Military Housing
Better Reporting Needed on the Status of the Privatization Program and the Costs of Its Consultants Gao ID: GAO-04-111 October 9, 2003In 2000, Congress required the Department of Defense (DOD) to report quarterly on the services' expenditures for consultants in support of the military family housing privatization programs. GAO was asked to review the costs of the consultants DOD used to support privatizing housing for servicemembers and their families. This report discusses (1) the number of family housing units the services have privatized, particularly newly constructed or renovated units, and project to be privatized by fiscal year 2005; (2) the portion of privatization support costs used for consultants; (3) the services' consistency in the definition for privatization support and consultant costs; and (4) factors that limit an evaluation of how consultant fees for the military housing initiative compare among the services.
Although DOD reported to Congress that the services plan to privatize most of their family housing by fiscal year 2005, DOD's reports do not provide decision makers with the number of privatized units that have been renovated or newly constructed. As of March 2003, the services had contracts privatizing about 28,000 family housing units and planned to privatize 140,000 units by fiscal year 2005. As a result of this privatization, about 7,600 units had been constructed or renovated. It can take developers several years to renovate existing housing or construct new units after they are privatized. As the program progresses, it will become increasingly important to have complete data on which to determine how quickly the privatization program is creating adequate family housing. Costs for consultants are less than half of the services' privatization support costs. The services anticipate many privatization support and consultant costs to peak in fiscal year 2004 when the need for consultants diminishes once most privatization contracts are signed. Remaining support costs will then focus increasingly on managing the portfolio of the privatized housing. The services are not consistent in their definitions for privatization support and consultant costs. The differences in the services' definitions for privatization support costs result in inconsistent budgeting for these costs. Also, the differences in the services' definitions for consultant costs result in inconsistent reporting of consultant costs in the department's quarterly housing privatization report to Congress. Further, the Office of the Secretary of Defense does not report its own program consultant costs in the quarterly report. Several factors, such as differences in labor categories, hours, and skills mix that each consulting firm can use to accomplish work, limited our evaluation of how consultant fees for the military housing initiative compare among the services. Even though these factors hinder a comparative evaluation of consultant fees, service officials told us they believe that they have contracted with firms that provide the best value to the government based on their needs and that the consultants' fees are fair and reasonable.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-111, Military Housing: Better Reporting Needed on the Status of the Privatization Program and the Costs of Its Consultants
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Report to the Subcommittee on Military Construction, Committee on
Appropriations, House of Representatives:
United States General Accounting Office:
GAO:
October 2003:
Military Housing:
Better Reporting Needed on the Status of the Privatization Program and
the Costs of Its Consultants:
GAO-04-111:
GAO Highlights:
Highlights of GAO-04-111, a report to the Subcommittee on Military
Construction, Committee on Appropriations, House of Representatives
Why GAO Did This Study:
In 2000, Congress required the Department of Defense (DOD) to report
quarterly on the services‘ expenditures for consultants in support of
the military family housing privatization programs. GAO was asked to
review the costs of the consultants DOD used to support privatizing
housing for servicemembers and their families. This report discusses
(1) the number of family housing units the services have privatized,
particularly newly constructed or renovated units, and project to be
privatized by fiscal year 2005;
(2) the portion of privatization support costs used for consultants;
(3) the services‘ consistency in the definition for privatization
support and consultant costs; and
(4) factors that limit an evaluation of how consultant fees for the
military housing initiative compare among the services.
What GAO Found:
Although DOD reported to Congress that the services plan to privatize
most of their family housing by fiscal year 2005, DOD‘s reports do not
provide decision makers with the number of privatized units that have
been renovated or newly constructed. As of March 2003, the services
had contracts privatizing about 28,000 family housing units and
planned to privatize 140,000 units by fiscal year 2005. As a result of
this privatization, about 7,600 units had been constructed or
renovated. It can take developers several years to renovate existing
housing or construct new units after they are privatized. As the
program progresses, it will become increasingly important to have
complete data on which to determine how quickly the privatization
program is creating adequate family housing.
Costs for consultants are less than half of the services‘
privatization support costs. The services anticipate many
privatization support and consultant costs to peak in fiscal year 2004
when the need for consultants diminishes once most privatization
contracts are signed. Remaining support costs will then focus
increasingly on managing the portfolio of the privatized housing.
The services are not consistent in their definitions for privatization
support and consultant costs. The differences in the services‘
definitions for privatization support costs result in inconsistent
budgeting for these costs. Also, the differences in the services‘
definitions for consultant costs result in inconsistent reporting of
consultant costs in the department‘s quarterly housing privatization
report to Congress. Further, the Office of the Secretary of Defense
does not report its own program consultant costs in the quarterly
report.
Several factors, such as differences in labor categories, hours, and
skills mix that each consulting firm can use to accomplish work,
limited our evaluation of how consultant fees for the military housing
initiative compare among the services. Even though these factors
hinder a comparative evaluation of consultant fees, service officials
told us they believe that they have contracted with firms that provide
the best value to the government based on their needs and that the
consultants‘ fees are fair and reasonable.
