United States Government Accountability Office

GAO Report to Congressional Requesters

DEFENSE 

INFRASTRUCTURE 

Continuing Challenges 

in Managing DOD 

Lodging Programs as 

Army Moves to 

Privatize Its Program 

December 2006 

 

GAO-07-164 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

DEFENSE INFRASTRUCTURE 

Continuing Challenges in Managing DOD 

Lodging Programs as Army Moves to 

Privatize Its Program 

Highlights of GAO-07-164, a report to 

congressional requesters 

The Department of Defense (DOD)

transient lodging programs were

established to provide quality 

temporary facilities for authorized

personnel, and reduce travel costs

through lower rates than 

commercial hotels. DOD has 

approximately 82,000 temporary 

duty (TDY) and permanent-changeof-station (PCS) rooms worldwide,

and reported that it cost about $860 

million in appropriated and 

nonappropriated funds to operate 

them in fiscal year 2005. While the 

Army plans to privatize its lodging

in the United States, there are 

concerns as to whether these plans 

are cost-effective, and how they

relate to DOD-wide lodging efforts. 

GAO was asked to address (1) how

each military service and DOD 

manages, funds, and assesses the 

performance of its lodging 

programs to meet short- and longterm needs, and (2) the effect that

lodging privatization would have on 

the costs to the Army and the 

ability to maintain and recapitalize

facilities. GAO is also providing

information on DOD’s actions to 

implement prior recommendations 

regarding the lodging program.

GAO obtained data from the Office

of the Secretary of Defense, the 

military services and visited nine

military installations. 

What GAO Recommends

GAO is making recommendations 

to improve DOD’s oversight of the

lodging program. In commenting 

on a draft of this report, DOD 

agreed with the recommendations. 

Each military service takes its own approach to manage and fund its lodging 

programs, but current DOD lodging guidance does not establish 

performance measures to assess program effectiveness. The Army and Air 

Force each manage their TDY and PCS lodging under a single organization, 

while the Navy and Marine Corps have separate organizations managing TDY 

and PCS facilities. The Marine Corps manages PCS lodging separately

because it operates as a profit-generating morale, welfare, and recreation 

program. The services’ lodging programs are provided varying levels of 

appropriated and nonappropriated fund support, which correlates with the 

room rates charged. For example, since the Air Force allocates more 

appropriated funds for program expenses, it charges less than does the Navy 

PCS program, which is sustained with the revenues generated from room 

rates. Determining total program costs across the services is difficult 

because some of the data reported are estimated or hard to collect. Though 

DOD has a lodging strategic plan, it has not been updated since 1999. DOD 

has not established lodging performance measures, and the services vary in 

their efforts to determine program effectiveness. Performance measures

could help in assessing future program plans. 

The Army believes privatization will provide for faster improvement and 

long-term sustainment of lodging facilities and avoid costs. GAO recognizes

these benefits, but its analysis shows privatization could increase costs

through increased room rates and create operating challenges that have

implications beyond the Army, such as uneven lodging occupancy and room 

rates where joint basing is planned. Under privatization, the Army projects 

that a developer will renovate existing or construct new lodging facilities in 

7 years, and provide for their adequate sustainment over the 50-year project 

life. In contrast, the Army projects it would take over 20 years and cost 

about $1.1 billion to upgrade all lodging facilities under current plans, which 

do not provide for adequate long-term sustainment. GAO found that lodging 

privatization could increase costs to the government by about $75 million 

per year through increased room rates if all lodging facilities in the U.S. are 

privatized, with those costs borne by the operations and maintenance and 

military personnel appropriation accounts. The Army currently estimates it 

will also incur at least $17.3 million in onetime costs related to severance 

pay and discontinued service retirement annuities for lodging employees let 

go because of privatization. Privatization also may affect occupancy levels 

and exacerbate rate disparities among bases and between official and 

unofficial travelers, as well as lead to inconsistencies in room rates among 

services at future joint bases. Complying with relevant reporting 

requirements contained in housing privatization legislation will allow 

congressional oversight of the Army’s privatization of lodging. 

On October 6, 2006, DOD provided the military services with revised lodging 

guidance, but this guidance lacks performance standards and measures, and 

does not address which office within the Office of the Secretary of Defense 

is responsible for lodging policy and oversight of privatized lodging facilities.

www.gao.gov/cgi-bin/getrpt?GAO-07-164.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barry W. 

Holman at (202) 512-5581 or 

holmanb@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 4

Services Use Decentralized Approach to Manage and Fund Lodging 

Programs 9

Army’s Privatization Plans Could Upgrade Facilities Faster but Will 

Increase Government Costs and Create Other Challenges 18 

Revised DOD Lodging Policy Does Not Provide Clear Performance 

Standards 26

Conclusions 27

Recommendations for Executive Action 28 

Agency Comments and Our Evaluation 28 

Appendix I: Scope and Methodology 30

Appendix II: Military Services’ Previous Lodging Public-Private 

Ventures 32

Appendix III: Comments from the Department of Defense 34

Appendix IV: GAO Contact and Staff Acknowledgments 36

Tables 

Table 1: Magnitude of DOD’s TDY and PCS Lodging Programs 6 

Table 2: Lodging Occupancy by Percent of Official and Unofficial 

Travelers (Fiscal Year 2005) 6 

Table 3: Comparison of Average Daily Room Rates by Lodging 

Program for Fiscal Year 2005 11 

Table 4: Lodging Capital Expenditures by Military Service for 

Fiscal Years 2003 through 2005 18 

Table 5: Comparison of Alternatives to Improve Army Lodging 20 

Table 6: Army Comparison of Costs between Government-owned 

and Privatized Lodging for Group A Installations 21 

Page i GAO-07-164 Defense Infrastructure
Table 7: Military Services’ Previous Lodging Public-Private 

Ventures 33

Figures 

Figure 1: Appropriated and Nonappropriated Funding for Lodging 

Programs by Military Service for Fiscal Years 2003 

through 2005 12 

Figure 2: Lodging Program Expenses per Room for Fiscal Year 

2005 16

Abbreviations 

DOD Department of Defense 

DSR discontinued service retirement 

LCA Lodging Capital Assessment 

LDMP lodging development and management plan 

MHPI Military Housing Privatization Initiative 

MWR morale, welfare, and recreation 

OMB Office of Management and Budget 

OSD Office of the Secretary of Defense 

PAL Privatization of Army Lodging 

PCS permanent-change-of-station 

TDY temporary duty 

U.S.C. United States Code 

VERA voluntary early retirement authority

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Page ii GAO-07-164 Defense Infrastructure
United States Government Accountability Office

Washington, DC 20548 

December 15, 2006 

The Honorable Ike Skelton 

Ranking Minority Member 

The Honorable Solomon Ortiz 

Ranking Minority Member 

Subcommittee on Readiness 

The Honorable Vic Snyder 

Ranking Minority Member 

Subcommittee on Military Personnel

Committee on Armed Services 

House of Representatives 

The Department of Defense (DOD) principally operates two types of 

hotels,1

 or lodges, to support official travelers. The first type, called 

temporary duty (TDY) lodges, primarily supports military and civilian 

personnel temporarily traveling on official business. The second, called 

permanent-change-of-station (PCS) lodges, primarily supports military 

personnel and their families who are moving to new duty stations. These 

lodges are intended to provide military travelers and their families with a 

clean, affordable place to stay while they prepare to move and while they 

wait for permanent quarters at their new duty stations. According to the 

1999 DOD Lodging Strategic Plan, the program goals are to (1) promote 

customer satisfaction through exceptional service, (2) develop a 

professional management team and motivated workforce, (3) employ a 

corporate approach to enhance business-based methods of operation, 

(4) develop and manage the lodging facilities, (5) assure sound financial

management and accountability reflective of the hospitality industry, and

(6) pursue efficiencies through interservice cooperative efforts. In March 

2002,

2

 we recommended that DOD should provide the military services 

with a policy framework, including improved lodging guidance, to help 

achieve DOD’s lodging program management objectives. 

 1

The services also operate recreational lodging and lodging used by individuals visiting 

patients in military treatment facilities, which are not covered in this report. 

2

GAO, Defense Management: Proposed Lodging Policy May Lead to Improvements, but

More Actions Are Required, GAO-02-351 (Washington, D.C.: Mar. 18, 2002).

Page 1 GAO-07-164 Defense Infrastructure
DOD has approximately 82,000 transient lodging rooms. The Army and the 

Air Force each manages its TDY and PCS lodging under the same 

organization, while the Navy and Marine Corps both opt to have separate 

organizations manage TDY lodges and PCS facilities. Over the past decade

the Army, Air Force, and Navy have entered into limited public-private 

ventures to construct and operate lodging facilities. Recently, the Army 

announced plans to privatize its entire domestic lodging program utilizing 

the Alternative Authority for Acquisition and Improvement of Military 

Housing legislation, commonly referred to as Military Housing 

Privatization Initiative (MHPI) legislation.3

You requested that we review the services’ lodging programs. Our 

objectives were to (1) describe how each military service manages, funds, 

and assesses the performance of its lodging program to meet short- and 

long-term needs; and (2) assess the effect that privatization of lodging 

would have on the cost to the Army, and on its capability to maintain and

recapitalize lodging facilities. Additionally, we are providing information 

concerning the status of GAO’s prior recommendations regarding DOD 

lodging programs. 

