Defense Infrastructure
Army's Privatized Lodging Program Could Benefit from More Effective Planning Gao ID: GAO-10-771 July 30, 2010The 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.
The Army decided to privatize its lodging facilities to obtain private sector financing to address the poor condition of its facilities and the high estimated costs to repair them, whereas the other military services decided not to privatize since the services' lodging expenses could increase due to higher room rates if privatized and officials viewed their lodging facilities as in generally good condition. GAO's analysis found that if the military services chose to privatize, lodging costs could increase due to higher room rates. Army officials GAO interviewed generally viewed the lodging privatization transfer process and improvements the developer has made since the transfer as a success; however some challenges affected the timing of building new facilities and the transition of operations to the private developer. First, the private developer had to delay the start of major renovations and new construction by 2 years given several life-safety and critical system deficiencies at these facilities. The developer is currently repairing these deficiencies at its expense before these conveyed facilities can be used as collateral to obtain further financing to begin the planned renovations and new construction at the Army's 10 installations privatized to date. However, the extent to which similar life-safety and critical system deficiencies repairs for the next group of facilities to be privatized should be completed by the Army or the private developer is unclear because the Army has not fully assessed the costs and benefits of performing these repairs. Second, those involved in privatizing the lodging facilities experienced confusion about some aspects of the transfer of facilities and equipment to the developer because the Army did not develop a single, comprehensive transition plan that included information on all the tasks to be completed as part of the transfer process. Thus, installations encountered some problems, such as transferring data to the developer, and the Army may encounter similar challenges in future lodging privatization efforts. The economic downturn hindered the private developer's ability to obtain financing for the lodging privatization project at favorable interest rates, which also delayed the project. Specifically, the Army cited the constrained credit environment, the ability to demonstrate sufficient cash flow, and the need to address facility life-safety and critical repair issues before using the facilities as collateral as factors that affected the private developer's ability to obtain long-term financing for the lodging privatization project. The Army's report addressed the three elements required by the law, but it lacks some information related to one of the elements that could help clarify the Army's responses. The Army's report addressed the elements that the Army evaluate the efficiency of lodging privatization and make recommendations about expanding the program. While the Army's report describes implementation at the privatized installations, as required, it does not describe how it plans to incorporate lessons that the Army identified in the report into future privatization efforts. GAO recommends that the Army assess the costs and benefits of completing repairs to future facilities to be privatized, develop a transition plan, and clarify how it will incorporate lessons learned into future privatization efforts. In commenting on a draft of this report, DOD agreed with GAO's recommendations and plans to take actions to address them.
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: Brian J. Lepore Team: Government Accountability Office: Defense Capabilities and Management Phone: (202) 512-4523GAO-10-771, Defense Infrastructure: Army's Privatized Lodging Program Could Benefit from More Effective Planning
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2010:
Defense Infrastructure:
Army's Privatized Lodging Program Could Benefit from More Effective
Planning:
GAO-10-771:
GAO Highlights:
Highlights of GAO-10-771, a report to congressional committees.
Why GAO Did This Study:
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.
What GAO Found:
The Army decided to privatize its lodging facilities to obtain private
sector financing to address the poor condition of its facilities and
the high estimated costs to repair them, whereas the other military
services decided not to privatize since the services‘ lodging expenses
could increase due to higher room rates if privatized and officials
viewed their lodging facilities as in generally good condition. GAO‘s
analysis found that if the military services chose to privatize,
lodging costs could increase due to higher room rates.
Army officials GAO interviewed generally viewed the lodging
privatization transfer process and improvements the developer has made
since the transfer as a success; however some challenges affected the
timing of building new facilities and the transition of operations to
the private developer. First, the private developer had to delay the
start of major renovations and new construction by 2 years given
several life-safety and critical system deficiencies at these
facilities. The developer is currently repairing these deficiencies at
its expense before these conveyed facilities can be used as collateral
to obtain further financing to begin the planned renovations and new
construction at the Army‘s 10 installations privatized to date.
However, the extent to which similar life-safety and critical system
deficiencies repairs for the next group of facilities to be privatized
should be completed by the Army or the private developer is unclear
because the Army has not fully assessed the costs and benefits of
performing these repairs. Second, those involved in privatizing the
lodging facilities experienced confusion about some aspects of the
transfer of facilities and equipment to the developer because the Army
did not develop a single, comprehensive transition plan that included
information on all the tasks to be completed as part of the transfer
process. Thus, installations encountered some problems, such as
transferring data to the developer, and the Army may encounter similar
challenges in future lodging privatization efforts.
The economic downturn hindered the private developer‘s ability to
obtain financing for the lodging privatization project at favorable
interest rates, which also delayed the project. Specifically, the Army
cited the constrained credit environment, the ability to demonstrate
sufficient cash flow, and the need to address facility life-safety and
critical repair issues before using the facilities as collateral as
factors that affected the private developer‘s ability to obtain long-
term financing for the lodging privatization project.
The Army‘s report addressed the three elements required by the law,
but it lacks some information related to one of the elements that
could help clarify the Army‘s responses. The Army‘s report addressed
the elements that the Army evaluate the efficiency of lodging
privatization and make recommendations about expanding the program.
While the Army‘s report describes implementation at the privatized
installations, as required, it does not describe how it plans to
incorporate lessons that the Army identified in the report into future
privatization efforts.
What GAO Recommends:
GAO recommends that the Army assess the costs and benefits of
completing repairs to future facilities to be privatized, develop a
transition plan, and clarify how it will incorporate lessons learned
into future privatization efforts. In commenting on a draft of this
report, DOD agreed with GAO‘s recommendations and plans to take
actions to address them.
View [hyperlink, http://www.gao.gov/products/GAO-10-771] or key
components. For more information, contact Brian J. Lepore at (202) 512-
4523 or leporeb@gao.gov.
[End of section]
Contents:
Letter:
Background:
Cost and Condition of Facilities Were Key Reasons in Military
Services' Decisions about Lodging Privatization:
Army Officials Viewed Transfer as Successful, but Deficiencies in Army
Facilities and Lack of Clarity about Transfer Steps Affected
Privatization and May Challenge Future Efforts:
Economic Downturn Delayed Privatization for Group A and Could Affect
Future Privatization Efforts:
Army's Report to Congress Addresses Required Elements, but Lacks
Information to Help Clarify One Response:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Table:
Table 1: Estimated Increase in Lodging Expenses Under Privatization
Compared to Service-Operated Lodging at Domestic Installations for
Fiscal Year 2009:
Figures:
Figure 1: Locations of Army Lodging Facilities Privatized in Group A:
Figure 2: Time Line of Key Army Lodging Privatization Efforts for
Group A Installations:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 30, 2010:
Congressional Committees:
The Department of Defense (DOD) operates nearly 70,000 lodging rooms,
similar to commercial hotel rooms, to accommodate authorized travelers
across the United States and spent nearly $1 billion in fiscal year
2009 to operate these facilities. DOD established its lodging program
to help maintain mission readiness and improve productivity by
providing affordable, quality lodging facilities for authorized
travelers. Authorized travelers fall into two categories: temporary
duty travelers are primarily military and civilian personnel
temporarily traveling on official business and permanent change of
station travelers are primarily military personnel and their families
who are moving to new duty locations.[Footnote 1] The Army determined
in 2003 that it needed to either replace or renovate about 80 percent
of its lodging facilities due to the poor condition of these
facilities and needed a plan to sustain and recapitalize the
facilities for the long term. The Army determined that privatization,
through conveying the facilities and transferring responsibility for
the management and maintenance of those facilities to a private
developer, would allow it to address the near-term concerns with the
condition of the lodging facilities more quickly than under continued
Army operation, as well as address the facilities' long-term
sustainment and recapitalization needs.
In 1996, Congress enacted the Military Housing Privatization
Initiative authority,[Footnote 2] which allowed DOD to privatize its
family housing, and, in 2002, that authority was expanded to
specifically include transient housing, intended to be occupied by
members of the armed forces on temporary duty, also known as lodging
facilities.[Footnote 3] This act provided DOD with a variety of
authorities to obtain private sector financing and management to
operate, repair, and construct lodging facilities. As part of the
National Defense Authorization Act for Fiscal Year 2008,[Footnote 4]
Congress limited lodging privatization to 13 Army installations,
referred to as group A, until 120 days after the Army issued a report
on lodging privatization, as required by the same provision.[Footnote
5] The Army privatized lodging facilities at 10 of these 13
installations in August 2009 under the terms of a 50-year lease with
the selected developer.[Footnote 6] (See fig. 1.) Through this
arrangement, the Army retains ownership of the land but conveys
ownership of the buildings to the private developer. At the end of the
lease term, the buildings, along with any improvements, return to the
Army. The private developer plans to complete group A's needed
renovations and new construction in three separate phases over the
next 8 years--from 2010 through 2017--and maintain the facilities
through the 50-year lease term. After the statutory limitation on
locations that can be privatized expires, the Army plans to privatize
the lodging facilities at its remaining domestic installations in two
groups, referred to as groups B and C.
