Force Structure: Actions Needed to Improve Estimates and
Oversight of Costs for Transforming Army to a Modular Force
(29-SEP-05, GAO-05-926).
In 2004, the Army began transforming its force into modular
brigade-based units, thus expanding the number of units available
for deployment and creating new command and support units. The
Army is transforming while engaged in the Global War on Terrorism
and developing other high-cost capabilities. This prompted
congressional concern about the affordability of Army plans.
Thus, under the Comptroller General's statutory authority, GAO
examined the Army's restructuring. This report addresses (1) the
extent of change in costs and areas of uncertainty that could
affect those costs, (2) the Army's plan for funding modularity
and factors that may affect affordability, and (3) whether the
Army has an adequate approach to track modularity obligations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-926
ACCNO: A38677
TITLE: Force Structure: Actions Needed to Improve Estimates and
Oversight of Costs for Transforming Army to a Modular Force
DATE: 09/29/2005
SUBJECT: Cost analysis
Defense capabilities
Federal agency reorganization
Funds management
Future budget projections
Military cost control
Military forces
Military policies
Policy evaluation
Strategic planning
Cost estimates
Army Future Combat Systems
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GAO-05-926
United States Government Accountability Office
GAO Report to Congressional Committees
September 2005
FORCE STRUCTURE
Actions Needed to Improve Estimates and Oversight of Costs for Transforming Army
to a Modular Force
a
GAO-05-926
[IMG]
September 2005
FORCE STRUCTURE
Actions Needed to Improve Estimates and Oversight of Costs for Transforming Army
to a Modular Force
What GAO Found
The Army's cost estimates for its modular force are evolving and have
increased substantially, and uncertainty exists that will likely increase
costs further. In March 2005, the Army estimated it will need $48 billion
to fund modularity through 2011, a 71 percent increase from its 2004
estimate of $28 billion. However, this latest estimate does not include
$27.5 billion in personnel and construction costs the Army and GAO
identified, bringing potential known costs to $75.5 billion. Uncertainties
remain in this estimate related to force design, equipment, facilities,
and personnel, which could increase costs or require the Army to reduce
capabilities. Until the Army provides a more reliable estimate of its
modularity costs, DOD and Congress will not be well positioned to weigh
competing requests for funding.
The Army's funding plan, which it uses as the basis for developing funding
requests, relies on annual and supplemental appropriations and may present
future affordability challenges. Uncertainty in cost estimates noted
above, reliance on business engineering efficiencies that historically
have been difficult for DOD to achieve, and likely cost growth from
another high-cost program-Future Combat Systems-collectively pose the risk
of making this plan unaffordable. Also, as shown below, the Army will be
creating most of the modular units before it has the funding to support
them.
Comparison of Modularity Restructuring and Funding Schedules
Dollars in billions Modular units created/restructured 14 80 12.5 12.7
12 70
60 10
50 8
40
6 30
4 20
2 10
00
2004 2005 2006 2007 2008 2009 2010 2011
Fiscal year
Modular units created/restructured Funding
Source: GAO analysis of Army funding data and unit creation schedules.
Note: The Army plan did not include funding data for fiscal year 2004.
While the Army can generally identify overall equipment purchases, it
lacks an approach for tracking most modularity obligations and thus cannot
provide a reliable picture of past spending or future funding needs. Army
officials said they had not established a framework to track personnel and
equipment obligations in part due to the difficulty of defining whether
such expenses were incurred specifically for modularity or to support the
force in general. However, we note the Army has made such distinctions in
its past funding requests, including identifying specific amounts needed
for
equipment, and will require such data to develop and justify future
requests.
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
Modular Transformation Cost Estimate Has Increased, and
Uncertainties Surrounding Pending Decisions May Increase Costs Further The
Army's Funding Plan Poses Funding Risks That May Cause Affordability
Challenges in the Future Lack of an Approach to Track Funds Obligated for
the Modular
Force Limits the Transparency of Funds Used Conclusions Recommendations
for Executive Action Matter for Congressional Consideration Agency
Comments and Our Evaluation
1
2 5
8
15
19 21 21 22 22
Appendix I Scope and Methodology
Appendix II Comments from the Department of Defense
Appendix III GAO Contact and Staff Acknowledgments
Tables
Table 1: Army Schedule for Transforming to the Modular Design 7 Table 2:
Modular Force Cost Estimates for the Entire Army by Function 10 Table 3:
Modular Force Funding Plan 15
Figure
Figure 1: Comparison of Army Modularity Restructuring and Funding
Schedules 17
Abbreviations
BRAC Base realignment and closure
CBO Congressional Budget Office
DOD Department of Defense
FCS Future Combat Systems
FYDP Future Years Defense Program
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office Washington, DC 20548
September 29, 2005
Congressional Committees
The Army considers its transformation into a modular force to be the most
extensive reorganization of its force since World War II, requiring large
investments in personnel and equipment to restructure a force now
organized in divisions to a modular brigade-based force. By the end of
fiscal year 2006, the Army plans to reorganize its 10 active duty
divisions, expanding from 33 brigades to 43 modular brigade combat teams,
and by fiscal year 2010, create new types of command and support units. At
the same time, the Army is fighting the Global War on Terrorism and
developing other new capabilities such as the Future Combat Systems
(FCS).1 As the Department of Defense (DOD) requests funds to support these
Army initiatives, it is incumbent on DOD to provide the best available
data to justify its resource needs.
Because of the magnitude of the Army's transformation plans and growing
congressional concerns about their affordability, we are examining both
the force structure and cost implications of the Army's transformation
into a modular force under the Comptroller General's statutory authority.
We presented our preliminary observations on the Army's plan in a March
2005 hearing before the Subcommittee on Tactical Air and Land Forces,
House Committee on Armed Services.2 This report focuses on the cost of the
modular force, with an emphasis on assumptions related to the active
component because these plans were the most mature at the time of our
review. Because of your oversight responsibilities, we are sending this
report to you. Specifically, we (1) determined the extent of change in the
Army's cost estimate for transforming to a modular force and the potential
areas of uncertainty that could affect those costs, (2) examined the
Army's plan for funding these costs and factors that may affect its
ability to afford modularity, and (3) determined whether the Army has an
adequate approach to track modularity obligations. We will be providing a
separate
1 FCS is a program that consists of a family of systems composed of
advanced network combat and sustainment systems, unmanned ground and air
vehicles, and unattended sensors and munitions.
2 GAO, Force Structure: Preliminary Observations on Army Plans to
Implement and Fund Modular Forces, GAO-05-443T (Washington, D.C.: Mar. 16,
2005).
report on force structure implications of the modular
transformation at a
later date.
Overall, our assessment of the cost estimate, funding
plan, and the
approach for tracking obligations associated with the
modular force
transformation focused on the assumptions underlying cost
projections
for equipment, personnel, and facilities as they related
to the modular
force proposed by the Army. We examined the processes for
developing
them and assessed the estimates against analyses from
officials
knowledgeable about each of the cost categories. We found
this
information sufficiently reliable for analyzing the
assumptions underlying
costs of the modular force and funding plans.
