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Page 1 TOP OF DOC Segment 1 Of 2 PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
OVERSIGHT OF THE U.S. GENERAL SERVICES ADMINISTRATION LEASING PROGRAM
FRIDAY, JULY 12, 1996
U.S. House of Representatives,
Subcommittee on Public Buildings and Economic Development,
Committee on Transportation and Infrastructure,
The subcommittee met, pursuant to notice, at 9 a.m. in room 2253 Rayburn House Office Building, Hon. Wayne Gilchrest (chairman of the subcommittee) presiding.
Mr. GILCHREST. Good morning, ladies and gentlemen. The hearing will come to order. I'm glad to have you all out here this morning.
The subcommittee will commence a series of hearings on the subject of General Services Administration leasing program.
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This program has experienced continual growth without exception since GSA began leasing privately-owned space from the private sector. This year GSA will pay in excess of $2.3 billion for lease payments to private landlords. That is $900 million more than GSA paid 5 years ago for leased space. Granted, there was 26 million square feet less in the inventory, but the cost of additional space is only part of the increase that GSA will pay this year.
Each year the average cost per square foot for the 136 million square feet of space in the GSA inventory goes up. Old leases will roll over, or escalations in rental rates for operating costs will increase, or tax increases will kick in, all adding to the total cost of this program.
While GSA predicts that the inventory will decline in fiscal year 1997, we are not assured of that possibility. We would like to be sure of that possibility.
Perhaps GSA will speak to the future costs of this program. There has been so much activity within GSA to improve this program, to study it, streamline it, change it, delegate certain parts of it, and contract out parts of it. I ask only a fundamental question of all of youwhat is your assessment of this program, and what do you propose to do about it?
I will welcome the new commissioner of public buildings, Robert Peck, who just returned from Chicago, where he has been meeting with GSA leasing specialists for the past 3 days in an effort to reinvent the GSA leasing program.
Our hearing this morning is well-timed to hear firsthand about the outcome of this 3-day event.
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I also welcome the GSA inspector general, who has been monitoring GSA's efforts to study the leasing program, as well as auditing the program.
Finally, I welcome Mr. William Herron, a senior partner for Arthur Andersen, LLP, who remains the principal official responsible for the analysis that Andersen provided last year to GSA in the study of the leasing program.
At this time I recognize the esteemed, distinguished ranking member, my good friend, the gentleman from Ohio, for any opening statement that he may have.
Mr. TRAFICANT. Yes, I do.
I want to welcome those who will testify today. I would like to state something on the record. I normally don't take too long, but I'm concerned about the directions in which we are going. I'm worried about legislation pending before this Congress that might open up a free-for-all with leasing and re-introduce the possibilities of fraud and corruption that heretofore has been pretty well subject to relative responsible oversight from United States Congress.
The General Services Administration, an independent agency created by the Federal Property Administrative Services Act of 1949, provides management services in a centralized manner to a Federal work force community.
The agency is associated with many diverse activities, such as the disposal of excess property, energy efficiency programs, national recycling program, state-of-the-art telecommunications, alternative fuels for automobiles, a superior fleet management program, and the largest real estate program in the country, possibly the world.
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Among other things, the agency supplies hardware and software, paint, pencils, furniture, and fuel for the entire Federal community.
Having been associated with this agency now for many years, many people who serve on these committees don't think this is the sexiest of all and haven't taken the time to look at GSA. That has been unfortunate from the oversight position.
I can say that if you want to know how the Government runs or where to find something in the Government, call the GSA.
Although it has been much maligned and very misunderstood, in my opinion the agency has provided superior service to the Federal work force, though thousands of dedicated professionals never got their due.
GSA services Federal clients through its leasing program. That is the subject of this hearing and it is a subject of my concern.
The agency is often accused of being untimely. Complaints center on the claim that it takes too long for GSA to deliver space, on and on, which begs the question for me: what is the correct length of time? Whoever determines such? Or too long as compared to what? What standards? What quantifying measurements have been placed here? What directions?
Even more important is the question: why does it take GSA the length of time that it does? What exists in the process that requires time? Is there value added by certain requirements? How do we quantify a waste of time here?
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I think the questions have to be answered before the subcommittee can or should endorse or sanction wholesale delegations or privatization of this program which has demonstrated success in the past.
I'm particularly concerned about delegating leasing authority to various agencies and for the manipulation formula, the dollar process therein that has been heretofore fairly well managed without fraud, as compared to other activities.
The subcommittee's experience with this process has been less than satisfactory. In addition, I believe the subcommittee should be assured that any changes will produce savingsreal savings, not trophy hanging on the wall types of savings.
So I hope, Mr. Gilchrest, that we will be informed and that we can seriously consider legislative changes which may ensure to the Property Act in order to improve, not annihilate, the General Services Administration.
To those people who work for the General Services Administration, from my involvement on this committee I think you've done a good job. I think you deserve some support from the Congress.
I want to make sure that people aren't flying around the country swinging deals in real estate, heretofore pretty well monitored by an agency that's is much malignedpretty honorable.
Page 6 PREV PAGE TOP OF DOC Segment 1 Of 2 I thank you, Mr. Gilchrest, for having this hearing. I support you completely. I don't care what they said about you.
Mr. GILCHREST. Thank you, Mr. Traficant, because we were going to completely eliminate GSA, so I appreciate your support.
Mr. TRAFICANT. I sort of sensed this mood.
Mr. GILCHREST. I appreciate your comments. This is what we're here for. It's our sense of responsibility to have oversight over very difficult responsibility by GSA. They are sometimes much maligned, but I don't think that they are maligned from this particular subcommittee.
I think we've had a very positive working relationship with the people that are the real estate agent for the Nation's public buildings, and so we would pursue an effort to ensure that they are given their just due, and also as we move ahead to deal with public buildings, Federal courthouses, leasesour effort to ensure efficiency, fiscal responsibility, and compassion for those people who work for the public as employees of GSA are competently and fairly and compassionately dealt with.
Mr. TRAFICANT. Will the gentleman yield?
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Mr. GILCHREST. I'll yield to the gentleman from Ohio.
Mr. TRAFICANT. I agree that this subcommittee has been objective and fair, but before this hearing starts I want to place it clearly on the record that what I'm concerned about is the mishmash of every other jurisdictional Congressional entity that knows very little bit about this agency that begins this and start making deals that heretofore were under the jurisdiction of this subcommittee that has had a pretty good grip on their activities.
That's what my main concern is. If all of these respective divisions of the Federal Government become their own little real estate tank making deals, then I think we suffer some problems.
I won't belabor that point any more. That is my concern. I want to state it here frankly before we get started.
I know this. I don't say this to patronize you. You don't need it
Mr. GILCHREST. Sometimes I do.
Mr. TRAFICANT. but I'll say this to you. I know that you will be fair, as well, but I have a real legitimate concern that everybody is trying to jump in and grab the real estate arm. In the final analysis, I not only think its going to be more costly, I think it's going to be chaotic and we're going to have deep troubles from it.
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I think we'd better very seriously encounter this issue now, because there are strong legislative movements coming out of other parts of this Congress that I think are ill conceived and ill informed.
Thank you, Mr. Chairman.
Mr. GILCHREST. With your help, Mr. Traficant, I'm sure we can move ahead and do the best thing for the country.
