a

GAO

United States Government Accountability Office

Report to the Subcommittee on 

Readiness, Committee on Armed 

Services, House of Representatives

May 2005 DEFENSE 

INFRASTRUCTURE

Management Issues 

Requiring Attention in 

Utility Privatization

GAO-05-433
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

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Highlights of GAO-05-433, a report to the 

Subcommittee on Readiness, Committee 

on Armed Services, House of 

Representatives 

May 2005

DEFENSE INFRASTRUCTURE 

Management Issues Requiring Attention 

in Utility Privatization 

DOD’s progress in implementing the utility privatization program has been 

slower than expected, largely because of the complexities of the solicitation 

and contracting processes. In 1997, DOD initially expected that the services 

would privatize or exempt all utility systems by January 2000. Yet, after 

spending about $248 million on program implementation, the services had 

privatized only 94 systems and exempted 311 systems of the 1,499 utility 

systems determined to be available for privatization as of December 31, 

2004. Although DOD reset implementation target dates and established 

September 2005 as the current goal for the services to make decisions to 

privatize or exempt all systems, DOD officials stated that it was unlikely that 

the services would meet the revised goal. 

Utility privatization can provide for quicker system improvements than 

otherwise might be available; however, there are questions about program 

savings. Although the services’ economic analyses estimate that utility 

systems privatized to date will reduce the government’s costs for utility 

services, GAO questions the estimates because they give an unrealistic sense 

of savings to a program that increases ongoing government utility costs in 

order to pay contractors for enhanced utility services and capital 

improvements. Other base support services could suffer unless budgets are 

adjusted to reflect these increased costs. Moreover, GAO found that longterm cost comparisons did not depict actual expected costs of continued 

government ownership in the event that systems were not privatized and 

DOD had not taken steps to ensure that the estimates were otherwise 

reliable. As a result, GAO found in the seven cases it reviewed that the 

services’ analyses included inaccuracies that tended to favor the 

privatization option over continued government ownership. 

Although the services are permitted latitude in ensuring that the government 

receives fair market value for systems conveyed to privatization contractors, 

in some cases implementation has resulted in higher contract costs for utility 

services. Contractors normally include the full amounts they paid for 

conveyances in the associated utility services contracts and, therefore, the 

government will pay back the amounts received over time. In some cases, 

contractors also include additional amounts in the contracts to cover costs 

associated with the fair market value payment. Thus, implementing the fair 

market value requirement in such cases results in higher contract costs 

because the government will pay back more than it will receive for 

conveying the systems. 

Two additional issues of concern identified by GAO related to limited 

oversight of privatization contracts and DOD’s preferred practice of 

permanently conveying utility systems to contractors rather than using more 

limited arrangements which, according to DOD consultant reports, is a more 

prevalent private sector practice and one which may offer greater safeguards 

to the government. 

Department of Defense (DOD) 

installations have about 2,600 

electric, water, wastewater, and 

natural gas utility systems valued at 

about $50 billion. In 1997, DOD 

decided that utility privatization 

was the preferred method for 

improving utility systems and 

services and the Congress 

approved legislative authority for 

privatizing utility systems at 

military installations with 

Public Law No. 105-85. 

Because of the costs and long-term 

implications of DOD’s utility 

privatization program, GAO 

reviewed the program to determine 

(1) the program’s status, 

(2) whether the services’ estimates 

of long-term savings from utility 

privatization projects are reliable, 

(3) how DOD implements the fair 

market value requirement for 

conveyed utility systems, and 

(4) whether other issues impact the 

effectiveness of DOD’s execution 

of the program. 

What GAO Recommends

GAO recommends that DOD take 

several actions designed to help 

ensure the reliability of the 

economic analyses for proposed 

utility privatization projects and 

improve the guidance and 

procedures used to implement and 

oversee the utility privatization 

program. DOD did not agree with 

the recommendations. GAO 

believes its recommendations 

continue to have merit. 
Page i GAO-05-433 Defense Infrastructure

Contents

Letter 1

Results in Brief 3

Background 7

Utility Privatization Implementation Has Been Slower 

Than Expected 11

The Services’ Savings Estimates from Utility Privatization 

Are Questionable 17

Implementation of the Fair Market Value Requirement Can Result in 

Higher Contract Costs 25

DOD’s Execution of the Utility Privatization Program Raises 

Other Concerns 29

Conclusions 34

Recommendations for Executive Action 36

Matter for Congressional Consideration 37

Agency Comments and Our Evaluation 37

Appendixes

Appendix I: Scope and Methodology 43

Appendix II: Results of GAO’s Review of the Services’ Economic Analyses 

Supporting Seven Utility Privatization Projects 45

Appendix III: Comments from the Department of Defense 49

Tables Table 1: Status of the Utility Privatization Program as of 

December 31, 2004 13

Table 2: Percentage of Systems with Privatization or Exemption 

Decision 13

Table 3: Implementation Costs for the Utility Privatization 

Program 17

Table 4: Selected Information from Economic Analyses Supporting 

Utility Privatization Projects 23

Table 5: Amounts to Be Received for Utility System Conveyances 

for Projects Reviewed 27
Contents

Page ii GAO-05-433 Defense Infrastructure

Abbreviations

DOD Department of Defense

GSA General Services Administration

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Page 1 GAO-05-433 Defense Infrastructure

United States Government Accountability Office

Washington, D.C. 20548

A

May 12, 2005 Letr

The Honorable Joel Hefley

Chairman

The Honorable Solomon P. Ortiz

Ranking Member

Subcommittee on Readiness

Committee on Armed Services

House of Representatives

Department of Defense (DOD) installations have about 2,600 electric, 

water, wastewater, and natural gas utility systems valued at about 

$50 billion. These systems consist of the equipment, fixtures, pipes, wires, 

and other structures used in the distribution of electric power and natural 

gas, the treatment and distribution of water, and the collection and 

treatment of wastewater. According to DOD officials, many of these 

systems have become unreliable and in need of major improvements due to 

inadequate funding caused by the competition for funds and DOD’s risk 

management and budget allocation decisions. To address this issue, DOD 

decided in 1997 that utility privatization was the preferred method for 

improving utility systems and services because privatization would allow 

installations to benefit from private sector financing and efficiencies. With 

private sector financing, installations could immediately obtain major 

upgrades to their utility systems and pay for these improvements over time. 

Thus, utility improvements could be achieved without going through the 

traditional military construction budget justification and funding process. 

Under DOD’s program, utility privatization normally involves two 

transactions with the successful contractor—the conveyance of the utility 

system infrastructure and the acquisition of utility services for upgrades, 

operations, and maintenance under a long-term contract of up to 50 years. 

DOD estimates that some privatization contracts will cost more than a 

hundred million dollars over the contract time frames.
Page 2 GAO-05-433 Defense Infrastructure

To institute the program at DOD’s request, the Congress approved 

legislative authority in 1997 for privatizing utility systems at military 

installations.1

 The authority requires that the military services meet a 

number of conditions to privatize a system including, in part, the following 

two conditions. First, the services must demonstrate through an economic 

analysis that privatization of a system would reduce the government’s longterm costs for utility services. Second, the services must receive as 

consideration for conveying a system an amount equal to the system’s fair 

market value.2

 DOD’s program guidance permits the services to exempt 

systems from privatization when long-term costs will not be reduced or for 

unique security reasons.

In view of these requirements and because of the program’s costs and longterm implications, this report, undertaken pursuant to the Comptroller 

General’s legislative authorities, determines (1) the program’s status, 

(2) whether the services’ estimates of savings from utility privatization 

projects are reliable, (3) how DOD implements the fair market value 

requirement for conveyed utility systems, and (4) whether other issues 

impact the effectiveness of DOD’s execution of the program. As discussed 

with your offices, we are addressing the report to you because of your 

expressed interest related to your committee’s oversight responsibilities.

To address these questions, we summarized program implementation 

status and costs, compared the status to DOD’s goals and milestones, and 

discussed issues affecting program implementation, such as accounting for 

contract termination liabilities. We relied on program status data provided 

by the services, confirmed the status data for seven projects, but did not 

otherwise test the reliability of the data. We examined DOD’s guidance and 

methods for performing and reviewing the economic analyses used to 

determine whether privatization will reduce the government’s long-term 

costs and for determining the fair market value of the systems to be 

conveyed. We reviewed the economic analyses for seven projects regarded 

by DOD as privatization successes to examine the basis for the estimates 

and the assumptions used, evaluate consistency and reliability, and assess 

the amounts received as consideration for the conveyances. Finally, we 

1

 The National Defense Authorization Act for Fiscal Year 1998, Pub. L. No. 105-85, § 2812, 

(1997).

2

 The conveyance may consist of all right, title, and interest of the United States in the utility 

system or such lesser estate as the Secretary of a military department considers appropriate 

to serve the interests of the United States.
Page 3 GAO-05-433 Defense Infrastructure

reviewed DOD and service guidance for utility privatization contract 

administration, discussed contract oversight with officials at five 

installations, and reviewed information from DOD officials and consultant 

reports on how DOD’s approach to utility privatization compares with 

private sector practices. We conducted our work from July 2004 through 

March 2005 in accordance with generally accepted government auditing 

standards. A more detailed description of our scope and methodology is 

included in appendix I.

Results in Brief Although initial goals were aggressive, DOD’s actual progress in 

implementing the utility privatization program has been slower than 

expected. In 1997, DOD initially expected that the services would privatize 

or exempt all utility systems by January 2000. Yet, after spending about 

$248 million on program implementation, the services had privatized only 

94 systems and exempted 311 systems of the 1,499 utility systems 

determined to be available for privatization as of December 31, 2004. 

Although DOD reset implementation target dates and established 

September 2005 as the current goal for the services to make decisions to 

privatize or exempt all systems, DOD officials stated that it was unlikely 

that the services would meet the revised goal. According to DOD and 

service program officials, program implementation has been slower than 

expected primarily because the privatization evaluation, solicitation, and 

contracting processes were more complex and time consuming than 

originally anticipated. Moreover, an issue surfaced in October 2004 that 

further slowed the program by placing pending contract awards on hold for 

several months while the matter was evaluated. This issue concerned 

whether the services were required at the time of contract signing to 

obligate sufficient funds to pay a privatization contractor for costs that had 

not been recovered under a contract to date in the event of a future 

contract termination. According to service officials, if required, the 

amounts needed could be large enough to make many proposed utility 

privatization projects financially unfeasible. The DOD Office of General 

Counsel evaluated the issue and concluded in February 2005 that the 

services were not required to obligate sufficient funds to cover contract 

termination liability under the utility privatization program. We agree that 

defense services are not required to record obligations for potential 

termination liabilities under that authority, unless and until they decide to 

terminate.

Although the services’ economic analyses estimate that utility systems 

privatized to date will reduce the government’s costs for utility services, we 
Page 4 GAO-05-433 Defense Infrastructure

found that the estimates give an unrealistic sense of savings to a program 

that generally increases government utility costs in order to pay 

contractors for enhanced utility services and capital improvements. DOD’s 

funding obligations will likely increase faster than they would under 

continued government ownership as it pays over time for utility system 

improvements obtained from private sector financing. Air Force officials 

estimated that the Air Force’s costs alone could increase between 

$100 million and $200 million annually for the first 5 to 10 years of 

privatization. Various service officials expressed concern that unless 

funding for operation and maintenance accounts are adjusted to reflect this 

increase, other support functions on military bases could suffer as funds 

are shifted to cover “must pay” privatized utility costs. Moreover, we found 

that the services’ long-term savings estimates, required to be developed to 

support privatization decisions, were questionable because the estimates 

did not depict actual expected costs of continued government ownership in 

the event that systems were not privatized and DOD had not taken steps to 

ensure that the estimates were otherwise reliable. First, to determine 

whether a proposed privatization contract would meet the statutory 

requirement for reduced long-term costs, each service followed DOD 

guidance and compared the long-term estimated costs of the contract with 

the estimated long-term “should costs” of continued government 

ownership assuming that the service would upgrade, operate, and maintain 

the system in accordance with accepted industry standards as called for in 

the proposed contract. This estimating method would be appropriate if, 

in the event the system is not privatized, the service proceeded to upgrade, 

operate, and maintain the system as called for in the estimate. However, 

this generally is not the case. According to DOD and service officials, if a 

system is not privatized, then the anticipated system improvements would 

probably be delayed because of DOD’s budget allocation decisions, which 

have limited funds for utility improvements. Because of the time value of 

money, a future expense of a given amount is equivalent to a smaller 

amount in today’s dollars. As a result, delaying system improvements to 

future years would reduce the estimated cost of the government ownership 

option in today’s dollars and, therefore, affect the results of the economic 

analyses. At the same time, it must be recognized that delays in system 

improvements could increase government costs due to increased 

maintenance and possible changes in system reliability in the long term. 

