Defense Infrastructure: Continuing Challenges in Managing DOD
Lodging Programs as Army Moves to Privatize Its Program
(15-DEC-06, GAO-07-164).
The Department of Defense (DOD) transient lodging programs were
established to provide quality temporary facilities for
authorized personnel, and reduce travel costs through lower rates
than commercial hotels. DOD has approximately 82,000 temporary
duty (TDY) and permanent-change-of-station (PCS) rooms worldwide,
and reported that it cost about $860 million in appropriated and
nonappropriated funds to operate them in fiscal year 2005. While
the Army plans to privatize its lodging in the United States,
there are concerns as to whether these plans are cost-effective,
and how they relate to DOD-wide lodging efforts. GAO was asked to
address (1) how each military service and DOD manages, funds, and
assesses the performance of its lodging programs to meet short-
and long- term needs, and (2) the effect that lodging
privatization would have on the costs to the Army and the ability
to maintain and recapitalize facilities. GAO is also providing
information on DOD's actions to implement prior recommendations
regarding the lodging program. GAO obtained data from the Office
of the Secretary of Defense, the military services and visited
nine military installations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-164
ACCNO: A64184
TITLE: Defense Infrastructure: Continuing Challenges in Managing
DOD Lodging Programs as Army Moves to Privatize Its Program
DATE: 12/15/2006
SUBJECT: Appropriated funds
Cost analysis
Data integrity
Facility management
Funds management
Housing programs
Military appropriations
Military facilities
Performance measures
Privatization
Program evaluation
Standards
Strategic planning
Benefit-cost tracking
Program goals or objectives
Temporary duty assignments
DOD Military Housing Privatization
Initiative
Permanent Change of Station (PCS)
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-07-164
* [1]Results in Brief
* [2]Background
* [3]Privatization of Army Lodging
* [4]Services Use Decentralized Approach to Manage and Fund Lodgi
* [5]Management and Funding Approaches Differ
* [6]Lodging Programs Lack Business-based Performance Standards a
* [7]Promoting Customer Satisfaction
* [8]Determining Program Costs
* [9]Maintaining and Recapitalizing Lodging Facilities
* [10]Army's Privatization Plans Could Upgrade Facilities Faster b
* [11]Army Expects Privatization to Provide Adequate Facilities Fa
* [12]Army Would Incur Increased Travel Costs
* [13]Other Potential Operating Challenges of Lodging Privatizatio
* [14]Oversight and Accountability for Privatization of Army Lodgi
* [15]Revised DOD Lodging Policy Does Not Provide Clear Performanc
* [16]Conclusions
* [17]Recommendations for Executive Action
* [18]Agency Comments and Our Evaluation
* [19]Appendix I: Scope and Methodology
* [20]Appendix II: Military Services' Previous Lodging Public-Priv
* [21]Appendix III: Comments from the Department of Defense
* [22]Appendix IV: GAO Contact and Staff Acknowledgments
* [23]GAO Contact
* [24]Acknowledgments
* [25]Order by Mail or Phone
Report to Congressional Requesters
United States Government Accountability Office
GAO
December 2006
DEFENSE INFRASTRUCTURE
Continuing Challenges in Managing DOD Lodging Programs as Army Moves to
Privatize Its Program
GAO-07-164
Contents
Letter 1
Results in Brief 3
Background 4
Services Use Decentralized Approach to Manage and Fund Lodging Programs 9
Army's Privatization Plans Could Upgrade Facilities Faster but Will
Increase Government Costs and Create Other Challenges 18
Revised DOD Lodging Policy Does Not Provide Clear Performance Standards 26
Conclusions 27
Recommendations for Executive Action 28
Agency Comments and Our Evaluation 28
Appendix I: Scope and Methodology 30
Appendix II: Military Services' Previous Lodging Public-Private Ventures
32
Appendix III: Comments from the Department of Defense 34
Appendix IV: GAO Contact and Staff Acknowledgments 36
Tables
Table 1: Magnitude of DOD's TDY and PCS Lodging Programs 6
Table 2: Lodging Occupancy by Percent of Official and Unofficial Travelers
(Fiscal Year 2005) 6
Table 3: Comparison of Average Daily Room Rates by Lodging Program for
Fiscal Year 2005 11
Table 4: Lodging Capital Expenditures by Military Service for Fiscal Years
2003 through 2005 18
Table 5: Comparison of Alternatives to Improve Army Lodging 20
Table 6: Army Comparison of Costs between Government-owned and Privatized
Lodging for Group A Installations 21
Table 7: Military Services' Previous Lodging Public-Private Ventures 33
Figures
Figure 1: Appropriated and Nonappropriated Funding for Lodging Programs by
Military Service for Fiscal Years 2003 through 2005 12
Figure 2: Lodging Program Expenses per Room for Fiscal Year 2005 16
Abbreviations
DOD Department of Defense
DSR discontinued service retirement
LCA Lodging Capital Assessment
LDMP lodging development and management plan
MHPI Military Housing Privatization Initiative
MWR morale, welfare, and recreation
OMB Office of Management and Budget
OSD Office of the Secretary of Defense
PAL Privatization of Army Lodging
PCS permanent-change-of-station
TDY temporary duty
U.S.C. United States Code
VERA voluntary early retirement authority
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
December 15, 2006
The Honorable Ike Skelton Ranking Minority Member The Honorable Solomon
Ortiz Ranking Minority Member Subcommittee on Readiness The Honorable Vic
Snyder Ranking Minority Member Subcommittee on Military Personnel
Committee on Armed Services House of Representatives
The Department of Defense (DOD) principally operates two types of hotels,1
or lodges, to support official travelers. The first type, called temporary
duty (TDY) lodges, primarily supports military and civilian personnel
temporarily traveling on official business. The second, called
permanent-change-of-station (PCS) lodges, primarily supports military
personnel and their families who are moving to new duty stations. These
lodges are intended to provide military travelers and their families with
a clean, affordable place to stay while they prepare to move and while
they wait for permanent quarters at their new duty stations. According to
the 1999 DOD Lodging Strategic Plan, the program goals are to (1) promote
customer satisfaction through exceptional service, (2) develop a
professional management team and motivated workforce, (3) employ a
corporate approach to enhance business-based methods of operation, (4)
develop and manage the lodging facilities, (5) assure sound financial
management and accountability reflective of the hospitality industry, and
(6) pursue efficiencies through interservice cooperative efforts. In March
2002,2 we recommended that DOD should provide the military services with a
policy framework, including improved lodging guidance, to help achieve
DOD's lodging program management objectives.
1The services also operate recreational lodging and lodging used by
individuals visiting patients in military treatment facilities, which are
not covered in this report.
2GAO, Defense Management: Proposed Lodging Policy May Lead to
Improvements, but More Actions Are Required, [26]GAO-02-351 (Washington,
D.C.: Mar. 18, 2002).
DOD has approximately 82,000 transient lodging rooms. The Army and the Air
Force each manages its TDY and PCS lodging under the same organization,
while the Navy and Marine Corps both opt to have separate organizations
manage TDY lodges and PCS facilities. Over the past decade the Army, Air
Force, and Navy have entered into limited public-private ventures to
construct and operate lodging facilities. Recently, the Army announced
plans to privatize its entire domestic lodging program utilizing the
Alternative Authority for Acquisition and Improvement of Military Housing
legislation, commonly referred to as Military Housing Privatization
Initiative (MHPI) legislation.3
You requested that we review the services' lodging programs. Our
objectives were to (1) describe how each military service manages, funds,
and assesses the performance of its lodging program to meet short- and
long-term needs; and (2) assess the effect that privatization of lodging
would have on the cost to the Army, and on its capability to maintain and
recapitalize lodging facilities. Additionally, we are providing
information concerning the status of GAO's prior recommendations regarding
DOD lodging programs.
To determine how the military services manage and fund their lodging
programs, we reviewed DOD and military service lodging policies and
regulations and interviewed key officials in the Office of the Secretary
of Defense (OSD) and the military services responsible for lodging
programs. We analyzed the appropriated and nonappropriated fund support
for lodging between fiscal years 2003 and 2005. Furthermore, we visited
eight military installations (two in each military service) to determine
how each of the services manages and supports its lodges and to observe
their physical condition. To identify and assess Army plans to privatize
lodging in the United States, we interviewed officials within the Office
of the Assistant Secretary of the Army (Installations and Environment) and
analyzed documentation used to support its decision to privatize lodging.
We also interviewed service officials and developers involved in previous
lodging public-private ventures to identify lessons learned from these
efforts. Finally, we met officials in the Office of the Secretary of
Defense (Personnel and Readiness) to determine the status of implementing
GAO's prior recommendation to improve DOD lodging guidance. We conducted
our work from December 2005 through October 2006 in accordance with
generally accepted government auditing standards. Further details on our
scope and methodology are described in appendix I.