What GAO Recommends:
GAO is recommending that DOD track the number of privatized units
renovated and newly constructed and report this data to Congress. GAO
is also recommending that DOD define housing privatization program
support and consultant costs.
In written comments on a draft of this report, DOD agreed with the
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-111.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Barry W. Holman at
(202) 512-8412 or holmanb@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Plans to Privatize Most Family Housing by 2005, but Its Reported
Data Do Not Fully Show Progress in Eliminating Inadequate Housing:
Consultant Costs Represent Less than Half of Total Privatization
Support Costs:
Military Services Use Inconsistent Definitions of Privatization Support
and Consultant Costs:
Several Factors Limit Evaluation and Comparison of Consultant Fees:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Comments from the Department of Defense:
Tables:
Table 1: Number of Newly Constructed or Renovated Privatized Units, as
of March 31, 2003:
Table 2: Reported Expenditures for Military Housing Privatization
Consultants, as of March 31, 2003:
Figures:
Figure 1: Actual and Projected Number of Family Housing Units
Privatized, Pre-Fiscal Year 2000 through 2008:
Figure 2: Actual and Projected Military Housing Privatization Support
and Consultant Costs, Pre-Fiscal Year 2000 through 2008:
Abbreviations:
DOD: Department of Defense
OSD: Office of the Secretary of Defense:
[End of section]
[See PDF for image]
[End of figure]
United States General Accounting Office:
Washington, DC 20548:
October 9, 2003
The Honorable Joseph K. Knollenberg
Chairman
The Honorable Chet Edwards
Ranking Minority Member
Subcommittee on Military Construction
Committee on Appropriations
House of Representatives:
The Department of Defense (DOD) has estimated that about 60 percent, or
over 180,000 units, of its family housing inventory in the United
States is inadequate, lacking modern amenities, and in need of
renovation or replacement in 1998. DOD has determined that fixing this
problem using only traditional military construction would cost as much
as $16 billion and take over 20 years. Recognizing this problem,
Congress provided DOD with new authorities to improve military housing
more economically and at a faster rate than could be achieved through
traditional military construction funding. Known as the Military
Housing Privatization Initiative,[Footnote 1] the basic premise behind
this program is for DOD to use private sector investment capital and
housing construction expertise to finance, own, operate, and maintain
military housing. Under this program, the department can provide direct
loans, loan guarantees, or co-investments of land or cash to encourage
the private sector to use private investment funds to build or renovate
housing for use by military servicemembers and their families. Under
the privatization effort, for example, developers assume responsibility
for existing military housing units included in the contracts and may
demolish or renovate existing units and construct new units. For DOD,
this program has represented a new way of doing business and has proven
to be inherently complex to implement because of the extensive real
estate, financial, and legal expertise required. As a result, DOD has
relied on consultants to provide this expertise and help advance the
program.
Over time, Congress has expressed concern about the lack of progress
with the military's housing privatization program and required the
Office of the Secretary of Defense (OSD) to report quarterly to
Congress on the status of the services' housing privatization
projects.[Footnote 2] In 2000, Congress added another requirement that
DOD report quarterly information on the services' expenditures for
consultants due to its concern about the cost of implementing the
program.[Footnote 3] In turn, DOD has included this information in its
Military Housing Privatization Initiative Housing Privatization Report
to the Congress. The military services consider consultant costs as a
type of privatization support costs--a category that includes other
support costs for the program, such as civilian salaries, training, and
travel.
In March 2003, you requested that we review the costs of consultants
used by DOD to support privatizing military housing. In July 2003, we
provided your offices with briefing materials on our preliminary
findings. This report summarizes our findings. Specifically, it
discusses (1) the number of family housing units the services have
privatized, particularly those units newly constructed or renovated,
and projected to be privatized by fiscal year 2005; (2) the portion of
privatization support costs that are used for consultants;[Footnote 4]
(3) the services' consistency in the definition for privatization
support and consultant costs; and (4) factors that limit an evaluation
of how consultant fees for the military housing program compare among
the services. In conducting our work, we interviewed Army, Navy, Marine
Corps, and Air Force headquarters' officials to obtain information
related to the status of the privatization program, the use and costs
of consultants, and the variances in privatization support and
consultant costs. We also interviewed and discussed these data and the
results of our work with officials of OSD's Housing and Competitive
Sourcing Office and the Office of the Under Secretary of Defense
(Comptroller).
Results in Brief:
Although DOD reported to Congress on its plans to privatize most of its
family housing units by the end of fiscal year 2005, these reports do
not provide decision makers with information on the number of units
that have been renovated or newly constructed. As of March 2003, the
military services had signed contracts privatizing about 28,000 family
housing units and planned to privatize a total of about 140,000 units
by the end of fiscal year 2005. As a result of this privatization,
about 7,600 units had been constructed or renovated as of March
2003.[Footnote 5] It can take developers several years to renovate
existing housing units or construct new units after the military
housing is privatized. However, this type of information is not
routinely tracked at OSD nor is it reported to Congress although the
data are available at the installation level. As a result, decision
makers do not have complete data to fully assess the housing
privatization program's progress in creating adequate family housing
and improving the living conditions of the servicemembers and their
families.
