Defense Infrastructure: Issues Related to the Renovation of	 
General and Flag Officer Quarters (17-MAY-04, GAO-04-555).	 
                                                                 
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.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-555 					        
    ACCNO:   A10090						        
  TITLE:     Defense Infrastructure: Issues Related to the Renovation 
of General and Flag Officer Quarters				 
     DATE:   05/17/2004 
  SUBJECT:   Cost analysis					 
	     Cost control					 
	     Federal funds					 
	     Financial management				 
	     Financial records					 
	     Funds management					 
	     Gifts or gratuities				 
	     Housing						 
	     Housing construction				 
	     Labor costs					 
	     Military budgets					 
	     Military facilities				 
	     Military facility construction			 
	     Military forces					 
	     Military housing					 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-04-555

United States General Accounting Office

     GAO Report to the Subcommittee on Military Construction, Committee on
                          Appropriations, U.S. Senate

May 2004

DEFENSE INFRASTRUCTURE

     Issues Related to the Renovation of General and Flag Officer Quarters

GAO-04-555

Highlights of GAO-04-555, a report to Subcommittee on Military
Construction, Committee on Appropriations, U. S. Senate

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.

GAO is making several recommendations to the Secretary of Defense to
improve controls over renovations to general and flag officer quarters and
provide increased visibility and control of renovations to privatized
general and flag officer quarters.

In commenting on a draft of this report, DOD concurred with two
recommendations and did not concur with the third, while indicating
actions to be taken to meet the intent of our recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-555.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Barry W. Holman at (202)
512-8412 or [email protected].

May 2004

DEFENSE INFRASTRUCTURE

Issues Related to the Renovation of General and Flag Officer Quarters

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.

Contents

  Letter

Results in Brief
Background
Actual Renovation Costs Generally Were Consistent with or Less

Than Budget Estimates Cost Increases Due to Customer-Requested Changes and
Unforeseen Repairs Marine Corps and Navy Did Not Properly Account for
Gifts Used to Help Renovate the Home of the Commandants Privatization
Could Reduce Oversight of Renovations to General

and Flag Officer Quarters Conclusions Recommendations Agency Comments and
Our Evaluation

                                       1

                                      2 5

                                       9

10

13

16 17 17 17

Appendix I Scope and Methodology

Appendix II	Concerns about Air Force's General Officer Quarters Renovation
and Replacement Plans

Appendix III Comments from the Department of Defense

  Tables

Table 1. Number of General and Flag Officer Quarters Maintained by the
Military Services as of February 29, 2004 5

Table 2: Comparison of Actual Costs to Budget Requests for General and
Flag Officer Quarters with Major Repair Projects of More Than $100,000
(Fiscal Years 1999 through 2003) 9

Table 3: Reason for Cost Increases for Five Marine Corps Major Renovation
Projects That Exceeded Their Budgets by More Than 10 Percent (Fiscal Years
1999 through 2003) 11

Table 4: Navy and Marine Corps Processes for Gift Acceptance and
Accounting 14

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States General Accounting Office Washington, DC 20548

May 17, 2004

The Honorable Kay Bailey Hutchison
Chairman
The Honorable Dianne Feinstein
Ranking Minority Member
Subcommittee on Military Construction
Committee on Appropriations
United States Senate

Generally, the military services' almost 700 general and flag officer1
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.2 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

1 General and flag officers include the Army, Air Force, and Marine Corps
ranks of general, lieutenant general, major general, and brigadier general
and the Navy ranks of admiral, vice admiral, and rear admiral (upper half
and lower half).

2 Military family housing funds are appropriated through the Military
Construction (MILCON) Appropriation Acts. Other funds are provided through
gifts of cash, materials and services.

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.

With a few exceptions, the services' reported actual costs3 for renovation
projects for general and flag officer quarters were generally consistent
with or less than the budget estimates provided to Congress.4 During
fiscal years 1999 through 2003, we found that 184, or about 93 percent, of
the 197

3 For the purpose of this report, we used the obligations reported for the
specific project to report actual costs.

4 For the purposes of this report, we used obligation estimates included
in budget justifications submitted to Congress as project budget
estimates.

