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	Background Utilities Privatization Authorities

The military departments have been privatizing utility systems at military  installations since 1988. In 1997, Congress provided the military  departments permanent statutory authority, codified at 10 U.S.C. § 2688,  as amended, to convey, or privatize, utility systems under military  jurisdiction, such as those on military installations. The authority defines  a utility system as a system for the generation and supply of electric  power; the treatment or supply of water; the collection or treatment of  wastewater; and the supply of natural gas, among others. When  privatizing a utility, the Secretary of a military department makes a  decision to convey a system to a private or public entity, and then a utility  services contract is awarded. Figure 1 shows examples of common utility  systems found on military installations.
A utility system includes the associated equipment, fixtures, and  structures, as well as easements and rights-of-way. 10 U.S.C. § 2688  states that the Secretary of a military department may convey a utility  system, or part of a system, to a municipal, private, regional, district, or  cooperative utility company or other entity. DOD’s policy states that the  military departments may maintain ownership of utility systems and  decide not to privatize them for security reasons, or when privatization is  determined to be uneconomical. According to officials, once DOD  conveys a utility system and awards a contract for utility services, the  contractor is responsible for replacing, repairing, and maintaining the  associated equipment and structures as needed. Figure 2 provides  photos of the before and after condition of a privatized utility system  component at Fort Riley, Kansas where the electrical system was  modernized to replace analog monitoring equipment with digital  equipment.

	Utilities Privatization Program Management

The Office of the ASD(Sustainment), within the Office of the Secretary of  Defense, develops policies for and oversees DOD’s utilities privatization  program. There are two main sources of DOD policy for utilities  privatization—a DOD instruction on energy management at the  installation level and a supplemental guidance specific to utilities  privatization. During the period covered by our review, the instruction  directed the military departments to attempt to privatize all utility systems,  unless the Secretary of the military department determines that the  system is exempt from privatization for security or economic reasons. In  February 2019, DOD released supplemental guidance, which, among  other things, superseded the relevant portions of the instruction (and  cancelled prior supplemental guidance), and did not include a preference  for privatization or the direction to complete privatization decisions on all  covered utility systems. Instead, utilities privatization may now be  performed at the discretion of the military departments.
The military departments have the responsibility for program  implementation, as the statutory authority to privatize utility systems is  granted to the Secretaries of the military departments. As such, the  military departments determine which systems will be privatized and  which systems may be exempted from privatization. Once a military  department begins to consider an installation for privatization, the  installation command assists and facilitates in carrying out the  privatization effort. According to officials, DLA Energy is the contracting  agent for the majority of privatized utility services contracts awarded on  behalf of the Army since 2004 and for the Air Force since 2008. Navy  officials noted that NAVFAC is the contracting agent and administrator for  the Navy and Marine Corps privatized utility services contracts.
As of December 2019, the military departments have privatized roughly a  quarter of the utility systems on military installations (614 of the 2,590  systems); roughly a third of the systems were already owned by entities  other than the federal government (733 of 2,590) (see table 2).
As reflected in the table, the military departments have identified 580  utility systems that are available for future utilities privatization. As of  September 2018, DLA Energy reported that it had 18 ongoing utilities  privatization efforts—12 for Army and six for Air Force. Also, the Navy  noted that it has three ongoing utilities privatization efforts. According to  Air Force and Navy officials, their departments took a “strategic pause” on  new utilities privatization efforts in 2015 to determine if privatization is the  best option for recapitalizing their deteriorating utility systems. The Navy  and Air Force resumed new utilities privatization efforts in fiscal year 2017  and fiscal year 2019, respectively. DLA Energy will act as contracting  agent for the Navy on a pilot basis, as well as continuing to do so for the  Army and Air Force for future contract awards.

	DOD’s Contracting Process

The process for privatizing a utility system culminates in two actions: the  award of a utility services contract and conveyance of the physical assets  of the utility from the military department to the awardee. Once the  military department has decided to consider privatizing a utility system at  an installation, the department initiates efforts to award one or more utility  services contracts. This contracting process is governed by federal  statutes, the Federal Acquisition Regulation (FAR), the DOD and military  department supplements to the FAR, and military department and agency  guidance. For example, DOD is generally required to award utility  services contracts using competitive procedures, but can award contracts  through other than competitive procedures when authorized by an  exception, which we refer to as non-competitive. Figure 3 depicts the five  phases of the pre-award contracting process identified by GAO.
Acquisition Planning: Acquisition planning includes developing  requirements, preparing cost estimates, and conducting market  research to determine market interest, among other activities. For  utilities privatization efforts, requirements also include the inventory of  equipment—such as pipes, valves, and wires—and structures  associated with the utility system. For privatized utility services  contracts this phase begins with the decision to consider the  privatization of utilities at a given installation and generally ends with  the approval of an acquisition strategy.
Solicitation: Military departments may solicit offers from prospective  contractors by issuing a request for proposals. The request for  proposals informs the prospective contractors of the government’s  requirements, the anticipated terms and conditions that will apply to  the contract, the information required in a proposal, and the factors  used to evaluate proposals and their relative importance. Those who  wish to respond must submit their proposal to the contracting office in  the time and manner stated in the request for proposals. We consider  the solicitation phase to begin with solicitation issuance and end at the  deadline to submit the initial proposals, although the solicitation can  be amended later and proposals revised.
Initial Evaluation: Proposal evaluation is an assessment of the  proposals based on stated evaluation factors and the offerors’ ability  to perform the prospective work successfully. For example, proposals  undergo technical evaluation to determine offerors’ ability to meet the  technical requirements and cost or price evaluation to determine  whether the price is fair and reasonable. We consider the initial  evaluation phase to begin when potential offerors submit initial  proposals and end once government contracting personnel receive  approval to enter into negotiations or discussions.
Discussion/Negotiation: Negotiations are exchanges, in either a  competitive or non-competitive environment, between the government  and offerors that are undertaken with the intent of allowing the offerors  to revise proposals and obtaining the best value for the government.  Negotiations allow, among other things, the offerors to address any  government concerns with the proposals. We consider this phase to  begin when the contracting officer receives approval to enter into  negotiation and end when contracting personnel receive approval to  award the contract.
Contract Award: We consider the contract award phase to begin  when the approval to award the contract is given and to end when the  contracting officer signs the contract. In utilities privatization, as a part  of the contract award phase, the Secretary of the military department  makes a decision to convey the utility systems after the awardee has  been selected.
While the utilities privatization process must comply with relevant statutes  and regulations, it has certain unique attributes. According to DLA  Energy and military department officials, installations must conduct a  thorough inventory of the physical assets associated with the utility system (e.g., linear feet of water pipes and location, number and location  of gas valves, and the number and location of lift station pumps) as well  as the system’s workload data to inform the requirements document. This  is due to the fact that ownership of these physical assets will convey— i.e., be legally transferred—to the contractor after contract award.  Conveyance from the military installation to a regulated public sector  utility, such as a municipal water and wastewater authority, requires  additional approval from the state’s utility regulatory commission. Finally,  privatized utility services contracts are generally long-term, up to 50 years  in some cases. According to DLA Energy and military department  officials, these factors affect the consideration of requirements and  structure of the utilities privatization process in a way not normally found  in standard contracts and can affect the time required for discussions and  negotiations.

	Leading Practices for Lessons Learned

The use of lessons learned is a principal component of an organizational  culture committed to continuous improvement. Through lessons learned,  DOD can continuously look for ways to make improvements to the utilities  privatization program to shorten the time to award and enhance  effectiveness and efficiency. Collecting and sharing lessons learned serve  to communicate knowledge more effectively and to ensure that beneficial  information is factored into planning, work processes, and activities. This  process also provide a powerful method of sharing ideas for improving  work processes, facility or equipment design and operation, quality, and  cost-effectiveness. Leading practices of a lessons learned process  identified by GAO and others include collecting, analyzing, validating,  saving or archiving, and disseminating and sharing information and  knowledge gained on positive and negative experiences. Figure 4 shows  this process.