Thus, if reduced costs to the government are expected to be a key factor in 

utility privatization decision making, then it would appear more 

appropriate for the services to compare the cost of a proposed privatization 

contract with the cost of continued government ownership on the basis of 

the actual planned expenditures and timing of these expenditures, with 
Page 5 GAO-05-433 Defense Infrastructure

appropriate consideration to the impact of delayed improvements. Second, 

largely because DOD does not require that the services’ economic analyses 

be subjected to an independent review for accuracy and compliance with 

guidance, we found in the seven cases we reviewed that the services’ 

analyses included inaccuracies which tended to favor the privatization 

option over continued government ownership.

Although the services are permitted latitude in ensuring that the 

government receives fair market value for systems conveyed to 

privatization contractors, in some cases implementation has resulted in 

higher contract costs for utility services. Guidance and practices for 

determining fair market value varied among the services, with Army 

guidance stating that fair market value for system conveyances could range 

from zero to full replacement cost of the system. For example, the Army 

privatized one installation’s water distribution system, consisting of a 

reservoir, four water towers, and pipelines, and according to the economic 

analysis received no consideration from the contractor for the conveyance. 

Army officials stated that determining fair market value was subjective and 

determined in part by the amounts contractors were willing to pay. In some 

cases, the officials stated that the most beneficial business case was to 

convey systems at less than estimated fair market value. Also, although it is 

a reasonable concept that the government should receive consideration if 

an asset is conveyed to a contractor, the receipt of consideration for 

conveyances in the utility privatization program does not typically result in 

a net financial payment to the government. To recover their costs, 

privatization contractors normally include the full amounts they paid for 

conveyances in the associated utility services contracts and, therefore, the 

government will pay back the amounts received for the conveyances in the 

utility services bills over time. Beyond that, in some cases, contractors 

include additional amounts in the utility services bills to cover the 

contractors’ costs associated with the fair market value payments. 

Implementing the fair market value requirement in such cases will result in 

increased costs because the government will pay back more than it will 

receive for the conveyances. For example, the economic analysis for the 

electric distribution system privatization at Dobbins Air Reserve Base 

showed that the contractor will pay $741,000 as the fair market value for 

the conveyance. The analysis also showed that the contractor will recover 

this cost, plus other associated costs, by charging the Air Force $1,322,000 

in the utilities services bills over time. Thus, implementing the fair market 

value requirement in this case will result in the Air Force paying about 

$581,000, or 78 percent, more than it will receive for the conveyance.
Page 6 GAO-05-433 Defense Infrastructure

In examining DOD’s execution of the utility privatization program, 

we identified two other areas of concern that could affect program 

effectiveness. First, the adequacy of privatization contract oversight was 

a concern. Although they intend to do so, the services have not issued 

specific contract administration guidance for the program since it began 

over 7 years ago. Officials at one installation we visited stated that they 

were performing limited oversight because they lacked sufficient guidance 

and had not been funded for people to oversee contractor performance. 

Also, in its reviews of four utility privatization contracts, the Army Audit 

Agency reported that contractor performance was not adequately 

monitored and, as a result, there was little assurance that the installations 

would receive quality products and services. Second, according to DOD 

consultant reports, DOD’s approach to utility privatization differs from 

typical private sector practices in that private sector companies may 

outsource system operations and maintenance but normally retain system 

ownership. As a result, the consultant reports note that DOD’s preferred 

approach of permanently conveying utility system ownership to 

contractors may give the contractor an advantage when negotiating service 

contract changes or renewals. This occurs because DOD must deal with the 

contractor or pay significant amounts to construct a new utility distribution 

system to replace the one conveyed to the contractor, attempt to purchase 

the system back from the contractor, or institute legal action to reacquire 

the system through condemnation proceedings.

We are making recommendations to help ensure the reliability of the 

economic analyses for proposed utility privatization projects and to 

improve the guidance and procedures used to implement and oversee the 

utility privatization program. In commenting on a draft of this report, DOD 

disagreed with our recommendations, characterized our findings as being 

outdated and not well founded, and suggested that our report represented 

an unwarranted characterization of issues we identified as being systemic 

to the program. We believe that our review of the utility privatization 

program was objective, balanced, and represented program conditions 

existing at the time we completed our review in March 2005. We disagree 

with DOD’s contention that our findings were outdated. Of the seven utility 

privatization projects we reviewed in detail, the associated contracts for 

four projects were awarded in 2004, and the contracts for two projects 

were awarded in 2003. Additionally, the issues we identified and 

recommendations we made are current regardless of the case studies. 

We remain confident that both our conclusions and recommendations are 

soundly based upon the findings discussed in this report. We address 
Page 7 GAO-05-433 Defense Infrastructure

DOD’s comments in detail later in the report. Because of DOD’s response to 

the report, we have added a matter for congressional consideration.

Background At DOD’s request, the Congress approved legislative authority in 1997 for 

privatizing utility systems at military installations.3

 In defining a utility 

system, the authority included systems for the generation and supply of 

electric power; the treatment or supply of water; the collection or 

treatment of wastewater; the generation or supply of steam, hot water, 

and chilled water; the supply of natural gas; and the transmission of 

telecommunications. Included in a utility system are the associated 

equipment, fixtures, structures, and other improvements as well as real 

property, easements, and rights-of-way. The authority stated that the 

Secretary of a military department may convey a utility system to a 

municipal, private, regional, district, or cooperative utility company or 

other entity and the conveyance may consist of all right, title, and interest 

of the United States in the utility system or such lesser estate as the 

Secretary considers appropriate to serve the interests of the United States.

Among other things, the current authority also includes two requirements 

for utility privatization. First, the Secretary shall submit reports to the 

congressional defense committees on the conveyances made under the 

authority each quarter. Previously, the statute required DOD to submit the 

report and wait 21 days before allowing a conveyance.4

 For each such 

conveyance, the report is to include an economic analysis, based on 

acceptable life-cycle costing procedures, demonstrating that (1) the longterm economic benefit of the conveyance to the United States exceeds the 

long-term economic cost of the conveyance to the United States, and 

(2) the conveyance will reduce the long-term costs of the United States for 

utility services provided by the utility system concerned. Second, the 

Secretary shall require as consideration for a conveyance an amount equal 

to the fair market value, as determined by the Secretary, of the right, title, 

or interest of the United States conveyed. The consideration may take the 

form of a lump sum payment or a reduction in charges for utility services.

3

 See note 1.

4

 See National Defense Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136, § 

1031(a)(12), which changed the timing of the reporting requirement. The seven utility 

privatization projects we reviewed were under the earlier requirement.
Page 8 GAO-05-433 Defense Infrastructure

Before and after approval of the specific authority for privatizing utilities, 

the services have used other authorities for utility privatization. For 

example, the Army had privatized some systems after obtaining 

congressional authority on each specific case. Also, the services have 

privatized systems by modifications to natural gas services agreements 

administered by the General Services Administration and by conveyances 

of some systems on the basis of authorities related to base realignment and 

closure and the military housing privatization program.

DOD Made Utility 

Privatization a DOD Policy

In December 1997, DOD issued Defense Reform Initiative Directive 

Number 9, which made utility system privatization a DOD policy.5

 The 

directive instructed the military departments to develop a plan that would 

result in privatizing all installation electric, natural gas, water, and 

wastewater utility systems by January 1, 2000, unless exempted for unique 

security reasons or if privatization would be uneconomical. Under the 

program, privatization normally involves two transactions with the 

successful contractor—the conveyance of the utility system infrastructure 

and the acquisition of utility services for upgrades, operations, and 

maintenance under a long-term contract of up to 50 years. Normally, the 

conveyances do not include title to the land underlying the utility system 

infrastructures.

A year later, in December 1998, DOD issued another directive to establish 

program management and oversight responsibilities and provide guidance 

for performing economic analyses for proposed projects, exempting 

systems from the program, and using competitive procedures to conduct 

the program.6

 The directive also stated that the objective was for DOD to 

get out of the business of owning, managing, and operating utility systems 

by privatizing them and that exemptions from privatization should be 

rare. The directive reset the privatization implementation goal to 

September 30, 2003.

5

 See Deputy Secretary of Defense, Memorandum for Secretaries of the 

Military Departments and others, Subject: Department of Defense Reform Initiative 

Directive #9—Privatizing Utility Systems (Department of Defense: Washington, D.C., 

Dec. 10, 1997).

6

 See Deputy Secretary of Defense, Memorandum for Secretaries of the 

Military Departments and others, Subject: Department of Defense Reform Initiative 

Directive #49—Privatizing Utility Systems (Department of Defense: Washington, D.C., 

Dec. 23, 1998).
Page 9 GAO-05-433 Defense Infrastructure

Implementation Goals Reset 

and Program Guidance 

Revised

In October 2002, DOD issued revised program guidance and again reset 

implementation goals.7 The guidance noted DOD’s contention that many 

installation utility systems had become unreliable and in need of major 

improvements because the installations historically had been unable to 

upgrade and maintain reliable utility systems due to inadequate funding 

caused by the competition for funds and DOD’s budget allocation 

decisions. DOD officials stated that owning, operating, and maintaining 

utility systems was not a core DOD function and the guidance stated that 

privatization was the preferred method for improving utility systems and 

services by allowing military installations to benefit from private sector 

financing and efficiencies. The revised implementation goals directed the 

military departments to reach a privatization or exemption decision on 

at least 65 percent of the systems available for privatization by 

September 30, 2004, and on all systems by September 30, 2005.

The October 2002 guidance also reemphasized that utility privatization was 

contingent upon meeting two requirements contained in the legislative 

authority for the program—that the services demonstrate through an 

economic analysis that privatization will reduce the long-term costs to the 

government for utility services and that the services receive fair market 

value for system conveyances. The guidance included details for 

conducting the economic analyses stating that the services’ analyses 

should compare the long-term estimated costs of proposed privatization 

contracts with the estimated long-term costs of continued government 

ownership assuming that the systems would be upgraded, operated, 

and maintained at accepted industry standards, as would be required 

under privatization.

Utility Privatization 

Program Management

DOD’s Office of the Deputy Under Secretary of Defense for Installations 

and Environment provides overall policy and management oversight for the 

utility privatization program. However, primary management and 

implementation responsibility for the program is delegated to the 

individual services, their major commands, and individual installations.

7

 See Deputy Secretary of Defense, Memorandum for Secretaries of the Army, Navy, 

and Air Force and Director of the Defense Logistics Agency, Subject: Revised Guidance 

for the Utility Privatization Program (Department of Defense, Washington, D.C., 

Oct. 9, 2002).
Page 10 GAO-05-433 Defense Infrastructure

Prior GAO Reports on 

Utility Privatization and 

Related Subjects

Although this is our first detailed report on DOD’s utility privatization 

program, we have issued four previous reports that commented on the 

program. These reports primarily focused on DOD’s progress in 

implementing DOD’s Defense Reform Initiative, which began in 1997. The 

initiative represented an important set of actions aimed at improving the 

effectiveness and efficiency of DOD’s business operations. One of those 

actions was the utilities privatization program. Concerning the utilities 

privatization program, we reported in April 1999 and August 1999 that the 

program was complex, time consuming, and expensive and that the 

services would not meet initial implementation goals.8

 In July 2000, we 

reported that in December 1998, DOD had issued a program budget 

decision directing the services to set aside $243.6 million to complete 

privatizations between fiscal years 1999 and 2004.9

 The program budget 

decision estimated that utility system privatization might begin to provide 

about $327 million in annual savings after privatizations were completed in 

2003. However, we also reported that these early budget estimates of the 

costs and savings were unrealistic and that in addition to paying for 

privatization studies, military service officials were also concerned that 

utility bills would increase without a corresponding increase in operations 

and maintenance funds. In December 2002, we again reported that the 

utility privatization program was more complex and time consuming than 

anticipated and DOD planned to reset the program’s completion goal.10

8

 GAO, Defense Reform Initiative: Organization, Status, and Challenges, 

GAO/NSIAD-99-87 (Washington, D.C.: Apr. 21, 1999) and Defense Infrastructure: Improved 

Performance Measures Would Enhance Defense Reform Initiative, GAO/NSIAD-99-169

(Washington, D.C: Aug. 4, 1999).

9

 GAO, Defense Management: Actions Needed to Sustain Reform Initiatives and Achieve 

Greater Results, GAO/NSIAD-00-72 (Washington, D.C.: July 25, 2000).

