REVIEWING REVISED SCHEME FOR RENOVATION OF UNITED NATIONS HEADQUARTERS, BUDGET COMMITTEE MEMBERS SEEK ASSURANCES ON COST, RELATED ISSUES

Sixty-second General Assembly

Fifth Committee

9^th Meeting (AM)

REVIEWING REVISED SCHEME FOR RENOVATION OF UNITED NATIONS HEADQUARTERS,

BUDGET COMMITTEE MEMBERS SEEK ASSURANCES ON COST, RELATED ISSUES

Newly Appointed Executive Director Responds to Critics of Earlier

Proposal, Reports on Accelerated Strategy to Implement Capital Master Plan

As the General Assembly’s Fifth Committee (Administrative and Budgetary) continued its discussion this morning on the capital master plan for renovating United Nations New York Headquarters, members asked how the project’s newly appointed management team intended to keep the accelerated renovation strategy, introduced during yesterday’s debate, within the project’s approved $1.8 billion budget, without sacrificing its safety, quality, functionality and environmental sustainability.

Stressing the need for strong leadership, the representative of Pakistan, speaking for the “Group of 77” developing countries and China, said the state of affairs today, with the project over-budgeted and behind schedule, showed lack of responsibility on the part of the senior management.  Unless the Organization held people responsible for the implementation of the project, the capital master plan now under discussion would not succeed.

The representatives of China and the Republic of Korea said the appointments of a new Executive Director and construction management service, Skanska Building USA, were an achievement; the new leadership had ample experience and expertise to move the project forward effectively.

The Committee was told that, since the signing of a lease for “swing space” -– to accommodate personnel displaced by the renovation work -– and dealing with construction design, the Secretariat had been resolving problems and concerns raised by the Board of Auditors and Member States more quickly than expected.  However, the project was still in the planning stage and new uncertainties and concerns could arise.

The representative of the United Republic of Tanzania, among others, said the contract with Skanska Building USA was “experimental”, and he asked whether extensive technical, legal and financing reviews of its industry-specific terms and conditions had been undertaken before it was awarded.  The representative of Egypt said the advisory board for the project should have been in place a year ago.

In response to numerous questions raised in the debate, Michael Adlerstein, Assistant Secretary-General and Executive Director of the Capital Master Plan, outlined various issues, including:  costs associated with the project; additional staffing requirements; mandates of the contract with Skanska Building USA; treatment of the works of art at Headquarters; the status of the advisory board and vacancies to be filled; the exercise of “value engineering”; and the renting of additional swing space.

Warren Sachs, United Nations Controller, also responded to questions which arose during the Committee’s last two meetings.

The Fifth Committee will meet again at 10 a.m. tomorrow, Thursday, 25 October, to begin its debate of the budget, for the 2008-2009 biennium.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to continue its consideration of the accelerated strategy for implementing the capital master plan proposed by the Secretary-General to reduce the risk of an unanticipated escalation in the cost of construction (for details, see Press Release GA/AB/3816 of 23 October).

Statements

PARK HEE-KWON ( Republic of Korea) said he was aware that the capital master plan was mostly in the hands of the newly appointed Executive Director and Construction Manager, and expressed confidence that both of them had the experience and expertise to move the project forward effectively.  He said he was pleased that in recent months the Secretariat had been resolving problems and concerns raised by the Board of Auditors and Member States more quickly than expected, by those two appointments, by signing a lease for swing space and by starting on construction design.  While the accelerated strategy, if fully implemented, could put to rest concerns about cost overruns and schedule slippage, he said it should be noted that it was still in the planning stage, and new uncertainties and concerns could arise.

He said “value engineering” was both his greatest hope and concern for the project.  Although he acknowledged it could reduce costs, he said there should be a more concrete sense of how it was supposed to work.  In current circumstances, Member States could not be expected to blindly offer their trust.  He wondered if the “value engineering” process could live up to the Secretary-General’s promise that the renovated headquarters complex would be a landmark of energy-efficient architecture.

Similarly, he said, more attention should be paid to staff safety and health, especially for the more than 2,000 staff members expected to remain onsite during construction.  The Office of the Capital Master Plan should also make an effort to guarantee the safety and comfort of visitors, and their access to United Nations activities, to the greatest extent possible.  Cost savings should not be pursued at the expense of security, safety, quality, functionality, energy efficiency or environmental sustainability.