Figure 1: Locations of Army Lodging Facilities Privatized in Group A:
[Refer to PDF for image: illustrated U.S. map]
Locations depicted on the map are:
Fort Hood: Texas;
Fort Leavenworth: Kansas;
Fort Myer, Virginia;
Fort Polk: Louisiana;
Fort Riley: Kansas;
Fort Rucker: Alabama;
Fort Sam Houston: Texas;
Fort Shafter/Tripler Army Medical Center: Hawaii;
Fort Sill: Oklahoma;
Yuma Proving Ground: Arizona.
Sources: Army; Map, Map Resources.
[End of figure]
DOD travel regulations generally require that military travelers
ordered to military installations stay in government lodging, if
available, if they wish to receive full reimbursement of their lodging
expense. DOD civilian travelers are not generally required to use
government lodging and are not subject to a limitation of their
reimbursement based on the cost of the government lodging. DOD
civilian travelers are, however, encouraged to use service-operated
lodging when available. After lodging is privatized, it will no longer
be considered government lodging and will not be subject to
availability requirements under travel regulations. As a result, if no
other government lodging is available on the installation, travelers
can choose to stay either in the privatized lodging on-base--in which
room rates are limited to a weighted average of 75 percent of the
local per diem rate established by the General Services
Administration--or in a commercial hotel in the community.[Footnote 7]
In addition to authorizing privatization of the group A installations,
the National Defense Authorization Act for Fiscal Year 2008[Footnote
8] requires the Army to submit a report to the congressional defense
committees describing the implementation of lodging privatization
under section 2808 of the act, evaluating the efficiency of the
lodging privatization program, and containing its recommendations
regarding expansion of the program. The Army issued its report in
March 2010.[Footnote 9] The act also requires that GAO review
privatization of temporary lodging facilities and the Army's report.
Our report addresses (1) the factors that the military services
considered in their decisions whether to privatize their lodging
facilities, including the potential cost of privatizing; (2)
challenges that the Army encountered in privatizing their lodging
facilities; (3) the effect of the economic downturn on the Army's
privatization efforts; and (4) the extent to which the Army report
addresses the required elements in the law.
To determine the factors that the military services considered in
their decisions whether to privatize lodging facilities, including
cost impact, we reviewed various documents related to lodging
privatization efforts, including reports to Congress.[Footnote 10]
Additionally, we interviewed officials responsible for operating the
lodging programs from the four military services, the Office of the
Assistant Secretary of the Army (Installations and Environment), the
Office of the Under Secretary of Defense (Acquisition, Technology and
Logistics), and the Office of the Under Secretary of Defense
(Personnel and Readiness). We also calculated the estimated cost
impact of privatization using the services' fiscal year 2009 data on
the number of days that authorized travelers stayed in service-
operated lodging and the average daily rate charged for rooms. Our
analysis provides a range of cost estimates depending on whether the
traveler stayed in privatized lodging or in a commercial hotel in the
community. To determine the challenges that the Army encountered in
privatizing lodging facilities, we interviewed officials from the
services and the Office of the Secretary of Defense, a representative
of the private developer for group A, and four installations that were
privatized as part of group A--Yuma Proving Ground, Arizona; Fort
Leavenworth, Kansas; Fort Sam Houston, Texas; and Fort Myer, Virginia.
We selected these four installations given their location, amount of
revenue generated, and the amount of planned renovation compared to
new construction, among other factors that could affect the
installations' experiences with privatization. We also reviewed the
Army's 2010 report to Congress, the Army's Lodging Standards Status
Reports, and previous GAO reports on military privatization efforts,
including our prior report on lodging privatization and family housing
privatization,[Footnote 11] to identify and assess challenges. To
determine the effect of the economic downturn on the Army's
privatization program, we reviewed various documents such as the
Army's 2010 report to Congress, the private developer's Lodging
Development and Management Plan, and the lease agreement between the
Army and the private developer to determine changes to the planned
scope of the privatization project. Additionally, we interviewed
officials from the Office of the Assistant Secretary of the Army
(Installations and Environment) and the private developer for group A
to obtain their perspectives on economic impact. To determine the
extent to which the Army's report to Congress addresses the required
elements in the law, we examined whether the Army's report provided
the required information. For each element, we also reviewed previous
GAO reports to identify best practices that allowed us to assess
whether there was additional information that could have helped
clarify the Army's responses. Additionally, we spoke with officials
from the Army's Family Morale, Welfare, and Recreation Command; Office
of the Assistant Chief of Staff for Installation Management; four
installations that were privatized as part of group A; and a
representative from the private developer for group A to better
understand how issues raised in the Army's report affected the lodging
privatization program. We also discussed our findings with officials
in the Office of the Assistant Secretary of the Army (Installations
and Environment), the organization tasked with drafting the report.
Further details on our scope and methodology are included in appendix
I.
We began this performance audit in August 2008; however, we suspended
the review in March 2009 given that the Army delayed the release of
its report until March 2010, at which time we reinstated our review.
We completed our review in July 2010. This review was performed in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Several organizations are involved in implementing and overseeing the
Army's lodging privatization efforts. Within the Office of the
Secretary of Defense, the Principal Deputy Under Secretary of Defense
(Personnel and Readiness) is required to provide guidance, oversight,
and procedures to ensure proper administration and management of the
DOD lodging programs and monitor compliance with DOD procedures and
guidance.[Footnote 12] The Office of the Under Secretary of Defense
(Acquisition, Technology and Logistics), in coordination with the
Office of the Under Secretary of Defense (Personnel and Readiness), is
required to provide oversight of all lodging privatization undertaken
by the DOD components, from feasibility planning through the entirety
of the lease term and is responsible for developing privatized lodging
performance standards and measures.[Footnote 13] Within the Army, four
organizations are involved in implementing and overseeing lodging
privatization. The Family Morale, Welfare, and Recreation Command,
within the Installation Management Command, oversees the operation of
the service-operated lodging. The Capital Ventures Division within the
Office of the Assistant Secretary of the Army (Installations and
Environment) negotiates the lease and any changes to the lease with
the developer and approves all major decisions. The Public/Private
Initiatives Division within the Office of the Assistant Chief of Staff
for Installation Management, in coordination with the U.S. Army Corps
of Engineers, oversees the privatization projects after privatization
and validates the private developer's compliance with the lease.
Additionally, lodging employees at the installations play a key role
in completing the tasks to transfer facilities and equipment from the
Army to the private developer.
As we have previously reported, each of the military services takes
its own approach to managing and funding its service-operated lodging
program.[Footnote 14] The Army and Air Force each manages its lodging
under a single organization, while the Navy and Marine Corps each have
separate organizations to manage temporary duty and permanent change
of station lodging. The services' lodging programs are funded with a
combination of appropriated funds and nonappropriated funds.
Appropriated funds are those monies that Congress provides through the
annual appropriations process. These funds are typically used for
operation and maintenance expenses, such as utilities, and some kinds
of minor construction. Nonappropriated funds are cash and other assets
received from sources other than monies appropriated by Congress.
Nonappropriated funds are generated at the lodging facilities as
revenues through room sales that the traveler pays for the room
charge.[Footnote 15] These funds are used for all expenses that are
not paid for with appropriated funds. Each of the lodging programs
sets rates according to the amount of revenue needed to pay for
expenses not covered by appropriated funds. Those programs that rely
largely on nonappropriated funding tend to have higher room rates to
cover program expenses, while those that receive more appropriated
funds can charge lower room rates.
The Army's lodging privatization process, from its decision to
privatize its lodging facilities through transferring the first
facilities to the private developer, lasted more than 5 years. Figure
2 shows the key steps in the Army's lodging privatization efforts for
group A.
Figure 2: Time Line of Key Army Lodging Privatization Efforts for
Group A Installations:
[Refer to PDF for image: timeline]
April 2004:
Army decides to privatize its lodging facilities.
October 2005:
Army issues Request for Qualifications from private developers to
begin selection process.
September 2006:
Army selects private real estate developer Actus Lend Lease to create
a lodging development and management plan.
March 2008:
Army approves the private developer‘s plan.
August 2009:
Army conveys facilities at group A installations to developer,
developer begins to operate privatized facilities.
Source: GAO analysis of Army information.
[End of figure]
The Army decided to privatize its lodging facilities in April 2004,
modeling its program after its family housing privatization program.
The Army issued a request for qualifications for private developers
for the first group of installations in October 2005 and selected
Actus Lend Lease as the private developer to create a development plan
almost a year later. In March 2008, the Army approved the private
developer's plan. In August 2009, the Army conveyed about 3,200 rooms
at the 10 group A installations to the private developer and the
developer--Actus Lend Lease--and the hotel operator--InterContinental
Hotels Group--started managing and operating the privatized lodging
facilities.
