GAO-16-375SP: Defense: 16. DOD Leases and Use of Underutilized Space at Military Installations

Defense > 16. DOD Leases and Use of Underutilized Space at Military Installations

The Department of Defense could potentially achieve millions of dollars in savings by identifying and implementing actions to increase use of underutilized facilities at its military installations, such as identifying opportunities to relocate some of its organizations currently in leased space to installations, communicating the availability of underutilized space to potential tenants, and seeking use by other federal agencies.

Why This Area Is Important

GAO has designated the federal government’s management of its real property assets as high risk, in part because of overreliance on costly leasing and challenges in reducing excess infrastructure.[1] In particular, the Department of Defense (DOD)—one of the federal government’s largest owners of real estate—continues to rely on and pay for leased commercial space while also operating and maintaining underutilized (vacant or partially vacant) facilities on its military installations. DOD expends valuable resources on these underutilized facilities that could potentially be eliminated from the budget or allocated to other uses. The need to better utilize existing real property has been the focus of government-wide efforts since the President issued an executive order to promote the efficient and economical use of federal real property assets in 2004.[2] On March 25, 2015, the Office of Management and Budget (OMB) issued a memorandum to clarify the existing policy to dispose of excess properties and promote more efficient use of real property assets.[3]

DOD manages a global real property portfolio that consists of nearly 562,000 facilities, which are located on over 4,800 sites worldwide and cover over 24.9 million acres. DOD estimates that its facilities have a plant replacement value of about $880 billion. This portfolio includes property that is currently underutilized but is retained because it may be needed in the future. DOD can allow use of underutilized property on its installations by moving DOD organizations out of leased space and onto military installations or by establishing agreements to move other tenants, such as non-DOD federal agencies and other government and private entities, onto military installations. Such agreements may offer potential opportunities for financial benefits, including reduced maintenance costs and, in some circumstances, revenue to DOD. However, while DOD continues to operate and maintain underutilized facilities, as of September 2013 it had over 5,500 leases to use space owned or held by private organizations, the General Services Administration (GSA), and state organizations. GSA has key leadership responsibilities related to real property management for the federal government, including acquiring, managing, utilizing, and disposing of real property for most federal agencies, as well as entering into, renewing, and terminating contracts for leased properties. Notably, DOD facilities are not generally subject to GSA authority, as DOD has authority under law to acquire, manage, and dispose of its real property.[4] GAO reported in March 2016 that although DOD cannot fully determine the total cost of its leases, GAO’s work over the years has shown that operating leases often costs more than owning buildings, especially where there are long-term needs for space.



[1] GAO, High-Risk Series: An Update, GAO‑15‑290 (Washington, D.C.: Feb. 11, 2015).

[2] Exec. Order No. 13327, Federal Real Property Asset Management, 69 Fed. Reg. 5897 (Feb. 6, 2004).

[3] Office of Management and Budget, Implementation of OMB Memorandum M-12-12 Section 3: Reduce the Footprint, Management Procedures Memorandum No. 2015-01 (Washington, D.C.: Mar. 25, 2015).

[4] See 40 U.S.C. § 582; 10 U.S.C. §§ 2661, et seq.

What GAO Found

GAO reported in March 2016 that DOD has underutilized space at military installations but may miss opportunities to reduce its reliance on leased facilities and assess the use of available space resulting from planned force reductions at its installations.GAO also reported that DOD also does not systematically identify the availability of underutilized space on its installations to leasing agencies. GAO reported in June 2015 that DOD and GSA do not routinely share information on opportunities to move non-DOD federal agencies onto military installations to use underutilized space. GAO found that both DOD and non-DOD agencies could benefit from this use of underutilized space. DOD avoids the cost of utilities and maintenance, which typically are paid by the tenant, and the tenant agency avoids the cost of rent for commercial leases, as DOD charges for use of space by other federal entities on a cost-recovery basis but does not charge rent.

