GSA Leasing:

Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements

GAO-07-17: Published: Jan 31, 2007. Publicly Released: Mar 2, 2007.

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The General Services Administration (GSA) provides leased space to over 55 percent of federal employees at an annual cost of $3.6 billion. In 2004, GSA awarded four contracts for national broker services (NBS). Performance of the contracts began on April 1, 2005. This report focuses on GSA's administration of the leasing contracts for the first contract year, ending March 31, 2006, and addresses, among other matters, (1) how GSA is attempting to prevent conflicts of interest in the NBS leasing program and to safeguard its information; (2) what, if any, savings have accrued to the government; and (3) how GSA is distributing its leasing workload among the brokers. To address these matters, GAO, among other actions, analyzed the contracts; GSA's contract administration guide; and GSA's policies, procedures, and controls related to these matters.

GSA has developed controls to help prevent conflicts of interest in the NBS leasing program, but has not fully mitigated potential conflicts of interest or federal information security concerns related to safeguarding information and systems used by the brokers on GSA's behalf. For example, while GSA appears to have resolved the 20 conflicts identified by the brokers during the first contract year, it has not modified the contracts to ensure that each contains all of the requirements applicable to the brokers' disclosure of potential or actual conflicts of interest. Further, GSA has not assessed the risk and magnitude of harm that could arise from the brokers' unauthorized access to, or disclosure of, GSA's proprietary information. Until GSA conducts a risk assessment, it cannot (1) modify the brokers' contracts to include additional controls, as appropriate, or (2) test, as needed, the brokers' controls to ensure that they are adequate to safeguard GSA's information. GSA also has not adequately mitigated, as required, the inherent conflict created by allowing the brokers to represent the government while negotiating their commission payment with building owners. Commissions are factored into the cost of the government's rental payments. Absent additional controls, GSA has insufficient assurance that the brokers will not accept excessive commissions; thereby increasing the government's costs. At the end of GAO's review, GSA had not taken action on these issues. GSA expected the contracts to result in various savings. It anticipated reductions in (1) rent from the brokers' expert knowledge of the commercial real estate market and (2) administrative expenses from reductions in its costs for previous contract fees, administration, and personnel. However, more than 2 years after the contract awards, GSA does not know what, if any, savings have resulted, largely because it has not developed procedures for quantifying most of its expected savings. GSA distributed its initial leasing workload fairly equally among the brokers during the first year, as required, but program delays, insufficient data, and a lack of procedures have slowed the transition to performance-based distributions. Once a record of performance is available, GSA is to distribute work among the brokers on the basis of their performance. GSA planned to begin performance-based distributions after the first contract year, anticipating that the brokers would have completed a sufficient number and variety of task orders to establish a record of their performance. However, as of March 31, 2006, the brokers had completed only 11 of the 479 task orders issued to them and eligible for a commission payment. GSA now expects to begin performance-based distributions by April 1, 2007--the start of the third contract year--but has not defined how many and what types of task orders are needed to establish a record of performance. Without this information, GSA cannot demonstrate that it has established a record of performance and is ready to move to performance-based distributions. GSA also has not developed needed guidance and procedures, but plans to do so before moving to performance-based distributions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In October 2004, GSA hired four contractors (broker firms) to carry out a portion of its leasing program. The brokers were each expected to provide broker services on a nationwide basis. Two of the brokers were dual agency firms (firms that represent both building owners and tenants) and, as such, were required to establish a "conflict wall" to help prevent electronic and physical sharing of information between broker employees within the same firm who represent GSA, and other employees within the same firm who represent building owners. In January 2007, we reported that GSA had not assessed the adequacy of the two dual agencies' conflict walls. (GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvement). Consequently, we recommended that GSA assess the adequacy of the two dual agencies' conflict wall controls and recommend actions, if applicable, to correct any identified weaknesses. GSA responded to our recommendation by assessing the adequacy of the brokers' control. On the basis of the assessment, GSA concluded, in a May 22, 2007 memorandum, that the conflict walls maintained by each of the dual agencies were satisfactory.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should assess the adequacy of the two dual-agencies' conflict wall controls and recommend actions, if applicable, to correct any identified weaknesses.

    Agency Affected: General Services Administration

  2. Status: Closed - Not Implemented

    Comments: According to the GSA PBS Corrective Action Plan for addressing GAO-specific recommendations, this recommendation was closed on July 20, 2007. Based on supporting documentation for this recommendation, GSA disagrees with GAO and has no plans to implement the recommendation.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should modify the two dual-agency contracts to ensure that GSA can enforce recommendations resulting from its conflict wall inspections.