On the procurement process, he said the capital master plan should lead by example.  The bidding process in every phase of the renovations should be fair and transparent.  The Secretariat’s decision to post all contract information on the relevant websites was to be welcomed.  He asked whether any progress had been made in acquiring private donations that would lessen the financial burden of Member States, and urged the Secretariat to redouble its efforts to seek support from private donors.

He said that since the Secretariat staff were among the direct beneficiaries of the renovation, related departments in the Secretariat should coordinate and communicate proactively with the Office of the plan.  With proper leadership and the work of external and oversight bodies, he said, it was to be hoped this complex project would be kept on the right path; care and caution at the outset, and steady oversight throughout the renovation process, would give confidence for the provision of a home for the United Nations worthy of its expanding role in the twenty-first century.

REN YISHENG (China), associating himself with the position of the “Group of 77” developing countries and China, said certain results had been achieved over the past year, including the appointment of the Executive Director, the awarding of the construction management service contract and results in matters relating to construction documents.  However, progress in the implementation lagged far behind the requirement of the General Assembly, and there might consequently be additional financial burdens for Member States, in the amount of more than $200 million.  Since the plan concerned the safety of the Secretariat staff, Member State representatives, and others having access to the United Nations Building and involved with the practical interests of Member States, he thought the Secretariat was obliged to try all possible means to guarantee the timely implementation of the plan, in accordance with the requirements of the Assembly.

Turning to accelerated strategy IV, he said that the Advisory Committee on Administrative and Budgetary Questions (ACABQ) believed the proposal had its merits and recommended its approval by the Assembly.  He welcomed the Secretary-General’s efforts in implementing the capital master plan and believed the recommendation of ACABQ was worthy of serious consideration.  His delegation would like to request the Secretary-General to take effective measures to implement relevant proposals of the Board of Auditors and the Advisory Committee, with a view to completing the plan ahead of schedule, while ensuring safety, convenience and unchanged budget level, as well as a transparent procurement process during the renovation.

JOHN NG’ONGOLO (United Republic of Tanzania) said he agreed with the statements of Pakistan, on behalf of the Group of 77 and China, and of South Africa, on behalf of the African Group.  He said that, regarding the contract with Skanska Building USA, he wished to emphasize the importance of fair competition in the competitive biddings.  It was necessary to ensure effective realization of the interests of the Organization.  He asked if there had been any assessment on the risk of reopening the competitive bidding, if the outcome of the review to be undertaken by the current contractor would be acceptable to the Organization.  On the type of contract awarded, which he said was “experimental” by nature, he asked whether extensive technical, legal and financing reviews of its industry-specific terms and conditions had been undertaken before it was awarded.

He said the letter of credit to be incorporated in the financing arrangements of the plan served two purposes:  to provide assurance to contractors on the liquidity of the plan, and to act as an alternative source to meet any unexpected disruption in the flow of resources for the plan.  He acknowledged that in unexpected circumstances, the cost of borrowing from banks would be incurred by Member States who would have caused such disruptions.  He added that the Working Capital Reserve Fund had also been decided on for such circumstances; in fact, the possibility of being surcharged for the use of the letter of credit acted as a catalyst for the United Republic of Tanzania opting for a one-time payment procedure in making its contributions to the cost of the capital master plan.  However, they had now been told it was not be necessary to establish the letter of credit.  He said his delegation would like to be assured, as had been the construction manager, that funding of the plan was adequate to cover construction costs.  If the assurance was indeed credible, was there still a need for a working capital reserve? he asked.

Responding to queries raised in the debate, the Assistant Secretary-General and Executive Director of the Capital Master Plan, MICHAEL ADLERSTEIN, said that the costs associated with the project covered a wide range of requirements, including broadcast equipment, new furniture, moving and storing of gifts, storage space for gifts, moving supplies and services, archive space and storage facilities, and additional staffing requirements to manage information and communications technology needs and facilities management and security.

The construction management service, Skanska Building USA, was contractually bound to make recommendations on what materials and services could be purchased internationally, he continued.  The capital master plan and Procurement Division, working with Skanska, would ensure that tender opportunities for the purchase of those materials were extended to developing countries and countries with economies in transition.  The plan would ensure that the finalized processes incorporated appropriate levels of control and transparency, including web-based bid-advertising and contract-award notices.