In March 2016, GAO reported that while DOD has taken some actions to reduce its leased space, DOD had projected minimal change in its overall lease activities in response to a presidential memorandum and a series of OMB memorandums instructing federal agencies to maintain or reduce both owned and leased space.[1] Specifically, in its October 2013 Freeze the Footprint report to GSA, DOD stated that most of the military departments did not anticipate significant year-to-year changes in their current leasing activities.[2] GAO also reported in March 2016 that DOD has not assessed effects of future force reductions on existing leased facilities. Potential future force structure reductions may offer DOD and the military departments an opportunity to further reduce reliance on leased space. For example, in December 2013, GAO reported that the Army planned to inactivate 10 Army brigade combat teams on some of its installations starting in fiscal year 2017, which would likely result in additional unutilized or underutilized buildings as a result of these reductions in force structure. To illustrate potential cost savings, for its March 2016 report, GAO reviewed all leasing data in DOD’s real property database and identified six leases for administrative office space within 50 miles of four of the installations where the Army plans to inactivate brigade combat teams. Each of the installations is projected to have available administrative office space once the Army brigade combat teams are inactivated. GAO’s analysis of these leases of general administrative space shows the annual rent cost of maintaining these leases for another 2 years, starting on January 1, 2016, is about $8.2 million.

Further, although DOD guidance directs the military departments to maintain a program monitoring the use of real property to ensure that it is being used to the maximum extent possible consistent with both peacetime and mobilization requirements, GAO reported in March 2016 that officials do not share information on available unutilized or underutilized space that can potentially be used when there is a new lease requirement or when a lease is up for renewal. While each of the military departments told GAO that it has a process for requesting leased space, GAO found that officials managing leased space did not always have information on unutilized or underutilized space. According to military department officials, the process of requesting leased space takes several steps to ensure that leased space is used efficiently, including assessing whether DOD-held or government-owned space is available within a 50-mile radius of a lease location. For example, Navy officials said that the Navy pursues leasing space only when it has determined that suitable government-owned space does not exist. Additionally, Air Force and Army officials provided informational checklists that are to be used when acquiring or renewing leases, including surveying the availability of government-controlled or DOD-held space within a 50-mile radius of the lease location. However, based on discussions with Army officials, GAO determined that the U.S. Army Corps of Engineers officials who manage the Army’s rental facilities database had not been contacted by the installation officials with projected unutilized or underutilized space because of the inactivation of the brigade combat teams on their installations—space that is close to DOD lease locations. If installation officials do not routinely share information on unutilized and underutilized space, DOD leasing agents may not know whether government owns suitable space, thereby leaving DOD at risk of relying on more costly leased space when government-owned space may be available. 

DOD officials stated that there are many factors to consider before deciding to move an activity from leased space onto an installation, such as suitability of the space to meet the tenants’ needs and security concerns with non-mission-related tenants. While the military departments have reported that they have initiatives under way to reduce leased space, greater opportunities are possible because of planned force structure reductions, which will lead to increasing vacancies of on-installation facilities. If DOD does not require that the military departments evaluate these likely-to-be-vacated facilities in conjunction with leases being renewed—or before entering into new leases—DOD will likely not have reasonable assurance that it will be able to fully identify opportunities to vacate more costly leased space when appropriate and to move into DOD-owned space.  

In addition, in June 2015 GAO reported that routine information sharing does not occur between DOD and GSA concerning opportunities to use underutilized space by moving non-DOD federal agencies onto military installations. Government-wide efforts, such as OMB’s 2015 Reduce the Footprint policy, continue to focus on the need to better utilize existing real property assets in order to promote efficiency and leverage government resources, which can be facilitated by coordination between federal agencies.[3] GAO has previously reported that agencies can become better stewards of government resources through enhancing and sustaining collaboration and coordination, which can be accomplished through various practices, including operating across agency boundaries through compatible policies, procedures, and frequent communication.[4]

GSA works with non-DOD federal agencies to help them seek and obtain space because, according to GSA, placing a federal agency in government-owned space is generally a better long-term solution than commercial leasing and provides cost savings over time.[5] According to GSA officials, the search for suitable federally controlled space includes a check of federally owned and GSA-leased real property before helping its clients to acquire space through a commercial lease. However, even though DOD holds over 60 percent of all federal real property and GSA may have information on agencies near an installation needing space, according to GSA officials, GSA’s process for seeking and assigning space to its non-DOD federal agency clients does not include sharing this information with DOD or other federal landholding agencies. The officials stated that if a client were to express interest in space on a military installation, GSA would direct the client to contact the installation directly, and GSA would have little to no involvement with the details of any agreement between DOD and the non-DOD federal agency for the use of space on a military installation.