Specifically, to assess
change and uncertainty in the cost estimate, we compared
the Army's
original rough order of magnitude estimate with updated
estimates and
discussed reasons for the changes with Army budget and
programming
officials. We also discussed areas of uncertainties with
Army officials
responsible for equipment procurement, personnel, and
facilities,
including both headquarters and command officials. To
assess the
affordability of the funding plan, we examined the plan
in light of our
ongoing and previously issued reviews examining Army
assumptions
about other high-cost programs and projected efficiencies
expected in the
Army's budget. To assess the Army's approach for tracking
modular force
costs, we discussed processes used to track these funds
at the command
and headquarters levels, and discussed the Army's
existing processes for
tracking costs in general with headquarters officials. We
conducted our
review from May 2004 through June 2005 in accordance with
generally
accepted government auditing standards. Further
information on our
scope and methodology and data reliability assessment
appears in
appendix I.
The Army's cost estimates for transforming to a modular
Results in Brief force are evolving and have increased substantially, and
uncertainty exists that will
likely increase costs. As of March 2005, the Army
estimated that it will
need $48 billion to fund modular forces-which represents
a 71 percent
increase from its 2004 estimate of $28 billion.3 However,
this most recent
estimate does not include $27.5 billion in personnel and
construction costs
the Army and GAO have identified, bringing the potential
known costs to
3 Unless otherwise noted, costs presented in this report are in then-year
dollars.
$75.5 billion.4 Uncertainties remain in assumptions about force structure
design, equipment requirements and shortfalls, personnel costs, and
basing, which could increase costs even more. For example, if the
Secretary of Defense decides to further increase the number of brigade
combat teams-a decision to be made in fiscal year 2006-increases in
equipment, facilities, and personnel costs may occur. In addition, the
amount for equipment costs included in the Army's estimate is likely
understated because it does not entirely reflect the cost of purchasing
all the equipment needed to bring the currently planned units to the
modular design-and therefore to the level of capability-that the Army
validated in testing. Also, Army officials are uncertain whether the
current end strength authorization is enough to support the modular
conversion, putting personnel costs at risk of increasing if additional
end strength is needed. Finally, the costs of constructing permanent
facilities are uncertain because they have not incorporated recent
proposals for base realignment and closure and restationing of personnel
from overseas. If costs grow due to these uncertainties, the Army may
require additional funding beyond $75.5 billion or need to accept reduced
capabilities among some or all of its units. Until the Army provides a
better understanding of costs associated with the modular force and a
clearer picture of the impact of resource decisions on the modular force
capability, DOD will not be well positioned to weigh competing priorities
and make informed decisions nor will Congress or the Secretary of Defense
have the information they need to evaluate funding requests.
The Army's 2005 through 2011 funding plan for its modular force, which
relies on a combination of supplemental and regular appropriations and
efficiencies, contains various risks that may pose difficult affordability
challenges in the future. In sum, the Army anticipates it will fund the
$75.5 billion cost for modularity with $10 billion in supplemental
appropriations, $42.5 billion in regular appropriations (including $4.5
billion achieved through efficiencies), and a GAO-estimated $23 billion in
either supplemental or regular appropriations to pay for personnel
expenses. According to Army officials, the Army plans to use this strategy
to meet its aggressive schedule for completing its modular conversion and
to avoid canceling or restructuring other programs. It also intends to use
its funding plan as the basis for developing requests for regular
appropriations and supplemental appropriations funds. Several risk factors
may impede the Army's ability to adhere to its plan. First, the Army
4 In constant fiscal year 2006 dollars, this totals $71.6 billion.
will be creating units before funding is available to restructure them.
Its schedule for creating and transforming modular units shows that by
2008, 96 percent of the 194 active and reserve units will be created by
the time the Army has a little over half of its anticipated funding.
Further, uncertainties in the cost estimate for the modular force noted
above may increase the costs of the conversion. The funding plan also
relies on the Army to produce $4.5 billion from business process
reengineering efficiencies in order to fund new construction for the
modular force. However, the Army's ability to achieve these savings is
uncertain because DOD historically has had difficulty achieving these
efficiencies. Finally, although the bulk of funding for the Army's FCS-a
high-cost, high-priority Army program-occurs outside modular
transformation time frames, we have reported that the program is at
significant risk for not delivering required capability within budgeted
resources, and that because of the size of FCS, cost growth could have
dire consequences on the affordability of other Army programs.
Collectively, the risks associated with uncertainties in cost estimates;
the Army's ability to find efficiencies; and implementing two high-cost,
high-priority programs could pose challenges for DOD and the Army in the
future.
While Army officials stated they can generally identify overall equipment
purchases, the Army lacks an approach for tracking and categorizing most
obligations related to modularity and thus cannot provide decision makers
a transparent, reliable picture of past spending or future budget
requirements for the modular force. Federal internal control standards
state that agencies should provide reasonable assurance that an agency's
objectives are being achieved through, among other things, reliable
reports on budget execution.5 While the Army reported obligations of $133
million for its operation and maintenance expenses in fiscal year 2004 for
the modular force transformation, Army officials told us that additional
funds were obligated for personnel and equipment, but they could not
specify the amounts. Initial Army estimates indicated that these costs
could have been as high as $496 million. Army officials told us that they
had not established a framework to track these modularity expenditures in
part because of the difficulty in distinguishing whether such expenses
were incurred specifically for the modular force transformation or to
support the force in general. We note, however, that the Army has made
such distinctions in its past funding requests for the modular force by
5 GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
requesting specific amounts of funds for equipment. For example, in
documentation supporting the fiscal year 2005 supplemental appropriation
request, the Army stated that it required $4.6 billion for modularity
largely to fund equipment, vehicles, and facilities, and $3.1 billion to
repair tanks and handle other battle losses. Moreover, without centrally
tracking and reporting on equipment and personnel expenditures
specifically related to its modular transformation, the Army cannot
determine if the funding it planned and programmed for this purpose is
being spent to meet the requirements for modularity. In addition, Congress
cannot be certain that the funds it has authorized for fulfilling the
Army's modular conversion requirements were spent for that purpose and
that future funding requests for the modular force are justified in light
of those expenditures.
We made recommendations to DOD to improve information available to
decision makers on the cost of the Army's plans and related expenditures.
In comments on a draft of this report, DOD strongly disagreed with our
findings related to the cost estimate for the modular force and the
uncertainties we cited. DOD stated that its cost estimate was solid and
that any uncertainties would not substantially change the estimate. For
the reasons stated above and as discussed in the section summarizing these
comments, we do not believe the department is in a position to state that
the estimate is solid. Further, while DOD agreed on the need for improved
reporting on modularity plans, it did not agree to establish an approach
for tracking modularity costs as we recommend. Given the magnitude and
significant cost of the effort, and the fact that DOD has requested funds
from Congress specifically for modularity, we continue to believe
oversight of expenditures is needed. Therefore, we have included a matter
for congressional consideration. Specifically, Congress should consider
requiring the Secretary of Defense to provide a plan for overseeing
spending of funds provided for modularity.
The Army's modular force transformation, which has been referred to as the
largest Army reorganization in 50 years, encompasses the Army's total
force-active Army, Army National Guard, and U.S. Army Reserve-and directly
affects not only the Army's combat units, but related support and command
and control. Restructuring these units is a major undertaking because it
requires more than just the movement of personnel or equipment from one
unit to another. The Army's new units are designed, equipped, and staffed
differently than the units they replace, therefore successful
implementation of this initiative will require many changes, such as new
equipment and facilities; a different mix of skills and
Background
occupational specialties among Army personnel; and significant changes to
training and doctrine.