  Results in Brief

renovation projects of more than $100,000 for general and flag officer
quarters cost less than or the same as the estimate included in the
service's budget justification. While the remaining 13 projects-6 Navy and
7 Marine Corps-exceeded the services' cost estimates, only the Marine
Corps projects exceeded their budgets by more than 10 percent.

Customer requests for changes and unforeseen repairs were the primary
reasons for cost increases to renovation projects.5 The services have
guidance that seeks to limit customer-requested changes based on personal
preferences, but we found numerous Marine Corps approvals for
customer-requested changes for renovations that contributed to project
costs exceeding budget estimates. We found that for 5 Marine Corps
projects that exceeded their budgets by more than 10 percent, about 45
percent of the increased costs associated with the changes were customer
driven, about 53 percent were due to unforeseen repairs and about 2
percent could not be determined.6 Cost increases due to customer requests
included upgraded kitchen and bathroom renovations or work that was not
included in the original scope of work and occurred because the customer
wanted the change and the housing manager or higher level official
acquiesced. Cost increases due to unforeseen repairs-such as for termite
damage; undetected structural deficiencies, such as sagging floor
supports; and unforeseen historical restoration costs-occurred because
these deficiencies or requirements were not identified during the
inspections upon which the initial project cost and budget estimates were
based.

We found two projects where military services did not properly account for
gifts used for general officer quarters; the gifts for one project were
associated with renovation costs and used to supplement appropriations for
general officer quarters. The Friends of the Home of the Commandants7
acknowledged providing about $765,500 in nonmonetary

5 The "customer" is usually the quarter's occupant, but sometimes is the
installation's housing or command officials.

6 Four of the five projects were located at the Marine Corps Barracks
located at Eighth and I Streets, Washington, D.C., and one at Kaneohe,
Hawaii.

7 The Friends of the Home of the Commandants (FOTHC) is a nonprofit
organization under section 501(c) (3) of the Internal Revenue Code,
established in 1999 under the auspices of the Community Foundation of the
National Capital Region to receive tax-deductible contributions for the
express purpose of generating privately donated funds to help renovate the
Home of the Commandants.

materials and services8 and about $88,300 in funding to supplement funding
for renovation of the Home of the Commandants. The Marine Corps did not
comply with existing guidance to properly accept and account for all
nonmonetary gifts used to help renovate the home and had difficulty
accounting for the gifts at the time of our review. After some delay, the
Marine Corps could provide a listing of only $492,413 in nonmonetary gifts
and had no documentation to support formal acceptance and recording of
these gifts. In addition, Marine Corps records do not fully account for
items bought with the monetary gifts provided to help renovate the Home of
the Commandants, although Navy General Gift Fund financial records do
document the receipt of $88,300 donated by the Friends of the Home of the
Commandants. The Navy and Army also accepted gifts to furnish general and
flag officer quarters. The gifts were not used for renovation expenses. Of
those, the Navy did not properly accept and account for about $3,970 in
nonmonetary gifts.

DOD could lose visibility over maintenance and repair spending for an
increasing number of general and flag officer housing units because DOD
has no policy requiring the services to review renovation costs on these
homes, such as is done for maintenance and repair projects over $35,000
for government-owned quarters. 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. The Air Force has developed draft guidance, expected to be issued in
May 2004, which will provide more visibility and accountability over
spending to maintain and repair 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. The Army has no such guidance.

We are making recommendations to the Secretary of Defense to ensure that
existing guidance regarding customer-driven changes to general and flag
officer housing renovation projects is followed, to properly account for
all gifts used to help renovate the Home of the Commandants, and to
provide for review of renovation projects 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.

8 Nonmonetary material gifts included materials such as kitchen cabinets,
furniture, wall coverings, draperies, and furniture upholstery. Services
included interior design services and construction labor.