The GSA officials with whom GAO spoke said that a primary reason GSA does not routinely coordinate with DOD concerning the availability of unutilized and underutilized space is that they assume that space in DOD-held facilities typically would not meet the needs of GSA’s non-DOD federal agency clients because installation security requirements and locations are not likely to be compatible with the non-DOD federal agency missions. However, although such factors can limit some non-DOD federal agencies from being located on a military installation in some circumstances, DOD reports having non-DOD federal tenants on many of its installations. Therefore, there are instances when a non-DOD federal agency’s space needs can be met on military installations. Further, GSA’s assumption that agencies’ needs cannot be met on a military installation may preemptively limit options available to the agencies for which GSA is working to find space, and non-DOD federal agency tenants may not receive full information on potential facilities located on the installations.

In its June 2015 report, GAO also reported that DOD also does not routinely share information with GSA or other non-DOD federal agencies when space is available on military installations, although DOD guidance directs military services to ensure that real property is being used to the maximum extent possible consistent with both peacetime and mobilization requirements. Routine sharing does not occur when space is available, in part because officials told GAO that military installations generally wait for non-DOD federal agencies to inquire about available space. DOD officials at various levels said that they do not conduct outreach to communicate information regarding unutilized and underutilized space on military installations, in part because the installations primarily focus on supporting missions within DOD, not other non-DOD federal agencies. However, when there is available space on military installations that is not currently used by other DOD entities, DOD’s approach of waiting for agencies to contact installations does not assist installations in utilizing space to the maximum extent possible, consistent with DOD policy.

Officials at the Office of the Secretary of Defense and at the service and installation levels also stated that actively pursuing potential tenants would be an administrative burden on the installations, especially if there is not a significant amount of available space on the installation. However, there are ways that DOD could accomplish this without significantly increasing the administrative burden, such as by ensuring that regional GSA offices know whom to contact at the installations when seeking space for tenants. At the time of GAO’s review, DOD did not provide regional or local contacts or information on the process for requesting space for installations to GSA or other non-DOD federal agencies. Without actions to share information at the regional and local levels, GSA offices working with non-DOD federal agencies may risk missing opportunities for clients to use available underutilized or unused federal space at lower cost than commercial leases. In addition, DOD may be missing opportunities to leverage resources with GSA to enhance utilization of its unutilized and underutilized facilities and reduce costs associated with maintaining these facilities.



[1] Pursuant to a Presidential Memorandum, Disposing of Unneeded Federal Real Estate (June 10, 2010), federal agencies are to take actions to include accelerating cycle times for identifying excess assets and disposing of surplus assets; eliminating lease arrangements that are not cost-effective; pursuing consolidation opportunities within and across agencies in common asset types (such as data centers, office space, warehouses, and laboratories); increasing occupancy rates in current facilities through innovative approaches to space management and alternative workplace arrangements, such as telework; and identifying offsetting reductions in inventory when new space is acquired. This Presidential Memorandum is cited as an ongoing effort in OMB Memorandum M-12-12, Promoting Efficient Spending to Support Agency Operations (May 11, 2012), which describes a series of policies and practices related to reducing costs and improving efficiencies in government real estate, among other things, and builds on measures already in place at various agencies. In March 2013, OMB issued clarifying guidance for implementing the real property portion of the May 2012 memorandum, OMB Management Procedures Memorandum No. 2013-02, Implementation of OMB M-12-12 Section 3: Freeze the Footprint (Mar. 14, 2013).

