Federal Real Property:

GSA Should Better Target Its Use of Swap-Construct Exchanges

GAO-14-586: Published: Jul 24, 2014. Publicly Released: Aug 25, 2014.

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wised@gao.gov

 

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What GAO Found

Since 2000, the General Services Administration (GSA) has completed two “swap-construct” exchanges—transactions in which the agency exchanges title to federal property for constructed assets or construction services, such as renovation work—in response to private sector interest in specific federal properties. In both completed exchanges, GSA used the value of federal properties it determined were underutilized to acquire new parking garages. The recipients of the federal properties told us that the exchanges took longer than expected (about 3 years for one of the exchanges and 5 years for the other). In response, GSA noted its lack of experience with swap-construct exchanges at the time.

Since 2012, GSA has proposed six swap-construct exchanges. After reviewing responses to its solicitations, GSA is actively pursuing three, including a potential exchange of the existing Federal Bureau of Investigation's (FBI) headquarters for construction of a new FBI headquarters building. Respondents to the three solicitations that GSA is not actively pursuing noted concerns, including the amount of investment needed in the federal properties and the lack of detail regarding GSA's construction needs in an exchange. Swap-construct can result in an exchange of equally valued assets or services or can result in the government or a property recipient paying for a difference in value.

Proposed Swap-Construct Exchanges That GSA is No Longer Actively Pursuing

Proposed Swap-Construct Exchanges That GSA is No Longer Actively Pursuing

The swap-construct approach can help GSA address the challenges of disposing of unneeded property and modernizing or replacing federal buildings, but various factors could affect future use of the approach. For example, swap-construct can require developers to spend large sums on GSA's construction needs before receiving title to the federal property used in the exchanges. GSA's solicitations have not always specified these construction needs. Consequently, developers may be unable to provide meaningful input, and GSA could miss swap-construct opportunities. Further, the viability of swap-construct exchanges may be affected by specific market factors, such as the availability of alternative properties. However, GSA lacks criteria to help determine if the agency should solicit interest in a swap-construct exchange. As a result, GSA could miss opportunities to use swap-construct or select properties and construction projects better suited to traditional disposal and funding processes. Office of Management and Budget (OMB) and GAO guidance emphasize the importance of criteria in making capital-planning decisions and providing clarity on construction needs.

Why GAO Did This Study

To help address challenges in federal real-property management, including the growing need to replace and modernize federal buildings, GSA has proposed expanding its use of swap-construct exchanges. GSA has proposed this approach for some potentially large projects, including replacing the FBI's headquarters.

GAO was asked to review issues related to these exchanges. This report addresses: (1) GSA's experience with completed swap-construct exchanges; (2) the status of GSA's proposed swap-construct exchanges; and (3) the potential benefits of these exchanges and factors that can influence their future use. GAO reviewed documents, including GSA's solicitations for swap-construct exchanges, appraisals of completed exchanges, and OMB and GAO guidance. GAO conducted site visits to the completed swap-construct sites and three proposed swap-construct sites, selected based on location, number of responses to GSA's solicitation, and stage in the swap-construct process, and interviewed GSA officials and nonfederal participants in the exchanges.

What GAO Recommends

GAO recommends that GSA (1) include, to the extent possible, details on what GSA is seeking in exchange for federal property in these solicitations and (2) develop criteria for determining when to solicit market interest in swap-construct exchanges. GSA agreed with GAO's recommendations.

For more information, contact Dave Wise at (202) 512-2834 or wised@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In July 2014, GAO reported that the General Services Administration (GSA) had solicited interest in five "swap-construct" exchanges--transactions in which the agency exchanges title to federal real property for construction assets or construction services--but did not always clearly identify in its initial proposals, called requests for information, what services the agency was seeking as part of the exchanges. Of the five exchanges that GSA proposed, only one garnered a high level of interest from potential developers. GSA officials told GAO that details of what the agency was seeking were not always specified in its initial proposals for these exchanges, but that details would be specified in subsequent solicitations if GSA determines there is enough market interest based on responses to its initial proposals. Office of Management and Budget (OMB) guidance notes that agencies should clearly identify project needs in their requests for information, and GAO has reported that identifying and being transparent about an agency?s needs is a leading practice. By not clearly identifying its needs in its requests for information for these exchanges, GSA risks limiting respondents? ability to provide meaningful input and could miss potential swap-construct opportunities. GAO recommended that GSA include, to the extent possible, details on what it is seeking in exchange for federal property in its solicitations, including requests for information, for potential swap-construct exchanges. In response, GSA stated it would include detailed information on what it was seeking for swap-construct exchanges in requests for information whenever possible. In August 2014, GSA solicited interest in a swap-construct exchange in Cambridge, Massachusetts that provided greater details of what the agency was seeking in the exchange. Providing greater details should help GSA to better market its swap-construct exchanges to potential developers, and help the agency to dispose of unneeded federal property and finance the replacement or modernization of ageing and underutilized properties.

    Recommendation: In order to identify potentially successful swap-construct exchanges during GSA's review of its federal real property portfolio and reduce uncertainty for those responding to GSA's solicitations for possible swap-construct exchanges, the Administrator of GSA should include, to the extent possible, details on what GSA is seeking in exchange for federal property in its solicitations, including requests for information, for potential swap-construct exchanges.

    Agency Affected: General Services Administration

  2. Status: Closed - Implemented

    Comments: In July 2014, GAO reported that the General Services Administration (GSA) had generated interested in "swap-construct" exchanges--transactions in which the agency exchanges federal real property for construction services--for some projects, but lacked criteria for identifying good exchange candidates. Of the five swap-construct exchanges that GSA solicited developer interest in, only one had garnered a high level of interest from potential developers. According to GSA officials, the agency decided on swap-construct exchanges on a case-by-case basis without any criteria to identify properties most suitable for swap-construct proposals. Both the Office of Management and Budget (OMB) and GAO have issued guidance that emphasize the importance of criteria in making capital-planning decisions and providing clarity on construction needs. As a result, GSA could miss opportunities to use swap-construct or select properties and construction projects better suited to traditional disposal and funding processes. GAO recommended that GSA develop criteria for determining when to solicit market interest in a swap-construct exchange. In response, GSA updated its guidance to include criteria for determining when the agency should propose swap-construct exchanges. These criteria should enable GSA to identify potentially successful swap-construct exchanges and leverage them more widely moving forward, which in some instances might be a useful means through which GSA could dispose of unneeded federal property and finance the replacement or modernization of ageing and underutilized properties.

    Recommendation: In order to identify potentially successful swap-construct exchanges during GSA's review of its federal real property portfolio and reduce uncertainty for those responding to GSA's solicitations for possible swap-construct exchanges, the Administrator of GSA should develop criteria for determining when to solicit market interest in a swap-construct exchange.

    Agency Affected: General Services Administration

 

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