Military Housing: Preliminary Recommendations to Strengthen DOD's Oversight and Monitoring of Privatized Housing

Congress enacted the Military Housing Privatization Initiative in 1996 to improve the quality of housing for servicemembers. DOD is responsible for general oversight of privatized housing projects. Private-sector developers are responsible for the ownership, construction, renovation, maintenance, and repair of about 99 percent of military housing in the United States. Recent reports of hazards, such as mold and pest infestation, have raised questions about DOD's oversight.

This statement summarizes GAO's draft report on privatized housing, which is currently at DOD for review and comment. Specifically, the statement discusses, among other objectives, OSD and the military departments' (1) oversight of privatized military housing and (2) development and implementation of initiatives to improve privatized housing. For its draft report,

GAO reviewed policies and guidance; visited a non-generalizable sample of 10 installations representing each military department, among other factors; analyzed work order data; and interviewed DOD officials and private partner representatives.

The Office of the Secretary of Defense (OSD) and the military departments conduct a range of oversight activities, but some of these activities have been more extensive than others. Specifically, GAO's draft report notes:

The military departments conduct some oversight of the physical condition of housing, but some efforts have been limited in scope. Military departments have authority to conduct oversight of the condition of privatized housing; that oversight generally consists of reviewing a sample of work order requests, visual inspections of housing during change of occupancy, and other point in time assessments. However, GAO found that these efforts are limited in scope. For example, annual interior walk-throughs are limited to just a few homes at some installations, which may not comprehensively reflect the condition of the housing units at those installations.

Military departments use performance metrics to monitor private partners, but metrics do not provide meaningful information on the condition of housing. OSD has recently issued guidance to ensure consistency in the framework used to measure project performance. However, the specific indicators used to determine if the metrics are being met do not accurately reflect private partner performance related to the condition of the home. For example, a common indicator is how quickly the private partner responded to a work order, not whether the issue was actually addressed.

The military departments and private partners collect maintenance data on homes, but these data are not captured reliably or consistently. The Department of Defense (DOD) is expanding its use of work order data to monitor and track the condition of privatized housing. However, based on GAO's analysis of data provided by all 14 private partners, these data cannot reliably be used for ongoing monitoring of privatized housing because of data anomalies and inconsistent business practices in how these data are collected.

DOD provides reports to Congress on the status of privatized housing, but some data in these reports are unreliable, leading to misleading results. DOD provides periodic reports to Congress on the status of privatized housing, but reported results on resident satisfaction are unreliable due to variances in the data provided to OSD by the military departments and in how OSD has calculated and reported these data.

OSD and the military departments have made progress in developing and implementing a series of initiatives aimed at improving privatized housing. In addition, Congress established several requirements addressing privatization housing reform. However, DOD officials and private partner representatives have identified challenges that could affect implementation of these various initiatives. These include concerns that implementation could have unintended negative impacts on the financial viability of the privatized housing projects.

GAO's draft report includes several recommendations, including that DOD take steps to improve housing condition oversight, performance metrics, maintenance data, and resident satisfaction reporting as well as to assess the risk of initiatives on project finances.

Thank you for the opportunity to be here today to discuss issues related  to the condition of privatized military housing. In 1996, Congress enacted  the Military Housing Privatization Initiative (MHPI) in response to  Department of Defense (DOD) concerns about the effect of inadequate  and poor quality housing on servicemembers and their families. Since  then, private-sector developers and property management companies,  hereafter referred to as private partners, have assumed primary  responsibility for military family housing in the United States. They are  currently responsible for the construction, renovation, maintenance, and  repair of about 99 percent of domestic military family housing in the  continental United States, Alaska, and Hawaii. Over the last few years,  reports of the presence of lead-based paint and other hazards, such as  mold and pest and rodent infestations, have raised questions about  DOD’s management and oversight of privatized housing.

My testimony today summarizes our draft report, which we provided to  DOD last month for review and comment. The draft report discusses the  extent to which the Office of the Secretary of Defense (OSD) and the  military departments (1) conduct oversight of privatized military housing  for servicemembers and their families, (2) communicate their roles and  responsibilities to servicemembers and their families, and (3) have  developed and implemented initiatives to improve privatized housing.

