Military Housing: Installations Need to Share Information on Their Section 801 On-Base Housing Contracts
Published: 2010-10-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In the Military Construction Authorization Act, 1984, Congress authorized the Section 801 housing program, which provided a means for improving and expanding military family housing through private developers' investment. Under this authority, the Department of Defense (DOD) awarded eight contracts for the construction of on-base housing that typically consisted of two phases: the in-lease (DOD leases all of the units from developers for up to 20 years whether housing is occupied or not) and the out-lease (under some contracts, developers may rent housing to the general public while leasing the land from DOD for up to 30 more years). Based on a mandate in the National Defense Authorization Act for Fiscal Year 2010 conference report, GAO's objectives were to assess (1) the status of contracts for on-base Section 801 military housing, (2) the estimated costs to DOD and local communities that would result from the general public occupying this housing, and (3) the extent to which DOD and the services share information on modifications to the contracts and community interaction experiences. GAO visited five installations with on-base Section 801 housing, analyzed housing contracts, and interviewed relevant officials.
section_title: What GAO Found
paragraphs: The status of contracts for on-base Section 801 military housing varies widely, ranging from continuing the in-lease phase of the contracts to demolishing unneeded units. Of the eight on-base Section 801 housing contracts, four remain in the in-lease phase (when housing is reserved for service members and their families), two are in the out-lease phase (when, depending on the terms of the contract, the installation may allow the developer to rent housing to the general public or reserve housing for service members), and two are in contract dispute or litigation--Eielson Air Force Base and Naval Weapons Station Earle. For the two contracts in the out-lease, Fort Wainwright converted its housing units to the general public's use, while Fort Hood renegotiated its contract to retain housing for military or DOD civilians' use. The housing contracts generally require the developer to pay certain costs (potentially including roads construction, utilities, and demolition costs) to permit the Section 801 housing units' transition to the general public's use; however, no cost estimates existed during GAO's review. Also, GAO found potential transition costs for DOD and the communities linked to three installations: Naval Base Ventura County Port Hueneme, Ellsworth Air Force Base, and Hurlburt Field. The potential costs relate to security, education, transportation, and environmental considerations. GAO did not identify any potential benefits that might accrue from converting the leases to the out-lease phase because it was outside of the scope of our work. GAO found that the services share information regarding their Section 801 housing contracts with other installations within the service; but DOD and the services do not share this information across the services. For example, Fort Hood renegotiated its contract to specify additional reasons for potential early termination of its lease, and retained priority use of the housing units for military personnel or DOD civilians; however, Air Force and Navy officials stated they were unfamiliar with these contract modifications. Additionally, GAO reported that most Section 801 contracts provide that DOD may terminate early in the event of national emergency or other limited circumstances, but none of the contracts specifically address potential liability in instances where DOD might terminate for other reasons such as reduced demand for housing or security concerns. GAO found that the services and DOD lack a communications process to share information from contract negotiations and community interaction--both of which can affect the efficient use of military housing resources. According to best practices for internal control in the federal government, program managers should communicate information within a time frame to management and others within the entity to meet goals for effective and efficient use of resources. Without a communications process to share installations' experiences with any major housing-contract changes and community interaction, DOD and the services cannot ensure that the four installations facing potential contract changes will have the timely information to better position the installations to negotiate the most cost-effective contract terms for the federal government.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD develop a communications process among installations with Section 801 housing to share information regarding any contract changes. DOD concurred with GAO's recommendation.

section_title: Letter
paragraphs: A number of Department of Defense (DOD) installations, starting in 1984,  contracted with developers to privately finance the construction of  millions of dollars worth of military family housing on base property, and  obligated DOD for long-term lease payments. The Section 801 housing  program was authorized by the Military Construction Authorization Act,  1984. Section 801 provided a means for improving and expanding military  family housing through private developers’ investment at a time when the  federal government wanted to refrain from federally financing  construction. This program was a forerunner to the current Military  Housing Privatization Initiative.
The Section 801 on-base housing contracts between DOD and developers  generally consist of two phases: an in-lease period during which DOD  rents all of the units from the developer for a period of up to 20 years  whether the units are occupied or not by military families and an out-lease  period during which developers may be permitted to lease units to the  general public and pay DOD rent for the use of the land for a period  ranging from 20 to 30 years. The contracts between developers and the  government outline the terms for the property status at the expiration of  the out-lease. This typically involves a provision requiring the developer to  remove improvements to the property and restore it to its prior condition,  which potentially requires the developer to demolish the housing. With  respect to many of the contracts entered into under the Section 801  program, the military services face a staggered timetable within the next 1  to 6 years to decide to either proceed with the contracts as written, and  potentially permit developers to lease the housing to the general public, or  attempt to renegotiate contracts to reflect evolving needs for military  housing and security.
There are seven DOD installations that have or have had Section 801  military family housing units located on-base, including three Air Force  installations (Eielson Air Force Base, Alaska; Ellsworth Air Force Base,  South Dakota; and Hurlburt Field, Florida); two Army installations (Fort  Hood, Texas, and Fort Wainwright, Alaska); and two Navy installations  (Naval Base Ventura County Port Hueneme, California and Naval Weapons  Station Earle, New Jersey). Eielson Air Force Base is the only installation  with two separate Section 801 contracts for military family housing  complexes on-base. Following the enactment of the National Defense  Authorization Act for Fiscal Years 1992 and 1993, which replaced the  Section 801 authority with a similar authority under which housing could  only be built off-base, DOD subsequently decided it would not pursue  new on-base Section 801 housing projects starting in fiscal year 1992.
In the conference report accompanying the National Defense  Authorization Act for Fiscal Year 2010, GAO was directed to review DOD  plans for the privately owned rental housing on DOD land and issue a  report to the congressional defense committees on the cost, potential  security risks, and other impacts of transitioning use of Section 801 on- base military family housing to the general public’s use. This report  focuses only on the on-base housing units and does not discuss the  numerous housing units built off-base under the Section 801 program. In  response to this direction, we examined (1) the status of contracts for on- base Section 801 military housing, including whether there is competition  between multiple housing developers at a single installation and whether  there are security risks if housing units are leased to the general public; (2)  the estimated costs to DOD and local communities—including security,  education, transportation, and environmental considerations—that would  result from proposed general public occupancy of on-base Section 801  military housing units, and (3) the extent to which DOD and the military  services are sharing information regarding the transition of the housing to  the general public’s use, including details of contract term changes and  interaction with communities.
To address the first objective, we obtained and reviewed contracts and  other relevant documents for the seven installations with on-base Section  801 housing to report on the status of those contracts, including describing  the current transition plans that are in place or being considered. We  conducted site visits at five of the seven installations with on-base Section  801 housing and interviewed officials at all seven installations to discuss  the current status of their on-base Section 801 housing and their plans for  potentially transitioning the property from military to the general public’s  use. We also discussed with these officials the extent to which competition  exists where there are multiple housing developers on an installation, and  the impact the competition has on the occupancy rate of the on-base  Section 801 housing units. Regarding security risks, we reviewed DOD’s  antiterrorism and force protection standards and discussed with the  military service officials the extent to which each installation has  considered and instituted DOD’s standards in developing plans for  providing the general public access to property on military land and  described the actions taken to minimize or mitigate any related security  risks or other concerns.
