Sixty-fourth General Assembly

Fifth Committee

14^th Meeting (AM)

Budget Committee Is Told of Progress in Construction Phase of Capital Master Plan

for Renovation of United Nations Headquarters Complex

 

Some Slippage in Schedule Regretted; Delegates Also Discuss

Financial Problems of UN After-Service Health Insurance Plan

As the Fifth Committee (Administrative and Budgetary) this morning considered the progress achieved during the first year of the construction phase of the Capital Master Plan, speakers stressed the highest priority of the smooth and cost-effective implementation of the project and its timely completion.

Briefing the Committee on the status of the Headquarters complex renovations, the Assistant Secretary-General for the Plan, Michael Alderstein, said that, with the adoption of the accelerated strategy and the accomplishment of design and value engineering exercises, as well as a careful, disciplined management of the project, he could now project a cost-to-complete of $91.4 million over the approved budget of about $1.88 billion. Two years ago, that figure had stood at about $219 million.  “We are still over budget, but the gap continues to narrow”, he said, promising to continue to seek opportunities to align the project to the budget.

A key measure of progress was the amount of funds that had been committed so far, he said.  Less than two years into the work, his Office had contracts, guaranteed maximum price agreements, and leases and other commitments totalling about $1.37 billion, which represented 70 per cent of the projected cost.  The occupancy of the temporary North Lawn building would start in less than 45 days, and within approximately 60 days, the renovation of the Secretariat Building would commence.

He was pleased, he went on, that the environmental performance of the Headquarters complex would be significantly improved upon completion of the Capital Master Plan.  Many new technologies would improve performance in such areas as energy consumption and reduction of greenhouse gas emissions and water consumption.  They would also enhance indoor environmental quality, use of sustainable materials and appropriate waste management.  Total energy consumption would be reduced by over 50 per cent.  The carbon footprint would be reduced by over 45 per cent, meaning that carbon emissions would be cut by 23,000 tons per year, and fresh water consumption would be reduced by over 40 per cent.

While commending the progress achieved, several delegates, including the representatives of the Sudan (for the “Group of 77” developing countries and China) and Angola (for the African Group) expressed concern over the slippage in the current schedule of the Plan, with its completion now projected in late 2013.

Insisting on full accountability for the delays, Sudan’s representative said that the lack of managerial diligence and oversight, procedural difficulties and insufficient responsiveness to the needs of the project had not only delayed the Plan, but also harmed the image of the United Nations.  The delay in the start of the work on the Secretariat Building and the failure to finalize the contract for the same had already impacted the schedule.  Now, the delayed decision on housing the interim Security Council Chamber had further risked the timely completion of the project, which could be postponed until 2014.

Angola’s representative supported the continuation of value engineering activities to reduce costs without compromising quality or functionality, which had resulted in some $100 million cost-savings.  While expressing satisfaction with the level of cash available to the project, she urged Member States to pay their unpaid assessments without delay, which would expedite the implementation of the project.

Several speakers also addressed the report on risk mitigation to protect data and information and communications technology systems of the Secretariat during construction, endorsing a recommendation from the Advisory Committee on Administrative and Budgetary Questions (ACABQ) that the Secretary-General should continue to closely monitor the situation and ensure that the activities related to mitigation and running of the secondary data centre were completed, in accordance with the Capital Master Plan time frame.

Most delegates also insisted that the Secretary-General should make every effort to absorb in the approved Master Plan budget the so-called associated costs, which represent temporary increases in certain parts of the Secretariat that will support construction activities.

Speaking on behalf of the European Union, the representative of Sweden expressed regret that associated costs had not been built into the original budget proposals.  She said the European Union remained unconvinced that those costs could not be absorbed from within the approved budget.  Among other issues addressed in connection with the Capital Master Plan were related procurement activities, the prospective availability of parking spaces, and the policy for donations towards the project.

Also today, the Committee considered several options for dealing with the Organization’s accrued after-service health insurance (ASHI) liabilities for staff, which amounted to $2.43 billion as at December 2007.

Presenting the Advisory Committee’s comments in that regard, its Chair, Susan McLurg, said the General Assembly might wish to review the scope and coverage of existing plans, as well as contribution levels by the Organization and by participants.

Supporting that recommendation, the representative of Japan said that the Assembly might have limited options, other than to consider imposing a limitation on the number of years for which staff and their dependants were covered after retirement.  Upon consideration of such an option, the Secretary-General should formulate a new proposal on funding strategies, based on that review.

Also participating in the debate today were representatives of Australia (also speaking for Canada and New Zealand), Singapore and Bangladesh.

Various reports before the Committee were also introduced by the United Nations Controller, Jun Yamazaki; the Director of External Audit of South Africa and Chairman of the Audit Operations Committee of the Board of Auditors, Imram Vanker; and the Chief of the Policy and Oversight Coordination Service of the Department of Management, Mario Baez.

The Committee’s next formal meeting will be announced in the Journal.

Background

The Fifth Committee (Administrative and Budgetary) met this morning to discuss the financing of the Capital Master Plan and after-service health insurance (ASHI).

Capital Master Plan

In his seventh annual progress report on the implementation of the Capital Master Plan (CMP) (document A/64/346), the Secretary-General outlines significant progress that has been achieved during the first year of the construction phase of the project, including the completion of design and construction documents for 80 per cent of the project; the award to the construction manager of approximately $746.7 million in guaranteed maximum price contracts; the initiation of work on the temporary North Lawn building; asbestos abatement and swing space construction in the Dag Hammarskjöld Library and off-site buildings; and the beginning of modernization of the infrastructure and basements on campus.

The Secretary-General reports that the project remains on schedule for completion in 2013 and that relocation of staff to swing spaces began in the spring of 2009.  Value engineering and current economic climate have helped to maintain previously established budget goals.  With more than 62 per cent of the Plan’s commitments already locked in, the new projected cost is $1.9 billion with a reduced budget deficit of $91.4 million.  Whereas, previously, the Capital Master Plan faced seven years of unpredictable escalation and other pricing, the Office of the Capital Master Plan has now locked in costs for about $1.22 billion, and will lock in an additional estimated amount of $159 million by the end of 2009.