310 U.S.C. SS 2871-2885.
Results in Brief
Each military service takes its own approach to manage and fund its
lodging programs, but current DOD lodging guidance does not establish
detailed performance measures needed to assess program effectiveness. The
Army and the Air Force each manages its TDY and PCS lodging under a single
organization, while the Navy and Marine Corps opt to have separate
organizations manage TDY lodges and PCS facilities. The Marine Corps
manages PCS lodging separately because it is operated as a nonappropriated
fund, revenue-generating, morale, welfare, and recreation (MWR) program,
and the Navy manages PCS lodging separately because it operates it almost
exclusively with nonappropriated funds. The military services' lodging
programs receive varying levels of appropriated and nonappropriated fund
support. The level of appropriated fund support allocated influences the
amount the programs charge for room rates. For example, since the Air
Force allocates more appropriated fund support for program expenses, it
charges less than the Navy PCS program, which is sustained with the
revenues generated from room rates. Determining total program costs across
the services is challenging, as some of the data reported to OSD are
estimated and are difficult to collect. While OSD has established a
lodging strategic plan, it has not established performance measures to
assess whether the plan's goals are being achieved, and the extent to
which the military services have taken the initiative to determine how
program effectiveness varies. For example, Navy PCS lodging is the only
program that, across all installations, collects and analyzes customer
feedback, conducts systematic performance reviews, and compares
performance against industry benchmarks.
The Army believes privatizing its lodging may provide for faster
improvement and long-term sustainment of lodging facilities as well as
achieve savings, but our analysis shows privatization could increase
government costs. Further, privatization could create some operating
challenges that have implications beyond the Army. Under the Army's PAL
(Privatization of Army Lodging) program, the Army projects a developer
will renovate existing or construct new lodging facilities in 7 years (by
2014), and provide for adequate sustainment of lodging facilities over the
50-year project life. In contrast, the Army projects it would take over 20
years and cost about $1.1 billion to upgrade all lodging facilities under
current plans, which do not provide for adequate long-term sustainment.
However, we found that privatization of lodging while providing faster
recapitalization and sustainment of facilities, will likely increase costs
to the government by about $75 million per year through increased lodging
fees if all lodging facilities in the United States are privatized with
those costs borne by the operations and maintenance and military personnel
appropriation accounts. According to Army officials, the projected
increased cost would be offset to some degree by a reduction in the
appropriated funding that currently supports lodging operations for such
items as utilities and police and fire protection, but the amount of such
savings is difficult to gauge. In addition, the Army currently estimates
it will incur a total of about $17.3 million in onetime costs for
severance pay ($12.7 million) and discontinued service retirement
annuities ($4.6 million) for lodging employees let go because of
privatization. Furthermore, privatization of Army lodging may potentially
reduce current occupancy levels since, once privatized, a facility is no
longer considered government lodging and therefore official travelers will
no longer be required to stay there. Additionally, privatization could
create rate disparities among bases and between official and unofficial
travelers, as well as lead to inconsistencies in room rates among services
at joint bases.
The Office of the Under Secretary of Defense for Personnel and Readiness
issued a revised lodging instruction on October 6, 2006. However, the
instruction lacks detailed performance standards and measures and does not
resolve the question as to which office within the Office of the Secretary
of Defense is responsible for providing lodging policy and oversight of
privatized lodging facilities.
We are making recommendations for executive action designed to help DOD
improve its lodging program management and oversight and to help ensure
the successful implementation of the Army's privatization of lodging. In
commenting on a draft of this report, DOD concurred with both of our
recommendations and indicated planned actions and timeframes for
accomplishing them.
Background
DOD's lodging programs were established to maintain mission readiness and
improve productivity, and were intended to provide good quality temporary
lodging facilities and service for authorized personnel. They were also
created with the goal of reducing official travel costs for DOD's mobile
military community by charging room rates lower than those of commercial
hotels. Within the Office of the Secretary of Defense, the Office of the
Under Secretary of Defense (Personnel and Readiness) has issued the
majority of guidance governing TDY and PCS lodging program and resource
management, although the Office of the Under Secretary of Defense
(Acquisition, Technology and Logistics) has established some lodging room
quality standards within its housing management guidance and is
responsible for the housing privatization efforts. Further, while DOD
Instruction 1015.11 states that the Principal Deputy Under Secretary of
Defense (Personnel and Readiness) is to provide lodging oversight,
guidance, and procedures to ensure proper administration and management of
DOD lodging programs and monitor compliance with these procedures and
guidance,4 DOD Directive 4165.63 states that DOD housing (the
responsibility for management of which rests with the Under Secretary of
Defense for Acquisition, Technology, and Logistics) "encompasses housing
for accompanied and unaccompanied personnel and temporary lodging
facilities."5 Each of the services also has policies to guide the
administration of its lodging programs.
In 1999, the Office of the Under Secretary of Defense (Personnel and
Readiness) developed the DOD Lodging Strategic Plan and DOD Lodging
Program Standards, and neither have been revised or updated subsequently.
The program goals established in the lodging strategic plan are to (1)
promote customer satisfaction through exceptional service, (2) develop a
professional management team and motivated workforce, (3) employ a
corporate approach to enhance business-based methods of operation, (4)
develop and manage the lodging facilities, (5) assure sound financial
management and accountability reflective of the hospitality industry, and
(6) pursue efficiencies through interservice cooperative efforts. The DOD
Lodging Program Standards task the military services with applying these
program standards and developing detailed operating standards as
appropriate, so each of the services also has policies to guide the
administration of its lodging programs.
DOD has approximately 82,000 transient lodging rooms.6 The major
differences between TDY and PCS lodges are the number of rooms in their
inventory and the type of traveler they primarily serve. Table 1 shows the
magnitude of DOD's lodging programs.
4Department of Defense Instruction 1015.11, Lodging Resource Policy,
Section 5.1.2 (Oct. 6, 2006).
5Department of Defense Directive 4165.63, DOD Housing, Section 2.2 (Jan.
8, 2005).
6The term "rooms" refers to a lodging unit available for sale. Therefore,
while the majority of the units in the DOD inventory are rooms, in some
cases the unit sold for temporary lodging is a bed in a shared space, an
apartment, town home, or house.
Table 1: Magnitude of DOD's TDY and PCS Lodging Programs
Number of roomsa
Service TDY PCS Total
Armyb 19,000
Air Force 27,000 3,000 30,000
Navy 26,000 3,000 29,000
Marine Corps 3,000 900 3,900
Total 75,000 7,000 82,000
Source: Military services.
aNumbers are rounded to nearest thousand except for Marine Corps PCS
number which is rounded to the nearest hundred.
bThe Army does not distinguish rooms and facilities as TDY or PCS. Both
types of travelers are tracked, however, and there are different room
styles to accommodate their needs.
Transient lodging serves various military and civilian travelers. TDY
lodges serve mainly individual military or civilian travelers who are
temporarily assigned to a duty station other than their home station. PCS
lodges mainly serve military personnel and their families who are changing
permanent duty stations. On a space-available basis, TDY and PCS lodges
can accommodate some kinds of "unofficial travelers," such as military
retirees and relatives and guests of service members assigned to the
installation.
Total occupancy rates vary by program, ranging from 75 to 92 percent for
fiscal year 2005. In addition, lodging occupancy by official and
unofficial travelers varies by service. The Army serves the highest
percentage of official travelers, and the Marine Corps the lowest, as
table 2 shows.
Table 2: Lodging Occupancy by Percent of Official and Unofficial Travelers
(Fiscal Year 2005)
Percent of official travelers
Service TDY PCS Totala Percent of unofficial travelers
Army 83 8 92 8
Air Force 79 9 87a 13
Navy 83 4 88a 12
Marine Corps 64 11 75 25
Source: Military services.
aBecause of rounding, TDY and PCS percentages do not equal "percent
official."
Funds provided for lodging operations originate from two sources:
appropriated funds and nonappropriated funds. DOD Lodging guidance
provides specific guidelines on whether an expense should be paid for with
appropriated or nonappropriated funding.7 DOD Instruction 1015.12 states
that the military services have the authority to waive the fund source
that will create higher nonappropriated expenses for TDY lodging and PCS
lodging not run as an MWR program. Appropriated funds are typically used
for operations and maintenance expenses, such as laundry services and
utilities, and some kinds of minor construction. Nonappropriated funds are
generated from room rate revenues, and each of the lodging programs sets
room rates according to the amount of revenue needed to pay for expenses
not covered by appropriated funds. Nonappropriated funds are used to pay
for a wide variety of expenses, from some employee wages to certain kinds
of replacement furnishings. Funds generated from room rates at TDY lodging
and PCS lodging not run as an MWR program are considered to be
nonappropriated because the traveler pays for the charge at the time of
his or her stay. Most lodging patrons are on official TDY or PCS travel,
however, and are reimbursed with funds appropriated to the military
services for travel either from operations and maintenance or military
personnel accounts. Thus, the majority of funding originates from
appropriated dollars. However, to distinguish funding streams, revenues
from room sales are referred to as nonappropriated funds. According to DOD
financial data, the total amount of appropriated and nonappropriated
funding support for operating the lodging programs was about $857million
for fiscal year 2005.
