DOD Reported Initiating 137 In-Kind Payment Projects in Fiscal Year 2013, and Cited Advantages and a Disadvantage from Receiving In-Kind Payment Projects versus Cash Payments

		DOD Reported that the Military Services Initiated 137 In-Kind Construction and Renovation Payment Projects in Fiscal Year 2013 with an Estimated Value of at Least $1.8 Billion

DOD reported that the military services initiated 137 in-kind payment  projects in Asia, Germany and the United States during fiscal year 2013  with an estimated value of at least $1.8 billion. Table 2 summarizes the number and value of  in-kind payment projects by location and also highlights the most  frequently reported purpose for which the projects were used. Military Services’ Real- Property Management Officials Reported Advantages and One Disadvantage in Accepting In-Kind Payment Projects in Exchange for Interests in Domestic Real-Property Transactions

The military services’ real-property management officials reported as  many as four advantages to accepting in-kind payment projects rather  than cash payments in domestic real-estate transactions, and officials  from the three services reported one disadvantage. Reported Advantages

Installations can generally obtain facilities more quickly. The originating installation is more likely to receive100 percent of the  negotiated payments for the real property interest. This policy negates the advantage in-kind payment projects  have in assuring that the originating installation receives 100 percent of  the negotiated value of the in-kind payment projects for the real-property  interest since the originating installation receives the full amount of the  cash payment up to $1 million. Military Services Have Issued Guidance Regarding the Receipt of Fair- Market Value and Follow Similar Procedures for Valuing Domestic In- Kind Payment Projects to Ensure Receipt of Fair- Market Value

Our review of various service policies governing real-estate transactions  identified that all three services have issued guidance requiring that the  cumulative value of in-kind payment projects reflect the fair-market value  of the real-property interest in real-estate transactions and follow similar  procedures to value domestic in-kind payment projects to ensure the  receipt of fair- market value. If the developer and installation  officials agree to the value of the work and that the value of the work is  within the range of fair-market value of the real-estate interest, the parties  execute the agreement to document the services to be performed as an  in-kind payment project in lieu of cash. Agency Comments

We are not making any recommendations in this report. We provided  DOD with a draft of this report for review. DOD provided technical  comments on our findings, which we have incorporated where  appropriate. However, numerous projects in Korea and  Japan were executed under bilateral agreements or as part of voluntary  host nation programs where the host nation manages the programming  and execution processes and supporting documentation for these  projects was not readily available in English or the specific project costs  incurred by the Governments of Korea and Japan were, according to  DOD officials, not required to be disclosed to the United States. To describe the potential advantages and disadvantages of accepting in- kind payments instead of cash for domestic real-estate transactions, we  reviewed the services’ policies and procedures regarding the types of  payments (cash or in-kind payment project) to be included in real-estate  transactions and Army and Air Force guidance that informs when cash or  in-kind payment projects are advantageous or not advisable. Appendix II: DOD Construction and Renovation Projects Initiated in Korea in Fiscal Year 2013 Using In-Kind Payments

DOD reported that the military services initiated 31 in-kind payment  projects involving construction or renovation in Korea in fiscal year 2013  with a value of about $1.6 billion.
Why GAO Did This Study

DOD uses in-kind payments domestically and overseas in its real-estate transactions as an alternative to appropriated funds to help manage a global real-property portfolio that includes more than 555,000 facilities worldwide. In-kind payments refer to DOD receiving construction and renovation services rather than cash as payment for DOD providing goods, services, real property, or an interest in real property.
The National Defense Authorization Act for Fiscal Year 2013 includes a provision for GAO to review the use of in-kind projects. This report identifies (1) the in-kind payment projects that DOD reported it initiated during fiscal year 2013, and discusses the potential advantages and disadvantages of accepting in-kind payments instead of cash for domestic real-estate transactions; and (2) the extent to which the military services have developed and implemented guidance and procedures to value domestic in-kind payments to ensure the receipt of fair-market value. The Act also provided for a listing of facilities constructed or renovated with the use of in-kind payments, and additional information, which GAO provides in appendixes to this report. To conduct this work, GAO collected in-kind project data from the military services, reviewed DOD and military service policy and project documentation, and interviewed military officials.
GAO is not making recommendations in this report. DOD provided technical comments on the findings, which GAO has incorporated where appropriate.

What GAO Found

The Department of Defense (DOD) reported to GAO that 137 in-kind projects involving construction or renovation, valued at about $1.8 billion, were initiated in Korea, Japan, Germany and the United States during fiscal year 2013. In-kind payments involve non-cash options, such as renovating or constructing a facility. The table below summarizes the number and value (estimated costs to be incurred) of the projects by country and highlights the most frequently reported purpose for which the projects were used.
Number, Value, and Purpose of In-Kind Construction and Renovation Projects Initiated by DOD during Fiscal Year 2013
Source: GAO summary of Department of Defense (DOD) data. | GAO-15-649
a Subtotals for Korea and Japan and totals for DOD are of undetermined reliability because supporting documentation was not readily available in English, or, according to DOD officials, the costs incurred by the Governments of Korea and Japan were not required to be disclosed to the United States.
The military services' real-estate and real-property management officials discussed four potential advantages to accepting in-kind payments rather than cash payments in domestic real-estate transactions, and identified one potential disadvantage. The reported advantages included generally obtaining facilities more quickly than through the appropriations process and installations receiving 100 percent of the value of negotiated payments received from a real-property interest as opposed to cash payments where only 50 percent of the value is guaranteed to be provided back to the installation. However, some services have implemented policy changes such as returning 100 percent of the value of the real-property interest back to the installation—up to $1 million when accepting cash payments. One reported disadvantage was in-kind payments may require additional administrative work and oversight compared to cash payments.
GAO's review of service policies governing real-estate transactions identified that all services have issued guidance requiring that the cumulative value of in-kind projects reflect the fair-market value of the real-property interest in real-estate transactions. Each of the Services reported similar broad procedures for valuing in-kind payment projects and GAO's review of the documentation for the projects initiated in fiscal year 2013 confirmed that the installations were following the described procedures.