The Secretary-General recommends that the General Assembly:  take note of the progress made; appropriate the remaining balance of $689.9 million towards the construction phases of the project; and request the Secretary-General to continue reporting on the Plan.

In his report (document A/64/346/Add.1), on risk mitigation measures to protect data and information and communications systems of the Secretariat during that construction work, the Secretary-General provides an update on the implementation of the new secondary data centre, including the resources required for the biennium 2010-2011.  According to the report, by 1 November 2009, all systems were set for moving from the current secondary data centre to a leased facility, which has been identified in Piscataway, New Jersey.  There, the Secretariat has entered into a 30-month lease, commencing 1 July 2009.

The initial proposal assumed that the International Computing Centre, which currently provides services to the primary and secondary data centres, would also provide services for the new secondary data centre.  However, a decision was made not to engage the Centre, owing to its inability to meet the project’s schedule.  Thus, the Secretariat was required to purchase and/or lease all equipment directly, and, owing to market conditions, was able to obtain an advantageous rate for the lease, resulting in changes to the project cost for the period from July 2009 to December 2011.

It is proposed to continue the current cost-sharing arrangement for the secondary centre, whereby 20 per cent of the costs are met from the peacekeeping support account and 80 per cent from the regular budget.  Along with continuation of the cost-sharing arrangement, the Assembly is requested to approve the total revised estimated cost for the project of $21.7 million; and resource requirements for the regular budget share of the project in the amount of $12.2 million, to be funded from the approved Capital Master Plan budget.  Future remaining requirements under the peacekeeping support account estimated at $1.3 million would be included in the peacekeeping support account proposals for 2010/11, and the amount of $991,200 will be included in the proposals for 2011/12.

The Committee also had before it a report on proposals for financing associated costs for the year 2010 (document A/64/346/Add.2), which represent temporary increases in certain parts of the Secretariat that will support construction activities.  The Secretary-General recommends approval of:  continued funding of associated costs for the year 2010 from within the approved Capital Master Plan budget, which amount to $50.1 million ($645,600 for the Department for General Assembly and Conference Management; $30 million for the Department of Public Information (DPI); $6 million for the Office of Central Support Services; $2.2 million for construction, alteration, improvement and major maintenance activities at Headquarters; $10.3 million for the Department of Safety and Security; and $644,000 for the Office of Information and Communications Technology).

Also before the Committee were the findings of the Board of Auditors with regard to the Capital Master Plan for the period from 1 January to 31 December 2008 (document A/64/5 (Vol. V)).  The Board describes the financial situation of the project and states that the most recent estimate of its total cost, as at March 2009, amounted to $1.967 billion.  That total is $90.7 million higher than the budget approved by the General Assembly, but lower than estimates presented in the two previous progress reports.  The decrease is due to a reduction in the budget for contingencies from $477.8 million to $226.6 million since the previous audit.

On the whole, the Board believes that the Master Plan budget approved by the Assembly can be adequate only if project specifications are not further modified and the economic situation does not significantly change.  It is unlikely that the Administration can absorb associated costs within the approved budget for the Plan, in spite of the Assembly’s request that the Secretary-General make every effort to ensure that it can.  Also, considering the delay in the initial stages of the project, falling behind by an average of six months, could impact the schedule for the rest of the project.  The Board believes that the project will not be finished in 2013, unless renovations move ahead more quickly than forecast.

The Board of Auditors makes recommendations on:  clarifying capital costs for construction expenditures prior to implementing International Public Sector Accounting Standards (IPSAS) and distinguishing between the provision for contingencies and that for forward-pricing escalation; on standardizing transactions that occurred under the authority granted the Director of the Procurement Division; significantly increasing internal control of amendments to Capital Master Plan contracts, and involving the Headquarters Committee on Contracts prior to signing amendments if there is no ex post facto review procedure; and on strict adherence to Procurement Manual requirements relating to contractual amendments for new works and services.

Several recommendations relate to the fact that, on two occasions, the Director of the Procurement Division was granted special delegation of authority to approve amendments to contracts incurring expenses of up to $2.5 million and $5 million, respectively, compared with $0.5 million for other Headquarters contracts.  Contractual amendments totaling $19.5 million were made without review by the Headquarters Committee on Contracts on the first occasion and $42.7 million on the second one.  Therefore, these transactions may not be in compliance with the Organization’s Financial Regulations and Rules.  On the second occasion, the Office of Internal Oversight Services (OIOS), which was to carry out periodic ex post facto reviews of transactions, was unable to do so routinely due to the shortage of resources.

The Board’s review of amendments signed in 2008 indicated that their aggregate value far exceeded the value of the initial contracts and significantly exceeded the threshold allowed by the Procurement Manual.  The Board is concerned about the inadequate level of internal control over amendments to Capital Master Plan contracts, as well as non-adherence to the requirements of the Procurement Manual relating to the review and recommendation process.

The Committee also had before it a report on the implementation of the recommendations of the Board of Auditors (document A/64/368), which provides the Secretary-General’s comments, in addition to those included in the Board’s report.  Among other things, the document presents information on the status of implementation, the office responsible, the estimated completion date, and the priority for each recommendation contained in the Board’s reports.  It also contains updated information on the status of implementation of the recommendations relating to prior periods that were reported by the Board as not to have been fully implemented in the annexes to its reports.

In a related report, the Advisory Committee on Administrative and Budgetary Questions (ACABQ) (document A/64/7/Add.5) recommends approval of the Secretary-General’s proposals with respect to the appropriation of the remaining $689.9 million towards the construction phases of the Capital Master Plan.  It asks for updated information on the cash position of the fund for the Plan and the working capital reserve, as well as the status of contributions and expenditures.  The ACABQ also requests comprehensive information on specific issues related to the Plan, including compliance with relevant regulations, rules and policies; control over contractual amendments and the procurement process; and project delays.

Further, in situations where the Secretariat’s views differ from those of the Board of Auditors, the Secretary-General should provide clear explanations as to why Board recommendations cannot be accepted, as well as appropriate measures for mitigating any associated risks.  The Advisory Committee also emphasizes the critical importance of close cooperation among the key departments involved in the Plan at every stage of the project.  In order to protect data and the information and communications systems of the Secretariat during construction work, the ACABQ calls for close monitoring of the situation and timely completion of all activities with regard to the secondary data centre.  In that regard, the ACABQ emphasizes that the relationship with the International Computing Centre and the means by which it provides services to the United Nations should be monitored and subjected to periodic review.

