Military housing privatization off to slow start

A two-year-old Defense Department initiative aimed at turning thousands of military housing units over to the private sector has yet to privatize a single unit, the General Accounting Office has reported.

In "Military Housing: Privatization Off to a Slow Start" (GAO/NSIAD-98-178), GAO found that legal and contractual issues, coupled with bureaucratic barriers, have kept DoD from reaching privatization deals for any military housing projects. In March 1996, DoD predicted that 24,000 housing units would be constructed or renovated by the private sector by the end of fiscal 1998. But so far, no privatization plans have been approved.

"Progress on the initiative has been slower than expected because the initiative represents a new way of doing business for both the military and the private sector," GAO said. "Many legal, financial, contractual and budgetary scoring issues had to be resolved to the satisfaction of parties representing the government, developers and private lenders."

According to DoD, 200,000 military-owned family housing units need to be renovated or replaced. Privatization is seen as a way to lower costs while maintaining high living standards for service members and their families. DoD had planned to solve its housing problem by 2006 through the privatization initiative. Now the Pentagon has pushed the initiative's completion date back to 2010.

Privatizers have run into a series of legal and bureaucratic problems since they began selecting bases for the privatization initiative. DoD and the Office of Management and Budget spent several months in 1997 haggling over the proper way to score privatization projects in budget documents. DoD officials also had to develop assessment models for deciding whether privatization was the best approach for improving housing at bases. Then they had to review the Federal Acquisition Regulation and Federal Property Regulations to see how they affect privatization and work out financial and contractual procedures with real estate developers.

DoD selected Fort Carson, Colo., as a candidate for housing privatization in June 1996. A request for proposals was issued in December 1996, and a contractor was selected in July 1997. But in April of this year, the proposed award was canceled because of a bid protest. Now DoD is reexamining the acquisition process at Fort Carson.

More than a dozen additional projects are being considered for privatization as well. Pentagon officials say they have resolved many of the legal and regulatory issues, so they expect privatization to pick up.

"We believe the time we have taken was appropriate and necessary to resolving critical program issues that will assure timely and effective implementation of all subsequent projects," John B. Goodman, deputy undersecretary of Defense for industrial affairs and installations, wrote to GAO. "Proceeding more rapidly would have created major long-term problems for the program."