Real Property Management: Reforms in Four Countries Promote Competition
(Chapter Report, 09/30/94, GAO/GGD-94-166).

The General Services Administration (GSA) manages and oversees 268
million square feet of space in about 8,000 buildings. These buildings
are known as real property. GAO testified in 1991 that federal buildings
and other real property are valuable but undermanaged national assets
that are integral to federal departments and agencies for carrying out
their operations. GAO also said that long-standing structural and
managerial problems limited GSA's ability to strategically acquire and
manage its real property assets, effectively support agencies' mission
objectives, and maximize the taxpayers' returns on GSA's portfolio of
owned or leased buildings. This report examines (1) the reforms that
four countries--Australia, Canada, the United Kingdom, and Sweden--made
to their real property organizations to address the long-standing
problems that were common to the United States and these countries; (2)
the results of these reforms to date; and (3) the lessons the countries
learned from these reforms that could be useful to the United States as
it introduces reforms to better meet its real property needs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-94-166
     TITLE:  Real Property Management: Reforms in Four Countries Promote 
             Competition
      DATE:  09/30/94
   SUBJECT:  Federal property management
             Real property
             Real property acquisition
             Property disposal
             Federal procurement policies
             Accountability
             Financial management
             Competitive procurement
             Federal procurement
IDENTIFIER:  Australia
             Canada
             United Kingdom
             Sweden
             National Performance Review
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Water Resources,
Transportation, Public Buildings, and Economic Development, Senate
Committee on Environment and Public Works

September 1994

REAL PROPERTY MANAGEMENT - REFORMS
IN FOUR COUNTRIES PROMOTE
COMPETITION

GAO/GGD-94-166

Real Property Management


Abbreviations
=============================================================== ABBREV

  GSA - General Services Administration

Letter
=============================================================== LETTER


B-256977

September 30, 1994

The Honorable Daniel Patrick Moynihan
Chairman, Subcommittee
 on Water Resources, Transportation,
 Public Buildings, and Economic Development
Committee on Environment and Public Works
United States Senate

Dear Mr.  Chairman: 

This report was prepared in response to your request that GAO examine
methods that other countries used to restructure or reform their real
property management organizations.  The report describes how these
countries reformed their real property organizations and the results
of these reforms.  The report discusses the lessons the countries
learned that could be useful as the United States introduces reforms
to better meet its real property needs and moves to more
results-oriented management. 

We are also sending copies of this report to other congressional
committees; the Director, Office of Management and Budget; the
Administrator, General Services Administration; and other interested
parties.  Copies will be made available to others upon request. 

The major contributors to this report are listed in appendix II.  If
you have any questions on the report, please contact me on (202)
512-2700. 

Sincerely yours,

William M.  Hunt
Director, Federal Management Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The General Services Administration (GSA) manages and oversees 268
million square feet of space in approximately 8,000 buildings.  These
buildings are known as real property.  In 1991, GAO testified that
federal buildings and other real property assets are valuable but
undermanaged national assets that are integral to federal departments
and agencies for carrying out their operations.  However, GAO further
reported that long-standing structural and managerial problems
limited GSA's ability to strategically acquire and manage its real
property assets, effectively support agencies' mission objectives,
and maximize the taxpayers' returns on GSA's portfolio of owned or
leased buildings. 

The Chairman of the Senate Subcommittee on Water Resources,
Transportation, Public Buildings, and Economic Development, Committee
on Environment and Public Works, is considering alternatives for the
acquisition, management, and disposal of federal real property to
address these problems.  GAO agreed with the Subcommittee to examine
efforts that were made by other countries to restructure or reform
their real property management organizations.  Specifically, GAO
agreed to report on (1) the reforms four countries--Australia,
Canada, the United Kingdom, and Sweden--made to their real property
organizations to address the long-standing problems that were common
to the United States and these countries; (2) the results of these
reforms to date; and (3) the lessons the countries learned from these
reforms that could be useful to the United States as it introduces
reforms to better meet its real property needs. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

In September 1993, the National Performance Review, a management
reform initiative headed by the Vice President, recommended that the
government should increase competition and the use of businesslike
practices in its management of real property.  This recommendation
was consistent with other public reform initiatives, such as the
Government Performance and Results Act of 1993, which emphasized
agency management and accountability for program results and the
meeting of customer needs. 

Australia, Canada, the United Kingdom, and Sweden have organizations
that are similar to GSA in the United States for managing their
governments' office buildings and other real property, such as
warehouses and courthouses.  Like GSA, these real property
organizations also provided space and services to customer
departments and agencies.  Australia, Canada, the United Kingdom, and
Sweden began to reform their real property organizations in the late
1980s. 

To learn the nature and results of their real property reforms, GAO
interviewed officials who had knowledge of the results of these
reforms from each of these countries' real property organizations. 
GAO also interviewed officials at some other organizations who were
knowledgeable about the reforms.  In addition, GAO obtained
independent assessments and additional documents that discussed the
reforms, their results, and the managerial concepts underlying these
reforms.  GAO used these documents to identify the lessons learned by
the countries in introducing their real property reforms.  Because
Sweden did not introduce reforms that would make its real property
organizations more competitive until 1993, little information existed
on the results of its reforms.  GAO relied on, but did not verify,
the independent assessments as measures of the impact the reforms had
on the countries' real property management practices. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Like the United States, the four countries had long-standing
structural and management problems that limited their real property
organizations from meeting customers' real property needs.  These
problems included poor business practices; inadequate strategies for
managing real property assets; conflicting roles as both the building
service provider and the oversight agency; customer dissatisfaction;
and barriers to the timely acquisition, maintenance, and disposal of
real property.  Accordingly, these countries questioned whether
having a central real property organization was the most effective
way to provide building and office space. 

To resolve their real property management problems, these countries
concluded that they should replace their old approaches of providing
real property services with new ones based on entrepreneurial and
competitive principles used by the private sector.  The reforms they
made to their real property organizations can be characterized by the
following:  (1) introducing competition for real property services;
(2) providing more strategic management of assets, that is, in a
manner that recognizes the need to manage these assets as investments
and to meet customers' mission needs; and (3) separating building
services from asset management (except for Sweden) and policy
oversight and development roles.  The countries' real property
reforms began during the late 1980s in concert with governmentwide
reforms that were to make government agencies more efficient,
innovative, and businesslike. 

The real property reforms in the four countries are ongoing, and
definitive results are not yet available.  However, although
obstacles continue, the preliminary results in Australia, Canada, and
the United Kingdom appear promising in terms of improving economic
performance and satisfying customer needs.  The United States could
consider the important lessons the countries learned from these
reforms when implementing the National Performance Review's
recommendation to make GSA more responsive to its customers' real
property needs. 


   GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4


      COMPETITION INTRODUCED
-------------------------------------------------------- Chapter 0:4.1

The four countries all tried to make their real property
organizations more competitive.  They allowed customer departments
and agencies to choose between these organizations and the private
sector to provide their building services, e.g., operations and
maintenance.  Australia and Sweden also allowed their customers to
choose who would provide their office space itself.  (See pp.  18 and
19.)

To make themselves more competitive, real property organizations in
Australia, Canada, the United Kingdom, and Sweden adopted more
businesslike practices.  For example, these organizations began
preparing strategic business plans to help them focus on their
competitiveness, and Australia and Canada established revolving funds
to manage and account for real property revenues and expenses.  Also,
these organizations began upgrading and replacing their accounting
and/or information systems to provide more relevant information on
their performance.  (See pp.  31 to 33.)

Although it is difficult to make a direct link between reforms and
the performance of the real property organizations, the limited
information available for Australia, Canada, and the United Kingdom
suggests that the performance of those countries' real property
organizations has improved since competition and the businesslike
practices were introduced.  The organizations' staffing levels have
been significantly reduced, and their financial positions have
improved.  For example, the staff levels of Canada's real property
organizations went from 7,950 in 1987 to 5,999 in 1993, a 25-percent
reduction.  In addition, the organizations were able to turn an
operating deficit of Can$72 million in 1987 into an operating profit
of Can$45 million from 1987 to 1991.  (See pp.  31 to 35.)

According to independent assessments and interviews with real
property officials, the countries' real property organizations
adopted reforms so that they would be more businesslike without
reducing their workloads.  Also, officials in these countries said
that competition, or allowing the customer to choose the real
property service provider, was the essential ingredient to making
significant improvements in real property services.  As a result of
operating in this competitive environment, the officials said real
property organizations improved their business practices and were
more responsive to satisfying their customers' needs.  (See pp.  35
and 36.)