Room rates at these lodges are intended to be set at the lowest rate
possible to reduce travel costs, yet generate enough revenue to cover
expenses. Some services have added a surcharge8 to the nightly room rate,
which they accumulate and use for lodge construction and major renovation.
Revenues from TDY lodging must be maintained in a separate nonappropriated
fund account, designated as lodging, or billeting, fund.9 DOD Instruction
1015.12 permits military services to operate PCS lodging either (1)
through a lodging or billeting fund, or (2) through an MWR fund. PCS
lodging that is built, maintained, or operated by other than the MWR
program or exchange service must be maintained in a separate fund account,
designated as a lodging, or billeting, fund, and is independent of the
single MWR fund. When PCS needs are met by MWR operating funds, they are
part of the single MWR nonappropriated fund instrumentality and are
operated as a category C revenue generating activity. The Marine Corps
operates its PCS lodging as part of its MWR program, which is operated as
a Category C, revenue generating program. Thus, the lodging revenues are
deposited into the Marine Corps's single MWR nonappropriated fund account,
which can be used to benefit any of the service's MWR programs.
7See, for example, Department of Defense Instruction 1015.12, Lodging
Program Resource Management (Oct. 30, 1996), and Department of Defense
Instruction 1015.10, Programs for Military Morale, Welfare and Recreation
(MWR) (November 1995).
8The Army and the Air Force have added surcharges, while the Navy and the
Marine Corps have not.
9Department of Defense Instruction 1015.12, Lodging Program Resource
Management, Section 4.3.1 (Oct. 30, 1996).
The vast majority of transient lodging facilities are managed and operated
by the military services with civilian workers paid by nonappropriated
funds. Over the past decade, however, the Army, Air Force, and Navy have
entered into limited public-private ventures to construct and operate
lodging facilities on 10 installations with some degree of risk shared
between the government and the private sector. Appendix II provides
additional details concerning the 10 previous public-private lodging
ventures.
Privatization of Army Lodging
According to the Army, approximately 80 percent of Army lodging inventory
needs replacement or major renovation because of persistent funding
shortfalls and the lack of capital investment. The Army estimates that,
absent privatization, it would cost about $1.1 billion and would take more
than 20 years to renovate or build new lodging facilities. Given the cost
and length of time associated with revitalization under the Lodging
Wellness Plan, the Army considered the use of commercial loans and
enhanced-use leasing, before deciding on privatization of lodging
facilities in the United States. The Army is using the same legislation
that allowed the department to privatize its family housing for its
lodging privatization effort.10 Congress established the MHPI in the
National Defense Authorization Act for Fiscal Year 1996. 11 The MPHI
legislation gives the Secretary of Defense the authority to (with certain
restrictions) provide direct loans, rental guarantees, ground leases, and
other incentives to encourage private developers to construct and renovate
housing. Under the Army's PAL program, the selected developer will receive
a 50-year ground lease and will be responsible for asset, property, and
maintenance management.
1010 U.S.C. SS 2871-2885.
11Pub. L. No. 104-106, SS 2801 (codified as amended at 10 U.S.C. SS
2871-2885).
The Army placed installations in the United States into one of three
privatization groups. According to the Army, this was done to mitigate
some of the risk associated with privatization, such as the developer
choosing high-value properties over those in greater need of repair. The
Army planned to select a developer for Group A during September 2006, and
to transfer the lodging in this group to the developer by September
2007.12 The Army plans to transfer installations in Group B by September
2008 and those in Group C by September 2009. The Army anticipates that all
lodging facilities will be renovated or replaced in 7 years, by 2014.
Furthermore, the Army expects the developers to establish a lodging
sustainment and recapitalization fund to maintain the lodging over the
50-year life of the project.
On September 28, 2006, the Army selected a developer for Group A which
must submit a lodging development and management plan (LDMP). According to
the Army PAL program, after approval of the LDMP business plan by
Headquarters, Department of the Army, OSD, and the Office of Management
and Budget (OMB), Congress will have a 45-day period to review the plan
prior to the Army transferring Group A to the developer.
Services Use Decentralized Approach to Manage and Fund Lodging Programs
Each military service takes its own approach to manage and fund its
lodging programs, but current DOD lodging guidance does not establish
performance standards and measures needed to assess program effectiveness.
Management and Funding Approaches Differ
Each of the military services uses a different approach to manage and fund
its transient lodging programs. The Army and the Air Force each manage
their TDY and PCS lodging under one organization, while the Navy and
Marine Corps both opt to have one organization manage TDY lodges and
another one for PCS facilities. The Army and Air Force believe using one
management structure to serve both TDY and PCS travelers is the most
efficient approach. Alternatively, the Navy and Marine Corps believe
operating two separate programs, one for TDY travelers and one for PCS
travelers, is the most efficient approach for meeting their service's
needs. Neither of the two military services currently has plans to merge
management of the lodging programs.
12Group A installations include: Fort Rucker and Redstone Arsenal,
Alabama; Yuma Proving Ground, Arizona; Fort Shafter and Tripler Army
Medical Center, Hawaii; Fort Leavenworth and Fort Riley, Kansas; Fort
Polk, Louisiana; Fort Sill, Oklahoma; Fort Hood and Fort Sam Houston,
Texas; Fort Myer, Virginia; and Fort McNair, Washington, D.C.
The Navy has operated its two programs separately since 1969 when the Navy
PCS lodging program was established to be operated almost entirely with
nonappropriated funds.13 The Marine Corps also operates its TDY and PCS
lodging separately. PCS lodging operates almost entirely with
nonappropriated funds through the Marine Corps's MWR program and generates
a profit, which is not allowed for TDY lodging. The room revenues from the
Marine Corps's PCS lodging are deposited in the Marine Corps Community
Service account, which also contains funds from other MWR activities and
the Marine Corps Exchange Service. In return, the PCS lodging program
receives overhead services, such as personnel and accounting, and funds
for major repairs or new construction projects. By contrast, all of the
other lodging programs have a separate financial account that must at
least "break even" on an annual basis, receiving and generating just
enough revenues to operate and sustain the program and facilities.
The military services' lodging programs receive varying levels of
appropriated and nonappropriated fund support. The level of appropriated
fund support allocated influences the amount the programs charge for room
rates. Nonappropriated funds are generated through room sales, and each of
the lodging programs sets room rates according to the amount of revenue
needed to pay for expenses not covered by appropriated funds. For example,
the Navy and Marine Corps allocate very limited amounts of appropriated
funding to their PCS lodging, so the room rates are higher to generate
more nonappropriated funds for program expenses.14 Room rates are also
influenced by surcharges that the Army and Air Force charge to raise
revenue for room and facility improvements. As table 3 illustrates,
average daily room rates vary considerably across the programs, ranging
from $14 to $65.
13The Navy lodges overseas receive appropriated fund support for
utilities.
14According to DOD lodging policy, since the Marine Corps's PCS lodging is
a profit-generating MWR program and Category C lodging program, it is
entitled to receive fewer appropriated funds than the other five lodging
programs, which are Category A lodging programs.
Table 3: Comparison of Average Daily Room Rates by Lodging Program for
Fiscal Year 2005
Military services' Room rate includes daily surcharge Total average daily
lodging programs for adequate roomsa room rate
Army $10 $37
Air Force
TDY 7 29
PCS 6-8 33
Navy
TDY n.a. 14
PCS n.a. 65
Marine Corps
TDY n.a. 19
PCS n.a. 57
Source: Military services.
Note: n.a.=not applicable; there is no surcharge.
aA surcharge is an assessment added to the daily room rate to be used in
the future for capital improvements to lodging facilities. The Army
initiated its surcharge in fiscal year 2000. The Air Force began applying
the assessment for PCS facilities in 1982 and TDY facilities in 1996.
Navy PCS is the only program that accrues all future capital expenditures
through room revenues, while the other programs benefit from other sources
of support, such as appropriated funds, shared construction funds, or
lodging surcharges. A Navy official explained that this is one reason why
the Navy PCS average daily room rate is higher than other programs' rates.