    Agency Affected: General Services Administration

  3. Status: Closed - Implemented

    Comments: Our January 2007 report "GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements" found that GSA was not requiring tenant-only brokerage firms--firms that represent only the tenant in real estate transactions--to follow three controls that could prevent them from disclosing potential or actual conflicts of interest. These three controls require brokers to (1) execute additional agreements to safeguard proprietary information, (2) notify GSA of any conflicts of interest discovered during the performance of work, and (3) include a conflict-of-interest clause in all of their subcontracts. GSA made these controls applicable to address situations that dual agency firms--firms that represent both building owners and tenants--could possibly face, but not to tenant-only brokerage firms who could face similar situations. We made a recommendation to GSA to establish consistent dual-agency and tenant-only conflict-of-interest contract requirements, including, at a minimum, the three conflict-of-interest requirements that address situations also faced by the two tenant-only firms. In response to this recommendation, in May 2007, GSA amended the National Broker Contracts so that these three conflict of interest provisions are made applicable to all contractors. In addition, GSA revised the Conflict of Interest section of the National Broker Contracts Administration Guide to reflect conflict of interest restriction changes incorporated into the contract. These changes will help to ensure that tenant-only firms are aware of all requirements applicable to their disclosure of potential or actual conflicts of interest; and GSA will have a step by step approach to determining and processing potential conflicts of interest.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should establish consistent dual-agency and tenant-only conflict-of-interest contract requirements, including, at a minimum, the three conflict-of-interest requirements that address situations also faced by the two tenant-only firms.

    Agency Affected: General Services Administration

  4. Status: Closed - Implemented

    Comments: Federal agencies are required to develop security programs to provide assurance that contractors and others are protecting an agency's information and information systems in a manner commensurate with the risk level assigned to the information and systems by the agency. In January 2007, we reported that GSA had not fully assessed the risk and magnitude of harm that could result from the misuse of information and information systems used on behalf of GSA by the four national brokers. (GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements.) To address this deficiency, we recommended that GSA assess the risk and magnitude of harm that could result from unauthorized access to, or use, disclosure, disruption, modification, or destruction of, GSA information collected or maintained by the four brokers (and their subcontractors) as well as the information systems used by the brokers on behalf of GSA. As of August 30, 2007, GSA had performed the recommended risk assessment and concluded that the risk level was "moderate."

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should assess the risk and magnitude of harm that could result from unauthorized access to, or use, disclosure, disruption, modification, or destruction of, GSA information collected or maintained by the four brokers (and their subcontractors) and the information systems used by the brokers on behalf of GSA.

    Agency Affected: General Services Administration

  5. Status: Closed - Not Implemented

    Comments: According to the GSA PBS Corrective Action Plan for addressing GAO-specific recommendations, this recommendation was closed. However, GSA disagrees with GAO and has no plans to implement the recommendation.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should modify the four NBS brokers' contracts to include controls appropriate to the assessed risk to ensure that the brokers and their subcontractors safeguard information and information systems in accordance with the Federal Information Security Management Act.

    Agency Affected: General Services Administration

  6. Status: Closed - Implemented

    Comments: In January 2007, we reported that GSA had not tested the information security controls associated with its national brokers program, including the controls used by its four national, as required by the Federal Information Security Management Act. (GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements.) The Act requires periodic tests--at least annually--to ensure that controls are adequate for protecting agency information, including information maintained by contractors (and subcontractors). To address this weakness, we recommended that GSA test the effectiveness of federal information security policies, procedures, and practices related to the national broker services program, including, as applicable, broker controls for safeguarding GSA's information. GSA responded to our recommendation by developing a process to test the effectiveness of the controls used to safeguard program information and, as of March 15, 2008, had completed testing at one of the four brokers. According to GSA, "The continuous monitoring required by its process means that it is never complete but must be done repeatedly..." throughout the life of the contracts.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should test the effectiveness of federal information security policies, procedures, and practices related to the NBS program, including, as appropriate, broker controls for safeguarding GSA's information.

    Agency Affected: General Services Administration

  7. Status: Closed - Not Implemented

    Comments: According to the GSA PBS Corrective Action Plan for addressing GAO-specific recommendations, this recommendation was closed on September 4, 2007. Based on GSA supporting documentation, the agency disagrees with GAO and has no plans to implement the recommendation.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should establish additional controls to mitigate the inherent conflict of interest created by allowing the brokers to represent the government, while also negotiating their commissions with building owners.

