Space Acquisition Cost:

Comparison of GSA Estimates for Three Alternatives

GGD-97-148R: Published: Aug 6, 1997. Publicly Released: Aug 6, 1997.

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Bernard L. Ungar
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Pursuant to a congressional request, GAO provided information on the General Services Administration's (GSA) comparison of the estimated costs to acquire certain space using three alternatives--lease, direct federal construction, and lease-purchase--covering 10 large leases that were approved by Congress between 1992 and 1996. GAO did not validate the economic model used to do the analyses, but verified selected data that GSA used in its analyses.

GAO noted that: (1) GAO's comparison of GSA's space acquisition cost estimates, which yielded results that were consistent with GAO's earlier report, showed that, for 6 of the 10 proposed acquisitions that were analyzed, government ownership by construction or lease-purchase would have a cost advantage over leasing; (2) GSA provided the estimated cost to acquire space using each of the three alternatives and the cost advantage or disadvantage of the lease-purchase and construction alternatives relative to that of leasing; (3) the GSA analyses has four examples in which leasing was the more advantageous alternative; (4) this result is consistent with GAO's December 1989 report, which said leasing was a less costly alternative for 15 of 72 prospectuses examined; (5) the narrative section of the approved prospectuses GAO examined provided an explanation for this in two of the four cases; (6) for instance, in one case, the Communications and Electronics Command (CECOM) prospectus explained that leasing had a cost advantage because the government had negotiated renewal rates 20 years earlier that were extremely low and cost beneficial in relation to current construction rates; (7) the Library of Congress space was warehouse space, and the prospectus indicated that it was available at a low lease cost; (8) in the other two cases, neither the Social Security Administration (SSA) nor the National Archives and Records Administration (NARA) prospectus provided insights into why the analyses showed that the leasing alternative had a cost advantage; (9) GSA officials could not recall the details of these prospectuses or the market conditions prevailing when the prospectuses were approved, so they could not determine why their analyses showed leasing had a lower present value cost; (10) GAO's December 1989 report said, and GSA officials agreed, that leasing can result in a lower estimated cost for a number of reasons, such as a favorable market resulting, for example, from a glut of available lease space; (11) GAO's December 1989 report, and the prospectuses GAO analyzed, also pointed out that for practical reasons leasing may, in some instances, be the preferred alternative; (12) GAO's report said practical reasons for using leasing would be that no viable alternative to leasing existed because the housing need was temporary, flexibility was required to meet changing needs, or the geographic area had little federal activity; and (13) the prospectuses for the four activities for which GSA's analyses showed leasing with a lower present value also cited some practical reasons for leasing the space.

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