Turning to the treatment of the works of art, he said that all necessary measures would be undertaken for their protection during the renovation.  Moreover, once completed, the renovated buildings would provide for a more appropriate environment to house various artworks.  The renovation would remove hazardous materials; temperature and humidity would be much better controlled; the new glass would be better suited for the works of art.  However, works of art in an active operating facility would inevitably require more observation in care in the years ahead.

His office would need to work with Member States to find good long-term solutions before the buildings were reoccupied.  During the renovation, works of art would be completely protected from any direct impact of construction, as provided by the contract with Skanska.  However, any work of art was vulnerable, and the office would be discussing each individually with respective donors.  In some cases, Member States might prefer to remove the works or art they donated and return them after the renovation work had been completed.  In reference to the “War” and “Peace” murals, the office would work with the donor on the appropriate method of protecting the art in place.

On the status of the advisory board, he said that the terms of reference had been developed for approval by the Secretary-General.  Candidates would be sought on the basis of such requirements as geographic representation, architectural experience, or experience in the areas of finance, sustainability, historic preservation, New York City construction, and project and construction management.  It was anticipated that the advisory board would be in place by the spring of 2008.

Regarding additional “swing space”, he said that a number of possible office spaces had been identified and evaluated.  Preliminary discussions had been held between the landlord of a particular building and a real estate broker representing the United Nations.  Other buildings had also been discussed as back-up locations.  Discussions would be concluded upon the Assembly’s decision on the accelerated strategy IV proposal.

Explaining the concept of “value engineering”, he said it would identify cost savings to allow the project to be accomplished, without compromising the quality of the final product.  It was a process of reviewing the objectives of the project and actual design work and finding ways of achieving the same objectives at lower cost.  Value engineering was generally necessary at several points in the project, because it was difficult to estimate the costs with any degree of accuracy until design work was developed.  As a key component of its pre-construction responsibilities, Skanska would make value engineering recommendations.  All the design teams and the programme manager were also re-examining the design objectives and systems being planned and seeking such savings a different routing of mechanical installations, simplified equipment, ways of avoiding temporary work, less demolition, less expensive placement of equipment, changes in types of equipment to reflect market conditions, and changes in specifications that might expedite the process.

Most of the changes were likely to be in the heating, ventilation, air conditioning, electrical and plumbing systems.  The plan office would also carefully review the situation to ensure that standards and expectations of the facilities kept pace with the new thinking and that the cost was not inadvertently increased by outdated expectations.  Should the Assembly agreed to the accelerated strategy, the change to a simplified and accelerated schedule would not only provide savings in itself, but also open the door to other simplified design concepts, particularly in mechanical systems.

On the status of vacancies, he said that as of 22 October, all 19 temporary positions in the office of the capital master plan were fully encumbered, in addition to eight support positions in other departments.  Regarding technical surveys, he said a geo-technical investigation was under way on the North Lawn to determine the sub-surface conditions.  That information was required to design foundations for the temporary conference building.  A civil survey had recently been completed that had identified the exact location of the underground building in relation to other site features, and provided additional information about the site.  Scaffolding would be erected this week to enable testing and probing to determine the exact condition of the stone anchors on the Secretariat façade.

WARREN SACHS, United Nations Controller, responded to comments from the representative of the United Republic of Tanzania, on the assurance given to the construction manager that funding of the capital master plan was adequate to cover construction costs and, if so, whether there was still a need for a working capital reserve.  He said a letter of credit had not yet been used, but there was a possibility that incoming cash flow assessments and outgoing expenditures would not match.  There was a need for adequate resources for what might be slowness or unevenness in cash flow -- that would be the reason for a working capital reserve.

He said that based on the success of the value engineering exercise, being “in-budget” would be possible.  He noted that the Secretary-General had indicated in paragraph 53 of his report that he would ensure that the overall budget of the capital master plan would remain at the authorized level of $1.8 billion.  Using current methodology, he did not have doubts about keeping the plan in-budget.  Regarding methodology, he said having a two-contract system in place -- “A and B” -- was normal for construction in New York.  He said it was not appropriate to call the system an “experiment”.

