Leased Military Housing Costs in Europe Can Be Reduced by Improving Acquisition Practices and Using Purchase Contracts

NSIAD-85-113: Published: Jul 24, 1985. Publicly Released: Jul 24, 1985.

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GAO reviewed the weaknesses and inconsistencies in the Department of Defense's (DOD) lease acquisition practices for family housing in Europe and actions to improve these practices.

GAO noted that the shortage of adequate local housing with acceptable DOD standards of construction has required DOD to provide much of the needed housing through leasing construction agreements. GAO found that: (1) the military services' major commands responsible for leasing housing in Europe have developed different procurement procedures and practices for awarding and administering leases; (2) practices in awarding leases were inconsistent with those applicable to supplies and services established to ensure the United States obtains the best contract agreements at a reasonable cost; and (3) the services have different interpretations of congressional reporting requirements for lease agreements. GAO noted alternatives for reducing long-term lease costs, including: (1) the inclusion of buy-out provisions providing the United States the opportunity to buy the housing during or at the end of the lease period; (2) granting the services legislative authority to enter into purchase contract arrangements for foreign family housing; and (3) agreements with contractors for the construction and financing of family housing requiring installment payments for interest and amortization of the project's costs and profit. GAO found that congressional actions have been taken to: (1) direct that economic analyses be made to evaluate the comparative cost of new lease proposals with other alternatives for furnishing needed housing; (2) instruct that buy-out provisions be included in all new leasing construction agreements; and (3) increase appropriation of military construction funds.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation. Final implementation was contingent upon Congress enacting legislation authorizing the use of purchase contracting. DOD did not submit legislation because it believed that there was a conflict with OMB Circular A-11. However, the services are including buy-out options in their lease contracts.

    Recommendation: If purchase contracting authority is granted by Congress, the Secretary of Defense should require the military services to: (1) prepare economic analyses comparing the costs of purchase contract arrangements with other alternatives; and (2) seek host-country governments' support before entering into purchase contracts.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation and stated that legislation would be prepared for consideration for FY 1988. However, legislation was not submitted because it was believed to conflict with OMB Circular A-11.

    Recommendation: To provide the military services with another alternative method of acquiring needed housing in Europe, the Secretary of Defense should propose to Congress specific legislation granting the military services authority to use purchase contracting, when appropriate.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation. The legal requirement that services obtain host-country assurances was to be included in the FY 1988 draft military construction bill. However, legislation was not submitted because it was believed to conflict with OMB Circular A-11. However, the services are including buy-out options in their lease contracts.

    Recommendation: The Secretary of Defense should require the services to obtain assurances from host-country governments that the United States would be able to exercise the buy-out provisions.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation and stated that legislation would be prepared. Legislation was not submitted because it was believed to conflict with Office of Management & Budget (OMB) Circular A-11. However, the services now include a buy-out clause in lease contracts requiring contractors to state the buy-out costs for each year of the lease.

    Recommendation: To resolve the military services' concerns over the legal propriety of buy-out provisions, the Secretary of Defense should evaluate and propose legislation to Congress on the type of buy-out provisions that should be permitted in foreign leases.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: DOD concurred with this recommendation and stated that the services would be directed to develop a tri-service manual containing the guidance recommended by GAO. The DOD IG audit follow-up system shows that the joint service manual had been completed as of November 10, 1987, and that the uniform policies contained therein will be implemented by the services.

    Recommendation: To ensure that the military services follow consistent leasing procedures and practices and comply with congressional committee lease acquisition reporting requirements, the Secretary of Defense should direct the services to jointly develop and issue guidance on uniform policies and procedures for acquiring foreign leased family housing and for complying with the congressional committee reporting requirements for lease awards. This guidance should: (1) be consistent with those acquisition principles for advertising, evaluating, and negotiating contained in DOD regulations for other types of procurement; (2) require the services to provide, in leases having escalation of net rental clauses, that rental payments will not exceed the amount of appropriations available at the time payments are due or the statutory limit established for such year under 10 U.S.C. 2828(e), and that nothing in the lease can be considered as implying Congress would, at a later date, appropriate sufficient funds to meet deficiencies; and (3) include congressional committee reporting requirements for lease awards on groups of leases with the same lessor and renewals of existing leases.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: The Navy attempted to amend existing leases, however, lessors would not agree to amendment. The Navy has instructed its field offices that all future leases must contain clauses which implement the intent of the recommendation.

    Recommendation: The Secretary of Defense should direct the Navy to seek amendment to the Italian leases and any others that have been awarded containing provisions on escalation of rental in indefinite or indeterminate amounts.

    Agency Affected: Department of Defense

 

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