Mr. Mascara, do you have an opening statement?
Mr. MASCARA. Thank you. I have no opening statements, but I thank you for calling these hearings. I anxiously await the testimony and statements of those that are here this morning.
Mr. GILCHREST. Thank you, Mr. Mascara.
[Mr. Oberstar's prepared statement follows:]
Mr. GILCHREST. We have three witnesses this morning: Mr. Robert Peck, Mr. William Whyte, and Mr. William Herron. We'll call one up at a time, if it's all right.
Page 9 PREV PAGE TOP OF DOC Segment 1 Of 2 We are probably going to break about quarter of or ten to ten for a memorial service for Congressman Bill Emerson, but then we'll return right after that and continue the hearing. I just don't think we'll finish between now and then. I guess it's possible, but I don't think we'll get it all in.
Mr. Robert Peck, good morning.
TESTIMONY OF ROBERT A. PECK, COMMISSIONER, PUBLIC BUILDINGS SERVICE, U.S. GENERAL SERVICES ADMINISTRATION
Mr. PECK. Good morning. Mr. Chairman, Mr. Traficant, Mr. Mascara, it is the usual opening that it's a pleasure to be here and speak to the subcommittee, but in this case it really is.
I just spent two and a half days in Chicago, although it got extended by another meeting yesterday, at our ''Can't Beat GSA'' leasing conference, where we brought 700 people nationwide in our leasing program together in one place for the first time in the history of GSA to talk about our process and what we can do to improve it.
I can only tell you that it was one of the most amazing things I've ever seen. The feedback we got from the people, including some 20- and 25-year veterans from GSA, is they had never seen anything like it. I had people who have worked for GSA for decades telling me that they had hoped for a long time that something like this would happen, that they were thrilled with what came out of it, and I am going to spend at least a few minutes today describing to you what did happen in Chicago and what we are about to embark upon.
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Second, I should say I really do appreciateand all of us at GSA appreciate the support that we've had from this subcommittee, from you, Mr. Chairman, from you, Mr. Traficant, in particular over the past several years.
We do believe that GSA employees are somewhat maligned, but I have to say to you, as someone who in the military once had the job which I didn't relish of being the chief supply officer for a unit, being in supply and logistics is often a thankless job. The folks that you support deserve your support. They want it fast. They want it quick. They want it done well.
When you're in that position, you're often subject to some fair criticism and some cheap shots. We get our share of both of those.
I think it's interesting to noteand I will say that I reviewed the statements of GAO and the Inspector General for this hearing. I thought that a couple of things about them were interesting.
One isand I'll set aside for a moment their comments on the FORM analysis, but their basic analysis of what we might do to improve our leasing process completely conforms with what I believe and with what our own internal studies had shown and, in fact, with what we're now doing as a result of our Chicago conference.
I also spend a lot of time talking to Federal agencies, so I have some sense of what they think, and I think that I can concur with what the Inspector General noted, which is that a lot of our agencies feel that we are not fast enough in producing leases for them; yet, when all is said and done, they're very happy with the space that we produce.
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Finally, I would say that I, too, have concerns about legislation I have heard about, because while I am going to describe to you a process in which we will allow agencies to accept responsibility for their own leasing, we are planning to do it under an administrative program that will preserve both our and your oversight of what they're doing, and I'm concerned that some of the legislation I've seen might not do that.
So let me describe a little bit of what we did.
Over the years, as you noted, there have been a lot of ideas about improving the GSA leasing process. There has been a lot of talk about how fast the process is and how fast it should be, about how much we pay and about how much we might save. So I will submit a statement for the record which describes some of this, and I'd like to submit a corrected statement which corrects a couple of typos and one significant number and proceed from there.
There has long been a sense that GSA leases take a bit too long to get done. I don't know what the right time period is. Most every lease is unique, so it's hard to say from one to another. Some are more difficult than others to negotiate, and each one is the subject of a separate negotiation.
On the other hand, there are ways in which we could streamline our process. We in GSA, in fact, have streamlined the process. Beginning in 1993, in accord with the National Performance Review, we designated our Northwest Arctic Region, headquartered in Auburn, Washington, as a leasing reinvention lab. Region Three, headquartered in Philadelphia, the mid-Atlantic region, and Region eight, the Rocky Mountain region, headquartered in Denver, were all designated general reinvention labs.
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Their experience with leasing, in particular, has been significant and interesting.
In region eight in Denver, for example, the average time to complete a lease has been reduced from 400 days, approximately, to 200 days. Two hundred days is not that far off from what I believe it was GAO indicated was the 6-month period that some State equivalents of GSA report is their general time period on leasing.
In my opinion, having worked in the private sector in leasing and real estate investment, 18 months is too long for almost any lease. I think we've identified some places in our process where we can do better.
I would note happily that a couple of weeks ago I was speaking to a group called, ''The Federal Administrative Management Association,'' a group of administrative officers from the large agencies in the Federal Government. In the course of describing what we were about to do, the representative from the General Accounting Office, who works with us on their leases across the country, reported that he had recently had occasion to deal with our region headquartered in Auburn, Washington, our leasing reinvention lab, and he said that where his experience also had been that leases often take 18 months to negotiate, the lease he had done in Seattle had taken only 6 months; that we were so fast producing the space ready for GAO to occupy that they weren't ready to move when we gave them the phone call.
I've said to our folks, that is an experience that I would like to repeat time and again, because the job has to be to exceed the expectations of our customers when we do leasing.
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There are a number of things which we identified even before Chicago that we can do without changes in legislation to speed up the process. Let me cite a few, just so you know there is some substance to this and not just rhetoric.
One, probably most significantly, last October, certainly before I became Commissioner and before we started the ''Can't Beat GSA'' leasing program, GSA issued a new set of small leasing acquisition procedures. Something like 63 percent of our leases are subject to these procedures, and the threshold is $100,000 net annual rent.
We issued last October a new set of procedures for small leases. Small leases are defined as those in which we are paying $100,000 net annual rent. Net annual rent means the basic amount we pay for the real estate space, exclusive of charges for maintenance and cleaning and those sorts of things.
As I say, approximately 60 percent of our leasing workand we work on about 7,000 leases a yearfalls under this threshold.
It turned outI discovered this in talking to people around the country, and I believe that GAO and the IG noted the same thingsome of our regions weren't using the procedures. We had sent out a notice saying the procedures are available; what we hadn't done was a very good job of educating our people about how you use them.
So we found that some of our people were still using the old process, which was a lengthy one and more costly.
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Similarly, earlier this year we suspended the mandatory use of our leasing manual, which has a lot of procedures which have accrued over the years, and we said to people in the regions, ''Look, obey the law. Obey the basic regulations in the Federal acquisition regulation, and go out and go forth and do good. Be as fast as you can.''
We had a lot of people still on auto pilot using the old procedures.
That's why we decided that it would make sense to bring all of our leasing people together in one place at one time and say, ''You know, folks, without changes in the law, without whining and complaining about the reviews which we do in Government, which are just part of doing business in the Government, we can get our work done a lot faster.''
The reason that there was so much enthusiasm in Chicago is that it does turn out, in fact, that a lot of people around the country didn't know that these procedures were available to them.
We were able to present some panels at our conference in Chicago in which people who have used the procedures explained how you go about putting them into practice.
