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The Defense Logistics Agency Properly Awarded Power Purchase Agreements and the Army Obtained Fair Market Value for Leases Supporting Power Purchase Agreements DODIG-2016-137

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Objective

We determined whether the Department of the Army properly awarded and obtained fair market value for leases supporting energy production projects. We conducted this audit in response to an allegation reported to the Defense Hotline. The allegation stated that the Army and Navy leased land to utility companies to produce solar energy without using competitive procedures to select the lessee, and that the Army and Navy are not receiving fair market value for the land. This is the first in a series of audits related to leases supporting energy production projects and focuses only on the Army. We plan to review the Department of the Navy during the second audit in this series.

As of March 2016, the Army had awarded three leases supporting energy production projects. We selected two of the three for review—one at Fort Hood, Texas, and one at Fort Detrick, Maryland. The third project, at Fort Drum, New York, included a lease for less than an acre of land, so we did not review it.

Background

U.S. law1 allows the Secretaries of the Military Departments to enter into a contract for up to 30 years for energy production facilities on DoD real property. These contracts are known as power purchase agreements and require a real‑estate transaction, such as a lease. In addition, U.S. law2 allows the Secretaries of the Military Departments to lease non‑excess property. The same statute also requires that the Secretaries of the Military Departments use competitive procedures to select the lessees and that the lessees pay in cash or in-kind not less than the fair market value of the leased property.

Finding

We determined that Defense Logistics Agency Energy contracting officials awarded the two power purchase agreements at Fort Hood and Fort Detrick, using full and open competition, in accordance with Federal and DoD guidance. Specifically, the contracting officials properly issued requests for proposals, developed source selection plans, and evaluated proposals in accordance with the Federal Acquisition Regulation and DoD Source Selection Procedures.  

In addition, the Army obtained fair market value for the two leases supporting the Fort Hood and Fort Detrick power purchase agreements. Specifically, U.S. Army Corps of Engineers personnel appraised the leased land at Fort Hood and oversaw the appraisal at Fort Detrick to determine the fair market value of the land. Furthermore, U.S. Army Corps of Engineers personnel ensured that the Army would receive lease payments in the form of in‑kind consideration or cash greater than or equal to the fair market value of the leased land.

Management Comments

We provided a discussion draft to Defense Logistics Agency Energy, U.S. Army Corps of Engineers, and the Army Office of Energy Initiatives on September 7, 2016. We considered management comments on a discussion draft of this report when preparing the final report.


1 10 U.S.C. § 2922a (2006), “Contracts for energy or fuel for military installations.”

210 U.S.C. § 2667 (2015), “Leases: non-excess property of military departments and Defense Agencies.”

This report is a result of Project No. D2016-D000CI-0128.000.