The developer plans to construct more than 2,000 new rooms and
renovate more than 2,100 existing rooms for a total of nearly 4,200
rooms. These renovations and construction are scheduled to occur in
three phases over the next 8 years, from 2010 through 2017. The
developer plans to build new facilities to meet the standards of
InterContinental Hotels' extended stay hotel brands--Candlewood Suites
and Staybridge Suites--and renovate some existing facilities to meet
the standards for the Holiday Inn Express brand. Hotel operators
establish standards for features, such as room sizes and amenities,
associated with each brand of the hotel chain. According to the Army's
2010 report to Congress, the use of nationally-recognized brands at
the privatized hotels will help ensure the implementation of best
practices from the hospitality industry, standardized levels of guest
service, and the maintenance of facility conditions.[Footnote 16] In
the early phases of the project, the developer plans to operate some
facilities conveyed by the Army with limited renovations in order to
generate income until the developer can obtain additional funding to
continue with large-scale renovations and the construction of new
facilities. As new facilities are completed, the developer will either
demolish the facilities that it does not plan to retain in its
inventory or it will return them to the Army and the Army will decide
how to use these returned facilities, such as converting them into
barracks or administrative space or demolishing the facilities.
DOD reports its progress on projects privatized under the Military
Housing Privatization Initiative authority in semiannual reports to
the congressional defense committees. Traditionally, DOD's report
provides information on government costs, use of government
authorities, program performance, and tenant satisfaction, among other
information for its family housing projects. The Army plans to include
the same type of information about its lodging privatization project
in future reports to Congress.
Cost and Condition of Facilities Were Key Reasons in Military
Services' Decisions about Lodging Privatization:
The Army decided to privatize its lodging facilities to obtain private
sector financing to address the poor physical condition of these
facilities while under the Army's control and management and the high
estimated cost to repair them. Conversely, the other military services
had decided not to privatize at the time of our review due to concerns
about potential increases in lodging expenses due to increased room
rates through privatization and their view that their lodging
facilities are in generally good physical condition.
Army Decided to Privatize Lodging Facilities Due to the Poor Facility
Conditions and the High Cost to Renovate Them:
The Army decided to privatize its lodging facilities to obtain private
sector financing to address the poor condition of the facilities and
the high cost to repair or renovate them. In 2003, the Army reviewed
the condition of its lodging facilities and determined that over 80
percent of its facilities were in need of either replacement or
renovation. The Army determined that it would cost more than $1.8
billion to improve facility conditions and planned to fund these
improvements by an additional surcharge on each night that travelers
stayed in Army lodging. However, the Army determined that implementing
its plan would require more than 20 years to complete all of the
identified projects based on the rate that the Army decided to fund
the improvements. Further, the Army's plan only addressed the facility
needs at the time of the review and did not include renovations or
replacements to address future deficiencies or a long-term strategy to
sustain the facilities.
According to Army lodging privatization reports to Congress in 2008
and 2010, Army leadership deemed the length of time of the Army's plan
to improve the facility conditions and the lack of a long-term
sustainment strategy unacceptable and determined that privatization,
modeled after the Army's family housing privatization program, would
provide private sector resources to redevelop and sustain the
facilities to address current and future needs.[Footnote 17] According
to Army officials, transferring the responsibility to address
deficiencies in the lodging facilities to a private developer would
enable improvements to be made more quickly than if the Army retained
the facilities--8 years for the private developer instead of 20 years
that the Army estimated it would take. Additionally, the private
developer would be expected to maintain these facilities in good
condition throughout the 50-year term of the lease. Army officials
told us that the Army has not fully maintained many of its lodging
facilities in good condition due to constrained funding stemming from
other competing priorities.
Other Services Have Not Privatized Lodging Facilities Due to Potential
Lodging Expense Increases and Relatively Good Quality Buildings:
The Navy, Marine Corps, and Air Force are currently not planning to
privatize their lodging facilities given officials' concerns about the
potential for increased lodging expenses under privatization due to
higher room rates and, in their view, their facilities are in good
condition. Based on our analysis of the services' data for fiscal year
2009, the amount that the Navy, Marine Corps, and Air Force are
spending on lodging expenses could significantly increase over service-
operated lodging if the services chose to privatize and used the
Army's approach of charging a weighted average of 75 percent of the
local per diem rate for rooms. Based on our analysis, the Army could
also experience increased lodging expenses under privatization--about
60 percent if all travelers stayed in privatized lodging to about 115
percent if all travelers stayed in commercial sector lodging and paid
the full per diem rate. According to Army officials and its 2008
report to Congress, senior Army officials were aware of the potential
cost increase when they decided to privatize and determined that some
increase in lodging expenses was acceptable given the increase was
designed to fund new construction, renovations, and the long-term
sustainment of facilities.[Footnote 18] Our analysis provides a range
for the lodging expense increases since, after privatization,
travelers can choose to either stay in the privatized facility at 75
percent of the local per diem rate or stay in a commercial hotel in
the community at up to the full per diem rate, if no other government
lodging is available. Table 1 shows our analysis of the estimated
lodging expense increases due to increased room rates for each service
if they chose to privatize, compared to continued service-operated
lodging.
Table 1: Estimated Increase in Lodging Expenses Under Privatization
Compared to Service-Operated Lodging at Domestic Installations for
Fiscal Year 2009:
Military service: Navy;
Estimated lodging expenses for travelers to domestic service-operated
lodging: $170 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: $380 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: 227%;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: $240 million;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: 143%.
Military service: Air Force;
Estimated lodging expenses for travelers to domestic service-operated
lodging: $210 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: $340 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: 160%;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: $190 million;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: 87%.
Military service: Army;
Estimated lodging expenses for travelers to domestic service-operated
lodging: $130 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: $150 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: 115%;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: $80 million;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: 61%.
Military service: Marine Corps;
Estimated lodging expenses for travelers to domestic service-operated
lodging: $20 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: $60 million;
Net estimated increase in lodging expenses at 100 percent of local per
diem rate[A]: 260%;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: $30 million;
Net estimated increase in lodging expenses at 75 percent of local per
diem rate[B]: 149%.
Source: GAO analysis of DOD data.
Note: Dollars rounded to nearest $10 million.
[A] The net estimated increase in lodging expenses at 100 percent of
the local per diem rate assumes that all of the travelers who stayed
in service-operated lodging in fiscal year 2009 chose to stay in a
commercial hotel at the full local per diem rate. We reduced the total
estimated increase by the amount of appropriated funds directly spent
on the service-operated lodging facilities for fiscal year 2009 given
that the costs to operate the lodging facilities would no longer be
incurred if the services privatized their lodging facilities,
providing an estimated net increase in travel costs. This estimate
does not include all appropriated funds that the service spent to
support the lodging program, such as for expenses--like utilities,
maintenance provided by the installation, and some employees--that are
not captured by the services or reported to the Office of the
Secretary of Defense.
[B] The net estimated increase in lodging expenses at 75 percent of
the local per diem rate assumes that all of the travelers who stayed
in the service-operated lodging in fiscal year 2009 stayed at the
hypothetically privatized facility and the Navy, Marine Corps, and Air
Force followed the Army's privatization approach and charged an
average of 75 percent of the local per diem rate. We reduced the total
estimated increase by the amount of appropriated funds directly spent
on the service-operated lodging facilities for fiscal year 2009 given
that the costs to operate the lodging facilities would no longer be
incurred if the services privatized their lodging facilities,
providing an estimated net increase in travel costs. This estimate
does not include all appropriated funds that the service spent to
support the lodging program, such as for expenses--like utilities,
maintenance provided by the installation, and some employees--that are
not captured by the services or reported to the Office of the
Secretary of Defense.
[End of table]
While lodging expenses may increase under privatization due to higher
room rates, some factors could offset these increases, potentially
making the actual increase in lodging expenses less than is shown in
our estimates. First, if the military services choose to privatize
their lodging facilities, the net increase in lodging expenses may be
less than our estimate shows because the services are spending more
appropriated funding to support their lodging facilities than they
report to the Office of the Secretary of Defense. We reduced the
estimated lodging expense increases in our analysis by the amount of
appropriated funding that the military services reported spending to
the Office Secretary of Defense in fiscal year 2009 given that the
costs to operate the lodging facilities would no longer be incurred if
the services privatized their lodging facilities. However, as we
reported in 2006, some support services, such as utilities,
maintenance provided by the installation, or laundry services that are
contracted out, are paid for by the installation and these costs are
not tracked by program.[Footnote 19] The owner of a privatized
facility would reimburse the installation for these services, thus
reducing the net increase to lodging expenses. Service officials said
that capturing the full cost of operating lodging facilities remains
difficult since the installations do not report this information to
the service headquarters. Second, some service officials noted that
the services may not be spending as much as is needed to recapitalize
and sustain the lodging facilities. Lodging privatization is intended
to fully fund maintenance and renovations and, thus, may appear to
cost more than service-operated lodging given that the military
services are not fully funding maintenance and renovations of existing
facilities.
Additionally, the Navy, Marine Corps, and Air Force officials told us
that they are currently not planning to privatize their lodging
facilities is that the services viewed their facilities as being in
relatively good physical condition. Officials from these three
services said that they have generally been able to meet maintenance
and renovation needs and, therefore, did not need to obtain private
sector resources through privatization to improve the condition of the
lodging facilities. However, officials expressed concerns about their
ability to meet some maintenance and renovation needs in the future.