To address the second objective, we focused our work on the five  installations with on-base Section 801 military housing that have not  entered the second phase (out-lease) of their contracts: Eielson Air Force  Base, Ellsworth Air Force Base, Hurlburt Field, Naval Base Ventura  County Port Hueneme, and Naval Weapons Station Earle. We interviewed  community officials on their views about the general public potentially  leasing housing on these military installations and determined any  potential cost impacts to the community. We identified cost impacts in  four areas relating to security, education, environment, and transportation  that DOD and these communities may experience because of the transition  of Section 801 housing to the general public’s use. However, we did not  identify any potential benefits that might accrue from converting the  leases to the out-lease phase because it was outside of the scope of our  work.
To address the third objective, we reviewed the initial and subsequent  Section 801 legislation and installations’ contracts to determine the  contractual obligations once the in-lease has expired, including any  contract changes or termination liability. We also conducted site visits at  five of the seven installations with Section 801 housing and interviewed  officials at all seven installations to discuss the details and plans for  transitioning from the in-lease to the out-lease phase of their on-base  Section 801 contracts, including whether any relevant contract changes  are being shared among the services and installations. We analyzed  relevant documents—including 2005 Base Realignment and Closure  legislation, the DOD Community Guide to Base Reuse, and Standards for  Internal Control in the Federal Government. We also asked about whether  the installations had developed a communication plan for any transition of  housing units from government to the general public’s use and the  interaction with the community to ensure a smooth transition of the  property.
We conducted this performance audit from January 2010 through October  2010, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Military Construction Authorization Act, 1984, established the Military  Family Housing Leasing Program, commonly referred to as the Section 801  housing program. This authority provided a mechanism for DOD to  contract with private developers to build new rental housing on or near  military installations. The Section 801 program is also referred to as a  build-to-lease program. The program permitted contracts entered into  under its authority to allocate responsibility for operating and maintaining  the units to either the government or the contractor, and required that  units be constructed to DOD standards, initial leases be for a period not in  excess of 20 years (excluding construction), and, upon termination of the  lease period, that the government have the right of first refusal to acquire  the facilities constructed and leased under the contract. The Section 801  program was initially authorized as a pilot program for approximately two  years, under which the number of housing units to be built could not  exceed 300 per contract, with a maximum of two contracts per military  department. Subsequent legislation renewed the program, expanded the  number of units that could be constructed, and increased the number of  contracts allowed by each service. The housing constructed under the  Section 801 housing program was available to all members of the armed  forces who are eligible for assignment to military family housing. Between  1985 and 1996, under the Section 801 program, DOD awarded eight  contracts to private developers to construct approximately 3,100 military  family housing units—a combination of two-, three-, four-, and five- bedroom units—on seven military installations. Also, under the Section  801 authority, DOD built numerous housing units off-base, located near  approximately 20 military installations.
While the Section 801 program authority allowed for flexibility in  contracting for operating and maintaining the units, DOD later decided  that the operations and maintenance responsibilities would reside with the  services for future projects. Additionally, in the National Defense  Authorization Act for Fiscal Years 1992 and 1993, Congress replaced the  Section 801 authority with a similar authority under which housing could  only be built off-base. Finally, according to a DOD history of the Section  801 program, changes to federal budgeting and spending processes in 1990  resulted in Section 801 projects being less advantageous. In light of these  changes, DOD decided that it would no longer pursue new on-base Section  801 housing projects.
Since the establishment of the Section 801 program, DOD has leveraged  private capital for developments on military land using several authorities  approved by Congress. In 1996, Congress created a new military family  housing program, called the Military Housing Privatization Initiative,  which provides DOD with authorities to attract investments from private  developers for the construction and improvement of military housing.  Established by the National Defense Authorization Act of Fiscal Year 1996,  the Military Housing Privatization Initiative provided DOD with a variety of  authorities—including conveying existing properties to a developer,  investing limited appropriated funds in a developer, and making direct  loans to or loan guarantees for the developer for the acquisition or  construction of housing units—to obtain private sector financing and  expertise to repair, renovate, and construct military family housing. In a  typical Military Housing Privatization Initiative project, the developer rents  directly to the service member and gives the service members rental  preference unless occupancy falls below a certain rate. Additionally,  unlike the Section 801 program where service members and their families  forfeit their basic allowance for housing when they are assigned to the  housing units, under the new housing program the service members must  use their basic allowances for housing to pay, and in some cases, to offset  their rent; and they are permitted to keep any portion of their basic  allowance for housing not spent on rent. While the Air Force refers to its  program as Military Housing Privatization, the Army refers to its program  as Residential Communities Initiative; the Navy refers to its program as  Public-Private Ventures.
In 2002, Congress expanded the Military Housing Privatization Initiative’s  authority to include transient housing or lodging facilities for military  members on temporary duty. Similar to the original 1996 act, this  expanded authority provided DOD with a variety of authorities to obtain  private sector financing and management to construct, operate and repair  lodging facilities. In July 2010, we reported that under this expanded  authority, the Army entered into a lease to privatize its lodging facilities  with a developer for a 50-year term, during which the Army retains  ownership of the land but conveys ownership of the structures to the  developer. At the end of the lease term, the structures, along with any  improvements, return to the Army. Although the Navy, Marine Corps, and  Air Force are currently not planning to privatize their lodging facilities,  officials from these three services said that they are observing the Army’s  efforts and might consider lodging privatization in the future.
Additionally, many land use authorities exist that permit the Secretary of  Defense, the secretaries of the military departments or both to make more  efficient use of underutilized real property under their control—such as  authorities permitting outleasing or conveyance of DOD real property or  the issuance of licenses, permits, or easements upon DOD real property  controlled by DOD. In July 2008, we reported that Section 2667 of Title 10  is the most frequently used land use authority throughout DOD for both  traditional short-term leases, lasting no more than 5 years, as well as  longer-term, more financially complex enhanced use leases which usually  span more than 30 years and typically involve in-kind payments not less  than the fair market value of the lease interest, such as new construction  or maintenance of existing facilities. Leases executed pursuant to this  authority benefit the installation by leveraging underutilized land in  exchange for rent money or in-kind consideration, and also benefit the  developer and the community. According to the Army’s draft Enhanced  Use Leasing Handbook, the longer lease terms are more in line with  private real estate development standards, and therefore help satisfy  financial lending requirements and help make the development  worthwhile to all enhanced use lease project stakeholders.
