Defense Infrastructure: Issues Related to the Renovation of General and Flag Officer Quarters
Published: 2004-05-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Recent cost increases in renovation projects to general and flag officer quarters raised questions about the services' management of the programs. GAO was asked to determine (1) how actual costs of renovation projects for general and flag officer housing compare to service budget estimates provided to Congress and (2) the primary reasons for any increases and the services' procedures to control cost increases. Additionally, GAO is presenting observations about the services' accountability over gifts provided to help renovate some general and flag officer quarters and the extent to which Department of Defense (DOD) guidance provides visibility and control over costs associated with renovation projects for privatized general and flag officer quarters.
section_title: What GAO Found
paragraphs: With few exceptions, the services' reported costs for renovation projects for general and flag officer quarters were generally consistent with budget estimates provided to Congress. For fiscal years 1999 to 2003, GAO found that 184, or 93 percent, of the 197 renovation projects over $100,000 cost less than or the same as budget estimates. While the remaining 13 projects--6 Navy and 7 Marine Corps--exceeded cost estimates, 5 Marine Corps projects exceeded their budgets by more than 10 percent. Customer-requested changes and unforeseen repairs were the main reasons for cost increases to renovation projects. For 5 of the 7 projects that exceeded their budgets by over 10 percent, about 45 percent of the increased costs was for customer-driven changes, 53 percent for unforeseen repairs, and 2 percent could not be determined. Though the services have guidance to limit customer-requested changes, the Marine Corps approved many such changes that contributed to project costs exceeding budgets. Customer requests included upgraded kitchen and bathroom renovations or initially unplanned work. Unforeseen repairs, such as for termite damage or unexpected historic preservation requirements, occurred because problems were not identified in the inspections on which the estimates were based. Military services did not properly account for gifts used for general officer quarters in two instances, one involving renovation costs. In that instance, the Marine Corps did not comply with existing regulations to properly accept and account for all gifts used to renovate the Home of the Commandants. The Friends of the Home of the Commandants told GAO it provided about $765,500 in nonmonetary materials and services (e.g., furnishings and construction labor). However, the Marine Corps could list nonmonetary gifts totaling only $492,413 because it did not follow specified gift acceptance and accounting procedures. Navy General Gift Fund records show receipt of an additional $88,300 in monetary gifts from the Friends of the Home of the Commandants. The Marine Corps has receipts for monetary expenditures, but not property records for items purchased with the gift funds. The Navy and Army also accepted gifts to furnish general and flag officer homes. Of those, the Navy did not properly accept and account for about $3,970 in nonmonetary gifts. DOD and the military services could lose visibility over housing renovation costs for privatized general and flag officer homes. DOD does not require review of renovation costs for these quarters, such as costs over $35,000, as required for government-owned quarters. The Navy, Marine Corps, and Air Force are developing guidance to increase visibility and accountability over the spending for these quarters, but the draft guidance is not consistent. Although the services have privatized only 65 of their 784 general and flag officer quarters, they plan to privatize 426 or 54 percent by fiscal year 2008.

section_title: Letter
paragraphs: Generally, the military services’ almost 700 general and flag officer  quarters are older and larger than typical housing in the services’ family  housing inventories, and many are historic, with some dating from the  early nineteenth century. These factors make general and flag officer  homes costly to maintain, which has been an ongoing concern to  Congress. The services have used both appropriated funds and gifts to  maintain and pay for renovation costs associated with some of these  quarters. Recent cost increases for some major renovation projects at the  historic Marine Corps Barracks located at Eighth and I streets in southeast  Washington, D.C., have raised congressional concern about the services’  management of these programs. Additionally, questions exist regarding the  accounting for gifts used to supplement appropriations for renovation  projects.
At your request, we reviewed the services’ programs for renovating  general and flag officer housing to determine (1) how the actual costs of  renovation projects for general and flag officer projects compared to the  service budget estimates provided to Congress and (2) the primary reasons  for any cost increases, including the services’ procedures to control cost  increases. Additionally, we are providing observations about the services’  accountability over monetary and nonmonetary gifts provided to help  renovate certain general and flag officer quarters as well as information  concerning the extent to which the Department of Defense (DOD) has  issued guidance to provide visibility and control over costs associated  with renovation projects for privatized general and flag officer quarters.