While the Advisory Committee found that the report of the Secretary-General on the associated costs of the Capital Master Plan did not provide adequate detail to make an informed consideration of resource requirements, it nevertheless recommends approval of a total net amount of $45.84 million, broken down as follows:  $645,600 for the Department for General Assembly and Conference Management; $30.04 million for acquisition of the facility and equipment to modernize the permanent broadcast facility (DPI); $6.01 million for the management of logistical activities during the relocation for the Office of Central Support Services; $2.29 million for construction, alteration, improvement and major maintenance activities at Headquarters; $6.22 million for the Department of Safety and Security; and $644,000 for the Office of Information and Communications Technology.

The OIOS, in its annual report (document A/64/326 (Part I)), states that four main risk types in connection with the Capital Master Plan include:  delays; funding; project complexity; and decision-making.  Four audits during the reporting period included:  the audit of the provision of alternative offices, storage and other facilities during the Master Plan; audit of the Plan’s project budgeting and financial control processes; audit of the value engineering process; and audit of the security provisions associated with the Plan.  The report presents 14 recommendations, of which 11 had already been implemented by December 2008, two were in progress, and one was to be followed up.

The OIOS found, among other things, that the majority of departments and offices in the Secretariat did not comply with policies on record keeping and management of United Nations archives, and that there were no guidelines covering digitization of the Organization’s records.  Since the audit, several meetings have been held on digitization initiatives, and respective focal points have been established in various departments.  The Office of Information and Communications Technology has prepared technical guidance on digitization.

The OIOS also found delays (averaging 110 days for six contracts) in finalizing guaranteed maximum price contracts, which contributed to three-month delays in staff moves to swing spaces.  There were also variances between projected costs as at August 2007 and September 2008, due mainly to cost inflation or changes of scope, such as the size increase of the North Lawn Conference Building.  The Office of the Capital Master Plan accepted the recommendation of the OIOS that causes of variances should be explained in future reports to the Secretary-General.

The OIOS concluded that the Office of the Capital Master Plan followed a suitable process for identifying value engineering savings, which contributed to a reduction of approximately $100 million of the projected budget shortfall.  However, value engineering savings alone may be insufficient to avoid exceeding the Master Plan budget.  Following the security provisions’ audit, the Plan Office and the Department of Safety and Security accepted the findings and conclusions of the OIOS.

After-Service Health Insurance

The Committee had before it a report on liabilities and proposed funding for after-service health insurance (ASHI) (document A/64/366), which provides continued coverage throughout retirement to staff who meet defined eligibility criteria.  Associated costs, as shared between staff and the Organization, have increased considerably since the inception of the programme in 1967, owing to increases in the population of retirees and because of increased costs of medical services.  Accrued ASHI liabilities of some $2.04 billion were reflected on United Nations financial statements for 2006-2007 and an additional rolled-forward amount of $409.9 million was reflected in the peacekeeping financial statements for the fiscal year ended 30 June 2008.  Those liabilities had been validated by the Board of Auditors.

In prior related reports, the Secretary-General had proposed changes in eligibility for after-service benefits for newly recruited staff; recognition of the Organization’s liability for benefits; and provision of funding for those benefits.  Updating the Assembly on the matter, the current report recommends three potential strategies to fund a portion of the Organization’s obligation, recommending approval of the third one.

The strategy proposed for Assembly approval requires a one-time initial infusion of $425 million comprising the transfer of:  $290 million from unencumbered balances and miscellaneous income from the financial period 2008/09 under peacekeeping operations; and of $135 million from existing reserve funds, including $51.9 million from the compensation reserve fund and $83.1 million from medical and dental reserves.  In addition, systematic funding for the long term requires continuing financing for health-benefit costs relating to current retirees, with amounts continuing to be appropriated under the special expenses section of the regular budget and under the support accounts for extrabudgetary funds and peacekeeping operations.  In addition, it is proposed that a charge against net salary costs be established to partially fund accrued liabilities.

Commenting on those proposals, the ACABQ, in a related report (document A/64/7/Add.4), recalls its recommendation that the Secretary-General address, on a system-wide basis, the long-term implications of the growth of after-service liabilities.  It also notes that different approaches to such liabilities have been adopted within the United Nations system.  The Advisory Committee is of the view that, in considering the Organization’s ASHI liabilities, the Assembly may wish to review the scope and coverage of existing after-service insurance plans, as well as contribution levels by the Organization and by participants.

Overall estimated annual savings from initiatives undertaken since 2007 to reduce costs related to health-care plans are projected to be between $6 million and $10 million, including those associated with changes to ASHI provisions for staff recruited on or after 1 July 2007 (resolution 61/264).  In this connection, the Advisory Committee is of the view that cost-containment measures should be explored further, system-wide, in a coordinated manner.

A review of United Nations staff, who retired and participated in ASHI within the past 10 years, showed that some 77 per cent retired from service under the regular budget, 8 per cent from service under extrabudgetary funds, and 15 per cent from service under peacekeeping funds.  Given increasing significance of each of those components, the Secretary-General proposed that, for the 2010-2011 biennium, $8.8 million under extrabudgetary funds (after recosting) be appropriated to cover ASHI benefits, in addition to $105.2 million under the regular budget and $16.4 million under peacekeeping operations.  The Advisory Committee believes in that regard that whether to establish a reserve fund up front or to continue the current “pay-as-you-go” approach is a policy matter for the General Assembly.  Further, the ACABQ agrees with the Secretary-General’s proposals to continue biennial appropriations to cover subsidy payments for current after-service participants who retired under the regular and peacekeeping budgets, as well as to establish biennial appropriations to cover such costs for those who retired under extrabudgetary funds.

Turning to the proposal to provide initial funding of $290 million from the transfer of unencumbered balances from peacekeeping budgets for 2008/09, the ACABQ recommends against suspension of financial regulation 5.3 and is of the view that the unencumbered balances under peacekeeping operations should be returned to Member States.  The Advisory Committee maintains that the transfer of unencumbered balances to entirely alternate uses is inappropriate.  Although the proposed transfer is for one time, such a practice could potentially encourage over-budgeting.  In light of the assurance by the Secretary-General that the transfer of $51.9 million from the compensation reserve fund and $83.1 million from the medical and dental reserves will not endanger those reserves, the Advisory Committee has no objection to the transfer of those amounts to an independent segregated special account, should it be approved by the Assembly.