section_title: The Status of On-Base Section 801 Housing Contracts Varies Widely among Military Installations
subsections: section_title: Four Contracts Are Still in Their In-Lease Phase
paragraphs: The status of contracts for on-base Section 801 military housing varies  widely, ranging from continuing the in-lease phase of the contracts to  demolishing unneeded units. There are eight on-base Section 801 housing  contracts: four remain in the in-lease phase during which DOD rents all of  the units from the developer for up to 20 years whether the units are  occupied or not, two are in the out-lease phase during which developers  may be permitted to lease units to the general public and pay DOD rent for  the use of the land for another 20 to 30 years, and two are involved in  contract disputes or litigation. Three of the four in-lease contracts involve  Air Force installations—Eielson Air Force Base (Moose Lake and French  Creek housing units), Ellsworth Air Force Base, and Hurlburt Field—and  the Air Force is reviewing options for transitioning all three from in-lease  to out-lease. At the remaining installation in the in-lease phase, Naval Base  Ventura County Port Hueneme, the Navy is using vacant family housing  units to accommodate both military families and unaccompanied service  members, and is conducting a study to evaluate options beyond the  expiration of the in-lease. Generally, as contracts enter the out-lease  period, the services must decide to either proceed with the contracts as  written, and potentially permit developers to lease the housing to the  general public, or attempt to renegotiate contracts with the developer to  reflect evolving needs for military housing and security. Of the two  contracts in the out-lease phase, one (Fort Wainwright) has completed its  housing transition to the general public’s use, while the other (Fort Hood)  has renegotiated its contract to retain priority use of the housing units for  military personnel or DOD civilians.
Finally, the two contracts in dispute or litigation are Eielson Air Force  Base and Naval Weapons Station Earle.
Eielson Air Force Base: Sprucewood—The base is involved in litigation  with the developer regarding potential rental payments and $3.27  million in demolition costs. The Air Force has paid for the demolition  costs but is seeking reimbursement. The original contract included a  provision under which the developer was responsible, at the expiration  of the lease, for vacating the property and restoring the land to the  order and condition existing at the beginning of the lease term.
Naval Weapons Station Earle: Laurelwood—The Navy is involved in a  dispute with a developer about the amount of compensation due to the  developer as a result of the Navy’s decision first to suspend its Record  of Decision to provide unimpeded access to housing units at Naval  Weapons Station Earle and later the Navy’s decision to terminate its  housing contract for the units. According to Navy officials, the Navy  elected to suspend the Record of Decision and terminate the contract  for the Section 801 housing units because of (1) difficulties in obtaining  the required state permits for the construction of a new road that could  have significantly delayed the Navy’s ability to provide unimpeded  access to the units and (2) the challenges of resolving the Navy’s and  the developer’s conflicting interpretations of their respective  obligations under the contract. In April 2010, after the Navy suspended  the contract, the developer submitted a certified claim to the Navy’s  contracting officer under the Contract Disputes Act. At the time of our  report, the Navy contracting officer was still determining the final  resolution on the developer’s claim for compensation. If the developer  disagrees with the decision, the developer has the right to appeal. If the  developer disagrees with the decision, the developer has the right to  appeal.
See Table 1 for the status of all installations.
Additionally, while some Section 801 contracts provide that DOD may  terminate early in the event of a national emergency or other specific  circumstances, such as when the developer fails to perform or violates  certain contractual requirements, none of the original contracts  specifically address potential liability in instances where DOD might  terminate for reasons such as reduced demand for housing due to base  realignment and closure, or security concerns with permitting the general  public to occupy on-base housing. According to Fort Hood officials, the  developer may expect that the government would take measures to  mitigate the financial impact of such a termination decision. The decision  to terminate the Section 801 contract for off-base housing units at March  Air Force Base in California, which is now closed because of a base  realignment and closure action, is an example of the potential government  liability that can result from early termination of a Section 801 housing  contract. According to the developer who previously owned these off-base  housing units, in 1998 when March Air Force Base closed, the Air Force  bought out the remaining terms of his contract and issued him a check for  $3.5 million. The developer stated that he unsuccessfully appealed the  amount of the payment, and eventually accepted the payment. This  developer is also the owner of the on-base Section 801 housing units on  Naval Base Ventura County Port Hueneme. For further details on the  current status and next milestones for each installation, see Appendix I.
section_title: Potential Competition Exists among On-Base Housing Programs at Two Military Installations
paragraphs: Competition can occur at any installation with housing units operated by  different developers and where there are differences in the age, size, or  rental rates for housing. However, we only found two installations with   on-base Section 801 housing—Fort Hood and Naval Base Ventura County  Port Hueneme—that are experiencing competition. These two installations  have both an on-base Section 801 housing developer and another  developer that either constructed new housing or renovated existing  housing under DOD’s Military Housing Privatization Initiative. For  example, while the potential for competition exists at Fort Hood between  the Section 801 developer and Residential Communities Initiative housing  privatization partner, Fort Hood and both developers found the  competition to be negligible because both programs have an insufficient  inventory of two-bedroom units to meet the installation’s demand. By  comparison, competition between the on-base Section 801 housing units  and the other privatized housing units at Naval Base Ventura County Port  Hueneme has resulted in less demand and reduced occupancy of the  Section 801 housing units because service members are choosing to live in  other privatized military housing units on or off base or to utilize the local  rental housing market. The on-base Section 801 housing at Naval Base  Ventura County Port Hueneme had an occupancy rate of 16 percent when  units were used solely for family housing prior to 2009, although the Navy  leases all of the units during the in-lease phase. In contrast, Naval Base  Ventura County Port Hueneme experienced a 98 percent occupancy rate  for newer family housing units under the Navy’s Public-Private Ventures  housing privatization initiative, where the Navy has no lease obligation.  Under subsequent legislation in 2008, during the in-lease period, the  services were authorized to rent the Section 801 units to unaccompanied  members in addition to military families. At Naval Base Ventura County  Port Hueneme, the Navy exercised this new authority and increased the  occupancy rate of its Section 801 housing units to 38 percent. According to  Naval Base Ventura County Port Hueneme officials, if their out-lease with  the developer is renegotiated to give the service members priority when  renting the housing units, as is done under the Navy’s Public-Private  Ventures housing privatization initiative, then the developer could adjust  the rental rates for the Section 801 housing to be more competitive with  other housing developments on and off-base, thereby increasing the  occupancy rate for these units. While the out-lease, as written, does not  preclude the developer from renting units directly to service members, it  does not provide rental priority to them either.
section_title: Potential Need for Additional Security Measures Limited to One Installation That May Transition Housing to the General Public’s Use
paragraphs: We found that DOD, under specific conditions, may need to implement  security-related measures to comply with DOD’s antiterrorism and force  protection standards at one military installation with Section 801  housing, Naval Base Ventura County Port Hueneme. The conditions  involve whether the use of housing units changes from military family  housing to another purpose, and whether there is an increase in the  occupancy of those units (i.e. bachelor housing, the general public’s use,  or any other use). Specifically, Naval Base Ventura County Port Hueneme  officials stated that they would likely need to take measures—such as  stand-off distance between fencing and structures—to securely separate  the housing from the main base in order to avoid potential security risks.  These standards require a range of 33 feet to 82 feet between the fence line  and any DOD structures. Ellsworth Air Force Base and Hurlburt Field—  two other installations that may convert their on-base Section 801 housing  to the general public’s use—have no apparent need for additional security  measures beyond installing a fence around the Section 801 housing areas  which are located along the periphery of the installations.
