Defense Infrastructure: In-Kind Construction and Renovation Projects Initiated by DOD during Fiscal Year 2013
Published: 2015-09-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD uses in-kind payments domestically and overseas in its real-estate transactions as an alternative to appropriated funds to help manage a global real-property portfolio that includes more than 555,000 facilities worldwide. In-kind payments refer to DOD receiving construction and renovation services rather than cash as payment for DOD providing goods, services, real property, or an interest in real property.
The National Defense Authorization Act for Fiscal Year 2013 includes a provision for GAO to review the use of in-kind projects. This report identifies (1) the in-kind payment projects that DOD reported it initiated during fiscal year 2013, and discusses the potential advantages and disadvantages of accepting in-kind payments instead of cash for domestic real-estate transactions; and (2) the extent to which the military services have developed and implemented guidance and procedures to value domestic in-kind payments to ensure the receipt of fair-market value. The Act also provided for a listing of facilities constructed or renovated with the use of in-kind payments, and additional information, which GAO provides in appendixes to this report. To conduct this work, GAO collected in-kind project data from the military services, reviewed DOD and military service policy and project documentation, and interviewed military officials.
GAO is not making recommendations in this report. DOD provided technical comments on the findings, which GAO has incorporated where appropriate.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) reported to GAO that 137 in-kind projects involving construction or renovation, valued at about $1.8 billion, were initiated in Korea, Japan, Germany and the United States during fiscal year 2013. In-kind payments involve non-cash options, such as renovating or constructing a facility. The table below summarizes the number and value (estimated costs to be incurred) of the projects by country and highlights the most frequently reported purpose for which the projects were used.
Number, Value, and Purpose of In-Kind Construction and Renovation Projects Initiated by DOD during Fiscal Year 2013
Source: GAO summary of Department of Defense (DOD) data. | GAO-15-649
a Subtotals for Korea and Japan and totals for DOD are of undetermined reliability because supporting documentation was not readily available in English, or, according to DOD officials, the costs incurred by the Governments of Korea and Japan were not required to be disclosed to the United States.
The military services' real-estate and real-property management officials discussed four potential advantages to accepting in-kind payments rather than cash payments in domestic real-estate transactions, and identified one potential disadvantage. The reported advantages included generally obtaining facilities more quickly than through the appropriations process and installations receiving 100 percent of the value of negotiated payments received from a real-property interest as opposed to cash payments where only 50 percent of the value is guaranteed to be provided back to the installation. However, some services have implemented policy changes such as returning 100 percent of the value of the real-property interest back to the installation—up to $1 million when accepting cash payments. One reported disadvantage was in-kind payments may require additional administrative work and oversight compared to cash payments.
GAO's review of service policies governing real-estate transactions identified that all services have issued guidance requiring that the cumulative value of in-kind projects reflect the fair-market value of the real-property interest in real-estate transactions. Each of the Services reported similar broad procedures for valuing in-kind payment projects and GAO's review of the documentation for the projects initiated in fiscal year 2013 confirmed that the installations were following the described procedures.

section_title: Letter
paragraphs: The Department of Defense (DOD) accepts in-kind payments  domestically and overseas in its real-estate transactions as an alternative  to appropriated funds to help manage a global real-property portfolio that  includes more than 555,000 facilities worldwide with a replacement value  DOD estimates at nearly $850 billion. In-kind construction and renovation  projects, which DOD has allowed for more than 20 years, for purposes of  this report, are defined as projects resulting from certain host-nation  support programs or from transactions in which DOD provides goods,  services, real property, or an interest in real property (including, but not  limited to, a leasehold or easement) in exchange for compensation, and  in which any part of that compensation is provided in the form of  construction or renovation services. This definition of “in-kind construction  and renovation projects” is broader than the concept of “in-kind  payments” for residual value  or projects received in lieu of cash  compensation as part of a domestic agreement with a third party because  the definition includes host-nation support for installation facilities  overseas. Voluntary contributions made by a host nation for the purpose  of defraying costs to station, maintain, and train U.S. military forces in its  country do not constitute a payment or, in the absence of binding  international agreements, obligate a host nation to make payments to the  United States. Host-nation support provided in the form of direct  construction rather than a cash contribution is viewed by DOD as one of  three basic types of in-kind construction.