The foundation of the modular force is the creation of brigade combat
teams-brigade-size units that will have a common organizational design and
will increase the pool of available units for deployment. The Army
believes a brigade-based force will make it more agile and deployable and
better able to meet combatant commander requirements. Not only does the
Army expect to produce more combat brigades after its restructuring, it
believes the brigades will be capable of independent action by the
introduction of key enablers, such as enhanced military intelligence
capability and communications, and by embedding various combat support
units in the brigade itself instead of at a higher echelon of command. The
Army's objective is for each new modularized brigade combat team, which
will include about 3,000 to 4,000 personnel, to have at least the same
combat capability as a brigade under the current divisionbased force,
which ranged from 3,000 to 5,000 personnel.6 Since there will be more
combat brigades in the force, the Army believes its overall combat
capability will be increased as a result of the restructuring, providing
added value to combatant commanders.
Although somewhat smaller in size, the new modular brigades are expected
to be as capable as the Army's existing brigades because they will have
different equipment, such as advanced communications and surveillance
equipment, and a different mix of personnel and support assets. The Army's
organizational designs for the brigade combat teams have been tested by
its Training and Doctrine Command's Analysis Center at Fort Leavenworth
against a variety of scenarios, and the Army has found the new designs to
be as effective as the existing brigades in modeling and simulation.
By 2011, the Army plans to have reconfigured its total force-to include
active and reserve components, and headquarters, combat, and support
units-into the modular design. The plan includes expanding the existing 33
brigades in the active component division structure into 43 modular,
standardized brigade combat teams by fiscal year 2006. Table 1 shows the
Army's schedule for transforming to the modular design.
6 The Army's plan calls for three variants of the modularized brigade
combat team. The infantry variant will have about 3,300 personnel, the
armored variant 3,700 personnel, and the Stryker variant 4,000 personnel.
Table 1: Army Schedule for Transforming to the Modular Design
2004 2005 2006 2007 2008 2009 2010 2011 Total
Active maneuver
brigade combat
teams added 33400 0 00
Active maneuver
brigade combat
teams reconfigured 10 5 11 7 0 0 0 0
Active
headquarters units 3 3 4 4 1 2 1 0
Active support
units 6411124 2 00
Total active units 22 15 30 23 5 4 1 0 100
Army National
Guard units 0 9341323 0 0 3
U.S. Army Reserve
units 00444 0 00
Total Army units 22 24 68 40 32 4 1 3 194
Source: GAO analysis of Army data.
Supporting DOD's goals for transformation while undertaking current
operations is a complex undertaking. In addition to the sheer magnitude of
force structure changes the Army is implementing, the Army's
transformation to a modular force is occurring as the Army is rotating
over 160,000 troops annually into combat theaters to fight the Global War
on Terrorism. As an indication of the progress already made, the Army
reports it has built 5 new brigade combat teams, converted 16 brigade
combat teams, and created 16 modular support brigades. In addition, the
Army reports it has made "rebalancing" decisions affecting over 100,000
military positions in order to make the best use of its available
personnel. This involves creating more units of the types needed most and
eliminating from the force units of lesser priority.
Legislation has increased the Army's end strength in part to support the
modular reorganization. In the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005, the Army was authorized an end
strength of 502,400 soldiers-a 20,000 soldier increase of the fiscal year
2004 end strength of 482,400.7 The 2005 act also authorized the Secretary
7 Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375 S: 401 (2004).
Modular Transformation Cost Estimate Has Increased, and Uncertainties
Surrounding Pending Decisions May Increase Costs Further
of Defense to increase the Army's end strength as high as 512,400 during
fiscal years 2005 through 2009 to support the operational mission of the
Army in Iraq and Afghanistan and to achieve transformational
reorganization objectives of the Army.8
Since the summer of 2004, the Army's cost estimate for transforming its
force through fiscal year 2011 increased from $28 billion to $48 billion
in its spring 2005 estimate. While this latest estimate addressed some of
the shortcomings of the initial estimate, and includes lessons learned
developed from operations in Iraq, this estimate excludes some known costs
and includes uncertainties that may increase the cost estimate further.
The Army did not include personnel costs, which we estimate to total $23
billion over the same time frame, and also did not include $4.5 billion in
construction costs the Army plans to achieve through efficiencies. When
added to the most recent estimate, the total known costs increase from $48
billion to $75.5 billion.9 Uncertainties in the estimate could cause costs
to increase higher. Pending decisions about the number and design of
modular units, and uncertainties surrounding equipment, personnel, and
facilities costs, may require the Army to request additional funding
beyond $75.5 billion or accept reduced capabilities among some or all of
its units. Without a clearer picture of the Army's resource requirements,
DOD will have difficulty weighing competing funding priorities, and the
Secretary of Defense and Congress will not have information they need to
evaluate funding requests.
Cost Estimate for the The Army's current cost estimate for the modular
force transformation is Modular Force Has $48 billion, a 71 percent
increase from its initial rough order of magnitude Increased estimate of
$28 billion made in the summer of 2004.10 There were several
weaknesses in the initial $28 billion estimate. Because the modular force
designs had not been finalized, earlier estimates reflected costs based
mainly on the existing division-based design. Further, in constructing the
active component portion of the estimate the Army (1) assumed the costs
8 Ibid, S: 403.
9 In constant fiscal year 2006 dollars, this totals $71.6 billion.
10 The initial estimate for the active component transformation, which
accounted for $20.1 billion of the initial $28 billion, was presented to
the President and Secretary of Defense in a January 2004 briefing on the
modular force transformation. In later briefings the Army added $7.9
billion to cover the costs of transforming the reserve component.
of adding 15 light infantry, division-based brigades but did not include
costs of restructuring the existing combat brigades in the force
structure; (2) did not include restructuring of command and support units;
and (3) made no allowances for permanent construction to house and support
these units, funding instead temporary facilities reflecting the Army's
assumption that end strength increases would be temporary as well.
In March 2005, the Army increased its estimate for transforming to a
modular force to $48 billion from fiscal year 2005 through 2011.11
According to Army officials, this most recent estimate addressed
shortcomings of the initial estimate in that it included funding to (1)
both create new units and restructure existing ones, (2) build permanent
facilities to house and sustain the new force structure, and (3) used the
modular design where available as the basis for estimating costs.
Moreover, officials told us that the modular design had been updated to
reflect lessons learned about equipping and employing the force from
ongoing operations in Iraq.
This estimate, however, did not include personnel costs and some
construction costs. The Army reported that increases in end strength above
the appropriated end strength of 482,400 soldiers were assumed to cost $3
billion per year, but were not tallied as part of the estimate. According
to Army officials, these personnel costs were excluded because officials
from the Office of Management and Budget and in the Office of the
Secretary of Defense provided guidance that modular transformation was
largely equipment related, and thus the Army should not include such
costs. Further, Army officials cited the difficulty in segregating end
strength cost increases due to modularity versus those due to ongoing
operations. For example, units preparing for deployment to Operation Iraqi
Freedom are being reorganized into a modular organization prior to
deployment. While we acknowledge that it may be difficult to clearly state
whether end strength increases associated with a deploying unit were due
to modular transformation or operational requirements, we believe
including these costs in their entirety is appropriate because (1) the
Army has stated it requires an increase in end strength to accommodate the
modular force, (2) it assumes that its tempo of operations will continue
at the same pace through 2011, and (3) excluding personnel costs would
11 Army officials told us they excluded fiscal year 2004 costs from the
estimate because the Army wanted to present future requirements, as
opposed to past expenditures, and that the inclusion of the fiscal year
2004 modular force costs would add a relatively minor increase to the
overall costs.
significantly understate the cost of the modular force. The Army's $3
billion estimate multiplied over the 7-year period from 2005 through 2011
and including estimates for inflation totals $23 billion, based on GAO's
calculations. In addition to these personnel costs, the Army did not
include an additional $4.5 billion in efficiencies it planned to apply to
construction costs related to the modular force. This assumption is
discussed in more detail in the next section. Adding these known costs for
construction and personnel to the Army's official estimate brings the
total potential known costs to $75.5 billion.