10 GAO, Defense Management: New Management Reform Program Still Evolving, 

GAO-03-58 (Washington, D.C.: Dec. 12, 2002).
Page 11 GAO-05-433 Defense Infrastructure

We have also issued three reports on DOD’s program management and 

oversight of another privatization program—the military housing 

privatization program.11 As noted elsewhere in this report, information 

from those reports provides a useful contrast in approach when compared 

to the utility privatization program. Finally, we have issued other reports 

that identified examples where the services moved operations and 

maintenance funds intended to support one functional area to another 

functional area and discussed associated impacts.12

Utility Privatization 

Implementation 

Has Been Slower 

Than Expected

The utility privatization program provides DOD with a method to improve 

installation utility systems by using private sector financing as an 

alternative to traditional military construction funding. Although DOD’s 

initial goals were aggressive in order to use privatization to quickly obtain 

improvements and get the services out of the business of owning and 

operating utility systems, actual program implementation has been slower 

than expected. In 1997, DOD expected that the services would privatize or 

exempt all utility systems by January 2000 and DOD’s current goal is for the 

services to make decisions to privatize or exempt all systems by 

September 2005. Yet, the services had awarded or exempted only a fraction 

of the 1,499 systems available for privatization as of December 31, 2004. 

Program implementation slowed further in late 2004 and pending contract 

awards for all services were put on hold for several months over an issue 

related to contract termination liability. Implementation costs for the 

program will total about $296 million for fiscal years 1998 through 2005, 

according to DOD and service officials.

11 See GAO, Military Housing: Privatization Off to a Slow Start and Continued 

Management Attention Needed, GAO/NSIAD-98-178 (Washington, D.C.: July 17, 1998); 

Military Housing: Continued Concerns in Implementing the Privatization Initiative, 

GAO/NSIAD-00-71 (Washington, D.C.: Mar. 30, 2000); and Military Housing: Management 

Improvement Needed As the Pace of Privatization Quickens, GAO-02-624

(Washington, D.C.: June 21, 2002).

12 See GAO, Defense Budget: DOD Should Further Improve Visibility and Accountability 

of O&M Fund Movements, GAO/NSIAD-00-18 (Washington, D.C.: Feb. 9, 2000); and 

Defense Infrastructure: Changes in Funding Priorities and Strategic Planning Needed 

to Improve the Condition of Military Facilities, GAO-03-274 (Washington, D.C.: 

Feb. 19, 2003).
Page 12 GAO-05-433 Defense Infrastructure

Privatization Offers a 

Method for Obtaining Utility 

System Improvements 

Without Full Up-front 

Appropriations

Utility privatization has helped installations achieve major system 

improvements which, according to cognizant DOD and service officials, 

would not have been otherwise possible due to inadequate funding caused 

by the competition for funds and budget allocation decisions. They report 

the systems vary among the military services in the extent to which they 

have been adequately maintained and upgraded over time. With private 

sector financing as an alternative to traditional military construction 

funding, installations have obtained system upgrades and improved 

operations and maintenance and will pay for the improvements over time, 

rather than through full up-front appropriations.13 According to these 

officials, the improvements have resulted in increased utility system 

reliability and efficiencies while reducing safety and environmental risks. 

Also, these officials noted that, with privatization, installations can focus 

more on their core defense missions rather than tending to problems 

caused by outdated utility systems. These officials further noted that 

without the privatization program these benefits would not have been 

obtained in the short term but would have been delayed, perhaps for 

many years.

The Services Have Awarded 

Contracts for Only a 

Fraction of the Total 

Systems Available for 

Privatization

After spending about $248 million on program implementation costs, the 

services had awarded contracts for only a fraction of the 1,499 utility 

systems available for privatization as of December 31, 2004. Of the 94 total 

contract awards, the services awarded 68 under the legislative authorities 

specifically provided for the program and 26 as part of other programs, 

such as DOD’s military housing privatization program. As shown in table 1, 

the services also had exempted 311 systems for security or economic 

reasons and had 979 systems in various stages of the privatization contract 

solicitation process.

13 Because the budget does not reflect up front the full costs of the improvements to be 

obtained through utility privatization, it may be more difficult for decision makers to 

consider the full financial commitment that the government undertakes when it enters into 

long-term privatization contracts. This could lead to a situation in which budget decisions 

favor utility privatizations over programs that include their full costs up front in the budget.
Page 13 GAO-05-433 Defense Infrastructure

Table 1: Status of the Utility Privatization Program as of December 31, 2004

Source: DOD.

a

According to service officials, of the 94 contract awards, 68 were awarded using 10 U.S.C. 2688 

authorities and 26 were awarded using other authorities. Of the Army’s 69 contract awards, 4 were 

awarded under the General Services Administration’s areawide gas service agreements and 4 were 

awarded under authorities related to base realignment and closure. Of the Navy’s 15 contract awards, 

14 were awarded as part of the Navy’s military housing privatization program or other transactions. Of 

the Air Force’s 10 contract awards, 4 were awarded under the General Services Administration’s 

areawide gas service agreements.

In comparison to DOD’s current implementation goals, only the Air Force 

met the September 30, 2004, goal by making a privatization or exemption 

decision on at least 65 percent of its utility systems available for 

privatization. As shown in table 2, as of September 30, 2004, the Air Force 

had made decisions on 70 percent of its systems while the Army, the Navy, 

and the Defense Logistics Agency had made decisions on 51 percent, 

47 percent, and 55 percent, respectively, of their utility systems. DOD 

officials stated that it was unlikely that the services will meet DOD’s 

September 30, 2005, goal of making a privatization or exemption decision 

on every system available for privatization.

Table 2: Percentage of Systems with Privatization or Exemption Decision

Source: DOD.

Component

Systems available

for privatization

Systems pending

solicitation or on hold

Systems in

solicitation

Systems

exempted

Contracts

awardeda

Army 320 67 144 40 69

Navy 645 23 534 73 15

Air Force 505 17 280 198 10

Defense Logistics Agency 29 8 21 0 0

Total 1,499 115 979 311 94

Component

Goal for

Sept. 30, 2004

(percent)

Actual as of

Sept. 30, 2004

(percent)

Sept. 30, 2004 

goal met?

Goal for

Sept. 30, 2005

(percent)

Actual as of

Dec. 31, 2004

(percent)

Army 65 51 No 100 52

Navy 65 47 No 100 49

Air Force 65 70 Yes 100 71

Defense Logistics 

Agency 65 55 No 100 55

Total 65 56 No 100 57
Page 14 GAO-05-433 Defense Infrastructure

According to DOD and service officials, implementation was slower than 

expected primarily because the program proved to be more complex and 

time consuming than initially expected. The program represented a new 

way of doing business for both the military and the private sector and it 

took time to develop guidance for determining fair market values for 

system conveyances and for comparing the long-term costs of a proposed 

privatization project with the long-term costs of continued government 

ownership. Initially, DOD also had to evaluate and make decisions in many 

areas such as the role of state laws and regulations on utility systems 

located on military installations but with ownership conveyed to private 

contractors. Further, to address some private utility company concerns, 

DOD made or sought and obtained waivers from some contracting 

regulations, but the process to do so was time consuming. For example, 

early in the program DOD learned that some private utility companies were 

reluctant to submit offers on privatization contracts because of regulations 

requiring that contractors follow accounting standards set by the Cost 

Accounting Standards Board. The concern was that the utility industry 

already had a set of established accounting practices used by regulatory 

agencies to set utility rates and to adopt an additional set of accounting 

standards would be too costly. DOD requested the Cost Accounting 

Standards Board to grant a waiver from use of the standards in utility 

privatization contracts under certain circumstances. Although the matter 

remained a point of contention for several years, the waiver was not 

obtained until September 2004 and DOD guidance on the matter was not 

issued until October 2004.

Contract Termination 

Liability Questions Slowed 

Implementation Further

Program implementation slowed further in late 2004 and pending contract 

awards for all services were held up over an issue concerning contract 

termination liability. In October 2004, the Navy raised a question with the 

Office of the Secretary of Defense concerning whether it was required to 

obligate funds to cover potential contract termination expenses should the 

Navy terminate a utility services contract prior to the contractor recovering 

its acquisition and system improvement costs. Navy officials stated that, if 

required, the amounts needed could be very large, making many proposed 

utility privatization projects financially unfeasible. 

Not all the services shared the Navy’s concern regarding termination 

liability. The Army, for example, reportedly has entered into a number of 

utility privatization agreements without recording an obligation to cover 

potential termination liability. The Army’s position apparently was that 

10 U.S.C. § 2688 provides the necessary authority to enter into utility 
Page 15 GAO-05-433 Defense Infrastructure

privatization agreements without recording an obligation for termination 

liability.

To resolve the differences between the services, the DOD Office of General 

Counsel considered the Navy and Army positions and issued guidance in 

February 2005 indicating that the services were not required to obligate 

funds to cover contract termination liability under the utility privatization 

program. In part, the DOD Office of General Counsel relied on a 1983 GAO 

decision14 which addressed the acquisition by the General Services 

Administration (GSA) of telephone equipment and related services under 

40 U.S.C. § 501(b)(3). That statutory provision, similar to section 2688, 

authorizes contracts for public utility services for multiple years (up to 

10 years) without mentioning termination liability. The DOD Office of 

General Counsel noted that our 1983 decision stated that under section 501, 

GSA did not need to have available budget authority to obligate the total 

estimated cost of a contract, “but only sufficient budget authority to 

obligate its annual costs under the agreement.” Although the 1983 decision 

did not directly address termination liability, the DOD Office of General 

Counsel maintains that a requirement to obligate termination costs for such 

contracts would directly contradict the conclusion that GSA need only 

obligate its “annual costs.” According to the DOD Office of General 

Counsel, the same result is appropriate under section 2688.

We examined the guidelines issued by the DOD Office of General Counsel 

and the authorities they relied on. Given the nature of the section 2688 

multiyear authority and the nature of the utility privatization program, we 

agree that defense services are not required to record obligations for 

potential termination liabilities under that authority, unless and until they 

decide to terminate.

During our review of seven privatized DOD systems, we determined that 

the services generally are agreeing to reimburse contractors for the 

acquisition and system improvement costs of the facilities. To the extent a 

particular contract is terminated prior to the contractor recouping its 

acquisition and system improvement costs, DOD has agreed to repay those 

costs. In the context of the multiyear utility program, the services have 

generally entered into contracts with terms of 50 years. During the terms of 

those contracts, DOD is either going to pay the annual costs of 

performance, which includes materials, labor, overhead, and other costs of 

14 62 Comp. Gen. 569 (1983).
Page 16 GAO-05-433 Defense Infrastructure

the acquisition and system improvements, or it will pay termination costs, 

which will cover the contractor’s unreimbursed costs for the acquisition 

and completed system improvements.

As DOD’s Office of General Counsel notes, our 1983 decision concluded 

that GSA may obligate the costs for its utility service contracts on an 

annual basis rather than obligating the entire amount of contract costs 

for future years in the first year of the contract. Section 2688, the authority 

underlying DOD’s utility services contracts, is not unlike GSA’s section 501 

authority. They both permit contracting for utilities services for a multiyear 

period. Just as in 1983, when we viewed section 501 as a remedial provision 

to afford GSA flexibility in contracting, we view section 2688 to similarly 

afford DOD flexibility. In our 1983 decision, we noted that the purpose of 

section 501’s multiyear contracting authority was to “take advantage of 

discounts offered under long term contracts” and “to effect economy and 

improve services,” and, thus, broadly construed the authority conferred to 

facilitate achieving these objectives.15 For the same reasons, we read 

section 2688 broadly, and agree with DOD’s interpretation of it. To read the 

statute to require obligating potential termination costs prior to a decision 

to terminate could undermine the economies and improvements in services 

that the statute envisions.

The decision to terminate the contracts is DOD’s, not the contractors’.16 If 

DOD decides to terminate a contract, those contracts appear to do nothing 

more than bind DOD to repay amounts that DOD would otherwise have 

paid if performance had continued, rather than additional penalties or 

charges DOD would not have paid absent the termination. If DOD decides 

to terminate, DOD must either have or obtain sufficient budget authority 

for the year DOD becomes liable for termination costs. Because DOD 

controls whether, and when, to terminate its contracts (and presumably 

would not terminate without sufficient budget authority to cover 

termination liability), should DOD in the future decide to terminate, such 

action does not expose the government to a financial risk.

15 62 Comp. Gen. at 572 and 575, n.8.