 Further, the Advisory Committee advocates a consistent approach towards funding the current and future ASHI liabilities of the two International Tribunals, while also recommending that appropriations be made to cover the cost of current after-service participants who retired from the Tribunals.  Recognizing that the Tribunals have limited mandates, the Assembly will need to address the Tribunals’ long-term ASHI liabilities in the context of their final performance reports.

Placing after-service health insurance in the broader perspective of staff medical coverage within the United Nations, the Joint Inspection Unit (JIU), in its report on the matter (document A/62/541), suggests ways to deal with emerging problems resulting from the soaring cost of medical coverage and the need to guarantee adequate medical coverage to staff, retirees and their dependants, in the context of zero-budget growth practices.

Although staff health insurance constitutes the third most costly element of the total United Nations compensation package, following salary and allowances and pension, it is not considered a “common system” matter.  As a result, United Nations system organizations have established health insurance schemes with wide disparities in the cost and scope of coverage, conditions for eligibility, rates of contribution and medical benefits.  The report states that the health insurance schemes need to be harmonized; Member States do not exercise adequate oversight on health insurance issues and do not play any role in determining health insurance-related conditions and benefits across the system.

The report’s recommendations relate to the need for formal recognition of staff health insurance as an integral part of the common system and request the International Civil Service Commission (ICSC) to undertake periodic reviews aimed at making relevant recommendations to the Assembly.  Initially, it is necessary to establish an ad hoc advisory body to assist the Commission in formulating broader principles and policies for staff health schemes.  That body should consist of representatives of Member States, United Nations, staff and retirees, with assistance from private sector health and insurance experts.  Also recommended is harmonization of existing health insurance schemes and periodic actuarial studies based on a uniform system-wide methodology to determine the extent of accrued ASHI liabilities and to disclose them in financial statements.

Also according to the report, legislative bodies of each organization should seek proposals for funding after-service liabilities and provide adequate financing to meet those liabilities.  The Assembly should establish a common fund to pool the reserves (existing and to be established), which should be invested in a manner similar to the assets of the United Nations Joint Staff Pension Fund.

In a note on United Nations system staff medical coverage (document A/62/541/Add.1), the Secretary-General presents his comments and those of the United Nations System Chief Executives Board for Coordination (CEB), representing the views of United Nations system organizations, on the aforementioned report (document A/62/541).

The Secretary-General states that, while Board members appreciate the detailed survey of the health insurance schemes in place across the system, many believed that the subject matter deserved a more rigorous analysis in order to ascertain the impact of a common system model, as proposed in the report.  Many organizations noted that they already reported ASHI liabilities and had begun to put measures in place to fund those, questioning the value of a common pool.  They also agreed to the need for cost-containment measures, and many noted that reviews of health insurance already take place.

Introduction:  Capital Master Plan Reports

MICHAEL ALDERSTEIN, Assistant Secretary-General, Executive Director of the Capital Master Plan Project, introducing the Secretary-General’s seventh annual progress report on the implementation of the Plan, said that $1.366 billion, which represented 70 per cent of the projected cost-to-complete, had already been committed through contracts, guaranteed maximum price agreements, leases and other forms of commitments to the project.  That demonstrated good movement on the project’s procurement.  Further, he noted, the project’s costs were currently less than 5 per cent over the approved budget, and continued to move in a downward direction.  Because so much of the project was already committed, the risk of large, adverse surprises had been greatly reduced.

On staff moves to swing space, he noted that occupancy of the temporary North Lawn building would start in less than 45 days and would be completed by year’s end.  Initially, that building would be used to house the functions of the conference building, and afterwards to house the functions of the General Assembly building.  In addition, 3,188 staff had been relocated to off-site swing spaces.  While most conference building functions would be relocated to the North Lawn building in mid- to late-December, the Security Council and its associated rooms would be temporarily relocated to Conference Rooms 4, 5, 6 and 7.  The “fit-out” for that move was expected to take four months.  Therefore, the full renovation of the conference building would start in April 2010.

Conference building renovations would be completed in just less than two years, he continued, at which time its functions would return and the temporary North Lawn building would be reconfigured to host the General Assembly.  The renovation of that building would then commence in late 2011.  Renovations of the Secretariat Building would commence within approximately 60 days from the last relocation of its offices.

He said that the renovation would follow a sequence of pre-abatement cleanup and removals, asbestos abatement, interior cleanout and selected demolition, curtain wall removal, curtain wall replacement and interior fit-out.  The renovation of above-ground buildings was completely dependent upon infrastructure renovation of the basements.  That work, at a value of over $300 million the most complex work of the project, was well under way.

Environmental performance of Headquarters would be significantly improved upon completion of the Capital Master Plan, he said.  Many new technologies would improve performance in such areas as energy consumption and reduction of greenhouse gas emissions and water consumption.  They would also enhance indoor environmental quality, use of sustainable materials and appropriate waste management.  Total energy consumption would be reduced by over 50 per cent.  The carbon footprint would be reduced by over 45 per cent, meaning that carbon emissions would be cut by 23,000 tons per year, and fresh water consumption would be reduced by over 40 per cent.

Procurement opportunities for the project had been widely communicated, he said.  To date, 6.2 per cent of total contract value came from outside the United States and represented $26 million.  On other matters, he noted that the temporary North Lawn building would be used to display most of the gifts that had been displayed inside Headquarters and that the Secretary-General had reissued a revised donation policy for Member States wishing to make a cash donation towards the renovation of a space or building element.  A donor providing such a donation would have design input and be recognized and identified as the donor of that space.

He further said that, due to the complexities of many swing space arrangements, short-term schedule adjustments had been required, but that ways had been identified to make up that time in renovation work about to begin.  He expressed confidence that the Capital Master Plan would be completed on time, by 2013.

He noted that establishment of the Advisory Board was in process, and that nominations had been solicited from regional groups.  Nominations had been received.  The Board was expected to be set up by the deadline requested by the General Assembly, and the Secretary-General should announce its composition before the end of the year.