According to Army data and our projection of personnel costs, equipment
accounts for 54 percent of the costs, personnel for 30 percent, military
construction and facilities for 8 percent, and sustainment and training
for 8 percent as well. These figures along with the annual totals are
presented in table 2.
Table 2: Modular Force Cost Estimates for the Entire Army by Function
Dollars in billions
Percent 2005 2006 2007 2008 2009 2010 2011 Total of total
Equipping 4.7 5.8 5.4 5.9 6.5 6.7 6.0 $41.0
Personnel 3.0 3.1 3.2 3.3 3.4 3.5 3.6 $23.0
Military
construction/
facilities 0.3 0.0 0.5 0.5 1.5 1.5 1.5 $5.8
Sustainment
and training 0.0 0.7 0.7 1.2 1.1 1.0 1.0 $5.7
Total $8.0 $9.6 $9.8 $10.9 $12.5 $12.7 $12.1 $75.5 100
Sources: GAO analysis of Army cost estimates for equipping military
construction and facilities, and sustainment and training costs; GAO
projection of Army personnel cost data.
Uncertainty Surrounding Assumptions Could Result in Further Cost Increase
Future Decisions on Design of Combat, Support, and Command Units Could
Affect Costs
While the Army's latest cost estimate addressed several of the shortfalls
in its initial rough order of magnitude estimate, uncertainties in its
latest estimate are likely to cause costs to increase. We identified the
following factors that could affect equipment, personnel, and facilities
costs.
The Army's Campaign Plan calls for a decision by fiscal year 2006 on
whether to create five additional modular brigade combat teams-a decision
that could affect the size and composition of the modular force as well as
its cost. Adding five brigades would provide additional capability to
execute the defense strategy but would require additional restructuring of
people and equipment. If the Secretary of Defense decides to add five
Equipping Brigade Combat Teams Poses Cost Uncertainties
brigade combat teams to the current plan, the cost for modularity will
increase significantly. For example, each modular brigade combat team
under the current design would require 3,300 to 3,700 soldiers, for a
potential total of up to 18,500 soldiers. It is not clear whether the Army
would have to add this entire amount to its end strength, however. The
Army has begun initiatives to rebalance the force by converting military
positions to civilian positions, thus allowing soldiers currently in the
institutional force to be moved to the operational force, and by
rebalancing the active and reserve components in the force. To the extent
the Army is successful in reallocating positions under these initiatives,
it may be able to offset some of these requirements of the additional
brigades. In addition to personnel requirements, adding these brigades to
the force structure would add costs for equipment, facilities, and
training.
At the time the cost estimates were set, the Army had not finished the
designs for all support units and command and control echelons. Refinement
of these designs could increase costs if, as the Army fields these
designs, it finds that additional personnel and equipment are needed to
ensure sufficient capabilities. Some Army officials we spoke with have
already expressed concern that command echelon designs do not have
sufficient staff to manage all required tasks. For example, at one
division we visited, officials thought that the command design was short
staffed given their expanded set of responsibilities. As a result, command
staff would have to prioritize the management of daily tasks and
activities such as trend analysis, statistical tracking, and oversight,
while leveraging of historical data to produce lessons learned and program
improvement would have to be performed by contractors or other civilian
staff. In both cases, if the Army finds that staffing levels in current
command designs are not sufficient, it will have to choose between
decreased capabilities or increased personnel expenses stemming from
higher end strength requirements or hiring civilians or contractors to
perform some of these functions.
Equipping brigade combat teams poses cost uncertainties because the Army
did not use the equipment quantities in the tested design as the basis for
determining equipment costs. Instead, the amount estimated for equipment
reflects costs based upon a lesser modified amount of equipment that does
not necessarily meet the capabilities of the tested design. The Army
determined it could expect to provide this modified equipment level to
units undergoing conversion based on the limitations of its current
inventory of equipment, planned procurement pipelines, and expected
funding.
Facilities Cost Estimates Remain Uncertain
Further, in estimating its equipment costs for the modular force, the Army
assumed that some equipment from ongoing operations would remain in
operational condition for redistribution to new and restructured modular
units. To the extent equipment is not returned from operations at assumed
levels, it is not clear whether costs of replenishing this equipment would
be considered modularity costs or costs of ongoing operations. Currently,
equipment is wearing out and being consumed at higher-than-expected rates
due to significant usage in current operational commitments overseas. For
example, a Congressional Budget Office (CBO) assessment indicates that
trucks in Iraq and Afghanistan are being driven roughly 10 times more
miles per year than the average over the past several years. An internal
Army assessment also found that tactical vehicles in Iraq are being
utilized 6 to 10 times the normal operating tempo, dramatically reducing
expected service life and creating significant repair expenses. In
addition, the Army's prepositioned stocks will have to be reconstituted
due to their heavy use in Operation Iraqi Freedom. We recently reported
that according to Army officials, the Army is nearing completion on a new
strategy for its prepositioning programs.12 They told us that
prepositioning will continue to be important in the future and that the
prepositioned sets would be converted to the modular configuration by 2012
or sooner. However, until the strategy is finalized, costs for converting
this equipment remain unclear.
Potential increases in the number of brigades and pending decisions
related to base realignment and closure (BRAC) and restationing of forces
from overseas present considerable uncertainty in facilities cost
estimates. As previously noted, the current estimate does not include the
cost of funding to cover five additional brigades that may be added if
approved by the Secretary of Defense in fiscal year 2006. A decision to
add these brigades would add significantly to the modular force
facilities' funding requirements. Without knowing where these brigades
would be stationed, it is difficult to evaluate funding requirements for
facilities because each base will likely have a different inventory of
facilities in place to house and support such units. However, according to
Army facility planning estimates, each new brigade combat team would
require approximately $300 million dollars in permanent facilities if
there are no existing facilities, such as barracks and vehicle maintenance
facilities, at the proposed site. This planning estimate does not include
facilities
12 GAO, Military Prepositioning: Better Management and Oversight Needed to
Reduce Risk and Improve Future Programs, GAO-05-427 (Washington, D.C.:
July 2005).
End Strength Requirements Are Uncertain and Could Increase Personnel
Related Costs
requirements for higher headquarters and support units, which can be
substantial. For example, at Fort Campbell, the facility requirements for
support and headquarters units accounted for $156 million, or 28 percent,
of the $553 million dollar permanent construction requirements for the
installation. None of these costs have been incorporated into the current
estimate.
