Defense Infrastructure:

Improved Guidance Needed for Estimating Alternatively Financed Project Liabilities

GAO-13-337: Published: Apr 18, 2013. Publicly Released: Apr 18, 2013.

Additional Materials:

Contact:

James R. McTigue, Jr
(202) 512-7968
mctiguej@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

In the event of future base closure, the Department of Defense's (DOD) potential financial liabilities from alternatively financed projects will vary by project type and the language of its legal agreements. According to GAO's analysis of data reported by DOD, it had more than 550 such projects on more than 240 U.S. installations, as of September 30, 2011. 56 percent of these projects have been put in place since the 2005 Base Realignment and Closure (BRAC) round. Further, according to this analysis and GAO's case study review, liabilities will likely exist for renewable energy and privatized utility projects in the event of base closure because these projects commit the government to making future payments, although the liabilities may be limited by termination for convenience clauses in agreements. In contrast, privatized housing, privatized army lodging, and enhanced use lease projects are generally not expected to create a financial liability if bases close because DOD does not expect to terminate these types of agreements.

GAO found that DOD's use of its Cost of Base Realignment Actions (COBRA) model to estimate the costs and savings of base closure candidates did not capture all costs associated with alternatively financed projects, and identified three possible contributing factors. First, DOD's collection of data on potential base closure costs was not consistent or comprehensive regarding alternatively financed projects. Second, the COBRA model does not provide users with an option to indicate that a cost may exist in cases where officials cannot estimate the costs associated with such projects within the data collection timeframes. Third, some COBRA instructions for entering costs associated with such projects into the model are not consistent or comprehensive. DOD guidance for determining costs and savings of BRAC actions and COBRA model instructions require that DOD consider all costs and savings associated with various base closure scenarios, and GAO has previously reported that decision makers need consistent and comprehensive data. Without a process for collecting consistent and comprehensive cost data, decision makers may face challenges in accurately comparing different scenarios' net costs for future BRAC rounds.

Why GAO Did This Study

To effectively manage facilities, DOD has pursued a strategy including base realignment and closure, privatizing certain base assets, and leasing underused property. To do so, DOD leverages private capital using alternative financing agreements that rely at least in part on means other than full up-front appropriations. The House Armed Services Committee directed GAO to assess the impact of base closures on such agreements and how DOD captures costs associated with projects in the BRAC process. This report (1) describes existing projects on DOD's U.S. bases, as of September 30, 2011; how project legal agreements protect the government's financial interests; and circumstances where DOD could face financial liabilities in the event of base closure; and (2) determines the extent to which DOD's process for estimating costs and savings of base closure candidates captures these liabilities and other costs. GAO reviewed documents; collected information from DOD on projects active as September 30, 2011; and interviewed officials.

What GAO Recommends

GAO recommends DOD modify BRAC data collection and cost modeling to better indicate possible liabilities arising from such projects. DOD did not concur, noting that "military value" is the primary criterion for BRAC decisions and liabilities will not be known until project negotiations. GAO's recommendations do not preclude optimizing military value, and certain liabilities may be determinable before negotiations. Thus, GAO continues to believe that acting on these recommendations would help improve the BRAC process.

For more information, contact James R. McTigue, Jr. at (202) 512-3766 or mctiguej@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: As of July 2014, an official of the Basing Directorate in OSD AT&L I&E stated that because DOD non-concurred with the report's recommendations, there have been no DOD implementation actions and there are no implementation actions planned. DOD comment - Non Concur. The Department does not believe that such costs should be collected as part of the BRAC data call, in that it would be impossible to determine those costs in advance. Those costs are similar to environmental remediation and program management costs, which also are not accounted for in the COBRA estimates. The reason environmental remediation and alternative financing costs are not included is that their inclusion could create a perverse incentive to retain bases with a lower military value. Moreover, the primary advantage of COBRA is to provide real time comparison of scenarios to aid analysis and decision maker review, not to develop budget quality estimates. This real time quality of COBRA is a critical component of both the Department's requirement to treat all bases equally and in the Commission's decision process.

    Recommendation: To increase the overall reliability of the initial cost estimates that DOD submits with its recommendations to the BRAC Commission for any future BRAC round, the Under Secretary of Defense for Acquisition, Technology, and Logistics should direct the Deputy Under Secretary of Defense for Installations and Environment to take actions to enhance the department's ability to identify any potential costs associated with its alternatively financed projects in the event of a base closure. Specifically, the Under Secretary direct the Deputy Under Secretary should modify the procedures for collecting data in its BRAC data call to include questions that are consistent and comprehensive; directed to all three military departments; and specific to the potential types of costs associated with alternatively financed projects.

    Agency Affected: Department of Defense: Office of the Secretary of Defense: Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics

  2. Status: Open

    Comments: As of July 2014, an agency official (ODUSD(I&E) Basing) stated that because DOD non-concurred with the report's recommendations, there have been no DOD implementation actions and there are no implementation actions planned. DOD comment -- Non-concur. In addition to the reasons stated above [see DOD response to first recommendation], noting a potential liability does not add value in the decision making process in which recommendations are developed on the basis of the selection criteria with military value having primary consideration. Accounting for these costs during BRAC implementation as part of the BRAC business plan and/or budget development process is a better approach because the data will be accurate.

    Recommendation: To increase the overall reliability of the initial cost estimates that DOD submits with its recommendations to the BRAC Commission for any future BRAC round, the Under Secretary of Defense for Acquisition, Technology, and Logistics should direct the Deputy Under Secretary of Defense for Installations and Environment to take actions to enhance the department's ability to identify any potential costs associated with its alternatively financed projects in the event of a base closure. Specifically, the Under Secretary direct the Deputy Under Secretary should modify the COBRA model to add a capability that allows users to indicate that a potential liability may exist, even if the amount of the liability cannot be estimated at the time of data entry. For example, a data field could be added that provides the user with a "Yes / No" option to indicate the possibility of such a cost. In addition, COBRA instructions could be modified to instruct the user to provide information on the likely costs, in footnotes. This would increase the information available to decision makers and signal that there are potential costs in the event that a precise estimate cannot be calculated at that time.

    Agency Affected: Department of Defense: Office of the Secretary of Defense: Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics

  3. Status: Open

    Comments: As of July 2014, an agency official (ODUSD(I&E) Basing) stated that because DOD non-concurred with the report's recommendations, there have been no DOD implementation actions and there are no implementation actions planned. DOD comment -- Non Concur. See reasons above. [See DOD response to 1st and 2nd recommendations]

    Recommendation: To increase the overall reliability of the initial cost estimates that DOD submits with its recommendations to the BRAC Commission for any future BRAC round, the Under Secretary of Defense for Acquisition, Technology, and Logistics should direct the Deputy Under Secretary of Defense for Installations and Environment to take actions to enhance the department's ability to identify any potential costs associated with its alternatively financed projects in the event of a base closure. Specifically, the Under Secretary direct the Deputy Under Secretary should modify COBRA instructions for entering information on costs associated with alternatively financed projects in the model to help ensure costs are consistently captured and complete. For example, illustrate the types of costs that should be included; specify whether costs should be entered as net costs or if costs and savings should be entered separately; indicate which data entry field is the appropriate field into which the user should enter such costs; and define key terms.

    Agency Affected: Department of Defense: Office of the Secretary of Defense: Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics

 

Explore the full database of GAO's Open Recommendations »

Dec 19, 2014

Dec 16, 2014

Dec 12, 2014

Dec 11, 2014

Dec 1, 2014

Nov 21, 2014

Nov 20, 2014

Nov 19, 2014

Nov 18, 2014

Looking for more? Browse all our products here