      ASSETS MANAGED MORE
      STRATEGICALLY
-------------------------------------------------------- Chapter 0:4.2

As part of managing their real property assets more strategically,
real property organizations made a fundamental shift in their
management philosophy for handling these assets.  Formerly, they
focused primarily on providing basic property needs at the least
cost.  After the reforms, they began to manage these assets in order
to maximize the return on their real property assets and to better
meet their customers' mission needs.  Specifically, these countries
recognized the need to take three actions to carry out this shift in
emphasis.  The actions were to (1) set target rates of returns--goals
set between the government and the real property organizations--for
when the organizations should make asset investments; (2)
"benchmark," or compare the organizations' practices with those of
well-managed companies in the private sector; and (3) integrate
customer space requirements with the real property organizations'
strategic business plans to meet their customers' mission needs. 
(See pp.  20 and 21.)

As of June 1994, assessments showed that Australia had made the most
progress in implementing these actions.  It had made significant
progress toward having a successful asset management program.  Its
asset management organization had a 10-percent gross return on its
sale of assets in 1992.  This return exceeded the asset management
organization's goal of meeting Australia's long-term bond rate, which
averaged 9.8 percent in 1992.  (See pp.  36 and 37.)


      BUILDING SERVICES SEPARATED
      FROM ASSET MANAGEMENT AND
      POLICY OVERSIGHT
-------------------------------------------------------- Chapter 0:4.3

All four countries separated their real property organizations'
policy oversight and development roles from their roles as the
providers of the governments' building services.  Australia, Canada,
and the United Kingdom also separated their asset management roles
from their building services roles.  (See pp.  21 to 30.)

Australian real property officials said that separating the roles of
their organizations has eliminated or reduced the appearance of
conflict of interest that occurred when the organizations both
provided and regulated service to customers.  (See pp.  22 and 23.)
They also said that as a consequence of the separation, their service
organizations have improved their service delivery.  (See pp.  37 and
38.)


      SOME OBSTACLES CONTINUE
-------------------------------------------------------- Chapter 0:4.4

The countries' governmentwide reforms, which included financial
incentives to make agencies more cost conscious, and real property
reforms caused agencies to pay greater attention to customer service
and to providing greater value for the services they delivered.  (See
pp.  29 and 30.)

However, according to assessments GAO received, real property
managers in Australia, Canada, and the United Kingdom are still
hampered by an untimely approval process for the acquisition of
buildings, which limits their ability to readily take advantage of
market conditions in the acquisition, maintenance, and disposal of
buildings.  Studies of the reforms indicated that managers are
further hampered by their countries' unchanged disposal requirements
that limit the ability to retain the proceeds from their property
disposals.  (See pp.  38 and 39.)


      LESSONS LEARNED BY THE
      COUNTRIES
-------------------------------------------------------- Chapter 0:4.5

While preliminary and incomplete, real property reforms in Australia,
Canada, and the United Kingdom provide useful information to the
United States as it begins to implement the National Performance
Review's recommendation to make GSA more competitive and use
businesslike practices. 

These three countries found that their reforms had a significant
impact on their real property organizations' missions, operating
practices, and ultimately on the extent to which the organizations
will continue as the governments' sole or even primary real property
service providers.  The countries had to address important legal and
policy issues, as well as internal organizational changes needed to
make the cultural shift to a more competitive and results-oriented
environment.  In making their real property reforms, Australia and
Canada found that it was important to identify the principles and
objectives of the reform; obtain high-level support; provide staff
training, conduct market research, and identify customer needs;
improve information systems; identify funding mechanisms; set the
"ground rules" for competition; and ensure that a clear linkage
existed between resources expended, resultant actions taken, and the
effects of actions taken.  (See pp.  40 to 43.)


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO is not making any recommendations in this report. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO met with the Deputy Administrator of GSA on August 24, 1994, to
summarize and discuss the information in this report.  She generally
agreed that the description of real property practices and
experiences presented was consistent with the information available
to GSA.  She said that the information would be useful in GSA's
implementation of its real property reforms, including the National
Performance Review recommendations to increase competition and the
use of businesslike practices. 


INTRODUCTION
============================================================ Chapter 1

The General Services Administration (GSA) is the primary provider of
office and other general purpose building space (i.e., real
property), such as courthouses and warehouses, to federal departments
and agencies.  It also provides them with related services, such as
the acquisition, maintenance, and disposal of buildings.  It manages
a portfolio of approximately 8,000 buildings that are either owned or
leased by the federal government and contain more than 268 million
square feet of space.  In 1991, we testified that federal buildings
and other federal real property are valuable but undermanaged
national assets that are integral to federal departments and agencies
carrying out their operations.  We further testified that these
assets have great potential and should be used by management to
better meet changing federal work concepts, styles, and technology
being introduced into the workplace.\1

Since 1989, we have reported on structural and management problems
that limit GSA's ability to (1) strategically acquire and manage real
property assets, (2) effectively support the objectives of other
federal agencies' missions, and (3) maximize taxpayers' returns on
existing and prospective investments in public buildings.\2 Despite
GSA's efforts to correct these long-standing problems, our most
recent work indicates that they still exist.\3

In September 1993, the National Performance Review, a major
management reform initiative under the direction of the Vice
President, issued a report with recommendations to make government
agencies work more efficiently and cost less.\4 This report
recommended that the President give agencies greater authority to
choose their sources of office space and building services.  The
recommendation stressed that the federal government should increase
competition and the use of businesslike practices in its management
of its real property. 

Since 1986, four industrialized countries--Australia, Canada, the
United Kingdom, and Sweden--that faced problems similar to those of
the United States have developed new strategies for managing their
real property assets.  In this report, we discuss these countries'
efforts to reform the management of their real property assets and
discuss lessons the countries learned that may offer insights to the
United States for improving GSA's real property management. 


--------------------
\1 Real Property Management Issues Facing GSA and Congress
(GAO/T-GGD-92-4, Oct.  30, 1991). 

\2 General Services Administration:  Sustained Attention Required to
Improve Performance (GAO/GGD-90-14, Nov.  6, 1989); General Services
Administration:  Status of Management Improvement Efforts
(GAO/GGD-91-59, Apr.  3, 1991); Federal Buildings:  Actions Needed to
Prevent Further Deterioration and Obsolescence (GAO/GGD-91-57, May
13, 1991); and Federal Office Space:  Obstacles to Purchasing
Properties from RTC, FDIC, and Others (GAO/GGD-92-60, Mar.  31,
1992). 

\3 General Services Administration:  Actions Needed to Improve
Protection Against Fraud, Waste, and Mismanagement (GAO/GGD-92-98,
Sept.  30, 1992); General Services Issues (GAO/OCG-93-28TR, Dec. 
1992). 

\4 From Red Tape to Results:  Creating a Government That Works Better
and Costs Less, report of the National Performance Review Washington,
D.C.:  Sept.  7, 1993). 


   GSA AND FOREIGN REAL PROPERTY
   ORGANIZATIONS PERFORMED SIMILAR
   ROLES
---------------------------------------------------------- Chapter 1:1

To manage its portfolio of federal buildings, GSA performs a full
range of building services.  The components of GSA's building
services role are (1) operations and maintenance; (2) architecture
and engineering; (3) building acquisition (including construction,
purchase, and leasing) and disposal; and (4) appraisals.  Along with
providing building services, GSA also performs two other property
management roles:  property caretaker and policy oversight and
development.  As a property manager, GSA provides federal departments
or agencies with office or general purpose space.  In addition to its
property manager role, GSA also develops policies on the use of
federal real property and oversees their implementation. 

At the time of our review, Australia, Canada, the United Kingdom, and
Sweden had real property organizations that provided office space and
similar real property management roles to their customers, that is,
departments and agencies.\5 In table 1.1, we show the key
characteristics of each of these organizations based on the most
current data available. 



                                     Table 1.1
                      
                      Key Characteristics of the Real Property
                           Organizations as of June 1994


                                Total
                                amount
                        Number  of         Ratio  Curren  Projec
                            of  governme      of  t       t
Co                    properti  nt space   owned  value   approv
un                       es in  (in           to  of      al
tr                    portfoli  square    leased  owned   levels
y   Roles                    o  feet)      space  space   \a      Source of funds
--  ----------------  --------  --------  ------  ------  ------  ----------------
Un  Building             7,000  268.0      53:47  GSA     $1.6    User fees for
it  services, policy            million           does    millio  services and
ed  oversight and                                 not     n       appropriations
St  development, and                              mainta          for capital
at  property                                      in              improvements
es  management                                    curren
                                                  t
                                                  values

Au  Asset management     1,000  11.0       30:70  A$2     A$6     User fees for
st  and                         million           billio  millio  services and
ra  building                                      n       n       appropriations
li  services\b                                                    for capital
a                                                                 improvements

Ca  Asset                2,312  54.4       59:41  Can$3.  Can$20  User fees for
na  management,                 million           6       millio  services and
da  building                                      billio  n       appropriations
    services, and                                 n               for capital
    policy oversight                                              improvements
    and development

Un  Asset                3,500  75.5       35:65  ï¿½2      ï¿½10     User fees for
it  management,                 million           billio  millio  and
ed  building                                      n       n       appropriations
Ki  services,\c and                                       servic  for services and
ng  policy                                                es      capital
do  oversight and                                                 improvements
m   development

Sw  Asset                  800  46.7       60:40  SKr38   No      User fees for
ed  management,                 million           billio  outsid  services and
en  building                                      n       e       government
    services, and                                         approv  borrowing for
    policy                                                al      capital
    oversight and                                         needed  improvements
    development

----------------------------------------------------------------------------------
Note 1:  We describe the real property organizations' characteristics
after the countries introduced reforms.  The roles performed by the
real property organizations are listed to show the similarities in
roles among countries.  Since the reforms, the roles are performed by
a number of separate real property organizations as described in
chapter 3. 