We focused our review on the services’ major renovation projects  budgeted for $100,000 or more during fiscal years 1999 through 2003. To  determine how the reported costs of renovation projects for general and  flag officer quarters compared to the service budget estimates provided to  Congress, we reviewed the services’ reported data related to the cost of a  project to the budget estimates. We did not validate service budget and  actual cost data, but we did discuss data reliability with responsible  service officials and obtained information from them on steps they had  taken to ensure the data’s reliability. Based on this, we believe that the  data we used was sufficiently reliable for the purposes of this report. To  determine the primary reasons for cost increases, we reviewed contractual  actions, interviewed service officials, and documented the reasons for  increases. Furthermore, to determine the services’ accountability over  gifts provided to help renovate general and flag officer quarters, we  reviewed applicable laws, DOD and service guidance, gift acceptance  documentation, and contract and funding documents and interviewed  cognizant officials. Finally, to determine the extent to which DOD has  issued guidance to provide visibility and control over renovation projects  for privatized general and flag officer quarters, we reviewed and compared  DOD and the services’ guidance for government-managed versus  privatized general and flag officer housing.
We conducted our work from October 2003 through March 2004 in  accordance with generally accepted government auditing standards. A  more thorough description of our scope and methodology is presented in  appendix I.
subsections: section_title: Background
paragraphs: General and flag officers’ quarters are government-provided quarters for  military officers with the rank of brigadier general or rear admiral (lower  half) (O-7) and above. The services have a total of 685 general and flag  officer quarters, of which 372, or about 54 percent, are considered historic  as table 1 below shows.
The general policy in the military services is that general and flag officer  housing is to be maintained in an excellent state of repair, commensurate  with the rank of the occupant and the age and historic significance of the  building. Accordingly, general and flag officer housing is expensive to  maintain; and the age, size, and historic significance of some of these  quarters tend to escalate their operations and maintenance costs as the  following examples show:    Army: The Commandant’s home at Carlisle Barracks was built in 1932.  The house is a two-story stone structure with 8,156 square feet of living  space and is currently undergoing a major renovation. The residence  has an average annual maintenance and repair cost of about $14,000.
Navy: Tingey House, the home of the Chief of Naval Operations, is  located in the historic Navy Yard, Washington, D.C. Constructed in  1803, the quarters was one of the earliest buildings erected at the  Washington Navy Yard. The home is a 2 1/2-story brick structure  containing 12,304 square feet of space and has an average annual  maintenance and repair cost of about $27,500.
Marine Corps: The Home of the Commandants—located within the  Marine Corps Barracks at Eighth and I Streets S.E., Washington, D.C.  —has been the home of the Marine Corps Commandants since its  completion in 1806. The Marine Corps considers the quarters as much a  museum as a residence. The home is a three-story structure containing  approximately 15,605 square feet of space and has an average annual  maintenance and repair cost of about $41,811.
Air Force: Carlton House is the home of the Superintendent of the U.S.
Air Force Academy and was constructed in the 1930s. The home is a  two-story structure with a total of 10,925 square feet of space and has  an average annual maintenance and repair cost of about $21,000.
All of these homes are used extensively for official entertainment purposes  and all but the Commandant’s home at Carlisle Barracks are listed on the  National Register of Historic Places. However, the Commandant’s quarters  at Carlisle Barracks is considered historic and is eligible for listing on the  National Register of Historic Places.
The services are to follow DOD Financial Management Regulations and  service-specific guidance to prepare budget estimates for major repair  projects to general and flag officer quarters. For example, the Navy and  Marine Corps justify projects on the basis of mission, life-cycle economics,  health and safety, environmental compliance, or quality of life. The  services generally hire architectural and engineering firms to inspect and  assess the property for projects expected to cost more than $50,000 to  determine needed repairs and establish a project cost estimate. Using  information developed during the project justification and cost-estimating  process, the services are to prepare budget estimates that are submitted to  Congress for approval during the annual appropriations cycle.
Congress has acted to control spending associated with maintaining these  homes by establishing expense thresholds and reporting and notification  requirements. For example, the services must include in their annual  family housing budget submitted to Congress detailed budget justification  material explaining the specific maintenance and repair requirements for  those homes expected to exceed an annual $35,000 threshold for  maintenance and repair expenses.