16 We do not presume the government will default on its contractual obligations.
Page 17 GAO-05-433 Defense Infrastructure

Utility Privatization 

Program Implementation 

Costs

For fiscal years 1998 through 2004, DOD and the services estimated that 

about $248 million had been spent to implement the utility privatization 

program (see table 3). For fiscal year 2005, implementation costs were 

expected to be about $48 million, bringing the total to about $296 million. 

According to DOD officials, the funds used to implement the program 

primarily paid for consultants hired to help implement the program by 

assisting the services in inventorying their utility systems, assessing the 

systems’ condition, preparing economic analyses, and soliciting and 

contracting for proposed projects. Program implementation costs did not 

include funds used to pay the costs of awarded privatization contracts.

Table 3: Implementation Costs for the Utility Privatization Program

Source: DOD.

a

At the time of our review in February 2005, Office of the Secretary of Defense officials stated that they 

had not yet estimated their program implementation costs for fiscal year 2005.

According to DOD officials, program implementation costs are expected to 

decline rapidly as the services complete their evaluations to privatize or 

exempt their utility systems.

The Services’ Savings 

Estimates from 

Utility Privatization 

Are Questionable

The services’ economic analyses supporting utility systems privatized or 

near contract award for privatization estimate that the government’s costs 

for equivalent utility services will be less with privatization. The amount of 

the savings is calculated based on the difference between the estimated 

costs of two options for improving the utility systems—privatization and 

continued government ownership. However, because of the method used to 

estimate the costs of continued government ownership, we found that 

these estimates give an unrealistic impression of reduced costs in that the 

government’s costs under privatization typically increase to pay 

Dollars in millions

Component

Fiscal years 1998

through 2004

Fiscal year

2005

Total through

fiscal year 2005

Office of the Secretary of 

Defense $3.3 $0.0a $3.3

Army 62.5 15.0 77.5

Navy 103.3 27.6 130.9

Air Force 78.6 5.4 84.0

Total $247.7 $48.0 $295.7
Page 18 GAO-05-433 Defense Infrastructure

contractors for enhanced utility services and capital improvements. 

Moreover, based on the economic analyses examined, we question the 

reliability of the projected differences in long-term costs between the 

privatization and government ownership options. In seven analyses we 

reviewed, we found inaccuracies and unsupported cost estimates that 

tended to favor the privatization option over continued government 

ownership. The Army Audit Agency has reported similar concerns with the 

reliability of analyses supporting Army utility privatization projects.

Installation Utility Costs 

Increase with Privatization

Installation utility costs under privatization typically increase significantly 

above historical levels because the systems are being upgraded and the 

contractors recoup their investment costs through the utility services 

contracts.17 Essentially, under the privatization program, the services 

leverage private sector capital to achieve utility system improvements that 

otherwise would not be feasible in the short term because of limited 

funding caused by the competition for funds and budget allocation 

decisions. The services pay for the improvements over time through the 

utility services contracts. Army officials estimated that the average annual 

cost increase for each privatized Army system was $1.3 million. According 

to the economic analysis for the electric system privatization at Dobbins 

Air Reserve Base, the annual operations and maintenance costs for the 

system after privatization were expected to increase by over 500 percent 

compared to historical costs.

Air Force headquarters officials stated concerns with the increased costs 

from historical levels with utility privatization. The officials estimated that 

based on the Air Force systems already privatized and those systems with 

the potential to be privatized, the Air Force’s costs could increase between 

$100 million and $200 million annually for the first 5 to 10 years of 

privatization. The officials also stated their concern that privatized systems 

present the Air Force with a bill that must be paid, whereas the Air Force 

would have more flexibility in programming and executing improvements 

for government-owned utility systems. According to the officials, this 

flexibility allows the Air Force to better balance the spending of available 

funds on utility improvements and other mission requirements to ensure 

the best use of resources.

17 System improvements normally include capital equipment upgrades and enhanced 

operations and maintenance to increase utility system reliability and reduce safety and 

environmental risks.
Page 19 GAO-05-433 Defense Infrastructure

Officials at each of the five installations we visited also expressed concern 

about increased utility costs from privatization. In particular, installation 

officials were concerned that other installation functions might suffer if 

funding provided for operating and maintaining their installations were not 

sufficiently increased to cover the higher utility costs. They noted that, 

under privatization, costs for upgrading, operating, and maintaining the 

systems are contract costs that must be paid. As a result, if an installation’s 

funds were not increased sufficiently, then funds provided for other 

installation functions where there was more discretion in spending might 

be used to pay the higher utility bills. This, in turn, could negatively impact 

those other functions, such as the maintenance of installation facilities.

The economic analysis for the Fort Campbell water and wastewater 

systems privatization illustrates the funding concern expressed by 

installation officials. The analysis stated that privatization will increase 

installation utility services costs well above levels previously budgeted for 

this purpose. The analysis further stated the concern that “the installation’s 

budget may not be increased to the level necessary to fund the increase 

requiring sacrifice of other installation functions.”

Privatization funding was a particular concern at Fort Irwin. Fort Irwin 

privatized its electrical system in 2003 and Army headquarters began 

providing funds to the installation to pay the monthly utility services bill. 

However, when we visited the installation in January 2005, Fort Irwin 

officials stated that Army headquarters had provided no funds for the 

privatization contract from October 2004 through January 2005 and, as a 

result, the monthly utility services bills had not been paid. In March 2005, 

the officials stated that headquarters had provided some funding for the 

project, but the amount provided was only 34 percent of the amount 

needed. Fort Irwin officials said that headquarters officials stated that they 

would try to provide more funds; however, if the additional funds are not 

provided, then the installation will have to use funds intended for other 

installation functions to pay the utility services bills.

Services’ Economic 

Analyses Do Not Depict 

Actual Expected Costs of 

Continued Government 

Ownership

We found that the services’ savings estimates for utility privatization 

projects were questionable because of the assumptions made about 

government “should costs” in the economic analyses that compare 

predicted costs under the privatization and government ownership options. 

DOD guidance directs the military services to compare estimated 

privatization costs based on the proposed contract with the estimated 

government ownership costs based on what it “should cost” the 
Page 20 GAO-05-433 Defense Infrastructure

government to upgrade, operate, and maintain the system in accordance 

with accepted industry standards as called for in the proposed contract. 

This estimating method would be appropriate if, in the event the system is 

not privatized, the service would proceed to upgrade, operate, and 

maintain the system as called for in the government estimate. However, this 

generally is not expected to be the case. According to DOD and service 

officials, if a system is not privatized, then the anticipated system 

improvements would likely be delayed several years because of DOD’s 

budget allocation decisions, which have limited the funds available for 

utility improvements and which caused DOD to look to privatization as an 

option in the first place.

Because of the time value of money, a future expense of a given amount is 

equivalent to a smaller amount in today’s dollars. Thus, delaying system 

improvements to future years would reduce the estimated cost of the 

government ownership option in today’s dollars and, therefore, affect the 

results of a proposed project’s economic analysis. At the same time, it must 

be recognized that delays in system improvements could increase 

government costs in the long term. Thus, if savings are expected to be a key 

factor in utility privatization decision making, then it would appear more 

appropriate for the services to compare the cost of a proposed privatization 

contract with the cost of continued government ownership on the basis of 

the actual planned expenditures and timing of these expenditures, with 

appropriate consideration to the impact of delayed improvements.

The economic analysis supporting the June 2003 privatization of Fort 

Campbell’s water and wastewater utility systems illustrates the impact of 

using DOD’s method for estimating and comparing the long-term costs of 

the privatization and government ownership options.18 Following DOD’s 

guidance, the Fort Campbell economic analysis estimated the long-term 

costs of government ownership by assuming that the installation would 

upgrade, operate, and maintain the systems in accordance with industry 

standards as the contractor proposed to do. The analysis estimated that 

over a 50-year period the total cost of government ownership of the 

systems would exceed the total cost of privatization by about $4.3 million 

in today’s dollars. However, Fort Campbell officials stated that if the 

contract had not been awarded and the government continued to own the

18 Fort Campbell privatized its water and wastewater systems under one contract and 

prepared one economic analysis for the project.
Page 21 GAO-05-433 Defense Infrastructure

systems, then the improvements planned for the systems would not have 

occurred as indicated in the economic analysis. The officials stated that the 

improvements most likely would have been delayed for several years until 

the Army approved funding for the improvements. Based on information in 

the economic analysis, we estimated that if the start of improvements to 

upgrade the systems planned during the first 10 years under the 

government ownership option were delayed by 5 years, which installation 

officials stated was a reasonable assumption, then the estimated cost of the 

government ownership option would decrease by about $6.5 million in 

today’s dollars because of the time value of money.19 Thus, in this case, 

consideration of the expected costs of continued government ownership 

based on a more realistic estimate of the timing of improvement 

expenditures could have changed the result of the analysis and showed that 

government ownership of the systems would be less costly than 

privatization over the long term.

DOD Does Not Require 

an Independent Review 

of the Services’ 

Economic Analyses

DOD does not require that the services’ economic analyses be subjected to 

an independent review for accuracy and compliance with guidance, as a 

step to help ensure reliability. Normally, the services hire consultants to 

prepare the analyses and service officials stated that completed analyses 

are reviewed by the service’s headquarters office responsible for the 

program. However, the reliability of the analyses is not reviewed by DOD 

headquarters officials or by an independent party, such as the services’ 

audit agencies. Further, at the five installations we visited, installation 

officials stated that they had not reviewed the details in the economic 

analyses supporting their privatization projects and did not know the basis 

for some of the estimates used in the analyses.

In contrast, DOD provides a more rigorous review of the analyses 

supporting privatization projects under DOD’s military housing 

privatization program. Under this program, the service that proposes a 

project must provide the responsible DOD headquarters officials with a 

detailed briefing that describes the project, its justification, and whether it 

meets specific financial criteria. These officials stated that they review 

each project’s supporting analysis and evaluate the estimates, assumptions, 

19 Under the government ownership option, the Fort Campbell economic analysis assumed 

that operations and maintenance levels would be enhanced and a series of capital projects 

would be undertaken to upgrade the systems. Our estimate was based on delaying the 

planned capital projects, not the enhanced operations and maintenance levels, for 5 years.
Page 22 GAO-05-433 Defense Infrastructure

and methodology used in the analysis for reasonableness and compliance 

with guidance. If concerns are identified, the officials ask the service for 

additional information before the project is approved. These top-level 

review steps provide additional assurances that supporting analyses are 

reliable and that each project is adequately justified before approval.

We reviewed seven utility privatization project analyses and identified 

inaccuracies, unsupported cost estimates, and noncompliance with 

guidance for performing the analyses. The cost estimates in the analyses 

we reviewed generally favored the privatization option by understating 

long-term privatization costs or overstating long-term government 

ownership costs. In five of the seven analyses, making adjustments to 

correct problems we identified would change the outcomes to show that 

government ownership, rather than privatization, would be less costly in 

the long term. In the remaining two cases, the analyses were not reliable 

because they did not reflect the actual utility system improvements to be 

performed by the contractor.

The economic analysis for privatizing Fort Lee’s water distribution system 

illustrates problems we identified. The Fort Lee analysis did not consider 

the system’s value at the end of the analysis period—the residual value—

under the government ownership option, as required by DOD guidance.20

Consideration of residual value recognizes that, under the government 

ownership option, the government would own the system and that the 

system would have some value at the end of the analysis period. In 

contrast, under the privatization option, the contractor, not the 

government, would own the system at the end of the analysis period. Not 

including the residual value in the analysis resulted in favoring the 

privatization option by overstating government ownership costs. We 

recomputed costs by including a residual value for the system at the end of 

the 50-year contract. The result was to change the outcome of the analysis 

from estimating that privatization would be less costly over the long term 

to estimating that government ownership would be less costly over the long 

term.

Table 4 includes selected information on each project we reviewed, 

including the savings estimates from the services’ analyses and a summary 

20 See DOD Instruction 7041.3, Subject: Economic Analysis for Decisionmaking, 

November 7, 1995.
Page 23 GAO-05-433 Defense Infrastructure

of the concerns we identified. Also, appendix II contains a detailed 

description of our review of each of the seven project economic analyses.

Table 4: Selected Information from Economic Analyses Supporting Utility Privatization Projects

Dollars in millions

Results from services’ 

economic analyses

Results from GAO’s review of the 

economic analyses

Utility 

privatization project

Estimated total

costs of

government

ownership

option in today’s

dollars

Estimated

total costs

of privatization option

in today’s

dollars

Estimated

savings or

cost

avoidance

with

privatization option

Were 

government 

ownership 

costs based 

on actual 

expected 

costs?

Did the 

analysis 

cover the 

same time 

period as 

the 

privatization 

contract?

