History of Utility Privatization

Addressing the need to supply reliable, safe, and efficient utility services to installations.

Historically, utilities on installations were the domain of military engineers who designed and managed systems to meet the needs of the base and the mission. By the end of the twentieth century, the changing needs of energy, internal expertise and the overall investment in installation infrastructure led to a degradation in the reliability of base utility systems.  With little interest by Congress in writing big checks to rebuild systems, the Department of Defense (DOD) needed a new strategy. Based off of other successful reform efforts in that period, they turned to the private sector and a partnership model that would bring reinvestment and reliability.

In 1997, Congress provided statutory authority giving DOD the ability to privatize utility systems on military installations. In December 1998, Defense Reform Initiative Directive #49 mandated all military departments to develop plans to privatize utilities on military bases. The UP program would bring sweeping changes to installations across the country.

The goal of UP was to address DOD’s need to supply reliable, safe, and efficient utility services to its installations. In defining a utility system, the authority includes systems for the generation and supply of electric power; the treatment or supply of water; the collection or treatment of wastewater; the generation or supply of steam, hot water, and chilled water; the supply of natural gas; and the transmission of telecommunications. Congress defined a utility system as including the associated equipment, fixtures, structures, and other improvements, as well as real property, easements, and rights-of-way.

The authority states that the Secretary of a military department may convey a utility system to a municipal, private, regional, district, or cooperative utility company or other entity. DOD’s policy permits the military departments to maintain ownership of utility systems and not privatize them for unique security reasons, such as installations with highly sensitive missions, or when privatization is uneconomical.

Benefits of UP

  • Utility experts from the private sector manage the complex utility systems freeing the military to focus on its core mission – protecting and defending the United States.
  • Utility services contract becomes a “must pay bill,” which means funds will always be used for utility system maintenance, operation, renewals, and replacements.
  • The military receives upgrades to installation utility systems, in coordination with the contractor’s accepted schedule.
  • Installation utility systems receive badly needed upgrades without requiring dwindling military construction dollars.

Roles & Responsibilities

The Office of Secretary of Defense oversees DOD’s utilities privatization program, which is part of the department’s installation energy management portfolio. The Assistant Secretary of Defense for Sustainment has the responsible for developing policies and overseeing the program. The military departments have the responsibility for program implementation, as the statutory authority to privatize utility systems is granted to the Secretaries of the military departments. As such, the military departments determine which systems will be privatized and which systems may be exempted from privatization due to economic or security reasons. DLA works with the military departments to plan for utilities privatization and procures and administers 61 utilities privatization contracts for the Departments of the Army and Air Force from the pre-solicitation phase and into the post-award phase.

UP Across the Services


Army officials follow the statute and DOD guidance stating that utilities privatization is the preferred method for recapitalizing utility infrastructure. The stated plan of the Army is to assess all of its utility systems for privatization. The Army prioritizes systems in the worst condition and systems with important missions for privatization. According to Army officials, in cases where the utility system is in poor condition and the installation performs important missions, the Army may privatize utility systems even if the costs in the contractor’s proposal exceed the costs in the government’s “should cost” estimate by as much as 15 percent.

Air Force

The Air Force’s utilities privatization policy states that the program’s goal is to permanently convey utility systems on Air Force active, reserve, and guard installations to private or public utility companies in conjunction with an award of a long-term utility services contract for the operation and maintenance of those systems. The purpose of privatizing a utility system is to restore utility infrastructure to industry standards for operations, maintenance, recapitalization, health, and safety while achieving a monetary savings over the cost of continued Air Force ownership.


The Navy has not pursued utilities privatization in recent years but is currently in the process of assessing utility systems for potential conveyance. Any decisions to convey utility systems will be based on a business case analysis for total ownership cost and the ability to improve reliability, resilience, and efficiency for priority missions. Navy officials noted that the Navy follows DOD policy for utility conveyance authority.