For our draft report, we reviewed DOD policies and guidance related to  the administration of the MHPI program; analyzed available private  partner data on work orders from October 2016 through April 2019 from  each of the 79 MHPI family housing projects; visited a non-generalizable  sample of 10 installations selected to represent each of the military  departments, six private partners—including the five largest who own the  majority of privatized military housing—and geographic and climate  diversity; and conducted 15 focus groups at the 10 installations we  visited. We also reviewed a non-generalizable sample of ground leases  and other MHPI project documents, including leases and project  documents for the installations we visited, as well as a sample of leases  from other locations not included in our site visits. We reviewed the  implementation and results of various resident satisfaction surveys  conducted by the military departments and private partners. To  understand roles and responsibilities and the management of privatized  housing, we interviewed OSD and military department officials, as well as  representatives from each of the 14 private partners.

The work upon which our draft report is based was conducted in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

DOD’s policy is to ensure that eligible personnel and their families have  access to affordable, quality housing facilities and services consistent  with grade and dependent status, and that the housing generally reflects  contemporary community living standards. From the inception of MHPI,  the military departments were provided with various authorities to obtain  private-sector financing and management to repair, re novate, construct,  and operate military housing in the United States and its territories.  Through these authorities, the military departments have entered into a  series of agreements with private partners to provide housing to  servicemembers and their families.

The military departments have flexibility in how they structure their  privatized housing projects, but typically the military departments lease  land to private developers for 50-year terms and convey existing housing  located on the leased land to the developer for the duration of the lease.  The developer then becomes responsible for renovating and constructing  new housing and for the daily management of these housing units. At the  end of fiscal year 2017, 14 private partners were responsible for 79  privatized military family housing projects—34 for the Army, 32 for the Air  Force, and 13 for the Navy and the Marine Corps—in the United States,  each of which includes housing at one or more military installation.

Each privatized housing project is a separate and distinct entity governed  by a series of legal agreements that are specific to that project. However,  there are some common elements in how projects invest and use funds.  Every project takes in revenue, which consists mostly of rent payments.  Projects then pay for operating expenses, including administrative costs,  day-to-day maintenance, and utilities, among other things. After that,  projects generally allocate funds for taxes and insurance, followed by  debt payments. In the typical funding structure for a privatized housing  project, once debt payments are made, funds are allocated to accounts  that fund scheduled maintenance, such as repair and replacement of  items like roofs, heating and cooling systems, and infrastructure. After  that, funds are then allocated to a series of management incentive fees,  such as the property management fee. Finally, the project divides these  remaining funds according to a fixed percentage between accounts that  (1) fund major renovations and rebuilds and (2) are provided to the  developer.

The Deputy Assistant Secretary of Defense for Facilities Management,  under the authority, direction, and control of the Assistant Secretary of  Defense for Sustainment, is responsible for all matters related to MHPI  and is the program manager for all DOD housing, whether DOD-owned, DOD-leased, or privatized. In this capacity, the Deputy Assistant  Secretary is to provide both guidance and general procedures related to  military housing privatization, as well as required annual reports to  Congress on the status of privatized military housing projects. However,  it is the responsibility of the military departments to execute and manage  privatized housing projects, including conducting financial management  and monitoring their portfolio of projects. Each military department has  issued guidance that outlines its responsibilities for privatized housing,  such as which offices are responsible for overseeing privatized housing  projects.

DOD Conducts Some Oversight of the Condition of Privatized Housing, but Efforts Are Limited in Key Areas

In our draft report, currently with DOD for review and comment, we found  that each military department conducts a range of oversight activities— some more extensive than others—for its privatized housing projects. For  example, among other things, military departments review sample work  order requests and inspect housing during the change–of-occupancy  process. DOD guidance states that because privatization creates a long- term governmental interest in privatized housing, it is essential that  projects be attentively monitored.  Through its guidance, DOD delegates  oversight responsibility of the individual privatized housing projects to  each of the military departments. In our draft report, we noted that OSD  and the military departments’ oversight efforts have been limited in the  following key areas. Specifically, we found that (1) the scope of oversight  of the physical condition of privatized housing has been limited; (2)  performance metrics focused on quality of maintenance and resident  satisfaction do not accurately reflect private partner performance related  to the condition of privatized housing; (3) there is a lack of reliable or  consistent data on the condition of privatized housing; and (4) past DOD  reports to Congress on resident satisfaction are unreliable due to the  inconsistent handling and calculation of the data and therefore may be  misleading.