Note 2:  GSA and the real property organizations in the countries
reviewed charge departments and agencies for the costs of building
services.  Except for Canada, they also charge for the rent of office
space.  These service and rental charges, known as user fees, are
supplemented periodically by appropriations or government borrowings. 

\a The project approval level is the threshold for real property
organizations to purchase or renovate property without having to
obtain approval from an oversight body.  In the United States this
oversight body is Congress.  In Australia, Canada, and the United
Kingdom it is the country's parliament. 

\b Policy oversight and development were removed from the real
property organizations in 1987. 

\c Building services were sold to the private sector in 1992 and
1993. 

Source:  Compiled from countries' data. 


--------------------
\5 In chapter 2, we describe how all four countries recognized the
need to manage their real property assets more strategically by
shifting from a property manager role to an asset manager role. 


   GSA HAS HAD LONG-STANDING REAL
   PROPERTY PROBLEMS
---------------------------------------------------------- Chapter 1:2

GSA has had long-standing problems that have significantly impaired
its ability to carry out its mission to meet real property needs for
federal departments and agencies.  According to our prior work, GSA's
problems can generally be grouped into the following six areas: 

  GSA's business practices are poor:  for example, it (1) does not
     focus on increasing the agency's competitiveness or improving
     its investment in real property assets; and (2) relies on
     obsolete, inaccurate, or incomplete information and accounting
     systems to provide data on the value, type, or size of real
     property assets. 

  GSA lacks an overall strategy for how to manage real property
     assets. 

  GSA has potentially conflicting roles as the federal government's
     agency providing real property oversight and services. 

  Customers are dissatisfied with the condition of buildings and the
     timeliness in which customers' needs are met. 

  Agencies are not given incentives to dispose of excess or
     underutilized real property. 

  Funding and budgetary limitations hamper the acquisition and
     maintenance of real property.  For example, while GSA operates a
     revolving fund,\6 the Federal Buildings Fund, GSA's authority to
     obligate is subject to limitations carried in annual
     appropriation acts.  Also, fund expenditures for building
     projects of $1.6 million or more require approval from the
     Office of Management and Budget and Congress.\7


--------------------
\6 Revolving funds are funds used to pay for operating costs and
capital improvements.  The funds come from user fees that are charged
for real property services.  GSA is to charge market-based rent
payments for its office space. 

\7 Federal Office Space:  Obstacles to Purchasing Commercial
Properties From RTC, FDIC, and Others (GAO/GGD-92-60, Mar.  31,
1992.)


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

The Chairman of the Senate Subcommittee on Water Resources,
Transportation, Public Buildings, and Economic Development, Committee
on Environment and Public Works, is considering alternatives for the
acquisition, management, and disposal of federal real property.  As a
result, we agreed to examine methods that were used by other
countries to restructure or reform their real property management
organizations.  For each country whose real property reforms we
reviewed, our objectives were to obtain information on

  how these countries reformed their real property organizations,
     addressing long-standing problems that were common to both the
     United States and these countries;

  the results of these reforms as of June 1994; and

  the lessons the countries learned from these reforms that could be
     useful as the United States introduces reforms to better meet
     its real property needs. 

We reviewed the real property management reforms and results in
Australia, Canada, the United Kingdom, and Sweden.  We selected these
countries because their real property organizations were similar to
GSA in terms of the functions they performed and the problems they
faced.  Also, each had undertaken real property management reforms
since 1986 to address its problems. 

To meet our objectives, we visited Australia, Canada, and the United
Kingdom in 1992 to interview officials from each of these countries'
real property organizations.  We interviewed other key government
officials in Australia and Canada who represented central budget
organizations and customer departments and agencies to obtain their
views of the real property reforms.  We also interviewed officials
from the national audit organizations of Australia, Canada, and the
United Kingdom to obtain their views on the results of the reforms. 
We interviewed Australian, Canadian, British, and Swedish real
property officials at a real property conference in Toronto, Canada,
in May 1993 to obtain further information on their reforms.  Finally,
we interviewed those officials during their visits to the United
States in 1992 and 1993 to learn how these countries had reformed
their real property organizations.  In appendix I, we list the
foreign agencies we visited or contacted. 

Through these interviews with officials from the four countries, we
obtained and later reviewed documents that discussed their countries'
real property reforms and results as well as the management concepts
underlying the reforms.  We also obtained additional documents and
independent assessments of these reforms.  These independent
assessments were done by public accounting firms, national audit
organizations, or by other government organizations.  Although Sweden
began implementing other real property reforms in the late 1980s, it
did not introduce reforms that would make its real property
organization more competitive until 1993.  Therefore, little
information existed on the results of these reforms.  We did not
independently evaluate the reforms of the other countries, nor did we
assess the financial impact of reported real property savings from
the standpoint of the countries' total governmental costs.  Instead,
we relied on the independent assessments to measure the impact the
reforms had on the management practices of the countries' real
property organizations. 

Our review was conducted from April 1992 through June 1994 in
accordance with generally accepted government auditing standards.  We
discussed the results of our review with GSA's Deputy Administrator,
and her oral comments are presented on page 43. 


COUNTRIES HAVE REFORMED THEIR REAL
PROPERTY ORGANIZATIONS
============================================================ Chapter 2

Like the United States, Australia, Canada, the United Kingdom, and
Sweden had similar real property problems--poor business practices,
no asset management strategies, and policy and funding barriers--with
the management of their real property organizations.  As a result of
these problems, in the late 1980s, these countries began to change
their real property management organizations.  According to real
property officials and documents from these countries, each country
questioned whether central real property organizations were the most
effective way to provide building space.  The countries looked to
business practices from the private sector for insight on how to
resolve their real property management problems and to better meet
the real property needs of their customer departments and agencies. 

As a result of their observations of practices in the private sector,
such as strategic planning, investment of real property assets as
part of an asset portfolio, and an emphasis on service delivery to
customers, the four countries replaced their old methods of providing
services with new ones based on entrepreneurial and competitive
principles.  They decided that competitive organizations (i.e., those
that compete to provide building services or office space) were
critical to effectively managing real property and to providing
services to their customers.  These countries also recognized that
their real property portfolios represented valuable assets that
needed to be managed to achieve their full potential.  In addition,
except for Sweden, they separated their building services roles from
the property management role of asset management.  All four countries
separated their building services roles from the property management
role of policy oversight and development. 

In general, the reforms the countries introduced to address their
real property management problems can be characterized by the
following: 

  competition for real property services,

  the creation of asset management as a strategic role, and

  the separation of building services from other property management
     roles. 


   ALL FOUR COUNTRIES SHARED
   SIMILAR PROBLEMS
---------------------------------------------------------- Chapter 2:1

All four countries shared similar problems in the management of their
real property organizations.  Independent assessments of real
property management in Australia in 1987 and in Canada in 1986
identified widespread dissatisfaction among customer departments and
agencies.  For example, the Australian government's
telecommunications agency, Australian Telecom, reported that having
to obtain final approval from the real property organization before
acquiring sites for office buildings and signing leases was a
time-consuming requirement that added little value to the process of
meeting the agency's real property needs.  In Canada, the Canadian
Department of Energy, Mines and Resources was dissatisfied because
the real property organization was not maintaining the department's
buildings. 

In addition to customer dissatisfaction, the Canadian assessment
further identified general confusion and uncertainty that existed
between the country's real property and central budget organizations
as to which had ultimate authority for decisions concerning real
property.  In 1988, the United Kingdom's National Audit Office
identified problems in the management of that country's real property
organizations concerning customer satisfaction, information systems,
and incentives to dispose of surplus real property. 

Also in 1988, Swedish government auditors found that the country's
real property organization was not considering the economy or
efficiency of its decisions, was overstaffed, and had no market
pressures that could have encouraged better performance.  The
auditors also found that Sweden did not have accounting or
information systems that could provide the market value or book
value, type, or size of the government's real properties. 

The adverse findings of these assessments and related reports led
these four countries to recognize the need for fundamental changes in
their real property management and oversight.  Table 2.1 summarizes
the problems the countries had and the reforms they introduced to
resolve them. 