Section 2601, of Title 10, United States Code authorizes the service  Secretaries to accept, hold, administer, and spend any gift of real or  personal property made on the condition that it is used for the benefit—or  in connection with the establishment, operation, or maintenance—of an  organization under the jurisdiction of their departments. Monetary gifts  are accepted and deposited in the Treasury in service-designated  accounts. In some instances, these funds have been used to supplement  appropriations for renovations to general and flag officer quarters. The  Military Construction Appropriation Act for fiscal year 2000 directed that  funds, appropriated under the act, were to be the exclusive source of  funds for repair and maintenance of all military family housing. This  excluded the use of gift funds to repair or maintain general and flag officer  quarters. A year later, however, Congress expressly authorized the use of  gift funds pursuant to Section 2601, of Title 10, United States Code, to help  fund the construction, improvement, repair and maintenance of the  historic residences at the Marine Corps Barracks at Eighth & I Streets S.E.,  Washington, D.C. DOD guidance provides the services with a framework  for property accountability policies, procedures, and practices.
The 1996 Military Housing Privatization Initiative allows private sector  financing, ownership, operation, and maintenance of military family  housing including, in some cases, housing occupied by general and flag  officers. The goal of the initiative is to help the services remove inadequate  housing from their family housing inventories and improve service- member morale. Under the program, DOD utilizes various means to  encourage private developers to renovate existing housing or construct  new housing on or off military installations. Service members, in turn, may  use their housing allowance to pay rent and utilities to live in the  privatized housing. The privatization firms use the housing allowances to  pay for the maintenance and repair of the quarters. As of March 2003, the  military services had privatized about 28,000 family housing units, only a  small number of which were general or flag officer quarters. The services  plan to privatize about 183,000 units, or 72 percent of their total family  housing inventory, by fiscal year 2007 and will increasingly include general  or flag officer housing.
section_title: Actual Renovation Costs Generally Were Consistent with or Less Than Budget Estimates
paragraphs: With a few exceptions, the services’ reported actual costs for renovation  projects for general and flag officer quarters were generally consistent  with or less than the budget estimates provided to Congress. For fiscal  years 1999 to 2003, of the 197 projects estimated to cost more than  $100,000, 184 (about 93 percent) were under or met their budget estimates;  and 13 (about 7 percent) exceeded their budget. While we did not identify  any Air Force renovation projects that exceeded their budgets, we did  learn of other concerns about costs associated with Air Force plans to  replace and repair general officer quarters. See appendix II for further  information on this issue.
Table 2 shows a comparison of actual costs to budget requests for the 197  renovation projects of more than $100,000 included in our review.
Of the 13 over-budget projects, 5 of the 7 Marine Corps projects—4 located  at the Marine Corps Barracks at Eighth and I streets, Washington, D.C.,  and the other located at Kaneohe, Hawaii—exceeded their budgets by  more than 10 percent. The other 2 Marine Corps projects exceed their  budgets by about 9 percent, and the 6 Navy projects exceed their budgets  by less than 2 percent.
As seen in table 2, the majority of renovation projects stayed within their  budgets. However, some projects cost less than budgeted because the  scope of planned work was revised or canceled for a project. For example,  the Navy identified instances where the scope of work was reduced or  cancelled because a change in occupancy did not occur as scheduled and  planned repair work could not be accomplished. Army housing officials  cited examples where the scope of renovation projects was reduced  because the contractor’s final bid for lead-based paint and asbestos  removal exceeded the government’s estimate. The projects’ scope had to  be reduced or the budgets would be exceeded.
section_title: Cost Increases Due to Customer-Requested Changes and Unforeseen Repairs
paragraphs: Customer requests for changes and unforeseen repairs were the primary  reasons for cost increases to renovation projects. To help minimize costs,  housing handbooks provided to general and flag officers occupying  government quarters discourage customer-requested changes based on  personal preferences and entrust final approval of such changes to the  discretion of the installation housing officer or the commanding officer.  Although these handbooks seek to limit customer-requested changes, we  found numerous approvals for customer-requested changes granted for  renovations at the Marine Corps’ Home of the Commandants that  contributed to project costs exceeding the budget estimate.
Customer driven requests, such as upgraded kitchen and bathroom  renovations, or work that was not included in the original scope of work  were responsible for about 45 percent of the total cost increase for the 5  Marine Corps projects that exceeded their budgets by more than 10  percent.  Table 3 shows the reasons for changes in scope for the projects  as well as the amount of cost increase and the percent of the total increase  associated with the changes.