Did the 

analysis 

consider 

residual 

value under 

the government 

ownership 

option?

Did the 

analysis 

include 

errors in 

estimating 

costs?

Would 

correcting 

the issues 

identified 

change the 

outcome to 

favor 

government 

ownership?

Water 

system, Fort 

Lee, Virginia $10.3 $8.8 $1.5 No No No Yes Yes

Electric 

system, Fort 

Lee, Virginia 31.7 26.9 4.8 No Yes No Yes Yesa

Water and 

wastewater 

systems, 

Fort 

Campbell, 

Kentucky 196.6 192.3 4.3 No Yes Yes Yes Yes

Electric 

system, Fort 

Irwin, 

California 32.1 29.7 2.4 No Yes Yes Yes Yes

Electric 

system, 

Dobbins Air 

Reserve 

Base, 

Georgia 5.6 3.8 1.8 No No Yes Yes Yes

Water 

system, 

Bolling Air 

Force Base, 

Maryland 10.9 6.5 4.4 No Yes Yes Unknownb

 Unknownb
Page 24 GAO-05-433 Defense Infrastructure

Source: DOD information with GAO analysis.

a

The outcome of the economic analysis changes if the system’s residual value is assumed to be equal 

to the system’s current replacement value. Army officials stated that the system’s residual value should 

equal the system’s replacement value less depreciation and, if this value were used, the outcome of 

the economic analysis would not change. However, under privatization, the system is to be upgraded, 

operated, and maintained in accordance with industry standards, which will result in increasing the 

system’s residual value.

b

We question the reliability of the economic analyses for Bolling Air Force Base because they did not 

reflect the actual system improvements to be performed by the contractor. We did not have sufficient 

information to recalculate estimates in the analyses. However, installation officials stated that they 

believed that continued government ownership of the systems would have been less costly than 

privatization over the long term.

The Army Audit Agency 

Identified Concerns about 

the Reliability of 

Economic Analyses

The Army Audit Agency has issued reports that identified concerns about 

the reliability of the economic analyses supporting utility privatization 

contracts at four Army installations. These concerns are similar to the ones 

we identified in our review. For example, in July 1999, the Army awarded a 

contract to privatize Aberdeen Proving Ground’s water and wastewater 

utility system. The Army Audit Agency reviewed the project and the 

supporting economic analysis and reported in April 2004 that the analysis 

did not include realistic cost estimates for system improvements to be 

performed by the privatization contractor.21 For example, the report stated 

that the analysis understated the cost of system improvements by 

$18.5 million over the life of the contract. As a result, the audit agency 

Wastewater 

system, 

Bolling Air 

Force Base, 

Maryland 7.2 5.7 1.5 No Yes Yes Unknownb

 Unknownb

(Continued From Previous Page)

Dollars in millions

Results from services’ 

economic analyses

Results from GAO’s review of the 

economic analyses

Utility 

privatization project

Estimated total

costs of

government

ownership

option in today’s

dollars

Estimated

total costs

of privatization option

in today’s

dollars

Estimated

savings or

cost

avoidance

with

privatization option

Were 

government 

ownership 

costs based 

on actual 

expected 

costs?

Did the 

analysis 

cover the 

same time 

period as 

the 

privatization 

contract?

Did the 

analysis 

consider 

residual 

value under 

the government 

ownership 

option?

Did the 

analysis 

include 

errors in 

estimating 

costs?

Would 

correcting 

the issues 

identified 

change the 

outcome to 

favor 

government 

ownership?

21 U.S Army Audit Agency, Potable Water and Wastewater Utility Systems Contract, 

Aberdeen Proving Ground, Maryland, A-2004-0186-IMO (Alexandria, Va.: Apr. 27, 2004).
Page 25 GAO-05-433 Defense Infrastructure

concluded that there was not a reliable framework for preparing the 

analysis and the decision to privatize Aberdeen’s water and wastewater 

system might result in higher costs to the government in the long term.

Implementation of 

the Fair Market Value 

Requirement Can 

Result in Higher 

Contract Costs

Although DOD is permitted latitude in ensuring that the government 

receives fair market value for systems conveyed to privatization 

contractors, in some cases implementation has resulted in higher contract 

costs for utility services. Guidance and practices for determining fair 

market value varied among the services, with Army guidance stating that 

fair market value for system conveyances could range from zero to full 

replacement cost of the system. Also, although it is a reasonable concept 

that the government should receive consideration if an asset is conveyed to 

a contractor, the receipt of consideration for conveyances in the utility 

privatization program does not typically result in a net financial payment to 

the government. To recover their costs, privatization contractors normally 

include the full amounts they paid for conveyances in the associated utility 

services contracts and, therefore, the government will pay back the 

amounts received for the conveyances through utility services bills over 

time. In some cases, the contractors also include additional amounts in the 

utility services contracts to cover the contractors’ costs associated with the 

fair market value payments. Consequently, implementing the fair market 

value requirement in such cases will result in the government paying back 

more than it will receive for the conveyances.

Guidance and Practices for 

Determining Fair Market 

Value Vary

The legislative authority for the utility privatization program states that the 

Secretary of a military department shall require as consideration for a 

conveyance an amount equal to the fair market value, as determined by the 

Secretary, of the right, title, or interest of the United States conveyed. DOD 

provided general guidance on implementing this requirement in October 

2002. As part of the negotiation strategy for utility system conveyances, the 

guidance directed the services to develop a range of fair market values, 

taking into account the business and strategic values of the utility system. 

The guidance stated that the services could choose to determine fair 

market value through an actual appraisal, a modified cost and income 

analysis, or a replacement or original-cost-less-depreciation analysis. 

Subsequently, in response to questions at an industry forum in September 

2004, DOD officials stated that the fair market value should be established 

through open negotiations, the contractor would recover the fair market 
Page 26 GAO-05-433 Defense Infrastructure

value paid for a conveyance through the service contract, and the 

contractor would earn a reasonable return on investment.

Although service officials stated that they have generally followed this 

guidance, the Army issued additional guidance on determining fair market 

value in April 2002.22 This guidance basically stated that a range of values 

could be considered as fair market value for utility system conveyances. 

Specifically, the guidance stated that the Army had concluded that the fair 

market value “could be any number of values such as zero, nominal, 

appraised, full replacement cost of the system, or any negotiated amount, 

but that the [fair market value] should be determined by an economic 

analysis applied in planning the sale of each utility system.” Army officials 

stated that determining fair market value is subjective and determined in 

part by the amounts contractors are willing to pay. In some cases, the 

officials stated that the most beneficial business case is to convey systems 

at less than their apparent fair market values.

On the basis of information in the services’ economic analyses we 

reviewed, table 5 shows the amounts that the government will receive from 

privatization contractors for utility system conveyances compared to one 

measure of fair market value—the system’s replacement cost less 

depreciation. Whether the amounts received should be considered 

sufficient is difficult to gauge because DOD has not adopted objective 

standards for determining whether the amounts received meet the fair 

market value requirement.

22 See Memorandum for Distribution, Subject: Utility Systems Privatization—Fair 

Market Value, the Army Assistant Chief of Staff for Installation Management 

(Washington, D.C.: Apr. 30, 2002). Navy and Air Force officials stated that their guidance on 

fair market value was consistent with DOD’s general guidance.
Page 27 GAO-05-433 Defense Infrastructure

Table 5: Amounts to Be Received for Utility System Conveyances for Projects Reviewed

Source: DOD with GAO analysis.

a

These values are normally determined by an analysis of each system’s replacement cost less 

depreciation based on an evaluation of the system’s physical condition.

b

According to the services’ economic analyses, the amounts that the contractors will pay for the 

conveyances normally will be paid through credits applied over time to the government’s utility services 

bill.

c

This project’s economic analysis did not include information on the system’s replacement cost. 

However, an Army analysis of the system, which included a reservoir, four water towers, and pipelines, 

performed about 10 years prior to privatization, stated that the system’s replacement cost was about 

$11.8 million, and Fort Lee officials stated that the system was in good condition and was not in need 

of any immediate upgrades or improvements at the time of its conveyance to the contractor.

The Army Audit Agency reported in October 2001 that the Army used 

varying methods to handle the fair market value requirement.23 The audit 

agency reported that in four electric system privatizations the Army had 

used an independent contractor to estimate the fair market values of the 

systems. However, the fair market value estimates were not the final 

negotiated fair market values agreed to by the parties. For example, in one 

case the independent fair market value estimate for the system was

Dollars in millions

Utility privatization project

System replacement cost

less depreciationa

Amount to be received for

the conveyanceb

Amount to be received as

a percentage of system

replacement cost less

depreciation (percent)

Fort Campbell water and 

wastewater systems $20.0 $4.5 23

Fort Irwin electric system 10.0 8.5 85

Fort Lee electric system 16.5 9.7 59

Fort Lee water system Unknownc 0.0 0

Dobbins Air Reserve Base 

electric system 0.9 0.7 78

Bolling Air Force Base water 

system 3.1 1.2 39

Bolling Air Force Base 

wastewater system 2.9 5.0 172

23 U.S. Army Audit Agency, Memorandum for the Assistant Chief of Staff for Installation 

Management, Subject: Review of the Fair Market Value for Privatized Electrical 

Distribution Systems, AA 02-701 (Alexandria, Va.: Oct. 5, 2001).
Page 28 GAO-05-433 Defense Infrastructure

$2.2 million and the system was conveyed for $0.1 million. In another case, 

the independent fair market value estimate for the system was $19.5 million 

and the system was conveyed for zero dollars.

Implementation of the Fair 

Market Value Requirement 

Increased Privatization 

Contract Costs in Some 

Cases

The services’ implementation of the requirement that the government 

receive fair market value when conveying utility systems resulted in 

increased costs to the government in some cases. The services normally 

negotiated with proposed privatization contractors for the fair market 

amount that the contractors will pay for system conveyances. However, to 

recover their costs, privatization contractors normally factor into the utility 

services contracts the full amount paid as fair market value for the systems. 

Thus, the government pays back the amounts received as consideration for 

the conveyances. However, in some cases, the contractors also include 

additional amounts in the utility services contracts to cover the 

contractors’ costs associated with the fair market value payments, which 

increased contract costs.

For example, according to the economic analysis for privatizing Dobbins 

Air Reserve Base’s electric system, the contractor will pay about $741,000 

as the fair market value for the system conveyance in today’s dollars. 

However, the analysis stated that the contractor will recover this cost, plus 

other associated costs, by charging the Air Force about $1,322,000 in 

today’s dollars in the utility services bills over time. Consequently, 

implementing the fair market value requirement in this case will result in 

the Air Force paying about $581,000, or 78 percent, more than it received 

for the conveyance.

A similar situation occurred at another installation we visited. According to 

the economic analysis for privatizing Fort Lee’s electric distribution 

system, the contractor will pay about $6.6 million for the conveyance with 

a cash down payment and with the remaining balance financed over 

27 years and paid in the form of monthly credits to the installation’s utility 

services bill. This arrangement will be equivalent to the contractor paying 

about $9.7 million for the conveyance in today’s dollars. However, the 

analysis also stated that the contractor will recover its costs for purchasing 

the system, including added amounts for taxes and other associated costs, 

through annual charges added to the installation’s utility services bill over 

the first 28 years of the contract. Based on the amounts to be charged, this 

arrangement will be equivalent to charging the Army about $16.7 million in 

today’s dollars. Consequently, implementing the fair market requirement in 
Page 29 GAO-05-433 Defense Infrastructure

this case will result in the Army paying about $7.0 million, or 72 percent, 

more than it received for the conveyance.

In a review of the electric distribution system privatization at Fort Benning, 

the Army Audit Agency also found that receipt of fair market value for the 

conveyance will result in the government paying more under the contract 

than if no consideration had been received. The audit agency’s report noted 

that the contractor agreed to pay $4.8 million for the system and the Army 

agreed to pay the contractor for this cost plus additional amounts for 

profit. The result was that over the life of the contract the Army will pay 

about $748,000 more than it received for the conveyance.24

DOD’s Execution 

of the Utility 

Privatization 

Program Raises 

Other Concerns

In examining DOD’s execution of the utility privatization program, we 

identified two additional areas of concern that could impact the overall 

effectiveness of the program. First, the services have not issued specific 

contract administration guidance for the program and, as a result, the 

adequacy of privatization contract oversight is a concern. Second, 

according to DOD consultant reports, DOD’s approach to privatizing 

utilities differs from typical private sector practices and, as a result, 

privatization contractors may have an advantage when the time comes to 

negotiate utility service contract changes and renewals. Management 

attention in these areas could help ensure that best practices are used and 

the government’s interests are adequately protected.