The security challenge at Naval Base Ventura County Port Hueneme is that  the on-base Section 801 housing units are adjacent to mission-critical or  service support facilities, which could require mitigating measures to  continue meeting antiterrorism and force protection standards and to  allow access to the facilities. However, this security challenge was not a  factor at Fort Wainwright because its on-base Section 801 housing is  located along the installation’s periphery and was easily separated to meet  the anti-terrorism and force protection standards. Similarly, the housing at  Ellsworth Air Force Base and Hurlburt Field is located on each  installation’s periphery and allows easy separation, which, according to  Air Force officials, does not create additional security concerns. Also,  there is no security concern at Eielson Air Force Base and Fort Hood  because these installations are planning to maintain the on-base Section  801 housing as military family or DOD civilian housing. Additionally, Fort  Hood’s Section 801 housing units are located along the periphery and, if  necessary, can be easily separated.
At another base, Naval Weapons Station Earle, the local community  expressed concerns regarding security risks associated with the general  public potentially living on the installation in Section 801 housing.  Community officials stated that they were concerned that opening the  housing to the general public would potentially attract high-risk residents.  Navy officials stated that they disagreed with the community’s concerns  because all anti-terrorism and force protection standards would have been  met. However, the community’s concern was eliminated once the Navy  decided to suspend and then terminate its Section 801 contract, rather  than allow the general public to occupy its housing because of extensive  delays in providing the developer with unimpeded access to the units and  challenges in resolving conflicting interpretations of the Navy’s and the  developer’s obligations under the out-lease.
section_title: Some DOD Installations or Communities Would Face Transition Costs If Housing Units Are Converted to the General Public’s Use
paragraphs: We found there would be transition costs for DOD and communities at  three of the four installations remaining in the in-lease phase of their  contracts—the period in which DOD rents all of the units from the  developer for a period of up to 20 years whether the units are occupied or  not—if the on-base Section 801 housing units were to transition to the out- lease (the general public’s use). The transition costs include security,  education, transportation and environmental considerations. The three  affected sites are: Naval Base Ventura County Port Hueneme, Ellsworth  Air Force Base, and Hurlburt Field. Eielson Air Force Base, the fourth  installation with a housing contract, is in the in-lease phase and is not  expected to have any transition costs because the contract no longer  includes an out-lease phase during which the developer may be permitted  to lease units to the general public and pay DOD rent for the use of the  land; also, the Air Force is planning to convey the units to its Military  Housing Privatization developer to meet its housing requirements. At the  remaining installations that are currently in their out-lease or in contract  dispute, we found no likely costs for DOD or the communities related to  the transition of on-base Section 801 housing to the general public’s use.  For example, at Naval Weapon Station Earle, the Navy decided to  terminate the out-lease of its Section 801 housing contract, so there was  no longer a need to build a cost estimate for transferring the on-base  housing units to the general public’s use.
Developers may be required to cover transition costs associated with  constructing required public access roads, erecting fencing to separate the  housing from the installation, realigning utility services, maintaining the  housing units, and demolishing them at the expiration of the contract.  However, the terms of the Section 801 contracts generally determine  which party (i.e. the developer, the community or DOD) ultimately pays  certain transition costs. Education costs are not covered within Section  801 contracts, and the community would typically be responsible for the  entire cost of any new enrollments in the school systems as a result of  converting the housing to the general public’s use. According to the  education officials we interviewed from the various school systems, if the  occupancy of these units were to increase, they would have the capacity to  educate the children who may occupy these housing units. Furthermore,  according to officials from the various school systems, along with  representatives from the Department of Education’s Impact Aid Program,  the Impact Aid Program provides federal assistance to local educational  agencies that are financially burdened by federal activities, including basic  support payments for federally connected children (e.g. children residing  on federal property). However, according to these education officials, this  aid could decrease if units were converted from military to the general  public’s use since the civilian children residing on federal property would  carry less weight in the calculations used to compute impact aid.
Although the developer may be responsible for certain transition costs, we  found there would be costs for DOD and the communities related to  security, transportation or environmental considerations at one or more  installations; however, there were no estimates of most of the expected  costs before we completed our review in July 2010. Because many of these  projects are in their preliminary stages, we were not provided detailed  information in these three areas on the costs and benefits of the projects.
The potential cost areas that we identified:    Ellsworth Air Force Base—If the on-base Section 801 housing units  transition to the general public’s use in 2011, the community expects to  upgrade roadways between the housing and the town of Box Elder, but  there were no estimated costs at the time of our review. The town of  Box Elder completed a traffic impact analysis to assess the potential  traffic impact when the Section 801 housing units transition to the  general public’s use and concluded that more than 300 vehicles per  hour would use the affected roads. The upgrades—aimed at improving  the traffic flow—could involve building a two-lane road from the  housing to existing off-base roads, installing a traffic signal, and posting  school speed limit signs as needed. Additionally, the community of Box  Elder is planning to pay for three potential water system projects to  serve the housing units; according to community officials, cost  estimates were solicited, and an initial bid was received for $4.3 million  for the three water system projects to benefit the housing residents.
Naval Base Ventura County Port Hueneme—If the on-base Section 801  housing units transition to the general public’s use in 2014, the  community expects to incur transportation costs for constructing a  road to intersect a planned access road to some of the housing units  and adding traffic signals to reduce congestion on the roadways. Also,  the Navy may incur costs for building the new intersecting-access road,  erecting a fence to separate the housing from the Navy base, increasing  security patrols, relocating adjacent Navy facilities, and demolition  expenses. The Navy estimates that if demolition is needed to meet DOD  anti-terrorism standards for open space on both sides of a perimeter  fence, it may have to demolish 17 of the developer’s structures  including 120 housing units, which would equal 40 percent of the  developer’s inventory. If this occurs, the Navy—depending on the  outcome of any negotiations—may have to compensate the developer  for demolishing the units. No cost estimate was available at the time of  our review.
