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LCD-78-340 1 (1978-11-13)

handle is hein.gao/gaobaaygr0001 and id is 1 raw text is: DOCUMENT RESUME 07816 - (C31882981 (Restri,:ted) Z - 4 .Z- //-c.. 7g Use of Escalation Clauses for Operating Costs cn All G4SA Leases. LCD-78-340; B-95136. November 13, 1978. 8 pp. + I appendices f8 pP.). Report to Rep. Norman Y. hineta, Chairman, House Committee on Public Works and Transportation: Public Buildings and Grounds Subcommittet; by Elmcc B. Staats, Comptroller General.. Issue Area: Increase in the Amount of Govt. Leased Space Despite Congress@ Emphasis on Federal Construction. (710). Contact: Logistics and Communications Div. Budget Function: General Government: General Property and Records Nanagement (804). Organization Concerned: General Services Administration. Congressional Relevance- House Committee on Public Works and Transportation: Public Buildings and Gicunds Subcommittee. Rep. Norman Y. Mineta. Authority: OMB Circular A-109. The General Services Administration (6SA) is responsible for locating suitable space to meet agency needs, negotiating and awarding ,eases, and ensuring that least terms are met. In November 1973, because of increased inflation, GSA directtd its regions to use escalation clauses for building operating costs in long-term leases of 5 years cr more. The purpose of the clauses was not to reimburse lessors for actual building operating costs brt to provide lessors, through Zhe process of averaging cost increases, acme protection against excessive increases in major costs such as real estate taxes, utilities, maintenance, and janitorial services. Findings/Conclusions: The administration of escalator clauses is complicated by the variety of clauses, by different escalatable cost items, and by payment restricticns. the regional offices did not maintain current or accurate lists cf leases with escalator clauses, rental readjustment dates, base years, or payment dates. The administration of escalation clauses is costly, involving additional negotiations and the ccllection, verification, and analysis of the Jessors' cost information. The best guarantee of a fair and :easonable rental rate, with or without escalatioa clauses, is adequate compstition ty landlords witn space suitable for GSA's needs. Escalatien clauses should be limited to space requirements that are: for leases not drawinq much competition, for lease periods of at least 3 years or more, and of sufficient size to justify additicnal admanistrativc costs. The Consumer Price Index is not an appropriate standard for determining adjustments to building operating costs. Recommenations: The Administrator of GSA should direct the Public Buildings Service to: cancel lAril 1978 instructions requiring use of the Consumer Price Index tor calcu- tinq annual operating cost adjustments, reconsider the circusistances under which escalation clauses may benefit the

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