United Nations:

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

GAO-07-31: Published: Nov 16, 2006. Publicly Released: Nov 16, 2006.

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The United Nations (UN) estimated in 2005 that renovating its headquarters will cost up to $1.75 billion. As the UN's host country and largest contributor, the United States has a substantial interest in the project's success. In this report, we (1) determine whether the development of the Capital Master Plan (CMP) has been consistent with leading industry practices, (2) examine factors that led to changes in the cost estimate and determine whether the 2005 estimate was updated using industry practices, (3) review the status of financing of the renovation, (4) identify decisions needed for the renovation to proceed, and (5) review UN oversight and State monitoring efforts. To address these objectives, we reviewed UN design and planning documents, including the latest cost estimate, to compare them with industry standards. To assess oversight, we reviewed Office of Internal Oversight Services (OIOS) and UN Board of Auditors reports and met with UN officials.

UN officials continue to use leading industry practices in developing the UN headquarters renovation project, but reliance on existing UN procurement practices could impact the effective implementation of the renovation in the future. Since the CMP office relies on current UN procurement practices, implementation of future CMP procurements could become vulnerable to numerous UN procurement weaknesses that GAO previously reported in April 2006 (GAO-06-577), such as the lack of guidance for construction procurement in the procurement manual. The estimated total cost of the CMP increased from about $1.19 billion to almost $1.75 billion between 2002 and 2005 to reflect inflation arising from a later start date, refinements to the design, and a change in the renovation approach. The UN continued to follow construction industry practices to develop the 2005 cost estimate and has included expected elements. However, the cost estimate is still preliminary and will likely change. While the UN has passed a resolution expressing a preference for cash assessments, it has yet to decide how to finance the remaining renovation costs. In June 2006, the General Assembly passed a resolution stating that a cash payment option would be the simplest and most cost-effective approach for funding the CMP. Under this approach, the UN would assess member states for the cost of the renovation through single- or multiyear payments. The amount the UN assessed member states would be likely based on each country's rate for its annual regular budget contributions. The General Assembly plans to revisit the financing issue by the end of 2006. Without certain General Assembly decisions by the end of 2006, the renovation's current schedule could be delayed and costs could increase. Specifically, a General Assembly decision on a financing arrangement for the total CMP budget would be needed to ensure that funds could be available by December 2007. Without these decisions, the CMP office cannot finalize a start date for the renovation. UN oversight entities have continued to oversee the CMP while the Department of State has monitored its progress. OIOS has conducted audits on CMP procurements and has issued several reports of its findings and recommendations. However, OIOS relies on funds from the CMP budget and must negotiate for those funds with the UN budget office, which may impair its ability to secure sufficient funds. The UN Board of Auditors has also conducted oversight of the CMP office by reviewing its financial records and internal controls and has found no material weaknesses in its review. Similarly, State's monitoring efforts have not identified any significant concerns, according to State officials.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In a November 2006 report (UNITED NATIONS: Renovation Planning Follows Industry Practices, but Procurement and Oversight Could Present Challenges, GAO-07-31) GAO recommended that the Secretary of State and the U.S. Permanent Representative to the United Nations work with other member states to ensure that the Secretariat identifies a procurement strategy for the (Capital Master Plan) CMP to mitigate the impact of weaknesses in UN procurement processes. In a November 6, 2006 letter, the United Nations' Under-Secretary-General for Management stated that the UN was in the process of recruiting personnel with experience in construction management to bolster the capacity of the Procurement Division as it assists the CMP office in the award of contracts. State Department also stated that it was committed to ensuring that the UN takes tangible steps to strengthen procurement processes for the CMP. As of March 2008, the UN had three officials with construction contracting experience and one support staff in the Procurement Division dedicated to CMP-related procurements. Further, because the process outlined in the UN's procurement manual can be time-consuming and project delays could be costly, in November 2007, the UN Controller increased the value of the individual contract amendments that Procurement Division officials may approve without prior review by the Headquarters Committee on Contracts (HCC) from $200,000 to $2.5 million. According to Procurement Division officials, the new authority enables them to process contract amendments without delay while adhering to the principles of transparency and accountability as outlined in the procurement manual. In addition, CMP and UN procurement officials, working with the construction manager, developed a draft subcontracting process for construction which officials told us will cover most remaining contract work. The process would enable UN officials to review subcontractor awards at various points in the procurement process to ensure adherence to the principles of the UN's procurement manual.

    Recommendation: The Secretary of State and the U.S. Permanent Representative to the United Nations should work with other member states to ensure that the Secretariat identifies a procurement strategy for the CMP to mitigate the impact of weaknesses in UN procurement processes.

    Agency Affected: Department of State

  2. Status: Closed - Implemented

    Comments: In a November 2006 report (United Nations: Renovation Planning Follows Industry Practices, but Procurement and Oversight Could Present Challenges, GAO-07-31) GAO recommended that the Secretary of State and the U.S. Permanent Representative to the United Nations work with other member states to ensure that the Office of Internal Oversight Services (OIOS) receives sufficient funding for its oversight of the Capital Master Plan (CMP). While some funding had been provided for OIOS, we raised the concern that OIOS's reliance on funds from the CMP budget may impair its ability to secure sufficient funds. In addition, the extent to which OIOS must negotiate for future funding during the construction phase could affect OIOS's ability to conduct effective oversight. In a November 2006 letter, State stated that it was strongly committed to having the necessary resources allocated for OIOS to review the CMP. In January 2007, the UN's Department of Management made funds available to OIOS at the level OIOS had requested. CMP officials said that they would provide the funding OIOS indicates it needs to conduct oversight. In January 2008, OIOS officials stated that they expect funding to continue, including additional resources for providing increased oversight as CMP activities increase. Although the funding is from the CMP budget, it comes through the Department of Management, which reduces our concern that the CMP team may try to limit funding to OIOS.

    Recommendation: The Secretary of State and the U.S. Permanent Representative to the United Nations should work with other member states to ensure that OIOS receives sufficient funding for its oversight of the CMP.

    Agency Affected: Department of State

 

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