In commenting on a draft of this report, DOD concurred with our first and
second recommendations and did not concur with the third, while indicating
actions to be taken that meet the intent of our recommendation. We refined
this third recommendation to better reflect our intent and stay within the
parameters of the privatization program.

Background 	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.9

Table 1. Number of General and Flag Officer Quarters Maintained by the
Military Services as of February 29, 2004

                      Service        Historic    Nonhistoric            Total 
                         Army             125        114         
                         Navy             105         56         
                 Marine Corps              10         9          
                    Air Force             132        134         
                        Total             372        313         

Source: GAO analysis of DOD data.

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:10

o  	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

9 The National Historic Preservation Act (codified at 16 U.S.C. 470 et
seq.) outlines the policy for designating a residence "historic."

10 Average annual maintenance and repair costs shown for the four examples
are the average of reported maintenance and repair costs less major
renovation costs, for fiscal years 1999 through 2003.

space and is currently undergoing a major renovation. The residence has an
          average annual maintenance and repair cost of about $14,000.

o  	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.

o  	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 $41,811.11

o  	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.

11 The Marine Corps believes that $87,000 for a one-time emergency repair
to termitedamaged basement stairs and floors in fiscal year 1999 should
not be included when calculating the average annual maintenance cost even
though it was reported as a cost in fiscal year 1999, and that the true
average annual cost for fiscal years 1999 through 2003 should be $14,239

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.12 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 $35,00013 threshold for
maintenance and repair expenses.14

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

12 DOD Financial Management Regulation 7000.14R, Volume 6A, Chapter 9,
Accounting and Reporting of Operations and Maintenance of the Family
Housing Program, (Feb. 1996). Also, see, for example, DOD Manual
4165.63-M, DOD Housing Management, (Sept. 30, 1993); DOD Directive 4710.1
Archeological and Historic Resource Management, (June 21, 1984); Army
Regulation 210-50, Housing Management, (Feb. 26, 1999); Secretary of the
Navy Instruction SECNAVINST 11101-73A, Approval Authority for Maintenance
and Repair of Flag and General Officers' Quarter, (Oct. 27, 1989); and Air
Force Instruction AFI 32-6003, General Officer Quarters, (Sept. 10, 2003).

13 The Military Construction Appropriation Act, 2000, Pub. L. No. 106-52,
Sec. 128 (1999), provided that "not more than $25,000 per unit may be
spent annually for the maintenance and repair of any general or flag
officer quarters without 30 days advance prior notification of the
appropriate committees of Congress." This reporting threshold was
increased to $35,000 in the Military Construction Appropriations Act,
2003, Pub. L. No. 107-249, Sec. 127 (2002).

14 Maintenance and repair expenses include recurring work (service calls,
preventive maintenance, and routine work between occupancies) as well as
major repairs.

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 200015 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.16 DOD guidance17 provides the services with
a framework for property accountability policies, procedures, and
practices.

The 1996 Military Housing Privatization Initiative18 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
servicemember 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.

15 Pub. L. No. 106-52, Sec. 128 (1999).

16 Military Construction Appropriations Act, 2001, Pub. L. No. 106-246,
Sec. 135 (2000).

17 DOD Instruction 5000.64, Defense Property Accountability, (Aug. 13,
2002).

18 See the National Defense Authorization Act for Fiscal Year 1996 (Pub.
L. No. 104-106, Sec. 2801 (1996)).

  Actual Renovation Costs Generally Were Consistent with or Less Than Budget
  Estimates

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.

Table 2: Comparison of Actual Costs to Budget Requests for General and
Flag Officer Quarters with Major Repair Projects of More Than $100,000
(Fiscal Years 1999 through 2003)

                       Actual Cost Service Total projects

Same as or less than budget

Greater than budget

                                  Army         59                          59 
                                  Navy         93                          87 
                          Marine Corps         10                  3          
                             Air Force         35                          35 
                                 Total         197                        184 
                               Percent         100                         93 

Source: GAO analysis of DOD data.