Hurlburt Field—The Section 801 housing units are behind a security  fence with controlled entry and routine patrols by Air Force security  forces. If the housing units transition to the general public’s use in  2012, these security services will no longer be available unless the  developer or the community decides to pay for them. However, if the  majority of residents remain service members, the base commander  may decide to continue providing these services. At the time of our  review there was no final decision on security plans, and no cost  estimates were available.
section_title: Contract Changes at Individual Bases Have Potential Application to Other Bases Transitioning to the Out-Lease Phase
subsections: section_title: Installations Are Not Sharing Information on Contract Changes with All Services
paragraphs: We found that the Air Force shares information regarding its Section 801  housing contracts within the service through the Air Force Real Property  Agency, an office with oversight over all Air Force installations with on- base Section 801 housing. To facilitate information sharing, this Air Force  agency maintains an on-line community of practice for its Section 801  program, which includes a lessons-learned forum. The Army and Navy do  not have a single source for obtaining such data, and they share  information only on a limited basis within each service. However, DOD  and the services do not have a process for sharing military housing-related  information across the services to ensure that the three installations that  may transition their on-base Section 801 units have all available  information that could assist in planning any lease modifications prior to  potential general public occupancy of on-base housing or lease  terminations. We found, for example, that Fort Hood renegotiated its on- base Section 801 contract to contractually agree to the terms of any  potential early termination of its lease and retain priority use of the  housing units for future military or DOD civilians. However, in our  interviews with housing officials at five installations, Air Force and Navy  officials stated they were unfamiliar with Fort Hood’s Section 801 housing  contract modifications or any contract changes at other installation with  Section 801 contracts. These officials stated they were unfamiliar with  these contract modifications because they did not have a communication  system for sharing such information as they began planning for the  transition into the out-lease phase of their contracts. After learning of the  contract changes at Fort Hood, Naval Base Ventura County Port Hueneme  officials stated that this information would help them broaden their  options for negotiating the terms of the out-lease with the installation’s  Section 801 developer.
According to federal best practices for sharing information to ensure  efficient use of resources, program managers should communicate  information within a time frame to management and others within the  entity to meet goals for effective and efficient use of resources. The  military services and DOD lack a communications process that would  enable them to share information on Section 801 contract changes as  installations begin to transition into the out-lease phase of their contracts.  Specifically, our review found two installations completed housing  contract negotiations and another installation interacted with its local  community to discuss upcoming changes in the use of on-base housing  and the potential impact on the community, and these detailed  developments were not shared with all installations with Section 801  housing. Without a communications process to share installations’  experiences with any major housing contract changes and community  interaction, DOD and the services cannot ensure that the four installations  facing potential contract changes in their out-lease will have all timely  information to position them to negotiate the most cost-effective contract  terms for the U.S. government.
In our review, we found a number of bases experienced significant  changes in demand for their Section 801 military housing—either during  the in-lease in which DOD pays a developer rent for housing units or  during the out-lease when a developer pays DOD rent for the use of the  land while renting the units to either military or general public occupants.  On-base housing demand can vary if the installation’s mission is expanded  or reduced (e.g., increasing or decreasing the number of personnel  assigned to that base) or even eliminated. Because of changes in  installations’ operations, the Army and the Air Force sought changes in  their housing leases. In the previously cited Fort Hood example, the Army  renegotiated its out-lease to accept several changes that could have  relevance to other installations facing potential changes in their leases, but  these lease changes were not shared with Air Force or Navy installations  with Section 801 housing. In one change, the Army renegotiated its out- lease to give rental preference to its military and DOD civilian members  and their families, and agreed to lease to the general public when base  operations change because of a base closure, low occupancy, or changes  in the number of on-base military personnel. This option allowed Fort  Hood to keep the on-base Section 801 housing units within its inventory  for service member or DOD civilian use and not have to separate the  housing units from the installation. In addition, we found that Fort Hood’s  renegotiated contract in 2008 expanded the reasons under which the  federal government may terminate a base’s housing contract with a  developer—from the standard termination clause of “in the event of a  national emergency” to also include “base closure, deactivation or  substantial realignment, or in the interest of national defense.” In today’s  changing environment, if installations could renegotiate the contract terms  to include broader reasons for contract terminations, it could potentially  protect the taxpayers interests in the event of unforeseen circumstances  that could significantly impact the DOD’s occupancy of the housing.
Additionally, DOD’s Inspector General recommended in 1991 that the  military services include “termination for convenience” clauses in future  contracts, in order to retain some flexibility in the contract terms for early  termination. Specifically, the DOD Inspector General’s report found that  most Section 801 housing contracts did not contain termination for  convenience clauses, as required by the Federal Acquisition Regulation in  solicitations for award of fixed-price and cost-reimbursement contracts, in  order to protect the interests of the government in the event of unforeseen  circumstances. The report found that the failure to incorporate  termination for convenience clauses, along with other issues, constituted  material internal control weaknesses. Included in the DOD Inspector  General’s report was a recommendation that DOD incorporate termination  for convenience clauses in future Section 801 transactions, especially  given DOD’s efforts to reduce and realign its military forces. However,  DOD disagreed with this recommendation, stating that the decision against  including termination for convenience clauses in Section 801 contracts  was a calculated business decision to avoid extra costs for bidders to  cover the additional financial risk of a termination for convenience clause,  which could potentially be passed along to the government. While the  DOD Inspector General’s report recognized that DOD can always cancel a  lease agreement whether or not a termination for convenience clause is  incorporated into the contracts, the report also stated that it was in the  government’s best economical interest to retain its flexibility by  incorporating clauses that recognize all liabilities for each party in the  agreement rather than imply such liabilities. Subsequently, between 1992  and 1996, DOD awarded Section 801 contracts at three installations:  Eielson Air Force Base; Hurlburt Field; and Naval Base Ventura County  Port Hueneme; however, none of these contracts included the termination  for convenience clause.
Moreover, we found that at Eielson Air Force Base, which has the Moose  Lake and French Creek Section 801 housing units, the Air Force  negotiated changes in its contract in 1996 that may be of interest to other  Section 801 housing installations facing potential contract changes and  seeking to reduce their financial liability for any unexpected termination  of a contract. Specifically, the Air Force in 1996 renegotiated the out-lease  phase of the contract to end on the same date as the in-lease—September  2016—and give the government the option of purchasing the units at any  time during the remainder of the contract for the price equal to the  indebtedness of the developer, including a prepayment premium. In  addition, the developer’s responsibility for removing its improvements and  restoring the property at the end of the contract was deleted. These  renegotiated contract terms helped the Air Force avoid any unexpected  termination liability costs; this information could be of interest to other  installations seeking best practices for any transition into an out-lease.
section_title: Installations Also Are Not Sharing Community Interaction Experiences with All Services
paragraphs: We found that any DOD interaction with a community related to housing  use was tied to whether on-base Section 801 military housing was being  considered for public use; however, the installation’s community  interaction experience is not shared with all services. In planning for  occupancy by the general public, the installation, developer, and local  community are likely to have interactions to address potential impacts on  school enrollment, road access, utilities, and other services. For example,  at Fort Wainwright officials met with community representatives on  potential impacts before converting on-base housing to the general  public’s use. Fort Wainwright officials stated that they started conducting  meetings with the local Chamber of Commerce, Board of Realtors, and  community officials approximately 18 months prior to the expiration of  the in-lease in May 2007. At these meetings, Fort Wainwright and the  community representatives discussed potential community impacts and  costs from the transition of the on-base housing units, including costs that  would be incurred by the Army, community, and developer. For example,  according to Fort Wainwright officials, in preparation for the transition of  the units to the general public’s use, the Army was responsible for erecting  a security fence, relocating an installation entry gate, and constructing a  new entrance from the housing to a public road. Additionally, while the  community would assume the responsibility for patrolling the units and  continuing its snow removal services for the streets outside of the  community, the developer would be responsible for snow removal within  the community. Fort Wainwright officials, however, were uncertain  whether the developer or the community would be responsible for trash  removal.