For fiscal year 2005, five of the six programs' room rates were lower than
the $60 standard per diem lodging rate, and all were lower than the $89
average per diem lodging rate for nonstandard areas. The per diem rates
are what a traveler could expect to pay, on average, and subsequently be
reimbursed for, while staying off-base in a commercial hotel. The DOD room
rates do not necessarily include all sources of program support. However,
so comparing room rates to the per diem lodging rates is not an
appropriate measure of cost efficiency or program value.
The amount of appropriated funds and nonappropriated funds the services
reported spending on lodging program expenses for fiscal years 2003
through 2005 varied considerably as seen in figure 1.
Figure 1: Appropriated and Nonappropriated Funding for Lodging Programs by
Military Service for Fiscal Years 2003 through 2005
Note: These data were officially reported to OSD by the military services
via 1015.15 DOD lodging reports. Nonetheless, Navy officials raised
concerns over the consistency of the data being reported across the
services.
The Air Force, Navy TDY program, and Marine Corps PCS program all
experienced a decrease in appropriated fund support allocated for lodging
program operations between fiscal years 2003 and 2005. The change in
appropriated funds for the Navy's TDY program was significant, falling
from an estimated $48.7 million to $17.8 million, while nonappropriated
funds provided for the program rose from $85.7 million to $109.9 million.
Navy officials told us that appropriated funds allocated to this program
decreased due to Navy-wide funding reductions. According to data from
fiscal years 2003 through 2005, the Air Force allocates the greatest total
amount of appropriated fund support for program operations among the
military services, but it also has the largest number of rooms in its
inventory.
Lodging Programs Lack Business-based Performance Standards and Measures to
Assess Program Effectiveness
Current DOD lodging guidance does not establish detailed performance
standards and measures needed for monitoring and assessing program
effectiveness. The Office of the Under Secretary of Defense (Personnel and
Readiness), in conjunction with the military services, developed the DOD
Lodging Strategic Plan and the DOD Lodging Program Standards in 1999, but
these documents have not been updated or revised since then. The lodging
program standards provide minimum requirements for program services and
amenities, but task the military services with developing detailed
operating plans. While the strategic plan establishes a mission statement
and a list of goals for the DOD lodging programs, the Office of the Under
Secretary has not created performance measures to assess progress in
achieving these goals.
DOD lodging officials with work experience in private hotels told us that
it is a common practice in the hospitality industry to use benchmarks to
track progress and determine success. For example, Smith Travel Research
annually publishes the Hotel Operating Statistics study, which provides an
overview of U.S. lodging industry performance, drawing data from the
operating statements of over 5,100 hotels. Some of the business-based
measures reported in the study include room occupancy, average daily room
rate, revenue per available room, and the number of rooms available and
sold, among others. While DOD lodging programs are collecting and
reporting some of these measures, lodging officials are unclear how the
data is being used, since performance standards have not been established.
In addition, some lodging officials expressed concerns about the
reliability and consistency of the cost and program data, which will be
discussed in greater detail below. Among the various reasons for this, the
officials noted that DOD has not provided common definitions and guidance
about how the data should be collected and reported. For consistent data
collection and reporting, private hotels can use common definitions and
calculations established in the Uniform System of Accounts for the Lodging
Industry, issued by the Educational Institute of the American Hotel and
Lodging Association.
Each fiscal year the military services submit the following reports to the
Under Secretary of Defense (Personnel & Readiness) for each lodging
program:
o a financial report that includes income and expense information;
o a lodging standards status report, which shows the proportion of
facilities and rooms that provide the required services and
amenities; and
o a program report, which includes descriptive information and
some summary statistics, such as the occupancy rate, average daily
room rate, number of rooms sold, and room revenue.
The data in these reports are primarily descriptive and are not
linked to performance measures of program efficiency and
effectiveness, which limits their utility. In previous work, GAO
has found that developing measurable performance standards coupled
with ongoing monitoring and reporting on program performance can
help program managers and Congress determine whether goals are
being achieved. Given the variety of approaches that the military
services have taken to operate the lodging programs, it is
difficult to evaluate and compare their respective efficiency and
effectiveness without commonly defined measures of success. In the
absence of performance measures and reports, we used our
discussions with lodging program officials and available data to
describe the steps that the lodging programs have taken to meet
the program goals and objectives from the DOD Lodging Strategic
Plan.
Promoting Customer Satisfaction
The degree to which the military services' lodging programs
solicit customer feedback is limited. DOD guidance requires that
lodging programs periodically measure customer demand, usage, and
satisfaction and act upon these findings,15 but no other specific
guidance is provided.16 The Navy PCS program provides a customer
satisfaction survey to every guest, and in 2005, an independent
contractor calculated a customer satisfaction rate of 95 percent.
By contrast, none of the other lodging programs are systematically
tracking customer satisfaction centrally, though some
installations may be soliciting customer feedback. Annually, the
lodging programs report their overall lodging occupancy rate for
the year, but because no standard way to calculate occupancy has
been defined or used by all of the military services, it is
unclear whether the figures can be compared across programs. For
example, some programs could calculate the figure using total
rooms in their inventory, while other programs could exclude rooms
undergoing service or renovation.
Determining Program Costs
DOD lodging was established with the goal of saving military
travel funds by providing temporary lodging at a lower overall
cost than paying for travelers to stay at commercial hotels.
However, neither OSD nor the military services measure and report
on cost effectiveness of their lodging programs. In addition, the
cost data reported by the military services to OSD annually may
not adequately reflect total lodging program costs, because
lodging program officials stated that determining some
appropriated fund support can be difficult. For example, some
support services, such as snow removal, laundry, or fire and
police protection, are paid for by the installation, and costs are
not tracked by program. Therefore, lodging officials must estimate
the value of the portion of the indirect appropriated fund support
that was spent on lodging. For example, the Navy PCS program is
the only lodging program that can determine actual electricity
costs, while the other programs all estimate utilities expenses.
During our review we identified the following issues with the
lodging costs reported by the military services for fiscal year
2005.
o The Army reported a total of $6.2 million in appropriated funds
support for fiscal year 2005 to OSD. However, the Army later
collected data directly from every installation as part its
privatization effort that indicated appropriated fund support for
the same time period was actually about $27.9 million; this
included increased costs for personnel salaries, utilities,
repairs, laundry, and supplies. In addition, while gathering
information at the installation level for its privatization
initiative, Army officials found great inconsistencies in the way
that cost data and other information, such as the average daily
room rate, were collected and calculated across installations.
o The Marine Corps PCS program reported total expenses of about
$9.6 million for fiscal year 2005, however this figure does not
include support services paid for out of the Marine Corps
Community Services account, which are reported to OSD in aggregate
but are not tracked by program. Marine Corps officials estimate
the value of the support services to the PCS lodging program was
about $3.7 million for fiscal year 2005.
o The Navy's TDY program does not use a consistent approach across
installations to estimate utilities and collect other types of
appropriated fund support, which raises questions about the
reliability of the data. In addition, when following up on what
appeared to be an unusual trend in program funding, we found that
the Navy TDY program mistakenly overreported to OSD the amount of
appropriated funds support the lodging program received in fiscal
years 2003 and 2004 by approximately $120 million total, which it
later corrected.
o Similarly, after GAO observed significant increases in the Air
Force's nonappropriated funds expenditures for fiscal year 2005,
the Air Force realized it mistakenly overreported the amount of
nonappropriated fund support by about $120 million. The Air Force
attributed this to a clerical error and corrected the report.
To compare estimated total program costs across the military
services' lodging programs, which vary considerably in size, we
standardized financial data reported to OSD on a per room basis.
Daily program expenses per room varied considerably across
programs for fiscal year 2005, ranging from $13 to $47 as seen in
figure 2.
Figure 2: Lodging Program Expenses per Room for Fiscal Year 2005
Notes: Reported expenses were paid with both appropriated and
nonappropriated funds. Capital expenditures for the year are
excluded from this chart, as the amounts are large, vary from year
to year, and would skew the program costs when looking at only one
fiscal year.
These data were officially reported to OSD by the military
services via 1015.15 DOD lodging reports. Nonetheless, Navy
officials raised concerns over the consistency of the data being
reported across the services. This analysis did not include
consideration of the military service's occupancy rates.
We also included the other estimated program expenditures
identified by the Army and Marine Corps that were not included in
the financial report to OSD, as previously discussed in this
section of the report.
Maintaining and Recapitalizing Lodging Facilities
DOD lodging guidance sets forth basic guidance on quality
standards, such as minimum room size and specific amenities that
must be provided.17 In addition, the military services report
annually how many of their facilities have a furnishing
replacement plan, and a short- and long-term maintenance plan.
However, each lodging program determines its particular strategy
for maintaining and upgrading its rooms, as well as planning for
facilities upgrades, such as major renovations or construction.
