FINDINGS AND RECOMMENDATIONS The Public Buildings Service (Region 2) exercised extremely poor judgment in many aspects of their sublease of 51,180 square feet of space at One Lefrak City Plaza, Queens, New York. as of December 31, 1979, the space has been vacant a cost of over $500,000. - the space may remain vacant for the remaining major alterations (totaling $228,000) were the sublease does not have a renewal option, an expenditure may be required to restore GSA rental payments included a provision for "full service." No attempt has been made to obtain a rebate for daily cleaning, lighting, heating and air conditionin not needed during the long vacancy. The space was subleased from the Stone and Webster Engineering Corporation who originally leased from the owner, LSS Leasing Corporation. The transaction raises significant questions not answered by GSA file documentation. For example: why was the space accepted on an "as is" basis when Audit review disclosed that Stone and Webster had not occupied considering that $228,000 in preoccupancy alterations were required, why was the sublease entered into without a renewal option? The Sublease Effective April 10, 1978, through February 3, 1981, GSA negotiated a sublease (GS-02B-19182) with Stone and Webster, themselves sublessor, providing for 51,180 square feet of space on an "as is" basis. The space, allegedly obtained for the Social Security Administration, required alterations estimated to cost $228,000 before it could be occupied. Alterations planned included removal of existing partitions and toilet facilities for the handicapped. The annual rental cost is $292,198, including heat, air conditioning, electricity, elevator service, etc. There was no renewal option. The Preoccupancy Alterations The space was contracted for on an "as is" basis; that is, rental payments began immediately. It appears that PBS was aware at the time the sublease was arranged, however, that alterations costing $228,000 were necessary before the space could be occupied. We believe it would have been prudent for PBS to stipulate that the rental period not begin until the alterations were complete. Despite the fact that the rental period began on April 10, 1978, and that the space cost was over $24,000 per month, PBS did not initiate alterations until March 19, 1979. The initial work consisted of removing partitions. In May 1979, alterations were halted while PBS ordered the needed building materials from the Federal Supply Service (FSS). Although the FSS received the request for building materials on May 22, 1979, no action was taken to obtain the materials until PBS inquired on October 5, 1979, over 4 months later. The FSS then apparently took action. Materials were delivered on December 6, 1979, and alteration work resumed. The next phase of the preoccupancy alterations is to install restroom facilities. At the time of our review in December 1979, the building manager informed the auditors that he had not yet ordered the required plumbing fixtures because he had not yet determined his requirements. In view of the languid efforts to complete the space to date, it is difficult to predict when the space will be ready for occupancy. In view of the fact that the sublease does not have a renewal option, we question the wisdom of proceeding with space alterations until a renewal option is obtained. The Unearned Space Service Costs Included in the monthly $24,000 rental payments was the cost of space services, such as elevator service, electricity, heat, air conditioning, cleaning, etc.. When GSA failed to rebates for these variable costs not incurred Occupy the space, by the lessor, should have been negotiated. Further, even though the space was vacant, it appears that the lessor was at times incapable of delivering full services, which further justified an adjustment of rental costs. For example: elevator service to the 17th, 18th and 19th floors was nonexistent until May 1, 1978. electrical service to the 17th, 18th and 19th floors has not been available since a July 31, 1979, electrical fire. A Possible Economy Act Violation The sublease file indicates that on February 8, 1978, Stone and Webster accepted GSA's offer of $280,000 (including services) as the maximum annual rental allowable under the Economy Act. We The Acquisition Branch Chief informed us that Stone and Webster's acceptance of the $280,000 annual rental was predicated on rental payments commencing March 1, 1978. were further informed that since the sublease could not become effective until April 10, 1978, the annual rental was adjusted by GSA to compensate Stone and Webster for the period between March 1, 1978, and April 10, 1978. It appears that the rental being paid by GSA for the sublease exceeds the Economy Act limitations by $12,188 