At domestic locations, in-kind payment projects help installations to  complete renovation and construction projects that, according to agency  officials, usually do not compete well in the internal budget process and  consequently are not likely to be included in DOD’s budget request. At  overseas locations, host nations may provide a facility or construction or  renovation services to help offset the U.S. costs of stationing military  forces overseas. For any overseas in-kind construction or renovation  projects, the selection is subject to relevant international agreements,  statutory authorities, and DOD policy. Certain international agreements  include efforts to relocate U.S. forces and consolidate infrastructure being  used by DOD. The Secretaries of the Army, Navy, and Air Force have  statutory authority under sections 2667 and 2668 of Title 10 of the United  States Code to lease or issue an easement on real property under their  control or jurisdiction within the United States in exchange for in-kind  construction or renovation projects, subject to certain restrictions. In-kind  payment projects received for both leases and easements may include  alteration, repair or improvements to existing facilities or construction of  new facilities.
In previous reviews, GAO and the DOD Inspector General reported  internal control weaknesses related to in-kind payment projects accepted   by DOD. In our 2011 review, we found that DOD’s enhanced-use   lease program, which utilizes in-kind payment projects, did not have  procedures to regularly monitor and analyze program administration costs  and two of the services did not have clear guidance describing how the  fair-market value of the lease interest should be determined. We  recommended that the services develop procedures to regularly monitor  and analyze program costs to help ensure program costs are in line with  program benefits. Likewise, we recommended that the Army and the Air  Force review and clarify guidance describing how the fair-market value of  the real property interest should be determined and how the receipt of  fair-market value can best be ensured. DOD concurred with our  recommendations and the services have developed new procedures and  issued new guidance to address them.
Section 2805 of the Fiscal Year 2013 National Defense Authorization Act  included a provision for us to report on construction or renovation of  DOD’s facilities using in-kind payment projects that were begun during  the preceding two years, with annual updates to follow. In April 2014, we  issued the first report that described in-kind payment projects initiated in  fiscal years 2011 and 2012. This report identifies (1) the in-kind payment  projects that DOD reported it initiated during fiscal year 2013, and  discusses the potential advantages and disadvantages of accepting in- kind payment projects instead of cash for domestic real-estate  transactions and (2) the extent to which the military services have  developed and implemented guidance and procedures to value domestic  in-kind payment projects to ensure the receipt of fair-market value. The  act also provided that we report a listing of facilities constructed or  renovated with the use of in-kind payment projects, the value in U.S.  dollars of the construction or renovation project, the source of the in-kind  payment project, the agreement pursuant to which the in-kind payment  project was initiated, and a description of the purpose and need for the  construction or renovation project. The listing of facilities appears in  appendixes to this report.
To identify the in-kind payment projects that DOD reported it initiated  during fiscal year 2013, we compiled information that DOD provided on  in-kind construction and renovation projects for fiscal year 2013, their  value in U.S. dollars, the source of the in-kind payment project, the  agreement or statutory authority, and their purpose and need from the  departments of the Army, Navy (which includes the Marine Corps), and  Air Force and their components. We corroborated the project data that  each DOD component submitted by requesting that the component  provide the supporting documentation where the data were obtained;  however, supporting documentation for some projects was not readily  available. For these projects, we asked DOD to describe, to the extent  possible, the source or calculation method for the estimated value of the  in-kind payment project, initiation date and the real-property system  classification code. By taking these steps, we determined that the  reported data for the payment projects located in the United States and  Germany were generally sufficiently reliable for the purposes of this  report. However, limited supporting documentation was readily available  in English for various in-kind payment projects in Japan and Korea and,  according to DOD officials, the specific costs incurred by the  Governments of Korea and Japan for many projects was not required to  be disclosed to the United States. As a result, we were unable to  determine the reliability of much of the reported project data for Korea  and Japan. The report notes those instances where we were unable to  determine the reliability of the reported data for payment projects located  in these two countries. To describe the potential advantages and  disadvantages of accepting in-kind payment projects instead of cash in  exchange for interests in domestic real-property transactions, we  interviewed officials from the services’ real-property management offices  to discuss the factors they consider in determining whether to accept  cash or in-kind payment projects, the rationale for preferring one type of  payment (cash or in-kind) over another, and the advantages and  disadvantages in terms of administration and costs of one type over  another.
