General Services Administration and Real Estate Brokers' Commissions, B-302811, July 12, 2004

B-302811 Jul 12, 2004 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights We are of the view that the broker services that GSA will acquire under the National Brokers Contract are services that brokers commonly offer in commercial leasing transactions. We found that for commercial leases, while it is common practice for the parties to negotiate the particular mix of services the broker will provide, the services that GSA will acquire are among those services that brokers commonly offer. We also found that while brokers may negotiate the method and amount of payment, which could be through a commission or fee, the services that GSA will acquire under the National Brokers Contract are commonly covered by landlords' commissions. View Decision B-302811, General Services Administration and Real Estate Brokers' Commissions, July 12, 2004 B-302811 July 12, 2004 The Honorable James Oberstar Ranking Minority Member Committee on Transportation And Infrastructure House of Representatives The Honorable Eleanor Holmes Norton Ranking Minority Member Subcommittee on Public Buildings, Economic Development and Emergency Management Committee on Transportation and Infrastructure House of Representatives Subject: General Services Administration and Real Estate Brokers' Commissions This responds to your joint letter of March 23, 2004, requesting our opinion regarding some aspects of the General Services Administration's (GSA) proposed National Brokers Contract. In discussions with your staff, we agreed to address several questions centering on the nature of the services that GSA will obtain under the proposed National Brokers Contract and the payment for those services. We also agreed to explain the difference between GSA's proposed National Brokers Contract, which we addressed in a 2003 decision, B-291947, Aug. 7, 2003, and a Small Business Administration (SBA) contract related to its Preferred Lenders Program, which we addressed in a 2004 decision, B300248, Jan. 15, 2004. We are of the view that the broker services that GSA will acquire under the National Brokers Contract are services that brokers commonly offer in commercial leasing transactions. We found that for commercial leases, while it is common practice for the parties to negotiate the particular mix of services the broker will provide, the services that GSA will acquire are among those services that brokers commonly offer. We also found that while brokers may negotiate the method and amount of payment, which could be through a commission or fee, the services that GSA will acquire under the National Brokers Contract are commonly covered by landlords' commissions. As we explain in more detail below, the legal nature of the proposed GSA brokers contract differs from that of SBA's contract. Under the proposed brokers contract, brokers will agree to provide services at no cost to GSA. B-291947, Aug. 7, 2003. As a result, GSA has no financial liability to its brokers, and the brokers have no expectation of a payment from GSA. Such a contract is sometimes referred to as a no cost contract because the United States has no financial liability under the contract. SBA, on the other hand, did not have a no cost contract. SBA entered into a contract for assistance in reviews of lenders participating in its Preferred Lenders Program, and arranged to pay its contractor by improperly imposing fees on its lenders and requiring the lenders to pay those fees to the SBA contractor. B-300248, Jan. 15, 2004. We have not analyzed the soundness or advisability of entering into the National Brokers Contract in this opinion, nor did we in our 2003 decision to GSA regarding GSA's leasing program, B-291947, n.2, Aug. 7, 2003. However, in an enclosure to this opinion, we offer some questions that you may wish to consider in your oversight role. In responding to your request, we asked GSA for its views in writing, interviewed GSA staff, surveyed professional literature relating to the provision of real estate services by brokers, and conducted some informal interviews with a number of persons familiar with the practices of the real estate profession. The persons we interviewed included some suggested by your staff as well as other academic and professional experts that we identified. [1] BACKGROUND With its National Brokers Contract, GSA proposes to award approximately four real estate brokers exclusive rights to represent the United States with respect to all GSA real property leases. GSA Solicitation No: GS-04P-02-BVD-0035 ( hereinafter, Solicitation), M. [2] According to GSA, all four brokers must provide services nationwide. Letter from Samuel J. Morris, III, Associate General Counsel, GSA, to Thomas H. Armstrong, Assistant General Counsel, GAO, June 16, 2004, at 4 (GSA Letter).