For example, Navy officials said that more than 25 percent of the
lodging facilities for temporary duty travelers are more than 48 years
old, and some of the buildings are more than 60 years old. These
officials noted that the Navy needs to determine how it will meet long-
term recapitalization needs of these facilities before they become
inadequate. Additionally, Marine Corps officials said that their
lodging facilities for temporary duty travelers are also getting older
and will require more funding to meet the facilities' maintenance and
renovation needs; however, Marine Corps officials told us they spend
limited funding to meet these needs given the competing demands for
appropriated funding and that lodging is often a lower priority for
the installations. Moreover, the Marine Corps has recently focused on
renovating and replacing its housing for unaccompanied personnel,
which officials expected would further limit the funding available for
new construction or major renovations at the lodging facilities. Also
expressing concern about their ability to fund future needs, an Air
Force official said that the Air Force needed to spend millions of
dollars renovating its temporary lodging facilities, including
replacing outdated electrical, plumbing, and heating systems at some
of its facilities. However, the official noted that there are many
unmet needs given competing priorities for appropriated funding for
such purposes.
Although the Navy, Marine Corps, and Air Force are currently not
planning to privatize their lodging facilities, officials from these
three services said that they are observing the Army's efforts and
might consider lodging privatization in the future. Specifically,
officials from the military services told us that if the Army's
program showed that it could improve lodging operations overall by
providing quality, cost-effective accommodations, then the services
would consider privatizing their lodging facilities.
Army Officials Viewed Transfer as Successful, but Deficiencies in Army
Facilities and Lack of Clarity about Transfer Steps Affected
Privatization and May Challenge Future Efforts:
Army officials we interviewed generally viewed the lodging
privatization transfer process at the Army's group A installations and
improvements the developer has made at the privatized facilities since
the transfer as a success. However, some challenges, including
deficiencies in life-safety and other critical systems at some group A
installations and a lack of clarity among key stakeholders regarding
some aspects of the transfer process, affected the planned timing of
building new facilities and the efficiency of operations and may pose
challenges for future privatization efforts.
Army Officials Viewed Transfer as Successful:
Army officials we interviewed generally viewed the process to transfer
the facilities to the private developer and the improvements that the
developer has made since then as successful. Army officials said that
the installations encountered some problems during the process to
transfer the lodging facilities to the private developer, as discussed
below, but they viewed the process as successful given that the
facilities were conveyed to the developer with minimal disruptions.
Additionally, Army officials said that the developer has made a number
of improvements to the lodging facilities since taking over management
and operation of the facilities. For example, in October and November
2009, the developer contracted with local cleaning services to address
complaints regarding the cleanliness of rooms. Additionally, in
November and December 2009, the developer enhanced lobby areas,
addressed the maintenance backlog, and made improvements to the
landscaping around the facilities, among other improvements. Some
installation officials told us that these enhancements improved the
quality of the facilities for travelers.
Life-Safety and Other Critical System Deficiencies:
Many facilities that the Army conveyed to the developer exhibited
deficiencies in the life-safety systems, such as fire alarms and
sprinkler systems, and other critical systems, such as elevator
systems, air conditioning units, and telecommunications systems. These
deficiencies occurred in two areas. First, the developer found that
some systems did not meet current life-safety or other construction
codes. Army officials told us that buildings are generally required to
meet Army standards applicable at the time of construction or major
renovation. Many of the Army's lodging facilities are old and were
constructed before modern fire and safety codes were enacted, so some
facilities are lacking systems required by more modern codes. For
example, at least one lodging facility at Fort Sam Houston, Texas, did
not have a fire sprinkler system when the building was conveyed to the
developer. According to installation officials, the private developer
hired a "fire guard" to serve as a watch-person to alert officials in
the event of a fire. Second, the developer found that some systems did
not function properly when the Army conveyed the facilities to the
developer. For example, the developer and installation officials
tested fire alarm systems at each of the group A facilities 2 weeks
prior to the transfer and discovered that some alarms malfunctioned.
The Army has made limited investments in its lodging facilities since
it decided to privatize the facilities. Since 2005, the Army's
Financial Management Operating Guidance has authorized all group A
installations to make repairs only when the failure of a component may
cause a shutdown, or cause a major disruption of the lodging
activity's ability to provide services as required by the Army Lodging
Standards. The guidance did not authorize maintenance and repairs
executed solely to extend the original useful life of the asset or
purchases of new assets other than replacements due to failure.
[Footnote 20] An Army official responsible for overseeing Army-
operated lodging explained that in some situations, the Army decided
not to replace some systems that were at the end of their expected
life cycle given the systems were still functional and the Army
delayed replacement to save money. Several officials told us that they
believe that the Army should not make substantial repairs to
facilities that the Army plans to convey to a private developer given
that the Army decided to privatize due to the poor condition of the
facilities. The officials expected that a developer, through its due
diligence process, would have been aware of the condition of the
facilities and the financial risks associated with the project and the
Army should not address deficiencies for the developer.
Army officials at two of the four installations we contacted told us
that limiting funds to sustain and recapitalize lodging facilities
affected the quality of some facilities while the Army was still
operating them. For example, officials at Fort Leavenworth, Kansas--
which is the home of a number of Army training courses--told us that
their internet capabilities were scheduled to be upgraded shortly
after the decision to privatize lodging on the installation was
announced. However, the Army did not upgrade the system since it was
going to be conveyed to the developer. According to the officials,
this caused significant problems for the students staying at the
facilities, many of whom needed internet access for their coursework.
The officials said that the private developer upgraded the internet
system shortly after taking responsibility for the property. Further,
officials at Fort Leavenworth said that the installation had a
staggered 5-year replacement cycle in which the furnishings, such as
carpet and mattresses, in 20 percent of the rooms were replaced each
year. However, such replacements were limited by the Army guidance and
none of these replacements have occurred in the past 5 years.
Additionally, an official at Yuma Proving Ground, Arizona, told us
that the lodging facility's air conditioning system needed replacement
prior to the transfer; however, such replacement was not allowed.
According to the official, it would have benefited the Army to replace
the system since it would have increased the quality of the facility
for Army travelers who still used the facility while it was operated
by the Army. Further, the developer plans to operate that facility
only until it constructs a new hotel on the installation in a few
years and, at that time, the developer will return the facility to the
Army. Also, Army officials, including officials at two of the four
installations with whom we spoke, as well as officials from the Office
of the Secretary of Defense, questioned the Army's decision to stop
funding recapitalization at the lodging facilities since the lack of
funding led to some deficiencies that negatively affected travelers.
Due to the Army's limited investment in its lodging facilities in
recent years, the private developer had to include an additional phase
to the planned project to address life-safety and critical system
deficiencies before the lender would accept the conveyed facilities as
collateral to finance future renovations and new construction. Thus,
planned major renovations and new construction will be delayed until
the private developer can complete the needed life-safety and critical
system repairs, which will take about 2 years, according to Army
officials.
Limited investment in the existing Army-operated lodging facilities
may pose similar challenges for future privatization efforts. Many of
the lodging facilities remaining in the Army's inventory are over 50
years old and likely have similar problems with life-safety and
critical systems identified at the group A installations. The Army's
Family Morale, Welfare, and Recreation Command instructed the
Directorate of Public Works on each installation expected to be
privatized in the next group to conduct Army Lodging facility
evaluations to determine if the buildings meet life-safety standards,
if the building systems are functioning correctly, and to identify any
hazardous materials. They were also to include estimates for repair or
replacement when it was determined feasible to install life-safety
systems in each building. As of May 2010, the installations identified
about $45 million in repairs--about $37 million to address life-safety
and critical systems problems, such as asbestos and lead paint removal
and repairs to fire prevention and detection systems and about $8
million to repair furniture and fixtures in guest rooms and waiting
areas. In comparison, the private developer is planning to spend $64
million to address life-safety and critical system deficiencies at
group A installations. An Army official told us that the installation-
provided estimates are lower than the official expected and may not
provide a complete picture of the condition of the facilities and the
needed repairs. According to Army officials, the Army plans to raise
room rates--which are generally paid for with appropriated funds for
authorized travelers--at installations in the next group to be
privatized to generate revenue to address the deficiencies that the
installations identified.
We have previously reported that assessing the costs and benefits of
investments is important since such analyses help decision makers
determine the best way to meet the needs of the program with the
resources available, as well as inform the best path forward.[Footnote
21] Additionally, we have reported that assessing the costs and
benefits of alternative approaches could help an agency more fully
ensure that it is efficiently allocating and prioritizing its
resources.[Footnote 22] However, the extent to which the repairs that
the Army identified to address deficiencies in the life-safety and
critical systems for the next group of installations to be privatized
should be completed by the Army or the private developer is unclear
because the Army has not fully assessed the costs and benefits of
performing these repairs. For example, in weighing the Army's goal to
provide for timely construction of on-post lodging facilities against
the Army's decision to privatize due to the cost and time needed to
complete the repairs, the Army may decide that some of the repairs
should be completed by the Army, while other repairs should be
completed by the developer. Facilities that are expected to be
returned to the Army after the private developer builds a new facility
would be an example in which the Army's cost-benefit assessment could
aid decision makers in determining the best way to meet the needs of
the program with the resources available. Without an assessment of the
costs and benefits of the Army completing these repairs, the Army may
not be spending its financial resources as efficiently as possible and
fully assessing whether the costs of completing the repairs outweigh
the benefits.
