Military Housing:

Management Improvements Needed As the Pace of Privatization Quickens

GAO-02-624: Published: Jun 21, 2002. Publicly Released: Jun 21, 2002.

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The Department of Defense (DOD) estimates that 168,000 military family housing units are inadequate, lack modern amenities, and are in need of major renovation and replacement. According to DOD, completing this work using traditional military construction methods would take more than 20 years and cost $16 billion. To improve housing faster and more economically, Congress authorized the Military Housing Privatization Initiative in 1996. Although DOD has awarded contracts to construct or improve 16,000 units and has plans to privatize an additional 96,000 units by the end of fiscal year 2006, privatization projects are not supported by reliable or consistent needs assessments, and the overall requirement for military housing is not well-defined. The department has achieved two key financial goals for the privatization program--leveraging of government funds and lower project life-cycle costs. Although DOD has included provisions designed to protect the government's interests, GAO found areas where DOD could further enhance protections to the government. First, some contracts did not fully anticipate the increased rent to be paid to project developers as a result of a DOD initiative to increase housing allowances for service members. Second, although military installation officials will participate with developers in making project improvement decisions valued at $3.9 billion over contract terms in nine projects, DOD and service headquarters oversight of these decisions appears limited. Third, GAO found wide variation in contracts regarding assumptions and fees for services paid to developers. Finally, although DOD has developed a semi-annual report to help it monitor and evaluate financial and management data and assess the performance of individual projects, the reports have not been completed in a timely manner, do not include all relevant information, and are not subject to independent verification.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: In order to improve the implementation of the military housing privatization program, the Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to provide guidelines to help establish appropriate privatization contract revenue, expense, and reinvestment assumptions and project fees.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: OSD officials told us that the Defense Department is in the process of revising its housing policy and procedures manual, and that the draft manual currently provides ranges of acceptable dollar values for expected revenues, expenses, reinvestment amounts, and fees for the military services to use in negotiating family housing privatization agreements. Recently, an OSD official said the manual should be finalized near the end of calendar year 2006. Until then, the services are using the draft manual as a guide for their family housing privatization programs.

    Recommendation: In order to improve the implementation of the military housing privatization program, the Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to require service headquarters and the Office of the Secretary of Defense to review and approve privatization project reinvestment account expenditures over an established threshold.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: OSD officials told us that the department is in the process of revising its housing policy and procedures manual, and that the revised manual currently establishes new rules and thresholds for review and approval of project reinvestment expenditures. The level of the approval authority is directly related to the dollar amount of the expenditure--as the expenditure amount increases so does the organizational level required to approve the expenditure. Recently, an OSD official said the manual should be finalized near the end of calendar year 2006. Until then, the services and other DOD components are using the draft manual as guide for managing their family housing privatization projects.

    Recommendation: In order to improve the implementation of the military housing privatization program, the Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to require provisions in all future privatization contracts to direct the benefits from unanticipated increased revenues or reduced expenses to flow, in total or in part, into a project reinvestment account for possible future use in the project.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: OSD officials told us that the department is in the process of revising its housing policy and procedures manual, and that the revised manual currently requires that privatization contracts contain provisions directing unanticipated, increased revenues flow into reinvestment accounts. Recently, an OSD official said the manual should be finalized near the end of calendar year 2006. Until then, the services and other DOD components are using the draft manual as a guide for managing their military family housing and barracks programs. Also, OSD officials said that they are already ensuring that new privatization contracts include reinvestment accounts that capture unanticipated revenues.

    Recommendation: In order to improve the implementation of the military housing privatization program, the Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to improve the guidance for performing life-cycle cost analyses by requiring the inclusion of privatization contract oversight costs and validating the types and sources of data used to estimate military construction costs.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On November 4, 2005, the Director, Housing and Competitive Sourcing issued revised guidance to clarify the costs which should be included in these analyses. For the privatization alternative, the guidance requires the inclusion of the costs of housing management personnel, portfolio management, and consultant support through the project term. The guidance also requires that costs associated with each alternative be quantified, supported, and sourced.

    Recommendation: The Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to revise the department's housing requirements determination process to take into account greater use of community housing to fulfill needs and the projected impact that the housing allowance initiative might have on military installation housing requirements. As part of the effort to revise the department's process, the Deputy Under Secretary should also determine the effect of the difference in the department's housing standards for servicemembers living in government-owned or privatized housing and for those living in community housing on the requirement for military family housing. This should include identifying the benefits and costs derived from a program that would provide increased allowances based on the number of family members and determining the extent to which such a program could reduce requirements for government-owned or privatized housing.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In commenting on a draft of this report, DOD agreed with GAO's recommendation. The department reported that the Office of the Secretary of Defense has issued a draft requirements policy document that will rely primarily on the private sector to meet the department's housing needs, and will include increases in the housing allowance. Also, the department acknowledged that an inconsistency exists for some military members, between the size of government housing provided, and the units that the housing allowances would afford in the private sector. DOD plans to study this issue as the average out-of-pocket costs for its military members reaches zero. According to DOD, if the size differential continues into the future, it could influence military families to seek government housing over available private sector units. On September 4, 2002, a DOD official stated that DOD has prepared a 3-page memorandum addressing this recommendation. The memorandum has been circulated for coordination within DOD, all changes have been incorporated, and the memorandum is awaiting signature by the Deputy Secretary of Defense. The current estimated completion date for signature and implementation of the memorandum is November 2002. The revised DOD housing requirements determination policy was issued on January 8, 2003.

    Recommendation: In order to improve the implementation of the military housing privatization program, the Secretary of Defense should direct the Deputy Under Secretary of Defense (Installations and Environment) to improve the value of DOD's privatization program evaluation report by completing the report on time, including information on funds accumulated in project reinvestment accounts, and obtaining periodic independent verification of key report elements.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In commenting on a draft of this report, DOD concurred with GAO's recommendation. The department reported that DOD's privatization program evaluation report is a key program management tool. The department agreed with the need for timely reports, improved reporting of such items as project reinvestment accounts, and periodic independent verification of key data elements. On September 4, 2002, a DOD official stated that during a recent conference with service representatives, the importance of the accuracy and timeliness of the privatization program evaluation report was re-emphasized. The report format is continuing to undergo updates and revisions to ensure that the best possible product is produced. The official stated that timeliness has improved and will continue to improve as the best possible product is settled on. Also, DOD plans to undertake periodic independent verification of crucial elements in the report to ensure the accuracy of reported information.

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