A GSA Audit Faults Its Public Buildings Service for Rampant Lease Extensions

The Public Buildings Service (PBS) is the largest public real estate organization in the United States, under whose aegis more than 1.2 million federal employees are provided with workspaces. The agency, a branch of the federal General Services Administration (GSA), is responsible for building and maintaining federal properties through contracts that have ranged from $65,000 to put solar panels on the roof of the federal courthouse in Richmond, Virginia, to nearly $207 million to build a new headquarters facility for the US Coast Guard in Washington, DC—at 2,100,000 square feet billed as “the largest construction project in GSA history.”

Only about half of the PBS’s building stock is owned by the government, however. The rest is rented, with some 8,000 leases accounting for more than 187 million square feet of space—from large offices to small ones to warehouses and other structures.

An audit by the GSA Inspector General published on June 22, 2020, found that PBS has not been using the most efficient means available to it to negotiate leases with property owners, including the most economical of them, long-term lease agreements. Instead, in many instances, PBS has relied on lease extensions, by which a lessee agency negotiates terms to remain on site beyond the agreed-upon termination, and holdovers, by which the agency simply remains without formal agreement. In either instance, lessors are in a position to charge premium rates, which flies in the face of the PBS mandate to seek the most efficient and economical leasing sites through competitive bidding and other instruments.

The audit observes that PBS has developed means to avoid extensions and holdovers, including a “simplified lease process” that takes the possibility of long-term leasing into account. However, the first step in the process when a lease approaches its expiration date—a milestone marked two or three years ahead of the actual expiration—is for PBS to check the inventory of properties that the government already owns in an effort to place the agency in question into non-leased quarters. In the absence of suitable or available property, the agency is then to begin a leasing procurement process, securing bids in open competition.

Instead, for numerous reasons, agencies remain in place, using definitively uncompetitive extensions and holdovers, strategies that are meant to be used when an agency simply cannot vacate premises in time to meet an agreed-on expiration date. The audit shows that holdovers are uncommon as compared to extensions (97 of the former in FY2014, for instance, as opposed to 1,229 of the latter in the same year). The number of both has generally decreased in the years since 2014, although the number of those extensions has never fallen below 1,000.

Extensions and holdovers are so costly, of course, because they apply only to the short term and because the lessee is generally at the mercy of the lessor, with little negotiating power. Even so, PBS seldom meets the required milestones for setting long-term agreements in place. The audit shows that of a sample of 16 leases with annual rents of more than $500,000, fully 75 percent were not on track to meet the terms of the lease process, making it likely that they would have to be augmented by extensions or holdovers.

In one such case, the Social Security Administration leased a large office space in Sacramento, California. When the time came to begin the property review process, PBS wrote to SSA to inform officials of the impending lease expiration and to provide appropriate project-agreement paperwork. It and three separate letters simply went unanswered. In the end, the SSA simply filed a “space request form,” and that three months after the deadline to file. GSA will almost certainly have to extend the existing lease as a result.

Similarly, the Department of Housing and Urban Development leased a property in Pittsburgh that appears to have been larger than it needed. PBS had been discussing reducing HUD’s footprint since 2015, but the space request remained unchanged, making federally owned properties too small, on paper, to accommodate the agency’s workers. PBS agreed to an extension at a premium cost, since the leasing agreement made no provision for renewal.

Delayed and incomplete paperwork, uncooperative managers, failure to follow timetables: whatever the cause, the audit finds that PBS is paying much too much to house federal employees. The mandated “simplified lease process,” the audit report adds, is being used less than 10 percent of the time, according to a sample of 33 leases. The audit concludes by recommending that the PBS Commissioner examine existing lease-processing procedures to determine if any revisions need to be made in order to meet the goal of reducing extensions and holdovers, better communicating requirements to tenant agencies, and training staff at those tenant agencies to use the appropriate “Request for Lease Proposals” models. With a few technical exceptions, PBS has accepted the audit’s findings.