Military Departments Conduct Some Oversight of the Physical Condition of Privatized Housing, but the Scope of Efforts Is Limited

DOD delegates oversight responsibilities of the individual privatized  housing projects to each of the military departments, and each military  department has subsequently issued guidance outlining oversight roles  and responsibilities. Military department oversight activities generally fall  into two categories—(1) daily oversight of management and operations  and (2) periodic reviews of compliance with each project’s business  agreements.

Daily oversight of management and operations. Daily oversight of a  project’s management and operations is to be conducted by each  installation’s military housing office. Military housing officials told us that  activities to monitor the physical condition of housing units generally  include reviewing sample work order requests, following up with a sample  of residents to check on their experience with recently completed work,  and inspecting housing units during the change-of-occupancy process. As  we noted in our draft report, the implementation and scope of these  activities varies and can be limited. For example, during our site visits  conducted from June through August 2019, we observed that the rate of  inspections of homes following change-of-occupancy maintenance varied  at the installations we visited. Military housing office officials at one Air  Force installation told us that they inspect 100-percent of homes that  have completed change-of-occupancy maintenance, while officials from a  different Air Force installation stated they inspect 10 to 20 percent of  these homes.

Military department officials told us that in spring 2019, each department  conducted a “100-percent” review of privatized housing by directing  installation commanders to contact all residents of privatized housing and  offering a visual inspection of their privatized housing unit. In addition, in  March 2019 the Army issued an order directing military housing office  officials to inspect 100-percent of homes where change-of-occupancy  maintenance has been completed. Officials from Army installations we  visited noted that this was an increase from previous practices, and for  one installation was a change in practice from only conducting  inspections during the move-out process, which occurs prior to change- of-occupancy maintenance. Similarly, in November 2019, Air Force  officials told us they were moving to a 100 percent inspection policy.

Periodic reviews of compliance with each project’s business  agreements. Periodic reviews of compliance with a project’s business  agreements are a joint effort between the local military housing office, the  private partners, military department installation commands, and other  echelons of command. These reviews can include neighborhood tours  to view project amenities such as community centers, playgrounds, and  pools, all of which are owned, maintained, and operated by the private  partner companies, as well as exteriors of housing units. However, our  draft report showed these annual reviews have been narrow in the scope  of their assessment of the physical condition of the housing units, as  interior walk-throughs were, at times, focused on just a few homes at  each installation.

According to military department officials, each department has  completed initiatives and is undertaking initiatives to revise guidance and  standardize daily oversight activities in an effort to provide consistent  oversight across projects and installations, and to increase the focus on  the physical condition of housing. In addition, the military departments  have initiatives to increase staffing levels, improve training for military  housing office officials, and ensure that military department housing  officials have independent access to work order data, to strengthen their  oversight activities. However, each military department is working to  implement service-specific initiatives with only limited guidance from OSD  on the level of oversight expected of the services as it relates to the  condition of the housing. Specifically, OSD guidance is focused on the  oversight of the implementation of projects, the construction of new  housing units, and project financial monitoring. The guidance stipulates  that after privatized housing projects are awarded, monitoring should  include descriptions of deal structure and strategies for project  monitoring. In contrast, OSD guidance for military-owned housing  provides clearly defined objectives to the military departments for  oversight, including the physical condition of the homes. Unless OSD  updates its guidance on the oversight of privatized housing with  objectives for overseeing the physical condition of housing units, it cannot  be assured that the military departments’ oversight activities will be  sustained over time or be sufficiently consistent across projects, raising  the risk that private partners may not provide adequate quality housing.