Six Navy projects exceeded their budgets by less than 2 percent.  According to the Navy, the overruns were mostly due to planned work  costing more than was originally budgeted—a fairly regular occurrence  since budgets are submitted nearly 18 to 24 months before the work is  accomplished. However, some of the increases occurred due to such  customer requests as additional interior painting and such unforeseen  repairs as the need to replace an old, broken boiler heating system with a  new forced-air system.
Customer-requested changes for the 5 projects that exceeded their  budgets by more than 10 percent occurred because the customer, usually  the quarters’ occupants, wanted various changes and the housing manager,  the commanding officer, and at times the service headquarters acquiesced  and approved the changes. For example, at the Marine Corps Barracks  Home of the Commandants, where one project exceeded its budget by  about 52 percent, customer-requested changes resulted in identifiable cost  increases totaling about $338,000.  The single largest identifiable increase  was due to a customer request for a major kitchen renovation not included  in the original scope of work and costing more than $197,256. Major cost  drivers for the kitchen renovation included cabinets, granite counter tops,  butler pantry, and flooring that the occupant requested. Other customer- requested changes included the renovation of attached guest quarters that  included the construction of public, handicap-accessible restrooms and  replacement of a newly installed marble tile floor. Cost increases due to  customer requests for Quarters 1, 2, and 4 included requests for upgraded  kitchen cabinets and counter tops, upgraded bathroom fixtures, and wall- to-wall carpeting.
To help minimize costs, the services’ provide handbooks to general and  flag officers occupying government quarters that address the propriety of  and seek to discourage customer-requested changes based on personal  preferences. The installation housing officer or the commanding officer  has final approval for such changes. However, we found numerous  approvals for customer-requested changes granted for renovations at the  Marine Corps’ Home of the Commandants and other quarters at the Marine  Corps Barracks that contributed to project costs exceeding the budget  estimates. Navy and Army housing officials told us that controlling costs  due to customer requests is directly related to a housing officer’s ability to  say no to requests that could be perceived as excessive and draw undue  public scrutiny upon the service.
For the 5 projects that exceeded their budgets by more than 10 percent,  cost increases due to such unforeseen repairs as for termite damage or  such undetected structural deficiencies as sagging floor supports occurred  because these deficiencies or requirements were not identified during  initial inspections. For example, at the Home of the Commandants,  identifiable changes due to unforeseen repairs resulted in cost increases  totaling about $559,416. The single largest cost increase due to unforeseen  repairs was for the roof. The initial budget estimate was around $192,189.  However, the architectural and engineering firm that did the initial  inspection upon which the budget estimate was based did not actually  inspect the roof for damage and did not perform destructive testing to  look for structural deficiencies. The current roof estimate is around  $582,730, an increase of more than $390,541 with about 70 percent of the  total increase due to unforeseen deficiencies at the Home of the  Commandants. Another unforeseen repair involved replacing a portion of  the wood flooring on the first floor because of severe termite damage that  was not detected until the old flooring was removed. Again, the deficiency  went undetected because destructive testing was not performed.  According to service officials, destructive testing is often not  accomplished because the quarters’ occupants do not want either the  testing to interfere with their entertainment responsibilities or the  inconvenience of having their homes in disrepair.
Additionally, for the Marine Corps project in Kaneohe, Hawaii, unforeseen  historical restoration requirements caused actual renovation costs to  exceed the budget estimate by about $47,600 or nearly 25 percent. Marine  Corps officials stated that the state historical preservation office wanted  the interior walls restored with the same materials used when the house  was originally built in 1941. The Marine Corps budget estimate did not  include this requirement.
section_title: Marine Corps and Navy Did Not Properly Account for Gifts Used to Help Renovate the Home of the Commandants
paragraphs: The Army, Navy and Marine Corps each received private donations of  cash, property, or services to furnish and renovate general and flag officer  quarters. While the Army and Navy accepted gift funds to furnish quarters,  the Marine Corps accepted and used gift funds to both furnish and help  renovate the Home of the Commandants. Although guidance exists to  ensure such gifts are properly accepted, held, and used in accordance with  the donor’s wishes, neither the Navy nor the Marine Corps followed these  procedures for all gifts associated with furnishing the quarters of the  Superintendent of the Naval Academy and the renovation of the Home of  the Commandants.