Adequacy of Privatization 

Contract Oversight Is 

a Concern

The adequacy of privatization contract oversight is a concern. The services’ 

oversight of utility privatization contracts appeared to be limited in some 

cases because of limited guidance and inadequate provisions for staff to 

monitor contracts. Inadequate oversight could result in the services paying 

contractors for work not performed or for work performed in an 

unsatisfactory manner.

The services have not issued specific guidance on utility privatization 

contract administration even though the program began 7 years ago and 

94 contracts have been awarded. Service officials stated that such guidance 

was in preparation and should be issued before the end of 2005. However, 

24 U. S. Army Audit Agency, Electrical Distribution System Contract, U.S. Army Infantry 

Center and Fort Benning, A-2002-0395-IMO (Alexandria, Va.: May 23, 2002).
Page 30 GAO-05-433 Defense Infrastructure

the lack of specific guidance for awarded contracts was a matter of 

concern at Fort Lee, one of the five installations we visited. Fort Lee 

officials stated that they had little guidance from headquarters on what 

they should be doing to oversee their water and electric privatization 

contracts, other than to pay the bills. The officials also stated that they did 

not have sufficient personnel to perform detailed monitoring of contractor 

performance because no additional resources were provided for this 

purpose after the contracts were signed. The officials believed that the 

contractors were performing adequately but had little documentation to 

support their opinions.

The Army Audit Agency also has reported concerns with the adequacy of 

privatization contract oversight. As illustrated below, in its reviews of four 

Army utility privatization contracts at the Aberdeen Proving Ground and 

Forts Hamilton, Benning, and Pickett, the audit agency found that 

contractor performance was not adequately monitored, and as a result, 

there was little assurance that the installations would receive quality 

products and services under privatization.

• In its review of utility privatization at the Aberdeen Proving Ground, the 

audit agency found that the Army paid about $3.3 million during fiscal 

year 2001 for operating expenses the contractor did not incur, system 

improvements the contractor did not perform, and purchases the 

contractor did not make.25 These conditions occurred because the 

Aberdeen Proving Ground did not develop a performance monitoring 

plan, monitor completion of system improvements, or require detailed 

expense reporting by the contractor. In response, the responsible Army 

officials agreed to develop a contract-monitoring plan to help track 

system improvements and require the contractor to report additional 

data on expenses.

25 See note 21.
Page 31 GAO-05-433 Defense Infrastructure

• In its review of utility privatization at Fort Hamilton, the audit agency 

found that the Army’s guidance to the installation did not specify what 

aspects of the contract required monitoring, the installation did not have 

a plan to monitor contractor performance, and the contractor did not 

provide the Army with plans and reports as required by the contract to 

assist in contract oversight.26 The audit agency concluded that the Army 

needed to improve the contract administration procedures to ensure 

that the Army would receive quality products and services. In response, 

the responsible Army officials agreed to put procedures in place to 

address the findings.

• In its review of utility privatization at Fort Benning, the audit agency 

found that Fort Benning did not have procedures in place to effectively 

monitor the contractor’s performance because the contractor was not 

required to provide any performance data to the government and the 

installation did not have a contract-monitoring plan as required by 

guidance.27 In response, Fort Benning officials agreed to develop a 

contractor-monitoring plan that included inspection, verification, and 

reporting to establish better contract oversight.

• In its review of utility privatization at Fort Pickett, the audit agency 

found that Fort Pickett had no contract monitoring plan, the installation 

official responsible for the contract did not know that the contractor 

had delayed about 50 percent of the improvements planned in the first 

year, and tenant organizations at the installation were not properly 

charged for reimbursable costs associated with the privatized electrical 

system.28 In response, the responsible Army officials agreed to develop a 

contract-monitoring plan to help track system improvements and to 

ensure accurate charges for tenants.

26 Army Audit Agency, Privatization of Utility Distribution Systems, Fort Hamilton, 

New York, A-2003-0216-IMO (Washington, D.C.: Apr. 11, 2003).

27 See note 24.

28 U.S. Army Audit Agency, Electrical Distribution System Contract, Virginia Army 

National Guard Maneuver Training Center, Fort Pickett, Virginia, A-2003-0337-IMO 

(Alexandria, Va.: June 27, 2003).
Page 32 GAO-05-433 Defense Infrastructure

DOD’s Approach to Utility 

Privatization Appears to 

Differ from Typical Private 

Sector Practices

DOD has no studies or other documentation showing that its approach to 

utility privatization is based on private sector best practices. A senior DOD 

official characterized the utility privatization program as the result of a 

decision by the Office of the Secretary of Defense that operating and 

maintaining utilities was not a core function and that installation utilities 

should be privatized. Nevertheless, according to two reports prepared by 

Navy and Air Force consultants, DOD’s approach actually differs from 

typical private sector practices in that private companies may outsource 

system operations and maintenance but normally opt for shorter than 50-

year utility service contracts and typically do not permanently convey 

ownership of their utility systems. The first report, prepared by CNA at the 

request of the Navy and issued in March 2001, noted that while most private 

sector contracts for utility services last from 7 to 10 years, most DOD utility 

services contracts under privatization are for 50 years.29 The report’s 

concern was that a contract written today could not adequately anticipate 

all possible contingencies over the next 50 years because technologies and 

requirements can change in unforeseen ways. CNA also reported that, in 

contrast to DOD’s preferred approach that utility system ownership be 

permanently conveyed to contractors, private sector firms typically retain 

ownership of their systems. The report’s concern here was that DOD’s 

preferred approach of permanently conveying ownership may give the 

contractor an advantage when negotiating service contract changes or 

renewals. For example, generally entering into a long-term services 

contract creates a bilateral monopoly where the military must purchase 

utility services from one company and that company must sell these 

services to the military. The report concluded that such an arrangement 

could pose special problems because DOD must deal with the contractor or 

face high costs. For example, if DOD and the contractor reached an 

impasse over some issue, then DOD might have to pay significant amounts 

to construct a new utility distribution system to replace the one that had 

been conveyed to the contractor, attempt to purchase the system back 

from the contractor, or institute legal action to reacquire the system 

through condemnation proceedings.

29 CNA, Utility Privatization Initiatives: Concerns, Metrics, Priorities, CRM D0003236.A2 

(Alexandria, Va.: March 2001).
Page 33 GAO-05-433 Defense Infrastructure

The second report was prepared by Malcolm Pirnie, Incorporated, at the 

request of the Air Force and issued in March 2002.30 This report included 

the results of a survey of utility practices at entities similar to military 

installations, such as selected industrial complexes, airport authorities, and 

universities responsible for supplying utility services to their complexes. 

The survey found that in most cases, these entities owned and operated 

their utility systems. The report also noted that under DOD’s approach, 

renegotiating terms after a contract’s 50-year term ends could be a concern 

because in instances where alternatives for service were not available, 

DOD’s negotiating position would be negatively impacted.

Officials at several of the installations we visited also expressed concerns 

about the government’s negotiating position under privatization after 

permanent conveyance of system ownership to a contractor. For example, 

Bolling Air Force Base officials stated that they were concerned that the 

contractor might obtain larger-than-expected price increases in future price 

renegotiations because the contractor had a monopoly position over the 

government. As a result, they believed that a privatization contract could 

ultimately cost considerably more than expected. Similarly, the Fort 

Campbell economic analysis supporting privatization of the installation’s 

water and wastewater systems stated that privatization “will give the new 

owner a monopoly for the utility service that will require close regulation 

by the Army. Staffing of this regulation function will be essential to insuring 

that a reasonable price is paid for the service rendered.”

A recent situation at Fort Leonard Wood appears to illustrate the potential 

problems facing DOD under its approach to privatization when utility 

services contracts come up for renewal. About 15 years ago, the Army 

awarded a contract to a company to build a natural gas pipeline to the 

installation and in 1992 entered into a 10-year utility services contract with 

the company. This contract expired in October 2002. From that time 

through December 2004, the Army was unable to reach agreement with the 

company for a new 10-year contract. According to Army officials, the 

impasse was over higher service prices and other conditions imposed by 

the company as a condition for renewal. To continue service, the Army and 

the company had agreed to short-term 90-day contracts in which the Army 

agreed to pay the company higher prices for utility services. After 26 

months, in January 2005, the Army and the contractor agreed to new terms 

30 Malcolm Pirnie, Inc., Program Assessment for Utilities Privatization in the U.S. Air 

Force (March 2002).
Page 34 GAO-05-433 Defense Infrastructure

and entered into a new 10-year services contract. However, according to 

Army Audit Agency officials who were conducting a review of natural gas 

service contracts at several installations including Fort Leonard Wood, if 

negotiations for renewing the contract at Fort Leonard Wood had not been 

successful, then the Army possibly would have started legal efforts to 

condemn the system in order to gain ownership.

Of the seven utility privatization projects that we reviewed, all but one 

followed DOD’s preferred approach and permanently conveyed system 

ownership to the contractor. The exception was the privatization of Fort 

Campbell’s water and wastewater systems. In this case, the installation 

conveyed the systems to the contractor, but the contract provided for 

reversion of ownership to the government at the end of the 50-year services 

contract. During the privatization evaluation process, Fort Campbell 

officials had noted concerns over the permanent conveyance of the 

systems. Specifically, according to the Fort Campbell economic analysis for 

the systems, the government will pay the contractor to upgrade and 

maintain the systems in good condition over the 50-year contract term. As a 

result, by regaining ownership at the end of the contract, the Army would 

take ownership of systems worth a considerable sum of money and would 

have additional options, such as taking over operations and maintenance or 

issuing a competitive solicitation for a new utility services contract. 

Conversely, the analysis noted that by following DOD’s preferred approach 

of permanent conveyance without reversion, the government would be 

locked into procuring utility services from the contractor for as long as the 

Army needed the services and this approach might not be in the 

government’s best interest. Because of its concerns, Fort Campbell sought 

and obtained approval from Army headquarters to enter into a privatization 

contract that included ownership reversion.

Conclusions Utility privatization has helped installations achieve major system 

improvements that, according to DOD, would not have been otherwise 

possible given competing appropriation priorities. Nevertheless, the utility 

privatization program generally increases military utility costs well above 

historical levels because the program leverages private sector capital to 

achieve utility system improvements. To pay for these improvements over 

time, DOD’s funding obligations will likely increase, not decrease, by 

hundreds of millions of dollars and operations and maintenance budgets 

will need to be adjusted, as necessary. Yet, the services’ economic analyses 

give an unrealistic sense of savings to this program because they estimate 

that approved projects will reduce the government’s long-term costs for 
Page 35 GAO-05-433 Defense Infrastructure

utility services. The amount of estimated long-term savings, however, is 

merely the services’ estimated difference between the costs of two 

options—privatization and government ownership—and both options will 

result in increased utility costs compared to historical levels, although 

perhaps in different time frames. Moreover, as long as selecting the lesscostly option is expected to be a key factor in utility privatization decision 

making, it is important that the supporting analyses are reliable. Unless 

DOD revises the guidance for preparing economic analyses for proposed 

utility privatization projects so that the analyses are based on actual 

anticipated costs, the result will continue to be analyses that could lead 

DOD to enter into long-term privatization agreements that result in higher, 

not lower, costs compared to continued government ownership. Reliability 

also will continue to be an issue until DOD starts requiring an independent 

review of the economic analyses supporting proposed privatization 

projects. Without such a review, the services’ economic analyses could 

continue to include inaccuracies and decision makers will be hampered in 

their ability to make economically sound choices about which option 

should be followed to achieve utility systems improvements.

Unless DOD places greater scrutiny on the implementation of the fair 

market value requirement in proposed utility privatization contracts in 

order to minimize cases where contractors recover more than the amounts 

they paid for system conveyances, some utility privatization contracts may 

cost more than necessary. Also, until the services issue specific utility 

privatization contract administration guidance including the clear 

assignment of responsibilities and ensure that resources are provided to 

perform adequate contract oversight, the services’ oversight of utility 

privatization contracts may continue to be limited. Inadequate oversight 

could result in the services paying contractors for work not performed or 

for work performed in an unsatisfactory manner. Also, as long as DOD’s 

preferred approach is for installations to permanently convey utility system 

ownership, contractors may continue to have an advantage when it comes 

time to negotiate contract changes and renewals. DOD must deal with the 

contractor or pay significant amounts to construct a new utility distribution 

system to replace the one that had been conveyed to the contractor, 

attempt to purchase the system from the contractor, or institute legal 

action to reacquire the system through condemnation proceedings.
Page 36 GAO-05-433 Defense Infrastructure

Recommendations for 

Executive Action

We recommend that the Secretary of Defense direct the Deputy Under 

Secretary of Defense (Installations and Environment) to take the following 

six actions:

• As long as savings are expected to be a key factor in utility privatization 

decision making, revise the guidance for preparing economic analyses 

so that the analyses compare the cost of a proposed privatization 

contract with the cost of continued government ownership on the basis 

of the actual planned expenditures and the timing of these expenditures.