Costs for consultants represent less than half of the services' total
privatization support costs. Specifically, for fiscal year 2002,
consultant costs were about $24 million, or 42 percent, of the
services' total support costs of about $57 million. In addition to
costs for consultants, the services incur other privatization support
costs, such as costs for federal salaries, training, and travel
activities. Some services also incur the cost of environmental
assessments and land boundary surveys associated with the privatization
of military housing activities. The services anticipate both
privatization support and consultant costs to sharply decline after
fiscal year 2004 when the need for consultants diminishes as the
services privatize most of their planned family housing units.
The military services are not consistent in their definitions for
privatization support and consultant costs and OSD had not defined
these costs when it gave the services operational responsibility for
the program in 1998. While the services consider the costs for
consultants, federal civilian salaries, and training and travel
activities as privatization support costs, they differ on the extent to
which their costs for environmental assessments; land boundary surveys;
and supervision, inspection, and overhead construction activities are
to be considered support costs under the program. This has resulted in
inconsistencies in the services' budgeting of privatization support
costs. Also, the services are not consistent in their definitions for
consultant costs, which results in inconsistencies in the services'
data about these costs that are provided to OSD for use in its
quarterly housing privatization report to Congress. In addition, the
quarterly housing privatization reports have not included all
consultant costs for the housing privatization program, because OSD is
not required to include its own consultant costs for the program in the
report.
Several factors, such as differences in labor categories[Footnote 6]
and skills mix that each consulting firm can use to accomplish the
needed work, limited our evaluation of how consultant fees for the
military housing privatization program compare among the services. For
example, the consultant with the lowest hourly fee does not always
result in the lowest total cost because different consultant firms use
a mix of staff with varying pay rates and charge different hours to
complete the work. Officials from all of the services believe that they
have contracted with firms that provide the best value to the
government based on their needs and that the consultants' fees are fair
and reasonable.
To aid Congress in its oversight of the military housing privatization
program, we are making several recommendations to improve the
consistency and completeness of reported privatization support and
consultant costs. In written comments on a draft of this report, the
Director for Housing and Competitive Sourcing within the Office of the
Under Secretary of Defense for Acquisition, Technology and Logistics
agreed with our recommendations, stating the department is or plans to
take steps to implement them.
Background:
The 1996 Military Housing Privatization Initiative allows private-
sector financing, ownership, operation, and maintenance of military
family and unmarried junior servicemember (barrack) housing.[Footnote
7] Under the program, the department can provide direct loans, loan
guarantees, and other arrangements to encourage private developers to
renovate existing housing or construct and operate housing either on or
off military installations. Servicemembers, in turn, may use their
housing allowance to pay rent and utilities to live in the privatized
housing. Because the program represents a new way of doing business for
both the military and the private sector, DOD has relied on consultants
for a variety of advisory and assistance services. In completing
privatization agreements, many financial, budgetary and other issues
need to be resolved to the satisfaction of the government, developers,
and private lenders before a deal can be closed. Further, each
privatization agreement is different and involves unique issues.
According to DOD officials, consultants provide the necessary expertise
and assistance to help resolve these issues.
Initially, DOD established the Housing Revitalization Support Office in
OSD to facilitate implementation of the military housing privatization
program. This office established the financial and legal framework for
the new initiative and provided assistance to the services as they
began to consider housing privatization. Initial progress in
implementing the program was slow and, in 1998, DOD shifted primary
responsibility for implementing the program to the individual services.
With this change, the Housing Revitalization Support Office was
eliminated, and housing privatization oversight responsibility was
assigned to a newly created office in OSD--now known as the Housing and
Competitive Sourcing Office. This office establishes DOD policy for the
program and monitors the services' implementation of the program.
Concerned about the lack of progress with the military's housing
privatization program, Congress in 1998 required OSD to begin reporting
quarterly on the status of all privatization projects for which funds
had been appropriated.[Footnote 8] In addition, in 2000, Congress
required that DOD report information quarterly on expenditures for
consultants used by the services to implement the program.[Footnote 9]
DOD now includes this information in its Military Housing Privatization
Initiative Housing Privatization Report to the Congress. The report
lists each privatization project, identifies the number of units to be
privatized, shows the project milestones, and includes the cumulative
amount spent on consultants by project and service.
Military construction appropriations fund the military housing
privatization program, including privatization support and consultant
expenditures. Privatization support includes costs for consultants,
federal civilian salaries, and training and travel activities. Some of
the services also include costs for environmental assessments; land
boundary surveys; and supervision, inspection, and overhead
construction activities. Consultant costs generally include costs for
advisory and assistance activities, such as individual project
development, solicitation development and preparation, pre-award
evaluations of project proposals, and financial and real estate
analysis.