Lack of Clarity Concerning the Transfer Process:
A second challenge that affected privatization at the Army's 10 group
A installations is that key stakeholders involved in transferring
facilities and property from the Army to the private developer
experienced confusion and a lack of clarity about the transfer
process. For example, installation officials told us that it was
unclear what information to provide to employees who worked at the
Army lodging facilities about retaining their jobs. Thus, some
experienced employees who did not want to work for the private
developer accepted other employment, taking their knowledge of lodging
operations with them and causing staffing shortages. Additionally,
installation officials told us that it was not clear what was expected
of employees during the transition, such as the information to provide
in response to guest questions about privatization in the time leading
up to the transfer. Officials at one installation noted the importance
of training all lodging employees on what is expected of them during
the transfer and emphasized that this should include those employees
who are not taking jobs with the developer after the transfer.
Moreover, installation officials and other Army officials stated that
lodging employees were not informed that all equipment inside the
lodging facilities at the time of the transfer became the property of
the private developer. Therefore, some equipment that was shared by
multiple morale, welfare, and recreation programs or other
organizations on the installation, such as projectors, was transferred
to the developer and can no longer be used by the other Army programs.
An Army official told us that this includes vehicles that were used by
the lodging facilities, even though those vehicles could have been
used by other morale, welfare, and recreation programs.
The installation officials we interviewed were relatively satisfied
with the amount of information provided in installation-specific
briefings by the private developer and the Office of the Assistant
Secretary of the Army (Installations and Environment). However, these
officials indicated that they were dissatisfied with the lack of
information on specific actions needed to facilitate the transfer. The
Office of the Assistant Secretary of the Army (Installations and
Environment) developed a 37-item checklist that officials in that
office used to track preparations for the transfer. The checklist
included items such as confirming general manager hires and
inventorying all furniture, fixtures, and equipment to convey to the
developer. However, this checklist was not provided to installations.
Additionally, the Family Morale, Welfare, and Recreation Command
provided guidance to installations on steps to take starting about 3
months before the transfer to close out the lodging activity and
guidance on conducting a financial audit the night before the
transfer. In addition to this guidance, the Family Morale, Welfare,
and Recreation Command held weekly phone calls to provide information
to installation officials. However, installation officials said that
this information was provided in several different documents and
covered only a small piece of the transfer process and noted that
there was no single, comprehensive transition plan that detailed all
of the tasks that needed to be completed to facilitate the transfer.
We have previously reported that successful transformations, such as
that from service-operated to privatized lodging, are a substantial
commitment that must be carefully and closely managed.[Footnote 23] As
we stated in that report, it is essential to establish and track
implementation goals--or key steps required to accomplish the
transfer--to identify shortfalls and gaps and midcourse corrections.
By demonstrating progress towards these goals, the organization builds
momentum and helps to ensure the transformation's successful
completion. However, because the Army did not develop a single,
comprehensive transition plan, group A installations encountered some
problems during the transfer. For example, at one installation, guest
data were prematurely removed from the Army's system and were not
transferred to the developer's system. As a result, all of the guests
had to go to the front desk and check-in again, creating frustration.
Additionally, some installation officials said that they still have
questions related to some aspects of the operation of privatized
facilities. For example, officials at one installation told us that
they were unsure about the process to change the municipal services
agreement--which establishes the terms for the private developer to
reimburse the installation for municipal services, such as utilities
and police and fire protection--between the installation and private
developer, thus adding to the confusion during the transition.
Economic Downturn Delayed Privatization for Group A and Could Affect
Future Privatization Efforts:
The recent economic downturn hindered the private developer's ability
to obtain financing for the lodging privatization project at favorable
interest rates, which delayed privatization at group A installations
and may affect future privatization efforts. In its March 2010 report
to Congress on lodging privatization, the Army identified three
factors related to the economic downturn that affected the private
developer's ability to obtain long-term, low-rate financing for the
lodging privatization project: (1) the constrained credit environment;
(2) the need for proven occupancy while privatized, which would
demonstrate sufficient cash flow; and (3) the need to address facility
life-safety and critical repair issues before using the facilities as
collateral.
* The constrained credit environment affected the private developer's
ability to obtain financing for the project and contributed to delays
in privatizing the lodging facilities. As we have previously reported,
financial markets were in significant turmoil in October 2008, due to
the correction in the U.S. housing market.[Footnote 24] By late summer
2008, the effects of the economic downturn included the failure of
financial institutions as a result of increased losses of individual
savings and corporate investments and further tightening of the
availability of credit through stricter credit standards and increased
capital requirements for financial institutions. By fall 2008, the
economic downturn further reduced liquidity throughout the capital
markets, thereby reducing the amount of funds available for loans
while also increasing borrowing costs since the cost of capital can
rise as liquidity declines.
* The need for proven occupancy at the privatized facilities affected
the developer's ability to obtain financing for the project. In the
fall of 2008, as part of the process to obtain financing for the
lodging privatization project, credit rating agencies determined the
credit risk of the project. Each of the credit rating agencies uses a
unique rating to denote the grade and quality of the investments being
rated from quality investments to noninvestment or speculative grade
investments. Two credit rating agencies reviewing the lodging
privatization project initially indicated that an investment grade
rating was possible. However, the private developer's formal
discussions with two of the rating agencies coincided with the
bankruptcy filing of a major financial institution, which led the
credit rating agencies to become much more conservative in their
ratings. As a result, the agencies rated the lodging privatization
project as "below investment grade"--meaning that the agencies rating
the bonds determined that the viability of the project posed a greater
risk to investors--at a time when the cost of capital was becoming
more expensive and lenders were becoming more scarce and selective
about projects they were willing to finance. The agencies cited the
ability of authorized military travelers to select their hotel of
choice if no other government lodging is available--which will be the
case on some installations after the facilities are privatized--as an
overriding risk factor. Only after receiving information that
authorized travelers would still come to the privatized facilities
would the agencies consider changing the risk profile and granting the
better investment grade ratings. In its March 2010 report to Congress,
the Army stated that the project exceeded budgeted occupancy rates in
5 of the first 6 months of operating the privatized facilities. Army
lodging officials, including officials at three of the four group A
installations with whom we spoke, said the developer should meet or
exceed its anticipated occupancy rates as long as the developer
continues to coordinate lodging operations with the training schools
associated with many installations and maintain quality facilities and
a high level of service, thus effectively competing with other hotels
in the local market.
* The private developer had to address facility life-safety and
critical repair issues before the lender would allow the facilities to
be used as collateral for obtaining debt, which in turn, also affected
the developer's ability to obtain long-term, low-rate financing for
the privatization project, as we previously discussed. According to an
Army official, lenders did not want to take the risk of financing a
project that did not meet life, health, and safety codes.
As a result of these three factors, the Army and the private developer
decided that the best course of action was to delay privatization for
more than 8 months from the planned transfer date in December 2008 to
August 2009. Additionally, these three factors led the developer to
obtain financing through a 2-year bridge loan--a short-term loan with
an agreement for additional long-term financing in the future--with
increased borrowing cost, rather than through a bond issuance, which
is the traditional financing method for projects privatized under the
Military Housing Privatization Initiative authority.
Due to these challenges, the developer was unable to obtain financing
for the project as originally planned and--in consultation with the
Army--revised the scope of the project by extending the replacement
schedule for some facilities and changing the brand associated with
the hotel chain for facilities to be built on some installations.
First, the private developer plans to increase the amount of time it
will retain some existing facilities in the lodging inventory. The
replacement schedule for some of the facilities in group A has
increased by an average of 8 years and as much as 15 years at one
facility at Fort Hood. While the effect of the developer's increased
reliance on renovated facilities is currently unknown, it could
potentially affect the attractiveness of the lodging facilities in
relation to some commercial sector hotels located near installations.
Second, the developer revised the project scope by changing the brand
associated with the hotel chain of some hotels to be constructed.
According to the development plan, the private developer originally
planned to build all of the new facilities to meet the standards for
the lodging operator's upscale extended-stay hotel brand, which offers
larger rooms with upgraded fixtures. However, at eight of the nine
installations with lodging facilities scheduled for new construction,
the developer changed the brand to the hotel chain's midscale extended-
stay hotel brand, which offers smaller rooms, does not use upgraded
fixtures, and typically charges lower room rates in the commercial
sector. Even though the developer saved about $25 million by building
smaller rooms and not using upgraded fixtures at these installations,
the change has the potential to make the lodging facilities less
attractive to some travelers than some commercial sector hotels in the
community. Moreover, the developer diverted resources from renovating
facilities to meet brand standards to address life-safety and critical
repairs, which slowed the transformation into branded hotels. For
example, only 29 percent of the inventory under privatization will be
renovated to meet the standards of the hotel chain's brand during the
first 24 months of the project. The remaining facilities will be
operated without significant renovations--excluding renovations to
address life-safety and critical systems--in order to generate income
until the developer can obtain additional funding to continue with the
large-scale renovations and the construction of the new facilities.
According to Army officials, these changes to the scope of the project
decreased the total cost of the project by about $75 million--or about
15 percent. After about 1 year of the developer operating the
privatized facilities, the Army and developer will assess the lodging
demands of each installation's lodging operation and jointly finalize
the final number of rooms in the project's end state, the ratio of new
to renovated rooms, and the brand associated with the hotel chain--to
include the corresponding standards and amenities--for each facility,
according to the Army's 2010 report.