	Prior GAO Work

Since 2005, we have issued four reports that assessed various aspects of  DOD’s utilities privatization efforts:  In May 2005, we identified several management weaknesses in  DOD’s implementation of the utilities privatization program. For  example, we identified a number of concerns, such as the reliability of  the economic analyses associated with privatization decisions and the  adequacy of contract oversight. We made eight recommendations to  help ensure the reliability of economic analyses and improve the  utilities privatization guidance and procedures, among other things.  DOD non-concurred with seven recommendations and partially  concurred with one recommendation in its response to the report;  however, DOD has since implemented all but one recommendation.
In September 2006, we reported that DOD’s progress in implementing  the utilities privatization program had been slower than expected and  management concerns remained. For example, the targeted time  frame for program implementation was delayed by 6 years and  concerns remained about the reliability of economic analyses used to  support privatization decisions. We made seven recommendations to  improve DOD’s management of utilities privatization. DOD generally  concurred with and implemented six of these recommendations.
In July 2015, we identified that DOD faces challenges in implementing  utility resilience efforts, such as collecting and reporting  comprehensive utility disruption data, and developing cybersecurity  policies for its industrial control systems. We made four  recommendations to clarify utility disruption reporting guidance,  improve data validation steps, and address challenges to  cybersecurity industrial control systems. DOD concurred or partially  concurred with all but one recommendation and implemented three  recommendations.
In September 2018, we reported that DOD lacked guidance to  develop performance metrics and implement cybersecurity  requirements for privatized utility services contracts. We made two  recommendations to provide guidance for development of metrics to  track utilities privatization contract performance, and what constitutes  covered defense information as it related to utility services contracts.  DOD concurred with and implemented both recommendations.
Concerns about the length of time to award contracts are not limited to  utilities privatization. For example, in July 2018, we reported that although  DOD proposed reducing the time it takes to award weapon systems  contracts, the department has limited understanding of how long it  currently took and therefore lacked a baseline to measure success. We  also found that, according to contracting officials, factors such as the  quality of proposals, prospective offeror responsiveness to agency  request for additional information, and complexity of the technical requirements can add or reduce the time required for evaluation of  proposals. We recommended that, to assess time frames for awarding  contracts, DOD should develop a strategy to determine what information  it should collect and how to use that information. DOD concurred and  implemented the recommendation.

Time to Award Privatized Utility Services Contracts Is Lengthy and Affected by a Number of Factors

The time to complete the utilities privatization pre-award process  generally took an average of 4 years from issuing the solicitation to  awarding a contract for utility services for the contracts we assessed.  Utilities privatization officials acknowledged that the process is lengthy,  but DOD does not maintain complete data on key steps in the process,  including when the process to consider privatization of a utility system  began and the time needed to conduct acquisition planning.  Consequently, it is not possible to determine the entire time to complete  privatization of a utility system. In addition, the time to complete a specific  utilities privatization effort may be affected by a number of factors. These  factors can include changes to internal or external requirements, the  technical complexity of the individual effort, the continuity of personnel  involved in the effort, and command support for privatization.

	Time to Complete Utilities Privatization Is Lengthy and Data for Each Phase of the Process Is Not Available

The 21 new contracts for privatized utility services awarded from fiscal  years 2016 through 2018 generally took an average of 4 years from the  time the DOD component issued a solicitation to when the contract was  awarded. Utilities privatization officials acknowledged that the process is  lengthy. They stated that it is due, in part, to the long-term nature of the  contracts—that can be up to 50 years—and the complexity of the  contracts. The entire pre-award contracting process could be longer, as  we found that, with the exception of the one Navy-awarded contract we  reviewed, DOD does not maintain complete data for every phase of the  process. The data DOD does not maintain includes key events in the  acquisition planning phase, specifically, when the military departments  began considering privatizing a specific utility and when the requirements  packages—a complete inventory of the associated infrastructure, such as  pipes, wires, and valves—were available to use in the solicitation. Table 3  presents the available information on the average time to complete the  five phases of the pre-award contracting process identified by GAO for  the contracts we assessed.
As indicated in table 3, even after excluding the time needed to conduct  acquisition planning, there is wide variation in the average time taken  from when contracting officials issued the solicitation to when they  awarded the privatized utility services contracts. For example, NAVFAC  took more than 92 months—or more than 7 years—to award its contract  to privatize the Naval Air Station Key West wastewater system. The total  time required to award the contract included a 30-month period during  which the privatization effort was paused to evaluate alternative paths to  meet new Florida wastewater regulations. Navy officials stated that our  timeline should not include the 30-month period because the pause did  allow any additional work to be accomplished to prepare for contract  award. After determining that privatizing the utility system remained the  most effective approach, however, the Navy resumed evaluating revised  proposals that had been received in response to the amended original  solicitation. DLA Energy took, on average, about 45 months—or nearly 4  years—to privatize utility systems and make awards for the 19 contracts it  was responsible for. In contrast, the Air National Guard awarded a non- competitive contract to privatize the wastewater system at Truax Field in  Wisconsin to a local utility provider in about 6 months. However,  according to Air National Guard officials, the local utility provider already  maintained the infrastructure for the installation and had previously  conducted an assessment of the installation wastewater system used to  finalize the privatization requirements. While Air National Guard officials  could not provide a date as to when they began to consider utilities  privatization, they stated that they spent more than 70 months in  acquisition planning before issuing the solicitation due, in part, to  unfamiliarity with the utilities privatization process.
While no provision of the regulations or policies governing utilities  privatization that we reviewed require DOD contracting activities to collect  data on the time to complete each phase of the pre-award process, since  2014, DLA Energy officials have attempted to maintain such data for all  the contracts for which they were the contracting agent. However, DLA  Energy did not maintain data for the completion of milestones within the  acquisition planning phase carried out by the military departments. In  2014, DLA Energy officials, with input from Army and Air Force utilities  privatization officials, established milestones to plan and monitor key pre- award contracting activities, including a target time to complete each  milestone. DLA Energy and military department officials noted that these  data help provide insight into, and accountability for, the progress made  or challenges encountered during the pre-award process. However, the  usefulness of these data are limited because the military departments  must provide time frames for the front end of the process and have not  done so. We found that a number of factors can affect the time to  complete pre-award contracting activities, but for the purpose of  establishing milestones to monitor these activities, DLA Energy varied the  number of milestones and time frames to complete specific activities  depending on whether the contract was competitively awarded and the  number of proposals received. While table 3 shows the average time it  took to complete pre-award phases by contracting agent for the contracts  in our audit scope, figure 5 shows the milestones used by DLA Energy for  competitive and non-competitive awards and the target time frames DLA  Energy established for each milestone.
DLA Energy officials noted that the time frames for the first three steps in  the process—determining that one or more utility systems on an  installation should be considered for privatization through when the  military department provides DLA Energy a complete requirements  package—are determined by the military departments. The military  departments have not established target time frames for these activities,  but have taken steps to understand factors that affect the time frames,  which we discuss later in this report.
DLA Energy and military department officials noted that despite the  limitations in the data, this information has helped them provide better  management oversight of the process. A DLA Energy official stressed  that the target time frames are meant to improve contract award time  frames, incentivize performance, and provide accountability, and that they  do not expect every contract to meet targets due to the complex nature of  utilities privatization. Nevertheless, DLA Energy and military department  officials stated that implementation of the milestones helped reduce the  amount of time needed to award privatized utility services contracts. Our  analysis of the 18 competitive utility services contracts awarded by DLA  Energy from fiscal years 2016 through 2018 indicates that the average  time from receipt of requirements to contract award has decreased. For  example, our analysis indicated that DLA Energy took an average of  nearly 61 months from receipt of requirements to competitively award  eight contracts related to solicitations issued prior to 2014. Once the  milestone tracking process was initiated in 2014, our analysis indicates  that DLA Energy took an average of about 35 months from receipt of  requirements to competitively award 10 privatized utility services  contracts (see fig. 6).
Of the 10 privatized utility services contracts DLA Energy awarded since  the process was initiated in 2014,  two met or exceeded DLA Energy’s target time frame;  six were awarded within 6 months of the target time frame; and  two were awarded over a year longer than the target time frame.

	Multiple Factors Affected Length of Time to Award Privatized Utility Services Contracts