For example, the Army currently relies on its Army Lodging
Wellness Plan to repair, renovate, and replace its outdated
lodging facilities. According to the Army, approximately 80
percent of its lodging inventory is currently in need of
replacement or major renovation. The lack of a recapitalization
component for long-term facility sustainment is part of what led
the Army to consider privatization. On the other hand, the Air
Force has developed additional guidance on what amenities
facilities and rooms should include. The Air Force estimates that
9 percent of its rooms are what it considers to be inadequate, and
it has implemented a room surcharge to save for capital
improvements. The Navy and Marine Corps's TDY programs follow the
DOD Lodging Standards, and maintenance and recapitalization plans
are made at the installation level. Neither program has assessed
the adequacy of room quality programwide. Meanwhile, the Navy and
Marine Corps's PCS lodging officials stated that there are no
inadequate rooms in the PCS lodging inventory and all rooms meet
DOD Lodging Standards. The Navy conducts annual inspections of
each PCS facility, evaluating not only the physical condition, but
also service standards, management responsibilities, and financial
procedures. Moreover, an independent company rated the Navy's PCS
lodging the fifth cleanest hotel in the United States in 2005,
based on customer interviews.
Table 4 shows the amount the lodging programs reported spending on
capital expenditures, which includes new construction and major
renovations of facilities and major equipment purchases for fiscal
years 2003 through 2005. These figures exclude operating funds
spent on minor renovations, and repair and maintenance. As the
table illustrates, the services have relied almost entirely on
nonappropriated funds for capital expenses.
15Department of Defense Instruction 1015.12, Lodging Program Resource
Management, Section 4.4.2.1 (Oct. 30, 1996).
16Department of Defense Instruction 1015.12.
17DOD 4165.63-M, DOD Housing Management (September 1993).
Table 4: Lodging Capital Expenditures by Military Service for Fiscal Years
2003 through 2005
Dollars in thousands
Fiscal year 2003 Fiscal year 2004 Fiscal year 2005
Service Nonappropriated Appropriated Nonappropriated Appropriated Nonappropriated Appropriated
Army $41,726 $0 $54,067 $0 $37,117 $0
Air 47,965 18,900 102,325 0 94,249 0
Force
Navy 0 0 0 0 0 49,000
TDY
PCS 22,033 0 17,907 0 12,946 0
Marine 218 0 851 0 1,843 0
Corps
TDY
PCS 14,026 0 407 0 2,380 0
Source: Military services' data on 1015.15 reports provided to OSD.
Note: The amounts shown include military construction, major renovations,
and equipment purchases; the amounts shown do not include operating funds
spent on minor renovations, repair, and maintenance.
Army's Privatization Plans Could Upgrade Facilities Faster but Will Increase
Government Costs and Create Other Challenges
The Army believes the lodging developer will renovate existing or
construct new lodging facilities sooner--in 7 years by 2014--than
otherwise planned by the Army, and provide for adequate sustainment of
lodging facilities over the 50-year project life. While this should result
in improved quality of facilities, it will also result in additional cost
to the government through increased lodging fees and will not produce the
savings suggested by earlier Army analysis. Our analysis indicates that
the Army's travel costs could increase by about $75 million per year if
all lodging facilities in the United States are privatized. In addition,
the Army could incur approximately $17.3 million in onetime costs
associated with severance pay and discontinued service retirement
annuities for nonappropriated fund lodging employees who would be let go
if lodging is privatized. Furthermore, privatization of Army lodging may
potentially affect occupancy levels and exacerbate rate disparities among
bases and between official and unofficial travelers, as well as lead to
inconsistencies in room rates among services at joint bases.
Army Expects Privatization to Provide Adequate Facilities Faster with Long-term
Sustainment
The Army believes that the developer will renovate existing or construct
new lodging facilities in 7 years (by 2014), and will provide for adequate
sustainment of lodging facilities over the 50-year project life. In
contrast, if the Army continues with its current Wellness Plan, it
estimates that it would take until 2026 or later to bring all rooms up to
adequate condition. Additionally, the Wellness Plan does not generate
funds for adequate long-term lodging sustainment.
In November 1999, the Army initiated the Army Lodging Wellness Plan to
renovate and replace inadequate lodging. As part of the Wellness Plan, the
Army collects a surcharge, the Lodging Capital Assessment (LCA), for each
room night in Army lodging.18 The income from the surcharge collected on
each room night is placed in the Army Lodging Fund and used to revitalize
Army lodging facilities worldwide. This surcharge generated approximately
$229 million over the last 6 years for the Army Lodging Fund. The Army
spent about $75 million on lodging improvements. In addition, the Army
used $40 million to reimburse the Morale, Welfare, and Recreation Fund for
guest houses, which were transferred to the Army lodging inventory when
PCS travel was recognized as official travel and guest houses as official
government lodging facilities.19
In 2001, in preparation for a study by an independent consulting firm, the
Army estimated that it would cost about $657 million to repair or renovate
Army lodging worldwide. This study was conducted to facilitate the Army's
consideration of a private loan to finance the Army Lodging Wellness Plan.
In 2004, the Army revised its estimate to about $1.1 billion for lodging
revitalization in its U.S. facilities. Using the more recent 2004
estimate, GAO analysis determined that the Lodging Wellness Program would
take approximately 20 years or more to bring all lodging facilities up to
adequate standards.
GAO calculations estimate that the lodging surcharge generates $52.2
million annually in income. Even though the Army Lodging Fund showed a
positive balance of $133.6 million in fiscal year 2005, some of these
funds are already committed to revitalize lodging facilities overseas. If
the amount currently in the Army Lodging Fund is applied entirely to U.S.
facilities, lodging revitalization could take about 17 years to complete.
In either case, it would take at least 20 years to bring rooms and
facilities worldwide up to an acceptable level using the Army Lodging
Wellness approach. Table 5 shows a comparison of alternatives to improve
Army lodging.
18This fee, currently set at $11 a night for adequate rooms, began at $6
per night in 1999 and will cap in 2007 at $12 per room per night. The Army
applies a $0.50 per night surcharge for inadequate rooms and a $1.20 per
night surcharge for foreign students in adequate rooms.
19Prior to 2001, the Army operated guest houses as a profit-generating MWR
program to accommodate military personnel making a permanent change of
station.
Table 5: Comparison of Alternatives to Improve Army Lodging
Dollars in
millions
Year of Army cost Years to Recapitalization/ sustainment
Program estimate estimatea complete included
Army Lodging 2001 $657 13 No
Wellness Plan
2004 1,100 20 No
Privatization 2006 1,630 7 Yes
Source: GAO analysis of Army data.
aRepresents the cost to complete all of the renovation or new construction
needs for all Army lodging facilities in the United States assuming
current demands.
In addition to the ability to revitalize lodging more quickly, the
privatization of Army lodging will provide sustained recapitalization over
the 50-year span of the project. According to the Army, a clause requiring
a recapitalization lock box will be included in the lease with the private
developer, to ensure that funds are available for recapitalization.
Army Would Incur Increased Travel Costs
The Army's plan to privatize its lodging would permit it to leverage the
resources of the private sector to recapitalize and replace its existing
lodging facilities. However, this will likely increase costs to the
government through increased lodging fees and it is unclear to what extent
other savings would occur as suggested by earlier Army analysis.
The Army's initial cost analysis found that, over the 50-year life cycle
of the proposed leasing of Army lodging to a private developer, the
privatization scenario would result in a 16 percent cost savings to the
Army within the 13 installations included in Group A, as shown in table 6.
Table 6: Army Comparison of Costs between Government-owned and Privatized
Lodging for Group A Installations
Dollars in millionsa
Difference
Government Privatized
Category lodging lodging Amount Percent
Room Rates $1,301b $1,608c
Administrative and general expenses 212 d 21e
Appropriated fund employees 12
Capital expenditures (sustainment) 100
New construction, renovation, and 306
demolition
Total life-cycle cost $1,931 $1,629 $302 16%
Source: U.S. Army.
aThe Army used a 3 percent discount rate in the cost comparison.
bRepresents 57% of per diem.
cRepresents 75% of per diem.
dIncludes DPW maintenance, utilities, laundry, Self Service Supply Center
services, fire and police protection, and other miscellaneous support.
eIncludes asset management at each installation for first 2-years and
Lodging Development Master Plan consultation.
We found that the Army's savings estimate was based on government "should
costs," which compared predicted costs under the privatization and the
amounts it "should cost" the government to own, operate, upgrade, sustain,
and recapitalize the same lodging assets as the private developer.
According to the Army, the estimate was prepared in accordance with OMB
and DOD guidelines, which required an estimate based on "should cost."