To determine how the military services manage and fund their lodging 

programs, we reviewed DOD and military service lodging policies and 

regulations and interviewed key officials in the Office of the Secretary of

Defense (OSD) and the military services responsible for lodging programs. 

We analyzed the appropriated and nonappropriated fund support for 

lodging between fiscal years 2003 and 2005. Furthermore, we visited eight 

military installations (two in each military service) to determine how each 

of the services manages and supports its lodges and to observe their 

physical condition. To identify and assess Army plans to privatize lodging 

in the United States, we interviewed officials within the Office of the 

Assistant Secretary of the Army (Installations and Environment) and 

analyzed documentation used to support its decision to privatize lodging. 

We also interviewed service officials and developers involved in previous 

lodging public-private ventures to identify lessons learned from these 

efforts. Finally, we met officials in the Office of the Secretary of Defense 

(Personnel and Readiness) to determine the status of implementing GAO’s 

prior recommendation to improve DOD lodging guidance. We conducted 

our work from December 2005 through October 2006 in accordance with 

 3

10 U.S.C. §§ 2871-2885. 

Page 2 GAO-07-164 Defense Infrastructure
generally accepted government auditing standards. Further details on our 

scope and methodology are described in appendix I. 

Each military service takes its own approach to manage and fund its 

lodging programs, but current DOD lodging guidance does not establish 

detailed performance measures needed to assess program effectiveness. 

The Army and the Air Force each manages its TDY and PCS lodging under 

a single organization, while the Navy and Marine Corps opt to have 

separate organizations manage TDY lodges and PCS facilities. The Marine 

Corps manages PCS lodging separately because it is operated as a 

nonappropriated fund, revenue-generating, morale, welfare, and recreation 

(MWR) program, and the Navy manages PCS lodging separately because it 

operates it almost exclusively with nonappropriated funds. The military 

services’ lodging programs receive varying levels of appropriated and

nonappropriated fund support. The level of appropriated fund support 

allocated influences the amount the programs charge for room rates. For 

example, since the Air Force allocates more appropriated fund support for 

program expenses, it charges less than the Navy PCS program, which is 

sustained with the revenues generated from room rates. Determining total 

program costs across the services is challenging, as some of the data 

reported to OSD are estimated and are difficult to collect. While OSD has 

established a lodging strategic plan, it has not established performance 

measures to assess whether the plan’s goals are being achieved, and the

extent to which the military services have taken the initiative to determine 

how program effectiveness varies. For example, Navy PCS lodging is the 

only program that, across all installations, collects and analyzes customer 

feedback, conducts systematic performance reviews, and compares 

performance against industry benchmarks. 

Results in Brief 

The Army believes privatizing its lodging may provide for faster 

improvement and long-term sustainment of lodging facilities as well as 

achieve savings, but our analysis shows privatization could increase 

government costs. Further, privatization could create some operating 

challenges that have implications beyond the Army. Under the Army’s PAL 

(Privatization of Army Lodging) program, the Army projects a developer 

will renovate existing or construct new lodging facilities in 7 years (by 

2014), and provide for adequate sustainment of lodging facilities over the

50-year project life. In contrast, the Army projects it would take over 20 

years and cost about $1.1 billion to upgrade all lodging facilities under 

current plans, which do not provide for adequate long-term sustainment. 

However, we found that privatization of lodging while providing faster 

recapitalization and sustainment of facilities, will likely increase costs to 

Page 3 GAO-07-164 Defense Infrastructure
the government by about $75 million per year through increased lodging 

fees if all lodging facilities in the United States are privatized with those 

costs borne by the operations and maintenance and military personnel 

appropriation accounts. According to Army officials, the projected 

increased cost would be offset to some degree by a reduction in the 

appropriated funding that currently supports lodging operations for such 

items as utilities and police and fire protection, but the amount of such 

savings is difficult to gauge. In addition, the Army currently estimates it 

will incur a total of about $17.3 million in onetime costs for severance pay 

($12.7 million) and discontinued service retirement annuities ($4.6 million)

for lodging employees let go because of privatization. Furthermore, 

privatization of Army lodging may potentially reduce current occupancy 

levels since, once privatized, a facility is no longer considered government

lodging and therefore official travelers will no longer be required to stay 

there. Additionally, privatization could create rate disparities among bases 

and between official and unofficial travelers, as well as lead to 

inconsistencies in room rates among services at joint bases. 

The Office of the Under Secretary of Defense for Personnel and Readiness 

issued a revised lodging instruction on October 6, 2006. However, the 

instruction lacks detailed performance standards and measures and does 

not resolve the question as to which office within the Office of the 

Secretary of Defense is responsible for providing lodging policy and 

oversight of privatized lodging facilities. 

We are making recommendations for executive action designed to help 

DOD improve its lodging program management and oversight and to help

ensure the successful implementation of the Army’s privatization of 

lodging. In commenting on a draft of this report, DOD concurred with both 

of our recommendations and indicated planned actions and timeframes for 

accomplishing them. 

DOD’s lodging programs were established to maintain mission readiness 

and improve productivity, and were intended to provide good quality 

temporary lodging facilities and service for authorized personnel. They 

were also created with the goal of reducing official travel costs for DOD’s 

mobile military community by charging room rates lower than those of 

commercial hotels. Within the Office of the Secretary of Defense, the 

Office of the Under Secretary of Defense (Personnel and Readiness) has 

issued the majority of guidance governing TDY and PCS lodging program 

and resource management, although the Office of the Under Secretary of 

Defense (Acquisition, Technology and Logistics) has established some 

Background 

Page 4 GAO-07-164 Defense Infrastructure
lodging room quality standards within its housing management guidance 

and is responsible for the housing privatization efforts. Further, while 

DOD Instruction 1015.11 states that the Principal Deputy Under Secretary 

of Defense (Personnel and Readiness) is to provide lodging oversight, 

guidance, and procedures to ensure proper administration and 

management of DOD lodging programs and monitor compliance with 

these procedures and guidance,4

 DOD Directive 4165.63 states that DOD 

housing (the responsibility for management of which rests with the Under 

Secretary of Defense for Acquisition, Technology, and Logistics) 

“encompasses housing for accompanied and unaccompanied personnel 

and temporary lodging facilities.”5

 Each of the services also has policies to 

guide the administration of its lodging programs. 

In 1999, the Office of the Under Secretary of Defense (Personnel and 

Readiness) developed the DOD Lodging Strategic Plan and DOD Lodging 

Program Standards, and neither have been revised or updated

subsequently. The program goals established in the lodging strategic plan 

are to (1) promote customer satisfaction through exceptional service, 

(2) develop a professional management team and motivated workforce, 

(3) employ a corporate approach to enhance business-based methods of 

operation, (4) develop and manage the lodging facilities, (5) assure sound 

financial management and accountability reflective of the hospitality 

industry, and (6) pursue efficiencies through interservice cooperative 

efforts. The DOD Lodging Program Standards task the military services 

with applying these program standards and developing detailed operating 

standards as appropriate, so each of the services also has policies to guide

the administration of its lodging programs. 

DOD has approximately 82,000 transient lodging rooms.6

 The major 

differences between TDY and PCS lodges are the number of rooms in their 

inventory and the type of traveler they primarily serve. Table 1 shows the 

magnitude of DOD’s lodging programs. 

 4

Department of Defense Instruction 1015.11, Lodging Resource Policy, Section 5.1.2 (Oct. 6,

2006). 

5

Department of Defense Directive 4165.63, DOD Housing, Section 2.2 (Jan. 8, 2005). 

6

The term “rooms” refers to a lodging unit available for sale. Therefore, while the majority

of the units in the DOD inventory are rooms, in some cases the unit sold for temporary 

lodging is a bed in a shared space, an apartment, town home, or house.

Page 5 GAO-07-164 Defense Infrastructure
Table 1: Magnitude of DOD’s TDY and PCS Lodging Programs

Number of roomsa

Service TDY PCS Total

Armyb19,000

Air Force 27,000 3,000 30,000

Navy 26,000 3,000 29,000

Marine Corps 3,000 900 3,900

Total 75,000 7,000 82,000

Source: Military services. 

a

Numbers are rounded to nearest thousand except for Marine Corps PCS number which is rounded to

the nearest hundred. 

b

The Army does not distinguish rooms and facilities as TDY or PCS. Both types of travelers are 

tracked, however, and there are different room styles to accommodate their needs. 

Transient lodging serves various military and civilian travelers. TDY lodges 

serve mainly individual military or civilian travelers who are temporarily 

assigned to a duty station other than their home station. PCS lodges 

mainly serve military personnel and their families who are changing 

permanent duty stations. On a space-available basis, TDY and PCS lodges 

can accommodate some kinds of “unofficial travelers,” such as military 

retirees and relatives and guests of service members assigned to the 

installation. 