DOD Plans to Privatize Most Family Housing by 2005, but Its Reported
Data Do Not Fully Show Progress in Eliminating Inadequate Housing:
Although DOD reported to Congress that the services plan to privatize
most of their family housing units by the end of fiscal year 2005,
these reports do not include the number of privatized units that have
been renovated or newly constructed. Such data would show the program's
progress in creating adequate family housing and the status of
improvements to the living conditions of the servicemembers and their
families. These renovation and construction numbers should accelerate
over time.
As of March 2003, the military services had signed contracts
privatizing about 28,000 family housing units and plan to privatize a
total of about 140,000 units by the end of fiscal year 2005. The
services plan to privatize 72 percent of their total family housing
inventory, representing about 183,000 units, as shown in figure 1, by
fiscal year 2007 instead of by 2010 as originally scheduled.
Figure 1: Actual and Projected Number of Family Housing Units
Privatized, Pre-Fiscal Year 2000 through 2008:
[See PDF for image]
[End of figure]
As a result of these privatization contracts, as of March 2003 the
services had constructed 4,396 new housing units and renovated 3,184
existing units--total of 7,580 units (see table 1).[Footnote 10]
Table 1: Number of Newly Constructed or Renovated Privatized Units, as
of March 31, 2003:
Service: Army; Number of constructed units: 1,064; Number of renovated
units: 2,484; Total: 3,548.
Service: Navy and Marine Corps; Number of constructed units: 1,768;
Number of renovated units: 200; Total: 1,968.
Service: Air Force; Number of constructed units: 1,564; Number of
renovated units: 500; Total: 2,064.
Service: Total units; Number of constructed units: 4,396; Number of
renovated units: 3,184; Total: 7,580.
Source: Military services' housing officials.
Note: Data on newly constructed or renovated units projected by fiscal
year 2005 were not readily available.
[End of table]
We recognize it can take developers several years to renovate existing
housing units or construct new ones after the military housing is
privatized. However, data regarding this process, although maintained
at the installation level, are not collectively tracked and reported to
Congress by OSD. Thus, decision makers do not have complete data to
fully assess the housing privatization program's progress. Furthermore,
as the privatization program progresses, it will become increasingly
important to have complete data on the status of actual renovation and
new construction of privatized housing units on which to determine how
quickly the program is creating adequate family housing and improving
the living conditions of the servicemembers and their families.
Consultant Costs Represent Less than Half of Total Privatization
Support Costs:
According to the services' budget data, costs for consultants are less
than half of the services' total privatization support costs, actual
and projected. For example, for fiscal year 2002 consultant costs were
about $24 million, or about 42 percent, of the services' total support
costs of about $57 million for their housing privatization efforts.
Furthermore, the services incur other privatization support costs
besides the costs for consultants, such as federal salaries, training,
and travel. In addition, some services include the cost of
environmental assessments and land boundary surveys in their
privatization support costs.
As the services sign the contracts to privatize most of their family
housing units, service officials said their privatization support costs
would decline as the need for consultants diminishes. While these costs
are expected to decline, other assistance costs for portfolio
management services[Footnote 11] for the privatization program are
expected to become a key component of the remaining support costs as
more projects are completed. As figure 2 shows, the services project
sharp declines in privatization support and consultant costs after
fiscal year 2004.
Figure 2: Actual and Projected Military Housing Privatization Support
and Consultant Costs, Pre-Fiscal Year 2000 through 2008:
[See PDF for image]
[End of figure]
Military Services Use Inconsistent Definitions of Privatization Support
and Consultant Costs:
The military services are not consistent in their definitions for
privatization support and consultant costs. The differences in the
services' definitions for privatization support costs result in
inconsistent budgeting for these costs. Also, the differences in the
services' definitions for consultant costs result in inconsistent
reporting of consultant costs in the department's quarterly housing
privatization report to Congress. Furthermore, OSD does not report its
own program consultant costs in the quarterly report.
Differences in the Services' Definitions for Privatization Support
Costs Result in Inconsistent Budgeting:
Since OSD had not defined privatization support costs when it gave the
services operational responsibility for the program in 1998, the
services individually defined them, resulting in inconsistencies in the
types of costs included in the services' budgeting for privatization
support. The Navy, for example, does not include the costs of
environmental assessments and land boundary surveys as privatization
support costs while the Army and the Air Force do. Similarly, the Army
and the Navy do not include the costs for supervision, inspection, and
overhead construction activities as privatization support costs while
the Air Force does. Without a common definition, these differences in
accounting lead to an increased variance in the services' reported
costs and add difficulty for DOD and Congress to accurately determine
total privatization support costs across the services.