The impact of decisions related to the BRAC process and DOD's overseas
forces restationing strategy present further uncertainties in the Army's
facility cost estimate. Although recent cost data on BRAC have been
reported, the Army's current modularity facilities cost estimate predates
the availability of the data and the Army has not updated its estimates
accordingly. Both BRAC and the overseas restationing strategy have the
potential to limit the Army's ability to construct new permanent
facilities to support its modularity requirements. The BRAC commission's
decision to close, realign, or reduce the size of military installations
may constrain the construction funding available for the Army's modular
forces, thereby serving to delay the Army's ability to construct
sufficient permanent facilities for its modular force structure. The
overseas restationing strategy aims to determine the optimum level of
overseas stationing of U.S. military personnel and equipment in order to
meet defense strategies. According to the Army, decisions related to the
plan could return approximately 47,000 Army soldiers to the United States.
This would greatly add to the requirements for facilities as entire units
are relocated back to bases in the United States and soldiers from
disestablished overseas units are transferred to fill the new modular
units. The Army will face severe facilities shortages due to the increased
populations within its continental U.S. installations resulting
simultaneously from the BRAC decisions, overseas restationing strategy,
and modular force restructuring. This increased demand for facilities may
force the Army to make trade-offs in its permanent facility construction
plans and may delay the construction of permanent facilities for its new
modular and restructured units.
Although the Army has estimated that it will require about $3 billion per
year for the 30,000 soldiers it has attributed to meeting the requirements
of transforming to a modular force while conducting operations related to
the Global War on Terrorism, uncertainty about the need for additional end
strength could produce cost growth in personnel-related expenses. This
uncertainty about the total end strength required for the modular force
has been reflected in our discussions with Army officials, in recent
deliberations by Congress, and in analyses by other research
organizations.
o Officials from the Deputy Chiefs of Staff for Personnel told us in
April and June 2005 briefings that the current authorized end strength of
512,400 active duty soldiers may not be enough to meet modular force
personnel requirements, especially during the transformation process. In
these briefings, officials told us the Army would likely need 522,400
soldiers and possibly more to staff the modular force structure.
o As a part of deliberations on the National Defense Authorization Act
for Fiscal Year 2006, both houses of Congress have proposed increases in
end strength in part to support the Army's restructuring. The pending
House Defense Authorization Bill increases the Army's end strength to
512,400, with the option, as necessary, for the Secretary of Defense to
increase the end strength as high as 532,400 for fiscal years 2007 through
2009.13 The Senate version of the bill authorizes increasing the size of
the force to 522,400 in fiscal year 2006.14
o Finally, an analysis by the CBO reported that the Army may need as
much as 542,400.15 This end strength assumes that the Army will add the 5
brigades to make a 48-brigade force and that it will be unsuccessful in
reassigning 30,000 soldiers from the institutional to the operational
force as planned.
Increasing end strength has significant cost implications. Using the
Army's suggested estimate of $70,000 per additional soldier, increasing
the end strength by 10,000 soldiers for a total of 522,400 from 2006 to
2011 would add $4.7 billion to the $23 billion cost estimate. However,
this estimate is conservative, based primarily on personnel salaries but
few other personnel-related expenses. The Army's current estimate of about
$3 billion per year for 30,000 soldiers-a more comprehensive estimate that
includes expenses for institutional and unit training, relocation, base
support, and other items-translates to about $100,000 per soldier. Using
this more inclusive per-soldier estimate, we estimate that it would cost
an additional $6.7 billion if the Army were required to increase its end
strength to 522,400.
13 H.R. 1815, 109th Cong. S:S: 401, 1521, and 1522 (2005).
14 S. 1402, 109th Cong. S: 401 (2005).
15 Congressional Budget Office, Options for Restructuring the Army
(Washington, D.C.: May 2005), www.cbo.gov (downloaded May 11, 2005).
In written comments on a draft of this report, DOD stated that the end
strength increase was temporary and related solely to current operations.
As discussed in the section of this report on agency comments and our
evaluation, we disagree with DOD's comments on end strength. We note that
the Army's own documents justified the end strength increase for the dual
purpose of transforming and conducting operations. For example, the Army's
approved 2005 Modernization Plan states that a 30,000 temporary increase
in the Army's end strength enabled the beginning of the modular conversion
of active component combat units. This view is consistent with Army
briefings provided throughout our review that link the end strength
increase with the Army's modularity initiative.
The Army's funding plan for its modular force anticipates a combination of
supplemental and annual appropriations, but risks borne of the fast pace
of transformation, cost growth for the modular transformation, not
achieving efficiencies as planned, and likely cost growth from FCS could
pose affordability challenges in the future. The plan indicates that the
transformation will be paid for with $10 billion in supplemental
appropriations in fiscal years 2005 and 2006, and a total of $42.5 billion
in its regular appropriations from 2005 through 2011. In addition, the
Army anticipates receiving personnel funding to pay for increased end
strength through either supplemental appropriations or an increase to the
Army's base budget. As noted earlier, we project these costs to total $23
billion, including inflation. Table 3 displays the annual totals for these
funds.
The Army's Funding Plan Poses Funding Risks That May Cause Affordability
Challenges in the Future
Table 3: Modular Force Funding Plan
Dollars in billions
2005 2006 2007 2008 2009 2010 2011 Total
Supplemental
appropriations 5.0 5.0 $10.0
Regular appropriations 1.5 6.6 7.6 9.1 9.2 8.5 $42.5
Supplemental or
regular
appropriations for
increased end strength 3.0 3.1 3.2 3.3 3.4 3.5 3.6 $23.0
Total $8.0 $9.6 $9.8 $10.9 $12.5 $12.7 $12.1 $75.5
Sources: GAO analysis of Army funding plan; GAO projection of Army
personnel cost data.
Note: Figures may not add due to rounding.
The Army intends to use this funding plan in developing funding requests
for funds provided through both regular and supplemental appropriations.
We note that the total costs reflected in the Army's funding plan are not
specifically identified in the Future Years Defense Program (FYDP)- DOD's
centralized report for providing DOD and Congress data on current and
planned resource allocations. According to Army officials, the fiscal year
2006 FYDP, which projects funding requests from fiscal years 2006 through
2011, included only $42.5 billion of the $67.5 billion the Army plans to
request over those years. Of that, only $25 billion was specifically
designated in the FYDP for this purpose.16 The FYDP also included $17.5
billion that the Army planned to use for modularity over that period
according to Army officials, but these amounts were not specifically
identified in the FYDP. Because the FYDP does not include anticipated
requests for supplemental appropriations, the 2006 FYDP did not reflect
either the $5 billion the Army plans to request in fiscal year 2006 or the
$20 billion we project the Army will request from fiscal years 2006
through 2011 to support increases in end strength.
Notwithstanding the potential for increases in the cost of modular force
transformation noted above, this funding plan poses several risks that may
raise difficult affordability questions in the future. First, when
compared to the Army's unit creation schedule, the plan indicates that the
Army will be creating units before it has the funding available to
resource them, as shown in figure 1.
16 This amount includes $5 billion per year from 2007 through 2011 that
the Secretary of Defense specifically allocated to the Army for modularity
in guidance for preparing the fiscal year 2006 budget request.
Figure 1: Comparison of Army Modularity Restructuring and Funding
Schedules
Dollars in billions
Modular units created/restructured
14 80 12.5 12.7
12 70
60 10
50 8
40
6 30
4 20
2 10
00
2004 2005 2006 2007 2008 2009 2010 2011
Fiscal year
Modular units created/restructured
Funding
Source: GAO analysis of Army funding data and unit creation schedules.
Note: The Army plan did not include funding data for fiscal year 2004.
While the Army anticipates that 96 percent of its 194 active and reserve
units will be created by 2008, it will have received only 51 percent of
its anticipated funding required to restructure these units by that time.