Total occupancy rates vary by program, ranging from 75 to 92 percent for 

fiscal year 2005. In addition, lodging occupancy by official and unofficial 

travelers varies by service. The Army serves the highest percentage of 

official travelers, and the Marine Corps the lowest, as table 2 shows. 

Table 2: Lodging Occupancy by Percent of Official and Unofficial Travelers 

(Fiscal Year 2005) 

Percent of official travelers 

Service TDY PCS Totala

Percent of unofficial 

travelers

Army 83 8 92 8

Air Force 79 9 87a13

Navy 83 4 88a 12

Marine Corps 64 11 75 25

Source: Military services. 

a

Because of rounding, TDY and PCS percentages do not equal “percent official.” 

Page 6 GAO-07-164 Defense Infrastructure
Funds provided for lodging operations originate from two sources: 

appropriated funds and nonappropriated funds. DOD Lodging guidance 

provides specific guidelines on whether an expense should be paid for 

with appropriated or nonappropriated funding.7 DOD Instruction 1015.12 

states that the military services have the authority to waive the fund 

source that will create higher nonappropriated expenses for TDY lodging 

and PCS lodging not run as an MWR program. Appropriated funds are 

typically used for operations and maintenance expenses, such as laundry 

services and utilities, and some kinds of minor construction. 

Nonappropriated funds are generated from room rate revenues, and each

of the lodging programs sets room rates according to the amount of 

revenue needed to pay for expenses not covered by appropriated funds. 

Nonappropriated funds are used to pay for a wide variety of expenses, 

from some employee wages to certain kinds of replacement furnishings. 

Funds generated from room rates at TDY lodging and PCS lodging not run 

as an MWR program are considered to be nonappropriated because the 

traveler pays for the charge at the time of his or her stay. Most lodging 

patrons are on official TDY or PCS travel, however, and are reimbursed 

with funds appropriated to the military services for travel either from 

operations and maintenance or military personnel accounts. Thus, the 

majority of funding originates from appropriated dollars. However, to 

distinguish funding streams, revenues from room sales are referred to as 

nonappropriated funds. According to DOD financial data, the total 

amount of appropriated and nonappropriated funding support for 

operating the lodging programs was about $857million for fiscal year 2005. 

Room rates at these lodges are intended to be set at the lowest rate 

possible to reduce travel costs, yet generate enough revenue to cover 

expenses. Some services have added a surcharge8

 to the nightly room rate, 

which they accumulate and use for lodge construction and major 

renovation. Revenues from TDY lodging must be maintained in a separate 

nonappropriated fund account, designated as lodging, or billeting, fund.9

DOD Instruction 1015.12 permits military services to operate PCS lodging 

 7

See, for example, Department of Defense Instruction 1015.12, Lodging Program Resource

Management (Oct. 30, 1996), and Department of Defense Instruction 1015.10, Programs for 

Military Morale, Welfare and Recreation (MWR) (November 1995). 

8

The Army and the Air Force have added surcharges, while the Navy and the Marine Corps

have not. 

9

Department of Defense Instruction 1015.12, Lodging Program Resource Management,

Section 4.3.1 (Oct. 30, 1996). 

Page 7 GAO-07-164 Defense Infrastructure
either (1) through a lodging or billeting fund, or (2) through an MWR fund. 

PCS lodging that is built, maintained, or operated by other than the MWR 

program or exchange service must be maintained in a separate fund 

account, designated as a lodging, or billeting, fund, and is independent of 

the single MWR fund. When PCS needs are met by MWR operating funds, 

they are part of the single MWR nonappropriated fund instrumentality and 

are operated as a category C revenue generating activity. The Marine 

Corps operates its PCS lodging as part of its MWR program, which is 

operated as a Category C, revenue generating program. Thus, the lodging 

revenues are deposited into the Marine Corps’s single MWR 

nonappropriated fund account, which can be used to benefit any of the 

service’s MWR programs. 

The vast majority of transient lodging facilities are managed and operated 

by the military services with civilian workers paid by nonappropriated 

funds. Over the past decade, however, the Army, Air Force, and Navy have 

entered into limited public-private ventures to construct and operate 

lodging facilities on 10 installations with some degree of risk shared 

between the government and the private sector. Appendix II provides 

additional details concerning the 10 previous public-private lodging 

ventures. 

Privatization of Army 

Lodging 

According to the Army, approximately 80 percent of Army lodging 

inventory needs replacement or major renovation because of persistent 

funding shortfalls and the lack of capital investment. The Army estimates 

that, absent privatization, it would cost about $1.1 billion and would take 

more than 20 years to renovate or build new lodging facilities. Given the 

cost and length of time associated with revitalization under the Lodging 

Wellness Plan, the Army considered the use of commercial loans and 

enhanced-use leasing, before deciding on privatization of lodging facilities 

in the United States. The Army is using the same legislation that allowed 

the department to privatize its family housing for its lodging privatization 

effort.10 Congress established the MHPI in the National Defense 

Authorization Act for Fiscal Year 1996. 11 The MPHI legislation gives the 

Secretary of Defense the authority to (with certain restrictions) provide 

direct loans, rental guarantees, ground leases, and other incentives to 

encourage private developers to construct and renovate housing. Under 

 1010 U.S.C. §§ 2871-2885. 

11Pub. L. No. 104-106, §§ 2801 (codified as amended at 10 U.S.C. §§ 2871-2885). 

Page 8 GAO-07-164 Defense Infrastructure
the Army’s PAL program, the selected developer will receive a 50-year 

ground lease and will be responsible for asset, property, and maintenance 

management. 

The Army placed installations in the United States into one of three 

privatization groups. According to the Army, this was done to mitigate 

some of the risk associated with privatization, such as the developer 

choosing high-value properties over those in greater need of repair. The 

Army planned to select a developer for Group A during September 2006, 

and to transfer the lodging in this group to the developer by September 

2007.

12 The Army plans to transfer installations in Group B by September 

2008 and those in Group C by September 2009. The Army anticipates that 

all lodging facilities will be renovated or replaced in 7 years, by 2014. 

Furthermore, the Army expects the developers to establish a lodging 

sustainment and recapitalization fund to maintain the lodging over the 50-

year life of the project. 

On September 28, 2006, the Army selected a developer for Group A which 

must submit a lodging development and management plan (LDMP). 

According to the Army PAL program, after approval of the LDMP business 

plan by Headquarters, Department of the Army, OSD, and the Office of 

Management and Budget (OMB), Congress will have a 45-day period to 

review the plan prior to the Army transferring Group A to the developer. 

Each military service takes its own approach to manage and fund its 

lodging programs, but current DOD lodging guidance does not establish 

performance standards and measures needed to assess program 

effectiveness. 

Each of the military services uses a different approach to manage and fund

its transient lodging programs. The Army and the Air Force each manage 

their TDY and PCS lodging under one organization, while the Navy and 

Services Use 

Decentralized 

Approach to Manage 

and Fund Lodging 

Programs 

Management and Funding 

Approaches Differ 

 12Group A installations include: Fort Rucker and Redstone Arsenal, Alabama; Yuma Proving 

Ground, Arizona; Fort Shafter and Tripler Army Medical Center, Hawaii; Fort Leavenworth 

and Fort Riley, Kansas; Fort Polk, Louisiana; Fort Sill, Oklahoma; Fort Hood and Fort Sam

Houston, Texas; Fort Myer, Virginia; and Fort McNair, Washington, D.C. 

Page 9 GAO-07-164 Defense Infrastructure
Marine Corps both opt to have one organization manage TDY lodges and

another one for PCS facilities. The Army and Air Force believe using one 

management structure to serve both TDY and PCS travelers is the most 

efficient approach. Alternatively, the Navy and Marine Corps believe

operating two separate programs, one for TDY travelers and one for PCS 

travelers, is the most efficient approach for meeting their service’s needs. 

Neither of the two military services currently has plans to merge 

management of the lodging programs. 

The Navy has operated its two programs separately since 1969 when the 

Navy PCS lodging program was established to be operated almost entirely 

with nonappropriated funds.13 The Marine Corps also operates its TDY and 

PCS lodging separately. PCS lodging operates almost entirely with 

nonappropriated funds through the Marine Corps’s MWR program and 

generates a profit, which is not allowed for TDY lodging. The room 

revenues from the Marine Corps’s PCS lodging are deposited in the Marine

Corps Community Service account, which also contains funds from other 

MWR activities and the Marine Corps Exchange Service. In return, the PCS 

lodging program receives overhead services, such as personnel and 

accounting, and funds for major repairs or new construction projects. By 

contrast, all of the other lodging programs have a separate financial 

account that must at least “break even” on an annual basis, receiving and 

generating just enough revenues to operate and sustain the program and 

facilities. 

The military services’ lodging programs receive varying levels of 

appropriated and nonappropriated fund support. The level of appropriated 

fund support allocated influences the amount the programs charge for 

room rates. Nonappropriated funds are generated through room sales, and 

each of the lodging programs sets room rates according to the amount of 

revenue needed to pay for expenses not covered by appropriated funds. 