We had a panel two mornings ago in which one of our leasing specialists in the National Capital Region explained how we can have tenant fit-out work donethe work that you do after you've leased space but then have to pay money to modify it for agency usea way in which you can do it and you can create a tenant allowance under existing laws and regulations which saves months of negotiations with landlords on specific cost and pricing data.
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The normal way we negotiate is that we do a lengthy negotiation on cost and pricing only after we've done final designs on tenant fit-out.
The private sector doesn't work this way. In the private sector you set up a tenant allowance, a knock-down price. You agree on that price. You then do your detailed design. You see how much things actually cost, and at the end you work out whether you owe the landlord something or whether they owe you something.
Our experience in the National Capital Region using tenant allowances is, as I say, we've taken months off this final aspect of lease negotiations.
There was tremendous enthusiasm from the delegates at this conference, our leasing folks, about using these new procedures.
So we've discovered that there are a lot of things we can do that don't require anybody to change the laws. Our procurement laws have a lot of good policy written into them. We have preferences clearly in our laws for using small businesses, for not aggregating the Government's business to such an extent that we preclude people in cities across the country from working for us.
By that I mean that there is a trade-off here. We are often asked to behave like a business. On the other hand, we are asked to implement what I think are perfectly valid and good public policies.
Page 16 PREV PAGE TOP OF DOC Segment 1 Of 2 We could, as a Government, if we wanted to, say to GSA, ''Do a deal with some big real estate concern and they'll build buildings for you all over the country.'' Well, there are a lot of local and regional real estate folks who our policies seem to favor our doing business with, that we give everybody a fair opportunity to compete every time we go out and do a major project. We don't do exclusive deals.
But, as I say, there might be some great cost advantages to doing it the single deal way. We don't do that.
All I'm saying is that within those kinds of policies and within the existing laws, we can save a lot of time on our leases, and time is money.
Mr. GILCHREST. Could youeach person is given 5 minutes. You have used about ten. Could you bring it to a close?
Mr. PECK. Okay. All right. I'll conclude.
Second, a lot of our lease documents have clauses in them which cost the Government money. It's because a lot of our clauses cause the Government to be completely risk averse.
In business what you do is you take responsible risks in return for some savings, and we are encouraging our people, in negotiating some clauses, to accept risk.
Now, I don't mean the risk of spending a whole lot of money. I mean, for example, if there should be a fire that guts part of a building, there are all kinds of negotiations in both private and public sector over who bears responsibility when that happens. It rarely happens.
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We have the means, because we have a huge inventory, of absorbing some of the cost of relocating agencies in case of a partial fire that private sector tenants don't have. That's one reason the Government should get better deals than the private sector in leases. We can negotiate for things like that. And that's what we talked about in Chicago.
Finally, we have announced that part of the ''Can't Beat GSA'' leasing program is that on Columbus Day this year we are going to say to Federal agencies, ''We want your business. We, GSA, want to do your leasing work. However, if you don't want us to, you can do it yourself. You'll have to do it under the same laws and basic regulations that everybody else in the Government does.''
We are going to do it in a way that they are required to report to us if they do their own leasing what they do, so that GSA can fulfill its overall responsibility of monitoring the Federal Government's leasing programhow much space we have and how much money we're spending on it.
But I have to tell you, as a former business person and as someone who has been a public service manager for a lot of his life, also, this is the only way that we are going to keep our employees' eye on the ball. Competition in this country is the way in which we make sure that people are efficient and keep a hard edge. That's what we need to do in our business, as well.
I can tell you that the decision to do this was made with the acquiescence of all 11 Assistant Regional Administrators for Public Buildings, and we got an enthusiastic response from our employees at this conference.
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Finally, I would just like to submit for the record two things. President Clinton and Vice President Gore both sent letters to the people at the conference in Chicago. As I say, I'd like to submit them for the record.
I will not submit these for the record, but at the end of our conference every single person there signed a commitment to the ''Can't Beat GSA'' leasing program and to the principles which underlie it, which areand with this I'll concludefocus on the customer and the bottom line, be creative, take responsible risks, ensure professional development, share lessons learned, reward employees, partner with suppliers, support the people who support the customer.
I can show you we have commitment letters from every region, signed in partnership by the employees and their managers.
With that, Mr. Chairman, I conclude. I'd be happy to answer any questions.
Mr. GILCHREST. Thank you, Mr. Peck.
Mr. TRAFICANT. I would defer to Mr. Mascara.
Mr. GILCHREST. Mr. Mascara.
Page 19 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MASCARA. Thank you, Mr. Chairman and Mr. Traficant.
I am a newcomer to this committee, so you'll have to bear with me, Mr. Peck. And it might be a better question for the representative from Arthur Andersen.
We spent $5 million doing a study that told us that we could save a few dollars. I think the figure was $6 million a year, not that that's not a lot of money, but it seems that the agency is making more complicated a very simple procedure.
I don't mean that leasing is not complex, but, as a former businessman, a person who owned real estate and leased properties, it's mind boggling to hear that we went from 400 days to 200 days in the amount of time it takes to prepare a lease.
I just wonder if you could walk me through the process of leasing in a few words from the day that someone says, ''We need space in a certain part of the country.'' What happens?
Mr. PECK. Well, that is, of course, the first thing. An agency calls up and says, ''We think we have a requirement.''
I should note the first thing we do is see whether we have space in the Federally-owned inventory.
Mr. MASCARA. You have all of this on computer? You can call this up? We have a request in San Francisco, and you can go onto the computer and
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Mr. PECK. No, sir.
Mr. MASCARA. So you don't know what you have in San Francisco?
Mr. PECK. We do know what we have in San Francisco, but we have an antiquated, completely outmoded computer system designed in the early 1970s and still in use as our national inventory control. We are going to replace it. We think we will have a new system deployed in March that's an interactive system that people can actually use.
I have to say, the situation in some ways is better and worse than this on computers, just briefly. Most of our regions have cobbled together a more modern system for their own use, but our national inventory system is not good.
In the regions, leasing specialists do have a computer, they do keep track of space. We use both our own market surveyslet me just go into the process you asked for.
When someone asks us for space, first we see whether we have Federally-owned space, because we certainly want to make use of that inventory which the taxpayers have paid for, or are in the process of paying for.
Second, we work with the agencies to refine and define the requirements.
Then we go out, if we have to, on the private sector market. We take a look initiallypart of our process gets very cumbersome here, but we take a look at what we think should be the lease rates in a particular market where the agency needs space. We then go out with an advertisement, as we are required to by law, to see who is available. We're not always required to advertise, by the way, but where we do we advertise. People come back and say, ''I'll lease you space.''
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We then have a negotiation process, also set in regulation, which is different from the private sector, but I believe intelligently so, that requires us to give everybody a fair chance to give us space.
Negotiating for real estate, as you know, is different from negotiating for paper clips. Every building is different, so you have to take into account one building may have slightly better elevators, the next one may have slightly more modern air conditioning. That figures into the lease rate.
Then we, at some point, sit down and negotiate with the best offeror a lease.
As I'm saying, in all of those processes there are ways in which we can be more streamlined, and we're doing that, but a lot of the things you have to do, including some required reviews, some required check-offs because of requirements for looking at EEO or fire safety and life safety codes, some of those things can take a while and a bit longer than they do in the private sector. And some of those we can streamline.