    Agency Affected: General Services Administration

  8. Status: Closed - Implemented

    Comments: In January 2007, we reported that GSA had not developed processes to quantify savings resulting from its implementation of its national broker services program. (GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements). The program uses contractors (brokers) to provide brokerage services nationwide. We reported that while GSA anticipated that using national brokers would (1) reduce rental costs to the government and (2) agency savings from reduced fees, administrative expenses, and personnel by shifting costs to the national broker services contracts,it had not developed a process for quantifying these savings. We recommended that GSA develop processes for quantifying these and other savings from (1) rent reductions attributable to the brokers' greater knowledge of the commercial real estate market and (2) agency savings as specified above. In response to this recommendation, GSA extracted historical data on its prior contracts and current national broker services contracts and performed a comparative analysis (through the end of the first quarter of fiscal year 2008) which demonstrated numerous cost savings attributable to its use of the national contracts for broker services.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should develop processes for quantifying expected savings from (1) rent reductions attributable to the brokers' greater knowledge of the commercial real estate market and (2) agency savings associated with reduced fees, administration expenses, personnel costs, and operational efficiencies associated with using the NBS contracts.

    Agency Affected: General Services Administration

  9. Status: Closed - Implemented

    Comments: Under the terms of GSA's extended contracts with its four national brokers, GSA initially was required to distribute task orders between the brokers "as equitably as possible" until a record of the brokers' performance could be established. When we completed our review, GSA expected to transition to performance-based allocations on April 1, 2007--the start of the third year of the contracts. While performance-based distributions appeared to be imminent, as we reported in January 2007, GSA had not yet defined the number and types of task orders needed to establish a record of the brokers' performance. We pointed out that without this information, GSA could not demonstrate that it had established a record of performance and was ready to move to performance-based distributions. Consequently, we recommended that GSA clarify the number and types of completed task orders needed to establish a record of the brokers' performance before transitioning to performance-based distributions. GSA responded to our recommendation by delaying its performance-based distributions and by developing and, tentatively approving, a plan for subsequently allocating task orders based on performance. However, GSA suspended implementation of the plan when testing revealed flaws that would have negatively impacted the national broker services program. According to GSA, the agency has no intention of moving to performance based task orders under the current contracts, all of which are nearing completion. Although GSA was not able to successful implement a plan for implementing our recommendation, it complied with the intent of our recommendation, which was not to proceed to performance-based distributions until it was ready to do so.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should as part of GSA's effort to prepare for performance-based distribution decisions, clarify the number and types of completed task orders needed to establish a record of the brokers' performance.

    Agency Affected: General Services Administration

  10. Status: Closed - Implemented

    Comments: In January 2007, we reported that, although GSA collects data on the number and size of the task orders distributed to the four NBS brokers it does not collect data on the geographic area (e.g., rural or urban) covered by the task orders. (GSA Leasing: Initial Implementation of the National Broker Services Contracts Demonstrates Need for Improvements). This omission was significant because GSA's contracts with the brokers specify that each broker will be provided projects on a nationwide basis in both rural and urban areas during the initial period of contract performance, as long as their performance is acceptable. Consequently, we recommended that GSA begin collecting geographic data on its work distributions (i.e., rural versus urban) to help ensure that its distributions to the brokers are equitable. By August 30, 2007, GSA had responded to this recommendation by developing a methodology and subsequently collected and analyzed the data during fiscal year 2008 to better inform its distribution of task orders between the brokers.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should begin collecting data on GSA's distributions of task orders for rural and urban areas (i.e., similar geographic areas) during the initial period of the contracts.

    Agency Affected: General Services Administration

  11. Status: Closed - Implemented

    Comments: The national contracts and administrative guidance had numerous inaccuracies, inconsistencies, and omissions that raised questions about how GSA could ensure consistency in its regions' evaluations of the brokers' performance. Problems included inapplicable evaluation criteria; variations in the criteria identified for use at different evaluation stages by the contracts, and inconsistencies between GSA's and National Institutes of Health's (NIH) performance-related terminology. To address these problems, we recommended that GSA, among other things, (1) revise the terminology in GSA's contracts and administrative guide, as appropriate, to conform to NIH's required evaluation factors; and (2) ensure that the various evaluation stages and processes are properly and adequately described in GSA's administrative guide. In response to this recommendation, GSA revised its administrative guide to clarify when each evaluation factor is to be used in assessing contractor performance at each stage of evaluation. The revised guidance also (1) clarifies how the National Institutes of Health's required annual evaluation fits within GSA's evaluation processes and (2) describes GSA's various evaluation stages and processes.

    Recommendation: To improve GSA's overall management of the NBS program, the Administrator of GSA should clarify the NBS contracts and the administrative guide to ensure that the evaluation measures used are applicable to the brokers' performance at each stage of evaluation. Regarding the brokers' required annual performance evaluations, revise the terminology in GSA's contracts and administrative guide, as appropriate, to conform to the National Institutes of Health's required evaluation factors. In addition, ensure that the various evaluation stages and processes are properly and adequately described in GSA's administrative guide.

    Agency Affected: General Services Administration

 

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