However, we believe, as we have reported in the past concerning cost
estimates for military privatization projects,20 that it would be more
appropriate to compare the cost of a proposed privatization initiative
with the cost of continued government ownership on the basis of the real
planned expenditures and the timing of these expenditures. The Army
acknowledges that, in the event that lodging is not privatized, the Army
would likely not operate, upgrade, sustain, and recapitalize its lodging
operations and assets as represented in the "should cost" estimate.
According to the Army, it is the lack of upgrades and maintenance to its
lodging facilities that caused it to look to privatization as an option in
the first place. Furthermore, based on its ongoing analysis of lodging
expenses, the Army recently acknowledged that it will cost the Army more
to privatize its lodging than to continue Army ownership. However, despite
the additional cost, the Army believes privatization of lodging is the
best solution because in 7 rather than nearly 20 years, it will result in
better facilities, and have a sustainment and recapitalization component
that is not built into the current rates.
20See [27]GAO-05-433 , Defense Infrastructure: Management Issues Requiring
Attention in Utility Privatization (May 2005).
Our analysis indicates that Army travel costs would increase under lodging
privatization, because the average room rate will increase from the
current 57 percent of per diem to 75 percent of per diem. We estimate that
this will result in an annual increase of about $14.4 million for the
installations in Group A and $74.5 million if the Army privatizes all
lodging in the United States. The Army agrees that travel costs will
increase, but believes that the increased travel cost would likely be
offset by reductions in other appropriated funding for lodging, for items
such as utilities, laundry, and supplies. The Army estimated that
appropriated fund support for the expenses associated with these items,
across the United States, totaled about $27.9 million in fiscal year 2005.
Utilities accounted for about $15.6 million, or 56 percent of the
appropriated fund support, which was calculated based on national averages
for utilities, since individual lodging facilities are not metered.21 The
remainder of the appropriated support was for such items as laundry,
supplies, and salaries. However, during GAO site visits to Army
installations, lodging staff noted that appropriated funding for these
items had diminished in recent years. For example, the lodging program at
Fort Polk, Louisiana, is now responsible for services such as laundry and
supplies, which were previously paid for by the installation with
appropriated funds. At Fort Sam Houston, Texas, another installation
scheduled for the first round of privatization, staff also stated that
nonappropriated funds were used for things such as repairs, which
appropriated funds should have covered. The Army noted that when the
amount of appropriated funds used to support lodging expenses is reduced,
more nonappropriated funds are needed to pay for the expenses. According
to the Army, to generate more nonappropriated funds, generally room rates
must be increased to cover expenses.
21Under the Army's PAL program, the private developer will reimburse the
government for utilities, as well as for all additional support services
provided by the government.
According to Army officials, the Army would also incur a total of about
$17.3 million in onetime costs for severance pay and discontinued service
retirement annuities.22 The Army currently estimates that severance pay
will cost approximately $12.7 million for about 2,000 employees23 (most of
whom are paid with nonappropriated funds) who would be let go if lodging
is privatized. Additionally, the Army estimates that about 59 of the 2,000
employees, in addition to receiving severance pay, may be eligible for a
discontinued service retirement annuity.24 According to the Army, the most
recent cost estimate for discontinued service retirement annuities is
around $4.6 million. However, the exact amount of severance pay and
discontinued service annuities will not be known until lodging at each
installation is privatized and the Civilian Personnel Office calculates
accurate severance pay, and where applicable discontinued service
annuities, for each individual employee. According to the Army officials,
the severance pay and discontinued service retirement annuities will be
paid with nonappropriated funds from the centralized Army Lodging Fund.
Other Potential Operating Challenges of Lodging Privatization
The privatization of Army lodging may potentially affect occupancy levels
and exacerbate rate disparities among bases and between official and
unofficial travelers, as well as promote more notable inconsistencies in
room rates among services at planned joint bases.
If the Army lodging facilities are privatized, the occupancy rates could
decline because official travelers would not be required to stay in the
privatized facilities. Under current regulations, when adequate quarters
are available on the U.S. installation to which a service member is
assigned TDY and the service member uses other lodgings as a personal
choice, lodging reimbursement is limited to government quarters cost on
the U.S. installation to which he was assigned.25 Army officials
acknowledge that initially there may be a decline in demand for on-base
lodging, as it will take some time for the currently inadequate rooms to
be renovated and as some travelers may want to stay off-base simply
because they can. However, Army officials believe that if a decline in
demand does occur it would not last long, because travelers may have
difficulties finding affordable lodging that is located at a reasonable
distance from the post. Our work on DOD's housing privatization efforts
has shown that occupancy rates are below expectations for some projects.
In April 2006 we reported26 that 16, or 36 percent, of 44 awarded housing
privatization projects had occupancy rates below expectations. In an
attempt to increase occupancy and keep rental revenues up, 20 projects
began renting housing units to parties other than military families,
including single or unaccompanied service members, retired military
personnel, civilians and contractors who work for DOD, and civilians from
the general public. Army officials believe that the housing and lodging
markets are sufficiently different that they should not be compared too
closely. For example, they noted that a TDY or PCS traveler generally
stays in lodging for 1 or 2 weeks, while military housing is usually
occupied for 2 or 3 years.
22This is the Army's estimate as of Dec. 4, 2006. The estimate was
prepared using the Army's Civilian Human Resources Agency Report dated
Sept. 30, 2006. According to the Army, the estimate is not complete
because it does not include information for 52 employees located at Fort
Hamilton, New York; and Fort Hunter Liggett, Camp Parks, and Fort BT
Collins, California. The estimate also does not include lodging employees
at installations (Fort Monmouth, New Jersey; U.S. Army Garrison, Selfridge
Air National Guard Base, Michigan; Fort Monroe, Virginia; and Fort
McPherson, Georgia) that will be closed because of Base Realignment and
Closure 2005 actions.
23This number includes all Army lodging employees in the United States and
Puerto Rico.
24The Army's nonappropriated funds retirement plan includes a voluntary
retirement authority and discontinued service retirement benefit when
installations are undergoing a substantial reduction or when an
individual's positions is eliminated due to a business based action.
Furthermore, privatization may lead to changes for unofficial travelers.
Unofficial travelers, who account for 7 percent of those accommodated at
Army lodgings, currently pay the same rate as official travelers. However,
with privatization, the private entity managing Army lodging could charge
unofficial travelers the market rate, which may be higher than the amount
official travelers will pay. Army officials noted that unofficial
travelers should pay market rates; however, the Army has not enforced this
because it wants to minimize the out-of-pocket cost for unofficial
travelers such as retirees or visiting family members.
Privatization of lodging may also create some inconsistencies in lodging
pricing as DOD implements its plans to establish joint bases as directed
by the 2005 base realignment and closure recommendations. Under the
approved recommendations, the management of installation support services,
including lodging, would be consolidated under a single service at various
installations throughout the United States.27 Two installations in the
Army's Group A, Fort Sam Houston and Fort Myer, are included in this
recommendation. While the Army does not believe that privatization will
affect plans for joint basing, we believe it could lead to inconsistencies
in room rates among services at joint bases. For example, a service member
on official travel to the San Antonio area would pay more for a room at
Fort Sam Houston than at either Lackland or Randolph Air Force Bases.
Using current per diem and the projected privatization pricing
allowance,28 a room at Fort Sam Houston would cost $70 per night under
privatization, while a room at either Lackland or Randolph Air Force Base
would cost $27 per night. Officials in the Office of the Under Secretary
of Defense for Personnel and Readiness and the Air Force question whether
the Army should have included installations in the joint basing
recommendation in their initial group of lodging facilities to privatize
because of the uncertainty about how joint bases will operate.
25The Joint Federal Travel Regulations, Uniformed Services, Volume 1,
Chapter 1, Applicability and General Information, Section U1045 (2006).
26GAO, Military Housing: Management Issues Require Attention as the
Privatization Program Matures, [28]GAO-06-438 (Washington, D.C.: Apr. 28,
2006).
Oversight and Accountability for Privatization of Army Lodging Program Will
Follow Military Housing Model
The Army is using the MHPI legislation as its authority to establish the
lodging privatization program. The Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics provides oversight for
MHPI-authorized projects and, according to officials from that office,
will provide oversight for lodging privatization similar to that provided
for military housing privatization. The MPHI legislation has several
provisions that direct the Secretary of Defense to notify Congress of his
actions under certain circumstances. For example, the Secretary of Defense
must submit written notification to Congress before transferring
appropriated amounts29 to certain kinds of funds, as well as submit a
report describing the contracts that the Secretary proposes to solicit
under the MPHI legislation at least 30 days before doing so.30
Additionally, OSD and the military services use the MHPI program
evaluation plan to monitor the physical and financial health of awarded
projects, and evaluate the costs and benefits of privatization.31 The
program evaluation plan requires semiannual reporting to OSD for all
awarded MHPI projects. According to OSD officials, since the Army is using
the same MHPI legislation as authority to privatize its lodging, these
reporting requirements should also be applicable, and would provide the
Congress and OSD with a high-level of oversight as the Army begins to
implement its program. The Army acknowledges that it is aware of the
congressional reporting requirements for MHPI legislation projects and
intends to comply with the requirements as it implements its lodging
privatization plans.