Army officials told us that while it was necessary to create these modular
units to support ongoing operations, and that units deploying were being
supplied with equipment required to execute ongoing operations, the Army
could not afford to equip the modular units according to its planned
equipping levels for the modular force at the time the units were created.
Therefore, to avoid canceling or restructuring other programs, funding was
flattened out over time to meet the constraints of the funds available. In
written comments on a draft of this report, DOD acknowledged that some
units will face equipment shortages in the early years of transformation
but the Army will manage these shortfalls through preplanned processes and
stringent management controls.
Also, the funding plan assumes that the Army will achieve a total of $4.5
billion in business process reengineering efficiencies, and that the
savings associated with these efficiencies will be available to fund the
modular force as part of the Army's regular appropriations. In December
2004 budget guidance from the Deputy Secretary of Defense, the Army was
instructed to assume that $1.5 billion in business process reform
efficiencies would be available for the modular force in each of fiscal
years 2009, 2010, and 2011. In written comments on a draft of this report,
DOD stated that it had identified programmatic offsets for these
efficiencies and intended to include them as part of its fiscal year 2007
President's budget request. However, Army officials told us that details
of their plan were not yet finalized and available for review. As a
result, we are unable to comment on the specific plan the Army has for
achieving these efficiencies. However, we noted in our most recently
issued High-Risk Series that for years we have reported on inefficiencies
and the lack of transparency and appropriate accountability across DOD's
major business areas.17 Further, despite commitment and attention from
senior DOD leaders, we found little tangible evidence of actual
improvement in DOD's business operations to date. Given this track record
and the lack of data available for us to review, we are not confident that
the Army can achieve these efficiencies as planned.
Finally, as we testified in March 2005, the Army's $108 billion FCS
program is at significant risk for not delivering required capability
within budgeted resources.18 Although the bulk of the funding for this
high-priority program is planned for after 2011 when the Army plans to
have completed its modular transformation, $23 billion is projected to be
spent from fiscal years 2005 through 2011 on research and development
costs. Given the scope of the program, our assessment that FCS is likely
to encounter problems late in development when they are very costly to
correct, and historical cost growth in weapons systems, we reported that
cost growth associated with FCS could have dire consequences on the
affordability of the Army's programs, especially in light of a constrained
discretionary budget.
In comments to our report DOD stated that the FCS program is on track and
stated that the Army uses a different standard for assessing technology
maturity than GAO. Further, DOD stated that there is sufficient
flexibility in its investment accounts that if financial risks arise,
these risks can be addressed through extended planning period adjustments
in future
17 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).
18 GAO, Defense Acquisitions: Future Combat Systems Challenges and
Prospects for Success, GAO-05-428T (Washington, D.C.: Mar. 16, 2005).
Lack of an Approach to Track Funds Obligated for the Modular Force Limits
the Transparency of Funds Used
programming cycles. The fact remains that the program's level of
knowledge-a key indicator of budgetary risk-is far below that suggested by
best practices or DOD policy: nearly 2 years after program launch and with
$4.6 billion invested, requirements were not firm and only 1 of over 50
technologies was mature as of our March 2005 testimony. Even using the
Army's standard for assessing technology maturity, less than 40 percent of
the FCS technologies would be mature. Further, we note that while extended
planning periods may make the program more affordable in a given year, we
have reported that such extensions are costly.19
While the Army can generally track funds associated with individual
programs, it has not established an approach for tracking funds obligated
for its modular force transformation. As a result, the Army, DOD, and
Congress will have limited visibility over whether funds are being
expended as intended to achieve transformation goals, and will not have
key data available to determine whether course corrections in the program
are needed. Standards for internal control in the federal government state
that internal controls should provide reasonable assurance that the
objectives of the agency are being achieved.20 One of the categories of
internal controls is reliability of financial reporting, including reports
on budget execution.
The Army's inability to track obligations related to its modular
transformation is most clearly illustrated by the lack of data from fiscal
year 2004. In that year, the Army created or transformed a total of 22
units. However, the Army has been unable to determine how much money it
obligated to do so. For example, officials from the Army Budget Office
told us that they track obligations of the overall Army related to
equipment and personnel, but cannot discern how much of the funds
obligated were related to the modular force transformation versus other
programs, such as repairing or replacing equipment from operations in Iraq
and Afghanistan. In early cost projections, the Army had estimated that it
would need $400 million to procure equipment and $96 million in personnel
expenditures to support the modular transformation in fiscal year 2004.
Although Army officials told us that the majority of equipment
requirements were satisfied with equipment transfers from other units that
19 GAO, Major Management Challenges and Program Risks: Department of
Defense, GAO-03-98 (Washington, D.C.: January 2003).
20GAO/AIMD-00-21.3.1.
were not scheduled to deploy to operations in the near future, they were
not able to tell us how much of the $400 million was offset by these
transfers. Similarly, the Army was not able to distinguish how much of the
amount of expenditures on personnel was attributable to the modular force
transformation versus personnel cost increases associated with activating
reservists for ongoing operations, and stop-loss policies designed to
retain servicemembers for the operations beyond their service obligations.
The Army did report that it obligated $133 million related to operations
and maintenance for the modular force in fiscal year 2004 through a
database it employs to track obligations related to supplemental
appropriations for the Global War on Terrorism. However, in our report on
cost data related to the Global War on Terrorism to be issued later this
month, GAO found numerous problems in DOD's processes for recording and
reporting costs for the Global War on Terrorism, raising significant
concerns about the overall reliability of DOD's reported cost data.
Army officials acknowledged the need to closely monitor resources required
and applied to the modular force transformation, and noted that this
monitoring occurs as part of weekly, high-level meetings with the Army
Chief of Staff. These meetings focus on tracking equipment needs of
transforming units and making sure that these needs are met. Equipment
shortages can be filled with new equipment, transfers from other units, or
by the unit falling in on equipment left in Iraq. There are also controls
to track how many and what pieces of equipment have been purchased and
distributed, according to these officials. However, because ongoing
missions continually change the status and availability of equipment, it
is difficult for Army officials to define whether new equipment meets the
requirements of modular transformation or ongoing operational needs.
Indeed, sometimes the equipment may serve to meet both purposes. Also the
Army's financial system has limitations and lacks the functionality
required to split out modular components within each line of equipment.
Army leadership, therefore, has made the decision that it is more
important to account for the total equipment purchased; dollars spent; and
operational issues, such as ensuring that equipment gets to the units that
need it, rather than labeling a particular piece of equipment as dedicated
to modular transformation or not.
While we recognize the challenges of monitoring resource expenditures in
the context of ongoing operations, we also note that in its estimates and
requests for appropriations, the Army has been able to distinguish between
funding requirements for its modular transformation and other priorities.
For example, in documentation supporting the fiscal year 2005 supplemental
appropriation request, the Army stated that it required $4.6
Conclusions
Recommendations for Executive Action
billion for modularity largely to fund equipment, vehicles, and
facilities, and $3.1 billion to reset and recapitalize tanks and other
battle losses. While the Army appears to have established parameters for
estimating modularity costs, it cannot apply them for tracking purposes.
Despite a significant increase in its estimate to fund the modular
transformation from its original estimate, the Army's ultimate costs of
the modular force will likely be higher than currently estimated due to
uncertainties and pending decisions, which may drive costs even higher.