Section 2601, of Title 10, United States Code, provides gift acceptance  authority to each service Secretary to accept, hold, administer, and spend  any gift of real or personal property made on the condition that it is used  for the benefit—or in connection with the establishment, operation, or  maintenance—of an organization under the jurisdiction of their  departments. In addition to this legislative authority, the Secretary of the  Navy has issued an instruction to help implement and centralize gift  acceptance authority. The Marine Corps implements the Secretary’s policy  and re-delegates authority to subordinate commands under its jurisdiction.
The following table summarizes Navy and Marine Corps procedures for  accepting gifts.
Although aware of these procedures, Navy and Marine Corps officials  acknowledge that in two projects, they did not list nonmonetary gifts on  the property accounts and cannot fully account for those gifts made to  furnish and renovate two general and flag officer quarters.
According to Marine Corps officials, they did not follow the prescribed  procedures for accepting and accounting for the estimated $765,500 in  nonmonetary gifts (materials such as kitchen cabinets, furniture, wall  coverings, draperies, and furniture upholstery) from the Friends of the  Home of the Commandants. We contacted the Friends of the Home of the  Commandants, which provided us with a listing of donations and their  value totaling $765,500 provided to the Marine Corps to help renovate the  Home of the Commandants. After some delay, the Marine Corps provided  us with a list of nonmonetary gifts totaling $492,413 from the Friends of  the Home of the Commandants but had no documentation to support  formal acceptance of the gifts and that the gifts were recorded in property  records. According to Marine Corps officials, the Friends of the Home of  the Commandants provided the remaining $273,087 in nonmonetary gifts  directly to the project contractor. However, the Marine Corps also did not  document that these gifts were formally accepted and accounted for in  property records. Furthermore, Navy and Marine Corps financial records  document receipt of about $88,300 donated to the Navy General Gift Fund  from the Friends of the Home of the Commandants during fiscal years  1999 through 2003. The Marine Corps, after some delay, produced receipts  to account for expenditures using these gift funds to help renovate and  furnish the Home of the Commandants. However, the Marine Corps  property records do not include the items purchased with the gift funds.  These gifts were used to supplement $2,269,000 in appropriations for  renovations to the Home of the Commandants.
The Navy and Army also accepted nonmonetary or monetary gifts for  furnishings for flag and general officer quarters. The gifts were not used  for renovations to the quarters. The Navy acknowledges receiving about  $59,780 in nonmonetary gifts provided by various donors as furnishings to  help decorate the home of the Superintendent of the Naval Academy.  However, similar to the Marine Corps, the Navy did not properly accept  and account for about $3,970 of the gifts in the property records. The  Army properly accepted $50,000 in furnishings from the Army War College  Foundation for the home of the Commandant of the Army War College at  Carlisle Barracks.
section_title: Privatization Could Reduce Oversight of Renovations to General and Flag Officer Quarters
paragraphs: DOD and the military services could lose visibility over spending to  maintain and repair an increasing number of privatized general and flag  officer housing units because there is no consistent DOD-wide policy  requiring review of maintenance and repair projects over certain dollar  thresholds. By the end of fiscal year 2003, the services had privatized 65 of  their 784 general and flag officer quarters and planned to privatize 426, or  54 percent, by the end of fiscal year 2008. DOD has no policy requiring the  services to review renovation costs on these homes, such as is done for  maintenance and repair projects of more than $35,000 for government- owned quarters. However, the Air Force has developed draft guidance,  expected to be issued in May 2004, which will provide more visibility and  accountability over spending to operate and maintain privatized general  and flag officer housing. The Navy and the Marine Corps have also  developed draft guidance that requires headquarters approval for all  renovation projects over a certain dollar threshold. No such policy is  under development in the Army.
Currently, all service headquarters are required to review any renovation  project exceeding $35,000 for a government-owned general or flag officer  quarters. However, there is no such requirement to review renovations  projects involving privatized general and flag officer quarters. Recognizing  the need for direction, the Navy, Marine Corps, and Air Force are  developing draft guidance and procedures that will provide more visibility  over the spending to operate and maintain privatized general and flag  officer housing. For example, the Air Force draft guidance applies the  same project approvals for renovations to privatized general officer homes  as currently exist for government-owned homes, which is all renovation  projects over $35,000.  Likewise, the Navy and the Marine Corps have  developed draft guidance for internally reviewing annual operating  budgets for privatized housing that would require approval by Navy or  Marine Corps headquarters officials for costs that exceed $50,000 in one  year for any house. The Army has no plans to issue additional guidance  regarding costs to maintain and repair privatized housing. According to  Army officials, annual operating budgets for privatized housing are  reviewed by headquarters officials, which they believe will provide  adequate visibility over renovations to privatized housing. We agree that  reviewing annual budgets provides visibility over renovation costs but  question its ability to provide oversight where renovation costs for  selected residences are higher than the norm.