According to officials in the Office of the Under Secretary of Defense
(Comptroller), DOD does not have written budget guidance defining what
types of privatization support costs should be included in the
services' budget estimates. Thus, the services account for housing
privatization support costs differently. For example, according to Navy
officials, the Navy's privatization support budget account does not
include costs for activities that the other services do, such as
environmental assessments and land boundary surveys. As such, the
Navy's privatization support expenses may not be as low as they appear
in its budget. Navy has combined the management of the family housing
program with its real estate, acquisition, and construction contracting
expertise in the Naval Facilities Engineering Command--the command
responsible for military construction. Thus, the costs for
environmental assessments, land boundary surveys, and supervision,
inspection, and overhead construction activities are part of how the
command conducts its mission and are not captured in the Navy's
privatization support budget. According to Navy officials, these
activities are conducted and funded within the command and a budget
request distinction is not made as to whether the costs for these
activities are for a privatization housing project or a traditional
military construction project. For example, Navy's estimated $5 million
costs for environmental assessments for its privatization housing
efforts through 2008 will not be reflected in its privatization support
account although this cost is in the other services' privatization
support accounts. Similarly, the Army's expenses for construction
supervision, inspection, and overhead activities are part of the
developers' costs; and the Army does not reflect these costs in its
privatization support budget, whereas the Air Force does.
DOD officials said that the budget inconsistencies have created a
problem for the services. According to DOD officials, Congress has
reduced the Army and the Air Force privatization support budgets due to
the perception that their budgets are unreasonably high when compared
with the Navy's.
Differences in the Services' Definitions for Consultant Costs Result in
Inconsistent Reporting to Congress:
Because OSD had not defined the types of costs to be included in
determining consultant costs, the services define them differently,
resulting in inconsistent reporting of consulting expenditures in the
department's quarterly housing privatization report to Congress.
Specifically, the services are beginning to contract for assistance in
managing the portfolio of housing privatization projects to better
ensure long-term program success. The Air Force views portfolio
management as a contractor cost and, as such, is not including this
expense in its consultant cost data to OSD for the quarterly housing
privatization report. In contrast, the Army, the Navy, and the Marine
Corps view portfolio management as a consultant cost; and this expense
is included in the report to Congress. As a result, OSD is providing
inconsistent service data regarding consultant costs in the
department's quarterly housing privatization report to Congress.
Furthermore, as costs for portfolio management are expected to become a
key component of remaining support costs as the services privatize more
housing, the inconsistent cost reporting will become more pronounced in
the future.
Also, important in explaining inconsistencies and variances in
consultant costs among the services is the organizational placement of
the privatization program and the number of projects per service. For
instance, the Navy's consulting costs are less than the other services
because it has combined the management of its program with its real
estate, acquisition, and construction contracting expertise in the
Naval Facilities Engineering Command. According to Navy and OSD
officials, that decreases the Navy's need for consultants. Then again,
according to Air Force officials, the Air Force's consulting costs are
higher than the other services, when its contractor's portfolio
management costs are included, because it has more privatization
projects needing consultant assistance and advice. Currently, the Air
Force plans on 53 family housing privatization projects whereas the
Army and the Navy are planning on 27 and 37 projects, respectively.
The services reported in the quarterly housing privatization report to
Congress that they had spent about $73 million, in total, on
consultants associated with its housing privatization efforts as of
March 31, 2003 (see table 2). The extent of their expenditures varied,
with the Army expending $34 million, more than twice the amount
expended by the Navy and the Marine Corps.
Table 2: Reported Expenditures for Military Housing Privatization
Consultants, as of March 31, 2003:
Dollars in millions.
Army; Amount: $34.0.
Navy and Marine Corps; Amount: 14.4.
Air Force; Amount: 24.2.
Total; Amount: $72.6.
Source: OSD's Military Housing Privatization Initiative Housing
Privatization Report to Congress, April 2003.
[End of table]
OSD Does Not Report Its Own Consultant Costs in the Quarterly Housing
Privatization Report:
OSD does not, and is not required to, include its own costs for
consultants associated with its implementation of the military housing
privatization program in the quarterly report to Congress. Officials
within OSD's Housing and Competitive Sourcing Office stated that OSD
has not reported about $10 million in consultant costs since the
beginning of the program in 1996. These consultant costs were not in
direct support of a particular installation and most occurred when OSD
had centralized control over the program. With the transfer of
operational responsibility for the program to the individual services
in 1998, OSD's consultant costs have decreased significantly, currently
averaging about $1 million a year. These consultant costs are mostly to
assist OSD design program evaluation criteria and to help with budget
scoring requirements.
Several Factors Limit Evaluation and Comparison of Consultant Fees:
Although housing privatization fees paid to individual consultants vary
among the services, several factors limit an evaluation and comparison
of these fees. Such factors include the differences in labor
categories, hours, and skills mix that each consulting firm can use to
describe the work they need to do to accomplish the work specified by
the services, such as the following:
* Labor categories. Despite some commonalities (e.g., program manager
and financial analyst), the services for the most part list different
labor categories and staff positions in their consultant contracts. The
Air Force, for example, identified 22 labor categories for each of its
five consultants, while the Navy and Army listed 5 and 7 labor
categories, respectively.
