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Navy Leases for Energy Production Projects (Redacted)

DODIG-2017-109

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Aug. 11, 2017 — Objective

We determined whether the Department of the Navy properly awarded and obtained fair market value for leases supporting energy production projects.

We conducted this audit based on an allegation reported to the Defense Hotline. The allegation stated that the Army and Navy leased land to utility companies without using competitive procedures to select the lessee, and the Army and Navy are not receiving rent greater than or equal to the fair market value of the land. We previously audited Army leases supporting energy production projects in report DODIG-2016-137.

Background

The United States Code allows the Secretaries of the Military Departments to lease non-excess property when the Secretary determines that the property is not currently needed for public use, that the lease is advantageous to the United States, and that the lease will promote national defense or be in the public interest. The same statute 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 consideration greater than or equal to the fair market value of the leased property. In-kind consideration is nonmonetary compensation given as payment for the leased land.

As of October 5, 2016, the Navy executed 11 leases of real property in support of energy projects, and we selected 10 of those 11 leases for review. We did not review the remaining lease because a DoD OIG team reviewed it during a prior audit.

Finding

We determined that Navy Resilient Energy Program Office officials properly awarded the 10 leases reviewed supporting energy production projects in accordance with the United States Code. Specifically, Navy Resilient Energy Program Office officials issued solicitations, evaluated proposals, and obtained approval to award the leases.

In addition, the Navy will obtain fair market value for 10 leases supporting energy production projects if the Navy receives payment in the form of the agreed upon in-kind consideration. However, for 3 of the 10 leases, if the Navy does not receive payment in the form of in-kind consideration, the Navy will not receive cash payments greater than or equal to the fair market value of the land. This occurred because a Navy real estate contracting officer did not use the correct acreage to develop the rent schedule in two of the leases. For the third lease, the Navy real estate contracting officer modified the lease to increase the acreage but did not update the cash payment rent schedule. As a result, if the Navy does not receive payment in the form of in-kind consideration, the Navy will receive $290,000 less than the fair market value of the land.

Recommendations

We recommend that the Director, Navy Resilient Energy Program Office direct the real estate contracting officer to modify the Marine Corps Air Station Yuma, Arizona, lease to include the revised acreage or modify the lease to include a revised rent schedule developed using the acreage awarded in the lease. In addition, we recommend that the Director, Navy Resilient Energy Program Office direct the real estate contracting officer to modify the Marine Corps Logistics Base Albany, Georgia, and Naval Air Station Oceana, Virginia, leases to include a revised rent schedule developed using the acreage awarded in the lease. Furthermore, we recommend that the Director, Navy Resilient Energy Program Office, develop a process to ensure Navy real estate contracting officers update the lease rent schedule when Navy Resilient Energy Program Office officials revise the lease acreage.

Management Comments and Our Response

The Commander, Naval Facilities Engineering Command, responding for the Director, Navy Resilient Energy Program Office, agreed with and implemented our recommendations as follows:

  • the real estate contracting officer modified the Marine Corps Air Station Yuma, Arizona, lease to include the revised acreage;
  • the real estate contracting officer modified the Marine Corps Logistics Base Albany, Georgia, and Naval Air Station Oceana, Virginia, leases to include the revised rent schedule developed using the acreage awarded in the lease; and
  • the Acting Deputy Director, Navy Resilient Energy Program Office, disseminated to Navy real estate contracting officers instructions for updating the lease rent schedule when Navy Resilient Energy Program Office officials revise the lease acreage.

The management actions taken during the audit fully addressed the specifics of the recommendations and we consider the recommendations closed.