DLA Energy and military department officials identified several factors  that, individually or collectively, could affect the time to award a privatized  utility services contract. These factors include the extent to which internal  or external requirements remain stable, the technical complexity of the  privatization efforts, the continuity of personnel involved in the effort, and  command support for privatization.
Changes to Internal or External Requirements. According to a  utilities privatization official we interviewed, unexpected changes to  requirements may affect the time to award a utility services contract.
For example, Navy officials stated that Naval Air Station Key West  initiated efforts to privatize its wastewater treatment facilities in August  2007 to meet new Florida wastewater regulations by the compliance  deadline of July 2010. A Navy installation official stated that they  determined that they would be challenged to meet the new regulations  with existing facilities and could not upgrade those facilities to meet  the new standards due to inadequate personnel and funding. After the  Navy issued the original wastewater solicitation in March 2008, the  state extended the required compliance date to December 2015. As a  result, installation and Navy officials reconsidered utilities privatization  and assessed whether the extended deadline would allow them to  reach compliance without privatization. After evaluating alternative  paths of action to ensure compliance with the new Florida wastewater  regulations, installation and Navy officials determined it remained in  the best interest of the installation to proceed with the solicitation and  contract award.
Wright-Patterson Air Force Base officials stated that after they issued  their solicitation for privatization of water systems, installation officials  discovered that two of the wells were contaminated by firefighting  foam. This foam, used to extinguish aircraft fires, contained chemicals  which washed off runways and seeped into the groundwater.  According to installation officials, concentrations of these chemicals  exceeded non-regulatory lifetime health advisory levels, prompting the  installation to remove the chemicals before distributing the water for  use on base. To address the problem immediately, installation officials  reported that they engaged with the Air Force Civil Engineer Center to  fund a project to modify the existing water treatment plant to remove  the chemicals before distributing the water for use; they could not wait  for the award of the utility services contract. Installation officials stated  the modification to the water treatment plant included the construction  of a building to house a large filtration system to remove the  contaminant. These officials also stated the modified water treatment  plant was then included in the requirements package for the utilities  privatization effort.
DLA Energy officials stated that a change to the requirements  included in utilities privatization efforts was a frequent occurrence. As  this information is central to determining the technical requirements  and the cost estimate, changes to an inventory can affect the length of  time spent in acquisition planning and in discussions and negotiations.  Army officials stated that completion of the list of inventory to be  privatized is a time-consuming process as records of the amount of  pipes, valves, wires, facilities, or other items is often incomplete. Army  and Air Force officials indicated that often multiple surveys of  inventory are conducted by both the military departments and the  contractor selected to maintain the utility system to finalize  requirements. Officials reported that this is because, in part, a final  and complete inventory is required so that after award the government  can finalize the bill of sale and convey those systems to the utility  services contract(s) provider(s).
Technical Complexity. According to utilities privatization officials, the  technical complexity of the utilities privatization effort can also affect  how long it takes to award a utility services contract. At Fort Riley,  DLA Energy officials, installation officials, and contractor  representatives shared with us that the complexity of the regulated  environment of some utilities had an effect on the time to award. For  example, a contractor representative stated his regulated utility  company was one of the potential contractors vying for a utility  services contract at Fort Riley, and this required additional approval  from the state’s utility regulatory commission. DLA Energy officials  stated and the contractor representative stated that this additional  complexity led to a prolonged negotiation and discussion effort as his  company sought additional information about the asset inventory to  create what it perceived to be a quality proposal for both the utility  services contract and its utility regulatory commission. Our analysis of  DLA Energy data found that for the majority of the contracts, the  discussion/negotiation phase required the longest amount of time  during the pre-award contracting process. The time to award for this  utility system took one year longer than other utility systems privatized  on the same installation.
Continuity of Personnel. Utilities privatization officials we  interviewed stated that the continuity of personnel involved in the  process is critical to awarding a contract in a timely manner. For  example, at Naval Air Station Key West, officials told us that staff  turnover was prevalent at all levels multiple times during the utilities  privatization process. These officials noted this turnover was due, in  part, to the isolated location of the installation, which made it difficult  to recruit and retain both civilian and military staff. They also noted  that in turn, this turnover of staff led to loss of knowledge and  dispersion of data. During our visit, we observed that installation staff  had difficulty locating documentation and had limited knowledge of  what occurred during the pre-award contracting process at the  installation. Officials explained that this was due, in part, to the loss of  some documentation due to flooding and the management of the  process by other commands. In contrast, installation and contracting  officials at Fort Riley stated that there was no turnover in the  installation staff during the pre-award contracting process and no  turnover in the DLA Energy contracting staff once they took  responsibility for administering the utility services contracts. Officials  at Fort Riley stated that with continuity of staff, knowledge and  working relationships were built and maintained. DLA Energy awarded  utility services contracts for three utility systems in a comparatively  quick time frame compared to the other contracts in our analysis.
Command Support for Privatization. Utilities privatization officials  stated that the support of the installation’s command leadership can  facilitate award of a utility services contract. For example, officials at  Fort Riley said the installation commander and director of public works  department fully supported utilities privatization as the solution to the  installation’s failing utility systems. These officials noted that due to  this desire to privatize utility systems, the senior installation leadership  openly communicated its goals and support of privatization throughout  the pre-award contracting process. For example, Fort Riley officials  stated that public works department staff assigned to work on the  utilities privatization effort were sequestered or removed from all other  assigned responsibilities. Installation officials stated this allowed the  employees to focus on the utilities privatization tasks. According to  Fort Riley officials, this leadership support was a factor in reducing the  time to contract award. According to our analysis, the utility services  contracts for Fort Riley were awarded more quickly than the majority  of the utility services contracts we assessed at other installations. In  contrast, officials at Wright-Patterson Air Force Base said their  leadership was reluctant to fully support utilities privatization. While  senior military department leadership directed the installation to  privatize its utility systems, installation leadership was reluctant to do  so due to concerns of job loss for public works department employees  and perceived loss of flexibility in installation operations and  maintenance funding. Installation officials stated that this reluctance  was one factor in the amount of time it took to make the contract  awards. According to our analysis, the contracting award process for  the three utility systems at that location took longer than the majority  of the utility services contracts we assessed at other installations.

DOD Generally Demonstrated Leading Practices for Lessons Learned to Improve the Utilities Privatization Pre- award Process, but Lacks Key Data and Archive for Lessons