To identify the extent to which the military services have developed and  implemented guidance and procedures to value domestic in-kind payment  projects to ensure the receipt of fair-market value, we compared the  military services’ guidance governing real-estate transactions to DOD’s  guidance for establishing receipt of fair-market value of its real-estate  interest to ensure the service’s guidance captured this requirement. We  then reviewed the military services’ established policies where available  and the procedures on determining the value of in-kind payment projects  to determine if their procedures would ensure receipt of fair-market value.
Furthermore, we obtained and analyzed the in-kind payment project  agreements and supporting documentation, such as the lease exhibits,  site and task work orders, and the real-estate appraisal for the 29  domestic in-kind payment projects initiated during fiscal year 2013, to  identify how the services determined the actual value of these specific in- kind payment projects to ensure fair-market value would be achieved.  Further details on our scope and methodology can be found in appendix I.
We conducted this performance audit from August 2014 to September  2015 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  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The departments of the Army, Navy, and Air Force have a variety of  statutory authorities that allow them to accept payments in the form of in- kind renovation or construction of facilities. For example, in fiscal year  2013, DOD used authority provided by sections 2667 and 2668 of Title 10  of the United States Code to lease or issue easements relating to  domestic real property under their control or jurisdiction in exchange for  payment in the form of in-kind construction or renovation projects. A  description of these authorities is provided in table 1.
For leases, the services are required under section 2667 of Title 10 to  receive payments in an amount that is not less than the fair-market value  of the property interest, as determined by the military department  Secretary. Concerning cash payments received in exchange for leases  and easements, section 2667 provides that, generally, money rentals  must be deposited into a special account in the U.S. Treasury and must  be appropriated before they can be used. Once appropriated, section  2667 provides that at least 50 percent of the funds shall be available for  use only at the installation where the leased property is located.
Overseas in-kind payment projects are subject to specific bilateral  agreements and statutory authorities. Bilateral agreements include efforts  to relocate U.S. forces and consolidate infrastructure being used by DOD.  There are also other agreements between the United States and host  nations to defray some of the costs of stationing U.S. forces overseas,  and to support installations that will continue to be used by the United  States—known as enduring installations—through the use of host-nation  resources.
According to DOD real-property management officials, installation  personnel are generally responsible for selecting domestic in-kind  payment projects based on the needs of the installation and its chain of  command. Each installation has a list of unfunded construction and  renovation projects that were not included in the military services’ budget  submissions to the Office of the Secretary of Defense. The military  services generally allow each installation to decide which projects from  these lists should be considered for in-kind payment projects. The  responsibility for managing in-kind payment projects is generally shared  between installation personnel and the services’ respective real-property  management offices or agencies. Within the Navy, the Secretary of the  Navy has delegated certain real-property management responsibilities to  Naval Facilities Engineering Command. Specifically, Naval Facilities  Engineering Command, subject to certain requirements, is authorized to  grant, execute, amend, administer, and terminate all instruments granting  the use of Navy-controlled real property, to include real-estate  transactions using in-kind payment projects. Within the Air Force, the  Secretary of the Air Force has delegated certain real-property  management responsibilities to the Air Force Civil Engineer Center. The  Air Force Civil Engineer Center is responsible for acquiring, disposing of,  and managing all Air Force-controlled real property. Within the Army, the  Chief of Engineers is the principal advisor to the Secretary of the Army for  policy formulation related to real property. According to Army officials, the  Secretary of the Army generally has delegated responsibilities to the  Army Corps of Engineers for execution of a variety of real-estate  transactions, including transactions that include in-kind payments.