                          Table 2.1
           
            Summary of Real Property Problems and
                  Reforms in Four Countries

Real property problems         Reforms introduced
-----------------------------  -----------------------------
Poor business practices        1.Competition to become more
                               businesslike

Lack of an asset management    2.Use of asset management as
strategy                       a strategic role\a

Conflicting roles of policy    3.Separation of building
oversight and service          services from other property
provider                       management roles

Customer dissatisfaction       Reforms 1-3

Limited funds and budgetary    Revolving funds\b
disincentives for acquiring,
maintaining, and disposing of
real property
------------------------------------------------------------
\a Use of asset management as a strategic role entailed managing
assets as investments and meeting customers' needs. 

\b Australia and Canada established revolving funds for their
building services organizations but not for their asset management
organizations.  The United Kingdom and Sweden did not establish
revolving funds for their real property organizations.  Australia,
Canada, and the United Kingdom did not change their incentives for
disposing of real property.  Since the reform, Sweden can use the
proceeds from real property disposals to acquire new property. 

Source:  Compiled from countries' data. 


   COMPETITION WAS THE KEY TO REAL
   PROPERTY REFORMS
---------------------------------------------------------- Chapter 2:2

Probably the most fundamental change these countries made was to give
the customer departments and agencies the freedom to choose between a
government agency or a private sector firm to provide building
services, such as maintenance and alterations.  In addition, the
Australian and Swedish real property organizations have to compete in
the provision of office space itself.  The methods the four countries
used to introduce this change varied, but all introduced competition
into some or all of their building services to improve service
delivery and customer satisfaction. 


      REAL PROPERTY ORGANIZATIONS
      WERE REORGANIZED TO BECOME
      COMPETITIVE
-------------------------------------------------------- Chapter 2:2.1

To become more competitive, each country reorganized the building
services of its real property organizations and required the new
organizations to compete with the private sector.  Although each
country reorganized its building services differently, the intent of
these reorganizations was to make the building services more
businesslike.  In Australia, the six building service components were
each placed in a separate real property organization, so that the
performance of each component would be easier to monitor.  Canada
consolidated its building services components into two real property
organizations so that customers would have fewer organizational
layers to deal with in obtaining services. 

The United Kingdom also reorganized its building services components
into two new real property organizations as part of its reforms. 
But, in 1992 and 1993, it privatized these organizations by selling
them to the private sector.  Sweden restructured its real property
organization into two new organizations:  a government corporation\1
to provide building services and asset management roles and a
government agency to provide policy oversight and development roles. 

In addition to competing with private sector firms in providing
customers with building services, the real property organizations in
Australia and Sweden have to compete in providing customers with
office space.  With the introduction of competition for office space,
the real property organizations in both countries introduced a
customer broker component--to building services in Australia and to
policy oversight and development in Sweden--to advise customers on
how to meet their real property needs effectively.  For example,
Australia's customer broker component assisted its customers in
conducting the necessary planning, negotiating, and managing to meet
their office space needs. 

At the time of our review, Canada and the United Kingdom still
required departments and agencies to obtain office space from their
real property organizations.  However, both countries were examining
the possibility of requiring their real property organizations to
compete with the private sector in providing customers with office
space as Australia and Sweden did. 


--------------------
\1 A government corporation is a government-chartered entity created
to serve a public function of a predominantly business nature.  In
Sweden, a government corporation operates like, and is expected to
compete with, private sector firms. 


      BUSINESSLIKE PRACTICES WERE
      INTRODUCED
-------------------------------------------------------- Chapter 2:2.2

With the introduction of competition, all four countries made two
significant changes to become more entrepreneurial.  First, they
instituted user fees for all or some of the services that their real
property organizations provided.  Second, they began adopting a wide
range of commercial businesslike practices.  All four countries
introduced the following: 

  strategic business plans to help their real property organizations
     increase their focus on competitiveness and on improving
     taxpayers' investments in real property assets;

  output-oriented performance measures,\2 such as vacancy rate, ratio
     of profits to sales, and cost per person housed, to provide a
     clearer understanding to the countries of the return of money
     invested in their real property organizations and to measure the
     effectiveness of these organizations' business strategies; and

  information systems to integrate critical real property information
     to assist in internal analysis and communication with the real
     property organizations' customers. 

In addition, Australia and Sweden introduced accrual-based accounting
systems to identify, record, and report expenses at the time they are
incurred along with acquired assets and provide a more complete
picture of the real property organizations' financial performance.\3
Also, Australia and Canada established revolving funds to manage and
account for revenues and expenses of their building services
organizations.\4 Sweden is developing a financial structure
equivalent to a revolving fund. 

These four countries concluded that to be cost-effective, the real
property organizations had to be more entrepreneurial and, through
the introduction of competition, be subject to the same risks and
rewards as business firms in the private sector. 


--------------------
\2 Output-oriented performance measures are those that measure the
tabulation, calculation, or recording of activity or effort and can
be expressed in a quantitative or qualitative manner. 

\3 Accrual-based accounting is a method of accounting that
recognizes, as far as possible, the financial effects of transactions
and events in the periods in which they occur, regardless of whether
cash has been received or paid. 

\4 The building service organizations in Australia and Canada used
revolving funds to charge user fees for building services and used
those fees to pay for operating costs. 


   ASSET MANAGEMENT WAS RECOGNIZED
   AS A STRATEGIC MANAGEMENT ROLE
---------------------------------------------------------- Chapter 2:3

As part of their real property reforms, all four countries recognized
that to become more entrepreneurial they had to manage their assets
as investments rather than just maintain them.  This meant that real
property organizations were no longer expected to be only
"caretakers," or property managers, of their real property assets. 
Instead, they were to be "owners/investors" of an asset portfolio in
which they could strategically invest to better meet their customers'
mission needs.  In their former property manager roles, the real
property organizations had focused primarily on satisfying their
customers' office and general space needs at the least cost and
maintaining the properties in their portfolios.  As owners/investors,
they further sought to manage their real property assets to increase
the value of their real property portfolios and maximize the return
from these assets. 

The fundamental shift in management philosophy away from their
property manager roles entailed several important changes in the way
in which real property organizations carried out their new
owner/investor, or asset management, roles.  In addition to providing
space to customers, they began striving to obtain an optimum rate of
return on the government's portfolio of real property assets.\5 They
did so by

  using target rates of return, or goals established between them and
     the government, for deciding when to acquire, renovate, or
     dispose of assets;

  "benchmarking," or comparing their asset costs and services with
     those of well-managed firms in the private sector; and

  integrating the requirements of customer departments and agencies
     with their strategic business plans to meet the customer's
     mission needs better. 

According to real property officials in the four countries, the
primary investment criteria for the real property organizations
became whether the buildings made sound financial sense and supported
their customers' needs effectively.  As a consequence, the countries
have recognized the need to establish the policy and conditions under
which buildings that did not meet these investment criteria but were
desired for other public interest or urban development reasons would
be approved and funded.  For example, the Australian government made
explicit decisions on and appropriated separate funds for these types
of buildings.  This process provided the Australian government with a
way to closer scrutinize the real property decisions that were made
in the name of public interest.  As a consequence, Australian
officials said, the number of this type of decisions has decreased in
Australia. 


--------------------
\5 An optimum rate of return is the highest rate of return, or
benefit from capital appreciation over time, the investment could
earn. 


   BUILDING SERVICES WERE
   SEPARATED FROM OTHER REAL
   PROPERTY ROLES
---------------------------------------------------------- Chapter 2:4

The four countries recognized that they had to make changes to the
structure of their real property organizations to implement a more
competitive and businesslike operating environment.  In addition to
the aforementioned reorganizations of building services, two
fundamental changes were made.  First, with the exception of Sweden,
each country separated its asset management role from its building
services role with separate organizations for each.  Second, each
country separated its real property policy oversight and development
role from its building services role by placing each in a different
organization. 


      BUILDING SERVICES ROLE WAS
      SEPARATED FROM ASSET
      MANAGEMENT ROLE
-------------------------------------------------------- Chapter 2:4.1

With the exception of Sweden, the countries separated their asset
management roles from their building services role to avoid what they
found was an inherent conflict of interest between the two. 
According to Australian and Canadian real property officials, if the
real property organization's asset management role was collocated
with its building services role, there would have been a real or
perceived requirement by the customer to use the organization's
building services instead of a private sector firm, which might have
been the most economical source. 

To resolve this potential conflict, Australia, Canada, and the United
Kingdom established new real property organizations that were
separate from the organizations responsible for providing building
services to manage their governments' portfolios of real property
assets.  As part of their reorganizations, Australia and the United
Kingdom expanded the asset management role to include the acquisition
and disposal of building assets in their portfolios. 

Sweden took a somewhat different path by collocating its asset
management role with its building services role in the newly
established real property corporation.  However, as with building
services, it permitted this corporation to either employ its own
asset management or the private sector to meet its customers' real
property needs. 