Furthermore, Fort Wainwright officials stated that local developers and  property managers expressed concern about the impact of increasing the  local rental market’s inventory and the potential competition among rental  housing developments. Moreover, Fort Wainwright officials held town hall  meetings with service members to discuss time frames and service  members’ options for moving or continuing to live in the units with the  understanding that in June 2007 the units would no longer be base  housing. Fort Wainwright officials stated that, as a best practice,  installations with on-base Section 801 housing should begin discussing the  potential transition with service members as early as possible (even earlier  than 18 months) in order to prevent unnecessary relocations. This  information could be useful to other installations as they begin to plan for  transitioning into the out-lease phase of their contracts. However, during  our review of other installations, we found that officials at the four  installations with contracts in the in-lease phase were unaware of the  process undertaken by Fort Wainwright as it transitioned the housing from  military housing to public use.
section_title: Conclusions
paragraphs: As the military services continue to adapt to meet their challenges around  the world, the services’ installations can gain or lose personnel and  experience significant impacts at on-base housing. Faced with long-term  leases with private developers, some installations with on-base Section 801  housing have, over time, sought minor or major changes in their housing  contracts, including specifying additional reasons for potential early  termination. However, other than a general provision for the resolution of  contract disputes, Section 801 contracts are typically silent regarding  potential government liability for terminations resulting from reduced  demand for housing because of base realignment and closure, security  concerns, and other reasons. Some installations have successfully  completed other revisions to their contracts, including one developer who  gave military personnel priority over the general public when the contract  advanced beyond the in-lease phase. Although this report has identified  some contract changes that could benefit multiple installations with  Section 801 housing, we believe there remains the potential for many other  experiences and best practices to be shared over time as installations  transition to the out-lease phase. While the individual services may have a  means for sharing information within the service, such as the Air Force’s  centralized office that evaluated out-lease options for its Section 801  housing program (a potential best practice), DOD does not have a  communications process to share this type of information among all  services. Also, while at least one installation has interacted with the  community—including communicating which entity pays for security,  education, transportation, and environmental considerations when the  general public occupy on-base housing—DOD lacks a communications  process to share any community interaction experiences among all  Section 801 housing installations. Without such a communications  process, the installations nearing the out-lease phase of their housing  contracts will not be fully informed about significant contract changes  included in the renegotiated contracts with private developers and may be  unaware of the best practices for interacting with communities before  allowing the general public’s use of on-base housing. Finally, unless all  installations with Section 801 housing communicate their contract  changes with each other in a timely manner, there is no assurance that  future contracts will be negotiated with the benefit of best practices  identified elsewhere to help ensure that resulting Section 801 contract  changes are in the best financial interest of the federal government.
section_title: Recommendation for Executive Action
paragraphs: To ensure that DOD and the military services have all information and  possible options they need to revise relevant housing contracts in the  future in the best interests of the federal government, we recommend that  the Secretary of Defense direct the Under Secretary of Defense  (Acquisition, Technology and Logistics) to develop a communications  process so that all Section 801 housing installations may share information  and best practices for negotiating any revisions to military housing  contracts and for interacting with communities before allowing the  general public’s use of on-base housing.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD concurred with our  recommendation. Specifically, DOD stated that its Housing Policy Panel  meetings with the military services will become the venue for sharing  information and best practices for negotiating revisions to its Section 801  contracts and interacting with communities before potentially opening on- base housing to the public’s use. The Housing Policy Panel meetings are  held quarterly to discuss issues and initiatives about government-owned  and privatized military housing. We agree that using the Housing Policy  Panel as a sounding board would be an effective first step to ensure that  relevant information about on-base Section 801 housing contracts is  communicated in a timely manner to the installations that will be entering  into their out-leases within the next 1 to 6 years. DOD also provided  technical comments which have been incorporated into our draft as  appropriate. DOD’s written comments on this report are reprinted in their  entirety in appendix II.
We will send copies of this report to the appropriate congressional  committees. We will also send copies to the Secretary of Defense; the  Secretaries of the Army, the Navy, and the Air Force; and the Director,  Office of Management and Budget. The report will be available at no  charge on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions on this report, please contact me at  (202) 512-4523 or leporeb@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made significant contributions to this reports  are listed in appendix III.
section_title: Appendix I: Status of Each Military Installation’s Section 801 Housing
subsections: section_title: French Creek
subsections: section_title: Land Lease (includes construction period): Originally 40 years from January 1992—January 2032; however, lease renegotiated to end in September 2016
paragraphs: Structural Lease: 20 years from October 1996— September 2016 Number/Type of Units: 366 units (two-, three-, four-, and  five-bedrooms, but predominantly three-bedroom units)
New developer to be selected—As of January 2010,  Eielson Air Force Base became part of the Continental  Group for the Air Force’s Military Housing Privatization  program. After the Continental Group’s project developer is  selected, the Air Force’s strategy is to transfer DOD’s  option to purchase to that developer. Therefore, the project  developer will purchase the units to incorporate into future  private developments on Eielson Air Force Base. The  renegotiated contract states that the purchase price is  equal to the indebtedness of the current project owner as  set forth in loan documents.
Developer: Originally Eielson Housing Build to Lease  (HEBL), but units were purchased by CH2M Hill in 2007 DOD is still leasing housing units—Eielson Air Force  Base continues paying the developer to lease the Moose  Lake and French Creek military housing units. This in-lease  phase expires in September 2016. In 1996, the Air Force  renegotiated its contract with the developer to reduce the  out-lease term to end with the in-lease and give the Air  Force the option to purchase the structures at any time for  a price equal to the indebtedness of the developer. In  addition, the developer’s responsibility for removing its  improvements and restoring the property at the end of the  contract was deleted.