Mr. MASCARA. I thank you for the example. I'm still mesmerized by the length of time it takes to engage a lease for this Government.
Mr. PECK. We are, tooat least I ambut I'm telling you we know how we can cut the time down.
Page 22 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. MASCARA. Let me go off in another direction. Everybody is conscious of cost. I'm not sure whether you're on a cash basis or accrual method of accounting, but when you sign a lease it's scored, I understand from the information I read last evening, at the time that the lease is signed, rather than over the life of the lease.
How does that all tie into how you're performing? I mean, if you sign a lease today for 20 years and you're charged for that 20 years rather than over the life of that lease, how does that impact upon your operating cost as an agency?
Mr. PECK. Mr. Mascara, it's sort of the other way around. On a lease we are only scored for our lease payment in any given year, unless it's a lease that looks more like an installment purchase. If we, for example
Mr. MASCARA. On the lease purchase then?
Mr. PECK. Yes, sir. Those are scored up front.
Mr. MASCARA. Okay.
Mr. PECK. Those they make us score them up front, as we are scored with Federal construction for all of the money up front.
I have long advocated the Government moving to a different posture, but I don't believe the Administration supports me in any suggestion that there be something akin to a capital budget or time financing or anything of the sort.
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As I've said, in a previous incarnation in private sector life, I did advocate that.
Mr. MASCARA. Well, I think capital accounting is a necessity. Even in the military, where you pay hundreds of millions of dollars for a piece of equipment, then it's charged off in the year it's completed. That has a life of 25 or 30 years. I just don't understand. As a former accountant in my previous life, I just have a difficult time understanding that.
I don't want to consume all of the line of question here. I'll defer to the chairman or Mr. Traficant.
Mr. GILCHREST. Thank you, Mr. Mascara.
Mr. TRAFICANT. I have a number of questions. I want to pose them. I want them to be responded to in writing.
Has GSA developed a legislative package of recommendations to update and upgrade the authorities of the agency? And have you estimated how these changes will improve service?
Number two: on page four you mentioned procurement law as an impediment to efficiency. Please identify those laws which are impediments.
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You also go on to say you expand the use of leasing services provided by private sector firms. Is this expansion an attempt to circumvent procurement laws?
Two contracts mentioned on page four, which have been awardedwhat is their status? Are they pilot contracts?
Number three: please provide detail on the multi-regional solicitation. Your written testimony highlights that the logic for entering into these contracts would establish relationships with contractors and Government staff to complete real estate transactions. How can the committee be assured that these contracts are cost-effective and that they are, in fact, not more expensive if we had retained a Federal work force?
I'm concerned that not enough analysis has been done to indicate that this might be the best course of action.
How can the committee be assured that these contracting activities are in the best interest of the taxpayer?
I'm especially intrigued with the justification that downsizing has forced the agency in a position of seeking contractors to do Government work.
If the agency is pressed for help, why has the agency made the decision to abandon trained, in-house professionals, especially since the Arthur Andersen study concludes that these in-house professionals have performed as well, if not better, than private sector personnel?
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Also, please tell the subcommittee, relative to information presented on page six of your testimony regarding saving which can be achieved through tax appeals and buying out unneeded leases, how does that tax appeal process work? Define it. Delineate those aspects.
How much does GSA anticipate gaining from that process of tax appeal? Why doesn't the GSA routinely pursue this avenue of revenue? And how do local governments react to this process? And does the GSA have data from previous lease buyouts to indicate how much both they had cost and how much quantified had been saved?
I know it's hard. I'd like them in writing. The reporter I'm sure here will have them available in a reasonable period of time. I would like them submitted, if you will.
I want to thank you for being here, Mr. Peck. You've got a tough job. I think you're doing a good job at it, and I'd like to see your answers.
Mr. TRAFICANT. Thank you, Mr. Chairman.
Mr. PECK. Mr. Chairman, may I respond just to one of those orally, because it will only take a minute? I know you're about to leave.
Mr. GILCHREST. Yes.
Mr. PECK. On the question of the contracts, it is true that those contracts are being issued for the purpose, and the sole purpose, of being able to meet our customer agencies' requirements for us to get our leasing work done, and it is true that we're doing it because we no longer have enough people in house to get the work out, and we're supplementing the work force.
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I will describe in writing what we're asking people under those contracts to do.
One other point I would make, however, is that I believe that there is a very good chance that under our new program, where we're going to be more efficient at doing our leasing work, that we may have well found a way that, with the work force we have left, we can do the vast majority of the work load that we have in-house.
Mr. GILCHREST. Thank you, Mr. Peck.
I have a number of questions that I will also include in the record, and we would like a written response to them, as well.
I apologize for having to take a recess in this hearing at this point, but I think, with the questions that we'll ask you to respond to and with the information we receive and continue to pursue as far as the leasing policies of GSA, I think we can come to some consensus resolution. In other words, I think we can work this out.
Thank you all. Thank you very much for coming, Bob.
Mr. PECK. Thank you, Mr. Chairman.
Mr. GILCHREST. We'll recess. My guess isand this is only a guessthat the memorial service will be about a half hour long, so we'll be back here at 10:45, 1 hour. Thank you very much.
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Mr. GILCHREST. The Subcommittee on Public Buildings and Grounds will come to order. We'll resume the hearing.
We went a little bit over in the memorial service, and I'll report to you that it was very fitting and appropriate to a departing Member of Congress that served this House and this Nation extremely well. Many of us remarked that those kinds of settings where we bring into full view the essence of what it means to live, we should do that more often. It was quite a moving experience. Bill was also a member of this committee. I served with him during the period of time that I've been in Congress.
But we have to get on with the Nation's business.
Mr. William Whyte will be our next witness on the audit situation.
Thank you very much, Mr. Whyte, for coming.
TESTIMONY OF WILLIAM E. WHYTE, JR., ASSISTANT INSPECTOR GENERAL FOR AUDITING, OFFICE OF INSPECTOR GENERAL, U.S. GENERAL SERVICES ADMINISTRATION
Mr. WHYTE. Thank you.
Page 28 PREV PAGE TOP OF DOC Segment 1 Of 2 If it's okay with you, I'd like to submit my prepared statement into the text because it takes around 10 minutes to read. What I'd like to do is just do a short recap.
Mr. GILCHREST. Yes, sir. Thank you.
Mr. WHYTE. Mr. Peck started his statement today by saying that out in Chicago they re-engineered the process. I think that it's something that has to be done within the leasing program and that the Office of the Inspector General is involved in it, and we continue to be heavily involved to oversee it, to make sure that procedures are in place that comply with all laws, and that the $2.2 billion that are expended in the leasing program are expended for proper purposes.
My office continues to be heavily involved in that process, and we will, throughout, by reviewing it.
With that in mind, it is a fact that there has been tremendous change in the leasing program, and that change is continuing to evolve.
About a year ago we issued two audit reports. One of them was a comprehensive review of the leasing program. The other one was an audit report on the FORM process for the commercial broker.
Let me address the first one.