section_title: DOD Reported Initiating 137 In-Kind Payment Projects in Fiscal Year 2013, and Cited Advantages and a Disadvantage from Receiving In-Kind Payment Projects versus Cash Payments
subsections: section_title: DOD Reported that the Military Services Initiated 137 In-Kind Construction and Renovation Payment Projects in Fiscal Year 2013 with an Estimated Value of at Least $1.8 Billion
paragraphs: DOD reported that the military services initiated 137 in-kind payment  projects in Asia, Germany and the United States during fiscal year 2013  with an estimated value of at least $1.8 billion. In Asia, DOD reported  initiating 105 in-kind construction and renovation projects with a total  value that DOD estimated to be at least $1.6 billion. Of the 105 projects in  Asia, 31 are in Korea with an estimated value of $1.57 billion and 74 are  in Japan—32 of which have an estimated value of $264 million. In  Germany, DOD reported initiating 3 in-kind payment projects with a total  value that DOD estimated to be almost $20.7 million. For domestic  locations, DOD reported initiating 29 in-kind construction and renovation  projects with a total value that DOD estimated to be $18.6 million. Of the  29 domestic projects, the Navy initiated 22 and the Air Force initiated 7.  The Army and Marine Corps did not initiate any domestic in-kind payment  projects in fiscal year 2013. Table 2 summarizes the number and value of  in-kind payment projects by location and also highlights the most  frequently reported purpose for which the projects were used.
Appendixes II through V provide more detailed information for each in- kind payment project initiated by DOD in fiscal year 2013.
section_title: Military Services’ Real- Property Management Officials Reported Advantages and One Disadvantage in Accepting In-Kind Payment Projects in Exchange for Interests in Domestic Real-Property Transactions
paragraphs: The military services’ real-property management officials reported as  many as four advantages to accepting in-kind payment projects rather  than cash payments in domestic real-estate transactions, and officials  from the three services reported one disadvantage.
subsections: section_title: Reported Advantages
paragraphs: Installations can generally obtain facilities more quickly. According to  officials of the Army Corps of Engineers, Air Force Civil Engineer Center,  and Naval Facilities Engineering Command, in-kind payment projects can  be advantageous because the value received does not need to be re- appropriated and can be immediately available to the installation. While  congressional notification is required if the estimated annual fair-market  value of a lease or easement exceeds $750,000, the law does not require  appropriation of the funding for in-kind payment projects, so the benefits  may be realized sooner. For example, in 2008 at Nellis Air Force Base,  Nevada, the Air Force entered into an agreement with the city of North  Las Vegas to allow construction of a wastewater treatment plant on 41  acres of land leased from Nellis. As part of its payment to the base, the  city agreed to fund the construction of a new $27 million fitness center.  According to Air Force Civil Engineer Center officials, the base had a  longstanding requirement for an updated fitness center but was unable to  secure funding for it. Once the agreement was signed, the city  immediately began construction and the base was able to open the new  fitness center in 2012. By contrast, if an installation receives cash  payments, section 2667 requires the immediate deposit of all cash into a  special account in the U.S. Treasury where it is subject to the  appropriation process before the installation can use it. Officials stated  that it can take up to a year between the deposit of the cash payments  and the funds being provided to the installation.
The originating installation is more likely to receive100 percent of the  negotiated payments for the real property interest. According to Army  Corps of Engineers, Air Force Civil Engineer Center and Naval Facilities  Engineering Command officials, although the receipt of in-kind payment  projects is at the discretion of the respective military department  Secretary, the military department secretaries generally allow the  installations where the real-property is located to receive 100 percent of  any negotiated in-kind payments resulting from real property agreements.  Conversely, section 2667 states that, subject to appropriations,  installations are guaranteed to receive only 50 percent of any deposited  cash payments, and can receive the other 50 percent only at the  discretion of the respective military department secretary. In-kind  payments are not governed by similar restrictions, and, as such, are more  likely to result into the installation receiving 100 percent of the value  generated by its real estate transactions.
