General Services Administration: Observations on GSA's Implementation of
the Federal Operations Review Model (Testimony, 07/18/96,
GAO/T-GGD-96-151).

GAO discussed the General Services Administration's (GSA) implementation
of: (1) its Federal Operations Review Model (FORM); and (2)
recommendations to improve its leasing process. GAO noted that: (1) the
GSA Inspector General (IG) determined that GSA implementation of the
preliminary FORM phase generally followed the prescribed FORM process,
but there were several weaknesses related to the consistent application
of assumptions, the absence of relevant data, the appropriateness of
certain cost estimates, and certain financial calculation errors; (2)
the GSA IG reasonably determined that the initial FORM analysis data
could not be relied on as the sole basis for making final decisions
about privatizing or outsourcing specific services; (3) GSA has not
completed the more in-depth phase of its FORM analysis; (4) the FORM
process should permit GSA to better understand its business and the
market place; (5) GSA has agreed to address GAO recommendations to
improve its leasing process in its ongoing efforts to reform its real
estate program, but it needs to show that any proposed reforms involve
inherent risks, improve mission-support services, and provide a net
cost-savings to taxpayers; and (6) GSA will need good performance data,
adequate benchmarks, and effective oversight and measurement systems in
making any major reforms.

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

 REPORTNUM:  T-GGD-96-151
     TITLE:  General Services Administration: Observations on GSA's 
             Implementation of the Federal Operations Review Model
      DATE:  07/18/96
   SUBJECT:  Reengineering (management)
             Procurement practices
             Real estate leases
             Cost effectiveness analysis
             Agency missions
             Evaluation methods
             Financial analysis
             Data integrity
             Cost control
             Privatization
IDENTIFIER:  GSA Federal Operations Review Model
             
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Cover
================================================================ COVER


Before the Subcommittee on Public Buildings and Economic Development
Committee on Transportation and Infrastructure
House of Representatives

For Release on Delivery
Expected at
8:30 a.m.  EDT
Thursday
July 18, 1996

GENERAL SERVICES ADMINISTRATION -
OBSERVATIONS ON GSA'S
IMPLEMENTATION OF THE FEDERAL
OPERATIONS REVIEW MODEL

Statement of
J.  William Gadsby, Director
Government Business Operations Issues
General Government Division

GAO/T-GGD-96-151

GAO/GGD-96-151T


(247189)


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

  FORM - Federal Operations Review Model
  GSA - General Services Administration
  IG - Office of Inspector General
  PBS - Public Buildings Service

GENERAL SERVICES ADMINISTRATION: 
OBSERVATIONS ON GSA'S
IMPLEMENTATION OF THE FEDERAL
OPERATIONS REVIEW MODEL
==================================================== Chapter STATEMENT

Mr.  Chairman and Members of the Subcommittee: 

We welcome this opportunity to appear before you today to provide our
observations on the General Services Administration's (GSA)
implementation of the Federal Operations Review Model, commonly
referred to as FORM, as well as to discuss our previous
recommendations on improving GSA's leasing process.  As part of its
reinvention efforts, and with the assistance of Arthur Andersen LLP.,
GSA developed and intended to use FORM to help identify the most
cost-effective methods of carrying out each of its 16 major
mission-support functions or business lines.  Various groups in
addition to GSA have had a role in the process.  Arthur Andersen had
a dual role--providing assistance in developing and implementing the
FORM process itself and also reviewing the appropriateness of the
assumptions supporting the analyses and the mathematical accuracy of
the calculations.  The GSA Office of Inspector General (IG) provided
its own independent review of the FORM process to determine whether
the analysis of various business lines provided a reasonable,
supported, and unbiased methodology for developing options that would
result in the lowest cost to the taxpayer.  The IG issued several
reports on its reviews.  As agreed with the Subcommittee, our role
has essentially been limited to monitoring the process by examining
GSA FORM reports and the completed IG reports. 

The specific purpose of the FORM process was to identify the
strategic options that could enable GSA to provide quality services
to its clients and customers at the least cost to the taxpayer,
either in-house or through privatization and outsourcing.  The
foundation of FORM is a financial analysis used to compare the cost
effectiveness of current government operations with other
alternatives.  As originally designed, the process was to have at
least two phases--a preliminary phase to identify and assess
potential options and a second phase for more in-depth analysis of
specific options.  GSA applied the initial phase of the FORM process
to 16 business lines, 6 of which were within the Public Buildings
Service (PBS), which is under this Subcommittee's jurisdiction. 
These business lines were commercial broker (leasing), federal
protective service, portfolio management, property development,
property disposal, and property management. 