DOD Uses Several Metrics to Monitor Private Partner Performance, but the Indicators Underlying Those Metrics Do Not Provide Meaningful Information on the Condition of Privatized Housing

The military departments each use a range of project-specific  performance metrics to monitor private partner performance, but as we  note in our draft report, the metrics designed to focus on resident  satisfaction and on the quality of the maintenance conducted on housing  units do not provide meaningful information or reflect the actual condition  of the housing units. Most, but not all, of the private partners are eligible  to receive performance incentive fees based on generally meeting the  performance metrics established in each individual project’s business  agreement. Private partner performance is commonly measured  through four key metrics—resident satisfaction, maintenance  management, project safety, and financial management. To determine  how well the private partners are performing under the metrics, military  housing office officials told us they rely on a range of specific indicators  established in the project business agreements. However, the indicators  themselves do not provide meaningful information on the private partner’s  performance in maintaining quality housing units. For example, we  identified the following in our draft report:

Maintenance management. One indicator of performance of  maintenance management that is regularly included in project  business agreements measures how often the property manager’s  response time to work orders meets required timeframes established  in the project’s business agreements. While this indicator measures  the timeliness of the private partner’s response, it does not measure  or take into account the quality of the work that was conducted or  whether the resident’s issue was fully addressed. As such, a property  manager may fully meet the metric for maintenance management  even if a given repair has not been adequately completed. Residents  in 13 of our 15 focus groups noted that they typically have had to  submit multiple work order requests before an individual maintenance  issue has been fully addressed. Some projects include indicators that  aim to more directly measure quality, such as the number of work  orders placed during the first 5 business days of residency, which may  indicate the extent to which all of the change-of-occupancy  maintenance was completed.

Resident satisfaction. One example of an indicator of resident  satisfaction is whether a project has met target occupancy rates  established in the project’s business agreements. An OSD official and  private partner representatives told us they use occupancy as an  indicator of satisfaction based on the assumption that residents would  move if they were dissatisfied with their home’s condition. However,  based on our focus groups, this may not be a reliable assumption.  Although most residents are not required to live in military housing,  residents in each of our 15 focus groups indicated a variety of reasons  for choosing to live in privatized housing, many of which did not have  to do with their satisfaction with the quality or condition of their homes.  For example, residents in our focus groups cited other factors  influencing their decision to live in privatized housing, such as living in  close proximity to military medical or educational services for children  or other family members that are part of the military’s Exceptional  Family Member Program, a lack of safe and affordable housing in the  surrounding community, and access to quality schools.

OSD and military department officials have recognized that the current  indicators for measuring performance do not consistently focus on or  prioritize the private partners’ performance with maintaining housing units  and ensuring resident satisfaction. For example, Army officials told us  they are no longer using occupancy rates as an indicator of resident  satisfaction and have taken steps to standardize performance indicators  across all Army projects, while still allowing for flexibility at the installation  level to modify the weight of indicators to provide incentives reflective of  the specific needs of the installation. Limitations to the current indicators  may hinder the military departments’ ability to accurately determine  private partner performance. However, OSD and military department  officials told us they have not yet reevaluated the specific indicators used  to determine whether a private partner has met a specific metric because  doing so will require negotiation with each of the private partners for each  project. Nonetheless, without reviewing the specific indicators used to  award performance incentives, OSD and the military departments do not  have assurance that the information the military departments are using to  award these incentives reflects the actual condition of the housing.

DOD and Private Partners Collect Maintenance Data on Privatized Housing, but These Data Are Not Captured Reliably or Consistently for Use in Ongoing Monitoring of Housing Units

The housing projects’ business agreements typically include a  requirement for the private partner to maintain a records management  system to record, among other things, maintenance work requested and  conducted on each housing unit. According to private partner officials,  each company uses commercial property management software  platforms for activities such as initiating maintenance work orders and  dispatching maintenance technicians. Some private partner  representatives stated that while data from the work order tracking  systems are primarily used to prioritize and triage maintenance work, the  data were never intended to monitor the overall condition of privatized  housing units. While data from these work order tracking systems may be  useful for point-in-time assessments of work order volume at a given  installation, military department officials told us that efforts are underway  to monitor work order data to increase the military departments’ oversight  and the accountability of the private partners for providing quality  housing. However, as we noted in our draft report, we found that these  data are not captured reliably or consistently for use in the ongoing  monitoring of the condition of privatized housing units.

