$ £ a 'v/: - DEPOSITORY may 2^ 1990 OPPORTUNITIES for PRIVATE INVESTMENTA PUBLIC/PRIVATE PARTNERSHIP FOR DEFENSE FACILITIES THE OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE WASHINGTON, D.C. 20301-8000 PRODUCTION AND LOGISTICS During the past couple of years we’ve been working with the Services, the Congress and private investors to encourage the use of authorities that permit the private sector to participate in financing defense facilities and services. Private entrepreneurs can help fill our needs while earning a market rate of return on their investment. Congress has approved such partnerships by providing enabling legislation, the Services are looking for potential uses of this authority and many private investors have exhibited interest. We’ve found that the private sector approach can work well, but its full potential has not yet been realized. The purpose of this brochure is to provide an overview of available authorities and some pictures of successful projects. We hope this will stimulate your thoughts about additional private sector investment in our defense plant. Best Regards, Robert A. Stone Deputy Assistant Secretary of Defense (Installations) 'D&C, T) 1, i 2/7A neighborhood atmosphere has been created in Jolon, California, just outside of Fort Ord. This photo of their General Store and one of the family homes show the general approach. Jolon also has a Community Center and a popular restaurant which serve community needs and contribute to a sense of "home". Tfff ft Iff Hi, Juki Jy| JOi General Store ■ h ill Q ill ill 111 111 ill i s 111 ill 111 ill The General Store is a local focal point. Family housing is compact, but comfortable.Fort Ord, California, has extended its private investment housing with the opening of Thorson Village (named in honor of PFC James Thors on, a 7th Infantry Division soldier killed in action during World War II). A lease with Sunbay Apartments Limited Partnership was signed in August 1988 for the construction of an apartment/motel complex on 24 acres of Fort Ord land. Thirty-two families moved in during August 1989 and the remainder of the project is rapidly nearing completion. There will be a total of 297 units for use as officer and enlisted housing with a mixture of efficiency and one- and two-bedroom apartments. There's covered parking, a community center, swimming pool and exercise room—in short, all the things you'd expect in a modern, upscale civilian environment. An inviting entry draws the eye toward these attractive homesA cooling dip after work adds to Thorson Village livingThe Army had a great private financing opportunity in the revitalization of the installation at Ft. Drum. Homes, transient lodging quarters and other amenities were rapidly brought to the action stage through the use of private investors eager to make the project a reality. The accompanying pictures show what can be done using the private sector partnership approach. J h e H 0 IMIIllllI! 1 s ■pail n g ' ’ ■ • - " 7 ? * ' ’ ■ .4 fi" ' M A r e a0(D3O?3$O4 Very Comfortable LivingThe Army has had considerable success in using private financing to provide housing to our neighbors in the far north. At Fort Wainwright, in Fairbanks, Alaska, these warm and comfortable homes were built and occupied in far less time than would have been required using the traditional MILCON method. We understand that the housing has been very well received and that more is being planned. OMilitary family housing was provided in record time — 21 months from request for proposal to occupancy — at Goodfellozv Air Force Base, Texas. The quality-built brick homes are attractive and are a good example of beneficial use of the build-lease authority.Private investment is providing child care services at the Pentagon. An attractive facility was quickly brought into service and is now enjoying great success. The contract, with Children's World Learning Centers, was signed in January 1989 and the center was open for business in November 1989. Now 200 children are enjoying qualify care while parents go about the business of national defense. The center nestles snugly on the grounds of the Pentagon The playground entertains while encouraging growth of social skillsand some of the happy customersOTHER PEOPLE'S MONEY AT WORK FOR THE ARMY A 52-room motel-style Armed Services YMCA opened for business on October 19,1988 at Fort Bliss, Texas. Construction of this facility required a partnership between the Army and the local community. Fort Bliss had the land. The $1.6 million needed to construct this facility came from local fund raisers, athletic events, pledge drives and in-kind contributions. The 30,000 square-foot facility offers inexpensive lodging to active and retired personnel, and to the many family members attending Basic Military Training graduation ceremonies.GEOTHERMAL ENERGY Clarence Kamake, of Naval Facilities Engineering Command's Western Division, gave us the story on the China Lake geothermal power plant. California Energy Company, Inc. used its own funds to develop and produce energy from the Navy's geothermal resource. The 25-megawatt plant has an average annual production of 186,000,000 kilowatt-hours. Additional productive capacity is expected to be developed under this money saving private sector approach. The Military Engineer for November/December 1989 updated our information on this project James Rieger—an engineer witii the Telemetry Division at the Naval Weapons Center, China Lake-writing in that issue says that the Navy earned over $2.7 million in 1987 on a partial-year