Installations may have the opportunity to potentially receive infrastructure  improvements worth more than the fair-market value of the property  interest. Air Force Civil Engineer Center and Naval Facilities Engineering  Command officials stated that the nature of a potential developer’s  business or expertise and economies of scale may allow the developer to  provide in-kind payment projects worth more than the fair-market value of  the property interest by obtaining construction materials or labor at a  below-market cost. For example, in 2004 the Navy entered into an  agreement with a real-estate development firm to redevelop the  Moanalua Shopping Center at the Pearl Harbor Naval Complex, Pearl  Harbor, Hawaii. As part of the agreement, the Navy conveyed the existing  shopping center to the developer as well as development rights for up to  another 15,000 square feet of new commercial market space. As  payment to the Navy, the developer was required to demolish over  40,000 square feet of existing space and to develop 40,000 square feet of  new administrative space to be used as a Navy community support  services center. A 2004 Navy analysis valued these demolition and  construction projects at about $21 million—which was about $8 million  more than the appraised market value of the property conveyed by the  Navy.
Installation officials generally have more flexibility in real-estate  transactions. According to officials of the Air Force Civil Engineer Center,  in-kind payment projects offer installation officials greater flexibility in  executing real-estate transactions, especially in cases where a developer  does not have cash readily available at the time the real-estate  transaction is executed. Also, allowing in-kind payment projects can  increase the potential pool of developers, the officials stated. For  example, in-kind payment projects may be the only way to secure  adequate value from non-profit or charitable organizations that may not  have adequate cash resources but have the ability to provide goods and  services.
section_title: Reported Disadvantage
paragraphs: These same military service officials reported that one common  disadvantage to accepting in-kind payment projects rather than cash  payments is the amount of additional administrative work and oversight  needed to execute the in-kind agreements. Army Corps of Engineers, Air  Force Civil Engineer Center, and Naval Facilities Engineering Command  officials identified three scenarios in which in-kind payment projects likely  will require additional work and oversight.
Additional work and oversight to ensure that the transaction complies  with statutory requirements. Several statutes govern the receipt of in- kind payment projects, so installation personnel conduct reviews to  ensure that the transactions follow appropriate financial and  administrative procedures as required by law.
Additional work and oversight to ensure that the developer is  complying with the terms of the transaction. For example, installation  personnel work to properly monitor construction and renovation  progress to ensure that the developer is adequately providing any  agreed-upon services over the terms of the agreement.
Additional work and oversight to ensure that in-kind payment projects  are properly valued over time. Some transactions involving in-kind  payment projects, such as enhanced-use leases, can last as long as  50 years and the in-kind payment projects may continue over these  50 years. As a result, installation personnel will be responsible for the  extra work to value in-kind payment projects during the 50-year lease.  By contrast, cash value is known and requires no extra work to value.
To address the disadvantage of accepting in-kind versus cash payments,  some of the military services have implemented policy changes for  accepting cash. For example, the Army has issued guidance stating that  cash payments are preferred over in-kind payment projects. According to  the Army memorandum, leases typically involve only cash payments  because procedures to properly value and assure receipt of in-kind  payment projects over a lease’s terms can be administratively  burdensome. This memorandum was issued partly in response to our  2011 work that found problems with the adequacy of those procedures.  Army officials stated that in-kind payment projects may still be accepted,  however, if installation officials determine that accepting them is in the  best interest of the installation and they document the basis for that  determination. Approaching the disadvantage from a different angle, the  Air Force issued guidance that requires the return of 100 percent of the  net proceeds from cash payments—up to $1 million—to the originating  installation. This policy negates the advantage in-kind payment projects  have in assuring that the originating installation receives 100 percent of  the negotiated value of the in-kind payment projects for the real-property  interest since the originating installation receives the full amount of the  cash payment up to $1 million. According to Air Force officials, the policy  was implemented to not only eliminate some of the administrative burden  of accepting in-kind payment projects but also to reward installations for  finding ways to reduce infrastructure costs by identifying alternative  funding sources to military construction appropriations.