For example, the Navy and Marine Corps allocate very limited amounts of 

appropriated funding to their PCS lodging, so the room rates are higher to

generate more nonappropriated funds for program expenses.14 Room rates 

are also influenced by surcharges that the Army and Air Force charge to 

 13The Navy lodges overseas receive appropriated fund support for utilities. 

14According to DOD lodging policy, since the Marine Corps’s PCS lodging is a profitgenerating MWR program and Category C lodging program, it is entitled to receive fewer 

appropriated funds than the other five lodging programs, which are Category A lodging 

programs. 

Page 10 GAO-07-164 Defense Infrastructure
raise revenue for room and facility improvements. As table 3 illustrates, 

average daily room rates vary considerably across the programs, ranging 

from $14 to $65. 

Table 3: Comparison of Average Daily Room Rates by Lodging Program for Fiscal

Year 2005 

Military services’ lodging 

programs 

Room rate includes daily 

surcharge for adequate roomsa

Total average daily 

room rate

Army $10 $37

Air Force 

TDY 7 29

PCS 6–8 33

Navy

TDY n.a. 14

PCS n.a. 65

Marine Corps 

TDY n.a. 19

PCS n.a. 57

Source: Military services. 

Note: n.a.=not applicable; there is no surcharge. 

a

A surcharge is an assessment added to the daily room rate to be used in the future for capital 

improvements to lodging facilities. The Army initiated its surcharge in fiscal year 2000. The Air Force 

began applying the assessment for PCS facilities in 1982 and TDY facilities in 1996.

Navy PCS is the only program that accrues all future capital expenditures 

through room revenues, while the other programs benefit from other 

sources of support, such as appropriated funds, shared construction 

funds, or lodging surcharges. A Navy official explained that this is one 

reason why the Navy PCS average daily room rate is higher than other 

programs’ rates. For fiscal year 2005, five of the six programs’ room rates 

were lower than the $60 standard per diem lodging rate, and all were 

lower than the $89 average per diem lodging rate for nonstandard areas. 

The per diem rates are what a traveler could expect to pay, on average, 

and subsequently be reimbursed for, while staying off-base in a 

commercial hotel. The DOD room rates do not necessarily include all 

sources of program support. However, so comparing room rates to the per

diem lodging rates is not an appropriate measure of cost efficiency or 

program value. 

Page 11 GAO-07-164 Defense Infrastructure
The amount of appropriated funds and nonappropriated funds the services 

reported spending on lodging program expenses for fiscal years 2003 

through 2005 varied considerably as seen in figure 1. 

Figure 1: Appropriated and Nonappropriated Funding for Lodging Programs by Military Service for Fiscal Years 2003 through 

2005 

Dollars in millions

0

50

100

150

200

250

300

350

apf

2003 2004 2005 2003 2004 2005 2003 2004 2005 2003 2004 2005 2003 2004 2005 2003 2004 2005

Army Navy TDY Air Force Navy PCS Marine Corps TDY Marine Corps PCS

Source: GAO analysis of data from the military services.

Appropriated funds

Nonappropriated funds

Note: These data were officially reported to OSD by the military services via 1015.15 DOD lodging 

reports. Nonetheless, Navy officials raised concerns over the consistency of the data being reported 

across the services. 

The Air Force, Navy TDY program, and Marine Corps PCS program all 

experienced a decrease in appropriated fund support allocated for lodging 

program operations between fiscal years 2003 and 2005. The change in 

appropriated funds for the Navy’s TDY program was significant, falling 

from an estimated $48.7 million to $17.8 million, while nonappropriated 

funds provided for the program rose from $85.7 million to $109.9 million. 

Navy officials told us that appropriated funds allocated to this program 

decreased due to Navy-wide funding reductions. According to data from 

fiscal years 2003 through 2005, the Air Force allocates the greatest total 

amount of appropriated fund support for program operations among the 

Page 12 GAO-07-164 Defense Infrastructure
military services, but it also has the largest number of rooms in its 

inventory. 

Lodging Programs Lack 

Business-based 

Performance Standards 

and Measures to Assess 

Program Effectiveness 

Current DOD lodging guidance does not establish detailed performance 

standards and measures needed for monitoring and assessing program 

effectiveness. The Office of the Under Secretary of Defense (Personnel 

and Readiness), in conjunction with the military services, developed the 

DOD Lodging Strategic Plan and the DOD Lodging Program Standards in 

1999, but these documents have not been updated or revised since then.

The lodging program standards provide minimum requirements for 

program services and amenities, but task the military services with 

developing detailed operating plans. While the strategic plan establishes a

mission statement and a list of goals for the DOD lodging programs, the 

Office of the Under Secretary has not created performance measures to 

assess progress in achieving these goals. 

DOD lodging officials with work experience in private hotels told us that it 

is a common practice in the hospitality industry to use benchmarks to 

track progress and determine success. For example, Smith Travel 

Research annually publishes the Hotel Operating Statistics study, which 

provides an overview of U.S. lodging industry performance, drawing data 

from the operating statements of over 5,100 hotels. Some of the businessbased measures reported in the study include room occupancy, average 

daily room rate, revenue per available room, and the number of rooms 

available and sold, among others. While DOD lodging programs are 

collecting and reporting some of these measures, lodging officials are 

unclear how the data is being used, since performance standards have not

been established. In addition, some lodging officials expressed concerns 

about the reliability and consistency of the cost and program data, which 

will be discussed in greater detail below. Among the various reasons for 

this, the officials noted that DOD has not provided common definitions 

and guidance about how the data should be collected and reported. For 

consistent data collection and reporting, private hotels can use common 

definitions and calculations established in the Uniform System of 

Accounts for the Lodging Industry, issued by the Educational Institute of 

the American Hotel and Lodging Association. 

Each fiscal year the military services submit the following reports to the 

Under Secretary of Defense (Personnel & Readiness) for each lodging 

program: 

• a financial report that includes income and expense information; 

Page 13 GAO-07-164 Defense Infrastructure
• a lodging standards status report, which shows the proportion of facilities 

and rooms that provide the required services and amenities; and 

• a program report, which includes descriptive information and some 

summary statistics, such as the occupancy rate, average daily room rate, 

number of rooms sold, and room revenue. 

The data in these reports are primarily descriptive and are not linked to 

performance measures of program efficiency and effectiveness, which 

limits their utility. In previous work, GAO has found that developing 

measurable performance standards coupled with ongoing monitoring and 

reporting on program performance can help program managers and 

Congress determine whether goals are being achieved. Given the variety of

approaches that the military services have taken to operate the lodging 

programs, it is difficult to evaluate and compare their respective efficiency

and effectiveness without commonly defined measures of success. In the 

absence of performance measures and reports, we used our discussions 

with lodging program officials and available data to describe the steps that

the lodging programs have taken to meet the program goals and objectives

from the DOD Lodging Strategic Plan. 

The degree to which the military services’ lodging programs solicit 

customer feedback is limited. DOD guidance requires that lodging 

programs periodically measure customer demand, usage, and satisfaction 

and act upon these findings,15 but no other specific guidance is provided.16

The Navy PCS program provides a customer satisfaction survey to every

guest, and in 2005, an independent contractor calculated a customer 

satisfaction rate of 95 percent. By contrast, none of the other lodging 

programs are systematically tracking customer satisfaction centrally, 

though some installations may be soliciting customer feedback. Annually, 

the lodging programs report their overall lodging occupancy rate for the 

year, but because no standard way to calculate occupancy has been 

defined or used by all of the military services, it is unclear whether the 

figures can be compared across programs. For example, some programs 

could calculate the figure using total rooms in their inventory, while other 

programs could exclude rooms undergoing service or renovation. 

Promoting Customer 

Satisfaction

 15Department of Defense Instruction 1015.12, Lodging Program Resource Management,

Section 4.4.2.1 (Oct. 30, 1996). 

16Department of Defense Instruction 1015.12.

Page 14 GAO-07-164 Defense Infrastructure
DOD lodging was established with the goal of saving military travel funds

by providing temporary lodging at a lower overall cost than paying for 

travelers to stay at commercial hotels. However, neither OSD nor the 

military services measure and report on cost effectiveness of their lodging 

programs. In addition, the cost data reported by the military services to 

OSD annually may not adequately reflect total lodging program costs, 

because lodging program officials stated that determining some 

appropriated fund support can be difficult. For example, some support 

services, such as snow removal, laundry, or fire and police protection, are 

paid for by the installation, and costs are not tracked by program. 

Therefore, lodging officials must estimate the value of the portion of the 

indirect appropriated fund support that was spent on lodging. For 

example, the Navy PCS program is the only lodging program that can 

determine actual electricity costs, while the other programs all estimate 

utilities expenses. 

During our review we identified the following issues with the lodging costs 

reported by the military services for fiscal year 2005. 

