Standard Level User Charges Assessed to DOD by GSA

LCD-80-18: Published: Nov 7, 1979. Publicly Released: Nov 19, 1979.

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To determine if the objectives of Public Law 92-313 are being met and complied with and whether the Department of Defense (DOD) is receiving equal treatment with respect to standard level user charges assessed to it by the General Services Administration (GSA), GAO reviewed the computation and reasonableness of annual rental charges assessed DOD. The law authorizes and directs GSA to charge agencies for the space they occupy and services rendered. It states that the rental payments shall approximate commercial charges for comparable space and services, but does not contain criteria or guidance for computing comparable commercial rates. The rental rates for the 57 office-type buildings occupied by DOD in the National Capital area are computed for fiscal years 1979, 1980, and 1981 by reappraising one-third of the buildings each year and establishing a new rental rate for the next 3 years based on the reappraisals.

According to DOD, the rental rates it pays are either more than GSA pays under its lease contracts, or more than DOD could obtain on the open market. On an overall basis, the charges assessed to tenant agencies is more than the rent GSA paid to lessors. On- long term leases the charges to agencies exceed rent payments to lessors because charges to agencies are adjusted every 3 years, while rent payments to lessors on most long-term leases entered into before fiscal year 1974 are fixed and the leases do not include escalation clauses. Although the law directs GSA to charge agencies comparable commercial rates, GSA does not have a basis to charge agencies at a rate based on cost. DOD has expressed concern about the increases in rental rates within the National Capital area. Since there is an increasing demand for office space within this area, there have been increases in commercial rental rates. These commercial rates determine the size of the increase in rates paid by agencies because the rates charged are based on appraisals of comparable buildings. Frequently, agencies pay for space alterations for which GSA is not in a position to pay. After the space has been altered and upgraded, GSA will reclassify it and charge the agencies a higher rental rate. GAO believes that tenant agencies are justified in questioning the reasonableness of this practice. In situations such as these, the agency should receive a credit for financing the alterations as a reduction against the user charge payments.

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