* Labor and hour mixes. Each consulting firm generally emphasizes a
different mix of staff and anticipated number of labor hours, depending
on the needed work. As such, contracting with a consultant with lower
hourly fees will not necessarily result in the lowest total cost
because the different consultant firms use a mix of staff with varying
hourly pay rates and charge different hours to complete the work. Air
Force data, for example, showed that one firm, which charges higher
average hourly fees, planned to dedicate fewer labor hours to a
proposed task than another firm, which charges a lower average hourly
fee. The particular mix of staff and labor hours proposed by both firms
led to only a 3 percent cost variance for a proposed project of about
$780,000. In addition, Air Force data showed that two firms proposed
that its senior managers dedicate considerably fewer hours to the
project although charging higher hourly fees, while another firm
proposed that its senior managers dedicate considerably more hours to
the project but charge significantly lower hourly fees. Thus, a
comparison of consultant fees in isolation could create a misleading
assessment.
* Scope of work. Different scopes of work within the various housing
privatization projects may generate different labor mixes or entirely
new labor categories for a particular consultant, making comparison
difficult. For example, the Air Force uses two different sets of labor
categories for the same firm--one for the portfolio management work and
another, which is slightly different, for the privatization support
work.
* Capacities. Consulting firms have different capacities--some are
small businesses while others are global enterprises--and each firm has
different capabilities and expertise. According to Air Force data, for
example, the firms charging the lowest average hourly fee at the
managerial level have only six Air Force family housing privatization
projects between them. However, Air Force officials told us they
believe these firms are small businesses operating at capacity and
cannot take on another project, despite having lower fees than some of
the other consulting firms.
Even though these factors limit a comparative evaluation of consultant
fees, service officials told us they believe that their particular
consultant fees are fair and reasonable because they (1) awarded their
consultant contracts competitively; (2) examined consulting rates
published by the General Services Administration, particularly those in
its Management, Organizational, and Business Improvement Services
Schedule,[Footnote 12] to assist in determining if the rates were
reasonable; and (3) selected consultants through "best value"
determinations. In striving to obtain best value, service officials
said that the services select firms offering the most advantageous deal
to the government and that cost is only one of several evaluation
considerations. Past performance and the capability to perform the
proposed work, among other considerations, are evaluated alongside fee
considerations in assessing contract awards. As a result, service
officials said that they have contracted with firms that provide the
best value to the government based on their needs.
Conclusions:
The military housing privatization program was established for a faster
creation of quality housing for military servicemembers and their
families. As such, the Secretary of Defense has directed the military
services to increase their use of privatization and eliminate their
inadequate housing inventory, moving the completion date for the
privatization up from 2010 to 2007. However, until the number of
renovated or newly constructed housing units under privatization are
routinely tracked and reported to Congress, it will be difficult to
adequately assess the impact of the privatization program. Further, as
the program progresses and additional privatized units are expected to
be under contract, more complete and informative data on the number of
privatized housing units that have been renovated or newly constructed
will become increasingly important to decision makers. Such data are
needed to determine how quickly the privatization program is creating
adequate family housing and improving the living conditions of
servicemembers and their families.
Until OSD provides a common definition of the types of cost to be
included in determining privatization support costs, including
consultant costs, the military services will continue to budget
inconsistently for privatization support costs and OSD will continue to
use inconsistent data from the services to report consultant costs in
its quarterly housing privatization report to Congress. Similarly,
without an OSD determination of whether portfolio management costs are
costs that should be included as consultant costs, the services will
continue to provide OSD with inconsistent data on consultant costs for
its quarterly report to Congress. Furthermore, until OSD includes its
own program consultant costs in the department's quarterly housing
privatization report, Congress will not have complete knowledge of the
total housing privatization consultant costs. Without consistent and
complete information, Congress and DOD cannot make the most informed
decisions regarding the appropriateness of support and consultant costs
requested and expended in support of the military housing privatization
program.
Recommendations for Executive Action:
To illustrate the number of inadequate housing units eliminated and of
new or renovated units brought on line through the military housing
privatization program, we recommend that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology and
Logistics to track the supporting data and report the number of
privatized units renovated and newly constructed to the Congress on a
periodic basis.
To provide for more consistent and complete data on military housing
privatization support costs, we recommend that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller), in consultation
with the Housing and Competitive Sourcing Office, to define
privatization support costs for the military services. Specifically,
this definition should address the differences in how the services
consider the costs of environmental assessments; land boundary surveys;
and supervision, inspection, and overhead construction activities
associated with the housing privatization program.