To carry out our role, we reviewed the final FORM reports prepared by
GSA for the initial analysis of all the business lines, seven GSA IG
business line reports, four IG reports on GSA overhead expenses for
the FORM process, and two IG reports on the GSA contract with Arthur
Andersen relating to FORM work.  For the commercial broker report, we
also interviewed GSA officials and IG auditors who were involved in
the work to obtain more detailed information on the process than was
provided by the reports.  Finally, we reviewed the draft management
plans GSA program staff developed at the end of the initial phase of
the FORM effort to see if any recommendations from the FORM process
were being included in any implementation plans.  These plans were to
address the implementation of the preliminary findings,
recommendations, and/or results of the FORM reports for the initial
analysis phase. 

On the basis of the limited work we did, we found no reason to
question the IG's view that, while GSA's implementation of the
preliminary phase generally followed the prescribed FORM process, it
contained a number of weakness related to (1) the consistent
application of assumptions, (2) the sufficiency of--and in some cases
the absence of-- relevant data, (3) the appropriateness of certain
cost estimates, and (4) certain financial calculation errors. 
Similarly, the IG's observation that the data in initial FORM
analysis reports should not be relied on as the primary basis for
making final decisions about privatizing or outsourcing specific
business lines seems reasonable-- particularly since phase one was to
be followed by more in-depth second analysis. 

For example, the IG's report on the commercial broker FORM report,
including leasing, identified several reasons why the report should
not be relied on for making final decisions.  Some of the reasons
cited were that (1) the private sector cost data were based on
informational quotes and not on firm comparative prices from the
industry; (2) the idea of privatizing small lease acquisition
services to generate savings was not derived from an analytical
process but from a suggestion from PBS management; and (3) the
implementation costs associated with operational changes, GSA's
market leverage, and current cost saving efforts were not considered
in the preliminary phase.  For these reasons, we would agree with the
IG's opinion that the commercial broker FORM analysis report did not
provide an adequate basis for GSA to make final decisions on lowest
cost alternatives.  Again, it is important to recognize GSA did not
plan to use the phase one reports as the sole basis for making final
decisions.  The more in-depth or second-phase analysis called for in
the original design has not yet occurred. 

Before I conclude, I would like to say that, despite the weaknesses
just highlighted, the FORM process should have aided GSA in better
understanding its business and the market place.  We are encouraged
by GSA's ongoing reform efforts, especially those related to
streamlining the federal leasing process.  In recent years, GSA has
become increasingly dependent on leasing to satisfy federal space
needs and now spends over $2 billion annually for leased space.  Our
February 1995 leasing report showed that GSA's highly prescriptive
and inflexible leasing process did not enable it to respond quickly
enough in today's dynamic commercial real estate marketplace and
impeded its ability to get the best available leasing values.\1

We identified several characteristics of GSA's leasing process that
seemed to put GSA at a distinct disadvantage in the commercial
marketplace, caused it to pay more than is necessary for leased
space, impeded timely space delivery, and discouraged competition for
government leases.  For example, GSA's realty staff had limited
flexibility to modify space requirements or award criteria or to
bargain with landlords to take advantage of available leasing
opportunities, even those they believed would be good values for the
government. 

In contrast, the more results-oriented approach that the private
sector firms we contacted typically used was much simpler, more
flexible, took considerably less time, and seemed to result in better
overall leasing values.  Unlike GSA, these firms generally did not
establish highly prescriptive and detailed space specifications, and
their lease solicitations and contracts were much simpler and shorter
than GSA's.  These firms' more results-oriented approach typically
enabled them to lease and occupy space in less than one-third of the
time it took GSA and to get leasing values that they and many
commercial landlords and brokers said were better than GSA's. 

Accordingly, we made several recommendations to GSA that were aimed
at simplifying and streamlining its leasing process and making it
less costly and time-consuming, more responsive to federal agencies'
needs, and a better value for taxpayers.  GSA generally agreed with
the overall thrust of this report and our recommendations and said it
would address them as part of its ongoing effort to reform its real
estate program. 

We believe GSA is headed in the right direction.  However, there are
inherent risks involved in making any major reform.  GSA needs to be
able to show that any reforms it proposes will involve only
acceptable risks, improve mission-support services to federal
agencies, and provide a net cost savings to taxpayers.  To do this,
GSA will need good performance data, adequate benchmarks, and
effective oversight and measurement systems. 


--------------------
\1 Federal Office Space:  More Businesslike Leasing Approach Could
Reduce Costs and Improve Performance (GAO/GGD-95-48, February 27,
1995). 


------------------------------------------------ Chapter STATEMENT:0.1

Mr.  Chairman, this concludes my prepared statement.  I would be
pleased to answer any questions you or other Members of the
Subcommittee might have at this time. 

*** End of document. ***