operation; full-year operations should approximate $4.7 million. The Cosco single generator produces more electricity than the Naval Weapons Center's peak demand (NWC has over 6,000 employees and a large appetite for electricity); when the site is fully developed—five additional generators are planned over the next several years—it will produce enough electricity to operate a city the size of San Francisco. Private venture capital seems to be doing a great job in this application.WASTE TO ENERGY The Northeast Maryland Waste Disposal Authority provided us this very attractive photo of their facility at Aberdeen Proving Ground. It's located on government property and provides energy to the local command while getting rid of waste in an environmentally acceptable manner.Rendering of Visitors Quarters and Conference Center The Air Force has entered into an agreement for a 250-room visitors quarters and conference center at Wright Patterson Air Force Base, Ohio. Government land was leased to a developer who designed, is building and will own and operate the facility. Service members needing lodging will be referred to the operation, but there will be no occupancy guarantees. Groundbreaking began in April 1989 with construction completion planned for the fall of 1990.Land Leasing The Secretary of a military department has the authority to lease non-excess government-owned land when he deems it in the national interest. The law states that such leases may not be for more than five years unless the Secretary determines that a longer lease will be in the public interest. (For construction of real property facilities, twenty to fifty years seem reasonable). Leasing the land to a private contractor does not involve any guarantee of the success of the project to be constructed since the government does not guarantee rental or occupancy. Developer financing is thus based solely on the private sector evaluation of the likely success of the proposed project. The Authority This authority permits the Department to lease real or personal property on such terms as are considered to be in the national interest. Leases are limited to not more than five years unless the military secretary determines that a longer lease is in the national interest. How It Works • Twenty to fifty year land lease at a nominal rent (but note that this longer lease must be determined to be in the public interest). • Rentals received must go to the Treasury as miscellaneous receipts. • Land is leased at a nominal value to obtain needed facilities (housing, shopping, fast food outlets, etc.). • Location of the land to be leased is a key element; if the land is on the periphery of the base, (and if the facility is of a kind that could be used by the civilian sector), the chance of success is increased. • Housing • Hotels • Restaurants Deputy Assistant Secretary of Defense Guidelines This authority is well established and, in general, is exercised within the individual services as needed. It is another available tool to assist in a flexible approach to obtaining needed real property facilities. Current Activity The authority has been used for a wide variety of projects ranging from a mobile home housing development to fast food outlets. If the proposed project is economically viable, private financing for the contractor should not be a problem. Legal Authority Section 2667 Leases: non-excess property (Tide 10 U.S .C. Section 2667, as amended). (a) Whenever the Secretary of a military department considers it advantageous to the United States, he may lease to such lessee and upon such terms as he considers will promote the national defense .... real or personal property that is— (1) under the control of that department; (2) not for the time needed for public use; and (3) not excess property as defined by Section 3 of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 472). (b) a lease under subsection (a)— (1) may not be for more than five years, unless the Secretary concerned determines that a longer lease will promote the national defense... (4) may ... provide for the maintenance, protection, repair, or restoration, by the lessee, of the property leased,... as part or all of the consideration for the lease. Type Facilities (SEE COMPLETE CITATION FOR OTHER REQUIREMENTS).Rental Guarantee The Secretary of a military department has the authority to guarantee occupancy of housing built to DoD specifications [no more than 97 percent of the units constructed under the agreement] where unit rent is affordable to individual service members. Twenty-five year contracts are permitted and the Department is permitted to pay utilities and provide separate maintenance. The authority expires September 30,1990. The Authority The Military Housing Rental Guarantee Program permits the Department to guarantee occupancy of rental housing to be constructed or rehabilitated to residential use for use by eligible service members. The Department does not make the rental payments; they are collected from the individual renter. How It Works • Twenty-five year occupancy guarantee of 97 percent of covered homes. • Rental rates no higher than comparable rental dwellings in the same market area (rental escalation clause is permitted). • Contract may not be renewed if dwellings are located on privately-owned land. • Contract must provide for priority occupancy of the project by eligible military members. Type Facilities Housing: single family, “townhome” or apartment configuration — the commercial market. Deputy Assistant Secretary of Defense Guidelines • Where land is expensive the approach works best using on-base land. • Can use to rehabilitate existing DoD housing (out-lease to contractor for renovation for subsequent lease of the finished product to service members). Current Activity Nothing yet built, although the program has potential to add significantly to available housing. Legal Authority Section 802 Military Housing Rental Guarantee Program (Title 10, U.S.C. Section 2821, as amended). (a) The Secretary of a military department ... may assure the occupancy of rental housing to be constructed or rehabilitated to residential use by a private developer... on private land,... or on land owned by the United States... (b) An agreement under subsection(a)— (1) may not assure the occupancy of more than 97 percent of the units constructed under the agreement; (2) shall establish initial rental rates that are not more than rates for comparable rental dwelling units in the same general market area and may include an escalation clause;... (5) may not be for a term in excess of 25 years; (6) may not be renewed unless the project is located on government land ... (10) shall provide for priority of occupancy for military families;Build-To-Lease The Secretary of a military department may obtain housing through long term lease. Twenty year leases are permitted so that housing projects can be created for defense use. Originally, the technique was somewhat difficult to use since the contract was required to cover both construction and maintenance. Current law, however, permits the separation of the construction and maintenance aspects of a project; this allows an otherwise responsible bidder to obtain “AA” type financing. The Authority The Build-to-Lease authority permits 20 year contracts for the construction and maintenance of housing projects. It permits on or off-base siting. How It Works • Twenty year lease with the government. • Contractor retains title at end of lease. • Separate contract can be written for maintenance. • Contractor can obtain AA-type financing because of the government long-term lease. Type Facilities • Housing: single family, “townhome” or apartment configurations. • Child care centers, civic center buildings and similar structures in support of the particular family housing project. Deputy Assistant Secretary of Defense Guidelines • Develop projects off-base to avoid potential problems at end of lease. • Maintenance by separate contract. Consider obtaining land option separately and offering the option to interested builders/bidders. Current Activity • Approximately 9,000 homes under contract. • Approximately 10,500 additional homes authorized. • Authorization expires 30 September 1991. Legal Authority Section 801. Build-to-Lease (Title 10U.S.C. Section 2828 as amended). (g) (1)... the Secretary of a military department... may enter into a contract for the lease of family housing units to be constructed or rehabilitated to residential use on or near a military installation... at which there is a validated deficit in family housing. Housing units ... shall be assigned, without rental charge,... (2)... Such a contract may provide for the contractor ... to operate and maintain ... facilities during ... lease. (3) Each contract ... shall require that housing units... be constructed to Department of Defense specifications. (4) A contract... may be for any period not in excessof 20 years (excluding... construction... of the... facilities). (5)... upon termination of the lease... the United States shall have the right of first refusal to all right, tide, and interest....Shared Energy Savings Contracts The authority under this legislation permits federal agencies to award “shared savings” contracts to reduce the cost of energy consumed in federally owned facilities. Typically, the private company will invest its resources to modernize the energy infrastructure and recoup its costs as a share of the resultant energy savings. Restrictions on long term contracting initially were a bar to using this authority but legislation permitting contracts up to 25 years has overcome this obstacle. The Authority Heads of Federal agencies (both civilian and military) may enter into shared energy savings contracts for periods not exceeding 25 years. The contracts must be solely for the purpose of achieving energy savings and benefits ancillary to that purpose. How It Works • Long term contracts (up to 25 years) provide that the contractor incur the costs of implementing energy savings measures. • Costs include energy audits, acquiring and installing equipment and training personnel. • Contractor recoups costs through a share of savings directly resulting from implementing energy savings measures. • Payment by the federal agency must be made only from funds appropriated for the payment of energy related operation expenses. Deputy Assistant Secretary of Defense Guidelines • Shared energy savings represent a largely untapped method to modernize the defense energy supply and distribution system. • A Tri-Service Steering Committee is implementing a pilot test of contracting procedures to develop acceptable solicitation documents and savings verification methods. Current Activity • Army has signed the first such contract in the DoD; Navy has signed two. • Each service is processing three or more pilot contracts and contracting models • OSD guidance is in preparation. Legal Authority • Section 8287. Authority to Enter into Contracts. (Title 42 U.S.C., Section 8287). The head of a federal agency may enter into contracts under this title solely