On the leasing program, as we did a review and we did a top-to-bottom review of the leasing process, we went out, we interviewed private sector. We also interviewed the States. We did surveys of customer agencies. And, in general, the conclusion was that PBS was, in fact, delivering nice space. People were happy with it, but they had two concerns. One is it took too long, and the second one was that PBS needed to improve the communications.
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So we looked at the process. There was an 80-step process which was riddled with controls and procedures, a 240-page manual. There were a lot of requirements imposed upon people to do things. It just continually swallowed the process.
What we did do is we recommended to them that they reassess those controls and that they do exactly what they are in the process of doing todaylook at the whole process to see if there is some way to streamline that process.
And we also touched on the area of communications, because I think communications is a problem with every organization. I know my own organization is constantly trying to work on communications, because the perception of the customer is that GSA doesn't listen.
I think it is a two-way street. I think sometimes that the agencies do not listen to GSA, also.
Now let me quickly move to the FORM report. On the FORM report my office was involved in two ways: as an ad hoc member on each of the FORM reviews to ensure that any proposed actions complied with any laws; and also to provide any accounting-type advice to the team.
As far as the commercial broker was concerned, what we found was that the team had a difficult job to do because GSA didn't have any cost systems, they didn't have any management information systems, so most of the costs had to be restructured and reconstructed from other records.
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What we found was that in so doing that it was a good job. I mean, we have some problems with what the conclusions were, but, in essence, I think that the FORM, especially the base case, was fairly reflective of an old organization that didn't exist.
What happened is PBS reorganized and they did a lot of streamlining, but the FORM report did not reflect all those initiatives. Therefore, we did not believe that those costs, represented as GSA's cost, truly represented what was going on at the current time of the analysis.
On the private sector cost, we had some problems there because we think, in some instances, that the costs were conservative, to the point of being too conservative, and so we raised those issues also and we issued the report.
Now, the report we issued was an interim report, and that report will be followed by a final report when phase two of the process is completed.
I oftentimes hear and see discloures that the FORM report justifies saving $6 million if and lease administrative services or small leases.
What I would say is that it was a range. It was an increase in cost up to a savings of $6 million. So it's not necessarily $6 million. When you look at some of the methodology used, I question whether or not there is even $6 million.
I think it was a good study. I think it was beneficial to the agency because it forced GSA to look at what it costs to do something, and the agency was primarily on a budget system before and they were looking at budget expenditures, not cost expenditures.
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I think the by-product of the FORM analysis in GSA is going to result in substantial savings in the internal operations of the agency through reductions of overhead and improved efficiencies through process re-engineering. So I think there were a lot of intangible benefits to the FORM process.
With that, I'll conclude my statement.
Mr. GILCHREST. Thank you very much, Mr. Whyte.
What do you suppose was the reason for shifting from a budget analysis to a cost analysis?
Mr. WHYTE. Well, when you wanted to compare what it cost you to do something, you would have to know exactly what is the costnot how much you expended to do things or how much your budget was. How much did it actually cost to hire, to travel, and all these things, and take and put it into a job cost system where you're finding out how much it cost to do a function.
Before, all the records were organization-wide, and so you could not really tell that, so in order to have a proper comparison you needed to have job cost or an operational cost, how much it cost to do something, so that you could compare what it would be in the private sector.
Mr. GILCHREST. So is it a philosophical change or an analysis of how the system wasn't working very well?
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Mr. WHYTE. No. I think the system was working well because in Government the thing that you control is you control your budget, and you don't view things as a cost from a cost point of view. It's from a budget point of view. It's just a switch in the way of thinking. It also requires a whole new structure of accounting system, because a budget system looks at what you're spending against the obligations; a cost system looks at how much it costs you to do things. They are an entirely different system.
Mr. GILCHREST. Do you think there is any need for any legislative changes in the way GSA operates?
Mr. WHYTE. I cannot think of any. I think what has to happen first is I think that GSA has to look at its process and streamline its process and then see if there are any legislative inhibitors that are causing the process to slow down.
But I think the most important thing is exactly what the Public Building Service is doing, and that is looking at the system and seeing if there is something they can do in the system to improve the process.
Mr. GILCHREST. I just have one more question. Could you comment on your relationship with Arthur Andersen and your analysis of whether or not they arrived at the proper conclusion and why or why not?
Mr. WHYTE. Our relationship with Arthur Andersen is a cordial one. We have reviewed their work. As the Office of the Inspector General we felt that we needed to render our opinion as to the outcome of the FORM review.
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I think their work is credible. I think that they use some conservative figures that we don't necessarily agree with, but I don't think their figures are wrong. I think it's a matter of an approach. I think they were overly conservative, but I don't think theirs are wrong.
We view that, if you're going to use a comparison, you ought to use a middle comparison, not the most conservative comparison.
Mr. GILCHREST. I have a number of other questions, but I also have a number of other things to do this day, and I'm sort of running out of time. I would like to submit my questions to the record and then give them to you and ask for your answer in writing.
Thank you very much.
[The questions and answers thereto follow:]
Mr. GILCHREST. Mr. Traficant.
Mr. TRAFICANT. I, too, want to submit my questions, but I want those questions to be placed here for the committee first, but I would ask for your response in writing.
Page 34 PREV PAGE TOP OF DOC Segment 1 Of 2 On page two you mentioned that the IG's office had described the key operational policy issues which must be addressed if greater program success is to be achieved. I want you to identify those issues for the subcommittee.
On page three you reference a comparison between leasing activities of the States and the General Services Administration. I'd like for you, if you could, to submit the similarities and differences in your position that you've seen between the States and GSA.
On page six you mentioned that some of the data collected by Arthur Andersen regarding prices is, for leasing services, significantly different than the kind of work usually performed by the Public Building Service. Give us your explanation of that.
Finally, what role does your office, the Office of the IG, play in this whole leasing processhow you come into play and at what point you come into play and when you have had to.
Finally, one last question: I'm concerned about some good news that I hope won't be bad news. There haven't been a whole lot of real bad headlines about GSA scandals. I want your honest opinion, if we change this and it goes to more of a free-for-all leasing activity with more people involved, what is the potential for those headlinesnegative headlines and fraud and abuse within the system on deals being made outside of the structure that has already been in place?
Those are my questions. I'd ask for them in writing.
Page 35 PREV PAGE TOP OF DOC Segment 1 Of 2 I yield back my time, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Traficant.
Mr. MASCARA. Thank you, Mr. Chairman.
I read some place last nightand this is after the House adjourned at 12:30 or 1:00I don't remember what time. It was awful late. It was boring reading, but I try to read it anyway for myself for these hearings. I read that somehow the office of inspector general concluded that the Arthur Andersen findings should not be relied upon because of the errors and omissions in the data supplied. That was sort of contrary to what you said earlier about them being credible and you work closely with them.
Mr. WHYTE. Well, I think the errors and omissions don't necessarily reflect on Arthur Andersen. I think it was the policy of the FORM process itself that GSA should compute the base case cost based on an organization that didn't exist any longer. It was an old organization. It had been reorganized out of existence. But yet all the cost of that organization was included, and that was a decision that was made within GSA.
Some of the other problems that we noted are that the conservatism of the private sector costs provided to GSA, skewed the results of the study. Administering micro relay stations doesn't have very much similarity to managing office buildings, but that was used as a basis to estimate what it would cost the private sector to manage office space. We don't think that's a comparable.
