Additional Executive Actions Continue to Impact the Federal Real Estate Marketplace
Highlights
- The Office of Personnel Management has offered most federal employees a deferred resignation program, providing six months of severance for voluntary departures. With a hiring freeze in place, significant reductions in personnel could shrink federal office space needs.
- The General Services Administration has imposed an acquisition pause on new lease obligations, awards and modifications. This freeze has already caused delays in lease procurements and notices to proceed, leaving lessors uncertain about timelines and costs.
- Lessors should monitor procurements, adjust pricing and claim costs for government delays.
In the wake of what was already a series of tumultuous changes to the federal real estate landscape, two new developments have fundamentally changed the outlook for federal real estate over the next few years.
First, the Office of Personnel Management (OPM) has offered most federal employees a "deferred resignation" that will essentially provide six months of severance for employees who willingly leave the federal service.
Second, the General Services Administration (GSA) has implemented an "acquisition pause" on most new lease actions and obligations of funds, which has already resulted in delayed notices to proceed on existing leases.
Below is an analysis of these developments and their impacts on lessors and the government. Additional new orders and direction from the government are expected in the days and weeks to come. Holland & Knight will continue to monitor this area and provide additional updates as needed.
Fork in the Road: Offer for Deferred Resignation
On Jan. 28, 2025, all federal employees received an email with the subject line "Fork in the Road" from the OPM that offered almost all federal employees the opportunity to take a "deferred resignation":
If you choose not to continue in your current role in the federal workforce, we thank you for your service to your country and you will be provided with a dignified, fair departure from the federal government utilizing a deferred resignation program. This program begins effective Jan. 28 and is available to all federal employees until Feb. 6. If you resign under this program, you will retain all pay and benefits regardless of your daily workload and will be exempted from all applicable in-person work requirements until Sept. 30, 2025 (or earlier if you choose to accelerate your resignation for any reason).
OPM followed up this email offer to employees with guidance to the agencies in a memorandum that outlined the specifics of the goals of the policy and the mechanics of how it will work:
Q: Why is the federal government offering deferred resignation to the federal workforce?
A: The federal workforce is expected to undergo significant near-term changes. As a result of these changes and uncertainty, or for other reasons, some employees may wish to depart the federal government on terms that provide them with sufficient time and economic security to plan for their future.
Q: Who is eligible for deferred resignation?
A: Deferred resignation is available to all full-time federal employees except for military personnel of the armed forces, U.S. Postal Service employees, positions related to immigration enforcement and national security and any other positions specifically excluded by your employing agency.
The impact of this offer could be dramatic. Though the overall reduction in the federal workforce may or may not be significant, certain offices and agencies will undoubtedly see substantial reductions in personnel and, with the current hiring freeze in place, it's unclear when – or even if – those personnel will be replaced.
This reduction in personnel will directly impact the federal real estate marketplace. As noted in a previous Holland & Knight alert, the recently passed Utilizing Space Efficiently and Improving Technologies Act (USE IT Act, found in Section 2302 of the Thomas R. Carper Water Resources Development Act of 2024) mandates that agencies monitor their utilization based upon a 150-square-foot per-person metric. Furthermore, the act requires GSA and tenant agencies to reduce space requirements in existing leases and succeeding lease procurements for agencies that fail to meet a 60 percent utilization using this metric. Agencies that see a substantial reduction in personnel for certain offices will run afoul of this metric, which may trigger reductions in space and certainly reduce the footprint for follow-on procurements.
The impacts of this reduction in force will be felt over a period of years, but there will be immediate impacts as well. Pending procurements may be upended by uncertainty over whether previously vetted requirements and housing plans remain accurate. Lessors and government agencies should expect and prepare for substantial delays and cancellations of solicitations as tenants revisit their space needs over the coming months and years.
Acquisition Pause
On Jan. 24, 2025, the GSA issued a memorandum, effective immediately, notifying all contracting officers and lease contracting officers to suspend the execution of any new GSA-funded obligations, including new awards, task and delivery orders, modifications and options subject to a few exceptions. The memorandum explains that this short-term pause will "permit the new leadership to understand key acquisition actions, commitments, and approaches and help direct any needed course corrections." The memorandum further states that "[a]ll other obligations and/or award actions will require review and approval of the Acting Administrator or designee before the acquisition action can be awarded."
The pause on "any new GSA-funded obligations" will impact current and pending lease procurements. Few lease awards were made during this pause, and it remains unclear how long the pause will last. Accordingly, lessors with a pending proposal in a lease procurement should carefully monitor the status of the procurement and associated costs to ensure that if and when the procurement resumes, their price proposals are not stale.
Similarly, this acquisition pause has already led to delays in the issuance of notices to proceed for existing leases. Lessors should know their rights in the event of a delayed notice to proceed. Lessors are not bound indefinitely by their offered pricing and should immediately inform the contracting officer if they need to revise their Tenant Improvement Cost Schedule (TICS) tables. Additionally, if the lessor is incurring additional costs during a period of delay, those costs are the government's responsibility. Lessors should document these delay-related costs and submit a request for an equitable adjustment as part of the notice-to-proceed process.
Conclusion
This remains a rapidly evolving situation, and lessors should closely follow developments. Please reach out to Holland & Knight's GSA Leasing & Federal Real Estate Team with any questions about these or other issues facing lessors or developers.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.