Determining Program Costs 

• The Army reported a total of $6.2 million in appropriated funds support for 

fiscal year 2005 to OSD. However, the Army later collected data directly 

from every installation as part its privatization effort that indicated 

appropriated fund support for the same time period was actually about 

$27.9 million; this included increased costs for personnel salaries, utilities, 

repairs, laundry, and supplies. In addition, while gathering information at 

the installation level for its privatization initiative, Army officials found 

great inconsistencies in the way that cost data and other information, such 

as the average daily room rate, were collected and calculated across 

installations. 

• The Marine Corps PCS program reported total expenses of about $9.6 

million for fiscal year 2005, however this figure does not include support 

services paid for out of the Marine Corps Community Services account,

which are reported to OSD in aggregate but are not tracked by program. 

Marine Corps officials estimate the value of the support services to the 

PCS lodging program was about $3.7 million for fiscal year 2005. 

• The Navy’s TDY program does not use a consistent approach across 

installations to estimate utilities and collect other types of appropriated 

fund support, which raises questions about the reliability of the data. In 

addition, when following up on what appeared to be an unusual trend in 

program funding, we found that the Navy TDY program mistakenly 

overreported to OSD the amount of appropriated funds support the 

lodging program received in fiscal years 2003 and 2004 by approximately 

$120 million total, which it later corrected. 

Page 15 GAO-07-164 Defense Infrastructure
• Similarly, after GAO observed significant increases in the Air Force’s 

nonappropriated funds expenditures for fiscal year 2005, the Air Force 

realized it mistakenly overreported the amount of nonappropriated fund 

support by about $120 million. The Air Force attributed this to a clerical 

error and corrected the report. 

To compare estimated total program costs across the military services’ 

lodging programs, which vary considerably in size, we standardized 

financial data reported to OSD on a per room basis. Daily program 

expenses per room varied considerably across programs for fiscal year 

2005, ranging from $13 to $47 as seen in figure 2.

Figure 2: Lodging Program Expenses per Room for Fiscal Year 2005 

Notes: Reported expenses were paid with both appropriated and nonappropriated funds. Capital 

expenditures for the year are excluded from this chart, as the amounts are large, vary from year to 

year, and would skew the program costs when looking at only one fiscal year. 

These data were officially reported to OSD by the military services via 1015.15 DOD lodging reports. 

Nonetheless, Navy officials raised concerns over the consistency of the data being reported across 

the services. This analysis did not include consideration of the military service’s occupancy rates.

Daily cost per room in dollars

Service program

Other estimated costs

Costs reported to OSD

Source: GAO analysis of data from the military services.

0

10

20

30

40

50

60

Marine

Corps

PCS

Marine

Corps

TDY

Navy

PCS

Navy

TDY

Air

Force

Army

31

22

13

47

24

39

Page 16 GAO-07-164 Defense Infrastructure
We also included the other estimated program expenditures identified by 

the Army and Marine Corps that were not included in the financial report 

to OSD, as previously discussed in this section of the report. 

DOD lodging guidance sets forth basic guidance on quality standards, such 

as minimum room size and specific amenities that must be provided.17 In 

addition, the military services report annually how many of their facilities 

have a furnishing replacement plan, and a short- and long-term 

maintenance plan. However, each lodging program determines its 

particular strategy for maintaining and upgrading its rooms, as well as 

planning for facilities upgrades, such as major renovations or 

construction. For example, the Army currently relies on its Army Lodging 

Wellness Plan to repair, renovate, and replace its outdated lodging 

facilities. According to the Army, approximately 80 percent of its lodging 

inventory is currently in need of replacement or major renovation. The 

lack of a recapitalization component for long-term facility sustainment is 

part of what led the Army to consider privatization. On the other hand, the 

Air Force has developed additional guidance on what amenities facilities 

and rooms should include. The Air Force estimates that 9 percent of its 

rooms are what it considers to be inadequate, and it has implemented a 

room surcharge to save for capital improvements. The Navy and Marine 

Corps’s TDY programs follow the DOD Lodging Standards, and 

maintenance and recapitalization plans are made at the installation level.

Neither program has assessed the adequacy of room quality programwide. 

Meanwhile, the Navy and Marine Corps’s PCS lodging officials stated that

there are no inadequate rooms in the PCS lodging inventory and all rooms 

meet DOD Lodging Standards. The Navy conducts annual inspections of 

each PCS facility, evaluating not only the physical condition, but also 

service standards, management responsibilities, and financial procedures. 

Moreover, an independent company rated the Navy’s PCS lodging the fifth

cleanest hotel in the United States in 2005, based on customer interviews. 

Table 4 shows the amount the lodging programs reported spending on 

capital expenditures, which includes new construction and major 

renovations of facilities and major equipment purchases for fiscal years 

2003 through 2005. These figures exclude operating funds spent on minor 

renovations, and repair and maintenance. As the table illustrates, the 

services have relied almost entirely on nonappropriated funds for capital 

expenses. 

Maintaining and 

Recapitalizing Lodging 

Facilities

 17DOD 4165.63-M, DOD Housing Management (September 1993). 

Page 17 GAO-07-164 Defense Infrastructure
Table 4: Lodging Capital Expenditures by Military Service for Fiscal Years 2003 through 2005 

Dollars in thousands 

Fiscal year 2003 Fiscal year 2004 Fiscal year 2005 

Service Nonappropriated Appropriated Nonappropriated Appropriated Nonappropriated Appropriated

Army $41,726 $0 $54,067 $0 $37,117 $0

Air Force 47,965 18,900 102,325 0 94,249 0

Navy 

TDY 0 0 0 0 0 49,000

PCS 22,033 0 17,907 0 12,946 0

Marine Corps 

TDY 218 0 851 0 1,843 0

PCS 14,026 0 407 0 2,380 0

Source: Military services’ data on 1015.15 reports provided to OSD.

Note: The amounts shown include military construction, major renovations, and equipment 

purchases; the amounts shown do not include operating funds spent on minor renovations, repair, 

and maintenance. 

The Army believes the lodging developer will renovate existing or 

construct new lodging facilities sooner—in 7 years by 2014—than 

otherwise planned by the Army, and provide for adequate sustainment of 

lodging facilities over the 50-year project life. While this should result in 

improved quality of facilities, it will also result in additional cost to the 

government through increased lodging fees and will not produce the 

savings suggested by earlier Army analysis. Our analysis indicates that the

Army’s travel costs could increase by about $75 million per year if all 

lodging facilities in the United States are privatized. In addition, the Army 

could incur approximately $17.3 million in onetime costs associated with 

severance pay and discontinued service retirement annuities for 

nonappropriated fund lodging employees who would be let go if lodging is

privatized. Furthermore, privatization of Army lodging may potentially 

affect occupancy levels and exacerbate rate disparities among bases and 

between official and unofficial travelers, as well as lead to inconsistencies 

in room rates among services at joint bases. 

The Army believes that the developer will renovate existing or construct 

new lodging facilities in 7 years (by 2014), and will provide for adequate 

sustainment of lodging facilities over the 50-year project life. In contrast, if

the Army continues with its current Wellness Plan, it estimates that it 

would take until 2026 or later to bring all rooms up to adequate condition. 

Army’s Privatization 

Plans Could Upgrade 

Facilities Faster but 

Will Increase 

Government Costs 

and Create Other 

Challenges 

Army Expects 

Privatization to Provide 

Adequate Facilities Faster 

with Long-term 

Sustainment 

Page 18 GAO-07-164 Defense Infrastructure
Additionally, the Wellness Plan does not generate funds for adequate longterm lodging sustainment. 

In November 1999, the Army initiated the Army Lodging Wellness Plan to 

renovate and replace inadequate lodging. As part of the Wellness Plan, the 

Army collects a surcharge, the Lodging Capital Assessment (LCA), for 

each room night in Army lodging.18 The income from the surcharge 

collected on each room night is placed in the Army Lodging Fund and used 

to revitalize Army lodging facilities worldwide. This surcharge generated 

approximately $229 million over the last 6 years for the Army Lodging 

Fund. The Army spent about $75 million on lodging improvements. In 

addition, the Army used $40 million to reimburse the Morale, Welfare, and

Recreation Fund for guest houses, which were transferred to the Army 

lodging inventory when PCS travel was recognized as official travel and

guest houses as official government lodging facilities.19

In 2001, in preparation for a study by an independent consulting firm, the 

Army estimated that it would cost about $657 million to repair or renovate 

Army lodging worldwide. This study was conducted to facilitate the 

Army’s consideration of a private loan to finance the Army Lodging 

Wellness Plan. In 2004, the Army revised its estimate to about $1.1 billion 

for lodging revitalization in its U.S. facilities. Using the more recent 2004 

estimate, GAO analysis determined that the Lodging Wellness Program 

would take approximately 20 years or more to bring all lodging facilities 

up to adequate standards. 

GAO calculations estimate that the lodging surcharge generates $52.2 

million annually in income. Even though the Army Lodging Fund showed a 

positive balance of $133.6 million in fiscal year 2005, some of these funds 

are already committed to revitalize lodging facilities overseas. If the 

amount currently in the Army Lodging Fund is applied entirely to U.S. 

facilities, lodging revitalization could take about 17 years to complete. In 

either case, it would take at least 20 years to bring rooms and facilities 

worldwide up to an acceptable level using the Army Lodging Wellness 

 18This fee, currently set at $11 a night for adequate rooms, began at $6 per night in 1999 and 

will cap in 2007 at $12 per room per night. The Army applies a $0.50 per night surcharge for 

inadequate rooms and a $1.20 per night surcharge for foreign students in adequate rooms. 