section_title: Military Services Have Issued Guidance Regarding the Receipt of Fair- Market Value and Follow Similar Procedures for Valuing Domestic In- Kind Payment Projects to Ensure Receipt of Fair- Market Value
paragraphs: Our review of various service policies governing real-estate transactions  identified that all three services have issued guidance requiring that the  cumulative value of in-kind payment projects reflect the fair-market value  of the real-property interest in real-estate transactions and follow similar  procedures to value domestic in-kind payment projects to ensure the  receipt of fair- market value. Based, in part, on prior GAO  recommendations, each of the services has issued guidance to require  the determination of fair-market value for real-property assets included in  real-estate transactions and have provided instructions on how to  determine the fair-market value. For example, to determine the fair- market value of the real-property interest, the Army, Air Force and Navy  use certified real-estate appraisers to determine the full market value of  their real-property interests and require that the appraisals be conducted  in accordance with the Uniform Standards of Professional Appraisal  Practice prior to the finalization of any real-estate transaction. However,  our review of service-level guidance governing real-estate transactions  did not identify any specific steps to follow for valuing in-kind payment  projects. Officials from the offices of the Army Corps of Engineers, Air  Force Civil Engineer Center, and Naval Facilities Engineering Command  confirmed that no specific guidance is available, but described similar  broad procedures and documentation requirements that they used for  determining the value of their in-kind payment projects. Officials indicated  that installation public-works personnel, with the aid as needed of the  respective service’s regional real-property management office, generally  were responsible for determining the value of the in-kind payment  projects. In some cases, installation personnel prepare formal  requirements documents, such as a DOD form 1391 or some other form  of a statement of work, or independent government cost estimate to  document the value of the in-kind work to be performed. In other cases,  installation personnel review and validate a contractor’s cost estimates for  valuing certain projects instead of obtaining an independent cost  estimate. Once the cost estimate is developed, installation public-works  personnel, with the aid as needed of the respective service’s regional  real-property management office, use the cost estimate to negotiate with  the lessee for the completion of the work. If the developer and installation  officials agree to the value of the work and that the value of the work is  within the range of fair-market value of the real-estate interest, the parties  execute the agreement to document the services to be performed as an  in-kind payment project in lieu of cash.
Table 3 describes the 29 domestic projects and lists which type of  procedures the service used to document the value of the in-kind  payment projects. To confirm that the installations used the cost- estimating methods described for valuing in-kind payment projects by  service officials, we collected and reviewed the documentation available  that the Air Force and Navy used to value the domestic in-kind payment  projects initiated during fiscal year 2013. All 29 projects had  documentation available showing how the cost estimates were  established and that the services had processes in place to value in-kind  payment projects.
section_title: Agency Comments
paragraphs: We are not making any recommendations in this report. We provided  DOD with a draft of this report for review. DOD provided technical  comments on our findings, which we have incorporated where  appropriate.
We are sending copies of this report to appropriate congressional  committees and to the Secretary of Defense; the Secretaries of the Army,  Navy, and Air Force; and the Director of the Office of Management and  Budget. In addition, this report is available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions concerning 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 key contributions to  this report are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: To identify the in-kind payment projects that DOD reported it initiated  during fiscal year 2013, we requested information and compiled data on  in-kind construction and renovation projects for fiscal year 2013, their  estimated value in U.S. dollars, the source of the in-kind payment project,  the agreement or statutory authority, and their purpose and need from  DOD components—U.S. Pacific Command; U.S. European Command;  the Departments of the Army, Navy (including the Marine Corps), and Air  Force. To determine whether a project was an in-kind payment project,  we defined “in-kind construction and renovation projects” in this report as  those resulting from certain host-nation support programs or from  transactions (whether domestic or overseas) in which DOD provides  goods, services, real property, or an interest in real property (including,  but not limited to, a leasehold or easement) in exchange for  compensation, and in which any part of that compensation is provided in  the form of construction or renovation services. This definition of “in-kind  construction and renovation projects,” which was also used in our 2014  report, is broader than the concept of in-kind “payments” for residual  value or received in-lieu-of cash compensation as part of a domestic  agreement with a third party because the definition includes host-nation  support for installation facilities overseas. Voluntary contributions made  by a host nation for the purpose of defraying costs to station, maintain,  and train U.S. military forces in its country do not constitute