A New GAO Report Questions GSA Savings Claims

The U.S. General Services Administration (GSA) leases private property at a cost of billions of dollars—$5.7 billion annually, to be precise, spread out over more than 8,000 leases. Every year, the agency claims, it saves taxpayers significant amounts of money—about $225 million a year over the last three years—by working through private real estate brokers through its GSA Leasing Support Services program. When in 2018 the GSA leased an office complex in Arlington, Virginia, to house 2,500 employees of the Drug Enforcement Administration, it issued a statement that the terms it had reached would save $100 million over a 15-year contract, citing the deal as a model of “effective real estate management.”

But is it? According to a report issued by the Government Accountability Office (GAO) on March 31, the GSA’s claim that it has saved $676 million over the least three years in “cost avoidance” lacks substantive data to support it. In the spirit of the motto that what cannot be measured cannot be managed, the GAO questioned not so much the accuracy of the claim but the accounting methods used to arrive at it. GSA, the report holds, sets target numbers for leases to be negotiated by each outside firm, but there is no indication that there is any other metric in place to demonstrate that using brokers has enabled GSA to negotiate leases that it otherwise would not be able to complete using its own staff.

The GAO report, a result of a provision in the John S. McCain National Defense Authorization Act, examined data drawn from 2005 to the beginning of the present fiscal year. It analyzed variables including square footage, monthly and annual rents, and total lease cost, data obtained through the GSA’s Real Estate Across the United States (REXUS) database. Three economists with expertise in real estate economics were consulted, along with representatives from the brokerage firms and officials in six GSA regional offices.

By law, the report notes, contractors are allowed to prepare but not sign lease agreements. The six firms operating under the terms of the GSA’s Leasing Support Services program perform numerous lease-related tasks, including negotiating the terms for high-to-moderate value leases that offer incentives by way of commissions calculated as a percentage of the total cost. GSA used those brokerages in 37 percent of all leases between 2005 and 2019, with the brokerages earning about $390 million in commissions over the period.

By the GSA’s own measures, the report continues, only 60 percent of leases negotiated by six private brokerage firms over the last three years were below market rate, one of the desired goals of the program. In part, the GAO maintains, this is because the GSA’s “Bullseye” metric, by which it sets goals, may not accurately reflect market rates and conditions. Four of the six brokerage firms found it inaccurate, and thus difficult to negotiate rates that realized savings over what the GSA could negotiate on its own. Leases are also awarded, in many cases, one or two years after they are negotiated, leading to upward changes in rates that again thwart the goal of cost savings.

Are outside brokers more productive than in-house staff in negotiating leases? The GAO report closes by saying that, given the available tools, there is no good way to know. Despite ongoing pressure to privatize public services, the GAO report suggests that ostensible savings from using outside contracting specialists need to be calculated with more reliable measurements.

In a response to the report, GSA Administrator Emily Murphy counters that the use of outside contractors “saves significant money by negotiating lower rental rates, reducing the hours needed from internal staff, and increasing the lease replacement rate that, in turn, avoids extension premiums.” Murphy closes by saying that the GSA disagrees with the report overall, and particularly its recommendation that the GSA “develop outcome-based metrics to evaluate the effectiveness of using brokers to supplement the GSA leasing workforce.”

That workforce, the GAO report notes, is half the size that it was in the late 1990s, although GSA was authorized to spend $34 million on lease-contracting officers in 2020. The report reiterates that the Government Accountability Office seeks better, more reliable data to “inform the right mix of brokers and GSA leasing personnel as the agency moves forward with its leasing work.”