Dive Brief:

• Last month, Malvern, Pennsylvania-based Balfour Beatty Communities (BBC), the U.S subsidiary of Balfour Beatty and one of the country’s largest providers of privatized military housing, pleaded guilty to one count of fraud and agreed to pay more than $65 million in fines and restitution. 
• The fraud scheme, which ran from 2013 to 2019, caused military families to suffer as they waited through "lengthy and unnecessary delays in the resolution of maintenance issues," according to the Department of Justice. Military publication Task & Purpose reported that some residents of BBC homes lived with toxic mold, insect infestations, water leaks and burst pipes.
• BBC employees closed work orders before maintenance had been completed, and destroyed and falsified resident comment cards to inflate resident satisfaction metrics at communities in which it operated, according to the DOJ. By producing these false reports, the company was able to induce the military to pay bonus fees the company had not earned. Overall, the scheme cost the federal government $18.7 million, according to court documents.

Dive Insight:

Since the late 1990s, the U.S. military has relied on private sector companies, such as BBC, Lincoln Military Housing, Hunt Military Communities and The Michaels Organization, to build, own and operate military housing via a 50-year lease under the Military Housing Privatization Initiative (MHPI).  

Private companies earn fees for the various phases of development and management of these communities, from design and construction to ongoing community management and maintenance. BBC has homes in 21 U.S. Air Force, 18 U.S. Navy and 16 U.S. Army bases across the United States. The company also operates student and multifamily housing. With 50,413 units, it ranked No. 31 on the National Multifamily Housing Council’s list of Top 50 managers in 2021.

Before BBC pleaded guilty in December, two of its former employees with responsibility for housing at Lackland Air Force Base in San Antonio, Texas – former regional manager Rick Cunefare and former community manager Stacy Cabrera – also pleaded guilty to fraud charges as part of the same investigation earlier in the year. In DOJ’s release about Cabrera and Cunefare, U.S. Attorney Ashley C. Hoff said that Balfour’s conduct impacted military families at Lackland Air Force Base and Fort Bliss Army Base in Texas.

"Instead of promptly repairing housing for U.S. service members as required, BBC lied about the repairs to pocket millions of dollars in performance bonuses," Deputy Attorney General Lisa O. Monaco said in the news release announcing the resolution of the case. "This pervasive fraud was a consequence of BBC’s broken corporate culture, which valued profit over the welfare of service members."

Cabrera, whose name was Stacy Nelson when she worked for the company, said she felt pressure to meet bonus goals. "You either make these numbers match so we can get the incentive fees, or you may not have a job tomorrow," Cabrera told Reuters in 2019.

Balfour Beatty's response

As part of last month's ruling, U.S. District Judge Emmet G. Sullivan ordered BBC to pay over $33.6 million in criminal fines and over $31.8 million in restitution to the U.S. military and serve three years of probation. It will continue to operate military housing but engage an independent compliance monitor for three years. The company also entered into a False Claims Act settlement with the government to resolve its civil liability for $35.2 million. 

In 2019, Balfour Beatty reviewed the operations at BBC and made a number of changes to prevent misconduct from occurring in the future, according to a company press release after the resolution of the case.

Those changes included restructuring the management team at its subsidiary with the additional appointment of several key executives and a chief compliance officer for the U.S. The company also enhanced its ethics and compliance training for all employees and made "significant" improvements to the maintenance work order processing system. That system now includes enhanced controls and protocols to prevent misuse and strengthen oversight.

"The wrongdoing that took place is completely contrary to the way the company expects its people to behave," Balfour Beatty said in the release provided after resolution of the case in December. "The company apologizes for the actions of communities to all its stakeholders."

Larger problems?

Sarah Kline, founder and director of community outreach at Armed Forces Housing Advocates, an organization that aims to help military families living in substandard conditions, has toured multiple BBC homes and says she has found lead paint chips, pest infestations, leaks, groundwater issues and even a gas leak.

But Kline also sees issues with maintenance and repair beyond Balfour Beatty Communities.

"We have searched and we have not been able to find a Military Housing Privatization Initiative community that military families aren't living in sub-par housing," she said. "There may be one or two homes within most communities, but there are problems within all of those projects."

The companies providing military housing say they are committed to providing the best possible residences for families.

"Military Housing Association member companies are committed to working closely with their military partners to deliver quality homes and services to residents," said a spokesman for The Military Housing Association.