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Mr. MASCARA. Perhaps my question should be to Arthur Andersen about the model that was used to devise the FORMis that the acronym?
Mr. WHYTE. Right.
Mr. MASCARA. I think something has replaced that since the initiation of that particular model.
I have one other brief question. I see here that in January of 1995 the GSA inspector general issued an advisory opinion on options to reinvent GSA, and this opinion addressed the leasing program, and the IG concluded that GSA should continue to provide centralized lease acquisition services to Federal agencies, but should streamline the leasing mission and program, and the IG identified a potential savings of $40 million by reducing some 251 FTEs.
I'm a little bit confused. First of all I'd like to know, do you know how many employees GSA has? And what effectI mean, it's almost like an oxymoron. We're talking about reducing personnel, 251 FTEs, and then the information goes on to say that this should result in a 33 percent efficiency in operation.
Is GSA that over-staffed that we can create efficiency by 33 percent by laying off 251 FTEs? I just thought maybe you could explain that to me.
Mr. WHYTE. Yes. Let me respond to that.
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What that position paper reflects is that when we did the leasing review we found that many of the agencies in the small communities would prefer to do their own leasing of the recruiting station or small agricultural station or something like that, and that when you looked at the leasing universe, those leases that were 10,000 square feet or less consumed around 70 percent of the total inventory, and it accounted for something like 20 percent of the dollar expenditures.
Given the fact that the agencies wanted to do their own leasing in these small spaces, what we figured is if you delegated that authority to do the small leases, but provide the opportunity for them to come back to GSA if they so chose, that you could result in some efficiencies within the agency.
Also within that audit report we had issued, there were a number of recommendations in there for streamlining the process. We fully believe that if you streamline the process, you get rid of some of the 80 steps, some of the 70 internal regulations and 240-page reference manual, that you can, in fact, create economies and efficiencies, because when we interviewed the Stateswe went to three States and we interviewed them. In those States we found that they were able to carry out a similar work load that GSA does in a regional office with one-third to one-half fewer people.
So when you put all these together, I think that the opportunity does exist to bring about some economies and some efficiencies.
Mr. MASCARA. Does that somehow account for the reduction in the earlier testimony of Mr. Peck that we reduce from 400 days to 200 days the length of time it takes to process a lease, given the scenario that you just
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Mr. WHYTE. Some aspects of it, yes.
Mr. MASCARA. It wouldn't necessarily take 200 days to process a lease of 10,000 square feet or under? Was that factored in with the 400 to 200 average?
Mr. WHYTE. No. What Mr. Peck was speaking of is the time that it took the process through the whole processing cycle, which is much too long.
The agency leasing specialists have expedited processes available that they could use, but they haven't used them in all cases, so that could cut it down.
We're also saying if you have 70 percent of your inventory that is real small leasing, and the agencies would like to do that, and it is cost effective, the report also says to see if it is cost effective, then you could let the agencies do it themselves.
I think in time a lot of those agencies may come back once they find outyou know, it's easy to talk about the leasing process and it's easy to say that it's not that much problem, but when you look at all the requirements that the Government has on a lease, it gets to be a very complex process.
Mr. MASCARA. Thank you, Mr. Chairman. And thank you, Mr. Whyte.
Mr. GILCHREST. Thank you, Mr. Mascara.
Page 39 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. Whyte, thank you for joining us this morning. We'll submit those questions for the record and anticipate your response. Thank you very much.
Mr. WHYTE. Thank you.
Mr. GILCHREST. Our next witness is Mr. William Herron.
Thank you for joining us, Mr. Herron.
TESTIMONY OF WILLIAM E. HERRON, PARTNER, ARTHUR ANDERSEN, LLP
Mr. HERRON. Thank you, Chairman Gilchrest, Congressman Traficant, Congressman Mascara. It is my pleasure to present in response to your request.
My name is William Herron. I'm a partner with Arthur Andersen and have served as the overall engagement partner on the GSA engagement.
I have previously submitted written testimony describing the FORM process utilized by GSA in analyzing 16 different business segments.
My background as a member of Arthur Andersen's firm primarily consists of over 25 years working in the private sector for clients who generally had large, complex, multi-location operations. I have worked extensively with large publicly-held corporations. I am a certified public accountant licensed in the State of Pennsylvania since 1971. I have worked as an auditor on certain jobs. I have also worked as a consultant on jobs to help companies review business processes and to review a possible acquisition or divestiture of business segment.
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My experience has been across a large number of industries over the years, with the latest concentration being in financial services in the real estate industries.
Arthur Andersen was engaged by the General Services Administration to assist in the development of the Federal operations review model, the acronym FORM. We were engaged primarily to bring the private sector approach to bear in the analysis of 16 different businesses that were identified for analysis by GSA.
Our role was to facilitate the formation of the business team leadership of key headquarters and regional personnel for each business analysis. We provided training in how to apply the FORM model to each business line. We provided a framework for each business team to develop a base case analysis of business operations that included financial information as of September 30, 1994, adjusted for fiscal year 1995 events, as well as key operating statistics and measures as to the volumes and goods and services provided.
This analysis was a painstaking gathering of data from the GSA headquarters and regional locations, but it probably represents the best example of base case analysis that I've seen in Government, which is comparable to what a Fortune 500 company would do if it were reviewing a business segment.
Most likely, it provided the GSA business teams, for the first time, a reasonably true understanding of the cost of service delivery to its customers. It also represents probably the best internal analysis ever done on the level of operations and service delivery to GSA customers.
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Once the base case was developed, Arthur Andersen then facilitated business roundtables for each business line where private sector companies were invited in to understand how GSA does business, and to share feedback from the private sector. Many of these roundtables have resulted in GSA being much more connected with the private sector to share best practices.
Arthur Andersen was then directed to go out to private industry to obtain private sector bench marks and performance measures which GSA could use to measure against its own internal bench marks and performance measures.
Significant differences between the private sector and GSA bench marks were investigated by GSA and Arthur Andersen to understand why such differences existed and to ensure that we had as close as possibly could be an apples-to-apples comparison of the business activity.
In a number of business line analyses performed, significant recommendations were developed to improve customer service and reduce cost. The results of the base case analysis were then applied to the various options of the FORM model to see which recommendation made sense in terms or producing quality customer service at the least cost to the taxpayer.
In the specific case of commercial broker analysis, the FORM process revealed the following:
Page 42 PREV PAGE TOP OF DOC Segment 1 Of 2 Arthur Andersen issued an unqualified attestation letter on the process GSA performed on commercial brokering operation in a letter dated December 15, 1995. Commercial brokers' final report on their FORM analysis was a report dated December 14, 1995. It revealed that the annual business line cost of the brokering operation of GSA was $96.7 million per annum.
Some significant work load measures were developed, at least for a baseline for comparison in the future. These included lease acquisitions completed of 2,282 leases in fiscal year 1994; leases under administration, 7,041 leases; leases involving backfill projects, 833 projects; and canceled projects in which significant activity was incurred by GSA employees of some 1,924 different leases.
There were several findings identified, including some potential savings that were identified in the report issued by GSA and with which we concur that there was some opportunity for some $3 million of savings in the lease administration, purchase of additional lease administration services, and a potential of some $7 million of potential savings in the acquisition of small lease services, particularly those leases that are 10,000 feet or under.