We received and reviewed data from each of the 14 private partners’  work order tracking systems covering each of the 79 privatized family housing projects. Based on our review of these data and discussions with  private partner representatives for our draft report, we found two primary  factors that would limit the reliability or consistency of using these data for  ongoing monitoring of the condition of privatized housing units over  time—(1) inconsistent use of terminology in work order records and (2)  differing practices for opening and closing work orders:  Inconsistent use of terminology. Based on our review of the data  provided by the private partners and discussions with private partner  officials, we noted cases where work orders were inconsistently  entered into the work order tracking systems with respect to two  primary factors—(1) how the request is described by the resident or  interpreted by the official entering the data, which can differ for each  work order, and (2) the existing range of pre-established service  category options in the private partner’s work order tracking system,  which differ among the partners.

Differing practices for opening and closing work orders. At some  installations we visited, private partners noted changes in practices for  opening and closing work orders, limiting the usefulness of the data in  monitoring the status of work orders over time and thus the condition  of privatized housing.

In addition, we identified other anomalies in work order data from each of  the 14 partners. For example, we identified instances of, among other  things, duplicate work orders, work orders with completion dates prior to  the dates that a resident had submitted the work order, and work orders  still listed as in-progress for more than 18 months.

According to military department officials, efforts to review data from the  private partners’ work order tracking systems have increased, and military  department officials told us they have found similar limitations. However,  neither OSD nor the military departments have identified minimum data  requirements, established consistent terminology or practices for data  collection, or developed processes for the military departments to validate  the work order data collected by the private partners. Without direction  from OSD to establish minimum data requirements and consistent  terminology or practices for data collection, as well as a requirement for  the military departments to validate data, the military departments’ ability  to use data from the private partners’ work order tracking systems to  monitor the condition of privatized homes over time will remain limited  and may vary across projects.

DOD Provides Reports to Congress on Resident Satisfaction with Privatized Housing, but Data in These Reports Are Unreliable, Leading to Misleading Results

DOD is statutorily required to provide reports to Congress that include,  among other things, information about military housing privatization  projects’ financial health and performance and backlog, if any, of  maintenance and repairs. These reports have included information on  resident satisfaction with privatized housing based on the results of the  annual military department satisfaction surveys.

As we state in our draft report, we determined that information on resident  satisfaction in these reports to Congress on privatized housing have been  unreliable and are misleading due to (1) variances in the data the military  departments collect and provide to OSD and (2) OSD’s calculation and  presentation of the data. In May 2019, OSD issued its report for fiscal  year 2017, which stated that overall resident satisfaction for calendar year  2017 was 87 percent. For OSD’s fiscal year 2017 report, the military  departments provided data on resident satisfaction based on information  from the annual resident satisfaction surveys. Specifically, OSD’s  instructions to the military departments required the military departments  to report satisfaction based on resident responses to the question that  asks: “Would you recommend privatized housing,” with results indicating  how many tenants responded “yes,” “no,” or “don’t know.”

However, the military departments’ approaches for collecting data in their  annual resident satisfaction surveys vary, which limits their ability to  assess whether residents would recommend privatized housing. Instead  of asking whether residents would recommend privatized housing, the  military departments’ annual resident satisfaction survey asks residents  the following: “How much do you agree or disagree with the following  statement, ‘I would recommend this community to others.’” A resident’s  satisfaction with his or her community and inclination to recommend it to  others may not be reflective of satisfaction with either the privatized  housing unit or privatized housing in general.

Residents are then provided the following response categories on a scale  of five to zero: (5) strongly agree, (4) agree, (3) neither agree nor  disagree, (2) disagree, (1) strongly disagree, and (0) not applicable, no  opinion, don’t know, or no answer. Through our analysis, we have  identified variances in the methods that each of the military departments  use to translate the residents’ responses into the “yes,” “no,” or “don’t  know” categories. The variances in how the military departments  calculate “yes,” “no,” or “don’t know” resulted in inconsistencies in how  resident satisfaction is ultimately reported to Congress. For example, for  the fiscal year 2017 report, Navy and Army officials told us they counted  responses reported in category 3 (neither agree nor disagree) as “don’t  know.” For the same time period, however, Air Force officials told us they  counted responses in category 3 (neither agree nor disagree) as “yes.” If  the Air Force had not counted category 3 as “yes,” reported resident  satisfaction rates would have been lower. For example, for one Air Force  installation, if officials had not counted responses in category 3 as “yes,”  the resident satisfaction rate for newly constructed units would have been  more than 20 percent lower than what was reported.

