Unaccounted costs for privatization of military housing nag GAO.

The Department of Defense estimates that approximately 180,000 resident homes (or 60 percent) of its family housing inventory in the United States is inadequate and in need of renovation or replacement. DoD said if it uses traditional military construction, the cost would he as much as $16 billion and take more than 20 years to complete compared to the current goal of completion by 2007.

A report raising questions about the actual costs involved with the Military Housing Privatization Initiative was released in October by the General Accounting Office, which charged that it will be difficult to assess if the program is meeting expectations and it will become increasingly harder to make that call as the program progresses. The GAO did, though, fall short of saying that the success of the program is at risk.

According to the report, Military Housing: Better Reporting Needed of the Status of the Privatization Program and the Costs of Its Consultants, data on the number of privatized units that have been renovated or constructed must be collected and reported to Congress routinely, and Congress must know how much the government pays in consulting fees to operate the program--already at $73 million and counting. The information is necessary to assess if the initiative is meeting its objective, which is to cost effectively and quickly address the issue of inadequate family housing for the military.

There were two prior military housing initiatives in years past that were deemed failures. Tracking the progress and making available reliable data on the numbers and cost is important in terms of assuring developers and the government that the current endeavor will succeed.

Adding to that dollar figure are unaccounted expenditures by the Office of the Secretary of Defense (OSD), which is not required to divulge its costs for consultants in its quarterly report to Congress, despite the fact that a report is mandated. Another $10 million in consulting costs have been incurred since the program began in 1996, but they were not earmarked for a particular military installation, according to officials at OSD's Housing and Competitive Sourcing. OSD has shaved its cost to an average $1 million a year since 1998 when program control was shifted to its office, the report found.

A military source said the DoD "generally agreed" with the report. "The improvements were prudent," the source said. "Consultants can offer [the military] cutting-edge financial deals, and the business expertise they offer is necessary for the beginning, middle and end of an award and post award [of the contract] as well."

While Congress receives the basic information about awards made by the DoD, such as the name and location of the installation, the size of the project, when the award is made and who got it, the source said, Congress does not know the actual progress of developers. That is the information it wants. "We plan to regularly provide information about renovations and new construction," said the source, noting that collecting accurate data about a developer's progress is a cumbersome process that will have to be overcome.

"Until the Office of Secretary of Defense provides a common definition of the types of cost to be included in determining privatization support costs, including consultant costs, the military services will continue to budget inconsistently.... OSD will continue to [include] inconsistent data from the services to report consultant costs in its quarterly report to Congress," the report said. At issue is the fact that each branch of the military has its own privatization program. So, there is no uniform housing initiative that can serve as a measure for comparison. In essence, each branch has its own fiefdom.

According to the GAO, the military's costs for consultants are less than half their support costs for military privatization expenses, such as civilian salaries, training and travel, and are expected to peak in FY 2004. Then, the need for these consultants will diminish as the remaining contracts with developers are signed and the remaining support costs shift to portfolio management. In FY 2002, consultant costs were an estimated $24 million and a total of $73 million as of March 2003. At $34 million, the Army spent more than twice the amount in consultant fees than both the Navy and Marine Corps.

Consultants are hired by the military to provide a variety of services not limited to advice and assistance in developing a project, drafting solicitations, making pre-award evaluations, providing financial and real estate analysis, and such site work as environmental assessments, land boundary surveys and supervision, inspection and overhead construction activities. Not all branches hire consultants to do the same jobs and not all jobs are performed by all branches. Some jobs are handled in-house.

Because it can take several years for developers to renovate or build new multifamily housing, the status is not routinely tracked at OSD or reported to Congress, although it is available at the local level, according to the GAO.

As of March 2003, the military services had signed contracts privatizing about 28,000 housing units and planned to privatize an estimated 140,000 by the end of FY 2005. Since March, about 7,600 units have been constructed or renovated. The military services plan to privatize 72 percent of their family housing inventory by FY 2007, which is three years ahead of their initial target.

For the full report, including GAO's recommendations on tracking complete and consistent data on the progress of the development of military housing, visit www.gao.gov/cgi-bin/ getrpt?GAO-04-111.