Uncertainties in the economy still exist and future privatization
efforts for group A and subsequent privatization efforts will depend
on conditions in the credit markets. A representative of the developer
told us that liquidity in financial markets has increased since the
economic downturn in 2008 and the developer feels that the project can
be refinanced at more favorable interest rates than those obtained to
make life-safety and critical repairs. Although a representative for
the developer and Army officials told us that liquidity in financial
and credit markets is improving, uncertainties in the market still
exist and future market conditions--which are currently unknown--could
affect future privatization efforts. For example, the developer
expects to refinance its current debt and obtain additional debt to
complete the plans for new construction and renovations at group A
facilities. According to the Army's March 2010 report, the developer
plans to use revenues from both newly constructed lodging facilities
at four installations and existing privatized facilities in the
inventory, as well as provide 24 months of occupancy and performance
data to lenders, to refinance the current loans into a more
traditional bond structure used in other projects under the Military
Housing Privatization Initiative authority. The developer also plans
to obtain additional funds by refinancing the current debt to proceed
to the second and third phases of the project for facilities in group
A.
By their nature, privatization projects usually entail developers
assuming a certain level of risk related to the project, including
risks that the installation where the project is located could be
closed or financial conditions could affect the financial solvency of
a developer. According to Army officials, the Army has made no loan
guarantees or other explicit guarantees associated with its lodging
privatization program and has no plans to negotiate any changes to
these agreements at this time. Therefore, as the lease is currently
structured, Army officials believe that the government does not have
financial liability for the debt held by the developer in the event of
a base closure or financial difficulties by the developer.
Army's Report to Congress Addresses Required Elements, but Lacks
Information to Help Clarify One Response:
The Army's report addresses the three elements required by the
National Defense Authorization Act for Fiscal Year 2008, which
required the Army to (1) describe the implementation of lodging
privatization at the installations included in group A, (2) evaluate
the efficiency of the lodging privatization program, and (3) include
recommendations that the Secretary of the Army considers appropriate
regarding expansion of the lodging privatization program.[Footnote 25]
However, the Army report lacks some information related to the first
element that could help clarify the Army's responses.
The Army report addressed the second and third elements of the act. To
address the second element, which requires the Army to evaluate the
efficiency of the program, the Army reported that the private
developer's performance met or exceeded expectations on seven
developmental, operational, and financial performance measures. For
example, the Army reported that the developer began renovation work a
month ahead of schedule--in December 2009 rather than January 2010--
for the "Construction Progress" performance measure. Similarly, the
developer exceeded occupancy projections by about 5 percent for one of
the operations performance measures. The Army also reported that the
developer exceeded projections of its net operating income--a measure
of the developer's ability to manage operating expenses, pay debt
service, and fund development--by 40 percent over the first 4 months
of the project. These measures are among those that are part of the
Army's quarterly review. The Army plans to use performance information
to oversee the lodging privatization program and if the Army finds
that the private developer's performance is below expectations in any
of the performance measures, then the Army plans to review those areas
with the private developer to better ensure that the developer is
implementing corrective action to minimize the effect on the project
performance. According to officials from the Army and the Office of
the Secretary of Defense, DOD plans to include lodging privatization
performance information in DOD's semiannual reports to Congress on the
Military Housing Privatization Initiative starting with the next
report, which the Office of the Secretary of Defense expects to
provide to Congress in December 2010.[Footnote 26] The third element
requires the Army to make recommendations regarding the expansion of
the privatization program. The Army report recommends privatizing
lodging facilities at an additional 11 installations, based on the
lodging privatization program's performance to date.[Footnote 27]
Additionally, the report states that the Army's goal is to privatize
its entire domestic lodging inventory.
The Army report also addressed the first element, but the Army could
have provided additional information to help clarify its response. To
address the first element, the Army described some challenges that the
Army and the private developer experienced from the transfer of the
facilities to the private developer through the first 6 months of
operating privatized lodging facilities. Some of these challenges
include issues with employee transition, particularly due to delays in
the transition; issues with the termination of telephone service
contracts; the condition of the facilities being worse than the
private developer expected; and difficulties in the private developer
receiving payments from centralized Army accounts. The Army report
includes recommendations for addressing each of the challenges that it
identifies in its report. For example, the Army reported that as of
December 31, 2009, Army travelers owed the private developer more than
$4.3 million--about 1 month's revenue--with the vast majority from
centrally billed Army accounts. The Army report states that the Army,
local bill payers, contracting officers, and the hotel operator should
work together to review existing processes to look for ways to bring
more efficiencies to the payment process and remit payments for hotel
bills when due.
However, the Army's report does not describe how the Army plans to
address the lessons learned that it identified in the report. We have
previously reported on the importance of addressing lessons learned
and incorporating corrective actions into ongoing efforts.[Footnote
28] Although the Army report states that it will incorporate the
lessons learned into any subsequent lodging privatization efforts, the
report did not explain what the Army would do. Army officials told us
they have started to document lessons learned, but do not plan to
share them widely until after July 2010--120 days after the Army's
lodging privatization report--due to the limitation in the National
Defense Authorization Act for Fiscal Year 2008 on future lodging
privatization efforts.[Footnote 29] Because it is currently unclear
how the Army will incorporate lessons learned into its current and
future privatization efforts, the Army may miss opportunities to
improve management of the privatization process and more effectively
implement changes to the lodging privatization program for group A and
future groups by key stakeholders, such as the Family Morale, Welfare,
and Recreation Command, Office of the Assistant Secretary of Defense
(Installations and Environment), and the Office of the Assistant Chief
of Staff for Installation Management. We have previously reported that
the failure to complete planned corrective actions places agencies at
risk of wasting resources on subsequent efforts that repeat problems
that would be addressed by lessons learned from previous efforts.
[Footnote 30]
Conclusions:
The Army is privatizing its lodging facilities in an effort to provide
higher quality lodging and services to Army soldiers and their
families at a rate faster than it has stated it can do on its own and
to sustain and recapitalize those facilities over the long term. While
the private developer has met or exceeded the performance goals for
the Army's lodging privatization program over the first 6 months of
privatized operations and key stakeholders generally agreed that
privatization at group A installations has been successful, the Army
lacks some tools to better ensure more efficient program management,
thus potentially limiting the success of future lodging privatization
efforts. First, without assessing the costs and benefits of the Army
or the developer repairing existing life-safety and critical system
deficiencies at installations planned to be privatized in the next
group, the Army could be spending its financial resources
inefficiently. Second, without a single, comprehensive transition plan
that details the key steps needed to transfer lodging facilities from
the Army to the private developer, the Army will continue to be in a
position of not ensuring more efficient operations of the facilities
before, during, and after the transfer of future groups. Finally, by
not taking steps to clarify how the Army plans to incorporate lessons
learned from the privatization of group A installations, the Army is
less likely to realize the benefit of these experiences as it
continues its goal of privatizing its entire domestic lodging
inventory in the future and risks repeating some of the same
challenges as in the first effort to privatize.
Recommendations for Executive Action:
(1) To better ensure that the Army is spending its financial resources
as efficiently as possible, we recommend that the Secretary of the
Army 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.
(2) To facilitate more efficient operations before, during, and after
the transition from service-operated to privatized lodging, we
recommend that the Secretary of Army 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.
(3) To facilitate effective implementation of lessons learned into the
lodging privatization program, we recommend that the Secretary of the
Army 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.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD concurred with our
three recommendations and indicated planned actions for addressing
them. Specifically, in response to our first recommendation 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, DOD noted that it will analyze such
costs and benefits after the Army assesses compliance with basic fire
and life-safety requirements and the condition of the existing
infrastructure at facilities at the next 11 installations to be
privatized. However, the department also noted that funding to fix
these deficiencies is not currently budgeted. In response to our
second recommendation to develop a single, comprehensive transition
plan for future lodging privatization, the Army plans to develop a
single document to consolidate plans, policies, procedures, and time
lines related to lodging privatization. In response to our third
recommendation to clarify how the Army intends to incorporate lessons
learned in its current and future privatization efforts, the
department commented that the Army has already started implementing
some lessons learned and plans to request feedback from the developer,
the hotelier, and all Army stakeholders regarding lessons learned and
include the information in the single, comprehensive plan for future
privatization efforts. DOD's comments are reprinted in appendix II.
DOD also provided technical comments, which we incorporated as
appropriate into this report.
We are sending copies of this report to interested congressional
committees; the Secretary of Defense; the secretaries of the Army,
Navy, and Air Force; Commandant of the Marine Corps; and the Director,
Office of Management and Budget. In addition, the report will be
available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov]. GAO staff who made contributions to this report
are listed in appendix III.
If you or your staff have any questions concerning this report, please
contact me on (202) 512-4523 or by e-mail at leporeb@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
are on the last page of this report.