To provide for more consistent and complete data on privatization
consultant costs, we recommend that the Secretary of Defense direct the
Under Secretary of Defense for Acquisition, Technology, and Logistics,
in consultation with the Under Secretary of Defense (Comptroller), to
(1) define consultant costs, including a determination of the inclusion
of portfolio management costs, for the military services; and (2)
include OSD's own program consultant costs associated with its efforts
to privatize military housing in the department's quarterly housing
privatization report to Congress.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, the Director for Housing
and Competitive Sourcing within the Office of the Under Secretary of
Defense for Acquisition, Technology and Logistics agreed with our
recommendations, stating the department is or will be taking steps to
implement them. In reference to our recommendation to track supporting
data and report on the number of privatized units renovated and newly
constructed, DOD concurred with the recommendation, stating it is
essential that project progress be monitored. However, DOD stated that
its semi-annual Program Evaluation Plan report is a more appropriate
vehicle to track this data than the quarterly reporting specified in
our draft report and has initiated steps to do so. We believe the
collection and periodic reporting of this data to the Congress,
regardless of the reporting format, will benefit decision makers to
better assess the housing privatization program's progress in creating
adequate family housing and improving the living conditions of the
servicemembers and their families. Accordingly, we modified our
recommendation to recognize the potential for greater flexibility in
reporting. DOD's comments are included in appendix I of this report.
Scope and Methodology:
We performed our work at the headquarters offices responsible for
implementing the privatization program for the Army, the Navy, the
Marine Corps, and the Air Force. At each location, we interviewed
officials cognizant of the program and reviewed applicable policies,
procedures, and documents. We also interviewed officials at the Air
Force Center for Environmental Excellence in San Antonio, Texas, which
has responsibility for executing Air Force contracts for consultant
assistance with the military housing privatization program. We also
discussed our analyses with officials of OSD's Housing and Competitive
Sourcing Office and the Office of the Under Secretary of Defense
(Comptroller). For the military housing privatization program, our
analyses mostly covered 1996--the beginning of the military housing
privatization program--through 2008 when the services expect to have
privatized all of their planned housing.
To determine the number of projects and family housing units the
services have privatized and project to privatize since program
inception to fiscal year 2008, we interviewed service officials and
obtained relevant data. We obtained data for the number of projects and
units already privatized from OSD's Military Housing Privatization
Initiative Housing Privatization Report to Congress. However, because
project execution schedules for future projects change regularly and
the services told us several future project dates are tentative, we
requested the latest estimates of projects and units to be privatized
from the services. Army and Air Force officials provided us with their
privatization schedules while Navy officials told us to use their
fiscal year 2004 budget request data. In addition, the services
provided data on the number of units newly constructed or renovated as
of March 31, 2003, but stated that estimated data was not readily
available for fiscal years 2004 through 2008.
To identify the portion of privatization support costs used for
consultants, we obtained and analyzed budget data from the services for
actual and projected amounts covering fiscal years 1996 through 2008.
The services identified those activities that they considered to be a
privatization support cost and consultant cost. We did not validate
these recorded budget amounts.
To analyze the services' consistency in defining privatization support
and consultant costs, we compared budget data provided by the services
and noted differences in what they considered privatization support and
consultant costs. We met with service officials to discuss those
differences and possible reasons for these differences. To report data
on the services' cumulative expenditures as of March 31, 2003, for
military housing privatization consultants, we used the department's
latest quarterly housing privatization report dated April 2003. We
interviewed OSD and service officials about the reporting requirements
for the quarterly housing privatization report and corresponding budget
guidance on privatization support and consultant costs. In addition, we
met with officials from the Office of the Under Secretary of Defense
(Comptroller) to obtain their views on our privatization support and
consultant cost analyses.
To assess how consultant fees for the military housing privatization
program compare among the services, we reviewed and analyzed the
services' consultant contracts and individual task orders, noting the
hourly fees charged by each consultant. We obtained data from the
appropriate General Services Administration federal supply schedule for
Management, Organizational, and Business Improvement Services Schedule
and made fee comparisons. We also interviewed service officials to
discuss their assessment process for evaluating consultant fees and
selecting consultants. Finally, we interviewed officials from the Air
Force's Brooks City Base, San Antonio, Texas, and from the Army's Fort
Sam Houston, San Antonio, Texas, to discuss DOD's use of consultants in
similar privatization activities.
In performing this review, we did not validate DOD's reported housing
requirements or privatization information. We conducted our work from
April 2003 through July 2003 in accordance with generally accepted
government auditing standards.
We are sending copies of this report to the Secretaries of Defense, the
Army, the Navy, and the Air Force; the Commandant of the Marine Corps;
and the Director, Office of Management and Budget. We will also make
copies available to others upon request. In addition, the report is
available at no charge on GAO's Web site at www.gao.gov.
Please contact me on (202) 512-8412, or my Assistant Director, Mark
Little, at (202) 512-4673 if you or your staff have any questions
regarding this report. Major contributors to this report were Laura
Talbott, Shawn Arbogast, Jason Aquino, Jane Hunt, and R.K. Wild.
Barry W. Holman,
Director
Defense Capabilities and Management:
Signed by Barry W. Holman:
[End of section]
Appendix I: Comments from the Department of Defense:
Report number now GAO-04-111 to reflect new fiscal year.