In our draft report, we also identified instances of errors and inaccuracies  in how OSD calculates these data and reports on resident satisfaction to  Congress. Specifically, we found missing data points and incorrect  formulas, among other errors, in OSD’s calculation of the data submitted  by the military departments for OSD’s fiscal year 2017 report to  Congress. For example:

The formula used by OSD to calculate overall resident satisfaction for  the fiscal year 2017 report did not include data for several projects,  including for four Army projects that, as of September 30, 2017,  accounted for over 18 percent of the Army’s total housing inventory.

For one Air Force project, OSD reported identical resident satisfaction  data for the fiscal year 2015, 2016, and 2017 reports, despite the fact  that Air Force officials had noted in their submissions to OSD that the  resident satisfaction data were from the annual resident satisfaction  survey conducted in December 2013.

In our draft report, we also found that presentation of data in OSD’s report  to Congress may be misleading because OSD did not explain the  methodology it used to calculate the overall resident satisfaction  percentage or include caveats to explain limitations to the data presented.  Specifically, OSD did not include information on overall response rates to  the annual satisfaction survey for each military department, nor did it  include response rates by project. Low response rates can create the  potential for bias in survey results. For example, in the report for fiscal  year 2017, OSD reported that 25 percent of residents living in renovated  housing units for one privatized housing project were satisfied with their  housing, but we found that only four residents had provided responses to  this question. Thus, only one resident reported being satisfied. In addition,  we found that OSD did not provide an explanation in the report for why  five projects were listed as “not applicable.” According to OSD officials,  this error was a quality control issue that they plan to address.

According to OSD officials, there are no plans for quality control in  development at this time. The National Defense Authorization Act for  Fiscal Year 2020 (fiscal year 2020 NDAA) includes a provision requiring  each military installation to use the same satisfaction survey for tenants of  military housing— including privatized military housing—the results of  which are not to be shared with private partners until reviewed by DOD.  Until OSD makes changes to the data collection and calculation efforts  that make up the department’s report to Congress and provides  explanations of the data in the reports, OSD will not be able to provide  Congress with an accurate picture of resident satisfaction with privatized  housing.

Military Housing Offices Have Not Effectively Communicated Their Role as a Resource for Servicemembers Experiencing Challenges with Privatized Housing

Military housing office officials, located at each installation, are available  to provide resources to servicemembers experiencing challenges with  their privatized housing, among other services. However, as we stated in  our draft report, we found that these offices have not always clearly and  systematically communicated this role to residents of privatized housing.  The military housing office is to provide new residents with information on  their local housing options, to include referral services for housing  options. According to some military housing office officials, the military  housing office then works with the private partner to identify the eligibility  and type of home the servicemember qualifies for, if the resident chooses  to live in privatized housing. According to some residents we spoke with  in one of our focus groups, beyond this initial interaction, military housing  office officials generally do not interact with residents on a regular basis.  Additionally, residents who participated in our focus groups noted they  were sometimes confused about the military housing offices’ roles and  responsibilities with regard to the maintenance of their home; there was a  perception that the military housing office was not working independently  of the partner in the residents’ best interest; or they did not know the  military housing office existed.

The military department oversight agencies have also found that the  military departments have not clearly and systematically communicated  their roles to residents, and resident confusion and a lack of awareness  regarding the role of the military housing offices is an issue. In April 2019  the Air Force Inspector General reported that less than half of the  residents interviewed used their military housing office to resolve  complaints, and at some installations officials visited, many residents did  not know the military housing office had an oversight role. Similarly, in  May 2019, the Army Inspector General reported to the Secretary of the  Army that at 82 percent of Army installations with privatized housing,  residents did not know how to escalate issues to either the private partner  or the Army housing office. Additionally, the Army Inspector General  reported that installation command teams and staff cited multiple  circumstances where military housing offices and tenant advocacy roles  and responsibilities were unclear. Further, some military housing office  officials with whom we spoke during our site visits acknowledged the gap in resident awareness regarding the existence and purpose of the military  housing office. Some military housing officials also noted that some  residents are unaware of the difference between the military housing  office and the private partner office, due in part to their physical co- location and unclear building signage.