He then referred to a question brought up to the Committee yesterday by the representative of Pakistan, on paragraph 48 of the Secretary-General’s report, and concurred with the representative of Pakistan that it was correct that what the report called a “recommendation” would be more appropriately  called a “mandate”.

HESHAM MOHAMED EMAN AFIFI ( Egypt) took the floor again this morning, saying that speakers today were “not telling us much, but just what we already know, not more about what we don’t know”.  He addressed several questions brought up yesterday and offered clarification.  Concerning the associated costs, he said the main question was not what the costs were, but why they were not articulated until now.  On procurement opportunities, he said the issue should be addressed in informal consultations.

Regarding the establishment of an advisory board for the plan, he said the question was not how it would be formed, but why it was not until now that it had been established.  The advisory board should have been in place a year ago.  Taking up the issue of “swing space”, he said the question was not what space was, but how it was guaranteed.  Securing swing space formed the basis of the proposal and was a cornerstone of the issue.

Referring to the use of value engineering, he said that if savings were possible as a result of changes offered by the exercise, then why were they not offered when the budget was discussed last year?  He said he also wondered why technical surveys were not made then, as well.  On paragraph 53 of the Secretary-General's report, previously referred to, he said the question was not the need to be assured about keeping to the authorized cost level, but the manner by which it could be assured.

IMTIAZ HUSSAIN (Pakistan), speaking for the Group of 77 and China, asked if the new “value engineering” concept had just surfaced in 2007 and if it was coming from Skanska, or was it a technique that the management had been cognizant of before.  Why could not those concepts have been included earlier on?  He also asked if the accelerated strategy could restore the budget to the approved level of $1.8 billion.  The Group wanted to receive assurances that the project would not be brought “further down” and that the work and quality of construction would not be compromised.

He also commented on a serious concern of the Board of Auditors about the lack of internal controls to ensure that the Assembly’s mandates were fully implemented.  He said the state of affairs today was primarily the result of the lack of responsibility of the senior management, despite the approval of the project by the Assembly.  “We need to know that, if the Executive Director also feels frustrated with Member States and people in the Organization, as his predecessor did, where are we going to go”? he asked.

He said the project sometimes seemed to be like “a house of cards”, ready to crumble.  Unless the Organization held people responsible for the implementation of the project, the capital master plan would not succeed.  “We need assurances that, this time, the project will go through and not collapse”, he said.  It was disturbing that what the Assembly had agreed upon was treated lightly; there was neither accountability for past mistakes nor assurance of how to prevent new lapses in the future.

He said he wanted assurance that there would be no further major shifts in what was now being presented to the Assembly.  Of course, it was possible that the project would go as planned, but assurance was needed that, “in the worst-case scenario”, another $300 million would not be presented to the Assembly.  “If things do not go right, who will be responsible”? he asked.  And was it possible to dispense with the letter of credit in the event that adequate contributions were received from Member States?

Responding, Mr. ADLERSTEIN said value engineering was not a new technique and did not come directly from Skanska.  Under various names, ii had been accepted in the construction industry for many years.  It was a standard practice to revisit the cost basis of projects and see “where you can cut some of the cost out”.  The process of value engineering would not only seek to get the costs back within the budget, but also to ensure further savings.  If there were ways to put the project below budget, that would be perfectly acceptable.

He also clarified that the Board of Auditors had not expressed concern about internal controls, but had commented on the lack of timely decision-making capability.  The plan office would seek to achieve better decision-making, for example, working towards expedited decision in terms of procurement.

On the concern about “major shifts”, he said the contract with Skanska was a major benchmark.  When a construction manager was brought on board, there was a limited amount of time when he was paid to organize and proceed with value engineering.  Once the construction started, the costs of “slowing down” were enormous; whether authorized to proceed with the accelerated or with the approved strategy IV, the plan needed to proceed.  “We will be actually building the temporary building, and there will be no more major shifts, once we get directions from the General Assembly”, he said.

Regarding the letter of credit, he assured the Committee that, currently, there were no fees, or any cost to the Organization.  The letter of credit was envisioned as assurance of payment to the manager and contractors.  “All we have is the ability to use the letter of credit, should the funds not be forthcoming”, he said.

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For information media • not an official record