per year or approximately $36,000 for the full term of the sublease. Recommendations None. The disclosures in this report will be provided to the Administrator of GSA for consideration of malfeasance on the part of Region 2 PBS officials, and appropriate disciplinary action. Senator CHILES. So right now it is ongoing. You haven't received a response? Mr. DAVIA. We haven't received an official response yet, no. Senator CHILES. But you have a number of questions and money is running every day, is it not? Mr. DAVIA. Yes. We had a hearing last Friday before the Environmental and Public Works Committee with Senators Randolph, Stafford, and Moynihan. They asked for a response from GSA Management, and it was indicated at the time that GSA was now proceeding at great haste to get the space occupied. Very frankly, I think that is a mistake because we probably have a year left under the lease, and we have no option to renew. It would seem to me to be proper procedure to first determine whether or not you can extend the lease before you inconvenience a tenant and incur the expense of moving in. Senator CHILES. That would make it much more difficult. You would be under the gun to have to try to negotiate maybe on a different basis? Mr. DAVIA. Of course. Once we move the tenant we lose the bargaining position. Senator CHILES. The option would be available to cancel and pay the damages or penalty now? Mr. DAVIA. Most of the money is now spent. It is like spilt milk. We can't save much, if anything. Senator CHILES. We would like to continue to follow with you that report as it goes forward. Senator PRYOR. May I ask one more question? Senator CHILES. Yes. Senator PRYOR. Every time I see someone who is associated with General Services Administration, Mr. Davia, whether they be the administrator, the inspector general, the Secretary, a staff person, or a lawyer or janitor, whoever it might be, I ask him the same question, so I will ask you the question. Could you please tell us why we are still doing business with Art Metal? Mr. DAVIA. Art Metal specifically? Senator PRYOR. Yes. Mr. DAVIA. Well, I think it is difficult to turn the tap off there, and that is a personal opinion. A legal case has not yet been made against Art Metal and evidence in these matters is difficult to come by. I think that until a case is compiled which will serve its purpose in a court against Art Metal any cut off of its contracts could be considered discriminatory. I don't think GSA wants to give the contracts to them, but under the system is obliged to. Senator PRYOR. Have any debarment proceedings been instigated? Mr. DAVIA. I was aware that the Inspector General had a study. Senator PRYOR. A study? Mr. DAVIA. Yes. I wasn't informed of the progress of that, or whatever form it took, or the results. I understand it was an objective of the Inspector General's Office. I wasn't part of the effort, however. Senator PRYOR. That is all I have. Senator CHILES. Thank you, Mr. Davia. Thank you for your testimony. Senator CHILES. Our next witness will be Mr. Kurt Muellenberg, the Inspector General of General Services Administration. [Whereupon, Kurt Muellenberg, having been first duly sworn, was called as a witness herein, and was examined and testified as follows:] Senator CHILES. Mr. Muellenberg, I understand that you have a statement, and you may proceed with that. TESTIMONY OF KURT W. MUELLENBERG, INSPECTOR GENERAL, GENERAL SERVICES ADMINISTRATION Mr. MUELLENBERG. Since I was notified that this hearing today was part of your ongoing oversight, I want to take this opportunity to say a few words about the efforts of the Inspector General's Office since submission of my last report, which ended September 30. Let me go immediately to the second paragraph of my statement. In order to take a systematic look at the many complex programs within GSA, and to assure that the resources of my Office are used in the most effective way possible, it became quite clear to me that we needed to develop a vulnerability assessment to identify those GSA programs having the greatest potential for fraud and mismanagement as well as an Inspector General plan to implement a proactive audit and investigation program. This has been accomplished. A copy of the vulnerability assessment was made available to the staff of this subcommittee last November. In addition to the more obvious programs in which fraud has been documented, such as self-service stores and term contracts, the document identifies programs ranging from lease awards, architectural, and engineering services, construction and construction management, property disposal, quality assurance, procurement of computer services to consultant contracts and the multiple awards schedule which require our ongoing attention. I would like to point |