      BUILDING SERVICES ROLE ALSO
      WAS SEPARATED FROM POLICY
      OVERSIGHT AND DEVELOPMENT
      ROLE
-------------------------------------------------------- Chapter 2:4.2

Officials from the countries whose real property reforms we reviewed
reported that organizations that provide both building services and
real property policy oversight and development have a built-in
conflict of interest.  Australian and Swedish real property officials
told us that such organizations should not have a policymaking role. 
They said that their job was to satisfy, not question, their
customers' needs for space and services.  Questioning these needs,
they said, should be the responsibility of other central oversight
agencies.  They noted that this conflict of interest made it
difficult for their real property organizations to perform both roles
simultaneously and well. 

Each country addressed this impression of conflict differently.  In
Australia, policy oversight and development roles were removed from
the real property organizations.  These roles were assumed on an ad
hoc basis by the central budget organization as part of its review of
the budgets of departments and agencies.  In Canada and the United
Kingdom, real property policy oversight and development roles were
assigned to the asset management organization.  At the time of our
review, the United Kingdom was assessing whether its policy oversight
and development role should be removed from its real property
organization and transferred to customers.  In Sweden, the government
transferred its policy oversight and development role to a newly
established real property organization. 

Figures 2.1 through 2.4 depict the organizational changes made to the
real property organizations in Australia, Canada, the United Kingdom,
and Sweden. 

   Figure 2.1:  Organizational
   Changes to Australia's Real
   Property Organizations

   (See figure in printed
   edition.)

Note 1:  After the reform, asset management replaced the property
management role. 

Note 2:  The customer broker component was a result of the reform. 

Note 3:  Policy oversight and development is no longer a role of the
real property organizations.  It is being done on an ad hoc basis by
the central budget organization. 

Source:  Compiled from country's data. 

   Figure 2.2:  Organizational
   Changes to Canada's Real
   Property Organizations

   (See figure in printed
   edition.)

Note:  After the reform, asset management replaced the property
management role. 

Source:  Compiled from country's data. 

   Figure 2.3:  Organizational
   Changes to the United Kingdom's
   Real Property Organizations

   (See figure in printed
   edition.)

Note:  After the reform, asset management replaced the property
management role. 

\a This real property organization was sold to the private sector in
1993. 

\b This real property organization, which provided building services
for new projects of more than ï¿½0.5 million, was sold to the private
sector in 1992. 

Source:  Compiled from country's data. 

   Figure 2.4:  Organizational
   Changes to Sweden's Real
   Property Organizations

   (See figure in printed
   edition.)

Note 1:  After the reform, asset management replaced the property
management role. 

Note 2:  The customer broker component was a result of the reform. 

\a The building services and asset management roles remained
collocated in the same real property organization.  However, this
organization was restructured as a corporation. 

Source:  Compiled from country's data. 


   REAL PROPERTY REFORMS WERE
   REINFORCED BY BROADER
   GOVERNMENTWIDE REFORMS
---------------------------------------------------------- Chapter 2:5

Each of the four countries approached the reform of real property
management differently, and each reform took place against a backdrop
of overall governmentwide reforms that focused on achieving results
through greater flexibility and accountability.  The countries began
these broad reforms in the 1980s, when the governments of Australia,
Canada, the United Kingdom, and Sweden were faced with rising global
competition and long-term revenue and budget constraints.  Overall,
these broad reforms provided the framework and environment for the
government to introduce competition and better business practices to
its real property organizations. 

Reforms in all four countries focused on achieving results-oriented
management.  These results-oriented reforms included (1) giving
managers greater flexibility in managing resources so that they could
respond quickly to changing circumstances and customer needs; and (2)
using incentives, such as performance agreements for senior
executives, to promote desired behavior by tying their pay to meeting
performance targets.  These reforms were similar to a series of
legislative and executive initiatives begun in the 1990s in the
United States, such as the Government Performance and Results Act of
1993, to make federal agencies more accountable for program results
and better able to meet customers' needs. 

Two governmentwide reforms were of particular value to the
implementation of real property reforms.  These were (1) in all four
countries, allowing customers to retain savings, including those
achieved by reducing real property costs, and use them for other
operating needs; and (2) in Australia and the United Kingdom, using
efficiency dividends.  Efficiency dividends represent an annual
across-the-board reduction of funds for operating expenses arising
from general efficiency improvements that government agencies,
including real property organizations, are expected to make as a
result of their country's governmentwide financial and budgetary
reforms.\6

These two incentives kept real property organizations and customers
focused on making efficiency decisions.  They also seemed to ensure
that the countries' governments did not increase the funds allocated
for real property.  For example, officials from Canada's Department
of Energy, Mines and Resources said that the ability to keep any
savings they might realize on office space had been a real incentive
for them to keep their office space costs from increasing. 

Although all four countries had not fully implemented their broad
governmental reforms, officials in those countries reported that the
reforms have already caused agencies to pay greater attention to
customer service.  This focus on service delivery has formed the
basis for the reforms in real property management and made such real
property reforms more acceptable within the governmental community
for those countries. 


--------------------
\6 In 1993, the Australian efficiency dividend was a 1.25-percent
reduction of a department's operating expenses.  In the United
Kingdom, it was a 2-percent reduction in 1993. 


EARLY RESULTS OF REAL PROPERTY
REFORMS APPEAR PROMISING, BUT
PROBLEMS REMAIN
============================================================ Chapter 3

By introducing competition and asset management for real property
services and separating the conflicting roles in their real property
organizations, Australia, Canada, and the United Kingdom had
promising results.  Since these real property reforms, the reported
economic performance of these countries' real property organizations
improved, and their customer departments and agencies reported they
were more satisfied with the quality of the services provided by the
organizations.  Officials from the countries told us they were
pleased with the progress the countries had made because of these
improvements, although the reforms had not been fully implemented. 
However, they said that restrictions on building acquisitions and
property disposal continued to limit the effective management of the
countries' real property assets. 

While Sweden began implementing other real property reforms in the
late 1980s, it did not introduce reforms that would make its real
property organizations more competitive until 1993.  Therefore, it
was too soon for us to determine the results of those reforms. 
However, Swedish audit office officials estimated that the Swedish
real property staff will be reduced by 50 percent, or 1,000 full-time
employees, by the time the reforms are fully implemented. 


   COMPETITION WAS A CATALYST FOR
   CHANGE
---------------------------------------------------------- Chapter 3:1

A critical factor to the reform of the real property organizations in
Australia, Canada, and the United Kingdom was that the organizations
recognized they had to compete with the private sector for customers. 
This recognition spurred the organizations to adopt businesslike
practices, which in turn contributed to their improved economic
performance. 


      INCREASED COMPETITION
      PROMOTED USE OF BUSINESSLIKE
      PRACTICES
-------------------------------------------------------- Chapter 3:1.1

Competition provided the incentive for real property organizations to
reorganize and improve their business practices in the areas of
strategic business planning, performance measurement, funding, and
accounting and information systems.  As part of their reforms, the
real property organizations started preparing 3- to 5-year strategic
business plans that they updated annually.  The organizations
typically established business strategies and goals as part of these
plans.  To establish these strategies and goals, the plans indicated
that they first assessed their real property program objectives in
light of market analyses and customer feedback.  Also, by June 1994,
these organizations had begun developing output-oriented performance
indicators that were to take into account financial performance and
customers' satisfaction.  With the exception of the United Kingdom,
they also established revolving funds for their building services. 
Finally, all of these real property organizations began replacing or
upgrading their information systems.  In addition, real property
organizations in Australia and Sweden began to introduce accrual
accounting systems to monitor financial and service performance more
accurately and to improve their decisionmaking. 

Australia, which introduced competition to all of its real property
activities, made the greatest improvement to its business practices. 
Australian real property officials used their strategic business
plans to achieve a consensus about the real property organizations'
vision for the future and to help employees understand what actions
were needed without waiting for direction from top management.  The
real property organizations linked their strategic business plans,
budgets, and operations.  Each of the organizations reported
regularly to the government on the performance and achievements of
its targets.  According to a 1992 study of Australian public
management reforms, output-oriented performance measures, accrual
accounting systems, and information systems are refined and upgraded
regularly to provide more substantial measures of performance and
information. 

Canada's real property organizations also prepared strategic business
plans that described their vision for the future.  However, at the
time of our review, those organizations had not yet implemented these
plans.  While output-oriented performance measures were developed for
Canada's real property organizations, these measures had not been
fully implemented.  In addition, there continued to be a general lack
of confidence in the real property organizations' accounting and
information systems, according to a 1992 audit report. 

The Canadian real property organizations concluded that because of
the positive results of the reforms, inadequate business planning and
poor systems were no longer acceptable to sound real property
management.  As a result, these organizations initiated a broad range
of efforts in 1992, including changes to their strategic business
plans and service delivery processes, to align and improve their
business planning and their accounting and information systems. 

After introducing its reforms, the United Kingdom's real property
organizations prepared strategic business plans for analyzing
markets, allocating resources, and setting financial targets.  Also,
according to real property officials, since the reforms had been
initiated, information systems had been providing more useful
financial and performance information and were regularly being
upgraded to provide improved information.  However, like Canada, the
United Kingdom had not implemented accrual accounting systems or
output-oriented performance measures for its asset management
activities. 