section_title: Conclusions
paragraphs: The services’ procedures to develop cost estimates for renovation to  general and flag officer quarters generally produce budget estimates that  are consistent with the projects’ actual costs. However, Marine Corps  officials approved costly customer-requested changes based on personal  preferences notwithstanding guidance in handbooks discouraging the  approval of such requests. The Marine Corps failed to follow established  guidance and procedures and properly accept and account for gifts,  especially nonmonetary gifts, used to help renovate and furnish the Home  of the Commandants. Thus, they have no assurance that the nonmonetary  gifts remain in their possession. Finally, DOD and the military services  could lose visibility over renovations to general and flag office quarters  that are privatized. While some services are taking some steps to ensure  that renovation projects over certain dollar thresholds are reviewed  internally, there is no consistent DOD-wide guidance.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Defense take the following three  actions: Direct the Secretary of the Navy to (1) reemphasize the  importance of limiting customer-driven changes to renovation projects for  general and flag officer housing and (2) properly account for all gifts  accepted and used to help renovate the Home of Commandants of the  Marine Corps. Furthermore, we are recommending the Secretary of  Defense direct the Under Secretary for Acquisition, Technology, and  Logistics to ensure the standardization and periodic review of the  expenditure levels for individual privatized units on a programmatic basis,  to include general and flag officer quarters, with periodic reports to the  office of the Secretary of Defense.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD concurred with our first and  second recommendations and did not concur with the third. With regard  to the first two recommendations, DOD indicated that the Navy has agreed  to reemphasize the importance of limiting customer-driven changes to  renovation projects for general and flag officer housing, properly  accounting for all gifts accepted and used to help renovate the Home of  Commandants of the Marine Corps, and incorporating accountability  measures into revisions of Secretary of the Navy guidance governing the  general and flag officer quarters program. However, DOD did not provide a  time frame for accomplishing these actions.
Our draft report also contained a third recommendation to the Secretary  of Defense.  He was asked to direct the Under Secretary for Acquisition,  Technology, and Logistics to develop departmentwide guidance that  provides similar project review and approval for renovation projects to  privatized general and flag officer housing as required for government- owned quarters over certain dollar thresholds. However, DOD did not  agree with that recommendation expressing the view that extending the  same government oversight to privatized housing is contrary to the  fundamental tenets of privatization. DOD added that currently projects are  monitored to protect government interests, including expenditure levels  on individual units, but that the monitoring is not linked to a specific type  of housing such as general and flag officer quarters. DOD indicated that  although it intends to continue to rely on private sector cost-control  mechanisms, it would review standardization of individual unit  expenditure levels on a programmatic basis. Such action, to the extent it  incorporates general and flag officer housing, meets the intent of our  recommendation. Accordingly, we refined our recommendation to better  reflect this intent and stay within the parameters of the privatization  program.
Additionally, the Principal Assistant Deputy Under Secretary commented  that our report did not capture the Air Force’s response to issues the DOD  Inspector General raised concerning the Air Force’s plans to renovate or  replace general officer housing. As we note in appendix II, the Air Force  disagreed with the Inspector General’s findings. This disagreement  appears largely based on differences between the Air Force and the  Inspector General concerning individual renovation projects versus the Air  Force’s broader strategic plans for addressing general officer quarters  collectively and upgrading the housing to today’s standards, rather than  undertaking only immediate repair needs.
Other technical comments are incorporated in the report where  appropriate. The Principal Assistant Deputy Under Secretary’s comments  are included in appendix III of this report.
