Military Housing:

Continued Concerns in Implementing the Privatization Initiative

NSIAD-00-71: Published: Mar 30, 2000. Publicly Released: Mar 30, 2000.

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Carol R. Schuster
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Pursuant to a legislative requirement, GAO provided information on the Department of Defense's (DOD) Military Housing Privatization Initiative, focusing on the: (1) status of the housing privatization initiative; (2) accuracy of the services' life-cycle cost analyses comparing the cost of proposed privatization projects to comparable projects financed through military construction funds; and (3) progress DOD is making in coordinating and integrating the initiative with other family housing programs.

GAO noted that: (1) although initial plans for housing privatization were aggressive, actual progress has been slow; (2) almost 4 years after the program was initiated, DOD has awarded only two privatization contracts to build or renovate 3,083 military family housing units; (3) DOD explains that because this represents a new way of doing business, developing procedures and financial instruments and awarding contracts have taken more time than expected; (4) it appears questionable whether the services will meet a DOD goal to eliminate all inadequate family housing by fiscal year 2010; (5) because no projects under the program have been completed, there is little basis for evaluating the effectiveness of the program in eliminating inadequate housing more economically and faster than could be achieved through traditional military construction financing; (6) until experience is gained in the actual operation of several projects, key questions will remain unanswered, such as whether: (a) the military will need the housing over the 50-year terms of most projects; (b) developers will operate and maintain privatized housing in accordance with contracts; and (c) actual privatization costs and savings will be in line with DOD estimates; (7) DOD has not developed a formal evaluation plan to help answer these questions and assess the overall merits of the initiative as it is implemented; (8) a review of 14 projects found that the services did not prepare a life-cycle cost analysis for 2 projects and that the analyses for the remaining 12 projects were incomplete, primarily because DOD had not issued standardized guidance for preparing the analyses; (9) DOD has made progress in coordinating this initiative with other housing options by increasing use of cross-organizational panels that review and coordinate housing policies and issues; (10) however, it has not finalized an overall integrated housing strategy for addressing its housing needs in a manner that considers the interrelationships among these options; (11) DOD's January 2000 announcement of a new initiative to significantly increase housing allowances over the next 5 years makes a well-developed strategy that balances the various housing options even more important; (12) the services have not improved their housing requirements determination processes to more accurately estimate how much housing the installations must supply and they have not always updated their housing requirements assessments prior to approving privatization projects; and (13) thus, they cannot be assured that they are meeting an adequately documented need.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to DOD, it has begun integration of the MILCON and privatization program with the housing allowance and housing requirements determination processes. The Department also plans to address current service housing assignment and construction standards in a coordinated fashion. DOD has been working to achieve consistency in the methodologies needed to determine these requirements through ongoing studies and senior working groups. For example, DOD has established a senior-level joint Housing Policy Panel to provide guidance for determining housing requirements and to establish clear policy for meeting these requirements. DOD plans no further action.

    Recommendation: As part of the development of the DOD integrated housing strategy and in view of the potential impacts from the new housing allowance initiative, the Secretary of Defense should: (1) require that housing requirements assessments be updated as part of the approval process for proposed privatization projects; and (2) clarify DOD's policy that requires primary reliance on private sector housing to specifically delineate the circumstances under which privatization or military construction projects are permissible when alternative housing is available in local communities.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In response to our recommendation, DOD initiated a formal evaluation plan. The evaluation plan includes detailed performance data on each project that has been signed. The information is collected and updated on a semi-annual basis. The first report showed the status of the program as of December 31, 2000. DOD officials have testified that the evaluation plan is a key tool in evaluating the benefits of the program, identifying best practices, and implementing program improvements.

    Recommendation: To help evaluate the overall effectiveness of the Military Housing Privatization Initiative, the Secretary of Defense should direct the Competitive Sourcing and Privatization Office to develop a privatization evaluation plan. The plan, which should be used by all services to ensure consistency, should include performance measures to help officials determine whether the initiative is meeting goals and whether modifications to the initiative are needed. The plan should also provide a means to evaluate the merits of the individual authorities, compare the actual and estimated costs of each project, assess key aspects of developer performance, collect statistics on the use of the housing, and assess servicemembers' satisfaction with the housing.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Draft guidance on the methodology for computing life cycle cost has been used to evaluate all projects presented to DOD for concept approval since January 1999. According to DOD, refined guidance incorporating GAO's recommendations to require the services to examine the privatization and MILCON alternatives and their associated costs in a uniform and comprehensive manner will be coordinated with the services in late spring 2000. As of August 2001, draft guidance has been revised but is still in draft form. Currently, DOD does not have a firm date for finalizing the guidance. The draft guidance does not address circumstances under which projects can be approved when the privatization alternative costs more than the MILCON alternative.

    Recommendation: To increase the reliability and consistency of life-cycle cost analyses and to provide specific criteria for approving privatization projects, the Secretary of Defense should: (1) refine the draft guidance on preparing life-cycle cost analyses to clearly specify what costs should be included in the analyses and to better explain how the services should estimate each type of cost; and (2) develop definitive guidance for approving a privatization project when the project's estimated total costs exceed the costs to implement the project with military construction funds.

    Agency Affected: Department of Defense


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