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Letter to The Honorable Michael W. Wynne

Today, Senators Edward M. Kennedy and John F. Kerry sent a letter to Michael W. Wynne, the Secretary of the Air Force, regarding the privatized housing projects at four bases including Hanscom Air Force Base. All four projects have been under work stoppages for months, are years behind schedule, and are tens of millions of dollars over-budget. Local subcontractors involved are concerned about being adequately compensated for work they have performed and expenses they have incurred.

Senator Kennedy said, "Our men and women serving in the Air Force deserve the best in terms of housing, and the Secretary of the Air Force needs to act quickly to fix this problem. The Hanscom community is rightly proud of its role in our national defense and it's unacceptable that so many of these homes have been left partially constructed and exposed to the elements. The community deserves a prompt resolution that includes fair compensation to all the unpaid subcontractors for the work they've performed and the expenses they've incurred."

Senator Kerry said, "We have a duty to support our troops and their families in every way both on the battlefield and back at home. The Air Force needs to immediately address this housing crisis and implement solutions without delay. Our heroes and their loved ones deserve better."

December 12, 2007

The Honorable Michael W. Wynne

Secretary of the Air Force
1670 Air Force Pentagon
Washington, D.C. 20330-1670

Dear Secretary Wynne:

The privatized housing initiatives at Moody, Little Rock, Hanscom, and Patrick Air Force Bases are dramatic exceptions to the generally successful privatized housing initiative of the Department of Defense. We are alarmed and extremely disappointed at the level of failure at these four projects, all of which have been under work stoppages for months, are years behind schedule, and are tens of millions of dollars over-budget.

The failure of these projects has traumatized the local communities and resulted, in some cases, in lost homes and businesses by persons unable to re-coup their expenses. The failure of these projects also continues to jeopardize the Air Force's strong relationship with four very supportive local communities, and these situations, if not corrected, will have ramifications far beyond the local businesses that have been directly affected.

Despite the numerous non-government parties involved in these four projects, the housing privatization process has, from its inception, been overseen and managed by the military services. In these cases, the Air Force has determined which projects to pursue, what legal and financial mechanisms to use, which consultants to employ, which project owners and developers to select, and is responsible for implementing a centralized oversight program. The Air Force therefore bears a major responsibility for the failure of these projects, and we look to the Air Force to develop and implement a plan to salvage the housing programs at these four installations and ensure proper oversight is conducted in the future.

After considerable study of the housing privatization programs across the Department of Defense, we have come to the following conclusions:

1) Either the Air Force did not have adequate mechanisms in place to monitor and ensure adequate performance by the parties to these transactions, or the mechanisms the Air Force relied upon were unsuccessful, or both.

2) In theory, project owners and developers for the projects were accountable to bond-holders, trustee representatives, and third party consultants, but in practice, they were accountable to no one.

3) The sole Air Force representative on site was not a Government employee but a contractor hired by the Air Force Center for Engineering and the Environment who had no authority and who was not responsible to anyone at the local military installation.

4) The Air Force had no direct control of any financial payments to the developer, and any indirect control or leverage the Air Force may have had was either not exercised or ineffective.

5) The amount of payment and performance bonds for all of these projects was substantially less than is standard in private sector construction and was not sufficient for subcontractors to recoup their expenses in the event of default.

The communities affected by these projects are rightly proud of their role in defending our nation, and they deserve a transparent and reasonable resolution to these issues in a timely manner. We expect the Air Force to do everything it can to protect the members of the affected communities as it resolves these matters satisfactorily.

We believe the Department should be more vigorous in vetting project bidders, developers, and lenders before selecting awardees and approving transactions. The Department should communicate more effectively with bondholders to ensure that they act more rapidly when project performance is inadequate, and should do a better job of establishing price reasonableness in reviewing guaranteed maximum price proposals. Projects should also be bonded at a higher level to protect the rights of subcontractors and ensure they can re-coup expenses in the event of project default. Finally, developers or project owners that create LLC's to execute specific projects should receive unsatisfactory performance ratings if the LLC itself fails to perform according to standards. In summary, the Air Force should establish and adhere to a robust, effective oversight plan to successfully manage and maintain project performance and schedule.

The problems at Moody, Little Rock, Hanscom, and Patrick Air Force Bases are significant and lead us to believe that legislation may be necessary to modify current military housing privatization authorities. The Department's housing privatization initiative must be made more effective in preventing these situations from happening again. We welcome the Air Force's decision to appoint an Inspector General to thoroughly investigate these housing privatization projects from the bidding process to the current stop-work order and look forward to reading this report.

In the meantime, we would appreciate you providing specific proposals for quickly restoring these projects to health, as well as proposed changes to oversight and management processes, by January 31, 2008.

Your prompt consideration of this matter is appreciated.

Sincerely,

Saxby Chambliss
Mark Pryor
Edward M. Kennedy
John F. Kerry
Ben Nelson
Mel Martinez
Blanche Lincoln
Johnny Isakson

Cc: Mr. Philip W. Grone, Deputy Under Secretary of Defense, Installations and Environment


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