No costs for DOD or community—Because of the terms  of the revised lease agreement, the military will retain use  of the on-base housing. DOD and the local community will  not incur any transition costs.
section_title: Community
paragraphs: domain action against the extended lease, and the court  ruled in favor of the Air Force, stating that the Air Force  successfully renewed its housing lease and the land lease  would expire in January 2008. However, the developer did  not remove the units and abandoned them. The Air Force  contracted for demolition and restoration services, which  were scheduled to begin in summer 2010.
subsections: section_title: Quick Facts
subsections: section_title: Land Lease (includes construction period): 22 years from January 1985—January 2008
paragraphs: Structural Lease: Originally 20 years from August  1986—August 2006, extended one year to August 2007 Number/Type of Units: 300 units (two- and three- bedrooms)
Air Force and developer remain at odds—Air Force  officials stated that since July 2006, the Air Force and the  developer have remained in litigation. The Air Force  continues to seek reimbursement for the cost of mainte- nance during the lease extension and for the cost of  demolition and restoration services—both of which were  the developer’s responsibility under the original contracts.  However, the developer seeks compensation for the rental  payments for the lease extension period.
DOD’s Lease Payment: $3,600,000 per year (last payment  was in August 2006)
Demolition cost alone is $3.27 million—The contract  between the Air Force and the developer did not include an  out-lease phase in which the developer had the option to  lease the on-base Section 801 housing units to the general  public. Therefore, there will be no housing transition  involving the general public and no related cost for the  Department of Defense and the local community. However,  DOD has incurred costs from the contract dispute for:  maintaining the housing units during the lease extension,  demolishing the housing units (contracted for $3.27  million), and continuing litigation with the developer.
section_title: Centennial
paragraphs: limited storage, heating problems and frozen pipes, and the  units remain in less than desirable conditions despite many  attempts to correct the deficiencies. For example, during  the winter, some families have reported being unable to  sleep in the upstairs bedrooms because of the heating  problems and the intense cold room temperatures.
subsections: section_title: Quick Facts
subsections: section_title: Land Lease (includes construction period): 40 years from August 1989—December 2030
paragraphs: Structural Lease: 20 years from December 1990—July  2011 (contract amended to end when the  last unit’s  in-lease expires)
Number/Type of Units: 828 units (two-, three-, and  four-bedrooms)
Air Force recommends housing use by civilians—In a  January 2010 study examining Ellsworth Air Force Base’s  out-lease options, the Air Force recommended continuing  the out-lease phase as written, which allows the developer  to rent the units to civilians. It further recommended that a  new, short-term lease (i.e., 3-year term with two 1-year  renewal options) be negotiated and executed to retain the  three senior officer quarters until they can be replaced  under the newer Military Housing Privatization Initiative.  Installation officials, the developer, and the Box Elder  community are working together to meet the July 2011  transition. The Box Elder planner is also requiring the  developer to meet any requirements of a new developer.
section_title: Current Status
subsections: section_title: DOD still is leasing housing units—Ellsworth Air Force Base continues to pay the developer to lease the Centennial Estates housing units, which are located on the perimeter of the installation in the recently annexed town of Box Elder. Based on the original contract terms, the units were to transfer from in-lease to out-lease status in phases—December 2010 through July 2011—depending on the date in which the units were delivered to the Air Force for occupancy. For security and operational reasons, including minimum disruption to the occupants, the Air Force and the developer amended the lease so that all the units are turned over to the project owner at one time, in July 2011. According to Air Force officials, these housing units have had many construction quality issues, including
paragraphs: Community to pay transportation and environmental  costs—If housing units are converted to civilian use in  2011, the town of Box Elder expects to upgrade roadways  between the housing and the community, including building  a two-lane road from the housing to existing roads,  installing a traffic signal, and posting school speed limit  signs as needed. The community is also planning three  potential water system projects to serve the housing units;  an initial bid was received for $4.3 million for the three  projects. No DOD costs are expected.
section_title: Community
subsections: section_title: Quick Facts
subsections: section_title: Land Lease (includes construction period): June 1987— May 2019, renegotiated extension to May 2029
paragraphs: Contract has been renegotiated—The renegotiated land  lease with the Section 801 developer expires in May 2029.
Structural Lease: August 1988—July 2008 Number/Type of Units: 300 units (all two-bedrooms)
Occupancy Rate: approximately 98 percent DOD’s Lease Payment: approximately $2,000,000 (last  payment was in July 2008)
Developer: Universal Services Fort Hood, Inc.
Housing retained for military use—In June 2008, the  Army signed a revised land lease with the Section 801  developer of Liberty Village. The revised lease extended  the contract terms, adding 10 years and expanding the  reasons under which the contract may be terminated,  including base closure, deactivation or substantial realignment, or in the interest of national defense. Also  under the revised lease, the Army incorporated two  characteristics used by Fort Hood’s Residential Community  Initiative in which the developer rents directly to the service  member and rental preference is given to active duty  service members and civilian personnel at Fort Hood. The  rental agreement allows unaccompanied military person- nel, active National Guard and Reserve, military retirees,  federal government civilians, and unaffiliated civilians to  rent the housing if occupancy falls below a certain rate.
No costs for DOD or community—Because of the terms  of the revised lease agreement, the military will retain use  of the on-base housing. The Department of Defense (DOD)  and the local community will not incur any transition costs.
section_title: Birchwood Community
paragraphs: Land Lease (includes construction period): June 1986— June 2018 Structural Lease: November 1987—May 2007 Number/Type of Units: 400 units (three-, four-, and  five-bedrooms)
Decide whether to extend developer’s lease—In June  2018, Fort Wainwright will complete its Section 801  out-lease. At the expiration of the out-lease, the developer  is responsible for removing the property and restoring the  land to its previous condition. However, the developer has  requested an extension of the out-lease so that he may  either refinance or sell the housing units. As of July 2010,  the Army had not made a decision on whether to extend  the out-lease.
DOD’s Lease Payment: approximately $8,200,000 per  year (last payment was  in May 2007)
Developer: North Star Alaska Housing Corporation Housing transitioned to the general public’s use—Fort  Wainwright’s in-lease expired in May 2007. Fort Wainwright  separated the Birchwood units from the installation and the  developer is operating the units as private housing.  However, approximately 28 percent of the residents are  service members assigned to Fort Wainwright. Fort  Wainwright is the only installation with Section 801on-base  housing that has converted units to the general public’s use  under the terms of the out-lease phase of the original  contract.