Signed by:
Brian J. Lepore, Director:
Defense Capabilities and Management:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Kay Bailey Hutchison:
Ranking Member:
Subcommittee on Military Construction, Veterans' Affairs, and Related
Agencies:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Howard McKeon:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable Chet Edwards:
Chairman:
The Honorable Zach Wamp:
Ranking Member:
Subcommittee on Military Construction, Veterans' Affairs, and Related
Agencies:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
We reviewed various documents and interviewed several defense
organizations involved with implementing and overseeing the military
services' lodging program for temporary duty and permanent change of
station travelers. We interviewed officials within the Office of the
Under Secretary of Defense (Acquisition, Technology and Logistics) and
the Office of the Under Secretary of Defense (Personnel and Readiness)
given their roles in providing oversight of all lodging privatization.
Furthermore, we interviewed officials from the Army, Navy, Marine
Corps, and Air Force offices responsible for operating the service-
operated lodging programs to assess program status. However, we
focused most of our work on the Army given it is the only military
service to have started privatizing lodging. Thus, to better
understand the Army's lodging program and its recent efforts to
privatize, we contacted (1) the Family Morale, Welfare, and Recreation
Command, within the Installation Management Command, that oversees the
operation of the service-operated lodging; (2) the Capital Ventures
Division within the Office of the Assistant Secretary of the Army
(Installations and Environment) that negotiated the lease with the
developer and approved major decisions involving the privatization
program; and (3) the Public/Private Initiatives Division within the
Office of the Assistant Chief of Staff for Installation Management
that provides oversight of the privatized projects after privatization.
To determine the factors that the military services considered in
their decisions whether to privatize their lodging facilities, we
mostly focused on documentation related to the Army's lodging
privatization efforts, including two reports to Congress and an
analysis supporting the Army's decision to privatize.[Footnote 31]
Given that Navy, Marine Corps, and Air Force officials identified
increased lodging costs as a factor in their decision not to privatize
their lodging facilities, we analyzed data for the service-operated
lodging facilities for fiscal year 2009 to develop an estimated amount
of this increase. We collected data from each military service on the
number of authorized temporary duty and permanent change of station
travelers and the average daily rate charged for rooms by
installation. Complete fiscal year 2009 data were not available for
Army installations that were privatized as part of group A because
installations were privatized partway through the fiscal year;
therefore, we excluded these installations from our analysis. For each
installation, we calculated the difference in room rates between the
average daily rate and the local per diem rate, as set by the General
Services Administration, and multiplied the difference in room rates
by the total number of days that authorized travelers stayed in the
service-operated lodging facilities. This provided the upper value for
the estimate and represents the estimated cost increase if all
authorized travelers who stayed in the service-operated lodging in
fiscal year 2009 instead chose to stay in a commercial hotel in the
local community. We performed the same calculation using 75 percent of
the local per diem rate to represent the cost increase if all
authorized travelers who stayed in the service-operated lodging in
fiscal year 2009 instead chose to stay in the hypothetically
privatized lodging facilities on the installation if the military
services privatized their lodging facilities using the Army's
approach. Additionally, because the military services would save some
appropriated funding if they privatized their lodging facilities by
not having to operate lodging facilities, we subtracted the amount of
appropriated funds that the military services spent directly on their
lodging facilities from the estimated cost increases. We obtained this
information from financial reports that the military services submit
annually to the Office of the Under Secretary of Defense (Personnel
and Readiness) to better ensure that the data were comparable across
the military services. We have previously reported that the cost data
reported by the military services to the Office of the Secretary of
Defense annually may not adequately reflect total lodging program
costs because determining some appropriated fund support can be
difficult. Although we identified problems with the completeness of
the cost data based on our review of the data, our previous work on
lodging privatization, and interviews with agency officials, we
determined that these data were sufficiently reliable for our purposes
since this analysis was intended to provide a general estimate of
potential increases in lodging expenses under privatization.
To determine the challenges that the Army encountered in privatizing
their lodging facilities, we reviewed the Army's Financial Management
Operating Guidance for the lodging program, the Army's report to
Congress, the Army's Lodging Standards Status Reports, and previous
GAO reports on military privatization efforts, including our prior
report on lodging privatization and family housing
privatization.[Footnote 32] Additionally, we interviewed officials
from four installations that were privatized as part of group A--Yuma
Proving Ground, Arizona; Fort Leavenworth, Kansas; Fort Sam Houston,
Texas; and Fort Myer, Virginia--to provide a range of characteristics
that may provide differences in experiences with privatization. Key
characteristics we considered in selecting the locations include the
amount of revenue generated at the installation during the first 6
months of privatization, percentage of rooms planned to be renovated
in the end state of the project, and the amount of funding planned to
be spent at the installation in the first phase of the project.
To determine the effect of the economic downturn on the Army's
privatization efforts, we reviewed the Army's report to Congress, the
Lodging Development and Management Plan completed by the private
developer in 2008, and the lease between the Army and the private
developer effective in August 2009. Additionally, we interviewed
officials from the Office of the Assistant Secretary of the Army
(Installations and Environment) and Actus Lend Lease, the private
developer for group A to obtain their views about the effect of the
economic downturn on the Army's privatization efforts. Additionally,
we analyzed changes to the planned room counts to determine changes to
the scope of the privatization project by comparing the plans in the
Lodging Development and Management Plan to those in the lease between
the Army and the private developer.
Finally, to determine the extent to which the Army's report to
Congress addresses the required reporting elements in the law, we
reviewed the elements in the National Defense Authorization Act for
Fiscal Year 2008 and examined whether the Army's report provided the
required information. For each of the elements, we reviewed previous
GAO reports to identify best practices that allowed us to assess
whether additional information could have helped clarify the Army's
responses. We met with officials in the Office of the Assistant
Secretary of the Army (Installations and Environment), the
organization that drafted the report, to better understand the process
to develop the report and the issues raised in the report.
Additionally, to better understand how the issues raised in the Army's
report affected lodging privatization and operations of the privatized
facilities, we spoke with officials from the Army's Family Morale,
Welfare, and Recreation Command; Office of the Assistant Chief of
Staff for Installation Management; four installations that were
privatized as part of group A--Yuma Proving Ground, Fort Leavenworth,
Fort Sam Houston, and Fort Myer; and a representative from Actus Lend
Lease, the private developer for group A.
We began this performance audit in August 2008; however, we suspended
the review in March 2009 because the Army delayed the release of its
report until March 2010, at which time we reinstated our review. We
completed our review in July 2010. This review was performed in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
July 23, 2010:
Mr. Brian J. Lepore:
Director:
Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Lepore:
This is the Department of Defense response to the GAO draft report,
GAO-10771, "Defense Infrastructure: Army's Privatized Lodging Program
Could Benefit from More Effective Planning," dated June 10, 2010 (GAO
Code 351264).
The DoD appreciates the opportunity to comment on the draft report
(enclosed).
Sincerely,
Signed by:
John Conger, for:
Dorothy Rob:
Deputy Under Secretary of Defense (Installations and Environment):
Enclosure: As stated:
[End of letter]
GAO Draft Report Dated June 10, 2010:
GAO-10-771 (GAO Code 351264):
"Defense Infrastructure: Army's Privatized Lodging Program Could
Benefit From More Effective Planning"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of the Army
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.
DOD Response: Concur. The Army has identified the next eleven
installations that will privatize lodging and is assessing compliance
of the existing inventory with basic commercial fire and life safety
requirements as well as the condition of each facility's mechanical,
electrical, and plumbing infrastructure. The Army will then analyze
the costs and benefits of correcting deficiencies itself versus using
a private developer. However, the Army notes that correction of any
life-safety and critical infrastructure deficiencies is not currently
funded in either appropriated or non-appropriated budgets.
Recommendation 2: The GAO recommends that the Secretary of the Army
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.
DOD Response: Concur. The Army will consolidate all plans, policies,
procedures, and timelines relating to lodging privatization into a
single source document for the ease of the various and disparate
stakeholders impacted by privatization.
Recommendation 3: The GAO recommends that the Secretary of the Army
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.
DOD Response: Concur. The Army has already started implementing
lessons learned concerning correction of life-safety and critical
infrastructure deficiencies, termination of existing service
contracts, and communication with affected personnel. The Army is
collecting additional feedback from the developer, the hotelier, and
other stakeholders and will incorporate its findings into the single,
comprehensive plan for future lodging privatization transfers,
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Brian J. Lepore, (202) 512-4523, leporeb@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Laura Talbott, Assistant
Director; Hilary Benedict; Laura Durland; Amy Frazier; and Kyerion
Printup made key contributions to this report.
[End of section]
Related GAO Products:
Military Housing Privatization: DOD Faces New Challenges Due to
Significant Growth at Some Locations and Recent Turmoil in the
Financial Markets. [hyperlink,
http://www.gao.gov/products/GAO-09-352]. Washington, D.C.: May 15,
2009.
Defense Infrastructure: Continuing Challenges in Managing DOD Lodging
Programs as Army Moves to Privatize Its Program. [hyperlink,
http://www.gao.gov/products/GAO-07-164]. Washington, D.C.: December
15, 2006.
Military Housing: Management Issues Require Attention as the
Privatization Program Matures. [hyperlink,
http://www.gao.gov/products/GAO-06-438]. Washington, D.C.: April 28,
2006.
Military Housing: Further Improvements Needed in Requirements
Determination and Program Review. [hyperlink,
http://www.gao.gov/products/GAO-04-556]. Washington, D.C.: May 19,
2004.