• Require an independent review, perhaps by DOD headquarters or the 

services’ audit agencies, of the economic analyses supporting proposed 

privatization projects.

• Provide general program guidance emphasizing the need to consider 

increased utility costs under privatization as the military services 

prepare their operation and maintenance budget requests.

• Place greater scrutiny on the implementation of the fair market value 

requirement in proposed contracts to minimize cases where contractors 

recover more than the amounts they paid for system conveyances.

• Issue program guidance, specific to utility privatization, emphasizing the 

importance of contract oversight.

• Reassess whether permanent conveyance of utility systems should be 

DOD’s preferred approach to obtaining improved utility services. 

We further recommend that the Secretary of Defense direct the Secretaries 

of the military departments to take the following two actions:

• Ensure that installation operations and maintenance budgets are 

adjusted as necessary to reflect increased costs from utility privatization 

projects.

• Issue specific utility privatization contract administration guidance 

including the clear assignment of responsibilities and ensure that 

resources are provided to perform adequate contract oversight. 
Page 37 GAO-05-433 Defense Infrastructure

Matter for 

Congressional 

Consideration

On the basis of DOD’s comments on our recommendations, as discussed 

below, the Congress may wish to consider requiring DOD to address the 

issues and recommendations discussed in this report before proceeding 

with further utility privatization efforts.

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, the Deputy Under Secretary of 

Defense (Installations and Environment) did not concur with our report 

findings or recommendations and raised several concerns. DOD stated that 

we had a limited understanding of the utilities privatization program and 

characterized our findings as being outdated and not well founded. In 

addition, DOD suggested that our report represented an unwarranted 

characterization of our findings as being systemic problems of the 

program. We disagree.

We believe that our review of the utility privatization program was 

objective, balanced, and represented program conditions existing at the 

time we completed our review in March 2005. We remain confident that our 

conclusions and recommendations are soundly based upon the findings 

discussed in the report. In response to the comments, however, we 

modified two of our recommendations, as noted below, to improve their 

clarity and more precisely identify responsible parties. We also added two 

recommendations regarding program guidance, as noted below. We believe 

it is appropriate to emphasize, as explained in the scope and methodology 

section of this report, that we followed our professional practices and 

validated the facts and statistics presented in the report with DOD and 

service officials prior to preparation of the draft report.

In its comments, DOD did not provide any information suggesting any 

inaccuracies in our report, but rather contended that our case studies were 

outdated and related to problems that occurred during the start of the 

program in the late 1990s. DOD’s contention is incorrect. Of the seven 

utility privatization projects we reviewed in detail, the associated contracts 

for four projects were awarded in 2004, and the contracts for two projects 

were awarded in 2003. The economic analyses supporting these projects 

should have been current and reliable at the time the contracts were 

awarded; but as noted in this report, they were not. Further, Office of the 

Secretary of Defense officials used three of the projects we reviewed in 

detail as examples of cost-saving utility privatization projects in program
Page 38 GAO-05-433 Defense Infrastructure

briefings presented to us in July 2004. As noted in the scope and 

methodology section of this report, we recognize that the limited number 

of case studies completed does not make them projectable to the universe 

of DOD utility privatization projects. However, given other corroborating 

information, including statements of continuing program concerns raised 

by cognizant service and installation officials and similar concerns 

reported by the Army Audit Agency and more recently by the Naval 

Inspector General, we believe the findings of this report have much 

broader applicability than the limited number of cases we studied.31

Even the Deputy Under Secretary recently noted significant challenges in 

managing the program. In March 2, 2005, testimony before a House 

Appropriations Subcommittee, the Deputy Under Secretary noted 

difficulties in conducting long-term economic analyses, determining fair 

market value for the government’s utility systems, and making price 

adjustments to long-term contracts for utility services.32 We make the 

following observations regarding DOD’s comments on the individual 

recommendations in the draft report.

DOD disagreed with our recommendation to revise the guidance for 

preparing economic analyses so that the analyses would compare the cost 

of a proposed privatization contract with the cost of continued government 

ownership on the basis of the actual planned expenditures and the timing 

of these expenditures. DOD stated that it is impossible to predict with any 

measure of accuracy what DOD would spend to maintain a system, 

particularly with regard to military construction, beyond more than a 

few years. Thus, DOD believes that its current use of a “should-cost” 

estimate, based on what a private utility company would engage in by way 

of recapitalization, results in an estimate with some reasonable accuracy. 

Our issue with DOD’s estimates primarily concerns what DOD would 

actually spend on the systems over the near term where, based on its 

comments, it does know what it plans to spend with some accuracy. As 

long as selecting the less-costly option—i.e., government ownership or 

privatization—is expected to be a key factor in utility privatization 

decisions, as required by statute, we continue to believe that the supporting 

analyses should be based on realistic anticipated costs, as is the intent of 

31 See notes 21, 23, 24, 26, and 28, and Naval Inspector General, Utilities Privatization 

Study (Washington, D.C.: Mar. 15, 2005).

32 See Statement of Deputy Under Secretary of Defense (Installations and Environment) 

before the Subcommittee on Military Quality of Life and Veterans’ Affairs, Committee on 

Appropriations, United States House of Representatives, March 2, 2005.
Page 39 GAO-05-433 Defense Infrastructure

our recommendation. DOD also commented that use of its current 

estimating method was consistent with the underlying rationale of the 

program—that private industry can normally provide more efficient utility 

service than can the government. As our report makes clear, however, DOD 

did not provide any studies or other documentation to support its 

contention. Given that the private sector faces higher interest costs than 

the government and strives to make a profit whereas the government does 

not, it is not certain that utility services provided by the private sector 

would be less costly than utility services provided by the government 

through the use of up-front appropriations. Thus, as we have 

recommended, sound economic analyses based on actual planned 

expenditures are needed to determine the most cost-effective option for 

providing utility services to DOD installations.

DOD disagreed with our draft recommendation that the Deputy Under 

Secretary of Defense (Installations and Environment) ensure that 

installation operations and maintenance budgets are adjusted as necessary 

to reflect increased costs from utility privatization projects. DOD properly 

noted that the Deputy Under Secretary of Defense (Installations and 

Environment) does not manage the operations and maintenance budgets of 

the installations. Accordingly, we have modified the recommendation to 

state that the Secretary of Defense should direct the Secretaries of the 

military departments to take this action. Further, given the magnitude of 

the program and the fact that many of these facilities, as well as base 

operating support budgets from which utility-related contracting costs are 

paid, have been historically underfunded, we believe it would be 

appropriate for the Deputy Under Secretary to provide general program 

guidance emphasizing the need to consider increased utility costs under 

privatization as the military services prepare their operations and 

maintenance budget requests. Accordingly, we have added supporting 

information in the text on this point and a new recommendation to address 

this issue.

DOD disagreed with our recommendation to require an independent 

review, perhaps by DOD headquarters or the services’ audit agencies, of the 

economic analyses supporting proposed privatization projects. DOD stated 

that the military departments have the authority to ensure a sufficient 

review and have adopted processes that conduct such a review. DOD stated 

that our concerns, while factual, occurred during the start of the program. 

We agree that the military departments have the authority to ensure 

sufficient review of the economic analyses, but we disagree that the 

military departments have adopted processes that ensure reliable analysis, 
Page 40 GAO-05-433 Defense Infrastructure

as noted by the examples in this report. As explained above, the case 

studies we reviewed and their economic analyses are associated with 

recent privatization contracts mostly signed within the past 2 years—not at 

the beginning of the program in 1997—and thus reflect current concerns. 

Also, we do not understand DOD’s reluctance to provide additional 

scrutiny of the economic analyses for proposed utility privatization 

projects in view of the errors we found in the cases we examined and the 

fact that DOD already provides for such independent reviews of economic 

analyses associated with proposed projects in the housing privatization 

program. Thus, we continue to believe, as we have recommended, that an 

independent review is needed to help ensure the accuracy and reliability of 

the economic analyses supporting proposed privatization projects.

DOD disagreed with our recommendation to place greater scrutiny on the 

implementation of the fair market value requirement in proposed contracts 

to minimize cases where contractors recover more than the amounts they 

paid for system conveyances. DOD again commented that the examples 

mentioned in this report happened during the start of the program and that 

contracting officers are now aware of the potential for contractors to 

recover more than they pay in fair market value and take steps to minimize 

the risk. Contrary to DOD’s comments, the two examples of concerns in 

this area that we reviewed and cite in this report, Dobbins Air Reserve Base 

and Fort Lee, were privatized in April 2004 and June 2004, respectively—

7 years after the start of the program in 1997. Also, given that DOD 

contends that contracting officers are now aware of the concern and are 

taking steps to minimize the risk, we continue to believe, as we have 

recommended, that it is appropriate for DOD to place greater scrutiny on 

the implementation of the fair market value requirement to ensure that 

these steps are successful.

DOD disagreed with our draft recommendation that the Deputy Under 

Secretary of Defense (Installations and Environment) issue specific utility 

privatization contract administration guidance and provide funding for 

personnel to perform contract oversight. DOD commented that the 

services are responsible for funding and performing post-award contract 

administration of utility contracts, just as with any other contract. We 

agree, in part, and therefore clarified and changed our recommendation to 

state that the Secretary of Defense should direct the Secretaries of the 

military departments to take this action. However, given the magnitude of 

the utility privatization program and its use of 50-year service contracts, we 

believe, as our report makes clear, that it would be beneficial for the 

Deputy Under Secretary to issue program guidance, specific to utility 
Page 41 GAO-05-433 Defense Infrastructure

privatization, to emphasize the importance of contract oversight. We have 

added a separate recommendation to address this issue.

DOD disagreed with our recommendation to reassess whether permanent 

conveyance of utility systems should be DOD’s preferred approach to 

obtaining improved utility services. DOD commented that the Deputy 

Secretary of Defense determined that owning, operating, and maintaining 

utility systems are not core functions of the DOD and that the issue of title 

transfer has been reviewed repeatedly during the life of this program. As 

noted in this report, DOD has no studies or other documentation showing 

that its approach to utility privatization is based on private sector best 

practices. On the other hand, the services have two consultant reports 

which state that DOD’s approach actually differs from typical private sector 

practices and raise the concern that DOD’s preferred approach of 

permanently conveying ownership may give the contractor an advantage 

when negotiating service contract changes or renewals. Moreover, there is 

not universal agreement within DOD concerning what is or is not a core 

function. For example, the Deputy Assistant Secretary of the Air Force 

stated in March 2005 congressional testimony that “the Air Force considers 

utility operation and maintenance a core competency, without which we 

could not fly and fight”.33 In its comments, DOD also stated that while there 

are compelling arguments on each side, the department continues to 

believe that the best practice—i.e., its practice—is to transfer title to the 

utility system in line with the statutory intent. We disagree. First, just 

because many DOD systems have been conveyed in that manner does not 

make it a best practice. As noted, most utility service contracts are longterm agreements and it may take many years before DOD knows whether 

the practice of conveyance is successful or whether it results in long-term 

problems and added costs to DOD. Second, while the utility privatization 

statute permits title transfer, it is not clear that the statute’s language shows 

intent for the services to convey utility ownership. Thus, we continue to 

believe, as we have recommended, that DOD should reassess whether 

permanent conveyance of utility systems should be DOD’s preferred 

approach to obtaining improved utility services. 

33 See Statement by the Deputy Assistant Secretary of the Air Force (Installations) before 

the Subcommittee on Military Quality of Life and Veterans’ Affairs, Committee on 

Appropriations, United States House of Representatives, March 2, 2005.
Page 42 GAO-05-433 Defense Infrastructure

DOD’s comments are reprinted in their entirety in appendix III.

We are sending copies of this report to other interested congressional 

committees; the Secretaries of Defense, Army, Navy, and Air Force; and the 

Director, Office of Management and Budget. 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 has any questions on the matters discussed in this 

report, please contact me at (202) 512-5581 or my Assistant Director, 

Mark Little, at (202) 512-4673. Gary Phillips, Sharon Reid, Harry Knobler, 

and Kenneth Patton were major contributors to this report. 