Some community and DOD costs incurred—According  to Fort Wainwright officials, the community adjacent to the  installation had to assume the responsibility for policing and  patrolling the units; a service that was provided by Ft.  Wainwright during the in-lease. DOD paid the costs of  erecting the security fence, relocating an installation entry  gate, and constructing a new entrance from the housing to  a public road. The units already were integrated into the  community’s utilities, so there were no additional costs to  put meters on the units.
section_title: Commando
paragraphs: Land Lease (includes construction period): 40 years from  January 1991—January 2031 Structural Lease: 20 years from June 1992—June 2012 Number/Type of Units: 300 units (two-, three-, and  four-bedrooms)
Air Force recommends housing use by civilians—In a  February 2010 draft study on out-lease options for  Commando Village, the Air Force recommended that  Hurlburt Field continue with the out-lease provision to allow  the housing units to be leased to civilians. If this occurs, the  developer will be responsible for the cost of utilities and  paying land lease payments to the Air Force totaling 8  percent of gross rental income. Also, one out-lease  provision states if the developer agrees to set a rent ceiling  for the units in exchange for nominal rent for the federal  land, the government will refer personnel and dependents  to the units and the developer will give priority to these  personnel as tenants who would pay rent directly to the  developer. However, the Air Force also is considering  entering a bridge lease with the developer that would be  renewed annually to preserve all the housing for military  use until its new military housing units are available under  its Military Housing Privatization Initiative. At the time of our  review, there was no final decision on the next step for the  housing’s use.
subsections: section_title: Current Status
subsections: section_title: DOD still is leasing housing units—Hurlburt Field continues to pay a developer to lease the Commando Village military housing units and the lease is scheduled to expire in June 2012. The units are located outside of the mission area and are already separated from other federal property by fencing and have unimpeded access to a public road. The residents of the units have to pass through a security gate to enter the mission area of the base—as would any other service member living off-base. According to a February 2010 draft of an Air Force study, DOD would have to pay about $5,200,000 for rent and operating expenses through the expiration of the lease.
paragraphs: Community may incur security services costs—The  housing units are behind a security fence with controlled  entry and routine patrols by the Air Force. If the housing is  converted to civilian use in 2012, these security services  will no longer be available unless the developer or the  community continues to provide these services. However,  the base commander may continue providing these  services if the majority of residents remain service members. Otherwise, DOD is not expected to incur any  transition costs.
section_title: Pearl Court and Midway
paragraphs: Study under way on housing’s future use—Naval Base  Ventura County Port Hueneme is studying options for the  Section 801 property. The study will include a formal  assessment and appraisal of the property and outline  seven options for the Navy and developer, including  alternative uses for the structures. For example, several of  the options consider using the units as family or bachelor  housing, military lodging or a combination of the three. The  study began in early July 2010 and is scheduled for  completion in November 2010.
subsections: section_title: Current Status
subsections: section_title: DOD still is leasing housing units—Naval Base Ventura County Port Hueneme continues paying a developer to lease the Pearl Court and Midway Estates housing units. The Navy’s lease is scheduled to expire in March 2014. Midway Estates, consisting of 208 units, is located along the perimeter of the installation; while Pearl Court, consist- ing of 92 units, is located within the interior of the installa- tion. Separating these units from the installation and making them available for public use may require the demolition of some of the units because of their proximity to a hardened, mission-critical building and other base support service buildings.
paragraphs: Some DOD and community costs are expected—If units  are converted to the general public’s use in 2014, the  community expects to incur transportation costs, including  constructing a road to intersect an expected Navy-built  access road and adding traffic signals. In addition to  building an access road to the housing units, the Navy also  would incur costs for erecting a fence to separate the  housing from the installation, increasing security patrols,  and relocating adjacent Navy facilities. Moreover, the new  fence’s boundaries may require the Navy to pay for  demolition of 17 structures belonging to the Section 801  developer that includes 120 housing units, which would  equal 40 percent of the developer’s inventory.
section_title: Laurelwood Community
paragraphs: studies about security, transportation, and economic  impacts to be completed before the permits could be  granted. Additionally, in September 2009, the community  filed suit against the Navy, claiming that the decision to  lease to civilians--which required the construction of an  access road--would violate the National Environmental  Policy Act and the Clean Water Act.
subsections: section_title: Quick Facts
paragraphs: Land Lease (includes construction period): September  1988—August 2040 Structural Lease: May 1990—April 2010 Number/Type of Units: 300 units (two-, three-, and  four-bedrooms)
In April 2010, the Navy suspended execution of the Record  of Decision, because of (1) difficulties in obtaining the  required state permits for the construction of a new road  that could have significantly delayed the Navy’s ability to  provide unimpeded access to the units and (2) the  challenges of resolving the Navy’s and the developer’s  conflicting interpretations of their respective obligations  under the contract. Also, in April 2010, the developer  submitted a certified claim for compensation to the Navy  under the Contracts Dispute Act. In June 2010, the Navy  terminated its contract with the developer, and subse- quently, the community’s complaint against the Navy and  developer was dismissed.
section_title: Current Status
paragraphs: Final decision on contract dispute pending—The Navy  notified the developer that it would issue a final decision on  the certified claim for compensation by September 30,  2010; however this date was extended so that settlement  negotiations could continue. At the time of our report, the  Navy had not made a decision regarding the claim.
No costs for DOD or community—Because of the  termination of the out-lease, the DOD and the local community will not incur any costs related to the transition  of the on-base Section 801 housing to the general public’s  use. However, DOD will incur some lease termination costs.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact listed above, key contributors to this report  include Mark J. Wielgoszynski, Assistant Director; Jennifer Echard; Tisha  Derricotte; Elizabeth Dunn; Greg Marchand; Jacqueline S. McColl; Leonard  Ogborn; and Richard Powelson.
section_title: Related GAO Products
paragraphs: Defense Infrastructure: Army's Privatized Lodging Program Could  Benefit from More Effective Planning. GAO-10-771. Washington, D.C.:  July 30, 2010.
Military Housing Privatization: DOD Faces New Challenges Due to  Significant Growth at Some Locations and Recent Turmoil in the  Financial Markets. GAO-09-352. Washington, D.C.: May 15, 2009.
Defense Infrastructure: Services’ Use of Land Use Planning Authorities.  GAO-08-850. Washington, D.C.: July 23, 2008.
Rental Housing Programs: Excluding Servicemembers' Housing  Allowances from Income Determinations Would Increase Eligibility, but  Other Factors May Limit Program Use. GAO-06-784. Washington, D.C.:  July 31, 2006.
Defense Infrastructure: Continuing Challenges in Managing DOD  Lodging Programs as Army Moves to Privatize Its Program. GAO-07-164.  Washington, D.C.: December 15, 2006.
Military Housing: Management Issues Require Attention as the  Privatization Program Matures. GAO-06-438. Washington, D.C.: April 28,  2006.
Military Housing: Further Improvements Needed in Requirements  Determination and Program Review. GAO-04-556. Washington, D.C.: May  19, 2004.
Military Housing: Better Reporting Needed on the Status of the  Privatization Program and the Costs of Its Consultants. GAO-04-111.  Washington, D.C.: October 9, 2003.
Military Housing: Management Improvements Needed as the Pace of  Privatization Quickens. GAO-02-624. Washington, D.C.: June 21, 2002.
Military Housing: DOD Needs to Address Long-Standing Requirements  Determination Problems. GAO-01-889. Washington, D.C.: August 3, 2001.
Military Housing: Continued Concerns in Implementing the  Privatization Initiative. GAO/NSIAD-00-71. Washington, D.C.: March 30,  2000.
Military Housing: Privatization Off to a Slow Start and Continued  Management Attention Needed. GAO/NSIAD-98-178. Washington, D.C.:  July 17, 1998.