We are sending copies of this report to interested congressional  committees; the Secretaries of Defense, Army, Navy and Air Force; the  Commandant of the Marine Corps; and the Director, Office of Management  and Budget. We will also make copies available to others upon request. In  addition, the report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
Please contact me on (202) 512-8412 or Michael Kennedy, Assistant  Director, on (202) 512-8333 if you or your staff have any questions. Major  contributors to this report were Claudia Dickey, Jane Hunt, Richard  Meeks, and Michael Zola.
section_title: Appendix I: Scope and Methodology
paragraphs: We performed our work at the headquarters offices responsible for  general and flag officer housing at the Army, the Navy, the Marine Corps,  and the Air Force. At each location, we reviewed applicable policies,  procedures, and related documents and interviewed responsible officials  for the family-housing and general and flag officer quarters program. We  also visited and met with officials from several military installations,  including Fort McPherson, Georgia, and Fort McNair, the Washington  Navy Yard, the Marine Corps’ Barracks at Eighth and I, and Bolling Air  Force Base, all of which are located in Washington, D.C. At each of these  locations we toured general and flag officer quarters that were recently  renovated, were undergoing renovation, or had not been renovated. We  also discussed our review with officials of Housing and Competitive  Sourcing, Office of the Secretary of Defense, and with DOD’s Office of the  Inspector General.
To determine how the actual costs of renovation projects for general and  flag officer quarters compared to the service budget estimates provided to  Congress, we reviewed all renovation projects of more than $100,000 for  fiscal years 1999 through 2003. We obtained the budget estimate for each  of these projects from the service budget submissions provided to  Congress for the fiscal year. We obtained the reported actual obligations  related to the cost for each renovation project from the military services.  We compared this information to determine which projects were  completed for less than or more than budget. We did not validate service  budget and reported obligation data, but we did discuss data reliability  with responsible service officials and obtained information from them on  steps they have taken to ensure the data’s reliability. Based on this, we  believe that the data we used were sufficiently reliable for the purposes of  this report.
To identify the primary reasons for any cost increases and the services’  procedures to control cost increases, we held discussions with responsible  service family-housing, engineering, comptroller, general counsel, and  command officials about those renovation projects that exceeded their  service budgets. We also reviewed and analyzed documentation that  supported the reasons for cost increases.
To determine the services’ accountability over gifts provided to help  renovate general and flag officer quarters, we reviewed applicable laws  and interviewed cognizant officials to identify those general and flag  officer quarters with major renovations of more than $100,000 during fiscal  years 1999 through 2003 that received gifts used to help with renovations.  We identified one Army, one Navy, and one Marine Corps quarters that  received gifts either monetary or nonmonetary during the scope of our  review. The Army ($50,000 nonmonetary items, such as furniture and  drapery material) and Navy ($51,952 nonmonetary items, such as rugs, and  $7,830 cash) gifts were for furnishings for the quarters. The Marine Corps  used gifts—monetary and nonmonetary—to help with the renovation of a  general officer quarters. To determine how the services accounted for  monetary and nonmonetary gifts, we reviewed DOD and service gift fund  and gift acceptance regulations and guidance; interviewed cognizant  service officials; and reviewed administrative, contract, funding and  accounting documents. Since only the Marine Corps accepted gifts  intended to help with the renovation of a general officer quarters, we  focused additional attention on determining how the Marine Corps  accounted for monetary and nonmonetary gifts provided to help renovate  the Home of the Commandants. We compared the Marine Corps listing of  gifts received with a listing of gifts provided by the Friends of the Home of  the Commandants—the primary contributor of gifts for the Home of the  Commandants during fiscal years 1999 through 2003. We also asked to  review property records that showed the Marine Corps’ receipt of these  gifts. The Marine Corps was unable to provide receipts or produce  property records for the nonmonetary gifts. Further, we compared the  Navy Comptroller’s reported balance for the Navy General Gift Fund for  the Marine Corps Barracks at Eighth and I, with the Marine Corps  Barracks-reported expenditures and supporting documentation. The  Marine Corps could not provide documentation to support all Navy  General Gift fund expenditures as reported by the Navy Comptroller. As a  result, we were unable to verify the total amount of gifts, monetary and  nonmonetary, received by the Marine Corps to help renovate the Home of  the Commandants. However, where we could, we reconstructed the flow  of gifts to the Marine Corps and reconciled individual gifts that we could  identify.