Each military department has issued information that establishes that its  housing offices can assist in the resident dispute resolution process.  Specifically, if servicemembers are experiencing a dispute with a private  partner, military department guidance establishes varying roles for their  respective military housing office officials. For example, Army policy  states that each installation should have an official tasked with supporting  servicemembers regarding resident issues that cannot be resolved by the  private property manager. This individual is also responsible for resolving  every resident complaint and the military housing office, if required, can  request mediation by the garrison commander.

OSD has recognized that the military departments’ communication with  residents about their role as a resource for them has been limited. In  February 2019, the Assistant Secretary of Defense for Sustainment  testified before Congress that a way forward in addressing resident  concerns would require focus in three key areas: communication,  engagement, and responsiveness. Some military housing office officials  told us they have taken steps to increase resident awareness, such as  increasing the advertising of the military housing office’s role and contact  information, conducting town hall meetings, and rebranding their military  housing offices to differentiate them from the private partners. For  example, a Marine Corps housing office official stated that the housing  office established a document, which is distributed to residents by the  private partner, informing residents of housing office contact information  and the service’s three-step dispute resolution process, but efforts have  not been standardized across all projects. Moving forward, having plans  in place to clearly and systematically communicate the difference  between the military housing office and the private partners—including  the military departments’ roles, responsibilities, and military housing office  locations and contact information—will better position the military  departments to achieve the intended objectives of their initiatives aimed  at improving residents’ experience.

DOD and Private Partners Are Implementing Initiatives to Improve Privatized Housing, but May Face Challenges

OSD, the military departments, and the private partners have identified  and begun collaborating on a series of initiatives aimed at improving  residents’ experiences with privatized housing, but as we state in our draft  report currently with DOD for review and comment, these efforts face  challenges. In addition, in the fiscal year 2020 NDAA, Congress  established several requirements regarding privatized military housing  reform. Several of the statutory requirements provide specific provisions  that DOD will need to incorporate into its development and  implementation of existing MHPI initiatives, as well as additional  requirements aimed at improving oversight of privatized housing.

In our draft report, we discuss several of these key initiatives, including  the following.

Development of a resident bill of rights. DOD has been working to  develop a resident bill of rights intended to provide clarity to residents  on their rights and responsibilities while living in privatized military  housing. The fiscal year 2020 NDAA includes specific requirements to  be included in the bill of rights, for example, ensuring residents have  the right to have their basic allowance housing payments segregated  and held in escrow, with approval of a designated commander, and  not used by the property owner, property manager, or landlord  pending completion of the dispute resolution process. In January  2020, DOD officials told us that they were in the process of updating  their existing resident bill of rights to include these provisions. In  February 2020, the Secretary of Defense signed the resident bill of  rights, noting that the rights would be available to residents on May 1,  2020.

Implementation of a common (enterprise) dispute adjudication  process that will apply to all projects. The military departments and  private partners have been working to develop a common dispute  resolution process that would apply to all privatized housing projects.  The fiscal year 2020 NDAA includes requirements reinforcing this  initiative, specifically stating that the military department Secretary  concerned shall implement a standardized formal dispute resolution  process to ensure the prompt and fair resolution of disputes between  landlords providing housing units and tenants residing in housing units  concerning maintenance and repairs, damage claims, rental  payments, move-out charges, and such other issues relating to  housing units as the Secretary determines appropriate. Additionally,  the statute requires that each military department Secretary designate  the installation or regional commander in charge of oversight of  housing as the deciding authority under the dispute resolution  process.

Reviewing MHPI resident satisfaction data collection process  and the process by which DOD measures and reports on  resident satisfaction data. According to OSD officials, the  department is reviewing the process by which it measures and reports  resident satisfaction data, and has plans to review the survey  questions used to measure resident satisfaction. In line with these  planned efforts, the fiscal year 2020 NDAA further requires that  DOD’s reports to Congress include additional information, such as the  results of residence surveys and other factors related to the condition  of privatized housing.

Standardizing Performance Incentive Fee Ranges. In October  2019, OSD issued new guidance standardizing the performance  incentive fee ranges across the military departments. The fiscal year  2020 NDAA requires that DOD publically report information regarding  the use of performance incentive fees. The statute also requires that  DOD take into consideration any decision a commander renders in  favor of the tenant in the formal dispute resolution process in  determining whether to pay or withhold all or part of any incentive fees  for which a private partner may otherwise be eligible under the  contract.