DOD is generally applying leading practices in its efforts to improve the  timeliness of the utilities privatization pre-award contracting process, but  is missing opportunities to analyze the effects of its changes and to better  share the information with stakeholders. ASD(Sustainment), the military  departments, and DLA Energy have taken, or plan to take, actions that  demonstrate or partially demonstrate four of the five leading practices  identified by GAO and others. However, despite the breadth of activities  performed and planned by DOD, the department lacks key data it needs  for further analysis and validation of the pre-award contracting process as  well as a repository for archiving lessons learned for future stakeholders  to access.
ASD(Sustainment), the military departments, and DLA Energy have taken  actions to implement lessons learned, in part, to reduce the time it takes  to award contracts. We assessed whether these actions demonstrated,  partially demonstrated, or do not demonstrate each of the five leading  practices for implementation of lessons learned identified by GAO and  others. Demonstration of these leading practices is critical to ensuring  that lessons learned endure and that processes are improved. In  reviewing ASD(Sustainment), military department, and DLA Energy pre- award documentation and interviewing knowledgeable officials, we found  that all the DOD entities fully demonstrated the third leading practice— which is to validate the applicability of lessons—and demonstrated three  other leading practices to varying degrees. None of these entities,  however, demonstrated the store and archive leading practice (see table  4).
Collect information. The collect information leading practice involves  capturing information about events in the area of interest, which can be  achieved through various methods. ASD(Sustainment), the military  departments, and DLA Energy officials told us that they collect  information for utilities privatization lessons learned through activities  such as data calls, working groups, workshops, studies, conferences, and  meetings.
Specific examples of DOD demonstrating this leading practice are as  follows:
According to an ASD(Sustainment) official, since about 1997, their  office has sponsored a monthly Utilities Privatization Working Group  attended by representatives of the military departments and DLA  Energy officials. The purpose of the working group is to provide a  collaborative forum to adjudicate issues and share lessons learned  from utilities privatization activities. For example, topics of discussion  on the April 2019 agenda included issues or challenges associated  with developing an execution framework, methodologies to implement  utilities privatization guidance, and updates on current utilities  privatization activities from the military departments and DLA Energy.
In 2019, ASD(Sustainment) added a requirement to its guidance for  an annual utilities privatization program review with each military  department to address portfolio lessons learned. According to  ASD(Sustainment) officials, their office, the military departments, and  DLA Energy officials plan to work together to develop a strategy for  complying with the guidance.
According to an Army official, the Army established a tri-military  department annual Utilities Privatization Post-award Workshop in  2014 that discusses post-award issues among the military  departments, DLA Energy, and contractors. Each military department  has hosted a workshop. For example, the Navy hosted the November  2018 post-award workshop, which included updates by the military  departments and DLA Energy on their utilities privatization activities,  including some lessons learned.
The Navy commissioned a study in 2016 to help reestablish its utilities  privatization program and reduce life-cycle expenditures on  infrastructure, including utility systems. The study examined the  costs, benefits, and existing policies for private versus government  facilities ownership and recommended changes to the Navy’s  processes for utilities privatization. The study led to, among other  things, the creation of Navy-specific utilities privatization guidance.  According to a Navy official, they will establish a community of  practice in partnership with DLA Energy to provide a quarterly forum  for NAVFAC officials to share lessons learned and discuss utilities  privatization problems and solutions.
DLA Energy hosts the biannual DLA Energy Worldwide Energy  Conference to provide personnel of the military departments, DLA  Energy, and contractors the opportunity to learn from each other and  top industry experts on the latest trends and initiatives in energy,  including utilities privatization. DLA Energy also participates in the  annual Department of Energy Annual Energy Exchange Conference.  For example, in 2019 it participated in a discussion panel on utilities  privatization.
These efforts to collect information and lessons learned are positive;  however, as discussed earlier in this report, DOD lacks complete and  consistent information on the time to award utility services contracts.  Reducing the amount of time to award these contracts is a stated goal of  DOD. ASD(Sustainment) issues annual data calls to the military  departments to collect information such as the number of utility systems  privatized by military department, the authority under which a privatization  took place, and award dates for the utility services contracts. DLA Energy  and military department officials indicated that collecting this information  has contributed to efforts to reduce the amount of time needed to award  utility services contracts. They acknowledge, however, that the military  departments do not collect information on the formal decision to consider  privatization of utility systems and the length of time to conduct key  acquisition planning activities, such as developing a complete inventory of  physical assets to document its requirements. The requirements package  is a key component in the pre-award contracting process and includes an  inventory of the utility system. This inventory includes items such as the  pipes, valves, and wires that make up the utility system. Consequently,  neither DLA Energy nor the military departments, with the exception of  the Navy, had reliable information on the entire time it took to complete  the pre-award contracting process. Without data on the key tasks that  need to be completed during the pre-award contracting phase, DOD is  missing an opportunity to assess the extent to which updated guidance,  training, and other ongoing efforts are having an effect on the time to  award utility services contracts. In recognition of this, an Air Force official  stated that the Air Force Civil Engineer Center recently implemented a  schedule-tracking mechanism to capture these dates, which will be used  with all new utilities privatization efforts. Collecting this information  consistently across all military departments would allow for a more  thorough analysis of contracting process information and could support  future process improvement efforts.
Analyze information. The next leading practice is to analyze the  information collected to determine root causes and identify appropriate  actions.
Examples of DOD demonstrating the information analysis leading practice  include:
According to DLA Energy officials, in 2014, they reviewed and  analyzed historical data from utility services contracts to revise the  utilities privatization procurement time frame. As mentioned  previously, this analysis led to the development of milestones and  associated time-based targets to achieve each milestone, based on  the number of proposals received, to reduce the pre-award  contracting process. According to a DLA Energy official, the agency  coordinated with its contractor support, and Army and Air Force  program management offices to establish the time-based targets. In  May 2014, the Air Force conducted a utilities privatization process  improvement review with DLA Energy, among others, to streamline  the utilities privatization process. The review allowed the Air Force to  reduce the planned timelines for the utilities privatization pre-award  contracting process, which DLA Energy administers on behalf of the  Air Force, between the issuance of competitive solicitations to award  by 14 months to 33 months. Similarly, in October 2014, the Army  conducted a utilities privatization process improvement review with  DLA Energy with a goal to reduce the time needed from issuance of a  competitive solicitation to award of utility services contracts to less  than 36 months. Army and DLA Energy officials identified  opportunities for process or program improvement during the review.  Overall, adopted changes reduced the planned timelines for the  utilities privatization pre-award contracting process by approximately 5  months to 31 months.
An Air Force official stated that lessons learned are collaboratively  shared annually and have revealed lessons learned to improve the  contracting process. This has led to updates of Air Force request for  proposals template.
The 2016 Navy study not only collected data on utilities privatization  but also provided analysis to understand the opportunities, costs, and  benefits associated with privatization. The Navy used the study to  enable decisions about whether privatization is the appropriate  strategy to reduce life-cycle expenditures on utility infrastructure. The  analysis performed for the study resulted in multiple products and  findings. For example, the Navy created an Excel-based tool to  consolidate utility data, organize data, and prioritize installations for  evaluation of the potential to privatize.
ASD(Sustainment) revises its utilities privatization guidance and  procedures based on lessons learned and changes in laws and  regulations. For example, we found that DOD responded to industry  feedback by standardizing and clarifying request for proposal  templates used in utilities privatization.
Based on our analysis, the military departments and DLA Energy fully  demonstrated the leading practice for analyzing information, and  ASD(Sustainment) partially demonstrated the leading practice. According  to DOD, ASD(Sustainment) is responsible for overseeing progress  tracking and goal setting for utilities privatization across the department.  Therefore, analysis for performance across the department on the time it  takes to award utility services contracts is its responsibility. As mentioned  previously, while ASD(Sustainment) collects data on the number of utility  systems privatized by military departments and award dates for the utility  services contracts, it is missing information about key pre-award  contracting activities. In the absence of this information,  ASD(Sustainment) cannot fully analyze the department’s utilities  privatization activities for further lessons learned to help reduce time  frames for awarding contracts.
Validate applicability of lessons. Once collection and analysis have  identified the lessons learned, the next leading practice is to validate that  the right lessons have been identified and determine the scope of their  applicability. Subject matter experts or other stakeholders may be  involved in this step of the process.
Examples of DOD’s demonstration of the validation leading practice  include:
ASD(Sustainment) officials noted that they assess the applicability of  lessons by periodically revisiting and revising utilities privatization  guidance. These officials said they revised such guidance, for  example, in 2002, 2005, 2010, and 2019 to incorporate lessons  learned from stakeholders across the process.
According to an Army official, the Army periodically assesses the  applicability of lessons learned by revising its utilities privatization  acquisition process based on the Army’s strategic direction, military  department meetings, and utilities privatization policy changes. This  included the utilities privatization acquisition process improvement  review with DLA Energy to reduce the time needed to award utility  services contracts.
According to the 2016 Navy study, contractors conducted interviews  to validate data, obtain supplementary data, and ascertain qualitative  information. In addition, contractors interviewed Air Force and Army  utilities privatization representatives to garner lessons learned and  understand other DOD components’ approaches to utilities  privatization. One result of the study was development of a repeatable  methodology and framework, based on specific lessons learned, that  can be used to evaluate candidate sites for utilities privatization. In  addition, according to an official, the Navy is using the lessons  learned from its study to develop its new utilities privatization  handbook, a draft of which emphasizes the need throughout the  process for the collection, documentation, and sharing of lessons  learned to help future installations and refine the utilities privatization  program. According to the Navy, it plans to update the handbook on  an ongoing basis to reflect lessons learned from its pilot program with  DLA Energy, and with the Army and Air Force utilities privatization  programs.
An Air Force official stated that over an 18-month period they  assessed their utilities privatization process and developed a new,  comprehensive utilities privatization process for pre-award contracting  activities. The Air Force determined the scope of the applicability of  lessons learned when it revised its draft utilities privatization playbook  to incorporate this new process.
DLA Energy revised how it monitors the utilities privatization process  based on its analysis of historical utilities privatization data. DLA  Energy officials said they validated these changes by testing the  milestones and associated targets on a 2014 Army utility services  contract and found them to be reasonable. Army and Air Force  officials agreed with the assessment. DLA Energy officials stated that  they also determined the scope of the applicability of lessons learned  by determining to whom and what the lessons learned applied, and by  taking actions to continually revisit and revise its templates and  procedures. For example, we found that the fiscal years 2012 and  2016 versions of the request for proposals template reflected changes  for both the Army and Air Force but we could not determine if they  were the result of lessons learned. We also identified revisions DLA  Energy made to incorporate lessons learned into operating manuals it  uses for the utilities privatization process. For example, a DLA Energy  official noted that the agency revised its risk evaluation manual to  improve the quality of the risk evaluations the source selection  evaluation board performs.
Store and archive lessons. The archiving of lessons learned involves  the use of a repository, used to disseminate and share information. As  appropriate, these repositories should have the capability to store and  share data and to secure classified, sensitive, or proprietary data.  Archiving lessons learned should remain an ongoing process; otherwise,  it risks becoming cumbersome and irrelevant.
Our observations on DOD’s efforts to store and archive information on  utilities privatization include:
According to Air Force officials, the Air Force does not currently store  or archive lessons learned for pre-award contracting activities. The Air  Force Portfolio and Asset Control and Evaluation System stores and  archives lessons learned for post-award contracting activities. The  system is available to Air Force, DLA Energy, and other stakeholder  agencies like the General Services Administration, but not to other  military departments. To populate the database, the Air Force Civil  Engineer Center portfolio management division uploads utilities  privatization documents into the system, including weekly status  reports, briefings, and meeting notes for post-award contracting  activities. The system also records lessons learned and provides a  social media discussion platform, known as the Contracting Officer’s  Representative Toolbox. Our review of the system determined that it  is not widely populated. Specifically, as of December 2019, the  system contained seven lessons learned, three discussion postings,  and five documents in the Toolbox. According to Air Force officials,  however, this system was not intended to be a repository for storing  and archiving lessons learned for pre-award contracting activities and  acknowledged that the Air Force does not currently have another  means to do so.
According to DLA Energy officials, they do not maintain a specific  repository for storing and archiving lessons learned for utilities  privatization pre-award contracting activities but make their revised  templates and procedures—that they believe generally reflect key  lessons learned—available to stakeholders for utilities privatization on  a website. According to a DLA Energy official, the website is open to  anyone that can access DLA.mil, but most of the content is intended  to assist contracting officer’s representatives in conducting their post- award contracting responsibilities.
The Army has one key official who has managed its utilities  privatization program activities for many years and has a substantial  amount of experience and institutional knowledge. This official  maintains utilities privatization files in hard copy—such as guidance,  memorandums, and relevant studies—therefore this information is not  readily available to all relevant stakeholders, such as the other military  departments. According to the Army official, the Army does not  maintain a repository for storing and archiving lessons learned for  utilities privatization pre-award contracting activities.
According to Navy officials, NAVFAC has a business management  system that provides for the management of business processes,  common practices, and process and quality improvement for NAVFAC  products and services. The system’s documentation is available for  use by all NAVFAC commands and links to applicable policies,  guidance, forms, and information so that work will be conducted in a  consistent manner. According to officials, this system is updated  annually or at significant process changes. However, the Navy is  currently developing a module for the business management system  for utilities privatization with an estimated completion date of March  2020. Navy officials stated that the module is expected to include pre- award contracting lessons learned when it becomes operational.
According to ASD(Sustainment) officials, they do not maintain a  repository for storing and archiving lessons learned for utilities  privatization pre-award contracting activities.
While ASD(Sustainment), the military departments, and DLA Energy  officials stated they incorporate lessons learned in various ways, including  when they revise policies and/or operating manuals, these officials  acknowledge that they do not maintain a repository for storing and  archiving lessons learned on specific utilities privatization pre-award  contracting efforts. DLA Energy officials, who support both the Army and  Air Force utilities privatization efforts, stated that revisions to templates  and guidance were sufficient to implement lessons learned. The leading  practices for lessons learned indicate that the use of a repository to store  lessons learned allows agencies to disseminate and share the lessons  learned. Without such a capability, ASD(Sustainment), the military  departments, and DLA Energy may be missing opportunities to capture  and share lessons learned that could benefit future utilities privatization  efforts, including helping DOD achieve its goal of reducing the length of  time to contract award.
Disseminate and share lessons. A critical step in any lessons learned  process is the sharing and disseminating of the knowledge gained.
Agencies can disseminate lessons in many ways, such as briefings,  bulletins, reports, emails, websites, database entries, the revision of work  processes or procedures, and training. Lessons can be “pushed,” or  automatically delivered to a user, or “pulled,” where a user searches for  them in an archive of lessons learned information.
Examples of DOD demonstrating the disseminating and sharing leading  practice include:
As previously noted when discussing the collection criteria, the DOD  officials we spoke with told us that they distribute lessons learned  during annual reviews, industry conferences, regular meetings,  workshops, training sessions, and working groups. The lack of  documentation and archiving of the lessons learned, however, limits  the ability of future users to search for and retrieve them.
DLA Energy officials stated that they share templates created for the  utilities privatization program with the military departments and  industry. According to an ASD(Sustainment) official, these users find  the information helpful and efficient as the templates can be  customized where necessary depending on the type of potential  contractor and solicitation and updated for lessons learned.  Additionally, DLA Energy revises its standard operating procedures  for the pre-award contracting process to incorporate lessons learned  and disseminate changes. DLA Energy also provides training for the  utilities privatization process, for example on the procedures  contracting officials should use to conduct negotiations and past  performance evaluations for utility services contracts.
As previously discussed, the Air Force Portfolio and Asset Control and  Evaluation System is a system used to store and disseminate lessons  learned for the post-award utilities privatization process. While used in  a limited fashion, the Contracting Officer’s Representative Toolbox  consists of a newsfeed and a documents file. The documents section  allows users to save and share helpful utilities privatization documents  with others. The system also contains a resource center to maintain  updated training tools and resources for project oversight including  frequently asked questions, best practices, and resolutions to project  issues. While the system has the ability to both “push” information to  users and allows for users to “pull” data by acting as an archive for  documentation, it is not available to Army and Navy utilities  privatization staff and does not currently contain lessons learned on  the pre-award contracting process.
We assessed DLA Energy as fully demonstrating, and ASD(Sustainment)  and the military departments as partially demonstrating, this lessons  learned criteria. While ASD(Sustainment) and military department officials  do disseminate and share lessons learned, the inability of future users to  search for and retrieve lessons learned limits their utility. For example, Air  National Guard officials stated that they were unfamiliar with the utilities  privatization process and encountered delays prior to releasing the  solicitation, in part, due to the need to obtain information about how to  execute the process. Having the capability for others to retrieve archived  lessons learned could potentially assist future stakeholders in the process  and help further shorten contracting award time frames.