[2] Department of Defense, Revised Real Property Cost Savings and Innovation Plan for Fiscal Year 2013 to 2015 (October 2015).

[3] Office of Management and Budget, National Strategy for the Efficient Use of Real Property 2015–2020, Reducing the Federal Portfolio through Improved Space Utilization, Consolidation, and Disposal (Mar. 25, 2015).

[4] GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies, GAO‑06‑15 (Washington, D.C.: Oct. 21, 2005).

[5] For example, non-DOD federal agencies could receive a financial benefit from being located on a military installation because of differences in costs charged by DOD when compared with the costs of commercial leases. Specifically, a DOD instruction allows military installations to collect reimbursements from non-DOD federal agencies for direct and indirect costs, such as utilities, maintenance, and services provided, but generally does not allow installations to collect additional rent beyond cost recovery.

Actions Needed

To help reduce facility costs and reliance on leased space, GAO recommended the following two actions:

  • In March 2016, GAO recommended that DOD look for opportunities to relocate DOD organizations in leased space to installations that may have underutilized space because of force structure reductions or other indicators of potentially available space, where such relocation is cost-effective and does not interfere with the installation’s ongoing military mission.
     
  • In June 2015, GAO recommended that DOD, in collaboration with the Administrator of GSA, identify and implement actions to enable and enhance routine information sharing between DOD and GSA about the utilization of facilities on military installations. Such actions should include establishing recurring processes to (1) share information about non-DOD federal agencies seeking workspace and (2) ensure that GSA and DOD organizations are aware of the appropriate points of contacts within their organizations at the regional and local levels.

DOD could potentially save millions of dollars each year by identifying opportunities to relocate some of its organizations in leased space to installations that may have underutilized facilities. GAO analyzed all 5,566 lease records in DOD’s real property database for fiscal year 2013 (the most recent year for which data were available) and found that there were 407 records for general administrative space.[1] The total annual rent plus other costs for these leases was approximately $326 million for about 17.6 million square feet of leased space. Further, without systematically sharing information, DOD may be missing opportunities for installations to maximize the use of space and reduce costs, while reducing its leased space, and GSA risks missing opportunities for some of its clients to reduce or avoid rental costs altogether and to reduce their reliance on commercial leases.



[1] According to DOD officials, general administrative space is more likely to be usable by tenants, compared to more specialized military-mission-oriented facilities.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from two products in the related GAO products section: GAO’s March 2016 report on DOD’s use of leased space and GAO’s June 2015 report on non-DOD tenants’ use of DOD-owned space. To determine the extent to which DOD has taken actions to reduce its reliance on leased space since 2011 (the final year of a 6-year period to implement the 2005 Base Realignment and Closure (BRAC) recommendations), GAO obtained and reviewed the 2005 BRAC Commission report and identified the commission’s recommendations for realigning and closing some DOD leased facilities that had to be implemented by September 15, 2011.[1] GAO also reviewed DOD’s 2013 Freeze the Footprint reports that were submitted to OMB—the most current reports available when GAO initiated the review—to identify DOD’s planned initiatives to reduce its domestic office and warehouse space (including both leased and owned space). GAO interviewed officials from the Office of the Assistant Secretary of Defense (Energy, Installations, and Environment) to discuss DOD’s policies and ongoing initiatives involving DOD’s use of leased space. GAO also interviewed real property officials from the Department of the Army and gathered documentation on its initiatives regarding leased space that would assist it in meeting the Freeze the Footprint requirements. GAO focused on the Army because it has more leases than the other military departments and Washington Headquarters Services combined. GAO interviewed and gathered documentation from officials at Washington Headquarters Services to determine if DOD was reoccupying leased space previously vacated in the National Capital Region as a result of the 2005 BRAC recommendations. The National Capital Region was a primary focus of the 2005 BRAC recommendations that involved moving DOD activities from leased space to government-owned space. For fiscal year 2013, GAO obtained DOD reports on the number and location of DOD’s leases and interviewed officials who maintain the leases.GAO also analyzed the lease data from DOD’s Real Property Assets Database to see if any opportunities existed for DOD to reduce its leased space based on the proximity of leased space to installations that could have additional underutilized buildings in the future as a result of planned reductions in force structure. GAO chose fiscal year 2013 data because they were the most recent data available at the time the review began.