a payment or  obligate a host nation to make payments to the United States. We  excluded from our definition of “in-kind construction or renovation  projects” gifts, sustainment projects (e.g., regularly scheduled  maintenance and inspections), and cash sales or rent used to finance  construction or renovation. To determine that a project was initiated in  2013, we also re-used our 2014 report’s definition for “initiated” as that  point at which the party responsible for completing the construction or  renovation project received an official notice that allowed them to proceed  with the project. To summarize the purposes of the projects, we used the  real-property system classification code reported by DOD for each project  as part of their data submission to us. The first digit of the code  represents the facility class, and we used the facility class to represent  the purpose of the projects. We corroborated the project data that each  DOD component submitted by requesting that the component provide the  supporting documentation where the data was obtained. We attempted to  obtain supporting documentation for all the data elements for all of the  domestic and overseas projects. We were able to obtain corroborating  documentation for all of the domestic projects and the projects in  Germany. The Office of the Assistant Secretary of Defense for Energy,  Installations and Environment also reviewed the information the DOD  components provided to GAO on in-kind construction and renovation  projects for fiscal year 2013 for consistency and to ensure that the data  were for projects that we considered “in-kind payment projects.” Lastly,  after we compiled the project data, we provided each component with an  additional opportunity to review and confirm the data. By taking these  steps, we determined that the reported project data for the domestic  projects and the projects in Germany were generally sufficiently reliable  for the purposes of this report. However, numerous projects in Korea and  Japan were executed under bilateral agreements or as part of voluntary  host nation programs where the host nation manages the programming  and execution processes and supporting documentation for these  projects was not readily available in English or the specific project costs  incurred by the Governments of Korea and Japan were, according to  DOD officials, not required to be disclosed to the United States. In the  absence of supporting documentation, we asked DOD to describe, to the  extent possible, the source or calculation method for the estimated value  of the project cost, initiation date and the real-property system  classification code. However, DOD officials had a limited explanation of  the source of some of this basic project information because of  international agreements and host-nation requested relocation projects  that, according to DOD officials, do not require disclosure of specific costs  by the host nation. For instance, DOD officials reported that for the 74 in- kind payment projects in Japan, they did not know the specific basis used  by Japanese officials for calculating the value for 32 of the projects in  Japan and did not have any information on the value for another 42  projects. The report notes instances where we were unable to determine  the reliability of reported data for various projects in Japan and Korea  Appendixes II through V provide a listing and detailed information for  each in-kind payment project initiated by DOD in fiscal year 2013.
To describe the potential advantages and disadvantages of accepting in- kind payments instead of cash for domestic real-estate transactions, we  reviewed the services’ policies and procedures regarding the types of  payments (cash or in-kind payment project) to be included in real-estate  transactions and Army and Air Force guidance that informs when cash or  in-kind payment projects are advantageous or not advisable. We also  interviewed officials from the Army Corps of Engineers, Air Force Civil  Engineering Center, and Naval Facilities Engineering Command to  discuss the factors they consider in determining whether to accept cash  or in-kind payment projects, the rationale for preferring one type of  payment (cash or in-kind payment project) over another, and the  advantages and disadvantages in terms of administration and costs of  executing cash versus in-kind payment projects.
To identify the extent to which the military services have developed and  implemented guidance and procedures to value in-kind payment projects  to ensure the receipt of fair-market value for domestic projects, we  compared the military services’ guidance governing real-estate  transactions to DOD’s guidance for leasing and obtaining fair-market  value of its real-estate interest. We then reviewed the military services’  established policies and procedures where available to determine if their  procedures would ensure receipt of fair-market value. Furthermore, we  obtained and reviewed the in-kind payment project agreements and  supporting documentation, such as the lease exhibits, site and task work  orders, and the real-estate appraisal for the 29 domestic in-kind payment  projects initiated during fiscal year 2013 to review whether the military  services were following the established procedures they described for  valuing these specific in-kind payment projects. In addition to the  previously mentioned DOD offices, we also interviewed officials from the  Office of the Assistant Secretary of Defense for Energy, Installations and  Environment, Army Office Assistant Chief of Staff for Installation  Management, Office of Assistant Secretary of the Air Force (Installations,  Environment and Logistics), and Office of the Assistant Secretary of the  Navy (Energy, Installations and Environment) to determine the  procedures and documentation requirements used by the services to  value in-kind payment projects.