Conclusions

DOD is taking steps to improve the effectiveness and efficiency of the  utilities privatization pre-award contracting process and these efforts have  contributed to decreasing the time needed to award utility services  contracts. In particular, Army and Air Force officials consistently noted  that DLA Energy’s establishment of a milestone-based system to track  the time to complete key steps in the pre-award contracting process in  2014 has helped provide better management oversight and improve  accountability. DOD, however, does not collect consistent information on  the time to complete key phases needed to award utility services  contracts. Specifically, DOD does not have information on when the  military departments identify that one or more utility systems on an  installation should be considered for privatization and when the  installation delivers a completed requirements package as part of the  acquisition planning phase. The lack of consistent data on these two key  events may hinder DOD’s efforts to identify additional opportunities to  reduce the length of time needed to award utility services contracts.  Similarly, DOD recognizes the importance of collecting and disseminating  lessons learned for the utilities privatization program, but currently lacks a  mechanism to archive lessons learned during the pre-award contracting  phase. As DOD has identified 580 utility systems that still may be  privatized, having such a capability for others to retrieve archived lessons  learned could potentially assist future stakeholders in the process and  help further shorten contracting time frames.

Recommendations for Executive Action

We are making two recommendations to the Secretary of Defense:  The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment collaborates with the military departments and  the Defense Logistics Agency to collect consistent information on the time  to complete key steps in the pre-award contracting process for privatizing  utility services. (Recommendation 1)
The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Sustainment collaborates with the military departments and  the Defense Logistics Agency to develop a mechanism to store and  archive lessons learned regarding the pre-award contracting process for  privatizing utility services. (Recommendation 2)

Agency Comments

We provided a draft of this report to DOD for review and comment. DOD’s  written comments are reproduced in appendix II. DOD partially concurred  with both recommendations and provided technical comments, which we  incorporated as appropriate.
DOD partially concurred with our first recommendation to collect  consistent information on the time to complete key steps in the pre-award  contracting process for privatizing utility services. DOD suggested that we  modify our recommendation to include other DOD contracting activities  that may support privatization efforts. Our recommendation, based on the  scope of our audit work, was intended to cover recent privatized utility  services contracting activities within the military departments, such as  Naval Facilities Engineering Command. But we agree that DOD should  include any activity that provides support for utilities privatization in its  efforts to collect better data.
Similarly, DOD partially concurred with our second recommendation to  develop a mechanism to store and archive lessons learned regarding the  pre-award contracting process for privatization of utility services. DOD  suggested that we modify our recommendation to include other DOD  contracting activities besides DLA and to recommend that DOD add the  lessons learned from the post-award contract process, as post-award  contract actions play a critical role in informing pre-award contracting  processes. As noted above, we agree that DOD should include any  contracting activities that support pre-award utilities privatization efforts.  Similarly, while our work did not specifically assess how post-award  activities could be incorporated into the lessons learned efforts, we agree  that doing so may provide additional insights that would benefit future  utilities privatization efforts.
In its technical comments, DOD disagreed with our presentation of the  time required by the Navy to privatize utilities at Naval Air Station Key  West. Specifically, DOD officials believed that we should exclude from our  calculations a 30-month period that occurred during the solicitation phase  in which it evaluated alternative paths to comply with new Florida  wastewater regulations. DOD noted that this pause did not allow any  additional work to be accomplished towards contract award. We had  identified this pause and the rationale underlying the Navy’s decision to  do so in the draft report. We continue to believe it is appropriate to reflect  this period in our calculations as the Navy did not cancel the original  solicitation and, after deciding to continue to pursue the privatization  efforts, evaluated the offerors’ proposals that had been previously  received prior to the pause and subsequently awarded the utility services  contract based on that solicitation. In that regard, we consider the change  in the date by which the Navy had to comply with Florida’s wastewater  regulations to be a relevant example of one of the many external factors  that can affect the time needed to privatize utilities at a military  installation. We did, however, reflect DOD’s disagreement with our  characterization where appropriate in the report.
We are sending copies of this report to the Secretary of Defense; the  Under Secretary of Defense for Acquisition and Sustainment; the  Assistant Secretary of Defense for Sustainment; the Secretaries of the  Army, Navy, and Air Force; the Director, Defense Logistics Agency;  appropriate congressional committees; and other interested parties. This  report will also be 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) 512-4841 or by e-mail at dinapolit@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Key contributors to this report are  listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