In conclusion, I believe the GSA team prepared a complete and thorough analysis of its commercial broker operation and should proceed to implement the recommendations in the analysis.
I would be glad now to entertain any questions, Mr. Chairman, you or the committee members may have.
Mr. GILCHREST. Thank you, Mr. Herron.
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Mr. TRAFICANT. I have a number of questions. I'd like them put on the record, and a couple I'd ask for a response here. It won't be that long.
One, how did Arthur Andersen get involved with the project and how much has Arthur Andersen been paid for the work?
All of these will be submitted in writing.
Number two: what recommendation did you give to GSA regarding the use of technology in their real estate program?
Number three: I was very interested in the FORM flow chart on page five of your testimony. Please explain how the word ''value'' was defined. The flow chart indicates that if something did not have value, it was thought given to creating value through restructuring. Please explain that process.
Page six, phase two, there is a box titled ''external consideration.'' I'd like an explanation how that fits.
Next one is: how does Arthur Andersen react to the IG's report of 10/18/95, and to explain the importance of developing the 'base case' financial information, page eight? Please explain the plan as it appears on page eight, and how did Arthur Andersen determine leverage advantages?
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I understand the staff has requested the survey material mentioned on page nine. What percentage of the Federal Government responded to the survey? Who developed the survey instrument? Are their responses reliable?
How did Arthur Andersen solicit employee and management feedback? Please supply this information to the subcommittee. And did Arthur Andersen solicit opinion and comments from Members of Congress or their staffs?
On page ten of your testimony, titled, ''Conducting market survey,'' there is a step about determining the best method of securing data. Please explain how that was done.
Also, the next step speaks about conducting inquiries. How was that done?
On page 14 of your testimony you state that most activities are not inherently governmental. How you came to that conclusion I would like on the record.
Finally, is it not your opinionjust yes or nothat a centralized operation through GSA is in the best interest of our Government, of our leasing activities?
Mr. HERRON. I'm sorry. Would you repeat that last question, please?
Mr. TRAFICANT. Is, in fact, a continuation of a centralized form of leasing operation through General Services Administration the best interest for our Congress and for our country?
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Mr. HERRON. When you say ''centralized,'' we really don't have a centralized
Mr. TRAFICANT. A continuation of the program we have now with in-house professionals at GSA handling the matters.
Mr. HERRON. In the best interest of our Government?
Mr. TRAFICANT. Yes.
Mr. HERRON. I will qualify that with the understanding that Mr. Peck, as the new commissioner, is moving forward with a number of initiatives which I think, when they are completed, will probably end up in the best program for the U.S. taxpayer.
Mr. TRAFICANT. Did not your report and did your study, after quite a bit of money here, did you not report back that the professionals conducting such business are more than adequately prepared to handle itin fact, not only doing a good job? You would question moving out privatization?
Mr. HERRON. On an overall basis our conclusion was that the commercial brokering function being performed by the Government was as effective as the private sector. We had several minor recommendations for some savings in certain areas, but generally the conclusion was it was as effective as the private sector.
Page 46 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. TRAFICANT. That's very good, Mr. Herron. Thank you.
Mr. HERRON. All right.
Mr. GILCHREST. Mr. Mascara.
Mr. MASCARA. Yes. Thank you, Mr. Chairman.
Mr. Heron, maybe I can answer one of Congressman Traficant's questions. Did it cost $5 million, this study?
Mr. HERRON. Let me put that in some perspective, because I knew you were going to ask me that question anyhow.
The cost to GSA was $4.5 million. That included 16 different business analyses. This is but one of those business analyses. There are 15 other volumes. It represented 40,000 hours worth of work, both by Arthur Andersen and certain minority firms that were a part of our team. That total cost was $4.5 million.
Mr. MASCARA. Fine. Thank you.
The study was to conduct a review of GSA's leasing program and conduct a cost accounting analysis to determine whether there were potential savings by purchasing or contracting out GSA lease administrative services, and thenI picked that up some place last night while I was reading. And then I went to a letter to Ranking Member James Oberstar, and in that letter it says, ''The FORM analysis generally concluded that GSA employees and programs performed competitively with their counterparts in the private sector. Where we are more expensive than the private sector, it is often because we operate under procurement and personnel laws and regulations that do not apply to the private sector.''
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My question is: does the reportbecause I did not have the benefit of having the reportpoint out to Congress and to this committee what those rules and regulations were and could they be waived in subsequent pieces of legislation or rules?
Mr. HERRON. Congressman, there is an appendix to the report that identifies the various types of legislation that have been an impediment to the Government acting effectively and comparable to the private sector.
I'd also point out to this committee that the general counsel of GSA, at the very beginning of our process in January of 1995, spent an exhaustive period of time and pulled together a very sufficient and very reflective binder identifying all the various pieces of legislation that impact how GSA has to do business, and were considered by the various business teams in each of the analyses that were done.
Mr. MASCARA. I have one other brief question. Maybe you could summarize the methodology that you use in doing this study and of the cost accounting analysis.
What kind of a model did you use, did Arthur Andersen use?
Mr. HERRON. I guess you mentioned earlier, Congressman, that you had life as an accountant, and I guess I would make the equation like if I were going into buy your business, how would I look at what you do and how you do it and what kind of value would I put on it.
Page 48 PREV PAGE TOP OF DOC Segment 1 Of 2 So the approach we brought to this processand actually helped the GSA team bring a private sector analysis to what is this business and what are the tasks that it does, what are the costs it incurs, what kind of service does it deliver to its customer, and what kind of value would you put to it if you were looking at it from a private point of view.
That was a fascinating process to go through those 16 different analyses with 16 different business teams from throughout the whole organization.
Mr. MASCARA. I don't want to minimize the complexity of the study that you undertook by any means, but generally can we assume that the study concluded that GSA is competitive with the private sector, with the exception of the burdensome and cumbersome rules and regulations that GSA must comply with?
Mr. HERRON. An overall conclusion I would haveand that's not just applied to commercial broker but the other 15 different businesseson a direct cost comparison with the private sector, the Government was doing very, very well. When we got to the levels of overhead, both at headquarters and regionals, when you did the comparisons, the Government was three to four times the level of overhead the private sector was incurring.
So when you got to the total comparison of cost-to-cost, the Government would not necessarily look wellnot necessarily in this business line, but in many of the othersbecause of the levels of overhead that were applied to determining the full cost of service.
Mr. MASCARA. Thanks, Mr. Herron.
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Thank you, Mr. Chairman. That concludes my questions.
Mr. GILCHREST. Thank you, Mr. Mascara.
Ms. JOHNSON. No questions at this time.
Mr. GILCHREST. Mr. Traficant has another question.
Mr. TRAFICANT. Just real a quick comment and question.
I guess it was about $110 an hour that was paid for that study.
Mr. HERRON. Right.
Mr. TRAFICANT. I realize that's an awful lot more than what GSA workers are paid for their work.
My question is: in essence, what you do is you say that the quality and the professionalism and the competency of the GSA is there. You say it's adequate, it's at least as good as or better than the private sector.
Even though it is more of a question for another witness previous, with that in mind, and after all of this money invested, would it not be prudent to take a look at the professionalism involved and to seriously question a delegation of duties since such success has been noted in your report?