Barry W. Holman, Director

Defense Capabilities and Management
Page 43 GAO-05-433 Defense Infrastructure

Appendix I

Scope and Methodology ApApenednxidexiIs

To determine the status of the Department of Defense’s (DOD) utility 

privatization program, we reviewed past and present privatization plans, 

initiatives, and costs. We reviewed the legislative history of the 

privatization program and assessments of the program performed by 

service audit agencies and others. We compared current goals and 

milestones with previous ones and interviewed DOD and service 

headquarters officials responsible for the program to determine reasons for 

the changes. We reviewed applicable DOD and military service policies and 

procedures. Using data from the services’ quarterly program status reports 

to DOD, we summarized the program implementation status by service and 

compared the status to the current goals and milestones for the program. 

We confirmed the quarterly reports’ status data on seven privatization 

projects but did not otherwise test the reliability of the data. We discussed 

with DOD and service officials issues affecting implementation of the 

program such as questions regarding contract termination liability. We 

visited selected installations to review and discuss utility privatization 

projects at the installations. Specifically, we visited five military 

installations—Fort Campbell, Kentucky; Fort Lee, Virginia; Fort Irwin, 

California; Dobbins Air Reserve Base, Georgia; and Bolling Air Force Base, 

Maryland. The installations were selected because they have projects that 

were privatized using the legislative authorities specifically provided for 

privatizing military utility systems. In addition, DOD often cites three of the 

installations visited as having financially successful utility privatization 

projects. We did not select a Navy or Marine Corps privatization project to 

review because the Navy had approved only one project under the 

legislative authorities provided for the program and the Marine Corps had 

approved none. The Navy project did not involve a typical utility 

privatization effort in that it converted a fuel service contract into a 

privatization contract.

To determine whether the services’ estimates of savings from utility 

privatization projects are reliable, we reviewed the services’ utility costs 

and funding information and discussed with DOD and service officials how 

utility costs under privatization compare to historical utility costs, the 

reasons for the cost differences, and whether funding the utility 

privatization program could affect the funding available for other 

installation functions. We also selected and reviewed the economic 

analyses for seven privatization projects located at the five installations 

visited. We selected three analyses for review because DOD often cites the 

associated privatization projects as examples of successful, cost-saving 

projects. The other four analyses were selected because they represented a 

cross section of typical utility privatization projects, according to service 
Appendix I

Scope and Methodology

Page 44 GAO-05-433 Defense Infrastructure

officials. For each analysis, we evaluated the basis for the estimates and 

assumptions used and assessed consistency and compliance with DOD 

guidance. We examined the analyses for the use of appropriate life-cycle 

methodologies and accuracy of the calculations. We did not otherwise 

attempt to independently determine estimates of long-term costs for the 

seven projects. We shared the results of our analyses with DOD and service 

officials and incorporated their comments as appropriate. We discussed 

with DOD and service officials the procedures they use to ensure the 

consistency, reasonableness, and accuracy of the completed economic 

analyses. We also reviewed reports from the services’ audit agencies 

related to utility privatization projects and their assessments of the 

reliability of the economic cost analyses.

To determine how DOD implements the fair market value requirement for 

conveyed utility systems, we reviewed DOD and service policies and 

procedures dealing with implementation of the fair market value 

requirement, discussed with officials how receipt of fair market value is 

ensured, and assessed the amounts received as consideration for the seven 

privatization project conveyances associated with our review of the 

economic analyses. For each project, we examined how the fair market 

value was determined and reviewed what effect the amounts received and 

the associated contract terms had on the government’s costs for 

privatization. We shared the results of our analyses with DOD and service 

officials.

To determine whether other issues might impact DOD’s execution of the 

utility privatization program, we reviewed DOD and service guidance for 

utility privatization contract administration, discussed contract oversight 

with DOD and service officials, and discussed and reviewed the oversight 

provided at the five installations visited. We also reviewed reports on utility 

privatization contract administration from the Army Audit Agency. In 

addition, we obtained and reviewed information from DOD, service, and 

installation officials and from service consultant reports on how DOD’s 

approach to utility privatization compares with private sector practices. We 

visited one of the services’ consultants, CNA, to discuss details with the 

authors of the CNA report on utility privatization.

We conducted our review between July 2004 and March 2005 in accordance 

with generally accepted government auditing standards.
Page 45 GAO-05-433 Defense Infrastructure

Appendix II

Results of GAO’s Review of the Services’ 

Economic Analyses Supporting Seven Utility 

Privatization Projects ApendxiI

We reviewed seven utility privatization project analyses and identified 

inaccuracies, unsupported cost estimates, and noncompliance with 

guidance for performing the analyses. In general, the cost estimates in the 

analyses we reviewed favored the privatization option by understating 

long-term privatization costs or overstating long-term government 

ownership costs. The results of our review are summarized below.

Fort Lee Water System 

Privatization

The economic analysis for privatizing Fort Lee’s water distribution system 

did not consider the system’s value at the end of the analysis period—the 

residual value—under the government ownership option, as required by 

DOD guidance.1

 Consideration of residual value recognizes that, under the 

government ownership option, the government would own the system and 

that the system would have some value at the end of the analysis period. In 

contrast, under the privatization option, the contractor, not the 

government, would own the system at the end of the analysis period. Not 

including the residual value in the analysis resulted in favoring the 

privatization option by overstating government ownership costs. We 

recomputed costs by including a residual value for the system at the end of 

the 50-year contract. The result was to change the outcome of the analysis 

from estimating that privatization would be less costly over the long term 

to estimating that government ownership would be less costly over the long 

term.

DOD’s guidance also requires that a system’s economic analysis consider 

costs over the proposed project’s contract term. However, the analysis for 

Fort Lee’s water distribution system considered costs over a 25-year period 

instead of the contract’s 50-year period. Although information was not 

available to determine how this discrepancy affected the results of the 

analysis, the example demonstrates the need for independent review to 

help ensure accuracy and compliance with guidance.

Fort Lee Electric 

System Privatization

The economic analysis for the privatization of Fort Lee’s electric 

distribution system also did not consider the system’s residual value under 

the government ownership option. We recomputed costs by including a 

residual value for the system at the end of the 50-year contract. Army 

1

 See DOD Instruction 7041.3, Subject: Economic Analysis for Decisionmaking, 

Nov. 7, 1995.
Appendix II

Results of GAO’s Review of the Services’ 

Economic Analyses Supporting Seven Utility 

Privatization Projects

Page 46 GAO-05-433 Defense Infrastructure

officials suggested that the residual value should approximate 

$16.5 million, the system’s current replacement cost less depreciation. 

Using this amount in the analysis would show the privatization option to 

still be less costly than government ownership over the long term, but the 

estimated cost difference between the options would decrease from 

15.0 percent to 4.6 percent. However, the analysis assumed that the system 

would be upgraded and maintained in accordance with industry standards 

over the 50-year analysis period and showed that, under the government 

ownership option, the Army would spend $17.7 million in today’s dollars 

for system improvements. As such, we believe that it is reasonable to 

assume that the residual value should approximate the system’s current 

replacement cost of $23.3 million. Using this amount in the analysis would 

change the outcome of the analysis and show that government ownership 

would be slightly less costly than privatization over the long term.

Fort Campbell Water 

and Wastewater 

Systems Privatization

The economic analysis supporting privatization of Fort Campbell’s water 

and wastewater systems contained several errors. First, the analysis did 

not follow DOD guidance when estimating contract oversight costs for the 

privatization option and as a result, understated these costs. Second, the 

analysis included errors in estimating general and administrative costs 

under the government ownership option and as a result, overstated these 

costs. Third, the analysis used faulty assumptions in estimating selfinsurance costs for potential property and liability losses under the 

government ownership option and as a result, overstated these costs. We 

recomputed the cost estimates by making corrections for these errors. The 

result was to change the outcome of the analysis from estimating that 

privatization would be less costly over the long term to estimating that 

continued government ownership would be less costly over the long term.

Fort Irwin Electric 

System Privatization

The economic analysis for privatizing Fort Irwin’s electric distribution 

system overstated annual operations and maintenance costs under the 

government ownership option. Specifically, to estimate these costs, the 

analysis adjusted the installation’s historical operations and maintenance 

costs upward to reflect the estimated amount that the installation should 

be spending in accordance with industry standards. However, part of this 

estimate included predicted future costs for emergency repairs. Fort 

Irwin’s historical emergency repair costs were about $175,000 annually and, 

to adjust for some items that were not included in the historical costs and 

estimate the amount that the installation should be spending for emergency 
Appendix II

Results of GAO’s Review of the Services’ 

Economic Analyses Supporting Seven Utility 

Privatization Projects

Page 47 GAO-05-433 Defense Infrastructure

repairs, the analysis increased the historical amount by over 100 percent to 

about $357,000 annually. Fort Irwin officials stated that emergency repair 

costs were high in the past because the system consisted primarily of old, 

antiquated equipment that had not been adequately maintained. However, 

under the government ownership option, as under privatization, the 

analysis assumed that the system would be quickly upgraded and 

maintained to industry standards. As such, the officials stated that future 

emergency repair costs should decrease, not increase. To adjust for the 

overstated emergency repair cost estimate and to be conservative, we 

recalculated the total costs under the government ownership option 

assuming that emergency repair costs would not increase or decrease but 

remain at the historical level. The result was to change the outcome of the 

analysis from estimating that privatization would be less costly over the 

long term to estimating that continued government ownership would be 

less costly over the long term.

Changes in the economic analysis supporting the Fort Irwin electric 

distribution system privatization also raised questions about reliability. In 

October 2000, an Army consultant completed an economic analysis of the 

proposed system privatization. The analysis estimated that the government 

ownership option would be less costly than privatization in the long term. 

Specifically, in today’s dollars, the analysis estimated that the government 

ownership option would cost about $14.7 million less over the long term 

than if the system were privatized. Yet, about 2 and a half years later in 

February 2003, the same consultant completed a new economic analysis 

for the proposed project. This analysis concluded the opposite—that 

privatization would be less costly than the government ownership option 

by about $3.6 million in today’s dollars. Details explaining the basis for the 

significantly changed estimates were not included in the new analysis and 

could not be explained by Fort Irwin officials.

Dobbins Air Reserve 

Base Electric System 

Privatization

According to DOD guidance, the economic analyses for proposed 

privatization projects should estimate and compare costs assuming that the 

government would upgrade and improve the system to industry standards, 

as the privatization contractor would be required to do. However, we 

questioned whether the analysis for Dobbins Air Reserve Base’s electric 

system privatization followed this guidance because of the large cost 

difference between estimated improvement costs under the privatization 

and government ownership options. The economic analysis estimated that 

under privatization the contractor’s costs to complete system 

improvements over the contract period would be about $1.6 million in 
Appendix II

Results of GAO’s Review of the Services’ 

Economic Analyses Supporting Seven Utility 

Privatization Projects

Page 48 GAO-05-433 Defense Infrastructure

today’s dollars. In contrast, the analysis estimated that system 

improvement costs under the government ownership option over the same 

period would be about $4.7 million in today’s dollars, a difference of 

$3.1 million, or 194 percent, more. In response to our questions, Air Force 

officials stated that an error had been made in calculating improvement 

costs under the government option and that the improvement costs were 

overstated by about $2 million. We recomputed costs to make a correction 

for the error. The result was to change the outcome of the analysis from 

estimating that privatization would be less costly over the long term to 

estimating that continued government ownership would be less costly over 

the long term.

Bolling Air Force Base 

Water and Wastewater 

Systems Privatization

The economic analyses supporting privatization of the water and 

wastewater systems at Bolling Air Force Base were not valid because they 

did not accurately reflect system improvements to be performed by the 

contractor. Bolling Air Force Base officials stated that the analyses 

assumed that the contractor would complete many upgrades and 

improvements to the systems during the first 5 years of the contracts. 

However, the officials also stated that the privatization contract process 

was delayed after the analyses were prepared and that military 

construction funding was obtained and used to complete about 90 percent 

of the improvement projects that the analyses assumed the contractor 

would do. Because the analyses were not updated to reflect the changes in 

the planned work, the results of the analyses include estimated savings 

from contractor work that will not be performed. We did not have sufficient 

information to recalculate estimates in analyses. However, installation 

officials stated that they believed that continued government ownership of 

the systems would have been less costly than privatization over the 

long term.
Page 49 GAO-05-433 Defense Infrastructure

Appendix III

Comments from the Department of Defense ApendxiI
Appendix III

Comments from the Department of Defense

Page 50 GAO-05-433 Defense Infrastructure
Appendix III

Comments from the Department of Defense

Page 51 GAO-05-433 Defense Infrastructure
Appendix III

Comments from the Department of Defense

(350557) Page 52 GAO-05-433 Defense Infrastructure
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