In addition to requirements impacting current DOD initiatives, the fiscal  year 2020 NDAA included requirements for increased oversight of the physical condition of privatized housing. For example, the statute requires  the Secretary of Defense to designate a Chief Housing Officer to oversee  housing units, including the creation and standardization of policies and  processes regarding housing units. The statute also requires the  Secretary of Defense to establish a uniform code of basic standards for  privatized military housing, as well as plans to conduct inspections and  assessments of the condition of privatized homes.

However, both DOD and private partner representatives have cited  several challenges that could affect their ability to implement initiatives  aimed at improving MHPI. Specifically:

Timeliness of implementation due to the need to collaborate with  and obtain input and agreement from the large number of  stakeholders involved in privatized housing. According to DOD  officials and private partner representatives, many of the initiatives  designed to improve privatized housing not only require agreement  between DOD and the private housing partners, but also discussion  with and, in some cases, approval by the project bond holders.  Because DOD does not have the ability to unilaterally make changes  to existing business agreements, this need for stakeholder agreement  limits DOD’s control over the implementation timeline of any initiative  that requires changes to a project’s business agreement.

The need for more military department staff with targeted  expertise. The military departments reduced their involvement in daily  privatized military housing operations as part of the overall  privatization effort, to include reducing staffing levels at the  installations. Military housing office officials at over half of the  installations we visited stated that reduced staffing levels impacted  their ability to carry out oversight duties, such as work order data  analysis and housing inspections. Each of the military departments  has plans to increase the military housing office staffing at each  installation to allow for enhanced oversight. In particular, according to  military department officials, these positions will focus on quality  control and quality assurance of the maintenance of privatized homes.

The potential for unintended negative financial impacts on the  projects that could outweigh the intended benefits of the  initiatives. OSD officials and private partner representatives have  expressed concern that some initiatives could result in unintended  financial consequences for the housing projects. For example,  increased frequency of change-of-occupancy inspections could result  in homes remaining vacant longer than planned and therefore not  collecting rent. This could unintentionally impact a project’s cash flow.  Some of the private partners noted that the financial impact of  unfunded requirements to projects that are already experiencing  financial distress could result in even fewer funds available to reinvest  in improvements to the current and future physical condition of the  homes.

Without assessing risks to the financial viability of the MHPI projects  associated with the implementation of these initiatives aimed at improving  privatized housing, DOD’s efforts to improve the privatized housing  program over the long term could be compromised.

In summary, as we state in our draft report, we found that while DOD and  the private partners have taken steps to address concerns raised about  their ability to adequately maintain and oversee the condition of these  housing units and provide quality housing for servicemembers, the extent  to which the efforts will be sustained and result in improvements remains  unclear. Our draft report includes several recommendations to OSD to  strengthen oversight of MHPI, such as updating oversight guidance and  assessing the risks to the financial viability of housing projects. Our draft  report also includes recommendations to the military departments to  enhance monitoring of privatized housing projects, such as improving  processes used for data collection; reviewing private partner  performance; collecting and reporting resident satisfaction data; and  communicating with residents.

Chairwoman Wasserman Schultz, Ranking Member Carter, and Members  of the Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions you may have at this time.

If you or your staff members have any questions about this testimony,  please contact Elizabeth A. Field, Director, Defense Capabilities and  Management, at (202) 512-2775 or FieldE1@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this statement.

Individuals who made key contributions to this testimony include Kristy  Williams (Assistant Director), Tida Reveley (Analyst in Charge), Austin  Barvin, Ronnie Bergman, William Carpluk, and Jordan Tibbetts. In  addition, key support was provided by Vincent Buquicchio, Juliee Conde- Medina, Mae Jones, Kelly Rubin, Monica Savoy, John Van Schaik,  Madeline Welter, and Kelsey Wilson.

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Private-sector companies build, renovate, and maintain about 99% of family housing at military bases in the United States. However, with reports of hazards like mold and pest infestations, there are concerns about how well DOD monitors the condition of this housing.

We testified about our ongoing work in this area. Military departments have increased their monitoring of privatized housing conditions, but we found they don’t have reliable data on housing maintenance or resident satisfaction.