19Prior to 2001, the Army operated guest houses as a profit-generating MWR program to

accommodate military personnel making a permanent change of station. 

Page 19 GAO-07-164 Defense Infrastructure
approach. Table 5 shows a comparison of alternatives to improve Army 

lodging. 

Table 5: Comparison of Alternatives to Improve Army Lodging 

Dollars in millions 

Program 

Year of

estimate

Army cost 

estimatea

Years to

complete 

Recapitalization/

sustainment 

included

Army Lodging Wellness Plan 2001 $657 13 No

2004 1,100 20 No

Privatization 2006 1,630 7 Yes

Source: GAO analysis of Army data. 

a

Represents the cost to complete all of the renovation or new construction needs for all Army lodging 

facilities in the United States assuming current demands. 

In addition to the ability to revitalize lodging more quickly, the 

privatization of Army lodging will provide sustained recapitalization over 

the 50-year span of the project. According to the Army, a clause requiring a 

recapitalization lock box will be included in the lease with the private 

developer, to ensure that funds are available for recapitalization. 

Army Would Incur 

Increased Travel Costs 

The Army’s plan to privatize its lodging would permit it to leverage the 

resources of the private sector to recapitalize and replace its existing 

lodging facilities. However, this will likely increase costs to the 

government through increased lodging fees and it is unclear to what extent

other savings would occur as suggested by earlier Army analysis. 

The Army’s initial cost analysis found that, over the 50-year life cycle of 

the proposed leasing of Army lodging to a private developer, the 

privatization scenario would result in a 16 percent cost savings to the 

Army within the 13 installations included in Group A, as shown in table 6.

Page 20 GAO-07-164 Defense Infrastructure
Table 6: Army Comparison of Costs between Government-owned and Privatized 

Lodging for Group A Installations

Dollars in millionsa

Difference

Category 

Government

lodging

Privatized

lodging Amount Percent

Room Rates $1,301b$1,608c

Administrative and general 

expenses 

212 d21e

Appropriated fund employees 12 

Capital expenditures (sustainment) 100 

New construction, renovation, and 

demolition 

306 

Total life-cycle cost $1,931 $1,629 $302 16%

Source: U.S. Army. 

a

The Army used a 3 percent discount rate in the cost comparison. 

b

Represents 57% of per diem. 

c

Represents 75% of per diem. 

d

Includes DPW maintenance, utilities, laundry, Self Service Supply Center services, fire and police 

protection, and other miscellaneous support. 

e

Includes asset management at each installation for first 2-years and Lodging Development Master

Plan consultation. 

We found that the Army’s savings estimate was based on government 

“should costs,” which compared predicted costs under the privatization 

and the amounts it “should cost” the government to own, operate, 

upgrade, sustain, and recapitalize the same lodging assets as the private

developer. According to the Army, the estimate was prepared in 

accordance with OMB and DOD guidelines, which required an estimate 

based on “should cost.” However, we believe, as we have reported in the 

past concerning cost estimates for military privatization projects,20 that it 

would be more appropriate to compare the cost of a proposed 

privatization initiative with the cost of continued government ownership 

on the basis of the real planned expenditures and the timing of these 

expenditures. The Army acknowledges that, in the event that lodging is not 

privatized, the Army would likely not operate, upgrade, sustain, and 

 20See GAO-05-433, Defense Infrastructure: Management Issues Requiring Attention in

Utility Privatization (May 2005). 

Page 21 GAO-07-164 Defense Infrastructure
recapitalize its lodging operations and assets as represented in the “should 

cost” estimate. According to the Army, it is the lack of upgrades and 

maintenance to its lodging facilities that caused it to look to privatization 

as an option in the first place. Furthermore, based on its ongoing analysis 

of lodging expenses, the Army recently acknowledged that it will cost the 

Army more to privatize its lodging than to continue Army ownership. 

However, despite the additional cost, the Army believes privatization of 

lodging is the best solution because in 7 rather than nearly 20 years, it will 

result in better facilities, and have a sustainment and recapitalization 

component that is not built into the current rates. 

Our analysis indicates that Army travel costs would increase under lodging

privatization, because the average room rate will increase from the current 

57 percent of per diem to 75 percent of per diem. We estimate that this will 

result in an annual increase of about $14.4 million for the installations in 

Group A and $74.5 million if the Army privatizes all lodging in the United

States. The Army agrees that travel costs will increase, but believes that 

the increased travel cost would likely be offset by reductions in other 

appropriated funding for lodging, for items such as utilities, laundry, and 

supplies. The Army estimated that appropriated fund support for the 

expenses associated with these items, across the United States, totaled 

about $27.9 million in fiscal year 2005. Utilities accounted for about $15.6 

million, or 56 percent of the appropriated fund support, which was 

calculated based on national averages for utilities, since individual lodging 

facilities are not metered.21 The remainder of the appropriated support was 

for such items as laundry, supplies, and salaries. However, during GAO 

site visits to Army installations, lodging staff noted that appropriated 

funding for these items had diminished in recent years. For example, the 

lodging program at Fort Polk, Louisiana, is now responsible for services 

such as laundry and supplies, which were previously paid for by the 

installation with appropriated funds. At Fort Sam Houston, Texas, another 

installation scheduled for the first round of privatization, staff also stated 

that nonappropriated funds were used for things such as repairs, which 

appropriated funds should have covered. The Army noted that when the 

amount of appropriated funds used to support lodging expenses is 

reduced, more nonappropriated funds are needed to pay for the expenses. 

According to the Army, to generate more nonappropriated funds, generally 

room rates must be increased to cover expenses.

 21Under the Army’s PAL program, the private developer will reimburse the government for 

utilities, as well as for all additional support services provided by the government. 

Page 22 GAO-07-164 Defense Infrastructure
According to Army officials, the Army would also incur a total of about 

$17.3 million in onetime costs for severance pay and discontinued service 

retirement annuities.22 The Army currently estimates that severance pay 

will cost approximately $12.7 million for about 2,000 employees23 (most of 

whom are paid with nonappropriated funds) who would be let go if 

lodging is privatized. Additionally, the Army estimates that about 59 of the 

2,000 employees, in addition to receiving severance pay, may be eligible

for a discontinued service retirement annuity.24 According to the Army, the 

most recent cost estimate for discontinued service retirement annuities is 

around $4.6 million. However, the exact amount of severance pay and 

discontinued service annuities will not be known until lodging at each 

installation is privatized and the Civilian Personnel Office calculates 

accurate severance pay, and where applicable discontinued service 

annuities, for each individual employee. According to the Army officials, 

the severance pay and discontinued service retirement annuities will be 

paid with nonappropriated funds from the centralized Army Lodging Fund. 

Other Potential Operating 

Challenges of Lodging 

Privatization 

The privatization of Army lodging may potentially affect occupancy levels

and exacerbate rate disparities among bases and between official and

unofficial travelers, as well as promote more notable inconsistencies in 

room rates among services at planned joint bases.

If the Army lodging facilities are privatized, the occupancy rates could 

decline because official travelers would not be required to stay in the 

privatized facilities. Under current regulations, when adequate quarters are 

available on the U.S. installation to which a service member is assigned 

TDY and the service member uses other lodgings as a personal choice, 

 22This is the Army’s estimate as of Dec. 4, 2006. The estimate was prepared using the 

Army’s Civilian Human Resources Agency Report dated Sept. 30, 2006. According to the 

Army, the estimate is not complete because it does not include information for 52

employees located at Fort Hamilton, New York; and Fort Hunter Liggett, Camp Parks, and 

Fort BT Collins, California. The estimate also does not include lodging employees at 

installations (Fort Monmouth, New Jersey; U.S. Army Garrison, Selfridge Air National 

Guard Base, Michigan; Fort Monroe, Virginia; and Fort McPherson, Georgia) that will be 

closed because of Base Realignment and Closure 2005 actions. 

23This number includes all Army lodging employees in the United States and Puerto Rico. 

24The Army’s nonappropriated funds retirement plan includes a voluntary retirement 

authority and discontinued service retirement benefit when installations are undergoing a

substantial reduction or when an individual’s positions is eliminated due to a business 

based action. 

Page 23 GAO-07-164 Defense Infrastructure
lodging reimbursement is limited to government quarters cost on the U.S.

installation to which he was assigned.25 Army officials acknowledge that 

initially there may be a decline in demand for on-base lodging, as it will 

take some time for the currently inadequate rooms to be renovated and as

some travelers may want to stay off-base simply because they can. 

However, Army officials believe that if a decline in demand does occur it 

would not last long, because travelers may have difficulties finding 

affordable lodging that is located at a reasonable distance from the post. 

