Under a June 2011 contract, CBRE Group, Inc. (CBRE) is the sole provider of real estate management services for the U.S. Postal Service. These services include marketing and sale of properties and conducting lease negotiations. In fiscal years 2012 and 2013, CBRE marketed 49 property sales totaling about $118 million and conducted 1,698 lease negotiations.
The U.S. Postal Service Office of Inspector General (OIG) issued two reports on the Postal Service’s contract with CBRE and a third addressing the Postal Service’s historic properties. This report, which considers Postal Service management of CBRE real estate transactions, is the fourth in a series evaluating Postal Service real estate management. Our objective is to assess the Postal Service’s internal controls over CBRE real estate property sales and lease negotiations.
What The OIG Found
The Postal Service could improve its management of CBRE real estate transactions. Management continues to allow CBRE to collect commissions from lessors for lease negotiations in addition to payments from the Postal Service based on performance targets for lease renewals. Management also allows dual agency transactions, enabling CBRE to represent and negotiate for both the Postal Service and buyers or lessors. These actions are inherently risky and create conflicts of interest whereby CBRE may not negotiate property sales and lease transactions in the Postal Service’s best interest or may capture opposing party fees from the Postal Service.
What The OIG Recommended
We recommended management terminate and recompete the current real estate services contract. In addition, we recommended management, in the interim, modify the CBRE contract to prohibit CBRE from collecting commissions from opposing parties and prohibit dual agency representation. We also recommended management, in the interim, notify lessors they are not required to pay commissions.
We also recommended management train employees to comply with the requirement to review appraisals independent of CBRE and implement revisions to the appraisal review checklist to ensure it is sufficient to detect technical errors in appraisals.
Further, we recommended that management update record management requirements, implement Postal Service policy that requires employees to consistently enter real estate transactions into the facilities management system, and instruct the contracting officer to ensure the proper certification of payment authorizations.
USPS Proposed Resolution
R - 1 -- Terminate and recompete the current CB Richard Ellis, Inc. (CBRE) real estate management services contract.
a. Ensure the new contract prohibits the contractor from collecting commissions from opposing parties when negotiating leases and from representing both the Postal Service and prospective buyers and lessors in Postal Service real estate transactions.
b. Until the current contract is recompeted, modify the current contract to prohibit CBRE from collecting commissions from opposing parties when negotiating leases and from representing both the Postal Service and prospective buyers and lessors in Postal Service real estate transactions.
c. Notify lessors they are not required to pay commissions for new leases.
R - 2 -- Implement policy for lease transactions that requires Postal Service employees to capture the lessor’s or Postal Service’s initial lease rate offer, market rent, rent analysis results, and responsible negotiator, and record it in the enterprise Facilities Management System.
R - 3 -- Implement revisions to the appraisal review checklist to detect technical errors in appraisals and instruct and train employees to comply with the requirement to review appraisals independent of CB Richard Ellis, Inc.
R - 4 -- Establish updated records management retention requirements for employees to retain files to support real estate transactions, including appraisal reviews.
R - 5 -- Implement Postal Service policy that requires employees to itemize due diligence payments within the eFMS and update the facility record to "disposed" when the facility is sold.
R - 6 -- Confirm that the contracting officer follows Postal Service policy to require the proper certification of payment authorizations