Until the Army develops a detailed plan estimating the total costs of the
modular force as designed and tested and starts submitting this plan to
Congress each year, Congress cannot be assured that it is receiving an
accurate reflection of all costs associated with this restructuring and
the risks associated with any funding shortfalls, given the uncertainties
of the current estimate. Moreover, it will be difficult for the Secretary
of Defense to make informed decisions weighing the relative merits of
programs departmentwide in terms of making trade-off decisions when faced
with likely affordability challenges in the future.
Further complicating its ability to project resource needs, the Army is
not tracking and reporting obligations related to this effort by fiscal
year. As a result, decision makers, including DOD and Army leadership and
Congress, will not be able to assess whether funds appropriated for
modularity have been utilized for the purposes intended nor will they have
historical information useful in considering future funding needs.
To improve information available to decision makers on the cost of the
Army's plan for modularity, we are making to recommendations to the
Secretary of Defense.
We recommend that the Secretary of Defense direct the Secretary of the
Army to provide Congress a detailed plan estimating the costs of
modularity sufficient to provide Congress reasonable assurance that
estimated costs reflect total costs of modularity as designed and tested.
Such a plan should be prepared annually and submitted as part of
justification material supporting DOD's budget request, until the modular
force is fully implemented. It should include
o a clear definition of what costs the Army does and does not consider
to be related to the modular transformation;
o estimates for equipment, facilities and personnel;
o identification of uncertainties in the plan due to pending force
structure design decisions or other decisions that may affect costs, and
updates to the plan as these decisions are made;
o a report on obligations related to the modular force made the previous
fiscal year; and
o divergences from the plan as stated in the prior year's report, and
contributing factors.
To facilitate his oversight of the program and collecting the data for
Congress mentioned above, we also recommend that the Secretary of Defense
direct the Secretary of the Army in coordination with the Undersecretary
of Defense (Comptroller) to develop a plan for overseeing the costs
related to the Army's transformation to a modular force. This plan should
include an approach for tracking modular transformation costs that clearly
identifies obligations for the modular force.
Matter for The Congress should consider requiring the Secretary of
Defense to provide a plan for overseeing spending of funds provided for
modularity.
Congressional Consideration
Agency Comments
and Our Evaluation
In written comments on a draft of this report provided by the Army on
behalf of DOD, the department strongly disagreed with our findings related
to the cost estimate for the modular force and the uncertainties cited.
DOD stated that the Army's $48 billion cost estimate is solid and does not
include uncertainties. For example, although DOD expects the modular force
design to change, it does not believe these changes will substantially
change the Army's cost estimate. Also, DOD objected to our inclusion of
personnel costs in our estimate because it believes the end strength
increase is temporary and entirely related to the Global War on Terrorism.
DOD noted that an end strength increase would not have been necessary in a
peacetime environment. DOD also stated that our report includes costs
related to resetting the force, BRAC, overseas restationing of service
members, and FCS. The department noted that these costs were not included
in its estimate for the modular force, nor should they be. Despite these
concerns, DOD partially concurred with our recommendations.
We do not agree that DOD is in a position to state that the Army's cost
estimate is solid and continue to believe that our findings fairly reflect
the potential costs and uncertainties associated with the Army's modular
transformation. As we state in our report, at the time the estimates were
set, the Army had not finished the designs for support units and command
and control echelons. In addition, we note that the Army has not included
the equipment quantities in the tested design as the basis for determining
equipment costs. If subsequent testing or lessons learned demonstrate any
weaknesses in the current design, the Army may decide to modify equipment
levels or force structure, which could affect costs. We recognize that
some of these uncertainties, such as those related to facilities costs and
force design, are a reflection of preparing an estimate for a very
complicated undertaking where there are many moving parts. Given the
complexity of this undertaking and two decades of GAO reports delineating
DOD's overly optimistic planning assumptions in budget formulation, which
often lead to program instability or costly program stretch outs, we
believe these uncertainties should be explicitly acknowledged so that
decision makers can make informed decisions.
Regarding the inclusion of personnel costs related to the end strength
increase, we note that the Army's own documents justified the end strength
increase for the dual purposes of transforming and conducting operations.
For example, the Army's 2005 Modernization Plan states that a 30,000
temporary increase in the Army's end strength enabled the beginning of the
modular conversion of active component combat units. Moreover, the Army's
initial 2004 estimate included personnel costs due to increases in end
strength. Finally, it is not clear how the Army would be able to add 10
combat brigades to the active component without affecting end strength in
some manner. For these reasons we continue to believe that the Army needs
to recognize these costs in its estimate.
DOD also suggests that costs associated with resetting the force, BRAC,
overseas restationing of forces, and FCS are included in our estimate of
$75.5 billion. While we cite these issues as either pending decisions or
related programs that could affect the scope or affordability of the
modular transformation, we do not include the costs of these programs in
the estimate itself.
DOD partially concurred with our recommendation that the Secretary of
Defense direct the Secretary of the Army to provide improved cost
estimates to reflect the total cost of the modular transformation as
designed and tested, and recognized the need for periodic reporting on the
modular force. DOD also cited forthcoming reports that it believed would
provide official, comprehensive oversight of the modular force initiative.
Specifically, DOD cited a report due to Congress in September 2005 on the
long-range plan for executing and funding the modular force initiative
that includes related budget projections for fiscal years 2007 through
2011, funding challenges, equipment requirements, and program management
oversight practices. In addition, according to the comments, the Army was
directed to provide the Office of Management and Budget, through the
Office of the Secretary of Defense, an annual report for the Army modular
force. We agree with DOD that additional reporting on this initiative is
needed, and note that the reporting requirements from both Congress and
the Office of Management and Budget also indicate a need for improved
information. Our recommendation does not seek to create redundant and
unnecessary additional reporting requirements, as was indicated in DOD's
comments. Indeed, our recommendation allows DOD wide latitude in how it
provides the information we believe Congress needs for oversight to avoid
such redundancy. However, we also note that the reports DOD cited have not
yet been finalized, and we are unable to determine from DOD's description
whether these reports would address our recommendations. If these reports
adequately address the reporting requirements we recommend, there would be
no need for additional reporting on DOD's part.
DOD also partially concurred with our recommendation that the Secretary of
Defense direct the development of a plan for overseeing the costs related
to the Army's transformation to a modular force. DOD noted that the
Undersecretary of Defense (Comptroller) will closely monitor the funding
and execution of projects and programs associated with transformational
efforts as part of its oversight responsibilities. However, DOD also noted
that there were no plans to establish an encompassing framework, grouping
Army projects together under "modularity." It stated that such a framework
would dramatically expand the billing process, increase administrative
costs, and more importantly complicate distribution of material in a
wartime environment. We continue to believe that the Army will need a
framework or approach to oversee expenditures for modularity in order to
provide DOD and Congress the information needed for effective oversight.
We note that the recommendation provides DOD wide latitude to establish an
approach for tracking modular transformation costs, and we do not advocate
a framework that would require a separate billing system or complicate
distribution of material in a wartime environment (or any environment). As
we noted in the report, in preparing its budget estimate and request for
funding, the Army has already grouped projects together under the
modularity umbrella and has identified specific funding needs for
modularity. DOD is asking Congress
to allocate $48 billion to this modular transformation (over $75 billion
when personnel and some other costs are included). As with any initiative
of this magnitude, the Secretary of Defense and Congress require the best
data available to weigh competing resource requirements so that they can
make appropriate trade-off decisions. Information on how the Army has
spent funds provided for modularity should be considered in formulating
future funding requests. Therefore, our recommendation is intended to
provide assurance that future such requests consider the obligations made
thus far so that Congress has a sound basis on which to determine whether
funds allocated to the modular force are being obligated as intended.