27Department of Defense installations scheduled for joint basing as part
of Base Realignment and Closure 2005 include: Under Army Lead: Fort Lewis,
Fort Myer, Henderson Hall, and McChord Air Force Base; Under Navy Lead:
Anacostia Naval Annex, Anderson Air Force Base, Bolling Air Force Base,
Fort Story, Hickam Air Force Base, Naval Research Laboratory, Naval
Station Norfolk, Naval Station Pear Harbor, and Navy Base Guam; Under Air
Force Lead: Andrews Air Force Base, Charleston Air Force Base, Elmendorf
Air Force Base, Fort Dix, Fort Eustis, Fort Richardson, Fort Sam Houston,
Lackland Air Force Base, Langley Air Force Base, McGuire Air Force Base,
Naval Air Engineering Station Lakehurst, Naval Air Facility Washington,
Naval Weapons Station Charleston, and Randolph Air Force Base.
28Under privatization, the room rate would be limited to 75 percent of per
diem across the installations in Group A.
2910 U.S.C. 2883(f).
Revised DOD Lodging Policy Does Not Provide Clear Performance Standards
On October 6, 2006, DOD provided the military services with revised
lodging guidance, which addressed some issues raised in prior GAO
recommendations but does not provide clear program performance standards
and measures.32 The new guidance requires the military services to (1)
develop and maintain a 5-year recapitalization plan, (2) base the
construction of lodging rooms on historical data and future mission
changes, and (3) construct certain new lodging facilities to meet the
demand of official TDY and PCS travelers. The revised guidance, however,
does not specifically address or strengthen OSD's ability to determine
whether lodging programs use appropriated or nonappropriated funds to pay
for specific program expenses.
Some of the revisions in DOD Instruction 1015.11 improve guidance by
clarifying requirements, but the revisions fall short of developing clear
performance standards and measures. For example, the Instruction would
require that services construct certain new lodging facilities to meet the
demand of customers on official TDY or PCS travel. However, the customer
data needed to justify construction is not sufficiently defined to ensure
consistent collection across programs. Additionally, though the guidance
states that DOD lodging programs should be professionally managed and
business-based, it does not specifically define such methods or
performance measures that could be utilized to demonstrate the lodging
program's efficiency or effectiveness.
3010 U.S.C. 2884.
31In a March 2000 report, GAO recommended that DOD create a privatization
evaluation plan to be used consistently by all the military services, and
that the plan should include performance measures, such as evaluation of
each authority, comparison of actual to estimated costs of projects,
assessment of developer performance, and so forth. See GAO, Military
Housing: Continued Concerns in Implementing the Privatization Initiative,
[29]GAO/NSIAD-00-71 (Washington, D.C.: Mar. 30, 2000).
32DOD Instruction 1015.11, Lodging Policy (Oct. 6, 2006).
Furthermore, the revised lodging guidance does not address the role of the
Office of the Under Secretary of Defense for Acquisition, Technology, and
Logistics regarding privatized lodging. With the Army's privatization
efforts, the office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics has begun to play a more active role recently in
conjunction with the Army's privatization plans, given the OSD office's
experience with housing privatization. Officials from both offices said
they plan to meet to clarify their respective roles and responsibilities
for the Army's privatized lodging facilities.
Conclusions
Under a decentralized approach to lodging management, the military
services have individual and somewhat dissimilar approaches to the
management and funding of TDY and PCS lodging facilities. While some
reporting to OSD on lodging operations occurs, without standard data
collection and reporting methods and adequate oversight, the reliability
of the data submitted to OSD is unclear. In addition, OSD and the military
services lack information that would enable them to evaluate the
effectiveness of their lodging programs and make comparisons across
programs that would aid in future program management decisions. We do not
see any reason why it would not be possible for OSD to promote consistent
data collection and reporting, without unnecessarily requiring the
military services to run their programs in exactly the same fashion.
Most importantly, DOD and the military services lack but would benefit
from greater use of performance measures to determine whether goals set
forth in the lodging strategic plan are being achieved, and to provide
adequate oversight of the Army's lodging privatization initiative. Though
one of the DOD lodging strategic goals is to utilize business-based
methods of operation, the military services have not adequately sought out
best practices and management methods commonly used in the private hotel
industry. For example, they have not effectively utilized tools such as
the Uniform System of Accounts for the Lodging Industry or the Smith
Travel Research HOST study. Since DOD has established goals for its
lodging programs that go beyond the private industry goal of profit
generation, however, it would be insufficient to merely adopt performance
standards and measures used by commercial counterparts. Additionally, as
the Army moves forward with its plans to privatize lodging, it needs to
provide the same level of accountability to the Congress and OSD for
program costs and performance as it does for its housing privatization
projects. Furthermore, DOD policy must address who will provide policy and
oversight for privatized lodging.
Recommendations for Executive Action
We recommend that the Secretary of Defense direct the Under Secretary of
Defense for Personnel and Readiness in consultation with the Under
Secretary of Defense for Acquisition, Technology, and Logistics to (1)
clarify their respective roles for establishing policy and overseeing the
lodging program, and (2) update the DOD lodging program strategic plan, to
include developing performance standards and measures to ensure that the
goals of the lodging program strategic plan and Army plans to privatize
its lodging are being achieved.
Agency Comments and Our Evaluation
In commenting on a draft of this report, DOD concurred with both of our
recommendations and indicated planned actions and timeframes for
accomplishing them. The department's response indicated that the Army's
analysis shows the life cycle costs are less under privatization than
using the current system to achieve the same results. As we noted in our
draft and this final report, privatization of lodging while providing
faster recapitalization and sustainment of facilities will likely increase
costs to the government by about $75 million per year through increased
lodging fees. The department separately provided various technical
comments which are incorporated where appropriate. The department's
written comments are presented in appendix III.
We are sending copies of this report to the Secretary of Defense; the
Under Secretaries of Defense for Personnel and Readiness, and for
Acquisition, Technology, and Logistics; the Secretaries of the Army, Navy,
and Air Force; and the Director, OMB. We will also make copies available
to others upon request. In addition, the report will be available at no
charge on GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me on (202) 512-5581 or [email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page
of this report. The GAO staff members who made major contributions to this
report are listed in appendix IV.
Barry W. Holman, Director
Defense Capabilities and Management
Appendix I: Scope and Methodology
To determine how the military services' operate and assess their lodging
programs, we reviewed Department of Defense (DOD) and military service
lodging policy, analyzed data regarding program funding, room rates, and
occupancy rates by type of traveler. We interviewed officials from: the
Office of the Under Secretary of Defense for Acquisition, Technology, and
Logistics; Office of the Under Secretary of Defense for Personnel and
Readiness; and the Army, Air Force, Navy, and Marine Corps offices
responsible for managing the temporary duty (TDY) and permanent-
change-of-station (PCS) lodging programs. We obtained and reviewed
financial statements; the military services' annual reports submitted to
the Office of the Secretary of Defense (Personnel and Readiness); and
reports prepared by independent auditors, the DOD Inspector General, and
military audit agencies on DOD lodging programs. We identified some
discrepancies in each of the military services' data, but we discussed and
resolved these discrepancies. Therefore, we believe the military services'
data are sufficiently reliable for our purposes. We visited selected
military installations to determine how lodges are managed and to observe
their physical condition. Installations were selected to include each of
the six lodging programs and a range of geographical locations.
Specifically, we visited Fort Polk, Louisiana; Fort Sam Houston, Texas;
Lackland Air Force Base, Texas; Randolph Air Force Base, Texas; Naval Air
Station North Island, California; Naval Amphibious Base Coronado,
California; Marine Corps Base Quantico, Virginia; and Marine Corps Air
Station Miramar, California.