JUN YAMAZAKI, Assistant Secretary-General, Controller, then introduced the Secretary-General’s reports on proposed risk mitigation measures to protect data and the information and communications systems of the Secretariat during the construction work of the Capital Master Plan, and also on proposals for financing the associated costs required for the year 2010 from within the approved budget for the Capital Master Plan.

IMRAM VANKER, Director of External Audit of South Africa and Chairman of the Audit Operations Committee of the Board of Auditors, then introduced the report of the Board.  He said that the Capital Master Plan had implemented six recommendations out of the nine made last year; while one was being implemented.  Two recommendations had not been implemented.  The first of those related to the establishment an advisory board and the second to the need for the Master Plan to distinguish capital costs from operating costs.  The Administration, while accepting the Board’s recommendation as a priority, indicated that it would only be implemented by 31 December 2011.  All recommendations must be implemented without delay.  Of the 17 recommendations by the Board this year, three reiterated recommendations from last year.

He then highlighted four points arising from the audit:  concerns about total project cost; disclosure and accuracy of project calculations; uncertainties in the project schedule; and weakness in procurement and contract management.  The Board was concerned that the approach to cost reduction taken by the Capital Master Plan was not conservative enough, given the time-scale of the project.

He pointed out inaccuracy in project calculations.  The amount of $342 million disclosed as construction in progress in the balance sheet encompassed all Master Plan expenses, some of which, such as operating expenses, did not actually increase the value of assets.  That accounting treatment inflated the Organization’s construction assets; it arose from the Administration’s inability to separate capital costs from operating costs in its current accounting systems.

MARIO BAEZ, Chief of the Policy and Oversight Coordination Service of the Department of Management, introduced the Secretary-General’s report on the implementation of the recommendations of the Board of Auditors.

SUSAN MCLURG, Chairman of the ACABQ, introduced its report on the matter.  Among other things, she said the Secretary-General was encouraged to pursue the value engineering exercise, so as to maximize savings and the cost-effective use of resources, while ensuring that the quality, functionality and scope of the project was not compromised and that the integrity of the architectural design of the complex would be preserved.  She said she also encouraged the Secretary-General to proceed with the awarding of the remaining guaranteed maximum price contracts so as to derive maximum benefit from prevailing favourable market conditions.

She called for a comprehensive analysis of the evolution of economic factors and the assumptions underpinning cost estimates.  That was essential for a better understanding of project risks, given the uncertain economic situation.  She said she also welcomed planned improvements in the environmental performance of the Headquarters facility, and requested the Secretary-General to provide, in addition to the targets expressed in terms of reduced consumption, estimates of the resulting cost-savings and the time frame for their realization.

She said there was concern as to the risks posed to the secondary data centre project, and she urged the Secretary-General to continue close monitoring of the situation to ensure that activities related to that centre’s move and operation would be completed on time.  Among many recommendations of the ACABQ, she drew attention to the Committee’s response to the Secretary-General’s decision to combine the provisions for contingencies with those for inflation, and to the extended delegation of authority granted to the Director of the Procurement Division to cover contract amendments of the Capital Master Plan.

Statements

MAGID YOUSIF (Sudan), speaking for the “Group of 77” developing countries and China, stressed that the Group attached the highest priority to the smooth implementation of the Capital Master Plan and its timely completion.  The project had now moved from the design phase to construction activity.  He appreciated the progress achieved and stressed that the schedule for the relocation of staff to swing spaces should be strictly followed as a matter of urgency, in order to enable the commencement of repair and replenishment work in a timely manner, which would help to avoid any cost overruns.

He said the Group regretted the slippage in the current schedule of the Master Plan, with its completion now projected in late 2013 instead of mid-2013.  The Board of Auditors had identified the main reasons behind an average delay of more than six months, which ranged from administrative and procedural delays to managerial lapses and absence of managerial review and anticipation.  The Group was concerned that those delays could impede the start of refurbishment as agreed by the Assembly.

He said the delay in the start of the work on the Secretariat Building and failure to finalize the contract for the same had already impacted the schedule.  Now, the delayed decision on housing the interim Security Council Chamber had further risked the timely completion of the project, which could be postponed until 2014.  The Group deeply regretted that a lack of managerial diligence and oversight, procedural difficulties and insufficient responsiveness to the needs of the project had not only delayed the Capital Master Plan, but also harmed the image of the United Nations.  Moreover, any delays would be the single most important source of cost escalation, discomfort to Member States’ representatives and staff, and disruption to the work of the Organization.  In view of the consequences of those delays, the Secretary-General should ensure full accountability for all the factors that had contributed to the projected delays and devise a mechanism to that effect.  A clear and realistic timeline with respect to the implementation of the Master Plan should also be provided to the General Assembly.

He said he welcomed the Secretary-General’s intention to develop accelerated construction schedules for the Secretariat Building; those measures should mitigate the cost escalation, continue to bring the Master Plan budget within the approved level, recapture the lost time, expedite the project, and eliminate health and safety hazards.  The relocation of conference services to another structure should be commensurate with the needs of Member States.  In that regard, he stressed the importance of avoiding further delays and concurred with the ACABQ that more comprehensive and specific information should be provided with respect to the delays, including the range of their cost implications and other potential consequences, as well as actions to manage the delay and cost risk.

Turning to value engineering, he expressed appreciation for its effect on maximizing savings.  However, the concept needed to be further explained.  In that regard, he recalled resolution 63/270 and reiterated the Assembly’s request to include in the eighth annual progress report the requested information regarding the costs and fees, and the advantages that could potentially be realized as a result of the prevailing market conditions.  He concurred with the Advisory Committee’s views that value engineering should not lead to any structural change and should not change the integrity of the architectural design.  Historic landmarks of the complex should also be preserved.

Noting with satisfaction the level of cash available to the Capital Master Plan fund, which had earned some $67.7 million in interest, he said that at the same time there was an amount of $88.4 million in unpaid assessments for the project for 2009 and prior period.  Member States should pay their unpaid assessments on time and in full.  The Group supported the donations policy to the Capital Master Plan, which was not restrictive and was in conformity with the international and intergovernmental character of the United Nations, as well as its financial rules and regulations.  It did not prejudice the scope, specifications and design of the project, and was also being in accordance with relevant provisions of resolution 63/270.