Because DOD stated it has no plans to establish a framework to track these
obligations, and given the magnitude and significance of the effort as
well as the fact that DOD has requested funds from Congress specifically
for modularity, we continue to believe oversight of expenditures is
needed. Therefore, we have included a matter for congressional
consideration. Specifically, Congress should consider requiring the
Secretary of Defense to provide a plan for overseeing spending of funds
provided for modularity.
DOD's comments are reprinted in appendix II and addressed as appropriate
in the body of the report. Annotated evaluations of DOD's comments are
also included in appendix II.
We are sending copies of this report to the Secretary of Defense, the
Undersecretary of Defense (Comptroller), and the Secretary of the Army.
We will also make copies available to others upon request. In addition,
this
report will be available at no charge on the GAO Web site at
http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me
at (202) 512-9619 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix III.
Sharon L. Pickup
Director, Defense Capabilities and Management
List of Committees
The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Judd Gregg
Chairman
The Honorable Kent Conrad
Ranking Minority Member
Committee on the Budget
United States Senate
The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives
The Honorable Bill Young
Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
The Honorable Jim Nussle
Chairman
The Honorable John Spratt
Ranking Minority Member
Committee on the Budget
House of Representatives
Appendix I: Scope and Methodology
Overall, our analysis of the Army's cost estimate, funding plan, and
approach for tracking obligations pertaining to its modular transformation
was limited to an examination of data presented in broad spending
categories, such as equipment, facilities, and personnel costs by year. We
interviewed and examined documents from knowledgeable Army officials about
assumptions underlying each of these funding categories. Further, at
headquarters and command levels, we examined the processes in place to
monitor obligations related to the modular force. We found this
information sufficiently reliable to analyze the assumptions underlying
costs of the modular force and funding plans. Because of the uncertainties
in the cost estimates and weaknesses in its approach to monitor
obligations related to the modular force, we made recommendations to
address each of these areas in order to improve data available for
decision makers. Our specific methodology for each reporting objective
follows.
To determine the extent to which Army reflected expected costs and
identify areas of uncertainty in the estimate, we obtained overall cost
estimates from the offices of the Deputy Chief of Staff G-81 and the
Deputy Assistant Secretary of the Army for Budget. We also examined
justification materials supporting the fiscal year 2006 budget request, as
well as the fiscal year 2005 request for supplemental appropriations, and
monitored the development of the strategy, scope, schedule, and status of
Army restructuring by examining key planning documents, such as the Army
Campaign Plan, the 2004 Army Transformation Roadmap, and the Army
Modernization Plan. To examine areas of cost uncertainty likely to be
produced by transforming to a modular force, we discussed assumptions
underlying these estimates and obtained corroborating documentation in
interviews with officials from the Department of the Army Deputy Chiefs of
Staff for Personnel (G1), Intelligence (G2), and Operations and Training
(G3), and the Assistant Chief of Staff for Installation Management. We
further discussed assumptions and areas of uncertainty with these offices'
organizational counterparts at Forces Command in Fort McPherson, Georgia;
the 3rd Infantry Division, in Fort Stewart, Georgia; the 101st Airborne
Division in Fort Campbell, Kentucky; and the 4th Infantry Division, in
Fort Hood, Texas. We also reviewed reports by non-Department of Defense
entities such as the Congressional Budget Office, and our own reviews
related to Army personnel. We compared these sources against the Army's
cost assumptions to determine if they
1 This office is responsible for programming, materiel integration, and
management of Department of the Army studies and analyses.
Appendix I: Scope and Methodologyp
comprehensively accounted for expenses stemming from the strategy, scope,
and schedule for transforming to a modular force.
To determine the Army's plan for funding these costs and factors that may
affect its ability to fund the modular force, we considered the cost
estimates in the context of the larger Army budget, particularly the
Army's reliance on supplemental appropriations and how funding the modular
force fit into other programs and initiatives. Specifically, we examined
justification materials for the 2006 presidential budget, the 2005
supplemental appropriation request, and budget guidance from the Office of
the Deputy Secretary of Defense. To identify factors that could affect the
Army's ability to fund modularity, we questioned Deputy Chief of Staff G-8
officials about the Army's plan to garner efficiencies to apply to costs
of the modular force to determine the status of these plans. We also
relied on ongoing and previous GAO reviews of business process
reengineering to evaluate Army efficiency claims. In addition, we
considered the impact other priorities might have on the implementation of
the Army's modularity plan, including current operations, the Future
Combat Systems, Base Realignment and Closure decisions, and decisions to
restation soldiers from overseas.
Applying federal internal control standards, we determined whether the
Army has an adequate approach in place to track obligations related to the
modular force. In that regard, we interviewed officials from the Office of
the Deputy Assistant Secretary of the Army for Budget and the Resource
Management Office at Forces Command, and resource management officials at
the 3rd Infantry Division, the 101st Airborne Division, and the 4th
Infantry Division to determine how these entities tracked funds earmarked
for the modular force. We reviewed documents establishing guidance from
Army headquarters and discussed and documented how this guidance was
implemented at lower command levels. In addition, we relied on the results
of GAO's analyses of funds used to support the Global War on Terrorism, to
the extent that these funds were used to support the modular force.
Our review was conducted from May 2004 through June 2005 in accordance
with generally accepted government auditing standards.
Appendix II: Comments from the Department of Defense
Now on pp. 22 and 23.
Now on pp. 23 and 24.
Appendix II: Comments from the Department of Defense
Now on pp. 22 and 23.
Now on pp. 22 and 23.
Now on p. 17.
Appendix II: Comments from the Department of Defense
Now on pp. 15 and 23.
See comment 1.
Now on pp. 18 and 19.
See comment 2.
Appendix II: Comments from the Department of Defense
Now on p. 20.
Now on pp. 24 and 25.
See comment 3.
Now on p. 7.
Appendix II: Comments from the Department of Defense
Now on p. 7.
Now on p. 7.
Now on pp. 23 and 24.
Appendix II: Comments from the Department of Defense
Now on pp. 24 and 25.
Appendix II: Comments from the Department of Defense
GAO's Comments
The following are GAO's comments on the Department of the Defense's letter
dated September 7, 2005.
1. We did not state that the Army would be unable to achieve efficiencies.
Rather we noted the Army's ability to realize savings is uncertain because
DOD has historically had difficulty achieving expected efficiencies.
2. We did not state that the costs of an additional five brigade combat
teams should be included in the estimate. Rather, as with other
uncertainties cited in this section, we noted that pending future
decisions, including whether to add five brigade combat teams, could
impact the cost of the modular transformation.
3. We revised the text to reflect DOD's comments that Army transformation
supports DOD's goals and that the Army has taken steps to design,
schedule, build, and convert brigade combat teams and support brigades. We
did not include the comments that these actions were completed within
estimated costs because, as our report states, uncertainties remain about
the Army's cost estimates and the Army does not have a system for tracking
modularity costs.
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact Sharon L. Pickup (202) 512-9619
Acknowledgments In addition to the contact named above, Gwendolyn Jaffe,
Assistant Director; Margaret Best; J. Andrew Walker; and Joah Iannotta
made major contributions to this report.
(350547)
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