A House Armed Services Committee report accompanying the National  Defense Authorization Act for Fiscal Year 2019 included a provision that  we review the Department of Defense’s (DOD) utilities privatization pre- award contracting process (which includes awarding a contract), including   lessons learned to improve the process. This report examines (1) the  length of time to award contracts for utility services and factors that affect  it, and (2) the extent to which DOD is demonstrating leading practices to  collect and disseminate lessons learned for utilities privatization.
To determine the length of time to complete the pre-award contracting  process to award a privatized utility services contract, we focused on  utility services contracts awarded from fiscal years 2016 through 2018,  the latest full year of available data when we began our audit. The time  frame captured at least one privatized utility services contract for each  military department—Army, Air Force, and Navy. To identify these  contracts, we used information maintained by the Office of the Deputy  Assistant Secretary of Defense for Energy, which is part of the Office of  the Assistant Secretary of Defense for Sustainment (ASD(Sustainment))  on its utilities privatization master list, which includes such information as  installation name and location, and when the contract was awarded.
For fiscal years 2016 through 2018, a comparison of the  ASD(Sustainment) information and solicitation details provided by the  awarding contracting agents identified 28 utility systems at 15 military  installations that were privatized during our time frame through 21  contracts. Nineteen of the 21 contracts were awarded using competitive  procedures and the remaining two were awarded without providing for full  and open competition, which we refer to as non-competitive. Of the 19  competitive awards, 18 were awarded by the Defense Logistics Agency  Energy (DLA Energy), which served as the contracting agent for the  majority of the Army and Air Force utility services contracts during our  review period; and one was awarded by the Naval Facilities Engineering  Command, the contracting agent for the Navy and Marine Corps. The two  non-competitive contracts were awarded by DLA Energy and the Air  National Guard, respectively.
For the purposes of our review, we define the pre-award contracting  process as the date from when a military department begins to consider  privatizing an installation’s utility system(s) to the contract award date. For  all 21 privatized utility services contracts awarded between fiscal years  2016 through 2018, we obtained copies of the award documents. In  addition, for the 19 competitively awarded utility services contracts, we  conducted contract file reviews to record completion dates of pre-award  contracting phases and number of proposals received by utility. For the  18 DLA Energy competitive awards, we conducted two on-site reviews of  the contract files at a DLA Energy facility to verify the dates and  proposals. At the final DLA Energy contract file review, one analyst  located and recorded each relevant document and date confirming  completion of the pre-award contracting phase, as well as the offer  information. A second analyst verified the accuracy of the information.  After correcting certain errors, such as incorrectly recorded dates, we  determined that this information was sufficiently reliable for purposes of  reporting on the length of time to conduct pre-award contracting activities.
The Navy provided electronic documents for us to review for its one  competitive award. A similar verification process was conducted for the  Navy information. For the Air National Guard contract, we obtained the  contract and additional information from contracting officials on the time to  complete the pre-award contracting process. To supplement this data, we  interviewed Air National Guard contracting officials involved in the  contract.
To compare information on the factors that affected the length of time to  award utility services contracts, we:
Analyzed dates of comparable events throughout the pre-award  contracting process found in the utilities privatization award contract  files; and
Conducted site visits to speak with DLA Energy, installation, and  military department officials, and contractor representatives about  their experiences with the utilities privatization pre-award contracting  process.
We combined a record of all utilities privatization pre-award contracting  information into one file. We used this file to compare time to award for all  pre-award contracting activities. This data was further compared by  competitive and non-competitive status, contracting agent, military  department, type of utilities in the proposals, number of utilities in the  proposals, and the size of the installation by acreage. The size of each  installation was found in the DOD Base Structure Report – Fiscal Year  2017 Baseline, A Summary of the Real Property Inventory. However, due  to the small number of contracts we assessed, we were unable to  determine if there were any patterns to corroborate whether the factors  such as the type of utilities in the proposals, number of utilities in the  proposals, and the size of the installation did or did not affect time to  contract award.
To determine if there was a change in time to award after the  implementation of DLA Energy’s 2014 time frames for pre-award  contracting activities, we compared the time elapsed between receipt of  requirements and award for competitively awarded privatized utility  services contracts. The analysis does not reflect seven solicitations  issued between fiscal years 2013 and 2018 as they were awarded, or  were expected to be awarded after September 30, 2018, and are outside  our audit scope. Using data obtained from DLA Energy, however, we  determined that the awards or projected awards of these seven contracts  generally follow the trend shown in our analysis.
To gather information on the factors that affected the time from the  decision to enter the utilities privatization process to contract award, we  selected a non-generalizable sample of three installations to visit. The  installations were selected from a list supplied by the Office of the Deputy  Assistant Secretary of Defense for Energy of installations privatized from  fiscal years 2016 through 2018. To obtain a variety of utilities privatization  characteristics, we selected the installation visits based on the following  criteria: (1) representation of each military department; (2) types of utility  system privatized (electric, natural gas, water, and wastewater); (3)  geographic location of installation; and (4) fiscal year of award. The  contract awards for all installations visited were awarded using  competitive procedures.
Prior to our visit to the three installations, we analyzed contract file  documentation and spoke with utilities privatization individuals at military  department and DLA Energy headquarters. At the three installations, we  conducted interviews with officials at the installation command, public  works department, and contracting officials, and contractor  representatives to obtain perspectives on their utilities privatization in  general and specifically on the factors that affected the time to contract  award. We conducted our non-generalizable site visits from May 2019 to  July 2019 at (1) Naval Air Station Key West, Florida, (2) Wright-Patterson  Air Force Base, Ohio, and (3) Fort Riley, Kansas. No Marine Corps  installations were privatized from fiscal years 2016 through 2018. In  addition, we spoke with contracting officials from the Air National Guard at  Truax Field in Wisconsin. The results of this selection are not  generalizable to all utility services contracts or military installations, but  provide insights and illustrative examples regarding factors that affect  timing in the contract award process used to privatize utility systems.
To determine the extent to which DOD demonstrated leading practices  identified by GAO and others for collecting and disseminating lessons  learned, we compared DOD’s activities related to lessons learned against  the five leading practices identified in our prior work to determine whether  DOD demonstrated actions consistent with these practices. We then had  a second analyst check the same documents and activities to verify our  initial results. These leading practices for lessons learned are discussed  in a September 2012 GAO report, Federal Real Property Security:  Interagency Security Committee Should Implement a Lessons-Learned  Process; and a December 2018 GAO report, Project Management: DOE  and NNSA Should Improve Their Lessons-Learned Process for Capital  Asset Projects. We compared DOD’s lessons learned documentation,  including the Air Force’s lessons learned database, DLA Energy’s utilities  privatization website and operating manuals, the military departments and  DLA Energy contracting process policies and procedures, and Air Force  and Navy utilities privatization handbooks against these practices. Based  on our analysis, we assessed whether DOD fully (met all of the criteria),  partially (met part of the criteria), or did not (met none of the criteria)  demonstrate the leading practices. To determine the actions that DOD  has taken to learn lessons from the utilities privatization pre-award  contracting process and demonstrate leading practices, we interviewed  officials from ASD(Sustainment), the military departments, and DLA  Energy; obtained and analyzed documents; and attended the 2019 DLA  Energy Worldwide Energy Conference to gain a greater understanding of  utilities privatization.
We conducted this performance audit from March 2019 to April 2020 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact Staff Acknowledgments

Timothy J. DiNapoli, (202) 512-4841 or dinapolit@gao.gov  In addition to the contact named above, J. Kristopher Keener (Assistant  Director), Joe E. Hunter (Analyst-in-Charge), Stephanie Gustafson, Gina  Hoover, Tamera Lockley, Roxanna T. Sun, Anne Louise Taylor, Kari  Terrio, and Kristy Williams made key contributions to this report.


Input:
	Introduction

According to a 2019 study, 2 million Americans lack access to running water, indoor plumbing, or wastewater services. Many of the communities with inadequate water supply infrastructure are in rural areas or on tribal lands. Over time, Congress has authorized projects and programs through various federal agencies to address rural water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other federal agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands.
Reclamation was established to implement the Reclamation Act of 1902, which authorized the construction of water works to provide water for irrigation in arid western states. Reclamation owns and manages 491 dams and 338 reservoirs, which are capable of storing a combined 140 million acre-feet of water. Reclamation has incorporated M&I water resource projects into larger projects that serve various other authorized purposes (e.g., irrigation, power). Reclamation-funded M&I water deliveries total approximately 10 trillion gallons of water per year. As part of Reclamation's M&I responsibilities, Congress has expressly authorized the agency to undertake the design and construction of rural water supply projects intended to deliver potable water supplies to defined rural communities.
From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and in some cases the operations and maintenance (O&M), of specific projects intended to deliver potable water supplies to rural communities in western Reclamation states. These projects were largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities include tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scopeâtaking water from one location and moving it long distances to tie to existing systems. M&I portions of Reclamation water supply facilities typically require 100% repayment of construction costs to the federal treasury with interest. Congress also has authorized rural water projects that receive funding from the federal government for some or all costs on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of the cost of tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%.
The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending rural water supply projects. This program was to replace the previous process of authorizing projects individuallyâoften without the level of analysis and review (e.g., feasibility studies) consistent with Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific projects for construction in legislation. Ultimately, Congress did not authorize any projects for construction through this process, and the authority for the program expired in 2016.
Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) that were authorized and initiated outside of the Rural Water Supply Program. In 2012, Reclamation developed prioritization criteria for budgeting these projects:
inclusion of tribal components amount of financial resources committed urgency and severity of need financial need and potential economic impact regional and watershed approach water, energy, and other priority objectives
According to Reclamation, the criteria aim to reflect both the priorities identified in the statutes that authorized individual projects and the goals of the Rural Water Supply Act of 2006.
For FY2020, Congress appropriated $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. As of early 2020, Reclamation reported that $1.2 billion was still needed to construct authorized, ongoing rural water projects. For FY2021, the Administration requested $30.3 million for Reclamation rural water activities, of which $8.1 million is for construction.
This report provides an overview of Reclamation rural water projects, including completed and ongoing rural projects and efforts under Reclamation's Rural Water Supply Program. The report also discusses considerations for Congress (e.g., funding prioritization, potential nexus with other federal programs) and presents recent legislation relating to authorizing additional projects and reauthorizing the Rural Water Supply Program.