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

  Cost Increases Due to Customer-Requested Changes and Unforeseen Repairs

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.

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.
19 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.

19 The Marine Corps Barracks, at Eighth and I streets, Washington, D.C.,
established in 1801, contains five historic quarters, four general officer
quarters (Quarters 1, 2, 4, and 6) and one senior officer quarters
(Quarters 3). Quarters 6 has been the Home of the Commandants since 1806.
Renovations at Quarters 1 included three projects, two over budget and one
the same as budget; Quarters 2 included two projects, both over budget;
Quarters 4 included two projects, one over and one under budget; and
Quarters 6 included two projects, one the same as and one over budget.

Table 3: Reason for Cost Increases for Five Marine Corps Major Renovation
Projects That Exceeded Their Budgets by More Than 10 Percent (Fiscal Years
1999 through 2003)

                                    Reason       Amounta              Percent 
                           Customer Driven      $ 518,100      
                  Unforeseen circumstances      $ 607,000      
                            Undetermined b      $ 28,300       
                                     Total     $ 1,153,400                100 

Source: GAO analysis of Marine Corps Data.

Note: Four of the five projects are located at Marine Corps Barracks,
Washington, D.C., and one is located at Kaneohe, Hawaii.

aThe dollar amounts shown for each reason reflect the total of the
differences between each project's actual cost and the initial budget
estimate that was provided to Congress.

bThe dollar amount shown reflects the difference between the actual cost
and budget estimate, for which we could not conclusively determine the
reason for the cost increase.

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. 20 The single largest identifiable
increase

20 Conferees approved a $500,000 project for exterior repairs and roof
replacement in Conference Report (H.R. Conf. Rep. No. 106-710, at 93
(2000)) accompanying the fiscal year 2001 military construction
appropriation bill, H.R. 4424 (which became Pub. L. No. 106-246 (2000)).
On June 25, 2001, the Deputy Assistant Secretary of the Navy
(Installations and Environment) notified Congress of the Marine Corps'
intent to change the scope of the previously authorized project to include
kitchen renovations and other interior renovations in lieu of the exterior
improvements.

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
customerrequested 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 wallto-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.21 The current roof estimate
is around $582,730, an increase of more than $390,541 with about 70
percent of the

21 Destructive testing is accomplished by making openings/perforations in
walls, floors, or other structural apparatus in order to inspect fully for
problems, such as termites, sagging support beams, corroded pipes, or
frayed wiring that cannot be detected unless the openings/perforations are
accomplished.

  Marine Corps and Navy Did Not Properly Account for Gifts Used to Help Renovate
  the Home of the Commandants

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.

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 instruction22 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.

22 SECNAVINST 4001.2G CH-2, Acceptance of Gifts, (Dec. 7, 1999).

The following table summarizes Navy and Marine Corps procedures for
accepting gifts.

  Table 4: Navy and Marine Corps Processes for Gift Acceptance and Accounting

Monetary Gifts Nonmonetary Gifts

o  	Secretary of the Navy formally accepts gift funds; private funds then
become appropriated funds of the Department of the Navy.

o  	AAUSNa deposits funds in the Treasury, Department of the Navy General
Gift Fund.

o  	AAUSN allots funds to the intended recipient, such as the Marine Corp
Barracks, so the funds may be disbursed.

o  	Recipient is responsible for managing allotment.

o  	Secretary of the Navy formally accepts gifts valued in excess of
$50,000.

o  	Commandant of the Marine Corps may accept on behalf of Navy Secretary
gifts, other than real property, valued at $50,000,or less.

o  	Navy or Marine Corps may take temporary custody over gifts pending
formal acceptance.

o  	Gift is placed on the property account of the recipient when formally
accepted and treated as official U.S. property.

Source: GAO analysis of SECNAVINST 4001.2G CH-2, and MCO P5800.16A.

aThe Assistant for Administration, Under Secretary of the Navy (AAUSN) has
oversight responsibility for the Navy's space and facilities, services,
Pentagon Renovations, and other "Special Programs" to include approving
authority for the Navy Gift Fund.