We conducted this performance audit from August 2014 to September  2015 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  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: DOD Construction and Renovation Projects Initiated in Korea in Fiscal Year 2013 Using In-Kind Payments
paragraphs: DOD reported that the military services initiated 31 in-kind payment  projects involving construction or renovation in Korea in fiscal year 2013  with a value of about $1.6 billion. The projects support various DOD  purposes throughout the Republic of Korea, but mostly for construction of  new facilities at United States Army Garrison Humphreys. Most of the  projects (23 of 31) initiated in Korea were either for improvements to or  the construction of operations and training facilities (14 projects) or for  housing and community facilities (9 projects). Table 4 provides a  summary of the intended purposes and value of in-kind payment projects  initiated in Korea in fiscal year 2013. We found that the reported values  for 26 of the 31 projects were of undetermined reliability because of a lack  of documentation.
Table 5 provides specific information on the military service responsible  for the project, location, purpose, type of agreement, source of in-kind  payment project, and estimated value for the 31 in-kind payment projects  involving construction or renovation initiated in Korea during fiscal year  2013.
section_title: Appendix III: DOD Construction and Renovation Projects Initiated in Japan in Fiscal Year 2013 Using In-Kind Payments
paragraphs: DOD reported that the military services initiated 74 in-kind payment  projects involving construction or renovation in Japan in fiscal year 2013,  32 of which were valued at $264 million. The projects supported various  purposes for the U.S. military’s presence in the country. A majority of the  projects initiated in Japan (39 of 74) were for improvements to or  construction of utility and ground improvement infrastructure (23 projects)  or for operations and training facilities (16 projects). Table 6 provides a  summary of the intended purposes, value, and number of in-kind payment  projects initiated in Japan in fiscal year 2013. We found that the reported  estimated values for the in-kind payment projects in Japan were of  undetermined reliability because of a lack of documentation.
Table 7 provides specific information on the military service responsible  for the project, location, purpose, type of agreement, source of in-kind  payment project, and estimated value for the 74 in-kind payment projects  involving construction or renovation initiated in Japan during fiscal year  2013.
section_title: Appendix IV: DOD Construction and Renovation Projects Initiated in Germany in Fiscal Year 2013 Using In-Kind Payments
paragraphs: DOD reported that the Army initiated 3 in-kind construction and  renovation projects in Germany with a value of over $20 million. The in- kind payment projects in Germany were initiated as compensation from  the government of Germany to the United States for improvements the  United States made to facilities that were being returned to the  government of Germany. Table 8 provides specific information on the  military service responsible for the project, location, purpose, type of  agreement, source of in-kind payment project, and estimated value for the  three in-kind payment projects involving construction or renovation  initiated by the Army in Germany during fiscal year 2013.
section_title: Appendix V: DOD Construction and Renovation Projects Initiated in the United States in Fiscal Year 2013 Using In-Kind Payments
paragraphs: For the projects underway at U.S. locations, DOD reported that the  military services initiated 29 in-kind construction and renovation projects  with a total value estimated by DOD of $18.6 million. The Navy had the  most in-kind payment projects (22), and all resulted from the lease of  DOD property at Navy bases in Virginia, California, Florida, and West  Virginia. A majority of the Navy projects (12) were for either  improvements to or construction of research, development, test, and  evaluation facilities (6 projects) or maintenance and production facilities  (6 projects). The Air Force initiated seven in-kind payment projects, all  resulting from either granting an easement or leasing DOD property at  Eglin Air Force Base. All of the Air Force projects were for either  improvements to or construction of administrative facilities or utility and  ground infrastructure. The Army and Marine Corps did not initiate any  domestic in-kind payment projects in fiscal year 2013. Table 9 provides a  summary of the intended purposes and value of in-kind payment projects  initiated in the United States in fiscal year 2013.
Table 10 provides specific information on the military service responsible  for the project, location, purpose, agreement, type of agreement, and  estimated value for the 29 in-kind payment projects involving construction  or renovation initiated in the United States during fiscal year 2013.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: GAO staff members who made key contributions to this report were Laura  Durland, Assistant Director; Bonita Anderson; Shawn Arbogast; Pat  Donahue; Dave Keefer; Richard Powelson; and Michael Willems.