To assess the extent to which DOD and the services have issued guidance  to provide visibility and control over costs associated with renovation  projects for privatized general and flag officer quarters, we interviewed  Office of the Secretary of Defense and service officials responsible for  family housing and privatization. Where available, we also obtained and  reviewed service draft guidance regarding review of renovations to  privatized housing.
section_title: Appendix II: Concerns about Air Force’s General Officer Quarters Renovation and Replacement Plans
paragraphs: While we did not identify any Air Force renovation projects that exceeded  their budgets, we did learn of other concerns about costs associated with  Air Force plans to replace and repair general officer quarters.  The DOD  Inspector General recently identified issues concerning the Air Force’s  plans to renovate or replace general officer quarters. The Inspector  General questioned $21.3 million of the $73.7 million in Air Force General  Officer Quarters Master Plan requirements because its analysis showed  the assessment methodology did not always reflect existing conditions.
The Air Force issued a master plan in August 2002 to identify whole house  investment requirements for their general officer quarters.  Part of the  GOQ master plan included a prioritized operations and maintenance plan  for each GOQ to manage and minimize maintenance and repair  expenditures that may become necessary prior to the execution of a  whole-house improvement project. For all 267 general officer quarters, the  Air Force developed an individual facility profile.  The profile consists of a  description of the home, a detailed analysis of existing conditions and  functional deficiencies, recommendations for maintenance and repair,  house plan suitability recommendations to correct functional deficiencies  and bring the unit up to Air Force standards, and the estimated cost to  perform a whole-house improvement project.  Incorporated within the  profile is a condition assessment score for each of the homes major  systems and subsystems and house plan suitability scores to arrive at an  overall composite score for each general officer quarters.  The  assessments indicated that 219 or 82 percent of their 267 homes required  whole house improvement projects to resolve deficiencies.  Based on this  information, the Air Force developed a plan to renovate 203 homes at a  cost of about $52.3 million and replace 64 others at a cost of about $21.4  million, an overall plan cost of about $73.7 million.
In a January 23, 2004, letter to the Air Force Deputy Chief of Staff for  Installations and Logistics, the DOD Inspector General reported that the  Air Force’s estimate for renovating and replacing general officer quarters  may be overstated by $21.3 million because the profile recommendations  were not consistent with Air Force assessments of existing conditions.   According to the Inspector General, some of the homes’ systems such as  the roof, structural components, or the house plan met standards or  needed only minor maintenance and repair, but the Air Force  recommended them for replacement, relocation, or reconfiguration. For  example, one house at Bolling Air Force Base, Washington, D.C. had a  system with a condition rating of “good,” “indicating a fully serviceable  condition which met standards,” but the Air Force master plan included a  recommendation to reconfigure rooms and interior walls in the home at a  cost of $190,000. The Inspector General concluded that the Air Force’s  condition assessment matrix tool design might have contributed to the  inconsistencies between existing conditions and maintenance and repair  recommendations.  The Inspector General also reported that the  inconsistency of Air Force recommendations with existing condition  assessments demonstrated that the Air Force did not always consider  where the home was in its life cycle.
Additionally, DOD Inspector General officials told us separately of their  concerns about Air Force plans to replace two homes at Bolling Air Force  Base, which under original Air Force plans were to be renovated.  The  original fiscal year 2002 project recommended renovating the homes for  an estimated $345,000 per home.  However, because the Air Force  designated these two homes as Special Command Position quarters, and  these homes have additional space requirements for an enlisted aide and  for added entertainment requirements, the Air Force now estimates the  renovation will cost an estimated $555,000 per home—an increase of  $210,000—that is more than 70 percent of the estimated cost to replace  each house.  As a result, the Air Force recommended that each house be  replaced rather than renovated as originally planned.  Air Force officials  stated that the $210,000 increase in estimated renovation costs was due to  escalation from the 2002 project to the present as well as about $110,000  for costs associated with structural work to modernize and expand the  kitchen, provide an enlisted aide’s office area, and correct functional  deficiencies in the dining room to provide a more usable space; about  $30,000 for a two car garage; and the remaining approximately $70,000 to  address various unforeseen environmental remediation, force protection,  and basement waterproofing requirements, as well as other electrical,  plumbing, floor repair, cabinets, countertops and appliances not included  in the original estimate.  Since the homes are eligible for the National  Historic Register, the Air Force must seek approval for their plans with the  District of Columbia Historic Preservation Office.  According to the Air  Force, it initiated contact with the office in October 2002, and is currently  proceeding with the regulatory process to obtain approval for their plans.   The District of Columbia Historic Preservation Office has not yet approved  the Air Force’s plans.
The Air Force disagreed with the Inspector General findings.
section_title: Appendix III: Comments from the Department of Defense