for the purpose of achieving energy savings and benefits ancillary to that purpose. Each such contract may ... be for a period not to exceed 25 years. Such contract shall provide that the contractor shall incur costs of implementing energy savings measures including at least the costs (if any) incurred in making energy audits, acquiring and installing equipment, and training personnel, in exchange for a share of any energy savings directly resulting from implementation of such measures during the term of the contract. (NOTE: The Federal Energy Management Improvement Act of 1988 (P.L. 100-615) increased emphasis on this contracting mechanism and allows the agency to retain resultant energy dollar savings for further energy conservation actions.)The FY 1989 Defense Appropriations Act extended the ability of military departments to retain their portion of dollar savings from one to five years and allows the use of half of the retained savings for morale, welfare and recreation requirements. (SEE COMPLETE CITATION FOR OTHER REQUIREMENTS, INCLUDING REPORTS).Long Term Energy Contracts The Secretary of a military department may, with the approval of the Secretary of Defense, enter into contracts not to exceed 30 years for energy or energy facilities. The costs of contracts under this authority for any year are paid from annual appropriations. This is not a “test” authority, but permanent legislation. The Authority The authority permits contracts for up to 30 years for the provisions and operation of energy production facilities on government or privately owned land and the purchase of energy produced from such facilities. Such contracts require approval through the Secretary of the military department by the Secretary of Defense. How It Works • Requirements are identified by installations. • Long term contracts (up to 30 years) are awarded for energy and energy facilities if they result in the most lifecycle cost effective alternative. • Secretary of Defense approval required. • Costs for each year must be paid from annual appropriations for that year. • Congress will not authorize MELCON power plan projects unless it can be shown that privately financed contract is not the most cost effective option. Type Facilities • Heating energy from conventional and/or renewable sources • Waste-to-energy • Cogeneration • Electricity • Geothermal Deputy Assistant Secretary of Defense Guidelines • Contracts must be sought prior to requesting MILCON energy plant projects. • There are many potential projects which can be brought on line using this authority. The Congressional direction to increase Departmental coal consumption in the U. S. can also be pursued using this private-sector energy vehicle. • Contract approval package requirements are spelled out in Defense Energy Program Policy Memorandum 88-2.M. Current Activity • Geothermal • Waste-to-energy projects • Cogeneration • Coal fired central plants • New and major rehabilitation of power plants Legal Authority Section 2394. Contracts for energy or fuel for military installations. (Title 10 U.S.C. Section 2394). (a) Subject to subsection (b), the Secretary of a military department may enter into contracts for periods up to 30 years— (1) under section 2689 of this title (geothermal energy); and (2) for the provision and operation of energy production facilities on real property under the Secretary’s jurisdiction or on private property and the purchase of energy produced from such facilities. (b) A contract may be made under subsection (a) only (1) after the approval of the proposed contract by the Secretary of Defense;...Long-Term Facilities Contracts The Secretary of a military department may enter into a test of long-term facilities contracts for the provision of certain services. The test limits each department to five projects for other than child care services. Contracts may be for up to 32 years and must include construction and operation of the facility used to provide services. The Authority The facilities contract test authority permits service contracts (normally limited to 5 years or less) to be awarded for up to 32 years; this permits construction of facilities necessary to support desired services and their amortization through collection of service charges. The test is scheduled to end in September 1991. How It Works Long-term facilities contracts are awarded for use in conjunction with the provision of specified services. Contract term may not exceed 32 years, excluding the period of construction. The seven classes of facilities covered are: • Child care services • Utilities, including potable and waste water treatment services • Depot supply activities • Troop housing • Transient quarters • Hospital or medical facilities • Logistical and administrative services other than depot maintenance. Each service is limited to five projects, one per category with the exception of child care and utilities, where the number of projects is not restricted. Type Facilities See “seven classes of facilities” above. Deputy Assistant Secretary of Defense Guidelines • The test legislation can provide a big payback and, properly used, will assist Congress in providing permanent authority. • The authority can extend our MILCON Appropriations by reserving these appropriations for projects which can only be built and operated by the Department; other projects can be left to contractors. Current Activity • Child care facilities at the Pentagon and at Defense Depot Tracy, Tracy, California. • Administrative facility in Memphis,Tennessee. Legal Authority Section 