To determine the potential effect of the privatization of Army lodging, we
reviewed the Army's life-cycle cost analysis that supported its decision
to privatize lodging. We interviewed officials in the Office of Management
and Budget, Offices of the Under Secretaries of Defense (Personnel and
Readiness) and (Acquisition, Technology, and Logistics), and the Assistant
Secretary of the Army (Installations and Environment) regarding the Army
plans to privatize lodging. To determine the effect on Army travel costs,
we compared the average daily room rate for Army lodging to the projected
room rate under the privatization effort. For this analysis, we used the
fiscal year 2005 occupancy rate for Army lodging and the Army lodging room
rates and per diem rates for fiscal year 2006. Additionally, we reviewed
analysis prepared by PricewaterhouseCoopers LLP, the Army Community and
Family Support Center, and the Army Privatization Office regarding the
projected cost and time frames for recapitalizing all Army lodging in
United States. We also analyzed the amount of funds accumulated in the
Army Lodging Fund as a result of the lodging surcharge to assess how much
is available for lodging revitalization. Although we did not test
reliability of these data, we did discuss the processes and procedures
used by the Army to assure the reliability of the data they used and
provided for our review. Therefore, we believe the Army's data is
sufficiently reliable for our purposes. Finally, we obtained information
concerning the status of previous Army, Air Force, and Navy lodging
public-private ventures. We interviewed appropriate military service
officials and private developers/managers involved in these public-private
ventures to gain insight into their experience and potential opportunities
or challenges with privatization.
To determine DOD's progress in revising lodging policy guidance, we
reviewed the lodging policy revisions proposed by the Office of the Under
Secretary for Personnel and Readiness and conducted a comparative analysis
to current DOD lodging program policies. We also interviewed Office of the
Secretary of Defense and military service officials to determine the
status of the draft revisions and their perspective on the proposed
changes.
We conducted our work from December 2005 through September 2006 in
accordance with generally accepted government auditing standards.
Appendix II: Military Services' Previous Lodging Public-Private Ventures
Between 1987 and 2001, the military services entered into 10
public-private ventures for lodges; however, only 7 are still operating.
In two cases, at Fort Bliss, Texas, and Fort Drum, New York, the Army
purchased the facilities from the developers. According to the Army
officials, the Army always intended to resume ownership and operation of
the Fort Bliss lodging facility. We were told that the public-private
venture at Fort Drum was not successful because the occupancy never
reached the anticipated levels because of a change in mission. The Army
agreed to buy the facility from the developer and resume operations.
Private developers, management personnel, and military personnel
associated with these prior public-private ventures believe the programs
are successful if there are well-written contracts that include specific
provisions for rate setting, facility standards, revenue caps, and
renegotiation of these provisions at specified intervals throughout the
life of the lease. All but one noted that a positive ongoing relationship
between the installation commander and lodging personnel and the developer
and his or her management team is important. Table 7 summarizes the
military services' previous public-private ventures to provide lodging.
Table 7: Military Services' Previous Lodging Public-Private Ventures
Service Location Date Authority Government risk Status
Army Fort Drum, April 10 U.S.C. Army Morale, Purchased from
NY 1987 2667 Welfare and developer by
Recreation Fund Army and
underwrote debt absorbed into
Army lodging
Schofield June 1987 10 U.S.C. Army Morale, Army is
Barracks, HI 2667 Welfare and currently in
Recreation Fund arbitration
underwrote debt with developer
Fort Bliss, April 10 U.S.C. Army Morale, Purchased from
TX 1989 2667 Welfare and developer by
Recreation Fund Army and
underwrote debt absorbed into
Army lodging
West Point, October 10 U.S.C. Army Morale, Currently
NY 1999 2667 Warfare and operated by
Recreation Fund developer
underwrote
commercial bond
Hunter Army January 10 U.S.C None identified Currently
Airfield, GA 2001 2667 operated by
developer
Fort Bragg, January
NC 2001
Fort Irwin, March
CA 2001
Air Force Wright 1990 10 U.S.C. None identified Currently
Patterson 2667 operated by
Air Force developer
Base, OH
Navy Naval July 1992 10 U.S.C. Navy guaranteed Currently
Station 2809 a certain level operated by
Newport, RI of occupancy management
company
Submarine July 1992 10 U.S.C. Navy guaranteed Currently
Base New 2809 a certain level operated by
London, CT of occupancy management
company
Source: GAO interviews with OSD and private developers, management
personnel, and military personnel associated with the public-private
ventures.
Appendix III: Comments from the Department of Defense
Appendix IV: GAO Contact and Staff Acknowledgments
GAO Contact
Barry W. Holman, (202) 512-5581 ([email protected])
Acknowledgments
In addition to the person named above, Michael Kennedy, Assistant
Director; Claudia Dickey, Kate Lenane, Leslie Sarapu, Julie Silvers, and
Cheryl Weissman also made major contributions to this report.
(350788)
GAO's Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site ( www.gao.gov ). Each weekday, GAO posts
newly released reports, testimony, and correspondence on its Web site. To
have GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail:
[email protected] Automated answering system: (800) 424-5454 or (202)
512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [email protected] (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
www.gao.gov/cgi-bin/getrpt?GAO-07-164 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Barry W. Holman at (202) 512-5581 or
[email protected].
Highlights of [38]GAO-07-164 , a report to congressional requesters
December 2006
DEFENSE INFRASTRUCTURE
Continuing Challenges in Managing DOD Lodging Programs as Army Moves to
Privatize Its Program
The Department of Defense (DOD) transient lodging programs were
established to provide quality temporary facilities for authorized
personnel, and reduce travel costs through lower rates than commercial
hotels. DOD has approximately 82,000 temporary duty (TDY) and
permanent-change-of-station (PCS) rooms worldwide, and reported that it
cost about $860 million in appropriated and nonappropriated funds to
operate them in fiscal year 2005. While the Army plans to privatize its
lodging in the United States, there are concerns as to whether these plans
are cost-effective, and how they relate to DOD-wide lodging efforts.
GAO was asked to address (1) how each military service and DOD manages,
funds, and assesses the performance of its lodging programs to meet short-
and long- term needs, and (2) the effect that lodging privatization would
have on the costs to the Army and the ability to maintain and recapitalize
facilities. GAO is also providing information on DOD's actions to
implement prior recommendations regarding the lodging program. GAO
obtained data from the Office of the Secretary of Defense, the military
services and visited nine military installations.
[39]What GAO Recommends
GAO is making recommendations to improve DOD's oversight of the lodging
program. In commenting on a draft of this report, DOD agreed with the
recommendations.
Each military service takes its own approach to manage and fund its
lodging programs, but current DOD lodging guidance does not establish
performance measures to assess program effectiveness. The Army and Air
Force each manage their TDY and PCS lodging under a single organization,
while the Navy and Marine Corps have separate organizations managing TDY
and PCS facilities. The Marine Corps manages PCS lodging separately
because it operates as a profit-generating morale, welfare, and recreation
program. The services' lodging programs are provided varying levels of
appropriated and nonappropriated fund support, which correlates with the
room rates charged. For example, since the Air Force allocates more
appropriated funds for program expenses, it charges less than does the
Navy PCS program, which is sustained with the revenues generated from room
rates. Determining total program costs across the services is difficult
because some of the data reported are estimated or hard to collect. Though
DOD has a lodging strategic plan, it has not been updated since 1999. DOD
has not established lodging performance measures, and the services vary in
their efforts to determine program effectiveness. Performance measures
could help in assessing future program plans.
The Army believes privatization will provide for faster improvement and
long-term sustainment of lodging facilities and avoid costs. GAO
recognizes these benefits, but its analysis shows privatization could
increase costs through increased room rates and create operating
challenges that have implications beyond the Army, such as uneven lodging
occupancy and room rates where joint basing is planned. Under
privatization, the Army projects that a developer will renovate existing
or construct new lodging facilities in 7 years, and provide for their
adequate sustainment over the 50-year project life. In contrast, the Army
projects it would take over 20 years and cost about $1.1 billion to
upgrade all lodging facilities under current plans, which do not provide
for adequate long-term sustainment. GAO found that lodging privatization
could increase costs to the government by about $75 million per year
through increased room rates if all lodging facilities in the U.S. are
privatized, with those costs borne by the operations and maintenance and
military personnel appropriation accounts. The Army currently estimates it
will also incur at least $17.3 million in onetime costs related to
severance pay and discontinued service retirement annuities for lodging
employees let go because of privatization. Privatization also may affect
occupancy levels and exacerbate rate disparities among bases and between
official and unofficial travelers, as well as lead to inconsistencies in
room rates among services at future joint bases. Complying with relevant
reporting requirements contained in housing privatization legislation will
allow congressional oversight of the Army's privatization of lodging.
On October 6, 2006, DOD provided the military services with revised
lodging guidance, but this guidance lacks performance standards and
measures, and does not address which office within the Office of the
Secretary of Defense is responsible for lodging policy and oversight of
privatized lodging facilities.
References
Visible links
26. http://www.gao.gov/cgi-bin/getrpt?GAO-02-351
27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-433
28. http://www.gao.gov/cgi-bin/getrpt?GAO-06-438
29. http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-71
38. http://www.gao.gov/cgi-bin/getrpt?GAO-07-164
*** End of document. ***