      BETTER BUSINESS PRACTICES
      HAVE CONTRIBUTED TO IMPROVED
      ECONOMIC PERFORMANCE
-------------------------------------------------------- Chapter 3:1.2

Real property organizations in Australia, Canada, and the United
Kingdom did not have systems or performance indicators in place at
the beginning of their reforms to permit us to measure their economic
progress.  As a result, it is difficult to make a direct link between
a real property organization's implementation of better business
practices and its economic performance. 

However, on the basis of the limited economic information available,
some noticeable economic gains have been made in all three countries
since reforms were introduced.  Specifically, each country had
successfully reduced its number of full-time employees and the
operating deficits of its real property organizations without a
proportionate reduction in workload. 


         REDUCED STAFFING
------------------------------------------------------ Chapter 3:1.2.1

In table 3.1, we show the changes in employment for Australia,
Canada, and the United Kingdom from 1987 through 1990, the most
recent period for which data were available for all three countries. 



                          Table 3.1
           
           Change in Full-Time Employment for Real
           Property Organizations From 1987 Through
                             1990


                                     Differen        Percent
Country              1987      1990        ce      reduction
---------------  --------  --------  --------  -------------
Australia           9,385     7,334    -2,051             22
Canada              7,950     7,799      -151              2
United Kingdom     22,352    18,054    -4,298             19
------------------------------------------------------------
Source:  Compiled from countries' data. 

Perhaps the most visible result of the real property reforms was the
sharp downturn in full-time employment in Australia and the United
Kingdom.  In Canada, while the staffing in its real property
organizations decreased by only 2 percent from 1987 to 1990, these
organizations decreased their building services staff by an
additional 1,800 positions from 1990 to the spring of 1993.  Overall,
the Canadian real property organizations reduced their staff from
7,950 to 5,999 positions, a reduction of 1,951 positions, or 25
percent, from 1987 to 1993.  Real property organizations in Australia
and the United Kingdom also continued to decrease their employment
levels after 1990.  Real property officials in Australia and the
United Kingdom said they expected to lose at least an additional
2,000 positions by the time the reforms were fully implemented. 
According to officials in the three countries, their real property
organizations' staff reductions generally were not the result of
increased contracting-out of services. 


         IMPROVED FINANCIAL
         POSITION
------------------------------------------------------ Chapter 3:1.2.2

Despite its difficulty in identifying precise savings in Australia,
the Australian National Audit Office considered that competition and
the resulting business practices had greatly assisted in improving
the efficiency and effectiveness of its services.  For example, the
Australian real property organizations' annual operating deficit was
reduced from A$86.4 million in 1987 to A$28 million in 1990.  The
remaining deficit in 1990 was caused principally by the asset
management organization.  However by 1993, the asset management
organization reported in its business plan that it earned a net
profit of A$76.6 million. 

Similarly, Canada's real property organization for building services
was able to turn its operating deficit of Can$72 million in 1987 into
an operating profit of Can$45 million by 1990.  The Canadian
organization found its large deficit reduction to be due to the
combination of (1) a shift from cost-based charging (which reflects
charging costs to the recipient organizations for the services
delivered), to market-based charging (which reflects charging the
recipient organizations with what the competitive market is charging
for the service); and (2) an increase in productivity resulting from
fewer people performing the same amount of work.  In the United
Kingdom, the organization responsible for managing the country's real
property asset portfolio increased its profits from ï¿½161 million in
1991 to ï¿½217 million in 1992.\1

Moreover, independent auditors in Australia and Canada noted in their
assessments that their countries' improved economic performance was
not, as a general rule, accompanied by commensurate decreases in
workload.  In fact, the auditors in both countries found that sales
revenue, which is an approximation of real property service delivery
to customers, had remained relatively constant or had increased
slightly.  However, during the reform periods, the staffing of the
real property organizations had decreased significantly.  Therefore,
these auditors concluded that productivity had increased as a result
of the reforms.  In the United Kingdom, real property officials told
us that before their building services organizations were privatized,
the organizations' workload had not decreased substantially since the
introduction of competition. 


--------------------
\1 For these three countries, however, insufficient data exist to
determine how much operating deficit reductions have been due to
increased efficiency of operations and how much have been due to
increased prices charged to customers.  Accordingly, the impact of
these operating deficit reductions on total governmental outlays is
unknown. 


      COMPETITION HAS MADE REAL
      PROPERTY ORGANIZATIONS MORE
      RESPONSIVE TO CUSTOMERS'
      NEEDS
-------------------------------------------------------- Chapter 3:1.3

Real property officials in all three countries found that the
introduction of competition made real property organizations more
responsive to their customers.  For example, officials from real
property organizations and customers in Australia, Canada, and the
United Kingdom said that the real property organizations had improved
their business practices and were more responsive to their customers
as a result of becoming more competitive.  The officials found that
the pressures of competition made the real property organizations
more creative and innovative.  The examples they cited ranged from
reduced regulatory requirements, lower prices, more entrepreneurial
relationships, and an increased desire on the part of the real
property organizations to satisfy their customers' needs.  For
example, to make its bid proposals more competitive, Australian
officials said that Australia's asset management organization was
offering potential customers incentive packages that included special
modifications to buildings.  Real property officials in all three
countries said they began training the staffs of their real property
organizations to explain the reasons for real property reforms and to
update the staffs' skills in such areas as service excellence and
information systems. 

Officials from the real property organizations told us that
competition, or giving their customers the choice of real property
service provider, was the essential ingredient to making significant
improvements in real property services.  They said this was the most
significant outcome of the real property reforms and a key factor in
the improvement of the efficiency and effectiveness of real property
services.  They said building decisions and their cost implications
were being taken more seriously by both the real property
organizations and the customers.  An example of the type of savings
that these incentives can produce was discussed in a recent report by
the British National Audit Office.  This office estimated that
because of the British Department of Agriculture's ability to select
(through competition) the organization that would best meet its
needs, the Department's building costs were about 25 percent lower
than if it had been serviced solely by the British real property
organizations' building services. 

Australian and Canadian studies and officials indicated that
competition (1) increased customer satisfaction and (2) made
customers pay more attention to the costs of their office space and
related services.  These studies and officials also indicated that
more needed to be done to make real property organizations truly
competitive and more entrepreneurial in their management and
operation of real property services.  According to the Canadian
study, Canada's real property organizations needed to (1) be more
flexible in their responses to customer requirements, (2) have
performance measures of client satisfaction, and (3) connect resource
levels to business needs and customer requirements. 


   ASSET MANAGEMENT WAS BECOMING
   AN IMPORTANT STRATEGIC GOAL
---------------------------------------------------------- Chapter 3:2

Although officials in all three countries' real property
organizations recognized the importance of better managing their real
property assets, Australia appears to have made the most progress
toward implementing a successful asset management program. 

As a result of an increased focus on managing its assets
strategically, Australia's asset management organization managed its
portfolio of buildings to maximize its financial performance by
achieving its target rates of return, minimizing costs, and achieving
revenue targets from the sale of surplus land.  Before the reforms,
Australian real property officials told us they did not even know the
rate of return on its assets.  But during 1992, Australia's asset
management organization reported earning more than A$200 million in
receipts on an inventory valued at approximately A$2 billion--a gross
return on investment of more than 10 percent.  This return exceeded
the organization's goal of achieving a return that exceeded the
Australian long-term bond rate, which averaged 9.8 percent in 1992. 

In accordance with its strategic business plans, Australia also
disposed of buildings and office space.  In 1988, as a result of the
real property reforms, the asset management organization took
advantage of a real estate boom by selling uneconomical, marginally
economical, and some prime real estate.  The organization sold prime
real estate when it was in expensive downtown locations and the
customer departments that used it were willing to relocate into less
expensive offices and were still able to meet their departmental
objectives.  This asset sale returned A$1 billion to the government
(but not to the asset management organization). 

Although Canada established a separate organization to manage the
country's real property asset portfolio, continued confusion between
this organization's asset management and policy oversight and
development roles was a key factor preventing it from managing its
assets more strategically.  Specifically, the asset management
organization had not identified target rates of return or integrated
its customer space requirements with its strategic business plans. 
Instead, as evidenced by its 1992 through 1995 real property plan,
the asset management organization's primary focus was still on
controlling customer departments' and agencies' use of general
purpose and office space and maintaining and upgrading the country's
aging portfolio. 

Like Australia, the United Kingdom's asset management organization
had moved from its former property caretaker role to a more
proactive, entrepreneurial one.  For example, it separated
uneconomical properties from economical ones with the objective of
disposing of those that were uneconomical, or surplus.  It also began
identifying opportunities to improve the financial value on
individual properties.  However, it had not yet begun to adopt
measures of return on investment and related measures of economic
performance commonly used by private business to assess whether its
asset-related decisionmaking was sound. 


