UN audit warns of possible overrunning costs in the renovation of the UN in Geneva

The Strategic Heritage Plan (SHP), the ongoing renovation of the UN Geneva compound in Geneva, might run over its CHF 836,500,000 approved budget, reveals a December 2021 audit by the Office of Internal Oversight Services, Internal Audit Division (OIOS). The eleven-page document indicates that close to CHF 35 million of additional funds (about 4% of the budget) might be needed to complete the SHP project as it was initially conceived and approved by the UN General Assembly, back in 2015. The auditors also point to ongoing weaknesses in the project management—already spotted in previous audits, as The Geneva Observer reported at the time.

“The SHP budget is likely to be insufficient to meet the planned full scope of SHP,” the report states. Being part of the UN, the OIOS couches its conclusions in carefully worded language, but a source with full knowledge of the facts describes the situation to The Geneva Observer as “critical”. The auditors warn that should the SHP not meet all its objectives, “there would be a serious impact on UNOG’s operations, its use as a primary conferencing facility for Member States, and on its workforce’s ability to work effectively.” The audit was conducted from August to October 2021 and covers the period from January 2019 to June 2021.

Last November, while celebrating with great fanfare the opening of the new UN ‘H’ building (the crown jewel of the SHP project alongside the renovation of the historic Palais des Nations and the ‘E’ building), David McCuaig, project director for the SHP, told the press that the project was on budget. While the claim is true as regards the H, the latest OIOS audit sheds a slightly different light on the financial situation of the plan, noting that “the SHP Monthly Report for July 2021 states the Risk Management Consultant’s estimate of forecast out-turn […] at 80% confidence level.” In fact, in its July 2021 report, the Risk Management Consultants assessed the likelihood of completion within budget at around 16 percent—the potential cost overruns largely a result of the impact of COVID-19 on the project.

The OIOS audit also makes clear that there won’t be any easy fixes. According to the document, the situation “will require difficult decisions,” and “ultimately it may be necessary to descope the project to meet the originally approved budget.” However, “descoping or deferring part of the scope beyond the end of SHP could cause cost inefficiencies in the longer term which would outweigh cost savings in the short term,” explain the investigators.

A number of remedial measures to ensure the full completion of the plan within its initial budget avenues are being evaluated, but the audit limits itself to listing them, without further assessment: “Mitigations include developing cost-saving activities during and after the pre-construction services period, continuing to hold value engineering workshops and monitoring outputs, […] enabling changes to be valued clearly and quickly, avoiding design programme changes as far as possible, and tightly managing contingencies,” adding that “a lot of uncertainty on the budget will be eliminated once the last phase of the renovation is completed.”

The SHP consists of three phases. The first phase was the construction of the now completed H building, the second includes the renovation of the historic Palais des Nations, and the third phase will see the dismantling and renovation of the E building. This should be completed by the end of 2024.

The project is financed in part by an interest-free, refundable loan from the Swiss Government, for a maximum amount of CHF 400 million. Would the Swiss Government be willing to increase its funding to cover a cost overrun? Through a spokesperson, it tells the G|O that, while aware of the audit, the question is hypothetical as the SHP might still be completed within budget.

MANAGEMENT PROJECT NEEDS TO BE STRENGTHENED

The auditor’s remit was not to conduct a financial audit per se, but “to assess the adequacy and effectiveness of governance, risk management and control processes over the management of the SHP”—all things, they note in their conclusions that “should be strengthened.”

It is not the first time that the SHP project management has come under criticism from OIOS, and a UN insider admitted to the G|O that the inclusion of four concluding paragraphs under “Funding and expenditure controls” were beyond the scope of the audit and meant to “sound the alarm” about the SHP financial situation.

Contacted by the Geneva Observer and asked to comment on the report, an outside source familiar with the project expressed their surprise at the ratio between the management expenses of the project and the construction costs. “On average in Geneva, it is around 20/80. In the SHP case, the ratio is 40/60. Given these figures, it is surprising that the audit still finds shortcomings in the project’s management.”