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.23 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.24

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.25 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.26

23 These gifts were also used for interior design services.

24 When we started our review, the Marine Corps could account for only
about $51,000 in expenditures paid for with Navy General Gift Fund monies.
After some delay, the Marine Corps was able to produce receipts for
expenditures totaling $90,250. The Marine Corps also noted a discrepancy
between the Navy General Gift Fund balance and the balance reported by the
Defense Finance and Accounting Service. The Marine Corps and Defense
Finance and Accounting Service are working to resolve the discrepancy.

25 According to the Navy, the DOD Inspector General identified this
discrepancy during a 1999 audit of general and flag officer quarters.
However, according to the Navy, the details concerning the $59,780 in
nonmonetary gifts (reported during fiscal year 1999) were not included in
the final report.

26 The Secretary of the Army accepted another gift offer on Feb. 19, 2003,
which included a donation of real property and an offer to construct three
sets of general officer type quarters (with an estimated value of
$1,000,000) for Redstone Arsenal, Ala., from the Federal Building
Authority and the city of Huntsville, Ala.

  Privatization Could Reduce Oversight of Renovations to General and Flag
  Officer Quarters

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
governmentowned 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. 27 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.

27 Air Force Instruction AFI 32-6007, Privatized Family Housing (draft).

Conclusions 	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.

Recommendations

Agency Comments and Our Evaluation

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.

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
governmentowned 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.

Barry W. Holman, Director
Defense Capabilities and Management

                       Appendix I: Scope and Methodology

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

Appendix I: Scope and Methodology

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.

Appendix II: Concerns about Air Force's General Officer Quarters Renovation and
Replacement Plans

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.1 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 score2 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.3

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

1 Memorandum for the Air Force Deputy Chief of Staff, Installations and
Logistics; Inspector General, Department of Defense, Arlington, Va., Jan.
23, 2004.

2 Facility systems and subsystems are rated on a 1-to-5 scale (1 being
worst, 5 being best) based on appearance, condition, functionality,
expansion capacity, life expectancy, energy, and life/safety compliance.

3 The Air Force's about $74 million plan also called for the renovation of
6 ancillary buildings and the construction of a new general officers
quarters at Peterson AFB, Colo.

Appendix II: Concerns about Air Force's General Officer Quarters
Renovation and Replacement Plans

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 system4 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,5 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.6 As a
result, the Air Force recommended that each house be replaced rather than
renovated as originally planned. Air Force officials

4 The "system" in question was "house plan suitability," which includes
the size, location and layout of rooms as well as the expansion capacity
of the home.

5 A "Special Command Position" is generally a general or admiral whose
position carries public entertainment responsibilities that require the
incumbent to represent the interest of the United States in official and
social activities involving foreign or domestic dignitaries.

6 According to the Air Force General Officer Quarters Master Plan, if the
cost of whole house renovation exceeds 70 percent of the replacement cost
for the home, replacement is recommended unless the home is listed or
eligible to be listed on the National Register of Historic Places.

Appendix II: Concerns about Air Force's General Officer Quarters
Renovation and Replacement Plans

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.

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Appendix III: Comments from the Department of Defense

Note: Page numbers in the draft report may differ from those in this
report.

  GAO's Mission

Obtaining Copies of GAO Reports and Testimony

The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO's Web site (www.gao.gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document files.
To have GAO e-mail this list to you every afternoon, go to www.gao.gov and
select "Subscribe to e-mail alerts" under the "Order GAO Products"
heading.

Order by Mail or Phone 	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548

To order by Phone: 	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

To Report Fraud,	Contact: Web site: www.gao.gov/fraudnet/fraudnet.htm

  Waste, and Abuse in E-mail: [email protected]

Federal Programs Automated answering system: (800) 424-5454 or (202)
512-7470

Jeff Nelligan, Managing Director, [email protected] (202) 512-4800

Public Affairs 	U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
*** End of document. ***