Continuing, he expressed concern over availability of parking space to Member states in the United Nations garage and reiterated the Group’s request to retain the total number of the parking spaces available to Member States.  With regard to the Secretary-General’s three key sustainability initiatives, he welcomed the efforts to ensure environmental friendliness of the Headquarters and underlined the need to present proposed targets with expected savings and time frames, as well as their contribution to the overall greater project performance along with a cost-benefit analysis.

He went on to reaffirm relevant provisions of Assembly resolutions, which clearly stipulated that procurement activities for the Capital Master Plan should be in full compliance with United Nations rules and regulations, as well as resolutions governing procurement and ethics policies.  Expediency should not be at the cost of undermining the established rules and procedures.  The Group concurred with the Board of Auditors.  The requirements of the procurement manual should be strictly adhered to, and the Administration should further explore ways to increase the level of internal control over contract management relating to the Plan.  Moreover, the Group recalled resolution 63/270, which had requested the Secretary-General to implement an action plan to promote procurement opportunities for contractors and vendors from developing countries and countries with economies in transition.  While noting the steps taken, he pointed out that the report before the Committee did not provide specific information in that regard, as requested by the Assembly.  The Secretary-General should take further concrete steps to increase procurement opportunities for vendors coming from developing countries and economies in transition, and accordingly inform Member States of steps taken in that regard.

He said the advisory board on the Master Plan should be established as expeditiously as possible before the end-of-the-year deadline.  The Group expected that the board would be independent and impartial, reflecting a wide geographical representation.  He concurred with overall recommendations of the Board of Auditors and stressed that all its recommendations should be implemented expeditiously.  Given the importance of oversight, the Board of Auditors and all other relevant oversight bodies should continue to report to the Assembly annually on the Capital Master Plan.

With regard to the report on the proposal on risk mitigation to protect data and information and communications technology systems of the Secretariat during construction, the Group shared concerns on the risks posed by the project.  It endorsed the ACABQ recommendation that the Secretary-General should continue to closely monitor the situation and ensure that the activities related to mitigation and running of the secondary data centre were completed in accordance with the Capital Master Plan time frame.  On associated costs, the Group maintained relevant provisions of resolution 63/270 and reiterated that the Secretary-General should make every effort to absorb those costs from within the approved Plan budget, unless otherwise specified by the Assembly.

MARIA HAKANSSON ( Sweden), speaking for the European Union and associated States, said that she was pleased to see the project well under way, despite some ongoing slippage in the construction schedule.  The Union was concerned, however, that certain recommendations of the Board of Auditors, particularly those relating to the dual issues of cost estimates and review of contractual amendments, had not bee accepted by the Secretary-General.  She shared the view of the ACABQ that the response of the Secretary-General to the concerns raised by the Board had not been fully justified and would seek greater clarity during informal consultations.

She said the Union was encouraged to see that value engineering had resulted in a more cost-effective use of resources and recognized the healthy cash balance of the project.  Furthermore, she expected that the Secretariat would seize opportunities presented in the current economic climate to lower costs of contracts and operations in an effort to bring the project back within the agreed budget, while still ensuring the quality and functionality of the project.

Turning to associated costs, she said that the European Union would once again like to express its regret on those that had not been built into the original budget proposals for the Plan.  The Union remained unconvinced that those costs could not be absorbed from within the approved budget.  She concurred with the Advisory Committee that associated costs should not include investment costs or long-term commitments, and further details should be provided, bearing in mind that necessary expenses must be met in order not to compromise the success of the project.  The European Union would also pursue questions on such subjects as the donations policy and the secondary data centre.

ELSA DE JESUS PATACA (Angola), speaking for the African Group, said the Group stressed the importance of expediting the relocation of all staff, to avoid any further delay in the work on the Secretariat Building, which had financial implications.  As for the schedule of the Capital Master Plan, the Group regretted that completion of the project had slipped from mid-2013 to the end of that year, and concurred with the Advisory Committee’s recommendations in that respect

On the other hand, she said, the Group welcomed the fact that an accelerated schedule had been developed for the renovation of the Secretariat Building, which allowed for the completion of the Plan within the time frames of the swing space leases.  She requested the Secretary-General to provide Member States with more comprehensive and specific information with respect to project delays and their cost implications and other potential consequences, as well as actions to manage the delay or cost risks effectively.

She said the Group welcomed intensive value engineering activities to reduce costs without compromising quality or functionality, which had resulted in some $100 million cost savings.  It supported the continuation of that exercise to achieve further significant savings, so as to complete the project within the approved budget.  The Group recalled the Assembly’s requests in resolution 63/270, and looked forward to seeing those requests reflected in the forthcoming progress report.

While expressing satisfaction with the level of cash available to the project, she urged Member States to pay their unpaid assessments without delay, which would expedite the implementation of the project.  The Group welcomed any donations policy to the Capital Master Plan that was in conformity with the international and intergovernmental character of the United Nations and its financial rules and regulations, and was without prejudice to the scope, specifications and design of the project, taking into account relevant provisions of resolution 63/270.  The Group also requested that the total number of parking spaces available to Member States should not diminish upon the completion of the project, pursuant to General Assembly resolution 57/292.  The Group welcomed the progress achieved in the area of sustainable design and requested clarifications on the cost savings and time frame for the realization of those savings.

The Group would seek further clarification on procurement activities related to the Master Plan, she continued.  Moreover, it had taken note of the steps undertaken in response to resolution 63/270 concerning increasing procurement opportunities for vendors from developing countries and countries with economies in transition.  The Group requested the Secretary-General to continue to respond to the requests of the General Assembly in that regard and, accordingly, to inform Member States of relevant details in his reports.

Concurring with the recommendations of the Board of Auditors, she stressed the need for their expeditious and full implementation, in particular those related to distinguishing between the provision for contingencies and for forward-pricing escalation, and the necessity for considering ways and means to increase significantly the level of internal control over amendments to contracts relating to the project, and for strict adherence to the requirements of the procurement manual.