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Mr. HERRON. I'm not sure exactly, Congressman, what you're asking me.
Mr. TRAFICANT. What I'm saying is you said everything's okay, and now we're coming back here, after spending $4.5 million, and we're talking about delegating it out to somebody else.
Mr. HERRON. I think what the commissioner testified to this morning is they're trying toI'm not suggesting that it be delegated out to anyone else.
Mr. TRAFICANT. But I am asking you that, Mr. Herron, because we've invested $4.5 million, and that's what you did for us, and I'm asking your opinion. If something's successful, do you change it?
Mr. HERRON. I think you lookalways look to reinvent what you do to make sure you're doing it the best possible way. I just think the program that the commissioner is rolling out is a continuing reinvention of how they are doing business.
I certainly don't believe, from my perspective, that a total delegation out is the right answer, because I think you need to have the policy oversight and controls in place, and I think that the next step in the process where the commissioner is heading is probably a good step.
Mr. TRAFICANT. So, in other words, what you're saying is, if on these smaller leases there is some delegation to these individual agencies, but once they, in fact, warm up the issue, the closing should be done with the supervision and the expertise of GSA?
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Mr. HERRON. I believe so.
Mr. TRAFICANT. No further questions.
Mr. GILCHREST. Mr. Herron, you just said to Mr. Mascara that the competitive nature of leasing as far as the professionals in GSA fared very well with their private sector counterparts, but that the main problem, as you saw it, the overall scheme of GSA was the cost of the overhead.
Would you say, if you are familiar enough with proposals by Mr. Peck, will his initiatives begin to reduce the cost of the overhead so that GSA can be truly competitive with the private sector?
Mr. HERRON. I think with the Public Building Service initiatives, not only in the leasing program, but in some of the other areas that are underway, that overhead issue really surfaced as an important thing to be worked on, and I believe those initiatives will start to attack that overhead, both at the regional and at the headquarters level.
Mr. GILCHREST. Apparently the IG in GSA has some reservations about your analysis.
Mr. HERRON. Let me speak to that, because we worked with the IG's office as they would come in and do the review. Quite honestly, their review of our commercial broker operation probably occurred in the summer of 1995, and they issued their report dated October of 1995.
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As the Mr. Whyte and I even talked about, the whole issue of overhead allocation within the whole agency wasn't really resolved until the fall of 1995, and that's why we didn't issue our final report until December of 1995.
At the time they were doing their review, there were some issues that were open. The deputy IG and myself agreed that we had some open issues.
By the time we issued our final report in December of 1995, the whole overhead issue and the allocation out to PBS and FSS and the other parts of GSA had all been completely agreed to within the agency.
So what I'm sayinghe mentioned this morning, he was issuing an interim report. He might issue a final report if we got to a phase two. The phase two was meant to be somewhat down the road if, in fact, it was going to happen.
So whenI think when they make some references to errors and omissions, I think it's the whole question that the overhead hadn't been finalized at the time they issued their report in October but was finalized by the time I issued my report in December.
Mr. GILCHREST. Are youI guess any time you engage in a process that is as costly and as complicated as this, there are always going to be either fundamental differences or petty differences in the final analysis.
Mr. HERRON. Right.
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Mr. GILCHREST. Your relationship to this point with GSA, as far as your study and analysis, which we asked you to do, was itcould you give us any improvements if we ever asked you to do this again on how it could be done differently?
Mr. HERRON. Absolutely. As we went through each of these 16 different analyses, working with the GSA senior management, we developed lessons learned, so that by the time we finished the process we had gone through the whole thing with a lot more knowledge and a lot more trained people.
As a matter of fact, I think a number of the teams within GSA could continue to do this without our assistance, because I think they've learned the skills that they need to bring to bear.
I also want to mentionand I need to probably come back in writing to this committeepeople have been talking about $4.5 million being the cost. I will tell you the potential savings could range from $60 million to well over $100 million, and I can enumerate that in some detail.
These savings were identified primarily by the business team leaders and are in various stages of being implemented.
I guess people talk about cost, but there is a lot more of benefit out there that will be realized by actions taken by each of those 16 different business teams.
Page 54 PREV PAGE TOP OF DOC Segment 1 Of 2 Mr. GILCHREST. Now, you're in the process of that analysis right now, or is that complete so that we could get a copy of the proposed savings?
Mr. HERRON. In essence, Congressman, I'd have to go through these 16 binders and pull together a summary for you of the recommendations for each of those 16 different businesses that would aggregate well in excess of $100 million.
Mr. GILCHREST. These are recommendations to achieve savings. What I'd like to have specifically are those recommendations so that we could, through our oversight responsibility, ensure that some of those recommendationsthe ones that are useful, reasonable, and can bear fruitare followed up on. That would help this oversight committee.
Mr. HERRON. Yes, sir.
Mr. GILCHREST. Is that possible to get that analysis?
Mr. HERRON. Yes, sir.
Mr. GILCHREST. Thank you.
Mr. TRAFICANT. Yes. I would like also for you to submit for the record in writing those savings that were accrued as a result of this study, enumerate them and quantify a dollar amount.
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[The information received follows:]
Mr. GILCHREST. Mr. Mascara.
Mr. MASCARA. Just briefly, you mentioned about the savings, $100 million or hundreds of millions. I read some place during my very boring post-midnight reading of this material, that the savings was $6 million per year. I just wondered, is that in addition to the $100 million you're speaking about?
Mr. HERRON. I think the $6 million relates to just the purchase of small lease administration cost. That is but one of the recommendations.
When I talked about $100 million, that cuts across all 16 different business analyses, commercial brokering being but one of those 16.
Mr. MASCARA. So that's in addition to the $6 million in anticipated savings?
Mr. HERRON. The $6 million is within my $100 million estimate, but we will come back to this committee with a written summary of all those recommendations.
Mr. MASCARA. None of us meant to infer that the $4.5 million wasn't well-spent, given the amount of savings, of course, that you've indicated.
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That concludes my questions, Mr. Chairman.
Mr. GILCHREST. Ms. Johnson.
Ms. JOHNSON. I'm not quite convinced yet, so how soon do you think you could get that information to the committee?
Mr. HERRON. Within a week.
Ms. JOHNSON. Okay.
Mr. GILCHREST. I guess your computer is a little more advanced than GSA's.
One last questionI guess to gather that information you can punch a couple of buttons on the computer. One last question, Mr. Herron. Would you do this again?
Mr. HERRON. Absolutely. I mean, from a point of view of this agency knowing more about how it does business. One of the things that people learned as they came in from the regions or participated from headquarters, they know today within these businesses considerably more about how they do business, how they deliver service to their customer, what their customers are concerned about, than they ever systematically and analytically ever developed previously. It became a baseline for them.
Page 57 PREV PAGE TOP OF DOC Segment 1 Of 2 As I said to the new administrator when I met with him in April, I said, ''David, I would hope that these 16 books don't sit on a shelf, because they are a valuable, valuable baseline that each of your teams can use to continue to reinvent yourself.''
Mr. GILCHREST. Mr. Herron, thank you very much.
Mr. HERRON. Thank you, Mr. Chairman.
Mr. GILCHREST. The hearing is adjourned.
[Whereupon, at 11:55 a.m., the subcommittee was adjourned.]
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