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON WASHINGTON, DC 20301-3000:
ACQUISITION, TECHNOLOGY AND LOGISTICS:
Mr. Barry Holman:
Director, Defense Capabilities and Management U.S. General Accounting
Office:
Washington, D.C. 20548:
Dear Mr Holman,
This is the Department of Defense (DOD) response to the GAO draft
report GAO-03-1063, "MILITARY HOUSING: Better Reporting Needed on the
Status of the Privatization Program and the Costs of Consultants,"
dated August 15, 2003, (GAO Code 350426).
Thank you for allowing us to comment on your draft report. I consider
the report a very helpful evaluation of the costs we incur on
consultants to ensure the financial and structural soundness of our
privatization projects.
I concur with your recommendations that the Department better define
consultant costs and that the Housing and Competitive Sourcing Office
include its own consultant costs in the quarterly report to Congress. I
also concur with your recommendation to track supporting project data
and report on the number of privatized units renovated and newly
constructed. The Program Evaluation Plan (PEP) is the most appropriate
vehicle for tracking such data on executed projects.
Signed by:
Joseph K. Sikes:
Director, Housing and Competitive Sourcing:
GAO-03-1063/GAO CODE 350426:
"MILITARY HOUSING: BETTER REPORTING NEEDED ON THE STATUS OF THE
PRIVATIZATION PROGRAM AND THE COSTS OF ITS CONSULTANTS":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics to track the supporting data and report on the number of
privatized units renovated and newly constructed in the Department's
quarterly housing privatization report to Congress.
DoD RESPONSE: Concur. Monitoring the progress of our projects is
essential. This function is primarily performed at the installation
level. In order to provide management oversight, the Housing and
Competitive Sourcing Office has initiated steps to track important
project and program data in its semi-annual Program Evaluation Plan
(PEP) report. That report, which was first issued in December 2001,
tracks over 100 project data elements, including renovated and newly
constructed units. The PEP report is a more appropriate vehicle for
tracking data on executed projects than the quarterly report to
Congress, which is intended to provide a prospective view of projects
to be executed.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller), in consultation
with the Housing and Competitive Sourcing Office, to define
privatization support costs for the Military Services. Specifically,
this definition should address the differences in how the Services
consider the costs of environmental assessments; land boundary surveys;
and supervision, inspection, and overhead construction activities
associated with the housing privatization program.
DoD RESPONSE: Concur. The Housing and Competitive Sourcing Office will
work with the Comptroller to define privatization support costs for the
Military Services.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Acquisition, Technology, and
Logistics, in consultation with the Under Secretary of Defense
(Comptroller), to (1) define consultant costs, including a
determination of the inclusion of portfolio management costs, for the
Military Services; and (2) include OSD's own consultant costs
associated with its efforts to privatize military housing in the
Department's quarterly housing privatization report to Congress.
DoD RESPONSE: Concur. The Housing and Competitive Sourcing Office will
work with the Comptroller to define consultant costs and include its
own consultant costs in the quarterly report to Congress.
[End of section]
FOOTNOTES
[1] The National Defense Authorization Act for Fiscal Year 1996 (P.L.
No. 104-106), Feb. 10, 1996.
[2] Conference Report (H.R. Conf. Rep. No. 105-647), July 24, 1998,
accompanying H.R. 4059, Military Construction Appropriation Act, 1999
(P.L. No. 105-237), Sept. 20, 1998.
[3] Conference Report (H.R. Conf. Rep. No. 106-710), June 29, 2000,
accompanying H.R. 4425, Military Construction Appropriation Act,
2001(P.L. No. 106-246), July 13, 2000.
[4] When we use the term "costs" throughout this report, we are
referring to the recorded amount of funds obligated in the military
services' program records.
[5] OSD officials estimate that 25 percent of the existing military
family housing units that are privatized require no renovation.
[6] Labor categories are positions or titles within a firm such as
director, program manager, project manager, and financial analysts.
[7] While the services have considered barracks privatization over the
past several years, they have not yet developed pilot project proposals
to determine the feasibility and cost-effectiveness of private sector
financing, ownership, operation, and maintenance of military barracks.
Thus, the consultant activities discussed in this report are focused on
the privatization of military family housing. See U.S. General
Accounting Office, Military Housing: Opportunities That Should Be
Explored to Improve Housing and Reduce Costs for Unmarried Junior
Servicemembers, GAO-03-602 (Washington, D.C.: June 10, 2003).
[8] H.R. Conf. Rep. No. 105-647.
[9] H.R. Conf. Rep. No. 106-710.
[10] Some privatization contracts also require the demolition of
deteriorated military family housing.
[11] Portfolio management services include monitoring and reporting
activities on the financial, operational, and maintenance status of
privatized housing units.
[12] The Management, Organizational, and Business Improvement Services
Schedule is a list of commercial firms contracted by the General
Services Administration to provide management and consulting services
to federal agencies.