Moving to the report on the protection of data and information and communications technology systems during construction, she said she agreed with the recommendation of the ACABQ, and urged the Secretary-General to continue to closely monitor the situation and ensure that the activities related to the migration and running of the secondary data centre were completed in accordance within the Master Plan time frame.  As for the associated costs requested for the year 2010, she said the Group was convinced that the Secretary-General should make every effort to absorb those costs from the overall budget approved for the Capital Master Plan, as reiterated in resolution 63/270.  Effective coordination of the whole range of activities associated with the Plan was vital, along with clear lines of responsibility and accountability.

SHANNON WHITE (Australia), speaking also for Canada and New Zealand, expressed concern that the Capital Master Plan was coming in over budget, and said she welcomed ongoing efforts to bring it back into line.  She looked forward to hearing further justification of the Secretariat’s decision to withdraw the requirement for ex post facto review of contractual amendments and procurement processes and noted that the Board of Auditors believed that it was unlikely that the Master Plan budget would be able to absorb associated costs.  She looked forward to learning more on the subject.

She said the needs of the project related to safety and security were important, and that those requirements would be closely examined, including in the context of the safety and security instalment of the regular budget for the biennium 2010-2011.  In addition, noting that a lack of appropriate facilities for persons with disabilities had been a serious deficiency of the present building, she commended the Capital Master Plan project for addressing the issue.  She hoped that the Plan would also provide appropriate facilities for nursing mothers, and urged implementation of non-smoking regulations.

CRAIG LIM ( Singapore) noted significant progress made during the first year of construction and urged the Secretariat to ensure that the project was completed in 2013, as planned, and that the current slippages in the completion date could be made up for, through the proposed accelerated schedules for renovations.  He said his delegation was also concerned that there had been significant changes to the project design. For instance, report A/64/346 had now “flagged” the need to construct an interim Security Council Chamber in the General Assembly building, arising from the decision of the Department of Safety and Security against the relocation of the Council to the temporary North Lawn building.  He shared the Advisory Committee’s concern that those security and space requirements had not been considered adequately at an earlier stage.  While understanding that the Capital Master Plan was a massive undertaking for any organization, he strongly encouraged the Secretariat to redouble its efforts to ensure better planning and coordination for the remainder of the project.  Further changes on the scale of those already made would add highly undesirable costs and delays to the project.

Turning to the parking situation in the complex, he said it was unfortunate that United Nations staff had had to bear the heavy brunt of the reduction of available parking.  He sympathized with them as national delegations had also been affected by that unfortunate circumstance.  He appreciated the fact that following expressions of concern by several Member States and regional groupings, the Capital Master Plan design team was currently undertaking a review of the options available to address that problem.  He hoped the Secretariat would be able to resolve the issue quickly to the satisfaction of all affected parties.

He said Singapore was pleased to note a significant reduction in the amount of second-hand smoke in the corridors of the United Nations since the beginning of the current session.  He hoped to be able to enjoy that smoke-free environment in the new United Nations premises.  To aid in that endeavour, he reiterated his earlier suggestion that dedicated smoking spaces be created in the new premises.

He said he was pleased to see the Capital Master Plan under way; while not expecting “a problem-free ride”, his delegation adopted a practical approach and called on all stakeholders to adopt a long-term view and ensure that the required resources were made available to ensure a responsible and successful completion of the project.

LOKMAN HUSSAIN (Bangladesh) expressed appreciation of the progress made so far, particularly in completing 80 per cent of design construction documentation, construction of the North Lawn building and relocation of staff to swing spaces.  However, he added, his delegation was concerned over the slippage in the current schedule attributable to administrative and procedural delays, weakness in managerial decision-making and lack of prediction, as identified by the Board of Auditors.

He said the delayed decision on the housing of the Security Council amply delineated the lack of seriousness for coordination among different departments, and the absence of exhaustive decision-making criteria.  Those unexpected delays might result in cost increases.  His delegation subscribed to the view of the ACABQ that a detailed explanation of delays with cost implications and other consequences should be provided in the next progress report, if there was any deviation from the present schedule.  He reiterated the Assembly’s call for efforts to bring down the price within the approved budget.

Continuing, he noted with appreciation the cost savings of $100 million from value engineering.  However, that exercise must not compromise the quality of work, or lead to changes in the structure and integrity of the architectural design and the historic landmarks of the complex.  At the same time, he recognized the possible existence of multiple factors in cost reduction, such as the prevailing economic situation, reduction in contingencies or price escalation.  Given the divergent nature of those items, and to clearly understand the contribution of efficiency gains and gains derived from extraneous factors, he would appreciate receiving detailed information on costs and fees, as requested in General Assembly resolution 63/270.

He said the Board of Auditors had determined that the basic principle of accounting in classification of cost had not been adhered to.  He expressed disappointment over such non-compliance.  Both operating expenses and capital expenditures had been charged to construction work in progress, thereby the value of the project’s assets had been inflated.  The surplus of cash beyond minimum requirements had emanated from delayed implementation of scheduled work.  At the same time, assessed contribution from Member States, to the tune of $88.4 million, had remained unpaid for 2009 and the prior period.  That did not provide a true and fair view of the project’s assets and financial position.  The cost should be classified properly to depict actual asset worth of the project, outstanding assessments must be paid in due time, and cash in hand maintained at a standard level to smooth the implementation of the project.

He said his delegation noted unimplemented recommendations of the Board of Auditors and the related views of the ACABQ.  He added that he was perplexed at the silence of the OIOS and concurred with the recommendations of the Board of Auditors; he intended to come back to the issue during informal consultations.

Introduction:  After-Service Health Benefits Reports

Introducing the Secretary-General’s report on liabilities and proposed funding for after-service health benefits, Mr. YAMAZAKI, Assistant Secretary-General, Controller, noted that the Organization’s health benefit plans covered both active and retired staff, and provided protection comparable to the programmes of large employers and Government groups.  The overarching goal for funding ASHI liabilities was cost-containment, while maintaining comprehensive and comparable health insurance coverage.  Despite cost-containment efforts, he continued, the after-service insurance costs were projected to grow significantly due to the anticipated growth in the number of retirees requiring those services.