Our work on DOD’s housing privatization efforts has shown that 

occupancy rates are below expectations for some projects. In April 2006 

we reported26 that 16, or 36 percent, of 44 awarded housing privatization 

projects had occupancy rates below expectations. In an attempt to 

increase occupancy and keep rental revenues up, 20 projects began 

renting housing units to parties other than military families, including 

single or unaccompanied service members, retired military personnel, 

civilians and contractors who work for DOD, and civilians from the 

general public. Army officials believe that the housing and lodging markets 

are sufficiently different that they should not be compared too closely. For 

example, they noted that a TDY or PCS traveler generally stays in lodging

for 1 or 2 weeks, while military housing is usually occupied for 2 or 3 

years. 

Furthermore, privatization may lead to changes for unofficial travelers. 

Unofficial travelers, who account for 7 percent of those accommodated at 

Army lodgings, currently pay the same rate as official travelers. However, 

with privatization, the private entity managing Army lodging could charge 

unofficial travelers the market rate, which may be higher than the amount 

official travelers will pay. Army officials noted that unofficial travelers 

should pay market rates; however, the Army has not enforced this because 

it wants to minimize the out-of-pocket cost for unofficial travelers such as 

retirees or visiting family members. 

Privatization of lodging may also create some inconsistencies in lodging 

pricing as DOD implements its plans to establish joint bases as directed by 

the 2005 base realignment and closure recommendations. Under the 

approved recommendations, the management of installation support 

 25The Joint Federal Travel Regulations, Uniformed Services, Volume 1, Chapter 1,

Applicability and General Information, Section U1045 (2006). 

26GAO, Military Housing: Management Issues Require Attention as the Privatization 

Program Matures, GAO-06-438 (Washington, D.C.: Apr. 28, 2006). 

Page 24 GAO-07-164 Defense Infrastructure
services, including lodging, would be consolidated under a single service 

at various installations throughout the United States.27 Two installations in 

the Army’s Group A, Fort Sam Houston and Fort Myer, are included in this

recommendation. While the Army does not believe that privatization will 

affect plans for joint basing, we believe it could lead to inconsistencies in 

room rates among services at joint bases. For example, a service member

on official travel to the San Antonio area would pay more for a room at 

Fort Sam Houston than at either Lackland or Randolph Air Force Bases. 

Using current per diem and the projected privatization pricing allowance,28

a room at Fort Sam Houston would cost $70 per night under privatization,

while a room at either Lackland or Randolph Air Force Base would cost 

$27 per night. Officials in the Office of the Under Secretary of Defense for 

Personnel and Readiness and the Air Force question whether the Army 

should have included installations in the joint basing recommendation in 

their initial group of lodging facilities to privatize because of the 

uncertainty about how joint bases will operate. 

Oversight and 

Accountability for 

Privatization of Army 

Lodging Program Will 

Follow Military Housing 

Model 

The Army is using the MHPI legislation as its authority to establish the 

lodging privatization program. The Office of the Under Secretary of 

Defense for Acquisition, Technology, and Logistics provides oversight for 

MHPI-authorized projects and, according to officials from that office, will 

provide oversight for lodging privatization similar to that provided for 

military housing privatization. The MPHI legislation has several provisions

that direct the Secretary of Defense to notify Congress of his actions under 

certain circumstances. For example, the Secretary of Defense must submit 

written notification to Congress before transferring appropriated 

amounts29 to certain kinds of funds, as well as submit a report describing 

 27Department of Defense installations scheduled for joint basing as part of Base

Realignment and Closure 2005 include: Under Army Lead: Fort Lewis, Fort Myer,

Henderson Hall, and McChord Air Force Base; Under Navy Lead: Anacostia Naval Annex, 

Anderson Air Force Base, Bolling Air Force Base, Fort Story, Hickam Air Force Base, Naval 

Research Laboratory, Naval Station Norfolk, Naval Station Pear Harbor, and Navy Base

Guam; Under Air Force Lead: Andrews Air Force Base, Charleston Air Force Base, 

Elmendorf Air Force Base, Fort Dix, Fort Eustis, Fort Richardson, Fort Sam Houston,

Lackland Air Force Base, Langley Air Force Base, McGuire Air Force Base, Naval Air

Engineering Station Lakehurst, Naval Air Facility Washington, Naval Weapons Station 

Charleston, and Randolph Air Force Base. 

28Under privatization, the room rate would be limited to 75 percent of per diem across the

installations in Group A. 

2910 U.S.C. 2883(f). 

Page 25 GAO-07-164 Defense Infrastructure
the contracts that the Secretary proposes to solicit under the MPHI 

legislation at least 30 days before doing so.30 Additionally, OSD and the 

military services use the MHPI program evaluation plan to monitor the 

physical and financial health of awarded projects, and evaluate the costs 

and benefits of privatization.31 The program evaluation plan requires 

semiannual reporting to OSD for all awarded MHPI projects. According to 

OSD officials, since the Army is using the same MHPI legislation as 

authority to privatize its lodging, these reporting requirements should also 

be applicable, and would provide the Congress and OSD with a high-level 

of oversight as the Army begins to implement its program. The Army 

acknowledges that it is aware of the congressional reporting requirements 

for MHPI legislation projects and intends to comply with the requirements 

as it implements its lodging privatization plans. 

On October 6, 2006, DOD provided the military services with revised 

lodging guidance, which addressed some issues raised in prior GAO 

recommendations but does not provide clear program performance 

standards and measures.32 The new guidance requires the military services 

to (1) develop and maintain a 5-year recapitalization plan, (2) base the 

construction of lodging rooms on historical data and future mission 

changes, and (3) construct certain new lodging facilities to meet the 

demand of official TDY and PCS travelers. The revised guidance, however, 

does not specifically address or strengthen OSD’s ability to determine 

whether lodging programs use appropriated or nonappropriated funds to

pay for specific program expenses. 

Revised DOD Lodging 

Policy Does Not 

Provide Clear 

Performance 

Standards 

Some of the revisions in DOD Instruction 1015.11 improve guidance by 

clarifying requirements, but the revisions fall short of developing clear 

performance standards and measures. For example, the Instruction would 

require that services construct certain new lodging facilities to meet the 

demand of customers on official TDY or PCS travel. However, the 

customer data needed to justify construction is not sufficiently defined to 

 3010 U.S.C. 2884. 

31In a March 2000 report, GAO recommended that DOD create a privatization evaluation 

plan to be used consistently by all the military services, and that the plan should include 

performance measures, such as evaluation of each authority, comparison of actual to 

estimated costs of projects, assessment of developer performance, and so forth. See GAO,

Military Housing: Continued Concerns in Implementing the Privatization Initiative, 

GAO/NSIAD-00-71 (Washington, D.C.: Mar. 30, 2000). 

32DOD Instruction 1015.11, Lodging Policy (Oct. 6, 2006). 

Page 26 GAO-07-164 Defense Infrastructure
ensure consistent collection across programs. Additionally, though the 

guidance states that DOD lodging programs should be professionally 

managed and business-based, it does not specifically define such methods 

or performance measures that could be utilized to demonstrate the lodging 

program’s efficiency or effectiveness. 

Furthermore, the revised lodging guidance does not address the role of the 

Office of the Under Secretary of Defense for Acquisition, Technology, and 

Logistics regarding privatized lodging. With the Army’s privatization 

efforts, the office of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics has begun to play a more active role recently in

conjunction with the Army’s privatization plans, given the OSD office’s 

experience with housing privatization. Officials from both offices said they 

plan to meet to clarify their respective roles and responsibilities for the 

Army’s privatized lodging facilities. 

Under a decentralized approach to lodging management, the military 

services have individual and somewhat dissimilar approaches to the 

management and funding of TDY and PCS lodging facilities. While some 

reporting to OSD on lodging operations occurs, without standard data 

collection and reporting methods and adequate oversight, the reliability of

the data submitted to OSD is unclear. In addition, OSD and the military 

services lack information that would enable them to evaluate the 

effectiveness of their lodging programs and make comparisons across 

programs that would aid in future program management decisions. We do 

not see any reason why it would not be possible for OSD to promote 

consistent data collection and reporting, without unnecessarily requiring 

the military services to run their programs in exactly the same fashion. 

Conclusions 

Most importantly, DOD and the military services lack but would benefit 

from greater use of performance measures to determine whether goals set

forth in the lodging strategic plan are being achieved, and to provide 

adequate oversight of the Army’s lodging privatization initiative. Though 

one of the DOD lodging strategic goals is to utilize business-based 

methods of operation, the military services have not adequately sought out 

best practices and management methods commonly used in the private 

hotel industry. For example, they have not effectively utilized tools such as 

the Uniform System of Accounts for the Lodging Industry or the Smith 

Travel Research HOST study. Since DOD has established goals for its 

lodging programs that go beyond the private industry goal of profit 

generation, however, it would be insufficient to merely adopt performance 

standards and measures used by commercial counterparts. Additionally, as 

Page 27 GAO-07-164 Defense Infrastructure
the Army moves forward with its plans to privatize lodging, it needs to 

provide the same level of accountability to the Congress and OSD for 

program costs and performance as it does for its housing privatization 

projects. Furthermore, DOD policy must address who will provide policy 

and oversight for privatized lodging.