Military Housing: Better Reporting Needed on the Status of the
Privatization Program and the Costs of Its Consultants. [hyperlink,
http://www.gao.gov/products/GAO-04-111]. Washington, D.C.: October 9,
2003.
Military Housing: Management Improvements Needed as the Pace of
Privatization Quickens. [hyperlink,
http://www.gao.gov/products/GAO-02-624]. Washington, D.C.: June 21,
2002.
Military Housing: DOD Needs to Address Long-Standing Requirements
Determination Problems. [hyperlink,
http://www.gao.gov/products/GAO-01-889]. Washington, D.C.: August 3,
2001.
Military Housing: Continued Concerns in Implementing the Privatization
Initiative. [hyperlink, http://www.gao.gov/products/GAO/NSIAD-00-71].
Washington, D.C.: March 30, 2000.
Military Housing: Privatization Off to a Slow Start and Continued
Management Attention Needed. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-98-178]. Washington, D.C.: July
17, 1998.
[End of section]
Footnotes:
[1] The services also operate recreational lodging, lodging used by
individuals visiting patients in military treatment facilities, and
lodging facilities overseas, which are not addressed in this report
given they are not part of the Army's lodging privatization program.
[2] National Defense Authorization Act for Fiscal Year 1996 Pub. L.
No. 104-106 § 2801 (1996) (codified as amended at 10 U.S.C. §§ 2871-
2885).
[3] Bob Stump National Defense Authorization Act for Fiscal Year 2003,
Pub. L. No. 107-314 §2803 (2002).
[4] National Defense Authorization Act for Fiscal Year 2008, Pub. L.
No. 110-181 § 2808 (2008).
[5] The 13 installations Congress authorized for privatization,
referred to by the Army as "group A," are: Redstone Arsenal, Alabama;
Fort Rucker, Alabama; Yuma Proving Ground, Arizona; Fort McNair,
District of Columbia; Fort Shafter, Hawaii; Tripler Army Medical
Center, Hawaii; Fort Leavenworth, Kansas; Fort Riley, Kansas; Fort
Polk, Louisiana; Fort Sill, Oklahoma; Fort Hood, Texas; Fort Sam
Houston, Texas; and Fort Myer, Virginia.
[6] Although Congress authorized privatization of 13 installations,
the Army reports that it privatized lodging facilities at 10
installations. First, the Army counted the lodging at Fort Shafter and
Tripler Army Medical Center as one location given the close proximity
of the locations to each other. Second, the private developer
determined that the lodging at Fort McNair was not needed since
travelers to the installation generally were traveling to nearby Fort
Myer and, therefore, decided to construct additional rooms at Fort
Myer instead. The lodging facility at Fort McNair was not conveyed to
the developer and the installation plans to convert the facility into
administrative space. Third, the Army deferred lodging privatization
at Redstone Arsenal for several reasons, including questions about the
number of rooms needed at the installation after some training
activities are realigned to another installation.
[7] Per diem rates for locations outside of the continental United
States, to include Alaska and Hawaii, are set by the Department of
State.
[8] National Defense Authorization Act for Fiscal Year 2008, Pub. L.
No. 110-181 § 2808 (2008).
[9] Assistant Secretary of the Army (Installations and Environment),
Privatization of Army Lodging (PAL) Group A Report to Congress
(Washington, D.C.: Mar. 12, 2010).
[10] Assistant Secretary of the Army (Installations and Environment),
Privatization of Army Lodging (PAL) Group A Report to Congress
(Washington, D.C.: Mar. 12, 2010) and U.S. Army, Report to Congress
Regarding Management of Army Lodging (Washington, D.C.: Feb. 25, 2008).
[11] GAO, Military Housing Privatization: DOD Faces New Challenges Due
to Significant Growth at Some Installations and Recent Turmoil in the
Financial Markets, [hyperlink, http://www.gao.gov/products/GAO-09-352]
(Washington, D.C.: May 15, 2009) and Defense Infrastructure:
Continuing Challenges in Managing DOD Lodging Programs as Army Moves
to Privatize Its Program, [hyperlink,
http://www.gao.gov/products/GAO-07-164] (Washington, D.C.: Dec. 15,
2006).
[12] Department of Defense Instruction 1015.11, Lodging Policy,
Section 5.1.2 (Oct. 6, 2006).
[13] Office of the Under Secretary of Defense for Personnel and
Readiness Memorandum, DOD Lodging Program (Apr. 26, 2007).
[14] [hyperlink, http://www.gao.gov/products/GAO-07-164].
[15] Because nonappropriated funds are generated primarily through
room sales and most of the travelers at the lodges are on authorized
travel, most of the nonappropriated funds actually originate from
appropriated funds given that reimbursement for official authorized
travel expenses are funded from the operation and maintenance or
military personnel appropriations.
[16] Assistant Secretary of the Army (Installations and Environment),
Privatization of Army Lodging (PAL) Group A Report to Congress
(Washington, D.C.: Mar. 12, 2010).
[17] Assistant Secretary of the Army (Installations and Environment),
Privatization of Army Lodging (PAL) Group A Report to Congress
(Washington, D.C.: Mar. 12, 2010) and U.S. Army, Report to Congress
Regarding Management of Army Lodging (Washington, D.C.: Feb. 25, 2008).
[18] U.S. Army, Report to Congress Regarding Management of Army
Lodging (Washington, D.C.:, Feb. 25, 2008).
[19] [hyperlink, http://www.gao.gov/products/GAO-07-164].
[20] Army Fiscal Year 2010 Nonappropriated Fund Instrumentalities
Financial Management Operating Guidance, Enclosure 6 (Oct. 29, 2009).
Similar guidance is included in the operating guidance for previous
years.
[21] GAO, Aviation Security: TSA Is Increasing Procurement and
Deployment of the Advanced Imaging Technology, but Challenges to this
Effort and Other Areas of Aviation Security Remain, [hyperlink,
http://www.gao.gov/products/GAO-10-484T] (Washington: D.C.: Mar. 17,
2010).
[22] GAO, Supply Chain Security: Feasibility and Cost-Benefit Analysis
Would Assist DHS and Congress in Assessing and Implementing the
Requirement to Scan 100 Percent of U.S.-Bound Containers, [hyperlink,
http://www.gao.gov/products/GAO-10-12] (Washington, D.C.: Oct. 30,
2009).
[23] GAO, Results-Oriented Cultures: Implementation Steps to Assist
Mergers and Organizational Transformations, [hyperlink,
http://www.gao.gov/products/GAO-03-669] (Washington, D.C.: July 2,
2003).
[24] GAO, Troubled Assets Relief Program: One Year Later, Actions Are
Needed to Address Remaining Transparency and Accountability
Challenges, [hyperlink, http://www.gao.gov/products/GAO-10-16]
(Washington, D.C.: Oct. 8, 2009).
[25] National Defense Authorization Act for Fiscal Year 2008, Pub. L.
No. 110-181 § 2808 (2008).
[26] The House Report accompanying the Military Quality of Life and
Veterans Affairs, and Related Agencies Appropriations Bill of 2006
directed DOD to report on the status of each Military Housing
Privatization Initiative project underway, on a no less than
semiannual basis. H.R. Rep. No. 109-95, at 25 (2005).
[27] The 11 installations that the Army recommends for the next group
of privatization are Fort Wainwright, Alaska; Fort Huachuca, Arizona;
Fort Gordon, Georgia; Fort Campbell, Kentucky; Fort Knox, Kentucky;
Fort Leonard Wood, Missouri; White Sands Missile Range, New Mexico;
Fort Hamilton, New York; Fort Buchanan, Puerto Rico; Fort Bliss,
Texas; and Fort Belvoir, Virginia.
[28] See, for example, GAO, Critical Infrastructure Protection: DHS
Needs to Fully Address Lessons Learned from Its First Cyber Storm
Exercise, [hyperlink, http://www.gao.gov/products/GAO-08-825]
(Washington, D.C.: Sept. 9, 2008) and Defense Transportation: DOD Has
Taken Actions to Incorporate Lessons Learned in Transforming Its
Freight Transportation System, [hyperlink,
http://www.gao.gov/products/GAO-07-675R] (Washington, D.C.: May 8,
2007).
[29] The National Defense Authorization Act for Fiscal Year 2008, Pub.
L. No. 110-181 § 2808 (2008), limits privatization of lodging
facilities to the 13 installations identified in the law until 120
days after the Army's report to Congress on lodging privatization,
which was issued in March 2010.
[30] [hyperlink, http://www.gao.gov/products/GAO-08-825].
[31] Assistant Secretary of the Army (Installations and Environment),
Privatization of Army Lodging (PAL) Group A Report to Congress
(Washington, D.C.: Mar. 12, 2010) and U.S. Army, Report to Congress
Regarding Management of Army Lodging (Washington, D.C.: Feb. 25, 2008).
[32] GAO, Military Housing Privatization: DOD Faces New Challenges Due
to Significant Growth at Some Installations and Recent Turmoil in the
Financial Markets, [hyperlink, http://www.gao.gov/products/GAO-09-352]
(Washington, D.C.: May 15, 2009) and [hyperlink,
http://www.gao.gov/products/GAO-07-164].
[End of section]
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