2809. Test of Long Term Facilities Contracts (Title 10 U.S.C. Section 2809, as amended). (a) (1) (A) The Secretary concerned may enter into contracts for the construction, management, and operation of a facility on or near a military installation for the provision of an activity named in subparagraph (B) if the Secretary concerned has identified the proposed project in the budget proposal submitted to Congress and has determined that the facility can be more economically provided under a long term contract than by conventional means... (3) A contract under this section may be for any period not in excess of 32 years, excluding the period of construction... (4) (b) Each Secretary concerned may enter into not more than 5 contracts under this section, other than contracts for child care centers and utility services.Lease-Purchase of Facilities The Secretary of a military department may enter into a lease agreement with private contractors for facilities built on a military installation under the jurisdiction of the Department of Defense. The law states that such leases may not exceed thirty two years and that title to the facility shall vest in the United States at the end of the term of the lease. The Secretary is also empowered to “...include such other terms and conditions as...are necessary or desirable to protect the interest of the United States.” THE AUTHORITY The lease-purchase authority permits private contractors to construct on government-owned property, at their own expense, certain facilities to be leased to the government. The lease may not exceed 32 years; this permits construction costs and contractor’s profit to be amortized over the life of the lease with the residual improvements vesting in the United States at the end of the lease. HOW IT WORKS Lease-purchase is authorized for the following eight types of facilities: • Administrative office facilities • Troop housing facilities • Energy production facilities • Utilities, including potable and waste water treatment facilities • Hospital and medical facilities • Transient quarters • Depot or storage facilities • Child care centers Each Secretary is limited to not more than three leases in fiscal year 1990 and not more than five leases in each of the fiscal years 1991 and 1992. Each lease must also include a provision that payment of the lease in any fiscal year is subject to the availability of appropriations for that purpose. DEPUTY ASSISTANT SECRETARY OF DEFENSE GUIDELINES This is an opportunity to obtain facilities that sometimes lose out in the intense competition for limited Military Construction Appropriations. Prudent use of the authority will encourage the Congress to continue our various private financing authorities. CURRENT ACTIVITY None to date. Exploratory work is underway at OSD and in the Services to identify candidate projects and to explore ways to incorporate this technique into our array of procurement tools. LEGAL AUTHORITY Section 2812 Lease-Purchase of Facilities (Title 10 U.S.C., Section 2812). (a)(1) The Secretary concerned may enter into an agreement with a private contractor for the lease of a facility of the kind specified...if the facility is provided at the expense of the contractor on a military installation under the jurisdiction of the Department of Defense. (b) Leases entered into under subsection (a)- (1) may not exceed a term of 32 years; (2) shall provide that, at the end of the term of the lease, title to the leased facility shall vest in the United States; and (3) shall include such other terms and conditions as the Secretary concerned determines are necessary or desirable to protect the interests of the United States. (c)(1) The Secretary concerned may not enter into a lease under this section until- (A) the Secretary submits to the appropriate committees of Congress a justification of the need for the facility for which the proposed lease is being entered into and an economic analysis...that demonstrates the cost effectiveness of the proposed lease compared with a military construction project for the same facility; and (B) a period of 21 days has expired following the date on which the justification and economic analysis are received by the committees... TYPE FACILITIES See “eight types of facilities” above.Phone Numbers & Names OFFICE OF THE SECRETARY OF DEFENSE NAVY Energy Mr. Millard Carr 202-697-4589 AV 227-4589 Housing CDR Ray Pylant 202-695-7006 AV 225-7006 Other Private Investment Mr. Get Moy 202-695-7006 AV 225-7006 ARMY Policy & Program Mr. Larry Kelley 202-697-4659 AV 227-4659 Housing Mr. Walter Hylton 202-272-1709 AV 285-1709 Nonappropriated Funds Mr. R. Bruce Parzych 202-325-6980 AV 221-6980 Program Execution, Corps of Engineers Mr. Jim Lovo 202-272-0651 AV 285-0651 Leasing Programs, Corps of Engineers Ms. Sue Fugitt 202-272-1705 AV 285-1705 Long Term Energy Contracts Mr. Jim Donnelly 703-355-2269 AV 345-2269 Shared Energy Savings Contracts Mr. William Christner 703-355-7557 AV 345-7557 General CDR Gary Hein Ms. Candace Kane 202-325-0557 202-325-7342 AV 221-0557 AV 221-7342 Housing Mr. Bill McCay 202-325-0512 AV 221-0512 Long Term Energy Contracts Mr. Dennis Hanneman 202-325-0102 AV 221-0102 Shared Energy Savings Mr. Doug Dahle 202-325-0102 AV 221-0102 MARINE CORPS General Mr. Paul Bouley 202-696-0864 AV 226-0864 Housing Ms. Rossie Payne 202-696-0852 AV 226-0852 AIR FORCE Policy Mr. Hank Marien 202-697-9528 AV 227-9528 General Mr. Rick Baker 904-283-6238 AV 523-6238 Housing Mr. Bill Munsie 202-697-0157 AV 227-0157 Energy Mr. Cameron Amegard 202-767-6237 AV 297-6237