	Rural Water Projects

Congress has funded water supply projects in rural areas for more than four decades. Reclamation first became involved in these efforts beginning with authorization of the WEB Rural Water Supply Project in 1980 ( P.L. 96-355 ). Since that time, Congress has authorized Reclamation to fund the construction of several other rural water supply projects (see Table 1 ). These projects have individual authorizations and generally aim to provide water exclusively for M&I water uses in rural areasâa departure from the historical mission of providing water for irrigation, with M&I water use as an incidental project purpose. According to a U.S. Government Accountability Office (GAO) report, Reclamation became involved in such projects because communities proposed projects directly to Congress and, in response, Congress created specific authorizations for these rural water supply projects, with Reclamation overseeing funding and construction. In addition to projects authorized only in Reclamation states, Congress specifically authorized Reclamation's involvement in the Lewis and Clark Rural Water Supply Project located in South Dakota, Iowa, and Minnesota.
Reclamation reported that, prior to authorization, some rural water projects did not go through the level of analysis and review that is consistent with Reclamation's other projects and did not meet the economic, environmental, and design standards that are required to determine the feasibility of federal water resources development projects. In these instances, following authorization, Reclamation was to complete the analysis that was necessary to execute the project while adhering to the project configuration and designs specified by the authorizing statutes and in accordance with other laws (e.g., Clean Water Act [33 U.S.C. Â§Â§1251-1387], National Environmental Policy Act [42 U.S.C. Â§4321 et seq.]). Critics have sometimes expressed concerns over this approachâspecifically, whether the authorized project would have emerged as the most cost-effective preferred alternative had a feasibility study been performed prior to authorization.
Each rural water project authorization required that the cost ceilings authorized in the legislation be indexed to adjust for inflation to include the rising cost of materials and labor, which was estimated to be 4% annually. The result of these indexing requirements is that the overall cost of authorized rural water projects has risen and continues to rise due in part to actual federal appropriations for projects falling short of the optimal funding scenarios that were assumed under planning projections. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects.
For FY2021, the Administration's budget proposal requested $30.3 million: $8.1 million for ongoing construction at four authorized rural water projects and $22.2 million for O&M of tribal systems (e.g., $14.5 million for the Mni Wiconi Project, $7.7 million for the Garrison Diversion Unit M&I, and $20,000 for the Mid-Dakota Rural Water System). The FY2021 request is $114.8 million less than FY2020 enacted funding of $145.1 million. The FY2021 request continues a trend since FY2014 in which the President's budget requested reduced funding for rural water projects from prior-year enacted levels. Reclamation also has emphasized its authority to accept nonfederal contributions in excess of cost-sharing requirements as one way to expedite projects in the absence of increased federal funding. In the FY2021 budget request, Reclamation noted that nonfederal parties have the ability to move forward with important investments in water resources infrastructure by contributing amounts in excess of minimum contributions.

		Rural Water Projects Under Construction in FY2020

In FY2020, Reclamation funded $125.4 million in construction work at five projects ( Table 2 ). Reclamation's FY2020 budget request included $8.0 million in construction for four projects, but Congress provided $117.4 million in appropriations above the President's budget request. The Administration distributed the funds above the request among five authorized projects, as described in Reclamation's additional funding spend plan. The following briefly describes the projects under construction in FY2020 based on Reclamation budget documents.

			Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program

The Garrison Diversion Unit of the Pick-Sloan Missouri-Basin Program was authorized in 1965 (P.L. 89-108) and was amended in 1986 by the Garrison Diversion Unit Reformulation Act ( P.L. 99-294 ) to include rural water services. Garrison Diversion Unit water supply facilities are associated with Garrison Dam of the Pick-Sloan Missouri Basin Program. They are located in eight counties in the central and eastern part of North Dakota and serve four tribal reservations (Spirit Lake, Fort Berthold, Turtle Mountain, and Standing Rock Indian Reservations). The multipurpose project principally provides tribal and nontribal M&I water, along with fish and wildlife, recreation, and flood control benefits.

			Fort Peck Reservation/Dry Prairie Rural Water System

The Fort Peck Reservation Rural Water System Act of 2000 ( P.L. 106-382 ), as amended, authorized rural water projects in northeastern Montana for the Fort Peck Reservation, serving the Assiniboine and Sioux Tribes, and for the Dry Prairie Rural Water Authority, serving towns outside of the reservation. The total service area population is around 25,000 people; rural water use is also available for commercial users and livestock. Currently, groundwater from shallow alluvial aquifers is the primary water source for the municipal systems, but groundwater quality is generally poor. The regional rural water project is to provide for a single water treatment plant located on the Missouri River, which is to distribute up to 13.6 million gallons of treated water per day through 3,200 miles of pipeline.

			Lewis and Clark Rural Water System

The Lewis and Clark Rural Water System Act of 2000 (Division B, Title IV of P.L. 106-246 ) authorized the Lewis and Clark Rural Water System to serve over 300,000 people in southeast South Dakota, southwest Minnesota, and northwest Iowa. The project aims to address concerns regarding low water quality, contamination, and insufficient supplies of existing drinking water sources throughout the project area. The water source for the Lewis and Clark Rural Water System is the sand and gravel aquifers of the Missouri River near Vermillion, SD. The project is to collect, treat, and distribute water through a network of wells, pipelines, pump stations, and storage reservoirs to each of 15 municipalities (including the city of Sioux Falls) and five rural systems. As of February 2020, completed facilities delivered water to the first 14 of 20 members, serving more than 200,000 individuals in Iowa, Minnesota, and South Dakota.

			Rocky Boy's/North Central Montana Rural Water System

The Rocky Boy's/North Central Montana Regional Water System Act of 2002 (Title IX of P.L. 107-331 ) authorized a rural water system to serve the Rocky Boy's Indian Reservation (Chippewa Cree Tribe) and surrounding communities in northern Montana. The system is designed to serve a total projected population of 43,000 (14,000 on reservation and 29,000 off reservation) by providing infrastructure to ensure existing water systems within the project service area comply with federal Safe Drinking Water Act (42 U.S.C. Â§Â§300f-300j-26) regulations. A core pipeline is to provide potable water from Tiber Reservoir to the Rocky Boy's Reservation, and non-core pipelines are to serve 21 surrounding towns and rural water districts. A $20 million trust fund established with Bureau of Indian Affairs appropriations is to fund O&M and replacement for the core and on-reservation systems initially; eventually, water users are expected to entirely fund the project. Reclamation states that the current authorization is not adequate to cover the project.

			Eastern New Mexico Water Supply

Section 9103 of the Omnibus Public Land Management Act of 2009 ( P.L. 111-11 ) authorized the Eastern New Mexico Water Supply project to deliver water from Ute Reservoir on the Canadian River to eight member communities. The use of Ute Reservoir water aims to provide long-term water supply and reduce the eight communities' dependence on groundwater in the Ogallala Aquifer. Current funding is for planning, design, and construction of interim projects to deliver groundwater to the communities before treated surface water is delivered from the Ute Reservoir Pipeline.