To determine the extent to which DOD and other federal agencies coordinate to enhance use of unutilized and underutilized facilities on military installations, GAO reviewed GSA guidance on its process to seek and assign space to its clients and interviewed cognizant GSA officials concerning that process, to determine whether the process includes coordination with landholding agencies such as DOD. GAO compared that information to criteria on practices to enhance collaboration among federal agencies that GAO identified previously. Specifically, GAO identified certain practices that can help enhance and sustain collaboration among federal agencies, including establishing compatible policies, procedures, and other means to operate across agency boundaries, which can be accomplished through frequent communication among collaborating agencies.[2] GAO also interviewed responsible officials at the Office of the Secretary of Defense, military department headquarters, and military installations to obtain their perspectives on coordination between DOD and GSA.



[1] 2005 Defense Base Closure and Realignment Commission: Report to the President (Sept. 8, 2005).

Agency Comments & GAO Contact

In commenting on GAO’s March 2016 report on which portions of this analysis are based, DOD did not concur with the recommendation for military departments to look for opportunities to relocate DOD organizations in leased space onto installations that may have underutilized space. DOD stated that its existing policy requires the effective and efficient use of DOD real property and that current initiatives undertaken by each of the military departments and Washington Headquarters Services reflect, in DOD’s opinion, adherence to this policy, and therefore no additional actions are necessary at this time.

Although DOD sees no immediate requirement for additional action, GAO found that—existing guidance notwithstanding—DOD will need to assess the likely effects of future force reductions and the implementation of the Reduce the Footprint Plan on its use of leased space. Although DOD noted that the Army issued an execution order in March 2015 requiring that commanders plan and implement footprint reductions, the impact of that effort is not yet known as the requirements of the execution order are still on-going. Specifically, according to the Army execution order, the Army plans to take a phased approach to infrastructure reductions. During Phase One, the Army plans to accurately document existing facility utilization and update its real property master plan. In Phase Two, the Army intends to implement the updated plan by consolidating its footprint to the minimum appropriate space and disposing of unneeded leases and facilities. OSD and Army officials told GAO that they have identified some leases for elimination but that further analysis would need to be completed before such actions could be taken. Officials also said that good execution data would not be available for this effort until the end of 2016. At present, data on Army leases to be eliminated are not available. However, if the process laid out in the execution order is effectively and fully implemented, it may meet the intent of GAO’s recommendation.[1] Until the Army effort is completed, however, DOD may be at risk of missing opportunities to reduce its leased space at a DOD-wide level.

In commenting on the June 2015 report on opportunities to move non-DOD federal agencies onto military installations, DOD and GSA both concurred with the recommendation to enhance information sharing on space availability on military installations. DOD stated that it would support GSA’s efforts to share information about the non-DOD federal agencies seeking workspace and that it would work with GSA to ensure that GSA and DOD organizations are aware of the appropriate points of contacts within their organizations at the regional and local levels. GSA stated that it would take actions to implement the recommendation, consisting of (1) convening a working group with DOD real property officials to understand DOD’s national landholding portfolio and identify unutilized and underutilized space at military installations, (2) collaborating with DOD to establish a shared real property inventory database, (3) reviewing GSA’s inventory of customer agencies’ current and future needs, and (4) revising the Federal Management Regulations to include DOD in GSA’s priorities for housing federal agencies. As of March 2016, GSA and DOD began setting up a working group to share information on available space and to establish points of contact and other participants to address the recommendation.

GAO also provided a draft of this report section to DOD for review and comment. DOD provided technical comments and in response GAO made changes to this report section where appropriate.

For additional information about this area, contact Brian J. Lepore at (202) 512-4523, or leporeb@gao.gov.
 


[1] According to DOD officials, the Army is the executive agent for the majority of DOD leases, including those for joint service programs and defense agencies.

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