Noting that costs related to after-service health insurance were shared between staff and the Organization, he said the current “pay-as-you go” source of funding for the Organization’s portion was not sustainable.  Those requirements for 2010-2011 totalled $130.4 million for all fund types, which was more than four times the actual costs for the 1994-1995 biennium.  Such trends were expected to continue.  Further, after deducting $722.7 million to be contributed by retirees, the Organization’s accrued liabilities in the area had been actuarially valued at $2,430 million as at 31 December 2007, while that share as at 31 December 2005 had been valued at $2,072 million -- those amounts to be paid in the future to current ASHI participants, and to active employees expected to retire with those health insurance benefits.

The time had come, he said, to adopt a funding strategy.  Only such a strategy, coupled with investment of the related funds, could meet the obligations of the programme in a systematic and controlled manner over the long term.  The report recommended a two-tiered funding approach consisting of a one-time infusion of $425 million and a long-term funding strategy that initially maintained the current “pay-as-you-go” system while also applying a charge against salary costs.  The proposed charge would, respectively, be 9.6 per cent, 2.6 per cent and 1 per cent against net salary costs under the regular budget, under extrabudgetary funds and under peacekeeping operations.  There would be periodic reviews to ensure that the funding remained actuarially sound, and to determine whether adjustments would be needed to those percentages.

In response to resolution 61/264, he noted, the report also included an outline for an investment strategy for a reserve for after-service health insurance with the goal of meeting or exceeding future benefit obligations by investing in a well-diversified asset mix.  That would possibly be managed as a segregated reserve of ASHI assets by the Investment Management Service of the United Nations Joint Staff Pension Fund.

The report also recommended funding of after-service insurance reserves for the United Nations International Tribunal for the Former Yugoslavia and the United Nations International Criminal Tribunal for Rwanda, with an aim towards the full funding of after-service insurance liabilities before the closure of those offices.

Ms. MCLURG, Chairman of the ACABQ, then introduced that Committee’s report, in which the Committee agreed with the Secretary-General’s proposals to continue biennial appropriations to cover the cost of subsidy payments for current ASHI participants who retired under the regular budget and peacekeeping budgets, as well as to establish biennial appropriations to cover such costs for those who retired under extrabudgetary funds.

She requested more detailed information related to potential investment strategies for a reserve fund, particularly with regard to administrative costs associated with its management by the Investment Management Service of the United Nations Joint Staff Pension Fund.

Statements

Mr. YOUSIF ( Sudan), speaking again for the Group of 77 and China, said after-service health insurance was an issue with long-term implications for both Member States and United Nations staff, and it deserved careful consideration.  Given its significance and complexity, a holistic approach for a long-term solution needed to be adopted, taking into account the common international practice, including on funding mechanisms and investment.  As noted by the Advisory Committee, different approaches to funding the liabilities of after-service health insurance had already been adopted within the United Nations system.  The Group concurred with the ACABQ that the Secretary-General needed to address those liabilities and the impact of their growth on a system-wide basis.  The Secretariat should advise on the measures to be taken in that regard.

He said he noted the suggestion that the “pay-as-you-go” approach had led to the accumulation of the current $2.43 billion in unfunded financial liabilities related to after-service health insurance; the Group would like to seek more information on that approach, as well as its correlation with the accumulation of those liabilities.  Since a slightly different discount rate to determine the present value of future liabilities could lead to an increase or decrease of the liabilities by a significant percentage, he would like to get a clarification as to how the 5.5 per cent discount rate had been chosen in 2005, and why it had remained unchanged for 2007.  It would be 2012 at the earliest when International Public Sector Accounting Standards would be applied, so he would like to know the impact the delayed application had on actuarial methodology, to validate the accrued liabilities, as had been requested by the Assembly.

On the three funding alternatives proposed by the Secretary-General, he said that, while noting the large amount of funds required for infusion and the long span of years to arrive at a partial overall funding, the Group of 77 concurred with the ACABQ and hoped to hear more on some issues.  In particular, the Group wanted to know why no recommendations for full funding of ASHI liabilities had been provided, as requested by the General Assembly, and how different percentages had been proposed for the three partially funded alternatives.  He also concurred with the Advisory Committee that the Secretary-General should have provided sufficient information with respect to potential investment strategies for a related after-service insurance reserve fund, so that Member States could make an informed decision.

He said he also wished to receive clarifications with regard to the proposed transfer of $51.9 million from the compensation reserve fund and $83.1 million from the medical and dental reserves.  Information was also needed on the current usage of those reserves, how exactly the transfer could be arranged, and potential impact of the proposal to those reserves. He said he noted that the ACABQ had recommended against the proposal to transfer $290 million in unencumbered balances from the peacekeeping budget.  That was an inappropriate financial management practice, which could potentially encourage over-budgeting.

TAKASHI KANAMORI (Japan) said that, faced with the Secretary-General’s daunting update on the accrued liabilities of after-service health insurance, which amounted to $2.43 billion as at December 2007, under the assumption of a 5.5 per cent discount rate, his delegation shared the view of the ACABQ that the Assembly might wish to review the scope and coverage of the existing ASHI plans, as well as the contribution levels of the Organization and participants.  In particular, his delegation would like to point out that the General Assembly might have to consider imposing a limitation on the number of years for which staff and their dependants were covered after retirement.  Upon consideration of such an option, the Secretary-General should recalculate accrued liabilities on the basis of reviewed ASHI plans and then formulate a new proposal on funding strategies.

He said the current funding proposal was not acceptable to his delegation.  In particular, Japan was against the transfer of $290 million in unencumbered balances under peacekeeping operations for the 2008/09 financial period through the suspension of financial regulation 5.3.  Those balances should be returned to Member States.

The Secretary-General argued that after-service health insurance was an important element of social security for retiring staff members, since many could not benefit from national social security schemes because of their service with the United Nations.  His delegation, however, would like to be informed on the actual circumstances in which some Member States allegedly refused to provide United Nations retirees with the same national benefits that other citizens were eligible to receive.  In such cases, his delegation would like to know whether the United Nations had ever held consultations with such States in an attempt to ameliorate the financial hardships that such retired staff must endure in their home countries.  As regards the related liabilities of the Tribunals, his delegation was in accord with the ACABQ recommendation that appropriations be made to cover the costs only for current ASHI participants who had retired from the Tribunals.

* *** *

For information media • not an official record