1, 2007, to demonstrate that it has
the full capability to fund the project. As a result, the General Assembly
has approved the establishment of a letter of credit for this purpose.^11

10The UN resolution also provides that member states that pay their
assessments late and cause the project to experience cash flow shortfalls
are subject to charges of interest to cover short-term borrowing expenses
incurred by the UN to cover the shortage. Under U.S. law, none of the
funds appropriated to the Department of State are available to the UN to
pay the U.S. share of interest costs arising from external borrowings by
the United Nations. However, the President's fiscal year 2008 budget
includes a provision that requests Congress to exempt the CMP from U.S.
law that prohibits the United States from paying such interest charges to
the UN.

11The total cost of the fee for the letter of credit could range between $3
million and $21 million. The letter of credit facility would be for the
total amount of construction less paid assessments and the working capital
reserve. The fee for this letter of credit has not yet been determined,
but member states will be assessed their pro rata shares.

                                Agency Comments

We provided a draft of this report to the Department of State and the
United Nations for their review and comment. Both State and the UN
provided oral comments stating that they agreed with the information as
presented in the report. Both also provided technical suggestions and
clarifications, which have been incorporated into the draft as
appropriate.

As agreed with your office, we are making copies of this report to
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 on request. In addition, the report will be
available at no charge on GAO's Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
Terrell Dorn at (202) 512-6923 or [email protected] or Thomas Melito at
(202) 512-9601 or [email protected]. Contact points for our Offices 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
Phyllis Anderson, Maria Edelstein, and Bruce Kutnick.

Sincerely yours,

Terrell Dorn
Director, Physical Infrastructure Issues

Thomas Melito

Director, International Affairs and Trade

References

Visible links
  12. http://www.gao.gov/cgi-bin/getrpt?GAO-01-788
  13. http://www.gao.gov/cgi-bin/getrpt?GAO-03-566
  14. http://www.gao.gov/cgi-bin/getrpt?GAO-06-877T
  15. http://www.gao.gov/cgi-bin/getrpt?GAO-07-31
  16. http://www.gao.gov/cgi-bin/getrpt?GAO-07-31
*** End of document. ***