We recommend that the Secretary of Defense direct the Under Secretary 

of Defense for Personnel and Readiness in consultation with the Under 

Secretary of Defense for Acquisition, Technology, and Logistics to (1) 

clarify their respective roles for establishing policy and overseeing the 

lodging program, and (2) update the DOD lodging program strategic plan,

to include developing performance standards and measures to ensure that 

the goals of the lodging program strategic plan and Army plans to privatize 

its lodging are being achieved. 

In commenting on a draft of this report, DOD concurred with both of our 

recommendations and indicated planned actions and timeframes for 

accomplishing them. The department’s response indicated that the Army’s 

analysis shows the life cycle costs are less under privatization than using 

the current system to achieve the same results. As we noted in our draft 

and this final report, privatization of lodging while providing faster 

recapitalization and sustainment of facilities will likely increase costs to 

the government by about $75 million per year through increased lodging 

fees. The department separately provided various technical comments 

which are incorporated where appropriate. The department’s written 

comments are presented in appendix III. 

We are sending copies of this report to the Secretary of Defense; the Under 

Secretaries of Defense for Personnel and Readiness, and for Acquisition, 

Technology, and Logistics; the Secretaries of the Army, Navy, and Air 

Force; and the Director, OMB. We will also make copies available to 

others upon request. In addition, the report will be available at no charge 

on GAO’s Web site at http://www.gao.gov. 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 

If you or your staff have any questions about this report, please contact me 

on (202) 512-5581 or holmanb@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

Page 28 GAO-07-164 Defense Infrastructure
of this report. The GAO staff members who made major contributions to 

this report are listed in appendix IV.

Barry W. Holman, Director 

Defense Capabilities and Management 

Page 29 GAO-07-164 Defense Infrastructure
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To determine how the military services’ operate and assess their lodging 

programs, we reviewed Department of Defense (DOD) and military service 

lodging policy, analyzed data regarding program funding, room rates, and 

occupancy rates by type of traveler. We interviewed officials from: the 

Office of the Under Secretary of Defense for Acquisition, Technology, and 

Logistics; Office of the Under Secretary of Defense for Personnel and 

Readiness; and the Army, Air Force, Navy, and Marine Corps offices 

responsible for managing the temporary duty (TDY) and permanentchange-of-station (PCS) lodging programs. We obtained and reviewed 

financial statements; the military services’ annual reports submitted to the 

Office of the Secretary of Defense (Personnel and Readiness); and reports 

prepared by independent auditors, the DOD Inspector General, and 

military audit agencies on DOD lodging programs. We identified some 

discrepancies in each of the military services’ data, but we discussed and 

resolved these discrepancies. Therefore, we believe the military services’

data are sufficiently reliable for our purposes. We visited selected military 

installations to determine how lodges are managed and to observe their 

physical condition. Installations were selected to include each of the six 

lodging programs and a range of geographical locations. Specifically, we 

visited Fort Polk, Louisiana; Fort Sam Houston, Texas; Lackland Air Force 

Base, Texas; Randolph Air Force Base, Texas; Naval Air Station North 

Island, California; Naval Amphibious Base Coronado, California; Marine 

Corps Base Quantico, Virginia; and Marine Corps Air Station Miramar, 

California. 

To determine the potential effect of the privatization of Army lodging, we 

reviewed the Army’s life-cycle cost analysis that supported its decision to

privatize lodging. We interviewed officials in the Office of Management 

and Budget, Offices of the Under Secretaries of Defense (Personnel and 

Readiness) and (Acquisition, Technology, and Logistics), and the Assistant 

Secretary of the Army (Installations and Environment) regarding the Army 

plans to privatize lodging. To determine the effect on Army travel costs, 

we compared the average daily room rate for Army lodging to the 

projected room rate under the privatization effort. For this analysis, we 

used the fiscal year 2005 occupancy rate for Army lodging and the Army 

lodging room rates and per diem rates for fiscal year 2006. Additionally, 

we reviewed analysis prepared by PricewaterhouseCoopers LLP, the Army 

Community and Family Support Center, and the Army Privatization Office 

regarding the projected cost and time frames for recapitalizing all Army 

lodging in United States. We also analyzed the amount of funds 

accumulated in the Army Lodging Fund as a result of the lodging 

surcharge to assess how much is available for lodging revitalization. 

Although we did not test reliability of these data, we did discuss the 

Page 30 GAO-07-164 Defense Infrastructure
Appendix I: Scope and Methodology 

processes and procedures used by the Army to assure the reliability of the 

data they used and provided for our review. Therefore, we believe the 

Army’s data is sufficiently reliable for our purposes. Finally, we obtained

information concerning the status of previous Army, Air Force, and Navy 

lodging public-private ventures. We interviewed appropriate military 

service officials and private developers/managers involved in these publicprivate ventures to gain insight into their experience and potential 

opportunities or challenges with privatization. 

To determine DOD’s progress in revising lodging policy guidance, we 

reviewed the lodging policy revisions proposed by the Office of the Under 

Secretary for Personnel and Readiness and conducted a comparative 

analysis to current DOD lodging program policies. We also interviewed 

Office of the Secretary of Defense and military service officials to 

determine the status of the draft revisions and their perspective on the 

proposed changes. 

We conducted our work from December 2005 through September 2006 in

accordance with generally accepted government auditing standards. 

Page 31 GAO-07-164 Defense Infrastructure
Appendix II: Military Services’ Previous Appendix II: Military Services’ Previous Lodging Public-Private Ventures 

Lodging Public-Private Ventures 

Between 1987 and 2001, the military services entered into 10 public-private 

ventures for lodges; however, only 7 are still operating. In two cases, at 

Fort Bliss, Texas, and Fort Drum, New York, the Army purchased the 

facilities from the developers. According to the Army officials, the Army 

always intended to resume ownership and operation of the Fort Bliss 

lodging facility. We were told that the public-private venture at Fort Drum 

was not successful because the occupancy never reached the anticipated 

levels because of a change in mission. The Army agreed to buy the facility 

from the developer and resume operations. 

Private developers, management personnel, and military personnel 

associated with these prior public-private ventures believe the programs 

are successful if there are well-written contracts that include specific 

provisions for rate setting, facility standards, revenue caps, and 

renegotiation of these provisions at specified intervals throughout the life 

of the lease. All but one noted that a positive ongoing relationship between 

the installation commander and lodging personnel and the developer and 

his or her management team is important. Table 7 summarizes the military 

services’ previous public-private ventures to provide lodging. 

Page 32 GAO-07-164 Defense Infrastructure
Appendix II: Military Services’ Previous 

Lodging Public-Private Ventures 

Table 7: Military Services’ Previous Lodging Public-Private Ventures 

Service Location Date Authority Government risk Status

Army Fort Drum, NY April 

1987 

10 U.S.C. 2667 Army Morale, Welfare and 

Recreation Fund underwrote 

debt 

Purchased from developer by Army 

and absorbed into Army lodging 

Schofield

Barracks, HI 

June 

1987 

10 U.S.C. 2667 Army Morale, Welfare and 

Recreation Fund underwrote 

debt 

Army is currently in arbitration with 

developer 

Fort Bliss, TX April 

1989 

10 U.S.C. 2667 Army Morale, Welfare and 

Recreation Fund underwrote 

debt 

Purchased from developer by Army 

and absorbed into Army lodging 

West Point, NY October 

1999 

10 U.S.C. 2667 Army Morale, Warfare and 

Recreation Fund underwrote 

commercial bond 

Currently operated by developer 

Hunter Army

Airfield, GA

Fort Bragg, NC

Fort Irwin, CA 

January 

2001 

January 

2001 

March 

2001 

10 U.S.C 2667 None identified Currently operated by developer 

Air Force Wright Patterson 

Air Force Base, 

OH 

1990 10 U.S.C. 2667 None identified Currently operated by developer 

Navy Naval Station

Newport, RI 

July 

1992 

10 U.S.C. 2809 Navy guaranteed a certain 

level of occupancy 

Currently operated by management 

company 

Submarine Base

New London, CT 

July 

1992 

10 U.S.C. 2809 Navy guaranteed a certain 

level of occupancy 

Currently operated by management 

company 

Source: GAO interviews with OSD and private developers, management personnel, and military personnel associated with the publicprivate ventures. 

Page 33 GAO-07-164 Defense Infrastructure
Appendix III: Comments from the Department Appendix III: Comments from the of Defense 

Department of Defense 

Page 34 GAO-07-164 Defense Infrastructure
Appendix III: Comments from the Department 

of Defense 

Page 35 GAO-07-164 Defense Infrastructure
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 36 GAO-07-164

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Barry W. Holman, (202) 512-5581 (holmanb@gao.gov) 

In addition to the person named above, Michael Kennedy, Assistant 

Director; Claudia Dickey, Kate Lenane, Leslie Sarapu, Julie Silvers, and 

Cheryl Weissman also made major contributions to this report. 

Defense Infrastruct

GAO Contact 

Acknowledgments 

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