	Rural Water Supply Act of 2006

The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) authorized the Rural Water Supply Program and directed the Secretary of the Interior to undertake certain activities to implement the program. Specifically, the act directed Reclamation to conduct appraisal investigations and feasibility studies (or to ensure that nonfederal entities conducted such studies) and to recommend proposed projects to Congress for construction authorization and subsequent funding.
In 2008, Reclamation published an interim final rule (43 C.F.R. Â§404) that established operating criteria for the program and defined the criteria for the prioritization, eligibility, and evaluation of appraisal investigations and feasibility studies, in accordance with the act. To be eligible under the rule, a rural community must have a population under 50,000. The rule prioritized domestic, residential, and municipal uses and prohibited the use of water for commercial irrigation purposes. Interested entities (e.g., Reclamation states and western tribes) may request that either (1) Reclamation complete an appraisal investigation or feasibility study or (2) Reclamation provide financial assistance so the entity can conduct an appraisal investigation or feasibility study.
Reclamation began to implement the Rural Water Supply Program in FY2010 on a pilot basis, providing assistance to nonfederal entities to conduct appraisal investigations and feasibility studies. Between FY2009 and FY2012, Congress provided Reclamation a total of $7.9 million for the program. After FY2012, Reclamation no longer requested funding for the program and Congress did not appropriate funds for it. Overall, Reclamation reported using this authority to study approximately 22 projects to varying extents (see Appendix ). Twelve were located in the Reclamation's Great Plains region, five in the Upper Colorado region, four in the Lower Colorado region, and one in the Pacific Northwest region. Of these, Reclamation finalized and approved two feasibility reports: the Musselshell-Judith Rural Water System Feasibility Report (Montana) and the Payson-Cragin Reservoir Water Supply Project Feasibility Report (Arizona). Reclamation did not recommend these or any other projects for authorization, and Congress did not authorize any projects. In justifying its lack of construction recommendations, Reclamation pointed to existing rural water construction obligations, which it argued precluded recommendation of new projects with completed feasibility studies.
The authority for the Rural Water Supply Program expired at the end of FY2016 and has not been renewed. Members of Congress have introduced legislation in the 116 th Congress that would reauthorize both the Rural Water Supply Program and particular projects and studies previously considered through the expired program (see " Legislation in the 116th Congress ").

	Issues for Congress

Congress continues to fund construction and O&M (only required for tribal components) of authorized rural water projects; however, since the FY2016 expiration of the Rural Water Supply Program, Reclamation has for the most part ceased activities relating to new project study and authorization. Congress may consider conducting oversight or legislating changes to Reclamation's rural water activities, including those related to existing or new program and project authorizations, funding prioritization criteria, and Reclamation's role in supporting rural water projects.

		Addressing Ongoing Rural Water Needs

The Rural Water Supply Act of 2006 required the Secretary of the Interior to assess the demand for new rural water supply projects in Reclamation states. In FY2009, Reclamation estimated that identified needs for potable water supply systems in rural areas ranged from $5 billion to $8 billion for nontribal needs; in the same year, it estimated approximately $1.2 billion for specific tribal water supply projects. However, the Administration has not recommended, and Congress has not authorized, any new Reclamation rural water projects since 2009. Additionally, because authorization of Reclamation's Rural Water Supply Program lapsed at the end of FY2016, Reclamation lacks a structured program for developing and recommending rural water supply projects.

			Legislation in the 116th Congress

In the 116 th Congress, House and Senate companion bills H.R. 967 and S. 334 , both titled the Clean Water for Rural Communities Act, would authorize $5 million for a feasibility study for the Dry Redwater Rural Water System and $56.7 million (2014 price levels) for construction of the Musselshell-Judith Rural Water System. As noted, a feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program, but the Administration did not recommend the project to Congress for authorization.
Congress also is considering legislation to reauthorize the Rural Water Supply Program through FY2026. In the 116 th Congress, both the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ) would reauthorize the existing program.
Congress may consider other legislative proposals to address the demand for rural water assistance in the West. For example, the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would require the Secretary of the Interior to establish a grant program to provide financial assistance to disadvantaged communities of less than 60,000 residents that have experienced a significant decline in quantity or quality of drinking water. The grants could fund technical assistance, initial operating and capital costs for edible facilities, and up to 25% of such facilities' O&M. Other legislative proposals would address rural water needs by amending authorities to specific water technology and programs. For example, the Western Water Security Act of 2019 ( H.R. 4891 ) would amend the Water Desalination Act of 1996, as amended ( P.L. 104-298 ; 42 U.S.C. Â§10301 note), to add a classification for rural desalination projects with a higher federal cost share than desalination projects serving more than 40,000 individuals.

		Funding of Current and Future Projects

In early 2020, Reclamation stated that $1.2 billion was needed to complete authorized rural water projects under construction by the agency. In addition, Reclamation has previously estimated nontribal rural water supply needs in excess of $5 billion, and some observers have reported that assistance for communities is needed to address these needs. Some stakeholders have requested continued and increased funding for Reclamation rural water projects. In the 115 th Congress, representatives of the National Water Resources Association and the Family Farm Alliance asked Congress to compel Reclamation and the Office of Management and Budget to implement the Rural Water Supply Program and investigate opportunities to develop loan and loan guarantee programs that can help fund new water infrastructure projects.
Over the years, Reclamation has provided its views regarding funding for rural water projects. In general, Reclamation has testified that rural water projects must compete with a long list of other priorities, including aging infrastructure, environmental compliance and restoration actions, and dam safety. During the consideration of authorizing existing rural water projects, Reclamation stated that long-standing agency policy was that local sponsors, particularly those that are nontribal, should reimburse Reclamation for 100% of the costs incurred for rural water supply from multipurpose projects. Reclamation notes in its budget requests to Congress that constrained federal budgets do not preclude nonfederal sponsors' ability to move forward with rural water projects by funding in excess of the minimum nonfederal contributions. Reclamation has recommended that tribes, where possible, and other project beneficiaries be responsible for the O&M expenses of their rural water projects.
Congress has appropriated funds for rural water projects on a nonreimbursable basis (i.e., as de facto grants). In some cases, local and tribal sponsors do not have funds or have not prioritized funds to increase their funding contributions. Should Congress continue to support rural water projects through Reclamation, Congress may consider various options. These might include
Continue to provide Reclamation annual appropriations for the agency to allocate funds to individually authorized rural water projects based on established agency criteria. Establish mandatory funding for Reclamation to allocate funds to individually authorized rural water projects based on established agency criteria. For example, the Authorized Rural Water Projects Completion Act ( S. 1556 ) in the 115 th Congress would have created a Reclamation Rural Water Construction Account to receive $80 million annually that otherwise would be deposited into the Reclamation Fund. Funds in the Reclamation Rural Water Construction Account, in addition to amounts appropriated for rural water projects, would be available for the construction of authorized rural water projects. Provide grant funding through a competitive process for nonfederal sponsors to support local projects, such as the grant program the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would establish for communities with fewer than 60,000 residents. Direct appropriations to individually authorized rural water projects.

		Other Rural Water Options

As GAO noted in a 2007 report, numerous federal entities provide funding for water supply and wastewater projects. In addition to Reclamation (which funds only water supply projects), the U.S. Department of Agriculture (USDA), Environmental Protection Agency (EPA), Army Corps of Engineers (USACE), Department of Housing and Urban Development (HUD), and Department of Commerce (DOC) all provide funding for both water supply and wastewater projects. USDA, EPA, HUD, and DOC have formal, nationwide programs with standardized eligibility criteria and processes under which communities compete for funding. In contrast, Reclamation and USACE fund water projects in defined geographic locations under explicit congressional authorizations. According to GAO, Congress has chosen Reclamation to fill a void for projects that are larger and more complex than other rural water projects and that do not meet the criteria of other rural water programs.
Some might argue that these projects would be better accomplished via other existing federal water quality or water supply programs. However, as GAO has observed, as designed, some of Reclamation's authorized rural water projects do not fit criteria of other agency's programs due to their cost and regional focus; thus, project proponents have looked to Reclamation for funding. For example, Reclamation may assist rural areas with populations in excess of 10,000 residents that may not be eligible for funding under other programs. Reclamation rural water projects also may serve more than one community (i.e., a regional area, as opposed to a single area).
Reclamation developed its Rural Water Supply Program with the intent to complement, rather than duplicate, the efforts of the other agencies' programs and activities. In creating the program, Reclamation signed memoranda of understanding and related documents with other agencies to coordinate efforts. Reclamation has stated that it participates in a variety of broad coordination activities among agencies related to ongoing authorized projects. With the expiration of the Rural Water Supply Program, this formal coordination between Reclamation and other agencies' programs is no longer required.

			Appendix. Rural Water Supply Program Appraisal Investigations and Feasibility Studies

The Bureau of Reclamation (Reclamation) provided the Congressional Research Service with a list of appraisal investigations and feasibility studies conducted for potential projects under the Rural Water Supply Program. Before the program authorization expired in FY2016, 22 appraisal investigations were conducted, with nine recommendations for a feasibility study. Five feasibility studies were conducted. Reclamation did not recommend any projects for construction funding, although two studies found feasible alternatives for rural water supply. Reclamation issued concluding reports for appraisal investigations and feasibility studies of projects that were not recommended for construction funding. Reclamation provided a range of reasons for issuing concluding reports: studies being incomplete, no found feasible alternatives, lack of funding, and program expiration. According to Reclamation, some concluding reports were not issued due to a lack of time or resources. In these cases, Reclamation considered the appraisal reports as concluding reports for the purposes of the Rural Water Supply Program. A feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program. Legislation introduced in the 116 th congress, the Clean Water for Rural Communities Act ( H.R. 967 and S. 334 ), would authorize the Central Montana Musselshell-Judith Rural Water System.