   AUSTRALIA'S SEPARATION OF REAL
   PROPERTY ROLES IMPROVED
   CUSTOMER RELATIONS
---------------------------------------------------------- Chapter 3:3

Australia's removal of the policy oversight and development roles
from its real property organizations eased the transition to a more
competitive environment in two ways.  First, because the real
property organizations were no longer responsible for setting real
property policy, they were able to focus on their service delivery
roles and responsibilities.  This focus was reflected in their new
goals, which documented that their performance was tied to providing
more cost-effective real property services to customers than it did
previously.  For example, as part of its new goals, the asset
management organization is to provide space to customers at a cost
that meets the organization's target rate of return and satisfies
customers' needs. 

Second, customers in Australia reported that their real property
organizations have improved their service delivery since they began
focusing more on meeting their customers' needs.  For example,
Australia's Department of Taxation found that after the separation of
the real property organizations' roles and other reforms, the real
property organizations were more competitive with the private sector
in meeting the Department's space needs.  Specifically, the
Department found that once it was allowed to choose who provided its
office space, the asset management organization became more
responsive and efficient in its bid to serve the Department. 

As of June 1994, Canada had not separated its real property
organization's policy oversight and development role from its asset
management role.  As a result, Canada's asset management organization
reported in its strategic business plan for 1992 to 1995 that the
real property organization's policy oversight and development role
was a deterrent to effective operations.  Consequently, this
organization reported that it was perceived by customers as
control-oriented, obtrusive, and slow to meet their needs.  The 1991
report of the Auditor General of Canada also noted that the asset
management organization was slow in meeting its customers' needs. 

In the United Kingdom, real property officials said the separation of
the policy oversight and development role from its building services
role enabled the building services organization to focus on becoming
competitive and serving its customers.  However, officials said
combining the policy oversight and development role with the asset
management role caused tension between the real property organization
and its customers.  Customers apparently doubted that the asset
management organizations could effectively meet their needs for and
regulate the use of office space at the same time.  As of June 1994,
an independent assessment of the asset management organization was
addressing whether the collocation of asset management and policy
oversight and development roles should continue.\2


--------------------
\2 The independent assessment was still ongoing as of June 1994. 


   BARRIERS REMAIN TO EFFECTIVE
   ASSET MANAGEMENT
---------------------------------------------------------- Chapter 3:4

According to the assessments we reviewed, real property reforms,
coupled with broad governmentwide reforms, have begun to make real
property organizations in Australia, Canada, and the United Kingdom
more cost-effective and responsive in their service delivery. 
However, untimely approval processes for the acquisition of buildings
and restrictive disposal requirements remain problems, inhibiting
real property organizations from capitalizing on these reforms. 

Even after they introduced reforms, at the time of our review all
real property organizations were still restricted in the acquisition
or disposal of buildings, even when their analyses indicated that (1)
old and deteriorating buildings needed renovation or replacement or
(2) new space was necessary.  These organizations were restricted by
what they considered to be an untimely project approval process to
acquire buildings or make major renovations.  Officials said this
process made it difficult for the real property organizations to
respond quickly to changing market conditions or to customers'
requests for office space. 

According to real property officials and independent assessments of
the reforms, the real property organizations in these three countries
were further hampered by their countries' unchanged property disposal
requirements.  Because of these requirements, the organizations could
not always retain proceeds from the disposal of excess, aging, or
marginal properties for the purpose of acquiring needed replacement
buildings.  Also because of these requirements, the real property
organizations had little financial incentive to dispose of such
properties and replace them with better performing ones.  For
example, although Australia had disposed of buildings with a total
value of more than A$1 billion in the mid-1980s, those buildings were
not disposed of as part of a systematic and ongoing review to
identify and dispose of poorly performing assets, and the asset
management organization did not receive the proceeds. 

To address these barriers, real property officials in Australia and
the United Kingdom said they have pursued several funding
alternatives, such as preapproved borrowing authority, multiyear
appropriations for capital investments, and the use of a revolving
fund arrangement to allow their organizations to operate in a more
businesslike fashion.\3 These officials said that revolving funds
would be the likely alternative selected because they could be more
responsive to current market conditions and the real property needs
of their customers.  However, as of June 1994, Australia, Canada, and
the United Kingdom had not established revolving funds for their
asset management organizations to acquire or renovate real property
assets. 


--------------------
\3 Sweden's real property corporation may not have the funding
disincentives faced by real property organizations in the other three
countries.  As a government corporation, it has the authority to
borrow needed capital and to make unrestricted funding decisions
concerning the acquisition and disposal of real property assets. 


LESSONS THE COUNTRIES LEARNED AND
AGENCY COMMENTS
============================================================ Chapter 4

Australia, Canada, and the United Kingdom reported varied experiences
in their introduction of real property reforms, and their reforms
were not fully implemented at the time of our review.  As a
consequence, despite promising initial results, it is impossible for
us to draw final conclusions on the effectiveness of the reforms. 
However, the initial results show the importance of having real
property organizations compete with the private sector in providing
services and managing assets in a manner that best serves the
customer departments and agencies and the taxpayers.  Moreover, other
benefits, such as an increased focus on customer needs and strategic
planning, could be attributed to the real property reforms in these
countries.  Sweden expects similar benefits from its reforms as well. 

In our September 1993 testimony on the National Performance Review's
recommendations that deal with GSA's real property activities, we
generally supported the recommendation that the government increase
competition and businesslike practices for its management of real
property.\1 The recommendation is also consistent with the goals of
the Government Performance and Results Act of 1993, which requires
federal agencies to establish strategic plans and performance
measures.  The reforms of the real property organizations in
Australia, Canada, the United Kingdom, and Sweden are similar in
principle to the recommendations of the National Performance Review. 
Also, the organizations had to address complex legal, policy, and
operational issues similar to those facing GSA as part of
implementing their reforms.  The real property organizations in these
countries adopted their reforms somewhat differently and had their
own political environment for introducing these reforms.  However,
the competitive principles surrounding these reforms could be adapted
to fit any country's real property organizations.  Accordingly, the
United States could consider the lessons from these reforms when it
implements this important recommendation. 


--------------------
\1 Federal Real Property:  National Performance Review
Recommendations (GAO/T-GGD-93-47, Sept.  21, 1993).  Also see
Management Reform:  GAO's Comments on the National Performance
Review's Recommendations (GAO/OCG-94-1, Dec.  3, 1993). 


   LESSONS THE COUNTRIES LEARNED
   FROM REAL PROPERTY REFORMS
---------------------------------------------------------- Chapter 4:1

The reforms we described in this report were reported to us by real
property officials in the four countries as having had a significant
impact on their real property organizations' missions and operating
practices.  These officials also acknowledged that the reforms may
also affect the extent to which the real property organizations will
continue as the governments' sole or even primary real property
service providers. 

As part of their cultural shift to a more competitive and
results-oriented environment, the real property organizations changed
performance agreements, training, and organizational reporting
structures.  Through our discussions with real property officials and
our review of independent assessments, we learned that the
organizations changed performance agreements and related performance
measures that existed between real property organization heads and
those who managed their operations to focus on desired results
achieved, including the costs of attaining those results.  In
addition, the organizations described how they began training staff
in how to apply businesslike practices in a government organization. 
The organizations also reported how they changed their reporting
structures to provide employees with greater flexibility and to take
advantage of market conditions and other changing operational needs. 

The Australian and Canadian governments completed studies on the
lessons they learned from their real property reforms.  Both
governments had similar observations.  The Australian study provided
a good structure for these observations by summarizing them into the
following broad areas:  (1) a framework for reform, (2) a managed
transition, (3) ground rules for competition, and (4) identification
of accountability. 


      CREATING A FRAMEWORK FOR
      REFORM
-------------------------------------------------------- Chapter 4:1.1

According to Australian real property officials, a framework should
include the principles and objectives for reform; the level of
organizational commitment for its accomplishment; and the nature,
extent, funding, and timing of the reform.  Also as part of this
framework, Australian and Canadian government officials stressed the
importance of establishing baseline levels of customer satisfaction
and financial performance and quantifiable medium-term targets for
future performance.  These performance measures are to allow the
countries and their real property organizations to assess the
progress of the reform. 

In addition, the Australian study included a recommendation that the
government identify the level of needed organizational separation
between the providers of real property services and those
organizations with regulatory, advisory, or public interest roles on
behalf of the government. 


      MANAGING THE TRANSITION
-------------------------------------------------------- Chapter 4:1.2

Australian officials identified the following four key areas that
need to be addressed during the transition:  (1) staff training, (2)
customer needs and market research, (3) information systems, and (4)
staffing needs. 

