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Highlights

The Department of Defense (DOD) operates nearly 70,000 lodging rooms--similar to hotel rooms--and spent nearly $1 billion in 2009 to operate them. In 2002, Congress provided authority to privatize lodging facilities. Army privatized lodging at 10 installations in August 2009 and plans to privatize its remaining domestic facilities in the future. The National Defense Authorization Act for Fiscal Year 2008 requires GAO to review lodging privatization and an Army report. This report addresses (1) the factors the military services considered in their decisions to privatize, (2) challenges in the Army's privatization efforts, (3) the effect of the economic downturn on the Army's privatization program, and (4) the extent to which an Army report required by the act, issued in March 2010, addresses the elements in the law. GAO reviewed documentation and interviewed officials from the Office of the Secretary of Defense, the military services, the developer for the Army's privatization project, and four Army installations where lodging was privatized.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Army 1. To better ensure that the Army is spending its financial resources as efficiently as possible, the Secretary of the Army should direct the Assistant Chief of Staff for Installation Management and the Commander, Installation Management Command, working with the Assistant Secretary of the Army (Installations and Environment), to assess the costs and benefits of the Army or a private developer repairing life-safety and critical infrastructure deficiencies at facilities in future groups to be privatized.
Closed - Implemented
In response to our recommendation, the Army assessed the costs and benefits of having the Army or a private developer perform life-safety and critical system repairs. Based on the Army's assessment, officials decided not to transfer two buildings at one installation, reducing the estimated cost of the life safety and critical system repairs by about $26 million, resulting in a cost avoidance of about $11 million. The Army considered using fiscal year 2011 operation and maintenance funding or raising lodging rates in fiscal year 2011 to complete the necessary repairs, but determined that having the private developer perform the necessary repairs was the preferred approach. DOD expects that the private developer will leverage the already-repaired facilities in the first group of facilities that were privatized and an anticipated government direct loan to perform the repairs for the second group of facilities to be privatized. Therefore, the Army will not need to pay for these repairs with appropriated funds.
Department of the Army 2. To facilitate more efficient operations before, during, and after the transition from service-operated to privatized lodging, the Secretary of Army should direct the Assistant Secretary of the Army (Installations and Environment), working with the Assistant Chief of Staff for Installation Management and the Commander, Installation Management Command, and other appropriate stakeholders, to develop a single, comprehensive transition plan for future lodging privatization that includes details on key aspects of privatizing.
Closed - Implemented
In response to our recommendation, the Army developed a comprehensive checklist detailing key steps in transitioning from Army lodging facilities to privatized facilities, which is currently in use for the second group to be privatized. Additionally, the Army standardized information dissemination to the installations and employees by using newsletters, bi-weekly calls to affected lodging managers, and posting information to an internal Army Web site. Moreover, the Commander, Installation Management Command, issued an operations order that included details on key tasks related to the transfer. As a result, installation officials and others responsible for implementing the transfer of lodging facilities from the Army to the private developer have access to information that should ease the transition for future facilities to be privatized, including the group of facilities currently undergoing privatization.
Department of the Army 3. To facilitate effective implementation of lessons learned into the lodging privatization program, the Secretary of the Army should direct the Assistant Secretary of the Army (Installations and Environment); the Assistant Chief of Staff for Installation Management; the Commander, Installation Management Command; and other stakeholders to clarify how the Army will incorporate lessons learned into its current and future privatization efforts.
Closed - Implemented
Key steps that the Army has taken in identifying and implementing lessons learned from the first lodging facilities privatized include evaluating facilities for life-safety and critical repair deficiencies, developing checklists for the timely termination of government contracts, and collecting information on lessons learned from the private developer and incorporating the input into other key documents related to the transfer. As a result, future groups of lodging facilities to be privatized--including the group currently undergoing privatization--can benefit from lessons learned from the first group privatized and be better prepared to address challenges encountered by the first group.

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