1). 3). Renovation Process Continues to Follow Leading Industry Practices but Faces Challenges Going Forward

Consistent with our 2001 and 2003 reviews of the early planning for the  renovations, we found that UN officials continue to follow leading industry  practices in the development of the UN headquarters renovation project. Although the CMP office has used a competitive process to date, we  reported in April 2006 that the UN’s procurement process has numerous  weaknesses. In addition, according to a UN  procurement official the UN procurement division will be involved in  processing contract amendments and ensuring compliance with UN  procurement rules and procedures. Cost Estimate Increased; Industry Practices Followed but Estimate Likely to Change

The estimated total cost of the CMP increased from about $1.19 billion to  almost $1.75 billion—an almost $560 million increase—between 2002 and  2005 to reflect inflation arising from a later start date, refinements to the  design, and a multiphased renovation approach. We have previously reported that changes in the cost estimate should be  expected as the design progresses and more project details become  known. Under the cash assessment approach, each  member state would likely be assessed the cost of the renovation based on  the rate of its annual regular budget contributions to the UN. The General Assembly plans to revisit the issue of financing  the CMP by the end of 2006. The General Assembly Has Not Decided on a Financing Arrangement for Its Remaining Renovation Project Costs

While the General Assembly has passed a resolution stating that cash  assessments would be the simplest and most cost-effective approach for  funding the CMP, it has yet to decide how to finance the remaining $1.43  billion, which excludes scope options. Member States Considering Cash Assessments to Finance Renovation

In June 2006, the General Assembly passed a resolution stating that a cash  payment option, based on single- or multiyear assessments, would be the  simplest and most cost-effective approach to funding the CMP. The  cost of these fees has not been included in the UN’s cost estimate for the  renovation. Decisions Needed by December 2006 to Maintain the Current Start Date and Avoid Increased Costs

The CMP’s current schedule could be delayed and costs could increase if  the General Assembly does not make certain decisions by the end of 2006. Specifically, the UN would need a decision by the General Assembly on a  financing arrangement and a total CMP budget to ensure that funds could  be available by December 2007 so that the UN can procure construction  services. OIOS Has Conducted Oversight of the CMP Office

OIOS has been conducting oversight of the CMP office since 2003 and has  not found any material weaknesses in its work. OIOS’s Oversight Impaired by Its Funding Arrangement

OIOS relies on funds from the CMP budget to conduct effective oversight  of the CMP, which may impair its ability to secure sufficient funds. Based on its monitoring work, State has not identified any significant  concerns with the renovation planning process, according to State  officials. Permanent Representative to the United Nations. To examine the factors that contributed to the increase in the 2005 cost  estimate and determine whether the cost estimate was updated using  industry practices, we researched industry practices related to  construction project cost estimating. We  identified remaining decisions that require General Assembly approval and  that are needed for the renovation to proceed. To review UN oversight efforts and State monitoring activities, we  reviewed UN documents such as the Office of Internal Oversight Services  (OIOS) and Board of Auditor reports submitted to the General Assembly,  OIOS management letters to the CMP office, UN resolutions pertaining to  the oversight of the CMP, and the mission statements of OIOS, the Board  of Auditors, and State’s working group on the CMP.
Why GAO Did This Study

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.

What GAO Found

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.