During the transition, the real property organizations of Australia,
Canada, the United Kingdom, and Sweden reported that they began a
broad-based educational process to train their staffs in the reasons
for the reforms and the organizational steps that were to be taken to
achieve successful results.  In this training, the organizations
taught such skills as marketing, sales, and business management. 
Such skills were not typically fostered in government agencies. 
Australian officials explained that it was important to expose staff
to the commercially oriented philosophies and experiences of public
and private leaders to instill in staff the principle that customer
service constitutes the driving force of any successful enterprise. 
In Australia, real property staff were told by their managers that
their job satisfaction and career prospects depended directly on
their individual efforts to meet customer needs. 

Australian officials also encouraged customer involvement in the
structuring of real property organizations.  In addition, the
officials said that the organizations need to understand customer
needs for a successful transition.  They also reported that early
investment in market research could pay dividends to the organization
provided the research was professionally designed, coordinated, and
acted upon.  They said that repeated uncoordinated research into
customer views and needs produced no evident improvement and could be
counterproductive. 

In addition, Australian and Canadian officials explained that early
conversion to information systems that reflected the real property
organizations' new businesslike requirements was essential to a
successful transition.  New systems were needed because the
information systems typically employed by real property organizations
did not meet the requirements of a competitive supplier who had to
generate a return on investment.  Because its organizations' needs
were changing, Australian real property officials recommended
incremental introduction of new information systems. 

The reforms introduced by Australia, Canada, and the United Kingdom
resulted in significant staffing reductions.  As a result of the
staff reductions in their country, Australian officials reported that
planners of similar reforms should anticipate the possibility of
similar reductions and address them at the outset.  They also said
that no amount of time devoted to the transition will resolve all
implementation problems and that unduly prolonging the transition
would risk diluting or undermining the reforms the transition was
designed to achieve. 


      ESTABLISHING THE GROUND
      RULES FOR COMPETITION
-------------------------------------------------------- Chapter 4:1.3

Australian officials recommended that the ground rules for
introducing competition, or customer choice, should be established at
the outset, especially those between the real property organization,
its customers, and the private sector.  Australian officials
suggested that consideration be given to how and to what extent the
real property organizations would compete with private sector
suppliers; the extent to which private sector regulations, policies,
and cost structures should apply to real property organizations; and
the level of user fees and extent of customer choice for services
provided. 


      IDENTIFYING ACCOUNTABILITY
-------------------------------------------------------- Chapter 4:1.4

In their assessments, Australian and Canadian government officials
emphasized the importance of early identification of accountability
for real property services.  The Australian real property officials
found that accountability between the real property organizations and
their government oversight bodies and customer departments and
agencies could considerably resolve, or at least defer, some
potential organizational conflicts. 

The Canadians also recognized the importance of establishing
accountability as part of their reforms in order to measure the
improvements in performance.  According to the Canadian study,
accountability for performance improvements came with explicit
linkages, in both management and public reporting systems, among (1)
the resources used, (2) the action taken and its cost, and (3) the
effects of the action taken. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:2

We met with the Deputy Administrator of GSA on August 24, 1994, to
summarize and discuss the information in this report.  She generally
agreed that the description of real property practices and
experiences presented was consistent with the information available
to GSA.  She said that the information would be useful in GSA's
implementation of its real property reforms, including the National
Performance Review recommendations to increase competition and the
use of businesslike practices. 


LIST OF AGENCIES WE VISITED OR
CONTACTED IN THE FOUR COUNTRIES
=========================================================== Appendix I


   AUSTRALIA
--------------------------------------------------------- Appendix I:1


      REAL PROPERTY ORGANIZATIONS
------------------------------------------------------- Appendix I:1.1

Australian Department of Administrative Services
 Australian Estate Management
 Australian Property Group
 Australian Valuation Office
 Project Services
 Asset Services


      OTHER ORGANIZATIONS
------------------------------------------------------- Appendix I:1.2

Australian Department of Finance
Australian National Audit Office
Australian Post
Australian Department of Taxation
Australian Telecom


   CANADA
--------------------------------------------------------- Appendix I:2


      REAL PROPERTY ORGANIZATIONS
------------------------------------------------------- Appendix I:2.1

 Public Works Canada
 Real Property Program
 Realty Services
 A&E Services


      OTHER ORGANIZATIONS
------------------------------------------------------- Appendix I:2.2

Department of Energy, Mines and Resources
Department of Fisheries and Oceans
Office of the Auditor General of Canada
Treasury Board Secretariat


   UNITED KINGDOM
--------------------------------------------------------- Appendix I:3


      REAL PROPERTY ORGANIZATIONS
------------------------------------------------------- Appendix I:3.1

Property Services Agency
Property Holdings, Department of the Environment


      OTHER ORGANIZATION
------------------------------------------------------- Appendix I:3.2

National Audit Office


   SWEDEN
--------------------------------------------------------- Appendix I:4


      REAL PROPERTY ORGANIZATION
------------------------------------------------------- Appendix I:4.1

The National Board of Public Building


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   GENERAL GOVERNMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Frances P.  Clark, Assistant Director, Federal Management Issues
Robert C.  Sorgen, Senior Evaluator
Kiki Theodoropoulos, Communications Analyst
Kim Wheeler, Publishing Advisor


GLOSSARY
============================================================ Chapter 1


      ACCRUAL BASIS OF ACCOUNTING
-------------------------------------------------------- Chapter 1:0.1

A method of accounting that recognizes, as far as possible, the
financial effects of transactions and events in periods in which they
occur, regardless of whether cash has been received or paid. 


      ASSET MANAGEMENT
-------------------------------------------------------- Chapter 1:0.2

A role of the real property organizations that emphasizes the
management of real property assets to increase the value of their
real property portfolios and return the maximum income possible from
transactions.  When used as a strategic tool, asset management
entails the management of assets as investments and to meet
customers' mission needs. 


      BENCHMARKING
-------------------------------------------------------- Chapter 1:0.3

Comparing the real property organization's real property costs of
assets and services with those of well-managed firms in the private
sector. 


      BUILDING SERVICES
-------------------------------------------------------- Chapter 1:0.4

A role of the real property organizations that includes such
components as (1) operations and maintenance; (2) architect and
engineering; (3) acquisition (including construction, purchase, and
leasing) and disposal; and (4) appraisals for their customers. 


      BUSINESSLIKE PRACTICES
-------------------------------------------------------- Chapter 1:0.5

These practices are intended to make real property organizations more
competitive and entrepreneurial.  They include such practices as
preparing strategic business plans, defining output-oriented
performance measures, and implementing accrual accounting systems. 


      COMPETITION
-------------------------------------------------------- Chapter 1:0.6

As used in this report, it means having government real property
organizations compete with the private sector in delivering services
to customers. 


      COST-BASED CHARGING
-------------------------------------------------------- Chapter 1:0.7

Charges for services that are based on the costs to the real property
organization for the service delivered. 


      EFFICIENCY DIVIDENDS
-------------------------------------------------------- Chapter 1:0.8

A return to the taxpayer--an annual across-the-board reduction of
funds for operating expenses--arising from general efficiency
improvements that government agencies are expected to make as a
result of their country's governmentwide financial and budgetary
reforms. 


      GOVERNMENT CORPORATION
-------------------------------------------------------- Chapter 1:0.9

A government-chartered entity created to serve a public function of a
predominantly business nature.  In Sweden, a government corporation
operates like, and is expected to compete with, private sector firms. 


      MARKET-BASED CHARGING
------------------------------------------------------- Chapter 1:0.10

Charges that reflect what the competitive market is charging for a
given service. 


      OPTIMUM RATE OF RETURN
------------------------------------------------------- Chapter 1:0.11

The highest rate of return, or benefit from capital appreciation over
time, the taxpayer could receive on the government's portfolio of
real property assets. 


      OUTPUT-ORIENTED PERFORMANCE
      MEASURES
------------------------------------------------------- Chapter 1:0.12

Measure the tabulation, calculation, or recording of activity or
effort and can be expressed in a quantitative or qualitative manner. 


      PRIVATIZE
------------------------------------------------------- Chapter 1:0.13

Sale of ownership of a public service, such as the United Kingdom's
sale of its real property organizations' building services, to the
private sector. 


      REAL PROPERTY ORGANIZATIONS
------------------------------------------------------- Chapter 1:0.14

Government organizations that perform one or more of the roles of
providing building services, asset management, and policy oversight
and development for real property. 


      REVOLVING FUNDS
------------------------------------------------------- Chapter 1:0.15

Funds used to pay for operating costs and capital improvements.  The
funds come from user fees that are charged for real property
services. 


      STRATEGIC BUSINESS PLANS
------------------------------------------------------- Chapter 1:0.16

Plans to help real property organizations increase their focus on
competitiveness and on the improvement of taxpayers' investments in
real property assets. 


      TARGET RATES OF RETURN
------------------------------------------------------- Chapter 1:0.17

Goals established between the government and the real property
organizations for deciding when to acquire, renovate, or dispose of
assets. 


      USER FEES
------------------------------------------------------- Chapter 1:0.18

The costs of building services and rents for office space charged by
real property organizations to their customer departments and
agencies. 
